Download 2015 Annual Report

The Reserve Bank of Zimbabwe

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Annual Report 2015 1 The Reserve Bank of Zimbabwe

Table of Contents Page

FOREWORD BY THE GOVERNOR...... 4 BANK COMPLIANCE AND GOVERNANCE...... 6 OPERATING ENVIRONMENT: INTERNATIONAL CONTEXT...... 12 OPERATING ENVIRONMENT: DOMESTIC CONTEXT...... 20 REAL SECTOR DEVELOPMENTS...... 21 BANKING SECTOR DEVELOPMENTS...... 32 CONDITION AND PERFORMANCE OF THE BANKING SECTOR...... 34 DEVELOPMENTS IN THE MICROFINANCE SECTOR...... 35 FINANCIAL SECTOR STABILISATION INITIATIVES...... 36 FINANCIAL INCLUSION INITIATIVES...... 38 LEGAL AND REGULATORY DEVELOPMENTS...... 38 MONEY AND CAPITAL MARKETS DEVELOPMENTS ...... 39 EXCHANGE CONTROL DEVELOPMENTS...... 43 STATISTICAL TABLES...... 50 FINANCIAL STATEMENTS...... 58

Directors’ Report 59 Auditor’s Report 65 Statement of Profit or Loss and Other Comprehensive Income 66 Statement of Financial Position 67 Statement of Changes in Equity 69 Statement of Cash Flows 70 Notes to the Financial Statements 72

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Table of Contents Page TABLE OF FIGURES FIGURE 1: GLOBAL ECONOMIC DEVELOPMENTS 2009-2016...... 13 FIGURE 2 : GOLD AND PLATINUM PRICES FOR 2015 US$/OUNCE ...... 15 FIGURE 3: BASE METAL PRICE INDICES (2005=100)...... 15 FIGURE 4: BRENT CRUDE OIL (US$/BARREL)...... 15 FIGURE 5: GRAIN PRICES (US$/MT)...... 15 FIGURE 6: FAO NOMINAL FOOD PRICE INDEX (2004=100)...... 16 FIGURE 7: IMPLIED NOMINAL & REAL EFFECTIVE EXCHANGE RATE (2009=100)...... 16 FIGURE 8 : TOTAL MERCHANDISE EXPORTS & IMPORTS: 2009 - 2015...... 17 FIGURE 9: AGRICULTURE EXPORTS: 2009 - 2015...... 17 FIGURE 10: MINERAL EXPORTS: 2009 - 2015...... 18 FIGURE 11: MANUFACTURED EXPORTS: 2009 - 2015...... 18 FIGURE 12: MERCHANDISE TRADE DEVELOPMENTS (US$ MILLION)...... 19 FIGURE 13: OVERALL BALANCE OF PAYMENTS (US$ MILLION)...... 19 FIGURE 14: GDP GROWTH...... 21 FIGURE 15: MAIZE OUTPUT (000 TONNES)...... 21 FIGURE 16: WHEAT PRODUCTION TRENDS...... 22 FIGURE 17: MILK OUTPUT (LITRES)...... 23 FIGURE 18: MANUFACTURING OUTPUT GROWTH RATE (%): 2010-15...... 25 FIGURE 19: MANUFACTURING SECTOR CAPACITY UTILIZATION...... 25 FIGURE 20: RETRENCHMENT STATISTICS: 2011-2015...... 26 FIGURE 21: ELECTRICITY OUTPUT (GWH) BY POWER STATION IN 2015...... 27 FIGURE 22: GOVERNMENT REVENUES AND EXPENDITURES (US$), 2015...... 28 FIGURE 23: GOVERNMENT REVENUE STRUCTURE...... 29 FIGURE 24: 2015 GOVERNMENT SPENDING STRUCTURE (% OF TOTAL EXPENDITURE)...... 30 FIGURE 25: ANNUAL INFLATION PROFILE (%)...... 30 FIGURE 26: MONTH ON MONTH INFLATION (%)...... 30 FIGURE 27: QUARTERLY ANNUALIZED INFLATION PROFILE (%)...... 31 FIGURE 28: TREND IN BANKING SECTOR CAPITALISATION 2011 TO 2015...... 34 FIGURE 29: TREND IN BANKING SECTOR DEPOSITS 2011 TO 2015...... 34 FIGURE 30: GROWTH IN TOTAL BANKING SECTOR ASSETS AND LOANS (2011 – 2015)...... 34 FIGURE 31: SECTORAL DISTRIBUTION OF CREDIT AS AT 31 DECEMBER 2015...... 35 FIGURE 32: NON-PERFORMING LOANS TO TOTAL LOANS (2011 – 2015)...... 35 FIGURE 33: TREND OF PAR (>30) RATIO...... 36 FIGURE 34: MONTHLY AVERAGE RTGS ACCOUNT BALANCES (US$ MILLION)...... 40 FIGURE 35: ZSE INDICES - 2015...... 41 FIGURE 36: ZSE MARKET CAPITALISATION 2015...... 42 FIGURE 37: RTGS SYSTEM VALUES AND VOLUMES FOR 2015...... 48

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Annual Report 2015 3 The Reserve Bank of Zimbabwe

Table of Contents Page

FIGURE 38: SECONDARY MARKET TRANSACTIONS...... 48 FIGURE 39: SWIFT FOREIGN CURRENCY TRANSACTION VALUES AND VOLUMES...... 49 FIGURE 40: SWIFT ANNUAL NET OUTFLOWS...... 49 FIGURE 41: MOBILE PAYMENTS ANNUAL VELOCITY OF CIRCULATION...... 49 FIGURE 42: RETAIL PAYMENT VALUES ...... 49 FIGURE 43: RETAIL PAYMENT VOLUMES...... 49 FIGURE 44: AVERAGE RETAIL TRANSACTION 2015...... 49

LIST OF TABLES TABLE 1 : MONTHLY METAL AND CRUDE OIL PRICES (2015)...... 14 TABLE 2: CATTLE SLAUGHTER STATISTICS...... 22 TABLE 3: MINERAL PRODUCTION: 2013-2015...... 23 TABLE 4: COMPANIES UNDER JUDICIAL MANAGEMENT & LIQUIDATION...... 26 TABLE 5: VOLUME OF MANUFACTURING INDICES (2009=100)...... 26 TABLE 6 : GOVERNMENT REVENUE DEVELOPMENTS, 2014 AND 2015 IN US$ MILLIONS...... 28 TABLE 7: ANNUAL INFLATION FOR SELECTED SADC COUNTRIES AND USA (%)...... 31 TABLE 8: ARCHITECTURE OF THE BANKING SECTOR – 31 DECEMBER 2015 ...... 33 TABLE 9: ISSUANCE OF FINAL LIQUIDATION ORDERS...... 33 TABLE 10: MFI SECTOR PERFORMANCE INDICATORS 2012 TO 2015...... 36 TABLE 11: GOVERNMENT GUARANTEED SECURITIES...... 40 TABLE 12: SUMMARY OF INITIATIVES AS AT 31.12.2015...... 47 TABLE 13: FINANCIAL MARKET INFRASTRUCTURE PARTICIPANTS ...... 47 TABLE 14: ACCESS POINTS PER 100 000 ADULTS...... 47 TABLE 15: ACCESS DEVICES PER 1 000 ADULTS ...... 48

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4 Annual Report 2015 The Reserve Bank of Zimbabwe

FOREWORD BY THE GOVERNOR

I acknowledge the support and cooperation of Reserve Bank of ““ Zimbabwe stakeholders, members of the Board, management and all the staff for the sterling work in 2015.

Dr. J. P. Mangudya Governor of Reserve Bank

he Reserve Bank of Zimbabwe’s main focus during with depressed domestic demand, significantly contribut- 2015 involved dealing with the economic challeng- ed to a negative inflationary environment in 2015. Against Tes besetting the national economy that include the this background, annual inflation averaged -2.4% in 2015. current deficit, narrow fiscal space and weak consumer Despite these seemingly insurmountable challenges which and investor sentiment. Important measures that the Bank faced the economy in 2015, the country registered signif- put in place in 2015 to address some of these fundamen- icant positive strides, particularly on the financial sector tal challenges included dealing with distressed banking stability front, and re-engagement with the international institutions, as part of the measures to protect the bank- community. The banking sector remained generally safe ing community, bolster confidence in the banking system and sound and recorded significant improvements in key and promote banking sector stability. This culminated in financial indicators, on the back of a number of measures the cancellation of licenses of three banking institutions instituted by the Reserve Bank of Zimbabwe to deal with after they failed to trade out of their liquidity and solvency credit and liquidity risks confronting the sector. The aggres- challenges. sive delinquency loan rehabilitation efforts by the Zim- babwe Asset Management Corporation (Private) Limited As a result of these challenges, the economy is estimated (ZAMCO) and banking institutions, coupled with sound to have grown by 1.1% in 2015, down from 3.8% recorded credit risk management practices by banks, resulted in in the previous year. In addition, the unfavourable global the level of non-performing loans (NPLs) declining from economic developments characterised by subdued de- 15.91% as at 31 December 2014, to 10.82% as at 31 De- mand, sustained decline in international commodity prices, cember 2015. adverse weather conditions, strengthening of the US dollar and lack of foreign financial flows, impacted adversely The establishment of the Credit Reference System (CRS), on the domestic economy. Specifically, the decline in com- Collateral Registry and improved coordination of financial modity prices and strengthening of the US dollar, resulted stability initiatives by the Multidisciplinary Financial Stability in the rapid depreciation of the currencies of Zimbabwe’s Committee (MFSC) are envisaged to ameliorate the bur- major trading partners, causing the country to lose export den of NPLs in the banking sector. In addition, the Banking competitiveness, worsening the country’s external sector Amendment Bill, which was passed by both the upper and position. lower houses will go a long way in addressing gaps in the current legal framework and promote long term financial The depreciation of the country’s major trading partner sector stability. currencies, particularly the South African rand, coupled ......

Annual Report 2015 5 The Reserve Bank of Zimbabwe

The Reserve Bank of Zimbabwe has also been at the will be premised on the key objectives of the Zimbabwe forefront of promoting financial inclusion and in this re- Agenda for Sustainable Socio-economic Transformation gard, championed the development of a National Financial (ZIMASSET), the Ten Point Plan and the Sustainable De- Inclusion Strategy (NFIS). The over-arching objective of velopment Goals (SDGs). the Strategy is to deepen financial intermediation for the marginalised and the unbanked, to enable them to access The Bank is optimistic that going forward, the implemen- appropriate financial services. The NFIS was launched in tation of the policy measures to be enunciated in the eco- March 2016 and is expected to address the needs of spe- nomic revival and transformation programme, will steer cific groups of the population, which are financially exclud- the economy towards a sustainable growth path. It is also ed, namely micro, small and medium enterprises (MSMEs), the Bank’s belief that real GDP growth of the economy will women, youth and the rural population. rise to around 7% per annum, as envisaged in ZIMASSET. In concomitance, the country should be able to eradicate With respect to re-engagement with the international poverty in the medium to long term. The policy measures community, Government successfully implemented the are also expected to steer the economy from the current International Monetary Fund (IMF) Staff Monitored Pro- negative inflationary environment towards inflation levels gramme (SMP) between 2013 and 2015. The implemen- supportive of economic growth and prosperity. tation of the SMP laid a solid foundation for intensified re-engagement efforts with the international community I acknowledge the support and cooperation of Reserve and addressing some of the underlying challenges facing Bank of Zimbabwe stakeholders, members of the Board, the economy. To this end, Government developed a strat- management and all the staff for the sterling work in 2015. egy for clearing external payment arrears to Internation- al Financial Institutions (IFIs), which was endorsed by the IFIs and bilateral creditors at a meeting held on the side lines of the Annual Meetings of the IMF and World Bank in Lima, Peru, in October 2015. Dr. J. P. Mangudya A Medium Term Economic Revival and Transformation Governor Programme is expected to be implemented to transform Reserve Bank of Zimbabwe the national economy. The economic revival programme

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The Reserve Bank of Zimbabwe BANK COMPLIANCE““ AND GOVERNANCE

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Annual Report 2015 7

The Reserve Bank of Zimbabwe Corporate “Governance“

INTRODUCTION 1. Corporate Governance is at the corner stone of the 6. The Bank’s internal structures and processes enable Reserve Bank of Zimbabwe’s operations. The Reserve it to institute systems that increase its transparency Bank being at the apex of the financial system is re- and accountability to stakeholders, ability to efficient- sponsible, inter alia, for implementing measures that are ly manage its resources and capacity to identify, mon- aimed at strengthening the domestic economy. It is also itor and manage its business risks. The Bank has also responsible for implementing international measures adopted international recommendations and best aimed at bolstering global financial systems. practices in its endeavor to strengthen good governance and transparency in monetary and financial 2. Corporate governance refers to a set of systems, management. principles and processes by which the Bank is governed to enable it to fulfill its mandate in a manner 7. The Reserve Bank of Zimbabwe Act prescribes that is beneficial to all its stakeholders. a clear set of objectives, functions, accountability structures, transparency arrangements and auditing 3. Corporate governance entails conducting business arrangements. It sets out internal governance struc- with integrity and fairness, transparency in all trans- tures such as the Board of Directors, Board Commit- actions, making the necessary disclosures, complying tees and Management structures and processes such with all the laws of the land, being accountable to as the Executive Committee and General Manage- all stakeholders and being committed to conducting ment Committee meetings that allow it to observe business in an ethical and environmentally friendly good corporate governance practices. manner. Good corporate governance, therefore, en- genders confidence in an organization. 8. The Bank has a strong interest in ensuring that there is effective corporate governance at every institu- 4. In order to fulfill this role effectively, the Reserve Bank tion under its purview. The bank failures which have has to adopt its own internal best practices in cor- been witnessed in the financial and banking services porate governance. To this extent, the Reserve Bank industry in Zimbabwe revealed serious flaws and has put in place internal governance structures and lapses in governance standards. In 2004, the Reserve processes that enable the Bank to operate in an effi- Bank of Zimbabwe introduced the Corporate Gov- cient, open and effective manner. ernance Guidelines and the minimum Internal Audit Standards in Banking Institutions which are minimum 5. This relates not only to its functions as espoused standards which banks can improve on. in the Reserve Bank of Zimbabwe Act but also in respect of its stewardship of national resources en- trusted upon it.

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8 Annual Report 2015 The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Board of Directors

Dr. J. P. Mangudya Mrs. R. Likukuma Dr. C. L. Dhliwayo Dr. K. Mlambo Governor and Chairman Non-Executive Deputy Chairperson Deputy Governor Deputy Governor

. Mrs. V Mudimu . Amb Dr. A. Maboyi Mr. C.R. Maradza Mr. O. J. S. Mukumba Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director

Mr. L. Murahwa Mr. M. Z. Nyabadza Mrs. P. Chapendama Mr. Z. R. Churu Non-Executive Director Non-Executive Director Non-Executive Director Non-Executive Director

Mr. J. S. Mutizwa Non-Executive Director ......

Annual Report 2015 9 The Reserve Bank of Zimbabwe

BOARD OF THE RBZ The Audit and Oversight Committee

9. Section 21 of the Reserve Bank of Zimbabwe Act pro- 15. The Act provides for the establishment of an Audit vides for all matters pertaining to the Board of Direc- and Oversight Committee whose functions are set tors. out as follows:- a) To review the operations of the Bank to ensure that 10. The Board consists of the Governor, who is the Chair- they are conducted in compliance with the Act and in man, a non-executive Deputy Chairman, two (2) Dep- accordance with best corporate practices. uty Governors and 10 other non-executive members. oT accomplish this, the Committee has a mandate to; 11. From July 2015, the Board is comprised of the following:- i) review and assess regularly the appropriateness of accounting policies and financial reporting practices used Dr. J. P. Mangudya Governor and Chairman by the Bank; Mrs. R. Likukuma Non-Executive Deputy Chairperson ii) obtain reasonable assurance by discussing and obtain- Dr. C. L. Dhliwayo Deputy Governor ing reports from internal audit and the External Audi- tors that the internal control systems and procedures Dr. K. Mlambo Deputy Governor are properly designed and effectively implemented; Mrs. P. Chapendama Non-Executive Director iii) review internal audit reports on compliance on at Mr. Z. R. Churu Non-Executive Director least a quarterly basis; and Amb. Dr. A. Maboyi Non-Executive Director iv) review the corporate governance structures of the Mr. C.R. Maradza Non-Executive Director Bank to ensure that they comply with international Mrs. V. Mudimu Non-Executive Director best practice. Mr. O. J. S. Mukumba Non-Executive Director b) To assist the Board in evaluating the adequacy and ef- Mr. L. Murahwa Non-Executive Director ficiency of internal control systems, accounting practic- Mr. J. S. Mutizwa Non-Executive Director es, information systems and auditing processes applied Mr. M. Z. Nyabadza Non-Executive Director in the day to day management of the Bank.

12. Members of the Board are enjoined to declare:- c) To introduce such measures as, in its opinion, may enhance the objectivity of reports prepared with refer- i) Every occupation, service or employment in which he ence to the Bank. or his spouse engages for remuneration; and ii) All assets held by him or his spouse, in excess of such d) To recommend to the Board a qualified firm of char- value as the President may specify. tered accountants for appointment as Auditors for the Bank. 13. The Board is responsible for formulating the policy of the Bank and the supervision of the Bank’s administra- Human Resources Committee tion and operations. Purpose 14. The Board is also empowered by the Act to appoint 16. The purpose of the Committee is to carry out an committees of its members to whom it may delegate oversight function in respect of reviewing, monitoring such of its functions as it deems fit. The Committees and implementation of all human resource and remu- of the Board are as follows:- neration policies affecting the Bank’s staff.

a) Audit and Oversight Committee; Functions b) Human Resources Committee; 17. The role of the Committee is to:- c) Banking Sector Stability i. consider the Bank’s structure as developed by Man- agement and ensure that it complies with the provisions of the Reserve Bank Act and is compatible with the Mission Statement of the Bank;

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10 Annual Report 2015 The Reserve Bank of Zimbabwe

ii. ensure that the recruitment and selection of staff is motion and maintenance of financial sector stability; within the scope and structure of the overall organo- and gram of the Bank; vi. provide policy advice to the Bank in its role as banker iii. ensure that remuneration packages, including benefits, and financial adviser to, and fiscal agent of, the State. offered by the Bank are sufficiently competitive to attract, motivate and retain staff; Legislative Reforms iv. review staff performance criteria and the measure- 21. The Reserve Bank of Zimbabwe Act has been amendment thereof; ed to give the Bank powers to create a special pur- v. review the content of employment contracts; pose vehicle to mop up non-performing loans within vi. ensure that there are effective succession planning pol- the banking sector. This has seen the creation of the icies in each Division of the Bank; Zimbabwe Asset Management Company (ZAMCO) vii. monitor the implementation of the Code of Conduct which has to date acquired a significant amount of and oversee misconduct proceedings where the mis- non-performing loans (NPLs) in the banking sector. It conduct has, or could have, an impact on the assets or is projected that the level of NPLs will be reduced to operations of the Bank; about 5% by 31 December 2016. viii. provide guidance to Management who are members of the Works Council; and 22. The Small and Medium Enterprises Development ix. review the pension provisions and any recommenda- Corporation (SMEDCO) and the Infrastructural De- tions from the Pension Fund’s Board of Trustees. velopment Bank of Zimbabwe (IDBZ) were placed under the purview of the Banking Act [Chapter 24: Banking Sector Stability Committee 20] through an amendment to the Banking Act.

Purpose 23. Significant and far reaching proposed amendments to 18. The purpose of the Committee is to provide guidance the banking laws were passed by both the House of to the Reserve Bank Board in carrying out its mandate Assembly and the Senate and currently await Presi- of promoting financial stability. dential assent. The proposed amendments encompass the following aspects: Governance 19. The Committee:- i. A comprehensive framework on risk management and i. reports directly to the Board; and corporate governance; ii. acts with authority as delegated by the Board in order ii. Transparency in shareholding and operations of bank- to carry out its functions as spelt out in this mandate. ing institutions and controlling companies; iii. Visits liability on directors found to be responsible for Functions a failed institution; 20. The role of the Committee is to:- iv. Provides for the set-up of a credit reference bureau; and i. ensure adequate supervisory and regulatory frame- v. Generally seeks to align the banking laws with devel- work for banking institutions including compliance opments within the local and international fora. with applicable banking laws, exchange control legislation, anti-money laundering and counter financing 24. The Reserve Bank is working closely with the Ministry of terrorism laws, national payments laws and other of Finance and Economic Development, with technical relevant legislation; assistance from the World Bank, on proposed amend- ii. monitor and advise on market developments and im- ments for the establishment of a collateral registry plications thereof for regulatory and supervisory which will register security interests over moveable policy; property. It is envisaged that the registry be located iii. foster liquidity, solvency, stability and proper function- within the central bank. The establishment of the ing of Zimbabwe’s banking system; registry is part of holistic measures aimed at revital- iv. ensure an inclusive financial system; ising the economy and promoting financial inclusion v. recommend appropriate policy responses for the pro- through building robust financial infrastructure.

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Annual Report 2015 11 The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Executive Management

Dr. J. P. Mangudya Dr. C. L. Dhliwayo Dr. K. Mlambo Governor Deputy Governor Deputy Governor

Mr S. Nyarota Dr. M.B. Mpofu Mr. A. Saburi Director Economic Research Director Exchange Control Director Financial Markets

Mr. E. Rwatirera Ms.. T Hungwe Mr. N. Mataruka Director Human Resources Director Finance & Procurement Director Bank Supervision & Support Services

Mr. A. J. Manase Bank Secretary & Director Legal services & Corporate Affairs ......

12 Annual Report 2015 The Reserve Bank of Zimbabwe

Operating Environment: INTERNATIONAL CONTEXT

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Annual Report 2015 13 The Reserve Bank of Zimbabwe

Dr. K. Mlambo Deputy Governor

Subdued Global Economic Growth 29. In view of economic developments in the major re- 25. Activity in the world economy remained depressed gions of the world, the International Monetary Fund in 2015, characterised by heightened financial market (IMF) estimated global economic growth at 3.1% in volatility and sluggish growth in developing and emerg- 2015, as shown in Figure 1. ing market economies. Lingering uncertainty that ac- companied expectations of a US Fed Reserve interest Figure 1: Global Economic Developments 2009-2016 (GDP growth rate) rate hike also had dampening effects on global economic activity for the greater part of 2015.

26. In the Eurozone, economic activity, exhibited uneven- ness against the background of the recovery momen- tum attained in economies such as the United King- dom. Economic performance in the Eurozone was primarily driven by accommodative monetary policy, low oil prices and in some instances, real exchange rate depreciation. Source: World Economic Outlook Update, Ministry of Finance and Economic Development & RBZ Projections, (2016) 27. Developing and emerging market economies, particularly China, Russia and Brazil faced significant chal- 30. In Southern Africa, economic growth prospects for lenges that had growth constraining effects in 2015. South Africa, Angola, Botswana, Zambia and Zimba- In particular, constricted import absorptive capacity in bwe remained vulnerable to the downturn in interna- China, which is experiencing deceleration in economic tional commodity prices, the depreciation of domestic growth, occasioned the accumulation of commodity currencies (except for Zimbabwe) and deteriorating inventories, a development that depressed metal pric- electricity supply conditions. Against this background, es. As such, economic growth in China is estimated to export earnings and fiscal revenues declined some- have decelerated from 7.3% in 2014 to 6.9% in 2015, what for these commodity exporting countries. on the back of efforts to re-orient the economy from an investment-led towards services and domestic con- Commodity Price Developments sumption-led growth. 31. Against the background of sluggish global economic growth and the slowdown in China, international 28. Reflectingthe negative repercussions of the slowdown commodity prices particularly for gold, platinum, cop- in China on commodity demand, activity in Sub-Saha- per, and nickel declined in 2015. The strengthening of ran African economies is estimated to have decelerat- the US dollar also eroded the demand for precious ed from 5.0% in 2014 to 3.5% in 2015. Additionally, the metals as alternative investment assets. Importantly, tightening of global financial conditions in the wake of the improved supply of base metals resulted in the ac- an interest rate increase in the U.S. and other frontier cumulation of inventories, a development that further market economies, further dampened economic activ- dampened commodity prices. Food prices also regis- ity in the region. tered declines, largely on account of favourable yields ......

14 Annual Report 2015 The Reserve Bank of Zimbabwe

Table 1: Monthly Metal and Crude oil prices (2015) Gold Platinum Copper Nickel Crude Oil

Yearly Average US$/ounce US$/ounce US$/tonne US$/tonne US$/barrel Dec 2014 1,255.30 1,372.29 6,837.33 16,690.83 98.08 Average Jan’15 1,261.88 1,225.50 5,485.00 14,925.00 49.45 Feb 1,209.50 1,175.00 5,880.00 14,045.00 61.23 Mar 1,183.13 1,125.00 6,050.00 12,460.00 55.19

Apr 1,177.48 1,133.00 6,103.00 13,755.00 66.24

May 1,190.90 1,111.50 6,088.00 12,675.00 63.55

Jun 1,173.00 1,079.50 5,720.00 11,675.00 62.88

Jul 1,089.23 984.50 5,218.00 10,900.00 53.06

Aug 1,130.25 1,001.00 5,095.00 9,730.00 47.74

Sep 1,118.25 916.00 5,212.41 9,902.05 48.76

Oct 1,145.25 991.00 5,135.00 10,475.00 49.18

Nov 1,058.78 831.50 4,595.00 8,750.00 45.62

Dec 1,061.13 872.00 4,714.00 8,670.00 36.78 Average 2015 1,149.90 1,037.13 5,441.28 11,496.84 53.31

Yearly Change (%) (8.40) (24.4) (20.4) (31.1) (45.6)

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Annual Report 2015 15 The Reserve Bank of Zimbabwe

in major crops across the world. Table 1 shows the 35. Energy prices have generally been on a declining trend, developments in the prices of selected commodities. largely as a result of the marked drop in international oil prices. In this respect, crude oil prices retreated by Precious Metal Prices 45.6% in 2015, largely underpinned by subdued de- 32. Precious mineral prices generally declined in 2015, mand and excess supply. Additionally, the removal of mainly underpinned by the sustained strengthening of sanctions against Iran added to the global oil supply the U.S dollar, coupled with prolonged speculation sur- glut, further depressing oil prices to US$36.8/barrel in rounding the U.S. interest rate hike and reduced finan- December 2015, as shown in Figure 4. cial risks associated with depressed crude oil prices. These developments undermined the appeal of pre- Figure 4: Brent Crude Oil (US$/barrel) cious minerals as safe investment assets. Against this backdrop, gold and platinum prices retreated by 8.4% and 24.4%, respectively, in 2015, as shown in Figure 2.

Figure 2 : Gold and Platinum Prices for 2015 US$/Ounce

Source: BBC, 2015

Food Prices 36. International cereal prices have been under downward pressure since early 2015, amid large inventories and Source: BBC and Kitco.com, 2015 generally improved crop prospects. Furthermore, the prices of cereals also declined, with the price of maize 33. In the medium term, precious metal prices are project- falling by about 41%, from US$274.3/mt in the second ed to continue on a downward spiral, in response to quarter of 2014, to US$162.3/mt by the end of 2015. the appreciation of the US dollar, as economic recov- The price of wheat declined by 22%, from US$213.9/ ery in the US gains substantial traction. mt to US$167.1/mt during the same period as shown in Figure 5. Base Metal Prices 34. Base metal prices remained depressed during the peri- Figure 5: Grain Prices (US$/mt) od under review, as evidenced by the decline in nickel and copper prices, which fell significantly by 31.1% and 20.4%, respectively, on account of the progressive in- ventory build-ups stemming from slackening demand from China. In consequence, the base metal price index declined significantly by 45%, from peak levels of 229.7 points attained in 2011 to 126.2 points realised in 2015, as shown in Figure 3. Source: International Monetary Fund, World Economic Outlook, 2015

Figure 3: Base Metal Price Indices (2005=100) 37. The Food and Agriculture Organisation (FAO) Food Price index averaged 164.1 points in 2015, nearly 19% less than in 2014, marking the fourth consecutive annual decline as shown in Figure 6. Abundant supplies in the face of depressed world demand and an appreci- ating US dollar are the key factors that weakened food prices in 2015.

Source: International Monetary Fund, World Economic Outlook, 2015

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16 Annual Report 2015 The Reserve Bank of Zimbabwe

Figure 6: FAO Nominal Food Price Index (2004=100) Figure 7: Implied Nominal & Real Effective Exchange Rate (2009=100)

Source: Food and Agriculture Organisation (FAO), 2016 Source: Reserve Bank of Zimbabwe, 2015 38. Commodity price developments for precious and base metals have implications on Zimbabwe’s exter- 42. As reflected by the sustained appreciation of the real nal sector position as the country’s exports are dom- effective exchange rate, the country’s goods have pro- inated by primary commodities from the mining and gressively lost competitiveness in both the domestic agricultural sectors. Commodity price deflation implies and external markets. As such, measures to counter- lower export and fiscal revenues for Zimbabwe, while act the effects of the appreciation of the REER on depressed oil and food prices have a moderating effect competitiveness should be sustained through internal on the country’s import bill. devaluation measures, geared at lowering production costs through improvements in the cost of doing busi- EXCHANGE RATE DEVELOPMENTS ness.

39. The International Monetary Fund (IMF) observed that MERCHANDISE TRADE DEVELOPMENTS exchange rate fluctuations have been abnormally huge in recent years. Additionally, the IMF also noted that Merchandise Exports the U.S dollar real effective exchange rate appreciated 43. Notwithstanding the increase in trade openness and by more than 10% between mid-2014 and end 2015. nominal export earnings over the last two decades, On the other hand, the euro depreciated by more the country’s exports are increasingly becoming than 10% during the same period, while the Japanese more concentrated in a narrow range of primary and yen depreciated by more than 30%. semi-processed commodities. The dependence on primary and semi-processed commodities and a nar- 40. In the context of Zimbabwe, some selected major rower range of exports, as reflected by an increasing trading partner currencies depreciated significantly export concentration ratio, heightened the country’s against the US dollar, in nominal terms, in 2015 ex- susceptibility to external shocks largely emanating cept the euro. In particular, the South African rand from commodity price volatilities. depreciated against the US dollar by more than 30% in 2015, on the back of weakening commodity prices, 44. Export performance remained subdued in 2015, developments in China, the strengthening US dollar against the background of sustained loss of compet- and the country’s weaker than expected GDP growth itiveness, the downturn in international commodity outcome. prices and the general deceleration in economic activity. 41. In consequence, the country’s implied nominal effective and real effective exchange rates, based on the US 45. Total merchandise exports registered an estimated dollar nominal exchange rate and domestic inflation, 2.8% decline, from US$3 717.2 million in 2014 to continued to appreciate in 2015, as shown in Figure 7. US$3 614.2 million in 2015 (see Figure 8).

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Annual Report 2015 17 The Reserve Bank of Zimbabwe

Figure 8 : Total Merchandise Exports & Imports: 2009 - 2015 Figure 9: Agriculture Exports: 2009 - 2015

Source: ZIMSTAT & Reserve Bank of Zimbabwe, 2015 Source: ZIMSTAT & Reserve Bank of Zimbabwe, 2015

46. The decline in export performance was, however, par- 48. Despite the decline in the global tobacco prices for tially offset by increased agricultural exports benefiting the 2015 marketing season, the country’s earnings from tobacco stock carry-overs from previous farming from tobacco exports increased by 10.7%, from about seasons. US$772.6 million realised in 2014 to US$855.0 million in 2015. Agriculture Exports 47. In 2015, agricultural exports registered an estimated Mineral Exports 3.5% increase, from US$981.2 million in 2014 to US$1 49. Mineral exports declined by 1.1%, from US$2 113.4 015.9 million. This was mainly attributed to an increase million realised in 2014 to US$2 089.2 million in 2015, in tobacco exports, which benefited from increased mainly underpinned by declines in exports of dia- export volumes (See Figure 9). Other major agricul- monds and nickel (See Figure 10). The subdued per- tural commodities, however, recorded declines in ex- formance in the mining sector was attributed to de- ports earnings. pressed international commodity prices as well as the deterioration in domestic macroeconomic conditions, among other factors.

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Figure 10: Mineral Exports: 2009 - 2015 ` Manufactured Exports 52. Manufactured export earnings declined by 21.7%, from US$532.8 million in 2014 to US$417.1 million in 2015, as shown in Figure 11.

Figure 11: Manufactured Exports: 2009 - 2015

Source: ZIMSTAT & Reserve Bank of Zimbabwe, 2015

50. The diamond sector continues to be affected by the depletion in alluvial diamonds in the Marange diamond fields leading to reduced diamond output. Conse- quently, diamond exports declined by 46.8%, from Source: Reserve Bank of Zimbabwe,2015 US$336.4 million realised in 2014 to US$179.1 million in 2015. Similarly, nickel exports declined by 19.9%, 53. The decline in manufactured exports was largely from US$213.2 million in 2014 to US$170.7 million in underpinned by the contraction in exports of ferro- 2015. chrome (-32.0%); cotton lint (-12.4%); and pure manufactures (-10.0%). 51. Despite the generally depressed international commodity prices, gold exports registered a 20.6% in- 54. The manufacturing sector was also adversely affected crease, from US$624.4 million in 2014 to US$753.3 by cheap imports, erratic power supplies, obsolete in- million in 2015. Increased gold exports benefitted dustrial machinery and equipment and shortages of from improved deliveries to Fidelity Printers and Re- medium to long term capital. These challenges impact- finers (FPR) by both small-scale miners and primary ed negatively on production costs, undermining com- producers, following reforms instituted by the Govern- petitiveness of the manufacturing sector. ment to mobilize gold deliveries as well to curb leakag- es. Gold deliveries to Fidelity Printers and Refiners for Merchandise Imports 2015 stood at 20.2 tonnes, against the initial projection 55. In tandem with the slowdown in economic activity and of 15.6 tonnes. contraction in absorptive capacity, imports declined ......

Annual Report 2015 19 The Reserve Bank of Zimbabwe

by 3.9%, from US$6 306.3 million in 2014 to US$6 58. The trade account deficits, which averaged 22% of 062.3 million in 2015. The maize import bill, however, GDP between 2009 and 2015 continued to under- increased from US$110.8 million in 2014 to US$164.5 mine efforts to sustainably build adequate foreign ex- million in 2015, on account of low maize output in the change reserve buffers and improve domestic money 2014/15 farming season due to the El Nino induced supply conditions. drought. 59. More significantly, the huge import bill has essential- 56. The demand for imports of raw materials, intermedi- ly drained foreign exchange resources realised from ate goods and capital goods for the local industry was exports, credit lines, and remittances, thereby further subdued in 2015, as companies struggled to access tightening liquidity conditions with constraining effects off-shore lines of credit for working capital as well as on economic growth potential. for retooling. This, notwithstanding, the country’s import absorption remained high relative to export per- 60. The sustained excess of imports over exports also im- formance, culminating in the incurrence of persistent posed a constraint on current account performance, deficits in the trade account as shown in Figure 12. which recorded deficits of above 10% of GDP over the past few years. Balance of Payments Developments 57. Against the background of the aforementioned mer- 61. This sizable trade deficit, combined with subdued in- chandise trade developments, the trade deficit nar- come and service earnings culminated in a current rowed by 5.4%, from US$2 589.1 million recorded in account deficit of 10.8% of GDP in 2015, which was 2014, to a deficit of US$2 448.1 million in 2015. an improvement from the current account deficit of 17.6% realised in 2014. The improvement was mainly Figure 12: Merchandise Trade Developments (US$ Million) on account of improved remittances from non-resident Zimbabweans domiciled in the diaspora.

62. On the capital account, surpluses were realised underpinned by reliance on private sector debt creating capital flows. The capital account, however, slowed down reflecting the effects of debt repayments falling due as well as subdued foreign direct investment inflows.

63. Capital and current account developments in 2015 culminated in an improvement in the overall balance of payments, from a deficit of US$40.3 million in 2014 to an estimated deficit of US$25.8 million in 2015. (See Figure 13).

Figure 13: Overall Balance of Payments (US$ Million)

Source: ZIMSTAT, Ministry of Finance and Economic Development & Reserve bank of Zimbabwe, 2015 64. Within the context of the multiple currency environment, balance of payments developments have a direct bearing on bank deposit growth and liquidity condi- Source: ZIMSTAT & Reserve Bank of Zimbabwe, 2015 tions at large. The overall deficit thus has negative implications on the liquidity position of the country......

20 Annual Report 2015 The Reserve Bank of Zimbabwe

OPERATINGOPERATING “ENVIRONMENT: DOMESTIC CONTEXT ENVIRONMENT“ : DOMESTIC CONTEXT

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21 Annual Report 2015 21 The Reserve Bank of Zimbabwe

REAL SECTOR DEVELOPMENTS The decline in the number of active growers, from 86 975 farmers in the 2013/14 season to 75 392 farmers Real GDP in the 2014/15 season resulted in a significant reduc- 65. The economy is estimated to have grown by 1.1% in tion in the area planted, which adversely impacted on 2015, spurred by moderate growth in the manufactur- output. ing and services sectors. Economic growth in 2015 was, however, weighed down by the poor performance of Maize the 2014/2015 agricultural season and the lower than 69. Maize output is estimated to have declined by about anticipated mining sector performance. 49%, from 1 456 153 tonnes in 2014 to 742 226 tonnes in 2015. The contraction in output was, in large 66. The agriculture and mining sectors are estimated to part, a result of a poor rainfall season due to El Nino have declined by 3.4% and 2.5%, respectively. In ad- which hit the southern African region including Zimba- dition, the 10.8% decline in the electricity and wa- bwe. ter sector is estimated to have dampened activity in the economy in 2015. Figure 14 shows GDP growth 70. Figure 15 shows maize output for the period 2009 to trends since 2009. 2015.

Figure 14: GDP Growth Figure 15: Maize Output (000 tonnes)

Source: Reserve Bank of Zimbabwe, Ministry of Finance and Source: Ministry of Agriculture, Mechanisation and Irrigation Development, Economic Developmemt & ZIMSTAT, 2015 2015

AGRICULTURE Cotton 67. Agricultural output is estimated to have declined 71. Cotton output is estimated to have declined from 143 by 3.6% in 2015, following declines in maize (-49%); 800 tonnes in 2014 to 104 935 tonnes in 2015. The groundnuts (-34.2%); soya-beans (-31.7%); cotton low output was attributed to a decline in yields due to (-16.6%); and tobacco (-7.9%). Livestock subsectors, adverse rainfall patterns during the season, notwith- however, registered increases in output as follows: standing the crop’s drought tolerance. The area under poultry, 9.4%; beef, 8.1%; dairy, 7.8%; and pork, 19%. cotton also declined in the 2014/15 season, as low international cotton lint prices offered during the 2014 Tobacco selling season translated into depressed seed cotton 68. Tobacco output fell from 216 million kilograms in 2014 prices on the local market, thereby discouraging farm- to 198.9 million kilograms in 2015, due to the effects ers from growing the crop. of poor rains which affected the dry-land crop......

22 Annual Report 2015 The Reserve Bank of Zimbabwe

Wheat terns, which compromised yield. The area under the 72. Wheat output improved from 58 738 tonnes in 2014 crop declined from 67 571 hectares in the previous to 62 261 tonnes in 2015, on account of an increase in season to 48 261 in the 2014/2015 season, due to the both area under hectarge and the yield per hectare, as late onset of rains which affected planting. The lack of shown in Figure 16. financial support for farmers also contributed to the fall in output. Figure 16: Wheat Production Trends Livestock Subsector 76. The overall performance of the livestock industry in 2015 improved marginally, compared to 2014 on account of growth in beef, dairy and pork output. The sector was, however, negatively affected by drought induced shortage of pastures and stock feeds.

Poultry 77. The need to import raw materials for stock-feed since January 2015 posed serious viability challenges to livestock producers during the year, particularly for poultry producers. In addition, the demand for poultry products declined with falling incomes especially in the second half of the year, resulting in increasing stockpiles of meat and eggs from June to November 2015. The sector still continues to face competition from cheap smuggled poultry imports and other protein substi- tutes, which include frozen beef, fish and dairy products.

Beef 78. Beef output is estimated to have increased to around 80 million kilograms in 2015, from 73.9 million kilograms in 2014, in line with the increase in the number of cattle slaughtered. Increased cattle slaughters, especially in the last quarter of 2015, were due to destocking amidst concerns over the expected drought in the 2015/16 season. Table 2 shows cattle slaughter Source: Ministry of Agriculture,Mechanisation and Irrigation Development, and beef output statistics for the period 2013 to 2015. 2015 Table 2: Cattle Slaughter Statistics 73. Early planting resulted in increased average yield from 4.01 tonnes in the previous season to 4.20 tonnes per 2013 2014 2015 Est. hectare in 2015. Cattle slaughtered 407 654 410 703 444 612 Beef (million kgs) 73.4 73.9 80.0 74. The area planted also increased from14 648 hectares in 2014 to 14 789 hectares during the 2015 season, Source: Ministry of Agriculture, Mechanisation and Irrigation Development, with A2 farmers contributing about 96% to the area 2015 planted, and 98% to the total output. 79. Beef production was, however, negatively affected by Soya bean the outbreak of foot and mouth disease in 2015. The 75. Soya bean output is estimated to have decreased by Department of Veterinary Services put restrictions on 32%, from 84 661 tonnes in 2014 to 57 850 tonnes cattle movement and rigorous screening of cattle in- in 2015, due to declines in both the area under the tended for slaughter, in response to the outbreak of crop and the negative impact of erratic rainfall pat- the disease......

Annual Report 2015 23 The Reserve Bank of Zimbabwe

Pork Table 3: Mineral Production: 2013-2015 80. Pork output is estimated to have grown by 6% to 8 900 tonnes in 2015, up from 8 400 tonnes in 2014. Weights 2013 2014 Est. 2015 Est. The production of pork was boosted by destocking Black Granite \t 1.0 174 180 182 by some farmers due to the anticipated worsening of Chrome \t 3.1 450 511 211 the stock feed situation, as a result of the impending Coal \t 4.9 4,980 6,345 4,200 drought. The destocking exercise culminated in the softening of both the producer and wholesale prices Cobalt \t 0.2 319 358 355 across all meat grades. Copper \t 2.1 8,275 8,261 8,262 Gold \kg 27.5 14,065 15,347 20,200 81. Pig production was also affected by the outbreak of Graphite \t 0.2 6,934.00 6,853 6,362 African swine fever in Mashonaland Central province, Iridium \t 0.3 523.63 544 548 which called for controls on the movement of pigs to Nickel \t 7.3 14,057 16,633 16,109 ensure that the disease is contained. Paladium \kg 7.4 10,153 10,137 10,138 Dairy Phosphate \t 0.2 6,100.00 6,100 6,200 82. Milk output increased by 3.7% in 2015 compared to Platinum \kg 22.5 13,066 12,483 12,564 2014, benefiting from tariff measures on imports of Rhodium \kg 2.2 1,146.11 1,139.92 1,147.34 milk and dairy products instituted in 2013 to protect Ruthenium \kg 0.1 1,012 983 989 the industry. Figure 17 shows improved monthly milk Diamonds (000 carats) 20.9 9,589 4,773 3,214 output in 2015 compared to 2014. Growth (%) 10.1 -3.4 0.2

Figure 17: Milk Output (litres) Source: Chamber of Mines, Ministry of Mines and Mining Development, Min- istry of Finance and Economic Development & Reserve Bank of Zimbabwe, 2015

Gold 84. Gold output stood at 20.2 tonnes in 2015, up from 15.4 tonnes produced in 2014, following increased production by both small and large scale producers.

Source: Ministry of Agriculture, Mechanisation and Irrigation Development, 2015

MINING 85. Gold production benefited from the continued mon- 83. The mining sector is estimated to have grown by 0.2% itoring of the sector by the gold mobilisation team, as in 2015, up from -3.4% in 2014, on account of im- well as the reduction in royalties. This, notwithstanding, proved output for gold and platinum. The lower than the sub-sector was negatively affected by shortage of anticipated performance of other minerals namely; capital, high cost of power, and high labor cost culmi- coal, chrome, nickel and diamonds, however, weighed nating in high unit cost of production. down the potential of the sector. Table 3 shows the mineral production for 2013 up to 2015......

24 Annual Report 2015 The Reserve Bank of Zimbabwe

Platinum Nickel 86. Platinum output increased from 12 483 kg in 2014 to 90. Nickel output declined from 16 633 tonnes in 2014 12 564 kg in 2015. The growth in output was in re- to 16 109 tonnes in 2015. This was on account of low sponse to the upgrading and investment in new mining demand that resulted in lower international prices that equipment as well as expansion by one of the major had a negative bearing on profitability. Production was producers. also affected by the breakdown of equipment at the primary producer that resulted in loss of production 87. Whilst the demand for platinum from the auto sector time as the equipment was undergoing repairs. remained buoyant in 2015, the continued decline in international platinum prices largely due to increased 91. Nickel production, however, benefited from the refur- supply from South Africa, weighed down on the prof- bishment of some of the plant and equipment, as well itability of the sector. as the use of the acquired new mobile plant equipment at Bindura Nickel Company (BNC), the primary Diamonds producer of nickel. 88. Diamond output declined from 4.773 million carats in 2014 to 3.214 million carats in 2015. The lower than Coal anticipated performance of diamonds is attributed to 92. Coal output fell from 6 345 000 tonnes in 2014 to 4 the significant decline in alluvial diamonds at the Ma- 200 000 tonnes in 2015, as the major player (Hwange range Diamond Fields. Diamond output is further ex- Colliery Company) in the sector experienced chal- pected to remain subdued as the industry transforms lenges with regard to the new equipment and lack of from alluvial diamond mining to more capital intensive working capital. underground mining at Marange diamond fields. Chrome 89. The on-going consolidation exercise of diamond com- 93. Chrome ore production declined from 511 000 panies in Marange is expected to result in a stream- tonnes in 2014, to 211 000 tonnes in 2015. The decline lined system which will be easier to manage, as well as was on account of the high cost of power, subdued bring more transparency and accountability through- international prices due to low demand from China, out the diamond value chain. as well as the reduction in small scale and artisanal miners, following the closure of all smelters in the last quarter of 2015......

Annual Report 2015 25 The Reserve Bank of Zimbabwe

MANUFACTURING

MANUFACTURING 94. The manufacturing sector is estimated to have grown 96. Capacity utilisation fell across most manufacturing by 0.2% in 2015, rebounding from -5.1% in 2014. This industries, from 36.5% in 2014 to 34.3% in 2015, as was underpinned by some recovery in the clothing shown in Figure 19. and footwear (10.5%) and growth in the non-metallic mineral products (8%); and the transport and equip- Figure 19: Manufacturing Sector Capacity Utilization ment subsector. Declines registered in paper, printing and publishing, -5%; metals and metal products, -4%; chemical and petroleum products, -2%; and foodstuffs, -1%, however, moderated growth in the manufacturing sector in 2015. Figure 18 shows the growth trend of the manufacturing sector for the period 2010 to 2015.

Figure 18: Manufacturing Output Growth Rate (%): 2010-15 Source: Confederation of Zimbabwe Industries, 2015

Company Closures and Retrenchments 97. As a result of growing viability challenges, 71 companies were liquidated in 2015, while 26 were placed under judicial management. This brings the cumulative liquidations to 272 since 2011. The high number of Source: Zimstat, Ministry of Finance and Economic Development and Reserve company liquidations and the need for judicial man- Bank of Zimbabwe agement partly reflected the continuing adverse economic conditions affecting operations of the manufac- 95. The sector’s performance remained weak due to turing industry. persistent challenges affecting the economy, which include antiquated plant and machinery, influx of cheap imports, high cost of production and weak effective demand......

26 Annual Report 2015 The Reserve Bank of Zimbabwe

Table 4: Companies under Judicial Management & Liquidation

Year 2011 2012 2013 2014 2015 Companies Under Judicial Management 20 27 51 60 26 Liquidation 22 48 44 87 71

Source: Master of High Court, 2015

98. A significant number of job losses was experienced Figure 20: Retrenchment Statistics: 2011-2015 in the formal sector in 2015, resulting from these company closures and down-sizing. According to the Retrenchment Board, about 4 492 workers were retrenched in 2015, up from 3 881 in 2014. This brings the cumulative number of retrenched workers to 19 188, over the period 2011 to September 2015.

99. Figure 20 shows the number of workers retrenched, across all the sectors of the economy, over the period Source: Retrenchment Board, 2016 2011 to September 2015.

Sub-Sector Performance

100. Despite the decline in capacity utilisation, production levels in the manufacturing sector, as measured by the Volume of Manufacturing Index (VMI), increased marginally as shown in Table 5.

Table 5: Volume of Manufacturing Indices (2009=100)

Weights 2014 2015 Foodstuffs 252 99.0 98.0 Drinks, Tobacco and Beverages 118 97.2 96.7 Textiles and Ginning 28 79.5 78.7 Clothing and Footwear 79 83.0 91.8 Wood and Furniture 24 101.9 99.8 Paper, printing and Publishing 68 98.2 93.3 Chemical and Petroleum Products 172 90.2 88.4 Non-metallic mineral products 46 130.2 140.6 Metals and Metal products 103 70.3 67.5 Transport, Equipment 20 61.4 63.2 Other manufactured goods 89 60.5 63.5 Manufacturing Index 1000.0 89.8 89.9

Source: Ministry of Finance and Economic Development , Reserve Bank of Zimbabwe and ZIMSTAT, 2016

Foodstuffs 101. The food sub-sector is estimated to have declined by 1% in 2015, largely due to low raw material throughput from agriculture, declining aggregate demand and competition from finished imported products. There was, however, significant recapitalisation of existing companies and entry of new players in the subsector in 2014 and 2015. This is expected to boost output in the short to medium term.

......

Annual Report 2015 27 The Reserve Bank of Zimbabwe

102. Growth in the sub-sector was shored up by improve- ELECTRICITY ments in meat processing and preserving industry 106. The electricity sub-sector is estimated to have declined which registered an increase in output, with capacity by 5.5% in 2015, with total electricity generation falling utilisation levels of up to 60%. from 9 815 GWh in 2014, to 9215 GWh in 2015, as shown in Figure 21. Clothing and Footwear 103. The clothing and footwear industry is estimated to Figure 21: Electricity Output (GWh) in 2015 have registered a 10.5% growth in 2015. The growth was attributed to improved performance in the clothing and textile industry which benefited from inter- vention by Government, to revive the subsector.

104. The measures included the extension of the rebate of duty on imported raw materials for use by clothing Source: Zimbabwe Power Company (ZPC), 2016 manufactures by a further period of one year to end of 2015 and the removal of blankets from the Open 107. The slowdown in electricity growth was mainly at- General Import Licence for a two year period. In ad- tributed to low output from hydro power stations dition, Government is implementing the Zimbabwe due to declining water levels in Lake Kariba; frequent Cotton-Clothing Strategy (2014-2019). breakdowns at thermal power stations due to ageing and obsolete machinery; financial constraints for timely Chemical and Petroleum Products upgrading and maintenance activities; and the long du- 105. The chemicals and petroleum products sub-sector is ration of faults. estimated to have declined by 2% in 2015, largely on account of falling demand especially from the agriculture industry. The local fertilizer industry operated below 30% capacity in 2015.

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28 Annual Report 2015 The Reserve Bank of Zimbabwe

FISCAL DEVELOPMENTS

108. Cumulative Government revenue amounted to US$3.74 billion in 2015, against expenditures of US$3.86 billion, resulting in an overall budget deficit of US$123.01 million. The deficit was partly financed from domestic borrowings, largely through the issuance of Treasury Bills.

109. Expenditures generally outpaced revenue collections throughout the year, resulting in an accumulated negative fiscal balance, except in the last quarter where a surplus was realised, as shown in Figure 22. Revenues 110. Revenue collections were 2.2% below the 2014 levels Figure 22: Government Revenues and Expenditures (US$), 2015 and about 9% below the target in 2015, largely on account of subdued economic activity. The low competitiveness of local industries saw many companies struggling, some drastically scaling down operations, while others closed shop altogether, resulting in reduced profitability and lower tax revenues accruing to the fiscus.

Source: Ministry of Finance and Economic Development, 2016

Table 6 : Government Revenue Developments, 2014 and 2015 in US$ Millions.

2014 2015 % Annual Growth Total Revenue 3,860 3,737 -3.19 Tax Revenue 3,519 3,548 0.82 Tax on Income and profits 1,549 1,395 -9.89 PAYE 900 770 -14.46 Corporate Taxes 365 422 15.51 Customs 351 345 -1.71 Excise Duties 517 714 38.04 Excise on Beer 76 63 -17.05 Excise on Wines and Spirits 16 19 14.75 Excise on Fuels 384 561 46.00 VAT 972 985 1.52 VAT from Domestic Goods 731 815 11.56 VAT on Imports 485 452 -6.8 Other indirect taxes 129 108 -16.37 Non-tax Revenue 251 189 -24.7

Source: Ministry of Finance and Economic Development, 2016

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Annual Report 2015 29 The Reserve Bank of Zimbabwe

111. Value Added Tax (VAT), Pay As You Earn (PAYE) and Expenditure Developments Excise Duties remained the backbone of Government 115. Total Government expenditure at US$3.86 billion, was fiscal resources since the adoption of the multi-cur- US$240.5 million lower than the targeted expenditure rency system. Together, they contributed 66% of total of US$4.1 billion in 2015. The total expenditure was revenues in 2015, inclusive of corporate taxes. PAYE, also below the US$3.91 billion registered in 2014. however, declined by 14.5%, from US$900 million in 2014 to US$770 million in 2015. 116. Government expenditure was heavily skewed towards recurrent expenditures, which accounted for US$3.57 112. Excise duties rose by 38%, driven by excise duty on billion. Capital expenditure at US$251.98 million, was wines and spirits as well as on fuels. Excise duty on 7.4% of total government expenditure, a situation fuels increased by 46%, from US$384 million in 2014 which undermined spending on capital projects. to US$561 million in 2015. This was on account of a US$0.05 per litre increase in excise duty on petrol and 117. Employment costs (including grant aided institutions) diesel that was effected in August 2014. largely dominated Government expenditure, accounting for 78% of total government spending in 2015. Fig- 113. Customs duties fell by 1.7%, from US$351 million in ure 24 shows Government expenditure structure by 2014 to US$345 million in 2015, reflecting a corre- line item. sponding decrease in imports.

114. The Government revenue structure in 2015 is shown in Figure 23.

Figure 23: Government Revenue Structure

Other-Tax on Non-Tax Revenue Income and Proﬁts 5% 6% OTHER INDIRECT TAXES 3% PAYE 21%

NET VALUE ADDED TAX (VAT) 26%

CORPORATE TAXES 11% INDIRECT TAXES 28%

Source: Ministry of Finance and Economic Development, 2016

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30 Annual Report 2015 The Reserve Bank of Zimbabwe

Figure 24: 2015 Government Spending Structure (% of Total Expen- 121. The persistence of deflationary conditions in the diture) economy in 2015, was largely attributed to the continued depreciation of the South African rand, falling Current Transfers Interest on debt 4% international oil prices, waning aggregate demand 2% Capital and downward correction in both food and non- Expenditure 7% food prices. Net Lending 1% Goods & Services Monthly Inflation Outturn 8% Employment Costs78% 122. Monthly inflation decelerated from an average of -0.07% in 2014, to an average of -0.21% in 2015, following declines in both food and non-food inflation.

Source: Ministry of Finance and Economic Development, 2016 123. Despite the brief episodes of price increases which saw positive monthly inflation rates being recorded INFLATION DEVELOPMENTS in March, July and November 2015, the month-on- 118. Annual inflation, which stood at -1.4% in January month inflation rate remained largely negative in 2015, peaked at -1.2% in March 2015, before decel- 2015, as shown in Figure 26. erating to its lowest level of -3.3% in October 2015. The annual headline inflation ended the year at -2.5% Figure 26: Month on Month Inflation (%) and averaged -2.4% in 2015. Declines in both food and nonfood inflation accounted for the sustained fall in annual headline inflation.

Figure 25: Annual Inflation Profile (%)

Source: ZIMSTAT, 2016

124. The average monthly food inflation rate for 2015 was -2.4%, down from -0.2% in 2014. This reflected the effect of imported inflation, as cheaper imports augmented domestic food supplies. Source: ZIMSTAT, 2016 125. Average monthly non-food inflation fell from 0% in 119. Annual food inflation decelerated from an average 2014 to -0.2% in 2015, largely on account of waning of -3.1% in 2014, to an average of -3.3% in 2015, on consumer demand as consumer incomes deteriorat- account of declines in both food items and non-alco- ed. holic beverages. Regional Inflation Developments 120. Year-on-year non-food inflation also slowed down, 126. Zimbabwe is the only country in the region that from an average of 1.2% in 2014 to an average experienced negative inflation in 2015, as shown in of -2.0% in 2015. Non-food inflation was largely Table 7. The rest of the regional countries are experi- weighed down by declines in communication; hous- encing single digit inflation besides Malawi. There are ing, water, electricity, gas and other fuels; furniture, efforts by regional countries to achieve the SADC household equipment and maintenance; and clothing inflation target of between 3% and 7%. and footwear, among others.

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Annual Report 2015 31 The Reserve Bank of Zimbabwe

Table 7: Annual Inflation for Selected SADC Countries and USA (%)

Zimbabwe SA Botswana Mozambique Tanzania Zambia Malawi USA Jan-2015 -1.3 4.4 3.6 2.8 4.0 7.7 21.2 -0.1 Feb-2015 -1.4 3.9 2.8 4.0 4.2 7.4 19.7 0.0 Mar-2015 -1.2 4.0 2.8 3.1 4.3 7.2 18.2 -0.1 Apr-2015 -2.6 4.5 3.1 2.0 4.5 7.2 18.8 -0.2 May-2015 -2.7 4.6 3.0 1.3 5.3 6.9 19.5 0.0 Jun-2015 -2.8 4.7 3.1 1.4 6.1 7.1 21.3 0.1 Jul-2015 -2.8 5.0 3.1 1.5 6.4 7.1 22.2 0.2 Aug-2015 -2.8 4.6 3.1 2.3 6.4 7.3 23.0 0.2 Sep-2015 -3.1 4.6 3.0 2.7 6.1 7.7 24.1 0.0 Oct-2015 -3.3 4.7 3.1 4.7 6.3 14.3 24.7 0.2 Nov-2015 -2.5 4.8 2.9 6.3 6.6 19.5 24.6 0.5 Dec-2015 -2.5 5.2 3.1 10.6 6.8 21.1 24.9 0.7 Average -2.4 4.7 3.2 3.3 5.5 9.8 22.2 0.3

Source: Country Central Bank Websites, 2016

Inflation Outlook 127. In the outlook period, inflation is expected to remain Figure 27: Quarterly Annualized Inflation Profile (%) subdued, although it may gradually climb out of the deflationary phase, as the year 2016 progresses.

128. Quarterly annualized inflation also remained in negative territory in 2015, reflecting deep seated disinfla- tionary pressures in the economy. The upward trend in the last two months of 2015, however, suggests that inflation may rise in the short to medium term, as shown in Figure 27. Source: Reserve bank of Zimbabwe, 2016

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32 Annual Report 2015

The Reserve Bank of Zimbabwe BANK sector““ developments

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33 Annual Report 2015 33 The Reserve Bank of Zimbabwe

Dr. C. L. Dhliwayo Deputy Governor

Introduction 129. The banking sector remained generally safe and sound 133. Small and Medium Enterprises Development Corpo- in 2015. The sector recorded improvements in key fi- ration (SMEDCO) and Infrastructural Development nancial indicators, signifying improved resilience to po- Bank of Zimbabwe (IDBZ) were brought under the tential adverse developments. The improvement in key Reserve Bank’s supervisory ambit effective 2 January indicators was on the back of a number of measures 2015. instituted by the Reserve Bank to deal with credit and liquidity risks confronting the sector. Troubled Bank Resolution 134. During the year ended 31 December 2015, the Re- Architecture of the Banking Sector serve Bank dealt resolutely with troubled banking insti- 130. As at 31 December 2015, there were 18 operating tutions as part of the measures to bolster confidence banking institutions, as detailed in the table below: and promote banking sector stability.

Table 8: Architecture of the Banking Sector – 31 135. In 2015, the Reserve Bank closed three banking institu- December 2015 tions namely Allied Bank Limited, AfrAsia Bank Limited and Interfin Bank Limited and these were placed un- Type of Institution Number der liquidation by the Deposit Protection Corporation. The table below shows the dates which the final liqui- BANKING INSTITUTIONS dation orders were issued by the High Court. Commercial Banks 13

Building Societies 4 Table 9: Issuance of Final Liquidation Orders Savings Bank 1 Institution Date of Final Liquidation NON-BANK FINANCIAL INSTITUTIONS Allied Bank 6 March 2015 Credit Only Microfinance Institutions 155 Afrasia Bank 29 April 2015

Interfin Bank Limited 4 March 2015 Source: Reserve Bank of Zimbabwe, 2016 Source: Reserve Bank of Zimbabwe, 2016

131. During 2015, the Reserve Bank licensed National 136. Tetrad Investment Bank Limited was placed under Building Society Limited (wholly owned by the Na- provisional judicial management of the Deposit Pro- tional Social Security Authority(NSSA)) and three de- tection Corporation following the expiry of a scheme posit-taking microfinance institutions namely, Getbucks of arrangement with creditors on 31 January 2015. Financial Services (Private) Limited, African Century Leasing Company and Collarhedge Finance (Private) 137. Liquidation of Capital Bank, and Trust Bank are pending Limited. at the High Court following appeal by the institutions’ shareholders and creditors. 132. National Building Society Limited and Collarhedge Fi-

nance were still finalising the administrative and infra-

structural facilities as at 31 December 2015, in preparation for the commencement of operations......

34 Annual Report 2015 The Reserve Bank of Zimbabwe

CONDITION AND PERFORMANCE OF THE billion as at 31 December 2015, from $5.06 billion BANKING SECTOR recorded in 2014. Demand deposits which are short- term in nature constituted 46.22% of total deposits. Capital Adequacy 138. All operating banking institutions were in compliance 144. The transitory nature of demand deposits hinders the with the prescribed minimum capital requirements as banking sector’s ability to provide long-term funding at 31 December 2015. for capital intensive sectors such as mining and telecommunications. 139. The banking sector’s capitalization levels continued to improve as reflected by the increase in the aggregate 145. The trend in banking sector deposits from December core capital base from US$811.2 million as at 31 De- 2011 to December 2015 is shown below: cember 2014 to US$982.5 million as at 31 December 2015. The increase was primarily underpinned by im- Figure 29: Trend in Banking Sector Deposits 2011 to 2015 proved retention of earnings, as well as fresh capital injection at some banking institutions.

140. The trend in banking sector capitalisation is shown below:

Figure 28: Trend in Banking Sector Capitalisation 2011 to 2015

Source: Reserve Bank of Zimbabwe, 2016

Loans and Advances 146. Total banking sector loans and advances (including interbank transactions) decreased by 3.49% from $4.01 Source: Reserve Bank of Zimbabwe, 2016 billion as at 31 December 2014 to $3.87 billion as at 31 December 2015.The decrease in loans and advanc- 141. Regarding minimum capital requirements, effective es was largely attributed to the strategy adopted by 2020, most banking institutions have indicated a pref- some banking institutions to slow down the growth erence for Tier 1 segment, which has a minimum of of their loan portfolios, while focusing on collection $100 million. As at 31 December 2015, two banking efforts and workout arrangements to reduce the level institutions had already surpassed the $100 million, of non-performing loans. while some banks’ recapitalisation plans indicate that the banks will achieve compliance with the 2020 cap- 147. Six out of eighteen banking institutions dominated the ital thresholds through organic growth by the year sector in terms of total loans & advances, accounting 2018. for 68.52%.

Deposits 148. The figure below shows the trend in growth of loans 142. Despite the general market illiquidity, the banking and advances in relation to growth in total banking sector remained liquid as evidenced by average pru- sector assets: dential liquidity ratio of 45.43% as at 31 December 2015, which was above the minimum regulatory re- Figure 30: Growth in Total Banking Sector Assets and Loans (2011 – quirement of 30%. The high average prudential ratio is 2015) partly as a result of reduced lending by some banking institutions in a bid to contain non-performing loans. Further, the removal of troubled banks from the sector has enhanced the sector’s liquidity profile.

143. The banking sector recorded an 11.07% increase in total deposits (including interbank deposits) to US$5.62 Source: Reserve Bank of Zimbabwe, 2016 ......

Annual Report 2015 35 The Reserve Bank of Zimbabwe

149. The manufacturing, individuals, agriculture and trans- tioned assumption of qualifying non-performing loans port & distribution sectors dominated banking sector by ZAMCO and the establishment of a credit refer- lending, accounting for 24.31%, 24.28%, 16.36% and ence system. 15.29%, respectively. The sectoral distribution of credit is shown below: 155. To further reinforce current measures to enhance financial stability by reducing credit risk on banking insti- Figure 31: Sectoral Distribution of Credit as at 31 December 2015 tution’s balance sheets, banking institutions are work-

TRADE AND SERVICES, ing towards the target industry NPL ratios of below 1.24% OTHER, 8.63% MINING, 4.33% 10% and 5% by 30 June 2016 and 31 December 2016, STATE, 2.13% AGRICULTURE, 16.36% respectively. FINANCIAL SERVICES, 2.50%

TRANSPORT & CONSTRUCTION AND 156. The Reserve Bank will continue to monitor individual DISTRIBUTION, 15.29% PROPERTY, 0.92% banking institutions’ compliance with these NPL ratio targets through on-going supervisory activities.

MANUFACTURING, 24.31% Profitability INDIVIDUALS, 24.28% 157. The banking sector remained profitable during the Source: Reserve Bank of Zimbabwe, 2016 year ended 31 December 2015, with an aggregate net profit of $127.47 million, an increase of 150.73% from 150. The loans to deposit ratio (financial intermediation ra- the $50.84 million reported for the same period in tio) decreased from 78.94% as at 31 December 2014 2014. Profitability at the majority of institutions was to 68.81% as at 31 December 2015, as a result of sub- enhanced by cost containment measures and con- dued growth in credit and deposit base. comitant revenue growth.

Non-Performing Loans 158. The sector derived the bulk of its income from core 151. The level of non-performing loans (NPLs) in the bank- business of financial intermediation, as interest income ing sector improved as reflected by a ratio of non-per- contributed 62% to total income for the year 2015. forming loans to total loans of 10.82% as at 31 De- cember 2015, from 15.91% as at 31 December 2014 159. The sector recorded an average return on assets and a peak of 20.45% in September 2014. and return on equity of 2.11% and 10.96% as at 31 December 2015, respectively, an improvement 152. The improvement in the NPL ratio was largely attrib- from 0.80% and 4.60% as at 31 December 2014, utable to disposal of NPLs to ZAMCO, aggressive loan respectively. collection efforts by banking institutions through dedi- cated Loan Recoveries Units and priming of credit risk DEVELOPMENTS IN THE MICROFINANCE SECTOR management practices. 160. The number of licensed microfinance institutions 153. The trend in the ratio of non-performing loans to total (MFIs) increased from 147 in 2014 to 155 as at 31 loans over the period 2011 to 2015 is shown below: December 2015, including three (3) licensed deposit-taking microfinance institutions, which were still to Figure 32: Non-performing Loans to Total Loans (2011 – 2015) commence operations.

161. Microfinanceinstitutions play a critical role in the economy by complementing banking institutions through the provision of credit to the marginalized segments of the economy.

Source: Reserve Bank of Zimbabwe, 2016 162. The growth of the microfinance sector, however, continues to be hampered by limited availability of whole- 154. The level of NPLs is envisaged to trend downwards sale financing, which has resulted in some MFIs failing following a number of NPL resolution policy measures to renew their operating licences upon expiry. currently being undertaken, including the abovemen- ......

36 Annual Report 2015 The Reserve Bank of Zimbabwe

Performance of the Micro-finance Sector 163. The table below shows key performance indicators for the microfinance institutions under the supervision of the Re- serve Bank during the period 2012 to December 2015. Table 10: MFI Sector Performance Indicators 2012 to 2015

31 Dec 2015 31 Dec 2014 31 Dec 2013 31 Dec 2012 Number of Licensed Institutions 152 147 143 150 Number of MFIs which submitted data 142 118 59 95 Total Loans ($ millions) 186.25 157.13 109.78 93.88 Total Assets ($ millions) 223.27 203.04 117.14 116.01 Average Net Income $90,663.00 $214,388.83 $306,761.37 $51,644.46 Number of Clients 201,084 205,282 109,495 96,749 Number of Branches 571 473 211 278 Portfolio at Risk (PAR)* 10.90% 11.19% 40.82% 25.52% Source: Reserve Bank of Zimbabwe, 2016 *PAR >xx days refers to the value of all loans outstanding that have one or more instalments past due more than (xx) day. This includes the entire unpaid principal balance, including both the past due and future instalments, but not accrued interest. It also includes loans that have been restructured or rescheduled. (www.mixmarket.or)

164. The assessment of the impact of microfinance on the 167. The noted improvement in the PaR>30 ratio is attrib- Zimbabwean economy continues to be hampered by utable to improved pre-lending analysis in the industry. information gaps. In addition, some MFIs are increasingly making use of credit checks while others are resorting to offering 165. Total loans of the reporting microfinance institutions salary-based loans where repayments are based on increased from $63.43 million in 2011 to $186.25 deductions at source. million in December 2015. The microfinance loan portfolio has, however, remained skewed towards FINANCIAL SECTOR STABILISATION INITIATIVES consumption at the expense of productive sector funding. Consumption lending, which largely comprises 168. The Reserve Bank embarked on a number of financial salary-based loans constituted 54.45% of total loans as stability initiatives, aimed at enhancing stability in the at 31 December 2015. banking sector, as discussed hereunder:

166. Delinquency levels in the microfinance sector have im- Zimbabwe Asset Management Company proved, as reflected by the decline in the Portfolio at 169. The Zimbabwe Asset Management Corporation (Pri- Risk ratio (PaR > 30) from 11.29% in 2014 to 10.72% vate) Limited (ZAMCO), established by the Reserve as at 31 December 2015 as shown below. Bank in July 2014 to resolve banking sector asset quali- ty challenges through acquisition, restructuring, manag- Figure 33: Trend of PaR (>30) Ratio ing and disposal of non- performing loans (NPLs), was operationalized during the course of 2015.

170. To this end, ZAMCO had taken over NPLs worth $357 million as at 31 December 2015. It is anticipated that more transactions will be concluded during the course of 2016, paving way for banking institutions to cleanse their balance sheets of toxic non-performing assets and enhancing their ability to underwrite new Source: Reserve Bank of Zimbabwe, 2016 business.

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Annual Report 2015 37 The Reserve Bank of Zimbabwe

Credit Reference System Zimbabwe, continued to execute its mandate to coor- 171. The Reserve Bank, in collaboration with the Govern- dinate financial stability initiatives. ment and the World Bank made significant progress towards the establishment of a Credit Reference Da- 178. By the end of 2015, the MFSC Technical Committee tabank, in the year under review to reduce information was working on the second Financial Stability Report asymmetry, thereby minimising over-indebtedness by for the year ended 30 June 2015. The Report provides borrowing members of the public. an assessment of the financial system’s resilience to systemic shocks as well as its ability to facilitate financial intermediation, enhance economic processes and 172. The Reserve Bank adopted a hybrid system, compris- to manage risks. ing both the credit registry and private credit reference bureaus. Basel II Revisions 179. Following adoption of the Basel II Framework, the Re- 173. The Reserve Bank established a Credit Registry Unit serve Bank extended the parallel-run phase of the im- in the Bank Supervision Division and has identified plementation process in 2015. The Reserve Bank also the supplier of the system. The Unit will coordinate closely monitored developments regarding proposed the collection of credit information from all banking amendments to the Basel II/III framework by the Basel institutions and other credit providers including utility Committee on Banking Supervision, designed to im- companies and maintain the databank for the credit prove current capital determination approaches. registry. 180. In that regard, the Reserve Bank will be reviewing a 174. The credit reference system will be an integral part number of proposed revisions to the Basel II frame- of credit risk management in the banking sector. The work which are under consideration by the Basel credit reference system will provide specialized infor- Committee on Banking Supervision (BCBS) and com- mation to banking institutions on borrowers. In the munity of bank supervisors on the global arena. medium to long term, the use of a credit bureau by the banking industry is envisaged to reduce the level 181. In particular, the proposed revisions to the Stan- of bad debts and required provisioning levels. dardised Approach for credit risk, which seek to strengthen the existing regulatory capital standard in Collateral Registry several ways, including, reduced reliance on external 175. The Reserve Bank is working towards establishment credit ratings, enhanced granularity and risk sensitivity, of a Collateral Registry. Collateral registries are publicly updated risk weight calibrations and better clarity on available databases of interests on ownership of assets, the application of the standards. which allow borrowers to prove their credit worth, and potential lenders to assess their ranking priority in 182. These developments will significantly affect the design potential claims against registered collateral. of the Basel II framework that will be implemented by banks in Zimbabwe. 176. The collateral registry will complement the credit reference system and is a key component of the financial Supervisory Colleges inclusion strategy which is expected to improve access 183. During 2015, the Reserve Bank of Zimbabwe attend- to credit by small and medium scale businesses as it ed supervisory colleges for Nedbank, Standard Bank enables them to use movable assets as collateral. Group Limited (Stanbic) in South Africa, and Eco- bank Transnational Incorporated in Cote d’Ivoire. The Multidisciplinary Financial Stability Committee meetings for Nedbank and Standard Bank Group were Initiatives hosted by South African Reserve Bank (SARB), which is the lead supervisor for both banking groups. 177. The Multidisciplinary Financial Stability Committee (MFSC), whose members are drawn from the Ministry 184. Pursuant to the collaborative framework underpinning of Finance, Deposit Protection Corporation, Insurance supervisory colleges, two joint on-site examinations and Pensions Commission, Securities and Exchange for BancABC were conducted in Mozambique and Commission of Zimbabwe and the Reserve Bank of Zambia, in 2015.

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38 Annual Report 2015 The Reserve Bank of Zimbabwe

FINANCIAL INCLUSION INITIATIVES 191. Legislative and regulatory amendments are essential in order to address gaps in existing laws as well as keep 185. In recognition of the importance of financial inclusion abreast with the ever evolving international best prac- in attaining sustained and inclusive economic devel- tice. opment, the Reserve Bank, championed the development of a National Financial Inclusion Strategy (NFIS) 192. The proposed Banking Act amendments will go a long in collaboration with other key stakeholders. in addressing gaps in the current legal framework.

186. In pursuit of this objective, the Reserve Bank constitut- 193. The amendments are aimed at achieving the following: ed a Financial Inclusion Committee in August 2015 to i. empowering the Reserve Bank and the Deposit champion the national financial inclusion agenda. Protection Corporation to take action against offi- cers and directors of failed banking institutions who through their negligence or recklessness would have 187. The overarching objective of the Strategy is to deepen contributed to the failure of the banking institution; financial intermediation for the marginalised and the unbanked to have access to appropriate financial ser- ii. effectively empower the Reserve Bank to deal with vices during the Strategy period of 2016 - 2020. bank resolution;

188. The NFIS addresses the needs of specific groups of iii. empower the Reserve Bank to monitor and regulate the population, which are financially excluded namely bank holding companies; micro, small and medium enterprises (MSMEs), women and youth, agriculture and rural populations. iv. improving the corporate governance and risk management of banking institutions by introducing a more 189. Against this background, the National Financial Inclu- robust corporate governance framework that calls for sion Strategy was therefore launched on the 4th of a stringent risk management framework; and March 2016. v. introducing greater transparency in the shareholding LEGAL AND REGULATORY DEVELOPMENTS and operations of banking institutions.

190. The legal and regulatory architecture of a country has 194. The proposals to amend the banking laws progressed a significant bearing on the promotion of public and significantly and the Banking Amendment Bill, was investor confidence in the banking system, thereby en- passed by both the House of Assembly and the Sen- hancing the safety and soundness of the system. ate. The amendments await Presidential assent.

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Annual Report 2015 39 The Reserve Bank of Zimbabwe

MOMONEY AND CAPITAL MARKETS DEVELOPMENTS

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40 Annual Report 2015 The Reserve Bank of Zimbabwe

MONEY MARKET LIQUIDITY March 2015, with the final maturity of all the Aftrades being 13th February 2017. 195. Liquidity, as measured by RTGS balances, remained en- trenched in a few institutions, which hold an average 200. By the end of December 2015, the Bank had cumula- of around 93% of the total balances. This has left the tively disbursed US$238.3 million through fresh loans, sector segmented with some banks being very liquid roll-overs, repayments and redraws to three deficit while others are not. banks. Loans of 180 day tenor were advanced to the deficit institutions. 196. Ordinarily, liquidity would flow from the surplus banks to those with shortages through the interbank market. 201. The Bank is satisfied with the operations of the Af- Due to counterparty risk considerations, this has not trades facility as it has really functioned as the Lender been the case, forcing the Central Bank to intervene. of Last Resort. Interventions by the Central Bank involved a facility underwritten by Afreximbank. MONEY MARKET SECURITIES

197. Monthly RTGS account balances averaged US$506 Government Securities million in 2015, compared to US$408 million in 2014 202. The Government continued issuing securities during as shown in Figure 34. The accumulation of surpluses the course of the year, on a private placement basis at the banks also reflected reduction in lending. rather than through market based auctions. The preva- lence of private placements has resulted in a distorted Figure 34: Monthly Average RTGS Account Balances (US$ million) yield curve, which has complicated the proper and efficient pricing and valuation of securities.

203. The pricing distortions have been witnessed in secondary market trading of long dated instruments which are subject to half-yearly coupon payments. Buyers of these securities have taken advantage of the desperation of some sellers by levying ridiculously high flat discounts (of up to 50%) on the principal amounts Source: Reserve Bank of Zimbabwe, 2016 and totally disregarding all future coupon payments.

INTERBANK MARKET FACILITY (AFTRADES) 204. Following the enactment of the RBZ Debt Assump- tion bill into law, the Government has, been issuing 198. The US$200 million facility underwritten by the African Treasury Bonds of tenors ranging from 1 to 8 years, in Export-Import Bank (Afreximbank) under the Afrex- respect of the RBZ debts, at an interest rate of 5% per imbank Trade Debt Backed Securities (AFTRADES), annum. has gone a long way in addressing liquidity challenges being faced by some financial institutions. Publicly Guaranteed Securities 205. Government guaranteed securities were also issued 199. As at 31 December 2015, AFTRADES worth US$165.8 during 2015 in support of various projects as shown in million had been issued to six surplus banks for tenors Table 11: of up to 2 years. The first Aftrades were issued on 19

Table 11: Government Guaranteed Securities BOND MARKET TYPE OF SECURITY TENOR AVERAGE RATE AMOUNT MATURITY DATE Infrastructure Bond (2014) 5 years 8.0% US$14 million December 2019 Agro-bills (Agribank & FBC) 365 days 10.25% US$20 million June/Aug/Sept 2016 AMA bills (CBZ) 270 days 10.5% US$53 million June 2016 Source: Reserve Bank of Zimbabwe, 2016

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Annual Report 2015 41 The Reserve Bank of Zimbabwe

206. The Bank and other stakeholders are pushing for the Figure 35: ZSE Indices - 2015 development of the country’s bond market. In this regard, the first issues relate to the development of the Government Bond market which will be used as a benchmark for private sector bond issuance.

207. The issuance of Government bonds will also be driven by the need to have insurance and pension funds comply with prescribed asset status as stipulated by the law. Source: Zimbabwe Stock Exchange, 2016

208. The Zimbabwe Stock Exchange (ZSE) together with 213. The decline in the mainstream industrial index was the Debt Office in the Ministry Finance and Economic mainly driven by losses recorded in mostly heavily Development and the Reserve Bank are working on capitalized counters such as Econet (-57.8%), Innscor the modalities of listing Government Bonds on the lo- (-47.4%), Delta (-36.5%), Hippo (-26.0%), Natfoods cal bourse. (-22.9%), and Seedco (-11.8%).

209. Listing of bonds on the ZSE will improve secondary 214. Mitigating these losses were gains in mostly stocks such market trading by promoting standardization and flow as Zimre Holdings (+28.0%), Truworths (+25.0%), Ra- of information through disclosure requirements, which dar (+24.0%), Afdis (+23.7%), Powerspeed (+22.2%) in turn would enhance the price discovery process. and Barclays (+21.4%).

210. Furthermore, listing of the long-term Government se- 215. The drop in the industrial index throughout the year curities will also broaden the investor base in those was reflective of persistent economic challenges as securities, with potential to lower cost of borrowing. well as the tight liquidity situation prevailing in the economy. The performance of the listed companies 211. In the 2016 National Budget Statement, the Govern- was also characterized by weakening financial results, ment indicated that it intends to revert to best prac- with companies experiencing falling revenues and tice through the issuance of securities through the auc- profitability, as well as investors shunning Zimbabwe in tion based system. This will allow the determination of preference to other countries with better returns. a discernible yield curve which is a useful tool for the pricing of other market securities. 216. The performance of most counters was also affected by limited access to capital, limited product offering, DEVELOPMENTS ON THE ZIMBABWE STOCK weak corporate governance culture and legal barriers. EXCHANGE 217. Listed counters in the telecommunications sector 212. The Zimbabwe Stock Exchange (ZSE) traded weaker largely experienced reduced revenues due to declines with both indices displaying a bearish trend through- in voice and SMS revenues. This was also exacerbated out the year. Year on year, the industrial index lost by the 35% tariff cut introduced by the regulator, Postal 47.94 points (-29.45%) to close at 114.85 points. The and Telecommunications Regulatory Authority of Zim- resources index lost 47.99 points (-66.92%) to close at babwe (Potraz). 23.72 points. 218. Counters in the beverages subsector were generally affected by weak aggregate demand on the back of continued weakness in economic fundamentals.

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42 Annual Report 2015 The Reserve Bank of Zimbabwe

219. All four mining counters weighed down the perfor- 225. The ZSE Automated Trading System (ATS) went live in mance of the resources index. The poor performance July 2015. The adoption of the ATS enables continuous were largely on the back of falling global commodity trading of securities during the open sessions of the prices. market implying that multiple prices could be established for one counter in a day and that traders will 220. The total value of shares traded on the ZSE over the have more flexibility on handling client trades. year amounted to US$239 million, down by 47.2% from the previous year’s level of US$453 million. Total GLOBAL EXCHANGE MARKETS volume traded throughout the year also went down by 34.4% to 2.1 billion shares from 3.2 billion in 2014.

221. The ZSE closed the year with a net foreign capital outflow of US$0.29 million as foreign sales amounted to US$127 million outweighing foreign purchases of US$126.80 million. Foreign participation was mainly concentrated on selected blue chip counters.

222. Total market capitalization for the 2015 was down 29.0% from US$4.33 billion to US$3 billion being weighed down by losses in both the industrial and mining counters as indicated in Figure 36 below. 226. Expectations of a US Federal Reserve interest rate Figure 36: ZSE Market Capitalisation 2015 hike which was finally delivered in December 2015, against expectations of more quantitative easing in the Eurozone and Japan as well as concerns about Chinese economic slowdown, were the major themes of the international financial markets in 2015.

227. The US Federal Reserve Bank increased its key rate for the first time in almost a decade by a quarter of a percentage from 0-0.25% to 0.25-0.50% in December Source: Zimbabwe Stock Exchange, 2016 2015.

223. Three counters were delisted either voluntarily or 228. Another major development in 2015, on the global because their shareholding violated ZSE regulations. scene was the International Monetary Fund’s (IMF) in- These are BancABC, TA Holdings and Astra. In De- clusion of the Chinese currency, the Renminbi, as the cember 2015, one company was suspended from the fifth currency in the SDR basket, effective, 1 October ZSE for failing to comply with stipulated trading regu- 2016. The Peoples’ Bank of China rate guidance saw lations. the Chinese currency fall to its lowest levels in four years in 2015. 224. Proplastics and Simbisa were the new entrants on the bourse, having been unbundled from Masimba Hold- ings and Innscor, respectively during the year.

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Annual Report 2015 43 The Reserve Bank of Zimbabwe

EXCHANGE CONTROL DEVELOPMENTS

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44 Annual Report 2015 The Reserve Bank of Zimbabwe

Re-designation of Foreign Currency Accounts would result in reduction in the capturing of the same (FCAs) data types between the two systems as well as syn- chronisation of the cross-border transaction data re- 229. The numerous FCAs designated at the onset of the cords of the two institutions. multi-currency system using the Source of Funds Con- cept were re-designated using the Account Holder Direct Access to the CEPECS System by Exporters Concept. The Account Holder Concept entails the 235. In order to improve the ease of doing business, Ex- consolidation of the numerous FCAs into Corporate change Control adopted a policy that enabled export- FCAs and Individual FCAs. ers to have direct access to the CEPECS system so that they could raise Forms CD1 on their own. This 230. The Account Holder Concept resulted in reduction was a major contribution to improvement of ease of in the administrative burden for Authorised Dealers doing business for exporters. on managing numerous accounts (operational simplic- Pre and Post Shipment Export Financing Facility ity); convenience for the account holder in handling (PPEFF) a single account; enhancement of Exchange Control monitoring of account activities – ease of regulation 236. A Pre and Post Shipment Export Financing Facility was and surveillance; and reduction in costs to corporates put in place by the Bank in October 2015 as part of for maintaining numerous accounts. implementing targeted export support measures to promote the growth of exports and improve market Exchange Control Liberalisation and Compliance liquidity. The facility is targeted at exporters in view Framework of prohibitive interest rates levied by most banks. The 231. As part of Exchange Control Liberalisation and Com- PPEFF offers an all-inclusive interest rate of 8.5% and pliance Framework, Exchange Control Division issued guarantees affordable productive sector financing. ECOGAD3/2015 with the following policy provisions: 237. PPEFF is used for financing working capital require- i. Review downwards of Exchange Control Penalty ments under the following export activities:- Charges on overdue Export Receipts; ii. Tobacco Finance Accommodation for Local Merchants; i. Purchase of raw materials (both imports and domes- iii. Introduction of Authorised Dealers with Limited Au- tic); thorities (ADLAs); and ii. Purchase of finished goods orf export; iv. Exchange of Rand Coins with Bond Coins by Autho- iii. Purchase of semi-finished goods orf re-export; rised Dealers and Bureaux de Change and Sale of iv. Freight and insurance costs; and Rand Coins to the Reserve Bank. v. Other production and export related expenses.

Exchange Control Stakeholders Compliance Aware- Removal of Prior Exchange Control Approval for ness Workshops export of non-sale Exports 232. During the period April–June 2015, Exchange Control 238. Exchange Control removed the requirement for conducted Stakeholders Awareness Workshops in prior authority on export of samples and other Harare, Bulawayo, Masvingo, and Mutare, with a view non-sale exports. This resulted in reduction in the time to re-orient its operations to facilitate business. The lag in processing of applications and contributed to Stakeholder Compliance Workshops with targeted improvement on ease of doing business. law enforcement agents, regulatory bodies, industry and commerce, and civil society, were well attended. International Diaspora Remittances 239. As at 31 December 2015 total international remit- Integration of ASYCUDA and CEPECS Systems tances amounted to US$1.96 billion, an increase of 233. During the year 2015, Reserve Bank collaborated with 10% from last year’s figure of US$1.78 billion during ZIMRA in order to improve the ease of doing business the same period. Of the total amount received in among the exporters by integrating Forms CD1 and 2015, US$628.5 million was remitted for individuals Bills of Entry (Export), through interfacing of Reserve and reported through the registered ADLAs. Remit- Bank’s CEPECS and ZIMRA’s ASYCUDA systems. tances received through the normal banking system amounted to US$302.3 million, while international re- 234. The integration of ASYCUDA and CEPECS systems mittances received through the normal banking ......

Annual Report 2015 45 The Reserve Bank of Zimbabwe

system on behalf of International Organizations the threshold investment on the ZSE for non-resident (NGOs) amounted to US$1.03 billion. Zimbabweans, is meant to encourage and facilitate investments by Zimbabweans in the Diaspora. Foreign Investment Facilitation Applications 240. A total of 42 equity applications with a net value of Total Foreign Currency Receipts and Payments US$106.37 million were reviewed by the External 246. Total foreign currency receipts amounted to US$6.24 Loans and Exchange Control Review Committee in billion compared to US$6.60 billion received during 2015. the same period in 2014 representing a 5.4% decrease, while total foreign payments reported by Authorized Upward Review of the threshold of contracting exter- Dealers decreased by 18% to US$7.2 billion from the nal loans and foreign underwriting facilities 2014 figure of approximately US$8.7 billion. All the sectors, registered decreases in 2015, with the most 241. The threshold for contracting external loan and for- significant decrease registered in individual payments. eign underwriting without prior External Loans and Exchange Control Review Committee (ELECRC) ap- Promotion of the use of Alternative Payment proval was raised from US$7.5 million to US$10 mil- Methods lion. 247. Exchange Control instated a deliberate policy that promotes the use of Letters of Credit, Documenta- 242. The review of the threshold resulted in timeous ac- ry Collections, Drafts over as an alternative to cash cessing of debt financing by local borrowers as evi- advance payments. The policy resulted in decline denced by a surge in drawdowns from 32% in 2014 of monthly cash or advance payments on imports to 41% in 2015. An increase in drawdowns also led from US$230 million (June 2014) to US$100 million to a boost in market liquidity since loan proceeds of (December 2015). US$719 million were received into the country. Outward Remittances through Authorised Dealers Upward Review of Debt to Equity Ratio for Green- with Limited Authority field Investments 248. During the period 20 October 2015 to 31 December 2015, a total amount of US$704 657 was remitted 243. Prior to August 2015, foreign investors were required outside the country. to inject debt which was equal to equity in the event that the investor intended to fund the project through Prudential Management of Nostro and Cash a shareholder’s loan. This gearing ratio of 1:1 was Balances aimed at instilling a level of commitment by the foreign 249. Authorised Dealers are allowed to keep a maximum investor. of 5% Nostro balances threshold of their total FCA balances. In order to comply with anti-money launder- 244. However, in view of the need to support capital inten- ing measures, total cash holdings of each Authorised sive projects in line with Zimbabwe Agenda for Sustain- Dealer was not supposed to exceed 15% of total FCA able Socio- Economic Transformation (ZIM-ASSET) balances (total bank deposits). aspirations, foreign investors intending to undertake capital intensive Greenfield projects, and are licensed 250. During the year up to 31 December 2015, a cumu- by the Zimbabwe Investment Authority (ZIA), were al- lative amount of US$2.03 billion was transferred on- lowed to finance 100% of their projects through debt shore as cash or through RTGS in compliance with the financing. policy.

Review of investment threshold on the Zimbabwe 251. The country’s key payment systems continued to op- Stock Exchange erate effectively during 2015. The Real Time Gross Set- 245. Non-Resident Zimbabweans are allowed to invest tlement (RTGS) system the country’s settlement hub 100% on the Zimbabwe Stock Exchange without pri- was successfully upgraded during the period under or Exchange Control approval. The review upwards of review.

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46 Annual Report 2015 The Reserve Bank of Zimbabwe

252. Cumulative payment system transactions amounted to 259. Based on oversight reports, the Bank continued to US$67.6 billion as at 31 December 2015, registering a take swift corrective measures where necessary to 2% increase from the 2014 aggregate values. Volumes ensure that the stability and integrity of the national increased by 25% to 260 million during the same peri- payment system is upheld. od. International Best Practice LEGAL FRAMEWORK 260. During the period under review the Bank conducted further training sessions on the 24 Principles of Finan- 253. The Bank continued to undertake a comprehensive cial Market Infrastructure (PFMIs) to all payment sys- review of the legal environment in line with local, re- tem providers and participants. gional and global developments in payment, clearing and settlement systems. 261. This follows the adoption of the revised PFMIs standards by the Bank of International Settlement (BIS) in 254. To this end, the Bank is finalizing the drafting of the 2012 and subsequent self-assessments conducted by Oversight Framework, Recognition Criteria and Elec- market players. tronic Transaction Guideline to enhance the legal framework. 262. The Bank remains committed to promoting safety and efficiency as well as maintaining globally recognized Collaboration with other Regulators payment systems. 255. Consistent with the Bank’s mandate to promote payment system stability and transparency, the Bank, in Collateral Management collaboration with other sector regulators managed to 263. The average collateral lodged for all the retail payment resolve some of the pertinent issues affecting market streams was US$17 million in 2015, based on the risk players. profile and multilateral net exposures for each partici- pant. 256. To this end, the Bank will continue to collaborate with other regulators and various arms of Government to 264. In line with a risk based approach, the collateral lodged promote stability, exchange of ideas and policy recom- with the Bank was considered adequate to cover po- mendations in line with market developments. tential settlement risk.

OVERSIGHT AND RISK MANAGEMENT PAYMENT SYSTEMS ARCHITECTURE

257. The Bank, as Overseer of national payment systems, Payment Systems Initiatives fulfilled its mandate through undertaking onsite and 265. The bank has noted a continued interest in the pay- offsite activities evaluations, trainings, and collaborating ment system as witnessed by enquiries, applications with various payment systems stakeholders. and academic research proposals which continue to be received from various groups as shown in Table 12. 258. Furthermore, the Bank mandated the successful implementation of real time on line read only monitoring of all mobile payment systems to enhance the effectiveness of risk based oversight approach.

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Annual Report 2015 47 The Reserve Bank of Zimbabwe

Table 12: Summary of Initiatives as at 31.12.2015

Payment Stream Approved WIP Rejected Guidance Total E-Banking Platform 7 2 0 2 11 Mobile Banking 14 1 3 0 18 Card 12 0 0 0 12 Money Transfer 2 0 0 0 2 Other Initiatives 3 1 0 6 10 Total 38 4 3 8 53

Source: Reserve Bank of Zimbabwe, 2016

Financial Market Infrastructure 266. The National Payment, Clearing and Settlement Systems under the oversight of the Bank comprised of twelve financial market infrastructures during 2015, as shown in Table 13.

Table 13: Financial Market Infrastructure Participants

FMI 2013 2014 2015 RTGS 21 20 18 CSD for Government Securities 21 20 18 Payserv 21 20 16 Zimswitch 16 16 15 Cheque Clearing Hse 16 15 14 Visa 6 7 9 MasterCard 4 6 8 China Union Pay 0 0 2 Ecocash 7 7 7 Telecash 2 2 One Wallet 1 1 1 Nettcash 1 1 Source: Reserve Bank of Zimbabwe, 2016

Access Points 267. Financial market participants continued to increase access points for the convenience of the transacting public which enables access to financial products and services.

268. The Point of Sale and mobile payment agents’ ratio per 100,000 adult population increased significantly during period under review, as depicted in Table 14.

Table 14: Access Points per 100 000 Adults Zimbabwe Year ATMs POS Mobile Banking Agents 2011 5.39 27.67 0.27 2012 4.91 55.25 41.82 2013 5.65 88.58 88.56 Consumer Protection 269. Notwithstanding the significant progress made in stabilizing the payment systems through adoption of best practices, consumer protection issues require a universal law to clearly govern the cross cutting operations of all players in the ......

48 Annual Report 2015 The Reserve Bank of Zimbabwe

Access Devices 270. During the year under review developments in payment systems continued to enable financial access to the previously unbanked, under banked and marginalized groups with particular focus on the remote areas. Table15 shows trends in access point’s availability.

Table 15: Access Devices per 1 000 Adults Year Debit Cards Credit Cards Prepaid Cards Active Mobile Active Internet Banking Subscribers Banking Subscribers 2011 17.8 0.09 0.06 6.81 0.49 2012 20.54 0.11 3.79 10.72 0.53 2013 28.84 0.09 0.23 31.37 0.67 2014 45.53 0.12 0.34 45.72 0.99 2015 37.70 0.17 0.48 74.65 1.73 Source: Reserve Bank of Zimbabwe, 2016

economy. In view of this, the Bank worked with other key stakeholders in enforcing consumer protection by 276. The volume of transactions processed through RTGS upholding public policy objectives of efficiency, safety decreased by 9%, to 2.1 million in 2015, compared to and effectiveness. 2.3 million in 2014. Values increased by 2% to US$44.8 billion in 2015, from US$43.8 billion recorded in 2014 REGIONAL DEVELOPMENTS as shown in Figure 37. 271. Since the successful implementation of the SADC In- tegrated Regional Electronic Settlement System (SIR- Figure 37: RTGS System Values and Volumes for 2015 ESS) in 2014, the Bank continued to collaborate with other central banks in the region to further promote the development and harmonization of SADC payment systems.

272. Pursuant to that Zimbabwean banks also continued to work together with other SADC member banks to come up with a low-value/high volume payment chan- Source: Reserve Bank of Zimbabwe, 2016 nel for the region. It is envisaged that the project to operationalize low value payments will be completed Central Securities Depository (CSD) in 2016. 277. The CSD secondary market volumes increased significantly by 829%, to 6 707 in 2015 from 722 in 2014, as 273. Notably, local banks processed 15 971 transactions shown in Figure 38. valued at ZAR8.9 billion in 2015, indicating growing confidence in the regional payment system. Figure 38: Secondary Market Transactions

LARGE VALUE PAYMENT SYSTEMS

RTGS System 274. The RTGS upgrade was successfully completed in No- vember 2015, from version 3.0 to 6.3.1. The upgrade was meant to keep the system abreast with business, technological developments, as well as further en- Source: Reserve Bank of Zimbabwe, 2016 hance security features among other benefits. SWIFT Foreign Transactions 275. The RTGS system functioned smoothly during the 278. SWIFT volumes for payments and receipts both de- year under review maintaining an average uptime of creased by 8% and 1%, to 195 275 and 162 178 in 99%. 2015, respectively.

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Annual Report 2015 49 The Reserve Bank of Zimbabwe

279. Figure 39 below shows the trends for foreign currency 283. Figures 42 and 43 show developments in the retail transactions over the years. payment values and volumes for the period 2009 to 2015. Figure 39: Swift Foreign Currency Transaction Values and Volumes Figure 42: Retail Payment Values

Source: Reserve Bank of Zimbabwe

280. Net foreign currency outflows through the SWIFT in- Source: Reserve Bank of Zimbabwe, 2016 frastructure increased by 26% from US$152 million in 2014 to US$192 million to 2015 as shown in Figure Figure 43: Retail Payment Volumes 40.

Figure 40: Swift Annual Net Outflows

Source: Reserve Bank of Zimbabwe, 2016

284. Although all retail payment streams experienced increases during the year under review, the average Source: Reserve Bank of Zimbabwe, 2016 transaction values have been fairly consistent, with internet experiencing the highest average transactions. Retail Payment Streams Mobile had the lowest average transaction value of 281. Retail payment streams continued to show an upward US$20 throughout 2015. trend during the period under review, with significant increases being evident in both mobile and ATM val- Figure 44: Average Retail Transaction 2015 ues and volumes.

282. As a percentage of the retail figures, mobile financial services accounted for 89% of the total volume of all streams. Figure 41 shows the increase in velocity of circulation.

Figure 41: Mobile Payments Annual Velocity of Circulation (%) Source: Reserve Bank of Zimbabwe, 2016

Source: Reserve Bank of Zimbabwe, 2016

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50 Annual Report 2015 The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe STATISTICAL TABLES

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Annual Report 2015 51 The Reserve Bank of Zimbabwe

Table 1: Monetary Aggregates 52 Table 2: Monetary Survey 52 Table 3: Interest Rates And Inflation (%) 53 Table 4: Institutional Asset Base And Market Share 53 Table 5: Yearly Inflation - Percentage Change In Consumer Price Index (%) 54 Table 6: Central Government Operations- US$ Millions 54 Table 7: Gross Domestic At Factor Cost By Industry (US$ Millions) 54 Table 8: Real Gross Domestic And National Product Per Capita At Market Prices (US$) 55 Table 9: Distribution Of National Income (US$ Millions) 55 Table 10: Expenditure On Gross Domestic Product (US$ Millions) 55 Table 11: Balance Of Payments – US$ Millions 56 Table 12: Exports Of Major Commodities And Total Imports - US$ Millions 56 Table 13: Stock Exchange 57 Table 14: Economic Indicators 57

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52 Annual Report 2015 The Reserve Bank of Zimbabwe

Table 1: Monetary Aggregates

US$ ‘000s 2010 2011 2012 2013 2014 2015

Bond Coins 0 0 0 0 299* 7,127

Demand deposits 1,372,035 1,845,027 2,089,394 1,959,980 2,158,488 2,421,789

M1 1,372,035 1,845,027 2,089,394 1,959,980 2,158,787 2,428,916

Short term deposits 465,240 634,162 746510 701,805 829,947 815,587

Savings 288,395.3 318,370.5 488,518 548,030 573,204 634,714

M2 2,125,671 2,797,560 3,324,423 3,209,816 3,561,939 3,879,217

Long term deposits 201,937 302,842 562,248 722,509 841,479 886,205

M3 2,327,608 3,100,401 3,886,672 3,932,325 4,403,418 4,765,422

Source: Reserve Bank of Zimbabwe, 2016 *Bond coins introduced in December 2014.

Table 2: Monetary Survey

US$ ‘000s 2010 2011 2012 2013 2014 2015

Net foreign assets -140,294 296,487 -435,529 -810,172 -719,401 -667,685

Net domestic assets 2,467,902 3,396,888 4,322,201 4,742,497 5,122,820 5,433,107

Domestic Credit 1,694,452 2,798,127 3,788,469 4,068,698 4,378,653 5,535,396

Government (net) -5,657 -1,835 176,058 357,997 515,636 1,564,355

Public enterprises 22,908 44,925 51,717 60,645 66,750 140,910

Private Sector 1,677,201 2,755,037 3,560,693 3,650,055.2 3,796,267 3,830,132

Other items net 773,451 598,762 533,732 673,799.9 744,166 -102,289

Broad money M3 2,327,608 3,100,401 3,886,672 3,932,325 4,403,418 4,765,422

Source: Reserve Bank of Zimbabwe, 2016

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Annual Report 2015 53 The Reserve Bank of Zimbabwe

Table 3: Interest Rates and Inflation (%)

2010 2011 2012 2013 2014 2015 90 day NCD rate ….. ….. ….. ….. …..

Treasury bill rate ….. ….. ….. ….. …..

Reserve Bank Rate ….. ….. ….. ….. …..

Overnight rate/Bank Rate ….. ….. ….. ….. …..

Lending rate 1.26-60.00 8.00-30.00 10.00-35.00 10.00-35.00 6.00-35.00 6.00-18.00

Mortgage rate

Residential property ….. ….. ….. ….. …..

Industrial property ….. ….. ….. ….. …..

Rate of Inflation

End of period 3.2 4.9 2.9 0.3 -0.8 -2.5

Average 3.5 5.5 3.7 1.3 -0.2 -2.4

Source: Reserve Bank of Zimbabwe, 2016

Table 4: Institutional Asset Base and Market Share

Institutional Asset Base - US$ (Thousands)

2010 2011 2012 2013 2014 2015 Market Share (%)

Commercial Banks 2,709,411,967 3,829,719,206 4,604,687,298 4,904,957,639 5,633,320,582 6,260,377,926 79.20%

Merchant Banks 650,911,222 713,488,952 402,288,508 158,588,381 99,998,770 91,564,731 1.16%

Building Societies 280,106,649 505,088,407 717,144,950 921,033,146 1,234,855,548 1,408,846,687 17.82%

P.O.S.B 48,649,737 64,988,910 80,599,023 91,188,954 105,153,436 143,480,509 1.82%

Source: Reserve Bank of Zimbabwe, 2016

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54 Annual Report 2015 The Reserve Bank of Zimbabwe

Table 5: Yearly Inflation - Percentage Change in Consumer Price Index (%)

FOOD ALL NON-FOOD INFLATION INFLATION ITEMS

ALCOHOLIC HSING, WATER, RECREATION RESTAURANTS CLOTHING FURNITURE HEALTH TRANSPORT COMMUNICATION EDUCATION MISC. TOTAL NON BEVERAGES ELECTRICTY, & & FOOD &NON FOOTWEAR AND GOODS & FOOD & TOBACCO GAS CULTURE HOTELS ALCOHOLIC EQUIPMENT SERVICES & OTHER BEVERAGES

FUELS

WEIGHTS 4.38 6.05 17.74 9.91 2.16 9.76 3.41 2.1 5.67 1.38 3.91 66.47 33.53 100

2015

JANUARY 0.5 0.0 -0.2 -1.9 1.2 0.2 -13.7 -0.4 4.3 -2.2 -1.8 -0.6 -2.7 -1.3 FEBRUARY 0.7 -0.3 -0.1 -1.9 1.1 -0.3 -13.8 -0.6 4.1 -2.4 -1.8 -0.7 -2.9 -1.4 MARCH 0.9 -0.5 0.6 -1.8 1.0 -0.3 -13.8 -0.5 4.3 -2.3 -1.4 -0.4 -2.8 -1.2 APRIL 0.59 -1.07 -2.62 -1.50 0.81 -0.76 -13.88 -0.95 -7.02 -0.84 -1.41 -2.51 -2.93 -2.65 MAY 0.31 -1.37 -2.39 -1.45 0.92 -1.23 -13.87 -0.86 -7.09 -0.79 -1.42 -2.56 -3.00 -2.70 JUNE 0.72 -1.54 -2.41 -1.58 0.45 -1.14 -13.86 -0.87 -7.09 -0.75 -1.38 -2.57 -3.32 -2.81 JULY 0.84 -1.61 -3.25 -2.37 0.49 -1.11 -13.77 -0.93 -1.90 -1.61 -0.99 -2.35 -3.65 -2.77 AUGUST 0.61 -1.53 -3.22 -2.37 0.42 -1.67 -13.77 -1.11 -1.88 -1.78 0.13 -2.38 -3.59 -2.77 SEPTEMBER 0.47 -1.67 -4.25 -2.62 0.25 -2.45 -14.05 -0.99 -1.88 -0.12 -0.28 -2.83 -3.72 -3.11 OCTOBER -0.12 -2.04 -4.33 -2.80 0.86 -2.64 -13.98 -1.09 -1.89 -0.32 -0.20 -2.95 -4.00 -3.29 NOVEMBER -0.45 -2.35 -4.32 -2.94 0.77 -2.81 -14.19 -1.14 11.08 0.28 -0.27 -1.80 -3.85 -2.46 DECEMBER -0.88 -2.39 -4.29 -2.91 0.57 -3.24 -14.22 -0.89 11.08 0.43 -0.42 -1.89 -3.71 -2.47

Source: ZIMSTAT, 2016

Table 6: Central Government Operations- US$ Millions

2010 2011 2012 2013 2014 2015 2,921 Total revenue and grants 2,339 3,496 3,741 3,770 3,737

Total expenditure and net lending 2,143 2,899 3,609 4,027 3,912 3,860

Deficit 196 22 -113 -286 -142 -123

Financing 0 0 61 106 260 104

of which : Foreign (net) 0 0 -44 3 -55 -69

Domestic (net) 0 0 105 103 315 173

Source: ZIMSTAT, 2016

Table 7: Gross Domestic At Factor Cost by Industry (US$ Millions)

Agriculture Mining Electricity Finance Distribution Transport Hunting Real Public Period and Manufacturing and Construction and Hotels and and Education Health Total and Estate Administration Quarrying Water Insurance Restaurants Communication Fishing

2010 1157 802 1109 359 182 638 126 1376 1137 292 304 102 393 7977

2011 1222 1006 1293 436 289 704 193 1397 1320 321 518 109 444 9254

2012 1377 1064 1420 448 376 943 303 1601 1334 383 710 119 389 10467

2013 1364 1187 1457 492 399 1073 341 1909 1374 402 879 123 366 11365

2014 1704 1157 1450 546 426 1154 385 1927 1478 436 1021 125 404 12213

Source: ZIMSTAT, 2016 ......

Annual Report 2015 55 The Reserve Bank of Zimbabwe

Table 8: Real Gross Domestic and National Product Per Capita at Market Prices (US$)

Current Prices Constant Prices

Net Investment Per capita Gross Gross Domestic Gross National Gross Domestic Gross National Period Income paid to Domestic Product Product Product Product Other Countries/2 Product**

2010 9456.8 -84.8 9372.0 9085.0 9042.7 736.2 2011 10956.2 -210.4 10745.8 10166.6 10066.7 815.9 2012 12472.4 -217.9 12174.8 11240.8 11120.6 860.7 2013 13490.2 -225.7 13264.6 11744.8 11602.1 874.5 2014 14197.0 -1116.4 13483.2 12197.0 11172.9 885.1 Source: ZIMSTAT, 2016 **Calculated using GDP at constant prices

Table 9: Distribution of National Income (US$ millions) INCOME APPROACH Less net Wages Gross GDP at factor Gross Mixed Taxes on GDP at Basic Taxes on Period and Operating Market income National Income Production Prices Products salaries Surplus Prices paid Income abroad 2010 4,176.69 3,291.65 509.02 130.26 8,088.13 1,334.04 9,422.16 -84.76 9,337.40 2011 4,722.96 3,782.00 748.66 151.47 9,405.08 1,551.25 10,956.34 -210.4 10,745.94 2012 5,772.00 3,983.10 711.66 171.33 10,638.09 1,754.62 12,392.72 -217.9 12,174.82 2013 6,383.30 4,207.20 774.69 185.2 11,550.39 1,939.84 13,490.23 -225.67 13,264.56 2014 7,043.89 4,302.64 825.57 184.1 12,356.17 1,840.74 14,196.90 -1116.37 13,080.54

Source: ZIMSTAT, 2016

Table 10: Expenditure on Gross Domestic Product (US$ millions) Net Gross Net Expenditure Private Government fixed Increase Total export of on gross consumption current capital in Statistical domestic goods and domestic

Period expenditure formation stocks discrepancy expenditure services product

2010 8,150.0 1,078.6 2,048.5 210.9 0.0 12,064.5 -2,619.2 9,445.3

2011 11,182.1 1,804.8 2,063.8 389.6 0.0 15,995.3 -5,039.0 10,956.2

2012 11,761.0 1,978.6 2,079.2 -392.2 0.0 15,993.1 -3,600.3 12,392.8

2013 13,027.2 2,113.2 1,752.8 5.4 0.0 17,687.1 -4,196.9 13,490.2

2014 11,521.7 3,415.2 1,873.4 5.8 0.0 18,211.0 -3,611.4 14,196.9

Source: ZIMSTAT, 2016

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56 Annual Report 2015 The Reserve Bank of Zimbabwe

Table 11: Balance of Payments – US$ Millions

2010 2011 2012 2013 2014 2015 Trade balance -1918.1 -3145.7 -2902 -3114.6 -2748 -2448.1 Current Account Balance (excluding official transfers) -1878.5 -3385.6 -3042.4 -3432.2 -3065.3 -1519.4

Capital Account Balance (including official transfers) 586.7 1633.4 1721.8 2723.4 2914.7 1632.3

Net Errors and Omissions 884.3 969.7 885.3 316.5 110.4 -138.6 Overall Balance -407.5 -782.6 -435.3 -392.4 -40.3 -25.8

Gross Foreign Reserves (US $m) 477.3 427.2 425 331.4 349.5 352.3

Import Cover (months) at 100% (Goods & Services) 1 0.6 0.7 0.6 0.6 0.7 Exchange Rate: US$/ZAR 6.83 8.17 8.48 9.65 10.85 12.76 GBP/US$ 1.56 1.54 1.62 1.7 1.65 1.54

Source: Reserve Bank of Zimbabwe, 2016 Table 12: Exports of Major Commodities and Total Imports - US$ Millions

Textiles/ Year Tobacco Gold Ferro-Alloys Total Exports Total Imports Clothing

2000 549 216 155 79 2200 1907

2001 594 225 82 20 2114 1826

2002 435 159 107 18 1802 1820

2003 321 152 120 28 1670 1778

2004 227 263 185 21 1684 1989

2005 204 191 158 23 1602 1994

2006 207 202 146 16 1732 1966

2007 190 154 141 14 1711 1937

2008 229 93.8 152.7 0.2 1660 2630

2009 301 155 70 0.7 1613 3213

2010 384 334 118 2.2 3244 5162

2011 731 599 260 2.4 4416 7562

2012 773 715 126 2.5 3808 6710

2013 877 639 167 2.5 3694 6809

2014 773 624 244 2.0 3558 6306 2015 855 753 181 1.82 3614 6062

Source: Reserve Bank of Zimbabwe, 2016

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Annual Report 2015 57 The Reserve Bank of Zimbabwe

Table 13: Stock Exchange

Share Prices (2009=100) Market Capitalization Period Industrial Shares Mining Shares US$ Millions 2010 151.27 200.40 3,868.14

2011 145.86 100.70 3,689.70

2012 213.04 47.02 5,482.00

2013 202.12 45.79 5,203.10

2014 162.79 71.71 4,327.10

2015 114.85 23.72 3,073.40

Source: Zimbabwe Stock Exchange, 2016

Table 14: Selected Economic Indicators

2009 2010 2011 2012 2013 2014 2015

ANNUAL MONEY SUPPLY GROWTH RATE M1 % change .. 33 35 23 -6.2 10.1 12.5 M2 % change .. 64 32 21 -3.5 11.0 8.9 M3 % change .. 69 33 26 1.2 12.0 8.2

REAL SECTOR /1 Real GDP: Factor Cost (US$ m) 6889.4 7673.1 8586.6 9493.8 9854.4 10240.3 Real GDP Growth rate (%) 5.4 11.4 11.9 10.6 4.5 3.8

EXTERNAL DEBT Total External Debt 5,687 7,050 7,382 7,498 8,934 10,838 10,684 Public and publicly Guaranteed External Debt 5,474 6,454 6,479 6,772 6,982 6,770 7,100 o/w Central Government external debt 3,317 3,493 4,638 4,929 5,012 4,522 5,293 Publicly Enterprises & Local Government 2,157 2,961 1,841 1,843 1,970 2,248 1,807 Private Sector External Debt 213 596 904 726 1,952 4,069 3,584 Domestic debt (Central Government)

RATE OF INFLATION End of period -7.70% 3.20% 4.90% 2.90% 0.30% -0.80% -2.50%

Period Average 3.10% 3.73% 1.60% -0.20% -2.40% 3.50%

Source: Reserve Bank of Zimbabwe, 2016; ZIMSTAT, 2016

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58 Annual Report 2015 The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe AUDITED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015

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Annual Report 2015 59 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Directors’ Report for the year ended 31 December 2015

The Directors of the Reserve Bank of Zimbabwe (“the Bank”) have pleasure in submitting their report for the financial year ended 31 December 2015.

1. NATURE OF BUSINESS

1.1 The Reserve Bank of Zimbabwe (“the Bank”) was established under the Reserve Bank of Zimbabwe Act [Chapter 22:15].

The functions of the Bank shall be as follows: a) to regulate Zimbabwe’s monetary system; b) to achieve and maintain the stability of the Zimbabwe dollar; c) to foster the liquidity, solvency, stability and proper functions of Zimbabwe’s financial system; d) to supervise banking institutions and to promote the smooth operation of the payment system; e) to formulate and execute the monetary policy of Zimbabwe; f) to act as banker, financial advisor to, and fiscal agent of the State; g) whenever appropriate and subject to any written directions given to it by the Finance Minister, to represent the interests of Zimbabwe in international or inter - governmental meetings, multilateral agencies and other organisations in matters concerning monetary policy; h) to provide banking services for the benefit of: (i) foreign governments; (ii) foreign central banks or other monetary authorities; and (iii) international organisations of which Zimbabwe is a party; i) to participate in international organisations whose objectives are to pursue financial and economic stability through international monetary co-operation; j) subject to any written directions given to it by the Finance Minister to undertake responsibilities and perform transactions concerning the State’s participation in or membership of international organisations; k) to exercise any functions conferred or imposed upon it by or in terms of any other enactment.

1.2 The subsidiaries and joint ventures of the Bank and their activities are listed below:- i) Fidelity Printers and Refiners (Private) Limited - printers of currency and securities. - refiners of gold ii) Aurex (Private) Limited - producers of gold jewellery. iii) Export Credit Guarantee Corporation - Insurers of Zimbabwe’s exports. iv) Finance Trust of Zimbabwe (Private) Limited - investment company. v) Homelink (Private) Limited - mobilisers of foreign direct investment from Zimbabweans in the diaspora and provider of housing for local and diaspora clients. vi) Carslone (Private) Limited (Dormant) - miners of gold.

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60 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Directors’ Report for the year ended 31 December 2015

vii) Fiscorp (Private) Limited (Dormant) - administrators of quasi fiscal activities. viii) Tuli Coal (Private) Limited (Dormant) - miners of coal ix) Transload (Private) Limited (Dormant) - producers of bio-diesel from jatropha. x) Venture Capital Company of Zimbabwe (Private) Limited (Dormant) - financiers of small to medium size private sector enterprises. xi) Zimbabwe Asset Management Corporation (ZAMCO) (Private) Limited - purchasers of non perfoming loans to strengthen the financial services sector. xii) ResZim Investments (Private) Limited - investment Company xiii) Arigato (Private) Limited - investment Company xiv) Hailcat (Private) Limited - investment Company

The Bank does not consolidate the results of its subsidiary companies. Please refer to ‘note 2’ to the financial statements on the Bank’s basis of preparation of financial statements.

2. DIRECTORS’ RESPONSIBILITY STATEMENT

The Directors are responsible for the preparation and integrity of financial statements that present the state of affairs of the Bank as at 31 December 2015. These include statements of profit or loss and other comprehensive income, financial position, cash flows and changes in equity for the year then ended with other information contained in this report.

In order to meet the above requirements, the Directors are responsible for maintaining adequate accounting records and internal controls to safeguard the assets of the Bank and to prevent and detect fraudulent activities. The internal control systems are implemented and monitored by suitably trained personnel with appropriate segregation of authority and duties. Nothing has come to the attention of the Directors to indicate that any material breakdown in the functioning of these controls, procedures and systems has occurred during the year under review.

The financial statements of the Bank are prepared and presented in accordance with the requirements of the Reserve Bank of Zimbabwe Act [Chapter 22:15]. Accordingly, these financial statements have been prepared in accordance with the basis of preparation in ‘note 2’ and the accounting policies, as determined by the Directors, as set out in ‘note 3’ to the financial statements. The Directors consider the accounting policies adopted to be suitable for the intended users of the financial statements. The financial statements are prepared under the historical cost convention except for the revaluation of freehold land and buildings, investment properties, quoted shares and other assets and liabilities that are denominated in currencies other than the United States dollars (US$), which are converted at the spot (ruling exchange) rate at the reporting date.

The accounting policies are prepared on the basis of International Financial Reporting Standards (IFRS), except as described in ‘note 2’ to the financial statements.

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Annual Report 2015 61 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Directors’ Report for the year ended 31 December 2015

The audited financial statements are presented in United States dollars. These were audited by our independent auditors, Ernst & Young, who were given unrestricted access to all the accounting records and supporting documentation.

The following were the Audit and Oversight Committee members:-

• Mrs. R. Likukuma (Chairperson and Independent Non-Executive Director) • Mrs. P. Chapendama (Independent Non-Executive Director) • Mr. C.R. Maradza (Independent Non-Executive Director) • Mr. L. Murahwa (Independent Non-Executive Director) • Mr. Z .R. Churu (Non-Executive Director)

This committee met regularly with the Bank’s external auditors and senior management to review accounting, auditing, internal control and financial reporting matters. The internal and external auditors have unrestricted access to the Audit and Oversight Committee.

3. BOARD OF DIRECTORS APPOINTMENT Following the expiry of the previous Board of Directors’ term of office in October 2014, the President through the Minister of Finance and Economic Development appointed a new Board of Directors on the 24th of July 2015.

3.1 BOARD MEMBERS The following is the composition of the Board of the Bank as provided for in terms of the Reserve Bank of Zimbabwe Act [Chapter 22:15]:-

• Dr. J.P. Mangudya * • Dr. C.L. Dhliwayo** • Dr. K. Mlambo** • Mrs. R. Likukuma*** • Mrs. P. Chapendama**** • Mr. C.R. Maradza**** • Mr.L.Murahwa**** • Mrs.V. Mudimu**** • Mr. J.S. Mutizwa**** • Mr. O.J.S. Mukumba **** • Ambassador. A. Maboyi**** • Mr. M.Z. Nyabadza **** • Mr. Z.R. Churu*****

Note * Governor and Board chairperson (Executive) ** Deputy Governor (Executive) *** Deputy Chairperson (Independent Non-Executive Director) **** Independent Non-Executive Director ***** Non-Executive Director

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62 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Directors’ Report for the year ended 31 December 2015

4. ACCOUNTING POLICIES

The accounting policies adopted by the Bank are set out in ‘note 3’ to the financial statements.

5. RESULTS OF THE BANK’S OPERATIONS

The Bank recorded a surplus of US$505,377,232 (2014 surplus: US$191,983,201). The surplus was as a result of the profit for the year and reversal of impairment of financial assets as indicated below.

2015 2014 US$ US$

Surplus/ (Deficit) for the year before reversal of impairment of financial assets 121,728,292 (32,169,483) Financial assets impairment reversal 383,648,940 224,152,684 ______Surplus after reversal of impairment of financial assets 505,377,232 191,983,201 ______

The Bank appreciates the Ministry of Finance and Economic Development’s continued support. During the year, the Bank received US$81.8 million Government grant (US$60.5 million in 2014). The 2015 Government grant received comprised of Treasury Bills (US$ 57.8 million) and budgetary support (US$24 million). The Government issued Treasury Bills worth US$344 million in 2015 (2014: USD$311 million) giving a cumulative total of US$655 million to date towards the debt takeover process resulting in reversal of impairment of US$382 million in the current year for amounts previously impaired.

6. INTERBANK FACILITY (AFTRADES)

During the year, the Bank, the Government of Zimbabwe and the African Export Import Bank (Afreximbank) entered into a tripartite agreement that introduced a US$200 million interbank facility known as the African Export Import Bank trade backed facility (AFTRADES).

The facility provides for surplus banks and deficit banks to lend and borrow from each other respectively in a con- trolled environment. Afreximbank, the Government of Zimbabwe and the Reserve Bank of Zimbabwe are guarantors’ of the facility and the Reserve Bank of Zimbabwe acts as the borrower, lender and the local agent of Afreximbank.

7. GOVERNMENT AFREXIMBANK AND PTA FACILITIES

During the period, the Bank borrowed US$200 million from Afreximbank and signed a US$160 million loan facility with PTA Bank on behalf of the Government of Zimbabwe. These facilities enabled Government to assume closed banks and private sector non-performing loans with these institutions. Also, the PTA facility was for productive sector refinancing. These measures were taken to improve the country’s credit rating......

Annual Report 2015 63 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Directors’ Report for the year ended 31 December 2015

8. LOANS AND ADVANCES TO GOVERNMENT 10. BASIS OF FUNDING ANDO T STATUTORY BODIES The financial statements have been prepared using As at 31 December 2015, legacy loans and advances appropriate accounting policies, supported by reason- to Government and to Statutory Bodies were US$0.7 able and prudential judgments and estimates. The Bank billion (2014: US$1.07 billion) before impairment. The recorded a surplus of US$505 million (2014 surplus: Bank has adopted the Banking Regulations SI 205 of US$192 million) for the year ended 31 December 2000, which requires that an analysis of a loan’s per- 2015 and as of that date, its total liabilities exceed- formance be made to determine the level of impaired its total assets by US$411 million (2014: US$922 ment. Accordingly, in prior years, the Directors decid- million), as reflected in these financial statements. In ed to fully impair Government and Statutory Bodies order to strengthen the Bank’s statement of financial debts due to uncertainty in recoverability. Pursuant position and financial performance, the Government to the enactment of the RBZ Debt Assumption Act of Zimbabwe enacted the Reserve Bank of Zimbabwe 2015, the Government of Zimbabwe issued Treasury Debt Assumption Act 2015 and as at 31 December Bills (TBs) worth US$344 million (2014: USD$311 2015, US$655 million worth of Treasury Bills had been million) towards the clearance of the RBZ legacy issued to various Bank creditors under the auspices of debt. Accordingly, the issuance of these Treasury Bills this Act. by Government were credited to amounts due from Government that resulted in an impairment reversal The Bank is wholly owned by the Government of Zim- during the year. babwe and remains core to Government functions, being the custodian of monetary policy in Zimbabwe. 9. CHANGE IN LEGISLATION The Bank is a non-profit making institution and relies on the Government of Zimbabwe for the funding of During the reporting period, the Government pro- its operations. However, the Bank also generates rev- posed amendments to the Reserve Bank of Zimbabwe enue from interest on advances to financial services Act (Chapter 22:15). The amendments are contained sector, Real Time Gross Settlement System (RTGS) under the Banking Act Amendment Bill 2015. The Bill charges and sale of Customs Declaration (CD) forms. has sailed through Parliament and is currently awaiting Also, the Bank generates income from the various fa- Presidential assent. The Bill provides for the following cilities it is offering to the market in the form of facility specific changes to RBZ Act among other changes: fees and interest.

The establishment of companies and other entities Meanwhile, the Ministry of Finance and Economic for the purpose of: Development pledged to continue supporting the a) Acquiring and settling non-performing loans of bank- Bank to ensure that it remains a going concern. The ing institutions Government, through the Ministry of Finance and Eco- b) Acquiring, restructuring and disposing of problem or nomic Development, continued to fund the Bank’s op- failed banking institutions. erations, allocating US$24 million Government grant in c) Generally, exercising any function conferred on the the 2016 national budget (2015:US$24 million). Bank by or in terms of this Act (Chapter 22:15).

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64 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Directors’ Report for the year ended 31 December 2015

Taking into account the Bank’s performance in the period under review, continued support by the Government, the Reserve Bank of Zimbabwe Debt Assumption Act 2015, Government grant allocation in the 2016 budget and future prospects presented by the scope of the Bank’s mandate, the Directors have a reasonable expectation that the Bank has adequate resources to continue as a going concern in the foreseeable future.

11. APPROVAL OF FINANCIAL STATEMENTS

The financial statements which appear on pages 66 to 119 were approved by the Board of Directors on 23 March 2016. In line with the Reserve Bank of Zimbabwe Act [Chapter 22:15] the Directors approved the following officials to sign the financial statements:

Dr. J.P. Mangudya Governor

Mrs. R. Likukuma Deputy Board Chair and Audit and Oversight Committee Chair

Dr. K. Mlambo Deputy Governor

Dr. C.L. Dhliwayo Deputy Governor

Mr. A.J. Manase Bank Secretary and Director Legal & Corporate Affairs

______Dr. J.P. Mangudya Mrs. R .Likukuma Governor Deputy Board Chair, Audit and Oversight Committee Chair

______Dr. K. Mlambo Dr. C .L. Dhliwayo Deputy Governor Deputy Governor

______Mr. A. J. Manase Bank Secretary and Director Legal & Corporate Affairs

Date; 30 March 2016 ......

Annual Report 2015 65 The Reserve Bank of Zimbabwe

Ernst & Young Tel: +263 4 750905-14 or 750 979-83 Chartered Accountants (Zimbabwe) Fax: +263 4 750707 or 773842 Registered Public Auditors Email: [email protected], Angwa City Website: www.ey.com Cnr Julius Nyerere Way,/ Kwame Nkrumah Avenue Building a better P.O Box 62 or 702, working world Harare, Zimbabwe Independent Auditor’s Report TO THE BOARD OF THE RESERVE BANK OF ZIMBABWE AND THE MINISTER OF FINANCE AND ECONOMIC DEVELOPMENT Report on the financial statements of the financial statements. We have audited the accompanying financial statements of We believe that the audit evidence we have obtained is the Reserve Bank of Zimbabwe set out on pages 66 to sufficient and appropriate to provide a basis for our audit 119, which comprise the statement of financial position as opinion. at 31 December 2015, the statement of profit or loss and other comprehensive income, the statement of changes in Opinion equity and the statement of cash flows for the year then In our opinion, the financial statements of the Reserve Bank ended, the notes to the financial statements which include of Zimbabwe for the year ended 31 December 2015 have a summary of significant accounting policies and other ex- been prepared, in all material respects, in accordance with planatory information. the Reserve Bank of Zimbabwe Act (Chapter 22:15).

Directors’ responsibility for the financial statements Emphasis of matter The Bank’s directors are responsible for the preparation and Without qualifying our opinion we draw attention to the fair presentation of these financial statements in accordance following matters: with the Reserve Bank of Zimbabwe Act (Chapter 22:15), and for such internal control as the directors determine is Basis of Funding necessary to enable the preparation of financial statements Note 42 to the financial statements which indicates that the that are free from material misstatement, whether due to Bank had a surplus of US$122 million before impairment fraud or error. reversal (US$505 million surplus after impairment reversal) for the year ended 31 December 2015 and as of that date Auditor’s responsibility its total liabilities exceeded its total assets by US$411 mil- Our responsibility is to express an opinion on these financial lion. The note also describes the basis of funding to enable statements based on our audit. We conducted our audit in the Bank to meet its financial obligations in these circum- accordance with International Standards on Auditing. Those stances. The note sets out certain uncertainties which may standards require that we comply with ethical requirements result in the Bank not being able to meet its financial obliga- and plan and perform the audit to obtain reasonable as- tions in the normal course of its activities. surance about whether the financial statements are free from material misstatement. An audit involves performing Basis of Accounting procedures to obtain audit evidence about the amounts ln addition, we draw attention to Note 2 to the financial and disclosures in the financial statements. The procedures statements, which describe the basis of accounting. The selected depend on the auditor’s judgment, including the financial statements are prepared to comply with the re- assessment of the risks of material misstatement of the fi- quirements of the Reserve Bank of Zimbabwe Act (Chap- nancial statements, whether due to fraud or error. In making ter 22:15) and as a result the financial statements may not those risk assessments, the auditor considers internal con- be suitable for another purpose. trol relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effective- ERNST & YOUNG ness of the entity’s internal control. An audit also includes CHARTERED ACCOUNTANTS (ZIMBABWE) evaluating the appropriateness of accounting policies used REGISTERED PUBLIC AUDITORS, and the reasonableness of accounting estimates made by HARARE the directors, as well as evaluating the overall presentation Date 30 March 2016 ...... A member firm of Ernst & Young Global limited 66 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Statement of Profit or Loss And Other Comprehensive Income for the year ended 31 December 2015

2015 2014 Notes US$ US$

Interest and commission income 6.1 58,310,700 21,545,425 Interest and commission expense 6.2 (36,219,431) (41,556,197) ______Net income/ (Deficit) on interest and commission 22,091,269 (20,010,772)

Other income 6.3 158,443,754 75,210,123 ______Net interest and commission income after other income 180,535,023 55,199,351

Operating costs 6.4 (58,806,731) (87,368,834) ______Surplus/ (Deficit) for the year before reversal of impairment of financial assets 121,728,292 (32,169,483)

Impairment reversal of financial assets 7 383,648,940 224,152,684 ______Surplus for the year 505,377,232 191,983,201 ______Other comprehensive income (OCI) Other comprehensive income to be reclassified to Profit or loss in subsequent periods Fair value gain on available for sale investments 4,868,249 14,333,640 Fair value (loss)/gain on other foreign investment - 10,758 ______Net gain in other comprehensive income to be reclassified to profit or loss in subsequent periods 4,868,249 14,344,398 Other comprehensive income not to be reclassified to - - Profit or loss in subsequent periods

Net other comprehensive income not to be classified ______to profit or loss in subsequent periods 4,868,249 14,344,398 ______Total other comprehensive income for the year 4,868,249 14,344,398 ______Total comprehensive income for the year 510,245,481 206,327,599 ______

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Annual Report 2015 67 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Statement of Financial Position As at 31 December 2015

2015 2014 Notes US$ US$ Assets Property and equipment 8 64,208,109 66,181,194 Investment property 9 10,950,000 11,900,000 Investments in subsidiaries 10 27,682,449 23,533,173 Other investments 11 2,181,048 3,470,251 Held to maturity local investments 12 213,918,638 110,000,000 Loans and advances to Government and Statutory Bodies 13 ` - - Non-current assets held for sale 14 766,500 2,802,743 Other loans and advances 15 478,226,822 18,649 Other receivables 16 673,938,223 597,458,703 Gold and foreign assets 17 110,328,158 61,442,083 Cash and bank balances 18 323,091,863 301,836,880 ______Total Assets 1,905,291,810 1,178,643,676 ______Equity and Liabilities Capital and reserves Share capital 19 2,000,000 2,000,000 Share premium 19 98,000,000 98,000,000 Revaluation reserve 20 3,997,662 3,997,662 Mark to market 21 46,967,335 42,099,086 Non distributable reserve 22 (903,715,388) (903,715,388) General reserve fund 23 - - Accumulated surplus / (deficit) 24 341,478,514 (163,898,718) ______Deficit attributable to equity owners of the Bank (411,271,877) (921,517,358) ______Liabilities Bills payable 25 40,285,080 4,721,314 Bond coins in circulation 26 7,463,797 780,594 International Monetary Fund facilities 27 488,372,578 511,873,272 Foreign liabilities 28 437,108,734 428,714,219 Domestic loans 29 254,667,807 241,136,855 Deposit accounts 30 960,797,997 770,067,087 Payables 31 127,867,694 142,867,693 ______Total liabilities 2,316,563,687 2,100,161,034 ______Total equity and liabilities 1,905,291,810 1,178,643,676 ______......

68 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Statement of Financial Position As at31 December 2015

______Dr. J.P. Mangudya Mrs. R. Likukuma Governor Deputy Board Chair, Audit and Oversight Committee Chair

______Dr. K. Mlambo Dr. C.L. Dhliwayo Deputy Governor Deputy Governor

______Mr. A. J. Manase Bank Secretary and Director Legal & Corporate Affairs

Date: 30 March 2016

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Annual Report 2015 69 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Statement of Changes In Equity As at 31 December 2015

Mark Non - Share Share General to Market distributable Revaluation Accumulated capital premium reserve reserve reserve reserve deficit/Surplus Total US$ US$ US$ US$ US$ US$ US$ US$

Balance at 1 January 2014 - - - 27,754,688 (903,715,388) 3,997,662 (355,881,919) (1,227,844,957) Issue of share capital 2,000,000 98,000,000 - - - - - 100,000,000 Surplus for the year ------191,983,201 191,983,201 Other comprehensive - - - 14,344,398 - - - 14,344,398 income ______Balance at 31 December 2,000,000 98,000,000 - 42,099,086 (903,715,388) 3,997,662 (163,898,718) (921,517,358) 2014 ______

Surplus for the year ------505,377,232 505,377,232 Other comprehensive - - - 4,868,249 - - - 4,868,249 income ______

Balance at 31 December 2,000,000 98,000,000 - 46,967,335 (903,715,388) 3,997,662 341,478,514 (411,271,877) 2015 ______

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70 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Statement of Cash Flows As at 31 December 2015

2015 2014 US$ US$ CASH FLOWS FROM OPERATING ACTIVITIES

Operating cash flows Surplus for the year 505,377,232 191,983,201 Adjustment for items not affecting cash flows -Government grant treasury bills (57,803,557) (10,000,000) -Depreciation 2,795,571 2,447,640 -Fair value loss on investment property 950,000 850,000 -Impairment of unquoted shares 1,466,564 2,872,993 -Insurance claims - (8,037) -Bad debts 517,862 616,900 -Profit on disposal of property and equipment (236,677) (9,338) -Loss on disposal of property and equipment 179,127 74,704 -Change in provision for doubtful debts (383,648,940) (224,152,684) -Other accrued interest receivable (18,248,626) (905,022) -Interest expense 36,219,431 41,556,197 -Derecognition of liabilities (61,411,830) (13,385,919) ______Operating cash flows before movements in working capital 26,156,157 (8,059,365) ______

Interest and commission paid -Interest and commission paid (7,485,876) (421,003)

______18,670,281 (8,480,368) ______Movements in working capital

Increase in other receivables (11,749,822) (227,165) Increase in Special Drawing Rights (SDR) holdings. (5,866,398) (8,804,425) Increase in deposit accounts. 539,145,718 216,493,854 Decrease in payables (17,721,939) 8,188,901 Increase in advances (451,415,811) (185,366,606) ______Net working capital movements 52,391,748 30,284,559 ______

______Net cash inflow from operating activities 71,062,029 21,804,191 ______

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Annual Report 2015 71 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE Reserve Bank of Zimbabwe STATEMENT OF CASH FLOWS Statement of Cash Flows As at 31 December 2015 For the year ended 31 December 2015

2015 2014 US$ US$ CASH FLOWS FROM INVESTING ACTIVITIES

Investing Activities Purchase of shares and other investments (33,538,374) - Proceeds from disposal of property and equipment (refer to note 39) 635,170 255,271 Purchase of property and equipment (refer to note 39) (1,201,387) (2,673,676) Purchase of gold (15,000,000) - ______

Net cash from Investing Activities (49,104,591) (2,418,405) ______CASH FLOWS FROM FINANCING ACTIVITIES Transfers to reduce overdraft balance, South African Reserve Bank (410,718) (448,079) ______Net cash from Financing Activities (410,718) (448,079) ______Decrease in cash and cash equivalents due to revaluation (291,737) (131,010)

INCREASE/(DECREASE) IN CASH AND CASH EQUIVALENTS 21,254,983 (18,806,697) ______Cash and cash equivalents at beginning of the year 301,836,880 283,030,183 -Balances with foreign banks 287,247,754 267,748,230 -Foreign currency 14,516,880 15,239,637 -Committed funds 72,246 42,316

Cash and cash equivalents at end of the year 323,091,863 301,836,880 -Balances with foreign banks 294,831,736 287,247,754 - Foreign currency 28,160,127 14,516,880 -Committed funds 100,000 72,246

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72 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

1. REPORTING ENTITY organisations; and k) to exercise any functions conferred or imposed The Reserve Bank of Zimbabwe is a Statutory Body upon it by or in terms of any other enactment. enacted by the Reserve Bank of Zimbabwe Act [Chapter 22:15]. It is incorporated and domiciled in 2. BASIS OF PREPARATION Zimbabwe. The Bank’s registered office is 80 Samora Machel Avenue Harare. The financial statements of the Bank are prepared and presented as prescribed by the Reserve Bank 1.1. Nature of business of Zimbabwe Act [Chapter 22:15]. Accordingly, these The functions of the Bank as provided under the Re- financial statements have been prepared in - accor serve Bank of Zimbabwe Act [Chapter 22:15] (“the dance with the accounting policies, as determined by Act”) are as follows: the Directors as set out in ‘note 3’ to the financial statements. The Directors consider the accounting a) to regulate Zimbabwe’s monetary system; policies adopted to be suitable for the intended us- b) to achieve and maintain the stability of the ers of the financial statements. Zimbabwe dollar; c) to foster the liquidity, solvency, stability and The financial statements are prepared under the his- proper functions of Zimbabwe’s financial system; torical cost convention except for the revaluation of d) to supervise banking institutions and to promote freehold land and buildings, investment properties, the smooth operations of the payment system; listed shares and other financial instruments which e) to formulate and execute the monetary policy of are denominated in currencies other than the US$, Zimbabwe; which are converted at the spot (ruling exchange) f) to act as banker, financial advisor to, and fiscal rate at the reporting date. agent of, the State; g) whenever appropriate and subject to any 2.1 Financial Reporting Framework written directions given to it by the Finance The Bank presents its statement of financial position Minister, to represent the interests of Zimbabwe in in order of liquidity. The accounting policies are pre- international or inter - governmental meetings, pared on the basis of International Financial Report- multilateral agencies and other organisations in ing Standards (IFRS), except as described below. matters concerning Monetary Policy; h) to provide banking services for the benefit of: 2.1.1 IFRS 3 Business Combinations and IFRS 10 Consol- (i) foreign governments; idated Financial Statements (ii) foreign central banks or other monetary The financial statements of the subsidiary companies authorities; and of the Bank are not consolidated. The Directors of (iii) international organisations of which Zimbabwe is the Bank are of the opinion that the nature of the ac- a party; tivities of the Bank and its subsidiaries are so diverse i) to participate in international organisations that consolidation would not result in meaningful whose objectives is to pursue financial and presentation of the results of the Bank and its sub- economic stability through international monetary sidiaries. This is however, not in accordance with both co-operation; IFRS 3 Business Combinations and IFRS 10 Consol- j) subject to any written directions given to it by idated Financial Statements which requires that an the Finance Minister to undertake responsibilities entity (the parent) that controls one or more other and perform transactions concerning the state’s entities (subsidiaries) should present consolidated fi- participation in or membership of international nancial statements......

Annual Report 2015 73 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

amounts recognised in the financial statements are 2.1.2 IAS 21 Effects of changes in foreign exchange rates described in ‘note 4’ to the financial statements. The Bank has not recognised realised and unrealised exchange gains and losses on monetary items in the 3. SUMMARY OF SIGNIFICANT ACCOUNTING statement of profit or loss and other comprehensive POLICIES income in accordance with International Accounting Standard 21 (IAS 21) - Effects of changes in foreign 3.1 Revenue recognition exchange rates, which requires that all realised and Revenue is recognised to the extent that it is proba- unrealised exchange gains and losses on monetary ble that the economic benefits will flow to the Bank items be recognised in the statement of profit or loss and the revenue can be reliably measured, regardless and other comprehensive income. The exchange of when the payment is being made. Revenue is mea- gains and losses are either recoverable from or pay- sured at the fair value of the consideration received able to the Government of Zimbabwe in accordance or receivable, taking into account contractually de- with the provisions of section 34 of the Reserve Bank fined terms. of Zimbabwe Act [Chapter 22:15]. 3.1.1 Interest income 2.2 Use of estimates and judgments Interest income arises from the Bank’s lending and The preparation of the financial statements requires money market activities. It is accrued on a time pro- management to make judgments, estimates and as- portion basis, by reference to the principal outstand- sumptions that affect the application of accounting ing and at the interest rate applicable to the instru- policies and the reported amounts of assets, liabilities, ment. income and expenses. The estimates and associated assumptions are based on historical experience and 3.1.2 Fee and commission income various other factors that are believed to be reason- The Bank recognises fees on an accrual basis from able under the circumstances, the results of which licensing services in accordance with the substance form the basis of making the judgments about carry- of the underlying transaction. Commission income is ing values of assets and liabilities that are not readily recognised from services offered to the financial in- apparent from other sources. Actual results may dif- stitutions that are supervised by the Bank. Facility fees fer from these estimates. are recognised using the effective interest rate of the average life of the underlying asset. Due to the short Estimates and underlying assumptions are reviewed term nature of the loans and advances, the facility on an ongoing basis. Revisions to accounting esti- fees have been amortised equally over the term of mates are recognised in the year in which the esti- the loan as an estimation of the effective interest rate. mate is revised if the revision affects only that year or in the year of revision and future years if the revision 3.1.3 Dividend income affects both current and future years. Management Dividend income from investments is recognised judgment was used in the application of accounting when the Bank’s rights to receive the dividend have policies that have a significant effect on the financial been established. statements and on estimates with a significant risk of material adjustments in the subsequent year. 3.1.4 Other income Other income arising from the provision of banking Information about significant areas of estimation, un- services to clients is recognised on the accrual basis certainty and critical judgments in applying accounting in accordance with the substance of the underlying policies that have the most significant effect on the transaction......

74 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

3.1.5 Rental income 3.3.2 Pension scheme Rental income arising from operating leases on in- The Bank and its employees contribute 12% and 6% vestment property is accounted for on a straight line of pensionable earnings respectively to the Finance basis over the lease term. Trust of Zimbabwe Pension Fund. The fund is a defined contribution fund, the assets of which are held 3.1.6 Government grant in a separate trustee administered fund. The Bank recognizes income related to Government grants as deferred income in the statement of finan- 3.3.3 Termination benefits cial position, and is matched on a systematic basis Termination benefits are recognised as an expense with costs to which they relate on a monthly basis. when the Bank is committed, without realistic possi- bility of withdrawal, to a formal detailed plan to ter- 3.2 Foreign currency translation minate employment before the normal retirement These financial statements are expressed in United date, or to provide termination benefits as a result States Dollars (US$). of an offer made to encourage voluntary redundancy. Termination benefits for voluntary redundancies Transactions in currencies other than the US$ are re- are recognised as an expense if the Bank has made corded at the spot exchange rate on the transaction an offer encouraging voluntary redundancy, when date. it is probable that the offer will be accepted, and the number of acceptances can be estimated reli- Monetary assets and liabilities carried at amounts ably. that are denominated in currencies other than the US$ are translated at the spot exchange rate on the 3.3.4 Short term benefits reporting date. Short term benefits consist of salaries, accumulated leave payments and any non-monetary benefits such In terms of section 34(1) of the Reserve Bank of as medical aid contributions. Short-term employee Zimbabwe Act [Chapter 22:15], any realised ex- benefit obligations are measured on an undiscounted change gains and losses arising on the translation of basis and are expensed as the related service is pro- monetary foreign assets and liabilities and or the set- vided. tlement of monetary foreign assets and liabilities are for the account of the Government of Zimbabwe A liability is recognised for the amount expected to and are recorded in the gold and foreign currency be paid under accumulated leave if the Bank has a adjustment account which is disclosed under either present legal or constructive obligation to pay this “other receivables” or “other payables” on the state- amount as a result of past service provided by the ment of financial position. employee and the obligation can be estimated reliably. 3.3 Employee benefits 3.4 Taxation 3.3.1 Retirement benefit costs The Bank is exempt from Income Tax and Capital The Bank contributes towards a defined contribution Gains Tax in terms of the Income Tax Act (Chap- plan. Contributions to this plan are recognised as an ter 23:06) and the Capital Gains Tax Act (Chapter expense in the statement of profit or loss and other 23:01). comprehensive income in the periods in which services are rendered by the employees.

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Annual Report 2015 75 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

3.5 Property and equipment Buildings 50 Years Land and buildings held for use in the provision and Machinery 4 Years supply of services, or for administrative purposes, are Furniture and equipment 4 -10 Years initially measured at cost and subsequently stated in Motor vehicles 5 Years the statement of financial position at their revalued amounts, being the fair value at the reporting date, The gain or loss arising on the disposal or retirement determined from market-based evidence by apprais- of an asset is determined as the difference between al undertaken by independent professional valuers, the sale proceeds and the carrying amount of the as- less any subsequent accumulated depreciation and set and is recognised as income or expense in profit subsequent accumulated impairment losses. or loss.

Revaluations are performed with sufficient regular- 3.6 Investment property ity such that the carrying amount does not differ Investment property, which is property held to earn materially from the fair value determined at the re- rentals and or for capital appreciation, is initially porting date. Property and equipment are revalued measured at cost and subsequently at its fair value after three years in accordance with the Bank’s ac- at the reporting date. Gains or losses arising from counting policy. Any revaluation increase arising on changes in the fair value of investment property are the revaluation of buildings is credited to the revalu- included in profit or loss in the period in which they ation reserve, except to the extent that it reverses a arise. revaluation decrease for the same assets previously recognised as an expense, in which case the increase Cost includes expenditure that is directly attribut- is credited to profit or loss to the extent of the de- able to the acquisition of the investment property. crease previously charged. The cost of self-constructed investment property includes the cost of materials and direct labour, any A decrease in carrying amount is charged as an ex- other costs attributable to bringing the investment pense to the extent that it exceeds the balance, if property to a working condition for their intended any, held in revaluation reserve relating to a previous use and capitalised borrowing costs. When the use revaluation of that asset. of a property changes such that it is reclassified as property and equipment, its fair value at the date Depreciation on revalued buildings is charged to of reclassification becomes the cost for subsequent profit or loss. On the subsequent sale or retirement accounting. of a revalued property, the attributable revaluation surplus remaining in the properties revaluation re- 3.7. Financial instruments serve is transferred directly to the accumulated fund. All financial assets and liabilities are initially recognised Furniture, equipment and motor vehicles are stated on the trade date i.e., the date the Bank becomes a at acquisition or deemed cost less accumulated de- party to the contractual provisions of the instrument. preciation and impairment losses. The classification of financial instruments at initial recognition depends on their purpose and character- Depreciation is charged so as to write off the acqui- istics and management’s intention in acquiring them. sition cost or valuation of assets, other than land and The Bank’s financial instruments consist primarily of buildings under construction, over their estimated cash and deposits with banks, equity investments, useful lives to their residual values, using the straight loans and advances to customers, customer deposits, line method, on the following basis: TBs held to maturity, amounts due to banks, loans and borrowings......

76 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

3.7.1 Financial assets and financial liabilities 3.7.4 Gold and foreign assets Financial assets and financial liabilities are recognised Gold and foreign assets are recognised at the rate of in the statement of financial position when the Bank exchange ruling when they are acquired and subse- becomes a party to the contractual provisions of the quently restated using the spot exchange rate at the instrument. Management determines the appropri- reporting date. Gains and losses arising from move- ate classification at initial recognition of the financial ments in exchange rate of foreign assets and in the instrument. fair value of gold are for the account of the Govern- ment of Zimbabwe as stipulated in section 34 (1) 3.7.2 Financial assets of the Reserve Bank of Zimbabwe Act [Chapter Financial assets are classified into the following cate- 22:15]. gories: financial assets ‘at fair value through profit or loss’ (FVTPL), ‘held to maturity investments’, ‘available 3.7.5 Available for sale (AFS) financial assets for sale’ (AFS) financial assets and ‘loans and receiv- AFS financial assets include equity investments and ables’. The classification depends on the nature and debt securities. Equity investments classified as AFS purpose of the financial asset and it is determined at are those neither classified as held for trading nor the time of initial recognition. designated at fair value through profit or loss. Debt securities in this category are those that are intended The Bank’s main financial assets are loans and ad- to be held for an indefinite period of time and that vances, held to maturity investments, available for sale may be sold in response to needs for liquidity or in investments and other receivables. response to changes in market conditions.

3.7.3 Loans and receivables After initial measurement, AFS financial assets are Receivables, loans and advances to Government and subsequently measured at fair value with unrealised to Statutory Bodies, other loans and advances that gains or losses recognised in other comprehensive are not quoted on an active market are classified as income (OCI) and posted in the mark to mar- loans and receivables. These include loans to subsid- ket reserve until the investment is derecognised, at iaries as well as amounts due from the Government which time the cumulative gain or loss is recognised of Zimbabwe and Statutory Bodies. Loans and re- in other operating income. When the investment is ceivables are non-derivative financial assets with determined to be impaired, the cumulative loss is re- fixed or determinable payments that are quoted in classified from the mark to market reserve to the an active market. After initial measurement, such fi- statement of profit or loss as impairment loss. Div- nancial assets are subsequently measured at amor- idend received whilst holding AFS financial assets is tised cost using the effective interest rate method reported as dividend income. less impairment. Amortised cost is calculated by taking into account any discount or premium on acqui- 3.7.6 Held to maturity investments sition and fees or costs that are an integral part of Non derivative financial assets with fixed or deter- the effective interest rate. The effective interest rate minable payments and fixed maturities are classified amortisation is included in finance income in the as held to maturity when the Bank has the positive statement of profit or loss. The losses arising from intention and ability to hold them to maturity. After impairment are recognised in the statement of profit initial measurement, held to maturity investments are or loss in finance costs for loans and in other operat- measured at amortised cost using the effective inter- ing expenses for receivables. est rate method, less, impairment. The effective interest rate amortisation is included as finance income in the statement of profit or loss. The losses arising ......

Annual Report 2015 77 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

from impairment are recognised in the statement of Financial liabilities designated upon initial recognition profit or loss as finance costs. The Bank’s investments at fair value through profit or loss are designated at in Treasury Bills and other deposits have been classi- the initial date of recognition, and only if the criteria fied as held to maturity. in IAS 39 is met. The Bank has not designated any financial liability as fair value through profit or loss. 3.8 Financial liabilities Financial liabilities and equity instruments are classi- 3.8.2 Loans and borrowings fied according to the substance of the contractual This is the category most relevant to the Bank. Af- arrangements entered into. Financial liabilities are ter initial measurement, interest bearing loans and recognised when the Bank becomes party to the borrowings are subsequently measured at amortised contractual provisions of the instrument. Financial cost using the effective interest rate (EIR) method. liabilities are initially recognised at fair value, generally Gains and losses are recognised in profit or loss when being their issue proceeds net of transaction costs the liabilities are derecognised as well as through the incurred. effective interest rate amortisation process.

The best evidence of fair value on initial recognition Amortised cost is calculated by taking into account is the transaction price, unless the fair value is evi- any discount or premium on acquisition and fees or denced by comparison with other observable cur- cost that are an integral part of the EIR. The EIR am- rent market transactions in the same instrument ortisation is included as interest expense in the state- or based on discounted cash flow models and opment of profit or loss. tion-pricing valuation techniques whose variables in- This category generally applies to interest bearing clude only data from observable markets. loans and borrowings

The Bank’s main financial liabilities include Interna- 3.9 Currency in circulation tional Monetary Fund (“IMF”) facilities, domestic Currency issued by the Bank represents a claim on loans, payables, foreign loans, bills payable and deposit the Bank in favour of the holder. The liability for cur- accounts. rency in circulation is recorded at face value in the financial statements. Currency in circulation represents IMF facilities, foreign loans, domestic loans, bills pay- the face value of notes and coins issued to commer- able and interest bearing deposit accounts are subse- cial banks by the Reserve Bank of Zimbabwe. Unis- quently measured at amortised cost using the effec- sued notes and coins held by the Bank in the vaults tive interest method. do not represent currency in circulation.

3.8.1 Financial liabilities at fair value through profit or loss 3.9.1 Offsetting financial instruments Financial liabilities at fair value through profit or loss The Bank offsets financial assets and financial liabili- include financial liabilities held for trading and finan- ties and reports the net balance in the statement of cial liabilities designated upon initial recognition as at financial position where there is a legally enforceable fair value through profit or loss. right to set off and there is an intention to settle on a net basis or to realize the financial assets and settle Financial liabilities are classified as held for trading if the financial liability simultaneously and the maturi- they are incurred for the purpose of repurchasing in ty date for the financial assets and liabilities are the the near term. Gains or losses on liabilities held for same and the financial assets and liabilities are de- trading are recognised in the statement of profit or nominated in the same currency. loss......

78 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

3.9.2 Impairment and provisioning policies ing amounts. Any subsequent reductions in amounts At each reporting date, the Bank assesses whether previously impaired are reversed by adjusting the there is objective evidence that a financial asset or a allowance account with the amount of the reversal group of financial assets is impaired. A financial asset recognised as a reduction in impairment for credit or group of financial assets is impaired if objective ev- losses in profit or loss. Subsequent recoveries of pre- idence indicates that a loss event has occurred after viously written off advances are recognised in profit the initial recognition of the asset and that loss event or loss. had a negative effect on the estimated future cash flows of the financial asset or group of financial assets 3.9.3 Derecognition of financial assets and financial that can be estimated reliably. liabilities The Bank derecognises a financial asset when it loses The Bank considers objective evidence of impair- control over the contractual rights that comprise the ment as: financial asset and transfers substantially all the risks a) Insolvency/financial difficulties on the part of a and benefits associated with the financial asset. This debtor. arises when the rights are either realised, or they ex- b) Delinquency by counterparty. pire or are surrendered. c) Breach of loan covenants or conditions. The Bank derecognises a financial liability when the d) Deterioration of borrowers’ competitive position. obligation specified in the contract is discharged, can- e) Deterioration in the value of collateral. celled or expired. f) Renegotiation of loans to be on terms that the Bank would not otherwise consider. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the The Bank first assesses whether there is objective carrying amount of the portion of the asset to be evidence of impairment individually for financial as- transferred), and the sum of the consideration re- sets that are individually significant, and individually ceived (including any new asset obtained less any or collectively for financial assets that are not individ- new liability assumed), and any cumulative gain that ually significant. Loans and advances are analysed on had been recorded in other comprehensive income a case by case basis taking into account breaches of is recognised in profit or loss. key loan conditions in accordance with the Banking Regulations SI 205 of 2000. Impairment allowances 3.10 Investments in subsidiaries and joint ventures on individually assessed accounts are determined by A subsidiary is an investment in an entity wherein an evaluation of the impairment at reporting date on the Bank controls the investee. The Bank controls an a case by case basis, and are applied to all significant investee when it has power to govern the financial accounts. The assessment normally encompasses and operating policies, is exposed to variable returns collateral held and the anticipated receipts for that from its involvement with the investee and has ability account. to use its power to affect the amount of the investee’s returns. Increases in loan impairments and any subsequent A joint venture is a contractual arrangement entered reversals thereof, or recoveries of amounts previous- into by the Bank and other parties to share control ly impaired, are reflected in profit or loss. Previously of an economic activity. The strategic financial and impaired advances are written off once all reason- operating decisions relating to the economic activi- able attempts at collection have been made and ty require the consent of the Bank and other par- there is no realistic prospect of recovering outstand- ties......

Annual Report 2015 79 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

Investments in subsidiaries and joint ventures are stat- a) their carrying amount immediately prior to being ed at deemed cost. Subsequent to initial recognition, classified as held for sale in accordance with the the investments in subsidiaries or joint ventures are Bank’s accounting policy, or carried at cost less any accumulated impairment. b) fair value less cost to sale.

3.11 Provisions Following their classification as held for sale, non-cur- Provisions are recognised when the Bank has a pres- rent assets are not depreciated. ent legal or constructive obligation as a result of past events, for which it is probable that an outflow of 3.14 Fair value measurement economic benefits will be required to settle the ob- The Bank measures non-financial assets, such as in- ligation, and a reliable estimate can be made of the vestment properties, at fair value at each reporting amount of the obligation. date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly 3.12 Leases transaction between market participants at the mea- The Bank has entered into commercial property surement date. The fair value measurement is based leases on its investment property portfolio. The Bank on the presumption that the transaction to sell the has determined, based on an evaluation of the terms asset or transfer the liability takes place either: and conditions of the arrangements, such as the lease term not constituting a substantial portion of the • In the principal market for the asset or liability, or economic life of the commercial property, that it re- • In the absence of a principal market, in the most ad- tains all the significant risks and rewards of ownership vantageous market for the asset or liability. of these properties and accounts for the contracts as operating leases. Rental income and expenditure un- The principal or the most advantageous market must der operating leases is accounted for through profit be accessible by the Bank. The fair value of an asset or loss on a straight line basis, over the period of the or a liability is measured using the assumptions that lease. market participants would use when pricing the asset or liability, assuming that market participants act in 3.13 Non-current assets held for sale their economic best interest. The Bank uses valuation Non-current assets are classified as held for sale techniques that are appropriate in the circumstances when: and for which sufficient data is available to measure a) they are available for immediate sale; fair value, maximising the use of relevant observable b) management is committed to a plan to sell; inputs and minimising the use of unobservable inputs. c) it is unlikely that significant changes to the plan will be made or that the plan will be withdrawn. All assets and liabilities for which fair value is mea- d) an active programme to locate a buyer has been ini- sured or disclosed in the financial statements are tiated; categorised within the fair value hierarchy, described e) the asset is being marketed at a reasonable price in as follows, based on the lowest level input that is sig- relation to its fair value; and nificant to the fair value measurement as a whole: f) the sale is expected to be completed within 12 months from the date of classification. • Level 1. Quoted (unadjusted) market prices in active markets for identical assets or liabilities. Non-current assets classified as held for sale are • Level 2. Valuation techniques for which the lowest measured at the lower of: level input that is significant to the fair value measurement is directly or indirectly observable......

80 Annual Report 2015 TheThe Reserve Reserve Bank Bank of Zimbabweof Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

• Level 3. Valuation techniques for which the lowest dard requires entities to account for expected credit level input that is significant to the fair value mea- losses from when financial instruments are first rec- surement is unobservable. ognised and to recognise full lifetime expected losses on a timelier basis. For assets and liabilities that are recognised in the financial statements on a recurring basis, the Bank de- Hedge accounting termines whether transfers have occurred between IFRS 9 introduces a substantially-reformed model for Levels in the hierarchy by re-assessing categorisation hedge accounting, with enhanced disclosures about (based on the lowest level input that is significant to risk management activity. The new model represents the fair value measurement as a whole) at the end of a significant overhaul of hedge accounting that aligns each reporting period. the accounting treatment with risk management activities. 4. STANDARDS AND INTERPRETATIONS IN ISSUE BUT NOT YET EFFECTIVE Own credit IFRS 9 removes the volatility in profit or loss that At the date of authorisation of these financial state- was caused by changes in the credit risk of liabilities ments the following standards, amendments to exist- elected to be measured at fair value. This change in ing standards and interpretations were in issue, but accounting means that gains caused by the deterio- not yet effective up to the date of issuance of the ration of an entity’s own credit risk on such liabilities Bank’s financial statements: are no longer recognised in profit or loss. The Bank does not expect the revised standard to have mate- 4.1 IFRS 9 “Financial Instruments” rial financial impact in future financial statements. (effective for annual periods beginning on or after 1January 2018, with early application permitted), is- 4.2 IFRS 14 “Regulatory Deferral Accounts” (Effective sued on 24 July 2014 is the IASB’s replacement of for annual periods beginning on or after 1 January IAS 39 Financial Instruments: Recognition and Mea- 2016), published by IASB on 30 January 2014. surement. IFRS 9 includes requirements for recognition and measurement, impairment, derecognition This Standard is intended to allow entities that are and general hedge accounting. first-time adopters of IFRS, and that currently recognise regulatory deferral accounts in accordance with Classification and Measurement their previous Generally Accepted Accounting Prac- IFRS 9 introduces new approach for the classification tice (GAAP), to continue to do so upon transition to of financial assets, which is driven by cash flow char- IFRS. acteristics and the business model in which an asset is held. This single, principle-based approach replaces Entities that adopt IFRS 14 must present the reg- existing rule-based requirements under IAS 39. The ulatory deferral accounts as separate line items new model also results in a single impairment model on the statement of financial position and present being applied to all financial instruments. movements in these account balances as separate line items in the statement of profit or loss and oth- Impairment er comprehensive income. The standard requires IFRS 9 has introduced a new, expected-loss impair- disclosures on the nature of, and risks associated ment model that will require more timely recognition with, the entity’s rate-regulation and the effects of of expected credit losses. Specifically, the new Stan- that rate-regulation on its financial statements. The ......

Annual Report 2015 81 The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

amendment to IFRS 14 has no impact on the Bank, order in which they present the notes to financial since the Bank is an existing IFRS preparer. statements; That the share of OCI of associates and joint ventures accounted for using the equity method 4.3 IFRS 15 “Revenue from Contracts with Custom- must be presented in aggregate as a single line item, ers” (effective for annual periods beginning on or and classified between those items that will or will after 1 January 2017), published by IASB on 28 May not be subsequently reclassified to profit or loss. Fur- 2014. thermore, the amendments clarify the requirements that apply when additional subtotals are presented IFRS 15 specifies how and when an IFRS reporter in the statement of financial position and the state- will recognise revenue as well as requiring such en- ment(s) of profit or loss and other comprehensive tities to provide users of financial statements with income. The amendments will affect disclosures only more informative, relevant disclosures. The standard and will have no impact on the Bank’s financial posi- supersedes IAS 18 “Revenue”, IAS 11 “Construction tion or performance. Contracts” and a number of revenue-related interpretations. Application of the standard is mandatory 4.5 Amendments to IAS 16 “Property, Plant and Equip- for all IFRS reporters and it applies to nearly all con- ment” and IAS 38 “Intangible Assets” tracts with customers: the main exceptions are leas- Clarification of Acceptable Methods of Depreciation es, financial instruments and insurance contracts. The and Amortisation (effective for annual periods begin- core principle of the new Standard is for companies ning on or after 1 January 2016), published by IASB to recognise revenue to depict the transfer of goods on 12 May 2014. Amendments clarify that the use or services to customers in amounts that reflect the of revenue-based methods to calculate the depre- consideration (that is, payment) to which the com- ciation of an asset is not appropriate because rev- pany expects to be entitled in exchange for those enue generated by an activity that includes the use goods or services. The new Standard will also result of an asset generally reflects factors other than the in enhanced disclosures about revenue, provides consumption of the economic benefits embodied in guidance for transactions that were not previously the asset. Amendments also clarify that revenue is addressed comprehensively (for example, service generally presumed to be an inappropriate basis for revenue and contract modifications) and improve measuring the consumption of the economic bene- guidance for multiple-element arrangements. The fits embodied in an intangible asset. This presumption, Bank does not expect the standard to have material however, can be rebutted in certain limited circum- financial impact in future financial statements. stances. The amendments will not impact the Bank since the Bank does not use revenue based methods 4.4 Amendments to IAS 1 “Disclosure Initiative” (effec- to calculate depreciation. tive for annual periods beginning on after 1 January 2016). 4.6 Amendments to IAS 27 “Separate Financial State- ments” - Equity Method in Separate Financial State- The amendments to IAS 1 Presentation of Financial ments (effective for annual periods beginning on Statements clarify, rather than significantly change, or after 1 January 2016), Published by IASB on 12 existing IAS 1 requirements. The amendments clarify: August 2014. The amendments reinstate the equity The materiality requirements in IAS 1; That specific method as an accounting option for investments in line items in the statement(s)of profit or loss and subsidiaries, joint ventures and associates in an enti- OCI and the statement of financial position may be ty’s separate financial statements. The amendments disaggregated; That entities have flexibility as to the will not impact the Bank’s future financial statements......

82 Annual Report 2015 The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

The Bank has elected not to adopt these standards, ue of the properties. revisions and interpretations in advance of their ef- Each property is free from rot, infestation and struc- fective dates. The Bank anticipates that the adoption tural or latent defects. of these standards, revisions and interpretations will • No currently known deleterious or hazardous materi- have no material impact on the financial statements als or suspect techniques have been used in the con- of the Bank in the period of initial application. struction of, or subsequent alterations or additions to, each of the properties. 5 CRITICAL JUDGMENTS AND KEY SOURCES OF ESTIMATION IN APPLYING THE BANK’S AC- The key assumptions used and the inputs COUNTING POLICIES into the valuation methods are disclosed in ‘note 37’. In the process of applying the Bank’s accounting policies, the Directors have made the following judgments 5.2 Fair valuation of investment properties and estimations that have a significant effect on the The fair value of investment properties at year-end amounts recognised in the financial statements. was independently determined by the Bank’s property valuers, Edinview Property Group Real Estate 5.1 Property and equipment values, useful lives, residual (EPG Global). This resulted in a fair value decrease of values and depreciation rates US$950 000. The Directors have reviewed the results The Bank’s property and equipment are depreciated of the independent valuation for reasonableness and using depreciation rates, useful lives and residual val- they believe the investment properties have been fair- ues estimated by the Directors. The Bank’s land and ly valued. The key assumptions used in the fair value of buildings were independently revalued based on open investment property are further explained below: market values at 31 December 2013, by external property valuers. The Bank’s policy allows revaluation Investment Properties were revalued at 31 December of its property and equipment after every three year 2015 by independent professional valuers on the basis interval. The Directors assessed the carrying values of of market values. The valuations were conducted in ac- the property and equipment to ensure that the carry- cordance with International Valuation Standards using ing values are not materially different to the fair values. the following assumptions:

The Directors reviewed the results of the indepen- • The properties are still in the same state of repair and dent valuation for reasonableness and they believe the development as when they were inspected during the buildings have been fairly valued. In performing the val- previous valuation exercise. uation, the valuers considered the following key inputs: • Each property is not contaminated and is not adversely affected by any existing or proposed environmental • The properties are still in the same state of repair and law. development as when they were inspected during the • There are no abnormal ground conditions, or archae- previous valuation exercise. ological remains present, which might adversely affect • Each property is not contaminated and is not adverse- the present or future occupation, development or val- ly affected by any existing or proposed environmental ue of the properties. Each property is free from rot, law. infestation and structural or latent defect. • There are no abnormal ground conditions, or archae- • No currently known deleterious or hazardous materi- ological remains present, which might adversely affect als or suspect techniques have been used in the con- the present or future occupation, development or val- struction of, or subsequent alterations or additions to, ......

Annual Report 2015 83 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

each of the properties. The investment in Fidelity Printers and Refineries (Pri- vate) Limited (FPR) deemed cost was determined on The key assumptions used and the inputs into the val- the basis of a Directors’ valuation. The Directors deter- uation methods are disclosed in ‘note 37’. mined the carrying amount of the investment in Fidel- ity Printers and Refineries (Private) Limited by using 5.3 Impairment of loans and advances the net asset value shown in the 31 December 2009 At each reporting date, the Bank reviews the carrying audited financial statements. amount of its loans and advances against estimations of the recoverable amount. The Bank has estimated 5.4 Investments in subsidiaries and unquoted shares impairment for loans and advances in accordance with The Bank engaged the services of BDO Zimbabwe the Banking Regulations SI 205 of 2000, as set out in consultants for the independent fair valuation of its ‘note 8’ to the Directors’ report. investments in Infrastructural Development Bank of 5.4 Investments in subsidiaries and unquoted shares Zimbabwe (IDBZ) and African Import Export Bank These are stated at deemed cost, which was deter- (Afreximbank). The Directors have reviewed the re- mined through the use of independent valuers’ results of the independent valuations for reasonableness ports in the preparation of 2009 financial statements, and they believe the investments in unquoted shares using the following valuation methodologies, have been fairly valued. The key assumptions used and • Discounted Free Cash Flow method (DCFC) which the inputs into the valuation methods are disclosed in involves the forecasting of future cash flows that will ‘note 11’ and ‘note 17’ respectively. accrue to shareholders and discounting them at appropriate discount factor. 5.5 Provision for legal disputes • Price Earnings Multiples Method (PEMM), which in- The Bank is in the process of defending a number of volves capitalising the maintainable earnings of a busi- legal cases. The Directors do not believe that they will ness at an appropriate Price-Earnings (P/E) multiple by be an outflow of resources from the Bank arising from estimating the future maintainable earnings, having re- these cases other than already provided for, except gard to historical and forecast operating results, includ- from the cost of defending the cases. Consequently, no ing sensitivity to key economic, industrial and company additional provision has been made for these cases. specific risk factors, future growth aspects and general economic outlook. • Earnings Yield (EY), which is a simple capitalisation model that capitalises expected future earnings stream using a capitalisation rate which reflects an investor’s required rate of return. • Dividend Valuation Model, which involves discounting the expected future dividends of a company to their present value. • Net asset valuation model, generally this method involves subtracting the liabilities from a company’s assets to come up with a value. This method is generally suitable for companies in liquidation. It is however useful in coming up with a company’s minimum value.

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84 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

6. INCOME AND EXPENDITURE

6.1 Interest and commission income comprise: 2015 2014 US$ US$ Interest income - Treasury Bills (foreign and local Treasury Bills) 12,968,542 1,121,157 - Local and foreign bank balances 60,135 257,994 - Interest on advances to financial institutions and other 39,952,307 15,108,886 Bank charges (RTGS) 5,329,716 5,057,388 ______58,310,700 21,545,425 ______

Interest earning assets as at 31 December 2015 were US$1,086million (2014: US$446 million).(See note 35.3) The weighted average interest rate on assets was 6.3 % per annum (2014: 6.3%).

6.2 Interest and commission expense comprises: - interest expense on loans and advances 28,395,630 38,351,645 - interest on interbank facilities 7,823,801 3,204,552 ______36,219,431 41,556,197 ______

Interest expense consists mainly of interest on interbank advances, loans and advances. Interest bearing liabilities as at 31 December 2015 were US$683 million (2014: US$190 million). The weighted average interest rate charged on liabilities was 5.9% per annum (2014: 4.6%).

6.3 Other income comprises: Dividends from shares (local and foreign) 1,456,163 65,292 Government grant (budgetary support) 24,000,000 24,000,000 Government grant (TBs) 57,803,557 36,519,000 Licensing fees, customs declaration (CD) forms 12,808,749 5,190,780 Other income (derecognition of liabilities) 61,411,830 8,447,383 Profit on disposal of property and equipment 57,550 9,338 Rent receivable 905,905 978,330 ______158,443,754 75,210,123 ______

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Annual Report 2015 85 The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

2015 2014 US$ US$

6.4 Operating expenses 58,806,731 87,368,834 Operating expenses include: Auditors’ remuneration 201,250 356,500 Bond coins minting 2,457,035 1,862,111 Computer software licences 1,867,518 1,691,609 Demonetisation 9,053,556 - Depreciation of property and equipment 2,795,571 2,447,640 Impairment of unquoted investments 1,466,564 2,872,993 Impairment of investment property 950,000 850,000 Repairs, maintenance and Bank vehicle expenses 668,397 2,565,555 Retrenchment costs 906,173 5,687,004 Utility bills and telecommunication 1,853,925 2,172,156 Zimbabwe Revenue Authority interest and penalties - 32,162,427 Employee benefits 30,076,580 33,602,589 -salaries 21,028,019 23,153,963 -staff bonuses 1,267,010 1,167,835 -medical expenses 1,489,490 1,403,131 -Pension & National Social Security Authority contributions 3,263,780 2,084,577 -other expenses 3,028,281 5,793,083

Non-executive Directors’ fees 316,636 541,996

7 FINANCIAL ASSETS IMPAIRMENT REVERSAL Movements in provision for doubtful debts comprise: Change in provision for doubtful debts (Gvt) (see note 13.2) 381,654,386 224,151,453 Change in provision for doubtful debts (other) (see note 1 5) 1,994,554 1,231 ______383,648,940 224,152,684 ______

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86 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

8 PROPERTY AND EQUIPMENT (2015) Furniture, equipment and Land Buildings machinery Motor vehicles Total US$ US$ US$ US$ US$

Carrying amount at 1 January 2015 390,000 62,160,979 2,758,968 871,247 66,181,194 Gross carrying amount 390,000 63,818,498 6,079,091 5,951,863 76,239,452 Accumulated depreciation - (1,657,519) (3,320,123) (5,080,616) (10,058,258) Additions - - 650,049 313,563 963,612 Depreciation charge - (1,546,067) (986,472) (263,032) (2,795,571) Depreciation error takeon 19,993 19,993 Disposal cost (148,000) - (2,600) (818,264) (968,864) Disposal –accumulated depreciation - 19,341 1,267 787,137 807,745 ______Carrying amount at 31 December 242,000 60,654,246 2,421,212 890,651 64,208,109 2015 Gross carrying amount 242,000 63,818,498 6,726,540 5,447,162 76,234,200 Accumulated depreciation - (3,164,252) (4,305,328) (4,556,511) (12,026,091)

Had the land and buildings been carried at the historical cost, the carrying amount would have been US$49,468,832 (2014: US$53,614,103). PROPERTY AND EQUIPMENT (2014) Carrying amount at 1 January 2014 390,000 64,166,405 1,740,557 569,790 67,866,752 Gross carrying amount 390,000 64,243,497 4,540,287 6,012,348 75,186,132 Accumulated depreciation - (77,092) (2,799,730) (5,442,558) (8,319,380) Additions - - 1,681,391 621,328 2,302,719 Depreciation charge - (1,582,002) (652,296) (213,342) (2,447,640) Disposal cost - - (142,587) (681,813) (824,400) Disposal –accumulated depreciation - 1,576 131,903 575,284 708,763 Reclassified to non-current assets (425,000) - - (425,000) held for sale ______

Carrying amount at 31 December 390,000 62,160,979 2,758,968 871,247 66,181,194 2014 Gross carrying amount 390,000 63,818,498 6,079,091 5,951,863 76,239,452 Accumulated depreciation - (1,657,519) (3,320,123) (5,080,616) (10,058,258)

Had the land and buildings been carried at the historical cost, the carrying amount would have been US$53,614,103 (2013 US$57,759,374).

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Annual Report 2015 87 The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

2015 2014 9 INVESTMENT PROPERTY US$ US$ Opening balance 11,900,000 12,750,000 Fair value adjustment (950,000) (850,000) ______Closing balance 10,950,000 11,900,000 ______

The Bank’s investment property was revalued at 31 December 2015 by independent professional valuers, Edinview Property Group Global Real Estate, (EPG Global) who have recognised, relevant professional qualifications and have recent experience in the locations and categories of the investment properties that were valued. The valuations were performed on the basis of open market value. The valuations were conducted in accordance with International Valua- tion Standards and were based on prevailing arm’s length market transactions. Please refer to note 5.2 for the key valuations assumptions and estimates. The following amounts were recognised in the statement of comprehensive income as a result of rentals from the investment property held: 2015 2014 US$ US$ Rental income 905,905 978,330 Direct operating expenses from property that generated rental Income (62,781) (49,382) ______843,124 928,948 ______The Bank leases (operating lease) its investment properties to various tenants. The lease agreements are renewable on an annual basis. Future minimum lease payments as at 31 December 2016.

Up to 1 Year 2 to 5 Years More than 5 Years US$ 745,290 - - 2015 2014 10 INVESTMENT IN SUBSIDIARIES US$ US$

10.1 Investment in subsidiaries at deemed cost less impairment losses Shareholding Fidelity Printers & Refiners (Private) Limited 100% 16,647,587 16,647,587 Aurex (Private) Limited (note 10.2) 100% - - Homelink (Private) Limited 100% 7,053,022 6,720,522 Export Credit Guarantee Corporation (ECGC) 100% 74,576 74,576 Zimbabwe Asset Management Corporation (ZAMCO) 100% 287,521 90,488 Tuli Coal 100% 3,619,743 - Reszim 100% - - Arigato (Private) Limited 100% - - Hailcat (Private) Limited 100% - - Finance Trust of Zimbabwe (Private) Limited 100% - - ______27,682,449 23,533,173 ______......

88 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

2015 2014 US$ US$ 10.2 Aurex (Private) Limited reconciliation Opening Balance - 49,758 Capital Injection 177,361 80,668 Impairment loss (177,361) (130,426) ______Closing Balance - - ______

Investments in subsidiaries are carried at deemed cost less impairment losses. All of the above subsidiaries are incorporated in Zimbabwe. In accordance with the Reserve Bank of Zimbabwe Act [Chapter 22:15], the Bank is authorised to maintain shareholding in Fidelity Printers & Refiners (Private) Limited and Aurex (Private) Limited. However, the Banking Act Amendment Bill 2015, which is awaiting presidential assent, removes the limitations on shareholding in subsidiaries.

The Bank has reclassified Tuli Coal as a subsidiary during the reporting period. This was necessitated by the fact that the Bank stopped the process of actively looking for a buyer and Tuli Coal was not available for immediate sale. The Bank is in the process of buying out minority shareholders in order to smoothen the disposal process in the future. Once this process is done, Tuli Coal will be ready for disposal and the Bank will restart the disposal process at that stage.

2015 2014 US$ US$ 11. OTHER INVESTMENTS Unquoted local shares 3,470,251 6,212,818 Fair value (loss) (1,289,203) (2,742,567) ______Total 2,181,048 3,470,251 ______

The investments in unquoted local shares are classified as available for sale through other comprehensive income. The Bank’s unquoted local shares refer to the 12.43% investment in IDBZ.

The Bank engaged professional consultants who are experienced in the valuation of entities, to evaluate the fair value of the Bank’s investment in unquoted local shares.

The Net Asset Valuation method was used in the valuation of IDBZ. It was deemed appropriate model of valuation because most of IDBZ’s assets and liabilities are carried at fair value thereby negating the disadvantage of relying on book values.

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Annual Report 2015 89 The Reserve Bank of Zimbabwe

2015 2014 US$ US$ 12 INVESTMENTS IN LOCAL TREASURY BILLS

Zimbabwe Treasury Bills (ZTBs) 213,918,638 110,000,000 ______

During the reporting period, the Bank received ZTB’s worth US$104 million from the Government of Zimbabwe.

13 LOANS AND ADVANCES TO GOVERNMENT AND STATUTORY BODIES

13.1 Loans and advances Loans and advances 686,744,642 1,068,399,028 Impairment loss (686,744,642) (1,068,399,028) ______- - - - ______

13.2 Movement of impairment of loans and advances Balance at the beginning of the year (1,068,399,028) (1,292,550,481) Movement 381,654,386 224,151,453 ______Balance at the end of the year (686,744,642) (1,068,399,028) ______

The movement was a result of Government debt repayments and takeover of the Bank’s liabilities through issuance of Treasury Bills.

As at the reporting date, the loans and advances to Government were past due and impaired. However, the Govern- ment has committed to paying these loans through the Reserve Bank of Zimbabwe Debt Assumption Act which be- came law in mid-2015. All loans and advances to the Government and Statutory Bodies have been fully provided for in accordance with the provisions of the Banking Regulations SI 205 of 2000. Counterparties are not exposed to interest rate risk.

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90 Annual Report 2015 The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

14 NON-CURRENT ASSETS HELD FOR SALE 2015 2014 US$ US$

Buildings 766,500 1,183,000 Investments held for donation to Government Transload (Private) Limited (Dormant) - - Tuli Coal (Private) Limited - 1,619,743 Investments held for Sale Carslone (Private) Limited (Dormant - - Fiscorp (Private) Limited (Dormant) - - Venture Capital Company of Zimbabwe - - (Private) Limited (Dormant) - - ______Balance at the end of the year 766,500 2,802,743 ______

During the reporting period, the Bank disposed two properties (held for sale) for a consideration of US$520,000.

The RBZ Act transitional provision of 2010, requires the Bank to dispose all interests in companies domiciled in Zim- babwe with the exception of Fidelity Printers & refineries and Aurex (Private) Limited. As a result, all other subsidiaries have been classified as held for sale as per the Act. However, the Ministry of Finance and Economic Development authorised the Bank to retain interests in Homelink, ZAMCO and ECGC (Private) Limited for strategic purposes.

As a result of the inhibition faced in the disposal of Tuli Coal, the Bank decided to buy out minority shareholders and to clear the impediments. This resulted in Tuli Coal being reclassified as a subsidiary in the current year. However, as soon as the problems are cleared, the Bank will begin to actively search for a buyer.

The Government has however moved to amend the Reserve Bank of Zimbabwe Act and the proposed amendments removes the limitation of investments in subsidiaries. These amendments have been passed by the Parliament of Zim- babwe and are currently waiting for Presidential assent.

The Bank expects to dispose of the assets held for sale in the coming year and in the ordinary course of business.

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Annual Report 2015 91 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

2015 2014 US$ US$ 15 OTHER LOANS AND ADVANCES Advances -Government advances 183,840,063 - -Interbank advances 154,316,400 - -Loans to subsidiaries 5,426,005 - -Troubled banks facility (PTA) 45,500,000 -

-Finance Lease (note 15.1) 4,765,574 -

Private sector loans -Advances to private and public sector 84,373,447 - -Swift charges paid on behalf of banks 5,332 18,649 -Zimbabwe Industry Tobacco Auction Centre (ZITAC) - 689,879 -Fertilizer debtors 790,401 2,784,955 -Export Support Fund - 7,600,978 ______479,017,222 11,094,461 Impairment of other loans and advances (790,401) (11,075,812) ______478,226,822 18,649 ______

Movement in impairment of other loans and advances Balance at the beginning of the year (11,075,812) (11,077,041) Movement - 1,231 Amounts provided for that have been recovered 1,994,554 - Amounts provided for that have been written off 8,290,857 - ______Balance at the end of the year (790,401) (11,075,812) ______

Interbank and other advances

The Government of Zimbabwe, the Bank and Afreximbank entered into a tripartite agreement that introduced a US$200 million interbank facility known as the African Export Import Bank (Afreximbank) trade backed facility (AF- TRADES). The Interbank advances relate to advances made to deficit banks and are guaranteed by Afreximbank. Acting as an intermediary and an agent of Afreximbank, the Bank secures the funds from surplus banks for onward lending to deficit banks. At the reporting date, a total of $154 million had been advanced to the deficit banks.

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92 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

Loans to private sector Private sector loans are advances made by the Bank to various mining and other companies during the reporting period. The Bank sourced funds from PTA Bank for onward lending to the Zimbabwean economy productive sectors. Furthermore, the Bank received Treasury Bills worth US$2 million from fertilizer debtors as payment for their debt. In addition, the Bank decided to write off Export Support funds debtors due to delinquency and non-performing of the debts since 2009.

Impairment of other loans and advances The movement in impairment of other loans and advances was due to repayment through Treasury Bills by fertilizer debtors and write off due to non-recoverability of export support funds.

15.1 Finance Lease

The Bank extended a finance lease to Chemplex Corporation for the purchase of machinery valued at USD5 million. The Lease is for a three year term at 9.5% interest rate using the diminishing balance method with a guaranteed residual value of US$1.

2015 2014 US$ US$ Gross investment 5,823,471 - Unearned finance income (823,471) - ______Present value 5,000,000 - ______

Up to 1 year 2 to 5 years More than 5 Years US$ US$ US$

Gross investment 1,990,471 3,832,500 - Unearned finance income (490,471) (332,500) - ______Present value 1,500,000 3,500,000 - ______

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Annual Report 2015 93 The Reserve Bank of Zimbabwe

2015 2014 16 OTHER RECEIVABLES US$ US$

Receivables 21,448,059 5,269,984 Prepayments 3,698,333 1,196,456 Impairment loss (note 16.1) (870,970) (980,108) ______24,275,422 5,486,332

Government IMF drawdowns 271,882,400 271,882,400 Poverty Reduction Growth Trust (PRGT) payments (13,050,000) (11,250,000) IMF interest and charges 2,068,586 1,957,474 Advances to financial institutions and other 388,761,815 329,382,497 ______Balance at year end 673,938,223 597,458,703 ______

During the reporting period, the Bank introduced loans to staff. These are included under receivables. Also, included under receivables are funds due from subsidiaries and accrued interest on advances. Government IMF drawdown is made up of SDR 168 million (2014:SDR168 million) withdrawn by the Government from their IMF SDR allocation The Bank holds SDRs on behalf of the Government of Zimbabwe. On receipt of the funds, the Bank recognizes an asset (cash) and a liability, while utilization results in reclassification of cash to the Government receivable. This amount is classified as other receivables because the Bank has no claim over this from the Government. It is a book entry to reflect the movement of the SDR allocation utilized by the Government. PRGT are Government repayments to IMF.

16.1 Impairment allowance reconciliation Aurex (Private) Limited - (370,000) Impairment allowance for rent receivables (870,970) (610,108) ______Balance at year end (870,970) (980,108) ______

Due to breaches in payment by the Bank’s tenants, management decided to allow for impairment on all long outstanding rent receivables. In addition, the Bank has also written off the US$370,000 loan advanced to Aurex Private Limited in 2007 which it failed to repay.

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94 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

2015 2014 US$ US$ 17 GOLD AND FOREIGN ASSETS Gold 15,643,501 485,653 Foreign investments 89,414,248 53,860,456 ______105,057,749 54,346,109 Committed Funds 5,270,409 7,095,974

South African Treasury Bills (Held to Maturity) 5,270,409 7,095,974

110,328,158 61,442,083 ______Foreign investments reconciliations

Foreign investments 53,860,456 39,460,476 Additions 30,698,138 62,543 Currency revaluation (swift shares) (12,595) (6,961) Fair value adjustment 4,868,249 14,344,398 ______Balance at year end 89,414,248 53,860,456 ______

During the period, the Bank reintroduced gold purchases to boost the country’s gold holdings. At the reporting date, the Bank had purchased US$15 million worth of gold. Foreign investments are comprised of African Export-Import Bank (Afreximbank) and SWIFT shares.

The Bank engaged external consultants (BDO Zimbabwe) for the valuation of its investment in Afreximbank. The following valuation methods were used to calculate the value of the investee.

METHOD OF VALUATION ASSIGNED WEIGHT Discounted Free Cash flow 20% Dividend Valuation 65% Net Asset Value 15%

The weights were assigned based on the strength and weakness of each method .This is consistent with the method used in the prior year.

The South African Treasury Bills of ZAR 82.5 million are held to maturity investments, at the South African Reserve Bank. These Treasury Bills were pledged as security for the South African overdraft facility of ZAR 75 million. The movement in the investments is mainly due to U$/ZAR fluctuations.

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Annual Report 2015 95 The Reserve Bank of Zimbabwe

2015 2014 US$ US$ 18 CASH AND BANK BALANCES Nostro accounts balances 294,831,736 287,247,754 Bank balances/ cash at hand 28,160,127 14,516,880 Financial Institutions balances 100,000 72,246 ______323,091,863 301,836,880 ______

Cash and Bank Balances comprises cash on hand and demand deposits with local and foreign banks (including SDR balances held at the International Monetary Fund). Cash equivalents are short term, highly liquid investments that are readily convertible to known amounts of cash that are subject to insignificant risk of change in values.

19 SHARE CAPITAL 2015 2014 US$ US$ Authorised ______2 million shares of $1 each 2,000,000 2,000,000 ______

Issued ______2 million shares of $1 each 2,000,000 2,000,000 ______

Reserves ______Share premium 98,000,000 98,000,000 ______

The Bank’s authorised capital stock is in the amount of US$2 million wholly issued to the Government of Zimbabwe as per section 31 of the Reserve Bank of Zimbabwe Act (Chapter 22:15). The entire issued share capital of the Bank is held by the Government of Zimbabwe. The Government of Zimbabwe issued US$100 million 8 year debt instruments to the Bank as capitalisation. The debt instruments have a coupon rate of 7.5%.

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96 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

2015 2014 US$ US$

20 REVALUATION RESERVE Revaluation surplus 3,997,662 3,997,662 ______Closing balance 3,997,662 3,997,662 ______

21 MARK TO MARKET RESERVE Opening balance 42,099,086 27,754,688 Fair value gain on available for sale investments 4,868,249 14,333,640 Fair value gain on other foreign investments - 10,758 ______Closing balance 46,967,335 42,099,086 ______

22 NON DISTRIBUTABLE RESERVE Arising from restatement process (903,715,388) (903,715,388) ______

This amount is the overall net effect of the restatement process on the translation from Zimbabwe dollar statement of financial position that gave rise to United States dollar denominated statement of financial position as at 1 January 2009.

23 GENERAL RESERVE FUND Balance at the end of the year - - ______

In terms of section 32 of the Reserve Bank of Zimbabwe Act [Chapter 22:15], the Bank is required to maintain a general reserve fund. Once the balance of the fund exceeds three times the issued share capital of the Bank, any operating surplus, after providing for bad and doubtful debts, depreciation, staff costs and any such items as are usually provided by financial institutions, shall ultimately be paid to the Government of Zimbabwe.

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Annual Report 2015 97 The Reserve Bank of Zimbabwe

2015 2014 US$ US$ 24 ACCUMULATED SURPLUS/ (DEFICIT)

Opening Balance (163,898,718) (355,881,919) Movement 505,377,232 191,983,201 ______Closing balance 341,478,514 (163,898,718) ______

25 BILLS PAYABLE

Local bonds 11,827,518 3,386,100 Loans from regional banks 25,000,000 - Zep-Re PTA Investments 3,457,562 1,335,214 ______Closing balance 40,285,080 4,721,314 ______

The foreign currency bonds were issued by the Bank in United States dollars prior to the multicurrency system to raise funds to finance the nation’s critical foreign currency requirements. The bonds were issued for a period of two years at 6% plus the ruling London-Interbank Offer Rate (LIBOR). These have since matured and the Bank is treating them as creditors.

26 CURRENCY IN CIRCULATION Notes - - Coin - - Bond Coins 7,463,797 780,594 ______7,463,797 780,594 ______

The increase in currency in circulation was due to the acceptance of the bond coins in the market.

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98 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

2015 2014 27 INTERNATIONAL MONETARY FUND FACILITIES US$ US$

Net cumulative SDR allocations 377,474,006 394,218,451 Poverty Reduction Growth Trust (PRGT) 109,669,624 116,371,358 IMF No.1 and 2 1,228,948 1,283,463 ______488,372,578 511,873,272 ______

Net cumulative SDR allocations to the Government of Zimbabwe by IMF were deposited into the Bank’s offshore account. The Special Drawing Rights (SDR) amounts equivalent owed to IMF SDR allocations and PRGT were as follows:

2015 2014 SDR SDR

Net Cumulative SDR allocations 272,178,883 272,178,883 Accrued charges 22,744 22,797 ______272,201,627 272,201,680 ______

Poverty Reduction Growth Trust (PRGT) 62,484,153 63,771,845 Accrued charges 16,593,493 16,574,030 ______79,077,646 80,345,875 ______

The exchange rate applied, USD /SDR 1.38686 (2014, USD /SDR 1.44838)

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Annual Report 2015 99 The Reserve Bank of Zimbabwe

2015 2014 US$ US$ 28 FOREIGN LIABILITIES Aggregated foreign loans 437,108,734 428,714,219 ______The Bank’s foreign loans are funds owed to non-resident companies, and were drawn down in foreign currencies during the

Zimbabwe dollar era. The foreign loans attract interest rates of 5% as per the RBZ Debt assumption Act 2015.

Also, included in foreign liabilities are facilities extended to the Bank and Government of Zimbabwe by Afreximbank and PTA Bank. These facilities enabled Government to assume closed banks ‘and private sector non-performing loans with these institutions. Also, the PTA facility was for productive sector refinancing. The interest rates on these facilities range between 5% & 8% per annum. These measures were taken to improve the country’s credit rating.

Additionally, the foreign loans include the South African Reserve Bank overdraft of ZAR62.8 million, USD equivalent of US$4 million against a ZAR75 million facility. The facility is secured by encumbered assets in the form of South African Treasury Bills held at the South African Reserve Bank amounting to ZAR 82.5 million, equivalent of US$5.3 million.

29 DOMESTIC LOANS 254,667,807 241,136,855 ______

These are foreign currency denominated loans owed to resident companies which were drawn mostly during the Zim- babwe dollar era. The interest rate applicable is 5 % per annum as per RBZ Debt assumption Act 2015. The Bank has stopped accruing interest on these loans since January 2014 as a result of Government directive.

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100 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

2015 2014 30 DEPOSIT ACCOUNTS US$ US$ Local Financial institutions -Bankers RTGS 544,408,711 455,345,757 -Parastatals (FCAs) 159,223,305 190,429,712 -Corporates (FCAs) 8,776,526 49,775,827 -Other 13,249,680 8,143,321 ______725,658,222 703,694,617 Government Accounts 41,051,379 25,063,723 Short term deposits 172,231,330 23,680,322 ______938,940,931 752,438,662 ______Foreign Non-Governmental Organisations (FCAs) 18,183,736 14,125,653 PTA accounts 3,673,330 3,502,772 ______21,857,066 17,628,425 ______Grand total 960,797,997 770,067,087 ______Included in the short term deposits are deposits from surplus banks worth $166 million under the Interbank Aftrades facility.

31 PAYABLES Payables 84,252,154 116,967,896 Gold & foreign currency adjustment account 43,615,540 25,899,797 ______Balance for the year 127,867,694 142,867,693 ______

31.1 LEAVE PAY PROVISION RECONCILIATION

Opening balance 1 January 3,514,454 3,169,014 Net provisions unutilised or (utilised) (598,766) 345,440 ______Closing balance 31 December 2,915,688 3,514,454 ______

The leave pay provision is included in the payables balance at year end.

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Annual Report 2015 101 The Reserve Bank of Zimbabwe

31.2 Gold and Foreign Currency Adjustments (GFCA account) At reporting date, the Bank had a balance of US$44 million unrealised foreign exchange gains. In accordance with section 34 of the RBZ Act Chapter 22:15 any realised exchange gains or losses are for the account of Government. Any payment of the exchange gains to the Government shall be made in accordance with arrangements approved by the Ministry of Finance and Economic Development. In the same light, any exchange losses are receivables from Govern- ment of Zimbabwe and any payment by the Government of Zimbabwe on the receivable balance shall be upon request by the Bank. The GFCA account does not accrue any interest.

32. CONTINGENT LIABILITIES

At reporting date, the Bank had contingent liabilities of US$68,705,739. The contingent liabilities are comprised of US$15,812,085 relating to disputed amounts with various creditors whose debts were taken over by the Government as at 31 December 2013 and the US$37,100,386 is the interest charged by other creditors that is still in dispute. Fur- thermore US$13,436,987 is related to 12 % interest charged by banks on FCAs balances as compared to 5% charged by the Bank. The remaining US$2.4 million relates to pending court cases. The Bank believes the outcome of the nego- tiations and court cases are uncertain.

2015 2014 US$ US$

Court Cases 2,356,281 2,356,281 FCAs Banks 13,436,987 - Various Creditors 15,812,085 15,812,085 Interest by other creditors 37,100,386 10,471,131 ______Closing balance 31 December 68,705,739 28,639,497 ______

33 CAPITAL COMMITMENTS

Authorised and contracted: 3,596,996 3,250,000 Authorised and uncontracted: - - ______Total 3,596,996 3,250,000 ______

The Bank is still committed to the Microsoft and Temenos Cloud computing project and Globus T24 upgrade systems respectively. As at 31 December 2015, the Bank had paid an additional US$346,996 for the Cloud Project. At reporting date, these projects were still at implementation stage.

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102 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

34 RETIREMENT BENEFIT SCHEMES

34.1 Private scheme The Bank and its employees contribute to the Finance Trust of Zimbabwe Pension Fund. The fund is a defined contribution fund, the assets of which are held in a separate trustee administered fund. The Bank contributes 12% and the employees 6% of pensionable earnings. During the year under review the Bank contributed US$2,938,502 (2014; US$1,624,204) towards this plan and the cost is included in the staff costs.

34.2 National Social Security Authority (NSSA) scheme The employees are also members of a state-managed retirement benefit plan, NSSA, and the contributions to the scheme are made in terms of the National Social Security Authority Act (Chapter 17:04). During the year the Bank contributed US$325,241 (2014: US$460,373) towards this plan and the cost is included in the staff costs.

34.3 Recognition of contributions The Bank’s obligation with respect to the retirement benefit plan is to make the specific contributions. The contributions to the pension funds are recognized as an expense when they fall due.

2015 2014 US$ US$ 34.4 Contributions recognized as an expense during the year Finance Trust of Zimbabwe Pension Fund 2,938,502 1,624,204 National Social Security Authority Scheme 325,241 460,373 ______3,263,743 2,084,577 ______

35 FINANCIAL ASSETS AND RISK MANAGEMENT

The Bank has various policies and procedures to manage its risk. Below is a table on classification of the Bank’s financial assets on certain aspects of its risk management specific to its financial instruments.

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Annual Report 2015 103 The Reserve Bank of Zimbabwe

35.1 Classification of Financial Assets and Liabilities (2015)

Held to Loans & Available Investments Loans and maturity Borrowings for sale in subsidiaries receivables investments Total US$ US$ US$ US$ US$ US$ Financial Assets Investments in subsidiaries at cost - - - 27,682,449 - 27,682,449 Other investments - - 2,181,048 - - 2,181,048 Other loans and advances - - - - 478,226,822 478,226,822 Other receivables - - - - 673,938,223 673,938,223 Investments in Treasury Bills 213,918,638 - - - - 213,918,638 Gold and foreign assets 5,270,409 - 105,057,749 - - 110,328,158 Cash and Bank balances - - - - 323,091,863 323,091,863 ______Total 219,189,047 - 107,238,797 27,682,449 1,475,256,908 1,829,367,201 ______

Financial Liabilities Bills payable - 40,285,080 - - - 40,285,080 Bond coins in circulation - 7,463,797 - - - 7,463,797 International Monetary Fund facilities - 488,372,578 - - - 488,372,578 Foreign Liabilities - 437,108,734 - - - 437,108,734 Domestic Loans - 254,667,807 - - - 254,667,807 Deposit accounts - 960,797,997 - - - 960,797,997 Payables - 127,867,694 - - - 127,867,694 ______Total - 2,316,563,687 - - 2,316,563,687 ______

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104 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

35.1 Classification of Financial Assets and Liabilities (2014)

Held to Loans & Available Investments Loans and maturity Borrowings for sale in subsidiaries receivables investments Total US$ US$ US$ US$ US$ US$

Financial Assets Investments in subsidiaries at cost - - - 23,533.173 - 23,533,173 Other investments - - 3,470,251 - - 3,470,251 Other loans and advances - - - - 18,649 18,649 Other receivables - - - - 597,458,703 597,458,703 Held to maturity investments 110,000,000 - - - - 110,000,000 Gold and foreign assets 7,095,974 - 54,346,109 - - 61,442,083 Cash and Bank balances - - - - 301,836,880 301,836,880 ______Total 117,095,974 - 57,816,360 23,533,173 899,314,232 1,097,759,739 ______

Bills payable - 4,721,314 - - - 4,721,314 Bond coins in circulation - 780,594 - - - 780,594 International Monetary Fund facilities - 511,873,272 - - - 511,873,272 Foreign Liabilities - 428,714,219 - - - 428,714,219 Domestic Loans - 241,136,855 - - - 241,136,855 Deposit accounts - 770,067,087 - - - 770,067,087 Payables - 142,867,693 - - - 142,867,693 ______Total - 2,100,161,034 - - - 2,100,161,034 ______

35.2 Market price risk Market price risk is the risk of loss resulting from changes in market conditions and prices. Market price risk includes interest rate risk, currency risk and equity price risk. In its monetary policy operations, the Bank is obliged to accept certain market-related risks which would not be fully compatible with pure commercial practice. The Bank nevertheless manages its market risks responsibly, utilising modern technology and appropriate organisational structures and procedures. Exposures and limits are measured continuously and strategies are routinely reviewed by management on a daily basis and, when circumstances require, throughout the day.

35.3 Interest rate risk Interest rate risk is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. This is managed at both the Board and management level through regular policies and benchmarks which relate to interest rate risk management. The majority of the Bank’s loans and advances facilities are at concessionary rates and some are at nil interest which is not market linked......

Annual Report 2015 105 The Reserve Bank of Zimbabwe

The Bank’s senior management oversees the management of these risks and they are supported by a committee that advises on financial risks and the appropriate risk governance framework for the Bank. The risk committee provides assurance that the Bank’s financial risk activities are governed by appropriate policies and procedures and that financial risks are identified, measured and managed in accordance with the Bank’s policies and risk objectives.

Listed below are the Bank’s interest earning assets and interest bearing liabilities:

2015 2014 Financial assets Average Interest US$ US$

Foreign Treasury Bills 6% 5,270,409 7,095,975 Advances to financial institutions 6% 388,761,815 329,382,498 Zimbabwe Treasury Bills 4% 213,918,638 110,000,000 Interbank advances 8% 154,316,400 - Government Advances 7% 183,840,063 - Loans to subsidiaries 9% 50,926,004 - Loans and advances 9% 89,139,022 - ______Total 6.3% 1,086,172,351 446,478,473 ______Financial Liabilities Foreign bonds 7% 33,007,262 4,721,314 Foreign loans 5% 481,021,550 294,393,745 Deposits 7% 165,803,426 - Sarb 1 6% 4,036,970 5,561,644 ______Total 5.9% 683,869,208 303,676,703 ______

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106 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

35.4 Equity risk analysis: Afreximbank and Infrastructure Development Bank of Zimbabwe (IDBZ).

The Bank is exposed to equity price risk on its investments classified as available for sale. The fair value of the available for sale investments was estimated using a weighted average equity price based on Dividend valuation model (DVM), Discounted cash flow model (DCF) and Net asset model (NAV).

Below is a sensitivity analysis showing the impact of increases/decreases in the weights assigned and impacts on equity fair value.

Reduce DVM by 10% Increase DVM by 10% Afreximbank (6 211 Shares) Weight Calculated weighted weight weighted weight weighted Assigned Value value assigned value assigned value Valuation Method Dividend valuation model (DVM) 65% 11,834 7,692 55% 6,509 75% 8,876 Discounted cash flow model (DCF) 20% 21,698 4,340 25% 5,425 15% 3,255 Net asset model (NAV) 15% 15,641 2,346 20% 3,128 10% 1,564 Estimated equity value per share (US$) 14,378 15,062 13,695 ______Value of shares (US$ 000) 89,302 93,550 85,060

IDBZ (304 408 Shares)

Valuation Method Net asset value model 100% 7.16 7.16 100% 7.16 100 7.16 Estimate equity value per share (US$) 7.16 7.16 ______Value of shares (US$ 000) 2,181 2,181 2,181

35.5 Foreign currency risk Foreign currency risk is the risk that the fair value or future cash flows of an exposure will fluctuate because of changes in exchange rates. The Bank’s assets and liabilities are predominantly held in US$ (the Bank’s functional currency) hence reduced currency risk. The Bank’s exposure to currency risk from holding SDR’s, gold and foreign-exchange reserves and investments is limited by the fact that movements in gold and foreign exchange rates against the dollar are for the account of the Zimbabwean Government in terms of the RBZ Act. Therefore, the Bank is not exposed to currency risk.

35.6 Credit risk Credit risk is the risk of loss due to the inability or unwillingness of a counterparty to meet its contractual obligations. Credit risk arises from such activities of the Reserve Bank of Zimbabwe as advances to and deposits made with other institutions and the settlement of financial market transactions.

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Annual Report 2015 107 The Reserve Bank of Zimbabwe

Credit mitigation is employed by the Bank through taking collateral mostly in the form of Treasury Bills, real estate and other guarantees. The Bank is exposed to credit risk from its operating activities, financing activities including deposits with banks and financial institutions, foreign exchange transactions and other financial instruments.

Credit risk from balances with banks and financial institutions is managed by the Bank’s treasury department in accordance with the Bank’s policy.

Concentration of credit risk The Bank deals with a variety of financial institutions and its loans and advances are structured and spread among them. In addition, the Bank has procedures and policies in place to limit the amount of credit exposure to any counterparty. The Bank reviews, on a regular basis, the credit limits of counterparties and takes action accordingly to ensure that exposure limits are not exceeded. At the reporting date, the Bank was exposed to concentration risk as its deposits and other advances were concentrated to the financial services sector.

Credit risk measurement The Bank assesses the probability of default of financial institutions or counterparty using internal rating scale tailored to the various categories of counterparties. The rating scale has been developed internally and combines data analysis with credit officer judgment and is validated, where appropriate, by comparison with externally available information. Clients of the Bank are segmented into seven rating classes. The Bank’s rating scale, which is shown below, reflects the range of default probabilities defined for each rating class. This means that, in principle, exposures migrate between classes as the assessment of their probability of default changes. The rating scale is kept under review and upgraded as necessary. The Bank regularly validates the performance of the rating and their predictive power with regard to default events.

Bank’s Internal Ratings Scale

Bank’s rating grade Description of the rating

1 Low risk 2 Satisfactory risk 3 Fair risk 4 Watch list 5 Sub-Standard risk 6 Doubtful and bad 7 Loss

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108 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

35.6.1 Credit risk Analysis

Neither Past Past due Past due and Total Due/nor impaired not impaired impaired

Credit risk Analysis 2015 US$ US$ US$ US$

Cash and Bank balances 323,091,863 - - 323,091,863 Gold and foreign assets 20,913,910 - - 20,913,910 Receivables 20,588,823 4,107,707 449,862 25,146,392 Other receivables 648,584,830 - - 648,791,830 Zimbabwe Treasury Bills 213,918,638 - - 213,918,638 Government recoverable - - 686,744,642 686,744,642 Interbank Advances 478,433,822 - - 478,226,822 ______Total non-derivative assets 1,705,531,886 4,107,707 687, 194,504 2,396,834,097 ______

Credit risk Analysis 2014

Cash and Bank balances 301,836,880 - - 301,836,880 Gold and foreign assets 7,581,627 - - 7,581,627 Receivables 5,253,207 233,125 980,108 6,466,440 Advances to financial institutions 329,382,497 - - 329,382,497 and other Zimbabwe Treasury Bills 110,000,000 - - 110,000,000 Government recoverable - - 1,068,399,028 1,068,399,028 ______Total non-derivative assets 754,054,211 233,125 1,069,379,136 1,823,666,472 ______

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Annual Report 2015 109 The Reserve Bank of Zimbabwe

35.6 .2 Credit risk exposure

The table below shows the maximum exposure to credit for the components of the statement of financial position.

2015 2014 US$ US$ Cash and Bank balances 323,091,863 301,836,880 Gold and foreign assets 20,913,910 7,581,627 Receivables 25,146,393 6,466,440 Advances to financial institutions 388,761,815 329,382,497 Zimbabwe Treasury Bills 213,918,638 110,000,000 Interbank facility advances 478,226,822 - Other facilities 50,618,593 - Loans and advances 89,139,022 - ______Total 1,589,817,054 755,267,444 ______

The Bank held collateral worth US$341 million on advances to financial institutions. The collateral held by the Bank is in the form of Government of Zimbabwe Treasury Bills.

35.7 Liquidity risk Liquidity risk concerns the ability of the Bank to fulfil its financial obligations as they become due. As a result of the multi-currency regime, the Bank faces liquidity risk on domestic and foreign assets as it does not have the capacity to create local currency when required. The Bank faces liquidity risk in respect of foreign assets and liabilities. Due to these challenges, it has been difficult for the Bank to settle its liabilities as they fall due. However, the Government, through the Ministry of Finance and Economic Development, has pledged continued support to the Bank. The Government has started the process of taking over the Bank’s liabilities.

The table below analyses the Bank’s financial assets and financial liabilities into relevant maturity groups and the amounts disclosed in the table are the contractual undiscounted cash flows.

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110 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

35.7.1 Maturity Analysis (2015) On demand Due between Due between Due between Due After Total 0-3 months 3-12 months 1-5 years 5 years carrying cost amount US$ US$ US$ US$ US$ US$ Non-derivative liabilities Bills payable 10,650,580 2,427,562 27,206,938 - - 40,285,080 International Monetary Fund facilities 110,898,572 - - - 377,474,006 488,372,578 Foreign liabilities 107,297,817 52,941,336 110,202,914 166,666,667 - 437,108,734 Domestic loans 132,484,700 - 122,183,107 - - 254,667,807 Deposit accounts 794,994,571 13,347,131 - 152,456,295 - 960,797,997 Payables 127,867,694 - - - - 127,867,694 Bond coins in circulation 7,463,797 - - - - 7,463,797 ______Total non-derivative liabilities 1,291,657,731 68,716,029 259,592,959 319,122,962 377,474,006 2,316,563,687 ______Assets held for managing liquidity risk Cash and Bank balances 323,091,863 - - - - 323,091,863 Held to maturity Investments - 5,270,409 - 213,918,638 219,189,046 Available for sale 15,643,501 89,414,248 - - 105,057,749 Loans and receivables - 415,999,050 - 8,019,481 261,692,046 685,710,578 Interbank advances - 15,000,000 139,316,400 - - 154,316,400 ______Total assets held for managing 338,735,364 436,269,458 228,730,648 8,019,481 475,610,684 1,487,365,636 liquidity risk ______Net exposure 952,922,367 (367,553,429) 30,862,311 311,103,480 (98,136,678) 829,198,051 ______

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Annual Report 2015 111 The Reserve Bank of Zimbabwe

35.7.2 Maturity Analysis (2014) On demand Due between Due between Due between Due After Total 0-3 months 3-12 months 1-5 years 5 years carrying cost amount US$ US$ US$ US$ US$ US$ Non-derivative liabilities Bills payable 4,721,314 - - - - 4,721,314 International Monetary Fund facilities 117,654,821 - - - 394,218,451 511,873,272 Foreign liabilities 428,714,219 - - - - 428,714,219 Domestic loans 241,136,855 - - - - 241,136,855 Deposit accounts 770,067,087 - - - - 770,067,087 Payables 142,867,693 - - - - 142,867,693 Bond coins in circulation 780,594 - - - - 780,594 ______Total non-derivative liabilities 1,705,942,583 - - - 394,218,451 2,100,161,034 ______

Assets held for managing liquidity risk Cash and Bank balances 301,836,880 - - - - 301,836,880 Held to maturity investments - 7,095,974 - - 110,000,000 117,095,974 Available for sale 485,653 - - - - 485,653 Loans and receivables - 5,486,332 329,382,497 - 262,589,874 597,458,703 ______Total assets held for managing 302,322,533 12,582,306 329,382,497 - 372,589,874 1,016,877,210 liquidity risk ______Net exposure (1,403,620,050) 12,582,306 329,382,497 - 21,628,577 (1,083,283,824) ______

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112 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

35.7.3 Default and breaches disclosure

As at reporting date, the Bank was in default for the loans and payables listed below. The carrying amounts include the principle and interest.

2015 2014 US$ US$ Non-derivative liabilities Bills payable 11,827,518 3,386,100 International Monetary Fund facilities 110,898,572 117,654,821 Foreign liabilities 107,297,817 184,704,600 Domestic loans 132,484,700 131,172,509 Deposit accounts 187,604,593 254,482,207 Payables 84,252,154 116,967,897 ______Total non-derivative liabilities 634,365,354 808,368,134 ______

To remedy the situation the Government of Zimbabwe has agreed to take over the RBZ legacy debt and has enacted the RBZ debt assumption Act 2015. 35.7.4 Secured and unsecured Loans and Advances (2015)

Security Unsecured Total carrying value value Amount 2015 2015 2015 US$ US$ US$

Financial Assets Loans and advances to financial institutions 130,649,432 543,288,791 673,938,223 Other loans and advances 210,928,419 267,298,403 478,226,822 ______Total 341,577,851 810,587,194 1,152,165,045 ______

Secured and Unsecured Financial Liabilities Bills payable - 40,285,080 40,285,080 Bond coins in circulation - 7,463,797 7,463,797 International Monetary Fund facilities - 488,372,578 488,372,578 Foreign Liabilities - 437,108,734 437,108,734 Domestic Loans - 254,667,807 254,667,807 Deposit accounts - 960,797,997 960,797,997 Payables - 127,867,694 127,867,694 ______Total ______- ______2,316,563,687 ______2,316,563,687 ......

Annual Report 2015 113 The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE ______NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

35.7.5 Secured and unsecured Loans and Advances (2014)

Security Unsecured Total carrying value value Amount 2015 2015 2015 US$ US$ US

Financial Assets Loans and advances to financial institutions 95,582,692 233,799,805 329,382,497 Other loans and advances - 18,649 18,649 Other receivables - 268,082,916 268,082,9166 ______Total 95,582,692 501,901,370 597,484,062 ______

Secured and Unsecured Financial Liabilities Bills payable - 4,721,314 4,721,314 Bond coins in circulation - 780,594 780,594 International Monetary Fund facilities - 511,873,272 511,873,272 Foreign Liabilities - 428,714,219 428,714,219 Domestic Loans - 241,136,855 241,136,855 Deposit accounts - 770,067,087 770,067,087 Payables - 142,867,693 142,867,693 ---- ______Total - 2,100,161,034 2,100,161,034 ______

The security tendered on the financial assets is in the form of Zimbabwe Treasury Bills. The Bank has not surrendered any security on the loans that it owes.

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114 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

36. CAPITAL MANAGEMENT

The Bank’s objectives when managing capital which is a broader concept than the equity on the face of financial position, are: • To safeguard the Bank’s ability to continue as a going concern so as to maintain price stability, domestic liquidity and stability of the economy at large • To maintain a strong capital position necessary for its long term financial health, and to support the development of its business in pursuit of its mandate.

The Bank is not subject to capital requirements by a regulatory body.

The table below summarises the composition of the Bank’s capital for the year ended 31 December 2015.

2015 2014 US$ US$ Share capital 2,000,000 2,000,000 Share premium 98,000,000 98,000,000 Revaluation reserve 3,997,662 3,997,662 Mark to market 46,967,335 42,099,086 Non distributable reserves (903,715,388) (903,715,388) General reserve fund - - Accumulated Surplus/ (deficit) 341,478,514 (163,898,718) ______Total (411,271,877) (921,517,358) ______

The accumulated surplus is due to impairment reversal on amounts due from Government. The allocation of capital between specific business operations is largely driven by the main obligation of the Bank to impose efficient restrictions on the financial system in an attempt to supress inflation. The Directors set the assets and liability management policies which determine the eventual asset allocation dependent on the strategic objectives of the Bank.

The Bank uses synergies with other operations and activities, fit with the longer term strategic objectives of the Bank and availability of management and other resources in allocating its capital expenditure activities.

The Bank’s policies in respect of capital management are in accordance with its mandate as spelt out by the Reserve Bank of Zimbabwe Act Chapter 22:15 and any directives from the Minister of Finance and Economic Development.

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Annual Report 2015 115 The Reserve Bank of Zimbabwe

37 FAIR VALUE MEASUREMENT

Quantitative disclosures fair value measurement hierarchy for assets as at December 2015 Fair Value measurement using

Quoted Significant Significant prices observable unobservable in active Date of valuation Total markets inputs inputs US$ US$ US$ US$ Assets measured at fair value Investment properties 31 December 2015 10,950,000 - 10,950,000

Available-for-sale financial investments Unquoted equity shares 31 December 2015 2.181,048 - - 2,181,048

Revalued property and equipment Land and buildings 31 December 2015 60,856,259 - - 60,856,259

Other Assets Gold and foreign assets 31 December 2015 110,328,159 15,643,501 - 94,684,658

Quantitative disclosures fair value measurement hierarchy for assets as at December 2014 Fair Value measurement using Assets measured at fair value Investment properties 31 December 2014 11,900,000 - - 11,900,000

Available-for-sale financial investments Unquoted equity shares 31 December 2014 3,470,251 - - 3,470,251

Revalued property and equipment Land and buildings 31 December 2014 62,550,979 - - 62,550,979

Other Assets 31 December 2014 Gold and foreign assets 61,442,083 485,653 - 60,956,430

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116 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

Description of valuation techniques used and key inputs to valuation of properties 2015

Valuation Technique Significant unobservable Range inputs

Investment properties Direct Comparison and Capitalisation rate 10%-10.2%. Income capitalisation. Estimated rental value per US$4- US$13 sqm per month.

Office properties Direct Comparison and Capitalisation rate 8-11%. Income capitalisation. Estimated rental value per US$8- US$12 sqm per month.

Land Market Value The market value was Sale trends usually higher determined through analysis (8%-13.5% of the asking of property data, comparable price). evidence and trends.

Residential properties Market Value The market value was Sale trends usually higher, determined through analysis (10%-20% of the asking of property data, comparable price). evidence and trends

Description of valuation techniques used and key inputs to valuation of properties 2014

Valuation Technique Significant unobservable Range inputs

Investment properties Direct Comparison and Capitalisation rate 9.6%-10.7%. Income capitalisation. Estimated rental value per US$5- US$7 sqm per month.

Office properties Direct Comparison and Capitalisation rate 8.5%. Income capitalisation. Estimated rental value per US$10- US$12 sqm per month.

Land Market Value The market value was Sale trends usually higher determined through analysis (8%-13.5% of the asking of property data, comparable price). evidence and trends.

Residential properties Market Value The market value was Sale trends usually higher determined through analysis (10%-20% of the asking of property data, comparable price). evidence and trends.

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Annual Report 2015 117 The Reserve Bank of Zimbabwe

38. RELATED PARTY INFORMATION

The Bank is wholly owned by the Government of Zimbabwe. The Bank holds equity interests in the companies listed below as indicated:

Ownership interest and voting power % Fidelity Printers & Refiners (Private) Limited 100 Aurex (Private) Limited 100 Export Credit Guarantee Corporation 100 Finance Trust of Zimbabwe 100 Homelink (Private) Limited 100 Carslone (Private) Limited (Dormant) 100 Fiscorp (Private) Limited (Dormant) 100 Zimbabwe Asset Management Corporation (ZAMCO) 100 Tuli Coal (Private) Limited (Dormant) 100 Transload (Private) Limited (Dormant) 50 Venture Capital Company of Zimbabwe (Private) Limited (Dormant) 50 ResZim (Private) Limited 100 Arigato (Private) Limited 100 Hailcat (Private) Limited 100

38.1 Balances with related parties

Related Party Relationship Transaction 2015 2014 US$ US$ Fidelity Printers and Refineries Subsidiary receivables 619,737 743,693 Homelink Subsidiary loan 1,700,000 - Export Credit Guarantee Company Subsidiary loan 616,241 - Zimbabwe Asset Management Company Subsidiary loan 47,134,607` - Aurex Subsidiary loan 1,300,000 - ______Total 51,370,585 743,693 ______

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118 Annual Report 2015 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

Reserve Bank of Zimbabwe Notes to Financial Statements for the year ended 31 December 2015

38.1 Compensation of key management personnel of the Bank. The Bank has not entered into transactions with its Directors and their associates in 2015.

Salaries and benefits to management personnel Compensation paid to the Bank’s senior management and Directors during the year is as follows

2015 2014 US$ US$

Short term senior managers benefits 2,036,703 1,094,974 Non-Executive Directors fees 316,636 541,996 Senior managers loans 1,130,730 - ______Total 3,484,069 1,636,970 ______

39. NOTES TO THE STATEMENT OF CASH FLOWS

Property and equipment

39.1 Additions

Property and equipment

Additions as per PE note (to maintain operations)(note 8) 963,612 2,302,719 Add assets purchased not yet delivered 237,775 378,994 ______Total asset purchases 1,201,387 2,681,713 ______Assets replaced by insurance - (8,037) ______Balance as per Statement of Cash flow 1,201,387 2,673,676 ______39.2 Disposals

Property and equipment Disposals as per PE note (note 8) 968,864 824,400 Disposal of Property classified as held for sale (note 14) 416,500 205,000 Less accumulated depreciation (807,744) (708,763) ______577,620 320,637 Profit on disposal 236,677 9,338 Loss on disposal (179,127) (74,704) ______Balance as per Statement of Cash flow 635,170 255,271 ______

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Annual Report 2015 119 The Reserve Bank of Zimbabwe The Reserve Bank of Zimbabwe

RESERVE BANK OF ZIMBABWE NOTES TO THE FINANCIAL STATEMENTS Reserve Bank of Zimbabwe Notes to Financial Statements forFor thethe year year ended ended 31 December 31 December 2015 2015

40. COMPARATIVE FIGURES Also, the Reserve Bank of Zimbabwe Debt Assump- tion Act was enacted in 2015 to enable the Bank to Comparative figures are based on the 2014 audited concentrate on its core activities. As at 31 Decem- financial statements. ber 2015, the Government had issued US$655 million worth of Treasury Bills to various Bank creditors. 41. EVENTS AFTER REPORTING PERIOD The Ministry of Finance and Economic Development There were no material events after the reporting pledged to continue supporting the Bank to ensure date that would require disclosure or adjustment to that it remains a going concern. The Government, these financial statements. through the Ministry of Finance and Economic De- velopment continued to fund the Bank’s operations, 42. BASIS OF FUNDING allocating US$24 million Government grant in the The Bank had a surplus of US$122 million before im- 2016 national budget (2015: US$24 million in cash and pairment reversal ( US$505 million surplus after im- $57.8 million in treasury bills). pairment reversal) for the year ended 31 December 2015 and as of that date, its total liabilities exceeded its The financial statements are prepared on the basis of total assets by US$411 million (2014: US$922 million), accounting policies applicable to a going concern. This as reflected in these financial statements. basis presumes that the Bank will continue to receive the support of the Government and that the realisa- The Bank is wholly owned by the Government of Zim- tion of assets and settlement of liabilities will occur in babwe and remains core to Government functions, the ordinary course of business. being the custodian of monetary policy in Zimbabwe. In the event that the interventions above are not suc- The Bank is a non-profit making institution and relies cessful, the Bank may not be able to continue as a go- on the Government of Zimbabwe for the funding of ing concern and, therefore, may be unable to realise its its operations. However, the Bank also generates rev- assets and discharge it liabilities in the normal course enue from interest on advances to financial services of business. sector, Real Time Gross Settlement System (RTGS) charges and sale of Customs Declaration (CD) forms. Also, the Bank generates income from the various facilities it is offering to the market in the form of facility fees and interest.

The Government, through the Ministry of Finance and Economic Development, continues to support the Bank’s operational activities, allocating US$24 million in the 2016 national budget (disbursing US$81.8 million in 2015 comprising of $24 million in cash budgetary support and $57.8 million worth of Treasury Bills).