Bank Supervision Annual Report - 2017

BANK SUPERVISION ANNUAL REPORT - 2017

TABLE OF CONTENTS

GOVERNOR’S FOREWORD ...... 6

DIRECTOR’S FOREWORD ...... 8

CHAPTER 1: OVERVIEW OF MACROECONOMIC ENVIRONMENT ...... 10

CHAPTER 2: MAJOR DEVELOPMENTS AND OTHER SUPERVISORY ACTIVITIES IN THE BANKING SECTOR ...... 14

CHAPTER 3: CONDITION & PERFORMANCE OF THE BANKING SECTOR ...... 24

CHAPTER 4: LEGAL & REGULATORY DEVELOPMENTS ...... 54

CHAPTER 5: CONSUMER EDUCATION AND CONSUMER PROTECTION ...... 56

CHAPTER 6: OUTLOOK ...... 59

APPENDIX 1: FUNCTION AND ORGANIZATION OF BANK SUPERVISION DIVISION ...... 63

APPENDIX 2: MAJOR SUPERVISORY TOOLS AND METHODOLOGIES ...... 65

APPENDIX 3: REGISTERED BANKING INSTITUTIONS AS AT 31 DECEMBER 2017 ...... 69

APPENDIX 4: STATISTICAL TABLES AS AT 31 DECEMBER 2017 ...... 72

List of Tables

Table 1: Empowerment Facilities Utilisation ...... 20 Table 2: Financial Inclusion Indicators ...... 23 Table 3: Architecture of the Banking Sector ...... 24 Table 4: Other Institutions under the Supervision of Reserve Bank ...... 24 Table 5: Banking Sector Capitalisation (USD million) ...... 25 Table 6: Deposit Insurance Payments as at 31 December 2017 ...... 52

List of Figures

Figure 1: Trend in Economic Growth ...... 11 Figure 2: Annual Inflation Growth Trend ...... 12 Figure 3: Zimbabwe’s Trade, Primary, Secondary & Current Accounts (US $m): 2011-2017 ...... 13 Figure 4: Cumulative Inquiries ...... 18 Figure 5: Banking Sector Capitalisation Levels – (2013 - 2017) ...... 26 Figure 6: Trend in Banking Sector Assets (2013 to 2017) ...... 27 Figure 7: Loans to Deposits Ratio Trend December 2016 to December 2017 ...... 28 Figure 8: Trend of Banking Sector Deposits (USD million) ...... 29 Figure 9: Composition of Deposits as at 31 December 2017 ...... 30 Figure 10: Distribution of Deposits as at 31 December 2017 ...... 31 Figure 11: banking Sector Loans & Advances ($m) ...... 32 Figure 12: Distribution of Loans & Advances as at 31 December 2017 ...... 32 Figure 13: Loan Concentration by Banks as at 31 December 2017 ...... 33 Figure 14: Sectoral Distribution of Loans as at 31 December 2017 ...... 34 Figure 15: Trend in Non-Performing Loans 2013 – December 2017 ...... 35 Figure 16: Sectoral Distribution of Non- Performing Loans ...... 36 Figure 17: Earnings Performance for the year ended 31 December 2017 ...... 37 Figure 18: Banking Sector Sources of Income as at 31 December 2017 ...... 38 Figure 19: Comparison of Income Mix – 2016 and 2017 ...... 39 Figure 20: Banking Sector Non-Interest Expenses – 31 December 2017 ...... 40 Figure 21: Trend in Profitability Indicators ...... 41 Figure 22: Prudential Liquidity Ratio Trend (%) ...... 42 Figure 23: Distribution of Commercial Bank Deposits ...... 44 Figure 24: Commercial Banks’ Net Capital Base 2013 to 2017 ...... 45 Figure 25: Commercial Banks Key Earnings Indicators – 2013 to 2017 ...... 46 Figure 26: Income Mix for the Commercial Banking Sector ...... 47 Figure 27: Distribution of Building Society Deposits ...... 49 Figure 28: Income Mix for the Building Society sub-sector ...... 50

VISION, MISSION AND VALUES

Vision

To become a transformative and responsive Central Bank.

Mission

Maintaining financial stability and financial inclusion through credible policies and risk based supervision of banks, supported by a skilled human resource base and a modern integrated ICT system.

Values Trust Integrity Passion Transparency Accountability Efficiency Creativity

PURPOSE OF THE REPORT

The Banking Supervision Annual Report is issued in terms of section 78 of the Banking Act [Chapter 24:20]. The purpose of this annual report is to provide an analysis of the condition and performance of the banking sector in Zimbabwe for the year ended 31 December 2017. The report also presents an overview of the supervisory operations and activities during the 12 months period. However, some selected developments up to the time of finalisation of this report were incorporated.

GOVERNOR’S FOREWORD

1. The financial system remains largely safe and sound notwithstanding the challenges in the macroeconomic environment. 2. A number of domestic and international developments affected the financial landscape during the review period through commodity prices, trade, and other key financial indicators. 3. According to the International Monetary Fund (IMF) Global Financial Stability Report, the global upswing in economic activity which started in the second half of 2016 continued to strengthen in 2017 supported by robust growth in emerging economies. As a consequence, global economic activity was projected to improve from a growth of 3.2% registered in 2016 to 3.7% before accelerating to 3.9% in 2018. 4. The Sub-Saharan Africa economies also recorded positive growth of 2.6% in 2017 after shrinking by 1.5% in 2016. The upward trajectory is expected to continue in 2018 and 2019. 5. The domestic economy is estimated to have grown by 3.7% in 2017, underpinned by growth in the agriculture, mining, energy and service sectors. The government initiated a number of programs to position macroeconomic parameters such as FDI, current account deficit and fiscal deficit on a sound footing. These initiatives, which are in earnest under purposeful implementation, will improve the investment climate, performance of the economy and the country’s rankings under the “easy of doing business” and competitiveness indices. 6. It is commendable that amidst a number of environmental challenges, the banking sector continued to perform satisfactorily and stayed competitive. The banking sector maintains adequate buffers over the minimum capital requirements. Stress tests conducted during the review period indicate that banks can withstand severe shocks under a range of assumptions.

7. The Reserve Bank made significant strides in improving the credit infrastructure which is expected to complement bank’s credit management practices. The establishment of the credit registry in 2017 is envisaged to bolster credit underwriting standards in the banking sector and cultivate an improved credit culture across the economy. 8. The banking sector also made notable progress in promoting access to finance through several strategies such as value chain financing and the enhanced usage of electronic distribution channels. On its part the Reserve Bank introduced revolving empowerment facilities targeting marginalized groups such as youth, women and SMEs. Various empowerment and productive finance facilities amounting to $451.5 million were put in place in 2017. 9. The Bank continued to invest in the programmes which promote effective management and mitigation of emerging risks. Some of the emerging issues under close monitoring include block chain technologies and cyber risks. The Reserve Bank shall closely collaborate with stakeholders in the development of the requisite guidance and oversight frameworks in a manner which guarantees resilience in the sector. 10. At the local and regional levels the Reserve Bank continued to collaborate and coordinate supervisory activities with other regulators and standard setting bodies to promote effective oversight of conglomerates and cross-border banking activities as well as keep to abreast with the evolving supervisory tenets. 11. I take this opportunity to express my gratitude to all stakeholders who collaborated with the Reserve Bank in its efforts to promote financial stability and spur economic growth.

Dr. J. P. Mangudya Governor

DIRECTOR’S FOREWORD 1. The banking sector continued to be resilient and performed satisfactorily during the year ended 31 December 2017. Overall sectoral capitalisation was satisfactory while asset quality improved and the majority of institutions recorded profits. 2. The number of banking institutions remained unchanged at 19, while deposit taking microfinance institutions grew to five (5), up from three (4) in December 2016, following issuance of two (2) new licences during the course of the year. The number of credit only microfinance institutions under the supervision of the Reserve Bank remained stable at 178 at the end of 2017. 3. Notwithstanding the challenging operating environment, banking sector loans and advances grew from $3.42 billion to $3.65 billion during the year under review. 4. Banking sector capitalisation was satisfactory, underpinned by organic capital growth. The average capital adequacy ratio was 26.84% which is above the regulatory minimum of 12%. The Reserve Bank continues to monitor bank’s core capital levels against banks’ own capital plans to meet the 2020 minimum capital requirements. 5. Asset quality marginally improved, as demonstrated by a decline in the non-performing loans to total loans ratio from 7.87% to 7.08%, against the backdrop of enhanced credit risk management by banks and ongoing initiatives to strengthen the credit infrastructure by the Reserve Bank. 6. The banking sector remained profitable during the year ended 31 December 2017, reporting aggregate net profit of $241.94 million, compared to $181.06 million in 2016. The increase was mainly spurred by interest income from investments and securities as well as fees associated with electronic payments.

7. The banking sector had an average prudential liquidity ratio of 62.62% which was well above the regulatory minimum of 30%. Banking sector deposits increased from $6.51 billion to $8.48 billion during the review period, mainly driven by public sector funding. 8. It is envisaged that the operating environment will improve in the outlook period on the back of various monetary policy and supervisory initiatives. 9. As part of efforts to keep abreast with supervisory developments to prime supervisory tools in line with best practice, the Reserve Bank is working on a roadmap to provide guidance to the sector and ensure effective implementation of the capital and liquidity management standards under the Basel III framework. The framework is aimed at improving the quality, consistency and transparency of capital and reduce pro-cyclicality, as well as enhancing liquidity management. 10. Significant progress was made in the implementation of the International Financial Reporting Standard 9 which came into effect on 1 January 2018. The Standard is designed to enhance risk management and ensure that banks set aside provisions for loan losses in a timely manner. All banks will publish IFRS 9 compliant financial statements for the period ended 30 June 2018. 11. Financial inclusion, a key enabler to the achievement of the Sustainable Development Goals, remained a key focus area for the Reserve Bank. A number of banks, deposit-taking microfinance institutions and microfinance institutions were able to access revolving productive the facilities and finance value chain projects and export generation projects. Total disbursements amounting to $122 million were made in 2017 to various marginalized groups such as youth, women and micro, medium and small scale enterprises. 12. The Bank is convinced that by opening up the economy for business, the country has struck the right chord for the sustainable transformation of the economy and improving ease of access to productive facilities. 13. The Reserve Bank continued to cooperate with the various partners including supervisory authorities in the financial services sector, both locally and regionally. Human capital development remained a key focus area as the Bank endeavoured to enhance its supervisory capabilities.

N. Mataruka Director, Bank Supervision

CHAPTER 1: OVERVIEW OF MACROECONOMIC ENVIRONMENT

Global Macroeconomic Developments 1.1 According to the IMF Global Financial Stability Report, global economic growth for 2017 was estimated to be 3.7% and is expected to accelerate to 3.9% in 2018 mainly due to stronger growth in domestic demand in advanced economies as well as improved manufacturing activity in emerging markets and developing economies. 1.2 Overall, growth picked up in a number of economies, supported by improvements in investment, particularly in advanced economies and increased manufacturing activity in Asia. Expectations of favorable global financial conditions and strong consumer confidence are envisaged to keep final demand high. 1.3 The following table shows global economic growth developments for selected regions and countries. Table 1: Global Economic Growth & Outlook 2016 2017 (EST) 2018 (PROJ)

World Output 3.2 3.7 3.9 Advanced Economies 1.7 2.3 2.3 US 1.5 2.3 2.7 Euro Area 1.8 2.4 2.2 Japan 0.9 1.8 1.2 Emerging & Developing Economies 4.4 4.7 4.9 China 6.7 6.8 6.6 India 7.1 6.7 7.4 Sub-Saharan Africa 1.4 2.7 3.3 Zimbabwe 0.7 3.7 4.5 Latin America -0.7 1.3 1.9 Caribbean Source: IMF World Economic Outlook Update (January2018),

1.4 The economic growth of 3.9% expected in 2018, shows sizable differences across countries. As a result of a rebound in commodity prices, current account deficits narrowed in most sub- Saharan African countries. However, rising public debt, financial sector strains and low

foreign currency buffers are expected to negatively affect growth prospects in the region.

Domestic Economic Developments 1.5 The Zimbabwean economy is estimated to have improved by 3.7% in 2017 largely driven by growth in agriculture, mining and tourism. Growth in agricultural output was supported by a combination of favorable rainfall season and the positive financial impact of government supported agricultural input programs, whilst the mining sector was on the rebound due to recovery in international commodity prices. 1.6 Economic growth of 4.5% is expected in 2018, driven by optimism and growing confidence in the economy. The figure below shows the trend in economic growth since 2009. Figure 1: Trend in Economic Growth

14 12 11.4 11.9 10.6 10 8 6 5.4 GrowthRate 4.5 4 3.7 3.4 3.1 2 1.1 0.6 0 2009 2010 2011 2012 2013 2014 2015 2016 2017 2018

Source: Zimstat, 2017 & RBZ Estimates, 2018 1.7 Improving business environment is expected to attract investment required to increase production, create employment and fiscal space, as well as stimulate exports.

Inflation Developments 1.8 As shown in figure 2, inflation was on an upward path due to an increase in food inflation, which more than offset the marginal decline in non-food inflation. 1.9 The rise in inflation, as reflected in increases in prices of most commodities, was on the back of speculative and profiteering tendencies; pass-through effects of parallel market premiums on foreign exchange; shortages of some imported basic commodities; as well as some external factors such as firming South African rand and strengthening oil prices

1.10 The figure below shows the trend in inflation in Zimbabwe. Figure 2: Annual Inflation Growth Trend

4.5

1.5

-1.5

Feb-16 Feb-17 Feb-18

Aug-16 Aug-17

Nov-16 Nov-17

May-16 May-17 -3

-4.5

Headline Inflation Food Non Food

Source: ZIMSTAT, March 2018 1.11 In the medium term, inflation pressures are expected to be mitigated by the positive economic developments in 2018.

External Sector Developments 1.12 The country’s external sector position is likely to show signs of improvement, on account of policy measures being taken by Government and the Reserve Bank to boost exports and contain the import demand.

Current Account Balance Developments 1.13 The current account deficit narrowed from US$1,283.9 million in 2016 to US$826.5 million in 2017. Exports have been on a recovery path as a result of favourable international commodity prices. The narrowing of the current account deficit will go a long way in reducing pressure on foreign currency reserves.

Figure 3: Zimbabwe’s Trade, Primary, Secondary & Current Accounts (US $m): 2011- 2017

2,000

1,000

0 2011 2012 2013 2014 2015 2016 2017

-1,000

-2,000

-3,000 Trade Balance Primary Account (Net) Secondary Income (Net) Current Account Balance 1.14 Source: Reserve Bank of Zimbabwe & Zimstat

CHAPTER 2: MAJOR DEVELOPMENTS AND OTHER SUPERVISORY ACTIVITIES IN THE BANKING SECTOR

Introduction 2.1 Bank Supervision Division conducted a number of supervisory activities and initiatives aimed at promoting a robust, resilient and inclusive banking sector. These include on–site examinations, macroprudential supervision, enhancement of the legal framework, implementation of the financial inclusion strategy and enhancement of the credit infrastructure. 2.2 This chapter provides an overview of the major developments and supervisory activities undertaken by the Reserve Bank during the year under review.

Licensing 2.3 Zimbabwe Women’s Microfinance Bank Limited was licensed in September 2017 as a deposit-taking microfinance bank. By year end, the institution was putting in place the necessary infrastructure in preparation for commencement of operations. The institution commenced deposit taking microfinance operations effective 29 May 2018.

On-site Examinations 2.4 On-site examinations form an integral part of the risk-based supervision process. The objectives of the examinations are to determine the financial condition of banks as well as adequacy of their risk management systems and ensure bank management address issues of regulatory concern, timeously. 2.5 In line with its core mandate of maintaining a safe and sound banking sector, Bank Supervision conducted risk-based on-site examinations on a number of financial institutions. 2.6 The on-site examinations determined that the institutions were generally safe and sound and weaknesses noted could be addressed within the normal course of business. Banking institutions were enhancing their risk management systems and corporate governance arrangements following the Banking Act Amendment No.12 / 2015, and were generally compliant with banking laws and regulations. 2.7 In addition, some of the examined banks upgraded their core banking systems, providing

a platform for introduction of new banking products to promote alternative payment channels in the face of cash challenges.

Joint On-Site Examinations and Supervisory Colleges 2.8 As part of cross border co-operation with other home and host supervisory authorities, the Reserve Bank participates in joint on-site examinations and supervisory colleges. 2.9 The Reserve Bank, as lead supervisor of the African Banking Corporation Holdings group, participated in a joint on-site examination of BancABC Tanzania, with the Bank of Tanzania being the host supervisory authority. 2.10 BancABC has operations in five (5) countries in Africa namely Zimbabwe, Zambia, Tanzania, Botswana and Mozambique. Such joint on-site examinations facilitate information sharing among supervisory authorities and effective supervision of banking institutions with cross-border operations. 2.11 Supervisory colleges are held in line with Principle 13 of the Basel Core Principles for Effective Banking Supervision, which mandates home supervisors to conduct bank- specific supervisory colleges for banking groups with cross-border activities. 2.12 During the year 2017, the Reserve Bank of Zimbabwe attended supervisory colleges for:

a) Ecobank Transnational Incorporated (Ecobank Zimbabwe Limited);

b) Standard Bank Group (Stanbic Bank Zimbabwe Limited);

c) Nedbank Group (formerly MBCA Bank Zimbabwe Limited ); and

d) FMB Capital Holdings (Barclays Bank Zimbabwe Limited).

2.13 Bank Supervision will continue to participate in supervisory colleges to facilitate effective supervision of cross-border banking institutions. The overarching objective of a supervisory college is to assist the home- and host-country supervisors in gaining a better understanding of risk profile for banking groups

FINANCIAL SECTOR DEVELOPMENTS AND INITIATIVES Lending Rates… 2.14 The Reserve Bank continued to engage with banking institutions through the Bankers Association of Zimbabwe to ensure provision of affordable credit in order to enhance

credit support to the productive sectors of the economy. 2.15 Banking institutions have progressively reduced lending interest rates to the productive sectors, including interest rates on mortgages, to not more than 12% per annum and lending related bank charges to not more than 3%, effective 1 April 2017. 2.16 The Reserve Bank will continue to monitor banking institutions’ lending rates structures in order to promote the provision of affordable credit.

Bank Charges… 2.17 In order to promote financial inclusion and boost productive capacity, the provision of affordable financial services is of paramount importance. 2.18 In this regard, the Reserve Bank continues to urge banking institutions to exercise restraint and ensure charges for financial services remain affordable. There was a general decline in bank charges in 2017. The Reserve Bank will work closely with the Bankers Association of Zimbabwe in this regard.

IFRS 9 Implementation 2.19 Pursuant to the issuance of an International Financial Reporting Standard (IFRS) 9: Financial Instruments Implementation Road Map and Guideline to Banking Institutions in 2017, the Reserve Bank championed the transition process through collaborative engagements with banking institutions, Public Accountants & Auditors Board, Institute of Chartered Accountants Zimbabwe and accounting firms. 2.20 Significant milestones were achieved in the year under review, including development of IFRS 9 compliant models and validation thereof; stakeholder awareness, as well as disclosure requirements and revisions to requisite policies. 2.21 A Quantitative Impact Assessment conducted in June 2017 to assess the impact of expected increases in provisions for bad and doubtful debts, as per requirements of the new Standard, determined that banking institutions have adequate reserves to absorb the shocks. 2.22 As part of ongoing initiatives to ensure adequate preparedness, banking institutions were directed to submit IFRS 9 compliant financial statements for review by the Reserve Bank, by 31 March 2018, based on financial statements for the year ended 31 December 2017.

Basel II/III Implementation 2.23 The Reserve Bank of Zimbabwe initiated processes to develop the Basel III Capital and Liquidity Management Frameworks, aimed at addressing weaknesses identified during the Global Financial Crisis, by improving the quality, consistency and transparency of capital and reduce pro-cyclicality as well as enhance liquidity management in banks. 2.24 Implementation of Basel III will enhance the resilience of the Zimbabwean banking system.

Macro-prudential Supervision 2.25 As part of continuing initiatives to enhance financial stability assessment, the Reserve Bank of Zimbabwe commenced the development of a macro-prudential policy framework which forms part of the Basel III framework. It is envisaged that the framework will reinforce the ability to assess and contain systemic vulnerabilities. 2.26 The Reserve Bank has also initiated processes to develop a set of tools to facilitate timely identification of risks to financial stability, assess their likelihood of occurrence, as well as their likely impact on the financial sector. 2.27 The Reserve Bank also developed a banking sector soundness index, which is a composite measure of overall banking sector soundness. The index is being used to assess banking sector soundness on a quarterly basis.

Credit Registry System 2.28 The Credit Registry became fully operational in 2017 with all banking institutions’ credit data being uploaded into the Credit Registry system on a continuous basis. As at 31 December 2017, the Credit Registry held 350,000 loan records representing 96.6% of banking sector loan records. 2.29 Banking institutions were granted access to the Credit Registry data effective 2 May 2017 and enquiries by banking institutions have grown steadily to a cumulative total of 116,491 as at 31 December 2017 as shown below:

Figure 4: Cumulative Inquiries

Cumulative Inquiries 140000

120000 116491

100000 96652 80000 80455

60000 62043

40000 38919

20000 23999 13011 0 37380 May-17 Jun-17 Jul-17 Aug-17 Sep-17 Oct-17 Nov-17 Dec-17

2.30 As at 31 December 2017, the Credit Registry had a total of 108 subscribers, comprising 19 banks and 89 microfinance institutions. The Credit Registry continues to widen its subscriber base by bringing additional subscribers on board. 2.31 In the second phase of the Credit Registry implementation, commencing in 2018, microfinance institutions will be brought on board as data providers to widen the scope of credit data held in the database. The final phase of the project will see the co-option of other credit providers such as retail credit stores and utility companies. 2.32 Consumer awareness and education are critical to the success of the Credit Registry in promoting a sound credit culture in the country. In this regard, during the course of 2017, the Reserve Bank embarked on an outreach programme, countrywide to educate consumers and stakeholders on the establishment of the Credit Registry and the implications to borrowers and lenders. 2.33 Activities included participation in exhibition fairs, stakeholder awareness workshops and publication of articles to raise awareness of the Credit Registry. The Reserve Bank will continue with these activities as part of ongoing consumer awareness.

Collateral Registry 2.34 The Movable Property Security Interest Bill was promulgated into law on 28 July 2017. The law provides for the establishment of a Collateral Registry and the registration and

administration of security interests in movable collateral by the Reserve Bank. 2.35 Following the promulgation of the collateral registry law, the Reserve Bank embarked on stakeholder awareness programmes and initiated processes for the procurement of the Collateral Registry system, in collaboration with the World Bank. 2.36 It is envisaged that the establishment of the collateral registry will enhance access to credit by potential borrowers, including MSMEs.

Recovery Planning 2.37 The Reserve Bank developed a Framework for Recovery Planning. The major tenets of the framework include the following: a) Identification of options to restore financial institutions to strength and viability in the face of severe stress; b) Requirement for group-wide recovery plans for institutions considered to be systemically important; and c) Recovery plans to consider a range of scenarios, including idiosyncratic (institution specific) or systemic (market wide) or a combination of both. 2.38 The Framework for Recovery Planning was issued in April 2018.

FINANCIAL INCLUSION

Implementation of the National Financial Inclusion Strategy 2.39 The Reserve Bank continues to spearhead implementation of initiatives targeted at minimising constraints and challenges to the inclusion of marginalized groups as well as promoting access to and increased usage of financial services by all economic agents. 2.40 During the year under review, the Reserve Bank identified and collaborated with various stakeholders in implementing various initiatives including the disbursement of empowerment funds to targeted beneficiaries and implementation of financial literacy programs. This approach is key in enhancing outreach to marginalised segments such as women, the youth and persons with disabilities. 2.41 In 2017, a ninth thematic working group focusing on enhancing the financial inclusion of people with disabilities (PWDs), was constituted. The working group seeks to promote the development of appropriate and affordable financial products and services for PWDs

including appropriate infrastructure to enable the PWDs to access financial services. 2.42 Deliberations of the thematic working group meetings during the year revealed that many financial institutions and key stakeholders have instituted a number of initiatives targeting the identified priority groups in the National Financial Inclusion Strategy i.e. SMEs, women, small holder farmers and the youth.

Opening of Low Cost Accounts 2.43 Most banks have embraced the low cost accounts model or ‘no frills’ accounts with very low KYC requirements and minimal bank charges targeting low income groups following realisation of the associated business opportunity and in line with the financial inclusion thrust . 2.44 The number of low cost accounts opened by banks increased from 229,264 as at 31 March 2016 to 3.02 million as at 31 December 2017.

Disbursement of Empowerment Facilities 2.45 Banking and microfinance institutions disbursed financial inclusion funds / empowerment facilities established by the Reserve Bank for the benefit of identified priority groups. 2.46 The table below shows the level of utilisation on some of the empowerment facilities as at the end of December 2017.

Table 1: Empowerment Facilities Utilisation

Working Capital Capital Expenditure Facility Total ($) Utilisation ($) Utilisation ($)

Export Finance 2,450,000 2,650,000 5,100,000

Tobacco Finance 28,592,700 0 28,592,700

Business Linkages 5,374,000 827,487 6,201,487 Tourism Support 0 330,000 330,000 Facility Small Scale Gold 39,340,000 39,340,000 Facility

SMEs 917,014 917,014 Cross Border 155,300 0 155,300 Traders and SMEs

Financial Literacy 2.47 The embedding of financial literacy from early childhood development is critical in building a financially literate nation. 2.48 The Reserve Bank, in collaboration with key stakeholders, initiated the development of a Financial Literacy Framework during the year under review. The Framework inter-alia, lays down key pillars of sound financial literacy framework, including policy and program development, education, delivery channels, communications, strategic partnerships, research, monitoring and evaluation. 2.49 The Bank, in partnership with Child & Youth Finance International (CYFI) and World Bank, hosted the Child and Youth Financial Inclusion and Financial Education Stakeholders Workshop in October 2017 in Harare. 2.50 The Reserve Bank of Zimbabwe and the International Labour Organisation (ILO) also hosted a financial literacy orientation workshop for the Financial Literacy and Consumer Protection Thematic Working Group members in December 2017.

Consumer Protection and Market Conduct Supervision 2.51 The Reserve Bank issued the Financial Consumer Protection Framework in June 2017 to enhance consumer protection in the banking sector. The Framework applies to all banking and non-bank financial institutions that are regulated by the Reserve Bank of Zimbabwe. 2.52 Consumer protection empowers consumers with information and basic rights, while providing an important source of market discipline to the financial services sector. It also fosters competition by encouraging regulated entities to offer better products and services. The existence of a sound financial consumer protection framework is fundamental to increasing access to and usage and quality of financial services, along with supporting further banking sector deepening. 2.53 During the year, the Macroeconomic and Financial Management Institute (MEFMI) conducted a capacity building program for the Reserve Bank in the area of Financial Literacy and Market Conduct Supervision. Going forward, the Reserve Bank will be

employing various on- and off-site market conduct supervision techniques to achieve the desired levels of consumer protection in the financial sector.

Training on SME Financing 2.54 In order to capacitate financial services providers in SMEs financing, the Reserve Bank of Zimbabwe, in collaboration with the World Bank, facilitated an SMEs training workshop in July 2017 under the theme “Re-igniting SMEs Development in Zimbabwe – Learning from Global Experiences”. 2.55 The major objective of the Conference was to explore ideas on how to expand SMEs development in Zimbabwe through enhancing access to finance and to facilitate sharing of experiences from various countries around the globe. 2.56 A number of key issues emerged from the workshop. These included the need for banking institutions to consider coming up with differentiated MSMEs finance schemes or products such as receivable finance schemes, venture capital finance and green-field finance for viable SMEs projects. In addition, banking institutions need to consider hybrid funding models for start-up MSMEs such as debt capital with equity conversion option and tranche disbursements based on achievement of set milestones. 2.57 Other issues that were brought up for consideration at the SMEs Workshop include the need to promote development of a vibrant and diversified capital markets which cater for MSMEs, promotion of value chain financing using digital platforms as well as capacity building for MSMEs.

Monitoring and Evaluation of NFIS Implementation 2.58 The Reserve Bank of Zimbabwe in conjunction with other stakeholders in the implementation of the National Financial Inclusion Strategy, is tracking indicators as part of the monitoring and evaluation of the impact of financial inclusion initiatives. 2.59 Access to formal financial services by target groups such as women, SMEs and youth has continued to improve as shown below.

Table 2: Financial Inclusion Indicators

Indicator Dec 2016 June 2017 Sept 2017 Dec 2017 Annual % Value of loans to SMEs $131.69 m $136.39 m $143.82 m $146.22 m 11.03% Percentage of loans to 3.57% 5.36% 6.12% 3.75% 0.18 percentage SMEs over total loans points Number of SMEs with bank 71,730 79,484 91,457 76,524 6.68% accounts Number of Women with 769,883 856,472 916,379 935,994 21.58% Bank Accounts Value of Loans to Women $277.30 m $303.84 m $339.40 m $310.78 m 12.07%

Number of Loans to Youth 38,400 56,926 64,938 61,529 60.23%

Value of Loans to Youth $58.41 m $77.09 m $120.69 m $138.93 m 137.85% Total number of Bank 1.49 m 2.91 m 2.99 m 3.07 m 106.04% Accounts Number of Low Cost 1.20 m 1.56 m 1.86 m 3.02 m 151.67% Accounts Number of ATMs 569 562 563 563 (1.05%)

Number of Point of Sale 32,629 44,805 50,418 48,849 49.71% (POS) Terminals/Machines

CAPACITY BUILDING INITIATIVES 2.60 The staff in Bank Supervision Division continued to engage in capacity building in an effort to stay abreast with global developments and evolving best practices. In addition, some of the capacity development programmes were targeted at banking institutions, microfinance institutions and small to medium enterprises. 2.61 The Bank Supervision Division benefitted from the technical assistance provided by development partners such as the World Bank, International Monetary Fund (IMF), Alliance for Financial Inclusion (AFI) and the Macroeconomic and Financial Management Institute (MEFMI). Some of the capacity building activities focused on Credit and Collateral Registries, International Financial Reporting Standard 9, Financial Inclusion, Basel II and III implementation, Digital Finance and Financial Literacy among others. 2.62 The Division also participated in knowledge exchange programmes including the African Rural and Agricultural Credit Association (AFRACA) Exchange Visit Programme. The main objective behind AFRACA’s activities is to improve the rural and agricultural finance environment in Africa in order to enhance the levels of financial inclusion. In addition, the Division conducted study tours in regional countries that have well established Credit and Collateral registries.

CHAPTER 3: CONDITION & PERFORMANCE OF THE BANKING SECTOR

Introduction 3.1 The banking sector remained resilient as reflected by improved earnings performance, adequate capitalisation, satisfactory asset quality and liquidity. 3.2 The Reserve Bank of Zimbabwe continued to pursue financial stability initiatives aimed at enhancing resilience in the banking sector.

Banking Sector Architecture 3.3 The institutions under the purview of the Reserve Bank, as at 31 December 2017, are shown below.

Table 3: Architecture of the Banking Sector

Type of Institution Number

Commercial Banks 13

Building Societies 5

Savings Bank 1

Total Banking Institutions 19

Table 4: Other Institutions under the Supervision of Reserve Bank

Credit-only-Microfinance Institutions (MFIs) 178

Deposit-taking MFIs 5

Development Financial Institutions 2

3.4 During the period under review, the Reserve Bank licensed the Zimbabwe Women’s Microfinance Bank, a deposit taking microfinance institution, resulting in the number of Deposit-taking MFIs increasing to five (5) institutions.

Market Share 3.5 The banking sector continued to be dominated by commercial banks in terms of total assets, total deposits and total loans and advances. The commercial banks accounted for 82.51% of total assets, 82.90% of total deposits and 72.45% of total loans. 3.6 The top five banking institutions, which accounted for 58.82% of total assets, 61.11% of total deposits and 57.57% of total loans and advances in 2016, continued to dominate the banking sector during 2017.

Capitalisation 3.7 As at 31 December 2017, all banking institutions, except ZB Building Society, were in compliance with minimum capital requirements as shown in the table below.

Table 5: Banking Sector Capitalisation (USD million)

Institution Core Capital as at Core Capital as at Prescribed Minimum 31 December 2016 31 December 2017 Capital requirements

CBZ Bank 166.97 138.93 25 Stanbic Bank 107.78 135.52 25

Barclays Bank 57.31 79.22 25 BancABC 71.38 75.96 25

Ecobank 52.13 73.95 25 Steward Bank 49.46 71.91 25

Standard Chartered Bank 53.97 71.34 25 FBC Bank 60.17 70.37 25

ZB Bank 55.10 65.16 25 NMB Bank 48.19 61.31 25

Agribank 45.44 55.54 25 MBCA Bank 45.51 54.52 25

Metbank 39.97 44.99 25

BUILDING SOCIETIES

CABS Building Society 117.59 127.75 20

CBZ Building Society 79.62 79.49 20 FBC Building Society 40.79 47.48 20 National Building Society 21.46 43.84 20

Institution Core Capital as at Core Capital as at Prescribed Minimum 31 December 2016 31 December 2017 Capital requirements

ZB Building Society 16.94 18.38 20

SAVINGS BANK

POSB 40.50 53.83 - Total 1,170.28 1,369.48 -

3.8 ZB Building Society’s recapitalization plan was hinged on a planned merger with ZB Bank. 3.9 The trend in the banking sector capitalization from 2013 to 2017 is shown in the graph below.

Figure 5: Banking Sector Capitalisation Levels – (2013 - 2017)

1579.35 1600 1339.70 1369.79 1400 1136.05 1170.28 1200 981.7 926.57 1000 779.47 800 699.11 560.7

600 USD Millions USD

400

200

0 2013 2014 2015 2016 2017

Core Capital Net Capital Base

3.10 The aggregate core capital increased by 17.09% from $1.17 billion as at 31 December 2016 to $1.37 billion as at 31 December 2017, driven by growth in earnings performance 3.11 The average capital adequacy and tier 1 ratios were 27.63% and 23.97%, against the required minima of 12% and 8%, respectively, as at 31 December 2017. 3.12 The progressive increase in the capital adequacy ratios of banking institutions since 2014 is attributed to organic growth of capital and repositioning of balance sheets towards short-term investments.

3.13 The Reserve Bank continues to monitor banking institutions’ progress towards compliance with the 2020 minimum capital requirements. As at 31 December 2017, three (3) banking institutions had exceeded the $100 million minimum capital requirement for the Tier 1 segment.

Composition of Assets 3.14 The banking sector’s total assets increased by 29.10%, from $8.73 billion as at 31 December 2016 to $11.27 billion as at 31 December 2017. 3.15 Asset growth was mainly driven by balances with the central bank and securities & investments, which were largely funded by an increase in deposits and, to a less extent, bank capital bases. 3.16 The figure below shows the trend in total banking sector assets from December 2009 to December 2017.

Figure 6: Trend in Banking Sector Assets (2013 to 2017)

USD Billions 12 11.27

10 8.73 7.83 8 7.12 6.73

0 2013 2014 2015 2016 2017

3.17 The largest contributor to the growth in total assets were balances with the central bank and securities and investments, which significantly increased by 62% and 60%, respectively, during the year ended 31 December 2017. The increase in securities and investments, largely in the form of Treasury Bills continues to reflect increased reliance

by Government on the banking sector for its funding requirements.

Composition of Liabilities 3.18 The banking sector total liabilities which grew by 29.10% from $8.73 billion as at 31 December 2016 to $11.72 billion as at 31 December 2017, were mainly driven by deposits growth. Banking sector deposits increased by 26.47%, from $6.51 billion as at December 2016 to $8.48 billion as at 31 December 2017.

Financial Intermediation 3.19 There has been a general decline in the level of financial intermediation as reflected by the decrease in the loans to deposit ratio from 56.64% as at 31 December 2016 to 44.79% as at 31 December 2017 as shown in the graph below. The decline in the level of financial intermediation is mainly attributed to increased uptake of less risky securities and investments, mainly Treasury Bills, by banking institutions.

Figure 7: Loans to Deposits Ratio Trend December 2016 to December 2017

90%

80% 78.40% 78.28% 70% 68.81%

60% 56.64% 50% 44.79% 40%

30%

20%

10%

0% 2013 2014 2015 2016 2017

Total Deposits 3.20 During the year under review, banking sector deposits increased by 26.47%, from $6.51 billion as at December 2016 to $8.48 billion as at 31 December 2017. The substantial increase in total deposits is a reflection of the expansionary fiscal stance.

3.21 The figure below shows the trend of banking sector deposits over the period 31 December 2009 to 31 December 2017.

Figure 8: Trend of Banking Sector Deposits (USD million)

8000 7000 6000 5000

4000 8,480.46

3000 7,617.29

6,992.07

6,549.97

6,511.83

6,137.69 5,672.98

2000 5,623.00

5,056.75 4,728.07 1000 0

3.22 As at 31 December 2017, total banking sector deposits were dominated by demand deposits which are relatively short-term in nature and constituted 67.95% of total deposits. 3.23 Banking sector composition of deposits as at 31 December 2017 is depicted in the figure below.

Figure 9: Composition of Deposits as at 31 December 2017

Savings Deposits Call Deposits 5.23% 1.32% Foreign Deposits (Foreign Entity Time Deposits Deposits) 19.37% 2.05%

Foreign Deposits (Foreign Lines) 2.21% Demand Deposits 67.95%

Other Deposits 1.87%

3.24 The commercial banking sub-sector had the biggest share of deposits, accounting for 82.90% of total banking sector deposits as at 31 December 2017 as shown in the figure below.

Figure 10: Distribution of Deposits as at 31 December 2017

Savings Bank Building Societies 1.90% 15.20%

Commercial Banks 82.90%

Loans and Advances 3.25 Total banking sector loans and advances increased from $3.69 billion as at 31 December 2016, to $3.80 billion as at 31 December 2017. 3.26 The proportion of loans and advances to total banking assets declined to 33.72% of total banking assets as at 31 December 2017, compared to 42.27% as at 31 December 2016 as banking institutions repositioned their balance sheets towards short-term investments, which are considered less risky. 3.27 Trend in banking sector loans and advances from 31 December 2013 to 31 December 2017, is shown in the figure below.

Figure 11: banking Sector Loans & Advances ($m)

11.27

8.73 7.83 7.12 6.56

USD in USD Billions 4.01 3.87 3.69 3.8 3.32

2013 2014 2015 2016 2017 Period

Total Assets Total Loans

3.28 Commercial banking sub-sector accounted for 72.45% of the total banking sector loans as at 31 December 2017 as shown in the figure below.

Figure 12: Distribution of Loans & Advances as at 31 December 2017

Savings Bank Building Societies 2.40% 25.15%

Commercial Banks 72.45%

3.29 Total banking sector loans remain concentrated in a few banking institutions as top five

(5) banking institutions accounted for 62.55% of total banking sector loans. The concentration of loans by bank as at 31 December 2017 is shown in the figure below.

Figure 13: Loan Concentration by Banks as at 31 December 2017

FBC Bank 6.26% NMB Bank 5.53% ZB Bank Barclays 2.86% 3.20% MBCA 2.72% Stanbic 9.27% CBZ BS Agribank 3.61% 2.46%

POSB CABS Other 2.40% 18.00% 37.76% Standard Chartered Bank 3.92% Metbank 1.98% Ecobank NBS 4.24% 1.68% BancABC FBC BS 5.27% CBZ Bank 1.62% 23.19% Steward Bank ZB BS 1.56% 0.25%

Sectoral Distribution of Loans & Advances

3.30 The distribution of credit remained largely unchanged throughout the year, with lending to the productive sectors of the economy such as manufacturing, agriculture and mortgages continuing to dominate the banking sector loan portfolio. 3.31 Lending to the productive sectors of the economy constituted 73.64% of total sector loans as at 31 December 2017 as shown in the diagram below.

Figure 14: Sectoral Distribution of Loans as at 31 December 2017

State & State Other Enterprise 7.76% Manufacturing 17.29% s Mortgages 2.12% 13.16% Trade & Services Productive… Agriculture 0.91% Consumptive 15.34% 18.60% Mining Distribution 3.18% 12.08%

Financial Firms Construction 8.29% 1.29%

3.32 An analysis of the sectoral distribution of loans and advances indicates that the banking sector continues to be constrained in meeting the long-term funding requirements of capital intensive sectors such as construction and mining in light of the short term nature of funding. 3.33 Lending to some individuals was for productive purposes to finance farming activities, small scale mining and mortgages whilst household or individual borrowing for consumptive purposes accounted for 18.60% of total banking sector loans.

Non-Performing Loans 3.34 The ratio of non-performing loans (NPLs) was 7.08% as at 31 December 2017, down from 7.87% as at 31 December 2016. The level of NPLs continues to decline due to ongoing initiatives to enhance management of management of credit risk by banks, use of the Credit Registry, as well as disposal of NPLs to ZAMCO. 3.35 As at 31 December 2017, ZAMCO had acquired NPLs amounting to $987 million. 3.36 The figure below depicts the trend in NPLs since 2013.

Figure 3.11: Trend in Non-Performing Loans 2013 – December 2017

Figure 15: Trend in Non-Performing Loans 2013 – December 2017

25%

20% 20.45%

15.92% 15.91% 15% 14.27% 10.81% 8.39% 7.95% 10% 7.87% 8.63%

Level Level of NPL Ratio 10.74%

5% 7.08%

0% 2013 Sep-14 Dec-14 Sep-15 Mar-16 Sep-16 Dec-16 Mar-17 Jun-17 Sep-17 Dec-17

3.37 The level of NPLs is expected to continue trending downwards in response to a number of holistic NPL resolution policy measures by the Reserve Bank and the Government aimed at fostering responsible borrowing culture including the operationalisation of the credit reference system. 3.38 Following the operationalisation of the Credit Registry, all banking institutions are required to obtain a credit history report of a prospective borrower from the Credit Registry before granting credit. 3.39 The sustainable reduction in NPLs is expected to strengthen banks’ balance sheets and position them to meaningfully contribute to the revival of the economy.

Sectoral Distribution of NPLs 3.40 As at 31 December 2017, sectors with the largest proportions of NPLs were individuals (24.93%) and agriculture (23.36%) as shown in the figure below.

Figure 16: Sectoral Distribution of Non- Performing Loans

Communication Transport Financial Firms Other 0.03% 1.01% 4.09% 4.37% Construction 2.46%

Distribution 12.88% Mining 1.23% Agriculture 23.36% Indvidual 24.93% Manufacturing Commercial 11.20% 14.43%

Earnings Performance 3.41 The banking sector remained profitable during the year ended 31 December 2017, with an aggregate net profit of $241.94 million, an increase of 33.62% from the $181.06 million reported in 2016. The increase was mainly driven by interest income from loans and advances, and non-interest income, notably from fees and commission associated with electronic payments. 3.42 The banking sector profit figures from 31 December 2013 to 31 December 2017 are shown in the figure below.

Figure 17: Earnings Performance for the year ended 31 December 2017

Net Profit (USD millions) 300

250

200

150

100

0 2013 2014 2015 2016 2017

Net Profit (USD millions)

3.43 Eighteen (18) out of nineteen (19) operating banking institutions recorded profits during the year ended 31 December 2017. Only one institution, the National Building Society recorded a loss of $1.47 million as this was mainly attributable to start-up costs. The institution is expected to record profits in 2018. 3.44 Interest income continued to be the dominant source of earnings, constituting 51.52% of total income of $1.19 billion for the period ended 31 December 2017. 3.45 Banking sector non-interest income was largely driven by fees & commission arising from an increase in RTGS, mobile banking and POS transactional volumes. 3.46 The sources of income for the banking sector for the year ended 31 December 2017 are shown in the figure below.

Figure 18: Banking Sector Sources of Income as at 31 December 2017

Other Non Interest Income 4.04%

Interest Income from Loans Advances and Leases Fees and Commission 35.07% 38.63%

Interest Income On Investments and Securities 15.52% Interest Income on Balnces with Banking Institutions Foreign Exchange 0.93% 5.82%

3.47 Interest income from loans and advances accounted for 35.07% of total income in 2017, compared to 45.00% in 2016, while interest on investments and securities accounted for 15.52% in 2017, compared to 12.85% in 2016. 3.48 The income mix for the sector in 2016 and 2017 is shown in the figure below.

Figure 19: Comparison of Income Mix – 2016 and 2017

USD millions

700 611.13 612.36 600

500 458.26

400 366.61

300

200

69.02 100 45.93 47.92 23.29 0 Interest Income Fees & Commission Foreign Exchange Other Non-Interest Income

2016 2017

3.49 Fees and commissions accounted for 38.63% ($458.26 million) of total income for the year ended 31 December 2017, compared to 34.98% ($366.61 million) in 2016. The growth in fees and commissions, was driven by an increase in electronic transaction volumes. 3.50 For the year ended 31 December 2017, the major expense item was salaries & employment benefits, which constituted 44.63% of total banking sector costs, as shown in the figure below.

Figure 20: Banking Sector Non-Interest Expenses – 31 December 2017

Other Non-Interest Expenses 35.28%

Salaries & Employment Costs 44.63%

Depreciation 5.70%

DPC Premium 1.72% Management & Amortisation of Occupancy (Net of Rental Service Fees Intangible Assets Income) 6.28% 1.64% 4.75%

3.51 The banking sector average return on assets (ROA) and return on equity (ROE) improved to 2.61% and 15.50% as at 31 December 2017, respectively, from 2.26% and 10.96% as at 31 December 2016, as indicated in the table below.

Figure 21: Trend in Profitability Indicators

18.00%

16.00% 15.50%

14.00%

12.00% 10.96% 10.96%

10.00%

8.00%

6.00% 4.60%

4.00% 2.11% 2.26% 1.12% 2.61% 2.00% 0.08% 0.00% 0.14% 2013 2014 2015 2016 2017

ROE ROA

3.52 Banking institutions continue to implement revenue enhancement measures such as digital finance and agency banking, while instituting cost containment measures.

Banking Sector Liquidity 3.53 The average prudential liquidity ratio (PLR) for the banking sector was 62.62%, against the minimum regulatory requirement of 30%. All banks, except CBZ Building Society, were compliant with the minimum prudential liquidity ratio as at 31 December 2017. 3.54 CBZ Building Society was amalgamated into CBZ Bank and is now operating as a division of the bank. All treasury activities have been centralised with all deposits booked under CBZ Bank while most of the liquid assets are recorded under the bank. 3.55 The figure below shows the trend in the banking sector average prudential liquidity ratio since 2014.

Figure 22: Prudential Liquidity Ratio Trend (%)

Prudential Liquidity Ratio Trend (%) 70

61.91 62.62 65 66.87 60 62.49 49.63 55 52.47 50

45.43 45 40.86 39.99 38.08 40 37.18 36.61 43.13 38.14 35

3.56 The high average prudential liquidity ratio was partly due to a cautious lending approach being adopted by banking institutions. 3.57 The banking sector, however, continued to experience underlying foreign currency shortages due to structural challenges in the economy. The Reserve Bank has instituted a number of measures aimed at addressing the foreign currency shortages such as improving ease of access to productive facilities, enhancing nostro stabilization facilities, enhancing rewards to exporters and reducing cost of doing export business, among others.

SECTORAL ANALYSIS

Commercial Banks… 3.58 Performance of the sub-sector was satisfactory during the year, as measured by an improvement in capital adequacy, asset quality, earnings and liquidity.

Total Assets 3.59 The total assets of the commercial banking sub-sector increased by 31.25%, from $7.07 billion in 2016 to $9.28 billion as at the end of 2017. Loans & advances and securities & investments were the major components of total assets, as they constituted 32.46% and 28.05% of the sub-sector’s total assets, respectively. 3.60 As at 31 December 2017, the sub-sector accounted for 82.51% of the total banking sector assets of $11.25 billion.

Total Liabilities 3.61 As at 31 December 2017, the sub-sector’s total liabilities amounted to $8.06 billion ($7.07 billion in 2016), and largely comprised deposits, which accounted for 79.94% of total sub- sector liabilities. 3.62 Total deposits amounted to $6.44 billion in 2017, a 50.47% increase from $4.28 billion recorded in 2016. 3.63 The bulk of commercial bank deposits were in the form of demand deposits, which amounted to $5.19 billion, constituting 79.69% of the sub-sector’s total deposits. Commercial banks’ reliance on this source of funding increased during the review period, as shown in the figure below.

Figure 23: Distribution of Commercial Bank Deposits

31 December 2016 31 December 2017

Demand Savings Deposits Demand Deposits 79.69% Deposits 7.20% 74.98% Savings Deposits 6.38%

Time Foreign Currency Time Foreign Deposits / Deposits NCDs Fixed Deposits NCDs Currency 0.89% 0.88% Deposits 12.16% 1.10% Deposits 0.65% 16.07%

3.64 The loans to deposit ratio for the sub-sector decreased from 64.66% as at 31 December 2016 to 42.73% as at 31 December 2017, reflecting slowdown in lending by commercial banking institutions.

Capital Adequacy 3.65 The net capital base increased by 15.47%, from $971.1 million to $1.12 billion during the year ended 31 December 2017, on the back of increased earnings performance. 3.66 The sub-sector reported an average capital adequacy ratio of 26.84% as at 31 December 2017, against the minimum required capital adequacy ratio of 12%. 3.67 The growth in the net capital base of the sub-sector from 2013 is shown in the Figure below.

Figure 24: Commercial Banks’ Net Capital Base 2013 to 2017

1200 1121.32

971.1 1000

811.37 800 689.21

600

506.05 USD Millions Millions USD 400

200

0 2013 2014 2015 2016 2017

Asset Quality 3.68 Total loans and advances for commercial banks remained stable at about $2.8 billion as at 31 December 2017. The commercial bank sub-sector loans accounted for 75.45% of total banking sector loans as at 31 December 2017. 3.69 The ratio of adversely classified loans to total loans decreased from 8.00% to 7.39%, reflecting an improvement in the sub-sector’s asset quality.

Earnings 3.70 For the year ended 31 December 2017, commercial banks’ average profit rose by 47.12% to $180.65 million, from $122.79 million recorded in 2016. The increase translated to improved average return on assets from 2.38% as at 31 December 2016 to 2.50% as at 31 December 2017. 3.71 The increase in profitability was largely attributable to a 31.97% growth in non-interest income, notably fees and commissions, from $475.84 million to $575.20 million over the year ended 31 December 2017. Net interest income after provisions marginally increased from $342.82 million to $359.90 million, or 5% over the same period, amidst subdued lending. 3.72 The growth in income was partly offset by an increase of 14.38% in operating expenses, from $559.90 million to $640.44 million.

3.73 Key profitability indicators for the period 2013 to 2017 are shown below.

Figure 25: Commercial Banks Key Earnings Indicators – 2013 to 2017

20.00% 120.00%

17.72% 18.00%

15.91% 100.00% 16.00% 96.17% 89.48% 14.00% 86.13% 80.00% 74.67% 12.00% 70.67%

10.00% 9.04% 60.00%

8.00% 7.28% 6.48% 6.61% 6.12% 5.64% 40.00% 6.00% 5.17%

4.00% 2.38% 2.50% 20.00% 1.79% 2.00% 0.89% 0.48% 0.06% 0.00% 0.00% 2013 2014 2015 2016 2017

ROA ROE NIM Cost to Income Ratio

3.74 The sub sector’s income was mainly driven by interest income and fees & commissions. Interest income contributed 49.90% ($463.75 million) of total income, whilst the major component of non-interest income were fees & commissions, which accounted for 38.48% ($465.66 million) of total income. This was an indication that notwithstanding a cautious approach to lending, the sector still derives the bulk of its income from the core business of lending. 3.75 The income mix for the sub-sector for the period ended 31 December 2016 and 31 December 2017 is shown in the Figure below.

Figure 26: Income Mix for the Commercial Banking Sector

USD millions

500 463.99 463.75 450

400 357.62 350

300 278.23

250

200

150

100 68.38 45.43 39.67 50 19.72

0 Interest Income Fees & Commission Foreign Exchange Other Non-Interest Income

2016 2017

3.76 Total expenses for the commercial banking sub-sector increased from $610.66 million to $630.38 million, or 3.23% for the year 2017. The major cost component was salaries & employment benefits, which accounted for 37.96% of total expenses.

Liquidity and Funds Management… 3.77 Total deposits for the commercial banking sub-sector increased by 31.65% from $5.34 billion as at 31 December 2016 to $7.03 billion as at 31 December 2017. 3.78 The increase in deposits was mainly attributable to demand deposits which grew by 59.89% from $3.21 billion to $5.13 billion during the review period. 3.79 The subsector’s average prudential liquidity ratio as at 31 December 2017 was 66.63%, which was above the minimum prudential liquidity ratio of 30%.

Building Societies… 3.80 The performance of the building society sub-sector over the year ended 31 December 2017 was satisfactory, as reflected by the improvement in the key indicators.

Total Assets 3.81 The total assets of the building society sub-sector maintained an upward trend, rising by 16.24%, from $1.50 billion in 2016 to $1.74 billion as at the end of 2017. Loans & advances were the major component of total assets as they constituted 54.90% of the sub-sector’s total assets. As at 31 December 2017 loans and advances rose to $955.37 million from $846.16 million in 2016. However, the loans are concentrated in one institution, which had total loans amounting to $683.52 million and accounted for 71.72% of total sub-sector loans. 3.82 Total mortgage book in the sub-sector amounted to $451.11 million and accounted for 47.22% of the total sub-sector loans as at 31 December 2017. The largest building society had total mortgages amounting to $253.33 million, which accounted for 56.16% of the sub-sector mortgages book. 3.83 As at 31 December 2017, the sub-sector accounted for 15.47% of the total banking sector assets of $11.25 billion.

Total Liabilities 3.84 The sub-sector’s total liabilities amounted to $1.75 billion largely comprising deposits, which accounted for 63.96% of the sub-sector’s liabilities. Total deposits in the sub-sector increased by 21.84% from $1.06 billion as at 31 December 2016 to $1.29 million as at 31 December 2017. 3.85 CABS, with total deposits amounting to $1.06 billion, dominated the sub-sector with a market share of 82.10% in terms of total sub-sector deposits. 3.86 Building societies’ deposits mainly comprised demand deposits amounting to $526.83 million, which constituted 47.13% of the subsector’s total deposits. Reliance on this source of funding increased during the review period as shown in the Figure below.

Figure 27: Distribution of Building Society Deposits

31 December 2016 31 December 2017

NCDs NCDs 4.83% 3.79%

Demand Deposits, Demand Time 31.52% Deposits Deposits 47.13% Time 41.84% Deposits, 57.70%

Savings Deposits, Savings 5.94% Deposits 7.24%

3.87 The loans to deposit ratio for the sub-sector decreased to 85.64% as at 31 December 2017 from 96.03% as at 31 December 2016, reflective of a further slowdown in lending by banking institutions.

Capital Adequacy 3.88 The net capital base increased by 23.19%, from $327.07 million in 2016 to $402.93 million in 2017. The increase was largely attributed to organic growth as all of the building societies except for one were profitable during the year 2017. 3.89 All building societies, except ZB Building Society, were compliant with the minimum capital requirements for building societies, the sector`s core capital increased by 14.78% to $317.25 million as at 31 December 2017 from $276.41 million in 2016. 3.90 The sub-sector reported an average capital adequacy ratio of 29.59% as at 31 December 2017, which was above the minimum required capital adequacy ratio of 12%.

Asset Quality 3.91 Total loans and advances for building societies increased by 12.91%, from $846.16 million in 2016 to $955.37 million as at 31 December 2017.

3.92 The ratio of adversely classified loans to total loans for the sub-sector decreased to 6.01% as at 31 December 2017, from 6.81% as at 31 December 2016, reflecting an improvement in the sub-sector’s asset quality.

Earnings 3.93 For the year ended 31 December 2017, building societies net income rose by 4.24% from $48.20 million to $50.25 million for the year ended 31 December 2017. 3.94 The increase in net profit was largely driven by lower loan loss provisions in line with improved asset quality, lower interest expenses, as well as higher non-interest income. The growth in income was, however, partly offset by increased operating expenses which increased from $100.68 million (19.18%) to $119.99 million in 2017, mainly driven by salaries and administration costs. 3.95 The sub sector’s income was driven by interest income and fees & commissions, which contributed 61.93% and 38.07% of total income, respectively. The sub-sector continues to derive the bulk of its income from the core business of lending. 3.96 The income mix for the sub-sector for the period ended 31 December 2017 is shown in the Figure below.

Figure 28: Income Mix for the Building Society sub-sector

USD million 133.56 133.37 140

120

100 73.31 80 63.99

20 0.58 8.23 0.41 3.43 0 Interest Income Fees & Commission Foreign Exchange Other Non-Interest Income

2016 2017

3.97 Total costs for the building societies sub-sector increased by 8.12% to $165.43 million in 2017 from $153 million in 2016. The major cost components were interest expense and salaries & employment benefits, which accounted for 26.24% ($42.66 million) and 21.57% ($35.07 million) of total expenses of $119.90 million, respectively. 3.98 ROA % ROE, Cost to income ratio

Liquidity and Funds Management… 3.99 Total deposits for the building society sub-sector increased by 26.87% from $881.14 million as at 31 December 2016 to $1.1 billion as at 31 December 2017. 3.100 The increase in deposits was mainly attributable to demand deposits which grew by 89.68% from $277.75 million to $526.83 million during the review period. 3.101 The subsector’s average prudential liquidity ratio as at 31 December 2017 was 40.60%, which was above the minimum prudential liquidity ratio of 30%.

UPDATE ON RESOLUTION OF TROUBLED BANKS 2.63 As at 31 December 2017, a total of 11,744 out of 54,909 depositors had been compensated out of the Deposit Protection Fund in respect of contributory institutions under liquidation. In monetary terms, $3.2 million was paid, representing 50% of the total exposure of $6.4 million. A synopsis of deposit insurance payments for the period under review are shown in the table below.

Table 6: Deposit Insurance Payments as at 31 December 2017

Institution Total Gross Exposure No. of Value of % Paid to Depositors Deposits (Deposits Depositors Deposits Exposure ($m) Payable at Paid to Paid ($’000’) $500) Date

Royal Bank 5,433 2.57 472,207 3,105 356 75.5% Zimbabwe Limited

Trust Banking 2,958 11.48 328,516 415 146 44.6% Corporation

Genesis Investment 86 1.43 11,810 62 9 74.7% Bank Limited

Allied Bank 9,228 14.32 1,248,307 1,529 534 42.8% Zimbabwe Limited

Interfin Bank 13,021 137.34 918,814 682 260 28.3% Limited

AfrAsia Bank 24,163 18.56 3,439,276 5,951 1,936 56.3% Zimbabwe Limited

TOTAL 54,909 185.69 6,418,930 11,744 3,241 50.5% Source: Deposit Protection Corporation

2.64 The deadline for Genesis Investment Bank depositors to receive compensation from the deposit protection fund lapsed on 30 June 2017 in terms of section 38(5b) of the Deposit Protection Corporation Act. Payments in respect of liquidation will, however, remain in force in accordance with the framework and parameters as provided in the Companies Act as read together with the Insolvency Act. 2.65 The return date for Tetrad Investment Bank, judicial management was extended indefinitely by the High Court to allow implementation of the scheme of arrangement which was authorised by the creditors in the meetings held in September 2015. The implementation of the Tetrad Investment Bank scheme is proceeding as scheduled and cash pay outs to creditors which commenced on 15 November 2017. As at 31 December 2017, about $2.76 million had been paid out to creditors/depositors of the bank, being 64% of the total exposure of $4.3 million.

2.66 Capital Bank Corporation’s (formerly Renaissance Merchant Bank) operating licence was cancelled by the Reserve Bank on 4 June 2014 after the Board voluntarily surrendered the licence. In June 2014, National Social Security Authority (NSSA) petitioned the High Court for voluntary liquidation but the application was opposed by the institution’s other shareholders. The case is still pending at the High Court and a set down date is awaited for the application for liquidation.

CHAPTER 4: LEGAL & REGULATORY DEVELOPMENTS

INTRODUCTION 4.1 During the year under review, a number of measures were taken aimed at strengthening the regulation, supervision and risk management of financial institutions. The measures are captured hereunder.

GENERAL NOTICE 115 OF 2017 4.2 Subsequent to the promulgation of Banking Amendment Act No. 12 of 2015, measures were put in place to ensure that the new provisions of the Banking Act, and in particular those pertaining to risk management and corporate governance became applicable to the Infrastructure Development Bank of Zimbabwe (IDBZ). 4.3 General Notice 115 of 2017 was gazetted on 10 February 2017. The General Notice specifies the corporate governance, risk management and supervision provisions of the Banking Act [Chapter 24:20] applicable to the IDBZ. ). The Notice effectively brought the IDBZ under the supervision of the Reserve Bank of Zimbabwe.

MOVABLE PROPERTY SECURITY INTERESTS ACT [CHAPTER 14:35] 4.4 The Movable Property Security Interests Act [Chapter 14:35] was gazetted on 28 July 2017, paving way for the establishment of a Collateral Registry within the Reserve Bank of Zimbabwe. The law provides for registration of movable property security interests and is expected to improve access to credit as borrowers will be able to use movable property as collateral for loans. Reserve Bank of Zimbabwe, in collaboration with the World Bank, is working on the development of Collateral Registry Regulations and establishing the Collateral Registry.

CONSUMER PROTECTION FRAMEWORK 4.5 In order to strengthen market conduct, the Reserve Bank of Zimbabwe issued Consumer Protection Framework No.1 – 2017 BSD in terms of section 4C of the Banking Act [Chapter 24:20]. The Framework applies to all banking and non-bank financial institutions that are regulated by the Reserve Bank of Zimbabwe and their agents and seeks to foster market confidence and trust in the provision of financial services.

4.6 The key objectives of the Framework are to capture best practice in consumer protection, increase public awareness of financial services and products, promote greater transparency and minimize information asymmetry between consumers and regulated entities and ensure availability of consumer redress mechanisms for handling customer grievances that are fair, expeditious, inexpensive and accessible.

THE RESERVE BANK AMENDMENT ACT NO. 1 OF 2017 4.7 The Amendment was gazetted on 15 July 2017. It amends section 2 and section 48 of the Reserve Bank Act [Chapter 22:15] and effectively introduces the comprehensive legal framework for bond notes. 4.8 The law set to provide an enhanced regulatory framework, specifically empowering the Reserve Bank of Zimbabwe to issue bond notes and coinage as legal tender. The law was deemed to have come into force on 31 October 2016.

THE JUDICIAL LAWS AMENDMENT (EASE OF SETTLING COMMERCIAL AND OTHER DISPUTES) NO.7 OF 2017 4.9 The Judicial Laws Amendment (Ease of Settling Commercial and Other Disputes) No.7 of 2017 was issued in the Government Gazette on 23 June 2017. The law provides for the establishment of commercial courts, virtual sittings of the court, allows for service of process by electronic means, and the digitalisation of records filed or lodged with the courts. 4.10 The establishment of the commercial courts will facilitate speedy resolution of commercial disputes and banking institutions will benefit from reduced time for resolution of litigation cases.

CHAPTER 5: CONSUMER EDUCATION AND CONSUMER PROTECTION

5.1 The Reserve Bank has always recognized protection of consumer interests as a critical area and has consequently enhanced focus and priority to ensure provision of safe and efficient banking services.

FINANCIAL LITERACY 5.2 As part of increasing awareness of the integrated approach to financial education and financial inclusion, the Bank in collaboration with development partners, conducted a number of financial literacy stakeholders’ workshops during 2017. 5.3 The Reserve Bank in partnership with the Child & Youth Finance International (CYFI) and the World Bank, hosted the Child and Youth Financial Inclusion and Financial Education Stakeholders Workshop in October 2017. 5.4 The workshop which was attended by various stakeholders drawn from government, higher and tertiary education and financial services sector sought to raise awareness of the integrated approach to financial education and financial inclusion and promoting alignment of strategies and efforts towards financial inclusion of the youth. 5.5 The Reserve Bank of Zimbabwe in collaboration with the International Labour Organisation (ILO) also hosted a financial literacy orientation workshop for the NFIS Financial Literacy and Consumer Protection Thematic Working Group members in December 2017. 5.6 The workshop served to strengthen the Working Group members’ appreciation of financial literacy concepts and capability to enable members to champion the financial literacy initiatives under the NFIS. 5.7 Development partners including the International Labour Organisation (ILO) and the World Bank, are also working with the Reserve Bank and other stakeholders to strengthen capacity to roll out national financial literacy programs. 5.8 Going forward, the implementation of financial education programs for various target segments will be accelerated.

CONSUMER PROTECTION 5.9 Consumer protection remains key in view of the ever-increasing complexity and diversity of the range of products and services offered by financial institutions through traditional and digital channels. 5.10 The consumer protection framework that was issued is expected to help build trust in the formal banking sector and thus promote financial inclusion. 5.11 During the year, the Reserve Bank received capacity building from the Macroeconomic and Financial Management Institute of Eastern and Southern Africa (MEFMI) in the area of Market Conduct Supervision. Going forward, the Reserve Bank will be employing on- site and off-site market conduct supervision techniques to achieve the desired levels of consumer protection in the financial sector. 5.12 In line with the financial inclusion thrust, the Reserve Bank issued a circular in January 2017, encouraging all microfinance institutions to review and align their lending rates to ensure that the effective lending rates (interest rate plus all applicable fees and charges) do not exceed 10% per month. 5.13 A country-wide inspection of microfinance institutions conducted in the second half of 2017 revealed that most microfinanciers had reviewed and aligned their lending rates to the recommended maximum of 10% per month. 5.14 The Reserve Bank through its on-going supervisory activities, will continue to monitor compliance with recommended lending rates as well as the requirement for banking institutions and microfinance institutions to provide up to date terms and conditions for products and services to customers, through available channels including electronic channels.

COMPLAINTS HANDLING 5.15 The Reserve Bank continues to promote timely redress of customer complaints which is critical in underpinning public confidence in the consumer protection framework and enhances competitiveness and growth through feedback from complaints. 5.16 During the year, the Reserve Bank received complaints against banking institutions mainly related to unauthorised debits, double deductions for some transactions, delays in resolution of failed POS transactions and delays in reversal of funds credited to wrong

beneficiaries. 5.17 The Reserve Bank also received complaints against microfinance institutions mainly relating to double deductions, interest rates and violation of the in duplum rule. Most of the complaints continue to reflect low financial literacy and inadequate credit risk disclosure. 5.18 Of the total complaints received, 80% of the complaints were attributed to unfair treatment by the microfinanciers concerned including, over deductions from clients' salaries as outlined in the chart below. 5.19 The Reserve Bank continues to enforce compliance to the Microfinance Code of Conduct and the Core Client Protection Principles (CCPPs), and require every registered microfinancier to put in place a well-functioning, robust grievance redress mechanism for the timely and responsive resolution of clients’ complaints. 5.20 The complaints received by the Reserve Bank are resolved through engagement of the institutions involved. 5.21 The Reserve Bank conducted training for MFIs covering compliance to the Microfinance Act, corporate governance, and management information systems against the background of the complaints.

CHAPTER 6: OUTLOOK

6.1 The banking sector remained resilient during the year 2017 on the back of multifaceted interventions by the Reserve Bank of Zimbabwe, together with other stakeholders. 6.2 Going forward, the banking institutions are expected to remain safe and sound playing a critical role in supporting the development aspirations of the economy. In light of envisaged revitalization in financial intermediation, strengthened risk management systems and improved liquidity in the banking system, the condition and performance of banking institutions is expected to improve in the outlook period. 6.3 Ongoing initiatives by the Government, the Reserve Bank, and other key stakeholders to open up the economy to business represent opportunities for attracting investment, foreign and domestic required to increase production, jobs, fiscal space and exports. 6.4 The Reserve Bank will continue instituting regulatory measures aimed at ensuring a healthy and competitive banking system and to promote financial stability and cost effective and inclusive banking services. 6.5 The Reserve Bank will continue to encourage members of the public, business and other stakeholders to embrace the plastic money and digital financial services products in their daily transactional requirements. It is also envisaged that increased partnerships between banks and telecommunications companies will promote wider usage of electronic means of payments. 6.6 Ensuring affordability of the cost of banking services will remain a key focus area. The reduction in lending rates across the sector is expected to boost productive activities in the economy in light of the criticality of affordable and sustainable loan facilities, while lower bank charges are envisaged to facilitate savings mobilization. 6.7 The increased usage of the Credit Registry information systems has reduced information asymmetries thereby improving the borrowing environment. The Reserve Bank of Zimbabwe will continue to approach and engage the outstanding credit providers, which include utilities, state agencies and local authorities, to ensure the full participation of all stakeholders in the sharing of credit information in Zimbabwe. 6.8 The Reserve Bank of Zimbabwe will continue to embark on public awareness regarding the consumers’ rights with a view of ensuring increased access and usage of financial

products and services. 6.9 As the operating environment improves, financial intermediation is expected to increase thus stimulating the productive capacity of the economy. 6.10 Going forward, bank supervision will focus on the following key areas:

Financial Conglomerate Supervision…

6.11 Traditional supervisory frameworks have shortcomings for financial groups operating in multiple jurisdictions and conduct cross border activities. Significant reforms will be introduced in favour of this model to strengthen financial sector regulation. 6.12 As a result of their economic reach and their mix of regulated and unregulated entities across sectoral boundaries, financial conglomerates play a significant role in the stability of global and local economies. Accordingly, financial conglomerates present challenges for sector specific supervisory oversight. To this end the Reserve Bank will seek enhance its supervisory tools to support consistent and effective supervision of financial conglomerates and in particular financial conglomerates active across borders.

Proportionality and Bank Regulation…

6.13 The global financial crisis heightened the need to contain systemic risks posed by systemically important financial institutions. This has seen the principle of ‘proportionality’ in banking regulation, where a number of jurisdictions have implemented specific regulatory standards for smaller and less complex banks. In this context, the Reserve Bank will apply the principle of proportionality as an integral part of its regulatory and supervisory frameworks. This entails rules that are simpler but not necessarily less stringent thereby balancing the costs and benefits of regulations. .

Macroprudential Supervision…

6.14 The first two Basel frameworks were largely microprudential in nature. Under Basel III, regulators need to develop comprehensive macroprudential frameworks. Going forward, the Reserve Bank will implement measures to build supervisory capacity in this area. 6.15 Meanwhile, the Basel Committee on Bank Supervision concluded the outstanding

components of the Basel III framework in December 2017. In this regard, the Reserve Bank is in the process of developing the Basel III capital and liquidity frameworks to improve the quality, consistency and transparency of capital and reduce pro-cyclicality, as well as, enhance liquidity management.

Market Conduct Supervision…

6.16 Market conduct supervision seeks to balance the expansion of financial inclusion and the protection of consumers of financial products and services. As the Reserve Bank of Zimbabwe makes strides in implementing the National Financial Inclusion Strategy, there is need to address misconduct risks in both deposit and non-deposit taking financial institutions. Following the issuance of the Consumer Protection Framework No. 01- 2017/BSD, the Reserve Bank is building supervisory capacity for market conduct supervision.

Adoption of International Financial Reporting Standard (IFRS) 9…

6.17 The adoption of IFRS 9, which is underpinned by the expected credit loss approach, is expected to enhance bank risk management as banks become more proactive in terms of balance sheet management. IFRS 9 also provides opportunities for increased efficiency in reporting process with increased disclosure requirements expected to reinforce market discipline. 6.18 The Reserve Bank will ensure that the change-over process from the International Accounting Standard 39 based incurred loss approach is smooth.

De-risking…

6.19 Given the adverse impact that de-risking could have on the banking system and, consequently, the domestic economy, the Reserve Bank of Zimbabwe shall continue to require all the banks and other entities falling under its purview to strictly comply with the best practices and standards as prescribed by the Financial Action Task Force (on Anti- Money Laundering) on an on-going basis.

Financial Technology… 6.20 Technology enabled innovation in financial services is developing rapidly and is reshaping the banking industry and the future financial technology (fintech) landscape. In response

to the emerging technological innovations, the Reserve Bank will be looking at the adoption of technology while ensuring the integrity of markets and payment systems, protection of consumers and investors, and safeguarding overall financial stability. Meanwhile, the banking industry and private sector will look at harnessing the business opportunities from fintech developments whilst safeguarding against risks associated with fintech revolution. .

Cyber risks… 6.21 Fintech innovations increase the scope of cyber security risk. The rapid adoption of new and emerging technologies increases the possibility of technology and systems failure. As part of measures to manage the risks, banks will give priority to the development of Cyber security frameworks covering prevention, detection, monitoring, technology literacy and recovery plans.

APPENDICES

APPENDIX 1: FUNCTION AND ORGANIZATION OF BANK SUPERVISION DIVISION

Function of Bank Supervision Division

1. The Reserve Bank of Zimbabwe, in terms of Section 6 of the Reserve Bank Act [Chapter 22:15], is mandated to foster the stability and proper function of the Zimbabwean Financial System as well as supervision of banking institutions, among others.

Organization of the Bank Supervision Division (BSD) 2. In a bid to fulfill its mandate to foster and maintain financial stability, BSD is organized into seven (7) departments, aided by a Legal Counsel function. 3. The operational departments of the division are illustrated below.

Bank Supervision Organisational Structure

Director Bank Supervision & Registrar

Personal Assistant

Deputy Director Deputy Director Deputy Directors Deputy Director Deputy Director Deputy Director Deputy Director Supervision of Financial Modelling Credit Registry, Supervision of Supervision of Microfinance Financial Inclusion Corporate Collateral Registry, & Deposit Taking and Basel II / III Governance & Banks Banks & Risk Institutions Implementation MIS & Policy Management Microfinance Compliance Reserch institutions

Vision of Bank Supervision Division

To become an effective, efficient and dependable regulatory and supervisory authority for the financial sector, supportive of economic development in Zimbabwe.

Mission of Bank Supervision Division

To promote and maintain financial stability and financial inclusion through proactive and rigorous regulation and supervision, in line with international best practice.

APPENDIX 2: MAJOR SUPERVISORY TOOLS AND METHODOLOGIES 1. In an effort to effectively fulfill the responsibility to promote and maintain the safety, soundness, and integrity of the banking system, the Reserve Bank employs various supervisory techniques, which are continuously refined to take cognisance of international best practices. The methodologies include risk-based supervision, consolidated supervision, macro-prudential and financial stability analysis and early warning systems.

Risk-Based Supervision… 2. Risk-based supervision is a structured supervisory process designed to identify key risk factors through qualitative and quantitative assessment of an institution’s risk profile, assess the adequacy of the risk management policies and practices that are used to mitigate risk; and focus supervisory resources (including examination time) based on the risk characteristics of the institutions. 3. This approach requires a strong understanding of the institution and focuses on validating management’s ability to identify, measure, monitor and control risks.

Consolidated Supervision… 4. The consolidated supervision approach evaluates the strength of individual banking institutions and the entire banking group, taking cognizance of the whole spectrum of risks that affect an institution, whether these risks are carried in the books of the regulated entity or related parties. 5. Consolidated supervision promotes the overall evaluation, both qualitatively and quantitatively, of the strength of a banking group to which a banking institution belongs, in order to understand the relationship among the entities and to assess the potential impact of other entities in the group on the operations of the banking institution. 6. Banking and non-banking activities conducted by a financial conglomerate and its subsidiaries and affiliates, both domestic and foreign, are borne in mind in determining the conglomerate and its related entities’ level of compliance with prudential regulatory requirements.

Macro-Prudential and Financial Stability Analysis… 7. Macro-prudential surveillance facilitates a holistic view of structural imbalances, interactions and vulnerabilities within the banking system at both national and global

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level. The analysis encompasses a surveillance of financial markets to assess the likelihood of economic shocks; analysis of macro-prudential linkages with particular focus on the extent to which shifts in financial soundness affect macro-economic and real sector developments. Information from macro-prudential analysis provides an input into the assessment of the banking sector. 8. Financial stability analysis provides a framework for the assessment of the condition of the financial system as a whole, identification of the potential downside risks to the financial system, analysis of alternate means of promoting and maintaining financial system stability and the surveying of policy developments designed to improve financial stability. Macro-prudential analysis, macro-stress testing and scenario analysis are the bedrock on which financial stability analysis hinges. 9. Macro-stress testing and scenario analysis which are essentially risk and vulnerability assessments are conducted on a continuous basis. The analyses explore susceptibilities to both endogenous and exogenous events which have a low probability of occurrence, but have a high potential for a costly impact should they materialize.

Core Deliverables of BSD 10. BSD’s underlying philosophy revolves around the concept that banking institutions should be free to operate according to market forces and should be entitled to set terms and conditions for their operations in a competitive environment. However, supervisory rules should be set to manage banking practices in order to protect depositors, other creditors and contribute towards a sound and stable financial system. 11. To ensure financial sector stability BSD undertakes the following activities; licensing and de-licensing of banking institutions, off-site surveillance and on-site supervision.

Licensing and de-licensing of banking institutions… 12. In line with international best practice as espoused in the Basel Core Principles for Effective Banking Supervision, the licensing and de-licensing function of banking institutions, asset management companies and microfinance institutions is vested in the Reserve Bank of Zimbabwe. 13. The licensing framework considers the ownership structures; capitalization levels of the proposed institution in relation to the class of banking; the fitness and probity of members of the board and senior management, strategic and operational plans;

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internal controls; and risk management among others.

Off-site Surveillance… 14. Off-site surveillance, designed to complement on-site examinations and facilitate ongoing assessment of banks in between examinations, entails periodic analysis of the financial condition and performance of individual institutions and the entire banking sector. 15. This periodic analysis is based on the quantitative and qualitative information furnished by reporting institutions in the form of standardized statutory returns. 16. Off-site analysis, used as an early warning supervisory tool, involves regular, periodic and at times ad-hoc data collection, preliminary analysis and validation, detailed analysis and prudential meetings with the specific banking institution. 17. In line with the developments in the region, the Reserve Bank has adopted the SADC/ESAP Information Technology Harmonization Project, the Banking Supervision Application (BSA), which automates data collection, data validation and supervisory processes and workflows. 18. Apart from prudential returns, other sources of information which include the financial institutions’ internal management reports, published financial information and prudential meetings between the financial institutions, external auditors and the Reserve Bank, provide an invaluable input to off-site surveillance. 19. In addition, the Reserve Bank conducts stress tests as part of the early warning systems to determine the vulnerability of individual banks as well as the entire banking system to various shock scenarios.

On-site Examinations… 20. As an international best practice of continuous supervision, BSD conducts on-site examination of financial institutions under its purview. This involves actual visits to banking institutions to evaluate their safety and soundness. 21. The coverage of on-site examinations ranges from an investigation of specific areas to a comprehensive review of an institution's operations with focus placed on assessing management’s ability to identify, measure, monitor and control risks emanating from banking business. 22. On-site examinations are structured to provide a comprehensive evaluation and

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assessment of a range of supervisory issues including: i. compliance with laws, regulations and the institution’s own internal policies and procedures; ii. corporate governance and competence of management; iii. adequacy of the institution’s risk management systems and internal control procedures; iv. adequacy of accounting and management information systems; and v. maintenance of proper books of accounts and other records. 23. The frequency of on-site examinations is determined by the institution’s risk profile as depicted by the results of the off-site assessment and significant developments which have a bearing on the financial condition of an institution.

Financial Inclusion… 24. BSD promotes financial inclusivity in line with the Reserve Bank’s mission of maintaining financial stability and financial inclusion. Banking institutions are required to incorporate financial inclusion in their strategic planning processes and ensure adequate oversight by the board. 25. The Reserve Bank, through BSD, is responsible for coordinating the implementation of the National Financial Inclusion Strategy and monitoring progress.

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APPENDIX 3: REGISTERED BANKING INSTITUTIONS AS AT 31 DECEMBER 2017 TOTAL ASSET GROWTH

% Annual Banking Institution Address & Website 2016 ($M) 2017 ($M) Growth COMMERCIAL BANKS 15th Floor, Hurudza House 14-16 Nelson Mandela Avenue Harare Agribank Tel: 774429 or 773704/5 or 210.83 281.72 33.62 774554 Fax 774554 www.agribank.co.zw 1 Endeavour Crescent Mt. Pleasant Business Park Harare BancABC 463.62 566.64 22.22 Phone: 701636/52; 739089 Fax 727330 www.bancabc.com

Barclays Bank 3 Anchor House 1st Street/Jason Moyo Avenue 546.56 665.42 21.75 Harare Phone: 758280/99 or 758324 www.africa.barclays.com 3rd Floor, Union House 60 Kwame Nkrumah Avenue Harare CBZ Bank 1,948.43 2,083.41 6.93 Phone: 749714 or 748050/79 / 759110-6 Fax 758077 www.cbz.co.zw Sam Levy’s Office Park Block A, Piers Road Borrowdale Harare Ecobank Phone:851642/7 or 706036/7 444.08 655.95 47.71 701350/3 or 703011/2/4 / 851642 Fax: 794993 www.ecobank.com FBC Centre Nelson Mandela Avenue Harare FBC Bank Limited Phone:704462/704481/77 466.90 554.61 18.78 2705 Fax 704995 www.fbc.co.zw

Old Mutual Centre MBCA Bank Limited now 3rd Street/Jason Moyo Nedbank Zimbabwe Limited Harare 309.73 380.45 22.83 Tel: 701636/52 Fax 727330 www.mbca.co.zw

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% Annual Banking Institution Address & Website 2016 ($M) 2017 ($M) Growth Metropolitan House 3 Central Avenue Metbank Zimbabwe Harare 199.70 337.45 68.98 Limited Phone: 706091/706128 /701970 Fax 733014 www.metbank.co.zw

4th Floor, Unity Court NMB Bank Kwame Nkrumah Avenue Limited Harare 759651/9 or 754933/5 or 328.86 427.12 29.88 709122/68 or 709124/09 www.nmbz.co.zw

Stanbic Centre Samora Machel Avenue Stanbic Bank Harare 1,020.05 1,551.54 52.10 Zimbabwe Limited Phone: 759471; Fax 772126 www.stanbicbank.co.zw

2nd Floor, Old Mutual Centre Cnr. Third Street/Jason Moyo Avenue Standard Chartered Bank Harare 562.89 874.32 55.33 Zimbabwe Limited Phone: 253801-7 or 252289 Fax 252288 www.stanchart.co.zw 6th Floor, 101 Kwame Nkrumah Avenue Steward Bank Limited Harare 192.08 428.11 122.88 Tel:79146/791444-8 Fax 791460 www.stewardbank.co.zw Zimbank House Cnr.1st Street/Speke Avenue ZB Bank Limited Harare 373.16 472.41 26.60

Phone: 751168/75 or 78662590/2576 www.zb.co.zw BUILDING SOCIETIES

Northridge Park Northend Close Central African Building Borrowdale 1,056.39 1,241.04 17.48 Society (CABS) Harare Phone: 883823/59 Fax 883804 www.cabs.co.zw

Beverley Place 3 Selous Avenue Harare CBZ Building Society 193.13 191.06 (1.07) Phone: 792631/5 / 705001 Fax 705999 www.cbz.co.zw

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% Annual Banking Institution Address & Website 2016 ($M) 2017 ($M) Growth 5th Floor, FBC Centre Nelson Mandela Avenue FBC Building Society Harare 147.40 130.07 (11.76)

Phone: 783203-9 www.fbc.co.zw 14th Floor, Social Security Centre Cnr Sam Nujoma Street & Julius National Building Nyerere Way, 57.04 136.38 139.09 Society Harare Phone: 700032,35,39,42 www.nbs.co.zw 6th Floor, Finsure House Cnr. Kwame Nkrumah / Sam Nujoma ZB Building Society 43.05 41.27 (4.13) Harare Phone: 252978, 252926, 253031, 758275 www.zb.co.zw

SAVINGS BANK

6th Floor, Causeway Building Cnr. Third Street/Central Avenue Harare POSB 164.33 226.69 37.95 Phone: 729700-9;737911-9; 735081-8 or 791134 Fax: 749012 www.posb.co.zw

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APPENDIX 4: COMPOSITION OF ASSETS AND LIABITIES (2014 – 2017)

Dec-14 Dec-15 Dec-16 Dec-17

ASSETS US$ % US$ % US$ % US$ %

Domestic Notes 362,813,328 5.10% 224,669,257 2.87% 124,826,006 1.43% 70,565,429 0.63% And Coin

Balances With 524,436,640 7.37% 596,497,728 7.62% 1,380,846,457 15.82% 2,244,051,516 19.92% Central Bank

Balances With Domestic 233,374,551 3.28% 215,646,934 2.75% 287,106,327 3.29% 299,309,842 2.66% Banking Institutions

Assets In 8,402,201 0.12% 16,305,013 0.21% 8,224,658 0.09% 5,843,362 0.05% Transit

Balances With 157,279,534 2.21% 139,839,047 1.79% 189,435,357 2.17% 215,846,029 1.92% Foreign Institutions

Securities And 639,693,623 8.99% 1,510,585,502 19.29% 1,862,023,623 21.33% 2,979,326,951 26.45% Investments

Loans And 3,632,643,931 51.07% 3,496,278,710 44.64% 3,419,684,428 39.18% 3,653,233,180 32.43% Advances

40,184,274 0.56% 80,648,752 1.03% 2,611,795 0.03% 82,196,144 0.73% Foreign Claims

Repossessed 6,040,617 0.08% 4,519,620 0.06% 6,865,398 0.08% 8,552,534 0.08% properties / assets

542,394,129 7.63% 527,569,015 6.74% 608,198,968 6.97% 682,479,916 6.06% Fixed Assets

365,744,412 5.14% 407,325,233 5.18% 400,320,322 4.59% 510,178,622 4.53% Other Assets

Total off- 606,342,334 8.52% 616,828,109 7.88% 438,888,081 5.03% 513,778,615 4.56% Balance Sheet Items

Total Assets 7,119,349,574 7,832,193,299 8,729,031,421 11,265,362,141

Composition of Liabilities

LIABILITIES Dec - 14 Dec – 15 Dec – 16 Dec -17

US$ % US$ % US$ % US$ % Demand Deposits 2,106,697,275 29.59% 2,599,789,181 33.20% 3,561,810,434 40.80% 5,762,522,162 51.58%

Savings Deposits 305,246,351 4.29% 328,770,808 4.20% 367,234,216 4.21% 498,712,317 4.46%

1,258,168,714 11.26% Time Deposits/Fixed Deposits 1,395,811,992 19.61% 1,449,471,681 18.51% 1,203,923,030 13.79%

Foreign Currency Deposits 156,068,428 2.19% 16,512,809 0.21% 27,749,340 0.32% 57,097,721 0.51%

Negotiable Certificates of 141,106,893 1.26% Deposit 101,457,693 1.43% 104,666,823 1.34% 119,948,584 1.37%

Balances With Other Banking 641,586,647 5.74% Institutions 534,502,084 7.51% 750,828,226 9.59% 885,774,889 10.15%

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Liabilities in Transit 620,867 0.01% 390,673 0.00% 1,792,750 0.02% 11,599,652 0.10%

Foreign Liabilities 525,521,407 7.38% 336,383,693 4.30% 283,123,583 3.24% 164,052,139 1.47%

Securities and other Funding 128,374,263 1.15% Liabilities 25,476,312 0.36% 105,665,039 1.35% 96,577,804 1.11%

Capital and Reserves 982,977,414 13.81% 1,163,110,349 14.85% 1,352,027,390 15.49% 1,562,539,193 13.99%

Other Liabilities 378,627,416 5.32% 358,982,886 4.58% 390,181,320 4.47% 433,064,175 3.88%

Off-Balance Sheet Items – Liabilities 606,342,334 8.52% 616,828,108 7.88% 438,888,081 5.03% 513,778,614 4.60%

Total Equity & Liabilities 7,119,349,574 7,831,400,275 8,729,031,421 11,265,362,141

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APPENDIX 5: STATISTICAL TABLES AS AT 31 DECEMBER 2017

STATEMENTS OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2017

AGRIBANK Banc ABC BARCLAYS CBZ

COMMERCIAL BANKS USD USD USD USD Interest Income 18,384,551.57 34,335,746.85 19,937,138.00 140,243,614.19 Interest Income from Loans Advances and Leases 14,763,481.75 24,406,774.78 13,206,568.00 89,775,176.89 Interest Income on Balances with Banking Institutions .00 464,953.05 64,574.00 1,828,440.98 Interest Income On Investments and Securities 3,621,069.82 9,464,019.02 6,665,996.00 48,639,996.32

Interest Expense 6,076,417.02 8,467,281.95 305,261.00 76,574,791.45 Interest Expense On Deposit Accounts 2,318,697.12 6,348,571.93 303,769.00 68,250,690.23 Interest Expense On Central Bank Loans 1,135,299.02 .00 .00 .00 Interest On Local banks Loans - Interbank Loans 863,500.71 1,241,874.49 1,492.00 .00 Other Interest Expenses 1,758,920.17 876,835.53 .00 8,324,101.22 Net Interest Income 12,308,134.55 25,868,464.90 19,631,877.00 63,668,822.74

Total Provisions For Current Period 5,094,428.80 4,476,941.88 134,874.00 32,597,726.95 Specific Provisions .00 4,941,171.14 688,865.00 26,949,157.30 General Provisions 5,094,428.80 -464,229.25 -553,991.00 5,648,569.65

Net Interest after Provisions 7,213,705.75 21,391,523.02 19,497,003.00 31,071,095.79

Non - Interest Income 22,004,559.75 14,485,883.84 56,320,143.00 72,786,540.11 Foreign Exchange 43,931.20 6,140,901.34 15,481,673.00 4,861,742.66 Fees and Commission 19,964,615.33 9,509,616.03 34,977,008.00 49,980,171.64 Other Non-Interest Income 1,996,013.22 -1,164,633.53 5,861,462.00 17,944,625.82

Non - Interest Expenses 23,865,034.26 30,720,400.38 50,519,463.00 77,973,600.58 Salaries and Employee Benefits 11,640,858.64 11,415,919.86 28,730,937.00 39,682,417.81 Occupancy - Net of Rental 2,266,003.08 1,583,466.16 3,504,551.00 1,542,830.37 Other Non-Interest Expenses 9,958,172.54 17,721,014.36 18,283,975.00 36,748,352.40

- Net Non - Interest Income -1,860,474.51 5,800,680.00 -5,187,060.47 16,234,516.54

Income (Loss) before Taxation 5,353,231.24 5,157,006.48 25,297,683.00 25,884,035.32 Taxation .00 1,362,082.55 5,239,838.00 1,075,642.49

Net Income / (Loss) after Taxation 5,353,231.24 3,794,923.93 20,057,845.00 24,808,392.83 Extraordinary Items 0.00 0.00 0.00 0.00

Net Income / (Loss) 5,353,231.24 3,794,923.93 20,057,845.00 24,808,392.83

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STATEMENTS OF COMPREHENSIVE INCOME AS AT 31 DECEMBER 2017

ECOBANK FBC METBANK MBCA BANK

COMMERCIAL BANKS USD USD USD USD Interest Income 33,175,611.45 39,808,015.82 9,620,017.52 17,701,786.53 Interest Income from Loans Advances and Leases 17,666,266.26 27,630,524.41 7,642,269.52 14,297,141.42 Interest Income on Balances with Banking Institutions .00 29,834.18 .00 26,031.71 Interest Income On Investments and Securities 15,509,345.19 12,147,657.23 1,977,748.00 3,378,613.40

Interest Expense 3,175,170.68 15,479,196.13 7,936,030.00 1,128,069.71 Interest Expense On Deposit Accounts 1,843,787.17 5,723,948.09 7,936,030.00 802,985.10 Interest Expense On Central Bank Loans .00 118.19 .00 .00 Interest On Local banks Loans - Interbank Loans .00 5,664,589.23 .00 25,500.01 Other Interest Expenses 1,331,383.51 4,090,540.62 .00 299,584.60 Net Interest Income 30,000,440.77 24,328,819.69 1,683,987.52 16,573,716.82

Total Provisions For Current Period -923,040.00 6,704,474.86 576,316.32 1,374,619.48 Specific Provisions .00 4,132,011.00 47,895.29 1,106,110.63 General Provisions -923,040.00 2,572,463.86 528,421.03 268,508.86

Net Interest after Provisions 30,923,480.77 17,624,344.83 1,107,671.20 15,199,097.34

Non - Interest Income 22,158,161.00 33,005,501.53 23,173,544.40 17,874,581.59 Foreign Exchange 4,069,094.07 1,367,267.11 .00 4,383,868.46 Fees and Commission 18,089,066.93 28,841,748.19 16,257,732.40 13,490,713.13 Other Non-Interest Income .00 2,796,486.23 6,915,812.00 .00

Non - Interest Expenses 21,617,870.00 36,508,625.08 16,850,009.00 24,315,154.70 Salaries and Employee Benefits 8,534,854.00 18,451,262.12 6,288,687.00 13,680,154.80 Occupancy - Net of Rental 1,383,166.72 2,102,383.54 674,651.00 2,460,831.03 Other Non-Interest Expenses 11,699,849.28 15,954,979.42 9,886,671.00 8,174,168.87

Net Non - Interest Income 540,291.00 -3,503,123.55 6,323,535.40 -6,440,573.11

Income (Loss) before Taxation 31,463,771.77 14,121,221.28 7,431,206.60 8,758,524.23 Taxation 8,104,395.00 4,044,278.00 1,913,536.00 2,324,577.39

Net Income / (Loss) after Taxation 23,359,376.77 10,076,943.28 5,517,670.60 6,433,946.84 Extraordinary Items 0.00 0.00 0.00 0.00

Net Income / (Loss) 23,359,376.77 10,076,943.28 5,517,670.60 6,433,946.84

Page | 75

STATEMENTS OF COMPREHENSIVE INCOME AS AT 31 DECEMBER 2017

STANDARD STEWARD NMB BANK STANBIC CHARTERED BANK COMMERCIAL BANKS USD USD USD USD Interest Income 31,359,635.00 55,527,035.72 29,301,196.29 10,999,365.55 Interest Income from Loans Advances and Leases 21,381,726.00 38,365,616.93 12,550,033.29 5,233,034.24 Interest Income on Balances with Banking Institutions 1,139,233.00 2,230,254.64 101,219.13 1,638,816.68 Interest Income On Investments and Securities 8,838,676.00 14,931,164.15 16,649,943.88 4,127,514.63

Interest Expense 9,308,353.00 155,677.61 276,376.87 284,760.55 Interest Expense On Deposit Accounts 7,541,117.00 155,677.61 276,376.87 284,760.55 Interest Expense On Central Bank Loans .00 .00 .00 .00 Interest On Local banks Loans - Interbank Loans 515,713.00 .00 .00 .00 Other Interest Expenses 1,251,523.00 .00 .00 .00 Net Interest Income 22,051,282.00 55,371,358.11 29,024,819.42 10,714,605.00

Total Provisions For Current Period 3,150,855.00 2,953,424.05 3,860.70 5,699,737.83 Specific Provisions 2,631,838.00 742,340.48 -123,820.17 5,699,737.83 General Provisions 519,017.00 2,211,083.57 127,680.87 .00

Net Interest after Provisions 18,900,427.00 52,417,934.06 29,020,958.72 5,014,867.17

Non - Interest Income 21,723,025.00 53,866,822.57 34,564,658.82 55,512,152.62 Foreign Exchange .00 23,051,115.75 5,267,112.28 3,195,349.69 Fees and Commission 18,353,804.00 30,815,706.82 29,239,165.40 52,280,931.31 Other Non-Interest Income 3,369,221.00 .00 58,381.15 35,871.63

Non - Interest Expenses 27,491,100.00 64,719,587.57 47,728,110.34 33,604,788.36 Salaries and Employee Benefits 12,614,678.00 31,433,547.63 33,441,996.81 8,539,753.09 Occupancy - Net of Rental 1,691,702.00 2,799,607.27 4,273,371.74 1,791,825.49 Other Non-Interest Expenses 13,184,720.00 30,486,432.67 10,012,741.79 23,273,209.78

Net Non - Interest Income -5,768,075.00 -10,852,765.00 -13,163,451.51 21,907,364.26

Income (Loss) before Taxation 13,132,352.00 41,565,169.06 15,857,507.21 26,922,231.43 Taxation 3,036,984.00 12,678,616.34 4,331,941.90 6,438,536.56

Net Income / (Loss) after Taxation 10,095,368.00 28,886,552.72 11,525,565.31 20,483,694.87 Extraordinary Items 0.00 1,259,439.32 0.00 0.00

Net Income / (Loss) 10,095,368.00 27,627,113.40 11,525,565.31 20,483,694.87

Page | 76

STATEMENTS OF COMPREHENSIVE INCOME AS AT 31 DECEMBER 2017

TOTAL ZB BANK CBZ BS CABS (AVERAGE) COMMERCIAL BANKS BUILDING SOCIETIES USD USD USD USD Interest Income 23,355,656.48 463,749,370.98 17,448,586.02 91,314,069.33 Interest Income from Loans Advances and Leases 10,723,949.32 297,642,562.82 16,873,440.95 75,083,817.80 Interest Income on Balances with Banking 21,159.59 7,544,516.96 575,145.07 .00 Institutions Interest Income On Investments and Securities 12,610,547.57 158,562,291.21 .00 16,230,251.53

Interest Expense 7,330,468.99 136,497,854.96 3,294,656.27 32,740,007.02 Interest Expense On Deposit Accounts 6,920,404.73 108,706,815.41 945,406.44 29,971,455.71 Interest Expense On Central Bank Loans .00 1,135,417.21 .00 .00 Interest On Local banks Loans - Interbank Loans 260,638.09 8,573,307.53 1,775,862.95 .00 Other Interest Expenses 149,426.17 18,082,314.82 573,386.88 2,768,551.31 Net Interest Income 16,025,187.49 327,251,516.02 14,153,929.74 58,574,062.31

Total Provisions For Current Period 3,826,668.64 65,670,888.52 1,830,077.17 -499,987.42 Specific Provisions 2,729,730.00 49,545,036.50 1,750,559.10 -3,203,809.44 General Provisions 1,096,938.64 16,125,852.02 79,518.07 2,703,822.02

Net Interest after Provisions 12,198,518.85 261,580,627.50 12,323,852.57 59,074,049.73

Non - Interest Income 38,185,279.88 465,660,854.13 12,901,887.85 55,653,819.67 Foreign Exchange 516,197.93 68,378,253.49 600,123.77 .00 Fees and Commission 35,815,987.96 357,616,267.13 9,514,794.63 52,572,399.38 Other Non-Interest Income 1,853,093.99 39,666,333.51 2,786,969.44 3,081,420.28

Non - Interest Expenses 37,971,834.83 493,885,578.11 24,847,028.00 74,054,821.15 Salaries and Employee Benefits 14,812,978.48 239,268,045.24 4,008,957.73 21,185,851.37 Occupancy - Net of Rental 123,593.63 26,197,983.03 107,807.71 1,939,333.04 Other Non-Interest Expenses 23,035,262.72 228,419,549.83 20,730,262.56 50,929,636.73

Net Non - Interest Income 213,445.05 -28,224,723.98 -11,945,140.15 -18,401,001.48

Income (Loss) before Taxation 12,411,963.90 233,355,903.52 378,712.42 40,673,048.25 Taxation 960,946.77 51,511,375.00 .00 .00

Net Income / (Loss) after Taxation 11,451,017.13 181,844,528.52 378,712.42 40,673,048.25 Extraordinary Items 0.00 1,259,439.32 0.00 0.00

Net Income / (Loss) 11,451,017.13 180,585,089.20 378,712.42 40,673,048.25

Page | 77

STATEMENTS OF COMPREHENSIVE INCOME AS AT 31 DECEMBER 2017

TOTAL FBC BS NBS ZB BS (AVERAGE) BUILDING SOCIETIES USD USD USD USD Interest Income 15,149,668.45 7,303,743.24 2,343,679.28 133,559,746.32 Interest Income from Loans Advances and Leases 8,628,875.00 4,830,864.19 1,883,643.89 107,300,641.83

Interest Income on Balances with Banking Institutions 2,138,624.07 695,597.92 24,436.76 3,433,803.82

Interest Income On Investments and Securities 4,382,169.38 1,777,281.13 435,598.63 22,825,300.67

Interest Expense 4,350,443.64 1,904,066.75 367,690.72 42,656,864.40 Interest Expense On Deposit Accounts 2,765,076.89 1,207,421.59 367,690.72 35,257,051.35 Interest Expense On Central Bank Loans .00 .00 .00 .00 Interest On Local banks Loans - Interbank Loans 1,214,675.77 165,573.93 .00 3,156,112.65 Other Interest Expenses 370,690.98 531,071.23 .00 4,243,700.40 Net Interest Income 10,799,224.81 5,399,676.49 1,975,988.56 90,902,881.91

Total Provisions For Current Period 740,601.47 1,230,326.24 -205,512.03 3,095,505.44 Specific Provisions 661,931.78 720,146.30 -118,029.71 -189,201.97 General Provisions 78,669.70 510,179.94 -87,482.32 3,284,707.41

Net Interest after Provisions 10,058,623.34 4,169,350.25 2,181,500.59 87,807,376.48

Non - Interest Income 6,798,742.88 2,686,486.80 4,076,877.48 82,117,814.67 Foreign Exchange .00 -1,109.42 -18,748.30 580,266.05 Fees and Commission 5,357,002.46 2,507,113.58 3,355,817.34 73,307,127.40 Other Non-Interest Income 1,441,740.42 180,482.64 739,808.44 8,230,421.22

Non - Interest Expenses 7,351,807.53 8,632,214.11 5,094,405.15 119,980,275.93 Salaries and Employee Benefits 5,072,424.81 3,920,476.19 886,385.46 35,074,095.56 Occupancy - Net of Rental 222,071.20 548,461.42 206,316.83 3,023,990.20 Other Non-Interest Expenses 2,057,311.52 4,163,276.50 4,001,702.86 81,882,190.17

Net Non - Interest Income -553,064.65 -5,945,727.31 -1,017,527.67 -37,862,461.26

Income (Loss) before Taxation 9,505,558.69 -1,776,377.06 1,163,972.92 49,944,915.21 Taxation .00 9,910.43 -150.64 9,759.79

Net Income / (Loss) after Taxation 9,505,558.69 -1,786,287.49 1,164,123.56 49,935,155.42 Extraordinary Items 0.00 0.00 0.00 .00

Net Income / (Loss) 9,505,558.69 -1,786,287.49 1,164,123.56 49,935,155.42

Page | 78

STATEMENTS OF COMPREHENSIVE INCOME AS AT 31 DECEMBER 2017

GRAND POSB TOTAL (AVERAGE) SAVINGS BANK USD USD Interest Income 13,821,180.41 611,130,297.71 Interest Income from Loans Advances and Leases 11,053,479.99 415,996,684.63 Interest Income on Balances with Banking .00 10,978,320.78 Institutions Interest Income On Investments and Securities 2,767,700.42 184,155,292.30

Interest Expense 2,791,197.65 181,945,917.01 Interest Expense On Deposit Accounts 2,791,197.65 146,755,064.40 Interest Expense On Central Bank Loans .00 1,135,417.21 Interest On Local banks Loans - Interbank Loans .00 11,729,420.18 Other Interest Expenses .00 22,326,015.22 Net Interest Income 11,029,982.76 429,184,380.70

Total Provisions For Current Period 522,767.84 69,289,161.80 Specific Provisions 637,638.09 49,993,472.62 General Provisions -114,870.25 19,295,689.18 .00 Net Interest after Provisions 10,507,214.92 359,895,218.90

Non - Interest Income 27,418,180.84 575,196,849.63 Foreign Exchange 56,939.23 69,015,458.77 Fees and Commission 27,341,303.22 458,264,697.75 Other Non-Interest Income 19,938.39 47,916,693.12

Non - Interest Expenses 26,569,859.57 640,435,713.61 Salaries and Employee Benefits 11,461,411.04 285,803,551.85 Occupancy - Net of Rental 1,227,595.27 30,449,568.50 Other Non-Interest Expenses 13,880,853.26 324,182,593.26

Net Non - Interest Income 848,321.27 -65,238,863.97

Income (Loss) before Taxation 11,355,536.19 294,656,354.92 Taxation .00 51,521,134.79

Net Income / (Loss) after Taxation 11,355,536.19 243,135,220.13 Extraordinary Items 0.00 1,259,439.32

Net Income / (Loss) 11,355,536.19 241,875,780.81

Page | 79

COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS AS AT 31 DECEMBER 2017

AGRIBANK BANC ABC CBZ ECOBANK BARCLAYS COMMERCIAL BANKS ASSETS USD USD USD USD USD DOMESTIC NOTES AND COIN 415,002 15,784,975 2,193,606 8,985,300 4,335,624 BALANCES WITH CENTRAL BANK 62,383,836 252,259,978 75,506,565 73,782,874 119,956,311 BALANCES WITH DOMESTIC BANKING 3,565,340 713,496 18,200,182 6,603,960 67,463,006 INSTITUTIONS ASSETS IN TRANSIT - - - - - BALANCES WITH FOREIGN INSTITUTIONS 22,548 11,602,508 4,651,523 3,990,623 576,835 SECURITIES AND INVESTMENTS 91,411,216 130,302,225 186,553,541 922,848,163 186,477,048 LOANS, ADVANCES, BANKERS ACCEPTANCES AND 87,841,082 121,432,774 181,043,671 792,573,759 156,080,007 LEASES FOREIGN CLAIMS (INCLUDING BILLS OF - - - 19,578,441 - EXCHANGE) REPOSSESSED PROPERTIES / ASSETS - - - - - FIXED ASSETS 26,712,747 25,766,361 36,232,906 56,055,366 4,945,721 BSD - BS OTHER ASSETS 8,844,154 9,724,908 12,796,449 109,951,421 3,542,961 TOTAL ON-BALANCE SHEET ASSETS 281,195,925 567,587,225 517,178,443 1,994,369,907 543,377,513 OFF-BALANCE SHEET ITEMS 525,186 97,829,623 49,457,740 8,246,114 112,575,243 TOTAL ASSETS 281,721,111 665,416,848 566,636,183 2,0002,616,021 655,952,756 EQUITY AND LIABILITIES TOTAL DEPOSITS 152,201,810 431,320,340 327,787,473 1,511,528,004 379,023,508 DEMAND DEPOSITS 90,374,277 384,238,339 224,145,536 1,123,045,309 357,191,774 SAVINGS DEPOSITS 22,513,202 15,967,554 17,515,354 80,797,114 6,519,120 TIME DEPOSITS/FIXED DEPOSITS 39,314,331 31,114,447 86,126,583 303,197,530 15,312,613 FOREIGN CURRENCY DEPOSITS - - - 4,488,050 - NEGOTIABLE CERTIFICATES OF DEPOSIT - - - - - BALANCES WITH OTHER BANKING INSTITUTIONS 8,600,000 - 40,936,120 209,801,279 70,887,259 LIABILITIES IN TRANSIT - 5,773,566 - - - FOREIGN LIABILITIES 22,678,498 448,640 23,852,784 65,551,023 - SECURITIES AND OTHER FUNDING LIABILITIES 14,474,277 10,354 - - - CAPITAL AND RESERVES 63,860,589 87,928,840 82,002,351 186,487,869 77,887,723 OTHER LIABILITIES 19,380,750 42,105,485 42,599,716 21,001,732 15,579,023 TOTAL ON-BALANCE LIABILITIES 281,195,925 567,587,225 517,178,444 1,994,369,906 543,377,513 OFF-BALANCE SHEET ITEMS - LIABILITIES 525,186 97,829,623 49,457,740 8,246,114 112,575,243 TOTAL EQUITY AND LIABILITIES 281,721,111 665,416,848 566,636,184 2,002,616,021 655,952,756

Page | 80

COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS AS AT 31 DECEMBER 2017

MBCA NMB FBC METBANK STANBIC BANK BANK COMMERCIAL BANKS ASSETS USD USD USD USD USD DOMESTIC NOTES AND COIN 4,993,005 670,813 4,290,852 2,948,059 6,180,203 BALANCES WITH CENTRAL BANK 134,513,858 43,034,071 143,298,974 79,876,937 604,948,241 BALANCES WITH DOMESTIC BANKING 9,003,490 4,459,941 20,054,424 3,000,000 1,313,980 INSTITUTIONS ASSETS IN TRANSIT - - - - - BALANCES WITH FOREIGN INSTITUTIONS 21,077,848 2,338,004 5,895,981 3,853,020 119,112,418 SECURITIES AND INVESTMENTS 102,453,120 12,202,869 16,712,027 90,132,241 239,988,548 LOANS, ADVANCES, BANKERS ACCEPTANCES AND 211,058,092 74,070,680 103,307,781 210,112,047 329,234,002 LEASES FOREIGN CLAIMS (INCLUDING BILLS OF - - 62,617,704 - - EXCHANGE) REPOSSESSED PROPERTIES / ASSETS 5,576,213 - - - - FIXED ASSETS 20,579,762 182,245,200 7,011,881 28,622,559 87,257,099 BSD - BS OTHER ASSETS 37,347,063 15,614,378 11,501,156 8,579,837 13,537,537 TOTAL ON-BALANCE SHEET ASSETS 546,602,452 334,635,955 374,690,780 427,124,700 1,401,572,029 OFF-BALANCE SHEET ITEMS 8,002,919 2,816,628 5,755,483 - 149,969,140 TOTAL ASSETS 554,605,371 337,452,584 380,446,263 427,124,700 1,551,541,169 EQUITY AND LIABILITIES TOTAL DEPOSITS 368,703,821 155,237,485 261,347,597 331,028,928 1,195,154,095 DEMAND DEPOSITS 236,306,424 122,896,156 211,482,924 223,572,457 1,183,878,027 SAVINGS DEPOSITS 27,907,644 191,187 33,874,432 8,135,440 10,879,200 TIME DEPOSITS/FIXED DEPOSITS 47,988,506 32,150,142 13,334,961 99,321,031 396,868 FOREIGN CURRENCY DEPOSITS - - 2,655,281 - - NEGOTIABLE CERTIFICATES OF DEPOSIT 56,501,247 - - - - BALANCES WITH OTHER BANKING INSTITUTIONS 89,304,734 5,100,000 30,359,987 2,000,000 12,626,327 LIABILITIES IN TRANSIT - - - - - FOREIGN LIABILITIES 950,195 - 5,736,163 15,114,316 - SECURITIES AND OTHER FUNDING LIABILITIES 540,942 77,250,962 - 1,415,196 - CAPITAL AND RESERVES 75,142,953 64,024,323 55,072,766 64,809,560 137,668,345 OTHER LIABILITIES 11,959,807 33,023,186 22,174,266 12,756,700 56,123,262 TOTAL ON-BALANCE LIABILITIES 546,602,452 334,635,956 374,690,780 427,124,700 1,401,572,029 OFF-BALANCE SHEET ITEMS - LIABILITIES 8,002,919 2,816,628 5,755,483 - 149,969,140 TOTAL EQUITY AND LIABILITIES 554,605,371 337,452,584 380,446,263 427,124,700 1,551,541,169

Page | 81

COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS AS AT 31 DECEMBER 2017

STANDARD STEWARD TOTAL ZB BANK CBZ BS CHARTERED BANK (AVERAGE) BUILDING COMMERCIAL BANKS SOCIETY ASSETS USD USD USD USD USD DOMESTIC NOTES AND COIN 5,055,384 3,279,895 7,143,778 66,276,496 876,345 BALANCES WITH CENTRAL BANK 320,317,136 94,668,648 64,809,564 2,069,356,994 - BALANCES WITH DOMESTIC BANKING 10,000,000 25,318,833 57,300,916 226,997,568 9,838,998 INSTITUTIONS ASSETS IN TRANSIT - - 5,843,362 5,843,362 - BALANCES WITH FOREIGN INSTITUTIONS 24,936,549 2,852,617 5,873,715 206,784,189 - SECURITIES AND INVESTMENTS 271,102,359 161,437,255 191,595,206 2,603,215,818 - LOANS, ADVANCES, BANKERS ACCEPTANCES AND 142,893,497 59,405,924 90,035,468 2,651,848,436 137,742,951 LEASES FOREIGN CLAIMS (INCLUDING BILLS OF - - - 82,196,144 - EXCHANGE) REPOSSESSED PROPERTIES / ASSETS - - - 5,576,213 - FIXED ASSETS 35,549,147 17,681,896 15,233,278 543,893,922 17,835,020 BSD - BS OTHER ASSETS 6,450,978 58,016,220 19,440,319 315,347,382 24,766,402 TOTAL ON-BALANCE SHEET ASSETS 816,305,050 422,661,288 457,275,605 8,777,336,524 191,059,716 OFF-BALANCE SHEET ITEMS 58,009,966 5,451,841 15,138,732 513,778,615 - TOTAL ASSETS 874,315,016 428,113,129 472,414,337 9,291,115,138 191,059,716 EQUITY AND LIABILITIES TOTAL DEPOSITS 704,553,227 314,473,000 308,268,870 6,440,628,159 75,723,755 DEMAND DEPOSITS 614,089,419 307,596,721 53,674,201 5,132,491,566 39,210,277 SAVINGS DEPOSITS 40,509,418 5,646,651 140,674,190 411,130,505 33,114,792 TIME DEPOSITS/FIXED DEPOSITS - 1,229,628 113,920,479 783,407,120 3,398,686 FOREIGN CURRENCY DEPOSITS 49,954,390 - - 57,097,721 - NEGOTIABLE CERTIFICATES OF DEPOSIT - - - 56,501,247 - BALANCES WITH OTHER BANKING INSTITUTIONS - - 61,491,678 531,107,384 - LIABILITIES IN TRANSIT - - 5,826,086 11,599,652 - FOREIGN LIABILITIES 29,805 - 204,876 134,566,302 3,689,900 SECURITIES AND OTHER FUNDING LIABILITIES - 1,250,000 - 94,941,732 - CAPITAL AND RESERVES 82,792,489 95,536,312 62,064,393 1,135,278,511 92,025,507 OTHER LIABILITIES 28,929,529 11,401,976 19,419,703 336,455,135 19,620,554 TOTAL ON-BALANCE LIABILITIES 816,305,050 422,661,288 457,275,607 8,684,576,874 191,059,716 OFF-BALANCE SHEET ITEMS - LIABILITIES 58,009,966 5,451,841 15,138,732 513,778,614 - TOTAL EQUITY AND LIABILITIES 874,315,016 428,113,129 472,414,338 9,198,355,489 191,059,716

Page | 82

COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS AS AT 31 DECEMBER 2017

TOTAL CABS FBC BS NBS ZB BS (AVERAGE) BUILDING SOCIETIES ASSETS USD USD USD USD USD DOMESTIC NOTES AND COIN 2,089,753 235,882 328,931 106,931 3,637,843 BALANCES WITH CENTRAL BANK 124,871,326 705,690 2,587,669 - 128,164,685 BALANCES WITH DOMESTIC BANKING 28,789,307 15,629,420 14,781,111 2,714,264 71,753,101 INSTITUTIONS ASSETS IN TRANSIT - - - - - BALANCES WITH FOREIGN INSTITUTIONS 9,061,840 - - - 9,061,840 SECURITIES AND INVESTMENTS 225,500,537 40,859,899 17,443,872 22,015,535 305,819,842 LOANS, ADVANCES, BANKERS ACCEPTANCES AND 649,980,756 58,985,379 62,288,990 8,248,730 917,246,806 LEASES FOREIGN CLAIMS (INCLUDING BILLS OF - - - - - EXCHANGE) REPOSSESSED PROPERTIES / ASSETS 1,096,302 1,880,020 - - 2,976,322 FIXED ASSETS 87,973,129 4,782,513 12,462,092 7,474,513 130,527,267 BSD - BS OTHER ASSETS 119,412,085 6,991,350 26,483,597 711,264 178,364,698 TOTAL ON-BALANCE SHEET ASSETS 1,248,775,036 130,070,151 136,376,263 41,271,238 1,747,552,404 OFF-BALANCE SHEET ITEMS - - - - - TOTAL ASSETS 1,248,775,036 130,070,151 136,376,263 41,271,238 1,747,552,404 EQUITY AND LIABILITIES TOTAL DEPOSITS 902,307,279 64,040,484 55,356,285 20,474,079 1,117,901,883 DEMAND DEPOSITS 476,884,245 - 10,737,933 - 526,832,455 SAVINGS DEPOSITS 16,135,336 16,517,745 68,111 15,053,711 80,889,695 TIME DEPOSITS/FIXED DEPOSITS 409,287,698 5,108,751 44,550,241 5,420,369 467,765,745 FOREIGN CURRENCY DEPOSITS - - - - - NEGOTIABLE CERTIFICATES OF DEPOSIT - 42,413,988 - - 42,413,988 BALANCES WITH OTHER BANKING INSTITUTIONS 105,000,000 5,000,000 - 479,264 110,479,264 LIABILITIES IN TRANSIT - - - - - FOREIGN LIABILITIES 23,317,769 2,478,170 - - 29,485,838 SECURITIES AND OTHER FUNDING LIABILITIES - - 33,432,531 - 33,432,531 CAPITAL AND RESERVES 170,841,374 47,682,350 43,843,952 18,429,957 372,823,139 OTHER LIABILITIES 47,308,615 10,869,148 3,743,495 1,887,938 83,429,751 TOTAL ON-BALANCE LIABILITIES 1,248,775,036 130,070,151 136,376,263 41,271,238 1,747,552,405 OFF-BALANCE SHEET ITEMS - LIABILITIES - - - - - TOTAL EQUITY AND LIABILITIES 1,248,775,036 130,070,151 136,376,263 41,271,238 1,747,552,405

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COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS AS AT 31 DECEMBER 2017

GRAND TOTAL / POSB AVERAGE SAVINGS BANK ASSETS USD USD DOMESTIC NOTES AND COIN 651,090 70,565,429 BALANCES WITH CENTRAL BANK 46,529,837 2,244,051,516 BALANCES WITH DOMESTIC BANKING 559,174 299,309,842 INSTITUTIONS ASSETS IN TRANSIT - 5,843,362 BALANCES WITH FOREIGN INSTITUTIONS - 215,846,029 SECURITIES AND INVESTMENTS 70,291,291 2,979,326,951 LOANS, ADVANCES, BANKERS ACCEPTANCES AND 84,137,938 3,653,233,180 LEASES FOREIGN CLAIMS (INCLUDING BILLS OF - 82,196,144 EXCHANGE) REPOSSESSED PROPERTIES / ASSETS - 8,552,534 FIXED ASSETS 8,058,727 682,479,916 BSD - BS OTHER ASSETS 16,466,542 510,178,622 TOTAL ON-BALANCE SHEET ASSETS 226,694,598 10,751,583,526 OFF-BALANCE SHEET ITEMS - 513,778,615 TOTAL ASSETS 226,694,598 11,265,362,141 EQUITY AND LIABILITIES TOTAL DEPOSITS 159,077,766 7,717,607,808 DEMAND DEPOSITS 103,198,141 5,762,522,162 SAVINGS DEPOSITS 6,692,117 498,712,317 TIME DEPOSITS/FIXED DEPOSITS 6,995,850 1,258,168,714 FOREIGN CURRENCY DEPOSITS - 57,097,721 NEGOTIABLE CERTIFICATES OF DEPOSIT 42,191,658 141,106,893 BALANCES WITH OTHER BANKING INSTITUTIONS - 641,586,647 LIABILITIES IN TRANSIT - 11,599,652 FOREIGN LIABILITIES - 164,052,139 SECURITIES AND OTHER FUNDING LIABILITIES - 128,374,263 CAPITAL AND RESERVES 54,437,543 1,562,539,193 OTHER LIABILITIES 13,179,289 433,064,175 TOTAL ON-BALANCE LIABILITIES 226,694,598 10,658,823,877 OFF-BALANCE SHEET ITEMS - LIABILITIES - 513,778,614 TOTAL EQUITY AND LIABILITIES 226,694,598 11,172,602,491

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