2011 ANNUAL REPORT TABLE of CONTENTS Ii

2011 ANNUAL REPORT TABLE OF CONTENTS ii. Governor’s Foreword ...... 5 Iii. Deputy Governor’s Remarks ...... 7 Iv. Senior Division Chief’s Preview ...... 9 1 Chapter One: Overview ...... 11 1. Macro-Economic Developments ...... 11 Chapter Two: Major Developments And Activities In The Banking Sector18 2.1 Key Developments In The Banking Sector ...... 18 2.2 Financial Inclusion ...... 22 2.3 Developments In The Microfinance Sector ...... 22 2.4 Legal Developments ...... 23 2.5 Prompt Corrective Action ...... 23 2.6 International, Regional And Domestic Co-Operation ...... 24 Chapter Three: Status And Performance Of The Banking Sector ...... 25 3.1 Highlights Of Banking Sector Performance ...... 25 3.2 Balance Sheet Structure ...... 25 3.3 Performance Of The Banking Sector ...... 29 3.5 Sectoral Analysis ...... 37 Chapter Four: Challenges In The Banking Sector And Lessons Learnt ..... 54 4.1 Introduction ...... 54 4.2 Banking Sector Challenges ...... 55 4.3 Failed Banking Institutions ...... 58 4.4 Lessons Learnt ...... 60 Appendices ...... 65

Vision of Bank Licensing, Supervision & Surveillance Division

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

Mission of Bank Licensing, Supervision & Surveillance Division

To promote and maintain the safety and soundness of the financial system through proactive and rigorous regulation and supervision in line with international best practice.

Objectives of Bank Licensing, Supervision & Surveillance Division

The objectives of the Division are to:

 enhance and maintain the safety and soundness of the financial system through effective risk-based supervision;

 periodically review regulatory and supervisory regulations, policies and procedures in line with international best practice and the macroeconomic environment;  promote public confidence in the financial system by ensuring a consistent, objective and transparent regulatory and supervision process;  minimise moral hazard and supervisory forbearance through taking prompt supervisory action against weak and troubled financial institutions in order to protect the integrity of the financial system;

 promote sound corporate governance practices and adoption of adequate risk management systems;

 foster a culture of strict compliance with laws, rules regulations, policies, procedures, guidelines and international best practice; and

 building supervisory capacity through structured training and development programmes to enhance the skills base.

I. PURPOSE OF THE REPORT

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 2011. This report presents an overview of the supervisory operations and activities during the period under review. The report also provides an update on major developments in the banking sector since inception of the multiple currency system in February 2009.

II. GOVERNOR’S FOREWORD

1. The Zimbabwean banking sector continued on a recovery path, during 2011, prompted by the multi-currency regime, which stabilised the economy, dissipated inflation and ushered in renewed confidence in the banking sector. The new environment translated into improved financial intermediation, as evidenced by the growth in loans advanced to various sectors of the economy 2. Notwithstanding the significant progress in the economic turnaround, the banking sector faced numerous challenges in the operating environment, which constrained efforts towards attainment of financial stability. 3. The operating environment was characterised by transitory deposits, absence of an active inter-bank market, lack of an effective lender of last resort function and market illiquidity. Market illiquidity, which was largely indicative of subdued export earnings and limited access to external lines of credit, starved productive sectors of the economy of much needed working capital and retooling. 4. Increasing exposure to liquidity risk was evident in the last quarter of 2011, when the sector faced challenges in facilitating cash and electronic payments prompted by increased demand and increased volume. 5. Against this background, the envisaged recapitalisation of the Reserve Bank by the Ministry of Finance in order to revive the lender-of-last resort function is most welcome as this will go a long way in alleviating the liquidity constraints and revive the inter-bank market. 6. The issue of banking sector capitalisation came to the fore in the interests of maintaining financial stability in the absence of a meaningful lender-of-last resort function. 7. During the year under review, the Reserve Bank witnessed the resurgence of malpractices in the sector, including corporate governance violations and abuse of depositors’ funds, a development that posed significant threat to public confidence and financial sector stability. 8. In this regard, the Reserve Bank introduced a number of enhancements to its supervisory activities aimed at ensuring effective supervision, foster and maintain financial stability and provide assurance to all stakeholders on the soundness of the financial sector. 5

9. The effects of the Global Financial Crisis and the Eurozone Crisis on the world economy highlighted a number of supervisory shortcomings relating to supervision of complex financial products, supervisory co-operation and the need for robust capital and liquidity standards. 10. To this end, the Reserve Bank continues to work with banking institutions towards full implementation of Basel II and its enhancements contained in Basel III. The Reserve Bank will also refine its supervisory methodologies and techniques, including reviewing minimum capital requirements and financial sector legislation and guidelines, as well as heighten efforts towards implementation of a broad based financial stability thrust in financial sector supervision, in line with international best practice and lessons learnt from the Global Financial Crisis and Eurozone Crisis. 11. Once again, I acknowledge all our stakeholders, whose support has contributed to the fulfilment of the Central Bank’s mandate of promoting financial stability.

Dr. G. Gono

Governor

III. DEPUTY GOVERNOR’S REMARKS

1. During the period under review, the Reserve Bank, through Bank Licensing Supervision and Surveillance Division (BLSS), carried out its supervisory mandate with focus on promoting and maintaining the safety and soundness of the financial system, through proactive regulation, in line with international best practice. 2. The banking sector was generally safe and sound. However, one institution was placed under curatorship in June 2011, following a determination of corporate governance malpractices and gross abuse of depositors’ funds. 3. During the year, banking institutions focused on strengthening their capital positions in order to underwrite more meaningful business, improve profitability and grow their market shares. 4. In this regard, and in the in the interests of maintaining financial stability, the Reserve Bank has enhanced the Troubled and Insolvent Banks Policy to provide guidance on the resolution of problem banking institutions. 5. In view of the challenging operating environment being faced by banking institutions, the Reserve Bank instituted a number of measures to enhance regulation of the sector and promote financial stability. 6. The measures include among others, the review of corporate governance guidelines and disclosure requirements for banking institutions, as well as proposed amendments to the current legislation to ensure that they move in tandem with local and international developments in the financial services sector. 7. With regards to financial inclusion, the Reserve Bank welcomed the increased focus on mobile banking products by banking institutions in collaboration with mobile network operators. Further, the Reserve Bank is working closely with the Ministry of Finance in drafting a Microfinance Bill, which seeks to address challenges being faced by the microfinance sector such as tenure of licences, consumer protection issues and transparent pricing in line with international developments in the microfinance sector. 8. The Reserve Bank spearheaded the setting up of a Multi-disciplinary Financial Stability Committee incorporating other financial sector regulators namely Insurance and Pensions Commission (IPEC), Securities Commission of 7

IV. SENIOR DIVISION CHIEF’S PREVIEW

1. Notwithstanding numerous challenges associated with the new operating environment, the banking sector was able to play a meaningful role in the recovery of the economy through its financial intermediation role.

2. The Reserve Bank continued to closely monitor the general performance of the banking sector since inception of the multi-currency system in order to ensure that the sector remained strong and stable. Banking institutions implemented various re-capitalisation initiatives, which included rights offers, acquisitions and consolidations.

3. The Reserve Bank also issued guidance to the market on the implementation of Basel II, in line with international developments. In this regard, most banking institutions made significant progress in their Basel II initiatives and the Reserve Bank will continue to engage banks in order to facilitate smooth implementation of their plans.

4. The Reserve Bank witnessed a renewed interest by foreign investors in the local banking sector culminating in the acquisition of significant stakes in local banks. The Reserve Bank welcomes this development, which symbolises renewed confidence in the sector and the country at large, and will promote access to much-needed lines of credit.

5. The number of operating banking institutions increased from 25 to 26 following the re-entry of Royal Bank Zimbabwe Limited in February 2011. Royal Bank was re-licensed in September 2010 together with Trust Bank and Barbican Bank, following the unbundling of ZABG Bank. Barbican Bank is, however, yet to commence operations.

6. While most banking institutions made efforts to comply with the regulatory minimum capital requirements, as at 31 December 2011, five out of twenty six banking institutions were still to comply. All asset management companies were in compliance with the minimum capital requirements.

7. One (1) banking institution was placed under curatorship in 2011, following determination that the institution was operating in an unsafe and unsound 9

1 CHAPTER ONE: OVERVIEW

1. MACRO-ECONOMIC DEVELOPMENTS

1.1. Global Developments 1.1.1. Global economic growth slowed down from 5.1% in 2010 to 4% in 2011, as a result of natural disasters that hit Japan, as well as the Euro zone sovereign debt crisis. 1.1.2. The earthquake and tsunami that hit Japan in 2011 affected supply chains in the automobile, telecommunication and consumer electronic industry. Additionally, the recurrent fiscal deficits and rising sovereign debt levels affected the recovery of the US economy. 1.1.3. The sovereign debt crisis in the Euro zone and aggressive fiscal consolidation measures instituted to ensure long-term fiscal and debt sustainability in some major economies, tight financing conditions and low confidence levels combined to hamstring growth in the Euro area, a development which accentuated a slow down in global demand. 1.1.4. Notwithstanding these negative global developments, economic activity in emerging market economies remained strong, underpinned by increased domestic demand and increased external trade among rapidly growing Asian countries such as China and India. 1.1.5. Despite moderation in output growth, economic activity in emerging market economies remained elevated. The decline in commodity prices and the slowdown in global growth had a mitigatory effect on global inflationary pressures. 1.1.6. Zimbabwe remains susceptible to the adverse external macroeconomic environment, which has potential of dampening commodity prices, depressing diaspora remittances, investment and donor capital flows.

1.2. Domestic Developments

Economic Rebound…

1.2.1 The economy registered positive growth rates of 5.7%, 9.6% and 9.4% in 2009, 2010 and 2011, respectively, largely driven by the agriculture and mining sectors. A relatively stable macroeconomic environment, ushered in by the multi-currency regime, set the stage for an economic rebound. Figure 1 below shows the trends in GDP growth over the period 2009 to 2012.

Figure 1: Real GDP Growth Rate (%)

9.6 9.4 10 5.7 5 5.6

0 2008 2009 2010 2011 2012* -5

-10

-15 -14.8

-20 Source: ZIMSTAT, Ministry of Finance and RBZ

* Projection

Inflation Developments…

1.2.1. Annual inflation increased from 3.2% at the beginning of the year to 4.9% in December 2011. The major drivers of inflation in 2011 were housing and rental costs, alcohol and food prices which increased by 0.5% between August 2011 and September 2011. The diagram below indicates inflation developments in 2011.

Figure 2: Inflation Developments

6.00%

4.31% 5.00% 4.90% 3.53% 4.22% 4.18% 4.00% 3.09% 2.70% 3.26% 3.49% 3.00% 2.90% 2.70% 2.50% 2.00%

1.00% 1.03% 0.75% 0.26% 0.90% 0.50% 0.52% 0.10% 0.10% 0.20% 0.12% 0.21%

0.00% 0.08%

Oct

Jan Dec

May Aug Nov

Mar Jul

Jun

Feb Apr Sep

- -

11 11

Month-on month inflation Annual Inflation

Source: ZIMSTAT

Sectoral Contribution to GDP…

1.2.2 Following the adoption of a multicurrency regime in February 2009, the Zimbabwean economy has experienced strong growth and inflation has stabilised to single digit levels of less than 5%. The economy grew by 6.3% in 2009, 9.6% in 2010 and 10.6% in 2011. 1.2.3 This positive growth trajectory has mainly been spurred by strong recovery in the agricultural and mining sector. Recovery in the manufacturing sector has been sluggish due to long term capital constraints, against the backdrop of the need to replace obsolete plant and machinery.

Agriculture…

1.2.4 Agricultural output increased by 21% and 33.9% in 2009 and 2010, respectively. The sector grew by 7.4% in 2011 spurred by increases in the production of maize and tobacco. The favorable 2010/11 agricultural season and improved availability of inputs on the local market also enhanced the performance of the sector. Support extended to farmers under the contract farming arrangements enhanced tobacco and cotton output.

Mining…

1.2.5 The mining sector grew by 10.2% in 2009, 13.2% in 2010 and 25.8% in 2011 benefiting from increased capacity utilization and favorable international minerals prices. There was also an improvement in power supply as some mining concerns were ring fenced by the utility provider.

Manufacturing…

1.2.6 The manufacturing sector grew by 4.2% in 2011, down from 20% in 2010. Capacity utilization has been on an upward trend since the inception of the multi- currency system, rising from about 10% in 2009 to about 57% in 2011. 1.2.7 Manufacturing sector performance, however, remained constrained by the lack of long term finance, tight liquidity conditions in the domestic economy, frequent power outages, use of antiquated plant and machinery, rising utility charges and low demand. In addition, the influx of cheap imports reduced the competitiveness of locally produced goods, thereby, threatening the viability of the sector.

Outlook for 2012…

1.2.8 Projected growth in the economy for 2012 has been revised downwards from the initial 9.4% to 5.6%, following the poor 2011/12 agricultural season. The projected growth for 2012 will be driven by mining which is expected to grow by 16.6% in 2012. 1.2.9 Downside risks emanating from the slowdown in global economic growth, as a result of the sovereign debt crisis in the Euro- zone area remains a threat to economic growth prospects in 2012. 1.2.10 The banking sector remains under threat from potential increase in non- performing loans emanating from the sluggish recovery of the key economic sector such as agriculture, mining and manufacturing due to long term capital constraints, obsolete plant and machinery, and depressed aggregate demand.

Architecture of The Banking Sector

1.2.2. During the year 2011, the number of operating banking institutions increased from 25 to twenty six (26), following the re-entry of Royal Bank on to the market. Barbican Bank and Time Bank which were relicensed in 2010 are, however, yet to commence operations. 1.2.3. The banking sector comprised 17 commercial banks (excluding Barbican Bank & Time Bank), four (4) merchant banks and four (4) building societies and one (1) savings bank. Other financial institutions under the purview of the Reserve Bank included 16 asset management companies and 146 microfinance institutions. 1.2.4. The table below shows the architecture of the banking sector as at 31 December 2011.

Table 1: Architecture of the Banking Sector

Type of Institution Number

Commercial Banks 17

Merchant Banks 4

Building Societies 4

Savings Bank 1

Total 26

Microfinance Institutions 146

1.2.5. As at 31 December 2011, 20 out of 25 operating banking institutions (excluding POSB which does not have a minimum prescribed capital) were in compliance with the prescribed minimum capital requirements.

1.3. Ownership Structure 1.3.1. As at 31 December 2011, the financial sector ownership structure was spread among Government, foreigners and local individuals and corporates. Government had significant shareholding in 4 banking institutions with total assets of $416.96 million representing 8.76% of the total banking sector assets while 8 banks with significant foreign shareholding had assets worth $2,105.68 million representing 44.24% of total banking sector assets. 1.3.2. The remainder of 47.02% of total banking sector assets worth $2,240.91 million was held by 14 locally owned banks. The table below indicates banking sector ownership structure as at 31 December 2011.

Figure 3: Ownership Structure of Banks

Local Government Owned 8.76%

Foreign Owned Banks 44.22%

Loccal Private Owned 47.02%

Weak Banks… 1.3.3. Notwithstanding the above challenges, the banking sector remained generally safe and sound. Some banking institutions faced challenges in meeting the stipulated minimum capital requirements, which in turn impacted on their capacity to effectively perform their intermediary role and generate meaningful business. 1.3.4. Weak and troubled banks were of low systemic importance as they had a combined market share of less than 5% in terms of total assets, deposits and loans as depicted in the table below:

Table 2: Market Share of Strong and Weak Bank Market Share of Market Share of Market Share of Institutions Assets Deposits Loans

Strong Banks 95.86% 97.33% 96.16%

Weak & Troubled Banks 4.14% 2.67% 3.84%

1.3.5. Banking institutions are required to be adequately capitalized, have sound corporate governance structures and practices, strong risk management practices and internal controls; robust management information systems and accounting systems.

CHAPTER TWO: MAJOR DEVELOPMENTS AND ACTIVITIES IN THE BANKING SECTOR

2.1 KEY DEVELOPMENTS IN THE BANKING SECTOR

2.1.1 The new operating environment ushered by the multi-currency system, while addressing some prior period challenges particularly inflation, presented its own challenges. Liquidity constraints, absence of a functional lender of last resort facility and an inactive interbank market were major bottlenecks for the banking sector throughout the review period. 2.1.2 In response to the evolving business environment, significant developments were recorded in the banking sector including consolidations through mergers and acquisitions, disinvestments, and upgrading of licences. 2.1.3 Below is a summary of the key developments in the banking sector during the period January 2009 to December 2011.

Mergers, Acquisitions & De-mergers…

2.1.4 The following are the major highlights of mergers, acquisitions and de-mergers that were consummated in the banking sector during the period under review:

CFX – Interfin Banking Corporation 2.1.5 In November 2010, Interfin Holdings Limited acquired 51% shareholding in CFX Financial Services Limited (CFX FS), the holding company of CFX Bank, a registered commercial bank, as part of recapitalization, diversification and growth strategies. Interfin’s strategic thrust was to diversify from merchant banking to commercial banking.

Discount Company of Zimbabwe (DCZ) 2.1.6 DCZ, a subsidiary of Kingdom Financial Holdings Limited (KFHL), merged its operations with its sister company, MicroKing, a registered microfinance institution and surrendered its operating licence in the same year.

Premier Banking Corporation (PBC)

2.1.7 In 2010, Ecobank Transnational Incorporated acquired 70% shareholding in Premier Finance Group (PFG), the bank’s holding company. Following this

transaction, Premier Banking Corporation (PBC) was adequately capitalized. The bank subsequently changed its name to Ecobank Zimbabwe Limited on 7 February 2011.

TN Financial Holdings Limited

2.1.8 TN Financial Holdings Limited (TNFH) entered into a reverse takeover agreement with TEDCO Holdings Limited, which resulted in the latter acquiring 69.7% shareholding in the former. A new holding company, TN Holdings Limited was formed and listed on the Zimbabwe Stock Exchange on 4 January 2010.

De-merger of Kingdom Financial Holdings from Meikles Africa Limited

2.1.9 Following the protracted legal wrangles among the shareholders of Kingdom Meikles Africa Ltd (KMAL), the shareholders resolved to de-merge Kingdom Financial Holdings (KFHL) from Meikles Africa Limited (MAL) in October 2010. KFHL had merged with Meikles Africa in 2008. 2.1.10 Consequent to the demerger, Kingdom Bank Limited became under-capitalized following the withdrawal of $22 million capital from the bank by Meikles Africa Limited. 2.1.11 In 2011, the bank raised capital through a rights issue and disposal of 35% shareholding to AfrAsia Bank Limited of Mauritius for a consideration of $9.52 million as an initiative to meet minimum regulatory capital requirements.

Unbundling of ZABG 2.1.12 Following a protracted legal battle at the instance of the shareholders of Barbican Bank Limited, Royal Bank Zimbabwe Limited and Trust Banking Corporation Limited, the Reserve Bank reached an out-of-court settlement with the shareholders of the three banks in July 2010. 2.1.13 The agreement culminated in the re-registration of the three institutions by the Reserve Bank on 1 September 2010 and return of assets to their original owners. Consequently, Barbican Bank Limited, Royal Bank Zimbabwe Limited, Trust Bank Corporation Limited and ZABG were issued individual licences by the Registrar of Banks.

2.1.14 Trust Banking Corporation and Royal Bank commenced operations on 13 December 2010 and 21 February 2011 respectively, following pre-opening inspections and requisite authorizations by the Reserve Bank. 2.1.15 Barbican Bank, however, failed to resume operations and was given a special dispensation of up to 31 July 2012 to commence operations and meet minimum capital requirements.

Consolidations and Disposals…

2.1.16 The following were the major highlights of consolidations in the banking sector.

CBZ Bank Holdings Limited

2.1.17 CBZ Holdings Limited consolidated the operations of its subsidiaries, CBZ Building Society and CBZ Bank Limited in June 2010 with the society becoming a division of the bank. 2.1.18 The consolidation was motivated by the need to cut costs through sharing resources and eliminating duplication in business processes, in particular ICT platforms. 2.1.19 The following were the major highlights of disposals in the banking sector:

MBCA Capital Management

2.1.20 MBCA Holdings disposed MBCA Capital Management, its asset management arm, in September 2010 to a consortium of local investors who subsequently changed the name to Platinum Investments Managers.

Conversion of Banking Licenses…

2.1.21 The hyperinflationary environment prior to the introduction of the multi-currency system in February 2009 precipitated a host of challenges for the banking sector, which in turn rendered some classes of banking business such as discount houses and finance houses unviable. 2.1.22 Four institutions namely: Premier Banking Corporation, African Banking Corporation Zimbabwe Limited (BancABC), Interfin Merchant Bank Limited and Genesis Investment Bank Limited converted their merchant banking licences to commercial banking licences.

2.1.23 Tetrad Discount House Limited converted its licence to a merchant banking licence. Following pre-opening inspections by the Reserve Bank, Tetrad Investment Bank, BancABC and Interfin Bank commenced operations under their new banking licences on 4 August 2009, 1 December 2009 and 5 April 2011, respectively. 2.1.24 A pre-opening inspection conducted in March 2010 by the Reserve Bank determined that Genesis Investment Bank was not ready to commence commercial banking operations. 2.1.25 As at 31 December 2011, Ecobank which acquired Premier Banking Corporation, was still putting in place the necessary administrative and infrastructural arrangements to facilitate commencement of commercial banking business.

Cancellation of Licences…

2.1.26 Legend Asset Management, NDH Bank Limited and Highveld Discount House voluntarily surrendered their licences citing viability challenges. Subsequently, Legend Asset Management and Highveld Discount House operating licences were cancelled in 2009, while NDH Bank licence was cancelled in 2010.

Curatorships

2.1.27 One banking institution, ReNaissance Merchant Bank (RMB), a subsidiary of ReNaissance Financial Holdings Limited (RFHL), was placed under the management of a Curator, on 2 June 2011 for an initial period of six months following a determination by the Reserve Bank that the bank was unsound. 2.1.28 The curatorship period was extended to 2 March 2012 to enable the Curator to finalise recapitalization initiatives which were aimed at resuscitating the bank.

New Licences

2.1.29 During the period under review, major licensing activities conducted by the Reserve Bank were for microfinance institutions, in line with the provisions of the Moneylending and Rates of Interest Act [Chapter 14:14]. A total of 122 microfinance licences, including renewals, were issued during the year 2011 bringing the number of licensed operating microfinance institutions to 146.

2.2 FINANCIAL INCLUSION

2.2.1 Pursuant to the calls by the Reserve Bank for banking institution to formulate strategies to reach out to the unbanked sections of the population, a number of banking institutions have come up with innovative ways of bringing the unbanked into mainstream banking. 2.2.2 These initiatives include the use of ATMs; branchless banking; mobile banking; introduction of less stringent account opening procedures for deserving disadvantaged members of society; opening of new branches and use of agencies in previously unbanked areas; and use of technology, such as payment cards or mobile phones. 2.2.3 Banking institutions have upgraded their core banking systems to enable them to introduce electronic, internet and mobile banking, enhancing services such as account balance enquiries, bill payments and money transfers. 2.2.4 Pursuant to the above, banking institutions have partnered with mobile operators in the provision of banking and financial services through a mobile device such as a mobile phone or Personal Digital Assistant (PDA) taking advantage of the mobile phone penetration rate of 72% as at 31 December 2011. 2.2.5 Notwithstanding the efforts to improve access to finance, the relatively low degrees of financial literacy for most of the economically active poor and lack of adequate infrastructure in the unbanked rural communities continued to be major setbacks to access to financial services.

2.3 DEVELOPMENTS IN THE MICROFINANCE SECTOR

2.3.1 Despite the growth in the number of players in the sector, the sector faces a number of challenges including insufficient funding, inadequate IT infrastructure and absence of a Credit Reference Bureau which has resulted in multiple borrowings. 2.3.2 As part of the initiatives to improve the availability of funding to the sector, the Zimbabwe Association of Microfinance Institutions (ZAMFI), spearheaded the establishment of a microfinance wholesale fund in 2011. The fund is expected to provide a source of affordable wholesale funding for the Microfinance Sector.

2.4 LEGAL DEVELOPMENTS

2.4.1 The Banking Act [Chapter 24:20] was amended in 2009, through Finance Act No. 3 of 2009, to provide for the registration and supervision of microfinance banks by the Reserve Bank. 2.4.2 In 2011, the Building Societies Act [Chapter 24:02] was amended through the General Laws Amendment No. 5 0f 2011 to bring the building societies’ financial year-end to 31 December of every year, from 30 June in order to synchronize with financial year-end of other banking institutions. 2.4.3 The definition of regulatory minimum capital in banking institutions was amended to refer to capital that represents permanent commitment by shareholders, in line with international standards, which is also in conformity with the Basel III requirement which places emphasis on equity capital. Microfinance Bill…

2.4.4 As at 31 December 2011, the Ministry of Finance, in consultation with the Reserve Bank and other microfinance stakeholders, were in the process of drafting a Microfinance Bill. The proposed bill seeks to address the deficiencies arising from the Moneylending and Rates of Interest Act [Chapter 14:14].

Deposit Protection Corporation Act [Chapter 24: 29]…

2.4.5 In July 2011, amendments were effected to the Banking Act [Chapter 24:20] through the promulgation of the Deposit Protection Corporation Act [Chapter 24:29]. The Deposit Protection Corporation (DPC) Act provides, among other things, for the appointment of DPC as curator or liquidator of a banking institution.

2.5 PROMPT CORRECTIVE ACTION

2.5.1 Reserve Bank in liaison with IMF, revised the Troubled and Insolvent Bank Resolution Policy in June 2011 to include Prompt Corrective Action Programs (PCA’s) which will be initiated for all banks which exhibit financial or operational weaknesses, unsafe and unsound practices, non-compliance with applicable laws and regulations, or lack of adherence to prudent standards of operation.

2.6 INTERNATIONAL, REGIONAL AND DOMESTIC CO-OPERATION

Co-operation with Local Supervisors…

2.6.1 The financial sector supervisory agencies namely; Insurance and Pension Commission (IPEC), Deposit Protection Board (DPB), the Securities Exchange Commission (SEC) and the Reserve Bank signed a Memorandum of Understanding to enhance co-operation and co-ordination of supervisory activities.

COMESA Framework for Financial Stability Assessment…

2.6.2 The Reserve Bank and other financial sector regulators namely; IPEC, SEC, and DPB established a Multi-disciplinary Financial Stability Committee (MDFSC) on 31 January 2011. 2.6.3 The MDFSC meets on a quarterly basis, with adhoc meetings being held whenever necessary to discuss urgent financial stability matters. 2.6.4 The Committee focuses on policy issues with technical issues being delegated to sub-committees, namely; Technical Committee for Financial Stability and Supervisory and Regulatory Co-operation Sub-committee). 2.6.5 The terms of reference of the committee are:

a) facilitate early identification of sources of risk (to stability) and of potential vulnerabilities that could threaten financial stability;

b) promote rigorous, accurate and systematic assessment of the present degree of financial stability as well as the outlook ahead;

c) evaluate the ability of the financial system to absorb shocks should risks identified materialize;

d) recommend appropriate policy responses for identified risks;

e) promote adoption of preventive and timely remedial policies which foster financial system stability;

f) prepare financial stability reports; and

g) harmonise legislative and regulatory frameworks.

CHAPTER THREE: STATUS AND PERFORMANCE OF THE BANKING SECTOR

3.1 HIGHLIGHTS OF BANKING SECTOR PERFORMANCE

3.1.1 Total banking sector assets increased by 28.56% from $3.6 billion as at 31 December 2010 to $4.7 billion at the end of 2011. The growth in assets was largely attributed to growth in loans, which in turn were funded through growth in the banking sector deposits base. 3.1.2 The banking sector witnessed a growth of 29.21% in total liabilities from $3.67 billion as at 31 December 2010 to $4.76 billion as at 31 December 2011. However, demand deposits continued to dominate the deposit base of most banking institutions, an indication of transitory and volatile of the liabilities to the public. 3.1.3 The growth in banking sector deposits translated into an increase of 60.06% in total loans and advances from $1.43 billion as at 31 December 2010 to $2.29 billion as at 31 December 2011. As a result, the level of intermediation improved as evidence by the increase in the loans to deposit ratio from 65.01% as at 31 December 2010 to 81.79% by the end of December 2011. 3.1.4 In addition, there was an improvement in the asset quality of the banking sector as reflected by a decline in the ratio of adversely classified loans to total loans from 10.95% in December 2010 to 7.55% as at 31 December 2011. 3.1.5 The banking sector remained profitable during the year ended 31 December 2011 as reflected by the increase in total profit after tax from $37.95 million recorded as at 31 December 2010 to $86.01 million as at 31 December 2011.

3.2 BALANCE SHEET STRUCTURE

Composition of Assets… 3.2.1 Total banking sector assets increased by 28.56% over the year from $3.6 billion as at 31 December 2010 to $4.7 billion at the end of 2011. The growth in assets was largely attributed to growth in loans spurred by growth in the banking sector deposits base. 3.2.2 As at 31 December 2011, five banking institutions controlled 51.34% of total banking assets.

3.2.3 The figure below depicts the trend in banking sector total assets from December 2009 to December 2011.

Figure 4: Growth of Total Banking Sector Assets

Total Assets

6,000 4,740

4,000 3,687

Millions 2,186 2,000

- 2009 2010 2011

3.2.4 The composition of assets for the period under review is highlighted in the table below:

Table 3: Composition of assets ASSETS Dec-09 Dec-10 Dec-11 US$ % US$ % US$ %

Domestic Notes And Coin 176,285,348 8.06% 237,950,205 6.45% 279,028,625 5.86%

Balances With Central Bank 229,452,872 10.50% 298,785,242 8.10% 383,528,155 8.05%

Balances With Domestic 19,844,778 0.91% 102,735,289 2.79% 128,401,363 2.70% Banking Institutions

Assets In Transit 539,688 0.02% 1,372,732 0.04% 13,536,702 0.28%

Balances With Foreign 414,135,417 18.95% 438,828,204 11.90% 357,340,816 7.50% Institutions

Securities And Investments 69,554,373 3.18% 123,453,717 3.35% 203,088,287 4.26%

53.48 668,978,709 30.61% 1,622,671,363 44.01% 2,547,594,316 Loans And Advances %

Foreign Claims 17,136,075 0.78% 15,823,044 0.43% 50,939,166 1.07%

ASSETS Dec-09 Dec-10 Dec-11 US$ % US$ % US$ %

Fixed Assets 342,560,465 15.67% 364,727,692 9.89% 454,129,962 9.3%

Other Assets 38,541,961 1.76% 118,012,208 3.20% 125,206,690 2.63%

Off-Balance Sheet Items 208,804,836 9.55% 362,378,296 9.83% 220,754,640 4.63%

Total Assets 2,185,834,520 3,686,737,992 4,763,548,724

3.2.5 As at 31 December 2011, on-balance sheet assets amounted to $4.52 billion compared to $3.32 billion recorded in 2010, representing a 36.65% growth. However, off-balance sheet assets decreased by $141.63 million from $362.38 million in 2010 to $220.75 million in 2011. 3.2.6 Despite a 64.51% increase in investments and securities over the year, funds placed in investment and securities remained depressed due to an illiquid money market and absence of marketable securities in 2011. The bulk of investments and securities were placed in bankers acceptances.

Composition of liabilities...

3.2.7 Total liabilities increased from $3.67 billion as at 31 December 2010 to $4.76 billion as at 31 December 2011, representing a growth rate of 29.21%. 3.2.8 The composition of liabilities in the banking sector is reflected in the table below:

Table 4: Composition of liabilities

LIABILITIES Dec - 09 Dec - 10 Dec - 11

US$ % US$ % US$ %

Demand Deposits 706,577,280.51 32.33% 1,277,489,360.87 34.65% 1,818,142,861.47 38.17%

Savings Deposits 373,442,195.45 17.08% 194,438,956.45 5.27% 260,639,392.01 5.47%

Time Deposits/Fixed Deposits 166,924,653.29 7.64% 641,912,017.92 17.41% 842,884,981.35 17.69%

Foreign Currency Deposits 86,028,379.19 3.94% 129,299,353.82 3.51% 62,559,919.42 1.31%

Negotiable Certificates of Deposit 25,709,078.04 1.18% 64,297,238.38 1.74% 63,576,009.18 1.33%

Balances With Other Banking Institutions 20,095,863.94 0.92% 129,032,124.48 3.50% 161,998,441.83 3.40%

Liabilities in Transit 2,337,018.61 0.11% 115,245.30 0.00% 1,470,800.66 0.03%

Foreign Liabilities 63,894,730.65 2.92% 221,168,761.42 6.00% 304,599,477.41 6.39%

Securities and other Funding Liabilities 3,831,631.71 0.18% 3,293,723.03 0.09% 53,596,260.83 1.13%

Capital and Reserves 384,568,102.53 17.59% 465,210,935.84 12.62% 568,420,384.46 11.93%

Other Liabilities 143,600,686.66 6.57% 195,670,619.75 5.31% 399,280,521.80 8.38%

Off-Balance Sheet Items - Liabilities 208,824,900.57 9.55% 364,809,655.76 9.90% 226,379,673.05 4.75%

Total Equity and Liabilities 2,185,834,521.14 3,686,737,993.03 4,763,548,723.47

3.2.9 Demand deposits constituted the greater portion of the deposit base confirming the transitory nature and volatility of the deposit base. The proportion of demand deposits to total deposits and savings deposits to total deposits increased marginally from 55.36% to 59.65%, while savings deposits share in total deposits increased to 8.55% in 2011 from 8.43% in 2010. However, the percentage of time deposits decreased marginally from 27.82% as at 31 December 2010 to 27.66% over the period under review. 3.2.10 Retail deposits remained volatile in 2011 as the economy continued to rely heavily on cash transactions coupled with a low disposable household income base.

Table 5: Percentage of total deposits Dec-09 Dec-10 Dec-11

Demand Deposits 52.00% 55.36% 59.65%

Savings Deposits 27.49% 8.43% 8.55%

Time Deposits/Fixed Deposits 12.29% 27.82% 27.66%

Foreign Currency Deposits 6.33% 5.60% 2.05%

Negotiable Certificates Of Deposit 1.89% 2.79% 2.09%

3.3 PERFORMANCE OF THE BANKING SECTOR Capitalisation… 3.3.1 Following the introduction of the multi-currency regime in February 2009, total net capital base in the banking industry increased by 33.89% from $832.21 million as at 31 December 2009 to $511.62 million as at 31 December 2011. The increase was largely attributed to growth in retained earnings and capital injections by the shareholders in a bid to to comply with minimum capital requirements. 3.3.2 Growth in core capital and shareholders’ equity during the period 2009 to 2011 is shown in the figure below:

Figure 5: Banking Sector Capitalisation Levels – 2009- 2011

600 512 458 425 366 382 388 400

200

0 31-Dec-09 31-Dec-10 31-Dec-11

Core Capital ($ million) Net Capital Base ($ million)

3.3.3 Tier 1 capital constituted 95.69%, 84.70% and 83.15% of the banking industry’s net capital base as at 31 December 2009, 31 December 2010 and 31 December 2011, respectively.

3.3.4 The banking industry’s ratio of equity capital to total assets as well as the Capital Adequacy Ratios (CARs) declined between 2009 to 2011 as shown in the figure below: Figure 6: Capital Ratios – 2009 to 2011

30 27.26 27.34

25 19.12 20 16.73 16.23 Equity/Assets (%) 15 8.98 Capital Adequacy Ratio (%) 10

0 Dec 09 Dec 10 Dec 11

3.3.5 During 2009, the level of financial intermediation was low as reflected by subdued levels of loans to deposit ratios. As loans and advances increased, banking institutions’ risk weighted assets also increased, leading to the lower equity/ assets and CAR of 8.98% and 16.23% respectively as at 31 December 2011. 3.3.6 As at 31 December 2011, 20 out of 25 banking institutions (excluding Barbican Bank and POSB) were in compliance with the prescribed minimum capital requirements while 23 out of the 25 banking institutions had CARs and tier 1 ratios that were in compliance with regulatory minima of 10% and 5% respectively. Bank Lending and Asset Quality… 3.3.7 Total loans and advances increased significantly over the past two years reflecting improving financial intermediation as depicted in the figure below.

Figure 7: Growth in Loans and Advances

Dec 11 2.76

Dec 10 1.65 Total Loans ($ billions)

Dec 09 0.69

0 0.5 1 1.5 2 2.5 3

3.3.8 Total loans and advances in the banking sector were low at $0.69 million as at 31 December 2009 as a result of limited funding as the economy was beginning to emerge from challenges of the general economic decline. During 2010 and 2011, economic activity improved significantly and total loans more than doubled from $0.69 billion as at 31 December 2009 to $1.65 billion as at 31 December 2010 and further increased to $2.76 billion as at 31 December 2011. 3.3.9 The growth in loans during the two year period 2010 to 2011 was largely driven by gradual increase in deposits. 3.3.10 Against the background of expanded credit and growth in the deposit base, the loans to deposit ratio increased from 50.99% as at 31 December 2009 to 65.01% as at 31 December 2010. The ratio further increased to 81.79% by the end of December 2011. 3.3.11 The trend in the loan to deposit ratio during the year ended 31 December 2011 is as indicated below:

Figure 8: Loans to Deposit Ratio

Loans/Deposits Ratio 90% 80% 78% 79% 70% 71%74% 66%65% 67% 60% 61% 54% 50% 52% 49% 53% 40% 37% 30% 33% 20% 10% 0%

Loans/Deposits Ratio

3.3.12 Banking sector credit has largely been short-term due to the transitory nature of deposits coupled with the attendant liquidity shortages in the sector. 3.3.13 The figure below shows the sectoral distribution of credit as at 31 December 2011.

Figure 9: Sectoral Distribution of Credit as at 31 December 2011

3.3.14 Bank credit has been directed mostly towards the manufacturing, agriculture, services and distribution sectors as well as consumer loans. The mining and

construction sectors that should also be significant pillars for Zimbabwe’s economic development have commanded relatively lower market share of loans. 3.3.15 Although the asset quality of the banking sector deteriorated in 2010 as reflected by the increase in the ratio of adversely classified loans to total loans from 1.80% in December 2009, to 10.95% in December 2010, the ratio improved to 7.55% as at 31 December 2011. 3.3.16 The value of total gross loans and corresponding adversely classified loans to total loans ratios of the banking sector for the period from June 2009 to December 2011 is shown in the figure below: Figure 10: Total Gross Loans and ACLs 3 12.00% 10.95% 2.5 10.00%

2 8.00% 7.55% 6.17% 1.5 5.68% 6.00%

2.72 $ billions $ 1 4.00% 1.80% 1.63 2.22 0.5 2.00% 1.13 0.28 0.69 0 0.00% 0.00% Jun-09 Dec-09 Jun-10 Dec-10 Jun-11 Dec-11 Loans & Advances ($ billions) ACL/TL (%)

3.4 Profitability… 3.4.1 The banking sector was generally profitable during the year ended 31 December 2011, with 20 out of 26 banking institutions recording net profit after tax. 3.4.2 Total profit after tax in the banking sector was $86.01 million for period ending 31 December 2011, an improvement from $37.95 million recorded for period ending 31 December 2010. The industry average profit after tax improved by 109.86% from $1.52 million in 2010 to $3.19 million in 2011. 3.4.3 The banking industry’s total operating income as at 31 December 2011 was $646.74 million which comprised net interest income amounting to $282.70 million and non- interest income of $364.05 million. Non-interest income comprised 56.29% of total income as at 31 December 2011, indicating high reliance on fees and commissions.

3.4.4 The proportion of net interest income to total income has, however been increasing as shown in the figure below:

Figure 11: Composition of Total Income

100% 90% 80% 364.05 70% 299.93 60% 195.52 50% 40% 30% 282.7 20% 123.9 10% 35.87 0% Dec 09 Dec 10 Dec 11

Net Interest Income Non-Interest Income

3.4.5 The increased lending activities have resulted in the proportion of net interest income increasing compared to the preceding year. 3.4.6 The major expenses comprised salaries and employment benefits, which amounted to $227.76 million as at 31 December 2011, up from $176.51 million as at 31 December 2010. The figure below shows the composition of operating expenses Figure 12: Composition of Operating Expenses

Dec 11 227.76 64.61 239.06

Dec 10 176.51 17.65 174.28

Dec 09 96.38 11.28 110.78

0% 20% 40% 60% 80% 100%

Salaries & Emploment Benefits Provisions for Loans Losses Other

3.4.7 The deterioration in asset quality resulted in higher provisioning requirements which in turn impacted negatively on the profitability of the banking sector. Specific provisions as a proportion of total loans were as shown in the figure below:

Figure 13: Specific Provisions to Total Loans Ratio

Specific Provisions/Total loans (%)

1.6 1.4 1.2 1 0.8 1.5 0.6 0.4 0.65 0.72 0.2 0 Dec 09 Dec 10 Dec 11

3.4.8 The increase in provisions in tandem with deteriorating loan books had a negative impact on the profitability for the banking sector. 3.4.9 However, profitability indicators for the banking sector as measured by Net Interest Margin (NIM), Return on Assets (ROA) and Return on Equity (ROE) were trending upwards during the period 2009 to 2011 as shown in the figure below:

Figure 14: Profitability Indicators 16.00 15.13 14.00 12.00 10.00 7.83 8.21 8.00 ROA (%) 5.75 6.00 ROE (%) 3.29 4.00 2.47 2.43 1.5 2.00 0.6 0.00 01-Jan-09 01-Jan-10 01-Jan-11

3.4.10 Overall NIM for the banks was 8.21% in 2011, up from 5.75% in the previous year. The increase in NIM is partly attributed to the increase in the proportion of assets that

are composed of loans and advances, which loans typically attract higher interest rates as compared to other interest earning assets. 3.4.11 The industry profitability improved since 2009 and banking institutions retained most of their earnings, with few institutions declaring marginal dividends. Retained earnings provided organic growth to the industry and boosted capitalisation levels, which in turn improved banking institutions’ capacity to underwrite more business.

Liquidity and Funds Management…

3.4.12 On the backdrop of growing depositor confidence and increasing economic activity, total banking sector deposits exhibited an upward trend over the period December 2009 to December 2011 as indicated below.

Figure 15: Total Deposits – 2009 to 2011

Total Deposits ($ millions)

Dec 11 3,376

Dece 10 2,568 Total Deposits ($ millions)

Dec 09 1,364

0 500 1000 1500 2000 2500 3000 3500

3.4.13 Short term deposits (demand, savings and under 30-day deposits), constituted 93.88% of the total banking sector deposits for period ending 31 December 2011. 3.4.14 Net lending rates quoted by banks remained relatively high, largely due to persistent liquidity shortages, high credit demand, limited lines of credit and the absence of an active money market. 3.4.15 As at end of December 2011, nominal lending rates ranged between 8% and 32% with most banks quoting lending rates above 20%. Deposit rates, however, ranged between 0.15% and 17%.

3.4.16 Despite high lending rates charged by banks, demand deposits, which constitute the bulk of the deposits, continue to attract low interest rates and high transaction charges. This negative development continues to militate against efforts geared at promoting a savings culture among the banking public.

3.5 SECTORAL ANALYSIS

Commercial Banks 3.5.1 There were seventeen (17) commercial banks operating in the sub-sector as at 31 December 2011 up from sixteen (16) that were operating as at 31 December 2010. The increase in commercial banks follows the re-licensing of Royal Bank of Zimbabwe Limited which commenced operations on 17 February 2011. Total Assets… 3.5.2 Total assets in this sub-sector increased by 25.57% from $3.14 billion for period ending 31 December 2010 to $3.94 billion as at 31 December 2011. The growth in total assets was mainly due to a considerable growth in loans that grew by more than $400 million during the period under review. 3.5.3 The commercial banking sub-sector contributed 82.68% of total banking sector assets as at 31 December 2011. The figure below shows a comparison of commercial banking sub-sector assets to total banking sector assets over the period 2009 to 2011. Figure 16: Commercial Bank Asset Base

$ Millions 5,000.00

825 4,000.00 550 3,000.00

2,000.00 331.46 3,939 3,137 1,000.00 1,854.37

0.00 2009 Other Banks 2010 Commercial Banks2011

Total Liabilities… 37

3.5.4 Total liabilities for the commercial banking sub-sector grew by 8.88% on the back of growth in total deposits of $740.37 million as at 31 December 2011, representing 32.09% growth over the period 31 December 2010 to 31 December 2011. 3.5.5 Retail deposits comprising demand and savings deposits, accounted for the bulk of commercial banking deposits, contributing 72% as at 31 December 2011. The figure below indicates the distribution of deposits in the commercial banking sector as at 31 December 2011. Figure 17: Commercial Bank Deposits Foreign Negotiable Fixed Deposits Currency Certificates of 24% Deposits 2% Deposit 2%

Demand Savings Deposits 66% Deposits 6% Demand Deposits Savings Deposits Fixed Deposits Foreign Currency Deposits Negotiable Certificates of Deposit

3.5.6 The loans to deposit ratio for the sub-sector increased from 76.95% for period ending 31 December 2010 to 87.96% for period ending 31 December 2011 indicating significant improvement in the level of financial intermediation. Capital Adequacy… 3.5.7 The figure below indicates the progression of net capital base for the commercial banking sector over the period 2009 to 2011.

Fig 18: Net Capital Base for the Commercial Banking Sector $ Millions

500.00 415.60

400.00 330.58

300.00 239.29

200.00

100.00

0.00 2009 2010 2011

Asset Quality… 3.5.8 Total loans and advances increased by 60.06%, from $1.43 billion as at 31 December 2010 to $2.29 billion as at 31 December 2011. The increase in total loans was mainly attributed to increased underwriting capacity as a result of increasing deposits within the sub-sector. 3.5.9 The commercial banking sub-sector maintained its dominance in terms of loans and advances as loans by commercial banks constituted 82.89% of total loans as at 31 December 2011. 3.5.10 The figure below indicates the contribution of the commercial banking sub-sector to banking industry loans for the period 2009 to 2011.

Figure 19: Commercial Bank Loans $ Millions 3,000.00

2,500.00 472.46

2,000.00

1,500.00 223.48

2,288.50 1,000.00

1,429.77 104.38 500.00 588.46

0.00 2009 2010 2011

Commercial Banks Other Banks

3.5.11 Asset quality deteriorated in the commercial banking sub-sector in 2011 as evidenced by the increase in the ratio of adversely classified loans to total loans from 4.58% as at 31 December 2010 to 5.89% as at 31 December 2011.

Earnings…

3.5.12 The commercial banking sector remained profitable during the year ended 31 December 2011 as indicated by net earnings of $75.75 million. The sector recorded return on asset and return on equity ratios of 2.70% and 17.58% for the year ended 31 December 2011. However, profitability was under threat from credit losses emanating from rising non-performing loans. 3.5.13 Net interest margin increased from 6.24% in 2010 to 7.21% in 2011. The increase is attributable to increased volume of business and interest bearing assets during the year ended 31 December 2011. 3.5.14 Cost to income ratio improved from 103.40% in 2010 to 92.97% in 2011. 3.5.15 The figure below indicates a comparison of key profitability indicators for the period 2009 to 2011.

Figure 20: Commercial Banks Key Earnings Indicators - 2009 to 2011

120.00% 100.00% 80.00% 60.00% 40.00% Dec-09 20.00% Dec-10 0.00% Dec-11 -20.00% ROA ROE NIM Cost to Income Dec-09 0.45% 1.86% 3.39% 95.53% Dec-10 -0.89% -8.32% 6.24% 103.40% Dec-11 2.70% 17.58% 7.21% 92.97%

3.5.16 The commercial banking sub-sector derived the bulk of its income from interest income and fees & commissions which contributed 55.86% and 28.54%, respectively, to total income for the year ended 31 December 2011. 3.5.17 The income mix for the sector indicates the commercial banking sector’s ability to generate sustainable income from its core business of financial intermediation. 3.5.18 The income mix is indicated in the figure below:

Figure 21: Income Mix for the Commercial Banking Sector

4.70% 28.54% 55.86%

10.89%

Interest Income Income from Foreign Exchange Dealing Fees and Commission Other Non Interest Income

3.5.19 The cost structure for commercial banks was skewed towards salaries and employment benefits which accounted for 32.78% of total commercial banking sector costs for the year ended 31 December 2011, against interest expenses which accounted for 23.29%.

Liquidity and Funds Management… 3.5.20 There has been a remarkable growth in commercial banks’ deposits since inception of the multiple currency system in February 2009. Commercial banks’ deposits grew by 112.48%, from $1.22 billion for period ending 31 December 2009 to $2.60 billion for year ending 31 December 2011. 3.5.21 The increase in commercial bank deposits is mainly attributed to increased confidence in the banking sector and increased economic activity. The growth trend in commercial bank deposits is shown in Figure 13.20 below.

Figure 22: Commercial Bank Deposits

2011 2,601.72

2010 2,022.24

2009 1,224.44

0.00 1,000.00 2,000.00 3,000.00 Millions Total Deposits

3.5.22 As at 31 December 2013, six (6) banking institutions out of the 17 commercial banking institutions were not in compliance with the prudential liquidity ratio. The decline in liquidity ratio was largely attributed to increased lending.

Merchant Banks

3.5.23 Four (4) merchant banks were operating as at 31 December 2011, the same number from the previous year ended 31 December 2010. 3.5.24 Out of the four merchant banks, Genesis Investment Bank and Renaissance Merchant Bank were facing chronic challenges characterized by insolvency, poor asset quality and persistent liquidity constraints. 3.5.25 Renaissance Merchant Bank was placed under curatorship in June 2011, following an investigation by Reserve Bank which unearthed gross mismanagement of the institution.

Total Assets…

3.5.26 Merchant banks had total assets of $249.47 million as at 31 December 2011 up from $221.24 million as at 31 December 2010, indicating a growth of 12.76% during the period. 3.5.27 The sector’s asset mix mainly comprised loans and advances (45 %) and off balance sheet items (17 %). The figure below indicates the assets mix for merchant banks as at 31 December 2011. Figure 23: Asset Mix for Merchant Banks 1% 5% 17% 5% 6% 6% 7%

45%

DOMESTIC NOTES AND COIN BALANCES WITH CENTRAL BANK

BALANCES WITH DOMESTIC BANKS BALANCES WITH FOREIGN INSTITUTIONS

SECURITIES AND INVESTMENTS LOANS & ADVANCES,

FIXED ASSETS OTHER ASSETS

OFF-BALANCE SHEET ITEMS

Capital Adequacy… 3.5.28 The merchant banking sector was inadequately capitalised with negative tier 1 and capital adequacy ratios of 8.73% and 6.24%, respectively, as at 31 December 2011. 3.5.29 Two (2) out four (4) merchant banks were insolvent with negative core capital levels.

Asset Quality…

3.5.30 Loans and advances for the sector amounted to $146.55 million as at 31 December 2011, an increase of 32.54% from $110.57 million recorded as at 31 December 2010. 3.5.31 There was a significant deterioration in the asset quality in the sector as evidenced by the increase in the ratio of adversely classified loans to total loans from 21.72% as at 31 December 2010 to 43.59% as at 31 December 2011. The figure below shows a comparison of the adversely classified loans to total loans ratio per merchant bank sub-sector.

Figure 24: Comparison of ACL to Total Loans Ratio by Sector

50.00%

45.00% 43.59%

40.00%

35.00% Commercial Banks 30.00% Merchant Banks Building Societies 25.00% 21.72% POSB 20.00% 14.40%

15.00% 13.62% 14.05% Adversly Classified Adversly Loans Totalto Loans

10.00% 7.89% 4.55% 5.00% 1.93% 1.82%

0.00% 31-Dec-09 31-Dec-10 31-Dec-11

3.1.1 The increase in the ratio was attributed to asset quality challenges at Genesis Investment Bank and Renaissance Merchant Bank which had adversely classified loans to total loans ratios of 88.93% and 83.64%, respectively, as at 31 December 2011.

Earnings…

3.1.2 The viability challenges faced by the merchant banking sector, characterised by undercapitalisation, poor asset quality and low business underwriting capacity, culminated in losses by the sub-sector. 3.1.3 Merchant banks recorded a combined loss of $24.28 million for the year ended 31 December 2011, down from a loss of $10.85 million recorded during 2010. Three out of four merchant bank recorded losses during the period. 3.1.4 Average return on asset and return on equity ratios improved from negative 17.86% and 60.20% recorded in 2010 to negative 10.07% and 42.99% recorded for 2011, respectively. The figure below indicates the sector’s key profitability indicators for the period 2009 to 2011.

Figure 25: Profitability Indicators for Merchant Banks - 2009 to 2011

7.93% 1.67% 3.31% 10.00% 0.00% -1.68% ROA -5.68% ROE NIM -10.00% -10.07% 2009 -20.00% -17.86% 2010 -30.00% 2011 -40.00% -42.99% -50.00% -60.00% -60.20% -70.00%

3.1.5 Net interest margin increased from to 3.31% as at 31 December 2010 to 7.93% as at 31 December 2011. This was as a result of increased volumes in interest bearing assets over the year. 3.1.6 The sector derived the bulk of its income mainly from loans and advances as depicted in the figure below:

Figure 26: Income distribution for Merchant Banks

18% 2%

80%

Interest Income Foreign Exchange Dealing Fees and Commission Other Non Interest Income

3.1.7 The sector’s poor profitability performance was mainly attributed to high provisioning requirements of $19.50 million for the year ended 31 December 2011, which accounted for 37.40% of total costs. The figure below indicates a breakdown of the cost structure for the merchant banks sub-sector for the year ended 31 December 2011.

Figure 27: Merchant Banks’ Cost Structure

37% 27%

17%

19%

Total Provisions Interest Expense Salaries and Employement Costs Administration Costs

Liquidity and Funds Management… 3.1.8 Notwithstanding a prudential liquidity ratio of 52.05%, which was above the regulatory minimum of 25% for period ending 31 December 2011, the merchant banking sector faced liquidity constraints as two (2) out of four (4) institutions failed to honour obligations as they fell due. 3.1.9 The sector had negative liquidity gaps in all time bands for period ending 31 December

2011 as some of the merchant banks failed to honour maturing obligations. 3.1.10 Merchant bank deposits grew by 15.45%, from $103.86 million as at 31 December 2010 to $119.91 million as at 31 December 2011. The sub-sector’s deposit mix was inclined towards fixed deposits which constituted 53.81% of the total merchant bank deposits.

Building Societies

3.1.11 There were four (4) building societies operating in 2011. The sector accounted for 10.72% of total assets, 11.19% of total loans and 9% of total deposits.

Total Assets…

3.1.12 Total sub-sector assets grew by 82.88% in 2011, from $280.18 million to $510.54 million as at 31 December 2011. The growth in total assets was largely attributed to growth in loans and advances which grew by $196.06 million over the year. 3.1.13 The figure below indicates the growth trends in total assets and total loans for the sector for the period 2009 to 2011.

Figure 28: Building Societies Loans and Assets Millions

600.00 511 500.00

400.00 285 300.00 280

200.00 141.60 89 100.00 28.01 0.00 2009 2010 2011

Total loans Total Assets

Capital Adequacy…

3.1.14 The building societies’ sub-sector was adequately capitalised with average tier 1 and capital adequacy ratios of 29.12% and 35.11% as at 31 December 2011, respectively. 3.1.15 Building societies experienced an increase in core capital largely attributed to an increase in retained earnings. The sub-sector had combined core capital of $64.64 million as at 31 December 2011 up from $58.14 million as at 31 December 2010.

Asset Quality…

3.1.16 Total loans for the sector grew by 220.40%, from $88.96 million for period 31 December 2010 to $285.02 million for period 31 December 2011. There was a marginal decrease in the ratio of adversely classified loans from 3.08% as at 31 December 2010 to 1.56% as at 31 December 2011. 3.1.17 There was an increase in mortgage lending by the sector in light of the increase in term deposits and the general increase in deposit maturities during the period under review. However, mortgage facilities remained low with facilities of $83.99 million out of total loans of $285.02 million as at 31 December 2011 up from $36.18 million in 2010.

Earnings…

3.1.18 The building societies’ sub-sector was profitable with combined earnings of $30.47 million for the year ended 31 December 2011, up from $5.72 million recorded for the year ended 31 December 2010. Further, all building societies were profitable in 2011. 3.1.19 Building societies earned the bulk of their income from fees and commissions and interest income from loans and advances which contributed 40.80% and 38.33% to total income, respectively. The sub-sector’s income mix for the year ended 31 December 2011 is shown in the figure below:

Figure 29: Building Societies Income Mix

9.68% 38.33%

40.80% 11.19%

Interest Income from Loans Interest Income on Investments and Securities Fees and Commission Other Income

3.1.20 Average return on assets and return on equity ratios increased from 4.14% and 2.39% for the year ended 31 December 2010 to 7.22% and 22.24% for the year ended 31 December 2011, respectively.

Liquidity and Funds Management…

3.1.21 Building societies’ deposits increased from $143.38 million as at 31 December 2010 to $273.36 million as at 31 December 2011. 3.1.22 Building societies recorded an average prudential liquidity ratio of 39.55% down from 61.39% as at 31 December 2010. The sub-sector had negative liquidity gaps in all time bands as at 31 December 2011. 3.1.23 The transitory nature of deposits impacted negatively on the sub-sector’s ability to offer its core longer term mortgage facilities.

Asset Management Companies

3.1.24 The asset management sector comprised 16 operating institutions as at 31 December 2011, the same number that was operating in 2010. 3.1.25 Notwithstanding the improvement in the economic activity following the introduction of the multi-currency regime in February 2009, the economy continues to experience liquidity challenges which have manifested themselves through high proportions of transitory deposits, minimal investments by individuals and shortage of alternative 49

investments on the market. This has drastically reduced the potential pool of investors for asset managers, impacting on the level of funds under management and consequently the level of management fees earned.

Capital …

3.1.26 As at 31 December 2011, all asset management companies were compliant with the minimum paid-up equity capital requirement of $500,000.00, with an average capital base for this sector increasing from $859,826.36 as at 31 December 2010 to $1.04 million as at 31 December 2011. 3.1.27 The increase in the capital levels over the year 2011 was largely driven by sustained positive retained earnings in the year as shown in the figure below.

Figure 30: Relationship between Capital and Retained Earnings

16 14.07 Total Capital, 13.34 14 13.76 12 13.38 12 12.41 11.31 11.31 10 10.15 11.02 8 8.24

6 6.49 $ millions $ Retained Earnings, 4 2.39 2.6 2.62 2.2 2.37 2 1.77 1.21 1.42 1.66 2.57 0.62 0.87 0 Mar-09 Jun-09 Sep- Dec- Mar-10 Jun-10 Sep- Dec- Mar-11 Jun-11 Sep- Dec- 09 09 10 10 11 11

Funds under Management…

3.1.28 Notwithstanding the liquidity shortages and a poor performance by the Zimbabwean Stock Exchange which reduced the pool of investors for asset management companies, there was a marginal increase in total funds under management during the year under review, from $1.54 billion as at 31 December 2010 to $1.59 billion as at 31 December 2011. 3.1.29 The increase in funds under management was attributed to the bullish stock market conditions that prevailed in 2011. Money market funds grew by 37.90% from $188.24 50

million as at 31 December 2010 to $259.61 million as at 31 December 2011 whilst quoted equities decreased by 8.55% from 845.89 million as at 31 December 2010 to $773.55 million as at 31 December 2011. 3.1.30 The figure below illustrates the composition and trend in funds under management for the sector over the year.

Figure 31: Distribution of Total Funds under Management

1800 70%

1587.94 1608.41 1664.52 1626.78

1600 1541.27 60%

1424.28

1414.12

1366.15

1334.91 1400 1318.34

1245.62 50%

1200

40%

943.32

908.39

913.28 903.48

1000 914.01

882.16 845.89

849.6 30%

775.71

773.55

768.08 735.07 800

$ millions$ 20%

600 422.01 10% Changes Percentage 400

200 0%

0 -10% Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- Mar- Jun- Sep- Dec- 09 09 09 09 10 10 10 10 11 11 11 11 Money Markert Total Equities

Earnings and Profitability…

3.1.31 Asset managers recorded an increase in aggregate earnings of 235.77%, from $819,109.17 for the year ended 31 December 2010 to $2.75 million for the year ended 31 December 2011. 3.1.32 Return on assets and return on equity ratios improved from 5.06% and 6.77% for the year ended 31 December 2010 to 11.21% and 15.75%, respectively, for the year ended 31 December 2011. 3.1.33 The improvement in profitability was mainly attributed to increases in management fees and income from investments and securities which increased from $6.34 million and $319,285.75 in 2010 to $9.11 million and $1.08 million in 2011, respectively. 3.1.34 Management fees constituted 74.30% of total income in 2011, down from 91.07% recorded in 2010. 3.1.35 Operating costs increased by $1.51 million in 2011 on the back of increases in salaries

and employment benefit costs and other expenses which increased by $662,029.46 and $4,713,609.86 in 2011, respectively. The figure below indicates the composition of the sector’s operating profit for the period March 2009 to December 2011.

Figure 32: Composition of AMCs Operating Profit

10 Millions 5

-5

-10

-15

Management Fees Income from Investments & Securities Other Income Salaries and Employee Benefits Other Costs Other Administration Expenses Operating Profit

Microfinance Sector

3.1.36 The microfinance sector continued to play its critical role of eradicating poverty and financial exclusion. 3.1.37 However, the Reserve Bank continued to receive numerous complaints from members of the public against some microfinance institutions with respect to unethical and undesirable business practices. 3.1.38 These include inadequate disclosure of business conditions, over deduction in respect of loan repayments, charging exploitative lending and penalty rates and abusive debt collection practices, including disposal of pledged collateral without following due legal procedures. 3.1.39 In light of the above, the Reserve Bank continued to engage the microfinance institutions and to call upon them to observe internationally agreed Core Client Protection Principles (CCPP) for microfinance and to comply with laws and regulations when conducting microfinance business. Non-compliance invites regulatory sanctions 52

which may include cancelation of operating licences. 3.1.40 During the year the Reserve Bank stepped up its dispute resolution efforts by engaging the concerned institutions and educating microfinance borrowers on some of their rights and obligations as borrowers.

CHAPTER FOUR: CHALLENGES IN THE BANKING SECTOR AND LESSONS LEARNT

4.1 Introduction 4.1.1 This chapter seeks to highlight the macro and micro level challenges in the operating environment, banking sector developments and lessons drawn from these experiences. The combined effects of macroeconomic challenges and sector specific structural constraints, internal governance deficiencies and attendant legal constraints had significant bearing on the banking sector performance. 4.1.2 Prior to the multicurrency regime, the economy was characterized by hyperinflation, acute foreign exchange shortages, limited foreign lines of credit, erratic energy and fuel supplies, and the attendant basic commodities shortages, which in turn, impacted negatively on corporate viability and ability of the corporate sector to retool. This development militated against the corporate sector’s competitive positioning on the export market. 4.1.3 The consequences of the harsh macroeconomic environment on the banking sector which included, capital erosion and disintermediation, culminated in an a number of bank failures and rendered some classes of banking business such as discount houses and finance houses, unviable. 4.1.4 The adoption of the multicurrency regime created a foundation for economic stability and growth for the period 2009 to 2011. However, this development also ushered in a whole array of new challenges for both the banking sector and the corporate sector, which included, among others, recapitalization challenges, illiquid market conditions, and lack of long-term funding critical for capital expenditure. 4.1.5 Reliance on ageing and obsolete equipment, compounded by incessant power outages and lack of long term funding further undermined the competitiveness of the industry and the recovery projectory which had been ushered in by the multi- currency regime. 4.1.6 While infrastructure rehabilitation was a priority for government and formed one of the pillars for the 2011 budget, lack of liquidity militated against its execution. Market illiquidity, in the absence of a viable lender-of-last facility continued to constrain ability of the banking sector to effectively spur industry growth and 54

viability, thereby worsening Zimbabwe’s infrastructure deficit. 4.1.7 The short-term loans offered by the banking sector were used to fund capital expenditure, which ordinarily is funded by long term funds, resulting in high levels of non-performing loans as corporates failed to service their loans. 4.1.8 The trade and exchange control liberalization in the background of subdued export earnings, negligible foreign direct investment, and limited access to offshore lines of credit compounded the harsh operating environment for the industry. 4.1.9 While adoption of the cash budgeting system by Government in a bid to manage precarious national debt levels was plausible, the absence of a functional money market and short term Treasury Bills impacted negatively on money market depth and interbank trading.

4.2 Banking Sector Challenges

4.2.1 Notwithstanding the gains of the multicurrency regime, (with inflation reduced to 5.9% as at December 2011), the efficacy of the multiple currency system was adversely affected by the following challenges: a) volatile and low deposits; b) high levels of non-performing loans; c) market illiquidity due to absence of the lender of last resort facility and low interbank activity; d) limited external facilities; and e) working capital challenges.

Volatility of Deposits…

4.2.2 Following the adoption of the multiple currency system, the banking sector mobilized deposits which were largely transitory and volatile in nature, mainly driven by salaries. On average, short term deposits constituted 91.2% of the total deposits during the period 2009 – 2011, and this hindered banking institutions from lending long term. 4.2.3 In the absence of alternative sources of funding, the corporate sector

inappropriately used expensive short term funding for capital expenditure resulting in high levels of non-performing loans in the banking sector.

High level of non-performing loans…

4.2.4 The challenges of ushered in by the multi-currency regime, in the backdrop of tight domestic liquidity conditions, inadequate working capital and declining corporate performance created a bedrock for increased non-performing loans in the banking sector since 2009. 4.2.5 The problem was compounded by high lending rates charged by banks against a backdrop of low corporate profit margins and viability challenges, which in turn militated against the corporate sector’s ability to service their loans. 4.2.6 The adversely classified loans to total loans ratio for the banking sub-sectors were as follows: Table 4: Adversely Classified Loans to Total Loans Ratio Banking 31 December 2009 31 December 2010 31 December 2011 Sub-sector

Commercial 1.82% 4.58% 5.89% Banks

Merchant 1.33% 21.72% 43.59% Banks

Building 0.00% 3.08% 1.47% Societies

Working Capital Erosion…

4.2.7 Banking institutions’ working capital was eroded during the hyperinflationary period prior to the introduction of the multicurrency regime. Coupled with scarcity of foreign lines of credit, low and transitory deposits and limited fresh capital injections, most banking institutions faced working capital challenges. 3.5.32 Following chronic hyperinflation and the decimation of balance sheets, the capital of almost all banking institutions were depleted to zero in conventional accounting terms. 3.5.33 Faced with zero balances in dollar terms, and in the absence of fresh liquid

capital, the major source of equity capital became fixed asset revaluation reserves. However, this form of capitalisation did not result in liquid capital injection in the banking sector. 3.5.34 Illiquid capital culminated in a number of challenges for banking institutions including lack working capital to meet operating costs and inadequate capacity to underwrite new and meaningful business. This coupled with a thin funding base, constrained earnings performance, particularly for smaller banks. 3.5.35 In the absence of adequate working capital, some banking institutions failed to align their level of operations to capital resulting in abuse of depositors’ funds to meet bloated operating costs, in particular, staff costs. 3.5.36 Adequate capitalization remains one of the key success factors in the banking sector. There is correlation between capital and profitability, lending rates, bank charges, shareholders commitment, liquidity, competitiveness, quality of management and discipline, credit extension capabilities, and infrastructure enhancement, among other factors. In particular, strong capitalisation enables banking institutions to play a meaningful intermediation role for the development of the economy.

Market illiquidity…

4.2.8 Following the adoption of the multi- currency regime, the sector faced liquidity challenges emanating from absence of money market trading instruments such as treasury bills, inactive interbank market and absence of lender of last resort facility. 4.2.9 Although there were other forms of trading instruments such as bankers’ acceptances available on the money market, these were not being readily accepted as collateral on the inter-bank market due to the high perceived counterparty risk. 4.2.10 While a few banking institutions secured some foreign lines of credit, access to the same credit lines was limited due to failure to meet pre-disbursement conditions. Failure to access credit lines compounded the liquidity challenges in the economy. 4.2.11 In addition, the absence of long-term external funding also restricted the ability of banking institutions to extend long-term funding such as mortgage financing and

capital expenditure funding for industry. 4.2.12 Low inflows of international capital and weak export performance further constrained market liquidity. 4.2.13 In the circumstances, most banks cautiously managed their own liquidity positions and some adopted a conservative approach to lending.

4.3 Failed Banking Institutions

4.3.1 During the period 2009 to 2011, a number of bank failures were largely attributed to poor corporate governance and risk management practices, high levels of insider loans, involvement in speculative non-core banking activities, and inadequate capitalization. These developments had a debilitating impact on the banking sector, with negative implications on economic growth. 4.3.2 A brief synopsis of developments at the banking institutions that failed between 2009 and 2011 is highlighted hereunder:

ReNaissance Merchant Bank…

4.3.3 The failure of ReNaissance Merchant Bank can be traced total collapse of corporate governance structures with major shareholders at holding company level directing the day-to-day operations of the bank. The demise of the bank was largely attributed to the following deficiencies: a) Domineering founding members who exercised unfettered powers over the operations of the bank; b) Non-separation of ownership and management; c) Poor board and senior management oversight as significant transactions with negative impact on the bank were processed at the instigation of senior executives; d) Abuse of group structures with bank funds being deliberately diverted to meet personal expenses of the founding members; e) Gross violation of prudential lending limits through insider loans perpetrated through unfunded call accounts; f) Deliberately orchestrated elaborate schemes designed to siphon depositors’ funds; and

g) Persistent losses attributed to high levels of non-performing loans, undercapitalization and failure to underwrite meaningful business.

Genesis Investment Bank…

4.3.4 Genesis Investment Bank had a long history of poor performance and failure to underwrite meaningful business. The bank’s challenges are summarized as follows: a) Chronic capitalization challenges extending to periods prior to the adoption of the multi-currency regime; b) Persistent liquidity challenges which threatened the bank’s solvency; c) Liquidity management strategies that were more reactive than proactive; d) Imprudent lending practices; and e) Poor board and senior management oversight.

NDH Bank…

4.3.5 The origins of NDH were fragile from inception, as bank opened its doors to the public with inadequate capital and without key management staff and ICT infrastructure. 4.3.6 The challenges faced by NDH are summarized as follows: a) chronic capitalisation challenges in the backdrop of inadequate shareholder support; b) persistent looses and chronic liquidity challenges which threatened the solvency of the institution; c) absence of board and senior management oversight; and d) imprudent lending practices which left the bank exposed to three failed institutions.

4.4 Lessons Learnt

Importance of Adequate Capital…

4.4.1 The role of capital is to act as a buffer against future, unidentified, and relatively remote losses that a bank may incur. Banks with low equity capital and a high variability of operating earnings have proven to be highly vulnerable to financial distress. 4.4.2 In addition, banking institutions hold capital because it provides them with financial flexibility. Banks which are strongly capitalized can take advantage of growth opportunities. A banking sector with a strong capital base is better able to supply credit to businesses, fund investment opportunities, and contribute meaningfully to economic growth. 4.4.3 A healthy, well capitalized and functioning banking sector is essential to the economic well-being and recovery of economy. Inadequately capitalized banks are ill-disposed in terms of providing credit to the small to medium enterprises which are key to economic recovery. 4.4.4 Financial literature is also replete with empirical evidence on the pivotal role that adequately capitalized banking institutions play in economic turnaround processes through efficient financial intermediation. 4.4.5 Strong capitalization is a key pillar of success for banking institutions as it enables them to play a meaningful intermediation role for the development of the economy. In this regard, the Reserve Bank, through the risk-based supervision, continued to monitor and to require all banks to comply with stipulated minimum capital requirements and to align their capital levels to their respective risk profiles. 4.4.6 Inadequately capitalized banks play an insignificant role in the economy in terms of financial intermediation and funding the productive sector The banks that failed were inadequately capitalized and were playing an insignificant role in financial intermediation.

Importance of Consolidated Supervision…

4.4.7 The opaque group shareholding structures camouflaged the true identity of the beneficiary shareholders, and militated against adoption of sound risk management and good corporate governance practices. The developments at troubled banks highlighted the need to fully implement and to strengthen consolidated supervision. 4.4.8 The challenges arising from these group structures highlighted the need to enhance the regulatory framework for banking institutions to incorporate the supervision and regulation of bank holding companies. 4.4.9 Developments at the failed institutions underscored the need to amend the Banking Act to ensure that the Reserve Bank is empowered to take appropriate supervisory action against bank holding companies and their associates and to hold directors liable for abuse of depositors’ funds. 4.4.10 In this regard, the Reserve Bank has proposed amendments to the Banking Act to give legal effect to all guidelines and standards issued to the banking sector .

Sound Risk Management Framework…

4.4.11 The bank failures experienced in the post 2009 era, highlighted the pitfalls of the silo approach to management of banking risks. The experiences highlighted the inter-linkages between risks such as credit and liquidity. 4.4.12 The adoption of Enterprise-wide Risk Management as an approach to managing risks in banking institutions has become imperative to the sound management of banking risks. In this regard, the Reserve Bank is enhancing the Risk Management guideline to incorporate the concept of ERM to strengthen the ability of banking institutions to effectively measure, monitor and control risks. 4.4.13 The Reserve Bank will continue to issue guidance to the market in this manner to ensure that risk management systems remain relevant to the operating environment at all times.

Importance of Strong Corporate Governance …

4.4.14 In two of the failed banking institutions, serious defects in corporate governance were at the root of business failure, in particular the lack of separation between ownership and management which resulted in breakdown in sound corporate governance practices. 4.4.15 In all the failed banks, poor or inadequate board oversight fuelled the demise of the institution. Corporate governance shortcomings in the failed banking institutions underscored the need for banks and banking groups to adopt robust corporate governance policies, and practices commensurate with their institution’s risk profile. 4.4.16 In an effort to foster a robust legal framework, the Reserve Bank proposed amendments to the Banking Act to ensure effectiveness and alignment to international best practice.

Supervisory Co-operation…

4.4.17 The proliferation of financial conglomerates, incorporating regulated and non- regulated entities, resulted in heightened risk exposures for banking institutions within such groups emanating from activities of associate companies. Such structures also present an opportunity for regulatory arbitrage which poses a threat to financial sector stability. 4.4.18 This was clearly witnessed in the failures of banking institutions such as Renaissance where exposure to associates, such as stock-broking firms, crystallized in the banking subsidiary as increased exposure to credit risk. 4.4.19 The experiences of failures emanating from such group structures brought to the fore the need for supervisory co-operation and collaboration among domestic regulators as well as with other foreign supervisors where Zimbabwean financial institutions may have their presence. 4.4.20 The ‘silo’ disposition of the regulators in the domestic financial sector is clearly no longer in sync with current developments. Such co-operation consisting of information sharing and joint examination of regulated entities where necessary places supervisors in a better position to deal with threats to financial sector stability in a timely manner. 62

4.4.21 In this regard, the Reserve Bank has signed Memoranda of Understanding (MoU) with other domestic regulators to foster the spirit of co-operation in the supervision of the financial services sector. 4.4.22 Furthermore, the establishment of the Multidisciplinary Financial Stability Committee in 2011 was geared to further strengthen co-operation among regulators.

Capacity Building…

4.4.23 The skills gap that was created in the banking sector and the country at large as a result of the “brain drain” during the hyperinflationary period left banking institutions ill-equipped to move forward in the multicurrency regime economy. 4.4.24 Skills deficiencies manifested themselves in key areas such as strategic planning, enterprise-wide risk management, liquidity risk management and credit risk management, which impacted on the financial performance of banking institutions. 4.4.25 Pursuant to capacity building initiatives, the Reserve Bank conducted training and workshops for executive and non-executive directors of banking institutions on an array of topics ranging from corporate governance to Basel II implementation. 4.4.26 In line with dynamic nature of the banking sector and international best practice, banks should always invest time and resources in upgrading their skills.

Importance of Credit Information Sharing…

4.4.27 The period under review has experienced an increase in the level of non- performing loans emanating from poor earnings performance on the part of the borrower and multiple borrowings by the same borrowers. Absence of credible credit information has left most of the banking institutions exposed to the same non-performing borrowers. 4.4.28 In view of the importance of sharing such important information, the banking sector initiated negotiations with potential providers of Credit Reference Bureau facilities with the view to establish a credit reference bureau.

Legal /Regulatory Framework Gaps…

4.4.29 In the absence of clear provisions for decisive action on errant banking associates and shareholders, some of the failed institutions took advantage of these regulatory gaps to create opaque holding structures, trusts, nominee companies etc and such other non transparent structures to siphon depositors’ funds and carry out non-permissible activities. 4.4.30 Further, some of the founding members and shareholders who blatantly violated international corporate governance practices challenged the Reserve Bank’s reference to violating provisions of guidelines citing that these had no force of law. 4.4.31 Cognizant of the above challenges and in a bid to ensure protection of depositors’ funds, the Reserve Bank, in conjunction with the Ministry of Finance embarked on legislative reforms intended to deal decisively with errant shareholders, associates and directors. The reforms are also aimed at giving guidelines and standards issued by the Reserve Bank, the effect of law to prevent future challenges from errant bank owners or directors. 4.4.32 The Reserve Bank is also enhancing the Troubled and Insolvent Banks Policy to ensure timely and effective responses to banking problems underpinned by fair, consistent, transparent, and cost of effective problem resolution.

Contingency Planning and Systemic Crisis Management…

4.4.33 During the global financial crisis, 2007-2008, governments in the developed countries embarked on massive bailouts to their banking sectors in order to ensure financial stability. An important lesson from these experiences is that regulatory authorities must always be adequately resourced and prepared to deal with troubled banking institutions.

APPENDICES

APPENDIX 1 : OPERATIONS AND ACTIVITIES

FUNCTION OF BLSS

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 Licensing, Supervision and Surveillance Division (BLSS)

2. In a bid to fulfill its mandate to foster and maintain financial stability, BLSS is organized into six (6) departments, aided by a Legal Counsel function. 3. The operational departments of the division are illustrated below.

Director/Bank Licensing, Supervsion & Surveillance

Chief Legal Advisor

Chief Bank Examiner Chief Bank Examiner Chief Bank Examiner Chief Bank Examiner Chief Bank Examiner\ Chief Bank Examiner Licensing &Supervision Problem Bank Bank Licensing and Financial Modelling and Policy Research, Asset Management of Microfinance Resolution and Market Supervision of Banks Basel II Implementation Compliance and MIS Companies Institutions Stabilisation

APPENDIX 2: MAJOR SUPERVISORY TOOLS & 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 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 BLSS

10. BLSS’ 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 BLSS 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; 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, BLSS 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 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.

APPENDIX 3: BANKING SECTOR OWNERSHIP STRUCTURE

Total Assets Total Assets Bank Category Name of Institution % of Total Assets (USD) (USD)

Standard Chartered Bank 387,777,680

Stanbic Bank 361,483,511 CABS 336,275,331 Foreign Owned Banks Barclays Bank 281,596,325 2,105,677,760 44.22% MBCA Bank 181,627,590 BancABC 378,118,583 Metropolitan Bank 107,471,677 Ecobank 71,327,063 CBZ Bank 993,399,771 Interfin Bank 212,931,453 FBC Bank 196,117,694 NMB Bank 168,198,365 Kingdom Bank 150,521,537 TN Bank 113,349,876 Local Private Owned CBZ Building Society 108,653,256 2,239,026,144 47.02% Banks Renaissance Merchant Bank 101,064,797 Tetrad Investment Bank 73,670,282 Trust Banking Corporation 39,424,860 FBC Building Society 32,845,162 ZB Building Society 32,768,503 Royal Bank 12,673,507 Genesis Investment Bank 3,407,080 ZB Bank 234,687,194 Agribank 99,868,960 Local Government Owned 416,960,892 8.76% POSB 64,987,856 ZABG 17,416,882

APPENDIX 4 - STATISTICAL TABLES

TABLE 1A COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS 2011 COMMERCIAL BANKS METROPOLIT ABC AGRIBANK BARCLAYS CBZ FBC IBC INTERFIN KINGDOM AN ASSETS USD USD USD USD USD USD USD USD USD

DOMESTIC NOTES AND COIN 9,701,350 2.57% 3,416,669 3.42% 34,051,513 12.09% 37,445,088 3.77% 12,306,923 6.28% 123,053 6.53% 956,375 0.45% 7,057,017 4.69% 5,171,791 4.81%

BALANCES WITH CENTRAL BANK 15,431,602 4.08% 2,302,925 2.31% 36,822,336 13.08% 107,766,664 10.85% 20,516,458 10.46% - 0.00% 1,468,034 0.69% 8,031,764 5.34% 20,156,274 18.75% BALANCES WITH DOMESTIC BANKING INSTITUTIONS 35,316,810 9.34% - 0.00% 9,371 0.00% 41,719,125 4.20% 120,299 0.06% - 0.00% 1,238,720 0.58% - 0.00% - 0.00%

ASSETS IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

BALANCES WITH FOREIGN INSTITUTIONS 691,005 0.18% 545,889 0.55% 87,045,146 30.91% 18,720,501 1.88% 13,816,691 7.05% - 0.00% - 0.00% 1,556,952 1.03% 1,818,811 1.69%

SECURITIES AND INVESTMENTS - 0.00% 1,730,015 1.73% 1,629,134 0.58% 5,050,000 0.51% 1,510,109 0.77% 26,227 1.39% 74,568,806 35.02% - 0.00% - 0.00% LOANS, ADVANCES, BANKERS ACCEPTANCES AND LEASES 278,143,623 73.56% 72,645,813 72.74% 60,562,536 21.51% 678,619,596 68.31% 113,284,437 57.76% 547,166 29.04% 78,468,627 36.85% 97,790,659 64.97% 55,882,519 52.00% FOREIGN CLAIMS (INCLUDING BILLS OF EXCHANGE) - 0.00% - 0.00% - 0.00% 31,855,724 3.21% - 0.00% - 0.00% - 0.00% 17,285,209 11.48% - 0.00%

REPOSSESSED PROPERTIES / ASSETS - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

FIXED ASSETS 30,248,914 8.00% 17,683,370 17.71% 36,140,534 12.83% 44,530,190 4.48% 15,339,901 7.82% 1,181,856 62.73% 9,509,074 4.47% 10,724,222 7.12% 21,124,208 19.66%

BSD - BS OTHER ASSETS 8,585,279 2.27% 1,544,279 1.55% 5,949,118 2.11% 19,244,532 1.94% 11,260,329 5.74% 5,625 0.30% 6,858,036 3.22% 8,075,713 5.37% 1,158,277 1.08%

TOTAL ON-BALANCE SHEET ASSETS 378,118,583 100.00% 99,868,960 100.00% 262,209,688 93.12% 984,951,420 99.15% 188,155,145 95.94% 1,883,927 100.00% 173,067,670 81.28% 150,521,537 100.00% 105,311,880 97.99%

OFF-BALANCE SHEET ITEMS - 0.00% - 0.00% 19,386,637 6.88% 8,448,351 0.85% 7,962,549 4.06% - 0.00% 39,863,783 18.72% - 0.00% 2,159,797 2.01%

TOTAL ASSETS 378,118,583 100.00% 99,868,960 100.00% 281,596,325 100.00% 993,399,771 100.00% 196,117,694 100.00% 1,883,927 100.00% 212,931,453 100.00% 150,521,537 100.00% 107,471,677 100.00%

EQUITY AND LIABILITIES

TOTAL DEPOSITS 321,031,840 27,855,160 211,945,751 654,836,537 79,144,667 298,013 96,040,626 104,277,629 73,542,565

DEMAND DEPOSITS 126,075,072 33.34% 21,015,567 21.04% 204,779,793 72.72% 481,739,910 48.49% 58,242,168 29.70% 298,013 15.82% 37,154,473 17.45% 17,397,049 11.56% 32,988,284 30.69%

SAVINGS DEPOSITS 1,769,625 0.47% - 0.00% 7,165,958 2.54% 13,189 0.00% - 0.00% - 0.00% - 0.00% 53,063,462 35.25% - 0.00%

TIME DEPOSITS/FIXED DEPOSITS 193,187,143 51.09% 6,839,593 6.85% - 0.00% 141,164,306 14.21% - 0.00% - 0.00% 58,886,152 27.65% 33,817,118 22.47% 40,554,281 37.73%

FOREIGN CURRENCY DEPOSITS - 0.00% - 0.00% - 0.00% 31,919,132 3.21% 3,598,796 1.84% - 0.00% - 0.00% - 0.00% - 0.00% NEGOTIABLE CERTIFICATES OF DEPOSIT - 0.00% - 0.00% - 0.00% - 0.00% 17,303,703 8.82% - 0.00% - 0.00% - 0.00% - 0.00% BALANCES WITH OTHER BANKING INSTITUTIONS - 0.00% 3,066,197 3.07% 17,105 0.01% 22,943,700 2.31% 52,481,259 26.76% - 0.00% 8,051,730 3.78% 4,977,397 3.31% - 0.00%

LIABILITIES IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

FOREIGN LIABILITIES 15,295,329 4.05% 30,791,652 30.83% 194,203 0.07% 75,000,000 7.55% 19,888,932 10.14% - 0.00% 31,959,620 15.01% 23,908,668 15.88% 5,000,000 4.65% SECURITIES AND OTHER FUNDING LIABILITIES - 0.00% - 0.00% - 0.00% 46,883,080 4.72% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

CAPITAL AND RESERVES 36,206,587 9.58% 17,903,763 17.93% 33,374,247 11.85% 80,467,362 8.10% 27,565,928 14.06% 871,153 46.24% 19,669,006 9.24% 13,285,713 8.83% 21,027,938 19.57%

OTHER LIABILITIES 5,584,828 1.48% 20,252,188 20.28% 16,678,382 5.92% 104,820,742 10.55% 9,074,357 4.63% 714,761 37.94% 17,346,688 8.15% 4,072,130 2.71% 5,741,377 5.34%

TOTAL ON-BALANCE LIABILITIES 378,118,583 100.00% 99,868,960 100.00% 262,209,688 93.12% 984,951,420 99.15% 188,155,145 95.94% 1,883,927 100.00% 173,067,670 81.28% 150,521,537 100.00% 105,311,880 97.99%

OFF-BALANCE SHEET ITEMS - LIABILITIES - 0.00% - 0.00% 19,386,637 6.88% 8,448,351 0.85% 7,962,549 4.06% - 0.00% 39,863,783 18.72% - 0.00% 2,159,797 2.01%

TOTAL EQUITY AND LIABILITIES 378,118,583 100.00% 99,868,960 100.00% 281,596,325 100.00% 993,399,771 100.00% 196,117,694 100.00% 1,883,927 100.00% 212,931,453 100.00% 150,521,537 100.00% 107,471,677 100.00%

APPENDIX 5 - STATISTICAL TABLES

TABLE 1B COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS 2011 COMMERCIAL BANKS TOTAL MBCA BANK NMB BANK ROYAL STANBIC STANCHART TN BANK TRUST ZABG ZB BANK (AVERAGE) ASSETS USD USD USD USD USD USD USD USD USD USD

DOMESTIC NOTES AND COIN 12,294,640 6.77% 9,601,301 5.71% 215,448 1.70% 32,537,572 9.00% 63,017,938 16.25% 4,110,038 3.63% 893,308 2.27% 741,469 4.26% 22,483,664 9.58% 256,125,157 6.50%

BALANCES WITH CENTRAL BANK 35,288,581 19.43% 15,487,004 9.21% 14,513 0.11% 45,212,391 12.51% 39,203,434 10.11% 1,356,540 1.20% 24,962 0.06% 3,546,740 20.36% 13,763,833 5.86% 366,394,055 9.30% BALANCES WITH DOMESTIC BANKING INSTITUTIONS 8,000,000 4.40% 6,780,009 4.03% 2,128 0.02% 115,606 0.03% 2,780 0.00% 55,889 0.05% - 0.00% 43,504 0.25% 8,816,138 3.76% 102,220,378 2.60%

ASSETS IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% 1,159,779 0.30% - 0.00% - 0.00% - 0.00% 12,376,923 5.27% 13,536,702 0.34% BALANCES WITH FOREIGN INSTITUTIONS 31,543,411 17.37% 5,581,125 3.32% 95,398 0.75% 99,028,227 27.39% 69,191,000 17.84% 372,777 0.33% 8,693 0.02% 39,898 0.23% 12,713,884 5.42% 342,769,409 8.70%

SECURITIES AND INVESTMENTS 358,475 0.20% 2,117,583 1.26% - 0.00% 54,319 0.02% 10,942,204 2.82% 2,314,274 2.04% - 0.00% 1,404,914 8.07% 2,732,114 1.16% 104,438,174 2.65% LOANS, ADVANCES, BANKERS 41.13 ACCEPTANCES AND LEASES 82,429,355 45.38% 117,263,542 69.72% 1,266,459 9.99% 152,664,892 42.23% 119,234,392 30.75% 76,633,708 67.61% 22,734,197 57.66% 5,909,604 33.93% 96,537,455 % 2,110,618,578 53.59% FOREIGN CLAIMS (INCLUDING BILLS OF EXCHANGE) 185,798 0.10% - 0.00% - 0.00% 5,385 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 1,607,050 0.68% 50,939,166 1.29%

REPOSSESSED PROPERTIES / ASSETS - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 14.89 FIXED ASSETS 3,536,537 1.95% 9,256,987 5.50% 10,571,578 83.41% 24,837,564 6.87% 22,781,633 5.87% 17,549,839 15.48% 11,031,623 27.98% 2,556,329 14.68% 34,948,296 % 323,552,655 8.22%

BSD - BS OTHER ASSETS 3,872,493 2.13% 2,110,814 1.25% 507,983 4.01% 3,018,756 0.84% 2,013,255 0.52% 10,956,812 9.67% 3,137,880 7.96% 822,934 4.72% 1,274,979 0.54% 90,397,093 2.30% 88.31 TOTAL ON-BALANCE SHEET ASSETS 177,509,290 97.73% 168,198,365 100.00% 12,673,507 100.00% 357,474,712 98.89% 327,546,415 84.47% 113,349,876 100.00% 37,830,662 95.96% 15,065,393 86.50% 207,254,336 % 3,760,991,366 95.49% 11.69 OFF-BALANCE SHEET ITEMS 4,118,300 2.27% - 0.00% - 0.00% 4,008,798 1.11% 60,231,265 15.53% - 0.00% 1,594,198 4.04% 2,351,489 13.50% 27,432,858 % 177,558,026 4.51% 100.0 TOTAL ASSETS 181,627,590 100.00% 168,198,365 100.00% 12,673,507 100.00% 361,483,511 100.00% 387,777,680 100.00% 113,349,876 100.00% 39,424,860 100.00% 17,416,882 100.00% 234,687,194 0% 3,938,549,393 100.00%

EQUITY AND LIABILITIES -

TOTAL DEPOSITS 104,648,062 106,239,746 4,174,836 309,872,893 252,186,319 76,351,807 23,694,321 14,029,329 141,546,990 2,601,717,091

DEMAND DEPOSITS 74,349,257 40.94% 63,086,091 37.51% 750,627 5.92% 305,462,643 84.50% 227,785,789 58.74% 42,104,073 37.15% 10,062,610 25.52% 12,054,292 69.21% 15,220,457 6.49% 1,730,566,169 43.94% 24.67 SAVINGS DEPOSITS 322,602 0.18% 3,004,795 1.79% 476,827 3.76% 1,089,525 0.30% 15,811,166 4.08% 3,073,643 2.71% 2,528,071 6.41% - 0.00% 57,906,971 % 146,225,833 3.71% 29.15 TIME DEPOSITS/FIXED DEPOSITS 29,976,203 16.50% 8,910,353 5.30% 2,947,383 23.26% 3,320,725 0.92% 153,946 0.04% 31,174,090 27.50% 11,103,640 28.16% 1,578,071 9.06% 68,419,562 % 632,032,567 16.05%

FOREIGN CURRENCY DEPOSITS - 0.00% - 0.00% - 0.00% - 0.00% 7,793,069 2.01% - 0.00% - 0.00% 396,966 2.28% - 0.00% 43,707,962 1.11% NEGOTIABLE CERTIFICATES OF DEPOSIT - 0.00% 31,238,507 18.57% - 0.00% - 0.00% 642,349 0.17% - 0.00% - 0.00% - 0.00% - 0.00% 49,184,559 1.25% BALANCES WITH OTHER BANKING INSTITUTIONS 2,974,933 1.64% 13,670,000 8.13% - 0.00% 0 0.00% - 0.00% 5,956,174 5.25% - 0.00% 2,942,208 16.89% 15,526,507 6.62% 132,607,211 3.37%

LIABILITIES IN TRANSIT - 0.00% - 0.00% - 0.00% 160,010 0.04% - 0.00% - 0.00% - 0.00% - 0.00% 1,310,790 0.56% 1,470,801 0.04%

FOREIGN LIABILITIES 36,688,726 20.20% 18,980,883 11.28% - 0.00% 3,927,321 1.09% 1,056,212 0.27% 2,794,727 2.47% 3,231 0.01% - 0.00% 1,701,352 0.72% 267,190,856 6.78% SECURITIES AND OTHER FUNDING LIABILITIES - 0.00% - 0.00% 914,390 7.21% - 0.00% 42,959 0.01% - 0.00% - 0.00% - 0.00% 3,555,832 1.52% 51,396,261 1.30%

(10,331,10 13.83 CAPITAL AND RESERVES 19,720,776 10.86% 20,561,807 12.22% 4,274,228 33.73% 32,204,216 8.91% 53,204,639 13.72% 15,412,125 13.60% 12,980,693 32.93% 1) -59.32% 32,460,092 % 430,859,171 10.94%

OTHER LIABILITIES 13,476,794 7.42% 8,745,929 5.20% 3,310,052 26.12% 11,310,273 3.13% 21,056,286 5.43% 12,835,044 11.32% 1,152,417 2.92% 8,424,957 48.37% 11,152,772 4.75% 275,749,976 7.00% 88.31 TOTAL ON-BALANCE LIABILITIES 177,509,291 97.73% 168,198,365 100.00% 12,673,506 100.00% 357,474,712 98.89% 327,546,415 84.47% 113,349,877 100.00% 37,830,662 95.96% 15,065,393 86.50% 207,254,336 % 3,760,991,367 95.49% OFF-BALANCE SHEET ITEMS - 11.69 LIABILITIES 4,118,300 2.27% - 0.00% - 0.00% 4,008,798 1.11% 60,231,265 15.53% - 0.00% 1,594,198 4.04% 2,351,489 13.50% 27,432,858 % 177,558,026 4.51% 100.0 TOTAL EQUITY AND LIABILITIES 181,627,591 100.00% 168,198,365 100.00% 12,673,506 100.00% 361,483,511 100.00% 387,777,680 100.00% 113,349,877 100.00% 39,424,860 100.00% 17,416,882 100.00% 234,687,194 0% 3,938,549,393 100.00%

APPENDIX 6 - STATISTICAL TABLES

TABLE 1C COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS 2011

MERCHANT BANKS TOTAL GENESIS PREMIER RENAISSANCE TETRAD (AVERAGE) ASSETS USD USD USD USD USD

DOMESTIC NOTES AND COIN 4,308 0.13% 1,599,057 2.24% 359,604 0.36% 715,447 0.97% 2,678,417 1.07%

BALANCES WITH CENTRAL BANK 205,395 6.03% 7,309,616 10.25% 3,816,829 3.78% 538,926 0.73% 11,870,766 4.76%

BALANCES WITH DOMESTIC BANKING INSTITUTIONS 1,812 0.05% 887,706 1.24% 65,402 0.06% 11,952,307 16.22% 12,907,227 5.17%

ASSETS IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

BALANCES WITH FOREIGN INSTITUTIONS 1,358 0.04% (48,413) -0.07% 14,462,987 14.31% 155,286 0.21% 14,571,218 5.84%

SECURITIES AND INVESTMENTS - 0.00% 11,873,225 16.65% 5,704,144 5.64% - 0.00% 17,577,368 7.05% LOANS, ADVANCES, BANKERS ACCEPTANCES AND LEASES 1,955,819 57.40% 28,586,859 40.08% 44,786,577 44.31% 36,851,189 50.02% 112,180,444 44.97%

FOREIGN CLAIMS (INCLUDING BILLS OF EXCHANGE) - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

REPOSSESSED PROPERTIES / ASSETS - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

FIXED ASSETS 581,105 17.06% 4,159,742 5.83% 2,802,439 2.77% 11,834,600 16.06% 19,377,886 7.77%

BSD - BS OTHER ASSETS 657,283 19.29% 3,932,819 5.51% 1,688,052 1.67% 8,831,129 11.99% 15,109,281 6.06%

TOTAL ON-BALANCE SHEET ASSETS 3,407,080 100.00% 58,300,612 81.74% 73,686,034 72.91% 70,878,883 96.21% 206,272,608 82.68%

OFF-BALANCE SHEET ITEMS - 0.00% 13,026,451 18.26% 27,378,763 27.09% 2,791,399 3.79% 43,196,614 17.32%

TOTAL ASSETS 3,407,080 100.00% 71,327,063 100.00% 101,064,797 100.00% 73,670,282 100.00% 249,469,222 100.00%

EQUITY AND LIABILITIES

TOTAL DEPOSITS 1,647,675 33,861,897 31,013,176 53,389,166 119,911,915

DEMAND DEPOSITS - 0.00% 17,848,895 25.02% 12,161,219 12.03% 6,141,189 8.34% 36,151,303 14.49%

SAVINGS DEPOSITS 379,659 11.14% - 0.00% - 0.00% - 0.00% 379,659 0.15%

TIME DEPOSITS/FIXED DEPOSITS 1,268,016 37.22% 16,013,002 22.45% - 0.00% 47,247,978 64.13% 64,528,996 25.87%

FOREIGN CURRENCY DEPOSITS - 0.00% - 0.00% 18,851,957 18.65% - 0.00% 18,851,957 7.56%

NEGOTIABLE CERTIFICATES OF DEPOSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

BALANCES WITH OTHER BANKING INSTITUTIONS - 0.00% 4,563,212 6.40% 16,822,541 16.65% - 0.00% 21,385,753 8.57%

LIABILITIES IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

FOREIGN LIABILITIES - 0.00% - 0.00% 12,571,429 12.44% - 0.00% 12,571,429 5.04%

SECURITIES AND OTHER FUNDING LIABILITIES - 0.00% 2,200,000 3.08% - 0.00% - 0.00% 2,200,000 0.88%

CAPITAL AND RESERVES (2,139,622) -62.80% 9,986,191 14.00% (18,624,588) -18.43% 13,613,878 18.48% 2,835,860 1.14%

OTHER LIABILITIES 3,899,026 114.44% 7,689,311 10.78% 31,903,477 31.57% 3,875,839 5.26% 47,367,653 18.99%

TOTAL ON-BALANCE LIABILITIES 3,407,080 100.00% 58,300,612 81.74% 73,686,034 72.91% 70,878,883 96.21% 206,272,609 82.68%

OFF-BALANCE SHEET ITEMS - LIABILITIES - 0.00% 13,026,451 18.26% 27,378,763 27.09% 2,791,399 3.79% 43,196,614 17.32%

TOTAL EQUITY AND LIABILITIES 3,407,080 100.00% 71,327,063 100.00% 101,064,797 100.00% 73,670,282 100.00% 249,469,222 100.00%

APPENDIX 7 - STATISTICAL TABLES

TABLE 1D COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS 2011 TOTAL GRAND TOTAL / BUILDING SOCIETIES CBZ BS CABS FBC BS ZB BS (AVERAGE) POSB AVERAGE ASSETS USD USD USD USD USD USD USD

DOMESTIC NOTES AND COIN 2,605,373 2.40% 12,827,490 3.81% 2.37% 2.62% 17,071,026 3.34% 4.85% 279,028,625 5.86% 779,769 858,394 3,154,027

BALANCES WITH CENTRAL BANK 203,552 0.19% 1,147,759 0.34% 0.13% - 0.00% 1,393,859 0.27% 5.95% 383,528,155 8.05% 42,548 3,869,475

BALANCES WITH DOMESTIC BANKING INSTITUTIONS 5,721,480 5.27% 3,198,714 0.95% 1.17% 7.32% 11,704,079 2.29% 2.42% 128,401,363 2.70% 385,892 2,397,993 1,569,679 ASSETS IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 13,536,702 0.28% BALANCES WITH FOREIGN INSTITUTIONS - 0.00% 189 0.00% - 0.00% - 0.00% 189 0.00% - 0.00% 357,340,816 7.50%

SECURITIES AND INVESTMENTS - 0.00% 51,315,640 15.26% 28.52% 30.45% 70,662,320 13.84% 16.02% 203,088,287 4.26% 9,368,022 9,978,658 10,410,426

LOANS, ADVANCES, BANKERS ACCEPTANCES AND LEASES 60,834,647 55.99% 195,576,510 58.16% 45.93% 41.28% 285,022,578 55.83% 61.20% 2,547,594,316 53.48% 15,084,997 13,526,424 39,772,716 FOREIGN CLAIMS (INCLUDING BILLS OF EXCHANGE) - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 50,939,166 1.07% REPOSSESSED PROPERTIES / ASSETS - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00%

FIXED ASSETS 33,273,237 30.62% 65,604,470 19.51% 11.29% 16.68% 108,052,540 21.16% 4.84% 454,129,962 9.53% 3,709,673 5,465,160 3,146,881

BSD - BS OTHER ASSETS 6,014,967 5.54% 6,604,560 1.96% 10.58% 1.65% 16,635,663 3.26% 4.72% 125,206,690 2.63% 3,474,262 541,873 3,064,654

TOTAL ON-BALANCE SHEET ASSETS 108,653,256 100.00% 336,275,331 100.00% 100.00% 100.00% 510,542,253 100.00% 100.00% 4,542,794,084 95.37% 32,845,162 32,768,503 64,987,856 OFF-BALANCE SHEET ITEMS - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 220,754,640 4.63%

TOTAL ASSETS 108,653,256 100.00% 336,275,331 100.00% 100.00% 100.00% 510,542,253 100.00% 100.00% 4,763,548,724 100.00% 32,845,162 32,768,503 64,987,856

EQUITY AND LIABILITIES

TOTAL DEPOSITS 27,842,840 223,029,510 274,358,909 3,047,803,163 11,216,939 12,269,620 51,815,249

DEMAND DEPOSITS 8,039,039 7.40% - 0.00% - 0.00% - 0.00% 8,039,039 1.57% 66.76% 1,818,142,861 38.17% 43,386,351

SAVINGS DEPOSITS 14,034,370 12.92% 90,425,049 26.89% 10.91% 16.28% 113,377,597 22.21% 1.01% 260,639,392 5.47% 3,581,873 5,336,305 656,303

TIME DEPOSITS/FIXED DEPOSITS 5,769,431 5.31% 132,604,461 39.43% - 0.00% 21.16% 145,307,207 28.46% 1.56% 842,884,981 17.69% 6,933,315 1,016,211 FOREIGN CURRENCY DEPOSITS - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 62,559,919 1.31%

NEGOTIABLE CERTIFICATES OF DEPOSIT - 0.00% - 0.00% 23.25% - 0.00% 7,635,066 1.50% 10.40% 63,576,009 1.33% 7,635,066 6,756,384 BALANCES WITH OTHER BANKING INSTITUTIONS - 0.00% 8,005,478 2.38% - 0.00% - 0.00% 8,005,478 1.57% - 0.00% 161,998,442 3.40% LIABILITIES IN TRANSIT - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 1,470,801 0.03%

FOREIGN LIABILITIES - 0.00% 20,000,000 5.95% 14.73% - 0.00% 24,837,193 4.86% - 0.00% 304,599,477 6.39% 4,837,193 SECURITIES AND OTHER FUNDING LIABILITIES - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% - 0.00% 53,596,261 1.13%

CAPITAL AND RESERVES 33,886,742 31.19% 60,863,052 18.10% 43.28% 44.78% 123,638,457 24.22% 17.06% 568,420,384 11.93% 14,216,095 14,672,568 11,086,897

OTHER LIABILITIES 46,923,674 43.19% 18,752,258 5.58% 7.84% 17.78% 74,077,183 14.51% 3.21% 399,280,522 8.38% 2,574,935 5,826,315 2,085,709

TOTAL ON-BALANCE LIABILITIES 108,653,255 100.00% 330,650,298 98.33% 100.00% 100.00% 504,917,219 98.90% 100.00% 4,537,169,050 95.25% 32,845,162 32,768,503 64,987,856 OFF-BALANCE SHEET ITEMS - LIABILITIES - 0.00% 5,625,033 1.67% - 0.00% - 0.00% 5,625,033 1.10% - 0.00% 226,379,673 4.75%

TOTAL EQUITY AND LIABILITIES 108,653,255 100.00% 336,275,331 100.00% 100.00% 100.00% 510,542,252 100.00% 100.00% 4,763,548,723 100.00% 32,845,162 32,768,503 64,987,856

APPENDIX 8 - STATISTICAL TABLES

TABLE 2A COMPOSITION OF THE STATEMENT OF COMPREHENSIVE INCOME 2011

ROYAL TRUST TOTAL Commercial Banks ABC Bank AGRIBANK BARCLAYS CBZ FBC IBC INTERFIN KINGDOM METROPOLITAN MBCA BANK NMB BANK STANBIC STANCHART TN Bank ZABG ZB BANK BANK BANK (AVERAGE)

42,504,858.69 9,806,666.00 7,055,881.00 103,935,938.61 25,768,397.30 105,041.28 27,791,568.46 27,022,860.82 13,089,947.00 10,772,781.80 20,121,944.68 92,579.63 25,888,887.51 14,720,442.61 15,795,935.20 5,327,002.69 1,059,910.29 25,377,092.62 376,237,736.19 Interest Income BSD-Interest Income from Loans 28,271,284.44 8,940,714.00 4,346,018.00 101,785,431.97 18,690,418.16 105,041.28 9,728,654.67 23,392,067.39 9,934,793.00 10,734,622.80 14,212,573.68 92,579.63 24,243,023.98 14,720,442.61 15,794,804.67 5,327,002.69 934,842.40 24,452,426.48 315,706,741.86 Advances and Leases ZW-Interest Income on Balnces with 5,578,445.40 865,952.00 2,709,863.00 1,338,075.05 145,773.59 .00 .00 50,792.03 .00 9,835.00 1,097,573.00 .00 739,196.85 .00 1,130.53 .00 8,199.95 924,666.14 13,469,502.54 Banking Institutions BSD-Interest Income On 8,655,128.85 .00 .00 812,431.59 6,932,205.55 .00 18,062,913.79 3,580,001.40 3,155,154.00 28,324.00 4,811,798.00 .00 906,666.67 .00 .00 .00 116,867.94 .00 47,061,491.79 Investments ans Securities

22,785,661.81 4,691,087.42 2,149,762.00 34,117,984.63 11,167,740.98 495.76 17,188,152.59 12,002,278.30 4,906,770.00 2,840,089.00 8,256,236.48 304,202.10 546,884.69 113,586.77 6,184,967.10 2,624,125.69 946,930.07 8,375,774.37 139,202,729.78 Interest Expense BSD-Interest Expense On 22,785,661.81 3,870,500.73 2,149,762.00 23,838,136.81 1,982,431.89 495.76 15,076,917.37 8,140,821.83 4,906,770.00 638,892.00 5,497,348.89 236,348.39 546,884.69 113,586.77 6,184,967.10 2,624,125.69 946,930.07 6,566,786.13 106,107,367.94 Deposit Accounts BSD-Interest Expense On .00 .00 .00 .00 .00 .00 .00 .00 .00 556,845.00 .00 .00 .00 .00 .00 .00 .00 .00 556,845.00 Central Bank Loans BSD-Interest On Local banks Loans - .00 .00 .00 2,452,407.45 4,562,622.06 .00 .00 .00 .00 .00 1,497,733.00 14,193.71 .00 .00 .00 .00 .00 1,305,655.16 9,832,611.38 Interbank Loans

BSD-Other Interest .00 820,586.69 .00 7,827,440.37 4,622,687.03 .00 2,111,235.22 3,861,456.48 .00 1,644,352.00 1,261,154.59 53,660.00 .00 .00 .00 .00 .00 503,333.08 22,705,905.46 Expenses

19,719,196.88 5,115,578.58 4,906,119.00 69,817,953.98 14,600,656.32 104,545.52 10,603,415.87 15,020,582.52 8,183,177.00 7,932,692.80 11,865,708.20 -211,622.48 25,342,002.81 14,606,855.84 9,610,968.10 2,702,877.00 112,980.22 17,001,318.25 237,035,006.42 Net Interest Income

Total Provisions For 3,709,715.18 371,215.00 410,283.00 10,391,725.66 3,290,631.12 .00 4,532,494.43 4,764,055.09 293,152.19 -219,036.00 2,363,712.00 27,745.35 4,242,767.37 1,523,649.82 2,137,024.92 .00 761,292.47 2,649,117.89 41,249,545.49 Current Period

BSD-Specific 3,709,715.18 .00 4,728.00 2,209,402.86 1,414,971.38 .00 .00 5,642,379.20 23,891.17 639,647.00 252,763.00 .00 3,659,449.14 245,142.00 2,391,634.62 .00 68,196.67 2,494,244.30 22,756,164.52 Provisions

BSD-General .00 371,215.00 405,555.00 8,182,322.80 1,875,659.74 .00 4,532,494.43 -878,324.11 269,261.02 -858,683.00 2,110,949.00 27,745.35 583,318.23 1,278,507.82 -254,609.70 .00 693,095.79 154,873.59 18,493,380.98 Provisions

Net Interest after 16,009,481.70 4,744,363.58 4,495,836.00 59,426,228.32 11,310,025.20 104,545.52 6,070,921.44 10,256,527.42 7,890,024.81 8,151,728.80 9,501,996.20 -239,367.83 21,099,235.44 13,083,206.02 7,473,943.18 2,702,877.00 -648,312.25 14,352,200.36 195,785,460.93 Provisions

Non - Interest 16,912,859.25 14,868,622.00 34,735,275.00 35,144,116.05 17,678,391.07 665,902.84 7,652,558.97 18,803,209.01 7,170,287.00 10,666,234.00 13,263,995.67 337,793.09 31,005,842.09 50,867,294.82 4,693,008.52 2,618,987.66 5,819,217.09 24,344,336.72 297,247,930.86 Income

BSD-Foreign 3,877,179.29 .00 2,991,406.00 2,442,869.64 1,016,384.73 .00 .00 2,773,836.12 .00 2,343,463.00 30,584.00 .00 19,207,472.95 37,555,685.92 362,532.43 .00 .00 765,896.34 73,367,310.42 Exchange

BSD-Fees and 11,802,695.78 13,962,562.00 23,491,835.00 21,330,038.02 16,662,006.34 128,130.98 7,653,796.29 15,599,330.06 6,927,531.00 8,322,771.00 11,930,246.67 337,793.09 11,798,369.15 6,995,534.97 4,456,680.96 2,499,702.09 6,245,722.07 22,077,609.21 192,222,354.68 Commission

BSD-Other Non 1,232,984.18 906,060.00 8,252,034.00 11,371,208.39 .00 537,771.86 -1,237.32 430,042.83 242,756.00 .00 1,303,165.00 .00 .00 6,316,073.93 -126,204.87 119,285.57 -426,504.98 1,500,831.17 31,658,265.76 Interest Income

Non - Interest 21,991,936.38 19,128,868.00 36,741,203.00 58,449,911.94 22,590,847.85 377,774.62 17,273,024.03 28,124,518.70 11,772,008.00 14,899,805.80 17,228,972.00 4,656,420.91 37,188,053.90 35,732,550.44 10,618,411.72 9,721,643.75 10,535,970.45 30,141,038.57 387,172,960.05 Expenses

BSD-Salaries and 10,693,813.62 11,473,442.00 23,541,298.00 33,576,507.28 9,954,602.40 65,755.51 7,459,714.55 8,309,767.44 7,150,559.00 8,559,272.00 7,672,634.00 2,244,896.03 17,315,341.71 21,942,908.36 3,510,203.47 3,801,038.15 4,967,100.99 13,684,369.07 195,923,223.58 Employee Benefits

BSD-Occupancy - 1,699,721.70 1,767,254.00 2,460,146.00 .00 1,018,801.30 17,789.60 2,236,799.08 1,956,166.43 637,163.00 1,498,130.00 1,613,582.00 414,304.64 .00 5,280,905.73 611,935.66 1,417,441.74 1,806,577.79 2,665,382.92 27,102,101.59 Net of Rental

BSD-Other Non 9,598,401.06 5,888,172.00 10,739,759.00 24,873,404.66 11,617,444.15 294,229.51 7,576,510.40 17,858,584.83 3,984,286.00 4,842,403.80 7,942,756.00 1,997,220.24 19,872,712.19 8,508,736.35 6,496,272.59 4,503,163.86 3,762,291.67 13,791,286.58 164,147,634.88 Interest Expenses - - Net Non - Interest -5,079,077.13 -4,260,246.00 -2,005,928.00 -23,305,795.88 -4,912,456.78 288,128.22 -9,620,465.06 -9,321,309.69 -4,601,721.00 -4,233,571.80 -3,964,976.33 -6,182,211.80 15,134,744.38 -5,925,403.20 -4,716,753.36 -5,796,701.85 -89,925,029.19 Income 4,318,627.82 7,102,656.09 - - Income (Loss) 10,930,404.58 484,117.58 2,489,908.00 36,120,432.44 6,397,568.43 392,673.74 -3,549,543.62 935,217.73 3,288,303.81 3,918,157.00 5,537,019.87 14,917,023.64 28,217,950.40 1,548,539.98 -5,365,065.60 8,555,498.51 105,860,431.73 before Taxation 4,557,995.65 4,399,779.09

2,769,275.56 .00 683,484.00 8,356,765.72 1,647,373.87 23,544.00 -2,061,251.77 347,825.19 846,738.00 562,681.00 1,542,497.00 -570,148.00 5,639,948.58 7,004,392.40 83,748.00 -91,821.75 -93,550.73 3,350,010.64 30,041,511.72 BSD-Taxation - - Net Income / (Loss) 8,161,129.01 484,117.58 1,806,424.00 27,763,666.72 4,750,194.56 369,129.74 -1,488,291.85 587,392.54 2,441,565.81 3,355,476.00 3,994,522.87 9,277,075.06 21,213,558.00 1,464,791.98 -5,271,514.87 5,205,487.87 75,818,920.02 after Taxation 3,987,847.65 4,307,957.34

BSD-Extraordinary 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 0.00 66,998.50 0.00 0.00 66,998.50 Items - - 8,161,129.01 484,117.58 1,806,424.00 27,763,666.72 4,750,194.56 369,129.74 -1,488,291.85 587,392.54 2,441,565.81 3,355,476.00 3,994,522.87 9,277,075.06 21,213,558.00 1,464,791.98 -5,271,514.87 5,205,487.87 75,751,921.52 Net Income / (Loss) 3,987,847.65 4,374,955.84 ``

APPENDIX 9 - STATISTICAL TABLES - continued

TABLE 2B COMPOSITION OF THE STATEMENT OF COMPEHENSIVE INCOME 2011 Merchant Banks TOTAL GENESIS PREMIER RENAISSANCE TETRAD (AVERAGE) Interest Income 394,669.40 6,501,258.01 12,575,679.13 2,721,419.69 22,193,026.23 BSD-Interest Income from Loans Advances and Leases 385,920.30 5,500,610.32 12,251,154.20 2,721,419.69 20,859,104.51 ZW-Interest Income on Balances with Banking Institutions 8,749.10 661,811.63 .00 .00 670,560.73 BSD-Interest Income On Investments and Securities .00 338,836.06 324,524.93 .00 663,360.99 Interest Expense 234,573.80 3,850,581.00 4,612,795.19 1,590,056.85 10,288,006.84 BSD-Interest Expense On Deposit Accounts 234,573.80 3,812,456.15 4,612,795.19 1,590,056.85 10,249,881.99 BSD-Interest Expense On Central Bank Loans .00 .00 .00 .00 .00 BSD-Interest On Local banks Loans - Interbank Loans .00 38,124.85 .00 .00 38,124.85 BSD-Other Interest Expenses .00 .00 .00 .00 .00 Net Interest Income 160,095.60 2,650,677.01 7,962,883.94 1,131,362.84 11,905,019.39 Total Provisions For Current Period 434,598.95 2,467,847.60 16,780,732.93 -181,773.00 19,501,406.48 BSD-Specific Provisions .00 2,871,990.19 17,173,621.37 .00 20,045,611.56 BSD-General Provisions 434,598.95 -404,142.59 -392,888.44 -181,773.00 -544,205.08 Net Interest after Provisions -274,503.35 182,829.41 -8,817,848.99 1,313,135.84 -7,596,387.09 Non - Interest Income 282,437.10 2,541,690.00 1,610,254.10 1,233,773.65 5,668,154.85 BSD-Foreign Exchange .00 355,819.44 198,324.46 .00 554,143.90 BSD-Fees and Commission 24,105.86 2,185,870.56 1,519,888.71 1,233,773.65 4,963,638.78 BSD-Other Non Interest Income 258,331.24 .00 -107,959.07 .00 150,372.17 Non - Interest Expenses 2,538,504.42 8,419,580.18 10,596,982.46 1,631,454.06 23,186,521.12 BSD-Salaries and Employee Benefits 1,006,136.09 3,740,781.00 3,843,310.22 539,096.61 9,129,323.92 BSD-Occupancy - Net of Rental 417,651.18 1,022,348.66 859,548.17 82,355.88 2,381,903.89 BSD-Other Non Interest Expenses 1,114,717.15 3,656,450.52 5,894,124.07 1,010,001.57 11,675,293.31 Net Non - Interest Income -2,256,067.32 -5,877,890.18 -8,986,728.36 -397,680.41 -17,518,366.27 Income (Loss) before Taxation -2,530,570.67 -5,695,060.77 -17,804,577.35 915,455.43 -25,114,753.36 BSD-Taxation .00 -837,487.00 .00 .00 -837,487.00 Net Income / (Loss) after Taxation -2,530,570.67 -4,857,573.77 -17,804,577.35 915,455.43 -24,277,266.36 BSD-Extraordinary Items 0.00 0.00 0.00 0.00 .00 Net Income / (Loss) -2,530,570.67 -4,857,573.77 -17,804,577.35 915,455.43 -24,277,266.36

APPENDIX 10 - STATISTICAL TABLES TABLE 2C COMPOSITION OF THE STATEMENT OF COMPREHENSIVE INCOME 2011 GRAND TOTAL Building Societies CBZ BS CABS FBC BS ZB BS TOTAL (AVERAGE) POSB (AVERAGE)

Interest Income 6,654,478.21 33,138,816.00 3,368,207.00 1,838,165.52 44,999,666.73 8,122,572.30 451,553,001.46 BSD-Interest Income from Loans Advances and 6,634,733.93 24,840,333.00 2,109,881.00 1,214,427.10 34,799,375.03 6,125,752.47 377,490,973.88 Leases ZW-Interest Income on Balnces with Banking 19,744.28 .00 .00 21,945.59 41,689.87 .00 14,181,753.14 Institutions BSD-Interest Income On .00 8,298,483.00 1,258,326.00 601,792.83 10,158,601.83 1,996,819.83 59,880,274.44 Investments ans Securities

Interest Expense 1,488,309.57 14,117,652.00 1,097,629.58 384,381.24 17,087,972.39 2,274,808.17 168,853,517.17 BSD-Interest Expense On 216,272.42 13,198,588.00 908,771.58 384,381.24 14,708,013.24 2,274,808.17 133,340,071.33 Deposit Accounts BSD-Interest Expense On .00 .00 .00 .00 .00 .00 556,845.00 Central Bank Loans BSD-Interest On Local banks Loans - Interbank 1,272,037.15 .00 .00 .00 1,272,037.15 .00 11,142,773.38 Loans BSD-Other Interest .00 919,064.00 188,858.00 .00 1,107,922.00 .00 23,813,827.46 Expenses

Net Interest Income 5,166,168.64 19,021,164.00 2,270,577.42 1,453,784.28 27,911,694.35 5,847,764.13 282,699,484.29 Total Provisions For 741,112.27 2,189,436.61 257,828.00 .00 3,188,376.88 669,480.74 64,608,809.59 Current Period

BSD-Specific Provisions 319,631.34 1,858,309.61 257,828.00 .00 2,435,768.95 457,732.92 45,695,277.95

BSD-General Provisions 421,480.93 331,127.00 .00 .00 752,607.93 211,747.82 18,913,531.65 Net Interest after 4,425,056.37 16,831,727.39 2,012,749.42 1,453,784.28 24,723,317.47 5,178,283.39 218,090,674.70 Provisions

Non - Interest Income 9,173,771.69 25,684,590.00 5,350,711.04 5,580,927.34 45,790,000.07 15,339,345.12 364,045,430.90

BSD-Foreign Exchange 27,018.95 .00 .00 .00 27,018.95 -176,730.46 73,771,742.81 BSD-Fees and 7,135,703.97 21,113,470.00 3,615,241.04 5,181,856.79 37,046,271.80 15,505,482.58 249,737,747.84 Commission BSD-Other Non Interest 2,011,048.78 4,571,120.00 1,735,470.00 399,070.55 8,716,709.33 10,592.99 40,535,940.25 Income

Non - Interest Expenses 6,021,935.96 25,063,120.00 4,461,955.62 4,449,821.30 39,996,832.88 16,461,137.21 466,817,451.25 BSD-Salaries and 1,175,134.03 9,853,611.00 2,618,153.00 1,993,791.20 15,640,689.23 7,066,598.27 227,759,834.99 Employee Benefits BSD-Occupancy - Net of .00 -346,969.00 232,502.00 -106,935.88 -221,402.88 960,945.01 30,223,547.61 Rental BSD-Other Non Interest 4,846,801.93 15,556,478.00 1,611,300.62 2,562,965.98 24,577,546.53 8,433,593.93 208,834,068.65 Expenses Net Non - Interest 3,151,835.73 621,470.00 888,755.42 1,131,106.04 5,793,167.19 -1,121,792.09 -102,772,020.35 Income Income (Loss) before 7,576,892.10 17,453,197.39 2,901,504.85 2,584,890.32 30,516,484.66 4,056,491.31 115,318,654.35 Taxation

BSD-Taxation 40,753.53 .00 .00 .00 40,753.53 .00 29,244,778.25 Net Income / (Loss) after 7,536,138.57 17,453,197.39 2,901,504.85 2,584,890.32 30,475,731.13 4,056,491.31 86,073,876.10 Taxation

BSD-Extraordinary Items 0.00 0.00 0.00 0.00 .00 0.00 66,998.50

Net Income / (Loss) 7,536,138.57 17,453,197.39 2,901,504.85 2,584,890.32 30,475,731.13 4,056,491.31 86,006,877.60

APPENDIX 11 - STATISTICAL TABLES

TABLE 2D COMPOSITION OF THE STATEMENT OF FINANCIAL POSITIONS 2011

Commercial Building Merchant Discount GRAND TOTAL / Banks Societies Banks House Savings Bank AVERAGE

ASSETS USD USD USD USD USD USD

DOMESTIC NOTES AND COIN 161,389,545.07 8.70% 7,044,257.10 4.51% 6,743,075.02 4.76% .00 0.00% 1,108,470.55 4.49% 176,285,347.74 8.06%

BALANCES WITH CENTRAL BANK 214,250,338.43 11.55% 6,583,950.16 4.21% 516,018.34 0.36% 8,047,034.25 90.82% 55,530.44 0.22% 229,452,871.62 10.50%

BALANCES WITH DOMESTIC BANKING INSTITUTIONS 13,586,168.37 0.73% 1,668,561.69 1.07% 4,588,071.06 3.24% 1,167.45 0.01% 809.00 0.00% 19,844,777.57 0.91%

ASSETS IN TRANSIT .00 0.00% 539,687.72 0.35% .00 0.00% .00 0.00% .00 0.00% 539,687.72 0.02%

BALANCES WITH FOREIGN INSTITUTIONS 411,789,258.99 22.21% 2,346,157.70 1.50% .00 0.00% .00 0.00% .00 0.00% 414,135,416.69 18.95%

SECURITIES AND INVESTMENTS 22,447,616.71 1.21% 21,670,630.55 13.86% 13,358,779.08 9.43% 11.90 0.00% 12,077,335.13 48.91% 69,554,373.36 3.18%

LOANS, ADVANCES, BANKERS ACCEPTANCES AND LEASES 566,441,608.70 30.55% 68,526,929.20 43.84% 28,006,636.82 19.78% .00 0.00% 6,003,533.91 24.31% 668,978,708.63 30.61%

FOREIGN CLAIMS (INCLUDING BILLS OF EXCHANGE) 17,136,074.92 0.92% .00 0.00% .00 0.00% .00 0.00% .00 0.00% 17,136,074.92 0.78%

REPOSSESSED PROPERTIES / ASSETS .00 0.00% .00 0.00% .00 0.00% .00 0.00% .00 0.00% .00 0.00%

FIXED ASSETS 226,273,676.19 12.20% 28,344,139.63 18.13% 83,547,528.18 59.00% 812,491.13 9.17% 3,582,629.66 14.51% 342,560,464.79 15.67%

BSD - BS OTHER ASSETS 23,727,634.90 1.28% 8,112,076.22 5.19% 4,835,831.74 3.42% .00 0.00% 1,866,417.98 7.56% 38,541,960.84 1.76% 100.00 TOTAL ON-BALANCE SHEET ASSETS 1,657,041,922.29 89.36% 144,836,389.96 92.66% 141,595,940.24 100.00% 8,860,704.73 % 24,694,726.67 100.00% 1,977,029,683.89 90.45%

OFF-BALANCE SHEET ITEMS 197,329,791.30 10.64% 11,475,044.87 7.34% .00 0.00% .00 0.00% .00 0.00% 208,804,836.17 9.55% 100.00 TOTAL ASSETS 1,854,371,713.59 100.00% 156,311,434.83 100.00% 141,595,940.24 100.00% 8,860,704.73 % 24,694,726.67 100.00% 2,185,834,520.05 100.00%

EQUITY AND LIABILITIES

TOTAL DEPOSITS 1,224,437,668.00 70,552,496.15 45,238,479.95 .00 18,452,941.65 1,358,681,585.74

DEMAND DEPOSITS 684,615,599.15 36.92% 8,257,807.96 5.28% 1,658.79 0.00% .00 0.00% 13,702,214.61 55.49% 706,577,280.51 32.33%

SAVINGS DEPOSITS 342,245,119.58 18.46% 73.00 0.00% 31,197,002.87 22.03% .00 0.00% .00 0.00% 373,442,195.45 17.08%

TIME DEPOSITS/FIXED DEPOSITS 99,204,596.80 5.35% 54,191,828.52 34.67% 13,528,227.96 9.55% .00 0.00% .00 0.00% 166,924,653.29 7.64%

FOREIGN CURRENCY DEPOSITS 77,925,592.53 4.20% 8,102,786.66 5.18% .00 0.00% .00 0.00% .00 0.00% 86,028,379.19 3.94%

NEGOTIABLE CERTIFICATES OF DEPOSIT 20,446,759.95 1.10% .00 0.00% 511,591.06 0.36% .00 0.00% 4,750,727.04 19.24% 25,709,078.04 1.18%

BALANCES WITH OTHER BANKING INSTITUTIONS 12,426,142.50 0.67% 7,669,721.44 4.91% .00 0.00% .00 0.00% .00 0.00% 20,095,863.94 0.92%

LIABILITIES IN TRANSIT 2,330,829.90 0.13% 6,188.71 0.00% .00 0.00% .00 0.00% .00 0.00% 2,337,018.61 0.11%

FOREIGN LIABILITIES 51,620,439.57 2.78% 12,274,291.08 7.85% .00 0.00% .00 0.00% .00 0.00% 63,894,730.65 2.92%

SECURITIES AND OTHER FUNDING LIABILITIES 500,859.10 0.03% 36,649.57 0.02% 2,756,003.00 1.95% 288,120.03 3.25% 250,000.00 1.01% 3,831,631.71 0.18%

CAPITAL AND RESERVES 238,960,804.28 12.89% 45,217,338.78 28.93% 87,943,712.70 62.11% 8,193,042.25 92.46% 4,253,204.52 17.22% 384,568,102.53 17.59%

OTHER LIABILITIES 126,765,179.23 6.84% 9,079,704.71 5.81% 5,637,680.16 3.98% 379,542.44 4.28% 1,738,580.11 7.04% 143,600,686.66 6.57% 100.00 TOTAL ON-BALANCE LIABILITIES 1,657,041,922.59 89.36% 144,836,390.44 92.66% 141,575,876.54 99.99% 8,860,704.73 % 24,694,726.28 100.00% 1,977,009,620.57 90.45%

OFF-BALANCE SHEET ITEMS - LIABILITIES 197,329,791.70 10.64% 11,475,044.87 7.34% 20,064.00 0.01% .00 0.00% .00 0.00% 208,824,900.57 9.55% 100.00 TOTAL EQUITY AND LIABILITIES 1,854,371,714.29 100.00% 156,311,435.31 100.00% 141,595,940.54 100.00% 8,860,704.73 % 24,694,726.28 100.00% 2,185,834,521.14 100.00%

APPENDIX 12 - LIST OF REGISTERED AND OPERATING INSTITUTIONS

COMMERCIAL BANKS Total Assets: $USD Banking Institution Address 2009 2010 2011

1 Endevour Crescent, Mt. Pleasant Business Park, ABC Corp 59,708,939.68 249,754,344.44 378,118,583.10 Harare

15th Floor, Hurudza House, 14 - 16 Nelson Mandela AGRIBANK 36,577,495.94 62,696,008.85 99,868,959.98 Avenue Harare

BARCLAYS Corner 1st Street/Jason Moyo Avenue Harare 187,167,003.00 231,654,428.00 281,596,325.36

CBZ Union House, 60 Kwame Nkuruma Avenue Harare 547,181,119.47 767,392,904.31 969,515,549.61

CFX* 14,771,579.14 - - FBC FBC Centre, Nelson Mandela Avenue Harare 147,817,515.72 185,694,588 196,117,694.28 IBC Zimbank House, Cnr. 1st Street/Speke Avenue, Harare 294,990.55 960,361.79 1,883,927.09

INTERFIN Block 4, Tendeseka Park, Samora Machel Avenue 41,164,450.42 175,076,490.07 212,931,453.34

12th Floor, Karigamombe Centre, 53 Samora Machel KINGDOM 88,992,285.41 150,953,080.17 150,521,536.73 Avenue

MBCA Old Mutual Centre, 3rd Street/Jason Moyo Harare 97,610,868.09 163,813,381.18 181,627,589.83

METROPOLITAN Metropolitan House, 3 Central Avenue 31,584,410.94 65,502,106.76 107,471,677.48

1st Floor, Unity Court, Kwame Nkurumah Avenue NMB BANK 40,959,294.26 105,356,197.00 168,198,364.65 Harare

COMMERCIAL BANKS Total Assets: $USD Banking Institution Address 2009 2010 2011

ROYAL** 8th Floor, Takura House, 67 Kwame Nkurumah Avenue - - 12,673,506.58

STANBIC Stanbic Centre, Samora Machel Avenue Harare 202,912,171.43 344,752,834.80 361,483,510.72

2nd Floor, Old Mutual Centre, Cnr. 3rd Street/Jason STANCHART 276,762,523.89 412,003,510.81 387,777,679.52 Moyo Avenue Harare

TN BANK 6th Floor, 101 Kwame Nkrumah Avenue Harare 22,131,735.78 49,351,006.37 113,349,876.30

TRUST** Trust Towers 56-60 Samora Machel Avenue Harare - - 39,424,860.45

8th Floor, ZB Life Towers, 77 Jason Moyo Avenue ZABG 21,391,313.95 16,670,604.24 17,416,881.86 Harare

ZB Bank Zimbank House, Cnr. 1st Street/Speke Avenue, Harare 78,508,466.34 155,029,277.92 234,687,194.10

Merchant Banks

GENESIS 2nd Floor, Corner House, Samora Machel Avenue 13,601,343.64 4,962,018.04 3,407,079.59

NDH* 5th Floor, MIPF House, 5 Central Avenue, Harare 2,530,330.29 - - Sam Levy's Office Park, Block A, Peirs Road, PREMIER 30,933,277.58 53,136,450.14 71,327,062.91 Borrowdale

RENAISSANCE Renaissance Park, Borrowdale Road 45,701,111.72 115,033,385.67 101,064,796.95

1st Floor, Building No. 5, Arundel Office Park Mt. TETRAD 22,380,921.18 48,111,631.64 73,670,282.36 Pleasant Harare

Building Societies Total Assets: $USD Banking Address 2009 2010 2011 Institution

CBZ BS Beverley Place, Selous Avenue Harare 32,843,061.39 56,779,696.91 108,653,255.96

CABS Northridge Park, Northend Close Borrowdale Harare 85,976,157.55 181,576,230.00 336,275,331.48

FBC BUILDING 5th Floor, FBC Centre Nelson Mandela Avenue Harare 9,227,396.53 20,564,062.31 32,845,162.43 SOCIETY

ZB BUILDING 6th Floor, Finsure House Cnr. Kwame Nkrumah/Sam 13,549,321.77 21,263,650.59 32,768,503.32 SOCIETY Nujoma Harare

Discount House Banking Address Institution DCZ* 70 Park Lane, Harare 8,860,703.73 - - Savings Banks Banking Address Institution 6th Floor, Causeway Building Cnr. Third Street/Central POSB 24,694,726.67 48,649,738.22 64,987,856.04 Avenue Harare * Institution closed ** Not yet operational