NBS Bank Limited IPO Prospectus PDF

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007
A copy of this prospectus has been delivered to the Registrar of Companies and the Reserve Bank of Malawi for registration. The Registrar of Companies and the Reserve Bank of Malawi have not checked and will not check the accuracy of any statements and they accept no responsibility therefore or for the financial soundness of NBS Bank Limited or the value of the securities offered. The Registrar of Companies and the Reserve Bank of Malawi registered this prospectus on 28 May 2007.
NBS Bank Limited (NBS) (Company registration number - 6614) Sale of a portion of the Government of Malawis shareholding in NBS, being 12% of the share capital of NBS, totalling 48,000,000 Ordinary Shares at MWK 2.60 per share payable in full on application (the Disposal); Offer for subscription of an additional 93,333,000 Ordinary Shares at MWK 2.60 per share payable in full on application (the New Subscription); Collectively known as the Offer; and The subsequent listing of NBS on the MSE.
This document is a prospectus inviting the public to subscribe for shares in NBS under the terms subscribed herein. If you are in doubt as to the meaning of the contents of this prospectus or as to what action to take, please consult your bank manager, stockbroker, lawyer, accountant or other professional advisers immediately. If you wish to apply for shares in terms of the offer for sale, complete the procedures for application and payment set out on page 116 of this document The application to list NBS Bank Limited (NBS) on 25 June 2007 has been submitted to the Malawi Stock Exchange Limited and permission has been given to list the Ordinary share capital of NBS, under the abbreviation NBS, comprising in aggregate 493,333,000 Ordinary shares of nominal value MWK 0.50 each. The application list will open for three weeks at 8:00 AM on Monday, 28 May 2007 and close at 3:00 PM on Friday, 15 June 2007. Admission to the Official List of the MSE is expected to become effective on Monday, 25 June 2007. All monies paid in respect of any application accepted will be returned if the Listing does not become effective. The Ordinary shares to be sold in the Offer will carry the right to participate in all future dividends to be declared and paid on the Ordinary share capital of the Company. The shares rank pari passu in all respects with NBSs Ordinary share capital and each share carries one vote in general meetings of shareholders. Applicants should first read and pay particular attention to the Terms and Conditions of Application for shares in Annexure 9, and then complete the enclosed Application Form, making sure it is returned on or before the Closing Date together with the appropriate remittance to any branch of the receiving banks as listed in Annexure 8 on page 109.

The directors of NBS, whose names are given on page 13 of this prospectus, collectively and individually, accept full responsibility for the accuracy of the information contained herein, and have taken all reasonable care to ensure that the facts stated and the opinions expressed are true and accurate in all material respects, and that there are no other material facts the omission of which would make any statement herein, whether of fact or opinion misleading. KPMG, Public Accountants, registered as public accountants with the Society of Accountants in Malawi and the Malawi Accountants Board, whose report and opinion on the profit forecast is included in this prospectus, have given and have not, prior to registration of this prospectus, withdrawn their written consent to the inclusion of their report and opinion in the form and context in which it appears. Lead Advisers
Imara Botswana Limited Auditors and Independent Reporting Accountants Sponsoring Brokers Legal Advisors
Sacranie Gow & Co Underwriters Transfer Secretaries Receiving Banks
Trust Finance Limited
Public Relations Consultants
Date of issue: 28 May 2007
CORPORATE INFORMATION Registered Office of NBS NBS House, Cnr Chipembere Highway/Johnstone Road, PO Box 32251 Chichiri Blantyre 3, Tel No. (265) 01 876 222 Fax No. (265) 01 876 041 nbs@nbsmw.com Place of Incorporation: Malawi Date of Incorporation: 14 March 2003 Reporting Accountants and Auditors KPMG, MASM House, Lower Sclater Road, P.O. Box 508, Blantyre Tel No. (268 01 820 744 Fax No. (265) 820 575 kpmg@kpmgmw.com KPMG are registered practising public accountants with the Society of Accountants in Malawi and the Malawi Accountants Board Company Secretary Mr Martin Ndenya, Cnr Chipembere Highway/Johnstone Road, PO Box 32251 Chichiri Blantyre 3, Tel No. (265) 01 876 222 Fax No. (265) 01 876 041 mndenya@nbsmw.com Sponsoring Brokers Stockbrokers Malawi Limited Able House, Chilembwe Road P O Box 31180 Blantyre Tel. No. (265) 01 822 803 Fax No. (265) 01 621 978 sml@sml.sdnp.org.mw

Transfer Secretaries Trust Finance Limited Ground Floor Delamere House Victoria Avenue, PO Box 1396 Blantyre Tel. No (265) 01 823 245 Fax. No (265) 01 823 160 trust@trust.co.mw Legal Advisors Sacranie Gow & Company Legal Practioners Realty House, Churchill Road P.O Box 5133 Limbe Tel. No (265) 01 840 311/678/593 Fax. No (265) 01 840 750 sgow@malawi.net

Underwriters National Bank of Malawi 19 Victoria Avenue PO Box 945, Blantyre Malawi Tel. No (265) 01 820 622 Fax. No (265) 01 820 321 www.natbank.co.mw Stanbic Bank Limited Kaomba Centre PO Box 1111, Blantyre Malawi Tel. No (265) 01 820 144 Fax. No (265) 01 820 956 www.stanbicbank.co.mw Press Trust Floor 9, Kangombe House, Private Bag 359, Lilongwe 3, Malawi. Tel. No (265) 01 772 844 Fax. No (265) 01 771 692 presstrust@presstrustmw.com Public Relations Consultants Access Professionals Private Bag 127 Blantyre Malawi, Old Mutual Building, Ground Floor, Glyn Jones Road Cell No. (265) 9 916 998 Fax. No (265) 01 669 682 jeri@accessmalawi.com
BRANCH NETWORK
BRANCHES Blantyre Branch P.O Box 466 Blantyre Tel: +265 (0)1 824 266 Fax: +265 (0)1 822 716 Email: nbsblantyre@nbsmw.com Capital City Branch P.O Box 30350 Lilongwe 3 Tel: +265 (0)1 774 400 Fax: +265 (0)1 773 963 Email: capitalcity@nbsmw.com Ginnery Corner P.O Box 30645 Chichiri Blantyre 3 Tel: +265 (0)1 871 554 Fax: +265 (0)1 875 485 Email: nbsginco@nbsmw.com Karonga Branch P.O Box 399 Karonga Tel: +265 (0)1 362 549 Fax: +265 (0)1 362 521 Email: nbska@nbsmw.com Lilongwe Branch P.O Box 829 Lilongwe Tel: +265 (0)1 750 175 Fax: +265 (0)1 750 335 Email: nbsll@nbsmw.com Mangochi Branch P.O Box 298 Mangochi Tel: +265 (0)1 594 608 Fax: +265 (0)1 594 284 Email: nbsmh@n bsmw.com Haile Sellasie Branch P.O Box 466 Blantyre Tel: +265 (0)1 823 999 Fax: +265 (0)1 824 404 Email:nbsbc@nbsmw.com Kasungu Branch Private Bag 70 Kasungu Tel: +265 (0)1 253 797 Fax: +265 (0)1 253 230 Email: nbsku@nbsmw.com Limbe Branch P.O Box 51277 Limbe Tel: +265 (0)1 640 999 Fax: +265 (0)1 642 383 Email: nbslb@nbsmw.com Mchinji Branch P.O.Box 227 Mchinji Tel: + 265 (0) 1 242 464 Fax: + 265 (0) 1 242 464 Email: mailto:nbsmchinji@nbsmw.com
BRANCHES Mortgage Branch P.O. Box 32251 Chichiri Blantyre 3 Tel + 265 (0) 1 876 222 Fax + 265 (0) 1 875298 Email: mortgages@nbsmw.com Mzuzu Branch P.O Box 315 Mzuzu Tel: +265 (0)1 333 171 Fax: + 265 (0)1 334 036 Email: nbsmz@nbsmw.com Zomba Branch P.O Box 401 Zomba Tel:+265 (0)1 525 641 Fax: +265 (0)1 525 073 Email: nbsza@nbsmw.com AGENCIES Bunda College P.O.Box 829 Lilongwe Tel: + 265 (0) 1 277 307 Email: nbs@nbsmw.com Chichiri Mall Agency P.O.Box 32251 Blantyre 3 Tel: + 265 (0) 1 677 799 Fax: + 265 (0) 1 677 955 Email: nbschichiri@nbsmw.com Dwangwa Agency P.O. Box 98 Nkhotakota Tel/Fax: +265 (0)1 295 277 Email : nbsdwangwa@nbsmw.com Chancellor College P.O.Box 401 Zomba Tel: + 265 (0) 1 525 540 Email: nbs@nbsmw.com Chitipa Agency P.O.Box 33 Chitipa Tel: + 265 (0) 382 425 Fax: + 265 (0) 382 425 Email: nbschitipa@nbsmw.com Kanengo Agency P.O.Box 30350 Lilongwe 3 Tel: + 265 (0) 1 710 560 Email: nbskanengo@nbsmw.com Mulanje Branch P.O Box 325 Mulanje Tel: +265 (0)1 466 367 Fax: + 265 (0)1 466 286 Email: nbsmj@nbsmw.com Treasury Department P.O. Box 32251 Chichiri Blantyre 3 Tel + 265 (0) 1 876 222 Fax + 265 (0) 1 875298 Email: treasury@nbsmw.com
AGENCIES Liwonde Agency P.O. Box 137 Liwonde Tel: + 265 (0) 1 542 145 Fax: + 265 (0) 1 542 164 Email: nbsliwonde@nbsmw.com Nchalo Agency P.O.Box 466 Blantyre Tel: + 265 (0) 1 424 261 Fax: + 265 (0) 1 424 261 Email: nbsnchalo@nbsmw.com Rumphi Agency P.O.Box 137 Rumphi Tel: + 265 (0) 1 372 481 Email: nbsrumphi@nbsmw.com Mzimba Agency P.O.Box 46 Mzimba Tel: + 265 (0) 1 342 335 Fax: + 265 (0) 1 330 822 Email: nbsmzimba@nbsmw.com Nkhatabay Agency P.O.Box 29 Nkhatabay Tel: + 265 (0) 1 352 455 Fax: + 265 (0) 1 352 429 Email: nbsnkhatabay@nbsmw.com
TABLE OF CONTENTS
Inside front cover 6 9 10 11 13 13 15 17 26 32 34
CORPORATE INFORMATION BRANCH NETWORK TABLE OF CONTENTS SALIENT DATES AND TIMES DEFINITIONS PROSPECTUS 1.
3. 4 5 6 7
Introduction Salient features of the Offer NBS Directors, Senior Management and Employees Investment Considerations Statutory Disclosures DETAILS OF THE DIRECTORS DETAILS OF PRINCIPAL PROPERTIES AND LEASES REPORTING ACCOUNTANTS REPORT ON THE PRO FORMA CONSOLIDATED BALANCE SHEET AND PRO FORMA CONSOLIDATED INCOME STATEMENT REPORTING ACCOUNTANTS OPINION ON THE FORECAST REPORTING ACCOUNTANTS REPORT ON THE HISTORICAL FINANCIAL INFORMATION ON NBS EXTRACTS FROM ARTICLES OF ASSOCIATION TRUST DEED IN RESPECT OF THE NBS BANK EMPLOYEES SHARES OWNERSHIP PLAN RECEIVING BANKS TERMS AND CONDITIONS OF APPLICATION
Annexure 1 Annexure 2 Annexure 3 Annexure 4 Annexure 5 Annexure 6 Annexure 7 Annexure 8 Annexure 9
45 48 51 58 63 95 102 109 113
APPLICATION FORM
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SALIENT DATES AND TIMES Opening Date of the Offer Closing Date of the Offer - Latest time for the delivery of applications to Receiving Branches Allotment announcement Share certificates and refund cheques, if applicable, dispatched to Receiving Branches through which applications were submitted Listing of NBS on the Malawi Stock Exchange Monday Friday Friday 8:00am 3:00pm 28 May 2007 15 June 2007 22 June 2007
Monday
25 June 2007
Monday
25 June 2007
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DEFINITIONS Act Application Form Banking Act Bankers Cheque/Draft Board Closing Date Company or NBS or Bank Directors Disposal The Companies Act (Cap 46:03) Laws of Malawi The application form for shares enclosed with this Prospectus The Banking Act (Cap 44:01) Laws of Malawi A cheque/draft issued by a licensed commercial bank The members of the board of NBS Friday, 15 June 2007, being the last day for receipt of applications for Shares NBS Bank Limited Being those persons listed in on page 13 of this document. The sale by the GoM, through the Privatisation Commission, of 12% of the share capital of NBS, totalling 48,000,000 Ordinary shares of nominal value MWK 0.50 each at an offer price of MWK 2.60 each. The Government of Malawi Imara Botswana Limited Initial public offer for subscription of NBS Ordinary shares Admission of the shares to the Official List of the MSE Malawi Kwacha the official currency of the Republic of Malawi Malawi Stock Exchange Limited NBS Bank Limited The invitation by NBS to the public to subscribe for a new issue of 93,333,000 Ordinary shares of nominal value MWK 0.50 each at an offer price of MWK 2.60 each. NICO Holdings Limited, the holding company of NBS, incorporated under the Act, an insurance and financial services holding company (NICO House, 3 Stewart Street, Blantyre, Malawi) MWK 2.60 per share
GoM or the Government Imara IPO Listing MWK MSE NBS or the Bank New Subscription
NICO
Offer Price
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Offer The offer for subscription to the general public of a total of 141,333,000 Ordinary shares of nominal value MWK 0.50 each at an Offer Price of MWK 2.60 each, the subject of this Prospectus Monday 28 May 2007, being the first day of acceptance of application for shares Ordinary shares, having a nominal value of MWK 0.50 each, in the share capital of NBS, the subject of this Offer Price earnings ratio This Prospectus dated 28 May 2007 Reserve Bank of Malawi KPMG Malawi, registered public accountants and business advisors Stockbrokers Malawi Stockbrokers Malawi Limited, member of the MSE Official currency of the United States of America Official currency of the Republic of South Africa
Opening date Ordinary shares or Shares
PER Prospectus RBM Reporting Accountants SML Sponsoring Broker USD ZAR
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(Incorporated in the Malawi) (Company registration number - 6614) Share code: ISIN number: (NBS)
Directors of NBS
Mr Felix Lafael Mlusu (Chairman) Mr Vizenge Matumika Kumwenda Mrs Estelle Nuka Mrs Janet Banda Mrs Audrey Mwala Mr Geoffrey Macdonald Wawanya Mr Randson Philimon Mwadiwa Mr Joe Swankie
PROSPECTUS 1. Introduction Phase 1 of the privatisation of NBS was completed in February 2001, through the sale of Lonrho Properties shares and 25% of the issued share capital of NBS held by The Government of Malawi (GoM) in satisfaction of NICO Holdings Ltds (NICO) pre-emptive rights. In the same year a potion of GoMs shareholding (10%) was transferred to the National Investment Trust Ltd (NITL), an investment vehicle established to warehouse a portfolio of investments in public enterprises for the benefit of Malawians. Original shareholding of NBS Shareholder GoM NICO Holdings Ltd Lonrho Properties Total
% of shares in issuer 51.0 24.5 24.5 100.0
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Following the transfer of shares to NICO and NITL in 2001, the shareholding structure of NBS is now as follows: Shareholding following restructure Shareholder NICO Holdings Ltd GoM The National Investment Trust Ltd Total
% of shares in issuer 74.0 16.0 10.0 100.0
The Government of Malawi, through its privatisation arm The Privatisation Commission (PC), has now elected to implement Phase 2 of the privatisation of NBS. 1.1. Conversion to public company NBS was previously a private company, and converted to a public company by special resolution at an extraordinary meeting held on 8 May 2007. 2. Phase 2 of the Privatisation of NBS The Malawi Government, through The Privatisation Commission, as sole agent of the Malawi Government responsible for the implementation of the privatisation program of the Malawi Government, plans to dispose of its remaining shareholding in NBS constituting Phase 2 of the privatisation process. 2.1. Initial Public Offer (IPO) 2.1.1. Disposal Shares A total of 12% of the Banks share capital, or 48,000,000 Ordinary Shares, out of the GoMs 16% shareholding, will be disposed of through an offer to the public at a price of MWK 2.60 per share payable in full on application (the Disposal), followed immediately by a listing of NBS on the Malawi Stock Exchange (MSE). The remaining 4% will be disposed to NBS employees through an Employee Share Ownership Plan (ESOP). New Subscription The Board of NBS has elected to offer to the public an additional 93,333,000 Ordinary Shares at a price of MWK 2.60 per share payable in full on application (the New Subscription) in order to raise additional capital for the Bank of approximately MWK 242.7m.
2.1.2.
2.2. Employee Share Option Plan (ESOP) It is the intention of the GoM to set aside some shares representing 4% of the Banks current share capital, out of the GoMs 16% shareholding, to be allocated to an ESOP. The intention of the GoM is that the employees of the Bank will have an opportunity to participate in the ownership of the Bank, subject to the trust deed and rules of the ESOP, extracts of which are included in Annexure 7 on page 102 of this document.
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3. Salient features of the Offer 3.1. Offer statistics Ordinary shares in issue before the Offer: Number Nominal value (at MWK 0.50 each) Ordinary shares to be disposed of by GoM: Number Nominal value (at MWK 0.50 each) Disposal price per share Gross value of the Disposal Share capital subject to the Disposal Ordinary shares in issue after the Disposal: Number Nominal value (at MWK 0.50 each) Market capitalisation at the Offer price Ordinary shares to be issued in the New Subscription: Number Nominal value (at MWK 0.50 each) Share premium, at 210 tambala per share New Subscription price per share Gross value of the New Subscription Share capital subject to the New Subscription Ordinary shares in issue after the New Subscription: Number Nominal value (at MWK 0.50 each) Market capitalisation at the Offer price At the IPO price: Historical PER Fully diluted forward PER Historical proforma price to book ratio Forward proforma price to book ratio
MWK
400,000,000 200,000,000 48,000,000 24,000,000 2.60 124,800,000 12.0 400,000,000 200,000,000 1,040,000,000 93,333,000 46,666,500 195,999,300 2.60 242,665,800 18.9 493,333,000 246,666,500 1,282,665,800
MWK MWK %
MWK MWK
MWK MWK MWK %
MWK MWK
times times times times
7.06 4.92 1.08 1.08
In terms of Article 7 of the Banks Articles, the new shares will rank pari passu in every respect with the existing shares. 3.2. Objective of the listing The offer and listing on the MSE will immediately increase the Banks productive capital base by approximately MWK 242.7m, which will be deployed in expanding its core banking operations. A broader shareholder base, including staff participation is expected to enhance NBSs image. Additional advantages of the listing are expected to include improved access to lines of credit and greater ability to attract deposits and extend loans and advances.
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NBS will continue to be alert to commercial opportunities (in Malawi and regionally) to diversify its income base and is cognisant of the advantages that may be provided by reputation and finance options resulting from a listing on MSE. 3.3. Application of proceeds The gross proceeds from the sale of the new shares of MWK 242.7m will accrue to the Bank. The net proceeds of approximately MWK 220.0, after expenses, will be applied as follows: Application Branch refurbishment IT Infrastructure Working Capital Total MWKm 32.0 50.0 138.0 220.0
3.4. Authorisations The following resolutions were passed at the General Meeting of the Bank, duly convened and held on Tuesday 8 May 2007 The authorised share capital of the company be and is hereby increased to MWK350,000,000 (Three Hundred and Fifty Million Kwacha) by the creation of an additional 100,000,000 (One Hundred Million) ordinary shares of MWK1.00 (One Kwacha) each ranking pari passu with the existing shares in the capital of the company. The authorised share capital of MWK350,000,000 (Three Hundred and Fifty Million Kwacha) which is divided into 350,000,000 (Three Hundred and Fifty Million) ordinary shares of MWK1.00 ( One Kwacha) each in the companys share capital be sub-divided into 700,000,000 (Seven Hundred Million) ordinary shares of MWK0.50( Fifty Tambala) each. The company be and is hereby converted into a public company. The companys existing memorandum of association and articles of association shall cease to apply to it with effect from the date of this resolution and the company adopts in substitution new memorandum of association and articles of association in the form of the draft attached to this resolution and initialled by the Company Secretary. The directors are authorised to dispose of 93,333,000 (Ninety Three Million Three Hundred and Thirty Three Thousand) unissued shares of MWK0.50 (Fifty Tambala) each by way of an offer to the public and are also authorised to apply for the company to list its shares on the MSE. The shareholders have noted that GoM intends, through the PC, as the sole agent of GoM responsible for the implementation of the privatisation policies of GoM, to dispose of 48,000,000 (Forty Eight Million) ordinary shares of MWK0.50 (Fifty Tambala) each, representing 12% of its shareholding in the company by offer to the general public, upon the listing of the company on the MSE and to transfer 16,000,000 (Sixteen Million) ordinary shares of MWK0.50 (Fifty Tambala) each representing 4% of the GoMs shareholding in the company to the ESOP in terms
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of the Trust Deed circulated to the shareholders and initialled by the Company Secretary is hereby approved. The shareholders waive all pre-emption rights in respect of the 93,333,000 (Ninety Three Million Three Hundred and Thirty Three Thousand) unissued shares of MWK0.50 (Fifty Kwacha) each and the 64,000,000 (Sixty Four Million) GoM ordinary shares of MWK0.50 (Fifty Kwacha) each to be disposed of to the public and to be transferred to the trustees of the ESOP. The shareholders approve the establishment of the ESOP and the Trust Deed and the loan agreement. The directors and the Company Secretary (where required) are authorised to do all such things and take such other or further steps as any as shall be necessary to effectively and fully implement the provisions of this resolution."
3.5. Allotment policy The allotment of shares will be subject to the discretion of the Board which has, as its primary objective, the achievement of a broad and balances shareholder base including employees and customers. In the event of an over subscription of the Offer shares the Board may, at its sole discretion, prefer the Banks customers and Malawi citizens in the allotment process with regard to the Offer shares. The Sponsoring Broker has indicated they will apply for 700,000 shares worth MWK 1.8m and Trust Securities Limited have indicated they will apply for 500,000 shares worth MWK 1.3m. In order to promote liquidity in the immediate post offering period the Board has agreed to preferentially allot these shares. 4. NBS 4.1. Corporate Profile and business description 4.1.1. History and background NBS was incorporated as a Limited Liability Company on 14th March 2003 and registered under the Banking Act on 1st March 2004. It started its commercial banking operations on 1st July 2004, when the New Building Society was dissolved. The Banks predecessor institution, The New Building Society, was formed following the amalgamation of Central African Building Society, Commonwealth Century Building Society and First Building Society. It got incorporated under the Building Societies Act on 7th February 1964. Since then the Society continued to operate under this Act and raised funds from the public and advanced them by way of mortgage loans against the security of land and buildings. It operated almost monopolistically in mortgages until the liberalisation of the financial markets in Malawi opened the mortgage business to financial institutions registered under the Banking Act. The Society however, could not offer products traditionally marketed by banks. It therefore became increasingly more difficult for the Society to compete fairly and satisfy the expectations of its customers. A decision was consequently made to convert the building society into a commercial bank.
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4.1.2. Corporate philosophy The overriding corporate philosophy of NBS is to add value to stakeholders by offering an innovative range of banking products and services through efficient business processes and empowered and caring staff. Restrictions on business of NBS The business that the Bank is permitted to carry out is subject to the Banking Act, unrestricted. Information technology Information technology underpins all business activities for the Bank. NBS is always focusing on improving its information systems and processes in order to maximise operational efficiency that translates into customer satisfaction. The Banks philosophy is that A satisfied client will promote our products and services to others. NBS runs on a robust banking application, Globus, from TEMENOS which has grown to a market leading position, with Globus software installed in over 500 banks worldwide, in more than 600 client sites, operating in over 100 countries. In Africa alone, Globus is running in more than 22 countries. The Globus system is so flexible such that the Bank has been able to tailor its products to meet the clients expectations. The Globus system is real time and all the Banks operations are centralised. All the Banks outlets are connected through a wide area network and are online. On each site is an EazyBank brand of ATM which is a product of Germany Wincor Nixdorf. These ATMs have made a name in many countries such that many banks have replaced other brands of ATMs for the Wincor machine. The Banks EazyBank facility is multilingual with English and two popular local languages, Chichewa and Tumbuka, making them more user-friendly to the rural masses and the first of their kind in Malawi. NBS is able to provide other non-traditional banking services through the EazyBank ATMs. Such innovation is proof of how the Bank values technology as a tool to provide satisfactory services to its customers. NBS will continue to invest in technology bearing in mind that strategic business thrust is supported by ground-breaking application of technology. 4.1.5. Customers The Banks customer base covers all sectors of the economy and the bulk of the customers are in the middle to lower social economic bracket especially amongst savings accounts customers, which constitute a significant proportion of the Banks clients. However, for up-market products like home loans and current accounts, the customer social-economic profile is middle to up market. Products NBS offers a full range of commercial banking services, including current and savings accounts, fixed and call deposits, overdrafts, bill discounting, import and export financing, foreign exchange and money transfer. In addition, NBS also offers its customers investment, asset management and corporate finance advisory services.
4.1.3.
4.1.4.
4.1.6.
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4.1.7. Market position Following economic and financial sector liberalisation, the Malawi banking sector has become highly competitive with a number of licensed commercial banks offering financial services to the market. This competition takes place in a small and highly concentrated economy and a number of banks enjoy natural competitive advantage with a captive market through being subsidiaries of multinational banks or large Malawi conglomerates. Despite the challenging operating environment NBS has continued to enjoy and grow with the wide branch network covering all regions in the country. Growth strategy The Banks growth strategy continues to be centred on its customers values. However, the core differentiator for the Bank is its service delivery vehicle as depicted by the Banks value proposition Your Caring Bank. Through the provision of superior services and products, the Bank has created a wide branch network in the country. With this network it has endeavoured to differentiate its product offering through, for example, segmenting products and targeting specific product variants to specific customer groups. 4.1.9. Prospects The Bank registered a net profit before tax of K299 million up by 109% during the year ended 31st December 2006, despite major challenges in foreign currency shortages, squeezed margins and a relative high cost of running business. Prospect for 2007 are bright though major challenges will remain to manage interest margins with likely reduction in interest rates and continued shortages of foreign exchange 4.1.10. Corporate responsibility The Bank remains sensitive to the needs of the society, especially in the Banks main operating areas. NBS is committed to a wide range of social investment programmes. The Banks support of AIDS awareness campaigns is high on the corporate social responsibility list, as are the areas of education and sport. 4.2. NBSs Shareholders The table below discloses the current shareholding structure of NBS and that after the Offer. No. of shares before the Offer % No. of shares after the Offer and implementation of the ESOP 296,000,000 40,000,000 16,000,000 141,333,000 %
4.1.8.
NICO Holdings Ltd GoM The National Investment Trust Ltd ESOP Public Shareholders Total
296,000,000 64,000,000 40,000,000 400,000,000

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74% 16% 10% 0% 0% 100%
60.0% 0% 8.1% 3.2% 28.7%
493,333,000 100%

4.3. Corporate Governance 4.3.1. Overview of the board of directors NBS is committed to good corporate governance and is fully devoted to the principles of accountability, integrity and transparency. The Directors are committed to ensuring that the Bank complies with the major principles of modern corporate governance as contained in the Code of Best Practice for Corporate Governance in Malawi. A profile of the Board members is set out in Annexure 1 on page 45 of this document. NBSs Board meets at least 4 times a year. Adequate and efficient communication and monitoring systems are in place to ensure that Directors receive all relevant, accurate information to guide them in making necessary strategic decisions, and providing effective leadership, control and strategic direction over the banks operations, and in ensuring that the bank fully complies with relevant legal, ethical and regulatory requirements. 4.3.2. Board composition NBS has a Board consisting of eight directors all of whom are non-executive directors. This set up ensures the highest possible standard of corporate governance. A diagram of the board structure is included below:
4.3.3.
Board Procedures The Board remains in control of the company and monitors the implementation of agreed strategies by Executive Management practices and polices. The Board holds regular formal meetings and periodic strategic sessions. The Board annually reviews the performance of the Chief Executive Officer and Executive Management.
4.3.4.
Board Committees There are three permanent board committees, namely the Finance and Audit Committee, Appointments and Remuneration Committee and the Credit Committee. Additionally, there is also an informal business promotion committee which comprises branch managers, senior management and executive directors. This committee meets regularly, usually once a month, and reviews the Banks market position relative to its peers and sets operational strategy to maintain and grow market share.
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4.3.5. Finance and Audit Committee NBSs Audit Committee assists the Board in discharging its duties in relation to financial reporting, asset management, risk management, internal control systems, processes and procedures and monitors the quality of both the external and internal audit functions. NBSs external auditors and internal auditors report to the committee in independent, private meetings to discuss risk exposure areas. Where the committees monitoring and review activities reveal causes for concern or scope for improvement, it makes recommendations to the board on the required remedial actions. The Audit Committee comprises 3 directors, 1 of whom acts as chairman and the Banks Internal Audit Manager. The Committee meets at least 4 times a year. The members of the Audit Committee are: Mrs Estelle Nuka Chairperson Mrs Bernadette Nkhwazi Member Mr John Biziwick Chief Executive Officer Mr Gilford Kadzakumanja Deputy Chief Executive Officer Mr Martin Ndenya Finance & IT Executive/Company Secretary Mr Dumisani Chatima Head of Internal Audit One Director seat currently vacant 4.3.6. Appointments and Remuneration Committee The Appointments and Remuneration Committee nominates persons to be appointed directors (subject to shareholders approval) and recommends to the Board, director and senior management remuneration. The Committee also approves overall human resource and remuneration policies and strategies. The Appointments and Remuneration Committee meets twice a year and comprises the following members: Mrs Janet Banda Chairperson Mr Vizenge Matumika Member Kumwenda Mr John Biziwick Chief Executive Officer Mr Gilford Kadzakumanja Deputy Chief Executive Officer Mr Martin Ndenya Finance & IT Executive/Company Secretary One Director seat currently vacant 4.3.7. Credit Committee The Credit Committee comprises 3 non-executive directors with a good knowledge of the Malawi economy and business environment. Its overall responsibility is to ensure that soundness of NBSs credit portfolio (including advances, guarantees and other facilities). Specific responsibilities include: Ratification of terms and conditions of all facilities granted by management under its discretionary powers; Approval of all credit facilities above the discretionary limits set for management save for those facilities requiring full board approval in accordance with RBM prudential guidelines; and Review of non-performing facilities and recovery procedures initiated in respect thereof and establishment of appropriate levels of provisioning where required.
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The Chief Executive Officer, Deputy Chief Executive Officer, Company Secretary, Head of Credit, Mortgage Manager and Legal Officer attend all Credit Committees meetings in a non-voting capacity. The Credit Committee meets regularly usually once a month and comprises the following members: Mr Joe Swankie Chairman Mr Vizenge Matumika Member Kumwenda Mr Geoffrey Macdonald Member Wawanya Mrs Audrey Mwala Member Mr John Biziwick Chief Executive Officer Mr Gilford Kadzakumanja Deputy Chief Executive Officer Mr Martin Ndenya Finance & IT Executive/Company Secretary Mr Samson Kamkosi Head of Credit Mrs Aida Chilumpha Mortgage Manager Mrs Mercy Mulele Legal Officer 4.3.8. Integrity and Ethics The company is committed to maintaining the highest standard of integrity and ethics in all its external and internal dealings.
4.4. Financial Performance The information below should be read in conjunction with the historical financial information on NBS, contained in Annexure 4 to this document. 4.4.1. 4.4.2. Historical financial performance Total Assets
TOTAL ASSETS
12,000,000 10,000,000 8,000,000 M K'000 6,000,000 4,000,000 2,000,000 TOTAL ASSETS Jan-02 2,148,631 Jan-03 2,961,767 Jan-04 5,229,539 Dec-04 6,300,115 Dec-05 8,194,008 Dec-06 10,045,488
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4.4.2.1.
Total Loans and Advances
TOTAL LOANS AND ADVANCES

7,000,000 6,000,000 5,000,000 M K'000 4,000,000 3,000,000 2,000,000 1,000,000 LOANS AND ADVANCES Jan-02 621,817 Jan-03 715,333 Jan-04 804,315 Dec-04 1,355,773 Dec-05 4,214,727 Dec-06 5,754,229
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4.4.2.2.
Total Deposits
TOTAL DEPOSITS
9,000,000 8,000,000 7,000,000 6,000,000 M K '0 0 0 5,000,000 4,000,000 3,000,000 2,000,000 1,000,000 TOTAL DEP Jan-02 1,824,576 Jan-03 2,294,041 Jan-04 4,368,079 Dec-04 5,380,834 Dec-05 7,172,427 Dec-06 8,452,393
4.4.2.3.
Net Operating profit
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The graphs show the results of the Bank for a six-year period since before it converted from a building society to a bank. This is for illustrative purposes only, and in the table below we have included only the financial results of NBS from the date it was incorporated as a bank in 2004 from New Building Society, a two and a half year period. It was felt that full details of the Bank before that period may be misleading. The MSEs have approved this disclosure. For the financial year ended 31 December 2006 1,607,835 299,348 10,045,488 8,452,393 2005 1,179,301 143,143 8,194,008 7,172,427 2004 6 months 545,598 100,264 6,300,115 5,380,834
MWK 000s
Total Income Profit before tax for the year Total Assets Total Deposits 4.4.3.
Key operating financial and prudential ratios NBS has consistently met or exceeded all RBM prudential guidelines over the past two and a half years. The two and a half year analysis of operating ratios reflects the strong and disciplined approach management have adopted towards cost containment while maximising returns from NBSs asset base at the lowest reasonable risk exposure. 2006 2005 2004
Prudential ratios Capital Adequacy Ratio (minimum 10%): Tier 1 (minimum 6%) Tier 2 (minimum 8%) Liquidity ratio 1 (minimum 30%) Liquidity ratio 2 (minimum 20%) Operating ratios Cost to Income Ratio NPBT on Y/E Assets After tax return on Equity 4.4.4. 10% 12% 34% 34% 81% 3% 19% 20% 38% 30% 30% 82% 2% 22% 20% 33% 76% 76% 81% 3% 26%
Capital expenditure The Banks recent programme of construction and refurbishment of the head office and branch premises are nearing completion having enhanced NBSs modern and progressive business image. NBSs main capital expenditure focus over the next few years will be on the continual enhancement and upgrading of its information technology platform. For 2007, the Board have approved capital expenditure of MWK291 million of which the major elements comprise MWK175 million contracted for information technology, MWK35 million for replacement of branches motor vehicles, MWK49 million for various branches office equipment and furniture and fittings and MWK32 million for the construction of an agency in Mzimba.
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4.4.5. Dividend Policy The historical policy of the Bank has been to distribute 50% of the after tax profits by way of dividends. Dependent on the profitability and liquidity ratios and cash flows of the Bank in the future the Board intends to maintain this policy.
5. Directors, Senior Management and Employees 5.1. Profile of NBSs Directors NBS prides itself on individual and collective breadth of relevant experience of its board of directors and executive management. The Bank has unitary board comprising a NonExecutive Chairman and 7 Directors. The Board is fully committed to ensuring the Banks affairs are conducted with integrity and highest ethical standards. The following directors and secretary served during the year. Mr Felix Lafael Mlusu, 56, Chairman -Malawian Mr Mlusu is a Chartered Insurer and is Managing Director of NICO Holdings Ltd and has worked for NICO for over 30 years in different capacities. Mr Vizenge Matumika Kumwenda, 45, Director -Malawian Mr Kumwenda is a Fellow Certified and Chartered Accountants(UK) with a Masters in Finance from the University of Strathcylde, Glasgow, Scotland and a Bachelor of Accountancy graduate from The University of Malawi and is currently the Finance Director of NICO Holdings Ltd. He has over 22 years Finance and Accounting experience includes working in Senior Management positions for National Insurance Company Ltd, Continental Discount House, Malawi College of Accountancy and Malawi Institute of Management. Mrs Estelle Nuka , 41, Director -Malawian Mrs Nuka is a Fellow of the Association of Chartered Certified Accountants (UK), Certified Public Accountant (MW) and is a Bachelor of Accountancy graduate from The University of Malawi. She is the Finance Director of Malawi Revenue Authority and has over 18 years work experience in various companies in the field of Finance and Accountancy including Malawi Revenue Authority, National Seed Cotton Malawi, Population Services International, Womens World Banking Malawi and Price Waterhouse. Mrs Janet Banda, 37, Director -Malawian Mrs Banda has an LLM(International Legal Studies) from University of Georgia USA, an LLB(Hons) from The University of Malawi and a Certificate in Legislative Drafting from Royal Institute of Public Administration London. She is an Attorney with 14 years experience of legal work including litigation, prosecution, law reform, legislative drafting and conveyancing. She is the Chief Law Reform Officer in the Malawi Law Commission and has also worked for Ministry of Justice and the private sector. Mrs Audrey Mwala, 36, Director -Malawian Mrs Mwala is a member of Chartered Institute of Management Accountants (UK) and is a Bachelor of Accountancy graduate from The University of Malawi. She is a certified Public Private Partnership Specialist (PPP) from IP3 & WEDC, Loughborough University (USA) and has vast experience in financial and project management. She is a Portfolio Manager at The Privatisation Commission and has 13 years work experience in Accountancy, Project
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Management and Portfolio Management gained at Privatisation Commission and Action Aid Malawi. Mr Geoffrey Macdonald Wawanya, 57, Director -Malawian Mr Wawanya is a member of Chartered Institute of Housing (MCIH), Royal Institute of Chartered Surveyors (MRICS), Society of Valuers and Auctioners (ISVA) obtained from University of West England (UK), University of West Midlands (UK) and Institute of Housing Studies (HIS) Rotterdam, Holland and is a Bachelor of Economics graduate from The University of Malawi. He has vast experience in Property Valuation and Land Surveying acquired during his professional career at Malawi Housing Corporation and is currently with Landed Property Agents as the Managing Director and Sore Proprietor. Mr Randson Philimon Mwadiwa, 51, Director -Malawian Mr Mwadiwa has an MA in Public Administration and an MA in International Affairs both obtained from University of Ohio (USA) and is Bachelor of Arts graduate from the University of Malawi. He is Secretary to the Treasury at Ministry of Finance and has over 29 years experience in the Civil Service where he has assumed several senior positions as Budget Director, Comptroller of Statutory Corporations, Personal Secretary for Gender and Community Services, Commissioner for Disaster Preparedness and Secretary for Agriculture. Mr Joe Swankie, 62, Director -British Mr Swankie is a veteran Banker specialising in Credit Management with vast experience encompassing various countries including UK, Ghana, Botswana, Thailand, Malaysia, Hong Kong and Malawi. He retired from Standard Chartered Bank in June 1996 after 31 years of service, which included a secondment of several years to National Bank of Malawi Limited and a two and a half direct contract with National Bank of Malawi Limited to December 1998 as Head of Credit. Mr Martin Ndenya, 47, Company Secretary -Malawian Mr Ndenya is a Fellow of the Association of Chartered and Certified Accountants (UK), Certified Public Accountant (MW) and is a Bachelor of Commerce Accountancy graduate from The University of Malawi. Mr Ndenya is the Finance and IT Executive and also serves as the Company Secretary. Before joining the then New Building Society in 2003 as Head of Finance and Treasury/Company Secretary, he had worked for Malawi Savings Bank Ltd and NICO Corporate Finance in the same capacity and has over 21 years experience in Accountancy and Finance.
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5.2. Management and operational organogram
5.3. Profile of senior management The day-to-day management of the Bank has been designated by the Board to the executive management and a team of qualified and experienced management. NBSs senior management team members are listed below: Mr John Biziwick Mr Gilford Kadzakumanja Mr Martin Ndenya Mr Max Mlomba Mrs Evarista Chafulumira Mr Dumisani Chatima Mr Samson Kamkosi Mrs Lusekelo Kaoloka Chief Executive Officer Deputy Chief Executive Officer Finance & IT Executive Head of IT Head of Human Resources and Administration Head of Internal Audit & Inspection Head of Credit Treasury Manager
Mr John Biziwick, 49, Chief Executive Officer Mr Biziwick has an MSc in Economics from University of Strathclyde, Glasgow, Scotland and a BSc in Social Science majoring in Economics from The University of Malawi. Prior to joining NBS Bank he had worked for Reserve Bank of Malawi for 20 years. He joined the then New Building Society in 2000 and successfully converted the New Building Society into a commercial bank in 2004.
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Mr Gilford Kadzakumanja, 45, Deputy Chief Executive Officer Mr Kadzakumanja has a Masters in Arts majoring in Banking and Finance from University of Sheffield, UK and a Bachelor of Arts degree majoring in Public Administration obtained from The University of Malawi. He joined NBS Bank in 2004. He has over 22 years experience in the banking industry attained at Stanbic where he rose through the ranks up to AGM (Operations and Administration) after mastering Branch Operations, Corporate Services and Advances. Mr Martin Ndenya, 47, Finance and IT Executive Mr Ndenya is a Fellow of the Association of Chartered Certified Accountants (UK), Certified Public Accountant (MW) and is a Bachelor of Commerce Accountancy graduate from The University of Malawi. Mr Ndenya is the Finance and IT Executive and also serves as the Company Secretary. Before joining the then New Building Society in 2003 as Head of Finance and Treasury/Company Secretary, he had worked for Nico Corporate Finance Ltd, Malawi Savings Bank Ltd and Malawi Railways (1994) Ltd in the same capacity and has over 21 years experience in Accountancy and Finance. Mr Max Mlomba, 37, Head of Information Systems & Technology Mr Mlomba is a graduate in Social Science majoring in both Computer Science and Economics. He has over 10 years experience working in the banking environment with IT related products. He is the Head of Information Systems and Technology and prior to joining NBS Bank Ltd in 2001 he worked for Stanbic, Computer Software Development Ltd and U.S.A..I..D. Mrs Evarista Chafulumira, 51, Head of Human Resources and Administration Mrs Chafulumira joined the then New Building Society in 1984 and rose through the ranks in her field of Human Resources and Administration and now heads the Human Resources and Administration Department. She has a Masters Degree in Human Resources Management obtained from the Thames Valley University, UK, Diploma in Personnel Management (RSA) and Certificate in Education from Leeds University, UK. Mr Dumisani Chatima, 35, Head of Internal Audit and Inspection Mr Chatima is Chartered Certified Accountant and is a Bachelor of Accountancy graduate from The University of Malawi with over seven years experience covering audit, accounting and finance as well as accountancy-related consultancy obtained in Malawi, Zimbabwe and the United States of America whilst he was employed by Deloitte and Touche. He joined NBS Bank in 2004 as Head of Internal Audit and Inspection. Mr Samson Kamkosi, 39, Head of Credit Mr Kamkosi is a member of Chartered Institute of Bankers (CIB) SA and has a Bachelor of Social Science Degree majoring in Economics from The University of Malawi. He has worked in the Mortgage Department of the Bank for over 10 years and has recently taken up the position of Head of Credit. Before joining NBS Bank Ltd he worked for DEMATT, AON Malawi and Accountant Generals Department of the Ministry of Finance. Mrs Lusekelo Kaoloka, 31, Treasury Manager Mrs Kaoloka is a member of Chartered Institute of Bankers (CIB)SA and has a Bachelor of Science Degree majoring in Physics and Mathematics from The University of Malawi and also has an ACI Dealing Certificate. She has over 10 years Treasury experience and prior to joining NBS Bank Ltd she was employed by Stanbic.
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5.4. Staff profile The Bank currently has 422 employees operating from various locations as shown below:Branches Head Office Lilongwe Blantyre Capital City Limbe Kasungu Mzuzu Ginnery Corner Zomba Business Ctr/Haile Selassie Mangochi Mulanje Karonga Mchinji Total Branch & Head Office Staff No. of Staff 113 31 31 29 23 19 28 24 18 20 10 10 9 8 373 Agencies Dwangwa Liwonde Nchalo Mzimba Rumphi Chitipa Nkhata Bay Shoprite Kanengo No. of Staff 7 6 5 7 7 5 8 2 2
Total Agency Staff Total Branch & Head Office Staff Total NBS Staff
49 373 422
Due to the systematic approach to human resource planning; comprehensive HR policies and effective implementation of human resource strategies, the Bank continues to be an employer of choice. It is able to attract and retain talent from the labour market. As a result, the Bank has competent, loyal and committed members of staff and a strong management team. 5.5. Assets and Liabilities Committee (ALCO) The primary objective of the ALCO Committee is to ensure a proper balance in terms of maturity profile, cost and yield, risk exposure etc. between funds mobilised and funds deployed. The ALCO Committee seeks to manage risks in order to minimise the volatility of net interest income and protect the long-term economic value of NBS. The Committee also monitors the capital adequacy of the Bank, and reports directly to the Finance and Audit Committee. Key functions of the ALCO Committee include setting pricing guidelines for assets and liabilities, setting limits and managing liquidity risk and interest rate risk and ensuring contingency funding plans are in place to avert funding crises.
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The ALCO committee comprises executive management and meets regularly, usually once a month. The members of the ALCO committee are: Mr John Biziwick Mr Gilford Kadzakumanja Mr Martin Ndenya Mr Dumisani Chatima Mr Bernard Nkhoma Mr Chris Bulawayo Mrs Lusekelo Kaoloka Mr Samson Kamkosi Mrs Aida Chilumpha Chief Executive Officer Deputy Chief Executive Finance and IT Executive/Company Secretary Head of Internal Audit Management Accountant Financial Accountant Treasury Manager Head of Credit Mortgage Manager
5.6. Performance Related Remuneration 5.6.1. Rewards system The reward system of the Bank consists of integrated policies, processes and practices for rewarding staff in accordance with their contribution, skill and competence and their market worth. In this regard, it supports other key human resource management initiatives in the areas such as resourcing, development; performance management and employee relations. Main purpose of the reward policy is to achieve internal equity and external competitiveness. Through the Reward system, the Bank also develops an appropriate culture underpinned by core values in addition to increasing motivation and the commitment of employees. The Bank has recently adopted the balanced scorecard performance management system, as an additional tool to achieve the goals of the reward system. 5.6.2. Profit share All the staff of the Bank participate in a profit sharing scheme on an annual basis, whereby a total of 10% of the profits before tax are distributed through the scheme. The profit shares are distributed in two even tranches, one being paid in December, and the balance once the audit of the bank is complete.
5.7. Training and Staff Development The Banks Training and Development strategies are aligned to and driven by Corporate Objectives. The main areas of focus are technical knowledge development; management development and customer care. The Bank attaches great importance to the improvement of human resources and investing in the human capital. In this regard, the development of people is a top priority and training is a line management responsibility. Various methods are used to train and develop staff. These methods include on-the-job training; formal internal and external courses; attachments to other banks. The Bank also supports employees interested in improving their knowledge and qualifications by offering interest-free study loans, which are converted to grant upon successful completion of the programme.
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6. Investment Considerations 6.1. Risk factors and investment considerations Monetary Policy: Decline in interest rates on Government securities due to the relaxing policy and the issuance of longer dated Government paper. This has the effect of reducing interest income on Government securities as well as the prime-lending rate of NBS. Interest Rate Risk: Financial institutions are typically more exposed to downward trends in interest rates, as a decline in rates may result in reduced interest margins. However, in the event of a sharp increase in interest rates, NBSs funding costs are likely to increase and there can be no assurance that NBS will be able to increase its lending rates proportionately. Any of the foregoing could have a material effect on NBSs business. Funding and Liquidity Risk: The Bank relies on two principal sources of liquidity; deposits from customers and repayments of loans granted to customers. NBSs capacity to generate profits therefore depends largely upon sustaining and increasing its level of operations. There can be no assurance that its business, which is to a certain extent subject to general economic and financial factors, will generate enough revenues from operations to enable it to meet its growth plans or general obligations, nor that its existing financing arrangements will continue to render it more able to respond to changes in general economic conditions. In addition, NBS sources the majority of its deposits from short-term instruments while tending to lend on longer instruments. The resultant funding mismatch needs to be carefully managed. Credit Risk: NBSs cash flow is subject to risks from non-performance by its customers of their loan repayment obligations. Customers may default on their loan obligations to NBS due to bankruptcy, lack of liquidity, operational failure or other factors that are beyond NBSs control. The foregoing could materially impact NBSs operations. Operational Risk: NBS faces operational risk arising from errors in the processing of transactions, frauds related to unauthorised payments or disbursements and failure to properly record, account and evaluate transactions. No assurance can be given that such exposure will not result in losses and/or cause a disruption in NBSs business, resulting in reduction in net revenue. Staff Turnover Risk NBS faces the risk loss of losing key members of staff to other banks and building societies. Although the Bank makes every effort to ensure that all members of staff are remunerated ahead of the market average, people employed in the industry are known to move to competitors in the industry for reasons other than remuneration issues alone. Competition and Business Risk: The market for financial and banking services in Malawi has become increasingly competitive over the years. Competitors may seek to increase market share more aggressively, which could result in a material adverse effect on NBSs lending revenues, fees and commissions. In addition, NBSs business may be affected by varying general economic and external events beyond NBSs control. Unfavourable financial or economic conditions may impact negatively on NBSs operations, in particular the credit applications, the level of loan disbursements and the demand for financial services, which could decrease significantly as a result. The banks current trading position and future prospects are to a certain extent, dependent upon the overall political, social and economic situation in Malawi. Deterioration in any of those external factors may result in a material loss of revenue, which could affect NBSs overall operations.
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Regulatory Risk: RBM could impose new regulations or change existing requirements. Such changes may impact provisioning policies, liquidity and capital adequacy requirements. Foreign Exchange Risk: NBS is occasionally exposed to foreign exchange risk arising from transactions in foreign currency. The exchange rate between the Kwacha and various foreign currencies may go up or down resulting in either an exchange gain or loss. 6.2. Foreign portfolio investment guidelines The following is a summary of foreign portfolio investment guidelines which currently apply to foreign portfolio investment in companies listed on the MSE. A single foreign portfolio shareholder is not permitted to own in excess of 10 per cent of the total issued share capital of the listed company. Total aggregate foreign portfolio investment shall not exceed 49 per cent of the total issued share capital of the listed company. All purchases and sales of shares must be through an authorised stockbroker recognised by the MSE. Funds (which must be freely convertible into foreign exchange) relating to the purchase and/or sale of shares must be channelled through registered dealer banks (normal banking channels). No prior portfolio investment approval is required but adequate documentary evidence of initial purchase settlement in foreign exchange through the MSE must be presented to a registered dealer bank on remittance of sale proceeds or dividend income. Foreign portfolio investors are not permitted to borrow from any sources within Malawi for portfolio investment purposes. Foreign portfolio investment occurs where initial settlement through the normal banking channels is in a convertible currency other than Malawi Kwacha. Share certificates are subsequently endorsed foreign.
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7. Statutory Disclosures 7.1. Disclosures relating to the Offer 7.1.1. Underwriters and minimum subscription The Offer of 141,333,000 shares has been underwritten in full by the underwriters detailed in the table below, in return for an underwriting commission of 1.5%. At the date of the Prospectus the underwriters had no interest in the Bank. Name Address National Bank of Malawi Limited 19 Victoria Avenue, PO Box 945, Blantyre, Malawi 29 June 2000 Stanbic Bank Limited Kaomba Centre, PO Box 1111, Blantyre, Malawi 15 March 1969 (The bank was called Commercial Bank of Malawi Limited until 14 June 2003 when it changed its name to Stanbic Bank Limited) Alex Chitsime (Chairman) Philip Odera (Managing Director) Noah Naidoo Patrick Khembo Roderick Phiri Rosemary Mkandawire KPMG Stanbic Bank Limited/Reserve Bank of Malawi MWK200,000,000 divided into 200,000,000 ordinary shares of MWK1.00 each Press Trust Floor 9, Kangombe House, Private Bag 359, Lilongwe 3, Malawi. 15 February 1982
Date of Incorporation
Directors/Trustees
Dr. M.A.P. Chikaonda (Chairman) D.S.M Kambauwa P.P. Mulipa J.A. Regout A.G. Sesani E. Kambalame D. Mawindo G.B. Partridge A.C. Chithenga Deloitte National Bank of Malawi Limited MWK455,618,200 divided into 455,618,200 ordinary shares of MWK1.00 each.
Prof. Peter Mwanza (Chairman) Chris Barrow A. Ben Chidyaonga Tony Kandiero Dr. G.H. Kayambo Mrs Esther Chioko Hon Nancy G. Tembo, MP Deloitte INDEBank Limited N/A
Auditors Bankers Issued Share Capital
7.1.2.
Allotment policy The allotment of shares will be subject to the discretion of the Board that has as its primary objectives the achievement of a broad and balanced shareholder base including employee and NBS customer participation. In the event of an over subscription the Board will preferentially allot shares applied for by Malawian citizens and NBS
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customers in the allotment process. In addition, applications from stockbrokers as referred to in paragraph 3.5 may be subject to preferential allotment. 7.1.3. Employee Share Ownership Plan (ESOP) NBS acknowledges that increased employee motivation and the alignment of employees interests with those of shareholders are benefits associated with employee share ownership and NBS has implemented a scheme not only to achieve these objectives but also to reward NBS staff for loyal past service to the company and in order to promote future loyal service. The ESOP is open to all NBS employees who, as at 30 June 2007, have completed 2 years continuous employment with NBS and comprises the provision of subsidised loans by NBS to staff to enable the purchase of shares. The salient features of the Scheme are as follows: The maximum entitlement, in aggregate, under the preferential allotment is MK41.6m representing 16m shares, being 25.0% of the GoMs current shareholding in NBS and 3.2% of the issued share capital of NBS following the Offer. All employees who have completed 2 years continuous employment with NBS as at 30 June 2007 will qualify for participation in the ESOP. The maximum entitlement under the preferential allotment for a single employee is 0.25% of the share capital of NBS at any one time, which presently amounts to 500,000 shares. The subscription price for participants of the ESOP will be set at a discount of 20% to the Offer Price.
7.1.4.
Commissions paid No commissions, discounts or brokerages were paid for acquiring any shares in NBS within the three preceding years from the date of this Prospectus. Offer proceeds and expenses The expenses of the Offer and Listing are estimated at MWK 55.0m and include the following: Imara Professional Fees SML KPMG Sacranie Gow Access Professionals Trust Finance Other Fees MSE listing expenses Printing etc Total MWKm 30.0 4.5 4.0 4.5 2.5 2.0 3.0 4.5 55.0
7.1.5.
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The fees will be borne by NBS and PC, and will be partly paid out of the proceeds of the Offer. 7.1.6. Litigation NBS had a matter heard before the courts on 1 November 2006 regarding a claim against BP Malawi, who are currently renting a plot of land owned by the Bank on Ginnery Corner. NBS are wanting to turn the plot into customer parking, however BP Malawi have disputed the issue and are claiming compensation for loss of revenues totalling MWK 165.8m and an additional amount of MWK 27.5m for the development of a new site. The case has been referred back to the courts and is awaiting a hearing date. The Bank has stated that if the court finds in favour of BP Malawi, it is likely that NBS will elect to maintain the status quo and retain BP Malawi as a lessee at the site. Consents Imara Botswana Limited, KPMG, Sacranie Gow and Company, Stockbrokers Malawi Limited and Trust Finance Limited have given and have not withdrawn their respective consents to the issue of this Prospectus with the inclusion herein, where applicable, of their reports, the references to those reports, their names and the references to their names, in the form and context in which these respectively, appear. Private placement None of the shares in the Offer will be subject to private placement. Documents available for inspection Copies of the following may be inspected at the head office of NBS by arrangement with the Company Secretary during usual business hours on any business day (Sundays and public holidays excepted) for 28 days from the date of this Prospectus: (a) (b) (c) (d) (e) (f) (g) (h) (i) (j) (k) (l) The Companys Memorandum and Articles of association Underwriting agreements The audited financial statements of NBS for the financial years ended 31 December 2006 and 31 December 2005 and the six months ended 31 December 2004 the auditors report thereon The reporting accountants report on the proforma financial statements of NBS The reporting accountants report on the profit forecast of NBS A written statement signed by the reporting accountants setting out the adjustments made by them in arriving at the figures shown in their report giving the reasons therefore The Trust Deed and the Rules setting up the Employees Share Ownership Plan Property valuation report Copies of Special Resolutions Statement of legal compliance Written consents from advisors Material contracts
7.1.7.
7.1.8. 7.1.9.
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7.2. Shareholders and share capital 7.2.1. Shareholders A detailed summary of direct and beneficial and non-beneficial indirect shareholdings in NBS before and after the Offer for every major shareholder or group of shareholders is set out below: Before the Offer:NICO National Holdings Investment Ltd Trust Ltd All figures in 000s GoM Total Holdings at 1 March 2004 148,000 32,000 20,000 200,000 Two way share split May 2007 Holding in May 2007 After the Offer:All figures in 000s Holding in May 2007 Disposal shares sold to the general public Allocation to ESOP Issued in the Offer to the general public Shareholding post the Offer NICO Holdings Ltd 296,000 296,000 National Investment Trust Ltd 40,000 40,000 General Public 48,000 93,333 141,333 148,000 296,000 32,000 64,000 20,000 40,000 200,000 400,000
GoM 64,000 (48,000) (16,000) -
ESOP 16,000 16,000
Total 400,000 93,333 493,333
7.2.2. Share capital Authorised share capital The following table illustrates the changes in NBS's authorised share capital over the previous two and a half years:Nominal Value per share (Kwacha) 1.00 1.00 0.50 Nominal Value Total (Kwacha) 250,000 100,000 350,000 350,000
All figures in 000s Authorised Ordinary share capital Increase in authorised share capital Two way share split
Date Mar-04 May-07 May-07
Number of Shares 250,000 100,000 350,000 700,000
Total authorised share capital in May 2007
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Issued share capital The following table illustrates the changes in NBS's issued share capital over the previous two and a half years:Nominal value Total (MWK) 200,000 200,000 0.50 0.50 46,666 246,666
All figures in 000s Issued Ordinary share capital Two way share split
Date Mar-04 May-07
Total number of Ordinary shares 200,000 200,000 93,333 493,333
Nominal Value per share (Kwacha) 1,00
Issued in the Offer to the general public June-07 Total issued share capital in May 2007 7.2.3.
Share Premium The share premium account arose from the transfer of balances on revenue and general reserves on the conversion of New Building Society to NBS Bank Limited. Options over share capital At the date of the Prospectus there are no options over NBSs issued share capital. Unissued shares At the date of the Prospectus the unissued shares subject to the Offer are under the control of the Directors. Following the Offer the remaining unissued shares of the Bank will be under the control of the Directors. Provisions relating to share capital in the Articles All issued and outstanding shares are fully paid up, not subject to calls for additional payment of any kind and are in definitive registered physical form. General extracts from the NBS Articles of Association are provided in Annexure 6 on page 95 of this document.
7.2.4. 7.2.5.
7.2.6.
7.3. Declarations of Directors 7.3.1. Contingent liabilities The Companys directors confirm that other than as disclosed in the Accountants Report there are no outstanding contingent liabilities which the directors are aware of and which may have a material effect on the Companys financial position.
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7.3.2.
Interests The table below contains details of the beneficial and non-beneficial share holdings of the Directors as at the end of the financial year 31 December 2006: Director Mr F. Mlusu Mr V. Kumwenda Total Beneficial Non-Beneficial Total (No. of shares) (No. of shares) Direct Indirect Direct Indirect - 2,610,865 - 2,610,865 - 3,225,690 - 3,225,690 - 5,836,555 - 5,836,555
7.3.3.
Loans to Directors Other than disclosed below, there are no material loans or guarantees outstanding to any Director of NBS as at the end of the financial year 31 December 2006. Reason for Facility Mortgage Asset Finance Mortgage Balance at 31 Dec. 2006 MWK 2,871,000 292,000 8,918,000 12,081,000
Director Mr Felix Lafael Mlusu Mr Vizenge Matumika Kumwenda Mr Geoffrey Macdonald Wawanya Total 7.3.4.
Options No options to purchase any securities of the Bank have been granted to or exercised by a Director of the Bank within the year preceding the date of this Prospectus. Pension and compensation for loss of office No pension or compensation for loss of office is payable to any Director of Bank. Remuneration There will be no variation in the basis of remuneration receivable by any of the Directors as a consequence of NBSs listing. The aggregate amount of the cash and non-cash salary, remuneration and expenses paid and benefits in kind granted to directors was MWK 4.1 million for the twelve months ended 31 December 2006 made up as follows:-
7.3.5. 7.3.6.
39
MWK Non-Executive Directors Mr Felix Lafael Mlusu Mr Joe Swankie Mr Geoffrey Macdonald Wawanya Mrs Estelle Nuka Mr Vizenge Matumika Kumwenda Mrs Janet Banda Mr Randson Philimon Mwadiwa Mrs Audrey Mwala Total 7.3.7.
Salary
Accommodation
Sitting Allowance 211,600 161,000 41,400 41,400 41,400 82,800 579,600
Mileage
Total
480,000 420,000 420,000 420,000 420,000 420,000 420,000 420,000 3,420,000
30,358 12,500 42,858
66,150 45,723 111,873
480,000 631,600 581,000 461,400 420,000 557,908 519,623 502,800 4,154,331
Unusual transactions One of the directors, Mr G. Wawanya, has a 100% holding a company called Landed Properties which undertook the valuation of properties for disposal purposes. Landed Properties was mandated, along with a property valuation company called Knight Frank, to value a number of properties that were disposed of by the Bank in the year ended 31 December 2006. The details of these disposals are included in paragraph 7.3.11 below. For the work outlined above, Landed Properties were paid an amount of MWK 2.4 million. Other than outlined above, no other Director has an interest in any contract, arrangement or transaction entered into by NBS which is or was unusual in its nature or conditions or significant in relation to the business of NBS as a whole and which was effected during the current or immediately preceding financial year, or was effected during an earlier financial year and remains in any respect outstanding or unperformed.
7.3.8.
Resignation of Directors In accordance with Article 102.10 of the Articles of Association of NBS, as included in the Extract to the Articles in Annexure 6 to this document, a Director of the Bank will be disqualified should he serve as a director of an institution licensed under the Banking Act. This article will apply to existing Directors after a period of sixty days from the listing date. It is the intention of the Directors representing GoM to resign from the Board after the listing of NBS on the MSE.
40

7.3.9. Working capital and capital adequacy In the opinion of the Directors NBS's working capital and its issued share capital (including the amount to be raised in pursuance of this issue) is adequate to meet the requirements of NBS in the foreseeable future.
7.3.10. Capital commitments As at 31 December 2006 the contracted but not yet incurrent capital commitments totalled MWK 44m, which was in respect of computer equipment and office furniture. The authorised but not yet contracted commitments totalled MWK 344m. These commitments are to be funded partially out of internal resources and partially out of the capital raised in terms of the Offer. 7.3.11. Disposal of property The Bank disposed of four properties in 2006, using an average of two valuations. The first was carried out by Knight Frank and the second by Landed Properties. The details of the properties are as follows: Building Head Office/Ginnery corner Branch Limbe Branch Lilongwe Old Town Branch Mzuzu Branch Plot Number BE 243-244 LC 235 4/323 MZ 1679 Disposal Proceeds 198,000,000.00 74,500,000.00 138,000,000.00 40,500,000.00 451,000,000.00 NBV As At 31st August 2006 166,402,753.11 80,211,385.24 89,713,227.26 41,093,320.65 377,420,686.26
The Blantyre Branch property is likely to be disposed of in the near future and is currently under going major refurbishment. 7.3.12. Material change There have been no material changes in the trading or financial position of NBS since 31 December 2006. 7.3.13. Material contracts The material contracts that NBS currently has in place are as follows: Agreement Management Support Agreement Effective Date 1/1/2005 Parties NICO Holdings Limited & NBS Basis of charge Management fee is based on actual operating expenses of Nico Holdings Limited as external auditors. Period 3 years, subject to annual review
41

Agreement Loan Agreement Effective Date 30/12/2005 Parties Nico Life Insurance Company Limited & NBS Basis of charge Period 5 years
Alterations and refurbishment Agreement
November 2006
Air Time Distribution Agreement
1/1/06
Air Time Distribution Agreement
27/12/06
Air Time 1/2/07 Distribution Agreement
Loan of K200,000,000 at the interest rate of 2%+ Prime lending Rate of Stanbic Bank but at a minimum rate of 5 years. The period of loan is for 5 years. The purpose of the loan is to refurbish and renovate Victoria Avenue Branch, Blantyre. NBS & City Alterations and Building Contractors refurbishment Limited works to NBS House, Corner of Chilembwe Road and Victoria Avenue, Blantyre for K194,974,766.40. NBS & CAD Sale of TNM Limited prepaid Airtime using NBSs cash dispensing machines for a commission of 5% Celtel & NBS For the sale of prepaid Airtime using NBSs cash dispensing machines for a commission of 5% Malawi For sale of prepaid Telecommunications Airtime using NBSs Limited & NBS cash dispensing machines for a commission of 5%.
5 years
12 months renewable
12 months renewable
42

Agreement Software License & Maintenance Agreement Effective Date 14/8/06 Parties Basis of charge Period
Globus Software Licence Agreement
NBS & South For a license to use Atlantic Solutions LALoan Limited Application and analysis software and associated documentation for an aggregate licence fee of US$ 229,449 and an annual maintenance fee of 20%. 12/12/03 Temenous Holdings For a non exclusive (as Limited N.V & NBS non transferable amended on licence to use 12/04 & software 18/8/05) programmes on designated equipment and documents related to banking for an aggregate fee of US$ 1,086,906, an additional fee of US$328,580 ( annual maintenance fee of US$59,144.40) for additional users and a further fee of US$21,000 ( annual maintenance fee of US$3,780) for additional universal user.
7.3.14. Directors responsibility statement The Directors of NBS, whose names are given on page 13, of this Prospectus, collectively and individually accept full responsibility for the accuracy of the information given and certify that to the best of their knowledge and belief there are no facts the omission of which would make any statement false or misleading, that they have made all reasonable enquiries to ascertain such facts and that the Prospectus contains all information required by law.
43

Signed in Blantyre, on 28 May 2007, by or on behalf of all of the Directors of NBS.
Mr Felix Lafael Mlusu .... Vizenge Matumika Kumwenda for and on behalf of Felix Lafael Mlusu Under a Power of Attorney dated 26th April 2007 Mr Vizenge Matumika Kumwenda Mrs Estelle Nuka Mrs Janet Banda Mrs Audrey Mwala .... .... ....
Mr Geoffrey Macdonald Wawanya .... Vizenge Matumika Kumwenda for and on behalf of Geoffrey Macdonald Wawanya Under a Power of Attorney dated 7th May 2007 Mr Randson Philimon Mwadiwa Mr Joe Swankie
.... ....
44
Annexure 1 DETAILS OF THE DIRECTORS
Name
Position
Date of Appointment
Residential Address & Postal Address
Nationality
Other Directorships Nico Holdings Ltd, Nico General Insurance Company Ltd, Nico Insurance Uganda Ltd, Nico Insurance Zambia Ltd, NIKO Insurance Tanzania Ltd, Nico Life Insurance Company Ltd, Nico Technologies Ltd, Blantyre Hotels Ltd, Group 4 Securicor Malawi Ltd, Dulux Ltd, Chibuku Products Ltd, Millenium Holdings Ltd, Rennies Holdings Malawi Ltd, Chichiri Shopping Centre Ltd, British American Tobacco and African Energy Resources Ltd.
Mr Felix Lafael Mlusu, 56
Chairman
July 2004
Plot BE 81, 11 Belcher Road, Mandala, Blantyre, Malawi. PO Box 501, Blantyre, Malawi
Malawian
Mr Puthenveetil Thomas Daniel
NonExecutive
Resigned September 2006
45
Name
Position
Date of Appointment
Nationality
Other Directorships Nico Holdings Limited, Nico General Insurance Company Ltd Nico Insurance Zambia Ltd, NIKO Insurance Tanzania Ltd, Nico Life Insurance Company Ltd, Nico Technologies Ltd, Investment Alliance Limited, Phoenix School, Millenium Holdings Ltd, and Chichiri Shopping Centre Ltd. None
Mr Vizenge Matumika Kumwenda, 45
NonExecutive
March 2005
Plot LE 53, Newlands, Limbe, Blantyre, Malawi PO Box 501, Blantyre, Malawi
Malawian
Mrs Estelle Nuka, 41 Mrs Janet Banda, 37
NonExecutive NonExecutive
April 2006
Plot CG 443/36, Viphya Avenue, Chigumula, Blantyre, Malawi. Plot 47/2/184, Area 47, Lilongwe, Malawi. Pvt Bag 373, Lilongwe, Malawi House number 33, Mahatma Ghandi Road, Mount Pleasant, Blantyre, Malawi. PO Box 937, Blantyre, Malawi BW 434/30 Katunga North, Chikwawa Road, Blantyre, Malawi PO Box 2387 Blantyre, Malawi
Malawian
April 2006
Malawian
None
Mrs Audrey Mwala, 36
NonExecutive
April 2006
Malawian
Kangombe Investments, Mwaiwathu Pvt. Hospital and Bata Shoe Company. Town and Country Planning Board, Surveyors Institution of Malawi, Services International Malawi, Glaev International and Music Association of Malawi.
Mr Geoffrey Macdonald Wawanya, 57
NonExecutive
July 2004
Malawian
46
Name
Position
Date of Appointment
Nationality
Other Directorships Malawi Savings Bank Ltd, Reserve Bank of Malawi, Small Holder Fertilizer Revolving Fund, Malawi Telecommunication Ltd, National Food Reserve Agency, Escom, Malawi Revenue Authority, Mzuzu University, Malawi Institute of Management, National Road Fund Administration, ADMARC and Privatisation Commission. Edane- Road Haulage
Mr Randson Philimon Mwadiwa, 51
NonExecutive
July 2004
House number 142, Area 47/5, Lilongwe, Malawi. PO Box 30049, Capital City, Lilongwe
Malawian
Mr Joe Swankie, 62
NonExecutive
July 2004
23 Skerret Drive, Sunnyside, Blantyre PO Box 1588, Blantyre, Malawi Plot BC 806, Naperi, Blantyre PO Box 32252, Chichiri, Blantyre 3, Malawi
British
Mr Martin Ndenya, 47
Company Secretary
July 2004
Malawian
Trust Securities Ltd, MLC Ltd, Millennium Investments Ltd
47
Annexure 2 DETAILS OF PRINCIPAL PROPERTIES AND LEASES Owned properties Description Physical address Plot ME 192, Chitakale, Mulanje/Muloza Road Plot BW 214 215, Cnr Victoria Avenue & Chilembwe Road, Blantyre Plot ZA 445, Kamuzu Highway Plot KU 244, Kasungu Boma Plot TN/C/1, Mzimba Boma Land Area (Ha) 0.1012 Title Land Value (MWK) Leasehold 75,000.00 Under Construction 750,000.00 Under Construction Under Construction 11,750,000.00 Improvements Total Value Value (MWK) 8,925,000.00 (MWK) 9,000,000.00
Mulanje Branch
Blantyre Branch Zomba Branch Kasungu Branch Mzimba Branch Leased properties Branch/Agency Nchalo Haile Sellasie
0.1490 0.2206 0.3639 Being Surveyed
Leasehold Leasehold Leasehold Leasehold
N/A 12,000,000.00 N/A N/A
Physical Address Plot NC 1/2, Nchalo Trading Centre Plot BC 104 105, NICO House, Haile Sellasie Road
Rental p.m. (MWK) 73,354.33 250,200.00
Lease period N/A 3 years
Expiry date OPEN 31.01.2009
Area m2 74.83 417.00
48
Branch/Agency Liwonde Mangochi Capital City Mchinji Dwangwa Nkhatabay Rumphi Karonga Chitipa Kanengo Chichiri Lilongwe Head Office
Physical Address Plot Liwonde 633, Bakili Muluzi Highway Mangochi Boma, M3 Road Title: Bwaila 19/14, Lingadzi House City Centre Mchinji Boma, Mchinji Road Dwangwa Trading Centre Plot NB/44/9, Nkhatabay Boma Rumphi Boma Plot KA/306/7, Karonga Boma Chitipa Boma Auction Holdings Head Office premises, Kanengo Shop 17c, Chichiri Shopping Mall Plot 4/323, Old Town Plot BE 243 244, Cnr Chipembere Highway & Ali Hassan Mwinyi Road
Rental p.m. (MWK) 36,368.75 36,000.00 1,122,213.13 49,500.00 64,456.00 55,000.00 57,000.00 25,000.00 10,587.50 50,400.00 ZAR 9,614.98 1,092,500.00 1,567,500.00
Lease period 5 years N/A 3 years 5 years 3 years 5 years 3 years 3 years 3 years 3 years 3 years 5 years 5 years
Expiry date 31.08.2008 OPEN 15.06.2007 31.07.2010 31.07.2008 28.02.2011 31.12.2008 31.08.2007 31.08.2007 28.02.2010 30.09.2007 31.08.2011 31.08.2011
Area m2 139.05 172.31 948.07 270.04 149.60 170.00 230.07 111.31 78.68 25.00 73.00 627.72 2,502.00
49
Branch/Agency Limbe Mzuzu Chancellor College Bunda College
Physical Address Plot LC 235, Churchill Road Plot MZ1679, Mzuzu, Orton Chirwa Avenue Chancellor College campus Bunda College campus
Rental p.m. (MWK) 589,791.00 320,625.00
Lease period 5 years 5 years N/A N/A
Expiry date 31.08.2011 31.08.2011
Area m2 579.06 479.79
50

Annexure 3 REPORTING ACCOUNTANTS REPORT ON THE PRO FORMA CONSOLIDATED BALANCE SHEET AND PRO FORMA CONSOLIDATED INCOME STATEMENT 28th May 2007 The Directors NBS Bank Limited P.O. Box 32251 BLANTYRE Members of the Board PROFORMA INCOME STATEMENT AND BALANCE SHEETS Below are proforma income and balance sheet and cashflow statements include our observations 1. FINANCIAL INFORMATION Proforma income statement for the two and half years The following information should be read in conjunction with the reporting accountants report as contained in Annexure 5. 6 Months to 2005 December 2004 652,938 8,253 96,448 570,119 1,327,758 (632,772) 694,986 250,062 212,164 22,089 1,179,301 433,639 109,508 108,369 335,303 986,819 192,482 (49,339) 143,143 136,152 8,681 2,155 481,873 628,861 (277,941) 350,920 167,659 5,509 21,510 545,598 146,448 54,572 52,678 22,733 163,223 439,654 105,944 ( 5,680) 100,264
1.1
2006 INCOME Interest on loans and advances Interest on placements with other banks Income from lease financing Income from money market investments Total Interest Income Interest expense Net Interest Income Fee and commission income Profit on foreign exchange transactions Other operating income Operating Income EXPENDITURE Staff costs Recurrent expenditure on premises and equipment Depreciation Pre incorporation costs Other operating costs Operating expenditure Profit before impairment losses Loan impairment loss Profit before income tax expense 1,209,222 36,671 215,533 279,065 1,740,491 (810,452) 930,039 337,785 256,372 83,639 1,607,835 569,120 144,746 165,924 397,675 1,277,465 330,370 (31,022) 299,348
51

Income tax expense PROFIT FOR THE PERIOD Pro forma earnings per share (tambala) Pro forma earnings per share before taxation (tambala) Pro forma dividend per share (tambala) (117,803) 181,545 37 61 (1,207) 141,936 29 29 34 100,264 20 20 -
52
DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007 1.2

Proforma Statement Of Assets And Liabilities as at 31st December
BALANCE SHEET As at 31 December In thousands of Malawi Kwacha 6 Months to December 2004
LIABILITIES AND EQUITY Liabilities Current and savings accounts Foreign currency denominated accounts Term deposit accounts Deferred tax liabilities Other liabilities Long term loan Total liabilities Equity Issued capital Share premium Revaluation reserve Loan loss reserve Fair value reserve Retained earnings Total equity Total equity and liabilities ASSETS Cash and cash equivalents Balances due from other banks Other assets Loans and advances to customers Consumable inventories Income tax recoverable Money market Investments Investment in shares Property and equipment Total assets
2006
2005
5,498,766 213,702 2,739,925 8,452,393 133,094 266,957 244,501 9,096,945
3,945,704 529,811 2,696,912 7,172,427 60,475 205,358 20,010 7,458,270
2,229,707 3,151,127 5,380,834 126,835 22,362 5,530,031
200,000 164,637 126,619 139,000 26,372 291,915 948,543 10,045,488 625,416 1,231,258 143,043 5,754,229 41,197 14,152 948,438 11,275 8,769,008 1,276,480 10,045,488
200,000 164,637 257,308 0 7,086 106,707 735,738 8,194,008 286,536 436,961 361,135 4,214,727 35,728 14,100 1,625,690 0 6,974,877 1,219,131 8,194,008
200,000 164,637 287,322 118,125 770,084 6,300,115 227,847 153,282 202,460 1,355,773 20,935 3,584,333 5,544,630 755,485 6,300,115
53

Proforma Statement Of Assets And Liabilities as at 31st December 2006 OPERATING ACTIVITIES Interest and fees received Interest paid Dividend paid Cash paid to suppliers and employees Movement in net customer balances Cash flows from operating activities FINANCING ACTIVITIES New loans Cash outflows to investing activities INVESTING ACTIVITIES Proceeds from sale of equipment and Investments properties Acquisition of property and equipment Acquisition of other investments Cash outflows to investing activities Net movement in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 2,418,287 (810,452) (1,097,361) 510,474 (259,536) 250,938 530,000 530,000 2005 1,795,997 (632,772) (170,000) (966,046) 27,179 (1,103,403) (1,076,224) 6 Months period 2004 766,863 (277,941) (362,683) 126,239 114,890 241,129 -
453,160 (594,218) (141,058) 639,880 2,165,232 2,805,112
4,050 (554,610) (550,560) (1,626,784) 3,792,016 2,165,232
86,444 (182,219) (20,160) (115,935) 125,194 3,666,822 3,792,016
54

Proforma balance sheet The Table below sets out the abridged audited consolidated balance sheet as at 31st December 2006 and the proforma adjustments that reflect the impact on that balance sheet of the Offer, had the net Offer proceeds been received on the balance sheet date. 31 December 2006 historical Proforma adjustments Proforma 31 December 2006 balance sheet 1,183,345 8,452,393 652,416 10,288,154 1,276,488 2,297,724 959,713 5,754,229 10,288,154 240 493,333
Total equity Amounts due to depositors Other liabilities Shareholders funds and other liabilities Fixed assets Total cash and short term funds Equity portfolio/investments Advances and other accounts Total assets Proforma Net asset value per share in tambala Number of shares in issue (000s)
940,679 8,452,393 652,416 10,045,488 1,276,488 2,055,058 959,713 5,754,229 10,045,488 235 400,000
242,666
242,666
The above adjustments are based on assumption that each issued new shares shall be sold at MK2.60 each totalling 93,333,000 shares and shall realise MK242,665,800. The nominal value of each share capital as illustrated in Section 1.5: Share Capital below shall be 50 tambala and the balance of MK2.10 shall be transferred to Share Premium account.
1.5
Adequacy of capital The Bank complied with both, the liquidity reserve requirement and capital adequacy requirements set at the minimum of 20% of weekly requirement based on the preceding months average total deposits liabilities and 6% risk bearing assets respectively by the Reserve Bank of Malawi. The proforma balance sheet indicates that the Banks equity amount would increase the net worth of the Bank and also its total cash and short term funds to more than sufficiently meet the liquidity reserve requirements as well as the capital adequacy requirements set by the Reserve Bank of Malawi. This would enable the Bank meet its operational obligations requirements without constraining its operations.
55

Share capital The table below illustrates the changes in NBS authorised share capital over previous three years, and also pursuant to the proposed listing of 12% shares of NBS, totalling 48,000,000 shares through the initial public offering on the MSE, the authorised share capital of NBS Bank Limited was restructured in May 2007 as follows: Authorised Share Capital Date Number of shares (In 000) 250,000 250,000 100,000 350,000 (350,000) Total number of share (In 000) Nominal value per share (in tambala) 250,000 100 Nominal value Total (thousands Kwacha) 250,000
Authorised ordinary share Authorised ordinary share capital Increase as a result of new offer Authorised share capital split 1 to 2
June 04 May 07 May 07 May 07
700,000
50
350,000
All Ordinary shareholder of 100 tambala each consolidated into 50 tambala each based on their relative nominal value and NBS authorised share capital remains at MK350,000,000 comprising 700,000,000 shares The table below illustrates the changes in NBS issued share capital over previous three years, and the issued share capital of NBS Bank Limited was restructured in May 2007 as follows: Issued Share Capital Date Number of shares (In 000) Total number of share (In 000) 200,000 400,000 93,333 493,333 Nominal value per share (in tambala) 100 50 50 Nominal value Total (thousand s Kwacha) 200,000 200,000 46,666 246,666
Issued ordinary share Issued ordinary share capital Issued share capital split 1 to 2 Increase as a result of new offer
June 04 May 07 May 07 May 07
200,000 200,000 ( 200,000)
All Ordinary shareholder of 100 tambala each consolidated into 50 tambala each based on their relative nominal value and NBS issued share capital remains at MK246,666,500 comprising 493,333,000 shares.
56

Conclusion Without expressing our opinion, the banks performance has improved its revenue and profit by double and its balance sheet has been on a steady increasing rate which has created shareholders confidence in two half years period since its incorporation in 2004. Its liquidity, however, in 2005 deteriorated due to reduction in term deposits and also increment in loans and advances to customers. This resulted to very high negative net movement to customers which reduced closing cash and cash equivalents balance by 43% compared to 2004. This indicated that the Bank overtraded. The Banks liquidity improved in 2006 where by the closing cash and cash equivalent increased by 30% compared to 2005 which is a positive indication that the Banks performance is in the right direction.
KPMG Certified Public Accountants and Business Advisors (Malawi) BLANTYRE
57

Annexure 4 REPORTING ACCOUNTANTS OPINION ON THE FORECAST 28th May 2007 The Directors NBS Bank Limited P.O. Box 32251 BLANTYRE Members of the Board PROFIT FORECASTS We have reviewed the accounting bases and calculations of the profit forecast of NBS Bank Limited for the period ending 31st December 2007, for which you as directors are solely responsible as set out in paragraph 7.3.14 of this prospectus. The forecasts include results reflected in the unaudited management accounts for three months ended 31st March 2007. In our opinion, the forecast, as far as the accounting bases and calculations are concerned, have been properly compiled on the basis of the assumptions made by yourselves and is presented on a basis consistent with the accounting policies normally adopted by NBS Bank Limited. Since the forecast is based on assumptions concerning events actual results may vary from the forecast, which have been presented and the variations may be material. Accordingly, we express no opinion on whether or not the forecasts will be achieved. We consent to the inclusion of this letter which form part of the prospectus dated 28th May 2007 in the form and content in which it appears. Yours faithfully,
KPMG Public Accountants and Advisors
58
FINANCIAL INFORMATION 1.1 Reporting accountants report
The reporting accountants report is contained in Annexure 5 of this prospectus 1.2 Profit forecast for the year ending 31 December 2007 2007 INCOME Interest on loans and advances Interest on placements with other banks Income from lease financing Income from money market investments Total Interest Income Interest expense Net Interest Income Fee and commission income Profit on foreign exchange transactions Other operating income Operating Income EXPENDITURE Staff costs Recurrent expenditure on premises and equipment Depreciation Other operating costs Operating expenditure Profit before impairment losses Loan impairment loss Profit before income tax expense Income tax expense PROFIT FOR THE PERIOD Proforma earnings per share (tambala) Proforma earnings per share before taxation (tambala) 1,475,196 30,000 331,204 287,651 2,124,051 (753,289) 1,370,762 395,000 385,000 13,000 2,163,762 758,782 151,000 200,000 608,000 1,717,782 445,980 ( 30,000) 415,980 168,450 247,530 50 84
NBS Bank Limited
59

1.3 Balance sheet forecast as at 31st December 2007
BALANCE SHEET As at 31 December 2007 In thousands of Malawi Kwacha LIABILITIES AND EQUITY Liabilities Current and savings accounts Foreign currency denominated accounts Term deposit accounts Deferred tax liabilities Other liabilities Long term loan Total liabilities Equity Issued capital Share premium Revaluation reserve Fair value reserve Retained earnings Total equity Total equity and liabilities ASSETS Cash and cash equivalents Balances due from other banks Other assets Loans and advances to customers Income tax recoverable Money market Investments Investment in shares Property and equipment Total assets 2007 6,700,000 1,000,000 4,996,409 12,696,409 535,200 512,000 13,743,609 246,666 360,637 100,000 41,000 437,534 1,185,837 14,929,446 359,716 2,444,201 718,959 8,892,822 72,473 1,421,000 11,275 13,920,446 1,009,000 14,929,446
60

1.4 Statement of cashflows forecasts For the year ended 31 December 2007 In thousands of Malawi Kwacha 2007 OPERATING ACTIVITIES Interest and fees received Interest paid Dividend paid Cash paid to suppliers and employees Movement in net customer balances Cash flows from operating activities FINANCING ACTIVITIES Proceeds from new shares Cash outflows to investing activities INVESTING ACTIVITIES Proceeds from sale of equipment and Investments properties Acquisition of property and equipment Cash outflows to investing activities Net movement in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 2 Assumptions The Board expects NBS Bank Limited to have an increase in GDP of over 8% characterised with certainties and likely a reduction in Bank rate. The bank sector continues to experience an increasing competitive banking sector with reduction in inflation and interest rate environment. This is due to resumption of Donor Aid from last year and also cancellation of foreign donors. Total budgeted income is expected to increase by 22%. This shall be attributed by increase in interest income by 28% from last year, other income by 30% but shall be offset by the marginal reduction in investment income by 2%. The reduction in investment income is attributed by reduction in interest rate to an average rate of 19% in 2006 and is expected to reduce further to an average of 15% and also a reduction of Liquidity Reserve Requirement to 20%. No potential gains from an increase in equity valuations in NBSs portfolio of Malawi Stock Exchange listed shares other than those already recorded to 31st March 2007 have been incorporated in the forecast. Despite these challenges, profit after tax is expected to grow in real terms as a result of NBSs continued emphasis on superior customer service, growth in non interest income, continued product innovation and credit portfolio growth. 361,615 2,805,112 3,166,677 2,916,570 (698,848) (130,500) (1,674,971) 412,251 (469,540) (57,289) 242,666 242,666
385,000 (212,762) 172,238
61

These projections are based on certain assumptions and are for illustrative purposes only. Actual results achieved may differ from those projected. 3 Adequacy of capital The directors are of the opinion that the working capital available to the company is sufficient to meet requirements for the foreseeable future and that any operation requirements can be adequately satisfied.
62

Annexure 5 REPORTING ACCOUNTANTS REPORT ON THE HISTORICAL FINANCIAL INFORMATION ON NBS 28th May 2007 The Directors NBS Bank Limited P.O. Box 32251 BLANTYRE Dear Members of the Board, REPORTING ACCOUNTANTS REPORT ON NBS BANK LIMITED
In terms of sections 46 and 47 of the Fifth Schedule of the Companies Act, 1984, and the Procedures for Listing and General Requirements for Listed Companies of the MSE, we report hereunder on the results of NBS Bank Limited in respect of the two half financial years ended 31st December 2006 and on its assets and liabilities at 31st December 2006 being the date to which the last audited financial statements were prepared. We are only reporting financial results of NBS Bank Limited from the date it was incorporated as a bank in 2004 from New Building Society. Following the incorporation into a bank NBS Bank Limited scope of operations changed significantly and therefore, would not be ideal to provide comparative financial results prior to its incorporation into a bank. KPMG, Certified Public Accountants (Malawi), have been auditors of NBS Bank Limited and have reported on annual financial statements of the Bank without qualification throughout the period covered by this report. 1. INTRODUCTION The financial information set out in this report is compiled by reference to the audited financial statements of the NBS Bank Limited for each of the two and a half years ended 31st December 2006 after making such adjustments as we consider necessary for the purpose of the prospectus. COUNTRY OF INCORPORATION AND PRINCIPAL ACTIVITIES NBS Bank Limited is a limited company incorporated in Malawi under the Malawi Companies Act 1984. The principal activities of the company are banking activities and participation in a diverse portfolio of investment in Malawi. CURRENCY The financial statements are expressed in thousands of Malawi Kwacha. SIGNIFICANT ACCOUNTING POLICIES Statement of compliance The financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) published by the International Accounting Standards Board (IASB), and the Standards and Interpretations issued by the International Accounting Standards Board (the IASB) and the International Financial Reporting Interpretations Committee (IFRIC) of the IASB that were relevant to its operations and effective for accounting periods beginning on 1 January 2006. Basis of preparation and use of accounting estimates and judgements The financial statements are presented in Malawi Kwacha, rounded to the nearest thousand. They are prepared on the historical cost basis except for some fixed assets which are revalued and certain investments held for trading
63
2.
3. 4. 4.1
4.2

which are stated at their fair value. Recognised assets and liabilities that are hedged are stated at fair value in respect of the risk that is being hedged. The preparation of financial statements in conformity of IFRS requires management to make judgements, estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgements about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates is revised if the revision affects only that period, or in the period of the revision and future periods if the revision affects both current and future periods. 4.3 Use of estimates and judgements Management discusses with the Finance and Audit Committee the development, selection and disclosure of the Banks critical accounting policies and estimates, and the application of these policies and estimates. These disclosures supplement the commentary on financial risk management. 4.4 Key source of estimation uncertainty
4.4.1
Allowances for credit losses

Assets accounted for at amortised cost are evaluated for impairment on a basis described in accounting policy (4.15, 4.16). The specific counter-party component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon managements best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about counter-partys financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk Function. Collectively assessed impairment allowances cover credit losses inherent in portfolios of claims with similar economic characteristics when there is objective evidence to suggest that they contain impaired claims, but the individual impaired items cannot yet be identified. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on how well these estimate future cash flows for specific counter-party allowances and the model assumptions and parameter used in determining collective allowances.
4.4.2
Determining fair values

The determination of fair value for financial assets and liabilities for which there is no observable market price require the use of valuation techniques as described in accounting policy (4.24) and note 19. For financial instruments that trade infrequently and have little price transparency, fair value is less objective and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
4.4.3
Critical accounting judgements in applying the Banks accounting policies

Critical accounting judgements made in applying the Banks accounting policies include:
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Financial asset and liability classification
The Banks accounting policies provide scope for assets and liabilities to be designated on inception into different accounting categories in certain circumstances: In classifying financial assets or liabilities as trading, the Bank determines that it meets the description of trading and liabilities set out in accounting policy (s). In designating financial assets or liabilities at fair value though profit or loss, the Bank has determined that it has met one of the criteria for this designation set out in accounting policy (s). In classifying financial assets as held-to-maturity, the Bank has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policy (s). The accounting policies set out below have been applied consistently to all periods presented in these financial statements and in preparing opening balance sheet at 1st January 2006. 4.5 New standards and interpretations not yet adopted A number of new standards, amendments to standards and interpretations are not yet effective for the year ended 31st December 2006, and have not been applied in preparing these financial statements: IFRS 7 Financial Instruments: Disclosures and the Amendment to IAS 1 Presentation of Financial Statements: Capital Disclosures require extensive disclosures about the significance of financial instruments for an entitys financial position and performance, and qualitative and quantitative disclosures on the nature and extent of risks. IFRS 7 and amended IAS 1, which become mandatory for the Companys 2007 financial statements, will require extensive additional disclosures with respect to Companys financial instruments and share capital. IFRIC 7 Applying the Restatement Approach under IAS 29 Financial Reporting in Hyperinflationary Economies addresses the application of IAS 29 when an economy first becomes hyperinflationary and in particular the accounting for deferred tax. IFRIC 7, which becomes mandatory for the Companys 2007 financial statements, is not expected to have any material impact on the financial statements. IFRIC 8 Scope of FRS 2 Share-based Payment addresses the accounting for share-based payment transactions in which some or all of goods or services received cannot be specifically identified. IFRIC 8 will become mandatory for the Companys 2007 financial statements, with retrospective application required. The adoption of IFRIC 8 is not expected to have any material impact on the financial statements. IFRIC 9 Reassessment of Embedded Derivatives requires that a reassessment of whether embedded derivative should be separated from the underlying host contract should be made only when there are changes to the contract. IFRIC 9, which becomes mandatory for the Companys 2007 financial statements, is not expected to have any material impact on the financial statements. IFRIC 10 interim Financial Reporting and impairment prohibits the reversal of an impairment loss recognised in a previous interim period in respect of goodwill, an investment in an equity instrument or a financial asset carried at cost. IFRIC 10 will become mandatory for the Companys 2007 financial statements, and will apply to investments in equity instruments, and financial assets carried at cost prospectively from the date that the entity first applied the measurement criteria of lAS 36 and lAS 39 respectively (i.e., 1st January 2004). The adoption of IFRIC 10 is not expected to have a material impact on the financial statements. 4.6 Foreign currency
4.6.1
Foreign currency transactions

Transactions in foreign currencies are translated to Malawi Kwacha at the foreign exchange rate ruling at the date of the transaction. Monetary assets and liabilities denominated in foreign currencies at the balance sheet date are translated to Malawi Kwacha at the foreign exchange rate ruling at that date. Foreign exchange differences arising on translation are recognised in the income statement. Non-monetary assets and liabilities
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denominated in foreign currencies that are stated at fair value are translated to Malawi Kwacha at foreign exchange rates ruling at the dates the values were determined. 4.7 Property and equipment
4.7.1
Owned assets
Items of property and equipment are stated at cost or valuation less accumulated depreciation and impairment losses. The cost of self-constructed assets includes the cost of materials, direct labour and an appropriate proportion of overheads. Where relevant, the cost of dismantling and removing the items and restoring the site on which the assets were located is also included in the cost of the assets. Where an item of property and equipment comprises major components having different useful lives, they are accounted for as separate items of property and equipment.
4.7.2
Subsequent expenditure
Expenditure incurred to replace a component of an item of property and equipment that is accounted for separately, including major inspection and overhaul expenditure, is capitalised. Other subsequent expenditure is capitalised only when it increases the future economic benefits embodied in the item of property and equipment. All other expenditure is recognised in the income statement as an expense as incurred. Purchased software that is integral to the functionality of the related equipment is capitalized as part of that equipment.
4.7.3
Depreciation
Depreciation is recognized in profit or loss on a straight-line basis over the estimated useful lives of items of property and equipment, and major components that are accounted for separately. Leased assets are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives are as follows: Freehold buildings Leasehold property over 40 years to run Leasehold property under 40 years to run Leasehold improvement Computer hardware Computer Software Office typewriters and calculators Motor vehicles Furniture and other equipment Auto Teller Machines 40 years 40 years over period of lease 10 years 3 years 4 years 4 years 5 years 10 years 10 years
Depreciation, useful lives and residual values are re-assessed at each balance sheet date. 4.8 Intangible assets Acquired computer software is capitalised on the basis of costs incurred to acquire and bring to use specific software. These costs are amortised in accordance with the accounting policy on depreciation. Computer software expenditure is recognised in the income statement as incurred. Computer software development costs recognised as assets are amortised on a straight line basis over the estimated useful life. 4.9 Investments
4.9.1
Investments in debt and equity securities

Investments held for trading are classified as current assets and are stated at fair value, with any resultant gain or loss recognised in profit or loss. Where the bank has the positive intent and ability to hold government bonds to maturity, they are stated at amortised cost less impairment losses. The fair value of investments held for trading is their quoted bid price at the balance sheet date.
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Investments held for trading are recognised/derecognised by the bank on the date it commits to purchase/sell the investments. Investments held-to-maturity are recognised/derecognised on the day they are transferred to/by the bank. Investments in equity where there is no active market are recognised at cost and reviewed annually for impairment.
4.9.2
Investment in finance leases

Lease and instalment sale contracts are regarded as financing transactions and rentals and instalments receivable there-under, less unearned finance charges, are not capitalised as fixed assets but are shown as lease debtors at amounts equal to the net investment in the leases. Investment in leases are reviewed for impairment on a monthly basis.
4.10
Other assets Other assets comprise rental receivables, prepayments, staff advances and office assets and are stated at their cost less impairment losses. Cash and cash equivalents comprise coin and bank notes, balances with Reserve Bank and balances with other banks and money market instruments.
4.11
Impairment The carrying amounts of the Banks assets, other than deferred tax assets are reviewed at each balance sheet date to determine whether there is any indication of impairment. If any such indication exists, the assets recoverable amount is estimated. For intangible assets, the recoverable amount is estimated at each balance sheet date. An impairment loss is recognised whenever the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. Impairment losses are recognised in the income statement. An impairment loss in respect of held-to-maturity security or receivable carried at amortised cost is reversed if the subsequent increase in the recoverable amount can be related objectively to an event occurring after the impairment loss was recognised. In respect of other assets, an impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that assets carrying amount does not exceed the carrying amount that would have been determined if the impairment loss had not been recognised.
4.12
Dividends payable Dividends are recognised as a liability in the period in which they are declared. Interest-bearing borrowings Interest-bearing borrowings are recognised initially at fair value less attributable transaction costs. Subsequent to initial recognition, interest-bearing borrowings are stated at amortised cost with any difference between cost and redemption value being recognised in profit or loss over the period of the borrowings on an effective interest basis. Employee benefits
4.13
4.14
4.14.1 Defined contribution plans

The bank operates a Defined Contribution Scheme based on a percentage of pensionable earnings, the assets of which are generally held in separate trustee administered fund. Contributions to this fund are charged to Profit or loss.
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4.14.2 Terminal benefits
The actual amounts accrued as pension and retirement gratuities to those employees who are not covered by the Pension Fund are charged to profit or loss. Obligations for contributions to defined contribution plans are recognized as an expense in the profit or loss as incurred. Employee entitlements to annual leave and long term service leave. 4.15 Provisions for credit losses Loans and advances are recognized when cash is advanced to borrowers. Loans and advances are initially recognized at fair value (plus any directly attributable transaction costs). Subsequent to initial recognition, loans and advances are measured at amortised cost, using the effective interest bank method. A provision for loan impairment is established if there is objective evidence that the company will not be able to collect all amounts due according to the original contractual terms of the loans. The amount of provision is the difference between the carrying amount and the recoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantee and collateral, discounted at the original effective interest rate. A portfolio impairment for loans is established to cover losses that are judged to be present in the lending portfolio at the balance sheet date, but which have not been specifically identified as such. This provision is based on the directors assessment of the latent risk of default known to be present in the portfolio of the banks advances When a loan is deemed uncollectible, it is written off against the related provision for impairments. Subsequent recoveries are credited to the provision for the loan losses in the income statement. If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision is credited as a reduction of the provision for impairment in the income statement. 4.16 Provisions and other liabilities A provision is recognised in the balance sheet when the Bank has a legal or constructive obligation as result of a past event, and it is probable that an outflow of economic benefits will be required to settle the obligation. Interest Income and Expense Interest income and expense are recognised in the income statement using the effective interest method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition of the financial asset and liability and is not revised subsequently. The calculations of the effective interest rate includes all fees and points paid or received, transaction costs, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal or a financial asset or liability. Interest income and expense presented in the income statement include: Interest on financial assets and liabilities at amortised cost on an effective interest rate basis. Interest on available-for-sale investment securities on an effective interest basis. The effective portion of qualifying hedge derivatives designated in a cash flow hedge in the hedged item is recorded in interest income/expense. Fair value changes in qualifying derivatives (including hedge ineffectiveness) and related hedged items when interest rate risk is the hedged risk. Interest income and expense on all trading assets and liabilities are considered to be incidental to the Banks trading operations and are presented together with all other changes in the fair value of trading assets and liabilities in net trading income.
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4.17

Fair value changes on other derivatives held for risk management purposes, and other financial assets and liabilities carried at fair value through profit or loss, are presented in net income on other financial instruments carried at fair value in the income statement. 4.18 Fees and Commission Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, loan commitment fees are recognised in a straight-line basis over the commitment period. Other fees and commission expenses relates mainly to transaction and service fees, which are expensed as the services received. 4.19 Net trading income Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised and unrealised fair value changes, interest, dividends and foreign exchange differences. Net Income from other financial instruments at fair value Net income from other financial instruments at fair value related to non-qualifying derivatives held for risk management purposes and financial assets and liabilities designated at fair value through profit or loss, and includes all realised and unrealised fair value changes, interest dividends and foreign exchange differences. Dividend income Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date for equity securities. Dividends are reflected as a component of net trading income, net income on other financial instruments at fair value or other operating income based on the underlying classification of the equity instrument. Income tax Income tax on the profit or loss for the year comprises current and deferred tax. Income tax is recognised in the income statement except to the extent that it relates to items recognised directly to equity, in which case it is recognised in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantially enacted at the balance sheet date, and any adjustment to tax payable in respect of previous years. Deferred tax is provided using the balance sheet liability method, providing for temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. The amount of deferred tax provided is based on the expected manner of realisation or settlement of the carrying amount of assets and liabilities, using tax rates enacted or substantively enacted at the balance sheet date. A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available against which the asset can be utilised. Deferred tax assets are reduced to the extent that it is no longer probable that the related tax benefit will be realised. 4.23 Earnings per share Basic earnings per share is calculated by dividing the profit for the year attributable to ordinary shareholders by weighted average number of ordinary shares in issue during the year Financial instruments Financial assets and liabilities are classified and accounted as follows: Fair value through profit or loss: - assets which are acquired for the purpose of selling or repurchasing in the short term or on which short term profit/loss arises. Fair value through profit or loss assets are accounted initially at fair value (which at the time of acquisition will normally be
69
4.20
4.21
4.22
4.24

at cost, assuming purchase at market values) and subsequently measured at fair value through the profit and loss account. Held-to-maturity investments: - assets with fixed or determinable payments and fixed maturity over which the Bank has intention and ability to hold to maturity. Held-to-maturity assets are accounted initially at fair value (cost) and subsequently measured at amortised cost using the effective interest method, through the profit and loss account. Loans and receivables: - assets with fixed or determinable payments. Loans and receivables are accounted initially at fair value (cost) and subsequently measured at amortised cost using the effective interest method, through the profit and loss account. Available-for-sale: - assets that do not fall under 4.1 to 4.3 above. Available-for-sale assets are accounted initially at fair value (cost) and subsequently measured at fair value. Gains or losses on changes in fair value are recognized directly in equity, except for impairment losses and foreign exchange gains and losses. 4.25 Financial guarantees Financial guarantees are contracts that require the bank to make specific payments to reimburse the holder for a loss it incurs because specified debtor fails to make payment when due in accordance with a debt instrument. Financial guarantee liabilities are initially recognized at their fair value and the initial value is amortised over the life of the guarantee. The guarantee liability is subsequently carried at the higher of the present value of any expected payment (when payment under the guarantee has become probable). Financial guarantees are included within other liabilities.
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5. Income statement For the periods ended 31 December In thousands of Malawi Kwacha 6 Months period 2004
Notes INCOME Interest on loans and advances Interest on placements with other banks Income from lease financing Income from money market investments Total Interest Income Interest expense Net Interest Income Fee and commission income Profit on foreign exchange transactions Other operating income Operating Income EXPENDITURE Staff costs Recurrent expenditure on premises and equipment Depreciation Pre incorporation costs Other operating costs Operating expenditure Profit before impairment losses Loan impairment loss Profit before income tax expense Income tax expense PROFIT FOR THE PERIOD Earnings per share (tambala) Earnings per share before (tambala) dividend per share (tambala)
2006
2005
1,209,222 36,671 215,533 279,065 1,740,491 (810,452) 930,039 337,785 256,372 83,639 1,607,835 569,120 144,746 165,924 397,675 1,277,465 330,370 (31,022) 299,348 (117,803) 181,545 91 150 -
652,938 8,253 96,448 570,119 1,327,758 (632,772) 694,986 250,062 212,164 22,089 1,179,301 433,639 109,508 108,369 335,303 986,819 192,482 (49,339) 143,143 (1,207) 141,936 71 72 85
136,152 8,681 2,155 481,873 628,861 (277,941) 350,920 167,659 5,509 21,510 545,598 146,448 54,572 52,678 22,733 163,223 439,654 105,944 ( 5,680) 100,264 100,264 50 50 -
3 17 4
15
6 taxation
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6. BALANCE SHEET As at 31 December In thousands of Malawi Kwacha 6 Months period 2004
LIABILITIES AND EQUITY Liabilities Current and savings accounts Foreign currency denominated accounts Term deposit accounts Deferred tax liabilities Other liabilities Long term loan Total liabilities Equity Issued capital Share premium Revaluation reserve Loan loss reserve Fair value reserve Retained earnings Total equity Total equity and liabilities ASSETS Cash and cash equivalents Balances due from other banks Other assets Loans and advances to customers Consumable inventories Income tax recoverable Money market Investments Investment in shares Property and equipment Total assets
Note
2006
2005
7 5 7.1 7.2
5,498,766 213,702 2,739,925 8,452,393 133,094 274,821 244,501 9,104,809
3,945,704 529,811 2,696,912 7,172,427 60,475 238,706 20,010 7,491,618
2,229,707 3,151,127 5,380,834 123,283 22,362 5,526,479
8 9 10 24 11
200,000 164,637 126,619 139,000 26,372 284,051 940,679 10,045,488 625,416 1,231,258 143,043 5,754,229 41,197 14,152 948,438 11,275 8,769,008 1,276,480 10,045,488
200,000 164,637 257,308 0 7,086 73,359 702,390 8,194,008 286,536 436,961 361,135 4,214,727 35,728 14,100 1,625,690 0 6,974,877 1,219,131 8,194,008
200,000 164,637 287,322 121,677 773,636 6,300,115 227,847 153,282 202,460 1,355,773 20,935 3,584,333 5,544,630 755,485 6,300,115
12 13 14 15
16
17
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7. STATEMENT OF CASH FLOWS
For the year ended 31 December In thousands of Malawi Kwacha

Notes OPERATING ACTIVITIES Interest and fees received Interest paid Dividend paid Cash paid to suppliers and employees Movement in net customer balances Cash flows from operating activities FINANCING ACTIVITIES New loans Cash outflows to investing activities INVESTING ACTIVITIES Proceeds from sale of equipment and Investments properties Acquisition of property and equipment Acquisition of other investments Cash outflows to investing activities Net movement in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 2006 2,418,287 (810,452) (1,097,361) 510,474 (259,536) 250,938 530,000 530,000 2005 1,795,997 (632,772) (170,000) (966,046) 27,179 (1,103,403) (1,076,224) 6 Months period 2004 766,863 (277,941) (362,683) 126,239 114,890 241,129 -
17
453,160 (594,218) (141,058) 639,880 2,165,232 2,805,112
4,050 (554,610) (550,560) (1,626,784) 3,792,016 2,165,232
86,444 (182,219) (20,160) (115,935) 125,194 3,666,822 3,792,016
12
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NOTES TO THE FINANCIAL STATEMENTS For the periods ended 31 December
In thousands of Malawi Kwacha

1. Financial risk management a)
Introduction and overview The bank has exposure to the following risks from its use of financial instruments: Credit risk Liquidity risk Market risks Operational risks This note presents information about the Banks exposure to each of the above risks, the Banks objectives, policies and processes for measuring and managing risk, and the Banks management of capital. Risk Management framework The Board of Directors has overall responsibility for the establishment and oversight of the Banks risk management framework. The Board has established the Finance and Audit Committee responsible for Asset and Liability Committee (ALCO) and Credit Committee which are responsible for developing and monitoring Banks risk management policies in their specified areas. All Board Committees have both executive and non-executive members and report regularly to the Board of Directors on their activities. The Banks risk management policies are established to identify and analyse the risk faced by the Bank, to set appropriate risk limits and controls and to monitor risks and adherence to limits. Risk management policies and systems are reviewed regularly to reflect changes in market conditions, products and services offered. The Bank through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles and obligations. The Banks Finance and Audit Committee is responsible for monitoring compliance with the Banks management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Banks Finance and Audit Committee is assisted in these functions by Internal Audit. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Finance and Audit Committee.
b)
Credit Risk Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual obligations, and arises principally from the Banks loans and advances to customers and other banks and investment securities. For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, and sector risk). For management purposes, credit risk arising on trading securities is managed independently but reported as a component of market risk exposure. Management of credit risk The Board of Directors has delegated responsibility for the management of credit risk to its Credit Committee. A separate Credit department, reporting to the Credit Committee, is responsible for oversight of the credit risk, including:
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NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 1. Financial risk management (Contd) Formulating credit policies in consultation with the business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures and compliance with regulatory and statutory requirements. Establishing the authorisation structure for the approval and renewal of credit facilities. Authorisation limits are allocated to business unit Credit Officers. Larger facilities require approval by Management Credit Committee, Head of Credit, Banks Credit Committee or the Board of Directors as appropriate. Reviewing and assessing credit risk. Banks Credit Committee assesses all credit exposures in excess of designated limits, prior to facilities being committed to customers by the same review process. Limiting concentrations of exposure to counterparties, geographical location and industries (for loans and advances), and by issuer, credit rating band and market liquidity. Developing and maintaining the Banks risk gradings in order to categorise exposures according to the degree of risk financial loss faced and to focus management on the attendant risks. The risk grading system is used in determining where impairment provisions may be required against specific credit exposures. Reviewing compliance of business units with agreed exposure limits, including those for selected industries and product types. Regular reports are provided to Banks Credit Committees on the credit quality of portfolios and appropriate corrective action is taken. Providing advice, guidance and specialist skills to business units to promote best practice throughout the Bank in the management of credit risk. Each business unit is required to implement Banks credit policies and procedures, with credit approval authorities delegated from the Bank Credit Committee. Each business unit has a Credit Risk Officer who reports on all credit related matters to management. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolios, including those subject to central approval. Regular audits of business units and Banks Credit processes are undertaken by Internal Audit. Impaired loans and securities Impaired loans and securities are loans and securities for which the Bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/securities agreement(s). Past due but not impaired loans Loans and securities where contractual interest or principal payments are past due but the Bank believes that impairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collection of amounts owed to the Bank. Loans with negotiated terms Loans with negotiated terms are loans that have been restructured due to deterioration in the borrowers financial position and where the Bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring.
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NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 1. Financial risk management (Contd) Allowances for impairment The Bank established an allowance for impairment losses that represents its estimates of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collectives loan loss allowance established for groups of homogenous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment. Write off policy The Bank writes off a loan/security balance (and any related allowances for impairment losses) when bank Credit determines that the loans/securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower/issuers financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised loans, charge off decisions generally are based on a product specific past due. The Bank holds collateral against loans and advances to customers in the form of mortgage interests over property, other registered securities over assets, and guarantees. Estimates of fair value are based on the value of collateral assessed at the time of borrowing, and generally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances to banks except when securities are held as part of reverse purchase and securities borrowing activity. Collateral usually is not held against investment securities, and no such collateral was held at the year end. Settlement risk The Bank activities may give rise to risk to the time of settlement of transactions and trades. Settlement risk is the risk of loss due to the failure of a company to honour its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions the Bank mitigates this risk by conducting settlements through a settlement/clearing agent to ensure that trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval/limit monitoring process described earlier. Acceptance of settlement risk on free settlement trades required transaction specific or counterparty specific approvals from Banks ALCO. (c) Liquidity risk Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations from its financial liabilities. Management of liquidity risk The Banks approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Banks reputation. Treasury receives information from other business units regarding the liquidity profile of their financial assets and liabilities and details of other projected cash flows arising from projected future business. Treasury then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities, loans and advances to banks and other inter-bank facilities, to ensure that sufficient liquidity is maintained within the Bank as a whole. The liquidity requirements of business units are met through Treasury to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements.
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NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 1. Financial risk management (Contd) The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by ALCO. Daily reports cover the liquidity position of operating units. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO. Exposure to liquidity risk The key measure used by the Bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Banks compliance with the liquidity limit established by the Reserve Bank of Malawi. Details of the reported Banks ratio of net liquid assets to deposits and customers at the reporting date and during the reporting period were as per note number 22 and 23. (d) Market risks Market risks is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligors/issuers credit standing) will affect the Banks income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk. Management of market risks The Bank separates its exposure to market risk between trading and non-trading portfolios. Trading portfolios mainly are held by the Treasury Department, and include positions arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis. Overall authority for market risk is vested in ALCO. The Banks ALCO is responsible for the development of detailed risk management policies (subject to review and approval by Finance and Audit Committee) and for the day-to-day review of their implementation. Exposure to interest rate risk non trading portfolios The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instrument because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re-pricing bands. The ALCO is the monitoring body for compliance with these limits and manages the risks on day-to-day by monitoring activities on the market. A summary of the Banks interest rate gap position on non-trading portfolios is as per note number 26. The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Banks financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis point (bp) parallel fall or rise in all yield curves and a 50bp rise or fall in the greater than 12-month portion of all yield curves. An analysis of the Banks sensitivity to an increase or decrease in market interest rates (assuming no asymmetrical movement in yield curves and a constant balance sheet position). As per note number 26.
77

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 1. Financial risk management (Contd) Exposure to other market risks non trading portfolios Credit spread risk (not relating to changes in the obligor/issuers credit standing) on debt securities held by Treasury subject to regular monitoring by ALCO, but it is not currently significant in relation to the overall results and financial position of the Bank. Operational risks Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Banks processes, personnel, technology and infrastructure and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. Operational risks arise from all of the Banks operations and are faced by all business entities. The Banks objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Banks reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Banks standards for the management of operational risk in the following areas: Requirement for appropriate segregation of duties, including independent authorisation of transactions. Requirements for the reconciliation and monitoring of transactions Compliance with regulatory and other legal requirements Documentation of controls and procedures Requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified. Requirements for the reporting of operational losses and proposed remedial action Development of contingency plans Training and professional development Ethical and business standards. Risk mitigation, including insurance where this is effective. (f) Capital Management Regulatory capital The Reserve Bank of Malawi sets and monitors capital requirements for the Bank as a whole. In implementing current capital requirements, Reserve Bank of Malawi requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets as per note number 22 (ii). The Banks regulatory capital is analysed into two tiers: Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, translation reserve and intangible assets, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes. Tier 2 capital, which includes qualifying liabilities, collective impairment allowances and the element of the fair value reserve relating to unrealised gains on equity instruments as available-for-sale.
(e)
78

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 1. (f) Financial risk management (Contd) Capital Management (Contd) There are restrictions on the amount of collective impairment allowances that may be included as part of tier 2 capital. Other deductions from capital include the carrying amounts of investments in subsidiaries that are not included in the regulatory consolidation, investments in the capital of banks and certain other regulatory items. Banking operations are categorised as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposure. The Banks policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders return is also recognised and the Bank recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Bank and its individually regulated operations have complied with all externally imposed capital requirements throughout the period. There have been no material changes in the Banks management of capital during the period. (g) Segment reporting Segment information is presented in respect of the Banks business and geographical segments. The primary format, business segments, is based on the Banks management and internal reporting structure. Business segments pay and receive interest to and from the Treasury on arms length basis to reflect the allocation of capital and funding costs. Segment capital expenditure is the total cost incurred during the period to acquire property and equipment and intangible assets other than goodwill. Business segments The Bank comprises the following main business segments: Corporate Banking Retail Banking Asset Management Treasury Includes loans, deposits and other transactions and Balances with corporate customers. Includes loans, deposits and other transactions and Balances with retail customers. Operated the Banks funds management activities. Undertakes the Banks funding and centralized risk management activities through borrowings, issues of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placement and corporate Government debt securities.
79

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 1. Financial risk management (Contd) Geographical The Bank operates in three geographic regions being: Southern Central Northern 2 with a total of 11 Branches and Agencies with a total of 7 Branches and Agencies with a total of 6 Branches and Agencies 2006 8,911 74,728 83,639 6 Months period 2005 2004 17,949 8,458 4,140 13,052 22,089 21,510
Other operating income Rental Income Profit on disposal of fixed assets
The bank disposed off some of its properties to a property company NBS Properties Limited. The properties were disposed at an average of the market value as determined by chartered quantity surveyors Knight Frank and Landed Property Agents. Consideration for the sale was received in form of cash and 2.5% equity share holding in NBS Properties Limited. The transaction resulted into re-classification of Revaluation Reserves to Retained Earnings and the profit on disposal is included as part of other income. NBS Bank limited was issued with shares and debenture stock in NBS Properties Limited upon incorporation and NBS Bank Limited disposed off a significant part of its investment in NBS Properties limited through the disposal of shares and debentures and has a 2.5% holding in the properties company. 3 Staff costs Salaries Staff expenses Staff loan subsidy Christmas expenses Training expenses Management car scheme The average number of employees for the year ended December 2006 was 384 (31 December 2005 was 371) Other operating costs Accommodation costs Communication costs Directors fees Auditors remuneration:Current year fees Prior period under provision Other expenses and VAT Legal & professional fees Sundry business charges Management fees Group shared expenses
314,795 161,018 19,595 2,684 29,321 41,707 569,120
250,912 100,690 14,900 2,097 27,884 _37,156 396,483
92,783 30,309 2,747 1,064 10,501 9,044 146,448
61,907 162,511 3,530
46,745 136,886 2,382 4,300 450 1,887 17,264 79,289 39,600 6,500 335,303
37,672 53,461 1,554 2,100 619 8,044 40,501 9,500 9,772 163,223
7,400 1,295 20,215 92,695 46,544 1,578 397,675 Management fee is paid to NICO Holdings Limited on cost recovery basis.
80

NOTES TO THE FINANCIAL STATEMENTS

5 Income tax expense Current year tax charge Deferred tax charge Capital gains tax Total income tax charge
For the periods ended 31 December 6 Months period 2004 -
2006 106,766 11,037 117,803
2005 250 957 1,207
Reconciliation of tax charge Profit before tax Income Tax using corporate tax rate Capital gains tax Profit on sale of non qualifying assets Other permanent differences Correction of prior year deferred tax Other adjustments 30% 4% -8% 6% 8% -1% 39%
299,348 89,803 11,037 (22,418) 19,088 24,443 (4,150) 117,803
143,143 30% -1% 54% -82% 1%
100,064 42,943 (1,834) 77,863 (117,765) 1,207
Operations after conversion from a 'Building Society. NBS Bank was exempted from income tax in its first year of The exemption covered period 1st July 2004 to 30th June 2005. Deferred tax liability 2006 Assets Capital allowance on property and equipment Loan loss reserve (in equity) Revaluation of properties (in equity) Fair value adjustments (in equity) Tax loss carry forward Other 15,327 4,496 19,823 Liability -72,951 -41,700 -22,345 -4,654 -11,267 -152,917 Total - 72,951 - 41,700 - 22,345 - 4,654 15,327 - 6,771 - 133,094 2,005 Assets 76,906 76,906 Liability 77,863 -56,482 - 3,036 -137,381 Total -77,863 - 56,482 - 3,036 76,906 - 60,475
81

(a) Basic earnings per share The calculation of basic earnings per share is based on the net profit attributable to ordinary shareholders and a weighted average number of ordinary shares outstanding during the period calculated as follows: Net profit attributable to ordinary shareholders Weighted average number of ordinary shares Basic earnings per share (MK) (b) Diluted earnings per share (MK)
2006
2005
6 Months period 2004
181,545 200,000 0.91 0.91
141,936 200,000 0.71 0.71
100,264 200,000 0.50 0.50
Term deposit accounts Maturing within 3 months Maturing between 3 and 12 months Other liabilities Cheques Accruals PAYE and other taxes Bills Payable
2,716,666 23,259 2,739,925
2,273,638 423,274 2,696,912
301,602 2,849,525 3,151,127
7.1
18,509 197,394 40,172 18,746 274,821
14,988 95,696 69,033 58,989 238,706
14,972 94,305 14,006 123,283
7.2
Long term loan Malawi Government Pension funds loan 20,010 224,491 244,501 20,010 20,010 22,362 22,362
The Malawi Government loan represents an IDA credit which was loaned to Malawi Housing Corporation for the construction of low cost housing at a fixed interest rate of 7% per annum. Pension funds loan is for a 5 year term at prime +2% and was utilized in renovating the Blantyre Branch Property.
82


8 Share capital
In issue at 1 January and 31 December Fully Paid of K1 each Authorised share capital
200,000 250,000
200,000 250,000
200,000 250,000
The authorised share capital comprised 250,000,000 ordinary shares of K1 each. The holders of ordinary shares are entitled to receive dividends as declared from time to time. There is no dividend to be declared this year for purpose of listing. 6 Months period 2004 164,637
Share Premium Share premium Share premium account arose from the transfer of balances on revenue and general reserves on the conversion of New Building Society to NBS Bank Limited
2006 164,637
2005 164,637
10
Revaluation reserve The revaluation reserve relates to the surplus arising on the revaluation of properties.
126,619
257,308
287,322
11
Fair value reserve The fair value reserve includes the cumulative net change in the fair value of available-for-sale investments until the investment is derecognized.
26,372
7,086
12
Cash and cash equivalents Cash balances Balance with Reserve Bank of Malawi Balances due from other banks Short term investments (Note 16) Cash and cash equivalents as shown in cash flow statement Balance due from other banks Call and deposit accounts Balance with Reserve Bank of Malawi
625,416 1,044,940 186,318 948,438 2,805,112
286,536 90,780 346,181 1,441,735 2,165,232
177,635 50,212 153,282 3,410,887 3,792,016
13
186,318
346,181
153,282
90,780 50,212 1,044,940 1,231,258 436,961 203,494 The bank was exempted from Liquidity Reserve Requirement (LRR) up to June 2006 but is now fully compliant with the Liquidity Reserve Requirement.
83
14
Other assets Prepayments and sundry debtors Cheque in course of collection 131,464 11,579 143,043 315,848 45,287 361,135 194,488 7,972 202,460
84

2006 15 Loans and advances to customers Loans and overdrafts Lease contracts Mortgage advances Total loans and advances Allowance for impairment Net loans and advances Total loans and advances are due to mature as follows: Between three months and one year After one year 164,637 555,477 2,095,302 5,885,702 (131,473) 5,754,229
2005 164,637 713,100 1,798,563 4,315,179 (100,452) 4,214,727
6 Months period 2004 164,637 67,109 1,021,956 1,406,886 ( 51,113) 1,355,773
2,378,629 3,507,073 5,885,702
1,470,249 2,844,930 4,315,179
193,202 1,213,684 1,406,886
Movement on allowance for impairment:At beginning of period Increase in provisions Balance at end of year
100,451 31,022 131,473
51,112 49,339 100,451
72,008 20,895 51,113
The analysis of the allowance for impairment in accordance with The Reserve Bank on Malawi requirements is fully described in Note 24. 16 Investments Government of Malawi and Reserve Bank of Malawi bills Government of Malawi Local Registered Stock Total investments 377,838 570,600 948,438 1,441,735 183,955 1,625,690 3,410,887 173,446 3,584,333
The investments are due to mature as follows:209,823 *'Within three months *'Between three months and one year * Between one year and five years 738,615 948,438 876,794 564,941 183,955 1,625,690 1,471,800 1,960,500 152,033 3,584,333
85


17 Property and equipment
Freehold Leasehold Motor land & land & vehicles, buildings buildings fixtures & fittings
Under Construc tion
2006 Total
2005 Total
Cost or valuation
Balance at 1 January Additions Disposals Impairment loss Revaluation Balance at 31 December 115,250 (4,136) 111,114 458,144 19,635 (381,825) 14,836 110,790 770,526 187,664 (6,253) 951,937 18,157 386,919 405,076 1,362,077 594,218 (388,078) 10,700 1,578,917 796,728 554,610 (4,050) (7,263) 22,052 1,362,077
6 Months 2004 579,478 182,219 (26,202) (3,021) 64,254 796,728
Depreciation
Balance at 1 January Charge for the year Eliminated on revaluation Eliminated on disposal Balance at 31 December 3,713 3,713 107,401 8,018 (4,404) 3,614 107,176 142,946 154,193 (2,029) 295,110 656,827 405,076 142,946 165,924 (6,433) 302,437 1,276,480 41,243 108,369 (4,416) ( 2,250) 142,946 1,219,131 52,678 (11,435) 41,243 755,485
Carrying amount
At 31 December Registers of land and building giving details as required under the Companies Act 1984, Schedule 3, Section 16 are maintained at the registered office of the Bank and are open for inspection by members or their duly authorised agents. All buildings were revalued on 31 December 2006 by G.M. Wawanya BSc, MRCIS, MCIH, MSIM chartered Valuer, on a current market value. Under the method used, accumulated depreciation was eliminated and the net revalued amount treated as the new carrying amount. The resultant surplus was taken to revaluation reserve. 18 Prior period adjustments Prior period adjustments made in 2006 arose due to the following:(a) Previously accrued leave pay was not recognized as an obligation for the company. In accordance with IAS 19 (revised) an amount of MK9.6 million has been debited to the income statement of the year 2005 as a result of adoption of revised IAS 19. (b) Under IAS 39 Loans and advances given to staff are financial instruments and must be initially measured at fair value. A number of advances to staff were granted to staff members at interest percentages below market interest. Taken this difference of interest rates into account the value of the advances to staff had to be decreased by MK14.9 million, which is charged to the income statement of the year 2005. (c) The Employment Act (2000) requires employers to pay severance pay where employment is terminated by mutual agreement. The excess of severance pay over the employers pension contribution of K20.3 million is provided for and adjusted in the opening equity of 2005.
86

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha The above changes decreased the profit for the year 2005 and the retained earnings as at 31 December 2005 as follows:Income Opening Total statement 2005 equity 2005 adjustment (K (K million) (K million) million) Provision for leave pay On staff loans Severance pay Total prior year adjustment 9.6 14.9 24.5 20.3 20.3 10 15 20 45
Prior period adjustments made in 2005 arose on application of revisions to IAS 39 as follows:a) Under previous standard, staff loans were measured at amounts advanced plus interest accrued to date less impairment losses. In accordance with IAS 39 (revised) an amount of MK39 million has been debited to retained earnings at 1st January 2005 as a result of valuing the staff loans at fair value. In accordance with IFRS, available-for-sale investments have been recognized as assets at fair value. The effect was to decrease the value of these investments by MK15 million at 1st January 2005.
b)
c) Loans and advances have been recognized initially at fair value and subsequently measured at amortised cost using the effective interest method. The effect was to decrease the loan loss provisions at 1st January 2005 by MK15 million. The above changes (increased)/decreased the retained earnings At 1st January 2005 as follows (K million):
On staff loans Fair value on treasury bills Provision for loan losses
38.6 15.4 -15.2 38.8
87

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 19 Fair value Fair value adjustments with respect to non-performing loans, off-market loans and treasury bills has been incorporated in the current year income statement. Net Fair value adjustment to income statement/equity 6 months 2006 2005 period 2004 Basis of valuation Balance at year end Financial Assets
- Malawi Government local registered stocks Fair value Loans and receivables - Loans and advances to customers Amortised cost - Due from other banks 'Amortised cost Available for sale assets - Malawi Government Treasury bills Fair value Financial Liabilities - Customer savings accounts Amortised cost - Foreign currency accounts Amortised cost - Term deposit accounts Amortised cost
28,535
570,600
131,474 -
5,754,228 186,318
2,491
377,782
5,498,766 213,702 2,739,925
Estimation of fair values The following summarises the major methods and assumptions used in estimating the fair values of financial instruments reflected in the table. - Malawi Government Treasury Bills The fair value is based on quoted market prices, if available, or is calculated based on discounted expected future principal and interest cash flows. - Malawi Government Local Registered Stocks The amortised cost is estimated as the present value of future cash flows, discounted at effective interest rates. - Loans and receivables The amortised cost is estimated as the present value of future cash flows, discounted at effective interest rates. For receivables / payables with a remaining life of less than one year, the notional amount is deemed to reflect the fair value. All other receivables / payables are discounted to determine the fair value.
88

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 20 Related parties transactions Identity of related parties The bank has a controlling related party relationship with fellow subsidiaries and parent company. During the year and at year end, the following transactions and balances were made: Company Nature transactions of Volume of transactions K000 48,145 94,229 15,406 61 7,487 23 Balances as at 31/12/06 Assets K000 1,321 84,000 58,003 Liabilities
- NICO Holdings Limited - NICO Life Insurance Limited - NICO General Insurance Limited - NICO Technologies Limited - Loans to directors - Landed Property Agents - Millenium Investments Limited - Executive Management Loans
Management fees Interest payable Interest payable Suppliers and consultancy Advances Consultancy Advances Advances
K000 1,979 201,496 27,011 61 8,410 1,336 -
All transactions were at arms length except for part of the loans to executive management. The related party balances are included in these financial statements. Loans amounting to K17.4million at a subsidized rate have been included in the balance of K58 million. Transactions with directors and executive officers Total remuneration paid to the directors and executive officers during the period were as follows:2006 Directors' fees Executive officers The above expenses are included in staff and training costs and other operating expenses in note 2 and 3. 21. Capital commitments As at 31 December 2006, the contracted but not yet incurred capital commitments were K44 million. The authorised but not yet contracted for commitments as at 31 December 2006 were K 344 million. These commitments are to be funded from internal resources. 3,530 45,919 49,449 2005 2,382 41,232 43,614 6 Months period 2004 1554 15250 16,804
89

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 22. Statutory requirement In accordance with Section 27 of the Banking Act 1989, the Reserve Bank of Malawi has established the following requirements as at the balance sheet date: (i) Liquidity Reserve Requirement The Bank is required to maintain a liquidity reserve amount with Reserve Bank of Malawi or with a registered discount house, calculated on a weekly basis, of not less than 20.0% percent of the preceding month's average total deposit liabilities. NBS bank was exempted from the liquidity reserve requirement with the Reserve Bank for a period of 24 months ended 30June 2006 and has been subjected to liquidity reserve requirement form 1st July to 31st December 2006 which it complied with . Capital Adequacy Requirement The Banks available Tier 1 capital is required to be a minimum of 6% of its risk bearing assets and contingent liabilities. At 31 December 2006, the Banks available capital was 10% of all its risk bearing assets and contingent liabilities.
(ii)
23.
Prudential Aspects of Bank Liquidity The Reserve Bank of Malawi has issued the following guidelines on the management of liquidity: -Liquidity Ratio 1 : Net liquidity (total liquid assets less suspense account in foreign currency divided by total deposits must be at least 30%. As at 31 December 2006, the banks liquidity Ratio 1 was 34%. -Liquidity Ratio 2 : Net liquidity ( total liquid assets less suspense account in foreign currency and cheques in the course of collection) divided by total deposits must be at least 20%.
As at 31 December 2006, the Banks Liquidity Ratio 2 was 34%. 24. Regulatory requirement The Reserve Bank of Malawi provides guidelines for loan losses provision which must be followed by all commercial banks in Malawi. The bank has computed the provisions which amount to K270million. The provision for loan losses included in the financial statements in accordance with IAS 39 amounts to K131million. Additional charges required to meet requirements on loan loss provisions of K139 million has been charged directly to equity. Computations for the purpose of central bank reporting are as below;
90

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 2006 Movement on provision At the beginning of the period Increase/(decrease) Recovered Balance at end of the year Analysis of recoveries Specific provisions Interest in suspense 100,354 196,077 -26,685 269746 66,328 74,726 -40,700 100354 2005 6 Months period 2004 85,004 40,381 - 59,057 66,328
10,414 16,271 26,685
31,584 9,116 40,700
44121 11987 56,108
Analysis of provisions held at end of the period Specific provision Portfolio impairment Interest in suspense Total provisions Interest in suspense Total loans and advances on which interest is suspended 25
150,545 57,871 61,330 269,746 687,664
34,287 45,038 21,029 100,354 97,895
44,121 10,220 11,987 66,328 101,961
Maturity gap analysis The table below analyses assets and liabilities into relevant maturity groupings based on the remaining period at 31 December 2006 to the contractual maturity date. All figures are in thousands of Malawi Kwacha. ASSETS Cash and balances with banks Investment securities Loans and advances Other assets Total assets LIABILITIES AND SHAREHOLDERS FUNDS Domestic deposits Foreign Currency denominated deposits Other borrowed funds Other liabilities Shareholders funds Total liabilities and shareholders funds Net Liquidity Gap Cumulative Liquidity Gap Up to 1 month 1,856,674 1,581,533 209,826 3,648,033 1-3 months 255,363 89,049 344,412 3-12 Months 120,000 403,224 523,224 Over 1 Total year 1,856,674 584,625 959,988 3,680,423 5,754,229 1,264,771 1,474,597 5,529,819 10,045,480
1,475,397 213,702 407,915 2,097,014 1,551,019 1,551,019
2,436,799 2,436,799 (2,092,387) (541,368)
4,012,344 4,012,344 (3,489,120) (4,030,488)
314,151 244,501 940,679 1,499,331 4,030,488 -
8,238,691 213,702 244,501 407,915 940,679 10,045,488 -
91

NOTES TO THE FINANCIAL STATEMENTSF or the year ended 31 December 2006 In thousands of Malawi Kwacha 26 Interest rate gap analysis The table below summarises the exposure to interest rate risk. Included in the table are the banks assets and liabilities at carrying amounts categorised by the earlier of contractual pricing or maturity dates. The bank does not have an interest rate exposure on off balance sheet items. All figures are in thousands of Malawi Kwacha. Fixed Rate Instruments Assets subject to interest rate adjustment Zero rate Floating 0-3 months 36 6-9 months 12 months Over 12 Total rate months months Loans and leases: Fixed rate by maturity 5,729,330 5,729,330 Securities: Fixed rate by maturity 69617 552,225 562,060 1,183,902 Other 3,132,256 3,132,256 Total rate sensitive assets (RSA) 3,132,256 5,798,947 552,225 562,060 10,045,488 Liabilities subject to interest rate adjustment: Demand accounts 689,099 689,099 Savings deposits 3,532,708 3,532,708 Time deposits 3,981,680 3,981,680 Other borrowings 20,010 224,491 244,501 Other 1,348,295 249,205 1,597,500 Total rate sensitive liabilities (RSL) 1,368,305 4,695,503 3,981,680 Asset Liability Gap 1,763,951 1,103,444 (3,429,455) 562,060 Cumulative Gap 1,763,951 2,867,395 (562,060) (562,060) (562,060) (562,060) Net position as a percent of total assets 51.47% 19.03% -621.02% 0.00% 0.00% 0.00% 100.00% RSA as a percent of RSL 206.06% 123.50% 13.87% 0.00% 0.00% 0.00% 0.00% 100 Impact of increase 1,852,149 1,158,616 (3,600,928) 590,164 1,940,346 1,213,788 (3,772,401) 618,267 2,028,544 1,268,960 (3,943,873) 646,370 Impact of decrease 1,675,753 1,048,271 (3,257,982) 533,958 1,587,556 993,099 (3,086,510) 505,855 1,499,358 937,927 (2,915,037) 477,752 -
92

NOTES TO THE FINANCIAL STATEMENTS For the year ended 31 December 2006 In thousands of Malawi Kwacha 2006 27. Contingent Assets/Liabilities Letters of credit Severance pay Total 309,079 157,000 466,079 75,236 75,236 2005 6 Months period 2004 -
The Employment Act (2000) requires employers to pay severance pay where employment is terminated by mutual agreement. The amount of severance payable is K177million with likely extra liability of K20 million over pension contributions which have been provided for as part of staff costs. There are discussions to re-consider a recent court ruling, which advocated for payment of both pension and severance and the Employment Act is being reviewed to only recognise the higher of the two. 28. Accounting estimates and judgements Management discussed with the audit committee the development, selection and disclosure of the banks critical accounting policies and estimates and the application of these policies and estimates. Key sources of estimation uncertainty Note 15 contain information about the loans and advances impairment. In notes 25 and 26 detailed analysis is given of the interest rate and liquidity risk exposures of the bank. 29. Inflation and exchange rates Exchange rates as at 31 December 2006 United States Dollar (USD) British Pound (GBP) South African Rand (ZAR) Inflation rates as at 31 December 30. 139.34 283.07 20.71 10.1% 2005 123.78 216.03 20.05 16.5% 6 Months period 2004 108.9 210.32 19.35 13.70%
Incorporation NBS Bank Limited is limited liability company (Bank) incorporated in Malawi under the Malawi Companies Act 1984 and is registered as a financial institution under the Banking Act 1989. Subsequent events Subsequent to balance sheet date no events have occurred necessitating adjustments to or disclosures in the financial statements. Staff mortgage securitisation Staff mortgages were re-financed through a lender NICO Life during the year, the bank guaranteed repayment of the loans during the remaining tenor of each of the staff mortgage and all the mortgage securities are registered in the Banks favour. The Bank pays an interest subsidy on behalf of employees and the related Fringe Benefit Tax inclusive of the subsidy, are included under staff costs.
93
31.
32
33
Equity Investment in NBS Properties Ltd During the year the bank acquired 2.5 % interest in NBS Properties Limited, a company to which the properties formerly owned by the bank were sold. The investment is carried at cost/valuation net of impairment and was reported at K11.275 million as at 31st December 2006.
We consent to the inclusion of KPMG Public Accountants and Business Advisors name, in the NBS Bank Limited pre listing statement in the form and context in which it appears. KPMG Certified Public Accountants Malawi
31 December 31 December
94
Annexure 6 EXTRACTS FROM ARTICLES OF ASSOCIATION
1. Provisions relating to share capital in the articles All issued and outstanding shares are fully paid up, not subject to calls for additional payment of any kind and are in definitive registered physical form. General extracts from the NBS Articles of Association are provided below: 2. Voting rights Article 70: Votes of members
Subject to any rights or restrictions for the time being attached to any classes of shares, on a show of hands every member present in person or represented by proxy shall have one vote, or on a poll every member shall have one (1) vote for each share of which he is, or is proxy for the registered holder. Article 71: Voting shares in different ways
On a poll, votes may be given either personally or by proxy. A member having more than one (1) share carrying voting rights may appoint separate proxies to represent respectively such number of the shares held by him as may be specified by him in their instruments of appointment. Article 72: Joint holders
In the case of joint holders, the vote of the senior who tenders a vote, whether in person or by proxy, shall be accepted to the exclusion of the votes of the other joint holders and for this purpose seniority shall be determined by the order in which their names stand in the register of members. Article 73: Calls on arrears
No member having the right to vote shall be entitled to vote at any general meeting unless all calls or other sums presently payable by him in respect of shares in the Company have been paid. 3. Variation of rights Article 6: Modification of rights
If at any time the share capital is divided into different classes of shares, the rights attached to any class (unless otherwise provided by the terms of issue of the shares of that class) may, whether or not the Company is being wound up, be varied with the consent in writing of the holders of not less than three-fourths (3/4) of the issued shares of that class, or with the sanction of a special resolution passed at a separate general meeting of the holders of the shares of the class. To every such separate
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general meeting the provisions of these articles relating to general meetings shall mutatis mutandis apply, but subject to the following provisionswhere a class has only one (1) member, that member shall constitute a meeting; at any meeting of a class of members, one (1) member of the class present in person or by proxy may demand a poll; at any meeting of a class of members other than an adjourned meeting, the necessary quorum shall be one (1) member present in person or by proxy, if there are not more than two (2) members of that class, and in any other case shall be two (2) members, present in person or by proxy, holding not less than one-third (1/3) of the total voting rights of that class; and at any adjourned meeting of a class of members, the necessary quorum shall be one (1) member of that class. Article 7: Rights not varied by issue of shares Pari Passu
The rights conferred upon the holders of the shares of any class issued with preferred or other rights shall not, unless otherwise expressly provided by the terms of issue of the shares of that class, be deemed to be varied by the creation or issue of further shares ranking pari passu therewith. 4. Provisions in the articles for new issues of shares Article 4: Power to issue shares of different classes
Without prejudice to any special rights previously conferred on the holders of the existing shares or class of shares, but subject to the Act, shares in the Company may be issued with such preferred, deferred or other special rights, or such restrictions, whether in regard to dividend, voting, return of capital or otherwise as the Directors, subject to any ordinary resolution of the Company, may from time to time determine. Article 5: Power to issue redeemable preference shares
Subject to the provisions of Section 62 of the Act, any preference shares may, with the sanction of an ordinary resolution, be issued on the terms that they are, or at the option of the Company are, liable, to be redeemed on such terms and in such manner as the Company before the issue of the shares may by ordinary resolution determine. 5. Changes in capital Article 46: Alterations of capital power to increase
The Company may from time to time by ordinary resolution increase the share capital by additional shares of such sum, to be divided into shares of such amount and of such class as the resolution shall prescribe. Article 47: Increase to be offered to Existing Members
New shares shall be offered in the first instant, either at par or at a premium, to all the existing holders of that class of shares, in proportion as nearly as is possible to the amount of the capital or the number of shares of such class held by them respectively, unless the Company shall by ordinary resolution before the issue of any new shares make any provisions as to the issue and allotment of the new shares. Where the Company by ordinary resolution specifically authorises the directors to
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dispose of the new shares as the directors, in their discretion may think fit, such shares shall be disposed of within 12 (twelve) months of such resolution. Article 48: New shares to rank with original capital
Except so far as otherwise provided by the conditions of issue, or by these articles, the creation of new shares shall be considered part of the original capital, and shall be subject to the provisions herein contained with reference to the payment of calls and instalments, transfer and transmission, forfeiture, lien, surrender and otherwise. Unless otherwise provided in accordance with these articles the new shares shall be ordinary shares. Article 49: Consolidation and sub-division
The Company may by special resolution consolidate and divide all or any of its shares or share capital into shares of larger amount than its existing shares; sub-divide its existing shares, or any of them into shares of smaller amount than is fixed by the memorandum of association subject nevertheless to the provisions of paragraph (d) of sub-section (1) of Section 64 of the Act. Cancel any shares which, at the date of the passing of the resolution, have not been taken or agreed to be taken by any person. Article 50: Reduction
The Company may by special resolution reduce its share capital, any capital redemption reserve fund or any share premium account in any manner and with, and subject to, any incident authorised, and consent required by law, provided that no share capital of the Company may be repaid on the footing that it may be called up again. 6. Debentures and loan capital There is no outstanding loan capital issued or agreed to be issued by NBS. 7. Winding up Article 157: Winding up
If the Company is wound up, the liquidator may with the sanction of a special resolution of the Company and any other sanction required in terms of the Act and the Banking Act , divide amongst the members in specie or kind the whole or any part of the assets of the Company (whether they shall consist of property of the same kind or not) and may for such purposes set such values as he deems fair upon any property to be divided as aforesaid and may determine how such division shall be carried out as between the members or different classes of members. The liquidator may, with the like sanction, vest the whole or any part of such assets in trustees upon such trusts for the benefit of the members as the liquidator, with the like sanction, shall think fit.
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8. Dividends Provisions in the Articles Article 133: Dividends and reserve declaration of dividends
The final dividends may only be declared by the Company in general meeting on the recommendation of the directors, but no dividend shall exceed the amount recommended by the directors. Article 134: Directors power to declare interim dividends
The directors may from time to time declare and pay to the members such interim dividends as appear to the directors to be justified by the profits of the Company. If an interim dividend is paid prior to the publication of the annual accounts, the dividend notice given to members will contain a statement of the ascertained or estimated combined net trading profits of the Company or group for the year, and any abnormal receipts or payments, detail appropriation of those profits and also particulars of any amounts appropriated from reserves, capital profits, accumulated profits of the past years or other special source, to provide wholly or partly for the dividend. 9. Borrowing Powers Provisions in the Articles Article 88: Borrowing powers
The directors may from time to time at their discretion and in accordance with the Banking Act, raise or borrow or secure the payment of any sum or sums of money for the purposes of the Company, save that the directors shall procure that the aggregate amount for the time being remaining undischarged of moneys borrowed by the Company and its subsidiaries (exclusive of intercompany borrowing and apart from temporary loans obtained from the Companys bankers and deposits received from the public in the ordinary course of banking business) shall not, without sanction of the Company in general meeting by ordinary resolution, exceed a reasonable fixed amount or percentage of the paid up share capital of the Company for the time being issued and reserves, and the directors will procure that the aggregate amount at any time owing in respect of monies borrowed by the Company (including creditors) will not without such sanction exceed the said limit, but nevertheless, no lender or other person dealing with the Company shall be concerned to see or enquire whether this limit is observed. 10. Transfer of shares Provisions in the Articles Article 26: Transfer of shares
Subject to these articles, any member may transfer all or any of his shares by instrument in writing in the form of the Sixth Schedule to the Act or in such other common form as the directors may approve. The instrument of transfer of any share shall be executed by or on behalf of the transferor and the transferee and the transferor shall be deemed to remain a holder of the share until the name of the transferee is entered in the register of members in respect thereof. At present there are no restrictions on the transfer of shares under the Laws of Malawi.
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11. Appointment of directors and term of office Article 83: Directors
Unless and until otherwise determined by the Company in general meeting by an ordinary resolution, the directors shall not be less than three (3) nor more than ten (10) in number. Article 103: Rotation of Directors rotation by retirement
At the annual general meeting of the Company in every year one third of the directors, or, if their number is not a multiple of three (3), then the number nearest to one-third (1/3), shall retire from office. Article 104: Directors to retire
The directors to retire in every year shall be those who have been longest in office since their last election, but as between persons who become directors on the same day, those to retire shall (unless they otherwise agree among themselves) be determined by lot. Article 105: Retiring Directors eligible
A retiring director shall be eligible for re-election. Article 106: Persons eligible for election
No person other than a director retiring at the meeting shall (unless recommended by the directors) be eligible for election to the office of director at any general meeting unless not less than three (3) and nor more than seven (7) days before the date appointed for the meeting there shall have been left or received by fax at the Registered Office notice in writing, signed by a member duly qualified to attend and vote at the meeting for which such notice is given, of his intention to propose such person for election, and also notice in writing signed by that person of his willingness to serve in that capacity if elected. 12. Qualification of directors Provisions in the Articles of NBS are as follows: Article 86: Qualification
The shareholding qualification of a director may be fixed by the Company in general meeting and unless and until so fixed no qualification shall be required. Article 102: Disqualification
The office of directors shall be vacated if the director102.1 ceases to be a director by virtue of Section 142 of the Act; or
102.2 becomes bankrupt or makes any arrangement or composition with his creditors generally, or assigns his estate; or 102.3 becomes prohibited or disqualified from being a director in terms of Section 142 (1) (c) of the Act Banking Act, or by reason of any order made under section 142(2)(b) of the Act; or
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102.4 is lawfully declared to be deemed to be unfit or proper person to hold such office in terms of the RBM Directives; or becomes of unsound mind; or 102.6 resigns his office by notice in writing to the Company; or
102.7 has been convicted of an offence involving dishonesty or fraud (including forgery, perjury, money laundering or any similar offence); 102.8 has been removed from office at a licensed institution by RBM pursuant to a directive from RBM in terms of the Banking Act; 102.9 is disqualified or suspended from practicing any profession on the grounds of professional misconduct; 102.10 serves as a director and or audit committee member of or is employed (directly or indirectly) by an institution licensed under the Banking Act (other than the Companys subsidiaries or associates) ; 102.11 who was appointed by virtue of being an executive pursuant to article 126 and ceases to hold such executive office for any reason whatsoever; or 102.12 shall have been absent for more than three (3) consecutive meetings of the directors without permission or without a reasonable explanation. Article 108: new directors to be approved in terms of the RBM directives
Notwithstanding anything contained in these articles, where a new director is appointed by the Company, such a person shall not serve as a director until and unless prior written approval has been obtained from RBM in terms of the RBM Directives. Where such approval is not obtained within sixty (60) days then the director will be deemed to have been disqualified and a casual vacancy shall be deemed have arisen. 13. Remuneration of directors Provisions in the Articles Article 84: Remuneration
The remuneration of the directors shall be such sum as shall be decided by the Company in general meeting and such remuneration shall be deemed to accrue from day to day. The directors may also be paid all travelling, hotel and other expenses properly incurred by them in attending and returning from meetings of the directors or any committee of the directors or general meeting of the Company or in connection with the business of the Company. Article 85: Special Remuneration
Any director who serves on any committee or who devotes special attention to the business of the Company, or who otherwise performs services which in the opinion of a disinterested quorum of directors are outside the scope of the ordinary duties of a director, may be paid such extra remuneration as a disinterested quorum of the directors may determine.
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Article 87:
Holding office in subsidiary companies
A director of the Company may be or become a director or other officer of, or otherwise interested in, any company promoted by the Company or in which the Company may be interested as a member or otherwise, and no such director shall be accountable to the Company for any remuneration or other benefits received by him as a director or officer of or from his interest in, such other company unless the Company otherwise directs. Provided; That if a director shall be or become a director and/or an employee of a subsidiary company, the appointment and the terms thereof and the remuneration payable shall be determined by a disinterested quorum of Directors.
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Annexure 7 TRUST DEED IN RESPECT OF THE NBS BANK EMPLOYEES SHARES OWNERSHIP PLAN Please note that we have included below an extract of the Trust Deed in respect of the NBS Bank Employees Shares Ownership Plan. The full document will lie open for inspection as per paragraph 7.1.9 on page 36 of this document. INTRODUCTION A. The Government is one of the shareholders in NBS. The Government intends through the Commission, as the sole agent of the Government responsible for the implementation of the privatisation policies of the Government, to dispose of its shareholding by offer to the general public, upon the listing of NBS on the Malawi Stock Exchange (MSE) and to transfer the NBS Shares (herein defined) to the Trustees ( herein defined) of NBS ESOP Trust (herein defined). B. The shareholders of NBS have approved the NBS ESOP Trust (herein defined) and this Deed at its general meeting. The Board (herein defined) has also approved the NBS ESOP and this Deed. C. NBS and the Trustees (herein defined) have agreed to implement the NBS ESOP Trust on the terms and subject to the conditions of this Deed and the Rule (herein defined). IT IS HEREBY AGREED as follows:1. INTERPRETATION AND DEFINITIONS 1.1 In addition to the other terms defined elsewhere in this Deed and the Rules, the following words and terms shall, unless the context otherwise requires the following terms have the following meanings; 1.1.1 1.1.2 1.1.3 Board means the board of directors of NBS; This Deed means this Trust Deed; Loan Agreement means the agreement dated around May, 2007 and made between NBS and the Trustees in terms of which NBS has agreed to give the Trustees a loan of K32,280,000 [THIRTY TWO MILLION TWO HUNDRED AND EIGHTY THOUSAND KWACHA] to purchase the NBS Shares; 1.1.4 NBS Shares means 16,000,000 [SIXTEEN MILLION] fully paid ordinary shares of K0.50 (Fifty tambala) each of NBS representing 4% of the issued share capital of NBS and agreed to be sold by the Government (through the Commission) to the Trustees for the purposes of the NBS ESOP;
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1.1.5 1.1.6 1.1.7 1.1.8 NBS ESOP means the NBS Employees Share Ownership Plan and the Rules made in terms of this Deed; NBS ESOP Trust means the NBS ESOP and the Trust Jointly; Participants means an Employee who holds an Option in terms of the Rules; Qualified Employee means any employee of NBS (other than a temporary employee), who has completed 2 years continuous employment with NBS as at 30th June, 2007 and is eligible to participate in the NBS ESOP in terms of this Deed and the Rules provided that no person whose employment is terminated or who is serving a period of notice of termination of employment as at 30th June, 2007 shall be eligible to participate in the NBS ESOP or to exercise any Option granted to him; 1.1.9 Rules means rules for the operation of NBS ESOP made in terms of Clause 10.2.6 as set out in Schedule 1 of this Deed and as amended from time to time; 1.1.10 Trust means the trust constituted in accordance with the terms of this Deed (as the same may be varied from time to time) for the purposes of implementing and administering the NBS ESOP and the holding the NBS Shares for the benefit of the Participants; 1.1.11 Trustees means Mr. Vizenge Matumika Kumwenda, Mrs. Bernadette Nkhwazi, and Mrs. Janet Banda who have executed this Deed as Trustees, respectively, and those other persons to be appointed by the Trustees in terms of Clauses 3 and 9.2 of this Deed and their successors from time to time; 1.1.12 Trust Fund means and includes the NBS Shares together with any further shares, monies, securities, investments, property or assets in which from time to time the proceeds, income, dividends or other accruals from the NBS Shares may be invested, and any other monies, securities, investments, shares, property or assets and any income accrued thereon which the Trustees may receive from time to time from any source whatsoever for and/or to the benefit of the Trust. 2. NAME OF TRUST The Trust herby constituted shall be known as THE NBS EMPLOYEES SHARES OWNERSHIP TRUST 3. APPOINTMENT OF THE TRUSTEES Subject to the provisions of Clause 9, NBS and the Commission hereby appoint the Trustees and the Trustees accept the appointment as the trustees for the purposes of this Deed.
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4. SALE AND PURCHASE OF NBS SHARES In pursuance of the agreement to create the NBS ESOP Trust and for the consideration of K32,280,000 [THIRTY TWO MILLION TWO HUNDRED AND EIGHTY THOUSAND KWACHA], the Commission as Beneficial owner hereby sells and undertakes to transfer to the Trustees the NBS Shares UPON TRUST for the Participants for the purposes of the NBS ESOP Trust. 5. EFFECTIVE DATE The NBS ESOP Trust is conditional upon the listing of NBS on MSE. The sale of the NBS Shares will therefore take effect on the date of the listing of NBS on MSE. 6. FUNDING The purchase and sale of NBS Shares, the costs incurred in the acquisition thereof, all expenses of the Trust and any monies required to effect repayment of any borrowings by the Trustees shall be met out of: 6.1 the Trust Fund; 6.2 loan to be made to the Trustees in terms of the Loan Agreement by NBS; 6.3 loans by third parties to the Trust to be procured by the Trustees upon such terms as the Trustees are able to arrange; and 6.4 any other resources which are available to the Trustees from time to time as the Trustees may from time to time decide. 7. LOAN FROM NBS 7.1 The loan from NBS to the Trustees to finance the purchase of the NBS Shares shall be repaid by the Trustees in terms of the Loan Agreement. 7.2 In the event that the expenses of administering the Trust exceed the income, then NBS will provide additional monies to the Trustees to make good the shortfall. The Trustees shall reimburse NBS all such additional monies as soon as possible. 8. HOW TRUST FUND TO BE DEALT WITH 8.1 The Trustees shall hold the Trust Fund upon trust for the following purposes: 8.1.1 8.1.2 8.1.3 to acquire the NBS Shares; to repay the loan in terms of the Loan Agreement as provided in Clause 7.1 of this Deed; to meet all the expenses of administering the Trust.
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8.1.4 to do all such other lawful things as are incidental or conductive to the attainment of the above purposes or any of them. 8.2 All costs incurred in the administration of the Trust shall be paid out of the Trust Fund. 9. APPOINTMENT AND REMOVAL OF TRUSTEES 9.1 There shall be not less than three (3) and no more than five (5) Trustees. 9.2 If at any time there is a vacancy in the office of the Trustee then the Board shall immediately appoint additional person(s) as the Trustees. The Board shall ensure that at all times a member of the Appointments Committee of the Board and a representative of NICO Holdings Limited are amongst the persons appointed as Trustees. 9.3 The Trustees shall appoint a chairman of the Trustees from amongst the Trustees and shall be entitled to remove the chairman so appointed and to appoint a successor. But if no such chairman is appointed, or if at any meeting of the Trustees, the chairman is not present within 15 (fifteen) minutes after the time appointed for holding the same, the Trustees present may choose one of their number to be chairman of the meeting. 9.4 Subject to Clause 14, any Trustee who is a Qualifying Employee shall be entitled to participate in the NBS ESOP without the prior approval in writing from the MSE in terms of the listings requirements. 9.5 Any Trustee shall cease to hold office if: 9.5.1 9.5.2 he becomes bankrupt or makes any arrangement or composition with his creditors generally, or assigns his estate; becomes prohibited or disqualified from being a director in terms of Section 142 (1) (c) of the Act Banking Act, or by reason of any order made under Section 142(2)(b) of the Companies Act; 9.5.3 9.5.4 9.5.5 becomes of unsound mind; resigns his office by notice in writing to the Trustees ; if appointed a Trustee in his capacity as a representative of the employees of NBS (with the prior permission of the MSE if a Qualified Employee), ceases to be employed by NBS; 9.5.6 if appointed a Trustee in his capacity as a representative of a committee of the Board or NICO Holdings Limited, ceases to occupy such office or represent NICO Holdings Limited as may be the case; 9.5.7 9.5.8 has been convicted of an offence involving dishonesty or fraud (including forgery, perjury, money laundering or any similar offence); has been removed from office at a licensed institution pursuant to a directive by the Reserve Bank of Malawi in terms of the Banking Act;
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9.5.9 is disqualified or suspended from practicing any profession on the grounds of professional misconduct; 9.5.10 serves as a director and or audit committee member of or is employed (directly or indirectly) by an institution licensed under the Banking Act (other than NBS, NBSs holding company, subsidiaries or associates); 9.5.11 shall have been absent for more than three (3) consecutive meetings of the Trustees without permission or without a reasonable explanation; 9.5.12 is found by the Board or the Trustees to have conducted himself in such a way that in their opinion renders him unsuitable to hold the office of a Trustee. 10. GENERAL POWERS OF TRUSTEES 10.1The Trustees shall have full power and authority to do all such things and take all such steps as may appear to be necessary or desirable to the Trustees to give effect to the objects and intentions of the Trust, or as may be necessary or incidental to the administration of the Trust, and shall perform duties and obligations required of trustees by law. 10.2Without derogating from the generality of the foregoing and such other powers as may be conferred on them by law or elsewhere in this Deed and the Rules, the Trustees shall, have the following powers: 10.2.1 to acquire the NBS Shares for the purposes of the NBS ESOP Trust; 10.2.2 to borrow or raise money from NBS or any other person for the purposes of the NBS ESOP subject to such terms and conditions as they may in their discretion deem fit; 10.2.3 to offer such securities for the purposes of raising moneys for the acquisition of the NBS Shares or the administration and implementation of the NBS ESOP, as the Trustees may in their discretion, deem fit; 10.2.4 to open and operate banking accounts and draw and issue cheques, promissory notes and/or bills of exchange; 10.2.5 to exercise such further rights, powers and authorities as may from time to time be conferred upon them under this Deed; 10.2.6 the Trustees shall have full power from time to time to make and amend the Rules, regulations for the conduct of their business and for the management, administration and implementation of the Trust. The Rules and any such regulations shall be binding on all persons affected thereby Provided that
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10.2.6.1 no alteration shall abrogate or alter adversely the rights attaching to any Options already granted prior to the proposed alteration except with the consent of the majority of the Participants; 10.2.6.2 no alteration shall be made which will have the effect of giving Options materially more generous or would increase the limits specified in Rule 10;and 10.2.6.3 Written notice of all such alterations shall be made to all Participants within 14 days of such alteration. 10.2.7 Generally to do all such other things and carry out all such undertakings expedient to further the object of the Trust or which may be incidental or conducive to the attainment of the object of the Trust. 10.3 The Trustees shall always exercise their powers and perform their duties in accordance with the Rules which shall, for this purposes, form part of this Deed. 11 DUTIES OF TRUSTEES The duties of the Trustees in relation to the Trust shall be those prescribed by this Deed. In this regard, the day to day administration of the business of the Trust may be delegated at such remuneration as may be agreed from time to time to any person, including any officer of NBS or NBS itself, who shall perform duties in accordance with the instructions of the Trustees. 14 REMUNERATION OF TRUSTEES 14.1 The Trustees shall not be entitled to any remuneration but shall be entitled to such reasonable reimbursement from the Trust Fund for all the expenses properly incurred by them in and about the execution of their duties as trustees. 14.2 The Trustees shall be entitled from time to time to engage and employ all such persons, including legal practitioners, auditors and agents as they shall in their absolute discretion deem necessary or desirable to administer, manage or assist in any business of whatever nature required to be done pursuant to this Deed and shall be entitled to pay all such charges and expenses so incurred. 14.3 The holding of office of a Trustee shall not preclude him or any firm or company of which he is a member from rendering and recovering reasonable remuneration for professional services rendered to or on behalf of the Trust.
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17 ACCOUNTS OF TRUSTEESHIP TO BE KEPT AND TENDERED TO THE BOARD AND AUDITORS 17.1 The Trustees shall keep accurate accounts of the Trust and shall annually and whenever requested by the Board to do so furnish all information, details of their operations and copies of accounts or documents relating to the Trust. 17.2 The Trustees shall cause the accounts to be audited annually by such professional accountant as they may appoint for the purpose and may in their discretion determine out of what part or parts of the Trust Fund the costs of such audit shall be defrayed.
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Annexure 8 RECEIVING BANKS
NBS BANK LIMITED
The details of the branches and agencies of NBS are contained on page 6 of this document.
NATIONAL BANK OF MALAWI LIMITED
Capital City Branch PO Box 30317Capital City Lilongwe 3
Chichiri Branch PO Box 30365 Chichiri Blantyre 3
Customs Road Branch PO Box 5045 Limbe
Henderson Street Branch PO Box 102 Blantyre
Karonga Branch PO Box 95 Karonga
Kasungu Branch PO Box 228 Kasungu
Lilongwe Branch PO Box 123 Lilongwe
Mangochi Branch PO Box 43 Mangochi
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Mulanje Branch P.O. Box 19 Mulanje Mzuzu Branch PO Box 20 Mzuzu
Zomba Branch PO Bo 13 Zomba
Victoria Avenue Branch PO Box 947 Blantyre
AGENCIES Chichiri Shopping Mall Agency Salima Agency Kanengo Agency K I A Agency Liwonde Agency Mchinji Agency Mzimba Agency Nchalo Agency Thyolo Agency
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STANBIC BANK LIMITED
Balaka P O Box 306 Balaka Tel: +265 (0) 1 545239 Fax:+265 (0) 1 545593 Email: cbalaka@stanbic.com Capital City P O Box 30386 Lilongwe 3 Tel: +265 (0) 1 770988 Fax:+265 (0) 1 773497 Email: sbmw_capital@stanbic.com Chichiri Service Centre P O Box 32070 Blantyre 3 Tel: +265 (0) 1 678 170 Fax: +265 (0) 1 673 462 Email: SBMW_Chichiri@stanbic.com Dwangwa P O Box 62 Salima Tel: +265 (0) 1 295255 Fax:+265 (0) 1 295255 Email: sbmw_dwangwa@stanbic.com Kasungu P O Box 100 Kasungu Tel: +265 (0) 1 253257 Fax:+265 (0) 1 253570 Email: sbmw_kasungu@stanbic.com Limbe P O Box 5091 Limbe Tel: +265 (0) 1 640166 Fax:+265 (0) 1 644406 Email: sbmw_limbe@stanbic.com
Blantyre P O Box 1297 Blantyre Tel: +265 (0) 1 620222 Fax:+265 (0) 1 624107 Email: sbmw_blantyre@stanbic.com Corporate Banking Centre P O Box 1353 Blantyre Tel: +265 (0) 1 670802 Fax:+265 (0) 1 676 591 Email: sbmw_cbc@stanbic.com Dedza P O Box 5 Dedza Tel: +265 (0) 1 223346 Fax:+265 (0) 1 223634 Email: sbmw_dedza@stanbic.com Ginnery Corner P O Box 30050 Blantyre 3 Tel: +265 (0) 1 671255 Fax:+265 (0) 1 676497 Email: sbmw_ginnery@stanbic.com Lilongwe P O Box 522 Lilongwe Tel: +265 (0) 1 755277 Fax:+265 (0) 1 755738 Email: sbmw_lilongwe@stanbic.com Luchenza P O Box 154 Limbe Tel: +265 (0) 1 476448 Fax:+265 (0) 1 476078 Email: ckundiwa@stanbic.com
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Lunzu P O Box 111 Lunzu Tel: +265 (0) 1 694391 Fax:+265 (0) 1 694343 Email:sbmw_lunzu@stanbic.com Mwanza P O Box 158 Mwanza Tel: +265 (0) 1 432341 Fax:+265 (0) 1 432351 Email: sbmw_mwanza@stanbic.com Ntcheu P O Box 312 Ntcheu Tel: +265 (0) 1 235455 Fax:+265 (0) 1 235332 Email: sbmw_ntcheu@stanbic.com Zomba P O Box 302 Zomba Tel: +265 (0) 1 524144 Fax:+265 (0) 1 524088 Email: sbmw_zomba@stanbic.com
Mangochi P O Box 106 Mangochi Tel: +265 (0) 1 594377 Fax:+265 (0) 1 594764 Email: sbmw_mangochi@stanbic.com Mzuzu P O Box 104 Mzuzu Tel: +265 (0) 1 332366 Fax:+265 (0) 1 332574 Email: sbmw_mzuzu@stanbic.com Salima P O Box 62 Salima Tel: +265 (0) 1 262544 Fax:+265 (0) 1 262024 Email: sbmw_salima@stanbic.com
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Annexure 9 TERMS AND CONDITIONS OF APPLICATION Applicants are required to read the information below carefully. Please consult your stockbroker, banker or other financial adviser for assistance if necessary. General terms of application 1) Multiple applications are permitted. All applications received from a single Applicant may be aggregated and treated as a single application. 2) 3) Copied or faxed application forms will be rejected. Only original application forms will be considered. No documentary evidence of capacity to apply need accompany the application, NBS reserves the right to call upon any Applicant to submit such evidence in support of an Applicants authority to sign the application in a representative capacity. Any material alteration on the application form, other than the deletion of alternatives, must be authenticated by full signature. After the closure of the Offer period applications are irrevocable. Nominee organisations may apply on behalf of their clients on one application form but must attach in a separate schedule, the name, address, country of residence and number of shares applied for by each beneficial owner. Shares may not be applied for in the name of a deceased or insolvent estate or a partnership. Executors, trustees and individual partners may apply for shares in their own name. Minors must be assisted as far as is necessary and permitted by law. The following calculation table at MWK 2.60 per share may assist applicants in determining the amount to pay upon application: -
4) 5) 6)
7)
8)
Number Amount Number Amount Number Amount of shares Payable of shares payable of shares payable applied for MWK applied for MWK applied for MWK 10,400 20,000 52,000 100,000 260,000 4,000 13,000 25,000 65,000 150,000 390,000 5,000 15,600 30,000 78,000 200,000 520,000 6,000 18,200 35,000 91,000 250,000 650,000 7,000 20,800 40,000 104,000 300,000 780,000 8,000 23,400 45,000 117,000 350,000 910,000 9,000 10,000 26,000 50,000 130,000 400,000 1,040,000 28,600 55,000 143,000 450,000 1,170,000 11,000 31,200 60,000 156,000 500,000 1,300,000 12,000 33,800 65,000 169,000 550,000 1,430,000 13,000 36,400 70,000 182,000 600,000 1,560,000 14,000 39,000 75,000 195,000 650,000 1,690,000 15,000 Note: Applications must be for a minimum of 4,000 shares and in multiples of 1,000 shares thereafter
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9) This completed application form with the requisite MWK cash, bankers draft or bankers cheque payment drawn on an operating licensed bank must be made payable in favour of NBS IPO Account and submitted to any branch of the receiving banks (see Annexure 8 of the prospectus for details of all branches of the receiving banks) no later than 3:00 PM on Friday 15 June 2007. No late applications will be considered. The receipt at the bottom of the application form will be given to Applicants following submission of a completed application form and the required application money. The receipt and appropriate identification will be required to collect the share certificate or refund cheque, if any, from the branch through which the application was submitted.
10)
Allocation NBS reserves the right to accept or reject any application form that has not been completed in compliance with the conditions and instructions contained herein. NBS reserves the right to alter, relax or waive any of the terms and conditions with respect to share applications as they in their sole discretion, may deem fit. In the event of the rejection of the application, in whole or acceptance for a lesser number of shares than that applied for, refund payments will be made by NBS to the bank account details as provided on the application form within 3 working days of announcement of the results of the Offer. In the event of a discrepancy between the number of shares applied for and the value thereof, the Company, may in its sole discretion adjust the number of shares to correspond to the value received for the application. In the event of the rejection of the application, in whole or acceptance for a lesser number of shares than that applied for, refund cheques will be made available from the branch through which the application was submitted. No temporary documents of title will be issued. Share certificates and refund cheques Applicants wishing to collect any refund cheques or share certificates are required to do so through the branch through which the application was made. Any refund cheques or share certificates will be forwarded to branches within 7 days of the announcement of the results of the Offer. The branch will not release share certificates unless the receipted and original receipt counterfoil of the application form and acceptable identification is produced. After 28 calendar days from the date of the announcement of the results of the Offer uncollected refund cheques or share certificates will be sent to the registered office or Blantyre office of the Company for subsequent collection by Applicants upon presentation of the receipted and numbered original receipt counterfoil of the application form and an acceptable form of identification. The Company accepts no liability for any certificates lost. Should share certificates be lost, written requests for share certificate replacement, accompanied by an indemnity form, available from the Company Secretary, will only be considered after thirty working days following NBSs admission to the Official List. Application by foreign investors This prospectus does not constitute an offer in any area of jurisdiction in which it is illegal to make such an offer. In such circumstances, this Prospectus and attached application form is for information purpose only.
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The attached application form has all the details, terms and conditions relating to an application by foreign investors. Foreign investors should attach a copy of the Swift confirmation of their funds transfer supporting their application together with their original application form and ensure, through close liaison with NBS International Banking (Attention: Mrs Lusekelo Kaoloka - PO Box 32251, Chichiri Blantyre 3) that funds are credited to the appropriate account prior to the closing of the Offer. The NBS IPO account to which application funds should be sent is as follows: Citibank N.A New York 111 Wall Street New York Account number: 36246192 Swift code: CITIUS33 For further credit to: NBS Bank Limited, Ginnery Corner Branch Blantyre, Malawi. Account number: 0025-420137-012 Swift code: NBSTMWMW Beneficiary: NBS IPO Account Pending announcement of the results of the Offer, NBS will hold all application monies from foreign investors in trust, in a USD denominated account. Interest will not be paid on any monies held in trust, whether refunded or utilised for the purchase of shares. Refunds, if applicable, will be made to Applicants by NBS to the bank account details they have indicated on the application form within 3 working days of announcement of the results of the Offer. The number of shares being applied for by foreign investors shall be determined on the basis of the ruling Reserve Bank of Malawi mid rate for USD on the Closing Date of the Offer. Refunds, if applicable, will be determined on the basis of the ruling Reserve Bank of Malawi mid rate for USD on the Closing Date of the Offer.
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APPLICATION FORM NBS Bank Limited (NBS) Regarding the public offer of 141,333,000 NBS Ordinary shares at an Offer Price of MWK 2.60 per Ordinary share. You must submit this form to any branch of NBS, National Bank of Malawi and Stanbic Bank Limited. Please refer to the instructions on the reverse side before completing this form. To the Directors: I/We, the undersigned, have read the Prospectus and that I/we understand the Risk Factors outlined in paragraph 6.1. We have full legal capacity to contract and subject to NBSs memorandum and articles of association, apply for and request you to accept my/our application for the under mentioned NBS shares, or any lesser number that may in your sole and absolute discretion, be allocated to me/us. I/we understand that the Offer and this application of Ordinary shares in terms of the Prospectus is conditional upon the admission of NBSs Ordinary share capital onto the MSE. I/We declare that the application made hereby is made solely on behalf of the Applicant(s). Signature/(s):... Date: Please complete in BLOCK LETTERS: Title Surname/s circle appropriate title(s), or insert if not Mr, Mrs, Miss, Ms, Dr, Rev, Trustee, listed Other: or name of corporate body applying for shares
First name/s in full, of individual Applicant(s) Telephone no. your contact number Nationality If you are an NBS customer insert Account Number opposite: If you are an employee of NBS insert your Employee Number opposite: Contact Physical address: Contact Postal address:
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Collection Instructions: If you wish to collect your share certificate and any refund cheque, please indicate the receiving bank and branch, listed in Annexure 8 of the Prospectus, or alternatively from Trust Transfer Secretaries Share certificates and any refund cheques should be ready for collection in accordance with any collection instructions given in the box above by 15:00 hours (3 pm) on Friday 22 June 2007 and in the absence of collection instructions will be posted to the postal address given above. NB. Upon collecting share certificates and refund cheques appropriate identification will be required. Number of Ordinary shares applied for in multiples of 1,000 shares. Minimum application 4,000 shares. (enter figures only not words) Amount of bankers cheque, draft or cash attached to this application for the Ordinary MWK shares applied for at MWK 2.60 per share. (enter figures only not words) Branch / code Tear here- - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - Branch / code NBS SHARE OFFER RECIEPT OF APPLICATION Name Amount paid Shares applied for
117
SALIENT APPLICATION TERMS AND CONDITIONS These terms and conditions must be read in conjunction with the Prospectus, in particular Annexure 9 Terms and conditions of application, to which this application form is attached Application: 1. Any material alteration on the application form, other than the deletion of alternatives, must be authenticated by full signature. 2. Multiple applications are permitted. All applications received from a single Applicant may be aggregated and treated as a single application. 3. Applications are irrevocable and must be for a minimum of 4,000 shares and in multiples of 1,000 shares thereafter. 4. Copied or faxed application forms will be rejected. Only original application forms will be considered. 5. The completed application form with payment should be submitted to any branch of NBS. Please consult your stockbroker, banker or other financial adviser for assistance if necessary. 6. The following calculation table at MWK 2.60 per share may assist you in determining the amount to pay upon application: Number Amount Number Amount Number Amount of shares payable of shares payable of shares payable applied for MWK applied for MWK applied for MWK 10,400 20,000 52,000 100,000 260,000 4,000 5,000 13,000 25,000 65,000 150,000 390,000 15,600 30,000 78,000 200,000 520,000 6,000 18,200 35,000 91,000 250,000 650,000 7,000 20,800 40,000 104,000 300,000 780,000 8,000 23,400 45,000 117,000 350,000 910,000 9,000 26,000 50,000 130,000 400,000 1,040,000 10,000 28,600 55,000 143,000 450,000 1,170,000 11,000 31,200 60,000 156,000 500,000 1,300,000 12,000 33,800 65,000 169,000 550,000 1,430,000 13,000 36,400 70,000 182,000 600,000 1,560,000 14,000 39,000 75,000 195,000 650,000 1,690,000 15,000 Note: Applications must be for a minimum of 4,000 shares and in multiples of 1,000 shares thereafter 7. This completed application form with the requisite MWK. cash, bankers draft or bankers cheque payment drawn on an operating licensed bank must be made payable in favour of NBS IPO Account and submitted any branch of NBS no later than 3:00 pm on Friday 15 June 2007. No late applications will be considered. The cost of Bankers cheques issued by banks other than NBS in support of any application will be borne by the Applicant. Cash will be accepted in lieu of a bankers draft or cheque. The presentation of bankers cheques shall not amount to acceptance of the application.
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Payment: 8. 9. 10.

11. The branch will not release share certificates unless the receipted and numbered original receipt counterfoil of the application form and acceptable identification is produced. Uncollected refund cheques or share certificates will be sent to the NBS Head Office for subsequent collection by Applicants upon presentation of the receipted and numbered original receipt counterfoil of the application form and an acceptable form of identification.
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DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

Sacranie Gow & Co Underwriters Transfer Secretaries Receiving Banks

Trust Finance Limited

Public Relations Consultants

Date of issue: 28 May 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

Annexure 1 Annexure 2 Annexure 3 Annexure 4 Annexure 5 Annexure 6 Annexure 7 Annexure 8 Annexure 9

45 48 51 58 63 95 102 109 113

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

Opening date Ordinary shares or Shares

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

% of shares in issuer 51.0 24.5 24.5 100.0

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

% of shares in issuer 74.0 16.0 10.0 100.0

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

MWK MWK MWK %

times times times times

7.06 4.92 1.08 1.08

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

296,000,000 64,000,000 40,000,000 400,000,000

74% 16% 10% 0% 0% 100%

60.0% 0% 8.1% 3.2% 28.7%

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

Total Loans and Advances

TOTAL LOANS AND ADVANCES

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

Net Operating profit

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

5.2. Management and operational organogram

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

Auditors Bankers Issued Share Capital

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

DRAFT 6 (FORMAL SUBMISSION) 11 MAY 2007

GoM 64,000 (48,000) (16,000) -

ESOP 16,000 16,000

Total 400,000 93,333 493,333

Date Mar-04 May-07 May-07

Number of Shares 250,000 100,000 350,000 700,000

Total authorised share capital in May 2007