By ETimes
HARARE – NMB Holdings’ external auditor, Ernst & Young Chartered Accountants (Zimbabwe), has expressed a qualified opinion on the bank’s financial statements for the year ended 31 December 2023.
A qualified opinion means financials are fairly presented except for a specified issue, which is then disclosed by the auditor. It is a step lower than a clean opinion, but not an adverse opinion.
The independent auditor issued a qualified opinion due to the restatement of prior year amounts, leading to misstatements in certain financial statement items. While the effects were not pervasive, the qualification raises concerns about the accuracy and compliance of financial reporting.
“Valuation of investment properties, freehold land and buildings In the prior years up to FY 2021, the group valued investment property and freehold land and buildings using USD denominated inputs and converting these to ZWL at the closing auction rate.
“We believed that applying conversion rate to a USD valuation to calculate ZWL property values did not accurately reflect market dynamics, as risks associated with currency trading do not reflect the risks associated with the properties and therefore did not meet IFRS 13 requirements.
“Management has not restated the prior year amounts in line with the requirements of IAS8, consequently, corresponding amounts, that is, the revaluation gain, other income and tax expense on the inflation adjusted consolidated statement of profit or loss and other comprehensive income remain misstated. Our audit report on the current period’s inflation adjusted consolidated financial statements is therefore modified because of the possible effect of this matter on the comparability of the current period’s figures,” Ernst & Young Chartered Accountants (Zimbabwe) said in its Independent Auditor’s Report.
The auditor cited inappropriate accounting for blocked funds.
“In prior year, the group included in other assets local balances denominated in the group’s functional currency, this related to a legacy debt balance held with the central bank which had been treated as a foreign currency denominated asset and translated at the foreign auction exchange rate as at 31 December 2022 in contravention of IAS 21 which defines ‘foreign currency’ as a currency other than the functional currency of the entity resulting in an overstatement of the balance.
“Management has not restated the prior year amounts in line with the requirements of IAS8, consequently, corresponding amounts for other assets on the inflation adjusted consolidated statement of financial position net foreign exchange gains on the inflation adjusted consolidated statement of profit or loss and other comprehensive income remain misstated.
Our audit report on the current period’s inflation adjusted consolidated financial statements is therefore modified because of the possible effect of this matter on the comparability of the current period’s figures,” the auditor said.
Ernst & Young Chartered Accountants (Zimbabwe) stressed that their prior year audit opinion was modified due to the inappropriate valuation of Treasury bills.
“Included in investment securities are treasury bills received from the central bank in lieu of the Reserve Bank of Zimbabwe (RBZ) Deposit made in 2019 of $63 127 959 650,98 with maturity dates ranging from three years to twenty years.
“These have not been discounted to take into account the time value of money which is in contravention of IFRS 9 that requires financial assets measured at amortized cost to be discounted using effective interest method. Had the Treasury bills been recognized at fair value that is the discounted future value balance would have been reduced by $25 851 316 805,02. Consequently, the foreign exchange gains of $68 337 098 567,18 and retained earnings of $84 173 485 180,76 are also overstated,” reads the report.
Furthermore, “notwithstanding that IAS 29 has been applied correctly, it is noted that its application was based on prior and current periods’ financial statements which were not in compliance with IFRS 9 and IAS 8 as described above. Had the correct base numbers been used, the above stated accounts would have been materially different. Consequently, monetary loss of $56 578 041 810,96 is impacted as a result of misstatements above.”
“The effects of the above departures from IFRS are material but not pervasive to the consolidated inflation adjusted financial statements.”
Ernst & Young Chartered Accountants conducted the audit in accordance with International Standards on Auditing (ISAs).
“We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion,” the auditor said.
Key Financial Highlights
Profit After Tax: The Group achieved a profit after tax amounting to $275.6 billion in 2023. This represented substantial growth compared to $57.7 billion in 2022, reflecting a remarkable increase of 378%.
Major Drivers of Profit Growth:
Increase in Operating Income: Operating income rose from $201.5 billion to $613.3 billion, primarily driven by a significant increase in fees and commission income. Fees and commission income surged from $73.7 billion in the previous year to $228.9 billion in the current year. This substantial growth in revenue streams contributed significantly to the overall increase in profit.
Total Comprehensive Income: The group achieved a total comprehensive income of $327.6 billion, representing a substantial 444% increase compared to $60.3 billion in the previous year. This significant growth in comprehensive income indicates a strong financial performance during the period.
Cost Management: Despite facing challenges such as exchange rate volatility and inflation pressures, the group focused on managing costs effectively. Operating costs increased from $91.3 billion to $216.8 billion, largely in response to external economic factors. However, the group leveraged its strengths in digitization and automation to provide services in a cost-effective manner, mitigating the impact of rising costs on profitability.
Cost-to-Income Ratio: The cost-to-income ratio improved to 35% from 45% in the previous period. This reduction in the cost-to-income ratio indicates improved operational efficiency and cost management practices within the group.
Loan Portfolio Growth: Loans and advances stood at $494.5 billion at the end of the year, reflecting a significant increase of 122.3% driven by credit line drawdowns. The Group’s prudent lending processes, as indicated by a non-performing loan (NPL) ratio of 1.11%, contributed to the growth in interest income from the expanded loan portfolio, positively impacting overall profitability.
Our view
These key audit matters highlight the importance of the assessment and management of credit risk within the company’s loan portfolio, emphasising the need for thorough audit procedures and scrutiny in evaluating the impairment of financial assets. Given the significant growth in the loan portfolio, there may be concerns about credit risk management and the potential impact of economic uncertainties on asset quality. Continued vigilance and proactive risk mitigation strategies are essential to maintaining the quality of the loan book. The group’s focus on revenue diversification, cost efficiency, and prudent lending practices were key factors contributing to the impressive profit performance during the financial year. The extension of the multi-currency regime to 2030 likely provided the company with a more stable operating environment, improved predictability in currency markets, and enhanced confidence among stakeholders. These factors could have positively influenced the business’s operations, financial outlook, and strategic direction in the coming years.