Zanaco 2016 Performance & Strategic Direction

Henk MulderManaging Director & CEOZanaco PlcMarch 30th, 2017

Presentation To The 47th Annual General Meeting

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Content

Macro economic highlights

Banking Sector Indicators & Trends

Zanaco Strategic Intent

Conclusion

2017 Significant Developments

Zanaco Performance

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Macro-Economic Highlights

Source: BOZ

• Kwacha steeply depreciated in Nov 2015, thereafter, it remained relatively stable

through-out the FY 2016

• Inflation went up sharply in Nov 2015; and remained high during the most part of 2016,

until quarter 4 when it begun to decline upto reaching single digit level

• Consequently, T-bill rates went up: 26% for 364 days T-bills

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Selected Banking Sector Indicators

Source: BOZ

• Average interbank rate went up-from 15% in 2015 to 21% 2016

• Average lending rates also went up-from 20% to 30% during the same period

• Loans to Deposits Ratio (LDR) declined

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2016 Competitive Landscape (Total Assets & Deposits)

Source: BOZ Prudential numbers

Mkt Size: ZMK 65bn, Zanaco: Mkt Share 13% , # 4

Mkt Size: ZMK 47bn, Zanaco: Mkt Share 13% , # 3

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2016 Competitive Landscape (Revenue & Profit After Tax)

Source: BOZ Prudential numbers

Mkt Size: ZMK 7bn, Zanaco: Mkt Share 16% , # 2

Mkt Size: ZMK 0.99bn, Zanaco: Mkt Share 0% , # 12

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Balance Sheet: Zanaco vs Banking Sector

Source: BOZ Prudential numbers

• CAGR

Zanaco: 11%, 1%, & 6% for deposits, loans & advances, & total assets

Market: 16%, 3%, & 15% for deposits, loans & advances, & total assets

8Source: BOZ, Zanaco MI

Non-Performing Loans (NPLs): Zanaco vs Banking Sector

• Mkt NPLs are trending up

• Zanaco NPLs rising faster than market: erratic electricity & weather patterns adversely

affected the Food & Agriculture portfolio

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Deposits: Zanaco vs Banking Sector

Source: BOZ Prudential numbers

• CAGR

Zanaco: Demand 12%, Saving 4%, Term 25%

Market: Demand 23%, Saving -2%, Term 6%

• Market share for;

Demand deposits remained flat at 12% in 2016

Savings deposits improved from 28% in 2015 to 31% 2016

Term deposits increased from 8% in 2015 to 12% in 2016

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Zanaco Performance: Balance Sheet

Source: 2016 Zanaco Annual Report (IFRS)

• YoY (2015 vs 2016)

NPLs 39%, Capital 4%, L & A -2%, Deposits 4%, Total Assets 3%

• Drivers of Performance

Sector exposure to the Food & Agriculture

Tight liquidity impacted in growth of loan book

11Source: 2016 Zanaco Annual Report

• YoY (2015 vs 2016)

Revenue 13%, Operating Cost 14%, PBT -56%

• Drivers of Performance

Strong revenue model especially the Fees & Commissions

Large expenses relating to transformation of the Bank impacted PBT

Costs relating to legacy legal issue (ex-staff) impacted PBT

Zanaco Performance: Profit & Loss

Macro-

economic

• Copper prices: recovery > US $ 5,800-5,900 per ton

• Sustained single digit inflation

• Kwacha stability

• Yield rates on GRZ paper trending downwards towards mid teens

• However, economy still vulnerable to fiscal challenges, & imported inflation

Regulatory

• MPR reduced from 15.5% to 14% signaling improved inflationary outlook and

downward trends on lending rates

• Statutory Reserve Ratio reduced from 18% to 15.5% resulting in liquidity easing

• Overnight lending window further relaxed and rates dropped from 25.5% to 20%

Market

• Residual credit risk still high: debt servicing by clients still a major challenge

• Wholesale funding cost trending down

• Liquidity impacted by the lucrative GRZ securities auctions

2017 Significant Developments

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Vision (aspired)

• To be the Universal Bank serving (Retail, Public Sector, Corporates, Food & Agric,

& SME)

• Top Transactional Bank by 2020

Mission

(aspired)

• To be the top of the mind transactional bank for our core segments, while

delivering excellent financial services efficiently, and supported by an

empowered and motivated staff

Aspiration

• Improve segmentation and product offering

• Refine product offering

• Technology developments: Focus on digital transformation

• Improve sales & service

• Optimise distribution channels

• Invest in people

Zanaco 3.0: Revising our Strategic Medium Term Plan 2017-2020 to engender growth and improved shareholder value

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New Regulatory Developments-IFRS 9 & Basel II

IFRS 9

• Provisioning likely to grow due changes towards using the new loss model

• Potential impact on revenue growth: It will influence the profit profile of assets

over time through the need to recognize impairments immediately the loan is

contracted. Other consideration include risk appetite, risk adjusted pricing

• Potential impact on capital demands (both tier 1 & 2)

Basel II • Targeted to be implemented by 2018: may demand for additional capital

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15Source: Published prudential

Capital Position

Demand for

Capital

• Likely to increase in order to Prepare for IFRS 9 Basel II implementation Create a buffer for

residual credit risks Continue building a

sustainably growing Bank

Capital building

• Requires organic growth via higher retained earnings

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Opportunities

for growth

remain good

• We believe the outlook is good despite the economy still remaining

vulnerable

• Growth opportunities exist: good rainfall patterns and reduced load shedding

• Transformation agenda: to be bolstered by a revised strategy for enhanced

growth

• Revenue model to remain strong

• Technology to play a vital role in banking products and service delivery

• Credit portfolio: recovery is expected as overall economic productivity starts

to improve

• Additional capital will be required in order to comply with regulatory

requirements (Basel II, IFRS 9)

Conclusion

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Thank You

Disclaimer

Zambia National Commercial Bank PLC, (hereafter “Zanaco”) has taken all reasonable care to ensure that to the best of its knowledge this presentation is true and correct in

all material respects, does not contain any untrue statement of a material fact, is not misleading and does not omit to state any material fact, the result of which would make

the statements, opinions and intentions herein, in the context in which they are made, misleading in any material respect. This presentation and any other information

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other information supplied in connection with this presentation should make its own independent investigation of the financial condition and affairs, and its own appraisal, of

Zanaco, including the merits and risks involved. This presentation does not constitute an offer to sell or the solicitation of an offer to buy any Zambia National Commercial

Bank PLC, ordinary shares in any jurisdiction to any person. Zanaco does not represent that this presentation may lawfully be distributed, or that any Zambia National

Commercial Bank PLC, ordinary shares may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an

exemption available there under, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by Zanaco that would

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