NBS Bank Limited IPO Prospectus.pdf

DRAFT 6 (FORMAL SUBMISSION)– 11 MAY 2007

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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 Malawi’s 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 NBS’s 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.

DRAFT 6 (FORMAL SUBMISSION) – 11 MAY 2007

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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 Trust Finance Limited

Receiving Banks

Public Relations Consultants

Date of issue: 28 May 2007


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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

[email protected]

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

[email protected]

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

[email protected]

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

[email protected]


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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

[email protected]

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

[email protected]


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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,

Kang’ombe House,

Private Bag 359,

Lilongwe 3,

Malawi.

Tel. No (265) 01 772 844

Fax. No (265) 01 771 692

[email protected]

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 [email protected]


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BRANCH NETWORK

BRANCHES

Blantyre Branch P.O Box 466 Blantyre Tel: +265 (0)1 824 266 Fax: +265 (0)1 822 716 Email: [email protected]

Capital City Branch P.O Box 30350

Lilongwe 3

Tel: +265 (0)1 774 400

Fax: +265 (0)1 773 963

Email: [email protected]

Ginnery Corner P.O Box 30645 Chichiri Blantyre 3 Tel: +265 (0)1 871 554 Fax: +265 (0)1 875 485 Email: [email protected]

Haile Sellasie Branch

P.O Box 466

Blantyre Tel: +265 (0)1 823 999 Fax: +265 (0)1 824 404 Email:[email protected]

Karonga Branch P.O Box 399 Karonga Tel: +265 (0)1 362 549 Fax: +265 (0)1 362 521 Email: [email protected]

Kasungu Branch Private Bag 70 Kasungu Tel: +265 (0)1 253 797 Fax: +265 (0)1 253 230 Email: [email protected]

Lilongwe Branch P.O Box 829 Lilongwe Tel: +265 (0)1 750 175 Fax: +265 (0)1 750 335 Email: [email protected]

Limbe Branch P.O Box 51277 Limbe Tel: +265 (0)1 640 999 Fax: +265 (0)1 642 383 Email: [email protected]

Mangochi Branch P.O Box 298 Mangochi Tel: +265 (0)1 594 608 Fax: +265 (0)1 594 284 Email: nbsmh@n bsmw.com

Mchinji Branch P.O.Box 227 Mchinji Tel: + 265 (0) 1 242 464 Fax: + 265 (0) 1 242 464 Email: mailto:[email protected]


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BRANCHES

Mortgage Branch P.O. Box 32251 Chichiri Blantyre 3 Tel + 265 (0) 1 876 222 Fax + 265 (0) 1 875298 Email: [email protected]

Mulanje Branch P.O Box 325 Mulanje Tel: +265 (0)1 466 367 Fax: + 265 (0)1 466 286 Email: [email protected]

Mzuzu Branch P.O Box 315 Mzuzu Tel: +265 (0)1 333 171 Fax: + 265 (0)1 334 036 Email: [email protected]

Treasury Department P.O. Box 32251 Chichiri Blantyre 3 Tel + 265 (0) 1 876 222 Fax + 265 (0) 1 875298 Email: [email protected]

Zomba Branch P.O Box 401 Zomba Tel:+265 (0)1 525 641 Fax: +265 (0)1 525 073 Email: [email protected]

AGENCIES

Bunda College P.O.Box 829 Lilongwe Tel: + 265 (0) 1 277 307 Email: [email protected]

Chancellor College P.O.Box 401 Zomba Tel: + 265 (0) 1 525 540 Email: [email protected]

Chichiri Mall Agency P.O.Box 32251 Blantyre 3 Tel: + 265 (0) 1 677 799 Fax: + 265 (0) 1 677 955 Email: [email protected]

Chitipa Agency P.O.Box 33 Chitipa Tel: + 265 (0) 382 425 Fax: + 265 (0) 382 425 Email: [email protected]

Dwangwa Agency P.O. Box 98 Nkhotakota Tel/Fax: +265 (0)1 295 277 Email : [email protected]

Kanengo Agency P.O.Box 30350 Lilongwe 3 Tel: + 265 (0) 1 710 560 Email: [email protected]


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AGENCIES

Liwonde Agency P.O. Box 137 Liwonde Tel: + 265 (0) 1 542 145 Fax: + 265 (0) 1 542 164 Email: [email protected]

Mzimba Agency P.O.Box 46 Mzimba Tel: + 265 (0) 1 342 335 Fax: + 265 (0) 1 330 822 Email: [email protected]

Nchalo Agency P.O.Box 466 Blantyre Tel: + 265 (0) 1 424 261 Fax: + 265 (0) 1 424 261 Email: [email protected]

Nkhatabay Agency P.O.Box 29 Nkhatabay Tel: + 265 (0) 1 352 455 Fax: + 265 (0) 1 352 429 Email: [email protected]

Rumphi Agency P.O.Box 137 Rumphi Tel: + 265 (0) 1 372 481 Email: [email protected]


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TABLE OF CONTENTS

CORPORATE INFORMATION Inside front cover

BRANCH NETWORK 6 TABLE OF CONTENTS 9 SALIENT DATES AND TIMES 10 DEFINITIONS 11 PROSPECTUS 13 1. Introduction 13 3. Salient features of the Offer 15 4 NBS 17 5 Directors, Senior Management and Employees 26 6 Investment Considerations 32 7 Statutory Disclosures 34 Annexure 1 DETAILS OF THE DIRECTORS 45 Annexure 2 DETAILS OF PRINCIPAL PROPERTIES AND LEASES 48

Annexure 3 REPORTING ACCOUNTANT’S REPORT ON THE PRO FORMA CONSOLIDATED BALANCE SHEET AND PRO FORMA CONSOLIDATED INCOME STATEMENT

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Annexure 4 REPORTING ACCOUNTANTS OPINION ON THE FORECAST 58

Annexure 5 REPORTING ACCOUNTANTS REPORT ON THE HISTORICAL FINANCIAL INFORMATION ON NBS 63

Annexure 6 EXTRACTS FROM ARTICLES OF ASSOCIATION 95

Annexure 7 TRUST DEED IN RESPECT OF THE NBS BANK EMPLOYEES SHARES OWNERSHIP PLAN 102

Annexure 8 RECEIVING BANKS 109 Annexure 9 TERMS AND CONDITIONS OF APPLICATION 113

APPLICATION FORM 116


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SALIENT DATES AND TIMES

Opening Date of the Offer Monday 8:00am 28 May 2007

Closing Date of the Offer - Latest time for the delivery of applications to Receiving Branches Friday 3:00pm 15 June 2007

Allotment announcement Friday 22 June 2007

Share certificates and refund cheques, if applicable, dispatched to Receiving Branches through which applications were submitted

Monday 25 June 2007

Listing of NBS on the Malawi Stock Exchange Monday 25 June 2007


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DEFINITIONS “Act” The Companies Act (Cap 46:03) Laws of Malawi

“Application Form” The application form for shares enclosed with this Prospectus

“Banking Act” The Banking Act (Cap 44:01) Laws of Malawi

“Bankers Cheque/Draft” A cheque/draft issued by a licensed commercial bank

“Board” The members of the board of NBS

“Closing Date” Friday, 15 June 2007, being the last day for receipt of applications for Shares

“Company” or “NBS” or “Bank” NBS Bank Limited

“Directors” Being those persons listed in on page 13 of this document.

“Disposal” 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.

“GoM” or “the Government” The Government of Malawi

“Imara” Imara Botswana Limited

“IPO” Initial public offer for subscription of NBS Ordinary shares

“Listing” Admission of the shares to the Official List of the MSE

“MWK” Malawi Kwacha the official currency of the Republic of Malawi

“MSE” Malawi Stock Exchange Limited

“NBS” or “the Bank” NBS Bank Limited

“New Subscription” 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” 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)

“Offer Price” MWK 2.60 per share


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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

“Opening date” Monday 28 May 2007, being the first day of acceptance of application for shares

“Ordinary shares” or “Shares” Ordinary shares, having a nominal value of MWK 0.50 each, in the share capital of NBS, the subject of this Offer

“PER” Price earnings ratio

“Prospectus” This Prospectus dated 28 May 2007

“RBM” Reserve Bank of Malawi

“Reporting Accountants” KPMG Malawi, registered public accountants and business advisors

“SML” Stockbrokers Malawi

“Sponsoring Broker” Stockbrokers Malawi Limited, member of the MSE

“USD” Official currency of the United States of America

“ZAR” Official currency of the Republic of South Africa


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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 Ltd’s (“NICO”) pre-emptive rights. In the same year a potion of GoM’s 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 % of shares in issuerGoM 51.0NICO Holdings Ltd 24.5Lonrho Properties 24.5 Total 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 % of shares in issuerNICO Holdings Ltd 74.0GoM 16.0The National Investment Trust Ltd 10.0 Total 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 Bank’s share capital, or 48,000,000 Ordinary Shares, out of the GoM’s 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”).

2.1.2. 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.

2.2. Employee Share Option Plan (“ESOP”)

It is the intention of the GoM to set aside some shares representing 4% of the Bank’s current share capital, out of the GoM’s 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 400,000,000Nominal value (at MWK 0.50 each)

MWK 200,000,000

Ordinary shares to be disposed of by GoM: Number 48,000,000Nominal value (at MWK 0.50 each) MWK 24,000,000Disposal price per share 2.60 Gross value of the Disposal MWK 124,800,000Share capital subject to the Disposal

% 12.0

Ordinary shares in issue after the Disposal: Number 400,000,000Nominal value (at MWK 0.50 each) MWK 200,000,000Market capitalisation at the Offer price MWK 1,040,000,000

Ordinary shares to be issued in the New Subscription:

Number 93,333,000Nominal value (at MWK 0.50 each) MWK 46,666,500Share premium, at 210 tambala per share MWK 195,999,300New Subscription price per share 2.60 Gross value of the New Subscription MWK 242,665,800Share capital subject to the New Subscription

% 18.9

Ordinary shares in issue after the New Subscription: Number 493,333,000Nominal value (at MWK 0.50 each) MWK 246,666,500Market capitalisation at the Offer price

MWK 1,282,665,800

At the IPO price:

Historical PER times 7.06Fully diluted forward PER times 4.92Historical proforma price to book ratio times 1.08Forward proforma price to book ratio times 1.08

In terms of Article 7 of the Bank’s 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 Bank’s 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 NBS’s 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 MWK’m Branch refurbishment 32.0IT Infrastructure 50.0Working Capital 138.0 Total 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 company’s 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 company’s 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 GoM’s 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 Bank’s 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 Bank’s 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.

4.1.3. Restrictions on business of NBS

The business that the Bank is permitted to carry out is subject to the Banking Act, unrestricted.

4.1.4. 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 Bank’s 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 Bank’s operations are centralised. All the Bank’s 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 Bank’s 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 Bank’s 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 Bank’s clients. However, for up-market products like home loans and current accounts, the customer social-economic profile is middle to up market.

4.1.6. 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.


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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.

4.1.8. Growth strategy

The Bank’s 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 Bank’s 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 Bank’s main operating areas. NBS is committed to a wide range of social investment programmes. The Bank’s support of AIDS awareness campaigns is high on the corporate social responsibility list, as are the areas of education and sport.

4.2. NBS’s 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

%

NICO Holdings Ltd 296,000,000 74% 296,000,000 60.0% GoM 64,000,000 16% - 0% The National Investment Trust Ltd 40,000,000 10% 40,000,000 8.1%

ESOP - 0% 16,000,000 3.2% Public Shareholders - 0% 141,333,000 28.7% Total 400,000,000 100% 493,333,000 100%


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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. NBS’s 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 bank’s 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 Bank’s 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

NBS’s 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. NBS’s external auditors and internal auditors report to the committee in independent, private meetings to discuss risk exposure areas. Where the committee’s 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 Bank’s 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 Kumwenda

Member

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 NBS’s 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.


22

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 Kumwenda

Member

Mr Geoffrey Macdonald Wawanya

Member

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. Historical financial performance

4.4.2. Total Assets

TOTAL ASSETS

-

2,000,000

4,000,000

6,000,000

8,000,000

10,000,000

12,000,000

MK'

000

TOTAL ASSETS 2,148,631 2,961,767 5,229,539 6,300,115 8,194,008 10,045,488

Jan-02 Jan-03 Jan-04 Dec-04 Dec-05 Dec-06


23

4.4.2.1. Total Loans and Advances

TOTAL LOANS AND ADVANCES

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

MK

'000

LOANS AND ADVANCES 621,817 715,333 804,315 1,355,773 4,214,727 5,754,229



24

TOTAL DEPOSITS

-

1,000,000

2,000,000

3,000,000

4,000,000

5,000,000

6,000,000

7,000,000

8,000,000

9,000,000

MK

'000

TOTAL DEP 1,824,576 2,294,041 4,368,079 5,380,834 7,172,427 8,452,393


4.4.2.2. Total Deposits

4.4.2.3. Net Operating profit


25

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 MSE’s have approved this disclosure.

For the financial year ended 31 December 2006 2005 2004

6 monthsMWK 000’s Total Income 1,607,835 1,179,301 545,598Profit before tax for the year 299,348 143,143 100,264Total Assets 10,045,488 8,194,008 6,300,115Total Deposits 8,452,393 7,172,427 5,380,834

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 NBS’s asset base at the lowest reasonable risk exposure.

2006 2005 2004 Prudential ratios Capital Adequacy Ratio (minimum 10%): Tier 1 (minimum 6%) 10% 20% 20% Tier 2 (minimum 8%) 12% 38% 33% Liquidity ratio 1 (minimum 30%) 34% 30% 76% Liquidity ratio 2 (minimum 20%) 34% 30% 76% Operating ratios Cost to Income Ratio 81% 82% 81% NPBT on Y/E Assets 3% 2% 3% After tax return on Equity 19% 22% 26%

4.4.4. Capital expenditure

The Bank’s recent programme of construction and refurbishment of the head office and branch premises are nearing completion having enhanced NBS’s modern and progressive business image. NBS’s 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 NBS’s 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 Non-Executive Chairman and 7 Directors. The Board is fully committed to ensuring the Bank’s 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, Women’s 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


27

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.


28

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. NBS’s senior management team members are listed below: Mr John Biziwick Chief Executive Officer Mr Gilford Kadzakumanja Deputy Chief Executive Officer Mr Martin Ndenya Finance & IT Executive Mr Max Mlomba Head of IT Mrs Evarista Chafulumira Head of Human Resources and Administration Mr Dumisani Chatima Head of Internal Audit & Inspection Mr Samson Kamkosi Head of Credit Mrs Lusekelo Kaoloka 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.


29

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 General’s 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.


30

5.4. Staff profile

The Bank currently has 422 employees operating from various locations as shown below:- Branches No. of Staff Agencies No. of StaffHead Office 113 Dwangwa 7 Lilongwe 31 Liwonde 6 Blantyre 31 Nchalo 5 Capital City 29 Mzimba 7 Limbe 23 Rumphi 7 Kasungu 19 Chitipa 5 Mzuzu 28 Nkhata Bay 8 Ginnery Corner 24 Shoprite 2 Zomba 18 Kanengo 2 Business Ctr/Haile Selassie 20 Mangochi 10 Mulanje 10 Karonga 9 Mchinji 8

Total Branch & Head Office Staff

373 Total Agency Staff 49

Total Branch & Head Office Staff

373

Total NBS Staff 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.


31

The ALCO committee comprises executive management and meets regularly, usually once a month. The members of the ALCO committee are: Mr John Biziwick Chief Executive Officer Mr Gilford Kadzakumanja Deputy Chief Executive Mr Martin Ndenya Finance and IT Executive/Company Secretary Mr Dumisani Chatima Head of Internal Audit Mr Bernard Nkhoma Management Accountant Mr Chris Bulawayo Financial Accountant Mrs Lusekelo Kaoloka Treasury Manager Mr Samson Kamkosi Head of Credit Mrs Aida Chilumpha 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 Bank’s 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.


32

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, NBS’s 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 NBS’s business. Funding and Liquidity Risk: The Bank relies on two principal sources of liquidity; deposits from customers and repayments of loans granted to customers. NBS’s 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: NBS’s 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 NBS’s control. The foregoing could materially impact NBS’s 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 NBS’s 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 NBS’s lending revenues, fees and commissions. In addition, NBS’s business may be affected by varying general economic and external events beyond NBS’s control. Unfavourable financial or economic conditions may impact negatively on NBS’s 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 bank’s 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 NBS’s overall operations.


33

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”.


34

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 National Bank of Malawi Limited

Stanbic Bank Limited

Press Trust

Address 19 Victoria Avenue, PO Box 945, Blantyre, Malawi

Kaomba Centre, PO Box 1111, Blantyre, Malawi

Floor 9, Kang’ombe House, Private Bag 359, Lilongwe 3, Malawi.

Date of Incorporation 29 June 2000 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)

15 February 1982

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

Alex Chitsime (Chairman) Philip Odera (Managing Director) Noah Naidoo Patrick Khembo Roderick Phiri Rosemary Mkandawire

Prof. Peter Mwanza (Chairman) Chris Barrow A. Ben Chidyaonga Tony Kandiero Dr. G.H. Kayambo Mrs Esther Chioko Hon Nancy G. Tembo, MP

Auditors Deloitte KPMG Deloitte Bankers National Bank of

Malawi Limited Stanbic Bank Limited/Reserve Bank of Malawi

INDEBank Limited

Issued Share Capital MWK455,618,200 divided into 455,618,200 ordinary shares of MWK1.00 each.

MWK200,000,000 divided into 200,000,000 ordinary shares of MWK1.00 each

N/A

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


35

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 GoM’s 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.

7.1.5. Offer proceeds and expenses

The expenses of the Offer and Listing are estimated at MWK 55.0m and include the following:

MWK’mImara 30.0Professional Fees

SML 4.5KPMG 4.0Sacranie Gow 4.5Access Professionals 2.5Trust Finance 2.0

Other Fees

MSE listing expenses 3.0Printing etc 4.5

Total 55.0


36

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.

7.1.7. 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.

7.1.8. Private placement

None of the shares in the Offer will be subject to private placement.

7.1.9. 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) The Company’s Memorandum and Articles of association (b) Underwriting agreements (c) 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

(d) The reporting accountants’ report on the proforma financial statements of NBS (e) The reporting accountants’ report on the profit forecast of NBS (f) 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

(g) The Trust Deed and the Rules setting up the Employees Share Ownership Plan (h) Property valuation report (i) Copies of Special Resolutions (j) Statement of legal compliance (k) Written consents from advisors (l) Material contracts


37

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:-

All figures in 000’s

NICO Holdings

Ltd GoM

National Investment

Trust Ltd TotalHoldings at 1 March 2004 148,000 32,000 20,000 200,000

Two way share split – May 2007 148,000 32,000 20,000 200,000Holding in May 2007 296,000 64,000 40,000 400,000

After the Offer:-

All figures in 000’s

NICO Holdings

Ltd GoM

National Investment

Trust Ltd ESOP General

Public TotalHolding in May 2007 296,000 64,000 40,000 - - 400,000Disposal shares sold to the general public - (48,000) - - 48,000 -Allocation to ESOP - (16,000) - 16,000 - -Issued in the Offer to the general public - - - - 93,333 93,333Shareholding post the Offer 296,000 - 40,000 16,000 141,333 493,333

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:-

All figures in 000’s Date Number of

Shares

Nominal Value

per share (Kwacha)

Nominal Value Total

(Kwacha)

Authorised Ordinary share capital Mar-04 250,000 1.00 250,000Increase in authorised share capital May-07 100,000 1.00 100,000Two way share split May-07 350,000 350,000Total authorised share capital in May 2007 700,000 0.50 350,000


38

Issued share capital The following table illustrates the changes in NBS's issued share capital over the previous two and a half years:-

All figures in 000’s Date

Total number of Ordinary

shares

Nominal Valueper share (Kwacha)

Nominal value Total

(MWK)

Issued Ordinary share capital Mar-04 200,000 1,00 200,000Two way share split May-07 200,000 200,000Issued in the Offer to the general public June-07 93,333 0.50 46,666Total issued share capital in May 2007 493,333 0.50 246,666

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.

7.2.4. Options over share capital

At the date of the Prospectus there are no options over NBS’s issued share capital.

7.2.5. 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.

7.2.6. 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.

7.3. Declarations of Directors

7.3.1. Contingent liabilities

The Company’s directors confirm that other than as disclosed in the Accountant’s Report there are no outstanding contingent liabilities which the directors are aware of and which may have a material effect on the Company’s financial position.


39

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:

Beneficial (No. of shares)

Non-Beneficial (No. of shares) Director

Direct Indirect Direct Indirect Total

Mr F. Mlusu - 2,610,865 - - 2,610,865Mr V. Kumwenda - 3,225,690 - - 3,225,690

- - - Total - 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.

Director

Reason for Facility Balance at

31 Dec. 2006 MWK

Mr Felix Lafael Mlusu Mortgage 2,871,000

Mr Vizenge Matumika Kumwenda

Asset Finance 292,000

Mr Geoffrey Macdonald Wawanya

Mortgage 8,918,000

Total 12,081,000

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.

7.3.5. Pension and compensation for loss of office

No pension or compensation for loss of office is payable to any Director of Bank.

7.3.6. Remuneration

There will be no variation in the basis of remuneration receivable by any of the Directors as a consequence of NBS’s 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:-


40

MWK Salary Accommodation

Sitting Allowance

Mileage Total

Non-Executive Directors

Mr Felix Lafael Mlusu

480,000 - - - 480,000

Mr Joe Swankie 420,000 - 211,600 - 631,600Mr Geoffrey Macdonald Wawanya

420,000 - 161,000 - 581,000

Mrs Estelle Nuka 420,000 - 41,400 - 461,400Mr Vizenge Matumika Kumwenda

420,000 - - - 420,000

Mrs Janet Banda 420,000 30,358 41,400 66,150 557,908Mr Randson Philimon Mwadiwa

420,000 12,500 41,400 45,723 519,623

Mrs Audrey Mwala 420,000 - 82,800 - 502,800

Total 3,420,000 42,858 579,600 111,873 4,154,331

7.3.7. 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.


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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 Plot Number Disposal Proceeds

NBV As At 31st August 2006

Head Office/Ginnery corner Branch BE 243-244 198,000,000.00 166,402,753.11Limbe Branch LC 235 74,500,000.00 80,211,385.24Lilongwe Old Town Branch 4/323 138,000,000.00 89,713,227.26Mzuzu Branch MZ 1679 40,500,000.00 41,093,320.65 451,000,000.00 377,420,686.26

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 Effective

Date Parties Basis of charge Period

Management Support Agreement

1/1/2005 NICO Holdings Limited & NBS

Management fee is based on actual operating expenses of Nico Holdings Limited as external auditors.

3 years, subject to

annual review


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Agreement Effective Date

Parties Basis of charge Period

Loan Agreement

30/12/2005 Nico Life Insurance Company Limited & NBS

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.

5 years

Alterations and refurbishment Agreement

November 2006

NBS & City Building Contractors Limited

Alterations and refurbishment works to NBS House, Corner of Chilembwe Road and Victoria Avenue, Blantyre for K194,974,766.40.

Air Time Distribution Agreement

1/1/06 NBS & CAD Limited

Sale of TNM prepaid Airtime using NBS’s cash dispensing machines for a commission of 5%

5 years


27/12/06 Celtel & NBS For the sale of prepaid Airtime using NBS’s cash dispensing machines for a commission of 5%

12 months

renewable


1/2/07 Malawi Telecommunications Limited & NBS

For sale of prepaid Airtime using NBS’s cash dispensing machines for a commission of 5%.

12 months

renewable


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Agreement Effective Date

Parties Basis of charge Period

Software License & Maintenance Agreement

14/8/06 NBS & South Atlantic Solutions Limited

For a license to use LA- Loan Application and analysis software and associated documentation for an aggregate licence fee of US$ 229,449 and an annual maintenance fee of 20%.

Globus Software Licence Agreement

12/12/03 (as amended on 12/04 & 18/8/05)

Temenous Holdings Limited N.V & NBS

For a non exclusive non transferable licence to use software 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.


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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 ……………..………………………………..


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Annexure 1 DETAILS OF THE DIRECTORS

Name Position Date of

AppointmentResidential Address

& Postal Address Nationality Other Directorships

Mr Felix Lafael Mlusu, 56

Chairman July 2004 Plot BE 81, 11 Belcher Road, Mandala, Blantyre, Malawi.

PO Box 501, Blantyre, Malawi Malawian

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 Puthenveetil

Thomas Daniel

Non-Executive

Resigned September

2006


46




Mr Vizenge Matumika

Kumwenda, 45

Non-Executive March 2005

Plot LE 53, Newlands, Limbe, Blantyre, Malawi

PO Box 501, Blantyre, Malawi Malawian

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.

Mrs Estelle Nuka, 41

Non-Executive April 2006

Plot CG 443/36, Viphya Avenue, Chigumula, Blantyre, Malawi.

Malawian None

Mrs Janet Banda, 37


Plot 47/2/184, Area 47, Lilongwe, Malawi.

Pvt Bag 373, Lilongwe, Malawi

Malawian None

Mrs Audrey Mwala, 36


House number 33, Mahatma Ghandi Road, Mount Pleasant, Blantyre,

Malawi. PO Box 937, Blantyre, Malawi

Malawian

Kang’ombe Investments, Mwaiwathu Pvt. Hospital and Bata Shoe Company.

Mr Geoffrey Macdonald

Wawanya, 57

Non-Executive July 2004

BW 434/30 Katunga North, Chikwawa Road, Blantyre, Malawi

PO Box 2387 Blantyre, Malawi Malawian

Town and Country Planning Board, Surveyors Institution of Malawi,

Services International Malawi, Glaev International and Music Association of

Malawi.


47




Mr Randson Philimon

Mwadiwa, 51


House number 142, Area 47/5, Lilongwe, Malawi.

PO Box 30049, Capital City, Lilongwe

Malawian

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.

Mr Joe Swankie, 62


23 Skerret Drive, Sunnyside, Blantyre

PO Box 1588, Blantyre, Malawi

British Edane- Road Haulage

Mr Martin Ndenya, 47

Company Secretary July 2004

Plot BC 806, Naperi, Blantyre PO Box 32252, Chichiri, Blantyre 3,

Malawi Malawian Trust Securities Ltd, MLC Ltd,

Millennium Investments Ltd


48

Annexure 2 DETAILS OF PRINCIPAL PROPERTIES AND LEASES Owned properties

Description Physical address Land Area

Title Land Value Improvements Total Value

(Ha) (MWK) Value (MWK) (MWK)

Mulanje Branch Plot ME 192, Chitakale, Mulanje/Muloza Road

0.1012 Leasehold 75,000.00 8,925,000.00 9,000,000.00

Blantyre Branch

Plot BW 214 – 215, Cnr Victoria Avenue & Chilembwe Road, Blantyre

0.1490 Leasehold Under Construction N/A

Zomba Branch Plot ZA 445, Kamuzu Highway 0.2206 Leasehold 750,000.00 11,750,000.00 12,000,000.00

Kasungu Branch Plot KU 244, Kasungu Boma 0.3639 Leasehold Under Construction N/A

Mzimba Branch Plot TN/C/1, Mzimba Boma

Being Surveyed Leasehold Under

Construction N/A

Leased properties

Branch/Agency Physical Address Rental p.m. (MWK) Lease period

Expiry date Area m2

Nchalo Plot NC 1/2, Nchalo Trading Centre

73,354.33 N/A OPEN 74.83

Haile Sellasie Plot BC 104 – 105, NICO House, Haile Sellasie Road 250,200.00 3 years 31.01.2009 417.00


49


Expiry date Area m2

Liwonde Plot Liwonde 633, Bakili Muluzi Highway

36,368.75 5 years 31.08.2008 139.05

Mangochi Mangochi Boma, M3 Road 36,000.00 N/A OPEN 172.31

Capital City Title: Bwaila 19/14, Lingadzi House City Centre

1,122,213.13 3 years 15.06.2007 948.07

Mchinji Mchinji Boma, Mchinji Road 49,500.00 5 years 31.07.2010 270.04

Dwangwa Dwangwa Trading Centre 64,456.00 3 years 31.07.2008 149.60

Nkhatabay Plot NB/44/9, Nkhatabay Boma 55,000.00 5 years 28.02.2011 170.00

Rumphi Rumphi Boma 57,000.00 3 years 31.12.2008 230.07

Karonga Plot KA/306/7, Karonga Boma 25,000.00 3 years 31.08.2007 111.31

Chitipa Chitipa Boma 10,587.50 3 years 31.08.2007 78.68

Kanengo Auction Holdings Head Office premises, Kanengo

50,400.00 3 years 28.02.2010 25.00

Chichiri Shop 17c, Chichiri Shopping Mall ZAR 9,614.98 3 years 30.09.2007 73.00

Lilongwe Plot 4/323, Old Town 1,092,500.00 5 years 31.08.2011 627.72

Head Office

Plot BE 243 – 244, Cnr Chipembere Highway & Ali Hassan Mwinyi Road

1,567,500.00 5 years 31.08.2011 2,502.00


50


Expiry date Area m2

Limbe Plot LC 235, Churchill Road 589,791.00 5 years 31.08.2011 579.06

Mzuzu Plot MZ1679, Mzuzu, Orton Chirwa Avenue

320,625.00 5 years 31.08.2011 479.79

Chancellor College Chancellor College campus N/A

Bunda College Bunda College campus N/A


51

Annexure 3 REPORTING ACCOUNTANT’S 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 1.1 Proforma income statement for the two and half years

The following information should be read in conjunction with the reporting accountant’s report as contained in Annexure 5.

2006 2005 6 Months to December 2004

INCOME Interest on loans and advances 1,209,222 652,938 136,152 Interest on placements with other banks 36,671 8,253 8,681 Income from lease financing 215,533 96,448 2,155 Income from money market investments 279,065 570,119 481,873 Total Interest Income 1,740,491 1,327,758 628,861 Interest expense (810,452) (632,772) (277,941) Net Interest Income 930,039 694,986 350,920 Fee and commission income 337,785 250,062 167,659 Profit on foreign exchange transactions 256,372 212,164 5,509 Other operating income 83,639 22,089 21,510 Operating Income 1,607,835 1,179,301 545,598EXPENDITURE Staff costs 569,120 433,639 146,448 Recurrent expenditure on premises and equipment 144,746 109,508 54,572 Depreciation 165,924 108,369 52,678 Pre incorporation costs 22,733 Other operating costs 397,675 335,303 163,223 Operating expenditure 1,277,465 986,819 439,654Profit before impairment losses 330,370 192,482 105,944 Loan impairment loss (31,022) (49,339) ( 5,680) Profit before income tax expense 299,348 143,143 100,264


52

Income tax expense (117,803) (1,207) - PROFIT FOR THE PERIOD 181,545 141,936 100,264 Pro forma earnings per share (tambala) 37 29 20 Pro forma earnings per share before taxation (tambala) 61 29 20Pro forma dividend per share (tambala) - 34 -


53

1.2 Proforma Statement Of Assets And Liabilities as at 31st December BALANCE SHEET As at 31 December In thousands of Malawi Kwacha

LIABILITIES AND EQUITY 2006 2005 6 Months to

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


54

1.3 Proforma Statement Of Assets And Liabilities as at 31st December

2006 2005 6 Months

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


55

1.4 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

Total equity 940,679 242,666 1,183,345 Amounts due to depositors 8,452,393 8,452,393 Other liabilities 652,416 652,416 Shareholders funds and other liabilities 10,045,488 10,288,154 Fixed assets 1,276,488 1,276,488 Total cash and short term funds 2,055,058 242,666 2,297,724 Equity portfolio/investments 959,713 959,713 Advances and other accounts 5,754,229 5,754,229 Total assets 10,045,488 10,288,154 Proforma Net asset value per share in tambala

235 240

Number of shares in issue (000’s) 400,000 493,333

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 month’s average total deposits liabilities and 6% risk bearing assets respectively by the Reserve Bank of Malawi. The proforma balance sheet indicates that the Bank’s 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.


56

1.6 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)

Total number of share (In ‘000)

Nominal value per share (in tambala)

Nominal value Total (thousands Kwacha)

Authorised ordinary share June 04 250,000 250,000 100 250,000 Authorised ordinary share capital May 07 250,000 Increase as a result of new offer May 07 100,000 350,000 Authorised share capital split 1 to 2

May 07 (350,000) 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)

Nominal value per share (in tambala)

Nominal value Total (thousands Kwacha)

Issued ordinary share June 04 200,000 200,000 100 200,000 Issued ordinary share capital May 07 200,000 Issued share capital split 1 to 2 May 07 ( 200,000) 400,000 50 200,000Increase as a result of new offer May 07 93,333 50 46,666 493,333 246,666

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.


57

1.7 Conclusion Without expressing our opinion, the bank’s 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 Bank’s 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 Bank’s performance is in the right direction. KPMG Certified Public Accountants and Business Advisors (Malawi) BLANTYRE


58

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


59

1 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 NBS Bank Limited 2007 INCOME Interest on loans and advances 1,475,196 Interest on placements with other banks 30,000 Income from lease financing 331,204 Income from money market investments 287,651 Total Interest Income 2,124,051 Interest expense (753,289) Net Interest Income 1,370,762 Fee and commission income 395,000 Profit on foreign exchange transactions 385,000 Other operating income 13,000 Operating Income 2,163,762 EXPENDITURE Staff costs 758,782 Recurrent expenditure on premises and equipment 151,000 Depreciation 200,000 Other operating costs 608,000 Operating expenditure 1,717,782 Profit before impairment losses 445,980 Loan impairment loss ( 30,000) Profit before income tax expense 415,980 Income tax expense 168,450 PROFIT FOR THE PERIOD 247,530 Proforma earnings per share (tambala) 50 Proforma earnings per share before taxation (tambala) 84


60

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


61

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 2,916,570 Interest paid (698,848) Dividend paid (130,500) Cash paid to suppliers and employees (1,674,971) 412,251 Movement in net customer balances (469,540) Cash flows from operating activities (57,289) FINANCING ACTIVITIES Proceeds from new shares 242,666 Cash outflows to investing activities 242,666 INVESTING ACTIVITIES Proceeds from sale of equipment and Investments properties 385,000 Acquisition of property and equipment (212,762)

Cash outflows to investing activities 172,238

Net movement in cash and cash equivalents 361,615 Cash and cash equivalents at 1 January 2,805,112 Cash and cash equivalents at 31 December 3,166,677

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 NBS’s 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 NBS’s continued emphasis on superior customer service, growth in non interest income, continued product innovation and credit portfolio growth.


62

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.


63

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.

2. 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.

3. CURRENCY

The financial statements are expressed in thousands of Malawi Kwacha.

4. SIGNIFICANT ACCOUNTING POLICIES

4.1 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.

4.2 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


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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 Bank’s 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 management’s 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-party’s 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 Bank’s accounting policies Critical accounting judgements made in applying the Bank’s accounting policies include:


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Financial asset and liability classification The Bank’s 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 entity’s 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 Company’s 2007 financial statements, will require extensive additional disclosures with respect to Company’s 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 Company’s 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 Company’s 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 Company’s 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 Company’s 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 40 years Leasehold property over 40 years to run 40 years Leasehold property under 40 years to run over period of lease Leasehold improvement 10 years Computer hardware 3 years Computer Software 4 years Office typewriters and calculators 4 years Motor vehicles 5 years Furniture and other equipment 10 years Auto Teller Machines 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 Bank’s 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 asset’s 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 asset’s 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.

4.13 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.

4.14 Employee benefits

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 bank’s 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.

4.17 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 Bank’s 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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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.

4.20 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.

4.21 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.

4.22 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

4.24 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


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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

Notes 2006 2005 6 Months

period 2004INCOME Interest on loans and advances 1,209,222 652,938 136,152 Interest on placements with other banks 36,671 8,253 8,681 Income from lease financing 215,533 96,448 2,155 Income from money market investments 279,065 570,119 481,873 Total Interest Income 1,740,491 1,327,758 628,861 Interest expense (810,452) (632,772) (277,941) Net Interest Income 930,039 694,986 350,920 Fee and commission income 337,785 250,062 167,659 Profit on foreign exchange transactions 256,372 212,164 5,509 Other operating income 2 83,639 22,089 21,510 Operating Income 1,607,835 1,179,301 545,598EXPENDITURE Staff costs 3 569,120 433,639 146,448 Recurrent expenditure on premises and equipment 144,746 109,508 54,572 Depreciation 17 165,924 108,369 52,678 Pre incorporation costs 22,733 Other operating costs 4 397,675 335,303 163,223 Operating expenditure 1,277,465 986,819 439,654Profit before impairment losses 330,370 192,482 105,944 Loan impairment loss 15 (31,022) (49,339) ( 5,680) Profit before income tax expense 299,348 143,143 100,264 Income tax expense 5 (117,803) (1,207) - PROFIT FOR THE PERIOD 181,545 141,936 100,264 Earnings per share (tambala) 6 91 71 50 Earnings per share before taxation (tambala) 150 72 50dividend per share (tambala) - 85 -


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6. BALANCE SHEET

As at 31 December In thousands of Malawi Kwacha

LIABILITIES AND EQUITY Note 2006 2005 6 Months

period 2004 Liabilities Current and savings accounts 5,498,766 3,945,704 2,229,707 Foreign currency denominated accounts 213,702 529,811 - Term deposit accounts 7 2,739,925 2,696,912 3,151,127 8,452,393 7,172,427 5,380,834Deferred tax liabilities 5 133,094 60,475 - Other liabilities 7.1 274,821 238,706 123,283 Long –term loan 7.2 244,501 20,010 22,362 Total liabilities 9,104,809 7,491,618 5,526,479 Equity Issued capital 8 200,000 200,000 200,000 Share premium 9 164,637 164,637 164,637 Revaluation reserve 10 126,619 257,308 287,322 Loan loss reserve 24 139,000 0 - Fair value reserve 11 26,372 7,086 - Retained earnings 284,051 73,359 121,677 Total equity 940,679 702,390 773,636Total equity and liabilities 10,045,488 8,194,008 6,300,115ASSETS Cash and cash equivalents 12 625,416 286,536 227,847 Balances due from other banks 13 1,231,258 436,961 153,282 Other assets 14 143,043 361,135 202,460 Loans and advances to customers 15 5,754,229 4,214,727 1,355,773 Consumable inventories 41,197 35,728 20,935 Income tax recoverable 14,152 14,100 - Money market Investments 16 948,438 1,625,690 3,584,333 Investment in shares 11,275 0 - 8,769,008 6,974,877 5,544,630Property and equipment 17 1,276,480 1,219,131 755,485 Total assets 10,045,488 8,194,008 6,300,115


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7. STATEMENT OF CASH FLOWS For the year ended 31 December In thousands of Malawi Kwacha

Notes 2006 2005 6 Months

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


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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 Bank’s exposure to each of the above risks, the Bank’s objectives,

policies and processes for measuring and managing risk, and the Bank’s management of capital. Risk Management framework The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s 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 Bank’s 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 Bank’s 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 Bank’s Finance and Audit Committee is responsible for monitoring compliance with the Bank’s management

policies and procedures, and for reviewing the adequacy of the risk management framework in relation to the risks faced by the Bank. The Bank’s 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 Bank’s 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 (Cont’d)

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, Bank’s Credit Committee or the Board of Directors as appropriate. Reviewing and assessing credit risk. Bank’s 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 Bank’s 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 Bank’s 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 Bank’s 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 Bank’s 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 borrower’s 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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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/issuer’s 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 Bank’s 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 Bank’s 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 Bank’s 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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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 Bank’s compliance with the liquidity limit established by the Reserve Bank of Malawi. Details of the reported Bank’s 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 obligor’s/issuer’s credit standing) will affect the Bank’s 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 Bank’s 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 Bank’s 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 Bank’s 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 Bank’s 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.


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1. Financial risk management (Cont’d) Exposure to other market risks – non trading portfolios Credit spread risk (not relating to changes in the obligor/issuer’s 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.

(e) Operational risks

Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Bank’s 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 Bank’s operations and are faced by all business entities.

The Bank’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to

the Bank’s 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 Bank’s 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 Bank’s 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.


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1. Financial risk management (Cont’d) (f) Capital Management (Cont’d) 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 Bank’s 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 Bank’s management of capital during the period. (g) Segment reporting Segment information is presented in respect of the Bank’s business and geographical segments. The primary

format, business segments, is based on the Bank’s management and internal reporting structure. Business segments pay and receive interest to and from the Treasury on arm’s 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 Includes loans, deposits and other transactions and Balances with corporate customers.

• Retail Banking Includes loans, deposits and other transactions and Balances with retail

customers.

• Asset Management Operated the Bank’s funds management activities.

• Treasury Undertakes the Bank’s 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.


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Geographical The Bank operates in three geographic regions being: Southern - with a total of 11 Branches and Agencies Central - with a total of 7 Branches and Agencies Northern - with a total of 6 Branches and Agencies

2 Other operating income 2006 2005

6 Months period 2004

Rental Income 8,911 17,949 8,458 Profit on disposal of fixed assets 74,728 4,140 13,052 83,639 22,089 21,510 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 314,795 250,912 92,783 Staff expenses 161,018 100,690 30,309 Staff loan subsidy 19,595 14,900 2,747 Christmas expenses 2,684 2,097 1,064 Training expenses 29,321 27,884 10,501 Management car scheme 41,707 _37,156 9,044 569,120 396,483 146,448

The average number of employees for the year ended December 2006 was 384 (31 December 2005 was 371)

4 Other operating costs Accommodation costs 61,907 46,745 37,672 Communication costs 162,511 136,886 53,461 Directors fees 3,530 2,382 1,554 Auditors remuneration:- Current year fees 7,400 4,300 2,100 Prior period under provision - 450 - Other expenses and VAT 1,295 1,887 619 Legal & professional fees 20,215 17,264 8,044 Sundry business charges 92,695 79,289 40,501 Management fees 46,544 39,600 9,500 Group shared expenses 1,578 6,500 9,772 397,675 335,303 163,223

Management fee is paid to NICO Holdings Limited on cost recovery basis.


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For the periods ended 31 December In thousands of Malawi Kwacha

5 Income tax expense 2006 2005 6 Months

period 2004 Current year tax charge - 250 - Deferred tax charge 106,766 957 - Capital gains tax 11,037 - - Total income tax charge 117,803 1,207 - Reconciliation of tax charge

Profit before tax 299,348 143,143 100,064 Income Tax using corporate tax rate 30% 89,803 30% 42,943 Capital gains tax 4% 11,037 - - Profit on sale of non qualifying assets -8% (22,418) - - Other permanent differences 6% 19,088 -1% (1,834) Correction of prior year deferred tax 8% 24,443 54% 77,863 Other adjustments -1% (4,150) -82% (117,765) 39% 117,803 1% 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

2,005

Assets Liability Total Assets Liability Total

Capital allowance on property and equipment - -72,951 - 72,951 - 77,863 -77,863

Loan loss reserve (in equity) - -41,700 - 41,700 - - -

Revaluation of properties (in equity) - -22,345 - 22,345 - -56,482 - 56,482 Fair value adjustments (in equity) - -4,654 - 4,654 - - 3,036 - 3,036 Tax loss carry forward 15,327 - 15,327 76,906 - 76,906 Other 4,496 -11,267 - 6,771 - - - 19,823 -152,917 - 133,094 76,906 -137,381 - 60,475


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6 (a) Basic earnings per share 2006 2005 6 Months period 2004

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 181,545 141,936 100,264 Weighted average number of ordinary shares 200,000 200,000 200,000 Basic earnings per share (MK) 0.91 0.71 0.50 (b) Diluted earnings per share (MK) 0.91 0.71 0.50

7 Term deposit accounts Maturing within 3 months 2,716,666 2,273,638 301,602 Maturing between 3 and 12 months 23,259 423,274 2,849,525 2,739,925 2,696,912 3,151,1277.1 Other liabilities Cheques 18,509 14,988 14,972 Accruals 197,394 95,696 94,305 PAYE and other taxes 40,172 69,033 14,006 Bills Payable 18,746 58,989 - 274,821 238,706 123,283 7.2 Long term loan Malawi Government 20,010 20,010 22,362 Pension funds loan 224,491 - - 244,501 20,010 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.


83


For the periods ended 31 December In thousands of Malawi Kwacha

8 Share capital In issue at 1 January and 31 December Fully Paid of K1 each 200,000 200,000 200,000 Authorised share capital 250,000 250,000 250,000

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.

9 Share Premium 2006 2005 6 Months

period 2004 Share premium 164,637 164,637 164,637

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

10 Revaluation reserve 126,619 257,308 287,322

The revaluation reserve relates to the surplus arising on the revaluation of properties.

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 625,416 286,536 177,635 Balance with Reserve Bank of Malawi 1,044,940 90,780 50,212 Balances due from other banks 186,318 346,181 153,282 Short term investments (Note 16) 948,438 1,441,735 3,410,887

Cash and cash equivalents as shown in cash flow statement 2,805,112 2,165,232 3,792,016

13 Balance due from other banks Call and deposit accounts 186,318 346,181 153,282

Balance with Reserve Bank of Malawi

1,044,940 90,780 50,212 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.


84

14 Other assets Prepayments and sundry debtors 131,464 315,848 194,488 Cheque in course of collection 11,579 45,287 7,972 143,043 361,135 202,460


85


2006 2005 6 Months period

2004 15 Loans and advances to customers Loans and overdrafts 164,637 164,637 164,637 Lease contracts 555,477 713,100 67,109 Mortgage advances 2,095,302 1,798,563 1,021,956 Total loans and advances 5,885,702 4,315,179 1,406,886 Allowance for impairment (131,473) (100,452) ( 51,113) Net loans and advances 5,754,229 4,214,727 1,355,773

Total loans and advances are due to mature as follows:

· Between three months and one year 2,378,629 1,470,249 193,202 · After one year 3,507,073 2,844,930 1,213,684 5,885,702 4,315,179 1,406,886 Movement on allowance for impairment:- At beginning of period 100,451 51,112 72,008 Increase in provisions 31,022 49,339 - 20,895 Balance at end of year 131,473 100,451 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

377,838 1,441,735 3,410,887

570,600 183,955 173,446 Government of Malawi Local Registered Stock 948,438 1,625,690 3,584,333 Total investments The investments are due to mature as follows:- 209,823 876,794 1,471,800

*'Within three months 738,615 564,941 1,960,500

*'Between three months and one year - 183,955 152,033 * Between one year and five years 948,438 1,625,690 3,584,333


86

NOTES TO THE FINANCIAL STATEMENTS For the periods ended 31 December In thousands of Malawi Kwacha 17 Property and equipment Freehold

land & buildings

Leasehold land & buildings

Motor vehicles, fixtures & fittings

Under Construction

2006 Total

2005 Total 6

Months 2004

Cost or valuation Balance at 1 January 115,250 458,144 770,526 18,157 1,362,077 796,728 579,478 Additions - 19,635 187,664 386,919 594,218 554,610 182,219 Disposals - (381,825) (6,253) - (388,078) (4,050) (26,202) Impairment loss - - - - - (7,263) (3,021) Revaluation (4,136) 14,836 - - 10,700 22,052 64,254 Balance at 31 December 111,114 110,790 951,937 405,076 1,578,917 1,362,077 796,728 Depreciation Balance at 1 January - - 142,946 - 142,946 41,243 - Charge for the year 3,713 8,018 154,193 - 165,924 108,369 52,678 Eliminated on revaluation - - - - - (4,416) - Eliminated on disposal - (4,404) (2,029) - (6,433) ( 2,250) (11,435) Balance at 31 December 3,713 3,614 295,110 - 302,437 142,946 41,243 Carrying amount At 31 December 107,401 107,176 656,827 405,076 1,276,480 1,219,131 755,485

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.


87

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 statement 2005 (K million)

Opening equity 2005 (K million)

Total adjustment (K million)

Provision for leave pay 9.6 - 10 On staff loans 14.9 - 15 Severance pay - 20.3 20 Total prior year adjustment 24.5 20.3 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.

b) 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.

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 38.6 Fair value on treasury bills 15.4 Provision for loan losses -15.2 38.8


88

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

2006 2005 6 months

period 2004 Basis of valuation Balance at year end Financial Assets - Malawi Government local registered stocks 28,535 - 570,600 Fair value Loans and receivables - Loans and advances to customers - 131,474 5,754,228 Amortised cost - - 186,318 - Due from other banks 'Amortised cost Available for sale assets - Malawi Government Treasury bills 2,491 - 377,782 Fair value Financial Liabilities - - 5,498,766 - Customer savings accounts Amortised cost - - 213,702 - Foreign currency accounts Amortised cost - - 2,739,925 - Term deposit accounts Amortised cost

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.


89

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 of transactions

Volume of transactions

Balances as at 31/12/06

Assets

Liabilities

K’000 K’000 K’000

- NICO Holdings Limited Management

fees 48,145 - 1,979

- NICO Life Insurance Limited Interest payable 94,229 - 201,496

- NICO General Insurance Limited Interest payable 15,406 - 27,011

- NICO Technologies Limited Suppliers and

consultancy 61 1,321 61

- Loans to directors Advances - - 8,410

- Landed Property Agents Consultancy 7,487 - 1,336

- Millenium Investments Limited Advances 23 84,000 -

- Executive Management Loans Advances - 58,003 -

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 2005 6 Months period

2004 Directors' fees 3,530 2,382 1554 Executive officers 45,919 41,232 15250 49,449 43,614 16,804

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.


90

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 .

(ii) Capital Adequacy Requirement The Bank’s 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 Bank’s available capital was 10% of all its risk bearing assets and contingent liabilities.

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 bank’s 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 Bank’s 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;


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Movement on provision 2006 2005 6 Months

period 2004 At the beginning of the period 100,354 66,328 85,004 Increase/(decrease) 196,077 74,726 40,381 Recovered -26,685 -40,700 - 59,057 Balance at end of the year 269746 100354 66,328 Analysis of recoveries Specific provisions 10,414 31,584 44121 Interest in suspense 16,271 9,116 11987 26,685 40,700 56,108 Analysis of provisions held at end of the period · Specific provision 150,545 34,287 44,121 · Portfolio impairment 57,871 45,038 10,220 · Interest in suspense 61,330 21,029 11,987 Total provisions 269,746 100,354 66,328 Interest in suspense

Total loans and advances on which interest is suspended 687,664 97,895 101,961

25 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 Up to 1

month 1-3 months 3-12

Months Over 1 year

Total

Cash and balances with banks 1,856,674 - - - 1,856,674

Investment securities - 255,363 120,000 584,625 959,988

Loans and advances 1,581,533 89,049 403,224 3,680,423 5,754,229

Other assets 209,826 - - 1,264,771 1,474,597

Total assets 3,648,033 344,412 523,224 5,529,819 10,045,480

LIABILITIES AND SHAREHOLDERS FUNDS

Domestic deposits 1,475,397 2,436,799 4,012,344 314,151 8,238,691

Foreign Currency denominated deposits 213,702 - - - 213,702

Other borrowed funds - - - 244,501 244,501

Other liabilities 407,915 - - - 407,915

Shareholders funds - - - 940,679 940,679

Total liabilities and shareholders funds 2,097,014 2,436,799 4,012,344 1,499,331 10,045,488

Net Liquidity Gap 1,551,019 (2,092,387) (3,489,120) 4,030,488 -

Cumulative Liquidity Gap 1,551,019 (541,368) (4,030,488) - -


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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

rate 0-3 months 3—6

months 6-9 months 12 months Over 12

months Total

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 -


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27. Contingent Assets/Liabilities 2006 2005 6 Months

period 2004

Letters of credit 309,079 75,236 - Severance pay 157,000 - - Total 466,079 75,236 -

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 bank’s 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 2005 6 Months

period 2004 United States Dollar (USD) 139.34 123.78 108.9

British Pound (GBP) 283.07 216.03 210.32 South African Rand (ZAR) 20.71 20.05 19.35 Inflation rates as at 31 December 10.1% 16.5% 13.70%

30. 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.

31. Subsequent events

Subsequent to balance sheet date no events have occurred necessitating adjustments to or disclosures in the financial statements.

32 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 Bank’s 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.


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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


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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 provisions-

where 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


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 inter-company borrowing and apart from temporary loans obtained from the Company’s 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


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 director-

102.1 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 Company’s 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


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 “Board” means the board of directors of NBS;

1.1.2 “This Deed” means this Trust Deed;

1.1.3 “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 “NBS ESOP” means the NBS Employees Share Ownership Plan and the Rules

made in terms of this Deed;

1.1.6 “NBS ESOP Trust” means the NBS ESOP and the Trust Jointly;

1.1.7 “Participants” means an Employee who holds an Option in terms of the Rules;

1.1.8 “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 to acquire the NBS Shares;

8.1.2 to repay the loan in terms of the Loan Agreement as provided in Clause 7.1

of this Deed;

8.1.3 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 he becomes bankrupt or makes any arrangement or composition with his

creditors generally, or assigns his estate;

9.5.2 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 becomes of unsound mind;

9.5.4 resigns his office by notice in writing to the Trustees ;

9.5.5 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 has been convicted of an offence involving dishonesty or fraud (including

forgery, perjury, money laundering or any similar offence);

9.5.8 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, NBS’s 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

10.1 The 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.

10.2 Without 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: [email protected]

Blantyre

P O Box 1297 Blantyre Tel: +265 (0) 1 620222 Fax:+265 (0) 1 624107 Email: [email protected]

Capital City

P O Box 30386 Lilongwe 3 Tel: +265 (0) 1 770988 Fax:+265 (0) 1 773497 Email: [email protected]

Corporate Banking Centre

P O Box 1353 Blantyre Tel: +265 (0) 1 670802 Fax:+265 (0) 1 676 591 Email: [email protected]

Chichiri Service Centre

P O Box 32070 Blantyre 3 Tel: +265 (0) 1 678 170 Fax: +265 (0) 1 673 462 Email: [email protected]

Dedza

P O Box 5 Dedza Tel: +265 (0) 1 223346 Fax:+265 (0) 1 223634 Email: [email protected]

Dwangwa

P O Box 62 Salima Tel: +265 (0) 1 295255 Fax:+265 (0) 1 295255 Email: [email protected]

Ginnery Corner

P O Box 30050 Blantyre 3 Tel: +265 (0) 1 671255 Fax:+265 (0) 1 676497 Email: [email protected]

Kasungu

P O Box 100 Kasungu Tel: +265 (0) 1 253257 Fax:+265 (0) 1 253570 Email: [email protected]

Lilongwe

P O Box 522 Lilongwe Tel: +265 (0) 1 755277 Fax:+265 (0) 1 755738 Email: [email protected]

Limbe

P O Box 5091 Limbe Tel: +265 (0) 1 640166 Fax:+265 (0) 1 644406 Email: [email protected]

Luchenza

P O Box 154 Limbe Tel: +265 (0) 1 476448 Fax:+265 (0) 1 476078 Email: [email protected]


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Lunzu

P O Box 111 Lunzu Tel: +265 (0) 1 694391 Fax:+265 (0) 1 694343 Email:[email protected]

Mangochi

P O Box 106 Mangochi Tel: +265 (0) 1 594377 Fax:+265 (0) 1 594764 Email: [email protected]

Mwanza

P O Box 158 Mwanza Tel: +265 (0) 1 432341 Fax:+265 (0) 1 432351 Email: [email protected]

Mzuzu

P O Box 104 Mzuzu Tel: +265 (0) 1 332366 Fax:+265 (0) 1 332574 Email: [email protected]

Ntcheu

P O Box 312 Ntcheu Tel: +265 (0) 1 235455 Fax:+265 (0) 1 235332 Email: [email protected]

Salima

P O Box 62 Salima Tel: +265 (0) 1 262544 Fax:+265 (0) 1 262024 Email: [email protected]

Zomba

P O Box 302 Zomba Tel: +265 (0) 1 524144 Fax:+265 (0) 1 524088 Email: [email protected]


113

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) Copied or faxed application forms will be rejected. Only original application forms will be

considered. 3) 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 Applicant’s authority to sign the application in a representative capacity.

4) Any material alteration on the application form, other than the deletion of alternatives, must

be authenticated by full signature. 5) After the closure of the Offer period applications are irrevocable. 6) 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.

7) 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.

8) The following calculation table at MWK 2.60 per share may assist applicants in determining

the amount to pay upon application: -

Number Amount Number Amount Number Amountof shares Payable of shares payable of shares payable

applied for MWK applied for MWK applied for MWK4,000 10,400 20,000 52,000 100,000 260,0005,000 13,000 25,000 65,000 150,000 390,0006,000 15,600 30,000 78,000 200,000 520,0007,000 18,200 35,000 91,000 250,000 650,0008,000 20,800 40,000 104,000 300,000 780,0009,000 23,400 45,000 117,000 350,000 910,000

10,000 26,000 50,000 130,000 400,000 1,040,00011,000 28,600 55,000 143,000 450,000 1,170,00012,000 31,200 60,000 156,000 500,000 1,300,00013,000 33,800 65,000 169,000 550,000 1,430,00014,000 36,400 70,000 182,000 600,000 1,560,00015,000 39,000 75,000 195,000 650,000 1,690,000

Note: Applications must be for a minimum of 4,000 shares and in multiples of 1,000 shares thereafter


114

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.

10) 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.

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 NBS’s 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.


115

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.


116

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 NBS’s 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 NBS’s 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 circle appropriate title(s), or insert if not

listed

Mr, Mrs, Miss, Ms, Dr, Rev, Trustee, Other:

Surname/s 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:


117

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 banker’s cheque, draft or cash attached to this application for the Ordinary shares applied for at MWK 2.60 per share.

MWK (enter figures only – not words)

Branch / code

Tear here- - - - - - - - - - - - - -- - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - - -

NBS SHARE OFFER RECIEPT OF APPLICATION

Branch / code

Name Amount paid Shares applied for


118

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 Amountof shares payable of shares payable of shares payable

applied for MWK applied for MWK applied for MWK4,000 10,400 20,000 52,000 100,000 260,0005,000 13,000 25,000 65,000 150,000 390,0006,000 15,600 30,000 78,000 200,000 520,0007,000 18,200 35,000 91,000 250,000 650,0008,000 20,800 40,000 104,000 300,000 780,0009,000 23,400 45,000 117,000 350,000 910,000

10,000 26,000 50,000 130,000 400,000 1,040,00011,000 28,600 55,000 143,000 450,000 1,170,00012,000 31,200 60,000 156,000 500,000 1,300,00013,000 33,800 65,000 169,000 550,000 1,430,00014,000 36,400 70,000 182,000 600,000 1,560,00015,000 39,000 75,000 195,000 650,000 1,690,000

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.

Payment: -

8. The cost of Bankers cheques issued by banks other than NBS in support of any application will be borne by the Applicant.

9. Cash will be accepted in lieu of a bankers draft or cheque. 10. The presentation of bankers’ cheques shall not amount to acceptance of the

application.


119

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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