Presentation to institutional investors: Sep 2010

By Mark Wiessing, Sept 2010

PRESENTATION TO INSTITUTIONAL INVESTORS

ZANACO INTERIM RESULTS 2010

2

Contents

Zanaco Overview Operating Environment Zanaco Strategy Financial Highlights Conclusion Appendix

Zanaco Overview: Where we started (Pre-privatisation)

40 years history Full service bank Good branch network Strong IT platform Reducing market share Lowest profitability among the large 5 banks Low capital adequacy High NPL’s and Provisions Market perceptions

3

Zanaco Overview: Privatisation and beyond

Privatisation in 2007 gave opportunity to:– Review strategic direction – Recapture initiatives and lead position – Cement position as broad based retail bank with rural presence– Improve financial and operational efficiency

Zanaco completed its IPO and listing in November 2008 The ownership structure post IPO is:

−Rabobank 45.6%−GRZ 25%−Free float on the LuSE 29.4%

4

Operating environment

Operating Environment-Zambian economy

Favorable economic indicators;−Projected GDP growth rate 6.6% −USD/ZKw rate range; ZKw-4,800-5,200−Inflation 8% −Limit Government’s domestic borrowings to 2% of GDP−Copper, LuSE Index in the right direction

Recent developments−Government securities yields appear to normalise but still below inflation−Fiscal pressure building up for 2011 presidential & general elections preparations−Donor budgetary support risks on the back of concerns around financial management lapses in

some government departments Banking Industry outlook; working back to recovery with more caution

−Tightened credit underwriting standards following high NPL’s (average 15%)−Increased focus on salary backed consumer loans−Pressure on NIM due to low yields in Government paper, falling lending rates, and lending

portfolios which have remained relatively flat −Lower interest rates not necessarily resulting in more aggressive lending −Transactional services key

6

Operating Environment-Banking industry 1H 2009 vs 1H 2010

1H 2009 vs 1H 2010 industry performance;−Total assets: 21% growth, mainly driven by;

Investments in Government paper (66%) Placements abroad (36%)

−Net loan & advances: 4% contraction−Deposits: 26% up, mainly due to large once-

off fx proceeds from the privatization of the state owned telecoms company (16% YoY ex once off)

−Capital up by 21% driven by tighter cost containment strategies and suspension of most of capex programs

−NPL’s up 45%−Provisions down by 43%

7Source) Bank of Zambia, Prudential accounts as at Jun 2009/10

1H 2009 (Kwacha million)

Total assets 17,133,927Net loans and advances

7,687,636

Deposits 12,168,818NPL's 704,797Provisions 230,0061H 2010Total assets 20,685,694Net loans and advances

7,347,121

Deposits 15,378,335NPL's 1,021,665Provisions 131,556

Key prudential accounts metrics comparables (1H 2010 vs 2009)

8

2010 Zanaco Barclays Stanbic Stanchart Finance Mkt

LDR 46% 89% 49% 41% 69% 54%

C/I 57% 57% 68% 48% 55% 58%

CAR 21% 16% 16% 21% 20% 23%

2009 Zanaco Barclays Stanbic Stanchart Finance Mkt

LDR 60% 120% 58% 44% 56% 63%

C/I 60% 50% 58% 66% 45% 57%

CAR 18% 14% 17% 16% 21% 20%

Source) Bank of Zambia, Prudential accounts as at June 2009/10

Key prudential accounts metrics comparables (1H 2010 vs 2009……….

9

2010 Zanaco Barclays Stanbic Stanchart Finance MktRevenues (ZKw Bn) 268 343 173 242 126 1,542PBT (ZKw Bn) 87 17 11 111 22 314Provisions (ZKw Bn) 4 88 24 (3) 11 132Deposits (ZKw Bn) 2,389 3,079 2,196 2,721 900 15,378

Assets (ZKw Bn) 3,178 4,065 2,693 3,495 1,509 20,686

Capital (ZKw Bn)

340 191 182 266 195 2,142

2009 Zanaco Barclays Stanbic Stanchart Finance MktRevenues (ZKw Bn) 236 409 193 198 142 1,478PBT (ZKw Bn) 56 (27) 30 29 53 178Provisions (ZKw Bn) 24 151 29 16 2 230Deposits (ZKw Bn) 1,965 2,243 1,772 2,070 1, 121 12,169Assets (ZKw Bn) 2,631 3,940 2,187 2,510 1,440 17,134Capital (ZKw Bn)

263 260 183 158 181 1,763

Source) Bank of Zambia, Prudential accounts as at June 2009/10

Zanaco Strategy

Aspirations

Sustainably profitable Broad based retail bank for all segments (corporate, retail, public service, agric) Consistent quality, fair price Sales/service oriented Urban/rural distribution Employee and customer satisfaction Organisation structured to meet business requirements Use technology advantage to achieve benefit of scale at low cost Clear segmentation to drive business direction and resourcing Grow at least at market growth rates and recapture market shares Target # 1 position Efficiency ratios to improve to at least current market averages (C/I, LDR, staff/ooe ratio) Rabobank link for key relationships and technical assistance

11

Vision, Values and Mission

Vision

To be the people’s bank, and to be the leading financial services firm in Zambia, providing sustainable financial returns and benefits to all our stakeholders

Values

What drives us? Proactive, result oriented, and pride

How do we achieve our goals? Teamwork, accountability, and competence

What guides us? Integrity, respect, and professionalism

Mission

To consistently exceed our stakeholders’ expectations in proactively designing, selling, delivering, and servicing competitively priced financial solutions for all key segments of the Zambian public, in rural and urban areas, through appropriate technology, and

distribution channels, with empowered and motivated staff

12

Strategy: Business Model & Segmentation

Continue as a full service retail bank Business to be driven by Corporate, Retail, and Treasury divisions Segmentation and Sales

- Retail division- mobilize sales using branches and direct sales agents focused on chosen segments; Consumer SME

- Corporate division-to mobilize sales using relationship marketing to chosen segments Institutions GRZ Agric

– Treasury-to grow market share of our trading activities i.e. Fx and money markets to levels commensurate with the bank’s overall market share

13

Strategy: Products

Core product functionalities now fully operationalized

Consolidating recent electronic product extensions;

– GPRS enabled ATMs, POS terminals

– Increasing Visa Electron card penetration

– Strengthening Internet Banking reliability and availability

– Increasing penetration and convenience of Xapit (cash in/out points, customer knowledge of use

and functionalities, refining customer targets, etc..)

14

Strategy: Distribution

Improving distribution:

- Initial focus was on alternative channels but 2010 and beyond shows acceleration in bricks and

mortar distribution

- Additional branches- Senanga, Chirundu, Woodlands; GRZ business Centre and 2 other branches

underway

- Piloting the Zampost model, opportunity to increase POR (cash in/out) by 120

- Opportunities for further cash in/out partnership with retail distributors

- Deposit taking ATM’s

- Increasing ATM’s to over 200 by 2011

- Planning retail premium branch

- Planning dedicated Corporate branch

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Strategy: Customer Service & People

Positioning for customer service improvements:

- Recently launched dedicated corporate customer service unit and retail call centre

- Branch process improvements to reduce customer queuing time

- Introducing greeters in branches and service ambassadors at ATM’s

- Increasing use of electronic channels for transacting by customers- Focus on peak time service management

People:- Performance driven reward system- Increased focus on training; sales, customer service, etc- Creating a blend of talent i.e. existing and new recruits from other institutions- Hiring new resources to accommodate strong volume growth

16

Strategy: Credit risk management, & IT

Credit:- Continuous reviews of loan portfolio to help with early identification of weak assets in the portfolio- Implementation of credit factory, (scoring, portfolio management, collections) is planned- Strengthening collateral management processes- Managing weak “legacy” loans- Focus on further reducing NPL ratio to single digits

IT/Technology:- Upgrade core banking platform (Flexcube)- Improve data management speed through dedicated higher bandwidth- Broaden telecommucation platform for efficient availability of our electronic channels- Ensuring higher uptimes of all electronic channels to improve customer experience

17

Strategy: CSR, PR, & Marketing

Successful Zanaco Financial fitness program;– Available to over 100 schools– Extended to our over 18,000 SME customers

Supported Zanaco FC since its inception-One of Zambia’s top football team currently contesting in the continental cup competition

Supporting traditional ceremonies Launch of new advertising campaign “whoever you are” Support of stakeholders’ events (ZNFU, ZICA etc..) Support of agriculture; Lima scheme, Emergent farmers finance scheme

18

Key assumptions and metrics for the medium term future

GDP growth at around 5% p.a. Deposits grow at least at market (25-30%) Loans and advances to grow at least at market growth rates (25-30%), preferably higher, subject to

NPL and provisioning improving Net interest margin declines slightly from 8% to 6% as a result of lower interest expectations in the

medium term, and need to increase deposit pricing to continue gradually gaining market share and lengthen tenor of liabilities

Non-interest income to trend to 50% of total income Trading income from 1 to 3% of assets Revenue growth to trend to about 25% p.a. Operational cost to income ratio to trend to 65% Staff expenses (excluding restructuring charges) to reduce from 65% to 50% of total expenses ROE to increase from mid-teens to 25% Metrics and assumptions may be adjusted from time to time depending on external or other

circumstances

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Financial highlights

Key financials at a glance………

21

Consistently high revenue growth-15% YoY– Despite slow down in NII, due low growth in the loan book on the back of the 2008/9 economic crisis;

optimistic with prospects for 2H 2010– Strong Fees & Commissions income growth-36% YoY – Improving Fx trading income-40% YoY

PBT 44% up YoYSource: Zanaco, IFRS accounts

242

5929

299

45 51

399

8652

497

12982

230

57 34

265

8249

0

100

200

300

400

500

600

Revenues PBT PAT

ZKw

Bn

Revenue & Profit growth

Actual ‘06 Actual ’07 Actual ‘08

Actual ‘09 Actual 1H ‘09 Actual 1H ‘10

-

50,000

100,000

150,000

200,000

250,000

300,000

350,000

NII F & C Trading Income

Other Income

ZKw

Bn

Development of Revenues

Actual ‘06

Actual ’07

Actual ‘08

Actual ‘09

Actual 1H ‘09

Actual 1H ‘10


22

Margin compression-3% reduction YoY; – Impact endowment risk– Flat growth of L & A portfolio, improvements expected in 2 H 2010

Operational and financial efficiency consistently improving;– Revenues growing faster than costs– Employee productivity getting better– In control of costs

Source: Zanaco, IFRS accounts

76% 78%70%

58% 62% 60%

Actual ‘06 Actual ’07 Actual ‘08 Actual ‘09 Actual 1H ‘09 Actual 1H ‘10

Improving efficiency

Operational C/ I Poly. (Operational C/ I )

7.50%

8.00%

8.50%

9.00%

9.50%

10.00%

10.50%

Actual ‘06 Actual ’07 Actual ‘08 Actual ‘09 Actual 1H ‘09

Actual 1H ‘10

NIM

NIM


23

Solid EPS growth; 45% YoY Strong and consistent balance sheet growth


0102030405060708090

100

Actual ‘06

Actual ’07

Actual ‘08

Actual ‘09

Actual 1H ‘09

Actual 1H ‘10

ZKw

Earnings Per Share

EPS in ZKw

0

500

1,000

1,500

2,000

2,500

3,000

3,500

Deposits Assets L & A (net)

ZKw

Bn

Business growth

Actual ‘06

Actual ’07

Actual ‘08

Actual ‘09

Actual 1H ‘09

Actual 1H ‘10

Business growing faster

24

Transactions growing faster in line with our effort to gain new customers in addition to our existing customer base

Focusing on achieving a 1:1 customer/card relationship

Source: Zanaco, internal MI (provisional)

359,115

1,183,6051,098,605 960,045

1,837,854

2,705,738

Electronic txns Muanual txns

Monthly Transactional VolmesJun-08 Jun-09 Jun-10

226,587

158,611

285,309

185,451

400,076

268,807

Customer base Card base

Customer & Card base developmentJun-08 Jun-09 Jun-10

Business growing faster….

25

Well spread loan book-minimizing concentration (volume driven consumer vs. value driven commercial loans)

Focus on further improving efficiency in the processing & management of consumer loans & advances

Source: Zanaco, internal MI (Provisional)

21,408

4,275

24,295

3,858

26,053

4,894

# of Consumer L & A # of Commercial L & A

L & A Volume DevelopmentJun-08 Jun-09 Jun-10

Business growing faster….

26

Increasing the capacity (staffing) to meet the growing business demand Right blend of contracts (fixed term and permanent and pensionable) ensuring continued

improvements in productivity and performance culture

Source: Zanaco, internal MI (Provisional)

997 1,004

1,156

0

500

1000

1500

2000

2500

June '08 June' 09 June '10

Staff Compliment

Total

Permanent and Pensionable

DSA

Contract


27

ROA fully recovered and track Solid ROE growth and on track with MT target; 23% in 1 H 2010 compared to 20% in the same

period last year


0%

5%

10%

15%

20%

25%

30%

ROA ROE

%ROA/ROE



Strong financial growth- 4 years IFRS accounts

28Source: Zanaco, IFRS accounts

(K’ billion) Actual ‘06 Actual ’07 Actual ‘08 Actual ‘09 Change '08/ '09

Revenues 242 299 399 497 25%Operating expenses 183 234 281 302 7%PBT 59 45 86 129 50%Impairment 19 19 32 66 106%Tax charge/ (credit) 11 -5 34 47 38%PAT 29 51 52 82 58%

Deposits 1,494 1,799 2,325 2,292 -1%Assets 1,706 2,124 2,915 3,042 4%L & A (net) 487 800 1,001 1,163 16%Equity 159 202 322 398 24%Operational C/ I 76% 78% 70% 56% -20%ROA 2% 2% 2% 3% 35%ROE 18% 25% 16% 21% 29%Prudential Provisions in ZKw

31 48 31 43 39%

Delivering strong financial growth- based on IFRS accounts


(K’ billion) Actual

‘09Actual 1H

‘09 Actual 1H

‘10Change 1H 09 vs 1H 10

Revenues 497 230 265 15%Operating expenses 302 143 147 3%PBT 129 57 82 44%Impairment 66 16 15 -6%Tax charge/ (credit) 47 23 33 43%PAT 82 34 49 44%Deposits 2,292 1,965 2,389 22%Assets 3,042 2,716 3,262 20%L & A (net) 1,163 1,266 1,181 -7%Equity 398 340 421 24%Operational C/ I 58% 62% 60% -3%ROA 3% 2% 3% 50%ROE 21% 20% 23% 15%Prudential Provisions in ZKw 43 24 4 -83%

A well diversified funding structure

Customer deposits driven funding structure– Transactional and savings deposit fuels growth– Lowest CoF in the market

Further strengthened external fx funding to support the growing demand of Fx loans– Fully drawn loans; FMO/Proparco USD 35 million, ADB USD 10 million, yet to draw IFC USD 25 million.


Deposits from customers

Deposits from other banks Senior debt Shareholders

funds

Actual ‘06 1,494 30 0 159

Actual ’07 1,799 32 0 202

Actual ‘08 2,325 5 120 322

Actual ‘09 2,292 4 165 398

Actual 1H ‘09 1,965 95 130 340

Actual 1H ‘10 2,389 2 165 421

0500

1,0001,5002,0002,5003,000

ZKw

Bn

Funding Structure

Deposits from other banks

0%

Senior debt6%

Shareholders funds14%

Savings29%

Current61%

Term10%

Customer deposits

80%

1H 2010 Components of Funding

Top tier deposit taker

High deposit portfolio growth-22% YoY– Savings deposits; 26% YoY– Term deposits; 49% YoY– Demand deposits; 17% YoY


-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Savings Current Term

ZKw

Bn

Deposits mix

Actual ‘06

Actual ’07

Actual ‘08

Actual ‘09

Actual 1H ‘09

Actual 1H ‘10 8%20% 22% 24% 24%

29%27% 26% 25% 25%

63%53% 52% 51% 51%

0%

20%

40%

60%

80%

100%

120%

Actual ’07 Actual ‘08 Actual ‘09 Actual 1H ‘09

Actual 1H ‘10

Deposits by Segment

Retail

GRZ

Corporate/SME

Retail deposit driven Captive GRZ deposits (distribution, IT capabilities etc); – Payments services-Funding to rural GRZ departments i.e. schools,

courts, health centres etc– Collections services-Government revenues etc..– Payroll management services for the civil servant

Top tier deposit taker…….

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Market Share Channels & card base-1H 2009

Deposit market share on track Recovery in leadership in saving deposits (33% market share);-Highest level since 2006 Impact of once-off (telco privatisation) on market share YoY Market growth (ex once-off) is 16% Zanaco growth YoY is 22%

Source; Bank of Zambia, Jun 2009/10 Prudential accounts

19%

33%

7%

10%

18%

32%

10%8%

19%

31%

18%

11%

17%

31%

16%

12%

16%

31%

15%

9%

16%

33%

14%

10%

0%

5%

10%

15%

20%

25%

30%

35%

Total deposits Savings Current Term

Deposits Market Share

Actual ‘06

Actual ’07

Actual ‘08

Actual ‘09

Actual 1H ‘09

Actual 1H ‘10

Development of assets

Probably most liquid bank in the market; LDR down YoY (64% vs 49%), due to a large once-off bridge loan booked in 1H 2009 and paid off before year end 2009

Loan book flat; as a result of market slow down in ‘09 and 1H ‘10 good prospects for further growth in 2H 2010

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Market Share Channels & card base-1H 2009


-500,000

1,000,000 1,500,000 2,000,000 2,500,000 3,000,000 3,500,000

Total assets Cash & cash equivalent

Gross L & A Net L & A

ZKw

Bn

Assets mix & growth



Development of assets……..

34

Well balanced asset structure; Liquidity vs yield

Good mix L & A portfolio; commercial & consumer assets

Diversified portfolio by sector with focus on the real sectors; Agric, Manufacturing


Cash & cash equivalent

54%

Other assets

6%

Commercial26%

Consumer12%

Mortgages2%

Gross L & A40%

1H 2010 Assets structure

Consumer32%

Mortgages2%

Manufacturing10%

Wholesale & retail

7%

Transport & communication

8%

Business services

3%

Agriculture28%

Others10%

Commercial loans &

overdrafts66%

1H 2010 L & A structure

Quality of assets

35

NPL’s up; Pre-privatisation weak loans already in the system being recognised NPL ratio up due to loan book which remained flat during the period Market NPL ratio averages around 15% (prudential)


-

200,000

400,000

600,000

800,000

1,000,000

1,200,000

1,400,000

1,600,000

Gross L & A NPL's Impairment allowance

Impairment Charge

ZKw

Bn

Actual ‘06

Actual ’07

Actual ‘08

Actual ‘09

Actual 1H ‘09

Actual 1H ‘10 13%

66%

8%3%

12%

61%

7%2%

14%

63%

9%3%

12%

68%

8% 5%11%

73%

8%1%

14%

64%

9%1%

NPLs ratio Coverage ratio Impairment Allow/G L & A

Impairment charge/G L & A

Development on NPL's & provisionsActual ‘06 Actual ’07 Actual ‘08 Actual ‘09 Actual 1H ‘09 Actual 1H ‘10

Coverage ratio; Total impairment allowance/NPL

Share Performance & Dividends

Share trading performance

Share price;−Listing K 470−Current (date of report) K 745−Highest K 745−Lowest K 200

Low trading volumes & value ;−Av monthly; 785,850 shares−Av Monthly value; K 550 million

Share price performance above LASI

37

Dividends and dividend policy

The dividend payment for the last 4 financial years has been as follows;

Zanaco declares dividends as the Directors may deem prudent from time to time as it continue to retain a significant part of its earnings to allow for further investments in the business

In the process on striking a balance between the need to re-invest in the business and meeting the shareholders’ expectations, Zanaco will continue to improve the pay-out ratio in line with the market

Dividend per share;−Paid for 2009 K 21.00−Paid for 2008 K 15.75

33% dividend growth Dividend yield;

– 3% on price of K 745 (date of report)

Kwacha millions2005 2006 2007 2008 2009

Dividends paid 10,001 10,001 10,001 18,191 24,255

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Dividends and dividend policy………

Consistently growing EPS growth

Market valuations (date of report); – P/BV-2.04 times– P/E (Annualized 1H10 earnings)-8.66 times

ZKw

2005 2006 2007 2008 2009 1H 2010 (Annualised)

EPS 29.30 29.63 51.53 52.09 70.94 86.00

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Conclusion

Overall performance 1H 2010

Strategy unchanged aiming to consolidate number 1 position P & L on track Intent to step up physical distribution and partnerships to support customer base growth Fast growing customer base drives strong transactional revenues Strong capital base Opportunities to further improve customer experience In line with market, sluggish L & A/deposits in 1 H 2010 but improvements expected in 2H 2010 Strong F & C, Treasury-trading Income

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Disclaimer

Zambia National Commercial Bank PLC, (hereafter “Zanaco”) has taken all reasonable care to ensure that to the best of its knowledge this presentation is true and correct in all material respects, does not contain any untrue statement of a material fact, is not misleading and does not omit to state any material fact, the result of which would make the statements, opinions and intentions herein, in the context in which they are made, misleading in any material respect. This presentation and any other information supplied is not intended to provide the basis of any evaluation, and should not be considered as a recommendation by Zanaco. Any recipient of this presentation, or of any other information supplied in connection with this presentation should make its own independent investigation of the financial condition and affairs, and its own appraisal, of Zanaco, including the merits and risks involved. This presentation does not constitute an offer to sell or the solicitation of an offer to buy any Zambia National Commercial Bank PLC, ordinary shares in any jurisdiction to any person. Zanaco does not represent that this presentation may lawfully be distributed, or that any Zambia National Commercial Bank PLC, ordinary shares may be lawfully offered, in compliance with any applicable registration or other requirements in any such jurisdiction, or pursuant to an exemption available there under, or assumes any responsibility for facilitating any such distribution or offering. In particular, no action has been taken by Zanaco that would permit a public offering of any Zambia National Commercial Bank PLC ordinary shares or distribution of this document in any jurisdiction where action for that purpose is required. Accordingly, this presentation may not be re-distributed or re-published in any jurisdiction, except with the express approval of Zanaco.

Forward-looking statementsThis presentation may include “forward-looking statements” which include all statements other than statements of historical facts, including, without limitation, those regarding Zambia National Commercial Bank PLC’s financial position, profit and revenue forecasts, business strategy, plans and objectives of management for future operations (including development plans and objectives relating to Zambia National Commercial Bank PLC’s products and services) and any statement preceded by, followed by or that includes the word “projects”, “estimates”, “targets”, “believes”, “expects”, “aims”, “intends”, “will”, “may”, “anticipates”, “would”, “could” or “seeks” or any similar expression or the negative thereof. Such forward-looking statements are not guarantees of future performance and involve known and unknown risks, uncertainties and other important factors beyond Zambia National Commercial Bank PLC’s control that could cause the actual results, performance and/or achievements of Zambia National Commercial Bank PLC, to be materially different from future results, performance and/or achievements expressed or implied by such forward-looking statements. Forecasts or projections made in this presentation are based on assumptions that may or may not materialize. While such forecasts or projections have been prepared with due care and objectivity, no representation, warranty or undertaking, express or implied is made and no responsibility is accepted for the reasonableness of any forecast or projection.

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Investor Relations

Presentation to institutional investors: Sep 2010