THE OPERATING ENVIRONMENT

The operating environment in 2016 continued to be challenging, characterized by high inflation and a food output deficitfollowing poor weather conditions.The country is expected to record a weak GDP growth rate of 2.5% compared to previous higher projections. Prices for tobacco, the mainstay of the country’s export sector,were 19% below those of the previous year, resulting in the crop’s export earnings being 18% lower than the previous year. Annual average inflation for 2016 was recorded at 21.7% compared to 21.9% the year before.

The authorities maintained a tight monetary stance through high interest rates. Monetary policy continued to focus on the containmentof money supply growth, credit growth, inflation and stabilization of the exchange rate. However, there was some relaxation of monetary policy as a cut in the Policy Rate of 3 percentage points from 27% to 24%was implemented, effective 1st December 2016.

Drought weather conditions resulted in low water levels in Lake Malawi and the Shire River, the major sources of power generation.Consequentlythe countryexperienced unprecedented power outages that affected the Bank and its customers. Production was below capacity and uncompetitive compared with imported products, as alternative sources of power increased the operating costs for most of our customers.

The integrationof Indebankinto National Bank was successfully completed in the middle of the year. This implies that the Group will no longer be carrying the extra overheads of Indebank.

PERFORMANCE

I am pleased to announce a group pre-tax profit of K25.3bn (2015: K19.6bn) representing a 29% increase on prior year. This is in spite of once off Indebank integration costs totaling K1.6b incurred in respect of severance pay and impairment of assets that could not be put to alternative use. In addition, Indebank continued to incur unplanned overheads due to delays in obtaining certain regulatory approvals which resulted in losses amounting to K400m.The Bank has therefore once again shown remarkable resilience in its performance under the circumstances and an overall growth of 14% has been recorded in the Statement of Financial Position.

STRATEGY AND PROSPECTS

The improved weather conditions inthe 2016/17 season are expected to result into a rebound in GDP growth to 5.6% as per official estimates, mainly from increased agricultural output. The current high cost of borrowing and powergeneration challenges are the main risks to these growth prospects.

Direct budgetary support from the co-operating partners is not expected to resume and it is envisaged that there will be challenges in meeting tax revenue targets emanating from the weakened economy. The fiscal deficit is therefore expected to increase thereby applying more pressure on inflation, interest rates and economic growth prospects. A very tight monetary stance is expected to prevail, resulting in suppressed demand for credit.

The Bank’s 5 year Strategic Plan is entering its final year of implementation. A new plan is being developed to take the Bank to the next level. The Bank has built-in flexibility, resources, and agility necessary to continue on a growth path notwithstanding the prevailing operating environment. The Bank is therefore expected to continue to perform well in 2017.

BOARD OF DIRECTORS

Mr. P. Mulipa and Mr. D. Kambalametore retired from the Board during the year. Ms. M. Msiska joined the Board in May 2016 to replace Ms. R. Mkandawire who had retired in 2015.Mr. J. Bizwick joined the Board in June 2016 to replace Mr. P. Mulipa while Mr. G. Partridge became a non-executive director when he left National Bank of Malawi in November 2016. Mr H. Jiya, General Manager, Corporate Banking Division, has also recently joined the Board as an executive director.

On behalf of the shareholders, and on my own behalf, I would like to welcome the new directors and also thank the directors who have retired from the Board for their valuable contributions and support during their tenure and wish them well in their new responsibilities. I also wish to thank fellow directors for their support, dedication and co-operation and look forward to a fruitful working relationship with them in 2017 and beyond.

MANAGEMENT AND STAFF

Mr. George Partridge who had been the at the helm of the Bank for 10 years left at the end of October, 2016 to take up the position of Group CEO of Press Corporation Limited (PCL), the parent company of the Bank. On behalf of the Shareholders, the Board and on my own behalf, I wish to thank Mr Partridge for a distinguished career in National Bank, which,under his leadership grew from strength to strength. I wish him all the best in his new challenge at PCL. I also wish to take this opportunity to wish the incoming Acting CEO Mr. Macfussy Kawawa success in the task of steering the Bank to new heights.

I am grateful to the entire work force for rising up to the challenges that emerged during the year and for achieving these good results. On behalf of my fellow directors and shareholders I wish to convey my sincere gratitude and congratulations to them. As I pledge the Board’s unwavering support, I am confident that as the Bank faces new challenges, the Board can count on their creativity, dedication and hard work.

M.A.P. Chikaonda, PhD
CHAIRMAN