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Audited Financial ResultsFor The Year Ended 31 December 2017
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Financial Highlights• Groupprofitbeforeincometaxincreasedby14%toUS$29.3million.• Groupprofitaftertaxincreasedby6%toUS$23.2million.• Costtoincomeratio72%.• Basicearningspershareregistereda6%growthto3.62UScentspershare.• Netassetvalue21.53UScentspershare.
Financial Performance Review Itgivesmegreatpleasuretopresenttoyou,ourvaluedstakeholders,the2017fullyearfinancialperformanceforFBCHoldingsLimited.While2017wasyetanotherchallengingyear,theGroupmanagedtoleverageonitsdiversifiedbusinessmodelandstrongriskmanagementcapabilitiestodeliveracommendablefinancialperformance.
The2017GroupprofitbeforetaxofUS$29.3millionwas14%aheadoftheprioryear’scomparativeofUS$25.7million.Groupprofitaftertaxhowever,increasedby6%toUS$23.2millionfromUS$21.9millionlastyear,mainlyasaresultofanincreaseintheeffectivetaxratefrom14.6%to20.7%,duetoanincreasedcontributiontotaxableincomebysubsidiariesthataresubjecttotax.TotalincomefortheGroupwasup13%toUS$105.3million,drivenbya22%growthintheGroup’snet feesandcommissions,stemming from itsshift towardsdigitalplatforms.Net interest incomewasalsoup3%toUS$46.1millionwhileinterestexpensesignificantlyimprovedby12%fromUS$22.2milliontoUS$19.6million.ItistheGroup’sdesiretocontinuepursuinginitiativesthatwillresultinthefurtherreductionofourcostoffunds,whileassistingtheGroupinattractinglongertermsourcesoffundingthatarecorrectlypriced.
Netincomefrompropertysaleswasup22%toUS$1.2millionin2017,despiteatemporarydecisionthatwasmadeinmid-2017,todeliberatelyslowdownpropertysalesinresponsetothedeteriorationintheoperatingenvironment.Atotalof60housingunitswerehowever,soldin2017comparedto64unitsthatweresoldin2016whileconstructionactivitiesprogressedthroughouttheyear.TheBuildingSocietyhadearlierintheyear,purchasedandwarehousedkeyconstructionmaterialspriortovariouspricedistortionsthatensued,inanefforttomitigatematerialpriceescalation.
The demand for the Group’s traditional insurance products remained flat as evidenced by the reported net earnedinsurancepremiumswhichwereatUS$18.7million.This issimilar towhatwasreported in theprioryear. In linewiththeGroup’s strategy, the insurance units have introducedmoremicro insurance products to try and counteract thedepressedmarketposition.Innovationintermsofnewmicro-insuranceproductsandenhancedinvestmentincomeisexpectedtohelpourinsurancebusinessesachievetheirsettargetsinlinewiththestrategicintentoftheGroup.
Inrecognitionoftheever increasingcreditriskinherent intheeconomicenvironment,theGrouphasbeenprudent initsimpairmentprovisioningtoensurethatadequateresourcesaresetaside.Pursuanttothis,animpairmentallowanceofUS$6.9millionwasprovidedforin2017.TheadoptionofIFRS9andexpectedcreditlossprovisioningisprojectedtoincreasetheoverallimpairmentchargefortheGroupin2018.
TheGroup’s statement of financial position as at 31December 2017 stood at US$712.4million representing a 17%increasefromtheprioryearpositionofUS$610.1million.TheGroup’scapitalpositioninthesameperiodunderreviewclosedatUS$144.2million,representinga17%increasefromtheprioryearpositionofUS$123.4million.TheGroup’smarketcapitalisationontheZimbabweStockExchangeclosedtheyearatUS$134.3million,representinga7%tradingdiscounttothenetassetvalueofUS$144.2million.
Operating Environment Duringthefourthquarterof2017,thecountrywentthroughapoliticalrenewalprocesswiththenewadministrationcallingforbroadereconomicreformsanchoredoneconomicpolicychangesand incentives forkeyeconomicenablers.Theeconomyishowever,projectedtogrowat4.7%in2018onthebackofanticipatedimprovedperformanceinagricultureandmining.Thegovernment’sfiscalprioritiessuggestcommendableeffortstostreamlinecentralgovernmentexpendituretoavoidfurtherinflationaryshocksintheeconomy.Inpreviousyears,thecountryhadbeenrunningabudgetdeficitwhoseprimaryfinancingmechanismwasdomesticborrowing.
Goingforward,economicgrowthprospectswillbedrivenbytheabilityofthecountrytoattractnewcapitalinflows,improvetheeaseofdoingbusinessandimproveinvestorconfidencethroughconsistentpolicyformulationandimplementation.
Meanwhile,thepaceofinnovationinthedomesticmarketcontinuestoheightenwithsupportivemeasuresbeingputinplacebythegovernmentandregulatoryauthoritiestostimulatetheneweconomictransformationagenda.
Financial Services Sector Thebankingsectorremainedstableonthebackofadequatecapitalisation,improvedearningsandsatisfactoryassetquality.Themajorconcernforthebankingsectorhowever,hasbeenthesustainedshortagesofcashandinadequateforeigncurrencyreserves.Theintroductionofalternativepaymentsolutionshasgreatlyassistedthecountryinfacilitatingthe settlement of local payments. The stimulation of exports remains paramount in addressing shortages in foreigncurrencyreserves.
The Insurance SectorTheinsurancepenetrationratehasremainedsubduedataround3.6%duetothegeneralslowdownoftheZimbabweaneconomythroughout2017.Thelowuptakeofinsuranceproductshascontinuedtonegativelyimpacttheprofitabilityoftheinsuranceindustryasawhole,withFBCHolding’s(FBCH)insuranceclustercompaniesbeingnoexception.Foreigncurrencyshortagescoupledwiththereappearanceofparallelmarketsduring2017,negativelyimpactedtheindustry’sclaimratiosfortheperiodunderreview.WearehoweverencouragedbytheraftofmeasuresthathavebeenputinplacebytheInsurancePensionCommission(IPEC)totryandsanitisethemisdemeanoursaffectingtheinsuranceindustry.
Stock Market Performance Theindustrialindexgained130.4%duringtheyeartocloseat333.02points.Thebullishperformancewasunfortunatelyacceleratedbyhedgingpracticesimplementedbytheinvestingpublicinresponsetothedeteriorationoftheeconomicenvironment.Evidently,thepoliticalchangestowardstheendof2017resultedintheZimbabweStockExchangemarketcapitalization retreating fromapeakofUS$15billion toclose the year atUS$9.5billion.Going forward,westronglybelievethatwewillwitnessperformancedrivengrowthontheZimbabweStockExchange.
2017 Share Price PerformanceThecompany’slistingontheZimbabweStockExchange(ZSE)wasmaintainedandwasincompliancewiththelistingrequirements.Thecompanydidnotundertakeanysharebuy-backduringthecourseoftheyear.
Developmentsinthemonetaryspacesawstockmarketactivityincreasing,particularlyinthesecondhalfoftheyear,withtheFBCHshareattractingrelativelystrongdemandbutwithminimumtradingvolumes.Resultantly,7.6millionsharesweretradedduringtheyear,downfrom40.9millionin2016atavolumeweightedaveragesharepriceof15.5UScentspershare.TheFBCHshareclosedtheyearatapriceof20UScentspershareandachievedapeakpriceof25UScentspershare,afterhavingopenedtheyearatapriceof8UScentspershare.
FBC Trend-settingFBCHoldingsLimitedcontinues its innovationdominance inthefinancialservicessector.TheGroupcontinuestobehighlyvisiblewithinthefinancialservicesmarketplaceowingtovariousstrategicmarketingandpublicrelationsinitiatives.
Theyear2017wasarewardingyearfortheGroupasFBCHoldingsanditsvarioussubsidiariesreceivedindustry-widerecognition.Thefollowingaccoladeswereattainedin2017:1. FBCHoldingsLimited -TheBestBankingCompanyof theYear listedon theZimbabweStockExchange in the
QuotedCompaniesSurvey;2. FBC Bank - First Runner-up-Service Excellence Award in the Banking Sector Category in the Contact Centre
AssociationofZimbabwe(CCAZ)awards;
GROUP CHAIRMAN’S STATEMENT 3. FBCBuildingSociety-TheBest inPropertyDevelopment intheResidentialProjectsCategoryfor theChartered
InstituteofProjectManagersZimbabwe(CIPMZ).
FBCHoldingswasalsohonoredwithfiveCorporateGovernanceAwardsbytheInstituteofCharteredSecretariesandAdministratorsinZimbabwe(ICSAZ)aslistedbelow:1. FBCBank:MeritAwardforBestBankingRiskManagementDisclosures,2. FBCBank:SecondPrizeforBestBankingInternalAuditDisclosures,3. FBCBank:SecondPrizeforOverallBestBankingCorporateGovernanceDisclosures,4. FBCBank:ThirdPrizeforBestBankingBoardGovernanceDisclosures,5. FBCHoldings:ThirdPrizeforBestStakeholderPracticesandSustainabilityReporting.
FBC in the Community FBC believes in building communities, having established a strong tradition of giving back. Through our varioussubsidiaries,theGrouphasseenanincreaseincorporatesocialresponsibilityactivitiesfromafinancialperspectiveaswellasinvolunteerhourscontributedbyitsstakeholders.
Whiletheprimaryfocushasbeenonimprovingtheeducationalsystemandinfrastructurewithinvariouscommunities,secondary initiatives have alsobeenundertaken in the areasof health, share community trusts, aswell as arts andculture.AsaGroup,wearewell-placedtofostercreativeandinnovativewaysofmakingapositiveimpactonthewell-beingofthelocalcommunitiesinwhichweserve.
Digital Transformation and Innovation Digital technology has become the bona-fide delivery platform for financial and related services theworld over. In2017,FBCHoldings’bankingsubsidiariesconsolidatedFBC’spositionasthebankofchoicebyofferingreliableonlinebankingserviceswithinthevariouschannelswhichincludedcardissuingandacquiringonthethreemajortransactioninterchangeplatforms,namelyZimswitch,MasterCardandVISA.TheFBCInstantCard,supportedbytheMobileBankingplatform,MobileMoola,andtheAgencyBankingnetworkhasenabledFBCBankandBuildingSocietytoextendtheirdistributionnetworkbeyondtraditionalbrickandmortar,therebyextendingbankingservicestotheun-bankedinsupportofthecentralbank’sfinancialinclusiondrive.Thisisparticularlyevidentintheshiftsinthecompositionofourrevenuemixoverthelastfiveyears.
MicroPlan has seen their turnaround time for client on-boarding, reduced to 24 hours as they begin to fully extractvaluefromtherecentlycommissionedmicrolendingsystem.Integrationofthemicrolendingsystemwithotherpaymentplatformssuchasbankingsystemsandmobilewalletshasenabledthemto improveefficiency indisbursementsandcollections.FBCInsurancehasintroducedanewshortterminsurancesystemthathasallowedthemtonotonlyimprovetheircustomerexperiencethroughdigitaldeliveryofexistingandnewproducts,buttoalsoimproveoperationalefficiencythroughend-to-endautomationoftheirbusinessprocess.FBC Holdings has taken a holistic approach in the entire digital transformation and innovation programme, withcomplementaryadvancementsexpected intheGroup’sculture,businessmodel,organizationalstructure,operationalprocesses,skillssetandtechnologyarchitecture.TheGroupisalsocognisantofthefar-reachingimpactofregulatorydirectiveswhicharefavourabletoopenbankingandremovalofindustrymonopoliesandboundariesinfinancialservices.
Enhancing accessibility through innovationEncompassingthefinancialneedsoftheconsumersinmarginalisedcommunitiesandvulnerablesegmentsofthesocietalstructureremainsapriorityforFBCHoldings.
In2017,theGroupregisteredprogressintermsoftheun-bankedandunder-banked,throughthelaunchofthelowcostFBCInstantCardsupportedbytheFBCMobileBankingplatform,MobileMoola.To-dateover100000FBCInstantCardshavebeenissued.Mobilechannelshaveprovidedanopportunitytoavailservicesacrossdifferentfinancialservicesbeittransactional,creditormicro-insurance.Atotalof6300pointofsalemachineshavebeendistributedacrossthecountrybyFBCH’sbankingsubsidiary.Newlowcostinnovativetechnologiesarecurrentlybeingdevelopedforthebenefitofourcustomerswhowillseethebankdeliverunparalleleddigitalbankingcapabilities.WebelievetheseinnovationsinsupportoffinancialinclusionwillsustainandgrowtheGroup’smarketpresence.
ComplianceTheGroup,inlinewithitscompliancephilosophywhichrecognisesthat“EverybodyisaComplianceManager”,continuedtoplacegreatimportanceoncomplianceriskthroughout2017.Assuch,nomaterialcompliancedeficiencieswerenotedforthefinancialyearunderreview.Meanwhile,theGrouphascontinuedtoinvestsignificantresourcesinthecompliancefunction,primarilydirectedatautomatingkeycomplianceprocessesincludingriskassessment,transactionsurveillanceandscreening.TheGroupremainsconscioustotheeverevolvingregulatoryenvironmentandinternationalbestpracticeinordertomaintainthishighstandard.
Environment, Social and Governance (ESG) PrioritiesInlinewiththeguidelinesofsustainabilityreporting,theFBCHoldingshasadoptedanintegratedEnvironmental,SocialandGovernance(ESG)reportingframeworkbasedontheInternationalFinanceCorporation(IFC)andGlobalReportingInitiatives(GRI)sustainabilitystandards.TheGrouphastakenadeliberateinitiativetobearesponsiblelendingcorporatepersona,aligningitslendingpoliciestotheIFCSocialandEnvironmentalManagementSystem(SEMS)toenhancetheGroup’slendingactivities.Itsstrategiclendingpersonnelhaveundergoneextensivetraininginresponsiblelending,whichisinlinewithinternationalbestpractice.
TheGroupcontinuestoraiseawareness,bothinternallyandexternally,inthereductionofwaste,waterandenergyusageandiscommittedtooperatingsustainablyandmakingapositivecontributionforfuturegenerations.
DirectorateMrJamesTirivaviChiutawasappointedtotheBoardwitheffectfrom12December2017.Jamesbringsonboardawealthofexperiencehavingworkedforanumberoforganisationsinthefinancialservicessector.IwelcomeJamestotheGroupandlookforwardtohiswisecounsel.
DividendOnbehalfoftheBoardofDirectors,Iampleasedtoadviseshareholdersthatafinaldividendof0.8417UScentspersharewasproposed.Thismakesatotaldividendof1.0652UScentspershare,togetherwiththeinterimdividendof0.2235UScentspersharewhichwaspaidinSeptember2017.Thetotaldividenddeclaredfortheyear2017amountedtoUS$7.1million.
OutlookWe remain optimistic that the Zimbabwean economy is well positioned for economic prosperity in the near futurewithallourbusinessunitsstrategicallypositionedtocapitaliseonbetterbusinessdevelopmentopportunities.Digitaltransformation, investment in ICT capabilities and strengthening our compliance and risk management frameworksremainthekeyenablersforourbusinessgoingforward.
Welookforwardtomakingsignificantstridesasweconsolidateonourexcitingdigitaltransformationjourney.
AppreciationMysinceregratitudegoesouttoourvariousstakeholders,strategicpartners,clientsandregulatoryauthoritiesfortheirsteadfastsupportandcommitmenttotheFBCHoldingsbrand.
IamalsogratefultomyfellowNon-ExecutiveDirectorsofFBCH,GroupChiefExecutiveJohnMushayavanhuandtheentire FBCTeam for placing theGroup on a path of sustainable growth. I look forward to your unwavering supportthroughouttheyearahead.
Herbert NkalaGroup Chairman28 March 2018
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
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IampleasedtopresenttoyouFBCHoldings’auditedfinancialresultsforthe12monthsended31December2017.Whiletheoperatingenvironmentremaineddifficultthroughout2017,theGroupmanagedtowithstandthedifficulties,postingacommendableUS$29.3millioninprofitbeforetaxforthe12monthsended31December2017.
Market DynamicsTheGroupoperatedinaverychallenginganddepressedenvironment,characterizedbyunprecedentedandacceleratedchangesonmanyfronts, includingpolitical,economic,socialandtechnologicalchanges.Theoperatingenvironment resulted inuncertaintyandvolatility inmacro-economicfundamentalsandtheGroup’sbusinessunitsrespondedaccordingly.Effectiveriskmanagement,digitaltransformationandinnovationhavebecomethehallmarkfortheGroup’soperationsandbroaderstrategyoverall.
Superiorserviceandstrategyexecutionhavebecomeparamountinharnessingthepoweroftheacceleratedchangesintechnologyinordertomanagecompetitivepressures,whilekeepingpacewithourstakeholders’expectations.
Macroeconomic DevelopmentsTheZimbabweaneconomywitnessedsignificanteconomicandpoliticalchangesin2017,coupledwiththepersistentlocalcashshortagesandtheunavailabilityofforeigncurrencythatpeakedinthethirdquarterof2017.ThechangeinthepoliticallandscapeinNovember2017broughtoptimismandhopeforeconomicrecoveryinZimbabwe.Theeconomyisprojectedtogrowat4.7%in2018againstsub-Saharanregionalgrowthprojectionsof3.3%.Zimbabwe’seconomicgrowthprojectionsareanchoredonimprovedperformanceintheminingandagriculturalsectorsoftheeconomy.ForeigninvestorconfidenceandinternationalcommunitysupportremainsofparamountimportanceforsustainableeconomicgrowthinZimbabwe.
Performance of the GroupDespitethechallengingoperatingenvironment,theGroupperformedexceptionallywellin2017.TheGroup’sprofitbeforetaxroseby14%toUS$29.3million,fromUS$25.7millionrecordedin2016.ThisrobustperformancewasattributabletoimprovementinrevenuecontributionsfromtheGroup’ssixsubsidiaries.Total incomeincreasedbyUS$12.3milliontoUS$105.3millionfromUS$93.0millionrecordedin2016.TheincreaseintheGroup’stotalincomeby13%in2017isastrongindicatoroftherevenuegeneratingcapacityofFBCHoldingsthatisstrengthenedbyourpreferreddiversifiedbusinessmodel.
TheGroup’snetinterestincomegrewby3%toUS$46.1millionfromUS$44.8millionrecordedin2016.ItscontributiontotheGroup’stotalincomedeclinedto44%from48%in2016,despiteanincreaseof9%inthelendingportfoliofromUS$276.5millionrecordedin2016toUS$300.7millionduringtheperiodunderreview.TheGroupcontinuestobecautiousinitslendingphilosophyandconsistentlymonitorsassetqualitytopreserveshareholdervalue.Ourallowanceforimpairmentlossprovisionreducedmarginallyin2017toreflectthequalityofourloansportfolio.TheGroupadoptedadeliberatestrategytomanagecostoffundsandattractcheapersourcesoffunding.Thishasyieldedpositiveresults,withinterestexpensedecliningfavorablyby12%between2016and2017.
Netfeeandcommissionincomecontinuestodrivethebusinesswiththetransactingpublicnowembracingthehighusageofplasticmoneyduetothecurrentcashshortages.Netfeeandcommissionincomesurgedsignificantlyby22%toUS$31.6millionfromUS$25.9millionachievedin2016.Thecontributiontototalnetincomealsoimprovedfrom28%to30%duetoacorrespondingsurgeintransactionalvolumesonourdigitalbankingplatforms, reinforcedbyanaggressive investment inourdigital infrastructure, InstantCardservicesaswellas theAgencyBankingoutreachprogramme.
Grossprofitonpropertysaleswasup22%,althoughtheGroupdeliberatelysloweddownonpropertysalesinviewoftheneedtohedgeagainstinflationarypressuresthatwerewitnessedbetweenthesecondandthirdquartersof2017.Constructionactivitieshowever,progressedinlinewithprojectplans,owingtoadvancepurchaseandwarehousingofkeyconstructionmaterialsatthestartof2017.
NetearnedinsurancepremiumwasgenerallyflatatUS$18.7millionanditscontributiontototalnetincomedroppedmarginallyto18%from20%in2016,asaresultofaslumpininsurancepremiumrevenuesandageneraldeclineintheuptakeofinsuranceproducts.
FBCHoldingscontinuestobenefitfromoperationalefficienciesthroughcostcontainmentstrategiesacrossallitssubsidiaries,withthecosttoincomeratioimprovingfurtherto72%in2017from73%in2016.OperatingexpensesatUS$57millionwerehowever20%higherthanthepreviousyear’sfigureofUS$47.5million.
TheGrouprecordeda17%growthintotalassetsatUS$712.4million,comparedtothepreviousyear.ThegrowthinthestatementoffinancialpositionisaresultofcontinuedcustomerloyaltytotheevergrowingFBCbrand.TotalequityattributabletoshareholdersoftheGroupgrewby17%toUS$144.2millionfromUS$123.4millionin2016.
FBC Bank Limited FBCBankrecordedaprofitbeforetaxofUS$16.6millionfromUS$12.2millionin2016,whichisa36%improvementon2016.Thiswaslargelydrivenbytheshiftintransactionvolumestowardsinternet,mobileplatforms,plasticmoneyandagencybanking.TheBank’scosttoincomeratiofortheperiodimprovedsignificantlyto72%from75%in2016astheGroupembraceddigitaltransformationandinnovativecostcontainmentstrategiesthatfosteredoperationalefficiencies.
ThestatementoffinancialpositionfortheBankgrewby19%fromUS$470.2millionin2016toUS$558.1million,drivenbygrowthindeposits.TheBankparticipatedintheissuanceofagrobillstotalingUS$20millioninourefforttopromotethegrowthanddevelopmentofvariousagriculturevaluechains.
TheBank’s lendingportfolio increasedmarginally toUS$222.1million fromUS$202.3million in thepreviousyear.TheBankcontinuestopursueacautiouslendingstrategywithprioritygiventoassetqualityandaggressiveprovisioningandwriteoffs,evidencedbythereductioninournon-performingloansto4.14%for2017,whichiswithintheReserveBankofZimbabwe(RBZ)complianceguidelinesof5%.
TheBank’scorecapitalwhichcurrentlystandsatUS$75.2millioniswellinexcessoftheUS$25millionminimumcapitalrequirementsetbytheRBZandweareconfidentthattheBankwilltradeitselfintocompliancewiththe2020capitalrequirementofUS$100million.Forthistobeachieved,theBankhastopostaminimumprofitaftertaxofUS$8millioneveryyearbetween2018and2020andbasedonthecurrenttradinghistory,weexpecttheBanktopostprofitswellinexcessofthattargetminimum.
Inlinewithitsfinancialinclusionstrategy,FBCBankcontinuestobolsteritsSME-bankingbusiness,targetingtheevergrowingSMEsectorandtheabundantopportunitiesinthatsegment.TheBankhasto-datedeployedmorethan6,300PointofSaleterminalsanddistributedover100,000FBCInstantCardsontothemarket.
FBCBankisrollingoutadigitaltransformationandinnovationstrategyaimedattransformingtheBankintoadigitalbankwhichwillbringenhancedbankingconvenienceandmarket-leadingserviceexperiencetoourcustomers.
FBC Building Society TheBuildingSocietyremainsadominantplayerinthepropertiesmarketwith60additionalhousingunitshavingbeencompletedandsoldduringtheyear.TheincreaseddemandinthepropertiesmarketcontinuestopresentfurtherbusinessopportunitiesfortheSociety.
Despite the limitedaccess tocorrectlypriced long termfinancing, theBuildingSocietypostedanetsurplusofUS$9.3million,which is9%upfromthe2016netsurplusofUS$8.5million.TotalnetincomefortheperiodamountedtoUS$17.2millionagainstUS$15.6millionrecordedin2016,whileoperatingexpensesincreasedby14%toUS$7.3millionduetopricedistortionsstemmingfrominflationarypressuresexperiencedduringthecourseof2017.
ThestatementoffinancialpositionfortheBuildingSocietydeclinedby12%toUS$129.9millionfromUS$147.7millionin2016astheunitcontinuestomanageitssourcesoffunding.Depositsdecreasedby26%fromUS$93.8milliontoUS$69.2million,whilsttheloanportfoliogrewmarginallytoUS$59.1millionfromUS$58.4millioninthepriorperiod.TheBuildingSociety’scapitalizationremainssolidandabovetheUS$20millionprescribedminimumcapitalrequirement.TheSociety’scurrentcorecapitalisUS$47.4million,up15%from2016.
TheBuildingSocietymaintaineditscreditratingofBBB-fromtheGlobalCreditRatingAgencyin2017.
MicroPlan Financial Services (Private) Limited MicroPlan,theGroup’smicrofinancebusiness,continuestoperformexceptionallywell,recordingaprofitbeforetaxofUS$4.5million,whichwas15%oftheGroup’sprofitbeforetax.TheGroupcontinuestosupportMicroPlanwithbusinessdevelopmentstrategiesandstrongriskmanagementtechniquesandthishasgiventheunitacompetitiveedgeoveritspeers.
MicroPlanunderwentaprocessofcreditratingbyanindependentinternationalratingagency,MicroFinanza,in2016andachievedamaidencreditratingofBBB-whichiscurrentlythehighestinthemicrofinancesectorinZimbabwe.Theywereagainratedin2017andscoredahigherratingofBBB.
Theunit’sloanbooknowstandsatUS$19.8million,makingitthesecondlargestnon-deposittakingmicrofinanceinstitutioninZimbabwe.Itscapitallevelshavealsoincreasedby34%fromUS$7.1milliontoUS$9.5million,whichiswellabovetheregulatoryminimumrequirementofUS$25000formicrofinanceinstitutions.
MicroPlan opened 2 newbranches in 2017 inBeitbridge andHwange as themicro finance services provider continued to reinforce itspresenceinthemoreremotepartsofthecountry.Inresponsetothecallforfinancialinclusion,to-date,MicroPlanboastsof19branchesinZimbabwewhichareactivelyrollingoutnewmicrofinanceproductssuchasmicro-leasing,micromortgages,micro-insuranceandruralagriculturefinance.Theunitworksinclosepartnershipwithtargeteddevelopmentagenciestoadvanceitsfinancialinclusionstrategy.
FBC Securities (Private) Limited TheZimbabweStockExchangewitnessedabullishperformancein2017withthebenchmarkindustrialindexrallyingaremarkable129%toclosestrongerat333.02pointsasinvestorssoughtrefugefromweakerfundamentals,includingforeigncurrencyinducedinflation.ThishadapositiveimpactontheperformanceofthestockbrokingunitwhichpostedanimpressiveprofitbeforetaxofUS$0.6million.
Theunitremainsactiveininternationalcapitalmarketsandhasdiversifieditsrevenuestreamstoincludefixedincomesecuritiestrading.Intheoutlook,theunitwillcontinuetodiversifyitsrevenuelinesinadditiontoequitiestrading,fixedincometradingandsponsoringbrokerservices.
FBC Reinsurance Limited FBCReinsurancerecordedagrosspremiumincomeofUS$20.6millionwhichis30%higherthantheUS$15.8millionunderwrittenin2016,astheinvestmentinLifeandHealthReinsurancebusinesslinesgraduallybeginstopayoff.ProfitbeforetaxamountedtoUS$1.7million,which is however, 26% lower than theUS$2.3million recorded in 2016. The insurancebusiness in general, follows theperformanceofthemacroeconomicenvironmentasconsumersre-lookattheirexpenditurepriorities,whichunfortunatelydonotfavourinsurance.Astheeconomyopensup,weareoptimisticthattherewillbeabettercontributioncomingfromFBCReinsuranceLimited.
Thecompanycontinuestoobserveastrongunderwritingcultureandadherencetorobustriskmanagementsystems.Itenjoysaconsiderable
GROUP CHIEF EXECUTIVE’S REPORTmarketshareof19%duetoitsclientretentionstrategiesandnewbusinessrelationships.FBCReinsurancemaintaineditsA-ratingforclaimspayingabilityfromtheGlobalCreditRatingAgencyofSouthAfrica.
Thecompanyenhanced its retrocessionprogramby the inclusionofanA- ratedglobal reinsureron thepanel.Asa result, thebusinessunderwrittenbyFBCReisreinsuredwithsomeofthestrongestglobalreinsurers.Inaddition,thecompanyhasstrategicpartnershipswithtop-ratedspecialistmarketswhichcoverrisksarisingfromcyberrisks,politicalunrestandterrorism.
EffortsarecurrentlyunderwayforFBCReinsurancetoestablishanoperationintheRepublicofMauritius,withaviewtodiversifytheearningssourceofourreinsuranceportfolio.
FBC Insurance Company LimitedFBCInsuranceCompanyLimited,whichwasre-brandedfromEagleInsuranceCompanyLimited,recordedaspiritedperformanceinspiteofthechallengingoperatingenvironment.Thecompany’sGrossWrittenPremiumincreasedby2%toUS$19.0millionfromUS$18.6millionin2016.Profitbeforetaxwas7%loweratUS$1.4million,downfromUS$1.5millionthepreviousyear.
Thecompanyexercisesrobustriskmanagement,engagesinprudentunderwritingandcontinuestomaintainahighlyliquidbalancesheet.FBCInsurancemaintaineditsGlobalCreditRatingofA-,demonstratingitsstrongclaimspayingability.
Thecompanyhasstartedtounderwritelifeandhealthbusinessthroughitspartnershipwithregionallifeandhealthinsurancegiant,LibertyLife of SouthAfrica. In the outlook FBC Insurance continues to benefit from the development of new insurance products in themicro-insurancespace.
Regulatory Capitalization RequirementsThecapitalizationoftheGroup’ssubsidiariesremainsofstrategicimportance.Allourbusinessunitsarewellcapitalizedabovetheregulatoryminimumthresholdsrequiredbytheirrespectiveregulatorybodies.InthecaseofFBCBank,weareconfidentthattheunitwilltradeitselfintocompliance,withonlyUS$8millionannualprofitsrequiredbetween2018and2020toachievethecapitaltargetofUS$100millionby2020.Irrespectiveofthe2017operatingenvironment,theBankachievedanaftertaxprofitofUS$12.0million,andwiththecurrentpositiveoutlook,weareoptimisticthattheBankwillcontinuetoimproveitsperformance.
Risk Management FBCHoldingsusesarobustriskmanagementframeworkanchoredontheEnterprise-WideRiskManagement(ERM)Model.ThesuccessoftheGroupliesinitsabilitytomanageriskeffectively,whilecreatingvaluefor itsstakeholders.TheERMModelhasenabledtheGrouptoclassifyandpriceriskappropriately,aswepursueourbusinessobjectives.TheERMModel implementationhasfosteredastrongriskmanagementcultureacrossFBCHoldingswhichiscriticalintheeffectivemanagementofrisks.Keyfocusareasincludepeople,processesandsystems,asthesearecriticalsuccessfactorsincorporatestrategyimplementationandexecution.TheGroupcontinuouslyreviewsitsriskappetitetoensurethatthereisproperalignmentofthebusinessstrategyandtheriskgovernanceoftheorganization.Reviewofpolicyandproceduremanualsisconductedatleastonceeveryyeartoensurealignmentwithchangesintheoperatingenvironment.
TheGroupisintheprocessofadoptingIFRS9:financialinstrumentsandhasadoptedBaselII/III,includingotherregulatorystandardstoenhancetheriskmanagementframework.WehaveadoptedstandardssuchasInternalCapitalAdequacyAssessmentProcesses(ICAAP),StressTestingandResolutionandRecoveryPlanning.Ourinternalcontrolenvironmentcontinuestoimprovethroughtheadoptionofthesestandards.TheGroup’sriskgovernancestructureremainsanchoredoneffectiveoversightbytheBoardofDirectorsandseniormanagement.
Combating the Financing of Terrorism (CFT) and Anti-Money Laundering (AML) FBCHoldingsadherestointernationalbestpracticeincombatingthefinancingofterrorismandthepreventionofmoneylaundering.TheGrouphasputinplacethenecessaryKnowYourCustomer(KYC)andCustomerDueDiligence(CDD)controlsthataretailoredtoprohibitthemovementoffundsderivedfromcriminalactivitiesandtocurbtheavailabilityoffundsforterroristactivitiesandthepreventionofillicitfinancialflows.TheGroupisguidedbyregulatoryandsupervisorystandardsofbodiesthatgovernourdiversestrategicbusinessunitssuchastheFinancialActionTaskForce(FATF),theWolfsbergGroup,theEastandSouthernAfricanAntiMoneyLaunderingGroup(ESAAMLG)and theReserveBankofZimbabweFinancial IntelligenceUnit (FIU).Someof the keycontrols that havebeenput inplace tominimizeMoneyLaunderingandTerroristFinancingrisk,includethefollowing:BoardandSeniorManagementOversight,BoardapprovedAML/CFTPoliciesandProcedureswhicharereviewedannually;RiskBasedApproachtoKYC/CDD;RiskBasedTrainingofallStaff;IndependentandAnonymousReportingArrangementsandAutomatedsolutionsforRiskAssessment,TransactionSurveillance,ScreeningandKYC.WewillcontinuetoworkwithourkeystakeholdersincludingourCorrespondentBankersandtheFIUtoensurethatwemaintainarobustAML/CFTgovernanceenvironment.
Responsible Business and Community InvestmentsTheGroup has reoriented its Environmental, Social andGovernance (ESG) Policy and adopted an integrated ESG reporting frameworkbasedontheInternationalFinanceCorporation(IFC)andGlobalReportingInitiative(GRI)reportingprinciplesandguidelines.TheGrouphasinstitutedtrainingforresponsiblelendingforourstrategiclendingunitsthatincludeCorporateandInstitutionalBanking,CreditManagementandSMEBankingdivisions.TheGrouphasaligneditscreditpolicytotheIFCsocialandenvironmentalmanagementsystem(SEMS)inlinewithinternationalbestpracticeforimpactinvestments.
StudenteducationsupportisatthecoreofFBCHoldings’corporatesocialresponsibilitystrategyandtheGrouppridesitselfinsponsoringe-Learninginitiativesinschoolsacrossthecountry’s10provinces.Wehaveestablishede-Learningcentersandpledgedprojectors,smartboardsandlaptopstotheseschools.Intheperiodunderreview,theGrouppledged900laptopswhichwillbenefitanestimated4000studentscountrywide.Currently,theGroupsupportstheMSU-FBCScholarshipFund,sponsoringanumberofunderprivilegedstudentsannually.
TheGroupcontinuestochampionthecausefortheunderprivilegedinsociety.WedonatedanEarlyChildhoodDevelopment(ECD)classroomblockforChikukutu,aruralprimaryschool inBikita.TheGroupalsodonatedfundstomorethan10charitableorganisationsnationwide.TheGroupvalues thecontributionof sports towards social-economicdevelopment.Accordingly,we sponsored the2017AllAfricaGolfTeamChampionshipstothetuneofUS$35,000.TheGroupinvestedmorethanUS$148,000towardssustainable,valuedrivenandmutuallybeneficialcorporatesocialresponsibilityintheareasofeducation,healthandsportsin2017.
Environmental ManagementFBCHoldingshasadoptedtheIFCandGRIreportingguidelinesonenvironmentalmanagementprinciplesinallthesectorsitoperatesinandcontinuallyattempts to limit the impactofenvironmental risks toall itsstakeholders.TheGroup’shousingdevelopmentprojectsaresubjectedtoEnvironmentalManagementAgency(EMA)inspectionpriortoanyconstructionworks.Aswelookintothefuture,webelievethatprotectingtheenvironmentandcontributingtothedevelopmentofsustainablefoodandenergyresourcesisimperative,withoutwhichwewouldcompromisethelivelihoodsoffuturegenerations.
Human Capital DevelopmentTheGroupenjoysacordialworkingrelationshipwithitsemployeesacrossallitssubsidiaries,withatotalstaffcomplementofjustover700employees,ofwhom20%areinvariousinternshipprogramsacrosstheGroup.Criticalskillsthatareessentialindeliveringservicetoourvaluedcustomersandstakeholderswerepreservedduringtheyear.EmployeecommitmenttotheGroupremainssatisfactoryasreflectedbythelevelofemployeeengagementwhichin2017surpassedtheaveragelevelrecordedsince2012.
TheGroupcontinuouslyreviewsitshumanresourcespoliciestoensurethatareaswhichincreasethelevelofemployeecommitmentandconsequently productivity are given priority. These include but are not limited to employee relations, talent management, performancemanagement,incentivesandrewards,learninganddevelopment,employeeparticipation,worklifebalance,employeewellness,safetyandhealthandotheremployeerelatedmatterswhichinfluenceemployeeengagementandproductivity.
Information Technology, Digital Transformation and InnovationIn order to continuously improve the FBC brand and customer experience, the Group has re-oriented the business towards digitaltransformationandinnovation.Tothisend,theGrouphasmadesignificantprogressinleveragingtechnologytoenhanceefficiency,lowercostsanddeliversuperiorcustomerexperienceandconveniencethroughtheestablishmentofadedicatedprojectsmanagementofficeandaninnovationsofficethatmonitorsICTprojectsandproductinnovation.
TheGroup’sfinancialinclusionstrategyisfocusedonbroadeningaccesstofinancialservicesfortheun-bankedandunder-banked,particularlyintheremoteareas.TheFBCInstantCardandAgencyBankinghavebeenintroducedtocomplementexistingeffortsinmarginalizedmarketsegments.TheGroupisproactivelyintegratingthevariousICTsystemstothecorebankingsystemtoenableseamlesstransactionsinordertopromotefinancialinclusion.
FBCHoldingscontinuestomaintainaglobalpresence in the internationalpaymentsmarket, throughtheacquirercapability for theVISAinternationalcardinadditiontotheMasterCardproduct.TheGrouphasimplementedaninformationsecuritymanagementsystembasedonthe ISO27001standard.Thishasensureddataprotection inanerawherecybersecurity isamajorconcernacross theglobe.Digitaltransformationand innovationhavebecomefundamental totheFBCvaluechain.TheGrouphasassembledadigital transformationandinnovationteamthat iscurrentlyreviewingourdigital technologyarchitecturewiththeobjectiveofdevelopingand implementingadigitaltransformationandinnovationstrategyinviewofoureverchangingcustomerneeds.
TheGroup investedsignificantly in technology,digital transformationand innovationas technologycontinues to shape the futureofourdiversebusinessesindeliveringsuperiorcustomerexperience.WehavealsoinitiatedvariousdigitaltransformationprogramsfromboardleveldowntotheshopflowlevelacrosstheGroup,withaviewtoalignourskillssetwiththerealitiesofthepresentandfuture.
Service Delivery and Customer ExperienceFBCHoldingsremainscommittedtodeliveringexcellentandsuperiorservicethatenhancescustomerloyalty.TheGrouphascontinuedonitsbranchrefurbishmentdrive,creatingamoremodernambienceforthebranches.Weareproudtohaveopened2newMicroPlanbranchesinHwangeandBeitbridgeinourrelentlesseffortstopromotefinancialinclusioncountrywide.
Competitive Drive and Product Development Ourproductresearchanddevelopmentcommittee,togetherwiththeprojectmanagementoffice,havebecomeakeycomponenttotheoverallbusinessstrategyaswecontinuetorolloutadiverserangeofproductsinlinewithourcustomers’ever-changingneedsandexpectations,whileremainingcognizantofthecompetitiveoperatingenvironment.OurintegratedMobileApphasgiventhemuchneededconveniencetocustomersthroughimprovedproductaccess.
Appreciation I would like to extend my heartfelt appreciation to all our stakeholders and particularly to our valued and loyal customers who havedemonstratedunwaveringsupportfortheGroupinthischallengingoperatingenvironment. IamalsogratefultotheFBCHoldingsBoardofDirectors,Managementandstafffortheirguidance,contributionandsupportintheexecutionofourbusinessstrategy.Inthisvein,wepromiseouresteemedstakeholdersthattheGroupwillcontinuetodeliversustainable,innovativeandmarket-leadingproductstothepresentandfuturegenerations.
John Mushayavanhu Group Chief Executive 28 March 2018
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
4
Let our exceptional service and strength provide you with the comfort and stability of excellent financial management. Our dedicated team and products are ready to meet your discerning requirements, anytime, any place and from anywhere in the world. Quite simply, we are a financial institution that thrives on our customers’ happiness.
Non- Available Non- Share Share Retained Treasury distributable Revaluation for sale Changes in controlling Total capital premium profits shares reserve reserve reserve ownership Total Interest equity US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ US$ Balance as at 1 January 2016 6 719 14 083 173 52 100 051 (1 562 321) 36 222 261 2 170 001 (60 708) 1 670 671 104 629 847 259 183 104 889 030 Profitfortheyear - - 21885495 - - - - - 21885495 52231 21937726Other comprehensive income Lossonavailableforsalefinancialassets - - - - - - (62891) - (62891) - (62891)Total other comprehensive income - - - - - - (62 891) - (62 891) - (62 891)Total comprehensive income - - 21 885 495 - - - (62 891) - 21 822 604 52 231 21 874 835 Transaction with owners: Dividenddeclaredandpaid - - (2497332) - - - - - (2497332) (17264) (2514596)Increaseinownershipinterest - - - - 402350 - - - 402350 - 402350Treasurysharepurchase - - - (939023) - - - - (939023) - (939023)Total transactions with owners recognised directly in equity - - (2 497 332) (939 023) 402 350 - - - (3 034 005) (17 264) (3 051 269)Balance as at 31 December 2016 6 719 14 083 173 71 488 214 (2 501 344) 36 624 611 2 170 001 (123 599) 1 670 671 123 418 446 294 150 123 712 596 Balance as at 1 January 2017 6 719 14 083 173 71 488 214 (2 501 344) 36 624 611 2 170 001 (123 599) 1 670 671 123 418 446 294 150 123 712 596 Profitfortheyear - - 23197279 - - - - - 23197279 50951 23248230Other comprehensive income Gainonrevaluationofpropertyandequipment,netoftax - - - - - 993732 - - 993732 3995 997727Lossonavailableforsalefinancialassets - - - - - - (26905) - (26905) - (26905)Total other comprehensive income - - - - - 993 732 (26 905) - 966 827 3 995 970 822 Total comprehensive income - - 23 197 279 - - 993 732 (26 905) - 24 164 106 54 946 24 219 052 Transaction with owners: Dividenddeclaredandpaid - - (3359164) - - - - - (3359164) (16548) (3375712)Total transactions with owners recognised directly in equity - - (3 359 164) - - - - - (3 359 164) (16 548) (3 375 712)Balance as at 31 December 2017 6 719 14 083 173 91 326 329 (2 501 344) 36 624 611 3 163 733 (150 504) 1 670 671 144 223 388 332 548 144 555 936
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2017
Audited Audited 31-Dec-17 31-Dec-16 Note US$ US$ Interestincome 18 65715846 67000371Interestexpense 18.1 (19647155) (22202373) Net interest income 46 068 691 44 797 998 Feeandcommissionincome 19 31928468 26092451Feeandcommissionexpense 19.1 (322495) (174718) Net fee and commission income 31 605 973 25 917 733 Revenue 20 5387808 7001895Costofsales 20.1 (4212915) (6039694) Net income from property sales 1 174 893 962 201 Insurancepremiumrevenue 21 30988208 32695860Premiumcededtoreinsurersandretrocessionaires (12288100) (13910791) Net earned insurance premium 18 700 108 18 785 069 Nettradingincome 1367267 517641Netgainfromfinancialassetsatfairvaluethroughprofitorloss 22 636005 231188Otheroperatingincome 23 5740990 1814251 7 744 262 2 563 080 Total net income 105 293 927 93 026 081 Impairmentallowanceonfinancialassets 5.4 (6883565) (7874767)
Netinsurancecommissionexpense 24 (3783042) (4331491)
Insuranceclaimsandlossadjustmentexpenses 25 (8279135) (7672766)
Administrativeexpenses 26 (57044631) (47471352)
Profitbeforeincometax 29303554 25675705 Incometaxexpense 27 (6055324) (3737979) Profitfortheyear 23248230 21937726 Other comprehensive income/(loss) Itemsthatwillnotbereclassifiedtoprofitorloss Gainsonpropertyrevaluation 1311411 -Tax (313684) - 997 727 - Itemsthatmaybesubsequentlyreclassifiedtoprofitorloss Lossonavailableforsalefinancialassets (27177) (63526)Tax 272 635 (26 905) (62 891) Total other comprehensive income/(loss), net income tax 970 822 (62 891) Total comprehensive income for the year 24 219 052 21 874 835 Profitattributableto: Equityholdersoftheparent 23197279 21885495Non-controllinginterest 50951 52231 Profitfortheyear 23248230 21937726 Total comprehensive income attributable to: Equityholdersoftheparent 24164106 21822604Non-controllinginterest 54946 52231 Total comprehensive income for the year 24 219 052 21 874 835 Earnings per share (US cents) Basicearningspershare 28.1 3.62 3.40Dilutedearningspershare 28.2 3.62 3.40
CONSOLIDATED STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2017
Audited Audited 31-Dec-17 31-Dec-16 Note US$ US$ ASSETSBalanceswithotherbanksandcash 4 181002565 184244019Financialassetsheldtomaturity 112878823 75078481Loansandadvancestocustomers 5.1 300746805 276534813Tradeandotherreceivablesincludinginsurancereceivables 5.2 9639660 9120237Bondsanddebentures 6 27633715 9139955Financialassetsatfairvaluethroughprofitorloss 7 2365325 1102173Availableforsalefinancialassets 8 835710 862886Inventory 9 6523937 5171336Prepaymentsandotherassets 10 23684304 10054693Currentincometaxasset 655613 -Deferredincometaxassets 7586301 8145597Investmentproperty 11 8184400 3710457Intangibleassets 12 1851136 1890026Propertyandequipment 13 28849191 25090044 Total assets 712 437 485 610 144 717 EQUITY AND LIABILITIES Liabilities Depositsandborrowingsfromotherbanksandcustomers 14 523984853 455501429Insuranceliabilities 15 7680864 9470934Tradeandotherpayables 16 35311178 19809097Currentincometaxliability 70599 878275Deferredincometaxliability 834055 772386Total liabilities 567 881 549 486 432 121 Equity Capital and reserves attributable to equity holders of the parent entity Sharecapitalandsharepremium 17.3 14089892 14089892Otherreserves 38807167 37840340Retainedprofits 91326329 71488214 144 223 388 123 418 446 Noncontrollinginterestinequity 332548 294150 Total equity 144 555 936 123 712 596 Total equity and liabilities 712 437 485 610 144 717
CONSOLIDATED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2017
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
5
CONSOLIDATED STATEMENT OF CASH FLOwSYEAR ENDED 31 DECEMBER 2017
Audited Audited 31-Dec-17 31-Dec-16 Note US$ US$ Cashflowfromoperatingactivities Profitbeforeincometax 29303554 25675705 Adjustments for non cash items: Depreciation 13 2339547 2079725Amortisationcharge 12 626899 516869Impairmentlossonloansandadvancesincludingoninsurancereceivables 5.4 6883565 7874767Fairvalueadjustmentoninvestmentproperty 11 (2129962) 5320Impairmentreversalonpropertyandequipment 13 (1629) -Impairmentlossonintangibleassets 12 27890 1337Fairvalueadjustmentonfinancialassetsatfairvaluethroughprofitorloss (636005) (231188)Profitondisposalofpropertyandequipment 23 (14326) (34562)Net cash generated before changes in operating assets and liabilities 36 399 533 35 887 973 Increaseinfinancialinstrumentheldtomaturity (37800342) (25454448)Increaseinloansandadvances (31095557) (1437887)Increaseintradeandotherreceivables (519423) (1020708)Increaseinbondsanddebentures (18493760) (437635)(Increase)/decreaseinfinancialassetsatfairvaluethroughprofitorloss (627147) 179052Increaseinavailableforsalefinancialassets - (145859)(Increase)/decreaseininventory (1352601) 941318Increaseinprepaymentsandotherassets (13629611) (4388125)Increaseininvestmentproperty (2343981) (1243637)Increaseindepositsfromcustomers 165407265 45836574(Decrease)/increaseindepositsfromotherbanks (26120915) 36864692(Decrease)/increaseininsuranceliabilities (1790070) 66506Increaseintradeandotherpayables 15502081 5875248 83 535 472 91 523 064 Incometaxpaid (7211061) (5669049) Net cash generated from operating activities 76 324 411 85 854 015
Cashflowsfrominvestingactivities Purchaseofintangibleassets 12 (615899) (1510286)Purchaseofpropertyandequipment 13 (4851082) (2631552)Proceedsfromsaleofpropertyandequipment 79754 143203Net cash used in investing activities (5 387 227) (3 998 635) Cashflowsfromfinancingactivities Proceedsfromborrowings 2800000 12989191Repaymentofborrowings (73602926) (908996)Dividendpaidtothecompany’sshareholders (3359164) (2497332)Dividendpaidtonon-controllinginterests (16548) (17264)Purchaseoftreasuryshares - (939023) Netcash(used)/generatedfromfinancingactivities (74178638) 8626576 Net (decrease)/increase in cash and cash equivalents (3 241 454) 90 481 956 Cashandcashequivalentsatbeginningoftheyear 184244019 93762063 Cash and cash equivalents at the end of year 4.2 181 002 565 184 244 019
1 GENERAL INFORMATION FBCHoldingsLimited(“theCompany”)and itssubsidiaries (together“theGroup”)provideawiderangeofcommercial
banking,mortgagefinancing,microlending,reinsurance,short-terminsurance,andstockbrockingservices. TheCompany is a limited liability company, which is listed on the Zimbabwe Stock Exchange. TheCompany and its
subsidiariesareincorporatedanddomiciledinZimbabwe. TheseconsolidatedfinancialstatementswereapprovedforissuebytheBoardofDirectorson28March2018.2 SIGNIFICANT ACCOUNTING POLICIES AfullsetoftheGroup’saccountingpoliciesisavailableintheGroup’sannualreport,whichisreadyforinspectionatthe
Company’sregisteredoffice.ThefollowingparagraphsdescribethemainaccountingpoliciesappliedbytheGroup.Thesepolicieshavebeenconsistentlyappliedtoalltheyearspresented,unlessotherwisestated.
2.1 Basis of preparation TheGroup’sconsolidatedfinancialresultshavebeenpreparedwithpoliciesconsistentwithInternationalFinancialReporting
Standards(“IFRS”),andtheInternationalFinancialReportingInterpretationsCommittee,(“IFRSIC”)interpretationsandinthemannerrequiredbytheZimbabweCompaniesAct,(Chapter24:03)andtherelevantStatutoryInstruments(“SI”)SI62/96andSI33/99.Theconsolidatedfinancialresultshavebeenpreparedfromstatutoryrecordsthataremaintainedunderthehistoricalcostconventionasmodifiedbytherevaluationoffinancialassetsatfairvaluethroughprofitorloss,investmentpropertyandpropertyandequipment.
2.1.1 Going concern TheGroup’sforecastsandprojections,takingaccountofreasonablypossiblechangesintradingperformance,showthat
theGroupshouldbeabletooperatewithinthelevelofitscurrentfinancing.Aftermakingenquiries,thedirectorshaveareasonableexpectation that theGrouphasadequate resources tocontinue inoperationalexistence for the foreseeablefuture.TheGroupthereforecontinuestoadoptthegoingconcernbasisinpreparingitsconsolidatedfinancialstatements.
2.2 Basis of consolidation
(a) Subsidiaries TheconsolidatedfinancialresultscombinethefinancialstatementsofFBCHoldingsLimited(“theCompany”)andall its
subsidiaries.Subsidiariesareallentities(includingstructuredentities)overwhichtheGrouphascontrol.TheGroupcontrolsanentitywhentheGroupisexposedto,orhasrightsto,variablereturnsfromitsinvolvementwiththeentityandhastheabilitytoaffectthosereturnsthroughitspowerovertheentity.SubsidiariesarefullyconsolidatedfromthedateonwhichcontrolistransferredtotheGroup.Theyaredeconsolidatedfromthedatethatcontrolceases.
TheCompanyrecognisesinvestmentsinsubsidiariesatcost.Subsidiariesarefullyconsolidatedfromthedateonwhich
controlistransferredtotheGroup.Theyaredeconsolidatedfromthedatethatcontrolceases. TheGroupapplies theacquisitionmethod toaccount forbusinesscombinations.Theconsideration transferred for the
acquisitionofasubsidiary is thefairvaluesof theassetstransferred, the liabilities incurredtotheformerownersof theacquireeandtheequityinterestsissuedbytheGroup.Theconsiderationtransferredincludesthefairvalueofanyassetorliabilityresultingfromacontingentconsiderationarrangement. Identifiableassetsacquiredand liabilitiesandcontingentliabilitiesassumedinabusinesscombinationaremeasuredinitiallyattheirfairvaluesattheacquisitiondate.TheGrouprecognisesanynon-controllinginterestintheacquireeonanacquisition-by-acquisitionbasis,eitheratfairvalueoratthenon-controllinginterest’sproportionateshareoftherecognisedamountsofacquiree’sidentifiablenetassets.Acquisition-relatedcostsareexpensedasincurred.
If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held
equity interest in theacquiree is remeasured to fairvalueat theacquisitiondate;anygainsor lossesarising fromsuchremeasurementarerecognisedthroughprofitorloss.
AnycontingentconsiderationtobetransferredbytheGroupisrecognisedatfairvalueattheacquisitiondate.Subsequent
changestothefairvalueofthecontingentconsiderationthatisdeemedtobeanassetorliabilityisrecognisedinaccordancewithIAS39eitherinprofitorlossorasachangetoothercomprehensiveincome.Contingentconsiderationthatisclassifiedasequityisnotre-measured,anditssubsequentsettlementisaccountedforwithinequity.
Theexcessoftheconsiderationtransferred,theamountofanynon-controllinginterestintheacquireeandtheacquisition-
date fair valueof anypreviousequity interest in theacquireeover the fair valueof the identifiablenet assetsacquiredis recordedasgoodwill. If the totalofconsideration transferred,non-controlling interest recognisedandpreviouslyheldinterestmeasuredislessthanthefairvalueofthenetassetsofthesubsidiaryacquiredinthecaseofabargainpurchase,thedifferenceisrecogniseddirectlyinthestatementofcomprehensiveincome.
NOTES TO THE CONSOLIDATED FINANCIAL RESULTSFOR THE YEAR ENDED 31 DECEMBER 2017
Inter-company transactions,balances, incomeandexpenseson transactionsbetweengroupcompaniesareeliminated.
Unrealisedprofitsorlossesarealsoeliminated.AccountingpoliciesofsubsidiarieshavebeenchangedwherenecessarytoensureconsistencywiththepoliciesadoptedbytheGroup.
(b) Changes in ownership interests in subsidiaries without change of control
Transactionswithnon-controllingintereststhatdonotresultinlossofcontrolareaccountedforasequitytransactions–thatis,astransactionswiththeownersintheircapacityasowners.Thedifferencebetweenfairvalueofanyconsiderationpaidandtherelevantshareacquiredofthecarryingvalueofnetassetsofthesubsidiaryisrecordedinequitywithin“changesinownershipreserve”.Gainsorlossesondisposalstonon-controllinginterestsarealsorecordedinequitywithin“changesinownershipreserve”.
(c) Disposal of subsidiaries
WhentheGroupceasestohavecontrolanyretainedinterestintheentityisre-measuredtoitsfairvalueatthedatewhencontrolislost,withthechangeincarryingamountrecognisedinprofitorloss.Thefairvalueistheinitialcarryingamountforthepurposesofsubsequentlyaccountingfortheretainedinterestasanassociate, jointventureorfinancialasset. Inaddition,anyamountspreviouslyrecognisedinothercomprehensiveincomeinrespectofthatentityareaccountedforasiftheGrouphaddirectlydisposedoftherelatedassetsorliabilities.Thismaymeanthatamountspreviouslyrecognisedinothercomprehensiveincomearereclassifiedtoprofitorloss.
2.3 Segment reporting Anoperatingsegment isadistinguishablecomponentof theGroup that isengaged inbusinessactivities fromwhich it
earnsrevenuesandincursexpenses(includingrevenuesandexpensesrelatingtotransactionswithothercomponentsoftheentity);whoseoperatingresultsarereviewedregularlybytheentity’schiefoperatingdecisionmaker(“CODM”)tomakedecisionsaboutresourcestobeallocatedtothesegmentandtoassessitsperformance;andforwhichdiscretefinancialinformationisavailable.
Operatingsegmentsarereportedinamannerconsistentwiththeinternalreportingprovidedtothechiefoperatingdecision-
maker.Thechiefoperatingdecision-maker,whoisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments,hasbeenidentifiedastheGroupExecutiveCommitteethatmakesstrategicdecisions.
TheGroup’soperatingsegmentshavebeenaggregatedbasedonthenatureoftheproductsandservicesonofferandthe
natureoftheregulatoryenvironment.TheCODMisresponsibleforallocatingresourcesandassessingperformanceoftheoperatingsegments.
InaccordancewithIFRS8,OperatingSegments,theGrouphasthefollowingbusinesssegments:commercialbanking, microlending,mortgagefinancing,reinsurance,short-terminsuranceandstockbroking.3 CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS TheGroup’sfinancialstatementsanditsfinancialresultsareinfluencedbyaccountingpolicies,assumptions,estimatesand
managementjudgements,whichnecessarilyhavetobemadeinthecourseofthepreparationofthefinancialstatements. TheGroupmakesestimatesandassumptions that affect the reportedamountsof assetsand liabilitieswithin thenext
financialyear.AllestimatesandassumptionsrequiredinconformitywithIFRSarebestestimatesundertakeninaccordancewith the applicable standard. Estimates and judgements are evaluated on a continuous basis, and are based on pastexperienceandotherfactors,includingexpectationswithregardtofutureevents.Accountingpoliciesandmanagement’sjudgementsforcertainitemsareespeciallycriticalfortheGroup’sresultsandfinancialsituationduetotheirmateriality.
Theareasinvolvingcriticalaccountingestimatesandjudgementsincludeimpairmentallowances,incometaxes,claimsand
inventoryvaluation.
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
Audited Audited 31-Dec-17 31-Dec-16 US$ US$4 BALANCES wITH BANKS AND CASH 4.1 Balances with Reserve Bank of Zimbabwe (“RBZ”) Current account balances 135 219 548 95 549 439 Balanceswithbanksandcash Notesandcoins 5228887 6914832 Otherbankbalances 40554130 81779748 45 783 017 88 694 580 Balances with banks and cash (excluding bank overdrafts) 181 002 565 184 244 019 Current 181002565 184244019 Non-current - - Total 181 002 565 184 244 019 4.2 Cash and cash equivalents Cashandbankbalancescompriseofbalanceswithlessthanthreemonths maturityfromdateofacquisition,includingcashonhand,depositsheldat callwithbanks,othershort-termliquidinvestmentswithoriginalmaturities ofthreemonthsorless. Cashandcashequivalentsincludethefollowingforthepurposesofthe statementofcashflows; CurrentaccountbalanceatReserveBankofZimbabwe(“RBZ”)(note4.1) 135219548 95549439 Balanceswithbanksandcash(note4.1) 45783017 88694580 181 002 565 184 244 019 5 LOANS AND RECEIVABLES 5.1 Loans and advances to customers Loansandadvancematurities Maturingwithin1year 96850768 110171383 Maturingafter1year 219133866 185463630
Gross carrying amount 315 984 634 295 635 013 Impairmentallowance (15237829) (19100200) 300 746 805 276 534 813 5.2 Trade and other receivables including insurance receivables Insurance receivables; -Duebyinsuranceclientsandinsurancebrokers 8625540 6292404 -Duebyreinsurers 415586 436287 -Duebyretrocessionaires 1011934 2539016 Gross carrying amount 10 053 060 9 267 707 Impairmentallowance (413400) (147470) 9 639 660 9 120 237 Current 9639660 9120237 Non-current - - Total 9 639 660 9 120 237
5.3 Irrevocable commitments There are no irrevocable commitments to extend credit,which can expose theGroup to penalties or disproportionate
expense.
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
6
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
7 FINANCIAL ASSETS AT FAIR VALUE THROUGH PROFIT OR LOSS Listed securities at market value 2 365 325 1 102 173 Current 2365325 1102173 Non-current - - Total 2 365 325 1 102 173
Bondshavefixed interest ratesof7%,10%and5%.Theymatureon30June2018,30September2018,30June2019and30September2020.
Financialassetsatfairvaluethroughprofitorlossarepresentedwithin‘operatingactivities’aspartofchangesinworkingcapitalinthestatementofcashflows.Changes in fair values of financial assets at fair value throughprofit or lossare recorded in ‘otheroperating income’ in the statementof comprehensiveincome.Thefairvalueofallequitysecuritiesisbasedontheirbidpricesonanactivemarket,theZimbabweStockExchangeatyearend.
8 AVAILABLE FOR SALE FINANCIAL ASSETS Listed securities at market value 835 710 862 886
Current 835710 862886 Non-current - - Total 835 710 862 886 9 INVENTORY Rawmaterials 125368 67719 Workinprogress 4089434 1835080 Finishedgoods 2309135 3268537 6 523 937 5 171 336
Current 6523937 5171336 Non-current - - Total 6 523 937 5 171 336
Trade and Loans and other advances receivables Total5.4 Allowance for impairment US$ US$ US$
Balance as at 1 January 2016 20 384 622 513 742 20 898 364 Impairmentallowancethroughstatementof comprehensiveincome 7874767 - 7874767 Impairmentreversal (1043687) - (1043687) Amountswrittenoffduringtheyearasuncollectible (6291469) (366272) (6657741) Interestinsuspense/(recoveries) (1824033) - (1824033) Balance as at 31 December 2016 19 100 200 147 470 19 247 670
Trade and Loans and other advances receivables Total US$ US$ US$
Balance as at 1 January 2017 19 100 200 147 470 19 247 670 Impairmentallowancethroughstatementof comprehensiveincome 6617635 265930 6883565 Amountswrittenoffduringtheyearasuncollectible (8327467) - (8327467) Interestinsuspense/(recoveries) (2152539) - (2152539) Balance as at 31 December 2017 15 237 829 413 400 15 651 229
Audited Audited 31-Dec-17 31-Dec-16 US$ US$6 BONDS AND DEBENTURES Maturingafter6monthsbutwithin3years 27 633 715 9 139 955
Audited Audited 31-Dec-17 31-Dec-16 US$ US$
10 PREPAYMENTS AND OTHER ASSETS Prepayments 6472439 1404660 Deferredacquisitioncosts 742791 741296 Commissionreceivable - 1711043 RefundabledepositsforMastercardandVisatransactions 4664519 2574983 Stationerystockandotherconsumables 19024 20869 Time-shareasset 33750 45000 Zimswitchacquiringreceivables 8075828 2966790 Otherassets 3675953 590052 23 684 304 10 054 693 Current 23650554 8298650 Non-current 33750 1756043 Total 23 684 304 10 054 693
11 INVESTMENT PROPERTY Balanceasat1January 3710457 2472140 Additions 2483981 1615028 Fairvalueadjustment 2129962 (5320) Disposals (140000) (371391) Balance as at 31 December 8 184 400 3 710 457
Non-current 8184400 3710457 Total 8 184 400 3 710 457
Software US$12 INTANGIBLE ASSETS Year ended 31 December 2017 Openingnetbookamount 1890026 Additions 615899 Impairmentloss (27890) Amortisationcharge (626899) Closing net book amount 1 851 136
As at 31 December 2017 Cost 6538746
Accumulatedamortisation (4658383) Accumulatedimpairment (29227) Net book amount 1 851 136 Year ended 31 December 2016
Openingnetbookamount 897946 Additions 1510286 Impairmentloss (1337) Amortisationcharge (516869) Closing net book amount 1 890 026
As at 31 December 2016 Cost 5922848
Accumulatedamortisation (4031485) Accumulatedimpairment (1337) Net book amount 1 890 026
13 PROPERTY AND EQUIPMENT Furniture
Landand Computer andoffice Motor buildings Machinery equipment equipment vehicles Total US$ US$ US$ US$ US$ US$ Year ended 31 December 2016 Openingnetbookamount 17023884 - 1739955 4897265 985754 24646858 Additions 64935 - 189562 1808361 568694 2631552 Disposals - - (2105) - (106536) (108641) Depreciation (411063) - (550555) (795810) (322297) (2079725) Closing net book amount 16 677 756 - 1 376 857 5 909 816 1 125 615 25 090 044 As at 31 December 2016 Costorvaluation 17495968 184423 4523020 9650115 2912162 34765688 Accumulateddepreciation (818212) (184423) (3146163) (3732417) (1534996) (9416211) Accumulatedimpairment - - - (7882) (251551) (259433) Net book amount 16 677 756 - 1 376 857 5 909 816 1 125 615 25 090 044 Year ended 31 December 2017 Openingnetbookamount 16677756 - 1376857 5909816 1125615 25090044 Additions 294168 - 524705 3234580 797629 4851082 Revaluationofproperty 1311411 - - - - 1311411 Impairmentreversal 1629 - - - - 1629 Disposals - - (572) (62752) (2104) (65428) Depreciation (414680) - (517987) (1027066) (379814) (2339547) Closing net book amount 17 870 284 - 1 383 003 8 054 578 1 541 326 28 849 191 As at 31 December 2017 Costorvaluation 19101547 184423 5035366 12467614 3511902 40300852 Accumulateddepreciation (1232892) (184423) (3652363) (4405154) (1719025) (11193857) Accumulatedimpairment 1629 - - (7882) (251551) (257804) Net book amount 17 870 284 - 1 383 003 8 054 578 1 541 326 28 849 191
14 DEPOSITS AND BORROwINGS FROM OTHER BANKS AND CUSTOMERS Audited Audited 31-Dec-17 31-Dec-16 US$ US$
14.1 Deposits from customers Demanddeposits 266871536 123120420 Promissorynotes 52691470 29644300 Othertimedeposits 101110931 102501952 420 673 937 255 266 672 Current 415565186 250293348 Non-current 5108751 4973324 Total 420 673 937 255 266 672 14.2 Deposits from other banks Moneymarketdeposits 88729907 114850822
Current 88 729 907 114 850 822 14.3 Borrowings Foreignlinesofcredit 13499380 85194115 Otherborrowings 1081629 189820 14 581 009 85 383 935 Current 2638004 72850007 Non-current 11943005 12533928 Total 14 581 009 85 383 935 Total deposits and borrowings 523 984 853 455 501 429
14.4 Deposit concentration 2017 2016 US$ % US$ % Agriculture 18406872 4% 13041693 3% Construction 9410422 2% 6598389 1% Wholesaleandretailtrade 101394353 19% 71826042 16% Publicsector 34343637 7% 27464401 6% Manufacturing 47777712 9% 27687781 6% Telecommunication 29651248 6% 10380673 2% Transport 20203403 4% 6521667 1% Individuals 61003339 10% 42973492 9% Financialservices 89522891 17% 176011564 39% Mining 61813610 12% 26083386 6% Other 50457366 10% 46912341 11% 523 984 853 100% 455 501 429 100%
Audited Audited 31-Dec-17 31-Dec-16 US$ US$15 INSURANCE LIABILITIES Grossoutstandingclaims 4441660 6321008 Liabilityforunearnedpremium 3239204 3149926 7 680 864 9 470 934 Current 7680864 9470934 Total 7 680 864 9 470 934 16 TRADE AND OTHER PAYABLES Tradeandotherpayables 12575694 8580473 Deferredincome 5908279 4487315 VISAandMasterCardsettlementpayables 9484047 886415 Otherliabilities 7343158 5854894
35 311 178 19 809 097 Current 35311178 19809097 Non-current - - Total 35 311 178 19 809 097
17 SHARE CAPITAL AND SHARE PREMIUM
17.1 Authorised Numberofordinaryshares,withanominalvalueofUS$0,00001 800000000 800000000
17.2 Issued and fully paid Numberofordinaryshares,withanominalvalueofUS$0,00001 671949927 671949927
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
7
17.3 Share capital movement Number of Share Share Shares Capital Premium Total US$ US$ US$
As at 1 January 2016 671 949 927 6 719 14 083 173 14 089 892 Shareissue - - - - As at 31 December 2016 671 949 927 6 719 14 083 173 14 089 892 Shareissue - - - - As at 31 December 2017 671 949 927 6 719 14 083 173 14 089 892
Audited Audited 31-Dec-17 31-Dec-16 US$ US$
18 INTEREST INCOME
Cashandcashequivalents 2322219 2970277 Loansandadvancestootherbanks 2503909 2911802 Loansandadvancestocustomers 44744734 48994578 Banker’sacceptancesandtradablebills 15745817 11464532 Otherinterestincome 399167 659182 65 715 846 67 000 371
Creditrelatedfeesthatareanintergralpartoftheeffectiveinterestonloansand advanceshavebeenclassifiedunderinterestincome.
18.1 INTEREST EXPENSE Depositfromotherbanks 6879265 6428835 Demanddeposits 884481 779248 AfreximbankandPTABank 4785062 9515740 Timedeposits 7098347 5478550 19 647 155 22 202 373 19 FEE AND COMMISSION INCOME Retailservicefees 28163280 23388750 Creditrelatedfees 2840406 2266666 Investmentbankingfees 407194 289657 Brokeragecommission 517468 147326 Financialguaranteecontractcommission 120 52 31 928 468 26 092 451 19.1 FEE AND COMMISSION EXPENSE Brokerage 322 495 174 718 20 REVENUE Propertysales 5 387 808 7 001 895
20.1 COST OF SALES Rawmaterials 4 212 915 6 039 694
21 INSURANCE PREMIUM REVENUE Grosspremiumwritten 31077487 32240428 Changeinunearnedpremiumreserve(“UPR”) (89279) 455432
30 988 208 32 695 860 22 NET GAIN FROM FINANCIAL INSTRUMENTS CARRIED AT FAIR VALUE Financialassetsatfairvaluethroughprofitorloss(note7),fairvaluegains 636 005 231 188 23 OTHER OPERATING INCOME Rentalincome 113834 293653 Profitondisposalofpropertyandequipment 14326 34562 Fairvalueadjustmentoninvestmentproperty 2059627 (5320) Baddebtsrecoveries 2622952 1090554 Sundryincome 930251 400802 Rentalincomeisearnedfromowneroccupiedproperties. IncludedinrentalincomeisUS$59521 5 740 990 1 814 251 (2016-US$151536)earnedfrominvestmentproperty. 24 NET INSURANCE COMMISSION EXPENSE Commissionspaid 4897686 5764835 Commissionreceived (1113150) (1594156) Changeintechnicalprovisions (1494) 160812
3 783 042 4 331 491
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
25 INSURANCE CLAIMS AND LOSS ADJUSTMENT EXPENSES Gross Reinsurance Net US$ US$ US$ Year ended 31 December 2017 Claimsandlossadjustmentexpenses (15209511) 6597098 (8612413) Changeintechnicalprovisions 352267 (18989) 333278 Total claims (14 857 244) 6 578 109 (8 279 135) Year ended 31 December 2016 Claimsandlossadjustmentexpenses (15395009) 7872542 (7522467) Changeintechnicalprovisions (17193) (133106) (150299) Total claims (15 412 202) 7 739 436 (7 672 766) Audited Audited 31-Dec-17 31-Dec-16 US$ US$26 ADMINISTRATIVE EXPENSES Administrativeexpenses 19656439 15653750 Staffcosts(note26.1) 26774254 22174999 Directors’remuneration(note26.2) 6281630 5549760 Auditfees: -Currentyearfees 313600 340008 -Prioryearfees 67161 178300 -Otherservices - - Depreciation 2339547 2079725 Impairmentofintangibleassets 27890 1337 Amortisation 626899 516869 Operatingleasepayment 957211 976604 57 044 631 47 471 352 26.1 Staffcosts Salariesandallowances 25127044 20564427 Socialsecurity 363974 339566 Pensioncontribution 1283236 1245034 Retrenchmentcost - 25972 26 774 254 22 174 999 26.2 Director’s remuneration Boardfees 778162 672176 Otheremoluments 49914 73967 Forservicesasmanagement 5453554 4803617 6 281 630 5 549 760
Audited Audited 31-Dec-17 31-Dec-16 US$ US$
27 INCOME TAX EXPENSE: Chargefortheyear Currentincometaxonincomeforthereportingyear 5370913 5267514 Adjustmentsinrespectofprioryears 376860 371654 Deferredincometax 307551 (1901189) Income tax expense 6 055 324 3 737 979
28 EARNINGS PER SHARE
28.1 Basic earnings per share Profitattributabletoequityholdersoftheparent 23197279 21885495
Total 23 197 279 21 885 495 Shares Treasury Shares issued shares outstanding weighted Year ended 31 December 2017
weighted average number of ordinary shares Issuedordinarysharesasat1January2017 671949927 31827282 640122645 640122645 Treasurysharespurchased - - - -
weighted average number of ordinary shares as at 31 December 2017 671 949 927 31 827 282 640 122 645 640 122 645 Basicearningspershare(UScents) 3.62
3.62 Year ended 31 December 2016 weighted average number of ordinary shares Issuedordinarysharesasat1January2016 671949927 11304203 660645724 660645724 Treasurysharespurchased - 20523079 (20523079) (16782946)
weighted average number of ordinary shares as at 31 December 2016 671 949 927 31 827 282 640 122 645 643 862 778 Basicearningspershare(UScents)
3.40
3.40
28.2 Diluted earnings per share Dilutedearningspershare iscalculatedafteradjusting theweightedaveragenumberofordinarysharesoutstanding to
assumeconversionofalldilutivepotentialordinaryshares.TheCompanydoesnothavedilutiveordinaryshares.
Audited Audited 31-Dec-17 31-Dec-16 US$ US$ Earnings Profitattributabletoequityholdersoftheparent 23197279 21885495 Total 23 197 279 21 885 495 weighted average number of ordinary shares at 31 December 640 122 645 643 862 778 Dilutedearningspershare(UScents) 3.62 3.40 3.62 3.40
28.3 Headline earnings per share Profitattributabletoequityholders 23197279 21885495 Adjustedforexcludedremeasurements Profitonthedisposalofpropertyandequipment(note23) (14326) (34562) Impairmentonasset(note12&13) 26261 1337 Headline earnings 23 209 214 21 852 270 weighted average number of ordinary shares at 31 December 640 122 645 643 862 778 Headline earnings per share (US cents) 3.63 3.39
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Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
8
Commercial Mortgage Short term Short term banking Microlending financing reinsurance insurance Stockbroking Consolidated 31 December 2017 US$ US$ US$ US$ US$ US$ US$
Total segment revenue Interestincome 42748671 7718676 15149669 756938 293635 519336 67186925 Interestexpense (15479196) (1053238) (4350444) - - - (20882878) Netinterestincome 27269475 6665438 10799225 756938 293635 519336 46304047 Sales - - 5387808 - - - 5387808 Costofsales - - (4212915) - - - (4212915) Grossprofit - - 1174893 - - - 1174893 Netearnedinsurance premium - - - 11307706 8410055 - 19717761 Netfeeandcommission income 25862468 732856 5076569 - - 459868 32131761 Nettradingincomeand otherincome 6387528 180824 176800 622476 459449 10068 7837145 Totalnetincomefor reportedsegments 59519471 7579118 17227487 12687120 9163139 989272 107165607 Intersegmentrevenue (243002) - (827168) (8115789) 6443045 (16432) (2759346) Intersegmentinterest expenseandcommission 1455562 1070892 415837 6028939 1038790 3154 10013174 Net income from external customers 60 732 031 8 650 010 16 816 156 10 600 270 16 644 974 975 994 114 419 435 Segmentprofitbefore income tax 16 559 652 4 451 832 9 306 997 1 715 205 1 359 467 584 242 33 977 395 Impairmentallowances onfinancialassets 6342964 (326026) 600697 191916 74014 - 6883565 Depreciation 1901950 66549 208873 38343 120492 3340 2339547 Amortisation 397254 61032 44844 21642 102127 - 626899 Segment assets 558 063 849 22 626 490 129 919 786 21 500 808 14 968 980 2 695 824 749 775 737 Totalassetsincludes: Additionsto non-currentassets 3890815 203222 616515 15862 97375 27293 4851082 Investmentinassociates - - - 491139 - - - Segment liabilities 480 127 286 13 083 822 82 416 452 7 873 921 7 601 555 1 641 695 592 744 731 Typeofrevenue generatingactivity Commercial Microlending Mortgage Underwriting Underwriting Equitymarket andretail financing generalclasses generalclasses dealing banking ofshortterm ofshortterm re-insurance insurance
Commercial Mortgage Short term Short term banking Microlending financing reinsurance insurance Stockbroking Consolidated 31 December 2016 US$ US$ US$ US$ US$ US$ US$
Total segment revenue Totalsegmentnetincome Interestincome 44419716 8667331 14225764 852931 322100 647840 69135682 Interestexpense (19211684) (1249119) (4887783) - - - (25348586) Netinterestincome 25208032 7418212 9337981 852931 322100 647840 43787096 Sales - - 7001895 - - - 7001895 Costofsales - - (6039694) - - - (6039694) Grossprofit - - 962201 - - - 962201 Netearnedinsurance premium - - - 11537208 8345751 - 19882959 Netfeeandcommission income 20730238 476716 5123977 - - 131926 26462857 Nettradingincome andotherincome 1789812 112194 166284 291117 240415 2834 2602656 Totalnetincomefor reportedsegments 47728082 8007122 15590443 12681256 8908266 782600 93697769 Intersegmentrevenue (276368) (54693) (1097187) (797589) (1366803) (42043) (3634683) Intersegmentinterest expenseandcommission 1214902 1217463 878620 33656 403367 4107 3752115 Net income from external customers 48 666 616 9 169 892 15 371 876 11 917 323 7 944 830 744 664 93 815 201 Segmentprofitbefore income tax 12 152 426 4 197 275 8 516 850 2 266 736 1 454 104 481 561 29 068 952 Impairmentallowances onfinancialassets 6453789 771344 649634 - - - 7874767 Depreciation 1646612 43056 221084 28851 135525 4597 2079725 Amortisation 330329 5086 75106 22570 83778 - 516869
Segment assets 470 233 877 17 544 690 147 682 029 21 589 978 12 129 381 2 165 292 671 345 247 Totalassetsincludes: Additionstonon-current assets 2173931 76169 135663 48154 186461 11174 2631552 Investmentinassociates - - - 491139 - - - Segment liabilities 405 167 868 10 488 890 106 411 020 8 637 766 5 596 690 1 542 354 537 844 588 Typeofrevenue generatingactivity Commercial Microlending Mortgage Underwriting Underwriting Equitymarket andretail financing generalclasses generalclasses Dealing banking ofshortterm ofshortterm re-insurance insurance
29 SEGMENT REPORTING Segmentinformationispresentedinrespectofbusinesssegments.
Segmentrevenue,expenses,resultsandassetsareitemsthataredirectlyattributabletothebusinesssegmentorwhichcan
beallocatedonareasonablebasistoabusinesssegment.
TheGroupcomprisesof sixbusiness segments i.e. commercialbanking,microlending,mortgagefinancing, short termreinsurance,shortterminsuranceandstockbroking.
Performanceismeasuredbasedonsegmentprofitbeforeincometax,asincludedintheinternalmanagementreportsthat
arereviewedbytheGroupExecutiveCommittee.
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
Audited Audited 31-Dec-17 31-Dec-16 US$ US$ 30 SEGMENT REPORTING
Operating segments reconciliations Net income Totalnetincomeforreportablesegments 114419435 93815201 Totalnetincomefornonreportablesegments 4731160 5396269 Eliminationofintersegmentrevenuereceivedfromtheholdingcompany (1140730) (158540) Intersegmenteliminations (12715938) (6026849) Group total net income 105 293 927 93 026 081 Groupprofitbeforetax Totalprofitbeforeincometaxforreportablesegments 33977395 29068952 Intersegmenteliminations (4673841) (3393247) Profitbeforeincometax 29303554 25675705 Group assets Totalassetsforreportablesegments 749775737 671345247 Othergroupassets 33750 45000 Deferredtaxassetallocatedtotheholdingcompany 2222315 1815925 Intersegmenteliminations (39594317) (63061455) Group total assets 712 437 485 610 144 717 Group liabilities Totalliabilitiesforreportablesegments 592744731 537844588 Eliminationofintersegmentpayables (24863182) (51412467) Group total liabilities 567 881 549 486 432 121
30 SEGMENT REPORTING (continued) In the normal course of business, group companies trade with one another and the material intergroup transactions
include: 1) Underwritingofinsuranceriskbytheinsurancesubsidiary; 2) Reinsuranceoftheinsurancesubsidiary’sinsuranceriskbythereinsurancesubsidiary; 3) Borrowingsfromthebankingsubsidiarybygroupcompaniesandplacementoffundsandoperatingofcurrentaccounts;
and 4) PlacementoffundswiththeBuildingSocietybygroupcompanies.
Thesetransactionsresultinincome,expenses,assetsandliabilitiesthatareeliminatedonconsolidation.
31 FINANCIAL RISK MANAGEMENT TheGrouphasadefinedriskappetitethatissetbytheBoardanditoutlinestheamountofriskthatbusinessisprepared
totakeinpursuitof itsobjectivesanditplaysapivotalrole inthedevelopmentofriskmanagementplansandpolicies.TheGroupregularlyreviewsitspoliciesandsystemstoreflectchangesinmarkets,products,regulationsandbestmarketpractice.
Thepolicies specifically cover foreignexchange risk, liquidity risk, interest rate risk , credit riskand thegeneral useoffinancialinstruments.
GroupRiskandComplianceandGroupInternalauditreviewfromtimetotimetheintergrityoftheriskcontrolsystemsinplaceandensurethatriskpoliciesandstrategiesareeffectivelyimplementedwithintheGroup. TheGroup’sriskmanagementstrategiesandplansareaimedatachievinganappropriatebalancebetweenriskandreturnandminimisepotentialadverseeffectsontheGroup’sfinancialperformance. TheGroup’sactivitiesandoperationsresultsinexposuretothefollowingrisks:
(a) Creditrisk (b) Marketrisk (b.i) Interestraterisk, (b.ii) Currencyrisk,and (b.iii) Pricerisk (c) Liquidityrisk (d) Settlementrisk (e) Operationalrisk (f) Capitalrisk
Otherrisks: g) Reputationalrisk h) LegalandCompliancerisk i) Strategicrisk
TheGroupcontrols these risksbydiversifying its exposures and activities amongproducts, clients, andby limiting itspositionsinvariousinstrumentsandinvestments.
31.1 Credit risk Creditriskistheriskoflossduetotheinabilityorunwillingnessofacounterpartytomeettheirobligationsasandwhenthey
falldue.Creditriskarisesfromlending,trading,insuranceproductsandinvestmentactivitiesandproducts.CreditriskandexposuretolossareinherentpartsoftheGroup’sbusiness. TheGroupmanages,limitsandcontrolsconcentrationsofcreditriskinrespectofindividualcounterpartiesandgroups.TheGroupstructuresthelevelsofcreditriskitundertakesbyplacinglimitsontheamountofriskacceptedinrelationtoonecounterpartyorgrouporcounterpartiesandtogeographicalandindustrysegments.Suchrisksaremonitoredonarevolvingbasisandaresubjecttoanannualormorefrequentreview,whenconsiderednecessary.LimitsonthelevelofcreditriskbyproductandindustrysectorareapprovedbytheBoardofDirectorsofthesubsidiarycompanies. TheBoardCreditCommitteesoftheBank,MicroplanandtheBuildingSocietyperiodicallyreviewandapprovetheGroup’spoliciesandprocedurestodefine,measureandmonitorthecreditandsettlementrisksarisingfromtheGroup’slendingand investment activities. Limits are established to control these risks. Any facility exceeding established limits of thesubsidiary’sManagementCreditCommitteemustthenbeapprovedbythesubsidiaryBoardCreditCommittee. TheGroupCreditManagementDivisionevaluates thecreditexposuresandassuresongoingcreditqualityby reviewingindividualcreditandconcentrationandmonitoringofcorrectiveaction.
TheGroupCreditDivisionperiodicallypreparesdetailedreportsonthequalityofthecustomersforreviewbytheBoardLoansReviewCommitteesofthesubsidiarycompaniesandassesstheadequacyoftheimpairmentallowance.Anyloanorportionthereofwhichisclassifiedasa‘loss’iswrittenoff.Tomaintainanadequateallowanceforcreditlosses,theGroupgenerallyprovidesforaloanoraportionthereof,whenalossisprobable.
Credit policies, procedures and limits TheGrouphassoundandwell-definedpolicies,proceduresand limitswhicharereviewedat leastonceeveryyearand
approvedbytheBoardofDirectorsofthesubsidiarycompaniesandstrictlyimplementedbymanagement.Creditrisklimitsincludedelegatedapprovalandwrite-offlimitstoCreditManagers,Management,BoardCreditCommitteesandtheBoard.Inadditiontherearecounterpartylimits,individualaccountlimits,grouplimitsandconcentrationlimits.
Credit risk mitigation and hedging As part of the Group’s credit riskmitigation and hedging strategy, various types of collateral is taken by the banking
subsidiaries. These include mortgage bonds over residential, commercial and industrial properties, cession of bookdebtsand theunderlyingmoveableassetsfinanced. Inaddition,aguarantee isoften requiredparticularly insupportofacreditfacilitygrantedtocounterparty.Generally,guarantorcounterpartiesincludeparentcompaniesandshareholders.Creditworthinessfortheguarantorisestablishedinlinewiththecreditpolicy. Credit risk stress testing
TheGrouprecognisesthepossibleeventsorfuturechangesthatcouldhaveanegativeimpactonthecreditportfolioswhichcouldaffecttheGroup’sabilitytogeneratemorebusiness.Tomitigatethisrisk,theGrouphasputinplacestresstestingframeworkthatguidestheGroup’sbankingsubsidiariesinconductingcreditstresstests. Impairments
AnallowanceforloanimpairmentisestablishedifthereisobjectiveevidencethattheGroupwillnotbeabletocollectallamountsdueaccordingtotheoriginalcontractualtermsofloans.Theamountoftheallowanceisthedifferencebetweenthe carrying amount and the recoverable amount, being the present value of expected cash flows, including amountsrecoverablefromguaranteesandcollateral,discountedattheoriginaleffectiveinterestrateofloans.
Credit terms: Default Thisisfailurebyaborrowertocomplywiththetermsandconditionsofaloanfacilityassetoutinthefacilityofferletterorloancontract.Defaultoccurswhenadebtoriseitherunwillingorunabletorepayaloan.
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
9
31 FINANCIAL RISK MANAGEMENT (CONTINUED)31.1 Credit risk (continued)
Past due loans Theseareloansinwhichthedebtorisindefaultbyexceedingtheloantenureorexpirydateasexpresslysetoutintheloan
contracti.e.thedebtorfailstorepaytheloanbyaspecificgivendate. Impaired loans
TheGroup’spolicyregardingimpaired/doubtfulloansisthatallloanswherethedegreeofdefaultbecomesextensivesuchthattheGroupnolongerhasreasonableassuranceofcollectionofthefulloutstandingamountofprincipalandinterest;allsuchloansareclassifiedinthecategories8,9and10undertheBaselIItentiergradingsystem.
Provisioningpolicyandwriteoffs Determinationofgeneralandspecificprovisions
TheGroupcomplieswiththefollowingReserveBankofZimbabweprovisioningrequirements:
Rating Descriptive classification
Risk level Level of allowance
Oldfivegrade/tier system
2012 Grading and level of allowance
Type of allowance
1 Primegrade Insignificant 1%
Pass A(1%)
General
2 Strong Modest 1%
3 Satisfactory Average 2%
4 Moderate Acceptable 3%
SpecialMention B(3%)
5 Fair Acceptablewithcare 4%
6 Speculative Managementattention 5%
7 HighlySpeculative Specialmention 10%
8 Substandard Vulnerable 20% Substandard C(20%)
Specific9 Doubtful Highdefault 50% Doubtful D(50%)
10 Loss Bankrupt 100% Loss E(100%)
General allowance for impairment Primetohighlyspeculativegrades“1to7”
Generalallowanceforimpairmentforfacilitiesinthiscategoryaremaintainedatthepercentage(detailedintableabove)oftotalcustomeraccountoutstandingbalancesandoffbalancesheet(i.e.contingent)risks. Specificallowanceforimpairment
Sub-standardtolossgrades“8to10”-Timelyrepaymentand/orsettlementmaybeatrisk Specificallowanceforimpairmentforfacilitiesinthiscategoryarecurrentlymaintainedatthepercentages(detailedabove)
oftotalcustomeroutstandingbalancesandoffbalancesheet(i.e.contingent)riskslessthevalueoftangiblesecurityheld. Thebasisforwritingoffassets
Whenanadvancewhichhasbeenidentifiedasimpairedandsubjectedtoaspecificallowanceforimpairment,continuestodeteriorate,apointwillcomewhenitmaybeconcludedthatthereisnorealisticprospectofrecovery.BoardapprovalwillbesoughtbyGroupCreditManagementDivisionfortheexposuretobeimmediatelywrittenofffromtheGroup’sbookswhilelongtermrecoverystrategiesarethenpursued. Credit risk and Basel II
TheGroupappliedCreditRiskBaselIIstandardsinlinewiththeregulatoryauthorities’approach.Internalprocesseshavebeenrevampedtocomplywiththerequirements.PoliciesandproceduremanualshavebeenrealignedtocomplywiththeminimumrequirementsofBaselII.
31.1.1 Exposure to credit risk Audited Audited
31-Dec-17 31-Dec-16 US$ US$ Loans and advances Past due and impaired Grade8:Impaired 2760715 2963709 Grade9:Impaired 1558327 3660486 Grade10:Impaired 10189116 8563809
Gross amount, past due and impaired 14 508 158 15 188 004 Allowanceforimpairment (4668896) (9611586)
Carrying amount, past due and impaired 9 839 262 5 576 418 Past due but not impaired Grade4-7: 67977013 83193322
Neither past due nor impaired Grade1-3: 233499462 197253687 Gross amount, not impaired 301 476 475 280 447 009 Allowanceforimpairment (10568932) (9488614) Carrying amount, not impaired 290 907 543 270 958 395 Total carrying amount 300 746 805 276 534 813
Loans and advances neither past due nor impaired Loansandadvancesneitherpastduenorimpairedandwhicharenotpartofrenegotiatedloansareconsideredtobewithin
thegrade1to3category.Pastdueloansandadvancesarethosewhoserepayments(capitalandinterests)areoutstandingformorethan30days. Loans and advances past due but not impaired
Lateprocessingandotheradministrativedelaysonthesideoftheborrowercanleadtoafinancialassetbeingpastduebutnotimpaired.Loansandadvanceslessthan90dayspastduearenotconsideredimpaired,unlessotherinformationisavailabletoindicatethecontrary.
31.1.2 Sectorial analysis of utilizations of loans and advances to customers
31-Dec-17 31-Dec-16 US$ % US$ % Mining 16254223 5% 15242921 5% Manufacturing 28795445 9% 54380168 18% Mortgage 65690096 21% 48267804 16% Wholesale 24593787 8% 13034556 4% Distribution 13504839 4% 26452316 9% Individuals 103827037 33% 82283624 29% Agriculture 9365776 3% 23929185 8% Communication 3228819 1% 8689704 3% Construction 10057183 3% 4344851 1% Localauthorities 11938629 4% 10862130 4% Otherservices 28728800 9% 8147754 3% 315 984 634 100% 295 635 013 100%
31.1.2 Sectorial analysis of utilizations of loans and advances to customers (continued) Reconciliation of allowance for impairment for loans and advances
31-Dec-17 31-Dec-16 Specific Collective Specific Collective allowance allowance Total allowance allowance Total Allowances for impairment US$ US$ US$ US$ US$ US$ Balanceat1January 11313164 7787036 19100200 14476111 5908511 20384622 Increasein impairmentallowance 4669908 1947727 6617635 5900908 1973859 7874767 Impairmentreversal - - - (948353) (95334) (1043687) Writeoff (8327467) - (8327467) (6291469) - (6291469) Interestinsuspense (2152539) - (2152539) (1824033) - (1824033) 5 503 066 9 734 763 15 237 829 11 313 164 7 787 036 19 100 200
Audited Audited 31-Dec-17 31-Dec-16 US$ US$
31.1.3 Trade and other receivables including insurance receivables Past due and impaired 438 223 147 470 Allowanceforimpairment (413400) (147470) Carrying amount 24 823 - Pastduebutnotimpaired - - Neitherpastduenorimpaired 9614837 9120237 Gross amount, not impaired 9 614 837 9 120 237 Allowanceforimpairment - - Carrying amount, not impaired 9 614 837 9 120 237 Total carrying amount 9 639 660 9 120 237 31.2 Liquidity risk Liquidityriskistheriskofnotbeingabletogeneratesufficientcashtomeetfinancialcommitments,toextendcredit,meet
depositmaturities,settleclaimsandotherunexpecteddemandsforcash.Liquidityriskariseswhenassetsandliabilitieshavedifferingmaturities.
Management of liquidity risk TheGroupdoesnotmanageliquidityriskinisolationasitisoftentriggeredbyconsequencesofotherfinancialriskssuch
ascreditriskandmarketrisk.TheGroup’s liquidityriskmanagementframeworkisthereforedesignedtoensurethat itssubsidiarieshaveadequateliquiditytowithstandanystressedconditions.Toachievethisobjective,theBoardofDirectorsoftheCompany,throughtheBoardAssetLiabilityCommitteesoftheBank,MicroplanandtheBuildingSocietyandBoardRiskandComplianceCommittees,isultimatelyresponsibleforliquidityriskmanagement.Theresponsibilityformanagingthedaily funding requirements isdelegated to theHeadsofTreasuryDivisions for thebankingentitiesand theFinanceDirectorsfornon-bankingentitieswithindependentdaytodaymonitoringbeingprovidedbyGroupRiskManagement.
Liquidity and funding management TheGroup’smanagementof liquidityandfunding isdecentralisedandeachentity isrequiredtofullyadoptthe liquidity
policyapprovedbytheBoardwithindependentmonitoringbeingprovidedbytheGroupRiskManagementDivision.TheGroupusesconcentrationrisklimitstoensurethatfundingdiversificationismaintainedacrossproducts,counterparties,andsectors.Majorsourcesof fundingare in the formofdepositsacrossaspectrumof retailandwholesaleclients forbankingsubsidiaries.
Cashflowandmaturityprofileanalysis TheGroupusesthecashflowandmaturitymismatchanalysisonbothcontractualandbehaviouralbasistoassessthe
bankingunits’abilitiestomeetimmediateliquidityrequirementsandplanfortheirmediumtolongtermliquidityprofile.
Liquidity contingency plans InlinewiththeGroup’sliquiditymanagementpolicy,liquiditycontingencyplansareinplaceforthesubsidiariesinorder
toensureapositiveoutcomeintheeventofaliquiditycrisis.Theplansclearlyoutlineearlywarningindicatorswhicharesupportedbyclearanddecisivecrisisresponsestrategies.Thecrisisresponsestrategiesarecreatedaroundtherelevantcrisismanagementstructuresandaddressbothspecificandmarketcrises.
Liquidity stress testing ItistheGroup’spolicythateachentityconductsstresstestsonaregularbasistoensurethattheyhaveadequateliquidity
towithstandstressedconditions.Inthisregard,anticipatedon-andoff-balancesheetcashflowsaresubjectedtoavarietyofspecificandsystemicstressscenariosduringtheperiodinanefforttoevaluatetheimpactofunlikelyeventsonliquiditypositions.
ThetablebelowanalysestheGroup’sfinancialassetsandliabilitiesintorelevantmaturitygroupingsbasedontheremaining
period at the reporting date to the contractual maturity date. The amounts disclosed in the table are the contractualundiscountedcashflows.
Up to 3 months Over Contractual maturity analysis 3 months to 1 year 1 year Total on balance sheet items as at 31 December 2017 US$ US$ US$ US$
Liabilities Depositsfromcustomers 389343256 24071930 7258751 420673937 Depositsfromotherbanks 70756358 15973549 2000000 88729907 Borrowings 3151514 6484712 4944783 14581009 Insuranceliabilities 2108017 - 5572847 7680864 Currentincometaxliabilities 70599 - - 70599 Tradeandotherliabilities 15639254 10027072 3736572 29402898 Total liabilities - (contractual maturity) 481 068 998 56 557 263 23 512 953 561 139 214 Assets held for managing liquidity risk
(contractual maturity dates)
Balanceswithbanksandcash 181002565 - - 181002565 Financialassetsheldtomaturity 13535474 39885579 59457770 112878823 Loansandadvancestocustomers 56739598 35528169 208479038 300746805 Bondsanddebentures - 18500000 9133715 27633715 Tradeandotherreceivablesincludinginsurance
receivables 1349461 8290199 - 9639660 Financialassetsatfairvaluethroughprofitorloss 472060 1807269 85996 2365325 Availableforsalefinancialassets 835710 - - 835710 Otherassets 12165557 1217535 3033209 16416301
266 100 425 105 228 751 280 189 728 651 518 904 Liquidity gap (214 968 573) 48 671 488 256 676 775 90 379 690 Cumulative liquidity gap - on balance sheet (214 968 573) (166 297 085) 90 379 690 - Offbalancesheetitems
Liabilities
Guaranteesandlettersofcredit - 8002919 - 8002919 Commitmentstolend 14299312 - - 14299312 Total liabilities 14 299 312 8 002 919 - 22 302 231 Liquidity gap (14 299 312) ( 8 002 919) - 68 077 459 Cumulativeliquiditygap-onandoffbalancesheet (229267885) (188599316) 68077459 -
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
10
31.5 Operating risk (continued) The management and measurement of operational risk TheGroupidentifiesandassessesoperationalriskinherentinallmaterialproducts,activities,processesandsystems.It
ensures thatbeforenewproducts,activities,processesandsystemsare introducedorundertaken, theoperational riskinherentinthemissubjectedtoadequateassessmentbytheappropriateriskcommitteeswhichincludetheGroupRiskandComplianceCommitteeandGroupNewProductCommittee.
TheGroupconductsOperationalRiskAssessmentsinlinewiththeGroup’sriskstrategy.Theseassessmentscovercauses
andeventsthathave,ormightresultinlosses,aswellasmonitoroveralleffectivenessofcontrolsandwhetherprescribedcontrolsarebeingfollowedorneedcorrection.KeyRiskIndicators(“KRIs”)whicharestatisticaldatarelatingtoabusinessoroperationsunitaremonitoredonanongoingbasis.TheGroupalsomaintainsarecordoflosseventsthatoccurintheGroupinlinewithBaselIIrequirements.TheseareusedtomeasuretheGroup’sexposuretotherespectivelosses.RisklimitsareusedtomeasureandmonitortheGroup’soperationalriskexposures.Theseincludebranchcashholdinglimits,tellertransactionlimits,transferlimitsandwriteofflimitswhichareapprovedbymanagementandtheBoard.Inaddition,theGroupalsouses riskmitigationmechanismssuchas insuranceprogrammes to transfer risks.TheGroupmaintainsadequateinsurancetocoverkeyoperationalandotherrisks.
Business continuity management ToensurethattheessentialfunctionsoftheGroupareabletocontinueintheeventofadversecircumstances,theGroup
BusinessContinuityPlanisreviewedannuallyandapprovedbytheBoard.TheGroupBusinessContinuityCommitteeisresponsibleforensuringthatallsubsidiarycompaniesconducttestseachyear in linewiththeGrouppolicy.TheGroupsuccessfullyconducteditsbusinesscontinuitytestsandallprocesseswerewelldocumented.Allstructures,processesandsystemsofthebankingsubsidiarieshavebeenalignedtoBaselIIrequirements.TheGroupalsoadoptedinfullalltheRiskManagementGuidelineswhichwereissuedbytheReserveBankofZimbabweaspartoftheBaselIIimplementationforthebankingsubsidiaries.
31.6 Capital risk 31.6.1 Regulatory Capital and Financial Risk Management Capital risk refers to the risk of the Group’s own capital resources being adversely affected by unfavourable external
developments. TheGroup’sobjectivewhenmanagingcapital,whichisabroaderconceptthanthe‘equity’onthefaceofthestatementof
financialposition,are: • TocomplywiththecapitalrequirementssetbytheregulatorsoftheGroup’ssubsidiaries;• TosafeguardtheGroup’sabilitytocontinueasagoingconcernsothatitcancontinuetoprovidereturnsforshareholders
andbenefitsforotherstakeholders;and • Tomaintainastrongcapitalbasetosupportthedevelopmentofitsbusinesses.
CapitaladequacyandtheuseofregulatorycapitalaremonitoreddailybytheGroup’smanagement,employingtechniques
basedontheguidelinesdevelopedbytheBaselCommitteeasimplementedbytheReserveBankofZimbabwe(the“RBZ”),forsupervisorypurposesforthebankingsubsidiaries.TherequiredinformationisfiledwiththeRBZonaquarterlybasis.
ItistheintentionoftheGrouptomaintainaratiooftotalregulatorycapitaltoitsrisk-weightedassets(the“CapitalAdequacyRatio”)abovetheminimumlevelsetby theReserveBankofZimbabwewhichtakes intoaccount theriskprofileof theGroup.
The regulatory capital requirements are strictly observed whenmanaging economic capital. The banking subsidiaries’
regulatorycapitalisanalysedintothreetiers; •Tier1capital,whichincludesordinarysharecapitalandpremium,retainedprofits,nondistributablereservesandother
regulatoryadjustmentsrelatingtoitemsthatareincludedinequitybutaretreateddifferentlyforcapitaladequacypurposes. •Tier2capital,whichincludesqualifyingsubordinatedliabilities,revaluationreserve,collectiveimpairmentallowancesand
theelementofthefairvaluereserverelatingtounrealisedgainsonequityinstrumentsclassifiedasavailable-for-sale.
•Tier3capitalormarketandoperationalriskcapitalincludesmarketriskcapitalandoperationalriskcapital.Operationalriskincludeslegalrisk.Marketriskcapitalisallocatedtotheriskoflossesintheonandoffbalancesheetpositionarisingfrommovementsinmarketprices.
Variouslimitsareappliedtoelementsofthecapitalbase.Theamountofcapitalqualifyingfortier2capitalcannotexceed
tier 1 capital and thequalifying term subordinated loan capitalmay not exceed 50percent of tier 1 capital. There arealsorestrictionsontheamountofcollectiveimpairmentallowancesthatmaybeincludedaspartoftier2capital.Otherdeductionsfromcapitalincludethecarryingamountsofinvestmentsinsubsidiariesthatarenotincludedintheregulatoryconsolidation,investmentinthecapitalofotherbanksandcertainotherregulatoryitems.
The Group’s operations are categorised as either banking or trading book, and risk weighted assets are determined
accordingtospecifiedrequirementsthatseektoreflectthevaryinglevelsorriskattachedtoassetsandoffbalancesheetexposures.
TheGroup’spolicyistomaintainastrongcapitalbasesoastomaintaininvestor,creditorandmarketconfidenceandto
sustain futuredevelopmentof thebusiness.Overall, theGrouprecognisestheneedtomaintainabalancebetweenthehigherreturnsthatmightbepossiblewithgreatergearingandtheadvantagesandsecurityaffordedbyasoundcapitalposition. TheGroup and its individually regulated operations have always compliedwith all externally imposed capitalrequirementsthroughouttheperiod.
TheSecuritiesCommissionofZimbabwe(“SECZ”)setsandmonitorscapitalrequirementsforthestockbrokingsubsidiary
andtheInsuranceandPensionsCommission(“IPEC”)setsandmonitorscapitalrequirementsfortheinsurancesubsidiaries.
The following subsidiaries have their capital regulated by the regulatory authorities:
Minimum Net Regulatory capital Regulatory Authority required Capital Total Equity Company US$ US$ US$ As at 31 December 2017 FBCBankLimited RBZ 25000000 75188472 77936562 FBCBuildingSociety RBZ 20000000 47392883 47503334 FBCReinsuranceLimited IPEC 7500000 13626886 13626887 FBCSecurities(Private)Limited SECZ 150000 1054128 1054129 FBCInsuranceCompany(Private)Limited IPEC 5000000 7367424 7367425 MicroplanFinancialServices(Private)Limited RBZ 25000 9542669 9542669 As at 31 December 2016 FBCBankLimited RBZ 25000000 63509604 65066009 FBCBuildingSociety RBZ 20000000 41153844 41271010 FBCReinsuranceLimited IPEC 1500000 12952212 12952212 FBCSecurities(Private)Limited SECZ 150000 622937 622937 EagleInsuranceCompany(Private)Limited IPEC 1500000 6532692 6532692 MicroplanFinancialServices(Private)Limited RBZ 25000 7055800 7055800 31.7 Reputational risk Reputational risk refers to the riskofdamage to theGroup’s image,whichmayaffect itsability to retainandgenerate
business.TheGroupmanagesreputationalriskbyensuringthatbusinessisconductedinaccordancewiththelegalandregulatoryrequirements.Inaddition,theGroup’scorporategovernancestructureconformstointernationalstandards.TheGroupalsohassystemsinplacetomonitorcustomerservicesatisfactionlevelsaswellasprocessestoresolvecustomerqueriesandcomplaints.
31.8 Legal and compliance risk LegalandcomplianceriskistheriskthatarisesduetotheGroup’sfailuretoadheretolegalandregulatoryobligations.
TheGroupmanages this risk throughdedicated Legal andCompliance units, anddeliberations by itsBoardRisk andComplianceCommittee.
31.9 Strategic risk StrategicriskreferstothepotentialforopportunitylossarisingfromfailuretooptimisetheearningspotentialoftheGroup.
TheBoardapproves theGroup’sstrategyas formulatedby topmanagement,while theChiefExecutiveOfficerhas theoverallresponsibilityofstrategyimplementation.TheBoardconductsaquarterlyreviewofthestrategy’sperformanceanditscontinuedapplicability.
31.2 Liquidity risk (continued) Up to 3 months Over Contractual maturity analysis 3 months to 1 year 1 year Total on balance sheet items as at 31 December 2016 US$ US$ US$ US$
Liabilities Depositsfromcustomers 235900935 14282988 5082749 255266672
Depositsfromotherbanks 111789264 3061558 - 114850822 Borrowings 10903911 62056275 12423749 85383935 Insuranceliabilities 2075892 - 7395042 9470934 Currentincometaxliabilities 878275 - - 878275 Tradeandotherliabilities 1511070 12640072 1170640 15321782 Total liabilities - (contractual maturity) 363 059 347 92 040 893 26 072 180 481 172 420 Assets held for managing liquidity risk (contractual maturity dates) Balanceswithbanksandcash 184244019 - - 184244019 Financialassetsheldtomaturity 13039237 33665203 28374041 75078481 Loansandadvancestocustomers 33067350 106383477 137083986 276534813 Bondsanddebentures - - 9139955 9139955 Tradeandotherreceivablesincludinginsurance receivables 1280318 7839919 - 9120237 Financialassetsatfairvaluethroughprofitorloss 140281 875896 85996 1102173 Availableforsalefinancialassets 862886 - - 862886 Otherassets 926055 4526820 2389993 7842868
233 560 146 153 291 315 177 073 971 563 925 432 Liquidity gap (129 499 201) 61 250 422 151 001 791 82 753 012 Cumulative liquidity gap - on balance sheet (129 499 201) ( 68 248 779) 82 753 012 -
Offbalancesheetitems Liabilities Guaranteesandlettersofcredit - 5966488 - 5966488 Commitmentstolend 13378399 - - 13378399
Total liabilities 13 378 399 5 966 488 - 19 344 887 Liquidity gap (13 378 399) (5 966 488) - 63 408 125
Cumulativeliquiditygap-onandoffbalancesheet (142877600) (87593666) 63408125 -
TheGroupdeterminesidealweightsformaturitybucketswhichareusedtobenchmarktheactualmaturityprofile.Maturitymismatchesacrossthetimebucketsaremanagedthroughthetenorofnewadvancesandtheprofileoftimedeposits.
31.3 Market risk Marketriskistheriskoffinanciallossfromonandoffbalancesheetpositionsarisingfromadversemovementsin market
pricessuchasinterestrates,foreignexchangeratesandequityprices. Themarketriskforthetradingportfolioismanagedandmonitoredbasedonacollectionofriskmanagementmethodologies
toassessmarketriskincludingValue–at–Risk(“VaR”)methodologythatreflectstheinterdependencybetweenriskvariables,stresstesting,losstriggersandtraditionalriskmanagementmeasures.Non–tradingpositionsaremanagedandmonitoredusingothersensitivityanalysis.
31.3.1 Interest rate risk Interestrateriskarisesfromthepossibilitythatchangesininterestrateswillaffectfuturecashflowsorthefairvaluesof
financialinstruments.Theinterestrateriskprofileisassessedregularlybasedonthefundamentaltrendsininterestrates,economic developments and technical analysis. TheGroup’s policy is tomonitor positions on a daily basis to ensurepositionsaremaintainedwithintheestablishedlimits.
Interestrateriskexposurestemsfromassetsandliabilitiesmaturingorbeingrepricedatdifferenttimes.Forexample:
i) Liabilitiesmaymaturebeforeassets,necessitatingtherolloverofsuchliabilitiesuntilsufficientquantityofassetsmaturetorepaytheliabilities.Theriskliesinthatinterestratesmayriseandthatexpensivefundsmayhavetobeusedtofundassetsthatareyieldinglowerreturns.
ii) Assetsmaymaturebeforeliabilitiesdo,inwhichcasetheyhavetobereinvesteduntiltheyareneededtorepaythe
liabilities.Ifinterestratesfallthere-investmentmaybemadeatratesbelowthosebeingpaidontheliabilitieswaitingtoberetired.
ThisriskismanagedbyALCOthroughtheanalysisofinterestratesensitiveassetsandliabilities,usingtoolssuchasValue
atRisk(“VAR”),ScenarioAnalysisandGapAnalysis. Scenario analysis of net interest income TheGroup’stradingbookisaffectedbyinterestratemovements.Thedesiredinterestrateriskprofileisachievedthrough
effectivemanagementofthestatementoffinancialpositioncomposition.WhenanalyzingtheimpactofashiftintheyieldcurveontheGroup’sinterestincome,theGrouprecognizesthatthesensitivityofchangesintheinterestrateenvironmentvariesbyassetandliabilityclass.Scenariosaredefinedbythemagnitudeoftheyieldcurveshiftassumed.Analysisofthevariousscenariosisthenconductedtogiveanappreciationofthedistributionoffuturenetinterestincomeandeconomicvalueofequityaswellastheirrespectiveexpectedvalues.
31.3.2 Currency risk TheGroup isadiversified localCompanyand itsmajor tradingand reportingcurrency is theUS$.Due to theexisting
multi-regimecurrencies,theGroupisexposedtovariouscurrencyexposuresprimarilywithrespecttotheSouthAfricanrand,Botswanapula,BritishpoundandtheEuro,mainlyduetothecashholdingandswitchtransactionsinthebankingsubsidiary.
Foreignexchangerisksarisefromfuturecommercialtransactionsandrecognisedassetsandliabilities.Thisistheriskfrom
movementintherelativeratesofexchangebetweencurrencies.TheriskiscontrolledthroughcontrolofopenpositionasperALCOdirectives,ReserveBankofZimbabwerequirementsandanalysisofthemarket.TheGroupmanagesthisriskthroughmonitoringlongandshortpositionsandassessingthelikelyimpactofforecastedmovementsinexchangeratesontheGroup’sprofitability.
31.3.3 Equity Price risk TheGroupisexposedtoequitypriceriskbecauseofinvestmentsheldbytheGroupandclassifiedontheconsolidated
statementoffinancialpositionatfairvaluethroughprofitor loss.TheGroupisnotexposedtocommoditypricerisk.Tomanageitspriceriskarisingfrominvestmentsinequitysecurities,theGroupdiversifiesitsportfolio.
31.4 Settlement risk TheGroup’sactivitiesmaygiverisetoriskatthetimeofsettlementoftransactionsandtrades.Settlementriskistheriskof
lossduetothefailureofacounterpartytohonourtheirobligationtodelivercash,securitiesorotherassetsascontractuallyagreed.
Forcertaintypesoftransactions,theGroupmitigatesthisriskbyconductingsettlementsthroughasettlement/clearingagent
toensurethattradesaresettledonlywhenbothpartieshavefulfilledtheircontractualsettlementobligations.Settlementlimitsformpartofthecreditapproval/limitmonitoringprocess.
31.5 Operating risk Operationalriskistheriskoflossarisingfromthepotentialinadequateinformationsystems,technologicalfailures,breaches
ininternalcontrols,fraud,unforeseencatastrophes,orotheroperationalproblemsthatmayresult inunexpectedlosses.Operationalriskexistsinallproductsandbusinessactivities.
Group’s approach to managing operational risk The Group’s approach is that business activities are undertaken in accordance with fundamental control principles
of operational risk identification, clear documentationof control procedures, segregationof duties, authorisation, closemonitoringofrisklimits,monitoringofassetsuse,reconciliationoftransactionsandcompliance.
Operational risk framework and governance TheBoardhasultimateresponsibilityforensuringeffectivemanagementofoperationalrisk.Thisfunctionisimplemented
throughtheBoardRiskandComplianceCommitteeatGrouplevelwhichmeetsonaquarterlybasistoreviewallmajorrisksincludingoperationalrisks.ThisCommitteeservesastheoversightbodyintheapplicationoftheGroup’soperationalriskmanagementframework,includingbusinesscontinuitymanagement.Subsidiarieshaveboardcommitteesresponsibleforensuringrobustoperationalriskmanagementframeworks.OtherGroupmanagementcommitteeswhichreporttoGroupExecutive Committee include the Group New Product Committee, Group IT Steering Committee and Group BusinessContinuityCommittee.
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
11
32 Statement of Compliance TheGroupcomplieswiththefollowingstatutesinteralia:- The Banking Act (Chapter 24:20) and Banking Regulations, Statutory Instrument 205 of 2000; BankUse Promotion &
SuppressionofMoneyLaundering(Chapter24:24);ExchangeControlAct(Chapter22:05);theNationalPaymentsSystemsAct(Chapter24:23);InsuranceAct(Chapter24:07)andtheCompaniesAct(Chapter-24:03).Inaddition,theGroupalsocomplieswiththeReserveBankofZimbabweandInsuranceandPensionsCommission’sdirectivesonliquiditymanagement, capitaladequacyaswellasprudentiallendingguidelines.
33 INTERNATIONAL CREDIT RATINGS Allbankingandinsurancesubsidiarieshavetheircreditratingsreviewedannuallybyaninternationalcreditratingagency,
GlobalCreditRating,exceptforthemicrolendingunitwhichhasitsratingreviewedbyMicroFinanzaratingagency.Theratingsareasillustratedbelow;
Subsidiary 2017 2016 2015 2014 2013 2012
FBCBankLimited BBB+ BBB+ A- A- A- A-
FBCReinsuranceLimited A- A- A- A- A- A-
FBCBuildingSociety BBB- BBB- BBB- BBB- BBB- BBB-
FBCInsuranceCompanyLimited A- A- A- BBB- BBB- BB+
MicroplanFinancialServicesLimited BBB BBB- N/A N/A N/A N/A
34 SUBSEQUENT EVENTS Dividend Declared Noticeisherebygiventhatafinaldividendof0.8417UScentspersharewasdeclaredbytheBoardon671949927ordinary
sharesinissueon28March2018inrespectoftheyearended31December2017.ThedividendispayabletoShareholdersregisteredinthebooksofthecompanyatthecloseofbusinessonFriday,13April2018.Thesharesofthecompanywillbetradedcum-dividendontheZimbabweStockExchangeuptothemarketdayof6April2018andex-dividendasfrom9April2018.DividendpaymentwillbemadetoShareholdersonorabout24April2018.
35 CORPORATE GOVERNANCE TheBoardiscommittedtotheprinciplesofopenness,integrityandaccountability.Itrecognisesthedevelopingnatureof
corporategovernanceandassessesitscompliancewithlocalandinternationalgenerallyacceptedcorporategovernancepracticesonanongoingbasisthroughitsvarioussubcommittees.
TheBoardisresponsibletotheshareholdersforsettingthedirectionoftheGroupthroughtheestablishmentofstrategies,
objectivesandkeypolicies.TheBoardmonitorstheimplementationofthesepoliciesthroughastructuredapproachtoreportingandaccountability.
TheBoardmeetsregularly,withaminimumoffourscheduledmeetingsannually.ToassisttheBoardinthedischargeofitsresponsibilitiesanumberofcommitteeshavebeenestablished,ofwhichthefollowingarethemostsignificant:(i)BoardAuditCommittee,(ii)BoardHumanResourcesandRemunerationCommittee,(iii)BoardFinanceandStrategyCommittee(iv)BoardRiskandComplianceCommittee(v)BoardMarketingandPublicRelationsCommittee.
Information and
network security
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35 CORPORATE GOVERNANCEBoard member Main Board Board Audit Board HR Board Finance &
StrategyBoard Risk & Compliance
Board Marketing and PR
Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4 Q1 Q2 Q3 Q4
HerbertNkala √ √ √ √ n/a n/a n/a n/a √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
ChipoMtasa √ √ √ √ √ √ √ √ n/a n/a n/a n/a x √ √ √ n/a n/a n/a n/a √ x √ √
JohnMushayavanhu √ √ √ √ n/a n/a n/a n/a √ √ n/a n/a √ √ √ √ √ √ n/a n/a √ √ √ √
KletoChiketsani √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
GertrudeChikwava √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a √ √ √ √ √ √ √ √ √ √ √ √
PhillipChiradza √ x √ √ n/a n/a √ √ √ √ √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
FelixGwandekwande √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
FranklinKennedy √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a √ √ n/a n/a √ √ n/a n/a n/a n/a
TrynosKufazvinei √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
CanadaMalunga √ √ √ √ √ √ √ √ n/a n/a n/a n/a √ √ √ n/a n/a n/a √ √ √ √ n/a n/a
GodfreyNhemachena √ √ √ √ √ √ √ √ √ √ √ √ n/a n/a n/a n/a √ √ n/a n/a n/a n/a √ √
WebsterRusere √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a n/a
RobinVela √ √ √ √ n/a n/a n/a n/a n/a n/a n/a n/a √ √ √ x √ √ √ √ n/a n/a n/a n/a
Key√-Attended x-Apologies Q1-Quarter1 Q2-Quarter2n/a-notapplicable Q3-Quarter3 Q4-Quarter4
By order of the Board
Tichaona K. Mabeza GROUP COMPANY SECRETARY
28 March 2018
Audit opinion Thesefinancialresultsshouldbereadinconjunctionwiththecompletesetoffinancialstatementsfortheyearended31December2017,whichhavebeenauditedbyDeloitte&Touchewhohaveissuedanunmodifiedauditopinionthereon.Theauditor’sreportalsocarrieskeyauditmatters(“KAM”)outliningareasoftheauditprocessthatrequiredthesignificantattentionoftheauditor.Theseincluded,revenuerecognitionandtheautomatednatureofinterestcalculations,impairmentofloansandadvances,recoverabilityofoutstandingpremiumsandthevaluationofIncurredButNotReported(IBNR)claimsprovision.Theauditor’sreportonthesefinancialresultsisavailableforinspectionattheCompany’sregisteredoffice.
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE CONSOLIDATED FINANCIAL RESULTS (cnt’d)FOR THE YEAR ENDED 31 DECEMBER 2017
Directors: HerbertNkala(Chairman),ChipoMtasa(ViceChairperson),JohnMushayavanhu*(GroupChiefExecutive),CanadaMalunga,JamesChiuta,FelixGwandekwande*,FranklinHKennedy,GertrudeSChikwava,GodfreyGNhemachena,KletoChiketsani*,PhilipMChiradza,RobinVela,TrynosKufazvinei*(DeputyGroupChiefExecutiveandGroupFinanceDirector),WebsterRusere*(*Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
12
STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2017 Audited Audited 31 Dec 2017 31 Dec 2016 Notes US$ US$ASSETS Balanceswithbanksandcash 1 169588201 154083491Financialassetsatfairvaluethroughprofitorloss 548844 548844Financialassetsheldtomaturity 2 68642560 55028821Loansandadvancestocustomers 3 222128898 202304569Bondsanddebentures 27633714 9139955Prepaymentsandotherassets 4 18902002 8858140Amountsduefromgroupcompanies 16778958 12495374Deferredtaxasset 4394070 5171167Investmentproperty 7666400 3685457Intangibleassets 1123976 1388385Propertyandequipment 5 20656227 17529675 Total assets 558 063 850 470 233 878 EQUITY AND LIABILITIES Liabilities Depositsfromcustomers 6 370225135 225600487Depositsfromotherfinancialinstitutions 6.1 89944995 99375667Linesofcredit 6.2 950313 72054126Currentincometaxliability 68163 407059Tradeandotherpayables 7 18938680 7730530 Total liabilities 480 127 286 405 167 869 Equity Sharecapital 18502313 18502313Sharepremium 13197687 13197687Retainedearnings 43317214 31337984Otherreserves 2919350 2028025 Total equity 77 936 564 65 066 009 Total equity and liabilities 558 063 850 470 233 878
STATEMENT OF CASH FLOwSFOR THE YEAR ENDED 31 DECEMBER 2017 Audited Audited 31 Dec 2017 31 Dec 2016 Notes US$ US$
Cashflowfromoperatingactivities Profitbeforeincometax 16559654 12152426 Adjustments for non cash items: Impairmentallowanceonloansandadvances 3.2 6342964 6453789Noncashrecoveries (1957037) (1243636)Fairvaluechangesoninvestmentproperty 12 (2023907) 5320Amortisation 397254 330329Depreciation 5 1901950 1646612Loss/(profit)ondisposalofpropertyandequipment 35442 (35400) Net cash generated before changes in operating assets and liabilities 21 256 320 19 309 440 Increaseinfinancialassetsheldtomaturity (13613739) (5404788)(Increase)/decreaseinloansandadvancestocustomers (26167293) 105802Increaseinprepaymentsandotherassets (10043861) (5312637)Increaseinamountsduefromgroupcompanies (4283583) (5924605)Increaseinbondsanddebentures (18493760) (437635)Increaseindepositsfromcustomers 144624648 50244929(Decrease)/increaseindepositsfromotherfinancialinstitutions (9430672) 2010436Increaseinotherliabilities 11208150 2810178 95056210 57401120 Incometaxpaid (4451337) (3641762) Net cash generated from /(used in) operating activities 90 604 873 53 759 358 Cashflowsfrominvestingactivities Purchaseofmarketablesecurities - (146494)Proceedsfromsaleofpropertyandequipment 27311 35400Purchaseofintangibleassets (132846) (1205014)Purchaseofpropertyandequipment (3890815) (2173828) Net cash used in investing activities (3 996 350) (3 489 936) Cashflowsfromfinancingactivities Proceedsfromissueofequityinstruments - 11000000Proceedsreceivedfromlinesofcredit - 7773137Repaymentsoflinesofcredit (71103813) (1622000) Netcashgeneratedfrom/(usedin)financingactivities (71103813) 17151137 Net increase /(decrease) in cash and cash equivalents 15 504 710 67 420 559 Cashandcashequivalentsatbeginningofyear 154083491 86662932 Cash and cash equivalents at the end of year 1 169 588 201 154 083 491
Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$1 BALANCES wITH BANKS AND CASH Balances with Reserve Bank of Zimbabwe Currentaccountbalances 134513858 95053187 Balances with other banks and cash Nostroaccounts 21077848 24619103 Notesandcoins 4993005 5659445 Otherbankbalances 9003490 28751756 35074343 59030304 Cash and cash equivalents 169 588 201 154 083 491 2 FINANCIAL ASSETS HELD TO MATURITY Openmarkettreasurybills 67223247 54266045 Accruedinterest 1419313 762776 68 642 560 55 028 821 2.1 Maturityanalysisoffinancialassetsheldtomaturity Maturingbetween0to90days 9390057 4762776 Maturingbetween90to180days 7169384 11419375 Maturingbetween180to365days 7819575 19574991 Maturinginmorethan365days 44263544 19271679 68 642 560 55 028 821 3 LOANS AND ADVANCES TO CUSTOMERS Maturingwithin1year 75316750 81789413 Maturingafter1yearbutwithin5years 158237761 134690416 Grosscarryingamount 233554511 216479829 Impairmentallowance(note3.2) (11425613) (14175260) Netloansandadvances 222 128 898 202 304 569 3.1 Loans concentration by sector 2017 2016 Sector of the economy gross total percentage gross total percentage Agriculture 7237145 3% 21724261 10% Communication 3228819 1% 8689704 4% Construction 10057184 4% 4344852 2% Distribution 13204414 6% 26069113 12% Individuals 77087292 33% 52138225 24% Localauthorities 11938629 5% 10862130 5% Manufacturing 28677398 12% 54310652 25% Mining 16214510 7% 15206982 7% Otherservices 41315333 18% 10099354 5% Wholesale 24593787 11% 13034556 6% Gross value of loans and advances 233 554 511 100% 216 479 829 100% lessallowanceforimpairment (11425613) (14175260) Net loans and advances 222 128 898 202 304 569 Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$3.2 Movement in impairment allowance Balanceatthebeginningoftheperiod 14175260 15146584 Increaseinimpairmentallowances 6342964 6453789 Changesininterestinsuspence (1735247) (1436060) Amountswrittenoff (7357364) (5989053) Balance at end period 11 425 613 14 175 260 4 PREPAYMENTS AND OTHER ASSETS Prepayments 5600129 925042 Commissionreceivable - 1711042 Mastercard,VisaandZimSwitchcollateral 4664519 2574983 Insurancereceivables 206293 206293 Otherreceivables 8431061 3440780 18 902 002 8 858 140
STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2017 Audited Audited 31 Dec 2017 31 Dec 2016 Notes US$ US$ Interestandsimilarincome 9 42748672 44419716Interestandsimilarexpense 10 (15479196) (19211684) Net interest income 27 269 476 25 208 032 Dealingandtradingincome 1367267 517641 Feeandcommissionincome 11 25862468 20716666 Otheroperatingincome 12 5020261 1285742 Total net income 59 519 472 47 728 081 Impairmentallowanceonloansandadvances 3.2 (6342964) (6453789) Administrativeexpenses 13 (36616854) (29121866) Profitbeforeincometax 16559654 12152426 Incometaxexpense (4580424) (1556479) Profitfortheperiod 11979230 10595947 Other comprehensive income Itemsthatmaysubsequentlybereclassifiedtoprofitorloss: Gainsonpropertyrevaluation 1200438Taxrelatingtoothercomprehensiveincome (309113) - Other comprehensive income (net of income tax) 891 325 - Total comprehensive income for the period 12 870 555 10 595 947
Share Share Retained Revaluation Total capital premium earnings reserve equity US$ US$ US$ US$ US$
Balance as at 1 January 2016 18 500 925 2 199 075 20 742 037 1 625 675 43 067 712 Profitfortheyear - - 10595947 - 10595947 Other comprehensive income: Fairvaluegainonfinancialassets - - - 402350 402350 Total comprehensive income - - 10 595 947 402 350 10 998 297 Transaction with owners: Shareissue 1388 10998612 - - 11000000 Balance as at 31 December 2016 18 502 313 13 197 687 31 337 984 2 028 025 65 066 009 Profitfortheyear - - 11979230 - 11979230 Other comprehensive income: Revaluationofpropertyandequipment - - - 891325 891325 Transaction with owners: Shareissue - - - - - Balance as at 31 December 2017 18 502 313 13 197 687 43 317 214 2 919 350 77 936 564
STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2017
NOTES TO THE FINANCIAL RESULTSFOR THE YEAR ENDED 31 DECEMBER 2017
Directors: Takabvakure E. Mutunhu (Chairman), webster Rusere (Managing Director), Garikai Bera, David .w. Birch, Trynos Kufazvinei, Martin Makonese (Executive), Theresa Mazoyo, Agrippa G.R Mugwagwa (Executive), John Mushayavanhu, Mercy Ndoro, Morgan Nzwere, Patrick Takawira (Executive), Abel Magwaza (Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
13
Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$4.1 Maturity analysis of other assets Maturingwithin1year 14031190 6076864 Maturingafter1yearbutwithin5years 4870812 2781276 18 902 002 8 858 140 5 PROPERTY AND EQUIPMENT Carryingamountatthebeginningoftheyear 17529675 17002459 Additions 3890815 2173828 Disposals (511574) (85698) Reversalofdepreciationondisposal/revaluation 448823 85698 Revaluation 1200438 - Depreciationchargefortheperiod (1901950) (1646612) Carryingamountattheendoftheyear 20656227 17529675 6 DEPOSITS FROM CUSTOMERS Amountsduetocustomersbytype: Demanddeposits 264126159 141257174 Promissorynotes 52691470 29644300 Timedeposits 53407506 54699013 370225135 225600487 6.1 Depositsfromotherfinancialinstitutions Moneymarketdeposits 89944995 99375667 6.2 LINES OF CREDIT EasternandSouthernAfricanTradeandDevelopmentBank(“PTABank”) - 10000000 AfricanExport-ImportBank - 61051730 TheZimbabweAgricultureDevelopmentTrust(“ZADT”) 880313 1002396 TheReserveBankofZimbabwe-Women’sEmpowermentFund 70000 - 950313 72054126 Total Deposits 461 120 443 397 030 280 6.3 Deposits concentration (excluding lines of credit) 31 Dec 2017 Percentage 31 Dec 2016 Percentage Agriculture 18406805 4% 13041693 4% Construction 8863145 2% 6180589 2% Wholesaleandretailtrade 101237429 22% 71729312 22% Publicsector 27610208 6% 19562540 6% Manufacturing 56013610 12% 36283386 11% Telecommunication 23805104 5% 9781270 3% Transport 20543660 4% 6861105 2% Individuals 55220416 12% 39125079 12% Financialservices 89944995 20% 99375667 31% Mining 51613610 11% 15883386 5% Other 6911148 2% 7152127 2% 460170130 100% 324976154 100% Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$6.4 Maturity analysis (excluding lines of credit) Maturingwithin1year 458020130 324976154 Maturingafter1yearbutwithin5years 2150000 - 460170130 324976154 7 Trade and other payables Provisions 4244078 4039306 Accruedexpenses 11757846 528424 Deferredincome 2936756 3162800 18938680 7730530 8 CAPITAL ADEQUACY OrdinaryShareCapital 18502313 18502313 Sharepremuim 13197687 13197687 Retainedearnings 43317214 31337984 Capitalallocatedformarketandoperationalrisk (9852623) (9223835) Advancestoinsiders (2748090) (1559084) Tier 1 capital 62 416 501 52 255 065 Revaluationreserve 2919350 2028025 Tier 2 capital 2919350 2028025 Tier 1 & 2 capital 65335851 54283090 Tier3capitalallocatedformarketandoperationalrisk 9852623 9223835 75188474 63506925 Riskweightedassets 412280311 293929876 Tier1Ratio(%) 15.14% 17.78% Tier2Ratio(%) 0.71% 0.69% Tier3Ratio(%) 2.39% 3.14% Capitaladequacy(%) 18.24% 21.61% 9 INTEREST INCOME Loansandadvancestobanksandotherfinancialinstitutions 2533744 2940803 Loansandadvancestocustomers 28067271 30516659 Banker’sacceptancesandtradablebills 11074771 9837939 Bondsanddebentures 1072886 1124315 42748672 44419716 10 INTEREST EXPENSE Depositsfromotherfinancialinstitutions 5664589 4879436 Demanddeposits 767208 695502 Linesofcredit 4414371 9084905 Timedeposits 4633028 4551841 15479196 19211684 11 FEES AND COMMISSION INCOME Retailservicesfees 25083523 20147646 Corporatebankingservicefees 371750 292935 Financialguaranteecontractsissued 104037 166421 Investmentbankingfees 303158 109664 25862468 20716666 12 OTHER OPERATING INCOME Rentalincome 59521 151537 Profitondisposalofpropertyandequipment - 35400 Fairvaluechangesoninvestmentproperty 2023907 (5320) Sundrymanagementfees 313881 13571 Baddebtsrecoveries 2622952 1090554 5020261 128574213 ADMINISTRATION EXPENSES Operatingexpenses 14433347 12178313 Staffcosts(note14) 17059834 12080696 Directors’remuneration(note14.1) 1708415 1644054 Depreciation 1901950 1646612 Amortisation 397254 330329 Operatingleasepayment 913605 935496 Auditfees 202449 306366 36616854 29121866
Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$
14 Staffcosts Salariesandallowances 15842461 10903645 Socialsecurity 255341 244666 Pensioncontribution 962032 932385 17059834 12080696 14.1 Directors’ remuneration Boardfees 144597 129070 Forservicesasmanagement 1546959 1501902 Otheremoluments 16859 13082 1708415 1644054
15 CAPITAL COMMITMENTS Capitalexpenditureauthorizedbutnotyetcontractedfor 38403074 14463799 16 CONTINGENT LIABILITIES Guaranteesandlettersofcredit 8002919 4328256
TheamountoftheselettersofcreditandguaranteesrepresentstheBank’s maximumexposureandnomateriallossesareanticipatedfromthesetransactions. 17 EXPOSURE TO CREDIT RISK Grosscarryingamountofloansandadvancestocustomers Past due and impaired Grade8:impaired 1906240 2192095 Grade9:impaired 80023 2820766 Grade10:impaired 7691589 4419566 Gross amount, past due and impaired 9 677 852 9 432 427 Allowanceforimpairment (2765010) (7462057) Carrying amount, past due and impaired 6 912 842 1 970 370 Past due but not impaired Grade4-7: 59473380 71418633 Neither past due nor impaired Grade1-3: 164403279 135628769 Gross amount, not impaired 223 876 659 207 047 402 Allowanceforimpairment (8660603) (6713203) Carrying amount, not impaired 215 216 056 200 334 199 Total carrying amount (loans and advances) 222 128 898 202 304 569
18 LIQUIDITY PROFILING Liquidityprofilingasat31December2017
Upto 3 months Over On balance sheet items 3 months to 1 year 1 year Total US$ US$ US$ US$ Liabilities Depositsfromcustomers 346614429 21460706 2150000 370225135 Depositsfromotherfinancialinstitutions 71971447 15973548 2000000 89944995 Linesofcredit - 900313 50000 950313 Currentincometaxliabilities 68163 - - 68163 Otherliabilities 7664192 11274488 - 18938680 Total liabilities - (contractual maturity) 426 318 231 49 609 055 4 200 000 480 127 286 Assets held for managing liquidity risk Balanceswithotherbanksandcash 165588201 4000000 - 169588201 Financialassetsheldtomaturity 9390057 14988959 44263544 68642560 Financialassetsatfairvaluethroughprofitorloss - - 548844 548844 Loansandadvancestocustomers 50087598 21468418 150572882 222128898 Bondsanddebentures - 18500000 9133714 27633714 Otherassets(excludingprepayments) 8431061 - 4870812 13301873 Total assets - (contractual maturity) 233 496 917 58 957 377 209 389 796 501 844 090 Liquidity gap (192 821 314) 9 348 322 205 189 796 21 716 804 Cumulative liquidity gap - on balance sheet (192 821 314) (183 472 992) 21 716 804 - Offbalancesheetitems Liabilities Guaranteesandlettersofcredit - 8002919 - 8002919 Commitmentstolend 12731209 - - 12731209 Total liabilities 12 731 209 8 002 919 - 20 734 128 Liquidity gap (205 552 523) 1 345 403 205 189 796 982 676 Cumulativeliquiditygap-onandoffbalancesheet (205552523) (204207120) 982676 - Liquidityprofilingasat31December2016 1 month to 3 months Over On balance sheet items 3 months to 1 year 1 year Total US$ US$ US$ US$ Liabilities Depositsfromcustomers 211218578 14272484 109425 225600487 Depositsfromotherfinancialinstitutions 96314108 3061559 - 99375667 Linesofcredit 10652396 61401730 - 72054126 Currentincometaxliabilities 407059 - - 407059 Otherliabilities 2625870 5104660 - 7730530 Total liabilities - (contractual maturity) 321 218 011 83 840 433 109 425 405 167 869 Assetsheldformanagingliquidityrisk Balanceswithotherbanksandcash 154083491 - - 154083491 Financialassetsheldtomaturity 4762776 30994366 19271679 55028821 Financialassetsatfairvaluethroughprofitorloss - - 548844 548844 Loansandadvancestocustomers 28658912 86625942 87019715 202304569 Bondsanddebentures - - 9139955 9139955 Otherassets(excludingprepayments) - 1917335 2574983 4492318 Total assets - (contractual maturity) 187 505 179 119 537 643 118 555 176 425 597 998 Liquidity gap (133 712 832) 35 697 210 118 445 751 20 430 129 Cumulative liquidity gap - on balance sheet (133 712 832) (98 015 622) 20 430 129 - Offbalancesheetitems Liabilities Guaranteesandlettersofcredit - 5966488 - 5966488 Commitmentstolend 12423399 - - 12423399 Total liabilities 12 423 399 5 966 488 - 18 389 887 Liquidity gap (146 136 231) 29 730 722 118 445 751 2 040 242 Cumulativeliquiditygap-onandoffbalancesheet (146136231) (116405509) 2040242 -
Directors: Takabvakure E. Mutunhu (Chairman), webster Rusere (Managing Director), Garikai Bera, David .w. Birch, Trynos Kufazvinei, Martin Makonese (Executive), Theresa Mazoyo, Agrippa G.R Mugwagwa (Executive), John Mushayavanhu, Mercy Ndoro, Morgan Nzwere, Patrick Takawira (Executive), Abel Magwaza (Executive)
NOTES TO THE FINANCIAL RESULTSFOR THE YEAR ENDED 31 DECEMBER 2017
Audited Financial ResultsFor The Year Ended 31 December 2017
14
19 INTEREST RATE REPRICING AND GAP ANALYSIS Total position as at 31 December 2017 Over 365 Non-interest 0 - 30 days 31 - 90 days 91-180 days 181-365 days days bearing Total US$ US$ US$ US$ US$ US$ US$
Cashandcashequivalents 5000000 4000000 - - - 160588201 169588201 Financialassetsheldtomaturity 5154833 4235224 7169384 7819575 44263544 - 68642560 Financialassetsatfair valuethroughprofitorloss - - - - - 548844 548844 Loansandadvancestocustomers 5101838 1151897 6103848 59200432 150570883 - 222128898 Bondsanddebentures - - - 18500000 9133714 - 27633714 Prepaymentsandotherassets - - - - - 18902002 18902002 Amountsduefromgroupcompanies - - - - - 16778958 16778958 Investmentproperty - - - - - 7666400 7666400 Deferredtaxasset - - - - - 4394070 4394070 Intangibleassets - - - - - 1123976 1123976 Propertyandequipment - - - - - 20656227 20656227
Totalassets 15256671 9387121 13273232 85520007 203968141 230658678 558063850 Depositsfromcustomers 35210485 47189877 14693396 6767310 2150000 264214067 370225135 Depositsfromotherfinancialinstitutions 46836338 15451639 9683469 15973549 2000000 - 89944995 Linesofcredit - - - 900313 50000 - 950313 Otherliabilities - - - - - 18938680 18938680 Currentincometaxliabilities - - - - - 68163 68163 Capitalandreserves - - - - - 77936564 77936564 Totalliabilities 82046823 62641516 24376865 23641172 4200000 361157474 558063850 Interestraterepricinggap (66790152) (53254395) (11103633) 61878835 199768141 (130498796) - Cumulativeinterestraterepricinggap (66790152) (120044547) (131148180) (69269345) 130498796 - - Total position as at 31 December 2016 Over 365 Non-interest 0 - 30 days 31 - 90 days 91-180 days 181-365 days days bearing Total US$ US$ US$ US$ US$ US$ US$ Cashandcashequivalents 28750000 - - - - 125333491 154083491 Financialassetsheldtomaturity - 4762776 11419375 19574991 19271679 - 55028821 Financialassetsatfair valuethroughprofitorloss - - - - - 548844 548844 Loansandadvancestocustomers 14535698 20777878 14406240 65565038 87019715 - 202304569 Bondsanddebentures - - - - 9139955 - 9139955 Prepaymentsandotherassets - - - - - 8858140 8858140 Amountsduefromgroupcompanies - - - - - 12495374 12495374 Deferredtaxasset - - - - - 3685457 3685457 Investmentproperty - - - - - 5171167 5171167 Intangibleassets - - - - - 1388385 1388385 Propertyandequipment - - - - - 17529675 17529675 - - - Totalassets 43285698 25540654 25825615 85140029 115431349 175010533 470233878 Depositsfromcustomers 55788442 11167549 8184726 13619979 109425 136730366 225600487 Depositsfromotherfinancialinstitutions 72460306 19915914 3937889 3061558 - - 99375667 Linesofcredit 652396 10000000 - 61401730 - - 72054126 Otherliabilities - - - - - 7730530 7730530 Currentincometaxliabilities - - - - - 407059 407059 Capitalandreserves - - - - - 65066009 65066009 Totalliabilities 128901144 41083463 12122615 78083267 109425 209933964 470233878 Interestraterepricinggap (85615446) (15542809) 13703000 7056762 115321924 (34923431) - Cumulativeinterestraterepricinggap (85615446) (101158255) (87455255) (80398493) 34923431 - -
21 VALUE AT RISK Valueatrisk(“VaR”)isastatisticalestimateofthemaximumlossexpectedfromtheBank’stradingbookwithagivendegree
ofconfidenceoveragivenholdingperiod.TheBank’ssystemusestheExponentiallyWeightedMovingAverage(‘’EWMA’’)methodtocompileVaR.Thismethodattachesmoreweight to themost recentdataonmarket risk factors theweightsdecayingexponentiallyaswego further into thepast.TheVaRparametersusedareat95%confidence level,onedayholdingperiodandtendayholdingperiod.
31 December 2017 Valueatrisk(95%)confidencelevel
Asset class Type of risk Present value 1-day holding period 5-day holding period
Currency Exchangerate 551328 7592 11357
TotalportfolioVaR 551328 7592 11357
31December2016
Assetclass
Currency Exchangerate 498625 4251 9206
TotalportfolioVaR 498625 4251 9206
22 RESERVE BANK OF ZIMBABwE (“RBZ”) ONSITE EXAMINATION TheBankhasitscorporategovernanceandriskmanagementprocessesindependentlyauditedbytheReserveBankof
Zimbabwe. Themostrecentinspectionwascarriedoutforthe12monthsto30June2014andtheresultsindicatethattheBank’srisk
managementandcorporategovernancepracticesaresoundasillustratedbelow:
Summaryriskassessmentsystem(“RAS”)ratings
RAS component Latest RAS rating30-06-2014
Overallinherentrisk Moderate
Overallriskmanagementsystems Acceptable
Overallcompositerisk Moderate
FBCBankLimited’sCAMELS*ratingsbyTheReserveBankOfZimbabwe
Camels component Latest RBS ratings30 June 2014
Previous RBS ratings30 September 2008
Capitaladequacy 2 2
Assetquality 3 3
Management 2 2
Earnings 2 2
Liquidity 1 2
Sensitivitytomarketrisk 2 2
Compositerating 2 2
*CAMELS-isanacronymforcapitaladequacy,assetquality,management,earnings,liquidity,andsensitivitytomarket risk.CAMELSratingsystemusesaratingscaleof1-5,where‘1’isstrong,‘2’issatisfactory,‘3’isfair,‘4’isweak,and‘5’ iscritical. *RBS-standsforrisk-basedsupervision.23 INTERNATIONAL CREDIT RATING TheBankhasitscreditratingsreviewedannuallybyaninternationalcreditratingagency,GlobalCreditRatingCompany. TheBankhasaBBB+Creditrating.24 BOARD ATTENDANCE
NAME Executive ("E") / Non Executive Director ("NE")
2017 MAIN BOARD
QUARTER 1
QUARTER 2
QUARTER 3
QUARTER 4
TakabvakureEuwittMutunhu N/E √ √ √ √
JohnMushayavanhu N/E √ √ √ √
GarikaiBera N/E √ √ R R
TrynosKufazvinei N/E √ √ √ √
MartinMakonese E √ √ √ √
MorganNzwere N/E √ √ √ √
WebsterRusere E √ √ √ √
MercyRufaroNdoro N/E √ √ √ √
TheresaMazoyo N/E √ √ √ √
PatrickTakawira E √ √ √ √
AgrippaMugwagwa E √ √ √ √
AbelMagwaza E √ √ √ √
DavidWilliamBirch N/E √ √ R R
Key √-PresentX-AbsentN/E-Non-executivedirectorE-ExecutivedirectorR-Resigned
By Order of the Board
Tichaona Kudakwashe Mabeza Company Secretary 28 March 2018
20 FBC BANK FOREIGN EXCHANGE GAP AS AT 31 DECEMBER 2017 Foreign exchange gap analysis as at 31 December 2017 Base currency EUR BwP GBP TOTAL US$ equivalent US$ US$ US$ US$ Assets Cash 89705 23063 10352 123120 BalanceswithReserveBank 35690 - 2067 37757 Correspondentnostrobalances 71808 136068 36598 244474 Loansandoverdrafts 157 173 11 341 Otherassets 20 16 - 36 Total assets 197 380 159 320 49 028 405 728 Liabilities Depositsfromcustomers 146742 10550 39170 196462 Otherliabilities 8272 49 94 8415 Total liabilities 155 014 10 599 39 264 204 877 Net currency position 42 366 148 721 9 764 200 851 Foreign exchange gap analysis as at 31 December 2016 EUR BwP GBP TOTAL US$ US$ US$ US$ Assets Cash 41434 23857 6024 71315 BalanceswithReserveBank 132806 - - 132806 Correspondentnostrobalances 280483 286176 83315 649974 Loansandoverdrafts 37 199 62 298 Otherassets 2 14 19 35 Total assets 454 762 310 246 89 420 854 428 Liabilities Depositsfromcustomers 62083 51469 59010 172562 Otherliabilities 249275 43 85 249403 Total liabilities 311 358 51 512 59 095 421 965 Net currency position 143 404 258 734 30 325 432 463
NOTES TO THE FINANCIAL RESULTSFOR THE YEAR ENDED 31 DECEMBER 2017
Life
Directors: Takabvakure E. Mutunhu (Chairman), webster Rusere (Managing Director), Garikai Bera, David .w. Birch, Trynos Kufazvinei, Martin Makonese (Executive), Theresa Mazoyo, Agrippa G.R Mugwagwa (Executive), John Mushayavanhu, Mercy Ndoro, Morgan Nzwere, Patrick Takawira (Executive), Abel Magwaza (Executive)
Audited Financial ResultsFor The Year Ended 31 December 2017
15
STATEMENT OF FINANCIAL POSITIONAS AT 31 DECEMBER 2017 Audited Audited 31 Dec 2017 31 Dec 2016 Notes US$ US$Assets Cashandcashequivalents 1 16630727 62171276Financialassetsheldtomaturity 2 40949343 17241384Loansandadvancestocustomers 3 59125283 58413922Inventory 4 6523937 5171336Otherassets 5 1396809 239398Investmentproperties 6 490000 25000Propertyandequipment 7 4767134 4338318Intangibleassets 8 36553 81396Total assets 129 919 786 147 682 030 Liabilities Depositsfrombanks 9.1 5017972 39882130Depositsfromcustomers 9.2 64236828 53889378Borrowings 9.3 2549066 3139988Otherliabilities 10 10612586 9499524Total liabilities 82 416 452 106 411 020 Equity Sharecapital 156175 156175Sharepremium 11110424 11110424Revaluationreserve 113460 93915Retainedearnings 36123275 29910496Total equity 47 503 334 41 271 010 Total equity and liabilities 129 919 786 147 682 030
STATEMENT OF CASH FLOwSFOR THE YEAR ENDED 31 DECEMBER 2017 Audited Audited 31 Dec 2017 31 Dec 2016 Notes US$ US$
CASH FLOw FROM OPERATING ACTIVITIES Surplusfortheyear 9306997 8516850Adjustmentsfor: Depreciationofpropertyandequipment 7 208873 221084Amortisationandimpairmentofintangibleassets 8 44843 76443Impairmentreversalonproperty 7 (1629) -Inventorywritedown 262240 -Lossondisposalofpropertyandequipment - 7133Impairmentallowanceonloansandadvances 3.2 600697 649634Fairvaluegainoninvestmentproperties (16220) -Net cash generated before changes in working capital 10 405 801 9 471 144 Increaseinfinancialassetsheldtomaturity (23707959) (17241384)Increaseinloansandadvancestocustomers (1312058) (1067446)(Increase)/decreaseininventory (1614841) 941318(Increase)/decreaseinotherassets (1606191) 259665(Decrease)/increaseindepositsfrombanks (34864158) 8454680Increaseindepositsfromcustomers 10347450 3731756Increaseinotherliabilities 1128201 5106368Net cash (used in)/generated from operating activities (41 223 755) 9 656 101 CASH FLOw FROM INVESTING ACTIVITIES Purchaseofpropertyandequipment 7 (616515) (135663)Proceedsfromdisposalofpropertyandequipment - 8755Net cash used in investing activities (616 515) (126 908) CASH FLOw FROM FINANCING ACTIVITIES Borrowingsrepayment (606061) (606060)Dividendpaid (3094218) (2275824)Netcashusedinfinancingactivities (3700279) (2881884) Net (decrease)/increase in cash and cash equivalents (45 540 549) 6 647 309 Cashandcashequivalentsatthebeginningoftheyear 62171276 55523967 Cash and cash equivalents at the end of the year 1 16 630 727 62 171 276
NOTES TO THE FINANCIAL RESULTSFOR THE YEAR ENDED 31 DECEMBER 2017
Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$ 1. CASH AND CASH EQUIVALENTS Cashonhand 235882 362615 Cashatbank 7364003 5143816 Interbankshortterminvestments 9030842 56664845 16 630 727 62 171 276 2. FINANCIAL ASSETS HELD TO MATURITY Treasurybills 30859899 17241384 Savingsbonds 10089444 - 40 949 343 17 241 384 2.1 Maturityanalysisoffinancialassetsheldtomaturity Upto1month 2093084 - 1monthto3months 216762 6393267 3monthsto1year 24896620 2670837 1yearto5years 13742877 8177280 40 949 343 17 241 384 3. LOANS AND ADVANCES TO CUSTOMERS Shorttermloanadvances 20240212 23829196 Mortgageloanadvances 41362269 37385683 Gross loans and advances to customers 61 602 481 61 214 879 Allowanceforimpairment (2477198) (2800957) Net loans and advances to customers 59 125 283 58 413 922 3.1 Maturity analysis of loans and advances Upto1month 1390070 1661860 1monthto3months 2780139 3323721 3monthsto1year 10170783 12227531 1yearto5years 17662096 21938750 Over5years 27122195 19262060 59 125 283 58 413 922 3.2 Impairment allowance on loans and advances Balanceatbeginningoftheyear 2800957 2375760 Impairmentchargefortheyear 600697 649634 Suspendedinterest 45647 165479 Amountswrittenoffduringtheyear (970103) (389916) 2 477 198 2 800 957 3.3 Exposure to credit risk Carrying amount 59 125 283 58 413 922 Past due and impaired Grade8:Impaired 649444 490668 Grade9:Impaired 1362675 623042 Grade10:Impaired 2049730 2512742 Grosscarryingamount 4061849 3626452 Allowanceforimpairment (1614242) (1938327) Carrying amount 2 447 607 1 688 125 Neither past due nor impaired Grade4-7:watchlist 6462245 10367822 Grade1-3:lowfairrisk 51078387 47220605 Grosscarryingamount 57540632 57588427 Allowanceforimpairment (862956) (862630) Carrying amount 56 677 676 56 725 797 Total carrying amount 59 125 283 58 413 922
4. INVENTORY Rawmaterials 125368 67719 Workinprogress 4089434 1835080 Completedunits 2309135 3268537 6 523 937 5 171 336 5. OTHER ASSETS Prepayments 706654 85794 Other 690155 153604 1 396 809 239 398
STATEMENT OF COMPREHENSIVE INCOMEFOR THE YEAR ENDED 31 DECEMBER 2017 Audited Audited 31 Dec 2017 31 Dec 2016 Notes US$ US$ Interestincome 11 15149669 14225764Interestexpense 12 (4350444) (4887783)Net interest income 10 799 225 9 337 981 Revenuefrompropertysales 5387808 7001895Costofsales (4212915) (6039694)Net income from property sales 1 174 893 962 201 Feesandcommissionincome 5341344 5283243Feesandcommissionexpense (264775) (159266)Net fees and commission income 5 076 569 5 123 977 Otherincome 13 176800 166284 Total net income 17 227 487 15 590 443 Impairmentallowanceonloansandadvances 3.2 (600697) (649634)Operatingexpenses 14 (7319793) (6423959)Total operating expenses (7 920 490) (7 073 593) Surplus for the year 9 306 997 8 516 850 Other comprehensive income
Itemsthatwillnotbereclassifiedtoprofitorloss Gainonpropertyrevaluation 7 19545 - Total comprehensive income for the year 9 326 542 8 516 850
STATEMENT OF CHANGES IN EQUITYFOR THE YEAR ENDED 31 DECEMBER 2017 Share Share Revaluation Retained Total capital premium reserve earnings US$ US$ US$ US$ US$ Opening balance at 1 January 2016 156 175 11 110 424 93 915 23 669 470 35 029 984 Surplusfortheyear - - - 8516850 8516850 Total comprehensive income - - - 8 516 850 8 516 850 Transactions with owners recorded directly in equity Dividendpaid - - - (2275824) (2275824)Shareholders equity as at 31 December 2016 156 175 11 110 424 93 915 29 910 496 41 271 010 Opening balance at 1 January 2017 156 175 11 110 424 93 915 29 910 496 41 271 010 Surplusfortheyear - - - 9306997 9306997 Other comprehensive income Revaluation adjustment - - 19 545 - 19 545 Total comprehensive income - - 19 545 9 306 997 9 326 542 Transactions with owners recorded directly in equity Dividendpaid - - - (3094218) (3094218)Shareholders equity as at 31 December 2017 156 175 11 110 424 113 460 36 123 275 47 503 334
Directors: Benjamin Kumalo (Chairman), Felix Gwandekwande (Managing Director), Oliver Gwaze, Marah Hativagone, Agnes Kanhukamwe*, Guardiner Manikai, John Mushayavanhu, Christopher Y Muyeye, Pius Rateiwa*, Webster Rusere (Executive*)
Audited Financial ResultsFor The Year Ended 31 December 2017
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15. LIQUIDITY RISK Contractualmaturityprofileofassetsandliabilities 31 December 2017 Up to 30 days 31-90 days 91-365 days Over 1 year Total US$ US$ US$ US$ US$
Liabilities Depositsfrombanks 3000750 2017222 - - 5017972 Depositsfromcustomers 38490607 18026246 2611224 5108751 64236828 Borrowings - 151515 454545 1943006 2549066 Otherliabilities 4364327 3500229 904208 1843822 10612586 Total liabilities 45 855 684 23 695 212 3 969 977 8 895 579 82 416 452 Assets Cashandcashequivalents 9820756 6809971 - - 16630727 Financialassetsheldtomaturity 2093084 216762 24896620 13742877 40949343 Loansandadvancestocustomers 1390070 2780139 10170783 44784291 59125283 Total assets 13 303 910 9 806 872 35 067 403 58 527 168 116 705 353 Liquidity gap (32 551 774) (13 888 340) 31 097 426 49 631 589 34 288 901 Cumulative liquidity gap (32 551 774) (46 440 114) (15 342 688) 34 288 901 -
Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$
6. INVESTMENT PROPERTIES Openingbalance 25000 25000 Fairvalueadjustment 20275 - Additions 7560 - Transferfrominventory 437165 - Closing balance 490 000 25 000 7. PROPERTY AND EQUIPMENT Cost Carryingamountatbeginningoftheyear 4338318 4439627 Grosscarryingamount 5303975 5216436 Accumulateddepreciationandimpairmentloss (965657) (776809) Additions 616515 135663 Revaluationgainonproperties 19545 - Disposals - (15888) Currentperioddepreciationcharge (208873) (221084) Impairmentreversal 1629 - Carrying amount at end of the year 4 767 134 4 338 318 8. Intangible assets Openingnetcarryingamount 81396 157839 Amortisationcharge (44843) (75107) Impairmentcharge - (1336) Closing net carrying amount 36 553 81 396 9. DEPOSITS AND BORROwINGS 9.1 Deposits from banks Moneymarketdeposits 5017972 39882130 5 017 972 39 882 130 9.2 Deposits from customers Retailsavingsdeposits 16533403 6086439 Moneymarketdeposits 42594674 42829615 Fixeddeposits 5108751 4973324 64 236 828 53 889 378 9.3 Borrowings Offshoreborrowings 2549066 3139988 2 549 066 3 139 988 Total deposits and borrowings 71 803 866 96 911 496 9.4 Maturity analysis of deposits and borrowings Upto1month 41491357 68181774 1monthto3months 20194983 20757421 3monthsto1year 3065769 465049 Over1year 7051757 7507252 71 803 866 96 911 496 10. OTHER LIABILITIES Tradeandotherpayables 5596484 5719560 Deferredincome 2405062 935915 Provisions 2611040 2844049 10 612 586 9 499 524 11. INTEREST INCOME Loansandadvancestocustomers 8628875 9900733 Interbankmoneymarketinvestments 2138625 2698438 Financialassetsheldtomaturity 4382169 1626593 15 149 669 14 225 764
12. INTEREST EXPENSE Depositsfrombanks 1214676 1549399 Depositsfromcustomers-retailsavings 117273 83746 Offshoreborrowings 370691 430835 Depositsfromcustomers-timedeposits 2647804 2823803 4 350 444 4 887 783 13. OTHER INCOME Rentreceived 147197 154928 Fairvalueadjustmentoninvestmentproperties(netoftax) 16220 - Lossondisposalofpropertyandequipment - (7133) Other 13383 18489 176 800 166 284 14. OPERATING EXPENSES Administrationexpenses 1758393 1470530 Personnelexpenses 3796710 3378047 Auditfees 93925 76148 Directorsfeesandkeymanagementremuneration 1418677 1201707 Depreciationandamortisation 252088 297527 7 319 793 6 423 959
16. INTEREST RATE RISK Interest rate repricing gap 31 December 2017 Non interest Up to 30 days 31-90 days 91-180 days 181-365 days Over 365 days bearing Total US$ US$ US$ US$ US$ US$ US$ Assets Cashandcashequivalents 2220871 6809971 - - - 7599885 16630727 Financialassetsheldtomaturity 2093084 216762 3945903 20950717 13742877 - 40949343 Loansandadvancestocustomers 40796505 2339844 2924805 5264649 7799480 - 59125283 Inventory - - - - - 6523937 6523937 Otherassets - - - - - 1396809 1396809 Investmentproperties - - - - - 490000 490000 Propertyandequipment - - - - - 4767134 4767134 Intangibleassets 36553 36553 Total assets 45 110 460 9 366 577 6 870 708 26 215 366 21 542 357 20 814 318 129 919 786 Liabilities Depositsfrombanks 3000750 2017222 - - - - 5017972 Depositsfromcustomers 43599358 18026246 2533810 77414 - - 64236828 Borrowings 2549066 - - - - - 2549066 Otherliabilities - - - - - 10612586 10612586 Equity - - - - - 47503334 47503334 Total liabilities 49 149 174 20 043 468 2 533 810 77 414 - 58 115 920 129 919 786 Interest rate repricing gap (4 038 714) (10 676 891) 4 336 898 26 137 952 21 542 357 (37 301 602) - Cumulative interest rate repricing gap (4 038 714) (14 715 605) (10 378 707) 15 759 245 37 301 602 - -
Audited Audited 31 Dec 2017 31 Dec 2016 US$ US$17. CAPITAL ADEQUACY RATIO Core Capital Tier 1 Issuedandfullypaidupordinarysharecapital 11266599 11266599 Retainedearnings 36123275 29910495 Capitalallocatedformarketandoperationalrisk (1953645) (1765937) Advancestoinsiders (110451) (117165) Totalcorecapital 45325778 39293992 Supplementary Capital Tier 2 Revaluationreserves 113460 93915 Totalsupplementarycapital 113460 93915 Tier 3 Capitalallocatedformarketandoperationalrisk 1953645 1765937 Core capital plus supplementary capital 47 392 883 41 153 844 Total risk weighted assets 82 513 703 87 333 634 Tier1capitalratio 55% 45% Tier2capitalratio 0% 0% Tier3capitalratio 2% 2% Capitaladequacyratio 57% 47% 18. CAPITAL COMMITMENTS Capitalexpenditureauthorisednotyetundertaken 827 088 1 283 885
20 BOARD ATTENDANCE
Main BoardBoard member Quarter 1 Quarter 2 Quarter 3 Quarter 4BenjaminN.Kumalo √ √ x √FelixGwandekwande √ √ √ √OliverGwaze √ √ √ √MarahHativagone √ √ √ √AgnesKanhukamwe √ x √ √**GuardinerManikai n/a n/a n/a √*KennardC.Muranda √ √ n/a n/aJohnMushayavanhu √ √ √ √ChristopherYMuyeye √ √ x √PiusRateiwa √ √ √ √WebsterRusere √ √ √ √
Key: √-Attended x-Apologies n/a-notapplicable *ResignedfromtheBoardon8June2017**AppointedtotheBoardon16October2017 By order of the Board
T. Mabeza Group Company Secretary 28 March 2018
NOTES TO THE FINANCIAL RESULTSFOR THE YEAR ENDED 31 DECEMBER 2017
Directors: Benjamin Kumalo (Chairman), Felix Gwandekwande (Managing Director), Oliver Gwaze, Marah Hativagone, Agnes Kanhukamwe*, Guardiner Manikai, John Mushayavanhu, Christopher Y Muyeye, Pius Rateiwa*, Webster Rusere (Executive*)
19. RESERVE BANK OF ZIMBABwE ONSITE EXAMINATION TheBuildingSocietyhasitscorporategovernanceandriskmanagementprocessesindependentlyauditedbytheReserve
BankofZimbabwe.
FBC Building Society CAMELS* ratings
CAMELS* component Latest RBS** ratings 30 June 2014 Previous RBS** ratings 30 Sept 2007
Capital adequacy 2 2
Asset quality 3 2
Management 2 2
Earnings 2 2
Liquidity 1 2
Sensitivity to market risk 2 2
Overall composite rating 2 2
*CAMELSisanacronymforcapitaladequacy,assetquality,management,earnings,liquidity,andsensitivitytomarketrisk.CAMELSratingsystemusesaratingscaleof1-5,where‘1’isstrong,‘2’issatisfactory,‘3’isfair,‘4’isweakand‘5’iscritical.
**RBSstandsforRisk-BasedSupervision.
Summary Risk Assessment System (RAS) ratingsRAS component Latest RAS rating 30 June 2014Overall inherent risk ModerateOverall risk management systems AcceptableOverall composite risk ModerateDirection of overall composite risk Stable
Summary risk matrix
Type of risk Level of inherent risk
Adequacy of risk management systems
Overall composite risk
Direction of overall composite risk
Credit Moderate Acceptable Moderate IncreasingLiquidity Moderate Acceptable Moderate StableInterest rate Moderate Acceptable Moderate StableForeign exchange Low Strong Low StableOperational Moderate Acceptable Moderate StableLegal and compliance Moderate Acceptable Moderate StableReputation Moderate Strong Moderate StableStrategic Moderate Acceptable Moderate StableOverall Moderate Acceptable Moderate Stable