FBC Holdings Limited (FBC.zw) 2021 Annual Report
At a difficult time of unprecedented Covid-19 induced global uncertainty, coupled with local economic challenges, the Group believes it has a pivotal role to nurture sustainable solutions that enable the financial well-being of the communities we serve. This ambition and focus is set to be realised through our desire to deliver a unique customer experience through value adding relationships, simplified processes and relevant technologies. This we believe, anchored by our foundational core values of integrity, teamwork, commitment, communication, life-long learning and entrepreneurship, will buttress and sustain our future growth for the benefit of all our stakeholders.
Financial Performance Review –Inflation Adjusted
Notwithstanding that 2021 was another challenging year, the Group achieved a solid financial performance, posting a profit before tax of ZWL5.0 billion in inflation adjusted terms, 93% ahead of ZWL2.6 billion recorded in 2020. The Group reported a profit after tax of ZWL4.3 billion with earnings per share of ZWL cents 689.22 and a return on equity of 30%. The Group benefited from improved performance by all business subsidiaries.
Total income for the Group was up 37% to ZWL17.9 billion primarily on the back of improved revenue growth across all income streams, with the exception of net foreign currency dealing and trading income which experienced a decline. Net interest income increased by 86% to ZWL5 billion on the back of increased lending and an improved interest margin, while net fee and commission income was up 71% to ZWL3.4 billion, aided by the Group’s digitalised infrastructure that supported increased volume of transactions by customers. Net earned insurance premium was up 31% to ZWL1.8 billion from ZWL1.4 billion recorded in 2020 on the back of increased demand and revaluation of insured risks. Gross profit on property sales significantly increased from ZWL7.7 million to ZWL260.5 million in 2021 in line with an increased number of units sold. The net gain from financial assets at fair value increased by 113% to ZWL2.4 billion, driven primarily by the quality of the Group’s portfolio holding and market repricing. Other income which is mainly comprised of fair value adjustment on investment property, increased to ZWL1.7 billion from ZWL318 million, buoyed by increased investment in the portfolio and the repricing of the investment property portfolio in the ZWL functional currency. Net foreign currency dealing and trading income declined by 41% to ZWL3.3 billion in line with a relatively stable foreign currency regime experienced during the year.
Through various cost containment measures implemented during the period under review, the Group’s cost to income ratio excluding monetary loss improved to 58% from 64% recorded in the comparable period. Given the inflationary pressures experienced throughout 2021, total administration costs increased by 24% to ZWL9 billion compared to ZWL7.2 billion recorded in the prior year. Similarly, insurance claims were up 21% owing to the inflation adjusting components of various claims. Insurance commission expense significantly went down by 38%, signifying a decrease in insurance business from brokers. Due to the revised retention limits, insurance claims and loss adjustment expenses recovered from reinsurers was down 43% to ZWL96 million against ZWL169 million recorded in 2020.
At 31 December 2021, Group total assets were ZWL63.3 billion, 22% ahead of ZWL52.1 billion recorded during the prior comparable period. This growth was largely driven by an increase in total deposits of 12% to ZWL37 billion, translation of foreign currency denominated assets into ZWL at closing rate, property investments and increased retained earnings. Loans and advances stood at ZWL23.5 billion, 10% higher than ZWL21.4 billion for prior year, as we continued to focus on supporting our customers in the productive sectors of the economy through sustainable lending.
The Group’s total equity, year after returning ZWL625 million to our shareholders through dividends, remains strong with total capital of ZWL14.3 billion from ZWL8.2 billion recorded in the previous year. The Group’s continued capital generation means we are well positioned to champion our customers’ growth plans, invest for growth and continue driving sustainable returns to our shareholders.
The year under review was once again another challenging year for the business community in general. The Group was not spared by some of the regressive effects of the Covid-19 pandemic and the general macroeconomic challenges. The Covid-19 pandemic further brought about a number of emerging risks, which put to test our resilience, flexibility and disaster recovery preparedness. It is pleasing to note that the Group was able to offer services and products through the use of online and digital platforms. This augured well with the current digital transformation thrust of the organization.
To foster macro-economic stability, bolster capacity utilisation, curb the widening disparity between the official exchange rate and parallel market, as well as curtail the Covid-19 disruptions, the government and regulatory authorities implemented a number of fiscal and monetary policy interventions. The central bank reviewed the bank rate up to 60% and Medium Term Bank Accommodation (MBA) Facility interest rate up to 40%. Similarly, the minimum deposit interest rates for ZWL savings and time deposits was increased from 5% and 10% per annum to 7.5% and 20%, respectively. A US$ denominated cost of living adjustment was timeously introduced for all civil servants as a safety net against the debilitating effects of Covid-19.
In an endeavour to ensure responsible, continuous and sustainable use of foreign currency, the Reserve Bank of Zimbabwe maintained the use of the foreign currency auction system. Since inception in June 2020 and up to 31 December 2021, 77 Main and 71 SMEs foreign currency auctions have been successfully conducted. During the period under review, US$1.97 billion was allotted, equating to about 30% of all foreign payments. The Foreign Exchange Auction System managed to provide the much-needed liquidity to key productive sectors and thus contributing to the 7.8% economic growth recorded in 2021. To further buttress price stability, statutory instrument 127 of 2021 was gazetted to instil discipline in the foreign exchange market and safeguard adherence to prescribed policy guidelines.
While the ZWL/USD exchange rate closed the year at ZWL108.666 per US$1 compared to ZWL81.787 at the end of December 2020, the alternative market premiums continued to exert significant pressure on inflation. A premium of between 40% and 90% was recorded during the course of 2021. However, while we appreciate the efforts by the regulators and fiscal authorities to stabilise the foreign currency exchange market, as well as enhancing domestic use of the local currency, there is still a strong need to bolster and strengthen this framework.
The Group embraced all the monetary and fiscal policy interventions. Numerous capacity-building initiatives were held during the year to educate clients and staff members on new regulatory guidelines and policy changes. The business however, felt the adverse impact of the foreign exchange discrepancies through the significant increase in operating costs. To counter this development, the Group explored and introduced new products and services to enhance business performance.
Headline inflation remarkably declined from a peak of 837.5% recorded in July 2020 to 60.7 % as at 31 December 2021. This was necessitated by a decline in both annual food and non-food inflation. Although the economy failed to close the year with a single-digit rate as expected, the government made significant progress in containing inflation.
It is our expectation that the inclusion of US$958 million worth of Special Drawing Rights in the budget to cater for social spending, will enhance foreign currency reserves and further contain inflationary pressures. Policy makers have indicated that inflation is projected to decelerate further in 2022, with estimates pointing to a month-on-month target rate of below 4% in the first quarter of the year and to average below 3% in the second half of 2022. Annual inflation rate is expected to ease to a range of 25-35%.
Financial Services Sector
The sector remained adequately capitalised with satisfactory and sound financial indicators. It is worth noting that both FBC Bank Limited and FBC Building Society have exceeded the minimum capital requirements as prescribed by the Reserve Bank of Zimbabwe (RBZ).
Loans and advances remarkably increased on the backdrop of improved economic activity and exports. Asset quality in the banking sector remained good with non-performing loans (NPLs) standing at 0.94%, a figure which is way below the 5% sector benchmark and the Group’s non-performing loans of 0.73%. Growth in banking sector assets was largely driven by inflation and foreign exchange developments. Following the implementation of various measures by the RBZ, we have noted a commendable mobile money interoperability that in turn bolstered financial inclusion.
To remain resilient, inclusive, competitive and profitable, FBC Holdings deepened its digital transformation strategy, simplified its models and amplified its footprints through agencies. Taking cognisance of the dynamic customer needs, we developed, upgraded and deployed a number of digital channels to provide secure, convenient and sustainable financial services. The Group enabled an end-to-end digital loan on- boarding for its loans businesses and refreshed its risk management frameworks to cater for the emerging risks and proactively monitor trends.
The Insurance Sector
The insurance sector has not been spared by the economic turbulence, technology dynamics and climate change. In order to remain competitive, our insurance subsidiaries swiftly reconfigured their operations and product offering by aligning operations to the new market dynamics. In a joint effort with an engineering, procurement and construction (EPC) contractor, we launched a Solar System Insurance Facility to cover clients with rooftop solar systems and solar farms.
In order to strengthen the insurance sector, the Insurance and Pension Commission launched the Zimbabwe Integrated Capital and Risk Programme which is a risk-based capital framework. This is expected to foster the adoption of strong risk management standards within the insurance sector. Our insurance subsidiaries remain adequately capitalised, even under the new risk-based capital framework.
Whilst the property market remained a critical investment hedge in the wake of inflationary pressures, occupancy rates across the different property types remained highly subdued. Property owners have had to incur high operating costs and lower rental returns throughout the period under review. Covid-19 induced remote working heavily impacted office occupancy as it curtailed demand for formal space.
Similarly, demand for industrial properties was also suppressed throughout 2021 owing to low capacity utilisation, power outages, deteriorating infrastructure and shortages of foreign currency. The prospects of residential and retail markets however, remain favourable owing to firm demand, thus presenting opportunities for further investment. The Group remains focused on this segment and continues to make deliberate investments with a view to provide housing to a needy market and at the same time generating returns consistent with shareholder’s expectations.
Stock Market Performance
The Zimbabwe Stock Exchange’s (ZSE) main All Share Index (ALSI) rose by 310.51% for the year, closing at a peak of 10 822.36 percentage points against an annual inflation rate of 60.7%. Investors seeking instruments with hedge characteristics in light of inflationary pressures and exchange rate dynamics spurred the bullish trends. Market capitalisation surged 314% in 2021 to trade at ZWL1.317 trillion.
The Group is closely monitoring developments and will tap into opportunities that may arise on the Victoria Falls Stock Exchange, as listed assets increased during the period under review though activity remains depressed.
Share Price Performance
The FBCH share price gained 125.5% to close the year at ZWL$33.85. A total of 135.6 million shares were traded at a weighted average price of ZWL28.98, representing a gain of 306.4% from 2020 full year’s weighted price of ZWL7.13. The Group believes that consistent corporate performance is key to unlocking sustainable value to the stakeholders.
On behalf of the Board of Directors, I am pleased to advise shareholders that the company has proposed a final dividend of 148.82 ZWL cents per share amounting to ZWL1 billion. This is over and above the interim dividend of 29.76 ZWL cents per share which was paid in October 2021. The total dividend declared for the year 2021 amount to ZWL1.2 billion which includes the interim dividend of ZWL200 million. The proposed dividend translates to approximately 5.71 times cover, which is 17% of the historical cost profit after tax.
FBC in the Community
The FBC Group continues in its quest to be a responsible corporate citizen through investing in charitable initiatives aimed at enabling the welfare of the communities that we serve and protecting the planet. In this regard, the Group invested more than ZWL20 million on a wide range of Corporate Social Responsibility initiatives in Education, Health, Sports, Arts and Tourism.
In the same vein, the Group completed the construction of a modern classroom block for the Chimanimani community at Charleswood Primary School honouring a pledge made to the community after Cyclone Idai.
The Group continues to grow and is contributing significantly to the well-being of the general economy. A number of accolades have been received which is a testament of the Group’s intention to be a market leader. These awards include:
- FBC Holdings Limited – Top Covid-19 Supporting Organisation of the Year awarded by Zimbabwe National Environment, Responsible Business & CSR Awards
- FBC Re – Reassurance Company of the Year awarded by The Zimbabwe Independent -Insurance Survey and Awards.
- Microplan – 1st Runner Up Most Resilient MFI of the Year awarded by The Zimbabwe Association of Microfinance Institutions (ZAMFI).
- FBC Building Society – Best Private Infrastructure Funding Institution awarded by Renaissance Global.
Digital Transformation and Innovation
Globally, the speed of digital transformation and innovation is accelerating in line with dynamic customer behaviour and Covid-19 disruptions. The persistence of the Covid-19 pandemic reinforced the importance of embracing a long-term view of the transformation imperative as well as future market opportunities. The Group believes that innovation and digitalisation is here not only to solve Covid-19 related issues but to also broaden and deepen organizational capabilities, unlock stakeholder potential and create customer-centric institutions. New skills and competencies are being identified, resourced and developed to necessitate and accelerate this paradigm shift.
During the period under review, the Group’s digital transformation momentum increased with the escalation of its fintech subsidiary’s activities within and outside FBCH. Bearing in mind that the financing and lending landscape has dramatically evolved, the Group introduced and upgraded various digital channels in order to improve its underwriting capabilities and efficiencies, reduce cost, deter money laundering, fraud and cyber attacks as well as improve convenience to our valued customers.
Change and culture management continue to run concurrently with technology and process investments in enabling and enhancing a flawless transition. For the Group to deliver exceptional customer service, we are continuously equipping our Customer Experience function with right technology and human-skills. A service charter was launched in 2021 to augment the Group’s digitalisation thrust and align our business to the regulator’s expectation.
We are pleased that the government and regulators are agreeable and supportive to the strategic relevance of digital transformation. The establishment of a Sandbox guideline, a Fintech Working Group and National Financial Inclusion strategy are evident milestones of the central bank’s commitment to an inclusive and digitalised environment. The Data Protection Act, promulgated in 2021, is expected to provide a workable framework to address privacy issues whilst enabling the usage of new technologies. Stakeholders in the fintech space are hopeful that a comprehensive fintech regulatory framework will be implemented for the sector as opposed to the prevailing contractual case-by-case approach. We believe that the right policy intervention will catapult Zimbabwe to a digital economy in no time.
Environmental, Social and Governance (ESG) Priorities
Focus on Environmental, Social and Governance (ESG) priorities has significantly increased as discussions to take urgent action in dealing with climate change and developmental challenges have gained momentum. The Group takes cognisance of the recently held 26th United Nations Climate Change Conference (COP 26) where leaders from across the globe committed to more ambitious targets to reduce greenhouse gas emissions, discussed adaptation measures to climate change impacts and increased funding commitments for climate action.
As FBC Holdings, we are encouraged by the government’s revised commitment towards the creation of a sustainable future. Considering the inevitable impacts of the climate crisis, FBC Holdings took steps to speed up its climate-response pace and complement national efforts in addressing climate change repercussions. During the period under review, the Group continued to embed ESG safeguards in its corporate strategy. As financial system gatekeepers, we are putting maximum efforts towards development of impactful projects as well as sourcing and deployment of climate funding. Central to our strategy is the need to pursue community-driven and credible de-carbonisation projects that address vulnerabilities, stimulate financial wellbeing, increase awareness and promote the use of environment friendly construction materials and methodologies.
The Group has also incorporated the sustainability certification of its flagship subsidiary, FBC Bank Limited, as part of the overall strategy but with a subsidiary-specific focus. It is our desire to have FBC Bank certified under the Sustainability Standards and Certification Initiative (“SSCI”). The Sustainability Standards and Certification Initiative is being driven by the European Organisation for Sustainable Development (“EOSD”), in consultation with the Reserve Bank of Zimbabwe.
The pursuit of this certification is expected to deliver a holistic, robust, evolving, and locally sensitive set of standards to make value-driven financial institutions like FBC Bank more resilient and profitable. We are proud to have been given the greenlight by the Reserve Bank of Zimbabwe and EOSD to adopt the following Purpose Statement (PS) and High Impact Goals (HIGS), as part of our guiding principles, under the Sustainability Standards and Certification Initiative:
Promote Sustainable Economic and Inclusive Development
High Impact Goals
- Facilitate sustainable transition to food self-sufficiency
- Foster sustainable social inclusivity and empowerment
- Engender environmental protection and climate resilience
Following the successful adoption of the above Purpose Statement and High Impact Goals, FBC Bank is now actively implementing other modules of the SSCI Value Creation Octagon.
From a business development perspective, FBC Bank is now aggressively pursuing various climate finance opportunities in Zimbabwe. A dedicated Climate Finance department has since been set–up and well-resourced with a blend of humanitarian, social sciences as well as banking and finance skills. They have been given a mandate to pursue new climate resilient investment opportunities in our target markets. Pursuant to that, FBC Bank has since started pursuing the Green Climate Fund Direct Access Entity Accreditation that we believe is essential in unlocking concessionary global funds that can be leveraged on to support eligible climate mitigation and adaptation projects in Zimbabwe.
FBCH Covid-19 Response Approach
The Covid-19 pandemic has been one of the biggest shocks to the global economy and society in recent times. The pandemic has been ranked as a key risk driver over the past two years and will likely impact risk profiles in the future. The government responded by imposing lockdown measures which had the unintended consequence of affecting business activities across all economic sectors. Supply chain disruptions which affected business production cycles, were highly prevalent. Aid agencies and fiscal support provided essential relief to the public and business community.
It is pleasing to note that the Group’s financial and operational well-being remained strong despite the disruptive effects. The Group responded swiftly to the threat by implementing a number of initiatives. These initiatives include capacitating employees to work off premises, vaccination, boosting the breadth and depth of our digital channels to enable our valued customers to transact and access financial services without accessing our physical infrastructure. The Group made further investments in Information Technology (IT) infrastructure to improve its resilience in the event of future related disruptions. Given the lessons learnt over the last two years, business continuity maturity levels have significantly improved, thus further bolstering the capacity of the Group to continue offering services in the presence of potentially disruptive events.
The Group is committed to complying with all applicable laws, regulations, standards and international best practices. We understand that any breach of the applicable laws and regulations exposes the Group to legal, regulatory and reputational risks, which may result in de-risking and financial abandonment that can ultimately impair FBCH’s ability to serve its clients. As such, the Group has adopted a policy of zero tolerance to non-compliance. For the year ended 31 December 2021, there are no material non-compliance issues to laws and regulations.
The Board was further strengthened by the appointment of Mr. David Makwara, Dr Sifiso Ndhlovu and Mrs Vimbai Nyemba with effect from 4 March 2021, 12 April 2021 and 12 August 2021 respectively. The three non-executive directors each bring a wealth of experience set to benefit the Board.
Mrs Gertrude Chikwava retired from the Board of FBC Holdings Limited on 30 June 2021 following expiry of her term of office. We wish her well in her future endeavours and thank her immensely for the invaluable contribution.
The geo-political disturbances brought about by the Russia-Ukraine war is set to result in disastrous economic consequences for both the Western and European countries in particular, with global negative downstream effects that will weaken economic growth.
The local economy still faces a number of hurdles despite strong positive economic trends witnessed in 2021. Concerted efforts have been and will continue to be made in the fight against the Covid-19 pandemic and this is expected to result in the world economy opening up. Country specific economic challenges such as inflation and currency woes may further drag the economy. It is however expected that government responses in the form of fiscal and monetary policies, will steer the country out of economic turbulence, thus presenting new opportunities for the Group. Despite the anticipated headwinds, we expect the good business momentum to continue into 2022 and our strategies that are in place to result in increased growth in most of our business areas.
I am extremely grateful to our shareholders, regulatory authorities and strategic partners who have been supportive throughout the trying times of the Covid-19 pandemic. To our valued customers, YOU MATTER MOST. We thank you for the unwavering support and patient engagements. Again, we have managed to deliver a commendable set of financials under the able leadership of my fellow board members, executive and senior management, I thank you all. My sincere gratitude goes out to the entire FBC Team. Your extraordinary commitment during such challenging times is greatly appreciated.
31 March 2022