FBC Holdings Limited (FBC.zw) HY2023 Interim Report
Group Chairman Statement
It is with great pleasure that I present to you the Group’s reviewed interim results for the half year ended 30 June 2023.
Inflation-Adjusted Financial Performance Review
FBC Holdings Limited achieved a profit before tax of ZWL427 billion and a profit after tax of ZWL366 billion, a reflection of the resilience of the Group’s diversified business model and ability to adapt to the challenging environment.
The Group achieved a total income of ZWL854 billion during the period under review, an outcome driven by transactional, investment and hedging activities. Net interest and related income at ZWL63.4 billion was consistent with the general lending activities across all lending portfolios. Loans and advances for the period increased by 228% to ZWL1.5 trillion. The banking subsidiaries of the Group continue to lend, in an effort to support customers across major sectors of the economy. Efforts are also underway to mobilize funding at an affordable cost through lines of credit and other institutional depositors and investors. The Group’s transactions are now predominantly denominated in foreign currency in line with the general macroeconomic trends. Over 80% of the Group’s assets and core revenues are in foreign currency and this position is expected to subsist until the end of the year.
Net transactional revenues amounted to ZWL56,9 billion for the half year ended 30 June 2023 on account of the Group’s innovation and digitalization thrust. The Group continues to invest in digital platforms and channels to widen its product offering and enhance customer convenience in line with changes in the technological space. Automation and digitalization initiatives are being pursued to lower the cost to serve our customers.
Total other operating costs for the period under review were ZWL360.7 billion, driven partly by inflationary trends and exchange rate developments. The Group has remained prudent in its provisions, with an impairment allowance of ZWL76.2 billion over the review period.
The Group’s statement of financial position as at 30 June 2023 was ZWL2.9 trillion, representing a growth of 180% from 31 December 2022 position. Shareholders’ funds, improved by 208% to ZWL621 billion from 31 December 2022 position of ZWL201 billion. Focus remains on investing in assets less impacted by currency and inflation developments, to preserve capital whilst concurrently providing a base for underwriting additional business.
Domestic economic prospects are projected to remain robust, with economic growth revised to 5.3% from an initial projection of 3.8% in 2023, driven by the mining, agriculture, tourism and information and communications technology (ICT) sectors. The government continues to implement a raft of monetary and fiscal policy measures aimed at stabilizing exchange rates and curbing inflation. Improvements in electricity generation will greatly enhance production, manufacturing, mining and other related activities to the benefit of the economy. There are however, downside risks which remain in the operating environment. These include exogenous factors, largely emanating from slow global macroeconomic growth, monetary policy tightening by a number of governments to contain inflation and un-ending geo-political conflicts. These may impact the country’s foreign trade and foreign currency receipts. The Group in response has been adapting its strategies and seizing opportunities with particular emphasis on hedging, investments and increasing our products and services range across key sectors of the economy.
Inflation has relatively stabilized, following a number of measures instituted by the government and the Central Bank during the second quarter of 2023. Year on year inflation peaked at 175.8% in April. It is now on a downward trend, reaching 101.3% in the month of July. The Central Bank now expects year on year inflation to close the year between 60% and 70% whilst month on month inflation is forecast to be 3% by year end, on account of contractionary monetary and fiscal policy measures. This outlook if attained will enhance business underwriting and improve profitability.
Relative stability has been witnessed towards the end of the period under review, in response to the implementation of fiscal and monetary measures announced to stabilize the economy. The local currency depreciated to USD 1: ZWL6 926.57 at its peak as at 20 June 2023 but has since recovered to USD1: ZWL4 517.14 as at 31 July 2023. Significant exchange rate shocks during the period under review were largely attributed to currency demand and supply factors, which in turn caused pass-through effects on inflation. To stabilise the exchange rate and tame run-away inflation, the government continues to institute tight monetary and fiscal policy measures to ensure stability. The Group, through its various subsidiaries, has been proactive in managing this risk by investing in various hedged assets and this has sustained the Group’s balance sheet. FBC Holdings Limited has also been focusing on increasing US dollar-based business underwriting to preserve capital and achieve sustained growth.
The post reporting exchange rate developments, where the local currency has gained against major trading currencies, is expected to impact the Group’s exchange profit revenue stream outturn and may necessitate a reassessment of the foreign currency hedging positions.
Banking Sector Developments
The banking sector performance remained satisfactory with adequate capitalization, strong asset quality, adequate liquidity and sustained profitability, among other key financial soundness metrics. The Central Bank is continuously making efforts to restore economic confidence, foster market discipline and strengthen local currency demand, complementary to other measures being instituted by the government.
The Central Bank also continues to issue regulatory and policy guidelines to the market, with the objective of promoting strong risk management standards across the banking sector. These initiatives ensure a safe and sound banking sector which is critical in promoting economic growth. New guidelines issued during this period include Model Risk Management Prudential Standards which guide sound development, implementation and model validation in risk management of regulated institutions. The Reserve Bank of Zimbabwe also issued Climate Risk Management Guidelines to ensure the integration of climate change and sustainability issues in the risk management practices and methodologies of regulated institutions.
Interest rates on the other hand have remained relatively unchanged. The Reserve Bank of Zimbabwe, through the Monetary Policy Committee, periodically announces Bank Policy rates which are considered consistent and aligned to macroeconomic developments. In the same vein, interest rate thresholds are also set in a bid to promote economic growth, through the provision of affordable funding for productive sectors of the economy, whilst also promoting savings in the process.
Insurance Sector Developments
The Insurance and Pensions Commission (IPEC) in partnership with the International Finance Corporation (IFC), officially launched the Agricultural Index Insurance Project in May 2023. Given the increased occurrence of climate-related calamities, this project is designed to proffer inclusive and sustainable insurance solutions to vulnerable farmers at all levels across the country.
IPEC continues to introduce innovative services and regulations with a view to promote affordability and increased awareness of insurance products. The tools and information being deployed, are intended to improve public confidence in the insurance and pension business, as well as build a resilient market.
IPEC issued Circular 25 on the 12th of August 2023, further to SI 81 of 2023, which provides guidelines on handling of insurance premiums, movement of business between insurers and treatment of legacy debtors. This new regulation will significantly bolster the industry’s financial health through the prompt remittance of receipts as it adopts “no premium no policy cover” basis. Under the guidelines, brokers are supposed to pass on premiums to insurers within 7 days and all legacy debts should be cleared by 31 December 2023. This is forecast to bolster the insurance industry business model.
Property Market Developments
Demand for properties in Zimbabwe remains strong as both individuals and corporates pursue investment and hedging objectives. Notably, there has been an increased demand for residential property in both rental and purchase segments as companies migrate out of the Central Business District. For the medium density market, the Group completed 98 units under the Zvishavane Eastlea Project. In the affluent suburb of Glen Lorne, Harare, there are currently thirteen (13) housing units under construction. The Kuwadzana Fontaine Ridge housing project property portfolio currently comprises of 267 units.
Stock Market Performance
The benchmark All Share Index gained 779%, largely in response to inflation and currency developments. The stock market remains an alternative investment and hedging option for individuals and institutional investors. Market capitalization on the Victoria Stock Exchange (VSE) on the other hand, improved on the back of new listings and migration from the Zimbabwe Stock Exchange (ZSE). Activity on the stock market is expected to increase on account of improvements in investable funds post elections.
Share Price Performance
The FBC Holdings Limited share price gained 2 158%, closing the period under review at ZWL1 399.95. A total of 4 042 600 shares were traded at a volume-weighted average price of ZWL304.20. Turnover is expected to remain strong in line with general trends on the ZSE.
Our Information Technology, Digital Transformation and Innovation Focus
Cognisant of the pivotal role that technology plays in improving service delivery, the Group is continuously entering into service partnerships and integrations to enhance its digital channels in an agile manner, provide unique and seamless customer experience as well as build a sustainable digital ecosystem. As part of our digital-led strategic imperative, we are pleased to have upgraded our main data centre during the reporting period to ensure minimal service disruption and maximum customer experience. Taking into consideration the need to increase access to financial services and enhance operational efficiency, the Group also enabled digital lending for its microfinance business and intends to roll out the same service to other lending businesses in due course.
These initiatives however, also attract attendant cyber-related risks. FBC Holdings Limited remains alert to the inherent cyber-threats that come with operating a digital business as well as the essence of remaining compliant with data governance practices and relevant legislation. As such the organisation continues to invest in cyber security system and solutions. A Security Operations Centre (SOC) was introduced through the reconfiguration of resources and the upgrading of the Security Incident & Event Management system (SIEM). In addition, Artificial Intelligence (AI) was incorporated into the Group’s monitoring controls, with independent and internal environmental scanning regularly conducted through Vulnerability Assessments and Penetration Testing.
Environment, Social and Governance (ESG) Priorities
The Group stands ready to be a good steward of nature and reduce the negative repercussions of climate change while fostering sustainable development initiatives to support the communities we serve as well as our customers. The Group is now actively tracking climate change-related, sustainable development metrics and this information will be key as we implement our strategic initiatives going forward.
During the period under review, the Group managed to reduce paper and electricity consumption by 12.5% and 8.9% respectively compared to the first half of 2022. FBC Holdings is making concerted efforts towards a paperless experience for its valued customers. In terms of energy management, our strategy is to rollout renewable energy solutions across all branches.
Our employees attended sixty learning programs as part of FBC Holdings’ thrust to foster personal growth and enable staff members to contribute effectively to their respective communities. One hundred and two employees were capacitated on blood donation, covering topics such as blood types, blood donation frequency, and debunking myths associated with donating blood. As part of the FBCH Blood Donation drive, a total of sixty-six units of blood were collected during the period under review.
The Group welcomes the introduction of the RBZ Climate Risk Management Guideline. This policy provides the tools and strategic direction required to strengthen the resilience of the banking system against climate-related risks. The principles outlined therein are in line with international best practices and support the national strategy on transitioning to a low carbon economy. The Group is on course to build the necessary capacity and integrate environmental, social and governance (ESG) principles and safeguards in its transaction cycle. The implementation of the Sustainability Standards and Certification Initiative (SSCI) is also accelerating our compliance to the recently issued regulatory guideline.
The Government of Zimbabwe issued a Statutory Instrument (S.I.) 250 of 2023 on Carbon Credits Trading (General) Regulations, whose objective is to provide for the control and management of carbon credit trading projects and the legal framework necessary for ensuring sustainable development. The SI also accounts for the country’s contribution towards global efforts to reduce or remove greenhouse gas emissions.
Our Community Impacts
In line with its commitment to the environment and sustainable development, the Group revised its Corporate Social Investment strategy to ensure that it prioritizes support for projects that create self-sustenance. As such, our community initiatives are informed by the need to create long-term benefits for vulnerable communities. The Group supports initiatives in sports, arts, culture, health, education and environmental projects.
During the period under review, the Group invested more than ZWL425 million in vulnerable communities such as Entembeni Old People’s Home in Bulawayo and Shungu Dzevana Children’s Home farm in Mhondoro. FBC Holdings Limited also constructed a classroom block with two classrooms at Gurugweni Secondary School in Chikombezi with the specific aim of empowering the surrounding community and promoting access to education. The Group also hosted the 2023 Zimbabwe Open Golf Championship as the title sponsor.
The FBC Brand and its people continue to soar and be recognized industry-wide. FBC Reinsurance Limited was recognized as the 2023 Reassurance Company of the Year during the recently held Insurance Survey Awards, hosted by the Zimbabwe Independent. Alice Shumba, Executive Director Operations at FBC Reinsurance, was recognized as the Exceptional Insurance Leader of the year in the Zimbabwe Independent Insurance Survey.
Regulatory Developments and compliance
The regulatory environment continues to change and evolve as evidenced by a number of statutory instruments and regulatory guidelines issued during the first half of the year. The Group has a robust Legal and Compliance framework to guide the organization with respect to matters of legal and compliance. The Group is committed to complying with all applicable laws, regulations, standards and international best practices and will continue to direct the necessary human, financial and technological resources to support this objective.
All of FBCH’s regulated subsidiaries were compliant with the requisite minimum capital thresholds. Business growth initiatives coupled with investment and hedging activities will continue to anchor capital growth drive to enhance the Group’s capacity to underwrite new business.
Acquisition of Standard Chartered Bank Zimbabwe & associated interests
During the period under review, FBC Holdings Limited and Standard Chartered Bank entered into an agreement for the acquisition of Standard Chartered’s business in Zimbabwe, subject to the approval of the regulatory authorities, including the Reserve Bank of Zimbabwe (RBZ). An announcement of this acquisition was issued on the 8th of June 2023, while various cautionary statements have been issued for the benefit of shareholders and the investing public.
The Group is currently engaging with various regulators for the approvals associated with such transactions and it is the Group’s intention to complete the acquisition before the end of 2023. The acquisition will result in an increase in the Group’s banking market share.
During the period under review, FBC Holdings Limited lost Mr Musa Bako who passed away on the 23rd of June 2023. He was the Managing Director at FBC Insurance Company (Private) Limited. Musa was an invaluable member of the Group and together with his family we mourn a husband, father, workmate and colleague.
Mrs Alice Shumba has been appointed as the new Managing Director of FBC Insurance with effect from 1 September, 2023, following the unfortunate passing on of Musa Bako.
Alice has for the past 11 years, held the post of Executive Director of Operations at FBC Reinsurance (Zimbabwe). She has extensive experience in the insurance and reinsurance industry, spanning over 20 years. Alice is the holder of a Bachelor of Commerce Honours Degree in Insurance and Risk Management. She also holds a Master’s Degree in Business Administration as well as an Advanced Diploma in Insurance from the Chartered Insurance Institute (UK).
The Board and I take this opportunity to wish Alice a prosperous and successful tenure at FBC Insurance.
I am pleased to advise shareholders that the company has proposed an interim dividend of US0.45 cents per share. The dividend is payable end of September 2023. The Board is committed to ensure a fair dividend return to the owners of the company whilst concomitantly preserving capital for business growth opportunities.
The measures instituted by the Government and the RBZ in the first half of the year managed to slow down inflation whilst also addressing speculative pricing tendencies. It is our expectation that authorities will ensure that the policies in place will address some of the economic challenges whilst at the same time creating an environment conducive for economic growth. The Group remains alert to the evolving operating environment and is well positioned to sustain both the capital preservation and growth strategies to sustain shareholder value.
My sincere gratitude goes out to all our stakeholders, especially our valued customers, for their unwavering commitment and support to the FBC Brand in a highly fluid operating environment. Your continued support has contributed immensely to the success of the Group’s subsidiaries in the affirmation of our promise “You Matter Most.” The Group will endeavour to deliver sustainable financial solutions for the betterment of the communities we serve. I would also want to appreciate the dedication and commitment of our staff, executive management and my fellow board members, which has ensured that the Group remains a leader in the financial services sector.
31 August 2023