1 A NNUAL R EP O RT FO R T H E YEAR ENDED 31 DECEM BER 201034 58 Group GeneralStructure Information Destiny, Financial Cause and Highlights Calling
A N N UAL R EP O RT FO R T HE YEAR EN D ED 31 D ECEM BER 2010 2 Success doesnt come to you... you go to it." --Marva CollinsChairman’s Statement 9Group Chief Executive’s Report 12Directors’ Report 15Board of Directors 20Corporate Governance 21Independent Auditor’s Report 30Consolidated and Company Statements of Financial Position 31Consolidated Statement of Comprehensive Income 33Consolidated Statement of Changes in Equity 35Consolidated Statement of Cash flows 36Notes to the Consolidated Financial Statements 37Notes to the Company Financial Statements 101Shareholders’ Information 103Notice of AGM 105Proxy Form 106
3 A N N UA L R E P O RT FO R T HE Y E A R E N D E D 31 D E C E M BE R 2 010 Eagle Insurance Company (Private) Limited (associate) 23.06% Turnall Holdings Limited - (58%)
A N N UA L R E P O RT FO R T HE Y E A R E N D E D 31 D E C E M BE R 2 010 4 Destiny To be Africa’s trendsetters in financial and risk management. Cause To secure individual and corporate wealth. CallingTo create value through a passionate commitment to partnerships.
5 A N N UA L R E P O RT FO R T HE Y E A R E N D E D 31 D E C E M BE R 2 010 General Information Registered Office Auditor 6th floor PricewaterhouseCoopers Chartered Accountants FBC Centre (Zimbabwe) 45 N Mandela Avenue Building No 4 Arundel Office Park P O Box 1227, Harare Norfolk Road Zimbabwe Mount Pleasant P.O. Box 453 Harare Telephone : 263 – 04 – 700312/797770 Telephone: 263 – 04 – 338 395 : 263 – 04 – 708071/2 Telex : 24512 FIRSTB ZW Swift : FBCPZWHA Attorneys Fax : 263 – 04 – 700761 Dube Manikai & Hwacha Legal Practitioners E-mail : email@example.com Eastgate Building Web site : http://www.fbc.co.zw 6th Floor, Goldbridge, Southwing Cnr S. Nujoma and Robert Mugabe Road P O Box CR 36, Cranborne, Harare Telephone: 263 – 04 – 780351/2 Transfer Secretaries Costa & Madzonga Legal Practioners First Transfer Secretaries (Private) Limited 4th Floor Three Anchor House, 4th Floor, Goldbridge 54 Jason Moyo Avenue Corner Sam Nujoma and Robert Mugabe Road Eastgate P O Box CY 1221, Causeway P O Box 11 Harare Harare Telephone : 263-4-790618/790668 Telephone : 263-04-773744/47 773750/1 Fax : 263-4-737575 Fax : 263-04-749048 FBC Bank Limited Branches Belgravia Private Banking Branch Gweru Branch No. 2 Lanark road, Belgravia, Harare 71 – Sixth Street P O Box A852, Avondale, Harare P O Box 1833, Gweru Telephone : 263-04-251975 Telephone : 263-054-26491 : 263-04-251976 : 263-054-26493/7 Fax : 263-04-253556 Fax : 263-054-26498 Chinhoyi Branch FBC Centre Branch Stand 5309 45 N Mandela Avenue Magamba Way, P O Box 1220 P O Box 1227, Harare P O Box 1220 Zimbabwe Chinhoyi Telephone : 263 – 04 – 700312/797770 Telephone : 263-067-24086 Fax : 263 – 04 – 708071/2 Fax : 263-067-26162
A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 6 General Information (cont’d)FBC Bank Limited Branches (continued)Jason Moyo Avenue Branch Kwekwe BranchAsbestos House 44a/b Robert Mugabe WayJason Moyo Avenue KwekweP O Box 2910, Bulawayo P O Box 1963, KwekweTelephone : 263-09-76079 Telephone : 263-055-24116 : 263-09-76371 : 263-055-24160Fax : 263-09-67536 Fax : 263-055-24208Masvingo Branch Mutare Branch58/59 Hellet Street 50 B Herbert ChitepoMasvingo P O Box 2797Telephone : 263-039-64415/6 MutareFax : 263-039-64415/6 Telephone : 263-020-62586 : 263-020-62114 Fax : 263-020-60543Nelson Mandela Avenue Branch Samora Machel Avenue BranchNelson Mandela Avenue Old Reserve Bank BuildingP O Box BE 818, Belvedere 76 Samora Machel AvenueTelephone : 263-04-750946 P O Box GD 450, Greendale, Harare : 263-04-753608 Telephone : 263-04-700372Fax : 263-04-775395 : 263-04-700044 Fax : 263-04-793799Southerton Branch Victoria Falls BranchHighfield Junction Shop Shop 4 Galleria De FallsP.O. Box St495 P.O Box 225Southerton Victoria FallsHarare Telephone : 263-013-45996/5Telephone : 263-04-759712 Fax : 263-013-5995/6 : 263-04-759392Fax : 263-04-759567Zvishavane Branch Msasa BranchRobert Mugabe Way 104 Mutare RoadP O Box 91, Zvishavane Msasa, HarareTelephone : 263-051-2176 Telephone : 263-04-446806-10 : 263-051-2177Fax : 263-051-3327FBC Reinsurance Limited FBC Reinsurance LimitedHead Office Bulawayo OfficeP O Box 4282, Harare 1st Floor Asbestos HouseFBC Centre Jason Moyo Avenue45 N Mandela Avenue P O Box 2199Harare BulawayoTelephone : 263-04-772703/7 Telephone : 263-09-888344Fax : 263-04772701 Fax : 263-09-888560FBC Securities (Private) Limited2nd Old Reserve Bank Building76 Samora Machel AvenueTelephone : 263-04-700928/700373
7 A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 General Information (cont’d) FBC Building Society Branches L Takawira Branch FBC Centre FBC House, Fidelity House 45 Nelson Mandela Avenue 113 Leopold Takawira St P O Box 4041 P O Box 4041 Harare Harare Telephone : 263- 04-707057 Telephone : 263- 04-756811-6 Fax : 263- 04-783440 Fax : 263- 04-772747 Gweru Branch Mutare Branch Impala Seeds Building 69B 6th St FBC House P O Box 1345 P.O. Box 1224 Gweru Mutare Telephone : 263- 054-226189 Telephone : 263-020-65894 : 263- 054-223586 : 263-020-65897/8 Fax : 263- 054-226189 Fax : 263-020-66723 Bulawayo Branch Masvingo Branch FBC House 99 Ireland Road FBC House 109 R. Mugabe Way/ 11th Avenue 179 Robertson Street Bulawayo Masvingo Telephone : 263- 09-79504/68679 Telephone : 263- 039-62671/821/912 : 263- 09-64547/69925/48 Fax : 263- 039-65876 Fax : 263- 09-74069 Turnall Holdings Limited 5 Glasglow Road Workington Harare Telephone : 263-04-754625/8 Fax : 263-04-754629
A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 8 Financial Highlights For the year ended 31 December 2010 31 Dec 2010 31 Dec 2009 US$ US$Consolidated statement of comprehensive incomeProfit before income tax 4 093 709 6 073 466Profit for the year 1 681 061 5 341 236Consolidated statement of financial positionTotal equity 61 727 458 51 188 529Total assets 236 259 194 166 878 063Share statisticsShares in issue - actual (m) 591 362Shares in issue - weighted (m) 494 361Basic earnings per share - (US cents) 0.01 1.4Diluted earnings per share - (US cents) 0.01 1.4Dividend per share - ordinary (US cents) n/a n/aClosing share market price - (US cents) 3.5 3.5RatiosReturn on shareholders equity 3% 10%Cost to income ratio 89% 80%
9 A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 Chairmans Statement ...it is pleasing to note that the statement of financial position grew by 42%... Financial highlights reduction in the number of active accounts. The business therefore found it necessary to right size resulting in a 30% Profit before income tax - US$4.1m reduction in headcount through a voluntary retrenchment Voluntary retrenchment reduced exercise. This exercise, which was done at a cost of over profit before income tax by - $3.5m US$3.5 million contributed significantly to the 33% drop in Basic earnings per share - US0.01cents pre-tax income. The Group’s businesses are now operating Cost income ratio - 89% on a leaner, sustainable and focused structure. Total shareholders’ equity - US$46.5m Total assets - US$236m All the Group businesses recorded positive results after taking into account the once off retrenchment costs, with Financial performance review the exception of the reinsurance business which experienced an unprecedented cancellation of business as a result of Total income grew by 25% to US$38 million realising a profit the ongoing liquidity squeeze affecting customers. The Group before tax of US$4.1 million. The dollarization of the anticipated a profit dip in the short-term, following the right- Zimbabwean economy in 2009 resulted in reduced capacity sizing of the business to ensure medium to long-term utilisation in the financial services sector, with a significant profitability.
A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 10 Chairmans Statement (cont’d)It is pleasing to note that the statement of financial position Overall the economy grew by 8.1% in 2010, a significantgrew by 42% to US$236 million as the various businesses rise vis-à-vis the 5.7% growth registered in the prior year.expanded their activities in line with the improving economic The growth was underpinned by growth in the mining andenvironment and the capacitating of the Group by the agricultural sectors, which surged by 47% and 34%shareholders. respectively. The manufacturing sector, however, remained constrained by a number of factors, amongst them competitionGroup intra restructuring, significant acqusitions and from imports, obsolete machinery and technology, workingdisposals capital shortages, unsustainable wage demands and inadequate power supply. Resultantly the sector grew byDuring the course of the year, FBC Holdings Limited (“the just 2.7% in the year, with capacity utilisation pegged at anCompany”) acquired a controlling stake in Turnall Holdings average of 45%.from FBC Bank Limited through a dividend in specie in aGroup restructuring transaction. The Bank also disposed of Regulatory environment and capitalisationits shareholding in Steelnet Zimbabwe Limited and GBHoldings Limited. The Group also entered into an agreement The year 2010 saw the regulatory authorities continuedto acquire a controlling shareholding in Eagle Insurance focus on compliance with the revised United States ofCompany (Private) Limited. These acquisitions have America dollar capital requirements. The initial Central Banksignificantly improved the Groups revenue generating deadline for full compliance was extended from 31 Marchcapacity. The Group going forward will have a direct foothold 2010, to 30 December 2010, and subsequently to 30 Junein the insurance business, which for now was indirectly 2011. As at 31 March 2010, the FBC Holdings Limitedthrough FBC Reinsurance Limited and bancassurance subsidiaries were in full compliance with regulatorythrough third parties. It is expected that these acquisitions requirements as follows:will unlock value for the Group. FBC Bank Limited’s capital was US$23m compared toOperating environment the regulatory minimum capital requirement of US$12.5m FBC Building Society’s capital was US$11m comparedStable macro-economic and operating conditions ushered to the regulatory minimum capital requirement of US$10mat the beginning of 2009 continued into 2010, albeit with FBC Reinsurance Limited’s capital was US$5m comparedrenewed mild inflationary pressures emanating from a to the regulatory minimum capital requirement ofstrengthening rand and fuel price increases. Consequently US$400kyear end inflation was registered at 3.2%. Economic stability FBC Securities (Private) Limited’s capital was US$359kremained anchored on continued use of multi-currencies, a compared to the regulatory minimum capital requirementliberalized business environment and fiscal prudence. Most of US$100kmacro-economic indicators remained relatively conducivefor business. Despite a strong growth in bank deposits of The Central Bank also put in place initiatives to reintroduce88% at US$2,567,605,748.58 (US$2.6bn) by year end, the lender of last resort function and to implement the Baselliquidity constraints remained the major challenge in the II framework, which initiatives are expected to bear fruit ineconomy. Total loans and overdrafts accounted for 65% of 2011. The Group takes a strategic view to capitalisation intotal deposits - still far below the needs of industry. The mis- a manner that makes its respective businesses competitive.match between bank deposits and credit demandsubsequently yielded relatively higher lending rates - by Share price performanceregional parity standards at between 13-20%. The CentralBank remains constrained to play its role of lender-of-last Subdued conditions were experienced on the local equitiesresort, a fundamental for a vibrant inter-bank market. market due to constrained local market liquidity levels.
11 A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 Chairmans Statement (cont’d) Foreign buying remained highly selective on the back of the Outlook introduction of the Indigenisation and Empowerment Act. The FBC Holdings Limited (“FBCH”) share had a nil return Having attained a growth of 8.1% in 2010, the economy is over the year closing at 3.5c, against the industrial indexs finally starting to show signs of sustainable recovery. However, -0.44% movement. Price fluctuations saw the counter growth is likely to be slackened as political and business recording a low of 2.4c and a peak of 4.3c. During the year uncertainty increases. There is need for deeper reforms the Company undertook a successful rights offer to raise focused on economic as well as sector policies to consolidate US$8m for the recapitalisation of FBC Building Society and recovery, address vulnerabilities, and put the economy on enhancement of the underwriting capabilities of FBC a path to higher growth and employment. There are several Reinsurance Limited. Rights offer subscription was 65.76%. scenarios for the economy ahead, but all of them are ultimately As a result, the number of shares in issue increased from linked to Zimbabwes political economy and governance 362,401,016 to 590,738,106. situation. External finance will be necessary for the recovery to take hold, but finance will not come in unless policy Corporate social investment uncertainty is reduced. Inflationary pressures will remain substantial due to firming foreign currencies and in particular The Group continued to invest in the community the rand, as well as possible wage increases. The FBC notwithstanding the modest recovery in the economy. In Groups diversified portfolio, lean structure and adequate excess of US$70,000 was deployed towards community capital resources leave it poised to seize opportunities as events such as the Banks and Banking Survey, the Zimbabwe they arise in the recovering economy. Open Golf tournament, which returned after a 10-year break and various other deserving charities. Through the Bank, Appreciation FBC has partnered Zimbabwe Women in Trade and Development (“ZWITAD”) to support the empowerment and I wish to extend my sincere gratitude to all non-executive inclusion of marginalized women through access to banking directors for their guidance and support in what proved to facilities and education. The Group will remain committed be a challenging but promising environment. The Group to supporting education, enterprise development and financial Chief Executive, management team and staffs inclusion, sport, the arts and health sectors as part of its professionalism and dedication of all underpins the resilience corporate social responsibility. of the Group in a fragile economy going through recovery. Our customers confidence in our brand continues to inspire Directorate us as we assert the Group as a key player in Zimbabwes financial and construction material services landscape. There were no changes to the directorate for the year ended 31 December 2010. Dividend Herbert Nkala In view of the uncertain macroeconomic environment and GROUP CHAIRMAN the need to remain competitive, directors are recommending 14 June 2011 that the Company foregoes the declaration of a dividend for the period under review.
A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 12 Group Chief Executives Report ...there is still a lot of room for improvement in respect of the liquidity level in the economy...The FBC Group achieved a good underlying measure of result profit before income tax decreased by 33% in 2010growth in 2010 which was in line with the improvement in due to the retrenchment exercise as well as a loss incurredthe economy. The year 2010 was a period of aligning the by FBC Reinsurance Limited. Net interest income contributedGroups resources and capacity to our projected business 30% of total income, an improvement on 14% recorded involumes as well as the adoption of e-driven business 2009. Lending levels improved across the banking sectorstrategies. Business confidence continued to improve, and reflecting increased liquidity in the market. There is still a lotthe banking industry registered an encouraging increase in of room for improvement in respect of the liquidity level indeposits and clients. the economy, as well as the tenure of deposits which currently restricts the ability of banks and mortgage lenders to commitOperations review to medium to long term business. The Groups cost income ratio increased to 89% due to the once off US$3.5 millionGroup performance retrenchment exercise. The back-office operations of the Bank and the Building Society have been integrated and inThe Group recorded total income of US$38 million and a some cases branches have merged, thereby reducingprofit before income tax of US$4.1million after deducting operating expenses. The significantly reduced staffsome US$3.5 million in voluntary retrenchment costs. As a complement and the e-Commerce thrust should leverage
13 A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 Group Chief Executives Report (cont’d) the Group to underwrite more business on a lower cost base years is being provided. Additional land has been secured and this should lead to a much more favourable cost income in Waterfalls, Glaudina, Helensvale, Philadelphia, Borrowdale ratio in the medium to long term. and Glen Lorne to cope with the overwhelming demand for residential properties in Harare. The Building Society is also FBC Bank Limited liaising with municipal authorities countrywide with a view to rolling out new housing projects to other cities as the The Bank recorded a profit before income tax of US$5 million. effective demand for residential properties is expected to Whilst the lending levels improved gradually during the year, grow in the medium to long term. the absence of a lender-of-last-resort has curtailed the potential of the lenders. Interest income contributed 42% of FBC Securities (Private) Limited the Banks total income, signaling a return to core business. The Banks capital at US$23 million comfortably exceeds Nationwide liquidity constraints were a major threat to the the minimum regulatory capital requirement of US$12,5 equities market during 2010 and a low base of pension million and leaves room for other capital-demanding initiatives. contributions also impacted negatively on the performance Through various e-Commerce initiatives the Bank is poised of the market. The indegenisation and empowerment bill to compete in the unbanked space where significant deposits enacted during the first quarter was received negatively by lie untapped. The Bank remains a market leader in securing foreign investors resulting in the market recording a lean external lines of credit, which leaves it well positioned to spell for nearly six months. However, through strong clientele create sizeable quality assets amongst the borrowing middle relationships, group synergies and strong product cross to large corporates. selling the unit managed to break even. The units aggressive inroads into the region and foreign markets is anticipated to FBC Reinsurance Limited (“FBC Re”) bear fruit in the near future. FBC Re was recapitalized after a successful rights issue Turnall Holdings Limited (“Turnall”) early in the year. FBC Re recorded its first loss in the year with a negative return of US$1.6 million. The reinsurance Turnall is now a subsidiary of FBC Holdings Limited following company took a bold decision to correctly reposition the a dividend in specie by the Bank to FBC Holdings Limited. subsidiary by providing for all the doubtful debtors. This After allowing for once off retrenchment costs in the banking meant that all premiums that had not been collected within sector, Turnall became the biggest contributor to Group the acceptable credit period of 45 days were reversed. The profit, with a profit of US$4.9 million before income tax. policy for FBC Re going forward is setting and accepting Turnall volumes are expected to grow though the resurgence premiums that will be paid up in time and whilst delivering of the construction industry, in particular the demand for a profit, on average, after both prospective loss costs and pipes and roofing sheets. Turnall is strategic to FBC Building operating expenses are covered. Society in its mission to significantly contribute to the national housing stock in the country. FBC Building Society Service delivery The Building Society contributed US$473,000 towards the Group profit, a 760 % increase on its 2009 bottomline. On The Group will remain committed to delivering top service the back of a successful rights issue the Building Society to all its client segments. The Group ensured that the has since completed development of medium density housing rationalization of the branch network and back-office was units in Mainway Meadows and all the properties have been smooth and in some cases improved delivery to the customer. taken up. Mortgage financing of tenors between five and ten The Group believes technology will play a key part in
A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 14 Group Chief Executives Report (cont’d)extending timeless convenience and savings to more be able to access 24/7 convenience and service withoutcustomers. The Group continues to invest in upgrading as necessarily visiting FBC branches or offices.well as emerging technologies which will enhance thecustomers FBC service experience. Product developmentRisk management The Group believes innovation and responsiveness are necessary ingredients to success in a competitive and fastDespite an unusual loss recorded in January 2010 at one changing environment. The Group believes emergingof the FBC Bank branches the Group has maintained a technologies like mobile telephone present major opportunitiesvigilant risk management culture supported by a regular in the distribution of financial and information related services.policy review. The Group has largely averted robberies at The Group will employ technology to unlock latent potentialits premises and continues to monitor developments and amongst the unbanked. The Bank secured the membershiptake precautionary measures against such threats. of MasterCard and VISA in the course of the year, andManagement and board committees provide continuous expects to roll out the respective products in 2011. Thisoversight in respect of strategic, currency, credit, reputational association should leverage the FBC brand into the moreand operational risk. The Group regularly fine tunes its affluent segments whilst extending convenience and securitydisaster preparedness through the Group Business Continuity to travelling clients.Committee. AppreciationHuman resources The sustained support from our loyal and new customersThe Group successfully undertook a voluntary retrenchment continues to spur us to greater heights. Without the solidexercise in the middle of the year and managed to retain its support, guidance and encouragement from the board ofkey staff. Redeployment after the lay-offs was also directors, the stewardship of the business would have beensuccessfully done to ensure adequate resourcing of deficit more difficult. The commitment and resilience of managementareas. The Group is focusing on re-skilling to ensure staff and staff has been a source of strength and pride throughoutkeep abreast with the rapidly changing, competitive and the year. I wish to thank all stakeholders for their commitmenttechnology-driven environment. and dedication which ensured the success of the Group.Information technology and e-CommerceIn line with its e-Commerce strategy the Group continues toinvest in technology which is pivotal to its strategy with long-term value benefits of customer reach, convenience and lowdelivery cost. The Bank has embarked on the upgrade of its Livingstone T. Gwatacore banking system, which will also integrate the Building GROUP CHIEF EXECUTIVESociety going forward. The Group believes customers should 14 June 2011
15 A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 Directors Report For the year ended 31 December 2010 Your directors have pleasure in submitting their seventh annual report and financial statements, for the financial year ended 31 December 2010, for FBC Holdings Limited. 1. ACTIVITIES AND INCORPORATION The Company is incorporated in Zimbabwe and is an investment holding company. The Group comprises of three wholly-owned subsidiaries and two subsidiaries controlled 60% and 58% and one associate. The Group through its subsidiaries provide a wide range of commercial banking, mortgage finance related financial services, stock broking and reinsurance services and manufacturing of pipes and roofing sheets. During the year, the Group, through FBC Bank, disposed of its 29% and 19% shareholding in Steelnet Zimbabwe Limited and General Belting Zimbabwe Limited respectively. The shareholding in Turnall Holdings Limited was restructured from the Bank to FBC Holdings Limited through a dividend in specie. 2. AUTHORISED AND ISSUED SHARE CAPITAL The authorised share capital of the Company was 800 000 000 ordinary shares of a nominal value of US$0,00001 each as at 31 December 2010. The authorized and issued share capital was redenominated from Zimbabwean dollars to United States of America dollars through a special resolution passed on 26 April 2010. The issued and fully paid ordinary shares increased from 362 401 016 ordinary shares of US$ 0,00001 each to 590 738 106 ordinary shares of US$0,00001 after a rights issue that was undertaken in May 2010. The details of the authorized and issued share capital are set out in note 17 of the consolidated financial statements. 3. RESERVES The Groups total shareholders equity attributable to equity holders of the parent as at 31 December 2010 was US$46 499 031. The Company transferred US$3 624 from non- distributable reserves to share capital to fund the redonimation of the 362 401 016 ordinary shares of US$0,00001 each on redonimation of the issued share capital from Zimbabwean dollars to United States of America dollars. Further details of the movement in reserves are shown on the statement of changes in equity. 4. FINANCIAL STATEMENTS 31 Dec 2010 31 Dec 2009 US$ US$ The results reflected a profit before income tax for the year of 4 093 709 6 073 466 Income tax expense (2 412 648) (732 230) Profit for the year 1 681 061 5 341 236 Equity holders of the parent 67 346 5 024 265 Non-controlling interest 1 613 715 316 971 1 681 061 5 341 236
A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 16 Directors Report (cont’d) For the year ended 31 December 20105. DIRECTORS INTERESTS As at 31 December 2010, the Directors interest in the issued shares of the Company directly or indirectly is shown below: Directors shareholding Direct Indirect holding holding Total H. Nkala (Group Chairman) - 410 339 410 339 L. T. Gwata (Group Chief Executive) 129 291 281 680 410 971 J. Mushayavanhu (Executive Director) 103 221 32 269 082 32 372 303 T. Kufazvinei (Executive Director) 241 646 16 985 231 17 226 877 W. Rusere (Executive Director) 148 145 12 717 200 12 865 345 G. G. Nhemachena (Non Executive Director) 5 960 9 082 15 042 Stanley Kudenga (Executive Director) - 14 054 343 14 054 343 628 263 76 726 957 77 355 220 The other directors have no shareholding in the Company.6. DIRECTORATE Details of Directors are reflected on page 20. In terms of Article 95 of the Company’s Articles of Association Mr. James Mwaiyapo Matiza, Mrs. Gertrude Siyayi Chikwava and Ms. Nancy Saungweme retire by rotation. Ms. Saungweme is not seeking re-election. Being eligible, Mr. Matiza and Mrs. Chikwava offer themselves for re-election.
17 A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 Directors Report (cont’d) For the year ended 31 December 2010 7. CAPITAL ADEQUACY At 31 December 2010, the banking subsidiarys capital adequacy ratio computed under the Reserve Bank of Zimbabwe regulations was 14% and that of the building society was 74%, against the statutory minimum ratios of 10%. The respective capital adequacy ratios are determined as illustrated below. 31 Dec 2010 31 Dec 2009 US$ US$ FBC Bank Limited capital adequacy ratio Ordinary share and share premium 18 500 000 16 392 000 Retained profit 4 259 227 752 617 Statutory reserve - - Capital allocated for market and operational risk (2 353 842) (814 022) Advances to insiders (7 399 677) (1 157 199) Tier 1 capital 13 005 708 15 173 396 Other reserves 587 254 9 675 245 General provision 441 310 218 934 Tier 1 and 2 capital 14 034 272 25 067 575 Tier 3 capital allocated for market and operational risk 2 353 842 814 022 16 388 114 25 881 597 Risk weighted assets 115 965 336 74 061 179 Tier 1 ratio (%) 11% 20% Tier 2 ratio (%) 1% 14% Tier 3 ratio (%) 2% 1% Capital adequacy ratio (%) 14% 35%
A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 18 Directors Report (cont’d) For the year ended 31 December 20107. CAPITAL ADEQUACY (contd) FBC Building Society capital adequacy ratio 2010 2009 US$ US$ Share capital and share premium 10 141 559 6 332 800 Accumulated surplus 447 283 35 784 Capital allocated for market and Operational risk (296 004) (41 722) Advances to insiders (167 532) (139 361) Tier 1 capital 10 125 306 6 187 501 Supplementary Capital - Tier 2 839 778 839 778 Revaluation reserves 153 262 - General provision for doubtful debts 81 633 20 064 Tier 1 and 2 capital 11 199 979 7 047 343 Tier 3 capital allocated for market and operational risk 296 004 41 722 Tier 1, 2 and 3 capital 11 495 983 7 089 065 Total risk weighted assets 15 575 785 7 449 468 Tier 1 capital ratio 65% 83% Tier 2 capital ratio 7% 12% Tier 3 capital ratio 2% 1% Capital adequacy ratio 74% 95%
19 A N N UA L R E P O RT FO R T HE Y E A R E N DE D 31 DE C E M B E R 2010 Directors Report (cont’d) For the year ended 31 December 2010 8. DIVIDEND ANNOUNCEMENT maintained under the historical cost convention as modified by the revaluation of property, plant and In view of the uncertain macroeconomic environment equipment, investment property and financial assets and the need to remain competitive, directors are at fair value through profit or loss. recommending that the Company foregoes the declaration of a dividend for the period under review. 10. AUDITOR 9. DIRECTORS RESPONSIBILITY STATEMENT Messrs. PricewaterhouseCoopers Chartered Accountants (Zimbabwe) have expressed their The Directors are responsible for the preparation willingness to continue in office and shareholders and the integrity of the financial statements that will be asked to confirm their re-appointment at the fairly present the state of the affairs of the Group forthcoming Annual General Meeting and to fix their as at the end of the financial year, the statement remuneration for the past year. of comprehensive income, the statement of cash flows for the year then ended and other information contained in this report. The Groups financial By order of the Board statements have been prepared in accordance with International Financial Reporting Standards (IFRS”) and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations and in the manner required by the Zimbabwe Companies Act, Tichaona K. Mabeza (Chapter 24.03), the relevant Statutory instruments SECRETARY (“SI”) SI 33/99 and SI 62/96. The financial 14 June 2011 statements are based on statutory records that are
A NNUAL R EP O RT FO R T H E YEAR ENDED 31 DECEM BER 2010 20 Board of Directors For the year ended 31 December 2010HERBERT NKALA, B.Sc. Hons, MBA SHINGAI MUNYEZA - B. Compt, Dip Applied(CHAIRMAN) Accountancy, IMM, Doctorate of Business Development (NON-EXECUTIVE DIRECTOR)Appointed to the First Banking Corporation Limited Boardin February 1997. He is a Chairman and director of several Appointed to the Board of FBC Holdings Limited in Juneother companies, which are listed on the Zimbabwe Stock 2004. Mr Munyeza is the Group Chief Executive of AfricaExchange. Sun Limited and a director of several other companies. He resigned from the FBC Holdings Limited Board on 10 JanuaryLIVINGSTONE TAKUDZWA GWATA - B. Admin. CAIB, 2011.FIBZ(GROUP CHIEF EXECUTIVE) JAMES MWAIYAPO MATIZA - MSc - Social Protection and Financing, MBA (UZ), FCIS and Dip Business StudiesAppointed to the Board of First Banking Corporation Limited (UZ)in July 1998 as Managing Director. Appointed Group Chief (NON-EXECUTIVE DIRECTOR)Executive in August 2004. He is Chairman of Allied Timbers(Private) Limited (formerly Forestry Company of Zimbabwe). Appointed to the Board of FBC Holdings Limited in September He is also a past Chairman and President of the Institute 2009. He is the General Manager of National Social Securityof Bankers of Zimbabwe. Authority and holds directorships in a number of other companies.KENZIAS CHIBOTA - B.Acc (Hons), CA(Z)(NON-EXECUTIVE DIRECTOR) JOHNSON REX MAWERE (NON-EXECUTIVE DIRECTOR)Appointed to the Board of FBC Holdings Limited in August2004. He is the Chief Executive Officer of Destiny Electronics Appointed to the Board of FBC Holdings Limited in August(Private) Limited and director of several other companies. 2004. He is the former Mayor of the City of Kwekwe and is a director of several other companies.GERTRUDE SIYAYI CHIKWAVA - MSc StrategicManagement, AIBZ JOHN MUSHAYAVANHU - AIBZ, Dip Management, MBA(NON-EXECUTIVE DIRECTOR) (EXECUTIVE DIRECTOR)Appointed to the Board of FBC Holdings Limited in December Appointed to the Board of First Banking Corporation Limited2009. She is a director of several other companies. in October 1997 and was appointed Managing Director of FBC Bank Limited in August 2004. Appointed to the BoardPHILIP MHARIDZO CHIRADZA (MSC - Strategic of FBC Holdings Limited in August 2004. He is a careerManagement), Dip (Gen Management) banker and a director of several other companies.(NON -EXECUTIVE DIRECTOR) GODFREY GAVIRO NHEMACHENA - BSc. SocAppointed to the Board of FBC Holdings Limited in June (NON-EXECUTIVE DIRECTOR)2005. He is the former Managing Director of BeverleyBuilding Society and is also a director of several other Appointed to the Board of Directors of First Bankingcompanies. Corporation Limited in June 2002. He holds directorships in a number of other companies. He is the former Town ClerkSTANLEY KUDENGA - B.Acc (Hons), CA (Z), MBL for the City of Gweru and is the past Chairman of the Local(EXECUTIVE DIRECTOR) Authorities Pension Fund.Appointed to the Board of First Banking Corporation Limited WEBSTER RUSERE - AIBZ, MBAin June 2002 as Executive Director, Investment Banking. (EXECUTIVE DIRECTOR)He is the Managing Director of FBC Reinsurance CompanyLimited. Appointed to the Board of FBC Holdings Limited in June 2005. He is the Managing Director of FBC Building Society.TRYNOS KUFAZVINEI - B.Acc (Hons), CA(Z), MBA He is a career banker and has worked for a number of(GROUP FINANCE DIRECTOR) financial institutions.Appointed to the Board of First Banking Corporation Limited MS NANCY SAUNGWEMEin October 2003 and was appointed Group Finance Director (NON-EXECUTIVE DIRECTOR)in August 2004. He is responsible for the financial andadministration matters of the Group. Appointed to the Board of FBC Holdings Limited in July 2005. She is an entrepreneur and a former diplomat.
21 A N N UAL R EP O RT FO R T HE YEAR EN D ED 31 D ECEM BER 2010 Corporate Governance For the year ended 31 December 2010 THE BOARD meetings annually. To assist the Board in the discharge of its responsibilities a number of committees have been FBC Holdings Board is committed to the principles of established, of which the following are the most significant: openness, integrity and accountability. It recognises the developing nature of corporate governance and assesses BOARD FINANCE AND STRATEGY COMMITTEE its compliance with local and international generally accepted corporate governance practices on an ongoing basis through K. Chibota (Chairman) its various subcommittees. Guidelines issued by the Reserve P.M Chiradza Bank of Zimbabwe from time to time are strictly adhered to L.T. Gwata and compliance check lists are continuously reviewed. S. Kudenga T. Kufazvinei The Board of Directors comprises five executive directors J. Matiza and nine non-executive directors. The composition of the J. Mushayavanhu Board of FBC Holdings Limited shows a good mix of skill, W. Rusere experience as well as succession planning. The Group N. Saungweme derives tremendous benefit from the diverse level of skills and experience of its Board of Directors. The Board Finance and Strategy Committee has written terms of reference. It is chaired by a non-executive director. The Board is responsible to the shareholders for setting the Meetings of the committee are attended by invitation by direction of the Group through the establishment of strategies, other senior executives. This committee is constituted at objectives and key policies. The Board monitors the Group level and oversees the subsidiary companies. implementation of these policies through a structured approach to reporting and accountability. The committee meets at least four times a year to review the following: BOARD ATTENDANCE The Groups performance against agreed benchmarks, The Groups strategy and budget, Name Quarter Quarter Quarter Quarter The Groups financial statements and accounting policies, 1 2 3 4 The adequacy of the Groups management information Herbert Nkala √ √ √ √ systems. Livingstone T. Gwata* √ √ √ √ Kenzias Chibota x √ √ √ BOARD HUMAN RESOURCES AND REMUNERATION Gertrude M. Chikwava √ √ √ √ COMMITTEE Philip M. Chiradza √ √ √ √ Stanley Kudenga* √ √ √ x H. Nkala (Chairman) Trynos Kufazvinei* √ √ √ √ P.M. Chiradza James M. Matiza x √ x √ L.T. Gwata Shingirai A. Munyeza √ √ x x S.A Munyeza John Mushayavanhu* √ √ √ √ Johnson R. Mawere √ √ √ √ The committee is chaired by a non-executive director and Godfrey Nhemachena √ √ x √ mainly comprises non-executive directors except for the Nancy Saungweme √ √ √ √ Group Chief Executive. Meetings of the committee are Webster Rusere* √ √ √ √ attended by invitation by the Divisional Director of Human Resources and the subsidiary Managing Directors. This * Executive Directors. committee is constituted at Group level and oversees the Key: √ Attended subsidiary companies. x Apologies N/A Not applicable The committees primary objective is to ensure that the right calibre of management is attracted and retained. To achieve The Board meets regularly, with a minimum of four scheduled
A N N UA L R E P O RT FO R T HE Y E A R E N D E D 31 D E C E M BE R 2 010 22 Corporate Governance (cont’d) For the year ended 31 December 2010this it ensures that the directors, senior managers and other BOARD AUDIT COMMITTEEstaff are appropriately rewarded for their contributions to theGroups performance. P.M Chiradza (Chairman) J.R. MawereThe committee is also responsible for the Groups Human G.G. NhemachenaResources Policy issues, terms and conditions of service. The committee is chaired by a non-executive director andNon-executive directors are remunerated by fees and do comprises non-executive directors only. The Group Chiefnot participate in any performance-related scheme. Executive, Divisional Director of Internal Audit, the Managing Directors of the subsidiaries and the Group Finance DirectorBOARD CREDIT COMMITTEE all attend the committee by invitation. The committee is constituted at Group level and oversees subsidiaryB.N Kumalo (Chairman) companies.G. BeraL.T Gwata The committee meets regularly to:J. Mushayavanhu Review compliance with statutory regulations,This committee falls directly under the Bank and draws its Review the effectiveness of internal controls,members from the Bank’s Board. It sets the Banks credit Review and approve the audited annual financialpolicy and also approves credit applications above statements,managements authorised limits. The committee is responsible Review reports of both internal and external auditorsfor the overall quality of the Banks credit portfolio. The findings, instituting special investigations wherecommittee is chaired by a non-executive director. The necessary.Divisional Director of Credit and Risk Management attendsthe committee meetings by invitation. BOARD RISK AND COMPLIANCE COMMITTEEBOARD LOANS REVIEW COMMITTEE G. G. Nhemachena (Chairman) K. ChibotaP.F. Chimedza (Chairman) P. M. ChiradzaD. W Birch L.T. GwataS. M. Mutangadura S. Kudenga J. MushayavanhuThe committee falls directly under the Bank, and draws its W. Ruseremembers from the Bank’s Board, it comprises non-executivedirectors only. Meetings of the committee are attended by The committee is constituted at Group level and is responsibleinvitation by the Managing Director of the Bank, the Divisional for the Group Risk Management function. It is chaired by aDirector of Credit and Risk Management and the Group non executive director.Chief Executive. The committee is responsible for ensuringthat the Banks loan portfolio and lending abide by the BOARD ASSETS AND LIABILITIES COMMITTEEapproved credit policy as approved by the Board of Directorsand is in compliance with Reserve Bank of Zimbabwe B.N Kumalo (Chairman)requirements. It also ensures that problem loans are properly G.R. Beraidentified, classified and placed on non-accrual in accordance D.W Birchwith the Reserve Bank guidelines. The committee also L.T. Gwataensures that adequate provisions are made for potential J. Mushayavanhulosses and write-offs of losses identified are made in the S.M. Mutangaduracorrect period.
23 A N N UA L R E P O RT FO R T HE Y E A R E N D E D 31 D E C E M BE R 2 010 Corporate Governance (cont’d) For the year ended 31 December 2010 The committee falls directly under the Bank, draws its It meets fortnightly or more frequently if necessary and acts members from the Bank’s Board and is chaired by a non on behalf of the Board. executive director. It is responsible for the continuous monitoring of the Banks assets and liabilities. INTERNAL AUDIT INTERNAL CONTROLS The internal audit department examines and evaluates the Group’s activities with the aim of assisting management with The Directors are responsible for the Group’s internal control the effective discharge of their responsibilities. It reviews system, which incorporates procedures that have been the reliability and integrity of financial and operating designed to provide reasonable assurance that assets are information, the systems of internal control, the efficient safeguarded, proper accounting records are maintained and management of the Groups resources, the conduct of financial information is reliably reported. operations and the means of safeguarding assets. The key procedures which the Board considers essential to The Divisional Director of Internal Audit reports to the provide effective control include: Chairman of the Audit Committee. i) Decentralized organisational structure with strong RISK MANAGEMENT AND CONTROL management working within defined limits of responsibility and authority. (a) Introduction and overview Managing risk effectively in a diverse and complex ii) An annual budgeting process with quarterly re-forecasts financial institution requires a comprehensive risk to reflect changing circumstances, and the management governance structure that promotes the identification of key risks and opportunities. following elements of a sound risk management framework: iii) Detailed monthly management accounts with Sound board and senior management oversight. comparisons against budget through a comprehensive Adequate policies, procedures and limits. variance analysis. Adequate risk monitoring and management information systems (“MIS”). Nothing has come to the attention of the Directors to indicate Adequate internal controls. that any material breakdown in the functioning of these internal control procedures and systems has occurred during FBC Holdings Limited manages risk through a the year under review. comprehensive framework of risk principles, organizational structure and risk processes that are EXECUTIVE COMMITTEE closely aligned with the activities of the entities in the The operational management of the Group is delegated to Group. the executive committee, which is chaired by the Group Chief Executive. The executive committee is the chief The most important risks that the Group is exposed to operating decision maker for the Group. are listed below: The committee comprises: Reputational risk Strategic risk The Group Chief Executive Credit risk Managing Director (FBC Bank Limited) Liquidity risk Managing Director (FBC Reinsurance Limited) Market risk Managing Director (FBC Building Society) Operational risk Managing Director (FBC Securities (Private) Limited) Compliance risk Group Finance Director Group Company Secretary In addition to the above, there are also specific business Divisional Director Human Resources risks that arise from the Groups reinsurance companys core activities and the Groups manufacturing subsidiary.
A N N UA L R E P O RT FO R T HE Y E A R E N D E D 31 D E C E M BE R 2 010 24 Corporate Governance (cont’d) For the year ended 31 December 2010Risk management framework enhancement of the risk identification and measurement tools within the Group. All major policies and processes wereIn line with the Groups risk strategy, size and complexity of also reviewed in line with the Group risk strategy.its activities, the Board established a risk governance structureand responsibilities that are adequate to meet the Group compliance is an independent core risk managementrequirements of a sound risk management framework. activity that is headed by the Group Compliance and LegalThe Groups Board of Directors has the ultimate responsibility Manager who reports administratively to the Group Chieffor ensuring that an adequate and effective system of internal Executive and directly to the Group Risk and Compliancecontrols is established and maintained. The Board delegates Committee. The Group Compliance and Legal Manager hasits responsibilities to the following Committees through its unrestricted access to the Chairman of the Board.respective Board Committees: Group Risk and Compliance Committee Group Internal Audit independently audits the adequacy and effectiveness of the Groups risk management, control and Group Audit Committee governance processes. The Divisional Director of Group Group Human Resources and Remuneration Committee Internal Audit who reports administratively to the Group Chief Group Finance and Strategy Committee Executive and functionally to the Chairman of the Audit Credit Committees for the Bank and Building Society Committee, provides independent assurance to the Group Loans Review Committee for the Bank and Building Audit Committee and has unrestricted access to the Chairman Society of the Board. Risk and Compliance Committees for the Securities The principal risks to which the Group is exposed to and Company which it continues to manage are detailed below. Assets and Liabilities Committees (“ALCO”) for the Bank and Building Society Risk categoriesThe specific duties delegated to each committee of the Board Strategic riskand its respective Management Committee are outlined in Strategic risk is the current and prospective impact onthe terms of reference for the specific committees. earnings or capital arising from adverse business decisions,In addition to the above Committees, the following three risk improper implementation of decisions, or lack ofrelated functions are directly involved in Group-wide risk responsiveness to industry changes. The Board of Directorsmanagement: retains the overall responsibility for strategic risk management through the Board Finance and Strategy Committee. Group Risk Management function Group Internal Audit Reputational risk Group Compliance Reputational risk is the potential that negative publicity regarding the Groups business practices whether true orGroup Risk Management Division assumes a central role in not will cause a decline in the customer base, costly litigation,oversight and management of all risks that the Group is or revenue reductions. This risk may result from the Groupsexposed to in its various activities. The Head of Group Risk failure to effectively manage any or all of the other risk types.Management is responsible for recommending to the Group Management translates the reputational risk managementRisk Committee and the Board Risk Committee a framework strategy established by the Board of Directors into policies,that ensures the effective management and alignment of processes and procedures that are implemented throughoutrisk within the Group. The Head of Group Risk Management the Group.is responsible for the process of identifying, quantifying,communicating, mitigating, monitoring, and planning for Credit riskeffective risk management. Credit risk is the current or prospective risk to earnings and capital arising from a debtors failure to meet the terms ofThe Group revamped its risk management structures and any contract with the Group or if a debtor otherwise fails tosystems which resulted in the establishment of an perform as agreed.independent risk management division at Group level and
25 A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 Corporate Governance (cont’d) For the year ended 31 December 2010 Credit risk framework and governance business. To mitigate this risk, the Group and its subsidiaries The Groups largest source of credit risk is loans and trade has put mechanisms in place to enhance its stress testing receivables, albeit that credit risk exists throughout the other methodologies. activities of the Group on and off the balance sheet. These other activities include inter-bank lending, mortgage loans, Impairments foreign exchange transactions and guarantees. Given the An allowance for loan impairment is established if there is significant size of the loan portfolio and trade receivables objective evidence that the Group will not be able to collect on the statement of financial position of the Group, credit all amounts due according to the original contractual terms risk remains one of the major risks. of loans. The amount of the allowance is the difference between the carrying amount and the recoverable amount, To effectively manage credit risk, the Board and Management being the present value of expected cash flows, including established an effective and sound credit risk management amounts recoverable from guarantees and collateral, framework which is supported by a strong risk culture and discounted at the original effective interest rate of loans. environment. Credit risk management is governed by each entitys credit policy guidelines and ultimately approved by Credit terms: the Board of Directors. The Board of Directors is ultimately Default responsible for credit risk. Group Credit Management This is failure by a borrower to comply with the terms and Division, is responsible for the implementation of the credit conditions of a loan facility as set out in the facility offer letter policies, which cover compliance with prescribed sanctioning or loan contract. Default occurs when a debtor is either authority levels, avoidance of a high concentration of credit unwilling or unable to repay a loan. risk and regular review of credit limits. The Group Risk Management Division, Group Compliance and Group Audit Past due loans also monitor independently the management of credit risk. These are loans whereby the debtor is in default by exceeding the loan tenure or expiry date as expressly set out in the Credit policies, procedures and limits loan contract i.e. the debtor fails to repay the loan by a The Group has sound and well-defined policies, procedures specific given date. and limits which are reviewed and approved by the Board of Directors and strictly implemented by management. Credit Impaired loans risk limits include delegated approval and write-off limits to The Groups policy regards impaired/ doubtful loans as all advances managers, management and subsidiaries Board those loans where the degree of default becomes extensive credit committees, counterparty limits, individual account such that the Group no longer has reasonable assurance limits, group limits and concentration limits. of collection of the full outstanding amount of principal and interest. All such loans are classified in the C, D and E loan Credit risk mitigation and hedging categories, as defined below. As part of the Groups credit risk mitigation and hedging strategy, various types of collateral is taken by the banking Provisioning policy and write offs subsidiaries. These include mortgage bonds over residential, Provisioning is determined on the basis of account commercial and industrial properties, cession of book debts classification whereby provisions or provisioning methods and the underlying moveable assets financed. In addition, are uniformly determined for specific grades. a guarantee is often required particularly in support of a credit facility granted to counterparty. Generally, guarantor The Group complies with the following Reserve Bank of counterparties include parent companies and shareholders. Zimbabwe provisioning requirements: Creditworthiness for the guarantor is established in line with the credit policy. General provisioning “Grade A and B" Pass Grade “A”- No evident weakness, performing to Credit risk stress testing contractual terms The Group and its subsidiaries recognise that possible events General provisions for facilities in this category are maintained or future changes could have a negative impact on the credit at 1% of total customer account outstanding balances and portfolios and affect the Groups ability to generate more off balance sheet (i.e. contingent) risks.
A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 26 Corporate Governance (cont’d) For the year ended 31 December 2010Special Mention Grade “B” - Exhibits potential continues to implement all Basel II related guidelines issuedweaknesses, which require close monitoring by the Central Bank and internal processes have beenGeneral provisions for these facilities are maintained at 3% revamped in an effort to comply with the requirements. Aof total customer account outstanding balances and off robust risk management system for credit risk is beingbalance sheet (i.e. contingent) risks. implemented in preparation for the full Basel II implementation.Specific provisioning Grade “C to E” Liquidity riskSub-Standard Grade “C” - Timely repayment and/or Liquidity risk is the current or prospective risk to earningssettlement may be at risk. and capital arising from the Groups inability to meet itsSpecific provisions for facilities in this category are currently liabilities when they fall due without incurring unacceptablemaintained at 20% of total customer outstanding balances losses.and off statement of financial position (i.e. contingent) risksless the value of tangible security held. Liquidity risk framework and governance The Group does not treat liquidity risk in isolation as it isDoubtful Grade “D” - Full repayment and/or settlement often triggered by consequences of other financial risks suchhighly improbable as credit risk and market risk. The Groups liquidity riskSpecific provisions for exposures in this grade are currently management framework is therefore designed to ensuremaintained at 50% of total customer outstanding balances that its subsidiaries have adequate liquidity to withstand anyand off statement of financial position (i.e. contingent) risks stressed conditions. To achieve this objective, the Board ofafter deducting the value of any tangible security held. Directors through the entities Board Asset and Liability Committees is ultimately responsible for liquidity riskLoss Grade “E” - Collection not possible management. The responsibility for managing the dailySpecific provisions for debts in this category are currently funding requirements is delegated to the Heads of Treasurymaintained at 100% of total customer outstanding balances Divisions for banking entities and Finance Managers forand off statement of financial position (i.e. contingent) risks non-banking entities with independent day to day monitoringagain after deducting the value of any tangible security held. being provided by Group Risk Management.Other considerations to impairment policy Liquidity and funding managementThe Group simultaneously considers the RBZ provisioning The Groups management of liquidity and funding isrequirements as set out in the preceding paragraphs and decentralised and each entity is required to fully adopt thethe impairment allowance of IAS 39 - Financial Instruments: liquidity policy approved by the Board with independentRecognition and Measurement and calculates the most monitoring being provided by the risk management function.prudent impairment allowance for its loans and advances The Group uses concentration risk limits to ensure thatbased on the two methods. Where the regulatory provisions funding diversification is maintained across the products,are higher than the IAS39 impairment losses, the excess is counterparties and sectors. Major sources of funding are intreated as an appropriation to regulatory allowance reserve. the form of deposits across a spectrum of retail and wholesale clients for all the subsidiaries.The basis for writing off assetsWhen an advance which has been identified as impaired Cash flow and maturity profile analysisand subjected to a specific allowance, continues to deteriorate, The Group uses the cash flow and maturity mismatch analysisa point will come when it may be concluded that there is no on both contractual and behavioural basis to assess theirrealistic prospect of recovery. Authority will be sought from ability to meet immediate liquidity requirements and plan forGroup Credit Management Division for the exposure to be their medium to long term liquidity profile.immediately written off from the Groups books while longterm recovery strategies are being pursued. Liquidity contingency plans In line with the Groups liquidity policy, liquidity contingencyCredit risk and Basel II plans are in place for the subsidiaries in order to ensure aThe Group took a gradual process in implementing Basel II positive outcome in the event of a liquidity crisis. The plansin line with the regulatory authorities approach. The Group clearly outline early warning indicators which are supported
27 A N N UAL R E P ORT FOR T H E YE AR E N D E D 31 D E CE M B E R 2 010 Corporate Governance (cont’d) For the year ended 31 December 2010 by clear and decisive crisis response strategies. The crisis Framework and governance response strategies are created around the relevant crisis The Board of Directors is ultimately accountable and approves management structures and address both specific and the appetite for all types of market risk. The Board delegated market crises. the effective management of market risk to the entities Assets and Liabilities Committees (ALCO) for the banking Liquidity stress testing entities and Risk and Compliance Committees for non- It is the Groups policy that each entity conducts stress tests banking entities. On a day-to-day basis, market risk exposures on a regular basis to ensure that they have adequate liquidity are independently reviewed and measured by the Group to withstand stressed conditions. In this regard, anticipated Risk Management function, and appropriate management on- and off-statement of financial position cash flows are reports are generated. Trading limits are set for individual subjected to a variety of specific and systemic stress scenarios business units to contain losses within a specified amount during the period in an effort to evaluate the impact of unlikely in the event of adverse market movements. events on liquidity positions. Market risk measurement Market risk The tools for measuring market risk that are applied within Market risk is the risk of financial loss in on and off-statement the Group range from the very fundamental and basic of financial position trading positions arising from movements marking-to-market, to the more sophisticated Value at Risk in market prices. Market risk exists whenever the Group has models (“VAR”). Generally, measurement tools in use at any taken trading, banking or investment positions. point in time are commensurate with the scale, complexity, and nature of trading activities and positions held by entity. Market risk from trading positions The tools and techniques used to measure and control The Group uses a collection of risk measurement market risk include the repricing gap, scenario analysis on methodologies to assess market risk, including stress testing, net interest income and economic value of equity, stop loss loss triggers and traditional risk management measures. limits, duration analysis, stress testing and Value at Risk. In addition, the Group also performs ratio analysis on the key Market risk from banking positions ratios of each entity. Risk limits for all the measures are Banking related market risk is contained within the Groups documented in each entitys ALCO policy. Group Risk two major treasury operations at the Bank and the Building Management performs regular reviews of the existing models Society. The interest rate risk profile is assessed regularly to ensure that they are still relevant and behaving within based on the fundamental trends in interest rates, economic expectations. developments and technical analysis. Operational risk Market risk from investments Operational risk is the risk of loss arising from the potential This is managed in accordance with their purpose and that inadequate information system, technology failures, strategic benefit rather than on market considerations and breaches in internal controls, fraud, unforeseen catastrophes, periodic reviews and reassessments are undertaken. or other operational problems may result in unexpected losses. Operational risk exists in all products and business Foreign currency risk activities. Foreign exchange rate risk is the current or prospective risk to earnings and capital arising from adverse movements in Groups approach to managing operational risk currency exchange rates. The potential for loss arises from The Groups approach is that business activities are the process of revaluing foreign currency positions on both undertaken in accordance with fundamental control principles on- and off- statement of financial position items, in United of operational risk identification, clear documentation of States of America dollar terms. This risk is largely concentrated control procedures, segregation of duties, authorization, at FBC Bank Limited and FBC Reinsurance Limited. close monitoring of risk limits, monitoring of assets use, reconciliation of transactions and compliance.