FMBcapital : FMBCH Y2023 Annual Booklet

2023

ANNUAL FINANCIAL STATEMENTS

Belief comes first.

Contents

1	Directors'		6	Independent		14 Statements of
	report				auditor's report			changes in equity
4	Directors'		12	Statements of			Statements of
responsibilities		financial position		17
					cash flows
5	Certificate from		13	Statements of profit
the Secretary		or loss and other
					comprehensive
					income
	18	Notes to the
	financial statements
1	Reporting entity	18	19	Investment in joint		41	Group subsidiaries	159
2	Basis of preparation	18		venture	137	42	Net interest income	165
20	Other assets	138
3	Adoption of new and		43	Net fee and commission
	revised International		21	Investment property	139		income	166
	Financial Reporting		22	Intangible assets	139	44	Income from investments 167
	Standards	20
4	Segment reporting	24	23	Leases	140	45	Net gains on foreign
				exchange transactions	167
5	Significant accounting		24	Property and equipment	141
	46	Other operating income	167
	judgements, estimates		25	Deferred tax	146
	and assumptions	28	26	Balances due to		47	Staff and training costs	167
6	Material accounting			48	Premises and
		other banks	147
	policies		32	27	Customer deposits	150		equipment costs	168
7	Risk management	55	49	Depreciation and
28	Other payables	150
8	Fair value measurement	122		amortisation	168
29	Loans payable	150
9	Cash and balances		50	Administration and
	30	Subordinated debt	151		general expenses	168
	with central banks	130
10	Money market		31	Financial guarantees,		51	Impairment loss on
			financial assets	169
	investments	131		letters of credit and
11	Loans and advances			other undrawn		52	Basic and diluted
		commitments	152
			earnings per share	169
	to customers	132
	32	Convertible preference
12	Repurchase agreements	133		53	Contingent liabilities	170
	shares	152
	54	Capital commitments	170
13	Derivative financial		33	Maturity analysis of
	instruments	133		assets and liabilities	154	55	Related party
14	Current tax	134	34	Provisions	157		transactions	171
56	Directors' fees and
15	Assets held for sale	135	35	Share capital	157
	expenses	175
16	Investments at fair
	36	Restructuring reserve	157	57	Events after the
	value through profit
		37	Property revaluation			reporting date	175
	or loss		136
17	Investments at fair value			reserve	158	58	Exchange rates used for
	38	Loan loss reserve	158		translating the Group's
	through other
			foreign operations	176
	comprehensive income	136	39	Other reserves	158
18	Investments in		59	Net monetary loss	176
	40	Foreign currency
	subsidiary companies	137		60	Restatements	177
		translation reserve	158

178	Abbreviations	179	Where to find us	IBC	Key corporate
and acronyms	information

2023 ANNUAL FINANCIAL STATEMENTS

Directors' report

for the year ended 31 December 2023

The Board of Directors of FMBcapital Holdings Plc (the Board or the Directors) are pleased to submit their report together with the audited consolidated and separate financial statements of FMBcapital Holdings Plc (the Company) and its subsidiaries (the Group) for the year ended 31 December 2023.

Nature of business

The Company is a public limited liability company incorporated in Mauritius, registered as a Global Business Licence company with the Financial Services Commission in Mauritius, and listed on the Malawi Stock Exchange.

The Company owns and manages a portfolio of direct and indirect subsidiary investments which are principally involved in the provision of commercial banking services. Details of group subsidiaries, including their countries of domicile, are set out in Note 41 of the financial statements.

Directors' interests in the Company

As at 31 December 2023, the total direct and indirect interests of the Directors and parties related thereto in the issued ordinary share capital of the Company were as follows:

		2023		2022
Name		Shares	%	Shares	%
Premier Capital (Mauritius) Limited	(i)	766 266 044	31.17%	766 266 044	31.17%
Summerhill Trust Company	(v)	480 900 000	19.56%	480 900 000	19.56%
Prime Bank Limited	(v)	262 500 000	10.68%	262 500 000	10.68%
Prime Capital Holdings Limited	(v)	262 500 000	10.68%	262 500 000	10.68%
Magni Holdings Limited	(i)	232 000 000	9.44%	232 000 000	9.44%
Hitesh N Anadkat	(i)	62 297 891	2.53%	62 797 891	2.55%
N. G. Anadkat Limited	(i)	27 067 289	1.10%	27 067 289	1.10%
Livingstone Exports Limited	(i)	13 446 961	0.55%	16 446 961	0.66%
Livingstone Holdings Limited	(i)	13 116 970	0.53%	13 116 970	0.53%
Thomas Kadantot	(ii)	1 587 600	0.06%	1 587 600	0.06%
Omega O'Neill	(iii)	1 309 391	0.05%	1 309 391	0.05%
Shaun Anadkat	(iv)	700 000	0.03%	700 000	0.03%
Sheena Anadkat	(iv)	500 000	0.02%	500 000	0.02%
Dillon Anadkat	(iv)	400 000	0.02%	400 000	0.02%

1. Mr. H. N. Anadkat and members of his immediate family have beneficial interests in Premier Capital (Mauritius) Limited, NG Anadkat Limited, Livingstone Exports Limited, Magni Holdings Limited and Livingstone Holdings Limited.

(ii Mr. T. Kadantot is a director of First Capital Bank Plc Malawi, a wholly owned subsidiary of the Company.

1. Mr. J.M. O'Neill was a director of the Company until May 2022, whereupon he resigned. Mr. J.M. O'Neill has a beneficial relationship with Omega O'Neill.
2. Mr. Shaun Anadkat, Ms. Sheena Anadkat and Mr. Dillon Anadkat are immediate family members of Mr. H. N. Anadkat.
3. Summerhill Trust Company, Prime Bank Limited and Prime Capital Holding Limited are controlled by a common ultimate beneficial owner, who has a director seat with First Capital Bank Plc Malawi, a wholly owned subsidiary of the Company.

The Board of Directors and Directors' remuneration

As at 31 December 2023, the Board comprised of:

Terence Michael Davidson - Chairman	Hitesh Natwarlal Anadkat
Busisa Moyo	Johannes Christoffel Els
Gavin Chapman	Mahendra Gursahani
Priscilla Balgobin-Bhoyrul	Rajkamal Taposeea
Susanne Alfs

The Board is responsible for directing the affairs of the Company in the best interests of its shareholders, in conformity with legal and regulatory frameworks, and consistent with its constitution and best governance practices.

The Company adopts and conforms to the main principles of modern corporate governance and in particular, those principles set out in the guidance for holders of a Global Business Licence in the National Code of Corporate Governance for Mauritius and the Malawi Code II (Code of Best Practice for Corporate Governance in Malawi).

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2023 ANNUAL FINANCIAL STATEMENTS

Directors' report (continued)

for the year ended 31 December 2023

The Board of Directors and Directors' remuneration (continued)

The individual remuneration of the Directors is disclosed below:

USD	2023	2022
Directors' remuneration
Terence M. Davidson	60 000	60 000
Hitesh N. Anadkat	18 000	18 000
Busisa Moyo	18 000	9 000
Johannes C. Els	18 000	18 000
Mahendra Gursahani	18 000	18 000
Priscilla Balgobin-Bhoyrul	18 000	18 000
Rajkamal Taposeea	18 000	18 000
Susanne Alfs	18 000	18 000
John M. O'Neill	-	9 000
	186 000	186 000

Change in functional currency: Zimbabwe

Effective 1 January 2023, the Board of First Capital Bank (FCB) Zimbabwe and Afcarme (Afcarme) Zimbabwe Holdings (Private) Limited implemented a change in functional currency from Zimbabwe Dollar (ZWL) to United States Dollar (USD).

This change was occasioned after careful consideration of a number of fundamental factors, including, but not limited to, a continuing multi-currency legal environment, an increasing prevalence of USD in transactional and trade quoting and settlement, both across the economy and within the FMBCH Group's Zimbabwe operations. This was further supported by various official monetary policy and other statements issued by the Government of Zimbabwe through the Reserve Bank of Zimbabwe, Ministry of Finance, among other organs of the Government, recognising the continued dominance of USD usage across the economy both prior to and into 2023. In addition, during 2023, FCB Zimbabwe listed on the Victoria Falls Stock Exchange, a USD denominated exchange on which listing of all securities, settlement of share sales, and distributions of dividend and interest are all in USD.

These bases for change in functional currency were tested against International Accounting Standard (IAS) 21, and found to be satisfactory by FCB Zimbabwe's and Afcarme's statutory external auditors, Deloitte Zimbabwe. Deloitte issued an unmodified opinion on the annual financial statements of FCB Zimbabwe for the year ended 31 December 2023. Accordingly, the Board of FMBCH and the Board of First Capital Bank Zimbabwe remain satisfied that the change in functional currency was, and is, appropriate and supported by continuing prevailing trade and economic factors specific to the businesses concerned. A consideration of the alternative measurement basis was performed, and the Board concluded that the impact of the same was a prudent and representative measure of FCB Zimbabwe's financial position, performance and cashflows.

The net effect of applying IAS 21 conventions to the statement of profit and loss was to understate net foreign exchange gains and the effects of changes in foreign exchange translation by USD 1.991 million after taxation, as compared to the alternative net monetary loss that would have resulted had IAS 29 conventions been applied instead.

In summary, the Directors view the effect of adopting USD as functional currency as being limited to foreign exchange gains and losses, and alternative net monetary losses, and their related balance sheet impacts.

Further disclosure on this prospective change can be referenced in Notes 2.3.1, 5.6, 6.1.1, and 59 of these financial statements.

Dividend

A second interim dividend in respect of the financial year ended 31 December 2022 of USD 8 312 625 (0.34 US cents per ordinary share) was declared by the Directors in May 2023, and paid in June 2023. An interim dividend in respect of the financial year ended 31 December 2023 of USD 5 162 325 (0.21 US cents per ordinary share) was approved by the Directors in August 2023 and paid in November 2023.

The Directors have approved a final dividend in respect of the financial year ended 31 December 2023 of

USD 10 625 148 (0.43 US cents per ordinary share). The financial statements for the current financial year do not reflect this dividend. The dividend will be accounted for in equity as an appropriation of accumulated profits in the financial year ending 31 December 2024, and will be paid upon approval of shareholders at the Annual General Meeting held in June 2024.

The Group's ability to continue as a going concern was also considered, including the normalisation of the COVID-19 pandemic, and varied socio-economic and macroeconomic factors, as well as their impact on the Group's future results. All these factors were managed and responded to adequately through Groupwide governance, strategy and execution, and no unmitigated material risks to the sustainability of the Group's financial results, position and cash flows were noted by the Directors.

Therefore, the dividend in relation to the 2023 financial year will amount to USD 15 787 473 (2022: USD 12 000 000), comprising an interim dividend of USD 5 162 325, or 0.21 US cents per share (2022: USD 3 687 375, or 0.15 US cents) and a final dividend of USD 10 625 148, or 0.43 US cents per share (2022: USD 8 312 625, or 0.34 US cents per share). This will equate to a 30% dividend pay out against profit attributable to owners of the Company (2022: 30%).

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2023 ANNUAL FINANCIAL STATEMENTS

Directors' report (continued)

for the year ended 31 December 2023

Financial risk factors

The consideration of major financial risks impacting on the Group's operations has been set out in Note 7 of the financial statements.

Donations

During the year, no donation for political purposes was made by the Company or any of its subsidiaries. As part of its Social Responsibility Strategy, the Company and its subsidiaries continue to engage in corporate social investment for causes including, but not limited to, disaster relief, healthcare advancement, education, culture, youth and sports.

Ethical standards

The Board is fully committed to ensuring the Group's affairs are conducted with integrity and that the highest ethical standards are maintained. All employees of the Group are required to abide by a code of conduct containing detailed guidelines governing ethics and integrity in the workplace. The Company has launched refreshed cultural values aligned to the FMBCH Group strategy, "Growth is our business". These values reinforce the Board's commitment to ethical conduct in all aspects of the Group's dealings.

Auditor's report and financial statements

The independent auditor's report is set out on pages 6 to 11.

Going concern

The Directors have no reason to believe that the Group will not be a going concern in the period ahead. The going concern assessment was performed through a review of the economic conditions in which the Group is expected to perform over the next 12 months, its ability to adapt its strategy, business and operating models to the projected macro environment, financial forecasts and business underwriting capacity. The Group has sufficient capital, human and physical resources, as well as sources of sustainable deposits, and other funding, which are well diversified. The Group is, therefore, able to address short-term as well as medium-term stress factors within reasonable parameters. The Board includes such considerations in its rigorous Internal Capital Adequacy Assessment Planning (ICAAP) process, which form a robust basis to use in the going concern assessment.

On behalf of the Board

Terence Davidson	Busisa Moyo
Director	Director

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2023 ANNUAL FINANCIAL STATEMENTS

Directors' responsibilities

for the year ended 31 December 2023

The Directors are responsible for the preparation and fair presentation of the consolidated and separate annual financial statements of FMBcapital Holdings Plc, comprising the consolidated and separate statements of financial position as at 31 December 2023 and the statements of profit or loss and other comprehensive income, statements of changes in equity and statements of cash flows for the year ended 31 December 2023, and the notes to the financial statements which include a summary of accounting policies and other explanatory notes, in accordance with International Financial Reporting Standards (IFRS®) Accounting Standards. The consolidated and separate financial statements comply with the Mauritius Companies Act, 2001 (the Companies Act) as far as it is applicable to companies holding a Global Business Licence. In addition, the Directors are responsible for preparing the Directors' Report.

The Companies Act requires the Directors to ensure that the Group and Company maintain proper accounting records which disclose with reasonable accuracy at any time the financial position of the Group and Company and ensure the financial statements comply with the Companies Act.

In preparing the consolidated and separate financial statements, the Directors accept responsibility for the following:

• Maintenance of proper accounting records
• Selection of suitable accounting policies and applying them consistently
• Making judgements and estimates that are reasonable and prudent
• Compliance with applicable accounting standards, when preparing financial statements, subject to any material departures being disclosed and explained in the consolidated and separate financial statements; and
• Preparation of financial statements on a going concern basis unless it is inappropriate to presume the Company will continue to operate for the foreseeable future.

The Directors are also responsible for such internal control as the Directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error, and for maintaining adequate accounting records and an effective system of risk management.

The Directors confirm that they have complied with the above requirements in preparing the consolidated and separate financial statements.

Approval of financial statements

The consolidated and separate financial statements of FMBcapital Holdings Plc as identified in the first paragraph, were approved by the Board of Directors on 31 May 2024 and are signed on its behalf by:

Terence Davidson	Busisa Moyo
Director	Director

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2023 ANNUAL FINANCIAL STATEMENTS

Certificate from the Secretary

We certify to the best of our knowledge and belief that we have filed with the Registrar all such returns as are required of FMBcapital Holdings Plc, under the Mauritius Companies Act, 2001 during the financial year ended 31 December 2023.

Manogaran Thamothiram

for JTC Fiduciary Services (Mauritius) Limited

Corporate Secretary

Registered Office:

C/o JTC Fiduciary Services (Mauritius) Limited Unit 5ABC,

5th Floor,

Standard Chartered Tower,

19 Cybercity,

Ebène, Mauritius

31 May 2024

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6th Floor, IconEbene	Fax: [phone]
Rue de L'institut	www.ey.com
Ebene, Mauritius

INDEPENDENT AUDITOR'S REPORT

TO THE MEMBERS OF FMBCAPITAL HOLDINGS PLC

REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS

Qualified Opinion

We have audited the consolidated and separate financial statements of FMBcapital Holdings Plc (the "Company") and its subsidiaries (the "Group") set out on pages 12 to 179, which comprise the consolidated and separate statements of financial position as at 31 December 2023, and the consolidated and separate statements of profit or loss and other comprehensive income, the consolidated and separate statements of changes in equity and the consolidated and separate statements of cash flows for the year then ended, and notes to the consolidated and separate financial statements, including material accounting policy information.

In our opinion, except for the possible effects of the matter described in the Basis for Qualified Opinion Section, the consolidated and separate financial statements give a true and fair view of the consolidated and separate financial position of the Group and Company as at 31 December 2023, and of its consolidated and separate financial performance and consolidated and separate cash flows for the year then ended in accordance with IFRS Accounting Standards as issued by the International Accounting Standards Board and comply with the Companies Act 2001.

Basis for Qualified Opinion

As described in Note 2.3.1, one of the Group's subsidiaries operating in Zimbabwe, changed its functional currency from Zimbabwean Dollars (ZWL) to United States Dollar (USD) with effect from 1 January 2023. The criteria under IAS 21 - The Effects of Changes in Foreign Exchange Rates for the change in functional currency were not met at 1 January 2023, as the factors supporting the change in the functional currency did not occur earlier than the last quarter of the financial year ended 31 December 2023. Accordingly, given that Zimbabwe is a hyperinflationary economy, IAS 29 Financial Reporting in Hyperinflationary Economies should continue to have been applied by the Zimbabwean subsidiary until the end of the third quarter of the financial year. The incorrect application date of the change in functional currency and the non-application of the requirements of IAS 29 - Financial Reporting in Hyperinflationary Economies for the period until the change in functional currency ought to have taken effect, constitute a departure from IFRS Accounting standards. The impact of the departure would cause elements of the consolidated financial statements, including gain or loss on foreign exchange transactions and net monetary loss in the consolidated statement of profit or loss and other comprehensive income, and total equity in the consolidated statement of financial position to be materially misstated. Due to the fact that the accounting records of the underlying subsidiary in Zimbabwe have not been kept in ZWL, but rather in USD as from 1 January 2023, the impact of the misstatements has not been quantified.

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor's Responsibilities for the Audit of the Consolidated and Separate Financial Statements section of our report. We are independent of the Group and Company in accordance with the International Ethics Standards Board for Accountants' International Code of Ethics for Professional Accountants (including International Independence Standards) (the "IESBA Code") and other independence requirements applicable to performing audits of financial statements of the Group and Company and in Mauritius. We have fulfilled our other ethical responsibilities in accordance with the IESBA Code and in accordance with other ethical requirements applicable to performing audits of the Group and Company and in Mauritius. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our qualified opinion.

Key Audit Matters

Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated and separate financial statements of the current period. These matters were addressed in the context of our audit of the consolidated and separate financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. For each matter below, our description of how our audit addressed the matter is provided in that context. In addition to the matter described in the Basis for Qualified Opinion section we have determined the matters described below to be the key audit matters to be communicated in our report.

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INDEPENDENT AUDITOR'S REPORT

TO THE MEMBERS OF FMBCAPITAL HOLDINGS PLC

REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS (CONTINUED)

We have fulfilled the responsibilities described in the Auditor's responsibilities for the audit of the consolidated and separate financial statements section of our report, including in relation to these matters. Accordingly, our audit included the performance of procedures designed to respond to our assessment of the risks of material misstatement of the consolidated and separate financial statements. The results of our audit procedures, including the procedures performed to address the matters below, provide the basis for our audit opinion on the accompanying consolidated and separate financial statements.

The Key Audit Matters applies only to the audit of the consolidated financial statements.

Key Audit Matter	How the matter was addressed in the audit
Expected credit losses (ECL) on loans and	Our audit procedures in assessing the ECL included the
advances to customers.	following:
The Group has a net loans and advances	We have obtained an understanding of the Group's processes
portfolio of USD 716,388,728 as at 31	and tested the design effectiveness of the Group's internal
December 2023. As explained in the	controls over credit origination, credit monitoring and credit
accounting policies, these loans and	remediation, as well as the governance process over the
advances are carried at amortised cost, less	approval and review of the Group's ECL models, including
allowance for credit impairment for USD	management adjustments.
19,792,337. The Group's net loans and
advances represented 47% of the Group's	Modelled ECL allowance
total assets at the reporting date.	With the assistance of our internal specialists:
In arriving at the reported expected credit
losses, management applied judgements	∙ We assessed the conceptual soundness of the model
and made assumptions which, by their very	construct and statistical/mathematical techniques applied
nature, are subjective due to the significant	as well as the reasonableness underpinning significant
uncertainty associated with them. The main	assumptions applied with reference to the requirements of
inputs with increased complexity in respect	IFRS 9 - Financial instruments, in determining the
of the timing and measurement of ECL	probability of default (PD), exposure at default (EAD) and
include:	loss given default (LGD) parameters included in the models;
∙ Modelled ECL allowance -TheGroup's	∙ We independently reperformed the model calculations as
loans and advances portfolio is	per the model documentation (model build steps) and
disaggregated into two main sections-	independently recomputed the PD, EAD and LGD
Corporate loan book and Retail loan	parameters using the model build steps and managements
book. The ECL allowance is calculated	inputs, to assess the reasonableness of the ECL model
using a modelled approach. The	outputs;
development and execution of the
model requires significant management	∙ Where exceptions were noted in the macroeconomic
judgement, including estimation of the	variables applied, our internal specialists developed a PD
probability of default (PD); exposure at	challenger model to evaluate the impact using the
default (EAD) and loss given default	independently computed variables obtained from our
(LGD) model parameters.	internal economics specialists;
	∙ We evaluated the sensitivity of the model outputs for
	possible changes in the forward-looking information
	provided by our economic advisory specialists;

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INDEPENDENT AUDITOR'S REPORT

	TO THE MEMBERS OF FMBCAPITAL HOLDINGS PLC
REPORT ON THE AUDIT OF THE CONSOLIDATED AND SEPARATE FINANCIAL STATEMENTS
(CONTINUED)
Key Audit Matter	How the matter was addressed in the audit

• Staging - The evaluation of significant

	increase in credit risk (SICR) are	∙ We assessed the data inputs used in the ECL models by
	assessed based on the current risk of	reconciling the data inputs to the core banking system,
	default of an account relative to its risk	customer agreements and collateral valuation reports;
	of default at origination and the timely
	allocation of loans and advances to	∙ We tested the Group's legal right to the collateral for a
	customers to the appropriate stage in	sample of exposures by inspecting legal agreements and
	accordance with IFRS 9.			valuation reports supporting the collateral valuations
∙	Macro-economic	forecasts	included in the Group's ECL models;
	incorporated in modelled ECL -The	∙ We assessed the competency and independence of a sample
	Group	incorporates	forward	looking	of the specialists appointed by the Company to determine
	information through a scenario matrix	the value of the collateral by reviewing the specialists'
	which	comprises	macroeconomic	qualifications, credentials and registrations to professional
	variables such as inflation, general	bodies and the engagement contracts agreed with these
	government	net	debt		and	specialists;
	unemployment	rates. These	require
	management	judgement, given	the	∙ We reviewed on a sample basis, the valuation reports
	uncertain macroeconomic environment	obtained from these specialists and benchmarked the
	and the complexity of incorporating	discount rates and asset valuations reported by these
	these scenario forecasts and probability	specialists against discount rates and asset valuations for
	weightings into the estimation of ECL.	similar assets obtained from our own internal valuation
	Management		overlays		-	specialists and other valuation specialists for similar assets
∙			in the same geographical areas;
	Appropriateness, completeness,	and
	valuation of risk event overlays to	Staging
	capture risks not identified by the ECL
	models, including the consideration of	∙ We assessed the appropriateness of the Group's SICR
	the risk of management override.		methodologies and tested the stage allocations of loans and
The calculation of ECL relating to loans and	advances to customers to stage 1, 2 or 3 in accordance with
International Financial Reporting Standards (IFRS).
advances to customers was identified as a
key audit matter considering the	∙ Our procedures included obtaining and testing loan arrears
significance to the consolidated financial	reports, verifying that balances are classified in the
statements and the high degree of	appropriate stage based on the days past due and credit risk
estimation uncertainty due to significant	assessments performed and risk ratings determined for
judgements and assumptions applied in the	individual accounts.
calculation which required increased audit
effort and the use of specialists.			∙ We assessed the risk ratings for a sample of accounts by
							reviewing the financial statements received from
							customers, comparing the risk ratings to the Group's credit
							watchlist, and reviewing the payment behaviour for the
							selected accounts. We compared the risk ratings for these
							selected accounts to management's SICR assessment.

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