Circular to Shareholders regarding approval for to... · 2015-08-04 · "ZSE" Zimbabwe Stock...

THIS DOCUMENT IS IMPORTANT AND REQUIRES YOUR IMMEDIATE ATTENTIONThis Document is neither a prospectus nor an invitation to the public to subscribe for shares in FBC Holdings Limited ("FBCH" or "the Group" or “the Company”), but is rather issued to the shareholders of FBCH for the purposes of explaining the offer to shareholders of the Group to acquireadditional shares in FBCH on the terms and conditions set out in this Document.

Action required:1. If you are in any doubt as to the action you should take, you should immediately seek advice from your stockbroker, bank manager, legal practitioner,

accountant or other professional adviser.

2. If you have disposed of all your ordinary shares in FBCH, this document should be handed to the purchaser of such shares, banker or other agentthrough whom the disposal was effected.

3. If you no longer hold any shares in FBCH you should send this Document, as soon as possible to the agent through whom the sale of yourshareholding in FBCH was effected for onward transmission to the purchaser or transferee.

(Incorporated on 7 November 2002 Registration Number 15583/2002)

Circular to Shareholders regarding approval for:1. The authorized share capital of the Company be redenominated from eight hundred million [800,000,000] ordinary shares of ZWD0.01 (one cent)*

each to 800,000,000 (eight hundred million) ordinary shares of USD0.00001 (one thousandth of a United States cent) each and that the Directors

be authorized to transfer from the Capital Reserves an equivalent of nominal value issued Share Capital to fund the re-denomination and this

amount will amount to USD3,642.01 (three thousand six hundred and forty two United States of America Dollars and one cent) and that the

Articles of Association of the Company be amended accordingly.

*Old Zimbabwe Dollar Currency as at 31 January 2009.

2. The Directors of the Company are authorized to undertake a renounceable Rights Offer of approximately 228,312,640.00 (two hundred and twenty

eight million, three hundred and twelve thousand six hundred and forty) Ordinary Shares of a nominal value of USD0.00001 each in the Company's

authorized share capital to existing holders of the Group's ordinary shares, at a subscription price of USD0.035 (three and a half United States

cents) per share, in the ratio of sixty three (63) new ordinary shares for every one hundred (100) ordinary shares held in FBC Holdings Limited

at the close of business on Friday 23 April 2010.

3. The Directors be and are hereby authorised to take any and all steps necessary to give effect to the resolutions (1) and (2) above.

4. The balance of the authorised but unissued 209,286,344 (two hundred and nine million two hundred and eighty six thousand three hundred and

forty four) ordinary shares of the Company be placed under the control of Directors until the next AGM, to be issued in compliance with the terms

of the Company's Memorandum and Articles of Association, provided that no issue will be made which would effectively transfer control of the Company

without the prior approval of the Shareholders in a General Meeting.

and incorporating:

Notice of an extraordinary general meeting to the members of FBC Holdings Limited, to be held at 1000 hours on Monday 26 April 2010, at the

Charter House Auditorium, 70 Samora Machel Avenue, Harare, which notice was be published on Thursday 1 April 2010 in accordance with the

provisions of the Listing Requirements of the Zimbabwe Stock Exchange and the Companies Act [Chapter 24:03] of Zimbabwe, is set out at the end

of this document. Shareholders of FBC Holdings Limited are asked to complete and return the enclosed form of proxy in accordance with the

instructions printed thereon, as soon as possible, but not later than Friday 23 April 2010 at 1600 hours.

April 2010

Legal Advisors Financial Advisors Sponsoring Stock Broker

Transfer SecretariesReporting Accountants Underwriters

Dube, Manikai & HwachaTransfer Secretaries

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TABLE OF CONTENTS

CORPORATE INFORMATION 3DEFINITIONS 4PART A: SALIENT FEATURES OF THE RIGHTS OFFER 6

A.1. DETAILS OF THE RIGHTS OFFER 6A.2. EXPECTED TIMETABLE FOR THE RIGHTS OFFER 6A.3. TERMS OF THE RIGHTS OFFER 6A.4. EFFECTS OF THE TRANSACTION ON CAPITAL STRUCTURE 7

PART B: CHAIRMAN'S LETTER 8B.1. INTRODUCTION 8B.2 PROPOSED TRANSACTION 8B.3 RATIONALE OF TRANSACTION 8B.4. BACKGROUND OF THE TRANSACTION 8B.5. APPLICATION OF FUNDS RAISED THROUGH THE RIGHTS OFFER 11B.6 CONDITIONS PRECEDENT 11B.7 UNDERWRITING 12B.8 EFFECTS OF THE RIGHTS OFFER 12B.9 DIVIDEND POLICY 14B.10 DIRECTORATE 15B.11 DIRECTORS' INTERESTS 15B.12. DIRECTORS' SERVICE CONTRACTS AND REMUNERATION 15B.13. CORPORATE GOVERNANCE 15B.14. LITIGATION 16B.15. MATERIAL CHANGES 17B.16. MATERIAL CONTRACTS 17B.17 BORROWING POWERS OF THE COMPANY 17B.18 PROVISIONS 17B.19 STATEMENT OF INDEBTEDNESS 17B.20 EXPERT CONSENTS 17B.21 DOCUMENTS AVAILABLE FOR INSPECTION 17B.22. OPINION AND VOTING RECOMMENDATION 17

PART C: DIRECTORS' RESPONSIBILITY STATEMENT 18C.1 FORWARD LOOKING STATEMENT 18C.2 DIRECTORS RESPONSIBILITY STATEMENT 18

PART D: DETAILS OF THE RIGHTS OFFER 19D.1. TERMS OF THE RIGHTS OFFER 19D.2. OPENING AND CLOSING OF THE RIGHTS OFFER 19D.3. ALTERNATIVE ACTION TO BE TAKEN BY SHAREHOLDERS 19D.4. PAYMENT PROCEDURES 20D.5. EXCHANGE CONTROL REGULATIONS 20D.6. DIVIDENDS 20D.7. LISTING AND REGISTRATION OF RIGHTS OFFER SHARES 20D.8. RIGHTS OFFER SHARE CERTIFICATES 21D.9. OLD SHARE CERTIFICATES 21D.10. EXPENSES OF THE RIGHTS OFFER 21

PART E: REPORTING ACCOUNTANTS REPORT 22

PART F: FINANCIAL INFORMATION 24

PART G: REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION 69

PART H: ANNEXURES 71H.1. ANNEXURE (I) TABLE OF ENTITLEMENTS 71H.2. ANNEXURE (II) SHARE PRICE PERFORMANCE HISTORY 72H.3. ANNEXURE (III) DETAILS OF THE UNDERWRITERS 72H.4. ANNEXURE (IV) NOTICE OF EXTRAORDINARY GENERAL MEETING 73H.5 ANNEXURE (V) PROXY FORM 74

3

CORPORATE INFORMATION

Company Secretary and Registered Office

Tichaona Mabeza

FBC Centre, 6th Floor

45 Nelson Mandela Avenue

Harare

Financial Advisors

FBC Bank Limited

FBC Centre, 1st Floor


Harare

Bankers

FBC Bank Limited


Harare

Underwriters

Genesis Investment Bank

2nd Floor Corner House

29 Samora Machel Avenue

Harare

Reporting Accountants & Auditors

KPMG

Old Mutual Gardens

100 The Chase

Emerald Hill

Harare

Legal Advisors

Dube, Manikai & Hwacha

6th Floor, Gold Bridge

Eastgate

Cnr Sam Nujoma & Robert Mugabe

Harare

Transfer Secretaries

First Transfer Secretaries


Eastgate

Cnr Sam Nujoma & Robert Mugabe Rd

Harare

Sponsoring Broker

FBC Securities Limited

2nd Floor Bank Chambers

76 S Machel Avenue

Harare

4

The following definitions apply throughout this Circular to shareholders, unless the context requires otherwise. The use of singular words

imports the plural and masculine words both feminine and neuter, and words importing natural persons shall include juristic persons

(whether corporate or incorporate and vice versa)

"Act" The Companies Act [Chapter 24:03] of Zimbabwe.

"Articles" The Articles of Association of FBC Holdings Limited.

"Board" or "Directors" The Board of Directors of FBC Holdings Limited.

"Business Day" Monday to Friday inclusive, but excluding any such day which is a public holiday in Zimbabwe.

"Circular" or

"Circular to Shareholders"

This Circular to FBC Holdings Limited's Shareholders setting out the terms and conditions of the

Rights Offer and incorporating all letters and annexures relating thereto.

"Closing date" The date on which the Rights Offer closes being 1600hrs on Friday 14 May 2010.

"Dube, Manikai & Hwacha" Dube, Manikai & Hwacha, registered legal practitioners, appointed as legal advisors to FBC Holdings

Limited in respect of the Transaction.

"EGM" The Extraordinary General Meeting of FBC Holdings Limited's Shareholders convened under the

terms and conditions set out in this Circular.

"FBCH" or "the Group"

or "the Company "

FBC Holdings Limited.

"FBC Re" FBC Reinsurance Limited

"First Transfer Secretaries" First Transfer Secretaries (Private) Limited, appointed to provide transfer secretarial services to

FBC Holdings Limited.

"Letter of Allocation" The renounceable letter of allocation to be posted to Shareholders registered as such on the Record

Date, which sets out the entitlement of the Shareholder to Rights Offer Shares.

"Non-Resident Shareholders" FBC Holdings Limited's Shareholders with non-resident status in terms of the Exchange Control

Regulations.

"Notice" The notice to FBC Holdings Limited's Shareholders containing the Resolutions incorporated in

this Circular, which was published in accordance with the Companies Act on Thursday 1 April

2010.

"NSSA" National Social Security Authority

"Opening Date" The date the Rights Offer opens and Letters of Allocation are issued, ex-rights, being 0800hrs

hours on Monday 3 May 2010.

"Ordinary Shares" or "Shares" Existing Ordinary Shares of a nominal value of ZWD0.01 to be re-demoninated to USD0.00001

each in the issued share capital of FBC Holdings Limited, which are listed on the ZSE.

"Proxy Form" The attached form of proxy on which FBC Holdings Limited's Shareholders indicate their appointed

proxy in the event that they are unable to attend the EGM.

DEFINITIONS

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"RBZ" The Reserve Bank of Zimbabwe

"Record Date" The time and date on which the register of Shareholders will be closed to determine eligibility of

Shareholders to participate in the Rights Offer, which time and date is expected to be the close of

business (16:00 hours) on Friday 23 April 2010 in terms of the Notice.

"Resolutions" The special and ordinary resolutions contained in the Notice giving effect to:

s The redenomination of share capital;

s The Rights Offer

s The placement of authorized but unissued share capital under the control of Directors.

"Rights Offer" The proposed renounceable Rights Offer to subscribe for 228,312,640 (two hundred and twenty

eight million three hundred and twelve thousand six hundred and forty) Ordinary Shares being

offered to Shareholders, registered as such on the Record Date, at the Subscription Price, on the

basis of sixty three (63) Rights Offer shares for every one hundred (100) ordinary shares held.

"Shareholders" Holders of ordinary Shares in FBC Holdings Limited.

"Subscription Price" USD0.035 per Rights Offer share.

"the Group" FBC Holdings Limited and its subsidiary companies.

"the Transaction" The renounceable Rights Offer.

"Underwriters" Genesis Investment Bank Limited

"Underwriting Agreement" The agreement between Genesis Investment Bank Limited and FBC Holdings Limited dated 31

March 2010 relating to the underwriting by Genesis Investment Bank Limited of the Rights Offer Shares

in compliance with the ZSE Listing Requirements.

"USD" United States Dollars, the currency currently in use in Zimbabwe.

"ZSE" Zimbabwe Stock Exchange.

"ZSE Listing Requirements" The Listing Requirements of the ZSE.

"ZWD" Zimbabwe dollars.

DEFINITIONS

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The summary presents the salient information in relation to the Rights Offer, the detailed terms and conditions of which are more fully

set out in this document. The document should accordingly be read in its entirety for a full appreciation of the rationale for, and the

implications of, the Rights Offer, as well as action required to be taken by FBCH's Shareholders.

A.1. DETAILS OF THE Rights Offer

The Board is proposing a Rights Offer to recapitalize FBCH by way of a Renounceable Rights Offer of 228,312,640 (two hundred

and twenty eight million three hundred and twelve thousand six hundred and forty) ordinary shares 0f a nominal value of

USD0.00001 each, at a Rights Offer price of USD0.035 per share, on the basis of sixty three (63) new ordinary shares for every

one hundred (100) shares in issue as at the Record Date. The Rights Offer shares represent 39% of the Company's enlarged

share capital post the proposed Rights Offer.

A.2. EXPECTED TIMETABLE FOR THE RIGHTS OFFER

Event Date

Notice of EGM published Thursday 1 April 2010

Circular to Shareholders mailed Thursday 15 April 2010

Register closes for voting at EGM Friday 23 April 2010

EGM at 1000 hours Monday 26 April 2010

Letters of Allocation mailed to shareholders Wednesday 28 April 2010

Rights Offer opens Monday 3 May 2010

FBCH share register reopens Tuesday 4 May 2010

Latest time for splitting Letters of Allocation Wednesday 12 May 2010

Last day of dealing in Letters of Allocation Thursday 13 May 2010

Rights Offer closes at 1600 hours Friday 14 May 2010

Allocation of Rights Offer Shares Monday 17 May 2010

Expected date of registering Rights Offer Shares Monday 24 May 2010

Results of the Rights Offer published Wednesday 19 May 2010

Rights Offer Share Certificates mailed Monday 24 May 2010

* The dates set out herein are expected dates and may change. Any significant changes to these dates will be announced in local

newspapers and publications

A.3. TERMS OF THE Rights Offer

Subscription price per Rights Offer Share USD0.035

Issued and fully paid up ordinary shares of USD0.00001 each 362,401,016

Number of Rights Offer Shares 228,312,640

Number of Ordinary shares post the Rights Offer 590,713,656

Percentage of enlarged ordinary share

capital available under the Rights Offer 39%

Gross Rights Offer proceeds USD7,990,942.40

Notes

s The Rights Offer shares will, following the Rights Offer, rank pari passu, in all respects with all other ordinary shares, including

the right to receive all dividends or other distributions thereafter declared, made or paid on the issued ordinary share capital

of FBCH.

PART A: SALIENT FEATURES OF THE RIGHTS OFFER

7

Share Capital Structure Pre-Rights Offer

Authorised ordinary shares of ZWD0.01 each 800,000,000

Issued and fully paid up ordinary shares of ZWD0.01 each 362,401,016

Shares under the control of directors

ordinary shares of ZWDo.01 each 437,598,984

Share Capital Structure Post Rights Offer

Authorised ordinary shares of USD0.00001 each 800,000,000

Issued and fully paid up ordinary shares of USD0.00001 each 590,713,656

Shares under the control of directors

ordinary shares of USD0.00001 each 209,286,344

Action to be taken by shareholders:-

s Attend EGM to approve the Resolutions.

s Shareholders who are unable to attend the EGM but who wish to be represented thereat, should complete and sign the

Form of Proxy enclosed with this Document, and ensure that it is returned, or posted, to the Company Secretary at 6th Floor

FBC Centre, 45 N Mandela Avenue, Harare, so that it is received by no later than Friday 23 April 2010 at 1600 hours.

s Shareholders may attend the EGM in person, notwithstanding the completion and return of a Form of Proxy.

s Ahead of 1600 hours on Friday 23 April 2010, being the Record Date, ensure that all shares that you have acquired, butnotyet registered in your name, are so registered.

PART A: SALIENT FEATURES OF THE RIGHTS OFFER

A.4 EFFECTS OF THE TRANSACTION ON CAPITAL STRUCTURE.

The Rights Offer is anticipated to have the following effects on the capital structure of FBCH:

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PART B: CHAIRMAN'S LETTER

Dear Shareholder,

B.1. INTRODUCTION

The year 2008 leading into early 2009 marked a transitional phase in the Zimbabwean financial markets where a period of

unprecedented hyper inflation heralded the introduction of the use of multiple currencies. Although it presents new business

opportunities, the change has affected the capitalisation of businesses and consequently their ability to conduct business profitably

in the future. The aforementioned period was characterised by tight fiscal discipline through the implementation of severe cost

cutting measures and freezing of capital expenditure. The lack of liquidity in the market is curtailing real growth due to a variety

of constraints that hamper the generation of free cash which is needed to further implement shareholder value-enhancement

activities. FBCH has not been spared from this with most of its assets which were denominated in local currency becoming either

completely wiped out or rendered irrelevant in the new operating environment.

B.2 PROPOSED TRANSACTION

Pursuant to the need for FBCH to recapitalize its operations in two of its subsidiaries, FBC Building Society and FBC Reinsurance

Limited, the Directors propose a renounceable Rights Offer to holders of ordinary shares, registered as at close of business on

Friday 23 April 2010, for subscription in cash, at a price of USD0.035 (three and a half United States of America cents) each, payable

in full on acceptance, on the basis of sixty three (63) new ordinary shares for every one hundred (100) ordinary shares in issue.

Following the introduction of a multi-currency system and the de-monetisation of the Zimbabwe dollar as the functional currency,

the directors seek a conversion of the nominal share price of each FBCH ordinary share from ZWD0.01 to USD0.00001. The

authorization to convert the par value of the shares to USD0.00001, will be sought by the Board from FBCH Shareholders at the

EGM to be held Monday 26 April 2010.

Assuming the approvals are forthcoming at the EGM, Letters of Allocation in respect of the Rights Offer Shares will be posted to

Shareholders from Wednesday 28 April 2010. It is expected that the Rights Offer Shares will be listed on the ZSE with effect from

Monday 17 May 2010.

The purpose of this Circular is accordingly, to furnish shareholders with the requisite statutory and regulatory information with

respect to the Rights Offer, and to detail the actions to be taken by each shareholder in respect of the proposed corporate action.

B.3 RATIONALE OF TRANSACTION

The introduction of the use of multiple currencies in Zimbabwe has altered the operating landscape for financial institutions in

Zimbabwe. Although it presents new business opportunities, the change has affected the capitalisation of businesses and consequently

their ability to conduct business profitably in the future. FBC Bank Limited and FBC

Securities Limited are adequately capitalised with respect to statutory minimum capital and operating capital because their

assets base was converted into foreign currency denominated assets. FBC Reinsurance meets the statutory minimum capital

but there is a need to enhance its operating capital and underwriting capacity. The recapitalisation exercise is therefore being

proposed for FBC Building Society and FBC Reinsurance for the following reasons:

s Compliance with statutory minimum capital requirement in respect of FBC Building Society.

s Brand protection and enhancement following the period referred to in 1 above.s Enhance FBC Reinsurance’s underwritng capacity and financial flexibility to undertake its growth strategy.

B.4. BACKGROUND OF THE TRANSACTION4.1 Background

FBCH is an investment holding company, the company through its four subsidiaries and one associate provides a wide

range of financial services. The company is also involved in manufacturing through a 59% owned subsidiary acquired

through realisation of collateral on a non-performing loan receivable. The organisational structure of the company

is as follows:

FBC Holdings Limited, FBC Center, 45 Nelson Mandela Avenue, P.O. Box 1227Telephone: 783203/7, Harare, Zimbabwe, www.fbc.co.zw

s Enhancing profitability of both FBC Building Society and FBC Reinsurance.

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FBCH is a diversified financial services Group offering commercial banking, investment banking, mortgage and reinsurance

services. The Group has a wide national network of branches and offices through which customers can access financial

products and services. The capital raised will be used to finance two subsidiaries namely FBC Building Society and FBC

Reinsurance Limited.

4.2 FBC Building Society

4.2.1 Background Information on FBC Building Society

FBC Building Society is a registered building society which operates through six branches across Zimbabwe.

It has successfully managed to resume its core business focusing on the following core operations as at the date of this

Circular:

s Mortgage Advances

s Property Development & Land Banking

4.2.2 Future Prospects for Building Society Business

The property development industry provides the basis for mortgage business and hence it is essential to understand the

continuity of the sector in order to be able to appreciate the full value of being in the mortgage finance sector. The following

are some key indications on the estimated demand for housing units as proposed by UN Habitat:

Narration (Year) 2000 2010 2020

Levels of urbanization (%) 35.3 42.5 49.1

Population ("000") 4,459 6,380 8,652

Based on these estimates, the Government of Zimbabwe has proposed that the housing stock be delivered at a rate of

25 000 units per annum. The following are some crucial statistics which indicate the levels of demand in the sector:

Housing units delivered in period 1985-2001 162 000 units

Average rate of housing delivery 1985-2001 17 500 units

Average rate of housing delivery per annum post 2002 5 500 units

Current shortage of housing stock 250 000 units

The supply of houses under the current illiquid conditions is expected to be delivered at a rate of about 20 000

units per annum which means that the sector has ten years of work before the back log is cleared ignoring the growth in

demand as the population increases. In order for the value of the shareholder to be unlocked in this subsidiary, recapitalization

must occur to enable the opportunities in that sector to be utilized as they arise.

Table 1: Levels of Urbanization

Turnall HoldingsZimbabwe Limited

59%

FBC Bank Limited FBC Reinsurance Limited FBC Building Society FBC Securities

Eagle Insurance Limited23%

100% 100% 60% 100%

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4.2.3 Capital Requirements

Following the impairment of all assets in Zimbabwean dollars and the impairment of land and buildings vis-a-viz the

valuation which was obtaining prior to the introduction of multi-currencies the FBC Building Society is in need of re-

capitalisation to comply with the minimum regulatory capital of USD 10 million with effect from 31 March 2010.

The Reserve Bank of Zimbabwe has certified FBC Building Society's current capital of USD 6 million giving a gap of

USD 4 million on the statutory minimum capital requirement. The following is a summary of the capitalization position

of FBC Building Society and the capital requirements:

Narration Amount (USD)

FBC Building Society's adjusted capital

including non distributable reserve 6,000,000

Less facility provided for through intercompany borrowing 1,000,000

FBC Building Society's adjusted capital 5,000,000

Statutory capital requirements for building societies 10,000,000

Shortfall required to meet statutory capital requirements 5,000,000

The capital request of USD 5 million is required to comply with statutory regulatory requirements and to enhance the

Society's profitability.

4.3 FBC Reinsurance Limited

4.3.1 Background Information on FBC Reinsurance

FBC Reinsurance provides risk transfer solutions to insurers in Africa and beyond. Its major role is to provide

underwriting capacity to allow the insurance companies to assume greater individual risks than their size would

otherwise allow, protect the insurer's (i.e. cedant's) balance sheet against catastrophic losses and larger than

predicted accumulation of claims, management advise, risk management, and financial management.

Its main products and services are as follows:

s Fire

s Motor

s Engineering

s Miscellaneous Accidents

The slow growth in the economy and proliferation of insurers requires that FBC Re aggressively pursue an


acquisition and vertical integration strategy so as to remain a dominant player in the industry. An amount of

USD2.5 million is required for FBC Re to seize and recapitalize some acquisition potential at direct insurance

level. Strategically FBC Re intends to go into direct insurance in order to gain access to the primary market

and boost premium for FBC Re. The current trend has been that insurers are retaining a large chunk of the

business leaving only a small part for the Reinsurer. This has negatively impacted on the Gross Premium

Written for Reinsurance. Hence the control of a short-term direct insurer will create a direct market for FBC

Reinsurance. An injection of USD 2.5 million would assist the company in increasing its market share to levels

in excess of 15% as it will be able to underwrite greater risks.

The other key strategy is to grow the regional book whilst consolidating own position in the local market. This

alone requires additional underwriting capacity and balance sheet strength. This will improve FBC Re's retention

capacity by at least 10 percentage points whilst strengthening its security in the regional markets. Currently

FBC Re has a capitalization of USD 3 million.

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4.3.2 Comparative Information on the Insurance Sector in Zimbabwe & Region

The economy is beginning to turn around and industrial capacity rising. This means that the demand for

insurance will increase. There will be need for more underwriting capacity if we are to maintain the leadership

position the company assumed this year. Since underwriting capacity is a function of capital, there will be need

to increase capital in order to generate more capacity to write bigger business. The amount of business written

going forward will however depend on the Capital base. The higher the capital base the more the premium.

The major continental reinsurers that FBC Reinsurance will compete with in the region have capital in excess

of USD 100 milliom.

4.3.3 Future of the Reinsurance Industry in Zimbabwe

There are two global trends which are expected to impact on the reinsurance sector in Zimbabwe as follows:

s Risk Based Capital: Risk based capital models are increasingly being used globally after the 11 September

2001 catastrophe with the reinsurance industry gearing their portfolio strategies towards an optimization

of return on target markets. The sector has not had a loss of that magnitude and once it happens in real


terms without the cushion of the hyperinflationary environment the regulator will realign the capital to

global levels using the risk based capital. This change is anticipated to happen in the near future and

therefore it is essential for FBC Re to be recapitalized now to give it the benefit of being a first mover in

that regard. Likewise, major global insurers can not provide their risk capacity or their capital at lesser

conditions than other capital markets and hence they need more risk capital than before.

s Liberalization of the global economy: The liberalization of the global economy has liberated the operations

of short-term insurance with mergers and acquisitions and recapitalization exercise resulting initially in

the retention of more risks. Globally there has been a reversal of these trends as competition has reduced

profit margins of insurers and at the same time eroding their ability to absorb fluctuations leading to an

increase in reinsurance demand to generate optimal results for shareholders and capital markets. The

Zimbabwean market has also gone through these reorganizations and recapitalizations and we expect that

as competition increases the business ceded to reinsurers will increase and hence FBC Re has to be ready

to write that business and needs to be recapitalized before that happens.

B.5. APPLICATION OF FUNDS RAISED THROUGH THE RIGHTS OFFER

The consolidated capital requirements for FBCH based on subsidiary requirements are as follows:

Narration Amount (USD)

FBC Building Society: 5,000,000

FBC Reinsurance: 2,500,000

Expenses of the Offer 490,942

7,990,942

The capital is meant to ensure that FBC Building Society complies with statutory minimum capital requirements

and to ensure that FBC Re has the appropriate critical mass to operate as a reinsurer.

B.6 CONDITIONS PRECEDENT

The Rights Offer contemplated herein is subject to the following Conditions Precedent:

s Passing of Resolutions to be tabled before Shareholders at the EGM to be held Monday 26 April 2010 seeking to convert

the nominal value of the shares from ZWD0.01 to USD0.00001 ordinary shares, subject to approval by the Registrar of

Companies; and

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B.7 UNDERWRITING

Shareholders holding about 60% of the issued share capital have issued irrevocable Letters of Undertaking to follow their righs.Genesis Investment Bank Limited has agreed to underwrite the balance of the offer in an Underwriting Agreement dated 31March 2010, a copy of which is available for inspection.

B.8 EFFECTS OF THE RIGHTS OFFER

8.1 Share Capital8.1.1 Share Capital Before The Rights Offer

Set out below is the current authorized and issued share capital of FBCH, before the proposed Rights Offer:


s Passing of the Resolution to be tabled before members at the EGM to be held on Monday 26 April 2010 authorizing the

Directors to undertake the Rights Offer in accordance with the terms and conditions set out in this Circular to Shareholders.

Number of FBCH sharesCurrent authorized share capital:

Ordinary shares of a nominal value ZWD0.01 each 800,000,000

Current issued and fully paid share capital:

Ordinary shares of a nominal value of ZWD0.01 each 362,401,016

Authorised but unissued ordinary shares currently under the control of the Directors 437,598,984

The unissued share capital of FBCH under the control of Directors of the Group is subject to the restrictions

set out in the Companies Act and the ZSE Listing Requirements.

8.1.2 Share Capital After Rights Offer

Number of FBCH sharesAuthorised share capital:

Ordinary Shares of a nominal value of USD0.00001 each 800,000,000

Issued and fully paid share capital:

Issued share capital before the Rights Offer of USD0.00001 each 362,401,016

Approximate number of Rights Offer Shares proposed to

be issued in terms of the Rights Offer 228,312,640

Approximate number of ordinary shares in issue after Rights Offer 590,713,656

Approximate number of authorized but unissued ordinary

shares under the control of Directors after the EGM 209,286,344


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8.2 Shareholding Structure

8.2.1 Before the Transaction

The shareholding structure for FBC Holdings in terms of the top 10 shareholders as at 31 March 2010 is as

follows:

Shareholder No of Shares Held % Held

NSSA 91,386,943 25.22%

Segment Investments 45,227,034 12.48%

Scaiflow Investments 26,012,915 7.18%

LAPF 22,332,676 6.16%

Bartlous Investments 12,492,015 3.45%

Tirent Investments 12,126,634 3.35%

Rapid Investments 6,942,136 1.92%

Herbcorn Engineering 6,290,487 1.74%

Setma (Private) Limited 6,179,832 1.71%

Dyreal Restaurant (Pvt) Ltd 6,179,376 1.71%

Subtotal 235,170,048 64.89%

Others 127,230,968 35.11%

Total 362,401,016 100.00%

8.3 Directors' Responsibility Statement

The Directors believe that the proposed Rights Offer is in the best interests of both the Company and its shareholders,

as it enables the Company to address the critical requirements for the recapitalization of its operations, including

enhancement of business development capacity. Accordingly, the Directors intend to vote in favor of the Resolutions

with respect to their own shareholdings as reflected below.

Shareholder No. of Shares Held % Held Total Shares % Held

NSSA 91,386,943 25.22% 57,573,774 148,960,717 25.22%

Segment Investments 45,227,034 12.48% 28,493,031 73,720,065 12.48%

Scaiflow Investments 26,012,915 7.18% 16,388,136 42,401,051 7.18%

LAPF 22,332,676 6.16% 14,069,586 36,402,262 6.16%

Bartlous Investments 12,492,015 3.45% 7,869,969 20,361,984 3.45%

Tirent Investments 12,126,634 3.35% 7,639,779 19,766,413 3.35%

Rapid Investments 6,942,136 1.92% 4,373,546 11,315,682 1.92%

Herbcorn Engineering 6,290,487 1.74% 3,963,007 10,253,494 1.74%

Setma (Private) Limited 6,179,832 1.71% 3,893,294 10,073,126 1.71%

Dyreal Restaurant (Pvt) Ltd 6,179,376 1.71% 3,893,007 10,072,383 1.71%

SUBTOTAL 235,170,048 64.89% 148,157,129 383,327,177 64.89%

Others 127,230,968 35.11% 80,155,510 207,386,478 35.11%

Total 362,401,016 100.00% 228,312,639 590,713,655 100.00%

8.2.2 Shareholding Structure Post Transaction

The shareholding structure (assuming all shareholders follow their rights) after the transaction is anticipated

to be as follows:

No. of Shares Issued

Before the Transaction After Transaction

14


8.4 Management

The Rights Offer will have no impact on the composition of the Company's senior management team. The Executive

Directors and senior management will continue to hold approximately 8% of the Company's issued share capital after

the Rights Offer, if they follow their rights.

Before Rights Offer Rights Offer After Rights Offer

USD USD USD

Assets

Cash and cash equivalent 81,226,175 7,500,000 88,726,175

Trading assets 212,377 - 212,377

Loans and advances to customers 21,693,546 - 21,693,546

Investment securities 1,686,142 1,686,142

Investment securities held for sale 1,062,534 - 1,062,534

Other assets 13,852,516 - 13,852,516

Investment in associate 437,310 - 437,310

Investment in properties 575,000 - 575,000

Property, plant and equipment 43,406,436 - 43,406,436

TOTAL ASSETS 164,152,036 7,500,000 171,652,036

Equity And Liabilities

Capital and reserves

Share capital 3,624 2,283 5,907

Share premium - 7,497,717 7,497,717

Retained earnings 4,835 929 - 4,835 929

Other Reserves 32,823,632 - 32,823,632

Non - controlling interest 11,327,316 - 11,327,316

Shareholders' equity 48,990,501 7,500,000 56,490,501

Liabilities

Deposits from Banks 1,330,696 1,330,696

Deposits from customers 94,816,788 94,816,788Current tax liabilities 1,240,889 1,240,889

Deferred tax liabilities 8,293,603 8,293,603

Other liabilities 9,479,559 - 9,479,559

115,161,535 - 115,161,535

TOTAL EQUITY AND LIABILITIES 164,152,036 7,500,000 171,652,036

B.9 DIVIDEND POLICY

FBCH pays a dividend based on three times dividend cover of cash or near cash profits depending on the need to retain capital

within the business. This policy will be maintained after the transaction.

8.5 Financial Impact

The following are the expected financial implications of the proposed transaction:

15


Name Designation

Herbert Nkala Group Non-Executive Chairman

Livingstone T. Gwata Group Chief Executive

John Mushayavanhu Deputy Chief Executive Officer

Kenzias Chibota Non-Executive Director

Gertrude Chikwava Non-Executive Director

Philip M. Chiradza Non-Executive Director

James M. Matiza Non-Executive Director

Johnson R. Mawere Non-Executive Director

Shingirai A. Munyeza Non-Executive Director

Godfrey Nhemachena Non-Executive Director

Nancy Saungweme Non-Executive Director

Stanley Kudenga Executive Director

Trynos Kufazvinei Group Finance Director

Webster Rusere Executive Director

B.11 DIRECTORS' INTERESTS

As at 31 March 2010 (being the last practicable date for publication of this Circular), the direct and indirect interests of Directors

of FBCH and their immediate families in FBCH shares were as follows:

NAME DIRECT HOLDING INDIRECT HOLDING TOTAL

L.T. Gwata 79,706 12,772,793 12,852,499

J. Mushayavanhu 63,326 12,126,634 12,189,960

W. Rusere 48,145 48,145

T. Kufazvinei 148,249 3,881,426 4,029,675

G.G. Nhemachena 5,960 5,960

Total 345,386 28,780,853 29,126,239

B.12. DIRECTORS' SERVICE CONTRACTS AND REMUNERATION

With regard to Directors of FBCH, there will be no changes to their service contracts and remuneration as a result of the Rights

Offer. Non-Executive Directors are paid a fee and an attendance allowance at Board meetings. Executive Directors operate under

service contracts. Board meetings are held at least four times a year and more regularly when required. The Executive Remuneration

Committee makes recommendation to the Board on the level of Directors fees to be paid to Non-executive Directors.

B.13. CORPORATE GOVERNANCE

FBCH recognises its responsibility to its stakeholders and is fully committed to the sound principles of Corporate Governance

and adheres to generally accepted Corporate Governance principles. The Board meets at least once a quarter and is governed

by its terms of reference and Board Charter.

13.1 Board CommitteesTo assist the board in the discharge of its responsibilities, a number of committees have been established, of which the

following are the most significant:

s Board Finance and Strategy Committee

The Board Finance and Strategy Committee have written terms of reference. It is chaired by a Non-Executive Director.

Meetings of the committee are attended by senior executives by invitation. This committee is constituted at Group

level and oversees the subsidiary companies.

B.10 DIRECTORATE

The FBCH board consists of the following directors:

16


The committee meets four times every year to review the following:

s The Group Performance against agreed benchmarks,

s The Group's assets and liabilities,

s Group's strategy and budget,

s Group's financial statements and accounting policies,

s The adequacy of the Group's management information system

s Board Asset and Liability Committee (ALCO)

The committee falls directly under the Bank and is chaired by a Non-Executive Director. It is responsible for

the continuous monitoring of the Bank's assets and liabilities.

s Board Human Resources and Remuneration Committee

The committee's primary objective is to ensure that the right caliber of management is attracted and retained.

The committee is also responsible for the human resources policy issues, terms and conditions of services.

Non-Executive Directors are remunerated by fees and do not participate in any performance related schemes.

s Board Credit Committee

The committee sets the Group's credit policy and also approves credit applications above management's

authorized limits. The committee is responsible for the overall quality of the Group's credit portfolio. The

Divisional Director of Credit and Risk Management attends the committee meetings by invitation.

s Board Audit Committee

The Audit and Risk Management Committee reviews all published accounts of the company; reviews the scope

and the independence of the internal and external audits; monitors and assesses the systems for internal

compliance and control, and advises on the appointment, performance and remuneration of external auditors.

s Board Risk and Compliance Committee

The committee is constituted at Group level and is responsible for the Group Risk Management function. It

is chaired by a Non-Executive Director.

s Board Loans Review Committee

The committee falls directly under the Bank, has terms of reference and comprises Non-Executive Directors

only. Meetings of the committee are attended by invitation, by the Managing Director of the Bank, the Divisional

Director of Credit and Risk management and the Group Chief Executive. The committee is responsible for

ensuring that the Bank's loan portfolio and lending abide by approved credit policy as approved by the Board

of Directors and is in compliance with RBZ requirements. It also ensures that problem loans are properly

identified, classified and placed on non-accrual in accordance with the Reserve Bank guidelines. The committee

also ensures that adequate provisions are made for potential losses and write-offs of losses identified are made

in the correct period.

B.14. LITIGATION

The Directors are aware of the following legal proceedings in which FBC Bank Limited, a subsidiary of the FBC Group is involved:-

There are criminal charges against six (6) former employees of FBC Bank, Mutare Branch who have been charged with fraud/theft.

Five have appeared in court and one is still at large. A civil case will be instituted against the six employees for loss incurred by

the Bank.

It is not believed that the above indicated legal proceedings will have any material adverse effect on the Company's assets,

performance, operations and future prospects.

As far as the Directors are aware, other than as disclosed above FBCH is not involved in any litigation or arbitration proceedings

which may have or have had during the past 12 months preceding the date of this Circular, significant effect on the financial

position of the Group, nor is the Group aware of any such material litigation, dispute or arbitration proceedings pending or

threatened.

17


B.15. MATERIAL CHANGES

The Directors confirm that between 31 March 2010 (being the date of the last published financial statements of FBC Holdings

Limited) and the date of this Circular; there have been no material changes in the assets and liabilities of the FBCH.

B.16. MATERIAL CONTRACTS

Other than in the course of normal business, no material contracts have been entered into by FBCH in the past twelve months.

B.17. BORROWING POWERS OF THE COMPANY

The Directors have complied with the provisions of the Group's Articles of Association in terms of borrowings which allows the

Directors to exercise all the powers of the Group to borrow money and to mortgage or charge its undertaking, property and

uncalled capital, or any part thereof, and to issue debentures, debenture stock and other securities whether outright or as security

for any debt, liability or obligation of the Society or of any third party.

B.18. PROVISIONS

There are no provisions for which the Group has a present legal or constructive obligation, as a result of past events and there

is no anticipated outflow of resources embodying economic benefits required to settle the obligation.

B.19. STATEMENT OF INDEBTEDNESS

The Directors are of the opinion that the Group is now, and will at the time of executing the proposed Rights Offer, be in a

position to service all its financial obligations as they fall due, and that the issued share capital and working capital of the Group

will provide adequate finance to the Group's foreseeable working capital requirements within the next 12 (twelve) months. As

at 31 December 2009, the Group had no borrowing of a material nature, and assuming that the Rights Issue is approved, the

Directors do not anticipate any need for debt financing arising in the foreseeable future.

B.20. EXPERTS CONSENTS

Dube, Manikai and Hwacha, First Transfer Secretaries FBC Bank Limited, Genesis Investment Bank Limited, and KPMG have

given, and not withdrawn, their consents, and as at date of issue of this circular, to its issue with the inclusion of their names

B.21. DOCUMENTS AVAILABLE FOR INSPECTION

The following documents, or copies thereof, will be available for inspection at the registered office of FBC Holdings Limited, as

well as at the offices of FBC Bank Limited, (whose address details are provided in the "Corporate Information" section

at the beginning of this Circular), during normal business hours until Monday 24 May 2010:

s This Circular

s Memorandum and Articles of Association of FBC Holdings Limited

s FBCH Annual Report as at 31 December 2009

s The Report of the Reporting Accountants on the financial information of FBC Holdings Limited

s Underwriting agreements

s Irrevocable letters issued by the major shareholders of FBC Holdings Limited to take up their rights pursuant to the

Rights Offer and,

s Signed Letters of Consent

B.22. OPINION AND VOTING RECOMMENDATION

The Directors consider the Rights Offer to be fair and reasonable so far as the shareholders of FBCH are concerned and to be

in the best interests of FBCH.

The Directors unanimously recommended that shareholders vote in favor of the Resolutions at the EGM and follow their rights.

Yours Sincerely

Herbert Nkala

(Group Chairman)

and reports in the forms and contexts in which they appear.

18


C.1 FORWARD LOOKING STATEMENT

This Circular includes certain statements, estimates and forecasts, which are forward looking and are based on the current

expectations of FBCH and the Directors. The forward looking statements are subject to certain risks, uncertainties and

other factors some of which are beyond the control of FBCH and the Directors, difficult to predict and could cause actual

results to differ materially from those in the projections and forecasts. In making their considerations, Shareholders are

advised to make their own independent assessment and, in this regard, to consult their own professional advisers.

C.2 DIRECTORS RESPONSIBILITY STATEMENT

The Directors whose names appear hereunder, collectively and individually accept full responsibility for the accuracy of

the information given in this Circular and certify that to the best of their knowledge and belief there are no other facts, the

omission of which would make any statement in this Circular misleading and that they have made all reasonable enquiries

to ascertain such facts.

The Directors also confirm that this Circular includes all such information within their knowledge (or which it would be

reasonable for them to obtain by making enquiries) that investors and their professional advisors would require and

reasonably expect to find for purposes of making informed assessment of the assets and liabilities, financial position, profits

and losses and prospects of FBCH in order to vote at the EGM.

The proposal on the Rights Offer was placed for the Board's consideration, following the Meeting, the Directors unanimously

undertook as they hereby do, to recommend that all FBCH shareholders exercise their rights in terms of the Rights Offer.

Signed at Harare, by the following, being Directors of FBCH:

Name Designation Signature

Herbert Nkala Group Non-Executive Chairman

Livingstone T. Gwata Group Chief Executive

John Mushayavanhu Deputy Chief Executive Officer

Kenzias Chibota Non-Executive Director

Gertrude Chikwava Non-Executive Director

Philip M. Chiradza Non-Executive Director

James M. Matiza Non-Executive Director

Johnson R. Mawere Non-Executive Director

Shingirai A. Munyeza Non-Executive Director

Godfrey Nhemachena Non-Executive Director

Nancy Saungweme Non-Executive Director




(Signed on Original Copy)

19

PART C: DIRECTORS' RESPONSIBILITY STATEMENT

D.1. TERMS OF THE RIGHTS OFFER

228,312,640 (two hundred and twenty eight million three hundred and twelve thousand six hundred and forty) Ordinary

Shares in the authorized but unissued share capital of FBC Holdings are hereby offered to FBC Holdings Shareholders,

registered as at close of business on Monday 26 April 2010, being the Record Date, for subscription in cash at a price of

USD0.035 each, payable in full on acceptance, in the ratio of sixty three (63) new ordinary shares for every one hundred

(100) ordinary shares held.

Fractions of Rights Offer Shares arising will be rounded to the nearest whole ordinary share.

The new ordinary shares being offered to members will rank pari passu with the existing ordinary shares of the Group

from the date of issue.

Renounceable Letters of Allocation

The renounceable Letter of Allocation to be posted to Shareholders from Wednesday 28 April 2010 sets out the entitlement

of the person to whom the Circular is addressed.

D.2. OPENING AND CLOSING OF THE RIGHTS OFFER

The Rights Offer opens at 0800 hours on Monday 3 May 2010 and will close at 1600 hours on Friday 14 May 2010.

The last day for the dealing in Letters of Allocation will be Thursday 13 May 2010 at 1200 hours.

D.3. ALTERNATIVE ACTION TO BE TAKEN BY SHAREHOLDERS

3.1 Acceptance

Shareholders who wish to accept the Rights Offer must return the renounceable Letter of Allocation in accordance

with the instructions contained therein, together with payment as required in section D4 of this Circular to the

following address:

First Transfer Secretaries (Private) Limited


Eastgate

Cnr Sam Nujoma & Robert Mugabe Rd

Harare

The completed Letter of Allocation must reach the above address by no later than 1600 hours on Friday 14 May

2010. The application will be considered complete only when the relative payment has been cleared.

Non-resident shareholders are required to fulfill the Exchange Control requirements set out in paragraph D5 of

this Circular.

3.2 Splitting

Shareholders who wish to accept only a portion of the shares allocated in terms of this Rights Offer can do so by

subscribing in part for the Rights Offer and selling the remaining Letters of Allocation through ZSE.

A Letter of Allocation may be split into smaller denominations by completing the Letter of Allocation in accordance

20

PART D: DETAILS OF THE RIGHTS OFFER

with the instructions contained therein. Dealing in the Letters of Allocation will commence on Monday 3 May

2010. The last day of splitting the Letters of Allocation will be Wednesday 12 May 2010 at 1200 hours.

3.3 Renunciation

The Letters of Allocation will provide for renunciation of rights in favor of third parties and will contain detailed

instruction in respect of renunciation.

D.4. PAYMENT PROCEDURES

4.1 Residents / Local Shareholders

Payment must be made by cash deposit or bank transfer, for the full amount in respect of the shares for which

resident shareholders make application.

Cash deposits or bank transfers should be made to the following account:

Account Name FBC Holdings Rights Issue

Bank FBC Bank Limited

Branch 8055

Account Number 203100003

Swift Code FBCPZWHA

4.2 Offshore / Foreign shareholders

Payment must be made through telegraphic transfer, cheque or bank draft, drawn in the currency of the United

States Dollars, for the full amount in respect of shares for which foreign shareholders make application.

Telegraphic Transfers, cheques or drafts should be made out in favor of "FBC Holdings Rights Offer". Cheques

or bank drafts should be crossed 'not negotiable' and must be accompanied by a Letter of Allocation.

Applications will be regarded as complete only when the funds are reflecting in the respective account.

D.5. EXCHANGE CONTROL REGULATIONS

Non-resident shareholders of FBC Holdings are advised to consult their professional advisors or bankers regarding their

individual Exchange Control position in relation to their participation in the Rights Offer described in the Circular to

shareholders.

D.6. DIVIDENDS

The Rights Offer Shares will be eligible for participation in any dividends declared by the Directors from time to time.

D.7. LISTING AND REGISTRATION OF RIGHTS OFFER SHARES

The listing committee of the ZSE has granted a primary listing for, and permission to deal in, all renounceable Letters of

Allocation (nil Paid) relating to the new Rights Offer Shares, between Monday 3 May 2010 and Monday 24 May 2010.

Renounceable Letters of Allocation may be negotiated and sold, subject to Exchange Control Regulations, the details of

which are provided in paragraph D3 and D5 of this Circular.

Application has been made to the ZSE, for the Rights Offer shares offered in terms of the Rights Offer to be listed on the

ZSE from Monday 24 May 2010.

21

PART D: DETAILS OF THE RIGHTS OFFER

Persons becoming Shareholders as a result of the Rights Offer will be placed on FBC Holding's share register. The Transfer

Secretaries in respect of the Rights Offer Shares are First Transfer Secretaries, whose details are set out in the "Corporate

Information" section at the beginning of this Circular.

D.8. RIGHTS OFFER SHARE CERTIFICATES

New Rights Offer share certificates will be posted as from Monday 24 May 2010 (at the risk of Shareholder) to the

Shareholder or renouncee's address as recorded on the Letter of Allocation unless written confirmation of any change of

address is received on time.

D.9. OLD SHARE CERTIFICATES

The old share certificates will remain valid and existing, and will be replaced with new certificates as shareholders transact.

D.10. EXPENSES OF THE RIGHTS OFFER

The expenses of the Rights Offer, amounting to approximately USD490,942.00 (four hundred and ninety thousand nine

hundred and forty two United States of America Dollars) which relate to various printing, distribution, advisory,

regulatory fees and such other charges, will be paid by FBC Holdings out of the proceeds of the Rights Offer.

PART E : REPORTING ACCOUNTANTS REPORT

KPMG Telephone +263 (4) 302600Mutual Gardens +263 (4) 303700100 The Chase (West), Emerald Hill Telefax +263 (4) 303699P O Box 6, HarareZimbabwe

KPMG, a Zimbabwe partnership and a member firm ofthe KPMG network of independent member firms affiliatedwith KPMG international, a Swiss co-opertive.22

15 April 2010

The DirectorsFBC Holdings Limited6th Floor, FBC Centre45 Nelson Mandela AvenueHarare

Dear Sirs

REPORT OF THE INDEPENDENT REPORTING ACCOUNTANT ON THE HISTORICAL FINANCIAL INFORMATION OF FBCHOLDINGS LIMITED

IntroductionThe directors of FBC Holdings Limited and its subsidiaries ("FBCH" or "the Group") are proposing to raise an amount of US$7,990,942.40 by wayof a renounceable Rights Offer to the registered holders of ordinary shares in FBCH, as at 23 April 2010, to subscribe for approximately 228 312640 (two hundred and twenty eight million, three hundred and twelve thousand, six hundred and forty) ordinary shares of a nominal value ofUS$0.00001 each in the issued share capital of FBCH, at a subscription price of US$0.035 per ordinary share, on the basis of 63 new ordinary sharesfor every 100 ordinary shares already held ("the Rights Offer"). The amount is being raised for the purpose of recapitalization of FBC Building Society,a 60% owned subsidiary of FBCH and FBC Reinsurance Limited, a 100% owned subsidiary of FBCH.

KPMG have been auditors of FBCH since inception. The modifications contained in the audit report for the year ended 31 December 2009 areindicated below in this report.

In terms of Section 8.3 of the Zimbabwe Stock Exchange ("ZSE") Listing Requirements, we present our report in respect of the audited historicalfinancial information of the Group as at and for the year ended 31 December 2009.

Change in functional currencyThe Group operated in a hyperinflationary environment up to 1 January 2009 when the use of multiple currencies was effectively adopted and thefull year results to 31 December 2009 are thus stated in United States dollars. Owing to the inability to apply the requirements of InternationalAccounting Standard (IAS) 29 (Financial Reporting in Hyperinflationary Economies) due to unavailability of indices since July 2008 from theZimbabwe Central Statistical Office ("CSO") and the prevalence of multiple exchange rates during the same period, the Group was unable to complywith the provisions of IAS 21 (The Effects of Changes in Foreign Exchange Rates) applicable to transactions and balances measured prior to 1 January2009 in the currency of a hyperinflationary economy (i.e. Zimbabwe dollars). In addition the Zimbabwe dollar was demonetised by the Minister ofFinance from 15 July 2009 onwards.

The financial information for the periods to 31 December 2008 was stated in Zimbabwe dollars and has not been included in the Circular by thedirectors due to the reasons noted above and the limitations to financial reporting that obtained during the financial year ended 31 December 2008,which are enunciated in the joint press statement issued by the Public Accountants and Auditors Board ("PAAB"), Zimbabwe Accounting PracticesBoard ("ZAPB") and the Zimbabwe Stock Exchange in March 2009.

ResponsibilitiesThe directors of the Group are solely responsible for the compilation, contents and presentation of the circular to shareholders ("the Circular") dated15 April 2010 of which this report is a part, and for the financial statements and other financial information from which the financial informationcontained in the Circular has been prepared, in accordance with International Financial Reporting Standards ("IFRSs") and other applicableregulations and guidance, as may be applicable to the Group from time to time. This responsibility includes: designing, implementing and maintaininginternal controls relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due tofraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances.

We report on the financial information in accordance with the requirements of Section 8.3 of the Listing Requirements of the Zimbabwe StockExchange.

Audit Opinion

Year ended 31 December 2009We have reproduced sections of our audit report in respect of the financial year ended 31 December 2009 which indicate the modifications to ouraudit report on the Group's financial statements for the period:

"Basis for adverse opinion on the group's financial performance and cash flows and unqualified opinion on the group and the company's financialposition

23

PART E: REPORTING ACCOUNTANTS REPORT

The financial statements have been prepared in accordance with International Financial Reporting Standards, except for the following standards:s International Accounting Standard (IAS 21), The Effects of Changes in Foreign Exchange Rates; ands International Accounting Standard (IAS 29), Financial Reporting in Hyperinflationary Economies.

The directors' report describes the basis of preparation of the financial statements in the circumstances that have given rise to a change in the group'sfunctional currency from the Zimbabwe dollar to the United States dollar, and offers an explanation for departing from these standards. The directors'report also indicates that it is not possible to quantify the effects of these departures on the group's financial performance and cash flows for theyear and that there is no effect on the group and company's financial position as at 31 December 2009.

Adverse opinion on the group's financial performance and cash flows and unqualified opinion on the group and the company's financial position

In our opinion, because of the significance of the matters described in the preceding paragraphs, the financial statements of FBC Holdings Limiteddo not give a true and fair view of the group's financial performance and cash flows for the year ended 31 December 2009 in accordance withInternational Financial Reporting Standards.

In our opinion, the financial statements give a true and fair view of the group and company's financial position as at 31 December 2009 in accordancewith International Financial Reporting Standards.

Report on other legal and regulatory requirements

In accordance with the requirement and recommendation contained in the Joint Media Statement on the Report of the Independent Auditor issuedby the Public Accountants and Auditors Board, the Zimbabwe Accounting Practices Board and the Zimbabwe Stock Exchange - Guidance 3/2010,approved for issue on 18 March 2010, we report as follows:s In our opinion the group has complied, in all material respects, with the financial reporting guidance in the Joint Media Statement on the

Impact on Financial Reporting as a Consequence of the Change in Functional Currency issued by the Public Accountants and Auditors Board,the Zimbabwe Accounting Practices Board and the Zimbabwe Stock Exchange, approved for issue on 5 August 2009, with which the directors'have elected to comply.

s The financial statements have not been prepared in compliance with all the requirements of the Companies Act (Chapter 24:03) and StatutoryInstruments (SI 33/99 and SI 62/96) as the group has not been able to comply with the requirements of International Financial ReportingStandard IAS 21, The Effects of Changes in Foreign Exchange Rates, as well as certain other matters, and has not presented comparativeinformation."

Format of the accountants reportAs the purpose of the financial information differs from the purpose of the financial statements prepared for members, the financial informationin the Circular in Part F is not intended to comply in full with the presentation and disclosure requirements of the Companies Act [Chapter 24:03]and IFRSs promulgated by the International Accounting Standards Board ("IASB").

Our report shall not in any way constitute recommendations regarding the completion of the transaction or the issue of the Circular to shareholders.

Yours faithfully

KPMGChartered Accountants (Zimbabwe)Harare

24

PART F: FINANCIAL INORMATION

1. General Information

The main business of the company, which is incorporated in Zimbabwe, is investment holding in companies which provide

commercial banking services, mortgage loans, stock broking and reinsurance services. The company is also involved in manufacturing

through a 59% owned subsidiary acquired through realisation of collateral on a non-performing loan receivable.

2 Basis of Preparation

The consolidated financial statements have been prepared based on the historical cost approach except for the following

classes of assets which are stated at fair value:

s Financial instruments carried at fair value

s Investment property

s Freehold land and buildings

s Plant

(a) Change in functional currency

Following the introduction of the national multi-currency regime in February 2009, it should be noted that the

functional currency in use in the Group for practical purposes is the United States Dollar (US$) with effect from

the 1st of January 2009.

(b) Non-compliance with International Financial Reporting Standard

The financial statements do not comply with IFRSs in the manner noted in the following paragraphs:

IAS 21: The Effects of Changes in Foreign Exchange Rates requires that an entity restates its comparatives upon

a change in functional currency by using the closing exchange rate as at the previous year end. As there

were numerous exchange rates that prevailed as at the end of 2008, an appropriate closing exchange rate

could not be determined for purposes of the required restatement.

IAS 29: Financial reporting in hyperinflationary economies requires that all transactions and balances that are

in the currency of a hyperinflationary economy should be adjusted for the effects of inflation before

conversion to the alternative presentation currency using the spot exchange rate at the date of conversion.

Due to lack of inflation indices, which were last published in July 2008, such a requirement could not

be complied with.

The financial statements have not complied with IAS 1: Presentation of financial statements as they do

not show prior period comparatives. Due to the hyperinflationary environment prevailing in 2008,

comparatives could not be objectively converted to the new functional and presentation currency due to

a multiplicity of exchange rates and unavailability of inflation indices from August to December 2008.

(c) Basis of determination of opening balances

In view of the difficulties noted in part (b) of the basis of preparation, with regards to complying with the

requirements of IFRSs in respect of IAS 29 and IAS 21, the Group applied guidance issued jointly by the PAAB,

the ZAPB and the Zimbabwe Stock Exchange in August 2009. In this respect the following procedures were followed

in coming up with opening balances from the old functional currency (Zimbabwe dollars) to the new functional

currency (United States of America dollars):

s Cash and financial instruments denominated in currencies other than the Zimbabwe dollar were converted

into United States of America dollars using the cross exchange rates prevailing on 1 January 2009

s Monetary assets and liabilities denominated in Zimbabwe dollars including loans and advances which were

not renegotiated into amounts denominated in other currencies were taken as nil .

s Deposits in other currencies other than the Zimbabwe dollars were converted using the cross exchange rates

prevailing on 1 January 2009. Deposits denominated in Zimbabwe dollars were taken as nil.

25

FBC HOLDINGS LIMITED ACCOUNTING POLICIES

s Other liabilities were determined by establishing settlement amounts with the creditor or supplier.

s Owner occupied properties were carried at fair values determined by independent external valuers as at 31

December 2008.

s Other property, plant and equipment were carried at deemed costs, being either the estimated fair value

amounts or depreciated replacement costs determined by independent external valuers as at 31 December

2008.

s Other assets were valued using the fair values prevailing in the market.

s Non-distributable reserve was derived as the difference between total assets and total liabilities as stated in

the new functional currency, United States of America dollars at 1 January 2009.

s Deferred tax was calculated using the balance sheet liability method in line with IAS12 and was provided for

at effective tax rates against the carrying amounts of all property, plant and equipment. Initially nil income

tax values were applied to these opening balances until guidance on the implementation of transitional

provisions was issued which resulted in the opening balances being adjusted for these provisions. Thus subject

to Zimra approval, which is still outstanding.

s The impact of share based payment transactions on the Group’s opening balances could not be established

as at 1 January 2009 due to the unavailability of key inputs into the Black Scholes Model which the Group

used to ascertain the fair value of its share options. At 31 December 2009 the Intrinsic Value Method was

then applied in determining the fair value of these share options due to the difficulty experienced in applying

the Black Scholes Model.

(d) Use of estimates and judgments

The preparation of financial statement in conformity with IFRSs requires management to make judgments,

estimates and assumptions that affect the application of policies and reported amounts of assets and liabilities,

income and expenses. These estimates and associated assumptions are based on historical experience and various

other factors that are believed to be reasonable under the circumstances, the results of which form the basis of

making the judgments about carrying values of assets and liabilities that are not readily apparent from other

services. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on

an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised

and in any future periods affected.

In particular, information about significant areas of estimation uncertainty and critical judgments in applying

accounting policies that have the most significant effect on the amount recognized in the financial statements are

listed below:

s Share based payments

s Loan loss impairment

s Fraud recoveries

s Deferred taxation

s Impairment of non-financial assets

s Useful lives of classes of PPE

s Opening balances

s Exchange gains/ losses/ use of average exchange rates

s Provision for technical assets and liabilities

s Contingent assets and liabilities

(e) Basis of consolidation

(i) Subsidiaries

Subsidiaries are entities controlled by the Group. Control exists when the Group has the power, directly or

indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its activities.

In assessing control, potential voting rights that presently are exercisable or convertible are taken into account.

The financial statements of subsidiaries are included in the consolidated financial statements from the date

that control commences until the date control ceases.

26

(ii) Acquisitions from entities under common control

Business combinations arising from transfers of interests in entities that are under the control of the shareholder that

controls the Group are accounted for as if the acquisition had occurred at the beginning of the earliest comparative

period presented or, if later, at the date that common control was established; for this purpose comparatives are

restated. The assets and liabilities acquired are recognised at the carrying amounts recognised previously in the Group's

controlling shareholder's consolidated financial statements. The components of equity of the acquired entities are

added to the same components within Group equity except that any share capital of the acquired entities is recognised

as part of share premium. Any cash paid for the acquisition is recognised directly in equity.

(iii) Transactions eliminated on consolidation

Intra-group balances and any unrealised income and expenses arising from intra-group transactions are eliminated

in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised

gains but only to the extent that there is no evidence of impairment.

(iv) Investments in associates

Investments in associates are accounted for by the equity method of accounting. Under this method the company's

share of post-acquisition profit or losses of associates is recognized in the statement of comprehensive income and

its share of post acquisition movements in reserves is recognised in reserves. The cumulative post-acquisition

movements are adjusted against the cost of investment. Associates are entities over which the Group generally has

between 20% to 50% of the voting rights, or over which the Group has significant influence, but which it does not

control. Unrealized gains on transactions between the Group and its associates are eliminated to the extent of the

Group's interest in associates: unrealized losses are eliminated unless the transaction provides evidence of an impairment

of the assets transferred. The Group's investment in associates includes goodwill (net of accumulated amortization)

on acquisition. When the Group's share of losses in the associate equals or exceeds the interest in associate, the Group

does not recognize further losses, unless the Group has incurred obligations or made payments on behalf of the

associate.

Investments in associates classified as held for sale are accounted for at fair value through profit or loss, with any gains

or losses being recognized in the statement of comprehensive income.

(f) Share capital

Ordinary shares are classified as equity.

Incremental costs directly attributable to the issue of new shares or options are shown in equity as a deduction from

the proceeds. Incremental costs directly attributable to the issue of new shares or options, or for the acquisition of a

business, are included in the cost of acquisition as part of the purchase consideration.

Where any Group company purchases the Company's equity share capital (treasury shares), the consideration paid,

including any directly attributable incremental costs, is deducted from equity attributable to the Company's equity

holders until the shares are cancelled or disposed of. Where such shares are subsequently sold or reissued, any

consideration received, net of any directly attributable incremental transaction costs, is included in equity attributable

to the Company's equity holders.

(g) Foreign currency transactions

Transactions in foreign currencies are translated to the United States dollar (US$) at exchange rates ruling at the dates

of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are

retranslated to the functional currency at the exchange rate at that date, after adjustment for effective interest and

payments during the period. Non-monetary assets and liabilities, denominated in foreign currencies, that are measured

at fair value are restated to the functional currency at the date that fair value was determined. Foreign currency

differences are recognized in the statement of comprehensive income.


(h) Financial instruments

(i) Classifications

(a) Held-to-maturity

Held-to-maturity financial assets are non-derivative assets with fixed or determinable payments and fixed maturity

that the Group has the positive intent and ability to hold to maturity, and which are not designated at fair value

through profit or loss or available-for-sale.

(b) Fair value through profit or loss

This category has two subcategories:

s Designated. The first includes any financial asset that is designated on initial recognition as one to be

measured at fair value with fair value changes in profit or loss.

s Held for trading. The second such category includes financial assets that are held for trading. All derivatives

(except those designated hedging instruments) and financial assets acquired or held for the purpose of selling

in the short term or for which there is a recent pattern of short-term profit taking are considered to be held

for trading.

(c) Loans and receivables

Loans and receivables are non-derivative financial assets with fixed or determinable payments that are not quoted

in an active market other than:

s those that the entity intends to sell immediately or in the near term which may be classified as held for

trading, and those that the entity upon initial recognition designates as at fair value through profit or loss;

s those that the entity upon initial recognition designates as available for sale; or

s those for which the holder may not recover substantially all of its initial investment, other than because of

credit deterioration which shall be classified as available for sale.

(d) Available-for-sale

Available-for-sale financial assets are non-derivative investments that are not designated as another category

of financial assets. Unquoted equity securities whose fair value cannot be reliably measured are carried at cost.

All other available-for-sale investments are carried at fair value.

(ii) Initial recognition

The Group initially recognises loans and advances, deposits, debt securities issued and subordinated liabilities on the

date that they are originated. All other financial assets and liabilities (including assets and liabilities designated at fair

value through profit or loss) are initially recognized on the trade date at which the Group becomes a party to the

contractual provisions of the instrument.

Initially, financial assets and liabilities are measured at fair value (including transaction costs, for assets and liabilities

not measured at fair value through profit or loss).

(iii) Subsequent measurement

Subsequently, financial assets and liabilities (including derivatives) are measured at fair value, with the following

exceptions:

s Loans and receivables, held-to-maturity investments, and non-derivative financial liabilities are measured at

amortised cost using the effective interest method.

s Investments in equity instruments with no reliable fair value measurement (and derivatives indexed to such

equity instruments) are measured at cost.

s Financial assets and liabilities that are designated as a hedged item or hedging instrument are subject to

measurement under the hedge accounting requirements of the IAS 39.

s Financial liabilities that arise when a transfer of a financial asset does not qualify for derecognition, or that are

accounted for using the continuing-involvement method, are subject to particular measurement requirements.


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(iv) Derecognition

The Group derecognises a financial asset when the contractual rights to the cash flows from the asset expire, or it

transfers the rights to receive the contractual cash flows on the financial asset in a transaction in which substantially

all the risks and rewards of ownership of the financial asset are transferred. Any interest in transferred financial assets

that is created or retained by the Group is recognised as a separate asset or liability.

The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.

The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but

retains either all risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and

rewards are retained, then the transferred assets are not derecognised from the statement of finanical position.

Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending

and repurchase transactions. When assets are sold to a third party with a concurrent total rate of return swap on

the transferred assets, the transaction is accounted for as a secured financing transaction similar to repurchase

transactions. In transactions where the Group neither retains nor transfers substantially all the risks and rewards

of ownership of a financial asset, it derecognises the asset if control over the asset is lost.

The rights and obligations retained in the transfer are recognised separately as assets and liabilities as appropriate.

In transfers where control over the asset is retained, the Group continues to recognise the asset to the extent of its

continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred

asset.

The Group also derecognises certain assets when it charges off balances pertaining to the assets deemed to be

uncollectible.

(v) Offsetting

Financial assets and liabilities are set off and the net amount presented in the statement of financial position when,

and only when, the Group has a legal right to set off the amounts and intends either to settle on a net basis or to

realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted by the accounting standards, or for gains

and losses arising from a group of similar transactions such as in the Group’s trading activity.

(vi) Amortised cost measurement

The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured

at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective

interest method of any difference between the initial amount recognised and the maturity amount, minus any

reduction for impairment.

(vii) Fair value measurement

The determination of fair values of financial assets and financial liabilities is based on quoted market prices or dealer

price quotations for financial instruments traded in active markets. For all other financial instruments fair value is

determined by using valuation techniques. Valuation techniques include net present value techniques, the discounted

cash flow method, comparison to similar instruments for which market observable prices exist, and valuation models.

(viii) Identification and measurement of impairment

At each statement of financial position date the Group assesses whether there is objective evidence that financial

assets not carried at fair value through profit or loss are impaired. Financial assets are impaired when objective

evidence demonstrates that a loss event has occurred after the initial recognition of the asset, and that the loss event

has an impact on the future cash flows on the asset that can be estimated reliably.


29

The Group considers evidence of impairment at both a specific asset and collective level. All individually

significant financial assets are assessed for specific impairment. All significant assets found not to be

specifically impaired are then collectively assessed for any impairment that has been incurred but not yet

identified. Assets that are not individually significant are then collectively assessed for impairment by grouping

together financial assets (carried at amortised cost) with similar risk characteristics.

Objective evidence that financial assets (including equity securities) are impaired can include default or

delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would

not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an

active market for a security, or other observable data relating to a group of assets such as adverse changes

in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults

in the group.

In assessing collective impairment the Group uses historical trends of the probability of default, timing of

recoveries and the amount of loss incurred, adjusted for management’s judgement as to whether current

economic and credit conditions are such that the actual losses are likely to be greater or less than suggested

by historical trends. Default rates, loss rates and the expected timing of future recoveries are regularly

benchmarked against actual outcomes to ensure that they remain appropriate.

Impairment losses on assets carried at amortised cost are measured as the difference between the carrying

amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original

effective interest rate. Losses are recognised in profit or loss and reflected in an allowance account against

loans and advances. Interest on the impaired asset continues to be recognised through the unwinding of the

discount.

When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed

through profit or loss.

The Reserve Bank of Zimbabwe requires the Group to provide statutory provisions rather than impairment

losses on loans and advances in accordance with IAS39. Where the statutory provisions are higher than the

IAS39 impairment losses, the excess is treated as an appropriation to regulatory provisions reserve.

Impairment losses on available-for-sale investment securities are recognised by transferring the difference

between the amortised acquisition cost and current fair value out of equity to profit or loss. When a subsequent

event causes the amount of impairment loss on an available-for-sale debt security to decrease, the impairment

loss is reversed through profit or loss.

However, any subsequent recovery in the fair value of an impaired available-for-sale equity security is

recognised directly in equity. Changes in impairment provisions attributable to time value are reflected as

a component of interest income.

(ix) Designation at fair value through profit or loss

The Group has designated financial assets and liabilities at fair value through profit or loss when either:

s the assets or liabilities are managed, evaluated and reported internally on a fair value basis;

s the designation eliminates or significantly reduces an accounting mismatch which would otherwise

arise.


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(i) Cash and cash equivalents

Cash and cash equivalents include notes and coins on hand, unrestricted balances held with the Central Bank and

highly liquid financial assets with original maturities of less than three months, which are subject to insignificant

risk of changes in their fair value, and are used by the Group in the management of its short-term commitments.

Cash and cash equivalents are carried at amortised cost in the statement of financial position.

(j) Loans and Advances

Loans originated by the Group by providing money directly to the borrower other than those that are originated

with the intent of being sold immediately or in the short term which are recorded as trading assets, are categorized

as loans originated by the Group and are carried at amortised cost using the effective interest method, which is

defined as the fair value of cash consideration given to originate those loans as is determinable by reference to

market prices at origination date. Third party expenses, such as legal fees, incurred in securing a loan are treated

as part of the cost of the transaction.

Originated loans include mortgage advances, loans and advances to banks and customers, mortgage advances and

secured and unsecured loans. All mortgage advances, secured and unsecured loans are recognized when cash is

advanced to borrowers.

Provisions for bad and doubtful debts are held in respect of loans and advances to customers.

s Specific provisions against bad and doubtful debts are made on the basis of regular reviews of loans and

advances.

s General provisions are made in relation to losses which, though not separately identified are known from

experience to exist in any loan portfolio.

Provisions are applied to write off an advance when all security has been realised and further recoveries are

considered to be unlikely. Interest on loans and advances is accrued to income until such time as reasonable doubt

exists about its ability to collect; thereafter and until all or part of the loan is written off, interest continues to

accrue on customers' accounts, but is not included in income. Such suspended interest is deducted from loans and

advances to customers.

(k) Investments securities

Investment securities are initially measured at fair value plus incremental direct transaction costs except that

transaction costs for fair value through profit or loss are immediately expensed and subsequently accounted for

depending on their classification as either held-to-maturity, fair value through profit or loss, or available-for-sale.

Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised

in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-

for-sale debt security investments are recognised in profit or loss.

Other fair value changes are recognised directly in equity until the investment is sold or impaired and the balance

in equity is recognised in profit or loss.

(l) Property, plant and equipment

(i) Recognition and measurement

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment

losses, with the exception of Freehold land and buildings which is valued annually by an independent

appraiser.


31

Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-

constructed assets includes the cost of materials and direct labour, any other costs directly attributable to

bringing the asset to a working condition for its intended use, and the costs of dismantling and removing

the items and restoring the site on which they are located. Purchased software that is integral to the functionality

of the related equipment is capitalized as part of that equipment.

When parts of an item of property or equipment have different useful lives, they are accounted for as separate

items (major components) of property, plant and equipment.

(ii) Subsequent costs

The cost of replacing part of an item of property or equipment is recognised in the carrying amount of the

item if it is probable that the future economic benefits embodied within the part will flow to the Group and

its cost can be measured reliably. The costs of the day-to-day servicing of property, plant and equipment are

recognised in profit or loss when incurred.

(iii) Depreciation

Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part

of an item of property, plant and equipment. Leased assets are depreciated over the shorter of the lease term

and their useful lives. Land is not depreciated.

Depreciation methods, useful lives and residual values are reassessed at the reporting date.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are

included in the statement of comprehensive income.

Freehold land and buildings are reported at open market value whilst subsequent additions between valuation

dates are shown at cost. Any revaluation surplus is credited to the revaluation reserve except to the extent

that it reverses a revaluation loss of the same asset previously recognized in the statement of comprehensive

income. A revaluation loss is recognized in the statement of comprehensive income to the extent that it offsets

a previous surplus on the same asset.

(m) Investment properties

Investment property is property held either to earn rental income or for capital appreciation or for both. Other

property has been acquired through the enforcement of security over loans and advances.

Investment property is initially measured at cost and subsequently measured at fair value with any changes therein

recognised in profit or loss in other operating income.

(n) Intangible assets

(i) Goodwill

Goodwill (negative goodwill) arises on the acquisition of subsidiaries. Goodwill represents the excess of the

cost of the acquisition over the Group’s interest in the net fair value of the identifiable assets, liabilities and

contingent liabilities of the acquiree. When the excess is negative (negative goodwill), it is recognised

immediately in profit or loss.

Acquisitions of minority interests

Goodwill arising on the acquisition of a minority interest in a subsidiary represents the excess of the cost of

the additional investment over the carrying amount of the net assets acquired at the date of exchange.


32

Subsequent measurement

Goodwill is measured at cost less accumulated impairment losses.

(o) Leased assets

Leases in terms of which the Group assumes substantially all the risks and rewards of ownership are classified as

finance leases. Upon initial recognition the leased asset is measured at an amount equal to the lower of its fair

value and the present value of the minimum lease payments. Subsequent to initial recognition, the asset is accounted

for in accordance with the accounting policy applicable to that asset.

Other leases are operating leases and, except for investment property, the leased assets are not recognised on the

Group’s statement of financial position. Investment property held under an operating lease is recognised on the

Group’s statement of financial position at its fair value.

(p) Impairment of non-financial assets

The carrying amounts of the Group’s non-financial assets, other than investment property and deferred tax assets,

are reviewed at each reporting date to determine whether there is any indication of impairment. If any such

indication exists then the asset’s recoverable amount is estimated. The recoverable amount of goodwill is estimated

at each reporting date.

An impairment loss is recognised if the carrying amount of an asset or its cash-generating unit exceeds its recoverable

amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are

independent from other assets and groups. Impairment losses are recognised in profit or loss. Impairment losses

recognised in respect of cash-generating units are allocated first to reduce the carrying amount of any goodwill

allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a

pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less

costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using

a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific

to the asset.

An impairment loss in respect of goodwill is not reversed. In respect of other assets, impairment losses recognised

in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer

exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable

amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the

carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had

been recognised.

(q) Deposits, debt securities issued and subordinated liabilities

Deposits, debt securities issued and subordinated liabilities are the Group’s sources of debt funding.

When the Group sells a financial asset and simultaneously enters into a “repo” or “stock lending” agreement to

repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a

deposit, and the underlying asset continues to be recognised in the Group’s financial statements.

The Group classifies capital instruments as financial liabilities or equity instruments in accordance with the

substance of the contractual terms of the instrument.

Deposits, debt securities issued and subordinated liabilities are initially measured at fair value plus transaction

costs, and subsequently measured at their amortised cost using the effective interest method, except where the

Group chooses to carry the liabilities at fair value through profit or loss.


33

The Group carries some deposits, debt securities and subordinated liabilities at fair value, with fair value changes

recognised immediately in profit or loss.

(r) Provisions

A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that

can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the

obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects

current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for restructuring is recognised when the Group has approved a detailed and formal restructuring plan,

and the restructuring either has commenced or has been announced publicly. Future operating costs are not

provided for.

A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a

contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured

at the present value of the lower of the expected cost of terminating the contract and the expected net cost of

continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the

assets associated with that contract.

(s) Financial guarantees

Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for

a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt

instrument.

Financial guarantee liabilities are initially recognised at their fair value, and the initial fair value is amortised over

the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised

amount and the present value of any expected payment (when a payment under the guarantee has become probable).

Financial guarantees are included within other liabilities.

(t) Employee benefits

(i) Post employment benefits

Post employment benefits are employee benefits (other than termination benefits) which are payable after

completion of employment.

Obligations for contributions to defined contribution pension plans are recognised as an expense in profit

or loss when they are due. Prepaid contributions are recognized as an asset to the extent that a cash refund

or a reduction in the future payments is available.

Pension obligation

The Group provides for retirement benefit obligation in respect of its employees as follows;

s FBCH Pension Fund – Defined Contribution Fund

s National Social Security Authority (NSSA) - Defined Benefit Fund. Contributions to NSSA are made in

terms of statutory regulations and are charged against income as incurred

A defined contribution plan is a pension plan under which the Group pays fixed contributions into a separate

entity. The Group has no legal or constructive obligations to pay further contributions if the fund does not

hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior

periods.


34

(ii) Profit sharing and bonus plans

The Group recognizes a liability and an expense for profit sharing and bonuses based on a formula that takes

into consideration the profit attributable to the company’s shareholders after an external audit. The Group

recognizes a provision where contractually obliged or where there is a past practice that has created a

constructive obligation.

(iii) Termination benefits

Termination benefits are benefits payable as a result of the Group’s decision to terminate employment before

normal retirement date (or contractual date) or employee’s decision to accept voluntary redundancy in

exchange of those benefits. Termination benefits are recognised as an expense when the Group is demonstrably

committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment

before the normal retirement date. Termination benefits for voluntary redundancies are recognised if the

Group has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted,

and the number of acceptances can be estimated reliably.

(iv) Short-term benefits

Short-term benefits are employee benefits (other than termination benefits) which fall due wholly within

twelve months after the end of the period in which the employees render services. Short-term employee

benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing

plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service

provided by the employee and the obligation can be estimated reliably.

(v) Share-based payment transactions

The grant date fair value of options granted to employees is recognised as an employee expense, with a

corresponding increase in equity, over the period in which the employees become unconditionally entitled

to the options. The amount recognised as an expense is adjusted to reflect the actual number of share options

that vest.

The fair value of the amount payable to employees in respect of share appreciation rights, which are settled

in cash, is recognised as an expense, with a corresponding increase in liabilities, over the period in which

the employees become unconditionally entitled to payment.

(u) Earnings per share

The Group presents basic, diluted and headline earnings per share (EPS) data for its ordinary shares. Basic EPS

is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted

average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the

profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding

for the effects of all dilutive potential ordinary shares, which comprise share options granted to employees.

(v) Operating segments

A segment is a distinguishable component of the Group that is engaged either in providing products or services

(business segment), or in providing products or services within a particular economic environment (geographical

segment), which is subject to risks and rewards that are different from those of other segments. The Group’s

primary format for segment reporting is based on business segments.

(w) Interest

Interest income and expense are recognised in the statement of comprehensive income using the effective interest

method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and

receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the

carrying amount of the financial asset or liability. The effective interest rate is established on initial recognition

of the financial asset and liability and is not revised subsequently.


35

The calculation of the effective interest rate includes all fees and charges paid or received, transaction costs, and

discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental

costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.

Interest income and expense presented in the statement of comprehensive income include:

s interest on financial assets and liabilities at amortised cost on an effective interest rate basis

s interest on available-for-sale investment securities on an effective interest basis

Interest income and expense on all trading assets and liabilities are considered to be incidental to the Group’s

trading operations and are presented together with all other changes in the fair value of trading assets and liabilities

in net trading income.

(x) Net trading and dealing income

Net trading income comprises gains less losses related to trading assets and liabilities, and includes all realised

and unrealised fair value changes, interest, dividends and foreign exchange gains or losses.

(y) Fees and commissions

Fees and commission income and expenses that are integral to the effective interest rate on a financial asset or

liability are included in the measurement of the effective interest rate. Other fees and commission income, including

account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are

recognised as the related services are performed. When a loan commitment is not expected to result in the draw-

down of a loan, loan commitment fees are recognised on a straight-line basis over the commitment period.

Other fees and commission expense relates mainly to transaction and service fees, which are expensed as the

services are received.

(z) Dividends

Dividend income is recognised when the right to receive income is established. Usually this is the ex-dividend date

for equity securities. Dividends are reflected as a component of net trading income, net income on other financial

instruments at fair value or other operating income based on the underlying classification of the equity instrument.

(aa) Lease payments made

Payments made under operating leases are recognised in profit or loss on a straight-line basis over the term of the

lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the

lease.

Minimum lease payments made under finance leases are apportioned between the finance expense and the reduction

of the outstanding liability. The finance expense is allocated to each period during the lease term so as to produce

a constant periodic rate of interest on the remaining balance of the liability. Contingent lease payments are

accounted for by revising the minimum lease payments over the remaining term of the lease when the lease

adjustment is confirmed.

(ab) Income tax expense

Income tax expense comprises current and deferred tax. Income tax expense is recognised in the statement of

comprehensive income except to the extent that it relates to items recognised directly in equity, in which case it

is recognised in equity.


36

Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively

enacted at the statement of financial position date, and any adjustment to tax payable in respect of previous years.

Deferred tax is provided using the statement of financial position method, providing for temporary differences

between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for

taxation purposes. Deferred tax is not recognised for the following temporary differences: the initial recognition

of goodwill, the initial recognition of assets or liabilities in a transaction that is not a business combination and

that affects neither accounting nor taxable profit, and differences relating to investments in subsidiaries to the

extent that they probably will not reverse in the foreseeable future. Deferred tax is measured at the tax rates that

are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted

or substantively enacted by the reporting date.

A deferred tax asset is recognised only to the extent that it is probable that future taxable profits will be available

against which the asset can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced

to the extent that it is no longer probable that the related tax benefit will be realised.

Additional income taxes that arise from the distribution of dividends are recognised at the same time as the liability

to pay the related dividend is recognised.

(ac) Insurance contracts

Recognition and measurement

(i) Revenue

Gross premiums written reflect business written during the year, and exclude any taxes or duties based on

premiums. Premiums written include estimates for ‘pipeline’ premiums and adjustments to estimates of

premiums written in previous years. The earned proportion of premiums is recognized as revenue. Premiums

are earned from the date of attachment of risk, over the indemnity period, based on the pattern of the risks

underwritten.

(ii) Unearned premium provision

The provision of unearned premiums comprises the proportion of premiums of gross premiums written

which is estimated to be earned in the following or subsequent financial years, computed separately for each

insurance contract using the daily pro rata method, adjusted if necessary to reflect any variation in the

incidence of risk during the period covered by the contract.

(iii) Claims

Claims incurred comprise the settlement and handling costs of paid and outstanding claims arising from

events occurring during the financial year together with adjustments to prior year claims provisions.

Claims outstanding comprise provisions for the company’s estimate of the ultimate cost of settling all the

claims incurred but unpaid at the statement of financial position date whether reported or not, and related

internal and external claims handling expenses and an appropriate prudential margin. Claims outstanding

are assessed by reviewing individual claims and making allowance for claims incurred but not yet reported,

the effect of both internal and external foreseeable events, such as claims handling procedures, inflation,

judicial trends, legislative changes and past experience and trends.

Provisions for claims outstanding are not discounted. Adjustments to claims provisions established in prior

years are reflected in the financial statements of the period in which the adjustments are made and disclosed

separately if material. The methods used, and the estimates made, are reviewed regularly.


37

(iv) Unexpired risk provision

Provision is made for unexpired risks arising from general insurance contracts where the expected value of

claims and expenses attributable to the unexpired periods of policies in force at the statement of financial

position date exceeds the unearned premiums provision in relation to such policies after the deduction of

any deferred acquisition costs. The provision of unexpired risk is calculated by reference to classes of business

which are managed together, after taking into account the future investment return on investments held to

back the unearned premiums and unexpired claims provision.

(ad) Reinsurance assets

The company cedes reinsurance in the normal course of business for the purpose of limiting its net loss

potential through the diversification of its risks. Assets, liabilities and income expense arising from ceded

reinsurance contracts are presented separately from the related assets, liabilities, income and expense from

the related insurance contract because the reinsurance arrangements do not relieve the company from its

direct obligations to its policyholders.

Only rights under contracts that give rise to a significant transfer of insurance risk are accounted for as

reinsurance assets. Rights under contracts that do not transfer significant insurance risk, are accounted for

as financial instruments.

Reinsurance premiums for ceded reinsurance are recognized as an expense on a basis that is consistent with

the recognition basis for the premiums on the related insurance contract. For general insurance business,

reinsurance premiums are expensed over the period that the reinsurance cover is provided based on the

expected pattern of the reinsured risks. The unexpensed portion of ceded reinsurance premiums is included

in the reinsurance assets.

The net amounts paid to the reinsurer at the inception of a contract may be less than the reinsurance assets

recognized by the company in respect of rights under contracts. Any difference between the premium due

to the reinsurer and the reinsurance asset recognized is included in the statement of comprehensive income

in the period in which the reinsurance premium is due.

The amounts recognized as reinsurance assets are measured on a basis that is consistent with the measurement

of the provisions held in respect of the related insurance contracts.

Reinsurance assets include recoveries due from reinsurance companies in respect of claims paid. These are

classified as loans and receivables and are included within insurance and other receivables in the statement

of financial position.

Reinsurance assets are assessed for impairment at each balance sheet date. An asset is deemed impaired if

there is objective evidence, as a result of an event that occurred after its initial recognition, that the company

may not recover all amounts due, and that the event has a reliably measurable impact on the amounts that

the company will receive from the retrocessionaire.

(vi) Deferred acquisition costs

Costs incurred in acquiring general insurance, annuity and life assurance contracts are deferred to the extent

that they are recoverable out of future margins. Acquisitions costs include direct cost such as commission

and medical fees and indirect costs such as administrative expenses connected with the processing of proposals

and issuing of policies.

Deferred acquisition costs are amortised over the period in which the costs are expected to be recoverable

out of future margins in the revenue from the related contracts. The rate of amortization is consistent with

the pattern of emergency of such margins.


38

For general insurance contracts the deferred acquisition cost asset represents the proportion of acquisition

costs which corresponds to the proportion of gross premiums written which is unearned at the statement

of financial position date.

(ae) Related parties

Parties are considered to be related if one party has the ability to control the other party or exercise significant

influence over the other party in making financial and operating decisions. The Group has related party

relationships with its shareholders, subsidiaries, associates and key management employees. Transactions

and balances with related parties are shown in note 11.

(af) Revenue

This accounting policy specifically relates to the manufacturing subsidiary.

Revenue represents amounts invoiced to customers for goods supplied and services rendered, net of value

added tax and allowances for defective goods. Revenue from the sale of goods is recognized when the significant

risks and rewards of ownership have been transferred to the buyer. Revenue is measured at the fair value

of the consideration received or receivable. No revenue is recognized if there are significant uncertainties

regarding recovery of the consideration due, measurement of the associated costs incurred to earn the revenue

or the possible return of the goods.

(ag) Inventories

This accounting policy specifically relates to the manufacturing and building society subsidiaries.

Inventories are valued at the lower of cost and estimated net realisable value. Cost is determined on the

weighted average basis. Estimated net realizable value is the estimated selling price in the ordinary course

of business less any costs of completion and disposal.

39

CONSOLIDATED STATEMENT OF FINANCIAL POSITION

As at 31 December 2009 2009

Notes US$

Assets

Cash and cash equivalents 1 81 226 175

Trading assets 2.1 212 377

Loans and advances to customers 3.1 21 693 546

Investment securities 2.2 1 686 142

Investment securities held for sale 2.3 1 062 534

Other assets 3.2 13 852 516

Investment in associate 4 437 310

Investment properties 5 575 000

Property, plant and equipment 6 43 406 436

Total assets 164 152 036

Liabilities

Deposits from banks 7.2 1 330 696

Deposits from customers 7.1 94 816 788

Current tax liabilities 1 240 889

Deferred tax liabilities 8.1 8 293 603

Other liabilities 7.3 9 479 559

Total liabilities 115 161 535

Equity

Share capital and share premium -

Retained earnings 4 835 929

Other reserves 10 32 827 256

Total attributable to equity holders of the parent company 37 663 185

Non-controlling interest 11 327 316

Total equity 48 990 501

Total equity and liabilities 164 152 036

40

CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME

For the year ended 31 December 2009 2009

Notes US$

Interest income 12 5 872 317

Interest expense 13 (1 466 193)

Net interest income 4 406 124

Fee and commission income 14.1 6 903 362

Fee and commission expense 14.2 (2 450 791)

Net fee and commission income 4 452 571

Net trading income 15 14 829 070

Net income from financial instruments carried at fair value 16 345 675

Other operating income 17 6 408 138

Total income 30 441 578

Operating expenses

Impairment loss on financial assets 3.5 (149 430)

Personnel expenses 18 (7 876 631)

Depreciation and amortisation 6 (2 142 656)

Other expenses 19 (14 099 140)

Total operating expenses (24 267 857)

Operating profit 6 173 721

Share of results of associate 4 (171 017)

Profit before income tax 6 002 704

Income tax expense 20 (849 804)

Profit for the period 5 152 900

Other comprehensive income

Gains on property revaluation 148 644

General provisions for doubtful debts 3.6 (238 998)

Other comprehensive income, net of income tax (90 354)

Total comprehensive income for the period 5 062 546

Profit attributable to:

Owners of the parent company 4 835 929

Non-controlling interest 316 971

Profit for the period 5 152 900

Total comprehensive income attributable to:

Owners of the parent company 4 753 601

Non-controlling interest 308 945

Total comprehensive income for the period 5 062 546

Earnings per share (US cents)

Basic 21.1 1.3

Diluted 21.2 1.3

41

CONSOLIDATED STATEMENT OF CHANGES IN EQUITY

For the year ended 31 December 2009

Share Share Share option Treasury Retained Non distributable Revaluation Regulatory Non-controlling Total

capital premium reserve shares profit reserves reserve provisions interests equity

reserve

US$ US$ US$ US$ US$ US$ US$ US$ US$ US$

Balance at 1 January 2009 - - - - - 32,948,983 - - 2,455,911 35,404,894

Total comprehensive income for the period

Profit or loss - - - - 4,835,929 - - - 316,971 5,152,900

Other comprehensive income

Gains on property

revaluation, net of tax - - - - - - 142,334 - - 142,334

Group's share of associates' revaluation gain, net of tax - - - - - - 6,310 - - 6,310

General provisions for doubtful debts, net of tax - - - - - - - (230,972) (8,026) (238,998)

Total other comprehensive income - - - - - - 148,644 (230,972) (8,026) (90,354)

Total comprehensive income for the period - - - - 4,835,929 - 148,644 (230,972) 308,945 5,062,546

Transactions with owners, recorded directly in equity

Contributions by and distributions to owners

Rights issue - - - - - - - - 413,120 413,120

Share based payment transactions - - 82,926 - - - - - - 82,926

Treasury shares purchased - - - (122,325) - - - - - (122,325)

Dividend paid - - - - - - - - - -

Total contributions by and distributions to owners - - 82,926 (122,325) - - - - 413,120 373,721

Changes in ownership interests in subsidiaries that do not

result in a loss of control

Acquisition of non-controlling interest - - - - - - - - 8,149,340 8,149,340

Total transactions with owners - - 82,926 (122,325) - - - - 8,562,460 8,523,061

Balance at 31 December 2009 - - 82,926 (122,325) 4,835,929 32,948,983 148,644 (230,972) 11,327,316 48,990,501

42

CONSOLIDATED STATEMENT OF CASH FLOWS

For the year ended 31 December 2009 2009

Notes US$

Cash flows from operating activities

Profit before taxation 6 002 704

Adjustments for:

Depreciation and amortisation 6 2 142 656

Impairment on loans and advances 3.5 149 430

Profit on disposal of fixed assets (226 010)

Profit on disposal of investment properties (809 045)

Fair value adjustment on investment properties (12 520)

Share of results of associate 4 171 017

Equity settled share based payments 82 926

Impairment losses on fixed assets 111 297

Gain on acquisition of subsidiary 32 (4 826 234)

Net cash generated before changes in operating assets and liabilities 2 786 221

Change in trading assets 2 287 623

Change in loans and advances to customers (14 876 032)

Change in investment securities held for sale (1 062 534)

Change in other assets (7 957 641)

Change in deposits from banks (4 565 921)

Change in deposits from customers 91 933 424

Change in other provisions and liabilities 4 108 373

72 653 513

Income tax paid (73 563)

Net cash flow from operating activities 72 579 950

Cash flows from investing activities

Net cash on investment securities (682 186)

Purchase of property, plant and equipment (891 839)

Proceeds from sale of investment properties 809 045

Proceeds from sale of property, plant and equipment 1 863 048

Acquisition of subsidiary (6 298 866)

Net cash flow used in investing activities (5 200 798)

Net cash flows before financing activities 67 379 152

Cash flows from financing activities

Share issue and minority contribution 413 120

Treasury shares (122 325)

Net cash flows from financing activities 290 795

Cash and cash equivalents at the beginning of the year 13 556 228

Cash and cash equivalents at the end of the year 81 226 175

43

NOTES

Consolidated

2009

Note US$

1. CASH AND CASH EQUIVALENTS

Unrestricted balances with the RBZ 19 392 133

Balances with other banks and cash 61 834 042

81 226 175

2. INVESTMENTS

2.1 Trading assets

Money market investments 212 377

2.2 Investment securities

Equity investments 1 686 142

The Group’s quoted equity investments have been designated

at fair value through profit or loss upon initial recognition.

2.3 Investments held for sale

Equity investments 1 062 534

The Group's banking subsidiary realised equities of Steelnet Limited and General Beltings Limited that had been pledged

as security on non-performing loans. These investments have been classified as an investments held for sale as their

carrying amount is expected to be recovered principally through a sale transaction. The Central Bank has given the Bank

up to 12 September 2010 to dispose of these investments as banks are prohibited by the Banking Act (Chapter 24:20)

from holding equities. These investments have been designated at fair value through profit or loss upon initial recognition.

Fair value losses of US$35 330 have been recognized in the statement of comprehensive income under "Net income

from other financial instruments carried at fair value" in respect of these investments.

Total investments 2 961 053

2.4 Maturities (all investments)

Maturing within 1 year 2 961 053

Maturing after 1 year but within 5 years -

2 961 053

44

31 December 2009

2009

US$

3. ADVANCES AND OTHER ACCOUNTS

3.1 Advances maturities


Maturing after 1 year but within 5 years 1 744 578

Maturing after 5 years 1 400 264

Gross amount 22 081 974

Impairment allowance (note 3.6) (388 428)

Carrying amount 21 693 546

3.2 Other assets

Restricted balances with RBZ 34 304

Accounts receivables and prepayments 7 097 429

Inventory 4 786 435

Technical assets 1 546 589

Other 387 759

13 852 516

Inventory relates to the manufacturing and building society subsidiaries finished stock and work in progress.

Technical assets are made up of the reinsurer's share of outstanding losses which is the portion recoverable on

outstanding losses from retrocessionaires. Technical assets also include deferred acquisition costs.

3.3 Irrevocable commitments

There are no irrevocable commitments to extend credit, which can expose the Group to penalties or expense.

3.4 Sectoral analysis of utilizations

(net of impairment allowances)

%

Mining 27 835 0.1

Manufacturing 14 403 088 66.4

Mortgage 1 380 200 6.4

Transport 15 004 0.1

Distribution 2 023 516 9.3

Individuals 2 080 314 9.6

Agriculture 1 665 260 7.7

Other services 98 329 0.4

21 693 546 100.0

As at statement of financial position date, the Group has a 66.4% exposure to the manufacturing sector. The Group has

adequate policies and procedures in place to monitor concentration risk as described in note 34 on financial risk

management.

NOTES

45

NOTES

31 December 2009

3.5 Analysis of credit quality by sector

Neither past due Past Due Total

nor impaired 30-60 days 60-90 days 90-180 days over 180 days

Mining 27 835 - - - - 27 835

Manufacturing 14 013 917 206 002 - - 183 169 14 403 088

Mortgage 1 380 200 - - - - 1 380 200

Transport 15 004 - - - - 15 004

Distribution 1 516 733 210 742 244 911 30 018 21 112 2 023 516

Individuals 1 947 620 127 541 332 4 821 - 2 080 314

Agriculture 1 624 452 15 142 164 25 502 - 1 665 260

Other services 84 074 5 297 3 829 5 129 - 98 329

20 609 835 564 724 249 236 65 470 204 281 21 693 546

3.6 Allowances for impairment

Specific Collective Total

allowance allowance allowance

US$ US$ US$

Balance at 1 January 2009 - - -

Impairment allowance through statement of comprehensive income 149 430 - 149 430

Impairment loss through other comprehensive income - 238 998 238 998

Balance at 31 December 149 430 238 998 388 428

The specific allowance is arrived at after discounting registered bond values of security held. The collective allowance has largely

been determined using the risk profiles and regulatory guidence given the limitations encountered in estimating the Group’s

historical loss experience.

46

31 December 2009

2009

US$

3.7 Exposure to credit risk

(a) Impaired versus unimpaired

Grade C: impaired 65 470

Grade D: impaired 204 281

Grade E: impaired -

Gross amount 269 751

Allowance for impairment (93 206)

Carrying amount 176 545

Unimpaired

Grade A: 21 426 512

Grade B: 385 711

Gross amount 21 812 223

Allowance for impairment (295 222)


Total carrying amount 21 693 546

(b) Past due versus current

Past due comprises

30-60 days 564 724

60-90 days 249 236

90-180 days 65 470

Over 180 days 204 281


Neither past due nor impaired

Grade A: Low fair risk 20 473 360

Grade B: Watch list 136 475

Includes amounts with re-negotiated terms -


Total carrying amount 21 693 546

NOTES

47

31 December 2009

2009

US$

3.8 Collateral held against loans and advances

The Group holds collateral against loans and advances in the form of mortgage interests over property, registered equitiesand guarantees. Estimates of the fair value are based on the value of collateral assessed at the time of borrowing, andgenerally are not updated except when a loan is individually assessed as impaired. Collateral generally is not held overloans and advances to banks and listed entities, except when securities are held as part of reverse repurchase.

An estimate of the fair value of collateral and other security enhancements held against loans and advances to customersand banks is shown below:

Against impaired loan:Property 138 000Equities -

Against past due but not impaired:Property 6 443 305Equities 754 479

Total 7 335 784

4. INVESTMENT IN ASSOCIATEBalance at 1 January 602 017Share of results before tax (171 017)Revaluation of property, net of deferred tax 6 310Balance at 31 December 437 310

The Group's 100% owned reinsurance subsidiary has a 23.06% interest in Eagle Insurance Company (Private) Limited.As at 31 December 2009 the Group recognised its share of the associate's loss of US$171 017.

The Group acquired a 29% interest in Steelnet Limited, a manufacturing concern, through its banking subsidiary when itrealized collateral pledged for a non-performing loan. This associate has not been equity accounted for due to management'sintention to dispose of the investment in the short term. The investment has therefore been accounted for in accordancewith IFRS 5: Non Current Assets Held for Sale

5. INVESTMENT PROPERTIESOpening carrying amount 562 480Additions - Fair value adjustments 12 520Disposals -

575 000

The fair value of the investment properties at 31 December 2009 has been arrived at on the basis of a valuation carriedout by an independent valuer on an open market value method. The valuation was arrived at by reference to marketevidence of transaction prices for similar properties. No liabilities are guaranteed by investment property. Net rentalsreceived from the investment property for the year amounted to $26 832.

NOTES

48

31 December 2009

6. PROPERTY, PLANT AND EQUIPMENTMovement on property, plant and equipment

Freehold Plant and Computer Computer Furniture Motor Total

premises machinery equipment software office epuip vehicles

Opening balance 14,033,040 - 643,758 1,800,000 1,428,518 2,918,802 20,824,118

Acquisition of subsidiary at cost 8,625,790 15,977,163 118,429 53,820 199,369 1,180,021 26,154,592

Revaluation 191,696 - - - - - 191,696

Additions 1,168 - 43,961 - 376,762 416,128 838,019

Impairment (52,643) - (2,012) - (56,642) - (111,297)

Disposals (13,162) - - - - (2,123,702) (2,136,864)

Closing Balance 22,785,889 15,977,163 804,136 1,853,820 1,948,007 2,391,249 45,760,264

ACCUMULATED DEPRECIATION

Opening Balance - - - - - - -

Acquisition of subsidiary 170,530 285,974 27,672 - 11,144 215,678 710,998

Current 411,631 142,995 214,744 360,897 213,968 798,421 2,142,656

Transfer to investment property - - - - - - -

Disposals (271) - - - - (499,555) (499,826)

Closing balance 581,890 428,969 242,416 360,897 225,112 514,544 2,353,828

Net book value 22,203,999 15,548,194 561,720 1,492,923 1,722,895 1,876,705 43,406,436

6.1. The Group's land and buildings were revalued on 31 December 2009 by independent valuers. Valuations were made on

the basis of open market values using investment income methods. The revaluation gain net of deferred income taxes was

credited to the revaluation reserves in the shareholders' equity. The revaluation loss on other land and buildings has been

recognised as an impairment loss in the statement of comprehensive income. Other assets were also tested for impairment

on the same date through comparison with open market values determined by independent valuers. The impairment loss

resulting has been recognised in the statement of comprehensive income.

The estimated useful lives of the various classes of property, plant and equipment are as follows:

Freehold buildings - 50 years

Computers - software - 5 years

Computers - hardware - 5 years

Motor vehicles - 5 years

Office equipment - 10 years

Furniture and fittings - 10 years

Plant and machinery - 5 - 13 years

NOTES

49

31 December 2009

2009

US$

7. DEPOSITS AND OTHER ACCOUNTS

7.1 Amounts due to customers by type

Retail customers

Term deposits 311 376

Current deposits 1 069 916

Corporate customers

Term deposits -

Current deposits 79 523 111

Other 13 912 385

94 816 788

7.2 Deposits from banks 1 330 696

7.3 Other liabilities

Trade and other payables 4 441 843

Technical liabilities 3 544 506

Other liabilities 1 493 210

9 479 559

Total deposits and other accounts 105 627 043

Technical liabilities are made up of gross outstanding claims and unearned premium reserve. Gross outstanding claims

includes incurred but not reported losses and is provided for at 7% of net premium written plus actual claims that have

not been finalised as at reporting date.

7.4 Maturity analysis of deposits & other accounts


Maturing after 1 year but within 5 years -

105 627 043

8. DEFERRED TAXATION

8.1 Recognized deferred tax liabilities

Provision for loan impairment losses (166 557)

Property, plant and equipment allowances 7 981 723

Unrealised gains on foreign exchange and equities 671 298

Provision for leave pay (57 576)

Deferred acquisition costs 50 794

Unearned premium reserve (247 150)

Prepayments 61 071

8 293 603

NOTES

50

31 December 2009

2009

US$

The deferred tax arising from property, plant and equipment allowances has been determined using income tax values that

the Group has ascertained with the aid of guidance issued by Zimbabwe Revenue Authority (ZIMRA). The Group is awaiting

ZIMRA's approval for these income tax values following its submissions.

8.2 Movement in deferred taxation

Balance at 1 January 1 004 233

Recognised in profit and loss 516 839

Recognised in equity 49 362

Acquisition of subsidiary 6 723 169

Balance at 31 December 8 293 603

9. SHARE CAPITAL

9.1 Authorised

Number of ordinary shares 800 000 000

9.2 Issued and fully paid

Number of ordinary shares 362 401 016

9.3 Share Capital Movement

No. of Share Share Total

shares capital premium

$’US $’US $’US

At 1 January 2009 360 645 278 - - -

Shares issued 1 755 738 - - -

At 31 December 2009 362 401 016 - - -

The Group has a nil share capital and share premium because its authorized and issued share capital has not been

redenominated in United States dollars.

NOTES

51

31 December 2009

2009

US$

10. OTHER RESERVES

Share option reserve 82 926

Revaluation reserve 148 644

Non-distributable reserve 32 948 983

Treasury shares (122 325)

Regulatory provision reserve (230 972)

32 827 256

11. RELATED PARTIES

The Group has related party relationships with its shareholders who own, directly or indirectly, 10% or more of its share

capital or those shareholders who control in any manner, the election of the majority of the Directors of the Group or have

the power to exercise controlling influence over the management or financial and operating policies of the Group. The

Group carried out banking and investments related transactions with various companies related to its shareholders, all

of which were undertaken at arm's length terms and in compliance with the relevant Banking Regulations.

The following is a list of related parties to the Group and transactions with them:

Key Management Personnel

Name Position

Livingstone T. Gwata Group Chief Executive Officer

John Mushayavanhu Deputy Group Chief Executive Officer




Tichaona Mabeza Group Company Secretary

Israel Murefu Group Divisional Director Human Resources

Below are the companies related to Directors and key senior management and their loan balances as at 31 December 2009:

US$

Arena Investments P/L 119 180

Fleetwood Investments 4 757

Fonrel Investments P/L 10 000

J Med Supplies P/L 63 262

Lobels Bread P/L 376 939

574 138

Transactions with related parties are conducted on an arm’s length basis. The Group recognised income of US$583 062

from transactions with these parties, in respect of interest (US$211 399) and bank charges (US$371 362), during the year.

NOTES

52

NOTES

2009

US$

11.1 Balance with related parties

Loans to directors and companies related to directors

Balance at 1 January -

Advances during the year 3 760 839

Repayments made during the year (2 890 963)


Loans to Officers

Balance at 1 January -

Advances during the year 728 702

Repayments made during the year (74 288)


Loans to officers relate to advances made to other senior managers who are not directors.

Interest rates charged on balances outstanding from related parties are at approximately a 25% discount on market rates.

The loans given are not secured and no guarantees have been obtained.

The loans made to directors and officers of the Group have, along with other loans, been subjected to impairment procedures

with the impairment losses being recognized in profit or loss.

11.2 Compensation for key management personnel

Short-term employee benefits 320 580

Post-employment benefits 11 558

Share based payment transactions 30 351

362 489

11.3 Group Entities

Significant subsidiaries

Ownership interest

FBC Bank Limited 100%

FBC Building Society 60%

FBC Reinsurance Limited 100%

FBC Securities (Private) Limited 100%

Turnall Holdings Limited 59%

12. INTEREST INCOME

Cash and cash equivalents 1 601 641

Loans and advances to banks 54 583

Loans and advances to customers 4 201 336

Investment securities 14 757

5 872 317

13. INTEREST EXPENSE

Deposits from banks 135 826

Deposits from customers 4 973

Other time deposits 1 325 394

1 466 193

53

31 December 2009

2009

US$

14. NET FEE AND COMMISSION INCOME

14.1 Fee and commission income

Retail service fees 4 810 789

Credit related fees 915 556

Investment banking fees 773 725

Brokerage 376 147

Other 27 145

6 903 362

14.2 Fee and commission expense

Insurance commissions paid 2 399 832

Brokerage 42 930

Other 8 029

2 450 791

15. NET TRADING INCOME

Net earned insurance income 5 031 442

Turnover of subsidiary involved in manufacturing 8 585 294

Foreign exchange gains 1 212 334

14 829 070

The Group used monthly avarage rates in computing it foreign exchange gains in accordance with IAS21 (which permits

the use of avarage exchange rates which approximate the actual rates ruling at the dates of transactions) due to limitations

arising from the delay in the change of base currency, from Zimbabwe dollar to United State of America dollar, in its

accounting systems.

16. NET INCOME FROM OTHER FINANCIAL INSTRUMENTS

CARRIED AT FAIR VALUE

Investment securities at fair value through profit or loss

Equities 310 469

Money market investments 35 206

345 675

17. OTHER INCOME

Fair value adjustment to investment properties 12 520

Excess of fair value over cost of acquisition 4 826 234

Rent received 147 018

Profit on sale of property, plant and equipment 1 035 055

Other 387 311

6 408 138

18. PERSONNEL EXPENSES

Salaries and allowances 8 024 021

Equity settled transactions 82 926

Directors remuneration 545 684

8 652 631

NOTES

54

31 December 2009

2009

US$

19. OTHER EXPENSESSoftware licensing and other information technology costs 1 271 545Impairment loss on property, plant and equipment 111 297Administration expenses 6 361 213Business development 457 883Manufacturing subsidiary's trading expenses 4 576 672Operating lease payments 292 510Audit fees 252 020

13 323 140

19.1 Operating leases Non-cancellable operating lease rentals are payable as follows:Less than one year 22 418Between one and five years 378 175More than five years -

400 593

19.1 The Group leases some of its properties under operating leases. The leases typically run for a period of 1 year, with anoption to renew the lease after that date. Lease payments are reviewed in line with prevailing market conditions on anannual basis to align them to market rentals. The leases provide for additional rent payments that are based on changesin the local price index.

During the year ended 31 December 2009 an amount of $292 510 was recognized as an expense in profit or loss in respectof operating leases.

The Group, through its subsidiaries, leases out its investment property and part of its owner occupied property. Futureexpected minimum lease payments are as follows:

Less than one year 40 992Between one and five years 204 960More than five years -

245 952

During the year ended 31 December 2009, US$147 018 was recognized as rental income in the statement of comprehensiveincome.

NOTES

55

31 December 2009

2009

US$

20. TAXATIONAnalysis of tax chargeCharge for taxation based on Taxable income for the year 275 783

Aids levy (513) Bank levy 57 695 Deferred taxation 516 839 849 804

Tax rate reconciliation %Notional tax rate 30.0Bank levy 1.0Aids levy 0.9Permanent differences (13.1)

Changes in the rate of tax (4.6) Effective rate 14.2

21. EARNINGS PER SHARE21.1 Basic earnings per share

Profit attributable to equity holders of the Company 4 835 929

Average number of ordinary shares

Issued ordinary shares at Actual Weighted 1 January 2009 360 645 278 360 645 278

Scrip Dividend - -Share options exercised 1 755 738 585 246

Average number of ordinary shares at 31 December 362 401 016 361 230 524

Basic earnings per share (US cents) 1.3

21.2 Diluted earnings per shareDiluted earnings per share is calculated after adjusting the weighted average number of ordinary shares outstanding toassume conversion of all dilutive potential ordinary shares. The company has only share options as dilutive ordinaryshares. A calculation is done to determine the number of shares that could have been acquired at fair value (determinedas the average annual market share price of the Company’s shares based on the monetary value of the subscription rightsattached to outstanding share options). The number of shares calculated as above is compared with the number of sharesthat would have been issued assuming the exercise of the share options.

Profit attributable to equity holders of the Company 4 835 929

Weighted average number of ordinary shares

Weighted average number of ordinary sharesat 31 December 361 230 524Effect of options 1 467 156

Weighted average number of ordinary sharesat 31 December 362 697 680

Diluted earnings per share (US cents) 1.3

NOTES

56

31 December 2009

2009

US$

22. DIRECTORS' REMUNERATION

Fees 190 877

Other emoluments 354 807

545 684

The remunaretion for key management is disclosed in note 11.2.

23. CAPITAL COMMITMENTS

Capital expenditure authorised but not yet contracted for 4 214 100

24. CONTINGENT LIABILITIES

Guarantees & letters of credit 21 346 296

The Group's contingent liabilities relate to guarantees and letters of credit for the grain and oil facilities undertaken on

behalf of the Central Bank.

25. POST EMPLOYMENT BENEFITS

Self administered pension fund 339 513

NSSA 161 096

500 609

The Group operates a defined contribution pension scheme whose assets are held independently of the group's assets in

separate trustee administered funds. All permanent employees are members of this fund.

The NSSA Scheme was promulgated under the National Social Security Authority Act 1989. The company contributions

under the scheme are limited to specific contributions as legislated from time to time and are presently 3% of pensionable

salary to a maximum as set from time to time.

26. EMPLOYEE STATISTICS

Average number of employees for the period 1 185

NOTES

57

27 CONTRACTUAL MATURITIES

27.1 Total position as at 31 December 2009

1 month 3 months 6 months

Up to to to to Over

month 3 months 6 months 1 year 1 year Total

US$ US$ US$ US$ US$ US$

Assets

Cash and cash equivalents 81 226 175 - - - - 81 226 175

Trading assets - 212 377 - - - 212 377

Advances 5 946 089 9 098 158 2 352 612 1 151 845 3 144 842 21 693 546

Investment securities - - - 1 686 142 - 1 686 142

Investment securities held for sale - - - 1 062 534 - 1 062 534

Investment in associate - - - - 437 310 437 310

Investment properties - - - - 575 000 575 000

Property, plant and equipment - - - - 43 406 436 43 406 436

Receivables & other assets - - - 13 852 516 - 13 852 516

87 172 264 9 310 535 2 352 612 17 753 037 47 563 588 164 152 036

Liabilities and shareholders' equity

Deposits from banks 1 330 696 - - - - 1 330 696

Demand deposits 90 449 126 4 022 152 345 510 - - 94 816 788

Deferred tax liabilities - - - - 8 293 603 8 293 603

Other liabilities - - - 10 720 448 - 10 720 448

Shareholders' funds - - - - 48 990 501 48 990 501

Total 91 779 822 4 022 152 345 510 10 720 448 57 284 104 164 152 036

Net liquidity gap (4 607 558) 5 288 383 2 007 102 7 032 589 (9 720 516) -

Cumulative gap (4 607 558) 680 825 2 687 927 9 720 516 - -

The table shows the undiscounted cash flows on the Group's financial liabilities and unrecognized loan commitments on the basis

of their earliest possible contractual maturity. The Groups' expected cash flows vary significantly from this analysis. For example

demand deposits from customers are expected to maintain a stable or increasing balance.

28 INTEREST RATE RE-PRICING AND GAP ANALYSIS

28.1 Total position as at 31 December 2009

Due in 1 Due in Due in Due in Over Non

Total 1 month 1-3 months 3-6 months 6-12 months 12 months interest

US$ US$ US$ US$ US$

Assets

Cash and cash equivalents 50 977 109 - - - - 30 249 066 81 226 175

Trading assets - 212 377 - - - - 212 377

Advances 5 946 089 9 098 158 2 352 612 1 151 845 3 144 842 - 21 693 546

Investment securities - - - - - 1 686 142 1 686 142

Investment securities held for sale - - - - - 1 062 534 1 062 534

Investment in associate - - - - - 437 310 437 310

Investment properties - - - - - 575 000 575 000

Property, plant and equipment - - - - - 43 406 436 43 406 436

Receivables and other assets - - - - - 13 852 516 13 852 516

56 923 198 9 310 535 2 352 612 1 151 845 3 144 842 91 269 004 164 152 036


Liabilities 11 594 848 4 022 152 175 510 - - 99 369 025 115 161 535

Capital and reserves - - - - - 48 990 501 48 990 501

Total 11 594 848 4 022 152 175 510 - - 148 359 526 164 152 036

Interest rate

re-pricing gap 45 328 350 5 288 383 2 177 102 1 151 845 3 144 842 (57 090 522) -

Cumulative gap 45 328 350 50 616 733 52 793 835 53 945 680 57 090 522 - -

NOTES

58

29 Currency risk

29.1 Currency gap analysis as at 31 December 2009

ASSETS ZAR EUR BWP GBP Total US$ US$ US$ US$

Equivalent Equivalent Equivalent Equivalent

Correspondent Nostro Balances 1 802 542 435 991 94 960 529 722 2 863 215

RBZ/Statutory Reserves - - - - -

Clearing balances with local banks - - - - -

Investments 1 715 388 - - - 1 715 388

Loans 8 363 201 - - - 8 363 201

Cash 462 125 99 663 51 314 25 185 638 287

Other assets 503 - - - 503

Total assets 12 343 759 535 654 146 274 554 907 13 580 594

LIABILITIES

Foreign currency accounts 6 678 000 228 190 191 072 55 512 7 152 774

Fixed term deposits 41 897 6 952 - - 48 849

Other liabilities 402 089 71 16 250 418 410

Total liabilities 7 121 986 235 213 191 072 71 762 7 620 033

Net asset/ (liability) 5 221 773 300 441 (44 798) 483 145 5 960 561

Exchange rate to the US$ 7,397 8 1, 4370 6,6800 1,6078 -

30 FINANCIAL INSTRUMENTS

30.1 Accounting classification and fair values

The table below sets out the Group's classification of each class of financial assets and liabilities, and their fair values

(excluding accrued interest).

Held for Designated Held to Loans and Available for Other carrying

trading at fair value maturity receivables sale amortised cost amount

US$ US$ US$ US$ US$ US$ US$

Assets

Cash and cash equivalents 81 226 175 - - - - - 81 226 175

Trading assets 212 377 - - - - - 212 377

Loans and advances to customers - - - 21 693 546 - - 21 693 546

Investment securities - 1 686 142 - - - - 1 686 142

Investment securities held for sale - 1 062 534 - - - - 1 062 534

Other assets - - - 14 289 826 - - 14 289 826

81 438 552 2 748 676 - 35 983 372 - - 120 170 600


Deposits from banks - - - - - 1 330 696 1 330 696

Deposits from customers - - - - - 94 816 788 94 816 788

Other liabilities - - - - - 9 479 559 9 479 559

Total - - - - - 105 627 043 105 627 043

59

31 Segment reporting

Commercial Reinsurance Building Stockbroking Manufacturing Total

Banking Society

US$ US$ US$ US$ US$ US$

31 December 2009

External revenue

Net interest income 5 199 111 - 60 936 1 162 - 5 261 209

Underwriting income/ Technical result - 2 535 910 - - - 2 535 910

Net fee and commission income 4 779 875 - 969 439 343 705 - 6 093 019

Net trading income 1 212 334 - - - 8 585 294 9 797 628

Net income from other financial 1 679 935 79 607 - - - 1 759 542

instruments carried at fair value

Investment income - 377 623 - - - 377 623

Other operating income 477 540 35 018 947 580 55 500 - 1 515 638

Inter-segment revenue 142 269 - - - - 142 269

Total segment revenue 13 491 064 3 028 158 1 977 955 400 367 8 585 294 27 482 838

Segment profit before income tax 1 177 160 665 056 55 848 2 735 1 000 897 2 901 696

Segment assets 126 950 909 7 537 535 9 368 945 856 095 32 794 202 177 507 686

Segment liabilities 100 131 047 4 053 763 2 160 583 705 438 12 181 183 119 232 014

Impairment losses on financial assets 149 430 - - - - 149 430

Depreciation and amortisation 1 336 428 150 774 249 624 42 884 362 946 2 142 655

Capital expenditure 523 820 162 566 12 904 - - 699 290

Investment in associates - 437 310 - - - 437 310

Investments held for sale 1 062 534 - - - - 1 062 534

32 ACQUISITION OF SUBSIDIARY DURING THE FINANCIAL PERIOD

The Group's banking subsidiary also realised 59% of the equity interest in Turnall Holdings Limited, a manufacturing

concern, that was held as security for a non-performing loan. The effective date of acquisition of this subsidiary was 1

September 2009 hence profits since this acquisition date have been consolidated. 2009

US$

Identifiable net assets acquired as at acquisition date 19 876 440

Less:

Fair value of the consideration paid (6 900 866)

Proportionate value of non-controlling interest (8 149 340)

Gain on purchase of 59% interest 4 826 234

NOTES

33. SUBSEQUENT EVENTS

33.1 Discovery of fraud

In the month of January 2010 the banking subsidiary discovered that it had been fraudulently deprived of depositors

funds through fraudulent activities at its Mutare Branch. It was subsequently decided to realize the loss through

the statement of comprehensive income. The total extent of the fraud was US$ 1 517 822. To date, the banking

subsidiary has recovered US$100 000 through insurance covers and US$380 000 through recovered properties

which has also been recognised in the statement of comprehensive income.

33.2 Rights issue

The Group is in the process of undertaking a rights issue to raise capital for its mortgage and reinsurance subsidiaries

to allow them to write more business. US$8 million is expected to be raised from this exercise, with US$5 million

expected to be channeled to the Building Society and the remainder to FBC Reinsurance.

60

34 Risk management and Capital management

34.1 Risk Management

The current environment has increased the importance of risk management, and Basel 11 provisions require

financial institutions to put in place best risk management systems. Managing risk effectively in a diverse and

complex financial institution such as FBCH requires a comprehensive risk management governance structure that

promotes the following elements of a sound risk management framework:

s Sound board and senior management oversight.

s Adequate policies, procedures and limits.

s Adequate risk monitoring and management information systems (MIS).

s Adequate internal controls.

FBCH manages risk through a comprehensive framework of risk principles, organizational structure and risk

processes that are closely aligned with the activities of the four entities under the Group. The Group's Board of

Directors has the ultimate responsibility for ensuring that an adequate and effective system of internal controls

is established and maintained. In discharging its duties, the board has delegated to sub committees the authority

to formulate and review policies and procedures that enable the Group to identify, measure, monitor and control

all risks. The sub committees are supported by management committees and structures that ensure implementation

of effective risk management systems.

In addition to the management committees, the following three risk-related functions are directly involved in

Group-wide risk management:

s Group Risk Management function

s Group Internal Audit

s Group Compliance

The Group classifies risk into the following broad categories for risk management and control purposes:

s Reputational risk

s Strategic risk

s Credit risk

s Liquidity risk

s Market risk

s Operational risk

s Compliance risk

In addition to the above, there are also specific business risks that arise from the Group's Reinsurance Company's

core activities.

(a) Credit risk

Credit risk is the current or prospective risk to earnings and capital arising from a debtor's failure to meet the

terms of any contract with the Group or if a debtor otherwise fails to perform as agreed.

(i) Credit risk framework and governance

The Group's largest source of credit risk is loans, albeit that credit risk exists throughout the other activities

of the Group, on and off the balance sheet. These other activities include inter-bank transactions, mortgage

loans, foreign exchange transactions, and guarantees. Given the significant size of the loan portfolio on

the statement of financial position of the Group, credit risk remains one of the major risks.

To effectively manage credit risk, the Board and Management established an effective and sound credit

risk management framework which is supported by a strong risk culture and environment. Credit risk

NOTES

61

management is governed by each entity's credit policy guidelines and ultimately approved by the Board of Directors.

The Board of Directors is ultimately responsible for credit risk. Group Credit Management Division, is responsible

for the implementation of the credit policies, which cover compliance with prescribed sanctioning authority levels,

avoidance of a high concentration of credit risk and regular review of credit limits. The Group Risk Management

Division, Group Compliance and Group Audit also monitor independently the management of credit risk.

(ii) Credit policies, procedures and limits

The Group has sound and well-defined policies, procedures and limits which are reviewed and approved by the

Boards of Directors and strictly implemented by management. Credit risk limits include delegated approval and

write-off limits to advances managers, management and board credit committees, counterparty limits, individual

account limits, group limits and concentration limits.

(iii) Credit risk mitigation and hedging

As part of the Group's credit risk mitigation and hedging strategy, various types of collateral is taken by the banking

subsidiaries. These include mortgage bonds over residential, commercial and industrial properties, cession of book

debts and the underlying moveable assets financed. In addition, a guarantee is often required particularly in

support of a credit facility granted to counterparty. Generally, guarantor counterparties include parent companies

and shareholders. Creditworthiness for the guarantor is established in line with the credit policy.

(iv) Credit risk stress testing

The Group and the entities recognise the possible events or future changes that could have a negative impact on

the credit portfolios and affect the Group's ability to generate more business. To mitigate this risk, the Group has

put mechanisms in place to enhance its stress testing methodologies.

(v) Impairments

An allowance for loan impairment is established if there is objective evidence that the Group will not be able to

collect all amounts due according to the original contractual terms of loans. The amount of the provision is the

difference between the carrying amount and the recoverable amount, being the present value of expected cash

flows, including amounts recoverable from guarantees and collateral, discounted at the original effective interest

rate of loans.

(b) Liquidity risk

Liquidity Risk is the current or prospective risk to earnings and capital arising from the Group's inability to meet its

liabilities when they fall due without incurring unacceptable losses.

(i) Liquidity risk framework and governance

The Group does not treat Liquidity risk in isolation as it is often triggered by consequences of other financial risks

such as credit risk and market risk. The Group's liquidity risk management framework is therefore designed to

ensure that its subsidiaries have adequate liquidity to withstand any stressed conditions. To achieve this objective,

the Board of Directors through the entities' Board Asset Liability Committees is ultimately responsible for liquidity

risk management. The responsibility for managing the daily funding requirements is delegated to the Heads of

Treasury Divisions for banking entities and Finance Managers for non-banking entities with independent day to

day monitoring being provided by Group Risk Management.

(ii) Liquidity and funding management

The Group's management of liquidity and funding is decentralised and each entity is required to fully adopt the

liquidity policy approved by the Board with independent monitoring being provided by the risk management

function. The Group uses concentration risk limits to ensure that funding diversification is maintained across the

products, counterparties and sectors. Major sources of funding are in the form of deposits across a spectrum of

retail and wholesale clients for all the subsidiaries.

NOTES

62

(iii) Cash flow and maturity profile analysis

The Group uses the cash flow and maturity mismatch analysis on both contractual and behavioural basis to assess their ability

to meet immediate liquidity requirements and plan for their medium to long term liquidity profile.

(iv) Liquidity contingency plans

In line with the Group's liquidity policy, liquidity contingency plans are in place for the subsidiaries in order to ensure a

positive outcome in the event of a liquidity crisis. The plans clearly outline early warning indicators which are supported by

clear and decisive crisis response strategies. The crisis response strategies are created around the relevant crisis management

structures and address both specific and market crises.

(v) Liquidity stress testing

It is the Group's policy that each entity conducts stress tests on a regular basis to ensure that they have adequate liquidity to

withstand stressed conditions. In this regard, anticipated on- and off-statement of financial position cash flows are subjected

to a variety of specific and systemic stress scenarios during the period in an effort to evaluate the impact of unlikely events

on liquidity positions.

(c) Market Risk

Market risk is the risk of financial loss in on and off-statement of financial position trading positions arising from movements in

market prices. Market risk exists whenever the Group has taken trading, banking or investment positions.

(i) Market risk from trading positions

The Group uses a collection of risk measurement methodologies to assess market risk, including value-at-risk (VaR), stress

testing, loss triggers and traditional risk management measures.

(ii) Market risk from banking positions

Banking related market risk is contained within the Group's two major treasury operations at the Bank and the Building

Society. The interest rate risk profile is assessed regularly based on the fundamental trends in interest rates, economic

developments and technical analysis.

(iii) Market risk from investments

This is managed in accordance with their purpose and strategic benefit rather than on market considerations and periodic

reviews and reassessments are undertaken.

(iv) Foreign currency risk

Foreign exchange rate risk is the current or prospective risk to earnings and capital arising from adverse movements in

currency exchange rates. The potential for loss arises from the process of revaluing foreign currency positions on both on-

and off- statement of financial position items, in Zimbabwe dollar terms. This risk is largely concentrated at FBC Bank and

FBC Reinsurance.

(v) Framework and governance

The Board of Directors is ultimately accountable and approves the market risk appetite for all types of market risk. The Board

delegated the effective management of market risk to the entities' Assets Liabilities Committees (ALCO) for the banking

entities and Risk and Compliance Committees for non-banking entities. On a day-to-day basis, market risk exposures are

independently reviewed and measured by the Group Risk Management function, and appropriate management reports are

generated. Trading limits are set for individual business units to contain losses within a specified amount in the event of

adverse market movements.

(vi) Market risk measurement

The tools for measuring market risk that are applied within the Group range from the very fundamental and basic marking-

to-market, to the more sophisticated Value at Risk Models. Generally, measurement tools in use at any point in time are

NOTES

63

commensurate with the scale, complexity, and nature of trading activities and positions held by entity. The tools and

techniques used to measure and control market risk include the repricing gap, scenario analysis on net interest income

and economic value of equity, stop loss limits, duration analysis, stress testing and Value at Risk. In addition, the Group

also performs ratio analysis on the key ratios of each entity. Risk limits for all the measures are documented in each entity's

ALCO policy. Group Risk Management performs regular reviews of the existing models to ensure that they are still relevant

and behaving within expectations.

(d) Operational Risk

Operational risk is the risk of loss arising from the potential that inadequate information system, technology failures, breaches

in internal controls, fraud, unforeseen catastrophes, or other operational problems may result in unexpected losses. Operational

risk exists in all products and business activities.

To monitor and control the risk the Group has in place internal control systems which include; clear documentation of control

procedures, segregation of duties, authorization, close monitoring of risk limits, monitoring of assets use, reconciliation of

transactions and compliance. The Board has ultimate responsibility for ensuring effective management of operational risk. This

function is implemented through the Board Risk and Compliance Committee at Group level which meets on a quarterly basis to

review all other major risks including operational risks. This Committee serves as the oversight body in the application of the

Group's operational risk management framework, including business continuity management. Each entity has a Management and

Board Risk and Compliance Committee to ensure a robust operational risk management framework. Other Group management

committees which report to Group Executive Committee include the Group New Product Committee, Group IT Steering Committee

and Group Business Continuity Committee.

(i) The management and measurement of operational risk

The Group identifies and assesses operational risk inherent in all material products, activities, processes and systems. It

ensures that before new products, activities, processes and systems are introduced or undertaken, the operational risk

inherent in them is subjected to adequate assessment by the appropriate risk committees which include the Risk and

Compliance Committee and Group New Product Committee.

The Group conducts Operational Risk Assessments in line with the Group's risk strategy. These assessments cover causes

and events that have, or might result in losses, as well as monitor overall effectiveness of controls and whether prescribed

controls are being followed or need correction. Key Risk Indicators (KRIs) which are statistical data relating to a business

or operations unit are monitored on an ongoing basis. The Group also maintains a record of loss events that occur in the

Group in line with Basel II requirements. These are used to measure the Group's exposure to the respective losses. Risk

Limits are used to measure and monitor the Group's operational risk exposures. These include branch cash holding limits,

teller transaction limits, transfer limits and write off limits which are approved by management and the Board. In addition,

the Group also uses risk mitigation mechanisms such as insurance programmes to transfer risks. The Group maintains

adequate insurance to cover key operational and other risks.

(ii) Business continuity management

To ensure that essential functions of the Group are able to continue in the event of adverse circumstances, the Group

Business Continuity Plan is reviewed annually and approved by the Board. The Group Business Continuity Committee is

responsible for ensuring that all units and branches conduct tests each year in line with the Group policy. The Group

successfully conducted its business continuity tests during the fourth quarter of 2009 and all processes were well documented.

(iii) Operational Risk and Basel II Implementation

The Group continues to improve its risk management systems and processes in preparation for Basel II implementation.

All structures, processes and systems have been aligned to Basel II requirements. The Group also adopted in full all the

Risk Management Guidelines which were issued by the Reserve Bank as part of the Basel II implementation.

NOTES

64

(e) Compliance Risk

Compliance risk is the current and prospective risk to earnings or capital arising from violations of, or non-conformance

with laws, rules, regulations, prescribed practices, internal policies and procedures or ethical standards.

The Compliance function assesses the conformity of codes of conduct, instructions, procedures and organizations in relation

to the rules of integrity in financial services activities. These rules are those which arise from the institution's own integrity

policy as well as those which are directly provided by its legal status and other legal and regulatory provisions applicable

to the financial services sector.

Management is also accountable to the Board for designing, implementing and monitoring the process of compliance risk

management and integrating it with the day to day activities of the Group.

(f) Strategic Risk

Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper

implementation of decisions, or lack of responsiveness to industry changes. The Board of Directors retains the overall

responsibility for strategic risk management through the Board Finance and Strategy Committee.

(g) Reputation Risk

Reputational risk is the potential that negative publicity regarding the Group's business practices, whether true or not, will

cause a decline in the customer base, costly litigation, or revenue reductions. This risk may result from the Group's failure

to effectively manage any or all of the other risk types. Management translates the reputational risk management strategy

established by the Board of Directors into policies, processes and procedures that are implemented throughout the Group.

34.2 Capital Management

(a) Regulatory Capital

The RBZ sets and monitors capital requirements for the Group as a whole.

In implementing current capital requirements the RBZ requires the Group to maintain prescribed ratio of total capital to

total risk-weighted assets.

The Group's regulatory capital is analysed into three tiers;

s Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, and minority interests after

deductions for goodwill and intangible assets, and other regulatory adjustments relating to items that are included

in equity but are treated differently for capital adequacy purposes.

s Tier 2 capital, which includes qualifying subordinated liabilities, collective impairment allowances and the element

of the fair value reserve relating to unrealized gains on equity instruments classified as available for sale.

s Tier 3 capital, which shows the allocation of Group's capital for market and operational risk.

Various limits are applied to the elements of the capital base. Qualifying tier 2 cannot exceed tier 1 capital; and qualifying

term subordinated loan capital may not exceed 50 percent of tier 1 capital.

Group operations are categorized as either trading book or Group book, and risk weighted assets are determined according

to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures.

The Group's policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to

sustain future development of the business. The impact of the level of capital on shareholders' return is also recognized

and the Group recognizes the need to maintain a balance between the higher returns that might be possible with higher

gearing and the advantages and security afforded by a sound capital position.

NOTES

65

35. Reserve Bank of Zimbabwe Onsite Examination

The Group and its subsidiaries have their corporate governance and risk management processes independently audited by the

Reserve Bank of Zimbabwe at least every 18 months. The most recent inspection was carried out for the 12 months to 30 September

2008 and the results indicate that the Group’s risk management and corporate governance practices are sound as illustrated below.

Summary risk assessment system (RAS) ratings

RAS component Latest RAS rating Previous RAS Previous RAS

30 Sept 2008 rating rating

Overall inherent risk Moderate Not applicable Not applicable

Overall risk management systems Acceptable Not applicable Not applicable

Overall composite risk Moderate Not applicable Not applicable

Direction of overall

composite risk Stable Not applicable Not applicable

FBC Holdings Limited summary risk matrix

Type of risk Level of Adequacy of risk Overall Direction of overall

inherent risk management systems composite risk composite risk

Credit Moderate Acceptable Moderate Stable

Liquidity Moderate Acceptable Moderate Stable

Interest rate Low Acceptable Low Stable

Foreign exchange Moderate Acceptable Moderate Stable

Strategic Moderate Acceptable Moderate Stable

Operational risk High Acceptable High Increasing

Legal and compliance Moderate Acceptable Moderate Stable

Reputation Low Acceptable Low Stable

Overall Moderate Acceptable Moderate Stable

FBC Bank Limited

FBC Bank Limited CAMELS* ratings

Camels component Latest RBS ratings Previous RBS ratings Previous RBS

30 Sept 2008 31 March 2005 ratings

Capital adequacy 1 2 Not applicable

Asset quality 2 2 Not applicable

Management 2 2 Not applicable

Earnings 1 2 Not applicable

Liquidity 2 2 Not applicable

Sensitivity to market risk 2 Not applicable Not applicable

Composite rating 2 2 Not applicable

NOTES

66

31 December 2009

Reserve Bank of Zimbabwe onsite examinations (cont’d)

*CAMELS is an acronym for capital adequacy, asset quality, management, earnings, liquidity, and sensitivity to market risk.

CAMELS rating system uses a rating scale of 1-5, where ‘1’ is strong, ‘2’ is satisfactory, ‘3’ is fair, ‘4’ is poor and ‘5’ is critical.

**RBS stands for risk-based supervision.

FBC Bank Limited summary risk assessment system (RAS) ratings

RAS component Latest RAS rating Previous RAS rating Previous

30 Sept 2008 31 March 2005 RAS rating




Direction of overall composite risk Stable Not applicable Not applicable

FBC Bank Limited summary risk matrix

Type of risk Level of Adequacy of risk Overall Direction of overal

inherent risk management systems composite risk l composite risk



Interest rate Moderate Acceptable Moderate Stable

Foreign exchange Low Acceptable Low Stable

Strategic Moderate Acceptable Moderate Stable



Reputation Low Acceptable Low Stable


FBC Building Society

FBC Building Society CAMELS* ratings

Camels component Latest RBS ratings Previous RBS ratings Previous RBS

30 Sept 2008 31 March 2005 ratings

Capital adequacy 2 2 Not applicable

Asset quality 2 2 Not applicable

Management 2 2 Not applicable

Earnings 2 1 Not applicable

Liquidity 2 2 Not applicable

Sensitivity to market risk 2 Not applicable Not applicable

Composite rating 2 2 Not applicable

NOTES

67

31 December 2009

Reserve Bank of Zimbabwe onsite examinations (cont’d)

FBC Building Society summary risk assessment system (RAS) ratings

RAS component Latest RAS rating Previous RAS rating Previous

30 Sept 2007 31 March 2005 RAS rating




Direction of overall composite risk Stable Not applicable Not applicable

FBC Building Society summary risk matrix

Type of risk Level of Adequacy of risk Overall Direction of overall

inherent risk management systems composite risk composite risk



Interest rate Moderate Acceptable Moderate Increasing

Foreign exchange Moderate Acceptable Moderate Stable

Strategic Low Acceptable Low Stable



Reputation Moderate Acceptable Moderate Stable


NOTES

68

NOTES

Level of Inherent Risk Key

s Low - reflects a lower than average probability of an adverse impact on a banking institution's capital and earnings.

Losses in a functional area with low inherent risk would have little negative impact on the banking institution's overall

financial condition.

s Moderate - could reasonably be expected to result in a loss which could be absorbed by a banking institution in the

normal course of business.

s High - reflects a higher than average probability of potential loss. High inherent risk could reasonably be expected

to result in a significant and harmful loss to the banking institution.

Adequacy of Risk Management Systems Key

s Weak - risk management systems are inadequate or inappropriate given the size, complexity and risk profile of the

banking institution. Institution's risk management systems are lacking in important ways and therefore a cause of

more than normal supervisory attention. The internal control systems will be lacking in important aspects particularly

as indicated by continued control exceptions or by the failure to adhere to written policies and procedures.

s Acceptable - management of risk is largely effective but lacking to some modest degree. While the institution might

be having some minor risk management weaknesses, these have been recognized and are being addressed. Management

information systems are generally adequate

s Strong - management effectively identifies and controls all types of risk posed by the relevant functional areas or

per inherent risk. The board and senior management are active participants in managing risk and ensure appropriate

polices and limits are put in place. The policies comprehensively define the Group's risk tolerance, responsibilities

and accountabilities are effectively communicated.

Overall Composite Risk Key

s Low Risk - would be assigned to low inherent risk areas. Moderate risk areas may be assigned a low composite risk

where internal controls and risk management systems are strong and effectively mitigate much of the risk.

s Moderate Risk - risk management systems appropriately mitigates inherent risk. For a given low risk area,

significant weaknesses in the risk management systems may result in a moderate composite risk assessment. On the

other hand, a strong risk management system may reduce the risk so that any potential financial loss from the activity

would have only a moderate negative impact on the financial condition of the organisation.

s High Risk - risk management systems do not significantly mitigate the high inherent risk. Thus the activity could

potentially result in a financial loss that would have a significant impact on the Group's overall condition, even in

some cases where the systems are considered strong.

Direction of Overall Composite Risk Key

s Increasing- based on the current information, composite risk is expected to increase in the next twelve months.

s Decreasing - based on current information, composite risk is expected to decrease in the next twelve months.

s Stable- based on the current information, composite risk is expected to be stable in the next twelve months.

35.1 External credit rating

The banking and reinsurance subsidiaries have their credit ratings reviewed annually by an international credit rating

agency, Global Credit Rating. The investor grade ratings are shown in the table below:

Subsidiary 2008 2006 2005

FBC Bank A- BBB+ BBB+

FBC Reinsurance A- BBB- BBB-

FBC Building Society BBB BBB- BBB-

n/a - not applicable

36 Limitations of financial reporting during 2008

There were a number of macro and micro economic challenges in 2008 which resulted in limitations in financial reporting.

A number of uncertainties emanated from these economic challenges and these include:

s The Consumer Price Indices (CPIs) which were not published since July 2008, with estimates by economists wide

ranging. The use of foreign currency and multiple pricing, distorted the process of measuring inflation. Therefore,

the Group's results for 2008 were not adjusted to reflect the changes in the general level of prices due to the unavailability

of official CPIs. The requirement for Zimbabwean entities to restate financial figures to reflect their purchasing power

is based on IAS 29, which requires that the financial statements prepared in the currency of a hyperinflationary

economy be stated in terms of the measuring unit current at the balance sheet date and that corresponding figures

for the previous period be restated on the same basis.

s The measurement of transactions in local currency was dependent on the mode of settlement. As a result, there

were significant variations in the valuations of assets and liabilities. Accordingly, such valuations were inherently

unreliable.

s The determination of fair values as at 31 December 2008 in the annual financial statements was affected by the

prevailing economic environment and may therefore have been distorted. This resulted in significant variations in

fair values, depending on factors and assumptions used in the determination of the fair values.

The uncertainties were aggravated by:

s multiple exchange rates - there were various rates applicable which varied significantly (for instance the market

"cash exchange rate" was less than 1% of the market "cheque exchange rate" or the United Nations exchange rate).

If a transaction occurs at more than one rate and was recorded at its nominal value, this resulted in distortions in

financial reporting;

s multiple pricing - there were multiple prices for the same commodity/service, largely dependant on the modes of

settling transactions from cheque/transfer, cash, fuel coupons, foreign currency etc. The effect was similar to that of

the multiple exchange rates described above and resulted in distortions in financial reporting;

s "dollarisation" - the introduction of licensed operators in currencies other than the Zimbabwe dollar in the country

and also the "basing" of most other transactions in such currencies for most of the non- licensed operators, created

challenges for the Bank in determining its functional currency (as between the local currency and another currency).

s However on 29 January 2009 and 2 February 2009 the Fiscal and Monetary Authorities respectively, authorised

the use of multiple currencies for trading in Zimbabwe. This resulted in a change in functional currency for most

entities reporting in Zimbabwe. International Financial Reporting Standards require entities to convert their financial

statements into the new functional currency at the date of change over. Due to the limitations noted above, especially

the inability to measure inflation reliably and the existence of multiple exchange rates up to the date of change in

functional currency, the Directors have not sought to translate the Zimbabwe dollar denominated financial statements

and present them in the new functional currency in accordance with IAS 29 and IAS 21. Comparative information

has also not been included in these financial statements for the same reasons as noted above. It is the Directors view

that such information would be misleading given the limitations noted.

The Directors advise caution on the use of consolidated statements of comprehensive income, cash flows and changes in

equity. The Directors believe that the consolidated statement of financial position that has been presented is a fair reflection

of the assets and liabilities of the Group and therefore a fair reflection of the shareholders' equity.

NOTES

69

70

15 April 2010

The Directors

FBC Holdings Limited

6th Floor, FBC Centre


Harare

Dear Sirs

REPORT OF THE INDEPENDENT REPORTING ACCOUNTANTS ON THE UNAUDITED PRO FORMA FINANCIAL

INFORMATION OF FBC HOLDINGS LIMITED AND SUBSIDIARIES (“FBCH” OR “THE GROUP”)

Introduction

The directors of FBC Holdings Limited and Subsidiaries ("FBCH" or "the Group") are proposing to raise an amount of US$7 990

942.40 by way of a renounceable Rights Offer to the registered holders of ordinary shares in FBCH, as at 23 April 2010, to subscribe

for approximately 228 312 640 (two hundred and twenty eight million, three hundred and twelve thousand, six hundred and forty)

ordinary shares of a nominal value of US$0.00001 each in the issued share capital of FBCH, at a subscription price of US$0.035

per ordinary share, on the basis of 63 (sixty three) new ordinary shares for every 100 (one hundred) ordinary shares already held

("the Rights Offer"). The amount is being raised for the purpose of recapitalization of FBC Building Society, a 60% owned subsidiary

of FBCH and FBC Reinsurance Limited, a 100% owned subsidiary of FBCH.

We report on the unaudited pro forma statement of financial position (referred to as "the unaudited pro forma financial information)

of FBCH set out in Part B (section 8.5) of the FBCH Circular to Shareholders ("Circular") dated 15 April 2010. The unaudited pro

forma financial information has been prepared for illustrative purposes only, to provide information on how the Rights Offer

would have impacted on the financial position of FBCH had it been undertaken on 31 December 2009. Because of its nature, the

unaudited pro forma financial information may not give a fair reflection of FBCH's financial position or the effect on income going

forward.

At your request, and for the purposes of the Circular, we present our report on the unaudited pro forma financial information set

out in Part B (section 8.5) of the Circular, in compliance with the Listing Requirements of the Zimbabwe Stock Exchange ("ZSE").

Responsibilities

The directors of FBCH are solely responsible for the preparation of the unaudited pro forma financial information to which this

independent accountants' report relates, and for the financial statements and financial information from which it has been prepared.

It is our responsibility to form an opinion on the basis used for the compilation of unaudited pro forma financial information and

to report our opinion to you. We do not accept any responsibilities for any reports previously given by us on any financial information

used in the compilation of the unaudited pro forma financial information beyond that owed to those to whom those reports were

addressed at the dates of issue.

PART G : REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

KPMG Telephone +263 (4) 302600Mutual Gardens +263 (4) 303700100 The Chase (West), Emerald Hill Telefax +263 (4) 303699P O Box 6, HarareZimbabwe

KPMG, a Zimbabwe partnership and a member firm ofthe KPMG network of independent member firms affiliatedwith KPMG international, a Swiss co-opertive.

Basis of Opinion

Our work, which did not involve an independent examination of any of the underlying financial information, consisted primarily

of recalculating the amounts and adjustments to the unaudited pro forma financial information based on information obtained

and discussing the same unaudited pro forma financial information with the directors.

Because the above procedures do not constitute either an audit or a review made in accordance with International Standards on

Auditing ("ISA"), we do not express any assurance on the fair presentation of the unaudited pro forma financial information. Had

we performed additional procedures or had we performed an audit or review of the financial information in accordance with ISA,

other matters might have come to our attention that would have been reported to you.

The unaudited pro forma financial information, which has been included in Part B (section 8.5) of the Circular to shareholders,

was prepared using certain assumptions made by yourselves and the significant assumptions include:

s Redenomination of the nominal share capital from ZW$0.01 per share to US$0.00001 per share;

s Rights issue price of US$0.035 per share;

s Rights offer share ratio of 63 new shares for every 100 shares currently held resulting in an issue of 228 312 640 ordinary

shares;

s Number of shares in issue after the rights offer, 590 713 656 ordinary shares; and

s Total transaction expenses of US$490 942 will be settled in cash as explained in Part B.5 of the Circular. The rights offer

cash expenses are to be written off against the share premium account.

As the purpose of the unaudited pro forma financial information differs from the purpose of financial statements prepared for

members, the financial information presented is not intended to comply in full with presentation and disclosure requirements of

the Companies Act [Chapter 24:03] and International Financial Reporting Standards promulgated by the International Accounting

Standards Board.

Opinion

In our opinion, nothing has come to our attention that causes us to believe that, in all material respects:

s The unaudited pro forma financial information has not been compiled on the basis stated;

s That such basis is inconsistent with the accounting policies of FBCH; and

s The adjustments are not appropriate for the purposes of the unaudited pro forma financial information, as disclosed in the

terms of the Rights Offer and in terms of the ZSE Listing Requirements.

Yours faithfully;

KPMG

Chartered Accountants (Zimbabwe)

Harare

PART G : REPORT ON THE UNAUDITED PRO FORMA FINANCIAL INFORMATION

71

72

G.1. ANNEXURE (I) TABLE OF ENTITLEMENTS

The following table sets out the number of FBC Holdings ordinary shares to which FBC Holdings Shareholders are entitled

in terms of the Rights Offer.

No. of Shares Held Rights Issues Share Entitlement Amount Due

1 1 0.04

10 6 0.24

100 63 2.52

200 110 4.40

300 189 7.56

400 252 10.08

500 315 12.60

600 378 15.12

700 441 17.64

800 504 20.16

900 567 22.68

1,000 630 25.20

2,000 1,260 50.40

3,000 1,890 75.60

4,000 2,520 100.80

5,000 3,150 126.00

6,000 3,780 151.20

7,000 4,410 176.40

8,000 5,040 201.60

10,000 6,300 252.00

20,000 12,600 504.00

30,000 18,900 756.00

40,000 25,200 1,008.00

50,000 31,500 1,260.00

60,000 37,800 1,512.00

70,000 44,100 1,764.00

80,000 50,400 2,016.00

90,000 56,700 2,268.00

100,000 63,000 2,520.00

1,000,000 630,000 25,200.00

10,000,000 6,300,000 252,000.00

PART H: ANNEXURES

73

G.2. ANNEXURE (II) SHARE PRICE PERFORMANCE HISTORY

The following figure is an illustration of the share performance of the FBCH share since the introduction of the use of

multiple currencies:

FBCH SHARE PRICE ANALYSIS

-

0.501.001.502.002.503.003.504.004.50

19.2

.9

6.3.

9

23.3

.9

07.4

.9

24.4

.9

12.5

.9

28.5

.9

12.6

.9

29.6

.9

14.7

.9

29.7

.9

17.8

.9

01.0

9.09

16.0

9.09

01.1

0.09

16.1

0.09

02.1

1.09

17.1

1.09

02.1

2.09

17.1

2.09

06.0

1.10

FBCH

G.3. ANNEXURE (III) DETAILS OF THE UNDERWRITERS

Name Genesis Investment Bank Limited

Registered Office 2nd Floor Corner House

29 Samora Machel Avenue

Harare

Registration number 4393/95

Directors M. F. Dandato Chairman

F. Chibaya Chief Executive Officer

D. Kanokanga Non-Executive Director

J. Karidza Non-Executive Director

M. Mubvumbi Non-Executive Director

T. B. Muchabaiwa Non-Executive Director

T. Nyika Non-Executive Director

R. Webb Non-Executive Director

B. Mahere Executive Director

Company Secretary Garikai Ntuli

PART H: ANNEXURES

74

PART H: ANNEXURES

G.4. ANNEXURE (IV) NOTICE OF EXTRAORDINARY GENERAL MEETING

NOTICE OF EXTRAORDINARY GENERAL MEETING

In terms of the Company's Articles of Association, notice is hereby given that an EGM of FBC Holdings Shareholders will be held in theCharter House Auditorium, 70 Samora Machel Avenue, Harare, at 1000 hours on Monday 26 April 2010, to consider, and, if deemed fit,pass, with or without modification, the following ordinary and special resolutions:

1. AS A SPECIAL RESOLUTION - SHARE REDENOMINATIONTo approve the redenomination of the authorized and issued share capital of FBC Holdings Limited as follows:

"THAT:

The authorized share capital of the Company be redenominated from eight hundred million [800,000,000] ordinary shares ofZWD0.01 (one cent)* each to eight hundred million [800,000,000] ordinary shares of USD0.00001 (one thousandth of a UnitedStates cent) each and that the Directors be authorized to transfer from the Capital Reserves an equivalent of nominal value issuedShare Capital to fund the re-denomination and this amount will amount to USD3,642.01 (three thousand six hundred and fortytwo United States of America Dollars and one cent) and that the Articles of Association of the Company be amended accordingly."*Old Zimbabwe Dollar Currency as at 31 January 2009.

2. AS AN ORDINARY RESOLUTION - RIGHTS OFFER

"THAT:

The Directors of the Company are authorized to undertake a renounceable Rights Offer of approximately 228,312,640.00 (twohundred and twenty eight million three hundred and twelve thousand six hundred and forty) Ordinary Shares of a nominal valueof USD0.00001 each in the Company's authorized share capital to existing holders of the Company's ordinary shares, at a subscriptionprice of USD$0.035 (three and half United States cents) per share, in the ratio of sixty three (63) new ordinary shares for everyone hundred (100) ordinary shares held in FBC Holdings Limited at the close of business on Friday 23 April 2010."

3. AS AN ORDINARY RESOLUTION

"THAT:

The Directors be and are hereby authorised to take any and all steps necessary to give effect to the resolutions (1) and (2) above."

4. AS AN ORDINARY RESOLUTION

"THAT:

The balance of the authorised but unissued shares of the Company be placed under the control of Directors for an indefinite period,to be issued in compliance with the terms of the Company's Memorandum and Articles of Association, provided that no issue willbe made which would effectively transfer control of the Company without the prior approval of the Shareholders in a GeneralMeeting"

By order of the Board

Tichaona MabezaCompany Secretary1 March 2010Registered Office6th Floor FBC Centre45 Nelson Mandela AvenueHarareZimbabwe

NotesA member of the Company entitled to attend and vote, is entitled to appoint a proxy to attend, vote and speak in his/ her place at the meeting onhis/her behalf, and that a proxy need not also be a member of the Company. Forms of Proxy will be included in the Circular to Shareholders of FBCHoldings to be mailed on or about 14 April 2010.

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