FDH Bank 2019 Annual Report

Elevating Banking Experience

Transact on FDH Mobile platforms through WhatsApp Chat. Send "Hi" to 0880849079 and access all the banking transactions available on our FDH Mobile platforms. Contents Report III Pillar II Basel Statements to theFinancial Notes ofCashflows Statement inEquity ofChanges Statement Income ofComprehensive Statement Position ofFinancial Statement Report Auditor’s Independent Our Year Responsibilities ofDirectors’ Statement Report Directors' Statement Managing Director's Statement Chairman's Composition Committees Board Management Executive Directors Board of The Highlights Financial andCore Values Mission Vision, ProfileCompany 112 38 37 36 35 34 29 23 21 18 14 12 11 9 5 3 2 1 Company 2019 Report Annual Bank FDH Profile

FDH Bank Limited is a subsidiary of FDH Financial Holdings Limited. The other subsidiaries in the Group are First Discount House, FDH Money Bureau, FDH Financial Advisory Services and MSB Properties.

We are the biggest bank in Malawi in terms of service points with 51 service centres, 92 auto-teller machines (ATMs) and over 1000 Banki Pakhomo Agents across the country. We are the leading digital bank in Malawi offering convenient banking solutions to our customers.

FDH Bank FDH FDH Discount BankFDH First Bank House Discount First Discount HouseFirst MSB House Properties MSB PropertiesMSB Properties FDH Financial Holdings Limited FDH Financial Holdings Limited FDH Financial Holdings Limited

FDH FDH FDH Money Financial FDH FDH FDHMoney Bureau FinancialAdvisoryFDH MoneyBureau AdvisoryFinancialServices Bureau ServicesAdvisory Services

Offers first class personal and business banking services to individual customers and small and medium sized enterprises (SMEs) and corporate and investment banking services to corporates, government, parastatals and local and international non-governmental organisations, among others.

Offers high yield investment products on the market to personal, business and corporate clients with a view to grow their investments. The services on offer include government securities, repurchase agreements, and commercial papers, among others.

Offers seamless transactions in forex trading and international money transfer services including MoneyGram, Western Union, Hello Paisa, Mama Money and Mukuru.

Offers professional financial advice to business and corporate clients to help them navigate complex business challenges so that they thrive in complex business environments.

MSB Properties Limited is a real estate investment company. It currently owns 21 properties. The company was established to manage properties within the FDH Group. MSB Properties Limited commenced its operations in 2017 after finalisation of the merger between FDH Bank Limited and MSB Bank Limited.

1 FDH Bank Annual Report 2019 2 Vision, Mission, Vision, Core Values efficient solutions based on sound business values values business sound on based solutions efficient superior returns, sustainable growth, secure and secure growth, sustainable returns, superior To be the leading provider of first class financial Toclass offirst betheleading provider solutions in Malawi and the Southern African African andtheSouthern inMalawi solutions To through stakeholders valueto all provide • • • • • • while being an employer ofchoice. being anemployer while CoreOur Values Employee Development Employee Satisfaction Customer Innovation Teamwork to client - commitment Respect Transparency andAccountability Mission Our Vision Our region. FDH Bank Annual Report 2019 3 21% 24% n a e e 6 eas 35% me eas Incr 18% 2019 K34.4 mbal Billio 1,69 2019 Incr 32% Ta mbala) n a (Ta tal Inco 9 K2 To 2018 mbal Billio 1,289 2018 Ta Basic Earnings per Share 0 0 0 10 30 20 40 50 Corporate Social Corporate Responsibility Assets Total

Return on Equity Return 1500

1000

2000

acha Kw Billion in Amount ambala T in Amount 40% 7% 23% n e e n .1 .8 eas 0.80% eas K7 Incr 32% 2019 Incr 22% Billio 2019 K137 Billio Financial Highlights n n mer Deposits K6.0 2018 Billio K112.6 2018 to Billio Cus K 0 0 0 2 8 6 4 0 50 10

15 10

Loan Book Growth Loan to down NPL Ratio

Net interest Income Net interest income Non Interest Kw Billion in Amount acha Kw Billion in Amount acha

FDH Bank Annual Report 2019

Board Of Board 5

Director Director Director Director

Dr. Thomson F. Mpinganjira Mpinganjira F. Thomson Dr. of theFellow Association of Chartered CertifiedAccountants (FCCA) Mr. Ben Botolo Mr. Master of Arts in Economics Dr. Eric James SankhulaniDr. Doctor of Philosophy Dr. Nathan Mpinganjira Dr. Doctor of Business Administration of theFellow Association of Chartered CertifiedAccountants (FCCA)

Chairman Director Director Director Master of Science in Strategic Management Mrs. Edith Jiya Mrs. Charity Mseka Master of Science in Strategic Business Management Certified(CPA) AccountantPublic Mr. ArthurMr. Oginga Mrs. Judith Chirwa Master of Arts in Strategic Management FDH Bank Annual Report 2019 6 Directors Chartered Financial Analyst (CFA) Analyst Financial Chartered Mr. Mikwamba Mark Management inHuman Resources ofScience Master Mr. Kuchande Harold Certified Accountants (FCCA) (FCCA) Accountants Certified ofChartered Association Fellow ofthe Administration inBusiness ofPhilosophy Doctor Dr. Katunga Ulemu

Director Director Director Master of Laws in Intellectual Property inIntellectual ofLaws Master Mr. Patrice Nkhono, SC Drafting inLegislative ofLaws Master SC Hiwa, L. Gertrude Mrs. Certified Accountants (FCCA) Accountants Certified ofChartered Association Fellow ofthe Administration ofBusiness Master Mr. Mpinganjira William Economy ofPolitical Master inEconomics ofPhilosophy Doctor Dr. Ngalande Ellias

Director Director Director Director

FDH Bank Annual Report 2019 Executive 9 Sammy Chilunga Head of Risk and Compliance Master of Banking and Law Juliano Godfrey Kanyongolo SecretaryCompany Bachelor of Laws (Hons) Jones Chabwera Head of Credit of theFellow Association of Chartered CertifiedAccountants (FCCA) William Mpinganjira William Mpinganjira Deputy Director Managing Master of Business Administration of theFellow Association of Chartered CertifiedAccountants (FCCA) Mary Nkando Jussab Head of Government and International Organisations Bachelor of Social Science in Economics Chrispin Chikwama Head of Human Resources Bachelor of Arts Administration in Public George Chitera Chief Finance Officer Master of Business Administration of theFellow Association of Chartered CertifiedAccountants (FCCA) Doctor of Philosophy in Economics Master of Political Economy Dr. Ellias Ngalande Dr. DirectorManaging FDH Bank Annual Report 2019 10 Management Master of Business Administration ofBusiness Master ofTreasuryandTradeHead Finance Omenda Bernard Management inStrategic ofScience Master Banking andBusiness ofPersonal Head Msapato Kawawa (ACCA) Accountant Chartered andAdministration ofOperations Head Madanitsa Mwiza Technology inInformation ofScience Master Technology ofInformation Head Phiri Ganizani Certified Accountants (FCCA) Accountants Certified ofChartered Association Fellow ofthe Audit ofInternal Head YapuwaArthur inStatistics ofScience Master Banking ofCorporateHead andInvestment OukoKennedy Marketing Administration ofBusiness Master andCommunication ofMarketing Head Nkunika Levie Master of Business Administration ofBusiness Master Services Financial Digital for Manager Senior Mbewe Tina Victoria FDH Bank Annual Report 2019 11 Chairperson Member Member Member Member Chairperson Member Member Member Chairperson Member Member Member Member Chairperson Member Member Member Chairperson Member Member Member Member ------COMMITTEE RISK & CAPITAL FINANCE & AUDIT CREDIT RISK COMMITTEE MANAGEMENT COMMITTEE Dr. Nathan Mpinganjira Dr. Mr Harold Kuchande Dr. Nathan Mpinganjira Dr. Mrs. Judith Chirwa Mrs. Gertrude L. Hiwa, SC - Mrs. Edith Jiya Mrs Judith Chirwa Mark MikwambaMr. Mrs. Gertrude L. Hiwa, SC Nathan Mpinganjira Dr. Ulemu Katunga Dr. Nkhono, SC Patrice Mr. Ben BotoloMr. Mrs. Edith Jiya Mrs. Charity Mseka Mark MikwambaMr. Eric J. SankhulaniDr. Mrs. Gertrude L. Hiwa, SC - Eric J. SankhulaniDr. Mrs. Judith Chirwa Mrs. Gertrude L. Hiwa, SC- Mrs. Edith Jiya Dr. Eric J. SankhulaniDr. INFORMATION TECHNOLOGY (IT) COMMITTEE TECHNOLOGY INFORMATION 1. 1. 2. 3. 4. 5. 1. 2. 3. 4. 1. 2. 3. 4. 5. 2. 3. 4. 2. 3. 4. 5. 1. APPOINTMENTS & REMUNERATION COMMITTEE REMUNERATION & APPOINTMENTS Composition 5 4 3 2 1 Board Committees FDH Bank Annual Report 2019 OPERATING ENVIRONMENT management aswecontinuetobringdownthecostincomeratio. experience aswelldiversifyingsourcesofnon-interestincome.TheBankwillcontinue toputmorefocusoneffectivecost innovations resultedintheincreaseoperatingexpensesby14%from2018.Thefocus fortheBankistoimprovecustomer The Bank’scontinuedinvestmentinthedigitalplatforms,deliverychannels,human capitalandothercustomercentric loans (NPL)ratiodroppedfrom1.41%in2018to0.80%bycloseof2019,againstan industryaverage of6.1%. increased by22%fromK112.570 billion toK137.140billion.Notwithstandingthegrowthinloan book,non-performing securities by19%.ThisgrowthisinlinewiththeBank'sstrategytogrowinterest earningassets.Customerdeposits Total assetsgrewby24%yearonmainlyemanatingfromtheincreaseinLoansandadvances40%Government income grewby23%duetotheincreaseinrevenuefromournon-fundedincome. 12.5% at the close of 2019. Interest expense went up by 15% reflecting the growth of theBank’sdeposits. Non-interest policy andtheintroductionofReferenceRate.Thesechangessawratemovefrom18%in2018downto Income wentupby7%onthebackofincreaseinloanbookwhichwaspartlyoffsetchangesmonetary billion in2018representing32%growth.Totalincomegrewby18%fromK29.066toK34.389billion.NetInterest The Directorsreportaprofit aftertaxofK7.846billionfortheyearended 31December 2019fromaprofitaftertaxofK5.965 PERFORMANCE in globaloilpriceswill assisttocontainnon-foodinflation declining inthenearterm, owingtoimprovedmaizeharvest.The continuedexchangeratestabilitytogether withthedecline Inflation attheendof 2020isexpectedtobeat9.3%from11.5% attheendof2019.Foodinflationisprojected tocontinue which willalsoaffectMalawiGDPgrowth anditwillbebelowtheprojected5%to6%growth. The downwardrevisionreflectstheslowdown inglobaleconomicactivityfollowingtheCoronavirus(COVID-19)pandemic Looking ahead,theglobaleconomicgrowth for2020hasbeenreviseddownwardsto2.4%fromearlierprojectionof2.9%. OUTLOOK and interestratescontinuedtogodown. activities including construction and agriculture standing out as the main drivers. Kwacha was stable against majorcurrencies Economic stabilityandgrowthcontinuedtoimprove.Improvedweatherconditions supportedgrowthwithprimarysector inflation closedat11.5%inDecember2019,upfrom9.2%Septemberdue totheincrease infoodinflation. growth supportedagro-processingandhouseholds’disposableincomes,whichinturn, drovetheservicesector.Headline GDP Growth of 4.4% in 2019 was buoyed by agood harvest overall, despite the impact of CycloneIdai. Solid agricultural 12 “ improve customerexperience as welldiversifyingsources The focusfortheBankisto of non-interestincome Statement Chairman’s “ FDH Bank Annual Report 2019 13 Mr. ArthurMr. Oginga Board Chairman VOTE OF THANKSVOTE I also thank towards the Board. and service for their contributions on the board thank my colleagues I wish to sincerely Malawi, the Reserve Bank of Malawi, including our valued clients, the Government of all stakeholders of FDH Bank, the performance it has been partners, whose support enabled the Bank to achieve banks and other business correspondent able to report. We anticipate the low interest rates regime to continue and spur private sector credit growth in 2020. Private sector credit sector Private 2020. in growth credit sector spur private and continue to regime rates interest low the anticipate We in 2019, mainly sector credit growth in private The stronger in 2018. 11.5% growth was 21.3% from growth in 2019 annual 50% Rate by the Lombard (RBM) has reduced of Malawi the Reserve Bank 2019. In 2020, rates in reduced interest reflected will therefore and Bank Central the from funds of accessing cost the This will reduce Rate. Policy the above points 0.2% to necessary to ease banking decisions were deemed benefits to borrowers. These banks to pass on the enable commercial COVID-19. that are hit by support the sectors commercial banks to adequately constraints and incentivise system liquidity sectors like businesses in most industry SMEs and economic growth. country’s the of COVID-19 has affected The emergence and the Reserve Bank The Malawi Government have been heavily affected. Transportation and Education Tourism, Leisure, the economy. on the businesses and the impact of COVID-19 put in place measures to reduce of Malawi have mitigating the impact of the same on the the impact of COVID-19 and strategizing on The Bank is continuously monitoring through channels on the convenient delivery and improve continues to consolidate The Bank performance. Bank’s financial network its existing upgrade to continues also Bank The solutions. financial class first providing and products digital its experience. standards for improved and elevated customer infrastructure to maintain international and progressing very well. FDH Bank’s Bank on the Malawi Stock Exchange in 2020 are on track The preparations to list the Bank. public and all Malawians to invest in the homegrown listing will give a chance to the FDH Bank Annual Report 2019 16.86% (201812.72%)and19.59%16.14%)respectively. The Bankisnowfullyrecapitalizedandasat31December2019theCapitalRatiosfor Tier1and2ratioswereasfollows CAPITAL ADEQUACY loans(NPL) ratiodroppedfrom1.41%in2018to0.80%bycloseof2019,againstan industry average of6.1%. increased by22%fromK112.570 billion toK137.140billion.Notwithstandingthegrowthinloan book,non-performing securities by19%.ThisgrowthisinlinewiththeBank'sstrategytogrowinterest earningassets.Customerdeposits Total assetsgrewby24%yearonmainlyemanatingfromtheincreaseinLoansand advancesby40%andGovernment interest incomegrewby23%duetotheincreaseinrevenuefromournon-fundedincome. down to12.5%atthecloseof2019.Interestexpense went upby15%reflectingthegrowthofBank’sdeposits.Non- the monetarypolicyandintroductionofReferenceRate.Thesechangessawratemovefrom18%in2018 Net InterestIncomewentupby7%onthebackofincreaseinloanbookwhichwaspartlyoffsetchanges billion. after taxofK5.965billionin2018representing32%growth.Totalincomegrewby18%fromK29.066toK34.389 performed well closing the year with aprofit after taxofK7.846 billion for theyear ended31December 2019fromaprofit The operatingenvironmentwaschallengingin2019,butwearepleasedtosharethattheBankremainedresilientand PERFORMANCE access availableright atthecustomer’sfingertipsirrespectiveof locationortime. allowing more people to access banking services without visiting the banking hall but with the seamless convenience of The UfuluDigitalAccountintroducedin2018 continuestofacilitatefinancialinclusionasthenumbersgrewrapidlyin2019 WhatsApp Chatofferingeaseofusage. The bankintroducedFDHWhatsAppBanking, arevolutionaryalternateofFDHMobileaccessedthroughcustomer’s customer transactionsautomaticallymaking itquickerandmoreconvenient. Multichoice Malawi(DStvpayments)and itautomatedtheInstaloan(FDHMobileLoanservice)tosystematicallyassess The BankexpandeditsFDHMobileofferingbyintroducingmoredigitalpayment optionsincludingtheintegrationwith Thyolo. customers a better banking experience. The bank also expanded its reach by opening a new service centre at Goliati in The Bankcontinuedtofulfillitspromiseofelevatingthebankingexperiencebyrefurbishing BlantyreServiceCentretogive PERFORMANCE BUSINESS 14 “ Total incomegrewby18% Statement Managing Director’s from K29.066billionto K34.389billion “ FDH Bank Annual Report 2019 15 Dr. Ellias Ngalande Dr. DirectorManaging APPRECIATION and the rest of the Executive the Board of Directors for continuous and stealth leadership Sincere appreciation goes to to the year leading throughout work and dedication for their hard staff members as all as well for their support Management Malawi Stock Exchange. growth of the bank and profit as we plan to list on the SPONSORSHIP SOCIAL RESPONSIBILITY AND CORPORATE in 2019. portfolio its Corporate Social Responsibility (CSR) and sponsorship The Bank continued to grow for the Football Association of Malawi development initiative with medium term sponsorship It continued its national sports sponsored national football and netball Malawi and announced the introduction of FDH Bank and the Netball Association of to sponsor Mayor’s trophies in Mzuzu, sports development goal through CSR, it continued cups. To complement the youth Zomba and Lilongwe. in Zomba, Blantyre, Phalombe and offer relief to flood victims with a relief package distributed The bank also came in to continues to support her. It supports for gender-based victim Marietta Samuel in Dowa and Chikwawa. It built a house and also various secondary Chancellor College, Malawi University of Science and Technology needy students at Polytechnic, Central Hospital HDU Cancer Unit. the Blind. The bank is the caretaker of the Queen Elizabeth schools through the Hope for OUR PEOPLE bank has invested the bank, the of to expansion years due three past rapidly the growing of 620 complement a staff With FDH Awards and Machawi Academy, of FDH Leadership introduction through and motivation training, growth in staff Bank business. The the of areas different in skills technical developing on focused year the in Training Culture. Excellence across. buildings for staff members team work by organizing team initiatives to enhance also took deliberate to Cape Town with her an all-expenses paid for trip Year was rewarded with the year, the Employee of the At the end of awarded at the end month across the bank were and employees of the members, teams, innovators spouse. Long serving of year party. Welcome To A World of Convenience

FDH Mobile and OneClick provide you with the most convenient way to bank. Simply Dial *525# or use FDH WhatsApp Banking or use the SmartApp or log on to OneClick to pay bills, transfer funds, access Instaloan, do cardless withdrawals and so much more.

FDH Bank Our Bank Our Future Grow With Us Welcome To A World of Convenience

FDH Bank Our Bank Our Future Grow With Us FDH Bank Annual Report 2019 P.O. Malawi. 512,Blantyre, Box North, Victoria Avenue 8 House, Floor, Ground Upper Umoyo is business placeof officeandprincipal Bank’s registered The Act. andBanking Act Companies Malawi the under isregistered and Malawi isincorporated in Bank The banking. ofcommercial engagedis inthebusiness Bank The will continue in operational existence for the foreseeable future. theforeseeable for existence inoperational continue will Bank that the assumes that basis on aare goingprepared concern statements the financial that determined Directors The and 19.59%respectively. 16.86% were 2ratios 1andTier Tier for Ratios 2019theCapital at 31December As (2018:K76.242billion). K94.158billion of assets against current (2018:K91.628billion) ofK148.815billion liabilities current 2019andhad 31December ended year forthe (2018:K5.965billion) Bankrecorded a ofK7.846billion profit The statements. the preparation ofthefinancial for ofthegoing basis concern theappropriateness considered have theDirectors responsibilities, their with accordance In CONCERN GOING year. intheprevious to nil as compared is K1.040billion taxdividend on of inclusive amount payout dividend The follows: wereas paid in2019 2018but December 31 ended year for the declared dividends of The details DIVIDEND of0.8%. Ratio NPL hadan Bank 2019the December as and at31 atK39.4billion stands since2015 off written has theBank debts of bad amount at 87%.The ratiototal was NPL MSB’s At ofacquisition, thetime loans. performing high non- very had that position offinancial statement cleaning its been has theBank Bank, FDH merger with andsubsequent ofMSB theacquisition Since LOANS –PERFOMING NON (1.3%). ESOP (MSB) Bank Savings (5%)andMalawi ofMalawi Government Act; Companies the Malawi under registered holding company (93.7%),aninvestment Limited Holdings Financial FDH by owned is Limited Bank FDH 2018:K1)each. ofK1(31December shares Ordinary 2018:462,706,000) 462,706,000(31December into 2018:K462,706,000)divided K462,706,000(31December is Bank ofthe capital share issued 2018:K1each). The ofK1(31December shares 2018:500,000,000)Ordinary (31 December 500,000,000 into divided 2018:K500,000,000) December is K500,000,000(31 Bank ofthe capital share The authorised CAPITALSHARE (2018: K5.965billion). 2019 December 31 ended year forthe taxofK7.846billion aprofit after report Directors The RESULTS ACTIVITIES 2019. December 31 ended year for the statements to thefinancial andnotes cashflows of statement equity, in changes of statement income, ofcomprehensive statement position, financial of statement the comprise which Limited Bank FDH of statements the financial pleasurehave inpresenting Directors The 2019: 31December ended For theyear 18 • • Shareholders which was paid on 25 July 2019. on25July paid was which Shareholders tothe value ofK540million face of dividend andfinal second a 2019 declared July on22 Directors Board of The 2019;and on28February paid was which Shareholders tothe valueofK500million face of dividend interim afirst 2019declared on 4 February Directors Board of The

Report Directors' FDH Bank Annual Report 2019 19 2/2 2/2 4/4 4/4 4/4 4/4 3/3 2/2 2/2 3/4 4/4 4/4 4/4 4/4 2/2 4/4 2/4 2/2 4/4 4/4 4/4 4/4 3/4 3/4 4/4 4/4 4/4 4/4 Attendance of Meetings of Attendance Attendance of Meetings of Attendance Attendance of meetings of Attendance From 1 JulyFrom 2019 Up to 30 JuneUp to 2019 From 1 OctoberFrom 2019 From 1 JanuaryFrom 2019 From 1 JanuaryFrom 2019 From 1 JanuaryFrom 2019 Up to 30 SeptemberUp to 2019 30 JuneUp to 2019 1 JulyFrom 2019 Throughout the Throughout year Throughout the Throughout year Throughout the the Throughout year Throughout the the Throughout year Throughout the Throughout year From 1 JulyFrom 2019 Throughout the the Throughout year Throughout the Throughout year Up to 30 JuneUp to 2019 Throughout the the Throughout year Throughout the Throughout year Throughout the Throughout year Throughout the the Throughout year Throughout the Throughout year Throughout the Throughout year Throughout the the Throughout year Throughout the Throughout year Throughout the Throughout year Throughout the the Throughout year Period Period Period

Company Secretary Company Secretary Acting Director Managing Director Director Director Managing DirectorManaging Director Director Director Director Member Member Director Member Member Director Member Member Director Member Member Director Chairperson Chairperson Chairman Role Role Role Role

* Resident in Kenya ** ResidentSouth in Africa Juliano Godfrey*** Mr. Kanyongolo wasSecretary appointed Company effective 1 January 2020 Mrs. A. Kumwenda *** Mr. P. Bonongwe P. Mr. Mpinganjira W. Mr. Mr. H. Kuchande Mr. Mrs C. Mseka Dr. J. BandaDr. SC Director Mrs. G. L. Hiwa, SCDirector Katunga U. Dr. Mr. E.Mr. Ouattara Mr. B. Botolo Mr. Mr. P. Nkhono,SC P. Mr. Mrs. E. Jiya Mrs. J. Chirwa Mrs. C. Mseka Mrs. G. L. Hiwa, SC Mr. M. MikwambaMr. Mr. B. Botolo Mr. Dr. J. Banda,Dr. SC Dr. N. Mpinganjira ** N. Mpinganjira Dr. Mr. P. Nkhono, SC P. Mr. Dr. E.Dr. J. Sankhulani Dr. T.F. Mpinganjira Mpinganjira T.F. Dr. Mrs. E. Jiya Mr. M. MikwambaMr. Dr. E.J.Dr. Sankhulani Dr. U. Katunga U. Dr. Dr. N. Mpinganjira N. Mpinganjira Dr. Mr. A.Mr. * Oginga The committee meets at least four times The committee a is comprised year. offive non-executive directors. The role of the committee to provideis an independent evaluation of the adequacy and efficiency of the Bank’sinternal control systems, accounting practices, information systems and auditing processes. Communication between the Board, executive management, internal audit, and external audit is The committee encouraged. liaises with the external and internal auditors on accounting procedures and on the adequacy of controls and information systems, and reviews the financial statements, considers loss reports on major defalcations, and the Bank’s compliance plan for effectiveness. The members Finance of the Committee and Audit were as follows:- Name RISK MANAGEMENT COMMITTEE AND CAPITAL The committee meets four times The committee a is comprised year. of four non-executive directors. The committee reviews and assesses the integrity of the risk control systems and ensures that risk policies and strategies effectively are identified,to contribute in order to a and monitored managed climate of discipline and control, which willreduce the opportunityrisk, of including fraud,RCMC alsoall in of operation. areas The reviews the capital position and approves risk appetite; reviews stress testing results and considers the adequacy actions of mitigating if required. Name FINANCE AND COMMITTEE AUDIT BOARD MEETINGSBOARD The meetsBoard quarterly.Ad-hoc meetings held are when necessary. The Directorsprovided are comprehensivewith board documentation least at seven days each of the scheduled prior to meetings. the year During were there four board meetings. DIRECTORS The following Directors servedthe during in office year while in residing Malawi unlessstated: Name FDH Bank Annual Report 2019 Name ofthe Committee are: members The andstaff. management for andpackages andremuneration terms health and safety planning, succession relations, industrial policy, recruitment including issues resources human all considers The committee directors. non-executive five of year. iscomprised a Thecommittee times four meets The committee REMUNERATION AND APPOINTMENTS COMMITTEE FOR AND ON BEHALF OF THE BOARD THE OF BEHALF ON AND FOR 2020. ending31 December oftheyear inrespect auditors as appointment to inrelation their Meeting General Annual forthcoming atthe proposed to is be a resolution inofficeand continue to willingness their signified have Deloitte, The auditors, AUDITORS 2019. 31December ended theyear for respects material to inall adhered were theCode guidelines oftheBank, business the itconcerns as far As II guidelines. Code Malawi the endorse of, and are committedtotheimplementation Directors The CODE MALAWI II THE COMPLIANCE WITH Name protection. anddata retention data to privacy, respect with obligations andregulatory Bank’s financial the to meet andprocedures technology recommends Committee also The property. Technology ofthecorporation’s intellectual protection effective oversees andintheprocess, evolution of the corporation’s to, technological the direction respect with and advises evaluates, also It objectives. strategic its meets Bank ensure Bank to the withinthe technology of utilization secure and effective ensuring with tasked is The committee INFORMATION TECHNOLOGY COMMITTEE (IT) Name committee. management risk ofthe credit limits authorised the above any transactions authorizes and analyses Thecommittee recoveries. maximise and losses credit minimise facilities, credit irregular to identify procedures there are that effective ensures It management. risk credit oftheBank’s quality andfuture onthepresent impact materially may that issues all andconsiders reviews monitors, directs, thecommittee At meeting, each lending policies. oftheBank’s review theoverall with tasked is The BoardCredit Committee directors. non-executive of four iscomprised Thecommittee quarterly. meets committee This COMMITTEE RISK CREDIT Mr. Kuchande H. Dr. E. J. Sankhulani J.Sankhulani Dr. E. J.Chirwa Mrs. Dr. E. J. Sankhulani J.Sankhulani Dr. E. Dr. Mpinganjira N. Mr. Mikwamba M. Mrs. J.H. Chirwa Chirwa J.H. Mrs. Mrs. J. Chirwa J.Chirwa Mrs. Dr. Mpinganjira N. Mrs. E. Jiya Jiya E. Mrs. Mrs. E. Jiya Jiya E. Mrs. SC Dr. J.Banda, Dr. J. Banda, SC SC Dr. J.Banda, Dr. J. Banda, SC SC Dr. J.Banda, SC Hiwa, L. G. Mrs. SC Hiwa, L. G. Mrs. SC Hiwa, L. G. Mrs. Board Chairman Oginga Mr. Arthur 20 Role Role Role Chairperson Chairperson Chairperson Member Member Member Member Member Member Member Member Member Member Member Member Member Member Period Period Period year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the year Throughout the 2019 toUp 30June 2019 toUp 30June 2019 toUp 30June 2019 From 1July 2019 From 1July 2019 From 1July Attendance of Meetings Attendance of Meetings Attendance of Meetings Managing Director Dr. Ngalande Ellias 4/4 4/4 4/4 4/4 4/4 3/4 4/4 4/4 4/4 3/4 3/4 2/2 2/2 2/2 2/2 2/2 1/2 FDH Bank Annual Report 2019 21 Dr. Ellias Ngalande Dr. DirectorManaging Statementof Directors’ Responsibilities Maintenance accounting of proper records; Selection of suitable accounting policies and applying them consistently; Making judgements and estimates reasonable thatare and prudent; Compliance with applicable accounting standards when financial preparing statements, subjectto any material departures being disclosed and explained financial in the statements; and financialof Preparation statements concerngoing a on basis unless it presumeto inappropriate is that the Bank will continue in business in the foreseeable future. • • • • • Mr. ArthurMr. Oginga Board Chairman For the yearFor ended 31 December 2019: The MalawiCompanies Act requires 2013 the Directors financialto prepare statements for each financial year which give a and fairtrue view of the state of affairs of the Bank at the as end of the financial year and of the operating results for that year. ActThe alsorequires the Directors to the ensure keepsBank records accounting proper which disclose reasonablewith accuracy, any time, financial the at position of the Bank and enable thatto themensure financial the statements comply with the Malawi Companies Act, 2013. In the financial preparing statements, the directorsresponsibility accept for the ensuring following: The Directors alsoresponsibility accept for such taking reasonablysteps that are open to themto the safeguard assets of the Bank maintain and to adequate systems of internal controls prevent to and detect fraud and other irregularities. The Directors of the opinion that the financial are statementsfor the year ended 31 December 2019 givetrue and a fair view of the state of the financial affairs of the Bank and of its operating results. FDH Bank Annual Report 2019 Take control ofyour billpayments andenjoy e ortless banking.Elevate Take control ofyour billpayments andenjoy e ortless banking.Elevate your experience withFDHMobileBanking andmake convenience your your experience withFDHMobileBankingandmake convenience your Dial *525#oruseFDHWhatsAppBanking andfollow theonscreen Dial *525#oruseFDHWhatsAppBanking andfollow theonscreen 22 FDH Bank FDH Bank instructions. instructions. way oflife. way oflife. Our Bank OurFuture Grow With Us Our Bank OurFuture Grow WithUs Our FDH Bank Annual Report 2019 23 Our Year Sponsorships Recognition Staff Engagement FDH Leadership Academy FDH House Refurbishment Product Launches Corporate SocialCorporate Responsibility 2. 3. 4. 5. 6. 7. 1. 2019 was an eventful year of progress and growth for the bank, variousstakeholders engaging and making a positive lasting impact in various sectors. Below some are highlights: of the FDH Bank Annual Report 2019 24 6. 5. 4. 3. 2. 1. violently bothhandsafewyearsagotosupportherlivelihood. solar powersystemanddonatedtoaDowabasedwomanwhoisvictimofdomesticviolencethatsawherlose Construction anddonationofahouse:AK14milliontwobedroomedhousewasconstructedwithcomplete ward maintenanceandleadnurseallowance. Queens CentralHospitalCancerWardMaintenance:AninvestmentofK10.8millionwasgivenforthreeyears students wasgiventofacilitatetheirstudies. Hope fortheBlindStudentsScholarships:AninvestmentofK10.7million30secondaryschoolandcollege ten (10)MUSTstudentswascommittedtoensuretheycompletetheirfiveyeardegreeprogrammes. Malawi UniversityofScienceandTechnology(MUST)StudentsScholarships:AninvestmentK62.5millionfor Polytechnic studentswascommittedtoensuretheycompletetheirfouryeardegreeprogrammes. University ofMalawiStudentsScholarships:AninvestmentK72millionforsix(6)ChancellorCollegeandten(10) from FDHBank. and netballintheMayor’sTrophyfollowinginvestmentofK10million,K6millionrespectively Youth SportsDevelopment:Lilongwe,Mzuzu,andZombaCitiesprimaryschoolscompetedenjoyedfootball Corporate Social Responsibility Corporate Social 3 1 6 2 FDH Bank Annual Report 2019 25 2 2 Marketing of the Year Campaign Most Improved of the Year Brand CSI Project of the Year Marketing Game of the Year Changer DevelopmentPositive Award Youth – Print Commercial of the Year Life of the Year Brand Changing PR Project of the Year Marketer of the Year 1 1 • • • • • • • • • Recognition Sponsorships FDH Bank Chief Finance Officer George Chitera represented Malawi and the region at Africa Forward Together FDH Bank Chief Finance Officer George Chitera represented and Innovation. Forum in Mauritius as a leading bank engaged in E-payments of Marketing(CIM) Malawi Awards Gala for various The bank scooped nine awards at the Chartered Institute innovations and marketing initiatives as below: National netball development initiative: The Netball Association of Malawi got a sponsorship of K360 million for Malawi got a sponsorship of Netball Association of development initiative: The National netball Cup, and the of FDH Bank Netball Team - the Queens, introduction the National Netball three years supporting association’s secretariat. K450 million for Malawi got a sponsorship of Football Association of development initiative: The National football Football Cup. of FDH Bank Team - the Flames and introduction the National Football five years supporting 1. 2. 2. 1. FDH Bank Annual Report 2019 26 1. 4. 3. 2. 1. Management TrainingatRyallsHotelinBlantyre. One ofthetrainingprogrammesconductedunderFDHLeadershipAcademy: AnAccountRelationship the nine(9)awardsfromCharteredInstituteofMarketing(CIM)inMalawiwonbybank. Executive Management and representatives from all departments celebrated at Game Haven in Bvumbwe, Thyolo underpinning theGroup’scustomer-centricExcellenceCulturebyExecutiveManagement. Excellence Culture Staff Engagement –Staff membersacross theGroup were oriented withthewinning behaviors contribution tothegrowthofinstitution. End ofYearStaffParty–yearpartieswereheldinthreeregions toengage, thankandrewardstafffortheir Employee oftheYear–MercyMchacha,anarchitect,wonallpaidtriptoCapeTown. FDH Leadership Academy Leadership FDH Engagement Staff 3 1 4 2 FDH Bank Annual Report 2019 27 Product Launches FDH House Refurbishment During the year, we launched a cutting edge innovation FDH Whatsapp Banking and DStv Payments on FDH During the year, we launched a cutting edge innovation Centre. Mobile. Below is the DStv Payments launch at Chichiri Service The all-new Blantyre Service Centre was part of the refurbished FDH House and the bank’s commitment to elevate and the bank’s commitment of the refurbished FDH House Service Centre was part The all-new Blantyre for its employees. provide a better working environment for customers and the banking experience 1. 1. FDH Bank Annual Report 2019 28 FDH Bank Annual Report 2019 29 Timely identification of exposures with a significant deterioration in credit quality. exposuresFor determined be individually to impaired, we examined management’s estimate of future cash flows, assessedreasonableness their and checked the resultant provision calculation. • • We gained understandingWe Bank’sthe of key credit processes comprising granting, booking, and monitoring provisioning and tested the relevant internal controls over impairment of loans and advances. examined a sampleWe of exposures and performed procedures evaluate to the: provisionFor exposures against classified as 1 Stage and Stage 2 on adoption of IFRS 9, we obtained an understanding of the Bank’s provisioning methodology, assessed the reasonableness of the underlying assumptions and the sufficiency of thedata used by management. Our procedures discussed in this are regard How the matter was addressed in the audit Independent Auditor’s Report to the Shareholders of FDH Bank Limited

The interpretationrequirements of the to determine impairment under application of IFRS 9, which is reflected in the Bank’s expected credit loss model; The identification of exposures significant awith deterioration in credit quality; Assumptions used in the expected credit loss model such as the financial condition of the counterparty, expected future cash flows and forward macroeconomic looking factors (e.g. unemployment rates, interest rates, gross domestic product growth, property prices); The needto apply additional overlaysreflectto current or future external factors not that are • • • • The Bank exercises significant judgement subjective using assumptions over both when and how record much to expected credit losses, estimation and of the amount of the impairment provision for loans and advances. of judgment areas included:Key Key Audit Matter Audit Key AND ADVANCES AGAINST LOANS IMPAIRMENT We have auditedfinancial the We statements of FDH Bank Limited as set out on to 102, pages 12 which comprise the statement of financial position at 31 as December 2019, the statement of comprehensive income, statement of changes in equity and statement of cash flows for the year then ended, and the notesto the financial statements, including a summary of significant accounting policies. In our opinion, the financial statements give and a true fair view of the financial position of the Bank at 31 as December 2019, and of its financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs) and the requirements of the Malawi Companies Act, 2013. KEY AUDIT MATTERSKEY AUDIT auditKey mattersthose are matters that,professional in our judgement, of were mostsignificance in our audit of the financial statements These of the current year. matters were addressed in the context of our audit of the financialstatements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. BASIS OPINION FOR conducted We our audit accordance in with International Standards (ISAs).Auditing on Our responsibilities under those standards further are described in the Auditor’s Responsibilities for of the Financial the Audit Statements section our of report. independent are of the Bank We in accordance with sections 290 and 291 of the International Ethics Standards Board for Accountants of Ethics Code for Professional Accountants (Revised July 2016), parts 1 and 3 of the International Ethics Standards Board for Accountants International of Ethics Code for professional Standards( including International Independence Standards) (revised July 2018) and other independence requirements applicable when performing audits of financial statements in Malawi.We have fulfilled our ethical responsibilities in accordance with these requirements and the IESBA believe code. We that the audit evidence we have obtained is sufficientprovide to a and appropriate basis for our opinion. Report of the Financial on the Audit Statements: OPINION FDH Bank Annual Report 2019 Key Audit Matter 30 financial statements. statements. financial to the andadvances) onloans losses – Impairment uncetainity ofestimation sources andkey judgements innote 4.1(Critical accounting disclosed as of judgement key are areas These flows. cash offuture rates recovery and ofdefault probability theestimated determining in management by used is experience loss Historical portfolio. inthat loan anindividual with identified be can the decrease before of loans a portfolio from flows cash future in the estimated measurable decrease a there is that indicate may which data any observable assesses management loss, the impairment calculating In impairments. identified of net cost at amortised are stated andadvances Loans statements. in note 3 to the financial policies accounting in is presented policy provision The impairment statements. to thefinancial to customers) and Advances innote (Loans 9 disclosed Stage 3.This is under classified against exposures andK668.0million and 2exposures 1 against Stage ofprovision K133.3million comprising recorded, was ofK801.3million losses credit expected an against which K57.6billion were to customers andadvances loans 2019,thegross at 31December As • stipulated in IFRS 9. inIFRS stipulated stages various into andadvances loans classifying in used ofthejudgements significance The and model; loss credit theexpected by captured appropriately How the matter was addressed in the audit in addressed was matter the How procedures comprised thefollowing; comprised procedures ouraudit methodology, to impairment respect With thefollowing: comprised procedures our audit liabilities, andfinancial assets financial of andmeasurement to classification respect With below. detail in further • • • • • • • • • • • Default (LGD) used by the Bank intheECL theBank by (LGD) used Default Given oftheLoss We thecalculation checked thePDs; determine to grading ofS&P10-point system of theuse the appropriateness checked we calculations, intheECL used (PD) ofDefault For Probability calculations; arithmetical the resultant and flows inthecash andrepayments payments ofpre- theconsideration including Default, at Exposure ofdetermining appropriateness the checked we ofexposures, For asample information; available to publicly used corroborated theassumptions and management with helddiscussions we ECL calculations, inits management Bank’s the by used looking assumptions For forward provisions; impairment to determine the Bank by used (theModels) models (ECL) Credit Loss intheExpected used data for and assumptions sources data thekey We andunderstood checked staging; oftheBank’s appropriateness the checked we ofexposures, For asample stages; various into exposures of classification for basis andtheresultant risk credit in increase ofsignificant determination oftheBank’s We theappropriateness checked Consultant; oftheBank’s independence and objectivity to ensure thecompetence, procedures performed We further Consultant. the Bank’s by prepared documentation model and impact We and read the IFRS obtained appropriate the Bank. of the ratingfor is model andcalibration thediscrimination that checked and andadvances loans for rating models internal oftheBank’s anunderstanding obtained we teams, technical accounting specialist and ofouractuaries theinvolvement With 9; ofIFRS requirements the with it and compared policy provisioning impairment 9 based We IFRS read the Bank’s management. by performed test] [SPPI interest’ and ofprincipal payments are that ‘solely flows cash to rise give which flows, cash the contractual on andthetest assessment model business Bank’s the andchecked We anunderstanding obtained 9; ofIFRS requirements the with it and compared policy liabilities andfinancial assets offinancial and measurement classification 9based We IFRS read theBank’s

FDH Bank Annual Report 2019 31

calculations, includingthe appropriateness of the use of collateralthe resultant and arithmetical calculations; checked the completeness We loansthe of and advances, off balance sheet items, investment securities, placements other and financial assets included calculations in the ECL as of 31 Decemberand 31 December 2019 2018; We understood the theoretical soundness and tested the mathematical integrity Models; of the dataFor from external sources, we understood processthe choosing of such data, its relevance for the Bank, and the controls and governance over such data; and checked consistencyWe of various inputs and assumptionsused by Bank’sthe management to determine impairment provisions. • • • We found that the modelling approach and methodsWe applied in determining expected credit losses against loans and advances as well as other financial assets were and that the amountappropriate impaired and recognised in the financial statements reasonablewas complied and with IFRS 9 Financial Instruments. further We concluded that the financial statements disclosuresrelationto in impairment loans of and advances as wellas other financial assets appropriate. were How the matter was addressed in the audit Key Audit Matter Audit Key RESPONSIBILITIES OF THE DIRECTORS FOR THE FINANCIAL STATEMENTS The Directorsresponsible are financial of preparation the for statements that give andtrue a fair view accordance in with International Financial Reporting Standards and the requirements of the Malawi Companies Act, 2013 and for such internal control as the Directors determine is necessary enable to of financial the preparation statements that are free from material misstatement, whether fraud due to or error. In the financial preparing statements, the Directorsresponsible are for assessing the abilityBank’s to continue going as a concern, disclosing, as applicable, matters concern concerngoing and going related to the using basis of accounting unless the Directors either liquidate intend the Bank to cease or to operations, or have no realistic alternative but do so. to OTHER INFORMATION OTHER The Directorsresponsible are for the other information. other The information comprises the Directors’ Report and the Statement of Directors Responsibilities, as by required the Companies Act, which we obtained the date of this prior to auditor’s report. The other information does not include the financial statements and our auditor’s report thereon. Our opinion on the financial statements does not cover the other information and we do not express an audit opinion or any form of assurance conclusion thereon. In connection with our audit of the financial statements,responsibility our read the other informationto is and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears be materially to misstated. If, based on the work we have performed on the other information thatwe obtained of thisdate the to prior auditor’s report, we conclude that is there a material misstatement of this other information, report to required we are that fact. report have to nothing We this in regard. FDH Bank Annual Report 2019 of doing so would reasonably be expected to outweigh the public interest benefits of such communication. communication. ofsuch benefits interest thepublic to outweigh expected be reasonably would of doing so consequences theadverse because inour report be communicated should not amatter that determine we circumstances, rare inextremely when, or thematter about disclosure public orregulation precludes law unless report in ourauditor’s matters these describe We matters. year andare audit the therefore key ofthecurrent statements ofthefinancial audit inthe significance most were of that matters those we determine directors, the with communicated From thematters related safeguards. applicable, andwhere on ourindependence, bear to be thought may reasonably that matters andother relationships all them andto with communicate independence, regarding requirements ethical relevant with complied have we that astatement with theDirectors provide We also duringaudit. our identify we control that internal in deficiencies any including significant findings, audit significant timing and and scope oftheaudit theplanned among matters, other regarding, theDirectors We with communicate throughout the audit. We also: throughout theaudit. scepticism professional andmaintain judgement professional exercise we ISAs, with inaccordance ofanaudit part As statements. financial ofthese the basis taken on users of economic decisions to the influence expected be orintheaggregate, couldreasonably they individually if, material andare orerror considered fraud from arise can Misstatements exists. it when misstatement amaterial detect always will ISAs with inaccordance conducted anaudit that notaguarantee is but ofassurance, ahigh level is assurance Reasonable our opinion. includes that report an auditor’s or error, due to fraud and to issue whether misstatement, material from free whole are as a statements thefinancial whether about assurance reasonable are to obtain Our objectives STATEMENTS FINANCIAL AUDIT THE OF THE FOR AUDITOR’S RESPONSIBILITIES 19 February 2020 19 February Partner Mwenelupembe Madalo Accountants Chartered 32 • • • • • presentation. fair achieves that manner ina events and transactions theunderlying represent statements thefinancial whether and disclosures, the including statements, ofthefinancial andcontent structure presentation, theoverall Evaluate agoing and as to concern; continue to cease theBank cause may orconditions events future However, report. upto thedateofourauditor’s obtained evidence onthe audit are based Ourconclusions ouropinion. are to modify inadequate, or, disclosures such if statements inthefinancial disclosures to the related report are we required to inourauditor’s drawattention exists, uncertainty material a that we conclude If as a going concern. to continue Bank’s ability doubtonthe significant cast may that orconditions related to events exists uncertainty amaterial whether obtained, evidence the audit on andbased ofaccounting ofthegoing basis concern use oftheDirectors’ Conclude ontheappropriateness theDirectors; by made related disclosures and estimates ofaccounting andthereasonableness used policies ofaccounting theappropriateness Evaluate control; internal Bank’s ofthe anopinionontheeffectiveness ofexpressing thepurpose notfor but appropriate inthecircumstances, are that procedures audit inorder to to theaudit design relevant control ofinternal anunderstanding Obtain control. ofinternal ortheoverride misrepresentations, omissions, intentional forgery, collusion, error, involve from may one resulting fraud for as higher than is fraud from resulting misstatement material a ofnotdetecting Therisk ouropinion. for appropriate abasis to provide and sufficient is that evidence audit andobtain risks, to those responsive procedures audit andperform design frauderror, or due to whether statements, of the financial misstatement of material the risks and assess Identify FDH Bank Annual Report 2019

Statements Financial FDH Bank Annual Report 2019 Director ______were signedonitsbehalf by: Director The financialstatementswereapproved andauthorisedforissuebytheBoardofDirectorson______and

LIABILITIES LIABILITIES ANDEQUITY TOTAL ASSETS ASSETS Guarantees andlettersofcredit Memorandum items TOTAL EQUITYANDLIABILITIES Total Equity EQUITY Total Liabilities 34 Current taxasset Deferred taxassets Right -of-useassets Intangible assets Property, PlantandEquipment Other investments Other receivablesandpre-payments Amounts duefromrelatedparties Loans andadvancestocustomers Other shortterminvestments–OMO Placements withotherbanks of MalawiBonds Malawi GovernmentTreasurybills,PromissoryNotesandReserveBank Cash andBalanceswithReserveBankofMalawi Retained earnings Loan lossreserve Preference shares Capital reserve Share premium Share capital Deferred taxliabilities Income taxpayable Lease liabilities Payables andaccruals Liabilities tofinancialinstitutions Liabilities tocustomers Long termloan Shareholders’ loan Amounts duetorelatedparties Financial Position Financial of Statement ______Notes 3.16 3.16 20 19 18 17 16 15 10 20 14 13 12 11 10 21 9 8 7 6 5 - - 188 700406 188 700406 137 140830 166 026931 22 673475 56813895 10 301285 33 412868 31 750661 46 955149 32 386342 1 550102 1 719042 6 653457 5 760919 2 606543 380 692 1 2 350619 8 631509 7 062293 8 437801 3 111000 2 716230 7 450660 294 753 495 078 462 706 31 032 K’000 2019 - - - - - 17 February2020 152 768908 152 768908 112 570264 136 883134 15 885774 12 562833 40 689341 26 084042 39 552133 14 885769 11 621378 15 588105 2 009226 2 010463 8 085928 5 496484 4 504286 5 454618 2 729144 1 854445 3 111000 2 716230 7 450660 575132 791 525 290 733 462 706 26 032 K’000 3 444 2018 - - - - FDH Bank Annual Report 2019 - - 35 2018 1 289 - K’000 8 046 416 9 592 726 8 156 540 5 965 442 5 965 442 21 019 785 14 781 015 (1 436 186) (2 191 098) (7 920 807) (6 734 599) 29 066 201 (11 552 668) (19 473 475) - - - 2019 1 696 K’000 (482 634) 8 576 889 7 846 364 7 846 364 25 812 682 12 225 682 16 343 445 (9 209 017) (7 766 556) (3 896 684) 34 389 571 11 743 048 (12 954 872) (22 163 889) 9 23 24 22 22 25 22 26

Notes Statementof Comprehensive Income Total income Commissions and other fee income Employee benefits costs Total expenditure Profit before tax and net impartment losses Impairment losses Profit before tax PROFIT FOR THE YEAR Interest expense Net interest income Administrative costs Taxation EXPENDITURE Interest earned INCOME Other comprehensive income Revaluation surplus Total other income net Total comprehensive income for the year Basic earnings per share (tambala) FDH Bank Annual Report 2019 The preferencesharesof atotalvalueofK3,111,000,000wereissuedon 30 June2017.Thesharesareirredeemableand non-cumulative. PREFERENCE SHARECAPITAL Included incapitalreserve isatransferofsharecapitalandpremium ofMSBLimitedonmergerandFDH BankLimited. CAPITAL RESERVE K6.3 billion,includingsharepremiumofK6.1billion. Additional sharecapitalwasissuedinJune2017 as awayofrecapitalisingtheBank.Thetotalamountissuedadditionalsharecapitalwas SHARE CAPITALANDPREMIUM 462,706,000 (2018:462,706,000)Ordinaryshares ofK1each Issued andfullypaid 500,000,000 (2018:500,000,000)OrdinarysharesofK1each Authorised Analysis OfShareCapital Transfer fromretainedearnings Transfer toretainedearnings of IFRS9at1January2018 Transition adjustment on adoption adjustment Deferred taxontransition Dividend paid IFRS 16transitionaladjustment At thebeginningofyear 31 December2019 At theendofyear Profit fortheyear At beginningoftheyear 31 December2018 At theendofyear Profit fortheyear adjustment Deferred taxontransitional 36

Statement of Changes in Equity inEquity ofChanges Statement

462 706 Capital 462 706 462 706 462 706 Share K’000 ------7450660 7450660 premium 7 450660 7 450660 Share K’000 ------2 716230 2 716230 2 716230 2 716230 reserve Capital K’000 ------Preference 3111000 3 111000 3 111000 3 111000 shares K’000 ------Loan loss 1 269702 (978 969) reserve 204345 495 078 290 733 290 733 K’000 462 706 500 000 K’000 ------2019 (1040000) (5 252713) (1 413068) Retained earnings 8437801 5965442 1 575815 1 854445 1 854445 7 846364 (204 345) (26 662) 978 969 7999 K’000 22 673475 (5 252713) (1 040000) 15 885774 15 885774 13 597230 7846364 1 575815 5 965442 Total 462 706 500 000 (26 662) K’000 K’000 2018 7 999 - - FDH Bank Annual Report 2019 ------

37 2018 K’000 13 368 (4 468) 175 930 347 736 621 079 405 541 (48 909) (276 230) (365 124) (405 541) (165 308) (475 393) 2 500 000 5 441 250 2 124 583 4 504 286 3 676 305 1 343 302 8 156 540 1 594 150 7 665 020 6 895 110 1 285 497 14 885 769 17 788 279 (3 990 796) (1 639 646) (5 186 003) 31 580 526 57 359 464 64 254 574 (2 055 407) (10 108 240) 64 254 574 2019 K’000 (4 543) (3 444) 28 429 (5 000) 181 375 669 530 375 735 408 938 357 142 791 525 532 529 (14 162) 719 153 (122 601) (357 142) (375 735) (284 012) 1 700 379 7 062 293 1 807 479 1 484 031 5 796 999 6 039 877 (254 868) 5 555 517 25 186 752 31 750 661 11 743 048 24 570 566 (1 009 686) (4 967 921) 64 254 574 63 999 706 63 999 706 (1 040 000) (2 367 327) (3 176 411) (6 529 538) (20 850 035) (16 124 554) 15 16 13 12 16 13 14 15 16 3.16 3.16 3.16 3.16 Notes

Statements of Cashflows claimed Depreciation of property, plant and equipment Depreciation of property, plant and Depreciation of right of use assets Amortisation of intangible assets Profit on disposal of equipment Interest payable on shareholder’s loan Interest payable on shareholder’s Interest payable on long term loan Interest payable on long term loan Interest on lease liabilities Movement in other receivables and prepayments Movement in other receivables and Movement in loans and advances Movement in payables and accruals related parties Movement in amount due from Movement in liabilities to customers Movement in liabilities to financial institutions Movement in other investments Movement in amount due to related parties • • • • • • • • • • • • • • • Dividend paid Increase in shareholder’s loan Repayment of shareholder’s principal loan Increase in long term loan Increase in lease liabilities Net decrease in cash generated from financing activities Net (decrease)/ increase in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Cash and cash equivalents comprise: Cash and funds with the Reserve Bank of Malawi Malawi Government Treasury bills (maturing within 3 months) (note 6) Placements with other banks (maturing within 3 months) (Note 29c) CASH FLOWS FROM FINANCING ACTIVITIES CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from disposal of equipment Movement in treasury bills investments Purchase of intangible assets Purchase of plant and equipment Increase in right -of - use assets Net cash used in investing activities CASH FLOWS FROM OPERATING ACTIVITIES CASH FLOWS FROM OPERATING Profit before tax Adjustments for: Net cash generated from operating activities Cash generated from operating activities Interest paid on lease liabilities Interest paid on shareholders loan Interest paid on long term loan Taxation FDH Bank Annual Report 2019 38

Notes to the Financial Statements FDH Bank Annual Report 2019 39 Former operating leasesFormer operating Impact on Lessee Accounting Impact of the new definition of a lease IFRS 16 changes how the Bank accounts for leases previously classified leases as operating under IAS 17, which were off balance sheet. i. Standards and Interpretations affecting amounts reported and/or disclosed in the financial statements b). a). The Bank has made use the practical of expedientavailable on transitionto IFRSreassessto 16 not whether a contract is or contains the definition a lease. of a lease Accordingly, in accordance with IAS 17 and IFRIC 4 will continue be applied to those to contracts entered or modified before 1 January 2019. The definition in change of a lease mainly relates to the concept of control. IFRS 16 determines whethercontract a contains a lease on the basis of whether the customer has control the use the right to of an identified asset for a period of time in exchange for consideration. This is in contrastto the focus ‘risks on rewards’ and in IAS 17 and IFRIC 4. The Bank applies the definition of a lease related guidance and set out in IFRSto 16 all contracts or entered into changed 1 on or after January 2019. In preparation for the first-time application of IFRS 16, the Bank carried out an implementation project. The project has shown that the new definition in IFRS 16 doessignificantly not the change scope of contracts that meet the definition of a lease for the Bank. In the Bank the current year, has applied IFRS issued 16 (as by the IASB in January 2016) that is effective for annual periods that begin 1 on or after January 2019. IFRS introduces 16 new or amended requirements with respect lease to accounting. It introduces significant changes lesseeto accounting by removing the distinction between and finance operating leaserecognition the requiring and right-of-usea of asset leasea and liability commencement at for all leases, except for short-term leases leasesand of low value assets. In contrast lessee to accounting, the requirements for lessor accounting have remained largely unchanged. Details of these new requirements described are 3. The impact in note of the adoption of IFRSon the 16 Bank’s financial statements is described below. of initialThe date application of IFRS 16 for the Bank is 1 January 2019. The Bank has applied IFRS 16 the cumulativeusing up approach.Comparativecatch amountsrestated not are and the liability is calculated as the present valueoutstanding of the rentals, discounted using the incremental borrowing of transition. the date at The rate asset is then set to the equalliability. In the current year, the BankIn the current year, has adopted those new and revised Standards and Interpretations issued by the International Standards Accounting Boardand the International Financial Reporting Interpretations Committee of the International Standards Accounting Board relevant that are its to effective operations and are for annual reporting periods on 1 January beginning 2019. Except for IFRS the adoption 16, of these new and revised Standards and Interpretations did not have a significant impact on the financial statements of the Bank. Impact of initial application of IFRS 16 Leases 2.1. ADOPTION OF NEW AND REVISED FINANCIAL REPORTING INTERNATIONAL STANDARDS GENERAL INFORMATION GENERAL 2. 1. The Bank business in the is engaged commercial of banking. The Bank in is incorporated Malawiand registered is under the Companies Act. The Bank is alsoregistered under the Act. Banking The registered Bank’s office and principal place of business is UmoyoUpper Ground Floor, House, 8 Avenue Victoria North, Box 512, Blantyre, O. Malawi.P. The Bank (FDH Bank Limited) is owned by FDHFinancial Holdings Limited, an investment companyholding registered under the Companies Act (93.7%); Government of Malawi (5%) and Malawi Savings Bank (MSB) ESOP (1.3%). FDH Bank Annual Report 2019 40 2.2. relevant to the Bank are set out below. The Bank does not plan to adopt these standards early. standards to adoptthese notplan Bank does below.The out are set to theBank relevant be may which Those statements. financial inpreparing these applied been not have 2020,and January on orafter 1 beginning periods for annual are effective andinterpretations to standards amendments standards, ofnew A number flows. cash onnet animpact have did not 16 IFRS of The adoption from operating activities. flows ofcash part as presented were onoperating leases payments lease 17,all IAS Under present: must lessees 16, IFRS Under Bank. ofthe flows cash of statement onthe animpact has 16 IFRS of The application 4). receivables. lease onthefinance recognised been have would losses credit for expected 9,anallowance IFRS by As required leases. finance as agreements sub-lease its of certain have reclassified would Bank the statements, financial ontheBank’s impact material had change this If statements. Bank’s financial onthe effect amaterial nothave did change 17).This IAS under thecase was as asset to theunderlying reference (and notby theheadlease from arising asset to theright-of-use by reference oroperating lease afinance as thesub-lease required to classify is lessor intermediate The contracts. separate two as andthesub-lease theheadlease for accounts lessor 16,an intermediate IFRS Under assets. inleased interest residual its from arising therisks manages regard alessor to how with inparticular required, thedisclosures andexpanded changed 16has IFRS However, differently. ofleases types two for those andaccount oroperating leases leases finance either as leases to classify continues 16,alessor IFRS Under leases. for accounts alessor how substantially notchange 16does IFRS 3). • • • Standards and Interpretations in issue, not yet effective yet not inissue, andInterpretations Standards Cash payments for the principal portion for a lease liability, as part of financing activities. activities. offinancing part as liability, alease for portion theprincipal for payments Cash and ofoperating activities); part as paid interest opted has to include Bank 7(the IAS by permitted as activities, orfinancing operating activities either as liability ofalease portion theinterest for paid Cash ofoperating activities; part as liability ofthelease in themeasurement notincluded payments lease andvariable assets oflow-value leases for payments payments, lease Short-term ii. basis as permitted by IFRS 16. This expense is presented within ‘other expenses’ in profit or loss. loss. in or profit within expenses’ ‘other is presented expense 16.This IFRS by permitted as basis straight-line ona expense alease has opted torecognise Bank the and furniture telephones), ofoffice items small computers, andpersonal tablet as (such assets oflow-value andleases orless) of12months term (lease leases 36.For short-term IAS with inaccordance impairment for are tested assets 16,right-of-use IFRS Under basis. onastraight-line generally expenses ofrental reduction a as amortised incentive, ofalease intherecognition resulted 17they IAS under whereas liabilities and lease assets oftheright-of-use ofthemeasurement part as are recognised period) rent-free (e.g. incentives Lease Applying IFRS 16, for all leases (except as noted below), the Bank: theBank: (except below), noted as leases all 16,for IFRS Applying not have a material effect on the Bank’s financial statements. statements. Bank’s financial onthe effect amaterial not have changedid 17.This IAS required as by guaranteed amount themaximum guarantee, rather value than residual a under to payable be expected theamount only liability lease ofits part as recognises theBank that requires 16 IFRS to thelessor. thelessee by provided guarantees value oftheresidual themeasurement is leases finance as classified formerly tocontracts respect with IAS 17 16and IFRS between differences main The Financial impact of the initial application of IFRS 16. Refer to note 3.16 tonote 16.Refer ofIFRS application initial ofthe Financial impact Accounting onLessor Impact • • • Former finance leases leases finance Former and interest (presented within operating activities) in the statement of cash flows. ofcash inthestatement operating activities) within (presented and interest activities) financing within (presented portion aprincipal into paid ofcash amount thetotal Separates inprofit orloss; liabilities onlease andinterest assets ofright-of-use depreciation Recognises payments; lease ofthefuture value atmeasured thepresent initially position, offinancial inthestatement liabilities andlease assets right-of-use Recognises FDH Bank Annual Report 2019 41 adopted by the IASB in 2001, the IASB Frameworkor of 2010, Clarify be that considered to a business, set an acquired of activities and assets must a minimum, include, an input at and a substantive process that together significantly contributeto the ability to create outputs; Narrow the definitions of a business and of outputs by focusing on goods and services provided customers to and by removing the reference an ability to costs; reduce to guidance Add and illustrative examples help entities to assess whether a substantive process has been acquired; Remove the assessment of whether market participantscapable are replacingof missingany inputsprocessesor continuing and to outputs;produce and an optionalAdd concentration test that permits a simplified assessment of whether set an acquired of activities and assets is not a business. • • • • • IFRS Contracts 17 Insurance IFRS 17 establishes the principles for the recognition, measurement, presentation and disclosure contracts of insurance and supersedes IFRS 4 Insurance Contracts. IFRS 17 outlines a general model, which is modified contractsfor insurance with direct participation features, described as variable the fee approach. general modelThe is simplified if certain criteriaare met the by measuring liability using allocation the premium for coverage remaining approach. generalThe model uses current assumptionsto estimate the amount, timing and uncertainty of future cash flows and it explicitly measures the cost of that uncertainty. It takes into account market interest rates the impact and of policy holders’ options and guarantees AmendmentsReferences to the to Conceptual Framework in IFRS Standards with the revisedTogether Conceptual Framework, which became effective upon publication on 29 March IASB 2018, the has also issuedAmendments Referencesto the Conceptual Frameworkto in IFRS Standards. The document contains amendments IFRS to 2, IFRS 3, IFRS 6, IFRS 14, IAS 1, IAS 8, IAS 34, IAS 37, IAS 38, IFRIC 12, IFRIC 19, IFRIC 20, IFRIC 22, and SIC-32. Not all amendments, however, update those pronouncements with regard references to and quotes from the framework so that they refer the to revised Conceptual Framework. Some pronouncements only are updated indicateto which version of the Framework they referencing (the IASC are to Framework the new revised Framework indicate of 2018) or to that definitions in the Standard have not been updated with the new definitions developed in the revised Conceptual Framework. DefinitionBusiness of a (Amendments to IFRS 3) The amendments in Definition of a Business (Amendments IFRS to 3) are changesAppendix to DefinedA terms, application the guidance, the and illustrative examples of IFRS They: 3 only. Definition of Material (Amendments to IAS 1 and IAS 8) The amendments in Definition ofMaterial (Amendments to IAS 1 and IAS 8) clarify the definition‘material’ of the definition and align used in the Conceptual Framework and the standards. Standard, Amendment or Interpretation

Effective date These will be adopted in the period that they become mandatory unless otherwise indicated: Annual reporting periods on or after 1 beginning January 2020 Annual reporting periods on or after 1 beginning January 2020 Annual periods on beginning or after 1 January 2020 Annual reporting periods on or after 1 beginning January 2021 FDH Bank Annual Report 2019 the impact on the financial statements of specific price changes or changes in the general level ofprices. level inthegeneral changes or changes price ofspecific statements onthefinancial the impact are to adopted procedures reflect other No period. ofthereporting at theend value orfair amount atmeasured revalued which are instruments financial certain for except basis, cost historical onthe been prepared have statements The financial ofpreparation Basis (IFRS). Standards Reporting Financial International with inaccordance been prepared have statements The financial ofcompliance Statement 3. 42 January 2020 January beginning 1 onorafter periods reporting Annual SIGNIFICANT ACCOUNTINGSIGNIFICANT POLICIES 3.2. accounted for on a prospective basis. basis. onaprospective for accounted estimate in changes ofany theeffect with period, reporting ofeach at theend are reviewed method depreciation and values residual lives, useful estimated bases:The onthefollowing method, thestraight-line using lives, useful their over values residual their less construction) under andproperties land (other freehold than ofassets valuation or offthecost to as write so recognised is Depreciation loss. impairment andaccumulated depreciation accumulated less cost stated at are fittings and fixtures machinery, Plant, notdepreciated. Freehold is land use. intended their are for ready theassets when commences assets, property other as basis onthesame determined assets, these of Depreciation policy. accounting the Bank’s in with accordance capitalised costs borrowing assets, qualifying for and, fees professional includes Cost loss. impairment any recognised less at cost, are carried determined, yet not purposes orfor purposes, oradministrative supply production, for ofconstruction inthecourse Properties income. comprehensive in other directly recognised also is gain or loss of that component any exchange items, non-monetary For such income. comprehensive inother are recognised andlosses gains ofwhich inrespect items of non-monetary ontheretranslation arising differences for except period for the inprofit are orloss value included at fair carried items ofnon-monetary ontheretranslation arising differences Exchange period. for the inprofit orloss included are items, ofmonetary andontheretranslation items, ofmonetary settlement on the arising differences Exchange are notretranslated. inaforeign currency cost historical of are that interms measured items Non-monetary determined. was value thefair on thedatewhen prevailing rates at the are retranslated inforeign currencies are that denominated value at fair carried items Non-monetary period. at ofthe reporting the end prevailing at the rates are retranslated in foreign currencies denominated items monetary period, reporting At of each theend ofthetransactions. onthedates prevailing recorded ofexchange at therates are (foreign currencies) Kwacha Malawi than other incurrencies transactions statements, preparing the financial In currency. functional andits operates theBank inwhich environment economic primary ofthe thecurrency thousand), tothenearest (rounded Kwacha Malawi in are presented statements The financial adoption of these Standards and Interpretations in future periods will have on the financial statements. onthefinancial have will periods infuture andInterpretations Standards ofthese adoption that theimpact unable quantify to are reform.The rate Directors benchmark by theinterest affected arethat directly hedging to all apply relationships mandatorily will changes The reform. rate benchmark oftheinterest aresult as not altered is rate benchmark the interest that assuming hedge requirements accounting those apply would entities that so hedge requirements, accounting specific modify Theamendments reform. rate benchmark theinterest by affected directly 39to hedging relationships 9orIAS ofIFRS thehedge requirements accounting apply that entities affect will amendments The Bank. ofthe statements onthefinancial impact nosignificant have will periods future in Interpretations and Standards these Reform, Benchmark Rate Interest than other that anticipate Directors The 3.1. Effective date Effective Property, Plant andEquipment Plant Property, Foreign Currencies are based will not be altered as a result of interest rate benchmark reform. rate benchmark ofinterest aresult as altered notbe will are based hedgingfrom the instrument flows cash and flows cash the hedged on which rate benchmark theinterest that assuming hedge requirements accounting certain to apply continue would entities that 7)clarify 39and IFRS 9, IAS IFRS to (Amendments Reform Benchmark Rate Interest in The amendments 7) IFRS 39and 9,IAS toIFRS (Amendments Reform Benchmark Rate Interest Standard, Amendment orInterpretation Amendment Standard, FDH Bank Annual Report 2019 43 4 per cent per annum 10 per cent – 25 per cent per annum 10 per cent – 20 per cent per annum Buildings Plant machinery and Fixtures and fittings The technicalThe feasibilityof completing the intangible asset so that it willavailable be for use or sale; The intentionto complete the intangible asset and use or sell it; The abilityto use or sellthe intangible asset; How the intangible asset will probable future generate economic benefits; availabilityThe technical, of adequate financial and other resources to complete the development to and use or sell the intangible asset; and The abilityreliably to measure the expenditureattributable to the intangible asset during its development. Impairment of non-financial assetsgoodwill excluding Intangible assets acquired separately • • • • • • The amount initiallyrecognised for internally-generated intangible assets is the sum of the expenditure incurred from the date when the intangible asset first meetsrecognition the criteria listed above. no internally-generatedWhere intangible asset can be recognised, development expenditure is recognised or loss in profit in the period in which it is incurred. Subsequent initial to recognition, internally-generated intangible assets reported are cost at less accumulated amortisation and accumulated impairment losses, on the same basis as intangible assets separately. acquired that are Derecognition of intangible assets An intangible asset is derecognised on disposal, or when no future economic benefits expected are from use or disposal. Gains or losses arising from derecognition of an intangible asset, measured as the difference between the net disposal proceeds and the carryingamount of the asset, recognised are or loss in profit when the asset is derecognised. Intangibleassets with finite useful lives acquired that are separately are carried costat less accumulated amortisation and accumulated impairment losses. Amortisation is recognised on a straight-line basis over their estimated useful lives which disclosed are 14. The in note estimated useful life and amortisationreviewed method are at the end of each reporting period, with the effect of any changes in estimate accountedbeing for on a prospective basis. Intangible assets with indefinite useful lives acquired that are separately are carriedat cost less accumulated impairment losses. Internally-generated intangible assets – research and development expenditure Expenditure on research activities is recognised as an expense in the period in which it is incurred. Aninternally-generated intangible asset arising from developmentfrom development the (or phase internalof an project) is recognised if, and only if, all of the following conditions have been demonstrated: An itemof property, plant and equipment is derecognised upon disposal or when future no economic benefits expectedare arise to from the continued use of the asset. loss The gain or arising on the disposalretirement or of an asset is determined as difference the between the sales proceeds and the carrying amount of the assetand is recognised or loss. in profit

At the endeach of At reportingperiod, the Bank reviews the carrying amountsits of non-financial assetsto determine whether is there any indication that those assets have suffered an impairment loss. If any such indication exists, the recoverableamount assetthe of is estimated determine to extentorder the in impairmentthe of loss (if any). Whereit is not possible estimate to the recoverable amount of an individual asset, the Bank estimates the recoverable amount cash-generating the of which unit to assetthe belongs. Where reasonablea consistentand basis allocationof can be identified, assets corporate also are allocatedto individual cash units,generating otherwise or they allocated are to the smallest of cash group units generating for which a reasonable and consistent allocation basis can be identified. Recoverable amount is of fair the higher value less costs sell to and value in use. In assessing value in use, the estimatedfuture cash flows discounted are theirto present value pre-tax a using discountreflects that rate current market assessments of the time value of money and the risks specificto the asset for which the estimates of future cash flows have not been adjusted. 3.4.

3.3. FDH Bank Annual Report 2019 44 interest income over the relevant period. period. therelevant incomeover interest allocating andof instrument ofadebt cost theamortised calculating of method isa method interest effective The asset: financial ofa recognition at initial election/designation irrevocable make thefollowing may theBank theforegoing, Despite (FVTPL). value throughloss fair profit or at are subsequently measured assets financial other all default, By comprehensive income(FVTOCI): comprehensive through value other at fair are subsequently measured conditions thefollowing meet that instruments Debt Debt instruments that meet the following conditions are measured subsequently at amortised cost: at amortised are subsequently measured conditions thefollowing meet that instruments Debt assets offinancial Classification assets. ofthefinancial ontheclassification depending value, fair or cost amortised either at entirety intheir are subsequently measured assets financial recognised All inthemarketplace. regulation orconvention by established frame time the within assets of that require delivery assets offinancial orsales are purchases orsales purchases way Regular datebasis. trade ona andde-recognised are recognised assets offinancial orsales purchases regular way All assets Financial loss. inprofit or immediately are recognised profit orloss value fair through at liabilities financial or assets offinancial to theacquisition attributable directly costs Transaction recognition. as appropriate, on initial liabilities, or financial assets of the financial value the fair from to or deducted loss)added are value fair through or profit at liabilities financial and assets financial than (other liabilities and financial assets offinancial issue or to the acquisition attributable are that directly costs Transaction value. atmeasured fair are initially liabilities and financial assets of the instrument.Financial provisions to the contractual aparty becomes Bank the when position offinancial statement Bank’s inthe are recognised liabilities and financial assets Financial 3.5. inprofit orloss immediately recognised is loss ofanimpairment Areversal inpriorperiods. unit) (cash-generating theasset for recognised been loss noimpairment had determined been have would that amount thecarrying exceed not does amount carrying theincreased that so but amount, recoverable ofits estimate to therevised increased is unit) (cash-generating oftheasset amount the carrying reverses, subsequently loss an impairment Where inprofit orloss. immediately recognised is loss impairment An amount. recoverable to reduced its is unit) (cash-generating ofthe asset amount carrying the amount, carrying its than to less be estimated is unit) (or cash-generating ofanasset amount therecoverable If i. • • • • • • Financial instruments Financial Amortised cost and effective interest method interest andeffective cost Amortised except for short-term receivables where the recognition of interest would be immaterial. be would ofinterest therecognition where receivables short-term for except rate, interest theeffective applying by recognised income is Interest anyimpairment. less method interest theeffective using cost at amortised andsubsequently value at measured fair are initially and receivables below). (iv) (see mismatch anaccounting reduces orsignificantly eliminates doing if so atmeasured FVTPL as criteria FVTOCI or cost theamortised meets that adebtinvestment designate may irrevocably Bank The and below); (iii) are (see met criteria certain incomeif comprehensive inother investment equity value ofan fair in changes subsequent to present elect may irrevocably Bank The of principal and interest on the principal amount outstanding. amount ontheprincipal andinterest of principal payments solely thatflows are cash to dates specified on rise give asset of the financial terms The contractual and assets; thefinancial selling and flows cash contractual bothcollecting by achieved is objective whose model business within a isheld asset The financial of principal and interest on the principal amount outstanding. amount ontheprincipal andinterest of principal payments solely thatflows are cash to dates specified on rise give asset of the financial terms The contractual and flows; cash contractual collect in order to assets financial is tohold objective whose model business within a isheld asset The financial FDH Bank Annual Report 2019 45 ‑instrument basis) to adjusted effective interest rate It has been principally acquired for the purpose of selling it in the near term; or On initial recognition it is part of a portfolio of identified financial instruments thethat Bank manages together and has evidence of a recent actual pattern of short‑taking;‑term profit or It is a derivative for a derivative (except that is a financialguarantee contract or a designated and effective instrument).hedging Debt instruments classified as at FVTOCI Equity instruments designated as at FVTOCI adjusted effective interestto the amortised rate cost of the financial assetfrom initial recognition. • • • ii. iii. Investments in equity instruments FVTOCI at initially are fair measured at value plus transaction costs. Subsequently, they fair measured at are value with gains and losses arising from changes in fair value recognised in other comprehensive income and accumulated in the investments revaluation reserve. The cumulative gain or loss is not reclassified or to profit loss on disposal of the equityinvestments, instead, ittransferred is retained to earnings. Dividends on these investments in equity instruments recognised are or loss in profit in accordance with IFRS 9, is calculated by discounting the estimated future cash flows, including expected credit losses,the amortisedto cost of the debt instrument on initial recognition. The amortised cost of a financial asset amount is the at which the financial asset at is initialmeasured recognition minus the principal repayments, plus the cumulative amortisation using the effective interest method of any difference between that initial amount and the maturity amount, adjusted lossfor any allowance.gross The carrying amount of a financial asset is the amortised cost of a financial asset adjustingbefore for any loss allowance. Interest income is recognised using the effective interest method debt instrumentsfor measured subsequentlyat amortised cost FVTOCI. and at financial For assets other than purchased or originated credit‑impaired financial assets, interest income is calculated by applying effective the interestthe grossto rate carrying amount of a financial asset, except for financial assets that have subsequently become credit‑impaired (see below). financial For assets that have subsequently become credit‑impaired, interest income is recognised by applying the effective interest rate amortisedthe to costfinancialthe of asset. subsequent in If, reporting periods, the credit risk the on credit‑impaired financial instrument improves so that financial the assetcredit longer is no ‑impaired,interest is income recognised by applying the effective interestto the gross rate carrying amount of the financial asset. purchasedFor or originated credit‑impaired financial assets, the recognisesBank interest income by applying the credit‑ The calculation doesrevert not to the gross basis even if the credit risk of the financial asset subsequently improves so that the financial asset creditis no longer ‑impaired. Interest income is recognised or loss in profit and is included in the “Interest income” line item 21). (note bondsThe corporate held by the classifiedBank are at as bonds The corporate are initiallyFVTOCI. at measured fair value plus transaction costs. Subsequently, changes in the carrying amount of these bonds corporate as a result exchangeof foreign gains and losses (see below), impairment gains or losses (see below), and interest income calculated using the effective interest method (see (i)recognised above) are or in profit loss. The amountsthat recognised are loss or profit in the are same amounts the as that would have beenrecognised or profit in loss if these bonds corporate had been amortised measured at cost. All other changes in the carrying amount of these bondscorporate recognised are in other comprehensive income and accumulated of investments under the heading revaluation reserve. When these bonds corporate derecognised, are the cumulative gains or losses previously recognised in other comprehensive reclassified income are or to profit loss. On initial recognition, the Bank may an irrevocable make election an instrument‑by (on designate investments equity in instruments as FVTOCI. at Designation FVTOCI at is not permitted if the equity investment is or if held for trading it is contingent consideration recognised by in a business an acquirer combination. A financial asset is held for if:trading For financial For assets other than purchased originated or credit‑impaired financial assets assets(i.e. thatare credit‑impaired initial on the effective recognition), interest thatrate exactly rate the is discounts estimated future cash receipts (including all fees and points paid or received that form part an integral of the effective interest rate, transaction costs other and or discounts)premiums excluding expectedcredit losses,the expected through life of the debt instrument, where a shorter appropriate, or, period, gross the to carrying amount the debt instrument of on initial recognition. purchased For or originated credit‑impaired financial assets, a credit‑ FDH Bank Annual Report 2019 46 In assessing whether the credit risk on a financial instrument has increased significantly since initial recognition, the recognition, sinceinitial significantly increased has instrument onafinancial risk thecredit whether assessing In date. after thereporting 12months within are that possible instrument onafinancial events default from result to expected ECL is that oflifetime theportion ECL 12‑month represents In contrast, instrument. ofafinancial life theexpected over events default possible all from result will that losses credit theexpected ECL represents Lifetime ECL. to 12‑month equal at anamount instrument financial that for allowance theloss measures theCompany recognition, initial since significantly notincreased has instrument onthefinancial risk thecredit if However, recognition. initial since risk credit in increase significant a been has there when ECL lifetime Bank recognises the instruments, financial other For all appropriate. where ofmoney value date, time including at thereporting ofconditions direction the forecast as well as thecurrent both of assessment andan economic conditions general to thedebtors, are that specific factors for adjusted experience, loss credit Bank’s historical onthe based matrix using aprovision estimated are assets financial onthese losses credit expected The receivables. andlease assets contract tradefor ECL receivables, lifetime recognises Bank always The instrument. financial oftherespective recognition initial since risk incredit changes datereflect to reporting ateachupdated is losses credit expected of Theamount contracts. guarantee financial on as well as assets, andcontract trade receivables receivables, lease orat FVTOCI, cost atmeasured amortised are that indebtinstruments oninvestments losses credit for expected allowance aloss Bank recognises The assets offinancial Impairment currency and translated at the spot rate at the end of each reporting period. Specifically; period. at rate thespot reporting ofeach at andtranslated theend currency foreignthat in determined is foreignthat ina currency denominated are assets offinancial amount carrying The Foreign exchange gainsandlosses hedging relationship. ofadesignated arepart not they to theextent inprofit orloss recognised losses or gains value anyfair with period, reporting ofeach at theend value are at measured fair at FVTPL assets Financial at as FVTPL. debt instruments any designated has not Bank The bases. ondifferent onthem andlosses thegains orrecognising orliabilities assets measuring from arise would that ‘accounting mismatch’) called (so inconsistency orrecognition a measurement reduces orsignificantly eliminates designation such if recognition initial upon at as FVTPL designated be may criteria FVTOCI orthe criteria cost theamortised either meet that debtinstruments In addition, FVTPL. as at classified are above) and(ii) (i) (see criteria ortheFVTOCI criteria cost theamortised donotmeet that instruments Debt 9. ofIFRS application oninitial FVTOCI aretradingfor that as notheld at instruments equity in investments all designated has Bank The oftheinvestment. ofthecost ofpart arecovery represent clearly thedividends unless are measured at FVTPL. Specifically: are at measured FVTPL. above) to (iii) (i) (see orFVTOCI cost at measured being amortised for thecriteria donotmeet that assets Financial i. iv.

• • • • • Significant increase in credit risk credit in increase Significant Financial assets atFVTPL assets Financial income in the investments revaluation reserve. revaluation income intheinvestments comprehensive in other are recognised differences exchange at measured FVTOCI, instruments For equity and loss; inprofit or are recognised differences hedging exchange relationship, ofadesignated arepart that not FVTPL measured at assets For financial reserve; revaluation investments incomeinthe comprehensive inother are recognised differences exchange Other item. line and losses’ inthe loss gains inprofit ‘other or are recognised ofthedebtinstrument cost ontheamortised differences hedging exchange relationship, of a designated are that not part at measured FVTOCI For debt instruments line item; inthelosses’ and loss gains inprofit ‘other or are recognised differences exchange hedging relationship, ofadesignated arepart that not cost measured at amortised assets For financial FVTOCI on initial recognition (see (iii) above). (iii) (see recognition oninitial FVTOCI at as combination abusiness from arising consideration trading heldfor noracontingent neither is that investment equity an Bank designates the unless FVTPL, as at are classified instruments inequity Investments FDH Bank Annual Report 2019 47 ‑tanks and other similar organisations, as well as When is there of financial a breach covenants or by the debtor; Information developed internally or obtained from external sources indicates is that the debtor unlikely pay to its creditors, including the Bank, in full (without taking into account any collateral held by the Bank). The financial instrument has a low risk of default, The debtor has a strong capacityto meet its contractual cash flow term, obligationsin the near and Adverse changes in economic and business but conditions will term may, in the longer not necessarily, reduce the ability of the borrower fulfil to its contractual cash flow obligations An actual or expected significant deterioration in the financial instrument’s external (if available) or internal credit rating; Significant deterioration in external market indicators of credit risk for a particular financial instrument, e.g. a significant increase in the credit spread, the credit default or the lengthswap of pricestime or for the debtor, the extent which to the fair value of a financial asset has been less than its amortised cost; Existing or forecast adverse changes in business, financial or conditionseconomic expected that are to cause a significant decrease in the debtor’s abilityto meet its debt obligations; An actualexpected or significantresults deterioration in the operating of the debtor; Significant increases in credit risk on other financial instruments of the same debtor; An actualexpected or significant adverseregulatory, in the change economic,technological or environment thatresults of the debtor in a significant decrease in the debtor’s abilityto meet its debt obligations. Definition default of • • • • • • • • • • • Irrespective of the above analysis, the Bank considers that default has occurred when a financial asset thanis more 90 days past due unless the Bank has reasonable and supportable information demonstrate lagging to that a more The Bank considers the following as constituting an event of default for internal credit risk management purposes as historical experience indicates that financial assets that meet eitherof the following generallycriteria are not recoverable: The Bank considers a financial asset tohave creditlow risk when the asset has externalcredit of ‘investmentrating grade’ in accordance with the globally understood definition or if an external rating available,is not the asset has an internal of ‘performing’. rating Performing means that the counterparty has financial a strong position and there is no past due amounts. financialFor guarantee contracts, that the the date Bank becomes a partyirrevocableto the commitment is considered be the date of initial to recognition for the purposes of assessing the financial instrument for impairment. In assessing whether has there been a significant increase in the credit risk since initialrecognition of a financial guarantee contracts, the Bank considers the changes in the risk that the specified debtor will default on the contract. The regularlyBank monitors the effectiveness of the criteria used to identify whether there has beensignificant a increasecreditin risk revisesand thatensure criteriathe to them as capable appropriate are identifyingof significant increase in credit risk before the amount becomes past due. ii. Irrespective of the outcome of the above assessment, the Bank presumes that the credit risk on a financial asset has increased significantly initialsince recognition when contractual payments than more 30 are days past unless due, the Bank has reasonable and supportable information that demonstrates otherwise. Despiteforegoing,the Bankthe assumes that credit the risk financiala on instrument has increased not significantly since initial recognition if the financial instrument is determinedto have low credit riskreportingat the A date. financial instrument is determinedto have low credit risk if: Bank compares risk the of a default the financial occurring on instrumentreportingat the date with the risk of a default the financial on occurring instrument initial of at the recognition.date In thismaking assessment, the Bank considers both quantitativeand qualitative information that is reasonable supportable, and including historical experience and forward information‑looking that is available without undue cost or effort.Forward information‑looking considered includesfuturethe prospects industries the of whichin Bank’sthe debtors obtained operate, from economic expert reports, financial analysts,governmental bodies,relevant think consideration of various external sources of actual and forecast economic information the Bank’s to that relate core operations. In particular, following the information is taken into account when assessing whether credit risk has increased significantly initialsince recognition: FDH Bank Annual Report 2019 48 default criterion is more appropriate. is criterion default A modification of a financial asset occurs when the contractual terms governing the cash flows of a financial asset are financial ofa flows cash the governing terms thecontractual when occurs asset ofafinancial A modification below. described assets financial of derecognition and Modification on policy theaccounting under are considered flows cash in contractual made.Changes were no andtherefore reclassifications assets financial holds the Bank which under model business change inthe was no there period accounting yearand previous Duringfinancial thecurrent assets. financial Bank’s the inreclassifying results thatmodel changebusiness in the following period reporting day ofthefirst the first from prospectively apply category new related tothe requirements measurement and classification The reclassified. are affected assets thefinancial changes, assets financial holds theBank which under model thebusiness If Reclassifications position. offinancial in thestatement asset ofthefinancial amount notreduce thecarrying anddoes reserve, revaluation in theinvestment accumulated income and comprehensive in other recognised is allowance the loss which for arethat at measured FVTOCI, indebtinstruments investments for except account, allowance through amount aloss carrying to their adjustment corresponding witha instruments financial all for loss inprofit or gain orloss animpairment Bank recognises The used. was approach simplified which for assets for date, except ECL to reporting 12‑month at equal thecurrent at anamount allowance theloss measures theBank longer met, ECL are no lifetime for theconditions datethat reporting at thecurrent determines but period, reporting previous ECL inthe lifetime equal to at anamount instrument afinancial for allowance theloss measured has theBank If theholder, from thedebtor party. receive oranyother to expects theBank that anyamounts less incurs it that loss acredit for theholder to reimburse payments expected the is allowance loss the expected guaranteed, is that oftheinstrument theterms the debtor with inaccordance by ofadefault event inthe only is makepayments required to Bank as the contract, guarantee For afinancial 17 Leases. IAS with inaccordance receivable inmeasuring thelease used flows thecash with consistent is losses credit expected determining the for used flows cash the rate.receivable, For a lease interest at effective theoriginal discounted to receive, Bank expects the that flows the cash and all the contract with in accordance due to the Bank that are flows cash all contractual between difference as the estimated is loss credit theexpected assets, For financial assets offinancial andderecognition Modification ‑looking information. forward andother relevant ofthedebtors, needs future financing ofthespecific understanding theBank’s trend, on historical based datedetermined default by inthefuture down to drawn be expected amounts anyadditional with together date, as atthe reporting down drawn theamount includes theexposure contracts, guarantee financial date; for at the amount reporting carrying gross assets’ by the is represented this assets, financial for at default, the exposure for As above. described as ‑looking information forward by adjusted data on historical based is default given and loss ofdefault oftheprobability assessment The at default. andtheexposure adefault) there is if magnitude oftheloss (i.e. the default given loss ofdefault, oftheprobability function is a losses credit ofexpected The measurement losses credit ofexpected andrecognition Measurement profit orloss. in are recognised made recoveries appropriate. Any where advice legal account into taking procedures, recovery Bank’s the under activities enforcement to besubject still may off written assets sooner. Financial occurs whichever due, past years two are over the amounts when of trade receivables, or in the case proceedings, bankruptcy into entered orhas liquidation under placed been thedebtor has when e.g. ofrecovery, prospect norealistic and there is difficulty financial severe isin that thedebtor indicating information is there when asset financial offa writes Bank The difficulties. financial of because asset financial for that market of an active or (e)disappearance the reorganisation; financial or other bankruptcy enter will theborrower probablethat becoming (d) is it consider; nototherwise would thelender(s) that aconcession(s) havingborrower tothe granted difficulty, financial relating to theborrower’s reasons or contrac iii. iv.

Credit Write ‑ impaired financial assets financial ‑impaired off policy FDH Bank Annual Report 2019 49 The remaining The lifetime PD estimated based on dataat initial recognition and the original contractualterms; with remaining The lifetime reportingat the PD baseddate on the modified terms. Qualitativefactors, suchas contractual cash flows after modificationlonger no are SPPI,in currency change or change of counterparty, the extent of change in interest rates, maturity, covenants. If these do not clearly indicate a substantial modification, then; A quantitative assessment is performed the present compare to value contractual remaining of the cash flows under the original terms with contractual the cash flowsrevised under the terms, both amounts discounted the originalat effective interest. If the differencepresent in value greater than 20% the is Bank deems the arrangement is substantially differentto derecognition. leading • • • • For financialFor assets modified as partthe of Bank’s forbearance policy, modification where did not result in derecognition,estimatethe PDof reflects the abilityBank’s collectto modified the cash flowsinto account taking the Bank’s previous experience of similar forbearance action, as well as various behavioural indicators, including the borrower’s payment performance the modified against contractualterms. If the credit riskremains significantly than higher what was expectedinitial at recognition loss the allowance will continue amountan be measuredat to equal lifetime to ECL. The loss allowance on forborne loans willgenerally only be measured based on 12-month whenECL is there evidence of the borrower’s improved repayment behaviour following modificationto a leading reversal of the previous significant increase in credit risk. Where a modification doesto derecognition not lead the Bank calculates the modification gain/loss comparing the gross carrying amount before ECL the modification and after allowance). (excluding the Then the Bank measures for the modifiedECL asset, the expectedwhere cash flows arisingfrom the modified financial are includedasset in calculating the expected cash shortfalls from the original asset The Bank derecognises a financial asset only when the contractualrights to the asset’s cash flows (including expire expiryarising from modificationa with substantially different terms), or when the financial asset and substantially allthe risks and rewards of ownershipassetof the transferred are another entity. to If the Bank neither transfers nor retains substantially all the risks and rewards of ownership and continues control the transferred to asset, the Bank In the case where the financial asset is derecognised the loss allowanceECL for remeasuredat the of is date derecognition determine to the net carrying amount of the asset that at date. The difference between this revised carrying amount and the fair value of the new financial asset withnew the terms willor lossto a gain lead on derecognition. The new financial asset willhave a loss allowance measured based ECL except on 12-month in the occasionsrare where the new loan is considered be originated-credit to impaired. This applies only in the case where the fair value of the new loan is recognised a significant at discountto its revised par amount becauseremains there riska high of default which has not been reduced by the modification. The Bank monitorscredit risk of modified financial assets by evaluating qualitative quantitative and information, such as the if borrower is in past due status under new the terms. When the contractual terms of a financial asset modified are and the modification does not resultderecognition, in the Bank determines iffinancial the asset’s credit risk has increased significantly initial since recognition by comparing: renegotiated or otherwise modified between initialrecognition and maturity of the financial asset. A modification affects amount the contractual of the and/or timing cash flows either immediatelya at or date.future In addition,the introduction or adjustment of existing covenants of an existingloan would constitute modification a even if these new or adjusted covenants do not yet affect the cash flows immediately butmay affect the cash flows on depending whether the covenant is or is not met (e.g. the increase a change to in the interest that arises rate when covenants breached).are The renegotiatesBank loansto customers in financial difficulty to maximise collection minimise and the risk of default. A loan forbearance is granted in cases where although the borrower made all reasonable effortsto pay under the original contractual terms, is there riska high of default or default has already happened and the borrower isexpected meet be to able to revisedthe terms. revised The terms most in the of cases include extension an the of maturity of the loan, changes of the cash the timing to flows of the loan (principal and interestrepayment), reduction in the amount cash of flows due (principal and interest forgiveness) amendments and to covenants. The Bank has an established forbearance policy which applies and retail for corporate lending. Whenfinanciala asset modifiedis the Bank assesses whether this modification resultsderecognition.in In accordance with the Bank’s policy a modificationresults in derecognition when it gives riseto substantially different determine if the modifiedterms substantially terms. are To differentfrom the original contractual terms the Bank considers the following: FDH Bank Annual Report 2019 50 A financial liability is classified as held for trading if: for trading asheld classified is liability A financial at as FVTPL. designated is it trading heldfor or(iii) (ii) combination, in abusiness ofanacquirer consideration (i) contingent is liability thefinancial when FVTPL as at are classified liabilities Financial FVTPL at Financial liabilities below. out set policies accounting thespecific with in accordance are measured Bank, by the issued contracts guarantee andfinancial applies, approach involvement the continuing when or derecognition for qualify not does asset ofafinancial transfer a when arise that liabilities financial However, FVTPL. ormethod at interest effective using the cost at amortised are subsequently measured liabilities financial All Financial liabilities method. interest the effective using notes loan oftheconvertible thelives over andare amortised component oftheliability amount the carrying in are included component relating to theliability costs Transaction inequity. directly are recognised component relating to theequity costs Transaction proceeds. of the gross to theallocation inproportion components andequity to theliability are allocated notes loan oftheconvertible relate that to theissue costs Transaction option. oftheconversion orexpiration conversion upon inprofit orloss recognised is loss No gainor equity. profits/other to retained transferred be will inequity recognised note, loan thebalance convertible dateof the at thematurity unexercised remains option theconversion Where equity. premium/other to share transferred be will inequity recognised thebalance case, inwhich exercised, is option the conversion until equity in remain will equity as classified option theconversion In addition, remeasured. is notsubsequently and effects, tax ofincome net equity, in andincluded is recognised This awhole. as instrument ofthecompound value the fair from component liability of the the amount deducting by determined is equity as classified option The conversion date. maturity or at theinstrument’s conversion upon extinguished until method interest effective non asimilar for rate interest market theprevailing using estimated is component oftheliability value thefair At thedate ofissue, instrument. equity isan instruments equity own ofthe Company’s number fixed for a asset financial another or cash of amount fixed ofa by theexchange settled be will that option Aconversion instrument. and anequity liability ofafinancial andthedefinitions arrangements ofthecontractual thesubstance with inaccordance equity and liabilities financial as separately Bank areclassified by the issued notes loan ofconvertible parts The component Compound instruments instruments. equity own Bank’s ofthe cancellation or issue sale, onthepurchase, inprofit orloss recognised is gainorloss No inequity. directly anddeducted recognised is instruments equity own oftheBank’s Repurchase costs. issue of direct net received, at the proceeds are recognised the Bank by issued instruments Equity liabilities. its of all after deducting ofanentity intheassets interest aresidual evidences that anycontract is instrument equity An instruments Equity instrument. equity andan liability ofafinancial andthedefinitions arrangements of thecontractual with thesubstance inaccordance equity as or liabilities financial either as are classified instruments andequity Debt Classification as debtorequity Classification andequity liabilities Financial to profit orloss. reclassified not subsequently is in OCI recognised previously gain/loss the cumulative where atmeasured FVTOCI, as designated investment equity of theexception with inprofit orloss, recognised is inequity and accumulated inOCI recognised been had that gain/loss andthecumulative andreceivable received sum oftheconsideration andthe amount carrying asset’s the between difference the entirety, its in asset ofafinancial derecognition On received. for theproceeds borrowing acollateralised recognises andalso asset thefinancial recognise to Bank continues the asset, financial ofatransferred ofownership andrewards therisks all substantially retains to pay. have may theBank it If amounts for liability andanassociated intheasset interest retained its recognises • • It is a derivative, except for a derivative that is a financial guarantee contract or a designated and effective effective and ora designated contract guarantee afinancial is that a derivative for except aderivative, is It or profit‑term ‑taking; short of pattern actual has arecent and together manages Bank that the instruments financial ofidentified ofaportfolio part is it recognition oroninitial inthenearterm; it ofrepurchasing thepurpose for acquired principally been has It ‑ convertible instrument. This amount is recorded as a liability on an amortised cost basis using the basis cost onanamortised liability is as a recorded amount This instrument. convertible

FDH Bank Annual Report 2019 51 The amount of the loss allowance determined in accordance with IFRS 9 (see financial assets above); and recognisedThe amount initially less, cumulative appropriate, where amortisationrecognised in accordance with the revenue recognition policies set out above. Such designation eliminates or significantlyreduces a measurementrecognition or inconsistency that would otherwise arise; or The financial liability forms part of a Bank of financial assets or financial liabilities or both, which managed is and its performance is evaluated on a fair value basis, in accordance with the Bank’s documented risk managementor investment strategy, and information is about the grouping provided internally on that basis; or it forms part contract of a containing embedded or more one derivatives, and IFRS 9 permits the entire combined contract be designated to FVTPL. as at hedging instrument.hedging for‑trading, or (iii) designated as FVTPL, at measured subsequently are amortised at cost using the effective • • • • For financialFor liabilities denominated that are currency in a foreign at amortised measured and are costat the end of eachreporting period, exchange gainsthe foreign lossesand determinedare based amortisedthe on cost the of instruments. These exchange gains and lossesforeign recognised are or in the in profit loss for financial liabilities partnot thatare designateda of those For relationship. hedging which designated are instrument as hedging a for a currency of foreign hedge risk exchange foreign gains and losses recognised are in other comprehensive income and accumulated in a separate component of equity. The fair value of financial liabilities denominated currencyin a foreign is determined in currencythat foreign and the endtranslated at of the reporting the spot rate at period. financial For liabilities measured at thatas are FVTPL, Financial liabilities FVTPL at fair measured at are value, with gains any or losses arising on changes in fairvalue recognised or loss in profit to the extent that they not are part of a designatedrelationship. The net gain or hedging loss recognised or loss in profit incorporates any interest on the financialpaid liability and is included in the ‘Interest expense’ line or loss. item in profit However, for financial liabilities designated that are at as FVTPL, the amount of in the change fair value of the financial liability that attributableis to changescredit in the risk of that liability recognised is in other comprehensive unlessincome, the recognition of the effects of changes in the liability’s credit risk in other comprehensive income or enlarge an accounting mismatchwould create or loss. in profit remaining amount The of in the change fair value of liability is recognised or loss. in profit Changes in fair attributablevalue to a financial liability’s credit are riskthat recognised in other comprehensive not subsequentlyare income reclassified or to profit loss; instead, theyare transferred retained to earnings upon derecognition of the financial liability. Gainslossesor financialon guarantee contracts issued the by designated thatBank are the by at Bank as FVTPL are recognised or loss. in profit value isFair determined in the manner described 28. in note Financial liabilities measured subsequently at amortised cost Financialliabilities (i)not that are contingent consideration businessa in acquirer an of combination, (ii) held‑ interest method. The effective interest method is a method of calculating the amortised cost of a financial liability and of allocating interest expense overthe relevant period. The effective interest rate rate that is the exactly discounts estimated future cash payments (including all fees and points paid or received that form part an integral of the effective interest rate, transaction costs and otherdiscounts) or premiums the expected through life of the financial liability, or (where a shorterappropriate) period, the amortised to cost of a financial liability. Financial guarantee contract liabilities A financialguarantee contract is a contractrequires that the issuer specifiedto make payments reimburse to the holder for a loss it incurs because specified a debtor fails to paymentsmake when due in accordance termswith the of a debt instrument. Financial guarantee contract liabilities measured initially are their at fair values and, if not designated as FVTPL at and do not arise from a transfer of an asset, measured subsequently are of: the higher at A financialA liability other than financial a liability contingent or held trading forconsideration a in an acquirer of business combination may be designated as FVTPL at upon initial recognition if: FDH Bank Annual Report 2019 52 3.10. Revenue recognition 3.7. 3.6. 3.10.1 less costs to sell. costs less value fair and amount carrying previous asset’s ofthe sale are measured at thelower for as held classified Assets thedate ofclassification. from oneyear within completed as recognition for to qualify expected be should which sale, committed to the be must Management condition. present inits sale immediate for available is asset probableandthe is highly sale the when only is as met regarded condition This through use. continuing than rather transaction sale throughbe a recovered will amount carrying if their sale for as held are classified Assets 3.9. reliably. measured be can ofthereceivable amount andthe received be will reimbursement that certain virtually is it if anasset as recognised is thereceivable party, from athird berecovered to expected are a settle provision required to benefits oftheeconomic orall some When flows. cash ofthose value thepresent is amount carrying its obligation, the present settle to estimated flows the cash using measured is a provision Where period. obligation at of the reporting the end the settle present oftheconsideration required to estimate best is the as aprovision The amount recognised liabilities. contingent as statements inthefinancial are disclosed criteria recognition this donotmeet that oftheobligation. Liabilities amount made ofthe be can estimate obligation anda that reliable required be to settle will theBank probable that is and it event, ofapast aresult as orlegal) obligation (constructive apresent has theBank when are recognised Provisions 3.8. losses. impairment less cost at their andare stated receivables non-trade andsundry prepayments comprise receivables Other value. in changes of risk to aninsignificant andare subject ofcash amount to aknown convertible are that readily houses anddiscount banks other with deposits andcall ofMalawi Bank Reserve with andfunds balances cash 3months, maturing within Treasury Bills comprise equivalents andcash Cash between: difference the is notsubstantial, the modification If liability. financial oftheoriginal flows cash value ofthe remaining present fromdiscounted the different cent per 10 is at least rate effective the original using and discounted received of any fees net paid any including fees terms, new the under flows cash value ofthe present discounted if the different are theterms substantially that assumed is It liability. of a new and the recognition liability financial of the original an extinguishment as of it or part liability existing ofan ofterms modification for substantial Bank accounts the Similarly, liability. financial ofanew recognition andthe liability financial oftheoriginal as anextinguishment for is accounted exchange such terms, different the substantially one with another into one debt instrument lender the existing with exchanges the Bank When inprofit orloss. recognised is andpayable paid consideration andthe derecognised liability financial ofthe amount carrying the between difference The expired. or have cancelled discharged, Bank’sobligations are the when, andonly when, liabilities financial Bank derecognises The liabilities offinancial Derecognition hedging relationship. ofadesignated arepart that not liabilities financial for inprofit orloss recognised andis orlosses gains value ofthefair part forms component the foreign exchange Interest income and expense for all financial instruments except for those classified as held for trading or those for trading asheld orthose classified for those except instruments financial all for incomeandexpense Interest or realise the asset and settle the liability simultaneously. simultaneously. liability the andsettle theasset or realise basis, net ona settle to is anintention andthere amounts the recognised to right enforceable offset alegally there is when position offinancial statement inthe amount reported andthenet are offset andliabilities assets Financial instruments offinancial Offsetting • • Other receivables Other equivalents andcash Cash Assets classified as held for sale for as held classified Assets Provisions gain or loss within other gains andlosses. gains other within gain orloss modification asthe loss in or profit be recognised should modification after flows of the cash value the present and themodification; before oftheliability amount the carrying Net Interest Income Interest Net FDH Bank Annual Report 2019 53 3.11 Taxation The income expensetax represents the sum of the currentlytax payable and deferred tax. taxCurrent The currentlytax payable Taxableprofit is based differs on taxable fromprofit as profit net for the year. reported in loss or profit because excludesit items expense or income of that are taxable deductible or other in years and it further excludes items never that are taxable or deductible. The Bank’s liability for current tax is calculated using tax rates that have been enacted or substantively enacted by the end of the reporting period. provisionA is recognisedfor those matters for which the determinationtax is uncertain but it is considered probable that will there be a future outflow of fundsto a authority.provisionstax The at theare measured best estimate of the amount expected become to payable. The assessment is based on the judgement of professionalstax within Bankthe supported by previous experience respectin suchof activities certainin and cases based specialiston independenttax advice. Deferred tax Deferred tax is the tax expected be payable to or recoverable on differences between the carrying amounts of assets and liabilitiesfinancial in the statements and the corresponding tax bases used in the computation of taxable profit, and is accounted for the liabilityusing method. Deferred liabilitiestax generally are recognised for all taxable temporary differences and deferred assetstax recognised are to the extent that it is probable that taxable profits will be available which against deductible temporary differences can be utilised. Such assets and liabilities not recognised are if the temporary difference arises the initialfrom recognition goodwill of or from the initial than in a business recognition (other of other combination) assets and liabilities in a transaction measured or designated FVTPL as at recognised are in ‘Net interest income’ as ‘Interest income’ ‘Interest and expense’ or loss in the profit account the using effective interest method. Interest on financial instruments measured as FVTPL at is included within the fair value movement the period, during see ‘Net income’ and ‘Net trading income from other financial instrumentsat FVTPL’. The Effective Interest Rate (EIR) rate that is the exactly discounts estimated future cash flowsof the financial instrument the expected through life of the financial a instrumentshorter appropriate, where or, period,to the net carrying amount of the financial asset or financial liability. The future cash areflows estimated into account taking all the contractual terms of the instrument. The calculation of the EIR includes all fees and pointsreceived paid or between partiesto the contract that are incremental and directly attributableto the specific arrangement,lending transaction costs, and premiumsall other or discounts. financial For assetsat FVTPL, transaction costsrecognised are or in profit loss at initial recognition. interestThe interest income/ expense is calculated applyingby the EIR gross the to carrying amount non-credit of impaired financial assets the amortisedat (i.e. cost financial of the asset adjustingbefore any for expectedcredit loss allowance), the amortised or to cost of financial liabilities.For credit-impaired financial assets the interest income is calculated by applying the EIR the amortised to cost of the credit-impaired financial assets the gross (i.e. carrying amount less the allowance for expected credit losses (ECLs)). financial For assets originated or purchased credit- impaired (POCI) the EIR reflectsECLsthe in determining the future cash flows expected toreceived be from the financial asset. 3.10.2 Net fee and commission Income Feecommissionand expenseand income include fees otherthan those part integral an that are EIR.of The fees included in this part of the Bank’s statement or loss of profit other include things, among fees charged for servicing a loan, non-utilisation fees loan to commitments relating when it is unlikely thatthese will result in a specific lending arrangement and loan syndication fees. Fees and commissions generally are recognised on an accrual basis when the service has been provided. 3.10.3 Sale foreign of exchange Revenue from the sale currency of foreign is recognised currency once the foreign cash or cheques delivered are and consideration received. 3.10.4 Other services grouping Revenue from the provision services of other grouping is recognised service once the related is completed. FDH Bank Annual Report 2019 54 a. 3.13 Leases to them thecontributions. entitling rendered service have employees when expense asan scheme are recognised tothe Contributions plan. benefit retirement contribution adefined Bank operates The costs benefit 3.12 Retirement combination. for thebusiness intheaccounting is included effect thetax combination, abusiness for accounting the initial from arises tax or deferred tax current Where respectively. in equity income or directly comprehensive inother recognised are also tax anddeferred thecurrent case, inwhich inequity, incomeordirectly comprehensive inother are that relate items to they recognised when except in profit orloss, are recognised tax Current anddeferred year the for tax anddeferred Current tax basis. onanet liabilities and taxassets current its to settle intends Bank andthe authority taxation the same by levied relate to income taxes they andwhen liabilities tax against current assets tax off current set enforceable right to is a legally therewhen are offset and liabilities assets tax Deferred andliabilities. assets its of amount carrying the orsettle to recover period, ofthereporting at theend expects, theBank inwhich manner from the follow would that tax consequences the reflects assets and taxliabilities of deferred The measurement date. at thereporting enacted orsubstantively enacted been have that andrates laws ontax based realised is asset or the settled is the liability when in the period to apply are that expected rates at the tax calculated is tax Deferred be recovered. to asset part ofthe allor allow to available be will profits taxable no longer sufficient probablethat is it that date and to theextent reduced at each reporting is reviewed taxassets ofdeferred amount carrying The future. foreseeable inthe reverse to expected are andthey differences ofthe temporary benefits the utilise whichto against profits taxable sufficient be there will probablethat is it that to theextent recognised are only andinterests investments such with associated differences temporary deductible from arising assets tax Deferred future. foreseeable inthe reverse notwill difference the is probablethat temporary it and difference ofthetemporary ableto thereversal control is theBank where except ventures, injoint andinterests associates, and insubsidiaries oninvestments arising differences temporary taxable for are recognised liabilities tax Deferred of goodwill. recognition from theinitial arises difference the temporary if isnot recognised liability tax deferred a addition, In profit northeaccounting taxable profit. the neither affects that Lease payments included in the measurement of the lease liability comprise: liability ofthelease inthemeasurement included payments Lease rate. borrowing incremental its uses Bank the determined, readily be rate cannot this If inthelease. therate using implicit by date, discounted commencement arepaid at the that not payments value ofthelease measured at thepresent is initially liability The lease are consumed. assets from theleased benefits economic which in pattern ofthetime more representative is basis systematic another unless ofthelease the term over basis onastraight-line anoperating as expense payments thelease recognises Bank the leases, Forthese and furniture telephones). ofoffice items small computers, and personal tablets as (such assets value oflow andleases orless) of12months term alease with (definedas leases leases short-term for except thelessee, is it inwhich arrangements lease to all respect with liability lease andacorresponding asset right-of-use a Bankrecognises The ofthecontract. at inception alease, is orcontains acontract whether assesses Bank The The lease liability is presented as a separate line in the statement of financial position. position. offinancial statement line inthe separate as a is presented liability Thelease • • • • • The Bank as Bank Lessee The the lease. the lease. ofanoption to terminate theexercise reflects term thelease if thelease, terminating for ofpenalties Payments and theoptions; to exercise certain is reasonably if thelessee options, priceofpurchase The exercise value guarantees; under residual by thelessee payable be to expected The amount date; commencement theindexorrate using measured at the onanindexorrate, depend initially that Variable payments lease receivable; incentives anylease less payments), fixed in-substance (including payments lease Fixed FDH Bank Annual Report 2019 55 The leaseterm has changed or there is a significant event or in circumstanceschange resulting a in in change the assessment of exercise of a purchase option,which in case the lease liability is by remeasured discounting the revised lease payments using a revised discount rate. The lease paymentsto due changeschange a or in expectedchange rate in an index or payment under a guaranteed residual value, in which cases the lease liability is by remeasured discounting the revised lease payments using an unchanged discount (unless rate the lease payments changeis a change in a due to floating interest in rate, which caserevised a discount rate is used). A lease contract is modified and the lease modification is not accounted for as a lease, separate in which case the lease liability is based remeasured on the lease term of the modified lease by discountingrevised the lease payments using a revised discount the effective at rate of the modification.date The Lessor Bank as • • •

The Bank any such did not adjustmentsmake the periods during presented. The right-of-use assets comprisethe initial measurement of the corresponding lease liability, lease payments made or before at the commencement less day, any lease incentives received and any initial direct costs.They are subsequently cost measured at less accumulated depreciation and impairment losses. Whenever the Bank incurs for an obligation costs dismantle to and remove a leased asset, restore the site on which it is located or restore the underlying asset the condition to by required the terms and conditions of the lease, a provision is recognised the extent and measured under IAS that costs the 37. To a right-of-use to relate asset, the costs included are right-of-use in the related asset, unless those costs inventories. produce incurred to are Right-of-use assets depreciated are over the shorter period of lease term and useful life of the underlying asset. If a lease transfers ownership of the underlying asset or the cost of the right-of-use asset reflects that the Bank expects exerciseto a purchase option, right-of-use the related asset is depreciated over the useful life of the underlying asset. The depreciation startsat the commencement of the lease.date The right-of-use assets presented are as a separate line in the statement of financial position. The Bank applies IAS 36 determineto whether a right-of-use asset is impaired and accounts for any identified impairment loss as described in the ‘Property, Plant and Equipment’ rents policy. not included that Variable are do not depend or rate on an index measurement the in leasethe liability right-of-usethe and asset. related The paymentsrecognised are expense an as in the period in which the event or condition that triggers those payments occurs included and are in the line expenses”“Administrative or loss. in profit As a practical expedient, IFRS 16 permits a lessee separate not to non-lease components, and instead account for any leaseand associated non-lease components arrangement.as a single The Bank has not used this practical expedient. a contractsFor that contain a lease component additional and one or more lease or non-lease components, the Bank allocates the consideration in the contract each lease to component basis on the of the relative stand-alone price of the lease stand-alone component and the aggregate price of the non-lease components. Leases forwhich Bankthe is lessor a classified are as finance leases. or operating Whenever terms the the lease of transfer substantially all the risks and rewards of ownership the lessee, to the contract is classified a financeas lease. All other leases classified are leases. as operating When the Bank is an intermediate lessor, it accounts for the head lease and the sub-lease as two separate contracts. The sub-lease is classified as a leasefinance or operating right-of-use by to the reference asset arising from the head lease. Rental income from leases operating is recognised on a straight-line basis over the term of the relevant lease. Initial direct costs lease an operating added the carrying incurred negotiating in to are and arranging amount of the leased asset and recognised on a straight-line basis over the lease term. Amounts due from lessees under finance leases are recognised as receivables the amount at of the Bank’s net investment in the leases. Finance lease income is allocated accounting periodsto so reflect as to a constant return of on the periodicrate Bank’s net investment outstanding in respectof the leases. The leaseThe liability subsequentlyis measured the increasing by carryingreflect amountto interest lease the on liability effective the (using interestmethod) and reducing the by carryingreflect amount to the leasepayments made. The remeasuresBank lease the liability (and makes a corresponding adjustmentrelated right-of-useto the asset) whenever: b. FDH Bank Annual Report 2019 56 The Bank classifies its financial assets in the following measurement categories: measurement following inthe assets financial its classifies Bank The basis. aggregation onaninstrument-by-instrument rather than of at ahigher level performed is assessment model thebusiness therefore instrument, anindividual for intentions management’s on notdepend does model Bank’s business The objective. business aparticular totogether achieve managed are assets financial of Banks how that reflects at alevel models thebusiness Bank determines The asset. financial ofa classification to the fundamental is assets managing financial for models ofbusiness assessment An 9 IFRS under instruments offinancial andmeasurement 3.15 Classification accordingly. are adjusted periods earlier all for figures andthecorresponding orsubdivision capitalisation after the issue in shares the over is apportioned profit the orsubdivision, ofcapitalisation way by issued been have shares equity throughout the year. new Where in issue shares averageweighted of yearandthe number forthe ontheprofit based is share per ofearnings calculation The share per 3.14 Earnings to component. each thecontract under consideration the 15 to allocate IFRS applies the Bank components, and non-lease lease both includes a contract When Below is a table that shows how all the assets have been classified havebeen assets allthe how shows that atable is Below to profit andloss. changes value offair recycling without FVOCI or at measured FVPL are only they as instruments in equity investments for requirements assessment impairment 9eliminates IFRS investments. onequity recognised is loss impairment No cost: at amortised are but carried FVTPL that are notmeasured at instruments onthefinancial losses credit for expected allowances loss Bank recognises The form. legal inits aloan is it whether of irrespective lendingarrangement basic bea can asset oranacquiredAn originated financial SPPI. are that flows cash to contractual rise donotgive prices, orcommodity prices inequity to changes exposure as such arrangement, lending are that basic unrelated to the flows cash inthecontractual orvolatility to risks exposure introduce that terms Contractual lending arrangement. basic the with are consistent SPPI are that flows cash Contractual is denominated. asset thefinancial inwhich inthecurrency made is assessment SPPI margin. aprofitThe as well as andcosts, lendingrisks basic other andfor oftime period a particular during outstanding amount theprincipal with associated risk ofmoney, thecredit value for thetime for consideration of consists Interest ofprincipal). if there are repayments (e.g. asset ofthefinancial thelife over change may amount That principal recognition. at initial asset of the financial value the fair is principal test, ofSPPI For the purpose outstanding. ontheprincipal andinterest ofprincipal payments solely are that flows to cash rise give should terms contractual its cost, andmeasured at amortised to classified be For anasset cost. are at measured amortised (SPPI), outstanding amount ontheprincipal andinterest ofprincipal payments solely are that flows cash contractual have andthat flows, cash thecontractual to collect is objective whose theBank are that heldby instruments andloan Debt • • • financing activity) financing (Lending /customer cost Amortised Fair value through other comprehensive income(FVOCI) Fair through comprehensive value other or (FVTPL); Fair through value theprofit orloss cost; Amortised Categories

Must meet all of the following: ofthefollowing: all meet Must

• • • Model Criterion Business all contractual cash flows flows cash contractual all ofsubstantially oncollection focus aprimary with or lending activities financing throughManage customer outstanding on theprincipal andinterest ofprincipal payments solely flows cash Contractual adjustment of contractual cash cash ofcontractual adjustment anypotential negotiating by risk to manage credit ability has Holder Assets classified under under classified Assets this category this 7. 6. 5. 4. 3. 2. 1. Debt investment securities; investment Debt and Loan; Staff issued; contracts guarantee Financial issued; of credit andletters commitments Loan Securities Government banks; other with Placements customers; to andadvances Loans FDH Bank Annual Report 2019 57 Equity investments None 1. Maximise total return by collecting contractual cash flows or selling Managethe interest or rate liquidity risk of the entity by or sellingholding flows with counterparty the in the event potential of a credit loss. Sales or settlements limitedto circumstances that would minimise losses credit, deteriorating due to or exitto a particular market Not held for sale Investing either to: Not held for sale Held for sale Actively managed and monitored internally on a fair value basis (a). (b). • • • • • Must meet all of the following: Must meet either of the following: StageWhen1: loans first are recognised, the recognises Bank allowance an based 12mECLs. on loans 1 Stage also include facilities where the credit risk has improved and the loan has been reclassified from 2. Stage Reclassifications however from 2 are Stage subject off’‘cooling to period of 2 months; Stage 2: When a loan has shown a significant increase in credit risk since origination, the recordsBank an allowance Stage 2 loans also for the LTECLs. include facilities, where the credit risk has improved and the loan has been reclassified Reclassifications from 3. Stage fromare 3 howeverstage subject ‘cooling to a off” period of 12 months; Stage 3: Loans considered credit-impaired.LTECLs. The recordsBank an allowance for the POCI:Purchased originatedcreditor impaired (POCI) assets financial are assets thatcredit are impaired on initial recognition. POCI assets fair at recorded are value original at recognition and interest income is subsequently recognised based credit-adjusted on a EIR. ECLs only are recognised or released the extent to Determined by senior management A result of external or internal changes Significantto the entity’s operations Demonstrable external to parties – Expected be “very to infrequent" FVPL (Held for sale/ activity)trading FVOCI (Investing activity) Amortised cost / customer(Lending financing activity) • • • • Reclassification Reclassifications will onlyrequired be when business model changes. The in businesschange model must be; 1. 2. 3. 4. Impairment and methodology Overview of the ECL principles ECL allowanceThe is based on the credit losses expectedto arise over the life of the asset (the lifetime expected unlesscredit loss has there been or LTECL), no significant increase in credit risk since origination, in which case, the allowanceis based months’12 the on expected credit loss LTECLs (12mECL). 12mECL The the is portion that of represent the ECLs that result from default events on a financial instrument possible that are within the 12 months LTECLsreporting the after and 12mECLs are calculated on eitherdate. an individualBoth basis or a collective basis, depending of the underlying on the nature portfolio of financial instruments. The Bank performs an assessment,at the reporting end of each period, of whether a financial instrument’scredit risk has increased significantly since initialrecognition, by considering the in the riskchange of default occurring over lifethe remaining the financial of instrument. The Bank banks its loans into 1, 2, 3 and Stage Stage POCI as Stage described below: FDH Bank Annual Report 2019 58 The mechanics of the ECL method are summarised below: are ofthe summarised ECL method The mechanics value. carrying gross asset’s the financial of as anadjustment for are that accounted orgains losses modification from separately and disclosed for accounted are and releases losses Impairment it earlier. call right thelegal to has Bank the unless instrument ofafinancial life is thecontractual are determined losses credit the which for period maximum the overdrafts, theexception With theasset. selling for received be might that ortheamount cure ofcollateral andthevalue will theloans that theprobability including to recovered, be are expected loans defaulted how incorporates also scenarios ofmultiple theassessment relevant, When and EADs LGDs. PDs, different with associated is ofthese 2’).Each (‘downside downside and amore extreme 1’) (‘downside downside amild anupside, case, (a base scenarios four considers theBank theECLs, estimating When ofanycollateral. therealisation from including toreceive, expect would lender that the dueandthose flows cash thecontractual between onthedifference based is It time. at a given occurs where a default case in the arising of the loss estimate is an Default Given LGD - The Loss payments. from missed interest andaccrued facilities, oncommitted drawdowns expected orotherwise, contract by scheduled whether andinterest, ofprincipal date, including repayments after the reporting in the exposure changes taking expected date, account into future default at a oftheexposure estimate is an Default at Exposure -The EAD intheportfolio. still andis derecognised previously notbeen has thefacility if period, theassessed over time at acertain happen only may Adefault time horizon. agiven over ofdefault likelihood ofthe estimate is an Default of -The Probability PD are, follows: as elements andthekey below are outlined ECL calculations ofthe mechanics The to receive. expects entity the that flows andthecash thecontract with inaccordance an entity that are due to flows cash the between thedifference is shortfall Acash to at theEIR. anapproximation discounted shortfalls, cash to measure theexpected scenarios four probability-weighted ona based ECLs calculates Bank The of ECLs calculation The provisions. within is recognised the ECL credit, of andletters commitments For loan theloan. with together and presented calculated are ECLs commitment, andanundrawn both aloan include that facilities and revolving For overdrafts • • • • • • financial asset. asset. financial ofthe de-recognition (partial) a isconsidered This is reduced. asset ofthefinancial amount carrying gross thereof, the oraproportion amount, outstanding theentire either ofrecovering expectations no reasonable has Bank the which for assets For financial losses. credit intheexpected change asubsequent there is that approximation to the expected EIR ontheloan. EIR to theexpected approximation at an arediscounted shortfalls cash The expected scenarios. of the four on a probability-weighting based down, is drawn if theloan flows incash shortfalls oftheexpected value onthepresent based then ECL is The life. expected its over down drawn be will that commitment of the loan portion the expected estimates Bank the estimating commitments, loan When for undrawn LTECLs credit: of andletters commitments Loan EIR. thecredit-adjusted by discounted scenarios, of the four on a probability-weighting based recognition, initial since ECLs in lifetime changes the cumulative recognises Bankonly The recognition. oninitial impaired arecredit that assets are financial assets POCI POCI: at 100%. set PD the with assets, Stage 2 for to that similar is Themethod loans. these for losses credit expected thelifetime recognises theBank credit-impaired, considered 3:For loans Stage to EIR. theoriginal anapproximation by are discounted shortfalls cash Theexpected oftheinstrument. thelifetime over andLGDs are estimated PDs but scenarios, ofmultiple use the including above, explained to those aresimilar theLTECLs. for Themechanics allowance an Bank records the since origination, risk credit in increase asignificant shown has aloan 2:When Stage above. explained as scenarios, of thefour for each made is calculation This to EIR. theoriginal anapproximation by LGD anddiscounted theexpected by EAD and multiplied forecast areto a applied probabilities default 12-month expected date. These the reporting following occurringinthe12months ofadefault ontheexpectation based the12mECL allowance calculates Bank date. The after thereporting the12months within are that possible instrument onafinancial events from default that result of the ECLs that portion represent as the calculated LTECLs is 1:The12mECLStage Financial guarantee contracts - The Bank’s liability under each guarantee is measured is measured at the higher ofthe guarantee each under liability Bank’s -The contracts guarantee Financial FDH Bank Annual Report 2019 59 7.5 4.5 6.0 4.5 6.5 5.5 2023 7.5 4.5 6.0 4.3 6.3 5.3 2022 7.5 4.5 6.0 4.1 6.1 5.1 2021 8.0 5.0 6.5 4.1 6.1 4.7 2020 7.8 4.8 6.3 4.0 6.0 4.5 2019 amountinitially recognisedless cumulative amortisationrecognised the income statement, in and the ECL provision. this For purpose, Bank the estimates ECLs based on the present value expected of the payments to reimburse the holder for a credit loss that it incurs. The shortfalls discounted are by the risk-adjusted interest relevant the exposure.rate to The calculation is made a probability-weightingusing of the four scenarios. The ECLs financial to related guarantee contracts recognised are Provisions.within Overdraftsrevolving and other facilities - Theproduct Bank’s offering includes a variety and of corporate retail overdraft facilities, in which the Bank to has the right reduce the and/or cancel facilities with one day’s notice. The Bank does not limit its exposureto credit lossesto the contractual notice period, but, instead calculates overECL a period that reflects the expectationsBank’s of the customer its behaviour, likelihood of default and the Bank’s future risk mitigation procedures, which could includecancelling or reducing the facilities. GDP growth; Unemployment rate; Reserve Bank policy rate; Inflation and rate; Exchange rate. • Benchmark interest rates (RBM Policy Rate) Range of downside scenarios Range of upside scenarios Unemployment rates Base scenario Range of downside scenarios Range of upside scenarios GDP growth Base scenario The ongoing assessment ongoing The of whether a significant increasecredit in risk has occurred for revolving facilities is similar other products. lending to This is based on shifts in the customer’s internalcredit grade, as explain, greater but emphasis is also given qualitative to factors such as changes in usage. The interest rate used to discount ECLs the for overdrafts is based effectiveaverage on the interest rate that is expected to be charged over the expected period of exposure the facilities. to This estimation takes into account that some facilitiesrepaid in are full each month and are consequently charged very little interest. The ECLs,calculation of including the estimation of the expected periodexposure of and discount rate is on made, an individual basis on a collective and for corporate basis for retail products. The collective assessments are made separately for portfolios of facilities with similar credit risk characteristics. Incorporation of forward-looking information The Bank uses forward-looking information that availableis without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurementECL. of The Bank employs experts who use external and internal information a ‘base generate to case’ scenario future of forecast of relevant economic variables along with a representative of other possible range forecast scenarios. The external information used includes economic data and forecasts published by governmental bodies and monetary authorities. The Bank applies probabilitiesto the forecast scenarios identified such as; • • • • • The base case scenario most-likelyis the single outcome and consists of information used by the Bank for strategic planning and budgeting. The Bank has identified and documented key driverscredit of riskcredit and losses for each portfolio of financial instruments and, a using statistical analysis of historical data, has estimatedrelationships between macro-economic variables and credit risk and credit losses. The Bank has not made changes in the estimation techniques or significant assumptionsreporting the made during period. The table below summarizes the principal macroeconomic indicators included in the economic scenarios usedat 31 December 2019 for the years 2023, for 2020 to Malawi which is the country where the Bank operates and therefore economic scenario of the country has a material impact in ECLs. FDH Bank Annual Report 2019 60 The key inputs used for measuring ECL are: used inputs The key ofECL Measurement incorporates both qualitative and quantitative information and, in addition to information specific borrower,to the specific to information inaddition and, information andquantitative qualitative both incorporates ratingmodel internal rating The model. the internal operates Department Risk Credit Bank’s independent The ofPDs Estimation Estimation / Calculation of ECL, PDs, LGDs andEADs PDs, ofECL, /Calculation Estimation and the exposure to sensitivity will vary across the economic scenarios. scenarios. theeconomic across vary will to sensitivity and theexposure inputs economic thevarious between interdependencies be there will reality In losses. credit ofexpected estimate the to develop used scenarios weighted toprobability andare each applied purposes, illustrative for in isolation are applied changes 25%.The orminus plus by change used assumptions ofthekey each if as well as position), offinancial inthestatement presented as (amount to measure ECLexpected as remain used theassumptions if 2019, December as at31 portfolio per ECL the total outlines below table 25%.The ECL by tochange calculate used assumptions thekey if change will ECLportfolios onthemain onhow analysis asensitivity performed has Bank FDH Unit. theEconomicIntelligence from andthedownside paper Strategy Growth Development Malawi from obtained was andtheupside ofEconomicPlanning Ministry from obtained was case base the sources; fromdifferent three mainly were obtained above indicators macroeconomic The Base scenario scenario Base Range of upside scenarios scenarios Range ofupside Range of downside scenarios scenarios Range ofdownside Base scenario scenario Base Kwacha Rate USD: Exchange Range of upside scenarios scenarios Range ofupside Range of downside scenarios scenarios Range ofdownside USD: Kwacha Rate USD: Exchange Rate) (Policy rates interest Benchmark rates Unemployment growth GDP 1] [Portfolio • • • missed payments. missed from interest andaccrued facilities, oncommitted drawdowns expected orotherwise, contract by scheduled whether andinterest, ofprincipal date, including repayments after the reporting intheexposure changes expected account into date, taking default at afuture oftheexposure anestimate (EAD): atdefault Exposure ofanycollateral. therealization from including to receive, expect would lender that the dueandthose flows cash thecontractual between onthedifference based is It time. at a given occurs a default where in the case arising ofthe (LGD);loss default an estimate given Loss inthe portfolio. still andis derecognized previously notbeen has thefacility if period, theassessed over time at acertain happen only may default A horizon. time agiven over ofdefault ofthelikelihood anestimate is (PD); this ofdefault Probability As expected expected As 2019 13.5 11.0 15.5 739 720 786 +25% +25% +25% +25% -25% -25% -25% -25% 2020 13.5 11.0 15.5 750 710 790 Average Average 0.4583 0.4583 0.4583 0.4583 0.4583 0.4583 0.4583 0.4583 PD 2021 11 8.5 13.0 750 705 800 Average Average 0.9753 0.9753 0.9753 0.9753 0.9753 0.9753 0.9753 0.9753 2022 11 8.5 13.0 800 695 870 LGD 812 884608 814 196139 813 818917 813 818917 814 656554 813 282428 843 542138 781 128773 2023 11 8.5 13.0 850 680 900 ECL Cum K FDH Bank Annual Report 2019 61 Historical financial informationtogether with forecasts and budgets prepared by the client. This financial informationincludes realised expected and results, solvencyratios, liquidityratios otherand any relevant the client’sratios measure to financial performance. Some of these indicators are in covenantscaptured with the clients therefore, measured with and are, attention; greater Any publicly available information on the clients from external parties. This includes external gradesrating issued agencies, by rating independent analyst reports or press releases and articles; Any macro-economicgeopolitical or information, e.g., GDP growth relevant for the specific industry and geographical segments where the client operates; Any other objectively supportable information on the quality and abilities of the client’s management relevant for the company’s performance. • • • • The complexity and granularitytechniques rating of the varies based on the exposure the of Bank and the complexity sizeand Some customer. the of lessthe of smallcomplex business within loans rated are Bank’sthe models for retail products. Retail and some lending of the less complex small business by rated a scorecard are lending primarily tool driven by days past due. Estimation of Exposure at Default The exposureat default (EAD)represents the gross carrying amount of the financial instruments subject to the impairment calculation, addressing both the client’s ability increase to its exposure while default approaching and potential early repayments too. calculate the EAD for a Stage 1 loan,To the Bank assesses the possible default events within 12 months for the calculationthe 12mECL. of However, if a Stage 1 loan that is expected default to in the 12 months from the balance sheet date and is also expected and subsequently cure to default then all defaultagain, linked events taken are into account. Stage For 2, Stage 3 and POCI financial assets,exposure the at default is considered for events over the lifetime of the instruments. The Bank determines EADs of possibleby modellingrange the exposure outcomesat variouspoints time,correspondingin multiplethe scenarios. The IFRS 9 PDs then assignedare eachto economic scenario based of Bank’s on the outcome models. Estimation of Loss Given Default Transactionand Banking financial Corporate For instruments,LGD values assessed are leastat every quarter by account managers and reviewed and approved by the Bank’s specialised Risk Credit department. The credit risk assessment is based on a standardised assessment LGD framework that results in a certain TheseLGD rate. LGD rates take into account the expected EAD in comparison the amount to expected be recovered to or realised from any collateral held. The Bank segments itsretail products lending into smaller homogeneous portfolios, basedkey on characteristics relevantthat are the estimation to of future cash flows. The applieddata is based on historically collected lossdata and involves a wider set of transaction characteristics (e.g., product type, wider of collateral types) range as well as borrower characteristics. Furtherrecent data forward-lookingand economic scenarios used are determine to IFRSorder the in rate LGD 9 for each Bank of financial instruments. When assessing forward-looking information, the expectation is based on multiple scenarios. Examples of key inputs involve changes in, collateral values including property prices for mortgages, commodity prices, payment status or other factors indicative that are of losses in the Bank. Under IFRS 9, estimated rates are LGD for the Stage 1, Stage 2, Stage 3 and POCI IFRS 9 segment of each asset class. The inputs for these estimated rates are LGD and, where possible, calibrated backthrough testing recent against recoveries. These utilise supplemental external information that could affect the borrower’s behaviour. practical,Where they also build on information from international an These agency. credit rating information sources first are used to determinethe PDs and the internal credit grades assigned are based on these grades. The Bank’s treasury, and interbank trading relationships and counterparties comprise financial services institutions, banks, broker-dealers, exchanges and clearing-houses. these For relationships,the Bank’s credit risk department analyses publicly available information such as financial information other and external data e.g., rating S the from and assigns the internal rating.& P, and Transaction Banking corporate For loans, the borrowers assessed are by specialised credit risk employees of the Bank. The credit risk assessment is based a on credit model scoring (SME that Rate) takes into account various historical, current and forward-looking information such as: FDH Bank Annual Report 2019 62 ECL in accordance with IFRS 9 versus the ones applied for regulatory purposes are: purposes regulatory for applied theones 9versus IFRS ECL with inaccordance tomeasureused methodologies the between differences main The purposes. andregulatory accounting both for calculating ECL when used is theappropriate that ensured methodology has Bank are similar. The used inputs many although purposes, forregulatory calculation tothe ECL different is purposes for accounting calculation The ECL appropriate. as scenario are economic each repeated for All Stage 3 assets, regardless of the class of financial assets; offinancial oftheclass regardless 3assets, Stage All include: basis ECL onanindividual calculates theBank where classes Asset basis. oranindividual onacollective either ECLs calculates Bank The Assessment Collective And Individual • • • • • For exposures: Corporate Banking andTransaction • • • • • are: these Banking andBusiness For Personal below: are described of theloans, characteristics and external ofinternal ona combination based portfolios, homogeneous smaller into The exposure purposes. modelling for to use data supplementary internal/external benchmarking considers theBank internally, not available is information sufficient Where credible. statistically Banking be to or portfolio forthe information sufficient be must there segmentation, this performing In Bank are homogeneous. a within exposures risk that such portfolios different of characteristics risk shared on of based ECL assessment for collective segmentation portfolio performs Bank The Segmentation) (Portfolio Characteristics Risks OnShared Based Groupings below. noted as basis onacollective assessment the perform to be necessary can it risk credit in increase asignificant been there has ofwhether the assessment to relation In ofitems). large portfolios for more practical is basis onacollective (although measurement basis ora collective basis on an individual measured is it of whether regardless the same be should allowance the loss of themeasurement As a result, average loss. weighted credit onprobability based is of ECL The measurement • and lending portfolios; 1and2Personal Stage portfolio; lending SME Bank’s ofthe balances andmore generic The smaller include: basis ECL onacollective calculates theBank where classes Asset • • • • • • Collateral type. Collateral and value; Exposure location; Geographic grade; credit Internal industry; Borrower’s value. Exposure and month; every full in balances their repay borrowers ornot whether ofoverdrafts, thecase In Utilisation; grade; Internal etc.); loan, agricultural loan, personal unsecured (overdraft, type Product Purchased POCI exposures managed on a collective basis. onacollective managed exposures POCI Purchased both. to the reduce ECL andnot flows cash orexpected collateral either use only can you purposes For regulatory inthestandard. nolimitation there is while 18Month only is it purposes to reduce ECL regulatory for used be can collateral which within Period recognised as a result of a credit driven debtrestructuring. driven ofacredit aresult as recognised was loan and anew de-recognised, was loan the original when POCI as classified been have that Exposures and cost/FVOCI; at amortised anddebtinstruments agreements repurchase andreverse borrowed securities on collateral Cash Banks, from as Due (such relationships trading andinterbank treasury, The portfolio; lending SME ofthe largeThe anduniqueexposures Bankingportfolio; lending The Corporate and Transaction FDH Bank Annual Report 2019 63 Government Securities Property Property, Cash & AGF Property, Cash & Guarantees Type of Collateral Item Position within industry rapidly eroding Industry term may decline, be and in long mature and / or in a cyclical downturn Catastrophic events such as in an area may flooding or drought negatively affect performance of assets in that particular area. grossFalling domestic production, risinginflation and interestrates, movements in rates of unemployment, and balance of payments. Assets Derivative Assets Loans & Advances banks to Mortgage lending Personal Lending lending Corporate Investment securities Lease receivables Other Factor widerEconomy, environment, Industry & Competition ECL ComputationECL UseFactorsFollowing The When EstimatingFutureChanges GDP Growth Gross Domestic Product(GDP) grew by 2019 compared 4.5% in in 2018. It 4.0% to is expected grow further to by which4.7% in 2020 is slightly than higher increase 2019. The reduced credit risk in the reviewyear under the and same impact is expected in 2020. Hence the expected reducing loss. Unemployment Rate The unemployment slightlyrate reducedto 6.30% in 2019 6.75% in 2018. Thisfrom a had small positive impact on employersupported loansis but 2019 in rate the expected increase to This 2020. in 6.50% to expectedis to slightly increase default rates mainly employer in supported loans position. hence improving the ECL RBM Policy Rate The policy declinedrate to 13.5% in 2019. 17% in 2018 It from had positive impact rate ECL and the is not on the expectedchange in 2020. As to such, will there not be significant any increase or decrease in credit risk. ExchangeUSD: Rate Kwacha to US (Kwacha rate DollarThe exchange hasRate) been stable for the past 2 years. However, the changes that may sales. outputhappen and Tobacco (Tobacco) 2020 depending in on the agricultural Probability of Default The PD is affectedcredit by the history of the account as well as the forward looking macroeconomicfactors above.However, stagefacilities 3 bearPD 100% sincethe account has defaulted. With NPL 31 0.8% asat at ratio December 2019 compared 1.41% as 31 December at to is ECL the 2018, expected be minimal to since the above macroeconomic factors favorable. are Loss Given Default (LGD) The loss given default is declining to integral credit due enhancements as well as usage of collateral. Qualitative Factors FDH Bank Annual Report 2019 64 conditions General economicand/ormarket Performance/T24 Reports Cash Flow/RepaymentSource Balance Sheet Ownership/Management Factor the sameborrower. Significant increasesincreditriskonother financialinstrumentsof sales productbecauseofashiftcustomer tastes. debt obligations, such as adecline in the demand for the borrower’s results inasignificantchangetheborrower’s abilitytomeetits economic, or technological environment of the borrower that An actualorexpected significant adverse changeintheregulatory, in thepriceofaborrower’sdebtandequityinstruments. Other marketinformationrelatedtotheborrower,suchaschanges expected significantincreaseinunemploymentrates. as anactualorexpectedincreaseininterestrates change in the borrower’s ability to meet its debt obligations, such economic conditionsthatareexpectedtocauseasignificant Existing orforecastadversechangesinbusiness,financial regularised viaformallimitandsecuritydocumentation. Temporary overdraft30daysormorewhichhasnotbeen Interest orprincipal30daysoverdue. specified inloanapplication. The clientdivertedfundstootherusagesthanpurpose existent. Ability toreduceworkingcapitalbanklinesislimitedornon- plus interest)andotherbusinessneeds(e.g.Capex). Cash flowisunlikelytocoverbothmandatorydebtservice(principal greater than50% capital noworinthenearfuture.Theworkingneedsratioof Liquidity strainedandthereisaneedforadditionalborrowingor Declining assetcoverforshorttermdebt. Rapid acquisitionofassetswithoutproperfinancialstructuring Highly gearedrelativetopeers/industryandonupwardtrend. deteriorating. Operating resultsaredeterioratingand/orworkingcapitalcycle and/or deterioration. Delay insubmission,stalefinancialsand/orcontinuedweakness actions. employment andbusinessethicswithinhisorby Social Risk:Customernotmeetingacceptablestandardsfor species) eitherthroughaccidentsordeliberateactions. environment (land,water,air,naturalhabitats,animalandplant Environmental Risk:Causingpollutionordestructionofthenatural . Owners showlackofcommitmenttosupportbusinessoperations existing operations,and/orthebusinessexpansionplans. Concerns overtheabilityofmanagementtoeffectivelymanage Government policytowardcertainindustries Item FDH Bank Annual Report 2019 - - - 65 - - Item istent. The client diverted funds to other usages other than purpose specified in loan application. the An actual or expected internal credit rating downgrade for credit borrower or decrease in behavioural scoring used to assess scor risk internally. Internal credit ratings and internal behavioural ers in the Bank (for example, an increase in the expected number ers in the Bank (for example, an increase in the expected or extent of delayed contractual payments). or Liquidity strained and there is a need for additional borrowing ratio of capital now or in the near future. The working capital needs greater than 50%. (princi Cash flow is unlikely to cover both mandatory debt service pal plus interest) and other business needs (e.g. Capex). non-ex Ability to reduce working capital bank lines is limited or ratings or ing are more reliable when they are mapped to external supported by default studies. instru An actual or expected significant change in the financial An actual or expected significant change in the operating results significant change An actual or expected or expected declining Examples include actual of the borrower. risks, working capital increasing operating revenues or margins, sheet quality, increased balance asset decreasing deficiencies, or changes in the scope management problems leverage, liquidity, as the discontinuance organisational structure (such of business or in a significant change in the business) that results of a segment of its debt obligations. the borrower’s ability to meet loan documentation including an Expected changes in the that may lead to covenant waivers expected breach of contract rate step-ups, holidays, interest or amendments, interest payment or guarantees, or other changes to the requiring additional collateral instrument. contractual framework of the or terms of an existing financial Other changes in the rates different if the instrument instrument that would be significantly at the reporting date (such as more was newly originated or issued amounts of collateral or guarantees, stringent covenants, increased because of changes in the credit risk of or higher income coverage) initial recognition. the financial instrument since performance and behaviour of Significant changes in the expected borrow the borrower, including changes in the payment status of ment’s external credit rating. Interest Past due information, including the rebuttable presumption- or principal 30 days overdue. supporting the changes in the value of the collateral Significant guarantees or credit or in the quality of third-party obligation borrower’s enhancements, which are expected to reduce the or to economic incentive to make scheduled contractual payments occurring. otherwise have an effect on the probability of a default For example, if the value of collateral declines because house prices decline, borrowers in some jurisdictions have a greater incentive to default on their mortgages. Qualitative Factor Description Credit Rating Factor of the borrower Operating performance Breaches of covenant Changes to contractual terms Cash flow or liquidity issues Payment delays and past due information Changes in Collateral Value/Quality of Parent Guarantee FDH Bank Annual Report 2019 66 Movement in allowance for impairment in low risk assets are as follows: areas assets risk inlow impairment for Movement inallowance computed. was Credit Loss andanExpected assets to these wereassigned Default of Probabilities assets, of classification each per ontheassessment grade. Based investment inthe assets these classifying in resulted histories credit of evaluation extensive with coupled factors The above obligations. flow cash contractual their to fulfil oftheborrowers reduce theability notnecessarily, would but may, inthelonger term conditions economic andbusiness in changes andadverse inthenear obligations term flow cash contractual their to meet astrong capacity had low, theborrowers was assets these for ofdefault date therisk as atthe that reporting andconcluded assets to the related factors andexternal both internal evaluated Bank The 5. 4. 3. 2. 1. risk; credit alow having assets as following the identified theBank 9model, theIFRS applying In Low assets risk Changes in the loss allowance intheloss Changes 9 ofIFRS 2019 –onadoption at as 1January allowance Loss Transfer 1 to stage Transfer 2 to stage Transfer 3 to stage December 2019 December at31 as allowance Loss movements Other inderecognition notresult did that dueto modifications Changes Factor Qualitative Factor Description Factor Qualitative Loss allowance – low risk assets risk –low allowance Loss Staff loans. Staff and assets; sheet balance Off placements; Interbank receivables; Intercompany Securities; Government Malawi Government Government securities K’000 4 542 4 654 112 - - - - capital orcashinfusion. parents) haveanincentive and financialabilitytopreventdefaultby a shareholder(oranindividual’sparents)ifthe A significantchangeinthequalityofguaranteeprovided by Item placements Interbank Interbank K’000 2 609 3 155 546 - - - - (3629) loans Staff Staff K’000 9 485 5 856 - - - - Off-balance Off-balance assets K’000 1 326 3 249 1 923 - - - - Intercompany receivables receivables K’000 (79) 79 - - - - - (1 127) Total 18 041 16 914 K’000 - - - - FDH Bank Annual Report 2019 ------67 3 249 (455) K’000 K’000 18 496 18 041 Total (16 914) Total 29 398 600 82 959 416 112 344 351 112 358 016 ------79 ------63 K’000 16 K’000 791 604 Inter- (791 525) company receivables receivables Intercompany ------3 249 K’000 1 326 K’000 1 602 (3 249) (276) Off- assets balance assets 32 499 268 32 499 268 16 911 163 15 588 105 Off-balance ------K’000 (5 856) 9 485 K’000 Staff Staff loans 208 669 936 460 10 178 loans (693) 1 139 273 1 145 129 ------3 326 2 609 K’000 K’000 (3 155) ( 717) 5 667 165 banks Interbank 31 750 661 31 753 816 26 086 651 placements with other Placements ------3 327 K’000 4 542 1 215 K’000 (4 654) securities 7 403 128 Government 46 955 149 46 959 803 46 959 803 39 556 675 securities Government Low creditLow risk assets Loss allowance – low risk assets Carrying Amount at 31 December 2019 Transfer to loan and advances Loss allowance as at 31 December 2019 Gross Carrying Amount at 31 December 2019 Changes modifications due to that did not result in derecognition Transfer to stage to 3 Transfer Transfer to stage to 2 Transfer Transfer to stage to 1 Transfer Changesthe gross in carrying amount Gross Carrying Amount as at 1 January 2019 Loss allowance as at 1 January 2018 – on adoption of IFRS 9 Changes in the loss allowance Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Increases due to change in credit risk Write-offs Changes due to modifications that did not result in derecognition Other movements Loss allowance as at 31 December 2018 Government Securities (Treasury Bills, Promissory Notes and Reserve Bank of Malawi bonds) Loss Allowance Movement in lowMovement risk assets balances is asfollows: FDH Bank Annual Report 2019 68 Summary Low risk assets carrying amounts carrying assets Low risk Summary Staff loans loss allowance loss loans Staff Loss allowanceasat31 December2019 Other movements did notresultinderecognition Changes duetomodificationsthat Write-offs Increases duetochangeincreditrisk Transfer tostage3 Transfer tostage2 Transfer tostage1 Changes inthelossallowance Loss allowanceasat1January2019 IFRS 9 January 2018onadoptionof Gross CarryingAmountasat1 Transfer toloanandadvances amount Changes inthegrosscarrying Transfer 1 to stage Transfer 2 to stage Transfer 3 to stage did not result inderecognition notresult did that dueto modifications Changes December 2018 December at31 Amount Carrying Gross 31 December2018 Loss allowanceasat Transfer toloanandadvances December 2018 December at31 Amount Carrying Low CreditRiskAssets Staff loansatamortisedcost Government Government securities 39556675 33 270727 39 552133 6 285948 (4 542) K’000 - - - - - K’000 6549 ------Stage 1

- (3629) Placements Placements with other other with 26086651 10 178 (7 166061) 33 252712 26 084042 banks (2 609)

- K’000 ------Stage2 - - - (48 062) 984 522 3 460 936 926 975 loans Staff Staff (9 485) K’000 K’000

------(4 477223) 20 063726 15 588105 15 588105 Stage3 balance balance assets Off- - - K’000 - (1 326) K’000 1 602 1 326 - - - - -

- - - - receivables receivables company Inter- 626 154 165 450 POCI 791 604 791 525 K’000 - - - - - K’000 (79)

------(5 239948) 88 197841 82 959495 82 942780 Total Total (18 041) K’000 - - (3 629) 10 178 6 549 K’000 1 602 1 326 ------FDH Bank Annual Report 2019 ------69 79

(79) 1 923 3 249 - Total K’000 - - - K’000 1 326 Total ------POCI - - - - - K’000 ------K’000 POCI - - - K’000 Stage 3 ------K’000 K’000 Stage 3 Stage

- - Stage 2 ------79 (79) K’000 - - - - Stage 2 Stage

K’000 - - - - - Stage 1 1 923 -

Stage 1 - 3 249 1 326 K’000 - - - - - amortised cost amortised Off balance sheet assets at sheet assets Off balance Amounts due to related parties at amortised cost Loss allowance as at 31 December 2019 Loss allowance as at 31 December Other movements Changes due to modifications that did not Changes due to modifications that result in derecognition Write-offs Increases due to change in credit risk Increases due to change in credit Transfer to stage 3 Transfer to stage 2 Transfer to stage 1 Transfer to stage Changes in the loss allowance Changes in the loss Loss allowance as at 1 January 2019 Loss allowance as Loss allowance as at 1 January 2019 Changes in the loss allowance Transfer to stage 1 Transfer to stage 2 Transfer to stage 3 Changes due to modifications that did not result in derecognition Other movements – Increases due to change in credit risk – Write-offs Loss allowance as at 31 December 2019 Amounts due from related parties loss allowance FDH Bank Annual Report 2019 70 Placements with other banks at amortised cost atamortised banks other with Placements cost atamortised bonds) ofMalawi Bank andReserve notes promissory bills, (Treasury Securities Government follows: as is balances assets risk inlow Movement Transfer tostage1 Changes inthegrosscarryingamount Gross CarryingAmountasat1January2019 2019 Gross CarryingAmountasat1January Transfer tostage2 Changes inthegrosscarryingamount Transfer tostage3 Transfer tostage1 result inderecognition Changes duetomodificationsthatdidnot Transfer tostage2 Carrying Amountat31 December2019 Loss allowanceasat31December2019 2019 Gross CarryingAmountat31 December Transfer tostage3 result inderecognition Changes duetomodificationsthatdidnot Loss allowanceasat31December2019 2019 Gross CarryingAmountat31 December Carrying Amountat31 December 2019 Government Securitiesatamortisedcost Placements withotherbanksat amortised cost

31 750 661 46 955149 26 086651 31 753 816 39 556 675 46 959803 Stage 1 Stage 1 5 667 165 7 403 128 (3 155) (4 654) K’000 K’000 ------

- Stage 2 Stage 2 K’000 K’000 ------

Stage 3 Stage 3 K’000 K’000 ------POCI K’000 POCI ------K’000 ------

Total 46 955149 31 750 661 39 556 675 26 086651 46 959803 31 753 816 Total 7 403 128 5 667 165 (4 654) (3 155) K’000 K’000 ------FDH Bank Annual Report 2019 - - - - 71 K’000 (5 856) 936 460 208 669 1 145 129 1 139 273 Total

------K’000 POCI ------K’000 Stage 3

------K’000 Stage 2 - - - - - K’000 (5 856) 936 460 208 669 1 145 129 Stage 1 1 139 273

Requires the Bank recognise to the cumulative effect of initially applying IFRS 16 as an adjustmentto balancethe opening of retained earnings of initial the date at application. Does not permit restatement of comparatives, which continue be presented to under IAS 17 and IFRIC 4. • • Staff loans at amortised cost at amortised Staff loans Impact of the new definitionLease of a Gross Carrying Amount as at 1 January Gross Carrying Amount 2019 Changes in the gross carrying amount Changes in the gross Transfer to stage 2 Transfer to stage 3 did not Changes due to modifications that result in derecognition Gross Carrying Amount at 31 December 2019 2019 Loss allowance as at 31 December Transfer to loan and advances Carrying Amount at 31 December 2019 Transfer to stage 1 The Bank has made use of the practical expedientavailable on transitionto IFRSreassessto 16 not whether a contract is or contains the definition a lease. of a lease Accordingly, in accordance with IAS 17 and IFRIC 4 will continue beapplied thoseto to leasesentered changedor before January1 The 2019. definition in change a of lease mainly relates the concept of control. to IFRS 16 determines whether a contract contains a lease on the basis of whether the customer has control the use the right to of an identified asset for a periodof time in exchange for consideration. This is in contrastto the focus‘risks on rewards’ and in IAS 17 and IFRIC 4. The Bank applies the definition of a leaserelatedguidance and set out in IFRSto all 16 lease contracts entered into or changed on or after a. Impact of initial application IFRS of 16 Leases the BankIn the current year, has applied IFRS 16 Leases issued (as by the IASB in January that 2016) is effective for annual periods that begin 1 on or after January 2019. IFRS introduces 16 new or amended requirements with respect lease to accounting. It introduces significant changes lessee to accounting by removing distinctionthe between financeand operating recognition lease the requiring and of a right-of-use asset and a lease liability commencement at for all leases, except for short-term leases and leases of low value assets when such recognition exemptions adopted. In are contrast lessee to accounting, the requirements forlessor accounting have remained largely unchanged. Details theseof new requirements described are Notein 3. The impact of the adoption of IFRS 16 on the consolidatedBank’s financial statements is described below. of initialThe date application of IFRS 16 for the Bank is 1 January 2019. The Bank has applied IFRS 16 the cumulativeusing catch-up approach which: 3.15 Adoption of new and revised Standards Staff loans at amortisedcost (includednote in 11) FDH Bank Annual Report 2019 72 c. 17; IAS applying as operating leases classified previously approach to leases catch-up thecumulative applying when expedients practical following the used has Bank The loss. in or profit within expenses’ ‘other is presented expense 16.This IFRS by permitted as basis straight-line ona expense alease has opted torecognise Bank the and furniture telephones), ofoffice items small computers, andpersonal tablets includes (which assets oflow-value andleases orless) of12months term (lease leases 36.For short-term IAS with inaccordance impairment for are tested assets 16,right-of-use IFRS Under Applying IFRS 16, for all leases (except as noted below), the Bank: theBank: (except below), noted as leases all 16,for IFRS Applying b. Bank. forthe ofalease thedefinition meet that ofcontracts scope change the notsignificantly 16 will IFRS in definition thenew that shown has Theproject project. animplementation out carried has 16,theBank IFRS of application thefirst-time preparationfor In contract). inthelease oralessee alessor is it 2019(whether 1 January finance lease receivables. lease finance on the recognised been has losses credit expected for 9,anallowance IFRS required by As application. date ofinitial intoentered atthe leases finance as new for them andaccounted leases finance as agreements operating sublease its of certain reclassified has change, theBank ofthis 17).Because IAS under thecase was as asset to theunderlying by reference (and not from the head lease arising asset use to the right-of- by reference or operating lease finance as a thesublease is classify required to lessor Theintermediate contracts. separate two as and thesublease lease thehead for accounts lessor 16,anintermediate IFRS Under assets. inleased interest residual its from arising the risks manages regarding alessor how inparticular required, thedisclosures andexpanded changed 16has IFRS However, differently. ofleases types two for those andaccount oroperating leases leases finance either as leases to classify continues 16,a lessor IFRS Under leases. for accounts alessor how substantially notchange 16does IFRS

Impact on Lessee Accounting onLessee Impact Impact on Lessor Accounting onLessor Impact The right-of-use asset and the lease liability are accounted for applying IFRS 16 from 1 January 2019. January from 1 16 IFRS for applying are accounted liability andthelease asset The right-of-use exemption. recognition lease thelow-value to apply elected has theBank where cases in except anyadjustments, without respectively liabilities andlease assets to right-of-use reclassified is application date theofinitial before 17immediately IAS applying measured leases finance under obligations and assets of the leased amount carrying IAS 17, the applying leases as finance classified were that For leases ii. i. • • • • • • • • Former Finance Leases Leases Finance Former operating leases under IAS 17, which were off balance sheet. sheet. balance off were 17,which IAS under operating leases as classified previously leases for accounts theBank how 16changes IFRS Leases Operating Former extend or terminate the lease. thelease. orterminate extend to options contains thecontract when term thelease determining when hindsight used has Bank The application. of initial date at the asset oftheright-of-use from themeasurement costs direct initial excluded has Bank The application. ofthedateinitial 12months within ends term lease the which for to leases liabilities and lease assets right-of-use not to recognise elected has Bank The review. animpairment to performing analternative as application the date ofinitial before immediately position offinancial 37inthestatement IAS under recognised leases onerous for ofprovision by theamount application date at theofinitial asset theright-of-use adjusted has Bank The characteristics. similar with reasonably ofleases rate portfolio to a single a discount applied has Bank The amortised as a reduction of rental expenses on a straight line basis. line onastraight expenses ofrental areduction as amortised incentive, ofalease intherecognition resulted 17they IAS under whereas liabilities andlease assets oftheright-of-use ofthemeasurement part as are recognised period) free rent (e.g. incentives Lease flows. cash of statement intheconsolidated activities) financing within (presented and interest activities) financing within (presented portion aprincipal into paid ofcash amount thetotal Separates ofprofit orloss; statement intheconsolidated liabilities onlease andinterest assets ofright-of-use depreciation Recognises 16:C8(b)(ii) IFRS with inaccordance payments lease oraccrued ofanyprepaid theamount by adjusted asset theright-of-use with payments, lease ofthefuture value at measured thepresent initially position, offinancial statement intheconsolidated liabilities andlease assets right-of-use Recognises FDH Bank Annual Report 2019 - - - - - 73 K’000 59 855 (399 965) 2 059 820 3 176 411 1 659 855 1 659 855 1 484 031 1 692 380 1 516 556 Total 1 484 031 ------K’000 Equipment ------K’000 Plant - - K’000 1 484 031 3 176 411 1 516 556 1 659 855 1 692 380 1 484 031 Buildings Operating lease commitments at 31 December 2018 Short-term leases and leases of low value assets Effects of discounting the above amounts 2018 Finance lease liabilities recognised under IAS 17 at 31 December or index Present value of the variable lease payments that depend on a rate As at 31 December 2019 Carrying amount At 31 December 2019 Charge for the year Accumulated depreciation At 1 January 2019 – Restated At 31 December 31 December 2019 Additions Present value of the lease payments due in periods covered by extension Present value of the lease payments due in periods covered by extension in options that are included in the lease term and not previously included operating lease commitments Lease liabilities recognised at 1 January 2019 Cost At 1 January 2019 – Restated The weighted average lesseesThe weightedaverage incremental borrowing appliedto lease rate liabilitiesrecognised in the statement of financial position on 1 January2019 was 25% Right-of-use assets The Bank entered into arrangements leasing for most of its premises. term of the leases The average entered into is years. 2

FDH Bank Annual Report 2019 74 Amounts recognised in profit andloss inprofit recognised Amounts Onwards Year 5 Year 4 Year 3 Year 2 Year 1 analysis Maturity Current Non-current Analysed as: 2019 at31December as liabilities Lease Total leaseexpenserecognisedinprofitandloss Income fromsubleasingright-of-useassets liability Expense relatingtovariableleasepaymentsnotincludedinthemeasurementof Expense relatingtoleasesoflowvalueassets Expense relatingtoshort-termleases Interest expenseonleaseliabilities Depreciation expenseonright-of-useassets and loss inprofit recognised Amounts Total Financecosts hedgedriskinadesignatedfairvaluehedgeaccountingrelationship (Gain)/loss arisingonadjustmentforthehedgeditemattributableto Loss/(gain) arisingonderivativesasdesignatedhedginginstrumentsinfairvaluehedges Less: amountsincludedinthecostofqualifyingassets Total interestexpenseforfinancialliabilitiesnotclassifiedasatFVTP Interest onobligationsunderfinanceleases Interest expenseonleaseliabilities Finance costs 1 841173 1 719042 1 719042 1 369923 1 369923 1 484031 357142 150 850 349 119 357 142 357 142 357 142 64 310 16 947 85 564 31 448 K’000 2019 ------FDH Bank Annual Report 2019 75 Models and Assumptions Used Establishing Groups Of Assets With Similar Credit Risk Characteristics Significant IncreaseCredit In Risk Useful Lives Of Property And Residual Values And Equipment Business Assessment Model The Bank uses various models and assumptions in measuring fair value of financial assets as well as in estimating ECL. The Bank uses various models and assumptions in measuring model for each type of asset, as well as for determining the Judgement is applied in identifying the most appropriate that relate to key drivers of credit risk. assumptions used in these models, including assumptions When ECLs are measured on a collective basis, the financial instruments are grouped on the basis of shared risk When ECLs are measured on a collective basis, the financial of the credit risk characteristics on an ongoing basis to assess characteristics. The Bank monitors the appropriateness order to ensure that should credit risk characteristics change whether they continue to be similar. This is required in may result in new portfolios being created or assets moving there is appropriate re-segmentation of the assets. This risk characteristics of that Bank of assets. Re-segmentation to an existing portfolio that better reflects the similar credit when there is a significant increase in credit risk (or of portfolios and movement between portfolios is more common from 12-month to lifetime ECLs, or vice versa, but it can when that significant increase reverses) and so assets move on the same basis of 12-month or lifetime ECLs but the also occur within portfolios that continue to be measured differ. amount of ECL changes because the credit risk of the portfolios As explained in note 3, Expected Credit Losses (ECL) are measured as an allowance equal to 12‑month ECL for stage As explained in note 3, Expected Credit Losses (ECL) are asset moves to stage 2 when its credit risk has increased 1 assets, or life time ECL for stage 2 or stage 3 assets. An what constitutes a significant increase in credit risk. In significantly since initial recognition. IFRS 9 does not define increased the Bank takes into account qualitative and assessing whether the credit risk of an asset has significantly information. quantitative reasonable and supportable forward looking The Bank reviews the estimated useful lives and residual values of plant and equipment at the end of each reporting The Bank reviews the estimated useful lives and residual values of plant and equipment at the end of each reporting period. These estimates are subjective by nature as they require assessment of financial and non-financial information Classification and measurement of financial assets depends on the results of the SPPI and the business model test test model business the and SPPI the of results the on depends assets financial of measurement and Classification model at a level that reflects how sections of note 3). The Bank determines the business (please see financial assets This assessment includes managed together to achieve a particular business objective. groups of financial assets are is evaluated and measured, evidence including how the performance of the assets judgement reflecting all relevant and how the managers of the of the assets and how these are managed the risks that affect the performance assets measured at amortised cost or fair value through other assets are compensated. The Bank monitors financial maturity to understand the reason for their disposal and comprehensive income that are derecognised prior to their of the business for which the asset was held. Monitoring is part whether the reasons are consistent with the objective model for which the remaining financial assets are held of the Bank’s continuous assessment of whether the business there has been a change in business model and so a continues to be appropriate and if it is not appropriate whether periods presented. during the required were changes No such assets. of those classification to the change prospective The bank does not face a significant liquidity risk with regard to its lease liabilities. Lease liabilities as monitored as monitored Lease liabilities to its lease liabilities. with regard liquidity risk a significant does not face The bank function. Bank’s treasury within the Key SourcesKey Of Estimation Uncertainty Critical Judgements In ApplyingPolicies The Accounting Bank’s 4.1.4 4.1.3 4.1.2 4.2.1 4.1.1 CRITICAL ACCOUNTING JUDGEMENTS AND KEY UNCERTAINTY SOURCES OF ESTIMATION 4.2. 4.1. impact on the financial period which would have a material directors during the current made by the Critical judgements risk management policies are outlined of loans and advances to customers. The credit statements relate to the recoverability in note 29 (b) below. In the application of the Bank’s accounting policies described above (note 3) management is required to make judgements, is required to make judgements, above (note 3) management accounting policies described the Bank’s of In the application available from other liabilities that are not readily amounts of assets and assumptions about the carrying estimates and factors that are relevant. experience and other are based on historical estimates and associated assumptions sources. The may differ from these estimates. Actual results accounting estimates are basis. Revisions to are reviewed on an ongoing and underlying assumptions The estimates revision the of period the in or period, that only affects revision the if revised is estimate an which in period the in recognised affects both current and future periods. and future periods if the revision 4. FDH Bank Annual Report 2019 76 4.2.3 4.2.2 4.2.4 4.2.5 4.2.6 in arrivingattheresidualvaluesandusefulliveswhichcanonlybeborneoutbyfutureevents. forward-looking information Refer tonote28formoredetails,includinganalysisofthesensitivityreportedECLchangesinestimated assumptions for the future movement of different economic drivers and how these drivers will affect each other. When measuring ECL, the Bank uses reasonable and supportable forward-looking information, which is based on e. d. c. b. a. Key assumptionsused: regularly toreduceanydifferencesbetweenlossestimatesandactualexperience. The methodology and assumptions usedfor estimating both theamount and timingof future cashflows arereviewed impairment similartothoseintheportfoliowhenschedulingitsfuturecashflows. uses estimatesbasedonhistoricallossexperienceforassetswithcreditriskcharacteristicsandobjectiveevidenceof in a group, ornational or local economic conditions that correlate with defaults on assets in the group. Management may includeobservabledataindicatingthattherehasbeenanadversechangeinthepaymentstatusofborrowers from aportfolioofloansbeforethedecreasecanbeidentifiedwithanindividualloaninthatportfolio.Thisevidence whether thereisanyobservabledataindicatingthatameasurabledecreaseintheestimatedfuturecashflows impairment lossshouldberecordedinthestatementofcomprehensiveincome,Bankmakesjudgementsasto The Bankreviewsitsloanportfoliostoassessimpairment,atleast,onaquarterlybasis.Indeterminingwhetheran economic drivers. for moredetails,includinganalysisofthesensitivityreportedECLtochanges in PDresultingfromchanges the calculationofwhichincludeshistoricaldata,assumptionsandexpectationsfuture conditions.Seenote3.15 PD constitutesakeyinputinmeasuringECL.isanestimateofthelikelihooddefault overagiventimehorizon, LGD resultingfromchangesineconomicdrivers. enhancements. Seenote3.15formoredetails,includinganalysisofthesensitivity thereportedECLtochangesin and thosethatthelenderwouldexpecttoreceive,takingintoaccountcashflowsfrom collateralandintegralcredit LGD isanestimateofthelossarisingondefault.Itbaseddifferencebetween thecontractualcashflowsdue its financialinstruments.Refertonote28formoredetailsonfairvaluemeasurement. available. Where such Level 1 inputs are not available the Bank uses valuation models to determine the fair value of In estimatingthefairvalueofafinancialassetorliability,Bankusesmarket-observable datatotheextentitis market and determining the forward-looking information relevant to each scenario toeach relevant information forward-looking the anddetermining prodmarket

Establishing the number and relative weightings of forward-looking scenarios for each type of product product of type each for scenarios forward-looking of weightings relative and number the Establishing OnLoans Advances And Losses Impairment Probability of Default (PD) ofDefault Probability Loss Given Default (LGD) Default Given Loss Fair process andvaluation value measurement which they are expected. they which year in calendar end ofthe at the to arise assumed been have realisation security from arising flows Cash and orunpredictable; erratic are and repayments security no agreement, is no repayment where there to arise areassumed flows cash No flows; cash innil to result are assumed guarantees Unsupported be nil; to areassumed flows cash estimated future total are doubtful, years inthesubsequent flows andcash inplace nosecurity anagreement but there is Where oftheperiod; the end at to arise assumed and intervals areyearly agreement fromaggregatedover repayment arising flows Cash FDH Bank Annual Report 2019 77 - 2018 2018 2018 K’000 K’000 K’000 (2 609) (4 542) 7 458 535 7 427 234 1 008 071 26 086 651 26 086 651 38 548 604 39 556 675 17 788 279 21 768 396 26 084 042 14 885 769 39 552 133 39 556 675 - 2019 2019 2019 K’000 K’000 K’000 (3 155) (4 654) 673 286 6 389 007 7 062 293 20 921 448 10 832 368 31 753 816 46 959 803 46 959 803 21 773 051 25 186 752 31 750 661 46 959 803 46 955 149 Over 3 months Within 3 months PLACEMENTS WITH OTHER BANKS WITH OTHER PLACEMENTS MALAWI GOVERNMENT TREASURY BILLS, NOTES PROMISSORY AND RESERVE BANK OF MALAWI BONDS CASH AND BALANCES WITH RESERVE BANK OF MALAWI • • Balances with Banks abroad Balances with local Banks Gross amount Loss allowance (see note 3.15) Cash on hand Reserve Bank of Malawi Balances with Total bills Malawi Government Treasury Promissory Notes Net amount Gross Loss allowance (see note 3.15) Total Bills, bonds and promissory notes are due to mature as follows: Net 7. 6. 5.

Balances held at Reserve Bank of Malawi are denominated in Malawi Kwacha and various other currencies (as detailed in various other currencies in Malawi Kwacha and denominated are of Malawi held at Reserve Bank Balances bearing. note 29e) and are non-interest Average interest interest bills Treasury on on the Reserve rate Average was 10.6% (2018: 15%). Average Bank of Malawi bond was 9.6% (2018: 15.8%). FDH Bank Annual Report 2019 local Banks earned an average interest rate anaverage of13.5% (2018:14.6%). earned interest Banks local with at anaverage rate interest abroadearn of1.5%(2018:1.5%).Placements Banks with Balances The balances with Banks abroad were denominated in foreign currency as follows: as foreign in currency were denominated abroad Banks with balances The 9. 8. Bank of Malawi denominated in Malawi Kwacha and matured on 18 January 2019. Kwacha on18January andmatured inMalawi denominated ofMalawi Bank held at Operations Reserve Market Open in investments represent investments short-term The DKK denominated DKK denominated JPY ZAR denominated ZAR Euro denominated Outstanding expected credit losses credit expected Outstanding years relating Writeto prior offs restated As transition) 9 (IFRS policy change inaccounting of Effects transition) 9 (IFRS assets sheet Transfer balance off from At thebeginning oftheyear allowances loss credit Movement inexpected andadvances loans Net allowance losses credit Expected andadvances loans Gross Overdrafts Term loans Reserve BankofMalawi Short-term investmentswith US Dollar denominated Dollar US GBP denominated GBP 78 LOANS ADVANCES AND TO CUSTOMERS OTHER SHORT-TERM INVESTMENTS - OMO 20 921448 17 901887 2 686152 325 407 2 478 5 440 56 813895 57615195 19 530517 38 084678 84 (229 263) 300) (801 K’000 318 666 547 929 547 929 2019 K’000 2019 - - - (11 029656) 40 689341 16 770016 11 534197 41 237270 16 474073 24 763197 26 086651 22 669786 5 740360 5 234217 (547 929) 5 496484 3 337275 K’000 72 704 1 602 2018 K’000 2018 5 604 678 604 FDH Bank Annual Report 2019 - - - - - 79

- - (276) 2018 K’000 (3 249) 801 300 547 929 547 929 464 661 Total 1 370 118 - - - (229 263) (464 661) K’000 2 483 222 1 436 186 (884 235) (1 046 760) (6 628 617) ------

- - - -

- - K’000 POCI ------

- - - 668 034 303 221 2 000 800 K’000 2019 23 046 Stage 3 (28) (349) K’000 ( 774 421) (884 235) (3 249) 801 300 451 202 (451 202) (801 300) 1 370 118 (884 235) ------

67 696 47 400 (579 459) Stage 2 K’000 4 974 (341) 571 188 (16 658) - - - -

K’000 (3 249) 85 866 177 012 (51 223) (26 030) 369 Stage 1 (4 625) (6 388) customers at amortised cost Loss allowance – Loans and advances to Closing Balance Changes in the loss allowance – Transfer to stage 1 – Transfer to stage 2 – Write-offs Loss allowance as at 1 January 2019 – Transfer to stage 3 Recoveries Changes in loss allowance for guarantees Financial assets that have been derecognised – Increases due to change in credit risk – Changes due to modifications that did not result in derecognition New financial assets originated or purchased Gross current year loss allowances from off balance Transfer sheet assets (See 3.15) note Recoveries Principal interest and past due Amounts past due and impaired Amounts past due but not impaired Net current year charge yearCurrent write-offs the end of the yearAt Amounts past due The maturity of profile loans and advances is to the outlined 29c financial in note statements. The Malawi Kwacha base- for the Bank rate lending as 31 December at 2019 was 23.6% (2018: 26.0%). The Bank’s credit risk is primarilyattributed and otherto overdraft loan facilitiesextended to its customers. The amounts presented in the statement of financial position net of expected are credit losses as shown above.provision The represents allowances for estimated irrecoverable amounts when is there objective evidence that the asset is impaired. Movement in allowance for impairment in loans and advances as follows: are FDH Bank Annual Report 2019 and the loans continued to interest. charge continued and theloans modification onthedate of capitalised was interest as loans modified these on losses There or were nogains pattern. flow cash customer the suits pattern thatinstalment the so terms payment onthe modified loans are mostly These advances. and loans of balance book closing inthe included amounting toK3.083billion loans (restructured) There are modified due: past days by to customers andadvances theloans summarises below table The 0-29 days 30-90 days 91-180 days 181-360 days More than360days Total 80 sheet assets) Restatement oftheprioryear(fromoffbalance Restatement oftheprioryear Loss allowanceasat31December2017 Changes inthelossallowance Loss allowanceasat1January2018 Transfer tostage1 in derecognition- Changes duetomodificationsthatdidnotresult Recoveries Increases duetochangeincreditrisk Transfer tostage3 Transfer tostage2 Write-offs Changes inlossallowanceforguarantees New financialassetsoriginatedorpurchased Financial assetsthathavebeenderecognised Closing Balance Loss allowance–Loansandadvancesto Days pastdue customers atamortisedcost Asat31December2019 Gross carryingamount K’000 100440 60414 53 412823 57 615 195 3 741026 300 492 (22 199) (2 587 568) Stage1 2 566 414 2 568 016 K’000 177 012 194 924 24 115 Loss allowance 1 602 (276) K’000 ------69740 46414 K’000 85866 (24115) - 298 787 300 493 801 300 Stage 2 67 696 69 612 69 612 22 199 ------Asat31December2018 Gross carryingamount (1 046760) K’000 11 534 197 14 132 388 - K’000 Stage 3 2 598 191 2 288 298 2 587 568 (17 658 303 221 273) - 36 812 572 41 237 270 - 3 556 799 - - - - - 242 068 182 682 443 149 POCI K’000 ------Loss allowance (17 658273) 93072 70238 K’000 11 534197 (1 046 760) 16 770 016 K’000 Total 5 234 217 2 483 222 67696 547 929 177012 547929 139 911 1 602 (276) - -

- - - - - FDH Bank Annual Report 2019 ------81 (79) 8 241 K’000 K’000 21 199 762 164 791 525 791 604 Amounts due from related parties Amounts due from Amounts due from related parties ------6 206 3 444 K’000 K’000 3 444 27 183 49 003 39 245 70 007 40 000 55 971 422 803 121 637 588 781 - 3 444 Amounts due to related parties Amounts due to related parties Amounts due to

RELATED PARTIES RELATED Loss allowance (see note 3.15) Net amount Bank Balances FDH Money Bureau Limited Gross amount MSB Properties Limited 31 December 2018 First Discount House Limited MSB Properties Limited FDH Money Bureau Limited First Discount House Limited 31 December 2019 First Discount House Limited FDH Financial Holdings Limited MSB Properties Limited FDH Money Bureau Limited Net amount Bank Balances FDH Money Bureau Limited MSB Properties Limited First Discount House Limited FDH Financial Holdings Limited 10. Related party Related relationships exist between the Bank its and FDH parent company, Financial Holdings Limited (FDHFHL) and other subsidiaries of the FDHFHL party Related Group. balances as period at end were as follows:- FDH Bank Annual Report 2019 parties. has beenrecognisedinthecurrentperiodorprioryearsforbaddoubtfuldebtsrespectofamountsowedbyrelated The amountsoutstandingareunsecuredandwillbesettledincash.Noguaranteeshavebeengivenorreceived.expense Amounts duetoandfromrelatedpartiesrelatepaymentsmadethirdbyonecompanyonbehalfoftheother. FDH FinancialHoldingsLimited. Included inFDHBankLimitedexpensesisfinancialadvisoryfeesamountingtoK1.092billion(2018:K1.014million)paid The BankbalancesaredepositswithFDHLimitedincludedinliabilitiestocustomers. K1.3billion). InterestpayabletoOldMutualMalawiLimitedamountedK37.7million(2018: K10.4million). Included inliabilitiestocustomersarerelatedpartydepositsbyOldMutualMalawiLimitedamountingK5.8billion(2018: Directors Senior Management Saan Investments Chisapi Limited Mbendera &NkhonoAssociates Electricity SupplyCommissionofMalawi Orascon ContinentalSecurityServices are thefollowingrelatedpartybalances: Included inloansandadvancesatperiodend 82 3 262053 136 521 285 296 130 372 90 246 K’000 6 041 2019 109 4 524967 110 595 205 622 53 246 31 403 K’000 2018 - - FDH Bank Annual Report 2019 - - 83 50 19 32 22 2018 3 229 9 025 2 583 K’000 9 562 14 520 17 201 97 476 56 246 1 824 973 - - - - - 314 402 2019 3 411 7 867 K’000 28 392 18 967 67 696 101 174 2 089 671 8 343 8 343

Compensation Of Key Management Personnel Current period earnings and short-term benefits Rent Payable T. F. MPINGANJIRA TRUST Interest Payable House Limited FDH Discount Interest Receivable Limited FDH Money Bureau FDH Discount House Limited Company Limited Malawi Property Investment A & J Construction Mbendera & Nkhono Associates Artish General Dealers Chisapi Limited Senior management Directors Total FDH Financial Holdings Limited Services Orascon Continental Security The remuneration of Directors and key executives is determined by the remuneration committee having regard to the The remuneration of Directors and key executives is performance of individuals and market trends. of K1.296billion. K154.271million was paid in July 2019 and the Included in interest expense is preference share interest 2020 to First Equity Limited. balance was paid subsequent to year end on 24 January in 2018). year amount to K236.247million (K154.327million Directors’ fees, allowances and expenses paid during the they as fees management property as Ltd Properties MSB to paid K39.325million is expense administrative in Included manage properties for the Bank. related parties; The following are the types of the relationships with the FDH Bank Annual Report 2019 is chargedonprepaidrentalsandlicensefees. systems. Staffloansarerecoveredthrough payroll.Averageinterestrateonstaffloansis6.25%(2018:6.25%).No Sundry receivableslargelyrelatetoclearing accountsandprepaymentsmainlyrelatetoprepaidrentalslicensefeesfor 11. First EquityLimited T.F. MpingangiraTrust Saan Investments Reunion InsuranceLimited Orascon ContinentalSecurityServices Mbendera &NkhonoAssociates Malawi PropertyInvestmentCompanyLimited Old MutualMalawiLimited MSB PropertiesLimited MSB PropertiesHoldingsLimited FDH MoneyBureauLimited FDH FinancialHoldingsLimited First DiscountHouseLimited Chisapi Limited A &JConstruction 84 OTHER RECEIVABLESOTHER PREPAYMENTS AND Net otherreceivablesandprepayments Loss allowance (see note 3.15) note (see allowance Loss Gross amount Prepayments Settlement accounts Staff loans Sundry receivables NAME OFRELATEDPARTY Investment vehiclemanagedbyOldMutualLimited Owned bytheFDHGroupChiefExecutiveOfficer Head ofRiskFDHBankhasastakeinthecompany company Members ofseniormanagementhavestakesinthe Director ofFDHBankhasastakeinthecompany Director ofFDHBankhasastakeinthefirm Financial HoldingsLimited Subsidiary ofOldMutual,whoisshareholderFDH Shareholder ofFDHFinancialHoldingsLimited Subsidiary throughMSBPropertiesHoldingsLimited Subsidiary Fellow subsidiary Parent company Fellow subsidiary Director ofFDHBankhasastakeinthecompany company Member ofseniormanagementhasastakeinthe 33412868 4239564 TYPE OFRELATIONSHIP 33 418724 14 698139 13 341748 (5856) 1 139273 K’000 2019 12562833 (9485) 2253438 12 572318 9 069770 312 650 936 460 K’000 2018 FDH Bank Annual Report 2019 - 85

K’000 2018 K’000 26 032 2 367 327 6 725 519 1 807 479 Total (121 542) 8 631 509 14 811 447 17 057 232 8 425 723 (107 275) - - -

- K’000 1 425 037 1 028 103 1 068 535 - (1 384 605) 1 068 535 in-progress Capital work - -

2019 K’000 K’000 295 320 314 912 3 426 372 1 553 789 130 870 1 983 861 3 852 562 1 868 701 Furniture and fittings 31 032 - K’000 885 417 359 032 2 339 020 393 260 1 405 108 Motor 2 577 005 (121 047) (106 780) vehicles 1 171 897 (495) K’000 451 674 849 322 7 445 115 4 286 313 3 375 643 1 084 155 (495) 8 745 616 Computer equipment 5 369 973 - -

K’000 15 152 175 903 813 514 798 362 637 611 - - 15 152 Buildings PROPERTY, PLANT AND EQUIPMENT AND PLANT PROPERTY, OTHER INVESTMENTS OTHER 31 December 2019 Cost At the beginning of the year Transfers for CWIP Additions Disposals At the end of the year Depreciation At the beginning of the year Charge for the year Disposals At the end of the year Net book value At the end of the year Other Investments 13. 12. The other investments balance includes K30 million in the National Switch and the other K1 million is investment in shares million is investment other K1 includes K30 million in the National Switch and the The other investments balance The investments are carried at amortised cost. on the Malawi Stock Exchange. FDH Bank Annual Report 2019 At theendofyear Disposals Additions Transfers forCWIP At thebeginningofyear Cost 31 December2018 Disposals Charge fortheyear At thebeginningofyear Depreciation At theendofyear Net bookvalue At theendofyear 86 Buildings 175903 - - 175 903 175 903 (598) K’000

- - - - equipment Computer (307982) 7445115 4286313 (319) 3 158802 1 015894 5 922443 3 302292 507 376 984 340 K’000

(181240) vehicles 2339020 Motor 1 453603 885417 - 1 767572 879 430 321 123 745 534 K’000

- and fittings Furniture 3426372 1553789 1872583 - - 2 847839 1 265102 524 075 288 687 54 458 K’000

Capital work (308580) in-progress (1 207354) 1425037 1425037 - - 2 041014 591 377 K’000

- - (181559) 14811447 6725519 11 129231 8 085928 3 990796 5 312928 1 594150 Total K’000

- FDH Bank Annual Report 2019 87

K’000 365 124 4 623 911 4 258 787 2 613 448 1 992 369 2 350 619 1 009 686 - 4 623 911 2 010 463 - 621 079 3 282 978 2 613 448 5 633 597 669 530 Total - -

K’000 89 253

988 719 209 124 139 900 89 253 517 470 89 253 - - 517 470 - (259 771) - (560 502) Work in progress

K’000 20 967 225 224 669 530 4 534 658 2 613 448 4 049 663 1 992 369 560 502 1 833 149 1 921 210 259 771 4 534 658 621 079 5 116 127 3 282 978 2 613 448 Computer Software INTANGIBLE ASSETS INTANGIBLE Additions Transfers 31 December 2019 Cost of the year At the beginning At the end of the year Amortisation At the beginning of the year Transfers At the end of the year Net book value At the end of the year 31 December 2018 Cost At the beginning of the year Additions Amortisation At the beginning of the year Charge for the year At the end of the year Net book value At the end of the year Charge for the year At the end of the year

The computer software is amortised over a period of five years. Included in progresswork in are(WIP) developments for various software-based products such AMLas software, developing business intelligent dashboards, integration costs with other systems billers and customer improve to experience. A significant portion of WIP in 2019 was the software developments on the MasterCard project. 14. FDH Bank Annual Report 2019 15. changed. ManagementhasreviewedtheBank’ssettlementprocedurestoensurethat such circumstances donotrecur. repayment was payable. The lender did not request accelerated repayment of the loan and the terms ofthe loan were not of K2.6billion as at 31 December 2019. The delay arose because of atemporary lack of funds on the date the first principal During thecurrentyear,Bankwaslateinpayingfirstprincipalrepaymenton oneofitsloanswithacarryingamount per Treasurybillsauctionresultsplus2%.Theloansaresecuredby(see note6). loan ispayablebasedonthesimpleaverageyieldforpastsixmonths364 dayTreasurybills(oritsequivalent)as February 2023onanamortisingbasisinhalfyearlyinstallments,withamoratorium principalofoneyear.Interestonthe The shareholderloanisinrespectofaborrowingfromFDHFinancialHoldingsLimited. Theborrowingisrepayableby28 Shareholder Loan2: 2019. The shareholderloanwasinrespectofaborrowingfromFDHFinancialHoldingsLimited.Thisrepaidon2January Shareholder Loan1: At theendofyear Repayment Interest charged Additions At beginningoftheyear Shareholder’s loanmovement Total Current portion Long-term portion Shareholder Loan2: Current portion Shareholder Loan1 88 SHAREHOLDER LOANSHAREHOLDER 2606543 (498336) 2606543 820829 2 729144 1 785714 375 735 2019 K’000 - - (681771) 2729144 2729144 884976 2 500000 1 763383 405 541 505 374 80 785 2018 K’000 FDH Bank Annual Report 2019 - - - 89 2018 2018 2018 K’000 K’000 K’000 13 368 4 504 286 4 828 428 5 441 250 39 332 339 18 040 122 27 498 300 - 626 190 5 454 618 5 454 618 4 504 286 27 699 503 - 112 570 264 2019 2019 2019 K’000 K’000 K’000 181 375 408 938 3 001 134 1 800 675 4 899 249 5 454 618 5 099 566 5 760 919 44 555 536 17 402 272 35 289 595 600 227 661 353 5 760 919 (284 012) 10 301 285 137 140 830 39 893 427 LIABILITIES FINANCIAL INSTITUTIONS TO LIABILITIES CUSTOMERS TO LONG TERM LOAN LONG Current accounts Foreign currency accounts Deposit accounts Savings accounts Total liabilities to customers National Bank of Malawi plc CDH Investment Bank Eco Bank Limited MyBucks Banking Corporation Total money markets liabilities Long-term loan movement Long-term loan movement At the beginning of the year Long-term portion Current portion Total Addition Interest charged Repayments At the end of the year 18. 17. 16. The maturity profile of liabilities to customers is included in note 29(c) to the financial statements. The maturity profile of liabilities to customers is included 4.71%). The average interest rate on deposits was 3.5% (2018: The long-term loan was obtained from a Dutch Bank FMO. The loan of US$ 7,500,000 was granted in December 2018. The from a Dutch Bank FMO. The loan of US$ 7,500,000 The long-term loan was obtained The foreign currency amount is 2023. time with the last installment payable on 31 December Loan is repayable in five years’ During the year ended 31 December with RBM covering the same period of the loan amount. fully hedged through a swap on 30 June 2021. loan expires a US$250,000 long-term loan from Land O Lakes. The 2019, the Bank also obtained FDH Bank Annual Report 2019 90 that thecarryingamountofpayablesandaccrualsapproximatestheirfairvalue. The averagecreditperiodonpayablesis30daysandnointerestchargedoverduebalances. Thedirectorsconsider 19. Interest oninterbankborrowingswas13.5%(2018:14.9%). The maturityprofileofliabilitiestofinancialinstitutionsisgiveninnote29(c)the statements. 20. Total deferredtax(liabilities)/assets Other temporarydifferences Accelerated capitalallowances Deferred tax(liabilities)/assetsanalysedas follows: At theendofyear As restated adjustment transition 9 and 16 IFRS of effect Tax At thebeginningofyear Deferred tax(liabilities)/assets Settlement account Deferred taxassettransferredontransferofproperties Deferred taxthathaspassedthroughequity Income taxcharge Sundry accruals Total payablesandaccruals Withholding taxpayable Staff pensionpayable Gratuity Audit fees Bank cheques Inter branchpayables Local payables PAYABLES ACCRUALS AND DEFERRED TAXDEFERRED 53800 (294753) (294753) 6653457 251195 - 7999 (2 303979) 2 017225 2 009226 4 366958 1 424490 (545 948) 101 280 163 715 274 030 269 184 (7999) K’000 K’000 2019 2019 - - 1575815 5502438 2009226 2009226 273701 53481 1353728 1 7 815) 575 (1 (2 191098) 10 795945 3 926623 11621 655 498 340 812 114 837 104 297 99 615 59 206 46 582 K’000 K’000 6 603 2018 2018 FDH Bank Annual Report 2019 91 2018 2018 2018 K’000 K’000 K’000 675 993 (407 326) (311 952) 8 518 851 15 515 562 12 454 129 4 828 230 6 262 164 14 781 015 21 019 785 15 588 105 (6 015 321) 3 133 976 (6 734 599) 2019 2019 2019 K’000 K’000 K’000 (871 081) 8 121 381 1 058 043 (375 735) 15 655 535 17 004 739 7 749 900 25 812 682 16 730 807 32 386 342 16 343 445 (6 519 740) 8 222 064 (7 766 556) COMMISSIONS AND OTHER FEE INCOME FEE OTHER AND COMMISSIONS NET INCOME INTEREST GUARANTEES AND LETTERS OF CREDIT Letters of credit Local guarantees and performance bonds Local guarantees Money market and customers Total interest expense Total commissions and other fee income Interest expense Preference share dividend Interest on shareholders’ loan Other income Interest income Interest on loans and advances Interest on money market investments Total interest income Commissions Arrangement fee income In the normal course of its business, the Bank has issued guarantees in favour of third parties on behalf of their clients. These the Bank has issued guarantees in favour of third In the normal course of its business, on payment to the third parties. As a a liability for the Bank in the event that the clients default guarantees only give rise to at the year-end. these guarantees have not been recognised as liabilities result, and after due assessment, 23. 22. 21. FDH Bank Annual Report 2019 24. 25. Pension contributions Directors’ feesandexpenses Profit ondisposalofequipment Amortisation ofintangibleassets Depreciation ofplantandequipment Auditor’s remuneration following: Profit beforetaxisarrivedataftertakingintoaccountthe Income tax Profit beforetax Total taxation Deferred tax Effective rateoftax Permanent differences Standard rateoftax Reconciliation ofratetax 92 PROFIT BEFORE TAX IMPARTMENT BEFORE PROFIT NET AND LOSSES TAXATION 11743048 750501 3896684 2303979 33.0 3.0 1 807479 1 592705 236 247 669 530 117 035 14 162 K’000 K’000 2019 2019 30.0 % 2191098 2191098 8156540 660710 27 1 594150 (3) 154 327 621 079 114 838 48 909 K’000 K’000 2018 2018 30 % - FDH Bank Annual Report 2019 -

2018 1 289 K’000 K’000 31 032 Fair value 29 173 7 062 293 462 706 171 786 2 606 543 5 760 919 46 955 149 31 750 661 56 813 895 10 301 285 5 965 442 6 653 457 137 140 830 162 463 034 K’000 31 032 5 760 919 7 062 293 2 606 543 31 750 661 6 653 457 46 955 149 56 813 895 10 301 285 137 140 830 amount Carrying 162 463 034 29 173 304 171 786 334 -

2019 1 696 K’000 462 706 31 032 K’000 7 846 364 2 606 543 5 760 919 7 062 293 46 955 149 31 750 661 56 813 895 10 301 285 cost 29 173 304 137 140 830 162 463 034 6 653 457 171 786 334 At amortised ------

K’000 - - through - - At fair value profit or loss FINANCIAL ASSETS AND LIABILITIES BASIC EARNINGS PER SHARE Profit Profit for the purposes of basic/diluted earnings per share Number of shares ordinary Weighted average number of Shares for the purposes of basic/diluted earnings per share Earnings per share (tambala) Malawi Government Treasury Bills and Reserve Bank Bond Shareholder’s loan LIABILITIES Placements with other banks Loans and advances to customers Other investments Cash and Bank Balances with Reserve Bank of Malawi At 31 December 2019 ASSETS Sundry receivables Total financial assets Long term loan Liabilities due to customers Liabilities to financial institutions Payables and accruals Total financial liabilities 27. fair values Accounting classifications and 26. on Bank is based holders of the ordinary equity to the per share attributable earnings basic and diluted of the The calculation the following data: FDH Bank Annual Report 2019 liabilities. This noteprovidesinformationabouthowtheBankdeterminesfairvaluesof variousfinancialassetsand 28. Shareholder’s loan LIABILITIES Total financialassets Sundry receivables Amounts duefromrelatedparties Other investments Loans andadvancestocustomers Other shortterminvestments–OMO Placements withotherBanks Malawi GovernmentTreasuryBillsandReserveBankBond Cash andBankBalanceswithReserveofMalawi ASSETS At 31December2018 Amounts duetorelatedparties Long termloan Total financialliabilities Payables andaccruals Liabilities tofinancialinstitutions Liabilities duetocustomers 94 FAIR VALUE MEASUREMENTS 28.1. The fairvaluesoffinancialassetsand liabilitiesaredeterminedasfollows: cost inthefinancialstatementsapproximatetheirfairvalues. The Directorsconsiderthatthecarryingamountsoffinancialassetsandliabilities recognised atamortised • • Valuation techniques and assumptions applied for the purposes of measuring fair value fair ofmeasuring purposes the for applied Valuation andassumptions techniques from observablecurrent markettransactionsanddealerquotes forsimilarinstruments. in accordance with generally accepted pricing models based on discounted cash flow analysisusing prices The fairvaluesofotherfinancialassetsand financialliabilities(excludingderivativeinstruments)aredetermined notes, billsofexchange,debenturesandperpetual notes). active liquidmarketsaredeterminedwith referencetoquotedmarketprices(includeslistedredeemable The fairvaluesoffinancialassetsand liabilitieswithstandardtermsandconditionstradedon profit orloss At fairvalue through - K’000 ------At amortised 137834721 136883134 10309395 112 570264 cost 40 689341 26 084042 39 552133 14 885769 11 621378 5496484 4504286 2 729144 5 454618 791 525 K’000 6 032 26 3 444 40689341 137834721 136 883134 10309395 Carrying 112 570264 amount 26 084042 39 552133 14 885769 11 621378 5496484 4504286 2 729144 5 454618 791 525 K’000 26 032 3 444 136883134 137 834721 10309395 112 570264 40 689341 26 084042 39 552133 14 885769 11 621378 4504286 value 5 496484 2 729144 5 454618 Fair 791 525 K’000 26 032 3 444 FDH Bank Annual Report 2019 95 Credit Policy; Market and Trading Book Policy Liquidity Risk Policy; Market Risk Policy; and Operational Risk Policy. Calculate risk adjusted performance measures; Manage volatility in earnings; Minimise financial distress; and basis. Help appraise new business initiatives on a comparable fair value measurements are those derived from inputs other than quoted prices included within prices included than quoted other from inputs are those derived measurements fair value 2 Level from as prices) or indirectly (i.e. derived liability, either directly (i.e. observable for the asset or Level 1 that are prices); and asset the for inputs include that techniques valuation from derived those are measurements value fair 3 Level on observable market data (unobservable inputs). or liability that are not based fair value measurements are those derived from quoted prices (unadjusted) in active markets for in active markets from quoted prices (unadjusted) are those derived fair value measurements 1 Level or liabilities; identical assets Fair value of the value Bank’s financialFair assets and financial liabilities that are not measured at value on fair a recurring basis (but fair disclosures value are required) Fair value of the value Bank’s financialFair assets and financial liabilities that are measured at on a value fair recurring basis Fair value measurements value Fair recognised in the statement of financialposition Introduction and overview • • • • • • • • • • • • Governance standards have been established as key components of good governance and business practice in FDH Governance standards have been established as key components infrastructure and represents a high-level description of Bank Ltd. The standards form an integral part of the control control of areas key and reporting risk appetite, risk of respect in Board the of requirements and expectations the activity within FDH Bank and it's business units. which have been approved by the board and these include: FDH Bank has approved policies and procedures in place

FDH Bank Board of Directors is ultimately responsible for management of risk in the Bank. The Board delegates FDH Bank Board of Directors is ultimately responsible capital management to the Risk and Capital Management certain functions and responsibilities relating to risk and Finance and Audit Committee. Committee, the Board Credit Committee and the Board to Exco and its sub-committees which comprise of Assets Day-to-day risk management responsibility is delegated (ORCC), Credit Risk Committee Management and Compliance Risk Operational (ALCO), Committee Liabilities and (NPC). The line management functions within the Management Committee (CRMC) and New Products Committee the respective operations. Bank are responsible for managing the risks that arise from Board’s directives which are based on the Bank’s credit The role of the CRMC is to ensure compliance with the within the Bank and is responsible for controlling inter alia standard. CRMC effectively enhances the credit discipline debt, regulatory issues that pertain to credit, credit audits, delegated authorities, concentration risk, non-performing policy and governance. relevant information to enhance senior accurate and timely, provide complete, risk management should Effective management decision making ability to: The directors consider that the carrying amounts of financial assets and financial liabilities recognised in the financial the carrying amounts of financial assets and financial liabilities The directors consider that fair values. statements approximate their The Bank had no financial assets and financial liabilities that were measured at fair value at the end of each reporting assets and financial liabilities that were measured at fair The Bank had no financial period. Fair value hierarchy levels 1 to 3 are based on the degree to which the fair value is observable: the fair value degree to which based on the 1 to 3 are hierarchy levels Fair value a). 28.4. 28.3. 28.2. FINANCIAL RISK MANAGEMENT 29. FDH Bank Annual Report 2019 96 risks areconsideredmaterialtotheBank,cognizanceistakenof: responsible fortheanalysisofcapitalrequirementsandeffectiveutilisationcapital.Indeterminationwhat noted ataquarterlyreviewmeeting,aswellthemonthlyALCO.RiskandCapitalManagementCommitteeis units. Inaddition,theapproachtoquantifyingcapitalrequirementsforeachofriskswillbediscussedand Identification ofmaterialrisksisaprocessoverseenbytheChiefRiskOfficer,withinvolvementfrombusiness material: Based on the above-mentioned criteria the following primary risk types are considered by FDH Bank Ltd to be external andinternal auditors onaccountingproceduresand theadequacyofcontrolsandinformation systems, Board, executivemanagement, internalaudit,andexternalaudit isencouraged.Thecommitteeliaises withthe control systems, accounting practices, information systems and auditing processes. Communication between the role ofthecommitteeistoprovideanindependent evaluationoftheadequacyandefficiencyBank’sinternal The committeemeetsatleastfourtimes ayear.Thecommitteeiscomprisedoffivenon-executivedirectors. (F&A) AUDIT COMMITTEE AND FINANCE THE Exco meetsatleastmonthly. of Directors.Therefore,theexecutivemanagement committeeisconstitutedtoassisttheMDmanageBank. The ManagingDirector(MD)hastheauthority tomanagetheBankwithinconstraintslaiddownbyBoard (EXCO) COMMITTEE MANAGEMENT EXECUTIVE access totheChairpersonsofrelevantsub-committees. objectivity ofthefunction.TheChiefRiskOfficer,HeadsCredit,InternalAudit,IT andCompliancealsohavedirect committees arechairedbyanon-executivedirectortomaintain,asbestpractice requires, theindependenceand separate boardsub-committeestoassistindischarging itsdutiesinrelation tothemanagementofrisk.The sub- management processexistsandismaintainedthroughouttheBank.TheBoardappoints boardmemberstofour The Boardtakesultimateresponsibilityformanagementofriskandisrequired to ensurethataneffectiverisk BOARD) (THE BOARD DIRECTORS OF THE • • • • • • • • • • The definitionofmaterialitythresholdswhichareadvisedbytheregulations. Those riskstowhichsignificantamountsofregulatorycapitalisallocated;and History oflossesaswellpotentialfuturelosses; the achievementofbusinessobjectives; Regular riskandcontrolself-assessmentsperformedbymanagementwhichidentifyrisksthatcouldthreaten Business risk,includingstrategicreputationalrisk. Liquidity risk;and Capital risk; Operational risk; Market risk,includinginterestrateriskinthebankingbook; Credit risk,includingcountryandconcentrationrisk; FDH BankBoard Management Committee Risk &Capital FDH BankEXCO Committee Assets &Liability Committee Credit RiskManagement Committee Compliance Management Operational Risk& Committee New Products FDH Bank Annual Report 2019 97 MANAGEMENT COMMITTEES CREDIT RISK MANAGEMENT COMMITTEE (CRMC) of FDH committees expert and functions credit appointed of expertise the recognises Committee Credit Board The participations are authorised and delegated to Bank Ltd. Accordingly certain oversight functions and management Risk Committee. the Credit Risk Management committee by the Board Credit function within a defined delegated authority as The CRMC is a senior management credit decision-making effectively enhances the credit disciplines within the determined by the Board from time to time. This committee authorities, concentration risk, distressed debt, regulatory Bank and is responsible for controlling inter alia delegated The committee meets at least once a month – on a issues that pertain to credit, credit audits, policy and governance. Credit. – and is chaired by the Head of scheduled or ad hoc basis depending on business imperatives ASSET AND LIABILITY MANAGEMENT COMMITTEE(ALCO) and manage all trading book risk, banking book liquidity ALCO meets on a monthly basis to monitor and control and breaches trigger or guideline limit, review appetite, risk Bank’s the with accordance in risk rate interest and risk agreed appetite, approve Market Risk, Liquidity Risk and agree remedial actions in order to align exposures with risk limits and monitors set market documents, key procedure Policies; together with Rate Risk Book Interest Banking or banking book positioning, designate certain positions compliance thereto, but does not take decisions on trading the Bank’s Liquidity Contingency Plan, review regulatory which should be held as endowment hedges , approve the Bank interest margin for net the on factors external and internal of impact the note and review adequacy, capital management governance is in place, ensure that FDH Bank within the scope of ALCO, ensure that effective capital stressed), minimum regulatory capital requirements and is adequately capitalized given risks assumed (including and future returns to optimizes current in a way that capital requirements are structured plans, ensure that business and the committee is chaired by the Managing Director. shareholders. ALCO members consist of senior management (NPC) COMMITTEE NEW PRODUCTS committee chaired by the Head of Operations. The Committee The New Products Committee is a senior management systems entities, legal businesses, services, products, new of introduction the facilitate to required when and as meets is consistent with the Bank’s overall strategic, business, and or processes in a coordinated and effective manner that risk management focus. action has been taken to ensure that any significant risks The Committee exercises proper oversight and ensures are and processes systems services, or products businesses, of amendment or introduction the from arise could that properly identified and appropriately addressed by the relevant parties prior to implementation. RISK ANDOPERATIONAL MANAGEMENT COMPLIANCE COMMITTEE (ORCC) of The Risk Management and Compliance teams provide the day to day oversight on compliance and management and maintain the to create The ORCC is responsible across the Bank. culture the risk/compliance risk and promotes and reviews the financial statements, considers loss reports on major defalcations, and the Bank’s compliance plan compliance Bank’s the and defalcations, major on reports loss considers statements, financial the reviews and for effectiveness. CREDITBOARD RISK COMMITTEE (CRC) The Board Credit four non-executive directors. committee is comprised of meets quarterly. The This committee committee directs, At each meeting, the of the Bank’s lending policies. tasked with the overall review Committee is of the Bank’s the present and future quality that may materially impact on and considers all issues monitors, reviews facilities, minimise to identify irregular credit are effective procedures It ensures that there credit risk management. the authorised any transactions above committee analyses and authorizes maximise recoveries. The credit losses and risk management committee. limits of the credit APPOINTMENTS COMMITTEE AND REMUNERATION (ARM) directors. The committee times a year. The committee is comprised of five non-executive The committee meets four planning, safety and industrial relations, succession recruitment policy, issues including considers all human resources and packages for management and staff. health and remuneration terms MANAGEMENTRISK COMMITTEE & CAPITAL (RCMC) directors. The committee times a year. The committee is comprised of four non-executive The committee meets four and strategies are effectively of the risk control systems and ensures that risk policies reviews and assesses the integrity control, which will reduce the in order to contribute to a climate of discipline and identified, managed and monitored capital position and approves fraud, in all areas of operation. The RCMC also reviews the opportunity of risk, including if required. results and consider the adequacy of mitigating actions risk appetite; reviews stress testing FDH Bank Annual Report 2019 98 b). responsible foroversightofthecreditrisk,including: The Board of Directors has delegated responsibility for the management of credit risk to its Credit Committee and is RISK CREDIT OF MANAGEMENT large facilitiesandmonitoringcustomers’performances. action can betaken should circumstances demand. Various committees and structures areinplaceforsanctioning Even afterthefacilitiesaregranted,Bankcontinuestomonitorcustomers’performancesothattimelycorrective risk is acceptable. This is achieved by thoroughly evaluating customers’ credit worthiness before facilities are granted. The Bankmitigatescreditriskbyproactivelymanagingit.Lendingandotherfacilitiesaregrantedonlyifthelevelof risk formanagementpurposes. The Bankconsidersallelements ofcreditriskexposuresuchascounterpartydefault risk,geographicalriskandsector to lendsuchasloanorcreditcardfacilities),investments in debtsecuritiesandderivativesthatareanassetposition. risk. Creditriskmainlyarisesfromloansandadvancestocustomersotherbanks(includingrelatedcommitments activities. TheBank’smainincomegeneratingactivityislendingtocustomersandthereforecreditriskaprincipal and othertradingactivities.Theriskcoversbothstatementoffinancialpositionoff Credit riskistheprobabilitythatafinancialobligationwillnotbehonouredbycounterpartyandexistsinlending issues relatedtotheriskmanagement,controlandgovernanceprocesseswithinBank. activities, managingitsrisksandensuringgoodgovernance.Itreportsprovidesrecommendationsonsignificant Audit providesacontinuousassessment on theadequacyandeffectiveness ofthe Bank’sprocessesforcontrollingits informed andmanaged.InternalAuditisdirectlyaccountabletotheBoardFinanceCommittee. should be in place to manage the risk profile within acceptable norms andwhere the Banktakesonrisk, itshouldbe should understandthebusinessenvironment,strategyandoperatingmodelsinordertodeterminewhatcontrols risks tomanagementandensuringthattheBankisnotputundulyinharm’sway.ThisentailsInternalAudit The primarypurposeofInternal AuditistopreventthedemiseofBankbyhighlightingpotentialandemerging INTERNAL AUDIT Officer oftheFDHFinancialHoldingsLimited. and inadditiontheyhavedualdirectreportinglinesintotheManagingDirectorofBankChiefExecutive risk categories.Thecomplianceandmanagementteamsmaintainobjectivitybybeingindependentofoperations risk andcompliance practices across theBank as definedbyBank riskandtoensurethatcontrolsareinplaceforall The Bank’sCreditCommitteeisresponsible formanagingtheBank’screditriskby: • • • • • • • • • Credit risk Credit in themanagementofcreditrisk. Providing advice,guidanceandspecialistskillsto business units to promote best practice throughout the Bank Reviewing compliancesothatexposurelimitsremainwithintheacceptablerange. and byissuer,creditratingband,marketliquiditycountry(forinvestmentsecurities). Limiting concentrations of exposure tocounterparties,geographiesandindustries(forloansadvances), list whichincludesallthosethathaveexceededtheirlimitsandrepaymentsarelagging behind. Reviewing andassessingcreditrisk.TheCreditCommitteeassessesallexposurespreparesawatch Committee ortheBoard. provided tocreditofficers.LargerlimitsrequireapprovalbytheHeadofCredit department,theCredit Establishing theauthorisationstructureforapprovalsandrenewalsofcreditfacilities.Authorisationlimitsare and statutoryrequirements. assessment, risk gradingandreporting, documentary and legalprocedures, and compliancewithregulatory Formulating creditpolicies in consultation with business units, covering collateral requirements, credit monitor exposuresagainst internalrisklimits; collateral fromborrowers, toperformrobustongoingcredit assessment ofborrowersandtocontinually Creating creditpolicies toprotecttheBankagainstidentified risksincludingtherequirementstoobtain level; Identifying, assessingandmeasuringcredit riskacrosstheBank,fromanindividualinstrumenttoaportfolio IFRS andrelevantsupervisoryguidance; to consistentlydetermineadequateallowances inaccordancewiththeBank’sstatedpoliciesandprocedures, Ensuring that the Bank has appropriate credit risk practices, including an effective system ofinternalcontrol, FDH Bank Annual Report 2019 99 Payment record, including payment ratios and ageing analysis; Extent of utilisation of granted limit; Forbearances (both requested and granted); Changes in business, financial and economic conditions; Credit rating information supplied by external rating agencies; and behaviour, affordability metrics etc.; For retail exposures: internally generated data of customer review of customer files including audited financial For corporate exposures: information obtained by periodic swaps (CDS) or quoted bonds where available, statements review, market data such as prices of credit default changes in the financial sector the customer operates etc. Limiting concentrations of exposure by type of asset, counterparties, industry, credit rating, geographic location location rating, geographic industry, credit counterparties, by type of asset, of exposure concentrations Limiting etc; renewal of approval and the for structure authorisation the regarding framework control robust a Establishing credit facilities; of risk of according to the degree grading to categorise exposures maintaining the Bank’s risk Developing and are subject to regular reviews; default. Risk grades credit risk, including monitoring of processes for measuring ECL maintaining the Bank’s Developing and measure ECL; and the method used to of forward looking information incorporation models maintain and validate in place to appropriately the Bank has policies and procedures Ensuring that and measure ECL; and used to assess with it provides that process measurement and assessment accounting risk credit sound a Establishing for ECL. Providing systems, tools and data to assess credit risk and to account a strong basis for common the Bank in the skills to business units to promote best practice throughout advice, guidance and specialist management of credit risk. • • • • • • • • • • • • • The Bank uses credit risk grades as a primary input into the determination of the term structure of the PD for exposures. The Bank uses credit risk grades as a primary input into the about its credit risk exposures analysed by jurisdiction or The Bank collects performance and default information used is both internal and grading. The information credit risk as well as by and borrower of product by type region and internal of the Bank’s mapping a provides 82) (page below table The assessed. the portfolio on depending external credit risk grades to external ratings. and loans and advances other bills and banks, treasury with balances are cash and assets financial Bank’s principal The to these assets. The credit risks on balances with other corporate lending. The Bank’s credit risk is primarily attributable ratings. are institutions with high credit banks and treasury bills are limited because the counterparties & EXTENTTHE NATURE OF CREDIT RISK the The Bank’s exposure as at 31 December 2019 was at K56.813billion with NPL standing at 0.80% while in 2018, rate declining from With default ratio of 1.41%. with NPL K40.689billion a loan book worth the year with Bank closed in the previous reporting period and the Bank’s enhanced credit risk management, it is expected to reduce further 2020. The internal audit function performs regular audits making sure that the established controls and procedures are controls regular audits making sure that the established performs The internal audit function adequately designed and implemented SIGNIFICANT INCREASE IN CREDIT RISK assess whether there has been a assets that are subject to impairment requirements to The Bank monitors all financial Bank the risk credit in increase significant a has been there If recognition. initial since risk credit in increase significant based on lifetime rather than 12-month ECL. will measure the loss allowance INTERNAL CREDIT RISK RATINGS to develop and maintain risk, the Bank has tasked its Credit Management Committee In order to minimise credit risk of default. The Bank’s credit to categorise exposures according to their degree of the Bank’s credit risk grading credit rating information is based on a range of data that is risk grading framework comprises ten categories. The applying experienced credit judgement. The nature of the determined to be predictive of the risk of default and the analysis. Credit risk grades are defined using qualitative exposure and type of borrower are taken into account in and quantitative factors that are indicative of risk of default. the risk of default as credit risk deteriorates. As the credit The credit risk grades are designed and calibrated to reflect changes. Each exposure is allocated to a credit risk grade risk increases the difference in risk of default between grades All exposures are monitored and the the counterparty. information about available on the based at initial recognition, The monitoring procedures followed are both general and credit risk grade is updated to reflect current information. exposures: typically used to monitor the Bank’s tailored to the type of exposure. The following data are FDH Bank Annual Report 2019 100 capability topay. the loans.Thisenhancescreditriskmanagementinthatloansareonlygivenouttocustomerswhohave The BankusestheCreditReferenceBureautoobtaincredithistoryofallloanapplicationsitgetsbeforeapproving RATING RATINGCREDIT INFORMATION BY AGENCIES; EXTERNAL SUPPLIED a costdriverformanycommodities. rates andinflationrate.Therateisexpectedtodeclinein2020duerecentreductionfuelpricewhich The businessconditionwasstableinthereportingperiodduetostabilityofeconomydrivenbyexchange ECONOMIC AND CONDITIONS; FINANCIAL BUSINESS, IN CHANGES There arenosignificantforbearancesinthereportingperiod. GRANTED) AND (BOTH REQUESTED FORBEARANCES due tonewmeasuresthathavebeenputinplaceensurecustomersuseupthecommitments. limits utilisationasaresultofliquiditysqueezeinthemarket.Theunutilizedratioisexpectedtodeclinefurther2020 December 2018representing7.2%ofthetotallimits.Thereductioninunutilisedoverdraftsshowsanincrease of thetotallimitscomparedtounutilizedK1.343billionagainstK18.540billionwerereportedin The Bankclosed2019withunutilizedoverdraftsofK200millionagainstlimitsK17.925billionrepresenting1.12% LIMIT GRANTED OF UTILIZATION OF EXTENT increase increditrisk. billion) andK0.451billionwasinstage3(2018:K0.868billion).Basedonthisageinganalysis,thereisnosignificant Out of the gross loans, K53.724billion was in stage 1 (2018: 36. 813billion), K3.439billion was in stage 2 (2018: K3.557 management andrecoveries.TheBankclosedtheyearwithanexposureofK57.615billion(2018:K41.237billion). The loanrepayment rate in 2019was 98.75% (2018: 94%). Therate hasincreased due toenhanced credit risk PAYMENT RECORD, PAYMENT INCLUDING RATIOS ANALYSIS; AGEING AND factors includegeneralcustomerbehaviourandchangesinthebusinesssector. Apart fromthemacroeconomicfactorsabove,qualitativeareconsideredwhenestimatingPD.These INCORPORATION FORWARD OF LOOKING FDH Bank Annual Report 2019 101 K'000 674 065 867 899 4 176 737 3 556 799 (547 929) 33 451 791 41 237 270 41 237 270 40 689 341 486 742 1 787 483 222 301 4 845 357 7 111 414 41 237 270 65 931 491 605 2 498 528 149 757 9 994 987 36 812 572 538 448 538 2 477 689 11 107 157 96 376 1 045 660 891 376 361 136 - - - - As at 31 December 2018 As at 31 December K'000 1 273 36 396 1 751 458 219 758 269 361 682 791 8 957 263 117 811 1 162 157 977 752 57 615 195 57 615 195 400 000 964 642 937 600 467 060 5 387 880 3 926 112 9 732 158 10 756 266 2 287 137 8 580 320 (801 300) 451 202 3 439 753 56 813 895 As at 31 December 2019 As at 31 December 718 182 43 666 675 13 230 338 53 724 240 57 615 195 1. Agriculture, Forestry, Fishing and Hunting 1. Agriculture, Quarrying 2. Mining and 3. Manufacturing Energy 4. Electricity, Gas, Water and 5. Construction 6. Wholesale and Retail Trade 7. Restaurants and Hotels 8. Transport, Storage and Communications 9. Financial Services Services 10. Community Social and Personal Retail: Total Corporate: and Hunting 1. Agriculture, Forestry, Fishing 2. Mining and Quarrying 3. Manufacturing Energy 4. Electricity, Gas, Water and 5. Construction 6. Wholesale and Retail Trade 7. Restaurants and Hotels 8. Transport, Storage and Communications 9. Financial Services 10. Community Social and Personal Services Stage 1 South Centre North Total Stage 2 Stage 3 Total Gross Carrying Amount Loss Allowance Carrying amount LOANS AND ADVANCES TO CUSTOMERS AT AMORTISED COST CONCENTRATION BY REGION BY AMORTISED COST CONCENTRATION CUSTOMERS AT TO AND ADVANCES LOANS LOANS AND ADVANCES TO CUSTOMERS AT AMORTISED COST CATEGORISED PER AMORTISED INDUSTRY COST CATEGORISED CUSTOMERS AT TO AND ADVANCES LOANS and then and Retail, Corporate main categories, in two Advances categorised Loans and tables show The below sectors; the industry categorised into further LOANS AND ADVANCES TO CUSTOMERS AT AMORTISED COST CATEGORISED BY STAGES BY AMORTISED COST CATEGORISED CUSTOMERS AT TO AND ADVANCES LOANS FDH Bank Annual Report 2019 102 respective financialassetsiscurrentlynot mitigated byanyassetoffsetarrangements. respective financialliabilitiesfor reporting purposes.However,theexposuretocredit riskrelatingtothe and settlingthefinancialliabilitiessimultaneously. Consequently,thefinancialassetsarenot offsetagainstthe However, innormalcircumstances,therewould benointentionofsettlingnet,orrealising thefinancialassets In respectofcertainfinancialassets,theBank haslegallyenforceablerightstooffsetthemwith financialliabilities. Net exposuretocreditriskwithouttakingintoaccountanycollateralorother enhancements repay theoutstandingloans. The Bank’spolicyistodisposeofrepossessedpropertiesinanorderlyfashion. proceeds areusedtoreduceor agreements maximum exposure is showngross,beforetheeffect ofmitigation throughtheuseofmasternettingandcollateral financial instrumentsdefinedandrecognisedunderIFRS9FinancialInstruments:RecognitionMeasurement.The below showsthemaximumexposuretocreditriskbyclassoffinancialinstrument.Financialinstrumentsinclude Maximum exposure to credit risk without taking into account any collateral or other credit enhancements. The table Total Equipment andvehicles Investments Guarantees Cash deposits Residential property Commercial property es aboveisasfollows: Collateral heldassecurityandothercreditenhancementsinrespectoftheexposurethroughloans andadvanc- Total creditriskexposure Other receivablesandprepayments Amounts duefromrelatedparties Loans andAdvances Other investments OMO – investments term short Other Malawi GovernmentTreasuryBillsandReserveBankofBond Placements withotherlocalbanks Funds withReserveBankofMalawi MAXIMUM EXPOSURE GROSS 171786334 29173304 512008 35428521 26 872332 56 813895 46 955149 31 750661 3 914467 3 187310 7 062293 400 000 542 404 31 032 K’000 2019 - - 35130881 791525 137834721 10309395 650000 520586 871948 25791425 3757012 3539910 40 689341 39 552133 26 084042 14 885769 5 496484 26 032 K’000 2018 FDH Bank Annual Report 2019 103 2018 K’000 5 685 113 3 322 933 2 683 573 2 243 084 8 847 895 1 687 014 12 005 128 4 214 601 40 689 341 2019 K’000 2 690 059 4 903 864 9 268 413 2 969 928 9 910 757 9 768 554 11 918 424 5 383 896 56 813 895 Liquidity risk LOANS AND ADVANCES TO CUSTOMERS TO AND ADVANCES LOANS Segmental analysis-industry Agriculture Construction Finance, Real Estate and other business services Finance, Real Estate and other Transport, Storage and Communications Wholesale and Retail Trade Individuals Manufacturing Other services Total The Bank monitors concentrations of credit risk by sector. An analysis of concentrations of credit by sector is by sector credit of of concentrations by sector. An analysis of credit risk monitors concentrations The Bank below presented The risk that counterparties to trading instruments might default on their obligations is monitored on an on-going default on their obligations is monitored The risk that counterparties to trading instruments might fair value and given to trading instruments with a positive basis. In monitoring credit risk exposure, consideration is the volatility of the fair value of trading instruments. when of good credit standing, and To manage the level of credit risk, the Bank deals with counter-parties appropriate, obtains collateral. INTERNAL CREDIT RATINGS Credit Management Committee to develop and maintain In order to minimise credit risk, the Bank has tasked its to their degree of risk of default. The credit rating the Bank’s credit risk grading to categorise exposures according available and, if not available, the Credit Management information is supplied by independent rating agencies where its major records to rate own trading the Bank’s information and financial publicly available uses other Committee the credit ratings of its counterparties are continuously customers and other debtors. The Bank’s exposure and is spread amongst approved counterparties. monitored and the aggregate value of transactions concluded c). be funded due to mismatches in the cash flows of assets Liquidity risk arises where the operations of the Bank cannot Committee reviews the potential for The Asset and Liability position. of financial and liabilities within the statement profiles where necessary with a view to minimising these mismatches and takes measures to alter certain maturity the impact of such mismatches. MANAGEMENT OF LIQUIDITY RISK enhances This shareholders. and deposits from mainly raised are Funds base. funding diverse a to access has Bank The of funds and generally lowers the cost of funds. The Bank funding flexibility, limits dependence on any one source the use of liabilities with a range of flexibility through of funding and continuity a balance between strives to maintain identifying and monitoring changes in funding required to maturities. The Bank continually assesses liquidity risk by of liquid assets as part of its liquidity risk management meet business objectives. In addition the Bank holds a portfolio remaining period based on the profiles relevant maturity into assets and liabilities The table below analyses strategy. at 31 December 2019 to the contractual maturity date. FDH Bank Annual Report 2019 104 Cumulative liquiditymismatch Contractual liquiditymismatch Total liabilities Payables andaccruals Long termloan Liabilitiestofinancialinstitutions Shareholder’s loan Liabilities tocustomers LIABILITIES Total assets Other receivablesandprepayments Other investments Loans andadvancestocustomers and ReserveBankofMalawibond Malawi GovernmentTreasuryBills Placements withotherbanks Cash andfundswithReserveBankofMalawi ASSETS At 2019 31December 97156198 57897850 10851671 3297656 (39 258348) (39 258348) 1 month 10 301285 83 557257 31 750661 Up to 7 711529 7 062293 521 696 K’000 - - - 28762527 40076744 (27 944131) 5098244 11 314217 24 914205 10 314140 24 664360 3355801 months 1-3 410 414 82 107 K’000 - - - - 28366956 50 782168 (5 528919) - 22 415212 27 956542 11 777448 25 444720 13 560000 months 3-12 410 414 K’000 - - - - - 23 029572 1445941 8177353 14 852219 13 343506 - 9 323300 5 678812 1 785714 8 209093 1 year Over 712 826 31 032 K’000 - - - 162 888019 171 786334 137 140830 29173304 7078442 10 301285 56 813895 46 955149 31 750661 Carrying 9 323300 9 323300 5 760919 2 606543 7 062293 Total 31 032 K’000 FDH Bank Annual Report 2019 105 3 444 K’000 26 032 951 587 951 587 791 525 Total 5 454 618 4 504 286 2 729 144 5 496 484 Carrying 11 621 378 40 689 341 39 552 133 26 084 042 14 885 769 112 570 264 10 3089 395 136 883 134 137 834 721 ------K’000 26 032 951 587 Over 1 year 5 454 618 - - 32 208 731 12 202 388 25 434 929 5 454 618 37 663 349 ------K’000 3-12 2 407 967 9 436 580 9 968 476 1 876 071 - - months 9 436 580 11 844 547 (31 257 144) ------K’000 1-3 2 662 063 2 648 321 9 935 633 - - months 16 068 707 11 443 458 18 717 028 21 379 091 (33 665 111) - - 3 444 K’000 80 823 791 525 4 504 286 7 075 019 5 496 484 2 305 500 Up to 87 064 977 26 084 042 14 885 769 1 month (36 327 174) (36 327 174) 11 621 378 10 309 395 66 947 734 103 274 908 Market risk Cumulative liquidity mismatch Contractual liquidity mismatch Total liabilities Payables and accruals Amounts due to related parties Long term loan Liabilities to financial institutions LIABILITIES Shareholder’s loan Liabilities due to customers Total assets Other receivables and prepayments Amounts due from related parties Other investments Loans and advances to customers Other short term investments – OMO Malawi Government Treasury Bills and Reserve Bank of Malawi Bond At 31 December 2018 At Placements with other banks Cash and funds with Malawi Reserve Bank of ASSETS The contractual liquidity mismatch shows the mismatch before any adjustments are made for product and customer The contractual liquidity mismatch shows the mismatch Committee (ALCO) manages this mismatch by setting behavioural assumptions. The Bank’s Assets and Liabilities monitors these gaps weekly. The committee reviews the guidelines and limits for anticipated liquidity gaps and is indication that there is a shift in one or more of the product and customer behavioural assumptions when there variables. d). rates and credit spreads exchange foreign such as interest rates, market prices, risk that changes in Market risk is the of financial instruments. The objective of market risk that will affect the Bank’s income or the value of holdings the management is to manage and control market risk exposures within acceptable parameters, while optimising return on risk. MARKET RISK REVIEW The following table sets out the allocation of the carrying value of assets and liabilities subject to market risk between trading and non-trading portfolios: FDH Bank Annual Report 2019 106 Subordinated liabilities Subordinated issued securities Debt Deposits from customers from Deposits banks from Deposits TO RISK SUBJECT MARKET LIABILITIES securities Investment to customers andadvances Loan banks other with Placements -OMO investment term short Other equivalents andcash Cash TO RISK SUBJECT MARKET ASSETS At 2018 31December Debt securities issued securities Debt Subordinated liabilities Subordinated customers from Deposits banks from Deposits TO RISK SUBJECT MARKET LIABILITIES securities Investment to customers andadvances Loan banks other with Placements equivalents andcash Cash TO RISK SUBJECT MARKET ASSETS At 2019 31December Carrying amount Carrying amount 155809577 142581998 137140830 46955149 137140830 2606543 2606543 125 258312 126 707769 31750661 10 301285 56 813895 10 301285 39 552133 40 689341 26 084042 14 885769 5 760919 7 062293 5 760919 5 496484 K’000 K’000 Trading portfolio Trading portfolio ------K’000 K’000 ------Non-trading portfolios Non-trading portfolios 126707769 155809577 142581998 125258312 39552133 46955149 2606543 2606543 31750661 5496484 137 140830 137 140830 10 301285 56 813895 10 301285 40 689341 26 084042 14 885769 5 760919 7 062293 5 760919 K’000 K’000 FDH Bank Annual Report 2019

107

9 323 300 323 9 287 420 6 478 2 84 003 1 842) (623 930) (137 220 661 3 balance Net

162 462 974 462 162 152 151 142 - - 765 4 994 309 3 337 463 786 533 16 liabilities Total

6 653 457 653 6 863 600 6 - - - - - 594 52 accruals and Payables

5 760 919 760 5 919 760 5 ------loan Long-term

2 606 543 606 2 543 606 2 ------loan Shareholders’

10 301 285 301 10 906 097 8 - - - - - 379 203 2 institutions financial to Liabilities

137 140 830 140 137 921 084 119 - - 765 4 994 309 3 337 463 813 277 14 customers to Liabilities

LIABILITIES

Total assets Total 171 786 334 786 171 439 571 148 478 2 84 768 5 152 686 2 407 325 006 195 20

Other receivables Other 29 173 304 173 29 304 173 29 ------

Other investments investments Other 31 032 31 032 31 - - - - -

Loans and advances to customers to advances and Loans 56 813 895 813 56 005 547 54 - - 328 - - 562 266 2

Malawi Government Treasury Bills Treasury Government Malawi 46 955 149 955 46 149 955 46 ------

Placement with other banks other with Placement 31 750 661 750 31 213 829 10 478 2 84 440 5 152 686 2 407 325 887 901 17

Reserve Bank of Malawi of Bank Reserve 7 062 293 062 7 736 035 7 - - - - - 557 26

Cash and bank balances with balances bank and Cash

ASSETS

At 31 December 2019 December 31 At

K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000

currencies

USD GBP JYP ZAR Euro MK Total Other Other MANAGEMENT OF MARKET RISKS OF MANAGEMENT in the ALCO. is vested risk management authority for market Overall RISKS INTEREST RATE customer advances to customers, to money market investments, rate risk exposure is related Bank’s interest market liabilities. deposits and money rate to exchange Hence, exposures denominated in foreign currencies. certain transactions The Bank undertakes currency positions: The Bank has the following fluctuations arise. FDH Bank Annual Report 2019 2019 (2018:K406million). The impactofa5%movementinforeign currency exchangeratesinbothdirectionsisK268million asat31December 108 Other USD GBP Euro ZAR JYP currencies MK Total K’000 K’000 K’000 K’000 K’000 K’000 K’000 K’000

At 31 December 2018

ASSETS

Cash and bank balances with Reserve Bank of Malawi ------14 885 769 14 885769

Placement with other banks 22 667 177 72 704 3 337 275 5 604 604 678 - 26 084 042

Malawi Government Treasury Bills ------39 552 133 39 552 133

Other short term investments – OMO 5 496 484 ------5 496 484

Loans and advances to customers 64 341 - - - - - 40 625 000 40 689 341

Other investments - - - - - 26 032 26 032

Amounts due from related parties ------791 525 791 525

Other receivables ------10 318 880 10 318 880

Total assets 28 228 002 72 704 3 337 275 5 604 604 678 106 199 339 137 844 206

LIABILITIES

Liabilities to customers 14 665 133 82 888 3 287 973 4 129 - - 94 530 141 112 570 264

Liabilities to financial institutions ------4 504 286 4 504 286

Shareholders’ loan ------2 729 144 2 729 144

Long-term loan 5 454 618 - - - - - 5 454 618

Amount due to related parties ------3 444 3 444

Payables and accruals ------11 621 378 11 621

Total liabilities 20 119 751 82 888 3 287 973 4 129 - - 113 388 393 136 883 134

Net balance 8 108 251 (10 184) (49 302) 1 475 604 678 (7 189 054) 961 072 FDH Bank Annual Report 2019 109 Net liquidity (total liquid assets less suspense accounts in foreign currency) foreign in accounts suspense less liquid assets (total liquidity Net divided by total deposits must be at least 30%; and foreign currency and Net liquidity (total liquid assets less suspense accounts in must be at least cheques in the course of collection) divided by total deposits 20%. Liquidity Ratio II Liquidity Ratio I • • Operational risks riskCompliance Capital management Liquidity Ratios (2018: II was 68.08% ratio liquidity and 60.74%) (2018: was 68.58% ratio I Bank’s liquidity the period the of end the At 60.27%). h). for banks. In implementing current capital the capital requirements Reserve Bank of Malawi sets and monitors to maintain a minimum ratio of 10% core (Tier I) capital and requirements, Reserve Bank of Malawi requires the Bank follows:- 15% of total (Tier II) capital to risk-weighted assets. The Bank’s regulatory capital is analysed as profits from prior periods, and 60% of retained share capital, share premium, comprises ordinary Tier I capital, which companies; and after-tax profits in the current period-to-date, less any unconsolidated investment in financial Tier II capital, which also includes share revaluation reserves, investment revaluation reserve, property revaluation reserve and loan loss reserve. f). the Bank’s with of causes associated a wide variety arising from or indirect loss risk of direct risk is the Operational and liquidity factors other than credit, market and from external technology and infrastructure, processes, personnel, of corporate generally accepted standards regulatory requirements and arising from legal and risks such as those entities. are faced by all business of the Bank’s operations and risks arise from all behaviour. Operational losses and damage the avoidance of financial risk so as to balance is to manage operational The Bank’s objective initiative and control procedures that restrict effectiveness and to avoid reputation with overall cost to the Bank’s independent of conducting audits to provide department with the mandate Bank has an internal audit creativity. The not limited to, the risk, including, but of the management of operational adequacy and effectiveness assurance on the processes, systems and controls. g). including government, local or central of requirements any statutory with non-compliance of risk the to refers This Reserve Bank of Malawi and other regulatory bodies. regulations imposed by the risk management framework. risk is a distinct discipline within the Bank’s overall The management of compliance are undertaken to of key activities A combination risk lies with the Board of Directors. Ultimate responsibility for this management plans, the regulatory environment and developing compliance manage the risk such as identifying compliance. on relevant regulatory requirements, and monitoring training staff and other stakeholders executive management remains supervisory and regulatory regimes, and the The Bank is subject to extensive management of the Bank’s compliance risk. responsible for overseeing the REQUIREMENTS STATUTORY following established the has Malawi of Bank Reserve the 2009, Act, Banking the of 38 with Section accordance In requirements as at the reporting date: Liquidity reserve requirement than less no equivalent to of Malawi Bank Reserve the with reserve liquidity a maintain to is required Bank The of the year, the liquidity reserve was equivalent to 5% of 5% (2018: 7.5%) of total customer deposits. At the end customer deposits. of the Banking Act, 2009 Capital adequacy requirement as per Section 10 (1) ‘h’ below. Capital adequacy requirements are discussed in section Prudential aspects of bank liquidity the Reserve Bank of Malawi had issued the following As a compliment to Section 38 of the Banking Act, 2009, of the reporting period: guidelines on the management of liquidity as at the end FDH Bank Annual Report 2019

32. adjustments toordisclosures inthefinancialstatements. The BankplanstolistontheMalawiStock Exchangein2020.Otherthanthat,noeventshaveoccurredwhichrequire 31. million). Theoutcomeofthesecasesare subject ofthedeterminationbycourts. defense againsttheactionsisunsuccessful, thentheBankwouldpayclaimsestimatedatK1037million(2018:K461 The Bankisadefendanttoseveralcases which areoutstandinginthecourtsofMalawi.Whileliabilityisnotadmitted,if 30. 110 EXCHANGE RATESEXCHANGE INFLATION AND SUBSEQUENT EVENT CONTINGENT LIABILITIES million asfrom1January2015forallregisteredbanks.FDHBankcomplieswiththis regulatoryrequirement. premium andretainedearningsrequirements.Thesumofsharecapital, mustbeatleastK1,640 Over andabovetheTierIIIratios,ReserveBankofMalawihasalsoset aminimumsharecapital, The calculationoftheaboveratiosisgivenbelow:- percentage oftotalriskweightedassets Total TierIcapitalexpressedasa as apercentageoftotalriskweightedassets Total regulatorycapital(TierII)expressed ratio Capital Risk weightedassets Total capital(TierI&II) Shareholder loan Unconsolidated investment Loan lossreserve Total TierIIcapital Deferred taxasset Unconsolidated investment 60% ofnetincome/(100%loss)fortheperiod Retained earnings Capital reserve Preference shares Share premium Share capital Icapital Tier 2606543 112861264 22111472 16.86% 19.59% - 19 024851 4 707818 2 716230 3 111000 7 450660 (15 000) (15 000) 495 078 591 437 462 706 K’000 2019 (2009226) 87920793 14193483 2729144 12.72% (4 110997) 11 186622 3 579265 2 716230 3 111000 7 450660 (13 016) (13 016) 290 733 462 706 16.14% K’000 2018

FDH Bank Annual Report 2019 111 2018 50.73 923.75 725.50 831.58 9.9

11.5 2019 51.57 50.59 968.02 736.66 815.47 959.98 736.66 812.89 11.5 Kwacha/GBP Kwacha/Rand Kwacha/US Dollar Kwacha/Euro Inflation rate (%) Kwacha/GBP As at 17 February 2020, the above noted rates had moved as follows: As at 17 February 2020, the Kwacha/Rand Kwacha/US Dollar Kwacha/Euro Inflation rate (%) The average of the period-end buying and selling rates of the foreign currencies most affecting the performance of the the performance most affecting currencies rates of the foreign and selling buying of the period-end The average official represents an Index, which Consumer Price in the National the increase together with stated below, Bank are measure of inflation. Basel II Pillar III (Market Disclosure) report FDH Bank Annual Report 2019 113 114 114 114 114 114 115 118 119 119 119 119 119 119 119 119 122 122 123 125 126 126 127 tructure114 Bank Management’s responsibility statement Report Scope Shareholding S Subsidiaries and Branches The Operating Environment Risk Governance Structure Culture and Financial Performance Commentary on financial performance Summarized update on IFRS 9 provision Stage 1: 12 months ECL Stage 2: Lifetime –not credit ECL impaired Stage 3: Lifetime – credit ECL impaired FDH Bank IFRS 9 position as 31 December at 2019 Risk Management Management Risk of Credit Environmental and Social Risk Liquidity Risk Market Risk Operational Risk Management Interest Rate Risk in the Banking Book (“IRRBB”) Capital Management Stress Testing Contents Executive Summary FDH Bank Annual Report 2019 Malawi Companies Act. Companies Malawi ofthe andtherequirements Standards, Reporting Financial International with inaccordance notes, explanatory and other policies accounting of significant asummary includes statements to thefinancial year andthenotes for the flows cash and equity in changes inincomeearned, improvement reflects Statements andthe Financial capitalized well is Bank The requirements. disclosure market II ofBasel interms is adequacy Capital III Pillar ontheBank’s report disclosure capital 3 pillar The services. banking and retail wholesale of intheprovision involved is primarily Bank 2007.The November in in Malawi registered Ltd a group was that Holdings Financial of FDH a subsidiary is Bank”) (“the Limited Bank FDH SUMMARYEXECUTIVE responsive to our clients’ changing needs. Digital Banking is the group’s primary driving force behind it’s 'disrupt through force it’s behind driving thegroup’s is Banking primary Digital changingneeds. to ourclients’ responsive and to more be us agile, innovative positioning by landscape ourtechnological to aims simplify Banking Digital 2020 targets. to deliver enablers oneofthestrategic as Banking and Digital Evolution incorporating Managed agility, being component amajor changes, some account into taken has going Group’s forward FDH strategy ofourstakeholders, expectations and needs changing environment, to therapidly response revolution.In ofthis to at be theforefront positioned and is anenvironment, insuch essential is management andrisk amore to that approach business strategic recognizes Group FDH ways. inunprecedented lives our physical integrating with is technology digital through inwhich navigating thetime is economy the global andexternally, internally ofaccelerated change, complexandambiguous environment uncertain, ofthevolatile, aresult As oftheBank. operations to the are that detrimental emergingdayday to risks with volatile remains operatingenvironment andinternational The local THE OPERATING ENVIRONMENT branch. domicile their from away to if be happen they wherever from to transact the opportunity customers gives this real T24 system, time uses the Bank Since be. may they wherever services thebank’s ofaccessing to assured 92ATM are inaddition thus Customers of51Branches atotal nationwide. with machines representation geographical thehighest has that thebank andis inMalawi thedistricts inall footprint Ltd has Bank FDH BRANCHES AND SUBSIDIARIES arms. business its inall itself for reputation created aformidable has which services, ofits inthequality itself prides FDH 3. 2. 1. subsidiaries: thefollowing owns wholly currently Holdings Financial FDH follows: as is 2012 January effective FDHFHL’s structure Shareholding current ofZimbabwe. Limited Holdings andKingdom Financial Limited (Malawi) Assurance Life Mutual Old Corporation Limited, of the Company, Managing Director Press and the first businessman local Dr. Mpinganjira,included a respected Thomson that in2000throughpartnership a established was 2002.The company on8April operations 2000andcommenced March on8 Act theCompanies with incorporated inaccordance was Group. FDH oftheFDHFHL theholding as company (FDH), Limited House Discount to First replace ofthegroup restructuring part 2007as inNovember established was FDHFHL STRUCTURE SHAREHOLDING ofMalawi. Bank Reserve the by issued III Pillar II Basel under Disclosures onMarket Guidelines with inline report this presents Ltd hereby Bank FDH level. at theconsolidated andare provided information qualitative and quantitative ofboth consist Disclosures Limited. Bank ofFDH adequacy thecapital andhence processes, assessment and risk exposures risk particular capital, II, of Basel of application the scope discloses It process. review and the supervisory requirements capital the minimum complements which II Basel under Disclosures III Pillar with is incompliance report This SCOPE REPORT requirements. II ofBasel respect in requirements Disclosure 2019, and December at 31 position offinancial the statement comprising Bank”), Ltd (“the Bank FDH of statements financial oftheannual presentation thepreparation andfair for responsible is management Bank STATEMENT RESPONSIBILITY MANAGEMENT’S BANK 114 • • • FDH MoneyBureauLimited(FDHMBL):commencedoperations1February2009 FDH BankLimited(FDHB):Licensed27November2007,operationscommencedon 15July2008 and First DiscountHouseLimited(FDH):commencedoperationsApril2002 FDH ESOP Limited (Employees Share Ownership) 5.00% Ownership) Share (Employees Limited ESOP FDH 40.00% Limited (Malawi) Mutual Old 55.00% Limited Development M. FDH Bank Annual Report 2019 115 Ensuring that business activities controlled are on the basis of risk adjusted return; riskManaging within parameters agreed with risk quantified wherever possible; Assessing risk the outset at the time and throughout that the Bank continuesbe exposed to Abiding by all applicable laws, regulations, and governance standards; Applying and consistent high ethical standards our relationships to with all customers, employees and other stakeholders; and Undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorization and approval, recording, safeguarding, reconciliation and valuation. Recommends the Bank’s standards and policies for risk measurement and management; Monitors and reports specific risk exposures for country, credit, market operational and risk; Approves market risk limits and monitors exposure; Sets country risk limits and monitors exposure; Chairs the credit committee and delegates credit authorities subjectto oversight; riskValidates models; and Recommends risk appetite and strategy. Implementing the policies and standards by as the Risk agreed across Committee all business activity; riskManaging in line with appetite levels by the Risk agreed and Committee; Developingmaintainingand risk appropriate management infrastructure systemsand facilitate to compliance with risk policy. The digitization and optimization of risk and compliance processes in the client environment, with a direct positive impact on the client’soverall experience by meeting risk and compliance requirements in an efficient, automated manner; and Digitization within the risk, internalaudit and compliance functions streamlined, ensure a more to smarter, strategic and efficientagile, approach to risk managementpractices and role in the align a that bank’s play key transformation reinvent and strategy. • • • • • • • • • • • • • • • • • • Ultimate responsibility forthe effective management risk of rests with FDH Bank Ltd of Board Directors. Audit TheGroup’s Riskand Committees reviews specific areasrisk monitors and the activities the of Group Risk Committee the and Group Asset and Liability The Committee. Group Head of Risk manages an independent risk function which: The Bank has an Operationalthat Riskreviews (ORCC) Committee and monitors the operational risk within the Bank. FDH Bank also has an Asset and Liability reportswhich (ALCO) Committee to the Board. Individual Executive Directors accountableare for risk management in their businesses and support functions where in areas they have governance responsibilities. This includes: The Group Head of Risk,together with Group InternalAudit, provides independent assurance that risk is measuredbeing RISK GOVERNANCE STRUCTURE AND CULTURE RISK GOVERNANCE STRUCTURE AND CULTURE itsThrough risk management structure, the Bank seeksto efficiently coremanage its risks: credit, market, liquidity and operationalrisk. These arise directly the through commercialBank’s activities whilst business,regulatory, operational and reputational risks normal are consequences of any business undertaking.key The element of risk management philosophy is for the risk functions as an independent operate to control working in partnership with the business units provideto a competitive advantage the Bank. to The basic principles of risk management followed by FDH Bank include: discovery' digital strategy theme, which is anchoredresponding in client to needs, both existing and potential customers. resultThe is a persistentpursuit of new-to-market experiencesthat fulfil those needs, leveraging newways of working, newtechnology partnerships and in collaboration with all stakeholders across FDH Group has the group. embraced a philosophy velocity high of that is best described as 'speed with where direction', our swiftness is enabled the by capabilities of the new ways of working, cutting-edgeresponsible automation tooling for digital deliveryrisk-mitigated in a thatway is competitively compliant secure. and Risk management in FDH is aligned with Bank’s the digital banking strategy by a two adopting way approach namely: In support of this, the managed evolution deliver aims to programme the digital evolution that will enable the Bank be to responsive more client to needs new through ways working.of continuedThe evolution risk of management into 2019, in smarter, practical, digitized and efficientpractices provided has FDH relevant with a and competitive business advantage in an ever-shifting internal and external environment. TheGroup has broadernow adopted a much flexible and more the managementapproach to of risk, well going beyond the terms of referenceprescribed by the Reserve Bank of Malawi. The Group has now newsome more risks on its ladder than ever before thatbeing focused are on as part of our risk management, demonstrating that strategicallywe are towardsgeared enhanceddigitization and agilitywayin a thataims differentiateto the group itsfrom competitors. FDH Bank Annual Report 2019 operational risk. These arise directly through the Bank’s commercial activities whilst business, regulatory, operational and operational regulatory, business, whilst activities Bank’s commercial through the directly arise These risk. operational and liquidity market, credit, risks: its manage core efficiently to seeks Bank the structure, management risk Throughits operating to environment. appropriately thecurrent andagile to respond resilient robust, remains that Division andCompliance through Risk andissues of risks through theescalation dynamic remains FDH across management Risk to appropriate levels. issues and ofrisks escalation and identification timely culture andfacilitates risk a sound promote (RCSA) andControl Self-Assessments Risk Units andBusiness ourDepartmental managing andupdating Actively practices. culture andpeople talent, our skills, to develop strategy thebank’s with inline is tolerance, which andrisk appropriate governance by balanced business, ensuringrole, smarter strategic/advisory monitoringenhanced an role to playing from thehistorical shifted now Management Bank’s Risk has ofthe Team focus The offocus. appropriate levels with are allocated, andresources of capital appropriate ensurethat levels practices management risk andwell-established Proactive oftheBoard. support subsequent and and staff of management sensitization consistent culture following in the FDH deep-rooted is management Risk ofappropriate governance. andimportance valuing theintegrity while are inmind, borne andintent spirit that culture ensures risk andenabling Ourpractical requirements. legislative meeting simply beyond goes management andcompliance Ourapproach to risk leadership. andeffective transparency management, andperformance strong risk accountability, through enhanced ourvalues to living contribute can governance good that believe aGroup, we As environment. regulatory fast-changing to the proactively to respond theflexibility retaining while practices, governance good to embed have we means which same, introduces ofMalawi Bank Reserve as soon as changes to to regulatory adapt are supposed Banks dealer authorized Malawi, In stakeholders. ofits interest in thebest acting consistently is toit ensurethat practices its review Bank constantly The andstable. are secure to services ensureourbanking frameworks institutional androbust practices banking class world embrace Group The andintegrity. ethics of governance, standards committed to high is Group FDH practices. management risk these evolve and to policies and framework management intherisk included risks new six onthe focus the intensified has theBank complex and ambiguous environment, uncertain, in a volatile, advantage competitive asustainable develop To risks. traditional thefive monitor andenhance to assess, continues Group inthediagram below,FDH illustrated As EVOLVING THE AND RISKS NEW RISKS MAJOR TRADITIONAL andpolicies. theGroup’s with inaccordance and managed standards 116 Risks Major Traditional Risks New/Other Risk Credit • • • • • Change • (KYC) • • Client/Competitor social risk Environmental & Execution risks Digital era/DFL Political risks Climate change risks Business client your Know experience Client Risk Market • • • Criminality • • • • Cyber Fraud Terrorism/CF Corruption/AML threat actors New era Digital risks and external third party Internal, Technology Risk Operational Risk Capital • • • • Compliance • • • andculture Conduct IFRS 9 Basel III Risk-based Directives Responsibility Corporate media People riskandSocial Regulatory change Risk Liquidity FDH Bank Annual Report 2019 117 Ensuring that business activities controlled are on the basis of risk adjusted return; riskManaging within parameters agreed with risk quantified wherever possible; Assessingrisk the outset at the time and throughout that the Bank continues be exposed to Abiding by all applicable laws, regulations, and governance standards; Applying and consistent high ethical standards our relationships to with all customers, employees other and stakeholders; and Undertaking activities in accordance with fundamental control standards. These controls include the disciplines of planning, monitoring, segregation, authorization and approval, recording, safeguarding, reconciliation and valuation. Recommends the Bank’s standards and policies for risk measurement and management; Monitors and reports specific risk exposures for country, credit, market and operational risk; Approves market risk limits and monitors exposure; Sets country risk limits and monitors exposure; Chairs the credit committee and delegates credit authorities subject to oversight; riskValidates models; and Recommends risk appetite and strategy. Implementing the policies and standards by as the Risk agreed across Committee all business activity; riskManaging in line with appetite levels by the Risk agreed and Committee; Developingmaintainingand risk appropriate management infrastructure systemsand facilitate to compliance with risk policy. • • • • • • • • • • • • • • • • reputational risks normal are consequences business of any undertaking.key The element of risk management philosophy is for the risk functions as an independent operate to control working in partnership with the business units provide to a competitive advantage the Bank. to The basic principles of risk management followed by FDH Bank include: Ultimate responsibility forthe effective management risk of rests with FDH Bank Ltd of Board Directors. Audit TheGroup’s Riskand Committees reviews specific areasrisk monitors and the activities the of Group Risk Committee the and Group Asset and Liability The Committee. Group of Head Risk manages an independent risk function which: The Bank has an Operationalthat Riskreviews (ORCC) Committee and monitors the operational risk thewithin Bank. FDHBank also has Asset Liabilityand reportswhich (ALCO) Committee the to Board. Individual Executive Directors accountableare for risk management in their businesses and support functions where in areas they have governance responsibilities. This includes: The Group Head of Risk,together with Group InternalAudit, provides independent assurance that risk is measuredbeing standardsand managed in accordance with Group’s the and policies. FDH Bank Annual Report 2019 118 1. STATEMENTOFCOMPREHENSIVEINCOME Total liabilities,capitalandreserves Capital andreserves Total liabilities Deferred taxliabilities Income taxpayable Lease liabilities Other liabilities Liabilities tootherbanks Liabilities tocustomers Long termloan Shareholders' loan Liabilities Liabilities, CapitalandReserves 2. STATEMENTOFFINANCIALPOSITION Profit aftertax Taxation Profit beforetax Net chargeonimpairedloansandadvances Profit beforeprovisionforimpairedloansandadvances Operating expenses Total income Non-interest income Net interestincome Interest expenses Interest income Total assets Income tax Deferred taxasset Right ofuseassets Property plantandequipment Other assets Investments Loans andadvancestocustomers Malawi GovernmentTreasuryBills Short terminvestments Placements withotherbanks Cash andfundswithReserveBankofMalawi Assets

188,700,406 166,026,931 188,700,406 - - - (22,163,889) 137,140,830 34,389,571 (3,896,684) (7,766,556) 11,743,048 12,225,682 25,812,682 16,343,445 22,673,475 10,301,285 10,982,128 33,412,868 56,813,895 46,955,149 31,750,661 31-Dec-19 7,846,364 8,576,889 1,550,102 1,719,042 6,653,457 5,760,919 2,606,543 1,692,380 7,062,293 (482,634) 294,753 Audited 31,032 K'000

11,624,822 575,132 4,504,286 5,454,618 2,009,226 5,496,484 - - - - 152,768,908 136,883,134 152,768,908 (19,473,475) 112,570,264 29,066,201 (2,191,098) (1,436,186) (6,734,599) 21,019,785 14,781,015 15,885,774 10,096,391 13,354,358 40,689,341 39,552,133 26,084,042 14,885,769 31-Dec-18 5,965,442 8,156,540 9,592,726 8,046,416 2,729,144 Audited 26,032 K'000 FDH Bank Annual Report 2019 119 Total assets increased by 23.52% from K152.768billion to K188.700billion. This has been attributed to an increase in This has been attributed to K188.700billion. by 23.52% from K152.768billion Total assets increased and other loans and advances to customers short term investments (OMO), Treasury bill portfolio, other the following: prepayments. receivables and as 2018 to K22.673billion 31st December as at K15.885billion by 42.73% from Bank increased for FDH Total equity registered in the year in significant profits capital was attributed to increase 2019. This increase in at 31st December under review. was attributed to change This to K112.861billion. by 1.7% from K87.920billion assets increased Total Risk Weighted an increase in credit risk component. to 16.86% as at from 12.5% The Tier I ratio increased period under review. during the also increased The capital ratios were within regulatory limits, II ratio increased from 16.2% to 19.59%. The capital ratios 31 December 2019. The Tier remained below the bank’s internal however, the total capital ratio was mostly due to an increase in significantly to K7.846billion from K5.965billion. This Net profit after tax increased in addition to lending activities. income from fees and commission increased by 13.1% from K19.473billion to K22.163billion. Operating expenses slightly MANAGEMENT OF CREDIT RISK Policies and procedures for credit managing risk is determined by the Bank’s Board The Committee. Credit Bank’s Risk & RISK MANAGEMENT We reportWe that as end at of year 2019, the Bank was fully compliant with IFRS the required as per 9 ECL its model. The model was audited initially by the Reserve Bank of Malawi before being audited by our external Auditors, Deloitte with the assistance Complying of their office. Kenya with IFRS requirement 9 is a plus to the Bank as it makes it more resilient variousto shocks. A total provision of K864.745million figure againstwas in placetotal NPL amount of K451.201 million. The ExpectedCreditLoss Ratio (ECL) wasat K788.854million and is thus fully covered by the provision amount hence the Bank remains compliant. Financial assets assessed are as credit impaired when events or more one thatdetrimental a impact on the estimated future cashflows that of asset have occurred. As this uses the same criteria as under IAS the 39, methodologyBank’s for specific provisions remains largely unchanged. FDH BANK IFRS 9 POSITION 31 DECEMBER 2019 AS AT For creditFor exposures where has there been a significant increase in credit risk since initialrecognition but not thatcredit are impaired, a lifetime is ECL recognized. 3: LIFETIME – CREDIT ECL IMPAIRED STAGE STAGE 1: 12 MONTHS ECL STAGE exposuresFor where has there been a significant increase in credit risk since initialrecognition, the portion of the lifetime associatedECL with the probabilityof default events within occurring next 12 months is recognized. 2: LIFETIME CREDIT –NOT IMPAIRED ECL STAGE The Bank adopted IFRSFinancial 9 Instruments issued in July 2014 with a of date mandatory application of 1 January requirements2018. The of IFRSrepresent 9 a significant fromchange FinancialIAS 39 Instruments: Recognition and Measurement.The new standard brings fundamental changes the accountingto financialfor assets to certain and aspects of the accounting for financial liabilities. of this Adoption new standard is a plus as it makes allBanks including FDH bewell to versed on the relationship between creditimpairment regulatoryand capital avoidunexpected an to capital shortfall. IFRS introduces9 a forward-looking view of credit quality, with banks expected recognize to credit impairment before a loss event. changesKey in the Bank’s accounting policy for impairment of financial assets listed are below: The Bank applies three-stage expected approachto measuring credit losses (ECL) on financial assets carried at amortized cost and debt instruments classified as FVOCI. Assets the following through migrate three stages based on the in change credit quality since initial recognition. SUMMARIZED UPDATE ON IFRS 9 PROVISIONSUMMARIZED UPDATE COMMENTARY ON FINANCIAL PERFORMANCE COMMENTARY The registeredBank 27.45% growth profit in the impairmentbefore and to K12.225billiontax K9.592billion). (2018: A summary of the Bank’s financial performance for 2019 was as follows:- 1. 2. 3. 4. 5. 6. FDH Bank Annual Report 2019 are graded E to G in the Bank’s internal credit risk grading system. risk credit internal are Eto graded GintheBank’s loans agreement(s). These oftheloan/securities terms dueaccording to thecontractual andinterest principal all to collect unable be will it probablethat is it that determines theBank which for andsecurities are loans andsecurities loans Impaired but have not been identified on loans subject to individual assessment for impairment. for impairment. assessment to individual subject onloans identified notbeen have but incurred been have that oflosses inrespect assets ofhomogeneous groups for established allowance loss loan a collective and exposures, significant toindividually that relates component loss is aspecific allowance ofthis main components The portfolio. loan its in losses ofincurred estimate its that represents losses for impairment anallowance establishes Bank The losses impairment for Allowances after restructuring. performance satisfactory of independent category inthis remains it restructured is theloan Once loan. treated be anew as would which agreement, may lead toanew renegotiation cases, In other loans. forborne as andare defined oftheasset amount carrying original the notrecover will andprincipal ofinterest payments therenegotiated where impaired individually be will assets Such borrowers. distressed to genuinely rate of interest a concessionary offers theBank which under plans orrepayment payment date ofthedue inanextension can result renegotiation case, thelatter oftheborrower. In inthecircumstances change to an adverse orinresponse ofan ongoing relationship client part as either renegotiated are generally and advances Loans terms renegotiated Loans with to theBank. owed ofamounts ofcollection and/or thestage available ofsecurity/collateral ofthelevel notappropriate onthebasis is impairment that believes theBank duebut are past payments orprincipal interest contractual where andsecurities Loans impaired loans not duebut Past andsecurities Impaired loans process. management risk market through managed theBank’s is activities and investing trading with associated Credit risk Audit. Internal by are undertaken Credit andGroup processes units ofbusiness Audits risk: foraccepting credit limits and the procedures Committee defines Management Capital standardized loans, write off decisions generally are based on a product specific past due status. due past specific onaproduct arebased generally offdecisions write loans, standardized and balances smaller For exposure. entire the back pay to sufficient notbe will collateral from proceeds orthat obligation, cannolonger pay the that borrower the such position financial borrower‘s inthe changes ofsignificant occurrence asthe such information after considering is reached determination This are uncollectible. theloans that determines Bank Committee the Credit when losses) forimpairment allowances (andany balance related loan offa writes Bank The policy off Write 120 • • • • • • the management of credit risk. risk. ofcredit the management throughout in theGroup practice to promote best units to business skills andspecialist guidance Providing advice, taken. is action appropriate corrective and portfolios of local quality to Credit Group are on the credit provided Regular reports types. and product risk country industries, selected for those including limits, agreed exposure with units of business compliance Reviewing liquidity. market rating band, user, credit andby andadvances), loans (for andindustries to counterparties ofexposure concentration Limiting process. review to thesame subject are facilities of and reviews Renewals concerned. unit by thebusiness committed to customers being to facilities prior limits, ofdesignated inexcess exposures credit all Credit Group assesses risk. credit andassessing Reviewing Credit unit Officers. to business allocated are limits Authorization facilities. ofcredit andrenewal theapproval for structure theauthorization Establishing requirements. andstatutory regulatory with andcompliance procedures, andlegal documentary grading andreporting, risk assessment, credit requirements, collateral covering units, business with in consultation policies credit Formulating

FDH Bank Annual Report 2019 121 2018 retail 455,801 1,752,384 MwK’000 7,746,151 Loans and

advances to 5,977,036 472,532 8,201,952 1,796,518 1,796,518 92,128 92,128 1,804,415 MwK’000 corporate Loans and 1,635,062 32,943,190 33,035,318

advances to 31,138,775 2019 retail 441,239 791,314 MwK’000 2,091,209 Loans and 10,830,784 12,571,918 13,363,232 advances to

1,905,052 1,905,052 9,963 9,986 1,649,817 1,178,192 MwK’000 corporate Loans and 42,592,183 44,241,977 44,251,963 advances to

Net loans and advances Over 90 Days in Past Due Gross loans and advances Less: Allowance for impairment losses for all 30-90 days Past Due -of the above, renegotiated loans -of the above, renegotiated loans Neither past due nor impaired Neither past due nor impaired The totalThe impairment allowance for loans and advances is MK801.300million (2018: MK547.929million). The Bank has takensignificanta reducing the in non-performingoccurrence of step loans deployment the through credit rigorous of assessmentprocesses, as well levelthe as increasing with engagement of customers. The close loan the of monitoring book has assisted the Bank in maintaining a low NPL position the reporting 1% throughout averaging year of 2019. This approach hassignificantly reduced existing the credit risk and boosted the Bank’s overall riskrating. Thus, the institution more is resilient than ever before and is one of the banks with the lowest NPL on the market ratio which in the industry average hovered an NPL at end of 5% as at of year. of around ratio Concentrations of credit risk (whether on or off balance sheet) that arise financialfrom instruments existgroups for of counterparties when they have similar economic characteristics that would cause their ability meet to contractual be similarlyobligations to affected by changes in or othereconomic conditions. The concentrations major credit of risk arise by industry and type customer of the Bank’s in relation to investments, loans and advances, commitments extend to credit and guarantees issued. Concentration of CreditRisk Credit Mitigation The holdsBank against collateral loans advances and customersto the in form mortgage of interest over property, other registered securities over assets, and guarantees. Estimatesfair of values based are valueon the of collateral assessed the at time of borrowing, and generally is not updated except when a loan is individually assessed as impaired. Collateral generally is not held over loans and advances banks. to The Bank’s policy suitablerequire to is collateralto be provided by certain customersto the disbursement prior of approved loans. Collateral for loans, guarantees, and letters of credit is usually in the form of cash, inventory or property. Collateral is reported in accordance with our risk mitigation policy, which prescribes the frequency of valuation for different collateral types, based on the level of price volatility of each type of collateral of the underlying and the nature product or riskexposure. Collateralvalues adjusted are reflect to current market conditions, its probabilityrecovery of the and period realizeof time to the collateral in the event of default. The collateral valuesreported also are adjusted for the effects of over-collateralization. Loans most granted to of the Bank’s customers tangibly are secured apart from very few domiciled GIO and in Corporate space. MK42.383billion (2018: MK35.130billion) is held as collateral in the form of a legal charges, Bills of Sale, cash and Guarantees for the loans MK57.615billion amounting to (2018: MK39.980billion). These collaterals also are covering non- fundedfacilities (guarantees lettersand Credit) thattotaling of were MK32.386billion 31 at as December This 2019. includes impaired or past due loans and advances. Exposure to credit risk advances and – Loans as follows: are summarized advances Loans and FDH Bank Annual Report 2019 satisfy the demands of customers for additional borrowings. borrowings. additional for ofcustomers thedemands satisfy orto withdrawn, oris matures, it as funding to existing replace is this whether needs, funding their meet can operations theBank’s all that ensuring towards directed is management Liquidity priceandinanappropriate frame. time a reasonable at to anasset liquidate unable ofbeing andtherisk andrates at appropriate maturities liabilities to fund unable ofbeing risk the both includes It of positions. and in the management activities of the Bank’s in the general funding arises risk Liquidity RISK LIQUIDITY factors. social for the and environment carefor the taking while partner financial anall-inclusive be to agenda its furthering inthearea ofE&Sin make to improvements Bank continues The transaction. each with associated ofE&Srisks understanding its enhanced theBank System, Management andSocial theEnvironmental implementing By partners. financial andother OLakes, (FMO), Company Finance Land Development Netherlands (EIB), Bank as Investment European such partners financial international with partnerships strategic made has Bank the issues, risk social and environmental in practices of good implementation Through the successful risks. social andinaverting theenvironment, andimproving in safeguarding practices best as well as the regulation, with to comply and have of E&S, undergo evaluations customers and for the Bank for projects All activities. areas thekey oftheBank’s andinall procurement, management, incredit applied is policy risk social and environmental The factors. and of the social in the area of the environment to guide the business a policy implemented Bank the activities, financial oftheBank impacts andofthesocial oftheenvironment theimportance considering In risks. these to mitigate steps thenecessary take andcan theoperation with associated issues andsocial theenvironmental over control have customers cases, most In andcultural heritage. biodiversity to thecountry’s andthreats oncommunities impacts andsecurity, safety health, to human hazards pollution, environmental include typically issues andsocial Environmental risk. andsocial environmental of degree to some are exposed transactions all almost operations, customers’ are intheBank inherent issues and social environmental Since risks. legal and/or reputational financial, represent customers with transactions Bank’s The operations. are that related to customers’ issues andsocial theenvironmental from stem (E&S) risks andsocial Environmental ENVIRONMENTAL RISK SOCIAL AND agreed. contractually as assets orother securities cash, to obligations deliver to honorits parties counter orits oftheBank’s dueto thefailure of loss risk isthe which risk, settlement to and trades, of transactions settlement timeof at the rise, may give Bank’s activities The Risk Settlement below: inthetable are presented concentrations risk credit Total sector economic sheet onbalance BalanceOn Sheet 122 Grand Total Wholesale,Retail,Restaurants&Hotels Transport, Storage,InformationandCommunication Mining Manufacturing FinancialServices Electricity,Gas,WaterandEnergy Construction andEngineering Community, SocialandPersonalServices Agriculture, ForestryandFishing Sector TotalExposure (MK'000) 2,690,059 57,615,195 12,092,312 477,912 9,868,327 8,880,045 5,558,286 5,004,151 10,013,438 3,030,665

Concentration Ratio 100.00% 20.99% 17.13% 15.41% 17.38% 5.26% 0.83% 9.65% 8.69% 4.67% FDH Bank Annual Report 2019 123 Interest Rate Risk The subject operationsBank’s are risk the to interest of fluctuationsrate the to extent that interest-earning assets (including investments)interest-bearingand liabilities different re-priceor at mature times in and/or differing amounts. the In case of assetsrate floating and liabilities the Bank alsois exposed to basis risk, which the is difference in re-pricing characteristics of the various indices.rate floating Asset-liability risk management activities conducted are in the context of the Bank’s sensitivity interest to changes rate and competitiveness on the market. The tables below indicate the pricing at the as reporting date as compared previous to period. Management Of Risk Market All businesses FDH at Bank within operate market risk management policies set that are by the Risk & Capital Management Committee. Limits have been set controlto the Bank’s exposureto movements in prices and volatilities arising trading,from lending, deposit taking and investment decisions. Exposure To LiquidityExposure To Risk key The measure used by the Bank liquidityfor managing risk ratio of netis the liquid assetsto deposits customers.from thisFor purpose net liquid assets considered are as including cash and cash equivalents and investment securities for which isthere an active and liquid market less deposits any from banks, other borrowings and commitments within maturing the next month. The concentration of requirements funding at any one or date any one from source is continuously.managed A substantial proportion of the Bank’s deposit base is made up of current and savings accounts and other short term customer deposits. MARKET RISK Market risk is the risk the Bank’s to earningscapital and changes due to in market risk factors. Market risk factors the are independent variables, such as the term structure of interest the yield rates (i.e. curve), spot exchange rates, and their volatilities, that affect the positionvalue of a trading and portfolio. The objective of market risk management and control to is marketmanage risk exposure within acceptable parameters, while optimizing the return on risk. The Bank faces two main risks in this category:Price and liquidity risk. Management Of LiquidityRisk The liquidity to approachBank’s managing to as ensure, is far as possible, that it will always have sufficient liquidity to meet its liabilities when under due, both normal and stressed conditions, without unacceptable incurring losses or risking damage the Bank’sto reputation. The Bank to has further comply with the liquidityrequirements set Reserveby the Bank of Malawi which monitors compliance with local regulatory limits basis. on a regular The daily liquidity position regular and liquidityis monitored stress testingis conducted under a variety of scenarios covering both normal severe and more market conditions. All liquidity policies and procedures subject are review to and approval by the assetsA and liabilities committee (ALCO). summary report, including any exceptions and remedial action taken, isregularly submitted to the asset and liability committee (ALCO). FDH Bank Annual Report 2019 Bank interest rates as at 31 December 2019 at as 31December rates interest Bank Bank adopted the three lines of defense approach towards the Management of Operational Risk. of Operational theManagement towards approach ofdefense thethree adopted lines Bank FDH framework Management Group Risk Throughits Risk. of Operational andmitigation themanagement for responsible are staff All framework. control Bank’s high-level ofthe part essential is an management Risk Operational Effective creativity. and initiative that restrict and procedures control to avoid effectiveness cost overall with reputation Bank’s damage and tothe losses offinancial the avoidance balance as so to risk manageis to operational Bank’s objective The entities. business all by faced andis operations theBank’s all from arises risk ofcorporate behavior. Operational standards accepted andgenerally requirements andregulatory legal from arising those as such risks andliquidity market credit, than other factors external andfrom andinfrastructure, technology personnel, processes, theBank’s with associated ofcauses variety awide from arising loss orindirect ofdirect therisk is risk Operational OPERATIONAL MANAGEMENT RISK position. square throughoperatingrisk a forex mitigates Bank The inprofit orloss. are that recognized andlosses gains to foreign currency rise give exposures Bank’s transactional The foreign in currencies. throughtransactions risk to currency is exposed Bank The Risk Currency 124 Base lendingrates LENDING RATES Maximum lendingrate Premium savings ACCOUNT SAVINGS MORTAGAGES Super savings Ordinary savingsrate Student savings First save Civil servant Champini Minor savings 7-dall call DEPOSITS CALL 30-day call 1 month TERM RATES DEPOSIT 2 months 3 months 6 months 9 months 12 months Balances overK500,000 CURRENT ACCOUNTCURRENT Description Effective 01Dec2019 Negotiable Negotiable Negotiable 13.10 24.10 7.00 3.00 4.00 3.00 3.00 3.00 3.00 3.00 3.00 4.00 7.00 7.00 6.00 0.25

Effective 01Jan2018 Negotiable Negotiable Negotiable 25.00 31.00 7.00 3.00 4.00 3.00 3.00 3.00 3.00 3.00 3.00 4.00 7.00 7.00 6.00 0.25

FDH Bank Annual Report 2019 125 This function provides assurance that the overall system of control effectiveness is effectiveness of control system overall the assurance that provides function This Risk Management Framework. working as required with the the Board Audit Committee The role of Internal Audit is defined and overseen by and is set out in the Bank's internal Audit Charter. FDH share the principal that risk is managed at source. The business units are business units source. The is managed at that risk the principal FDH share Ensuring of risk in their environment; for the management primarily responsible and reported. mitigated, monitored risks are identified, assessed, that all material framework, Bank's risk management includes implementing the This process where required. and taking remedial action identifying issues within operated processes all ownership of line first have managers business All function or business. their respective for maintenance and ongoing development of This function is primarily responsible and ensure its effectiveness across all areas. the Bank's operational risk framework that business heads and all Operational Risk Control It provides oversight and ensure their risk management and control responsiilities. Owners understand and accept oversees and coordinates all compliance needs and The Compliance Function initiativies of the Bank. • • • • • • • Internal Audit Function Risk and Compliance Function Business Units Business 1st 3rd 2nd Line of Line of Line of Requirements segregation for appropriate of duties, including the independent authorization of transactions; Requirements for the reconciliation of transactions; and monitoring Compliance with regulatory and other legal requirements; Documentation of controls and procedures; Requirement for the periodic assessment of operational risks faced, and the adequacy of controls and procedures Addressing / enhancing controls for the risks identified; Requirements for the reporting of operational losses and proposed remedial action; Development of contingency plans; and professional development;Training Ethical and business standards; and Risk mitigation, where including insurance this is effective. Defence Defence Defence • • • • • • • • • • • Operational risk is acceptable managed to levels by continuously enforcing and compliance monitoring with relevant policiescontrolprocedures.and The Bank has also a framework thatgoverns development the amendments and of products and service that all sure make associated to risks proactively are identified and mitigated. The Business Continuity Plan (BCP) and Disaster Recovery Plans (DRP) also are that the business in place sure make to is respond able to any to unforeseen circumstance and that is there continuity. The Operational RiskFunction is an independent unit within the RiskCompliance and function that oversees the practice of operational risk management. It is responsible for; facilitation of the risk and control self-assessment process, key risk indicators and incident recording. Thisresponsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: In compliance with Group standards the Operational Risk function is supported of periodic by reviews a programme undertaken by Internal Audit.results The of InternalreviewsAudit discussed are with the management of the business unit whichto they with relate, summariesto submitted senior management of the Bank. Operational risks managed within are a policy framework set by FDH Financial Holdings Limited the Group Risk through and Capital Management The Committee. policy sets minimum standards requires and the to identify Bank and address potential and actual operational risks on a continuous basis. The Group Head of RiskCompliance and and Executive FDH Bank Annual Report 2019 to specified requirements that seek to reflect the varying levels of risk attached to assets and off-balance sheet exposures. sheet off-balance and assets to attached risk of levels varying the to seek reflect that requirements to specified according are determined assets Risk-weighted trading book. orbanking book either as are operations categorized Banking items. regulatory other andcertain ofbanks inthecapital investments consolidation, intheregulatory are that notincluded in subsidiaries ofinvestments amounts thecarrying include capital from deductions Other 2capital. ofTier part as included be may that allowances impairment ofcollective ontheamount restrictions also There are capital. primary exceed cannot 2capital Tier Qualifying base. ofthecapital to areVarious elements applied limits The Bank’s regulatory capital is analyzed into two tiers: tiers: two into is analyzed capital Bank’s regulatory The risk. credit for weightings risk for thebasis as ratings risk prescribed anduses models its upon VaR based trading portfolios its in risk market for requirements calculates Bank The assets. risk-weighted to total capital ratio of total a prescribed to maintain the Bank RBM requires requirements capital current implementing In whole. as a Bank for the requirements capital andmonitors sets (RBM) Malawi Bank of Bank’s lead Regulator,The the Reserve CAPITAL MANAGEMENT basis. andmonitored measured onadaily is rate risk interest thebank’s limits to theglobal addition In limits. risk market ALMVaR oftheglobal part is that limit rate risk theinterest gapandmonitors ofthere-pricing analysis adetailed receives EXCO. to ALCO and reports IRRBB the Head of manages The Principle Treasury products. non-trading treasury and other securities ontheinvestment theimpact as well as ofloans andextending ofdeposits thetaking includes that products ofnon-trading inre-pricing andmismatch rates ininterest ofthechange aresult is book inthebanking rate risk Interest (“IRRBB”) BOOK RATE BANKING THE IN RISK INTEREST risk. physical including ofanydisruption inanevent continue would business how outlines which level as at head office well as level plan at branch continuity business has a Bank The affected. been have may the one that to are that closer through branches other are serviced customers disruption, ofbusiness events In premises. restricted all to access controlled system as well As systems. television closed-circuit andhave seven four guarded twenty are securely the regulator. by the premises addition, set In requirements basic above with comply which ofinfrastructures construction by mitigated is risk This footprint. wide national its of because more importantly risk security to physical is exposed Bank The RISK SECURITY PHYSICAL risk. emerging cyber to keep upwith staff Security IT upgradeits of professional continuous Bank implements the attacks, risk cyber of progressive in view Finally, cyber-attacks. mitigate to software and systems certified use to always policy Bank’s also is It systems. on the targeted immediately are conducted test penetration ad-hoc detected, been have more attempts where However, at most. annually bi- are conducted tests penetration The experts. management risk cyber engaging by external andexternally internally bothundertaken is that test penetration conducting when Bank the informs This systems. attempt onthe anycyber detects that systems monitoring cyber-risk a has Bank the In addition, andoutside. within from originating cyber-attacks potential it all secure against to systems its onall firewalls installation include: measures mitigation oftheoutlined Some to categories. in respect risk cyber of management the outlines which Policy Security a has Bank Cyber The nature of business. on top of its Malawi banking in digital bank in being aleading of because level andglobal national at risk cyber to is exposed Bank The RISK SECURITY CYBER are migrated. practices best andthat exposures risk operational all encompass policies that ensuring for responsible is primarily department and Compliance Group Risk The corporate governance. and tounderpins regular audit is subject policy risk to the operational Group’s of and Audit Finance Committee. The implementation periodically presented is also report Asummary issues. risk operational critical onall updates regular receive (EXCO)Committee members 126 • • regulatory adjustments. adjustments. regulatory andother allowances impairment collective issued, instruments 2capital tier qualifying includes which 2capital, Tier purposes. adequacy capital for are but treated differently equity in are relating that to included items adjustments regulatory andother assets, andintangible goodwill for deductions incomeafter andcomprehensive reserves other earnings, retained upcapital, paid includes which 1capital, Tier FDH Bank Annual Report 2019 127 11,186 11,186 12.72% 16.14% 14,193 59,251 28,665 87,920 4 December 2018 December 19,205 16.86% 19.59% 22,111 86,812 26,045 4 112,861 December 2019 December Capital adequacy Capital Core Capital Total Capital Credit Risk Weighted Assets Credit Risk Weighted Operational Risk Weighted Assets Operational Risk Market Risk Weighted Assets Market Risk Weighted Total Risk Weighted Assets II approach) Risk Based capital ratio I (Basel Risk Based capital ratio II (Basel II approach) Risk Based capital ratio II (Basel During the periodDuring under review, the bank complied with all externally-imposed capital requirements which to its banking activitiessubject. are These relevant the not include,to, requirementslimited but are Financial the of ServicesAct and banks; to regulations relating these consistent are with the Basel II guidelines. STRESS TESTING The Bank has a comprehensive stress and scenariotesting framework which is usedto assess the Bank’s vulnerabilityto shocks of the different financial parameters. aim of the The stress test theprepare to is Bank for the worst case scenario in the financial system as it provides the Bank with a forward-looking assessment of risks and facilitates development of mitigation or contingency plans. The Bank conducts stresstests on a monthly basisresults and the of the stressBRCMC andtests ALCO to the submitted are strategies that ensure to appropriate formulated are address to the needs revealed by the stress testing. The stresstesting results indicate that major risk faced by the Bank remains Risk Credit as changes therein have significant impact on capital levels.results The showed that the Bank would have inadequate capital in two of the four areas shocked under credit risk for the mild shock of the fourshocked and three areas under credit risk for the extreme shock. In the period under review, were there 4 stress tests that were conducted under credit risk in two scenarios for mild and majorshocks. These increasewere in NPLs above existing the stock of NPLs, increase in NPLs independent existing of NPLs, NPLs in different increasing sectors of the book by different incrementalrates, and incidence ofexposureslarge to turning NPL status. Under extreme shock, the Bank’s tier 1 capital would be short by capital 0.1% as core would be 9.9% reduced to marginally less than regulatory of 10%. The minimum Bank intends buildto up capitalregistered month on month through profitsto cover any eventuality. Having cleaned up all non-performing facilities, this is consideredto be achievable. The Bank has put in place mitigating factorsreduce the to potential impact of adverse changesto interestrelating riskrate and credit risk. With respect liquidity, to the Bank continues mobilize to cheap retail deposits grow the liquidity to order in basewhich ultimatelywill numberthe improve days of whichin Bankthe wouldbe liquid in the event on deposits. run of a BUSINESS AND MARKET INTELLIGENCE ANALYTICS One of the biggest risks faced by FDH Bank and other financial institutions in Malawi is the lackavailability of of proper business and market inform intelligence to key strategic decisions. Albeit the fact that the Malawian financial market isrelatively small, seeking information whichon key decisions be made to remains are challengea so more that most information functions gathering still lie within the government system and the Central Bank be made to and tend available public the veryto late. The above notwithstanding, better collaboration with other market players government and agencies has assisted the Bank the sought in gathering information. Further the above,to the Bank has a modern that is platform called used Tableau for timely data processing and management and is also used as data warehouse. The system provides decision makers with accessto the various dashboards in which business performance in the various lines is reported. FDH Bank

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