The FMB Group shows positive growth in a difficult macroeconomic environment

The FMB Group Managing Director, Mr Dheeraj Dikshit has commended the management teams and staff of the entire FMB Group for their efforts in successfully implementing challenging projects and growing the performance of the Group. Below is the letter from the Managing Director from the 2014 annual report:

As alluded to by the Chairman in his letter to shareholders, 2014 was a challenging year for the group. I am pleased to report that management and staff responded well to the challenges posed by a difficult macroeconomic environment and a more demanding regulatory regime, whilst at the same time implementing major technology upgrades and a human resource restructuring exercise across the group. I am sincerely appreciative of the commitment and diligence of all involved, particularly the project teams from IT and Operations departments.

The group continues to enjoy strong balance sheet growth with total assets increasing by 25% over the course of the year funded by a combination of increased deposits, new credit lines and retention of earnings.

Although overall operating revenues grew by 12%, there was a 10% contraction in group profitability due to the relatively higher rate of increase in operating expenditure. We are confident that this expenditure will generate future payback in many forms including increased operational efficiency, enhanced customer service and ability to meet the increasingly demanding regulatory requirements applicable to the banking sector.

Group Performance

Key highlights of the 2014 group performance were:

  • 20% growth in customer deposits from K53.6 billion to K64.5 billion
  • 25% growth in total assets from K82.9 billion to K104.3 billion
  • 12% growth in operating income from K15.9 billion to K17.8 billion

We continue to focus on growing our base of lower cost current and savings deposits which comprise around 80% of our total liabilities to the public. This has enabled us to maintain a very healthy net interest margin of over 12% at the company level and 10% at group level.

The growth in total assets of the group arises from the increase in total deposits, retention of earnings and drawings on a line of credit availed to the holding company by European Investment Bank for on lending to customers in specific economic sectors.

Monetary policy remained contractionary and, as a result, market liquidity was extremely tight at various times during the year. We, therefore, continued to exercise prudence in the deployment of funds at our disposal. At year end K43 billion or 41% of our total assets were in the form of low risk money market investments, cash and cash equivalents.

Credit extended by the group grew at a somewhat faster pace than deposits, expanding by 33% from K30 billion net to K40 billion net over the course of the year. Over K4 billion of the K10 billion increase was lending from lines of credit rather than customer deposits and if this is factored out, credit growth is somewhat lower than growth in liabilities to customers. Our group credit deposit ratio remains conservative at 62%. The quality of our advances portfolio has definitely been affected by the economic conditions in Malawi over recent years but we believe we have established a prudent level of provisioning against non performing accounts.

Overall, operating income grew by 12% with a somewhat mixed performance for the major income headings. Net interest income grew by 14% against a 20% growth in deposits reflecting the anticipated marginal narrowing in interest margins. Gains from foreign exchange trading remained at the same level as 2013 at K4 billion with increased volumes traded compensating for a reduction in spreads over the course of the year.

A 34% increase in fee and commission income from K3.3 billion to K4.4 billion bears testimony to the success of our efforts to diversify and expand our sources of non funded income.

Investment income is volatile by nature, fair value gains on listed equities being closely linked to the overall performance of the Malawi Stock Exchange, and 2014 gains of K477 million lagged some way behind the K2089 million gains achieved in 2013.

Operating expenses excluding impairment losses were up by 43% from K6,919 million to K9,940 million, increasing at a much faster pace than both inflation and growth in income. Approximately K1 billion of this increase can be attributed to the inclusion of a full year’s expenses for Capital Bank, Mozambique (only six months were consolidated in 2013), reducing the real growth to around 30%. As explained earlier in my introductory paragraph, we believe that the increase in our operating cost base is necessary to establish the platform for future sustainable growth. In the near term we anticipate an increase in group revenues such that our cost to income ratio falls back to historic levels of below 50%.

Major projects throughout the group


  • The new core banking system, Finacle, was implemented in August 2014 together with related systems such as the switch (integrated with Malawi), a new internet banking platform and the EBA financial reporting package.
  • Investment in and implementation of the Aperta clearing software and Visa card system upgrade to a debit chip card offering.
  • Back office operations of branches were centralised leading to operational efficiency, enhanced controls and savings on head count.
  • A comprehensive HR review was undertaken in December 2014 including implementation of a new grading structure consistent with the rest of the group.


  • A new credit origination system was implemented in April 2014 – this system will be rolled out to other group companies in 2015.
  • Automation of Basel 11 reporting commenced through implementation of a data warehouse solution.
  • A new switch is being implemented to enhance the service capabilities of channels such as ATM, POS and Mobile banking and also facilitate integration with the National Switch.
  • An operational risk software has been implemented to record all incidents related to operational risk.
  • Work commenced on upgrade of the core banking system to Finacle, expected to go live in May 2015.


  • A new core banking system, Banka (software widely used in the Mozambique banking sector) was implemented in May 2014 which led to an expanded range of services offered in the areas of card and electronic banking services and improved operational efficiency.
  • The bank moved into its new head office and completely refurbished and rebranded its entire branch network.
  • As with other territories, back office operations of branches were centralized and a comprehensive HR review undertaken.


  • The new core banking system, Finacle was implemented in May 2014 together with related systems such as the integrated switch and EBA financial reporting.
  • Work commenced on implementation of the new internet banking platform, to be launched in February 2015.
  • The expansion of the bank’s branch network got underway with work on a fourth Lusaka branch in the Makeni industrial area and the first Copperbelt branch in Ndola, both opening in March 2015. The site for a second Copperbelt branch in Kitwe has also been acquired.
  • As with other territories, back office operations were centralized and a comprehensive HR review undertaken.


A common theme for the economics in which we operate is the need for fiscal consolidation. Malawi, Mozambique and Zambia need to work towards eliminating recurring fiscal deficits and even Botswana with its fiscal surpluses will need to absorb the impact of the new “fiscal rule” which commits to saving 40% of mining revenues in a future generations fund. Against this background, it is not expected that any of the respective monetary authorities will adopt a more accommodative monetary stance in the near future, particularly as domestic currency weakness is likely to be another recurring theme for a variety of reasons. We, therefore, anticipate a narrowing of interest spreads particularly at the margin (due to the continued tight liquidity and resultant high cost of attracting term deposits). Regulatory intervention in certain of the territories in the form of more exacting reserve requirements and caps on lending rates, fees and commissions will also continue to affect potential profitability of some of our operations.

Nevertheless, we are confident we have the infrastructure in place and the strong leadership and commercial teams in all our companies to grow and diversify our revenue base over the coming years.

We also anticipate being able to contain the rate of growth in expenditure below the rate of growth in income.


My thanks go to the management teams and staff across the entire group for their efforts over the past year to implement many challenging projects. We now move to the next stage in our institutional evolution and I am confident that they will again rise to the new challenge of building our business on the sound platforms we have now established.

Dheeraj Dikshit 
Group Managing Director
June 2015

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