Hyperinflation wipes FBC’s profits


  • FBC holdings posts ZW$363 million loss in 2019
  • Inflation adjusting reporting adopted
  • Group suffered a net monetary loss of ZWL$408.9 million
  • Total income scaled 37% to  ZWL$1.6 billion in 2019

Listed financial services group FBC Holdings reported an inflation-adjusted 2019  profit before tax of ZWL$168.8 million and a loss after tax of ZWL$363.3 million respectively. However, in historical terms the Group recorded a profit before tax of ZWL$529.4 million and a profit after tax of ZWL$295.9 million.

Hyperinflation reporting relates to the adoption and use of accounting standards that factor the impact of inflation the financial performance. Historical accounting which is the standard accounting in a non-inflationary environment takes the original nominal monetary value of an item, such as sales. The net implication of hyperinflation accounting is that it overstates the revenue position while driving profit lower when compared with the latter.

Group Chief Executive John Mushayavanhu, commented on the Inflation adjusted loss:

“The loss after tax emanated mainly from the inflation-indexed tax expense of ZWL$532.1 million, which was partly caused by the income tax required to pay 65% of the estimated tax quarterly in advance, in March; June and September; with the balance of 35% payable in the last quarter in December.”

FBC’s flagship unit, FBC bank recorded an inflation-adjusted profit before tax of ZWL$286.3 million and an after-tax loss of ZWL$221.7 million.

Companies have moved to report their earnings in an inflation-adjusted form in line with IAS 29, which charges companies to do so when in hyperinflationary environments.

The Group’s total income scaled 37% to  ZWL$1.6 billion against the previous year’s inflation-adjusted performance. Several factors weighed on the income gains made by the group

The Group suffered a net monetary loss of ZWL$408.9 million compared to the previous year amount of ZWL$316.5 million as inflation took its toll on the net monetary assets of the Group. In addition, administrative expenses mounted 49% to ZWL$867.3 million against the prior year beating total incomes level of growth.

The Group statement of financial position as at 31 December 2019 of ZWL$6.2 billion, decreased by 12% compared to ZWL$7 billion in the previous year while total equity decreased by 16% to ZWL$1 billion from ZWL$1.2 billion as at 31 December 2019, mainly as a result of the inflation-adjusted loss incurred for the year.

FBC building society took a knock in the form of a monetary loss of ZW$177 million which stemmed from the holding of net financial assets, to post a loss of ZWL$154 million. In the insurance and reinsurance units, despite substantial revenue generation, the revenue was negated by claims inflation which was inadequate to cover, inter-alia, insurance claims, and administrative expenses.

The performance comes on the pretext of soaring inflation which closed the year north of 500% in 2019 and a weakening local currency which shed more than 70% of its value at year-end since its reintroduction during the course of the year. The results were therefore prepared according to International Accounting Standard  (IAS)29, a common accounting practice when an economy is under hyperinflation condition.

It would also be key to note that the 2018 results were reported on a 1:1 basis between the greenback and the RTGS dollar on guidance issued by the Public Accountants and Auditors Board in compliance with government declared Statutory Instrument 33 of 2019. This was met with adverse opinions from Auditors across the board as this spelled a distortion of the 2018 financials as last quarter financials which were deemed at an exchange rate of between 1:2.5 and 1:3.3 (USD: ZWL).



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