Home' Trinidad and Tobago Guardian : December 18th 2014 Contents C35
First Citizens Bank Limited And Its Subsidiaries
(A Subsidiary of First Citizens Holdings Limited)
Consolidated Financial Statements
30 September, 2014
Summary Of Significant Accounting Policies (Continued)
2.5 Financial assets and financial liabilities
2.5.1 Financial assets
The Group classifies its financial assets in the following categories: financial assets designated as at
fair value through profit or loss, loans and receivables, held-to-maturity and available-for-sale. The
classification depends on the purpose for which the financial assets were acquired. Management
determines the classification of its financial assets at initial recognition.
(a) Loans and receivables
Loans and receivables are non-derivative financial assets with fixed or determinable payments that
are not quoted in an active market, other than:
i. Those that the Group intends to sell immediately or in the short term and those that the entity
upon initial recognition designates at fair value through profit or loss;
ii. Those that the entity upon initial recognition designates as available-for-sale.
(b) Available-for-sale financial assets
Available-for-sale financial assets are those intended to be held for an indefinite period of time,
which may be sold in response to needs for liquidity or changes in interest rates, exchange rates
or equity prices or that are not classified as loans and receivables, held-to-maturity investments or
financial assets at fair value through profit or loss.
(c) Financial assets at fair value through profit or loss
This category comprises two sub-categories: financial assets held for trading and financial assets
designated by the Group as fair value through profit or loss upon initial recognition.
A financial asset is classified as held for trading if it is acquired or incurred principally for the purpose
of selling or repurchasing it in the near term or if it is part of a portfolio of identified financial
instruments that are managed together and for which there is evidence of a recent actual pattern of
short-term profit taking. Derivatives are also categorised as held for trading.
Held-to-maturity investments are financial assets with fixed or determinable payments and fixed
maturity dates where management has the positive intention and the ability to hold to maturity.
2.5.2 Recognition and measurement
Regular purchases and sales of financial assets are recognised on the trade-date -- the date on which
the Group commits to purchase or sell the asset. Investments are initially recognised at fair value plus
transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets
carried at fair value through profit or loss are initially recognised at fair value, and transaction costs
are expensed in the consolidated income statement. Financial assets are derecognised when the rights
to receive cashflows from the investments have expired or have been transferred and the Group has
transferred substantially all risks and rewards of ownership. Available-for-sale financial assets and
financial assets at fair value through profit or loss are subsequently carried at fair value. Loans and
receivables are subsequently carried at amortised cost using the effective interest method.
Gains or losses arising from changes in the fair value of the 'financial assets at fair value through profit
or loss' category are presented in the consolidated income statement within 'Other (losses)/gains -- net'
in the period in which they arise. Dividend income from financial assets at fair value through profit or
loss is recognised in the income statement as part of other income when the Group's right to receive
payments is established.
Changes in the fair value of monetary and non-monetary securities classified as available-for-sale are
recognised in other comprehensive income.
When securities classified as available-for-sale are sold or impaired, the accumulated fair value
adjustments recognised in equity are included in the consolidated income statement as 'Gains and losses
from investment securities'.
2.5.3 Financial liabilities
The Group measures financial liabilities at amortised cost. Financial liabilities measured at amortised cost
include deposits from banks or customers, bonds payables, other funding instruments and notes due
to related parties.
2.5.4 Recognition and de-recognition of financial instruments
The Group uses trade date accounting for regular way contracts when recording financial assets
transactions. Financial assets that are transferred to third parties but do not qualify for derecognition are
presented as assets pledged as collateral if the transferee has the right to sell or re-pledge them.
Financial assets are derecognised when the contractual right to receive the cashflows from these assets
have ceased to exist or the assets have been transferred and substantially all the risks and rewards of
ownership of the assets are also transferred.
Financial liabilities are derecognised when they have been redeemed or otherwise extinguished.
2.5.5 Determination of fair value
For financial instruments traded in an active market, the determination of fair values of financial assets
and liabilities is based on quoted market prices or dealer price quotations.
A financial instrument is regarded as quoted in an active market if quoted prices are readily and regularly
available from an exchange, dealer, broker, industry group, pricing service or regulatory agency, and
these prices represent actual and regular occurring market transactions on an arm's length basis. If the
above criteria are not met, the market is regarded as being inactive. Indicators that a market is inactive
are when there is a wide bid-offer spread or significant increase in the bid-offer spread or there are few
recent transactions. When a market becomes inactive, the valuation technique is the Group's internally
developed model which is based on discounted cashflow analysis.
For all other financial instruments, fair value is determined using valuation techniques. In these
techniques, fair values are estimated from observable data in respect of similar financial instruments,
using models to estimate the present value of expected future cashflows or other valuation techniques
using input existing at the year end.
The Group uses an internally developed model which is generally consistent with other valuation models
used in the industry. Valuation models are used to value unlisted debt securities and other debt securities
for which the market has become or is illiquid. Some of the inputs of this model may not be market
observable and are therefore based on assumptions.
2.6 Impairment of financial assets
(a) Assets carried at amortised cost
The Group assesses at each reporting date whether there is objective evidence that a financial
asset or group of financial assets is impaired. A financial asset or a group of financial assets is
impaired and impairment losses are incurred only if there is objective evidence of impairment as a
result of one or more events that occurred after the initial recognition of the asset (a 'loss event')
and that loss event (or events) has an impact on the estimated future cashflows of the financial
asset or group of financial assets that can be reliably estimated.
Evidence of impairment may include indications that the debtors or a group of debtors is
experiencing significant financial difficulty, default or delinquency in interest or principal payments,
the probability that they will enter bankruptcy or other financial reorganisation, and where
observable data indicate that there is a measurable decrease in the estimated future cashflows,
such as changes in arrears or economic conditions that correlate with defaults.
The Group first assesses whether objective evidence of impairment exists individually for financial
assets that are individually significant, and individually or collectively for financial assets that are
not individually significant. If the Group determines that no objective evidence of impairment
exists for an individually assessed financial asset, whether significant or not, it includes the asset
in a group of financial assets with similar credit risk characteristics and collectively assesses them
for impairment. Assets that are individually assessed for impairment and for which an impairment
loss is or continues to be recognised are not included in a collective assessment of impairment.
The amount of the loss is measured as the difference between the asset's carrying amount and
the present value of estimated future cashflows (excluding future credit losses that have not been
incurred) discounted at the financial asset's original effective interest rate. The carrying amount
of the asset is reduced through the use of an allowance account and the amount of the loss
is recognised in the consolidated income statement. If a loan has a variable interest rate, the
discount rate for measuring any impairment loss is the current effective interest rate determined
under the contract. As a practical expedient, the Group may measure impairment on the basis of
an instrument's fair value using an observable market price.
The calculation of the present value of the estimated future cashflows of a collateralised financial
asset reflects the cashflows that may result from foreclosure less costs for obtaining and selling the
collateral, whether or not foreclosure is probable.
For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis
of similar credit risk characteristics (i.e. on the basis of the Group's grading process that considers
asset type, industry, geographical location, collateral type, past-due status and other relevant
factors). Those characteristics are relevant to the estimation of future cashflows for groups of
such assets by being indicative of the debtors' ability to pay all amounts due according to the
contractual terms of the assets being evaluated.
Future cashflows in a group of financial assets that are collectively evaluated for impairment are
estimated on the basis of the contractual cashflows of the assets in the group and historical loss
experience for assets with credit risk characteristics similar to those in the group. Historical loss
experience is adjusted on the basis of current observable data to reflect the effects of current conditions
that did not affect the period on which the historical loss experience is based and to remove the
effects of conditions in the historical period that do not currently exist. Estimates of changes in future
cashflows for groups of assets should reflect and be directionally consistent with changes in related
observable data from period to period (for example, changes in unemployment rates, property prices,
payment status, or other factors indicative of changes in the probability of losses to the Group and their
magnitude). The methodology and assumptions used for estimating future cashflows are reviewed
regularly by the Group to reduce any differences between loss estimates and actual loss experience.
When a loan is uncollectible, it is written off against the related provision for loan impairment.
Such loans are written off after all the necessary procedures have been completed and the amount
of the loss has been determined. If, in a subsequent period, the amount of the impairment loss
decreases and the decrease can be related objectively to an event occurring after the impairment
was recognised (such as an improvement in the debtor's credit rating), the amount of the reversal
is recognised in the consolidated income statement in impairment loss on loans net of recoveries.
(Expressed in Trinidad and Tobago dollars)
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