Home' Trinidad and Tobago Guardian : December 18th 2014 Contents C45
First Citizens Bank Limited And Its Subsidiaries
(A Subsidiary of First Citizens Holdings Limited)
Consolidated Financial Statements
30 September, 2014
(Expressed in Trinidad and Tobago dollars)
3 Financial Risk Management (Continued)
3.5 Operational risk
Operating risk is the risk of direct or indirect loss arising from system failure, human error, fraud and
external events. The Group's objective is to manage operational risk so as to balance the avoidance of
financial losses and damage to the Group's reputation with overall cost effectiveness and innovation.
The Group manages this risk by developing standards and guidelines in the following areas: -
Appropriate segregation of duties and access
Reconciling and monitoring of transactions
Documentation of controls and procedures
Training and development of staff
Reporting of operational losses and proposed remedial actions
Development of contingency plans
Assessments of the processes
3.6 Capital management
The Group's objectives when managing capital, which is a broader concept than the equity on the face
of the statement of financial position, are: -
To comply with the capital requirement set by the regulators under the Financial Institutions Act
To safeguard the Group's ability to continue as a going concern so that it can continue to provide
returns to shareholders and benefits for other stakeholders;
To ensure that the Group can remain solvent during periods of adverse earnings or economic decline;
To ensure that the Group is adequately capitalised to cushion depositors and other creditors against
Capital adequacy and the use of the regulatory capital are monitored monthly by the Group ALCO
Committee, employing techniques based on the guidelines developed by the Basel Committee on
Banking Regulations and Supervisory practices, as implemented by the Central Bank of Trinidad and
Tobago for supervisory purposes. The required information is filed with the Central Bank of Trinidad &
Tobago on a monthly basis.
The Central Bank of Trinidad & Tobago requires each financial institution to: -
Maintain a ratio of qualifying capital to risk adjusted assets of not less than the minimum standard
Core capital must not be less than fifty percent (50%) of qualifying capital i.e. supplementary capital
must not exceed core capital.
The Group's regulatory capital is comprised of:-
Tier 1 (Core) Capital: - share capital, retained earnings and reserves created by appropriations of
Tier 2 (Supplementary) Capital -- qualifying subordinated loan capital, impairment allowances and
unrealised gains arising on the fair valuation of available-for-sale securities and property, plant and
Tier 1 (Core) Capital
Less: Intangible assets
Total Tier 1
Tier 2 (Supplementary) Capital
Fair value reserves
Eligible reserve provision
Total Tier 2 Capital
Risk adjusted assets
Qualifying capital to risk adjusted assets
Core capital to qualifying capital
3.7 Fair value of financial assets and liabilities
(a) Financial instruments not measured at fair value
The following table summarises the carrying amounts and fair values of those financial assets and
liabilities presented on the Group's consolidated statement of financial position at an amount
other than their fair value.
Cash and due from other banks
2,876,947 2,135,646 2,876,947 2,135,646
Statutory Deposits with
5,408,804 6,738,987 5,408,804 6,738,987
Financial assets: -
- Loans to customers
11,153,735 11,516,922 11,752,704 12,064,253
1,792,818 1,692,664 1,887,817 1,661,980
- Other loans and receivables
1,263,093 1,583,739 1,254,653 1,590,564
- Loan notes
2,455,001 2,535,980 2,694,760 2,824,592
- Finance leases
20,889,799 21,000,381 20,942,455 21,120,927
Other funding instruments
4,808,060 4,632,823 4,824,180 4,691,502
1,945,769 2,451,566 2,085,718 2,742,577
Notes due to parent
Creditors and accrued expenses
All fair values fall into level 3 of the fair value hierarchy except for Held-to-maturity investments
which are level 2.
The fair values of the Group's financial instruments are determined in accordance with International
Accounting Standard (IAS) 39 "Financial instruments: Recognition and Measurement".
Financial instruments where carrying value is equal to fair value
Due to their liquidity and short-term maturity, the carrying values of certain financial instruments
approximate their fair values. Financial instruments where carrying value is approximately equal to
fair value include cash and due from other banks and statutory deposits with Central Banks.
Loans to customers less allowance for loan losses
Loans to customers are net of specific and other provisions for impairment, which reflects the
additional credit risk. The estimated fair value of these loans represents the discounted amount of
future cashflows based on prevailing market rates.
Fair value for held-to-maturity assets is based on market prices or broker/dealer price quotations.
Where this information is not available, fair value is estimated using ta discounted cashflow valuation
methodology where all cashflows of the instruments are discounted at an appropriate yield plus a
credit spread where applicable. The fair value of the held-to-maturity portfolio is computed for
disclosure purposes only.
Other loans and receivables
Other loans and receivables are net of provisions for impairment. The estimated fair value of
receivables represents the discounted amount of estimated future cashflows expected to be received.
Expected cashflows are discounted at current market rates to determine fair value. Receivables are
generally for a period of less than one year.
The fair value of these notes are calculated using discounted cashflow analyses of comparable
government borrowing rates for the terms indicated.
Due to their liquidity and short-term maturity, the carrying values of some customer deposits
approximate their fair value. The fair value of the other customer deposits are computed using
discounted cashflow analyses at current market interest rates.
The fair value of bonds payable is calculated using discounted cashflow analysis assuming the 'yield
to call' method of valuation. These bonds carry fixed interest rates and have been discounted using
the prevailing market rate of similar instruments.
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