Home' Trinidad and Tobago Guardian : December 23rd 2014 Contents First Citizens Bank Limited
(A Subsidiary of First Citizens Holdings Limited)
Unconsolidated Financial Statements
30 September, 2014
3.1.2 Credit risk measurement
As part of the on-going process of prudent risk management, the Bank's policy is to risk rate credit
facilities at the time of approval and on a regular basis. The rating process partitions the portfolio
into un-criticised (higher quality loan assets) and criticised sections (the lower quality/impaired
assets evaluated under the Credit Classification System). The Credit Classification System is in place
to assign risk indicators to credits in the criticised portfolio and engages the traditional categories
utilised by regulatory authorities.
3.1.3 Credit classification system
(a) Loans to customers
The Bank's Credit Classification System is outlined as follows:
(b) Debt securities and other bills
The Bank utilises external ratings such as local and international credit rating agencies or their
equivalent in managing credit risk exposures for debt securities and other bills.
(c) Other loans and receivables
In measuring credit risk of debt securities and receivables at a counterparty level, the Bank
assesses the probability of default of individual counterparties using internal rating tools
tailored to the various categories of counterparty. Securities of the Bank are segmented into
three rating classes or grades. The Bank's rating scale, which is shown below, reflects the
range of default probabilities defined for each rating class. This means that, in principle,
exposures migrate between classes as the assessment of their probability of default changes.
The rating tools are kept under review and upgraded as necessary.
Bank's internal ratings scale and mapping of external ratings
Bank's rating Description of the grade External rating: Standard
& Poor's equivalent
AAA, AA, A, BBB
BB, B, CCC, C
The ratings of the major rating agency shown in the table above are mapped to our rating
classes based on the long-term average default rates for each external grade. The Bank uses
the external ratings where available to benchmark our internal credit risk assessment.
3.1.4 Risk limit control and mitigation policy
The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk
accepted in relation to one borrower, or Banks of borrowers, industry and country segments. The
Bank monitors its concentration of credit exposure so that no single borrower or industry default
will have a material impact on the Bank. These limits are implemented and monitored by the Credit
Administration Department via the stipulations of the Bank Credit Policy Manual. In instances
where it is strategically beneficial and adequately documented, the Bank would seek approval on
an exception basis for variation to its standard approved limits from the Board of Directors.
(a) Single borrower and borrower bank exposure limits
Limits established by regulatory authorities have been incorporated into the credit policies
where concentration is restricted by limiting credit amounts to a fraction of the capital base.
This is supported by a stringent reporting requirement and is further enhanced by policies
requiring periodic review of all commercial credit relationships.
(b) Industry exposure limits
These limits have been established based on a ranking of the riskiness of various industries.
The ranking is guided by a model developed for the Bank for this purpose. The model utilises
a scale incorporating scores of 1 to 8 with 1 being the least risky. These have been
consolidated into four (4) bands of exposure limits which have been set in relation to the total
credit portfolio with a smaller limit being assigned to the more risky industries.
(c) Country exposure limits
Exposure limits have been established for selected countries which are considered to be within
the Bank's off-shore catchment area and/or target market. Five risk categories have been
developed and the selected countries have been assigned to these categories based either on
ratings issued by acceptable rating agencies or the Bank's own internal assessment of the
economic and political stability of the target. Maximum cross border exposure has been
limited to a pre-determined portion of total assets and this amount is allocated to the various
risk categories with a larger share being allocated to the more highly rated categories.
(Expressed in Trinidad and Tobago dollars)
3 Financial Risk Management (continued)
3.1 Credit risk (continued)
The principal collateral types for loans and advances are:
The Bank does not take a second or inferior collateral position to any other lender on
advances outside the lending value calculated as per the Bank's stipulated guidelines. The
Bank recognises that the value of items held as collateral may diminish over time resulting in
loans being less protected than initially intended. To mitigate the effect of this, margins are
applied to security items in evaluating coverage. The Bank assesses the collateral value of
credits at the point of inception and monitors the market value of collateral as well as the
need for additional collateral during periodic review of loan accounts in arrears as per the
Liquidity support agreement
It was agreed inter alia, in the Liquidity Support Agreement dated May 15, 2009, made
between the Government of Republic of Trinidad and Tobago (GORTT), the Central Bank of
Trinidad and Tobago and the First Citizens Bank Limited (the Bank), that the GORTT would
provide certain assurances to the Bank so that the acquisition of the shares of Caribbean
Money Market Brokers Limited, now First Citizens Investment Services Limited (FCIS), would
not reduce the capital adequacy ratio of the Bank below 10% for the five years from the date
of completion of the said acquisition of the shares.
The terms of the agreement under which the Bank acquired FCIS included certain financial
assurances by the GORTT that provide for the indemnification of the Bank against various
claims, losses or liabilities if incurred by FCIS within a stipulated period of time after the date
of acquisition in relation to obligations existing or default on assets owned by FCIS at the date
of the acquisition as set out in the provisions of the Liquidity Support Agreement.
All reasonable claims by the Bank in respect of such losses are expected to be settled once the
Bank has made all reasonable efforts to recover or resist such claims, losses or liabilities.
Losses which are covered under the Liquidity Support Agreement include the following:
the relevant statute of limitation;
enforceability of the share sale agreement, corporate good standing of FCIS and the
Bank, compliance with laws, possession of requisite permits and consents, breaches of
any of the material provisions of existing contracts between FCIS and the Bank and third
parties other than employee contracts and ownership of underlying assets of FCIS and
the Bank. The limitation of such claims is 20 years after the date of completion of the
share transfer to the Bank;
capitalised interest accruing from the date the Company was acquired by the Bank to the
greater of the maturity date of the obligation or 6 years from the date of completion of
the share transfer to the Bank; and
The limitation of such claims is 2 years after the date of completion of the share transfer
to the Bank.
(e) Credit-related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer
as required. Guarantees and standby letters of credit carry the same credit risk as loans.
on behalf of a customer authorising a third party to draw drafts on the Bank up to a
shipments of goods to which they relate and therefore carry less risk than a direct loan.
3.1.5 Impairment and provisioning policies
The Bank impairment provision policy is covered in detail in Note 2.7.
The Bank's policy requires the review of individual financial assets that are above materiality
thresholds at least annually or more regularly when individual circumstances require. Impairment
allowances on individually assessed accounts are determined by an evaluation of the incurred loss
at the year-end on a case-by-case basis, and are applied to all individually significant accounts. The
assessment normally encompasses collateral held (including re-confirmation of its enforceability)
and the anticipated receipts for that individual account.
Collectively assessed impairment allowances are provided for: (i) portfolios of homogenous assets
that are individually below materiality thresholds; and (ii) losses that have been incurred but have
not yet been identified, by using the available historical experience, experienced judgment and
Links Archive December 22nd 2014 December 24th 2014 Navigation Previous Page Next Page