Home' Trinidad and Tobago Guardian : December 21st 2015 Contents B12
Guardian www.guardian.co.tt Monday, December 21, 2015
First Citizens Bank Limited and its Subsidiaries
(A Subsidiary of First Citizens Holdings Limited)
Consolidated Financial Statements
30 September 2015
Notes to the Consolidated Financial Statements (continued)
(Expressed in Trinidad and Tobago dollars)
Financial risk management (continued)
a. Credit risk (continued)
(iii) Credit classification system (continued)
(c) Other loans and receivables
Group's internal ratings scale and mapping of external ratings
Group's rating Description of
External rating: Standard &
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
Group uses the external ratings where available to benchmark our internal credit risk
(iv) Risk limit control and mitigation policy
The Group structures the levels of credit risk it undertakes by placing limits on the amount
of risk accepted in relation to one borrower, or groups of borrowers, industry and country
segments. The Group monitors its concentration of credit exposure so that no single borrower
or industry default will have a material impact on the Group. These limits are implemented and
monitored by the Credit Administration Department via the stipulations of the Group Credit
Policy Manual. In instances where it is strategically beneficial and adequately documented,
the Group would seek approval on an exception basis for variation to its standard approved
limits from the Board of Directors.
(a) Single borrower and borrower group 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 Group 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
(c) Country exposure limits
Exposure limits have been established for selected countries which are considered to be
within the Group'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 Group'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.
The principal collateral types for loans and advances are:
• Cash deposits;
• Mortgages over residential properties;
• Charges over business assets such as premises and accounts receivable;
• Charges over financial instruments such as debt securities and equities; and
• Government guarantees and indemnities
The Group does not take a second or inferior collateral position to any other lender on
advances outside the lending value calculated as per the Group's stipulated guidelines.
The Group 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 Group 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 Credit Policy.
(e) Liquidity support agreement
The terms of the Liquidity Support Agreement (LSA) under which First Citizens Bank
Limited (the Bank) acquired Caribbean Money Market Brokers Limited (CMMB), now First
Citizens Investment Services Limited (FCIS), outlined certain financial assurances given by
the Government of Republic of Trinidad and Tobago (GORTT) to the Bank that provided
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.
The LSA dated 15 May 2009 and made between the GORTT, the Central Bank of
Trinidad and Tobago (CBTT) and the Bank provided that all reasonable claims by the
Bank in respect of such losses were expected to be settled, once the Bank had made
all reasonable efforts to recover or resist such claims, losses or liabilities. The Bank
committed to reimburse FCIS for any losses incurred by FCIS against which the Bank has
Losses which are covered under the LSA include losses in respect of balances due from
CL Financial and its affiliates accruing from the date that CMMB was acquired by the
Bank to the greater of the maturity date of the obligation or six (6) years from the date
of completion of the share transfer of CMMB to the Bank.
Under the terms of the LSA, the Bank had until 14 May 2015 to claim for losses in respect
of balances due from CL Financial and its affiliates and a claim was submitted on 8 May
2015 in respect of unrecovered exposures as at that date and a request was made by the
Bank to the GORTT for an extension of the indemnification under the LSA.
GORTT, by letter dated 29 May 2015 granted an eighteen (18) month extension of the
LSA consequent upon the Bank providing certain information to the Ministry of Finance
and Economy by 30 September 2015, which was submitted by the Bank to the GORTT in
fulfillment of same. Subsequent to the balance sheet date, the GORTT and CBTT signed
the supplemental agreement to the LSA formalizing the eighteen (18) month extension
with effect from 15 May 2015.
(f) 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. Documentary and commercial letters of credit -- which are written undertakings
by the Group on behalf of a customer authorising a third party to draw drafts on the
Group up to a stipulated amount under specific terms and conditions -- are collateralised
by the underlying shipments of goods to which they relate and therefore carry less risk
than a direct loan.
(v) Impairment and provisioning policies
The Group's impairment provision policy is covered in detail in Note 2.f.
The Group'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 statistical techniques. The quarterly assessment of the impairment allowances
are approved by audit committee of the Board.
(vi) Maximum exposure to credit risk before collateral held or other credit enhancement
Credit risk exposures relating to financial assets
carried on the Group's consolidated statement of
financial position are as follows:
Cash and bank balances
Statutory Deposit with Central Bank
Held to maturity
Loans to customers
Other loans and receivables
Due from parent company
Total credit risk exposure
The above table represents a worst case scenario of credit risk exposure to the Group without
taking account of any collateral held or other credit enhancements attached.
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