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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)
Critical accounting estimates and judgements
The Group makes estimates and assumptions about the future. The resulting accounting estimates
will, by definition, rarely equal the related actual results. The estimates and assumptions that have a
significant risk of causing a material adjustment to the carrying amount of assets and liabilities within
the next financial year are outlined below:
a. Fair value of available-for-sale financial instruments
The Group uses the discounted cash flow method to determine the fair value of available-for-sale
financial assets not traded in active markets. The discounted cash flow method discounts the
cash-flows of the financial assets at an appropriate yield plus a credit spread where applicable.
The carrying amount of available-for-sale financial assets would decrease by $449.9 million if
the discount rate used in the discounted cash flow analysis is increased by 100 basis points from
management's estimates (2014 - $386.7 million). ). During the year the Group amended the
credit spread methodology to include the tenor of facility, this change resulted in a decrease in the
valuation by $10.1 million.
b. Estimation of the impairment loss on the loan portfolio
The Group estimates the impairment loss on its loan portfolio by comparing the present value
of the future cash flows to the carrying amounts in the consolidated financial statements. The
Group makes assumptions about the amount and timing of future cash flows as well as the loss
experience of the portfolio. The loss experience considers both the recovery rate on the portfolio
as well as the probability of default by the customer. Management considers both the market
and economic conditions at the year end and may modify the loss experience on the portfolio
if necessary, to reflect current conditions. The Group uses five (5) years of historical data in its
Future cash flows for the individually significant loans and loans in arrears are estimated based
on credit reviews performed by management and management's estimate of the value of the
Inflation is one of the economic factors used in the assessment. During the period the Group
changed from using Headline to Core inflation. This change resulted in a decrease in provisioning
by $3.0 million.
If the Group's estimation of the loss experience on the portfolio of loans not considered individually
impaired were adjusted by 100 basis points upwards, the impairment provision for loans and
receivables would increase by $0.9 million (2014 - $0.9 million), and if the historical period is
adjusted from 5 years to 3 years, the provision will increase by $8.6 million (2014 - $8.6 million).
c. Impairment losses of debt securities
The Group reviews its debt securities portfolios to assess impairment at least on an annual basis.
In determining whether an impairment loss should be recorded in the statement of income, the
Group makes judgments as to whether there is any observable data indicating that there is a
measurable decrease in the estimated future cash flows from a portfolio of debt securities before
the decrease can be identified with an individual receivable in that portfolio. This evidence may
include observable data indicating that there has been an adverse change in the payment status
of borrowers in a group, or national or local economic conditions that correlate with defaults on
assets in the group. The Group also makes judgements on the mitigating factors impacting the
probability of impairment losses.
d. Impairment of available-for-sale equity investments
The Group determines that available-for-sale equity investments are impaired when there has
been a significant or prolonged decline in the fair value below its cost. This determination of
what is significant or prolonged requires judgement. In making this judgement, the Group
evaluates among other factors, the normal volatility in share price. In addition, impairment may be
appropriate when there is evidence of deterioration in the financial health of the issuer, industry
and sector performance, changes in technology, and operational and financing cash flows.
e. Held to maturity investments
The Group follows the IAS 39 guidance on classifying non-derivative financial assets with fixed
or determinable payments and fixed maturity as held-to-maturity. This classification requires
significant judgment. In making this judgment, the Group evaluates its intention and ability to
hold such investments to maturity. If the Group fails to keep these investments to maturity other
than for the specific circumstances -- for example, selling an insignificant amount close to maturity
-- it will be required to reclassify the entire category of $1,658 million (2014: $1,888 million) as
available-for-sale. The investments would therefore be measured at fair value not amortised cost.
If the entire held-to-maturity investments are tainted, the fair value of investments would decrease
by $18.0 million (2014: $95.0 million), with a corresponding entry in the fair value reserve in
f. Income taxes
The Group is subject to income tax in various jurisdictions. Management judgment is required
in determining provisions for income taxes and there are many transactions and calculations for
which the ultimate tax determination is uncertain. Where the final tax outcome of these matters
is different from the amounts that were initially recorded, such differences will impact the current
and deferred income tax assets and liabilities in the period in which such determination is made.
When appropriate, particularly where the ultimate tax determination is uncertain, management
also obtains opinions or advice from leading tax advisors and regularly reassesses its strategy in
relation to such exposures.
g. Retirement benefits
The present value of the retirement benefit obligations depends on a number of factors that
are determined on an actuarial basis using a number of assumptions. Any changes in these
assumptions will impact the carrying amount of pension obligations.
The assumptions used in determining the net cost (income) for pensions include the discount rate,
salary and pension increases. The Group determines the appropriate discount rate at the end of
each year. This is the interest rate that should be used to determine the present value of estimated
future cash outflows expected to be required to settle the pension obligations. In determining
the appropriate discount rate, the Group considers the interest rates of high-quality corporate
bonds, and where no deep corporate market exist, the Government bonds are used, that are
denominated in the currency in which the benefits will be paid and that have terms to maturity
approximating the terms of the related pension liability.
In determining the salary increases, the Group considered long-term salary inflation, age, merit
h. Fair valuation of properties
The best evidence of fair value is current prices in an active market for similar lease and other
contracts. In the absence of such information, the Bank determines the amount within a range of
reasonable fair value estimates. In making the judgement, the Bank considers information from a
variety of sources including:
i) Current prices in an active market for properties of different nature, condition or location (or
subject to different lease or other contracts), adjusted to reflect those differences;
ii) Recent prices of similar properties in less active market, with adjustments to reflect any
changes in economic conditions since the date of the transactions that occurred at those
iii) Discounted cash flow projections based on reliable estimates of future cash flows, derived
from the terms of any existing lease and other contracts and (where possible) from external
evidence such as current market rents for similar properties in the same location and
condition, and using discount rates that reflect current market assessments of the uncertainty
in the amount and timing of the cash flows.
The valuations are based on current market conditions and thus may change in the future.
i. Estimated impairment of goodwill
The Group tests annually whether goodwill has suffered any impairment in accordance with the
accounting policy stated in note 2.b.(iii). The recoverable amounts of cash-generating units have
been determined based on value-in-use calculations. If the discounted rate used in the value-
in-use calculation was increased by 100 basis points from management's estimates, the value
in use calculation will still exceed the fair value less cost to sell calculation, and there will be no
impairment of goodwill.
For management purposes, the Group is organised into five business segments based on products and
services as follows:-
• Retail banking: includes loans and mortgages, deposit, foreign exchange transactions, credit and
debit cards and card merchant acquiring business with retail and commercial customers.
• Corporate banking: loans and credit facilities and deposits and current accounts for corporate and
• Treasury management and investment banking: Liquidity management and investment banking
services including corporate finance, and specialised financial trading.
• Asset management: Investment products and services to institutional investors and intermediaries.
• Group function: Finance, legal, and other centralised functions.
Other Group operations comprise fund management, institutional finance and providing computer
services, none of which constitutes a separately reportable segment and business activities from head
As the Group's segment operations are all financial with a majority of revenues deriving from interest
and the Group Chief Executive Officer relies primarily on net interest revenue to assess the performance
of the segment, the total interest income and expense for all reportable segments is presented on a
There were no changes in the reportable segments during the year.
Transactions between the business segments are carried out at arm's length. The revenue from external
parties reported to the Group Chief Executive Officer is measured in a manner consistent with that
in the consolidated income statement. The segmental information is reported gross and therefore
consolidation adjustments have not been eliminated.
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