Home' Trinidad and Tobago Guardian : December 22nd 2015 Contents B7
First Citizens Bank Limited
(A Subsidiary of First Citizens Holdings Limited)
Unconsolidated Financial Statements
30 September 2015
Summary of significant accounting policies (continued)
f. Derivative financial instruments
Derivative financial instruments including swaps are initially recognised in the statement of
financial position at cost (including transaction cost) and are subsequently re-measured at their
fair values. Fair values are obtained from quoted market prices, discounted cash flow models and
options pricing models as appropriate. All derivatives are carried as assets when their fair value is
positive and as liabilities when negative.
The carrying values of the interest rate swap, which will vary in response to changes in market
conditions, are recorded as assets or liabilities with the corresponding resultant charge or credit in
the unconsolidated income statement.
g. Financial assets and financial liabilities
(i) Financial assets
The Bank classifies its financial assets in the following categories: loans and receivables 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 and re-evaluates this designation at every reporting date.
(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:
• Those that the Bank 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;
• Those that the entity upon initial recognition designates as available-for-sale;
• Those assets for which the holder may not recover all of its initial investment, other
than because of credit deterioration, which shall be classified 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) Recognition and measurement
Regular purchases and sales of financial assets are recognised on the trade-date -- the
date on which the Bank 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 income
statement. Financial assets are de-recognised when the rights to receive cash flows from
the investments have expired or have been transferred and the Bank 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
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 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 Bank'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 income statement as 'Gains
and losses from investment securities'.
(d) Financial liabilities
The Bank 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.
(e) Recognition and de-recognition of financial instruments
The Bank 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 de-recognition are presented as assets pledged as collateral if the transferee has the
right to sell or re-pledge them.
(Expressed in Trinidad and Tobago dollars)
Financial assets are de-recognised when the contractual right to receive the cash
flows 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 de-recognised when they have been redeemed or otherwise
(f) 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 utilised makes
use of the quoted price even though the market is not active.
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 cash
flows or other valuation techniques using input existing at the year end.
The Bank 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
h. Impairment of financial assets
(i) Assets carried at amortised cost
The Bank 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 cash flows 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 cash flows, such as changes in arrears or economic conditions that correlate with
The Bank 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 Bank 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. Additionally, no provisioning is required for Assets
that are supports by government guarantees even if the exposure is classified as "Non-
The amount of the loss is measured as the difference between the asset's carrying amount and
the present value of estimated future cash flows (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 unconsolidated 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 Bank 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 cash flows of a collateralised financial asset
reflects the cash flows 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 Bank'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 cash
flows 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.
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