Home' Trinidad and Tobago Guardian : December 22nd 2015 Contents B11
First Citizens Bank Limited
(A Subsidiary of First Citizens Holdings Limited)
Unconsolidated Financial Statements
30 September 2015
(Expressed in Trinidad and Tobago dollars)
Financial risk management (continued)
a. Credit risk (continued)
(ii) Credit classification system (continued)
(d) 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.
• 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.
• 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 unconsolidated 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.
• 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 (5) 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.
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
• Government guarantees and indemnities
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 Credit Policy.
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 formalising the eighteen (18) month extension
with effect from 15 May 2015.
(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. Documentary and commercial letters of credit -- which are written undertakings
by the Bank on behalf of a customer authorising a third party to draw drafts on the Bank
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
(iii) Impairment and provisioning policies
The Bank impairment provision policy is covered in detail in Note 2 (h).
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 statistical techniques. The quarterly assessment of the impairment allowances
are approved by subcommittee of the Board.
(iv) Maximum exposure to credit risk before collateral held or other credit enhancement
Credit risk exposures relating to financial assets carried
on the Bank's unconsolidated statement of
financial position are as follows:
Cash and bank balances
Statutory deposit with Central Bank
Loans to customers
Total credit risk exposure
The above table represents a worst case scenario of credit risk exposure to the Bank without
taking account of any collateral held or other credit enhancements attached.
(v) Loans to customers and other financial assets
Loans to customers and other financial assets are summarised as follows:
30 September 2015
$'000 $'000 $'000
Neither past due nor impaired
Past due but not impaired
Less: Allowance for impairment
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