ANNU AL REPOR T 2019 - acbonline.com · LEGAL COUNSEL/ CORPORATE SECRETARY January 13, 2020. 9 ommer 2019 w a chievement Akeem Edwards Owner, Donut Ace Our decision to start Donut

A N N U A L R E P O R T 2 0 1 9

A N N U A L R E P O R T 2 0 1 9

A N N U A L R E P O R T 2 0 1 9

Our VisionEmpowering those we serve to

achieve wealth and value beyond their expectations.

Our MissionTo create shared value through exceptional financial services

built on best practices and our foundation as an indigenous

institution.

A N N U A L R E P O R T 2 0 1 9

The Theme for our 2019 Annual Report powerfully captures the ethos of the Antiguan and Barbudan spirit as expressed in the line “Each Endeavouring, All Achieving” taken from our country’s National Anthem. As our country continues to grow and thrive, we at ACB are happy to be its principal financial partner in progress.

ACB knows that it takes collective effort to build a successful nation. It starts with individual dreams and aspirations which when combined with dependable

expert financial advice and products built around you, success is achieved.

ACB, the first indigenous Bank and largest in the country, has its commitment deeply rooted in community and understands the unique needs of our people. This is why our customers, even after many decades, remain loyal, resulting in our positive performance year after year and the value we bring to our shareholders and other stakeholders.

Our Core Values

Corporate Information

Notice of Annual General Meeting

Chairman’s Report

Corporate Social Responsibility Feature

Barbuda Agency Reopening Feature

Talent Management and Recognition Report

Board of Directors - Antigua Commercial Bank Ltd.

Directors’ Report

Board of Directors - ACB Mortgage & Trust Company Limited

Management’s Discussion and Analysis

Management Team - Antigua Commercial Bank Ltd.

Consolidated Financial Statements of Antigua Commercial Bank Ltd.

Independent Auditors’ Report

Consolidated Statement of Financial Position

Consolidated Statement of Income

Consolidated Statement of Profit or Loss and Other Comprehensive Income

Consolidated Statement of Cash Flows

Consolidated Statement of Changes in Equity

Notes to Consolidated Financial Statements

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TABLE OF CONTENTS

6Antigua Commercial Bank 2019 Annual Report | Empowering Aspirations—Enabling Achievement

Our Core Values

iCreateCUSTOMER CARE

EMPLOYEEFOCUSED

RESPECT

INNOVATION

ACCOUNTABILITY

TRUST

ETHICS ANDINTEGRITY

CORE VALUES

Innovation We will leverage advances in innovation and technology to develop products and services that meet the needs of our customers. We will also take advantage of innovations that enable ACB to be efficient, effective, and consistent in our core business processes that deliver value to both internal and external customers.

Customer Care We are committed to the delivery of timely, professional, courteous, reliable service to all of our customers. We firmly believe that we succeed only when our customers succeed.

Respect As an indigenous bank that began as a “Penny Bank” in 1955, we continue to value and respect all of our customers great and small. We are committed to building strong relationships by respecting one another and valuing each others’ needs, feelings, opinions and contributions,

Employee focused We believe that care for our customers begins with the care for our employees. Happy employees, happy customers! ACB is committed to creating the enabling conditions that will empower our employees to grow and thrive within our organization.

Accountability Accountability is a crucial ingredient for achieving results for our customers, employees, and our other external stakeholders. We will develop a performance-based culture, train and empower our organizational leaders to make effective decisions, and install the systems, checks and balances that nurture accountable behavior.

Trust We at ACB recognize that it is both an honor and a privilege to be given the responsibility of being the custodian of our customers’ assets in an environment with choice. We will always act in a manner that will build customer trust so that their hard-earned assets are safe and secure with us. Our decisions will be guided by best practices in risk management in order to ensure, that our customers’ funds are available when needed.

Ethics and Integrity We believe that ethics and integrity must lie at the core of our brand value. We at ACB will be compliant with regulations, transparent with our customers, and make decisions that are consistent with the highest standards of ethics and integrity.


Corporate Information

REGISTERED OFFICE AND POSTAL ADDRESS

Thames & St. Mary’s Streets, P.O. Box 95, St. John’s, Antigua, West Indies

SERVICE LOCATIONS

ACB Head Office: Thames & St. Mary’s Streets, St. John’s, Antigua

ACB Financial Centre: High & Temple Streets, St. John’s, Antigua

Village Walk Branch:Village Walk Commercial Centre Ltd., Friars Hill Road, St. John’s, Antigua

Barbuda Agency: Codrington, Barbuda

ATM LOCATIONS

ACB Head Office: Thames & St. Mary’s Streets, St. John’s, Antigua

ACB Financial Centre: High & Temple Streets, St. John’s, Antigua

Village Walk Commercial Centre Ltd.: Friars Hill Road, St. John’s, Antigua

V. C. Bird International Airport: Coolidge, St. George, Antigua

Barbuda Agency: Codrington, Barbuda

Epicurean Fine Foods & Pharmacy: Epicurean Drive, St. John’s, Antigua

Townhouse Mega Store Plaza: All Saints and American Roads, St. John’s, Antigua

Bargain Centre Supermarket: Perry Bay, St. John’s, Antigua

EMAIL ADDRESS

[email protected]

WEBSITE

www.acbonline.com

CONTACT NUMBER

(268) 481-4200/1/2/3

FAX NUMBER

(268) 481-4229

INDEPENDENT AUDITORS

KPMG, 2nd Floor, ABI Financial Centre, 156 Redcliffe Street, P.O. Box W388, St. John’s, Antigua

CORRESPONDENT BANKING RELATIONSHIPS

Bank of America

Bank of Montreal

Bank of Saint Lucia Limited

Bank of St. Vincent and the Grenadines Limited

Crown Agents Bank

Eastern Caribbean Central Bank

1st National Bank of St. Lucia Ltd.

National Bank of Dominica Ltd.

National Commercial Bank of Anguilla Limited

Republic Bank (Barbados) Ltd.

Republic Bank (Grenada) Limited

Sagicor Bank Jamaica Ltd.

St. Kitts- Nevis- Anguilla National Bank Limited


Notice of Annual General Meeting

NOTICE IS HEREBY GIVEN that the SIXTY- FOURTH ANNUAL GENERAL MEETING of ANTIGUA COMMERCIAL BANK LTD. will be held at Sandals Grande Antigua Resort & Spa located at Dickenson Bay Street, St. John’s, Antigua on Thursday January 30, 2020 at 2:00pm.

Agenda

1. Call to Order

2. Prayers

3. Adoption of Agenda

4. Chairman’s Remarks

5. (a) Confirm the Minutes of the Sixty-Third Annual General Meeting

(b) Consider the Matters Arising from the Sixty-Third Annual General Meeting Minutes

6. Present the Chairman’s and Directors’ Reports

7. Consider the Financial Statements for the year ended September 30, 2019 and the report of the Auditors

8. Elect Directors and fix their remuneration

9. Declare a Dividend for the financial year ended September 30, 2019

10. Appoint the External Auditors for the year ending September 30, 2020 and authorize the Board to fix their remuneration

11. Transact any other business which may properly come before an Annual General Meeting of Shareholders.

BY ORDER OF THE BOARD

RHODETTE PAIGELEGAL COUNSEL/ CORPORATE SECRETARY

January 13, 2020


Akeem Edwards Owner, Donut Ace

Our decision to start Donut Ace, was somewhat of a ‘spur of the moment decision’. We have been in operation for about 4 years now, and our journey has not always been easy. However, knowing that our Bank which is as indigenous as we are, is always there to offer support, is invaluable.

Sweet support from

MY Bank

10 Antigua Commercial Bank 2019 Annual Report | Empowering Aspirations—Enabling Achievement

CHAIRMAN’S REPORT

“

”

LORRAINE RAEBURN CHAIRMAN

As we continue to strategically position the ACB Group to achieve continued growth and success, we remain committed to empowering those we serve to achieve their financial goals.


OVERVIEW

While 2019 was a quiet year for the

Eastern Caribbean Currency Union

(ECCU) region in terms of economic

growth, Antigua & Barbuda’s

economy showed signs of economic

buoyancy. Antigua & Barbuda

achieved growth of 4.43% against

a target of 5%, outperforming the

ECCU average of 3.31%. This growth

was fuelled mainly by property

sales, growth in the construction

and tourism sectors, tighter fiscal

measures, and increased local

and foreign investments. With the

Canadian banks exiting the Eastern

Caribbean, indigenous banks like the

Antigua Commercial Bank are well

placed to take advantage of these

opportunities to grow inorganically in

markets that are otherwise saturated.

Profits which have been repatriated

to foreign countries will now be re-

invested in our economies to fuel

economic growth and development.

Antigua Commercial Bank (ACB),

like most other financial institutions,

continues to struggle with increasing

costs associated with disaggregated

and decentralized back office

services in the areas of Anti Money

Laundering (AML), Compliance, Risk

Management, Audit and Technology,

as a result of our operational

structures. To address this, we will

be joining our other indigenous

partners in the OECS in exploring

a shared services model, with the

objective of reducing operating

costs and improving operational

efficiencies, thereby placing us in a

stronger position to take advantage

of the technological advancements in

banking, and becoming nimble and

flexible in decision making.

Despite the challenges associated

with the highly competitive

environment, and implementation

of the new International Financial

Reporting Standards (IFRS 9), the

ACB group achieved a reasonably

strong performance which exceeds

this year’s budget and last year’s

results. The Group continued its

dominance in the mortgage market

while faring fairly well despite

increased provisions from IFRS 9.

Some other significant events that

would have impacted profits were

some long outstanding unreconciled

suspense balances and the recently

implemented 10% windfall tax. The

Bank is in the advanced stages of

migrating its debit cards to EMV,

chip and contactless, which is a more

secure payment platform for fraud

prevention. We are also implementing

additional security features on our

networks to protect against cyber-

attacks and other associated security

risks.

The Bank continued its upward

trajectory in loan growth, fee income

and interest income contributing to

overall growth of 17% over budget

in gross income, thus we achieved

103% of our net income target.

As the OECS catches up with its

counterparts in larger territories

in the areas of sound credit

underwriting, implementation of the

long awaited credit bureau, improved

valuation standards and harmonized

foreclosure legislation, we believe

that banking in our sub-region will

be on par and second to none in the

CARICOM region and in the more

developed countries. We intend

to partner with our Governments to

establish linkages for Application

Programming Interface (API) to gain

easy access to customer IDs and

other pertinent account opening

information to make the process

of opening accounts as seamless

and efficient as possible. The need

for partnerships with stakeholders

is especially critical as we make

advancements in integrating

technology into our day to day

operations.

The Group will commence the

implementation of its Strategic

Plan for 2020 to 2022 at the start of

the new fiscal and expects to see

improvements in all aspects of its


operations over the three year period.

The Strategic Plan is premised on

the Balanced Score Card model

which supports the belief that for

an organization to be successful,

it must build capacity and talent

within its human resources, achieve

operational efficiency and offer

service to its customers that is above

and beyond expectations.

It is our intent to strengthen the ACB

Brand not only in Antigua & Barbuda

but throughout the region as we

prepare ourselves for growth through

acquisitions, operational efficiency,

and sound risk management. Our

overarching goal is to become the

Bank of choice for high performing

employees and customers.

To this end, I wish to thank my Directors,

Management and Staff for their

hard work this past year and for their

contribution towards winning the Eastern

Caribbean Central Bank’s Best Bank

Award in Corporate Governance in 2019.

I also take this opportunity to thank

our customers and shareholders for

their loyal support and ask for their

continued confidence in us as we work

collaboratively in building a stronger and

better Antigua Commercial Bank.

GIVING BACK TO OUR COMMUNITY

Antigua Commercial Bank continued

its commitment to the community in

the 2018/19 fiscal year by supporting

our established initiatives in the areas

of culture, education, community

development and sports.

Deep roots have been established

over time by the Bank in the Arts via its

long standing investments in national

steel pan activities. The culture of

the local community-based steel

pan orchestras across Antigua and

Barbuda brings citizens together in a

positive environment, and empowers

youth and adults alike to exercise

their creativity. It instills discipline,

pride and a sense of camaraderie in

our citizens.

ACB is closely aligned with the values

and positivity this art form instills and

each year invests in the production of

the National Panorama Competition

and the Junior Panorama event. Both

activities were resounding successes

in 2019, with audience attendance

increasing and more participation in

the bands from communities across

the Country. It is with pride that the

Bank can say that we have been an

integral part of the growth of these

events.

Education remains a pillar of the

Bank’s community work. The ACB

Louis H. Lockhart Scholarship

Programme (launched in 1993)

and the ACB Mortgage and Trust

Company Limited’s Secondary

School Scholarship, alongside

sponsorship of the International

College Fair, and the CSEC Awards,

demonstrate our longstanding

dedication to the education of our

youth and our steadfast belief in

creating opportunities for them.

Every year, the Bank assists our youth

to realize their dreams of tertiary and

secondary school education, and

thus, provides the country with skilled

individuals to add to the local talent

pool. The talent and technical know-

how of ACB employees are also an

integral aspect in the production of

these events. We sponsor not only

financially, but by investing our in-

house skills and time to ensure that

these activities are produced to the

highest standards.

A core element of the Bank’s social

responsibility strategy is that we

engage our employees in community

activities. Annually, the management

team gets together to bring seasonal

cheer and entertainment to the

Fiennes Institute for the elderly. This

activity entails financial donations

from the team, which is matched by

the Bank, following which a Sunday

of fun at the Institute is organised.

The team serves the residents a fully

catered lunch which is followed by

music and entertainment. Laughter

echoes through the halls of the

Institute on that day. The funds raised

not only facilitate the event, but are


Lorraine RaeburnChairman

also used to purchase much needed

equipment and supplies.

At the annual Christmas in the Park

event in 2018, members of the wider

ACB team volunteered their time

and talent to create an atmosphere

of seasonal joy. Choirs from primary

and secondary schools from across

the island competed for prize monies

donated by ACB for the purpose of

the development of their music

programmes. Proceeds from the

gate at this event were donated to

the Environment Division to assist

with the upkeep of the facility.

As we move into a new decade, in

addition to our established Corporate

Social Responsibility activities,

Antigua Commercial Bank is com-

mitted to the development of a cul-

ture of environmental awareness

within our team. This will permeate

through our business practices, and

in the way we relate to our stakehold-

ers and the public at large.

As we move into a new decade, in addition to our established Corporate Social Responsibility activities, Antigua Commercial Bank is committed to the development of a culture of environmental awareness within our team. This will permeate through our business practices, and in the way we relate to our stakeholders and the public at large.

“

”

Antigua Commercial Bank 2019 Annual Report | Empowering Aspirations—Enabling Achievement14


2019 ACB Louis H. Lockhart Scholarship Recipient, Laron Andrew (L) pictured

with Director Reginald Peterson, Chairman of the Scholarship Screening

Committee (R)

ACB Louis H. Lockhart Scholarship Bursary Recipient, Kadisha Massicott

pictured with General Manager, Joanna Charles

2019 ACB Mortgage & Trust Company Limited Secondary School Scholarship Winner David Joseph (L) pictured with Peter N. Ashe, Manager ACB Mortgage

& Trust Company Limited

ACB Parish League Award Ceremony

ACB Representative, Helen Looby assisting with the distribution of lunch to

the residents of Fiennes Institute

ACB International College Fair Opening Ceremony

ACB Representative, Sasha Jarvis presents Donation to Representatives of

the Antigua & Barbuda Chorale

Antigua Commercial Bank 2019 Annual Report | Empowering Aspirations—Enabling Achievement15


Directors and Management bringing cheer to residents of Fiennes Institute at ACB’s Annual Luncheon and Care

Package Distribution

Staffers Enjoying a Light Moment at ACB Sponsored National Panorama

Competition

Local poet Brother Anthony receiving donation for Poetry Festival from ACB

Marketing & PR Representative N. Shantia Edwards

Antigua Barbuda Red Cross Representatives receive donation from

ACB Representative, Mynica Hodge

Narcisse Moise, Senior Manager - Credit presents prize to to an ACB customer at ACB Sponsored National Panorama

Competion

Jonathan Lindsay, Manager - Customer Relations and Service Quality presents

prize to an ACB Customer at ACB Sponsored National Panorama

Competition

Representative of Rotary Club of Antigua, Arthur Thomas, receives

donation from ACB Representative, Mynica Hodge

Antigua Commercial Bank 2019 Annual Report | Empowering Aspirations—Enabling Achievement

Recognizing the financial needs of the thriving people of Barbuda, Antigua Commercial Bank (ACB) initially opened the doors of our

Barbuda Agency in 1971. From the onset, we have partnered with the people of Barbuda, at every stage of their lives. ACB’s presence in Barbuda demonstrates the Group’s pledge to continually support the island in its economic development. Due to the passage of Category 5 Hurricane Irma in September 2017, that wreaked havoc on the 62 square-mile twin island of Barbuda, the residents were evacuated for safety reasons and subsequently relocated to Antigua. As a direct result, ACB was forced to temporarily cease operations in Barbuda.

During this period, Barbudan account holders were able to conduct their banking transactions in Antigua at our Head Office. The Bank also continued to maintain its ATM presence in Barbuda. ACB reaffirmed its commitment to being the premiere financial services provider to the people of Antigua and those who dwell on our twin island of Barbuda and reopened the doors to its Barbuda Agency on June 24, 2019. We thank the residents of Barbuda for their patience during this period of transition. We assure our Stakeholders that as Barbuda continues to display its resilience, Antigua Commercial Bank will continue to be their financial partner, equipping them with the resources required to realize their financial goals and aspirations.

16

Barbuda Agency Reopening Feature


TRAINING & DEVELOPMENTAntigua Commercial Bank (“the Group”) remains committed to the ongoing training and development of its staff. In keeping with this commitment, the Group again spent over $300K exposing its staff to training and development opportunities during the 2018/2019 fiscal.

IN-HOUSE PROGRAMMES & ACTIVITIES

• Strategic Plan 2019-2022

During this fiscal, the primary focus was developing a Strategic Plan for the 2019 – 2022 period and prioritizing the resulting strategic initiatives. This involved engaging a consultant, Dr. Harvi Millar, to guide the Group in designing a Plan with achievable and realistic goals. To do this, Directors, Managers, Supervisors, Line staff and Customers participated in surveys, the results of which were used as the foundation for the Group’s strategy for the next three years.

Dr. Millar facilitated training sessions and provided training vignettes for the Management Team on the tools needed for Strategic Plan Implementation. These included training on Project Management with an emphasis on creating Work Plans and Work Breakdown Structures.

• AML/CFT Training for all ACB Staff

As money laundering continues to be a concern across the sector, the Group has been providing refresher training in this area to keep staff abreast of anti-money laundering policies, practices and trends. These sessions were conducted by Peters-Nicholls & Associates.




• Credit Training for all Credit Staff

Mr. Dennis Kabanali, a consultant from Trinidad was engaged to inter alia conduct training sessions on the basics of the credit function in commercial banks. The training was spread over two days - each session three hours long.

WEBINARS/CONFERENCES/SEMINARS

Directors and Employees’ exposure to webinars, conferences and seminars included participation in Investment, Anti Money Laundering, Corporate Governance Best Practices and Information

Technology related sessions, offered by local, regional and international entities including, Raymond James Consulting Services, Society for Human Resources Management, Sagicor School of Business- UWI Barbados Campus, Office of National Drug and Money Laundering Control Policy (ONDCP), the Caribbean Core Banking User Group, the Caribbean Governance Training Institute, the Florida International Bankers Association and Jack Henry & Associates.

EXTERNAL TRAINING

Antigua Commercial Bank also utilizes external training opportunities, as available, from time to time. During the financial year, external training opportunities have



been afforded to employees from various departments, namely, Human Resources, Legal / Secretariat, Finance, Accounting & Customer Support, Information Systems, Customer Relations & Service Quality and Risk Management & Compliance.

All staff members were given the opportunity during the period to participate in First Aid/CPR training sessions, as hosted by the members of the Emergency Medical Services Training Academy and obtained certification in the American Heart Association Heartsaver First Aid CPR AED Program.

TEAM BUILDING Over 40 persons joined in a hike to the Pillars of Hercules. The event, the purpose of which was to foster camaraderie, was a great success. The hikers, at the end of this challenging course, were rewarded with a hearty Antiguan style breakfast. A fitting reward for such hard work!

Employees also participated in the Antigua and Barbuda Amateur Volleyball Association (ABAVA) - Business League during the period and represented the Group well.

STAFF RECOGNITIONThe Group’s Annual Employee Awards & Dinner event was held on February 23, 2019 at Sandals Grande Antigua Resort & Spa under the theme, “ACB Grammys”. The Award Categories and Winners were as follows:

• Employee of the Year – Mr. Adrian Bass

• Manager of the Year Award – Ms. Joyanne Byers

• Outstanding Supervisor of the Year Award – Mr. Arwain Christian

• Self-Development & Personal Growth Award – Ms. Tamika Browne

• Top Customer Service Representative Award – Mr. Rick Samuel

• Top Sales Person of the Year, Non-Customer Facing – Ms. Chiniese Harrigan

• Top Sales Person of the Year, Customer Facing – Mr. Cecil Joyce

• Top Credit Officer of the Year, Retail – Mr. Stanfield Thomas

• Top Credit Officer of the Year, Mortgages – Mr. Adrian Bass

• Top Credit Officer of the Year, Corporate – Ms. Sharon Nathaniel

• Innovator of the Year – Mr. Jonathan Lindsay

• Outstanding Team Award – Retail & Private Banking Unit – Village Walk Branch

Now, in its third year, the Group paid out over $14K to staff under the Sales Incentive Programme. In the next fiscal, additional reward programmes will be designed to encourage and recognize persons who embrace the Group’s new iCreate value propositions. New reward programmes will be designed to motivate staff to introduce new processes and procedures which would ultimately improve service quality throughout the Group.


BOARD OF DIRECTORSAntigua Commercial Bank Ltd.

FROM TOP LEFT Lorraine Raeburn - ChairmanMavis George - Vice Chairman Reginald N. Peterson - Vice Chairman Sharon A. Matthew – Edwards - Vice Chairman Sandra Derrick - Director Cassandra P. Simon - Director Adekunle Osoba - Director C. Davidson Charles - DirectorC. Kevin Silston - Director C. Kamilah Roberts - Director


BOARD OF DIRECTORSAntigua Commercial Bank Ltd.

Soaring with

MY Bank

Latesha L. AzilleStudent Loan Customer

I have always dreamt of flying the

friendly skies. With the support of my

Bank, Antigua Commercial Bank,

I am now able to soar.


Directors’ Report

OVERVIEW

The Antigua Commercial Bank Group (“the Group”, “the Company”) subscribes to the belief that good corporate governance is critical to the Group’s culture and fundamental to its long term success. A solid foundation of transparency, integrity and accountability is key to building trust among the Group’s

diverse stakeholders – shareholders, customers, employees and the broader community. We are committed to high standards of governance that are consistent with regulatory requirements and evolving best practices and that are aligned with our strategy and risk appetite. As the 2019 awardee of the Eastern Caribbean Central Bank’s ECCU Bank of the Year Award in Corporate Governance, the Group is proud of having been adjudged the leader in demonstrated best practices in excellent corporate governance for the relevant period. This Report provides an overview of the key roles and responsibilities of the Board, highlights the Board’s work throughout the financial year ended September 30, 2019 and identifies the main features of the Group’s Corporate Governance Structure.

OUR CORPORATE GOVERNANCE STRUCTURE

The Group’s Structure features the Board actively engaging with all stakeholders, knowing the business and its risks, challenging Management where necessary, understanding the opportunities of a changing industry and economy and setting robust standards and principles that will guide the Group to continued success – all to ensure that we are constantly enhancing value for our Shareholders. The Group’s structure is reviewed on an annual basis to ensure that it remains relevant in response to developments within the industry.

ACB GROUP CORPORATE GOVERNANCE STRUCTURE

GOVERNANCE &EXECUTIVE COMMITTEE

TECHNOLOGYCOMMITTEE

Appoint

AppointsAppoints

Appoints

Elect Engage

Open Dialogue

Open Dialogue

Open Dialogue

CREDITCOMMITTEE

GENERALMANAGER

STAFF

MANAGEMENT

HUMAN RESOURCES& COMPENSATION

COMMITTEE

MANAGER-RISK & COMPLIANCE

LEGAL COUNSEL/CORPORATE SECRETARY

ACBSHAREHOLDERS

ACB BOARDOF DIRECTORS

EXTERNALAUDITORS

REGULATORS

SCHOLARSHIPSCREENINGCOMMITTEE

AUDIT & RISKMANAGEMENT

COMMITTEE

CHIEF INTERNALAUDITOR


THE ROLE OF OUR BOARDThe Board makes major policy decisions, participates in strategic planning, and reviews Management’s performance and effectiveness. It also reserves the right to make certain decisions and delegates others to Management.

Led by the Chairman who conducts Board and Shareholder Meetings and who is responsible for the management, development and effective functioning of the Board, the Board of Directors has remained committed throughout the financial year under review to its “continued improvement mindset” towards the Group’s practices. To that end, the Board has enhanced its reporting on conduct and culture matters and proactively monitors emerging trends and best practices to help refine a holistic approach to overseeing these critical issues. With the support of the Board, Management is tasked with the responsibility of encouraging our employees to help to reinforce the Group’s culture by speaking up and challenging behavior that does not align with our values.

2019 HIGHLIGHTS OF BOARD OVERSIGHT ACTIVITIESRESPONSIBILITY ACTIVITIES

Conduct and culture

• Oversee the Group’s culture of integrity in dealing with customers, communities and other stakeholders, in working together, on how we do business and in safeguarding entrusted assets

• Promote a respectful working environment.

Strategic Planning • Approve the Group’s new Strategic Plan 2019-2022 to include adopting new Vision and Mission Statements and Core Values

• Participate in strategic planning and change management focused training• Oversee the Group’s strategic direction, plans and priorities and ensure that they align

with our risk appetite with quarterly reporting by Management• Review and approve the Group’s Organizational Structure• Review the results of the annual assessment of the Group’s performance.

Governance • Monitor best governance practices and develop principles and guidelines• Establish appropriate structures and procedures to allow the Board to function

effectively and independently.

During the financial year ended September 30, 2019, the following new policies and procedures were approved:-

• ACB Group Operational Risk Management Policy • Security Awareness Program Guidelines• Security Awareness & Training Policy• Information Security Policy• Incident Response Policy• Incident Response Plan Standards & Guidelines• Strategic and Annual Performance Planning Policy and Procedures.

Information security remained an area of focus during the period.

Reviews of the Group’s existing policies and procedures continued to be conducted bi-annually, in accordance with best practice.

During the fiscal, the Board Sub- Committee structure was also reviewed and as a consequence, the Investment, Marketing & Public Relations/ AGM Editorial and the Board Retreat Planning Committees were discontinued to allow for greater efficiency in the Board’s work.

Risk Management • Oversee the implementation of the Group’s Risk Appetite Framework• Promote a strong risk management culture and ensure conduct adheres to the

Enterprise-Wide Risk Management Framework• Meet with Regulators on the Group’s Risk Appetite and control environment.


RESPONSIBILITY ACTIVITIES

Financial reporting and internal controls

• Oversee compliance with applicable audit, accounting and financial reporting requirements

• Monitor Management’s implementation and maintenance of effective internal control systems, including management information systems and asses their adequacy and effectiveness

• Approve the annual audited financial reports.

Talent management and succession planning

• Review strategies and programmes for assessment and development of talent• Supervise succession planning processes which include the selection, appointment

and development of the General Manager and the Group’s Management Team• Annually review and approve the mandate of the General Manager and the

Management Team.

OUR CODE OF BUSINESS CONDUCTThe Group’s Code of Business Conduct promotes standards of desired behaviors that apply to Directors, Management and all Employees and includes the responsibility to be truthful, respect others, comply with laws, regulations and our policies and engage in business practices that are fair and not misleading.

The Board annually approves the Code and closely collaborates with Management to set the tone from the top and promote a strong governance culture that influences the Group at every level.

OUR CONFLICT OF INTEREST POLICYIn practice, conflicts of interest can arise as a result of personal, professional and contractual arrangements, directorships and other business interests. To adequately control this area of risk, the Group maintains a Conflict of Interest Policy which is designed to ensure that high standards of conduct and integrity feature throughout the organization. With respect to the Board, Directors are required to sign a Conflict of Interest Disclosure Statement on a tri-annual basis, with a further requirement to update that Statement during each period, as circumstances change.

OUR COMMITMENT TO HELPING OUR DIRECTORS SUCCEED IN THEIR ROLEThe Board strives to ensure that new Directors receive a thorough introduction to the role and that all Directors have access to the resources they need to focus on ongoing professional development. The Governance & Executive Committee oversees the Group’s Director Recruitment and Orientation Programme to ensure that the transition process is seamless, equipping Directors with the right tools to perform their respective duties and responsibilities.

As part of the Group’s commitment to supporting the continued professional development of its Directors, the following seminars and conferences were attended during the financial year:-

• CAB CEO Forum 2019– Caribbean Association of Bankers

• CAACM 13th AGM & Conference – Caribbean Association of Audit Committee Members Inc.

• 2019 Compliance Aid and AMLFC Institute Conference

• Caribbean Corporate Governance Training Institute 2019 Programmes:-

➢ * Human Resource & Compensation Committee Certification

➢ * Financial Literacy Certification Programme

➢ * Chairman’s One Day Course

➢ * Chartered Director Certification Programme.


The majority of our Directors have been accredited through the Director’s Education and Accreditation Programme (DEAP) offered by the Eastern Caribbean Securities Exchange (ECSE) in collaboration with the Chartered Secretaries of Canada. New Directors will pursue accreditation after the completion of at least one year’s service in compliance with relevant policy provisions.

OUR BOARDS OF DIRECTORSThe Group’s Boards of Directors (Antigua Commercial Bank Ltd. and ACB Mortgage & Trust Company Limited) are comprised of diverse and committed professionals, who demonstrate a balance of skills and experience appropriate for the requirements of the Group’s business.

BOARD OF DIRECTORS – ANTIGUA COMMERCIAL BANK LTD. (ACB BOARD)Clause 4.2 of the Company’s Bylaws provides that there shall be not less than seven (7) or more than fifteen (15) Directors. At present, the ACB Board comprises ten (10) non- executive Directors in accordance with this clause.

As at September 30, 2019, Lorraine Raeburn is the appointed Chairman of the Board of Directors, assisted by her Vice - Chairmen, Mavis George, Reginald N. Peterson and Sharon A. Matthew- Edwards. The remaining Members of the Board are Sandra Derrick, Cassandra P. Simon, Adekunle Osoba, C. Davidson Charles, C. Kevin Silston and C. Kamilah Roberts.

BOARD OF DIRECTORS - ACB MORTGAGE & TRUST COMPANY LIMITED (TRUST COMPANY BOARD)With respect to the composition of the Board of the Company’s wholly owned subsidiary, ACB Mortgage & Trust Company Limited, Clause 4.3 of the Company’s Bylaws provides that the Board may comprise of five (5) ACB Directors and two (2) Directors selected by the ACB Board from the Shareholders of ACB. As at September 30, 2019, non- ACB Director, Peter Blanchard, is the appointed Chairman assisted by his Vice - Chairman, Reginald N. Peterson and other ACB Directors namely, Mavis George, Lorraine Raeburn, Sharon A. Matthew- Edwards and Sandra Derrick and non- ACB Director, Craig J. Walter.

OUR RETIRING DIRECTORSClause 4.4 (a) of the Company’s Bylaws stipulates as follows:-

“At every Ordinary General Meeting one- third of the Directors shall retire from office. The Directors to retire shall be those who have been longest in office since their last election. As between Directors of equal seniority in office, the Directors to retire shall be selected from among them by lot. A retiring Director shall be immediately, or at any future time, if still qualified, be eligible for re-election.”

Additionally, Clause 4.5 of the Company’s Bylaws provides as follows:-

“Tenure: Unless his tenure is sooner determined, a Director shall hold office for a period not exceeding three years from the date from which he is elected or appointed or until the close of the third Annual Meeting of the Shareholders next following but he shall be eligible for re-election, if qualified.”

Further, section 3 of the Companies (Amendment) Act, 2009, limits the tenure of Directors of Public Companies to ten (10) consecutive years, at which point Directors would be ineligible to be re-elected to the Board. The Act also provides for two (2) years to elapse prior to that Director again becoming eligible to serve on the Board.


At this year’s Annual General Meeting, the following three (3) Directors will retire upon rotation:-

• Mavis George (elected on September 24, 2009)

• Cassandra P. Simon (elected on March 9, 2017)

• Adekunle Osoba (elected on March 9, 2017).

Directors Cassandra P. Simon and Adekunle Osoba remain eligible and offer themselves for re-election.

In accordance with the Companies (Amendment) Act, 2009, referred to above, Director Mavis George, is ineligible for re-election to the Board, having served consecutively for more than ten (10) years. At the Annual General Meeting 2019, the Director will also automatically vacate her seat as an ACB Director on the Board of Directors of ACB Mortgage & Trust Company Limited.

The Board takes this opportunity to pay tribute to Director Mavis George for her unwavering commitment and invaluable contribution to the ACB Group. Throughout her tenure, Director George served in various capacities to include the Chairman of the Human Resources and Compensation Committee. She was also a member of other Board Sub- Committees to include the Governance & Executive Committee and the Audit & Risk Management Committee. Additionally, she was an appointed trustee of the ACB Pension Scheme’s Board of Trustees.

On October 29, 2019, Director Reginald N. Peterson retired from the Board of Directors via age, in accordance with Clause 4.5.2 (h) of the Company’s Bylaws.

The Board recognizes Director Peterson’s longstanding service and association with the Group. He was first elected to the ACB Board of Directors in March, 1990 and served until September, 2008. On December 20, 2012, he was re-elected to the Board and retired as the Chairman of both the Credit Committee and our Scholarship Screening Committee. He also served on the Governance & Executive, Audit & Risk Management, and Technology Committees. The Director’s insight was a valuable contributor to Board discussions and the decision making process, generally.

Accordingly, based on the above, the number of Directors to be elected at this year’s Annual General Meeting is four (4).

OUR BOARD MEETINGS Technology features prominently in the Board’s work and as such, to ensure timely access to information prior to each Board and Board Sub- Committee meeting, the Group utilizes a secure Board Portal.

During the period, October 1, 2018 to September 30, 2019, the ACB Board of Directors hosted twelve (12) monthly Meetings and held three (3) Special Board Meetings. Director attendance ranged from 80% to 100%.

DIRECTORS ATTENDANCE PERCENTAGE

Required Actual

Lorraine Raeburn - Chairman 15 15 100%

Mavis George - Vice - Chairman 15 14 93%

Reginald N. Peterson - Vice - Chairman 15 14 93%

Sharon A. Matthew-Edwards - Vice- Chairman 15 12 80%

Sandra Derrick 15 12 80%

Cassandra P. Simon 15 14 93%

Adekunle Osoba 15 14 93%

C. Davidson Charles 15 14 93%

C. Kevin Silston (elected to the Board on December 21, 2018 10 10 100%

C. Kamilah Roberts (elected to the Board on December 21, 2018) 10 10 100%


With respect to the Board of Directors for ACB Mortgage & Trust Company Limited, during fiscal 2019, the Board hosted twelve (12) monthly Board Meetings and held two (2) Special Board Meetings. Director attendance ranged from 78% to 100%.

DIRECTORS ATTENDANCE PERCENTAGE

Required Actual

Peter Blanchard - Chairman 14 14 100%

Reginald N. Peterson - Vice- Chairman 14 14 100%

Mavis George 14 14 100%

Lorraine Raeburn 14 12 86%

Sharon A. Matthew-Edwards 14 13 93%

Sandra Derrick (appointed to the Board on January 23, 2019) 9 7 78%

Craig J. Walter (appointed to the Board on January 23, 2019) 9 9 100%

OUR APPROACH TO DIRECTORS’ REMUNERATIONExperienced, focused and talented Directors are essential to achieving the Group’s strategic objectives and providing effective guidance and oversight of Management. The Governance & Executive Committee is responsible for all aspects of Directors’ remuneration and conducts periodic reviews, taking into account industry trends in this area, the overall expertise and experience required to sit on the Board and the expected time commitment required of Directors.

Shareholders are responsible for approving Directors’ fees, upon the recommendation of the Board, at the Annual General Meeting. After due consideration, the Board has resolved to recommend that Directors’ fees remain unchanged.

Directors who are appointed to represent the Group at conferences, seminars or training courses, are entitled to be paid for their travelling and other expenses, as reasonably incurred, in accordance with the Group’s Overseas Travel Policy.

DIRECTORS’ SHAREHOLDINGSClause 4.3 of the Company’s Bylaws requires each ACB Director to be the holder of at least 1000 ordinary shares in the Company. As at September 30, 2019, Directors own the following shareholding interests in the Company:-

DIRECTORS NO. OF ORDINARY SHARES HELD

Lorraine Raeburn - Chairman 3,200

Mavis George - Vice - Chairman 2,376

Reginald N. Peterson - Vice - Chairman 19,754

Sharon A. Matthew-Edwards - Vice - Chairman 2,000

Sandra Derrick 14,980

Cassandra P. Simon 2,100

Adekunle Osoba 7,880

C. Davidson Charles 6,000

C. Kevin Silston 1,004

C. Kamilah Roberts 1,000


OUR SHAREHOLDING DISTRIBUTIONThe Securities Act, 2001, defines a Substantial Shareholder as a person who has an interest in the shares of

the Company, the stated value of which is equal to or more than 5% of the issued shares of the Company. In accordance with the Company’s disclosure obligations, it is noted that Shareholders, Sir Clare and Lady Alice Roberts own 7.69% of the issued shares in the Company as at September 30, 2019.

Shown below is an analysis of the Company’s shareholding as at September 30, 2019.

CATEGORY OF SHAREHOLDING NO. OF SHAREHOLDERS’ ACCOUNTS PER CATEGORY

NO. OF ORDINARY SHARES HELD PER CATEGORY

1-999 4,269 975,939

1,000-1,999 420 550,448

2,000- 4,999 421 1,243,483

5,000-9,999 145 1,034,261

10,000-24,999 108 1,648,007

25,000-99,999 55 2,582,420

100,000-399,999 8 1,218,102

400,000-899,999 1 747,340

Total: 5,427 10,000,000

OUR SHAREHOLDER ENGAGEMENT PRACTICESOpen Dialogue with Shareholders is one of the Group’s key priorities. The Board encourages Shareholders to provide timely and meaningful feedback, facilitates constructive engagement and regularly reviews its engagement with Shareholders for alignment with best practices.

Key Shareholders’ information can be accessed under the Investor Relations section on the Group’s corporate website, www.acbonline.com.

In accordance with section 12.4 of the Company’s Bylaws, Annual General Meeting related information was uploaded to the corporate website with the exception of the Notice of Annual General Meeting which was still mailed to Shareholders as at the approved record date, January 30, 2020. Hard copies of all documents distributed will be provided upon request, and will also be available at the Annual General Meeting.

DIVIDEND Clause 15.1 of the Company’s Bylaws provides that the Directors may from time to time by resolution recommend to the Shareholders the payment of dividend on the issued and outstanding shares in the capital of the Company. The Board, being guided by the relevant provisions of the Companies Act, 1995 and the Banking Act, 2015 (as amended) and after consultation with the Group’s Management, has resolved to recommend a payment of $0.50 for each unit share on the existing shareholding distribution as at record date, January 20, 2020, for the financial year ended September 30, 2019.

The Board remains guided by the provisions of the Group’s Capital Management and Dividend Policy that details the following objectives when managing the Group’s capital:-

• Preserving the “Shareholders’ Equity” on Balance Sheet

• To comply with the capital requirements set by its Regulators

• To safeguard the Group’s ability to continue as a going concern notwithstanding potential shocks from low, medium, or high probability events, so that it may continue to provide reasonable risk-adjusted returns to Shareholders, and benefits to other Stakeholders; and


• To maintain a strong capital base to support the growth of its business.

EXTERNAL AUDITORSThe External Auditors, KPMG, retiring and being eligible, offer themselves to be re- appointed as the Group’s External Auditors for the financial year ending September 30, 2020. The Directors have resolved to recommend to the Shareholders the subject re- appointment.

BY ORDER OF THE BOARD OF DIRECTORS

RHODETTE PAIGELEGAL COUNSEL/ CORPORATE SECRETARY


FROM TOP LEFT: Peter Blanchard - ChairmanReginald N. Peterson - Vice Chairman Mavis George - DirectorLorraine Raeburn - DirectorSharon A. Matthew – Edwards - Director Sandra Derrick - DirectorCraig J. Walter - Director

BOARD OF DIRECTORSACB Mortgage & Trust Company Limited

Taking on a home building project is never

easy. However, the knowledgeable and

friendly staff at ACB have assisted me

every step of my journey, and now I have a

home my son and I are proud of.

Didee RussellMortgage Loan Customer

At Home

with

MY bank

Antigua Commercial Bank 2019 Annual Report | Empowering Aspirations—Enabling Achievement

“

”

JOANNA CHARLESGENERAL MANAGER

32

ACB’s aspirations have always been inextricably linked with those of our stakeholders and as we have grown, we have positioned ourselves to enable them to reach their full potential.

Management’s Discussion and Analysis


OVERVIEW Although the economic activity of Antigua & Barbuda, measured by GDP growth rate, dropped significantly from 7.39% to 4.43% from the previous year, coupled with some unforeseen challenges, Antigua Commercial Bank (the Group; ACB) recorded another strong performance in 2019. The Group recorded Net Profit After Tax of $20.7 million. The factors contributing to our performance for the year are further discussed below.

EARNINGS PER SHAREThis year’s Earnings Per Share was $2.07, an increase from the $1.97 reported in the last fiscal.

GROSS INTEREST INCOMEThe Group recorded a 21% increase in Gross Interest Income over the prior year at $64.6 million. This was driven by both increases in Investment Income and income from Loans and Advances. The former was as a direct result of effectively managing excess liquidity and diversification of our Investment Portfolio, resulting in a growth of $3 million or 32% when compared to the previous year. The latter was largely due to the successful liquidation of a long outstanding, large non-performing facility, contributing to the $8.3 million or 19% growth year-over-year.

As Interest Income from loans continues to grow, the strategy to pursue a model of diversifying interest income streams, is one that paid off and will continue to be pursued.

OTHER OPERATING INCOMEOther Operating Income grew year-over-year by 17% or $2.4 million. This growth was mainly attributable to the increase in Fees & Commission. Additionally, the inflow of foreign currency increased, as a result of an increase in tourism activity thus impacting Foreign Exchange income positively by $0.619 million or 13%.

INTEREST EXPENSEInterest Expense fell by $0.873 million or 6% when compared to the last fiscal despite Deposit Liabilities increasing marginally by 4% or $35.6 million.

INTEREST INCOME MIX

2019 2018

DEPOSITSWITHOTHERBANKS

2%

DEPOSITSWITHOTHERBANKS

3%

INVESTMENTS

17%INVESTMENTS

14%

LOANS &ADVANCES81%

LOANS &ADVANCES83%

20152016

20182019

0

01

GROSS INTEREST INCOME

0.00

5.00

10.0015.0020.0025.0030.0035.0040.0045.0050.0055.0060.0065.00

AM

OU

NT

IN M

ILLI

ON

S

2015

20182017

2016

2019


OPERATING EXPENSESThe Group’s Operating Expenses increased by approximately 42% or $12 million when compared to the prior year. This significant increase was due to loan loss provisions of $11 million as a result of a change in assumptions for provisioning under IFRS 9. Additionally, during the fiscal the Group fell victim to Debit Card Fraud and resultantly, a significant amount was written off as we reimbursed customers who had been affected. This, coupled with the write-off of unreconciled suspense accounts were the major components of the increase of 11% or $3 million in General and Administrative Expenses, when compared to the preceding fiscal year. As we continue to enhance the customer experience through expansion of our electronic footprint, Computer Software Expenses increased simultaneously.

PROFIT FOR THE YEARThe net effect of these and other factors was a profit of $20.7 million.

FINANCIAL POSITIONAs at the end of the year, Total Assets were reported at $1.3 billion reflecting a 5% growth of $61 million when compared to the prior year. The increase in funding is as a result of a 4% or $36 million growth in customers’ deposits, the direct impact on financial assets. The $46 million reduction in Cash and Balances at Central Bank translated to a $71 million increase in Investment Securities.

The 2% growth in Loans and Advances year-over-year, reflects our continued challenges with increasing the loan portfolio with good quality loans and advances in the current market conditions. However, we have focused more resources in this area of operations which is expected to translate into higher portfolio growth in the upcoming fiscal. Given the correlation between the movements in Loans and Advances and Deposit Liabilities, a net decrease in the Loan-to-Deposit ratio was recorded year-over-year to 67%.

FINANCIAL HIGHLIGHTS

0.00

2015

2016

2017

2018

2019

5.00 10.00 15.00 20.00 25.00

INTEREST EXPENSE

AMOUNT IN MILLIONS

0.00

5.00

10.00

15.00

20.00

25.00

2015 2016 2017 2018 2019

PROFIT FOR THE YEAR

AM

OU

NT

IN M

ILL

ION

S

LOANS & ADVANCES

560 580

2015

2016

2017

2018

2019

600 620 640 660 680


600 800

AMOUNT IN MILLIONS

1000

DEPOSIT GROWTH

2015

2016

2017

2018

2019

2015 2016 2017 2018 2019

Return on Assets 1.57% 1.96% 1.74% 1.62% 1.62%

Return on Equity1.0.25% 1.1..94% 1.0.0% 9.03% 8.5%

Dividend Payout Percentage of Income

23% 18% 20% 20% 24%

Book value of ordinary shares 17.16 18.64 20.26 21.84 24.46

Earnings per share 1.76 2.23 2.03 1.97 2.07

Dividends per ordinary Share 0.40 0.40 0.40 0.40 0.50

Provisions as a % of Loan Portfolio 2.9% 2.6% 2.18% 2,18% 4.12%

Provisions as a % of Non-performing Loan Portfolio

17.79% 16.42% 14.10% 14.43% 31.64%

Efficiency Ratio 168.50% 58.31% 62.55% 65.92% 68.92%

Net Interest Margin 3.26% 3.28% 3.27% 3.00% 4.10%

Total Capital Adequacy Ratio 23.47% 25.49% 26.39% 26.01% 26.01%

CONCLUSIONFiscal 2019 was a challenge in many respects for ACB. The implementation of IFRS 9 accounting standards and the administrative burden that came with it, put the management and staff under tremendous pressure to ensure that we complied with the deadline. We were also challenged with moving to a new software for our digital payments platform, and undertook a general cleanup of long outstanding unreconciled items.

Some of these events were necessary to allow us to be compliant with international standards as we prepare for opportunities that are likely to open up in the years ahead. The Group commences the implementation of its strategic plan in October 2019 and all the necessary steps have been taken to ensure its successful implementation.

None of this year’s results could have been achieved without the efforts and commitment of the dedicated teams. I thank them all for their patience with and trust in new Leadership, their willingness to buy into the new vision for the group and allowing themselves to be challenged while embracing change. Our new motto “let’s get it done” is a testament of the team approach that we will employ to achieving our goals and sharing in and enjoying our successes.

The other critical component of this equation is our customers and we thank you for your loyalty, patronage and your continued confidence in ACB.

Joanna CharlesGeneral Manager

FINANCIAL HIGHLIGHTS


MANAGEMENT TEAMAntigua Commercial Bank Ltd. as at September 30, 2019

FROM LEFT TO RIGHT:

Narcisse Moise – Senior Manager- Credit, Joanna

Charles – General Manager and

Peter N. Ashe – Manager – ACB

Mortgage & Trust Company Limited

FROM LEFT TO RIGHT:

Sherene Bird – Human Resources

Executive, Rhodette Paige

– Legal Counsel/ Corporate

Secretary and Sidlow Frank – MIS Manager



FROM LEFT TO RIGHT: Heidi Weste - Manager- Corporate Banking and Patricia Farrell – Acting- Manager- Retail Lending & Recoveries

FROM LEFT TO RIGHT:

Helen J. Looby - Operations and

Accounting Officer ACB Mortgage & Trust Company

Limited, Joyanne Byers – Finance and Accounting Executive and

Austen Gittens – Chief Internal

Auditor



FROM LEFT TO RIGHT:

Jonathan Lindsay – Manager- Customer Relations & Service Quality, Lois Teague – Assistant Manager- Customer Relations

& Service Quality and Alan B. Scholl –

Project Manager

FROM LEFT TO RIGHT: Sharon Nathaniel –

Acting Manager- Risk & Compliance,

Maria Abraham – Audit Officer and Collin R.

Maynard – Compliance Specialist

39

KPMG 2nd Floor, ABI Financial Centre 156 Redcliffe Street P.O Box W388 St. John’s Antigua

Telephone: 1 (268) 562-9172 Email: [email protected]

1 KPMG, a Barbados and Eastern Caribbean partnership, registered in Barbados, Antigua and Barbuda, Saint Lucia and St. Vincent and the Grenadines, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

INDEPENDENT AUDITORS’ REPORT To the Shareholders of Antigua Commercial Bank Ltd. Report on the Audit of the Consolidated Financial Statements Opinion We have audited the consolidated financial statements of Antigua Commercial Bank Ltd. and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at September 30, 2019, the consolidated statements of income, profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at September 30, 2019, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Antigua and Barbuda, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Other Information Management is responsible for the other information. The other information comprises the information included in the Group’s Annual Report 2019 but does not include the consolidated financial statements and our auditors’ report thereon. The Annual Report is expected to be made available to us after the date of this auditors’ report. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

KPMG 2nd Floor, ABI Financial Centre 156 Redcliffe Street P.O Box W388 St. John’s Antigua

Telephone: 1 (268) 562-9172 Email: [email protected]

1KPMG, a Barbados and Eastern Caribbean partnership, registered in Barbados, Antigua and Barbuda, Saint Lucia and St. Vincent and the Grenadines, and a member firm of the KPMG network of independent member firms affiliated with KPMG International Cooperative (“KPMG International”), a Swiss entity.

INDEPENDENT AUDITORS’ REPORT

To the Shareholders of Antigua Commercial Bank Ltd.

Report on the Audit of the Consolidated Financial Statements

OpinionWe have audited the consolidated financial statements of Antigua Commercial Bank Ltd.and its subsidiaries (“the Group”), which comprise the consolidated statement of financial position as at September 30, 2019, the consolidated statements of income, profit or loss and other comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising significant accounting policies and other explanatory information.

In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at September 30, 2019,and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards (IFRS).

Basis for OpinionWe conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the ethical requirements that are relevant to our audit of the consolidated financial statements in Antigua and Barbuda, and we have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.

Other InformationManagement is responsible for the other information. The other information comprises the information included in the Group’s Annual Report 2019 but does not include the consolidated financial statements and our auditors’ report thereon. The Annual Report is expected to be made available to us after the date of this auditors’ report.

Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance conclusion thereon.

In connection with our audit of the consolidated financial statements, our responsibility is to read the other information and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated.

ANTIGUA COMMERCIAL BANK LTD.

Notes to Consolidated Financial StatementsSeptember 30, 2019

(Expressed in Eastern Caribbean Dollars)

40

2

INDEPENDENT AUDITORS’ REPORT (cont’d) To the Shareholders of Antigua Commercial Bank Ltd. Other Information (cont’d) When we read the Group’s 2019 Annual Report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to those charged with governance. Responsibilities of Management and Those Charged with Governance for the Consolidated Financial Statements Management is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with IFRS, and for such internal control as management determines is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the consolidated financial statements, management is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless management either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so.

Those charged with governance are responsible for overseeing the Group’s financial reporting process. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditors’ report that includes our opinion. Reasonable assurance is a high level of assurance but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these consolidated financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional skepticism throughout the audit. We also: • Identify and assess the risks of material misstatement of the consolidated financial

statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.

• Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control.

41

3

INDEPENDENT AUDITORS’ REPORT (cont’d) To the Shareholders of Antigua Commercial Bank Ltd. Auditors’ Responsibilities for the Audit of the Consolidated Financial Statements (cont’d)

• Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by management.

• Conclude on the appropriateness of management’s use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditors’ report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditors’ report. However, future events or conditions may cause the Group to cease to continue as a going concern.

• Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation.

• Obtain sufficient appropriate audit evidence regarding the financial information of the

entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion.

We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Chartered Accountants January 10, 2020 Antigua and Barbuda

42


Consolidated Statement of Financial PositionAs at September 30, 2019 with comparative figures for 2018


The notes are an integral part of these consolidated financial statements

43


Consolidated Statement of IncomeFor the year ended September 30, 2019 with comparative figures for 2018


The notes are an integral part of these consolidated financial statements.5


Consolidated Statement of Income

For the year ended September 30, 2019with comparative figures for 2018


Notes 2019 2018

Interest incomeIncome from loans and advances $ 52,366,010 44,082,198Income from deposits with other banks and investments 12,237,396 9,244,418

64,603,406 53,326,616

Interest expenseSavings accounts 10,117,888 10,439,998Time deposits and current accounts 4,393,344 4,943,057Investment expenses 28,777 30,224

14,540,009 15,413,279

Net interest income 50,063,397 37,913,337

Other operating income 25 16,927,728 14,518,845

Total income 66,991,125 52,432,182

Operating expensesGeneral and administrative expenses 27 28,923,335 26,006,330Depreciation 15 2,198,204 1,995,345Directors’ fees and expenses 21 944,182 999,304Provision for loan impairment 12 10,874,896 190,880Provision for impairment of other financial assets 7,790 118,699Property – revaluation adjustment 15 (1,300,392) -

41,648,015 29,310,558

Profit before tax 25,343,110 23,121,624

TaxationCurrent tax expense 3,888,538 1,075,173Deferred tax expense 719,141 2,329,293

20 4,607,679 3,404,466

Profit for the year $ 20,735,431 19,717,158

Earnings per share 26 $ 2.07 1.97


44


Consolidated Statement of Profit or Loss and Other Comprehensive IncomeFor the year ended September 30, 2019 with comparative figures for 2018




Consolidated Statement of Profit or Loss and Other Comprehensive Income



Notes 2019 2018

Profit for the year $ 20,735,431 19,717,158

Other comprehensive income:

Items net of tax that are or may be reclassified to profit or loss in the future:

Increase in fair value of AFS equity securities,net of taxes of $nil (2018: $211,293) 24 - 628,502

- 628,502

Items net of tax that will never be reclassifiedsubsequently to profit or loss:

Increase in fair value of FVOCI equity securities,net of taxes of $1,979 24 5,934 -

Revaluation surplus due to increase in fair value of property 15 585,000 -

Actuarial loss for the year, net of taxes of$280,844 (2018: $170,869) 16 (842,534) (512,607)

Other comprehensive (loss)/income for the year $ (251,600) 115,895

Total comprehensive income for the year $ 20,483,831 19,833,053


45


Consolidated Statement of Cash FlowsFor the year ended September 30, 2019 with comparative figures for 2018




Consolidated Statement of Cash Flows



Notes 2019 2018Cash flows from operating activitiesProfit for the year $ 20,735,431 19,717,158Items not affecting cash:

Provision for loan impairment 12 10,874,896 190,880Provision for impairment of other financial assets 7,790 118,699Depreciation 15 2,198,204 1,995,345Pension income 16 (173,144) (156,679)Property revaluation adjustment 15 (1,300,392) -Interest income (64,603,406) (53,326,616)Interest expense 14,540,009 15,413,279Tax expense 4,607,679 3,404,466

Cash flows used in operating activities before changesin operating assets and liabilities (13,112,933) (12,643,468)Change in statutory deposit (90,628) (29,263)Change in other receivables and other assets 6,219,102 (3,009,381)Change in loans and advances (31,519,633) (9,337,375)Change in deposits due to customers 35,585,840 33,343,196Change in provisions and other liabilities (3,320,181) 1,035,191

Cash flows (used in)/from operating activities before interest,taxes and pension contributions (6,238,433) 9,358,900Interest received 63,123,298 52,777,444Interest paid (14,526,400) (14,722,141)Taxes paid (1,184,051) (3,835,757)Pension contributions paid (402,495) (384,505)

Net cash flows provided by operating activities 40,771,919 43,193,941

Cash flows from investing activitiesRedemption of investment securities 19,843,110 5,903,908Purchase of short-term investments (25,000,000) (65,477,912)Purchase of property and equipment 15 (2,230,555) (3,347,494)Purchase of investment securities (52,292,708) (13,941,022)

Net cash flows used in investing activities (59,680,153) (76,862,520)

Cash flows from financing activitiesDividends paid 19 (4,000,000) (4,000,000)

Net cash flows used in financing activities (4,000,000) (4,000,000)

Net decrease in cash and cash equivalents (22,908,234) (37,668,579)Cash and cash equivalents, beginning of year 226,101,952 263,770,531

Cash and cash equivalents, end of year 28 $ 203,193,718 226,101,952


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48



September 30, 2019


10

1. Nature of operations

The principal activity of Antigua Commercial Bank Ltd. and its subsidiaries (“the Group”), is the provision of commercial banking services. The Bank is licensed to carry on banking business in Antigua and Barbuda and is regulated by the Eastern Caribbean Central Bank in accordance with the Banking Act No. 10 of 2015 and the Eastern Caribbean Central Bank Act No. 10 of 1983.

2. General information and statement of compliance with IFRS

Antigua Commercial Bank Ltd. the Group’s ultimate parent company is a limited liability company incorporated on October 19, 1955 in Antigua and Barbuda and continued under the provisions of the Antigua Companies Act 1995. The Group’s registered office is located at St. Mary’s and Thames Streets, St. John’s, Antigua.

The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards (IFRS).

These consolidated financial statements were approved for issuance on January 10, 2020.

These consolidated financial statements have been prepared on the historical cost basis, except for the following material items in the statement of financial position that are measured at fair value:

• Debt and equity investments measured at fair value through profit or loss (applicable for 2019 only)

• Equity investments designated at fair value through other comprehensive income (applicable for 2019 only)

• Available-for-sale quoted financial assets (applicable for 2018 only)

• Land and buildings measured at revalued amounts

• Net defined benefit asset, which is measured at the fair value of plan assets less the present value of the defined benefit obligation.

3. Changes in accounting policies

3.1 Adoption of new or revised standards, amendments to standards and interpretations

The Group has adopted IFRS 9 and IFRS 15 from October 1, 2018.

Of these new standards and amendments applied for the first time in 2019, only IFRS 9 had a material impact on the annual financial statements of the Group.

Due to the transition method chosen by the Group in applying IFRS 9, comparative information throughout these financial statements has not been restated to reflect its requirements.

The effect of initially applying IFRS 9 is mainly attributed to the following:

- an increase in impairment losses recognized on financial assets- additional disclosures related to IFRS 9




49



September 30, 2019


11

3. Changes in accounting policies (cont’d)

3.1 Adoption of new or revised standards, amendments to standards and interpretations (cont’d)

The adoption of IFRS 15 did not impact the timing or amount of fee and commission income from contracts with customers recognized by the Group.

A number of other new standards are also effective from October 1, 2018 but they do not have a significant impact on the Group’s financial statements.

The Group has not early adopted any other standard, interpretation or amendment that has been issued but is not yet effective.

Except for the changes below, the Group has consistently applied the accounting policies as outlined to all periods presented in these financial statements.

The nature and the impact of each new standard or amendment are described below:

IFRS 9 Financial Instruments

IFRS 9 Financial Instruments replaces IAS 39 Financial Instruments: Recognition and Measurement andsets out requirements for recognizing and measuring financial assets, financial liabilities and some contracts to buy or sell non‑financial items. The requirements of IFRS 9 represent a significant change from IAS 39 and brings fundamental changes to the accounting for financial assets.

IFRS 9 introduced changes to the classification and measurement of financial assets and the accounting for impairment of financial assets from an incurred loss approach with a forward-looking expected credit loss approach.

New or amended disclosures have been provided for the current period, where applicable.

The key changes to the Group’s accounting policies resulting from its adoption of IFRS 9 are summarized below:

Changes to classification and measurement of financial assets and financial liabilities

The standard eliminates the previous categories under IAS 39 of available-for-sale, held-to-maturity and loans and receivables.

IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost, fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). For classification purposes, IFRS 9 requires all financial assets, except equity instruments and derivatives to be assessed on the basis of the entity’s business model for managing the assets and the contractual cash flow characteristics of the instruments.




50



September 30, 2019


12



Changes to classification and measurement of financial assets and financial liabilities (cont’d)

IFRS 9 will also allow entities to continue to irrevocably designate instruments that qualify for amortised cost or FVOCI instruments as FVTPL, if doing so eliminates or significantly reduces a measurement or recognition inconsistency.

Equity instruments that are not held for trading may be irrevocably designated as at FVOCI, with no subsequent reclassification of gains or losses to profit or loss.

The Group will generally therefore classify its financial assets as follows:

• Debt instruments at amortised cost;

• Debt instruments at fair value through other comprehensive income (FVOCI);

• Equity instruments designated at fair value through other comprehensive income (FVOCI); and

• Financial assets at fair value through profit or loss (FVTPL).

IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities andtherefore, there have been no significant changes to the accounting for the Group’s financial liabilities under IFRS 9.

Impairment of financial assets

IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with an ‘expected credit loss’ model for financial assets. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments. These new requirements are forward-looking and eliminate the threshold that was in IAS 39 for the recognition of credit losses. Under the new approach it is no longer necessary for a credit event to have occurred before credit losses are recognized and therefore under IFRS 9, credit losses are recognized earlier than under IAS 39. The impairment allowance is based on a three-stage model that determines the expected credit loss based on the probability of default, the exposure at default and the loss given default for loans and loan commitments, debt securities not held for trading and financial guarantee contracts. The allowance is based on the ECLs associated with the probability of default in the next twelve months unless there has been a significant increase in credit risk since origination.

Transition disclosures

Changes in accounting policies resulting from the adoption of IFRS 9 have been applied retrospectively, except as described below:

- As permitted by the transition provisions of IFRS 9, the Group elected not to restate comparative financial information for 2018 for financial instruments within the scope of IFRS 9. As such, the comparative financial information for 2018 is reported under IAS 39 and is not comparable to the information presented in 2019 under IFRS 9. Adjustments to carrying amounts of financial assets and liabilities arising from the adoption of IFRS 9 have been recognized in opening retained earnings and other components of equity as at October 1, 2018.




51



September 30, 2019


13



Transition disclosures (cont’d)

The following assessments have been made on the basis of the facts and circumstances that existed at the date of initial application:

- The determination of the business model within which a financial asset is held; and- The designation of certain investments in equity instruments not held for trading as at FVOCI.

If a debt security had low credit risk at the date of initial application of IFRS 9, then the Group has assumed that credit risk on the asset had not increased significantly since its initial recognition.

The quantitative impact of applying IFRS 9, as at October 1, 2018, is disclosed in the transition disclosures in Note 31.

IFRS 15 Revenue from Contracts with Customers

On October 1, 2018, the Group adopted IFRS 15 Revenue from Contracts with Customers as issued in May 2014 by the IASB which replaced IAS 18 Revenue and IAS 11 Construction Contracts and related interpretations. IFRS 15 defines principles for recognising revenue and is applicable to all contracts with customers. However, interest and fee income integral to financial instruments and leases continues to fall outside the scope of IFRS 15 and will be regulated by the other applicable standards (e.g. IFRS 9 and IFRS 16).

The standard requires the identification of distinct performance obligations within a contract, and allocation of the transaction price of the contract to those performance obligations. Revenue is then recognised as each performance obligation is satisfied. The standard also provides guidance on whether the entity is acting as a principal or an agent which impacts the presentation of revenue on a gross or net basis. It also provides a model for the recognition and measurement of disposal of certain non-financial assets including property, equipment and intangible assets.

The adoption of IFRS 15 did not impact the timing or amount of fee and commission income from contracts with customers and the related assets and liabilities recognised by the Group.




52



September 30, 2019


14


3.2 Standards issued but not yet adopted

A number of new standards and amendments to standards are effective for annual periods beginning after October 1, 2018. The Group has not early adopted the following new or amended standards in preparing these separate financial statements.

Effective January 1, 2019

IFRS 16 Leases

IFRS 16, Leases, which is effective for annual reporting periods beginning on or after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Companies will be required to bring all major leases on-balance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest and the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short-term leases and for low-value items with a value of US$5,000 or less.

Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Finance lease accounting will be based on IAS 17 lease accounting, with recognition of net investment in lease comprising lease receivable and residual asset. Operating lease accounting will be based on IAS 17 operating lease accounting.

The Group is assessing the impact that this standard will have on its 2020 financial statements.

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers:

• Whether tax treatments should be considered collectively;

• Assumptions for taxation authorities’ examinations;

• The determination of taxable profits (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and

• The effect of changes in facts and circumstances.

Amendments to IFRS 9 Financial Instruments

Amendments to IFRS 9 Financial Instruments relating to prepayment features with negative compensation. This amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

The Group anticipates that these standards and amendments will be adopted in the initial period when they become mandatorily effective.

The impact of these are currently being assessed by the Group.




53



September 30, 2019


14


3.2 Standards issued but not yet adopted

A number of new standards and amendments to standards are effective for annual periods beginning after October 1, 2018. The Group has not early adopted the following new or amended standards in preparing these separate financial statements.

Effective January 1, 2019

IFRS 16 Leases

IFRS 16, Leases, which is effective for annual reporting periods beginning on or after January 1, 2019, eliminates the current dual accounting model for lessees, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, there is a single, on-balance sheet accounting model that is similar to current finance lease accounting. Companies will be required to bring all major leases on-balance sheet, recognising new assets and liabilities. The on-balance sheet liability will attract interest and the total lease expense will be higher in the early years of a lease even if a lease has fixed regular cash rentals. Optional lessee exemption will apply to short-term leases and for low-value items with a value of US$5,000 or less.

Lessor accounting remains similar to current practice as the lessor will continue to classify leases as finance and operating leases. Finance lease accounting will be based on IAS 17 lease accounting, with recognition of net investment in lease comprising lease receivable and residual asset. Operating lease accounting will be based on IAS 17 operating lease accounting.

The Group is assessing the impact that this standard will have on its 2020 financial statements.

IFRIC 23 Uncertainty over Income Tax Treatments

The interpretation addresses the determination of taxable profit (tax loss), tax bases, unused tax losses, unused tax credits and tax rates, when there is uncertainty over income tax treatments under IAS 12. It specifically considers:

• Whether tax treatments should be considered collectively;

• Assumptions for taxation authorities’ examinations;

• The determination of taxable profits (tax loss), tax bases, unused tax losses, unused tax credits and tax rates; and

• The effect of changes in facts and circumstances.

Amendments to IFRS 9 Financial Instruments

Amendments to IFRS 9 Financial Instruments relating to prepayment features with negative compensation. This amends the existing requirements in IFRS 9 regarding termination rights in order to allow measurement at amortised cost (or, depending on the business model, at fair value through other comprehensive income) even in the case of negative compensation payments.

The Group anticipates that these standards and amendments will be adopted in the initial period when they become mandatorily effective.

The impact of these are currently being assessed by the Group.



September 30, 2019


15

4. Summary of significant accounting policies

4.1 Overall considerations

The consolidated financial statements have been prepared using the significant accounting policies andmeasurement bases summarised below.

4.2 Cash and cash equivalents

Cash and cash equivalents comprise cash on hand, non-mandatory deposits with the ECCB and otherbanks, treasury bills, and other short-term highly liquid instruments with original maturities of three months of less.

4.3 Financial instruments

Recognition, initial measurement and derecognitionFinancial assets and financial liabilities are recognised when the Group becomes a party to the contractualprovisions of the financial instrument and are measured initially at fair value plus, for an item not at FVTPL, transaction costs that are directly attributable to its acquisition or issue. Subsequent measurement offinancial assets and financial liabilities is described below.

Financial assets are derecognised when the contractual rights to the cash flows from the financial asset expire, or when the financial asset and substantially all risks and rewards are transferred, or when the Group neither transfers nor retains substantially all of the risks and rewards of ownership and does not retain control, over the transferred asset. Any interest in such derecognized financial assets that is created or retained by the Group is recognized as a separate asset or liability.

On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset derecognized) and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognized in OCI is recognized in profit or loss.

From October 1, 2018 any cumulative gain/loss recognized in OCI in respect of equity investment securities designated as at FVOCI is not recognized in profit or loss on derecognition of such securities.

A financial liability is derecognised when it is extinguished, discharged, cancelled or expires.

Classification and subsequent measurement of financial assets

Policy applicable from October 1, 2018On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL.

Financial assets are measured at initial recognition at fair value and are classified and subsequently measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL:

− the asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and

− the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.




54



September 30, 2019


16

4. Summary of significant accounting policies (cont’d)

4.3 Financial instruments (cont’d)

Classification and subsequent measurement of financial assets (cont’d)

Policy applicable from October 1, 2018 cont’dA debt instrument is measured at initial recognition at fair value and is classified and subsequently measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL:

− the asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and

− the contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding.

On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. All other equity investments are classified as measured at FVTPL. In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI as at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise.

A financial asset is classified into one of these categories on initial recognition. However, for financial assets held at initial application, the business model assessment is based on facts and circumstances at that date. Also, IFRS 9 permits new elective designations at FVTPL or FVOCI to be made on the date of initial application and permits or requires revocation of previous FVTPL elections at the date of initial application depending on the facts and circumstances at that date.

Business model assessmentIFRS 9 requires that financial assets are classified on the basis of the Group’s business model for managing such assets unless it makes an irrevocable election to designate the asset at fair value through profit or loss. The business model refers to how financial assets are managed in order to generate cash flows. The Group determines its business model at the level that best reflects how it manages its portfolios of financial assets to achieve its business objectives. Judgment is used in determining the Group’s business models that is supported by relevant, objective evidence including:

- The stated policies and objectives for the portfolio and the operation of those policies in practice;

- How performance of the business model and the financial assets held within the model are evaluated and reported to key management personnel;

- How managers of the business are compensated (e.g. whether compensation is based on the fair value of the assets managed or the contractual cash flows collected);

- The frequency and significance of past sales activity, the reason for those sales as well as expectations about future sales; and

- The significant risks affecting the performance of the business model for example, market risk and credit risk and the activities undertaken to manage those risks.




55



September 30, 2019


17




Policy applicable from October 1, 2018 (cont’d)Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.

The business model assessment is forward looking in that if cash flows are realized in a manner that is different from expectations the classification of the remaining assets in the business model is not changed but instead that information is used to assess new instruments acquired.

Business models - Applicability to the GroupThe Group’s business models fall into two main categories, which are indicative of the key strategies used to generate returns as follows:

- Hold to collect contractual cash flows (HTC) - the objective of this business model is to hold assets in order to collect contractual cash flows. Under this model, the Group holds loans and investment securities to collect contractual principal and interest cash flows. Sales are expected to be insignificant or infrequent; and

- Other business model - the objective of this business model is neither to hold assets in order to collect contractual cash flows, nor both collect contractual cash flows and to sell. Under this model collecting contractual cash flows is incidental to the objective of the model and sales may be significant in value and frequent. The Group holds certain debt and equity investments under this model.

Assessment of whether contractual cash flows are solely payments of principal and interest - SPPI assessmentFor classification purposes the Group first reviews the terms of the instruments to determine whether they give rise on specified dates to cash flows that meet the SPPI test.

For the purposes of this assessment, ‘principal’ is defined as the fair value of the financial asset on initial recognition. ‘Interest’ is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin.

In assessing whether the contractual cash flows are SPPI, the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition.

ReclassificationsFinancial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets.




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Classification and subsequent measurement of financial assets cont’d

Policy applicable from October 1, 2018 (cont’d)

Classification and Measurement under IFRS 9 – Applicability to the Group

Debt instruments measured at amortised cost Debt instruments are measured at amortised cost if they are held within a business model whose objective is to hold for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. After initial measurement, debt instruments in this category are carried at amortised cost. Interest income on these instruments is recognized in interest income using the effective interest rate method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial asset to the gross carrying amount of a financial asset. Amortised cost is calculated by taking into account any discount or premium on acquisition, transaction costs and fees that are an integral part of the effective interest rate.

Impairment on debt instruments measured at amortised cost is calculated using the expected credit loss approach. The Group has loans and certain debt securities in this category, which are measured at amortised cost. These are presented net of the allowance for expected credit losses in the statement of financial position.

Debt instruments measured at Fair Value through Other Comprehensive IncomeInvestments in debt instruments are measured at fair value through other comprehensive income where they meet the following two conditions and they have not been designated at FVTPL:

• Contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the principal amount outstanding; and

• Are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. Impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in profit or loss. Upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss.

Impairment on debt instruments measured at FVOCI is calculated using the expected credit loss (ECL) approach. The ECL on debt instruments measured at FVOCI does not reduce the carrying amount of the asset in the statement of financial position, which remains at its fair value.

The Group does not have any financial assets in this category.




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Classification and Measurement under IFRS 9 – Applicability to the Group

Debt instruments measured at amortised cost Debt instruments are measured at amortised cost if they are held within a business model whose objective is to hold for collection of contractual cash flows where those cash flows represent solely payments of principal and interest. After initial measurement, debt instruments in this category are carried at amortised cost. Interest income on these instruments is recognized in interest income using the effective interest rate method. The effective interest rate is the rate that discounts estimated future cash payments or receipts through the expected life of the financial asset to the gross carrying amount of a financial asset. Amortised cost is calculated by taking into account any discount or premium on acquisition, transaction costs and fees that are an integral part of the effective interest rate.

Impairment on debt instruments measured at amortised cost is calculated using the expected credit loss approach. The Group has loans and certain debt securities in this category, which are measured at amortised cost. These are presented net of the allowance for expected credit losses in the statement of financial position.

Debt instruments measured at Fair Value through Other Comprehensive IncomeInvestments in debt instruments are measured at fair value through other comprehensive income where they meet the following two conditions and they have not been designated at FVTPL:

• Contractual terms that give rise to cash flows on specified dates, that represent solely payments of principal and interest on the principal amount outstanding; and

• Are held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets.

These debt instruments are initially recognised at fair value plus directly attributable transaction costs and subsequently measured at fair value. Gains and losses arising from changes in fair value are included in other comprehensive income within a separate component of equity. Impairment losses or reversals, interest revenue and foreign exchange gains and losses are recognised in profit or loss. Upon disposal, the cumulative gain or loss previously recognised in other comprehensive income is reclassified from equity to profit or loss.

Impairment on debt instruments measured at FVOCI is calculated using the expected credit loss (ECL) approach. The ECL on debt instruments measured at FVOCI does not reduce the carrying amount of the asset in the statement of financial position, which remains at its fair value.

The Group does not have any financial assets in this category.



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Debt instruments measured at FVTPL Debt instruments are measured at FVTPL if assets:

i) Are held for trading purposes;ii) Are held as part of a portfolio managed on a fair value basis; or iii) Whose cash flows do not represent payments that are solely payments of principal and interest.

These instruments are measured at fair value in the statement of financial position, with transaction costs recognized immediately in profit or loss. Realized and unrealized gains and losses are recognized in profit or loss.

The Group has certain investments in this category.

Equity instruments measured at FVTPL Equity instruments are measured at FVTPL, unless an election is made to designate them at FVOCI upon purchase, with transaction costs recognized immediately in profit or loss. Subsequent to initial recognition the changes in fair value are recognized in profit or loss. Equity instruments at FVTPL are primarily assets held for trading.

The Group has certain equity investments in this category.

Equity instruments measured at FVOCI (designated)At initial recognition, there is an irrevocable option for the Group to classify non-trading equity instruments at FVOCI. This election is used for certain equity investments for strategic or longer-term investment purposes. This election is made on an instrument-by-instrument basis and is not available to equity instruments that are held for trading purposes.

Gains and losses on these instruments including when derecognized/sold are recorded in OCI and are not subsequently reclassified to profit or loss. As such, there is no specific impairment requirement. Dividends received are recorded in profit or loss. Any transaction costs incurred upon purchase of the security are added to the cost basis of the security and are not reclassified to profit or loss on sale of the security.

The Group has certain equity investments in this category.

Policy applicable before October 1, 2018For the purpose of subsequent measurement, financial assets are classified into the following categoriesupon initial recognition:

• loans and receivables;• held-to-maturity (HTM) investments; and • available-for-sale (AFS) financial assets.




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Policy applicable before October 1, 2018 (cont’d)All financial assets are subject to review for impairment at least at each reporting date to identify whether there is any objective evidence that a financial asset or a group of financial assets is impaired. Different criteria to determine impairment are applied for each category of financial assets, which are described below.

All income and expenses relating to financial assets that are recognised in profit or loss are presented within “interest income” and “interest expense”, except for impairment of loans and advances which is presented separately in the statement of income.

(a) Loans and receivablesLoans and receivables are non-derivative financial assets with fixed or determinable payments thatare not quoted in an active market. After initial recognition, these are measured at amortised costusing the effective interest method, less provision for impairment. Discounting is omitted where theeffect of discounting is immaterial. The Group’s cash and cash equivalents, loans and advances,and some investment securities fall into this category of financial instruments.

(b) Held-to-maturity investmentsHTM investments are non-derivative financial assets with fixed or determinable payments and fixedmaturity other than loans and receivables. Investments are classified as HTM if the Group hasthe intention and ability to hold them until maturity. HTM investments are measured subsequentlyat amortised cost using the effective interest method. The Group currently does not haveinvestments designated into this category.

(c) Available-for-sale financial assetsAFS financial assets are non-derivative financial assets that are either designated to this categoryor do not qualify for inclusion in any of the other categories of financial assets. The Group’sAFS financial assets include listed and unlisted equity securities. Unlisted equity investments invarious entities are measured at cost less any impairment charges, where their fair value cannotcurrently be estimated reliably. Impairment charges are recognised in profit or loss.

All other AFS financial assets are measured at fair value. Gains and losses are recognised in othercomprehensive income and reported within the AFS reserve within equity, except for interest anddividend income, impairment losses and foreign exchange differences on monetary assets, which arerecognised in profit or loss. When the asset is disposed of or is determined to be impaired, thecumulative gain or loss is reclassified from the equity reserve to profit or loss. Interest is calculatedusing the effective interest method and dividends are recognised in profit or loss under “otheroperating income”.

AFS financial assets are included in non-current assets unless the investment matures ormanagement intends to dispose of it within 12 months of the end of the reporting period.




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Impairment of financial assets

Policy applicable from October 1, 2018The Group recognizes loss allowances for expected credit losses (ECL) on the following financial instruments that are not measured at FVTPL:

- Financial assets that are debt instruments;- Lease receivables; - Financial guarantee contracts issued; and- Loan commitments issued.

No impairment loss is recognized on equity investments.

The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL:

- Debt investment securities that are determined to have low credit risk at the reporting date; and- Other financial instruments (other than lease receivables) on which credit risk has not increased

significantly since their initial recognition.

12-month ECL are the portion of ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date. Financial instruments for which a 12-month ECL is recognized are referred to as ‘Stage 1’ financial instruments. Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2.

Lifetime ECL are the ECL that result from all possible default events over the expected life of the financial instrument. Financial instruments for which a lifetime ECL is recognized but which are not credit-impaired are referred to as ‘Stage 2’ financial instruments.

Credit impaired financial assetsAt each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit-impaired (referred to as ‘Stage 3 financial assets’). A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred.

Evidence that a financial asset is credit-impaired includes the following observable data:

- Significant financial difficulty of the borrower or issuer, including an inability to satisfy the debt because of decreased or no cash flow (negative debt service ratio), inability to work or where the customer is unemployed in excess of 6 months;

- A breach of contract such as a default or past due event, including a history of chronic arrears;- The restructuring of a loan or advance by the Group on terms that the Group would not consider

otherwise, or if a loan has been restructured more than three times in five years;- Measurable decrease in the estimated future cash flows from the underlying assets that secure the

loan;- Default or delinquency in interest or principal payments;- It is becoming probable that the borrower will enter bankruptcy or other financial reorganization; or- The disappearance of an active market for a security because of financial difficulties.




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Impairment of financial assets (cont’d)

A loan that has been renegotiated due to a deterioration in the borrower’s condition is usually considered to be credit-impaired unless there is evidence that the risk of not receiving contractual cash flows has reduced significantly and there are no other indicators of impairment. In addition, the Group considers that default has occurred and classifies a retail loan as credit impaired when it is more than 90 days past due.

Loans classified as ‘doubtful’ or ‘loss’ based on the regulatory definition and those placed on a watch list are also considered to be in default and hence are classified as credit impaired.

Significant increase in credit riskWhen determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers both quantitative and qualitative information and analysis based on the Group’s historical experience and credit risk assessment.

The determination of whether there has been a significant increase in credit risk is critical to the staging process. Factors to consider include:

• Changes in market or general economic conditions;• Expectation of potential breaches;• Expected delays in payment;• Deterioration in credit ratings; or• Significant changes in operating results or financial position of the borrower.

The Group considers as a backstop that significant increase in credit risk occurs when an asset is more than 30 days past due and also maintains a loan watch list to assist in the assessment.

An exposure will migrate through the ECL stages as asset quality deteriorates. If, in a subsequent period, asset quality improves and also reverses any previously assessed significant increase in credit risk since origination, then the provision for doubtful debts reverts from lifetime ECL to 12-months.

Measurement of ECLECL are a probability-weighted estimate of credit losses. They are measured as follows:

- Financial assets that are not credit-impaired at the reporting date: as the present value of all cashshortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive);

- Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows;

- Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and

- Financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.




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Measurement of ECL (cont’d)The inputs used to estimate the expected credit losses are as follows:

• PD – The probability of default is an estimate of the likelihood of default over a given time horizon. A default may only happen at a certain time over the remaining estimated life, if the facility has not been previously derecognized and is still in the portfolio.

• EAD – The exposure at default is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments

• LGD – The loss given default is an estimate of the loss arising in the case where a default occurs at a given time. It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realization of any collateral. It is usually expressed as a percentage of the EAD.

• Forward looking information – The standard requires the incorporation of forward-looking information in the estimation of expected credit losses for each stage and the assessment of significant increases in credit risk consider information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement.

• Discount rate – The standard requires the ECL to be discounted using the effective interest rate (EIR).

The above five parameters are modelled and estimated independently and combined to obtain the ECL of loans.

To incorporate forward-looking macroeconomic sensitivity as required per the IFRS 9 guidance, the Groupdeveloped an economic scorecard model based on qualitative rationale and management judgment to calculate a “Forward Looking Factor” (FLF).

The Group applied experienced judgement in selecting macroeconomic factors that would most likely impact credit risk and leveraged various third party macroeconomic forecasts when determining the forward looking factors. The macroeconomic projections considered by the Group were:

• Gross Domestic Product (GDP)• Inflation• Unemployment rate• Lending rates

The Group then employed a Forward Looking Factor Scorecard approach to compute adjustment factors applied to the final PD estimates used to calculate the ECLs. This approach also considered various economic scenarios (negative, neutral, positive) and their estimated impacts to the ECL.




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Restructured financial assetsIf the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognized and ECL are measured as follows:

- If the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset.

- If the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset.

In assessing whether the modified terms are “substantially” different from the original terms, the following factors are considered:

• Introduction of significant new terms• Significant change in loan’s interest rate• Significant extension in loan’s term• Significant change in credit risk from inclusion of collateral or other credit enhancements.

Expected lifeFor instruments in Stage 2 or Stage 3, loss allowances reflect expected credit losses over the expected remaining lifetime of the instrument. For most instruments, the expected life is limited to the remaining contractual life. For certain revolving facilities such as credit cards and overdrafts, the expected credit life is estimated based on the period over which the Group’s exposure to credit losses is not mitigated by normal credit risk management actions.

Presentation of allowance for ECLLoss allowances for ECL are presented in the statement of financial position as follows:

- Financial assets measured at amortised cost: as a deduction from the gross carrying amount of the assets;

- Loan commitments and financial guarantee contracts: generally, as a provision;- Where a financial instrument includes both a drawn and an undrawn component, and the Group cannot

identify the ECL on the loan commitment component separately from those on the drawn component:the Group presents a combined loss allowance for both components. The combined amount is presented as a deduction from the gross carrying amount of the drawn component. Any excess of the loss allowance over the gross amount of the drawn component is presented as a provision; and

- Debt instruments measured at FVOCI: no loss allowance is recognized in the statement of financial position because the carrying amount of these assets is their fair value. However, the loss allowance is disclosed and is recognized in the fair value reserve.




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Write-offLoans and debt securities are written off (either partially or in full) when there is no reasonable expectation of recovering a financial asset in its entirety or a portion thereof. This is generally the case when the Groupdetermines that the borrower does not have assets or sources of income that could generate sufficient cash flows to repay the amounts subject to the write-off. This assessment is carried out at the individual asset level.

Recoveries of amounts previously written off are included in ‘impairment losses on financial instruments’ in the statement of profit or loss and OCI.

Policy applicable before October 1, 2018

(a) Assets carried at amortised costThe Group 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 if, and 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 offinancial assets that can be reliably estimated.

The criteria that the Group uses to determine that there is objective evidence of an impairment loss include:

(i) significant financial difficulty of the issuer or obligor;

(ii) a breach of contract, such as a default or delinquency in interest or principal payments;

(iii) the Group granting to the borrower, for economic or legal reasons relating to the borrower’sfinancial difficulty, a concession that the lender would not otherwise consider;

(iv) it is becoming probable that the borrower will enter bankruptcy or other financial reorganisation;

(v) the disappearance of an active market for that financial asset because of financial difficulties; or

(vi) observable data indicating that there is a measurable decrease in the estimated future cashflows from a group of financial assets since the initial recognition of those assets, although thedecrease cannot yet be identified with the individual financial assets in the group, including:

– adverse changes in the payment status of borrowers in the group; or

– national or local economic conditions that correlate with defaults on the assets in the portfolio




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(a) Assets carried at amortised cost (cont’d)The Group first assesses whether objective evidence of impairment exists individually for financialassets that are individually significant, and individually or collectively for financial assets that are notindividually significant. If the Group determines that no objective evidence of impairment exists for anindividually assessed financial asset, whether significant or not, it includes the asset in a group offinancial 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 tobe recognised are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and thepresent value of estimated future cash flows (excluding future credit losses that have not yet beenincurred) discounted at the financial asset’s original effective interest rate. The carrying amount is thenreduced to the recoverable amount as at the reporting date. If a loan has a variable interest rate, thediscount rate for measuring any impairment loss is the current effective interest rate determined underthe contract. As a practical expedient, the Group may measure impairment on the basis of aninstrument’s fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralised financial assetreflects 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 ofsimilar credit risk characteristics (i.e. on the basis of the Group’s grading process that considers assettype, industry, geographical location, collateral type, past-due status and other relevant factors). Thosecharacteristics are relevant to the estimation of future cash flows for groups of such assets by beingindicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assetsbeing evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment areestimated on the basis of the contractual cash flows of the assets in the group and historical lossexperience for assets with credit risk characteristics similar to those in the group. Historical lossexperience is adjusted on the basis of current observable data to reflect the effects of currentconditions that did not affect the period on which the historical loss experience is based and toremove the effects of conditions in the historical period that do not currently exist.

Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the group and their magnitude).




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(a) Assets carried at amortised cost (cont’d)The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Group to reduce any differences between loss estimates and actual loss experience.

When a loan is uncollectible, it is written off against the related allowance for loan impairment. Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and advances to banks and customers are classified in “loan impairment charges” whilst impairment charges relating to investment securities (loans and receivables categories) are classified in “provision for impairment of investment securities” in profit or loss.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognised (such as an improvement in the debtor’s credit rating), the previously recognised impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognised in profit or loss.

(b) Assets classified as available-for-saleThe Group assesses at each reporting date whether there is objective evidence that a financial assetor a group of financial assets is impaired. In the case of equity investments classified as available-for-sale, a significant or prolonged decline in the fair value of the security below its cost is objective evidenceof impairment resulting in the recognition of an impairment loss.

If any such evidence exists for available-for-sale financial assets, the cumulative loss – measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognised in profit or loss – is removed from equity and recognised in profit or loss. Impairment losses recognised in profit or loss on equity instruments are not reversed through operating profit within the statement of income. Any subsequent changes in fair value are recognised in other comprehensive income.

If, in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed through operating profit within the statement of income.

(c) Renegotiated loansLoans that are either subject to collective impairment assessment or are individually significant and whose terms have been renegotiated are no longer considered to be past due, but are treated as new loans. In subsequent years, the asset is considered to be past due and disclosed only if renegotiated again.

Classification and subsequent measurement of financial liabilitiesThe Group’s financial liabilities include customers’ deposits and other liabilities and accrued expenses. Financial liabilities are measured subsequently at amortised cost using the effective interest method. All interest-related charges are included within “interest expense” in the statement of income.




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Offsetting financial instrumentsFinancial assets and liabilities are offset and the net amount reported in the statement of financial positionwhen, and only when, there is a current legally enforceable right to offset the recognised amounts andthere is an intention to settle on a net basis, or realise the asset and settle the liability simultaneously.

Income and expenses are presented on a net basis only when permitted under IFRS or for gains and lossesarising from a group of similar transactions such as in the Group’s trading activity.

Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization, using the effective interest method, of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment.

Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk.

A number of the Group’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

When one is available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an on-going basis.

If there is no quoted price in an active market, then the Group uses valuation techniques that maximize the use of relevant observable inputs and minimize the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.

If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price, and liabilities and short positions at an ask price.

The best evidence of the fair value of a financial instrument on initial recognition is normally the transaction price - i.e. the fair value of the consideration given or received. If the Group determines that the fair value on initial recognition differs from the transaction price, and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability not based on a valuation technique for which any unobservable inputs are judged to be insignificant in relation to the measurement, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value on initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out.




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Modifications of financial assets and financial liabilities

Policy applicable from October 1, 2018

Financial assetsIf the terms of a financial asset are modified, then the Group evaluates whether the cash flows of the modified asset are substantially different.

If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognized at fair value plus any eligible transaction costs. Any fees received as part of the modification are accounted for as follows:

- fees that are considered in determining the fair value of the new asset and fees that represent reimbursement of eligible transaction costs are included in the initial measurement of the asset; and

- other fees are included in profit or loss as part of the gain or loss on derecognition.

If cash flows are modified when the borrower is in financial difficulties, then the objective of the modification is usually to maximize recovery of the original contractual terms rather than to originate a new asset with substantially different terms. If the Group plans to modify a financial asset in a way that would result in forgiveness of cash flows, then it first considers whether a portion of the asset should be written off before the modification takes place. This approach impacts the result of the quantitative evaluation and means that the derecognition criteria are not usually met in such cases.

If the modification of a financial asset measured at amortised cost or FVOCI does not result in derecognition of the financial asset, then the Group first recalculates the gross carrying amount of the financial asset using the original effective interest rate of the asset and recognises the resulting adjustment as a modification gain or loss in profit or loss. For floating-rate financial assets, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs or fees incurred and fees received as part of the modification adjust the gross carrying amount of the modified financial asset and are amortised over the remaining term of the modified financial asset.

If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income calculated using the effective interest rate method.

Financial liabilitiesThe Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability derecognised and consideration paid is recognised in profit or loss. Consideration paid includes non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.

If the modification of a financial liability is not accounted for as derecognition, then the amortised cost of the liability is recalculated by discounting the modified cash flows at the original effective interest rate and the resulting gain or loss is recognised in profit or loss. For floating-rate financial liabilities, the original effective interest rate used to calculate the modification gain or loss is adjusted to reflect current market terms at the time of the modification. Any costs and fees incurred are recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.




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Modifications of financial assets and financial liabilities (cont’d)

Policy applicable before October 1, 2018

Financial assetsIf the terms of a financial asset were modified, then the Group evaluated whether the cash flows of the modified asset were substantially different. If the cash flows were substantially different, then the contractual rights to cash flows from the original financial asset were deemed to have expired. In this case, the original financial asset was derecognised and a new financial asset was recognised at fair value.

If the terms of a financial asset were modified because of financial difficulties of the borrower and the asset was not derecognised, then impairment of the asset was measured using the pre-modification interest rate.

Financial liabilitiesThe Group derecognised a financial liability when its terms were modified and the cash flows of the modified liability were substantially different. In this case, a new financial liability based on the modified terms was recognised at fair value. The difference between the carrying amount of the financial liability extinguished and consideration paid was recognised in profit or loss. Consideration paid included non-financial assets transferred, if any, and the assumption of liabilities, including the new modified financial liability.

If the modification of a financial liability was not accounted for as derecognition, then any costs and fees incurred were recognised as an adjustment to the carrying amount of the liability and amortised over the remaining term of the modified financial liability by re-computing the effective interest rate on the instrument.

4.4 Provisions, contingent assets and contingent liabilities

Provisions for legal disputes or other claims are recognised when the Group has a present legal orconstructive obligation as a result of a past event, it is probable that an outflow of economic resourceswill be required from the Group and amounts can be estimated reliably. Timing or amount of the outflowmay still be uncertain.

A provision for Group levies is recognised when the condition that triggers the payment of the levy is met. If a levy obligation is subject to a minimum activity threshold so that the obligating event is reaching a minimum activity, then a provision is recognised when that minimum activity threshold is reached.

Provisions are not recognised for future operating losses. Provisions are measured at the estimated expenditure required to settle the present obligation, based on the most reliable evidence available at the reporting date, including the risks and uncertainties associated with the present obligation. Where there are a number of similar obligations, the likelihood that an outflow will be required in settlement is determined by considering the class of obligations as a whole. Provisions are discounted to their present values, where the time value of money is material.

Any reimbursement that the Group is virtually certain to collect from a third party with respect to the obligation is recognised as a separate asset. However, this asset may not exceed the amount of the related provision. In those cases where the possible outflow of economic resources as a result of present obligations is considered improbable or remote, no liability is recognised. Such situations are disclosed as contingent liabilities unless the outflow of resource is remote.




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4.5 Property and equipment and depreciation

Property and equipment are stated at historical cost or revalued amount, less accumulated depreciation and accumulated impairment losses, if any. Depreciation is calculated on the straight-line method at rates estimated to write down the cost or valuation of such assets to their residual values over their estimated useful lives, as follows:

Buildings 40 yearsATM buildings and building improvements 10 yearsCar park 10 yearsFurniture and fixtures 6 2/3 yearsEquipment 10 yearsMotor vehicles 5 yearsComputer hardware 5 yearsComputer software 3 years

Subsequent costs are included in the asset’s carrying amount or are recognised as a separate asset, as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Group and the cost of the item can be measured reliably. Repairs and maintenance are charged to profit or loss when the expenditure is incurred.

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Property and equipment are periodically reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable.

An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains or losses arising on the disposal of property and equipment are determined as the difference between the disposal proceeds and the carrying amount of the assets and are recognised within “other operating income” in profit or loss.

Revaluations of property and equipment are carried out every 3 to 5 years based on independent valuations.

4.6 Impairment of non-financial assets

At each reporting date, the Group reviews the carrying amounts of its non-financial assets (other than deferred tax assets) to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated.

An impairment loss is recognised for the amount by which the asset’s or cash-generating unit’s carrying amount exceeds its recoverable amount, which is the higher of fair value less costs of disposal and value-in-use. To determine the value-in-use, management estimates expected future cash flows from each cash-generating unit and determines a suitable discount rate in order to calculate the present value of those cash flows. Discount factors are determined individually for each cash-generating unit and reflect management’s assessment of respective risk profiles, such as market and asset-specific risk factors. Impairment losses are recognised in profit or loss.




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4.6 Impairment of non-financial assets (cont’d)

All assets are subsequently reassessed for indications that an impairment loss previously recognised may no longer exist. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised.

4.7 Dividends on ordinary shares and dividend income

Dividends on ordinary shares are recognised in equity in the period in which they are approved by shareholders. Dividends for the year which are approved after the reporting date are disclosed as a subsequent event (note 19).

Dividend income is recognised in “other operating income” in profit or loss when the entity’s right to receive payment is established.

4.8 Interest income and expense and revenue recognition

Interest income and expense for all interest-bearing financial instruments are recognised within “interest income” and “interest expense” in the statement of income using the effective interest method.

The effective interest method is a method of calculating the amortised cost of a financial asset or a financial liability and of allocating the interest income or interest expense over the relevant period. The effective interest rate is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or, when appropriate, a shorter period to the net carrying amount of the financial asset or financial liability. When calculating the effective interest rate, the Group estimates cash flows considering all contractual terms of the financial instrument (for example, prepayment options) but does not consider future credit losses. The calculation includes all fees paid or received between parties to the contract that are an integral part of the effective interest rate, transaction costs and all other premiums or discounts.

Once a financial asset or a group of similar financial assets has been written down as a result of an impairment loss, interest income is recognised using the rate of interest used to discount the future cash flows for the purpose of measuring the impairment loss.

Interest on loans and advances and fee incomeInterest on loans is recognized in interest income using the effective interest method. The estimated future cash flows used in this calculation include those determined by the contractual term of the asset and all fees that are considered to be integral to the effective interest rate. Fees that are an integral part of the effective interest rate are treated as an adjustment to the effective interest rate.

Fees that relate to activities such as originating, restructuring or renegotiating loans are deferred and recognized as non-interest income over the expected term of such loans using the effective interest method. Where there is a reasonable expectation that a loan will be originated, commitment and standby fees are also recognized as fee income over the expected term of the resulting loans using the effective interest method.




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4.9 Fee and commission income and revenue recognition

Fees and commissions are generally recognised on the accrual basis when the service has been provided. Loan origination fees are deferred (together with related direct costs) and recognised as an adjustment to the effective yield on the loan.

Commissions and fees arising from negotiating or participating in the negotiation of a transaction for a third party, such as the acquisition of shares or other securities, are recognised on completion of the underlying transaction.

4.10 Foreign currency translation

Functional and presentation currencyThe Consolidated Financial Statements are presented in Eastern Caribbean Dollars, which is also the functional currency of the Group.

Foreign currency transactions and balancesForeign currency transactions are translated into Eastern Caribbean Dollars using the closing rates of exchange prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the re-measurement of monetary items denominated in foreign currency at year-end exchange rates are recognised in the statement of income.

Non-monetary items are not retranslated at year-end and are measured at historical cost (translated using the exchange rates at the transaction date), except for non-monetary items measured at fair value which are translated using the exchange rates at the date when fair value was determined.

4.11 Post-employment benefits

The Group provides post-employment benefits through a defined benefit plan. Under this plan, the amount of pension benefit that an employee will receive on retirement is defined by reference to the employee’s length of service and final salary. The legal obligation for any benefits remains with the Group, even if plan assets for funding the defined benefit plan have been set aside. Plan assets may include assets specifically designated to a long-term benefit fund as well as qualifying insurance policies.

The liability recognised in the statement of financial position for a defined benefit plan is the present value of the defined benefit obligation (DBO) at the reporting date less the fair value of plan assets.

Management estimates the DBO annually with the assistance of independent actuaries. This is based on assumed rates of inflation, medical cost trends and mortality. It also takes into account the Group’s specific anticipation of future salary increases. Discount factors are determined close to each year-end by reference to high quality corporate bonds that are denominated in the currency in which the benefits will be paid and that have terms to maturity approximating to the terms of the related pension liability.

Service cost on the Group’s defined benefit plan is included in employee benefits expense. Employee contributions, all of which are independent of the number of years of service, are treated as a reduction of service cost. Net interest expense on the net defined benefit liability is included in salaries and related costs in profit or loss. Actuarial gains and losses resulting from re-measurements of the net defined benefit liability are included in other comprehensive income.




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4.12 Leased assets

Operating leasesLeases in which a significant portion of the risks and rewards of ownership are retained by the lessor are classified as operating leases. All of the Group’s leases are treated as operating leases and the Group is a lessee. All payments on operating lease agreements are recognised as an expense on a straight-line basis over the lease term. Associated costs, such as maintenance and insurance, are expensed as incurred.

4.13 Repurchase agreements

Securities sold subject to repurchase agreements are included in loans and receivables. These securities are not secured by collateral. The counterparty liability is included in ‘due under repurchase agreements’ and is recorded at amortised cost. The difference between sale and repurchase price is treated as interest and accrued over the life of the agreements using the effective interest method.

4.14 Current and deferred income taxes

Tax expense recognised in profit or loss comprises the sum of deferred tax and current tax not recognised in other comprehensive income or directly in equity.

Current taxCurrent income tax assets and/or liabilities comprise those obligations to, or claims from, fiscal authorities relating to the current or prior reporting periods, that are unpaid at the reporting date. Current tax is payable on taxable profit, which differs from profit or loss in the Consolidated Financial Statements. Calculation of current tax is based on tax rates and tax laws that have been enacted or substantively enacted by the end of the reporting period in Antigua and Barbuda.

Deferred taxDeferred income taxes are calculated on temporary differences between the carrying amounts of assets and liabilities and their tax bases.

Deferred tax assets and liabilities are calculated, without discounting, at tax rates that are expected to apply to their respective period of realisation, provided those rates are enacted or substantively enacted by the end of the reporting period

Deferred tax assets are recognised to the extent that it is probable that the underlying tax loss or deductible temporary difference will be utilised against future taxable income. This is assessed based on the Group’s forecast of future operating results, adjusted for significant non-taxable income and expenses and specific limits on the use of any unused tax loss or credit. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised.

Unrecognised deferred tax assets are reassessed at each reporting date and recognised to the extent that it has become probable that future taxable profits will be available against which they can be used.

Deferred tax assets and liabilities are offset only when the Group has a right and intention to set off current tax assets and liabilities from the same taxation authority.




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4.15 Other liabilities

Other liabilities are obligations to pay for goods or services that have been acquired in the ordinary course of business from suppliers. Other liabilities are classified as current liabilities if payment is due within one year or less. If not, they are presented as non-current liabilities. Other liabilities are recognised initially at fair value and subsequently measured at amortised cost using the effective interest method.

4.16 Operating expenses

Operating expenses are recognised in profit or loss upon utilisation of the service or as incurred.

4.17 Equity and reserves

Stated capital represents the issue price multiplied by the number of shares that have been issued. Any transaction costs associated with the issuing of shares are shown in equity as a deduction, net of any related income tax benefits.

Other components of equity include the following:

• Regulatory reserve for loan loss – additional provision as required by the Eastern Caribbean Central Bank and interest on loans not recognised for regulatory purposes

• Pension reserve – comprises a reserve equivalent to the calculated pension plan asset• Revaluation reserve: property – comprises unrealised gains and losses from the revaluation of land

and buildings• Revaluation reserve for AFS financial assets – comprises unrealised gains and losses relating to

these types of financial instruments• Retained earnings – includes all current and prior period retained profits or losses

See note 24 for details on each component of other reserves.

4.18 Basis of consolidation

Our consolidated financial statements include the assets and liabilities and results of operations of the parent company, Antigua Commercial Bank Ltd., and its subsidiaries, after elimination of intercompany transactions, balances, revenues and expenses.

Subsidiaries are entities controlled by the Group. The Group controls an entity when it is exposed to, or has rights to, variable returns from its involvement with the entity and has the ability to affect those returns through its power over the entity. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date on which control ceases.




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5. Financial instrument risk

The Group’s activities expose it to a variety of financial risks and those activities involve the analysis,evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk iscore to the financial business, and the operational risks are an inevitable consequence of being in business.The Group’s overall risk management programme focuses on the unpredictability of financial markets andseeks to achieve an appropriate balance between risk and return and minimise potential adverse effectson the Group’s financial performance.

The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by the Group’s Asset and Liability Management Committee (ALCO) and Investment Committee under policies approved by the Board of Directors. The ALCO and Investment Committee identify, evaluate and hedge financial risks in close co-operation with the Group’s operating departments. The Board provides guidance for overall risk management, as well as

written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. In addition, Internal Audit is responsible for the independent review of risk management and the control environment. The risks arising from financial instruments to which the Group is exposed are credit risk, liquidity risk, market risk (which are discussed below) and other operational risk.

5.1 Credit risk

Credit risk is the risk of suffering financial loss, should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group. Credit risk arises mainly from commercial and consumer loans and advances, credit cards, and loan commitments arising from such lending activities, but can also arise from credit enhancements provided, such as financial guarantees and letters of credit. The Group is also exposed to other credit risks arising from investments in debt securities.

Credit risk is the single largest risk for the Group’s business; management therefore carefully manages its exposure to credit risk. The credit risk management and control including risk on debt securities, cash, loans and advances, credit cards and loan commitments are monitored by the ALCO and Investment Committees, which report to the Board of Directors regularly. Cash deposits with other banks and short-term investments are placed with reputable regional and international financial institutions and Governments.




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5. Financial instrument risk

The Group’s activities expose it to a variety of financial risks and those activities involve the analysis,evaluation, acceptance and management of some degree of risk or combination of risks. Taking risk iscore to the financial business, and the operational risks are an inevitable consequence of being in business.The Group’s overall risk management programme focuses on the unpredictability of financial markets andseeks to achieve an appropriate balance between risk and return and minimise potential adverse effectson the Group’s financial performance.

The Group’s risk management policies are designed to identify and analyse these risks, to set appropriate risk limits and controls, and to monitor the risks and adherence to limits by means of reliable and up-to-date information systems. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and emerging best practice.

Risk management is carried out by the Group’s Asset and Liability Management Committee (ALCO) and Investment Committee under policies approved by the Board of Directors. The ALCO and Investment Committee identify, evaluate and hedge financial risks in close co-operation with the Group’s operating departments. The Board provides guidance for overall risk management, as well as

written policies covering specific areas, such as foreign exchange risk, interest rate risk and credit risk. In addition, Internal Audit is responsible for the independent review of risk management and the control environment. The risks arising from financial instruments to which the Group is exposed are credit risk, liquidity risk, market risk (which are discussed below) and other operational risk.

5.1 Credit risk

Credit risk is the risk of suffering financial loss, should any of the Group’s customers, clients or market counterparties fail to fulfil their contractual obligations to the Group. Credit risk arises mainly from commercial and consumer loans and advances, credit cards, and loan commitments arising from such lending activities, but can also arise from credit enhancements provided, such as financial guarantees and letters of credit. The Group is also exposed to other credit risks arising from investments in debt securities.

Credit risk is the single largest risk for the Group’s business; management therefore carefully manages its exposure to credit risk. The credit risk management and control including risk on debt securities, cash, loans and advances, credit cards and loan commitments are monitored by the ALCO and Investment Committees, which report to the Board of Directors regularly. Cash deposits with other banks and short-term investments are placed with reputable regional and international financial institutions and Governments.



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5. Financial instrument risk (cont'd)

5.1 Credit risk (cont'd)

5.1.1 Credit risk management

(a) Loans and advancesThe Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of the counterparty. These have been developed based on the Eastern Caribbean Central Bank guidelines. Customers of the Group are segmented into five rating classes. The Group’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 reviewed and upgraded as necessary.

Group’s rating Description of the grade1 Pass2 Special mention3 Sub-standard4 Doubtful5 Loss

(b) Debt securities and other billsThe Group’s portfolio of debt securities and other bills consists of St. Kitts and Nevis Government, St. Lucia Government and Antigua and Barbuda Government ninety-one day treasury bills, and other debt obligations by regional banking and non-banking financial institutions, all of which are unrated. The Group assesses the risk of default on these obligations by regularly monitoring the performance of the Governments through published government data, information received directly from government departments and information published by international agencies such as the International Monetary Fund (IMF) and the World Bank. The risk of default on regional corporate debt is assessed by continuous monitoring of the performance of these companies through published financial information, and other data gleaned from various sources.

(c) Credit card receivablesThe risk related to the Bank’s credit card portfolio is significantly covered by the interest charged to customers at a rate of 19.5% per annum. Historically, the risk of loss has been on average lessthan 1% per annum over the past seven years. The portfolio is closely monitored by a third partyand the Group on a daily basis to minimize the risk of default.

5.1.2 Risk limit control and mitigation policies

The Group manages, limits and controls concentrations of credit risk wherever they are identified, inparticular to individual counterparties and groups, and to industries.

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 and industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review by the Board of Directors.

The exposure to any one borrower, including banks and brokers is further restricted by sub-limits covering on and off-balance sheet exposure. Actual exposures against limits are monitored on an ongoing basis.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees. Lending limits are reviewed in light of changing market and economic conditions and periodic credit reviews and assessments of probability of default.




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5. Financial instrument risk (cont’d)

5.1 Credit risk (cont’d)

5.1.2 Risk limit control and mitigation policies (cont’d)

The following specific control and mitigation measures are also utilised:

(a) CollateralThe Group employs a range of policies and practices to mitigate credit risk. The most traditional ofthese is the taking of security for funds advanced, which is common practice. The Groupimplements guidelines on the acceptability of specific classes of collateral or credit riskmitigation. The principal collateral types for loans and advances are:

• Mortgages over residential and commercial properties.• Charges over business assets such as equipment, inventory and accounts receivable.• Charges over financial instruments such as cash and short-term deposits.• Government and personal guarantees.

Longer-term finance and lending to corporate entities are generally secured; revolving individualcredit facilities may be secured or unsecured. In addition, the Group seeks to proactivelyminimize credit loss by taking pledges of collateral from the counterparty as part of its general riskmitigation strategy.Collateral held as security for financial assets other than loans and advances depends on thenature of the instrument. Debt securities, treasury and other eligible bills are generallyunsecured

(b) Financial guarantees (for credit related commitments and loan books)The primary purpose of these instruments is to ensure that funds are available to a customer asrequired. 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 onbehalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amountunder specific terms and conditions – are collateralised by the underlying shipments of goods towhich they relate and therefore carry less risk than a direct loan.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards (often referred to as financial covenants).

The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.




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5.1.3 Impairment and provisioning policies

The internal rating systems described in Note 5.1.1 focus more on credit quality mapping from the inception of the lending and investment activities. In contrast, from October 1, 2018, impairment provisions for financial reporting purposes are provided for losses based on an expected credit loss model using a three stage approach across the various loan categories.

Financial instruments that are not already credit impaired are originated into stage 1 and a 12-month expected credit loss provision is recognised.

Instruments will remain in stage 1 until they are repaid, unless they experience significant credit deterioration (stage 2) or they become credit impaired (stage 3).

Instruments will transfer to stage 2 and a lifetime expected credit loss provision recognised when there has been a significant increase in credit risk compared with what was expected at origination. An overview of this is provided below:

Stage 1 Stage 2 Stage 312 month expected credit loss -performing

Lifetime expected credit loss -performing but significant increase in credit risk (SICR)

Lifetime expected credit loss -credit impaired/non- performing

Prior to October 1, 2018, impairment provisions were recognised for financial reporting purposes only for losses that had been incurred at the reporting date based on objective evidence of impairment.

Prior to October 1, 2018, due to the different methodologies applied, the amount of incurred credit losses provided for in the financial statements was usually lower than the amount determined from the expected loss model that is used for internal operational management and banking regulation purposes. From October 1, 2018, the amount of expected credit losses provided for in the financial statements is in excess of the amount determined for banking regulation purposes.

The loan impairment provision shown in the statement of financial position at year end is derived from each of the five rating grades. However, the majority of the impairment provision comes from the substandard, doubtful and loss grades. The table below shows the percentage of the Group’s on and off-balance sheet items relating to loans and advances and the associated impairment provision for each of the Group’s internal rating categories:

2019 2018Credit risk Impairment Credit risk Impairment

Group’s rating exposure allowance exposure allowance

(%) (%) (%) (%)

Pass 30 5 33 4Special mention 48 5 45 6Sub-standard 9 16 11 14Doubtful 13 74 11 72Loss - - - 4

100 100 100 100




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5.1.3 Impairment and provisioning policies (cont’d)

The mortgage subsidiary company had, on average 91% of its loan portfolio at a pass rating for the financial year ended September 30, 2019 (2018: 91%).

The internal rating tool assists management to determine whether objective evidence indicates that a facility has become credit impaired (prior to October 1, 2018: objective evidence of impairment exists under IAS 39), based on the following criteria set out by the Group:

• Delinquency in contractual payments of principal or interest• Cash flow difficulties experienced by the borrower (e.g. equity ratio, net income percentage of sales)• Breach of loan covenants or conditions• Initiation of bankruptcy proceedings• Deterioration of the borrower’s competitive position• Deterioration in the value of collateral

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. Expected credit losses are determined for these accounts based on a combination of the probability of default, loss given default and the exposure at default (2018: Impairment allowances on individually assessed accounts are determined by an evaluation of the incurred loss at the reporting date 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.




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5.1.4 Maximum exposure to credit risk before collateral held or other credit enhancements

Maximum Exposure2019 2018

Credit risk exposures relating to on-balance sheet assetsDue from other banks $ 97,482,109 71,838,547Treasury bills 89,836,565 90,223,743Statutory deposits 5,965,440 5,874,812

Loans and advances to customers 674,762,574 659,077,207

Investment securities:Loans and receivablesdebt securities - 46,893,850Held-to-maturity - 51,596,134Amortised cost 104,342,357 -FVTPL 42,166,783 -Other assets 13,966,051 20,732,209

$ 1,028,521,879 946,236,502

Credit risk exposures relating to off-balance sheet assetsLoan commitments and other credit related obligations 61,370,469 53,286,818

At September 30 $ 1,089,892,348 999,523,320

The above table represents a worse-case scenario of credit risk exposure to the Group at September 30, 2019 and 2018, without taking account of any collateral held or other credit enhancements attached. For on-balance sheet assets, the exposures set out above are based on net carrying amounts as reported in the consolidated statement of financial position.

As shown above, 66% of the total maximum exposure is derived from loans and advances to customers (2018: 70%); 10% represents investments in debt securities (2018: 10%).

Management is confident in its ability to continue to control and sustain minimal exposure of credit risk to the Group resulting from both its loans and advances portfolios and debt securities based on the following:

• Business loans, which represents the biggest group in the portfolio, are backed by collateral; and• 74% of loans and advances portfolio are considered to be neither past due nor impaired (2018: 74%).




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5.1.5 Loans and advances

Loans and advances are summarised as follows:Loans and advances to customers

2019 2018

Neither past due nor impaired $ 520,668,163 492,938,251Past due but not impaired 111,901,348 110,154,258Individually impaired 60,260,837 59,128,486

Gross 692,830,348 662,220,995

Interest receivable 17,201,729 16,537,216Deferred interest income (3,357,430) (3,314,766)Deferred fees (2,162,758) (2,026,118)Less: allowance for impairment (29,749,315) (14,340,120)

Net 674,762,574 659,077,207

Allowance for impairment:Individually impaired - 11,189,030Portfolio allowance - 3,151,090Expected credit losses 29,749,314 -

Total $ 29,749,314 14,340,120

Further information about the impairment allowance for loans and advances to customers is provided in note 12.

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84



September 30, 2019


46



5.1.5 Loans and advances (cont’d)

(d) Loans and advances renegotiatedRestructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Following restructuring, a previously overdue account is reset to a normal status and managed together with other similar accounts. Restructuring policies and practices are based on indicators or criteria which, in the judgement of management, indicate that payment will most likely continue. These policies are kept under continuous review.

2019 2018

Renegotiated loans and advances to individuals $ 4,173,034 -Renegotiated loans and advances to corporations 6,905,841 13,094,789

$ 11,078,875 13,094,789

5.1.6 Debt securities, treasury bills and other eligible bills

There is no formal rating of the credit quality of bonds, treasury bills and equity investments. A number of qualitative and quantitative factors are considered in assessing the risk associated with each investment. However, there is no hierarchy of ranking. There are no external ratings of securities at the year-end. The tables below present an analysis of debt securities, treasury bills and other eligible bills at September 30, 2019 and 2018:

Treasury Bills

Amortised cost FVTPL Total

$ $ $ $At September 30, 2019Rated - 55,810,167 42,166,783 97,976,950Unrated 90,209,901 52,752,281 - 142,962,182

90,209,901 108,562,448 42,166,783 240,939,132

Treasury Bills

Available-for-sale

Held-to-maturity

Loans and receivables Total

At September 30, 2018Rated - - 51,596,134 - 51,596,134Unrated 90,223,743 15,135,461 - 46,893,850 152,253,054

90,223,743 15,135,461 51,596,134 46,893,850 203,849,188

See note 14 for provision for impairment of investment securities.




85



September 30, 2019


47



5.1.7 Concentration of risk of financial assets with credit risk exposure

(a) Geographical concentration of assets and off-balance sheet itemsThe Group’s exposure to credit risk is concentrated as detailed below. Antigua and Barbuda is the home country of the Group where the predominant activity is commercial banking services.

As a major indigenous, bank in Antigua and Barbuda, the Bank accounts for a significant share of credit exposure to many sectors of the economy. However, credit risk is spread over a diversity of personal and commercial customers.

The following table analyses the Group’s main credit exposures at their carrying amounts, without taking into account any collateral held or other credit support as categorised by geographical region. For all classes of assets, the Group has allocated exposure to regions based on the country of domicile of the counterparties.

Antigua and Other Non-Barbuda Caribbean Caribbean Total

2019:Credit risk exposuresrelating to on-balancesheet assets:Due from other banks $ 14,207,569 16,569,288 66,705,252 97,482,109Statutory deposits 5,965,440 - - 5,965,440Treasury bills 22,944,551 61,531,966 5,360,048 89,836,565

Investment Securities:Amortised Cost 35,331,793 20,520,353 48,490,211 104,342,357FVTPL - - 42,166,783 42,166,783

Loans and advances 671,387,178 2,661,644 713,752 674,762,574Other assets 13,966,051 - - 13,966,051

763,802,582 101,283,251 163,436,046 1,028,521,879

Credit risk exposuresrelating to off-balance sheet assets:Loan commitments and othercredit related facilities 61,370,469 - - 61,370,469

September 30, 2019 $ 825,173,051 101,283,251 163,436,046 1,089,892,348




86



September 30, 2019


48



5.1.7 Concentration of risk of financial assets with credit risk exposure (cont’d)

(a) Geographical concentration of assets and off-balance sheet items (cont’d)

Antigua and Other Non-Barbuda Caribbean Caribbean Total

2018:Credit risk exposuresrelating to on-balance sheet assets:Due from other banks $ 15,091,979 25,366,862 31,379,706 71,838,547Statutory deposits 5,874,812 - - 5,874,812Treasury bills 15,577,396 69,347,042 5,299,305 90,223,743

Loans and ReceivablesDebt Securities 36,859,510 11,637,134 49,993,340 98,489,984

Loans and advances 655,630,734 2,661,644 784,829 659,077,207Other assets 20,732,209 - - 20,732,209

749,766,640 109,012,682 87,457,180 946,236,502

Credit risk exposuresrelating to off-balance sheet assets:Loan commitments and othercredit related facilities 53,286,818 - - 53,286,818

September 30, 2018 $ 803,053,458 109,012,682 87,457,180 999,523,320

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87




90



September 30, 2019


52


5.2 Market risk

The Group takes on exposure to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risk arises from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices.

Non trading portfolio market risks primarily arise from the interest rate management of the entity’s retail and commercial banking assets and liabilities. Non-trading portfolio market risks also include foreign exchange risks and risks associated with the change in equity prices arising from the Group’s available-for-sale investment securities.

5.2.1 Price risk

The Group’s investment portfolio includes securities that are quoted on the Eastern Caribbean Securities Exchange. The Group is exposed to equities price risk because of investments held and classified on the statement of financial position as available-for-sale. To manage this price risk arising from investments in equity securities, the Group diversifies its portfolio. The Group does not hold securities that are quoted on the world’s major securities markets.




91



September 30, 2019


53


5.2 Market risk (cont’d)

5.2.2 Interest rate risk

Cash flow interest rate risk is the risk that the future cash flows of a financial instrument will fluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that the value of a financial instrument will fluctuate because of changes in market interest rates. The Group takes on exposure to the effects of fluctuations in the prevailing level of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event unexpected movements arise. The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored by the ALCO Committee.

The following table summarises the Group's exposure to interest rate risks. It includes the Group's financial instruments at carrying amounts, categorised by the earlier of contractual repricing or maturity dates.

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54

5.Fi

nanc

ial i

nstr

umen

t ris

k (c

ont’d

)

5.2

Mar

ket r

isk

(con

t’d)

5.2.

2In

tere

st ra

te ri

sk (c

ont’d

)

0–

3m

onth

s3

–6

mon

ths

6 m

onth

s –

1 ye

ar1

–3

year

s3

–5

year

sO

ver 5

ye

ars

Non

-in

tere

st

bear

ing

Tota

lA

s of

Sep

tem

ber 3

0, 2

019

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e C

entra

l B

ank

$-

--

--

-16

9,11

0,44

616

9,11

0,44

6S

tatu

tory

dep

osits

--

--

--

5,96

5,44

05,

965,

440

Due

from

oth

er b

anks

30,2

58,5

698,

600,

000

13,3

32,5

0014

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526,

500

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,685

,540

97,4

82,1

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easu

ry b

ills

41,6

32,6

8929

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18,9

58,8

37-

--

-89

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,567

Inve

stm

ent s

ecur

ities

:-

Am

ortis

ed c

ost

5,10

3,35

19,

321,

833

30,5

94,4

2721

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,968

38,0

95,7

78-

-10

4,34

2,35

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FVTP

L1,

624,

238

3,28

1,57

42,

273,

214

4,54

6,45

53,

080,

268

-27

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42,1

66,7

83Lo

ans

and

adva

nces

91,6

75,9

146,

943,

079

5,70

2,99

955

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35,0

85,1

8547

9,43

7,84

889

,569

674,

762,

574

Oth

er a

sset

s-

--

--

6,07

9,86

17,

886,

190

13,9

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51

Tota

l fin

anci

al a

sset

s17

0,29

4,76

157

,391

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70,8

61,9

7795

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76,7

87,7

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5,51

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924

1,09

8,21

91,

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632,

325

Liab

ilitie

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epos

its d

ue to

cus

tom

ers

719,

405,

505

43,7

59,3

3375

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96,8

31,4

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69,8

96,3

292,

975,

393

1,00

8,48

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2O

ther

liab

ilitie

s an

d ac

crue

d ex

pens

es47

0,72

6-

--

1,24

8,03

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15,0

74,4

2516

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Tota

l fin

anci

al li

abili

ties

719,

876,

231

43,7

59,3

3375

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96,8

31,4

571,

248,

038

69,8

96,3

2918

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1,02

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Tota

l int

eres

t rep

ricin

g ga

p$

(549

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)13

,632

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(4,7

50,0

38)

(1,1

51,0

54)

75,5

39,6

9341

5,62

1,38

022

3,04

8,40

117

2,35

9,10

4

AN

TIG

UA

CO

MM

ER

CIA

L B

AN

K L

TD

.

No

tes

to C

on

solid

ate

d F

inan

cial

Sta

tem

en

tsS

ep

tem

be

r 30

, 20

19

(Exp

ress

ed

in E

aste

rn C

arib

be

an D

olla

rs)

93AN

TIG

UA

CO

MM

ERC

IAL

BA

NK

LTD

.

Not

es to

Con

solid

ated

Fin

anci

al S

tate

men

ts

Sept

embe

r 30,

201

9

(Exp

ress

ed in

Eas

tern

Car

ibbe

an D

olla

rs)

55

5.Fi

nanc

ial i

nstr

umen

t ris

k (c

ont’d

)

5.2

Mar

ket r

isk

(con

t’d)

5.2.

2In

tere

st ra

te ri

sk (c

ont’d

)

0–

3m

onth

s3

–6

mon

ths

6 m

onth

s –

1 ye

ar1

–3

year

s3

–5

year

sO

ver 5

ye

ars

Non

-in

tere

st

bear

ing

Tota

lA

s of

Sep

tem

ber 3

0, 2

018

Ass

ets

Cas

h an

d ba

lanc

es w

ith th

e C

entra

l B

ank

$-

--

--

-21

4,76

0,03

921

4,76

0,03

9S

tatu

tory

dep

osits

--

--

--

5,87

4,81

25,

874,

812

Due

from

oth

er b

anks

21,5

79,6

0310

,800

,000

39,2

34,4

50-

--

224,

494

71,8

38,5

47Tr

easu

ry b

ills

42,2

34,6

1932

,090

,964

15,8

98,1

60-

--

-90

,223

,743

Inve

stm

ent s

ecur

ities

:-

Deb

t sec

uriti

es2,

363,

618

--

41,1

13,8

7010

,482

,264

44,5

30,2

32-

98,4

89,9

84-

Equ

ity s

ecur

iies

--

--

--

15,1

35,4

6115

,135

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Loan

s an

d ad

vanc

es11

6,15

8,05

55,

637,

627

23,5

23,8

5641

,884

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62,3

30,4

5340

8,16

9,08

91,

373,

817

659,

077,

207

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er a

sset

s-

--

--

-20

,732

,209

20,7

32,2

09

Tota

l fin

anci

al a

sset

s$

182,

335,

895

48,5

28,5

9178

,656

,466

82,9

98,1

8072

,812

,717

452,

699,

321

258,

100,

832

1,17

6,13

2,00

2

Liab

ilitie

sD

epos

its d

ue to

cus

tom

ers

$68

5,52

6,45

637

,427

,267

83,6

43,9

6092

,531

,456

-70

,810

,152

2,94

1,29

297

2,88

0,58

3O

ther

liab

ilitie

s an

d ac

crue

d ex

pens

es34

1,26

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1,29

9,15

016

,979

,975

18,6

20,3

92

Tota

l fin

anci

al li

abili

ties

685,

867,

723

37,4

27,2

6783

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92,5

31,4

561,

299,

150

70,8

10,1

5219

,921

,267

991,

500,

975

Tota

l int

eres

t rep

ricin

g ga

p$

(503

,531

,828

)11

,101

,324

(4,9

87,4

94)

(9,5

33,2

76)

71,5

13,5

6738

1,88

9,16

923

8,17

9,56

518

4,63

1,02

7




94



September 30, 2019


56



5.2.3 Foreign exchange risk

The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The ALCO sets limits on the level of exposure by currencyand in total for both overnight and intra-day positions, which are monitored daily. The Group’s exposure to currency risk is minimal since most of its assets and liabilities in foreign currencies are held in United States dollars. The exchange rate of the Eastern Caribbean dollar (EC$) to the United States dollar (US$) has been formally pegged at EC$2.70 = US$1.00 since 1974. The following table summarises the Group’s exposure to foreign currency exchange rate risk.

AN

TIG

UA

CO

MM

ER

CIA

L B

AN

K L

TD

.

No

tes

to C

on

solid

ate

d F

inan

cial

Sta

tem

en

tsS

ep

tem

be

r 30

, 20

19

(Exp

ress

ed

in E

aste

rn C

arib

be

an D

olla

rs)

95



September 30, 2019


56



5.2.3 Foreign exchange risk

The Group takes on exposure to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. The ALCO sets limits on the level of exposure by currencyand in total for both overnight and intra-day positions, which are monitored daily. The Group’s exposure to currency risk is minimal since most of its assets and liabilities in foreign currencies are held in United States dollars. The exchange rate of the Eastern Caribbean dollar (EC$) to the United States dollar (US$) has been formally pegged at EC$2.70 = US$1.00 since 1974. The following table summarises the Group’s exposure to foreign currency exchange rate risk.

AN

TIG

UA

CO

MM

ERC

IAL

BA

NK

LTD

.

Not

es to

Con

solid

ated

Fin

anci

al S

tate

men

ts

Sept

embe

r 30,

201

9

(Exp

ress

ed in

Eas

tern

Car

ibbe

an D

olla

rs)

57

5.Fi

nanc

ial i

nstr

umen

t ris

k (c

ont’d

)

5.2

Mar

ket r

isk

(con

t’d)

5.2.

3Fo

reig

n ex

chan

ge ri

sk(c

ont’d

)

XCD

USD

EUR

GB

PO

ther

sTo

tal

As

of S

epte

mbe

r 30,

201

9A

sset

sC

ash

and

bala

nces

with

the

Cen

tral B

ank

$16

8,42

3,16

962

9,66

75,

707

17,2

6934

,634

169,

110,

446

Stat

utor

y de

posi

ts5,

965,

440

--

--

5,96

5,44

0D

epos

its fr

om o

ther

ban

ks44

,737

,663

52,5

13,0

9528

,315

83,8

0111

9,23

597

,482

,109

Trea

sury

bills

84,4

76,5

14

5,3

60,0

51-

--

89,8

36,5

65In

vest

men

t sec

uriti

es:

Amor

tised

cos

t17

,179

,683

87,1

62,6

74-

--

104,

342,

357

FVTP

L-

47,4

32,6

88-

--

47,4

32,6

88Lo

ans

and

adva

nces

650,

895,

572

23,8

67,0

02-

--

674,

762,

574

Oth

er a

sset

s13

,966

,051

--

--

13,9

66,0

51

Tota

l fin

anci

al a

sset

s$

985,

644,

092

216,

965,

177

34,0

2210

1,07

015

3,86

9 1

,202

,898

,230

Liab

ilitie

sD

epos

its d

ue to

cus

tom

ers

$95

4,43

3,20

354

,046

,829

--

-1,

008,

480,

032

Prov

isio

ns a

nd o

ther

liab

ilitie

s16

,793

,189

--

--

16,7

93,1

89

Tota

l fin

anci

al li

abili

ties

$97

1,22

6,39

254

,046

,829

--

-1,

025,

273,

221

Net

on-

bala

nce

shee

t pos

ition

$14

,417

,700

162,

918,

348

34,0

2210

1,07

015

3,86

9

177

,625

,009

AN

TIG

UA

CO

MM

ER

CIA

L B

AN

K L

TD

.

No

tes

to C

on

solid

ate

d F

inan

cial

Sta

tem

en

tsS

ep

tem

be

r 30

, 20

19

(Exp

ress

ed

in E

aste

rn C

arib

be

an D

olla

rs)

96AN

TIG

UA

CO

MM

ERC

IAL

BA

NK

LTD

.

Not

es to

Con

solid

ated

Fin

anci

al S

tate

men

ts

Sept

embe

r 30,

201

9

(Exp

ress

ed in

Eas

tern

Car

ibbe

an D

olla

rs)

58

5.Fi

nanc

ial i

nstr

umen

t ris

k (c

ont’d

)

5.2

Mar

ket r

isk

(con

t’d)

5.2.

3Fo

reig

n ex

chan

ge ri

sk(c

ont’d

)

XCD

USD

EUR

GB

PO

ther

sTo

tal

As

of S

epte

mbe

r 30,

201

8A

sset

sC

ash

and

bala

nces

with

the

Cen

tral B

ank

$21

4,41

6,09

528

5,26

012

,323

25,4

2820

,933

214,

760,

039

Stat

utor

y de

posi

ts5,

874,

812

--

--

5,87

4,81

2D

epos

its fr

om o

ther

ban

ks54

,288

,739

17,3

61,4

1835

,033

91,2

8562

,072

71,8

38,5

47Tr

easu

ry b

ills84

,924

,439

5

,299

,304

90,2

23,7

43

Inve

stm

ent s

ecur

ities

:Av

aila

ble-

for-

sale

(equ

ity s

ecur

ities

)15

,135

,461

--

--

15,1

35,4

61Lo

ans

and

rece

ivab

les

–de

bt s

ecur

ities

46,8

93,8

50

-

--

-46

,893

,850

Hel

d-to

-mat

urity

-51

,596

,134

--

-51

,596

,134

Loan

s an

d ad

vanc

es65

3,60

6,70

75,

470,

500

--

-65

9,07

7,20

7O

ther

ass

ets

20,7

32,2

09-

--

-20

,732

,209

Tota

l fin

anci

al a

sset

s$

1,09

5,87

2,31

280

,012

,616

47,3

5611

6,71

383

,005

1,

176,

132,

002

Liab

ilitie

sD

epos

its d

ue to

cus

tom

ers

$92

3,25

2,60

849

,627

,975

--

-97

2,88

0,58

3O

ther

liab

ilitie

s an

d ac

crue

d ex

pens

es18

,620

,392

--

--

18,6

20,3

92

Tota

l fin

anci

al li

abili

ties

$94

1,87

3,00

049

,627

,975

--

-99

1,50

0,97

5

Net

on-

bala

nce

shee

t pos

ition

$15

3,99

9,31

230

,384

,641

47,3

5611

6,71

383

,005

184,

631,

027




97



September 30, 2019


59


5.3 Liquidity risk

Liquidity risk is the risk that the Group is unable to meet its obligations associated with its financial liabilities when they fall due as a result of customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities or margin calls for derivatives. Such outflows would deplete available cash resources for client lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in the statement of financial position and sales of assets, or potentially an inability to fulfil lending commitments. The risk that the Group will be unable to do so is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events including, but not limited to, credit events, merger and acquisition activity, systemic shocks and natural disasters.

The Group is exposed to daily calls on its available cash resources from overnight deposits, current accounts and maturing deposits. Management sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of inter-bank and other borrowing facilities that should be in place to cover withdrawals at unexpected levels of demand.

The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature are important factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.

Liquidity risk management process

The Group’s liquidity risk management processes are carried out by the Group’s senior management and monitored by the finance team and include the following:

• Day-to-day funding managed by monitoring future cash flows to ensure that requirements can be met. This includes replenishment of funds as they mature or are borrowed by customers. The Group maintains an active presence in regional markets to enable this to happen;

• Maintaining the liquidity ratios of the statement of financial position against internal andregulatory requirements; and

• Managing the concentration and profile of debt maturities.

Monitoring and reporting takes the form of cash flow measurement and projections for the next day,week and month respectively, as these are key periods for liquidity management. The starting pointfor those projections is an analysis of the contractual maturity of the financial liabilities and theexpected collection date of the financial assets.




98



September 30, 2019


60


5.3 Liquidity risk (cont’d)

Funding approach

Sources of liquidity are regularly reviewed by management and the Board of Directors in order tomaintain a wide diversification by currency, geography, provider, product and term.

Assets held for management of liquidity risk

The Group’s assets held for managing liquidity risk comprise:

• Cash and balances with other banks;• Unimpaired loans and advances;• Certificates of deposit;• Treasury and other eligible bills; and• Government bonds and other securities that are readily acceptable in repurchase agreements

with central banks.

In the normal course of business, a proportion of customers’ loans contractually repayable in one year will be extended. In addition, debt securities and treasury and other eligible bills can be pledged to secure liabilities. The Group would also be able to meet unexpected net cash requirements by selling securities. The Group can also access alternative funds for short-term borrowing needs via the Inter-bank market, lines of credit with international banks and repurchase agreements.

AN

TIG

UA

CO

MM

ER

CIA

L B

AN

K L

TD

.

No

tes

to C

on

solid

ate

d F

inan

cial

Sta

tem

en

tsS

ep

tem

be

r 30

, 20

19

(Exp

ress

ed

in E

aste

rn C

arib

be

an D

olla

rs)

99AN

TIG

UA

CO

MM

ERC

IAL

BA

NK

LTD

.

Not

es to

Con

solid

ated

Fin

anci

al S

tate

men

ts

Sept

embe

r 30,

201

9

(Exp

ress

ed in

Eas

tern

Car

ibbe

an D

olla

rs)

61

5.Fi

nanc

ial I

nstr

umen

t ris

k (c

ont’d

)

5.3

Liqu

idity

risk

(con

t’d)

Non

-der

ivat

ive

finan

cial

liab

ilitie

s an

d as

sets

hel

d fo

r man

agin

g liq

uidi

ty ri

sk

The

tabl

e be

low

pre

sent

s th

e ca

sh fl

ows

paya

ble

by a

nd p

ayab

le to

the

Gro

upw

ith re

spec

t to

non-

deriv

ativ

e fin

anci

al li

abilit

ies

and

asse

ts h

eld

for m

anag

ing

liqui

dity

ris

k by

rem

aini

ng c

ontra

ctua

l mat

uriti

es a

t the

rep

ortin

g da

te. T

he a

mou

nts

disc

lose

d in

the

tabl

e ar

e th

e co

ntra

ctua

l und

isco

unte

d ca

sh fl

ows,

whe

reas

the

Gro

upm

anag

es li

quid

ity ri

sk b

ased

on

a di

ffere

nt b

asis

(see

Liq

uidi

ty ri

sk m

anag

emen

t pro

cess

), no

t res

ultin

g in

a s

igni

fican

tly d

iffer

ent a

naly

sis.

0–

33

–6

6–

121

–5

Ove

rm

onth

sm

onth

sm

onth

sye

ars

5 ye

ars

Tota

lA

s at

Sep

tem

ber 3

0, 2

019

Liab

ilitie

sD

epos

its d

ue to

cus

tom

ers

$71

9,40

5,50

543

,759

,333

75,6

12,0

1599

,806

,851

69,8

96,3

281,

008,

480,

032

Oth

er li

abilit

ies

and

accr

ued

expe

nses

501,

930

-52

9,91

215

,761

,347

-16

,793

,189

Tota

l lia

bilit

ies

(con

trac

tual

mat

urity

dat

es)

$71

9,90

7,43

543

,759

,333

76,1

41,9

2711

5,56

8,19

869

,896

,328

1,02

5,27

3,22

1

Ass

ets

held

for m

anag

ing

liqui

dity

risk

194,

258,

585

53,9

47,7

7476

,187

,688

705,

011,

535

229,

099,

278

1,25

8,50

4,86

0

As

at S

epte

mbe

r 30,

201

8Li

abili

ties

Dep

osits

due

to c

usto

mer

s$

686,

996,

442

37,5

55,4

8884

,595

,553

93,7

59,1

3570

,810

,152

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5.4 Fair value

‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderlytransaction between market participants at the measurement date in the principal or, in its absence,the most advantageous market to which the Group has access at that date. The fair value of a liabilityreflects its non-performance risk.

The table below summarises the carrying amounts and fair values of the Group’s financial assetsand liabilities:

Carrying value Fair value2019 2018 2019 2018

Financial AssetsStatutory deposits $ 5,965,440 5,874,812 5,965,440 5,874,812Treasury bills 89,836,565 90,223,743 89,896,522 90,273,138Due from other banks 97,482,109 71,838,547 97,482,109 71,838,547Loans and advances 674,762,574 659,077,207 681,306,780 661,866,378Investment securities 184,810,677 113,625,445 184,401,770 118,110,577Other assets 13,966,051 20,732,209 13,981,808 20,732,209

$ 1,066,823,396 961,371,963 1,073,034,429 968,695,661

Financial LiabilitiesDeposits due to customers $ 1,008,480,032 972,880,583 1,006,111,525 971,211,419Other liabilities andaccrued expenses 16,793,189 18,620,392 16,793,173 18,620,392

$ 1,025,273,221 991,500,975 1,022,904,698 989,831,811

The following methods and assumptions have been used to estimate the fair value of each classof financial instrument for which it is practical to estimate a value:

• Short-term financial assets and liabilitiesThe carrying value of these assets and liabilities is a reasonable estimate of their fair value because of the short maturity of these instruments. Short-term financial assets are comprised ofcash resources and short term investments, fixed deposits, interest receivable, and other assets.Short-term financial liabilities are comprised of demand deposits, interest payable and certain otherliabilities.

• Loans and advances to customersLoans and advances are net of allowance for impairment. The estimated fair value of loans and advances represents the discounted amount of estimated future cash flows expected to be received. Expected cash flows are discounted at current market rates to determine fair value. Except for the staff loans, the interest rates on all other loans reflect the market rates, hence the carrying values generally approximate the fair values.




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5.4 Fair value (cont’d)

• Deposits from banks and due to customersThe estimated fair value of deposits with no stated maturity, which include non-interest-bearingdeposits, is the amount repayable on demand.

The estimated fair value of fixed-interest-bearing deposits not quoted in an active market is basedon discounted cash flows using interest rates for new debts with similar remaining maturity. Theinterest rates on these financial liabilities reflect the market interest rates, hence the carrying valuesgenerally approximate the fair values.

• Investment securitiesThe fair value for loans and receivables and held-to-maturity assets are based on market pricesor broker/dealer price quotations. Where this information is not available, fair value is based oncost less any impairment recognised.

$5.8 million (2017: $5.8 million) of available-for-sale unquoted equity investment securities for which fair values cannot be reliably determined were stated at cost less impairment. All other quoted available-for-sale assets are already measured and carried at fair value, less impairment, if any.

5.4.1 Fair value hierarchy

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuationtechniques are observable or unobservable. Observable inputs reflect market data obtainedfrom independent sources; and unobservable inputs reflect the Group's market assumptions. Thesetwo types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted prices in active markets for identical assets or liabilities. This level includes listeddebt instruments listed on exchanges.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assetsor liabilities, either directly (that is, as prices) or indirectly (that is, derived from prices).

• Level 3 – Inputs for the assets or liabilities that are not based on observable market data(unobservable inputs). This level includes equity investments and debt instruments with significantunobservable components.



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• Deposits from banks and due to customersThe estimated fair value of deposits with no stated maturity, which include non-interest-bearingdeposits, is the amount repayable on demand.

The estimated fair value of fixed-interest-bearing deposits not quoted in an active market is basedon discounted cash flows using interest rates for new debts with similar remaining maturity. Theinterest rates on these financial liabilities reflect the market interest rates, hence the carrying valuesgenerally approximate the fair values.

• Investment securitiesThe fair value for loans and receivables and held-to-maturity assets are based on market pricesor broker/dealer price quotations. Where this information is not available, fair value is based oncost less any impairment recognised.

$5.8 million (2017: $5.8 million) of available-for-sale unquoted equity investment securities for which fair values cannot be reliably determined were stated at cost less impairment. All other quoted available-for-sale assets are already measured and carried at fair value, less impairment, if any.

5.4.1 Fair value hierarchy

IFRS 7 specifies a hierarchy of valuation techniques based on whether the inputs to those valuationtechniques are observable or unobservable. Observable inputs reflect market data obtainedfrom independent sources; and unobservable inputs reflect the Group's market assumptions. Thesetwo types of inputs have created the following fair value hierarchy:

• Level 1 – Quoted prices in active markets for identical assets or liabilities. This level includes listeddebt instruments listed on exchanges.

• Level 2 – Inputs other than quoted prices included within Level 1 that are observable for the assetsor liabilities, either directly (that is, as prices) or indirectly (that is, derived from prices).

• Level 3 – Inputs for the assets or liabilities that are not based on observable market data(unobservable inputs). This level includes equity investments and debt instruments with significantunobservable components.




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5.4.1 Fair value hierarchy (cont’d)

The hierarchy requires the use of observable market data when available. The Group considersrelevant and observable market prices in its valuations where possible.

Level 1 Level 2 Level 3 Total $ $ $ $

As at September 30, 2019

Financial AssetsInvestment Securities:FVTPL 47,432,688 - - 47,432,688FVOCI - 9,365,345 23,670,287 33,035,632

Total Assets 47,432,688 9,365,345 23,670,287 80,468,320

Level 2 Total$ $


Financial AssetsInvestment Securities:

Available-for-sale investments – quoted 9,357,431 9,357,431

If the market price on the available-for-sale investment were to change by +/- 10%, the impact on other comprehensive income would be an increase of $935,743 or a decrease of $935,743.




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5.4.1 Fair value hierarchy (cont’d)

The hierarchy requires the use of observable market data when available. The Group considersrelevant and observable market prices in its valuations where possible.

Level 1 Level 2 Level 3 Total $ $ $ $


Financial AssetsInvestment Securities:FVTPL 47,432,688 - - 47,432,688FVOCI - 9,365,345 23,670,287 33,035,632

Total Assets 47,432,688 9,365,345 23,670,287 80,468,320

Level 2 Total$ $


Financial AssetsInvestment Securities:

Available-for-sale investments – quoted 9,357,431 9,357,431

If the market price on the available-for-sale investment were to change by +/- 10%, the impact on other comprehensive income would be an increase of $935,743 or a decrease of $935,743.



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5.4.2 Financial instruments not measured at fair value

The following table sets out the fair values of financial instruments not measured at fair value and analyses them by the level in the fair value hierarchy into which each fair value measurement is categorised.

September 30, 2019$’000 Level 2

Total fair values

Total carrying amount

AssetsCash and balances with the Central Bank $ 169,110 169,110 169,110Due from other banks 97,482 97,482 97,482Treasury bills 89,837 89,837 89,837Loans and advances 681,307 681,307 674,763Amortised cost investment securities 103,934 103,934 104,342

LiabilitiesDeposits due to customers $ 1,006,111 1,006,111 1,008,480

September 30, 2018$’000 Level 2

Total fair values

Total carrying amount

AssetsCash and balances with the Central Bank $ 214,760 214,760 214,760Due from other banks 71,839 71,839 71,839 Treasury bills 90,273 90,273 90,223Loans and advances 661,867 661,867 659,077Loans and receivables 49,972 49,972 49,972Held-to-maturity investments 56,187 56,187 51,151

LiabilitiesDeposits due to customers $ 971,211 971,211 972,881




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5.5 Financial assets and liabilities by category

The table below analyses the Group’s financial assets and liabilities by category.

Amortised cost FVOCI FVTPL Total

$ $ $ $As of September 30, 2019AssetsDue from banks and other financial institutions 265,838,010 - - 265,838,010Investment securities 107,085,725 33,035,632 47,432,688 187,554,045Loans and advances 663,081,033 - - 663,081,033Other financial assets 13,966,051 - - 13,966,051Treasury bills 88,475,828 - - 88,475,828Total financial assets 1,138,446,647 33,035,632 47,432,688 1,218,914,967

Financial Liabilitiesat amortised cost Total

LiabilitiesDeposits due to customers $ 1,004,614,397 1,004,614,397Other liabilities and accrued expenses 1,733,802 1,733,802

Total financial liabilities $ 1,006,348,199 1,006,348,199




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5.5 Financial assets and liabilities by category (cont'd)

Loans and receivables

Held-to-maturity

Available-for-sale Total

$ $ $ $As of September 30, 2018AssetsDue from banks and other financial institutions 286,191,437 - - 286,191,437Investment securities 45,971,741 51,151,192 15,135,461 112,258,394Loans and advances 647,880,875 - - 647,880,875Other financial assets 20,732,209 - - 20,732,209Treasury bills 89,148,017 - - 89,148,017Total financial assets 1,089,924,279 51,151,192 15,135,461 1,156,210,932

Financial Liabilitiesat amortised cost Total

LiabilitiesDeposits due to customers $ 969,028,557 969,028,557Other liabilities and accrued expenses 4,187,520 4,187,520

Total financial liabilities $ 973,216,077 973,216,077




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6. Capital management policies and procedures

The Group’s objectives when managing capital, which is a broader concept than the ‘equity’ on theface of the statement of financial position, are:

• To comply with the capital requirements set by its regulator - the Eastern Caribbean Central Bank;

• To safeguard the Group’s ability to continue as a going concern so that it can continue to providereturns for shareholders and benefits for other stakeholders; and

• To maintain a strong capital base to support the development of its business.

Capital adequacy and the use of regulatory capital are monitored quarterly by the Group’smanagement, employing techniques based on the guidelines developed by the Basel Committee andas implemented by the Group’s management for supervisory purposes. The required information isfiled with the Eastern Caribbean Central Bank (ECCB) quarterly.

The regulatory capital requirements are strictly observed when managing economic capital. TheGroup’s regulatory capital is managed by senior management and comprises two tiers:

• Tier 1 capital: share capital (net of any book values of treasury shares), general bank reserves,statutory reserve, non-controlling interests arising on consolidation from interests in permanentshareholders’ equity, retained earnings and reserves created by appropriations of retainedearnings. The book value of goodwill (if applicable) is deducted in arriving at Tier 1 capital; and

• Tier 2 capital: qualifying subordinated loan capital, collective impairment allowances andunrealised gains arising on the fair valuation of equity instruments held as available-for-sale.

Investments in associates (of which there are none) are deducted from Tier 1 and Tier 2 capital to arriveat the regulatory capital.




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6. Capital management policies and procedures (cont’d)

The table below summarises the composition of regulatory capital and the ratios of the Group forthe years ended September 30, 2019 and 2018. During those two years, the Group complied with allof the externally imposed capital requirements to which they are subject.

2019 2018Tier 1 capital

Stated capital (net of treasury shares) $ 36,000,000 36,000,000Statutory reserve 26,059,962 23,459,372Capital reserves 7,461,949 7,461,949Retained earnings 107,397,710 100,307,865

Total qualifying Tier 1 capital $ 176,919,621 167,229,186

Tier 2 capital

Revaluation reserve: FVOCI investments $ 19,235,907 2,736,004Reserves for loan loss 21,531,276 21,531,276

Total qualifying Tier 2 capital $ 40,767,183 24,267,280

Total regulatory capital $ 217,686,804 191,496,466

Risk-weighted assets:

On-balance sheet $ 775,538,400 683,049,000Off-balance sheet 61,370,469 53,286,818

Total risk-weighted assets $ 836,908,869 736,335,818

Basel ratio 26.0% 26.0%

Mandatory minimum 8% 8%

Capital adequacy and the use of regulatory capital for the mortgage company are managed based on the following.

The Financial Institutions (Non-Banking) Act requires a reserve fund into which no less than ten per cent of the net profit of the institution after deduction of taxes shall be transferred each year until the amount standing to the credit of the reserve fund is equal at least to the paid up capital of that institution. There are no further capital and reserve requirements by the regulators and no external monitoring of the capital base is conducted. The subsidiary was compliant with these requirements as of September 30, 2019 and September 30, 2018.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividends paid to shareholders, return capital to shareholders, issue new shares or sell assets to reduce debt.




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7. Significant management judgement in applying accounting policies and estimation uncertainty

When preparing financial statements, management makes a number of judgements, estimatesand assumptions about the recognition and measurement of assets, liabilities, income and expenses.

Judgements made by management in the application of IFRS and information about estimates and assumptions that have the most significant effect on the recognition and measurement of assets, liabilities, income and expenses, and estimation uncertainties that have a significant risk of resulting in a material adjustment in these financial statements is provided below. Actual results may be substantially different.

(a) Impairment losses on loans and advances

Applicable to 2019 onlyThe measurement of the expected credit loss allowance for financial assets measured at amortised cost and FVOCI is an area that requires the use of complex models and significant assumptions about future economic conditions and credit behaviour (e.g. the likelihood of customers defaulting and the resulting losses). Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is detailed in note 4.

A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:

• The Group’s criteria for determining if there has been a significant increase in credit risk and hence whether impairment allowances for financial assets should be measured on a lifetime expected credit loss (ECL) basis

• Choosing appropriate models and assumptions for the measurement of expected credit losses

• Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment levels and collateral values, and the effect on PDs, EADs and LGDs

• Establishing the number and relative weightings of forward-looking macroeconomic scenarios for each type of product or market and the associated ECL; and

• Establishing groups of similar financial assets for the purposes of measuring ECL.

To the extent that the net present value of estimated cash flows differs by +/-10%, the provision would be estimated $4,669,825 lower or $8,228,900 higher.

Applicable to 2018 onlyThe Group reviews its loan portfolios to assess impairment on an annual basis. In determiningwhether an impairment loss should be recorded in profit or loss, the Group makes judgementsas to whether there is any observable data indicating that there is a measurable decrease in theestimated future cash flows from a portfolio of loans before the decrease can be identified withan individual loan in that portfolio. This evidence may include observable data indicating that therehas been an adverse change in the payment status of borrowers in a group, or national or localeconomic conditions that correlate with defaults on assets in the group. Management usesestimates based on historical loss experience for assets with similar credit risk characteristicsand objective evidence of impairment similar to those in the portfolio when scheduling its futurecash flows. The methodology and assumptions used for estimating both the amount and timingof future cash flows are reviewed regularly to reduce any differences between loss estimatesand actual loss experience.

To the extent that the net present value of estimated cash flows differs by +/-10%, the provisionwould be estimated $3,561,706 lower or $5,594,021 higher.




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7. Significant management judgement in applying accounting policies and estimation uncertainty(cont’d)

(b) Impairment of available-for-sale equity investments

Applicable to 2018 onlyThe 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, for unquoted available-for-sale equity investments, impairment may be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. Where observable impairment factors are identified, this may give rise to an uncertainty regarding the recoverability of the carrying value in the subsequent period and/or the eventual recoverability of the amounts invested in full. The Group recognized $nil (2018: $118,699) for impairment of available-for-sale equity investments during the year.

(c) Classification of financial assets

Applicable to 2019 onlyAssessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are SPPI on the principal amount outstanding.

(d) Classification of investments as held-to-maturity

Applicable to 2018 onlyThe Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. This classification requires significant judgement about the Group’s intention and ability to hold the security to maturity. In making this judgement, 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 in specific circumstances - for example, selling an insignificant amount close to maturity - it will reclassify the entire class as available-for-sale. The investments would thereafter be measured at fair value not amortised cost.

(e) Estimate of pension benefits

Applicable to 2019 and 2018The present value of the pension obligation depends on a number of factors that are determined on an actuarial basis using a number of assumptions. The assumptions used in determining the net cost (income) for pensions include the discount rate. Any changes in these assumptions will impact the carrying amount of pension obligations. 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 Government bonds 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.

Other key assumptions for pension obligations are based in part on current market conditions. Additional information is disclosed in note 16.




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(f) Impairment of non-financial assets

Applicable to 2019 and 2018Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal is based on available data from binding sales transactions, conducted at arm’s length for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the future cash inflows.

(g) Fair value of financial instruments

Applicable to 2019 and 2018Financial instruments where recorded current market transactions or observable market data are not available, are recorded at fair value using valuation techniques. Fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group’s best estimates of the most appropriate model assumptions.

(h) Revaluation of land and buildings

Applicable to 2019 and 2018The Group measures its land and buildings at revalued amounts with changes in fair value being recognized in other comprehensive income. The Group engages independent valuation specialists to determine fair value of its land and buildings. The valuer uses judgment in the application of valuation techniques such as replacement cost and the market price of comparable properties, as applicable in each case.

(i) Current and deferred taxes

Applicable to 2019 and 2018Significant judgment is required in determining the provision for income taxes including any liabilities for tax audit issues. There are some transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

In calculating the deferred tax asset, management uses judgment to determine the possibility that future taxable profits will be available to facilitate utilization of temporary tax differences which may arise.




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(f) Impairment of non-financial assets

Applicable to 2019 and 2018Impairment exists when the carrying value of an asset or cash generating unit exceeds its recoverable amount, which is the higher of its fair value less costs of disposal and its value in use. The fair value less costs of disposal is based on available data from binding sales transactions, conducted at arm’s length for similar assets or observable market prices less incremental costs of disposing of the asset. The value in use calculation is based on a DCF model. The recoverable amount is sensitive to the discount rate used for the DCF model as well as the future cash inflows.

(g) Fair value of financial instruments

Applicable to 2019 and 2018Financial instruments where recorded current market transactions or observable market data are not available, are recorded at fair value using valuation techniques. Fair value is determined using a valuation model that has been tested against prices or inputs to actual market transactions and using the Group’s best estimates of the most appropriate model assumptions.

(h) Revaluation of land and buildings

Applicable to 2019 and 2018The Group measures its land and buildings at revalued amounts with changes in fair value being recognized in other comprehensive income. The Group engages independent valuation specialists to determine fair value of its land and buildings. The valuer uses judgment in the application of valuation techniques such as replacement cost and the market price of comparable properties, as applicable in each case.

(i) Current and deferred taxes

Applicable to 2019 and 2018Significant judgment is required in determining the provision for income taxes including any liabilities for tax audit issues. There are some transactions and calculations for which the ultimate tax determination is uncertain during the ordinary course of business.

In calculating the deferred tax asset, management uses judgment to determine the possibility that future taxable profits will be available to facilitate utilization of temporary tax differences which may arise.



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8. Cash and balances with the Central Bank

Note 2019 2018

Cash on hand $ 8,433,692 7,816,981

Balances with the ECCB other than mandatoryreserve deposits 112,491,165 159,325,984

Included in cash and cash equivalents 28 120,924,857 167,142,965

Mandatory reserve deposits with the ECCB 48,185,589 47,617,074

Total cash and balances with the Central Bank $ 169,110,446 214,760,039

Commercial banks operating in member states of the Organization of the Eastern Caribbean States are required to maintain a reserve with the ECCB equivalent to 6% of their total deposit liabilities (excluding inter-bank deposits and foreign currencies). This reserve deposit is not available for use in the Group’s day-to-day operations, and is non-interest bearing.

9. Due from other banks

Note 2019 2018Term deposits and operating accounts with other bankswith original maturities of 3 months or less $ 35,694,964 12,746,014

Items in the course of collection from other banks 2,594,489 3,978,354

Included in cash and cash equivalents 28 38,289,453 16,724,368

Term deposits and operating accounts with other bankswith original maturities greater than 3 months 58,538,000 54,666,450

Less: Provision for expected credit loss (99,889) -

96,727,564 71,390,818

Interest receivable 754,545 447,729

Total due from other banks $ 97,482,109 71,838,547

2019 2018The movement in expected credit losses is as follows:

Balance at the beginning of the year under IAS 39 - -Amounts restated through opening retained earnings on initial application of IFRS 9 $ 198,250 -

Restated opening balance under IFRS 9 at October 1, 2018 198,250 -Expected credit losses (98,361) -

Balance at the end of the year $ 99,889 -




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10. Treasury bills

Nominal NominalValue Cost Value Cost

Note 2019 2019 2018 2018

Treasury bills at amortised cost-OECS Government with original maturities of 3 months or less and interest rates ranging from 3.5% to 7% $ 44,700,000 43,979,408 42,700,000 42,234,619

Included in cash and cashequivalents 28 44,700,000 43,979,408 42,700,000 42,234,619

Treasury bills at amortised cost-OECS Government with original maturities of more than 3 monthsand interest rates ranging from 5% to 6.34% 45,400,000 44,869,756 47,579,039 46,913,398

Interest receivable - 1,360,737 - 1,075,726

Total treasury bills - gross $ 90,100,000 90,209,901 90,279,039 90,223,743

Less: Provision for expected credit losses - (373,336) - -

Total treasury bills – net $ 90,100,000 89,836,565 90,279,039 90,223,743

2019 2018

The movement in expected credit losses is as follows:

Balance at the beginning of the year under IAS 39 $ - -Amounts restated through opening retained earnings on initial application of IFRS 9 351,477 -

Restated opening balance under IFRS 9 at October 1, 2018 351,477 -Expected credit losses 21,859 -


11. Statutory deposit2019 2018

Statutory reserve deposit with the Government of Antigua and Barbuda $ 5,965,440 5,874,812

A subsidiary company has placed a statutory deposit with the Government of Antigua and Barbuda equivalent to 2½% of its deposit liabilities. The statutory reserve deposit is a statutory requirement as per section 17(a) of the Financial Institutions (Non-Banking) Act, 1985. This reserve is non-interest bearing and is not available for the Group’s day-to-day operations.




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12. Loans and advances2019 2018

Mortgage loans $ 168,608,978 188,334,219Commercial loans 394,192,844 354,284,413Personal loans 66,047,455 51,812,734Overdrafts 62,289,416 66,241,572Credit card advances 1,691,654 1,548,057

692,830,347 662,220,995Less: Allowance for loan impairment (29,749,314) (14,340,120)

663,081,033 647,880,875Add:Interest receivable 17,201,729 16,537,216Deferred interest income (3,357,430) (3,314,766)Deferred fees (2,162,758) (2,026,118)

Total loans and advances $ 674,762,574 659,077,207

2019 2018

Current $ 104,411,562 146,693,357

Non-current 570,351,012 512,383,850

$ 674,762,574 659,077,207

Allowance for loan impairment

The movement in expect credit losses is as follows:

Balance, beginning of year $ 14,340,120 14,149,240Impact of IFRS 9 adoption 5,608,449 -

Restated opening balance under IFRS 9 at October 1, 2018 19,948,569 14,149,240

Provision for loan impairment 10,874,896 190,880Write off of impaired loan balances (1,074,151) -

Balance, end of year $ 29,749,314 14,340,120

According to the ECCB loan provisioning guidelines, the calculated allowance for loan impairment amounts to $32,648,430 (2018: $35,871,398) and the difference between this figure and the loan loss provision under IFRS 9 has been set aside as a specific reserve through equity. The gross carrying value of impaired loans at the year-end was $60,260,837 (2018: $59,128,486). Interest receivable on loans that would not be recognised under ECCB guidelines amounted to $13,954,159 (2018:$13,466,531) and is also included in the specific regulatory reserve (note 24).




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12.1. Provision for impairment of loans and advances

Reconciliation of the allowance account for losses on loans and advances by class is as follows:

Personal Commercial MortgageCredit Cards Overdraft Total

$ $ $ $ $ $Balance at September 30,2018 2,331,236 9,507,374 322,921 1,223,039 955,550 14,340,120Effect of adopting IFRS 9 at October 1, 2018 531,215 4,669,932 390,413 - 16,889 5,608,449Provision (Change in assumptions) 1,501,680 8,557,256 (244,271) - 2,216,755 12,031,420Recovery of provision - (1,840,401) - - (128,289) (1,968,690)Provision for ECL 120,216 703,138 35,407 - (46,595) 812,166Loans written off during the year - (1,074,151) - - - (1,074,151)At September 30, 2019 4,484,347 20,523,148 504,470 1,223,039 3,014,310 29,749,314

Balance at October 1, 2017 2,508,210 9,190,594 - 1,223,039 934,476 13,856,319Provision for loan impairment 197,945 2,789,179 457,921 - 24,014 3,469,059Recovery of provision (374,919) (2,472,399) (135,000) - (2,940) (2,985,258)At September 30, 2018 2,331,236 9,507,374 322,921 1,223,039 955,550 14,340,120

A breakdown of the staging of advances and the related ECLs for loans and advances is illustrated below:

Personal Commercial MortgageCredit Cards Overdraft Total

$ $ $ $ $ $September 30, 2019Net loans before provision 66,047,455 394,192,844 168,608,978 1,691,656 62,289,414 692,830,347Stage 1: 12 month ECL (603,692) (4,808,973) (376,656) - (151,916) (5,941,237)Stage 2: Lifetime ECL (74,566) (3,402,854) (49,163) - - (3,526,583)Stage 3: Credit Impaired (3,706,278) (12,427,666) - (1,223,039) (2,924,511) (20,281,494)

61,662,919 373,553,351 168,183,159 468,617 59,212,987 663,081,033




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77

12.1. Provision for impairment of loans and advances (cont’d)

A breakdown of the staging of advances and the related ECLs for loans and advances is illustrated below (cont’d)

Personal Commercial MortgagesCredit Cards Overdraft Total

$ $ $ $ $ $Gross loans as at October 1, 2018 52,144,215 377,326,153 164,960,998 1,548,057 66,241,572 662,220,995Stage 1: 12 month ECL (487,573) (3,808,856) (255,510) - (198,511) (4,750,450)Stage 2: Lifetime ECL (70,468) (3,621,183) (134,903) - - (3,826,554)Stage 3: Credit impaired (2,305,516) (6,747,267) (322,921) (1,223,038) (772,823) (11,371,565)

49,280,658 363,148,847 164,247,664 325,019 65,270,238 642,272,426

Stage 1: 12 month ECLECL allowance as at:October 1, 2018 under IFRS 9 487,573 3,808,856 255,510 - 198,511 4,750,450Credit loss movements, new 257,656 1,462,264 159,614 - - 1,879,534Loans repayments, etc. (141,538) (462,147) (38,467) - (46,595) (688,747)As at September 30, 2019 603,691 4,808,973 376,657 - 151,916 5,941,237

Stage 2: Lifetime ECLECL allowance as at:October 1, 2018 under IFRS 9 70,468 3,621,183 134,903 - - 3,826,554Credit loss movements, new 27,024 19,051 1,509 - - 47,584Loans repayments, etc. (22,926) (237,380) (87,249) - - (347,555)As at September 30, 2019 74,566 3,402,854 49,163 - - 3,526,583

Stage 3: Lifetime ECLECL allowance as at:October 1, 2018 under IFRS 9 2,305,516 7,070,188 - 1,223,038 772,823 11,371,565Credit loss expense 1,501,680 6,393,933 - - 2,088,467 9,984,080Charge-offs and write-offs - (1,074,151) - - - (1,074,151)As at September 30, 2019 3,807,196 12,389,970 - 1,223,038 2,861,290 20,281,494Total 4,485,453 20,601,797 425,820 1,223,038 3,013,206 29,749,314




116



September 30, 2019


78

13. Other assets2019 2018

Depositor Protection Trust $ 7,699,520 11,174,168Credit card receivables 6,123,928 9,408,628Prepayments 1,467,990 1,489,453Miscellaneous receivables - 110,775Suspense accounts 253,871 38,638

Total other assets – gross $ 15,545,309 22,221,662

Less: provision for expected credit losses (111,268) -

Total other assets – net 15,434,041 22,221,662

Current $ 7,845,790 12,643,804Non-current 7,588,251 9,577,858

$ 15,434,041 22,221,662

The amounts classified as Depositor Protection Trust represent amounts formerly held on depositwith ABI Bank Ltd. which were previously classified as Due from Banks. The amounts are now held ina trust and will be repaid in line with an agreed payment schedule, scheduled to be completed by 2025 earning interest at a rate of 2% per annum.

2019 2018

The movement in expected credit losses is as follows:

Balance at the beginning of the year under IAS 39 $ - -Amounts restated through opening retained earnings on initial application of IFRS 9 101,146 -

Restated opening balance under IFRS 9 at October 1, 2018 101,146 -Expected credit losses 10,122 -





117



September 30, 2019


79

14. Investment securities

Securities measured at amortised cost2019

$2018

$Debt securities at amortised cost- Unlisted 51,792,721 -- Listed 55,293,004 -Interest receivable 1,476,723 -Less allowance for impairment (4,220,091) -Total securities at amortised cost 104,342,357 -

Securities measured at fair value through OCIEquity securities at fair value- Unlisted 23,670,287 -- Listed 9,365,345 -Total equity securities 33,035,632 -

Total securities at fair value through OCI 33,035,632 -

Securities measured at fair value through P&LEquity securities:- Unlisted - -- Listed 5,265,905 -

Total equity securities 5,265,905 -

Debt securities at fair value- Unlisted - -- Listed 42,052,689 -Interest receivable 114,094 -Total debt securities 42,166,783 -

Total securities measured at fair value through P&L 47,432,688 -Total investment securities 184,810,677 -

All debt securities have fixed interest rates.




118



September 30, 2019


80

14. Investment securities (cont’d)

2019 2018Held-to-maturityDebt securities (listed) $ - 51,151,192Interest receivable - 444,942

Total held-to-maturity - 51,596,134

Available-for-sale - unquotedEquity securities $ - 6,768,030

Available-for-sale - quotedEquity securities - 9,357,431

Loans and receivablesGovernment securities $ 1,500,000Corporate securities 48,471,741Interest receivable - 922,109

Total loans and receivables - 50,893,850

Total investment securities before impairment $ 118,615,445

Allowance for impairment – available for sale unquoted (990,000)Allowance for impairment – available for sale quoted -Allowance for impairment – loans and receivables - (4,000,000)

Total allowance for impairment $ - (4,990,000)

Total investment securities $ - 113,625,445

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15,1

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--

56,6

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47,4

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8-

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15,1

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6151

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46,8

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4,56

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104,

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15.

Prop

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415,

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42,

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2,23

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975,

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end

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9O

peni

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et b

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0,00

014

,616

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415,

970

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2,05

710

7,24

42,

001,

798

70,0

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2,23

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975,

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1,46

262

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230,

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--

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--

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ansf

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94,8

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295

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valu

atio

n ad

just

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--

--

--

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atio

n ch

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59,0

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(93,

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(397

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)(8

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31,5

78)

(213

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)(2

2,84

3)-

(2,1

98,2

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Clo

sing

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boo

k am

ount

$9,

465,

000

15,6

09,7

4535

0,31

72,

220,

154

200,

278

1,60

4,78

760

7,24

515

1,63

24,

320,

392

34,5

29,5

50

At S

epte

mbe

r 30,

201

9C

ost o

r val

uatio

n$

9,46

5,00

015

,609

,745

5,91

2,17

111

,095

,634

785,

878

14,5

12,7

658,

992,

765

280,

283

4,32

0,39

270

,974

,633

Acc

umul

ated

de

prec

iatio

n-

-(5

,561

,854

)(8

,875

,480

)(5

85,6

00)(

12,9

07,9

78)

(8,3

85,5

20)

(128

,651

)-

(36,

445,

083)

Net

boo

k am

ount

$9,

465,

000

15,6

09,7

4535

0,31

72,

220,

154

200,

278

1,60

4,78

760

7,24

515

1,63

24,

320,

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34,5

29,5

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84

15.

Prop

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At S

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r 30,

201

7C

ost o

r val

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n$

8,88

0,00

015

,511

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5,81

9,55

310

,651

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729,

034

13,4

50,7

948,

146,

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170,

187

3,11

6,65

866

,474

,781

Acc

umul

ated

de

prec

iatio

n-

(1,4

19,3

59)

(5,3

82,0

67)

(8,2

94,0

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(516

,951

)(1

1,38

3,31

3)(8

,102

,282

)(1

17,0

71)

-(3

5,21

5,12

3)

Net

boo

k am

ount

8,88

0,00

014

,092

,086

437,

486

2,35

6,95

121

2,08

32,

067,

481

43,7

9753

,116

3,11

6,65

831

,259

,658

Year

end

ed S

epte

mbe

r 30

, 201

8O

peni

ng n

et b

ook

amou

nt$

8,88

0,00

014

,092

,086

437,

486

2,35

6,95

121

2,08

32,

067,

481

43,7

9753

,116

3,11

6,65

831

,259

,658

Add

ition

s-

102,

502

51,0

1463

,094

-41

5,79

6-

29,5

982,

685,

490

3,34

7,49

4Tr

ansf

ers

-95

6,55

313

,650

482,

707

-23

1,17

1

95,6

8046

,533

(1,8

26,2

94)

-D

epre

ciat

ion

char

ge-

(534

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)(8

6,18

0)(4

70,6

95)

(104

,839

)(7

12,6

50)

(69,

450)

(17,

014)

-(1

,995

,345

)C

losi

ng n

et b

ook

amou

nt$

8,88

0,00

014

,616

,624

415,

970

2,43

2,05

710

7,24

42,

001,

798

70,0

2711

2,23

33,

975,

854

32,6

11,8

07

At S

epte

mbe

r 30,

201

8C

ost o

r val

uatio

n$

8,88

0,00

016

,570

,500

5,88

4,21

711

,196

,832

729,

034

14,0

97,7

618,

241,

759

246,

318

3,97

5,85

469

,822

,275

Acc

umul

ated

de

prec

iatio

n-

(1,9

53,8

76)

(5,4

68,2

47)

(8,7

64,7

75)

(621

,790

)(1

2,09

5,96

3)(8

,171

,732

)(1

34,0

85)

-(3

7,21

0,46

8)N

et b

ook

amou

nt$

8,88

0,00

014

,616

,624

415,

970

2,43

2,05

710

7,24

42,

001,

798

70,0

2711

2,23

33,

975,

854

32,6

11,8

07




123



September 30, 2019


85

15. Property and equipment (cont’d)

As of September 30, 2019, all of the Group’s land and buildings and improvements were revaluedbased on the appraisal performed by an independent firm of professional appraisers. The revaluationresulted in a gain amounting to $1,300,392 which is included in profit or loss. The remaining revaluationsurplus of $585,000 is within ‘other reserves’ in shareholders’ equity (note 24).

The following is the historical cost carrying amount of land and buildings carried at revalued amountsas of September 30, 2019.

Land Buildings Total

Cost $ 3,562,078 31,608,727 35,170,805Accumulated depreciation - (15,646,051) (15,646,051)

Net book value $ 3,562,078 15,962,676 19,524,754

The following is the historical cost carrying amount of land and buildings carried at revalued amountsas of September 30, 2018.


Cost $ 3,562,078 31,608,727 35,170,805Accumulated depreciation - (15,086,967) (15,086,967)

Net book value $ 3,562,078 16,521,760 20,083,838

The following is the analysis of property and equipment revaluation surplus as of September 30, 2019.


Net book value $ 8,880,000 14,295,736 23,175,736Market value (9,465,000) (15,596,128) (25,061,128)

Revaluation surplus $ (585,000) (1,300,392) (1,885,392)




124



September 30, 2019


86

16. Pension plan

Eligible employees are enrolled in a defined benefit pension scheme which commenced October1, 1991. The assets of the plan are held in a seven member trustee administered fund. The Boardof Trustees comprises four trustees appointed by the Board of Directors and three appointed by theemployees. The funds of the scheme are invested solely under the control of the trustees and maybe used only for the purposes of the scheme.

The Plan is valued every three years by an independent qualified actuary. The latest availablevaluation was performed at September 30, 2017 using the projected unit credit method. At September30, 2017, the actuarial valuation showed that the Plan is overfunded with net assets available for benefits representing 101% of accrued projected plan benefits, and indicated a required contributionrate by the Group, for the next three years, of less than 5% of pensionable salaries.

In respect of the defined benefit plan operated by the Group, the amounts recognised in the statement of financial position are as follows:

2019 2018Pension plan assetPresent value of funded obligations $ (18,144,779) (17,639,500)Fair value of plan assets 25,706,542 25,749,002

Net asset – end of year $ 7,561,763 8,109,502

The movement in the fair value of plan assets over the year are as follows:

2019 2018

Fair value of plan assets – beginning of year $ 25,749,002 24,684,972Contributions – employer and employees 810,788 774,032Benefits paid (1,281,449) (691,687)Plan administration expenses (68,770) (107,379)Actuarial loss (1,288,986) (641,766)Interest on plan assets 1,785,957 1,730,830

Fair value of plan assets – end of year $ 25,706,542 25,749,002

The movement in the present value of funded obligations over the year are as follows:

2019 2018

Present value of funded obligations – beginning of year $ 17,639,500 16,433,180Current service cost 712,544 682,416Interest cost 1,239,792 1,173,883Benefits paid (1,281,449) (691,687)Actuarial (gain)/loss (165,608) 41,708

Present value of funded obligations – end of year $ 18,144,779 17,639,500




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87

16. Pension plan (cont’d)

The movements in the net asset recognized in the statement of financial position are as follows:

2019 2018

Net asset – beginning of year $ 8,109,502 8,251,792Net pension income included in the statement of income 173,144 156,679Actuarial losses included in other comprehensive income (1,123,378) (683,474)Contributions paid - employer 402,495 384,505

Net asset – end of year $ 7,561,763 8,109,502

The amounts recognized in the statement of income are as follows:2019 2018

Current service cost $ (304,251) (292,889)Net interest income on the net defined benefit asset 546,165 556,947Plan administration expenses (68,770) (107,379)

Net gain recognized in the statement of income $ 173,144 156,679

The amounts recognized in other comprehensive income are as follows:

2019 2018

Actuarial gain/(loss) for the year – obligation $ 165,608 (41,708)Actuarial loss for the year - plan assets (1,288,986) (641,766)

Actuarial loss recognized in other comprehensive income $ (1,123,378) (683,474)

The major categories of plan assets as a percentage of total plan assets are as follows:

2019 2018

Cash and cash equivalents 54% 55%Debt securities 8% 8%Equity securities 20% 19%Property 18% 18%

The pension plan assets include ordinary shares issued by the Bank with a value of $75,851 (2018: $85,333). Plan assets include deposits held with the Bank with a fair value of $2,313,992 (2018: $4,387,026).




126



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88


Amounts for the current period and previous four periods are as follows:

2019 2018 2017 2016 2015

Defined benefit obligation $ (18,144,779) (17,639,500) (16,433,180) (15,667,965) (13,651,036)Plan assets 25,706,542 25,749,002 24,684,972 23,590,647 22,973,880

Surplus $ 7,561,763 8,109,502 8,251,792 7,922,682 9,322,844

Principal actuarial assumptions used for accounting purposes were as follows:

2019 2018

Discount rate 7.0% 7.0%Future promotional salary increases 3.5% 3.5%

Contributions to the pension scheme for the year ended September 30, 2019 amounted to $402,495,being Antigua Commercial Bank Ltd: $358,269; ACB Mortgage & Trust Limited: $44,226 (2018:$384,505), being Antigua Commercial Bank Ltd: $340,839; ACB Mortgage & Trust Limited: $43,666.The Bank’s contributions are adjusted according to the actuary’s recommendations. Contributions expected to be paid to the plan for the subsequent period are budgeted at $436,682, being AntiguaCommercial Bank Ltd: $388,182; ACB Mortgage & Trust Limited: $48,500.

The sensitivity of the defined benefit obligation to changes in the weighted principal assumptions is:2019

Impact on defined benefit obligationChange in assumption Increase in assumption Decrease in assumption

Discount rate 1% $ (2,176,933) $ 2,578,763Salary growth rate 1% 934,319 (823,281)Life expectancy 1 year 18,451,094 -

2018Impact on defined benefit obligation

Change in assumption Increase in assumption Decrease in assumption

Discount rate 1% $ (2,144,443) $ 2,716,233Salary growth rate 1% 935,743 (825,571)Life expectancy 1 year 299,663 -

The duration of the benefit obligation is 13.6 years (2018: 13.6 years).

The above sensitivity analyses are based on a change in an assumption while holding all other assumptions constant. In practice, this is unlikely to occur, and changes in some of the assumptions may be correlated.




127



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89


When calculating the sensitivity of the defined benefit obligation to significant actuarial assumptions the same method (present value of the defined benefit obligation calculated with the projected unit credit method at the end of the year) has been applied as when calculating the pension plan liability recognised within the statement of financial position.

The methods and types of assumptions used in preparing the sensitivity analysis did not changecompared to the previous year.

17. Deposits due to customers

2019 2018

Savings accounts $ 400,013,306 497,239,137Time deposits 253,213,816 242,855,140Current accounts 227,553,360 210,679,858Other deposits 123,833,915 18,254,422

1,004,614,397 969,028,557

Interest payable 3,865,635 3,852,026

Total deposits due to customers $ 1,008,480,032 972,880,583

Current $ 841,752,246 809,538,974

Non-current 166,727,786 163,341,609

$ 1,008,480,032 972,880,583

18. Provisions and other liabilities2019 2018

Trade payables and accrued expenses $ 12,076,122 12,956,316Manager’s cheques 1,733,802 4,187,520Provisions 1,492,978 -Escrow accounts 1,248,022 1,299,150Other sundry payables 86,761 177,406Miscellaneous payable 155,504 -

Total other liabilities and accrued expenses $ 16,793,189 18,620,392

Current $ 15,545,166 17,321,242

Non-current 1,248,023 1,299,150

$ 16,793,189 18,620,392




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19. Dividends

During the year, a dividend in respect of the 2018 financial year end of $4,000,000 was recorded andpaid (2018: $4,000,000 in respect of the 2017 financial year).

The dividend proposed in respect of the 2019 financial year end is $0.50 for each unit of paid upshare capital, or EC$5,000,000 (2018: $0.40 or EC$4,000,000). The consolidated financial statementsfor the year ended September 30, 2019 do not reflect this proposed dividend which, if ratified, will beaccounted for in equity as an appropriation of retained earnings in the year ending September 30, 2020.

20. Taxation

Income tax payable2019 2018

Income tax payable, beginning of year $ 1,173,830 3,934,414

Current tax expense 3,888,538 1,075,173Prior year under/(over) accrual (51,812) -Payments made during the year (1,184,051) (3,835,757)

Income tax payable, end of year $ 3,826,505 1,173,830

Income tax expense2019 2018

Profit before tax $ 25,343,110 23,121,625

Income tax expense at statutory rates $ 6,320,679 5,808,101Effect of interest income not subject to tax (1,770,838) (1,923,879)Effect of dividend income not subject to tax (667,050) (579,625)Effect of untaxable income (316,261) -Prior year over accrual - (109,659)Effect of deferred taxes (577,260) -Effect of other permanent differences 1,530,692 209,528Others 87,717 -

Actual income tax expense $ 4,607,679 3,404,466

The statutory tax rate for Antigua Commercial Bank is 25% (2018: 25%) and for ACB Mortgage and Trust is 20% (2018: 20%).




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20. Taxation (cont’d)

Deferred tax liability (asset), net2019 2018

Balance, beginning of year $ 7,277,536 4,907,819Deferred tax on IFRS 9 ECL opening adjustment (1,940,415) -Charge for the year 719,141 2,329,293Movement on revaluation of available-for-sale securities - 211,293Actuarial loss (280,845) (170,869)


The components of the deferred tax liability (net of deferred tax assets) are as follows:

2019 2018

Statutory loan loss reserve $ 8,621,553 8,588,722Revaluation of available-for-sale securities 875,394 912,126Pension asset 1,890,441 2,027,376Deferred commission (501,755) (424,311)Decelerated capital allowances (592,531) (1,025,541)Tax losses carried forward (1,504,841) (2,800,836)Expected credit losses – Stage 1 and 2 (2,127,973) -Capital Allowances (884,871) -


The income tax payable does not represent amounts agreed with the tax authority. The amount isreflective of the Group’s position concerning its tax balance with the Inland Revenue Department (IRD)on the basis of its records. However, as the Group’s tax return for the year of assessment 2020 has notbeen finalised with the IRD, there is uncertainty as to the eventual liability. Additionally, the followingstill remains in dispute. A credit balance of $2,573,846 was available as per Inland RevenueDepartment correspondence dated September 14, 2006. However, the balance as per the Bank’sseparate audited financial statements as of September 30, 2004 was $3,708,771 resulting in adifference of $1,134,925, which to date has not been agreed with the Inland Revenue Department.




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92

21. Related party balances and transactions

Related party definition

A related party is a person or entity that is related to the Group.

a) A person or a close member of that person’s family is related to the Group if that person:

i) has control or joint control over the Group;

ii) has significant influence over the Group; or

iii) is a member of the key management personnel of the Group, or of a parent of the Group.

b) An entity is related to the Group if any of the following conditions applies:

i) The entity and the Group are members of the same group (which means that eachparent, subsidiary and fellow subsidiary is related to the others).

ii) One entity is an associate or joint venture of the other entity (or an associate or joint venture ofa member of a group of which the other entity is a member).

iii) Both entities are joint ventures of the same third party.

iv) One entity is a joint venture of a third entity and the other entity is an associate of the thirdentity.

v) The entity is a post-employment benefit plan for the benefit of employees of either the Groupor an entity related to the Group.

vi) The entity is controlled, or jointly controlled by a person identified in (a).

vii) A person identified in (a) (i) has significant influence over the entity or is a member of the keymanagement personnel of the entity (or of a parent of the entity).

viii) The entity, or any member of a group of which it is part, provides key managementpersonnel services to the Group or its parent.

A related party transaction is a transfer of resources, services or obligations between related parties,regardless of whether a price is charged.

A number of banking transactions were entered into with related parties in the normal course ofbusiness. These include loans, deposits and other transactions. With the exception of the amounts dueto subsidiary, these transactions were carried out on commercial terms and at market rates.




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93

21. Related party balances and transactions (cont’d)

The volumes of related party transactions, outstanding balances at the year end and related expensesand income for the year are as follows:

2019 2018

Loans to directors and key members of managementLoans outstanding at beginning of year $ 1,958,363 3,903,354Change in status (898,372) (702,834)Loans reassigned from Director (898,073)Loans issued during the year 962,996 247,761Loan repayments during the year (234,807) (1,489,918)

Loans outstanding at end of year $ 890,107 1,958,363

No provisions have been recognised in respect of loans given to related parties (2018: nil).

Interest income earned on directors’ and key members of management’s loans and advances during the year is $159,823 (2018: $259,684). The interest rates on these loans range from 7% to 8.5% (2018:7% to 8.5%) and they are granted on an arm’s length basis.

2019 2018

Deposits by directors and key members of managementDeposits at beginning of year $ 6,679,275 6,301,920Deposits received during the year 4,785,349 9,788,967Deposits repaid/reclassified during the year (4,724,831) (9,685,806)Change in status 274,086 274,194

Deposits at end of year $ 7,013,879 6,679,275

Interest expense paid on directors’ and key members of management’s deposits during the year is $205,945 (2018: $147,728). Interest rates on directors’ deposits range from 2% to 2.25% (2018: 2%to 4%) and they are accepted on an arm’s length basis.

Remuneration of key management personnelDuring the year, salaries and related benefits were paid to key members of management allocatedas follows:

2019 2018

Salaries and wages $ 1,015,915 871,004Directors’ fees and expenses 944,182 999,302Other staff costs 244,481 202,112Pension costs 24,638 26,918

$ 2,229,216 2,099,336




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94

22. Stated capital

2019 2018Authorised share capital:150,000,000 shares at nil par value $ 150,000,000 150,000,000

Issued and fully paid:10,000,000 shares at nil par value $ 36,000,000 36,000,000

23. Statutory reserve2019 2018

Balance at beginning of year $ 23,459,372 20,768,281Transfer from profit after taxation 2,600,590 2,691,091

Balance at end of year $ 26,059,962 23,459,372

Section 45 of the Antigua and Barbuda Banking Act No. 10 of 2015 provides that not less than 20%of each year’s net earnings shall be set aside to a reserve fund whenever the fund is less than the paid-up capital of the Group.

24. Other reserves2019 2018

Capital reserve $ 7,461,949 7,461,949Regulatory reserve for loan loss 34,997,809 34,997,809Revaluation reserve – FVOCI securities 19,235,907 2,736,004Revaluation reserve – property 5,902,922 5,317,922Pension reserve 7,561,763 8,109,502

Total other reserves $ 75,160,350 58,623,186

(a) Capital reserveIncluded in this balance is an amount of $6,171,428 recorded in prior years for share premium recognised.

(b) Regulatory reserve for loan loss and interest recognised2019 2018

Balance at beginning of year $ 34,997,809 16,438,353Increase in reserve for regulatory purposes - 18,559,456


This reserve represents the additional loan loss provision required by the Eastern CaribbeanCentral Bank’s prudential guidelines as compared to the provision measured in accordancewith International Financial Reporting Standards, together with a reserve for interest on loans notrecognised for regulatory purposes.




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September 30, 2019


95

24. Other reserves (cont’d)

(c) Revaluation reserve for FVOCI securities2019 2018

Balance at beginning of year $ 2,736,004 2,107,502Changes on initial application of IFRS 9 16,493,969 -Increase in market value of investmentsecurities, net of tax of $1,979 (2018: $211,293) 5,934 628,502


(d) Revaluation reserve - Property2019 2018

Balance at beginning of year $ 5,317,922 5,317,922Increase in revaluation reserve - property 585,000 -

$ 5,902,922 5,317,922

A revaluation of land and buildings was conducted in 2019 (note 15).

(e) Pension reserve2019 2018

Balance at beginning of year $ 8,109,502 8,251,792Decrease in pension reserve (547,739) (142,290)


The Board of Directors has decided to appropriate annually out of net profits the amounts necessary to maintain a pension reserve equivalent to the pension asset.

25. Other operating income2019 2018

Fees and commissions $ 10,186,191 8,865,011Foreign exchange 5,319,874 4,701,236Dividend income 682,206 325,561Rental income 144,576 144,576Recovery of loans written off 315,544 128,189Unrealised loss on FVTPL (147,231) -Miscellaneous income 426,568 354,272

Total other operating income $ 16,927,728 14,518,845




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96

26. Earnings per share

Basic earnings per share is calculated by dividing the net profit attributable to shareholders bythe weighted average number of ordinary shares in issue during the year.

2019 2018

Net profit attributable to shareholders $ 20,735,431 19,717,158Weighted average number of ordinary shares in issue 10,000,000 10,000,000

Basic and diluted earnings per share $ 2.07 1.97

27. General and administrative expensesNotes 2019 2018

Salaries and related costs 29 $ 13,970,640 13,605,072Software operating expenses 2,170,313 1,755,525Non-credit losses 2,075,870 98,244Service charge for corresponding banks 1,289,999 1,343,995Telephone and data charges 776,825 690,619Utilities 705,352 770,487Advertising and promotion 605,061 755,631Subscriptions and fees 542,555 514,610Insurance expense 533,555 477,159Security services 504,993 503,877Printing and stationery expenses 498,977 491,434Audit fees and expenses 498,372 397,750Rent 461,790 431,143Legal and other professional fees 432,717 562,379Cleaning expenses 432,220 428,754Repairs and maintenance 402,916 410,185Night depository expenses 381,797 377,480Four C’s operating expenses 370,025 256,830Licenses and taxes 359,888 366,264Cash purchases expenses 324,200 471,000Strategic Planning Exercise 271,143 -ECCB and foreign exchange expenses 269,256 226,309Shareholders’ meeting expenses 213,788 224,408ECACH Charges 202,186 93,844Wire services expense 108,444 105,977Vehicle expenses 95,074 77,192Scholarship fund 94,127 120,607Agency expenses 76,935 80,413Travel and entertainment 62,516 38,519Donations 43,566 162,539Commission 40,678 -Hospitality Suite 6,250 25,000Bank Charges 5,487 5,559Securities Brokerage commission expenses - 61,500Miscellaneous expenses 95,820 76,025

Total general and administrative expenses $ 28,923,335 26,006,330




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28. Cash and cash equivalentsNotes 2019 2018

Due from other banks 9 $ 38,289,453 16,724,368Cash balances with the Central Bank 8 120,924,857 167,142,965Treasury bills 10 43,979,408 42,234,619

Total cash and cash equivalents $ 203,193,718 226,101,952

29. Salaries and related costs

2019 2018

Salaries, wages and allowances $ 11,246,076 10,811,065Statutory deduction costs 943,690 921,835Other benefits 682,261 813,214Staff incentive scheme 628,082 573,531Training and education 360,076 402,061Group health and life 235,237 240,045Pension credit (124,782) (156,679)

Total salaries and related costs $ 13,970,640 13,605,072

30. Contingencies and commitments

Pending litigation

Various actions and legal proceedings may arise against the Group during the normal course ofbusiness. The Group is currently involved in certain employee-related legal matters for which theoutcome cannot be presently determined. The amount of the liability, if any, will be contingent on theeventual outcome of court proceedings and will be recognised at that time.

Credit related commitments

The contractual amounts of the Group’s off-balance sheet financial instruments that commit it toextend credit to customers are listed below:

2019 2018

Undrawn commitments to extend advances $ 61,370,469 53,286,818




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30. Contingencies and commitments (cont’d)

Off-balance sheet items

The maturity profile of off-balance sheet items is as follows:

Up to 1 year TotalAs of September 30, 2019Loan commitments (undrawn) $ 61,370,469 61,370,469


31. Transition to IFRS 9

Reconciliation of IAS 39 to IFRS 9The table below provides the impact from the transition to IFRS 9 on the Statement of Financial Position at the transition date of October 1, 2018. The impact consists primarily of reclassifications and re-measurements:

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September 30, 2019


98

30. Contingencies and commitments (cont’d)

Off-balance sheet items

The maturity profile of off-balance sheet items is as follows:



31. Transition to IFRS 9

Reconciliation of IAS 39 to IFRS 9The table below provides the impact from the transition to IFRS 9 on the Statement of Financial Position at the transition date of October 1, 2018. The impact consists primarily of reclassifications and re-measurements:

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djus

tmen

t on

trans

ition

.




139



September 30, 2019


101

31. Transition to IFRS 9 (cont’d)

(iii) The Group elected to classify all of its previously held available for sale (AFS) equity portfolio amounting to $15,135,461 at fair value through other comprehensive income (FVOCI). These instruments, which comprise both quoted and unquoted holdings, are strategic investments in a number of local and regional institutions. Given the requirements of IFRS 9, the Group obtained a fair value for the unquoted securities at the transition date using available data. This led to a remeasurement increase of $17,892,259 which increased the carrying value of the unquoted equity portfolio with a corresponding increase in the revaluation reserve on FVOCI investments within equity. Furthermore, based on the requirements of IFRS 9, an amount of $1,398,290 which represents impairment that had previously been recorded on the quoted securities, was reclassified from opening retained earnings at October 1, 2018 to the revaluation reserve on FVOCI investments within equity. The amounts within this reserve account will never be reclassified to profit of loss.

(iv) IAS 39 categories included Loans and Receivables, Available-for-Sale (AFS) and Held-to-Maturity (HTM). IFRS 9 categories include Amortised Cost (AC), Fair Value through Profit or Loss (FVTPL) and Fair Value through Other Comprehensive Income (FVOCI).

(v) Due to the new expected credit loss (ECL) requirements for measuring impairment on the Group’s financial assets, at the transition date of October 1, 2018, there was a net increase in ECL of $7,897,922 and a corresponding decrease in opening retained earnings. After incorporating the impact of deferred taxes of $1,940,414, the net impact was $5,957,508. The allocation of the gross change in ECL at the transition date to the Group’s financial assets is shown below.

The impact of transition to IFRS 9 on reserves and retained earnings is as follows:

Revaluation reserve: FVOCI

investments Retained Earnings

Closing balance under IAS 39 (September 30, 2018) $ 2,736,004 100,307,865Initial recognition of IFRS 9 ECLs - (5,957,508)Reversal of impairment on FVOCI - Equity investments (1,398,290) 1,398,290Fair value adjustments on FVOCI - Equity investments (unquoted) 17,892,259 -Fair Value adjustment of financial asset - (2,190,983)Net impact $ 16,493,969 (6,750,201)Opening balance under IFRS 9 (October 1, 2018) $ 19,229,973 93,557,664




140



September 30, 2019


102

31. Transition to IFRS 9 (cont’d)

Reconciliation of impairment allowance balance from IAS 39 to IFRS 9

The following table reconciles the prior period’s closing impairment allowance measured in accordance with the IAS 39 incurred loss model to the new impairment allowance measured in accordance with the IFRS 9 expected loss model at October 1, 2018:

Impairment allowance under IAS

39 as at September 30, 2018 Remeasurement

Impairment allowance under

IFRS 9 as at October 1, 2018

Due from other banks $ - 198,250 198,250Treasury bills - 351,477 351,477Loans and advances 14,340,120 5,608,449 19,948,569Investment securities – debt 4,000,000 276,761 4,276,761Other assets - 101,146 101,146Provision for credit cards - 1,361,839 1,361,839Gross provision 18,340,120 7,897,922 26,238,042Tax effect $ - (1,940,414) (1,940,414)

$ 18,340,120 5,957,508 24,297,628

32. Subsequent Event

On December 12, 2019, the Bank announced that it had entered into a definitive agreement to purchase from the Royal Bank of Canada (RBC), all of its banking operations in Antigua. The transaction is subject to regulatory approval and other customary closing conditions and is expected to be finalized in the coming months.

141


Notes

142


Notes

ACB Head OfficeP.O. Box 95

Thames & St. Mary’s StreetsSt. John’sAntigua.

Tel: 1-268-481-4200/1/2/3Fax: 1-268-481-4229

Email: [email protected]

Website: www.acbonline.com

Documents

ANNU AL REPOR T 2019 - acbonline.com · LEGAL COUNSEL/ CORPORATE SECRETARY January 13, 2020. 9 ommer 2019 w a chievement Akeem Edwards Owner, Donut Ace Our decision to start Donut