CAYMAN NATIONAL CORPORATION LTD.
FOR THE YEAR ENDED
SEPTEMBER 30, 2023
CONSOLIDATED FINANCIAL STATEMENTS
CAYMAN NATIONAL CORPORATION LTD.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2023
C O N T E N T S
Page
3-9
10
-
11
12
13
Consolidated Statement of Changes in Equity 14
Consolidated Statement of Cash Flows 15-16
Notes to the Consolidated Financial Statements
1. Corporate information
2. Significant accounting policies 17-57
2.1 - Basis of preparation
2.2 - Basis of consolidation
2.3 - Changes in accounting policies
2.4 - Standards in issue not yet effective
2.5 - Improvements to International Financial Reporting Standards
2.6 - Summary of significant accounting policies
a) Cash and cash equivalents
b) Due from banks
c) Financial instruments - initial recognition
d) Financial assets and liabilities
e) Investment properties at fair value
f) Reclassification of financial assets and liabilities
g) Derecognition of financial assets and liabilities
h) Impairment of financial assets
i) Collateral valuation
j) Collateral repossessed
k) Write-offs
l) Accounts receivable and other assets
m) Leases
n) Premises and equipment
o) Impairment on non-financial assets
p) Business combinations and goodwill
q) Employee benefits
r) Taxation
s) Fiduciary assets
t) Earnings per share
u) Foreign currency translation
Independent Auditor's Report
Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
1
7
CAYMAN NATIONAL CORPORATION LTD.
CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED SEPTEMBER 30, 2023
C O N T E N T S (Continued)
Page
2. Significant accounting policies (continued)
v) Intangible assets
w) Revenue recognition
x) Fair value
y) Segment reporting
z) Customers’ liabilities under acceptances, guarantees and letters of credit
aa) Equity reserves
3. Significant accounting judgements, estimates and assumptions 58-60
4. Due from banks 61
5. Advances 61-63
6. Investment securities 64-65
7. Investment property 66
8. Premises and equipment 66-67
9. Right-of-use assets and Lease liabilities 68-69
10. Intangible assets 69
11. Other assets
70
12. Customers’ current, savings and deposit accounts 70
13. Other liabilities 70
14. Stated capital and share premium 71
15. Other reserves 72
16. Operating profit 73-75
17. Credit recovery/loss expense on financial assets 75
18. Taxation expense 75
19. Risk management 76-98
20. Related parties
9
8-100
21. Capital management
100
-101
22. Fair value 102-105
23. Segmental information 106-109
24. Maturity analysis of assets and liabilities 110-111
25. Dividends paid and proposed 112
26. Contingent liabilities 112
27. Structured entities 113
28. Discontinued operations 113-114
29. Subsidiary companies 115
30. Business combinations 116-117
31. Events after the reporting period 117
Ernst & Young Ltd.
62 Forum Lane
Camana Bay
P.O. Box 510
Grand Cayman KY1-1106
CAYMAN ISLANDS
Main tel: +1 345 949 8444
Fax: +1 345 949 8529
ey.com
A member firm of Ernst & Young Global Limited
Independent Auditor’s Report
The Board of Directors
Cayman National Corporation Ltd.
Report on the Audit of the Consolidated Financial Statements
Opinion
We have audited the consolidated financial statements of Cayman National Corporation Ltd. and its
subsidiaries (the Group), which comprise the consolidated statement of financial position as at
September 30, 2023, and the consolidated statement of income, consolidated statement of comprehensive
income, consolidated statement of changes in equity and consolidated statement of cash flows for the year
then ended, and notes to the consolidated financial statements, including a summary of significant
accounting policies.
In our opinion, the accompanying consolidated financial statements present fairly, in all material respects,
the financial position of the Group as at September 30, 2023, and its financial performance and its cash
flows for the year then ended in accordance with International Financial Reporting Standards (IFRSs).
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 Auditor’s responsibilities for the audit of the consolidated
financial statements section of our report. We are independent of the Group in accordance with the
International Ethics Standards Board for Accountants’ International Code of Ethics for Professional
Accountants (including International Independence Standards) (IESBA Code) and we have fulfilled our
other ethical responsibilities in accordance with the IESBA Code. We believe that the audit evidence we
have obtained is sufficient and appropriate to provide a basis for our opinion.
Key Audit Matters
Key audit matters are those matters that, in our professional judgement, were of most significance in our
audit of the consolidated financial statements of the current period. These matters were addressed in the
context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon,
and we do not provide a separate opinion on these matters. For each matter below, our description of how
our audit addressed the matter is provided in that context.
3
4
A member firm of Ernst & Young Global Limited
We have fulfilled the responsibilities described in the Auditor’s responsibilities for the audit of the
consolidated financial statements section of our report, including in relation to these matters. Accordingly,
our audit included the performance of procedures designed to respond to our assessment of the risks of
material misstatement of the consolidated financial statements. The results of our audit procedures,
including the procedures performed to address the matters below, provide the basis for our audit opinion
on the accompanying consolidated financial statements.
How our Audit Addressed the Key Audit Matter
We assessed and tested the modelling techniques and
methodologies developed by the Group in order to
estimate ECLs.
We involved our EY valuation specialists to assess
the appropriateness of the models and assumptions
used by the Group.
We understood and evaluated the processes for
identifying significant deteriorations in credit
quality and assessed the reasonableness of
assumptions used to determine whether the Group
appropriately identified impairment events. We
tested the aging of the portfolios as a key input in to
the ECL Model.
We compared the completeness and accuracy of data
from underlying systems to the models used to
determine the ECLs. We considered the
methodologies applied in determining Probabilities
of Default (PDs) and the data used to estimate Loss
Given Defaults (LGDs) and tested the Exposures at
Default (EADs).
5
A member firm of Ernst & Young Global Limited
How our Audit Addressed the Key Audit Matter
Allowance for Expected Credit Losses (ECL) (continued)
For ECLs calculated on an individual basis we tested
the factors underlying the impairment identification
and quantification including forecasts of the amount
and timing of future cash flows, valuation of
assigned collateral and estimates of recovery on
default.
We assessed the disclosure in the consolidated
financial statements considering whether it satisfies
the requirements of IFRS.
6
A member firm of Ernst & Young Global Limited
How our Audit Addressed the Key Audit Matter
Goodwill impairment assessment
We evaluated and tested the Group’s process for
goodwill impairment assessment.
We involved our EY valuation specialists team to
assist us in the review of the key assumptions, cash
flows and discount rate used to assess if they are
reasonable.
We analysed Management’s judgements used in its
assessments, including growth assumptions, by
applying our own sensitivity analyses to account for
market volatility.
We also assessed whether appropriate and complete
disclosures have been included in the consolidated
financial statements consistent with the
requirements of IAS 36.
7
A member firm of Ernst & Young Global Limited
Responsibilities of Management and the Board of Directors for the Consolidated Financial
Statements
Management is responsible for the preparation and fair presentation of the consolidated financial statements
in accordance with IFRSs, 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.
The Board of Directors are responsible for overseeing the Group’s financial reporting process.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
This report is made solely to the Board of Directors, as a body. Our audit work has been undertaken so that
we might state to the Board of Directors those matters we are required to state to them in an auditor’s report
and for no other purpose. To the fullest extent permitted by law, we do not accept or assume responsibility
to anyone other than the Group and the Board of Directors as a body, for our audit work, for this report, or
for the opinions we have formed.
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 auditor’s 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.
8
A member firm of Ernst & Young Global Limited
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.
• 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 auditor’s
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 auditor’s 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 the Board of Directors 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.
9
A member firm of Ernst & Young Global Limited
We also provide the Board of Directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other matters
that may reasonably be thought to bear on our independence, and where applicable, related actions taken to
eliminate threats or safeguards applied.
From the matters communicated with the Board of Directors, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are therefore the
key audit matters. We describe these matters in our auditor’s report unless law or regulation precludes
public disclosure about the matter or when, in extremely rare circumstances, we determine that a matter
should not be communicated in our report because the adverse consequences of doing so would reasonably
be expected to outweigh the public interest benefits of such communication.
The partner in charge of the audit resulting in this independent auditor’s report is Baron Jacob.
Grand Cayman, Cayman Islands
November 14, 2023
Notes 2023 2022
ASSETS
Cash on hand 11,540 13,600
Due from banks 4 179,096 179,526
Advances 5 934,678 891,387
Investment securities 6 655,963 424,112
Investment interest receivable 5,396 2,443
Investment property 7 98 60
Premises and equipment 8 23,315 21,963
Right-of-use assets 9 (a) 11,554 2,046
Intangible assets 10 4,172 -
Other assets 11 4,833 3,501
TOTAL ASSETS
1,830,645
1,538,638
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
CAYMAN NATIONAL CORPORATION LTD.
AS AT SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000)
The accompanying notes form an integral part of these consolidated financial statements.
Page 10
Notes 2023 2022
LIABILITIES & EQUITY
LIABILITIES
Customers' current, savings and deposit accounts 12 1,582,005 1,349,815
Accrued interest payable 5,955 833
Lease liabilities 9 (b) 11,943 2,143
Other liabilities 13 9,270 10,278
TOTAL LIABILITIES 1,609,173 1,363,069
EQUITY
Stated capital and Share premium 14 47,397 47,397
Other reserves 15 5,209 4,522
Retained earnings 168,866 123,650
TOTAL EQUITY 221,472 175,569
TOTAL LIABILITIES & EQUITY 1,830,645 1,538,638
Janet Hislop, Director
Nigel Wardle,
Director
CONSOLIDATED STATEMENT OF FINANCIAL POSITION
AS AT SEPTEMBER 30, 2023
The accompanying notes form an integral part of these consolidated financial statements.
These consolidated financial statements were approved by
the Board of Directors on November 14,
2023 and signed on its behalf by:
Expressed in thousands of Cayman Islands dollars ($’000) (Continued)
CAYMAN NATIONAL CORPORATION LTD.
Page 11
Notes 2023 2022
Interest income 16 (a) 94,633 49,618
Interest expense 16 (b) (14,867) (1,807)
Net interest income 79,766 47,811
Other income 16 (c)
31,307 28,583
111,073 76,394
Operating expenses 16 (d) (59,707) (51,005)
Operating profit
51,366 25,389
Credit loss (expense)/recovery on financial assets 17 (1,110) 14
Net profit before taxation 50,256 25,403
Taxation (expense)/income 18 (136) 1
Net Income from Continuing Operations 50,120 25,404
Net income/(loss) from discontinued operations 28 178 (71)
Net Incom
e
50,298 25,333
Earnings per share (expressed in $ per share)
Basic
$1.19 $0.60
Diluted
$1.18 $0.60
Weighted average number of shares (’000)
Basic 14 42,351 42,351
Diluted 14 42,351 42,351
The accompanying notes form an integral part of these consolidated financial statements.
CAYMAN NATIONAL CORPORATION LTD.
CONSOLIDATED STATEMENT OF INCOME
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($'000) except where otherwise stated
Page 12
2023 2022
Net Income 50,298 25,333
Other comprehensive income:
Change in fair value of available-for-sale financial assets
38 -
38 -
Foreign currency translation differences
649 (1,299)
649 (1,299)
Other comprehensive income for the year, net of tax
687
(1,299)
Total comprehensive income for the year, net of ta
x
50,985 24,034
Other comprehensive income that will not be reclassified to the
consolidated statement of income in subsequent periods:
Total items that will not be reclassified to the consolidated
statement of income in subsequent periods
CAYMAN NATIONAL CORPORATION LTD.
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
Expressed in thousands of Cayman Islands dollars ($’000)
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Other comprehensive income that will be reclassified to the
consolidated statement of income in subsequent periods:
Total items that will be reclassified to the consolidated statement
of income in subsequent periods
Page 13
Other
Stated Share reserves Retained Total
capital premium (Note 15) earnings equity
Balance at October 1, 2021
42,351 5,046 5,821 103,399 156,617
Net income for the year
– – – 25,333 25,333
Other comprehensive income
–
– (1,299) – (1,299)
Total comprehensive income for the year
–
– (1,299) 25,333 24,034
Dividends (Note 25)
– – – (5,082) (5,082)
Othe
r
– – – – –
Balance at September 30, 2022
42,351
5,046 4,522 123,650 175,569
Balance at October 1, 2022
42,351 5,046 4,522 123,650 175,569
Net income for the year
– – – 50,298 50,298
Other comprehensive income
–
– 687 – 687
Total comprehensive income for the year
–
– 687 50,298 50,985
Dividends (Note 25)
–
– – (5,082) (5,082)
Balance at September 30, 2023 42,351
5,046 5,209 168,866 221,472
The accompanying notes form an integral part of these consolidated financial statements.
CAYMAN NATIONAL CORPORATION LTD.
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000)
Page 14
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Notes 2023 2022
Operating activities
Net Income 50,298 25,333
Adjustments for:
Depreciation of premises and equipment and right-of-use assets 8 & 9 (a) 4,853 4,926
Credit loss expense/(recovery) on financial assets 17 1,110 (14)
Amortization (discount) / premium (2,311) 365
Translation difference (1,999) 1,434
Loss on sale of premises and equipment 795 274
Gain on remeasurement of right-of-use assets and lease liabilities (1)
(196)
Realised (gain)/loss on investment securities (64) 13
Increase in advances (44,305) (66,836)
Increase/(Decrease) in customers’ deposits 232,190 (33,174)
(Increase)/Decrease in other assets and investment interest receivable (4,373) 488
Increase/(Decrease) in other liabilities and accrued interest payable 4,114 (981)
Taxes paid, net of refund 88
1
Cash provided by / (used in) operating activities
240,395
(68,367)
Investin
g
activities
Purchase of investment securities (663,891) (743,434)
Proceeds from investment securities 436,969 760,378
Acquired goodwill (4,172) –
Additions to premises and equipment
8 (5,658) (3,645)
Proceeds from sale of premises and equipment 34
–
Cash (used in) / provided by investing activities
(236,718)
13,299
CAYMAN NATIONAL CORPORATION LTD.
The accompanying notes form an integral part of these consolidated financial statements.
Expressed in thousands of Cayman Islands dollars ($’000)
Page 15
CAYMAN NATIONAL CORPORATION LTD.
Notes 2023 2022
Financing activities
Repayment of principal portion of lease liabilities 9 (b) (1,085) (1,752)
Dividends paid to shareholders 25 (5,082)
(5,082)
Cash used in financing activities
(6,167)
(6,834)
Net decrease in cash and cash equivalents
(2,490) (61,902)
Net forei
g
n exchan
g
e difference
–
(38)
Cash and cash equivalents at beginning of year
193,126
255,066
Cash and cash equivalents at end of year
190,636
193,126
Cash and cash equivalents at end of year are
represented by:
Cash on hand 11,540 13,600
Due from banks 4 179,096
179,526
190,636
193,126
Supplemental information:
Interest received during the year 88,649 48,949
Interest paid during the year 9,745 1,161
Dividends received 5
8
T
he accompanying notes form an integral part of these consolidated financial statements.
CONSOLIDATED STATEMENT OF CASH FLOWS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000)
Page 16
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except
where otherwise stated (Continued)
1.
Corporate information
2. Significant accounting policies
The Corporation is a holding company for the companies referred to in Note 29 (collectively, the "Group"),
all of which are incorporated in the Cayman Islands except where otherwise indicated. Through these
companies the Corporation conducts full service banking, company and trust management, mutual fund
administration, and stock brokering in the Cayman Islands and t
he Isle of Man.
Cayman
National Corporation Ltd (the "Corporation" or "CNC") was incorporated on October 4, 1976 and
operates subject to the provisions of the Companies Act of the Cayman Islands. The Company is partially
owned (74.99%) by the Republic Bank Trinidad and Tobago (Barbados) Limited (“RBTTBL”), no other
single owner exceeds 5%. The principal place of business for the Corporation is 200 Elgin Avenue, George
Town, Grand Cayman, Cayman Islands.
The Corporation is not liable for taxation in the Cayman Islands as there are currently no income, profits or
capital gains taxes in the Cayman Islands. Only two (2022: two) of the Corporation's subsidiaries are liable
for taxation which are those in the Isle of Man and which is reflected in these consolidated financial
statements.
The principal accounting policies applied in the preparation of these consolidated financial statements are set
out below. These policies have been consistently applied across the Group.
These financial statements provide information on the accounting estimates and judgements made by the
Group. These estimates and judgements are reviewed on an ongoing bases. Given the continued impact of
global economic uncertainty exacerbated by high inflation and rising interest rates, the Group has maintained
its estimation uncertainty in the preparation of these consolidated financial statements. The estimation
uncertainty is associated with the extent and duration of the expected economic downturn in the economy in
which we operate. This includes forecasts for economic growth,
unemployment, interest rates and inflation.
The
Group has formed estimates based on information available on September 30, 2023, which was deemed
to be reasonable in forming these estimates. The actual economic conditions may be different from estimates
used and this may result in differences between the accounting estimates applied and the actual results of the
Group for the future periods.
The shares of the Corporation are listed and its shares trade on the Cayman Islands Stock Exchange.
Page 17
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except
where otherwise stated (Continued)
2. Significant accounting policies (continued)
2.1
2.2 Basis of consolidation
• The contractual arrangement with the other vote holders of the investee
• Rights arising from other contractual arrangements
• The Group’s voting rights and potential voting rights
Basis of preparation
The consolidated financial statements of the Group are prepared in accordance with International
Financial Reporting Standards (IFRS), and are stated in Cayman Islands dollars. These consolidated
financial statements have been prepared on a historical cost basis, except for financial instruments
measured at fair value through profit or loss. The preparation of consolidated financial statements in
conformity with IFRS requires management to make estimates and assumptions. The financial
statements are prepared on an accrual basis. Actual results could differ from those estimates.
Significant accounting judgements and estimates in applying the Group’s accounting policies have
been described in Note 3.
All intercompany balances and transactions, including unrealized profits arising from intra-group
transactions have been eliminated in full. Unrealized losses are eliminated unless costs cannot be
recovered.
When the Group has less than a majority of the voting or similar rights of an investee, the Group
considers all relevant facts and circumstances in assessing whether it has power over an investee,
including:
Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are
de-consolidated from the date that control ceases and any resultant gain or loss is recognized in the
consolidated statement of income. Any investment retained is recognized at fair value.
A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an
equity transaction.
The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that
there are changes to one or more of the three elements of control.
The financial statements have been prepared on the basis that the company is able to continue as a
going concern, including to meet its obligations in the ordinary course of business.
The consolidated financial statements comprise the financial statements of Cayman National
Corporation Limited and its subsidiaries as at September 30, each year. The financial statements of
subsidiaries are prepared for the same reporting year as the parent company using consistent
accounting policies.
Subsidiaries are all entities over which the Group has the power to direct the relevant activities, have
exposure or rights to the variable returns and the ability to use its power to affect the returns of the
investee, generally accompanying a shareholding of more than 50% of the voting rights.
Page 18
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except
where otherwise stated (Continued)
2. Significant accounting policies (continued)
2.3 Changes in accounting policies
New accounting policies/improvements adopted
The accounting policies adopted in the preparation of the consolidated financial statements are
consistent with those followed in the preparation of the Group’s annual financial statements for the
year ended September 30, 2022, except for the adoption of new standards and interpretations below.
The amendments must be applied prospectively. Earlier application is permitted if, at the same time or
earlier, an entity also applies all of the amendments contained in the Amendments to References to the
Conceptual Framework in IFRS Standards (March 2018).
The amendments are intended to update a reference to the Conceptual Framework without significantly
changing requirements of IFRS 3. The amendments will promote consistency in financial reporting and
avoid potential confusion from having more than one version of the Conceptual Framework in use.
These amendments had no impact on the consolidated financial statements of the Group.
IFRS 3 Business Combinations - Amendments to IFRS 3 (effective January 1, 2022)
The amendments add an exception to the recognition principle of IFRS 3 to avoid the issue of potential
‘day 2’ gains or losses arising for liabilities and contingent liabilities that would be within the scope of
IAS 37 Provisions, Contingent Liabilities and Contingent Assets or IFRIC 21 Levies, if incurred
separately. The exception requires entities to apply the criteria in IAS 37 or IFRIC 21, respectively,
instead of the Conceptual Framework, to determine whether a present obligation exists at the
ac
q
uisition date.
At the same time, the amendments add a new paragraph to IFRS 3 to clarify that contingent assets do
not qualify for recognition at the acquisition date.
Several amendments and interpretations apply for the first time in 2023, but do not have any impact on
the consolidated financial statements of the Group. These are also described in more detail below. The
Group has not early adopted any standards, interpretations or amendments that have been issued but
are not yet effective.
The amendments are intended to replace a reference to a previous version of the IASB’s Conceptual
Framework (the 1989 Framework) with a reference to the current version issued in March 2018 (the
Conceptual Framework) without significantly changing its requirements.
Page 19
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except
where otherwise stated (Continued)
2. Significant accounting policies (continued)
2.3 Changes in accounting policies (continued)
IAS 16 Property, Plant and Equipment - Amendments to IAS 16 (effective January 1, 2022)
The amendment prohibits entities from deducting from the cost of an item of property, plant and
equipment (PP&E), any proceeds of the sale of items produced while bringing that asset to the location
and condition necessary for it to be capable of operating in the manner intended by management.
Instead, an entity recognizes the proceeds from selling such items, and the costs of producing those
items, in profit or loss.
The amendment must be applied retrospectively only to items of PP&E made available for use on or
after the beginning of the earliest period presented when the entity first applies the amendment.
IAS 37 Provisions, Contingent Liabilities and Contingent Assets - Amendments to IAS 37 (effective
January 1, 2022)
The amendments apply a ‘directly related cost approach’. The costs that relate directly to a contract to
provide goods or services include both incremental costs (e.g., the costs of direct labour and materials)
and an allocation of costs directly related to contract activities (e.g., depreciation of equipment used to
fulfil the contract as well as costs of contract management and supervision). General and
administrative costs do not relate directly to a contract and are excluded unless they are explicitly
chargeable to the counterparty under the contract.
The amendments must be applied prospectively to contracts for which an entity has not yet fulfilled all
of its obligations at the beginning of the annual reporting period in which it first applies the
amendments (the date of initial application). Earlier application is permitted and must be disclosed.
The amendments are intended to provide clarity and help ensure consistent application of the standard.
Entities that previously applied the incremental cost approach will see provisions increase to reflect the
inclusion of costs related directly to contract activities, whilst entities that previously recognized
contract loss provisions using the guidance from the former standard, IAS 11 Construction Contracts,
will be required to exclude the allocation of indirect overheads from their provisions. Judgement will
be required in determining which costs are 'directly related to contract activities', but we believe that
guidance in IFRS 15 Revenue from Contracts with Customers will be relevant.
These amendments had no impact on the consolidated financial statements of the Group.
Page 20
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except
where otherwise stated (Continued)
2. Significant accounting policies (continued)
2.3 Changes in accounting policies (continued)
Improvements to International Financial Reporting Standards
IFRS Subject of Amendment
IFRS 1 -
IFRS 9 -
IAS 41 -
The annual improvements process of the International Accounting Standards Board deals with non-
urgent but necessary clarifications and amendments to IFRS. The following amendments are applicable
to annual periods beginning on or after January 1, 2022:
First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-
time adopter (effective January 1, 2022)
Financial Instruments – Fees in the '10 per cent' test for derecognition of financial liabilities
(effective January 1, 2022)
Agriculture – Taxation in fair value measurements (effective January 1, 2022)
Page 21
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.4 Standards in issue not yet effective
The following is a list of standards and interpretations that are not yet effective up to the date of
issuance of the Group's consolidated financial statements. These standards and interpretations will
be applicable to the Group at a future date and will be adopted when they become effective. The
Group is currently assessing the impact of adopting these standards and interpretations.
The amended standard clarifies that the effects on an accounting estimate of a change in an input
or a change in a measurement technique are changes in accounting estimates if they do not result
from the correction of prior period errors. The previous definition of a change in accounting
estimate specified that changes in accounting estimates may result from new information or new
developments. Therefore, such changes are not corrections of errors. This aspect of the definition
was retained by the IASB.
The amendments are intended to provide preparers of financial statements with greater clarity as to
the definition of accounting estimates, particularly in terms of the difference between accounting
estimates and accounting policies. Although the amendments are not expected to have a material
impact on entities’ financial statements, they should provide helpful guidance for entities in
determining whether changes are to be treated as changes in estimates, changes in policies, or
errors.
The amendments clarify that where payments that settle a liability are deductible for tax purposes,
it is a matter of judgement (having considered the applicable tax law) whether such deductions are
attributable for tax purposes to the liability recognized in the financial statements (and interest
expense) or to the related asset component (and interest expense). This judgement is important in
determining whether any temporary differences exist on initial recognition of the asset and
liability.
IAS 8 Accounting Policies, Changes in Accounting Estimates and Errors - Amendments to IAS
8 (effective January 1, 2023)
The amendments clarify the distinction between changes in accounting estimates and changes in
accounting policies and the correction of errors. Also, they clarify how entities use measurement
techniques and inputs to develop accounting estimates.
IAS 12 Income Taxes - Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities
arising from a Single Transaction (effective January 1, 2023)
The amendments to IAS 12, which narrow the scope of the initial recognition exception under IAS
12, so that it no longer applies to transactions that give rise to equal taxable and deductible
temporary differences.
Page 22
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.4 Standards in issue not yet effective (continued)
Under the amendments, the initial recognition exception does not apply to transactions that, on
initial recognition, give rise to equal taxable and deductible temporary differences. It only applies
if the recognition of a lease asset and lease liability (or decommissioning liability and
decommissioning asset component) give rise to taxable and deductible temporary differences that
are not e
q
ual.
IAS 12 Income Taxes - Amendments to IAS 12 - Deferred Tax related to Assets and Liabilities
arising from a Single Transaction (effective January 1, 2023) (continued)
Nevertheless, it is possible that the resulting deferred tax assets and liabilities are not equal (e.g., if
the entity is unable to benefit from the tax deductions or if different tax rates apply to the taxable
and deductible temporary differences). In such cases, which the Board expects to occur
infrequently, an entity would need to account for the difference between the deferred tax asset and
liability in profit or loss.
An entity should apply the amendments to transactions that occur on or after the beginning of the
earliest comparative period presented. In addition, at the beginning of the earliest comparative
period presented, it should also recognize a deferred tax asset (provided that sufficient taxable
profit is available) and a deferred tax liability for all deductible and taxable temporary differences
associated with leases and decommissioning obligations.
IAS 12 Income Taxes - Amendments to IAS 12 - International Tax Reform – Pillar Two Model
Rules (effective January 1, 2023)
The amendments to IAS 12, introduce a mandatory exception in IAS 12 from recognizing and
disclosing deferred tax assets and liabilities related to Pillar Two income taxes.
The amendments clarify that IAS 12 applies to income taxes arising from tax law enacted or
substantively enacted to implement the Pillar Two Model Rules published by the Organization for
Economic Cooperation and Development (OECD), including tax law that implements qualified
domestic minimum top-up taxes. Such tax legislation, and the income taxes arising from it, are
referred to as ‘Pillar Two legislation’ and ‘Pillar Two income taxes’, respectively.
The amendments require an entity to disclose that it has applied the exception to recognizing and
disclosing information about deferred tax assets and liabilities related to Pillar Two income taxes.
An entity is required to separately disclose its current tax expense (income) related to Pillar Two
income taxes, in the periods when the legislation is effective.
Page 23
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.4 Standards in issue not yet effective (continued)
•
•
IAS 12 Income Taxes - Amendments to IAS 12 - International Tax Reform – Pillar Two Model
Rules (effective January 1, 2023) (continued)
The temporary exception from recognition and disclosure of information about deferred taxes and
the requirement to disclose the application of the exception, apply immediately and retrospectively
upon issue of the amendments.
The amendments require, for periods in which Pillar Two legislation is (substantively) enacted but
not yet effective, disclosure of known or reasonably estimable information that helps users of
financial statements understand the entity’s exposure arising from Pillar Two income taxes. To
comply with these requirements, an entity is required to disclose qualitative and quantitative
information about its exposure to Pillar Two income taxes at the end of the reporting period.
The disclosure of the current tax expense related to Pillar Two income taxes and the disclosures in
relation to periods before the legislation is effective are required for annual reporting periods
beginning on or after 1 January 2023, but are not required for any interim period ending on or
before 31 December 2023.
IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 - Amendments to
IAS 1 - Disclosure of Accounting Policies (effective January 1, 2023)
The IASB issued amendments to provide guidance and examples to help entities apply materiality
judgements to accounting policy disclosures..
The amendments aim to help entities provide accounting policy disclosures that are more useful
by:
The amendments provide guidance and examples to help entities apply materiality judgements to
accounting policy disclosures. The amendments aim to help entities provide accounting policy
disclosures that are more useful by replacing the requirement for entities to disclose their
‘significant’ accounting policies with a requirement to disclose their ‘material’ accounting policies
and adding guidance on how entities apply the concept of materiality in making decisions about
accounting policy disclosures.
Replacing the requirement for entities to disclose their ‘significant’ accounting policies with
a requirement to disclose their ‘material’ accounting policies
Adding guidance on how entities apply the concept of materiality in making decisions about
accounting policy disclosures
Page 24
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.4 Standards in issue not yet effective (continued)
•
•
•
• That only if an embedded derivative in a convertible liability is itself an equity instrument,
would the terms of a liability not impact its classification
IAS 1 Presentation of Financial Statements and IFRS Practice Statement 2 - Amendments to
IAS 1 - Classification of Liabilities as Current or Non-current (effective January 1, 2024)
The amendments clarify:
The IASB issued amendments to paragraphs 69 to 76 of IAS 1 Presentation of Financial
Statements to specify the requirements for classifying liabilities as current or non-current.
What is meant by a right to defer settlement
That a right to defer must exist at the end of the reporting period
That classification is unaffected by the likelihood that an entity will exercise its deferral right
A seller-lessee applies the amendment to annual reporting periods beginning on or after 1 January
2024. Earlier application is permitted and that fact must be disclosed.
IFRS 16 Leases - Amendments to IFRS 16 (effective January 1, 2024)
The amendment specifies the requirements that a seller-lessee uses in measuring the lease liability
arising in a sale and leaseback transaction, to ensure the seller-lessee does not recognize any
amount of the gain or loss that relates to the right of use it retains.
After the commencement date in a sale and leaseback transaction, the seller-lessee applies
paragraphs 29 to 35 of IFRS 16 to the right-of-use asset arising from the leaseback and paragraphs
36 to 46 of IFRS 16 to the lease liability arising from the leaseback. In applying paragraphs 36 to
46, the seller-lessee determines ‘lease payments’ or ‘revised lease payments’ in such a way that
the seller-lessee would not recognize any amount of the gain or loss that relates to the right of use
retained by the seller-lessee. Applying these requirements does not prevent the seller-lessee from
recognizing, in profit or loss, any gain or loss relating to the partial or full termination of a lease,
as required by IFRS 16.
The amendment does not prescribe specific measurement requirements for lease liabilities arising
from a leaseback. The initial measurement of the lease liability arising from a leaseback may result
in a seller-lessee determining ‘lease payments’ that are different from the general definition of
lease payments in Appendix A of IFRS 16. The seller-lessee will need to develop and apply an
accounting policy that results in information that is relevant and reliable in accordance with IAS 8.
Page 25
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.4 Standards in issue not yet effective (continued)
2.5 Improvements to International Financial Reporting Standards
2.6 Summary of significant accounting policies
a) Cash and cash equivalents
b) Due from banks
Within due from banks are short term placements with original maturities of three months or less
from date of placement and cash at bank. Placements with original maturities greater than three
months are classified as investment securities.
The annual improvements process of the International Accounting Standards Board deals with non
-
urgent but necessary clarifications and amendments to IFRS. There were no amendments
applicable to annual periods beginning on or after January 1, 2023.
For the purposes of presentation in the consolidated statement of cash flows, cash and cash
equivalents consist of highly liquid investments, cash on hand and at bank. Cash at bank consists
of cash balances maintained at other banks.
A seller-lessee applies the amendment retrospectively in accordance with IAS 8 to sale and
leaseback transactions entered into after the date of initial application (i.e., the amendment does
not apply to sale and leaseback transactions entered into prior to the date of initial application).
The date of initial application is the beginning of the annual reporting period in which an entity
first applied IFRS 16.
IFRS 16 Leases - Amendments to IFRS 16 (effective January 1, 2024) (continued)
Page 26
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
c) Financial instruments - initial recognition
i) Date of recognition
ii) Initial measurement of financial instruments
iii) Measurement categories of financial assets and liabilities
Financial liabilities, other than loan commitments and financial guarantees are measured at
amortized cost.
The Group classifies all of its financial assets based on the business model for managing the assets
and the assets' contractual terms, measured at either:
• Amortized cost, as explained in Note 2.6 d (i)
• FVPL, as explained in Note 2.6 d (ii)
Financial assets and liabilities, with the exception of loans and advances to customers and
balances due to customers, are initially recognized on the trade date, i.e., the date that the Group
becomes a party to the contractual provisions of the instrument. This includes regular way trades:
purchases or sales of financial assets that require delivery of assets within the time frame generally
established by regulation or convention in the market place. Loans and advances to customers are
recognized when funds are transferred to the customers’ accounts. The Group recognizes balances
due to customers when funds are transferred to the Group.
The classification of financial instruments at initial recognition depends on their contractual terms
and the business model for managing the instruments, as described in Note 2.6e. Financial
instruments are initially measured at their fair value, except in the case of financial assets recorded
at Fair Value through the Profit or Loss (FVPL), transaction costs are added to, or subtracted from,
this amount.
Page 27
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
d) Financial assets and liabilities
i)
•
•
The most significant elements of interest within a lending arrangement are typically the
consideration for the time value of money and credit risk. To make the SPPI assessment, the
Group applies judgement and considers relevant factors such as the currency in which the
financial asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or
volatility in the contractual cash flows that are unrelated to a basic lending arrangement do
not give rise to contractual cash flows that are solely payments of principal and interest on
the amount outstanding. In such cases, the financial asset is required to be measured at
FVPL or Fair Value through Other Comprehensive Income (FVOCI) without recycling.
‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at
initial recognition and may change over the life of the financial asset (for example, if there
are repayments of principal or amortization of the premium / discount).
The SPPI test
The contractual terms of the financial asset give rise on specified dates to cash flows
that are solely payments of principal and interest (SPPI) on the principal amount
outstanding and
The details of these conditions are outlined below.
The Group only measures Due from banks, Advances to customers and Investment securities
at amortized cost if both of the following conditions are met:
The financial asset is held within a business model with the objective to hold financial
assets in order to collect contractual cash flows.
For the first step of its classification process, the Group assesses the contractual terms of
financial assets to identify whether they meet the SPPI test.
Due from banks, Advances and Investment securities
Page 28
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
d) Financial assets and liabilities (continued)
i)
•
•
•
The Group determines its business model at the level that best reflects how it manages
groups of financial assets to achieve its business objective.
Business model assessment
The Group's business model is not assessed on an instrument-by-instrument basis, but at a
higher level of aggregated portfolios and is based on observable factors such as:
The risks that affect the performance of the business model (and the financial assets
held within that business model) and, in particular, the way those risks are managed.
The business model assessment is based on reasonably expected scenarios without taking
'worst case' or 'stress case' scenarios into account. If cash flows after initial recognition are
realized in a way that is different from the Group's original expectations, the Group does not
change the classification of the remaining financial assets held in that business model, but
incorporates such information when assessing newly originated or newly purchased financial
assets going forward.
Due from banks, Advances and Investment securities (continued)
How the performance of the business model and the financial assets held within that
business model are evaluated and reported to the entity's key management personnel.
The expected frequency, value and timing of sales are also important aspects of the
Group’s assessment.
Page 29
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
d) Financial assets and liabilities (continued)
ii) Financial assets at fair value through profit or loss
iii) Undrawn loan commitments
The designation eliminates, or significantly reduces, the inconsistent treatment that would
otherwise arise from measuring the assets or recognizing gains or losses on them on a
different basis.
Financial assets in this category are those that are designated by management upon initial
recognition or are mandatorily required to be measured at fair value under IFRS 9.
Management only designates an instrument at FVPL upon initial recognition.
Financial assets at FVPL are recorded in the consolidated statement of financial position at
fair value. Interest earned or incurred on instruments designated at FVPL is accrued in
interest income, using the Effective Interest Rate (EIR), taking into account any
discount/premium and qualifying transaction costs being an integral part of the instrument.
Dividend income from equity instruments measured at FVPL is recorded in profit or loss as
other income when the right to the payment has been established.
Undrawn loan commitments and letters of credit are commitments under which, over the
duration of the commitment, the Group is required to provide a loan with pre-specified terms
to the customer. These contracts are in the scope of the expected credit loss (ECL)
requirements but ECL was not determined based on the historical observation of defaults,
since there is not history of default.
The nominal contractual value of undrawn loan commitments are not recorded in the
consolidated statement of financial position. The nominal values of this instrument and the
corresponding ECLs are disclosed in Note 19.2.1 and Note 19.2.4 respectively.
Page 30
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
e) Investment properties at fair value
Investment properties are measured initially at cost, including related transaction costs. The
carrying amount includes the cost of replacing parts of an existing investment property provided
the recognition criteria are met and excludes the costs of the servicing an investment property.
Subsequently, investment properties are carried at fair value, which reflects market conditions as
of the date of the consolidated statement of financial position. Gains or losses arising from
changes in fair value of investment properties are included in the consolidated statement of
comprehensive income in the year in which they arise. All repairs and maintenance costs are
charged to the consolidated statement of comprehensive income during the financial period in
which they are incurred.
Investment properties that are not occupied by the Group and are held for long term rental yields
or capital appreciation or both are classified as investment property. Investment property
comprises principally of rental property and land.
Recognition of investment properties takes place only when it is probable that the future economic
benefits that are associated with the investment properties will flow to the Group and the cost can
be reliably measured; generally the date when all risks are transferred. The Group derecognizes the
asset when the Group enters into a revocable sales agreement or has executed a sale of the
property.
Page 31
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
f) Reclassification of financial assets and liabilities
g) Derecognition of financial assets and liabilities
•
•
The Group does not reclassify its financial assets subsequent to their initial recognition, apart from
the exceptional circumstances in which the Group acquires, disposes of, or terminates a business
line. Financial liabilities are never reclassified. The Group did not reclassify any of its financial
assets or liabilities in 2023.
Change in counterparty
The Group derecognizes a financial asset, such as a loan to a customer, to facilitate changes to the
original loan agreement or arrangement due to weaknesses in the borrower’s financial position
and/or non-repayment of the debt as arranged and terms and conditions have been restructured to
the extent that, substantially, it becomes a new loan, with the difference recognized as an
impairment loss. The newly recognized loans are classified as Stage 2 for ECL measurement
purposes.
Derecognition due to substantial modification of terms and conditions
When assessing whether or not to derecognize a loan to a customer, amongst others, the Group
considers the following factors:
Financial assets
A financial asset (or, where applicable, a part of a financial asset or part of a group of similar
financial assets) is derecognized when the rights to receive cash flows from the financial asset
have expired. The Group also derecognizes the financial asset if it has both transferred the
financial asset and the transfer qualifies for derecognition.
If the modification is such that the instrument would no longer meet the SPPI criterion
If the modification does not result in cash flows that are substantially different, the modification
does not result in derecognition. Based on the change in cash flows discounted at the original rate,
the Group records a modification gain or loss, to the extent that an impairment loss has not already
been recorded.
Derecognition other than for substantial modification of terms and conditions
Page 32
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
g) Derecognition of financial assets and liabilities (continued)
•
•
•
•
•
•
•
A transfer only qualifies for derecognition if either:
The Group has no obligation to pay amounts to the eventual recipients unless it has collected
equivalent amounts from the original asset, excluding short-term advances with the right to
full recovery of the amount lent plus accrued interest at market rates
The Group has neither transferred nor retained substantially all the risks and rewards of the
asset, but has transferred control of the asset.
It retains the rights to the cash flows, but has assumed an obligation to pay the received cash
flows in full without material delay to a third party under a ‘pass-through’ arrangement.
Pass-through arrangements are transactions whereby the Group retains the contractual rights to
receive the cash flows of a financial asset (the 'original asset'), but assumes a contractual
obligation to pay those cash flows to one or more entities (the 'eventual recipients'), when all of
the following three conditions are met:
Financial assets (continued)
The Group has transferred its contractual rights to receive cash flows from the financial
asset, or
The Group has transferred substantially all the risks and rewards of the asset, or
The Group has transferred the financial asset if, and only if, either:
The Group has to remit any cash flows it collects on behalf of the eventual recipients
without material delay. In addition, the Group is not entitled to reinvest such cash flows,
except for investments in cash or cash equivalents including interest earned, during the
period between the collection date and the date of required remittance to the eventual
recipients.
Derecognition other than for substantial modification of terms and conditions (continued)
The Group cannot sell or pledge the original asset other than as security to the eventual
recipients
Page 33
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
g) Derecognition of financial assets and liabilities (continued)
A financial liability is derecognized when the obligation under the liability is discharged, cancelled
or expires. Where an existing financial liability is replaced by another from the same lender on
substantially different terms, or the terms of an existing liability are substantially modified, such
an exchange or modification is treated as a derecognition of the original liability and the
recognition of a new liability. The difference between the carrying value of the original financial
liability and the consideration paid is recognized in profit or loss.
Continuing involvement that takes the form of a guarantee over the transferred asset is measured at
the lower of the original carrying amount of the asset and the maximum amount of consideration
the Group could be required to pay.
Financial liabilities
When the Group has neither transferred nor retained substantially all the risks and rewards and has
retained control of the asset, the asset continues to be recognized only to the extent of the Group’s
continuing involvement, in which case, the Group also recognizes an associated liability. The
transferred asset and the associated liability are measured on a basis that reflects the rights and
obligations that the Group has retained.
Financial assets (continued)
Derecognition other than for substantial modification of terms and conditions (continued)
The Group considers control to be transferred if and only if, the transferee has the practical ability
to sell the asset in its entirety to an unrelated third party and is able to exercise that ability
unilaterally and without imposing additional restrictions on the transfer.
Page 34
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets
i)
Overview of the ECL principles
Both LTECLs and 12mECLs are calculated on either an individual basis or a collective
basis, depending on the size and nature of the underlying portfolio of financial instruments.
The Group’s policy for grouping financial instruments measured on a collective basis is
explained in Note 19.2.6.
The 12mECL is the portion of LTECLs that represent the ECLs that result from default
events on a financial instrument that are possible within the 12 months after the reporting
date.
Based on the above process, the Group classifies its financial instruments into Stage 1, Stage
2 and Stage 3, as described below:
The ECL allowance is based on the credit losses expected to arise over the life of the asset
(the lifetime expected credit loss or LTECL), unless there has been no significant increase in
credit risk since origination, in which case, the allowance is based on the 12 months’
expected credit loss (12mECL). The Group’s policies for determining if there has been a
significant increase in credit risk are set out in Note 19.2.5.
The Group has established a policy to perform an assessment, at the end of each quarter, of
whether a financial instruments credit risk has increased significantly since initial
recognition, by considering the change in the risk of default occurring over the remaining
life of the financial instrument.
The Group has been recording the allowance for expected credit losses for all loans and
other debt financial assets not held at FVPL, together with loan commitments, letters of
credits and financial guarantee contracts, in this section all referred to as 'financial
instruments'. Equity instruments are not subject to impairment under IFRS 9.
Page 35
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets (continued)
i)
Overview of the ECL principles (continued)
Stage 1
Stage 2
Stage 3
Financial assets considered credit-impaired (as outlined in Note 19.2.3). The Group records
an allowance for the LTECLs.
When a financial instrument has shown a significant increase in credit risk since origination,
the Group records an allowance for the LTECLs. Stage 2 financial instruments also include
facilities where the credit risk has improved and the financial asset has been reclassified
from Stage 3.
When financial instruments are first recognized and continue to perform in accordance with
the contractual terms and conditions after initial recognition, the Group recognizes an
allowance based on 12mECLs. Stage 1 financial assets also include facilities where the
credit risk has improved and the financial instrument has been reclassified from Stage 2.
For financial assets for which the Group has no reasonable expectations of recovering either
the entire outstanding amount, or a proportion thereof, the gross carrying amount of the
financial asset is reduced. This is considered a (partial) derecognition of the financial asset.
Page 36
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets (continued)
ii) The calculation of ECLs
PD -
EAD -
LGD -
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.
Each financial instrument is associated with different PDs, EADs and LGDs. When relevant,
it also incorporates how defaulted financial assets are expected to be recovered, including
the value of collateral or the amount that might be received for selling the asset.
The Probability of Default is an estimate of the likelihood of default over a given period of
time. A default may only happen at a certain time over the assessed period, if the facility has
not been previously derecognized and is still in the portfolio. The concept of PDs is further
explained in Note 19.2.4.
The mechanics of the ECL calculations are outlined below and the key elements are as
follows:
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.
In addition to the historical measure of cash shortfalls, a cash shortfall is the difference
between the cash flows that are due to an entity in accordance with the contract and the cash
flows that the entity expects to receive.
The Group discounts expected credit losses using nominal interest rate as an approximation
of effective interest rate considering specific characteristics of the product.
Page 37
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets (continued)
ii)
The calculation of ECLs (continued)
Stage 1
Stage 2
Impairment losses and recoveries are accounted for and disclosed separately.
With the exception of credit cards, overdrafts and other revolving facilities, for which the
treatment is separately set out, the maximum period for which the credit losses are
determined is the contractual life of a financial instrument.
Provisions for ECLs for undrawn loan commitments are assessed as set out in Note 19.2.4
The calculation of ECLs (including the ECLs related to the undrawn element) of revolving
facilities such as credit cards is explained below.
When a financial asset has shown a significant increase in credit risk since origination, the
Group records an allowance for the LTECLs. The mechanics are similar to those explained
above, but PDs and LGDs are estimated over the lifetime of the instrument (as defined in
Note 19.2.4).
The mechanics of the ECL method are summarized below:
The 12mECL is calculated as the portion of LTECLs that represent the ECLs result from
default events on a financial instrument that are possible within the 12 months after the
reporting date. The Group calculates the 12mECL allowance based on the expectation of a
default occurring in the 12 months following the reporting date. These expected 12-months
default probabilities are applied to a forecast EAD and multiplied by the expected LGD
which are derived as explained in Note 19.2.4. For traded investments, the Global Credit
Loss tables are used. For non-traded investments, the Global Credit Loss tables are used in
conjunction with management overlays (as defined in Note 19.2.4).
Page 38
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets (continued)
ii) The calculation of ECLs (continued)
Stage 3
Loan commitments
In limited circumstances within the Group, where portfolios were small and the products
homogenous with minimal history of defaults, a simplified ECL approach was applied using
historical loss rates for investments with the global credit loss tables.
When estimating LTECLs for undrawn loan commitments, the Group estimates the expected
portion of the loan commitment that will be drawn down over its expected life.
For LGD, the Group considers changes in fair value of collateral over time, additional
haircut from the collateral sales, removes effects of indirect costs associated with recoveries.
No guarantees are considered as collaterals, real estate collaterals and deposits are allocated
proportionally to the loans and advances based on the outstanding exposure as of the
reporting period.
For financial assets considered credit-impaired (as defined in Note 19.2), the Group
recognizes the lifetime expected credit losses for these financial assets. The method is
similar to that for Stage 2 assets, with the PD set at 100%.
Page 39
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2.
Significant accounting policies (continued)
2.6
Summary of significant accounting policies (continued)
h)
Impairment of financial assets (continued)
iii) Credit cards, overdrafts and other revolving facilities
The ongoing assessment of whether a significant increase in credit risk has occurred for
revolving facilities is similar to other lending products. This is based on shifts in the
customer’s circumstances, but emphasis is also given to qualitative factors such as changes
in usage and repayment patterns.
The Group’s product offering includes a variety of corporate and retail overdraft and credit
card facilities, in which the Group has the right to cancel and/or reduce the facilities. The
Group limits its exposure on these revolving facilities to the outstanding balance for non-
performing facilities.
The calculation of ECLs, including the estimation of the expected period of exposure and
discount rate is made, as explained in Note 19. The collective assessments are made
separately for portfolios of facilities with similar credit risk characteristics.
The Group calculates ECL on credit cards using a forecast model based on historical loss
experience for portfolios with shared credit risk characteristics. Migration matrices model is
used for loss rate forecasting, which is built at the portfolio level instead of at the individual
account level. The loss rate is applied to gross credit card exposures and are discounted.
Group discounted ECL using nominal interest rate as an approximation of effective interest
rate considering specific characteristics of the products. The whole portfolio is segmented
by delinquency buckets. The purpose is to track the behaviour (migration) of performing
credit cards.
As a primary approach for the calculation of expected credit losses of overdrafts, the Group
decides to apply the approach where estimate parameters for PD, LGD and exposure
measures for individual exposure. For PD, the Group used borrower’s probability of default
as the naturally fitting matrix for estimating the risk of default occurring and applied cohort
approach. ECL is calculated using forecasted balances and cash flows on expected
behaviour and the contractual terms of the instruments by applying Credit Conversion Factor
on undrawn limits. The Group's estimation of LGD on Overdrafts is similar to the one
incorporated in Loans.
Page 40
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets (continued)
iv)
Short term placements
v)
Financial guarantees, letters of credit and undrawn loan commitments
vi) Forward looking information
• Interest rates
• Residential mortgage foreclosures
• Asset quality
Financial guarantees, letters of credit and loan commitments are off-balance sheet
instruments and have no history of default. The Group applies the simplified approach in
recognizing ECL (PD, Cure Rate factor and LGD).
The prime lending rate is used to determine forward looking PDs for Real Estate and Debt
Financing loans due to its historical correlation with the average probability of default.
Other loan types do not have a strong correlation to the prime rate, therefore historical PDs
are applied.
The Group issues financial guarantees, letters of credit and loan commitments.
Short term placements principally represent deposits and placements with other banks with
original maturities greater than 90 days or less. The ECL on short term placements is
calculated using the same methodology as investments.
In its ECL models, the Group considers the below forward looking information as economic
inputs, such as:
Page 41
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
h) Impairment of financial assets (continued)
vi) Forward looking information (continued)
i) Collateral valuation
•
•
•
•
•
Overdrafts - revolving credit limits which are attached to current accounts; and
Credit Cards - revolving credit limits generally unsecured or in some cases secured by cash.
Collateral, unless repossessed, is not recorded on the Group’s consolidated statement of financial
position. However, the fair value of collateral affects the calculation of ECLs. It is generally
assessed at inception and re-assessed on a periodic basis.
The Group however, recognized that the inputs and models used for calculating ECLs may
not always capture all characteristics and expectations of the market at the date of the
consolidated financial statements. To reflect this, management adjustments or overlays are
occasionally made based on judgements as temporary adjustments when such differences are
significantly material.
Mortgages sector, highly collateralized with land and real estate which is being financed.
Retail lending sector, comprising of motor vehicles, education, vacation loans, etc. - these
are normally micro loans either collateralized by real estate or in some cases unsecured;
The Group implements guidelines on the acceptability of specific classes of collateral. Longer
term financing and lending to corporate entities are generally secured however, revolving lines of
credit, customer overdrafts and credit cards are generally unsecured. The principal collateral types
accepted by the Group are as follows:
It is the Group's policy when making loans to establish that they are within the customer's capacity
to repay rather than relying exclusively on security. However, while certain facilities may be
unsecured depending on the client's standing and the type of product, collateral can be an
important mitigant of credit risk.
Commercial and corporate sector, highly collateralized by cash, business assets and real
estate;
Page 42
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
i) Collateral valuation (continued)
j) Collateral repossessed
k) Write-offs
The Group's accounting policy is for financial assets to be written off either partially or in their
entirety only when the Group has stopped pursuing the recovery. If the amount to be written off is
greater than the accumulated loss allowance, the difference is first treated as an addition to the
allowance that is then applied against the gross carrying amount.
To the extent possible, the Group uses active market data for valuing financial assets held as
collateral. Non-financial collateral, such as real estate, is valued based on independent valuations
and other data provided by third parties.
Assets to be sold are transferred to assets held for sale at their fair value (if financial assets) and
fair value less cost to sell for non-financial assets at the repossession date, in line with the Group’s
policy.
In its normal course of business, should the Group repossess properties or other assets in its retail
portfolio, it sometimes engages external agents to assist in the sale of these assets to settle
outstanding debt. Any surplus funds are returned to the customers/obligors.
Page 43
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
l)
Accounts receivable and other assets
m) Leases
The Group applies a single recognition and measurement approach for all leases, except for short-
term leases and leases of low-value assets. The Group recognizes lease liabilities to make lease
payments and right-of-use assets representing the right to use the underlying assets.
The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the
contract conveys the right to control the use of an identified asset for a period of time in exchange
for consideration.
Group as a Lessee
The carrying amount of the asset is reduced through use of an allowance account, and the amount
of the loss is recognized in the consolidated statement of comprehensive income. When an
account receivable is uncollectible, it is written off against the allowance account. Subsequent
recoveries of amounts previously written off are credited to the consolidated statement of
comprehensive income.
Accounts receivable and other assets are recognized initially at fair value and subsequently
measured at amortized cost using the effective interest method, less provision for impairment. A
provision for impairment of accounts receivable and other assets is established when there is
objective evidence that the Group will not be able to collect all amounts due according to the
original terms of the receivables. Significant financial difficulties of the debtor, probability that
the debtor will enter bankruptcy or financial reorganization, and default or delinquency in
payments are considered indicators that the receivable is impaired. The amount of the provision is
the difference between the asset’s carrying amount and the present value of estimated future cash
flows.
Page 44
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
m) Leases (continued)
Right-of-use assets are measured at cost, less any accumulated depreciation and impairment
losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets
includes the amount of lease liabilities recognized, initial direct costs incurred, and lease payments
made at or before the commencement date less any lease incentives received. Right-of-use assets
are depreciated on a straight-line basis over the lease term.
Lease liabilities
Right-of-use assets
The Group applies the short-term lease recognition exemption to its short-term leases of property
(i.e., those leases that have a lease term of 12 months or less from the commencement date and do
not contain a purchase option). It also applies the lease of low-value assets recognition exemption
to leases of IT equipment that are considered to be low value. Lease payments on short-term leases
and leases of low value assets are recognized as expense on a straight-line basis over the lease
term.
At the commencement date of the lease, the Group recognizes lease liabilities measured at the
present value of lease payments to be made over the lease term. The lease payments include fixed
payments (less any lease incentives receivable), variable lease payments that depend on an index
or a rate, and amounts expected to be paid under residual value guarantees. The lease payments
also include the exercise price of a purchase option reasonably certain to be exercised by the entity
and payments of penalties for terminating the lease, if the lease term reflects exercising the option
to terminate. Variable lease payments that do not depend on an index or a rate are recognized as
expenses in the period in which the event or condition that triggers the payment occurs.
In calculating the present value of lease payments, the Group uses its incremental borrowing rate
at the lease commencement date because the interest rate implicit in the lease is not readily
determinable. After the commencement date, the amount of lease liabilities is increased to reflect
the accretion of interest and reduced for the lease payments made. In addition, the carrying amount
of lease liabilities is remeasured if there is a modification, a change in the lease term or a change
in the lease payments (e.g., changes to future payments resulting from a change in rate used to
determine such lease payments).
Page 45
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
m) Leases (continued)
n) Premises and equipment
Computer hardware
-
Variously over 3 to 7 years
Computer software
-
Variously over 2 to 7 years
Freehold buildings
-
Up to 50 years
Freehold land
-
Not applicable
Furniture and equipment
-
Variously over 2 to 15 years
Leasehold improvements
-
Over the terms of the leases
Leasehold property
-
Shorter of terms of leases or 20 years
Motor vehicles
-
Over 4 years
Leases in which the Group does not transfer substantially all the risks and rewards incidental to
ownership of an asset are classified as operating leases. Rental income arising is accounted for on
a straight-line basis over the lease terms and is included in revenue in the statement of profit or
loss due to its operating nature. Initial direct costs incurred in negotiating and arranging an
operating lease are added to the carrying amount of the leased asset and recognized over the lease
term on the same basis as rental income. Contingent rents are recognized as revenue in the period
in which they are earned.
Fixed assets are recorded at cost less accumulated depreciation and impairment losses. Fixed
assets are depreciated in accordance with the straight - line method at the following rates,
estimated to write-off the cost of the assets over the period of their expected useful lives:
Premises and equipment are stated at cost less accumulated depreciation.
Subsequent costs are included in the asset’s carrying amount or are recognized 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. All other repairs and
maintenance are charged to the consolidated statement of income during the financial period in
which they are incurred.
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each
consolidated statement of financial position date. Gains and losses on disposals are determined by
comparing proceeds with the carrying amount. These are included in the consolidated statement of
income.
Group as a Lessor
Page 46
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
o) Impairment of non-financial assets
In assessing value-in-use, the estimated future cash flows available to shareholders are discounted
to their present value using a pre-tax discount rate that reflects current market assessments of the
time value of money and the risks specific to the asset. In determining fair value less costs of
disposal, recent market transactions are taken into account. If no such transactions can be
identified, an appropriate valuation model is used. These calculations are corroborated by
valuation multiples, quoted share prices for publicly traded companies or other available fair value
indicators.
Further disclosures relating to impairment of non-financial assets are also provided in the
following notes:
• Disclosures for significant assumptions (Note 3)
• Premises and equipment (Note 8)
• Intangible assets (Note 10)
For assets excluding goodwill, an assessment is made at each reporting date to determine whether
there is an indication that previously recognized impairment losses no longer exist or have
decreased. If such indication exists, the Group estimates the asset’s or CGU’s recoverable amount.
The Group assesses, at each reporting date, whether there is an indication that an asset may be
impaired. If any indication exists, or when annual impairment testing for an asset is required, the
Group estimates the asset’s recoverable amount. An asset’s recoverable amount is the higher of an
asset’s or cash-generating unit’s (CGU) fair value less costs of disposal and its value-in-use. The
recoverable amount is determined for an individual asset, unless the asset does not generate cash
inflows that are largely independent of those from other assets or groups of assets. When the
carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered
impaired and is written down to its recoverable amount.
Page 47
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
p) Business combinations and goodwill
Goodwill is initially measured at cost, being the excess of the aggregate of the consideration
transferred and the amount recognized for non-controlling interests, and any previous interest held,
over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets
acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it
has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the
procedures used to measure the amounts to be recognized at the acquisition date. If the
reassessment still results in an excess of the fair value of net assets acquired over the aggregate
consideration transferred, then the gain is recognized in the consolidated statement of income.
As at acquisition date, any goodwill acquired is allocated to each of the cash-generating units
expected to benefit from the combination’s synergies. After initial recognition, goodwill is
measured at cost less any accumulated impairment losses.
If the business combination is achieved in stages, any previously held equity interest is remeasured
at its acquisition date fair value and any resulting gain or loss is recognized in the consolidated
statement of income.
Impairment is determined by assessing the recoverable amount of the cash-generating unit, to
which goodwill relates. Where the recoverable amount of the cash-generating unit is less than the
carrying amount, an impairment loss is recognized. Impairment losses relating to goodwill cannot
be reversed in future periods.
The Group uses the purchase method of accounting to account for the acquisition of subsidiaries,
except for the acquisition of subsidiaries under common control. The cost of an acquisition is
measured as the aggregate of the consideration transferred, measured at acquisition date fair value
and the amount of any non-controlling interests in the acquiree. For each business combination,
the Group elects to measure the non-controlling interests in the acquiree at the proportionate share
of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred.
The Group has elected to apply the book value method of accounting for the acquisition of
subsidiaries under common control, on the condition that the accounting policies of the combining
entities and the parent are aligned. The acquisition of a subsidiary under common control is one in
which the combining entities are ultimately controlled by the same parent, both before and after
the acquisition. All acquired assets and liabilities are accounted for at book value at the date of
acquisition including the transfer of any existing goodwill. No new goodwill can be generated in
the acquisition of subsidiaries under common control. Impairment of any acquired goodwill is
determined by assessing the recoverable amount of the merged cash-generating unit post-
acquisition.
Page 48
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
q) Employee benefits
i) Pension obligations
ii)
Share Purchase Scheme
r) Taxation
Employees and Directors are entitled to participate in the Share Purchase Scheme (the
"Scheme"). Employees make cash contributions which are matched by the Group; these
funds are used to purchase shares from the open market. The Group recognizes, within
personnel costs, the cost of its matched contributions to the Scheme.
The Group’s employees participate in a defined contribution plan. A defined contribution
plan is a pension plan under which the Group pays fixed contributions into a separate entity.
The Group has no further payment obligations once the contributions have been paid.
Payments to defined contribution retirement plans are charged as and when the service is
provided by the employee. The Group does not operate any defined benefit plans.
Deferred income tax is provided in full, using the liability method, on temporary differences
arising between the tax bases of assets and liabilities and their carrying amounts in the
consolidated financial statements. Deferred income tax is determined using tax rates (and laws)
that have been enacted or substantially enacted by the consolidated statement of financial position
date and are expected to apply when the related deferred income tax asset is realized or the
deferred income tax liability is settled.
Deferred tax assets are recognized where it is probable that future taxable profit will be available
against which the temporary differences can be utilized.
Income tax payable on profits, based on the applicable tax law in each jurisdiction, is recognized
as an expense in the period in which profits arise. The tax effects of income tax losses available
for carry forward are recognized as an asset when it is probable that future taxable profits will be
available against which these losses can be utilized.
Page 49
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
s) Fiduciary assets
t) Earnings per share
u) Foreign currency translation
Earnings per share is calculated by dividing the net income attributable to shareholders of the
company by the weighted average number of ordinary shares in issue during the year excluding the
average number of ordinary shares purchased by the Corporation and held as treasury shares.
Diluted earnings per share is calculated by dividing net income attributable to shareholders by the
diluted weighted average number of ordinary shares in issue and the total amount of exercisable
stock options which the directors can exercise during the year.
For the diluted earnings per share, the weighted average number of ordinary shares in issue is
adjusted to assume conversion of all dilutive potential ordinary shares. The Group currently has no
dilutive potential ordinary shares.
The individual financial statements of each group entity is presented in the currency of the primary
economic environment, in which the entity operates (its functional currency). The consolidated
financial statements are expressed in Cayman Islands (KYD) dollars, which is the functional and
presentation currency of the parent.
The Group provides custody, trustee and investment management services to third parties. All related assets
are held in a fiduciary capacity and are not included in these consolidated financial statements as they are
not the assets of the Group.
For share options, a calculation is done to determine the number of shares that could have been
acquired at fair value (determined as the average annual market share price of the Corporation’s
shares) based on the monetary value of the subscription price attached to the outstanding share
options. The number of shares calculated above is compared with the number of shares that would
have been issued assuming the exercise of the share options.
Page 50
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
u) Foreign currency translation (continued)
v) Intangible assets
Monetary assets and liabilities of the parent, which are denominated in foreign currencies are
expressed in Cayman Islands dollars at rates of exchange ruling on September 30. Non-monetary
assets and liabilities denominated in foreign currencies are translated at historic rates. All revenue
and expenditure transactions denominated in foreign currencies are translated at mid-exchange
rates and the resulting profits and losses on exchange from these trading activities are dealt with in
the consolidated statement of income.
The assets and liabilities of subsidiary companies are translated into Cayman Islands dollars at the
mid-rates of exchange ruling at the consolidated statement of financial position date and all
resulting exchange differences are recognized in the consolidated statement of comprehensive
income. All revenue and expenditure transactions are translated at an average rate.
The cost of intangible assets acquired in a business combination is their fair value at the date of
acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated
amortization and accumulated impairment losses.
The useful lives of intangible assets are assessed as finite and are amortized over the useful
economic life and assessed for impairment whenever there is an indication that the intangible asset
may be impaired. The amortization period and the amortization method for an intangible asset
with a finite useful life are reviewed at least at the end of each reporting period. Changes in the
expected useful life or the expected pattern of consumption of future economic benefits embodied
in the asset are considered to modify the amortization period or method, as appropriate, and are
treated as changes in accounting estimates. The amortization expense on intangible assets with
finite lives is recognized in the consolidated statement of income in the expense category that is
consistent with the function of the intangible assets.
Gains or losses arising from derecognition of an intangible asset are measured as the difference
between the net disposal proceeds and the carrying amount of the asset and are recognized in the
consolidated statement of income when the asset is derecognized.
Page 51
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
w) Revenue recognition
The effective interest rate method
Revenue is recognized to the extent that it is probable that the economic benefits will flow to the
Group and the revenue can be reliably measured, regardless of when the payment is being made.
Revenue is measured at the fair value of the consideration received or receivable, taking into
account contractually defined terms of payment and excluding taxes or duty. The Group has
concluded that it is the principal in all of its revenue arrangements since it is the primary obligor in
all the revenue arrangements, has pricing latitude and is also exposed to credit risks.
If expectations regarding the cash flows on the financial asset are revised for reasons other than
credit risk. The adjustment is booked as a positive or negative adjustment to the carrying amount
of the asset in the statement of financial position with an increase or reduction in interest income.
The adjustment is subsequently amortized through interest and similar income in the income
statement.
The specific recognition criteria described below must also be met before revenue is recognized.
Interest income and expense is recorded using the effective interest rate (EIR) method for all
financial instruments measured at amortized cost. The EIR is the rate that exactly discounts
estimated future cash receipts through the expected life of the financial instrument or, when
appropriate, a shorter period, to the net carrying amount of the financial asset.
The EIR (and therefore, the amortized cost of the asset) is calculated by taking into account any
discount/premium on acquisition, fees and costs that are an integral part of the EIR. The Group
recognizes interest income using a rate of return that represents the best estimate of a constant rate
of return over the expected life of the loan. Hence, it recognizes the effect of potentially different
interest rates charged at various stages, and other characteristics of the product life cycle
(including prepayments, penalty interest and charges).
Page 52
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
w) Revenue recognition (continued)
Interest income and expense
Fee and commission income
Dividends
Dividend income is recognized when the right to receive the payment is established.
Credit Card fees and commissions are recognized at an amount that reflects the consideration to
which the Group expects to be entitled in exchange for providing the services. Credit Card fees
and commissions are therefore net of amounts paid, the expenses for the direct cost of satisfying
the performance obligation is netted against the revenues received.
Interest income and expense for all interest-bearing financial instruments, except for those
designated at fair value through profit and loss, are recognized within ‘interest income’ and
‘interest expense’ in the consolidated statement of comprehensive income using the effective
interest method.
Interest income is calculated by applying the effective interest rate to the gross carrying amount of
financial assets, except for (i) financial assets that have become credit impaired (Stage 3), for
which interest revenue is calculated by applying the effective interest rate to their AC, net of the
ECL provision, and (ii) financial assets that are purchased or originated credit impaired, for which
the original credit-adjusted effective interest rate is applied to the AC.
Unless included in the effective interest calculation, fees and commissions are recognized on an
accruals basis as the service is provided. Fees and commissions not integral to effective interest
arising from negotiating, or participating in the negotiation of a transaction from a third party are
recognized on completion of the underlying transaction. Portfolio and other management advisory
and service fees are recognized based on the applicable service contracts. Asset management fees
related to investment funds are recognized over the period the service is provided.
Loan origination fees for loans which are likely to be drawn down are deferred, together with
incremental direct cost, and recognized over the term of the loans.
Page 53
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
x) Fair value
Level 1
The Group measures financial instruments at fair value at each consolidated statement of financial
position date. Fair value related disclosures for financial instruments and non-financial assets that
are measured at fair value, where fair values are disclosed, are shown in Note 22 to the
consolidated financial statements.
All assets and liabilities for which fair value is measured or disclosed in the consolidated financial
statements are categorized within the fair value hierarchy, described as follows, based on the
lowest level input that is significant to the fair value measurement as a whole:
i) In the principal market for the asset or liability, or
ii) In the absence of a principal market, in the most advantageous market for the asset or liability.
The fair value of an asset or a liability is measured using the assumptions that market participants
would use when pricing the asset or liability, assuming that market participants act in their
economic best interest.
A fair value measurement of a non-financial asset takes into account a market participant's ability
to generate economic benefits by using the asset in its highest and best use or by selling it to
another market participant that would use the asset in its highest and best use.
Included in the Level 1 category are financial assets and liabilities that are measured in whole or in
part by reference to published quotes in an active market. A financial instrument is regarded as
quoted in an active market if quoted prices are readily and regularly available from an exchange,
dealer, broker, industry group, pricing service or regulatory agency and those prices represent
actual and regularly occurring market transactions on an arm’s length basis.
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. The fair value
measurement is based on the presumption that the transaction to sell the asset or transfer the
liability takes place either:
Page 54
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
x) Fair value (continued)
Level 2
Level 3
Where the Group’s investments are not actively traded in organized financial markets, the fair
value is determined using discounted cash flow analysis, which requires considerable judgement in
interpreting market data and developing estimates. Accordingly, estimates contained herein are
not necessarily indicative of the amounts that the Group could realize in a current market
exchange. The use of different assumptions and/or estimation methodologies may have a material
effect on the estimated fair values. The fair value information for investments classified at fair
value through profit and loss is based on information available to management as at the dates
presented. Management is not aware of any factors that would significantly affect the estimated
fair value amounts.
Included in the Level 3 category are financial assets and liabilities that are not quoted as there are
no significant market observable inputs to determine a price. These financial instruments are held
at cost, being the fair value of the consideration paid for the acquisition of the investment, and are
regularly assessed for impairment.
Included in the Level 2 category are financial assets and liabilities that are measured using a
valuation technique based on assumptions that are supported by prices from observable current
market transactions and for which pricing is obtained via pricing services, but where prices have
not been determined in an active market. This includes financial assets with fair values based on
broker quotes, investments in private equity funds with fair values obtained via fund managers and
assets that are valued using the Group’s own models whereby a significant amount of assumptions
are market observable.
For assets and liabilities that are recognized in the consolidated financial statements on a recurring
basis, the Group determines whether transfers have occurred between levels in the hierarchy by re-
assessing categorization (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period.
Page 55
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
x) Fair value (continued)
y) Segment reporting
The Group analysis its operations by both geographic and business segments. The primary format
is geographic, reflecting its management structure. Its secondary format is that of business
segments, reflecting retail and commercial banking and financial services.
The fair values of the floating rate debt securities in issue are based on quoted market prices where
available and where not available is based on a current yield curve appropriate for the remaining
term to maturity. For balances due to banks, where the maturity period is less than one year, the
fair value is assumed to equal carrying value. Where the maturity period is in excess of one year,
these are primarily floating rate instruments, the interest rates of which reset with market rates,
therefore the carrying values are assumed to equal fair values.
The fair value of fixed rate debt securities carried at amortized cost is estimated by comparing
market interest rates when they were first recognized with current market rates offered for similar
financial instruments. The estimated fair value of fixed interest-bearing deposits is based on
discounted cash flows using prevailing money market interest rates for facilities with similar credit
risk and maturity.
A business segment is a group of assets and operations engaged in providing similar products and
services that are subject to risks and returns that are different from those of other business
segments.
Advances are net of specific and other provisions for impairment. The fair values of advances are
based on a current yield curve appropriate for the remaining term to maturity.
Financial instruments where carrying value is equal to fair value:- Due to their short-term maturity,
the carrying value of certain financial instruments is assumed to approximate their fair values.
These include cash and cash equivalents, investment interest receivable, customers’ deposit
accounts, other fund raising instruments, other assets and other liabilities.
A geographical segment is engaged in providing products, or services within a particular economic
environment that are subject to risks and returns that are different from those of segments
operating in other economic environments.
Page 56
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
2. Significant accounting policies (continued)
2.6 Summary of significant accounting policies (continued)
z)
aa) Equity reserves
These represent the Group’s potential liability, for which there are equal and offsetting claims
against its customers in the event of a call on these commitments. These amounts are not recorded
on the Group’s consolidated statement of financial position but are detailed in Note 26b of these
consolidated financial statements.
The reserves recorded in equity on the Group's consolidated statement of financial position
include:
Translation reserves - used to record exchange differences arising from the translation of the net
investment in foreign operations.
Other statutory reserves that qualify for treatment as equity are discussed in Note 15.
Stated capital - Ordinary stated capital is classified within equity and is recognized at the fair value
of the consideration received by the Group.
Customers’ liabilities under acceptances, guarantees and letters of credit
The general reserve represents amounts appropriated by the directors, from retained earnings to a
separate component of shareholders' equity, for dividend equalization and general banking risks
including potential future losses or other unforeseeable risks. To the extent that the general reserve
is considered by the directors to be surplus to requirements, the reserve is distributable at the
discretion of the directors, subject to the capital adequacy requirements of regulated entities.
Page 57
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
3. Significant accounting judgements, estimates and assumptions
Other disclosures relating to the Group's exposure to risks and uncertainties include:
a. Risk management (Note 19)
b. Capital management (Note 21)
Estimates and assumptions
Impairment losses on financial assets
•
•
•
•
The estimation of the amount and timing of future cash flows and collateral values when
determining impairment losses;
The key assumptions concerning the future and other key sources of estimation uncertainty at the
reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of
assets and liabilities within the next financial year are described below. The Group based its assumptions
and estimates on parameters available when the consolidated financial statements were prepared.
Existing circumstances and assumptions about future developments, however, may change due to market
changes or circumstances arising that are beyond the control of the Group. Such changes are reflected in
the assumptions when they occur.
The measurement of impairment losses under IFRS 9 across all categories of financial assets requires
judgement. These estimates are driven by a number of factors, changes in which can result in different
levels of allowances.
The Group's financial assets where ECL is assessed on a collective basis
Development of ECL models, including the various formulae and the choice of inputs;
The Group’s criteria for assessing if there has been a significant increase in credit risk and if so,
allowances for financial assets should be measured on a LTECL basis and the qualitative
assessment;
The Group’s ECL calculations are outputs of complex models with a number of underlying assumptions
regarding the choice of variable inputs and their interdependencies. Elements of the ECL models that are
considered accounting judgements and estimates include:
The preparation of the Group’s consolidated financial statements requires management to make
judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets
and liabilities, and the accompanying disclosures and the disclosure of contingent liabilities. Uncertainty
about these assumptions and estimates could result in outcomes that require a material adjustment to the
carrying amount of assets or liabilities affected in future periods.
Page 58
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
3. Significant accounting judgements, estimates and assumptions (continued)
Impairment losses on financial assets (continued)
•
•
Deferred taxes
Judgements
Premises and equipment (Note 8)
In calculating the provision for deferred taxation, management uses judgement to determine the
probability that future taxable profits will be available to facilitate utilization of temporary tax
differences which may arise.
Determination of the existence of associations between macro economic scenarios and economic
inputs, such as unemployment levels and collateral values and the effect on PDs, EADs and
LGDs; and
The inclusion of overlay adjustments based on judgement and future expectations.
Management exercises judgement in determining whether costs incurred can accrue sufficient future
economic benefits to the Group to enable the value to be treated as a capital expense. Further judgement
is used upon annual review of the residual values and useful lives of all capital items to determine any
necessary adjustments to carrying value.
In the process of applying the Group’s accounting policies, management has made the following
judgements, which have the most significant effect on the amounts recognized in the consolidated
financial statements:
Page 59
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise state
d
(Continued)
3. Significant accounting judgements, estimates and assumptions (continued)
Judgements (continued)
L
eases
(
Note 9
)
Assessment of control
Management uses judgement in performing a control assessment review on all mutual funds and
retirement plans sponsored by the Group and its subsidiaries. This assessment revealed that the Group is
unable to exercise power over the activities of the funds/plans and is therefore not deemed to be in
control of any of the mutual funds and retirement plans.
The Group determines the lease term as the non-cancellable term of the lease, together with any periods
covered by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered
by an option to terminate the lease, if it is reasonably certain not to be exercised.
The Group has several lease contracts that include extension and termination options. The Group applies
judgement in evaluating whether it is reasonably certain whether or not to exercise the option to renew or
terminate the lease. That is, it considers all relevant factors that create an economic incentive for it to
exercise either the renewal or termination. After the commencement date, the Group reassesses the lease
term if there is a significant event or change in circumstances that is within its control that affects its
ability to exercise or not to exercise the option to renew or to terminate (e.g., construction of significant
leasehold improvements or significant customization of the leased asset).
The Group cannot readily determine the interest rate implicit in the lease, therefore; it uses its
incremental borrowing rate (‘IBR’) to measure lease liabilities. The IBR is the rate of interest that the
Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary
to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR
therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable
rates are available (such as for subsidiaries that do not enter into financing transactions) or when they
need to be adjusted to reflect the terms and conditions of the lease (for example, when leases are not in
the subsidiary’s functional currency). The Group estimates the IBR using observable inputs (such as
market interest rates) when available and is required to make certain entity-specific adjustments (such as
the subsidiary’s stand-alone credit rating, or to reflect the terms and conditions of the lease).
Page 60
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
4. Due from banks
2023 2022
Operating accounts 109,599 85,791
Placements, under 3 months 69,497
93,735
179,096
179,526
5. Advances
Commercial
Retail & Corporate Credit
a) Advances lending lending Mortgages Overdrafts Cards Total
Performing advances 23,516 329,789 543,392 18,304 12,598 927,599
Non-performing advances 1,747
2,872 10,331 935 107 15,992
25,263 332,661 553,723 19,239 12,705 943,591
Unearned interest/finance charge (166) (458) (585)
– –
(1,209)
Accrued interest 279
1,851 2,548 –– 4,678
25,376 334,054 555,686 19,239 12,705 947,060
Allowance for ECLs (1,568)
(952) (3,239) (2,222) (435) (8,416)
23,808 333,102 552,447 17,017 12,270 938,644
Unearned loan origination fees (152)
(900) (2,647) (77) (190)
(3,966)
Net advances 23,656
332,202 549,800 16,940 12,080 934,678
Performing advances 22,146 292,289 547,003 14,038 11,422
886,898
Non-performing advances 1,788
3,032 8,461 767 46 14,094
23,934 295,321 555,464 14,805 11,468 900,992
Unearned interest/finance charge
(73) (609) (650) – – (1,332)
Accrued interest 151
1,434 2,496 –– 4,081
24,012 296,146 557,310 14,805 11,468 903,741
Allowance for ECLs
(1,607)
(1,492) (3,144) (1,725) (340) (8,308)
22,405 294,654 554,166 13,080 11,128 895,433
Unearned loan origination fees
(162)
(850) (2,736) (89) (209) (4,046)
Net advances 22,243
293,804 551,430 12,991 10,919 891,387
September 30, 2023
September 30, 2022
Page 61
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
5.
Advances (continued)
b) Impairment allowance for advances to customers
Commercial
Retail & Cor
p
orate Credit
lending lending Mortgages Overdrafts Cards Total
25,224 333,154 553,039 19,162 12,515
943,094
(78) (448) (581) (1,445) (305)
(2,857)
(1) (19) (64) (308) (50)
(442)
(1,489)
(485) (2,594) (469) (80) (5,117)
23,656
332,202 549,800 16,940 12,080 934,678
Commercial
Retail & Cor
p
orate Credit
lending lending Mortgages Overdrafts Cards Total
23,850 295,296 554,574 14,716 11,259
899,695
(74) (405) (850) (1,320) (288)
(2,937)
(3) (4) (89) (51) (17)
(164)
(1,530)
(1,083) (2,205) (354) (35) (5,207)
22,243
293,804 551,430 12,991 10,919 891,387
Stage 1: 12 Month ECL
74 405 850 1,320 288 2,937
13 88 47 221 104 473
(9)
(45) (316) (96) (87)
(553)
At September 30, 2023
78
448 581 1,445 305 2,857
Stage 1: 12 Month ECL
Gross loans
September 30, 2023
Gross loans
The table below shows the staging of advances and the related ECLs based on the Group’s criteria as
explained in Note 19.2. Policies on whether ECL allowances are calculated on an individual or
collective basis are set out in Note 19.2.6.
ECL allowance as at October 1,
2022
Stage 3: Credit Impaired
Financial Assets - Lifetime ECL
Stage 2: Lifetime ECL
Stage 1: 12 Month ECL
Stage 2: Lifetime ECL
Other Credit Loss movements,
repayments etc.
ECL on new instruments
issued during the year
September 30, 2022
Stage 3: Credit Impaired
Financial Assets - Lifetime ECL
Page 62
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
5.
Advances (continued)
b) Impairment allowance for advances to customers (continued)
Commercial
Retail & Cor
p
orate Credit
Stage 2: Lifetime ECL
lending lending Mortgages Overdrafts Cards Total
3 4 89 51 17 164
– – 2 265 9 276
(2)
15 (27) (8) 24
2
At September 30, 2023
1
19 64 308 50 442
Stage 3: Credit Impaired Financial Assets - Lifetime ECL
1,530 1,083 2,205 354 35 5,207
(11) (539) (322) (19) (78)
(969)
(55) (59) 696 133 116
831
25
– 15 17
48
At September 30, 2023
1,489
485 2,594 469 80
5,117
Total
1,568
952 3,239 2,222 435 8,416
c)
Other Credit Loss movements,
repayments etc.
Recoveries
ECL allowance as at October 1,
2022
ECL on new instruments issue
d
during the year
Credit Loss Expense
Write-offs
Of the Total ECL of $8.4m, 39% was on a collective basis and 61% was on an individual basis.
ECL allowance as at October 1,
2022
The Group occasionally makes modifications to the original terms of loans as a response to the borrower’s
financial difficulties, rather than taking possession or to otherwise enforce collection of collateral. These
modifications are made only when the Group believes the borrower is likely to meet the modified terms
and conditions. Indicators of financial difficulties include defaults on covenants, overdue payments or
significant concerns raised by the Credit Risk Department. Once the terms have been renegotiated, any
impairment is measured using the original EIR as calculated before the modification of terms.
Restructured loans are carefully monitored. Restructured loans are classified as Stage 1, 2 or 3 and
amounted to $22.9m as at September 30, 2023 ($9.4m as at September 30, 2022).
Restructured/Modified Loans
Page 63
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
6. Investment securities
2023 2022
a) Designated at fair value through profit or loss
Government securities – –
Equities, mutual funds and money market accounts 1,395
2,029
1,395 2,029
b) Debt instruments at amortized cost
2023 2022
Government securities 274,308 230,695
Corporate bonds/debentures 247,152 93,482
Placements, over 3 months 133,108
97,906
654,568 422,083
655,963 424,112
c) Financial investment securities subject to impairment assessment
Debt instruments measured at amortized cost
Stage 1
12 Month ECL
Stage 2
Lifetime ECL
Stage 3
Credit Impaired
Financial Assets -
Lifetime ECL
Total
Gross exposure 614,990 40,889 – 655,879
I
nterest receivable
4,735 661 – 5,396
EC
L
(662)
(649) – (1,311)
Net exposure 619,063 40,901 – 659,964
Total investment securities
The table below shows the credit quality and the maximum exposure to credit risk based on the
Group’s credit rating system, aging and year-end stage classification.
September 30, 2023
Page 64
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
6. Investment securities (continued)
c) Financial investment securities subject to impairment assessment (continued)
Debt instruments measured at amortized cost (continued)
Stage 1
12 Month ECL
Stage 2
Lifetime ECL
Stage 3
Credit Impaired
Financial Assets -
Lifetime ECL
Total
Gross exposure 401,459 21,311 – 422,770
I
nterest receivable
2,079 364 – 2,443
EC
L
(218)
(469) – (687)
Net exposure 403,320 21,206 – 424,526
(218) (469) – (687)
(279) (289)
– (568)
(165)
109 – (56)
At September 30, 2023
(662)
(649) – (1,311)
(204) (22) – (226)
(81)
(8
7) –
(168)
67
(360) – (293)
At September 30, 2022
(218)
(469) – (687)
d) Designated at fair value through profit or loss
ECL allowance as at October 1,
2022
Other Credit Loss movements,
repayments and maturities
ECL on new instruments includes $525 resulting from the acquisition of Republic Bank (Cayman)
Ltd.
September 30, 2022
ECL on new instruments issued
during the year
Other Credit Loss movements,
repayments and maturities
Mutual fund securities and Government securities are quoted and fair value is determined to be the
quoted price at the reporting date. Holdings in unquoted equities are insignificant for the Group.
September 30, 2023
September 30, 2022
ECL allowance as at October 1,
2021
ECL on new instruments issued
during the year
Page 65
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
7. Investment property
2023 2022
98
60
8. Premises and equipment
Capital Equipment,
works in Freehold Leasehold furniture &
2023 progress premises premises fittings Total
Cost
At beginning of the year 3,336 19,216 4,797 27,207 54,556
– –
–
65
65
Additions at cost
2,166 63 1,966 1,463 5,658
(58) –
(3,385)
(5,201) (8,644)
Transfer of assets (2,508)
– – 2,508 –
2,936 19,279 3,378 26,042 51,635
Accumulated depreciation
At beginning of the year –
8,818
3,760 20,015 32,593
– –
–
57
57
Char
ge for the year – 483 206 2,796 3,485
–
– (2,680) (5,135) (7,815)
–
9,301 1,286 17,733 28,320
Net book value 2,936
9,978 2,092 8,309 23,315
Land
Exchange and other
adjustments
Disposal and write offs of
assets
Exchange and other
adjustments
Disposal and write offs of
assets
Page 66
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
8. Premises and equipment (continued)
Capital Equipment,
works in Freehold Leasehold furniture
2022 progress premises premises & fittings Total
Cost
1,072 19,095 5,530 27,174 52,871
– –
–
(169) (169)
Additions at cost 2,951 131 –
563
3,645
Disposal of assets (33) (10) (733) (1,015) (1,791)
Transfer of assets (654)
– – 654 –
3,336
19,216 4,797 27,207 54,556
Accumulated depreciation
At beginning of the year –
8,364
4,280 18,303 30,947
– –
–
(102) (102)
Charge for the year – 464 213 2,588 3,265
Disposal of assets –
(10) (733) (774) (1,517)
– 8,818 3,760 20,015 32,593
Net book value 3,336
10,398 1,037 7,192 21,963
Capital commitments
2023 2022
579
4,094
2,703 4,972
Other capital expenditure authorized by the Directors but not yet
contracted for
Contracts for outstanding capital expenditure not provided for in the
consolidated financial statements
At beginning of the year
Exchange and other
adjustments
Exchange and other
Page 67
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
9. Right-of-use assets and Lease liabilities
a) Right-of-use assets
2023 2022
Cost
At beginning of the year
5,855
7,035
Exchange and other adjustments
57 (74)
Additions at cost
10,870 1,325
Remeasurement
(7) 99
Disposal of assets
(3,407) (2,530)
13,368 5,855
Accumulated depreciation
At beginning of the year
3,809 3,353
Exchange and other adjustments
7 (63)
Charge for the year - Note 16(d)
1,368 1,661
Disposal of assets
(3,370) (1,142)
1,814 3,809
Net book value
11,554 2,046
b) Lease liabilities
2023 2022
At beginning of the year
2,143 4,068
Additions at cost
10,870 1,325
Accretion of interest expense
433 38
Remeasurement
– 99
Exchange and other adjustments
53 (12)
Disposal of Liability
(38) (1,585)
Less: Principal payments
(1,518) (1,790)
11,943 2,143
Extension option not certain to be exercised (all within five years). 476 4,679
Termination options expected to be exercised 724 654
Leasehold
Premises
Leasehold premises remaining lease terms range from 1 to 15 years, including extension options.
Page 68
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
9. Right-of-use assets and Lease liabilities (continued)
b)
Lease liabilities (continued)
c)
Op
erating lease revenues
2023 2022
Within one year 8
3
One to fiv
e years
4 –
12
3
10. Intangible assets
Goodwill
2023 2022
Goodwill arising on acquisition 4,172 –
Impairment testing of goodwill
Value in use
10.49%
5 years
2%
In accordance with IFRS 3, all assets that gave rise to goodwill were reviewed for impairment using the
‘value in use’ method. In each case, the cash flow projections are based on financial budgets approved
by senior management and the values assigned to key assumptions reflect past performance.
The impact of the global economy exacerbated by high inflation and rising interest rates, has created
uncertainty in the estimation of cash flow projections, discount rates and terminal growth rates. The
goodwill impairment tests were conducted using sensitivity analysis, including a range of growth rates,
interest rates, recovery assumptions, macro-economic outlooks and discount rates for the entity in
arriving at an expected cash flow projection.
The following table highlights the key assumptions used in value in use of the CGU exceeded the
carrying values:
Basis for recoverable
Discount rate
Cash flow projection term
Terminal growth rate
CNC has an operating sublease for a portion of its Isle Of Man location, no risks have been substantially
transferred to the tenant.
Goodwill arising from business combinations was generated from the acquisition of Republic Bank
(Cayman) Limited.
During 2022, there was a remeasurement due to a change in the terms of the lease.
Page 69
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
11. Other assets
2023 2022
Accounts receivable and prepayments 4,833
3,501
4,833
3,501
12. Customers’ current, savings and deposit accounts
2023 2022
Government 117,837 81,913
Corporate and
commercial
655,983 574,820
Personal
601,817 503,668
Other financial institutions 206,368
189,414
1,582,005
1,349,815
13. Other liabilities
2023 2022
Accounts payable and accruals 5,316 4,673
Managers cheques
620
2,185
Due to customers 1,274 1,374
Deferred income
288
167
Other 1,772 1,879
9,270 10,278
Concentration of customers’ current, savings and deposit
accounts
Page 70
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
14. Stated capital and share premium
Authorized
Shares of $1 par value each (2023 and 2022: 200,000,000)
Issued and fully paid:
Shares (2023 and 2022: 42,350,731)
2023 2022
Issued and fully paid
Share capital 42,351 42,351
Share premium
5,046
5,046
At end of the year
47,397
47,397
2023 2022
Weighted average number of ordinary shares 42,351 42,351
Effect of dilutive stock options
–
–
42,351 42,351
Weighted average number of ordinary shares
adjusted for the effect of dilution
Value of ordinary shares
The following reflects the calculation of the effect of the issue of stock options on the weighted average
number of ordinary shares.
Page 71
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
15. Other reserves
General
Translation
contingency
reserves reserve Total
(1,665) 7,486 5,821
(1,299)
– (1,299)
(2,964) 7,486 4,522
(2,964) 7,486
4,522
38 – 38
649
– 649
(2,277) 7,486 5,209
Change in fair value of available-for-sale
financial assets
Balance at September 30, 2022
Equity adjustments from foreign currency translation
Equity adjustments from foreign currency translation represent the unrealized exchange gain or loss
arising from the translation of the financial statements of Isle of Man based subsidiaries from pounds
sterling to Cayman Islands dollars.
Translation adjustments
Balance at October 1, 2022
Translation adjustments
Balance at September 30, 2023
The general reserve represents amounts appropriated by the directors, from retained earnings to a
separate component of shareholders' equity, for dividend equalization and general banking risks
including potential future losses or other unforeseeable risks. To the extent that the general reserve is
considered by the directors to be surplus to requirements, the reserve is distributable at the discretion of
the directors, subject to the capital adequacy requirements as per regulated entities.
General contingency reserves/Other reserves
Balance at October 1, 2021
Page 72
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
16. Operating profit
a) Interest income
2023 2022
Advances 73,013 43,326
Investment securities 11,575 4,114
Liquid assets 10,045
2,178
94,633
49,618
b) Interest expense
2023 2022
Customers’ current accounts 57
54
Customers’ saving
s accounts 94
37
Customers’ deposit accounts
14,283 1,678
Lease liabilities 433
38
14,867
1,807
c) Other income
2023 2022
Fees and commission from trust and other fiduciary activities 2,804 2,634
Other fees and commi
ssion income
13,692 12,580
Foreign exchange fees
and commissions
9,404 8,441
Credit card fees and commissions, net 6,131 5,011
Dividends 6
8
Gain/(L
oss) on disposal of investment securities 64
(13)
Loss on disposal of premises and equipment (795) (274)
Gain on remeasurment of right-of-use assets and lease liabilities 1
196
31,307
28,583
Page 73
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
16. Operating profit (continued)
d) Operating expenses
2023 2022
Staff costs 38,073 30,778
General administrative expenses 12,960 12,495
Operating lease payments 326
21
Prope
rty related expenses 1,884 1,578
Depreciation expense - Note 8 3,485 3,265
Depreciation expense right-of-use assets - Note 9 (a) 1,368 1,661
Advertising and public relations expenses 1,059 713
Directors’ fees 552
494
59,707
51,005
Share purchase scheme
Certain employees and directors are voluntarily able to participate in Group’s share purchase
scheme (the “Scheme”). Under the Scheme employees can contribute up to 2% of salary which
is matched by the Group, and directors contribute up to 20% of their quarterly directors’ fees
which is also matched by the Group. The contributions are used to purchase shares of CNC in
the open market at prevailing prices and the shares are subject to certain vesting terms as set out
in the Scheme. The net cost to the Group of this Scheme for the year was $197 (2022: $152)
which is included within staff costs in the consolidated statement of comprehensive income.
Page 74
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
16. Operating profit (continued)
d) Operating expenses (continued)
Pension obligations
17. Credit (loss) / recovery expense on financial assets
2023 2022
Advances (1,014) 475
Investment securities
(96)
(461)
(1,110) 14
18. Taxation expense
2023 2022
Corporation tax
136
(1)
Under current laws of the Cayman Islands, there is no income, estate, corporation, capital gains or other
taxes payable by the Corporation. Taxation charges relate to the Groups operations in the Isle of Man.
Included in staff costs is an amount of $1,262 (2022: $857) representing the Group's
contribution to the Fund on behalf of employees. The Isle of Man based employees participate
in a defined contribution scheme and included in personnel expense is an amount of $129
(2022: $101) representing the Group’s contribution to this scheme.
The Cayman National Corporation Pension Fund (“the Fund” or “CNPF”) is a defined
contribution pension scheme which became effective on July 1, 1997. The Fund is
administered by Cayman National Fund Services Ltd. and is available for participation by
Group and third party employees. Membership is mandatory for all Group employees of
pensionable age, with contributions from both employer and employees. Cayman based
employees, including key management, contribute 5% of their salary up to 5% of a maximum
salary of $87 (2022: $87) per annum and the Group contributes 5% on the employees’ total
annual salary
.
Page 75
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management
19.1 General
The basic principles of risk management followed by the Group include:
-
-
-
-
-
Assessing risk initially and then consistently monitoring those risks through their life
cycle;
Applying high and consistent ethical standards to our relationships with all customers,
employees and other stakeholders; and
Abiding by all applicable laws, regulations and governance standards in every country
in which we do business;
The Board of Directors has ultimate responsibility for the management of risk within the Group.
Acting with authority delegated by the Board, the Credit, Audit, Asset/Liability Committee and
Other Risks Committees, review specific risk areas.
Undertaking activities in accordance with fundamental control standards. These
controls include the disciplines of planning, monitoring, segregation, authorization
and approval, recording, safeguarding, reconciliation and valuation.
The Group’s prudent banking practices are founded on solid risk management. In an effort to
keep apace with its dynamic environment, the Group has established a comprehensive
framework for managing risks, which is continually evolving as the Group’s business activities
change in response to market, credit, product and other developments.
Managing risk within parameters approved by the Board of Directors and Executives;
Page 76
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19.
19.1 General (continued)
19.2 Credit risk
Risk management (continued)
The Chief Risk Officer who has overall responsibility for ensuring compliance with all risk
management policies, procedures and limits. Additionally, the Group commenced its alignment
with Republic Financial Holdings Limited’s Enterprise Risk Management framework.
The Internal Audit function audits Risk Management processes throughout the Group by
examining both the adequacy of the procedures and the Group’s compliance with these
procedures. Internal Audit discusses the results of all assessments with Management and reports
its findings and recommendations to the Audit Committee of the Group and respective
subsidiaries.
The main risks arising from the Group’s financial instruments are credit risk, interest rate and
market risk, liquidity risk, foreign currency risk and operational risk. The Group reviews and
agrees policies for managing each of these risks as follows:
The Group’s activities are primarily related to the use of financial instruments. The Group
accepts funds from customers and seeks to earn above average interest margins by investing in
high quality assets such as government and corporate securities as well as equity investments
and seeks to increase these margins by lending for longer periods at higher rates, while
maintaining sufficient liquidity to meet all claims that might fall due.
Credit risk is the potential that a borrower or counterparty will fail to meet its stated obligations
in accordance with agreed terms. The objective of the Group’s credit risk management function
is to maximise the Group’s risk-adjusted rate of return by maintaining credit risk exposure
within acceptable parameters. The effective management of credit risk is a key element of a
comprehensive approach to risk management and is considered essential to the long-term
success of the Group.
The Group’s credit risk management process operates on the basis of a hierarchy of
discretionary authorities. A Board Credit Committee, including executive and non-executive
directors, is in place, with the authority to exercise the powers of the Board on credit risk
management decisions, up to approved limits.
Page 77
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
The Group’s credit control processes emphasis early detection of deterioration and prompt
implementation of remedial action and where it is considered that recovery of the outstanding
balance may be doubtful or unduly delayed, such accounts are transferred from performing to
non-performing status.
The Senior Vice President, Personal and Business Banking is accountable for the general
management and administration of the Group’s credit portfolio, ensuring that lendings are made
in accordance with current legislation, sound banking practice and in accordance with the
applicable general policy of the Board of Directors.
The Group uses a risk rating system at the origination of advances which groups loans,
overdrafts and credit cards into various risk categories to facilitate the management of risk on
both an individual account and Stage 1 and 2 portfolio basis. Retail, commercial and corporate,
mortgages, overdrafts and credit cards are managed by product type. Preset risk management
criteria is in place to facilitate decision-making for all categories of loans including credit cards.
The Group avoids exposure to undue concentrations of risk by placing limits on the amount of
risk accepted from a number of borrowers engaged in similar business activities, or activities in
the same geographic region or with similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by changes in economic, political or other
conditions.
The debt securities within the Group’s investment security portfolio are exposed to credit risk
and are managed by investment grading or country exposure with preset exposure limits as
approved by the Board of Directors. The credit quality of each individual security is assessed
based on the financial strength, reputation and market position of the issuing entity and the
ability of that entity to service the debt.
Page 78
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.1 Analysis of risk concentration
2023 2022
Due from banks 179,096 179,526
Advances 934,678 891,387
Investment securities 655,963 424,112
Investment interest receivable
5,396
2,443
Total
1,775,133
1,497,468
Undrawn commitments 100,128 169,765
Guarantees and indemnities 5,813 5,423
Letters of credit
19,675
3,559
Total
125,616
178,747
Total credit risk exposure
1,900,749
1,676,215
Gross maximum exposure
The Group's concentrations of risk are managed by client/counterparty, geographical region and
industry sector. The table below shows the Group’s maximum exposure to any client or
counterparty before taking into account collateral or other credit enhancements.
Where financial instruments are recorded at fair value, the amounts shown represent the current
credit risk exposure but not the maximum risk exposure that could arise in the future as a result
of changes in values.
Page 79
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.1 Analysis of risk concentration (continued)
(a) Industry sectors
2023 2022
Government and Statutory Bodies 363,452 295,161
Financial sector 441,864 328,069
Energy and mining 104
2,174
Agriculture 724
3,035
Electricity and water 87
615
Transport, storage and communication 52,990 37,486
Retail / Distribution 101,145 48,337
Real Estate 159,141 187,385
Manufacturing 13,027 8,952
Construction 46,144 57,840
Hotel and restaurant 972
1,705
Personal 612,477 619,686
Other services 108,622
85,770
1,900,749
1,676,215
The following table shows the risk concentration by industry for the components of
the consolidated statement of financial position and off-balance sheet instruments.
Additional disclosures for the maximum exposure for credit risk per category based
on year-end stage classification are further disclosed in Notes 5 (b) and 6 (c).
Page 80
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19.
Risk management (continued)
19.2 Credit risk (continued)
19.2.1 Analysis of risk concentration (continued)
(b) Geographical sectors
2023 2022
Canada 149,421 135,561
Cayman Islands 1,046,070 1,047,569
Europe 164,853 158,157
Trinidad and Tobago 55,501 18,333
United States 317,641 213,138
Other Countries 167,263
103,457
1,900,749
1,676,215
19.2.2 Impairment assessment
Financial asset provisions are reviewed quarterly in accordance with established guidelines and
recommended provisions arising out of this review are submitted to the Board for approval.
Non-performing debts recommended for write-off are also reviewed quarterly and action taken
in accordance with prescribed guidelines. The Group's impairment assessment and
measurement approach is set out below.
The Group’s maximum credit exposure, after taking account of credit loss provisions
established but before taking into account any collateral held or other credit
enhancements, can be analyzed by the following geographical regions basedonthe
country of domicile of its counterparties:
Page 81
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19.
Risk management (continued)
19.2 Credit risk (continued)
19.2.3 Default and recovery
19.2.4 The Group's internal rating and PD estimation process
Retail lending, mortgages, commercial and corporate lending
As a part of a qualitative assessment of whether a customer is in default, the Group also
considers a variety of instances that may indicate unlikeliness to pay. When such events occur,
the Group carefully considers whether the event should result in treating the customer as
defaulted and therefore assessed as Stage 3 for ECL calculations or whetherStage2is
appropriate.
It is the Group’s policy to consider a financial instrument as 'recovered' and therefore re-
classified out of Stage 3 when none of the default criteria have been present for at least six
consecutive months.
Product types were selected as cohort for PD analysis for retail lending, mortgages, commercial
and corporate loans. A vintage approach was applied looking at the number of defaults by
segment over a period of time. For LGD, the Group considers changes in fair value of collateral
over time, additional haircut from the collateral sales, removes effects of indirect costs
associated with recoveries. No guarantees are considered as collaterals, real estate collaterals
and deposits are allocated proportionally to the loans and advances based on the outstanding
exposure as of the reporting period. EAD equals the loan balance outstanding plus accrued
interest.
The Group considers a financial instrument defaulted and therefore Stage 3 (credit-impaired)
for ECL calculations in cases when the borrower becomes 90 days past due on its contractual
payments.
Page 82
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.4 The Group's internal rating and PD estimation process (continued)
Overdrafts and credit cards
As a primary approach for the calculation of ECL of overdrafts, the Group applies estimated
parameters for PD, LGD and specific measures for individual exposure. For PD, the Group
uses the borrower's probability of default as the most fitting metric for estimating the risk of
defaulting and applies the cohort approach. The ECL is calculated using the forecasted
balances and cash flows based on the expected behavior and the contractual terms of the
instruments by applying a Credit Conversion Factor on undrawn limits. The Group's estimation
of the LGD on overdrafts is similar to the one used for loans.
The Group calculates the ECL on credit cards using a forecast model which is based on the
historical loss experienced for portfolios with similar credit risk characteristics. Migration
matrix models are used for loss rate forecasting in the credit cards portfolio, which is built at the
portfolio level instead of at the individual account level. The loss rate is applied to the gross
credit card exposure and is discounted. The Group discounts expected credit losses using the
nominal interest rate as an approximation of the effective interest rate while considering
specific characteristics of the product. The whole portfolio is segmented by delinquency
buckets. The purpose is to track the behavior (migration) of performing credit cards.
Page 83
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19.
Risk management (continued)
19.2 Credit risk (continued)
19.2.4 The Group's internal rating and PD estimation process (continued)
Investment securities
Due from banks and Accounts receivables
Financial guarantees, letters of credit and undrawn loan commitments
Financial guarantees, letters of credit and loan commitments are off-balance sheet instruments
and have no history of default. As a result, the Group considers the risk of default to be very
low and the ECLs on these instruments were determined to be $458.
The Group issues financial guarantees, letters of credit and loan commitments.
Due from banks are short term funds placed with correspondent banks and the Group therefore
considers the risk of default to be very low. These facilities are highly liquid and without
restriction and based on management's review of the underlying instruments the ECL on these
instruments were determined to approximate zero and no adjustment taken.
PDs and LGDs for traded instruments were based on the global credit ratings assigned to the
instruments or the country for sovereign exposures. PDs and LGDs for non-traded instruments
were based on one notch below the credit rating of the sovereign in which the instrument is
issued or on company ratings where they existed. EAD equals the amortized security balance
plus accrued interest.
Accounts receivables have limited or no history of default; the Group therefore considers the
risk of default to be very low.
Page 84
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.5 Significant increase in credit risk
19.2.6 Grouping financial assets measured on a collective basis
• All Stage 3 assets, regardless of the class of financial assets
Asset classes where the Group calculates ECL on a collective basis include:
• The commercial and corporate lending
• The mortgage portfolio
• The retail lending portfolio
• The credit card portfolio
• The overdraft portfolio
As explained in Note 2.6h (i) dependent on the factors below, the Group calculates ECLs either
on a collective or an individual basis. Asset classes where the Group calculates ECL on an
individual basis include:
The Group also applies a secondary qualitative method for triggering a significant increase in
credit risk for an asset. If contractual payments are more than 30 days past due, the credit risk is
deemed to have increased significantly since initial recognition.
When estimating ECLs on a collective basis for a group of similar assets (as set out in Note
19.2.6), the Group applies the same principles for assessing whether there has been a significant
increase in credit risk since initial recognition.
The Group continuously monitors all assets subject to ECLs. In order to determine whether an
instrument or a portfolio of instruments is subject to 12m ECL or LTECL, the Group assesses
whether there has been a significant increase in credit risk since initial recognition.
Page 85
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.7 Analysis of gross carrying amount and corresponding ECLs are as follows:
Advances 2023 2022
Stage 1
94.0% 94.5%
Stage 2
4.1% 3.7%
Stage 3 1.9%
1.8%
100.0% 100.0%
Commercial
Retail & Corporate Credit
lending lending Mortgages Overdrafts Cards Total
Stage 1
Gross loans
22,794 307,886 528,681 15,279 11,688
886,328
ECL
(78)
(448) (581) (1,445) (305)
(2,857)
22,716
307,438 528,100 13,834 11,383 883,471
ECL as a % of Gross loans 0.3% 0.1% 0.1% 9.5% 2.6% 0.3%
Stage 1
Gross loans
21,506 273,324 532,044 12,837 10,461
850,172
ECL
(74)
(405) (850) (1,320) (288)
(2,937)
21,432
272,919 531,194 11,517 10,173 847,235
ECL as a % of Gross loans 0.3% 0.1% 0.2% 10.3% 2.8% 0.3%
The 2023 ECL methodology and definition of default remained consistent with prior periods. All active
moratoria are included in Stage 2. At year end $13.9m of loans or 1.5% (2022: $14.6m of loans or 1.6%,) of
the total loan portfolio had active moratoria.
The decrease in ECLs of the Stage 1 portfolio was driven by an increase in government loans with a zero
probability of default and an increase in property valuation.
September 30, 2023
September 30, 2022
Page 86
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.7
Commercial
Retail & Corporate Credit
lending lending Mortgages Overdrafts Cards Total
Stage 2
Gross loans
576 22,015 12,322 2,952 722
38,587
ECL
(1)
(19) (64) (308) (50)
(442)
575
21,996 12,258 2,644 672 38,145
ECL as a % of Gross loans 0.2% 0.1% 0.5% 10.4% 6.9% 1.1%
Stage 2
Gross loans
481 18,772 12,434 1,117 753
33,557
ECL
(3)
(4) (89) (51) (17)
(164)
478
18,768 12,345 1,066 736 33,393
ECL as a % of Gross loans 0.6% 0.0% 0.7% 4.6% 2.3% 0.5%
September 30, 2023
September 30, 2022
The increase in ECLs of the Stage 2 portfolio was driven by an increase in overdraft loans.
Analysis of gross carrying amount and corresponding ECLs are as follows:
(continued)
Page 87
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.7
Commercial
Retail & Corporate Credit
lending lending Mortgages Overdrafts Cards Total
Stage 3
Gross loans
1,854 3,253 12,036 931 105
18,179
ECL
(1,489)
(485) (2,594) (469) (80)
(5,117)
365
2,768 9,442 462 25 13,062
ECL as a % of Gross loans 80.3% 14.9% 21.6% 50.4% 76.2% 28.1%
Stage 3
Gross loans
1,863 3,200 10,096 762 45
15,966
ECL
(1,530)
(1,083) (2,205) (354) (35)
(5,207)
333
2,117 7,891 408 10 10,759
ECL as a % of Gross loans 82.1% 33.8% 21.8% 46.5% 77.8% 32.6%
September 30, 2023
September 30, 2022
The change in ECLs of the Stage 3 portfolio was minimal as the increase in loan volumes was offset by the
increase in property valuation.
Analysis of gross carrying amount and corresponding ECLs are as follows:
(continued)
Page 88
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.2 Credit risk (continued)
19.2.7
Investment securities 2023 2022
Stage 1
93.8% 95.0%
Stage 2
6.2% 5.0%
Stage 3
0.0%
0.0%
100.0% 100.0%
Stage 1 Stage 2 Stage 3 Total
Gross balance 614,990 40,889 –
655,879
Interest receivable 4,735 661 –
5,396
ECL (662)
(649) –
(1,311)
619,063
40,901 – 659,964
ECL as a % of Gross investments 0.1% 1.6% 0.2%
Gross balance 401,459 21,311 –
422,770
Interest receivable 2,079 364 –
2,443
ECL (218)
(469) –
(687)
403,320
21,206 – 424,526
ECL as a % of Gross investments 0.1% 2.2% 0.2%
Analysis of gross carrying amount and corresponding ECLs are as follows:
(continued)
September 30, 2022
September 30, 2023
Page 89
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.3 Liquidity risk
Liquidity risk is defined as the risk that the Group either does not have sufficient financial
resources available to meet all its obligations and commitments as they fall due, or can access
these only at excessive cost.
Liquidity management is therefore primarily designed to ensure that funding requirements can
be met, including the replacement of existing funds as they mature or are withdrawn, or to
satisfy the demands of customers for additional borrowings. Liquidity management focuses on
ensuring that the Group has sufficient funds to meet all of its obligations.
While the primary asset used for short-term liquidity management is the short term placements.
The Group also holds significant investments in other Government securities, which can be
used for liquidity support. The Group continually balances the need for short-term assets, which
have lower yields, with the need for higher asset returns.
The group is subjected to regulatory requirements as it pertains to Basel III ratios for liquidity
purposes namely the Liquidity Coverage Ratio and the Net Stable Funding Ratio. The ratios
ensure that a high level of unencumbered high quality liquid assets that can be converted into
cash to meet its liquidity needs for a 30 calendar day liquidity stress scenario and promotes
resilience over a longer-term horizon by requiring funding its activities with stable sources of
funding on an ongoing basis.
Two primary sources of funds are used to provide liquidity – personal and commercial deposits.
A substantial portion of the Group is funded with 'core deposits'. Facilities are also established
with correspondent banks, which can provide additional liquidity as conditions demand.
Page 90
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.3 Liquidity risk (continued)
19.3.1
On Up to one 1 to 5 Over 5
2023 demand year years years Total
877,540 644,838 59,627 –
1,582,005
– 1,182 4,045 6,716 11,943
3,798
11,427 – – 15,225
881,338 657,447 63,672 6,716 1,609,173
2022
937,757 406,126 5,932 – 1,349,815
– 661 1,345 137 2,143
6,301
4,810 – – 11,111
944,058 411,597 7,277 137 1,363,069
Total un-
discounted
financial
liabilities
Other liabilities
Financial liabilities - on consolidated statement of financial position
Customers’
current, savings
and deposit
accounts
Customers’
current, savings
and deposit
accounts
Total un-
discounted
financial
liabilities
Lease liabilities
Analysis of financial liabilities by remaining contractual maturities
The table below summarizes the maturity profile of the Group’s financial liabilities at
September 30, based on contractual undiscounted repayment obligations, over the remaining
life of those liabilities. These balances include interest to be paid over the remaining life of the
liabilities and will therefore be greater than the carrying amounts on the consolidated statement
of financial position. Refer to Note 24 for a maturity analysis of assets and liabilities.
Other liabilities
Lease liabilities
Page 91
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.3
19.3.1
On Up to one 1 to 5 Over 5
demand year years years Total
–
5,813
– – 5,813
–
19,675 –– 19,675
–
25,488 – – 25,488
–
5,423
– – 5,423
–
3,559 – – 3,559
– 8,982 – – 8,982
Letters of credit
Total
Liquidity risk (continued)
2023
Guarantees
Letters of credit
Total
Guarantees
Financial liabilities - off consolidated statement of financial position
2022
Analysis of financial liabilities by remaining contractual maturities (continued)
The Group expects that not all of the contingent liabilities or commitments will be drawn
before expiry of the commitments.
Page 92
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.4
19.4.1 Interest rate risk
The table below summarises the interest exposure of the Group consolidated statement
of financial position. Interest on financial instruments classified as floating is repriced at
intervals of less than one year while interest on financial instruments classified as fixed
is fixed until the maturity of the investment.
Market risk
The primary tools currently in use are interest rate sensitivity analysis and exposure
limits for financial instruments. The limits are defined in terms of amount, term, issuer,
depositor and country. The Group is committed to refining and defining these tools to be
in line with international best practice.
Market risk is the risk that the fair value or future cash flows of financial instruments will
fluctuate due to changes in market variables such as interest rates, foreign exchange rates and
equity prices.
Interest rate risk arises from the possibility that changes in interest rates will affect
future cash flows or the fair values of financial instruments. Asset and Liability
management is a vital part of the risk management process of the Group. The mandate
of the Committee is to approve strategies for the management of the non-credit risks of
the Group, including interest rate, foreign exchange, liquidity and market risks.
Interest on Financial instruments classified as floating is repriced at intervals of less
than one year while interest on financial instruments classified as fixed is fixed until the
maturity of the instruments.
Page 93
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.4 Market risk (continued)
19.4.1
(
Interest rate risk (continued)
Change in
basis points
Increase Decrease Increase Decrease
USD Instruments
+/- 50 762 (762)
696 (696)
CAD Instruments
+/- 50 2
(2)
– –
KYD Instruments
+/- 50
2,037 (2,037) 2,899 (2,899)
GBP Instruments
+/- 50 31
(31)
28 (28)
Impact on net profit
20222023
An interest rate sensitivity analysis was performed to determine the impact on net profit
of a possible change in the interest rates prevailing as at September 30, with all other
variables held constant. The impact on net profit is the effect of changes in interest rates
on the floating interest rates of financial assets and liabilities. This impact is illustrated
on the following table:
Page 94
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.4 Market risk (continued)
19.4.2 Currency risk
Changes in foreign exchange rates affect the Group’s earnings and equity through
differences on the re-translation of the net assets, from the foreign currency to KYD
dollars. Gains or losses on foreign currency investment in subsidiary and associated
undertakings are recognized in reserves. Gains or losses on related foreign currency
funding are recognized in the consolidated statement of income.
The tables below indicate the currencies to which the Group had significant exposure at
September 30 on its non-trading monetary assets and liabilities and its forecast cash
flows. The analysis also calculates the effect of a possible movement of each currency
rate against the Cayman Islands dollar, with all other variables held constant.
The principal currencies of the Group’s subsidiary and associated company investments
are USD, GBP, CAD, JPY and EUR.
It has been the long term policy of the Cayman Islands Monetary Authority to maintain
the Cayman Islands exchange rate fixed to the United States dollar at KYD$1.00 to
US$1.20, accordingly, there is currently no foreign currency exposure between these
two currencies.
Currency risk is the risk that the value of a financial instrument will fluctuate due to
changes in foreign exchange rates. The Group takes on exposure to the effects of
fluctuations in the prevailing foreign currency exchange rates on its financial position
and cash flows. Foreign currency deposits accepted from customers are generally
matched with corresponding foreign currency deposits placed with correspondent banks
such that the foreign currency risk is substantially economically hedged.
Page 95
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated (Continued)
19. Risk management (continued)
Market risk (continued)
19.4.2 Currency risk (continued)
2023 KYD USD GBP CAD EUR Other Total
Financial assets
Cash on hand
8,375 2,768 130 89 178 – 11,540
Due from banks
17 132,753 25,885 2,794 14,939 2,708 179,096
Advances
660,590 257,516 16,226 346 – – 934,678
Investment securities
– 618,228 33,803 – 3,107 825 655,963
Investment interest receivable
–
5,227 154 –10 5 5,396
Total financial assets
668,982
1,016,492 76,198 3,229 18,234 3,538 1,786,673
Financial liabilities
Customers’ current, savings
and deposit accounts
658,532 830,987 67,755 3,209 18,036 3,486 1,582,005
Accrued interest payable
1,983 3,857 110 1 – 4 5,955
Lease liabilities
11,491 – 452 – – – 11,943
Other liabilities
5,845
2,719 685 810 3 9,270
Total financial liabilities
677,851
837,563 69,002 3,218 18,046 3,493 1,609,173
Net currency risk exposure
178,929
7,196 11 188 45
Possible change in
currency rate
1% 1% 1% 1% 1%
Effect on profit before tax
1,789
72 –2–
19.4
Page 96
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated (Continued)
19. Risk management (continued)
Market risk (continued)
19.4.2 Currency risk (continued)
2022 KYD USD GBP CAD EUR Other Total
Financial assets
Cash on hand
9,837 3,285 208 99 171 – 13,600
Due from banks
– 108,796 44,410 4,686 15,488 6,146 179,526
Advances
651,105 225,660 14,622 – – – 891,387
Investment securities
– 399,364 24,748 – – – 424,112
Investment interest receivabl
e
– 2,340 102 1–– 2,443
Total financial assets
660,942
739,445 84,090 4,786 15,659 6,146 1,511,068
Financial liabilities
Customers’ current, savings
and deposit accounts
661,296 583,671 78,328 4,834 15,612 6,074 1,349,815
Accrued interest payable
486 338 8 1 – – 833
Lease liabilities
1,611 38 494 – – – 2,143
Other liabilities
6,181
3,596 473 820 – 10,278
Total financial liabilities
669,574
587,643 79,303 4,843 15,632 6,074 1,363,069
Net currency risk exposure
151,802
4,787 (57) 27 72
Possible change in
currency rate
1% 1% 1% 1% 1%
Effect on profit before tax
1,518
48 (1) –1
19.4
Page 97
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
19. Risk management (continued)
19.5
Operational risk
20. Related parties
2023 2022
Advances, investments and other assets
Directors and key management personnel 43,596
41,643
Other related parties 690
269
44,286 41,912
Deposits and other liabilities
Directors and key management personnel
4,986
4,175
Other related parties 1,033
12,807
6,019 16,982
Parties are considered to be related if one party has the ability to control the other party or exercise significant
influence over the other party in making financial or operating decisions. A number of Grouping transactions
are entered into with related parties in the normal course of business. These transactions are both secured and
unsecured and were carried out on commercial terms and conditio
ns, at market rates.
The growing sophistication of the financial industry has made the Group’s operational risk profile more
complex. Operational risk is inherent within all business activities and is the potential for financial or
reputational loss arising from inadequate or failed internal controls, operational processes or the
systems that support them. It includes errors, omissions, disasters and deliberate acts such as fraud.
The Group recognizes that such risk can never be entirely eliminated and manages the risk through a
combination of systems and procedures to monitor and document transactions.
The Group has developed contingency arrangements and established facilities to support operations in
the event of disasters. Independent checks on operational risk issues are also undertaken by the internal
audit function.
Page 98
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
20. Related parties (continued)
2023 2022
Interest and other income
Directors and key management personnel
3,661 1,
761
In
terest
and other expense
Directors and key management personnel
7
3
2
Other related parties 987
683
1,060 685
Key management compensation
2023 2022
Short-term benefits
3,040
2,776
3,040 2,776
•
•
•
•
•
•
Key management personnel are those persons having authority and responsibility for planning, directing and
controlling the activities of the Group. Key management personnel was redefined in 2023 to include all
Executive Management and the Chief Financial Officer; therefore all 2022 related party balances were restated.
The Group sold nil (2022: 3) loans to other entities owned by Republic Group Trinidad and Tobago
(Barbados) Limited for a value of nil (2022: $30,666).
The Group management fees and shared services paid to Republic Bank Limited for a value of $732
(2022: $596).
The Group purchased nil (2022: 5) bonds from Republic Group Trinidad and Tobago (Barbados)
Limited for a value of nil (2022: $19M).
The Group acts as the investment advisor for the Cayman National Mortgage Fund (the "Mortgage
Fund") and certain related party transfers of loans to and from the Group (the sole market maker for the
loans held by Mortgage Fund) are executed in connection with this relationship. During the year ended
September 30, 2023, nil in loans were transferred from CNB to the Mortgage Fund (2022: $4,502).
Notwithstanding the conflicts of interests inherent in such related party transactions, the Directors are
satisfied that they appropriately fulfilled their fiduciary duties and that the Manager appropriately
fulfilled its duties under its investment management mandate.
Staff loans totaling $45,755 (2022: $41,727) in the consolidated statement of financial position bear
rates primarily ranging between 3% and 14.5% (2022: 3% and 11.25%).
The Group sponsors several structured entities of which $1,297 (2022: $1,929) is included in
investments. All revenues derived from these operations are dis
closed in N
ote 27.
Page 99
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
20. Related parties (continued)
Directly held * Indirectly held** Directly held* Indirectly held**
36,641 14,981 41,484 14,693
27,302
283,595 24,962 283,595
33,320 1,547 30,362 1,517
3,120
1,175,041 5,780 1,174,929
16,190 - 9,632 -
3,518 -
10,925
227,412
1,028 - 1,008 -
1,028 -
1,008 -
129,554
1,702,576 117,754 1,474,734
21. Capital management
Richard Sammy
Board of Directors
Nigel M. Baptiste
Clarence Flowers
Stuart Dack
Total
*Legal and beneficial rights. **Held by another entity, legally with non-beneficial rights.
Directors held 1,832,130 (2022: 1,592,488) of the Corporation shares as at September 30, 2023 of which
129,554 (2022: 117,754) were directly held and 1,702,576 (2022: 1,474,734) were indirectly held. (Actual
figures are disclosed within this note)
2023
Actual figures disclosed
2022
Janet Hislop
The Group’s policy is to diversify its sources of capital, to allocate capital within the Group efficiently and to
maintain a prudent relationship between capital resources and the risk of its underlying business. Equity
increased by $46m to $221m during the year under review.
Capital adequacy is monitored by each member of the Group, employing techniques based on the guidelines
developed by the Basel Committee on Grouping Regulations and Supervisory Practice (the Basel Committee),
as implemented by the respective Regulatory Authorities for supervisory purposes. Each subsidiary are
required to meet minimum capital requirements. Failure to meet minimum capital requirements can initiate
certain actions by the regulators, that if undertaken could have a direct material effect on the Group's financial
statements.
Colin Hanson
Nigel Wardle
Sherri Bodden-Cowan
Bryan Hunter
Page 100
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
21. Capital management (continued)
CNC as a publicly traded company is subject to continuing obligations and rules of the Cayman Islands Stock
Exchange.
The Isle of Man has fully implemented Basel III and the Cayman National Group (IOM) remains compliant
with its regulatory requirements.
Management believes, as of September 30, 2023 and 2022 that all regulated subsidiaries met the respective
regulatory capital adequacy requirements established by the Isle of Man Financial Supervision Authority, the
Dubai Financial Services Authority and the Cayman Islands Monetary Authority.
Similar capital adequacy requirements by the Isle of Man Financial Services Authority are imposed on the
Group’s subsidiaries in the Isle of Man.
The subsidiaries must meet specific capital guidelines that involve quantitative measures of the subsidiaries
assets and liabilities. The subsidiaries' capital amount and classifications are also subject to qualitative analysis
by CIMA. Quantitative measures established by CIMA to ensure capital adequacy requires that subsidiaries
maintain a minimum amount of capital and/or a minimum ratio of risk-weighted assets to capital.
Page 101
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
22. Fair value
22.1
Carrying values and fair values
2023 Carrying Fair Unrecognized
value value gain/(loss)
Financial assets
Cash on hand and due from banks
190,636 190,636
–
Advances
934,678
934,678
–
Investment securities
655,963 636,604
(19,359)
Investment interest receivable
5,396 5,396
–
Goodwill
4,172 4,172
–
Other financial assets
4,833 4,833
–
Financial liabilities
Customers’ current, savings and deposit accounts
1,582,005
1,582,005
–
Accrued interest payable
5,955 5,955
–
Lease liabilities
11,943 11,943
–
Other financial liabilities
9,270 9,270
–
Total unrecognized change in unrealized fair value
(19,359)
2022 Carrying Fair Unrecognized
value value gain/(loss)
Financial assets
Cash on hand and due from banks
193,126 193,126
–
Advances
891,387
891,387
–
Investment securities
424,112 411,946
(12,166)
Investment interest receivable
2,443 2,443
–
Other financial assets
3,501 3,501
–
Financial liabilities
Customers’ current, savings and deposit accounts
1,349,815
1,349,815
–
Accrued interest payable
833 833
–
Lease liabilities
2,143 2,143
–
Other financial liabilities
10
,
278
10
,
278
–
Total unrecognized change in unrealized fair value
(12,166)
The following table summarizes the carrying amounts and the fair values of the Group’s financial assets
and liabilities:
Page 102
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
22. Fair value (continued)
22.2 Fair value and fair value hierarchies
22.2.1 Determination of fair value and fair value hierarchies
Level 1 Level 2 Level 3 Total
2023
Financial assets measured at fair value
Investment securities
– 266 1,129
1,395
Financial assets for which fair value is disclosed
Advances
– – 934,678
934,678
Investment securities
385,335 245,719 4,155
635,209
Financial liabilities for which fair value is disclosed
– – 1,582,005
1,582,005
Level 1 Level 2 Level 3 Total
2022
Financial assets measured at fair value
Investment securities
– 1,052 977
2,029
Financial assets for which fair value is disclosed
Advances
– – 891,387
891,387
Investment securities
211,068 195,891 2,958
409,917
Financial liabilities for which fair value is disclosed
– – 1,349,815 1,349,815
Customers’ current,
savings and deposit
accounts
Customers’ current,
savings and deposit
accounts
The following table shows the fair value measurement hierarchy of the Group’s assets and
liabilities:
Page 103
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
22. Fair value (continued)
22.2 Fair value and fair value hierarchies (continued)
22.2.2
Description of significant unobservable inputs to valuation
Valuation
techni
q
ue
Range
Discounted Cash
Flow Method
0.0% - 20.00%
Net Asset Value N/A
Discounted Cash
Flow Method
0.0% - 6.08%
22.2.3
Balance at Additions Disposals
beginning /Transfers /Transfers Balance at
of year from Level 2 to Level 2 end of year
2023
– – –
-
2022
1,769 – (1,769)
-
22.2.4
Balance at Additions Disposals
beginning /Transfers /Transfers Balance at
of year from Level 1 to Level 1 end of year
2023
1,051 – (785)
266
2022
1,050 6 (5)
1,051
Customers' current, savings and
deposit accounts
Growth rate for cash flows for
subsequent years
Reconciliation of movements in Level 2 financial assets measured at fair value
Growth rate for cash flows for
subsequent years
Advances
Financial assets designated at fair value
through profit or loss
Financial assets designated at fair
value through profit or loss
Financial assets designated at fair value
through profit or loss
Reconciliation of movements in Level 1 financial assets measured at fair value
Financial assets designated at fair value
through profit or loss
Investment securities N/A
The significant unobservable inputs used in the fair value measurements categorized within
Level 3 of the fair value hierarchy as at September 30, 2023, are as shown below:
Significant unobservable inputs
Page 104
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
22. Fair value (continued)
22.2 Fair value and fair value hierarchies (continued)
22.2.5
Balance at Additions Disposals
beginning /Transfers /Transfers Balance at
of year from Level 2 to Level 2 end of year
2023
978 99 52
1,129
2022
671 307 –
978
Reconciliation of movements in Level 3 financial assets measured at fair value
Financial assets designated at fair
value through profit or loss
Investments classified within Level 3 have significant unobservable inputs, as they trade infrequently or
not at all. In 2023, Level 3 instruments are predominantly comprised of equity in a private company and
mutual funds (2022: equity in a private company and mutual funds). As observable prices are not
available for these securities, the Group has used valuation techniques to derive the fair value. The main
inputs into the Group’s valuation methods for Level 3 assets may include: discounted cash flow
projections, original transaction price, recent transactions in the same or similar instruments and
completed third party transactions in comparable instruments and information obtained from investment
manager of the fund. The Group adjusts the model as deemed necessary.
Financial assets designated at fair
value through profit or loss
Page 105
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
23. Segmental information
i)
By geographic segment
Cayman Isle of
Islands Man Eliminations Total
2023
91,131 3,502 – 94,633
(13,715)
(1,152) – (14,867)
77,416 2,350 – 79,766
28,529
2,778 – 31,307
105,945 5,128 – 111,073
(56,150)
(3,557) – (59,707)
49,795 1,571 – 51,366
Credit recovery expenses on financial assets
(1,100) (10) – (1,110)
48,695 1,561 – 50,256
–
(136) – (136)
48,695
1,425 – 50,120
Net income from discontinued operations
178 – – 178
48,873
1,425 – 50,298
1,746,563 87,987 (3,905) 1,830,645
1,529,816 79,830 (473) 1,609,173
4,680 173 – 4,853
5,558 100 – 5,658
287,834 (47,439) – 240,395
(241,502) 4,784 – (236,718)
(6,073) (94) – (6,167)
Net income
Net income from continuing operations
Operating income
Other operating expenses
Operating profit
Net profit before taxation
Taxation
Total assets
Total liabilities
Depreciation
Capital expenditure on premises and
equipment
Cash flow from operating activities
Cash flow from investing activities
Cash flow from financing activities
The Group is organized into two main business segments: retail and commercial banking and merchant
banking. The Group’s primary reporting format comprises geographical segments, reflecting its
management structure and the secondary segment is by class of business. The following is an analysis by
respective segments:
Interest income
Interest expense
Net interest income
Other income
Page 106
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
23. Segmental information (continued)
i) By geographic segment (continued)
Cayman Isle of
Islands Man Eliminations Total
2022
48,343 1,275 – 49,618
(1,638)
(169) – (1,807)
46,705 1,106 – 47,811
26,779
1,804 – 28,583
73,484 2,910 – 76,394
(48,115)
(2,890) – (51,005)
25,369 20 – 25,389
Credit recovery expenses on financial assets
16 (2) – 14
25,385 18 – 25,403
–
1 – 1
25,385
19 – 25,404
Net loss from discontinued operations
(71) – – (71)
25,314
19 – 25,333
1,418,049 123,779 (3,190) 1,538,638
1,245,780 117,696
(407) 1,363,069
4,752 174 – 4,926
3,573 72 – 3,645
(86,064) 17,697 – (68,367)
33,446 (20,147) – 13,299
(6,734) (100) – (6,834)
Net income from continuing operations
Cash flow from investing activities
Cash flow from financing activities
Total assets
Total liabilities
Depreciation
Capital expenditure on premises and
equipment
Cash flow from operating activities
Other operating expenses
Operating profit
Taxation
Net profit before taxation
Net income
Interest income
Interest expense
Net interest income
Other income
Operating income
Page 107
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
23. Segmental information (continued)
ii) By class of business
Retail and
Commercial banking
and financial services
2023
94,633
(14,867)
79,766
31,307
111,073
(59,707)
51,366
(1,110)
50,256
(136)
50,120
178
50,298
1,830,645
1,609,173
4,853
5,658
240,395
(236,718)
(6,167)
Operating profit
Net profit before taxation
Credit recovery expense on financial assets
Total liabilities
Depreciation
Taxation
Interest income
Interest expense
Net interest income
Other income
Operating income
Other operating expenses
Net income from discontinued operations
Net income from continuing operations
Total assets
Cash flow from investing activities
Cash flow from financing activities
Net income
Capital expenditure on premises and equipment
Cash flow from operating activities
Page 108
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
23. Segmental information (continued)
ii) By class of business (continued)
Retail and
Commercial banking
and financial services
2022
49,618
(1,807)
47,811
28,583
76,394
(51,005)
25,389
14
25,403
1
25,404
(71)
25,333
1,538,638
1,363,069
4,926
3,645
(68,367)
13,299
(6,834)
Capital expenditure on premises and equipment
Cash flow from operating activities
Cash flow from investing activities
Operating profit
Net loss from discontinued operations
Interest income
Interest expense
Net interest income
Other income
Net income
Cash flow from financing activities
Operating income
Other operating expenses
Credit recovery expense on financial assets
Net profit before taxation
Taxation
Net income from continuing operations
Depreciation
Total liabilities
Total assets
Page 109
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
24. Maturity analysis of assets and liabilities
Within After
2023 one year one year Total
ASSETS
Cash on hand
11,540 – 11,540
Due from banks
179,096
– 179,096
Advances
119,964 814,714 934,678
Investment securities 348,105 307,858 655,963
Investment interest receivable
5,396 – 5,396
Premises and equipment – 23,315 23,315
Right-of-use assets –
11,554
11,554
Intangible assets – 4,172 4,172
Investment property – 98 98
Other assets 4,828
5 4,833
668,929 1,161,716 1,830,645
LIABILITIES
1,522,378 59,627 1,582,005
Accrued interest payable
5,955 – 5,955
Lease liabilities –
11,943
11,943
Other liabilities 9,260
10 9,270
1,537,593 71,580 1,609,173
The table below analysis the discounted assets and liabilities of the Group based on the remaining
period at September 30, to the contractual maturity date. See Note 19.3 - 'Liquidity risk' - for an
analysis of the financial liabilities based on contractual undiscounted repayment obligations.
Customers' current, savings and deposit
accounts
Page 110
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
24. Maturity analysis of assets and liabilities (continued)
Within After
one year one year Total
2022
ASSETS
Cash on hand
13,600 – 13,600
Due from banks
179,526
– 179,526
Advances
134,264 757,123 891,387
Investment securities 229,830 194,282 424,112
Investment interest receivable
2,443 – 2,443
Premises and equipment – 21,963 21,963
Right-of-use assets 307 1,739 2,046
Investment property – 60 60
Other assets 3,456
45 3,501
563,426 975,212 1,538,638
LIABILITIES
1,343,883
5,932
1,349,815
Accrued interest payable
833 – 833
Lease liabilities
307 1,836 2,143
Other liabilities
10,272
6 10,278
1,355,295 7,774 1,363,069
Customers' current, savings and deposit
accounts
Page 111
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
25. Dividends paid and proposed
2023 2022
2,541
2,541
2,541 2,541
5,082 5,082
26. Contingent liabilities
a) Litigation
b)
2023 2022
Guarantees 5,813
5,423
Letters of credit 19,675
3,559
25,488 8,982
Corporate and commercial 25,431 8,927
Personal
57
55
25,488 8,982
Guarantees in support of the subsidiary, Cayman National Fund Services Ltd., has been given in
the event the company was unable to meets its obligations in ordinary course of business for the
financial year ending September 30, 2023.
Declared and paid during the year
Equity dividends on ordinary shares:
Interim dividend for 2023: 0.06 cents (2022: 0.06 cents)
Final dividend for 2022: 0.06 cents (2021: 0.06 cents)
Customers' liability under acceptances, guarantees, indemnities and letters of credit
As at September 30, 2023, there were certain legal proceedings outstanding against the Group.
Due to the inherent difficulty of predicting an outcome, management, including legal counsel
believe it is premature to predict an outcome. Legal costs relating to litigation and settlements
are recorded as operating expenses in the statement of income.
Total dividends paid
Page 112
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
27. Structured entities
2023 2022
Cayman National Mortgage Fund Ltd.
535 569
Cayman National Money Market Fund
120 102
Cayman National Pension Fund
564 513
Cayman National Securities Mutual Funds SPC.
177 197
Cayman National Pension Fund RSA
10
10
1,406 1,391
28. Discontinued operations
2023 2022
Trust and company management fees
- 66
Expenses
178
(137)
Net income / (loss) from discontinued operations 178 (71)
The group sponsors several structured entities which are not consolidated as the Group is not deemed
to be in control of those entities. The Group considers itself to be sponsor of a structured entity when
it facilitates the establishment of the structured entity. The Group may hold an interest in some of
these entities but does not provide any financial support to th
ese entities.
For
its custody and management services of the Cayman National Funds as described below, the
Group receives a management fee at market based rates.
During the year ended September 30, 2017 the Group decided to exit the Trust business in the
Cayman Islands and initiated an active program to locate a buyer.
The following is a summary of the fees received from these affiliated funds:
The Group signed a set of agreements with a buyer on September 7, 2017 to sell its Cayman National
Trust business with effect from September 29, 2017 and this division is reported as a discontinued
operation. Financial information relating to the discontinued operation is set out below.
Page 113
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
28.
Discontinued operations (continued)
Earnings per share (expressed in $ per share) 2023 2022
Basic (with Net income/loss from discontinued operations) $1.19 $0.60
$1.18 $0.60
Details of the sale of the trust and company management business
$1,250
$1,000
2023 2022
Management fees
156 301
Expenses
(156)
(301)
Net loss from discontinued operations - -
The impact of the discontinued operations net loss on the Group's earnings per share was as follows:
Diluted (without Net income/loss from discontinued
operations)
Fixed consideration
The variable period elapsed on September 28, 2019.
Variable consideration
The operations of Cayman National Trust Ltd. and Cayman National Dubai Ltd. were liquidated
during the year.
During the year ended September 30, 2022 the Group decided to exit the Dubai operation.
The full $2m consideration was received in cash on or before September 29, 2017. The sales proceeds
have both a fixed and a variable component:
Page 114
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
29. Subsidiary companies
% equity
a) Name of Operating Companies
Principal activity interest
100.00%
100.00%
100.00%
100.00%
100.00%
b) Non-Operating Companies
CN Director Limited, CNB Nominees Limited, Cayman National Nominees Limited, Cayman
National Secretarial Limited, and Beeston Management Limited are wholly owned subsidiaries of
Cayman National Trust Company (Isle of Man) Limited.
Cayman National Securities Ltd. ("CNS")
Banking and property holding
subsidiaries respectively
Mutual fund administration
Banking and company management
Company and trust management
Securities brokerage and wealth
management
Cayman National Fund Services Ltd. (“CNFS”)
Cayman National Bank (Isle of Man) Limited. (“CNB”
(IOM)), (incorporated and regulated in the Isle of Man)
Cayman National Bank Ltd. ("CNB") and its wholly
owned subsidiary Cayman National Property Holdings
Ltd. ("CNP")
Cayman National Trust Company (Isle of Man) Limited
(“CNT (IOM)”) (incorporated and regulated in the Isle
of Man)
CNC Directors Ltd.
The following subsidiaries provides custody, trustee, corporate administration, investment
management and advisory services to third parties which involve the Group making allocation and
purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are
held in a fiduciary capacity are not included in these financial statements during the years ended
September 30, 2023 and 2022. The non-operating companies of the Corporation are:
There was no change in ownership and no restrictions have been placed on any assets or liabilities of
these companies.
Page 115
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
30. Business combinations
a) Acquisition of Republic Bank Cayman Ltd.
Book value Fair Value Unrecognized
on acquisition on acquisition gain/(loss)
Assets
Due from banks 2,610 2,610 -
Investment securities 241,420 229,466 (11,954)
Advances 1,173 1,173 -
Intangible assets 4,173 4,173 -
Premises and equipment 221 221 -
Right-of-use assets 383 383 -
Other assets 14,441 14,441 -
264,421 252,467 (11,954)
Liabilities
Customer deposits and due to banks 238,121 238,121 -
Lease liabilities 387 387 -
Other liabilities 372 372 -
238,880 238,880 -
Total identifiable net assets 25,541 13,587
Purchase consideration
Amount settled in cash 25,541
Analysis of cash flows on acquisition
Net cash acquired (included in cash flows from investing activities) 2,610
Consideration transferred (25,541)
Net cash outflow (22,931)
The acquisition has been accounted for using the Book-Value method.
The fair values of the identifiable assets and liabilities of Republic Bank (Cayman) Ltd. as at the date of
acquisition were:
On May 1, 2023, the Cayman National Bank Ltd completed the acquisition of Republic Bank (Cayman) Ltd.
Prior to the acquisition both entities were indirectly owned by Republic Financial Holdings Limited. The
acquisition streamlined its operations in the Cayman Islands and provides clients with access to a wider array of
products and services.
Page 116
CAYMAN NATIONAL CORPORATION LTD.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
FOR THE YEAR ENDED SEPTEMBER 30, 2023
Expressed in thousands of Cayman Islands dollars ($’000) except where otherwise stated
(Continued)
30. Business combinations
a) Acquisition of Republic Bank Cayman Ltd. (continued)
31.
Events after the reporting period
No contingent liabilities were recognized from the acquisition.
The Group has evaluated events from September 30, 2023 through the date the consolidated financial
statements were signed. There were no subsequent events that require disclosure.
The net assets recognized as at May 1, 2023, were based on the audited financial statements of
Republic Bank (Cayman) Ltd.
Due to the method of acquisition, the addition to revenue arising from the aquisition cannot be
practicably determined. Transaction costs of $71,555 including legal and valuation expenses are
included in the total of operating expenses on the consolidated statement of income.
Page 117