Bank of St. Vincent and the Grenadines Ltd.

Notes to the Consolidated Financial Statement

For the Year Ended December 31, 2022

(in Eastern Caribbean dollars)

2. Summary of Significant Accounting Policies …..Cont’d

2.7 Financial Assets and Liabilities …..Cont’d

b) Classification of Financial Instruments …..Cont’d Debt Instruments Measured at Amortised Cost

Financial assets are classified as measured at amortised cost if the following criteria are met:

• The financial assets are held within a business model with the objective of holding the assets to collect the contractual cash flows and;

• The contractual terms for the financial assets give rise to cash flows that are solely payment of principal or interest.

Financial assets are measured amortised cost using the effective interest rate method, with the carrying value adjusted by the expected credit loss (ECL) for each asset. Interest is included in the consolidated sta tement of income under interest revenue or interest expense on an accrual basis. The movement in ECL for these assets is recognised in the consolidated statement of income.

Debt Instruments Measured at Fair Value through Other Comprehensive Income (FVOCI)

Debt instruments are classified as FVOCI if the following criteria are met:

• The financial assets are held within a business model with the objective of collecting the contractual cash flows or potentially selling the assets, and;

• The contractual terms for the financial assets give rise to cash flows that are solely payment of principal or interest.

Subsequent to initial recognition, unrealized gains and losses on debt instruments measured at FVOCI are recorded in other comprehensive income (OCI), unless the instrument is designated in a fair value hedge relationship. Upon derecognition, realized gains and losses are reclassified from OCI and recorded in non -interest income in the consolidated statement of income on an average cost basis. Foreign ex change gains and losses that relate to the amortised cost of the debt instrument are recognised in the consolidated statement of income.

Premiums, discounts and related transaction costs are amortised over the expected life of the instrument to interest income in the consolidated statement of income using the effective interest rate method.

Impairment on debt instruments measured at FVOCI is calculated using the expected credit loss approach. The ECL on debt instruments measured at FVOCI does not reduce t he carrying amount of the asset in the consolidated statement of financial position, which remains at its fair value. Instead, an amount equal to the allowance that would arise if the assets were measured at amortised cost is recognised in OCI with a corre sponding charge to an allowance for credit losses in the consolidated statement of income. The accumulated allowance recognised in OCI is recycled to the consolidated statement of income upon derecognition of the debt instrument.

Debt instruments are measured at FVTPL for assets:

• held for trading purposes;

• held as part of a portfolio managed on a fair value basis; or

• whose cash flows do not represent payments that are SPPI.

These instruments are measured at fair value in the consolidated statement of financial position, with transaction cost recognised immediately in the consolidated statement of income as part of non -interest income. Realised and unrealized gains and losses are recognised as part of non -interest income in the consolidated statement of income.