Page 1

Annual Report

2008 A production of BBB Advertising

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"A Treasure ‌ In the Sands of Time"


CORPORATE INFORMATION PROFESSIONAL ASSOCIATIONS Antigua & Barbuda Chamber of Commerce and Industry Ltd. Antigua Hotels & Tourist Association Antigua & Barbuda Bankers Association Bank Administration Institute Caribbean Association of Indigenous Banks Employers’ Federation Antigua & Barbuda Marine Association AUDITORS PKF Chartered Accountants & Business Advisors

“A Treasure … in the Sands of Time” The finest specimen of pearls comes from the “queen conch” native to the Caribbean. A true treasure in the sands of time.

SOLICITORS Commodore & Associates Cordell Sheppard Roberts & Co. Sylvia N. Camacho O’Mard

LOCATIONS MAIN OFFICE ABI Financial Centre 156 Redcliffe Street P.O. Box 1679, St. John’s, Antigua Tel: (268) 480-2700 Fax: (268) 480-2750 E-mail: abib@abifinancial.com Website:www.abifinancial.com BRANCHES Woods Centre Jolly Harbour

CORPORATE SECRETARY Marcel Commodore FOREIGN CORRESPONDENTS Canada Toronto Dominion Bank

ABIB has stood the test of time and emerged as a gem among financial institutions in Antigua and Barbuda.

United States of America Bank of America International

With bailouts & buyouts and mergers & acquisitions becoming more prevalent, ABIB remains resolute in its quest to protect its assets, cherish its customers, nurture its staff and help the community to prosper.

Caribbean Barbados National Bank 1st National Bank of St. Lucia St. Kitts Nevis Anguilla National Bank Ltd.

United Kingdom Lloyds Bank TSB

20 08 ANNUAL REPORT


MISSION We at ABI Bank Ltd. are committed to maximizing benefits and opportunities accruing to our stakeholders by providing innovative and competitive products and services and strategically leveraging our relationships with local, regional and international affiliates.

VISION ABI Bank Ltd. resolves that by 2010 it will be the financial services provider of choice for both private and corporate customers in Antigua and Barbuda and a leading player in the OECS sub-region with significant global reach.

“The roots of true achievement lie in the will to become the best that you can become.� -Harold Taylor, Author

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20 08 ANNUAL REPORT


CORE VALUES We believe in: t Guaranteeing consummate customer satisfaction through superior products and excellent services; t Maximizing staff potential by providing an environment which encourages individual creativity and optimal productivity; t Investing wisely while taking appropriate business risks in order to achieve rewarding results; t Holding ourselves accountable to the highest ethical and regulatory standards; t Adding value to the community by practicing corporate social responsibility; t Leading in innovation and entrepreneurship.

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"A Treasure ‌ In the Sands of Time"


CONTENTS 5 7 9 11 19 21 23 25 29

Chairman’s Remarks Financial History Board of Directors Directors’ Report Board Committees Management Team Human Resources Management Cherishing Our Communities Auditors' Report

3

20 08 ANNUAL REPORT


Sylvia N. Camacho O’Mard Chairman

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"A Treasure … In the Sands of Time"


CHAIRMAN'S REMARKS INTRODUCTION On behalf of the Board of ABI Bank Ltd. (ABIB), I am pleased to present the Annual Report for 2008 which reflects another year of growth and profitability with resultant returns to shareholders, notwithstanding the challenging m a r k e t c o n d i t i o n s l o c a l l y, regionally and internationally. The financial crisis presently affecting global economies has placed considerable pressure on the performance and capital positions of a number of international banks. Unprecedented volatility in the securities markets has resulted in the loss of confidence by investors which, in turn, has led to the weakening of large financial institutions abroad. Consequently, t h e re h ave b e e n a n u m b e r of acquisitions, bankruptcies and government interventions throughout the world economies. The OECS region is not immune to the fallout from this crisis. The international market conditions, combined with the slowdown in our economy, dictate the need for increased prudence and vigilance in 2009.

Due to heightened risk management, we avoided any d a m a g i n g e x p o s u re t o t h e financial instruments that sparked the credit crisis in the past year and have no direct exposure to the structured products offered on the markets or to the sub-prime mortgage loan market.

Based on the performance for 2008, the Bank declared a dividend pay out of 20 cents on the dollar. During the past year our subsidiary, ASD Financial Services in Miami, realized its target of achieving profitability by 2008. OUTLOOK

ABIB therefore remains a strong financial institution intent on realizing its vision of becoming the financial services provider of choice in Antigua and Barbuda and a leading player in the Caribbean with global reach. FINANCIAL HIGHLIGHTS The Bank realized pre-tax profit of $10,014,245 – an increase of 12.6% over the prior year. Net after tax profit amounted to $5,290,002. Our financial highlights for the year include: t 30"PG t 30&PG t (SPXUIPGJOUPUBM average assets t (SPXUIPGJO customer deposits t *ODSFBTFPGJO shareholders’ equity

Economists predict that there will not be a significant correction in global economic conditions until 2010 and we anticipate that this will continue to impact our region. Conditions for both credit and liquidity are anticipated to remain tight in the financial markets as investors remain wary of the global financial situation. At the time of writing, the challenges being faced by CL Financial Holdings and Stanford International Group are making headlines. We expect the negative images portrayed by the international media will no doubt have an impact on the Caribbean’s financial sector and, by extension, the financial sector in Antigua and Barbuda. However, we have confidence in the resilience of the sector and, although the banking environment is likely to remain

ADAPTABILITY

Evolving with your clients means adapting current services to meet their future needs. Anonymous 5

20 08 ANNUAL REPORT


CHAIRMAN'S REMARKS Continued… challenging in the short-term, we expect stability to be maintained in the market. ABIB maintains a strong operating platform and has a clear, focused strategy. Prudent management of risk, capital and costs will continue to be a priority and we are therefore confident that the Bank is well-positioned to confront the turbulent economic conditions that forecasters are predicting for 2009. In response to our stakeholders, we have made more information available online and we are very pleased to support this timely a n d co s t - e f fe c t i ve d e l i ve r y m e t h o d. I n 2 0 0 9 , A B I B w i l l commence the production of a semiannual financial report as well as issue notices to customers about upcoming products and initiatives.

$-04*/(3&."3,4

to t h e h i g h e s t s t a n d a rd o f performance.

ABI Bank Ltd has proven its strength in both favourable and unfavourable markets. Our strategy is sound and we intend to continue in pursuit of our vision. Our highest priority is to serve the interests of our stakeholders and the communities in which we operate. Therefore, although 2009 is anticipated to be a challenging year for the financial services sector, the Board is optimistic about the Bank’s performance g o i n g f o r w a r d . We i n t e n d to seek new avenues to strengthen our business and seize any oppor tunities that may present themselves in order to achieve continued growth and profitability and deliver to our investors the highest returns that come from a commitment

As we begin another financial year, we are acutely aware that the achievements of 2008 could not have been possible without the commitment and hard work of the Board, Management and Employees. I therefore take this opportunity to express sincere gratitude to these individuals for their contribution during the past year. I would also like to thank our loyal customers and shareholders for their support and confidence in ABI Bank Ltd. We look forward to your continued support as we take the Bank to a higher level in 2009 while demonstrating our commitment to good governance and the highest ethical standards.

SSylvia l i N h O’M d N. C Camacho O’Mard Chairman

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"A Treasure … In the Sands of Time"


FINANCIAL HISTORY EXPRESSED IN EASTERN CARIBBEAN DOLLARS (000’S OMITTED)

Non Consolidated /Non IFRS

IFRS Consolidated

2008

2007

2006

2005

2004

1,073,552

955,539

827,206

649,943

559,619

%&104*54

989,280

872,126

760,971

583,070

513,709

LOANS

713,366

643,010

505,853

444,614

364,466

4)"3&)0-%&34&26*5:

62,897

61,485

54,804

45,279

33,162

/&5*/$0.&CFGPSF5BYBUJPO

10,014

4,434

7,032

8,231

7,361

/00'4)"3&4*446&%

21,223

21,223

18,231

16,064

11,635

&"3/*/(41&34)"3&

0.25

0.22

0.41

0.54

0.63

%*7*%&/%1&34)"3&

0.18

0.31

0.22

0.37

0.00

"44&541&3&.1-0:&&

8,322

8,309

7,589

6,074

5,891

'6--5*.&&.1-0:&&4

129

115

109

107

95

3&563/0/"7"44&54

0.52

0.50

0.95

1.36

1.41

3&563/0/"7&26*5:

8.47

7.63

14.05

20.99

24.81

&''*$*&/$:

0.69

0.83

0.73

0.71

0.71

-0"/450%&104*54

72.11

73.73

66.47

78.76

70.95

$"1*5"-40-7&/$:

6.73

7.10

7.56

8.21

6.85

3*4,#"4&%$"1*5"-

7.97

8.66

10.27

11.39

9.90

/&5*/5&3&45*/$0.&

41,938

43,913

29,585

22,100

17,026

$3&%*5-044&91&/4&

6,518

15,846

4,051

5,057

5,620

/0/*/5&3&45*/$0.&

21,121

13,343

12,652

14,611

8,873

/0/*/5&3&45&91&/4&

37,111

31,716

26,645

21,180

13,019

"44&54

RATIOS %

PROFIT & LOSS

RISK TAKING

Carefully picking where risks can be taken can harvest great rewards. 7

20 08 ANNUAL REPORT


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"A Treasure ‌ In the Sands of Time"


BOARD OF DIRECTORS Sylvia N. Camacho O’Mard - Chairman Mrs. O’Mard is an Attorney-At-Law and was elected as Chairman of the Board in 2003. She is a graduate of Pace University School of Law in New York, U.S.A. and the University of the West Indies, Faculty of Law. Mrs. O’Mard is a private practitioner and specializes in Corporate and Real Estate Law.

Marcel Commodore – Corporate Secretary Mr. Commodore is an Attorney-at-Law, operating his own law practice in Antigua. He is a graduate of the University of the West Indies – Faculty of Law, and the Hugh Wooding Law School – Trinidad. He is also a member of the Antigua & Barbuda Bar Association and the Antigua & Barbuda Cricket Association. Mr. Commodore serves on the Boards of Blue Cap Enterprises and PKB PrivatBank Limited in Antigua, Banque de l’Union Hatienne in Haiti and was appointed Corporate Secretary to ABIB’s Board in 1990. Mr. Commodore is a former professional banker and has a wealth of experience in the field of Corporate Law.

McAlister Abbott Mr. Abbott is the Managing Director of the ABI Financial Group, and has been with the Group from its inception in 1990. Mr. Abbott holds a Diploma and a Post Graduate Diploma in Banking from the Graduate School of Banking, University of Wisconsin, Madison. Mr. Abbott is a founding member of Provident Bank & Trust of Belize Ltd. and has a distinguished career in banking which started in 1968 at Barclays Bank plc.

Lady Alice Roberts Mrs. Roberts is a Certified General Accountant and Managing Director of CMT Corporate Services Ltd. She is also the Administrator of Roberts & Co, Attorneys-at-law. Mrs. Roberts is a member of the Society of Trust and Estate Practitioners, the Association o f Le g a l Ad m i n i s t r a to r s a n d t h e Institute of Chartered Accountants of the Eastern Caribbean and Secretary to the Antigua Branch, Lady Alice has been a member of the ABIB Board since 2002.

Maurice Antonio Mr. Antonio is a prominent Antiguan businessman specializing in heavy-duty equipment and real estate development. He has 24 years of managerial experience in the airline industry, having worked with Air Canada and BWIA. Mr Antonio is a founding member of the ABI Financial Group.

Dion Francis M r. F r a n c i s i s a n e n t r e p r e n e u r and Managing Director of Kennedy’s Club Ltd. He is a member of the Board of Directors of the Antigua Brewery Ltd. and has served on the Board of ABI Bank Ltd. since 2004.

Eugene Abbott Mr. Abbott is an engineer by profession with extensive experience in the airline industry. He is currently the CEO of Bizjet-To-Yacht, a Chevron Texaco Branded “Corporate and General Aircraft” refueling company. Mr. Abbott is a founding member of the ABI Financial Group.

Clarvis Joseph Mr. Joseph is a founding member and Managing Director of Caribseas Inc., one of the leading shipping agencies in Antigua and Barbuda. He is a past president of the Antigua and Barbuda Chamber of Commerce and Industry and has served on the West Indies Cricket Board. Mr. Joseph has been a member of the ABIB Board since 2002.

Edward Meyer Mr. Meyer is an entrepreneur and has over 20 years of experience in owning and directing his own business. He is currently the Managing Director and co-owner of TransCaribbean Marketing in Antigua. Mr. Meyer has been a member of the ABIB Board since 2002

David Straz Jr. Mr. Straz is a distinguished American businessman who brings a wealth of expertise to the Board. He is the US Ambassador at large for Central America, Honorar y Consul for the Republic of Liberia and the Republic of Honduras, Commissioner of the Florida Transport Commission and Trustee of the David A. Straz Jr. Foundation. Mr. Straz was appointed to ABIB’s Board in 2005. Dahlia Francis-Edwards Mrs. Francis-Edwards is a business woman who serves as the Assistant Manager at Francis Trading Agency Ltd., a family-owned local shipping company. She holds a BA in International Business with a minor in Management from Howard University. Mrs. Francis-Edwards was elected to the Board of Directors in 2006.

RESPONSIBILITY

Nurturing high standards ensures that growth is in the right direction. 9

20 08 ANNUAL REPORT


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"A Treasure ‌ In the Sands of Time"


DIRECTORS' REPORT INTRODUCTION

There are lessons to be learnt

from designated merchants in

from this sequence of events and

Antigua and Barbuda.

One year ago, we intimated that

we are committed to ensuring

banking was being transformed

that we provide the necessary

Very shortly, we will become

on a daily basis. We specifically

level of oversight, not only to

the first Bank in Antigua and

commented on the fallout from

preclude such a development

Barbuda to make it possible

the sub-prime crisis, which

but to ensure that ABI Bank Ltd.

for our customers to use their

resulted in several notable bank

(ABIB) stands out as a shining

mobile phones to conduc t

failures. We also alluded to the

example of how a financial

banking transactions. As well,

fact that we operate in a shrinking

institution should be managed.

we will introduce a Visa branded Debit Card, which will permit

financial space, where events in one country immediately impact

We remain steadfast in our

our customers to access funds

other countries.

quest to transform ABIB into a

on their accounts from most

market leader in all respects.

countries. Apart from increased

I f there were any illusions

We continue to make significant

convenience for our customers,

regarding this statement, a

strides and, with the continued

the Debit Card will reduce the

recent event in Antigua has

support of management and

risks faced by merchants from

confirmed that fact. The recent

staff, we expect to become the

the high incidence of returned

event referred to involves

leading bank in Antigua and

cheques.

the Securities and Exchange

Barbuda within a few years. We

Commission (SEC) in the USA

are living in a very competitive

I n a d d i t i o n to t h e s e l o c a l

investigating Sir R. Allen Stanford

world and ABIB is committed

initiatives, we have taken other

and three companies of the

to using technology to improve

steps to broaden the reach of ABIB,

Stanford Financial Group. Bank

on the range and quality of

through a series of strategically

of Antigua Limited was not

product offerings made available

placed investments in financial

named in the charge but, due to

to our clients. In this regard,

institutions and other businesses

the common ownership of the

during the month of March

in the Caribbean and North

companies, depositors panicked

2009, we launched a co-branded

America. We appreciate that it

and there was a run on deposits.

debit card in collaboration with

would take time to realize the

This culminated with five regional

the Government of Antigua &

full benefit of these investments,

indigenous banks assuming

Barbuda that will allow qualified

but we are confident that we will

control of its operations.

beneficiaries to purchase goods

see the proverbial silver lining in

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20 08 ANNUAL REPORT


DIRECTORS' REPORT Continued‌ INVESTMENTS

OECS/Government Debt Securities

34% Equity Securities

53% Corporate Debt Securities

13%

the performance of these entities. In short order, these investments are expected to make a positive contribution to the performance of the Bank, and position us to achieve our stated objective of becoming the pre-eminent financial conglomerate in Antigua and Barbuda. We now provide a synopsis of the operating results achieved in fiscal 2008. During fiscal 2008, our assets re c o rd e d re a s o n a b l y g o o d growth and surpassed the $1 billion threshold. In so doing, we became the first indigenous bank and the second bank overall in Antigua and Barbuda to achieve this milestone. As a result of this

12

"A Treasure ‌ In the Sands of Time"

accomplishment, we are now listed among the top five of the largest banks operating in the Eastern Caribbean Currency Union (ECCU).

Despite this achievement, we faced a number of challenges t h r o u g h o u t t h e y e a r. T h e international financial meltdown caused a significant reduction in inward capital flows into Antigua and Barbuda and a contraction in economic activity. We experienced a tightening of liquidity and this, plus a reduction in the quantity and quality of available lending oppor tunities, resulted in a reduction in the growth in our loans and advances portfolio. All factors considered, we achieved satisfactory growth of 10.94%. As in the past, our loan mix remained virtually unchanged,


with credit facilities concentrated in the areas of public administration, the distributive trades, construction and tourism a n d l a n d d e v e l o p m e n t . To compensate for the reduction in attractive lending opportunities, we increased our investment in securities. We are pleased to report that, due to our prudent investment strategy, we were not exposed to any loss from the sub-prime crisis. And while the effective yield on our investments decreased from 6.42% to 4.88%, this was due to the worldwide underperformance of equities, resulting from the economic recession. The primary source of funds to support the growth in our loan and investment portfolios was customer deposits. In this regard, our deposits increased from $872.1M as at September 30, 2007 to $989.3M as at September 30, 2008, an increase of $117.2M or 13.44%. During the year, we experienced a major shift in our deposit mix. We achieved some success in growing our savings deposits, which now represent 18.94% of our total deposits. H owe ve r, d e m a n d d e p o s i t s declined significantly, due to some businesses using these funds to finance their operations, rather than approaching the Bank for financing. Additionally, some business persons transferred funds from their chequing accounts to

LOANS, ADVANCES AND CREDIT CARDS

2%

1% Utilities

4%

Construction & Land Development

11%

Distributive Trades Tourism

24%

Entertainment & Catering

9%

Professional & Other Services Transportation & Storage

9%

Public Administration Personal

4%

26%

Credit Cards

4%

Others

6%

Agriculture 0% Manufacturing 0%

fixed deposits in order to earn an increased level of interest income. As a result of this shift, demand deposits declined from 21.37% of

total deposits in 2007 to 9.51% of total deposits in 2008. In contrast, term (fixed) deposits

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20 08 ANNUAL REPORT


DIRECTORS' REPORT Continued… i n c re a s e d by $ 1 4 3 . 4 M , a n d now represent 50.04% of our total deposits. Funds under Management also increased by $37.86M, and now represent 12.66% of total deposits. The increase in these two products skewed the ratio of high cost deposits to total deposits and this is reflected in an increase in our interest expense. We shall therefore place greater emphasis on growing savings and demand deposits in the year ahead, in an attempt to reduce the average cost of funds.

We achieved this result despite the challenge of the higher cost of funds referred to earlier. Due to the increase in our cost of funds, our Net Interest Income declined from $43.91M in 2007 to $41.93M in 2008. This decrease was however offset by an increase in our fees and commission income and, in addition, we benefited from extraordinary income of approximately $5M. As a result, our total operating income increased from $57.25M to $63.05M. Meanwhile, our credit loss expense declined by $9.32M and we experienced an

OPERATING RESULTS The Bank’s tax exempt status expired at the end of fiscal 2007, so we commenced paying corporate income tax from fiscal 2008. The Bank achieved net income before tax and losses of associates of $13.9M in fiscal 2008, representing an increase of 44.28% over the prior year. After accounting for losses incurred by associates and joint ventures, net income for the year amounted to $5.27M, compared with $4.43M in fiscal 2007. This performance resulted in earnings per share of $0.25 compared with $0.22 the prior year.

14

"A Treasure … In the Sands of Time"

%

improvement in our net operating income. We continued to exercise good control over expenditure and, whereas our net operating income increased by $15.13M, operating expenses increased by $5.39M resulting in a significant increase in our Operating Profit. With the changes in the local, regional and international environment, we will continue to exercise prudence in the year ahead to ensure the continued growth and advancement of the Bank.


ECONOMIC ACTIVITY Source: The ECCB Annual Economic and Financial Review 2007 and the ECCB Economic and Financial Review June 2008 In the first quar ter of fiscal 2007/08, economic activity in Antigua and Barbuda remained vibrant, although the pace slowed compared with that of 2006. Based on preliminary data, real GDP is estimated to have increased by 6.3%, following an expansion of 12.2% in 2006. Growth was broad based, influenced largely by increased activity in construction and tourism. The consumer price index rose by 5.1% during 2007, on an end of period basis. The fiscal operations of the central government resulted in a lower overall deficit. The total public sector outstanding debt increased. Monetary liabilities and domestic credit rose, while net foreign assets of the banking system contracted. Liquidity in the banking system increased in 2007 and the weighted average interest rate spread increased slightly. A smaller overall balance of payments surplus was recorded, largely attributable to increased outflows on the current account. The double digit growth in construction activity experienced since 2005, continued in 2007, although at a reduced rate. Value added in the construction sector is estimated to have expanded by 12.0% compared with 35.0% in 2006. The sector’s contribution to GDP rose by 1.0 percentage

point to 19.9% in 2007. The expansion was supported in part by private sector investment in tourist accommodation, private dwellings and commercial buildings including a campus facility by an American university. The pace of public sector activity is estimated to have slowed as some major projects, associated with preparations for Cricket World Cup (CWC) 2007, were completed in the early half of the year. The focus of activity was on road development and building a car park. For the first six months of 2008, which represented the second and third quarters of ABIB’s financial year, economic activity in Antigua and Barbuda was estimated to have expanded, albeit at a slower rate relative to the corresponding period of 2007. Growth was driven mainly by the construction sector and the tourism industry with construction activity above the level in the corresponding period of 2007. This reflected increased investment by the private sector which focused largely on commercial development, including hotels and rental units. Residential development also bolstered activity in the sector. The expansion in construction activity was supported in part by an increase in commercial bank credit for home construction and renovation. Public sector activity was mainly associated with a road rehabilitation and development programme, an

airport redevelopment project and the construction of a car park. Activity in the tourism industry increased in the first six months of 2008, compared with the corresponding period of 2007, driven by a rise in stay-over arrivals. The number of stayover visitors increased by 9.0% to 147,793, in contrast to a 1.2% contraction in the first half of 2007. Arrivals from the USA rose by 14.8%, mainly attributable to increased airlift and marketing activities. Stay-over arrivals from Canada increased by 40.4%, largely on account of favourable economic developments in that market. The number of tourists from the Caribbean grew by 14.1%, in contrast to a decline of 15.7% in the comparable period of 2007. The increase in Caribbean visitors was partly attributed to the hosting of a number of special events including the 20/20 Cricket Tournament and the inaugural Romantic Rhythms Music Festival. The number of cruise passengers is estimated to have decreased by 6.0% to 373,735, partly attributable to a 15.5% reduction to 208 in the number of cruise calls, as cruise lines adjusted to the rising cost of fuel. The consumer price index increased by 1.5% during the review period. The merchandise trade deficit is estimated to have widened. The fiscal operations of the central government resulted

15

20 08 ANNUAL REPORT


DIRECTORS' REPORT Continued‌ In a larger overall deficit. The stock of outstanding public sector debt fell during the period under review. Commercial bank liquidity increased, while the weighted average interest rate spread between loans and deposits narrowed. Though actual information for the performance of the Antigua a n d B a r b u d a e co n o my w a s unavailable for the third quarter of 2008, the ECCB forecasted a decline in economic activity derived mainly from potential adverse international economic developments. The increasing prospects of faltering economic growth in major trading partners, such as the USA and the UK, create some uncertainty in respect of increases in tourist arrivals and foreign direct investments. Output in the second half of 2008 is projected to be above the level in the corresponding period of 2007, fuelled again by developments in construction and tourism. The overall deficit of the central government is projected to increase, as growth in total expenditure is likely to outpace that of total revenue. Downside risks include a further slow down in the US economy, reduced airlift particularly from the USA, the main market, and unfavourable weather.

16

"A Treasure ‌ In the Sands of Time"

THE FINANCIAL SYSTEM Source: The ECCB Annual Economic and Financial Review 2007 and the ECCB Economic and Financial Review June 2008

Credit, net credit to non-financial public enterprises decreased by 35.1%, reflecting an increase in deposits (27.4%).

Monetary liabilities increased by 10.4% to $2,733.4M during 2007, driven by buoyant economic activity and inflows of foreign direct investment. Growth was recorded for both narrow money (M1) (4.8%) and quasi money (12.4%). The expansion in M1 emanated from growth in private sector demand deposits (8.1%), as currency held with the public decreased (6.8%). Strong growth was reported for all components of quasi money namely private sector foreign currency deposits (27.8%), time deposits (13.8%) and savings deposits (7.2%).

Monetary liabilities (M2) increased by 4.6% to $2,879.2M during the first half of 2008, par tly attributable to the expansion in economic activity. Growth in M2 was reflected in both M1 and quasi-money. M1 increased by 9.7% to $736.8M, on account of expansions in both private sector demand deposits and currency with the public. Quasi money grew by 3.0% to $2,142.4M. Of the components of quasimoney, private sector savings and time deposits increased by 5.6% and 5.3% respectively, while private sector foreign currency deposits decreased by 13.0% ($36.5M).

Domestic credit increased by 14.7% to $2177.0M, partly reflecting growth in private sector borrowing. Outstanding credit to the private sector rose by 13.3%, mirroring increases in credit to both households (18.8%) and businesses (18.9%). Net credit to central government increased by 35.2% to $264.5M. This increase was the combined result of a 15.6% growth in commercial bank credit and a 16.9% decrease i n g ove r n m e n t d e p o s i t s a t commercial banks associated with financing the overall deficit. Of the other components of domestic

Domestic credit expanded by 3.7% to $2,281.0M during the review period, largely reflecting growth in credit to the private sector and subsidiaries and affiliates. Private sector credit increased by 2.0%, a deceleration from the 8.2% of expansion recorded in the first half of 2007. This outturn was the result of a decrease in credit to businesses which partly offset a 4.5% increase in credit to households. Net credit to subsidiaries and affiliates more than doubled, reflec ting an increase in loans and a reduction in deposits.


The central government’s net

RISK MANAGEMENT

indebtedness to the banking sector fell by 12.9% to $230.3M, reflecting a 16.4% increase in its deposits at commercial banks combined with a decrease of 1.0% in total credit, mainly Treasury bills and debentures held by commercial banks. In the rest of the public sector, the net deposits of the non-financial

The Bank’s Risk Management program focuses on the following nine risk categories: A. Credit risk. The risk from a debtor’s failure to meet the terms of any contract with the bank or failure to perform as agreed otherwise. b.

Interest rate risk. Risk from movement in interest rates.

c.

Liquidity risk. Risk from a bank ’s inabilit y to meet its obligations when they become due, without incurring unacceptable losses.

public enterprises fell by 2.7%, as growth in credit exceeded that of deposits. The net deposits position of non-financial public enterprises decreased by 2.7% ($6.5M) mainly on account of an expansion in credit extended by

d.

Price risk. Risk from changes in the value of portfolios of financial instruments.

e.

Transaction risk. Risk from problems with service or product delivery.

f.

Compliance risk. Risk from violations or nonconformance with laws, rules, regulations, prescribed practices, or ethical standards.

g.

Strategic risk . R isk from adverse business decisions or improper Implementation of those decisions.

h.

Foreign exchange risk. Risk from movement of foreign exchange rates, found in cross-border investing and operating activities.

commercial banks. The distribution of credit by economic ac tivit y indicates strong growth in commercial bank credit for distributive trades and for personal use. Credit for distributive trades increased by 18.3% ($36.8M), partly associated with investments in plant and equipment. Outstanding loans for personal use grew by 3.3% ($40.5M), largely for the acquisition of property partly associated with reduced mortgage rates and various government initiatives to increase home ownership. Among the other economic activities, credit for construction increased by 2.2%, reflective of increased activity in that sector.

i.

R e p u t a t i o n r i s k . R i s k to earnings or capital arising from negative public opinion.

The major risks to ABIB include a deepening of the global financial market crisis coupled with a further downturn in the economy of the USA, a major trading partner of Antigua and Barbuda; elevated international prices of food, fuel and other commodities; reduced airlift from the USA and the UK; and adverse weather. These risks may lead to further increases in domestic prices and erode consumers’ purchasing power, ultimately further dampening economic activity in Antigua and Barbuda. From a risk management perspective, the Bank has been and will continue to be proactive in terms of achieving a competitive edge in the local and regional financial services marketplace. For the upcoming financial year, the Bank will continue to comply with capital and risk management standards prescribed by the Impending Basel II framework. This framework, which replaces the original Basel Capital Accord enacted in 1988, is intended to promote public confidence in the banking system by ensuring that banks properly evaluate the various risks they face. COMPLIANCE ABIB takes a proac tive risk based approach towards compliance. In this regard, the Bank employs a two step process whereby at the first stage the

17

20 08 ANNUAL REPORT


DIRECTORS' REPORT Continued… Bank engages in extensive due diligence on all customers. The Bank’s due diligence process involves obtaining customer information in order to verify customer identity, source of funds projected transaction activity on the account, business interests of the account holder and beneficial ownership interest. The Bank also employs the use of compliance due diligence software such as Choice “OFAC” Check List, World Compliance and World Check in terms of confirming customer

18

"A Treasure … In the Sands of Time"

identity and other background information.

occur over time and over several different transactions.

The second step in the Bank compliance process involves that of customer transactions monitoring. In this regard, the Bank recently employed the use of customer transaction monitoring software, notably Hadrian XM3 Software and Alchemy. Both systems afford the Bank the oppor tunit y to screen high volumes of transactions and also spot patterns of behavior that may

From a risk based perspective the Bank currently uses a riskbased approach to AML/CFT monitoring which is in accordance with international best practices. In this regard, the Bank accords a risk rating to customers based on predetermined parameters and orients its monitoring disposition according to the level of risk posed by the customer.


BOARD COMMITTEES CORPORATE GOVERNANCE t *NQMFNFOUTTPVOEHPWFSOBODF QSBDUJDFTBOEQPMJDJFTUP GBDJMJUBUFUSBOTQBSFODZJO HPWFSOBODF t "TTJTUTUIF#PBSEJOFWBMVBUJOH UIFTJ[FBOEDPNQPTJUJPOPGUIF #PBSEBOEJOรถMMJOHWBDBODJFT POUIF#PBSE t 0WFSTFFTUIFBOOVBMFWBMVBUJPO PGUIF#PBSE t 1SPNPUFTUIFJOEFQFOEFOU GVODUJPOJOHPGNBOBHFNFOU t &OTVSFTDMFBSMJOFTPG SFTQPOTJCJMJUZFYJTUXJUIJOUIF Bank. Members โ€“ Sylvia Oโ€™Mard, Chairman; Eugene Abbott; Marcel Commodore; McAlister Abbott; Carolyn Philip.

HUMAN RESOURCES & EDUCATION t &OTVSFTUIBUBRVBMJรถFEBOE DPNQFUFOUUFBNJTSFDSVJUFE BOEEFWFMPQFEUPUIFJSGVMM QPUFOUJBM t 3FWJFXTBOEBNFOETQPMJDJFT BOEQSPDFEVSFTUPSFรธFDU DIBOHFTJOUIFJOUFSOBMBOE FYUFSOBMFOWJSPONFOU t 'BDJMJUBUFTUIFPOHPJOH QSPGFTTJPOBMEFWFMPQNFOUPG UIF#BOLTFNQMPZFFT Members โ€“ Alice Roberts, Chairman; Dahlia FrancisEdwards; Sylvia Oโ€™Mard; McAlister Abbott; Ambassador Joan Underwood; Bernadette Knight Roberts; Everett Christian

EXECUTIVE t &YFSDJTFTBMMUIFQPXFSTPGUIF #PBSEBOEBDUTPOCFIBMGPG UIF#PBSEJOUIFBCTFODFPGBMM NFNCFSTPGUIF#PBSE Members โ€“ Sylvia Oโ€™Mard, Chairman; Clarvis Joseph; Edward Meyer; Eugene Abbott; McAlister Abbott;.

AUDIT t &OTVSFTUIFJOUFHSJUZPGUIF รถOBODJBMSFQPSUJOHQSPDFTT  TZTUFNTPGJOUFSOBMDPOUSPMT SFHBSEJOHรถOBODFBOE BDDPVOUJOHBOEUIFJOUFHSJUZ  PGUIFรถOBODJBMTUBUFNFOUT t .BJOUBJOTDPNQMJBODF XJUIMFHBMBOESFHVMBUPSZ SFRVJSFNFOUTBOEEFWFMPQT TZTUFNTPGPQFSBUJPOBM  DPOUSPM Members โ€“ Eugene Abbott, Chairman; Sylvia Oโ€™Mard, Clarvis Joseph, McAlister Abbott, Bernadette Knight Roberts, Carolyn Philip, Avonelle Watson (ex officio)

RISK MANAGEMENT & COMPLIANCE t *NQMFNFOUTUIF#BOLTSJTL NBOBHFNFOU DPNQMJBODFBOE DPOUSPMBDUJWJUJFTBOEPWFSTFFT BEIFSFODFUIFSFUP t *EFOUJรถFTUIFSJTLTJOIFSFOUUP UIF#BOLBOEJUTSJTLQSPรถMF Members โ€“ Marcel Commodore, Chairman; Edward Meyer; Clarvis Joseph; McAlister Abbott; Carolyn Philip; Peter Queeley; Everett Christian

TECHNOLOGY t "TTFTTFTBOENPOJUPSTUIFSPMF PGUFDIOPMPHZJOUIF#BOL t "EWJTFTBOEBTTJTUT NBOBHFNFOUJOGPSNVMBUJOH BOEJNQMFNFOUJOHTUSBUFHJD QMBOTUPUBLFGVMMBEWBOUBHF PGFYJTUJOHBOEFNFSHJOH UFDIOPMPHZ Members โ€“ Dion Francis, Chairman; Alice Roberts; McAlister Abbott; Eugene Abbott; Carolyn Philip; Etienne Charles

CREDIT t .BOBHFTDSFEJUSJTLBTJU  SFMBUFTUPUIFCBOLTMFOEJOH BDUJWJUJFT t "TTFTTFTCFOFรถUTUPCFHBJOFE GPSJOEVTUSJBMDPNNFSDJBM QSPKFDUT t *NQMFNFOUTBOENPOJUPST QPMJDJFTJOSFMBUJPOUPUIFRVBMJUZ PGUIFCBOLTDSFEJUQPSUGPMJP Members โ€“ Dion Francis; Eugene Abbott, Edward Meyer; Carolyn Philip; Everett Christian, Peter Queeley

TROUBLE LOANS t 3FWJFXTOPOQFSGPSNJOHMPBOT BOEPWFSESBGUGBDJMJUJFTBOE EFUFSNJOFTUIFBDUJPOUPCF taken. Members โ€“ Maurice Antonio, Chairman; Dion Francis; Marcel Commodore; McAlister Abbott; Everett Christian; Carolyn Philip

19

20 08 ANNUAL REPORT


20

"A Treasure ‌ In the Sands of Time"


MANAGEMENT TEAM EVERETT CHRISTIAN Country Manager

LISA ANTONIO WALL Manager Loans

JOSEPH WILLIAMS Manager - Woods Branch

HEATHER WILLIAMS Assistant Manager Investments

ETIENNE CHARLES Manager - Information Communication and Technology

SALLY DAVIS-MEYER Assistant Manager Operations

NALINIE MCDAVID Manager - Special Projects

MARGRETTA RICHARDS Assistant Manager Credit Card

"#*)0-%*/(4-5%š"#*)Ÿ1307*%&4."/"(&.&/5 4&37*$&4*/5)&'0--08*/("3&"4 Corporate Governance & Asset Liability Management Human Resources & Strategic Development Credit Card & Process Improvement Public Relations & Marketing Administrative Services Finance & Accounting Risk & Compliance Internal Audit

COOPERATION

Working with employees to recognize and meet their needs allows the team to soar to new heights. 21

20 08 ANNUAL REPORT


22

"A Treasure ‌ In the Sands of Time"


HUMAN RESOURCES MANAGEMENT: PROTECTING & NURTURING OUR GREATEST TREASURE During the period under review ABI Bank Ltd. (ABIB) continued to invest in its most significant treasure – the men and women who make up the organization. Talent management activities featured two major initiatives – the introduction of SuccessFactorsŽ, an ICT platform to support the Bank’s performance management and balanced scorecard programmes, and an expansion to the Bank’s ongoing succession planning activities. 46$$&44'"$5034ō $3&"5*/(5)&1-"5'03. '035"-&/5505)3*7&

based appraisals and goal plans. All employees are assessed on the core competencies of ethics and integrity, customer focus and job knowledge. These core competencies are then complemented by role specific competencies and individual goal plans. These goal plans are informed by the balanced scorecards thereby linking organizational success to individual performance. Moreover, it will help to ensure that what

gets measured gets done and that what gets done gets rewarded. 46$$&44*0/1-"//*/(ĹŤ /63563*/(-&"%&34)*1 5"-&/5 This initiative was first launched in 2005. Since then a cadre of employees, who have been identified as having significant leadership potential, have benefitted from various developmental interventions Including classroom training,

.ZUITJF.VSQIZ&NQMPZFFPGUIF:FBS

In keeping with its commitment to continuous quality improvement, the HR Department tackled the vital issue of performance appraisals. Drawing on international best practices, an extensive search was conducted for a technological platform that would facilitate the integration of the balanced scorecard with individual per formance appraisals and development plans. The solution was found in SuccessFactorsÂŽ. SuccessFactorsÂŽ features the integration of competenc y-

23

20 08 ANNUAL REPORT


HUMAN RESOURCES MANAGEMENT job rotations, special project a s s i gn m e n t s a n d e xe c u t i ve c o a c h i n g. T h i s s i g n i f i c a n t investment in talent development has already produced returns as participants collaborated to create policy documents and to design a supervisory training programme. Building on the past success, the HR Department introduced a new feature to fast track the development of a few highpotential employees to assume managerial roles. Consultants, Lisa James & Associates, were tasked with grooming these employees. One of the employees was exposed to regional best practices and traveled to Trinidad to visit a number of establishments which had been acknowledged as leaders in the area of talent management. Additionally, other employees drawn from various staff levels benefited from Executive

Coaching. These employees were strategically selected based on the importance of their respective portfolios as well as their perceived leadership potential. ABIB has set the stage for all employees to benefit from these individuals to further enhance and expand our operations. */530%6$*/(,&/4$-6#ō 1305&$5*/(&.1-0:&&4 '30.5)&3*4*/($045 OF LIVING ABIB, cognizant of the economic challenges confronting Antigua & B a r b u d a , h e l p e d to e a s e the squeeze by negotiating a corporate discount programme at Ken’s Club. The response was over whelming as employees from ABIB and its various affiliates signed up en masse to benefit from volume discounts thereby cushioning the impact of rising prices.

#BSCBSB#FOKBNJO+PTFQI4VQFSWJTPSPGUIF:FBS

24

"A Treasure ‌ In the Sands of Time"

Continued‌ $)&3*4)*/(063 (3&"5&4553&"463& At the centre of our growth is the development of our human resources and a fur ther ten staff members benefited from grants and scholarships to the University of the West Indies, the Antigua & Barbuda International Institute of Technology, Florida State University in the U.S.A. and Nipissing University, Ontario, Canada during the period under review. Studies ranged from Banking & Finance and Business Administration to Management Studies and Financial Planning. This report represents a mere snapshot of the odyssey that is ABIB’s commitment to protect, nurture and cherish the men and women who strive on a daily basis to contribute to the success of the organization. ABIB is confident that this investment will continue to yield excellent returns.


CHERISHING OUR COMMUNITIES At ABI Bank Ltd. (ABIB), we treasure the communities in which we live and work. We believe that as we grow, our communities too must grow. We believe that while it is our duty to protect the assets entrusted to us by stakeholders, it is equally our responsibility to invest in our youth and our communities so that we can nurture and develop them.

/63563*/(063:065) Our 7th annual ‘Career Affair’ in 2008, hosted over 500 students from secondary schools across the twin-island state. The programme continued to increase students’

awareness of the diversity of employment opportunities and career paths. Students attended workshops and/or seminars in areas of business, technology, health, finance, medicine and manufacturing, which provided an

4UVEFOUTPG$MBSF)BMM4FDPOEBSZHFUUJQTPOIJHIGBTIJPOGSPN$BMWJO4PVUIXFMM at the 2008 Career Affair.

Recognizing the important role that we play not only in society, but in preserving our cultural heritage, ABIB continued its community involvement with a number of support initiatives. Our efforts addressed the needs of our communities and the passion of our employees, who combined their skills and generosity to help make a difference.

#SVDFMMB.BSTIPDDVQJFTDFOUSFTUBHFBNPOHPUIFSQBSUJDJQBOUT BUUIF(MPCBM7JMMBHFGPS'VUVSF-FBEFST -FIJHI6OJWFSTJUZ 1FOOTZMWBOJB

opportunity for them to interact with professionals from various disciplines. For the 3rd consecutive year, ABIB also partnered with Lehigh University to offer a scholarship to attend the “Global Village for Future Leaders of Business a n d I n d u s t r y.” S c h o l a r s h i p recipients are able to hone their business skills, establish a global network, enhance leadership and entrepreneurial skills and increase their knowledge of business and various industries.

25

20 08 ANNUAL REPORT


CHERISHING OUR COMMUNITIES Continued‌ The 2007/8 recipient, Brucella Marsh, got the opportunity to network with more than 100 individuals from 50 countries. She received the best presenter and speaker Award at the country panel presentation and was chosen, along with France, to deliver an address at the Class Graduation. Brucella was also exposed to seminars at the United Nations and the World Bank and visited the financial and fashion (retail) districts in New York as well as Washington DC, where she studied politics and business and met with a White House representative. ABIB also invested in other educational programmes by

providing assistance to primary, secondary and tertiary institutions through the sponsorship of spelling bees, debating competitions, educational expeditions and other educational and mentoring initiatives. &/3*$)*/(063$0..6/*5*&4 Our commitment to improving the quality of life in our communities was exhibited through the many partnerships and various contributions made to the development of various organizations and individuals. We supported civic and nonprofit programmes to enrich seniors’ lives and assisted the homeless by providing basic

4QSFBEJOH$ISJTUNBT$IFFSBUUIF'JFOOFT*OTUJUVUF)FSF+PBOOF#JSE(FPSHF 4FOJPS13 .BSLFUJOH0ĂłDFSBU"#*QSFTFOUTTVQQMJFTUP"MUPO'PSEF

26

"A Treasure ‌ In the Sands of Time"

needs. An annual contribution was made to the Rotary Club “Meals on Wheels� programme, which provides for some 100 less fortunate families and monthly donations were provided to the Amazing Grace Foundation’s ‘Adopt a Child� programme. Our staff volunteered their time to visit the patients at the Children’s Ward of the Holberton Hospital to bring them some Christmas Cheer as well as the Fiennes Institute for the Elderly, where a host of supplies was donated to the residents. 53&"463*/(0635"-&/5 ABIB’s investment in the area of sports continues to show that we care about our community and are prepared to invest in its future and the welfare of its citizens. We partnered with the Antigua and Barbuda Olympic Association to offset expenses of the 22-member contingent attending the 2008 Beijing Olympics, in addition to outfitting the team for the event. We are also proud to have supported other associations and events such as the CARICOM 10K Run, the Under 13 International Tennis Federation (ITF) Development Championship and the Villa Lions Academy as well as provided funding to help teams purchase equipment and uniforms and facilitate training.


13&4&37*/(063$6-563& Culture and heritage is strongly represented in the broad spectrum of arts, humanities, festivals and organizations and are very important facets of our tourism industry that must be preserved. It is on this assertion that we invested over $150,000 to become the title sponsor of the 2008 Queen of Carnival Pageant. We were also headlined as a “Euphoria Sponsor� of the first

Antigua & Barbuda Music Festival, “Romantic Rhythms�, which not only highlighted international artistes but served as a platform for boosting the careers of many local artistes. We also continued our sponsorship of the ABIB/Ottos Comprehensive Steel Orchestra for the 8th consecutive year. In 2007/8, over $265,000 was committed to social programmes

and events as evidence of our commitment to community. This allowed us to continue to achieve one of our core v a l u e s o f “a d d i n g v a l u e to the community by practicing corporate social responsibility.� This was underscored when ABIB was awarded the 2008 “Good Corporate Citizen Award� in recognition of its outstanding contribution to Social Services by the Eastern Caribbean Central Bank (ECCB).

$POTVMUBOUUPUIF $"3*$0.4QPSU BOE%FWFMPQNFOU 4FDSFUBSJBU .S(FPSHF Rutherford (left) and UIFPSHBOJ[BUJPOT %FQVUZ1SPHSBNNF .BOBHFS4QPSUT %FWFMPQNFOU .S+PIO $BNQCFMM SJHIU SFDFJWF "#*#QPMPTIJSUTGPSUIF $"3*$0.,GSPN "#*T13.BSLFUJOH .BOBHFS .BSJF "OUPJOFUUF.PSB

1SFUUZHJSMTBMMJO BSPX"#*# Queen of Carnival DPOUFTUBOUT interact with a DVTUPNFSBUUIF #BOLT8PPET Branch

27

20 08 ANNUAL REPORT


ABI BANK LTD. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

29 30 31 32 33 34 69

28

"A Treasure … In the Sands of Time"

CONTENTS AUDITORS’ REPORT CONSOLIDATED BALANCE SHEET CONSOLIDATED INCOME STATEMENT CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY CONSOLIDATED STATEMENT OF CASH FLOW NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS SCHEDULES TO THE CONSOLIDATED INCOME STATEMENT


Chartered Accountants & business advisers

AUDITORS’ REPORT TO THE SHAREHOLDERS OF ABI BANK LTD. We have audited the accompanying Consolidated Financial Statements of ABI Bank Ltd., and its subsidiaries (together, the Group), which comprise the Consolidated Balance Sheet as at 30th September, 2008 and the Consolidated Income Statement, Consolidated Statement of Changes in Shareholders’ Equity and Consolidated Cash Flow Statement for the year then ended, and a summary of significant accounting policies and other explanatory notes. Management’s Responsibility For The Financial Statements Management is responsible for the preparation and fair presentation of these financial statements in accordance with international financial reporting standards. This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies; and making accounting estimates that are reasonable in the circumstances. Auditors’ Responsibility Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with international standards on auditing. Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance whether the financial statements are free from material misstatement. An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditor’s judgement, including the assessment of the risks of material misstatement of the financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control relevant to the entity’s preparation and fair presentation of the financial statements 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 entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion. Opinion In our opinion, the accompanying Consolidated Financial Statements present fairly, in all material respects, the financial position of the Group as at 30th September, 2008, and its financial performance and cash flows for the year then ended in accordance with international financial reporting standards.

ANTIGUA: 31st March, 2009

Chartered Accountants

/ P.O. Box 159 / Upper Redcliffe Street / St. John's / Antigua / W.I. Tel: (268) 462-0827 / 8 Fax: (268) 462-4747 Email: pannwllf@candw.ag Partner: Omax A. E. Gardner Wilbur A. Harrigan, OBE

29

20 08 ANNUAL REPORT


ABI BANK LIMITED CONSOLIDATED BALANCE SHEET AT 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

Restated Notes

2008

2007

ASSETS Cash, Cash Equivalents and Due from Banks

3

205,032,726

174,592,418

Loans and Advances to Customers

4

693,458,406

631,120,351

Investment Securities

5

115,138,634

91,571,676

Investment in Associates

6

2,954,520

4,853,365

Intangible Asset

7

2,929,220

-

Investment Property

8

3,440,288

3,519,824

Property and Equipment

9

15,526,422

16,279,953

Other Assets

10

35,071,657

33,601,815

$1,073,551,873

$955,539,402

Total Assets LIABILITIES Due to Banks

11

8,507,933

8,869,272

Due to Customers

12

989,279,578

872,125,891

Other Liabilities

13

12,867,563

13,059,055

1,010,655,074

894,054,218

21,223,440

21,223,440

- Page 32

22,503,881

22,503,881

Retained earnings - Page 32

3,598,626

6,214,195

Total Liabilities SHAREHOLDERS’ EQUITY Share capital Share premium

14

Statutory reserve - Page 32

15

14,674,099

10,626,394

Other reserve

16

896,753

917,274

62,896,799

61,485,184

$1,073,551,873

$955,539,402

- Page 32

Total Shareholders’ Equity Total Liabilities and Shareholders’ Equity

Approved on behalf of the Board:

: Director

: Director

The attached notes on pages 34 to 68 form part of these financial statements.

30

"A Treasure … In the Sands of Time"


ABI BANK LIMITED CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

INCOME

Restated Schedule

2008

2007

Interest income

1

88,241,780

81,233,483

Interest expense

2

( 46,303,920)

(37,320,449)

41,937,860

43,913,034

Net Interest Income Fees and commission income (Net)

3

12,959,694

10,998,492

Other operating income

4

8,160,730

2,344,918

63,058,284

57,256,444

( 6,518,396)

(15,845,631)

56,539,888

41,410,813

12,329,735

10,193,812

2,961,634

2,790,585

21,819,477

18,731,569

37,110,846

31,715,966

OPERATING MARGIN

19,429,042

9,694,847

Impairment loss (Note 7)

( 5,440,780)

-

13,988,262

9,694,847

Share of losses of associates

( 3,824,017)

( 4,989,218)

Share of losses in joint venture

(

(

NET INCOME BEFORE TAXATION

10,014,245

4,434,456

Taxation (Note 2.23)

( 4,744,243)

-

NET INCOME FOR THE YEAR - Page 32

$5,270,002

$4,434,456

$0.25

$0.22

Total Operating Income Credit Loss expense Net operating income EXPENDITURE Personnel expenses

5

Depreciation of property and equipment Other operating expenses

6

NET INCOME BEFORE LOSSES OF ASSOCIATES AND TAXATION

150,000)

271,173)

Earnings per share for profit attributable to the equity holders of the parent (EPS)

31

20 08 ANNUAL REPORT


ABI BANK LIMITED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS' EQUITY FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

Share

Share

Retained

Statutory

Other

Capital

Premium

Earnings

Reserve

Reserve

18,231,476

16,719,951

9,973,052

8,941,672

937,795

2,991,964

5,783,930

-

-

-

Net Income for the year - Page 31

-

-

8,423,610

-

-

Dividends

-

-

( 6,529,112)

-

-

Statutory reserve appropriation

-

-

(1,684,722)

1,684,722

-

Amortization

-

-

20,521

Balance at 1st October, 2006 Shares issued

-

( 20,521)

Balance at 30th September 2007 as previously reported Prior Year Adjustments (Note 28)

21,223,440 -

22,503,881 -

10,203,349 ( 3,989,154)

10,626,394 -

917,274 -

Balance at 30th September 2007 as restated

21,223,440

22,503,881

6,214,195

10,626,394

917,274

Net income for the year - Page 31

-

-

5,270,002

-

-

Dividends

-

-

( 3,858,387)

-

-

Statutory reserve appropriation

-

-

( 4,047,705)

4,047,705

-

Amortization

-

-

20,521

Balance at 30th September, 2008

32

"A Treasure ‌ In the Sands of Time"

$21,223,440

$22,503,881

$ 3,598,626

$14,674,099

( 20,521) $896,753


ABI BANK LIMITED CONSOLIDATED STATEMENT OF CASH FLOW FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

Restated OPERATING ACTIVITIES

2008

2007

10,014,245

4,434,456

118,405

156,857

Depreciation of property and equipment

2,961,634

2,790,585

Impairment loss

5,440,780

-

Share of Associates’ losses

3,824,017

4,989,218

150,000

271,173

22,509,081

12,642,289

( 63,870,569)

( 139,180,962)

117,153,687

111,155,235

Increase in Other Assets

( 2,012,499)

( 14,149,888)

(Decrease)/Increase in Other Liabilities

( 4,935,736)

1,737,565

68,843,964

( 27,795,761)

Net Income before taxation Adjustment for: Loss on disposal of assets

Share of Joint venture losses

Increase in Loans and Advances to Customers Increase in Due to Customers

NET CASH FLOWS FROM (USED IN) OPERATING ACTIVITIES INVESTING ACTIVITIES Purchase of Property and Equipment

( 2,246,972)

Acquisition of Intangible Asset

( 8,370,000)

Investment in Associates

-

(

3,151,668) -

( 1,279,800)

(Purchase)/Disposal of Investment Securities

( 23,566,958)

28,973,767

NET CASH FLOWS (USED IN) FROM INVESTING ACTIVITIES

( 34,183,930)

24,542,299

FINANCING ACTIVITIES (Decrease)/Increase in Due to Banks

(

Proceeds from issuance of ordinary shares

361,339) -

Dividends paid to shareholders

( 3,858,387)

NET CASH FLOWS (USED IN) FROM FINANCING ACTIVITIES

(

8,759,197 8,775,894 ( 6,529,112)

4,219,726)

11,005,979

NET INCREASE IN CASH, CASH EQUIVALENTS AND DUE FROM BANKS

30,440,308

7,752,517

CASH, CASH EQUIVALENTS AND DUE FROM BANKS - 1ST OCTOBER

174,592,418

166,839,901

$205,032,726

$174,592,418

CASH, CASH EQUIVALENTS AND DUE FROM BANKS - 30TH SEPTEMBER

33

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

1.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

CORPORATE INFORMATION ABI Bank Ltd. is a private limited company incorporated on 5th January, 1990 under section 358 of the Banking Act No. 14 of 2005 of Antigua and Barbuda. It is licensed and regulated by the Eastern Caribbean Central Bank (ECCB). The Bank is engaged in a wide range of services including retail, corporate and investment banking. Its principal place of business is 156 Redcliffe Street, St. John’s, Antigua. The Bank is controlled by a Board of Directors and had a staff complement of 129 employees at the end of the year (2007 – 117 employees). The subsidiaries are American Brokerage and Investment Group Inc., Verona Investment Limited and Caribbean United Transfer Corporation S.A. (CUTC – Haiti). American Brokerage & Investment Group Inc. is incorporated in the United States of America and is engaged in the holding and management of an investment brokerage company. Verona Investment Limited is incorporated in Bahamas and is engaged in investment holding activities. CUTC – Haiti is incorporated in Haiti and is engaged in money remittance business. The Bank’s interest in Associates and Joint Venture is accounted for by the equity method.

2.

SIGNIFICANT ACCOUNTING POLICIES 2.1)

Basis of Preparation These financial statements are prepared in accordance with International Financial Reporting Standards (IFRS) on the basis of historical cost and no adjustment has been made to take into account the effects of inflation, except for equity investments which were revalued. The Group has adopted the following IFRS, which are relevant to its operations: IFRS 3 IFRS 7 IAS 1 IAS 7 IAS 8 IAS 16 IAS 18 IAS 24 IAS 27 IAS 28 IAS 31 IAS32 IAS 36 IAS 37 IAS 39 IAS 40

34

Business Combinations Financial Instruments: Disclosures Presentation of Financial Statements Cash Flow Statements Accounting Policies, Changes in Accounting Estimates and Errors Property, Plant and Equipment Revenue Related Party Disclosures Consolidated Financial Statements Investment in Associates Interests in Joint Venture Financial Instruments: Presentation Impairment of Assets Provisions, Contingent Liabilities and Contingent Assets Financial Instruments: Recognition Investment Property

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES - (Cont’d)

2.2)

Statement of Compliance The financial statements at 30th September, 2008 have been prepared in accordance with International Financial Reporting Standards (IFRS). The Group’s transition date was 1st October, 2005.

2.3)

Basis of Consolidation The consolidated financial statements include the assets and liabilities and results of operations of the Bank and its wholly owned subsidiaries, American Brokerage and Investment Group, Inc., Verona Investment Limited and Caribbean United Transfer Corporation S.A. for the year ended 30th September, 2008. All material intra-group balances, transactions and gains are eliminated on consolidation. Uniform accounting policies have been applied for like transactions and other events in similar circumstances. Accounting policies of the subsidiaries have been changed where necessary to ensure consistency with the accounting policy adopted by the Bank.

2.4)

Significant accounting judgements and estimates In the process of applying the Group’s accounting policies, management has used its judgements and made estimates in determining the amounts recognised in the financial statements. The most significant uses of judgements and estimates are as follows: a)

Impairment of loans and advances to customers

The Bank reviews its problem loans and advances to customers at each reporting date to assess whether an allowance for impairment should be recorded in the income statement. In particular, judgement by management is required in the estimation of the amount and timing of future cash flows when determining the level of allowance required. Such estimates are based on assumptions about a number of factors, and actual results may differ, resulting in future changes to the allowance. b)

Impairment of equity investments

The Bank’s interest in Associates and Joint Venture is accounted for by the equity method. Under the equity method the investment is initially recognised at cost and the carrying amount is increased or decreased to recognize the Group’s share of the profit or loss of the associates/joint venture after the date of acquisition. After application of the equity method, the investment is further examined for any impairment loss. Dividends declared by the investee reduce the carrying amount of the investment.

35

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES - (Cont’d) 2.5)

Change in Accounting Policies The accounting policies adopted are consistent with those used in the previous financial year.

2.6)

Currency Translations The consolidated financial statements are presented in Eastern Caribbean Dollars which is the Bank’s functional and presentation currency. The functional currency of the Subsidiary companies is United States Dollars. Foreign currency transactions during the year have been translated at the rates ruling on the dates of the transactions. Assets and liabilities in foreign currencies at the year end were converted at the rates ruling at the balance sheet date. Losses and/or gains arising from foreign currency transactions during the year or from translation of foreign currency balances at the year end are recognised in the income statement.

2.7)

Financial instruments – initial recognition and subsequent measurement (i)

Date of recognition Purchases or sales of financial assets are recognised on the trade date, i.e. the date that the Group commits to purchase or sell the asset.

(ii)

Initial recognition of financial instruments The classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired and their characteristics. All financial instruments are measured initially at their fair value.

(iii)

Held-to-maturity financial investments Held-to-maturity financial investments are those which carry fixed or determinable payments and have fixed maturities and which the Group has the intention and ability to hold to maturity. After initial measurement, held-to-maturity financial investments are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment.

36

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES - (Cont’d) 2.7)

Financial instruments – initial recognition and subsequent measurement (cont’d) (iv)

Financial assets at fair value through profit or loss An instrument is classified at fair value through profit and loss if it is held for trading or is designated as such upon initial recognition. Financial instruments are designated at fair value through profit and loss if the Bank manages such investments and makes purchase and sale decisions based on their value in accordance with the Bank’s documented risk management and investment strategy. Upon initial recognition, attribute transaction costs are recognized in profit or loss when incurred. Financial instruments at fair value through profit and loss are measured at fair value, and changes herein are recognized in profit or loss.

(v)

Available-for-sale financial investments Financial assets available for sale are those intended to be held for an indefinite period of time but which may be sold in response to needs for liquidity or changes in interest rates, exchange rates or equity prices. After initial measurement, availablefor-sale financial investments are subsequently measured at fair value. Unrealised gains and losses are recognised directly in equity in the ‘Available-for-sale reserve’. When the security is disposed of, the cumulative gain or loss previously recognised in equity is recognised in the income statement. Where the Group holds more than one investment in the same security they are deemed to be disposed of on a first-in, first-out basis. Interest earned whilst holding available-for-sale financial investments is reported as interest income using the effective interest rate method. Dividends earned, whilst holding available-for-sale financial investments are recognised in the income statement when the right of the payment has been established. The losses arising from impairment of such investments are recognised in the income statement.

(vi)

Loans and advances to customers Loans and advances to customers are financial assets with fixed or determinable payments and fixed maturities that are not quoted on an active market. After initial measurement, loans and advances to customers are subsequently measured at amortised cost using the effective interest rate method, less allowance for impairment.

37

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES - (Cont’d)

2.8)

Financial instruments-derecognition of financial assets and liabilities (i)

Financial assets A financial asset is derecognised where: tUIFSJHIUTUPSFDFJWFDBTIøPXTGSPNUIFBTTFUIBWFFYQJSFEPS tUIF(SPVQIBTUSBOTGFSSFEJUTSJHIUTUPSFDFJWFDBTIøPXTGSPNUIFBTTFUPS tUIF(SPVQIBTBTTVNFEBOPCMJHBUJPOUPQBZUIFSFDFJWFEDBTIøPXTJOGVMMXJUIPVU material delay to a third party under a ‘pass-through’ arrangement and either: (a) the Group has transferred substantially all the risks and rewards of the asset, or: (b) the Group has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset. When the Group has transferred its rights to receive cash flows from an asset or has entered into a pass-through arrangement, and has neither transferred nor retained substantially all the risks and rewards of the asset nor transferred control of the asset, the asset is recognised to the extent of the Group’s continuing involvement in the asset.

(ii) Financial liabilities A financial liability is derecognised when the obligation under the liability is discharged or 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, and the difference in the respective carrying amounts is recognised in profit or loss. 2.9)

Repurchase and reverse repurchase agreements Securities purchased under agreements to resell at a specified future date (‘reverse repos’) are not recognised on the balance sheet. The corresponding cash paid, including accrued interest is recognised on the balance sheet as a ‘Cash collateral on securities borrowed and reverse repurchase agreements’. The difference between the purchase and resale prices is treated as interest income and is accrued over the life of the agreement using the effective interest rate method.

38

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES - (Cont’d)

2.10) Determination of fair value The fair value for financial instruments traded in active markets at the balance sheet date is based on their quoted market price or dealer price quotations, without any deduction for transaction costs. For all other financial instruments not listed in an active market, the fair value is determined by using appropriate valuation techniques. 2.11)

Impairment of financial assets The Group assesses at each balance sheet date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more events that has occurred after the initial recognition of the asset and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or the group of financial assets that can be reliably estimated. (i)

Loans and advances to customers For loans and advances to customers carried at amortised cost, the Bank first assesses individually whether objective evidence of impairment exists individually for financial assets that are individually significant, or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is, or continues to be recognised are not included in a collective assessment of impairment.

39

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES - (Cont’d) 2.11)

Impairment of financial assets (cont’d) (ii) Held-to-maturity financial investments For held-to-maturity investments the Group assesses individually whether there is objective evidence of impairment. If there is objective evidence that an impairment loss has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows. The carrying amount of the asset is reduced and the amount of the loss is recognised in the income statement. Subsequent reversals of impairment losses realized will be credited to the income statement. (iii) Available-for-sale financial investments For available-for-sale financial investments, the Group assesses at each balance sheet date whether there is objective evidence that an investment or a group of investments is impaired. In the case of equity investments classified as available-for-sale, objective evidence would include a significant or prolonged decline in the fair value of the investment below its cost. Where there is evidence of impairment, the cumulative loss - measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that investment previously recognised in the income statement - is removed from equity and recognised in the income statement. Impairment losses on equity investments are not reversed through the income statement; increases in their fair value after impairment are recognised directly in equity. iv) Renegotiated loans Where possible, the Bank seeks to restructure rather than to take possession of collateral. This may involve extending the payment arrangements and the agreement of new loans' conditions. Once the terms have been renegotiated, the loan is no longer considered past due. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to an individual or collective impairment assessment, calculated using the loan’s original effective interest rate.

2.12)

Leasing The determination of whether an arrangement is, or contains a lease is based on the substance of the arrangement and requires an assessment of whether the fulfillment of the arrangement is dependent on the use of a specific asset or assets and the arrangement conveys a right to use the asset.

40

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES (cont’d)

2.12)

Leasing (cont’d) (i) Group as a lessee Operating lease payments are not recognised in the balance sheet. Any rentals payable are accounted for on a straight-line basis over the lease term and included in ‘Other operating expenses’. (ii) Group as a lessor Leases where the Bank does not transfer substantially all the risk and benefits of ownership of the asset are classified as operating leases. The Group leases its investment property as an operating lease, thus recognising rental income. Initial costs incurred in negotiating leases are added to the carrying amount of the leased asset and recognised over the lease term on the same basis as rental income. Contingent rents are recognised as revenue in the period in which they are earned. Rental income is included in ‘Other operating income’

2.13)

Recognition of income and expenses Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: (i) Interest income and expense For all financial instruments measured at amortised cost and interest bearing financial instruments classified as available-for-sale financial investments, interest income or expense is recorded at the effective interest rate. (ii) Fee and commission income The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee income can be divided into the following two categories: (a) Fee income earned from services that are provided over a certain period of time Fees earned for the provision of services over a period of time are accrued over that period. These fees include commission income and asset management, custody and other management and advisory fees. Loan commitment fees for loans that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognised as an adjustment to the effective interest rate on the loan.

41

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES (Cont’d) 2.13)

Recognition of Income and Expenses (cont’d) (ii) Fee and commission income (cont’d) (b) Fee income from providing transaction services Fees arising from negotiating or participating in the negotiation of a transaction for a third party - such as the arrangement of the acquisition of shares or other securities or the purchase or sale of businesses - are recognised on completion of the underlying transaction. (iii Dividend income Revenue is recognised when the Group’s right to receive the payment is established. (iv) Rental income and expense Rental income arising on investment property is accounted for on a straight-line basis over the lease term on ongoing leases and is recorded in the income statement in ‘Other operating income’. Rental expense is recorded in the income statement as ‘Other operating expense’.

2.14)

Cash, cash equivalents and due from banks Cash and cash equivalents comprises cash on hand, current accounts with central banks and amounts due from banks on demand or with an original maturity of three months or less. Due from banks includes placements with banks and financial institutions for over three months but less than one year.

2.15)

Equity Investments The Group’s investments in its associates and joint venture are accounted for using the equity method of accounting. An associate is an entity in which the Group has significant influence and which is neither a subsidiary nor a joint venture. Under the equity method, the investment in the associates/joint venture is carried in the balance sheet at cost plus post-acquisition changes in the Group’s share of net assets of the associates/joint venture. Losses in excess of the cost of the investment in an associate are recognised only when the Group has incurred legal or constructive obligations on its behalf. The income statement reflects the Group’s share of the results of operations of the associates/joint venture. Material profits and losses resulting from transactions between the Group and the associates/joint venture are eliminated to the extent of the interest in the associates/joint venture.

42

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES (Cont’d) 2.16)

Intangible Asset Intangible assets acquired by the Bank are initially recognized at cost. Subsequent to initial recognition, intangible assets are measured at fair value established through an annual impairment test. Any increase in value is credited directly to shareholders’ equity and not recycled (except to the extent that it reverses a revaluation decrease which has been previously recognized as an expense); and any decrease in value is recognized as an expense (except to the extent that it reverses a revaluation increase which has been previously credited to shareholders’ equity.

2.17)

Investment Property The Group holds an investment property, formerly its head office which earns rental income. Investment property is measured at cost.

2.18)

Property and equipment Property and equipment is stated at cost excluding the costs of day-to-day servicing, less accumulated depreciation and accumulated impairment in value. Changes in the expected useful life are accounted for by changing the amortisation period or method, as appropriate, and treated as changes in accounting estimates. Depreciation is calculated using the straight-line method to write down the cost of property and equipment to their residual values over their estimated useful lives. Land is not depreciated. The assets are depreciated at the following rates: Buildings and Leasehold Improvement Equipment Furniture and fittings Computer hardware and software Motor vehicles

2% 15% 10% 20% 20%

An item of property and equipment is derecognised upon disposal or when no future economic benefits are expected from its use or disposal. Any gain or loss arising on derecognition of the asset is recognised in the income statement in the year the asset is derecognised.

43

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

2.19)

Impairment of non-financial assets The Group assesses at each reporting date whether there is an indication that a non-financial asset may be impaired. If any such indication exists, the Group makes an estimate of the asset’s recoverable amount. Where the carrying amount of an asset exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount. An assessment is made at each reporting date as to whether there is any indication that previously recognised impairment losses may no longer exist or may have decreased. If such indication exists, the recoverable amount is estimated. A previously recognised impairment loss is reversed only if there has been a change in the estimates used to determine the asset’s recoverable amount since the last impairment loss was recognised.

2.20)

Financial guarantees and commitments In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. The Group’s potential liability under acceptances, guarantees and letters of credit is reported as a contingent liability. The Group has equal and offsetting claims against its customers in the event of a call on these commitments.

2.21)

Thrift Fund The Bank operates a defined contribution Thrift Fund. The contribution payable to a defined contribution plan is limited to a fixed percentage of the employees’ base salary and is recorded as an expense.

2.22)

Provisions Provisions are recognised when the Bank has a present obligation (legal or constructive) as a result of a past event, and it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made of the amount of the obligation.

44

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES (Cont’d) 2.23)

Taxation Income tax expense represents current tax. Income tax expense is recognized in profit or loss except to the extent that it relates to items recognized directly in equity, in which case it is recognized in equity. Current tax is the expected tax payable on the taxable income for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustments to tax payable in respect of previous years. The Bank was granted a five (5) year tax exemption by the Government of Antigua and Barbuda which expired on the 30th September, 2007. The Bank is subject to taxes at the rate of thirty (30%) for the period November to December 2007 and twenty-five (25%) for the period thereafter.

2.24)

Treasury shares Own equity instruments which are acquired are deducted from equity and accounted for at weighted average cost. No gain or loss is recognised in the income statement on the purchase, sale, issue or cancellation of the Bank’s own equity instruments.

2.25)

Fiduciary assets Assets held in a fiduciary capacity are not reported in the financial statements, as they are not the assets of the Group.

2.26)

Dividends on ordinary shares Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Board of Directors. Dividends for the year that are approved after the balance sheet date are disclosed as an event after the balance sheet date.

45

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

2.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SIGNIFICANT ACCOUNTING POLICIES (Cont’d)

2.27)

Statutory reserve Section 14 (1) of the Banking Act 2005, requires that a Bank transfers to a reserve fund at the end of each financial year a minimum of 20% of its net income until the reserve fund is equal to its paid up capital.

2.28)

Share Premium Proceeds from the issuance of shares above par value are recorded as share premium.

46

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

3.

CASH, CASH EQUIVALENTS AND DUE FROM BANKS Cash on hand Deposit with Central Bank Due from Banks on demand Due from other financial institutions Due from Banks – maturing over 3 months but less than one year

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

2008

Restated 2007

8,917,045 48,961,028 34,121,797 7,000,000

12,762,056 44,985,749 67,656,101 1,815,360

106,032,856

47,373,152

$205,032,726

$174,592,418

The Bank is required under the Eastern Caribbean Central Bank Act, 1983 (Article 33 of the Agreement) to maintain a non-interest bearing cash reserve account which when added to cash on hand must be equivalent to at least 6% of its total deposit liabilities excluding inter-bank deposits. These funds are not available for the Bank’s day to day operations. The effective yield on cash resources was 3.93%. (2007: 3.13%).

4.

LOANS AND ADVANCES TO CUSTOMERS

a) Analysis of Loans and Advances to Customers Personal Business and Government Overdrafts Credit card advances Accrued interest

Allowance for loans and advances impairment Total Loans and Advances to Customers

2008

Restated 2007

140,406,965 433,365,967 112,898,091 10,966,633 15,728,467

90,738,078 454,349,218 76,417,628 10,279,210 11,226,198

713,366,123

643,010,332

( 19,907,717)

( 11,889,981)

$693,458,406

$631,120,351

The effective yield on loans and advances during the year was 11.39% (2007: 12.83%). As at 30th September, 2008, non productive loans and advances to customers totaled $56,906,848 (2007: $39,386,227).

47

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

4.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

LOANS AND ADVANCES TO CUSTOMERS (Cont’d) b) Allowance for Loans and Advances Impairment Restated 2008

2007

Balance – 1st October

11,889,981

13,038,752

Credit loss for the year

6,518,396

15,845,631

Other credit loss

1,532,513

874,608

33,173)

(17,869,010)

$19,907,717

$11,889,981

80,583,504

63,702,847

Minority Equity Securities

10,192,911

8,561,238

Securities Under Management

24,362,219

19,307,591

$115,138,634

$91,571,676

6,777,347

5,276,108

812,150

5,657,871

7,589,497

10,933,979

6,936,310

6,931,045

Government Debt Securities (Quoted)

38,954,515

20,060,736

Corporate Debt Securities (Quoted)

17,302,882

37,388,520

Corporate Debt Securities (Unquoted)

44,355,430

16,257,396

100,612,827

73,706,652

$115,138,634

$91,571,676

Written off during the year Balance - 30th September

5.

(

INVESTMENT SECURITIES Long Term Securities - Bonds

Assets Designated as Fair Value Through Profit and Loss Equity Securities (Quoted) Equity Securities (Unquoted)

Available for Sale Equity Securities (Unquoted) Held to Maturity

Total Investment Securities

The effective yield on investments during the year was 4.88% (2007 – 6.42%).

48

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

Restated 6. INVESTMENT IN ASSOCIATES

2008

2007

(a) Redcliffe Holdings Limited

2,954,520

2,753,676

-

2,099,689

(b) Banque de l’Union Haitienne S.A. Total

$2,954,520

$4,853,365

(a) Redcliffe Holdings Limited The Bank has a 29% interest (2007: 29%) in Redcliffe Holdings Limited, a company incorporated in Antigua and Barbuda. Redcliffe Holdings Limited is not listed on any public exchange.

Balance – 1st October Share of Associate’s profits Dividends received Balance – 30th September

2008

2007

2,753,676

2,796,841

200,844

157,653

-

( 200,818)

$2,954,520

$2,753,676

282,065

240,010

5,725,448

5,851,981

Current liabilities

( 605,623)

( 648,866)

Non-current liabilities

( 2,447,370)

(2,689,449)

$2,954,520

$2,753,676

Revenue

877,056

854,712

Profit

200,844

157,653

Share of Associate’s balance sheet Current Assets Non-current assets

Net Assets Share of Associate’s revenue and profit

The above financial data relates to the period June 1 to May 31 2008 and 2007.

49

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

6.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

INVESTMENT IN ASSOCIATES cont’d (b) Banque de l’Union Haitienne S.A. The Bank has a 45% interest (2007: 45%) in Banque de l’Union Haitienne S.A. (BUH), a company incorporated in Haiti. BUH is not listed on any public exchange. Restated

Balance – 1st October Advances Share of Associate’s losses Losses applied to Advances Balance – 30th September

2008

2007

2,099,689

2,537,899

-

1,279,800

( 2,448,833)

( 1,718,010)

349,144

-

$-

$2,099,689

33,283,680

32,548,210

Investments

4,714,868

3,239,858

Other Assets

51,760,215

52,503,157

Deposits

( 85,852,173)

(83,240,288)

Other liabilities

( 7,457,214)

( 7,306,980)

Net Liabilities

$( 3,550,624)

$( 2,256,043)

7,835,768

7,719,199

( 2,448,833)

( 1,718,010)

Share of Associate’s balance sheet Loans

Share of Associate’s revenue and loss Revenue Loss

50

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

7.

INTANGIBLE ASSET

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

2008

2007

Cost of Intangible

8,370,000

-

Impairment Loss

( 5,440,780)

-

Balance at 30th September

$2,929,220

$ -

The Bank purchased 100% of the money remittance business of Societe Caraibeanne de Banque S.A. (SOCABANK) in Haiti known as Socatransfer. The amount of US$3.1 million was paid for the exclusive patent, trademark and other intellectual property rights that were expected to benefit the Bank over a considerable period of time. The value was based on a third party valuation of the business. However, due to the difficulties experienced in perfecting the licences in the United States of America, Canada and the Turks and Caicos, the revenues previously anticipated were not forthcoming, thus the Directors decided that it was prudent to write down the investment.

8.

INVESTMENT PROPERTY

2008

2007

860,000

860,000

3,976,827

3,976,827

4,836,827

4,836,827

Accumulated depreciation

( 1,396,539)

( 1,317,003)

Balance at 30th September

$3,440,288

$3,519,824

Balance at 1st October - Land Balance at 1st October - Building

The Bank is the registered owner of an office building located on High Street that formerly housed its headquarters. The property is presently rented to an associated company. Negotiations are in-train for the sale of the property.

51

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

9.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

PROPERTY AND EQUIPMENT Computer, Leasehold

Furniture

Motor

Improvement

& Equipment

Vehicle

Land

Total

5,611,165

20,230,024

396,567

2,613,600

28,851,356

53,426

2,050,509

143,037

-

2,246,972

COST At 1st October 2007 Additions Disposals At 30th September 2008

-

( 1,028,648)

-

-

( 1,028,648)

5,664,591

21,251,885

539,604

2,613,600

30,069,680

1,071,773

11,355,056

144,574

-

12,571,403

528,800

2,283,575

69,723

-

2,882,098

ACCUMULATED DEPRECIATION At 1st October 2007 Depreciation Disposals At 30th September 2008

-

(

910,243)

-

-

(

-

14,543,258

1,600,573

12,728,388

214,297

$4,064,018

$8,523,497

$325,307

5,461,136

17,668,755

221,082

2,613,600

150,029

2,826,154

175,485

-

910,243)

NET BOOK VALUE At 30th September 2008

$2,613,600 $15,526,422

COST At 1st October 2006 Additions Disposals At 30th September 2007

-

(

264,885)

-

-

25,964,573 3,151,668 (

264,885)

5,611,165

20,230,024

396,567

2,613,600

28,851,356

At 1st October 2006

581,380

9,297,508

89,494

-

9,968,382

Depreciation

490,393

2,165,576

55,080

-

2,711,049

-

( 108,028)

-

12,571,403

ACCUMULATED DEPRECIATION

Disposals At 30th September 2007

-

( 108,028)

-

1,071,773

11,355,056

144,574

$4,539,392

$8,874,968

$251,993

NET BOOK VALUE At 30th September 2007

52

"A Treasure … In the Sands of Time"

$2,613,600 $16,279,953


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

Restated 10.

OTHER ASSETS

2008

2007

Accrued income

10,293,631

8,403,154

918,347

1,166,782

16,440,908

17,596,382

7,418,771

6,435,497

$35,071,657

$33,601,815

8,507,933

8,663,082

Prepayments Due from affiliates Other receivables

11.

DUE TO BANKS Correspondent Banks Broker accounts

12.

-

206,190

$8,507,933

$8,869,272

184,525,408

160,299,541

92,627,379

183,861,060

Term

573,671,031

430,216,718

Funds under management

123,368,602

85,510,040

15,087,158

12,238,532

$989,279,578

$872,125,891

DUE TO CUSTOMERS Savings Demand

Accrued interest

The effective rate of interest on amounts during the year was 4.93% (2007: 4.47%) 13.

OTHER LIABILITIES

2008

2007

Managers’ cheques

3,879,863

5,112,366

Unpresented cheques

1,252,749

1,688,259

Accounts payable and accruals

2,990,708

6,258,430

Corporation tax liability

4,744,243

-

$12,867,563

53

$13,059,055

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

Restated 14.

SHARE CAPITAL

2008

2007

$25,000,000

$25,000,000

21,860,440

21,860,440

Authorised 25,000,000 ordinary shares of $1.00 each Issued and fully paid 21,860,440 (2007 – 21,860,440) shares of $1.00 each Treasury Shares 637,000 shares of $1.00 each

15.

(

(

637,000)

$21,223,440

$21,223,440

10,626,394

8,941,672

4,047,705

1,684,722

$14,674,099

$10,626,394

260,715

260,715

2,047,030

2,047,030

2,307,745

2,307,745

STATUTORY RESERVE Balance - 1st October Current year appropriation Balance - 30th September

16.

637,000)

OTHER RESERVE Appraisal surplus on the revaluation of Land Building

Deficit arising upon the acquisition of the assets and liabilities of Fidelity Trust Bank Limited

(

Amortisation

(

1,034,486)

(

1,273,259 376,506) $896,753

1,034,486) 1,273,259

(

355,985) $917,274

The portion of the reserve, which relates to the building of Fidelity Trust Bank Limited, is being amortised at a rate of 2% per annum.

54

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

17.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES 2008 Carrying Value

2007 Fair Value Carrying Value

Fair Value

ASSETS Cash, Cash Equivalents and Due from Banks

205,032,726

205,032,726

174,592,418

174,592,418

Loans and Advances to Customers

693,458,406

693,458,406

631,120,351

631,120,351

Investment Securities

115,138,634

115,990,250

91,571,676

91,953,545

2,954,520

2,954,520

4,853,365

4,853,365

8,507,933

8,507,933

8,869,272

8,869,272

989,279,578

989,279,578

872,125,891

872,125,891

Investment in Associates LIABILITIES Due to Banks Due to Customers

The table above shows a comparison of the carrying amounts and fair values of the Group’s financial assets and liabilities. The following describes the assumptions used to determine fair values for the Group’s financial instruments: Assets and liabilities for which fair value approximates carrying value Liquid Financial Instruments For financial assets and financial liabilities that are liquid or have a short term maturity it is assumed that the carrying amounts approximate to their fair value. This assumption is applied to demand deposits and savings deposits. Fixed Rate Financial Instruments The fair value of fixed rate interest bearing deposits is based on discounted cash flows using prevailing rates. These deposits are assumed to approximate their carrying value. This assumption is applied to term deposits. Loans and advances to customers are also assumed to approximate fair value. Quoted Securities For quoted securities issued, the fair values are calculated based on quoted market prices.

55

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

18.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

FINANCIAL GUARANTEES AND COMMITMENTS To meet the financial needs of customers, the Bank enters into various irrevocable commitments and contingent liabilities. The outstanding commitments and contingent liabilities are as follows: 2008

2007

Financial guarantees

1,579,733

2,182,475

Letters of credit

3,075,716

5,515,682

Contingent Liabilities

Undrawn Commitments Loans and Advances approved not yet drawn Credit Card commitments

121,908,738

77,711,419

21,267,857

20,927,121

Contingent liabilities Letters of credit and financial guarantees commit the Bank to make payments on behalf of customers in the event of a specific act, generally related to the import or export of goods. Financial guarantees and letters of credit carry the same credit risk as loans.

Undrawn commitments Commitments to extend credit represent contractual commitments to make loans and revolving credits. Commitments generally have fixed expiry dates, or other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash requirements. However, the potential credit loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers maintaining specific standards. The Bank monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.

56

"A Treasure ‌ In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

18.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

FINANCIAL GUARANTEES AND COMMITMENTS (Cont’d) Legal claims Litigation is a common occurrence in the banking industry due to the nature of the business. The Group has an established protocol for dealing with such legal claims. Once professional advice has been obtained and the amount of damages reasonably estimated, the Group makes adjustments to account for any adverse effects which the claims may have on its financial standing. At year end, the Group had three (3) unresolved legal claims. The Group has been advised by its legal advisor that it is possible, but not probable, that these actions will succeed and accordingly no provision for any claims has been made in these financial statements.

19.

FUTURE RENTAL COMMITMENT As at 30th September, 2008, the Bank held a lease on its place of operation. The lease is renewable every two years.

20.

FIDUCIARY ACTIVITIES The Bank provides custody and trustee discretionary investment management services to third parties. Those assets that are held in a fiduciary capacity are not included in these financial statements. (a) Repurchase and Reverse Repurchase Transactions (REPOS) The Bank facilitated repurchase and reverse repurchase transactions in US Government Agency (AAA) rated securities with Standard Bank Plc, United Kingdom for clients on margin during the financial year. At 30th September, 2008 this margin value was US$56.22 million (EC$151.79 million) with market value of these assets of US$63.46 million (EC$171.34 million). In margin transactions, the Bank extends credit to its customers, subject to various internal margin requirements, collateralized by cash and securities in the customer’s accounts. Such activities may expose the Bank to off-balance sheet risk in the event that a customer is unable to fulfill his contracted obligations and the Bank has to purchase or sell the financial instrument underlying the contract at a loss or in the event that the customer is unable to satisfy margin requirements. The Bank seeks to mitigate the risks associated with its customer’s activities by monitoring the margin levels and requiring the customers to deposit additional collateral or reduce their position when necessary.

57

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

20.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

FIDUCIARY ACTIVITIES (Cont’d) (b) Securities The Bank effects securities transactions for clients on either a cash or margin basis. In a cash basis transaction, the Bank’s clients pay the securities purchase price in full and the Bank executes the transactions.

As at 30th September, 2008, the Bank engaged in short selling of securities which resulted in cash proceeds of US$10.67 million (EC$28.8 million) held in its account at Standard Bank Plc. This short position was closed on 8th October, 2008.

The Bank’s broker for these transactions is ASD Brokerage and Investment Inc. (a wholly owned subsidiary of American Brokerage and Investment Group Inc.). ASD Brokerage and Investment Inc. is a non-clearing brokerage firm. Transactions are cleared through Ridge Clearing and Outsourcing Solutions Inc., USA.

ABI Bank Ltd. is also a licensed broker of the Eastern Caribbean Securities Exchange.

58

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

21.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RELATED PARTY TRANSACTIONS Parties are considered related if one party has the ability to control and or exercise significant influence over the other party in making financial and operational decisions. It is further considered to be a transfer of resources or obligations between related parties regardless of whether a price is charged. The related transactions carried out on commercial terms and conditions for the Group are as follows:ASSETS

2008

2007

9,618,300

41,348,413

Loans and Advances to Customers

50,324,138

13,071,410

Other Assets

13,473,663

16,117,963

13,221,470

15,693,115

810,000

357,777

Interest income

4,318,188

61,329

Rental income

198,000

349,200

2,484,000

2,378,613

134,922

1,137,024

4,629,900

4,433,470

1,774,489

1,698,076

500,547

508,380

Cash, Cash Equivalents and Due from Banks

LIABILITIES Due to Customers Other Liabilities Income and Expenses

Management fees Interest expense Occupancy Key Management Compensation Salaries and other benefits Directors’ fees and expenses

22.

EVENTS AFTER THE BALANCE SHEET DATE The Group declared dividends in January 2009 totaling $4,316,561 to be paid to shareholders on record at 30th September, 2008.

59

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

23.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

EARNINGS PER SHARE Basic earnings per share are calculated by dividing the net profit attributable to shareholders by the weighed average number of shares in issue during the year (21,223,440 in 2008 and 19,767,663 in 2007).

24.

RISK MANAGEMENT Introduction Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and monitoring, and other controls subject to risk limits. This process of risk management is critical to the Group’s continuing profitability and each individual within the Group is accountable for the risk exposures relating to his or her responsibilities. The Group is exposed to credit risk, liquidity risk and market risk, the latter being subdivided into trading and non-trading risks. It is also subject to operating risks. Management structure The Board of Directors is responsible for the overall risk management approach and for approving the risk strategies and principles. The Risk & Compliance Committee has the overall responsibility for the development of the risk strategy. Management is responsible for implementing principles, frameworks, policies and limits. It is responsible for the fundamental risk issues and manages and monitors relevant risk decisions. The Risk Management Department is responsible for implementing and maintaining risk related procedures to ensure an independent control process. The department is also responsible for monitoring compliance with risk principles, policies and limits, across the Group. This unit also ensures the complete capture of the risks in risk measurement and reporting systems. Internal Audit Risk management processes throughout the Group are audited annually by the internal audit function that examines both the adequacy of the procedures and the Group’s compliance with the procedures. Internal Audit discusses the results of all assessments with management, and reports its findings and recommendations to the Audit Committee.

60

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

24.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RISK MANAGEMENT (Cont’d) Measurement and reporting systems Monitoring and controlling of risks are conducted based on limits established by the Group. These limits reflect the business strategy and market environment of the Group as well as the level of risk that the Group is willing to accept, with additional emphasis on selected industries. In addition, the Group monitors and measures the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities. Information compiled from all the businesses is examined and processed in order to analyse, control and identify early risks. This information is presented and explained to the Board of Directors, the Risk Committee, and the head of each business division. The report includes aggregate credit exposure, credit metric forecasts, hold limit exceptions, liquidity ratios and risk profile changes. On a quarterly basis detailed reporting of industry, customer and geographic risks are provided. Senior management assesses the appropriateness of the allowance for credit losses on a quarterly basis. The Risk & Compliance Committee receives a comprehensive risk report once a quarter which is designed to provide all the necessary information to assess and conclude on the risks of the Group. Mitigation As part of its overall risk management, the Group uses the principle of matching and on a limited basis derivative and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions. The risk profile is assessed before entering into hedge transactions, which are authorized by the appropriate level of seniority within the Group. The Group actively uses collateral and concentration limits to reduce its credit risks exposures. Concentrations arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic or other conditions. Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical location. In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.

61

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

24.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RISK MANAGEMENT (Cont’d) Credit Risk Management The Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due, causing the Group to incur financial loss. The ability of such counterparties to meet contractual obligations would be similarly affected by changing economic or other conditions. The Group structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower or groups of borrowers, and to geographical and industry segments, bearing in mind the prudential guidelines recommended by the Eastern Caribbean Central Bank (ECCB). Credit risk from financial investments is minimized through holding a diversified portfolio of investments, purchasing securities and advancing loans only after careful assessment of the borrower and placing deposits with financial institutions with a strong capital base. Exposure to credit risk is further managed by obtaining collateral to support lendings and through ongoing analysis of the ability of borrowers to meet interest and capital repayment obligations. Limits on the level of credit risk by borrower, product, industry sector and by country must be approved by the Board of Directors. An analysis of the Bank’s loans and advances to customers is as follows: Significant Concentration i) Credit classified by size of lending 2008 Size

2007

Amount

Percent of

Amount

Percent of

$000

portfolio

$000

portfolio

$000 Up to 100

74,899

11%

76,881

12%

Over 101 - 500

94,472

13%

94,927

15%

Over 501 - 1,000

49,231

7%

42,215

6%

494,764

69%

428,987

67%

$713,366

100%

$643,010

100%

$ 000

(%)

$ 000

(%)

$713,366

100%

$643,010

100%

Over 1,000 Total

ii) Credit classified by geographic sector Territory

OECS and CARICOM

62

"A Treasure … In the Sands of Time"

2008

2007


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

24.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RISK MANAGEMENT (Cont’d) Credit Risk Management (cont’d) Significant Concentration (cont’d) iii) Credit classified by economic sector

Sector Agriculture Manufacturing

2008

2008

2007

2007

$000

%

$000

%

233

0.03%

375

0.06%

2,351

0.33%

1,226

0.20%

Public Utilities

31,075

4.36%

28,472

4.40%

Construction

77,691

10.9%

49,436

7.70%

Distribution Trade

65,731

9.21%

53,968

8.40%

Tourism

59,720

8.37%

40,424

6.30%

Entertainment & Catering

26,824

3.76%

18,422

2.86%

Transportation & Storage

41,324

5.79%

34,113

5.31%

Professional Services

27,290

3.83%

25,833

4.00%

Public Administration

187,615

26.3%

193,610

30.1%

Personal

184,152

25.8%

193,507

30.1%

Other

9,360

1.31%

3,624

0.56%

Total

$713,366

100%

$643,010

100%

Foreign Exchange Risk Management Foreign exchange risk is the risk that the value of a financial instrument will fluctuate due to changes in the exchange rates. While the substantial portion of the Group’s transactions and assets and liabilities are denominated in Eastern Caribbean dollars, the Group is still exposed to some level of foreign exchange risk as it holds customer deposit accounts that are denominated in other foreign currencies mainly United States Dollars, Pound Sterling and Euro. In order to manage the risk associated with the movement in currency exchange rates, the Group maintains investments and cash in each operating currency, which are sufficient to match liabilities denominated in the same currency. Management also sets limits on the level of exposure to be maintained by currency and in total for overnight and intra-day positions. Interest Rate Risk Management Interest rate risk is the risk that the value of a financial instrument will fluctuate due to changes in market interest rates. The Group is exposed to interest rate risk when the returns earned from invested assets are insufficient either to maintain or fulfill minimum returns requirements of its liabilities.

63

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

24.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RISK MANAGEMENT (Cont’d) Interest Rate Risk Management (cont’d) The Group mitigates its interest rate risk by matching the maturity periods of its assets and liabilities. The Group also makes decisions on holding its fixed rate securities to maturity to mitigate any interest rate changes in the market. The effective interest rates on the Group’s financial assets and liabilities are as set out below:

Loans and Advances to Customers Due to Customers

2008

2007

11.39%

12.83%

4.93%

4.47%

Liquidity Risk and Funding Management Liquidity risk is the risk that the Group will be unable to meet its payment obligations when they fall due under normal and stress circumstances. To limit this risk, management arranges diversified funding sources in addition to its core deposit base, manages assets taking into consideration liquidity and monitors future cash flows and liquidity on a daily basis. This incorporates an assessment of expected cash flows and the availability of high grade collateral which could be used to secure additional funding if required. In addition, the Group maintains a statutory deposit with the Eastern Caribbean Central Bank which when added to cash equal to 6% of amounts due to customers. The liquidity position is assessed and managed under a variety of scenarios, giving due consideration to stress factors relating to both the market in general and specifically to the Group. In order to manage liquidity risks, management sets limits on the minimum level of cash resources that should be maintained in each operating currency sufficient to meet reasonable demands. On a weekly basis, management also monitors a number of key liquidity ratios as outlined below: 2008

2007

6.42%

6.01%

Liquid Assets

24.08%

22.14%

Loans to Deposits

71.61%

73.47%

Cash Reserve/Deposits

64

"A Treasure … In the Sands of Time"


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

24.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RISK MANAGEMENT (Cont’d) Liquidity Risk and Funding Management (cont’d)

The maturity profile of the Group’s assets and liabilities as at September 30, 2008 and 2007 are outlined below: 0-3

3-6

6-12

1-5

Over

ASSETS

Total

months

months

months

years

5 years

2008

(000)

(000)

(000)

(000)

(000)

(000)

Cash, Cash Equivalents and due from Banks

205,033

191,124

-

8,909

5,000

Loans and Advances to Customers

693,458

224,810

4,241

9,888

65,714

388,805

Investment Securities

115,139

24,540

6,366

17,804

2,000

64,429

Investment in Associates

2,955

Intangible Asset

2,929

Investment Property

3,440

-

-

3,440

-

Property and Equipment

15,526

-

-

-

-

Other Assets

35,072

27,042

16

8,014

-

1,073,552

467,516

10,623

48,055

8,508

8,508

989,280

413,520

12,867

12,867

1,010,655

434,895

TOTAL ASSETS

-

-

-

-

-

2,955 2,929

72,714

15,526 474,644

LIABILITIES Due to Banks Due to Customers Other Liabilities TOTAL LIABILITIES NET LIQUIDITY GAP

$63,897

145,755

193,800

-

-

236,205

-

-

-

-

-

145,755

193,800

236,205

-

$32,621 $(135,132) $(145,745) $(163,491)

$474,644

2007 TOTAL ASSETS

955,540

363,825

10,630

58,329

69,603

453,153

TOTAL LIABILITIES

894,055

509,431

110,736

253,358

17,492

3,038

$ 61,485 $(145,606) $(100,106) $(195,029)

$52,111

$450,115

NET LIQUIDITY GAP

Repayments which are subjected to notice are treated as if notice were to be given immediately. However, the Group expects that many customers will not request repayment on the earliest date the Group could be required to pay and the table does not reflect the expected cash flows indicated by the Group’s deposit retention history.

65

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

25.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

CAPITAL The primary objective of the Group’s capital management is to ensure that the Group maintains healthy capital ratios in order to support its business and to maximize shareholders’ value. The Group also seeks to ensure compliance with Eastern Caribbean Central Bank (ECCB) capital requirements. The Group manages its capital structure and makes adjustments to it in the light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders, return capital to shareholders or issue capital securities. 2008

2007

Deposits/Tier 1 Capital

6.73%

7.10%

Total Capital /Risk Weighted Assets

7.97%

8.66%

Regulatory capital consists of Tier 1 capital, which comprises share capital, share premium and retained earnings including current year profit. Tier 2 Capital includes revaluation surplus and other reserves. 26.

INVESTMENT IN SUBSIDIARIES

2008

2007

American Brokerage & Investment Group, Inc.

1,552,829

1,568,979

Verona Investment Limited

8,221,824

-

$9,774,653

27.

$1,568,979

INVESTMENT IN JOINT VENTURE The Group has entered into a joint venture agreement with another financial institution for the provision of financial and application services. Straight Through Processing, Inc. (STP) was incorporated in Antigua and Barbuda and delivers business-to-business data processing and business process outsourcing services to small and medium size financial services companies.

66

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ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

27.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

INVESTMENT IN JOINT VENTURE cont’d

Balance – 1st October Advances

2008

2007

-

-

150,000

-

Share of Associate’s losses

( 150,000)

(271,173)

Losses applied to Advances

-

271,173

Balance – 30th September

$-

$-

Share of Joint Venture’s balance sheet Current Assets

114,516

178,409

Non-current assets

216,217

878,556

Current liabilities

(1,656,762)

(3,528,007)

Non-current liabilities

(3,975,905)

(3,528,007)

$(5,301,934)

$(4,463,350)

71,676

679,206

( 838,584)

(1,863,264)

Net Liabilities Share of Joint Venture’s revenue and loss Revenue Loss

67

20 08 ANNUAL REPORT


ABI BANK LIMITED NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AT 30TH SEPTEMBER, 2008

28.

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RESTATEMENT OF PRIOR YEAR In 2007 the reported losses for one of the subsidiaries and two associated companies were understated giving rise to a prior year adjustment of $3,989,154. Consequently, the 2007 comparative figures have been restated to give effect to following restatement:Previously

Restated

Subsidiary

Reported

Amount

Change

Interest expense

36,575,984

37,320,449

744,465

Personnel expenses

10,031,792

10,193,812

162,020

Other operating expenses

18,058,552

18,731,569

673,017

$64,666,328

$66,245,830

1,579,502

$2,579,566

$4,989,218

2,409,652

Associates Share of Associates’ losses

$3,989,154

68

"A Treasure … In the Sands of Time"


ABI BANK LIMITED SCHEDULES TO THE CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

SCHEDULE 1 INTEREST INCOME Due from Banks Loans and Advances to Customers Investment Securities Past due Loans and Advances to Customers Other

RESTATED 2008

2007

7,468,922

5,344,286

75,367,420

67,352,097

5,046,558

5,778,148

-

2,512,212

358,880

246,740

$88,241,780

$81,233,483

Savings

4,750,483

5,001,433

Demand

1,103,619

2,172,104

32,235,245

26,211,873

7,820,791

3,190,574

393,782

744,465

$46,303,920

$37,320,449

Portfolio and other management fees

1,130,566

1,316,240

Credit related fees and commissions

5,038,081

4,042,896

SCHEDULE 2 INTEREST EXPENSE

Term Funds under management Other

SCHEDULE 3 NET FEES AND COMMISSION INCOME

Finance fees

816,542

967,402

Service fees

2,836,521

2,710,791

Brokerage fees

3,802,396

831,592

Exchange and revaluation

4,177,572

4,673,861

Total fees and commission income

17,801,678

14,542,782

Brokerage fees paid

( 1,089,710)

( 183,375)

Credit related expenses

( 3,752,274)

( 3,360,915)

Total fees and commission expense

( 4,841,984)

( 3,544,290)

$12,959,694

$10,998,492

Net fees and commission income

69

20 08 ANNUAL REPORT


ABI BANK LIMITED SCHEDULES TO THE CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RESTATED SCHEDULE 4

2008

2007

Dividend

221,074

254,147

Rental

688,357

628,188

OTHER OPERATING INCOME

Share Redemption - Visa

2,589,854

-

Stale dated cheques

3,274,264

-

Non-trading income

661,823

890,073

Recoveries

725,358

572,510

$8,160,730

$2,344,918

Salaries, wages and allowances

8,838,077

7,565,031

Staff bonus and gifts

1,335,237

829,980

Social Security and Medical Benefits

680,556

492,390

Uniforms

206,435

213,607

Training

415,855

428,664

Other staff costs

853,575

664,140

$12,329,735

$10,193,812

SCHEDULE 5 PERSONNEL EXPENSES

70

"A Treasure … In the Sands of Time"


ABI BANK LIMITED SCHEDULES TO THE CONSOLIDATED INCOME STATEMENT FOR THE YEAR ENDED 30TH SEPTEMBER, 2008

&YQSFTTFEJO&BTUFSO$BSJCCFBO%PMMBST

RESTATED SCHEDULE 6

2008

2007

3,807,593

2,593,831

497,242

537,052

Advertising

1,504,648

1,400,367

Travel and entertainment

1,241,972

602,744

357,925

466,295

62,841

66,876

Subscriptions and donations

320,790

215,200

Bank charges

742,207

781,305

Computer expenses

811,886

799,687

ATM expenses

191,674

186,741

Security services

293,104

254,949

Loss on disposal of assets

118,405

156,857

39,313

136,809

9,989,600

8,198,713

5,921,601

5,656,277

Repairs and maintenance

237,175

218,512

Cleaning

56,678

66,213

6,215,454

5,941,002

Insurance

481,703

720,403

Audit fees

220,000

161,004

OTHER OPERATING EXPENSES Office and General Expenses Office Printing and stationery

Communication charges Bank license

Strategic management

Occupancy Office rent and utilities

Other expenses

532,947

508,381

Legal and professional fees

Directors fees and expenses

1,895,773

823,453

Management fees

2,484,000

2,378,613

5,614,423

4,591,854

$21,819,477

$18,731,569

TOTAL

71

20 08 ANNUAL REPORT


"A Treasure ‌ In the Sands of Time"

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