Kina Securities Ltd Annual Report 2017

FY2017 Annual Report · Kina Securities Ltd

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Banking for the future.

ANNUAL REPORT 2017

Through integration,
education and
innovation, we are
redefining banking
for the future.

Contents
Performance highlights ........................... 2
External market conditions...................... 3
Chairman’s letter ...................................... 4
Managing Director’s report .................... 6
Strategic direction ..................................... 8
Partnerships .............................................11
Digital ...................................................... 13
Responsible ............................................. 14
Brand........................................................ 16
Knowledge .............................................. 19
Banking .................................................... 20
Wealth ...................................................... 23
Board of directors .................................. 24

Executive management team ................. 26
Corporate governance statement .......... 28
Remuneration report .............................. 36
Directors’ report .................................... 49
Directors’ declaration ............................ 50
Independent auditor’s report .................51
Statements of comprehensive income ... 57
Statements of changes in equity ............ 58
Statements of financial position ............. 59
Statements of cash flows ....................... 60
Notes to the financial statements ..........61
Shareholder information ........................ 98
Corporate directory ............................. 100

Performance
Highlights

Launched new
digital
banking
services
– retail and corporate
mobile banking apps and
corporate internet banking

Growth in
FUM and FUA
 10%
to PGK6.9b and
 60%
to PGK11b

Nasfund
Fund
Administration
progressing

Interest income
on loans grew
by 32% or
PGK19.3m

Net interest
income of
PGK72.4m,
 11%

Gross loan
book grew
by 21% to
PGK746m

Kina Annual Report 2017

Restored
USD
correspondent
banking
arrangement

Deposit growth
of 6% to
PGK1,014m

Bank fees and
commissions
income grew
by 11%

External Market
Conditions

The PNG economy has seen
relatively flat growth over
the past 12 months.

The World Bank recently projected an
increase in Papua New Guinea’s Real
GDP growth to 2.5 per cent in 2018
from 2.1 per cent in 2017.

This compares with recent Bank of
PNG (BPNG) projections that for 2018,
real GDP would be around 2.7
percent, as indicated in the PNG
Government’s 2018 Budget.

BPNG believes growth is expected
to be broad-based across almost all
sectors, mainly driven by the
agriculture, fishing and forestry,
mineral, manufacturing, construction,
commerce, and transport sectors.

The central bank believes a major
factor that will impact growth in 2018
is the hosting of the Asia-Pacific
Economic Cooperation (APEC)
meetings and other related activities.

Despite these positive expectations,
PNG is still experiencing the impacts
of the drop in global commodity
prices and has also recently been
impacted by a devastating
earthquake and aftershocks in
February and March 2018.

A recent World Bank report provided
a spotlight on some positive aspects
for the PNG economy areas, such as
agriculture commodities, especially
palm oil and Vanilla, due to improved
weather and growing conditions. The
report highlighted the resources
sector would be the main driver for
the overall GDP growth in 2018.

The brighter outlook for non-
extractive activity comes at a time
when the Government is making
efforts to broaden the revenue base
and diversify the economy.

In the agriculture and agri-business
sector, construction began on a
PGK130 million dairy farm and
processing facility, the Ilimo Dairy
Farm, near Port Moresby in 2017.

The facility is being developed by
local firm Innovative Agro Industry.
It is expected to be operational in
2018 and producing 5m litres of milk
per year, providing a considerable
saving on the country’s import bill.

The tourism industry also received a
boost, with the provision of PGK64m
in credit from the World Bank for
tourism and sustainability projects.

The tourism sector has been building
steadily over the past decade, with
locations such as East New Britain and
Milne Bay viewed as having strong
potential to attract international
tourists.

Despite these positives, domestic
consumption remains weak and
ongoing difficulty in accessing
foreign currency continues to
hamper the ability of PNG businesses
to generate growth.

The recent increase in commodity
prices and the potential increased LNG
flows later in 2018 may provide relief
over the medium term. With the
potential for higher commodity prices,
this should serve as a catalyst to make
further progress on clearing the
backlog on import currency orders.

Kina Annual Report 2017 3

Chairman’s Letter

It is both an honour and a privilege
to deliver this statement, my first as
Chairman, having joined the Board as
a Non-Executive Director in 2016 and
becoming Chairman in May 2017.

The PNG financial services sector is presently experiencing a
phase which is both challenging and exciting. It is challenging
because in PNG we have seen a period of low and relatively flat
growth over the past 12 months, with the economy dampened
by liquidity constraints and foreign exchange shortages.

At the same time, there are robust opportunities across
the many segments of our business and in the continuing
opportunities provided by technology innovation.

Kina is one of the leading financial services companies in
PNG and in 2017 we continued to invest in our Banking and
Wealth Management franchises to ensure we continue to
deliver the services our customers require when and where
they need them.

Investing for the future

2017 was a year in which we invested in the company,
transitioned to new senior management, reinforced our
technology innovation, and developed new products and
services. We plan to build on these solid foundations in the
years to come.

Digital technology continued to transform industries,
businesses and the way we lead our lives in 2017.

Given our customers are more mobile than ever before,
Kina’s Banking and Wealth Management businesses are
clear demonstrations of how we are participating in this
transformation in PNG. Kina aims to be at the forefront of
technological innovation in order to provide the simplicity and
convenience our customers desire and to offer them seamless
banking and wealth management experiences of their choice
anytime, anywhere and anyhow.

Our commitment to improving banking products and
services for our customers continues to drive us in our
goal of technology leadership in the delivery of financial
services in PNG.

Strong results

Despite the economic challenges we faced, Kina reported
a statutory profit of PGK23.0m and an underlying profit of
PGK30.0m for the full year ended 31 December 2017.

Directors also declared a final dividend of PGK10.0 toea/
AUD4.0 cents per share, taking the full year dividend to
PGK15.00 toea/AUD6.0 cents per share.

During 2017, we successfully addressed the situation we faced
with the loss of our correspondent banking partner. We also
progressed our funds administration agreement with one of
PNG’s leading superannuation funds, Nasfund. Kina now has
90% of the PNG funds administration market.

Over recent years, Kina has substantially strengthened both
its Bank and Wealth businesses. In Banking, this has been
evidenced by our strengthening deposit funding profile,
robust loan growth and sound overall asset quality.

The development and release of our personal and corporate
banking mobile applications in 2017 are key examples of how
we have innovated to enhance the customer experience.

Kina Annual Report 2017

Despite the economic conditions during 2017 and considerable
competition in the marketplace, Kina grew its loan market share
from 4.8% in 2016 to 5.8% at the end of 2017.

Kina remains unique in the financial services sector in PNG
and its reach extends beyond banking into multiple financial
services segments.

With the progress of Kina’s agreement with Nasfund, we now
have the opportunity to offer targeted wealth management
and banking products to a customer base of more than
700,000 superannuation members.

This positive development adds to the group’s financial
strength and its platform to capitalise on the potential of
PNG’s growing middle class.

Our people – driving our success

We have recently welcomed our new Chief Executive Officer
and Managing Director, Greg Pawson, following the
retirement of Syd Yates, effective from January 2018.

I would like to take this opportunity to thank Syd for his
immense contribution to Kina over more than 20 years.

Greg is no stranger to PNG and has deep and
extensive banking and financial services experience
in the Asia-Pacific region.

Following Syd’s departure, Greg is continuing to provide
the strong leadership we need to help us deliver on our
goals for 2018 and beyond.

Greg has been working hard on redefining Kina’s vision
and purpose, and on sharpening our strategic priorities,
so we are ready to meet the Group’s future challenges and
opportunities. Given the ongoing disruption that is occurring
across the banking and financial services sectors in the
new competitive digital environment, it is great to see
Greg is embedding a strong challenger mentality
throughout the business.

I would also like to thank my fellow Directors for their
guidance and contribution during Kina’s Board and
management renewal in 2017. I wish to particularly
acknowledge the outstanding contribution of Kina’s outgoing
Chairman Sir Rabbie Namaliu and Non-Executive Director
Wayne Golding, who stepped down from the Board last year.

On behalf of the Board, I would like to thank our Kina
employees for their ongoing dedication and energy.
Without their efforts and expertise, we would not be in the
position we are in today to expand our existing banking and
wealth management products and services, and I look
confidently to the future for new opportunities.

In closing, I would like to thank our customers, the PNG
community and our shareholders for their continued support.

Yours faithfully

Isikeli Taureka
Chairman

Kina Annual Report 2017 5

Managing
Director’s Report

It is a great pleasure to present
my first Annual Report to our
stakeholders as Kina’s Chief
Executive Officer and
Managing Director.

2017 was a year of significant investment for Kina.
We launched new products and services for our customers
and acquired the capabilities we needed for a sustainable
future in PNG’s dynamic financial services industry.

Underpinning our growth ambitions for the future is a clear
focus on technology and innovation.

In early 2018, we evolved our vision, purpose and strategic
priorities (which will guide our future direction), to ensure we
take advantage of new market opportunities as they arise.
This refreshed approach is designed to deliver greater value
to our Banking and Wealth Management customers and build
a more sustainable and resilient business.

During 2017, we overcame a key challenge when we reached
agreement with a new USD correspondent banking partner,
which is now restoring foreign exchange revenues.

As a result, we were able to deliver a solid underlying profit
of PGK30.0m for the full year 2017 and a full year dividend of
PGK15.00 toea per share.

When I commenced as CEO in December 2017, I made it
my mission to meet as many of our people in the business
as possible so I could formulate a clear understanding of the
opportunities and challenges we faced.

Kina has achieved a great deal in a relatively short period
of time since its acquisition of Maybank PNG in 2015 followed
by its successful listing on the ASX and POMSoX. During this
time, Kina has made significant investment in areas such as
technology and its people, and these initiatives have
delivered significant value to our stakeholders and provided
a strong platform for future growth.

Kina is now ready for its next exciting chapter and we have
refined our strategy to ensure we deliver greater value to
our customers and the services they need anytime, anywhere
and anyhow.

In 2018, Kina’s vision and purpose have evolved. Our
redefined vision is to become the most dynamic, progressive
and accessible financial services company in Papua New
Guinea. As a purpose-driven organisation, we are also
focused on ensuring our customers and communities are
empowered to have financial independence and security.

In Banking, we also made a concerted effort to drive loan
book and deposit growth, while striving to maintain a strong
prudential and conservative capital adequacy position.

As the only integrated financial services company in PNG,
our strategy is based on differentiation, value for money,
and targeted market segments.

The Wealth Management division also continued to
deliver growth in the funds management, stockbroking
and trustee businesses.

Kina has identified five key strategic priority areas –
Partnerships, Digital, Responsible, Brand and Knowledge –
which are designed to ensure Kina’s ongoing sustainability.

Our aspirations are underpinned by technology and
innovation. In this way, we are overcoming PNG’s unique
geographic and demographic challenges by enabling
customers to connect anytime, anywhere and anyhow.

Kina Annual Report 2017

Kina’s digital strategy is comprehensive and we have and are
continuing to invest in new products and services that will be
distributed digitally.

The development and release of our personal and corporate
banking mobile apps in 2017 are key examples of this focus on
digital innovation. Kina’s launch of a superannuation app
which allows us to reach out to more than 700,000 members
provides further evidence of our commitment to technology
and innovation as a key differentiator.

One of Kina’s comparative advantages in the area of digital
innovation is that we are unencumbered by many of the
legacy issues with systems and processes that are hampering
others within our industry.

Kina has a long history of building strong relationships with its
customers in order to meet their needs. Our latest digital and
technology investment further strengthens our “Together It’s
Possible” commitment, and we are now in an even better
position to meet their needs through access to product and
service lines across our business.

Given Kina’s unique position as PNG’s only integrated
financial services provider, we are keenly aware of the
responsibility we have to the communities which we serve.

As such, we are developing a total societal impact strategy,
as a formal policy statement, outlining how we go about
doing business.

As part of this initiative, we are currently considering three
key initiatives, the development of an SME capital fund; a
Kumul Game Changers Youth Entrepreneurship program
with a specific focus on FINTEC; and partnerships with
key microfinance agencies for the provision of wholesale
funding and personal banking services.

Outlook

Kina produced a strong underlying performance in 2017,
despite the challenges of the prevailing economic conditions.

PNG’s Real GDP growth has been projected to increase
to 2.5 per cent in 2018 by the World Bank and around
2.7 percent, as shown in the 2018 Budget, by the Bank
of PNG Governor Mr Loi Bakani.

PNG is still experiencing the impacts of the drop in global
commodity prices as detailed in a recent World Bank report.
The report reaffirmed there is a positive outlook for
agriculture commodities, due to improved weather and
growing conditions. The report also highlighted that the
resources sector would be the main driver for overall GDP
growth in 2018.

Despite these challenges, Kina remains positive about its
opportunities, given the growth in its Bank and Wealth
Management franchises. Kina is well-placed to achieve growth
given its ability to leverage its unique position in the PNG
financial services sector and the new opportunities available
through technology innovation in the digital world. These
important factors, in addition to Kina’s highly engaged
workforce, provide us with confidence about Kina’s ability
to perform solidly over the longer term.

Greg Pawson
Chief Executive Officer and
Managing Director

Kina Annual Report 2017 7

Strategic
Direction

It has been more than two years since Kina
launched its new brand under the brand
slogan “Together It’s Possible”.

With the new leadership of CEO Greg Pawson, the
time was right to refresh Kina’s vision, purpose and
strategic priorities.

Our strategy is focused on delivering future growth and
meeting our customers’ needs, as well as their changing
financial services preferences in a more digital world as
PNG continues to embrace new technologies. As the only
integrated financial services company in PNG, our strategy is
centred around service differentiation, value for money, and
targeted market segments.

Our sharper and more aspirational vision is to be the most
dynamic, progressive and accessible financial services
company in Papua New Guinea.

Our mission and purpose is to ensure that our people,
customers and communities are empowered to have
financial independence and security.

Our five strategic priorities are:

Partnerships

Life-long customer relationships. Strong valued strategic
partnerships. ‘Together it’s Possible’.

Digital

Clarity in offering that surpasses anything in the market
today, best user interface, operational excellence. ‘Connect
Anytime, Anywhere, Anyhow’.

Responsible

Strong addition to the communities we serve. Positively
contributing to a growing and vibrant economy.

Brand

Local pride in the Kina brand. Recognised as a viable,
secure and differentiated financial services organisation.
‘Local and Strong’.

Knowledge

Recognised as having the best people in the financial
services sector. ‘Empowered and capable people’.

Kina has significantly invested in the core systems and
processes, and highly engaged and capable people to
help us deliver on our strategic priorities. This will provide
us with a solid foundation for future growth and deliver
long-term value to our stakeholders.

Our aspirations are underpinned by digital technology
and innovation.

We have a comprehensive digital strategy and we have and
are continuing to invest in new products and services that will
continue to be distributed digitally.

With this approach, we will overcome the unique geographic
and demographic challenges PNG faces by enabling
customers to connect with us anytime, anywhere and anyhow.

The development and release of our personal and corporate
banking mobile apps are great examples of this, and our
superannuation app allows us to reach out to more than
700,000 members.

Our purpose as an organisation is underpinned by our
strong commitment to the communities we serve in PNG.
We propose to bring this commitment to life through the
ongoing development of social responsibility policies.

We are in the business of doing good and will drive future
growth at the same time, ensuring the long-term resilience
and sustainability of our operations.

The Board and the executive team (under Greg Pawson’s new
leadership) are committed to ensuring that we continue to
deliver on our brand promise to stakeholders that “Together
it’s Possible”.

Kina Annual Report 2017

Kina Annual Report 2017 9

Kina Annual Report 2017

Placing the customer at the
centre of everything we do,
we have a true
understanding
of their needs.

Partnerships

As a home-grown, diversified financial
services company, Kina is focused on
forging deeper and broader relationships
with its customers under its banner
“Together It’s Possible”.

Through this focus, Kina is confident it will build life-long
relationships with its customers and strategic
partnerships that deliver value to all Kina’s stakeholders.

By placing the customer at the centre of everything we
do, we have a true understanding of their needs and
can better offer them products and services to meet
their needs.

Given Kina is in a unique position as PNG’s only
diversified financial services company, we have a rare
opportunity to break down the traditional silos which
exist between banking and wealth management
businesses. Through taking this more holistic view of our
customers’ relationships with us, we will be able to
cross-sell more products and services and provide
greater value to our customers.

For example, Kina now provides Fund Administration
services to 90% of the market and has the opportunity
to offer targeted wealth management and banking
products to a customer base of more than 700,000
superannuation members.

Kina is also partnering with third-party providers so that
customers can access different services and products.

A recent example of this is the trade and finance
agreement signed with the Asian Development Bank
(ADB) and Kina Bank, enabling ADB’s Trade Finance
Program (TFP) to provide a credit guarantee facility that
can support up to $4 million of trade annually in PNG.

With ADB’s backing, Kina will be able to grow its trade
finance operations and increase financial support to local
importing and exporting businesses, including small and
medium-sized enterprises.

Kina is currently investigating a number of partnering
opportunities including:

• Partnering with institutions to develop new

investment products.

• Developing an SME capital fund.

• Partnerships with key microfinance agencies to

provide wholesale funding and personal banking.

Kina Annual Report 2017 11

Our digital strategy is
designed to ensure
our sustainability
in a financial
services
environment.

Kina Annual Report 2017

Digital

At Kina, our aspirations are underpinned
by a strong commitment to technology
and innovation.

PNG continues to have a high unbanked rate owing to
a number of geographical and demographic challenges
faced by our country.

In response to these challenges, Kina has developed
a comprehensive digital strategy.

This digital strategy is designed to ensure our
sustainability in a financial services environment where
products and services are becoming increasingly
commoditised.

Harnessing new technology that increases access and
lowers costs of financial services is also integral to
achieving financial inclusion in PNG.

Through investment in technology and innovation, we
are well-placed to take advantages of the opportunities
provided in the new digital world we live in, ahead of
our competitors.

In December 2017, Kina launched internet banking and
mobile banking applications for both our personal and
business customers. This has provided an unprecedented
level of access for our customers and has radically
changed the way they can now interact with the group.
The new mobile applications allow our customers access
to their money “Anytime, Anywhere, Anyhow”.

This was made possible following the successful upgrade
of our core banking system during the year.

Kina’s superannuation application now allows us to
reach out to more than 700,000 members following the
continued progress of our funds administration services
agreement with Nasfund.

This technology will also facilitate cross-selling of other
products and Kina Wealth is developing new retail
products targeting the middle income market. The
growing PNG middle class is considering investment
opportunities in domestic and international wealth funds.

In our funds administration business we are rapidly
moving to Straight Through Processing (STP). When
we achieve this, it will be ahead of our counterparts
in Australia.

STP provides key advantages by allowing us to process
high volumes of transactions with exceptional accuracy.
This increases efficiency and reduces operational risk
through the provision of a fully automated process.

However, Kina’s focus on digital innovation is not an all
or nothing strategy.

We also invested in a new Kina concept outlet at Vision
City during the year. The branch, which was rebranded
with Kina’s distinctive new brand, was opened in May
2017. The location and the design of the branch has been
a great success, enjoying good transactional and deposit
growth since opening it doors.

Kina Annual Report 2017 13

Responsible

Sustainability is at the heart of Kina’s
redefined vision and purpose and at
the core of our new strategic priorities.

With sustainability at our core, we place the health, safety
and wellbeing of our people and the community we serve
first. We are environmentally responsible, we respect
human rights, and we support local communities.

High governance standards are critical to delivering our
strategy. In this way, we are creating long-term value and
preserving our social license to operate.

Our purpose as an organisation is underpinned by a Total
Societal Impact (TSI) strategy, which is presently being
developed by Kina.

TSI is the total benefit to society from a company’s
products, services, operations, activities and core
capabilities.

There are a number of emerging trends that mean Kina
must take a more proactive role in considering our TSI.

Today Kina’s stakeholders, including the investment
community, expect companies to play a more active role in
addressing social and environmental issues. Employees
and future employees, particularly millennials, increasingly
want their employers to display a greater sense of purpose.
Increasingly, our employees also want to play an active role
in our societal impact efforts. Our customers are also
increasingly interested in information related to the
company’s social and environmental impact. This
information contributes to their buying decisions.
Governments are also expecting more of companies and
see them as having a part to play in helping to solve
economic and social problems. They are looking to
collaborate with local companies in such initiatives.

When a TSI strategy is well executed, there is mounting
evidence that it enhances Total Shareholder Returns over
the longer term. It achieves this by reducing the risk of
negative events and opening up new corporate
opportunities.

In business today, no matter where a company is operating
around the world, it is no longer enough to pursue societal
issues as an activity on the side. Companies must instead
integrate these into their core business, using their scale
advantages to deliver positive societal impact and
business benefits.

Kina’s focus will be on business opportunities that generate
significant shareholder returns, as well as societal impact
above the intrinsic benefits of the products or services we
offer. This will require identifying ways to leverage our core
business to address social and environmental goals.
Examples may include leveraging our core capabilities of
Kina’s business, enhancements to existing products or
services or the development of new ones.

PNG’s unbanked rates are among the highest in the world
due to challenges such as our geographically dispersed
communities, low population density, low financial literacy,
diverse language and cultures, and relatively
underdeveloped telecommunication infrastructure.

Kina supports the financial inclusion targets of the Bank
of Papua New Guinea. We are proposing the development
of an education program around savings and budgeting in
2018. Our staff will deliver these training sessions at our
four key locations during the year.

In 2017, Kina and its staff also supported a number of
initiatives, including The Daffodil Corporate Cup Golf
Challenge, which is an initiative of Cancer Foundation PNG
in partnership with Oil Search Foundation, and Links of
Hope, an organisation that supports homeless children
with basic needs such as food, and water, giving them an
opportunity to be educated.

In addition to a formal policy statement outlining how we
go about doing business in our TSI strategy, there are three
key initiatives that are under development which will form
the foundation of our Corporate Social Responsibility
Strategy. These include:

• Development of an SME capital fund

• Kumul Game Changers Youth Entrepreneurship

program with a specific focus on FINTEC

• Partnerships with key microfinance agencies for
the provision of wholesale funding and personal
banking services.

Kina Annual Report 2017

Kina supports
development of new
satellite township

Kina’s involvement in Edai Town is a
demonstration of its commitment to assisting
local business and helping to improve the
lifestyles of all Papua New Guineans

Edai Town is an integrated private sector mixed development
on alienated State land. This township is being developed by
a Malaysian Group in a joint venture with PNG landowners.

Kina Bank has provided various types of business finance
to the Edai Town developers and associated businesses.

These loan facilities have enabled Edai town to continue its
construction and social development projects; in providing
Papua New Guineans with the ability to purchase quality,
affordable housing.

Kina is also providing home loans to homebuyers who are
planning to call Edai Town their home.

The concept of Edai Town, which was launched in 2013, is to
develop a privately planned township encapsulating a safe,
affordable and conducive living environment for middle class
Papua New Guineans.

This satellite township is 20 kilometres from the capital
of Port Moresby along the new north-west corridor.

The township has modern services, which include reticulation
of water, sewerage, electricity, and internet services.

This modern township is proposed to eventually be home
to more than 10,000 people in a community which will
include a police station, school, recreation, business and
light industrial areas.

Edai Town has been approved as a staged mixed development
with seven master titles, three for residential gated
communities (totalling approx. 109 hectares), two
light industrial parks (totalling approx. 30 hectares), and two
master commercial titles (totalling approx. 7.50 hectares).

The Edai Town success has come from the collaborative
agreement between the local land owners and the experienced
management of Edai Town Development Company; in
providing jobs and work skills to the local people.

Photos courtesy of Edai Town.

Kina Annual Report 2017 15

Brand

Kina’s brand sets us apart in the market.

Our distinctive brand, which was launched
in 2015, is a reflection of Kina’s local roots
while positioning us to support the future
prosperity of PNG and its people.

Kina is proud of its heritage as a home-grown PNG
company that has contributed to the region’s social fabric
for three decades and is uniquely positioned to help
Papua New Guineans build the lives they choose.

Kina provides an opportunity for customers to join a
locally-grown bank and wealth management alternative
providing progressive and accessible financial services.

The Kina logo draws inspiration from the traditional,
woven bilum bag and the bold patterns of tapa bark
cloth. The intertwined strands reflect the two-way
partnership between Kina and its customers,
representing a common goal of prosperity. Our brand
slogan “Together It’s Possible” makes a pledge to
customers, reinforcing the strong relationship that
forms the cornerstone of the Kina brand.

Through our commitment to our brand, we aim to
engender local pride in the Kina Brand and ensure we are
recognised as a viable, secure and differentiated financial
services organisation in PNG.

Following our rebrand, our research has shown there is
strong recognition of our brand in PNG. However, we
must continue to educate our customers about our brand
proposition and the full range of products and services
we can offer them, particularly our banking products
and services.

Key brand initiatives in 2017 included:

• Launching a new concept branch showcasing

our brand at Vision City Mall

• Securing the naming rights to “The Tower”, our
headquarters and landmark Port Moresby CBD
building to be renamed Kina Haus.

The launch of Kina’s new Vision City bank branch became
a destination for customers, where they could experience
Kina Bank firsthand, and have solutions tailored to meet
their financial needs.

In 2018, Kina is launching a new brand identity for Kina
Bank as an extension of the existing brand to heighten
awareness of Kina’s banking offer.

Kina Annual Report 2017

We aim to engender
local pride in
the Kina Brand.

Kina Annual Report 2017 17

Kina Annual Report 2017

We support our people to
grow, learn
and develop
their skills.

Knowledge

We value our people and encourage
the development of talented and highly
engaged employees to support the
continued performance and growth of our
diverse operations. We strive to build a
sense of purpose and achievement among
all our people in the work we do.

In reflecting the communities we serve, we are keenly
focused on achieving an equitable gender balance
throughout our business. In doing so, we wish to harness
the potential that a more inclusive and diverse workplace
delivers to Kina. With this focus, we believe we will leave a
positive legacy in PNG for generations to come. Our
approach to gender balance is focused on ensuring Kina
is an attractive place for a range of diverse people and
also taking steps to ensure that our policies and
processes do not encourage any bias.

Given Kina’s focus on technology as a way of overcoming
the unique geographic and demographic challenges
PNG faces and delivering the services our customers
need, we are expanding our technology capabilities and
talent across the organisation.

We also support our people to grow, learn, and develop
their skills, so they can achieve their full potential.

A key initiative launched in 2017 was an Online Learning
Management System (LMS) which allowed for compliance
and regulatory courses to be offered to our people. An
extension of this platform is an extensive performance
management system to be implemented in 2018.
This system enables complete transparency for
employees on their objectives and performance
assessment, and ensures alignment to the company’s
strategic vision, 2018 business plan objectives and its
core values.

Kina has also supported job enrichment opportunities for
its people, and has supported a number of secondments
across the business during 2017. These have resulted in a
number of our staff gaining valuable experience and
moving to other parts of the business.

The group also offers an internship program. As a result,
a number of local interns gained employment in Kina’s
Human Resources and Information Technology
departments in 2017.

Kina Annual Report 2017 19

Banking

Kina operates the fourth-largest bank
in PNG with more than 16,000 customers
from seven locations covering the major
commercial and retail growth centres
in PNG.

As at 31 December 2017, the total loan book value was
PGK726 million with the business and personal portfolios.
The majority of business customers are private family
companies, active in the wholesale and retail trade,
real estate/renting/business services; and hotels
and restaurants.

The Kina Bank network has been tailored to the specific
requirements of the PNG retail and business banking
markets and includes cashless branches, full service
branches, automatic teller machines and an online
banking platform with access to the EFTPOS and ATM
network of all the licenced banks across PNG.

Kina Bank has three full service branches, with two in
Port Moresby located at Waigani and the Vision City
Mega Mall, and one located in Lae, Top Town. Lending
centres are located in Port Moresby, Vision City, Kokopo,
Lae and Mt Hagen.

Kina Bank provides all of the usual transactional and
lending products available from a bank, as well as
foreign exchange transactions, insurance premium
funding, equipment finance and general insurance
on an agency basis.

Kina Bank offers a wide variety of lending products to a
broad cross-section of the personal and business markets
within PNG. All business lending is relationship managed
and provided on a fully secured basis against bricks and
mortar security; a mixture of commercial and residential
properties. Personal lending is your typical home and
investment home loans, in addition to novated motor
vehicle leasing and unsecured personal loans via Kina
Bank’s “EsiLoan” brand.

2017 was a year of significant investment for Kina Bank
with the focus on setting up the business for success.
Key initiatives included:

• upgrading our new core banking system

•

launching new digital banking technology

launching our new concept branch at Vision City

launching new banking products

• enhancing our risk and compliance capability

to support FX transaction monitoring.

In December 2017, a key initiative for the bank was
our launch of internet banking and mobile banking
applications for both our personal and business
customers, providing an unlimited level of access for
our customers. This was made possible following the
successful upgrade of our core banking system on
time and budget during the year. The new mobile
applications allows our customers access to their
money “Anytime, Anywhere, Anyhow”.

A revamp of our home loan and investment home loan
products during the year led to a strong response from
customers and good lending volumes. The Personal
Lending portfolio saw growth in excess of 30% in 2017
and the pipeline indicates continued growth in 2018.

Kina Annual Report 2017

Kina continues
to lead the way in
online and
digital banking.

Kina Annual Report 2017 21

Kina provides fund
administration services
to 90% of the
PNG market.

Kina Annual Report 2017

Wealth

Kina operates the largest Wealth
Management business in PNG. Together
with Kina Bank, these businesses position
the group as the only integrated financial
services company in PNG.

Kina’s Wealth Management business provides
services including:

• Funds management and investment advisory

• Funds administration including registry and

investment accounting

• Custodian and trustee services

• Financial planning

• Stockbroking and corporate advisory.

Kina’s funds management business provides services to
several major superannuation funds, landowner groups,
corporate, and private investment clients.

Funds Under Management increased 10% to PGK6.9b
during 2017, due to growth in member contributions, as
well as positive investment returns.

The funds management division is a licensed investment
manager with an in-depth understanding of the
investment climate in PNG and the Asia-Pacific region.

This division provides investment management services
across all major asset classes, both in PNG and
internationally, to a diverse set of institutional clients.
This includes portfolio management and financial
advisory, primarily for clients including investment funds,
corporations and financial institutions.

It manages assets including cash investments, fixed
income investments (government and corporate debt),
listed equities, private equities and property investment
(real estate and property trusts). In providing investment
management services Kina Wealth’s funds management
business also provides custodial and settlement services
and comprehensive investment reporting.

Kina Wealth also acts as a fund administrator for a
number leading superannuation funds and private
investment clients. As such it provides fund
administration services to 90% of the market.
Services comprise member registry, contributions
and payments processing, and investment accounting.

A key highlight for the funds administration division was
agreement to provide services to PNG’s largest
superannuation fund, by members, Nasfund. As a result
of this agreement, Funds Under Administration increased
by 60% to PGK11b and member numbers increased to
more than 700,000. The service was successfully
transitioned by mid-year allowing NASFUND to
completely separate from their previous administrator.
Over the balance of 2017 many of the issues normally
associated with a migration of the size and scale of
Nasfund were managed proactively to ensure good
progress to maximising the benefits of the administration
technology platform used by Kina Wealth for the benefit
of NASFUND and its members.

With a strong position in the funds administration market,
Kina Wealth aims to deliver straight through processing in
the medium term, putting the industry on par with best
practice achieved in other jurisdictions. During 2018, Kina
Wealth’s funds administration division will develop and
launch a data analytics capability as part of its
commitment to providing greater value-added services
to our superannuation fund clients. PNG-based
superannuation funds are seeking increased member
engagement through a more structured and tailored
approach, which more closely meets the needs of
individual members.

Kina Wealth is also focused on developing and launching
retail investment products targeting the middle income
market. This remains a key goal for 2018 and beyond in
order to meet a need of PNG’s growing middle class who
are looking for investment options outside of traditional
bank offering; and provides an opportunity for Kina
Wealth to grow and enhance profit margins.
Development and launch of our retail funds is subject to
regulatory approvals. Kina sees PNG’s introduction of
new legislation, establishing a Securities Commission
with new powers to approve retail issues of collective
investment vehicles as a positive step for the industry.
While the process of bedding in the new legislation and
new Commission will necessarily take time, it
demonstrates recognition from the PNG Government of
the need for appropriate legislation to facilitate and
accelerate the development of the retail savings and
investment market.

Strategically, the link between Kina Wealth and Kina Bank
provides the opportunity to provide bespoke financial
services to superannuation funds and their members.
Such preferred product and service arrangements are a
key area of development for Kina Bank.

Kina Annual Report 2017 23

Board of Directors

Isikeli Taureka
Chairman
Non-Executive Director

Mr Isikeli Taureka was appointed as a Director of Kina in
May 2016 and became Non-Executive Chairman in May 2017.
He is an Executive Director at InterOil Corporation and was
previously InterOil’s Executive Vice President, Papua New
Guinea, accountable for the company’s daily operations
across the country.

Isikeli previously held a number of roles with Chevron
Corporation, including Head of Chevron Corporation’s
Geothermal and Power Operations; President of
ChevronTexaco China Energy Company with responsibility
for Chevron’s oil and gas upstream activities in China;
Managing Director of Chevron Asia South Business Unit
responsible for exploration and production in Thailand,
Bangladesh, Cambodia, Myanmar and Vietnam; and General
Manager and Country Manager for Chevron New Guinea
Limited with responsibility for oil operations in Papua New
Guinea and Western Australia.

Before joining Chevron, Isikeli managed the PNG-owned Post
and Telecommunication Corporation, worked at the Bank of
South Pacific Limited in a senior management capacity and
was Deputy Managing Director at Resources Investment
Finance Limited.

He holds a Bachelor of Economics degree from the University
of Papua New Guinea and is a Graduate of the Australian
Institute of Company Directors.

Greg Pawson
Chief Executive Officer
Managing Director

Greg Pawson was appointed Managing Director and CEO of
Kina in 2018. He joins the Group with an extensive knowledge
of the financial services industry in Australia, New Zealand,
South East Asia and the Pacific.

Mr Pawson has held senior management positions at
Westpac, BT Financial Group, and Colonial.

Before his appointment to Kina, Mr Pawson was Regional
Head of South Asia Pacific for the Westpac Group and held
senior executive roles in retail banking, corporate financial
services, financial planning and funds management.

Mr Pawson has also held a number of high-profile positions
including three years as president of the Australia-PNG,
Australia-Fiji and Australia-Pacific Islands business councils.

Kina Annual Report 2017

Jim Yap
Non-Executive Director

Mr Jim Yap has been a Director of Kina since 2012. Jim has
significant experience in the banking industry in Australia,
PNG and Taiwan.

Jim also currently serves as a director of Niule No.1 Ltd
(appointed 2009) and Raintree Development Ltd
(appointed 2012).

Jim’s previous experience includes senior management roles
at ANZ Banking Group (PNG) Ltd, including roles as Head of
Commercial Banking and Head of Regional Sales and
Origination. In addition, Jim has held a number of other roles
within ANZ, spanning more than 37 years in retail banking,
import and export, credit, corporate and institutional banking.

Jim holds a Bachelor of Science degree and Graduate
Diploma in Education from Monash University, Melbourne,
Australia, a Graduate Diploma in Management from the Royal
Melbourne Institute of Technology, Melbourne, Australia, and
is a member of the PNG Institute of Directors.

Karen Smith-Pomeroy
Non-Executive Director

Ms Karen Smith-Pomeroy was appointed as a Director on
12 September 2016. She is an experienced Non-Executive
Director, with involvement across a number of industry
sectors. Karen has more than 30 years of experience in the
financial services sector, with senior roles in Queensland and
South Australia, including a period of five years as Chief Risk
Officer for Suncorp Bank.

Karen has specific expertise in risk and governance, deep
expertise in credit risk and specialist knowledge of a number of
industry sectors, including energy, property and agribusiness.

Karen is currently a Non-Executive Director of Queensland
Treasury Corporation, Stanwell Corporation Limited, InFocus
Wealth Management group and National Affordable Housing
Consortium Limited. She is also a member of the Queensland
Advisory Board for Australian Super, Australia’s largest
industry super fund.

Karen holds accounting qualifications and is a Fellow of the
Institute of Public Accountants, Fellow of the Financial
Services Institute of Australasia, a Member of the Association
of Superannuation Funds of Australia, a Certificate Member of
the Governance Institute of Australia and a Graduate of the
Australian Institute of Company Directors.

David Foster
Non-Executive Director

Mr David Foster is an experienced Non-Executive Director
with a diverse portfolio of directorships and advisory roles.
David has 25 years of experience in financial services. David
was appointed a Director of Kina in 2015.

David is currently an independent Non-Executive Director
for a variety of ASX-listed companies across a range of
industries. David is Chair of Motorcycles Holdings Ltd
and Thorn Group Ltd, and a Non-Executive Director of
G8 Education Ltd, Genworth Mortgage Insurance Australia
Ltd, Thorn Group Ltd and the commercial arm of the
Local Government Association of Queensland.

David’s prior experience includes a number of senior
executive roles within Suncorp Group Limited, most recently
as CEO of Suncorp Bank, where David led it through a highly
volatile period during the global financial crisis. This included
the turnaround of its retail, small and medium enterprise and
agricultural businesses and managing down AUD18b in
problem and non-core assets to maximise shareholder capital
outcomes. David was also the Group Executive, Strategy
during the acquisition of Promina Limited, one of Australia’s
largest financial services transactions.

Isikeli Taureka
1
2 Greg Pawson
3 Jim Yap
4 David Foster
5 Karen Smith-Pomeroy

Prior to Suncorp, David had more than 14 years at Westpac
Banking Corporation in a number of senior roles in Sydney
and Queensland.

David has an MBA, a Bachelor of Applied Science and is a
Senior Fellow with Financial Services Institute of Australasia and
a Graduate of the Australian Institute of Company Directors.

Sir Rabbie Namaliu
Non-Executive Chairman (retired May 2017)

Wayne Golding
Non-Executive Director (retired May 2017)

Syd Yates
Managing Director
Chief Excecutive Officer (retired January 2018)

Kina Annual Report 2017 25

Executive
Management Team

Greg Pawson
Chief Executive Officer
Managing Director

Mr Pawson has held senior management positions at
Westpac, BT Financial Group, and Colonial.

Mr Pawson has also held a number of high-profile positions
including three years as president of the Australia-PNG,
Australia-Fiji and Australia-Pacific Islands business councils.

Chetan Chopra
Chief Financial Officer

Mr. Chetan Chopra is the Chief Financial Officer and
Company Secretary, reporting directly to the CEO.
Chetan is a widely experienced finance executive and a
chartered accountant by profession. He joined Kina in 2016
after spending two years as CFO of PNG’s largest
superannuation fund, Nambawan Super Limited.

Chetan has extensive working experience and knowledge
of PNG and for eight years as Partner with KPMG managing
the Momase and Highlands regions of PNG. Over a similar
period he was CFO of Dun and Bradstreet, South Asia and
Asia, covering 9 different geographies in the region. Chetan
also has held a number of senior leadership roles in Australia
in both the private sector and public sector, including the
Australian Taxation Office.

Deepak Gupta
Executive General Manager – Kina Wealth

Mr Deepak Gupta has had a long and successful career in
financial services spanning 32 years, having held a variety
of senior executive roles in leading financial services
institutions including Westpac, AMP and domestic
New Zealand institutions.

These roles have involved all facets of institutional funds
management, private equity investment, funds administration,
financial planning, and corporate trusteeship. In addition,
Deepak has strong governance experience having acted as a
Non-Executive Director on the boards of NZX and ASX listed
companies, and private businesses in a variety of industries.
He has also been active with industry bodies and has
represented New Zealand on international analyst bodies.

Deepak brings substantial experience and a track record of
success and innovation across a number of areas in financial
services. These include successful development of New
Zealand’s first institutional private equity fund for retail
investors, and leading the commercial development and
success of New Zealand’s largest registry business for its
workplace-based retirement savings scheme.

Danny Robinson
Executive General Manager – Kina Bank

Danny Robinson is Executive General Manager of Banking,
responsible for the implementation of the Group’s ambitious
growth and profit targets as we establish ourselves as a new
force in PNG retail and business banking sectors following
the Maybank acquisition.

Danny has had a long and successful career in financial
services, having held a variety of senior executive roles at
Suncorp Metway, commencing in 1997. These roles included
General Manager of Commercial Banking, Executive General
Manager of Specialist Sales and Service and Head of Business
Customers. Most recently, he worked in an executive capacity
within Suncorp’s risk management section. He brings a wealth
of experience and a successful track record of establishing
Suncorp’s distribution networks in new markets and achieving
outstanding growth targets while delivering enviable
customer service standards.

Danny holds a Post Graduate Diploma in Banking
Management from the Macquarie Graduate School of
Management, Australia and is a Graduate of the Australian
Institute of Company Directors and a Fellow of FINSIA.

Kina Annual Report 2017

1 Greg Pawson
2 Chetan Chopra
3 Deepak Gupta

4 Danny Robinson
5 Michael Van Dorssen
6 Tony De La Fossee

Michael Van Dorssen
Chief Risk Officer

Mr Michael Van Dorssen joined Kina in 2009 and is currently
the Chief Risk Officer for the group. As part of the good
governance of Kina and consistent with financial industry best
practice, Kina has established the risk division to assist the
group in its risk management and controls. Michael has
extensive experience in the banking industry in both Australia
and PNG, with a career spanning more than 30 years.

Prior to joining Kina, Michael worked for Suncorp Limited
as the District Manager for the bank’s agribusiness division
(from 2004 to 2008) and Westpac Bank PNG Limited (from
1999 to 2002).

Tony De La Fosse
Executive General Manager – Shared Services

Tony is responsible for a range of corporate functions
including Human Resources, Administration, Information
Technology, Real Estate, Legal and Procurement, and
Sourcing.

Tony graduated from the Royal Military College Duntroon in
1982. He holds an Arts Degree from the University of New
South Wales together with a Graduate Diploma in Human
Resources and an MBA.

Kina Annual Report 2017 27

Corporate Governance
Statement

Introduction
The Kina Group places great emphasis on the continued
development of a strong compliance culture. In an emerging
market place, Kina seeks to be innovative as well as provide
a safe and secure environment for its customers and
clients, which in turn brings value to Shareholders.

The Board of Directors of Kina Securities Limited (Board)
is responsible for the overall corporate governance of Kina
Securities Limited and its related entities (Kina, or Kina
Group, or Group, or the Company), including adopting
appropriate policies and procedures designed to ensure
that Kina is properly managed to protect and enhance
Shareholder interests.

The Board monitors the operational and financial position
and performance of Kina and oversees its business
strategy, including approving the Company’s strategic
goals and considering and approving business plans,
policy and budget.

The Board and management have designed a governance
framework for the operation and management of Kina,
which incorporates resilient internal controls, risk
management processes and governance policies and
practices. The Board monitors adherence to this framework
which enables the Group to comply with relevant laws,
regulations and standards set down by the Bank of Papua
New Guinea (BPNG), the Australian Securities Exchange
(ASX), the Port Moresby Stock Exchange (POMSoX), the
PNG Companies Act 1997 (PNG Act), PNG Securities Act
and the Australian Corporations Act 2011 (Cth)
(Corporations Act).

This Corporate Governance Statement (Statement) sets out
the core of Kina’s corporate governance framework and
practices by reference to the ASX Corporate Governance
Council’s Corporate Governance Principles and
Recommendations (3rd Edition) (Recommendations). The
Statement was approved by the Board on 26 March 2018.
The Board considers and applies the Recommendations,
taking into account the circumstances of Kina. Where Kina’s
practices depart from a Recommendation, this Statement
identifies the area of divergence and reasons for it, or any
alternative practices adopted by Kina.

Governance framework
The core of Kina’s corporate governance framework is the
Company’s Constitution and the documents listed below,
which are referenced in this Statement. The charters and
governance policies are reviewed regularly to ensure they
comply with any updated laws or regulations, that they
meet high governance standards and that they remain
relevant to the Company and its operations.

1. Kina Securities Limited Constitution (2015)

2. Board Charter (approved December 2017);

3. Audit and Risk Committee Charter

(approved December 2017);

4. Remuneration and Nomination Committee Charter

(approved December 2017);

5. Disclosure Committee Charter
(approved December 2017);

6. Securities Trading Policy (approved February 2017);

7. Shareholder Communications Policy

(approved October 2016);

8. Continuous Disclosure Policy (approved October 2017);

9. Diversity Policy (approved October 2017);

10. Code of Conduct for Directors (approved February 2017);

11. Code of Corporate Conduct
(approved February 2017); and

12. Conflict of Interest Policy (approved February 2017)

Copies of the corporate governance documents are
available on the Corporate Governance page under the
Investors tab on Kina’s website at: http://investors.kina.
com.pg/investors/?page=corporate-governance.

Board of Directors

The Role of the Board
The Board is committed to maximising performance,
generating shareholder value and financial returns, and
sustaining the growth and success of Kina. In conducting
Kina’s business in accordance with these objectives, the
Board seeks to ensure that Kina is properly managed to
protect and enhance shareholder interests, and that Kina,
its directors, officers and personnel operate in a well
governed environment.

Kina Annual Report 2017

Strategy

Governance

Management

Operations

Industry
specific

• Strategic Planning
• Market

understanding
and insights

• Global orientation

• Board and
Governance

• Government Policy

and Relations
• Regulatory and

Compliance

• Listed Co. experience

• Talent management
• HR management
• Public affairs and
Communication

• Stakeholder
engagement

• Senior management

experience

• Operational
management

• Risk management
• IT
• Company culture

• Tax/Accounting
• Banking
• Capital management

and debt funding
• Financial Services

The Board has adopted a board charter (Board Charter).
The Board Charter sets out, amongst other things, the

•

roles and responsibilities of the Board, including those
matters specifically reserved to the Board;

role and responsibility of the Chief Executive Officer
(CEO), which is primarily the day to day management
of Kina;

• procedure for management of potential and actual

conflicts of interest; and

• guidance on board performance evaluation, ethical

standards and taking independent professional advice.

Director Appointment
As is required by the BPNG’s Prudential Standards
(Standards), Kina undertakes a ‘Fit and Proper’ testing for
candidates for ‘Responsible Person’ positions, which
includes directors and Executive Management. This
rigorous testing, which, in accordance with the Standards,
is carried out on an annual basis, includes thorough
background checks. When directors are proposed for
election, or re-election at general meetings, the notice of
meeting provides material and relevant information to
enable shareholders to make an informed decision as to
whether or not to elect or re-elect the candidate.

Kina has entered into a written agreement with each
director and senior management team member that sets
out, amongst other items, the terms of their appointment
and their roles and responsibilities.

Board Composition
Since listing, Kina has developed and applied a succession
plan to ensure the appropriate mix of skills, knowledge and
guidance has been available amongst its directors for the
different stages of the Group’s journey.

To assist in identifying areas of focus and maintaining an
appropriate mix of skills and experience, the Board uses a
self-assessment questionnaire to evaluate performance and
measure skills and experience. The Board has identified 25
specific skills within six categories which directors measure
themselves against. The questionnaire is crafted to ensure
that those skills and experience required in order to achieve
the current strategic objectives are present on the Board.
Where they are not, the Board seeks to supplement any
gaps through director training or recruitment. Where
requirements are for a finite period, for example, during a
specific project, the Board will seek to utilise expertise of
existing personnel or engage consultants.

Kina’s Board presents specific strengths in regard to
strategy development and operational implementation of
strategy. Along with comprehensive experience in financial
services, the directors’ knowledge and experience within
risk management, regulatory compliance and governance
are particularly relevant for the current stage of Kina’s
growth and development. Further, the directors recognise
the need to ensure there is appropriate experience and
knowledge of PNG and, currently, this is an area that the
Board is seeking to further develop.

Due to the changeover of the Managing Director and CEO,
which occurred at the end of 2017, only the non-executive
directors took part in the year’s performance and skills
evaluation.

Kina Annual Report 2017 29

Corporate Governance Statement

Board skills matrix
The Board seeks to have an appropriate mix of skills,
experience, expertise and diversity to enable it to discharge
its responsibilities and add value to the Company.

As at 31 December 2017, the directors collectively
contribute the following key skills and experience:

Desired skill

The extent to which
the skill is collectively
contributed by
directors

Strategy
Strategic Planning

Market understanding
and insights

Global orientation and exposure

Governance
Corporate Governance

Government Policy and relations

Regulatory and compliance

Management
HR management

Crisis management

Diversity

Company culture and
management

Public affairs and
communication

Previous senior management
experience

Operations
Risk management

Operational management

Information Technology

Insurance

Industry specific
Tax

Banking

Capital management
and debt funding

Financial services

Formal accounting and
finance qualifications

Board experience
Audit committee experience

Remuneration and nomination
committee experience

Previous or other listed
company experience

Risk committee experience

Kina Annual Report 2017

90%

70%

65%

85%

75%

85%

55%

75%

85%

65%

100%

80%

50%

30%

90%

65%

85%

65%

70%

75%

65%

80%

Independence
The Board considers an independent director to be a
non-executive director who is not a member of Kina’s
management and who is free of any business or other
relationship that could materially interfere with, or
reasonably be perceived to materially interfere with, the
independent exercise of their judgement. The Board
reviews the independence of each Director in light of
interests disclosed to the Board regularly (and at least
annually) and having regard to the relationships listed in
Box 2.3 of the Recommendations.

The Board does not consider Jim Yap to be independent
due to his association with a substantial shareholder of Kina.

The Board considers that each of the directors brings
objective and independent judgement to Board
deliberations and makes a valuable contribution to Kina
through the skills they bring to the Board and their
understanding of Kina’s business.

Throughout the year, the Board had a majority of
independent directors.

Director induction and education
Kina’s induction program is designed to provide all new
directors a comprehensive view of the business. As part of
the induction, new directors are given a detailed overview
of Kina’s operations, copies of governance and internal
policies and procedures and instruction on the roles and
responsibilities of the Board, its committees and
management. The electronic board portal provides
directors access to relevant governance documents,
educational information, board and committee papers and
provides a secure means of communication between
directors and management. There is a strong emphasis on
continued education and directors, are expected to keep
themselves updated on changes and trends within the
business, in the financial sector, market environment and
any changes and trends in the economic, political, social,
global, environmental and legal climate generally.

As required by the BPNG, all directors should devote a
minimum of 20 hours per year to their ongoing professional
development. Directors are encouraged to attend
recognised courses, seminars and conferences and internal
education sessions are scheduled at Board meetings
throughout the year.

Performance Evaluation

In accordance with the Standards, and as set out in the
Board Charter, the performance of the Board, its members
and its committees is assessed each year. The Board has
undertaken a performance evaluation and skills analysis
during the year. The findings are used to further refine the
succession and renewal plan which is focussed on the next
two to five years. The Board will continue to review
individual, Committee and whole of Board performance
and ensure that Board composition and the skills and
experience of the directors is appropriate.

Directors’ details

Name

Appointment
date

Resignation Date

(to 26 March 2018) Non-executive? Independent?

Current length
of service

Sir Rabbie Namaliu

16 March 2009

16 May 2017

Syd Yates, OBE

24 June 1997

31 December 2017

Wayne Golding, OBE

25 May 1996

16 May 2017

Jim Yap

David Foster

Isikeli Taureka

22 August 2012

15 June 2015

19 April 2016

Karen Smith-Pomeroy

12 September 2016

Gregory Pawson1

1 January 2018

8 years

20 years

21 years

5 years, 7 months

2 years, 9 months

1 year, 11 months

1 year, 6 months

3 months

Yes

N/A

Yes

N/A

1 Gregory Pawson appointed as MD/CEO of Kina on 1 January 2018.

Performance evaluations, overseen by the Chairman, in the
case of the CEO, and the Remuneration and Nomination
Committee in the case of senior management, are carried
out on an annual basis and were completed in the year
under review.

Other committees may be established by the Board as and
when required. Membership of Board committees will be
based on the needs of Kina, relevant legislative and other
requirements and the skills and experience of individual
directors.

Chairman
In accordance with the Board Charter, the Chairman of
the Board is an independent director. Sir Rabbie Namaliu
was Chairman until his retirement following the AGM on
16 May 2017. Subsequently, the Board appointed
Mr Isikeli Taureka as Chairman of the Board. The roles
and responsibilities of the Chairman are contained within
the Board Charter.

Company Secretary
Mr Chetan Chopra was appointed Company Secretary and
Chief Financial Officer (CFO) on 21 June 2016. Chetan
holds a Bachelor of Science from Mumbai University
and an MBA from Melbourne Business School, University
of Melbourne. Chetan is a member of Certified Practising
Accountants Australia, PNG and India.

The Company Secretary is accountable directly to the
Board, through the Chairman, on all matters to do
with the proper functioning of the Board.

Board Committees
The Board has the power to establish and delegate
powers to committees that are formed to facilitate
effective decision making. The Board, however, accepts
full accountability for matters delegated by it to
those committees.

The Board has established an Audit and Risk Committee,
a Remuneration and Nomination Committee and a
Disclosure Committee. Each Committee has a separate
charter which sets out, in detail, the membership and
powers of the Committee, its roles and responsibilities.
The charters are reviewed at least annually.

Remuneration
Kina is committed to fair and responsible remuneration
throughout the Group. Members of senior management
are remunerated in a way that aims to attract and retain an
appropriate level of talent and reflects their performance in
relation to the delivery of corporate strategy and
operational performance. Remuneration for non-executive
directors is set using advice from independent consultants
and takes into account the level of fees paid to non-
executive directors of similar corporations and the
responsibilities and work requirements of the non-
executive directors.

The Remuneration Report and further details about
the remuneration policy of Kina are set out in the
Directors’ Report.

Acting ethically and responsibly
The Board is committed to ensuring that Kina maintains the
highest standards of integrity, honesty and fairness in its
dealings with all stakeholders, and that Kina complies with
all legal and other obligations.

Kina has adopted a Code of Corporate Conduct that
applies to all employees of Kina and its subsidiaries
(including subcontractors and consultants) and a separate
Code of Conduct for Directors (Codes of Conduct). The
Codes of Conduct set out certain minimum standards of
conduct that Kina expects of its employees and directors
including integrity, diligence, impartiality, equality and
fairness. The Codes of Conduct set out how employees
and directors are to conduct themselves in order to meet
these minimum standards.

Kina Annual Report 2017 31

Corporate Governance Statement

Audit and Risk Committee

Roles &
Responsibilities

•

reviewing financial reports
and overseeing the financial
reporting process;

• overseeing statutory

reporting requirements;

Remuneration and Nomination
Committee

•

recommend and review
remuneration policy across
group

review and consider
composition of Board

•

receiving internal and
external audit reports and
ensuring management take
corrective actions to address
control weaknesses and
non-compliance;

recommend appointment or
removal of External Auditor;

• make recommendations to

Board in regard to succession
planning for CEO and direct
reports and appointments of
directors

• administering aspects of Fit
and Proper requirements of
BPNG Prudential Standards

review External Auditor’s
performance;

• monitor provision of non-

audit services;

• oversee internal audit

function, ensuring reporting
line and unfettered access to
Chair of Committee or Chair
of the Board;

•

review and recommend
Group’s risk management
frameworks;

• monitor risk profile of the
Group against agreed risk
appetite and risk
management frameworks;

• monitor adherence to risk

policies;

• oversee operation of
WhistleBlowing Policy;

The Committee met 9 times
in 2017.

•

review structure and level of
director fees

review remuneration
framework (incl STIs, LTIs and
non-cash elements) of CEO,
senior management and
Responsible Persons

review terms and conditions
of employment agreements

review terms of
superannuation and pension
scheme arrangements

• assist in annual performance

review of CEO

• oversee annual performance
review of senior management

•

review effectiveness of
Diversity Policy and its
objectives and strategies

The Committee met 7 times
in 2017.

Membership
throughout
the year

Karen Smith-Pomeroy (Chair)
(Independent)*

David Foster (Chair)
(Independent)*

Jim Yap (Non-independent)

David Foster (Independent)
* Ms Smith-Pomeroy replaced

Mr Foster as Chair on
14 June 2017.

Keli Taureka (Independent)
* Mr Foster replaced Mr Taureka as
Chair on 14 June 2017.

Kina Annual Report 2017

Disclosure Committee

• assess whether information
concerning the Company
should be disclosed to the
market;

• determine the substance of
the market disclosure and
when it must be made;

• where necessary, review
market disclosures for
accuracy and completeness
and approve or recommend
to the Board for approval;

• determine whether a trading
halt or voluntary suspension
of trading is required;

•

respond to any request from
the ASX or POMSoX to
disclose market sensitive
information to correct or
prevent a false market;

• ensure that breaches of the
BPNG Prudential Standards
are communicated, where
appropriate, to the BPNG or
other regulator in compliance
with the relevant listing rules
and/or continuous disclosure
requirements; and

• oversee the Disclosure

Officer’s administration of the
Continuous Disclosure Policy.

The Committee met twice
in 2017.

Keli Taureka (Chair)
(Independent)*

Karen Smith-Pomeroy
(Independent)*

David Foster (Independent)

Greg Pawson (Managing Director
and CEO)*

* Mr Taureka was appointed
Chair and Ms Smith-Pomeroy
was appointed to the Committee
on 14 June 2017. Mr Yates
resigned from the Committee on
2 January 2018 and Mr Pawson
was appointed to the Committee
on 16 February 2018.

Membership of the Committees during the reporting period, the number of Committee meetings and the attendance at
those meetings are set out below:

Director

Board meetings

Audit and Risk
Committee Meetings

Remuneration and
Nomination
Committee Meetings

Disclosure Committee
Meetings

Sir Rabbie Namaliu 1

Sydney Yates

David Foster

Wayne Golding 1

Jim Yap

Isikeli Taureka

Karen Smith-Pomeroy

–

A Meetings held that director was eligible to attend

B Meetings attended

1 Sir Rabbie Namaliu and Wayne Golding resigned on 16 May 2017

Diversity
The Diversity Policy emphasises Kina’s commitment to the
maintenance and promotion of a workplace that ensures
equity and fairness and is free from discrimination,
harassment, bullying and victimisation. Kina recognises the
importance of embracing diversity, specifically in valuing
the unique qualities, attributes, skills and experiences each
employee bring to the workplace.

The Company’s vision for diversity incorporates a number
of different factors, including but not limited to gender,
ethnicity and cultural background, disability, age and
educational experience. The Diversity Policy provides a
framework to help Kina achieve its diversity goals, while
creating a commitment to a diverse work environment
where staff are treated fairly and with respect, and have
equal access to workplace opportunities.

Kina is an inaugural member of the Business Coalition for
Women (BCFW) and through the year has provided
specialist training to female, team leaders to assist with
their career development. Kina is a strong advocate for
gender smart policies in the workplace and provides both
maternity and paternity leave for its workers. Also, within
the first 6 months’ of a child’s life, new parents are provided
with paid leave to enable time out of the workplace to feed
new babies. In 2017, Kina funded cervical cancer screening
checks for all female employees. In September of this year,
Kina ran a Health Week where seminars were given on
health issues facing men and women in PNG and provided
a range of pathology tests free of charge to both male and
female employees. Kina continues to fund private health
insurance for all employees.

The Group will continue to promote awareness and
understanding of workplace diversity principles and
develop policies to assist employees to balance work,
family and cultural responsibilities whilst at the same time
removing barriers to employment.

Senior Management are those individuals who report
directly to the MD/CEO. Team Leaders are those
individuals who have been appointed as Supervisors and
Managers. Kina is not a relevant employer under the
Workplace Gender Equality Act.

The Remuneration and Nomination Committee reviews
and oversees the implementation of the Diversity Policy.
The Committee has determined that the existing
measurable objectives remain current and appropriate
for 2018.

Written declarations
When the Board considers the statutory half-year and
annual financial statements, the Board obtains a
declaration equivalent to section 295A of the Corporations
Act, from the CEO and CFO in regard to the integrity of the
financial statements and assurance as to the effective
operation of the risk management and internal compliance
and control systems.

Kina Annual Report 2017 33

Corporate Governance Statement

Kina’s measurable objectives are:

Objective

2017 Achievement

Maintain or improve Kina’s level of female participation
across all levels of business, with particular focus at the
leadership levels.

Overall, the level of female participation across all levels
of the business remained relatively stable.

Maintain or improve level of participation at leadership
level for PNG citizens.

The Leadership Programme continued with the provision
of additional training to selected staff.

Demonstrate improvement in creating an inclusive
workplace environment.

KSL has continued to support gender smart policies,
as outlined above.

The numbers and percentage of females within Kina’s workforce, including the Board and senior management team is set
out below:

Board

Senior Management

Team Leader

Other employees

31 December 2017

31 December 2016

Females

Males

Total

Females

Males

Total

131

100

231

100

198

External Auditor
For 2017, Kina’s external auditor was
PricewaterhouseCoopers. A resolution will be put to the
2018 AGM to appoint Deloitte Touche Tohmatsu as Kina’s
external auditor for 2018. The Audit and Risk Committee is
responsible for recommending the appointment or
removal of the auditor as well as annually reviewing their
effectiveness, performance and independence.

The external auditor is required to attend the Company’s
annual general meeting and is available to address
questions relevant to the conduct of the audit and the
preparation and content of the auditor’s report.

Timely and balanced disclosure
Kina is committed to observing its disclosure obligations
under the ASX Listing Rules, the PNG Act, the
Corporations Act, the POMSoX Listing Rules and the PNG
Securities Act. The Board has adopted a continuous
disclosure policy (Continuous Disclosure Policy) and a
shareholder communication policy (Shareholder
Communications Policy) that implement Kina’s
commitment to providing timely, complete and accurate
disclosure of information.

The Continuous Disclosure Policy sets out the roles and
responsibilities of officers and employees in complying with
Kina’s continuous disclosure obligations and nominates
those individuals who are responsible for determining
whether or not information is required to be disclosed.

Shareholder Communications
The Shareholder Communications Policy promotes
effective communication with shareholders and seeks to
ensure that shareholders have equal and timely access to
material information concerning Kina. The Policy sets out
the investor relations program, a key tenet of which is to
encourage effective shareholder participation.
Shareholders are encouraged to attend general meetings
and shareholder information sessions and to submit written
questions prior to those meetings.

Kina’s website contains information regarding the
Company, the Board and management team, corporate
governance, media coverage, ASX announcements,
investor presentations and reports.

Kina’s investor relations program includes a number of
scheduled and ad hoc interactions with institutional
investors, private investors, sell-side and buy-side analysts
and the financial media. At a minimum, so as to ensure that
shareholders and other stakeholders have a full
understanding of Kina’s performance and strategies, Kina
will convene analyst briefings twice a year on Kina’s
financial performance and objectives.

In accordance with the Shareholder Communications
Policy, shareholders are encouraged to attend general
meetings, or, if they are unable to attend, vote by proxy or
other means included in the notice of meeting.

Kina Annual Report 2017

All lending proposals are considered based on credit
policy and within the risk appetite of the Group. Debt
servicing assessment criteria is maintained to ensure Kina
understands its level of credit risk whilst managing its
impairment exposure.

Kina Bank Limited (KBL), a wholly owned subsidiary of
Kina, is exposed to the economic conditions of PNG
through its normal course of business in lending monies to
commercial businesses operating in PNG. KBL does not
have any material exposure to environmental or social
sustainability risks.

Dealings in Company securities
The Board has adopted a Securities Trading Policy that
applies to the Kina’s equity-based remuneration scheme
and explains the conduct that is prohibited under the PNG
Securities Act and the Corporations Act.

The Securities Trading Policy:

• provides for certain Trading Windows when ‘Relevant
Persons’ may trade provided the appropriate process
has been adhered to;

• prohibits any Relevant Person from entering into a
hedge transaction involving unvested equity held
pursuant to an employee, executive or director equity
plan operated by Kina;

• sets out the prohibitions against insider trading and
prescribes certain requirements for dealing in Kina
securities; and

• prohibits Relevant Persons from trading in Kina

securities while in possession of material non-public
information, which is information a reasonable person
would expect to have a material effect on the price or
value of Kina securities.

Shareholders may receive and send information
electronically to and from both Kina and Kina’s share
registry. Other methods of communication are also
available to shareholders and other stakeholders,
including telephone, mail and facsimile. Kina may consider
the use of other reliable technologies as they become
widely available.

Risk Management and internal controls
Risk is managed structurally through clearly defined risk
management policies specific to certain parts of the
business. These are interlinked and feed into a Group risk
management framework, which is overseen by the Audit
and Risk Committee. The Committee is supported by a
number of approved management risk management
committees, including the Credit Committee, Asset and
Liability Committee and Executive Committee. The
operational risk division nurtures a strong and robust risk
culture within the organisation through application of the
three lines of defence model. Communication and
education throughout the Group on the three lines of
defence model emphasises each individual’s role in the
management of risk. During 2017, the Group’s risk
management framework, including underlying policies,
was reviewed by the Audit and Risk Committee and, where
relevant, by the Board.

A dedicated compliance department is in place to ensure
that Kina personnel are aware of the Group’s prudential
and legislative obligations and that these are maintained at
all times. Operational risk within the Group is monitored
and an Occupational Health and Safety regime has been
expanded to maintain the safety of Kina’s employees and
customers. The Group’s risk management activities comply
with all relevant regulation including that of the Standards,
relevant legislation and the Investment Promotion
Authority (IPA).

Kina has also employed skilled credit managers who have
an understanding of the Papua New Guinea (PNG)
economic environment to ensure that the growing loan
portfolio is maintained within an acceptable level of risk
and within Kina’s agreed risk appetite.

Kina’s risk management framework and internal control
functions incorporate an internal audit function which
report directly to the Audit and Risk Committee. The
internal audit function continues to be co-sourced with
external providers which brings the benefit of enhancing
Kina personnel’s existing knowledge and expertise. This is
acceptable under the Standards, but not a position Kina
will continue in the long term. The internal audit function
provides independent and objective assurance to the
Board, via the Audit and Risk Committee. The internal
annual audit plan is formulated using a risk based
approach. Progress against the internal annual audit plan is
reported to the Committee on a quarterly basis.

Kina Annual Report 2017 35

Introduction & Overview to Shareholders

1
The remuneration report is focused on
providing information that the Board
considers important for shareholders to
understand the remuneration framework
of Kina. This is designed to deliver good
operating results.

During the year Kina reviewed its incentive plans to ensure
they were aligned with market best practice and that they
continue to attract, motivate and retain high calibre
management and employees.

Kina Securities Limited
Remuneration report

Contents
1

Introduction & Overview to Shareholders . . . . . . . . 36

2 Kina’s Key Management Personnel (KMP) . . . . . . . . 37

2 .1 Remuneration and Nomination Committee . . . 37

3 Executive remuneration . . . . . . . . . . . . . . . . . . . . . . . 37

3 .1 Remuneration policy and

governance framework . . . . . . . . . . . . . . . . . . . . 37

3 .2 Fixed Remuneration (FR) . . . . . . . . . . . . . . . . . . . 38

3 .3 Short-term incentive plan (STI) . . . . . . . . . . . . . . 39
Structure of STI . . . . . . . . . . . . . . . . . . . . . . . . . . . . .39
3 .4 Long term incentive plan . . . . . . . . . . . . . . . . . . . 40
Structure of LTI . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .40
3 .5 Retention Plan . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42

3 .6 Performance based and non-performance

based components . . . . . . . . . . . . . . . . . . . . . . . . 43

3 .7 External Advisor Services . . . . . . . . . . . . . . . . . . 43
3 .8 Performance Rights holdings . . . . . . . . . . . . . . . . .43
3.9 Employment agreements . . . . . . . . . . . . . . . . . . . .45
4 Non-executive director arrangements . . . . . . . . . . . 47

4 .1 Remuneration policy . . . . . . . . . . . . . . . . . . . . . . 47

4 .2 Remuneration components . . . . . . . . . . . . . . . . . 47
Fee pool . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

Committee fees . . . . . . . . . . . . . . . . . . . . . . . . . . . . .47

4 .3 Variable Remuneration . . . . . . . . . . . . . . . . . . . . . 47

5 Related party transactions . . . . . . . . . . . . . . . . . . . . . 47

6 Directors’ interests in shares . . . . . . . . . . . . . . . . . . . 47

7 Auditor’s report . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47

Kina Annual Report 2017

2 Kina’s Key Management Personnel (KMP)
Kina’s KMP comprise the Directors, CEO and the direct
reports to the CEO, called the Senior Executive Team of
Kina. The Senior Executive Team refers to the CEO and
those direct reports with authority and responsibility for
planning, directing and controlling the activities of Kina
Group, directly or indirectly. The KMP disclosed in this
Remuneration Report are:

Name

Position held during the financial
year ended 31 December 2017

Non-Executive Directors
(section 4 of this Remuneration Report)

Sir Rabbie Namaliu1

Non-Executive Chairman

Isikeli Taureka2

David Foster

Wayne Golding3

Jim Yap

Non-Executive Chairman

Non-Executive Director

Karen Smith-Pomeroy

Non-Executive Director

Executive Directors and
Senior Executive Team (direct reports)

Syd Yates 4

Greg Pawson5

Chetan Chopra

MD and CEO

CEO

Chief Financial Officer and
Company Secretary

2.1 Remuneration and Nomination Committee
The Remuneration and Nomination Committee assists the
Board in the performance of its statutory and regulatory
duties by:

•

formulating advice to the Board on the remuneration of
the Chief Executive Officer, senior management team
and employees holding Responsible Person positions;

• providing an objective, non-executive review of the
effectiveness of Kina’s remuneration setting policies
and practices;

•

recommending to the Board for approval by
shareholders the amount and structure of directors’
fees;

• administering aspects of the “Fit and Proper”

requirements of BPNG Prudential Standard BPS310;
and

•

identifying the mix of skills and individuals required to
allow the Board to contribute to the successful
oversight and stewardship of the Company.

Refer to Kina’s Corporate Governance Statement
(available on Kina’s website under the Corporate
Governance Link and pages 28 – 35 of this Annual Report
for more information regarding the Remuneration and
Nomination Committee.

The Remuneration and Nomination Committee regularly
reviews the following to align remuneration, performance
and strategy:

Danny Robinson

Executive General Manager, Banking

• Kina’s remuneration policy;

Deepak Gupta

Executive General Manager, Wealth

Michael Van Dorssen

Chief Risk Officer

Tony de la Fosse

Executive General Manager,
Shared Services

1. Resigned as Director and Chairman 16 May 2017
2. Appointed as Chairman 16 May 2017
3. Resigned as Director 16 May 2017
4. Resigned as CEO on 2nd January 2018
5. Appointed as CEO 04 December 2017

•

the structure and quantum of the remuneration of the
CEO, members of the senior management team, staff
holding Responsible Person positions and selected risk
and compliance staff; and

•

the structure and level of non-executive directors’
board fees and committee fees,

Executive remuneration

3.1 Remuneration policy and governance framework
The Remuneration and Nomination Committee reviews
and determines our remuneration policy and structure
annually to ensure it remains aligned to business needs,
and meets our remuneration principles. From time to time,
the committee also engages external remuneration
consultants to assist with this review. In particular, the
Board aims to ensure that remuneration practices are:

• Competitive and reasonable, enabling the company to

attract and retain key talent;

• Aligned to the company’s strategic and business
objectives and the creation of shareholder value;

• Transparent; and

• Acceptable to shareholders.

Kina Annual Report 2017 37

Kina Securities Limited
Remuneration report

KMP are prohibited from entering into any hedging arrangements that limit the economic risk of holding Kina securities
under Kina equity plans. This helps align executives’ and shareholders’ interests.

The Board has determined that to align the interests of Kina’s Senior Executive Team and the goals of Kina and to assist in
the attraction, motivation and retention of management and employees of Kina, the remuneration packages of the CEO
and the other Senior Executives of Kina should comprise the following components:

Fixed remuneration

Total fixed remuneration comprises base salary, other
non-cash benefits and includes superannuation.

STI Plan

The STI plan provides participants with an opportunity to earn an incentive calculated as a
percentage of their salary each year, conditional upon achievement of individual KPIs which may
consist of financial and, if applicable non-financial performance measures.
The incentive earned will be paid:

• 65% in cash

• 35% in an offer of performance rights.

The cash portion of the incentive will be paid in the next pay cycle following confirmation of
the performance outcomes being achieved. The Performance Rights portion will be issued in
one tranche, and will remain payable even following resignation. The Board has the right to vary
the Award.

A long term incentive plan that provides an opportunity for employees to receive an equity interest
in Kina through the granting of LTI Performance Rights
Under the LTI Plan, LTI Participants may be offered LTI Performance Rights that are subject to
vesting conditions set by the Board.

A one-off equity based performance rights plan to assist in the retention and reward of key eligible
employees.
The Kina Board has discretion as to whether the Retention Plan will continue and apply to other KMP.

LTI Plan

Retention Plan

3.2 Fixed Remuneration (FR)
Executives may receive their fixed remuneration as cash, or cash with non-monetary benefits such as insurance, allowances
and tax advisory services. FR is reviewed annually, or on promotion. It is benchmarked against market data for comparable
roles in companies in a similar industry and with similar market capitalisation. The committee aims to position executives at
or near the median, with flexibility to take into account capability, experience, and value to the organisation and
performance of the individual.

Kina Annual Report 2017

3.3 Short-term incentive plan (STI)
(a) Structure of STI

Features
Eligibility

STI components

Performance measures

Description

The CEO and Senior Executive Team are eligible to participate in the STI Plan (STI Participants).

Cash bonus: 65% of the STI Participant’s award under the STI Plan.
STI Performance Rights: 35% of the STI Participant’s award under the STI Plan.

Individual KPIs specific to each Participant are agreed during the performance appraisal process
each year. These KPIs consist of both financial and non-financial performance measures and are
agreed with the CEO and KMP at the start of each year.
No STI is payable unless a minimum Group NPAT is achieved. The Board however has the right to
vary this requirement.
The Board allocates an annual pool to the STI each year. There are levels of targeted performance
for allocation of the pool for 2017 :

• Minimum (85% of budget)

• Threshold (85% - 100% budget):

• Target (Budget 100%)

• Stretch (100+ to 110%+)

50%

90%

100%

• Stretch (120%+)

up to 120%

The pool is then allocated in accordance with the maximum and target STI for each KMP (which is
detailed later) as a percentage of Gross pay. The Board has the right to vary the award.

The number of STI Performance Rights granted is determined by dividing the award value by the
10 day volume weighted average price per share prior to 31 December of the year of award.

STI Performance Rights are restricted from exercise until the second anniversary after the grant
date and will vest on the second anniversary. These are not subject to any further measurement
after award and allotment.

Period

FY ended 31 December 2015

Date Granted

25 March 2016

Vesting date

25 March 2018

FY ended 31 December 2016

17 February 2017

17 February 2019

FY ended 31 December 2017*

16 February 2018

1 April 2020

* Partial STI for period ended 31 December 2017 was granted by the Board on the basis that the

Group achieved its mid-year guidance on revised NPAT for FY 2017.

STI Performance Rights are subject to Kina’s clawback policy. Under the clawback policy, unvested
STI Performance Rights may be forfeited if the Board determines that adverse events or outcomes
arise that should impact on the grant of STI Performance Rights to a STI Participant.

Payments under the STI Plan will now be made in April of each year after the release of full year
financial results to ASX and POMSoX.

CEO

CFO

Target

Maximum

50% of base salary

75% of base salary

40% of base salary

50% of base salary

Other Senior Executives

30% of base salary

45% of base salary

Calculation of STI
Performance Rights

Vesting of STI
Performance Rights

Forfeiture of STI
Performance Rights

Payments and grants

Target STI and
maximum STI that
can be awarded

Kina Annual Report 2017 39

Kina Securities Limited
Remuneration report

3.4 Long term incentive plan
Executives participate, at the Board’s discretion in the LTI plan comprising annual grants of Performance Rights.
Further details are shown in the table below:

(a) Structure of LTI

Features
Eligibility

LTI components

Description

Participants must be a permanent full-time or part-time employee or Executive Director of Kina or any
of its subsidiaries (LTI Participants).

The LTI Plan will be delivered as Performance Rights with each right conferring on its owner the right to
be issued or transferred one (1) fully paid ordinary share in the Company.

Performance measures In respect of the FY16 onwards, the Performance Rights will only vest subject to Board assessed

satisfaction of the following conditions:

• Meeting the required Total Shareholder Return (TSR) performance level based on peer group

– 50% weighting

Over a three year period

Peer group relative TSR performance

Vesting outcome

Below 50th percentile of peer group

Nil

At 50th percentile

50% vesting

Between 50th – 75% percentile

Pro rata between 50% to 100%

75% and above

100% vesting

•

Meeting Earnings per Share (EPS) target level based on Peer group – 50% weighting

Compound Annual Growth rate over a three year period

EPS performance

Vesting Outcome

< 5% compound annual growth

Nil

>5% and < 10%

10%

50% vesting

Pro rata between 50% – 100%

100% vesting

The Board worked with an independent advisor to identify comparator group companies and the
advisor calculates the vesting schedule.
The measurement period for 2016 LTIs is from 1 April 2017 to 31 March 2020. The vesting will be
effectively on 1 April 2020. This corrects the reporting in the prior year Annual Report.

Calculation of LTI
Performance Rights

Grants are approved annually. The number of LTI Performance Rights for each year will be determined
by dividing the LTI Awards by the 10 day volume weighted average price per share prior to
31 December in the year of grant.

Kina Annual Report 2017

Features
Vesting and exercise of
LTI Performance Rights

Description

While the grants are approved annually, they will vest no earlier than the third anniversary of the
commencement of the performance period and subject to satisfaction of the vesting conditions and
performance measures.
The performance periods for the outstanding awards are as follows:

Financial Year Date Granted

2015

2016

25 March 2016

17 February 2017

Performance
period

2015 Year
performance

1 April 2017 to 31
March 2020

2017

16 February 2018

1 April 2018 to
31 March 2021

Vesting date
(subject to
performance
testing)

25 March 2019

1 April 2020

1 April 2021

Measures

Achieving profit of
K5.7 m IPO Listing

EPS assessment
compound till
FY 2019 – 50%

Relative TSR
assessment
compounded to
FY 2019 – 50%

EPS assessment
compound till
FY 2020 – 50%

Relative TSR
assessment
compounded to
FY 2020 – 50%

Forfeiture of LTI
Performance Rights

Unvested LTI Performance Rights may be forfeited:

•

if the Board determines that any vesting condition applicable to the LTI Performance Right has
not been satisfied in accordance with its terms or is not capable of being satisfied;

in certain circumstances if the LTI Participant’s employment is terminated; or

in other circumstances specified in the LTI Plan (for example, if the Board determines that the LTI
Participant has committed an act of fraud or gross misconduct in relation to the affairs of Kina).

Lapse of LTI
Performance Rights

Unless otherwise specified in the vesting conditions or otherwise determined by the Board, a LTI
Performance Right lapses on the earliest of:

•

if the Board determines that any vesting condition applicable to the LTI Performance Right has
not been satisfied in accordance with its terms or is not capable of being satisfied;

the expiry of the exercise period (if any);

in circumstances of cessation of employment;

in other circumstances specified in the LTI Plan (for example, if the Board determines that the
LTI Participant has committed an act of fraud or gross misconduct in relation to the affairs of
Kina); or

if the participant purports to deal in the LTI Performance Right in breach of any disposal or
hedging restrictions in respect of the Performance Right.

Target LTI and maximum
LTI that can be awarded

CEO

CFO

Other Senior Executives

Target

Maximum

50%

40%

30%

50%

40%

30%

Kina Annual Report 2017 41

Kina Securities Limited
Remuneration report

Features
Calculation of
Fair Value of LTI
Performance Rights

3.5 Retention Plan

Features

Eligibility

Retention Plan

Vesting conditions

Calculation of
Performance Rights

Forfeiture of
Retention Plan
Performance Rights

Lapse of
Retention Plan
Performance Rights

Description

Fair value of the LTI performance rights subject to TSR and EPS vesting conditions for financial
reporting purposes is generally estimated based on market share price at grant date and using a
simulation pricing model applying assumptions price volatility, risk free interest rates and dividend
yields. Due to Kina’s relatively short period since listing, historic share price volatility data is not
available. Therefore the Fair Value is calculated with reference to a discount rate based on comparative
market analysis of similar sized Australian banks and other companies with similar incentive schemes
using the weighted average fair value at grant date as the basis for calculation. This is a change from
measurement methodology adopted in the FY 16 Remuneration report. For future years, Kina intend
to commission a fair value calculation done by an independent expert.

Description

The Board to determine the Participants eligible for participation in the Retention Plan.

The Retention Plan is a once off award of Performance Rights to assist in the retention and reward of
key eligible participants.

In respect of the FY15 Retention Plan grant, the Performance Rights for the CEO are subject to a
service condition as follows:

• 50% of the Performance Rights granted to vest on the first anniversary of grant date; and

• 50% of the Performance Rights granted to vest on the second anniversary of grant date.

The Board determined that under the Retention Grant, Syd Yates received a once off grant of
$200,000 worth of Performance Rights, which will result in 200,000 Performance Rights being granted.
These performance rights have vested in FY16 and FY17 respectively in line with vesting conditions
above

Unvested Retention Plan Performance Rights may be forfeited:

•

If the Board determines that any vesting condition applicable to the Retention Plan
Performance Right has not been satisfied in accordance with its terms or is not capable of
being satisfied;

In certain circumstances if the Retention Plan Participant’s employment is terminated; or

In other circumstances specified in the Retention Plan (for example, if the Board determines
that the Retention Plan Participant has committed an act of fraud or gross misconduct in
relation to the affairs of Kina).

Unless otherwise specified in the vesting conditions or otherwise determined by the Board, a
Retention Plan Performance Right lapses on the earliest of:

•

If the Board determines that any vesting condition applicable to the Retention Plan
Performance Right has not been satisfied in accordance with its terms or is not capable of
being satisfied;

• The expiry of the exercise period (if any);

•

In circumstances of cessation of employment;

If the participant purports to deal in the Retention Plan Performance Right in breach of any
disposal or hedging restrictions in respect of the Performance Rights.

Timing of grants

It is intended that there will be no future grants under the Retention Plan as it was a once off grant.

Kina Annual Report 2017

3.6 Performance based and non-performance based components
All elements of the remuneration of The Senior Executive Team are performance based.

For FY 2017
Participant

Syd Yates

Chetan Chopra

Danny Robinson

Deepak Gupta

Michael van Dorssen

Tony De La Fosse

Other senior executives

Cash salary (AUD)

Non-monetary
benefits (AUD)

400,000

305,000

320,000

305,000

359,609

240,000

1,356,480

181,044

182,119

145,355

138,320

122,071

12,251

639,195

Total (AUD)

581,044

487,119

465,355

443,320

481,680

252,251

1,995,675

3.7 External Advisor Services
The Kina share based incentive plan is administered independently by Link Market Services Pty Ltd. Orient Capital Pty
Limited is engaged to provide the assessment of EPS Growth and Relative TSR Performance in relation to the LTI Awards
and valuation of the VWAP.

3.8 Performance Rights holdings
The table below sets out the current holdings of Performance Rights by the Senior Executive Team:

Plan Name

Year Grant Date

Vesting
Date

Value of PR
Granted
(AUD)

VWAP
period

VWAP $
applied

PR As at
31 Dec
2017

Name

Syd Yates

LTIP and PR

2016

6/06/2017

1/06/2020 200,000.00

STIP

2016

6/06/2017

6/06/2019

28,000.00

LTIP IPO PR

2015

30/07/2015 30/07/2018

STIP

2015

25/03/2016 25/03/2018

94,500.00

Chetan Chopra

LTIP and PR

2017

16/02/2018

1/04/2021 122,000.00

STIP

2017

16/02/2018

1/04/2020

7,700.00

LTIP and PR

2016

17/02/2017

1/04/2020 122,000.00

STIP

2016

17/02/2017

1/04/2019

14,945.00

Danny Robinson

LTIP and PR

2017

16/02/2018

1/04/2021

96,000.00

STIP

2017

16/02/2018

1/04/2020

8,400.00

LTIP and PR

2016

17/02/2017

1/04/2020

96,000.00

STIP

2016

17/02/2017

1/04/2019

16,800.00

Deepak Gupta

LTIP and PR

2017

16/02/2018

1/04/2021

91,500.00

STIP

2017

16/02/2018

1/04/2020

7,000.00

LTIP and PR

2016

17/02/2017

1/04/2020

91,500.00

STIP

2016

17/02/2017

1/04/2019

6,405.00

$1.0651

45,498*

$1.0651

28,875

167,395*

$0.8910

98,661*

$0.6980

174,785

$0.6980

11,032

$1.0651

114,543

$1.0651

14,031

$0.6980

137,536

$0.6980

12,034

$1.0651

90,132

15,773

$0.6980

131,089

$0.6980

$1.0651

10,029

85,907

6,013

Kina Annual Report 2017 43

Kina Securities Limited
Remuneration report

Name

Plan Name

Year Grant Date

Vesting
Date

Value of PR
Granted
(AUD)

VWAP
period

VWAP $
applied

PR As at
31 Dec
2017

Michael Van Dorssen

LTIP and PR

2017

16/02/2018

1/04/2021

107,883.00

STIP

2017

16/02/2018

1/04/2020

7,700.00

LTIP and PR

2016

17/02/2017

1/04/2020

92,010.00

STIP

2016

17/02/2017

1/04/2019

9,661.00

$0.6980

154,560

$0.6980

11,032

$1.0651

86,386

$1.0651

9,070

LTIP and PR

2015

25/03/2016 25/03/2019

92,010.00

N/A

92,010

2016

17/02/2017

1/04/2019

8,535.00

N/A

3/10/2016

3/10/2019

N/A

75,000

STIP

2015

25/03/2016 25/03/2018

33,814.00

Tony Del La Fosse

LTIP and PR

2017

16/02/2018

1/04/2021

72,000.00

Adam Fenech

LTIP and PR

2017

16/02/2018

1/04/2021

82,500.00

STIP

2017

16/02/2018

1/04/2020

7,000.00

STIP

2017

16/02/2018

1/04/2020

5,600.00

LTIP and PR

2016

17/02/2017

1/04/2020

72,900.00

STIP

2016

17/02/2017

1/04/2019

7,655.00

LTIP and PR

2015

25/03/2016 25/03/2019

STIP

2015

25/03/2016 25/03/2018

17,223.00

Terry Hall

LTIP and PR

2017

16/02/2018

1/04/2021

54,000.00

STIP

2017

16/02/2018

1/04/2020

3,500.00

LTIP and PR

2016

17/02/2017

1/04/2020

54,191.00

Greg Brent

Nathan Wingti

STIP

RRP

STIP

RRP

STIP

2017

16/02/2018

1/04/2020

4,900.00

2016

17/02/2017

1/04/2019

11,813.00

N/A

1/02/2016

1/04/2019

2017

16/02/2018

1/04/2020

4,900.00

2016

17/02/2017

1/04/2019

5,479.00

Lynda Kahari 4*

LTIP and PR

2017

16/02/2018

1/04/2021

29,327.20

Saima Kalis

LTIP and PR

2017

16/02/2018

1/04/2021

25,186.00

STIP

2017

16/02/2018

1/04/2020

3,500.00

STIP

2017

16/02/2018

1/04/2020

2,100.00

LTIP and PR

2016

17/02/2017

1/04/2020

29,170.00

LTIP and PR

2015

25/03/2016 25/03/2019

Donald Hallam 4*

STIP

2015

25/03/2016 25/03/2018

3,603.68

2016

17/02/2017

1/04/2019

11,340.00

Kina Annual Report 2017

$0.8910

37,950

$0.6980

103,152

$0.6980

10,029

$0.6980

118,195

$0.6980

8,023

$1.0651

68,444

$1.0651

$0.8910

$0.6980

7,186

72,900

19,330

77,364

5,014

$1.0651

50,877

$1.0651

8,013

$0.6980

$1.0651

$0.6980

$1.0651

7,020

11,090

25,789

7,020

5,144

$0.6980

42,016

$0.6980

5,014

$0.6980

36,083

$0.6980

$1.0651

$0.8910

$1.0651

3,009

27,387

27,457

4,045

8,872

Name

Aaron Bird

Kong Wong

Plan Name

Year Grant Date

Vesting
Date

Value of PR
Granted
(AUD)

VWAP
period

VWAP $
applied

PR As at
31 Dec
2017

LTIP and PR

2016 17/02/2017

1/04/2020

60,600.00

STIP

2016 17/02/2017

1/04/2019

3,606.00

LTIP and PR

2015 25/03/2016 25/03/2019

STIP

2015 25/03/2016 25/03/2018

18,565.00

2015 25/03/2016 25/03/2018

21,263.00

$1.0651

18,965

$1.0651

3,385

24,764

$0.8910

20,836

$0.8910

23,864

*Subsequent to the year-ended 31 December 2017, these rights were recalculated based on pro-rata from date of resignation resulting
in total outstanding rights of 340,429 performance rights for Syd Yates as shown in the table above. The adjusted PR was effective from
date of resignation being 2 January 2018.

1* 10 day vwap from 11 – 24 February 2015

2* 10 day vwap up to and including 31 December 2017

3* 10 day vwap from 14 – 29th December 2017

4* Employees whose PRs will vest subject to pro-rata terms given they have either started or exited during the year

STIP: Short Term Incentive Plan

LTIP: Long Term Incentive Plan

RRP: Retention Rights Plan

PR: Performance Rights

5* No liability is recognised in the financial statements of the Group in relation to the LTI performance rights for 2017 issued in

February 2018. In accordance with the Fair Value Note 3.4 above, these will be calculated and accounted in FY 2018.

3.9 Employment agreements
KMP Contracts
All Senior Executive Team Employment contracts are over a period of 3 years with a notice period of 3 months

CEO employment agreement
The CEO’s contract is for term of 5 years with a notice period of 6 months. Kina may terminate the CEO’s employment
without notice or payment in lieu of notice in circumstances where the CEO:

•

is bankrupt or has made any arrangement or composition with his creditors or taken advantage of any legislation for
relief of an insolvent debtor; or

is convicted of any criminal offence, other than an offence which in the reasonable opinion of the Board does not affect
his position as CEO of Kina.

On termination of the CEO’s employment agreement, the CEO will be subject to a restraint of trade period of 12 months.
The enforceability of the restraint clause is subject to all usual legal requirements.

Kina Annual Report 2017 45

Kina Securities Limited
Remuneration report

Remuneration of employees
During the year, the number of employees or former employees (not being directors of the Company), receiving
remuneration in excess of K100,000 per annum from the Group stated in bands of K10,000 was as follows:

In PGK
1,270,000 – 1,280,000

1,260,000 – 1,270,000

1,240,000 – 1,250,000

1,200,000 – 1,210,000

1,180,000 – 1,190,000

1,160,000 – 1,170,000

1,150,000 – 1,160,000

1,050,000 – 1,060,000

1,020,000 – 1,030,000

1,000,000 – 1,010,000

960,000 – 970,000

950,000 – 960,000

860,000 – 870,000

820,000 – 830,000

770,000 – 780,000

750,000 – 760,000

740,000 – 750,000

720,000 – 730,000

650,000 – 660,000

630,000 – 640,000

620,000 – 630,000

600,000 – 610,000

570,000 – 580,000

560,000 – 570,000

520,000 – 530,000

500,000 – 510,000

460,000 – 470,000

380,000 – 390,000

360,000 – 370,000

340,000 – 350,000

330,000 – 340,000

320,000 – 330,000

310,000 – 320,000

270,000 – 280,000

260,000 – 270,000

250,000 – 260,000

240,000 – 250,000

220,000 – 230,000

210,000 – 220,000

190,000 – 200,000

160,000 – 170,000

150,000 – 160,000

140,000 – 150,000

130,000 – 140,000

120,000 – 130,000

110,000 – 120,000

100,000 – 110,000

Kina Annual Report 2017

2017
1

–

2016
–

–

4 Non-executive director arrangements

4.1 Remuneration policy
Non-executive directors receive a board fee and fees for chairing or participating on board committees, see table blow.
They do not receive performance-based pay or retirement allowances. The fees are inclusive of superannuation.

Fees are reviewed annually by the Board, taking into account comparable roles and market data provided by the Board’s
independent remuneration advisor. The current base fees were reviewed in 2016 and 2017 and no increases were applied.

4.2 Remuneration components
Kina’s Board and Committee fee structure during the financial year ending 31 December 2017 was:

Board fees

Board
Board

Committee fees
Audit and Risk Committee

Chairman

Non-executive
Director/committee member

$135,000 (plus any superannuation
entitlements)

$75,000 (plus any superannuation entitlements)

Fees between $5,000 and $15,000
per annum will be paid to Directors who
participate in any Committee

Fees between $5,000 and $15,000 per annum
will be paid to Directors who participate in any
Committee

Remuneration and
Nomination Committee

Fees between $5,000 and $15,000
per annum will be paid to Directors who
participate in any Committee

Fees between $5,000 and $15,000 per annum
will be paid to Directors who participate in any
Committee

Disclosure Committee

No additional fees are paid

(a) Fee pool
Under the Constitution, the Board decides the total amount paid to each Non-Executive Director as remuneration for their
services as a Director of the Company. However, the total amount of fees (including statutory superannuation entitlements,
if any) paid to the Directors for their services (excluding, for these purposes, the remuneration of any Executive Director)
must not exceed in aggregate in any financial year the amount fixed by the Company in general meeting. For the financial
year ending 31 December 2017, this has been fixed at $1.28 million per annum. Any increase in the total amount payable by
the Company to the Non-Executive Directors as remuneration for services must be approved by the Company in general
meeting.

The aggregate sum includes any special and additional remuneration for special exertions and additional services
performed by a Director as determined appropriate by the Board.

(b) Committee fees
The committee chairman fees are not duplicated for those Directors who are appointed to chair meetings of more than
one committee or the Board.

4.3 Variable Remuneration
Special remuneration
Directors may be paid such special or additional remuneration as the Board determines for performing extra services or
making any special exertions for the benefit of Kina which, in the Board’s opinion, are outside of the scope of ordinary
duties of a Director.

Reimbursement for out of pocket expenses
Directors may be reimbursed for travel and other expenses incurred in attending and returning from any Board, Board
committee or general meeting of Kina, or otherwise in connection with the business or affairs of Kina Group.

Retirement benefits
There are no retirement benefit schemes for Directors, other than statutory superannuation contributions.

Participation in incentive schemes
The Non-Executive Directors are not entitled to participate in any Kina Group employee incentive scheme.

Kina Annual Report 2017 47

Kina Securities Limited
Remuneration report

Related party transactions

5
Please refer to Note 29 to the financial statements, for further comments on Related Party transactions.

6 Directors’ interests in shares
Directors are not required under the Constitution to hold any shares in the Company.

As at the date of this Remuneration Report, the Directors have the following interests in the shares in Kina (either directly
or through beneficial interests or entities associated with the Director).

Director

Sir Rabbie Namaliu

Syd Yates

David Foster

Wayne Golding

Jim Yap

Isikeli Taureka

Karen Smith-Pomeroy

Number of Shares

Shareholding as at the date of
this remuneration report (%)

100,000[1]

4,780,297[2]

40,000[3]

5,116,706[4]

126,569

Nil

0.06

2.91

0.02

3.12

0.08

–

[1]

[2]

[3]

[4]

50,000 Shares held directly and 50,000 Shares held by Tobit Investments Ltd – Sir Rabbie is a Shareholder and Chairman of
Tobit Investments Ltd . Resigned as Director from Kina 16 May 2017.
274,200 Shares held directly. 4,068,574 Shares held by Columbus Investments Ltd (Syd Yates is sole shareholder). 198,466 held through
The Trust Company (Superannuation) Ltd and 239,057 held through the same company in Barbara Yates’ name (a related party). 615,000
Shares held by Kina Asset Management No. 1 Ltd (Columbus Inv. Ltd holds approx. 7% of ISC in KAML of which KAML No.1 Ltd is a
wholly-owned sub and Syd Yates is exec director of KAML).
Prior to Listing, Syd Yates entered into a voluntary escrow in respect of 4,406,097 Shares (Escrowed Shares). Under the terms of the
voluntary escrow arrangement, Syd Yates is restricted from dealing in the Escrowed Shares until a date which is two Business Days after the
date on which Kina’s half-year financial results for the period ending 30 June 2016 are released to ASX and POMSoX by Kina.
Shares held by Foster Coastal Investments pty Ltd as trustee for Foster Coastal Superannuation Fund. Mr Foster is Director of Foster
Coastal Investments Pty Ltd and a beneficiary of Foster Coastal Superannuation Fund)
5,116,706 held by Matching Investment Company, of which Mr Golding owns 100%. Resigned as Director from Kina 16 May 2017. Prior to
listing, he entered into a voluntary escrow in respect of 4,846,706 Shares (Escrowed Shares). Under the terms of the voluntary escrow
arrangement, Wayne Golding is restricted from dealing in the Escrowed Shares until a date which is two Business Days after the date on
which Kina’s half-year financial results for the period ending 30 June 2016 are released to ASX and POMSoX by Kina.

7 Auditor’s report
Kina is not required to have this report audited. This report is prepared as a voluntary disclosure. The expected level of
disclosure has been provided through this report.

Kina Annual Report 2017

Directors’ report

The Directors of Kina Securities Limited and its Subsidiaries
submit herewith the annual financial report of the Company
and its Subsidiaries for the year ended 31 December 2017.

Principal activities
The principal continuing activities of the Company and its
Subsidiaries during the year were the provision of
commercial banking and financial services (including asset
financing, provision of commercial and personal loans,
money market operations and corporate advice), fund
administration, investment management services and
share brokerage.

The Directors consider there are no unusual or other
matters that warrant their comments and the Group’s
financial position and results from operations are properly
reflected in these financial statements.

Operating results and review of operations
The Group’s operations for the year are reviewed in the
front section of the Annual Report.

The net profit attributable to equity holders for the year
for the Group was K23.0million compared with K41.0 million
in 2016.

The profit includes the following items:

• Net interest income of K72.5 million, compared with
K65.1 million in the prior year to December 2016.

• Net fee and commission income of K30.4 million
compared with K28.8 million in the prior year.

• Operating income before impairment losses and other
operating income of K111.5, down from K117.0 million
in the prior year, primarily due to lower foreign
exchange income

•

Impairment losses on loans and advances to
K3.3 million, compared with K2.8 million in the
prior year.

• Other operating expenses of K67.6 million, compared
with K55.6 million in the prior period. Current year
operating expense excludes the one-off lease
termination payment of K7 million.

Dividends
The Company paid dividend of 3.95 cents (10.0 toea) per
share (K16.4m) in April 2017 in relation to the profit for the
half year ended 31 December 2016. In September 2017, the
Company also paid dividend of 2.0 cents (5.0 toea) per
share (K8.2m) in relation to the profit for the half year ended
30 June 2017.

After balance sheet date events

Subsequent to balance date, the directors declared a final
dividend of 4.00 cents per share (K16.4m). There are no
other events after the balance sheet date that require
adjustment to or disclosure in the financial statements.

Donations

During the year the Group made donations totalling
K34,241 (2016: K9,197)

Solicitors
Allens at Level 6, Mogoru Moto Building, Champion Parade,
Port Moresby, Papua New Guinea.

Auditor’s fees
Fees paid to the auditor during the year for professional
services are shown in note 36 to the accounts. The external
auditor PricewaterhouseCoopers is also engaged in
providing other services to the Group as required and as
permitted by Prudential Standards. The provision of other
services included taxation services and HR benefit advice.

Kina Annual Report 2017 49

Directors’ declaration

The directors declare that:
•

in the directors’ opinion, there are reasonable
grounds to believe that the Group will be able to pay
its debts as and when they become due and payable

•

in the directors’ opinion, the attached consolidated
financial statements and notes thereto are in
accordance with the Companies Act 1997, including
compliance with International Financial Reporting
Standards (IFRS) and giving a true and fair view of the
financial position and performance of the Group as at
and for the year ended 31 December 2017.

Signed in accordance with a resolution of the directors.

On behalf of the Directors

Mr. Isikeli Taureka
Director
Port Moresby, 26 March 2018

Mr. Greg Pawson
Director
Port Moresby, 26 March 2018

Kina Annual Report 2017

Independent auditor’s report

Independent auditor’s report
To the shareholders of Kina Securities Limited

Report on the audit of the financial statements of the Company and the
Group

Our opinion
We have audited the financial statements of Kina Securities Limited (the Company), which comprise the
statements of financial position as at 31 December 2017, and the statements of comprehensive income,
statements of changes in equity and statements of cash flows for the year then ended, and the notes to the
financial statements which include a summary of significant accounting policies and other explanatory
information for both the Company and the Group. The Group comprises the Company and the entities it
controlled at 31 December 2017 or from time to time during the financial year.

In our opinion, the accompanying financial statements:

•

comply with International Financial Reporting Standards and other generally accepted accounting
practice in Papua New Guinea; and

give a true and fair view of the financial position of the Company and the Group as at 31 December
2017, and their financial performance and cash flows for the year then ended.

Basis for opinion
We conducted our audit in accordance with International Standards on Auditing (ISAs). Our
responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of
the financial statements section of our report.

We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our
opinion.

Independence
We are independent of the Company in accordance with the International Ethics Standards Board for
Accountants’ Code of Ethics for Professional Accountants (IESBA Code), and we have fulfilled our other
ethical responsibilities in accordance with these requirements.

Our firm carries out other services for the Group in the areas of tax compliance, tax advice and other
advisory services. The provision of these other services has not impaired our independence as auditor of the
Company and the Group.

Our audit approach
An audit is designed to provide reasonable assurance about whether the financial statements are free from
material misstatement. Misstatements may arise due to fraud or error. They are considered material if
individually or in aggregate, they could reasonably be expected to influence the economic decisions of users
taken on the basis of the financial statements.

We tailored the scope of our audit to ensure that we performed enough work to be able to give an opinion
on the financial statements as a whole, taking into account the management structure of the Company and
the Group, their accounting processes and controls and the industries in which they operate.

PricewaterhouseCoopers
PwC Haus, Level 6, Harbour City, Konedobu. PO Box 484, PORT MORESBY, PAPUA NEW GUINEA
T: (675) 321 1500 / (675) 305 3100, F: (675) 321 1428, www.pwc.com.pg

Kina Annual Report 2017 51

Independent auditor’s report

Kina Annual Report 2017

MaterialityAudit scopeKey audit matters•For the purpose of our audit of the Group we used overall group materiality of K2.0 millionwhich represents 5%of the Group’s profit before tax after adding back the one-off lease termination expense.•We applied this threshold, together with qualitative considerations, to determine the scope of our audit and the nature, timing and extent of our audit procedures and to evaluate the effect of misstatements on the financial statements as a whole.•We chose Group profit before tax because,in our view,it is the metric against which the performance of the Group is most commonly measured and is a generally accepted benchmark.•We selected5%based on ourprofessional judgement noting that it is also within the range of commonly acceptable related thresholds.•We (PwC Papua New Guinea)conducted audit work over all the subsidiaries which comprise the Group consolidation.•All subsidiaries of the Group are incorporated and operating in Papua New Guinea and audited by PwC Papua New Guinea.•Our audit focused on where the directors made subjective judgements; for example, significant accounting estimates involving assumptions and inherently uncertain future events•Amongst other relevant topics, we communicatedthe following key audit mattersto the Audit and Risk Committee:•Loan loss provisioning•Goodwill impairment assessment•Information Technology General Controls•Thesemattersarefurther described in the Key audit matterssection of our report.Key audit mattersKey audit matters are those matters that, in our professional judgement, were of most significance in our audit of the financial statements for the current period. The key auditmatters were addressed in the context of our audit of the financial statementsas a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. We have determined the mattersdescribed below to be key mattersto be communicated in our report. Further, commentary on the outcomes of the particular audit proceduresis made in that context.Key audit matterHow our audit addressed the key matterLoan loss provisioning amounting to K13.3million -Refer note 17Our audit focused on this area as loans and advances are significant to the financial statements. In addition, the prevailing economic environment in Papua New Guinea, the The procedures we performed to support our audit conclusions, included:•Assessing the design and testing the operating effectiveness of the controls over loan origination, approval and processing of transactions during the year and performing Key audit matter
subjectivity and management judgements
involved in determining whether loans within the
portfolio are impaired and the amount of
impairment loss that should be recognised in the
current period made it important to focus on this
area.

In making an assessment of loans that are
impaired and determining the impairment
provision required, the Group takes a portfolio
approach, except in the case where a specific
provision is required based on an assessment of
individual exposures. The application of the
Group’s policy is inherently judgmental.

Provision for impairment charges on loans that
warrants specific considerations are individually
assessed. All other loans are collectively assessed
on a portfolio basis. For this assessment,
impairment models are used which take into
account the type of loan, history of repayment
including arrears and consideration of securities.

How our audit addressed the key matter

a combination of confirmation and loan files
review procedures in relation to the
outstanding loan balances on which the loan
loss provision is determined.

•

Examining the provisioning methodology for
consistency with the previous years and
compliance with International Financial
Reporting Standards (IFRS), evaluating the
provisioning rates applied in the model,
testing the accuracy of data and re-
performance of model calculations.

Performing a comparison of the provision
balances determined based on the Group’s
methodology against the minimum provision
required for regulatory reporting purposes.

Performing procedures to check the
disclosures relating to the loan loss provision
in accordance with the applicable IFRS.

Goodwill impairment assessment – Refer
note 31

The procedures we performed to support our
audit conclusions included:

The Group carries K92.7m of goodwill and is
required to annually test the goodwill for
impairment. The Group’s assessment process has
some complexity and involves judgement and is
based on a number of assumptions, including
future profitability, future cash flows, and growth
relating to the cash generating unit to which the
goodwill has been allocated. These considerations
are affected by the expected future market and
economic conditions in Papua New Guinea and
the discount rate applied.

The process is subjective and the balance is
significant. As such our audit has focused on this
area.

•

Assessing the Group’s assumptions used in
the goodwill impairment model including
future profitability, cash flows and growth by
understanding the basis and reasonability of
those assumptions and comparing to market
information where applicable.

Performing an analysis of the sensitivity of
the outcome of the impairment model for
those assumptions that have the most
significant effect on the determination of the
recoverable amount of goodwill and the
related cash generating unit and performing
procedures in relation to the adequacy of the
Group’s disclosures about such assumptions.

Comparing the discount rate used in the
impairment model with our expectations.

• Re-performing model calculations.

•

Comparing the assumptions and basis used in
the model for consistency with previous years
and the requirements under IFRS.

Together with our valuation specialist we
reviewed the methodology adopted in the
impairment model.

Kina Annual Report 2017 53

Independent auditor’s report

Kina Annual Report 2017

Key audit matterHow our audit addressed the key matterInformation Technology General ControlsWe focused on this area because the Group’s banking operations are heavily dependent on IT systems for the processing of significant volumes of transactions and automated calculations for financial accounting and reporting purposes. These systems are also critical to capturing various data that are used to produce reports which management use to make decisions, monitor and control the business and for financial reporting purposes. This information is also used in our audit.The Group uses three different IT systems, including a main general ledger and two subsidiary systems that are critical and relevant to its financial reporting. The configurations including the interfaces between these systems require frequent monitoring and reconciliation to ensure the consistency of the information.Our audit approach relies on reports that are generated from these critical IT systems. Accordingly, the operating effectiveness of automated controls and IT dependent manual controls are important to enable us to place reliance on these controls. Our audit focused on access rights, because they aim to ensure that changes to applications are authorised and made appropriately. We also assess internal controls to ensure that staff have appropriate access to IT systems and the monitoring of that access. In addition, key controls in mitigating the potential for fraud and error as a result of a change to an application or underlying data are considered critical.The procedures we performed to support our audit conclusions, included:•Assessing and testing the design and operating effectiveness of the controls over the integrity of the IT systems that are relevant to financial reporting and upon which we relied for the purpose of our audit. •Examining the framework of governance over the Group’s IT organisation, the controls over program changes and development, access to programs and data and IT operations, including compensating controls where required. We also carried out procedures over certain aspects of security of the Group’s ITsystems including access management and segregation of duties.•Assessing the controls over system development, to ensure new and upgraded systems are appropriately tested before implementation and that data is converted and transferred completely and accurately.•Performing testing of the reconciliations of the balances between the different IT systems.Information other than the financial statements and auditor’s report The directors are responsible for the other information. The other information comprises the directors report(but does not include the financial statements and the auditors’ report thereon), which we obtained prior to the date of this auditor’s report, and the annual report, which is expected to be made available after that date. Our opinion on the financial statements does not cover the other information and we do not, and will not, express any form of assurance conclusion thereon.In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard.When we read the annual report, if we conclude that there is a material misstatement therein, we are
required to communicate the matter to those charged with governance.

Responsibilities of the directors for the financial statements
The directors are responsible, on behalf of the company for the preparation of financial statements that give
a true and fair view in accordance with International Financial Reporting Standards and other generally
accepted accounting practice in Papua New Guinea and the Companies Act 1997 and for such internal
control as the directors determine is necessary to enable the preparation of financial statements that are
free from material misstatement, whether due to fraud or error.

In preparing the financial statements, the directors are responsible for assessing the ability of the Group to
continue as a going concern, disclosing, as applicable, matters related to going concern and using the going
concern basis of accounting unless the directors either intend to liquidate the Group or to cease operations,
or have no realistic alternative but to do so.

Auditor’s responsibilities for the audit of the financial statements
Our objectives are to obtain reasonable assurance about whether the financial statements, as a whole, are
free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that
includes our opinion.

Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in
accordance with the ISAs will always detect a material misstatement when it exists. Misstatements can arise
from fraud or error and are considered material if, individually or in the aggregate, they could reasonably
be expected to influence the economic decisions of users taken on the basis of the financial statements.

As part of an audit in accordance with International Standards on Auditing, we exercise
professional judgement and maintain professional scepticism throughout the audit. We also:

•

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

• Obtain an understanding of internal control relevant to the audit in order to design audit

procedures that are appropriate in the circumstances, but not for the purpose of expressing an
opinion on the effectiveness of the Group’s internal control.

•

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

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

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

Kina Annual Report 2017 55

Independent auditor’s report

Kina Annual Report 2017

•Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the financial statements. We are responsible for the direction, supervision and performance ofthe Group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governanceregarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.We also providethose charged with governancewith a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.From the matterscommunicated with those charged with governance, we determine those matters that were of most significance in the audit of the financial statements for the current period and are therefore the key audit matters. We describe thesematters in our auditor’s report unless law or regulations preclude publicdisclosure about the matter or when, in extremely rare circumstances, we determine that a matter should not be communicated in our report because theadverse consequences of doing so would reasonably be expected to outweigh the public interest benefits ofsuch communication.Report on other legal and regulatory requirementsTheCompanies Act 1997 requires that in carrying out our audit we consider and report on the following matters. We confirm in relation to our audit of the financial statements for the yearended 31 December 2017:•We have obtained all the information and explanations that we have required;•In our opinion, proper accounting records have been kept by the Company as far as appears from an examination of those records.Who we report toThis report is made solely to the Company’s shareholders, as a body, in accordance with the Companies Act 1997. Our audit work has been undertaken so that we might state to the Company’s shareholders thosematters which we are required to state to them in an auditor’s report and for no other purpose. Wedonot accept or assume responsibility to anyone other than the Company and the Company’s shareholders, as a body, for our audit work, for thisreport or for the opinions we have formed.PricewaterhouseCoopersS.C.BeachPartner Registered under the Accountants Act 1996Port Moresby26March 2018Statements of Comprehensive Income

For the year ended 31 December 2017

Interest income

Interest expense

Net interest income/(expense)

Fee and commission income

Fee and commission expense

Net fee and commission income

Foreign exchange income

Dividend income

Net gains/(losses) from financial assets
through profit and loss

Other operating income

Operating income before impairment losses
and other operating expenses

Impairment losses

Lease termination payment expense

Other operating expenses

Profit before tax

Income tax expense

Notes

CONSOLIDATED

PARENT

2017
K ’000

99,348

(26,839)

72,509

30,485

(52)

30,433

7,224

357

(5)

993

2016
K ’000

77,268

(12,140)

65,128

28,833

(69)

28,764

20,579

111

587

1,805

111,511

116,974

(3,317)

(7,000)

(67,555)

33,639

(10,628)

(2,787)

–

(55,616)

58,571

(17,595)

2017
K ’000

2016
K ’000

(3,851)

(3,799)

409

(44)

365

(46)

33,555

30,100

(7,000)

(29,158)

(6,014)

163

(2,270)

(2,182)

3,272

(59)

3,213

–

(3)

24,552

25,597

(246)

–

(20,712)

4,639

(1,386)

Net profit for the year attributable to the
equity holders of the Company

23,011

40,976

(5,851)

3,253

Other comprehensive income

–

Total comprehensive income for the year
attributable to the equity holders of the Company

23,011

40,976

(5,851)

3,253

Earnings per share – basic (toea)

Earnings per share – diluted (toea)

27 b

2017

14.03

13.90

2016

25.00

The notes on pages 61 to 97 are an integral part of these consolidated financial statements.

Kina Annual Report 2017 57

Statements of Changes in Equity
For the year ended 31 December 2017

CONSOLIDATED

ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE GROUP

Balance as at 31 December 2015*

Profit for the year

Contribution by and distribution to owners

Other comprehensive income

Employee share scheme - vested rights

Employee share scheme – value of employee services

Dividend paid

Balance as at 31 December 2016
Profit for the year

Contribution by and distribution to owners

Other comprehensive income

Employee share scheme – vested rights

Employee share scheme – value of employee services

Dividend paid

Balance as at 31 December 2017

Share
based
payment
Reserve

K ’000

460
–

–

(208)

1,104

–

1,356
–

–

(208)

410

–

Share
Capital

K ’000

141,797
–

–

208

–

142,005
–

–

208

–

Retained
Earnings

K ’000

102,208
40,976

–

(28,675)

114,509
23,011

–

Total

K ’000

244,465
40,976

–

1,104

(28,675)

257,870
23,011

–

410

(24,589)

142,213

1,558

112,931

256,702

PARENT

ATTRIBUTABLE TO THE EQUITY HOLDERS OF THE PARENT

Balance as at 31 December 2015*

Profit for the year

Contribution by and distribution to owners

Other comprehensive income

Employee share scheme – vested rights

Employee share scheme – value of employee services

Dividend paid

Balance as at 31 December 2016

Profit for the year

Contribution by and distribution to owners

Other comprehensive income

Employee share scheme – vested rights

Employee share scheme – value of employee services

Dividend paid

Balance as at 31 December 2017

Share
based
payment
Reserve

K ’000

460
–

–

(208)

1,104

1,356
–

–

(208)

410

–

Share
Capital

K ’000

141,797
–

–

208

–

142,005
–

–

208

–

142,213

1,558

Retained
Earnings

K ’000

132,076
3,253

–

(28,675)

106,654
(5,851)

–

Total

274,333
3,253

–

1,104

(28,675)

250,015
(5,851)

–

410

(24,589)

76,214

(24,589)

219,985

*capital reserve of K49,000 is reclassified as part of the retained earnings.

The notes on pages 61 to 97 are an integral part of these consolidated financial statements.

Kina Annual Report 2017

Statements of Financial Position
As at 31 December 2017

Assets

Cash and due from banks

Central bank bills

Regulatory deposits

Financial assets at fair value through profit or loss

Loans and advances to customers

Investments in government inscribed stocks

Due from subsidiaries

Current income tax assets

Deferred tax assets

Investments in subsidiaries

Property, plant and equipment

Goodwill

Intangible assets

Other assets

Liabilities

Due to other banks

Due to customers

Current income tax liabilities

Deferred income tax liabilities

Due to subsidiaries

Employee provisions

Other liabilities

Notes

CONSOLIDATED

PARENT

2017

K ‘000

47,514

190,869

106,823

4,637

732,707

79,878

–

4,526

–

27,830

92,786

13,187

14,391

2016

K ‘000

2017

K ‘000

2016

K ‘000

148,020

208,095

96,013

4,642

605,112

64,328

–

2,452

6,291

–

24,019

92,786

5,959

8,030

12,828

15,541

–

157

–

142

–

351,123

–

520

248

5,667

–

5,635

9,426

–

248

4,737

–

445

1,109

1,315,148

1,265,747

385,604

373,345

638

1,019,325

635
–

–

4,353

33,495

143

968,940

1,457

310

–

3,277

33,750

1,058,446

1,007,877

–

355
–

151,310

2,351

11,603

165,619

–

169

229

118,437

1,545

2,950

123,330

Net assets

256,702

257,870

219,985

250,015

Shareholders’ equity

Issued and fully paid ordinary shares

Share-based payment reserve

Retained earnings

Total equity

27 a

27 c

142,213

1,558

112,931

256,702

142,005

1,356

114,509

257,870

142,213

1,558

76,214

219,985

142,005

1,356

106,654

250,015

The notes on pages 61 to 97 are an integral part of these consolidated financial statements.

These financial statements have been approved for issue by the Board of Directors and signed on its behalf by:

Mr. Isikeli Taureka
Director

Mr. Greg Pawson
Director

Kina Annual Report 2017 59

Statements of Cash Flows
For the year ended 31 December 2017

CONSOLIDATED

PARENT

Notes

Cash flows from operating activities

Interest received

Interest paid

Foreign exchange gain

Dividend received

Fee and commission income received

Fee and commission expense paid

Net trading and other operating income
received

Recoveries on loans previously written-off

Support fees charged from subsidiaries

Cash payments to employees and suppliers

Lease termination payment

Income tax paid

Cash flows from operating profits before
changes in operating assets and liabilities

Changes in operating assets and liabilities:

- (increase)/ in regulatory deposits

- (increase)/decrease in loans and advances to customers

- net decrease/(increase) in other assets

- net decrease in due to customers

- decrease due to other banks

- net increase in other liabilities
Net cash inflow/(outflow) generated from/
(used in) operating activities

Cash flows from investing activities

Purchase of property, equipment and software

Proceeds from sale of property and equipment

Net movement in investment securities
Net cash inflow/(outflow) generated from/
(used in) investing activities

Cash flows from financing activities

Dividend payment
Net cash inflow/(outflow) generated from/
(used) in financing activities

2017

K ‘000

98,799

(26,822)

7,224

357

27,842

(52)

988

2,016
–

(64,320)

(7,000)

(7,694)

31,338

(10,810)

(126,422)

(6,602)

46,765

3,408

(272)

(15,702)
–

26,676

10,974

(24,589)

(76,210)

704

178,020

102,514

2016

K ‘000

77,317

(8,864)

21,072

111

25,570

(69)

2,017

1,036

–

(56,793)

–

(20,727)

40,670

(50,523)

(229,594)

1,216

275,796

(1,586)

(3,364)

32,615

(6,775)

(54,275)

(60,957)

(28,675)

(57,017)

(214)

235,251

178,020

2017

K ‘000

(3,851)

(46)

409

(44)

6,879
–

26,690

6,401

(7,000)

(535)

28,966

–

(8,329)
–

–

8,654

29,291

(7,415)
–

–

(7,415)

(24,589)

(2,713)

–

15,541

12,828

2016

K ‘000

(2,270)

352

3,272

(59)

6,429

–

18,656

(36,388)

–

(1,634)

(11,528)

–

2,763

–

18,568

9,820

(694)

–

(606)

(28,675)

(19,461)

–

35,002

15,541

28c

(62,595)

28b

Net increase/(decrease) in cash and cash equivalents
Effect of exchange rate movements on cash
and cash equivalents

Cash and cash equivalents at beginning of year

Cash and cash equivalents at end of year

28a

The notes on pages 61 to 97 are an integral part of these consolidated financial statements.

Kina Annual Report 2017

Notes to the financial statements
For the year ended 31 December 2017

1. Summary of significant accounting policies
The company and its subsidiaries are incorporated in
Papua New Guinea. The groups business activities include
provision of banking services, personal and commercial
loans, money market operations, provision of share
brokerage, fund administration, investment management
services, asset financing, and corporate advice.

This note provides a list of the significant accounting
policies adopted in the preparation of these consolidated
financial statements. These policies have been consistently
applied to all the years presented, unless otherwise stated.
The financial statements are for the Group consisting of
Kina Securities Limited and its subsidiaries.

a) Basis of preparation
(i) Compliance with IFRS
The consolidated financial statements of the Group have
been prepared in accordance with International Financial
Reporting Standards (IFRS) and the requirements of the
Papua New Guinea Companies Act 1997.

The consolidated financial statements as at and for the
year ended 31 December 2017 were authorized for issue by
the Board of Directors on 26 March 2018.

(ii) Historical cost convention
The consolidated financial statements have been prepared
on a historical cost basis, except for the revaluation of
certain financial instruments at fair value. Cost is based
on the fair values of the consideration given in exchange
for assets.

Accounting policies are selected and applied in a manner
which ensures that the resulting financial information
satisfies the concepts of relevance and reliability, thereby
ensuring that the substance of the underlying transactions
or other events is reported.

The areas involving a higher degree of judgment or
complexity, or areas where assumptions and estimates are
significant to the consolidated financial statements are
disclosed in Note 2.

(iii) New and amended standards

Standards, amendment and interpretations effective in
the year ended 31 December 2017

A number of amended standards became mandatory for
the first time for the financial year beginning 1 January
2017. These standards generally did not have any
significant impact on the financial statements of the group
for the year ended 31 December 2017.

Standards, amendments, and interpretations issued but
not effective for the year 31 December 2017 and not yet
adopted early

In addition, there are new standards, amendments and
interpretations issued but not effective for the financial
year ended 31 December 2017. The group has not early
adopted these standards.

IFRS 9, ‘Financial Instruments’ replaces IAS 39 Financial
Instruments Recognition and Measurement. The Standard
has a mandatory effective date for annual periods
beginning on or after 1 January 2018, with earlier
application permitted. Kina Bank (“Bank”) started the
process of implementing the requirements of IFRS 9 in early
2017. The process was project managed and the Bank was
ready for implementation of IFRS 9 as at 1 January 2018.

The adoption of IFRS 9 is a significant initiative for the
Bank, involving substantial finance, risk management and
technology resources. The implementation of IFRS 9
involved a rigorous governance process wherein teams
from risk management, finance and technology business
units were involved together with an external expert
consultant. Adoption of IFRS 9 in 2018 will result in revisions
to accounting policies and procedures, changes and
amendments to internal control documents, credit policy,
development of new risk models and associated
methodologies and new processes within risk
management. The management and Board were informed
of periodic progress of implementations and also were
made aware of the estimated impact of implementing IFRS
9 using the year ended 31 December 2017 loan portfolio.

The following is a summary of some of the more significant
items that are likely to be important in understanding the
impact of the implementation of IFRS 9:

Impairment
The adoption of IFRS 9 will have a significant impact on the
Bank’s impairment methodology. The expected credit loss
(ECL) model is forward looking compared to the incurred
based model that is currently being used. Expected credit
losses reflect the present value of all cash flow related to
default events either (1) over the following twelve months,
or (ii) over the expected life of a financial instrument
depending on credit deterioration from inception. ELC
should reflect an unbiased, probability-weighting outcome
as opposed to the blanket arrears provisioning under
current approach. The probability-weighted outcome
considers multiple scenarios based on reasonable and
supportable forward looking information. IFRS 9 ECL
model uses a three stage approach based on the extent of
credit deterioration since origination:

Financial instruments, upon initial recognition (e.g. loan
originated) begin at Stage 1.
• Stage 1 financial instruments recognise a collective

provision using 12 month expected loss rates.

Financial instruments are placed into stage 2 which
there has been a significant increase in the credit risk of
the instrument since initial recognition. Note, it is also
possible for loans to move out at stage 2 back to stage
1 (which will result in a reduction of the required
provision).
Stage 2 financial instruments recognise a collective
provision using life-time expected loss rates.

•

Kina Annual Report 2017 61

Notes to the financial statements
For the year ended 31 December 2017

Summary of significant accounting
policies (continued)

a) Basis of preparation (continued)
• Stage 3 financial instruments are for default and

credit-impaired facilities where a specific provision
is recognised against the individual instrument. A
specific provision is the equivalent of the life time
expected loss for an individual financial instrument.

Credit Risk Assessment
As part of the Bank’s Credit Policy, the bank has developed
a “Risk Grade Standard” policy which sets out how a risk
grade is determined. Under the policy, the risk grades are
determined based on an assessment of Financial Risk
factors and Business Risk factors which include both
quantitative measures and qualitative measures. The
Bank’s credit risk grading system reflects the Bank’s
assessment of the probability of default. Thus a downward
change in credit grade from the original assigned grade is
a good indicator of a significant increase in credit risk.

The Bank’s grading system has only just been
implemented and as a result there is no ability (without
undue cost or effort) to identify changes in loan grades
since the loans were established.

Thus the Bank has developed alternative approaches to
identify significant increases in credit risk since initial
recognition which has allowed the loan portfolio to be
segmented into the 3 required stages. A summary of the
proposed approach is:
• Current credit grades of G & H, being loans defined
as “doubtful” and “Loss” under the credit risk grade
policy, have been classified as stage 3 loans;
• Current arrears data has been used to split the
portfolio into stage 1, stage 2 or stage 3 loans.

Expected loss rates have then been derived using a
combination of bank’s historical information, market data
and management experience and applied to these
portfolios to estimate the provision levels. IFRS 9 considers
the calculation of expected credit loss (ECL) by multiplying
the Probability of default (PD), Loss Given Default (LGD)
and Exposure at Default (EAD)

Recognition, classification and measurement of financial
instruments and hedging
The new provision in IFRS 9 in respect to the recognition,
classification and measurement of financial instruments
and hedging activities are not expected to have a
significant impact on the Group.

Transition to IFRS 9 on 1 January 2018:
Under the transitional guidance, any difference between
the previous carrying amount of provisions under IFRS 39
at 31 December 2017 and the carrying amount at the
beginning of the annual reporting period (1 January 2018),

will be recognised as an adjustment in the opening
retained earnings (or other component of equity, as
appropriate) as at 1 January 2018. As a result the initial
adoption of IFRS 9 and any required increase in provisions
upon initial adoption does not have a profit and loss
impact in the 2018 reporting period, and no restatement of
comparatives is required. The Group will continue to
revise, refine and validate the impairment model and
related process and controls as experience develops.

IFRS 15 ‘Revenue from contracts with customers’
(effective 1 January 2018) is based on the principle that
revenue is recognised when control of a good or service
transfers to a customer – so the notion of control replaces
the existing notion of risks and rewards. The entity will have
to adopt a new 5-step process for the recognition of
revenue:
•
•
identify the separate performance obligations
• determine the transaction price of the contract
• allocate the transaction price to each of the separate

identify contracts with customers

performance obligations, and

•

recognise the revenue as each performance
obligation is satisfied.

The group has completed an assessment of its existing
revenue streams and contracts, and does not expect the
implementation of IFRS 15 to have any significant impact
on existing revenue recognition and measurement.

IFRS 16, ‘Leases’ (effective 1 January 2019) replaces the
guidance in IAS 17 and will have a significant impact on
accounting by lessees. The previous distinction under IAS
17 between finance leases and operating leases for lessees
has been removed. IFRS 16 now requires a lessee to
recognise a lease liability representing future lease
payments and a ‘right-of-use asset’ for virtually all lease
contracts. There is an optional exemption for certain
short-term leases and leases of low-value assets. Under
IFRS 16, a contract is, or contains, a lease if the contract
conveys the right to control the use of an identified asset
for a period of time in exchange for consideration. The
entity expects that certain leases of property and
equipment that are currently accounted for as operating
leases will, from January 2019, be required to be
recognised as right-of-use assets and depreciated, with a
corresponding lease liability. This will increase reported
debt levels in the statement of financial position and will
increase the reporting charges for depreciation and
interest expense. The details of the impact on the entities
financial statements are currently being assessed by
management.

In addition to the above there are other standards
amendments and interpretation that have been issued and
are not expected to have any impact on the financial
statements of the Group.

Kina Annual Report 2017

b) Principles of consolidation
Subsidiaries
Subsidiaries are all entities (including structured entities)
over which the Group has control. The Group controls an
entity when the Group is exposed to, or has rights to,
variable returns from its involvement with the entity and
has the ability to affect those returns through its power to
direct the activities of the entity. Subsidiaries are fully
consolidated from the date on which control is transferred
to the Group. They are deconsolidated from the date that
control ceases.

The acquisition method of accounting is used to account
for business combinations by the Group.

Intercompany transactions, balances and unrealized gains
on transactions between Group companies are eliminated.
Unrealized losses are also eliminated unless the transaction
provides evidence of an impairment of the transferred
asset. Accounting policies of subsidiaries have been
changed where necessary to ensure consistency with the
policies adopted by the Group.

Segment reporting

c)
Operating segments are presented on a basis that is
consistent with information provided internally to the
Group’s key decision makers. The chief operating decision-
maker, who is responsible for allocating resources and
assessing performance of the operating segments, has
been identified as the Chief Executive Officer. The Group
has three reportable segments, which are the Company’s
two business divisions – Kina Bank and Kina Wealth
Management – and the Corporate segment (or
unallocated costs).

Foreign currency translation
Functional and presentation currency

d)
(i)
Items included in the financial statements of each of the
Group’s entities are measured using the currency of the
primary economic environment in which the entity
operates (the functional currency). The consolidated
financial statements are presented in Kina, which is the
Company’s functional and presentation currency.

(ii) Transactions and balances
Foreign currency transactions are translated into the
functional currency using the exchange rates prevailing at
the dates of the transactions. Foreign exchange gains and
losses resulting from the settlement of such transactions
and from the translation at year-end exchange rates of
monetary assets and liabilities denominated in foreign
currencies are recognised in the income statement.

e) Revenue recognition
(i)
Interest income
Interest income for all interest earning financial assets
including those at fair value is recognised in the income
statement using the effective interest rate method. The
effective interest method is a method of calculating the
amortized cost of a financial asset or a financial liability and
of allocating the interest income or interest expense over
the relevant period. The effective interest rate is the rate
that exactly discounts estimated future cash payments or
receipts through the expected life of the financial
instrument to the net carrying amount of the financial asset
or financial liability. When calculating the effective interest
rate, cash flows are estimated based upon all contractual
terms of the financial instrument (for example, prepayment
options) but do not consider future credit losses. The
calculation includes all fees and other amounts paid or
received between parties to the contract that are an
integral part of the effective interest rate, transaction costs
and all other premiums or discounts.

Interest relating to impaired loans is recognised using the
loan’s original effective interest rate based on the net
carrying value of the impaired loan after giving effect to
impairment charges. This rate is also used to discount the
future cash flows for the purpose of measuring impairment
charges. For loans that have been impaired this method
results in cash receipts being apportioned between
interest and principal.

(ii) Fee and commission income
Fees and commissions are generally recognised on an
accrual basis when the service has been provided.
Commissions and 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. Portfolio and other management advisory and
service fees are recognised based on the applicable
service contracts. Asset management fees related to
investment funds are recognized notably over the period
the service is provided.

(iii) Foreign exchange income
Realized gains or losses, and unrealized gains or losses
arising from changes in the fair value of the trading assets
and liabilities are recognised as trading income in the
income statement in the period in which they arise.

(iv) Dividend income
Dividends on quoted shares are recognised on the
ex-dividend date. Dividends on unquoted shares are
recognized when the Company’s right to receive payment
is established.

Kina Annual Report 2017 63

Summary of significant accounting
policies (continued)
Expense recognition
Interest expense

f)
(i)
Interest expense, including premiums or discounts and
associated expenses incurred on the issue of financial
liabilities, is recognised in the income statement using the
effective interest method.

(ii)

Impairment on loans and receivables
carried at cost

The charge against profits for bad and doubtful debts
reflects new specific provisions, reversals of specific
provisions no longer required and movements in the
general provision.

(iii) Leasing
Operating lease payments are recognised in the income
statement as an expense on a straight-line basis over the
lease term unless another systematic basis is more
representative of the time pattern of the benefit received.
Incentives received on entering into operating leases are
recorded as liabilities and amortized as a reduction of rental
expense on a straight – line basis over the lease term.

Income tax

g)
The income tax expense or credit for the period is the tax
payable on the current period’s taxable income based on
the applicable income tax rate adjusted by changes in
deferred tax assets and liabilities attributable to temporary
differences and to unused tax losses.

The current income tax charge is calculated on the basis of
the tax laws enacted or substantively enacted at the end of
the reporting period in the country where the Company
and its subsidiaries operate and generate taxable income.
Management periodically evaluates positions taken in tax
returns with respect to situations in which applicable tax
regulation is subject to interpretation. It establishes
provisions where appropriate on the basis of amounts
expected to be paid to the tax authority.

Deferred income tax is provided in full, using the liability
method, on temporary differences arising between the tax
bases of assets and liabilities and their carrying amounts in
the consolidated financial statements. However, deferred
tax liabilities are not recognised if they arise from the initial
recognition of goodwill. Deferred income tax is also not
accounted for if it arises from initial recognition of an asset
or liability in a transaction other than a business
combination that at the time of the transaction affects
neither accounting nor taxable profit or loss. Deferred
income tax is determined using tax rate (and law) that have
been enacted or substantially enacted by the end of the
reporting period and are expected to apply when the
related deferred income tax asset is realized or the
deferred income tax liability is settled.

Kina Annual Report 2017

The deferred tax liability in relation to investment property
that is measured at fair value is determined assuming the
property will be recovered entirely through sale.

Deferred tax assets are recognised only if it is probable
that future taxable amounts will be available to utilize those
temporary differences and losses.

Deferred tax assets and liabilities are offset when there is a
legally enforceable right to offset current tax assets and
liabilities and when the deferred tax balances relate to the
same taxation authority. Current tax assets and tax liabilities
are offset where the entity has a legally enforceable right to
offset and intends either to settle on a net basis, or to
realize the asset and settle the liability simultaneously.

Current and deferred tax is recognised in profit or loss,
except to the extent that it relates to items recognised in
other comprehensive income or directly in equity. In this
case, the tax is also recognised in other comprehensive
income or directly in equity, respectively.

h) Business combination
The acquisition method of accounting is used to account for
all business combinations, regardless of whether equity
instruments or other assets are acquired. The consideration
transferred for the acquisition of a subsidiary comprises the
•
•

fair values of the assets transferred

liabilities incurred to the former owners of the
acquired business

• equity interests issued by the Group
•

fair value of any asset or liability resulting from a
contingent consideration arrangement, and

•

fair value of any pre-existing equity interest in the
subsidiary.

Identifiable assets acquired and liabilities and contingent
liabilities assumed in a business combination are, with
limited exceptions, measured initially at their fair values at
the acquisition date. The group recognises any non-
controlling interest in the acquired entity on an acquisition-
by-acquisition basis either at fair value or at the non-
controlling interest’s proportionate share of the acquired
entity’s net identifiable assets. Acquisition-related costs
are expensed as incurred.

The excess of the following is considered as goodwill
• consideration transferred,
• amount of any non-controlling interest in the

acquired entity, and

• acquisition date fair value of any previous equity

interest in the acquired entity over the fair value of the
net identifiable assets acquired if those amounts are
less than the fair value of the net identifiable assets of
the subsidiary acquired, the difference is recognised
directly in profit or loss as a bargain purchase.

Notes to the financial statementsFor the year ended 31 December 2017Where settlement of any part of cash consideration is
deferred, the amounts payable in the future are discounted
to their present value as at the date of exchange. The
discount rate used is the entity’s incremental borrowing
rate, being the rate at which a similar borrowing could be
obtained from an independent financier under
comparable terms and conditions.

Contingent consideration is classified either as equity or a
financial liability. Amounts classified as a financial liability
are subsequently re-measured to fair value with changes in
fair value recognised in profit or loss.

If the business combination is achieved in stages, the
acquisition date carrying value of the acquirer’s previously
held equity interest in the acquire is re-measured to fair
value at the acquisition date. Any gains or losses arising
from such re-measurement are recognised in profit or loss.

Impairment of assets

i)
Goodwill having an indefinite useful life is not subject to
amortization and is tested annually for impairment or more
frequently if events or changes in circumstances indicate
that they might be impaired. Other assets are tested for
impairment whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
An impairment loss is recognised for the amount by which
the asset’s carrying amount exceeds its recoverable
amount. The recoverable amount is the higher of an asset’s
fair value less costs of disposal and value in use. For the
purposes of assessing impairment, assets are grouped at
the lowest levels for which there are separately identifiable
cash inflows which are largely independent of the cash
inflows from other assets or groups of assets cash-
generating units (CGU). Non-financial assets other than
goodwill that suffered impairment are reviewed for
possible reversal of the impairment at the end of each
reporting period.

Cash and cash equivalents

j)
For the purpose of presentation in the statement of cash
flows, cash and cash equivalents includes cash on hand,
deposits held at call with financial institutions, other
short-term, highly liquid investments with original
maturities of three months or less from date of acquisition
that are readily convertible to known amounts of cash and
which are subject to an insignificant risk of changes in
value, and bank overdrafts.

Investments and other financial assets

k)
(i) Classification
The Group classifies its financial assets in the
following categories:
• financial assets at fair value through profit or loss,
•
• held-to-maturity investments, and
• available-for-sale financial assets.

loans and receivables,

The classification depends on the purpose for which the
investments were acquired. Management determines the
classification of its investments at initial recognition and,
in the case of assets classified as held-to-maturity,
re-evaluates this designation at the end of each
reporting period.

(ii) Reclassification
The Group may choose to reclassify a non-derivative
trading financial asset out of the held for trading category
if the financial asset is no longer held for the purpose of
selling it in the near term. Financial assets other than loans
and receivables are permitted to be reclassified out of the
held for trading category only in rare circumstances arising
from a single event that is unusual and highly unlikely to
recur in the near term. In addition, the Group may choose
to reclassify financial assets that would meet the definition
of loans and receivables out of the held for trading or
available-for-sale categories if the group has the intention
and ability to hold these financial assets for the foreseeable
future or until maturity at the date of reclassification.

Reclassifications are made at fair value as of the
reclassification date. Fair value becomes the new cost or
amortized cost as applicable, and no reversals of fair value
gains or losses recorded before reclassification date are
subsequently made. Effective interest rates for financial
assets reclassified to loans and receivables and held-to-
maturity categories are determined at the reclassification
date. Further increases in estimates of cash flows adjust
effective interest rates prospectively.

(iii) Recognition and derecognition
Regular way purchases and sales of financial assets are
recognised on trade-date, the date on which the Group
commits to purchase or sell the asset. Financial assets are
derecognized when the rights to receive cash flows from
the financial assets have expired or have been transferred
and the Group has transferred substantially all the risks and
rewards of ownership.

When securities classified as available-for-sale are sold, the
accumulated fair value adjustments recognized in other
comprehensive income are reclassified to profit or loss as
gains and losses from investment securities.

Kina Annual Report 2017 65

Summary of significant accounting
policies (continued)

Investments and other financial assets (continued)

k)
(iv) Measurement
At initial recognition, the Group measures a financial asset
at its fair value plus, in the case of a financial asset not at
fair value through profit or loss, transaction costs that are
directly attributable to the acquisition of the financial asset.
Transaction costs of financial assets carried at fair value
through profit or loss are expensed in profit or loss.

Loans and receivables and held-to-maturity investments
are subsequently carried at amortized cost using the
effective interest method.

Available-for-sale financial assets and financial assets at fair
value through profit or loss are subsequently carried at fair
value. Gains or losses arising from changes in the fair value
are recognized as follows:
•

for financial assets at fair value through profit or
loss – in profit or loss within other income or other
expenses

•

for available-for-sale financial assets that are monetary
securities denominated in a foreign currency –
translation differences related to changes in the
amortized cost of the security are recognized in profit
or loss and other changes in the carrying amount are
recognized in other comprehensive income

•

for other monetary and non-monetary securities
classified as available-for-sale – in other
comprehensive income.

Dividends on financial assets at fair value through profit or
loss and available-for-sale equity instruments are
recognized in profit or loss as part of revenue from
continuing operations when the group’s right to receive
payments is established.

Interest income from financial assets at fair value through
profit or loss is included in the net gains/(losses). Interest
on available-for-sale securities, held-to-maturity
investments and loans and receivables calculated using the
effective interest method is recognised in the statement of
profit or loss as part of revenue from continuing
operations. Details on how the fair value of financial
instruments is determined are disclosed in note 35.

Impairment

(v)
The Group assesses at the end of each reporting period
whether there is objective evidence that a financial asset or
group of financial assets is impaired. A financial asset or a
group of financial assets is impaired and impairment losses
are incurred only if there is objective evidence of
impairment as a result of one or more events that occurred
after the initial recognition of the asset (a ‘loss event’) and
that loss event (or events) has an impact on the estimated
future cash flows of the financial asset or group of financial

assets that can be reliably estimated. In the case of equity
investments classified as available-for-sale, a significant or
prolonged decline in the fair value of the security below its
cost is considered an indicator that the assets are
impaired.

Assets carried at amortized cost

For loans and receivables, 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 (excluding future credit losses that have not been
incurred) discounted at the financial asset’s original
effective interest rate. The carrying amount of the asset is
reduced and the amount of the loss is recognised in profit
or loss. If a loan or held-to-maturity investment has a
variable interest rate, the discount rate for measuring any
impairment loss is the current effective interest rate
determined under the contract. As a practical expedient,
the Group may measure impairment on the basis of an
instrument’s fair value using an observable market price.

If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised
(such as an improvement in the debtor’s credit rating), the
reversal of the previously recognised impairment loss is
recognised in profit or loss. Impairment testing of loans
and advances to customers is described in note 3(b).

Property, plant and equipment

l)
Property, plant and equipment is stated at historical cost
less accumulated depreciation. Depreciation is calculated
on the basis of straight line to write-off the cost of such
assets to their residual values over their estimated lives as
follows:

Furniture and fittings

Building improvements

Motor vehicle

Office equipment

11.25% to 15%

10%

30%

15% to 30%

The assets’ residual values and useful lives are reviewed,
and adjusted, if appropriate at each balance date. Gains
and losses on disposal (being the difference between the
carrying value at the time of sale or disposal and the
proceeds received) are taken into account in determining
operating profit for the year. Repairs and maintenance
costs are charged to income statement, when the
expenditure is incurred.

Intangible assets

m)
(i) Goodwill
Goodwill is measured as described in note 1(h). Goodwill is
not amortized but it is tested for impairment annually or
more frequently if events or changes in circumstances
indicate that it might be impaired, and is carried at cost

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017less accumulated impairment losses. Gains and losses on
the disposal of an entity include the carrying amount of
goodwill relating to the entity sold. Goodwill is allocated to
cash-generating units for the purpose of impairment
testing. The allocation is made to those cash-generating
units or groups of cash-generating units that are expected
to benefit from the business combination in which the
goodwill arose. The units or groups of units are identified
at the lowest level at which goodwill is monitored for
internal management purposes, being the operating
segments.

(ii) Customer deposits relationship
A customer deposit relationship asset was recognized with
the acquisition of Maybank (PNG) Limited in 2015 (note 21),
representing the value, or avoided cost, of having a
deposit base from consumer and business transaction
accounts, savings accounts, term deposits and other
money market accounts that provide a cheaper source of
funding than alternative sources of funding. Customer
deposit relationship is amortized using the straight-line
method over a period of five years and is stated at cost less
accumulated amortization and impairment. Customer
deposit relationship is also assessed for any indication of
impairment at each reporting date and whenever there is
an indicator that these maybe impaired.

(iii) Software
Costs associated with maintaining computer software
programs are recognized as an expense as incurred. Costs
that are directly associated with identifiable and unique
software products controlled by the Group that will
probably generate economic benefits exceeding costs
beyond one year are recognized as intangible assets. Direct
costs include staff costs of the software development team
and an appropriate portion of relevant overheads.
Expenditure which enhances or extends the performance
of computer software programs beyond their original
specifications is recognized as a capital improvement and
added to the original cost of the software. Computer
software development costs recognized as assets are
amortized using the straight-line method over their useful
lives, not exceeding a period of five years.

Provisions

n)
Provisions are recognized when the Group has a present legal
or constructive obligation as a result of past events, it is
probable that outflow of resources embodying economic
benefits will be required to settle the obligation, and a
reliable estimate of the amount of the obligations can be
made.

Short-term obligations

o) Employee benefits
(i)
Provision is made for benefits accruing to employees in
respect of annual leave and other short term obligations
when it is probable that settlement will be required and
they are capable of being measured reliably.

Provisions made in respect of employee benefits expected
to be settled within twelve months, are measured at their
nominal values using the remuneration rate expected to
apply at the time of settlement. Liabilities recognized in
respect of employee benefits which are not expected to
be settled within twelve months are measured as the
present value of the estimated future cash outflows to be
made by the Group in respect of services provided by
employees up to reporting date.

The contributions in relation to employees of the Group
who contribute to defined contribution pension plans are
charged to the income statement in the year to which they
relate.

Share-based payments

(ii)
Senior executive employees are entitled to participate in a
share ownership incentive scheme. The fair value of share
rights provided to senior executive employees as share-
based payments is recognized as an expense with a
corresponding increase in equity. The fair value is measured
at grant date and is recognized over the period the services
are received being the expected vesting period at the end
of which the senior executive employees would become
entitled to exercise their share rights. The fair value of the
share based payments is based on the market price of the
shares at grant date and market vesting conditions upon
which the rights were granted. Non-market vesting
conditions are taken into account by adjusting the number
of rights which will eventually vest.

(iii) Cash bonus
The Group recognizes a liability and an expense for
bonuses based on a formula that takes into consideration
the profit attributable to the Company’s shareholders after
certain adjustments. The Group recognizes a provision
where contractually obliged or where there is a past
practice that has created a constructive obligation.

Share capital and other equity accounts
Share capital

p)
(i)
Ordinary shares are classified as equity. Mandatorily
redeemable preference shares are classified as liabilities.
Incremental costs directly attributable to the issue of new
shares or options are shown in equity as a deduction, net
of tax, from the proceeds.

(ii) Dividends
Dividends on ordinary shares are recognized in equity in
the period in which they are declared by the Company’s
directors.

(iii) Reserves
Capital reserve comprises accumulated gains on historic
asset revaluation. Share-based payment reserve comprises
the fair value of unvested performance rights during the
vesting period.

Kina Annual Report 2017 67

Summary of significant accounting
policies (continued)

Share capital and other equity accounts (continued)

p)
(iv) Earnings per share
Basic earnings per share

Basic earnings per share is calculated by dividing the profit
attributable to owners of the company, excluding any costs
of servicing equity other than ordinary shares by the
weighted average number of ordinary shares outstanding
during the financial year (note 27b).

Diluted earnings per share

Diluted earnings per share adjusts the figures used in the
determination of basic earnings per share to take into
account the after income tax effect of interest and other
financing costs associated with dilutive potential ordinary
shares, and the weighted average number of additional
ordinary shares that would have been outstanding assuming
the conversion of all dilutive potential ordinary shares.

Fiduciary activities

q)
The Group provides custodian, trustee, corporate
administration, investment management and advisory
services to third parties, which involve the Group making
allocation and purchase and sale decisions in relation to a
wide range of financial instruments. Those assets that are
held in a fiduciary capacity are not included in these
consolidated financial statements. Details of such
investments held under trust may be found in note 30.

r) Changes in accounting policies and comparatives
Comparative information has been rearranged to conform
to changes in presentation in the current year wherever
necessary. The comparative information were restated in
relation to the Segment Reporting in Note 32. There were
no changes in the accounting policies in 2017.

Critical accounting estimates
and judgments

The preparation of financial statements requires the use of
accounting estimates which, by definition, will seldom equal
the actual results. Management also needs to exercise
judgment in applying the Group’s accounting policies.

This note provides an overview of the areas that involved a
higher degree of judgment or complexity, and of items
which are more likely to be materially adjusted due to
estimates and assumptions turning out to be wrong.
Detailed information about each of these estimates and
judgments is included in the notes to the financial
statements together with information about the basis of
calculation for each affected line item in the financial
statements.

The areas involving significant estimates or judgments are:
• Recognition of deferred tax asset for carried forward

tax losses – note 12 (a)

• Estimated allowance for loans and advances to

customers – note 17 and 3(b)

• Estimated goodwill impairment – note 1(i) and note 31
• Estimated useful life of intangible asset – note 21
• Estimation of fair values of assets acquired and

liabilities assumed in a business combination – note 31

• Estimation of the fair value of performance right

grants and the number of grants expected to vest –
note 27(c).

3. Financial risk management
By its nature the Group’s activities are principally related to
the use of financial instruments. The Group accepts
deposits from customers at both fixed and floating rates
and for various periods and seeks to earn above-average
interest margins by investing these funds in high quality
assets. The Group seeks to increase these margins by
consolidating short-term funds and lending for longer
periods at higher rates whilst maintaining sufficient
liquidity to meet all claims that might fall due. The Group
raises its interest margins by obtaining above-average
margins, net of provisions, through lending to commercial
and retail borrowers with a range of credit standing.

The Group also enters into transactions denominated in
foreign currencies. This activity generally requires the
Group to take foreign currency positions in order to exploit
short-term movements in foreign currency market. The
Board places trading limits on the level of exposure that
can be taken in relation to both overnight and intra-day
market positions.

Risk in the Group is managed by a system of delegated
limits. These limits set the maximum level of risks that can
be assumed by each operational unit and the Group as a
whole. The limits are delegated from the Board of
Directors to executive management and then to the
respective operational managers.

Foreign exchange risk

a) Market risk
(i)
The Group undertakes transactions denominated in
foreign currencies from time to time and resulting from
these activities, exposures in foreign currencies arise.
Though there are no specific hedging activities to mitigate
any currency risk, this exposure is monitored by
management on an ongoing basis.

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017Exposure

The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in PGK, was as follows:

USD

AUD

SGD

GBP

EUR

NZD

JPY

PHP

MYR

IN K’000

31 December 2017

Cash balance

–

Due from other
banks

20,304

3,026

31 December 2016

Cash balance

–

Due from other
banks

28,646

12,350

28,649

12,350

–

354

609

616

There was no material liability denominated in foreign currency.

Sensitivity

–

234

–

1,233

–

As shown in the table above, the Group is primarily exposed to changes in US/PGK exchange rates. The sensitivity of profit
or loss to changes in the exchange rates arises mainly from US dollar denominated financial instruments.

USD/PGK – exchange rate – increase 10% (2016:10%)

USD/PGK – exchange rate – decrease 10% (2016: 10%)

IMPACT ON
INCOME STATEMENT
IN K ‘000

2017

(2,188)

2,674

2016

(1,508)

1,508

Interest rate risk

(ii)
Interest rate risk in the statements of financial position arises from the potential for a change in interest rate to have an
adverse effect on the revenue earnings in the current reporting period and future years. As interest rates and yield curves
change over time the Group may be exposed to a loss in earnings due to the effects of interest rates on the structure of
the statements of financial position. Sensitivity to interest rates arises from mismatches in re-pricing dates, cash flows and
other characteristics of the assets and their corresponding liability funding. These mismatches are actively managed by
the Assets and Liabilities Committee (ALCO), which meets regularly to review the effects of fluctuations in the prevailing
levels of market interest rates of the financial position and cash flows of the Group.

The objective of interest rate risk control is to minimize these fluctuations in value and net interest income over time,
providing secure and stable sustainable net interest earnings in the long term. Interest rate on intercompany transactions
was 2.73% and 3.16% for the years ended 31 December 2017 and 2016, respectively.

Kina Annual Report 2017 69

3. Financial risk management (continued)

a) Market risk (continued)
Sensitivity

Given the profile of assets and liabilities at 31 December 2017 and prevailing interest rates, a 100 basis points increase/
decrease in market rates in relation to lending will result in a K377,732 (2016: K1,065,000) increase/decrease in net interest
income at a Group level.

The table below summarizes the consolidated effective annual interest rates for monetary financial instruments:

Assets

Cash and due from banks

Central bank bills

Loans and advances to customers

Investments in government inscribed stocks

Liability

Due to customers

*updated to conform to the current year presentation

2017
% p.a.

2016*
% p.a.

1.0

6.2

11.8

9.6

2.7

1.0

4.9

12.1

9.9

3.2

(iii) Price risk
The Group is exposed to equity securities price risk because of investments held and classified as financial assets at fair
value through profit or loss. To manage its price risks arising from financials assets at fair value through profit or loss, the
Group diversifies its portfolio. Diversification of portfolio is done in accordance with the limits set by the Group. The
Group’s financial assets at fair value through profit or loss are publicly traded on the Port Moresby Stock Exchange
(POMSoX) and the Australian Stock Exchange (ASX).

Sensitivity

The sensitivity analysis below has been determined based on the exposure to equity price risks at the end of the reporting
period. If equity prices had been 5% higher/lower, net profit for the year ended 31 December 2017 and net assets as of
balance date would have been affected by K232,000 (2016: K232,000). The Group’s sensitivity to equity prices has not
changed significantly from the prior year.

Risk management

b) Credit risk
(i)
The Group takes on exposure to credit risk, which is the risk that a counter party will be unable to pay amounts in full when
due. Impairment provisions are provided for losses that have been incurred at the balance date. Management therefore
carefully manages its exposures to credit risks.

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. Such risks are monitored on a revolving basis and subject to an annual review or
more frequent review.

Comprehensive credit standards and approval limits have been formulated, approved by the Credit Committee and
implemented. The Credit Committee (which reports to the Board) is responsible for the development and implementation
of credit policy and loan portfolio review methodology.

Exposure to credit risk is managed through daily review of the ability of the borrowers to meet interest and capital
repayment obligations and by changing these lending limits where appropriate. This is the responsibility of the Manager
Credit. Exposure to credit risk is also managed in part by obtaining collateral and corporate and personal guarantees, but
a significant portion is personal lending where no such facilities can be obtained.

The tables below segregate the financial assets of the Group between financial assets that are neither past due nor
impaired, past due but not impaired and impaired. An asset is considered to be past due when any payment under the
contractual terms has been missed. The amount included as past due is the entire contractual balance, rather than the
overdue portion. The net carrying value in the table represents the maximum exposure to credit risk, without taking any
collateral into account. The collaterals include the securities acquired in the process of normal lending activities of the bank.

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017 CONSOLIDATED

Neither
past
due nor
impaired

Past due
but not
impaired

Impaired

Total

Provision

Net
carrying
value

31 December 2017

Cash and due from banks

Central bank bills

Regulatory deposits

Financial assets at fair value
through profit or loss

Loans and advances to customers

Investments in government
inscribed stocks
Total

31 December 2016

Cash and due from banks

Central bank bills

Regulatory deposits

Financial assets at fair value
through profit or loss

Loans and advances to customers

Investments in government
inscribed stocks

47 .5

190 .9

106 .8

4 .6

732 .0

79 .9
1,161 .70

148.0

208.1

96.0

4.6

612.0

64.3

Total

1,133.00

–

13 .3

–
13 .3

–

4.8

–

4.8

–

0 .7

–
0 .7

–

0.3

–

0.3

47 .5

190 .9

106 .8

4 .6

746 .0

79 .9
1,175 .7

148.0

208.1

96.0

4.6

617.1

64.3

–

(13 .3)

–
(13 .3)

–

(12.0)

–

47 .5

190 .9

106 .8

4 .6

732 .7

79 .9
1,162 .4

148.0

208.1

96.0

4.6

605.1

64.3

1,138.1

(12.0)

1,126.1

COMPANY

Neither
past
due nor
impaired

Past due
but not
impaired

Impaired

Total

Provision

13 .0

–

351 .1

364 .1

15.5

0.1

351.1

366.7

–

7 .5

–

7.5

13 .0

–

358 .6

371 .6

15.5

0.1

358.6

374.2

–

(7 .5)

–

(7.5)

Net
carrying
value

13 .0

–

351 .1

364 .1

15.5

0.1

351.1

366.7

31 December 2017

Cash and due from banks

Financial assets at fair value
through profit or loss

Due from subsidiaries

Total

31 December 2016

Cash and due from banks

Financial assets at fair value
through profit or loss

Due from subsidiaries

Total

Kina Annual Report 2017 71

3. Financial risk management (continued)

Impaired loans

b) Credit risk (continued)
(ii)
Individual receivables which are known to be uncollectible are written off by reducing the carrying amount directly. The other
receivables are assessed collectively to determine whether there is objective evidence that impairment has been incurred but
not yet identified. For these receivables the estimated impairment losses are recognized in a separate provision for
impairment. The Group considers that there is evidence of impairment if any of the following indicators are present:
• significant financial difficulties of the debtor
• probability that the debtor will enter bankruptcy or financial reorganization, and
• default or delinquency in payments (more than 30 days overdue).

Receivables for which an impairment provision was recognized are written off against the provision when there is no
expectation of recovering additional cash. Subsequent recoveries of amounts previously written off are credited against
impairment loss on loans and advances to customers. See note 1k (v) for information about how impairment losses are
calculated.

Individually assessed impaired loans amounted to K 2.8 million (2016: K4.0 million) (Note 17).

(iii) Past due but not impaired
As at 31 December 2017, loans and advances to customers of K13.3 million (2016: K4.8 million) were past due but not
impaired. These relate to a number of independent customers for whom there is no recent history of default.

(iv) Neither past due nor impaired
The credit quality of financial assets that are neither past due nor impaired can be assessed by reference to historical
information about counterparty default rates. These relate to customers for whom payment is made on a timely basis.
Cash and due from banks are maintained at Central Bank of Papua New Guinea and other banks with good credit
standing.

(v) Credit risk concentration
A concentration of credit risk exists when a number of counterparties are engaged in similar activities and have similar
economic characteristics that would cause their ability to meet contractual obligations to be similarly affected by changes
in economic or other conditions. The risk concentrations within the customer loan portfolio by nature of the customers’
business activities are as follows:

Agriculture, Forestry & Fishing

Mining

Manufacturing

Electrical, Gas & Water

Building and Construction

Wholesale & Retail

Hotel & Restaurants

Transport & Storage

Post and Telecommunications

Financial Intermediation

Real Estate/Renting/Business Services

Equipment Hire

Other Business

Personal Banking

Total

Kina Annual Report 2017

CONSOLIDATED

2017

2016

PGK
million
20 .7

% of total
loans
2 .8%

PGK
million
15.9

% of total
loans
2.6%

–

3 .1

0 .3

50 .2

146 .8

80 .8

5 .5

–

5 .6

181 .5

1 .7

42 .0

207 .8

746 .0

0 .0%

0 .4%

0 .1%

6 .7%

19 .7%

10 .8%

0 .7%

0 .0%

0 .8%

24 .3%

0 .2%

5 .6%

27 .9%

100 .0%

–

14.5

0.4

30.7

154.5

4.3

26.7

–

133.1

–

36.6

200.4

617.1

0.0%

2.3%

0.1%

5.0%

25.0%

0.7%

4.3%

0.0%

21.6%

0.0%

5.9%

32.5%

100.0%

Notes to the financial statementsFor the year ended 31 December 2017Liquidity risk

c)
Liquidity risk is the risk of being unable to meet financial obligations as they fall due. The Group’s liquidity and funding
risks are governed by a policy framework which is approved by the Board of Directors. Liquidity and funding positions and
associated risks are overseen by the ALCO. The following outlines the Group’s approach to liquidity and funding risk
management focusing on conditions brought on by the current global economic environment:
• ensuring the liquidity management framework is compatible with local regulatory requirements,
• daily liquidity reporting and scenario analysis to quantify the Group’s positions,
•
•
• arranging back up facilities to protect against adverse funding conditions and to support day-to-day operations.

intense monitoring of detail daily reports to alert management and directors of abnormalities, and

targeting commercial and corporate customers’ liability compositions,

The Group is monitoring its liquidity contingency plans, lending requirements and guidelines which include:
•
• early warning signals indicative of an approaching issue and a mechanism to monitor and report these against

the monitoring of issue severity/stress levels with high level diligence,

signals,

• action plans and courses of action to account for early warning signals as noted above,
• management reporting at a higher level,
• maintenance of contractual obligations in regards to deposits, and
• assigned responsibilities for internal and external written communications.

Maturities of financial assets and liabilities
The table below analyzes the Group’s financial assets and liabilities into relevant maturity groupings based on their
contractual maturities on undiscounted basis.

31 December 2016

Cash and due from banks

Central bank bills

Regulatory deposits

Loans and advances to customers

Financial assets at fair value
through profit or loss

Total financial assets

Due to other banks

Due to customers

Other liabilities

Total financial liabilities

47 .5

60 .0

106 .8

90 .5

–

304 .8

0 .6

452 .0

33 .5

486 .1

CONSOLIDATED

Up to 1
month
Km

1 to 3
months
Km

4 to 12
months
Km

1 to 5
years
Km

Over
5 years
Km

Total
contract
value
Km

47 .5

197 .0

106 .8

763 .3

Total
value
Km

47 .5

190 .9

106 .8

732 .7

–

113 .9

540 .3

–

55 .0

–

1 .8

–

56 .8

–

82 .0

–

16 .8

–

98 .8

–

4 .6

113 .9

544 .9

1,119 .2

1,082 .5

–

213 .9

326 .4

–

213 .9

326 .4

–

37 .1

–

37 .1

–

0 .6

1,029 .4

1,019 .3

33 .5

1,063 .5

1,053 .4

Kina Annual Report 2017 73

3. Financial risk management (continued)

Liquidity risk (continued)

CONSOLIDATED

Up to 1
month
Km

1 to 3
months
Km

4 to 12
months
Km

1 to 5
years
Km

Over
5 years
Km

Total
contract
value
Km

148.0

216.0

96.0

627.1

Total
value
Km

148.0

208.0

96.0

605.1

31 December 2016

Cash and due from banks

Central bank bills

Regulatory deposits

Loans and advances to customers

Financial assets at fair value
through profit or loss

Total financial assets

148.0

32.0

96.0

66.8

0.0

–

70.0

–

1.3

–

114.0

–

20.3

–

101.0

437.7

342.8

71.3

134.3

105.6

437.7

1,091.7

1,061.7

–

4.6

–

4.6

Due to other banks

Due to customers

Other liabilities

Total financial liabilities

–

439.7

25.6

465 .3

–

179.7

3.6

183 .3

0.1

361.4

7.3

368 .8

–

6.2

7.6

13 .8

–

0.1

987.0

44.1

0.1

977.3

44.1

1,031 .2

1,021 .5

The Parent’s financial liabilities as at 31 December 2017 and 2016 are all classified from 1 to 12 months; hence, contractual
value is equal to its carrying value.

Up to 1
month

1 to 3
months

4 to 12
months

1 to 5
years

Over
5 years

Total
contract
value

Total
carrying
value

PARENT

31 December 2017

Cash and due from banks

Financial assets at fair value
through profit or loss

Due from subsidiaries

Total financial assets

Other liabilities

Due to subsidiaries

Total financial liabilities

13.0

0.1

–

13 .1

11.6

151.3

162 .9

–

358.6

358 .6

–

13.0

0.1

358.6

371 .7

11.6

151.3

162 .9

0.1

351.1

364 .2

11.6

151.3

162 .9

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017

Up to 1
month

1 to 3
months

4 to 12
months

15.5

0.1

–

15.6

2.9

–

2 .9

–

358.6

–

118.4

118 .4

PARENT

1 to 5
years

–

Over
5 years

Total
contract
value

Total
carrying
value

15.5

0.1

358.6

374 .2

2.9

118.4

121 .3

15.5

0.1

351.1

366 .7

2.9

118.4

121 .3

–

31 December 2016

Cash and due from banks

Financial assets at fair value
through profit or loss

Due from subsidiaries

Total financial assets

Other liabilities

Due to subsidiaries

Total financial liabilities

4. Capital adequacy
Kina Securities Limited (“KSL”) as the parent of Kina Bank Limited (“KBL”) is required to comply with prudential standard
PS1/2003 `Capital Adequacy` issued by the Bank of Papua New Guinea (“BPNG”). BPNG is the Government authority
responsible for the prudential supervision of Banks and financial institution in Papua New Guinea. The prudential guidelines
issued by BPNG follow the prudential guidelines set by the Bank of International Settlements under the terms of the Basel
Accord (Basel 1).

KSL calculates and reports its capital adequacy in respect of the bank (KBL).

Prudential Standard PS1/2003 `Capital Adequacy‘ is intended to ensure KBL maintains a level of capital which:

Is adequate to protect the interest of depositors and creditors,

1)
2) Is commensurate with risk profile and activities of KBL, and
3) Provide public confidence in KBL as a financial institution and the overall banking system

PS1/2003 `Capital Adequacy’ prescribes ranges of capital ratios to measure whether KBL is under, adequately, or well
capitalised and also prescribes a leverage ratio. The minimum capital adequacy ratios prescribed under PS1/2003
`Capital Adequacy’ are:

1) Tier 1 risk based ratio of 8%,
2) Total risk-based capital of 12%,and
3) Leverage capital of 6%.

As at 31 December 2017, KBL’s capital ratios were in compliance with the BPNG Minimum capital adequacy requirements as
follows:

Risk weighted assets

Capital : tier 1

Capital : tier 2

Capital : tier 1 and tier 2

Capital adequacy ratios

Tier 1 capital

Total capital ratio

Leverage capital ratio

*Prior year leverage capital ratio has been restated to align with BPNG calculation guidance

2017

K ‘000
815,680

197,984

32,203

230,187

24 .3%

28 .2%
16 .0%

2016

K ‘000

678,994
166,996

39,958

206,954

24.6%

30.5%

14.0%*

Kina Annual Report 2017 75

4. Capital adequacy (continued)
The measure of capital used for the purpose of prudential supervision is referred to as base capital. Total base capital varies
from the capital shown the on statements of financial position and is made up of tier 1 (core) and tier 2 (supplementary)
capital, after deducting the value of investments in other banks and financial institutions. Tier 1 capital is obtained by
deducting intangible assets including deferred tax assets from equity capital and audited retained earnings (or accumulated
losses). Tier 2 capital cannot exceed the amount of tier 1 capital, and can include subordinated loan capital, specified assets
revaluation reserves, un-audited profits (or losses) and a small percentage of general loan provisions.

The Leverage Capital is calculated as Tier 1 Capital (less inter-group loans) divided by Total Assets. Risk-weighted assets are
derived from on-statements of financial positions assets. On-statements of financial position assets are weighted for credit
risk by applying weightings (0, 20, 50 and 100 percent) according to risk classification criteria set by the BPNG, for example
cash and money market instruments have a zero risk weighting which means that no capital is required to support the holding
of these assets.

5. Net interest income/(expense)

Interest income

Cash and short-term funds

Investment in government inscribed stocks

Loans and advances to customers

Interest expense

Banks and customers

Due to subsidiaries (note 29)

Net interest income/(expense)

6. Net fee and commission income

Fee and commission income

Investment and portfolio management

Fund administration

Shares brokerage

Loans fees and bank commissions

Other fees

Fee and commission expense

Net fee and commission income

7. Dividend income

Dividend income from investments

Kina Annual Report 2017

CONSOLIDATED

PARENT

2017

K ‘000

12,923

6,890

79,535

99,348

2016

K ‘000

11,103

5,952

60,213

77,268

(26,839)

(12,140)

–

(26,839)

72,509

–

(12,140)

65,128

2017

K ‘000

2016

K ‘000

–

–
(3,851)

(3,851)

(3,799)

–

(2,270)

(2,182)

CONSOLIDATED

PARENT

2017

K ‘000

9,308

11,789

409
8,330

649

30,485

(52)

30,433

2016

K ‘000

8,560

8,681

472

10,311

809

28,833

(69)

28,764

2017

K ‘000

2016

K ‘000

–

409

–

409
(44)

365

–

472

–

2,800

3,272

(59)

3,213

CONSOLIDATED

PARENT

2017

K ‘000
357

357

2016

K ‘000
111

111

2017

K ‘000
11

2016

K ‘000
17

Notes to the financial statementsFor the year ended 31 December 20178. Other operating income

Realised gains/losses

Profits from disposal of property and equipment

Support fees from subsidiaries (note 29)

Rental from subsidiaries (note 29)

Management fees (note 29)

Other

CONSOLIDATED

PARENT

2017
K ‘000

523

(1)

–

471

993

2016
K ‘000

279

–

1,433

1,805

2017
K ‘000

320

(1)

2016
K ‘000

352

26,690

18,397

1,292

5,238

802

3,680

1,233

33,555

24,552

Impairment losses

9.
The Group assess provisions for loan impairment expense using either a collective approach or individual approach.

Individually assessed

Individually assessed loans attract 25 to 100 percent provisioning rate per customer loan. Key judgments include the
business prospects for the customer, the realisable value of collateral, the KSL Group’s position relative to other claimants,
the reliability of customer information and the likely cost and duration of recovering the loan. Judgments can change with
time as new information becomes available or as loan recovery strategies evolve, which may result in revisions to the
impairment provision.

Collective assessed

Collectively assessed loans attract 1 to 24.99 percent provisioning rate. Key judgments are based on estimated loss rates
applied on days in arrears. Actual credit losses may differ materially from reported loan impairment provisions due to
uncertainties including interest rates and their effect on consumer spending, unemployment levels, payment behavior and
bankruptcy rates.

The Group assesses impairment as follows:

Individually assessed (note 17, 22 and 29)

Collective allowance (note 17)

Reversal of prior year provision

CONSOLIDATED

PARENT

2017
K ‘000

2,460

857

–

3,317

2016
K ‘000

3,799

(1,012)

–

2,787

2017
K ‘000

(44)

–

(44)

2016
K ‘000

246

–

246

Kina Annual Report 2017 77

10. Other operating expenses

Staff costs

Administrative expenses

Operating lease

Depreciation and amortization

Software maintenance and support charges

Auditor’s remuneration (note 36)

Other

*reclassified to conform to the current year presentation,

Break-up of staff costs:

Salaries, wages and other benefits

Superannuation costs

Cost of employee share based incentive plan

Total staff costs

CONSOLIDATED

PARENT

2017

K ‘000
35,440

13,541

4,814

4,661

3,143

1,180

4,776

2016

K ‘000
28,412

10,758

3,418

4,556

2,689

663*

5,120

67,555

55,616

2017

K ‘000
15,632

7,974

1,276

1,292

306

182

2,496

29,158

2016

K ‘000
11,481

4,108

416

1,606

805

194

2,102

20,712

CONSOLIDATED

PARENT

2017

K ‘000
34,045

985

410

35,440

2016

K ‘000
26,668

641

1,104

28,412

2017

K ‘000
14,818

404

410

15,632

2016

K ‘000
10,062

315

1,104

11,481

As at 31 December 2017 the Group had 308 (2016: 264) employees and 2 (2016: 3) consultants. The Company had 93
(2016:82) employees and 1 (2016: 1) consultant.

Income taxes

11.
The prima facie income tax expense on pre-tax accounting profit from operations reconciles to the income tax expense in
the financial statements as follows:

CONSOLIDATED

PARENT

2017

K’000
33,639

10,092

(156)

2,516

(1,824)

10,628

9,173

1,455

10,628

2016

K’000
58,571

17,571

245

(221)

17,595

18,165

(570)

17,595

2017

K’000
(6,014)

(1,804)

(100)

2,591

(850)

(163)

586

(749)

(163)

2016

K’000
4,639

1,392

(4)

(2)

–

1,386

1,242

144

1,386

Profit before tax

Prima facie tax at 30% (2016: 30%)

Tax effect of:

Net gains/(losses) from financial assets through profit and loss

Non-deductible expenses/non-assessable income

Prior year under/(over) provision

Income tax expense

Represented by:

Current tax

Deferred taxes

Income tax expense

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017

12. Deferred taxes

a) Net deferred tax assets where there is a right to offset:

Allowance for losses

- Loans and advances to customers

- Other assets

Employee provisions and others

Other temporary differences

Tax losses carried forward

Depreciation and amortization

Prepayments and others

Net deferred tax asset/(liabilities)

b) Net deferred tax liabilities where there is a right to offset:

Allowance for losses

- Loans and advances to customers

- Other assets

Prepayments and others

Accrual of employees entitlement

Accruals

Depreciation and amortization

Prior year adjustment

Net deferred tax liabilities

The movement on deferred tax account is as follows:

Balance at beginning of year

Income statement credit/(charge)

Balance at end of year

Represented by:

Deferred tax assets (note 12(a))

Deferred tax liabilities (note 12 (a) and (b))

CONSOLIDATED

PARENT

2017

K’000

3,999

–

1,306

308

–

5,613

(871)

(216)

(1,087)

4,526

2016

K’000

2017

K’000

2016

K’000

3,597

1,185

983

817

104

6,686

(305)

(90)

(395)

6,291

–

705

–

770

(171)

(79)

(250)

520

464

–

537

(700)

(66)

(766)

(229)

CONSOLIDATED

PARENT

2017

K’000

2016

K’000

2017

K’000

2016

K’000

–

(14)

(463)

(29)

(396)

674

706

310

–

CONSOLIDATED

PARENT

2017

K’000
5,981

(1,455)

4,526

5,613

(1,087)

4,526

2016

K’000
5,411

570

5,981

6,291

(310)

5,981

2017

K’000
(229)

749

520

770

(250)

520

2016

K’000
(85)

(144)

(229)

537

(766)

(229)

Kina Annual Report 2017 79

13. Cash and due from banks

Cash in hand

Exchange settlement accounts

Due from other banks

14. Central bank bills

Central bank and treasury bills

Less than 90 days

Over 90 days

Unearned discount

CONSOLIDATED

PARENT

2017

K’000
5,370

17,903

24,241

47,514

2016

K’000
2,228

69,852

75,940

148,020

2017

K’000
3

–

12,825

12,828

2016

K’000
320

–

15,221

15,541

CONSOLIDATED

PARENT

2017

K’000

55,000

142,000

(6,131)

190,869

2016

K’000

30,000

186,000

(7,905)

208,095

2017

K’000

2016

K’000

–

Central bank bills are debt securities issued by the Bank of Papua New Guinea (BPNG). Central bank bills amounting to
K55,000,000 (2016: K30,000,000) with a maturity term of one to three months from the date of purchase are classified as
cash and cash equivalents (note 28). Central bank bills are measured at amortized cost.

15. Regulatory deposits
Regulatory deposit of the Group as at 31 December 2017 amounted to K106,823,000 (2016: K96,013,000). This represents
mandatory balance required to be maintained in a non-interest bearing account with the Central Bank - Bank of Papua
New Guinea.

16. Financial assets through profit or loss

CONSOLIDATED

PARENT

2017
K ‘000

2016
K ‘000

2017
K ‘000

2016
K ‘000

4,575

4,637

4,580

4,642

157

–

157

142

–

142

Equity securities

- Listed

- Unlisted

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017

The movement in financial assets at fair value through profit or loss is reconciled as follows:

Balance at beginning of year

Gains/(losses) from changes in fair value

Additions

Disposals

Gains on disposal

Balance at end of year

CONSOLIDATED

PARENT

2017

K ‘000
4,642

(5)

–

2016

K ‘000
4,055

587

–

4,637

4,642

2017

K ‘000
142

–

157

2016

K ‘000
145

(3)

–

142

The fair value of the listed equities is based on quoted market prices at the end of the reporting period. The quoted
market price used is the current market prices. These financial instruments are categorized as level 1 within the fair value
hierarchy. Unlisted equities are categorized within level 3 of the fair value hierarchy.

17. Loans and advances to customers

Loans to individuals

Loans to corporate entities

Gross loans and advances to customers

Allowances for losses

Details of gross loans and advances to customers are as follows:

Overdrafts

Property mortgage

Asset financing

Insurance premium funding

Business and other loans

CONSOLIDATED

PARENT

2017

K ‘000
179,554
566,482

746,036

(13,329)

732,707

2016

K ‘000
134,388

482,714

617,102

(11,990)

605,112

2017

K ‘000
–

–

2016

K ‘000
–

(44)

–

CONSOLIDATED

PARENT

2017

K ‘000
73,162
117,370

17,534

1,671

536,299

746,036

2016

K ‘000
60,899

104,111

13,119

614

438,359

617,102

2017

K ‘000
–

2016

K ‘000
–

–

Kina Annual Report 2017 81

17. Loans and advances to customers (continued)
Movements in allowance for losses are as follows:

Collectively assessed

Balance at beginning of year

Impairment losses/ (reversals) during the year (note 9)

Loans written off, net of other adjustments

Transfers (from/to) collective

Recoveries

Balance at end of year

Individually assessed

Balance at beginning of year

Impairment losses during the year (note 9)

Loans written off

Recoveries

Transfers (from/to) individual

Balance at end of year

Total

CONSOLIDATED

PARENT

2017

K ‘000

7,955

857

(3)

1,719

–

10,528

4,034

2,460

(3,990)

2,016

(1,719)

2,801

13,329

2016

K ‘000

2017

K ‘000

2016

K ‘000

5,296

(1,012)

(552)

3,185

1,038

7,955

3,437

3,799

(17)

–

(3,185)

4,034

11,990

–

(44)

–

246

(17)

(249)

–

The collective assessment relates to loans and advances fall in the 0-30 days category. Individual assessment relates to all
loans and advances with arrears over 30 days.

18. Investments in government inscribed stocks

Government inscribed stocks principal balance

Unamortised premium

Unamortised discount

Accrued interest

CONSOLIDATED

PARENT

2017

K ‘000
78,000

709

(418)

1,587

79,878

2016

K ‘000
63,000

845

(596)

1,079

64,328

2017

K ‘000
–

2016

K ‘000
–

–

The movement in investments in government inscribed stocks is as follows:

Balance at beginning of year

Additions

Accrued interest

Amortized discount/(premium)

CONSOLIDATED

PARENT

2017

K ‘000
64,328

15,000

508

2016

K ‘000
64,134

–

183

79,878

64,328

2017

K ‘000
–

2016

K ‘000
–

–

Investments in government inscribed stocks are measured at amortized cost.

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 201719. Investments in subsidiaries

Kina Funds Management Limited (KFM)

Kina Investment and Superannuation Services

Limited (KISS)

Kina Ventures Limited (KVL)*

Kina Wealth Management Limited (KWML)

Kina Nominees Limited (KNL)***

Total Investment at cost

Provision for impairment

Balance as at 31 December 2017

*Kina Ventures Limited (KVL) shareholding structure

Kina Bank Limited (KBL)

Kina Properties Limited (KPL)

2017
%

100

SHAREHOLDINGS**
2016
2017

2016
% Amount (K) Amount (K)

100

500,000

500,008

500,000

500,008

(251,677)

248,331

100

5,000,000

2,125,000

** All the subsidiaries are incorporated in Papua New Guinea. The results of the operations of above subsidiaries have been consolidated in the

Group’s financial statements.

*** Impairment loss on investment in subsidiary amounted to nil for the year ended 31 December 2017 (2016:K251,677).

20. Property, plant and equipment

CONSOLIDATED

Furniture
& Fittings

Building
improvements

Motor
Vehicles

Office
Equipment

Land &
Building

Work in
Progress

K’000

Cost

Balance 31 December 2015

Additions
Balance 31 December 2016

Additions

Disposals
Balance 31 December 2017

Accumulated depreciation

Balance 31 December 2015

Charge for the year

Balance 31 December 2016

Charge during the year

Disposals

Balance 31 December 2017

Book value 31 December 2016

1,061

15
1,076

–
1,123

(621)

(126)

(747)

(129)

–

(876)

247

329

7,450

239
7,689

2,165

–
9,854

(2,962)

(682)

(3,644)

(908)

–

3,137

646
3,783

337

–
4,120

12,047

858
12,905

2,820

(4)
15,721

(2,370)

(645)

(8,593)

(1,456)

(3,015)

(10,049)

(413)

–

(1,403)

(4,552)

(3,428)

(11,451)

11,746

–
11,746

–

–
11,746

–

(109)

–

(218)

–

4,384
4,384

1,407

–
5,791

–

Total

K’000

35,441

6,142
41,583

6,776

(4)
48,355

(14,546)

(3,018)

(17,564)

(2,962)

(20,525)

5,302

4,045

692

768

4,270

2,856

11,528

11,637

5,791

4,384

27,830

24,019

Kina Annual Report 2017 83

20. Property, plant and equipment (continued)

Furniture
& Fittings

Building
improvements

Motor
Vehicles

Office
Equipment

Land &
Building

Work in
Progress

K’000

878

2,304

9,029

2,128

–

100

(438)

130

–

878

1,966

9,159

2,128

–

134

–

1,527

(4)

–

878

2,100

10,682

2,128

(537)

(86)

–

(1,685)

(6,753)

(392)

437

(944)

–

(623)

(1,640)

(7,697)

(58)

–

(213)

–

(726)

(681)

(1,853)

(8,422)

–

428

–

428

285

–

713

–

Total

K’000

14,874

658

(438)

15,094

1,993

(4)

17,083

(9,313)

(1,481)

437

(10,357)

(1,060)

(11,416)

197

255

247

326

2,260

1,462

2,128

713

428

5,667

4,737

535

–

535

–

582

(338)

(59)

–

(397)

(63)

–

(460)

122

138

PARENT

Cost

Balance 31 December 2015

Additions

Disposal

Balance 31 December 2016

Additions

Disposals

Balance 31 December 2017

Accumulated depreciation

Balance 31 December 2015

Charge during the year

Disposals

Balance 31 December 2016

Charge during the year

Disposals

Balance 31 December 2017

Book value 31 December 2016

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 201721. Intangible asset

CONSOLIDATED

Cost

Balance 31 December 2015

Additions
Balance 31 December 2016

Additions
Balance 31 December 2017

Accumulated depreciation

Balance 31 December 2015

Charge for the year
Balance 31 December 2016

Charge during the year
Balance 31 December 2017

Balance 31 December 2017

Book value 31 December 2016

PARENT

Cost

Balance 31 December 2015

Additions

Disposals

Balance 31 December 2016
Additions

Disposals

Balance 31 December 2017

Accumulated depreciation

Balance 31 December 2015

Charge during the year

Disposals

Balance 31 December 2016
Charge during the year

Disposals

Balance 31 December 2017

Book value 31 December 2016

Customer
deposits
relationship

Software

K’000

3,432

632
4,064

8,929
12,993

(159)

(781)
(940)

(945)
(1,885)

11,108

3,124

3,780

–
3,780

(189)

(756)
(945)

(756)
(1,701)

2,079

2,835

Customer
deposits
relationship

Software

601

–

638

5,421

–

6,059

(68)

(125)

–

(193)

(231)

–

(424)

5,635

445

–

Total

K’000

7,212

632
7,844

8,929
16,773

(348)

(1,537)
(1,885)

(1,701)
(3,586)

13,187

5,959

Total

601

–

638

5,421

–

6,059

(68)

(125)

–

(193)

(231)

–

(424)

5,635

445

Customer deposits relationship was recognized when Maybank (PNG) Limited was acquired on 30 September 2015. The
intangible assets were estimated to have a useful life of five years based on the license term of software and expected
length of the customer deposit relationship. Customer deposit relationship has a remaining useful life of 3 years.

Kina Annual Report 2017 85

22. Other assets

Prepayments

Security deposits and bonds

Lease incentive receivable

Other debtors

Less: allowance for losses on other assets

Movement of allowance for losses on other assets is as follows:

Balances at beginning of year

Impairment losses during the year

Reclassification

Balance at end of year

23. Due to customers

Corporate customers

Retail customers

24. Current income tax (assets) liabilities

Balance at beginning of year

Paid during the year

Current provision

Prior year under provision

Balance at end of year

Kina Annual Report 2017

CONSOLIDATED

PARENT

2017
K ‘000

2,306

665

7,700

7,772

18,443

(4,052)

14,391

2016
Restated
K ‘000

2,115

814

–

9,153

12,082

(4,052)

8,030

2017
K ‘000

2016
K ‘000

876

218

7,700

733

9,527

(101)

9,426

701

363

–

146

1,210

(101)

1,109

CONSOLIDATED

PARENT

2017
K ‘000

4,052

–

4,052

2016
K ‘000

116

–

3,936

4,052

2017
K ‘000

101

–

101

2016
K ‘000

103

–

(2)

101

CONSOLIDATED

PARENT

2017
K ‘000

905,834

113,491

1,019,325

2016
K ‘000

934,958

33,982

968,940

2017
K ‘000

2016
K ‘000

–

CONSOLIDATED

PARENT

2017
K ‘000

(995)

(7,694)

9,173

151

635

2016
K ‘000

1,567

(20,727)

18,165

–

(995)

2017
K ‘000

169

(535)

(16)

737

355

2016
K ‘000

560

(1,634)

1,243

–

169

Notes to the financial statementsFor the year ended 31 December 2017

Net current income tax (assets) liabilities is represented by:

Current income tax asset

Current income tax liability

25. Employee provisions

Balance at beginning of year

Charged to profit and loss

Utilized during the year

Balance at end of year

Represented by:

Short term provisions

Long term provisions

26. Other liabilities

Accruals

Deposits against guarantee*

Unclaimed money and stale cheques

Bank cheques

Accounts payable

Unearned commission income

Other liabilities

Balance at end of year

CONSOLIDATED

PARENT

2017
K ‘000

–

635

2016
K ‘000

(2,452)

1,457

(995)

2017
K ‘000

–

355

2016
K ‘000

–

169

CONSOLIDATED

PARENT

2017
K’000

3,277

4,495

(3,419)

4,353

3,267

1,086

4,353

2016
K’000

5,408

(2,131)

–

3,277

2,459

818

3,277

2017
K’000

1,545

2,599

(1,793)

2,351

1,260

1,091

2,351

2016
K’000

2,200

(655)

–

1,545

1,231

314

1,545

CONSOLIDATED

PARENT

2017
K’000

12,939

–

3,965

2,382

4,532

1,092

8,585

2016
K’000

13,073

–

7,596

5,304

2,691

1,045

4,041

33,495

33,750

2017
K’000

2,031

–

2,461

–

7,075

11,603

2016
K’000

2,222

–

648

–

2,950

*Deposit against guarantee of K10.3million at 31 December 2016 was reclassified under due to customers in 2017 (Note 23).

Kina Annual Report 2017 87

27. Issued and paid ordinary shares

a) Movement
The Company does not have authorized capital and ordinary shares have no par value. The table below provides
movement in share capital.

Balance as at 31 December 2015

Share issued during the year – retention incentive

Balance as at 31 December 2016

Share issued during the year – retention incentive

Balance as at 31 December 2017

Number of
shares

163,793

100

Share
capital
K‘000

141,797

208

163,893

142,005

100

208

163,993

142,213

b) Earnings per share
Basic earnings per ordinary share is calculated by dividing the net profit attributable to shareholders by the weighted
average number of ordinary shares on issue during the year. The group has no significant dilutive potential ordinary shares.
Consequently, basic earnings per ordinary share equals diluted earnings per share.

Net profit attributable to shareholders – K’000

Weighted average number of ordinary shares basic earnings

Weighted average number of ordinary shares diluted earnings

Basic earnings per share (in toea)

Diluted earnings per share (in toea)

CONSOLIDATED

2017

23,011

163,943

165,554

14 .03

13 .90

2016

40,976

163,893

25.00

Share-based payment reserve

c)
Kina operates both a Short Term Incentive (STI) and Long Term Incentive (LTI) plan. The purpose of these Plans is to assist
in the reward, retention and motivation of key management personnel and align the interests of management and
shareholders. The plans are commensurate with those adopted by major banks in Australia and the Pacific and is managed
by an independent Plan manager. The operation of both the STI and LTI plans are explained below:

Short term incentive plan (STI Plan)

The STI plan provides participants with an opportunity to earn an incentive calculated as a percentage of their salary each
year, conditional upon them achieving specified performance targets. Under the plan 65% of any award granted is paid as
a cash bonus, with the remaining 35% awarded as a grant of performance rights to shares. The granted performance rights
are restricted from exercise and subject to the Company’s clawback policy and subject to the rules of the Plan.

The following STI were approved by the Board.

Date of grant

Number of share rights granted

Market value at grant date

Vesting date

Vesting conditions

25 March 2016

17 February 2017

212,086

AUD 192,998

25 March 2018

119,226

AUD 125,187

1 April 2019

Continued service

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017Long term incentive plan (LTI Plan)

The LTI plan provides participants with an opportunity to receive an equity interest in Kina through the granting of
performance rights. LTI plan participants may be offered performance rights that may be subject to vesting conditions as
set out by the Board. The selection of participants is at the discretion of the Board.

A performance right is a contractual right to receive one ordinary share in Kina, subject to performance and vesting
conditions being met. Each vested performance right represents a right to one ordinary share. If the participant leaves
Kina any unvested Performance Rights will be forfeited (unless the Board determines otherwise.

The following LTI plan arrangements were in place during the year ended 31 December 2017

Date of grant

Number of share rights granted

Market value at grant date

Fair value at grant date

Vesting date

Vesting conditions

25 March 2016

17 February 2017

325,117

AUD 295,856

AUD 382,269

25 March 2019

854,420

AUD 897,141

AUD 583,193

1 April 2020

Continued service

Achieve IPO

50% target TSR

Target NPAT

50% target EPS growth

The estimated fair value of share rights issued on 17 February 2017 under the LTI plan was AUD 0.68, compared to the
grant date market value per share of AUD1.05. Fair value is generally estimated using a Monte Carlo simulation model
taking into account the share price at grant date, the vesting period, share price volatility, risk-free interest rate and market
performance conditions. Due to Kina’s relatively short period since listing and lack of reliable historic share price volatility
data, for the LTI rights granted on 17 February 2017 the fair value has been estimated by reference to a discount from the
grant date share price based on a comparative market analysis of Australian banks with similar incentive schemes and
vesting conditions.

Retention incentive

There was a one-off retention grant issued to the CEO in 2015 of 200,000 rights with a market value at grant date of AUD
200,000, of which 50% vested in 2016 and 50% vested in 2017. By the end of December 2017, there were no unvested
performance rights under the retention scheme.

125,000 retention rights were granted to two senior executives during the year ended 31 December 2016. No retention
rights were granted in 2017.

Kina Annual Report 2017 89

27.

Issued and paid ordinary shares (continued)

Share-based payment reserve (continued)

Movement in outstanding share rights

Outstanding rights at beginning of year

New rights granted

Rights vested and shares issued

Rights forfeited or lapsed

Outstanding rights at end of year*

CONSOLIDATED

2017

856,992

973,646

2016

400,000

637,992

(100,000)

(64,917)

1,665,721

(81,000)

856,992

* the outstanding performance at the end of the year was 1,665,721. This subsequently reduced by 200,756 rights due to the resignation

of the previous CEO on 2 January 2018.

The fair value at grant date of share rights awarded under the incentive schemes is recognized as an expense over the
expected vesting period with a corresponding increase in the share based payments reserve in equity. The movement in
the Share Based Premium Reserve is as below:

Brought forward from previous year

Expense arising from STI plan

Expense arising from LTI and retention plans

Rights vested and shares issued

Total

28. Statement of cash flows

CONSOLIDATED

2017

1,356

348

(208)

1,558

2016

460

318

786

(208)

1,356

For the purposes of the statements of cash flow, cash and cash equivalents comprises the following:

Cash and due from banks (note 13)

Central bank bills (note 14)

b) Movement in investment securities is as follows:

Central bank bills (note 14)

Central bank bills & other eligible bills (less than 3 months)

Government inscribed stocks (note 18)

Kina Annual Report 2017

CONSOLIDATED

PARENT

2017
K’000

47,514

55,000

102,514

2016
K’000

148,020

30,000

178,020

2017
K’000

12,828

–

12,828

2016
K’000

15,541

–

15,541

CONSOLIDATED

2017
K’000

190,869

(55,000)

79,878

215,747

2016
K’000

208,095

(30,000)

64,328

242,423

Movement
K’000

17,226

25,000

(15,550)

26,676

Notes to the financial statementsFor the year ended 31 December 2017
c) Reconciliation of net profit after tax for the year to net cash flows from operating activities is presented below.

CONSOLIDATED

PARENT

Net profit after tax

Profit from disposal of property and equipment

Depreciation and amortization (note 20 and 21)

Premium/discount amortization (note 18)

Share-based payment expense

Net losses/(gains) from changes in fair values of financial
assets (note 16)

Increase/(decrease) in income tax payable

Increase/(decrease) in deferred income tax (note 12c)

Changes in net assets and liabilities:

Decrease/(increase) in assets:

Increase/(decrease) in liabilities:

Net cash inflow/outflow) from operating

2017
K’000

23,011

–

4,661

(508)

410

1,630

1,455

2016
K’000

40,976

(93)

4,556

(11)

1,104

(587)

(2,563)

(574)

(143,356)

(264,837)

50,097

(62,595)

254,644

32,615

2017
K’000

(5,851)

1,292

–

410

187

(749)

(8,536)

42,523

29,291

2016
K’000

3,253

(88)

1,606

–

1,104

(392)

144

4,036

154

9,820

29. Related party transactions
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence
over the other party in making financial or operational decisions. The Group is controlled by Kina Securities Limited (“KSL”)
incorporated in Papua New Guinea, which owns 100% of the ordinary shares of its subsidiaries, unless otherwise stated.

A number of banking transactions are entered into with related parties in the normal course of business. These include
loans, deposits and foreign currency transactions. These transactions were carried out on normal commercial terms and at
normal market rates. The volumes of related party transactions, outstanding balances at 31 December 2017, and related
expenses and income for the year ended are as follows:

a) Directors and management transactions
In the prior year (2016), Niule No 1 Ltd trading as Raintree Consultancy provided consultancy services to KSL. Fees paid
during the year up to May 2016 was K100,000. No consultancy service was provided post May 2016 and full year 2017.
J. Yap, a director of KSL, is a director and shareholder of Niule No 1 Ltd.

H. Wong (ceased 18 May 2016) maintained interest-bearing deposits at normal market rates of interest with Kina Bank
Limited (“KBL”). The balance due as at 31 December 2017 is Knil (2016: K8,236)

Kina Annual Report 2017 91

29. Related party transactions (continued)

a) Directors and management transactions (continued)

W. Golding (ceased 16 May 2017) was a Director and Shareholder of KSL and also a Director and Shareholder of The
Manufacturers Council of PNG (MCP). MCP maintained interest-bearing deposits at normal market rates of interest.
The balances due as at 31 December 2017 and 2016 and related income and expenses for the year ended are as follows.

Balance at beginning of year

Received during the year

Balance at end of year

Interest expense on deposits

Average interest rate per annum

2017
K’000

2016
K’000

0.6

0.5

1.00%

1.25%

Kina Nominees Limited (“KNL”) acted as a trustee for 2G Development Limited, a company of which W. Golding (ceased 16
May 2017) is a Director. The 2G Development Limited housing estate clients’ equity funds are held in trust by KNL,
processing receipts and deposits from 2G Development clients and payment made to 2G Development building and civil
works contractors. During the year ended 31 December 2017, KNL have billed and received from 2G Development Limited a
total of K7,327 (2016: K34,594) representing Trustee service fee.

S. Yates,the Managing Director and Chief Executive Officer of KSL during the year is also a Director of Port Moresby Stock
Exchange POMSoX) and shareholder of Columbus Investment Limited. During the year, POMSoX, Columbus Investment
Limited and S. Yates maintained interest-bearing deposits at normal market rates of interest. S. Yates resigned from the
Board of Directors on 2 January 2018. The balances due as at 31 December 2017 and related expense for the year are as
follows:

Deposit:

Balance at beginning of year

Received during the year

Repaid during the year

Balance at end of year

Average interest rate per annum

Interest expense on deposits

POMSoX

K’000

Columbus
Investments
K’000

S. Yates

Total 2017

Total 2016

K’000

–

1,486

(1,493)

–

1.25%

149

(199)

1.00%

1,560

156

(1,692)

1.13%

1,847

(316)

1,560

0.80%

From time to time during the year, Directors and Senior Management of the Parent and subsidiaries had deposits in the
Group on normal terms and conditions. Brokerage rates for buying and selling shares for the Senior Management and staff
are discounted.

A listing of the members of the Board of Directors is shown in the Annual Report. In 2017, the total remuneration of the
Directors was K3,696,907 (2016: K3,405,404).

Key management personnel (KMP) of the group includes directors and the executive general managers (EGMs) during
the year.

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017The table below shows the Group specified EGM remuneration in aggregate (in K’000).

2017

2016

NO OF KMP
12

SALARY
6,321

4,676

BONUS

–

347

SUPER
65

EQUITY
OPTIONS
408

OTHER
BENEFITS
1,912

1180

1,330

TOTAL
8,706

7,562*

* 2016 comparative is updated to include directors’ remuneration

b) Subsidiary transactions and balances

The Company maintains an intercompany account with subsidiary undertakings, which are interest bearing at the rate of
KBL cost of funds plus 12.50 (2016:12.50) basis points, unsecured and with no fixed term of repayment. Details as follows:

TRANSACTIONS

BALANCE OUTSTANDING

DUE FROM

DUE TO

INCOME EXPENSES
2017
K ‘000

2017
K ‘000

INCOME
2016
K ‘000

EXPENSES
2016
K ‘000

1,494

2,170

–

625

308

–

880

1,632

–

360

–

29,556

2,918

20,367

1,910

2017
K ‘000

2016
K ‘000

–

351,106*

KFM

KISS

KWM

KBL

KVL

KNL

2017
K ‘000

(26,607)

(15,102)

(6)

2016
K ‘000

(16,324)

(7,302)

(6)

(109,594)

(94,805)

–

33,220

3,851

22,879

2,270

351,123

(151,310)

(118,437)

* net of allowance for impairment losses of K7,487,273 which is interest free and payable on demand

30. Investment under trust
The Group acts as trustee holding or placing of assets on behalf of superannuation funds and individuals. As the Group
acts in a fiduciary capacity, these assets are not assets of the Group and, therefore, are not included in its statements of
financial position. The Group is also engaged in investing client monies. A corresponding liability in respect of these
monies is also excluded from the statements of financial position. Investments under trust at year end are:

Clients funds held for shares trading

CONSOLIDATED

PARENT

2017
K’000

2,109

2016
K’000

925

2017
K’000

2,109

2016
K’000

925

Kina Annual Report 2017 93

31. Goodwill
Kina Group, through Kina Ventures Limited, a 100% owned subsidiary of Kina Securities, acquired all of the shares in
Maybank (PNG) Limited and Maybank Property (PNG) Limited in September 2015. The goodwill arising on this acquisition
was recorded at K92,786,000. The goodwill was attributable to Maybank (PNG) Limited’s strong position and synergies
expected to arise after the Group’s acquisition of the new subsidiary. None of the goodwill is expected to be deductible
for tax purposes.

Goodwill was tested for impairment as at 31 December 2017 and no impairment loss arose on this assessment. The
goodwill is allocated and tested at the Kina Bank level. The recoverable amount has been determined using both the fair
value and value in use at each reporting date. Value in use refers to expected future cash flows over the next five years on a
discounted cash flow basis. The fair value is determined based on the multiples of future maintainable earnings.

The calculations of value in use includes cash flow projections covering a five-year period. Cash flows beyond the five-year
period are extrapolated using the estimated growth rate of 3%. The estimated cash flows are discounted using a discount
rate of 11.7%. The fair value calculation includes future maintainable earnings of K59.8m and earnings multiple of 8 times.

32. Segment reporting
The segment information provided to the Chief Executive Officer for the reportable segments for the year ended
31 December 2017 is as follows:

Interest income

Interest expense

Foreign exchange income

Fee and commission income

Other revenue

Total external income

Other operating expenses

Provision for impairment

Depreciation and amortisation

Total external expenses

Profit before inter-segment revenue and expenses

Inter-segment income

Inter-segment expenses

Profit before tax

Income tax expense

Profit after tax

Total assets

Total assets include:

Banking
& Finance
PGK‘000

Wealth
Management
PGK‘000

Corporate
PGK‘000

Total
PGK‘000

99,272

(26,839)

7,069

8,330

662

88,494

(26,809)

(2,413)

(2,505)

(31,727)

56,767

3,208

(28,442)

31,533

(8,983)

22,550

1,161,356

–

211

21,738

495

22,518

(10,036)

(949)

–

(10,985)

11,533

643

(4,032)

8,144

(1,982)

6,162

4,952

–

(56)

365

187

498

(33,047)

(2,156)

(35,159)

(34,661)

29,370

(747)

(6,038)

337

(5,701)

99,348

(26,839)

7,224

30,433

1,344

111,510

(69,892)

(3,318)

(4,661)

(77,871)

33,639

33,221

(33,221)

33,639

(10,628)

23,011

148,840

1,315,148

Additions to non-current assets

Total liabilities

7,750

(1,043,839)

–

(154)

7,952

15,702

(14,453)

(1,058,446)

Banking and finance segments includes the operations of the Kina Bank while Wealth Management includes fund
management and fund administration business. Corporate includes the operation of the holding company and Kina
properties.

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017

The segment information provided to the Chief Executive Officer for the reportable segments for the year ended
31 December 2016 is as follows:

Interest income

Interest expense

Foreign exchange income

Fee and commission income

Other revenue

Total external income

Other operating expenses

Provision for impairment

Depreciation and amortisation

Total external expenses

Profit before inter-segment revenue and expenses

Inter-segment income

Inter-segment expenses

Profit before tax

Income tax expense

Profit after tax

Total assets

Total assets include:

Banking
& Finance

Wealth
Management

Corporate

Total

PGK‘000

77,124

(12,140)

20,579

7,511

110

93,184

(25,328)

(2,684)

(2,086)

(30,098)

63,086

1,830

(19,952)

44,964

(13,512)

31,452

1,145,979

142

–

332

17,713

2,824

21,011

(7,407)

(109)

–

(7,516)

13,495

440

(3,186)

10,749

(4,134)

6,615

16,162

–

(53)

2,800

359

3,108

77,268

(12,140)

20,858

28,024

3,293

117,303

(19,410)

(52,145)

(1,714)

(21,118)

(18,010)

21,672

(804)

2,858

2,909

(2,787)

(3,800)

(58,732)

58,571

23,942

(23,942)

58,571

(17,595)

40,976

103,605

1,265,746

Additions to non-current assets

Total liabilities

5,155

–

1,619

6,774

(1,003,753)

(4,097)

(27)

(1,007,877)

There is only one segment for the Parent entity and the information is the same as the primary statements.

33. Contingent liabilities
Litigations and claims
Contingent liabilities exist in respect of actual and potential claims and proceedings that have not been determined. An
assessment of the Group’s likely loss has been made on a case by case basis for the purposes of the financial statements
and specific provisions are made where appropriate. As at 31 December 2017, the Group is a party to some litigation
before the courts, however, management does not believe these will result in any material loss to the Group. There was no
litigation matter of a material nature that is not already provided for in the financial statements.

Kina Annual Report 2017 95

33. Contingent liabilities (continued)
Other liabilities
The Bank guarantees the performance of customers by issuing stand-by letters of credit and guarantees to third parties.
The risk involved is essentially the same as the credit risk involved in extending loan facilities to customers, therefore these
transactions are subject to the same credit origination, portfolio maintenance and collateral requirements applied to
customers applying for loans. As the facilities may expire without being drawn upon, the notional amount does not
necessarily reflect future cash requirements. The credit risk of these facilities may be less than the notional amount but as
it cannot be accurately determined, the credit risk has been taken as the contract notional amount.

Group
Documentary letters of credit

Bank guarantee

Other contingent liabilities

The company had no contingent liabilities.

2017

K’000
–

36,793

–

36,793

2016

K’000
1,865

34,938

3,075

39,878

34. Commitments
Capital commitments
There was a total of K347,703 relating to commitments under contracts for capital expenditure at balance date.

Operating lease commitments
Total of future minimum lease payments under operating lease commitments are as follows::

Within one year

Between one and five years

2017

K’000
5,170

20,681

25,851

2016

K’000
4,879

18,819

23,698

35. Fair value estimation
There is no material difference between the fair value and carrying value of the Group and the Company’s financial assets
and liabilities.

The table below analyzes financial instruments carried at fair value, by valuation method. The different levels have been
defined as follows:
• Quoted prices unadjusted in active markets for identical assets or liabilities (Level 1).
•

Inputs other than quoted prices included within level 1 that are observable for the asset or liability, either directly
that is, as prices or indirectly that is, derived from prices (Level 2).

•

Inputs for the asset or liability that are not based on observable market data that is, unobservable inputs (Level 3).

Kina Annual Report 2017

Notes to the financial statementsFor the year ended 31 December 2017The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2017.

Assets

Financial assets at fair value through profit or loss

Investment in shares – Listed

Investment in shares – Unlisted

Total assets

Level 1

K’000

Level 2

K’000

Level 3

K’000

4,575

–

4,575

–

The following table presents the Group’s assets and liabilities that are measured at fair value at 31 December 2016.

Assets

Financial assets at fair value through profit or loss

Level 1

K’000

Level 2

K’000

Level 3

K’000

Investment in shares – Listed

Investment in shares – Unlisted

Total assets

36. Auditors’ remuneration

Consolidated entity
Audit and audit related

Tax services

Other services*

4,580

–

4,580

–

2017

K’000
765

314
101

1,180

Total

K’000

4,575

4,637

Total

K’000

4,580

4,642

2016

K’000
553

110

–

663

* Fee for other services include K86,792 paid to PricewaterhouseCoopers- Australia. All other fees are paid to PricewaterhouseCoopers-

Papua New Guinea.

37. Events after the statement of financial reporting date
Subsequent to the financial reporting date, the directors declared a dividend of AUD 4.0 cents / PGK 10.0 toea per share
(K16.4m). There are no other events after the financial reporting date that require adjustment to or disclosure in the
financial statements.

Kina Annual Report 2017 97

Shareholder information

Kina Securities Limited

ARBN: 606 168 594

The distribution of ordinary shares ranked according to size as at 27 March 2018 was:

Size of holding

Number of holders

Number of shares

% of issued capital

1-1,000

1,001-5,000

5,001-10,000

10,001-100,000

100,001-over

298

275

266

592

124,403

866,844

2,280,339

17,831,747

142,889,920

0.08

0.53

1.39

10.87

87.13

The 20 largest shareholders representing 81.26% of the ordinary shares as at 27 March 2018 were as follows:

Shareholder

FU SHAN INVESTMENT LIMITED

HSBC CUSTODY NOMINEES

NATIONAL SUPERANNUATION FUND

UBS NOMINEES PTY LTD

MATCHING INVESTMENT COMPANY

COLUMBUS INVESTMENTS LIMITED

COMRADE TRUSTEE SERVICES

NATIONAL NOMINEES LIMITED

J P MORGAN NOMINEES AUSTRALIA

PACIFIC NOMINEES LIMITED

BNP PARIBAS NOMINEES PTY LTD

HITSUMA SDN BHD

PERPETUAL SHIPPING LIMITED

NEW IRELAND DEVELOPMENT

GEAT INCORPORATED

P & B CHEUNG LTD

IDAMENEO (NO 79) NOMINEES

KINA ASSET MANAGEMENT NO 1

CAPITAL GENERAL INSURANCE

TRICO LIMITED

KINGSTON PROPERTIES PTY

Total

Grand total

Number of Shares

% of issued capital

57,295,900

33,871,696

8,000,000

7,055,802

5,116,706

4,068,574

3,500,885

2,932,949

2,294,046

1,322,871

1,295,137

1,000,000

800,000

700,000

552,228

538,320

515,000

500,000

450,000

446,221

133,256,335

163,993,253

34.94

20.65

4.88

4.30

3.12

2.48

2.13

1.79

1.40

0.81

0.79

0.61

0.49

0.43

0.34

0.33

0.31

0.30

0.27

81.26

100%

32,758,650 shares held by Fu Shan Investment limited are held in escrow until 27 April 2018

Kina Annual Report 2017

Issued capital as at 27 March 2018 was:

163,993,253 ordinary fully paid shares

32,758,650 shares are held in escrow until 29 April 2018

The following interests were registered on the Company’s register of Substantial Shareholders as at 27 March 2018:

Shareholder

HSBC CUSTODY NOMINEES

FU SHAN INVESTMENT LIMITED

Number of Shares

% of Issued Capital

33,871,696

57,295,900

20.65%

34.94%

The Company’s ordinary fully paid shares are listed on the Australian Securities Exchange and the Port Moresby
Stock Exchange.

At 27 March 2018, there were no holders of unmarketable parcels of ordinary shares in the Company

VOTING RIGHTS ATTACHED TO ORDINARY SHARES

Each ordinary shareholder present at a general meeting (whether in person, by proxy or by representative) is entitled to
one vote on a show of hands, or on a poll, for each fully paid ordinary share held.

Kina Annual Report 2017 99

Corporate directory

Directors
Isikeli Taureka (Chairman)
Greg Pawson (CEO –
appointed 2 January 2018)
David Foster
Karen Smith-Pomeroy
Jim Yap
Sir Rabbie Namaliu (ceased 16 May 2017)
Wayne Golding (ceased 16 May 2017)
Sydney Yates (CEO – ceased
2 January 2018)

Company secretary
Chetan Chopra

Registered Office

HEAD OFFICE
9th Level, Kina Haus Douglas Street,
Port Moresby National Capital District
Papua New Guinea
Telephone: +675 308 3888
Facsimile: +675 308 3899

VISION CITY OFFICE
Ground Floor
Vision City Building
Sir John Guise Drive
P.O Box 1141, Boroko
National Capital District
Papua New Guinea
Telephone: +675 323 0751
or +675 323 0750
Facsimile: +675 310 0020

LAE OFFICE
Ground Floor
Nambawan Super Haus
2nd Street, Top Town
P.O Box 682, Lae Morobe Province
Papua New Guinea
Telephone: +675 472 7558
or +675 472 7188
Facsimile: +675 472 8176

MT HAGEN OFFICE
Level 1
Komkui Building Mt Hagen
Papua New Guinea
Telephone: +675 542 2306
Facsimile: +675 542 3680

KOKOPO OFFICE
ENB Savings and Loans
Society Building (Suite 3)
P.O Box 1269, Kokopo
East New Britain Province
Papua New Guinea
Telephone: +675 982 5278
Facsimile: +675 982 5416

Branch offices

WAIGANI BRANCH
Cnr. Waigani and Islander Drive
Waigani NCD
Telephone: +675 325 7792
Facsimile: +675 325 6128

LAE BRANCH
Ground Floor
Nambawan Haus
2nd Street
Lae, MP
Telephone: +675 472 7188 /
+675 472 8175
Facsimile: +675 472 8176 /
+675 472 7166

VISION CITY
Ground Floor
Vision City Mega Mall
Waigani Drive
Waigani NCD
Telephone: +675 323 0750
Facsimile: +675 310 0020

KOKOPO BRANCH
Suite 3,
ENB Savings and Loan Society
Building Williams Road
Kokopo, ENBP
Telephone: +675 982 5278
Facsimile: +675 982 5416

MT HAGEN OFFICE
Office 5
Komkui Building
Mt Hagen, WHP
Telephone: +675 542 2306
Facsimile: +675 542 3680

Share registry

PAPUA NEW GUINEA
PNG Registries Limited
Level 2, Aon Haus
PO Box 1265
Port Moresby
Papua New Guinea
Telephone: (675) 321 6377
Facsimile: (675) 321 6379
Email: brenda@online.net.pg

AUSTRALIA
Link Market Services Ltd
Level 21, 10 Eagle Street
Brisbane QLD 4000
Telephone: 1300 554 474
(within Australia)
+61 1300 544 474
(outside Australia)

AUDITOR
PricewaterhouseCoopers PNG
PwC Haus
Level 6, Harbour City
Konedobu
Port Moresby
Papua New Guinea

STOCK EXCHANGE LISTING
ASX Code: KSL
POMSoX Code: KSL

WEBSITE
www.kina.com.pg

100

Kina Annual Report 2017