ANNUAL REPORT 2019
Kina Securities Limited
ARBN: 606 168 594
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 2
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Table of Contents
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities LimitedIn this Annual Report, a reference to ‘Kina Group’, ‘Group’, ‘the Group’, ‘Kina’, ‘ the Company’, ‘Kina Bank’, ‘the Bank’ ‘we’, ‘us’ and ‘our’ is to Kina Securities Limited ARBN: 606 168 594 and its subsidiaries unless it clearly means just Kina Securities Limited. Kina’s Corporate Governance Statement is available on the company’s website:http://investors.kinabank.com.pg/investors/?page=corporate-governance Performance Highlights
ANNOUNCED
US$10m investment
by Asian Development
Bank
ACQUIRED
15% stake in
Nationwide
Microfinance Bank
ACHIEVED
ANZ PNG
acquisition on time
and under budget
Total deposits
grew
by 87%
to PGK2.46b
Funds Mgt
grew
by 7%
to PGK8b
Total loans
grew
Funds Adm
grew to
by 65% PGK12.5b
to PGK1.40b
Net interest income up
31%
to grew PGK114.6m
FX income
23%
to PGK42.0m
Revenue up
27%
to PGK205.6m
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Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 3
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Chairman’s Message
It was a transformative year for Kina
and perhaps will be recognised as
the biggest year in our history. We
completed a series of milestones that
fundamentally changed the shape and
scale of our business and set us up for
long term sustainable growth.
I am also pleased to announce a strong
financial performance that exceeded
market expectation. It has resulted
in a final dividend of AUD6.4 cents
per share or PGK 15.5 toea and a full
year dividend of AUD10.4 cents or
PGK 25.5 toea per share. Our success
was delivered in a complex business
environment that continued to recover
from external shocks where foreign
exchange was in tight supply and
economic activity low.
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Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Strategy: Building the bank of the future
On September 23, we completed the acquisition of
ANZ PNG’s Retail, SME and Commercial business on
time and materially under budget. The acquisition
makes us the second largest retail bank in the country
with a national footprint across 21 locations and over
165,000 customers. This complex program took eighteen
months with a capex spend in excess of K55.0m. It was
the largest M&A transaction for banking in PNG for
some years. The acquisition has enhanced our liquidity
to support future lending growth and will increase our
earnings and profitability, therefore improving returns for
shareholders.
We also announced our strategic partnership with
MiBank in August for the provision of financial inclusion,
with specific focus on building out the micro and small
and medium enterprise (SME) sector. The partnership
includes a mutual referral agreement for SME customers,
providing a smooth pathway between our businesses
depending on a customer’s lending requirements.
In November, we welcomed AAA rated Asian
Development Bank as our second largest shareholder.
The USD10m investment strengthens our international
correspondent banking relationships and improves Kina’s
access to the PNG export sector. ADB have an extensive
aid program in PNG exceeding K1.0 billion including the
re-sealing of the Highlands Highway at a cost of USD
300m. The investment is strategically aligned to enhance
and leverage regional and technical expertise; support
our growth in the SME and retail sectors; and support the
continued build of our digital capabilities.
Business growth
Kina reported a Net Profit After Tax of PGK60.9 million,
up 27% on the previous corresponding period and
exceeding market expectations. The results were
driven by a 31% increase in Net Interest Income to
PGK114.6m; solid growth in the existing loan book of
26% and the addition of the acquired ANZ PNG loan
book in the second half of the year. Overall loan growth
was 65%. With another year of uninterrupted foreign
exchange trading, FX income was up 23% to PGK 42m
and saw an increase in overall market share. Kina Funds
Management grew by PGK 480 million to PGK8 billion by
31 December 2019 and achieved a revenue of PGK11.2
million. Kina Funds Administration also recorded growth
in profit by 7% to PGK 12.5b.
Leadership and culture
Under the leadership of Greg Pawson, our Chief
Executive Officer and Managing Director, we appointed
three new members of the executive leadership team
and strengthened our business model. This ensured we
were prepared for the acquisition and that our existing
business continued to grow. The new team has significant
experience in digital innovation and transformational
change that will help set us up for long term success.
Together, they are working on a major culture change
program to help staff navigate the complex process of
integrating two different businesses. They have made
significant progress on this and are working to embed
our values and purpose throughout the business. Our
people have a real sense of pride in our organisation and
our vision, which has been and will continue to be crucial
to our success.
On behalf of the board I would like to thank our staff
for their commitment and energy. Completing the
acquisition of ANZ PNG on time was a substantial
achievement that required dedication. They also
maintained focus on growing the existing business so
that we delivered solid results.
Finally, I would like to thank our customers, community
and shareholders for your continued support.
Isikeli Taureka
Chairman
Kina Securities Limited
Annual Report 2019
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited MD JELENA TAMATE
Kina Bank SME Customer
Built PNG’s largest event and production
company, pioneering a national online following.
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Managing
Director’s Report
In what was a major year
where we finalised a number of
strategic milestones, we also
delivered results above market
expectation and maintained
growth across all of our existing
businesses.
Progress on our strategy
Through the acquisition of ANZ PNG,
we took the business nationwide to
become the second largest retail
bank in PNG. The acquisition was the
culmination of 18 months of investment
– where we built our capability, our
banking infrastructure, and enhanced
our products and services. We rolled
out an eftpos network with the fastest,
most sophisticated terminal of choice
to more than 1500 merchants; launched
a Visa Credit and Debit card platform;
performed significant enhancements to
our digital retail and corporate banking
platforms; and introduced USSD mobile
banking.
We also delivered several
transformational e-commerce programs
that will improve cost efficiency,
including an automated debt collection
system, a reconciliation tool, and a new
collections system.
We experienced no customer
loss during the acquisition, with
all in-scope ANZ PNG customers
transferring to Kina Bank. A significant
amount of preparation was put in
place to ensure the transfer was as
seamless as possible, accompanied
by a comprehensive information and
public relations campaign. Customer
numbers now total over 165,000 with
organic customer growth for the year
at 17%. Through our partnership with
MiBank and Kina Investment and
Superannuation Services, our reach
extends to over 1.2 million Papua New
Guineans.
The acquisition was also good news for
the PNG job market. We brought back
to PNG more than 80 jobs that were
performed off shore in the cards and
operations teams. I’m also pleased to
report that we achieved a 96% transfer
rate with nearly 300 impacted ANZ
PNG staff accepting contracts at Kina
Bank.
Delivering financial performance
We completed the acquisition in
September 2019 materially under
budget and on time. Our results reflect
three months of income from the ANZ
PNG Retail, Commercial and SME
business. Total Loans grew by 65% to
PGK1.40b and Total Deposits grew by
87% to PGK2.46b.
We continued a strong focus on home
lending which increased by 44%. In
March we launched PNG’s lowest ever
standard variable home loan. As a
market leader it stimulated customer
growth and prompted other banks
to follow suit, lowering their interest
rates, benefitting all customers across
PNG. Later in the year, we launched
PNG’s first ever fixed rate home
loan. To support our market leading
products, we redeveloped our home
loans approval process. By making
it digital, we are able to offer faster
credit decisions and a simpler, more
convenient customer experience, as
well as reduce risk and cost.
As a leading, full-scale commercial bank
our focus is to bring real disruptive
competition to the market and this is
proving to be successful.
Strengthening our culture
Our staff have always had a strong
sense of pride in our brand and when
we integrated the new ANZ PNG
business into Kina Bank it was essential
we maintained this energy and
commitment. We undertook a major
culture change program to embed
our values and behaviours. Through
an extensive series of workshops, we
brought together all staff from two
different cultures with the unique
opportunity to build a really strong
network and promote our new culture.
Alongside this, we delivered a
considerable training program focusing
on products, services and customer
experience. Our commitment to help
our people stay on top of their game
- by building knowledge, skill and
experience - is fundamental to our
Total Societal Impact Strategy, a pillar
of which is to help build the workforce
of the future.
Our culture journey is ongoing and
will see further expansion throughout
2020 and onwards. We see it as a vital
component to delivering our 2025
Strategic Plan which we finalised in
December: ‘Building the bank of the
future’ sets a five year pathway to
becoming PNG’s leading digital bank.
Looking ahead
Our focus for 2020 is to continue to
build out our base. By combining
the best service and technology
we aim to deliver an exceptional
banking experience for our customers.
Simplicity, convenience, and ease
of access are the key themes we are
building into our service proposition.
In 2019 we delivered a series of firsts as
market leaders, which includes being
the first bank to connect to the central
bank’s national payments system, giving
us the ability to accept full interchange
with all PNG domestic banks. We
will continue to be always first, to be
competitive and disrupt the market with
innovative new products and services.
Greg Pawson
Chief Executive Officer and
Managing Director
Kina Securities Limited
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited External Market Conditions
We expect 2020 to be another subdued year for the
PNG economy with key indicators pointing towards
generally lower levels of activity in the absence of a
major economic boost. The PNG government is also
targeting reductions to public service expenditure,
which will further act as a drag on economic growth.
However, given the increase in the fiscal deficit after
an extensive review of revenue and expenditure, such
reductions over a multi-year time frame are warranted.
The negotiating deadline for the development of
P’Nyang, the new onshore gas field, was set for 31
January 2020 by the government. This was to be the
third-largest liquefied natural gas (LNG) project for the
country, taking advantage of PNG’s rich abundance of
gas reserves and low cost structures. Unfortunately, the
project developers and the government were unable
to reach an agreement on the commercial terms and
negotiations ended unsuccessfully.
This is an important reason for our economic view of
the immediate future. This large scale LNG project
would have seen multi USD billion investment into
PNG over a number of years and was a key driver of
confidence – which has fallen since the negotiations
concluded unsuccessfully.
There is an element of uncertainty as to whether the
Papua LNG project (which is the second leg of the
overall LNG project) will now go ahead. The best case
alternative would be a redesign of what were to be
shared facilities to support P’Nyang and Papua LNG,
to allow only the Papua LNG project to proceed. This
will delay the development of Papua LNG, however the
parties are reengaging to see if an acceptable solution
can be found. A reassuring fact is that in the 2020
National Budget, the government had not allowed for
revenues from these gas projects in its revenue track
so there will not be additional fiscal downside from
the project not proceeding. Notwithstanding this, the
difficulties experienced by the economy and business
in general will not be helped by this development.
We expect that the short to medium term outlook
will be a period of ongoing reform and adjustment as
the government puts in place initiatives to reduce the
fiscal deficit over time, while simultaneously building
on foundational work in areas such as infrastructure
spending and value added processing to build the
manufacturing base of the country. Priority outcomes
for government spending in 2020 include rightsizing
the public service and laying the groundwork for future
infrastructure investments in economic corridors.
The government aims to increase its spending in
the non-resource sector in an effort to encourage
the diversification of the economic base. Also, the
Government has committed to settling PGK 2.5bn
worth of arrears to the private sector over the next
three years starting with PGK 1.1bn in 2020. This
is positive as the arrears have acted as a drag on
economic performance. The settlement of arrears will
provide liquidity for the private sector in an otherwise
subdued economy. Spending in the construction
sector is also expected to provide some boost to the
economy in 2020. However, overall risks are tilted to
the downside. Policy development and spending in
the SME and agriculture sectors are positive for the
future development of these sectors and the wider
economy, but economic benefits will not be felt in the
near term.
Foreign exchange shortages will continue to be an
impediment to businesses in PNG throughout 2020.
Proceeds of the USD 300m budget support funding
from the Australian Government eased some pressure
with further foreign exchange support to come from
proceeds from the PNG Government’s planned
offshore borrowings. Domestic interest rates remain
high and are expected to continue in the face of the
government fiscal funding needs. Headline inflation
remains high albeit lower then recent years, while
employment intentions and discretionary consumption
remain weak.
Since the end of our financial year COVID-19 has
catalysed a significant fall in equity markets and some
commodity markets globally (with oil being the prime
impacted commodity). Central banks have acted
through a combination of interest rate cuts and the
boosting of quantitative easing programs. A significant
global economic slowdown now appears inevitable
with the likelihood of recession increasing. PNG will
to some extent be impacted through its linkages
to the global economy which are primarily through
the resources industry. However a large part of the
economy is internally focussed and as a developing
country whose population and large segments of
business service local consumption there is a level of
activity that will not be impacted to the degree that
may happen in a fully open economy. We expect the
main area of impact will come via supply constraints
if global manufacturing capacity, specifically China,
remain “offline” for any extended period of time.
Kina Securities Limited
Annual Report 2019
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Strategic Report
In 2019 we delivered three strategic milestones
and they lay the foundations to build a strong,
competitive business that will deliver lasting
benefit to our customers, the banking sector and
Papua New Guinea. We completed the acquisition
of ANZ PNG on time and materially under budget;
took a 15% stake in MiBank for the provision of
financial inclusion and service to the micro-SME
sector; and welcomed the Asian Development
Bank as our second largest shareholder with an
investment of USD 10.0m.
Putting our strategy into action
The acquisition is a rare example of a smaller
business acquiring the larger one. It was one of the
most high profile banking transactions in PNG for a
decade, and one of the largest and most complex
since independence in 1975.
On completion, Kina Bank became the second
largest domestic retail bank in the country
servicing over 165,000 retail customers through a
national network of 17 branches, 77 ATMs and an
eftpos fleet of over 1,800 terminals through more
than 800 merchants.
As a strategic milestone, it improved Kina Bank’s
market position in retail, commercial and SME
banking, allowing us to emerge as a leading
participant in these sectors. Approximately 80% of
business is conducted outside of the main cities
of Port Moresby and Lae – our existing branch
footprint. With our new expanded distribution
network we are now able to operate in areas we
were previously unable to reach and therefore
meet the growing needs of communities across
PNG.
The acquisition also provided instant scale to justify
our investment in new banking capabilities, and
product and development costs. We completed a
major systems build throughout the year. This saw
the upgrade of our core banking system and the
development of a suite of products and services.
We launched a best-in-class eftpos network; a
contactless credit card platform; and a mobile
banking USSD platform, providing additional
revenue streams. We were also the first bank
to connect to the Bank of Papua New Guinea’s
central switch. This gave us the ability to accept
full interchange with all PNG domestic banks and it
showed us to be industry leaders.
As we continue to improve the value of our
product offering, our philosophy is that banking
should be simple, convenient and easy to
access for our new and existing customers. This
philosophy underpinned our approach to the
integration of ANZ customers into Kina Bank. An
immense effort took place to ensure there was
a successful and seamless transfer of accounts:
account numbers remained the same, ANZ debit
and credit cards continue to work on Kina Bank
systems; and only minor updates were required to
PINs and Internet login details. We also digitalised
a number of systems and processes introducing for
example an automated reconciliation tool and an
automated debt collections system.
In August, we completed the second strategic
milestone when we entered into a partnership with
Nationwide Microfinance Limited (MiBank) through
a 15% stake worth PGK2.5 million. The partnership
delivers on our goal to support financial inclusion
and finance to the micro-SME sector. It also
enables us to make an effective contribution to
the central bank’s goal to reach 2 million
unbanked people by 2020 and it fulfils our
mandate to provide financial inclusion services.
We completed our third strategic milestone
in December when we welcomed the Asian
Development Bank (ADB) as a major shareholder.
ADB’s strong regional presence and AAA rated
investment grade enhances our international
correspondent banking, trade services and
corporate FX relationships.
There are several opportunities to partner with
MiBank and ADB and this will be a focus for 2020.
We will be looking to implement an Environmental
and Social Governance Framework, continue
to build data and ICT capability and develop
remittances and payment gateways.
Building our culture to deliver our strategy
Fundamental to the delivery of our strategy is our
focus on building a strong culture. In September
we welcomed more than 300 new colleagues from
ANZ PNG across the country, changing the shape
of our business dramatically. It offered the unique
opportunity to build a new combined culture with
behaviours that will drive a differentiated approach
to banking - exceeding customer expectations and
delivering great outcomes.
Prior to the acquisition, we conducted a major
series of surveys and workshops with ANZ and Kina
Bank staff to create deep, strong conversations
and a robust network of change agents. The aim
was to embed our values and purpose and join
together the two businesses coherently. To support
this we refreshed our quarterly awards, aligning
them with our vision, values and behaviours. The
awards recognise the achievements of teams and
individuals who are role models for the business.
We also appointed a Chief Transformation Officer
who has significant experience in culture change
to drive this program forward. The CTO reports
regularly on the progress of the program to a
board committed to providing strong governance
and oversight. We will continue to foster our
people’s strong sense of pride to create a truly
unique culture.
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Kina Securities Limited
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
FASHION DESIGNER TABU WARUPI
Kina Bank SME Customer
Inspired by PNG’s landscape, transformed her
creativity into a global business success story.
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Banking
The acquisition of ANZ PNG’s retail, SME and
Commercial business significantly accelerated our five
year strategic plan. It involved a full-scale 15 month
program building out our retail, commercial and
transactional banking capabilities. This included:
• gaining Visa, MasterCard and China Union
Pay acquiring capability
• becoming a Visa card issuer
• launching an eftpos platform with state of the
art dual SIM card POS terminals for business
customers
• launching a USSD mobile banking platform
branded as Konnect
• enhancing our retail and corporate internet
banking platform
• expanding and enhancing ‘back office’
systems to cater for the expanded business.
Considerable investment was made to ensure our
banking platforms were robust enough to support a
larger bank, with major IT infrastructure upgrades and
two new data centres being put in place.
During this complex project we also maintained our
focus on the growth of our existing business. Foreign
exchange income increased K42m, up 23% compared
to the full year 2018, increasing our overall market
share. Our total loan book grew 26% and our existing
deposit book grew 9%.
Growth of our home loan book was a priority for
our banking teams. Early in the year, we introduced
PNG’s lowest ever standard variable home loan with
a major marketing campaign. As a leading product,
it generated significant growth and prompted other
banks to drop their rates to remain competitive. In Q4
we launched PNG’s first ever fixed rate home loan that
has seen significant demand.
We also re-engineered our home loan application
and approval process. With a new digital capability
we can provide quicker credit decisions and offer
customers a faster, better experience. Our organic
home loan book grew by 44% during 2019, and our
residential investment property loan portfolio doubled
in size. As the second largest retail bank we want to be
competitive and drive market disruption.
Our customer base grew from 20,000 to more than
165,000, with no customer loss during the integration
of the acquired ANZ business with ours. Organic
customer growth was up 17%.
We also signed a five-year Network Extension
Partnership with ANZ. The partnership enables us
to service ANZ’s retained institutional customers at
dedicated counters in some of our regional branches,
where ANZ is no longer represented. Through a tailor
made portal, we are able to offer cash and cheque
deposits, cash withdrawals and bank cheques. This
new revenue stream has already delivered good
results.
Our business banking is known as Business Partners
which reflects our strategy to partner with our clients.
By working closely with our clients and understanding
their business in greater detail as a business partner
we aim to offer solutions that incorporate not only
our loan products but extend to our digital offerings,
payments platforms and broader ecosystem of
services that we are building out progressively with
external parties. The aim is to have more meaningful
and deeper engagement with our clients by offering
a broad spectrum of products and services which
deepen our relationships.
During the year we refined our Business Partner
structure by creating a clear front office and mid office.
This was done in conjunction with integrating the ANZ
PNG acquisition, giving our business a more scalable
platform as we look to catalyze growth across our
larger regional network. Our structure will allow us to
engage greater staff resources as the business grows
in areas of greatest added value. It will also allow us to
create efficiencies as we retain the strong centralisation
of process type activities. This fits with our strategy
of being strongly relationship based in the business
segment.
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Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited CHEF JULZ HENAO
Kina Bank SME Customer
Turned his passion for food
into a leading PNG business.
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Wealth
We continue to be the largest wealth
management business in PNG, with over PGK8
billion of funds under management; the largest
fund administrator, administering accounts on
behalf of almost 800,000 clients whose funds
total K12.55 billion; and the leading stock broking
company.
We continued our strong relationships with the
major PNG superannuation funds and delivered
excellent services and outcomes for the year
ending 31 December 2019.
The Wealth Management business comprises
License Holders, Kina Funds Management Ltd,
Kina Investment and Superannuation Services
Ltd, and Kina Retail Wealth Management. We
provide a range of services including wholesale
funds management retail funds management,
funds administration, custodial services, corporate
advisory and stockbroking.
Funds Management saw growth of 7% to PGK 8b,
a reflection of sold investment returns over the
period as well as ongoing contributions. Clients
achieved impressive return results, relative to
competing funds, despite the ongoing volatility
in markets and subdued domestic economic
conditions.
Funds Administration also recorded growth in
profit by 25% on the back of increased funds
under administration and growth in member
numbers compared to the prior year.
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Kina Securities Limited
Annual Report 2019
We have been providing strong funds
administration services for over 18 years and
quality customer service remains our highest
priority. We have strict measurement and tracking
controls in place to ensure we reach our service
level agreements for all of our clients. We were
delighted to achieve a 98% performance rating
for 2019. This is well above industry standard
results. Our transparent and efficient process
management is an important driver of this
success.
Within our share broking business, our market
share remained above 50%. We established
new service offerings, including a Separately
Management Account and an Outsourced
Treasury Management service. We also diversified
our share broking service to transact for clients
in wholesale fixed interest instruments, as well as
enabling clients to trade on foreign exchanges,
such as the ASX.
These were developed internally by our dedicated
team who are developing a range of skills and
knowledge unique in PNG and of strategic
value. Our funds administration staff were also
accredited by the Association of Superannuation
Funds of Australia.
With the acquisition of ANZ PNG complete, we
now have a strong distribution platform for the
retail component of our wealth management
business to grow. Leveraging this opportunity will
be a medium term priority.
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Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Total Societal Impact
In 2019 we formalised our Total Societal Impact
Strategy which outlines the approach we are
taking to address social and environmental chal-
lenges. The strategy underpins our purpose of
building a successful and positive future for Papua
New Guinea by: helping to create the workforce
of the future; supporting enterprise; and helping
to build a digital PNG.
We delivered on our first strategic objective with
the launch of Project Wok, our key youth develop-
ment initiative, in partnership with a local not-for-
profit charity. Youth unemployment is a pressing
social and economic issue in PNG and our aim
was to help under 30s into employment. The
initiative provided school leavers with face-to-face
training sessions, individual coaching and support
covering a range of subjects on job readiness.
Of those who successfully completed the course
more than half were female.
Our second strategic initiative was our partnership
with MiBank. MiBank is the largest microfinance
institution in the South Pacific and at the forefront
of innovation. With digital and inclusive products,
they empower women and grassroots people to
access its products and services. Working togeth-
er, we are helping to significantly expand financial
inclusion services in PNG, assisting unbanked
Papua New Guineans enter the formal financial
services sector. We’re helping MiBank expand its
existing operations by providing their customers
with access to ATMs and developing an eftpos
network. We also entered into a mutual referral
agreement for micro-SMEs who fall outside each
respective banks’ customer limits. This provides
businesses a systemised and formalised pathway
to access capital from a microfinance institution
and a commercial bank, a first in Papua New
Guinea.
The partnership goals are to provide better ser-
vice for the SME sector and wholesale funding to
support future lending and personal banking ser-
vices. It delivers on our commitment to financial
inclusion and the economic wellbeing of Papua
New Guineans.
Throughout the year, we maintained our commu-
nity support with sponsorships of a wide range
of activities: sporting events and corporate fun
runs promoting health and wellbeing; fundraising
events that support health and education initia-
tives; and technology and innovation conferences
supporting the SME sector and entrepreneurship.
A significant gold sponsorship for us was the
StartUp PNG Convention in Port Moresby – a ma-
jor new conference supporting the SME sector. It
aligns with the Marape-Steven Government’s 2030
vision for MSMEs. Our specialist teams were on
hand at the convention to offer business advice
and banking solutions.
Our inaugural membership with the Business
Coalition for Women continues, supporting
female leaders with specialised training for career
development. We understand the importance
of embracing diversity, specifically in the value
of talent that our employees bring to the work-
place and this is supported by our gender smart
policies. This commitment to maintaining and
promoting a corporate culture that promotes an
equitable and fair workplace is emphasised in our
Diversity Policy.
We also established our Women in Digital
Initiative. A research, innovation and coaching
program, it is led by female staff in technology
and design. They are creating an environment
that will nurture design thinking, through which
entrepreneurs can ideate and test tailor made
solutions to PNG-specific problems. This encour-
ages the participation of more people, especially
women, in the digital economy and is in line with
our vision to be the leading digital bank in Papua
New Guinea.
Our Corporate Governance Statement ensures
that the highest standards of integrity, honesty
and fairness is maintained with all stakehold-
ers. This continues our strong track record and
commitment to acting ethically and responsibly in
everything we do.
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Strategic Direction
In December we finalised our 2025 Strategic Plan:
Building the bank of the future. The plan sets a
five year pathway to becoming PNG’s leading
digital bank. Its theme is strong growth across
the three targeted customer sectors of retail,
commercial and SME. It codifies our continued
focus on digitalisation, partnering to create and
capture more value, and convening a market
place of assets, capabilities and services.
To align with our strategy, we refreshed our vision
to clearly articulate this long-term and sustainable
commitment to our customers, communities
and shareholders. We also refined our company
purpose: Building the bank of the future today
to empower the lives of Papua New Guineans
tomorrow. Our purpose unites our business,
giving our people the direction and clarity
required to deliver on our vision.
The foundation of the strategy is our continued
investment in digital and technology
infrastructure. This investment will enable us
to serve customers better, offer more digital
products and services, engage with partners and
continuously innovate. We are also appointing a
Chief Data Officer whose responsibility will be to
deliver data analytics and business intelligence
that drives innovation.
Future business growth
By leveraging our relationship with the Asian
Development Bank we have significantly
improved our access to the corporate sector. The
ADB’s AAA external credit rating strengthens our
position and will allow us to build the size and
scale of our Foreign Exchange business and trade
finance. We are already seeing new corporate
customers trading FX with us and we will focus on
growing our market share.
We now have the capability to reach new
customers in all major provincial centres through
our national branch network. Customer service
will be a key differentiator for us and we are
embedding a strong service ethos across the
business through a series of service principles.
Our aim is to ensure all of our customers receive
quality service quickly, and that the experience is
consistent across all locations.
We have also appointed a customer advocate,
reporting to the Head of Customer Experience,
whose role will be to oversee the prompt
resolution of complaints, champion the customer
and hold the business to account.
In branch we are introducing a network of
business lenders for quick decisions and a fast
and efficient turnaround; and a concierge service
to encourage customers to use our expanded
suite of self-service options at our new digital
kiosks.
Digital innovation
Our continued investment in digital innovation
will fuel future revenue growth and strengthen
existing revenue. We have a series of projects in
development to improve our service offering to
each of our target sectors.
For merchants, we are investing in new digital
payments solutions. Our market-leading
eftpos service has been extremely popular and
seen significant growth, which we anticipate
to continue further. We see our continued
investment in merchant services as a key platform
for our support of the SME sector.
There is also significant opportunity to
provide greater value-added services to our
superannuation customers. We will look to offer
bespoke products and services and refresh our
online offering. We provide customers with a
consolidated real-time view of the superfund
balances alongside their bank accounts and we’re
the only bank in PNG to offer this single-view. We
will enhance this in the coming months.
Finally, with the addition of our new channels after
the acquisition, such as USSD mobile banking,
eftpos, and Visa Credit and Debit cards, we
expect to see healthy growth in non-interest
revenue.
Kina Securities Limited
Annual Report 2019
19
19
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Board of Directors
20
20
Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Term of office: Director since 13 April
2016 and Chairman since 16 May 2017
Date of next scheduled re-election:
May 2022
Independent: Yes
Current directorships of listed entities
and dates of office: Nil
Other principal directorships: Nil
Other interests: CEO Kumul
Consolidated Holdings Limited, Council
Member St John Ambulance PNG, Chair
of PNG Digital Commerce Association
and Member of PNG APEC Business
Advisory Council
roles in the oil & gas sector, including
Executive Director InterOil Corporation;
President Chevron Geothermal & Power
- Indonesia and Philippines; President of
ChevronTexaco China Energy Company;
Managing Director of Chevron Asia South
Business Unit responsible for exploration
and production in Thailand, Bangladesh,
Cambodia, Myanmar and Vietnam and;
Country Manager for Chevron New
Guinea Limited with responsibility for oil
operations in Papua New Guinea and
Western Australia. Before joining Chevron,
Mr Taureka 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
Other Kina related entities directorships
and dates of office: Kina Bank Limited
(since June 2016)
Kina Board Committee membership:
Disclosure Committee (Chairman)
Skills, experience and expertise:
Isikeli previously held a number of
Directorships of other listed entities
over the last three years and dates of
office: Nil
Term of office: Chief Executive Officer
and Managing Director of Kina Securities
Limited since 1 Januart 2018
Date of next scheduled re-election:
Not applicable
Independent: No
Current directorships of listed entities
and dates of office: Nil
Other principal directorships: Nil
Other interests: Former President
Executive Committee of Australia Papua
New Guinea Business Council
January 2018), Kina Nominees Limited
(since January 2018), Kina Properties
Limited (since January 2018), Kina
Ventures Limited (since January 2018) and
Kina Wealth Management Limited (since
January 2018).
Skills, experience and expertise:
Greg has an extensive knowledge of the
financial services industry in Australia,
New Zealand, South East Asia and the
Pacific. Before his appointment, 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.
Other Kina related entities
directorships and dates of office:
Kina Bank Limited (since January 2018),
Kina Funds Management Limited
(since January 2018), Kina Investment
& Superannuation Services Ltd. (since
Kina Board Committee membership:
Disclosure Committee
Directorships of other listed entities
over the last three years and dates of
office: Nil
Isikeli (Keli) Taureka
Chairman and Independent
Non-Executive Director
BEc (UPNG), GAICD
Greg Pawson
Chief Executive Officer and
Managing Director
MBA and MAICD
21
Board of Directors
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Karen Smith-Pomeroy
Independent Non-Executive Director
ADip Accounting, FIPA,
GAICD and FFin
Jane Thomason
Independent Non-Executive Director
BSW, MPH PhD
Term of office: Director since 12
September 2016
Date of next scheduled re-election:
May 2020
Independent: Yes
Current directorships of listed entities
and dates of office: Director of Ifigen
Energy since 2018
Other principal directorships: Non-
Executive Director of Queensland Treasury
Corporation, Stanwell Corporation
Limited, InFocus Wealth Management
Limited and Chair of National Affordable
Housing Consortium Limited.
Other interests: Nil
Other Kina related entities directorships
and dates of office: Kina Bank Limited
(since September 2016)
Skills, experience and expertise:
Karen is an experienced Non-Executive
Director, with roles spanning a number
of industry sectors. She has many years’
experience as an executive in the financial
services sector in Australia, working in a
major Australian bank and a large regional
bank. Karen spent 5 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.
Kina Board Committee membership:
Audit & Risk Committee (Chair),
Disclosure Committee and Remuneration
and Nomination Committee
Directorships of other listed entities
over the last three years and dates of
office: Nil
Term of office: Director since 27 April
2018
Date of next scheduled re-election:
May 2021
Independent: Yes
Current directorships of listed entities
and dates of office: Nil
Other principal directorships: Director
Fintech Worldwide UK and Australia
Other interests: Jane is an active role
model for women, having educated
mentored many young women, and was
on the steering committee for “Gender
equality in Australia’s aid program - why
and how”, and delivered the keynote
address at its launch at Parliament House.
Jane is also a global thought leader in
digital transformation and blockchain for
social good
Other Kina related entities directorships
and dates of office: Kina Bank Limited
(since April 2018).
Skills, experience and expertise:
Jane is a successful business founder
and values based leader with highly
developed abilities in strategic planning,
communication, facilitation and
influencing. Jane has demonstrated
capacity to work in a multi-sector
global environment, and experienced
in engaging at the highest policy and
political levels. She has 30 years leading
major, complex programs in Asia and
Pacific, including Indonesia, Mongolia,
Philippines, Papua New Guinea, Solomon
Islands, Fiji, Samoa, for a range of
international organisations including
AusAID, USAID, ADB, and World Bank.
Kina Board Committee membership:
Remuneration and Nomination
Committee (Chair)
Directorships of other listed entities
over the last three years and dates of
office: Nil
22
22
Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Term of office: Director since 16 August
2018
Date of next scheduled re-election:
May 2022
Independent: Yes
Current directorships of listed entities
and dates of office: Nil
Other principal directorships: Vice-
President and Director RSPCA (South
Australia), and Chair Business School
Advisory Board, The University of
Adelaide
Other interests: Nil
Other Kina related entities directorships
and dates of office: Kina Bank Limited
(since August 2018).
Skills, experience and expertise: Paul
is currently employed by the University
of Adelaide in the capacity of Executive
Director for the Faculty of Professions
responsible for the provision of strategic,
technical and operational support to
the schools of Business, Economics and
Law. Previously, Paul was the Managing
Director and Chief Executive Officer of
Rural Bank (specialising in the provision
of financial services to the agribusiness
sector), Chief Operating Officer of New
Zealand Post and a variety of senior
appointments with Westpac Banking
Corporation, National Australia Bank and
Bank of New Zealand. Paul has extensive
background in strategy, finance, sales and
distribution, commercial operations and
risk management honed over 30 years
in the financial services sector. He is well
versed in corporate governance practices
having previously been a member of
the Rural Bank Board and other public
companies in Australia and New Zealand
Kina Board Committee membership:
Audit and Risk Committee.
Directorships of other listed entities
over the last three years and dates of
office: Nil
Term of office: Director since 16 August
2018
Date of next scheduled re-election:
May 2022
Independent: Yes
Current directorships of listed entities
and dates of office: Nil
Other principal directorships: Andrew
is a Non-Executive Director of Bluestone
Group, Hay Group, GRC Solutions Pty
Limited and the Human Rights Law Cen-
tre.
Other interests: Andrew is the inau-
gural Ambassador for the International
Centre for Democratic Partnerships, a
private non-profit company expanding
and strengthening leadership capability,
and Australia’s relationships, throughout
the Pacific; and an accredited coach and
facilitator.
Other Kina related entities director-
ships and dates of office: Kina Bank
Limited (since August 2018).
Skills, experience and expertise:
Andrew is an experienced business execu-
tive, highly skilled at operating successful-
ly in regulated environments. Andrew re-
tired from a major Australian bank in July
2017. He spent the period from 2002 until
his retirement in senior risk and executive
roles. He was also Chairman of the bank’s
business in PNG until early 2018. Until
2002, Andrew practiced corporate law in
the public, private and corporate sectors.
Kina Board Committee membership:
Audit and Risk Committee, Disclosure
Committee and Remuneration and Nomi-
nation Committee
Directorships of other listed entities
over the last three years and dates of
office: Nil
Paul Hutchinson
Independent Non-Executive Director
GGMP Harvard Business School and
MAICD
Andrew Carriline
Independent Non-Executive Director
BCom/LLB UNSW, GAICD
Kina Securities Limited
Annual Report 2019
23
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 1
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7
2
5
8
3
6
9
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Kina Securities Limited
Annual Report 2019
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Senior Executive Team
Greg Pawson
Chief Executive Officer/Managing
Director
Greg was appointed CEO in 2018.
Before his appointment, he 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.
Chetan Chopra
Chief Financial Officer
Chetan is a Chartered Accountant
from India and a widely
experienced finance executive.
He was previously CFO of PNG’s
largest superannuation fund,
Nambawan Super.
Deepak Gupta
Executive General Manager of
Business Partners and Wealth
Deepak has had a long and
successful career in financial
services, spanning all facets of
institutional funds management,
private equity investment, funds
administration, financial planning
and corporate trusteeship.
Adam Downie
Executive General Manager of
Personal Banking
Michael Van Dorssen
Chief Risk Officer
Nathanial Wingti
Treasurer and Head of Markets
Adam joined Kina Bank in 2018
to assist with the acquisition of
ANZ’s Retail, SME and Commercial
operations. Prior to joining Kina
Bank, Adam oversaw the retail
strategy of Westpac’s businesses in
Papua New Guinea and Fiji.
Michael joined Kina Bank in 2009.
He has extensive experience in the
banking industry in both Australia
and PNG with a career spanning
more than 30 years. Prior to joining
Kina Bank, he worked for SunCorp
Limited and Westpac Bank PNG.
Nathan joined Kina Bank from
ANZ where he spent 15 years
working on foreign exchange,
money markets and balance sheet
management.
Johnson Kalo
Chief Operating Officer
Ivan Vidovich
Chief Transformation Officer
Johnson was appointed Chief
Operating Officer in September
2019. Johnson has substantial
industry experience in Papua
New Guinea having previously
held the positions of Deputy
Chief Executive Officer and Chief
Financial Officer for BSP.
Ivan joined Kina Bank in 2019 and
is responsible for Group Strategy
and Planning, People and Culture,
Digital Channels, Innovation,
Design, Product and Marketing.
He has 20 years senior leadership
experience in Australia, Asia and
Europe in the financial services and
logistics industries.
Gavin Heard
Group Manager Corporate Affairs
and Investor Relations
Gavin joined Kina Bank in 2018.
With over 15 years’ of experience
as a communications specialist,
his roles include working for the
BBC in cultural and current affairs;
developing crisis planning policy
for the Australian Government in
PNG; and in communications for
Westpac Pacific.
Kina Securities Limited
Annual Report 2019
25
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
Remuneration report
Contents
1
Introduction & Overview to Shareholders
2 Kina’s Key Management Personnel (KMP)
2.1 Remuneration and Nomination Committee
3 Executive remuneration
3.1 Remuneration policy and
governance framework
3.2 Fixed Remuneration (FR)
3.3 Short-term incentive award (STI Award)
Structure of STI Award
3.4 Long term incentive award
Structure of LTI Award
3.5 Retention Plan
3.6 Performance based and
non-performance based components
3.7 External Advisor Services
3.8 Performance Rights holdings
3.9 Employment agreements
4 Non-executive director arrangements
4.1 Remuneration policy
4.2 Remuneration components
Fee pool
Committee fees
4.3 Variable Remuneration
5 Related party transactions
6 Directors’ interests in shares
7 Auditor’s report
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34
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1 Introduction & Overview to Shareholders
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 targeted
operating financial and non-financial results.
The Remuneration Report has not been
prepared in accordance with section 300A of
the Australian Corporations Act 2001 (Cth).
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. No material amendments
have been made to the Company’s incentive plan for the
2019 financial year.
26
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
2 Kina’s Key Management Personnel (KMP)
Kina’s KMP comprise the Directors, the Managing
Director and Chief Executive Officer (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 2019
Non-Executive Director
(section 4 of this Remuneration Report)
Isikeli Taureka
Non-Executive Chairman
Karen Smith-Pomeroy
Non-Executive Director
Jane Thomason
Paul Hutchinson
Andrew Carriline
Non-Executive Director
Non-Executive Director
Non-Executive Director
MD & CEO and Senior Executive Team (direct reports)
Greg Pawson
Chetan Chopra
Adam Downie 1
Deepak Gupta
Michael Van Dorssen
Adam Fenech 2
Wayne Beckley 3
Gavin Heard 4
Johnson Kalo 5
Ivan Vidovich 6
Danny Robinson 7
CEO
Chief Financial Officer and
Company Secretary
Executive General Manager,
Personal Banking
Executive General Manager,
Business Partners and Wealth
Executive General Manager,
Shared Services
Executive General Manager,
Integration
General Manager Corporate
Affairs and Investor Relations
Chief Operating Officer
Chief Transformation Officer
Executive General Manager,
Banking
1. Appointed 6 May 2019
2. Resigned 4 November 2019
3. Resigned 30 December 2019
4. Appointed 23 January 2019
5. Appointed 23 September 2019
6. Appointed 5 August 2019
7. Resigned 3 May 2019
2.1 Remuneration and Nomination Committee
The Remuneration and Nomination Committee (RNC)
assists the Board in the performance of its statutory and
regulatory duties by:
• formulating advice to the Board on the remuneration
of the CEO, Senior Executive Team and employees
holding Responsible Person positions (as defined in
accordance with Banking Prudential Standard BPS310
Corporate Governance – Fit and Proper Requirements,
issued by the Bank of Papua New Guinea (BPNG);
• providing an objective, non-executive review of the
effectiveness of Kina’s remuneration 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 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 at http://investors.kinabank.
com.pg/investors/?page=corporate-governance) for
more information regarding the RNC.
The RNC regularly reviews the following to align
remuneration, performance and strategy:
• the structure and quantum of the remuneration of the
CEO, members of the Senior Executive 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,
3 Executive remuneration
3.1 Remuneration policy and governance framework
The RNC reviews and determines Kina’s remuneration
policy and structure annually, for approval by the Board,
to ensure it remains aligned to the Company’s business
needs, and meets its remuneration principles. From time
to time, the RNC also engages external remuneration
consultants to assist with this review. In particular, the
Board aims to ensure that Kina’s 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.
27
Chief Risk Officer
• Kina’s remuneration policy;
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
Remuneration report
Under the Company’s Securities Trading Policy, Relevant Persons (which includes all directors and officers of Kina
(CEO, CFO and Company Secretary) and all direct reports of the CEO), are prohibited from entering into any hedging
arrangements that limit the economic risk of holding Kina securities under Kina equity plans. This helps align the
interests of directors, the Senior Executives Team and shareholders.
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 Executive Team should comprise the following components:
Fixed remuneration
Total fixed remuneration comprises base salary, other non-cash benefits and includes
superannuation.
STI Award
The short term incentive award (STI Award) provides participants with an opportunity
to earn an incentive calculated as a percentage of their salary each year, conditional
upon achievement of individual key performance indicators (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 (STI
Performance Rights) will be issued under Kina’s Performance Rights Plan (Plan) in one
tranche and will remain payable even following resignation.
The Board has the right to vary the STI Award.
A long term incentive award (LTI Award) that provides an opportunity for employees
to receive an equity interest in Kina through the granting of Performance Rights (LTI
Performance Rights) under the Plan,
Under the LTI Award, LTI Participants may be offered LTI Performance Rights that are
subject to vesting conditions set by the Board.
The Board has the right to vary the LTI Award.
A one-off equity based performance rights plan that was utilised at the time of the
Company’s listing on ASX and PNGX in July 2015, to assist in the retention and reward of
key eligible employees at that time.
The Kina Board has discretion as to whether the Retention Plan will continue and apply to
other KMP..
LTI Award
Retention Plan
3.2 Fixed Remuneration (FR)
The Senior Executive Team 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 RNC
aims to recommend to the Board, a remuneration package that would position the Senior Executive Team at or
near the median for corresponding roles, with flexibility to take into account capability, experience, and value to the
organisation and performance of the individual.
28
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 3.3 Short-term incentive award (STI Award)
Structure of STI Award
FEATURES
Eligibility
DESCRIPTION
The CEO and Senior Executive Team are eligible to participate in the STI Award (STI
Participants).
STI Award components
Cash bonus: 65% of the STI Participant’s STI Award.
Performance measures
STI Performance Rights: 35% of the STI Participant’s Award.
Individual KPIs specific to each STI 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 Award is payable unless a minimum Group Net Profit After Tax (NPAT) is achieved.
The Board has the right to vary this requirement.
The Board allocates an annual pool to the STI Award each year. There are levels of targeted
performance for allocation of the pool for 2019:
Calculation of STI
Performance Rights
Vesting of STI
Performance Rights
Minimum (85% of budget)
Threshold (85% - 100% budget): 50%
Target (Budget 100%) 90%
Stretch (100+ to 110%+) 100%
Stretch (120%+) up to 120%
The pool is then allocated in accordance with the maximum and target STI Award for each
KMP (which is detailed later) as a percentage of Gross pay.
The Board has the right to vary the STI 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 (VWAP).
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
Date Granted
Vesting date
FY ended 31 December 2016 17 February 2017
17 February 2019
FY ended 31 December 2017 1 April 2018
FY ended 31 December 2018 1 April 2019
FY ended 31 December 2019 1 April 2020
1 April 2020
1 April 2021
1 April 2022
Forfeiture of STI
Performance Rights
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 and grants
Payments of the cash component under the STI Award will be made in April of each year
after the release of full year financial results to the ASX and PNGX (formerly POMSoX).
Target STI and maximum
STI that can be awarded
CEO
CFO
Target
Maximum
100% of base salary
150% of base salary
40% of base salary
50% of base salary
Other Senior Executives
30% of base salary
45% of base salary
29
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
Remuneration report
3.4 Long term incentive award
The CEO and the Senior Executive Team participate, at the Board’s discretion, in the LTI Award comprising annual
grants of Performance Rights. Further details are shown in the table below:
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 Award will be delivered as performance rights (LTI 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
Since 2016, the LTI 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%
>5% and < 10%
10%
50% vesting
Pro rata between 50% - 100%
100% vesting
The Board worked with an independent advisor to identify the comparator group companies
and the advisor calculates the vesting schedule.
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 (VWAP).
Vesting and exercise of LTI
Performance Rights
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:
30
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Financial Year
Date Granted
Performance
Period
Measures
2015
25/03/2016
2015 Year
performance
Achieving profit
of PGK 5.7m
2016
17/02/2017
01/04/2017 to
31/03/2020
2017
01/04/2018
01/04/2018 to
31/03/2021
2018
01/04/2019
01/04/2019 to
31/03/2022
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%
EPS assessment
compound till FY
2021 - 50%
Relative TSR
assessment
compounded to
FY 2021 - 50%
Vesting date
(subject to
performance
testing)
25/03/2019
01/04/2020
01/04/2021
01/04/2022
Forfeiture of LTI
Performance Rights
2019
01/04/2020
01/04/2020 to
31/03/2023
Unvested LTI Performance Rights may be forfeited:
01/04/2021
01/04/2023
Relative TSR
assessment
compounded to
FY 2021 - 50%
• 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).
31
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
Remuneration report
3.4 Long term incentive award (continued)
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 Executive Team
Members
Target
50%
40%
30%
Maximum
50%
40%
30%
Calculation of Fair Value of
LTI Performance Rights
Fair value of the LTI performance rights subject to TSR and EPS vesting conditions for
financial reporting purposes is generally estimated based on Kina’s ASX market share
price at grant date and using a simulation pricing model applying the assumptions of price
volatility, risk free interest rates and dividend yields. Kina engages an independent valuation
expert who performs the fair value calculations on the grants based on the valuation
methodologies referenced above and below.
TSR:
A Monte Carlo simulation approach is used to value the LTI Awards subject to the relative
TSR performance condition as it incorporates an appropriate amount of flexibility with
respect to different features of the award. This approach is assumed to follow Geometric
Brownian motion under a risk-neutral measure as follows;
• simulates correlations between Kina’s proxy and other peer companies as well as
correlations between other companies in the group;
• ranks simulated performances and the proportion of relative TSR award vested as
calculated based on vesting schedule; and
• record present value of TSR-hurdle award vested
The above process is repeated multiple times and the estimated fair value is the average of
the results.
EPS:
Fair value of awards subject to EPS is calculated using a risk-neutral assumption. The fair
value is the difference between the share prices of the underlying asset, minus the expected
present value of future dividends over the expected life if holders of the underlying asset
are not entitled to receive future dividends. The fair value of the awards subject to EPS
performance condition will be equal to the share price of the underlying asset if holders are
entitled to receive future dividends.
32
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 3.5 Retention Plan
FEATURES
Eligibility
Retention Plan
Vesting conditions
Calculation of
Performance Rights
Forfeiture of Retention
Plan Performance Rights
DESCRIPTION
The Board determines the Participants eligible for participation in the Retention Plan also
taking into account any recommendation made by the RNC.
The Retention Plan was a once off award of performance rights (Retention Performance
Rights) at the time of listing on ASX and PNGX in July 2015, to assist in the retention and
reward of key eligible participants at that time.
Vesting of the Retention Performance Rights is subject to a service condition wherein
Retention Performance Rights only vest upon successful completion of a service period as
determined by the Board at the time of grant.
During 2019, there were no awards of any Retention Performance Rights.
During 2018, $300,000 worth of ‘Commencement’ performance rights equalling 402,685
Retention Performance Rights were granted to the CEO, and approved by shareholders at
the 2018 Annual General Meeting on 23 May 2018, vesting in equal instalments over 3 years
as follows;
• 134,229 vested on 4 December 2018;
• 134,229 vested on 4 December 2019; and
• 134,227 will vest on 4 December 2020
Unvested Retention Performance Rights may be forfeited:
• If the Board determines that any vesting condition applicable to the Retention
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).
Lapse of Retention
Performance Rights
Unless otherwise specified in the vesting conditions or otherwise determined by the Board, a
Retention Performance Right lapses on the earliest of:
• If the Board determines that any vesting condition applicable to the Retention
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 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); or
• If the participant purports to deal in the Retention Performance Right in breach of any
Timing of grants
disposal or hedging restrictions in respect of the Performance Rights.
Grants of Retention Performance Rights only apply to new hires (as a one off).
33
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
Remuneration report
3.6 Performance based and non-performance based components
All STI and LTI elements of the remuneration of the KMP are performance based.
Participant
Greg Pawson
Chetan Chopra
Michael van Dorssen
Deepak Gupta
Nathan Wingti
Gavin Heard*
Adam Downie*
Ivan Vidovich*
Johnson Kalo*
Wayne Beckley*
Adam Fenech*
Danny Robinson*
Cash salary/fees/short-term
compensated absences
Non-monetary benefits
591,300
400,000
400,000
350,000
225,270
206,740
197,260
153,082
89,772
349,041
232,055
117,945
186,606
169,567
161,048
169,567
122,875
28,290
89,816
21,903
7,294
137,222
26,267
42,787
Total
777,906
569,567
561,048
519,567
348,145
235,030
287,076
174,985
97,066
486,263
258,322
160,732
* Pro-rata based on start and exit dates
3.7 External Advisor Services
The Kina Performance Rights 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.
34
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 3.8 Performance Rights holdings
The table below sets out the current holdings of Performance Rights (PR) by KMP:
First Name Last Name
Award Year
Grant Date Vesting
date
VWAP
Period
VWAP $
applied
PR
31/12/19
Value
of PR
Granted
(AUD)
GREGORY
PAWSON
RET
CHETAN
CHOPRA
MICHAEL
VAN
DORSSEN
DEEPAK
GUPTA
NATHAN WINGTI
WAYNE
BECKLEY
STI
LTI
STI
LTI
LTI
STI
LTI
LTI
STI
LTI
LTI
STI
LTI
STI
LTI
DANNY
ROBINSON STI
TONY
SYD
DE LA
FOSSE
YATES
KONG
WONG
LTI
LTI
LTI
STI
LTI
LTI
2017
2018
2018
2018
2017
2018
2018
2017
2018
2018
2017
2018
2018
2018
2018
2018
2018
2017
2018
2017
2016
2016
2015
3/07/2018
4/12/2020
200,000
29/12/2017
0.745
1/04/2019
1/04/2021
206,949
31/12/2018
0.9072
1/04/2019
1/04/2022
295,641
31/12/2018
0.9072
134,227
228,118
325,883
1/04/2019
1/04/2021
40,250
31/12/2018
0.9072
44,367
16/02/2018
1/04/2021
122,000
31/12/2017
0.6980
1/04/2019
1/04/2022
144,000
31/12/2018
0.9072
174,785
158,730
1/04/2019
1/04/2021
35,000
31/12/2018
0.9072
38,580
16/02/2018
1/04/2021
107,883
31/12/2017
0.6980
154,560
1/04/2019
1/04/2022
107,882
31/12/2018
0.9072
118,918
1/04/2019
1/04/2021
21,000
31/12/2018
0.9072
23,148
16/02/2018
1/04/2021
91,500
31/12/2017
0.6980
1/04/2019
1/04/2022
91,499
31/12/2018
0.9072
1/04/2019
1/04/2021
26,250
31/12/2018
0.9072
1/04/2019
1/04/2022
48,000
31/12/2018
0.9072
1/04/2019
1/04/2021
52,500
31/12/2018
0.9072
131,089
100,859
28,935
52,910
57,870
1/04/2019
1/04/2022
104,999
31/12/2018
0.9072
115,740
1/04/2019
1/04/2021
17,500
31/12/2018
0.9072
19,290
16/02/2018
1/04/2021
96,000
31/12/2017
0.6980
137,536
1/04/2019
1/04/2022
96,000
31/12/2018
0.9072
105,820
16/02/2018
1/04/2021
72,000
31/12/2017
0.6980
103,152
6/06/2017
6/06/2019
30,752
31/12/2017
1.065
6/06/2017
1/04/2020
200,000
31/12/2017
1.065
25/03/2016
23/03/2018 73,710
25/03/2016
0.910
28,875
45,498
81,000
Subsequent to, and in relation to, the year-ended 31 December 2019 (FY2019 Awards), the Board approved the
following STI and LTI Awards for eligible participants. The STI Performance Rights and LTI Performance Rights
components of the FY2019 Awards are subject to shareholder approval at the 2020 AGM to be held on 19 May 2020:
35
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
3.8 Performance Rights holdings (continued)
First Name Last Name
Greg
Pawson
Chetan
Chopra
Plan
Name
STIP
LTIP
STIP
LTIP
Michael
Van Dorssen STIP
Deepak
Gupta
Nathan
Wingti
Adam
Downie
Gavin
Heard
Ivan
Vidovich
LTIP
STIP
LTIP
STIP
LTIP
STIP
LTIP
STIP
LTIP
STIP
LTIP
Year
Grant Date Vesting
Date
Value
of PR
Granted
(AUD)
VWAP
period
VWAP $
applied
FY2019 PR
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
2019
1/04/2020
1/04/2022
269,042
31/12/2019
1.430
1/04/2020
1/04/2023
295,650
31/12/2019
1.430
1/04/2020
1/04/2022
70,000
31/12/2019
1.430
1/04/2020
1/04/2023
160,000
31/12/2019
1.430
1/04/2020
1/04/2022
42,000
31/12/2019
1.430
1/04/2020
1/04/2023
120,000
31/12/2019
1.430
1/04/2020
1/04/2022
43,750
31/12/2019
1.430
1/04/2020
1/04/2023
105,000
31/12/2019
1.430
1/04/2020
1/04/2022
49,000
31/12/2019
1.430
1/04/2020
1/04/2023
48,000
31/12/2019
1.430
1/04/2020
1/04/2022
42,000
31/12/2019
1.430
1/04/2020
1/04/2023
90,000
31/12/2019
1.430
1/04/2020
1/04/2022
23,100
31/12/2019
1.430
1/04/2020
1/04/2023
66,000
31/12/2019
1.430
1/04/2020
1/04/2022
38,500
31/12/2019
1.430
188,141
206,748
48,951
111,888
29,371
83,916
30,594
73,427
34,266
33,566
29,371
62,937
16,154
46,154
26,923
1/04/2020
1/04/2023
-
31/12/2019
1.430
-
3.9 Employment agreements
KMP Contracts
• All Senior Executive Team Members’ Employment Contracts are over a period of 3 years with a notice period of 3
months.
CEO employment agreement
The CEO’s Employment Agreement 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.
Remuneration of employees
During the year, the number of employees or former employees (not being directors of the Company), receiving
remuneration in excess of PGK100,000 per annum from the Group stated in bands of PGK10,000 were as follows:
In PGK
1,460,000 - 1,470,000
1,440,000 - 1,450,000
980,000 - 990,000
970,000 - 980,000
36
2019
-
1*
-
2
2018
1
-
1
-
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
In PGK
890,000 - 900,000
860,000 - 870,000
850,000 - 860,000
750,000 - 760,000
680,000 - 690,000
640,000 - 650,000
610,000 - 620,000
570,000 - 580,000
560,000 - 570,000
550,000 - 560,000
500,000 - 510,000
490,000 - 500,000
480,000 - 490,000
450,000 - 460,000
440,000 - 450,000
430,000 - 440,000
420,000 - 430,000
390,000 - 400,000
380,000 - 390,000
370,000 - 380,000
360,000 - 370,000
350,000 - 360,000
330,000 - 340,000
320,000 - 330,000
310,000 - 320,000
300,000 - 310,000
290,000 - 300,000
280,000 - 290,000
260,000 - 270,000
250,000 - 260,000
240,000 - 250,000
210,000 - 220,000
200,000 - 210,000
190,000 - 200,000
180,000 - 190,000
170,000 - 180,000
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
*Impact of foreign exchange conversion.
2019
-
-
2
-
-
1
-
1
1
1
2
-
4
1
-
3
1
-
2
1
2
1
1
1
2
4
-
2
-
1
-
2
3
2
4
4
3
6
7
9
4
4
8
2018
1
2
-
1
1
-
1
-
-
-
-
3
-
-
2
2
1
1
1
2
1
1
-
2
-
2
3
2
1
-
2
-
-
3
5
1
2
2
6
9
2
5
9
37
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
Remuneration report
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 as shown in
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 2017, 2018 and 2019, and no
increases were applied.
4.2 Remuneration components
Kina’s Board and Committee fee structure during the financial year ended 31 December 2019 was:
Board fees
Chairman
Non-executive Director/committee
member
Board
$135,000 (plus any superannuation entitlements) $75,000 (plus any superannuation
entitlements)
Committee fees
Audit and Risk 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
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
No additional fees are paid
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 ended 31 December 2019, this has been fixed at $1.28 million per annum
(no change from prior year, and that amount set out in the Company’s Listing Prospectus). Any increase in the total
amount payable by the Company to the Non-Executive Directors as remuneration for services must be approved by
shareholders 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.
Committee fees
The Committee Chair fees are not duplicated for those Directors who are appointed to Chair f 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.
38
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 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 meetings of Kina shareholders, or otherwise in connection with the business or affairs of
the 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.
5 Related party transactions
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
Isikeli Taureka
Greg Pawson
Andrew Carriline
Paul Hutchinson
Karen Smith-Pomeroy
Jane Thomason
Number of Shares
Shareholding as at the date of this
Remuneration Report (%)
30,000 1
268,458 2
100,000 3
50,000 4
60,000 5
20,000 6
0.02%
0.15%
0.06%
0.03%
0.03%
0.01%
7 Auditor’s report
Kina is not required to have this Remuneration Report audited. This Remuneration Report is prepared as a voluntary
disclosure and will not be put to shareholders for approval at the 2020 AGM. The expected level of disclosure of an
Australian incorporated company has been provided through this Remuneration Report.
1. 30,000 shares held directly.
2. 268,458 shares held directly. At the time of this remuneration report, Greg Pawson holds 134,227 performance rights due to vest on the anniversary of
his start date in 2020 as part of his retention incentive. During 2018, Greg Pawson was awarded a total of 228,118 STI performance rights due to vest
on 1 April 2021 and 325,883 LTI performance rights due to vest on 1 April 2022. The STI and LTI performance rights relate to the financial year 2018
performance and are subject to vesting conditions as set by the Board. Subsequent to the year ended 31 December 2019, Greg Pawson was awarded
a total of 188,141 STI performance rights due to vest on 1 April 2022 and 206,748 LTI performance rights due to vest on 1 April 2023. The STI and LTI
performance rights relate to the financial year 2019 performance and are subject to vesting conditions as set by the Board.
3. 100,000 shares held by Maajic Tees Pty Ltd ATF Maajic Super Fund. Andrew Carriline is a Director of Maajic Tees Pty Ltd.
4. 50,000 shares held directly.
5. 60,000 shares held by The Pomeroy Family Superannuation Fund. Karen Smith-Pomeroy is a beneficiary of the Pomeroy Family Superannuation Fund.
6. 20,000 shares held by Jane Thomason Investments Pty Ltd. Jane Thomason is a director of Jane Thomason Investments Pty Ltd.
39
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Directors’ Report
Directors’ report
Dividends
The Directors of Kina Securities Limited and its Subsidiaries
(“the Group”) submit herewith the annual financial report
of the Company and its Subsidiaries for the year ended 31
December 2019.
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.
The Company paid dividend of AUD 5.0 cents (PGK 12.1
toea) per share (K19.9m) in April 2019 in relation to the profit
for the half year ended 31 December 2018. In September
2019 the Company also paid dividend of AUD 4.0 cents (PGK
10.0 toea) per share (K16.4m) in relation to the profit for the
half year ended 30 June 2019.
After balance sheet date events
Subsequent to balance sheet date, the directors declared
a final dividend of AUD 6.4 cents (PGK 15.5 toea) per share
(K27.0m) on net profit declared for the second half of
financial year 2019.
See also note 38 for other subsequent events.
Donations
During the year the Group made donations totalling K26,336
(2018: K12,520)
Operating results and review of operations
Auditor’s fees
The net profit attributable to equity holders for the year for
the Group was K60.9 million compared with K48.1 million in
2018.
Fees paid to the auditor during the year for professional
services are shown in note 36 to the accounts. The external
auditor is Deloitte Touche Tohmatsu Ltd.
The profit includes the following items:
• Net interest income of K114.6 million, compared with
K87.6 million in the prior year to 31 December 2018.
• Net fee and commission income of K47.8 million
compared with K36.4 million in the prior year.
• Operating income before impairment losses and other
operating income of K205.6 million, up from K161.7 million
in the prior year.
• Expected credit losses on financial instruments at
amortised cost of K5.6 million, compared with K5.1 million
in the prior year.
• Other operating expenses of K117.2 million, compared
with K87.4 million in the prior period.
40
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Remuneration Report
Directors remuneration
Directors fees paid during the year was as follows:
Directors
I. Taureka
K. Smith- Pomeroy
J. Thomason (appointed 23 May 2018)
P. Hutchinson (appointed 16 August 2018)
A. Carriline (appointed 16 August 2018)
D. Foster (resigned 23 May 2018)
J. Yap (resigned 16 August 2018)
Managing Director
G. Pawson (appointed 2 January 2018)
Salaries
Other benefits including leave entitlements
2019
K’000
362
240
238
195
207
-
-
1,242
1,444**
454
1,898
3,140
2018
K’000
577*
230
129
76
78
103
146
1,339
1,495
443
1,938
3,277
* A total of K187,717 was paid as a result of previous years’ director fee underpayment.
**Impact of foreign exchange conversion.
Signed at Port Moresby on behalf of the board on 30 March 2020.
Mr. Isikeli Taureka
Director
Mr. Greg Pawson
Director
41
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
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
PNG 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 2019
Signed in accordance with a resolution of the directors.
On behalf of the Directors
_______________________
Mr. Isikeli Taureka
Director
Port Moresby, 30 March 2020
_______________________
Mr. Greg Pawson
Director
Port Moresby, 30 March 2020
42
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Independent auditor’s report
43
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte Network. Deloitte Touche Tohmatsu Deloitte Haus, Level 9 MacGregor Street Port Moresby PO Box 1275 Port Moresby National Capital District Papua New Guinea Tel: +675 308 7000 Fax: +675 308 7001 www.deloitte.com/pg Deloitte Touche Tohmatsu ABN 74 490 121 060 Level 23, Riverside Centre 123 Eagle Street Brisbane, QLD, 4000 Australia Phone: +61 7 3308 7000 www.deloitte.com.au Independent Auditor’s Report to the shareholders of Kina Securities Limited Report on the Audit of the Consolidated Financial Statements Opinion We have audited the accompanying consolidated financial statements of Kina Securities Limited (the “Company”) and its subsidiaries (the “Group”) which comprises the consolidated statement of financial position as at 31 December 2019, the consolidated statement of comprehensive income, the consolidated statement of changes in equity and the consolidated statement of cash flows for the year then ended, and notes to the consolidated financial statements, including a summary of significant accounting policies and other explanatory information and directors’ declaration. In our opinion, the accompanying consolidated financial statements, give a true and fair view of the Group’s and the Company’s consolidated financial position as at 31 December 2019 and of their consolidated financial performance and consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act 1997 (amended 2014). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (IASs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code) that are relevant to our audit of the financial statements. We have fulfilled our other ethical responsibilities in accordance with these requirements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements for the current period. These matters were addressed in the context of our audit of the consolidated financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. Independent auditor’s report
44
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 2 Key Audit Matter How the scope of our audit responded to the Key Audit Matter Business combination As disclosed in note 31 to the consolidated financial statements, during the year ended 31 December 2019, the Group entered into Sale and Purchase Agreement (the “Agreement”) with Australia and New Zealand Banking Group (PNG) Limited (the “acquiree”) to acquire the retail and commercial banking business of the acquiree based in Papua New Guinea. Under the terms of the Agreement, the Group acquired assets and liabilities related to the acquired business including loans and advances, customer deposits, fixed assets, cash at branches and other assets and liabilities for a total purchase consideration of K24.2m. The transaction has been accounted for in accordance with IFRS 3 Business Combination using acquisition method of accounting whereby acquired assets and liabilities including other identifiable intangible assets have been recognised at fair value. Significant judgement is required by management due to the completeness and valuation of separately identifiable intangible assets recognised upon acquisition and the key assumptions underpinning the fair valuation of acquired assets and liabilities. In conjunction with our valuation and financial reporting specialists our procedures included, but were not limited to: - Obtaining an understanding of the Agreement and reviewing Group’s assessment of the application of IFRS 3 to the transaction; - Assessing management’s methodology in determining the identifiable assets acquired and liabilities assumed, the fair value of the consideration transferred, and fair valuation of assets and liabilities acquired; and - Engaging valuation specialists to assist in assessing key valuation assumptions; and We also assessed the appropriateness of the disclosures in note 31 to the consolidated financial statements. Impairment of loans and advances As at 31 December 2019 the Group has recognised provisions amounting to K20.5m for impairment losses on loans and advances held at amortised cost in accordance with the Expected Credit Loss (ECL) model as disclosed in Note 3. Loans and advances subject to provisioning using the ECL model include the residential lending portfolio, personal loan portfolio and loan commitments. Significant judgement was involved in determining the provision for credit impairment (including the timing of recognition and the amount of the provision). Key areas of the judgement include: - The application of the requirements to determine impairment under IFRS 9 Our procedures in conjunction with our credit specialists included, but were not limited to: Control design, observation and operation: We tested the design and operation of manual and automated controls over the impairment provision including: - The accuracy of data input into the system used for credit grading and the approval of credit facilities; and - The ongoing monitoring and identification of loans displaying indicators of impairment and whether they are migrating on timely basis to appropriate risk grading buckets including generation of days past due reports. Assessing model adequacy: We assessed the appropriateness of management’s internally developed model in determining the impairment loss provision by: Key Audit Matter
-
Financial Instruments, which is reflected
in the Company’s and the Group’s
expected credit loss model;
Identification of exposures with a
significant movement in credit quality to
determine whether 12-month or lifetime
expected
should be
recognised;
credit
loss
of
- Assumptions used in the expected credit
the
financial
loss model such as
condition
counterparty,
the
repayment capacity and forward-looking
macroeconomic factors as disclosed in
Note 3; and
Incorporation
forward-looking
information to reflect current or future
external factors.
of
-
Impairment of non current assets
As at 31 December 2019 the Group has
recognised goodwill amounting to K92.7m,
arising from the acquisitions of Maybank
(PNG) Limited and Maybank Property (PNG)
in Note 37.
Limited
as disclosed
In accordance with IAS 36 Impairment of
Assets Cash Generating Units (CGUs)
including goodwill must be tested
for
impairment at least annually.
The impairment test requires significant
judgement due to assumptions required in
preparing a discounted cash flow model
(‘value in use’), including:
-
-
Identification of appropriate CGUs to
which goodwill is allocated for the
purpose of impairment testing;
Future cash flows for the Cash
Generating Unit (‘CGU’);
- Discount rates; and
-
Terminal value growth rates.
How the scope of our audit responded to the
Key Audit Matter
- Assessing whether the model adequately
addresses the requirements of IFRS 9;
- Assessing on a sample basis, the individual
exposures to determine if they are classified
into appropriate credit risk grades and aging
buckets
for the purpose of determining
impairment loss provision;
- Assessing reasonableness of the loss rates
applicable to risk grade and aging buckets; and
- Assessing adequacy of management overlays
to
the modelled collective provision by
recalculating the coverage provided by the
collective
impairment provision (including
overlays) to loan book, taking into account
recent history, performance and de-risking of
the relevant portfolios
We also assessed appropriateness of
the
disclosures in Note 3 to the consolidated financial
statements.
In conjunction with our valuation specialists, our
procedures included, but were not limited to:
-
the
appropriateness
Evaluating
of
management’s identification of the Group’s
CGUs and testing of key controls over the
impairment assessment process, including the
identification of indicators of impairment;
- Assessing the reasonableness of cash flow
projections and growth rates against external
economic and financial data, the Group’s own
historical
historical
forecasting reasonableness;
the
- Assessing
performance
assumptions
and
key
methodology used by management
in
impairment model, in particular the weighted
average cost of capital, the cost of debt and the
terminal growth rate;
Evaluating
determined by management against
Company’s market capitalisation; and
Testing the mathematical accuracy of the
impairment model.
in use estimate
the
the value
-
-
and
We also assessed the appropriateness of the
disclosures in Note 37 to the consolidated financial
statements.
Other Information
The directors are responsible for the other information. The other information comprises the
Directors’ Report (but does not include the consolidated 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 made available after that date.
Our opinion on the consolidated financial statements does not cover the other information and we
do not and will not express any form of assurance conclusion thereon.
3
45
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
Independent auditor’s report
In connection with our audit of the consolidated 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 consolidated 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 the directors and use our professional judgement to
determine the appropriate action.
Responsibilities of the Directors for the Consolidated Financial Statements
The directors of the Company are responsible for the preparation of the consolidated financial
statements that gives a true and fair view in accordance with International Financial Reporting
Standards and the Companies Act 1997 (amended 2014) and for such internal control as the
directors determine is necessary to enable the preparation of the consolidated financial statements
that gives a true and fair view and is free from material misstatement, whether due to fraud or error.
In preparing the consolidated 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 has no realistic alternative but to do so.
Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements
Our objectives are to obtain reasonable assurance about whether the consolidated financial
statements as a whole is 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 International Standards on Auditing 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 this consolidated 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 consolidated financial
statements, whether due to fraud or error, design and perform audit procedures responsive
to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis
for our opinion. The risk of not detecting a material misstatement resulting from fraud is
higher than for one resulting from error, as fraud may involve collusion, forgery, intentional
omissions, misrepresentations, or the override of internal control.
• Obtain an understanding of internal control relevant to the audit in order to design audit
procedures that are appropriate in the circumstances, but not for the purpose of expressing
an opinion on the effectiveness of the Group’s internal controls.
•
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
consolidated financial statements or, if such disclosures are inadequate, to modify our
opinion. Our conclusions are based on the audit evidence obtained up to the date of our
4
46
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
auditor’s report. However, future events or conditions may cause the Group to cease to
continue as a going concern.
•
Evaluate the overall presentation, structure and content of the consolidated financial
statements, including the disclosures, and whether the consolidated financial statements
represents the underlying transactions and events in a manner that achieves fair
presentation.
• Obtain sufficient appropriate audit evidence regarding the financial information of the
entities or business activities within the Group to express an opinion on the consolidated
financial statements. We are responsible for the direction, supervision and performance of
the Group’s audit. We remain solely responsible for our audit opinion.
We communicate with the directors regarding, among other matters, the planned scope and timing
of the audit and significant audit findings, including any significant deficiencies in internal control
that we identify during our audit.
We are independent of the Group in accordance with the auditor independence requirements of the
International Ethics Standards Board for Accountants (IESBA) Code of Ethics for Professional
Accountants (the Code) that are relevant to our audit of the consolidated financial statements. We
have also fulfilled our other ethical responsibilities in accordance with the Code.
We also provide the directors with a statement that we have complied with relevant ethical
requirements regarding independence, and to communicate with them all relationships and other
matters that may reasonably be thought to bear on our independence, and where applicable, related
safeguards.
From the matters communicated with the directors, we determine those matters that were of most
significance in the audit of the consolidated financial statements of the current period and are
therefore the key audit matters. We describe these matters in our auditor’s report unless law or
regulation precludes public disclosure about the matter or when, in extremely rare circumstances,
we determine that a matter should not be communicated in our report because the adverse
consequences of doing so would reasonably be expected to outweigh the public interest benefits of
such communication.
Report on Other Legal and Regulatory Requirements
In accordance with section 200 of the Companies Act 1997 (amended 2014), in our opinion:
(i) We obtained all information and explanations that were required; and
(ii) Proper accounting records have been kept by the Group for the year ended 31 December
2019.
We have no interest in the Group or any other relationship, other than that of the auditor of the
Group.
The engagement partners on the audit resulting in this independent auditor’s report are Benjamin
Lee and David Rodgers.
DELOITTE TOUCHE TOHMATSU
DELOITTE TOUCHE TOHMATSU
Benjamin Lee
Partner
Chartered Accountants
Registered under Accountants Act 1996
David Rodgers
Partner
Chartered Accountants
Registered Company Auditor in Australia
Port Moresby, 30 March 2020
Brisbane, 30 March 2020
5
47
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Statements of Comprehensive Income
For the year ended 31 December 2019
CONSOLIDATED
2019
K ’000
2018
K ‘000
2019
K ‘000
PARENT
2018
K ‘000
Interest income
Interest expense
Net interest income/(expense)
Fee and commission income
Fee and commission expense
Net fee and commission income
Foreign exchange income/(expense)
Dividend income
Net gains /(losses) from financial assets at fair value through profit
and loss
Other income
Operating income before impairment losses and other operating
expenses
Expected credit losses on financial instruments at amortised cost
Other operating expenses
Profit before tax
Income tax expense
Net profit for the year attributable to the equity holders of the
Company
Other comprehensive income
Total comprehensive income for the year attributable to the
equity holders of the Company
5
5
6
6
146,482
112,808
31
(31,901)
(25,232)
(3,492)
114,581
47,878
(93)
47,785
41,956
87,576
36,401
(3,461)
879
(50)
(82)
36,351
797
34,201
(88)
7
357
327
40,004
153
106
(8)
42
(3,829)
(3,787)
865
(35)
830
(283)
12
25
15
8
734
205,566
3
9
(5,646)
(117,227)
3,089
161,650
(5,070)
(87,377)
49,919
87,163
40,397
37,194
-
-
(45,675)
(33,240)
82,693
69,203
41,488
10
(21,822)
(21,110)
945
60,871
48,093
42,433
-
-
-
3,954
(1,051)
2,903
-
60,871
48,093
42,433
2,903
Earnings per share – basic (toea)
Earnings per share – diluted (toea)
27 b
27 b
2019
35.94
35.74
2018
29.33
28.87
The notes on pages 52 to 109 are an integral part of these consolidated financial statements.
48
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Statements of Financial Position
As at 31 December 2019
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
Due to subsidiaries
Employee provisions
Lease Liabilities
Other liabilities
12
13
14
15
16
17
29
23
11
18
19
37
20
21
22
23
29
24
25
26
CONSOLIDATED
2019
K ‘000
269,702
722,090
249,713
7,635
2018
K ‘000
85,638
396,154
137,494
4,907
1,401,433
851,663
34,003
34,195
-
810
10,491
-
96,922
92,786
49,247
62,703
-
-
7,193
-
12,108
92,786
26,432
13,424
2019
K ‘000
PARENT
2018
K ‘000
43,837
12,885
-
-
339
-
-
-
-
347
7
-
351,096
351,096
317
3,226
248
16,644
-
6,532
1,216
-
787
248
6,929
-
5,794
1,544
2,997,535
1,661,994
423,455
379,637
22
25,065
2,460,967
1,315,460
4,506
-
9,068
54,958
140,738
8,154
6,251
-
37,795
2,670,259
1,392,725
-
167,212
-
-
-
4,420
9,397
11,364
192,393
-
-
1,011
174,364
2,642
-
10,438
188,455
Net assets
Shareholders’ equity
Issued and fully paid ordinary shares
Share-based payment reserve
Retained earnings
Total equity
327,276
269,269
231,062
191,182
27 a
27 c
176,970
2,063
148,243
327,276
142,213
2,651
124,405
269,269
176,970
2,063
52,029
231,062
142,213
2,651
46,318
191,182
These financial statements have been approved for issue by the Board of Directors and signed on its behalf by:
________________
_______________
Mr. Isikeli Taureka
Mr. Greg Pawson
Director
Director
The notes on pages 52 to 109 are an integral part of these consolidated financial statements.
49
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
Statements of Changes in Equity
For the year ended 31 December 2019
Consolidated
Balance as at 31 December 2017
Transition effect IFRS 9
Balance as at 01 January 2018
Profit for the year
Other comprehensive income
Employee share scheme – vested rights
Employee share scheme – value of employee services
Dividend paid
Balance as at 31 December 2018
Transition effect IFRS 16
Balance as at 01 January 2019
Profit for the year
Other comprehensive income
Additional shares issued
Employee share scheme – vested rights
Employee share scheme – value of employee services
Dividend paid
Balance as at 31 December 2019
Parent
Balance as at 31 December 2017
Profit for the year
Other comprehensive income
Employee share scheme – vested rights
Employee share scheme – value of employee services
Dividend paid
Balance as at 31 December 2018
Transition effect IFRS 16
Balance as at 01 January 2019
Profit for the year
Additional shares issued
Other comprehensive income
Employee share scheme – vested rights
Employee share scheme – value of employee services
Dividend paid
Balance as at 31 December 2019
Attributable to the equity holders of the Group
Share Capital
Share Based
Payment
Reserve
Retained
Earnings
Total
K ’000
142,213
-
142,213
-
-
-
-
-
142,213
-
142,213
-
-
34,757
-
-
-
176,970
K ’000
1,558
-
1,558
-
-
(769)
1,862
-
2,651
-
K ’000
112,931
(3,820)
109,111
48,093
-
-
-
(32,799)
124,405
(725)
K ’000
256,702
(3,820)
252,882
48,093
-
(769)
1,862
(32,799)
269,269
(725)
2,651
123,680
268,544
-
-
-
(1,430)
842
-
2,063
60,871
60,871
-
-
-
-
(36,308)
148,243
-
34,757
(1,430)
842
(36,308)
327,276
Attributable to the equity holders of the Parent
Share Capital
Share Based
Payment
Reserve
Retained
Earnings
K ’000
142,213
-
-
-
-
-
142,213
-
142,213
-
34,757
-
-
-
-
176,970
K ’000
1,558
-
-
(769)
1,862
-
2,651
-
2,651
-
-
-
(1,430)
842
-
2,063
K ’000
76,214
2,903
-
-
-
(32,799)
46,318
(414)
45,904
42,433
-
-
-
-
(36,308)
52,029
Total
K ’000
219,985
2,903
-
(769)
1,862
(32,799)
191,182
(414)
190,768
42,433
34,757
-
(1,430)
842
(36,308)
231,062
The notes on pages 52 to 109 are an integral part of these consolidated financial statements.
50
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Statements of Cash Flows
For the year ended 31 December 2019
CONSOLIDATED
PARENT
Cash flows from operating activities
Interest received
Interest paid
Foreign exchange gain/ (loss)
Dividend received
Fee and commission income received
Fee and commission expense paid
Net trading and other operating income
Recoveries on loans previously written-off
Support fees charged from subsidiaries
Cash payments to employees and suppliers
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) in loans and advances to customers
- net decrease/(increase) in other assets
- net increase in due to customers
- (decrease)/increase due to other banks
- net increase/(decrease) in other liabilities
2019
K ‘000
146,984
(32,835)
41,956
357
50,531
(93)
887
2,076
2018
2019
2018
K ‘000
K ‘000
K ‘000
112,691
(23,525)
34,201
31
42
(3,492)
(3,829)
(88)
(282)
327
40,004
33,973
(50)
3,195
1,725
12
858
(35)
887
(82)
11,051
9,172
-
-
-
-
38,860
31,250
(110,059)
(30,628)
(98,032)
(13,561)
(50,117)
(6,599)
(1,179)
(337)
69,176
50,944
35,875
30,252
(112,218)
(30,671)
(225,415)
(118,580)
(41,844)
96,872
(27,558)
103,677
763
293,027
21,145
2,593
-
-
-
-
313
7,691
-
-
(504)
928
(525)
(1,167)
Net cash inflow/(outflow) generated from/(used in) operating activities
28c
(137,310)
219,221
36,612
36,251
Cash flows from investing activities
Purchase of property, equipment and software
(39,005)
(14,999)
(4,638)
(3,920)
Net cash acquired in business combination, net of consideration paid
31
687,178
-
Proceeds from sale of property and equipment
Net movement in investment securities
16
19,912
28b
(403,319)
(139,602)
-
16
8
-
-
-
Net cash inflow/(outflow) generated from/(used in) investing activities
245,410
(134,689)
(4,614)
(3,920)
Cash flows from financing activities
Dividend paid
Proceeds on issuance of shares
Net cash inflow/(outflow) generated from/(used) in financing activities
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
269,702
(36,308)
(32,799)
(36,308)
(32,799)
34,757
(1,551)
106,549
2,515
160,638
-
34,757
-
(32,799)
(1,551)
(32,799)
51,733
6,391
102,514
160,638
30,447
504
(468)
525
12,886
12,828
43,837
12,885
The notes on pages 52 to 109 are an integral part of these consolidated financial statements.
51
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Kina Securities Limited
For the year ended 31 December 2019
Notes to the Financial Statements
1.Summary of significant accounting policies
1.1 General information
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.
1.2 Basis of preparation
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 2019 were authorized for issue by the
Board of Directors on 30 March 2020.
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.
1.3 Amendments to IFRSs that are mandatorily effective
for the current reporting period
asset for a period of time in exchange for consideration. This
is in contrast to the focus on ‘risks and rewards’ in IAS 17 and
IFRIC 4.
On transition to IFRS 16, the Group elected to apply the
practical expedient to grandfather the assessment of which
transactions are leases and applied IFRS 16 only to contracts
that were previously identified as leases. Contracts that
were not identified as leases under IAS 17 and IFRIC 4 were
not reassessed for whether there is a lease. Therefore,
the definition of a lease under IFRS 16 was applied only to
contracts entered into or changed on or after 1 January 2019
(note 1.10 Leases).
The Group primarily leases commercial properties for use
as office premises and branches as well as acts as a lessee
in residential properties provided to eligible employees. As
a lessee, the Group previously classified leases as operating
leases. Under IFRS 16, the Group recognises right-of-use
assets and lease liabilities for most leases – i.e. these leases
are on-balance sheet.
The Group decided to apply recognition exemptions
to short-term leases in respect of lease of residential
apartments for employees. For these leases, the Group
recognises the lease payments in the statement of
comprehensive income on a straight-line basis over the
lease term.
New and revised Standards and amendments thereof
effective for the current financial year, and which have been
applied in the preparation of these financial statements, that
are relevant to the Group include IFRS 16 Leases.
At transition, lease liabilities were measured at the present
value of the remaining lease payments, discounted at the
Group’s incremental borrowing rate as at 1 January 2019.
Right-of-use assets are measured at either:
IFRS 16 Leases
The Group applied IFRS 16 with a date of initial application
of 1 January 2019. As a result, the Group has changed its
accounting policy for lease contracts as detailed below.
The Group applied IFRS 16 using the modified retrospective
approach, under which the cumulative effect of initial
application of K 725,323 is recognised in retained earnings
at 1 January 2019. The details of the changes in accounting
policies are disclosed below.
Definition of a lease
Previously, the Group determined, at contract inception,
whether an arrangement is or contains a lease under
International Financial Reporting Interpretations Committee
(“IFRIC”) 4: Determining Whether an Arrangement Contains
a Lease. Under IFRS 16, the Group assesses whether a
contract is or contains a lease based on the definition of
a lease. The change in definition of a lease mainly relates
to the concept of control. IFRS 16 determines whether
a contract contains a lease on the basis of whether the
customer has the right to control the use of an identified
• their carrying amount as if IFRS 16 had been applied
since the commencement date, discounted using the
lessee’s incremental borrowing rate at the date of initial
application; or
• an amount equal to the lease liability, adjusted by the
amount of any prepaid or accrued lease payments.
The Group used the following practical expedients when
applying IFRS 16 to leases previously classified as operating
leases under IAS 17.
• applied the exemption not to recognise right-of-use
assets and liabilities for leases with less than 12 months of
lease term.
• excluded initial direct costs from measuring the right-of-
use asset at the date of initial application.
Impact on financial statements
On transition to IFRS 16, the Group recognised an additional
K21.232m of right-of-use assets and K21.957m of lease
liabilities, recognising the difference of K0.725m in retained
earnings.
52
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited The Parent recognised an additional K8.590m of right of use assets and K9.004m of lease liabilities recognising the
difference of K0.414m in retained earnings.
When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 January
2019. The weighted-average rate applied is 8%. A change in the IBR rate of 10% to 8% was effected to reflect the average
lending rate of banks in Papua New Guinea.
CONSOLIDATED
PARENT
1 January 2019
1 January 2019
Operating lease commitments at 31 December 2018
as disclosed in the Group’s consolidated financial
statements
Discounted using the incremental borrowing rate at 1
January 2019
Recognition exemptions for:
- Short-term leases
- Lease of low value assets
Extensions and termination options reasonably
certain to be exercised
Variable lease payments based on an index or rate
Residual value guarantees
K’000
40,698
(7,477)
-
(11,264)
-
-
-
-
K’000
19,625
(2,684)
-
(7,937)
-
-
-
-
Lease liabilities recognised on 1 January 2019
21,957
9,004
1.4 New and revised IFRS standards in issue but not yet effective
At the date of authorisation of these financial statements, the Group has not applied the following revised IFRS standards
that have been issued but are not yet effective:
IFRS 10 and IAS 28 (amendments)
Sale or Contribution of Assets between an Investor
and its Associate or Joint Venture
Amendments to IAS 1 and IAS 8
Definition of material
Conceptual Framework
Amendments to References to the
Conceptual Framework in IFRS Standards
The directors do not expect that the adoption of the Standards listed above will have material impact on the financial
statements of the Group in the future period.
1.5 Basis of consolidation
The consolidated financial statements incorporate the financial statements of the Company and its controlled entities (its
subsidiaries) made up to 31 December each year. Control is achieved when the Company:
• has the power over the investee;
• is exposed, or has rights, to variable returns from its involvement with the investee; and
• has the ability to use its power to affect its returns.
53
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited The Group reassesses whether or not it controls an investee
if facts and circumstances indicate that there are changes to
one or more of the three elements of control listed above.
When the Group has less than a majority of the voting
rights of an investee, it considers that it has power over
the investee when the voting rights are sufficient to give it
the practical ability to direct the relevant activities of the
investee unilaterally. The Group considers all relevant facts
and circumstances in assessing whether or not the Group’s
voting rights in an investee are sufficient to give it power,
including:
• the size of the Group’s holding of voting rights relative
to the size and dispersion of holdings of the other vote
holders;
• potential voting rights held by the Group, other vote
holders or other parties;
• rights arising from other contractual arrangements; and
• any additional facts and circumstances that indicate that
the Group has, or does not have, the current ability to
direct the relevant activities at the time that decisions
need to be made, including voting patterns at previous
shareholders’ meetings.
Consolidation of a subsidiary begins when the Group
obtains control over the subsidiary and ceases when the
Group loses control of the subsidiary. Specifically, the results
of subsidiaries acquired or disposed of during the year are
included in the consolidated profit or loss account from the
date the Group gains control until the date when the Group
ceases to control the subsidiary.
Profit or loss and each component of OCI (other
comprehensive income) are attributed to the owners of the
Group and to the non-controlling interests (NCI), if any. Total
comprehensive income of the subsidiaries is attributed to
the owners of the Group and to the NCI even if this results in
the NCI having a deficit balance.
Where necessary, adjustments are made to the financial
statements of subsidiaries to bring the accounting policies
used into line with the Group’s accounting policies. All
intragroup assets and liabilities, equity, income, expenses
and cash flows relating to transactions between the
members of the Group are eliminated on consolidation,
with the exception of foreign currency gains and losses
on intragroup monetary items denominated in a foreign
currency of at least one of the parties.
1.6 Segment reporting
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).
1.7 Foreign currency translation
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
and the Group’s functional and presentation currency.
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 statement of
comprehensive income.
1.8 Interest income and interest expense
Interest income and expense for all financial instruments
except for those classified as held for trading or those
measured or designated as at FVTPL are recognised as
‘Interest income’ or ‘Interest expense’ in the profit or loss
account using the effective interest method.
The effective interest rate (EIR) is the rate that exactly
discounts estimated future cash flows of the financial
instrument through the expected life of the financial
instrument or, where appropriate, a shorter period, to
the net carrying amount of the financial asset or financial
liability. The future cash flows are estimated taking into
account all the contractual terms of the instrument.
The calculation of the EIR includes all fees and points
paid or received between parties to the contract that are
incremental and directly attributable to the specific lending
arrangement, transaction costs, and all other premiums or
discounts. For financial assets at FVTPL transaction costs are
recognised in profit or loss at initial recognition.
The interest income/expense is calculated by applying the
EIR to the gross carrying amount of non-credit impaired
financial assets (i.e. at the amortised cost of the financial
asset before adjusting for any expected credit loss
allowance), or to the amortised cost of financial liabilities.
54
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited For credit-impaired financial assets the interest income
is calculated by applying the EIR to the amortised cost of
the credit-impaired financial assets (i.e. the gross carrying
amount less the
allowance for expected credit losses (ECLs)). For financial
assets originated or purchased credit-impaired (POCI) the
EIR reflects the ECLs in determining the future cash flows
expected to be received from the financial asset.
1.9 Fee and commission income
The Group recognises fee and commission income from
following major services it provides to customers;
• Investment and portfolio management - The Group
manages investments for a number of superannuation
funds and corporate clients. These services are provided
by the Group on monthly basis and therefore billed
accordingly. Revenue is recognised as and when the bill is
raised i.e. when performance obligation is satisfied.
• Fund administration - The Group earns a fee through
administration of funds for its customers based on the
fee rates agreed under the terms of the contract. The
services are billed to customers on monthly basis at
which point revenue is recognised, i.e. at the time when
performance obligation is satisfied.
• Share brokerage - The Group generates share brokerage
from trading services for customers on Port Moresby
Stock Exchange (“PNGX”) and Australian Stock Exchange
(“ASX”). Revenue is recognised upon settlement of the
trade which is commensurate with when the performance
obligation is satisfied.
• Loan fee and bank commission - The Group charges
various loan fee and commissions to its customers
during the tenure of the loan unrelated to establishment
of the loan facility. Revenue is recognised when
services promised under the contract are rendered and
performance obligations are satisfied.
1.10 Leases
Policy applicable before 01 January 2019
Operating lease payments are recognised in the statement
of comprehensive income 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.
Policy applicable from 01 January 2019
At inception of a contract, the Group assesses whether a
contract is, or contains, a lease. 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. A right-of-use asset and a corresponding
lease liability is recognised with respect to all lease
arrangements in which it is the lessee, except for short-term
leases (defined as leases with a lease term of 12 months
or less) and leases of low value assets (such as tablets and
personal computers, small items of office furniture and
telephones). For these leases, the Group recognises the
lease payments as an operating expense on a straight-line
basis over the term of the lease unless another systematic
basis is more representative of the time pattern in which
economic benefits from the leased assets are consumed.
To assess whether a contract conveys the right to control the
use of an identified asset, the Group assesses whether:
• the contract involves the use of an identified asset – this
may be specified explicitly or implicitly and should be
physically distinct or represent substantially all of the
capacity of a physically distinct asset. If the supplier has
a substantive substitution right, then the asset is not
identified;
• the Group has the right to obtain substantially all of the
economic benefits from use of the asset throughout the
period of use; and
• ·the Group has the right to direct the use of the asset.
The Group has this right when it has the decision-making
rights that are most relevant to changing how and for
what purpose the asset is used. In rare cases where the
decision about how and for what purpose the asset is
used is predetermined, the Group has the right to direct
the use of the asset if either:
- the Group has the right to operate the asset; or
- the Group designed the asset in a way that
predetermines how and for what purpose it will be used.
At inception or on reassessment of a contract that contains
a lease component, the Group allocates the consideration
in the contract to each lease component on the basis of
their relative stand-alone prices. However, for the leases
of land and buildings in which it is a lessee, the Group has
elected not to separate non-lease components and account
for the lease and non-lease components as a single lease
component.
The Group recognises a right-of-use asset and a lease
liability at the lease commencement date. The right-of-
use asset is initially measured at cost, which comprises the
initial amount of the lease liability adjusted for any lease
payments made at or before the commencement date, plus
any initial direct costs incurred and an estimate of costs to
dismantle and remove the underlying asset or to restore the
underlying asset or the site on which it is located, less any
lease incentives received.
55
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited The right-of-use asset is subsequently depreciated using the
straight-line method from the commencement date to the
earlier of the end of the useful life of the right-of-use asset
or the end of the lease term. The estimated useful lives of
right-of-use assets are determined on the same basis as
those of property and equipment. In addition, the right-of-
use asset is periodically reduced by impairment losses, if
any, and adjusted for certain re-measurements of the lease
liability.
The lease liability is initially measured at the present value of
the lease payments that are not paid at the commencement
date, discounted using the interest rate implicit in the lease
or, if that rate cannot be readily determined, at the Group’s
incremental borrowing rate.
Lease payments included in the measurement of the lease
liability comprise the following:
• fixed payments, including in-substance fixed payments,
less any lease incentive receivable;
• variable lease payments that depend on an index or a
rate, initially measured using the index or rate as at the
commencement date;
• the amount expected to be payable under a residual
value guarantee, if any; and
• the exercise price, if any, under a purchase option that the
Group is reasonably certain to exercise, lease payments
in an optional renewal period if the Group is reasonably
certain to exercise an extension option, and penalties
for early termination of a lease unless the Group is
reasonably certain not to terminate early.
The lease liability is re-measured when there is a change
in future lease payments arising from a change in an index
or rate, if there is a change in the Group’s estimate of the
amount expected to be payable under a residual value
guarantee, or if the Group changes its assessment of
whether it will exercise a purchase, extension or termination
option.
When the lease liability is re-measured in this way, a
corresponding adjustment is made to the carrying amount
of the right-of-use asset, or is recorded in profit or loss if the
carrying amount of the right-of-use asset has been reduced
to zero.
Short-term leases and leases of low-value assets.
1.11 Taxation
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 and 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.
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.
The Group has elected not to recognise right-of-use assets
and lease liabilities for all short-term leases that have a lease
term of 12 months or less. The Group recognises the lease
payments associated with these leases as an expense on a
straight-line basis over the lease term.
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.
56
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 1.12 Business combinations
1.13 Cash and cash equivalents
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
following:
• 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.
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.
1.14 Financial instruments
Financial assets and financial liabilities are recognised
in the Group’s statement of financial position when the
Group becomes a party to the contractual provisions of the
instrument.
Recognised financial assets and financial liabilities are
initially measured at fair value. Transaction costs that are
directly attributable to the acquisition or issue of financial
assets and financial liabilities (other than financial assets
and financial liabilities at fair value through profit and loss
(FVTPL)) are added to or deducted from the fair value of
the financial assets or financial liabilities, as appropriate, on
initial recognition. Transaction costs directly attributable
to the acquisition of financial assets or financial liabilities at
FVTPL are recognised immediately in profit or loss.
The excess of the following is considered as goodwill:
Financial assets
• 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.
Where 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.
All financial assets are recognised and de-recognised
on a trade date where the purchase or sale of a financial
asset is under a contract whose terms require delivery of
the financial asset within the timeframe established by the
market concerned, and are initially measured at fair value,
plus transaction costs, except for those financial assets
classified as at FVTPL.
Transaction costs directly attributable to the acquisition
of financial assets classified as at FVTPL are recognised
immediately in profit or loss.
All recognised financial assets that are within the scope
of IFRS 9 are required to be subsequently measured at
amortised cost or fair value on the basis of the entity’s
business model for managing the financial assets and the
contractual cash flow characteristics of the financial assets.
Specifically:
• debt instruments that are held within a business model
whose objective is to collect the contractual cash flows,
and that have contractual cash flows that are solely
payments of principal and interest on the principal
amount outstanding (SPPI), are subsequently measured at
amortised cost;
57
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited • debt instruments that are held within a business model
whose objective is both to collect the contractual cash
flows and to sell the debt instruments, and that have
contractual cash flows that are SPPI, are subsequently
measured at fair value through other comprehensive
income (FVTOCI);
• all other debt instruments (e.g. debt instruments
managed on a fair value basis, or held for sale) and equity
investments are subsequently measured at FVTPL.
Debt instruments at amortised cost or at FVTOCI
The Group assesses the classification and measurement
of a financial asset based on the contractual cash flow
characteristics of the asset and the Group’s business model
for managing the asset. The Group classifies and measures
at amortised cost or at FVTOCI, assets where contractual
terms give rise to cash flows that are solely payments of
principal and interest on the principal outstanding (SPPI).
For the purpose of SPPI test, principal is the fair value
of the financial asset at initial recognition. That principal
amount may change over the life of the financial asset (e.g.
if there are repayments of principal). Interest consists of
consideration for the time value of money, for the credit risk
associated with the principal amount outstanding during a
particular period of time and for other basic lending risks
and costs, as well as a profit margin. The SPPI assessment
is made in the currency in which the financial asset is
denominated.
An assessment of business models for managing financial
assets is fundamental to the classification of a financial
asset. The Group determines the business models at
a level that reflects how groups of financial assets are
managed together to achieve a particular business
objective. The Group’s business model does not depend
on management’s intentions for an individual instrument,
therefore the business model assessment is performed at a
higher level of aggregation rather than on an instrument-by-
instrument basis.
At initial recognition of a financial asset, the Group
determines whether newly recognised financial assets are
part of an existing business model or whether they reflect
the commencement of a new business model. The Group
reassess its business models each reporting period to
determine whether the business models have changed since
the preceding period.
Financial assets at FVTPL
Financial assets at FVTPL are:
• assets with contractual cash flows that are not SPPI; or/
and
• assets that are held in a business model other than held
to collect contractual cash flows or held to collect and
sell; or
• assets designated at FVTPL using the fair value option.
These assets are measured at fair value, with any gains/
losses arising on re-measurement recognised in profit or
loss.
Reclassification
If the business model under which the Group holds financial
assets changes, the financial assets affected are reclassified.
The classification and measurement requirements related to
the new category apply prospectively from the first day of
the first reporting period following the change in business
model that results in reclassifying the Group’s financial
assets. During the current financial year there was no change
in the business model under which the Group holds financial
assets and therefore no reclassifications were made.
Changes in contractual cash flows are considered under the
accounting policy on Modification and de-recognition of
financial assets described below.
Impairment
The Group measures and recognises loss allowances for
ECLs on the following financial instruments that are not
measured at FVTPL:
• loans and advances;
• investment in government inscribed stocks;
• other financial assets;
• loan commitments issued; and
• financial guarantee contracts issued.
ECLs are required to be measured through a loss allowance
at an amount equal to:
• 12-month ECL, i.e. lifetime ECL that result from those
default events on the financial instrument that are
possible within 12 months after the reporting date,
(referred to as Stage 1); or
• full lifetime ECL, i.e. lifetime ECL that result from all
possible default events over the life of the financial
instrument, (referred to as Stage 2 and Stage 3).
58
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited A loss allowance for full lifetime ECL is required for a
financial instrument if the credit risk on that financial
instrument has increased significantly since initial
recognition. For all other financial instruments, ECLs are
measured at an amount equal to the 12-month ECL. More
details on the determination of a significant increase in
credit risk and determination of ECL are provided in note 3.
The Group considers the following as constituting an event
of default:
• the borrower is past due more than a specified number of
days depending upon the type of loan arrangement on
any material credit obligation to the Group; or
• the borrower is unlikely to pay its credit obligations to the
Credit impaired financial assets
A financial asset is ‘credit-impaired’ when one or more
events that have a detrimental impact on the recovery of
the financial asset have occurred. Credit-impaired financial
assets are referred to as Stage 3 assets. Evidence of credit-
impairment includes observable data about the following
events:
• significant financial difficulty of the borrower or issuer;
• a breach of contract such as a default or past due event;
• the lender of the borrower, for economic or contractual
reasons relating to the borrower’s financial difficulty,
having granted to the borrower a concession that the
lender would not otherwise consider;
• the disappearance of an active market for a security
because of financial difficulties;
• the purchase of a financial asset at a deep discount that
reflects the incurred credit losses; or
• the facility is overdue by more than specified number of
days.
The Group assesses whether debt instruments that are
financial assets measured at amortised cost are credit-
impaired at each reporting date. To assess if sovereign and
corporate debt instruments are credit impaired, the Group
considers factors such as bond yields, credit ratings and the
ability of the borrower to raise funding.
A loan is considered credit-impaired when a concession
is granted to the borrower due to a deterioration in the
borrower’s financial condition, unless there is evidence
that as a result of granting the concession the risk of
not receiving the contractual cash flows has reduced
significantly and there are no other indicators of impairment.
For financial assets where concessions are contemplated
but not granted the asset is deemed credit impaired when
there is observable evidence of credit-impairment including
meeting the definition of default.
Definition of default
The definition of default is used in measuring the amount of
ECL and in the determination of whether the loss allowance
is based on 12-month or lifetime ECL, as default is a
component of the probability of default (PD) which affects
both the measurement of ECLs and the identification of a
significant increase in credit risk (see note 3).
Group in full.
The definition of default is appropriately tailored to reflect
different characteristics of different types of assets. For
some loan arrangements, the Group has determined based
on reasonable and supportable information that that the
default event has not occurred even if the contractual
payments are more than 90 days past due and has therefore
rebutted the presumption provided in IFRS 9. This is in line
with general payment behavior of the borrowers in the
economy.
When assessing if the borrower is unlikely to pay its
credit obligation, the Group takes into account both
qualitative and quantitative indicators. The information
assessed depends on the type of the asset, for example
in corporate lending a qualitative indicator used is the
breach of covenants, which is not relevant for retail lending.
Quantitative indicators, such as overdue status and non-
payment on another obligation of the same counterparty
are key inputs in this analysis. The Group uses a variety of
sources of information to assess default which are either
developed internally or obtained from external sources.
More details are provided in note 3.
Significant increase in credit risk
The Group monitors all financial assets, issued loan
commitments and financial guarantee contracts that are
subject to the impairment requirements to assess whether
there has been a significant increase in credit risk since initial
recognition. If there has been a significant increase in credit
risk the Group will measure the loss allowance based on
lifetime rather than 12-month ECL.
The Group’s accounting policy is not to use the practical
expedient that financial assets with ‘low’ credit risk at the
reporting date are deemed not to have had a significant
increase in credit risk. As a result, the Group monitors all
financial assets, issued loan commitments and financial
guarantee contracts that are subject to impairment for
significant increase in credit risk.
In assessing whether the credit risk on a financial instrument
has increased significantly since initial recognition, the
Group compares the risk of a default occurring on the
financial instrument at the reporting date with the risk of a
default occurring that was anticipated when the financial
instrument was first recognised. In making this assessment,
the Group considers both quantitative and qualitative
information that is reasonable and supportable.
59
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited For some loan arrangements, the Group has determined
based on reasonable and supportable information that
that credit risk has not increased significantly even if the
contractual payments are more than 30 days past due
and has therefore rebutted the presumption provided in
IFRS 9. This is in line with general payment behavior of the
borrowers in the economy.
Write-off
Loans and debt securities are written off when the Group
has no reasonable expectations of recovering the financial
asset (either in its entirety or a portion of it). This is the
case when the Group determines that the borrower does
not have assets or sources of income that could generate
sufficient cash flows to repay the amounts subject to the
write-off. A write-off constitutes a de-recognition event.
The Group may apply enforcement activities to financial
assets written off. Recoveries resulting from the Group’s
enforcement activities will result in impairment gains.
Presentation of allowance for ECL in the statement
of financial position
Loss allowances for ECL are presented in the statement of
financial position as follows:
• for financial assets measured at amortised cost: as a
deduction from the gross carrying amount of the assets;
• for loan commitments and financial guarantee contracts:
as a provision; and
• where a financial instrument includes both a drawn and
an undrawn component, and the Group cannot identify
the ECL on the loan commitment component separately
from those on the drawn component: the Group presents
a combined loss allowance for both components. The
combined amount is presented as a deduction from the
gross carrying amount of the drawn component. Any
excess of the loss allowance over the gross amount of the
drawn component is presented as a provision.
Financial liabilities
A financial liability is a contractual obligation to deliver cash
or another financial asset or to exchange financial assets or
financial liabilities with another entity under conditions that
are potentially unfavourable to the Group or a contract that
will or may be settled in the Group’s own equity instruments
and is a non-derivative contract for which the Group is or
may be obliged to deliver a variable number of its own
equity instruments, or a derivative contract over own equity
that will or may be settled other than by the exchange of a
fixed amount of cash (or another financial asset) for a fixed
number of the Group’s own equity instruments.
Financial liabilities are classified as ‘other financial liabilities’
as the Group does not have any financial liabilities that are
classified or designated as at FVTPL.
Other financial liabilities
Other financial liabilities, including deposits and borrowings,
are initially measured at fair value, net of transaction costs.
Other financial liabilities are subsequently measured at
amortised cost using the effective interest method.
The effective interest method is a method of calculating
the amortised cost of a financial liability and of allocating
interest expense over the relevant period. The EIR is the
rate that exactly discounts estimated future cash payments
through the expected life of the financial liability, or, where
appropriate, a shorter period, to the net carrying amount on
initial recognition.
Derecognition of financial liabilities
The Group derecognises financial liabilities when, and only
when, the Group’s obligations are discharged, cancelled or
have expired. The difference between the carrying amount
of the financial liability derecognised and the consideration
paid and payable is recognised in profit or loss.
When the Group exchanges with the existing lender one
debt instrument into another one with substantially different
terms, such exchange is accounted for as an extinguishment
of the original financial liability and the recognition of a
new financial liability. Similarly, the Group accounts for
substantial modification of terms of an existing liability
or part of it as an extinguishment of the original financial
liability and the recognition of a new liability.
Financial guarantee contracts
A financial guarantee contract is a contract that requires the
issuer to make specified payments to reimburse the holder
for a loss it incurs because a specified debtor fails to make
payments when due in accordance with the terms of a debt
instrument.
Financial guarantee contracts issued by a group entity are
initially measured at their fair values and, if not designated
as at FVTPL and not arising from a transfer of a financial
asset, are subsequently measured at the higher of:
• the amount of the loss allowance determined in
accordance with IFRS 9; and
• the amount initially recognised less, where appropriate,
cumulative amount of income recognised in accordance
with the Group’s revenue recognition policies.
Financial guarantee contracts not designated at FVTPL are
presented as provisions on the consolidated statement of v
and the remeasurement is presented in other revenue.
The Group has not designated any financial guarantee
contracts as at FVTPL.
60
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 1.15 Property, plant and equipment
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 vehicles
Office equipment
11.25% - 15%
10%
30%
15% - 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 statement of comprehensive income, when
the expenditure is incurred.
Non-financial assets other than goodwill that suffered
impairment are reviewed for possible reversal of the
impairment at the end of each reporting period.
Customer deposits relationship / intangible
A customer deposit relationship asset was recognized
with the acquisition of Maybank (PNG) Limited in 2015.
Also, the acquisition of Australian and New Zealand (ANZ)
Bank’s retail, commercial and SME banking businesses in
PNG on 23 September 2019 gives rise to the recognition of
core customer deposit intangible (note 20), 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 three years on the Maybank and ANZ
acquisition respectively, 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.
1.16 Intangible assets and other non-financial assets
Software
Goodwill
Goodwill is measured as described in note 37. Goodwill
having an indefinite useful life 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 less 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.
Other non-financial assets
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).
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.
1.17 Provisions
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.
1.18 Employee benefits
Short-term obligations
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.
61
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited vesting period.
1.20 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 27(b)).
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.
1.21 Fiduciary activities
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.
2. Critical accounting estimates and judgments
In the application of the Group’s accounting policies, which
are described in note 1, the directors are required to make
judgements that have a significant impact on the amounts
recognised and to make estimates and assumptions about
the carrying amounts of assets and liabilities that are not
readily apparent from other sources. The estimates and
associated assumptions are based on historical experience
and other factors that are considered to be relevant. Actual
results may differ from these estimates. The estimates
and underlying assumptions are reviewed on an ongoing
basis. Revisions to accounting estimates are recognised in
the period in which the estimate is revised if the revision
affects only that period, or in the period of the revision and
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 statement of comprehensive income in the
year to which they relate.
Share-based payments
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.
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.
1.19 Share capital and other equity accounts
Share capital
Ordinary shares are classified as equity. 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.
Dividends
Dividends on ordinary shares are recognized in equity in
the period in which they are declared by the Company’s
directors.
Reserves
Capital reserve comprises accumulated gains on historic
asset revaluation. Share-based payment reserve comprises
the fair value of unvested performance rights during the
62
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited future periods if the revision affects both current and future
periods.
The areas involving significant estimates or judgments are:
• Significant increase in credit risk – note 3
• Recognition of deferred tax asset for carried forward tax
losses – note 11(a)
• Estimated allowance for loans and advances to customers
– note 16 and 3(b)
• Estimated goodwill impairment – note 37
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.
• Estimated useful life of intangible asset – note 20
a) Market risk
• 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
Market risk is the risk that movements in market factors,
such as foreign exchange rates, interest rates, credit spreads
and equity prices, will reduce the Group’s income or the
value of its portfolios.
The group is exposed to the following type of market risks:
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.
i. Foreign exchange risk;
ii. Interest rate risk; and
iii. Equity price risk.
(i) Foreign exchange risk
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
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.
Exposure
The Group’s exposure to foreign currency risk at the end of
the reporting period, expressed in PGK, was as follows:
K’000
USD
AUD
SGD
GBP
EUR
NZD
JPY
PHP MYR
INR
FJD
31 December 2019
Cash balance
Due from other banks
31 December 2018
Cash balance
Due from other banks
707
98,789
99,496
473
(962)
(489)
61
(200)
(139)
48
57,598
57,646
2
1,240
1,242
3
-
3
44
508
552
-
396
396
239
1,907
2,146
-
(58)
(58)
583
292
875
-
685
685
214
221
435
-
3
3
67
288
355
-
(64)
(64)
-
83
83
-
3
3
-
19
19
-
-
-
20
587
607
-
-
-
There was no material liabilities denominated in foreign currency.
63
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Sensitivity
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% (2018:10%)
USD/PGK – exchange rate – decrease 10% (2018:
10%)
(ii) Interest rate risk
IMPACT ON STATEMENT OF COMPREHENSIVE INCOME
K,000
2019
(8.981)
10,977
K,000
2018
(5,236)
6,400
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 earnings in the current 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 following table risks summarises the Group’s exposure to interest rate risks:
Year ended 31 December 2019
Carrying amount
Average Interest rate
(% p.a.)
K ‘000
269,702
722,090
1,401,433
34,003
2,460,967
0.19%
5.74%
9.64%
7.51%
1.25%
Year ended 31 December 2018
Carrying amount
Average Interest rate
(% p.a.)
K ‘000
85,638
396,154
851,663
34,195
1,315,460
0.23%
4.91%
11.32%
11.94%
2.19%
Assets
Cash and due from banks
Central bank bills
Loans and advances to customers
Investments in government inscribed stocks
Liability
Due to customers
Assets
Cash and due from banks
Central bank bills
Loans and advances to customers
Investments in government inscribed stocks
Liability
Due to customers
64
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Sensitivity
Given the profile of assets and liabilities at 31 December 2019 and prevailing interest rates, a 100 basis points increase/
decrease in market rates in relation to lending will result in a maximum possibility of K14,014,354 (2018: K8,516,636)
decrease/increase in net interest income at a Group level.
(ii) Equity price risk
The Group is exposed to equity securities price risk due to the majority of the investments in listed equity securities
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 (PNGX) 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 2019 and net assets as of
balance date would have been affected by K381,777 (2018: K237,128). The Group’s sensitivity to equity prices has changed
relative to asset balance from the prior year.
IMPACT ON STATEMENT OF COMPREHENSIVE INCOME
Equity prices – increase 5% (2018:5%)
Equity prices – decrease 5% (2018: 5%)
b) Credit risk
Credit risk is the risk that a customer or counterparty will
default on its contractual obligations resulting in financial
loss to the Group. The Group’s main income generating
activity is lending to customers and therefore credit risk
is a principal risk. Credit risk mainly arises from loans and
advances to customers and other banks (including related
commitments to lend such as loan or credit card facilities)
and investments in debt securities. The Group considers
all elements of credit risk exposure such as counterparty
default risk, geographical risk and sector risk for risk
management purposes.
(i) Credit risk management
The Group’s credit committee is responsible for managing
the Group’s credit risk by:
• Ensuring that the Group has appropriate credit risk
practices, including an effective system of internal
control, to consistently determine adequate allowances
in accordance with the Group’s stated policies and
procedures, IFRS and relevant supervisory guidance.
• Identifying, assessing and measuring credit risk across
the Group, from an individual instrument to a portfolio
level.
• Creating credit policies to protect the Group against
the identified risks including the requirements to obtain
collateral from borrowers, to perform robust ongoing
credit assessment of borrowers and to continually
monitor exposures against internal risk limits.
K,000
2019
382
(382)
K,000
2018
237
(237)
• Limiting concentrations of exposure by type of asset,
counterparties, industry, credit rating, geographic
location etc.
• Establishing a robust control framework regarding the
authorisation structure for the approval and renewal of
credit facilities.
• Developing and maintaining the Group’s risk grading to
categorise exposures according to the degree of risk of
default. Risk grades are subject to regular reviews.
• Developing and maintaining the Group’s processes
for measuring ECL including monitoring of credit risk,
incorporation of forward looking information and the
method used to measure ECL.
• Ensuring that the Group has policies and procedures in
place to appropriately maintain and validate models used
to assess and measure ECL.
• Establishing a sound credit risk accounting assessment
and measurement process that provides it with a strong
basis for common systems, tools and data to assess credit
risk and to account for ECL. Providing advice, guidance
and specialist skills to business units to promote best
practice throughout the Group in the management of
credit risk.
65
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited The internal audit function performs regular audits making
sure that the established controls and procedures are
adequately designed and implemented.
(ii) Significant increase in credit risk
As explained in note 1 the Group monitors all financial
assets that are subject to impairment requirements to
assess whether there has been a significant increase in
credit risk since initial recognition. If there has been a
significant increase in credit risk the Group will measure
the loss allowance based on lifetime rather than 12-month
ECL. The determination of significant increase in credit
risk is driven by internal risk ratings and days by which
the contractual payments under terms of the financial
instrument are overdue as explained below.
The credit risk grades are designed and calibrated to reflect
the risk of default as credit risk deteriorates. As the credit
risk increases the difference in risk of default between
grades changes. Each exposure is allocated to a credit
risk grade at initial recognition, based on the available
information about the counterparty. All exposures are
monitored and the credit risk grade is updated to reflect
current information. The monitoring procedures followed
are both general and tailored to the type of exposure. The
following data are typically used to monitor the Group’s
exposures:
• Payment record, including payment ratios and ageing
analysis;
• Extent of utilisation of granted limit;
Internal credit risk ratings
• Forbearances (both requested and granted);
In order to minimise credit risk, the Group has tasked its
credit management committee to develop and maintain
the Group’s credit risk grading to categorise exposures
according to their degree of risk of default. The Group’s
credit risk grading framework comprises eight categories.
The credit rating information is based on a range of data
that is determined to be predictive of the risk of default and
applying experienced credit judgement. The nature of the
exposure and type of borrower are taken into account in the
analysis. Credit risk grades are defined using qualitative and
quantitative factors that are indicative of risk of default.
• Changes in business, financial and economic conditions;
• Credit rating information supplied by external rating
agencies;
• For retail exposures: internally generated data of
customer behaviour, affordability metrics etc.; and
• For corporate exposures: information obtained by
periodic review of customer files including audited
financial statements review, known events and conditions
impacting the credit risk of the borrower, changes in the
financial sector the customer operates etc.
The Group uses credit risk grades as a primary input into the determination of whether there has been a significant increase
in credit risk in addition to information on days past due. Following table provides how each credit grade is defined and its
mapping to external credit rating:
Credit risk grades
S&P rating Description
A’s
B’s
B’s
unrated
unrated
unrated
unrated
unrated
Low risk. Minimum total assets of +K2,000 m and very strong repayment capacity.
Low to fair risk Minimum total assets of +K1,000 m and strong repayment capacity.
Moderate risk Minimum total assets of +K100 – K200 m and sound repayment capacity.
Acceptable risk. Sound financial history demonstrating surplus repayment capacity.
Watch list/special mention. Credit weaknesses are evident and repayment capacity is
jeopardised.
Substandard
Doubtful
Loss
A
B
C
D
E
F
G
H
66
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited A review of the effectiveness of the risk grading process is undertaken annually at a minimum and considers evidence
abnormal or material variations, loss rates and quality of the information utilised to assess the credit risk. The Group
determines that credit risk is deemed to have increased significantly if:
• Credit rating of the borrower has deteriorated since initial recognition; or
• The facility is overdue to by a specific number of days depending upon the type of loan.
The Group has monitoring procedures in place to ensure that the criteria used to identify significant increases in credit are
effective, meaning that significant increase in credit risk is identified before the exposure is defaulted. The Group performs
periodic back-testing of its ratings to consider whether the drivers of credit risk that led to default were accurately reflected
in the rating in a timely manner.
Incorporation of forward-looking information
In determining the ECL, expected cash flows are appropriately probability weighted and include adjustments for forward
looking information.
Measurement of ECL
The key inputs used for measuring ECL are (1) Probability of default (PD), (2) Loss given default (LGD) and (3) Exposure at
default (EAD).
PD is an estimate of the likelihood of default over a given time horizon. It is estimated as at a point in time. The calculation is
based on rating models, and assessed using rating tools tailored to the various categories of counterparties and exposures.
These models are based on market data (where available), as well as internal data comprising both quantitative and
qualitative factors.
LGD is an estimate of the loss arising on default. It is based on the difference between the contractual cash flows due and
those that the lender would expect to receive, taking into account cash flows from any collateral.
EAD is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the
reporting date, including repayments of principal and interest, and expected drawdowns on committed facilities.
The Group determines PD and LGD through an internal risk rating model which classifies each exposure based on the
risk rating and stage of default (as noted below) with each risk rating having an associated loss rate. The loss rates reflect
weighted average PDs and LGDs. In addition, model adjustments are included in determination of ECL when it is judged
that existing inputs, assumptions and model techniques do not capture all relevant risk factors.
The Group defines stage of default as follows:
Stage 1 These exposures are regarded as performing loans and lower loss rates are applied in determining the ECL
representing ECL equivalent to 12 months expected losses.
Stage 2 Exposures are classified as Stage 2 if credit rating has worsened since initial recognition or if facility is overdue by
specified number of days.
Stage 3 Stage 3 exposures are considered in default in accordance with the definition of default above.
Groupings based on shared risks characteristics.
In determining the ECL, the financial instruments are grouped on the basis of shared risk characteristics, such as instrument
type, credit risk grade, collateral type, the value of collateral relative to financial asset (loan-to-value (LTV) ratios) etc.:
An analysis of the Group’s credit risk concentrations per class of financial asset is provided in the following tables. Unless
specifically indicated, for financial assets, the amounts in the table represent gross carrying amounts. For documentary
letters of credit and bank guarantee, the amounts in the table represent the amounts committed or guaranteed,
respectively.
67
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Class of financial instrument
Cash and due from banks at amortised cost
Treasury and central bank bills at amortised cost
Regulatory deposits at amortised cost
Financial statement line
Cash and due from banks
Central bank bills
Regulatory deposits
Loans and advances to customers at amortised cost
Loans and advances to customers
Investments in government inscribed stocks at amortised cost
Investments in government inscribed stocks
Bank guarantees
Other financial assets
Contingent liabilities
Other assets
Note
Note 12
Note 13
Note 14
Note 16
Note 17
Note 33
Note 21
Cash and due from banks at amortised cost
Concentration by sector
Cash on hand
With central bank (exchange settlement account)
With other banks
Total
Concentration by region
Papua New Guinea
Offshore*
31 December 2019
31 December 2018
Consolidated
K’000
82,413
58,314
128,975
269,702
167,363
102,339
269,702
K’000
4,993
5,820
74,825
85,638
23,628
62,010
85,638
*Bank accounts maintained in Australia, New Zealand, Great Britain, Singapore, Malaysia, Philippines, Japan, India and
Turkey.
Treasury and central bank bills at amortised cost
Concentration by sector
With central banks
Total
Concentration by region
Papua New Guinea
Total
31 December 2019
31 December 2018
Consolidated
K’000
722,090
722,090
722,090
722,090
K’000
396,154
396,154
396,154
396,154
68
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Regulatory deposits at amortised cost
Concentration by sector
With central banks
Total
Concentration by region
Papua New Guinea
Total
CONSOLIDATED
31 December 2019
31 December 2018
K’000
249,713
249,713
249,713
249,713
K’000
137,494
137,494
137,494
137,494
CONSOLIDATED
31 December 2019
31 December 2018
Loans and advances to customers at amortised cost
K’000
K’000
Concentration by sector
Individuals:
Mortgages
Unsecured lending
Corporate entities:
Agriculture, Forestry & Fishing
Mining
Manufacturing
Electrical, Gas & Water
Building and Construction
Wholesale & Retail
Hotel & Restaurants
Transport & Storage
Financial Intermediation
Real Estate/Renting/Business Services
Equipment Hire
Other Business
Personal Banking
Total
Concentration by region
Papua New Guinea
Total
507,593
114,288
7,085
19,078
14,878
1,160
86,664
198,747
91,905
8,897
592
271,028
10,811
30,602
58,630
1,421,958
1,421,958
1,421,958
160,761
47,726
11,810
4,090
3,825
690
72,699
154,781
84,033
5,035
14,704
248,630
1,425
21,759
38,146
870,114
870,114
870,114
69
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Investments in government inscribed stocks at amortised cost
Concentration by sector
Sovereign
Total
Concentration by region
Papua New Guinea
Total
Bank guarantees
Concentration by sector
Corporate entities:
Agriculture, Forestry & Fishing
Mining
Wholesale & Retail
Hotels and Restaurants
Building and Construction
Transport & Storage
Electrical, Gas & Water
Manufacturing
Other Business
Total
Concentration by region
Papua New Guinea
Total
CONSOLIDATED
31 December 2019
31 December 2018
K’000
34,492
34,492
34,492
34,492
K’000
34,995
34,995
34,995
34,995
CONSOLIDATED
31 December 2019
31 December 2018
K’000
K’000
25,306
400
9,402
400
2,059
7,987
1,170
-
23,651
70,375
70,375
70,375
24,775
-
14,098
-
2,926
2,193
190
100
1,651
45,933
45,933
45,933
The amount of bank guarantees disclosed above represent notional amount guaranteed being the maximum exposure to
credit risk.
An analysis of the Group’s credit risk exposure per class of financial asset, internal rating and “stage” without taking into
account the effects of any collateral or other credit enhancements is provided in the following tables. Unless specifically
indicated, for financial assets, the amounts in the table represent gross carrying amounts. For loan commitments and
financial guarantee contracts, the amounts in the table represent the amounts committed or guaranteed, respectively.
70
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Cash and due from banks at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
269,702
269,702
-
269,702
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2018
Stage 1
Stage 2
Stage 3
Cash and due from banks at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
85,638
85,638
-
85,638
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
Treasury and central bank bills at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
722,090
722,090
-
722,090
K’000
K’000
-
-
-
-
-
-
-
-
Total
K’000
269,702
269,702
-
269,702
Total
K’000
85,638
85,638
-
85,638
Total
K’000
722,090
722,090
-
722,090
71
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Treasury and central bank bills at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
CONSOLIDATED
31 December 2018
Stage 1
Stage 2
Stage 3
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
396,154
396,154
-
396,154
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
Regulatory deposits at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
249,713
249,713
-
249,713
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2018
Stage 1
Stage 2
Stage 3
Regulatory deposits at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
137,494
137,494
-
137,494
K’000
K’000
-
-
-
-
-
-
-
-
Total
K’000
396,154
396,154
-
396,154
Total
K’000
249,713
249,713
-
249,713
Total
K’000
137,494
137,494
-
137,494
72
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
1,293,933
23,580
5,854
1,371
-
-
1,324,738
(12,102)
1,312,636
K’000
47,121
7,220
17,098
2,379
-
-
73,818
(6,699)
67,119
K’000
57
-
857
569
6,411
-
7,894
(1,724)
6,170
Loans and advances
to customers at amortised cost
Grade C-D: Moderate
and acceptable risk
Grade E: Watchlist/
special mention
Grades F: Substandard
Grade G: Doubtful
Grade H: Loss
Not graded
Total gross carrying amount
Loss allowance
Carrying amount
CONSOLIDATED
31 December 2018
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
801,515
27,804
1,099
92
106
5,432
836,048
(11,010)
825,038
K’000
5,143
9,919
7,574
2,993
577
2,207
28,413
(6,053)
22,360
K’000
-
-
545
1,410
1,451
2,247
5,653
(1,388)
4,265
Loans and advances
to customers at amortised cost
Grade C-D: Moderate
and acceptable risk
Grade E: Watchlist/
special mention
Grades F: Substandard
Grade G: Doubtful
Grade H: Loss
Not graded
Total gross carrying amount
Loss allowance
Carrying amount
POCI
K’000
-
-
-
-
15,508
-
15,508
-
15,508
POCI
K’000
-
-
-
-
-
-
-
-
-
Total
K’000
1,341,111
30,800
23,809
4,319
21,919
-
1,421,958
(20,525)
1,401,433
Total
K’000
806,658
37,723
9,218
4,495
2,134
9,886
870,114
(18,451)
851,663
73
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Investments in government inscribed
stocks at amortised cost
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
Investments in government inscribed
stocks at amortised cost
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
K’000
34,492
34,492
(489)
34,003
K’000
K’000
-
-
-
-
-
-
-
-
K’000
34,492
34,492
(489)
34,003
CONSOLIDATED
31 December 2018
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
K’000
34,995
34,995
(800)
34,195
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
K’000
34,995
34,995
(800)
34,195
Total
K’000
70,375
70,375
-
70,375
Bank guarantees
12-month ECL
Lifetime ECL
Lifetime ECL
Grades A-B: Low to fair risk
Maximum exposure to credit risk
Loss allowance
Net amount
K’000
70,375
70,375
-
70,375
K’000
K’000
-
-
-
-
-
-
-
-
74
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited CONSOLIDATED
31 December 2018
Stage 1
Stage 2
Stage 3
Bank guarantees
12-month ECL
Lifetime ECL
Lifetime ECL
Grades A-B: Low to fair risk
Maximum exposure to credit risk
Loss allowance
Net amount
K’000
45,933
45,933
-
45,933
K’000
K’000
-
-
-
-
-
-
-
-
Total
K’000
45,933
45,933
-
45,933
CONSOLIDATED
31 December 2019
31 December 2018
Loss allowance by classes
Loans and advances to customers at amortised cost
Investments in government inscribed stocks at amortised cost
Other financial assets
Total
K’000
20,525
489
4,038
25,052
K’000
18,451
800
4,038
23,289
Other financial assets comprise of miscellaneous receivables from individuals on which lifetime ECL has been
recognised. No ECL has been recognised on other classes of financial assets either due to negligible probability of
default or the assets being fully collateralized by high quality liquid assets.
Table below summarises the movement in ECL during the year by class of financial assets:
Balance at 01
January 2019
Additional ECL
recognised
CONSOLIDATED
Write-offs
Bad debt
Recoveries
Balance at 31
December
2019
K’000
18,451
800
4,038
23,289
K’000
5,957
(311)
-
5,646
K’000
(5,959)
K’000
2,076
-
-
-
-
(5,959)
2,076
K’000
20,525
489
4,038
25,052
Loss allowance by classes
Loans and advances
to customers at amortised cost
Investments in government
inscribed stocks
at amortised cost
Other financial assets
Total
75
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Balance at 01
January 2018
Additional ECL
recognised
CONSOLIDATED
Write-offs
Loss allowance by classes
Loans and advances
to customers at amortised cost
Investments in government
inscribed stocks
at amortised cost
Other financial assets
Total
K’000
17,529
1,257
4,052
22,838
K’000
5,514
(457)
13
5,070
K’000
(6,318)
-
(27)
(6,345)
Bad debt
Recoveries
Balance at 31
December
2018
K’000
1,726
-
-
1,726
K’000
18,451
800
4,038
23,289
The table below analyses the movement of the loss allowance during the year per class of assets except for those where there
have been no significant movement in the ECL since prior year or where no ECL is recognised:
Loss allowance – Loans
and advances to customers
at amortised cost
Loss allowance as at 01 January
Changes in the loss allowance
- Transfer to stage 1
- Transfer to stage 2
- Transfer to stage 3
- Write-offs
New financial assets
originated or purchased
Financial assets that have
been derecognised
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
POCI
Total
K’000
11,010
86
(477)
(5)
-
6,363
K’000
6,053
(86)
477
(106)
(2,599)
5,115
K’000
1,388
-
-
111
(1,282)
6,582
(4,875)
(2,156)
(5,074)
K’000
-
-
-
-
-
-
-
-
K’000
18,451
-
-
-
(3,881)
18,060
(12,105)
20,525
Loss allowance as at 31 December
12,102
6,698
1,725
76
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Loss allowance – Loans
and advances to customers
at amortised cost
Loss allowance as at 01 January
Changes in the loss allowance
- Transfer to stage 1
- Transfer to stage 2
- Transfer to stage 3
- Write-offs
New financial assets
originated or purchased
Financial assets that have
been derecognised
Stage 1
Stage 2
Stage 3
31 December 2018
12-month ECL
Lifetime ECL
Lifetime ECL
POCI
Total
K’000
9,361
259
(2,327)
(19)
-
5,303
K’000
4,393
(179)
3,037
(613)
-
4,233
K’000
3,775
(80)
(710)
632
(4,593)
3,866
(1,567)
(4,818)
(1,502)
K’000
-
-
-
-
-
-
-
-
K’000
17,529
-
-
-
(4,593)
13,402
(7,887)
18,451
Loss allowance as at 31 December
11,010
6,053
1,388
In relation to investment in government inscribed stocks, there have been no significant movements in the ECL during the year
except due to derecognition.
More information about the significant changes in the gross carrying amount of financial assets during the period that
contributed to changes in the loss allowance, is provided at the table below:
CONSOLIDATED
31 December 2019
Loans and advances
to customers at amortised cost
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Gross carrying amount as at 01
January
Changes in the gross carrying amount
- Transfer to stage 1
- Transfer to stage 2
- Transfer to stage 3
New financial assets originated
or purchased
Financial assets that have
been derecognised
Write-offs
Gross carrying amount
as at 31 December
K’000
836,048
6,654
(35,188)
(1,014)
799,200
K’000
28,413
(6,654)
35,188
(944)
30,677
K’000
5,653
-
-
1,958
6,220
(280,962)
(10,263)
(4,653)
-
1,324,738
(2,599)
73,818
(1,284)
7,894
POCI
K’000
-
-
-
-
Total
K’000
870,114
-
-
-
15,508
851,605
-
-
(295,878)
(3,883)
15,508
1,421,958
77
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Loans and advances to customers
at amortised cost
Gross carrying amount as at 01 January
Changes in the gross carrying amount
- Transfer to stage 1
- Transfer to stage 2
- Transfer to stage 3
New financial assets originated or purchased
Financial assets that have been derecognized
Write-offs
Gross carrying amount as at 31 December
31 December 2018
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
K’000
684,700
29,294
(8,568)
(1,060)
444,132
(312,450)
-
836,048
K’000
44,979
(23,730)
13,165
(1,564)
6,904
(7,607)
(3,734)
28,413
K’000
15,915
(5,564)
(4,597)
2,624
1,689
(3,556)
(858)
5,653
K’000
745,594
-
-
-
452,725
(323,613)
(4,592)
870,114
Investments in government inscribed stock
In relation to investment in government inscribed stocks which continue to be classified as Stage 1, there have been
no significant movements in the carrying amount during the year except due to derecognition.
The table below provides an analysis of the gross carrying amount of loans and advances to customers by past
due status.
Loans and advances to customers
0-29 days
30-59 days
60-89 days
90-180 days
More than 181 days
Total
Consolidated
Year ended 2019
Year ended 2018
Gross carrying
amount
Loss allowance Gross carrying
amount
Loss allowance
K’000
1,307,764
22,082
8,763
47,012
36,337
1,421,958
K’000
14,378
330
28
4,582
1,207
20,525
K’000
841,772
8,939
1,285
6,416
11,702
870,114
K’000
12,933
438
12
1,209
3,859
18,451
Collateral held as security and other credit enhancements
The Group holds collateral or other credit enhancements to mitigate credit risk associated with financial assets.
The main types of collateral and the types of assets these are associated with are listed in the table below.
78
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Exposure type
Mortgage lending
Personal lending
Corporate lending
Investment securities
Lease receivables
Type of collateral held
Mortgage over residential property
Mortgage over residential property / bill of sale
Mortgage over commercial property
Sovereign guarantee
Charge over property and equipment
Bank guarantee and documentary letters of credit
Charge over cash deposit
In addition to the collateral included in the table above, the Group holds other types of collateral and credit enhancements,
such as second charges, floating charges and guarantees for which specific values are not
generally available.
Mortgage lending
The Group holds mainly residential properties as collateral for the mortgage loans it grants to customers. In some cases it
does hold cash as collateral. It monitors its exposure to retail mortgage lending using a Loan To Discounted Value (LTDV)
ratio. At origination, the Group lends based on a discounted collateral value which is calculated at 80% of the market value at
that time. This becomes the Value definition for the LTDV. The Group then lends up to 100% of this Value. The following table
reflects the exposure by ranges based on this methodology. The Group believes that this methodology provides further risk
reduction in case of changes in market value. For credit-impaired loans the value of collateral is based on the most recent
valuations.
Mortgage lending
LTDV ratio
Less than 50%
51-75%
75-90%
90-100%
More than 100%
Fully cash covered
Total
CONSOLIDATED
Year ended 2019
Year ended 2018
Gross carrying amount
Gross carrying amount
K’000
51,636
40,964
14,186
114,106
99,350
416
320,658
K’000
10,126
6,400
7,316
92,087
2,221
391
118,541
79
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Credit impaired – Mortgage lending
Gross carrying amount
Gross carrying amount
CONSOLIDATED
Year ended 2019
Year ended 2018
LTDV ratio
Less than 50%
51-75%
75-90%
90-100%
More than 100%
Total
Personal lending
K’000
1,515
1,129
-
1,410
5,667
9,721
K’000
1,550
1,594
107
465
403
4,119
The Group’s personal lending portfolio consists of secured and unsecured loans as follows:
Secured
Unsecured
Total
CONSOLIDATED
Year ended 2019
Year ended 2018
K’000
564,905
56,976
621,881
K’000
165,288
43,199
208,487
For secured loans, the Group requires formal valuation of collateral to be performed prior to approval of the loan facility.
The valuation is conducted by the external firm of valuers independent of the Group who are required to meet certain
minimum standards as per the Group’s policy. Collateral value determined by the valuer is further discounted by 20-30%
before determining the facility limit. The discounted value of the collateral must exceed the facility limit by at least 12.5%
to allow for sufficient buffer should there be any adverse movement in value due change in macroeconomic indicators.
The collateral value is updated when the facility is classified as stage 3 or at least every 2 years. The Group monitors the
collateral value on an ongoing basis and in event of any indicator which may result in significant decline will require the
fresh valuation to be performed. As at 31 December 2019, the portfolio of secured personal lending is entirely secured
by eligible collateral.
For unsecured loans, the Group takes a higher level of return to reflect the credit risk. However, credit risk standards are
maintained to ensure a reasonable standard of debt servicing is proven.
Corporate lending
The most relevant indicator of corporate customers’ credit worthiness is an analysis of their financial performance and
their liquidity, leverage, management effectiveness and growth ratios. In addition, the Group also requires collaterals
and guarantees to secure the corporate loans. Similar to personal lending, collaterals are required to be valued
by independent firm of valuers before the facility is approved. Approved facility limit is equal to or less than the
assessed value of the collateral discounted by 10-50% to allow for sufficient buffer should there be any adverse
movement in the value due to change in macroeconomic indicators. Collateral values are updated at least every
2 years if there are any changes to the loan facilities or if the facility is classified as stage 3 loan. The Group monitors
the collateral value on an ongoing basis and in event of any indicator which may result in significant decline will
require the fresh valuation to be performed. As at 31 December 2018, the portfolio of the corporate lending is fully
collateralized by eligible collateral.
80
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Investment securities
The Group holds investment in government inscribed stocks measured at amortised cost with a carrying amount
of K34,003,163 (2018: K34,195,126) which are collateralized by sovereign guarantee.
Lease receivables
The Group has lease receivables at a carrying amount of Knil (2018: K12,720,823) which are secured by the property
and equipment leased to the lessee.
Bank guarantee and documentary letters of credit
Bank guarantees and documentary letters of credit are fully collateralized by charge over the cash deposits.
Credit risk disclosures in the financial statements of the parent
The credit risk disclosures included above relate only to the consolidated financial statements of the Group.
Corresponding disclosures for the parent company have not been presented in these financial statements as the
parent company does not have any material financial instruments other than intercompany lending amounting to K351m
(31 December 2018: K351m). Details of the intercompany lending are disclosed in note 29 to the financial statements.
c) Liquidity risk
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,
• targeting commercial and corporate customers’ liability compositions,
• intense monitoring of detail daily reports to alert management and directors of abnormalities, and
• arranging back up facilities to protect against adverse funding conditions and to support day-to-day operations.
The Group is monitoring its liquidity contingency plans, lending requirements and guidelines which include:
• the monitoring of issue severity/stress levels with high level diligence,
• early warning signals indicative of an approaching issue and a mechanism to monitor and report these
against 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 presents a maturity analysis of Group’s financial liabilities including issues financial guarantee
contracts and corresponding analysis of financial assets held to manage the inherent liquidity risk using undiscounted
contractual cash flows associated with those assets and liabilities.
81
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited CONSOLIDATED
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
K’000
K’000
K’000
K’000
K’000
K’000
K’000
31 December 2019
Cash and due from banks
269,702
-
-
Central bank bills
Regulatory deposits
Total financial assets
-
5,000
750,000
249,713
519,415
-
-
5,000
750,000
Due to other banks
22
-
-
-
-
-
-
-
Due to customers
2,072,939
173,791
170,667
72,891
Other liabilities
126,735
-
-
-
Total financial liabilities
2,199,696
173,791
170,667
72,891
1,502
2,498
35,710
30,665
31,417
32,919
100,384
102,882
-
-
35,710
30,665
85,638
80,000
137,494
303,132
25,075
760,495
21,972
807,541
-
-
38,000
295,000
-
-
38,000
295,000
-
-
-
-
-
-
-
262,715
302,080
4,721
-
-
-
262,715
302,080
4,721
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
269,702
755,000
249,713
269,702
722,090
249,713
1,274,415
1,241,505
22
22
2,490,288
2,460,967
126,735
126,735
2,617,045
2,587,724
70,375
131,801
202,176
85,638
413,000
137,494
636,132
N/A
N/A
N/A
85,638
396,154
137,494
619,286
25,075
25,065
1,330,011
1,315,460
21,972
21,972
1,377,058
1,362,497
3,032
5,288
28,202
7,713
1,699
45,933
45,891
48,923
19,061
24,349
-
28,202
-
7,713
-
1,699
64,952
110,885
N/A
N/A
N/A
Issued financial
guarantee contracts
Issued loan commitments
Total
31 December 2018
Cash and due from banks
Central bank bills
Regulatory deposits
Total financial assets
Due to other banks
Due to customers
Other liabilities
Total financial liabilities
Issued financial
guarantee contracts
Issued loan commitments
Total
82
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Up to 1
month
1 to 3
months
4 to 12
months
PARENT
1 to 5 years
Over 5
years
Total
contract
value
Total
carrying
value
K’000
K’000
K’000
K’000
K’000
K’000
K’000
31 December 2019
Cash and due from banks
Due from subsidiaries
Total financial assets
Other liabilities
Due to subsidiaries
Total financial liabilities
31 December 2018
Cash and due from banks
Due from subsidiaries
Total financial assets
Other liabilities
Due to subsidiaries
Total financial liabilities
43,837
351,096
394,933
9,038
167,212
176,250
12,885
358,583
371,468
8,964
174,364
183,328
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
43,837
351,096
394,933
9,038
167,212
176,250
12,885
358,583
371,468
8,964
174,364
183,328
43,837
351,096
394,933
9,038
167,212
176,250
12,885
358,583
371,468
8,964
174,364
183,328
The liquidity gap in ‘up to 1 month bucket’ is due to assumption that current and saving deposits amounting
to K1,919m (31 December 2018: 662m) included within ‘due to customers’ mature within one month since these
are on demand and do not have any fixed or determinable maturity.
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,
Is commensurate with risk profile and activities of KBL, and
1)
2)
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%.
83
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited As at 31 December 2019 and 2018, 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
2019
K ‘000
1,598,159
252,596
70,932
323,528
15.8%
20.1%
8.5%
2018
K ‘000
979,611
233,390
49,750
283,140
23.8%
28.9%
13.9%
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
Lease Liability
Due to subsidiaries (note 29)
Net interest income/(expense)
CONSOLIDATED
PARENT
Gross carrying
amount
Loss allowance Gross carrying
amount
Loss allowance
K ‘000
K ‘000
K ‘000
K ‘000
33,570
2,560
110,352
146,482
(29,318)
(2,583)
-
(31,901)
114,581
15,041
7,240
90,527
112,808
(25,232)
-
-
(25,232)
87,576
31
-
-
31
-
(803)
(2,689)
(3,492)
(3,461)
42
-
-
42
-
-
(3,829)
(3,829)
(3,787)
84
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 6. Net fee and commission income
CONSOLIDATED
PARENT
Fees and commission income
Investment and portfolio management
Fund administration
Shares brokerage
Loans fees and bank commissions
Other fees (net of expense)
Fee and commission expenses
Net fee and commission income
7. Dividend income
Dividend income from investments
Financial assets at fair value through profit or loss
Investment in subsidiaries
8. Other income
Profits from disposal of property and equipment
Realised gains/losses
Support fees from subsidiaries (note 29)
Office space recharge (note 29)
Management fees (note 29)
Other
2019
K ‘000
2018
K ‘000
2019
K ‘000
10,121
18,261
879
13,591
5,026
47,878
(93)
47,785
2018
K ‘000
8,827
16,180
865
8,412
2,117
36,401
(50)
36,351
-
-
879
-
-
879
(82)
797
CONSOLIDATED
PARENT
2019
K ‘000
357
-
357
2018
K ‘000
327
-
327
2019
K ‘000
4
40,000
40,004
CONSOLIDATED
PARENT
2019
K ‘000
53
178
-
-
-
503
734
2018
K ‘000
1,218
472
-
-
-
1,399
3,089
2019
K ‘000
56
178
38,860
2,895
7,772
158
49,919
-
-
865
-
-
865
(35)
830
2018
K ‘000
12
-
12
2018
K ‘000
-
472
31,250
2,498
6,162
15
40,397
85
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 9. Other operating expenses
Staff costs
Acquisition costs relating to business combination
Administrative expenses
Depreciation and amortization
Operating lease
Software maintenance and support charges
Auditor’s remuneration (note 36)
Other
Break-up of staff costs:
Salaries, wages and other benefits
Superannuation costs
Cost of employee share based incentive plan
Total staff costs
CONSOLIDATED
PARENT
2019
K ‘000
58,443
191
25,446
17,034
2,444
1,687
1,017
10,965
117,227
2018
K ‘000
44,821
345
18,152
6,758
5,785
2,028
765
8,723
87,377
2019
K ‘000
27,729
16
6,323
5,825
49
285
377
5,071
45,675
CONSOLIDATED
PARENT
2019
K ‘000
52,795
2,765
2,883
58,443
2018
K ‘000
41,473
1,368
1,980
44,821
2019
K ‘000
23,517
1,329
2,883
27,729
2018
K ‘000
19,402
-
4,633
2,498
2,263
222
221
4,001
33,240
2018
K ‘000
16,854
568
1,980
19,402
As at 31 December 2019 the Group had 740 (2018: 366) employees and 5 (2018: 4) consultants. The Company had 228
(2018:125) employees and 2 (2018: 2) consultants.
10. Income taxes
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
2019
K ‘000
82,693
24,808
63
(3,049)
21,822
25,120
3,298
21,822
2018
K ‘000
69,203
20,761
61
288
21,110
18,443
2,667
21,110
2019
K ‘000
41,488
12,446
(12,044)
(1,347)
(945)
1,298
(2,243)
(945)
2018
K ‘000
3,954
1,186
13
(148)
1,051
784
267
1,051
Profit before tax
Prima facie tax at 30% (2018: 30%)
Tax effect of:
Permanent differences
Prior year adjustment
Income tax expense
Represented by:
Current tax
Deferred taxes
Income tax expense
86
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
11. Deferred Taxes
a) Net deferred tax assets where there is a right to offset:
Allowance for losses
Employee benefit provision
Lease liability
Depreciation and amortisation
Others
Net deferred tax asset
CONSOLIDATED
PARENT
2019
K ‘000
12,127
2,720
16,488
31,335
(20,302)
(542)
(20,844)
10,491
2018
K ‘000
5,862
1,707
-
7,569
(579)
203
(376)
7,193
2019
K ‘000
30
1,327
2,819
4,176
(1,192)
242
(950)
3,226
b) The movement on deferred tax account is as follows:
CONSOLIDATED
PARENT
Allowance for losses
Employee benefit provision
Lease liability
Depreciation and amortisation
Others
Net deferred tax asset
12. Cash and due from banks
Cash on hand
Exchange settlement accounts
Due from other banks
2019
K ‘000
12,127
2,720
16,488
31,335
(20,302)
(542)
(20,844)
10,491
2018
K ‘000
5,862
1,707
-
7,569
(579)
203
(376)
7,193
2019
K ‘000
30
1,327
2,819
4,176
(1,192)
242
(950)
3,226
CONSOLIDATED
PARENT
2019
K ‘000
82,413
58,314
128,975
269,702
2018
K ‘000
4,993
5,820
74,825
85,638
2019
K ‘000
3
-
43,834
43,837
2018
K ‘000
60
625
-
685
82
20
102
787
2018
K ‘000
60
625
-
685
82
20
102
787
2018
K ‘000
3
-
12,882
12,885
87
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
13. Central bank bills
Central bank and treasury bills
Less than 90 days
Over 90 days
Unearned discount
CONSOLIDATED
PARENT
2019
K ‘000
-
755,000
(32,910)
722,090
2018
K ‘000
75,000
338,000
(16,846)
396,154
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
-
-
Central bank bills are debt securities issued by the Bank of Papua New Guinea (BPNG). Central bank bills amounting to
K nil (2018: K75,000,000) 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.
14. Regulatory deposits
Regulatory deposit of the Group as at 31 December 2019 amounted to K249,712,700 (2018: K137,494,400). This
represents mandatory balance required to be maintained in a non-interest bearing account with the Central Bank -
Bank of Papua New Guinea. Regulatory deposits are measured at amortized cost. Regulatory deposit of the parent as
at 31 December 2019 amounted to K nil (2018: K nil).
15. Financial assets at fair value through profit or loss
Equity securities
- Listed
- Unlisted
Convertible notes
CONSOLIDATED
PARENT
2019
K ‘000
4,834
2,636
165
7,635
2018
K ‘000
4,681
61
165
4,907
2019
K ‘000
174
-
165
339
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
2019
K ‘000
4,907
153
2,575
-
-
2018
K ‘000
4,636
106
165
-
-
2019
K ‘000
347
(8)
-
-
-
7,635
4,907
339
2018
K ‘000
182
-
165
347
2018
K ‘000
157
25
165
-
-
347
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.
88
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 16. Loans and advances to customers
Loans to individuals
Loans to corporate entities
Gross loans and advances to customers
Expected credit losses
CONSOLIDATED
PARENT
2019
K ‘000
621,881
800,077
1,421,958
(20,525)
1,401,433
2018
K ‘000
208,487
661,627
870,114
(18,451)
851,663
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
7
7
-
7
Details of gross loans and advances to customers are as follows:
CONSOLIDATED
PARENT
Overdrafts
Property mortgage
Asset financing
Insurance premium funding
Business and other loans
Movements in expected credit losses are as follows:
Balance at beginning of year
IFRS 9 transition impact on the opening balance
Impairment losses during the year
Loans written off
Bad debt recoveries
Balance at end of year
17. Investments in government inscribed stocks
Government inscribed stocks principal balance
Unamortised premium
Unamortised discount
Accrued interest
Gross investments in government inscribed stocks
Expected credit losses
2019
K ‘000
68,273
320,658
20,056
2,289
1,010,682
1,421,958
Consolidated
2019
K ‘000
18,451
-
5,957
(5,959)
2,076
20,525
2018
K ‘000
60,719
118,541
22,475
2,515
665,864
870,114
2018
K ‘000
13,329
4,200
5,514
(6,318)
1,726
18,451
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
-
-
-
-
7
7
Parent
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
-
-
-
-
CONSOLIDATED
PARENT
2019
K ‘000
33,000
437
(8)
1,063
34,492
(489)
34,003
2018
K ‘000
33,000
573
(74)
1,496
34,995
(800)
34,195
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
89
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited The movement in investments in government inscribed stocks is as follows:
Balance at beginning of year
Additions / (maturities)
Accrued interest
Amortized discount/(premium)
IFRS 9 transition impact on the opening balance
Write back / (addition) of expected credit losses
CONSOLIDATED
PARENT
2019
K ‘000
34,195
-
(433)
(70)
-
311
34,003
2018
K ‘000
79,878
(45,000)
(91)
208
(1,257)
457
34,195
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
-
-
-
-
-
-
Investments in government inscribed stocks are measured at amortized cost. Included within the balance is an amount
of K nil (31 December 2018: K25,000,000) which has been pledged with a third party against repurchase agreement
transaction.
18. 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
*Kina Ventures Limited (KVL) shareholding structure
Kina Bank Limited (KBL)
Kina Properties Limited (KPL)
2019
%
100
-
100
100
100
100
SHAREHOLDINGS**
2018
%
100
100
100
100
100
2019
2018
Amount (K)
Amount (K)
2
-
2
2
2
2
-
2
2
2
500,002
500,010
(251,677)
248,333
500,002
500,010
(251,677)
248,333
100
100
100
100
5,000,000
5,000,000
2,125,000
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 2019 (2018: nil).
90
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 19. Property, plant and equipment
CONSOLIDATED
Furniture
& Fittings
Building
improvements
Motor
Vehicles
Office
Equipment
Land &
Building
Work in
Progress
K’000
K’000
K’000
K’000
K’000
K’000
1,123
115
-
-
9,854
3,515
15,721
11,746
191
-
(2,711)
819
-
160
868
110
-
-
-
(9,617)
1.070
1,360
(110)
-
1,238
7,334
4,174
16,699
2,129
2,320
-
3,620
-
(48)
4,810
(876)
(137)
-
(1,013)
-
(437)
48
-
10,524
2,246
(2,419)
-
1,949
-
(338)
-
21,420
74
(214)
-
-
-
17,685
5,785
37,979
2,129
(4,552)
(2,822)
(11,451)
(218)
(939)
(508)
(2,004)
1,338
(4,148)
160
-
(3,170)
(13,455)
-
-
-
(832)
1,582
(882)
338
(2,641)
199
(54)
272
-
-
-
-
-
(1,402)
(3,398)
(3,714)
(15,897)
Cost
Balance 31
December 2017
Additions
Transfer in (out)
Disposals
Balance 31
December 2018
IFRS 16
transition
impact on
the opening
balance
Additions
Transfer in (out)
Disposals
Balance 31
December 2019
Accumulated
depreciation
Balance 31
December 2017
Charge for the
year
Disposals
Balance 31
December 2018
IFRS 16
transition
impact on
the opening
balance
Charge during
the year
Disposals
Balance 31
December 2019
Book value
Balance 31
December 2019
Balance 31
December 2018
Right-
of-use
assets
K’000
-
-
-
-
-
-
24,381
38,418
-
-
Total
K’000
43,029
3,353
-
12,488
33,894
24,381
75,931
-
(3,019)
62,799
131,187
-
-
-
-
(19,919)
(3,637)
1,770
(21,786)
(3,149)
(3,149)
(6,705)
(11,497)
-
2,167
(9,854)
(34,265)
52,945
96,922
(2,320)
-
-
-
-
-
-
-
-
-
-
-
3,408
14,287
2,071
22,082
2,129
225
3,186
1,004
3,244
2,129
2,320
-
12,108
91
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 19. Property, plant and equipment
PARENT
Furniture
& Fittings
Building
improvements
Motor
Vehicles
Office
Equipment
Land &
Building
Work in
Progress
K’000
878
K’000
2100
K’000
10,683
K’000
2,128
-
-
-
299
-
-
501
110
-
-
-
-
K’000
110
2,246
(110)
-
878
2,399
11,294
2,128
2,246 -
19,631
-
-
-
Right-
of-use
assets
K’000
-
-
-
-
Total
K’000
16,481
3,150
-
-
-
-
(2,246)
-
-
-
-
-
-
-
-
-
-
-
11,057
11,057
3,051
5,710
-
-
-
(239)
14,108
36,159
-
-
-
-
(11,416)
(1,286)
-
(12,702)
(2,467)
(2,467)
(2,929)
(4,585)
-
239
(5,396)
(19,515)
8,712
16,644
-
-
-
-
547
2,246
-
3,671
1,494
-
(239)
3,654
616
-
-
11,909
2,128
(681)
(1,853)
(8,422)
(37)
(180)
(999)
-
-
-
(718)
(2,033)
(9,421)
-
-
-
(35)
(516)
(1,069)
-
239
-
(753)
(2,310)
(10,490)
-
-
-
-
-
-
-
-
2,918
1,344
1,419
2,128
160
366
1,872
2,128
2,246
-
6,929
Cost
Balance 31
December 2017
Additions
Transfer in (out)
Disposals
Balance 31
December 2018
IFRS 16
transition
impact on
the opening
balance
Additions
Transfer in (out)
Disposals
Balance 31
December 2019
Accumulated
depreciation
Balance 31
December 2017
Charge during
the year
Disposals
Balance 31
December 2018
IFRS 16
transition
impact on
the opening
balance
Charge during
the year
Disposals
Balance 31
December 2019
Book value
Balance 31
December 2019
Balance 31
December 2018
K’000
582
104
-
-
686
-
2
-
-
688
(460)
(70)
-
(530)
-
(36)
-
(566)
123
156
92
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 20. Intangible assets
CONSOLIDATED
Software
Customer deposit
relationship /
intangible
Work in Progress
Total
Cost
Balance 31 December 2017
Additions
Transfer in (out)
Balance 31 December 2018
Additions
Transfer in (out)
Balance 31 December 2019
Accumulated depreciation
Balance 31 December 2017
Charge for the year
Balance 31 December 2018
Charge during the year
Balance 31 December 2019
Book value
Balance 31 December 2019
Balance 31 December 2018
PARENT
Cost
Balance 31 December 2017
Additions
Disposals
Balance 31 December 2018*
Additions
Transfer in (out)
Balance 31 December 2019
Accumulated depreciation
Balance 31 December 2017
Charge during the year
Disposals
Balance 31 December 2018
Charge during the year
Disposals
Balance 31 December 2019
Book value
Balance 31 December 2019
Balance 31 December 2018
K’000
12,992
-
353
13,345
7,700
16,476
37,521
(1,885)
(2,365)
(4,250)
(3,110)
(7,360)
30,161
9,095
Software
K’000
6,058
-
-
6,058
1,979
316
8,353
(424)
(1,212)
-
(1,636)
(1,241)
-
(2,877)
5,476
4,422
K’000
3,780
-
-
3,780
18,688
-
22,468
(1,701)
(756)
(2,457)
(2,427)
(4,884)
17,584
1,323
Customer deposit
relationship
K’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
K’000
4,721
11,646
(353)
16,014
322
(14,834)
1,502
-
-
-
-
-
1,502
16,014
Work in Progress
K’000
603
769
-
1,372
360
(676)
1,056
-
-
-
-
-
-
-
1,056
1,372
K’000
21,493
11,646
-
33,139
26,710
1,642
61,491
(3,586)
(3,121)
(6,707)
(5,537)
(12,244)
49,247
26,432
Total
K’000
6,661
769
-
7,430
2,339
(360)
9,409
(424)
(1,212)
-
(1,636)
(1,241)
-
(2,877)
6,532
5,794
93
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 20. Intangible assets (continued)
The Group recognised customer deposit relationship upon acquisition of Maybank (PNG) Limited on 30 September 2015.
Also, the acquisition of Australian and New Zealand (ANZ) Bank’s retail, commercial and SME banking businesses in PNG
on 23 September 2019 gives rise to the recognition of core customer deposit intangible.
The intangible assets were estimated to have a useful life of five years and three years based on the license term
of software and expected length of customer deposit relationship and core deposit intangible. Customer deposit
relationship and core deposit intangible has a remaining useful life of two years respectively.
21. Other assets
CONSOLIDATED
PARENT
Prepayments
Security deposits and bonds
Other debtors
Less: expected credit losses
Movement of expected credit loss on other assets
is as follows:
Balances at beginning of year
Reversal during the year
Reclassification
Balance at end of year
22. Due to customers
Corporate customers
Retail customers
2019
K ‘000
6,241
5,292
55,208
66,741
(4,038)
62,703
4,038
-
-
4,038
2018
K ‘000
5,495
962
11,005
17,462
(4,038)
13,424
4,052
(14)
-
4,038
2019
K ‘000
572
498
247
1,317
(101)
1,216
101
-
-
101
2018
K ‘000
256
397
992
1,645
(101)
1,544
101
-
-
101
CONSOLIDATED
PARENT
2019
K ‘000
2018
K ‘000
2019
K ‘000
2018
K ‘000
1,624,450
1,045,850
836,517
269,610
2,460,967
1,315,460
-
-
-
23. Current income tax (assets) liabilities
CONSOLIDATED
PARENT
Balance at beginning of year
Paid during the year
Current provision
Prior year under provision
Balance at end of year
Net current income tax (assets) liabilities is represented by:
Current income tax asset
Current income tax liability
2019
K ‘000
8,154
(30,628)
25,120
1,050
3,696
(810)
4,506
3,696
2018
K ‘000
635
(13,561)
18,443
2,637
8,154
-
8,154
8,154
2019
K ‘000
1,011
(1,179)
1,298
(1,447)
(317)
(317)
-
(317)
94
-
-
-
2018
K ‘000
355
(337)
784
209
1,011
-
1,011
1,011
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
24. Employee provisions
CONSOLIDATED
Provision for Annual Leave
Provision for Long Service Leave
Provision for Salaries
Provision for Bonus
Total
PARENT
Provision for Annual Leave
Provision for Long Service Leave
Provision for Salaries
Provision for Bonus
Total
2019
Represented by:
Short term provisions
Long term provisions
Total employee provision
Opening balance
Additions
Payments Closing balance
2019
K ‘000
2,109
1,285
59
2,798
6,251
K ‘000
2,343
904
39,028
2,308
44,583
2019
K ‘000
(1,296)
(124)
(39,020)
(1,326)
(41,766)
K ‘000
3,156
2,065
67
3,780
9,068
Opening balance
Additions
Payments Closing balance
K ‘000
1,068
412
62
1,100
2,642
K ‘000
1,380
303
17,361
1,311
20,355
K ‘000
(841)
(80)
(17,352)
(304)
(18,577)
K ‘000
1,607
635
71
2,107
4,420
CONSOLIDATED
PARENT
7,003
2,065
9,068
3,785
635
4,420
95
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited CONSOLIDATED
2018
Opening balance
Additions
Payments Closing balance
Provision for Annual Leave
Provision for Long Service Leave
Provision for Salaries
Provision for Bonus
Total
PARENT
Provision for Annual Leave
Provision for Long Service Leave
Provision for Salaries
Provision for Bonus
Total
2018
Represented by:
Short term provisions
Long term provisions
Total employee provision
K ‘000
1,498
1,769
255
831
4,353
K ‘000
1,608
410
31,852
3,017
36,887
2018
K ‘000
(997)
(894)
(32,048)
(1,050)
(34,989)
K ‘000
2,109
1,285
59
2,798
6,251
Opening balance
Additions
Payments Closing balance
K ‘000
745
1,091
-
515
2,351
K ‘000
952
166
11,648
1,054
13,820
K ‘000
(629)
(845)
(11,586)
(469)
(13,529)
K ‘000
1,068
412
62
1,100
2,642
CONSOLIDATED
PARENT
4,966
1,285
6,251
2,230
412
2,642
96
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 25. Lease Liabilities
Details of associated lease liabilities recognised in respect of the right of use assets are presented below:
CONSOLIDATED
31 December 2019
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities at 31 December 2019
Lease liabilities included in statement of financial position at 31 December 2019
Current
Non-current
Amounts recognised in statement of comprehensive income
Interest on lease liabilities
Expense relating to short-term leases
Amounts recognised in statement of cash flows
Total cash outflow for leases
K’000
13,163
35,603
22,544
71,310
9,319
45,639
54,958
2,583
5,746
8,329
7,796
Total cashflows for leases is recorded under Cash payments to employees and suppliers in the statement of cash flows
PARENT
31 December 2019
Maturity analysis – contractual undiscounted cash flows
Less than one year
One to five years
More than five years
Total undiscounted lease liabilities at 31 December 2019
Lease liabilities included in statement of financial position at 31 December 2019
Current
Non-current
Amounts recognised in statement of comprehensive income
Interest on lease liabilities
Expense relating to short-term leases
Amounts recognised in statement of cash flows
Total cash outflow for leases
K’000
3,572
6,546
528
10,646
2,971
6,426
9,397
803
985
1,788
3,461
Total cashflows for leases is recorded under Cash payments to employees and suppliers in the statement of cash flows
97
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 26. Other liabilities
CONSOLIDATED
PARENT
Accruals
Unclaimed money and stale cheques
Bank cheques
Accounts payable
Unearned commission income
Other liabilities
Balance at end of year
27. Issued and paid ordinary shares
2019
K ‘000
12,694
8,166
46,716
4,996
1,309
66,857
140,738
2018
K ‘000
13,472
3,770
4,484
4,018
2,352
9,699
37,795
2019
K ‘000
2,326
36
-
2,002
-
7,000
11,364
2018
K ‘000
1,474
36
-
2,675
-
6,253
10,438
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 2017
Share issued during the year – retention incentive
Balance as at 31 December 2018
Share issued during the year
Balance as at 31 December 2019
Number of shares
Share capital
K ‘000
163,993
-
163,993
10,752
174,745
K ‘000
142,213
-
142,213
34,757
176,970
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.
CONSOLIDATED
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)
2019
60,871
169,369
10,752
170,308
35.94
35.74
2018
48,093
163,993
34,757
166,563
29.33
28.87
c. Share-based payment reserve
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.
98
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 27. Issued and paid ordinary shares (continued)
The following STI plan arrangements were in place during the year ended 31 December 2019
Date of grant
Number of share rights granted
Market value at grant date
Vesting date
Vesting conditions
Long term incentive plan (LTI plan)
1 April 2019
16 February 2018
440,776
AUD 485,864
1 April 2021
89,256
AUD 62,301
1 April 2020
Continued service Continued service
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 2019
Date of grant
Number of share rights granted
Market value at grant date
Fair value at grant date
Vesting date
Vesting conditions
1 April 2019
970,523
AUD 1,069,800
AUD 543,493
1 April 2022
16 February 2018
17 February 2017
974,780
AUD 690,394
AUD419,155
1 April 2021
854,420
AUD 897,141
AUD 583,193
1 April 2020
Continued service
Continued service
Continued service
50% target TSR
50% target TSR
50% target TSR
50% target EPS growth
50% target EPS growth
50% target EPS growth
The estimated fair value of share rights issued on 1 April 2019 under the LTI plan was AUD 0.54, compared to the grant
date market value per share of AUD 1.135. 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.
Retention incentive
The retention plan is a once off award of performance rights to assist in the retention of key eligible participants. No
retention rights were granted during the year.
Movement in outstanding share rights
Outstanding rights at beginning of year
New rights granted
Rights vested and shares issued/purchased
Rights forfeited or lapsed
Outstanding rights at end of year
CONSOLIDATED
2019
Number
2,573,006
1,555,663
(542,500)
-
3,586,169
2018
2018
1,665,721
1,466,721
(372,081)
(187,355)
2,573,006
99
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 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 share incentive plans
Rights vested
Rights forfeited or lapsed
Total
28. Statements of cash flows
CONSOLIDATED
2019
K ‘000
2,651
842
(1,430)
-
2,063
2018
K ‘000
1,558
1,862
(769)
-
2,651
a) For the purposes of the statements of cash flow, cash and cash equivalents comprises the following:
Cash and due from banks (note 12)
Central bank bills (note 13)
b) Movement in investment securities is as follows:
Central bank bills (note 13)
Central bank bills & other eligible bills (less than 3 months)
Government inscribed stocks (note 17)
Financial assets at FVTPL
CONSOLIDATED
PARENT
2019
K ‘000
269,702
-
2018
K ‘000
85,638
75,000
269,702
160,638
2019
K ‘000
43,837
-
43,837
2018
K ‘000
12,885
-
12,885
CONSOLIDATED
2019
K ‘000
722,090
-
34,003
7,636
763,729
2018
MOVEMENT
K ‘000
396,154
75,000
34,195
5,061
360,410
K ‘000
325,936
(75,000)
(192)
2,575
403,319
100
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
28. Statements of cash flows (continued)
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 19 and 20)
(Premium)/discount amortization (note 17)
Share-based payment expense
Net (losses)/gains from changes in fair values of financial assets (note 15)
Increase/(decrease) in income tax payable
2019
K ‘000
60,871
2
17,033
(70)
(588)
153
(4,141)
2018
K ‘000
48,093
(1,218)
6,758
208
1,980
106
7,519
(Increase)/decrease in deferred income tax (note 11b)
(3,298)
(2,667)
2019
K ‘000
42,433
-
2018
K ‘000
2,903
-
5,825
2,498
-
(588)
(8)
(1,328)
(2,439)
-
1,980
25
656
(267)
Changes in net assets and liabilities:
Decrease/(increase) in assets:
Increase/(decrease) in liabilities:
(371,349)
(154,539)
325
7,660
164,802
316,802
(7,194)
20,796
Effect of change in accounting policy as disclosed in note 1.3
(725)
(3,820)
(414)
-
Net cash inflow/(outflow) from operating
(137,310)
219,221
36,612
36,251
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 2018, and related
expenses and income for the year ended are as follows:
a) Directors and management transactions
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 2019, the total remuneration of the
Directors was K3,140,026 (2018: K3,277,474).
Key management personnel (KMP) of the group includes directors and the executive general managers (EGMs) during the
year.
The table below shows the Group specified EGM remuneration in aggregate (in K’000).
No of KMP
Salary
Bonus
Super
2019
2018
13
15
8,388
8,008
1,985
464
-
-
Equity
Options
1,013
1,093
Other
benefits
2,314
2,674
Total
13,700
12,239
101
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
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 (2018: 12.50) basis points, unsecured and with no fixed term of repayment. Details as follows:
TRANSACTIONS
BALANCE OUTSTANDING
INCOME
EXPENSES
INCOME
EXPENSES
DUE FROM
DUE TO
2019
K ‘000
2,827
4,491
-
2019
K ‘000
670
670
-
2018
K ‘000
2,260
4,044
-
2018
K ‘000
672
438
-
42,209
1,349
33,606
2,720
2019
K ‘000
2018
K ‘000
-
-
-
-
-
-
-
-
2019
K ‘000
(7,386)
(28,812)
(285)
2018
K ‘000
(31,846)
(24,252)
(221)
(130,704)
(118,045)
-
-
-
-
-
-
-
-
-
-
-
-
351,096
351,096
-
-
-
-
(25)
-
-
-
-
49,527
2,689
39,910
3,829
351,096
351,096
(167,212)
(174,364)
KFM
KISS
KWM
KBL
KVL
KPL
KNL
30. Investments 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
2019
2018
2019
2018
K ‘000
K ‘000
K ‘000
K ‘000
4,869
4,869
2,650
2,650
4,869
4,869
2,650
2,650
102
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 31. Business Combinations
Acquisition of ANZ Bank’s retail, commercial and SME banking businesses in PNG
On 23 September 2019, the Group through Kina Bank Limited, a 100% owned subsidiary of Kina Securities Limited,
acquired ANZ Bank’s retail, commercial and SME banking businesses in PNG. ANZ is an Australian multinational banking
and financial services company. The acquisition will enhance Kina Bank’s products and services that will complement its
vision to become fastest growing, dynamic and leading digital bank in the country.
The fair value of the financial assets and liabilities recognised in respect of the identifiable assets acquired and liabilities
assumed are as set out in the table below.
Fair value of the assets and liabilities
recognised on acquisition
Assets
Cash and cash equivalents
Loans and Advances
Fixed Assets
Right of use asset
Intangible asset
Deferred tax asset,net
Other Assets
Liabilities
Customers’ Deposit
Lease Liabilities
Other Liabilities
Total identifiable net assets at fair value
Total consideration
Purchased price allocation
Intangible asset
Fair value adjustments on loawn
Deferred tax asset, net
Others
Total consideration transferred
K’000
711,947
329,586
8,172
32,916
18,688
666
6,088
1,048,837
32,916
2,081
24,229
24,229
18,486
4,875
666
202
24,229
The fair value of the acquired receivables is K329,586m and a gross contractual value of K350,293m, with a loss allowance
of K20,707m recognised on acquisition.
103
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
32. Segment reporting
The segment information provided to the Chief Executive Officer for the reportable segments for the year ended 31
December 2019 is as follows:
Banking & Finance
Wealth
Management
Corporate
Total
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:
Additions to non-current assets
Total liabilities
PGK‘000
146,445
(31,098)
42,048
18,845
268
176,508
(51,324)
(5,906)
(10,453)
(67,683)
108,825
1,779
(40,194)
70,410
(19,453)
50,957
2,813,044
(34,367)
(2,642,276)
PGK‘000
PGK‘000
6
-
(4)
28,143
588
28,733
(11,033)
260
-
(10,773)
17,960
910
(7,318)
11,552
(3,314)
8,238
17,221
-
(2,673)
31
(803)
(88)
797
388
325
(37,836)
-
(6,581)
(44,417)
(44,092)
46,838
(2,015)
731
945
1,676
167,270
(4,638)
(25,310)
PGK‘000
146,482
(31,901)
41,956
47,785
1,244
205,566
(100,193)
(5,646)
(17,034)
(122,873)
82,693
49,527
(49,527)
82,693
(21,822)
60,871
2,997,535
(39,005)
(2,670,259)
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.
104
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
32. Segment reporting (continued)
The segment information provided to the Chief Executive Officer for the reportable segments for the year ended 31
December 2018 is as follows:
Banking & Finance
Wealth
Management
Corporate
Total
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:
Additions to non-current assets
Total liabilities
PGK‘000
112,756
(25,232)
34,496
8,412
(1,058)
129,374
(37,049)
(5,645)
(3,449)
(46,143)
83,231
3,281
(32,174)
54,338
(16,833)
37,505
1,516,929
10,911
(1,390,711)
PGK‘000
PGK‘000
10
-
(12)
27,109
1,501
28,608
(14,060)
575
-
(13,485)
15,123
548
(6,304)
9,367
(2,692)
6,675
21,902
-
(2,362)
42
-
(283)
830
3,079
3,668
(29,510)
-
(3,309)
(32,819)
(29,151)
36,080
(1,431)
5,498
(1,585)
3,913
123,163
4,088
348
PGK‘000
112,808
(25,232)
34,201
36,351
3,522
161,650
(80,619)
(5,070)
(6,758)
(92,447)
69,203
39,909
(39,909)
69,203
(21,110)
48,093
1,661,994
14,999
(1,392,725)
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 2019, 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.
Other contingent liabilities
The Bank guarantees the performance of customers by issuing bank 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.
105
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
33. Contingent liabilities (continued)
CONSOLIDATED
Bank guarantee
2019
K ‘000
70,375
70,375
2018
K ‘000
45,933
45,933
The Company had no contingent liabilities as at 31 December 2019 and 2018
34. Commitments
Capital commitments
There was a total of K4,802,205 relating to commitments under contracts for capital expenditure at balance sheet date (31
December 2018: K7,287,296).
Loan commitments
There was a total of K131,801k relating loan commitment at balance sheet date (31 December 2018: K64,952k).
35. Fair value of financial assets and liabilities
The Group measures fair values in accordance with IFRS 13, which defines fair value as the price that would be received to
sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
The Group also uses a fair value hierarchy that categorises into three levels the inputs to valuation techniques used to
measure fair value, which gives highest priority to quoted prices.
• Level 1 inputs are quoted prices (unadjusted) in active markets for identical assets or liabilities that the entity can
access at the measurement date. Assets and liabilities are classified as Level 1 if their value is observable in an
active market.
• Level 2 inputs are inputs other than quoted prices included within Level 1 that are observable for the asset or
liability, either directly or indirectly. A Level 2 input must be observable for substantially the full term of the
instrument. Level 2 inputs include quoted prices for similar assets or liabilities in active markets, quoted prices
for identical or similar assets or liabilities in markets that are not active, inputs other than quoted prices that are
observable for the asset or liability.
• Level 3 inputs are unobservable inputs. Assets and liabilities are classified as Level 3 if their valuation incorporates
significant inputs that are not based on observable market data.
Where possible, fair value is determined by reference to a quoted market price for the instrument valued. The group does
not hold any material financial instruments for which quoted prices are not available other than investment in unlisted
shares which are classified in Level 3 category.
The following table provides an analysis of financial instruments that are measured subsequent to initial recognition at fair
value, grouped by fair value hierarchy level.
Financial instruments measured at fair value
The following tables present the Group’s and the parent’s assets and liabilities that are measured at fair value at 31
December 2019.
106
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in shares – Unlisted
- Investment in convertible notes – Unlisted
Total assets
CONSOLIDATED
LEVEL 1
K ‘000
LEVEL 2
K ‘000
LEVEL 3
K ‘000
4,834
-
-
4,834
-
-
-
-
-
2,636
165
2,801
TOTAL
K ‘000
4,834
2,636
165
7,635
35. Fair value of financial assets and liabilities (continued)
Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in shares – Unlisted
Total assets
PARENT
LEVEL 1
K ‘000
LEVEL 2
K ‘000
LEVEL 3
K ‘000
TOTAL
K ‘000
174
-
174
-
-
-
-
165
165
174
165
339
The following tables present the Group’s and the parent’s assets and liabilities that are measured at fair value at 31
December 2018.
ASSETS
Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in shares – Unlisted
- Investment in convertible notes – Unlisted
Total assets
ASSETS
Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in shares – Unlisted
Total assets
CONSOLIDATED
LEVEL 1
K ‘000
LEVEL 2
K ‘000
LEVEL 3
K ‘000
4,681
-
-
4,681
-
61
165
226
-
-
-
-
PARENT
LEVEL 1
K ‘000
LEVEL 2
K ‘000
LEVEL 3
K ‘000
182
-
182
-
-
-
-
165
165
TOTAL
K ‘000
4,681
61
165
4,907
TOTAL
K ‘000
182
165
347
107
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Reconciliation of level 3 fair value measurements of financial assets and financial liabilities
The group holds investment in unlisted securities amounting to K2,801,607 (31 December 2018: K226,587) in level 3
category for which carrying amount is considered as reasonable approximation of fair value. As such no reconciliation of
level 3 financial instruments has been presented in these financial statements.
The parent holds investment in unlisted securities amounting to K165,000 (31 December 2018: K165,000) in level 3 category
for which carrying amount is considered as reasonable approximation of fair value. As such no reconciliation of level 3
financial instruments has been presented in these financial statements.
Financial instruments not measured at fair value
For the financial instruments not measured at fair value as at 31 December 2019 and 2018, there is no material difference
between the fair value and carrying value of the Group’s and the Parent’s financial assets and liabilities.
2019
K ‘000
942
-
75
1,017
2019
K ‘000
329
-
48
377
2018
K ‘000
586
135
44
765
2018
K ‘000
162
45
14
221
36. Auditors’ remuneration
CONSOLIDATED ENTITY
Audit and audit related
Tax services
Other services
PARENT
Audit and audit related
Tax services
Other services
108
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 37. Goodwill
On September 2015, the Group, through Kina Ventures Limited, a 100% owned subsidiary of Kina Securities Limited,
acquired all of the shares in Maybank (PNG) Limited and Maybank Property (PNG). Maybank (PNG) and Maybank Property
(PNG) are the PNG subsidiaries of Malaysia’s largest bank. The acquisition strengthened Kina Bank’s investment in PNG as it
is an excellent fit for its expansion program.
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 2019 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 3.0% (31 December 2018: 3.0%). The estimated cash flows are
discounted using a discount rate of 6.5% (31 December 2018: 12.6%). The fair value calculation includes future maintainable
earnings of K74.8m (31 December 2018: K72.4m) and earnings multiple of 8 times.
38. Events after the statements of financial reporting date
Subsequent to the financial reporting date, the directors declared a final dividend of AUD 6.4 cents / PGK 15.5 toea per
share (K27.0m).
The spread of Novel Coronavirus (COVID-19) subsequent to year end is currently impacting businesses globally and
constitutes a “Non-Adjusting Subsequent Event” as defined in IAS 10 ‘Events after the Reporting Period’. The extent of
impact varies by industry mainly resulting in supply chain disruption, reduced availability of human resource, increased
cost of alternative working arrangements, reduced tourism, stock market volatility and consequent increase in provisioning
requirements and reduction in revenue streams from industries impacted.
The Group is in the process of assessing possible financial impacts of the situation on its business, however, given it is still
evolving, the exact financial impact cannot be quantified at this stage. Furthermore, the carrying amount of significant
assets and liabilities recognised in these financial statements are not materially sensitive to market factors or forward-
looking assumptions other than loan recoverability should conditions materially deteriorate. Based on a preliminary
assessment of impacts and the fact Papua New Guinea is not significantly and directly affected by the situation at this
stage, the directors and the management of the Group believe that direct financial impact is unlikely to be material at this
stage. Further, there is no evidence to suggest at this stage that the situation will affect the Group’s ability to continue as
going concern.
There has been no other transactions or events of a material and unusual nature between the end of the reporting period
and the date of the report likely, in the opinion of the Directors of the Group, to affect significantly the operations of the
Group, the results of those operations, or state of affairs of the Group in future years.
109
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Shareholder information
Kina Securities Limited ARBN: 606 168 594
Additional information required by the Australian Securities Exchange Limited Listing Rules and not disclosed
elsewhere in the Report is set out below. The information is current as at 16 March 2020.
a) The distribution of security holders
Size of holding
1 to 1,000
1,001 to 5,000
5,001 to 10,000
10,001 to 100,000
100,001 and over
Total
Number of holders
Number of shares
% of issued capital
507
710
707
1,548
135
3,607
252,171
2,185,532
5,722,629
47,161,441
119,423,396
174,745,169
14.06
19.68
19.60
42.92
3.74
100.00
b) 20 largest shareholders of quote security holders
Shareholder
Number of Shares
% of issued capital
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
ASIAN DEVELOPMENT BANK
J P MORGAN NOMINEES AUSTRALIA PTY LIMITED
NATIONAL NOMINEES LIMITED
CITICORP NOMINEES PTY LIMITED
COMRADE TRUSTEE SERVICES LIMITED
MINERAL RESOURCES CMCA HOLDINGS LIMITED
COLUMBUS INVESTMENTS LIMITED
AIRWOLF LIMITED
GAS RESOURCES PNGLNG PLANT LIMITED
HEDURU MONI LTD
HUMANA PTY LTD
GEAT INCORPORATED
PERPETUAL SHIPPING LIMITED
HITSUMA SDN BHD
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED - A/C 2
NEW IRELAND DEVELOPMENT CORPORATION LIMITED
SU CHIU IVAN LU
INSPAC (PNG) LIMITED
DOUGLAS FINANCIAL CONSULTANTS PTY LTD
TOTAL TOP 20
BALANCE OF REGISTER
TOTAL REGISTER
39,635,770
10,751,916
8,792,594
6,904,055
3,726,530
3,500,885
3,208,556
3,000,000
2,885,390
2,139,037
1,946,507
1,100,000
1,047,000
1,000,000
1,000,000
800,135
800,000
627,651
600,000
575,700
94,041,726
80,703,443
174,745,169
22.68%
6.15%
5.03%
3.95%
2.13%
2.00%
1.84%
1.72%
1.65%
1.22%
1.11%
0.63%
0.60%
0.57%
0.57%
0.46%
0.46%
0.36%
0.34%
0.33%
53.82%
46.18%
100.00%
110
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited c) Number of security holders and securities on issue
Quoted securities
174,745,169 ordinary fully paid shares, held by 3,607 shareholders.
Unquoted securities
3,415,940 Performance Rights issued as long term incentives to 16 senior executives
d) Unmarketable Parcel of Shares
The number of shareholders holding less than a marketable parcel of ordinary shares is 126.
e) Substantial Shareholders
Shareholder
Number of Shares
% of Issued Capital
HSBC CUSTODY NOMINEES (AUSTRALIA) LIMITED
PERPETUAL LIMITED
ASIAN DEVELOPMENT BANK
J P MORGAN NOMINEES AUSTRALIA
46,460,109
18,659,662
10,751,916
7,895,706
28.33%
10.68%
6.15%
4.81%
f) Stock Exchanges
The Company’s ordinary fully paid shares are listed on the Australian Securities Exchange (ASX) and the Papua
New Guinea National Stock Exchange (PNGX).
g) Voting Rights
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.
111
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited
112
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited Corporate Directory
Directors
Isikeli Taureka (Chairman)
Greg Pawson (CEO)
Karen Smith-Pomeroy
Jane Thomason
Paul Hutchinson
Andrew Carriline
Company Secretary
Chetan Chopra
Registered Office
HEAD OFFICE
Level 9, Kina Bank Haus, Douglas Street
Port Moresby, National Capital District
Papua New Guinea
Telephone: +675 308 3000
VISION CITY BRANCH
Ground Floor
Sir John Guise Drive
PO Box 1141
National Capital District
Papua New Guinea
Telephone: +675 308 3010
LAE TOP TOWN BRANCH
Ground Floor
Nambawan Super Haus
2nd Street Top Town
PO Box 682, Lae
Morobe Province
Papua New Guinea
HARBOUR CITY BRANCH
ANZ Habour City
Off Poreporena Freeway
PO Box 1152
Port Moresby 121
National Capital District
Papua New Guinea
BOROKO BRANCH
Turumu Street
Boroko
Po Box 1718
Boroko 111
National Capital District
Papua New Guinea
JACKSONS BRANCH
Jacksons International Airport
Saraga Jacksons Airport
PO Box 1152
Port Moresby 121 NCD
Papua New Guinea
KOKOPO BRANCH
Post PNG Haus
Williams Road
PO Box 41
Kokopo
East New Britain
MADANG BRACH
Section 20, Lot 08
Coastwatcher’s Avenue
PO Box 181
Madang 511
Madang Province
LAE MARKETS BRANCH
Cnr Cedarbank Street and Aircorps Rd
Second Street, Top Town
PO Box 674
Lae Morobe Province
WAIGANI DRIVE BRANCH
Cnr Waigani and Islander Drive
PO Box 1141
Port Moresby NCD 121
Papua New Guinea
WAIGANI CAMERON RD BRANCH
Cnr Waigani Drive & Cameron Rd
PO Box 252, Waigani 131
National Capital District
Papua New Guinea
PORT MORESBY BRANCH
Cnr Musgrave St & Champion Parade
PO Box 143
Port Moresby 121
National Capital District
Papua New Guinea
GOROKA BRANCH
Cnr of Fox & Elizabeth Streets
Ground Floor, Gouna Plaza
PO Box 767
Goroka 441
East Highlands Province
WEWAK BRANCH
Centre Street
PO Box 1069
Wewak 531
East Sepik Province
KIMBE BRANCH
Cnr Sam Remo Drive and Talasea Rd
PO Box 466
Kimbe 621
West New Britain Province
MT HAGEN BRANCH
Hagen Drive
PO Box 121
Mt Hagen 281
Western Highlands Province
Papua New Guinea
LIHIR BRANCH
PO Box 223
Portion 830, Wide Road
Londolovit
Lihir Island NIP
HIDES BRANCH
Block 8 – HGDC Para Camp
Tari
Southern Highlands Province
Hides Hela Province
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 544 474 (within Australia)
+61 1300 544 474 (outside Australia)
AUDITOR
Deloitte Touche Tohmatsu
Level 9 Deloitte Haus
MacGregor Street
Port Moresby
PO Box 1275 Port Moresby
National Capital District
Papua New Guinea
Telephone: +675 308 7000
Facsimile: +675 308 7001
www.deloitte.com/pg
STOCK EXCHANGE LISTING
ASX Code: KSL
PNGX Code: KSL
WEBSITE:
www.kinabank.com.pg
113
Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited 114
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Annual Report 2019Kina Securities LimitedAnnual Report 2019Kina Securities Limited