Annual Report 2020
Kina Securities Limited | ARBN: 606 168 594
Table of Contents
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15
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19
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28
44
45
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48
53
54
55
56
57
Performance Highlights
Chairmans’s Message
Managing Director’s Report
Strategic Report
Banking
Wealth
Strategic Direction
Total Societal Impact
Economic Outlook
Board of Direcors
Senior Executive Team
Remuneration Report
Directors’ Report
Remuneration Report
Directors’ Declaration
Independent Auditors Report
Statements of Comprehensive Income
Statements of Financial Position
Statements of Changes in Equity
Statements of Cash Flows
Notes of the Financial Statements
131
133
Shareholder Information
Corporate Directory
In this Annual Report, a reference to ‘Kina 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:
https://investors.kinabank.com.pg/investors/?page=corporate-governance
Kina Securities Limited Annual Report 2020 1
Performance Highlights
Successfully
transitioned the
ANZ acquisition
Successfully
completed
equity raising
for future growth
Announced
acquisition of
Westpac PNG
and Fiji
Net Interest Income
UP 48%
to PGK 169.7 m
Revenue
UP 53%
to PGK 314.8 m
FX income
UP 32%
to PGK 55.2 m
NPAT
UP 25%
to PGK 76.0 m
Total loans
UP 16%
to PGK 1.7 bn
Funds Admin Profit
UP 9%
to PGK 8.3 m
Total deposits
UP 5%
to PGK 2.6 bn
2 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 3
Chairman’s Message
I am pleased to introduce Kina’s 2020 Annual Report. Our strong financial performance
during a challenging year reflects the continued successful execution of our growth strategy.
As a result, we were able to deliver a full year dividend of AUD 10.0 cents / PGK26.9 toea per share.
Our results demonstrate the strength of the leadership team, led by Chief Executive Officer and Managing
Director Greg Pawson, and the success of the Kina Bank business model that has contributed to our growth agenda.
Like many businesses, the year offered up a number of challenges as the uncertainties of Covid-19 developed.
Leadership and culture have never been more important and I am delighted that the Bank’s executive team were
able to respond quickly and effectively. Our teams have done an exceptional job to meet the needs of clients,
whilst protecting the health and safety of our people, customers and communities.
Building the bank of the future
During the year, we continued to deliver on our
strategic priorities to drive the growth of the business.
A primary focus was to successfully transition the
ANZ PNG portfolio into business as usual operations.
With an emphasis on providing the best banking
experience for customers, and ongoing investment
in market-leading digital products and services,
Kina achieved this transition effectively.
In June we divested the Esiloans portfolio to Nationwide
Microbank Limited (MiBank). The divestment supports
the strategic partnership between our two institutions
to support greater financial inclusion, increased
micro-finance and improved services for small
and medium sized businesses.
We also simplified the corporate legal structure and
successfully conducted a Non-Renounceable 1:2 Rights
Issue, strengthening the capital adequacy of the Bank.
This will position the company for future growth and
create the capacity to take advantage of acquisition
opportunities. Obtaining investor support for this during
the pandemic and the market volatility that followed,
shows confidence in our business proposition and it
is a credit to the Bank’s management.
Finally, in December we announced the proposed
acquisition of Westpac PNG and Westpac Fiji. Our view
is that there is a great story here, promoting a stronger
publicly listed regional bank. The additional scale,
customers and footprint will increase Kina’s ability to
drive innovation, introduce more choice for customers,
and deliver more value for shareholders.
Business growth
Kina delivered planned business growth across all
of the existing businesses and in particular achieved
the integration benefits critical to the ANZ PNG
Acquisition. Net Profit After Tax increased by 25%
to PGK 76.0m compared with the prior corresponding
period and in line with market expectations. It was
achieved through growth in the existing loan book,
incorporating the ANZ PNG loans and deposit
portfolio and lower interest expense against
total deposits compared to the previous year.
Foreign exchange income increased by 32% and
was underpinned by an increase in overall market
share, including new business generated from larger
export clients. Kina’s Funds Administration business
continued to record growth in revenue, consistent
with increased funds under management and growth
in member numbers.
Leadership in uncertain times
As an essential service, banking has never been more
important for PNG. Throughout the year our teams
worked to support our staff, customers and communities
by continuing to operate and show strong financial
leadership. We prioritised the health of our colleagues,
ensuring our branches and offices were safe and we
supported an extensive health and wellbeing program.
I would like to thank all of my fellow directors
for their contribution, rigour and governance.
The appointment of Dr Ila Temu in December
as Non-Executive Director reflects Kina’s growing
strength in the large corporate sector.
On behalf of the board I would like to thank our staff
for their continued dedication and commitment.
Their pride in our brand has enabled us to deliver solid
results in a challenging year. I am also immensely grateful
to our shareholders for the support we have received
as we look to become a scale regional business.
Isikeli Taureka
Chairman
4 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 5
We also launched a major brand campaign featuring
three brand ambassadors, Chef Julz Henao, Designer
Tabu Warupi and Events Entrepreneur Jelena Tamate -
all SME business owners who are home grown success
stories. The campaign was unlike anything seen before
in PNG with exceptionally high production values.
It showcased our support for SME customers and
boosted Kina’s brand awareness.
Strengthening our culture
We invested significantly in strengthening our culture
after the acquisition of ANZ PNG when we brought two
very different teams together. As a values-led business,
we enhanced our definition of everyday behaviours and
embedded them across the company through a series
of workshops, and embedded them in our learning and
development assessment process. We also completed
an employee engagement survey that provided
extremely positive feedback about the underlying pride
and engagement in the organisation. We continued to
invest in our Occupational Health, Safety and Wellbeing
program, which we benchmark against international
standards. We also took steps forward in diversity and
inclusion objectives with the appointment of two female
PNG nationals to the executive team, and also promoted
local PNG talent into senior leadership roles.
We made great progress on our Total Societal Impact
strategy with a series of partnerships and initiatives that
delivered value for our communities. From funding the
build of a new learning centre, to supporting digital
development and literacy, we’re providing new avenues
for people to access education, government services
and financial inclusion products and services.
The outbreak of Covid-19 presented challenges
that we met swiftly and efficiently. To support our
staff, we introduced a number of initiatives including
private transport to and from work; flexible working
arrangements; additional leave options; and the regular
conventions of advanced hygiene and social distancing.
Combined, these measures ensured we were able
to protect the health and safety of everyone, whilst
continuing business as usual as an essential service
provider. The requirements remain in place and will
continue throughout 2021.
Our 2025 Strategy concentrates on five key areas that
we have made significant progress on throughout 2020:
Core banking
Our focus is on the experience our customers have
when they interact with us every day; and growth in our
lending products. We introduced digital concierges and
kiosks to our branches to help customers bank with us
digitally. We also launched a flagship and unique new
customer offering, Prime, that comes with fee free Visa
cards, the lowest fixed rate home loan in PNG history,
and associated advisory services.
Digital channels
We have invested in world-class merchant POS
terminals, online and mobile banking, and more
recently a best-in-market internet payment gateway
that allows eCommerce and online purchases for
scheme and non-scheme cards. Our new digital
channels delivered planned revenue of PGK 18.8m.
Digital partnerships
We implemented some innovative partnerships in 2020
with more to come in 2021. We have developed PNG’s
first foreign exchange app with biometrics recognition
and electronic verification capability. An important
extension of this technology is the ability to digitally
originate customers and allow existing customers
to acquire new products and services online. We also
launched the xero bank feed API – a first for the Pacific
and the first phase of a broader business advisory
services capability.
Bank as a service
We provide infrastructure and services that
are leveraged by other financial institutions.
For our partner, MiBank, we built cards issuing
and operations capability and provided POS services,
ATM interchange and central bank clearance.
Diversified investment bank
As the largest wealth management business,
funds administrator and leading stockbroking
company in PNG, our strategy builds on these
strengths. We successfully renewed the key
strategic funds management and administration
contracts for a further term.
Delivering financial performance
Our strong results come from a full year of operations
of the business acquired from ANZ PNG, while maintaining
strong growth in the organic business across loans and
the development of new digital channels. We continued
our focus on home lending with the launch of Prime,
our flagship customer offering, and as a result of the
build out of our channel network, fees and commissions
increased by 60%. Total loans grew by 16% to PGK 1.7bn
and total deposits grew by 5% to PGK 2.6bn.
Greg Pawson
Managing Director and Chief
Executive Officer
Managing Director’s Report
It was another extremely successful year for Kina where
we delivered a solid financial performance and finalised
a number of strategic priorities.
We also announced the proposed acquisition of Westpac’s businesses
in Fiji and PNG. The acquisition is a strong strategic fit for us. The expansion
into a new market, additional scale, customers and footprint will enable Kina
to be better positioned to drive innovation and introduce more choice for customers.
It will provide additional growth opportunities, pave the way for further investment,
and provide a bigger Bank and stronger financial services sector for both PNG and Fiji.
6 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 7
Strategic Report
We have made significant progress on a series of initiatives that have delivered growth for the business.
We have a commitment to being ‘Always First’ and as a truly effective competitor we have actively transformed
the PNG banking sector with a series of market firsts. By innovating in the design of products, services and digital
partnerships, we have provided new forms of value for customers and delivered diversified revenues for the group.
Always First
We were the first bank in PNG to launch a locally hosted
Internet Payment Gateway, with the capability to accept
multiple payment types including scheme, local cards
and other forms of digital payments. It also has the
flexibility to integrate with partnership platforms and
for direct connections to businesses of all sizes.
Extremely popular with our business customers,
it has also been implemented by two major government
departments, the Lands Department and Immigration
and Citizenship Authority - via our partnership with local
fintech company NiuPay. We see this as an important
step towards transforming the way payments are
made across the public sector, both for efficiency
and transparency.
We were the first bank in the Pacific to implement
the xero accounting software bank-feed API. Business
customers have the ability to trigger an automatic
transaction sweep from corporate and retail internet
banking into the xero platform, meaning finance
management is simpler and more efficient. With the
pilot phase completed in 2020, the solution will be
available at scale in 2021, delivering an improved
customer service and new business.
We were also the first bank in PNG to pilot 100% digital
onboarding using biometric recognition and electronic
document verification, via our partnership with Everest.
This work is complemented by our investment in the
YuTru platform – a private sector led open scheme
for the digital identification of people and businesses.
In 2021, following regulatory approval from the central
bank, we will launch the Everest app, a 100% digital
banking product that enables customers to transfer
money overseas and trade in foreign exchange. This
project was also a great example of risk and regulation
being front and centre to disruptive innovation.
We became the first commercial bank in the Pacific
to implement Visa transaction controls online, giving
customers greater choice on how their cards are used.
With online transaction controls, transaction alerts via
SMS and WhatsApp, 3D Secure and the technology
delivery for Visa fraud monitoring, we significantly
enhanced cards performance and risk management.
In addition to doubling the number of merchant
POS terminals in market, we implemented a fully
integrated solution between Pronto terminals and
Kina POS machines. Kina’s POS terminals are
unquestionably the best for in-market for performance
and reliability, supported by a comprehensive merchant
team model. With continued investment in POS terminal
growth, we saw an uplift of more than 50% from the
ANZ fleet we replaced.
As part of our strategic partnership with MiBank,
we completed the technology build to provide
MiBank with POS services, ATM interchange, central
bank clearance and debit card production. As our first
‘bank as a service’ business model innovation project,
it forms a central part of our financial inclusion efforts
and paves the way for potential banking infrastructure
deployment in the future.
8 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 9
Banking
Covid-19 made 2020 a unique year for the Bank.
With the PNG Government classifying banking and
financial services as essential, we took significant socially
responsible actions to ensure 100% of our branch
network remained open; our contact centre continued
to operate daily and our digital services were available
24/7. At an operations level, the Bank increased its
security support to ensure regular cash operations.
To protect the health and safety of our staff and
customers, we introduced a comprehensive safe
work-place program in line with international
standards. We also introduced door-to-door Covid
safe transport for staff to and from work.
With these measures in place we were
able to continue to grow. Loan book growth
increased by 16% (our business loan book by 20%)
and total deposits increased to PGK 2.6bn. Our FX
income grew by 32% to a market share of circa 16%.
The Bank of PNG released its policy response in
April and lowered the cost of funds, reducing the
Kina Facility Rate by 2%. We reduced all local currency
overdraft interest rates by 2% p.a. for new and existing
customers to support business cash flows. We also
re-priced our home loans to ensure that new and
existing owner-occupiers benefited from our historically
low home loan rate, and we provided tailored support
to individuals and businesses who experienced stress.
We lent over PGK 550 million to support the SME and
commercial sectors.
Despite the current environmental challenges,
we continued our innovations in banking products
and services. We took the first step towards fee free
banking with our new customer relationship offering,
Prime - a 3-year fee free Visa card with PNG’s lowest
ever fixed rate home loan, and a dedicated relationship
manager. Prime status has been extremely popular
and, supported by a major marketing campaign,
has reinforced our reputation as the ‘go-to’ bank
for home lending.
Another best in market solution, we completed
the design and build of Kina Everyday. Our first
transaction account with no monthly fees, it also
comes with modest transaction fees compared
with equivalent competitor products. It supports
our drive to increase competition, give customers
greater choice and lower the cost of banking.
With an eye on social distancing and socially responsible
branch banking, we piloted a concierge service and
digital kiosks so that customers can bank digitally, but
in the context of a branch. Designed for customers who
have no, or limited, access to the internet, the ‘Wantok
Experience’ has modernised banking in PNG and further
drives our ambition to be PNG’s leading digital bank.
We also took a market leading position in lowering fees
and charges for POS and our digital banking channels.
Our new digital channels delivered strong growth with
merchant POS revenue being a stand-out capability. We
rolled-out an additional 800 terminals across the country
and saw the expected generation of income in fee
revenue from cards, internet banking and Unstructured
Supplementary Service Data (USSD) channels.
10 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 11
Wealth
Our Wealth Management businesses continued to
deliver stable and growing revenue and excellent service
outcomes for the year, as we continued our strong
relationships with the major PNG superannuation funds.
Our focus going forward will be to enhance our
technology and system capability to make access
easier for trustees and their members to manage
their retirement savings.
A highlight was the renewal of large contracts
in both our funds administration and wholesale
funds management businesses. We continue to be
the largest wealth management business in PNG,
with over PGK 8 bn of funds under management;
the largest fund administrator, administering accounts
on behalf of more than 800,000 clients whose funds
total K13.82 bn; and the leading stock broking company.
Funds Management achieved growth in funds under
management of 7% to PGK 8bn, a reflection of the
positive returns as well as ongoing contributions.
Although 2020 was a difficult local investment
climate, clients achieved positive returns relative
to competing funds.
Funds Administration also recorded growth in profit
by 46% on the back of stringent control of expenses,
increased funds under administration and growth in
member numbers. We maintain stringent measurement
and tracking controls in place to ensure we reach our
service level agreements and were delighted to achieve
a 99.23% performance rating for 2020. This is well above
industry standard results.
Within our Retail Wealth business, our market share for
share broking services remained above 50%. The various
new wealth management services introduced in 2019
provided additional revenue in the reporting period.
Throughout 2021 we’re expanding our product and
service set to drive overall revenue growth. We’re also
developing our segment strategy across the business,
with high-touch relationship management a significant
feature. This will provide a strong distribution platform
for the Retail Wealth business.
Nominee custodial services is an area of expected
growth as we extend our offerings to large investor
clients. We have been able to consider new types
of lending where we can act in a custodial and
non-discretionary security trustee capacity for
loans secured by financial assets. The segment and
distribution strategy, combined with the launch of new
products, will allow us to grow the Retail Wealth business
funds under management with little additional cost,
thus driving margins.
Strategic Direction
The proposed acquisition of Westpac’s Pacific businesses in Fiji and PNG will provide a scale financial
services organisation with a firm strategic commitment to banking in the region. A bigger business will
enable us to support a stronger financial services sector and deliver more much-needed choice for customers.
A multi-brand approach
Our intention is to create a completely new brand for
the acquired business and to maintain the independent
commercial banking licences in both jurisdictions.
The newly branded bank will be independent and
separate from the existing Kina Bank brand, and it will
have a specific focus on inclusion, MSME, SME and
the commercial segments of both markets. This will
be a great outcome for customers from a service and
product perspective. Our proposal is to introduce
fee free banking options, re-structure the business
indicator lending rate and introduce a new platform
for superannuation. The additional scale, customers
and footprint will enable Kina to continue its drive in
innovation and deliver a new suite of world-class digital
products and services.
We will ensure that the branch and Instore
network continues to operate as it does today,
with a commitment to jobs for all local employees.
Kina and Westpac have developed a comprehensive
implementation plan where there will be no complex
migration of customer data across platforms as the
core banking infrastructure and associated ICT would
be acquired. One of the key features is that the
acquisition is essentially ‘turn-key’ and Kina will assume
ownership and operation of the Pacific Businesses
effective from the completion date. There will be
no disruption to customers or employees in both
countries, with no changes to systems or processes
or the way customers transact. Completion is subject
to regulatory approval in both PNG and Fiji and the
process to secure approvals is underway.
Strategic Initiatives
The acquisition is one of eight strategic programs
for 2021 that continue to drive growth in core
banking and digital solutions. Kina continues
to assert its leadership position creating opportunities
to increase market competitiveness and business
model resilience.
We will maintain our focus on lending to implement
an agile, seamless end-to-end lending process across
home and business lending. By leveraging customer
feedback and introducing improved complaints
resolution we aim to significantly enhance the
customer experience. We will continue upgrades
and improvements to our digital channels and
platforms, including a corporate online technology
and further innovations for our internet payment
gateway. We are also focusing on an artificial
intelligence program to continue improvements
to AML, compliance and fraud detection.
Further concentration on our partnership with MiBank
will include joint business development opportunities,
customer migration and digital referral processes.
We are also developing an SME capital fund through
the Kina Funds Management business; exploring new
retail products for Wealth Management; and refreshing
the strategic intent of our funds administration business.
12 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 13
Total Societal Impact
Kina’s sustainability vision is to be recognised
as one of PNG’s most sustainable organisations.
Closely aligned to the organisation’s 2025 Strategy,
we have a clear focus on social, environmental
and economic development across three distinct
themes, as well as providing community leadership.
In the first full year of delivering on our Total Societal
Impact Strategy, we have made significant progress
on a number of initiatives.
Creating the workforce of the future
Unemployment is one of the most pressing social
and economic issues facing PNG. To help address
this, we partnered with the Kokoda Track Foundation,
a not for profit organisation, to fund the build and
operation of a Flexible Open & Distance Education
(FODE) centre in Port Moresby. The centre gives
students a second chance at education and progress
into employment with relevant skills and qualifications.
Throughout 2020, over 150 students were enrolled
across grades 10, 11 and 12.
We also implemented a mentoring scheme where
Kina Bank staff provided one-on-one coaching to
students, to help with their studies and to prepare
for exams. Our team gave over 130 volunteer hours
across each academic term to students and shared
their experiences, stories and general life skills to
help guide students on their path to success.
e-PNG
A digital society will help to empower Papua New
Guineans. It can help to break down barriers to services,
products and platforms; and can increase people’s
ability to contribute to decision-making and production.
By supporting digital development and literacy, we’re
helping to inspire the entrepreneurial development
of solutions to PNG-specific problems.
A major focus has been our support of the Women
in Digital network which we assisted with a series of
sponsorships and events. The emphasis has been on
providing women with access to and training on new
digital platforms that offer financial services. We also
sponsored the first female in PNG to be accredited
Certified Information Security Manager.
We partnered with a local fintech company, NiuPay,
to develop a suite of digital access solutions to help
bring Government services online. This citizen-centred
approach means more Papua New Guineans than ever
before now have access to the Lands Department
and Immigration and Citizenship Authority, the first
Government departments to come online. We see
this as an important step toward transforming the way
services are offered and payments are made across
the public sector, both for efficiency and transparency.
We have also partnered with YuTru, an open scheme
for the digital identification of people and businesses,
to promote financial inclusion and economic and social
empowerment. The scheme helps people who previously
haven’t been able to access the formal financial system.
Community Leadership
We have also supported a number of additional
programs of work throughout the year. We donated
AUD$50,000 to the Fiji cyclone relief effort; we supported
our dedicated frontline health workers at the Covid
isolation unit in PNG with food and water; and we
launched a major mental health program to help our
staff and communities stay mentally healthy during
these challenging times.
Promoting enterprise
Access to financial services for many is restricted,
and growth of the MSME sector is restrained by
a lack of investment and education. Our strategic
partnership with MiBank, our financial inclusion
partner, created a solid platform for us to reach
further into the community and deploy our
capabilities and assets – and create mutual value
exchange across both organisations.
We successfully completed our first ‘bank as a service’
business innovation project to provide MiBank with
cards issuing, central bank clearance and POS. Together,
we were able to bring more than 130,000 new customers
into the formal financial services sector for the first time,
by helping them open bank accounts and providing
them with financial education.
We also created a customer referral pathway between
the two organisations to give customer access to the
most appropriate products and services depending
on their needs.
We supported this pillar of our strategy with a series
of thought leadership programs for the business
community. Launched at the Prime Minister’s Back
to Business Breakfast in January 2020, we delivered
a series of workshops, talks and presentations
focusing on financial literacy and education,
business development and outreach.
Looking ahead
In partnership with the Asian Development Bank we have
commenced the development of our Environmental Social
Governance Principles and Framework. To be completed
in 2021, these will address the nature and extent of
environmental and social risks to the business. Our Total
Societal Impact Strategy requires ongoing development
over time in order to reach our vision, including taking
future strategic decisions about scope and suitable
operating models.
14 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 15
Economic Outlook
2020 was a challenging year for PNG as the Covid-19
pandemic took a significant toll on all sectors of the
economy. The Prime Minister stated in September that
PNG’s economy had declined by PGK 10.7 billion in
nominal terms by the third quarter, which is significant
when considering that PNG had an estimated gross
domestic product (GDP) of PGK 81.6 billion.
The Department of Treasury (DoT) and the International
Monetary Fund (IMF) estimate that real GDP would
decline in 2020 by 3.8% and 3.3%, respectively.
The deferment of Papua LNG and P’nyang LNG
before the Covid-19 outbreak subdued investments
in resource-adjacent sectors and tilted risks in the
broader economy towards the downside. The pandemic
aggravated these risks and caused a number of private
and commercial investments to be either delayed
or cancelled outright. Discretionary spending was
impacted negatively and the closure of Porgera
Mine in April 2020 amidst the pandemic added
to concerns resulting in significant impact on GDP,
expected taxation revenue, and foreign currency inflows.
The pandemic triggered a fiscal response that was
unprecedented for PNG, as in many other countries.
The Government already faced the largest fiscal deficit
in the country’s history prior to the pandemic in 2020.
It had to reprioritise its spending to support efforts
to contain the spread of the virus. The original deficit
of PGK 4.6 billion anticipated revenues of PGK 14.1
billion, with total expenditure of PGK 18.7 billion.
Due to the impact of the pandemic, revenue saw
a 19.4% reduction, resulting in the deficit increasing
to PGK 6.6 billion, despite a reduced total expenditure
of PGK 18 billion. To allow additional borrowing,
the Government amended the debt-to-GDP ceiling
prescribed in the Fiscal Responsibility Act from 45%
to 60%. This was a necessary amendment in our view
as a reduction in fiscal stimulus in the immediate
short-term would disadvantage the economy and slow
down recovery timeframes. The Government projects
that debt levels as a percentage of GDP will increase
from 48.9% in 2020 to 52.5% in 2023. These figures,
and rate of increase of the debt/GDP ratio, are not
out of line with many economies as a result of pandemic
induced fiscal support.
PNG’s monetary response to the pandemic was
also urgent and unprecedented. The Bank of PNG
undertook several targeted measures to increase
money and FX supply and lower interest rates, which
had the added effect of supporting the Government’s
fiscal operations during the pandemic. Financial
institutions also provided support with banks lowering
interest rates and providing for temporary loan
repayment deferments to support borrowers.
The main economic drivers in the medium term
remain the resource projects that are currently
being negotiated.
Investors and economic stakeholders continue
to hope for a speedy resolution to key resource
project negotiations to drive confidence and
economic growth. These are in addition to the
planned Government spending over the medium-term
to improve infrastructure, providing confidence that
the economy will have some support until the global
pandemic subsides. The positive impact of these
resource projects is not expected to be felt by the
PNG economy in the near-term as the restructuring
of commercial terms is likely to push development
timelines out further. The resource projects currently
in the pipeline for PNG represent an estimated PGK
110 billion in foreign direct investment and domestic
production over their respective lives. The Government
also remains committed to funding major infrastructure
projects throughout the country in the medium-term.
The 2021 National Budget projects over PGK 40 billion
in Capital Expenditure from 2021 to 2025, averaging
7.9% of GDP per annum within that timeframe.
The Government has committed 38% of its 2021
Budget to Capital Expenditure, which is PGK 7.5 billion
or 8.3% of GDP. This fiscal support, especially after the
sharp downturn witnessed globally, gives some measure
of reassurance to economic stakeholders. This combined
with proposed reforms and the stated intention
to diversify the non-mining sectors has potential
to set a solid foundation for future growth.
16 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 17
Board of Directors
Isikeli (Keli) Taureka
Chairman and Non-Executive Director
Member of the Remuneration and Nomination Committee
Mr Taureka was appointed as a Director
of Kina Securities Limited in April 2016.
He currently holds the position of Managing Director
of Kumul Consolidated Holdings which is the trustee
and shareholder for the Government of PNG in major
State owned entities including Air Niugini, Water PNG,
PNG Power Limited, Kumul Telikom Holdings,Ports PNG,
Post PNG and Motor Vehicles Insurance Limited.
He provides extensive knowledge and networks
across Papua New Guinea and Fiji.
Isikeli previously held a number of senior executive
roles with Chevron Corporation including:
• President Chevron Corporation Geothermal;
President Chevron South East Asia and President
of ChevronTexaco China Energy Company with
responsibility for Chevron’s oil, gas upstream
and geothermal power activities.
• Before joining Chevron, he managed the PNG-owned
Post and Telecommunication Corporation and held senior
management positions in the Bank of South Pacific Limited.
He holds a Bachelor of Economics degree from the University
of Papua New Guinea and is a Graduate Member of the
Australian Institute of Company Directors.
18 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 19
Greg Pawson
Chief Executive Officer/Managing Director
Greg Pawson was appointed CEO of Kina Securities
Limited in 2018. He joins the Group with an extensive
knowledge of the financial services industry in Australia,
New Zealand, South East Asia and the Pacific.
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.
Andrew Carriline
Non-Executive Director
Member of the Remuneration and Nomination Committee
Mr Andrew Carriline was appointed as a Director of Kina
on 16 August 2018.
Andrew is an experienced business executive, highly skilled at
operating successfully in regulated environments. He recently
retired from a major Australian bank, where he spent most of
the last decade in senior risk roles. He was also most recently
Chairman of the bank’s business in PNG.
Before his focus on pure risk roles, Andrew practised
corporate law in the public and private sector and
has held a number of senior legal and operational roles.
Andrew holds Bachelor degrees in Law and Commerce
from UNSW and is a graduate of the Australian Institute
of Company of Directors.
Karen Smith-Pomeroy
Non-Executive Director
Chairman of the Audit and Risk Committee
Ms Karen Smith-Pomeroy is an experienced non-executive
director, with involvement across a number of industry sectors.
Karen has over 30 years of experience in the financial services
sector, with senior roles in Queensland and South Australia,
including a period of 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, including energy, property and agribusiness.
Karen is currently a non-executive director of Queensland
Treasury Corporation, Stanwell Corporation Limited, InFocus
Wealth Management group and National Affordable Housing
Consortium Limited. She is also a member of the Qld Advisory
board for Australian Super, Australia’s largest industry super fund.
Karen holds accounting qualifications and is a Fellow of
the Institute of Public Accountants, Fellow of FINSIA and
a graduate of the Australian Institute of Company Directors.
Paul Hutchinson
Non-Executive Director
Member of the Audit & Risk Committee
Mr Paul Hutchinson was appointed
as a Director of Kina on 16 August 2018.
Paul was the Managing Director and Chief Executive Officer
of Rural Bank, following over nine years leading the business.
Before joining Rural Bank, Paul was Chief Operating Officer
with New Zealand Post Limited, responsible for the sales and
distribution capabilities of the group and notably the key
origination capability for Kiwibank.
Paul’s prior experience has included senior appointments
with Westpac Banking Corporation (Australia), National
Australia Bank and Bank of New Zealand.
Paul is currently employed by the University of Adelaide in the
capacity of Executive Director for the Faculty of Professionals.
20 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 21
Ila Temu
Non-Executive Director
Dr Ila Temu was appointed as a
Director of Kina on 14 December 2020.
Dr Ila Temu was appointed as a Director
of Kina on 14 December 2020.
Dr Temu is the Executive Director (PNG) of Barrick (Niugini)
Limited (BNL), a role he has held for some time now, which places
him as one of the senior Managers within BNL Management.
Dr Temu has held various senior roles with Placer Dome Niugini
since 2000 including General Manager Government Relations,
Director Corporate Affairs and Country Manager Tanzania. With
Barrick Niugini Ltd, Dr Temu has held similar roles since 2006.
Prior to joining Placer Dome, Dr Temu was Managing Director
of Mineral Resources Development Company (MRDC),
a state-owned organization that held PNG’s equity in major
mining and petroleum projects throughout PNG. He has also
held senior positions within a number of public organizations,
including a term as a Director of the National Research Institute
in PNG, Research Director for the Pacific Islands Program at the
Australian National University, Canberra and Senior Lecturer
at the University of Papua New Guinea.
Dr Temu has also held a number of Board Directorships/
Memberships in PNG including Dome Resources Ltd, MRDC,
Kina Finances Ltd, PNG Incentive Fund, National Economic
Fiscal Commission, Independent Public Business Corporation,
the Employees Federation of PNG and Bank of South Pacific
where he was Director for 13 years. He was Chairman of PNG
Ports Corporation for five years, Chairman of Bank South Pacific
(BSP) Capital for three years, and President of the Chamber of
Mines and Petroleum for three years. He is currently a Director
of Kina Petroleum Ltd, Director of Kumul Petroleum Holdings Ltd,
and a Council Member of the Divine Word University.
Dr Temu holds a Bachelor of Economics from the University
of Papua New Guinea, a Masters in Agricultural Development
Economics from the Australia National University, Canberra
Australia and a Ph.D in Agricultural Economics from the
University of California, Davis, USA.
Jane Thomason
Non-Executive Director
Chair of the Remuneration & Nomination Committee
Dr Jane Thomason was appointed as a Director
of Kina on 27 April 2018.
Jane has worked in international development and policy
and implementation in the Asia Pacific region for 30 years.
Her international career has included work for governments
and donors including the Asian Development Bank, WHO,
World Bank, USAID and AusAID.
As an entrepreneur and innovator, Dr Thomason has built
a $50 million revenue company and merged this with Abt
Associates in 2013. Since the merger, Dr Thomason has led
the growth and diversification of the company to achieve
a tripling of revenue and diversification into new sectors
and is now CEO of a $200 million revenue company with
650 staff across Asia and the Pacific. She has held senior
appointments including Queensland Director of Women’s
Health, CEO of the Queensland Royal Children’s Hospital,
Commissioner on the Commission of Inquiry into Child
Abuse in Queensland, Chairman of the Wesley Hospital
Board, Member of the Uniting Health Care Board, the
International Operations Committee of the Red Cross,
the Consultative Council of the Australian Centre for
International Tropical Health and Nutrition and the Aid
Advisory Council to the Australian Minister of Foreign
Affairs and Trade (Alexander Downer), She has been
a Member of the Burnett Institute Board, and an Adjunct
Associate Professor at the University of Queensland.
Jane is an active role model for future women leaders
and an active supporter of innovation and new
technologies, especially blockchain, and their
application to the problems of the poor.
22 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 23
Senior Executive Team
Greg Pawson
Chief Executive Officer/Managing Director
Greg Pawson was appointed CEO of Kina Securities Limited
in 2018. He joins the Group with an extensive knowledge of the
financial services industry in Australia, New Zealand, South East
Asia and the Pacific.
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.
Chetan Chopra
Chief Financial Officer
Chetan is Chief Financial Officer, reporting to the CEO. 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.
An accountant by profession, Chetan worked for many years as a
PNG partner for KPMG and as CFO for Dunn and Bradstreet South
Asia. He also has held a number of senior leadership roles in both
private companies and public sector organisations, including the
Australian Taxation Office.
Chetan holds a Bachelor of Science from Mumbai University and
an MBA from Melbourne Business School, University of Melbourne.
Chetan is also a member of Certified Practising Accountants
Australia, PNG and India.
Lesieli Taviri
Executive General Manager Banking
Lesieli joined Kina Bank in 2020 and is responsible for running
the national branch network and a seamless banking experience
to personal and small business customers. In her role, Lesieli
leads the focus on customer service satisfaction in branch
and through the contact centre, along with the development
of digital concierge services.
Prior to joining Kina Bank, Lesieli was the CEO of Origin Energy
and she is one of PNG’s most highly regarded executive leaders.
She holds a number of high-profile board roles including Founding
Chair of the Business Coalition for Women. She served as the Deputy
Chair of Nambawan Super Limited, PNG’s largest superannuation
fund and was formerly a director of Nationwide Microbank Limited.
Lesieli is also a graduate member of the Australian and PNG Institute
of Company Directors.
Nathaniel Wingti
GM Treasury and Financial Markets
Nathan joined Kina in February 2016 as GM Treasury and Financial
Markets. Prior to joining Kina, he spent 15 years at ANZ Bank where
his last role was Head of Global Markets PNG and Balance Sheet
Manager for ANZ across the Pacific. Nathan has 20 years experience
in foreign exchange, money markets and balance sheet management
across the Pacific region having worked in PNG, Fiji and Australia.
Nathan holds graduate and post graduate qualifications
in finance and commerce. He has also completed the AFMA
Dealer Accreditation Program and the PNG Institute of Directors
Program. He is a current serving Board Member of the Business
Council of PNG.
Asi Nauna
Executive General Manager Lending
Asi joined Kina Bank in 2018 to assist with the acquisition of ANZ’s
Retail, SME and Commercial operations leading the integration of
the SME and Commercial customer streams. In the last two years she
has held a senior leadership role in our Business Partners and Wealth
team, establishing herself as a dynamic and successful leader with a
track record of delivering exceptional results. In her role as Executive
General Manager Lending, Asi is responsible for end to end retail and
business lending. Prior to joining Kina Bank, Asi was ANZ’s Associate
Director, Institutional Banking.
Michael Van Dorssen
Chief Risk Officer
Michael Van Dorssen joined Kina in 2009 and is currently the Chief
Risk Officer for the group. Michael has extensive experience in the
banking industry in both Australia and PNG, with a career spanning
more than 30 years.
Prior to joining Kina, Michael worked for Suncorp Limited
as the District Manager for the bank’s agribusiness division
(from 2004 to 2008) and Westpac Bank PNG Limited
(from 1999 to 2002).
24 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 25
Johnson Kalo
Chief Information Officer
Johnson Kalo was appointed Chief Information 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 the Bank South
Pacific (BSP).
Johnson played a central role in BSP’s acquisition of Westpac’s
Pacific assets in Tonga, Samoa, the Cook Islands, SolomonI Islands,
Vanuatu and he brings to Kina Bank exceptional leadership qualities.
His previous roles also include independent Director of the Board of
Credit Corporation and Executive Director of the Port Moresby Stock
Exchange (PNGX). He is a fellow of the Financial Services Institute
of Australasia and an associate member of Certified Practicing
Accountants PNG.
Deepak Gupta
Executive General Manager of Business Partners and Wealth
Deepak Gupta is Executive General Manager Wealth and has
had a long and successful career in financial services, having held
a variety of senior executive roles in leading financial services
institutions including Westpac, AMP and domestic New Zealand
institutions. These roles have spanned all facets of institutional
funds management, private equity investment, funds administration,
financial planning and corporate trusteeship.
In addition Deepak has strong governance experience having
acted as a non-executive director on the boards of NZX and ASX
listed companies, and private businesses in a variety of industries.
He has also been active with industry bodies and has represented
New Zealand on international analyst bodies. He brings substantial
experience and a track record of success and innovation across
a number of areas in financial services including successful
development of New Zealand’s first institutional private equity
fund for retail investors and leading the commercial development
and success of New Zealand’s largest registry business for its
workplace based retirement savings scheme.
Deepak holds a Bachelor of Commerce and Administration
from Victoria University, New Zealand, and an MBA from Massey
University, New Zealand. He has a Certificate of Investment Analysis
from the University of Otago, New Zealand and is a Fellow of the
Institute of Finance Professionals New Zealand.
Ivan Vidovich
Chief Transformation Officer
Ivan joined Kina Bank in 2019. In the role of Chief Transformation
Officer Ivan is responsible for Group Strategy and Planning,
People and Culture, Digital Channels, Innovation, Design,
Product and Marketing.
Ivan has 20 years senior leadership experience in Australia, Asia
and Europe in the financial services and logistics industries with
companies including Suncorp, TNT Express and DBS Bank, where
he has managed large-scale sales and service operations, strategy,
customer experience, innovation and multi-country integration and
transformation programs. He brings significant experience in people
and culture transformational change and is a strong advocate
of diversity and inclusion in the workplace. Ivan holds a Bachelor
of Arts from La Trobe University and is a member of the Australian
Institute of Company Directors.
Gavin Heard
GM Corporate Affairs and Investor Relations
Gavin joined Kina Bank in 2018 with over 15 years’
experience as a communications specialist.
Gavin’s previous roles include working for the BBC
in cultural and current affairs broadcasting; developing
crisis planning policy for the Australian Government
in PNG and in communications for Westpac Pacific.
26 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 27
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 Securities Limited (Kina, Kina Group, or the
Company). The framework is designed to support
delivery of 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 2020 financial year.
Remuneration Report
Contents
28
1. Introduction & Overview to Shareholders
29
2. Kina’s Key Management Personnel (KMP)
30
41
43
43
44
45
47
48
3. Executive Remuneration
4. Non-executive Director Arrangements
5. Related Party Transactions
6. Directors’ Interests in Shares
Directors Report
Remuneration Report
Directors Declaration
Independent Auditors Report
53
Statements of Comprehensive Income
54
55
56
57
57
68
69
101
103
Statements of Financial Position
Statements of Changes in Equity
Statements of Cash Flow
Notes to the Financial Statements
1. Summary of Significant Accounting Policies
2. Critical Accounting Estimates and Judgments
3. Financial Risk Management
4. Capital Adequacy
5. Net Interest Income (expense)
6. Net Fee and Commission Income
104
7. Dividend Income
8. Other Income
105
9. Other Operating Expenses
10. Income Taxes
106
11. Deferred Taxes
12. Cash and Due From Banks
107
13. Central Bank Bills
14. Regulatory Deposits
108
109
110
110
114
115
116
118
120
121
123
124
126
127
129
130
130
15. Financial Assets at fair value through Profit or Loss
16. Loans and Advances to Customers
17. Investments in Government Inscribed Stocks
18. Investments in Subsidiaries
19. Property, Plant and Equipment
20. Intangible Assets
21. Other Assets
22. Due to Customers
23. Current Income Tax (assets) Liabilities
24. Employee Provisions
25. Lease Liabilities
26. Other Liabilities
27. Issued and Paid Ordinary Shares
28. Statements of Cash Flows
29. Related Party Transactions
31. Business Combinations
32. Segment Reporting
33. Contingent Liabilities
34. Commitments
35. Fair Value of Financial Assets and Liabilities
36. Auditors’ Remuneration
37. Goodwill
38. Group Reorganisation
39. Events after the Statements
of Financial Reporting Date
131
Shareholder Information
28 Kina Securities Limited Annual Report 2020
2. Kina’s Key Management Personnel (KMP)
Kina’s KMP comprise the Directors, the Managing
Director and Chief Executive Officer (MD&CEO) and
the direct reports to the MD&CEO, called the Senior
Executive Team of Kina. The Senior Executive Team
refers to the MD&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:
Remuneration and Nomination Committee
The Board has established the Remuneration and
Nomination Committee (RNC) to ensure that the Company:
• Has a Board with an effective composition,
size and commitment to adequately discharge its
responsibilities and duties and to bring transparency,
focus and independent judgment to decisions;
• Has coherent remuneration policies and practices
to attract and retain directors and senior executives
who will create value for shareholders;
Non-Executive Directors (section 4 of this Remuneration Report)
Name
Position held during
the financial year ended
31 December 2020*
Isikeli Taureka
Non-Executive Chairman
Karen Smith-Pomeroy
Non-Executive Director
• Observes those remuneration policies
and practices; and
• Fairly and responsibly rewards Group Executives
having regard to the performance of the Group,
the performance of the Group Executives and
the general external pay environment.
Jane Thomason
Paul Hutchinson
Non-Executive Director
Non-Executive Director
The RNC assists the Board in the performance
of its statutory and regulatory duties by:
Andrew Carriline
Non-Executive Director
• Formulating advice to the Board on the remuneration
Ila Temu¹
Non-Executive Director
MD & CEO and Senior Executive Team (direct reports)
Name
Greg Pawson
Chetan Chopra
Deepak Gupta
Position held during
the financial year ended
31 December 2020*
MD&CEO
Chief Financial Officer and
Company Secretary
Executive General Manager,
Business Partners and Wealth
Michael Van Dorssen
Chief Risk Officer
Gavin Heard
Johnson Kalo
Ivan Vidovich
Nathan Wingti
Lesieli Taviri ²
Asi Nauna ³
General Manager Corporate
Affairs and Investor Relations
Chief Information Officer
Chief Transformation Officer
Head of Treasury
Executive General Manager,
Banking
Executive General Manager,
Lending
* The term as KMP was for the full year unless otherwise indicated
1 Appointed 14 December 2020
2 Appointed 11 September 2020
3 Appointed 11 September 2020
of the MD&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 (BPS310), 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;
• Overseeing aspects of the “Fit and Proper”
requirements of BPNG BPS310; and
• Identifying the mix of skills and individuals required
to enable 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:
• Kina’s remuneration policy;
• The structure and quantum of the remuneration
of the MD&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.
Kina Securities Limited Annual Report 2020 29
Remuneration Report
3. Executive remuneration
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 RNC 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 values, and the creation of
shareholder value;
• Transparent; and
• Acceptable to shareholders.
Remuneration Policy
Kina’s Remuneration Policy is that:
• Remuneration should be set at levels that reflect the
relative size of the position, including comparable
positions in the relevant market, the performance
of the person holding the position and any position-
specific factors such as location or strategic
importance of the role to Kina;
• Remuneration levels must reflect what the Group
can afford. The Board through the Remuneration
and Nomination Committee will provide the
MD&CEO with advice on affordability and this
must be factored into the Chief Executive’s
annual review of remuneration across all levels;
• Where a package includes a variable performance-
based component the package must be structured to:
• Motivate the employee to achieve personal goals
that demonstrably contribute to the Group’s
overall strategic direction and medium to long
term financial performance objectives;
• Encourage the employee to work within the
Group’s risk management framework and
to comply with the Group’s prudential policies;
• Specify measurable, objective, verifiable
performance targets which have to be met or
exceeded before any additional payment is due;
• Specify a measurement period that takes into
account the time to observe the real outcomes
of the employee’s business activities and efforts;
• Discourage the employee from taking extreme
risks to achieve short term performance targets
that could jeopardize the financial stability and
viability of the Group in the medium to long term;
• Provide for the Board to set aside part or all of
the performance based payments due if in its
judgment this is necessary to protect the financial
soundness of the Group including unintended and
unforeseen consequences when the performance
based measures were originally formulated;
• Where a package includes equity or equity linked
deferred remuneration the package must be
structured to forbid the employee leveraging the
equity in any way until it is fully vested. The Group
will cancel the vested equity and rights to future
equity of any employees found to be in breach
of this provision of their employment agreement.
• The Levels of every role in the organisation shall
be identified through a professional Job Evaluation
exercise and endorsed by the selected Job
Evaluation Panel;
• On an overall basis, Kina Group would like to position
itself between the 50th and 75th percentile of the
defined market, with flexibility to adjust based
on market dynamics and organisational strategy;
Under the Company’s Securities Trading Policy, Relevant
Persons (which includes all directors and officers of Kina
(MD&CEO, CFO and Company Secretary) and all direct
reports of the MD&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 level structure may be reviewed based on the
organisational growth and maturity and from time
to time benchmark its remuneration against identified
market participants to define its pay structure and
pay levels. This survey cycle period shall typically
be not more than once in two years;
• Remuneration packages may comprise a mix of base
pay, performance related pay and other benefits
where this is consistent with the structure of packages
for similar sized roles in the market. Such mixed
remuneration packages must take into account
the value of all elements of the package;
• Remuneration packages, including any performance
based component, must not compromise the
independence of any risk and financial control
officers of the Group;
Remuneration components, approach and mix
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 MD& 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.
There was no change to the fixed remuneration for the MD&CEO and other executive KMP during the year.
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 lapse upon resignation or termination,
subject to the absolute discretion of the Board.
The Board has the right to vary the STI Award.
LTI 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 absolute discretion to vary the LTI Award.
Retention Award
A one-off equity based Retention Rights allocation under the 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 the absolute discretion as to whether the allocation of Retention Rights will
continue and apply to other KMP.
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.
30 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 31
Remuneration Report
3. Executive remuneration (continued)
Short-term incentive award (STI Award)
Structure of STI Award:
Features
Eligibility
Description
The MD&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.
STI Performance Rights: 35% of the STI Participant’s Award.
Performance measures
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 MD&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 absolute discretion 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 2020:
• 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 absolute discretion to vary the STI Award.
Calculation of STI
Performance Rights
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).
Vesting of STI
Performance Rights
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.
Long term incentive award
The MD&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, whereby:
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, whereby:
EPS performance
Vesting Outcome
< 5% compound annual growth
Nil
5%
>5% and < 10%
10% (and above)
50% vesting
Pro rata between 50% - 100%
100% vesting
Period
Date Granted
Vesting date
FY ended 31 December 2017
FY ended 31 December 2018
FY ended 31 December 2019
FY ended 31 December 2020
1 April 2018
1 April 2019
1 April 2020
1 April 2021
1 April 2020
1 April 2021
1 April 2022
1 April 2023
In 2020, the Board worked with an independent advisor to identify the comparator group companies
including the calculation of 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).
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.
Target STI and maximum
STI that can be awarded
MD&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
32 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 33
Remuneration Report
3. Executive remuneration (continued)
Long term incentive award (continued)
Features
Description
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.
Features
Description
Target LTI and maximum
LTI that can be awarded
MD&CEO
CFO
Other Senior Executive Team Members
Target
Maximum
50%
40%
30%
50%
40%
30%
The performance periods for the outstanding awards are as follows:
Financial
Year
Date
Granted
Performance
Period
Measures
Vesting date
(subject to
performance
testing)
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.
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.
EPS assessment compound till FY 2021 - 50% 01/04/2024
EPS:
2017
01/04/2018
2018
01/04/2019
2019
01/04/2020
2020
01/04/2021
01/04/2018
to
31/03/2021
01/04/2019
to
31/03/2022
01/04/2020
to
31/03/2023
01/04/2021
to
31/03/2024
EPS assessment compound till FY 2020 - 50% 01/04/2021
Relative TSR assessment compounded to FY
2020 - 50%
EPS assessment compound till FY 2021 - 50% 01/04/2022
Relative TSR assessment compounded
to FY 2021 - 50%
EPS assessment compound till FY 2021 - 50% 01/04/2023
Relative TSR assessment compounded
to FY 2021 - 50%
Relative TSR assessment compounded
to FY 2021 - 50%
Forfeiture of LTI
Performance Rights
Unvested LTI Performance Rights may be forfeited:
•
If the Board determines that any vesting condition applicable to the LTI Performance Right
has not been satisfied in accordance with its terms or is not capable of being satisfied;
•
In certain circumstances if the LTI Participant’s employment is terminated; or
•
In other circumstances specified in the LTI Award under the 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 for any other reason as determined by the Board in its sole discretion).
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, i.e. either resignation or termination;
•
In other circumstances specified in the LTI Award under the 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 for any other reason as determined by the Board in its sole discretion); 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.
34 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 35
Remuneration Report
3. Executive remuneration (continued)
Retention rights
Features
Eligibility
Description
The Board determines the Participants eligible for participation in the allocation of
Retention Rights, also taking into account any recommendation made by the RNC.
Retention Rights
The allocation of Retention Performance Rights was a once off award under the Plan
of performance rights (Retention 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 Conditions
Vesting of the Retention 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.
Calculation of
Retention Rights
During 2020, there were no awards of any Retention Rights.
During 2018, $300,000 worth of ‘Commencement’ performance rights equalling
402,685 Retention Rights were granted to the MD&CEO, and approved by
shareholders at the 2018 Annual General Meeting on 23 May 2018, vesting
in equal instalments over 3 years as follows;
Forfeiture of
Retention Rights
• 134,229 vested on 4 December 2018;
• 134,229 vested on 4 December 2019; and
• 134,227 vested on 4 December 2020.
Unvested Retention Rights may be forfeited:
•
•
•
If the Board determines that any vesting condition applicable to the Retention
Right has not been satisfied in accordance with its terms or is not capable of being
satisfied;
In certain circumstances if the Retention Rights Award Participant’s employment
is terminated; or
In other circumstances specified in the Retention Rights Award (for example, if the
Board determines that the Retention Rights Award Participant has committed an act
of fraud or gross misconduct in relation to the affairs of Kina or for any other reason
as determined by the Board in its sole discretion).
Lapse of
Retention Rights
Unless otherwise specified in the vesting conditions or otherwise determined by the
Board, a Retention Right lapses on the earliest of:
•
If the Board determines that any vesting condition applicable to the Retention
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 Rights Award (for example, if the
Board determines that the Retention Rights Award Participant has committed an act
of fraud or gross misconduct in relation to the affairs of Kina or for any other reason
as determined by the Board in its sole discretion); or
•
If the participant purports to deal in the Retention Right in breach of any disposal
or hedging restrictions in respect of the Retention Rights.
Timing of grants
Grants of Retention Rights only apply to new hires (as a one off).
Performance based and non-performance based components
All STI and LTI elements of the remuneration of the KMP are performance based.
Participant
Cash salary/fees/short-term compensated absences
Non-monetary benefits
Total
Greg Pawson
Chetan Chopra
2020
2019
2020
2019
Michael van Dorssen
2020
Ivan Vidovich *1
Deepak Gupta
Johnson Kalo *2
Nathan Wingti
Gavin Heard *3
Asi Nauna *4
Lesieli Taviri *5
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
* Pro-rata based on start dates
1 Appointed 5 August 2019
2 Appointed 23 September 2019
3 Appointed 23 January 2019
4 Appointed 11 September 2020
5 Appointed 11 September 2020
$
591,300
591,300
400,000
400,000
398,549
400,000
375,000
153,082
350,000
350,000
324,162
89,772
303,901
225,270
220,000
206,740
65,942
-
71,049
-
$
$
183,800
775,100
186,606
777,906
163,296
563,296
169,567
569,567
150,816
549,365
161,048
561,048
42,546
417,546
21,903
174,985
161,270
511,270
169,567
519,567
13,777
337,939
7,294
97,066
108,999
412,900
122,875
348,145
12,764
232,764
28,290
235,030
4,076
70,018
-
-
3,020
74,069
-
-
36 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 37
Remuneration Report
3. Executive remuneration (continued)
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. During 2020, the Board engaged EY to complete an Executive Incentives
Review (STI and LTI), and McGuirk Management Consultants Pty Limited to undertake: (a) a Total Shareholder
Return Hurdle Comparison Group Analysis; and (b) a Board Remuneration Benchmarking Review.
Company Shares holdings
The table below sets out the current holdings of Company Shares by KMP:
KMP Shareholding
Gregory Pawson
Chetan Chopra
Deepak Gupta
Michael Van Dorssen
Nathan Wingti
Current Balance
April 2021 Vesting
Total Shares
402,685
76,441
53,553
117,235
22,192
228,118
197,304
137,851
173,820
28,935
630,803
273,745
191,404
291,055
51,127
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
Value of PR
Granted (AUD)
VWAP Period
VWAP $
applied
PR
31/12/2020
Gregory
Pawson
Chetan
Chopra
Michael
Van Dorssen
Deepak
Gupta
Nathan
Wingti
Gavin
Heard
Ivan
Vidovich
Adam
Downie
Wayne
Beckley
STI
LTI
LTI
STI
LTI
LTI
STI
LTI
LTI
STI
LTI
LTI
STI
LTI
LTI
STI
LTI
STI
STI
LTI
LTI
2019
2018
2019
19/05/2020
19/05/2022
268,197
31/12/2019
1.4300
187,550
01/04/2019
01/04/2022
295,641
31/12/2018
0.9072
325,883
19/05/2020
01/04/2023
294,722
31/12/2019
1.4300
206,099
2019
01/04/2020
01/04/2022
70,000
31/12/2019
1.4300
48,951
2018
01/04/2019
01/04/2022
144,000
31/12/2018
0.9072
158,730
2019
01/04/2020
01/04/2023
160,000
31/12/2019
1.4300
111,888
2019
01/04/2020
01/04/2022
42,000
31/12/2019
1.4300
29,371
2018
01/04/2019
01/04/2022
107,882
31/12/2018
0.9072
118,918
2019
01/04/2020
01/04/2023
120,000
31/12/2019
1.4300
2019
01/04/2020
01/04/2022
43,750
31/12/2019
1.4300
83,916
30,594
2018
01/04/2019
01/04/2022
91,499
31/12/2018
0.9072
100,859
2019
01/04/2020
01/04/2023
105,000
31/12/2019
1.4300
2019
01/04/2020
01/04/2022
49,000
31/12/2019
1.4300
2018
01/04/2019
01/04/2022
48,000
31/12/2018
0.9072
2019
01/04/2020
01/04/2023
48,000
31/12/2019
1.4300
2019
01/04/2020
01/04/2022
23,100
31/12/2019
1.4300
2019
01/04/2020
01/04/2023
66,000
31/12/2019
1.4300
2019
01/04/2020
01/04/2022
38,500
31/12/2019
1.4300
2019
01/04/2020
01/04/2022
42,000
31/12/2019
1.4300
2019
01/04/2020
01/04/2023
90,000
31/12/2019
1.4300
73,427
34,266
52,910
33,566
16,154
46,154
26,923
29,371
62,937
2018
01/04/2019
01/04/2022
104,999
31/12/2018
0.9072
115,740
Subsequent to, and in relation to, the year-ended 31 December 2020 (FY2020 Awards), the Board approved
the following STI and LTI Awards for eligible participants. The STI Performance Rights and LTI Performance
Rights components of the FY2020 STI and LTI Awards are subject to shareholder approval at the 2021 AGM
to be held on 26 May 2021:
First Name
Last Name
Award
Year
Grant Date
Vesting date
Value of PR
Granted (AUD)
VWAP Period
VWAP $
applied
FY2020 PR
STI
LTI
STI
LTI
STI
LTI
STI
LTI
STI
LTI
STI
LTI
STI
LTI
STI
LTI
STI
LTI
STI
LTI
2020
01/04/2021
01/04/2023
310,433
31/12/2020
0.8868
350,060
2020
01/04/2021
01/04/2024
295,650
31/12/2020
0.8868
333,390
2020
01/04/2021
01/04/2023
113,750
31/12/2020
0.8868
2020
01/04/2021
01/04/2024
160,000
31/12/2020
0.8868
2020
01/04/2021
01/04/2023
52,500
31/12/2020
0.8868
128,270
180,424
59,202
2020
01/04/2021
01/04/2024
120,000
31/12/2020
0.8868
135,318
2020
01/04/2021
01/04/2023
52,500
31/12/2020
0.8868
59,202
2020
01/04/2021
01/04/2024
105,000
31/12/2020
0.8868
118,403
2020
01/04/2021
01/04/2023
61,250
31/12/2020
0.8868
69,069
2020
01/04/2021
01/04/2024
90,000
31/12/2020
0.8868
101,488
2020
01/04/2021
01/04/2023
28,000
31/12/2020
0.8868
2020
01/04/2021
01/04/2024
66,000
31/12/2020
0.8868
2020
01/04/2021
01/04/2023
70,000
31/12/2020
0.8868
2020
01/04/2021
01/04/2024
150,000
31/12/2020
0.8868
2020
01/04/2021
01/04/2023
42,000
31/12/2020
0.8868
31,574
74,425
78,935
169,147
47,361
2020
01/04/2021
01/04/2024
96,000
31/12/2020
0.8868
108,254
2020
01/04/2021
01/04/2023
17,500
31/12/2020
0.8868
19,734
2020
01/04/2021
01/04/2024
96,000
31/12/2020
0.8868
108,254
2020
01/04/2021
01/04/2023
26,250
31/12/2020
0.8868
2020
01/04/2021
01/04/2024
66,000
31/12/2020
0.8868
29,601
74,425
Gregory
Pawson
Chetan
Chopra
Michael
Van Dorssen
Deepak
Gupta
Nathan
Wingti
Gavin
Heard
Ivan
Vidovich
Johnson
Kalo
Lesieli
Taviri
Asi
Nauna
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 MD&CEO’s Employment Agreement is for a term of 5 years with a notice period of 6 months. Kina may
terminate the MD&CEO’s employment without notice or payment in lieu of notice in circumstances where
the MD&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 MD&CEO of Kina.
On termination of the MD&CEO’s Employment Agreement, the MD&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.
38 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 39
Remuneration Report
3. Executive remuneration (continued)
Remuneration of employees
4. Non-executive director arrangements
Remuneration policy
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:
Non-executive directors receive a Board fee and fees for chairing or participating on Board Committees
as shown in the table below. They do not receive performance-based pay or retirement allowances.
In PGK
1,450,000 - 1,460,000
1,440,000 - 1,450,000
980,000 - 990,000
970,000 - 980,000
920,000 - 930,000
860,000 - 870,000
850,000 - 860,000
800,000 - 810,000
750,000 - 760,000
740,000 - 750,000
640,000 - 650,000
610,000 - 620,000
580,000 - 590,000
570,000 - 580,000
560,000 - 570,000
550,000 - 560,000
540,000 - 550,000
500,000 - 510,000
490,000 - 500,000
480,000 - 490,000
470,000 - 480,000
460,000 - 470,000
450,000 - 460,000
440,000 - 450,000
430,000 - 440,000
420,000 - 430,000
2020
1*
-
2
-
1
1
-
1
1
1
-
1
2
-
-
1
1
-
2
-
1
1
-
2
-
-
2019
In PGK (continued)
2020
2019
-
1*
-
2
-
-
2
-
-
-
1
-
-
1
1
1
-
2
-
4
-
-
1
-
3
1
400,000 - 410,000
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
280,000 - 290,000
260,000 - 270,000
250,000 - 260,000
240,000 - 250,000
220,000 - 230,000
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
1
1
2
-
1
-
-
2
3
-
1
2
-
1
2
-
1
2
4
10
4
7
9
8
2
18
23
-
-
2
1
2
1
1
1
2
4
2
-
1
-
-
2
3
2
4
4
3
6
7
9
4
4
8
The fees are exclusive 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 2020 and increases
were applied with effect from 1 October 2020.
Remuneration components
Kina’s Board and Committee fee structure as at 31 December 2020 was:
Board fees
Board
Board
Committee fees
Audit and Risk Committee
Chairman
Non-executive Director/committee member
$180,000 (excluding superannuation
entitlements)
$90,000 (excluding any superannuation
entitlements)
Committee Chair: $22,500 (excluding
any superannuation entitlements)
Members: $11,250 (excluding any superannuation
entitlements)
Remuneration and
Nomination Committee
Committee Chair: $22,500 (excluding
any superannuation entitlements)
Members: $11,250 (excluding any superannuation
entitlements)
Disclosure Committee
No additional fees are paid
No additional fees are paid Members.
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 2020, 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.
*Impact of foreign exchange conversion.
Committee fees
The Committee Chair fees are not duplicated for those Directors who are appointed to Chair of more than
one Committee or the Board.
40 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 41
Remuneration Report
4. Non-executive director arrangements (continued)
Non-Executive Director Remuneration details
The following payments were made to Non-Executive Directors in the 2020 and 2019 financial years.
Director
Year
Short-term Benefits
Post-employment
benefits
Total
Fees
146,250
148,100
91,875
84,996
85,313
80,004
108,803
98,646
3,750
-
95,625
76,250
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
2020
2019
Non-monetary
benefits
Superannuation
contributions
-
-
-
-
-
-
-
-
-
-
-
-
36,001
182,251
12,138
160,238
6,615
98,490
6,300
91,296
6,615
91,928
6,300
86,304
-
108,803
4,265
102,911
315
4,065
-
-
6,615
99,300
6,300
82,550
Isikeli Taureka
Andrew Carriline
Paul Hutchinson
Karen Smith-Pomeroy
Ila Temu 1
Jane Thomason
1 Appointed 14 December 2020.
Variable Remuneration
Special remuneration
Directors may be paid such special or additional remuneration as the Board determines for performing
extra services or making any special exertions for the benefit of Kina which, in the Board’s opinion,
are outside of the scope of ordinary duties of a Director.
Reimbursement for out of pocket expenses
Directors may be reimbursed for travel and other expenses incurred in attending and returning from
any Board, Board Committee or general 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
Ila Temu
Number of Shares
Shareholding as at the date of this Remuneration Report (%)
65,000
402,685
125,000
80,299
90,000
35,000
-
0.02%
0.14%
0.04%
0.03%
0.03%
0.01%
0.00%
7. Auditor’s report
As a PNG incorporated Company, Kina is not required to have this Remuneration Report audited. This
Remuneration Report is prepared as a voluntary disclosure and the Board has decided as a matter of good
corporate governance, that it will be put to shareholders for approval at the 2021 AGM. The expected level
of disclosure of an Australian incorporated company has been provided through this Remuneration Report.
42 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 43
Dividends
The Company paid a dividend of AUD 6.4 cents
(PGK 15.5 toea) per share (K27.0m) in April 2020
in relation to the profit for the half year ended 31
December 2019. In September 2020 the Company
also paid dividend of AUD 4.0 cents (PGK 10.0 toea)
per share (K17.6m) in relation to the profit for the half
year ended 30 June 2020.
After balance sheet date events
Subsequent to balance sheet date, the directors
declared a final dividend of AUD 6.0 cents
(PGK 16.9 toea) per share (K48.5m) on net profit
declared for the second half of financial year 2020.
The Group announced the proposed acquisition
of Westpac’s Pacific Businesses in PNG and Fiji.
This is expected to be completed by September 2021.
The acquisition is subject to regulatory approvals by the
Bank of Papua New Guinea and the ICCC (Competition
regulator) in Papua New Guinea and the Reserve Bank
of Fiji and the FCCC (competition regulator) in Fiji.
See also note 39 for other subsequent events.
Donations
During the year the Group made donations totalling
K258,491 (2019: K26,336).
Auditor’s fees
Fees paid to the auditor during the year for professional
services are shown in note 36 to the accounts.
The external auditor is Deloitte Touche Tohmatsu Ltd.
Directors’ report
The Directors of Kina Securities Limited and its
Subsidiaries (“the Group”, “Company”, “Kina”) submit
herewith the annual financial report of the Company
and its Subsidiaries for the year ended 31 December 2020.
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.
Effective 9 July 2020, Kina Securities Limited
amalgamated with Kina Bank Limited (KBL), Kina
Ventures Limited (KVL) and Kina Properties Limited
(KPL) and is now known as Kina Securities Limited.
Accordingly, the financial statements of the Company
include 12 months results of Kina Securities Limited
and 4 months results of the previous KBL, KVL and KPL.
The Directors consider there are no unusual or other
matters that warrant their comments and the Group’s
financial position and results from operations are
properly reflected in these financial statements.
Operating results and review of operations
The net profit attributable to equity holders for the
year for the Group was K76.0 million compared with
K60.9 million in 2019.
The profit includes the following items:
• Net interest income of K169.7 million, compared with
K114.6 million in the prior year to 31 December 2019.
• Net fee and commission income of K76.2 million
compared with K47.8 million in the prior year.
• Operating income before impairment losses and
other operating income of K314.8 million, up from
K205.6 million in the prior year.
• Expected credit losses on financial instruments
at amortised cost of K22.0 million, compared
with K5.6 million in the prior year.
• Other operating expenses of K182.9 million,
compared with K117.2 million in the prior period.
Remuneration report
Remuneration of employees
During the year, the number of employees or former employees (not being directors of the Company), receiving
remuneration in excess of K100,000 per annum from the Group stated in bands of K10,000 was as follows:
In PGK
1,450,000 - 1,460,000
1,440,000 - 1,450,000
980,000 - 990,000
970,000 - 980,000
920,000 - 930,000
860,000 - 870,000
850,000 - 860,000
800,000 - 810,000
750,000 - 760,000
740,000 - 750,000
640,000 - 650,000
610,000 - 620,000
580,000 - 590,000
570,000 - 580,000
560,000 - 570,000
550,000 - 560,000
540,000 - 550,000
500,000 - 510,000
490,000 - 500,000
480,000 - 490,000
470,000 - 480,000
460,000 - 470,000
450,000 - 460,000
440,000 - 450,000
430,000 - 440,000
420,000 - 430,000
400,000 - 410,000
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
280,000 - 290,000
260,000 - 270,000
2020
1*
-
2
-
1
1
-
1
1
1
-
1
2
-
-
1
1
-
2
-
1
1
-
2
-
-
1
1
2
-
1
-
-
2
3
-
1
2
2019
-
1*
-
2
-
-
2
-
-
-
1
-
1
1
1
1
-
2
-
4
-
-
1
-
3
1
-
-
2
1
2
1
1
1
2
4
2
-
44 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 45
Remuneration report
Remuneration of employees (continued)
In PGK
250,000 - 260,000
240,000 - 250,000
220,000 - 230,000
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
Directors remuneration
Directors fees paid during the year was as follows:
Directors
I. Taureka
K. Smith- Pomeroy
J. Thomason
P. Hutchinson
A. Carriline
I. Temu (appointed 14 December 2020)
Managing Director
G. Pawson
- Salaries
- Other benefits including leave entitlements
2020
-
1
2
-
1
2
4
10
4
7
9
8
2
18
23
2020
K’000
362
269
236
211
227
-**
1,305
1,460*
454
1,914
3,219
*Impact of foreign exchange conversion.
**Payment made in subsequent year
Signed at Port Moresby on behalf of the board on 30 March 2021.
Mr. Isikeli Taureka
Director
Mr. Greg Pawson
Director
46 Kina Securities Limited Annual Report 2020
2019
1
-
-
2
3
2
4
4
3
6
7
9
4
4
8
2019
K’000
362
240
238
195
207
-
1,242
1,444*
454
1,898
3,140
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 2020.
Signed in accordance with a resolution of the directors.
On behalf of the Directors
Mr. Isikeli Taureka
Director
Port Moresby, 30 March 2021
Mr. Greg Pawson
Director
Port Moresby, 30 March 2021
Kina Securities Limited Annual Report 2020 47
Independent auditor’s report
48 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 49
Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 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 comprise the consolidated statement of financial position as at 31 December 2020, 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 financial position as at 31 December 2020 and of their 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 (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Consolidated Financial Statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ International Code of Ethics for Professional Accountants (including International Independence Standards) (IESBA Code) together with the ethical requirements that are relevant to our audit of the financial statements in Papua New Guinea, and we have fulfilled our other ethical responsibilities in accordance with these requirements and the IESBA Code. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion. Key Audit Matters Key audit matters are those matters that, in our professional judgement, were of most significance in our audit of the consolidated financial statements 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. Key Audit Matter How the scope of our audit responded to the Key Audit Matter Impairment of loans and advances As at 31 December 2020 the Group has recognised provisions amounting to K35.3m 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 Our procedures in conjunction with our credit specialists included, but were not limited to: Control design and implementation: We tested the design and implementation of controls over the impairment provision including: 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 Key Audit Matter How the scope of our audit responded to the Key Audit Matter using the ECL model include the corporate, commercial, residential and personal lending 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 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 credit loss should be recognised; • Assumptions used in the expected credit loss model such as the financial condition of the counterparty, repayment capacity and forward-looking macroeconomic factors as disclosed in Note 3; and • Incorporation of forward-looking information to reflect current or future external factors with particular focus on impacts arising due to COVID-19. - 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: - Assessing whether the model adequately addresses the requirements of the applicable accounting standard; - 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 the impairment loss provision; - Assessing reasonableness of the loss rates applicable to risk grade and aging buckets; and - Assessing the 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, de-risking of the relevant portfolios and the impact of COVID-19. We also assessed appropriateness of the disclosures in Note 3 to the consolidated financial statements. Impairment of non-current assets As at 31 December 2020 the Group has recognised goodwill amounting to K92.7m, arising from the acquisitions of Maybank (PNG) Limited and Maybank Property (PNG) Limited as disclosed in Note 37. 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 CGU In conjunction with our valuation specialists our procedures included, but were not limited to: - Evaluating the appropriateness of management’s identification of the Group’s CGUs, 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 performance and historical forecasting reasonableness; - Assessing the key assumptions and methodology used by management in the impairment model, in particular the weighted average cost of capital, the cost of debt and the terminal growth rate; - Evaluating the value in use estimate determined by management against the Company’s market capitalisation; and Independent auditor’s report
50 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 51
Key Audit Matter How the scope of our audit responded to the Key Audit Matter - Discount rates; and - Terminal value growth rates. - Testing the mathematical accuracy of the impairment model. 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, which we obtained prior to the date of this auditor’s report, and the annual report (but does not include the consolidated financial statements and the auditors’ report thereon), which is expected to be made available to us 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. 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 give 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 give a true and fair view and are 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 are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the 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 these consolidated financial statements. As part of an audit in accordance with the 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 control. • Evaluate the appropriateness of accounting policies used and the reasonableness of accounting estimates and related disclosures made by the directors. • Conclude on the appropriateness of the directors’ use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the Group’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 also provide the directors of the Company 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, actions taken to eliminate threats or safeguards applied. 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. Statements of Comprehensive Income
For the year ended 31 December 2020
CONSOLIDATED
PARENT
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
2020
K ‘000
199,687
(29,964)
169,723
76,352
(134)
76,218
55,239
136
2,510
10,968
314,794
2019
K ‘000
146,482
(31,901)
114,581
47,878
(93)
47,785
41,956
357
153
734
205,566
2020
K ‘000
89,176
(13,719)
75,457
20,960
(122)
20,838
25,772
-
2,666
25,097
149,830
2019
K ‘000
31
(3,492)
(3,461)
879
(82)
797
(88)
40,004
(8)
49,919
87,163
(22,018)
(5,646)
(11,828)
-
(182,870)
109,906
(33,932)
(117,227)
82,693
(21,822)
(83,309)
54,693
(17,226)
(45,675)
41,488
945
5
5
6
6
7
15
8
3b
9
10
Net profit for the year attributable
to the equity holders of the Company
75,974
60,871
37,467
42,433
Other comprehensive income
-
-
-
-
Total comprehensive income for the
year attributable to the equity holders
of the Company
75,974
60,871
37,467
42,433
Earnings per share – basic (toea)
Earnings per share – diluted (toea)
27 b
27 b
2020
37.25
37.06
2019
35.94
35.74
The notes on pages 57 to 130 are an integral part of these consolidated financial statements.
52 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 53
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 2020. Our firm carries out other services for the Group and the Company in the areas of assurance, Information Technology (IT) and advisory in relation to risk management. The provision for these other services has not impaired our independence as auditors of the Group and the Company. 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 Port Moresby 30 March 2021 David Rodgers Partner Chartered Accountants Registered Company Auditor in Australia Brisbane 30 March 2021 Statements of Financial Position
As at 31 December 2020
Statements of Changes in Equity
For the year ended 31 December 2020
CONSOLIDATED
PARENT
CONSOLIDATED
Attributable to the equity holders of the Group
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
2020
K ‘000
335,147
647,874
185,711
10,682
2019
K ‘000
269,702
722,090
249,713
7,635
1,614,731
114,519
1,401,433
34,003
-
83
16,482
-
86,274
92,786
49,449
145,813
3,299,551
5,385
2,560,715
4,966
-
11,538
47,342
92,571
-
810
10,491
-
96,922
92,786
49,247
62,703
2,997,535
22
2,460,967
4,506
-
9,068
54,958
140,738
2020
K ‘000
361,614
647,874
185,711
6,151
1,609,969
114,519
1,387
-
15,956
248
86,274
92,786
49,150
145,204
3,316,843
5,385
2,599,474
3,761
8,988
10,593
47,342
91,493
2,722,517
2,670,259
2,767,036
2019
K ‘000
43,837
-
-
339
-
-
351,096
317
3,226
248
16,644
-
6,532
1,216
423,455
-
-
-
167,212
4,420
9,397
11,364
192,393
Net assets
Shareholders’ equity
Issued and fully paid ordinary shares
Share-based payment reserve
27 a
27 c
Capital reserve
Retained earnings
Total equity
577,034
327,276
549,807
231,062
394,693
2,774
-
179,567
577,034
176,970
2,063
-
148,243
327,276
394,693
2,774
107,494
44,846
549,807
176,970
2,063
-
52,029
231,062
The notes on pages 57 to 130 are an integral part of these consolidated financial statements.
These financial statements have been approved for issue by the Board of Directors and signed on its behalf by:
Mr. Isikeli Taureka
Director
Mr. Greg Pawson
Director
54 Kina Securities Limited Annual Report 2020
Share Capital
Share Based
Payment Reserve
Retained
Earnings
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
Profit for the year
Other comprehensive income
Additional shares issued
Employee share scheme – vested rights
Employee share scheme – value of employee services
Dividend paid
K ‘000
142,213
-
142,213
-
-
34,757
-
-
-
176,970
-
-
217,723
-
-
-
Balance as at 31 December 2020
394,693
K ‘000
2,651
-
2,651
-
-
-
(1,430)
842
-
2,063
-
-
-
(2,297)
3,008
-
2,774
K ‘000
124,405
(725)
123,680
60,871
-
-
-
-
(36,308)
148,243
75,974
-
-
-
-
(44,650)
179,567
Total
K ‘000
269,269
(725)
268,544
60,871
-
34,757
(1,430)
842
(36,308)
327,276
75,974
-
217,723
(2,297)
3,008
(44,650)
577,034
PARENT
Attributable to the equity holders of the Group
Balance as at 31 December 2018
Transition effect IFRS 16
Share
Capital
Share Based
Payment
Reserve
K ‘000
142,213
-
K ‘000
2,651
-
Balance as at 01 January 2019
142,213
2,651
Profit for the year
Additional shares issued
Other comprehensive income
Employee share scheme – vested rights
Employee share scheme – value of employee services
Dividend paid
-
34,757
-
-
-
-
-
-
-
(1,430)
842
-
Balance as at 31 December 2019
176,970
2,063
Profit for the year
Additional shares issued
Other comprehensive income
Employee share scheme – vested rights
Employee share scheme – value of employee services
Amalgamation adjustment
Dividend paid
-
217,723
-
-
-
-
-
-
-
-
(2,297)
3,008
-
-
Retained
Earnings
Capital
Reserve
Total
K ‘000
46,318
(414)
45,904
42,433
-
-
-
-
(36,308)
52,029
37,467
-
-
-
-
-
K ‘000
K ‘000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
191,182
(414)
190,768
42,433
34,757
-
(1,430)
842
(36,308)
231,062
37,467
217,723
-
(2,297)
3,008
107,494
107,494
(44,650)
-
(44,650)
Balance as at 31 December 2020
394,693
2,774
44,846
107,494
549,807
The notes on pages 57 to 130 are an integral part of these consolidated financial statements.
Kina Securities Limited Annual Report 2020 55
Statements of Cash Flows
For the year ended 31 December 2020
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
CONSOLIDATED
PARENT
2020
2019
2020
2019
K ‘000
K ‘000
K ‘000
K ‘000
202,364
(27,376)
55,239
136
78,271
(134)
13,256
1,943
cv
146,984
(32,835)
41,956
357
50,531
(93)
887
2,076
-
85,218
(3,704)
25,772
31
(3,492)
(88)
-
40,004
20,960
(123)
887
(82)
25,791
11,051
1,943
1,751
-
38,860
(169,183)
(110,059)
(32,269)
(50,117)
(36,195)
118,321
(30,628)
(32,394)
69,176
92,945
(1,179)
35,875
64,002
(112,218)
(14,687)
(217,160)
(225,415)
(138,215)
(82,487)
(41,844)
(111,488)
99,748
4,814
(60,110)
96,872
(27,558)
103,677
51,011
4,849
1,025
-
-
313
-
(504)
928
Net cash inflow/(outflow) generated from/(used in) operating activities
28c
(72,872)
(137,310)
(114,560)
36,612
Cash flows from investing activities
Purchase of property, equipment and software
Net cash acquired in business combination, net of consideration paid
31
Proceeds from sale of property and equipment
Cash acquired on amalgamation
Net movement in investment securities
Net cash inflow/(outflow) generated from/(used in) investing activities
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
(22,924)
(39,005)
(22,924)
(4,638)
-
264
-
52,355
29,695
687,718
16
-
-
264
243,321
(403,319)
103,088
-
16
-
8
245,410
323,749
(4,614)
(44,650)
(36,308)
(44,650)
(36,308)
217,723
173,073
34,757
(1,551)
217,723
173,073
129,896
106,549
382,262
549
2,515
515
34,757
(1,551)
30,447
504
269,702
160,638
43,837
12,886
Cash and cash equivalents at end of year
28a
400,147
269,702
426,614
43,837
The notes on pages 57 to 130 are an integral part of these consolidated financial statements.
Notes to the Financial Statements
For the year ended 31 December 2020
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.
Effective 9 July 2020, Kina Securities Limited
amalgamated with Kina Bank Limited (KBL), Kina
Ventures Limited (KVL) and Kina Properties Limited
(KPL) and is now known as Kina Securities Limited.
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 2020 were authorized
for issue by the Board of Directors on 30 March 2021.
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
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:
• Amendments to References to the Conceptual
Framework in IFRS Standards.
• Amendments to IFRS 3 Definition of a business.
• Amendments to IAS 1 and IAS 8 Definition of material.
Amendments to References to the
Conceptual Framework in IFRS Standards
The Group has adopted the amendments included
in Amendments to References to the Conceptual
Framework in IFRS Standards for the first time in the
current year. The amendments include consequential
amendments to affected standards so that they
refer to the new Framework. Not all amendments,
however, update those pronouncements with regard
to references to and quotes from the Framework so that
they refer to the revised Conceptual Framework. Some
pronouncements are only updated to indicate which
version of the Framework they are referencing to (the
IASC Framework adopted by the IASB in 2001, the IASB
Framework of 2010, or the new revised Framework of
2018) or to indicate that definitions in the Standard have
not been updated with the new definitions developed
in the revised Conceptual Framework.
Amendments to IFRS 3 Definition of a business
The Group has adopted the amendments to IFRS 3 for
the first time in the current year. The amendments clarify
that while businesses usually have outputs, outputs
are not required for an integrated set of activities
and assets to qualify as a business. To be considered
a business an acquired set of activities and assets must
include, at a minimum, an input and a substantive
process that together significantly contribute to the
ability to create outputs. The amendments remove
the assessment of whether market participants are
capable of replacing any missing inputs or processes
and continuing to produce outputs. The amendments
also introduce additional guidance that helps
to determine whether a substantive process has been
acquired. The amendments introduce an optional
concentration test that permits a simplified assessment
of whether an acquired set of activities and assets is not
a business. Under the optional concentration test, the
acquired set of activities and assets is not a business
if substantially all of the fair value of the gross assets
acquired is concentrated in a single identifiable asset
or group of similar assets. The amendments are applied
prospectively to all business combinations and asset
acquisitions for which the acquisition date is on or
after 1 January 2020.
56 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 57
1.3 Amendments to IFRSs that are mandatorily
effective for the current reporting period
(continued)
Amendments to IAS 1 and IAS 8 Definition of material
The Group has adopted the amendments to IAS
1 and IAS 8 for the first time in the current year. The
amendments make the definition of material in IAS
1 easier to understand and are not intended to alter
the underlying concept of materiality in IFRS Standards.
The concept of ‘obscuring’ material information with
immaterial information has been included as part of the
new definition. The threshold for materiality influencing
users has been changed from ‘could influence’ to ‘could
reasonably be expected to influence’. The definition
of material in IAS 8 has been replaced by a reference
to the definition of material in IAS 1. In addition, the
IASB amended other Standards and the Conceptual
Framework that contain a definition of ‘material’
or refer to the term ‘material’ to ensure consistency.
Their adoption has not had any material impact
on the disclosures or on the amounts reported
in these financial statements.
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 17
Insurance Contracts
IFRS 10 and IAS 28
(amendments)
Amendments to IAS 1
Amendments to IFRS 3
Sale or Contribution of Assets
between an Investor and its
Associate or Joint Venture
Classification of Liabilities
as Current or Non-current
Reference to the
Conceptual Framework
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.
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 two
reportable segments, which are the two business
divisions – Bank and Wealth Management.
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 fair value through profit
and loss (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. 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.
58 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 59
1.10 Leases
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.
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
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.
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.
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.
1.12 Business combinations
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.
The excess of the following is considered as goodwill:
• Consideration transferred;
• Amount of any non-controlling interest
in the acquired entity; and
• Acquisition date fair value of any previous equity
interest in the acquired entity over the fair value
of the net identifiable assets acquired if those
amounts are less than the fair value of the net
identifiable assets of the subsidiary acquired, the
difference is recognised directly in profit or loss
as a bargain purchase.
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.
60 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 61
1.13 Cash and cash equivalents
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 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.
Financial assets
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 time frame 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;
• 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).
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.
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.
62 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 63
1.14 Financial instruments (continued)
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).
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 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 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. For some loan
arrangements, the Group has determined based
on reasonable and supportable information 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.
64 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 65
1.16 Intangible assets and other non-financial asset
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).
Non-financial assets other than goodwill that suffered
impairment are reviewed for possible reversal of the
impairment at the end of each reporting period.
1.14 Financial instruments (continued)
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 financial position and the remeasurement
is presented in other revenue.
The Group has not designated any financial guarantee
contracts as at FVTPL.
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 10%
30%
Motor vehicles
15% to 30%
Office equipment
11.25% to 15%
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.
Customer deposits relationship / intangible
1.18 Employee benefits
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 gave 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.
Software
Costs associated with maintaining computer software
programs are recognized as an expense as incurred.
Costs that are directly associated with identifiable and
unique software products controlled by the Group that
will probably generate economic benefits exceeding
costs beyond one year are recognized as intangible
assets. Direct costs include staff costs of
the software development team and an appropriate
portion of relevant overheads. Expenditure which
enhances or extends the performance of computer
software programs beyond their original specifications
is recognized as a capital improvement and added
to the original cost of the software. Computer software
development costs recognized as assets are amortized
using the straight-line method over their useful lives,
not exceeding a period of five years.
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.
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.
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.
66 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 67
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 recognised
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 as at the reporting date.
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)).
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 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;
Diluted earnings per share
• Estimated useful life of intangible asset – note 20;
• Estimation of the fair value of performance right
grants and the number of grants expected to
vest – note 27(c).
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.
3. Financial risk management
By its nature the Group’s activities are principally related to the use of financial instruments. The Group accepts
deposits from customers at both fixed and floating rates and for various periods and seeks to earn above-average
interest margins by investing these funds in high quality assets. The Group seeks to increase these margins by
consolidating short-term funds and lending for longer periods at higher rates whilst maintaining sufficient liquidity
to meet all claims that might fall due. The Group raises its interest margins by obtaining above-average margins,
net of provisions, through lending to commercial and retail borrowers with a range of credit standing.
The Group also enters into transactions denominated in foreign currencies. This activity generally requires the
Group to take foreign currency positions in order to exploit short-term movements in foreign currency market.
The Board places trading limits on the level of exposure that can be taken in relation to both overnight and
intra-day market positions.
Risk in the Group is managed by a system of delegated limits. These limits set the maximum level of risks that
can be assumed by each operational unit and the Group as a whole. The limits are delegated from the Board
of Directors to executive management and then to the respective operational managers.
a) Market risk
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:
(i)
Foreign exchange risk;
(ii)
Interest rate risk; and
(iii) Equity price risk.
(i) Foreign exchange risk
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
LKR
THB
31 December 2020
Cash Balance
288
492
95
Due from other banks
90,405
3,926
1,820
90,693
4,418
1,915
42
665
707
199
517
660
541
233
74
-
-
407
(1,243)
716
1,201
233
481 (1,243)
31 December 2019
Cash Balance
707
473
61
44
239
Due from other banks
98,789
(962)
(200)
508
1,907
99,496
(489)
(139)
552
2,146
583
292
875
214
221
435
67
288
355
-
83
83
-
174
174
-
19
19
12
228
240
20
587
607
-
9
9
-
-
-
-
160
160
-
-
-
There was no material liabilities denominated in foreign currency.
68 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 69
3. Financial risk management (continued)
Sensitivity
As shown in the previous table, 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% (2019:10%)
USD/PGK – exchange rate – decrease 10% (2019: 10%)
(ii) Interest rate risk
Impact on statement of
comprehensive income in
K ‘000
2020
(8,219)
10,045
K ‘000
2019
(8,981)
10,977
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:
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
Year ended 31 December 2020
Carrying
amount
Average
Interest rate
K ‘000
335,147
647,874
1,614,731
114,519
% p.a.
0.03%
6.27%
9.45%
12.11%
2,560,715
1.03%
Year ended 31 December 2019
Carrying
amount
Average
Interest rate
K ‘000
269,702
722,090
1,401,433
34,003
% p.a.
0.19%
5.74%
9.64%
7.51%
2,460,967
1.25%
Sensitivity
Given the profile of assets and liabilities at 31 December
2020 and prevailing interest rates, a 100 basis points
increase/decrease in market rates in relation to lending
will result in a maximum possibility of K1,407,752
(2019: K14,014,330) decrease/increase in net interest
income at a Group level.
(iii) 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
2020 and net assets as of balance date would have
been affected by K534,112 (2019: K381,777). The Group’s
sensitivity to equity prices has changed relative to asset
balance from the prior year.
Impact on statement of
comprehensive income in
K ‘000
K ‘000
2020
534
(534)
2019
382
(382)
Equity prices –
increase 5% (2019:5%)
Equity prices –
decrease 5% (2019: 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.
• 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.
The internal audit function performs regular audits
making sure that the established controls and
procedures are adequately designed and implemented.
70 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 71
3. Financial risk management (continued)
(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.
Internal credit risk ratings
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.
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;
• Forbearances (both requested and granted);
• 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
B
C
D
E
F
G
H
A’s
B’s
B’s
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.
Unrated Acceptable risk. Sound financial history
demonstrating surplus repayment
capacity.
Unrated Watch list/special mention. Credit
weaknesses are evident and repayment
capacity is jeopardised.
Unrated
Substandard
Unrated Doubtful
Unrated
Loss
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
Stage 2
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.
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.:
Class of financial instrument
Financial statement line
Cash and due from banks at amortised cost
Cash and due from banks
Treasury and central bank bills at amortised cost
Central bank bills
Regulatory deposits at amortised cost
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
Contingent liabilities
Other financial assets
Other assets
Note
Note 12
Note 13
Note 14
Note 16
Note 17
Note 33
Note 21
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.
72 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 73
3. Financial risk management (continued)
CONSOLIDATED
31 December 2020
31 December 2019
Cash and due from banks at amortised cost
K’000
K’000
Treasury and central bank bills 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*
Total
118,811
112,024
104,312
335,147
237,539
97,608
335,147
82,413
58,314
128,975
269,702
167,363
102,339
269,702
*Bank accounts maintained in Australia, New Zealand, Great Britain, Singapore, Malaysia, Philipines, Japan, India and Turkey.
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*
Total
Treasury and central bank bills at amortised cost
Concentration by sector
With central banks
Total
Concentration by region
Papua New Guinea
Total
PARENT
31 December 2020
31 December 2019
K’000
K’000
118,811
112,024
130,779
361,614
273,279
88,335
361,614
3
-
43,834
43,837
226
43,611
43,837
CONSOLIDATED
31 December 2020
31 December 2019
K’000
K’000
647,874
647,874
647,874
647,874
722,090
722,090
722,090
722,090
Concentration by sector
With central banks
Total
Concentration by region
Papua New Guinea
Total
Regulatory deposits at amortised cost
Concentration by sector
With central banks
Total
Concentration by region
Papua New Guinea
Total
Regulatory deposits at amortised cost
Concentration by sector
With central banks
Total
Concentration by region
Papua New Guinea
Total
PARENT
31 December 2020
31 December 2019
K’000
K’000
647,874
647,874
647,874
647,874
-
-
-
-
CONSOLIDATED
31 December 2020
31 December 2019
K’000
K’000
185,711
185,711
185,711
185,711
249,713
249,713
249,713
249,713
PARENT
31 December 2020
31 December 2019
K’000
K’000
185,711
185,711
185,711
185,711
-
-
-
-
74 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 75
3. Financial risk management (continued)
Loans and advances to customers at amortised cost
K’000
K’000
Loans and advances to customers at amortised cost
K’000
K’000
CONSOLIDATED
31 December 2020
31 December 2019
PARENT
31 December 2020
31 December 2019
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
481,492
33,436
13,763
14,528
16,786
7,459
105,606
379,893
104,928
12,635
14,329
329,776
23,038
109,838
2,569
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
1,650,076
1,421,958
1,650,076
1,650,076
1,421,958
1,421,958
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
481,492
33,436
13,763
14,528
16,786
7,459
105,606
379,893
104,928
12,635
14,329
329,776
23,038
104,576
2,569
1,644,814
1,644,814
1,644,814
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
76 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 77
3. Financial risk management (continued)
Investments in government inscribed stocks at amortised cost
K’000
K’000
Bank guarantees
CONSOLIDATED
31 December 2020
31 December 2019
Concentration by sector
Sovereign
Total
Concentration by region
Papua New Guinea
Total
116,193
116,193
116,193
116,193
34,492
34,492
34,492
34,492
PARENT
31 December 2020
31 December 2019
Investments in government inscribed stocks at amortised cost
K’000
K’000
Concentration by sector
Sovereign
Total
Concentration by region
Papua New Guinea
Total
116,193
116,193
116,193
116,193
-
-
-
-
Concentration by sector
Corporate entities
Agriculture, Forestry & Fishing
Mining
Wholesale & Retail
Hotels and Restaurants
Building and Construction
Transport & Storage
Electrical, Gas & Water
Other Business
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
Other Business
Total
Concentration by region
Papua New Guinea
Total
CONSOLIDATED
31 December 2020
31 December 2019
K’000
K’000
26,285
22,003
13,300
-
20,106
4,510
1,470
1,030
88,704
88,704
88,704
25,306
400
9,402
400
2,059
7,987
1,170
23,651
70,375
70,375
70,375
PARENT
31 December 2020
31 December 2019
K’000
K’000
26,285
22,003
13,300
-
20,106
4,510
1,470
1,030
88,704
88,704
88,704
-
-
-
-
-
-
-
-
-
-
-
-
78 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 79
3. Financial risk management (continued)
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.
Cash and due from banks at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
CONSOLIDATED
31 December 2020
Stage 1
Stage 2
Stage 3
Grades A-B: Low to fair risk
Total gross carrying amount
Loss allowance
Net carrying amount
K’000
335,147
335,147
-
335,147
K’000
K’000
-
-
-
-
-
-
-
-
PARENT
31 December 2020
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
361,614
361,614
-
361,614
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2019
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
269,702
269,702
-
269,702
K’000
K’000
-
-
-
-
-
-
-
-
Total
K’000
335,147
335,147
-
335,147
Total
K’000
361,614
361,614
-
361,614
Total
K’000
269,702
269,702
-
269,702
Cash and due from banks at amortised cost
12-month ECL
Lifetime ECL
Lifetime ECL
PARENT
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
43,837
43,837
-
43,837
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2020
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
647,874
647,874
-
647,874
K’000
K’000
-
-
-
-
-
-
-
-
PARENT
31 December 2020
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
647,874
647,874
-
647,874
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
43,837
43,837
-
43,837
Total
K’000
647,874
647,874
-
647,874
Total
K’000
647,874
647,874
-
647,874
Total
K’000
722,090
722,090
-
722,090
80 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 81
3. Financial risk management (continued)
PARENT
31 December 2019
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
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
K’000
K’000
-
-
-
-
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2020
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
185,711
185,711
-
185,711
K’000
K’000
-
-
-
-
-
-
-
-
PARENT
31 December 2020
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
185,711
185,711
-
185,711
K’000
K’000
-
-
-
-
-
-
-
-
Total
K’000
-
-
-
-
Total
K’000
185,711
185,711
-
185,711
Total
K’000
185,711
185,711
-
185,711
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
-
-
-
-
-
-
-
-
PARENT
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
K’000
K’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
Total
K’000
249,713
249,713
-
249,713
Total
K’000
CONSOLIDATED
31 December 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
1,417,091
-
-
-
-
1,417,091
(12,058)
1,405,033
K’000
65,994
24,620
36,628
56,083
937
184,262
(19,777)
164,485
K’000
699
-
10
3,188
25,776
29,673
(3,510)
26,163
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
Total gross carrying amount
Loss allowance
Carrying amount
POCI
K’000
-
-
-
-
19,050
19,050
-
19,050
Total
K’000
1,483,784
24,620
36,638
59,271
45,763
1,650,076
(35,345)
1,614,731
82 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 83
3. Financial risk management (continued)
PARENT
31 December 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
1,414,258
-
-
-
-
1,414,258
(12,058)
1,402,200
K’000
65,617
24,620
36,628
56,083
937
183,885
(19,718)
164,167
K’000
699
-
10
3,188
23,724
27,621
(3,069)
24,552
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
Total gross carrying amount
Loss allowance
Carrying amount
POCI
K’000
-
-
-
-
19,050
19,050
-
Total
K’000
1,480,574
24,620
36,638
59,271
43,711
1,644,814
(34,845)
19,050
1,609,969
There is no loss allowance on POCI assets as this is balance acquired from ANZ which has been fair valued accordingly.
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
Total gross carrying amount
Loss allowance
Carrying amount
POCI
K’000
-
-
-
-
15,508
15,508
-
Total
K’000
1,341,111
30,800
23,809
4,319
21,919
1,421,958
(20,525)
15,508
1,401,433
PARENT
31 December 2019
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
Total gross carrying amount
Loss allowance
Carrying amount
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
K’000
K’000
POCI
K’000
Total
K’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
K’000
116,193
116,193
(1,674)
114,519
K’000
K’000
-
-
-
-
-
-
-
-
K’000
116,193
116,193
(1,674)
114,519
PARENT
31 December 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
K’000
116,193
116,193
(1,674)
114,519
K’000
K’000
-
-
-
-
-
-
-
-
K’000
116,193
116,193
(1,674)
114,519
84 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 85
CONSOLIDATED
31 December 2019
PARENT
31 December 2020
Stage 1
Stage 2
Stage 3
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
Total
Bank guarantees
12-month ECL
Lifetime ECL
Lifetime ECL
3. Financial risk management (continued)
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
K’000
34,492
34,492
(489)
34,003
K’000
K’000
-
-
-
-
-
-
-
-
PARENT
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
K’000
K’000
-
-
-
-
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2020
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 carrying amount
K’000
88,704
88,704
-
88,704
K’000
K’000
-
-
-
-
-
-
-
-
86 Kina Securities Limited Annual Report 2020
K’000
34,492
34,492
(489)
34,003
Total
K’000
-
-
-
-
Total
K’000
88,704
88,704
-
88,704
Grades A-B: Low to fair risk
Maximum exposure to credit risk
Loss allowance
Net carrying amount
K’000
88,704
88,704
-
88,704
K’000
K’000
-
-
-
-
-
-
-
-
CONSOLIDATED
31 December 2019
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
70,375
70,375
-
70,375
K’000
K’000
-
-
-
-
-
-
-
-
PARENT
31 December 2019
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
K’000
K’000
-
-
-
-
-
-
-
-
-
-
-
-
This table summarises the loss allowance as of the year end by class of exposure/asset.
Total
K’000
88,704
88,704
-
88,704
Total
K’000
70,375
70,375
-
70,375
Total
K’000
-
-
-
-
Loss allowance by classes
Loans and advances to customers at amortised cost
Investments in government inscribed stocks at amortised cost
Other financial assets
Total
CONSOLIDATED
31 December 2020
31 December 2019
K’000
35,345
1,674
4,038
41,057
K’000
20,525
489
4,038
25,052
Kina Securities Limited Annual Report 2020 87
3. Financial risk management (continued)
Loss allowance by classes
Loans and advances to customers at amortised cost
Investments in government inscribed stocks at amortised cost
Other financial assets
Total
PARENT
31 December 2020
31 December 2019
K’000
34,845
1,674
4,038
40,557
K’000
-
-
101
101
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 2020
Additional ECL
recognised
Write-offs
Bad debt
recoveries
CONSOLIDATED
Provision
derecognized in
respect of sales
of loan book
Balance at 31
December 2020
K’000
K’000
K’000
K’000
K’000
K’000
20,525
20,833
(7,096)
1,943
(859)
35,345
Balance at 01
January 2020
Amalgamation
adjustment
Additional ECL
recognised
PARENT
Write-offs
Bad debt
Recoveries
Provision
derecognized
in respect of
sales of loan
book
Balance at 31
December
2020
K’000
K’000
K’000
K’000
K’000
K’000
K’000
-
-
101
101
29,029
11,828
(7,096)
1,943
(859)
34,845
1,674
3,937
-
-
-
-
-
-
-
-
1,674
4,038
34,640
11,828
(7,096)
1,943
(859)
40,557
Loss allowance
by classes
Loans and
advances to
customers at
amortised cost
Investments
in government
inscribed
stocks at
amortised cost
Other financial
assets
Total
CONSOLIDATED
Balance at 01
January 2019
Additional ECL
recognised
Write-offs
Bad debt
Recoveries
Balance at 31
December
2019
Loss allowance by classes
K’000
K’000
K’000
K’000
K’000
489
1,185
4,038
-
-
-
-
-
-
-
1,674
4,038
Loans and advances to customers at amortised
cost
18,451
5,957
(5,959)
2,076
20,525
Investments in government inscribed stocks at
amortised cost
800
(311)
Other financial assets
4,038
-
-
-
-
-
489
4,038
25,052
22,018
(7,096)
1,943
(859)
41,057
Total
23,289
5,646
(5,959)
2,076
25,052
PARENT
Balance at 01
January 2019
Additional ECL
recognised
Write-offs
Bad debt
Recoveries
Balance at 31
December
2019
Loss allowance by classes
K’000
K’000
K’000
K’000
K’000
Loans and advances to customers at amortised
cost
Investments in government inscribed stocks at
amortised cost
Other financial assets
Total
-
-
101
101
-
-
-
-
-
-
-
-
-
-
-
-
-
-
101
101
Loss allowance
by classes
Loans and
advances to
customers at
amortised cost
Investments
in government
inscribed stocks
at amortised
cost
Other financial
assets
Total
88 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 89
3. Financial risk management (continued)
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:
CONSOLIDATED
31 December 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
12,102
84
(811)
(6)
-
4,716
K’000
6,698
(84)
812
(404)
(4,406)
17,972
(4,027)
(811)
K’000
1,725
-
(1)
410
(747)
2,245
(122)
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
Loss allowance as at 31 December
12,058
19,777
3,510
Loss allowance – Loans and advances
to customers at amortised cost
Loss allowance as at 01 January
Amalgamation adjustment
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
PARENT
31 December 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
-
12,102
84
(811)
(6)
-
4,716
K’000
-
6,648
(84)
812
(404)
(4,406)
17,963
(4,027)
(811)
K’000
-
1,483
-
(1)
410
(747)
2,046
(122)
3,069
Loss allowance as at 31 December
12,058
19,718
POCI
K’000
-
-
-
-
-
-
-
-
POCI
K’000
-
-
-
-
-
-
-
-
-
Total
K’000
20,525
-
-
-
(5,153)
24,933
(4,960)
35,345
Total
K’000
-
20,233
-
-
-
(5,153)
24,725
(4,960)
34,845
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
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)
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
Loss allowance as at 31 December
12,102
6,698
1,725
POCI
K’000
-
-
-
-
-
-
-
-
Total
K’000
18,451
-
-
-
(3,881)
18,060
(12,105)
20,525
PARENT
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
K’000
K’000
POCI
K’000
Total
K’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
Loss allowance as at 31 December
90 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 91
3. Financial risk management (continued)
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 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
POCI
Total
K’000
1,324,738
K’000
73,818
8,602
(114,785)
(5,728)
536,918
(8,363)
115,628
(12,964)
36,610
K’000
7,894
(239)
(843)
18,692
5,357
K’000
15,508
K’000
1,421,958
-
-
-
-
-
-
6,718
585,603
(332,654)
(16,061)
(441)
(3,176)
(352,332)
-
1,417,091
(4,406)
184,262
(747)
29,673
-
(5,153)
19,050
1,650,076
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
derecognised
Write-offs
Gross carrying amount as at 31
December
PARENT
31 December 2020
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
-
K’000
-
K’000
-
POCI
K’000
Total
K’000
Loans and advances to
customers at amortised cost
Gross carrying amount
as at 01 January
Amalgamation adjustment
1,319,158
72,883
7,438
15,508
1,414,987
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
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
8,602
(114,785)
(5,573)
534,092
(8,363)
115,628
(12,767)
36,234
(239)
(843)
18,340
4,777
-
-
-
-
-
-
6,718
581,821
(327,236)
(15,324)
(1,105)
(3,176)
(346,841)
-
1,414,258
(4,406)
183,885
(747)
27,621
-
(5,153)
19,050
1,644,814
CONSOLIDATED
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
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
92 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 93
3. Financial risk management (continued)
PARENT
31 December 2019
Stage 1
Stage 2
Stage 3
12-month ECL
Lifetime ECL
Lifetime ECL
K’000
K’000
K’000
POCI
K’000
Total
K’000
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
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
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
PARENT
YEAR ENDED 2020
YEAR ENDED 2019
Gross carrying
amount
Loss allowance
Gross carrying
amount
Loss allowance
K’000
1,384,515
53,153
47,834
59,968
99,344
K’000
14,427
799
1,673
9,163
8,783
1,644,814
34,845
K’000
K’000
-
-
-
-
-
-
-
-
-
-
-
-
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.
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.
CONSOLIDATED
YEAR ENDED 2020
YEAR ENDED 2019
Mortgage lending
Loans and advances to customers
0-29 days
30-59 days
60-89 days
90-180 days
More than 181 days
Total
Gross carrying
amount
Loss allowance
Gross carrying
amount
Loss allowance
K’000
1,387,203
53,222
47,868
60,345
101,438
K’000
14,427
799
1,673
9,222
9,224
K’000
1,307,764
22,082
8,763
47,012
36,337
1,650,076
35,345
1,421,958
K’000
14,378
330
28
4,582
1,207
20,525
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.
94 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 95
3. Financial risk management (continued)
Mortgage lending
LTDV ratio
Less than 50%
51-75%
75-90%
90-100%
More than 100%
Fully cash covered
Total
Mortgage lending
LTDV ratio
Less than 50%
51-75%
75-90%
90-100%
More than 100%
Fully cash covered
Total
Credit impaired – Mortgage lending
LTDV ratio
Less than 50%
51-75%
75-90%
90-100%
More than 100%
Total
CONSOLIDATED
YEAR ENDED 2020
YEAR ENDED 2019
Gross carrying
amount
Gross carrying
amount
K’000
60,938
68,368
43,021
174,952
133,892
253
481,424
K’000
51,636
40,964
14,186
114,106
99,350
416
320,658
PARENT
YEAR ENDED 2020
YEAR ENDED 2019
Gross carrying
amount
Gross carrying
amount
K’000
60,938
68,368
43,021
174,952
133,892
253
481,424
K’000
-
-
-
-
-
-
-
CONSOLIDATED
YEAR ENDED 2020
YEAR ENDED 2019
Gross carrying
amount
Gross carrying
amount
K’000
2,427
7,310
2,362
3,307
7,150
22,556
K’000
1,515
1,129
-
1,410
5,667
9,721
Credit impaired – Mortgage lending
LTDV ratio
Less than 50%
51-75%
75-90%
90-100%
More than 100%
Total
Personal Lending
PARENT
YEAR ENDED 2020
YEAR ENDED 2019
Gross carrying
Gross carrying
Amount
K’000
2,427
7,310
2,362
3,307
7,150
22,556
Amount
K’000
-
-
-
-
-
-
The Group’s personal lending portfolio consists of secured and unsecured loans as follows:
Secured
Unsecured
Total
CONSOLIDATED
YEAR ENDED 2020
YEAR ENDED 2019
Gross carrying
Gross carrying
K’000
481,492
33,436
514,928
K’000
507,593
114,288
621,881
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 2020, 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’ creditworthiness 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 2020, the portfolio of the corporate lending is fully
collateralized by eligible collateral.
96 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 97
3. Financial risk management (continued)
Investment securities
The Group holds investment in government inscribed stocks measured at amortised cost with
a carrying amount of K114,519,320 (2019: K34,003,163) which are collateralized by sovereign guarantee.
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 K1m (31 December 2019: 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.
• 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.
• 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.
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 2020
Cash and due from banks
Central bank bills
Regulatory deposits
Total financial assets
335,147
65,000
185,711
-
-
35,000
575,000
-
-
585,858
35,000
575,000
Due to other banks
5,385
-
-
-
-
-
-
-
Due to customers
2,026,766
286,671
282,025
20,189
Other liabilities
57,228
-
-
-
Total financial liabilities
2,089,379
286,671
282,025
20,189
Issued financial
guarantee contracts
250
32,339
49,861
6,254
Issued loan commitments
177,528
Total
177,778
27,396
59,735
-
-
49,861
6,254
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
Issued financial
guarantee contracts
Issued loan commitments
Total
1,502
2,498
35,710
30,665
31,417
32,919
100,384
102,882
-
-
35,710
30,625
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
335,147
675,000
185,711
335,147
647,874
185,711
1,195,858
1,168,732
5,385
5,385
2,615,651
2,560,715
57,228
57,228
2,678,264
2,623,328
88,704
204,924
293,628
269,702
755,000
249,713
N/A
N/A
N/A
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
N/A
N/A
N/A
98 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 99
3. Financial risk management (continued)
PARENT
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
-
-
-
-
-
-
31 December 2020
Cash and due from banks
Central bank bills
Regulatory deposits
Due from subsidiaries
Total financial assets
K’000
361,614
65,000
185,711
1,387
-
-
35,000
575,000
-
-
-
-
613,712
35,000
575,000
Due to other banks
5,385
-
-
Due to customers
2,065,525
286,671
282,025
20,189
Other liabilities
Due to subsidiaries
56,197
8,988
-
-
-
-
-
-
Total financial liabilities
2,136,095
286,671
282,025
20,189
31 December 2019
Cash and due from banks
43,837
Central bank bills
Regulatory deposits
Due from subsidiaries
Total financial assets
Due to other banks
Due to customers
Other liabilities
Due to subsidiaries
Total financial liabilities
-
-
351,096
394,933
-
-
9,038
167,212
176,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
361,614
675,000
185,711
1,387
K’000
361,614
647,874
185,711
1,387
1,223,712
1,196,586
5,385
5,385
2,654,410
2,599,474
56,197
8,988
56,197
8,988
2,724,980
2,670,044
43,837
43,837
-
-
-
-
351,096
394,933
351,096
394,933
-
-
9,038
167,212
176,250
-
-
9,038
167,212
176,250
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
4. Capital Adequacy
Kina Securities Limited (“KSL”) as the parent Company 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.
Prudential Standard PS1/2003 `Capital Adequacy’ is intended to ensure KSL maintains a level of capital which:
1. Is adequate to protect the interest of depositors and creditors,
2. Is commensurate with risk profile and activities of KSL, and
3. Provide public confidence in KSL as a financial institution and the overall banking system.
PS1/2003 `Capital Adequacy` prescribes ranges of capital ratios to measure whether KSL 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%,
3. Leverage capital of 6%.
As at 31 December 2020, KSL’s capital ratios were in compliance with the BPNG Minimum capital adequacy
requirements as follows:
The liquidity gap in ‘up to 1 month bucket’ is due to assumption that current and saving deposits amounting
to K1,330m (31 December 2019:1,919m) included within ‘due to customers’ mature within one month since
these are on demand and do not have any fixed or determinable maturity.
100 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 101
4. Capital Adequacy (continued)
5. Net interest income (expense)
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
2020
K ‘000
2019
K ‘000
1,670,142
1,598,159
370,986
58,344
429,330
22.2%
25.4%
11.2%
252,596
70,932
323,528
15.8%
20.1%
8.5%
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.
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)
6. Net fee and commission income
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
CONSOLIDATED PARENT
2020
K ‘000
44,937
8,990
2019
K ‘000
33,570
2,560
145,760
110,352
199,687
146,482
2020
K ‘000
17,259
5,471
66,446
89,176
(29,964)
(29,318)
(13,685)
-
-
(29,964)
169,723
(2,583)
-
(31,901)
114,581
-
(34)
(13,719)
75,457
2019
K ‘000
31
-
-
31
-
(803)
(2,689)
(3,492)
(3,461)
CONSOLIDATED PARENT
2020
K ‘000
2019
K ‘000
2020
K ‘000
9,279
19,669
1,197
24,469
21,738
76,352
(134)
76,218
2019
K ‘000
10,121
18,261
879
13,591
5,026
47,878
-
-
690
9,360
10,910
20,960
(93)
(122)
47,785
20,838
-
-
879
-
-
879
(82)
797
102 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 103
7. Dividend Income
9. Other operating expenses
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)
Gain on sale of Esiloan portfolio
Intercompany charges
Other
104 Kina Securities Limited Annual Report 2020
CONSOLIDATED PARENT
2020
K ‘000
2019
K ‘000
2020
K ‘000
136
-
136
357
-
357
-
-
-
CONSOLIDATED PARENT
2020
K ‘000
221
4,004
-
-
-
3,025
-
3,718
10,968
2019
K ‘000
53
178
-
-
-
-
-
503
734
2020
K ‘000
221
952
1,751
1,699
350
3,025
16,536
563
2019
K ‘000
4
40,000
40,004
2019
K ‘000
56
178
38,860
2,895
7,772
-
-
158
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
25,097
49,919
Total staff costs
CONSOLIDATED PARENT
2019
K ‘000
58,443
191
25,446
17,033
2,444
1,687
1,017
10,966
117,227
2020
K ‘000
35,067
-
19,006
18,653
511
1,741
1,144
7,187
83,309
CONSOLIDATED PARENT
2019
K ‘000
52,795
2,765
2,883
2020
K ‘000
29,990
1,879
3,198
2019
K ‘000
27,729
16
6,323
5,825
49
285
377
5,071
45,675
2019
K ‘000
23,517
1,329
2,883
58,443
35,067
27,729
2020
K ‘000
75,186
-
48,900
35,065
3,353
3,562
1,248
15,556
182,870
2020
K ‘000
68,233
3,944
3,009
75,186
As at 31 December 2020 the Group had 691 (2019: 740) employees and 2 (2019: 5) consultants. The Company had
626 (2019:228) employees (post amalgamation) and 2 (2019: 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:
Profit before tax
Prima facie tax at 30% (2019: 30%)
Tax effect of:
Permanent differences
Prior year adjustment
Income tax expense
Represented by:
Current tax
Deferred taxes
Income tax expense
CONSOLIDATED PARENT
2020
K ‘000
109,906
32,972
(2,834)
3,794
33,932
2019
K ‘000
82,693
24,808
2020
K ‘000
54,693
16,408
2019
K ‘000
41,488
12,446
63
(1,929)
(12,044)
(3,049)
21,822
2,747
17,226
(1,347)
(945)
39,923
(5,991)
33,932
25,120
(3,298)
21,822
23,243
(6,017)
17,226
1,298
(2,243)
(945)
Kina Securities Limited Annual Report 2020 105
11. Deferred Taxes
a) Net deferred tax assets where there is a right to offset:
Allowance for losses
Employee benefit provision
Lease liability
CONSOLIDATED PARENT
2020
K ‘000
16,158
3,526
14,202
33,886
2019
K ‘000
12,127
2,720
16,488
31,335
2020
K ‘000
15,978
3,179
14,202
33,359
2019
K ‘000
30
1,327
2,819
4,176
Depreciation and amortisation
(17,388)
(20,302)
(17,388)
(1,192)
Others
Net deferred tax asset/(liabilities)
(16)
(542)
(15)
(17,404)
(20,844)
(17,403)
16,482
10,491
15,956
242
(950)
3,226
b) The movement on deferred tax account is as follows:
Balance at beginning of year
Statement of comprehensive income credit/(charge)
Balance at end of year
Represented by:
Deferred tax assets (note 11(a))
Deferred tax liabilities (note 11(a))
12. Cash and due from banks
Cash on hand
Exchange settlement accounts
Due from other banks
CONSOLIDATED PARENT
2020
K ‘000
10,491
5,991
16,482
2019
K ‘000
7,193
3,298
10,491
2020
K ‘000
3,226
12,730
15,956
33,886
31,335
33,359
(17,404)
(20,844)
(17,403)
16,482
10,491
15,596
CONSOLIDATED PARENT
2020
K ‘000
118,811
112,024
104,312
335,147
2019
K ‘000
82,413
58,314
2020
K ‘000
118,811
112,024
128,975
130,779
269,702
361,614
2019
K ‘000
787
2,439
3,226
4,176
(950)
3,226
2019
K ‘000
3
-
43,834
43,837
13. Central bank bills
Central bank and treasury bills
Less than 90 days
Over 90 days
Unearned discount
CONSOLIDATED PARENT
2020
K ‘000
2019
K ‘000
2020
K ‘000
2019
K ‘000
65,000
-
65,000
610,000
755,000
610,000
(27,126)
(32,910)
647,874
722,090
(27,126)
647,874
-
-
-
-
Central bank bills are debt securities issued by the Bank of Papua New Guinea (BPNG). Central bank bills
amounting to K65m (2019: Knil) 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 2020 amounted to K185,711,050 (2019: K249,712,700).
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 2020 amounted to K 185,711,050 (2019: K nil).
15. Financial assets at fair value through profit or loss
Equity securities
Listed
Unlisted
Convertible notes
CONSOLIDATED PARENT
2020
K ‘000
4,680
6,002
-
10,682
2019
K ‘000
4,834
2,636
165
7,635
2020
K ‘000
2019
K ‘000
177
5,974
-
6,151
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
Balance at end of year
CONSOLIDATED PARENT
2020
K ‘000
7,635
2,510
537
10,682
2019
K ‘000
4,907
153
2,575
7,635
2020
K ‘000
339
2,666
3,146
6,151
2019
K ‘000
347
(8)
-
339
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.
106 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 107
16. Loans and advances to customers
17. Investments in government inscribed stocks
Loans to individuals
Loans to corporate entities
Gross loans and advances to customers
Expected credit losses
Details of gross loans and advances to customers are as follows:
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
Provision derecognised in respect of sales of loan book*
Impairment losses during the year
Loans written off
Bad debt recoveries
Amalgamation adjustment
Balance at end of year
CONSOLIDATED PARENT
2020
K ‘000
2019
K ‘000
2020
K ‘000
2019
K ‘000
514,928
621,881
514,928
1,135,148
800,077
1,129,886
1,650,076
1,421,958
1,644,814
(35,345)
(20,525)
(34,845)
1,614,731
1,401,433
1,609,969
CONSOLIDATED PARENT
2020
K ‘000
83,611
2019
K ‘000
68,273
2020
K ‘000
83,611
481,424
320,658
481,424
17,653
1,949
20,056
2,289
17,653
1,949
1,065,439
1,010,682
1,060,177
1,650,076
1,421,958
1,644,814
CONSOLIDATED PARENT
2020
K ‘000
20,525
(859)
20,833
(7,096)
1,943
-
2019
K ‘000
18,451
5,957
(5,959)
2,076
-
35,345
20,525
2020
K ‘000
-
(859)
11,828
(7,096)
1,943
29,029
34,845
-
-
-
-
-
2019
K ‘000
-
-
-
-
-
-
2019
K ‘000
-
-
-
-
-
-
In June 2020, Kina divested Esiloan portfolio to Nationwide Microbank Limited (MiBank) for an amount of PGK
34.2m. The transaction was in line with the strategic partnership announced between Kina and Mibank in August
2019 to provide greater financial inclusion and provision of micro-finance to customers. The gain on sale of Esiloan
portfolio amounted to K3.0m recognised under other income.
Government inscribed stocks principal balance
Unamortised premium
Unamortised discount
Accrued interest
CONSOLIDATED PARENT
2020
K ‘000
118,000
301
(4,777)
2,669
2019
K ‘000
33,000
437
(8)
1,063
2020
K ‘000
118,000
301
(4,777)
2,669
Gross investments in government inscribed stocks
116,193
34,492
116,193
Expected credit losses
(1,674)
(489)
(1,674)
114,519
34,003
114,519
The movement in investments in government inscribed stocks is as follows:
Balance at beginning of year
Additions / (maturities)
Amortized discount/(premium)
Accrued interest
Write back / (addition) of expected credit losses
Amalgamation adjustment
CONSOLIDATED PARENT
2020
K ‘000
34,003
85,000
(4,906)
1,607
(1,185)
-
2019
K ‘000
34,195
2020
K ‘000
-
-
85,000
(70)
(433)
311
-
(4,906)
1,607
(1,185)
34,003
114,519
34,003
114,519
2019
K ‘000
-
-
-
-
-
-
-
2019
K ‘000
-
-
-
-
-
-
-
Investments in government inscribed stocks are measured at amortized cost. Included within the balance is an amount
of K nil (31 December 2019: K nil) 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 Wealth Management Limited (KWML)
Kina Nominees Limited (KNL)**
Total Investment at cost
Provision for impairment
Balance as at 31 December
SHAREHOLDINGS*
2020
2019
2020
2019
%
100
100
100
100
% Amount (K)
Amount (K)
100
100
100
100
2
2
2
2
2
2
500,002
500,002
500,010
500,010
(251,677)
(251,677)
248,333
248,333
*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 2020 (2019: nil).
108 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 109
19. Property, plant and equipment
CONSOLIDATED
Furniture
& Fittings
Building
improvements
Motor
Vehicles
Office
Equipment
Land &
Building
Work in
Progress
Right-of-
use assets
Total
K’000
1,238
-
3,620
-
(48)
4,810
-
-
-
K’000
7,334
K’000
4,174
K’000
16,699
K’000
2,129
K’000
2,320
K’000
K’000
-
33,894
-
-
-
10,524
1,949
21,420
2,246
(2,419)
17,685
-
(338)
5,785
74
(214)
37,979
2,129
-
-
-
-
-
-
(2,320)
-
-
24,381
24,381
38,418
75,931
-
-
-
(3,019)
62,799
131,187
893
1,168
5,055
-
-
-
(1,326)
-
-
-
-
-
1,074
1,976
10,166
-
-
-
-
(1,272)
(2,598)
4,810
18,578
5,627
43,034
2,129
1,074
63,503
138,755
(1,013)
(4,148)
(3,170)
(13,455)
-
-
-
-
(437)
48
(1,402)
(832)
1,582
(882)
338
(2,641)
199
(3,398)
(3,714)
(15,897)
Charge during the year
(1,087)
(2,314)
(1,083)
(4,821)
-
(2,489)
-
1,283
-
(5,712)
(3,514)
(20,718)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(21,786)
(3,149)
(3,149)
(6,705)
(11,497)
-
2,167
(9,854)
(34,265)
(11,228)
(20,533)
1,034
2,317
(20,048)
(52,481)
2,321
12,866
2,114
22,316
2,129
1,074
44,454
86,274
3,408
14,287
2,071
22,082
2,129
-
52,945
96,922
Cost
Balance 31 December
2018
IFRS 16 transition
impact on the opening
balance
Additions
Transfer in (out)
Disposals
Balance 31 December
2019
Additions
Transfer in (out)
Disposals
Balance 31 December
2020
Accumulated
depreciation
Balance 31 December
2018
IFRS 16 transition
impact on the opening
balance
Charge during the year
Disposals
Balance 31 December
2019
Disposals
Balance
31 December 2020
Book value Balance
31 December 2020
Balance 31 December
2019
PARENT
Cost
Balance 31 December
2018
IFRS 16 transition
impact on the opening
balance
Additions
Transfer in (out)
Disposals
Balance 31 December
2019
Amalgamation
adjustment
Additions
Disposals
Balance 31 December
2020
Accumulated
depreciation
Balance 31 December
2018
IFRS 16 transition
impact on the opening
balance
Charge during the year
Disposals
Balance 31 December
2019
Amalgamation
adjustment
Furniture
& Fittings
Building
improvements
Motor
Vehicles
Office
Equipment
Land &
Building
Work in
Progress
Right-of-
use assets
Total
K’000
K’000
878
2100
K’000
10,683
K’000
2,129
K’000
K’000
K’000
110
-
16,481
K’000
582
-
2
-
-
688
-
-
547
1,494
2,246
-
3,671
-
(239)
3,654
-
616
-
-
-
-
-
-
11,909
2,129
-
-
(2,246)
-
-
-
11,057
11,057
3,051
5,710
-
-
-
(239)
14,108
36,159
48,691
95,028
1,074
1,976
10,166
-
(1,272)
(2,598)
4,122
14,014
2,131
26,070
-
-
893
1,168
5,055
-
(1,326)
-
-
-
-
4,810
18,578
5,627
43,034
2,129
1,074
63,503
138,755
(530)
-
(36)
-
(566)
(718)
(2,033)
(9,421)
-
-
-
(35)
-
(516)
239
(1,069)
-
(753)
(2,310)
(10,490)
(1,480)
(3,815)
(1,642)
(7,914)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
(12,702)
(2,467)
(2,467)
(2,929)
(4,585)
-
239
(5,396)
(19,515)
(9,240)
(24,091)
(6,447)
(11,192)
1,034
2,317
(20,049)
(52,481)
Charge during the year
(443)
Disposals
Balance
31 December 2020
-
(2,489)
(1,144)
-
(844)
1,283
(2,314)
-
(5,712)
(3,513)
(20,718)
Book value Balance
31 December 2020
Balance 31 December
2019
2,321
12,866
2,114
22,316
2,129
1,074
43,454
86,274
123
2,918
1,344
1,419
2,128
-
8,712
16,644
110 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 111
20. Intangible assets
CONSOLIDATED
Cost
Balance 31 December 2018
Additions
Transfer in (out)
Balance 31 December 2019
Additions
Transfer in (out)
Balance 31 December 2020
Accumulated depreciation
Balance 31 December 2018
Charge for the year
Balance 31 December 2019
Charge during the year
Balance 31 December 2020
Book value
Balance 31 December 2020
Balance 31 December 2019
Work in
Progress
Total
Software
K ‘000
13,345
7,700
16,476
37,521
5,058
206
Customer
deposit
relationship
/ intangible
K ‘000
3,780
18,688
K ‘000
16,014
322
-
(14,834)
22,468
-
-
1,502
9,676
(206)
K ‘000
33,139
26,710
1,642
61,491
14,734
-
42,785
22,468
10,972
76,225
(4,250)
(3,110)
(7,360)
(7,711)
(2,457)
(2,427)
(4,884)
(6,821)
(15,071)
(11,705)
-
-
-
-
-
(6,707)
(5,537)
(12,244)
(14,532)
(26,776)
27,714
30,161
10,763
17,584
10,972
1,502
49,449
49,247
PARENT
Cost
Balance 31 December 2018
Additions
Disposals
Balance 31 December 2019
Amalgamation adjustment
Additions
Transfer in (out)
Balance 31 December 2020
Accumulated depreciation
Balance 31 December 2018
Charge during the year
Disposals
Balance 31 December 2019
Amalgamation adjustment
Charge during the year
Disposals
Balance 31 December 2020
Book value
Balance 31 December 2020
Balance 31 December 2019
Software
Customer
deposit
relationship
/ intangible
Work in
Progress
Total
K ‘000
K ‘000
K ‘000
K ‘000
6,058
1,979
316
8,353
29,168
5,058
206
-
-
-
-
22,468
-
-
1,372
360
(676)
1,056
446
9,377
(206)
7,430
2,339
(360)
9,409
52,082
14,435
-
42,785
22,468
10,673
75,926
(1,636)
(1,241)
-
(2,877)
(7,959)
(4,235)
-
-
-
-
-
(8,479)
(3,226)
-
(15,071)
(11,705)
-
-
-
-
-
-
-
27,714
5,476
10,763
10,673
-
1,056
(1,636)
(1,241)
-
(2,877)
(16,438)
(7,461)
-
(26,776)
49,150
6,532
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 gave 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 respectively 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 one year respectively.
112 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 113
21. Other assets
24. Employee provisions
CONSOLIDATED PARENT
CONSOLIDATED
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
Amalgamation adjustment
Balance at end of year
22. Due to Customers
Corporate customers
Retail customers
23. Current income tax (assets) liabilities
Balance at beginning of year
Paid during the year
Current provision
Amalgamation adjustment
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
2020
K ‘000
1,550
5,435
142,866
149,851
(4,038)
2019
K ‘000
6,241
5,292
55,208
66,741
(4,038)
2020
K ‘000
1,512
5,387
142,343
149,242
(4,038)
145,813
62,703
145,204
4,038
-
4,038
4,038
-
4,038
101
3,937
4,038
2019
K ‘000
572
498
247
1,317
(101)
1,216
101
-
101
CONSOLIDATED PARENT
2020
K ‘000
2019
K ‘000
2020
2019
K ‘000
K ‘000
1,925,006
1,624,450
1,963,765
635,709
836,517
635,709
2,560,715
2,460,967
2,599,474
-
-
-
CONSOLIDATED PARENT
2020
K ‘000
3,696
2019
K ‘000
8,154
2020
K ‘000
(317)
(36,195)
(30,628)
(32,394)
39,923
25,120
-
(2,541)
4,883
(83)
4,966
4,883
-
1,050
3,696
(810)
4,506
3,696
23,243
13,448
(219)
3,761
-
3,761
3,761
2019
K ‘000
1,011
(1,179)
1,298
-
(1,447)
(317)
(317)
-
(317)
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
2020
Represented by:
Short term provisions
Long term provisions
Total employee provision
CONSOLIDATED
Provision for Annual Leave
Provision for Long Service Leave
Provision for Salaries
Provision for Bonus
Total
Opening
balance
K ‘000
3,156
2,065
67
3,780
9,068
2020
Additions
Payments
K ‘000
3,706
619
K ‘000
(2,164)
(590)
49,508
(49,537)
5,116
(4,188)
58,949
(56,479)
2020
Closing
balance
K ‘000
4,698
2,094
38
4,708
11,538
Opening
balance
Additions
Payments
Closing
balance
K ‘000
K ‘000
K ‘000
1,607
635
71
2,107
4,420
2,109
1,285
59
2,798
6,251
K ‘000
3,387
503
(628)
580
45,599
(45,633)
4,955
(2,590)
54,444
(48,271)
Consolidated
K ‘000
9,445
2,093
11,538
2019
2,343
904
K ‘000
(1,296)
(124)
39,028
(39,020)
2,308
(1,326)
44,583
(41,766)
4,366
1,718
37
4,472
10,593
Parent
K ‘000
3,785
6,808
10,593
Closing
balance
K ‘000
3,156
2,065
67
3,780
9,068
Opening
balance
Additions
Payments
K ‘000
K ‘000
114 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 115
24. Employee provisions (continued)
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
2019
Opening
balance
Additions
Payments
K ‘000
1,068
412
62
1,100
2,642
K ‘000
1,380
303
17,361
1,311
K ‘000
(841)
(80)
(17,352)
(304)
20,355
(18,577)
Consolidated
K ‘000
7,003
2,065
9,068
Closing
balance
K ‘000
1,607
635
71
2,107
4,420
Parent
K ‘000
3,785
635
4,420
PARENT
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
Lease liabilities included in statement of financial position at 31 December
Current
Non-current
Amounts recognised in statement of comprehensive income
Interest on lease liabilities
Expense relating to short-term leases
25. Lease Liabilities
Details of associated lease liabilities recognised in respect of the right of use assets are presented below:
31
December
2020
31
December
2019
K ‘000
11,724
31,434
16,161
59,319
11,834
35,508
47,342
3,841
6,552
10,393
K ‘000
3,572
6,546
528
10,646
2,971
6,426
9,397
803
985
1,788
Amounts recognised in statement of cash flows
Total cash outflow for leases
19,986
3,461
Total cash flows for leases is recorded under Cash payments to employees and suppliers in the statement of cash flows.
CONSOLIDATED
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
Lease liabilities included in statement of financial position at 31 December
Current
Non-current
Amounts recognised in statement of comprehensive income
Interest on lease liabilities
Expense relating to short-term leases
31
December
2020
31
December
2019
K ‘000
11,724
31,434
16,161
59,319
11,834
35,508
47,342
3,841
6,552
10,393
K ‘000
13,163
35,603
22,544
71,310
9,319
45,639
54,958
2,583
5,746
8,329
Amounts recognised in statement of comprehensive income
Total cash outflow for leases
19,986
7,796
Total cash flows for leases is recorded under Cash payments to employees and suppliers in the statement of cash flows.
116 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 117
26. Other liabilities
Accruals
Unclaimed money and stale cheques
Bank cheques
Accounts payable
Unearned commission income
Lease incentive payable
Advance payments
Other liabilities
Balance at end of year
CONSOLIDATED
PARENT
2020
K ‘000
14,497
9,028
20,044
6,271
1,676
4,783
22,902
13,370
92,571
2019
K ‘000
12,694
8,166
46,716
4,996
1,309
5,483
16,215
45,159
140,738
2020
K ‘000
13,894
9,028
20,044
6,223
1,676
4,783
22,902
12,943
91,493
2019
K ‘000
2,326
36
-
2,002
-
-
-
7,000
11,364
27. Issued and paid ordinary shares
a) Movement
The Company does not have authorized capital and ordinary shares have no par value. The table below provides
movement in share capital.
Balance as at 31 December 2018
Share issued during the year
Balance as at 31 December 2019
Share issued during the year
Balance as at 31 December 2020
Number
of shares
‘000
163,993
10,752
174,745
112,191
286,936
Share
capital
K ‘000
142,213
34,757
176,970
217,723
394,693
In September 2020, the group conducted a Non-Renounceable Rights Issue (ANREO) to further strengthen the
capital base and regulatory ratios. Based on this, a total of 112,190,731 additional shares were issued resulting
in an increase in share capital of PGK217.7m.
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)
2020
75,974
203,941
205,024
37.25
37.06
2019
60,871
169,369
170,308
35.94
35.74
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.
The following STI plan arrangements were in place during the year ended 31 December 2020:
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 2020
1 April 2019
403,180
440,776
AUD 576,547
AUD 485,864
1 April 2022
1 April 2021
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 2020
Date of grant
Number of share rights granted
Market value at grant date
Fair value at grant date
Vesting date
Vesting conditions
1 April 2020
1 April 2019
16 February 2018
617,987
1,069,800
974,780
AUD 883,722
AUD 970,523
AUD 690,394
AUD 349,163
AUD 543,493
AUD 419,155
1 April 2023
1 April 2022
1 April 2021
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.
118 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 119
27. Issued and paid ordinary shares (continued)
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
2020
2019
Number
Number
3,586,169
2,573,006
1,021,167
1,555,663
(945,851)
(542,500)
-
-
3,661,485
3,586,169
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
CONSOLIDATED
2020
K ‘000
2,063
3,008
(2,297)
-
2,774
2019
K ‘000
2,651
842
(1,430)
-
2,063
28. Statements of cash flows
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
2020
K ‘000
335,147
65,000
400,147
2019
K ‘000
269,702
-
269,702
2020
K ‘000
361,614
65,000
426,614
2019
K ‘000
43,837
-
43,837
CONSOLIDATED
2020
K ‘000
582,874
65,000
114,519
10,682
773,075
2019
Movement
K ‘000
722,090
-
34,003
7,636
763,729
K ‘000
(139,216)
65,000
80,516
3,046
9,346
c) Reconciliation of net profit after tax for the year to net cash flows from operating activities is presented below.
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
Increase/(decrease) in deferred income tax (note 11b)
Changes in net assets and liabilities:
Decrease/(increase) in assets:
Increase/(decrease) in liabilities:
CONSOLIDATED
PARENT
2020
K ‘000
75,974
(221)
35,065
(4,906)
711
2,510
1,186
(5,991)
2019
K ‘000
60,871
2
17,033
(70)
(588)
153
(4,141)
(3,298)
2020
K ‘000
37,467
(221)
18,653
(4,906)
711
2,666
4,077
(12,730)
(226,709)
(371,349)
(233,347)
49,509
164,802
73,070
Effect of change in accounting policy as disclosed in note 1.3
-
(725)
-
Net cash inflow/(outflow) from operating activities
(72,872)
(137,310)
(114,560)
2019
K ‘000
42,433
-
5,825
-
(588)
(8)
(1,328)
(2,439)
325
(7,194)
(414)
36,612
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
2020, 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 2020, the total remuneration
of the Directors was K3,219,047 (2019: K3,140,026).
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).
2020
2019
No of KMP
10
13
Salary
7,650
8,388
Bonus
2,093
1,985
Super Equity Options Other benefits
-
-
711
1,013
2,084
2,314
Total
12,538
13,700
120 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 121
b) Subsidiary transactions and balances
The Company maintains an intercompany account with subsidiary undertakings, which are interest bearing
at the rate of KSL cost of funds plus 12.50 (2019: 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
2020
K ‘000
K ‘000
2019
K ‘000
2020
K ‘000
723
2,869
-
-
-
-
-
2020
K ‘000
54
372
-
-
-
-
-
KFM
KISS
KWM
KBL*
KVL*
KPL*
KNL
2019
K ‘000
2,827
4,491
-
670
670
-
42,209
1,349
-
-
-
-
-
-
1,323
-
-
-
-
-
64
-
-
-
351,096
-
-
2020
K ‘000
-
(8,880)
(108)
-
-
-
-
2019
K ‘000
(7,386)
(28,812)
(285)
(130,704)
-
(25)
-
3,592
426
49,527
2,689
1,387
351,096
(8,988)
(167,212)
*Amalgamated entities (KBL, KVL and KPL) shown for comparative purposes.
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
2020
K ‘000
2,202
2,202
2019
K ‘000
4,869
4,869
2020
K ‘000
2,138
2,138
2019
K ‘000
4,869
4,869
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
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 adjustment on loan
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.
Effective 9 July 2020, Kina Securities Limited amalgamated with Kina Bank Limited (KBL), Kina Ventures Limited (KVL)
and Kina Properties Limited (KPL) and is now known as Kina Securities Limited (note 38).
122 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 123
32. Segment reporting
The segment information provided to the Chief Executive Officer for the reportable segments for the year ended 31
December 2020 is as follows:
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
Banking &
Finance
Wealth
Management
Corporate
Total
K ‘000
K ‘000
K ‘000
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:
K ‘000
199,581
(29,964)
55,196
46,489
10,566
281,868
(138,450)
(21,811)
(35,065)
(195,326)
86,542
15,392
(11,800)
90,134
(28,807)
61,327
3,285,349
106
-
43
29,729
3,048
32,926
(9,355)
(207)
-
(9,562)
23,364
-
(3,592)
19,772
(5,125)
14,647
14,202
Additions to non-current assets
Total liabilities
(22,924)
-
(2,719,289)
(3,228)
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
-
199,687
(29,964)
55,239
76,218
13,614
314,794
(147,805)
(22,018)
(35,065)
(204,888)
109,906
15,392
(15,392)
109,906
(33,932)
75,974
3,299,551
(22,924)
(2,722,517)
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
K ‘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
K ‘000
K ‘000
K ‘000
6
-
(4)
28,143
588
28,733
31
146,482
(803)
(31,901)
(88)
797
388
325
41,956
47,785
1,244
205,566
(11,033)
(37,836)
(100,193)
260
-
(5,646)
-
(6,581)
(17,034)
(10,773)
(44,417)
(122,873)
17,960
(44,092)
910
46,838
82,693
49,527
(7,318)
11,552
(3,314)
8,238
(2,015)
(49,527)
731
945
82,693
(21,822)
1,676
60,871
2,813,044
17,221
167,270
2,997,535
(34,367)
-
(4,638)
(39,005)
(2,642,276)
(2,673)
(25,310)
(2,670,259)
Banking and finance segments includes the operations of the Kina Bank while Wealth Management includes
fund management and fund administration business. The section for Corporate is nil as the entities have been
amalgamated into Banking.
There is only one segment for the Parent entity and the information is the same as the primary statements.
124 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 125
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 2020, 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.
CONSOLIDATED
Bank guarantee
34 Commitments
Capital commitments
2020
K ‘000
88,704
88,704
2019
K ‘000
70,375
70,375
There was a total of K4,927,290 relating to commitments under contracts for capital expenditure at balance sheet
date (31 December 2019: K4,802,205).
Loan commitments
There was a total of K204,924k relating loan commitment at balance sheet date (31 December 2019: K131,801k).
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 2020.
CONSOLIDATED
Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in shares – Unlisted
- Investment in convertible notes – Unlisted
Total assets
PARENT
Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in convertible notes – Unlisted
Total assets
Level 1
K ‘000
4,680
-
-
4,680
Level 1
K ‘000
177
-
177
Level 2
K ‘000
Level 3
K ‘000
Total
K ‘000
4,680
6,002
-
-
6,002
-
-
-
-
-
6,002
10,682
Level 2
K ‘000
Level 3
K ‘000
-
-
-
-
5,974
5,974
Total
K ‘000
177
5,974
6,151
126 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 127
35. Fair value of financial assets and liabilities (continued)
36. Auditors’ remuneration
The following tables present the Group’s and the parent’s assets and liabilities that are measured at fair value
at 31 December 2019.
CONSOLIDATED
ASSETS
Investment securities measured at FVTPL
- Investment in shares – Listed
- Investment in shares – Unlisted
- Investment in convertible notes – Unlisted
Total assets
PARENT
ASSETS
Investment securities measured at FVTaPL
- Investment in shares – Listed
- Investment in shares – Unlisted
Total assets
Level 1
K ‘000
4,834
-
-
4,834
Level 1
K ‘000
174
-
174
Level 2
K ‘000
Level 3
K ‘000
-
-
-
-
-
2,636
165
2,801
Level 2
K ‘000
Level 3
K ‘000
-
-
-
-
165
165
Total
K ‘000
4,834
2,636
165
7,635
Total
K ‘000
174
165
339
Reconciliation of level 3 fair value measurements of financial assets and financial liabilities
The group holds investment in unlisted securities amounting to K6,002,718 (31 December 2019: K2,801,607) 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 K5,974,431 (31 December 2019: 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 2020 and 2019, there is no material
difference between the fair value and carrying value of the Group’s and the Parent’s financial assets and liabilities.
CONSOLIDATED ENTITY
Audit and audit related
Tax services
Other services
PARENT
Audit and audit related
Other services
2020
K ‘000
909
-
339
2019
K ‘000
942
-
75
1,248
1,017
2020
K ‘000
819
325
1,144
2019
K ‘000
329
48
377
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 2020 and no impairment loss arose on this assessment.
The goodwill is allocated and tested at the KSL 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 2019: 3.0%). The estimated
cash flows are discounted using a discount rate of 4.7% (31 December 2019: 6.5%). The fair value calculation includes
future maintainable earnings of K128.5m (31 December 2019: K74.8m) and earnings multiple of 8 times. There is no
reasonably possible change in these key assumptions on which the CGU’s recoverable amount is based would cause
its carrying amount to exceed its recoverable amount.
128 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 129
38. Group reorganisation
During the year, the Group reorganised its legal structure so that the subsidiaries Kina Bank Limited, Kina Ventures
Limited and Kina Properties Limited (amalgamating subsidiaries) were amalgamated into Kina Securities Limited
(KSL). The amalgamation was affected at the carrying amount of net assets of the amalgamating subsidiaries
immediately before the effective date of amalgamation. The difference between the pre-amalgamation carrying
amount of the net assets and the investment in the amalgamating subsidiaries was recognised as ‘capital reserves’
in separate financial statements of KSL. Further, the separate financial statement of KSL includes results of the
amalgamating subsidiaries from the effective date of amalgamation. The amalgamation does not have any
impact on the consolidated financial statements.
39. Events after the statements of financial reporting date
Subsequent to the financial reporting date, the directors declared a final dividend of AUD 6.0 cents / PGK 16.9 toea
per share (K48.5m).
The Group announced the proposed acquisition of Westpac’s Pacific Businesses in PNG and Fiji which is expected
to be completed by September 2021. The acquisition is subject to regulatory approvals by the Bank of Papua New
Guinea and the ICCC (Competition regulator) in Papua New Guinea and the Reserve Bank of Fiji and the FCCC
(competition regulator) in Fiji. Kina’s intention is to maintain Westpac PNG’s commercial banking licence and
operate the acquired business under a new, independent brand. The new brand will effectively continue the
Westpac business but under a new name.
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. Given the
recent surge in Covid-19 cases in Papua New Guinea in 2021, this is still reported as a subsequent event.
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
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.
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 31 March 2021.
a) The distribution of security holders
Range
100,001 and Over
50,001 to 100,000
10,001 to 50,000
5,001 to 10,000
1,001 to 5,000
1 to 1,000
Total
b) 20 largest shareholders of quote security holders
Rank
Name
1
2
3
4
5
6
7
8
9
10
11
12
13
14
15
16
17
18
19
20
HSBC Custody Nominees (Australia) Limited
Asian Development Bank
J P Morgan Nominees Australia Pty Limited
Comrade Trustee Services Limited
Citicorp Nominees Pty Limited
National Nominees Limited
Mineral Resources CMCA Holdings Limited
Airwolf Limited
Columbus Investments Limited
Gas Resources PNG LNG Plant Limited
Kina Asset Management No 1 Limited
Garmaral Pty Ltd
Mr Ivan Lu
GEAT Incorporated
CS Fourth Nominees Pty Limited
Hitsuma Sdn Bhd
Perpetual Shipping Limited
Capital Nominees Limited
Chan Beng Lee
Prof Alan Jonathan Berrick
Total top 20
Balance of register
Total Register
Securities
%
196,132,527
28,313,090
51,126,396
7,664,527
3,395,472
303,888
68.35
9.87
17.82
2.67
1.18
0.11
286,935,900
100.00
No. of
holders
293
387
2,095
933
1,125
497
5,330
%
5.50
7.26
39.31
17.50
21.11
9.32
100.00
Number of
shares
% of Issued
Capital
59,582,530
20.77
10,751,916
9,995,887
7,951,328
6,861,116
5,595,217
5,312,834
2,885,390
2,726,355
2,139,037
2,000,000
1,732,615
1,619,301
1,570,500
1,474,468
1,250,000
1,250,000
1,214,437
1,163,660
1,128,016
3.75
3.48
2.77
2.39
1.95
1.85
1.01
0.95
0.75
0.70
0.60
0.56
0.55
0.51
0.44
0.44
0.42
0.41
0.39
128,204,607
158,731,293
44.68
55.32
286,935,900
100.00
130 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 131
Shareholder Information (continued)
c) Number of security holders and securities on issue
Quoted securities: 286,935,900
Unquoted securities: 4,170,743
d) Unmarketable Parcel of Shares
The number of shareholders holding less than a marketable parcel of ordinary shares is 189.
e) Substantial Shareholders
Name
HSBC Custody Nominees (Australia) Limited
Name of Shares
% of issued captial
59,582,530
20.77
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.
Corporate Directory
Directors
Isikeli Taureka (Chairman)
Greg Pawson (CEO)
Karen Smith-Pomeroy
Dr Jane Thomason
Paul Hutchinson
Andrew Carriline
Dr Ila Temu
Company Secretary
Chetan Chopra
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 St
Brisbane QLD 4000
Telephone: 1300 544 474
(within Australia)
Telephone: +61 1300 544 474
(outside Australia)
Auditor
Deloitte Touche Tohmatsu
Level 9 Deloitte Haus
MacGregor St
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
www.kinabank.com.pg
Registered Office
Boroko Branch
Turumu St
Boroko
PO Box 1718, Boroko 111
National Capital District
Papua New Guinea
Goroka Branch
Cnr of Fox & Elizabeth St
Ground Floor, Gouna Plaza
PO Box 767, Goroka 441
Eastern Highlands Province
Harbour City Branch
ANZ Habour City
Off Poreporena Freeway
PO Box 1152, Port Moresby 121
National Capital District
Papua New Guinea
Head Office
Level 9, Kina Bank Haus,
Douglas St, Port Moresby,
National Capital District
Papua New Guinea
Telephone: +675 308 3000
Hides Branch
Block 8 – HGDC Para Camp
Tari, Hela Province
Hela Province
Papua New Guinea
Jacksons Branch
Jacksons International Airport
PO Box 1152, Port Moresby 121
National Capital District
Papua New Guinea
Kimbe Branch
Cnr San Remo Drive and Talasea Rd
PO Box 466, Kimbe 621
West New Britain Province
Papua New Guinea
Kokopo Branch
Post PNG Haus
Williams Road
PO Box 41, Kokopo
East New Britain Province
Lae Market Branch
Cnr Cedarbank St and
Aircorps Rd Second St, Top Town
PO Box 674, Lae Morobe Province
Papua New Guinea
Lae Top Town Branch
Ground Floor
Nambawan Super Haus
2nd St Top Town
PO Box 682, Lae
Morobe Province
Papua New Guinea
Lihir Branch
PO Box 223
Portion 830, Wide Rd
Londolovit
Lihir Island NIP
Papua New Guinea
Madang Branch
Section 20, Lot 08
Coastwatcher’s Ave
PO Box 181, Madang 511
Madang Province
Papua New Guinea
Mt Hagen Branch
Hagen Dr
PO Box 121,
Mt Hagen 281
Western Highlands Province
Papua New Guinea
Port Moresby Branch
Cnr Musgrave St and
Champion Parade
PO Box 143,
Port Moresby 121
National Capital District
Papua New Guinea
Vision City Branch
Ground Floor
Sir John Guise Dr
PO Box 1141,
National Capital District
Papua New Guinea
Waigani Drive Branch
Cnr Waigani and Islander Dr
PO Box 1141, Port Moresby
National Capital District 121
Papua New Guinea
Waigani Cameron Rd Branch
Cnr Waigani Drive
and Cameron Rd
PO Box 252,
Waigani 131
National Capital District
Papua New Guinea
Wewak Branch
Centre St
PO Box 1069,
Wewak 531
East Sepik Province
Papua New Guinea
132 Kina Securities Limited Annual Report 2020
Kina Securities Limited Annual Report 2020 133
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