Kina Securities Ltd
Annual Report 2023

Plain-text annual report

20 | Annual Report23 Digital Channel Growth Revenue PGK 404.2 mil Up 10% Deposits PGK 4,354.9 mil Up 12% Net Loan & Advances PGK 2,562.1 mil Up 19% Customers 248,331 Up 19% Underlying Return on Equity (ROE) FY22 17.9% FY23 16.8% Cost to Income FY22 58.2% FY23 54.1% t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 2 Kina Bank. PNG’s Leading Digital Bank. We are delivering on our promise to our customers. We are giving them more ways to bank with us and live their financial lives. What else would you expect from a true leader and disruptor in PNG. Working with our key technology partners, Kina Bank has built a program of continual Digital product and service releases over the last four years, improving accessibility, customer experience and reducing the cost of financial services. Kina Bank has put PNG on the map as a nation fostering digital innovation and has won awards and critical acclaim for paving the way in the sector. A key element of the five-year Strategic Plan, this focus has seen Digital portfolio revenues grow from PGK4million in 2019 to almost PGK65million in 2023. The Digital development pipeline for 2024 is strong and will ensure Kina Bank continues to lead digital innovation, not only in PNG, but in the Pacific Region. 13.1% 15.8% Market Share Deposits Market Share Lending 3 Every success story starts with ambition. The desire and determination to break new ground, create something new, make a better product, and to overcome the biggest challenges. We see it in the ambitions of our PNG business owners and operators. We see it in the dreams of hardworking Papua New Guineans, full of ambition for home ownership, a new vehicle, and to give their children the best education. We share these ambitions, because ours is to see this great country reach its full potential. We’re here to share ideas. To help overcome the obstacles. To make sure every opportunity is realised and seized with both hands. And because ambition fuels innovation, we’re continuing to deliver a range of digital products and services that offer faster, more effective ways to solve our partners’ challenges. The success story of PNG is one that we’re crafting together, and it takes the ambitions of each of us. Because when it comes to fulfilling our nation’s potential, together it’s possible. Shared. M O P , y r e n fi e R y g r e n E a m u P | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 4 Ambition. 5 True partnerships produce the most fruitful results. 6 About 01 Remuneration 07 About Kina Securities Limited Chairman's Message Report 9 1 Introduction and overview to shareholders 2 Kina’s Key Management Personnel (KMP) 02 3 Executive remuneration 4 Non-executive director arrangements Chairman’s Message 11 MD & CEO's Message Managing Director & CEO’s Message 5 Related party transactions 6 Directors’ interests in shares 03 Corporate Governance 15 08 Corporate Governance Statement 55 39 39 40 51 53 53 Vision & Strategy 04 Our Segments Strategic Overview Our Values 2023 Strategic Pillars Board Board of Directors Executives Senior Executive Team 19 20 23 24 05 29 06 35 Financials 09 Directors’ Report Independent Auditors’ Report Statements of Comprehensive Income Statements of Financial Position Statements of Changes in Equity Statements of Cash Flows Notes to the Financial Statements Shareholders Shareholder Information Corporate Directory 71 75 80 81 82 83 84 10 144 11 Corporate Directory 146 7 Possibilities. Partnerships. M O P , k a e P s t t e n r u B , h s a k a r P l a m a h S | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 8 About Kina Securities Limited. Kina Securities Limited and its related entities (KSL, Kina, the Kina Group, the Group, or the Company) was established in 1985 as a diversified financial services company offering banking products, funds administration and wealth advice across Papua New Guinea (PNG). Kina Wealth encompasses Kina Investment and Superannuation Services, Kina Funds Management and Kina Nominees servicing funds administration, wealth advice, stockbroking, funds management and nominee custodial services. Kina’s Corporate Governance Statement is available on the Company’s website: investors. kinabank.com.pg/Investors/?page=corporate- governance Kina offers customers end-to-end financial solutions from savings accounts to business loans, investments to mortgages, financial advice and investment management. We are committed to delivering exceptional service and this is what sets us apart in the market. Since our inception, we have grown to reach over 650,000 people, administering 922,000 superannuation accounts for beneficiaries and having a total asset base of PGK 5.2 billion. Kina Securities Limited has two key divisions. Kina Bank and Kina Wealth. Kina Bank delivers home, business and corporate loans, everyday banking transactions, credit cards, merchant and payment facilities and banking services to smaller institutions. Kina Securities Limited. Kina Funds Management Ltd Kina Investment & Superannuation Services Ltd Kina Nominees Ltd Kina Wealth Management Ltd 9 01M O P , t c n i c e r P e d i s r u o b r a H , a k e r u a T ) i l e K ( i l e k i s I | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 10 We have delivered market-leading digital products that make our customers’ lives easier. Chairman’s Message. Dear Shareholders, I am pleased to introduce Kina’s Annual Report for the financial year ended 31 December 2023. Kina Group’s net profit before tax increased by almost 20% to PGK175.3m, underpinned by loan book growth of almost 20%, an increase in fees and commissions and a 200 basis points decline in cost to income to 54.2%. The underlying net profit after tax was virtually unchanged at PGK105.2m recording a 1% drop because of the increased corporate tax rate from 30% to 45%. Our foreign exchange (FX) volumes were lower than expected, at PGK52.7m. While this result was below prior year levels, there was a noticeable lift in the final quarter of the year, as central bank foreign currency interventions aligned more with KSL’s bank customer demand flows. Kina Investment and Superannuation Services recorded an increase of 50% in NPAT associated with an increase in total funds under administration to PGK18b and a 5% increase in total membership. There was an exceptional contribution from the lending business, generating organic loan growth of almost 20% to make loan interest the highest value revenue portfolio (PGK194m) as well as the highest increased (PGK37.4m) revenue item from the prior year. The regional bankers and business advisors have made a positive impact. Amongst our clients are 2000 new business customers and 40 corporate, multinational accounts. Our loan recovery team also produced some significant wins during the year helping to give us our best loan provision statistics to date. Our well established partnerships with Nambawan Super and National Superannuation Fund have continued successfully, and our funds under administration and funds under management are growing steadily, while our wealth management teams publish well-read bulletins and updates on the PNG economy. Pleasingly, our ROE was 16.8% and ahead of plan, despite the dampening effect of the first year of the higher income tax rate. We paid a final dividend of PGK15.9 toea (AUD 6.0 cents) per share bringing the full year dividend to PGK25.6 toea (AUD 10.1 cents) per share. This demonstrates the Board’s commitment to return a good flow of earnings back to the owners of our business when growth is achieved. I am proud of what we‘ve achieved given difficult economic conditions in 2023. We have delivered market-leading digital products that make our customers’ lives easier. The Board is supportive of our strategy, as we continue to build on the progress we have made in core banking activities, and achieving ongoing developments in our digital partnership model, to diversify financial services and revenues for sustainable growth and returns through the economic cycle. Looking ahead, the Board will steer a prudent course for growth opportunities while safeguarding our strong balance sheet, underscoring the requirement that the growth agenda must be value accretive for all our stakeholders. We are tracking well to deliver on our 2025 strategic plan. Now embedded as the primary 11 02The Board commends all our people for their adaptability, passion and for bringing to life Kina’s vision of becoming the most dynamic, forward-thinking financial services company in the Pan Pacific. I would like to thank my Board of Directors for their ongoing support and solid leadership. Their excellent knowledge, diligence, and assistance in creating a strong, customer-focused organisation is paving the road for innovation and, in turn, improving the future of PNG. Isikeli (Keli) Taureka Non-executive Chairman Chair of the Disclosure Committee challenger brand, our market share and digital footprint continue to grow. Our mission to deliver prosperity for the communities we serve remains central to our purpose. As we advance into the second half of our 5-year strategy, the key priorities for the Board will be to support Management as it audits all branch locations to ensure our service and product offerings are accessible and inclusive, revamp our flagship branch and key locations to provide a better experience for our customers, enhance technology infrastructure and capabilities, and expand our footprint beyond Papua New Guinea. The Board commends all our people for their adaptability, passion and for bringing to life Kina’s vision of becoming the most dynamic, forward-thinking financial services company in the Pan Pacific. We have an extremely skilled leadership team, and the Board is pleased with the progress that has been made over the years and have confidence that the Managing Director and CEO Greg Pawson and his capable team will continue to deliver value to all our stakeholders. 12 13 M O P , t c n i c e r P e d i s r u o b r a H , n o s w a P y r o g e r G | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 14 I am proud of our people who continue to go above and beyond to deliver some of PNG’s banking firsts. Managing Director & CEO’s Message. Once again, it gives me great pleasure to report to you on the performance of Kina Securities Limited for 2023. We have been working hard to improve the financial services landscape in PNG by making banking more dynamic, progressive, accessible and convenient. This has always been and continues to be the cornerstone of our vision. Our 2023 revenue growth was underpinned by solid revenue growth in core banking products, most notably business lending, and also the continued stellar growth in digital revenues, which kept us on track to achieve the 2025 strategic plan. Our underlying ROE remained at 16.8%, and regulatory capital closed the year at a risk- aligned 20%, inside our target operating range and above the minimum requirement. This supports Kina’s growth focus and demonstrates our ability to execute a revenue diversification strategy, with close to 50% of income derived from non-interest products. The business has also shown agility to adapt when necessary to deal with variability in conditions, such as changes to our corporate tax rate, foreign currency supply inconsistency, and low yields on domestic securities. Executing sustainable growth on the core lending businesses through a targeted approach to segments has clearly stood out as a market winning plan in 2023. This has enabled our market share to improve by 4% in loans and 2% in deposits with associated customer growth of 19%. Our digital revenues grew over 44% year on year and the trajectory remains positive. We are confident that it will deliver more in the coming years. The PNG government’s increase in Corporate Income Tax for commercial banks from 30% to 45% came into effect on 1 January 2023, and despite indications that further consultations would continue with the banking industry in the first half of 2023, the tax remained in place for the financial year. Despite this and some significant headwinds in 2023, we still remained true to our identity as PNG’s leading Digital Bank by driving innovation and delivering services and products that have made banking accessible, convenient and easier to use for our customers. In 2023, we launched our Pei Beta bill payments platform that customers of any bank can use, opened the first Kina Bank Business Centre and Kina Private Suite at Harbour City Port Moresby, launched the first of several new look Digital Hubs in Port Moresby, and launched the ‘Red Thunder’, a mobile banking team that assists businesses and their employees to seamlessly on-board to Kina Bank. 2023 was also a record year for Kina in customer growth and lending growth to the SME and Commercial sectors and while NCD was a major contributor to this growth, our regional branches also shone, testament to our investment in the ability of experienced and qualified business bankers in our regional provincial branches to make quick and effective decisions. This is a business model that we will also look to replicate across the country and in conjunction with our partnership strategy for new locations with MiBank. Kina Bank also through its partnership with NiuPay and the Department of Lands and Physical Planning, launched an E-Lands Kiosk, an innovation that revolutionises land management services for the public sector in Papua New Guinea by integrating with Kina Bank’s payment processing solutions. It is a product which we are very proud of as it facilitates efficient and accountable service delivery. Perhaps the most exciting feature of 2023 though was the launch of Kina DigiBankr, an online mobile app and website that allows new-to-Kina customers to on-board themselves anytime and anywhere. By using this app, the hassles of queueing or long waiting times can be avoided, and the customer can open and activate their 15 03own account. Through developments such as these, Kina is committed to bringing the best of international banking practices and technology to our shores. management while maintaining our growth aspirations. We know achieving this balance will underpin our strategy and in turn, the value we create for our stakeholders. In 2023, we implemented a realigned structure that reflects our growth agenda and evolution of the 2025 strategy. We welcomed three new executives in Charlie Sukkar as our new Chief Information Officer to lead KinaTech, Roppe Uyassi as Chief Operating Officer and Philip Keller as our new Chief Risk Officer. 2023 came with its fair share of challenges, but thanks to the efforts of our Kina staff, the leadership shown by my Executive team, and the counsel and support of the Board, Kina has further strengthened its business through the many products, services and initiatives we have launched. I am proud of our people especially who continue to go above and beyond to deliver some of PNG banking's ‘firsts’. We remain PNG’s leading digital bank by offering our customers simpler, convenient ways of banking. I am confident we are moving in the right direction to fulfilling our vision of being the most dynamic, progressive and accessible financial services organisation in the Pan Pacific region. Gregory Pawson Managing Director & CEO At Kina our focus remains on building on the strong momentum across our business to deliver on our strategic initiatives. I remain positive on the outlook for Kina in 2024. As we move into 2024, expansion and growth of our services remains a key focus. Development of our digital capability, driving growth in our core businesses of retail and business banking, and wealth management will see Kina Bank make a valuable contribution to supporting the Government’s nation building agenda. Our commitment is underlined by our plan to invest over PGK 30 million during 2024 to continue expanding and refining our services, putting our customers at the centre of everything we do. Some may assume we are a traditional commercial bank however our strategy and business model is designed around innovation and digitalisation. Our Bank to Market Maker Model shows how we are differentiated from our competitors, emphasising the importance of partnerships to quickly expand our market reach and capture value. While we would love everyone to switch to Kina, we can also reach more of the market faster by offering leading services and innovative independent platforms using our infrastructure that attract users from our competitors’ customers, without them having to bank with us. A great example of this is our recently launched Pei Beta payments platform. Our ambitious plans to expand Business Banking, develop an expertise in Agri business and create a customer obsessed workforce will continue to define our success as we move into 2024. We take a balanced approach to our investment profile. Our aim is to diligently manage costs and adopt a measured approach to risk 16 17 SME Lending growth increased by 25% Revenue growth of 10% Lending Market Share growth of 4% Retail customer growth of 20% Digital channel growth of 44% Home loan growth of 8% PNG is growing. This creates opportunity across the spectrum of consumer and business markets. M O P , l o o a M l | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 18 Our Segments. Kina Bank Kina Bank delivers home, business and corporate loans, everyday banking transactions, credit cards, merchant and payment facilities, and banking services to smaller institutions. Kina also delivers partner products, and independently branded financial services products and services for customers of any bank. In 2023, we continued our focus on our Digital Banking platforms to increase accessibility to banking services for all Papua New Guineans, and on delivering results in Customer acquisition, Corporate and Home lending, and SME. Growing Digital Portfolio revenues Digital portfolio growth was up 44% year on year. This consolidated result includes growth in core merchant payment services, VISA card revenues, mobile and internet banking transactions, bill payments services, and Internet Payment Gateway from which we provide e-commerce services direct to merchants and via our strategic partners. Growing savings accounts and customers Low-cost savings accounts grew by 19%. Customer acquisition in both Consumer, (20%), and Commercial customers, (10%) was strong. Growth in Loan Book by 19% Overall lending was up 19% YOY to PGK2.6bn, including growth in Term Loans, Asset Financing and Home Loan portfolios of PGK377.9m. Growth in the business customer base and improvements in the operating model across transactional, lending and digital banking services for business and SMEs, contributed to this solid outcome. Kina Wealth Kina Wealth had a solid year of performance. Kina Funds Management, the country’s leading fund manager renewed its key customer contract for a term of 3 years with inbuilt renewals. Fund performance was solid and cash inflows steady leading to funds under management (FUM) ending at PGK10 billion, growth of 12% YOY. Kina Investment and Superannuation Services (KISS) maintained its position as the country’s leading funds administrator. Cost management was key in 2023 leading to profit ahead of budget of circa 30%. Increasing use of technology improved processes and customer experience. We added a new technology services partner, Novigi, a leading technology services business in the superannuation sector in Australia, to provide strategic technology support for clients. KISS provides a strategic platform for Group growth by leveraging the membership base of superannuation funds to provide bank services. Service level agreements for both businesses exceeded contractual requirements being in the high ninety percent region and Return on Equity (ROE) measures were also strong, helping to lift overall group ROE. Kina Private (Private) was launched targeting the underserved high net worth market in PNG. Private is based on a high trust, high touch relationship service. Our first office in Port Moresby has been a resounding success closing out 2023 with 75 customers with a very high average deposit balance of PGK3 million providing a solid pool of deposit funds. We expect transactional volumes from this segment will be meaningful across all our service channels with cross sell opportunities across all divisions. This segment will be a key distribution platform for the wealth management business as we develop collective investment opportunities for the domestic market. Our Corporate Advisory business, another new segment, closed the year strongly with 40 new to Kina Bank corporate grade relationships ranging from multi-nationals to large PNG businesses. We also focussed on exporters to assist us in growth of our foreign exchange supply and made good inroads to this market. Progress was made on developing a capability to participate in leading local syndications and also in the development of a strategic relationship with Bank of China that will provide for USD options in foreign exchange. 19 04Strategic Overview. Over the next three years our strategic intent is built on our banking and wealth capabilities to provide services and partnerships to create value for our communities. Supporting our strategic evolution are the key strategic pillars of Growth and Prosperity, Resilience, Service Excellence, Dynamic People and Sustainable Communities. 2020-21 Your trusted bank + Traditional banking + Digital banking 2022-24 Your trusted financial services partner + Traditional banking + Digital banking + Investment Banking Bank Services + Partnership Platform Retail Commercial Ecosystem Services Corporate SME Corporate Commercial Superannuation Partners Superannuation Partners Banking Partners Banking Partners Infrastructure Partner Sell, service, grow, digitise • Grow banking market share • Digitise core business • Digital customer solutions • Test and learn partnerships and innovative business models Digital Partners Partnering to create and capture value (B2B, B2C) • Maturing technology and infrastructure • Maturing partnerships capability • Targeted acquisitions • Selectively scale new business models i n o g e r u m u n i r i S m o r f n e r d l i h c l a c o L | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 20 2025 Your trusted partner in the Pan Pacific Region + Pan Pacific diversified investment bank Markets Kina Bank Modules and Partners Digital Partners Infrastructure Partner Convene a marketplace of assets, capabilities and services (B2B, B2C) • Geographical reach; digital-only bank • Bank as a service – B2B • Customer and partnership marketplace • Diversified investment bank 21 Vision. Our Vision is to be the most dynamic, progressive and accessible financial services organisation in the Pan Pacific region. Purpose. Our defining purpose is to constantly improve the prosperity of the people, communities, and markets that we serve. Our Strategy. Prosperity for our communities is Kina’s DNA. Serving our communities, supporting the growth of Papua New Guinea and continually developing innovative customer-led solutions is at the core of our organisation. Priorities. GROWTH & PROSPERITY BUILDING RESILIENCE SERVICE EXCELLENCE DYNAMIC PEOPLE SUSTAINABLE COMMUNITIES 22 Our Values. Fairness. Inspire. Responsive. Serve. Together. Guides equity and justice, ensuring opportunities for all to thrive. Sparks creativity, fuels perseverance, drives change and touches hearts. Fosters trust and satisfaction by addressing peoples’ needs promptly and effectively. Embodies empathy, compassion, kindness and enriching our customers’ lives. Is a team who entrust each other. 23 2023 Strategic Pillars. Growth & Prosperity More than halfway through our strategic plan cycle, Kina has seen strong growth across our diversified portfolio, defined by the business models of Core Banking, Digital Banking, Partnerships Platform, Bank as a Service and Diversified Investment Bank. Kina’s growth in market share and mix of approximately 50% interest and 50% non-interest income reflects this healthy diversification as well as the 16.8% underlying ROE and foundation of 20% risk aligned regulatory capital supporting sustainable growth. Delivering on the middle years of our Bank to Market Maker roadmap has seen Kina deploy to the market innovative products, services, and partnerships, including several firsts for the PNG market. This includes Pei Beta, an independently branded bill payments platform that is fee free and available for customers of any bank to use, even if they don’t have a bank account with Kina. We also released our DigiBankr platform, PNG’s first eKYC enabled digital onboarding solution for a commercial bank, meaning customers can sign up to Kina and open an account without having to come to one of our branches. Our e-commerce and internet payments gateway (IPG) capabilities have been further enhanced and are reaching more customers through our distribution partners NiuPay and SNS Tech. We see the enabling of digital payments as a critical part of growing the prosperity of small and large businesses in PNG and will continue to focus on this area. In 2023 we also commenced several major digital banking initiatives which will be completed in 2024 including a full platform replacement of our Corporate Online Banking solution, to better service the SME, corporate and multinational sectors as cheques are phased out and digital solutions become more commonplace. Our Bank as a Service model will be further extended through an embedded finance solution with a major corporate institution in PNG who is looking to improve how their customers access and transact with payment services. In parallel to product innovation driving Kina’s digital and channels growth to 44% year on year, Kina’s core banking business was strengthened through the appointment of an Executive General Manager for Business Banking and the delivery of record lending growth of almost 20%, and an increase in market share of 4%. The Regional Business Advisor model contributed strongly to this growth, as did the contribution of regional branch network to our record year for onboarding new customers. Kina Investment Superannuation Services recorded an increase of 50% in NPAT associated with an increase in total funds under administration to PGK18b and a 5% increase in total membership, while funds under management within our Wealth division continues to grow steadily. While Foreign Exchange volumes and revenues were lower than expected, at PGK51.3m, the final quarter of the year saw a significant uplift, including several record months due partly to Central Bank interventions. Across the portfolio, Kina has seen positive growth momentum from end of 2023 into 2024, supported by investments into keeping our products and services competitive and ahead of the market. Resilience Kina’s total regulatory capital adequacy of 20% remains well above the regulatory minimum of 12%. At the same time as sustainable growth, prudent cost containment was pursued to achieve a cost to income improvement of 200 points to just above 54%. Our Reimagining Risk program of work continued through 2023 with a focus on embedding governance processes and an establishment of a target risk maturity for 2025. This included the finalisation of Risk Appetite Statements that align with strategic objectives and continued improvement in risk modelling practices. Our Strategic Intelligence capability was further matured in 2023, enabling Kina Group to identify strategic disruption risks and emerging growth opportunities. 24 Over the past three years, we have made prudent investments into our technology foundations and are now seeing the benefits of these investments, including for API middleware, in the activation and growth of our digital and partnered products and services. Kina continues to invest in leadership capability and technology solutions to remain alert to and prepared for cyber security risks. As cyber-attacks pose a constant risk to business operations directly and indirectly, we will continue to strengthen infrastructure and capability where it is needed through the short, medium, and longer term. Service Excellence The launch of our FIRST program was a 2023 highlight, realigning our company values around customer service and the ambition for this to be a key differentiator. We are Fair, we Inspire, are Responsive and Serve Together. Following an all- company launch event in 2023, every employee in Kina participated in FIRST training and awareness. In addition to a focus on customers, this program encourages self-awareness and reflection, critical attributes for our service-based culture. Our cross-functional FIRST champions commenced phase two of their training, so that they can continue to embed the FIRST values and behaviours across the business in 2024. In recognising Kina’s role in the ongoing transition from traditional banking to digital banking in PNG, Kina launched several initiatives to improve accessibility, make it easier to switch banks, and to remind customers that they have a choice. In addition to taking the bank to our customers digitally via products such as WhatsApp Banking and DigiBankr, we also launched Kina Onboarding days at key branch locations in NCD and regionally as well as launching the Red Thunders, our mobile banking team that can go to customers and their communities as an alternative to customers travelling to branches. We also piloted a low cost but highly accessibility distribution model. Our first Digital Hub was launched within the premises of one of our key customers, Eliseo Limited. This provides customer onboarding, non-cash transactions and a first point of contact for customer queries. The Digital Hub concept will be further expanded in 2024 and complimented by the launch of Kina Lite Branch model for which we have confirmed an initial location in Port Moresby. Our efforts to digitalise and innovate, to improve service and distribution points, helped Kina to onboard almost 40,000 customers in 2023, a record number for Kina. Dynamic People Our people are at the forefront of driving service differentiation, growth, and innovation. In 2023 we completed an employee engagement action plan that was actively sponsored at executive level. This plan resulted in a 12% uplift in engagement and 15% uplift in the leadership effectiveness index as measured at year end. Focus areas included Small Groups communication forums, an Emerging Talent Program in partnership with the University of Tasmania, the FIRST values program, the implementation of a Cost of Housing Allowance, a new intranet and other communication tools, and the embedding of leadership, coaching and performance management practices. Remuneration policies and practices continue to be an area of focus, within the context of cost- of-living challenges. Kina continues to review opportunities to provide services, support, and benefits to staff. In 2023, following a peer review of remuneration practices, Kina introduced its first Cost of Housing Allowance for eligible staff members. This provides a foundation from which we can continue to review and adjust our practices in the future. Kina’s Graduate Program continues to be an attractor of talent, building future resilience and organisational capability. Many of our graduates from earlier years have now furthered their careers in areas such as Wealth Management, Finance, Business Banking, Strategy, Marketing, and Product Development. Our career pathways approach continues to be rolled out across the business, beyond the Funds Administration team which piloted the program in 2022. 25 Through the Kokoda Track Foundation, Kina supports Flexible Open Distance Education (FODE), sponsors young emerging PNG leaders through the Archer Leadership program, while providing the opportunity for Kina employees to participate in the mentoring of students. Kina is also contributing to improving the standard of education in PNG through its support toward the LiteHaus International to establish digital classrooms in primary schools in PNG. The donation Kina provides helps provide the schools with digital skills training and access to offline e-libraries. Kina’s Strongim Komuniti Grants program is employee-led and delivers direct funding and support to community programs where our employees believe we should be making a difference. In 2023, Kina continued our partnership with the Financial Inclusion Bank, MiBank. MiBank currently has over 450,000 customers. We provide many essential core payment solutions and other services to allow MiBank to sustainably provide access to banking products to their customers. This includes plans for more co-branded branches in regional areas of PNG. With more than 50% of our staff being female, our focus on gender and diversity is a priority. Gender balance has been achieved and maintained in our executive and senior management teams. Kina is a member of the Business Coalition for Women, which among other programs includes participation in the female executive leadership program. We continue to subscribe to the Bel Isi PNG program, which provides for safe housing, case management and support services for survivors of family and sexual violence (FSV) in our workforce and for their families and dependents. Kina’s standalone FSV policy was approved in 2022 and continues to guide Kina’s approach to support services, privacy, security, and education. In 2023, Kina recruited a Head of Talent and Culture to take forward our customer focussed FIRST values program, and to continue to explore and activate opportunities for workforce enablement and growth. Sustainability In May 2023, Kina released its first Sustainability Report, receiving a highly encouraging and complimentary response from our investors and key stakeholders, particularly in light of our relative size as an organisation. This report sets out the overall progress of our sustainability strategy which was approved by the KSL Board in 2022. The report includes our initial disclosure following our carbon emissions measurement in line with the Greenhouse Gas (CHG) Protocol and the Global Sustainability Standards Board (GSSB), Global Reporting Initiative (GRI) for materiality, and our goals that are aligned with the United Nations Sustainable Development Goals (SDG). Our mission to deliver prosperity for the communities we serve remains central to our purpose. In 2023 Kina continued to invest into community programs, many of which our employees have the opportunity to directly participate in. Kina supports the Links of Hope program which supports children and their communities that are impacted by HIV. 26 27 Service. Sustainability. M O P , s u a H k n a B a n K i | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 28 Board of Directors. Isikeli (Keli) Taureka Non-Executive Chairman Chair of the Disclosure Committee Gregory Pawson Managing Director & CEO Mr. lsikeli Taureka was appointed as a Director of Kina in April 2016. As at 14 March 2022, Mr. Taureka holds the position of Managing Director of Laba Holdings Limited which comprises shareholdings from four local areas supporting PNG LNG projects. Previously, he held 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. lsikeli previously held several senior executive roles with Chevron Corporation. Before joining Chevron, he was the Managing Director of the PNG-owned Post and Telecommunication Corporation and held senior management positions in the Bank of South Pacific Limited. lsikeli provides extensive knowledge and networks across PNG and Fiji. 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. Mr Greg Pawson was appointed Managing Director and Chief Executive Officer of Kina in 2018. He joined the Group with an extensive knowledge of the financial services industry in Australia, New Zealand, Southeast Asia and the Pacific. Before his appointment, Greg 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. His extensive banking experience includes more than 16 years at Westpac where he had accountability for Westpac’s Country/Institutional, Retail and Commercial banking businesses operating in India, Singapore, Indonesia, PNG and Fiji, and the divestment of Westpac’s retail businesses in the Cook Islands, Tonga, Samoa, Vanuatu and the Solomon Islands. Prior to this role he was Westpac’s General Manager Commercial Banking for three years leading the Australian Commercial banking customer segment with revenue in excess of $1.2 billion and responsible for 1,500 employees. Greg holds a Master of Business Administration from the Australian Institute of Management Adelaide and is a graduate member of the Australian Institute of Company Directors. 29 05Andrew Carriline Non-Executive Director Member of the Audit Committee, the Risk Committee, Remuneration and Nomination Committee and the Disclosure Committee Jane Thomason Non-Executive Director Member of the Remuneration and Nomination Committee Mr. Andrew Carriline was appointed as a Director of Kina on 16 August 2018. Dr Jane Thomason was appointed as a Director of Kina on 27 April 2018. Andrew is an experienced business executive, highly skilled at operating successfully in regulated environments. He was an executive at a major Australian bank, where until 2017 he was the Chief Risk Officer in the Institutional Bank, as well as Chairman of the bank’s business in PNG. Since 2017 Andrew has accepted several non-executive roles in the ‘for profit’ and ‘not-for- profit’ sectors. Before his focus on purely risk roles, Andrew practiced corporate law in the public and private sectors and has held several senior legal and operational roles. Andrew holds bachelor’s degrees in law and commerce from UNSW and is a graduate member of the Australian Institute of Company Directors. An entrepreneur and innovator, Jane has worked in international development 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. Since 2017, she has focused on Fintech and Blockchain and is a thought leader in the applications of blockchain technology to solve social problems. She is the Co-Founder of the British Blockchain and Frontier Technology Association, Chair, Kasei Holdings Blockchain Securities), Aquis Stock Exchange, London, and is on the Editorial Board of both Frontiers in Blockchain and Journal of Metaverse. Dr Thomason co-authored the books Blockchain Technologies for Global Social Change and Applied Ethics in a Digital Age. She is a Thinkers 360 in the Top 50 Global Thought Leaders and Influencers on Blockchain and Sustainability. 30 Paul Hutchinson Non-Executive Director Chair of the Risk Committee and Member of the Audit Committee Mr. Paul Hutchinson was appointed as a Director of Kina on 16 August 2018. Paul is currently employed by the University of Adelaide in the capacity of Program Director, responsible for large scale organization restructuring and major projects. Previously, Paul was the Managing Director and Chief Executive Officer of Rural Bank (specializing in the provision of financial services to the agribusiness sector), Chief Operating Officer of New Zealand Post and held various other senior appointments with Westpac, National Australia Bank and Bank of New Zealand. Paul’s extensive background in strategy, finance, sales and distribution, commercial operations and risk management has been honed over 30 years in the financial services sector. He is a Fellow of the Institute of Financial Services and is a member of the Australian Institute of Company Directors, having attended both the Company Directors Course and International Company Directors Course. Karen Smith-Pomeroy Non-Executive Director Chair of the Audit Committee, Member of the Risk Committee, and the Disclosure Committee Ms. Karen Smith-Pomeroy was appointed as a Director of Kina on 12 September 2016. Karen is an experienced non-executive director, with involvement across numerous industry sectors. Karen has many years of experience in the financial services sector, including a period of five years as Chief Risk Officer for Suncorp Bank. Karen has specific expertise in risk and governance, deep expertise in credit risk and specialist knowledge of several industry sectors, including energy, property, and agribusiness. Karen is a non-executive director of Queensland Treasury Corporation and National Construction Fund Corporation and is Chair of the Regional Investment Corporation and National Affordable Housing. Karen holds accounting qualifications and is a Fellow of the Institute of Public Accountants, a Senior Fellow of the Financial Services Institute of Australasia (FINSIA), a certificate member of the Governance Institute of Australia and a graduate member of the Australian Institute of Company Directors. 31 Richard Kimber Non-Executive Director Member of the Remuneration and Nomination Committee Richard is a seasoned international financial services and technology executive and director with over 30 years of experience having worked in HK, USA, and the UK. His other board positions currently include ING Bank Australia, (where he is Chairman of the Technology & Transformation Committee), Chairman of Stone & Chalk, Chairman of AustCyber and a Non-Executive Director of Daisee, an AI software company he founded in 2017. Richard’s prior executive roles include being CEO of ASX-listed OFX Group, a leading international payment company; Managing Director of Google in Southeast Asia (which included Australia and NZ); CEO of FirstDirect Bank plc in the UK; and several international roles with the HSBC Group, including as Global Head of Internet Marketing based in New York and the APAC leader for e-Commerce based in Hong Kong. 32 Acumen. Influence. 33 M O P , s u a H k n a B a n K i l t a o a K n o s n h o J d n a , n o t s l E e n e e e y a R l , i s s a y U e p p o R ) t h g R o r i t f e L ( | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 34 It’s amazing what we can achieve together. Senior Executive Team. Deepak Gupta Executive General Manager Wealth Management & Corporate Advisory Deepak Gupta is Executive General Manager and is responsible for Wealth Management and Corporate Banking at Kina. He has held a variety of senior positions with Westpac, AMP, and domestic New Zealand institutions. In addition, Deepak has strong governance experience having held non-executive director roles on the boards of NZX and ASX-listed companies. He brings substantial experience and a record of accomplishment of success and innovation across various areas in financial services including successful development of New Zealand’s first institutional private equity fund for retail investors And establishment at the time of New Zealand’s largest KiwiSaver registry business. 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. Deepak is a non- executive director of PNGX. Johnson Kalo Chief Financial Officer & Company Secretary Johnson Kalo was appointed acting Chief Financial Officer and Company Secretary in September 2022. He previously held the role of Chief Information Officer. Johnson has substantial industry experience in Papua New Guinea having previously held the positions of Deputy Chief Executive Officer and Chief Financial Officer for BSP. 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. He holds a Bachelor of Arts in Commerce from the University of Papua New Guinea and a Post Graduate Diploma in Applied Financial Investment from the Financial Services Institute of Australasia. Nathaniel Wingti Executive General Manager Treasury & Financial Markets Nathan Wingti 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 a Bachelor of Business from the Queensland University of Technology. He has also completed the AFMA Dealer Accreditation Program and the PNG Institute of Directors Program. 35 06 Ivan Vidovich Chief Transformation Officer Ivan Vidovich 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 multicountry 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. Roppe Uyassi Chief Executive Officer Kina Bank (PNG) Roppe Uyassi joined Kina Securities Ltd in November 2023 to be Kina Bank PNG CEO. Prior to joining Kina, Roppe was the Country Manager for Twinza Oil Limited in PNG where he was the lead negotiator for the Pasca A Gas Agreement negotiations. Roppe’s prior experience includes 6 years at Deloitte as a key member of the leading corporate finance team in the South Pacific. He has also previously been a board member for a major finance company in PNG and has recently been appointed to the board of the Australian Government’s Incentive Fund. Roppe is a Certified Practicing Accountant and holds a Bachelor of Business (Economics with a co- major in Finance) from the Queensland University of Technology. Philip Keller Chief Risk Officer Philip Keller joined Kina Securities Ltd in February 2024 as the Chief Risk Officer. He brings to Kina a wealth of experience in the banking and financial services sector, having worked across risk management, strategy, and finance. Philip has worked in Australia, Hong Kong, Switzerland, the UK, and USA with UBS and Capco, providing consulting services for HSBC on a global scale. Most recently, Philip held senior management roles at Westpac, based in Sydney, including Director, Wealth Strategy and Head of Customer Outcomes and Risk Excellence (CORE) Development. 36 Rayeleene Elston Executive General Manager Business Banking Rayeleene Elston joined Kina in February 2023 as Executive General Manager for Business Banking and Prime. In her role, she is responsible for the distribution of retail and business lending. Business Banking team that covered Commercial, Corporate, SME and Agribusiness. Her previous role was General Manager for Community Branches at Heritage. Prior to joining Kina Bank, Rayeleene had a 30- year career in Banking in Australia. Her career began in Retail Banking, and she spent over 20 years as an Executive across Business Banking at National Australia Bank {NAB). Her last role at NAB was leading the Queensland central region Rayeleene brings a deep knowledge of Business and Corporate Banking across multiple products, credit, and customer experience. She will be leading a key strategic project for Business Banking expansion into regional PNG over the next three years. Charlie Sukkar Chief Information Officer Since his appointment in July 2023 Charlie has been helping guide Kina Tech through a period of considerable technology service modernisation. At the core of this role, Charlie is responsible for ensuring Kina’s technology and cyber security architecture align with the Bank’s broader strategic direction to meet the evolving needs across PNG. Prior to joining the Kina Bank, Charlie led a team of professionals at building materials and construction conglomerate Fletcher Building Australia. Charlie and his team partnered with a network of global and local specialists to deliver one of the biggest fiscal and cultural transformations in the organisation’s history. As a result of this work, Fletcher Building Australia’s digital commerce business now contributes around 40% of the company’s top line sales revenue. This was achieved while raising employee satisfaction to more than 85% and digital NPS (the Customer Net Promotor score) to around 35 for most of Fletcher Building’s business units. Charlie previously led a team delivering world- class digital platforms for CSR Limited. This included the development of more agile IT infrastructure and embedding innovation across CSR’s technology portfolios, helping redefine the building materials and construction industry across Australia and New Zealand. 37 Capital. Effort. l o o h c S y r a m i r P u m u n i r i S , i e n n o B s r M | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 38 Remuneration Report. 1. Introduction and overview to shareholders The Remuneration Report is focused on providing information to Kina Securities Limited shareholders about the Company’s remuneration framework which is designed to support the delivery of targeted operating financial and non-financial results. Although Kina is not required to have the Remuneration Report audited and prepared in accordance with section 300A of the Australian Corporations Act 2001 (Cth), the level of disclosure meets the requirements of an Australian-incorporated company. In 2023, Kina reviewed its incentive plans to ensure that they align with market best practice and continue to attract, motivate and retain high calibre management and employees. As part of this review, it was determined that for all key management personnel except the CEO, the deferred component of Short Term Incentives (STIs) would be removed, and the total STI would be payable in cash. The Board will continue to evaluate the structure, eligibility, granting and vesting of fixed and variable remuneration arrangements for the company, including exercising provisions that exist to defer the payment of STIs. 2. Kina’s Key Management Personnel (KMP) This report covers the remuneration arrangements of Kina’s Key Management Personnel (KMP) who are the people with the authority and responsibility for planning, directing and controlling the activities of the Kina Group directly or indirectly. Kina’s KMP comprise the non-executive directors, the Managing Director and Chief Executive Officer (MD&CEO) and the direct reports to the MD&CEO, who are collectively called the Senior Executive Team. For the purposes of this report, ‘executive’ refers to the MD&CEO and the members of the Senior Executive Team (Senior Executives). The KMP disclosed in this Remuneration Report for 2023 were: Non-executive directors (refer to section 4 of this Remuneration Report) Name Position held during the financial year ended 31 December 2023* Isikeli Taureka Non-executive Chairman Andrew Carriline Non-executive director Paul Hutchinson Non-executive director Karen Smith-Pomeroy Non-executive director Ila Temu1 Non-executive director Jane Thomason Non-executive director Richard Kimber 2 Non-executive director MD&CEO and Senior Executive Team (direct reports to the MD&CEO) Name Position held during the financial year ended 31 December 2023* Greg Pawson MD&CEO Johnson Kalo Deepak Gupta Chief Financial Officer (CFO) and Company Secretary EGM Wealth Management & Corporate Advisory Karen Mathers Chief Risk Officer Samantha Miller3 General Manager Corporate Affairs and Investor Relations Charlie Sukkar4 Chief Information Officer Ivan Vidovich Chief Transformation Officer Nathan Wingti EGM Treasury & Financial Markets Lesieli Taviri5 Chief Operations Officer Roppe Uyassi6 Chief Executive Officer Kina Bank 1 resigned 9 May 2023 2 appointed 1 September 2023 3 resigned 2 March 2023 4 appointed 2 October 2023 5 resigned 20 October 2023 6 appointed 6 November 2023 * The term as KMP was for the full year unless otherwise indicated. 39 07Remuneration and Nomination Committee The Board has established the Remuneration and Nomination Committee (RNC) to ensure 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 regarding its composition To align remuneration, performance and strategy, the RNC regularly reviews: • the 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’ • has coherent remuneration policies and practices board fees and committee fees. For more information on the RNC, refer to Kina’s Corporate Governance Statement (available on Kina’s website at http://investors.kinabank.com.pg/ investors/?page=corporate-governance). 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. The RNC also engages external remuneration consultants to assist with this review as required. In particular, the RNC aims to ensure Kina’s remuneration practices are: • transparent, 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; and • acceptable to shareholders. to attract and retain directors and Senior Executives who will create value for shareholders • observes those remuneration policies and practices; and • rewards executives fairly and responsibly having regard to the performance of both the Kina Group and its executives and the general external pay environment (including the level of fees for non-executive directors). The RNC assists the Board in the performance of its constitutional and regulatory duties by: • advising the Board on the remuneration 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 non- executive directors’ fees • overseeing aspects of the ’Fit and Proper’ requirements of BPNG BPS310; and • identifying the mix of skills and individuals required to allow the Board to contribute to the successful oversight and stewardship of the Company. 40  – 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 jeopardise 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 the Board’s judgment this is necessary to protect the financial soundness of the Group or address 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 prohibit 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 Board maintains complete discretion to award equity rights to employees, including the determination of vesting conditions and whether the equity rights vest and/or are awarded. • 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 Executive Team and shareholders. Remuneration Policy The key tenets of Kina’s Remuneration Policy include that: • Remuneration should be set at levels that reflect the relative size of the position, the remuneration ranges for positions of equivalent ‘size’ in the relevant market, the performance of the person holding the position and any position- specific factors such as location or the strategic importance of the role. • Remuneration levels must reflect what the Group can afford. The Board through the RNC will provide the MD&CEO with advice on affordability and this must be factored into the MD&CEO’s annual review of remuneration. • 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. • Pay structures and levels may be reviewed based on the organisational growth and maturity over a period; and from time to time benchmarked against identified market participants. This survey cycle period shall typically be not more than once in any two years. • Remuneration packages may comprise a mix of base pay, performance-related pay and other benefits where this is consistent in the market with the structure of packages for similar sized roles, and must take into account the value of all such elements. • Remuneration packages, including any performance-based component, must not compromise the independence of any risk and financial control officers of the Group. • Where a remuneration 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 41 Remuneration components, approach and mix To align the interests of Kina’s Senior Executive Team with Kina’s strategic goals and to assist in the attraction, motivation and retention of management and employees of Kina, the Board has determined that the remuneration packages of the MD& CEO and the Senior Executive Team should comprise the following components: Fixed Remuneration (FR) Total fixed remuneration comprises base salary, other non-cash benefits and includes superannuation. The Senior Executive Team members 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 respective member of the Senior Executive Team at or near the median for a corresponding role, with flexibility to take into account capability, experience, and value to the organisation and performance of the individual. Short-term incentive award (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 group and individual key performance indicators (KPIs) which may consist of financial and, if applicable non-financial performance measures. For all participants, except the MD & CEO, the incentive earned will be paid 100% in cash. – MD & CEO 65% in cash and 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. For the MD & CEO, 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. Long-term incentive award (LTI Award) The long-term incentive award (LTI Award) 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 Retention Awards are no longer applicable or awarded in the ordinary course of Kina’s business. 42 STI Award Structure of LTI Award Features Eligibility STI Award components Description The MD&CEO and Senior Executive Team are eligible to participate in the STI Award (STI Participants). Cash bonus: 100% of the STI Participant’s STI Award, except for MD & CEO with 65% of STI Award. STI Performance Rights: 35% of MD & CEO’s STI Award. Individual KPIs specific to each STI Participant are agreed at the start of each year. These KPIs consist of both financial and non-financial performance measures. 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 2023: Performance measures Minimum (85% of budget) Threshold (85% – 100% budget): Target (Budget 100%): Stretch (100+ to 110%+): Stretch (120%+): 50% 90% 100% up to 120% Calculation of STI Performance Rights Vesting of STI Performance Rights The pool is then allocated in accordance with the maximum and target STI Award for each STI participant (which is detailed later) as a percentage of gross pay. The Board has the absolute discretion to vary the STI Award. The number of STI Performance Rights granted is determined by dividing the award value by the 10-day volume weighted average price per share prior to 31 December of the year of award (VWAP). STI Performance Rights are restricted from exercise until the second anniversary after the grant date and will vest on the second anniversary. These are not subject to any further measurement after award and allotment. Period Date granted Vesting date Financial Year (FY) ended 31 December 2020 01/04/2021 01/04/2023 FY ended 31 December 2021 01/04/2022 01/04/2024 FY ended 31 December 2022 01/04/2023 01/04/2025 FY ended 31 December 2023 01/04/2024 01/04/2026 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 Payment of the cash component under the STI Award will be made in April of each year after the release of the 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 43 Long-term incentive Award (LTI 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 Description Eligibility Participants must be a permanent full-time or part-time employee or executive director of Kina or any of its subsidiaries (LTI Participants). LTI components 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. 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 < 5% compound annual growth 5% >5% and < 10% 10% Vesting Outcome Nil 50% vesting Pro rata between 50% – 100% 100% vesting Performance measures In 2021, the Board worked with an independent advisor to identify the comparator group companies and the advisor calculates the vesting schedule. Calculation of LTI Performance Rights Grants are approved annually. The number of LTI Performance Rights for each year will be determined by dividing the LTI Awards by the 10-day volume weighted average price per share prior to 31 December in the year of grant (VWAP). 44 Structure of LTI Features Description While the grants are approved annually, they will vest no earlier than the third anniversary of the commencement of the performance period and subject to satisfaction of the vesting conditions and performance measures. The performance periods for the outstanding awards are as follows: Financial Year Date granted Performance Period Measures Vesting date (subject to performance testing) 2020 01/04/2021 Vesting & exercise of LTI Performance Rights 2021 01/04/2022 2022 01/04/2023 2023 01/04/2024 01/04/2021 to 31/03/2024 01/04/2022 to 31/03/2025 01/04/2023 to 31/03/2026 01/04/2024 to 31/03/2027 EPS assessment compound till FY 2023 – 50% 01/04/2024 Relative TSR assessment compounded to FY 2023 – 50% EPS assessment compound till FY 2024 – 50% 01/04/2025 Relative TSR assessment compounded to FY 2024 – 50% EPS assessment compound till FY 2025 – 50% 01/04/2026 Relative TSR assessment compounded to FY 2025 – 50% EPS assessment compound till FY 2026 – 50% 01/04/2027 Relative TSR assessment compounded to FY 2026 – 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). 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 • if the LTI participant purports to deal in the LTI Performance Right in breach of any disposal or hedging restrictions in respect of the Performance Right. 45 Structure of LTI Features Description Target LTI and maximum LTI that can be awarded MD&CEO CFO Other Senior Executives Target 50% 40% 30% Maximum 50% 40% 30% Calculation of Fair Value of LTI Performance Rights Fair value of the LTI performance rights subject to TSR and EPS vesting conditions for financial reporting purposes is generally estimated based on Kina’s ASX market share price at grant date and using a simulation pricing model applying the assumptions of price volatility, risk-free interest rates and dividend yields. Kina engages an independent valuation expert who performs the fair value calculations on the grants based on the valuation methodologies referenced above and below. TSR A Monte Carlo simulation approach is used to value the LTI Awards subject to the relative TSR performance condition as it incorporates an appropriate amount of flexibility with respect to different features of the award. This approach is assumed to follow Geometric Brownian motion under a risk- neutral measure as follows: • simulates correlations between Kina’s proxy and other peer companies as well as correlations between other companies in the peer group • ranks simulated performances and the proportion of relative TSR award vested as calculated based on vesting schedule; and • records present value of TSR-hurdle award vested. The above process is repeated multiple times and the estimated fair value is the average of the results. EPS Fair value of awards subject to EPS is calculated using a risk-neutral assumption. The fair value is the difference between the share prices of the underlying asset, minus the expected present value of future dividends over the expected life if holders of the underlying asset are not entitled to receive future dividends. The fair value of the awards subject to EPS performance conditions will be equal to the share price of the underlying asset if holders are entitled to receive future dividends. Performance-based and non-performance based components All STI and LTI elements of the remuneration of the KMP who are executives are performance-based. 46 Cash salary/fees/short-term compensated absences $ Non-monetary benefits $ Total $ 750,000 603,508 400,000 385,577 375,000 360,577 328,482 323,360 330,663 338,129 258,355 323,599 400,000 400,000 72,115 288,462 287,500 - 76,923 - 37,063 - 185,441 189,407 50,057 16,356 156,095 142,140 45,551 31,655 135,339 117,585 99,396 115,923 16,424 15,546 3,779 14,575 92,869 - 1,890 - 1,827 - 975,612 792,914 450,057 401,933 531,095 502,717 374,034 355,015 466,002 455,714 357,751 439,522 416,424 415,546 75,894 303,036 380,369 - 78,813 - 38,890 - 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 Participant Greg Pawson Ivan Vidovich Deepak Gupta Johnson Kalo Nathan Wingti Lesieli Taviri1* Karen Mathers Samantha Miller2* Rayeleene Elston3* Charlie Sukkar4* Roppe Uyassi5* * pro-rata based on start/exit date 1 resigned 20 October 2023 2 resigned 2 March 2023 3 appointed 20 January 2023 4 appointed 2 October 2023 5 appointed 6 November 2023 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. Holdings in Company Shares The table below sets out the current holdings of Company Shares by KMP. KMP Shareholding Current Balance Gregory Pawson Deepak Gupta Nathan Wingti Ivan Vidovich Johnson Kalo 1,215,414 303,697 121,589 105,575 27,205 47 Performance Rights holdings The table below sets out the current holdings of Performance Rights (PR) by KMP. First Name Last Name Gregory Pawson Chetan Chopra Michael Van Dorssen Deepak Gupta Nathan Wingti Gavin Heard Ivan Vidovich Johnson Kalo Lesieli Taviri Karen Mathers STI STI LTI LTI LTI STI LTI LTI LTI STI LTI LTI LTI STI LTI LTI LTI LTI STI LTI LTI LTI STI LTI LTI LTI STI LTI LTI LTI LTI Award Year Grant Date Vesting date 2021 2022 2020 2021 2022 2021 2020 2021 01/04/2022 01/04/2023 01/04/2021 01/04/2022 01/04/2023 01/04/2024 01/04/2025 01/04/2024 01/04/2025 01/04/2026 01/04/2022 01/04/2021 01/04/2022 01/04/2024 01/04/2024 01/04/2025 Value of PR granted (AUD) 277,825 265,072 274,466 264,595 252,450 101,801 148,009 143,194 VWAP period VWAP $ applied PR 31/12/2023 31/12/2022 31/12/2023 31/12/2021 31/12/2022 31/12/2023 31/12/2022 31/12/2021 31/12/2022 0.7756 0.7832 0.8233 0.7756 0.7832 0.7756 0.8233 0.7756 358,207 338,448 333,373 341,149 322,331 131,255 179,775 184,623 2020 01/04/2021 01/04/2024 111,006 31/12/2021 0.8233 134,831 2021 2020 2021 2022 2021 2020 2021 2022 01/04/2022 01/04/2021 01/04/2022 01/04/2023 01/04/2024 01/04/2024 01/04/2025 01/04/2026 01/04/2022 01/04/2021 01/04/2022 01/04/2023 01/04/2024 01/04/2024 01/04/2025 01/04/2026 46,985 97,131 93,971 95,931 54,816 83,255 80,546 90,882 31/12/2022 31/12/2021 31/12/2022 31/12/2023 31/12/2022 31/12/2021 31/12/2022 31/12/2023 0.7756 0.8233 0.7756 0.7832 0.7756 0.8233 0.7756 0.7832 60,579 117,978 121,159 122,486 70,676 101,124 103,850 116,039 2020 01/04/2021 01/04/2024 61,053 31/12/2021 0.8233 74,157 2021 2020 2021 2022 2021 2020 2021 2022 2021 2020 2021 2022 01/04/2022 01/04/2021 01/04/2022 01/04/2023 01/04/2024 01/04/2024 01/04/2025 01/04/2026 01/04/2022 01/04/2021 01/04/2022 01/04/2023 01/04/2024 01/04/2024 01/04/2025 01/04/2026 01/04/2022 01/04/2021 01/04/2022 01/04/2023 01/04/2024 01/04/2024 01/04/2025 01/04/2026 62,648 138,758 134,244 136,323 37,589 88,805 85,916 82,400 37,589 88,805 85,916 116,733 31/12/2022 31/12/2021 31/12/2022 31/12/2023 31/12/2022 31/12/2021 31/12/2022 31/12/2023 31/12/2022 31/12/2021 31/12/2022 31/12/2023 0.7756 0.8233 0.7756 0.7832 0.7756 0.8233 0.7756 0.7832 0.7756 0.8233 0.7756 0.7832 80,773 168,539 173,084 174,059 48,464 107,865 110,774 105,209 48,464 107,865 110,774 149,046 2022 01/04/2023 01/04/2026 106,029 31/12/2023 0.7832 135,379 Subsequent to, and in relation to, the year ended 31 December 2023 (FY2023 Awards), the Board approved the following STI and LTI Awards for eligible participants. The STI Performance Rights and LTI Performance Rights components of the FY2023 STI and LTI Awards for the MD&CEO are subject to shareholder approval at the 2024 AGM to be held on 23 May 2024. 48 First Name Last Name Gregory Pawson Johnson Kalo Deepak Gupta Nathan Wingti Ivan Vidovich Rayeleene Elston Karen Mathers Charlie Sukkar Award Year Grant Date Vesting date Value of PR granted (AUD) VWAP period VWAP $ applied PR 3 1/12/2022 STI LTI LTI LTI LTI LTI LTI LTI LTI 2023 2023 01/04/2024 01/04/2024 01/04/2026 01/04/2027 $262,500 $375,000 31/12/2023 31/12/2023 0.7832 0.7832 335,163 478,805 2023 01/04/2024 01/04/2027 $152,000 31/12/2023 0.7832 194,076 2023 01/04/2024 01/04/2027 $103,500 31/12/2023 0.7832 132,150 2023 01/04/2024 01/04/2027 $90,000 31/12/2023 0.7832 114,913 2023 01/04/2024 01/04/2027 $165,000 31/12/2023 0.7832 210,674 2023 01/04/2024 01/04/2027 $130,000 31/12/2023 0.7832 165,986 2023 01/04/2024 01/04/2027 $160,000 31/12/2023 0.7832 204,290 2023 01/04/2024 01/04/2027 $75,000 31/12/2023 0.7832 95,761 Employment agreements KMP employment contracts • All Senior Executive Team members’ employment contracts are over a period of three years with a notice period of three months. MD&CEO employment agreement The MD&CEO’s employment agreement is for a term of five years with a notice period of six 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. 49 Remuneration of employees During the year, the number of employees or former employees (not being directors of the Company), receiving remuneration in excess of PGK100,000 per annum from the Group, stated in bands of PGK10,000, were as follows: In PGK 1,940,001 - 1,950,000 1,820,001 - 1,830,000 1,030,001 - 1,040,000 970,001 - 980,000 950,001 - 960,000 910,001 - 920,000 890,001 - 900,000 870,001 - 880,000 850,001 - 860,000 840,001 - 850,000 810,001 - 820,000 800,001 - 810,000 790,001 – 800,000 770,001 - 780,000 730,001 - 740,000 720,001 - 730,000 710,001 - 720,000 700,001 - 710,000 660,001 - 670,000 600,001 - 610,000 590,001 - 600,000 580,001 - 590,000 550,001 - 560,000 540,001 - 550,000 530,001 - 540,000 510,001 - 520,000 500,001 - 510,000 480,001 - 490,000 470,001 - 480,000 2023 1* - 2 1 - - 1 1 1 1 1 1 - - 1 - 1 - - 2 - 1 1 - - - - 1 2022 In PGK 2023 2022 - 1 - 2 - 1 - 2 - - - 1 1 1 - 1 - - - 2 - 2 1 - 1 1 1 1 1 450,001 - 460,000 400,001 - 410,000 390,001 - 400,000 380,001 - 390,000 360,001 - 370,000 350,001 - 360,000 340,001 - 350,000 330,001 - 340,000 320,001 - 330,000 310,001 - 320,000 300,001 - 310,000 290,001 - 300,000 280,001 - 290,000 270,001 - 280,000 250,001 - 260,000 240,001 - 250,000 220,001 - 230,000 210,001 - 220,000 200,001 - 210,000 190,001 - 200,000 180,001 - 190,000 170,001 - 180,000 160,001 - 170,000 150,001 - 160,000 140,001 - 150,000 130,001 - 140,000 120,001 - 130,000 110,001 - 120,000 100,000 - 110,000 *Impact of foreign exchange conversion. 1 - 1 1 - 3 1 2 - 1 2 1 - 3 4 1 3 - 6 8 5 3 7 3 5 10 11 12 11 1 1 - - 1 1 - 1 1 2 2 - 2 - 1 - 1 1 4 4 5 2 11 10 10 6 9 16 16 50 4. Non-executive director arrangements Remuneration policy 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 awards or retirement allowances. The fees are exclusive of superannuation. Directors’ fees are reviewed annually by the Board, taking into account comparable roles and market data provided by the Board’s independent remuneration advisor. Remuneration components Kina’s Board and Committee fee structure as at 31 December 2023 was: Board fees Chairman Non-executive director/committee member Board Board Committee fees Audit Committee Risk Committee $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) 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 Fee pool Under the Company’s 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 a general meeting of shareholders. For the financial year ended 31 December 2023, this has been fixed at $1.28 million per annum (no change from the prior year, and the 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 a 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. 51 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. Non-executive director remuneration details The following payments were made to non-executive directors in the 2023 and 2022 financial years. Short-term benefits Post-employment benefits Total Fees $ Non-monetary benefits $ Superannuation contributions $ 180,000 180,000 119,063 112,500 114,375 101,250 123,750 123,750 42,188 101,250 112,500 112,500 33,750 - - - - - - - - - - - - - - - 15,120 15,110 7,560 7,560 7,560 7,560 7,560 7,560 3,545 9,012 2,520 - $ 195,120 195,110 126,623 120,060 121,935 108,810 131,310 131,310 45,733 110,262 112,500 112,50 36,270 - Director Isikeli Taureka Andrew Carriline Paul Hutchinson Karen Smith-Pomeroy Ila Temu1 Jane Thomason Richard Kimber2 1 resigned 9 May 2023 2 appointed 1 September 2023 Year 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 2023 2022 52 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 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 Number of Shares Shareholding as at the date of this Remuneration Report (%) Isikeli Taureka 65,000 Greg Pawson 1,215,414 Andrew Carriline 125,000 Paul Hutchinson 80,299 0.02% 0.42% 0.04% 0.03% The non-executive directors are not entitled to participate in any Kina Group employee incentive scheme. Karen Smith- Pomeroy 90,000 0.03% 5. Related party transactions Please refer to Note 29 to the financial statements, for further comments on related party transactions. Jane Thomason 35,000 Richard Kimber - 0.01% 0.00% 53 Monitor. Control. M O P , y r e n fi e R y g r e n E a m u P | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 54 Corporate Governance Statement. Introduction Kina Securities Limited and its related entities (Kina, the Kina Group, the Group, or the Company) places great emphasis on the continued development of a strong corporate governance, risk management and compliance culture. In an emerging marketplace, Kina seeks to be innovative as well as provide a safe and secure environment for its customers and clients, which in turn brings value to shareholders. The Board of Directors of Kina Securities Limited (the Board) is responsible for the overall corporate governance of the Kina Group, including adopting appropriate policies and procedures designed to ensure that Kina is properly managed to protect and enhance shareholder interests. The Board monitors the operational and financial position and performance of Kina and oversees its business strategy, including approving the Company’s strategic goals and considering and approving business plans, key governance, risk and operational policies and the annual budget. Kina has a well-developed corporate governance framework and practices, for the operation and management of Kina, which incorporates resilient internal controls, risk management processes and governance policies and practices. The Board monitors adherence to this framework which enables the Group to comply with relevant laws, regulations and standards set down by the Bank of Papua New Guinea (BPNG), the Australian Securities Exchange (ASX), PNG’s National Stock Exchange (PNGX), the PNG Companies Act 1997 (Companies Act), PNG Securities Act, Capital Markets Act 2015, and the Australian Corporations Act 2001 (Cth) (Corporations Act). This Corporate Governance Statement (Statement) sets out the key features of Kina’s current corporate governance framework and reports against the ASX Corporate Governance Council’s Corporate Governance Principles and Recommendations (4th Edition) (ASX Principles and Recommendations). The Statement is current as at 19 April 2024 and has been Board approved. The Board considers and applies the ASX Principles and Recommendations, considering the circumstances of Kina. Unless otherwise noted, the Company has followed during the reporting period, all of the best practice recommendations set out in the ASX Principles and Recommendations. Where Kina’s practices depart from a Recommendation, this Statement identifies the area of divergence and reasons for it, or any alternative practices adopted by Kina. Governance framework The core of Kina’s corporate governance framework is the Company’s Constitution and the Charters and Policies (Governance Documents), which are referenced in this Statement, and copies which are available on the Company’s website at: https://investors.kinabank.com.pg/ Investors/?page=corporate-governance. The Governance Documents are reviewed regularly by the Board to ensure they comply with any updated laws or regulations, that they meet high governance standards and that they remain relevant to the Group and its operations. Principle 1: Lay solid foundations for management and oversight A listed entity should clearly delineate the respective roles and responsibilities of its board and management and regularly review their performance. Board of Directors The Role of the Board The Board is committed to maximising performance, generating shareholder value and financial returns, and sustaining the growth and success of Kina. In conducting Kina’s business in accordance with these objectives, the Board seeks to ensure that Kina is properly managed to protect and enhance shareholders’ interests, and that Kina, its directors, officers and employees operate in a well governed environment. The Board has adopted a Board Charter. The Board Charter sets out, amongst other things, the: • role and responsibilities of the Board, including those matters specifically reserved to the Board; • role and responsibilities of the Managing Director and Chief Executive Officer (MD&CEO), who is primarily responsible for the day-to-day management of Kina; • procedures for management of potential and actual conflicts of interest; and • guidance on Board performance evaluation, ethical standards and taking independent professional advice. 55 08Board Responsibilities The Board’s first responsibility is to govern the Company in the interest of its shareholders; to protect and grow the value of its stakeholders’ interests. The Board Charter establishes that the primary goal of the Board is to add value to the Company by: • ensure succession plans are in place for all key positions in the Company; • adopt a comprehensive suite of prudential and administrative policies; • verify independently that the prudential and administrative policies are operating effectively; • ensuring the long-term viability and sustainability of • maintain effective and timely communications the Company; with shareholders; • protecting the interests of shareholders by exercising effective control over the Company; • providing strategic direction and leadership; • bringing independent and informed judgment to bear on material decisions of the Company; • setting the standards of behaviour and ethical values for the Company; • establishing strong internal control and compliance systems; • monitoring the effectiveness of the Company’s overall risk management and control framework; and • accounting to shareholders for the overall performance of the Company. Under the terms of its Charter, the Board will: • approve the Company’s strategy, business plans and policy; • establish the risk appetite within which management will implement the strategic direction; • monitor the implementation of strategic plans against pre-determined performance indicators; • identify key business risks and ensure measures are taken to mitigate those risks; • ensure that effective internal control systems are in place to safeguard the Company’s assets; • establish and monitor terms of reference and procedures of all Board Committees; • ensure the annual financial statements of the Company and other published reports and announcements are prepared according to the relevant standard; • resolve that the financial statements and other published reports and announcements (where relevant) accurately represent the financial position of the Company; • approve the annual report including the financial statements, dividend proposals and notices to shareholders for consideration at the Annual General Meeting; and • assess applications for new and increased loan exposures where the amount or nature of the lending requires referral to the Board as set out in the Group’s Credit Risk Management Framework and the Delegated Lending Authority Framework. Delegations to Management Day-to-day management and operations of the Company are delegated to Management. The MD&CEO has the authority to exercise all necessary powers, discretions and delegations authorised from time to time by the Board. The Board has delegated to the MD&CEO responsibility for the following matters: • selecting the senior management team; • setting the terms and conditions of employment within Remuneration Policy parameters; • evaluating the performance of management; • ensure compliance with all relevant laws, regulations • implementing the strategic direction established by and standards; the Board; • approve the external auditor’s fees; • drafting the annual budget in consultation with the • approve and monitor the progress of material capital investment decisions, including new products and services; Audit and Risk Committee; • managing the Group’s day-to-day operations on time and within budget; • appoint the MD&CEO, set executive remuneration and • maintaining effective internal risk controls; and establish performance objectives; • appoint the Company Secretary; • review the compensation of directors and recommend changes to the non-executive directors’ fee pool to shareholders; • managing the daily operations of the business in accordance with social, ethical and environmental policies set by the Board. 56 The MD&CEO’s responsibilities are set out in the Board Charter. The MD&CEO is supported by the Group Executives, all of whom are listed on the Company’s website at: https://investors.kinabank.com.pg/ Investors/?page=board-management. The Board Charter, Charters of each Board Committee, and the Constitution are available on the Company’s website at https://investors.kinabank.com.pg/ Investors/?page=corporate-governance. Written Agreements with Directors and Senior Executives Each non-executive director is provided with a Letter of Appointment, which sets out: • the term of appointment; • the time commitment envisaged, including any expectations regarding involvement with Committee work and any other special duties attaching to the position; Director Appointment As required by BPNG’s Prudential Standards (Standards), Kina undertakes ‘Fit and Proper’ testing for candidates who will hold ‘Responsible Person’ positions on initial appointment, which includes directors and the Senior Executive Team. This rigorous testing, in accordance with the Standards, is also carried out on an annual basis for all Responsible Persons including thorough background checks. When directors are proposed for election, or re-election at General Meetings of shareholders, the Notice of Meeting provides the following information about a candidate standing for election or re-election: • remuneration, including superannuation entitlements; • the requirement to disclose the director’s interests and any matters which may affect the director’s independence; • the requirement to comply with key corporate policies, including Kina’s Code of Ethics and Business Conduct • and its Securities Trading Policy; • the Company’s policy on when directors may seek independent professional advice at the expense of the Company (which generally should be whenever directors, especially non-executive directors, judge such advice necessary for them to discharge their responsibilities as directors); • the circumstances in which the director’s office • biographical details; becomes vacant; • details of other directorships held by the candidate; • indemnity and insurance arrangements; • a statement as to the independence of the candidate; • ongoing rights of access to corporate information; and • details of any adverse information revealed as part of • ongoing confidentiality obligations. the checks performed about the director; • details of any interest, position association or relationship that might impact on the ability of the director to be independent; • the term of office currently served by the director; and • a statement by the Board as to whether it supports the election or re-election of the candidate. Prior to appointing a director, the Remuneration and Nomination Committee undertakes appropriate background checks on their qualifications, experience, education, character, bankruptcy history and criminal record. Prior to appointment, candidates are required to provide the Chairman with details of other commitments and an indication of time involved, and to acknowledge that they will have adequate time to fulfil his or her responsibilities as a non-executive director of Kina. The MD&CEO and each Senior Executive Team member are also provided with a Letter of Appointment which sets out the information above (to the extent applicable), as well as: • a description of their position, duties and responsibilities; • the person or body to whom they report; • the circumstances in which their service may be terminated (with or without notice); • any entitlements on termination; and • any circumstances in which their remuneration may be clawed back. 57 Company Secretary The Company Secretary is accountable directly to the Board, through the Chairman, on all matters to do with the proper functioning of the Board. Mr. Johnson Kalo was appointed Company Secretary and Chief Financial Officer on 1 April 2023. Mr. Kalo holds a Bachelor of Arts in Commerce from University of Papua New Guinea and a Post Grad Diploma in Applied Financial Investment from FINSIA. Mr. Kalo is a member of Certified Practising Accountants PNG. Diversity The Company’s Diversity Policy emphasises Kina’s commitment to the maintenance and promotion of a workplace that ensures equity and fairness and is free from discrimination, harassment, bullying and victimisation. Kina recognises the importance of embracing diversity, specifically in valuing the unique qualities, attributes, skills and experiences each employee brings to the workplace. The Company’s vision for diversity incorporates a number of different factors, including but not limited to gender, ethnicity and cultural background, disability, age and educational experience. The Diversity Policy provides a framework to help Kina achieve its diversity goals, while creating a commitment to a diverse work environment where staff are treated fairly and with respect and have equal access to workplace opportunities. The Board has been focused on the improvement of diversity reporting which is regularly provided to the Board, and through the Remuneration and Nomination Committee, plans to set measurable objectives for achieving gender diversity in the composition of its Board, Senior Executive Team and workforce generally, and disclose in relation to each reporting period: (a) the measurable objectives set for that period to achieve gender diversity; (b) the entity’s progress towards achieving those objectives; and (c) the respective proportions of men and women on the Board, in senior executive positions and across the whole workforce (including how the entity has defined “senior executive” for these purposes). The numbers of females within Kina’s workforce as at 31 December 2023 and 31 December 2022, including the Board and Senior Executive Team is set out below: 31 December 2022 31 December 2023 Females Males Total Females Males Total 2 4 40 344 390 5 5 34 257 301 7 9 74 601 691 2 4 63 336 405 5 6 41 269 320 7 10 104 605 725 Board Senior Executive Team Team Leaders Other employees Total employees 58 The Senior Executive Team are those individuals who report directly to the MD&CEO. Team Leaders are those individuals who have been appointed as Supervisors and Managers. Kina was an inaugural member of the PNG Business Coalition for Women and, through the year, has provided specialist training to female team leaders to assist with their career development. Kina is a strong advocate for gender smart policies in the workplace and provides both maternity and paternity leave for its employees. This is complemented by the opportunity of flexible working arrangement when returning to work. Also, within the first six months of a child’s life, new parents are provided with paid leave to enable time out of the workplace to feed babies. In 2023, Kina renewed its subscription to the Bel isi PNG program, which provides safe housing and case management services for employees and family members who are survivors of domestic violence. Kina also trained 21 employees as family and sexual violence Contact Persons, providing more opportunities for survivors of violence to safely and confidentially reach out for assistance. The management has incorporated and launched FSVU on the common learning platform to allow for an extended participation by the entire Kina employees. The ratio of women to men at Kina is 56% female to 44% male (2022: 56% to 44%). The Group will continue to promote awareness and understanding of workplace diversity principles and develop policies to help employees balance work, family and cultural responsibilities while at the same time removing barriers to career development. The Remuneration and Nomination Committee reviews and oversees the implementation of the Diversity Policy and will regularly consider the need to set specific gender diversity objectives. In accordance with the Standards, and as set out in the Board Charter, the performance of the Board, the directors and its Committees are assessed each year. The Board commenced an independent performance evaluation in 2023 conducted by an external firm, ProPerformance Strategic Leadership. The findings will be used to further refine the ongoing Board processes, succession and renewal plan. The Board will continue to review individual, Committee and collective Board performance and ensure that composition, skills and experience of the directors is appropriate. Performance evaluations, overseen by the Chairman and the Chair of the Remuneration and Nomination Committee in the case of the MD&CEO, and the Remuneration and Nomination Committee in the case of the Senior Executive Team, are carried out on an annual basis and were completed in 2023. 59 Principle 2: Structure the board to be effective and add value The board of a listed entity should be of an appropriate size and collectively have the skills, commitment and knowledge of the entity and the industry in which it operates, to enable it to discharge its duties effectively and to add value. Board Composition The Board currently comprises six non-executive directors (NEDs) and one executive director. The Company’s Constitution provides for a minimum of three and a maximum of ten directors. The Board members have a diverse range of skills and experience which ensure they are able to add value to the Board’s decisions, contribute effectively and act in the best interests of its shareholders. The Company’s current executive director is Mr. Gregory Pawson, the MD&CEO of the Company. Board Committees The Board has the power to establish and delegate powers to Committees that are formed to facilitate effective decision-making. The Board, however, ultimately has full accountability for matters delegated by it to those Committees. The Board has established an Audit Committee, a Risk Committee, a Remuneration and Nomination Committee and a Disclosure Committee. Each Committee has a separate Charter which sets out, in detail, the membership and powers of the Committee including its roles and responsibilities. The Charters are reviewed at least annually, and copies are available on the Company’s website at: https:// investors.kinabank.com.pg/Investors/?page=corporate- governance. Other Committees may be established by the Board as and when required. Membership of Board Committees is based on the needs of Kina, relevant legislative and other requirements and the skills and experience of individual directors. Audit and Risk Committee The Board established an Audit and Risk Committee to fulfil its responsibilities with respect to financial policies and financial processes, including internal and external audit matters, and risk management and compliance within the Company and its subsidiaries. In April 2023, the Board split the Audit and Risk Committee into two separate Committees; the Audit Committee and Risk Committee. Prior to the split, the Audit and Risk committee met twice during the year 2023. Audit Committee The Board established the Audit Committee to assist the Board: • To fulfil its responsibilities with respect to its statutory and prudential duties and obligations to shareholders; • With its obligations as a finance institution, as documented in all of the Bank of PNG (BPNG) Prudential Standards and other regulators in the jurisdictions we operate; • In ensuring the Reliability of Financial Information; • With the oversight of management of material financial risks; • Reviewing and overseeing the systems in place to ensure compliance with financial reporting requirements and external reporting agencies requirements, including ASX and PNGX; • Reviewing and overseeing the systems in place to ensure compliance with accounting standards in all relevant jurisdictions; • Liaison with External and Internal Auditors as appropriate • Monitor and assess the performance of the internal and external audit functions; and • Requesting and reviewing relevant external financial, taxation and insurance advice so the Board can be appropriately advised. The Audit Committee is responsible for the financial reporting and internal control, internal and external audit. The Committee is to ensure that the Company complies with its Risk Management Strategy and Framework; It’s Corporate Strategy; It’s Code of Conduct; It’s policies and procedures; and All other relevant laws, regulations, codes, regulations, and industry and organizational standards. 60 As set out in its Charter, the Audit Committee must comprise at least three directors and all non-executive directors. The Chair of the Audit Committee is appointed by the Board and must be an independent director. In accordance with the Standards, the Chair of the Board must not be a member of any Board Committee. Audit Committee met four (4) times during the year ending 31 December 2023. Risk Committee The Board established the Risk Committee to assist the Board: • To fulfil its responsibilities with respect to its statutory and prudential duties and obligations to shareholders; • Its obligations as a finance institution, as documented in all of the Bank of PNG (BPNG) Prudential Standards and other regulators in the jurisdictions we operate; • Review and oversee systems of risk management, internal control and legal and regulatory compliance; • Review the Kina Group’s risk appetite and tolerance levels and ensuring they are consistent with and appropriately aligned to the approved Kina Group strategy; and • Monitor and assess new technologies, and systems of cyber security, data governance and modelling integrity. The Risk Committee is responsible for risk oversight, risk management, compliance, anti-money laundering and counter terrorist financing (AML/CTF), monitor Group Insurance Program, monitor Group Litigation and Informational Communication and technology. The Committee is to ensure that the Company complies with its Risk Management Strategy and Framework; It’s Corporate Strategy; It’s Code of Conduct; It’s policies and procedures; and All other relevant laws, regulations, codes, regulations, and industry and organizational standards. As set out in its Charter, the Risk Committee must comprise at least three directors and all non-executive directors. The Chair of the Risk Committee is appointed by the Board and must be an independent director. In accordance with the Standards, the Chair of the Board must not be a member of any Board Committee. Risk Committee met three (3) times during the year ending 31 December 2023. Remuneration and Nomination Committee The Board has established a Remuneration and Nomination Committee to ensure that the Company: • has a Board of an effective composition, size and commitment to adequately discharge its responsibilities and duties and to bring transparency, focus and independent judgment to decisions regarding the composition of the Board; • has coherent remuneration policies and practices to attract and retain directors and senior executives who will create value for shareholders; • 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. In its function as a Nominations Committee, the Remuneration and Nomination Committee assists the Board in fulfilling its corporate governance responsibilities in regard to: • Board appointments, re-elections and performance; • Board and Committee membership; • directors’ induction and continuing development; • succession planning; and • strategies to address Board diversity. As set out in its Charter, the Remuneration and Nomination Committee must comprise at least three directors and all non-executive directors. The Board has regard to diversity in constituting the Remuneration and Nomination Committee. The Remuneration and Nomination Committee may obtain information from, and consult with, Management and external advisers, as it considers appropriate. The Committee met five (5) times during the year ended 31 December 2023. Disclosure Committee The Board has established a Disclosure Committee, the purpose of which is to assist the Board in the performance of its statutory and regulatory obligations by: • ensuring market sensitive and/or Company information is disclosed through the appropriate channel promptly and without delay; and • providing assurance to the Board that all potentially market sensitive information has been considered for compliance with the Company’s continuous disclosure obligations. 61 The duties and responsibilities of the Disclosure Committee include to: The Disclosure Committee has the power to: • determine whether information should be disclosed • assess whether information concerning the Company to the market or any public forum; and should be disclosed to the market; • authorise the disclosure of any information to the • determine the substance of the market disclosure and market or any public forum. when it must be made; • where necessary, review market disclosures for accuracy and completeness and approve or recommend to the Board for approval; • determine whether a trading halt or voluntary suspension of trading is required; • respond to any request from ASX or PNGX to disclose market sensitive information to correct or prevent a false market; • ensure that breaches of BPNG’s Standards are communicated, where appropriate, to BPNG or other regulators in compliance with the relevant listing rules and/or continuous disclosure requirements; and • oversee the Disclosure Officer’s administration of the Continuous Disclosure Policy. The Disclosure Committee has absolute right of access to any information held by the Kina Group. The Disclosure Committee shall comprise at least three members appointed by the Board. Members shall include the Chairman of the Board, the MD&CEO and the Chair of the Audit and Risk Committee. The Committee Chair shall be appointed by the Chair of the Board. The Committee met twice during the year ended 31 December 2023. Membership of and attendance at Board and Committee meetings Membership of the Committees during the reporting period, the number of Board and Committee meetings held and the attendance at those meetings are set out in the table below. All directors are invited to and regularly attend all Committee meetings. Director Board Meetings *Audit & Risk Committee Meetings Audit Committee Risk Committee Remuneration & Nomination Committee meetings Disclosure Committee Meetings A 82 8 8 8 8 8 4 2 Isikeli Taureka Gregory Pawson Andrew Carriline Paul Hutchinson Karen Smith- Pomeroy Jane Thomason Ila Temu* Richard Kimber B 61 8 71 8 8 8 31 2 A B A A B B A B 2 2 22 2 2 2 4 4 42 4 4 4 3 32 3 3 3 3 5 5 3 52 3 1 21 5 21 1 A 22 2 2 B 2 2 2 2 2 A meetings held that the director was eligible to attend B meetings attended 1 these absences were known and approved prior to the meeting 2 Chair *Audit & Risk Committee split into Risk Committee and Audit Committee effective 27 April 2023 * Ila Temu resigned from the Board in April 2023. 62 Board Skills Matrix The Board seeks to have an appropriate mix of skills, experience, expertise and diversity to enable it to discharge its responsibilities and add value to the Company. As of 19 April 2024, the directors collectively contribute the following key skills and experience: Skills and experience Explanation Banking &/ or financial services experience Customer focus & outcomes Experience outside Kina in, with global business perspectives of, significant components of the financial services industry, including retail and commercial banking services and adjacent sectors, equity and debt capital markets, with strong knowledge of their economic drivers and the regulatory environment. Experience in developing and overseeing the embedding of a strong customer focused culture in large complex organisations, and a demonstrable commitment to achieving customer outcomes. Environment, social & sustainability Understanding the potential risks and opportunities from an environmental and social perspective, and experience in developing and monitoring sustainability frameworks and related practices. Financial acumen Good understanding of financial statements and drivers of financial performance for a business of significant size, including ability to assess the effectiveness of financial controls. Governance Publicly listed company experience, extensive experience in and commitment to the highest standards of governance, experience in the establishment and oversight of governance frameworks, policies and processes. International experience Senior leadership experience involving responsibility for operations across borders, and exposure to a range of political, cultural, regulatory and business environments in that position. Leadership & commercial acumen Skills gained whilst performing at a senior executive level for a considerable length of time. Includes delivering superior results, running complex businesses, leading complex projects and issues, and leading workplace culture. People, culture & conduct Experience at a senior executive level in people matters including building workforce capability, workplace cultures, management development, succession and setting a remuneration framework that attracts and retains a high calibre of executives, and promotion of diversity and inclusion. Risk & compliance An understanding of compliance and experience in anticipating and evaluating macro, strategic, operational, financial, social, technological including digital disruption and cyber security) risks that could impact the business. Recognising and managing these risks by developing sound risk management frameworks and providing oversight. Includes experience in managing compliance risks and regulatory relationships. Stakeholder engagement Demonstrated ability to build & maintain key relationships with industry, government or regulators. Strategy Experience in leading, developing, setting and executing strategic direction. Experience in driving growth and transformation, executing against a clear strategy. Technology & digital Experience in businesses of a significant size with major technology focus, including adaptation to digital change and innovation, with knowledge of developments in Decentralised Finance (DeFi). 63 Composition of the Board and details of directors The Kina Board currently comprises seven directors, one of whom is Gregory Pawson, the MD&CEO. The remaining six directors are considered by the Board to be independent non-executive directors, comprising Isikeli Taureka (Chairman of the Board), Karen Smith- Pomeroy (Chair, Audit Committee), Jane Thomason (Chair, Remuneration and Nomination Committee), Paul Hutchinson (Chair, Risk Committee), Andrew Carriline, and Ila Temu. Ila Temu resigned from the Board in April 2023 and this vacancy was filled in by Richard Kimber. The Board considers that each of the non-executive directors are ‘independent’ of the Company. Throughout the year, the Board therefore had a majority of independent non-executive directors. Directors’ Details Name Isikeli Taureka Appointment date Length of service Non-executive Independent 19 April 2016 8 years, 0 months Karen Smith-Pomeroy 12 September 2016 7 years, 7 months Gregory Pawson Jane Thomason Andrew Carriline Paul Hutchinson Ila Temu 1 January 2018 6 years,4 months 27 April 2018 5 years, 11 months 16 August 2018 5 years, 8 months 16 August 2018 5 years, 8 months 14 December 2020 2 year, 4 months Richard Kimber 1 September 2023 7 months Yes Yes No Yes Yes Yes Yes Yes Yes Yes No Yes Yes Yes Yes Yes The Board considers an independent director to be a non-executive director who is not a member of Kina’s Senior Executive Team and who is free of any business or other relationship that could materially interfere with, or reasonably be perceived to materially interfere with, the independent exercise of their judgment. At least annually, the Board reviews the independence of each director in light of their interests disclosed to the Board at each Board meeting and considers examples of interests, positions, associations and relationships that might cause doubts about the independence of a director including if the director: • is, or has been, employed in an executive capacity by the entity or any of its child entities and there has not been a period of at least three years between ceasing such employment and serving on the Board; • receives performance-based remuneration (including options or performance rights) from, or participates in an employee incentive scheme of, the entity; • is, or has been within the last three years, in a material business relationship (e.g. as a supplier, professional adviser, consultant or customer) with the entity or any of its child entities, or is an officer of, or otherwise associated with, someone with such a relationship; • is, represents, or has been within the last three years an officer or employee of, or professional adviser to, a substantial shareholder of the Company’s securities; • has close personal ties with any person who falls within any of the categories described above; or • has been a director of the entity for such a period that their independence from management and substantial shareholders may have been compromised. The Board considers that each of the non-executive directors brings objective and independent judgment to Board deliberations and makes a valuable contribution to Kina through the skills and experience they bring to the Board and their understanding of Kina’s business. Board Chair In accordance with the Board Charter, the Board Chair is an independent director. The roles and responsibilities of the Board Chair are contained within the Board Charter and the role of the Board Chair and MD&CEO may not be exercised by the same individual. 64 Director induction and education Kina’s induction program is designed to provide all new directors with a comprehensive view of the business. As part of the induction, new directors are given a detailed overview of Kina’s operations, copies of governance and internal policies and procedures and instruction on the roles and responsibilities of the Board, its Committees and Senior Management. The electronic Board portal utilised by the Board provides directors access to relevant Governance Documents, educational information, Board and Committee papers and provides a secure means of communication between directors and Senior Management. There is a strong emphasis on continued education and directors are expected to keep themselves updated on changes and trends within the business, in the financial sector, market environment and any changes and trends in the economic, political, social, global, environmental and legal climate generally. Consistent with guidance on best-practice, all directors seek to complete a minimum of 20 hours during the year in ongoing professional development. Directors are encouraged to attend recognised courses, seminars and conferences and internal education sessions are scheduled at Board meetings throughout the year. Principle 3: Instil a culture of acting lawfully, ethically and responsibly A listed entity should instil and continually reinforce a culture across the organisation of acting lawfully, ethically and responsibly. Kina Group Purpose Statement Kina’s purpose is ‘to constantly improve the prosperity of the people, communities, and markets that we serve’. Kina Group Vision Statement Our Vision is ‘to be the most dynamic, progressive and accessible financial services organisation in the Pan Pacific region’. This Vision is supported by our Strategic Priorities: • Growth and Prosperity: multiple business lines providing customers with a full range of services, strong organic growth, value added services, and synergistic acquisitions; • Building Resilience: strong company, well capitalised, well governed, managing risk versus rewards, and insulated against economic or market shocks; • Service Excellence: digital from the inside and out, simple processes, great customer service, always first when it matters; • Dynamic People: we love people, our culture is everything, our people are well trained, adaptable and care; and • Sustainable Communities: we are in the business of doing good, building trust, and creating long-term value for all our stakeholders. Kina’s Culture Our People are here to make a difference, not just for their day job. They are passionate about empowering customers to effect life change. Kina’s culture is underpinned by our Group Values, FIRST: • Fairness – Guides equity and justice, ensuring opportunities for all to thrive. • Inspire – Sparks creativity, fuels perseverance, drives change and touches hearts. • Responsive – Fosters trust and satisfaction by addressing peoples’ needs promptly and effectively. • Serve – Embodies empathy, compassion, kindness and enriching our customers’ lives. • Together – Is a team who entrust each other. In 2023, Kina changed the FIRTH values and adopted the FIRST values. Since the introduction of the FIRST values, Kina has seen an increase in employee participation in FIRTH value moments which has helped them gain renewed perspective in our values and how they can be applied through the business. Our Learning Managements System was updated to include self-assessment and leader assessment of employee contribution to our Values and defined behaviours. Kina has articulated its Group Vision Statement, its Defining Purpose and its Culture in its Board Charter, a copy of which is available on the Company’s website at https://investors.kinabank.com.pg/ Investors/?page=corporate- governance. 65 Acting Ethically and Responsibly The Board is committed to ensuring that Kina maintains the highest standards of integrity, honesty and fairness in its dealings with all stakeholders, and that Kina complies with all legal and other obligations. Kina’s Code of Ethics and Business Conduct (Code) applies to all directors, employees of Kina and its subsidiaries (including subcontractors and consultants). The Code sets out certain minimum standards of conduct that Kina expects of its employees and directors including integrity, diligence, impartiality, equality and fairness. The Code sets out how employees and directors are to conduct themselves in order to meet these minimum standards. It is a requirement for all directors and officers to acknowledge the Code annually. Whistleblower Policy The Board has adopted a Protected Disclosure (Whistle- Blower) Policy. The Board wishes to promote an organisational culture that values open, transparent, ethical, legal, compliant behaviour and does not tolerate behaviour that departs from the high standards expected of Kina directors and employees. This Policy is intended to reinforce that culture and to provide a safe, secure, confidential means whereby persons with concerns over any breaches including any unlawful conduct, misconduct, malpractices, violation of any legal or regulatory provisions that has, or may have occurred, can report it without fear of reprisal, discrimination or harassment of any kind. It is expected that the protected disclosures will be made in confidence and in the knowledge that it will be properly investigated and escalated to the appropriate level for it to be properly addressed. Anti-Bribery and Corruption Policy The Board has adopted an Anti-Bribery and Corruption Policy. The purpose of the Policy is to provide clarity of expectations, which helps to reinforce and strengthen the understanding of our responsibilities as well as those with whom we engage and also provide guidance in dealing with incidents or suspected incidents of bribery and corruption, should they occur. The Policy complements Kina’s other related policies, in particular, the Code of Ethics and Business Conduct, Conflicts of Interests Policy, and the Gift and Entertainment Policy. The Policy harmonises with Kina’s Core Values that emphasise principles of fairness, imagination, reflection, togetherness and honesty in our relationships and business dealings with both our internal and external stakeholders. Principle 4: Safeguard the integrity of corporate reports A listed entity should have appropriate processes to verify the integrity of its corporate reports. Audit Committee Details of the Audit Committee are set out on page 60. Written Declarations When the Board considers the statutory half-year and annual financial statements, the Board obtains a declaration1, from the MD&CEO and CFO concerning the integrity of the financial statements and assurance as to the effective operation of the risk management and internal compliance and control systems. Kina’s financial reports for the half-year ended 30 June and the full year ended 31 December are respectively reviewed and audited by Deloitte, the Company’s external auditor. 1(equivalent to the declaration required by section 295A of the Corporations Act and the statements required by Recommendation 4.2 of the Principles and Recommendations) Principle 5: Make timely and balanced disclosure A listed entity should make timely and balanced disclosure of all matters concerning it that a reasonable person would expect to have a material effect on the price or value of its securities. Timely and Balanced disclosure Kina is committed to observing its disclosure obligations under the ASX Listing Rules, the PNGX Listing Rules, the (PNG) Companies Act 1997, (PNG) Securities Act 1997, the (PNG) Capital Markets Act 2015 and the Australian Corporations Act, 2001 (Cth). The Board has adopted a Continuous Disclosure Policy and a Shareholder Communications Policy that implement Kina’s commitment to providing timely, complete and accurate disclosure of information. 66 The Continuous Disclosure Policy sets out the roles and responsibilities of officers and employees in complying with Kina’s continuous disclosure obligations and nominates those individuals who are responsible for determining whether or not information is required to be disclosed. Shareholder Communications The Shareholder Communications Policy promotes effective communication with shareholders and seeks to ensure that shareholders have equal and timely access to material information concerning Kina. The Policy sets out the investor relations program, a key tenet of which is to encourage effective shareholder participation. In accordance with the Shareholder Communications Policy, Shareholders are encouraged to attend General Meetings of shareholders and shareholder information sessions and to submit written questions prior to those meetings. If they are unable to attend General Meetings of shareholders, shareholders are encouraged to vote by proxy or other means included in the Notice of Meeting. Kina’s website www.kinabank.com.pg contains information regarding the Company, the Board and Senior Executive Team, corporate governance, media coverage, ASX and PNGX Announcements, investor presentations and reports. Kina’s Investor Relations Program includes a number of scheduled and ad hoc interactions with institutional investors, private investors, sell-side and buy-side analysts and the financial media. At a minimum, so as to ensure that shareholders and other stakeholders have a full understanding of Kina’s performance and strategies, Kina will convene analyst briefings twice a year on Kina’s financial performance and objectives, following release of the half- year and full year financial results. Shareholders may receive and send information electronically to and from both Kina and Kina’s Share Registry. Other methods of communication are also available to shareholders and other stakeholders, including telephone and mail. Kina may consider the use of other reliable technologies as they become widely available. Each director automatically receives a copy of each ASX and PNGX Announcement directly from the ASX Market Announcements Platform as soon as it has been released by ASX and PNGX. In accordance with Kina’s Continuous Disclosure Policy and Shareholder Communications Policy, any presentation to a new and substantive investor or analyst presentation, is released on the ASX Market Announcements Platform ahead of the presentation. Principle 6: Respect the right of security holders A listed entity should provide its security holders with appropriate information and facilities to allow them to exercise their rights as security holders effectively. Kina values engagement with its shareholders, providing an understanding to the market of the Company’s business, performance and governance. The Company uses the following procedures for engaging with its shareholders: • Periodic Reporting: The Company produces financial statements for its shareholders and other interested parties twice per year and allows shareholders to receive these documents by mail or access them electronically (https://investors.kinabank.com.pg/ Investors/?page=Reports-and-Presentations). • Annual General Meeting: Shareholders are encouraged to attend the Annual General Meeting each year and are provided with an explanatory memorandum on the resolutions proposed through the Notice of Meeting. If unavailable to attend, shareholders are encouraged to appoint a proxy to vote/attend on their behalf. The Company requires its external auditor to attend each Annual General Meeting and be available to answer questions from shareholders about the conduct of the audit and the preparation and contents of the auditor’s report. • Website: The Kina website provides information on the Company’s products and services as well as information useful to shareholders and market participants (https://www.kinabank.com.pg). In particular: – the Investor section (https://investors.kinabank.com. pg/investors); and – Corporate Governance section (https://investors. kinabank.com.pg/Investors/?page=corporate- governance) directs shareholders to information likely to be of greatest interest to them. • Investor Relations: On its website at https:// investors.kinabank.com.pg/Investors/?page=asx- announcements, the Company posts prompt and relevant communications for shareholders and the market generally to access, such as ASX and PNGX Announcements and financial results. Investors and shareholders can also contact the Company or its share registry, Link Market Services, directly by email or by mail and can in turn choose to receive communications electronically at https://investors. kinabank.com.pg/Investors/?page=my-shareholding. 67 The Notice of Meeting for any general or annual meetings of Kina shareholders includes the statement that in accordance with Article 55.3 of the Constitution, the Chairman intends to demand a poll on each of the resolutions proposed at the Meeting. Principle 7: Recognise & manage risk A listed entity should establish a sound risk management framework and periodically review the effectiveness of that framework. Risk Committee Details of the Risk Committee are set out on page 61. Risk Management and Internal Controls Risk is managed structurally through clearly defined risk management policies specific to certain parts of the business. These are interlinked and feed into a Group Risk Management Framework, which is overseen by the Audit Committee and the Risk Committee. The Board has approved and regularly reviews and updates the Group’s Risk Appetite Statement and tolerance limits, as part of the Group Risk Management Framework, to ensure that all major areas of risk and risk management systems are appropriately monitored and accurately documented. Kina has a dedicated Group Chief Risk Officer (CRO) who is responsible for the Governance, Risk and Compliance attributes of the businesses. The CRO reports to the MD&CEO and the Chairs of the Audit Committee and Risk Committee respectively to ensure all material risks remain well managed. The Audit Committee and Risk Committee are supported by a number of approved risk management committees, including the Credit Committee, Asset and Liability Committee, Operational Risk and Compliance Committee and Executive Committee. The management committees have been established to nurture a strong and robust risk culture within the Group through the application of the three lines of defence risk model, and the implementation of key policies and frameworks. Communication and education throughout the Group on the three lines of defence model emphasises each individual’s role in the management of risk. During 2023, the Group’s Risk Management Framework, including underlying policies, was reviewed by the Risk Committee and, where relevant, by the Board. A dedicated Compliance department is in place to ensure that Kina personnel are aware of the Group’s prudential and legislative obligations and that these are maintained at all times. Risk within the Group is managed according to the appropriate risk parameters whilst promoting compliance of the limits set in the Board Approved Risk Appetite Statement. People risk is monitored including via an Occupational Health, Safety and Wellbeing regime, which is designed to maintain the safety of Kina’s Employees and Customers. The Group’s risk management activities comply with all relevant regulation including that of the BPNG Standards, relevant legislation and the Investment Promotion Authority (IPA), and the ASX and PNGX Listing Rules. Kina also employs skilled credit managers who understand the PNG economic environment to ensure that the growing loan portfolio is maintained within an acceptable level of risk and within Kina’s Board-approved risk appetite. All lending proposals are considered based on credit policy and within the risk appetite of the Group. Debt servicing assessment criteria is maintained to ensure Kina understands its level of credit risk while managing its impairment exposure. Kina’s risk management framework and internal control functions incorporate an Internal Audit function, which reports directly to the Audit Committee. In 2023, the Board ensured the Internal Audit function was brought internally to provide independent and objective assurance to the Board, via the Audit Committee. The annual Internal Audit Plan is formulated by the Group Chief Risk Officer (CRO) using a risk- based approach. Progress against the Internal Audit Plan is reported to the Audit Committee on a quarterly basis. The internal audit function determines an independent assessment of the effectiveness of Kina’s Risk Management and internal control environment which is utilised in continual improvement measures of Kina’s business processes. Kina is exposed to the economic conditions of PNG through its normal course of business in lending monies to commercial businesses operating in PNG. Kina does not believe it currently has any material exposure to environmental or social (ESG) sustainability risks and the Company is currently working to develop further our ESG framework and processes. 68 Principle 8: Remunerate fairly and responsibly A listed entity should pay director remuneration sufficient to attract and retain high quality directors and design its executive remuneration to attract, retain and motivate high quality senior executives and to align their interests with the creation of value for security holders and with the entity’s values and risk appetite. Remuneration and Nomination Committee Details of the Remuneration and Nomination Committee are set out on page 61. Remuneration Kina is committed to a fair and responsible system of remuneration throughout the Group. Members of Senior Management are remunerated in a way that aims to attract and retain an appropriate level of talent and reflects their performance in relation to the delivery of corporate strategy and operational performance. Remuneration for non-executive directors is set using advice from independent consultants and considers the level of fees paid to non-executive directors of similar corporations and the responsibilities and work/time requirements of the non-executive directors. The Remuneration Report and further details about the remuneration policy of Kina are set out in the 2022 Annual Report. Dealings in Company Securities The Board has adopted a Securities Trading Policy that applies to Kina’s equity-based remuneration scheme and explains the conduct that is prohibited under the PNG Securities Act, Capital Markets Act, and the Corporations Act. The Securities Trading Policy: • provides for certain Trading Windows when ‘Relevant Persons’ may trade provided the appropriate process has been adhered to; • prohibits any Relevant Person from entering into a hedge transaction involving unvested equity held pursuant to an Employee, Senior Management or Director Equity Plan operated by Kina; • prohibits any Relevant Person from entering into a hedge transaction involving unvested equity held pursuant to an Employee, Senior Management or Director Equity Plan operated by Kina; • sets out the prohibitions against insider trading and prescribes certain requirements for dealing in Kina securities; and • prohibits Relevant Persons from trading in Kina securities while in possession of material non-public information, which is information a reasonable person would expect to have a material effect on the price or value of Kina securities. Principle 9: Additional Recommendations Kina is registered in Papua New Guinea and is in the same time zone as Eastern Australia. All meetings of Kina’s Board and its Committees are held at a reasonable time. The company utilizes facilities to hold secure, virtual meetings where necessary, to enhance meeting logistics and efficiency. 69 Good. Hands. D C N , r e k r o w n o i t a t n a p e e f f o c , l e c n V i | t r o p e R l a u n n A d e t i m i L s e i t i r u c e S a n K i 70 Dividends The Company paid a dividend of PGK16.1 toea (AUD 6.5 cents) per share (PGK46.1m) in April 2023 in relation to the profit for the half year ended 31 December 2022. In October 2023, the Company also paid dividend of PGK9.7 toea (AUD 4.0 cents) per share (PGK28.1m) in relation to the profit for the half year ended 30 June 2023. After balance sheet date events Subsequent to balance sheet date, the directors declared a final dividend of PGK15.9 toea (AUD 6.0 cents) per share (PGK45.5m) on underlying NPAT declared for the second half of financial year 2023. See also note 37 for other subsequent events. Donations During the year the Group made donations totalling PGK659,415 (2022: PGK124,996) Auditor’s fees Fees paid to the auditor during the year for professional services are shown in note 35 to the accounts. The external auditor is Deloitte Touche Tohmatsu Ltd. Directors’ Report. The directors of Kina Securities Limited (“Company”) submit herewith the annual financial report of the Company and its Subsidiaries for the year ended 31 December 2023. Principal activities The principal continuing activities of the Company and its Subsidiaries during the year were the provision of commercial banking and financial services (including asset financing, provision of commercial and personal loans, money market operations and corporate advice), fund administration, investment management services and share brokerage. The directors consider there are no unusual or other matters that warrant their comments and the Group’s financial position and results from operations are properly reflected in these financial statements. Operating results and review of operations The net profit attributable to equity holders for the year for the Group was PGK105 million compared with PGK116.5 million in 2022. The profit includes the following items: • Net interest income of PGK203.3 million, compared with PGK181.2 million in the prior year to 31 December 2022. • Net fee and commission income of PGK137.0 million compared with PGK116.2 million in the prior year. • Operating income before impairment losses and other operating income of PGK404.2 million, up from PGK366.5 million in the prior year. • Expected credit losses on financial instruments at amortised cost of PGK9.9million, compared with PGK4.8 million in the prior year. • Other operating expenses of PGK218.7 million, compared with PGK213.3 million in the prior period. 7171 09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 PGK100,000 per annum from the Group stated in bands of PGK10,000 was as follows: In PGK 1,940,001 - 1,950,000 1,820,001 - 1,830,000 1,030,001 - 1,040,000 970,001 - 980,000 950,001 - 960,000 910,001 - 920,000 890,001 - 900,000 870,001 - 880,000 850,001 - 860,000 840,001 - 850,000 810,001 - 820,000 800,001 - 810,000 790,001 – 800,000 770,001 - 780,000 730,001 - 740,000 720,001 - 730,000 710,001 - 720,000 700,001 - 710,000 660,001 - 670,000 600,001 - 610,000 590,001 - 600,000 580,001 - 590,000 550,001 - 560,000 540,001 - 550,000 530,001 - 540,000 510,001 - 520,000 500,001 - 510,000 480,001 - 490,000 470,001 - 480,000 2023 2022 In PGK 2023 2022 1* - 2 1 - - 1 1 1 1 1 1 - - 1 - 1 - - - 2 - 1 1 - - - - 1 - 1 - 2 - 1 - 2 - - - 1 1 1 - 1 - - - 2 - 2 1 - 1 1 1 1 1 450,001 - 460,000 400,001 - 410,000 390,001 - 400,000 380,001 - 390,000 360,001 - 370,000 350,001 - 360,000 340,001 - 350,000 330,001 - 340,000 320,001 - 330,000 310,001 - 320,000 300,001 - 310,000 290,001 - 300,000 280,001 - 290,000 270,001 - 280,000 250,001 - 260,000 240,001 - 250,000 220,001 - 230,000 210,001 - 220,000 200,001 - 210,000 190,001 - 200,000 180,001 - 190,000 170,001 - 180,000 160,001 - 170,000 150,001 - 160,000 140,001 - 150,000 130,001 - 140,000 120,001 - 130,000 110,001 - 120,000 100,000 - 110,000 1 - 1 1 - 3 1 2 - 1 2 1 - 3 4 1 3 - 6 8 5 3 7 3 5 10 11 12 11 1 1 - - 1 1 - 1 1 2 2 - 2 - 1 - 1 1 4 4 5 2 11 10 10 6 9 16 16 72 * Increase in fixed base salary and impact of foreign exchange conversion. Directors’ remuneration Directors’ fees paid during the year was as follows: In PGK Directors I. Taureka K. Smith-Pomeroy J. Thomason P. Hutchinson A. Carriline I. Temu R.Kimber Managing Director G. Pawson – Salaries – Other benefits including leave entitlements * Increase in fixed base salary and impact of foreign exchange conversion. Signed at Port Moresby on behalf of the board on 28th March 2024. 2023 2022 PGK‘000 PGK‘000 446 325 277 281 293 104 83 455 333 285 257 285 257 - 1,809 1,874 1,946* 454 2,400 4,209 1,817* 452 2,269 4,143 Mr Isikeli Taureka Director and Chairman Mr Greg Pawson Managing Director and Chief Executive Officer 73 Directors’ Report The directors declare that: • in the directors’ opinion, there are reasonable grounds to believe that the Company and the Subsidiaries (together the Group) will be able to pay their debts as and when they become due and payable • in the directors’ opinion, the attached 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 Company and the Group as at and for the year ended 31 December 2023 Signed in accordance with a resolution of the Board of directors. On behalf of the directors Mr Isikeli Taureka Director and Chairman Port Moresby, 28 March 2024 Mr Greg Pawson Managing Director and Chief Executive Officer Port Moresby, 28 March 2024 74 Deloitte Touche Tohmatsu Level 9, Deloitte Haus 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 74 490 121 060 477 Collins Street Melbourne VIC 3000 GPO Box 78B Melbourne VIC 3001, Australia Tel: +61 (0)3 9671 7000 Fax: +61 (0)3 9671 7001 www.deloitte.com.au Independent Auditor’s Report to the shareholders of Kina Securities Limited RReeppoorrtt oonn tthhee AAuuddiitt ooff tthhee FFiinnaanncciiaall SSttaatteemmeennttss Opinion We have audited the accompanying financial statements of Kina Securities Limited (the “Company”) and its subsidiaries (the “Group”) which comprise the Group and the Company’s statements of financial position as at 31 December 2023, the statements of comprehensive income, the statements of changes in equity and the statements of cash flows for the year then ended, and notes to the financial statements, including material accounting policy information and other explanatory information. In our opinion, the accompanying financial statements of the Group and the Company, give a true and fair view of the Group’s and the Company’s financial position as at 31 December 2023 and of their financial performance and cash flows for the year then ended in accordance with International Financial Reporting Standards and the requirements of the Companies Act 1997 (amended 2022). Basis for Opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s Responsibilities for the Audit of the Financial Statements section of our report. We 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 financial statements of the Group for the current period. These matters were addressed in the context of our audit of the financial statements as a whole, and in forming our opinion thereon, and we do not provide a separate opinion on these matters. KKeeyy AAuuddiitt MMaatttteerr EExxppeecctteedd ccrreeddiitt lloossss oonn llooaannss aanndd aaddvvaanncceess As at 31 December 2023, the Group has recognised a loss allowance for Expected Credit Losses (ECL) amounting to K52.5m on loans and advances held at amortised cost in accordance HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr Our audit procedures, in conjunction with our specialists, included, but were not limited to: Liability limited by a scheme approved under Professional Standards Legislation. Member of Deloitte Asia Pacific Limited and the Deloitte organisation. 75 KKeeyy AAuuddiitt MMaatttteerr with IFRS 9 Financial Instruments (IFRS 9) as disclosed in Note 3(b). Loans and advances subject to IFRS 9’s impairment lending requirements portfolio, personal loan commitments. include the residential loan portfolio and Allowance for Expected Credit Loss (ECL) is considered a key audit matter due to significance loans and advances to the financial of the significant management statements judgement loss allowance, including: in estimating the and • The application of the requirements of IFRS 9 as reflected in the Group’s ECL model particularly in light of the current economic environment; • Identification of exposures with a significant in credit quality to determine movement whether 12-month or lifetime expected credit loss should be recognised; and • Assumptions used in the ECL model such as the the counterparty, financial condition of repayment capacity and forward-looking macroeconomic factors as disclosed in Note 3(b). IImmppaaiirrmmeenntt ooff nnoonn--ccuurrrreenntt aasssseettss ggooooddwwiillll iinncclluuddiinngg HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr CCoonnttrrooll ddeessiiggnn aanndd iimmpplleemmeennttaattiioonn:: We tested the design and implementation of controls over the loss allowance including controls over: • The accuracy of data input into the system used for determining the past due status and approval of credit facilities; and • The ongoing monitoring and identification of loans displaying indicators of impairment and to ensure whether they are migrating on a timely basis to appropriate default stages including the generation of “days past due” reports. AAsssseessssiinngg iimmppaaiirrmmeenntt mmooddeell aapppprroopprriiaatteenneessss:: We assessed the appropriateness of management’s internally developed model in determining the loss allowance for ECL. Our procedures included, but were not limited to: • Assessing whether the ECL model adequately addresses the requirements of IFRS 9; • Assessing, based on sample testing, whether individual exposures are classified into appropriate default stages and aging categories for the purpose of determining the loss allowance for ECL; • Assessing the reasonableness of the assumptions driving Probabilities of Default (PD), Loss Given Default (LGD) and Exposure at Default (EAD); and • Assessing the adequacy of management overlays to the modelled loss allowance for ECL by recalculating the coverage provided by the loss allowance (including overlays) to the loan book, taking into account recent history, performance and de-risking of the relevant portfolios. We also evaluated the adequacy of the disclosures in Note 3(b) to the financial statements. In conjunction with our valuation specialists, our procedures included, but were not limited to: As at 31 December 2023, 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 36. • Evaluating the appropriateness of management’s key controls over the impairment assessment process, including the identification of potential indicators of impairment such as the carrying value of the Group’s net assets exceeding the market capitalisation; In accordance with IAS 36 Impairment of Assets, Cash Generating Units (CGUs) including goodwill are required to be tested for impairment at least annually. • Assessing the reasonableness of cash flow projections and growth rates against external economic and financial data and the Group’s own historical performance; 76 KKeeyy AAuuddiitt MMaatttteerr This is considered a key audit matter due to the significance of judgement required in preparing a discounted cash flow model (value in use). These judgements include estimating: • Future cash flows for the Cash Generating Unit (“CGU”) taking into accounting regulatory and macroeconomic factors; • Discount rates; and • Terminal value growth rates. IInnffoorrmmaattiioonn tteecchhnnoollooggyy The Group’s business operations are heavily reliant on IT systems for processing large volumes of transactions as well as automated calculations supporting both internal and external financial reporting. These systems are vital to the ongoing operations of the business and to the integrity of the financial reporting process and as a result, the assessment of IT systems forms a key component of our audit and is considered a key audit matter. HHooww tthhee ssccooppee ooff oouurr aauuddiitt rreessppoonnddeedd ttoo tthhee KKeeyy AAuuddiitt MMaatttteerr • Comparing historical performance against prior years’ budgets and forecasts to assess management’s historical forecasting accuracy; • Assessing the key assumptions and methodology used by management in the impairment model, in particular the discount rate and the terminal growth rate; and • Testing the mathematical accuracy of the impairment model. We also evaluated the adequacy of the disclosures in Note 36 to the financial statements. In conjunction with our IT specialists, our procedures included but were not limited to: • Obtaining an understanding of the IT environment and identification of the key systems relevant to financial reporting; • Testing the design and implementation of IT controls including, but not limited to, access administration, change management and segregation of duties; and • Responding to deficiencies identified by designing and performing additional procedures which included the identification and testing of compensating manual controls and varying the nature, timing and extent of the substantive procedures performed. Other Information The directors are responsible for the other information. The other information comprises the Directors’ Report and Directors’ Declaration, which we obtained prior to the date of this auditor’s report, and annual report (but does not include the financial statements and our auditor’s report thereon), which is expected to be made available to us after that date. Our opinion on the financial statements does not cover the other information and we do not and will not express any form of assurance conclusion thereon. In connection with our audit of the financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. When we read the annual report, if we conclude that there is a material misstatement therein, we are required to communicate the matter to the directors and use our professional judgement to determine the appropriate action. Responsibilities of the Directors for the Financial Statements The directors are responsible for the preparation of the financial statements that give a true and fair v iew in accordance with International Financial Reporting Standards and the Companies Act 1997 (amended 2022) and 77 for such internal control as the directors determine is necessary to enable the preparation of the financial statements that give a true and fair view and are free from material misstatement, whether due to fraud or error. In preparing the financial statements, the directors are responsible for assessing the ability of the Group and the Company 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 the Company or to cease operations, or has no realistic alternative but to do so. Auditor’s Responsibilities for the Audit of the Financial Statements Our objectives are to obtain reasonable assurance about whether the financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with the 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 the 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 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 or the Company’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 or the Company’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the financial statements or, if such disclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group or the Company to cease to continue as a going concern. • Evaluate the overall presentation, structure and content of the financial statements, including the disclosures, and whether the financial statements represent the underlying transactions and events in a manner that achieves fair presentation. • Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the Group 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 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. 78 From the matters communicated with the directors, we determine those matters that were of most significance in the audit of the 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. RReeppoorrtt oonn OOtthheerr LLeeggaall aanndd RReegguullaattoorryy RReeqquuiirreemmeennttss In accordance with section 200 of the Companies Act 1997 (amended 2022), in our opinion: • We obtained all information and explanations that were required; and • Proper accounting records have been kept by the Group for the year ended 31 December 2023. We have no interest in the Company and the Group or any other relationship, other than that of the auditor of the Company and the Group. The engagement partners on the audit resulting in this independent auditor’s report are Mark Stretton and Helen Hamilton-James. DELOITTE TOUCHE TOHMATSU MMaarrkk SSttrreettttoonn Partner Chartered Accountants Registered Company Auditor in Australia MMeellbboouurrnnee,, 2288 MMaarrcchh 22002244 HHeelleenn HHaammiillttoonn--JJaammeess Partner Chartered Accountants Registered under the Accountants Act, 1996 PPoorrtt MMoorreessbbyy,, 2288 MMaarrcchh 22002244 79 Statements of Comprehensive Income. For the year ended 31 December 2023 Interest income Interest expense Net interest income Fee and commission income Fee and commission expense Net fee and commission income Foreign exchange income Dividend income Net gains 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 Administrative and operating expenses Profit before tax Income tax expense Notes Consolidated Parent 2023 PGK‘000 2022 PGK‘000 2023 PGK‘000 2022 PGK‘000 253,340 224,600 252,614 223,949 (50,020) (43,389) (50,180) (42,991) 203,320 181,211 202,434 180,958 136,979 116,324 102,493 (16) (110) (16) 82,908 (110) 136,963 116,214 102,477 82,798 51,342 60,339 51,363 61,843 660 469 2,733 3,610 9,139 4,657 40 2,776 7,445 74 3,737 9,190 404,157 366,500 366,535 338,600 (9,900) (4,825) (10,215) (4,160) (218,718) (213,257) (209,656) (203,322) 175,539 148,418 146,664 131,118 (70,576) (31,930) (62,081) (26,704) 5 5 6 6 7 15 8 3b 9 10 Net profit for the year attributable to the equity holders of the Company 104,963 116,488 84,583 104,414 Other comprehensive income - - - - Total comprehensive income for the year attributable to the equity holders of the Company 104,963 116,488 84,583 104,414 Earnings per share – basic (toea) Earnings per share – diluted (toea) 27 b 27 b 2023 36.67 36.39 2022 40.60 40.35 The notes on pages 84 to142 are an integral part of these consolidated financial statements. 80 Statements of Financial Position. As at 31 December 2023 Assets Cash and cash equivalents 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 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 Net assets Shareholders’ equity Issued and fully paid ordinary shares Share-based payment reserve Retained earnings  Total equity Notes Consolidated Parent 2023 PGK‘000 2022 PGK‘000 2023 PGK‘000 2022 PGK‘000 12 13 14 15 16 17 29 11 18 19 36 20 21 22 23 29 b 24 25 26 27 a 27 c 396,840 433,488 391,357 397,376 1,236,496 1,215,763 1,236,496 1,215,763 433,274 35,816 383,083 15,262 433,274 31,105 383,083 10,508 2,562,078 2,158,921 2,558,747 2,154,963 157,554 152,650 157,554 152,650 - - 35,099 30,067 - 71,954 92,786 27,608 129,829 - 82,839 92,786 32,493 79,669 4,284 34,618 249 71,954 92,786 27,608 125,687 38,113 29,220 249 82,839 92,786 32,493 76,847 5,179,334 4,677,021 5,165,719 4,666,890 13,912 2,060 13,912 2,060 4,344,571 3,878,835 4,368,599 3,896,958 11,461 - 16,461 33,775 4,196 - 14,111 41,713 10,332 43,899 14,698 33,775 5,130 30,507 12,717 41,713 118,831 126,803 114,149 122,090 4,539,011 4,067,718 4,599,364 4,111,175 640,323 609,303 566,355 555,715 394,693 394,693 394,693 394,693 2,776 2,477 2,776 2,477 242,854 212,133 168,886 158,545 640,323 609,303 566,355 555,715 These financial statements have been approved for issue by the Board of Directors and signed on its behalf by: Mr Isikeli Taureka Director and Chairman Mr Greg Pawson Managing Director and Chief Executive Officer The notes on pages 84 to142 are an integral part of these consolidated financial statements. 81     Statements of Changes in Equity. For the year ended 31 December 2023 Consolidated Attributable to the equity holders of the Group Share Capital Share Based Payment Reserve Retained Earnings Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 Balance as at 31 December 2021 394,693 3,587 178,343 Profit for the year Employee share scheme – vested rights Employee share scheme – value of employee services Deferred tax on share-based payment Dividend paid - - - - - - 116,488 (1,360) 2,277 (2,027) - - - - (82,698) Balance as at 31 December 2022 394,693 2,477 212,133 Profit for the year Employee share scheme – vested rights Employee share scheme – value of employee services Deferred tax on share-based payment Dividend paid - - - - - - 104,963 (1,529) 2,073 (245) - - - - (74,242) Balance as at 31 December 2023 394,693 2,776 242,854 576,623 116,488 (1,360) 2,277 (2,027) (82,698) 609,303 104,963 (1,529) 2,073 (245) (74,242) 640,323 Parent Attributable to the equity holders of the Parent Share Capital Share Based Payment Reserve Retained Earnings Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 Balance as at 31 December 2021 394,693 3,587 136,829 Profit for the year Employee share scheme – vested rights Employee share scheme – value of employee services Deferred tax on share-based payment Dividend paid - - - - - - 104,414 (1,360) 2,277 (2,027) - - - - (82,698) Balance as at 31 December 2022 394,693 2,477 158,545 Profit for the year Employee share scheme – vested rights Employee share scheme – value of employee services Deferred tax on share-based payment Dividend paid - - - - - - 84,583 (1,529) 2,073 (245) - - - - (74,242) Balance as at 31 December 2023 394,693 2,776 168,886 535,109 104,414 (1,360) 2,277 (2,027) (82,698) 555,715 84,583 (1,529) 2,073 (245) (74,242) 566,355 The notes on pages 84 to142 are an integral part of these consolidated financial statements. 82 Statements of Cash Flows. As at 31 December 2023 Cash flows from operating activities Interest received Interest paid Foreign exchange gain Dividend received Fee and commission income received Fee and commission expense paid Net trading and other operating income Recoveries on loans previously written-off Notes Consolidated Parent 2023 PGK‘000 2022 PGK‘000 2023 PGK‘000 2022 PGK‘000 245,205 (51,865) 51,342 660 215,812 (29,974) 60,339 469 244,479 (52,025) 51,363 40 215,162 (29,576) 61,843 74 137,286 118,472 102,174 82,839 (16) 15,256 499 (110) 6,177 931 (16) 13,784 499 (110) 6,565 931 Cash payments to employees and suppliers (198,036) (171,975) (142,192) (112,225) Income tax paid (68,506) (54,436) (62,516) (47,838) Cash flows from operating profits before changes in operating assets and liabilities Changes in operating assets and liabilities: 131,825 145,705 155,590 177,665 – net (increase)/decrease in regulatory deposits (50,191) (170,208) (50,191) (170,208) – net increase in loans and advances to customers (402,486) (210,776) (402,486) (210,776) – net decrease/(increase) in other assets – net increase in due to customers – net (decrease)/increase due to other banks – net (decrease)/increase in other liabilities  Net cash inflow/(outflow) from operating activities 28c Cash flows from investing activities (53,634) 467,581 11,851 (5,428) 99,518 (35,491) 828,498 (2,640) 34,594 (52,313) 473,486 11,851 (5,396) (36,208) 804,090 (2,640) 30,625 589,682 130,541 592,548 Purchase of property, equipment and software (12,817) (14,005) (12,817) (14,005) Proceeds from sale of property and equipment 89 306 89 306 Net movement in investment securities 28b (39,533) (452,937) (39,577) (452,937) Net cash inflow/(outflow) generated from/(used in) investing activities Cash flows from financing activities Dividend paid Lease liability payments Net cash inflow/(outflow) generated from/(used) in financing activities (52,260) (466,636) (52,305) (466,636) (74,242) (82,698) (74,242) (82,698) (11,838) (11,349) (11,838) (11,349) (86,080) (94,047) (86,080) (94,047) Net increase in cash and cash equivalents (38,823) 28,999 (7,844) 31,865 Effect of exchange rate movements on cash and cash equivalents 2,175 (3,845) 1,825 (791) Cash and cash equivalents at beginning of year 433,488 408,334 397,376 366,302 Cash and cash equivalents at end of year 28a 396,840 433,488 391,357 397,376 The notes on pages 84 to142 are an integral part of these consolidated financial statements. 83 Notes to the Financial Statements. For the year ended 31 December 2023 1. Material accounting policies 1.1 General information The Company and its subsidiaries are incorporated in Papua New Guinea. The Group’s business activities include the 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 2021, 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. The directors have, at the time of approving the financial statements, a reasonable expectation that the Company and Group have adequate resources to continue in operational existence for the foreseeable future. Thus, they continue to adopt the going concern basis of accounting in preparing the financial statements. 1.2 Basis of preparation The financial statements of the Company and Group have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirements of the Papua New Guinea Companies Act 1997. The financial statements of the Company and Group as at and for the year ended 31 December 2023 were authorised for issue by the Board of Directors on 28 March 2024. The financial statements of the Company and Group 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 In the current year, the Group has applied a number of amendments to IFRS Accounting Standards issued by the International Accounting Standards Board (IASB) that are mandatorily effective for an accounting period that begins on or after 1 January 2023. 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: Amendments to IFRS 10 and IAS 28 Amendments to IAS 1 Amendments to IAS 1 Sale or Contribution of Assets between an Investor and its Associate or Joint Venture Classification of Liabilities as Current or Non-current Non-current Liabilities with Covenants Amendments to IAS 7 and IFRS 7 Supplier Finance Arrangements Amendments to IFRS 16 Lease Liability in a Sale and Leaseback 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. 84 1. Material accounting policies (continued) 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. 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 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. 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 Board of Directors. The Group has two reportable segments, which are the two business divisions – Banking & Finance 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 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)). 85 1. Material accounting policies (continued) 1.9 Fee and commission income The Group recognises fee and commission income from the 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 a monthly basis and the performance obligation is satisfied over time. Bills are raised monthly and revenue is recognised on this basis. • 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. These services are provided by the Group on a monthly basis and the performance obligation is satisfied over time. Bills are raised monthly and revenue is recognised on this basis. • Share brokerage – The Group generates share brokerage from trading services for customers on the Port Moresby Stock Exchange (“PNGX”) and the Australian Stock Exchange (“ASX”). Income is recognised at a point in time 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 fees and commissions to its customers during the tenure of the loan unrelated to establishment of the loan facility. Income is recognised at a point in time when services promised under the contract are completed. • Digital banking fees – The Group increases the services it provides through digital access solutions giving customers convenient ways to do transactions. The services include online banking, utility top-ups, cashless transactions using payment platforms, and card transactions. Income is recognised at a point in time when the transaction to which the fee relates is settled which is a point at which performance obligation is satisfied. 1.10 Leases 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, 86 1. Material accounting policies (continued) 1.10 Leases (continued) 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 realised or the deferred income tax liability is settled. Deferred tax assets are recognised only if it is probable that future taxable amounts will be available to utilise 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 realise 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. 87 1. Material accounting policies (continued) 1.12 Cash and cash equivalents For the purpose of presentation in the statement of cash flows, cash and cash equivalents includes cash on hand and deposits held at call with financial institutions which are subject to an insignificant risk of changes in value, and bank overdrafts. In the statement of financial position, cash and bank balances comprise cash (i.e. cash on hand and demand deposits) and cash equivalents. Cash equivalents are short-term (generally with an original maturity of three months or less), highly liquid investments that are readily convertible to a known amount of cash and which are subject to an insignificant risk of changes in value. Cash equivalents are held for the purpose of meeting short-term cash commitments rather for investment or other purposes. For the purposes of the statement of cash flows, cash and cash equivalents consist of cash and cash equivalents as defined above. 1.13 Financial instruments Financial assets and financial liabilities are recognised in the statement of financial position when the Company or 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 timeframe established by the market concerned, and are initially measured at fair value, plus transaction costs, except for those financial assets classified as at FVTPL. Transaction costs directly attributable to the acquisition of financial assets classified as at FVTPL are recognised immediately in profit or loss. All recognised financial assets that are within the scope of IFRS 9 are required to be subsequently measured at amortised cost or fair value on the basis of the entity’s business model for managing the financial assets and the contractual cash flow characteristics of the financial assets. Specifically: • debt instruments that are held within a business model whose objective is to collect the contractual cash flows, and that have contractual cash flows that are solely payments of principal and interest on the principal amount outstanding (SPPI), are subsequently measured at amortised cost; • 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. 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 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 measured at amortised cost: • Loans and advances; • Investment in Government Inscribed Stocks; • Other financial assets; • Loan commitments issued; and • Financial guarantee contracts issued. 88 1. Material accounting policies (continued) 1.13 Financial instruments (continued) 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. 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. Irrespective of the outcome of this assessment, the Group presumes that the credit risk on a financial asset has increased significantly since initial recognition when contractual payments are more than 30 days past due, unless the Group has reasonable and supportable information that demonstrates otherwise. 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 that default has occurred when a financial asset is more than 90 days past due unless the Group has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate. Write-off Loans and debt securities are written off when the Company or Group has no reasonable expectations of recovering the financial asset (either in its entirety or a portion of it). This is the case when it is determined 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 a deduction from the gross carrying amount of the financial assets held at amortised cost. Derecognition of financial assets The Group derecognises a financial asset only when the contractual rights to the cash flows from the asset expire, or when it transfers the financial asset and substantially all the risks and rewards of ownership of the asset to another entity. If the Group neither transfers nor retains substantially all the risks and rewards of ownership and continues to control the transferred asset, the Group recognises its retained interest in the asset and an associated liability for amounts it may have to pay. If the Group retains substantially all the risks and rewards of ownership of a transferred financial asset, the Group continues to recognise the financial asset and also recognises a collateralised borrowing for the proceeds received. On derecognition of a financial asset measured at amortised cost, the difference between the asset’s carrying amount and the sum of the consideration received and receivable is recognised in profit or loss. 89 1. Material accounting policies (continued) 1.13 Financial instruments (continued) 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. 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 re-measurement is presented in other income. The Group has not designated any financial guarantee contracts as at FVTPL. 1.14 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 11.25% to 15% Building improvements 10% Motor vehicles 30% Office equipment 15% to 30% The assets’ residual values and useful lives are reviewed, and adjusted, if appropriate at each balance date. Gains and losses on disposal (being the difference between the carrying value at the time of sale or disposal and the proceeds received) are taken into account in determining operating profit for the year. Repairs and maintenance costs are charged to statement of comprehensive income, when the expenditure is incurred. 1.15 Intangible assets and other non-financial assets Goodwill Goodwill is measured as described in note 36 Goodwill having an indefinite useful life is not amortised 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. 90 1. Material accounting policies (continued) 1.15 Intangible assets and other non-financial assets (continued) 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 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. Customer deposits relationship / intangible assets A customer deposits relationship asset was recognised 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 relationship intangible asset (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. The customer deposits relationship intangible asset is amortised 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. The customer deposits relationship intangible asset is also assessed for any indication of impairment at each reporting date and whenever there is an indicator that these may be impaired. Software Costs associated with maintaining computer software programs are recognised 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 recognised 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 recognised as a capital improvement and added to the original cost of the software. Computer software development costs recognised as assets are amortised using the straight-line method over their useful lives, not exceeding a period of five years. 1.16 Provisions Provisions are recognised when the Group has a present legal or constructive obligation as a result of past events, it is probable that outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligations can be made. 1.17 Employee benefits Short-term obligations Provision is made for benefits accruing to employees in respect of annual leave and other short term obligations when it is probable that settlement will be required and they are capable of being measured reliably. 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 recognised 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 recognised as an expense with a corresponding increase in equity. The fair value is measured at grant date and is recognised 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. 91 1. Material accounting policies (continued) 1.17 Employee benefits (continued) Cash bonus The Group recognises 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 recognises a provision where contractually obliged or where there is a past practice that has created a constructive obligation. 1.18 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. 1.19 Earnings per share Basic earnings per share Basic earnings per share is calculated by dividing the profit attributable to owners of the company, excluding any costs of servicing equity other than ordinary shares by the weighted average number of ordinary shares outstanding during the financial year (note 27(b)). Diluted earnings per share Diluted earnings per share adjusts the figures used in the determination of basic earnings per share to take into account the after income tax effect of interest and other financing costs associated with dilutive potential ordinary shares, and the weighted average number of additional ordinary shares that would have been outstanding assuming the conversion of all dilutive potential ordinary shares. 1.20 Fiduciary activities The Group provides custodian, trustee, corporate administration, investment management and advisory services to third parties, which involve the Group making allocation and purchase and sale decisions in relation to a wide range of financial instruments. Those assets that are held in a fiduciary capacity are not included in these consolidated financial statements. Details of such investments held under trust may be found in note 30. 2. Critical accounting estimates and judgements 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 • Estimated allowance for loans and advances to customers – note 16 and 3(b) • Estimated goodwill impairment – note 36 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 to the 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. 92 3. Financial risk management (continued) Market risk (a) 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 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. (i) (ii) Foreign exchange risk; Interest rate risk; and (iii) Equity price risk. Exposure The Group’s exposure to foreign currency risk at the end of the reporting period, expressed in PGK, was as follows: PGK‘000 31 December 2023 Cash balance Due from other banks Due to other banks 31 December 2022 Cash balance Due from other banks USD AUD SGD GBP EUR NZD JPY Others 177 51 27,584 5,496 135 83 87 145 8,498 1,715 (6,667) (4,399) (2,022) - - 589 160 - 178 239 - 21,094 1,148 (1,804) 8,585 1,860 749 417 149 932 (651) 430 257 40 62,043 47,743 62,300 47,783 2 407 409 70 331 401 152 1,285 566 920 1,437 1,486 179 302 481 29 2,070 2,099 There were no material liabilities denominated in foreign currency in 2022. Sensitivity As shown in the table above, the Group is primarily exposed to changes in USD/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% (2022:10%) USD/PGK – exchange rate – decrease 10% (2022:10%) Impact on statement of comprehensive income in PGK‘000 2023 (1,902) 2,324 PGK‘000 2022 (176) (215) 93 Financial risk management (continued) 3. (a) Market risk (continued) (ii) Interest rate risk 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 components of the statements of financial position. Sensitivity to interest rates arises from mismatches in re- pricing dates, cash flows and other characteristics of the assets and their corresponding liability funding. These mismatches are actively managed by the Assets and Liabilities Committee (ALCO), which meets regularly to review the effects of fluctuations in the prevailing levels of market interest rates of the financial position and cash flows of the Group. The following table risks summarises the Group’s exposure to interest rate risks: Year ended 31 December 2023 Carrying amount Average interest rate PGK‘000 (% p.a.) 396,840 1,236,496 2,562,078 157,554 0.21% 3.62% 8.22% 9.02% 4,344,571 1.15% Year ended 31 December 2022 Carrying amount Average interest rate PGK‘000 (% p.a.) 433,488 1,215,763 2,158,921 152,650 0.17% 5.38% 7.66% 9.93% 3,878,835 1.15% (iii) Equity price risk The Group is exposed to equity securities price risk due to the listed shares traded on stock exchange. To manage its price risks arising from financial assets at fair value through profit or loss, the Group diversifies its portfolio. Diversification of the 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). Assets Cash and cash equivalents Central bank bills Loans and advances to customers Investments in Government Inscribed Stocks Liability Due to customers Assets Cash and cash equivalents Central bank bills Loans and advances to customers Investments in Government Inscribed Stocks Liability Due to customers Sensitivity Given the profile of assets and liabilities at 31 December 2023 and prevailing interest rates, a 200 basis points increase/decrease in market rates in relation to interest bearing assets and liabilities will result in a maximum of K167,967 (2022: K1,639,739) decrease/increase in net interest income at a Group level. 94 Financial risk management (continued) 3. (a) Market risk (continued) 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 2023 and net assets as of balance date would have been affected by K899,745 (2022: K763,103). Equity prices – increase 5% (2021:5%) Equity prices – decrease 5% (2021:5%) Credit risk (b) 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. Impact on statement of comprehensive income in PGK‘000 2023 900 (900) 2022 763 (763) • 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. (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. (iii) Incorporation of forward-looking information The Group uses forward-looking information that is available without undue cost or effort in its assessment of significant increase of credit risk as well as in its measurement of ECL. (iv) 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). These figures are generally derived from internally developed statistical models and other historical data and they are adjusted to reflect probability-weighted forward-looking information. 95 Financial risk management (continued) 3. (b) Credit risk (continued) 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. 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. 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. (v) 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. The groupings are reviewed on a regular basis to ensure that each group is comprised of homogenous exposures. (vi) Credit quality The Group monitors credit risk per class of financial instrument. The table below outlines the classes identified, as well as the financial statement line item and the note that provides an analysis of the items included in the financial statement line for each class of financial instrument: Class of financial instrument Financial statement line Cash and cash equivalents at amortised cost Cash and cash equivalents 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 Note Note 12 Note 13 Note 14 Note 16 Investments in Government Inscribed Stocks at amortised cost Investments in Government Inscribed Stocks Note 17 Bank guarantees Other financial assets Contingent liabilities Other assets Note 32 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 guarantees, the amounts in the table represent the amounts committed or guaranteed, respectively. 96 Financial risk management (continued) 3. (b) Credit risk (continued) Cash and cash equivalents 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 Consolidated 31 December 2023 PGK‘000 31 December 2022 PGK‘000 173,876 168,972 53,992 396,840 365,871 30,969 396,840 151,370 160,392 121,726 433,488 319,423 114,065 433,488 * Bank accounts maintained in Australia, New Zealand, Great Britain, Singapore, Malaysia, Philippines, Japan, India and Turkey. Cash and cash equivalents 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 Parent 31 December 2023 PGK‘000 31 December 2022 PGK‘000 173,876 168,972 48,509 391,357 365,871 25,486 391,357 151,370 160,392 85,614 397,376 328,423 68,953 397,376 * Bank accounts maintained in Australia, New Zealand, Great Britain, Singapore, Malaysia, Philippines, Japan, India and Turkey. 97 Financial risk management (continued) 3. (b) Credit risk (continued) Treasury and central bank bills at amortised cost Concentration by sector With central banks Total Concentration by region Papua New Guinea Total Treasury and central bank bills 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 Regulatory deposits at amortised cost Concentration by sector With central banks Total Concentration by region Papua New Guinea Total 98 Consolidated 31 December 2023 PGK‘000 31 December 2022 PGK‘000 1,236,496 1,236,496 1,236,496 1,236,496 Parent 1,215,763 1,215,763 1,215,763 1,215,763 31 December 2023 PGK‘000 31 December 2022 PGK‘000 1,236,496 1,236,496 1,236,496 1,236,496 1,215,763 1,215,763 1,215,763 1,215,763 Consolidated 31 December 2023 PGK‘000 31 December 2022 PGK‘000 433,274 433,274 433,274 433,274 Parent 383,038 383,038 383,038 383,038 31 December 2023 PGK‘000 31 December 2022 PGK‘000 433,274 433,274 433,274 433,274 383,038 383,038 383,038 383,038 Financial risk management (continued) 3. (b) Credit risk (continued) Loans and advances to customers at amortised cost Consolidated 31 December 2023 PGK‘000 31 December 2022 PGK‘000 Concentration by sector Individuals: Mortgages Unsecured lending Corporate entities: Agriculture, Forestry & Fishing Mining Manufacturing Electrical, Gas & Water Building and Construction Wholesale & Retail Hotel & Restaurants Transport & Storage Financial Intermediation Real Estate/Renting/Business Services Post & Telecommunication Equipment Hire Other Business Personal Banking Total Concentration by region Papua New Guinea Total 601,556 91,890 4,101 15,486 21,079 869 183,612 770,868 75,058 67,775 655 360,122 96,731 34,037 290,705 693,446 553,845 59,467 3,874 16,233 18,806 6,684 171,237 694,077 79,030 23,214 837 316,094 - 43,623 211,309 3,088 2,614,544 2,201,418 2,614,544 2,614,544 2,201,418 2,201,418 99     Financial risk management (continued) 3. (b) Credit risk (continued) Loans and advances to customers at amortised cost Parent 31 December 2023 PGK‘000 31 December 2022 PGK‘000 Concentration by sector Individuals: Mortgages Unsecured lending Corporate entities: Agriculture, Forestry & Fishing Mining Manufacturing Electrical, Gas & Water Building and Construction Wholesale & Retail Hotel & Restaurants Transport & Storage Financial Intermediation Real Estate/Renting/Business Services Post & Telecommunication Equipment Hire Other Business Personal Banking Total Concentration by region Papua New Guinea Total Investments in Government Inscribed Stocks at amortised cost Concentration by sector Sovereign Total Concentration by region Papua New Guinea Total 601,556 91,890 4,101 15,486 21,079 869 183,612 770,868 75,058 67,775 655 360,122 96,731 34,037 286,709 693,446 553,845 59,467 3,874 16,233 18,806 6,684 171,237 694,077 79,030 23,214 837 316,094 - 43,623 206,333 3,088 2,610,548 2,196,442 2,610,548 2,610,548 2,196,442 2,196,442 Consolidated 31 December 2023 PGK‘000 31 December 2022 PGK‘000 159,856 159,856 159,856 159,856 Parent 154,881 154,881 154,881 154,881 Investments in Government Inscribed Stocks at amortised cost 31 December 2023 PGK‘000 31 December 2022 PGK‘000 Concentration by sector Sovereign Total Concentration by region Papua New Guinea Total 100 159,856 159,856 159,856 159,856 154,881 154,881 154,881 154,881     Financial risk management (continued) 3. (b) Credit risk (continued) Bank guarantees Concentration by sector Corporate entities: Agriculture, Forestry & Fishing Mining Manufacturing Wholesale & Retail Building and Construction Transport & Storage Other Business Total Concentration by region Papua New Guinea Total Bank guarantees Concentration by sector Corporate entities: Agriculture, Forestry & Fishing Mining Manufacturing Wholesale & Retail Building and Construction Transport & Storage Other Business Total Concentration by region Papua New Guinea Total Consolidated 31 December 2023 PGK‘000 31 December 2022 PGK‘000 1,121 10,439 2,000 531 9,213 1,064 2,465 26,833 26,833 26,833 4,616 - - 3,800 11,812 2,426 3,090 25,744 25,744 25,744 Parent 31 December 2023 PGK‘000 31 December 2022 PGK‘000 1,121 10,439 2,000 531 9,213 1,064 2,465 26,833 26,833 26,833 4,616 - - 3,800 11,812 2,426 3,090 25,744 25,744 25,744 The amount of bank guarantees disclosed above represent notional amount guaranteed being the maximum exposure to credit risk. 101 Financial risk management (continued) 3. (b) Credit risk (continued) An analysis of the Group’s credit risk exposure per class of financial asset and “stage” without taking into account the effects of any collateral or other credit enhancements is provided in the following table. 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. Consolidated 31 December 2023 Stage 1 Stage 2 Stage 3 POCI Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 396,840 1,236,496 433,274 - - - - - - - - - 396,840 1,236,496 433,274 2,401,427 46,756 157,597 8,764 2,614,544 Cash and cash equivalents Treasury and central bank bills Regulatory deposits Loans and advances Investments in Government Inscribed Stocks Other financial assets 159,856 123,984 - - - - - - 159,856 123,984 Total gross carrying amount 4,751,877 46,756 157,597 8,764 4,964,994 Loss allowance Net carrying amount (25,174) (5,480) (28,104) - (58,758) 4,726,703 41,276 129,493 8,764 4,906,236 Consolidated 31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 433,488 1,215,763 383,083 - - - - - - - - - 433,488 1,215,763 383,083 1,899,383 110,370 178,079 13,586 2,201,418 Cash and cash equivalents Treasury and central bank bills Regulatory deposits Loans and advances Investments in Government Inscribed Stocks Other financial assets 154,881 83,659 - - - - - - 154,881 83,659 Total gross carrying amount 4,170,257 110,370 178,079 13,586 4,472,292 Loss allowance Net carrying amount (23,681) (5,458) (19,579) - (48,718) 4,146,576 104,912 158,500 13,586 4,423,574 102 Financial risk management (continued) 3. (b) Credit risk (continued) Parent 31 December 2023 Stage 1 Stage 2 Stage 3 POCI Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 391,357 1,236,496 433,274 - - - - - - - - - 391,357 1,236,496 433,274 2,398,406 46,461 156,917 8,764 2,610,548 Cash and cash equivalents Treasury and central bank bills Regulatory deposits Loans and advances Investments in Government Inscribed Stocks Other financial assets 159,856 119,832 - - - - - - 159,856 119,832 Total gross carrying amount 4,739,221 46,461 156,917 8,764 4,951,363 Loss allowance Net carrying amount (25,176) (5,478) (27,439) - (58,093) 4,714,045 40,983 129,478 8,764 4,893,270 Parent 31 December 2022 Stage 1 Stage 2 Stage 3 POCI Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 397,376 1,215,763 383,038 - - - - - - - - - 397,376 1,215,763 383,038 1,895,673 110,248 176,935 13,586 2,196,442 Cash and cash equivalents Treasury and central bank bills Regulatory deposits Loans and advances Investments in Government Inscribed Stocks Other financial assets 154,881 80,901 - - - - - - 154,881 80,901 Total gross carrying amount 4,127,632 110,248 176,935 13,586 4,428,635 Loss allowance Net carrying amount (23,682) (5,456) (18,562) - (47,700) 4,103,950 104,792 158,373 13,586 4,380,935 In addition to the above, the Group has issued financial guarantee contracts with a notional value of K26,833,000 (2022: K 25,744,000) which are secured against cash and term deposits for which loss allowance of NIL (2022: NIL) has been recognised. 103 Financial risk management (continued) 3. (b) Credit risk (continued) This table summarises the loss allowance as of the year end by class of exposure/asset. Loss allowance by classes Loans and advances to customers at amortised cost Investments in Government Inscribed Stocks at amortised cost Other financial assets Total 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 2023 PGK‘000 31 December 2022 PGK‘000 42,497 2,231 3,990 48,718 52,466 2,245 3,990 58,701 Parent 31 December 2023 PGK‘000 31 December 2022 PGK‘000 51,801 2,302 3,990 58,093 41,479 2,231 3,990 47,700 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: 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 2023 PGK‘000 ECL recognised during the year PGK‘000 Write-offs PGK‘000 Bad debt Recoveries PGK‘000 Balance at 31 December 2023 PGK‘000 42,497 9,758 (288) 499 2,231 3,990 48,718 71 - - - - - 9,829 (288) 499 52,466 2,302 3,990 58,758 104 Financial risk management (continued) 3. (b) Credit risk (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 Consolidated Balance at 01 January 2022 PGK‘000 ECL recognised during the year PGK‘000 Write-offs PGK‘000 Bad debt Recoveries PGK‘000 Balance at 31 December 2022 PGK‘000 38,100 4,323 (857) 931 1,639 3,990 43,729 592 - - - - - 4,915 (857) 931 42,497 2,231 3,990 48,718 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 Balance at 01 January 2023 PGK‘000 ECL recognised during the year PGK‘000 Write-offs PGK‘000 Bad debt Recoveries PGK‘000 Balance at 31 December 2023 PGK‘000 41,479 10,111 (288) 499 2,231 3,990 71 - - - - - 47,700 10,182 (288) 499 51,801 2,302 3,990 58,093 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 Balance at 01 January 2022 PGK‘000 ECL recognised during the year PGK‘000 Write-offs PGK‘000 Bad debt Recoveries PGK‘000 Balance at 31 December 2022 PGK‘000 37,746 3,659 (857) 931 41,479 1,639 3,990 592 - - - - - 43,375 4,251 (857) 931 2,231 3,990 47,700 105 Financial risk management (continued) 3. (b) Credit risk (continued) Consolidated 31 December 2023 Loss allowance – Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loss allowance as at 01 January 17,460 5,458 19,579 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 1,066 (543) (523) (1,457) 2,766 (1,309) (4,552) (1,266) 5,818 - 13,810 (7,445) 18,882 - 4,363 (5,297) (288) 10,883 (6,057) 5,481 28,103 - 52,466 Consolidated 31 December 2022 Loss allowance – Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loss allowance as at 01 January 19,983 10,527 7,590 Changes in the loss allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 - Write-offs 2,677 (2,619) (1,190) 1,234 (58) (44) (2,701) (6,120) 8,821 - - (857) 9,889 New financial assets originated or purchased 12,263 3,886 Financial assets that have been derecognised (13,572) (1,450) (5,762) Loss allowance as at 31 December 17,460 5,458 19,579 - 42,497 106 - - - - - - - 42,497 - - - (288) 29,056 (18,799) - - - - - - - 38,100 - - - (857) 26,038 (20,784) Financial risk management (continued) 3. (b) Credit risk (continued) Parent 31 December 2023 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loss allowance – Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Loss allowance as at 01 January 17,462 5,456 18,561 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 1,066 (1,457) (4,552) - 13,810 (7,445) 18,884 (543) 2,766 (1,266) - 4,363 (5,297) (523) (1,309) 5,818 (288) 10,847 (5,668) 5,479 27,438 - - - - - - - - 41,479 - - - (288) 29,020 (18,410) 51,801 Parent 31 December 2022 Loss allowance – Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loss allowance as at 01 January 19,985 10,525 7,236 Changes in the loss allowance - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 - Write-offs 2,677 (2,619) (1,190) (2,701) 1,234 (6,120) - - New financial assets originated or purchased 12,263 3,886 (58) (44) 8,821 (857) 8,871 Financial assets that have been derecognised (13,572) (1,450) (5,408) Loss allowance as at 31 December 17,462 5,456 18,561 - - - - - - - - 37,746 - - - (857) 25,020 (20,430) 41,479 107 Financial risk management (continued) 3. (b) Credit risk (continued) Consolidated 31 December 2023 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Gross carrying amount as at 01 January 1,899 110 178 14 2,201 Changes in the gross carrying amount - 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 146 (38) (1,234) - 2,234 (739) (74) 40 (12) - 42 (60) (72) (2) 1,113 (499) 115 - - - - - - - - (499) 2,392 (1,174) (5) (1,978) Gross carrying amount as at 31 December 2,401,427 46,756 157,597 8,764 2,614,544 Consolidated 31 December 2022 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Gross carrying amount as at 01 January 1,749,549 152,441 71,667 1,988,547 Changes in the gross carrying amount - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 - Write-offs 41,924 (39,095) (70,988) 72,997 (2,829) (2,009) (44,382) (64,450) 108,832 - - (857) New financial assets originated or purchased 581,710 8,615 17,725 - - - - - - - - (857) 608,050 Financial assets that have been derecognised (358,430) (20,138) (14,450) (1,304) (394,322) Gross carrying amount as at 31 December 1,899,383 110,370 178,079 13,586 2,201,418 108 Financial risk management (continued) 3. (b) Credit risk (continued) Parent 31 December 2023 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Gross carrying amount as at 01 January 1,896 110 177 14 2,196 Changes in the gross carrying amount - 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 146 (38) (1,101) - 2,231 (735) (74) 40 (12) - 42 (60) (72) (2) 1,113 (499) 115 - - - - - - - - (499) 2,388 (1,174) (5) (1,974) Gross carrying amount as at 31 December 2,398,406 46,461 156,917 8,764 2,610,548 Parent 31 December 2022 Stage 1 Stage 2 Stage 3 12-month ECL Lifetime ECL Lifetime ECL POCI Total Loans and advances to customers at amortised cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Gross carrying amount as at 01 January 1,745,858 151,459 69,812 14,890 1,982,019 Changes in the gross carrying amount - Transfer to stage 1 - Transfer to stage 2 - Transfer to stage 3 - Write-offs 41,924 (39,095) (70,988) 72,997 (2,829) (2,009) (44,382) (64,450) 108,832 - - (857) New financial assets originated or purchased 578,000 8,492 17,068 - - - - - - - - 603,560 Financial assets that have been derecognised (354,739) (19,155) (13,082) (1,304) (388,280) Gross carrying amount as at 31 December 1,895,673 110,248 176,935 13,586 2,196,442 109 Financial risk management (continued) 3. (b) Credit risk (continued) 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. 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 Gross carrying amount PGK‘000 Loss allowance PGK‘000 Gross carrying amount PGK‘000 Loss allowance PGK‘000 Consolidated Year ended 2023 Year ended 2022 0-29 days 30-59 days 60-89 days 90-180 days More than 181 days Total 2,401,297 25,190 1,899,939 17,460 33,137 15,539 22,348 142,223 2,614,544 2,835 1,108 3,526 19,807 52,466 Parent 64,459 46,028 41,223 149,769 2,201,418 3,284 2,173 4,299 15,281 42,497 Loans and advances to customers Gross carrying amount PGK‘000 Loss allowance PGK‘000 Gross carrying amount PGK‘000 Loss allowance PGK‘000 Year ended 2023 Year ended 2022 0-29 days 30-59 days 60-89 days 90-180 days More than 181 days Total 2,398,277 25,190 1,896,229 17,460 32,921 15,459 22,342 141,549 2,610,548 2,835 1,108 3,524 19,144 51,801 64,401 45,964 41,112 148,736 2,196,442 3,284 2,173 4,271 14,291 41,479 110 Financial risk management (continued) 3. (b) Credit risk (continued) 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 Type of collateral held Mortgage lending LTDV ratio Consolidated Year ended 2023 Year ended 2022 Gross carrying amount PGK‘000 Gross carrying amount PGK‘000 Mortgage lending Personal lending Corporate lending Mortgage over residential property Mortgage over residential property / bill of sale Mortgage over commercial property Investment securities Sovereign guarantee Lease receivables Charge over property and equipment Bank guarantee and documentary letters of credit Charge over cash deposit In addition to the collateral included in the table above, the Group holds other types of collateral and credit enhancements, such as second charges, floating charges and guarantees for which specific values are not generally available. Mortgage lending The Group holds mainly residential properties as collateral for the mortgage loans it grants to customers. In some cases it does hold cash as collateral. It monitors its exposure to retail mortgage lending using a Loan To Discounted Value (LTDV) ratio. At origination, the Group lends based on a discounted collateral value which is calculated at 80% of the market value at that time. This becomes the Value definition for the LTDV. The Group then lends up to 100% of this Value. The following table reflects the exposure by ranges based on this methodology. The Group believes that this methodology provides further risk reduction in case of changes in market value. For credit-impaired loans the value of collateral is based on the most recent valuations. Less than 50% 68,556 67,922 51-75% 75-90% 90-100% 82,524 55,401 73,712 58,677 166,144 148,867 More than 100% 228,931 204,667 Total 601,556 553,845 Parent Year ended 2023 Year ended 2022 Gross carrying amount PGK‘000 68,556 82,524 55,401 Gross carrying amount PGK‘000 67,922 73,712 58,677 166,144 148,867 228,931 204,667 - - 601,556 553,845 Mortgage lending LTDV ratio Less than 50% 51-75% 75-90% 90-100% More than 100% Fully cash covered Total 111 Financial risk management (continued) 3. (b) Credit risk (continued) Consolidated Year ended 2023 Year ended 2022 Gross carrying amount PGK‘000 Gross carrying amount PGK‘000 7,899 12,278 7,631 4,927 23,846 56,581 9,501 14,806 9,082 6,829 31,602 71,820 Parent Year ended 2023 Year ended 2022 Gross carrying amount PGK‘000 Gross carrying amount PGK‘000 7,899 12,278 7,631 4,927 23,846 56,581 9,501 14,806 9,082 6,829 31,602 71,820 Credit impaired – Mortgage lending LTDV ratio Less than 50% 51-75% 75-90% 90-100% More than 100% Total Credit impaired – Mortgage lending LTDV ratio Less than 50% 51-75% 75-90% 90-100% More than 100% Total Personal lending The Group’s personal lending portfolio consists of secured and unsecured loans as follows: Consolidated and Parent Year ended 2023 Year ended 2022 PGK‘000 PGK‘000 601,556 553,845 88,812 59,467 690,368 613,312 Secured Unsecured Total 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 2023, 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. 112 Financial risk management (continued) 3. (b) Credit risk (continued) 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. The 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 2023, the portfolio of the corporate lending is fully collateralized by eligible collateral. Investment securities The Group holds Investments in Government Inscribed Stocks measured at amortised cost with a carrying amount of K157,554,061 (2022: K152,649,962) 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. Liquidity risk (c) Liquidity risk is the risk of being unable to meet financial obligations as they fall due. The Group’s liquidity and funding risks are governed by a policy framework which is approved by the Board of Directors. Liquidity and funding positions and associated risks are overseen by the ALCO. The following outlines the Group’s approach to liquidity and funding risk management focusing on conditions brought on by the current global economic environment: • ensuring the liquidity management framework is compatible with local regulatory requirements, • daily liquidity reporting and scenario analysis to quantify the Group’s positions, • targeting commercial and corporate customers’ liability compositions, • intense monitoring of detail daily reports to alert management and directors of abnormalities, and • arranging back up facilities to protect against adverse funding conditions and to support day-to-day operations. The Group is monitoring its liquidity contingency plans, lending requirements and guidelines which include: • the monitoring of issue severity/stress levels with high level diligence, • early warning signals indicative of an approaching issue and a mechanism to monitor and report these against signals, • action plans and courses of action to account for early warning signals as noted above, • management reporting at a higher level, • maintenance of contractual obligations in regards to deposits, and • assigned responsibilities for internal and external written communications. 113 3. (c) Financial risk management (continued) Liquidity risk (continued) Maturities of financial assets and liabilities The table below presents a maturity analysis of the Group’s financial liabilities including issued 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 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 31 December 2023 Cash and cash equivalents 396,840 - - Central bank bills 28,000 391,200 838,380 Regulatory deposits 433,274 - - Total financial assets 858,114 391,200 838,380 Due to other banks 13,912 - - - - - - - - - - 396,840 396,840 1,257,580 1,236,496 433,274 433,274 - 2,087,694 2,066,610 - 13,912 13,912 Due to customers 3,241,808 306,318 773,524 40,166 306 4,362,122 4,344,571 Other liabilities 118,831 - - - - 118,831 118,831 Total financial liabilities 3,374,551 306,318 773,524 40,166 306 4,494,865 4,477,314 Issued financial guarantee contracts Issued loan commitments Total 31 December 2022 9,650 951 16,232 39,152 48,802 - - 951 16,232 Cash and cash equivalents 433,488 - - Central bank bills 74,900 193,340 975,290 Regulatory deposits 383,083 - - Total financial assets 891,471 193,340 975,290 Due to other banks 2,060 - - - - - - - - - - Due to customers 2,782,132 396,063 714,868 5,114 Other liabilities 126,803 - - - - - - - - - 26,833 26,833 39,152 39,152 65,985 65,985 433,488 433,488 1,243,530 1,215,763 383,083 383,083 - 2,060,101 2,032,334 - - - 2,060 2,060 3,898,177 3,878,835 126,803 126,803 Total financial liabilities 2,910,995 396,063 714,868 5,114 - 4,027,040 4,007,698 Issued financial guarantee contracts 761 140 14,853 9,990 Issued loan commitments 229,800 - - - Total 230,561 140 14,853 9,990 - - - 25,744 25,744 229,800 229,800 255,544 255,544 114     3. (c) Financial risk management (continued) Liquidity risk (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 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 31 December 2023 Cash and cash equivalents 391,357 - - Central bank bills Regulatory deposits Due from subsidiaries 28,000 391,200 838,380 433,274 4,284 - - - - Total financial assets 856,915 391,200 838,380 Due to other banks Due to customers Other liabilities Due to subsidiaries 13,912 - - 3,276,024 306,318 773,524 40,166 306 4,396,338 4,368,599 114,149 43,899 - - - - - - - - 114,149 114,149 43,899 43,899 Total financial liabilities 3,447,984 306,318 773,524 40,166 306 4,568,298 4,540,559 Issued financial guarantee contracts Issued loan commitments Total 31 December 2022 9,650 951 16,232 39,152 48,802 - - 951 16,232 Cash and cash equivalents 397,376 - - Central bank bills Regulatory deposits Due from subsidiaries 74,900 193,340 975,290 383,083 38,113 - - - - Total financial assets 893,472 193,340 975,290 - - - - - - - - - - 391,357 391,357 1,257,580 1,236,496 433,274 433,274 4,284 4,284 - 2,086,495 2,065,411 - 13,912 13,912 - - - - - - - - - - - - - - - - 26,833 26,833 39,152 39,152 65,985 65,985 397,376 397,376 1,243,530 1,215,763 383,083 383,083 38,113 38,113 - 2,062,102 2,034,335 - - - - 2,060 2,060 3,916,301 3,896,958 122,090 122,090 30,507 30,507 Due to other banks Due to customers Other liabilities Due to subsidiaries 2,060 - - 2,800,256 396,063 714,868 5,114 122,090 30,507 - - - - - - Total financial liabilities 2,954,913 396,063 714,868 5,114 - 4,070,958 4,051,615 Issued financial guarantee contracts 761 140 14,853 9,990 Issued loan commitments 229,800 - - - Total 230,561 140 14,853 9,990 - - - 25,744 25,744 229,800 229,800 255,544 255,544 The liquidity gap in ‘up to 1 month’ bucket is due to the assumption that current and saving deposits amounting to K2,411m (31 December 2022: K2,127m) included within ‘due to customers’ mature within one month since these are on demand and do not have any fixed or determinable maturity. 115     4. Capital adequacy Kina Securities Limited (“KSL”) as the consolidated 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 institutions 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%,and 3) Leverage capital of 6%. As at 31 December 2023, KSL’s capital ratios were in compliance with the BPNG Minimum capital adequacy requirements as follows: 2023 PGK‘000 2022 PGK‘000 Risk weighted assets 2,516,916 2,080,590 Capital : tier 1 Capital : tier 2 379,868 326,605 136,426 142,496 Capital : tier 1 and tier 2 502,516 469,101 Capital adequacy ratios Tier 1 capital Total capital ratio 15.1% 20.0% 15.7% 22.5% Leverage capital ratio 7.6% 7.5% 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 in the 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. 116 5. Net interest income Interest income Cash and short-term funds Investments in Government Inscribed Stocks Loans and advances to customers Interest expense Banks and customers Net interest income 6. Net fee and commission income Fees and commission income Investment and portfolio management Fund administration Shares brokerage Loans fees and bank commissions Digital banking fees ATM and other transaction fees Fee and commission expenses Net fee and commission income 7. Dividend income Dividend income from investments Financial assets at fair value through profit or loss Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 45,232 13,993 194,115 253,340 (50,020) (50,020) 203,480 54,747 13,143 156,710 224,600 (43,389) (43,389) 181,211 44,506 13,993 194,115 252,614 (50,180) (50,180) 202,434 54,096 13,143 156,710 223,949 (42,991) (42,991) 180,958 Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 10,438 23,180 1,500 30,358 10,019 22,225 2,093 30,083 63,819 44,268 7,683 7,636 - - 914 30,358 63,819 7,401 136,979 116,324 102,493 (16) (110) (16) 136,963 116,214 102,477 - - 1,512 30,083 44,268 7,045 82,908 (110) 82,798 Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 660 660 469 469 40 40 74 74 117 8. Other income Profits from disposal of property and equipment Unrealised gains/losses Support fees from subsidiaries Management fees Other 9. Other operating expenses Staff costs Administrative expenses Depreciation and amortization Operating lease Software maintenance and support charges Auditor’s remuneration (note 35) Other Staff costs are detailed as below: Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 89 5,576 - - 3,474 9,139 249 2,638 - - 1,770 4,657 89 4,062 (88) (91) 3,473 7,445 249 3,064 3,657 470 1,750 9,190 Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 86,059 71,865 29,946 4,331 8,365 1,965 85,778 58,904 38,203 4,978 6,556 1,919 81,497 68,917 29,946 4,173 7,483 1,769 16,187 16,919 15,871 218,718 213,257 209,656 80,388 55,820 38,203 4,857 5,634 1,707 16,713 203,322 Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Salaries, wages and other benefits 80,534 79,510 76,148 74,339 Superannuation costs 3,726 3,991 Cost of employee share based incentive plan 1,799 2,277 3,550 1,799 3,772 2,277 Total staff costs 86,059 85,778 81,497 80,388 As at 31 December 2023, the Group had 718 employees (2022: 664) and 8 consultants (2022: 3). The Parent had 669 (2022: 615) employees and 3 (2022: 3) consultants. 118   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* (2022: 30%) Tax effect of: Permanent differences Prior year adjustment Impact of increase in tax rate on deferred taxes Income tax expense Represented by: Current tax Deferred taxes Income tax expense Consolidated Parent 2023 PGK‘000 175,539 74,662 2022 PGK‘000 148,418 44,525 (3,069) (1,017) (1,937) (243) - (10,415) 2023 PGK‘000 146,664 65,999 (2,900) (1,018) - 70,576 31,930 62,081 75,853 (5,277) 70,576 46,971 (15,041) 31,930 67,725 (5,644) 62,081 2022 PGK‘000 131,118 39,336 (1,986) (231) (10,415) 26,704 41,476 (14,772) 26,704 * 2023 Income tax rate applied on Parent: 45% and 30% for subsidiaries. In December 2022, during the PNG Government’s announcement of 2023 national budget, an increase in the corporate income tax rate from 30% to 45% on commercial banks was announced and is effective 1 January 2023. Accordingly, the Group applied corporate tax rate of 45% on the taxable income of the parent entity whereas the corporate tax rate for subsidiary entities to remain at 30%. 11. Deferred taxes (a) Net deferred tax assets where there is a right to offset: Allowance for losses Employee benefit provision Lease liability Depreciation and amortisation Others Net deferred tax asset Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 29,423 7,143 15,199 51,765 (15,590) (1,076) (16,666) 35,099 26,130 8,168 18,770 53,068 (20,597) (2,404) (23,001) 30,067 29,224 6,614 15,199 51,037 25,824 7,750 18,771 52,345 (15,590) (20,597) (829) (2,528) (16,419) (23,125) 34,618 29,220 119   11. Deferred taxes (continued) (b) The movement on deferred tax account is as follows: Balance at beginning of year Statement of comprehensive income credit/(charge) Transfer out DTA on SBP to equity Balance at end of year Represented by: Deferred tax assets (note 11(a)) Deferred tax liabilities (note 11(a)) 12. Cash and cash equivalents Cash on hand Exchange settlement accounts Due from other banks 13. Central bank bills Central bank and treasury bills Less than 90 days Over 90 days Unearned discount Consolidated Parent 2023 2022 2023 PGK‘000 PGK‘000 PGK‘000 30,067 5,032 - 16,988 15,106 (2,027) 29,220 5,398 - 35,099 30,067 34,618 51,764 51,041 (16,665) (20,974) 35,099 30,067 51,036 (16,418) 34,618 Consolidated Parent 2023 2022 2023 PGK‘000 PGK‘000 PGK‘000 173,876 168,972 53,992 396,840 151,370 160,392 121,726 433,488 173,876 168,972 48,509 391,357 Consolidated Parent 2023 2022 2023 PGK‘000 PGK‘000 PGK‘000 419,200 268,240 838,380 (21,084) 975,290 (27,767) 219,200 838,380 (21,084) 2022 PGK‘000 16,474 14,773 (2,027) 29,220 50,318 (21,098) 29,220 2022 PGK‘000 151,370 160,392 85,614 397,376 2022 PGK‘000 268,240 975,290 (27,767) Central bank bills are debt securities issued by the Bank of Papua New Guinea (BPNG) and are measured at amortised cost. 1,236,496 1,215,763 1,236,496 1,215,763 120 14. Regulatory deposits Regulatory deposit of the Group as at 31 December 2023 amounted to K433,273,700 (2022: K383,083,700). This represents the 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 amortised cost. Regulatory deposit of the parent as at 31 December 2023 amounted to K433,273,700 (2022: K383,083,700). 15. Financial assets at fair value through profit or loss Securities - Listed - Unlisted Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 4,878 30,938 35,816 4,910 10,352 15,262 196 30,909 31,105 184 10,324 10,508 The movement in financial assets at fair value through profit or loss is reconciled as follows: Balance at beginning of year Gains from changes in fair value Financial assets acquired during the year Balance at end of year Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 15,262 2,733 17,821 35,816 11,652 3,610 - 15,262 10,508 2,776 17,821 31,105 6,771 3,737 - 10,508 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. 16. Loans and advances to customers Loans to individuals Loans to corporate entities Consolidated Parent 2023 2022 2023 PGK‘000 PGK‘000 PGK‘000 693,446 613,312 693,446 2022 PGK‘000 613,312 1,921,098 1,588,106 1,917,102 1,583,130 Gross loans and advances to customers 2,614,544 2,201,418 2,610,548 2,196,442 Expected credit losses (note 3b) (52,466) (42,497) (51,801) (41,479) 2,562,078 2,158,921 2,558,747 2,154,963 121 16. Loans and advances to customers (continued) Details of gross loans and advances to customers are as follows: Overdrafts Property mortgage Asset financing Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 97,628 80,108 97,628 80,108 685,343 627,468 685,343 627,468 92,585 71,792 92,585 71,792 Business and other loans 1,738,989 1,422,050 1,734,993 1,417,074 2,614,544 2,201,418 2,610,548 2,196,442 Movements in expected credit losses are as follows: Balance at beginning of year Impairment losses during the year Loans written off Bad debt recoveries Balance at end of year Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 42,497 38,100 9,758 (288) 499 4,323 (857) 931 41,479 10,111 (288) 499 37,746 3,659 (857) 931 52,466 42,497 51,801 41,479 17. Investments in Government Inscribed Stocks Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Government Inscribed Stocks principal balance 160,000 155,000 160,000 155,000 Unamortised premium Unamortised discount Accrued interest Gross Investments in Government Inscribed Stocks Expected credit losses (note 3b) 258 (3,140) 2,738 159,856 (2,302) 157,554 333 (3,318) 2,866 154,881 (2,231) 152,650 258 (3,140) 2,738 159,856 (2,302) 157,554 333 (3,318) 2,866 154,881 (2,231) 152,650 122 17. Investments in Government Inscribed Stocks (continued) The movement in Investments in Government Inscribed Stocks is as follows: Balance at beginning of year Additions / (maturities) Amortised discount/(premium) Accrued interest Write back / (addition) of expected credit losses Consolidated Parent 2023 2022 2023 PGK‘000 PGK‘000 PGK‘000 2022 K ‘000 152,650 112,107 152,650 112,107 5,000 103 (128) (71) 40,000 893 243 (593) 5,000 103 (128) (71) 40,000 893 243 (593) 157,554 152,650 157,554 152,650 Investments in Government Inscribed Stocks are measured at amortised cost. Included within the balance is an amount of K nil (31 December 2022: Knil) 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) Kina Securities (Fiji) PTE Limited Total Investment at cost Provision for impairment Balance as at 31 December Shareholdings* 2023 2022 2023 2022 % 100 100 100 100 100 % Amount (PGK) Amount (PGK) 100 100 100 100 100 2 2 2 2 2 2 500,002 500,002 197 197 500,205 500,205 (251,677) (251,677) 248,528 248,528 * All the subsidiaries are incorporated in Papua New Guinea and in Fiji. The results of the operations of above subsidiaries have been consolidated in the Group’s financial statements. 123 19. Property, plant and equipment Consolidated Furniture & Fittings Building improvements Motor Vehicles Office Equipment Land & Building Work in Progress Right-of- use assets Total Cost PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 Balance 31 December 2021 Additions Transfer in (out) Disposals Balance 31 December 2022 Additions Transfer in (out) Disposals Balance 31 December 2023 Accumulated depreciation 4,810 22,792 4,840 51,225 2,129 2,270 71,507 159,573 4 - - 1,044 2,132 538 - - (1,132) 7,748 - (79) - - - 1,297 3925 14,556 (2,132) - - - (11,259) (12,470) 4,814 25,968 4,246 58,894 2,129 1,435 64,173 161,659 23 - - 1,300 3,447 2,893 441 - - (453) - - - - - 73 (441) 952 8,688 - - - (4,180) (4,633) 4,837 27,709 7,240 61,787 2,129 1,067 60,945 165,714 Balance 31 December 2021 Charge during the year Disposals Balance 31 December 2022 Charge during the year Disposals Balance 31 December 2023 Book value Balance 31 December 2023 Balance 31 December 2022 (3,156) (8,012) (3,765) (25,980) (594) (2,653) (746) (5,932) - - 1,132 35 (3,750) (10,665) (3,379) (31,877) (546) (2,414) (1,063) (6,609) - - 453 - (4,296) (13,079) (3,989) (38,486) - - - - - - - - - - - - - - (28,193) (69,106) (12,144) (22,069) 11,188 12,355 (29,149) (78,820) (9,348) (19,980) 4,587 5,040 (33,910) (93,760) 541 14,630 3,251 23,301 2,129 1,067 27,035 71,954 1,064 15,303 868 27,017 2,129 1,435 35,024 82,839 124 19. Property, plant and equipment (continued) Parent Cost Balance 31 December 2021 Additions Transfer in (out) Disposals Balance 31 December 2022 Additions Transfer in (out) Disposals Balance 31 December 2023 Furniture & Fittings Building improvements Motor Vehicles Office Equipment Land & Building Work in Progress Right-of- use assets Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 4,810 22,792 4,840 51,225 2,129 2,270 71,507 159,573 4 - - 1,044 2,132 538 - - (1,132) 7,748 - (79) - - - 1,297 3,925 14,556 (2,132) - - - (11,259) (12,470) 4,814 25,968 4,246 58,894 2,129 1,435 64,173 161,659 23 - - 1,300 3,447 2,893 441 - - (453) - - - - - 73 (441) 952 - 8,688 - - (4,180) (4,633) 4,837 27,709 7,239 61,787 2,129 1,067 60,946 165,714 Accumulated depreciation Balance 31 December 2021 Charge during the year Disposals Balance 31 December 2022 Charge during the year Disposals Balance 31 December 2023 Book value Balance 31 December 2023 Balance 31 December 2022 (3,156) (8,012) (3,764) (25,980) (594) (2,653) (746) (5,932) - - 1,132 35 (3,750) (10,665) (3,378) (31,877) (546) (2,414) (1,063) (6,609) - - 453 - (4,296) (13,079) (3,989) (38,486) - - - - - - - - - - - - - - (28,194) (69,106) (12,144) (22,069) 11,188 12,355 (29,150) (78,820) (9,346) (19,979) 4,587 5,040 (23,908) (93,759) 541 14,630 3,250 23,300 2,129 1,067 27,037 71,955 1,064 15,303 867 27,017 2,129 1,435 35,024 82,839 125 20. Intangible assets Consolidated Cost Balance 31 December 2021 Additions Transfer in (out) Disposals Balance 31 December 2022 Additions Transfer in (out) Disposals Software PGK‘000 59,075 1,907 1,945 62,927 1,013 506 Customer deposit relationship / intangible Work in Progress Total PGK‘000 PGK‘000 PGK‘000 22,468 - - 22,468 - - 9,348 1,546 (1,945) (3,475) 5,474 4,069 (506) - 90,891 3,453 - (3,475) 90,869 5,082 - - Balance 31 December 2023 64,446 22,468 9,037 95,951 Accumulated depreciation Balance 31 December 2021 Charge during the year Balance 31 December 2022 Charge during the year Balance 31 December 2023 Book value Balance 31 December 2023 Balance 31 December 2022 (24,294) (11,614) (35,908) (9,967) (45,875) 18,571 27,019 (17,934) (4,533) (22,468) - (22,468) - - - - - (42,228) (16,147) (58,376) (9,967) (68,343) - - 9,037 5,474 27,608 32,493 126 20. Intangible assets (continued) Parent Cost Balance 31 December 2021 Additions Transfer in (out) Disposals Balance 31 December 2022 Additions Transfer in (out) Disposals Software PGK‘000 59,075 1,907 1,945 - 62,927 1,013 506 - Customer deposit relationship Work in Progress Total PGK‘000 PGK‘000 PGK‘000 22,468 - - - 22,468 - - - 9,049 1,546 (1,945) (3,176) 5,474 4,069 (506) - 90,592 3,453 - (3,176) 90,869 5,082 - - Balance 31 December 2023 64,446 22,468 9,037 95,951 Accumulated depreciation Balance 31 December 2021 Charge during the year Disposals Balance 31 December 2022 Charge during the year Disposals (24,294) (11,614) - (35,908) (9,967) - (17,934) (4,534) - (22,468) - - Balance 31 December 2023 (45,875) (22,468) - - - - - - - (42,228) (16,148) - (58,376) (9,967) - (68,343) Book value Balance 31 December 2023 Balance 31 December 2022 18,571 27,019 - - 9,037 5,474 27,608 32,493 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 was fully amortised in 2022. 127 21. Other assets Prepayments Security deposits and bonds Card Settlement accounts Other debtors Less: Expected credit losses Consolidated Parent 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 9,895 31,303 50,496 42,125 133,819 (3,990) 129,829 5,631 9,180 33,873 34,975 83,659 (3,990) 79,669 9,845 31,255 50,496 38,081 129,677 (3,990) 125,687 5,615 9,132 33,873 32,217 80,837 (3,990) 76,847 Movement of expected credit loss on other assets is as follows: Balances at beginning of year (3,990) (3,990) (3,990) (3,990) Write-off Balance at end of year - - - - (3,990) (3,990) (3,990) (3,990) 22. Due to customers Corporate customers Retail customers Consolidated Parent 2023 2022 PGK‘000 PGK‘000 3,335,288 3,072,938 2023 PGK‘000 3,359317 2022 PGK‘000 3,091,061 1,009,283 805,897 1,009,282 805,897 4,344,571 3,878,835 4,368,599 3,896,958 23. Current income tax (assets) liabilities Balance at beginning of year Paid during the year Current provision Prior year under provision Balance at end of year Net current income tax (assets) liabilities are represented by: Current income tax asset Current income tax liability 128 Consolidated Parent 2023 PGK‘000 4,196 (68,506) 76,788 (1,017) 11,461 (137) 11,597 11,461 2022 PGK‘000 11,666 (54,506) 47,279 (243) 4,196 2023 PGK‘000 5,130 (62,516) 68,736 (1,018) 10,332 2022 PGK‘000 11,494 (47,839) 41,706 (231) 5,130 (952) 5,148 4,196 - 10,332 10,332 - 5,130 5,130     24. Employee provisions Consolidated 2023 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 2023 Represented by: Short term provisions Long term provisions Total employee provision Opening balance Additions Payments Closing balance PGK‘000 PGK‘000 PGK‘000 PGK‘000 4,663 4,745 1 4,702 14,111 3,842 1,099 57,257 7,898 70,096 2023 (3,476) 3 (57,305) (6,968) (67,746) 5,029 5,847 (47) 5,632 16,461 Opening balance Additions Payments Closing balance PGK‘000 PGK‘000 PGK‘000 PGK‘000 4,342 4,197 1 4,177 12,717 3,550 1,114 54,026 7,434 66,124 (3,402) (2) (54,077) (6,662) 4,490 5,309 (50) 4,949 (64,143) 14,698 Consolidated Parent 10,614 5,847 16,461 9,389 5,309 14,698 129 24. Employee provisions (continued) Consolidated 2022 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 2022 Represented by: Short term provisions Long term provisions Total employee provision Opening balance Additions Payments Closing balance PGK‘000 PGK‘000 PGK‘000 PGK‘000 4,306 2,251 - 4,349 10,906 4,933 2,623 55,406 7,313 70,275 2022 (4,576) (129) (55,405) (6,960) (67,070) 4,663 4,745 1 4,702 14,111 Opening balance Additions Payments Closing balance PGK‘000 PGK‘000 PGK‘000 PGK‘000 3,944 1,902 - 3,956 9,802 4,712 2,424 51,538 6,875 (4,314) (129) (51,537) (6,654) 4,342 4,197 1 4,177 65,549 (62,634) 12,717 Consolidated Parent 9,366 4,745 14,111 8,520 4,197 12,717 130 25. Lease Liabilities Details of associated lease liabilities recognised in respect of the right of use assets are presented below: Consolidated 31 December 2023 31 December 2022 Maturity analysis – contractual undiscounted cash flows PGK‘000 PGK‘000 Less than one year One to five years More than five years Total undiscounted lease liabilities Lease liabilities included in statement of financial position Current Non-current Amounts recognised in statement of comprehensive income Interest on lease liabilities Expense relating to short-term leases Amounts recognised in statement of cash flows Total cash outflow for short-term lease Total cash outflow for leases 10,829 26,871 1,066 38,766 10,992 22,783 33,775 2,805 8,474 11,279 8,381 11,838 11,732 32,289 5,364 49,385 11,872 29,841 41,713 3,522 8,024 11,546 8,024 11,349 Parent 31 December 2023 31 December 2022 Maturity analysis – contractual undiscounted cash flows PGK‘000 PGK‘000 Less than one year One to five years More than five years Total undiscounted lease liabilities Lease liabilities included in statement of financial position Current Non-current Amounts recognised in statement of comprehensive income Interest on lease liabilities Expense relating to short-term leases Amounts recognised in statement of cash flows Total cash outflow for short-term lease Total cash outflow for leases 10,829 26,871 1,066 38,766 10,992 22,783 33,775 2,805 8,148 10,953 8,058 11,838 11,732 32,289 5,364 49,385 11,872 29,841 41,713 3,522 7,777 11,299 7,777 11,349 131 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 2023 2022 2023 2022 PGK’000 PGK‘000 PGK’000 PGK‘000 26,295 17,322 10,473 4,736 310 - 35,305 24,390 27,344 17,663 10,420 6,493 521 3,442 30,301 30,619 25,389 17,322 10,473 4,681 310 - 35,305 20,669 26,995 17,663 10,420 6,347 521 3,442 30,301 26,401 118,831 126,803 114,149 122,090 27. Issued and paid ordinary shares (a) Movement The Company does not have authorised capital and ordinary shares have no par value. The table below provides the annual balances in share capital. Balance as at 31 December 2021 Share issued during the year Balance as at 31 December 2022 Share issued during the year Balance as at 31 December 2023 Number of shares Share capital PGK‘000 286,936 - PGK‘000 394,693 - 286,936 394,693 - - 286,936 394,693 (b) Earnings per share Basic earnings per ordinary share is calculated by dividing the net profit attributable to shareholders by the weighted average number of ordinary shares on issue during the year. The group has no significant dilutive potential ordinary shares. Consequently, basic earnings per ordinary share equals diluted earnings per share. Net profit attributable to shareholders – K’000 Weighted average number of ordinary shares basic earnings Weighted average number of ordinary shares diluted earnings Basic earnings per share (in toea) Diluted earnings per share (in toea) 132 Consolidated 2023 104,963 286,936 289,093 36.67 36.39 2022 116,488 286,936 288,695 40.60 40.35 27. Issued and paid ordinary shares (continued) (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 100% of any award granted is paid in cash except for the CEO&MD where 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 2023: Date of grant Number of share rights granted Market value at grant date Vesting date Vesting conditions 1 April 2023 338,448 AUD 265,072 1 April 2025 1 April 2022 849,901 AUD 658,408 1 April 2024 Continued service Continued service Long term incentive plan (LTI plan) The LTI plan provides participants with an opportunity to receive an equity interest in Kina through the granting of performance rights. LTI plan participants may be offered performance rights that may be subject to vesting conditions as set out by the Board. The selection of participants is at the discretion of the Board. A performance right is a contractual right to receive one ordinary share in Kina, subject to performance and vesting conditions being met. Each vested performance right represents a right to one ordinary share. If the participant leaves Kina any unvested Performance Rights will be forfeited (unless the Board determines otherwise). The following LTI plan arrangements were in place during the year ended 31 December 2023: Date of grant Number of share rights granted 1 April 2023 1,345,023 1 April 2022 1,297,727 1 April 2021 1,339,664 Market value at grant date AUD 1,053,424 AUD 1,006,516 AUD 1,152,341 Fair value at grant date Vesting date AUD 571,635 1 April 2026 AUD 629,398 1 April 2025 AUD 811,805 1 April 2024 Vesting conditions 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 2023 under the LTI plan was AUD 0.43, compared to the grant date market value per share of AUD 0.783. 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 Retention awards are no longer applicable or awarded in the ordinary course of business. 133 Issued and paid ordinary shares (continued) 27. (c) Share-based payment reserve (continued) Movement in outstanding share rights Outstanding rights at beginning of year New rights granted Rights vested and shares issued/purchased Outstanding rights at end of year Consolidated 2023 Number 5,035,388 1,683,471 2022 Number 4,164,980 2,146,628 (1,489,096) (1,276,220) 5,229,763 5,035,388 The fair value at grant date of share rights awarded under the incentive schemes is recognised 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 Deferred tax asset on share based payment Total Consolidated 2023 PGK’000 2,477 2,073 (1,529) (245) 2,776 2022 PGK’000 3,587 2,277 (1,360) (2,477) 2,477 28. Statements of cash flows (a) For the purposes of the statements of cash flow, cash and cash equivalents comprises the following: Consolidated Parent 2023 PGK‘000 396,840 396,840 2022 PGK‘000 433,488 433,488 2023 PGK‘000 391,357 391,357 2022 PGK‘000 397,376 397,376 Cash and cash equivalents (note 12) (b) Movement in investment securities is as follows: Central bank bills Government Inscribed Stocks Financial assets at FVTPL 134 Consolidated 2022 Movement 2023 PGK‘000 1,229,813 157,579 35,816 PGK‘000 1,215,763 152,650 15,262 1,423,208 1,383,675 PGK’000 14,050 4,929 20,554 39,333   28. Statements of cash flows (continued) (c) Reconciliation of net profit after tax for the year to net cash flows from operating activities is presented below. Net profit after tax Profit from disposal of property and equipment Depreciation and amortisation (Premium)/ Discount amortisation Share-based payment expense Net losses/ (gains) from changes in fair values of financial assets Dividend income on equity investments Interest income on convertible notes Impairment losses-loans and advances to customers Foreign translation loss/ (gain) on Nostro bank account Increase/(decrease) in current tax liability Increase/(decrease) in deferred tax balances (Increase)/decrease in assets Increase/(decrease) in liabilities Consolidated Parent 2023 PGK‘000 104,964 (89) 29,946 103 2,073 (2,733) (660) (620) 9,900 (2,175) 7,264 (5,032) 2022 PGK‘000 116,488 (249) 38,203 893 2,277 (3,610) (469) - 4,825 3,845 (7,469) (15,106) 2023 PGK‘000 84,583 (89) 29,946 103 2,073 (2,776) (40) (620) 10,215 (1,825) 5,201 (5,399) 2022 PGK‘000 104,414 (249) 38,203 893 2,277 (3,737) (74) - 4,160 791 (6,363) (14,772) (513,234) (421,194) (466,946) (375,570) 469,811 871,248 476,115 842,575 Net cash inflow generated from operating activities 99,518 589,682 130,541 592,548 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 2023, 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 2023, the total remuneration of the Directors was PGK4,209,303 (2022: PGK4,142,855). Key management personnel (KMP) of the group includes directors and the executive general managers (EGMs) during the year. 135 29. Related party transactions (continued) (a) Directors and management transactions (continued) The table below shows the Group specified EGM remuneration in aggregate (in K’000). No of KMP Salary Bonus Super Equity Options Other benefits Total 2023 2022 11 10,297 3,543 184 544 1,694 16,262 11 9,597 3,433 289 917 1,720 15,956 (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 (2022: 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 2023 2023 2022 2022 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 PGK‘000 KFM KISS KWM KNL KSL Fiji 193 - - - - - 915 - - - 1,151 2,286 - - - - 221 - - - 193 915 3,437 221 - - 714 64 - 778 35,340 - 356 64 - (7,359) (36,540) - (30,507) - - - - - - 35,760 (43,899) (30,507) 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 2023 2022 2023 2022 PGK‘000 PGK‘000 PGK‘000 PGK‘000 6,941 6,941 12,963 12,963 6,901 6,901 4,200 4,200 136 31. Segment reporting The segment information provided to the Chief Operating Decision Maker for the reportable segments for the year ended 31 December 2023 is as follows: Banking & Finance Wealth Management Total PGK‘000 PGK‘000 PGK‘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 expense Profit before tax Income tax expense Profit after tax Total assets Total assets include: 252,454 (50,020) 51,363 102,478 10,442 366,717 (179,712) (10,215) (29,946) (219,873) 146,844 179 - 147,023 (62,081) 84,942 5,165,719 886 - (21) 34,485 2,090 37,440 (9,060) 315 - 253,340 (50,020) 51,342 136,963 12,532 404,157 (188,772) (9,900) (29,946) (8,745) (228,618) 28,695 175,539 - (179) 28,516 (8,495) 20,021 179 (179) 175,539 (70,576) 104,963 13,615 5,179,334 Additions to non-current assets Total liabilities 12,817 (4,599,364) - 12,817 (60,353) (4,539,011) Banking and finance segments include the operations of Kina Bank while Wealth Management includes fund management and fund administration business. 137     31. Segment reporting (continued) The segment information provided to the management for the reportable segments for the year ended 31 December 2022 is as follows: Banking & Finance Wealth Management Total Interest income Interest expense Foreign exchange income Fee and commission income Other revenue Total external income Other operating expenses Provision for impairment Depreciation and amortisation Total external expenses Profit before inter-segment revenue and expenses Inter-segment income Inter-segment expense Profit before tax Income tax expense Profit after tax Total assets Total assets include: PGK‘000 224,348 (43,389) 61,843 82,799 8,876 334,477 (165,120) (4,160) (38,203) (207,483) 126,994 4,127 - 131,121 (26,705) 104,416 PGK‘000 PGK‘000 252 - (1,504) 33,415 (140) 32,023 (9,934) (665) - 224,600 (43,389) 60,339 116,214 8,736 366,500 (175,054) (4,825) (38,203) (10,599) (218,082) 21,424 148,418 - (4,127) 17,297 (5,225) 12,072 4,127 (4,127) 148,418 (31,930) 116,488 4,621,333 55,688 4,677,021 Additions to non-current assets Total liabilities 14,084 (4,061,592) - 14,084 (6,126) (4,067,718) There is only one segment for the Parent entity and the information is the same as the primary statements. 138     32. Contingent liabilities 34. Fair value of financial assets 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 2023, 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. 33. Commitments Capital commitments There was a total of PGK1,890,694 relating to commitments under contracts for capital expenditure at balance sheet date (31 December 2022: PGK2,793,486). Loan commitments There was a total of PGK39.2m relating to loan commitments at balance sheet date (31 December 2022: PGK229.8m). 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. 139 34. Fair value of financial assets and liabilities (continued) 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 2023. Investment securities measured at FVTPL - Investment in securities – Listed - Investment in securities – Unlisted Total assets Investment securities measured at FVTPL - Investment in securities – Listed - Investment in securities – Unlisted Total assets Consolidated Level 1 Level 2 Level 3 Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 4,878 - 4,878 - - - - 30,938 30,938 4,878 30,938 35,816 Parent Level 1 Level 2 Level 3 Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 196 - 196 - - - - 30,909 30,909 1196 13,088 31,105 The following tables present the Group’s and the parent’s assets and liabilities that are measured at fair value at 31 December 2022. Assets Level 1 Level 2 Level 3 Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 Consolidated Investment securities measured at FVTPL - Investment in shares – Listed - Investment in shares – Unlisted Total assets 4,910 - 4,910 - - - - 10,352 10,352 4,910 10,352 15,262 Parent Assets Level 1 Level 2 Level 3 Total PGK‘000 PGK‘000 PGK‘000 PGK‘000 Investment securities measured at FVTPL - Investment in shares – Listed - Investment in shares – Unlisted Total assets 184 - 184 - - - - 10,323 10,323 184 10,323 10,508 140 34. Fair value of financial assets and liabilities (continued) Reconciliation of level 3 fair value measurements of financial assets and financial liabilities The group holds investment in unlisted securities amounting to PGK30,937,556 (31 December 2022: PGK10,351,782) in level 3 category. During the year, there were additions or disposals in these securities. The increase is primarily attributable to the addition of WLTH convertible Note. The parent holds investment in unlisted securities amounting to PGK30,909,269 (31 December 2022: PGK10,323,495) in level 3 category. During the year, there were additions or disposals in these securities. The increase is primarily attributable to the addition of WLTH convertible Note. Financial instruments not measured at fair value For the financial instruments not measured at fair value as at 31 December 2023 and 2022, there is no material difference between the fair value and carrying value of the Group’s and the Parent’s financial assets and liabilities. 35. Auditors’ remuneration Audit and audit related Consolidated 2023 2022 PGK‘000 PGK‘000 1,965 1,965 1,919 1,919 Parent 2023 2022 PGK‘000 PGK‘000 Audit and audit related 1,769 1,707 Other services - - 1,769 1,707 36. 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 was an excellent fit for its expansion program. The goodwill arising on this acquisition was recorded at PGK92.8 million. 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. For the purpose of impairment test, goodwill is allocated to the Group’s banking business as an independent cash generating unit (CGU). The banking CGU including goodwill was tested for impairment as at 31 December 2023 by comparing the CGU’s carrying amount with its recoverable amount and no impairment loss was recognised. The recoverable amount is determined based on a value-in-use calculation which uses post-tax cash flow projections based on financial budgets approved by the directors discounted by a cost of equity of 18% (2022: 16%) applicable to banking business. Given a banking business is generally valued on equity basis, the use of post-tax cash flows and discount rate is considered more appropriate. The projected cash flows cover a period of 5 years beyond which they are extrapolated using an estimated terminal growth rate of 3% (2022: 3%) which does not exceed the long-term average growth rate for the market in which the Group operates. Cash flows during the forecast period are derived from approved budgets, and assume an average growth rate in net profit after tax (NPAT) over the forecast period of 12.2% (2022: 10.2%), which is consistent with the rolling average growth rates over the last 3-5 year period and is driven by growth in the interest-bearing assets, foreign exchange income, and banking fees income, whilst retaining a controlled cost-to-income base. 141 37. Events after reporting date Declaration of dividend Subsequent to the financial reporting date, the directors declared a final dividend of K15.9 toea (AUD 6.0 cents) per share (K45.5m). 36. Goodwill (continued) Sensitivity analysis Under above assumptions, the estimated recoverable amount of the CGU exceeds its carrying amount by K90 million. The Group has conducted an analysis of sensitivity of the impairment test to changes in the key assumptions used to determine the recoverable amount. The directors believe that the following represent reasonably possible changes in the key assumptions on which the recoverable amount of the banking CGU is based would result in the carrying amount to exceed its recoverable amount: • If all other assumptions remain the same, should the discount rate be increased to 20.1%, the carrying value will exceed the recoverable amount by K1 million. • If all other assumptions remain the same, should the average NPAT growth rate be reduced to 9.2%, the carrying value will exceed the recoverable amount by K1million. During the prior year, the corporate income tax was increased from 30% to 45% effective 01 January 2023. The increase had a significant impact on the cash flows used in the value-in-use calculations and consequently on the recoverable amount. Throughout the year, the Group has been assessing its strategic response to the change which include intense focus on loan growth, repricing of loans and deposits, maximising investment of surplus funds in available market instruments, reviewing fees and commissions, and cost control. Where practical and appropriate, some short-term measures have been implemented, and more strategic action has been taken in the normal course of business, as evidenced by the growth in lending and loan interest spread, and the decline in the cost to income ratio. Business development efforts continue in the area of foreign exchange client relationships with targeted efforts on large importers and exporters in key industries, where revenue potential is set to build as the large natural resource projects proceed along their implementation path. Whilst these strategic developments are expected to produce positive impacts on the cash flows, the Group has not fully incorporated the effect of these positive impacts on the cash flow projections used in the estimation of recoverable amount. 142 Navigate. Challenges. 143143 Shareholder Information. 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 of 28 March 2024. (a) The distribution of holders of quoted securities (fully paid ordinary shares) Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total % No. of holders Securities 313,446 3,339,133 6,094,457 71,223,083 205,965,781 0.11 1.16 2.12 24.82 71.78 286,935,900 100.00 528 1,157 771 2,147 308 4,911 (b) The distribution of holders of unquoted securities (performance rights) Range 1 to 1,000 1,001 to 5,000 5,001 to 10,000 10,001 to 100,000 100,001 and over Total Securities % No. of holders - - - 145,070 5,084,693 - - - 2.77 97.23 5,229,763 100.00 - - - 2 11 13 (c) Number of holders for each class of equity securities on issue Class of equity security Securities No. of holders No. of holders Quoted securities (fully paid ordinary shares) Unquoted securities (performance rights) 286,935,900 5,229,763 4,911 13 - - % 10.75 23.56 15.70 43.72 6.27 100.00 % - - - 15.38 84.62 100.00 % - - (d) Unmarketable Parcel of Shares The number of shareholders holding less than a marketable parcel of ordinary shares is 206, holding 46,184 securities. (e) Substantial Shareholders Name Number of shares % of total shares issued HSBC Custody Nominees (Australia) Limited 34,340,890 11.97 (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. 144 (h) 20 largest holders of quoted securities (fully paid ordinary shares) Rank Name 1 HSBC Custody Nominees (Australia) Limited 2 HSBC Custody Nominees (Australia) Limited (Asian Development Bank A/C) Number of shares 34,340,890 10,751,916 3 Comrade Trustee Services Limited (DFRBF A/C) 4 Citicorp Nominees Pty Limited 5 Mineral Resources CMCA Holdings Limited 6 Pacific Markets Pty Ltd 7 Sky Finance Limited 8 BNP Paribas Nominees Pty Ltd (DRP) 9 J P Morgan Nominees Australia Pty Limited 10 ROCKCAR Pty Ltd (RCR FAMILY A/C) 11 Capital Nominees Limited 12 Airwolf Limited 13 BNP Paribas Nominees Pty Ltd (IB AU NOMS RETAILCLIENT DRP) 14 Kina Asset Management No 1 Limited 15 Mr Ivan Lu 16 Gas Resources PNG LNG Plant Limited 17 Creabird Pty Ltd (EM A/C) 18 PNG Lending Consultants Ltd 19 GEAT Incorporated (GEAT-PRESERVATION FUND A/C) 20 Garmaral Pty Ltd Total Top 20 Balance of Register Total fully paid ordinary shares on issue % of total shares issued 11.97 3.75 2.77 2.29 1.85 1.76 1.70 1.64 1.58 1.39 1.31 1.01 0.97 0.87 0.82 0.75 0.61 0.57 0.55 0.53 7,951,328 6,568,414 5,312,834 5,044,258 4,876,147 4,705,093 4,520,361 4,000,000 3,766,217 2,885,390 2,769,020 2,507,128 2,345,172 2,139,037 1,756,568 1,627,891 1,570,500 1,532,615 110,970,779 175,965,121 286,935,900 38.67 61.33 100.00 (i) On-market buy-back There is no current on-market buy-back. (j) Securities purchased on-market during the reporting period To satisfy the entitlements of holders of performance rights under the Kina Performance Rights Plan 871,109 $0.72 Number of shares purchased Average purchase price 145 10Corporate Directory. Directors Isikeli Taureka (Chairman) Greg Pawson (CEO) Karen Smith-Pomeroy Dr Jane Thomason Paul Hutchinson Andrew Carriline Richard Kimber Company Secretary Johnson Kalo Share Registry Papua New Guinea PNG Registries Ltd Level 4, Cuthbertson Haus PO Box 1265, Port Moresby Papua New Guinea Telephone: (675) 321 6377 Facsimile: (675) 321 6379 Email: brenda.igo@linkgroup.com Australia Link Market Services Limited Level 21, 10 Eagle St Brisbane QLD 4000 Telephone: 1300 554 474 (within Australia) +61 1300 544 474 (outside Australia) Auditor Deloitte Touche Tohmatsu Ltd Level 9 Deloitte Haus MacGregor St 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 Head Office Level 9, Kina Bank Haus Douglas St PO Box 1141, Port Moresby National Capital District 121 Papua New Guinea Telephone: +675 308 3888 or +675 308 3800 Alotau Branch Lae Market Branch Chascorp Haus, Section 10, Allotment 9, Office 6, Ground Floor, Alotau PO Box 723, Alotau Milne Bay Province Papua New Guinea Business Centre Harbour City Portion 13 Section 44 Allotment 30 Off Poreporena Freeway PO Box 1141, Port Moresby 121 National Capital District Papua New Guinea Digital Hub Elisio Rainbow Shopping Mall Port Moresby 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 Papua New Guinea Hides Branch Block 8 – HGDC Para Camp, Tari, 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 Kina Bank Centre Level 1, Kada Gunan Building Habour City PO Box 1141, Port Moresby National Capital District Papua New Guinea Kokopo Branch Peter Torot Street, Tabubar Kokopo, PO Box 419, Kokopo East New Britain Province Papua New Guinea 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 Block 830, Wide Rd, Londolovit PO Box 223, Lihir New Ireland Province 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 Drive PO Box 1141, National Capital District 121 Papua New Guinea Waigani Cameron Rd Branch Cnr Waigani Dr and Cameron Rd PO Box 252, Waigani 131 National Capital District 121 Papua New Guinea Waigani Drive Branch Cnr Waigani and Islander Dr PO Box 1141, Port Moresby National Capital District 121 Papua New Guinea Wewak Branch Centre St, PO Box 1069, Wewak 531 East Sepik Province Papua New Guinea 146 147147 11| Annual Report A digital version of this report can be accessed via investors.kinabank.com.pg/investors 

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