Who Are We? 2 Our Vision 2 Our Mission 2 Notice of the Meeting 3 Corporate Information : ECFH Ltd 4 Group Structure: Organogram 6 Corporate Profile 6 Performance Against Benchmarks - 2003 7 Performance Targets – 2004 7 Financial Highlights – 2000-2003 8 Chairman’s Report 10 Governance of ECFH 13 Report of the Directors 14 Board Members & Profile 16 Group Managing Director’s Report 18 ECFH Group Senior Management Structure 21 ECFH Group Management Profile 22 Management Discussion & Analysis 25 Connecting With Our People 34 Our Services 36 Subsidiary Reports 39 Financial Reporting Responsibilities 51 Consolidated Audited Financial Statements for ECFH Group 52 10 18 24
Transcript
Who Are We? 2Our Vision 2Our Mission 2Notice of the Meeting 3Corporate Information : ECFH Ltd 4Group Structure: Organogram 6
Corporate Profile 6Performance Against Benchmarks - 2003 7Performance Targets – 2004 7Financial Highlights – 2000-2003 8Chairman’s Report 10Governance of ECFH 13Report of the Directors 14Board Members & Profile 16Group Managing Director’s Report 18ECFH Group Senior Management Structure 21ECFH Group Management Profile 22Management Discussion & Analysis 25Connecting With Our People 34Our Services 36 Subsidiary Reports 39Financial Reporting Responsibilities 51 Consolidated Audited Financial Statements for ECFH Group 52
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Our Vision
Our Mission
Who are We?
The ECFH Group is the product of a 2001 merger of three financial institutions, thelargest commercial bank in the country, the sole development bank and a jointlyowned property holding company. The merger objectives were to provide a broaderrange of banking, financial and related services than was previously provided at a costand level of efficiency lower than could ever be provided by these institutions oper-ating independently. Today, the Group enjoys a 40% share of the banking market anddominates in many areas. It has the objectives of encouraging and mobilizing savings,serving as an efficient financial intermediary in the financing of commercial, personaland development loans, offering relevant financial products and services for the needsof the economy, promoting economic development, facilitating the growth of the nas-cent capital market, fostering entrepreneurship, and taking a lead in positively influ-encing the financial sector in particular, and the economy in general.
• To be customer-focused, innovative and efficient.
• To be the preferred provider of superiorfinancial products and services through caring, professional staff and appropriate technology.
• To exceed shareholder expectations and be a catalyst for development.
• Global Growth from Local Roots.
Notice of Third Annual General Meeting
Notice is hereby given of the Third Annual General Meeting of the East Caribbean FinancialHolding Company Limited, to be held on Thursday, May 27, 2004, commencing at 4:00 p.m., at the National Insurance Corporation Conference Room, Francis Compton BuildingWaterfront, Castries, Saint Lucia for the following purposes:
1. To receive the address by the Chairman to Shareholders2. To receive the Management Report 3. To receive the Reports of the Auditors and the Directors, and to consider the
Audited Financial Statements for the Year ended December 31, 20034. To announce Dividends for the 2003 Financial Year5. To appoint Auditors and Authorise Directors to fix the remuneration
of the appointed Auditors6. To transact any other business as may be properly brought before the meeting
BY ORDER OF THE BOARD
Estherlita CumberbatchCorporate Secretary
NOTE:
PERSONS ENTITLED TO NOTICE
In accordance with Section 108(2) of the Companies Act of Saint Lucia No. 19 of 1996, theDirectors of the Company have fixed April 08, 2004 as the Record Date for the determinationof shareholders who are entitled to receive Notice of the Annual Meeting. Only shareholderson record at the close of business on April 27, 2004 are therefore entitled to receive Notice ofthe Annual Meeting.
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Registered Office: No. 1 Bridge Street,and Postal Address P O Box 1860,
Legal Counsels: Francis & Antoine ChambersFinancial Centre Building, #1 Bridge StreetCastries, Saint Lucia
Caribbean Law Office99 Chaussee Road,P O Box 835Castries, Saint Lucia
Affiliations: Member of:Caribbean Association of Indigenous BanksEastern Caribbean Institute of BankingCaribbean Access User GroupSaint Lucia Bankers Association Saint Lucia Chamber of CommerceSaint Lucia Employers FederationSaint Lucia Hotel & Tourism Association
Regulators: Eastern Caribbean Central BankEastern Caribbean Securities ExchangeMinistry of FinanceFinancial Services Supervisory Unit – Saint Lucia
External Auditors: PriceWaterhouseCoopersChartered AccountantsP O Box 195Castries, Saint Lucia
ECFH Group Corporate Information
National Commercial Bank of Saint Vincent LimitedP.O. Box 880Kingstown, St.Vincent
St. Kitts, Nevis, AnguillaNational BankChurch StreetP. O. Box 343Basseterre,St. Kitts
Eastern Caribbean Central BankP.O. Box 89Basseterre,St. Kitts
National Commercial Bankof Dominica Limited
64 Hillsborough StreetRoseau,Dominica
National Commercial Bank of Grenada LimitedCnr. Hillsborough & Halifax StreetsP.O. Box 57St. George’s,Grenada
= Net Income before Taxes $16,498 $3,815 $17,048 $15,771
- Taxes $1,295 $295 $3,224 $3,214
- Minority Interest $19 $12 $20 –
= Net Income after Taxes $15,184 $3,507 $13,804 $12,557
Balance Sheet
Cash and $159,000 $134,313 $82,064 $60,320
+ Investments $178,618 $105,350 $67,665 $73,408
+ Loans $576,854 $585,187 $602,201 $555,514
+ Other $67,435 $62,068 $70,221 $54,558
= Total Assets $981,908 $886,918 $822,150 $743,799
Deposits $667,099 $603,773 $546,816 $488,644
+ Borrowings $167,415 $165,310 $150,389 $144,694
+ Capital $111,938 $98,753 $98,515 $83,378
+ Other Liabilities $35,457 $19,082 $26,430 $27,083
= Total Liabilities $981,908 $886,918 $822,150 $743,799
Other Information
Book Value of Ordinary Shares $7.78 $7.73 $8.14 $6.38
Average Market Value of Ordinary shares $7.50 $6.50 $7.25 –
Earnings per Ordinary Share $0.99 $0.23 $1.21 $0.96
Dividends per Ordinary Share $0.53 $0.12** $0.75 $0.71
Provisions as % of Portfolio 7.68% 6.65% 5.12% 5.18%
Provisions as % of Non-performing portfolio 32.80% 29.14% 32.51% 34.55%
** In 2002 there was a bonus issue of 3 ordinary shares for every 20 ordinary shares held
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Chairman’s Letter To The Shareholders
Despite the challenges of a liberalized economic and competitive environment, we are happy to report that the Groupwas not only able to consolidate on its position of strength but it was able to register significant growth and diversifi-cation. By the end of 2003, we had surpassed virtually all of our performance goals and objectives.This we view as acommendable achievement given the effects of fluctuating levels of economic activity and competitive maneuvering onthe Group’s business growth, delinquency and profitability levels.
Preliminary estimates of Gross Domestic Product indicate a moderate rate of economic growth of 3.71% in 2003 com-pared to 0.43% in the previous year.The strong performances of the Tourism, Services and Communications sectorswere mainly responsible for this increase. However, this expansion in economic activity did not seem to have the desiredimmediate impact on investor confidence level as it was accompanied by significant increases in the level of unem-ployment. As a result, the liquidity levels remained high throughout the review period, a situation that was compound-ed by a reduction in the number of lucrative investment prospects available locally. Consequently, domestic competi-tion intensified, not so much for new investment opportunities but for the business of existing high net worth cus-tomers of competitors. In the process, there were drastic reductions in the overall interest rates in most markets par-ticularly the residential mortgage market where competition was most intense.The effect of these was manifested inreduced spreads and profitability levels in the industry.
Despite the above, the Group has been able to recover substantially from its meager pre-tax profit level of $3.8 millionin 2002 to record an impressive $16.5 million in 2003, an increase of 400%. It must be noted that 2002 was an abnormalyear where the results were significantly influenced by the implementation of requirements of the International AccountingStandard 39. The asset base of the Group was slightly under EC $1 billion by the end of the period under review. Allmajor financial ratios and risk measurements recorded substantial improvements while the returns to shareholdersincreased significantly. For the year 2003, the Board of Directors have declared a final dividend of 38 cents per sharebringing the total dividend declared and paid for 2003 to 53 cents.This translated to a return of 10.6% on the originalprice of the share.
The foundations of our success during the period were three areas: Growth and Diversification, Forging of StrategicAlliances and Improved Customer Care.
Growth and diversification was a critical factor in our success as it provided a much-needed source of revenue diver-sification at a time when our traditional sources of revenue faced serious challenges. Increased investments in sovereignpaper available on the Eastern Caribbean Stock Exchange and the Eastern Caribbean Regional Government SecuritiesMarket have produced significant interest income with less costs of administration. Additionally, the Group is expand-ing into private banking and insurance industry which is expected to provide greater diversification.
Although the Group has had significant accomplishments in the period under review, it is not becoming complacent.The Group is fully aware that in order to survive in a liberalized environment it will have to establish strong links withother companies.To this end, the Group has forged strategic alliances with a number of companies to provide expert-ise that does not currently exist in the Group. The major alliance was with the Republic Bank Limited, one of theCaribbean’s largest and longest standing Banking Institutions with subsidiaries in Barbados, Grenada, Guyana, TheDominican Republic, Trinidad and Tobago and off-shore banks in the CaymanIslands and Barbados. The bank’s US$4 billion asset base and its highly qualifiedstaff provide the foundation for its strong leadership position in the Caribbean,where it continues to earn significant goodwill.Through this alliance, the oppor-tunity is created for increased training and exchange of technology which oth-erwise would be extremely expensive to access.We are currently exploring thepossibility of utilizing this alliance to help strengthen and expand our activitiesin the area of investment banking.We see this as a lucrative area that is criticalto the development of the financial landscape of the Eastern Caribbean. Thegroup has also established a partnership with the Grace Kennedy Group fromJamaica in the establishment of an insurance company.
In the area of customer care, our objective was to help customers becomefinancially sound.This objective proved challenging given the wide-ranging cus-tomer segments that transact business with the Group, each placing uniquedemands on the Group. As the nation’s bank, we believe strongly that it is ourduty to continue to serve all nationals who need banking services.Consequently, our customer base has been increasing as a number of our com-petitors employed exit strategies for certain customer segments during thereview period.The Group embraced these new customers and adjusted, imple-menting new or upgrade existing systems to meet the increased volume oftransactions.This we believe is a necessary cost we must bear for the develop-
We believe that we have astrong Group that has thenecessary foundation to con-tinue with this record of suc-cess, maintain our position of dominance and takeadvantage of new emergingopportunities... We have aneager and energetic manage-ment team and staff comple-ment who are focused onimproving our core strengthsand building deeper, moreprofitable customer andcommunity relationships.
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ment of our people and country.
The year 2003 was not without its share of problems. As with most mergers, it usually takes three to five years for thenew organization to settle down, and we were no exception. Management of the human resources proved challeng-ing during the review period as the resolution of some critical industrial relations issues was more involved and timeconsuming than was originally anticipated. We are happy to report that all major issues were resolved amicably andwithout any retrenchment at the Bank. We value our employees’ contribution to our performance in 2003 and wethank them for their dedication to serving our customers.
In 2003, community participation remained a priority for the Group as we contributed to charitable causes and com-munity events. Our efforts in those areas were recognized by the Eastern Caribbean Central Bank with an award toBank of Saint Lucia Limited of the prize for the best community outreach program in the OECS.We see ourselves notonly as the nation’s bank but also as an active corporate citizen that plays a significant role in the community.
We believe that we have a strong Group that has the necessary foundation to continue with this record of success,maintain our position of dominance and take advantage of new emerging opportunities.We have a Board of Directorswith diverse backgrounds, each Director making significant contributions to the progress of the Group.We would liketo place on record our appreciation and sincere thanks to Mr. Louis Greenidge who served as the representative ofthe Barbados National Bank and Mrs.Thecla Deterville who represented the Government of Saint Lucia as the ViceChairman of the Board. Both of these Directors have retired after serving with distinction from privatization of the for-mer National Commercial Bank of Saint Lucia in 1999. It was a pleasure to have had their expertise and experienceincorporated in the decision making of the Group.We have an eager and energetic management team and staff com-plement who are focused on improving our core strengths and building deeper, more profitable customer and com-munity relationships.
Victor EudoxieChairman
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Governance of East Caribbean Financial Holding Company Limited
The Board of Directors of East Caribbean Financial Holding Co. Ltd. is responsible for the governance of the Group. It deter-mines the goals, direction, policies and strategies of the Group. However, the implementation of such policies and strategiesand the day to day administration of the Group’s operations within the framework determined by the Board of Directors isthe responsibility of the Group Managing Director. The Board of Directors also reviews operational performance and isrequired to approve loans that exceed specified thresholds. The Managing Director of the Group is the Chief ExecutiveOfficer of the Group and is responsible for managing the operation of the Group and reporting to the Board of Directors.The Board of Directors comprises 11 directors of whom 10 are appointed or elected and one, the Managing Director, is anex-officio appointment.
Shareholders or groups of related shareholders are entitled to (and must) appoint one director for each 10% of sharehold-ing held by them. Groups, of related shareholders can form agreements to achieve the 10% required to appoint a director.Any shareholder appointing a director will not be entitled to vote at the election of the remaining directors with respect tosuch 10% shareholding.
At least eight of the ten appointed and elected Directors must agree to the appointment of the Managing Director. At leastnine of the eleven Directors must agree the appointment of the Chairman.
The Chairman and elected directors shall have a term of three years but can be removed from office in accordance withstatutory regulations and requirements. Appointed Directors can be removed from office either in accordance with statuto-ry requirements and regulations or with three months notice from the shareholders they represent.
Directors must satisfy statutory requirements, agree to comply with ECCB and other regulatory provisions and guidelines on theirfiduciary responsibilities; have competencies, qualifications and/or experience in accounting, banking, business, economics, finance,law, marketing, management and or a professional discipline relevant to the Groups’ Business; and have either participated in a rec-ognized seminar on the "Role of the Board of Directors" or do so, at the Groups’ expense, within 12 months of appointments.
As far as is possible, Board decisions shall be by consensus, failing which most decisions shall be by a simple majority of the members present except in the following situations where the approval of at least 8 directors is required:• An amendment to the Articles of By-laws• A merger or amalgamation with another company• A sale transfer, or purchase of property or assets in excess
of 20 % of the aggregate book value of the Group’s assets • A borrowing or encumbrance, or capital expenditure in excess
of 10% of the booking value of the Group’s assets• Entering into an agreement that has a term exceeding five years• Entering into an agreement out of the ordinary course of business• Providing financial assistance to any shareholder out of the ordinary course of business.
The Companies Act requires a special approval of shareholders (66.7%) for certain fundamental changes to the Bank. These include, among other things, altering Articles to:• Change the authorized numbers of shares• Create a new issue of shares• Change or remove rights, privileges, restrictions of shares
Divide a class of shares• Change the number of Directors
The Companies Act also provides shareholders with the right to sell shares back to the Company where such shareholdersvote against certain fundamental changes which are nevertheless implemented, The Group shall comply with these requirements.
The frequency of Board meetings shall be determined by the Board of Directors.
The Board shall have three committees to assist with its work; Audit, Human Resources and Credit. The Audit Committee isto oversee the audit and supervision of the day to day operations of the Bank and to consider the audit reports preparedby the Internal Audit and Inspection Department, the ECCB, and the external auditors. This Committee is also responsiblefor setting policies and procedures which safeguard the Bank’s operation, conform to the rules and regulation of ECCB andestablished banking procedures and ensuring compliance with local banking legislation where the legislation is by way ofstatutes or otherwise. The Credit Committee is responsible for approving credit application in excess of Management’s lim-its or in instances where it is not possible to await the decision of the entire Board. The Human Resource Committee isresponsible for monitoring human resource issues and developments including remuneration, appointments, and performanceappraisal of Senior Management.
The Board of Directors shall not delegate matters requiring special approvals to any of its Committees.
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Report of the Directors
The Directors have pleasure in submitting their Report for the Financial Year ended December 31, 2003.
Consolidated Financial Results and Dividends
Profit attributed to Shareholders 15,202,032Transfer to Statutory Reserve 3,036,839Transfers to General Reserves 3,824,454Transfer to East Caribbean Student Loan Guarantee Fund 427,120
Interim 1,908,519Preference 903,000Minority Interest 18,740Ordinary Final 4,834,914
Directors Francis Henry and Carey Harris retire by rotation in accordance with the OECS Banks Shareholder GroupAgreement.
Director Lawrence Poyotte, the representative of the National Insurance Corporation on the Board, resigned inAugust 2003 and was replaced by Mr.Vern Gill.
The Government of Saint Lucia, which held 28.7% of the Group’s Ordinary Shares, sold 8.7% of their ordinary shareholding or 8.7% of the Group’s Ordinary Shares to Republic Bank of Trinidad and Tobago. In addition, the BarbadosNational Bank, which held 11.31% of the shares, sold their entire holding to Republic Bank. As a result, RepublicBank owns a total of twenty percent (20.01%) of the Group and has two seats on the Board of Directors repre-sented by Mr. George Leonard Lewis and Jacqueline Quamina. Mr. Louis Greenidge, the Barbados National Bank rep-resentative resigned effective February 11, 2004.
As a result of the sale by the Government of Saint Lucia, the number of seats held on the board has been reducedfrom three to two, and Director Thecla Deterville, one of the government appointed directors, has resigned.The government’s representatives on the board are now Mr.Victor Eudoxie and Mr.Trevor Brathwaite.
Auditors
The Auditors, PriceWaterhouseCoopers, retire and being eligible, offer themselves for re-appointment. TheDirectors have agreed to recommend the re-appointment of PriceWaterhouseCoopers as Auditors of theCompany. In accordance with Section 162 (i) of the Companies Act, 1996 the term of the appointment will extendfrom the close of the One Annual General Meeting until the next annual meeting of the Company.
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Directors InterestThe interests of the Directors holding office at the end of the Company’s Financial Year in the Ordinary Shares of the Company were as follows:-
Director Beneficial
Victor Eudoxie 1,150Hildreth Alexander NilThelca Deterville NilLouis Greenidge NilEmma Hippolyte 3,127Henry Mangal 1,150Trevor Brathwaite 230Vern Gill NilFrancis Henry 3,687Carey Harris NilMarius St. Rose 26,008
There has been no change in these interests occurring between the end of the Company’s Financial Year and one month prior to the date of the Notice convening the First Annual Meeting.
At no time during or at the end of the Financial Year has any Director had any material interests in any contract or arrangement in relation to the business of the Company or any of its subsidiaries.
Substantial Interest in Share Capital
A substantial interest is a holding of 10% or more of the issued capital of the Company.
The following are disclosures of holdings of the ten (10) largest shareholders of the Company as at December 31, 2003.
Preference Shares: National Insurance Corporation – 100% of the issued and outstanding shares.
Ordinary Shares: Government of Saint Lucia 20.20%Republic Bank Limited 20.01%National Insurance Corporation 10.85%Antigua Commercial Bank 4.37%St.Vincent & the Grenadines National Insurance 3.62% National Commercial Bank of St.Vincent & the Grenadines 3.62%National Commercial Bank of Dominica 3.62%Life of Barbados Limited 2.64%Bank of Saint Lucia Pension Fund 2.26%St. Kitts, Nevis, Anguilla National Bank 1.81%
Shareholder Relations
Shareholder Relations is an important function of the corporate secretariat. The shares of the East CaribbeanFinancial Holding Company Limited (ECFH) have been listed on the Eastern Caribbean Securities Exchange (ECSE)from October19, 2001. As a result, all shares are traded on the exchange and records maintained in accordancewith the regulations of the Exchange. A total of 2,191,642 shares were traded during the 2003 financial year.
As the issuer of the shares, the ECFH has the responsibility to ensure that all necessary information is communi-cated to shareholders on a timely basis and that dividends are paid in accordance with the dividend policy approvedby the Board of Directors.
Estherlita CumberbatchCorporate Secretary
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Marius St. Rose
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Group Managing Director’s Report
The Group’s financial and operational performance for 2003 was a remarkable improvement over the previous year’sabnormally low performance. Profit after tax attained a level of $15.2 million compared with $3.5 million for the priorperiod. Consequently, as the rest of the report will show, all the main corporate performance aggregates and moni-toring ratios were significantly better than the previous year.This achievement was attained in a very competitive busi-ness and banking environment where increased savings and reduced borrowings led to liquidity management challengesin an operating medium that was, and still is, characterized by reduced interest rates on both loans and investments;and where global factors, contributing to domestic, economic difficulties posed serious threats to portfolio quality.Moreover, management’s efforts to rationalize internal operations did contribute to some positive and negative oper-ational dislocations.
The Group embarked upon a number of organizational, institutional and operational initiatives during the year.The mostsignificant initiative was an Organisational Transformation exercise facilitated by external consultants that was aimed atimproving the Group’s structure, systems and procedures to deliver friendly, customer-oriented and cost-effective serv-ice. An important department with the portfolio of Business Process and Systems Improvement has been establishedwith the responsibility of keeping the Group’s systems and procedures under continuous review and following bestpractice for our situation.Training has been an important activity in this transformation exercise.We not only encour-age staff to pursue professional and academic training but have developed and delivered a number of internal coursesdesigned to improve the quality of our management and service.We have also now got to the stage where our mini-mum salaries are at the average of the banking industry and we are, consequently, making every effort to ensure thatproductivity is at least commensurate with this compensation.
At the institutional level, the Group worked on establishing two subsidiaries; namely: EC Global Insurance Company,and Bank of Saint Lucia International. Both are expected to be fully operational and available to provide service to thepublic by the first half of 2004.
The first company, which will provide life and general cover to our customers who desire the service and to the pub-lic at large, is to be established as a joint venture with interests in Jamaica and the OECS, with ECFH being the major-ity shareholder.The objective is to develop an efficient and respected domestic insurance company that could provideessential cover not currently provided locally, and to do this cost-effectively and seamlessly with other Group services.The value proposition will be a broader range of insurance products and services offered competitively with reliability,efficiency and convenience.
Bank of Saint Lucia International is being established with a very experienced and profes-sional management team to attract private deposits. It will adopt internationally prudentstandards in its operations and has been mandated to try to be a best practice in this lineof business which has been the subject of much controversy.
The Property Company has been expanding its asset base, rationalizing and upgrading itsproperty holdings and endeavouring to make more optimal use of its real estate assets.
During the year, the Group paid a great deal of attention to improving its operations interms of both its product and service delivery. Our already customer-acclaimed wide rangeof products was reviewed with a view to refreshing them to increase their relevance andappeal to our customers. In addition, some new exciting and interesting products designedto benefit persons who are conscious of the need to prepare early for their retirement ortheir future pursuit of tertiary education, and for persons desirous of home ownership, arein the course of development for unrolling during 2004.With these products we intend toencourage not only national savings, but to invite our customers and other Saint Luciansto focus very early on preparing for the three major and critical investments of their lives:higher education – the cost of which is becoming increasingly beyond the reach of manyof us to finance exclusively from borrowed funds; a comfortable home; and for our sunsetyears or retirement – a period which is being extended either through increasing longevi-ty and/or a shorter working life.
In terms of service delivery much was done, and is continuing, to improve the convenience for our customers. Ouroperations are being streamlined to ensure that the waiting time for our customers is dramatically reduced either onthe teller lines, the automated teller machines, or in the processing, decision-making and disbursement of loans. OurInvestment Banking Department is fully operational and is now one of the most active and recognized in the OECS.
I need to say a word about our development banking activities.There was a great deal of enquiry for medium to long-term finance for development and expansion projects in the areas of tourism, tertiary education, agriculture, particu-larly for bananas (irrigation and farm re-establishment) and agricultural diversification, mining and residential mortgages.Those that were well-conceived, as demonstrated through feasible and realistic business plans were financed by us.Many enquiries were not entertained largely because the promoters had weak management and marketing arrange-
At the institutional level, the Group worked on establishing two subsidiaries; namely: EC Global InsuranceCompany, and Bank of Saint Lucia International. Both are expected to befully operational and available to provide service to the public by the first half of 2004.
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ments and either too limited equity in the projects and/or an unwillingness to seek outside equity even from ourProductive Sector Equity Fund. In short, many projects could not go ahead largely because of weak management, mar-keting, and inappropriate financing structures in an economic environment that was challenging at best and where manybusinesses were adopting a cautious wait-and-see attitude.This was clearly manifested in the savings behavior of thecorporate and business sector which had a significant and unprecedented increase in their deposit balances with thebanking system.
The Group intensified its recovery efforts and had some success.This activity is perceived by some to be negative, butis actually developmental and essential. As a result of our efforts in this area, we were able not only to recover depos-itors’ and lenders’ funds that could then be recycled into new lending activity, but also to get properties that were idleback into activity which generated output, employment and foreign exchange, all for the benefit of Saint Lucia.
In addition, to the extent that we are successful in recovering depositors and lenders funds, we are then able to reduceour cost of future lending and to continue lending, since the Group will not be able to mobilize funding if depositorsand lenders feel that their funds would not be available on schedule or recoverable. Our recovery efforts will be inten-sified and we intend to take whatever measures are necessary to recover funds that were either deposited or loanedto us and which we lent out.
The Group is working assiduously to position itself to exploit the advantages of liberalization, to realize its vision of"Global Growth from Local Roots" and to derive the potential from its "East Caribbean" name. Much has been donebut a lot more needs to be done.The commitment and dedication displayed by all to the vision and goals give us theconfidence that we will overcome, succeed and even excel.
I wish to take this opportunity to thank the Board of Directors for their guidance, vigilance, diligence and policy direc-tion and to the Management and Staff for their enthusiasm, sacrifice, toil and devotion to achieving the goals and forequipping themselves to become even better professionals in their various spheres of endeavour within the Group.Finally, I wish to thank our many shareholders and customers who have empathized and remain loyal to us even at thetimes that we have not met their expectations.We look forward to the continuing support and understanding of all aswe promise to meet and even exceed your expectations – soon.
Marius St. Rose Group Managing Director
“In terms of service delivery much was done, andis continuing, to improve the convenience for ourcustomers. Our operations are being streamlinedto ensure that the waiting time for our customersis dramatically reduced either on the teller lines,the automated teller machines, or in the processing,decision-making and disbursement of loans. ”
CUSTOMER SERVICE
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MANAGEMENT DISCUSSION AND ANALYSIS
Overall, the financial results achieved for 2003 were generally satis-factory in spite of disruptions caused by the continuing restructuringof the Group and volatility of the externalenvironment.Consolidated net profit before taxes for the year end-ing December 31, 2003 amounted to $16.5 million which comparedfavourably with $3.8 million recorded in 2002.
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MANAGEMENT DISCUSSION AND ANALYSIS
The year 2003 was a robust year for the East Caribbean Financial Holding Group of companies during which it facedchallenges on many fronts.The precautionary attitude of investors continued to reduce the number of new investmentopportunities locally.The increase in deposits in the face of reduced demand for loans and significant increases in liq-uidity fueled an interest rate war among financial institutions.This situation was compounded by fluctuation in the levelof economic activity. Notwithstanding the volatile external environment, the Group began a process of organisationaltransformation and renewal as it attempted to position itself to meet the challenges of a liberalized environment.This,in addition to improved fiscal management, resulted in a significant rebound in 2003 after profits had plummeted in2002 as a result of large provision to compensate for the deteriorating portfolio quality.
Financial Review and Analysis - Income Statement
Consolidated net profit before taxes for the year ending December 31, 2003 amounted to $16.5 million which com-pared favourably with $3.8 million recorded in 2002. While the targets for interest income did not materialize, man-agement’s efforts at cost control, including management of the average cost of funds and other operating expenditure,increased non-interest revenue and more aggressive efforts at collection of non-performing loans all contributed to arelatively satisfactory return for the review period.
Net interest income for the review period was recorded at $37.8 million, accounting for 44% of total revenue, whichamounted to $86.3 million at December 31, 2003. Total interest income of $71.1 million collected in 2003 represent-ed an increase of only 4% over the amount collected in the same period of the previous year. Growth in this area wasmainly attributed to increases in interest income from investments that accounted for 17% of interest income and pastdue interest income on non-productive loans of $5.6 million, contributing 8% to total interest income.This indicatesthe extent of the success of the Group’s investment strategies for excess liquidity and the challenges encountered withdomestic lending.
Non-interest income activities accounted for 17.6% of total income with a total of $15.2 million. Non-interest incomerecorded a 49% growth over the previous financial year, reflecting the Group’s efforts to diversify its revenue generat-ing activities.Although income from commissions and fees was recorded below the previous financial year, income fromforeign exchange activities totaled $7.1 million, a 145% increase over the previous year.
Interest expense showed an improvement at 4.3% below the amount recorded for the previous financial year, in spiteof a 10% growth in total customer deposits.This is the direct effect of the reduction in interest rates during the sec-ond quarter of the financial year in response to depressed market conditions.Average cost of funds (including the costof borrowings) was 4.2% for 2003 compared with 4.75% in the previous year.
Total non-interest expenses (operating expenses and provisions) reached $35.5 million at the end of the period underreview, compared with $38.9 million at December 31, 2002. Staff costs at December 31, 2003 of $16.6 million account-ed for 45% of total non-interest expenses. This was mainly due to the adjustment of salaries to meet industry stan-dards, implemented in October, but made retroactive to May 2003. Other administrative costs were mainly attributedto the costs of professional fees paid to consultants engaged in the restructuring process. Provision for loan impairmentwas significantly lower than the previous year amounting to $6.8 million or 10% of total expenses, which comparedfavourably with $12.9 million recorded in the previous year. The exercise to review collateral for impaired loans andmake provisions in conformity with Internal Accounting Standards resulted in additional provisions; in particular, formortgage and student loans.
As expected, the profitability ratios calculated before any taxation reflected very favourable improvements in 2003compared to the previous year. Return on assets improved to 1.63% from 0.41% recorded in the previous year.Similarly, return on equity reached 14.4% at the end of 2003 compared to 3.6% in 2002.
The efficiency ratios showed significant improvement over the previous year although not quite at benchmark levels.The Group’s efficiency ratios with provision and without provisions for 2003 were 67% and 54% respectively, comparedwith 91% and 62% in the previous year.
Overall, the financial results achieved for 2003 were generally satisfactory in spite of disruptions caused by the con-tinuing restructuring of the Group and volatility of the external environment.The table below provides an indication ofearnings for the past three financial years.
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Actual Actual ActualDec 03 Dec 02 Dec 01
$mil $milInterest income 71.1 68.4 68.9Interest expense 33.3 34.8 30.8Net interest income 37.8 33.6 36.1Non-interest income 15.2 10.1 10.8Non interest expense 35.5 38.9 28.7Net income before taxes 16.5 3.8 17.0
Total income 86.3 78.5 79.7Total expenditure 69.8 75.0 62.7
Financial Analysis - Balance Sheet
At December 31, 2003,Total Assets recorded a growth of 10.7%, increasing to $982 million from 2002 level of $887million, notwithstanding the overall contraction that was experienced in the loan portfolio, the largest revenue gener-ator for the Group. However, signs of growth in the portfolio were noticeable in the last quarter of the financial year.Asset quality was still a major challenge for the Group and consequently, it has continued with its on-going process ofreviewing its credit risk management processes to cope with this challenge.The negative growth of the loan portfolioresulted in a significant amount of excess funds that were placed in regional securities and various earning deposits atother banks. Investments, inclusive of treasury bills, increased by 57% from the previous year, while funds held at otherbanks in earning instruments increased by 42%.The high volume of commercial activity at the end of the year resultedin high levels of cash and Central Bank balances at December 31, 2003.
The net loan portfolio recorded a small negative growth of 1%, due mainly to reduced number of bankable projectsduring the year and increased competition in the domestic market.The gross loan portfolio at the end of the periodunder review reached $625.4 million, while the portfolio, net of allowances for loan losses and deferred interest incomeon discount loans, was recorded at $566.6 million.Total provision for loan losses at December 31, 2003 was 7.7% ofthe total loan portfolio and 32.7% of the non-productive loan portfolio. Competition in the mortgage sector was par-ticularly fierce as competitors targeted existing credit-worthy customers by offering inducements of significantlyreduced interest rates. Notwithstanding, the Group was able to maintain its market share in all loan categories duringthe review period.To complement its efforts in this area significant emphasis was placed on the Group’s recovery ofnon-performing loans, as well as the strengthening of credit risk policies to cope with the dictates of the market.Average interest earned on loans was 10.4% inclusive of earnings from past due interest collected.
Liquidity was relatively high for the Group throughout 2003. Liquid assets, cash, Central Bank and other bank balancesand deposits were 25% of Total Deposits while Loans/Deposits & Borrowings was 68% at the end of the review peri-od. Earnings from Group investments (excluding investment properties) amounted to $11.3 million or 12% of totalincome, compared with $6.9 million or 8% of total income in the previous year.The investment portfolio consists main-ly of securities from the regional market, particularly Government bonds. The Asset/Liability Committee, establishedduring the year under review, has played a vital role in monitoring liquidity and investments as well as interest rate sen-sitivity and other aspects of asset and liability management.
Total customer deposits amounted to $667 million, recording a 10.5% growth from the previous year.Time deposits,although still accounting for 50% of total deposits, declined from 55% in 2002. By comparison, demand deposits andsavings deposits accounted for 17% and 33% of total deposits respectively.The average cost of total deposits was 3.81%,compared to 4.58% in the previous financial year.
Borrowings increased by 1.3% to $167 million. Utilization of the various lines of credit available from the CaribbeanDevelopment Bank and the European Investment Bank were restrained by the precautionary attitude prevalent amongdomestic investors which reduced the level and quantity of investment projects available for financing. The Group iscurrently reviewing this area to ensure that its borrowings are in line with current economic and market trends to avoidincurring unnecessary holding costs.
Financial Analysis – Market ShareThe Group embarked on a deliberate policy to maintain the most favourable interest rate regime on deposits in themarket causing significant increases in all categories of deposits. Consequently, the Bank was able to improve on itsalready dominant position in the Market.The Group share of the industry’s total deposits increased by 1 percentagepoint to 34% in 2003, due mainly to a 3-percentage point increase in the Group’s share of time deposit to 44%.TheGroup’s share of the industry’s savings and time deposits increased slightly notwithstanding the significant growth wit-nessed in this area in 2003.This indicates the extent of the liquidity levels in the industry.
In the loan market, the Group was able to record some growth in its market share in spite of the contraction of itsportfolio. In 2003, the Group share of the industry loans was 34% as compared to 33% registered for the corre-
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sponding period of the previous year.This is a direct reflection of the state of the economy and competition. At theend of December 2003, the Group’s share of industry assets remained relatively constant at 37%.
Analysis of the market share by economic sector for 2003 indicated that the Group’s share of loans to each sector issubstantial. At the end of December 2003, the Group accounted for more than 75% of the loans granted to agricul-ture and fisheries. In the areas of manufacturing, distributive trades, tourism, entertainment, professional services andpublic utilities, Group share of loans to those sector exceeded 30%. In the retail sector, the Group has influenced thedurable consumer goods market by providing 43% of the loans granted to individuals for that purpose. Overall, for theyear 2003, the Group was successful in improving its dominant position in the market.
Risk AnalysisThe evaluation of the Group’s risk is relative to the impact on capital and earnings. Risk is the potential that events,expected or unanticipated, may have an adverse impact on the Bank’s capital or earnings. Over the past two years riskmanagement has been accorded greater priority by Management of the Group.The full risk management system is stillbeing formulated and emphasis is currently being placed on Credit Risk, which is assessed as the most critical area forthe Group. It is anticipated that a full integrated Risk Management System will be in place by December 2004, to includepolicies, guidelines procedures for monitoring, analyzing, identifying and mitigating risks in all areas for the Group.
Transactions RiskA number of initiatives were implemented in the year 2003 to address various risk areas including upgrading the corebanking system, significant training of staff in the Bank’s core software and other areas, establishment of a BusinessSystem and Process Improvement department to review systems and document procedures, re-assignment of staff inkey areas of competencies and restructuring of the Marketing department.
Management has commenced responding to risks associated with operational changes, systems development, andemerging technologies.The Administration department is currently developing systems to adequately provide for con-tinuity and reliability of significant services furnished by outside providers.
The Group placed increased emphasis on the implementation of controls to mitigate risks from new products/servic-es and planned strategic initiatives introduced.The establishment of the Programme Management and Support Officeis expected to assist in reducing associated risk. The Risk Management department began implementing a review sys-tem for all new products.
In the area of technology, expertise is available in the Information Management & Technology Services (IMTS)Department or out-sourced services where necessary to evaluate technology-related issues. MTS staff also underwentsignificant training to meet the demands of the department.The department, together with the Programme Office, hassecured an arrangement for review and needs analysis of system specification for new computer software to deter-mine suitability for the Group.
Strategic RiskThe objective in this area during the review period was to ensure consistency with the strategic issues confronting theGroup.To this end, a number of the interventions with various consultants were undertaken during 2003 to assist inreshaping the mission, vision, goals and objectives of the ECFH Group. Management is committed to successfully accom-plishing the strategic vision and mission and has for the most part, demonstrated the ability and technical expertise toimplement goals and objectives, and successful implementation of strategic initiatives outlined.
Other Strategic initiatives including the establishment of Bank of Saint Lucia International and EC Global InsuranceCompany Limited are not likely to alter the core business direction materially. Implementation of all strategic initiativeduring the review period was efficient, cost effective and within Management’s abilities.Where expertise was not avail-able, the Group established external alliances to supplement internal capability.
Compliance RiskThe Group maintained a satisfactory record of compliance to regulatory and other external requirements and con-tracts as it relates to the Anti-Money Laundering, Memorandum of Understanding with the Central Bank and report-ing requirements of the Eastern Caribbean Securities Exchange.
Management fully understands the aspects of compliance risk and exhibited a clear commitment to compliance. Thecommitment was communicated and enforced throughout the institution. Authority and accountability are defined.Management anticipates and generally responds to changes of a market, technological, or regulatory nature.
While compliance may not be formally considered when developing products and systems, issues are typicallyaddressed before or during implementation. Management was generally responsive to deficiencies identified. Legal andlitigation concerns were investigated and legal opinions obtained where necessary.The probability of serious future vio-lations or noncompliance was within acceptable tolerance.
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Credit RiskThe level of loans (net) and investments (credit-equivalent exposures) relative to total assets and capital were calcu-lated at 77% and 654% respectively. Approximately 82 % of the Group’s revenue was dependent on income from loanand investment activities.The Group had high loans-to-assets and loans-to-equity ratios and depended heavily on therevenues from credit activities resulting in a high quantity of credit risk.
Collateral requirements for new loans were stringent during the year under review, but the implementation of IAS 39illustrated the need for the Group to review its policy in this area. The Risk Management Department commencedreview of loans above $500,000. During 2004 the review will be extended to loans above $100,000.The Departmenthas also commenced sample review of a general nature for all loans approved. Loan aggregation and trend analysisintroduced in 2003, will help determine the effect on portfolio quality. Credit analysis to appropriately identify key risksareas is currently ongoing and should be completed by the end of the first quarter of 2004.
The Group was not unduly exposed to one or more large concentrations while individual concentrations did notexceed regulatory limits except in the case of internal subsidiary borrowings.
Interest Rate RiskDuring the calendar year 2003, mismatches on longer-term positions existed but were not critical. Shorter-term expo-sures were simple and easily adjusted to control risk.There was very little exposure to multiple indices that price assets& liabilities. Assets exposed to movements in Libor and other international indices are indicated in the table below.
Value of asset % of portfolio % of interest % of total exposure sensitive assets assets $ million
The volume and complexity of servicing assets was insignificant presenting very little exposure to changes in interestrates.The support provided by low-cost, stable non-maturity deposits was significant and offset exposure arising fromlonger-term re-pricing mismatches. Diversification in deposit mix was noticeable showing increases in stable non- matu-rity deposits. Interest rates on deposits were reviewed downwards to accommodate demands for reduction in rateson loans. Cost of funds was significantly reduced.
Risk measurement processes were appropriate given the size and increasing complexity of the Bank’s on-balance sheetexposure especially as the investment portfolio increases. Data input processes were relatively effective and ensuredthe accuracy and integrity of management information. Assumptions were reasonable and analysis of rate changes weredocumented. Interest rate risk was measured and analyzed over a range of rate movements to identify vulnerabilitiesand stress points. Management information systems provided timely, relatively accurate, and complete information oninterest rates to appropriate levels in the Bank.
A well-designed, independent, and competent review function was implemented through the Asset Liability Committee(ALCO) oversight to periodically validate and test the effectiveness of risk measurement systems. The Committeereviews and assesses the reasonableness and validity of scenarios and assumptions. To date the ALCO review systemhas been effective and plays a meaningful role in interest rate sensitivity analysis. Interest rate management, particular-ly reductions in cost of funds, contributing significantly to profits for the Group during 2003.
Liquidity RiskLiquidity was high during the year and funding sources were readily available. Cost of holding liquid funds were man-aged to provide a competitive cost advantage. Funding was also well diversified. There was no reliance on wholesalefunding sources or other credit-sensitive funds providers.
The Group was not vulnerable to funding difficulties associated with material adverse changes in market perception. Somechallenges were experienced in placing excess funds; however the Group was able to increase earnings on placed funds,even in a depressed market for investments. Earnings and capital exposure from the liquidity risk profile was negligible.
The liquidity risk management process was generally effective in identifying, measuring, monitoring, and controlling liq-uidity. There were some challenges in terms of timing on placement of excess funds into earning investments. Fundsheld in excess of reserve requirements averaged 10% to 15% above reserve.
Reputation RiskManagement adequately responded to changes of a market or regulatory nature that impacted the Group’s reputationin the marketplace.Administration procedures and processes were being addressed satisfactorily and problems are cor-rected as discovered. During 2003, the industrial action taken by unionized staff members had an adverse impact onthe Group’s reputation. However, the issues have been addressed and the Marketing Department took steps to recon-firm and continue to build goodwill in the public domain.
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Economic and Sectoral Analysis of Group Activity
Resource MobilizationThe Group views the mobilization of domestic savings as an essential component of the entire development processof the country.To this end the Group has embarked on a policy of offering attractive products to sustain or expanddomestic savings. This policy was maintained during the period under review even when interest rates domesticallywere lowered to stimulate economic activity.While the group lowered its rate of interest on all categories of deposits,its rates were still above the industry average. As a consequence of this favorable interest rate regime, the Groupattracted 68% of the growth in the industry.
In terms of the sources of deposits, the largest increase in deposits of $29 million was received from the CentralGovernment followed by the private individuals’ category which grew by $19 million. The corporate sector that is notnoted for maintaining high deposit balances also increased their deposit balances held in the Group by $12million.Resource mobilization if not managed properly can adversely affect interest costs when growth is more pro-nounced in the high cost deposit categories. During the review period, the growth in deposits was concentrated in thelow cost demand deposits ($31 million) and Saving Deposits ($29 million). The most expensive deposit category, timedeposits contracted slightly. The table below indicates the growth in the various categories of deposits by type of depositor.
New products, services and innovationsThe focus in this area was to consolidate on two innovations introduced late in 2002. In response for the domesticneed for equity financing, the Group, together with other domestic and international social partners launched a $15million Productive Equity Sector Fund to assist in this area.This facility is the only one of its kind in the OECS and assuch the lack of broad based familiarity has resulted in the anticipated level of utilization not materializing.The Groupis attempting to address this issue by embarking on a sensitization exercise not only to encourage business customersto use the facility but also to encourage investors to expand its funding capabilities.
In response to the demand to provide access to student loan facilities for students who have no means to provide secu-rity, the Group established the Student Loan Guarantee fund to provide a guarantee as security in such cases.This facil-ity provided by the Group, in partnership with other social partners, is a fulfillment of its mandate as a development bank.
Resource Allocation By Economic SectorFor the year 2003, the Group continued to provide financial support to all the major economic sectors. However, its suc-cess in this regard was constrained by the domestic economic climate resulting in negative net lending to some sectors.
For the 12-month period ended December 31, 2003, total disbursements amounted to $120 million.The sectors ben-efiting the most was the category "Other Personal" (26%) (which includes student loans), housing or acquisition ofproperty (25%) tourism, manufacturing and distributive trades combined (24%) and durable consumer goods (13%).The intense level of competition coupled with a reduced level of demand for good quality loans negatively affected the rate
2003 2002 $ increase % increase
Demand $103,787 $72,446 $31,341 43%
–Individuals $18,347 $14,317 $4,030 28%
–Government $63,637 $41,176 $22,461 55%
–Corporate $16,371 $12,213 $4,158 34%
–Other $5,432 $4,740 $692 15%
Savings $200,090 $171,516 $28,574 16.66%
–Individuals $171,856 $146,682 $25,174 17%
–Government $13,592 $18,972 $(5,380) -28%
–Corporate $9,423 $3,669 $5,754 157%
–Other $5,219 $2,193 $3,026 138%
Time $325,224 $325,438 $(214) -0.07%
–Individuals $25,279 $35,192 $(9,913) -28.17%
–Government $258,401 $246,626 $11,775 5%
–Corporate $24,256 $22,207 $2,049 9%
–Other $17,288 $21,413 $(4,125) -19%
Resource Mobilisation in EC $000(unaudited figures)
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of growth in the number of loans granted by the Group in 2003. As a result, the rate of growth in repayments exceededthe rate of growth in disbursements resulting in negative net lending for many economic sectors. Overall, there was a neg-ative net lending of $8 million for the 12-month period ending December 31, 2003.The net result was an increase in theliquidity of the Group, which was channeled to other lucrative investments, causing the investment portfolio to increaseby $69 million. The table below shows the net effects of the Group’s resource allocation by economic sector for 2003.
Resource Allocations by Economic ImpactThis analysis examines the effect of the Group’s development and commercial lending on households and businesses.The Group has defined development loans as loans granted for activities that are intended to create or expand thenation’s productive and social capacity of assets with a view to generating tradable output, employment, foreignexchange and/or social services.They are usually medium to long term duration and most importantly, the debt serv-ice and collateral requirements are directly associated with the transaction being financed. By comparison, commerciallending is restricted to loans used to facilitate trade and production of goods or the transfer of assets.The debt serv-ice and collateral requirement are not necessarily tied to the transaction being financed.They are usually short to medium term.While the Group maintains a balanced approach in its lending, the economic challenges of 2003 causedthe Group to focus more of its lending to development activities as compared to commercial activities.A total of $30.4million was disbursed to household to undertake activities classified as developmental as compared to $4.7 millionloaned for commercial activities. Similarly, the business sector received loans amounting to $20 million for develop-mental purposes as compared to $16 million for commercial activity.
The rate of growth in repayments exceeded the respective rate of growth of disbursements resulting in negative netlending in most categories except development loans granted to business for new activity and expansion.The tablesfollowing show the resource allocation of the Group by economic impact.
Sector Commitments Disbursement **Repayments Net Lending
Other Personal* 29,799,337 31,292,460 38,423,196 -7,130,736
Total 120,153,505 120,468,233 187,840,267 -67,372,034
**Please note that the repayment figure includes refinanced loans as well as loan-payoffs, totalling $60 million.
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New products, services & InnovationsIn fulfillment of its mandate as a development institution, the Group has embraced all opportunities to create part-nerships with other institutions and social partners.The primary concern of the Group is the end-product. In thisregard, the Group through the Bank of Saint Lucia Limited, acted as a conduit through which low-income sectors ofthe economy could access grant funding from the European Union.
The first facility called the Low Income Housing Grant Facility targets low income housing which is a significant prob-lem locally.The European Union provides a maximum of 20% of the purchase and construction costs as a grant, whilethe Bank of Saint Lucia provides 80% as a loan.The maximum dollar value of this grant is $20,000, half of which canbe used for the payment of house designs, commitment and legal fees, Development Control Authority application,valuation, negotiation, insurance and mortgage risk premium.The other half will be used as support for the financingof the acquisition of the land. The monthly salary of the applicant must not exceed EC $2500.00. The Table belowshows the loans requested and granted under this arrangement.
The Rural Enterprise Development Grant Facility attempts to assist borrowers to efficiently and effectively implementtheir business plans. Under this scheme, the borrower could receive from the European Union up to 50% of the loanamount approved up to a maximum of $25,000 as a grant.The balance not covered by the grant will be provided bythe Bank of Saint Lucia as a loan.The table following shows the success of the program thus far..
Resource Allocations by Economic Impact
Development Activity-Households Commercial Activity-Households
Low Income Housing Grant Facility July 2003 – September 2003
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The Group is happy to see the development and be associated with such programs.They are wonderful complementsto other initiatives undertaken by the Group such as the Productive Sector Equity fund and the Student LoanGuarantee Fund.
Other ActivityTraining has been identified as a critical area of attention if the Group is to achieve and maintain a significant compet-itive advantage and be an engine of growth in the economy.The Group’s efforts in this area was not concentrated onlyon improving the skills available internally but also on a national level.The level of skill of the human resource is a crit-ical ingredient in the whole process of national development.
For the year 2003, the bank expended approximately $200, 000 on training of its staff in various areas of risk manage-ment, credit appraisal techniques, bank strategy, marketing, venture capital financing and principal and representative cer-tification by the Eastern Caribbean Securities Regulatory Commission to name a few. In order to improve the qualityof the management in the Group, managers and supervisors at all levels undertook an intensive management compe-tency course.The Group had already begun reaping the benefits of such training.
The group believes in a collaborative approach with other social partners in tackling national problems where possi-ble.To this end, the Group made available the opportunity to persons outside of the group to benefit from such train-ing. Some of the areas covered were Anti-money Laundering, Counterfeit Detection and Internal Audit for Banks.TheBank continues to assist small businesses in developing viable business plans.Additionally, the Group held several meet-ing with the major players in the Banana and Poultry industries to disseminate new information obtained from theGroup’s research and to discuss the way forward.The Group is taking a holistic approach to development.
Rural Enterprise Development Grant Facility October 2003 – December 2003
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2003 2002 2001 2000Efficiency
Efficiency Ratio with Provision 69.4% 91.3% 63.7% 66.8%Efficiency Ratio without Provision 56.4% 61.9% 56.1% 50.6%Net Income per Staff $53,092 $11,809 $52,287 $60,369
Portfolio QualityNon-performing loansas a % of Total Loans 23.49% 22.93% 15.74% 14.99%Provision as a % of non-performing loans 32.80% 29.14% 32.51% 34.55%
“Through our sponsorship and support of those activities the Bank has found othertangible ways of connecting with our people and communities. We thank all ourcustomers for their support in the past and we look forward to working with allstakeholders for the benefit of us all.”
Connecting With Our PeopleDuring the period under review, the Bank continued with its tradition of reaching out to the people and communities thathave ensured our survival through some of the most turbulent times in our history. Connecting with the people andcommunities we serve is always at the forefront of our activities because we understand that our people are the founda-tion of our country and the reason for our existence.
In 2003 the Bank’s total contribution to community outreach and development programmes was One Hundred and TwoThousand, Five Hundred and Ninety One Dollars ($102,591.00). Those programmes have ranged from helping our youthto caring for the elderly and underprivileged, to education, sports and even environmental awareness to name a few.
The Bank’s first major contribution for 2003 was the sponsorship of the National Junior Athletic Championship or theBank of Saint Lucia Games as it is more commonly known. This year, for the 15th consecutive time the Bank contributed$15,000 to the St. Lucia Athletics Association to assist with the hosting of championship.
The Bank also continued with its Gold sponsorship of Jazz in the South and Bronze sponsorship of the St. Lucia Jazz Festivaltaking the Bank’s total sponsorship of the Festival to date to $189,000. The Bank has sponsored the St. Lucia Jazz Festivalsince 1996 contributing a total of $27,000 to the Festival every year.
During the year, the Bank made its presence felt in the area of education contributing $10,000 to the island’s only terti-ary educational institution, the Sir Arthur Lewis Community College, to assist with the purchase of much needed readingmaterial for the Hunter J. Francois Library.This donation took the Bank’s total contribution to the College to $60,000. Atthe secondary school level, the Bank donated $2,000 to the Junior Achievement programme to facilitate the participationof the Leon Hess Comprehensive Secondary School in the Junior Achievement programme. Of special note was the Bank’sdonation of $1,500 to the RCI School Bell programme to assist with the purchase of school books and supplies for under-privileged children.
In the area of environmental awareness the Bank’s contribution went way beyond the monetary. As part of the Bank’senvironmental awareness programme its 2003 calendars focused on the island’s endangered marine life and encouragedSt. Lucians to protect our environment. A total of 4,000 calendars were printed and circulated throughout the island. TheBank has also continued with its maintenance of the Vigie round about spending a total of $23,360 on the upkeep andbeautification of the area.
Throughout the month of December the Bank attempted to bring Christmas cheer to the hearts of the elderly and under-privileged by donating Five Hundred Dollars ($500.00) to each of the following: the Marian Home, the Adeliade Home for theelderly, the Salvation Army, the Missionaries of Charity and the Malgretout Home. In addition, staff of the Bank treated the res-idents of the Malgretout Home to a Christmas lunch while at the same time interacting one-on-one with the residents.
In recognition of the Bank’s outstanding con-tributions to community outreach and devel-opment programmes, the Eastern CaribbeanCentral Bank at its annual meeting of com-mercial banks awarded the Bank the prize ofGood Corporate Citizen. The Bank won thisaward from a pool of thirty-eight commercialbanks in the OECS sub-region who madesubmissions for the award.
Through our sponsorship and support ofthose activities the Bank has found othertangible ways of connecting with our peopleand communities. We thank all our cus-tomers for their support in the past and welook forward to working with all stakehold-ers for the benefit of us all.
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Other Services
Standing Orders 24 - Hour Electronic Managers'ATM Service Home Banking Cheques
Term Deposits Chequing Accounts Savings•3 mths, 6 mths, 12 mths •Superior Chequing Service •Regular Saving Account•Seven -Day Call Accounts (SCS-24) •Honor 50 Account•Investments Gift Certificates •Current Accounts •SuperSaver Account
•Petit Chequing Accounts (PCA) •Achiever Plus Account•Home Start Account•Christmas Club Account
Lending Services •Retirement Investment Account
Overdrafts Credit Cards
•Consumer Loans Demand Loans Mortgage •Home Equity Line of Credit•Students Loans Loans •Flexible Mortgage Loans•Agricultural Loans •Low Income Mortgage Loans
Foreign Business Services
Telex Transfers Purchase and sale of Collection Letters of CreditForeign Cheques Services
ForeignCash Exchange
Purchase and sale Shipping GuaranteesForeign Drafts Export Guarantees
Business/ Commercial Loans
OUR SERVICES
The Bank undertook significant internal restructuringto bolster and accelerate its growth and competitive-ness as part of the long run strategy to develop theits internal competencies where not only can they beinternationally competitive but also be in a positionwhere these same competencies can be made avail-able to other companies within the region.
STRONG TOGETHER FOR YOU
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REPORT ON SUBSIDIARIES
1. Bank of Saint Lucia Limited
Bank of Saint Lucia Limited was the dominant member company of the Group. In 2003, total assets of the Bankincreased by $94 million to reach $957 million from $862 million in 2002. The Bank contributed significantly to thegrowth in the assets of the Group. Profitability levels increased significantly from $2.8 million in 2002 to $14.2 millionin 2003.The Bank’s contribution to the growth in the Group’s profit recorded for the period under review was 93%.
The Bank undertook significant internal restructuring to bolster and accelerate its growth and competitiveness as partof the long run strategy to develop its internal competencies where not only can they be internationally competitivebut also be in a position where these same competencies can be made available to other companies within the region.It is for this reason that external consultants were brought in to work on the Transformation Initiative to identify weak-nesses in its systems and procedures and to make recommendations to significantly enhance them. Based on the rec-ommendations of the consultants and the need to implement meaningful change in the Bank, the decision was madeto recruit a General Manager for the Bank who would as well be the Assistant to the Group Managing Director.TheBank was able to acquire the services of Mr. Robert Nostrom. He is a qualified and experienced banker who hasworked with international and regional banks operating in the Caribbean and has held very senior positions. He hasbrought that wealth of experience and talent to assist with the change development.
Board of DirectorsVictor Eudoxie ChairmanThecla Deterville Vice ChairpersonHildreth Alexander DirectorLouis Greenidge DirectorEmma Hippolyte DirectorHenry Mangal DirectorTrevor Brathwaite DirectorVern Gill DirectorFrancis Henry DirectorCarey Harris DirectorGeorge Lewis DirectorJacqueline Quamina DirectorMarius St. Rose Director
Principal OfficersRobert Norstrom General Manager
(Deputy Group Managing Director)General Manager
Malcolm Alexander Senior Manager – OperationsMartin James Manager–Recoveries and SecuritiesBrian John Senior Branch Manager-
Financial Center BranchNigel George Manager- Commercial Credit
and Development BankingJean Francois Sonson Manager- Investment BankingUlric Williams Manager- Vieux Fort BranchBradley Felix Manager- Soufriere BranchJoanna Charles Manager- Gros Islet Branch
DEVELOPMENTThe Bank remains committed to granting loans for developmentpurposes thus promoting economic development despite thevolatility and high risk associated with the sector. In 2003 theportfolio experienced an 8 % expansion over 2002 and stood at$214 million at the end of the period.The rate of growth of thisportfolio was restrained as the Bank undertook to provide suchloans in partnership with international finance institutions as ameans of diversifying the risk.
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Review of Operations of Bank of Saint Lucia Limited
Development BankingThe Bank remains committed to granting loans for development purposes thus promoting economic developmentdespite the volatility and high risk associated with the sector. In 2003 the portfolio experienced an 8 % expansionover 2002 and stood at $214 million at the end of the period.The rate of growth of this portfolio was restrained asthe Bank undertook to provide such loans in partnership with international finance institutions as a means of diver-sifying the risk.Thus the amount shown here is understated and not a true reflection of the Bank efforts in this regard.
As at December 31, 2003 the portfolio was segmented as follows:
Housing In 2003, the Bank performed commendably given the state of the economy and the intense competition for resi-dential mortgages. During the year under review, 150 new loans valued at $20 million were approved, bringing themortgage loan portfolio to a total of $152 million at the end of 2003, significantly lower than the level reached inthe previous year of $160 million.This reduction was due mainly to the state of competition as a number of com-petitors offered significant reductions in interest rates to mortgage customers.The Bank adopted a conservative pos-ture matching offers by competitors on a case-by-case basis.
This sector continues to be plagued by high delinquency levels and administrative bottlenecks in the legal system.For the year 2003, non-productive mortgages amounted to $33 million or 20% of the total portfolio, as comparedto the previous year where it accounted for 18% with a total of $30 million. The Bank has expanded its recoverydivision and reviewed appropriate software to assist in its collection efforts.
EducationThe Education sector is the second largest sector of the development loan portfolio. As at December 31, 2003, thesector comprised 1,484 loans with a balance of $59.2 million. In 2003, the Bank approved one hundred and sixty-five (165) loans valued at $7.34 million. This represented a decline of 30% in number and 35% in value of loansapproved in 2002. Over the past two years, the Bank embarked on initiatives that were aimed at improving the stu-dent loan asset quality. These included:
• Student’s equity contribution to the cost of their studies • Emphasis on better quality security • A 33% debt to anticipated income ratio
The introduction of the above translated into a general decline in the average loan size from $47,000 in 2002 to$44,000 in 2003.
The number of approvals is expected to increase in the coming year with the introduction of a Human ResourceDevelopment Credit Facility being developed by the National Authorizing Office in the Office of the Prime Minister.The facility to be funded by European Development Fund (EDF) will include a grant component. The Bank intends touse the facility in conjunction with the Student Loan Guarantee Fund to benefit students from low-income households.
In 2003, the Board of Directors of the East Caribbean Student Loan Guarantee Fund approved four (4) guaranteesvalued at $282,361, bringing the total values of guarantees provided for the first two years to $1 million. In an effortto increase guarantee approvals in the coming year, the Guarantee Fund will explore other avenues for funding andembark on a public sensitization drive.
Corporate LoansAt December 31, 2003, the Corporate and Development Credit Department administered a total of 220 loans with anoutstanding balance of $220.7 million. This represented a slight drop of 3% from $227.3 million at the same time in 2002.This was partly due to the transfer of some loans from the Corporate Credit portfolio to the Retail Banking portfolio.
Commercial loans to corporate clients totaled approximately EC$149 million or 68% of the department’s portfolio.
In 2003, the Bank per-formed commendablygiven the state of theeconomy and the intensecompetition for residentialmortgages. During the yearunder review, 150 newloans valued at $20 millionwere approved, bringingthe mortgage loan portfo-lio to a total of $152 mil-lion at the end of 2003,
INVESTMENTWealth and fund management has been the area of highest growth during 2003. Total funds managed by the Invesment Banking Departmentwere $53.1 million of which $18.4 million or 35% were client funds and the balance of $34.8 million were internal funds.
Development loans in the areas of tourism, industry, micro-sector enterprises financing, professional andother services accounted for approximately 32% of the outstanding loan balance or $71 million. The man-ufacturing sector showed signs of increased activity and recorded strong growth of 65% from $5.5 million in2002 to $9.3 million in 2003. This may be partly attributed to the current scheme of fiscal incentives, tech-nical assistance grants and consumption tax rebates provided by the Government of St. Lucia.
A total of 38 loans valued at $44.1 million were approved in 2003. This represented an increase of 1% overthe value of loans approved the previous year. Four loans valued at $8.5 million were approved but not dis-bursed in 2003. The marginal increase in approvals is commendable, given that the focus of the competitionis the high net worth business clients of competitors.
The Bank continues to place emphasis on development banking financing in the productive sectors such asagriculture, tourism and manufacturing and the social sectors (education and housing). Project loans to theproductive sector are critical in terms of their positive impact on macroeconomic variables such as income,employment and foreign exchange earnings which facilitate economic growth.
While increased profitability by way of interest earnings were targeted through more appropriate risk basedpricing initiatives and improved risk management strategies, this was somewhat mitigated by a general declinein interest rates owing to increased competitive pressures.
In addition to competition from other commercial banks and financial institutions, development banks andindigenous commercial banks in the region have experienced numerous challenges over the years. To thisend, the Eastern Caribbean Central Bank has initiated a move towards strengthening such institutions. Bankof Saint Lucia is represented on a Development Financial Institutions Enhancement Committee that ischarged with the responsibility for establishing and implementing a program for upgrading and building capac-ity within these institutions
Asset quality has been a major challenge for the department and the Bank in general. Over the past twoyears, the level of non-performing loans remained steady at approximately 25% of the outstanding loan bal-ance. The monitoring of delinquent loans has been strengthened through additional assistance from theRecoveries Department in an effort to increase the collection of past due and non-performing loans.
Personal LoansThe personal loan portfolio reflected a 20% increase as compared to its performance in 2002. During theyear 2003 a total of 2,523 loans valued at $37.8 million were approved. At the end of December 2003the portfolio stood at $61.2 million, comprising mainly of student loans (49%) and discount loans (42%).The anticipated growth in this area did not materialise as a result of intense competition and depressedmarket conditions.
Investment BankingThe Department, after one full year of operation had significant successes in the development of new prod-ucts, marketing and promotion of the department and its products. An examination and inspection done bythe Eastern Caribbean Securities Exchange confirmed the efficacy of the operating systems insofar as itrelates to functioning as a listed company on the securities exchange.
At a local level, the BOSL is the first and remains the only Full Service Broker Dealer in Saint Lucia that islicensed to operate on the Eastern Caribbean Securities Market.This allows the advantage of offering a widerrange of services to customers.
Wealth and fund management has been the area of highest growth during 2003. Total funds managed by theDepartment were $53.1 million of which $18.4 million or 35% were client funds and the balance of $34.8million were internal funds.
The department participated in the placement and/or arrangement of the following.• Government of Saint Vincent Treasury Bills EC $192 million • Anguilla Electricity Services Limited (ANGLEC) IPO for EC $16 million• Government of Saint Lucia Treasury Bills EC $27 million• Government of Grenada Treasury Bills EC $25 million
The activity of the department received a tremendous boost with the establishment of the RegionalGovernment Securities Market (RGSM).The will provide greater opportunity for the department to partic-ipate in placing bids on the market
At a local level, the BOSLis the first and remains theonly Full Service BrokerDealer in Saint Lucia thatis licensed to operate onthe Eastern CaribbeanSecurities Market.Thisallows the advantage of offering a wider range of services to customers.
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Bank of Saint Lucia LimitedBalance Sheet As of December 31, 2003
(expressed in Eastern Caribbean dollars)
2003 2002$ $
Assets
Cash and balances with Central Bank 59,671,373 45,056,567Treasury bills 14,379,000 11,279,000Due from other banks 76,633,004 66,385,953Deposits with non – bank financial institution 8,313,678 11,591,585Originated loans – loans and advances to customers 424,990,058 421,313,564
– available-for-sale investments 17,111,097 698,052Investment in associated undertaking 4,166,667 –Due from related parties 196,271,439 189,221,538Property, plant and equipment 2,253,798 2,649,365Other assets 3,578,824 3,790,526Income tax recoverable 3,902,976 2,862,280Deferred tax asset 55,902 80,281
Total assets 972,232,221 866,295,049
Liabilities
Due to other banks 15,129,444 3,013,185Due to customers 666,974,112 601,721,960Borrowed funds 131,499,001 128,808,960Due to related party 46,552,991 37,287,145Other liabilities 15,938,600 12,458,829
Total liabilities 876,094,148 783,290,079
Shareholders’ equity
Share capital 77,700,000 77,700,000Reserves 9,892,871 3,994,338Retained earnings 8,545,202 1,310,632
Total shareholders’ equity 96,138,073 83,004,970
Total shareholders’ equity and liabilities 972,232,221 866,295,049
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Bank of Saint Lucia LimitedStatement of Income As of December 31, 2003
(expressed in Eastern Caribbean dollars) 2003 2002$ $
Interest income 64,965,317 61,727,682
Interest expense 31,396,217 33,198,844
Net interest income 33,569,100 28,528,838
Other income 13,563,615 9,387,791
Operating income 47,132,715 37,916,629
Other operating expenses 27,808,234 25,348,625
Impairment losses on loans and advances 5,299,509 9,903,437
Profit for the year before taxation 14,024,972 2,664,567
Taxation 891,869 (129,956)
Net profit for the year 13,133,103 2,794,523
Earnings per share 0.17 0.04
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2. Property Holding & Development Company of Saint Lucia Limited
The Property Holding & Development Company ended its second full year after the merger with an asset base of $52million and a negative net income of $0.3 million. In 2002, the total assets of $52 million earned negative net incomeof $319 thousand. Real Estate assets stood at $50 million and $47 million for the two years respectively
During the year, the company refined its Business Plan to focus more on rehabilitating its physical assets, rationalizing itsasset holdings to ensure that its holdings either generate cost-effective returns and/or are necessary for strategic longterm or development purposes. As a consequence, the year was spent in rehabilitating its properties in Castries, GrosIslet and Vieux Fort, while it disposed of some properties in Vieux Fort and other areas. During the year, it also acquiredon a lease back basis, the Cable & Wireless property on Bridge Street as a strategic acquisition.
With all the companies habitable properties being rented, and with a review of the rental rates to ensure that the com-pany charges competitive market rates and does not subsidise other companies in the Group, it is now poised to gen-erate a healthy return on its assets which are financed on the basis of a 3:1 debt/equity ratio.
Board of Directors: Victor Eudoxie ChairmanHildreth Alexander DirectorEmma Hippolyte DirectorRobert Norstrom DirectorTrevor Brathwaite DirectorMarius St. Rose Group Managing DirectorEstherlita Cumberbatch Corporate Secretary
Principal Officers:Elizabeth Bousquet ManagerDudley Gould Maintenance Manager Peter Leonce Senior Properties Officer
The Mortgage Finance Company was able to maintain its asset level at $199 million while its net income reboundedsignificantly from a loss of $171 thousand in 2002 to $1.5 million in 2003. This was a commendable achievement sincethe residential mortgage market was intensely competitive as evidenced by significant reductions in rates on both exist-ing and new mortgages, the introduction of new gimmicks and serious poaching among competitors. Mortgage activityfor the year was as follows:-
2003 2002No. Value ($’000) No. Value ($’000)
Portfolio at beginning 1916 160,196 1955 168,911New issues 150 19,579 1542 22,277Prematurely radiated** 215 17,909 142 10,856Radiated at maturity** 70 9,842 23 20,136Portfolio at end 1806 152,024 1917 160,196
Value($’000) Value($’000)Portfolio at beginning 160,196 168,911Disbursed 19,579 22,277Repaid** 27,751 30,992Balance at end of year 152,024 160,196
** Includes refinanced loans and loan pay-offs.
This activity does not include the $21 million in mortgages which the company is managing on behalf of the Eastern CaribbeanHome Mortgage Bank (ECHMB) and for which it has a contingently recoverable liability. In fact, this agency function posed aproblem for the Group as the competitiveness of the market effected reductions in interest rates of a number of these mort-gages, thereby reducing the income of the ECHMB. Consequently, the future relationship between the company and ourGroup is in the process of being redefined so as to mitigate those risks.
Portfolio quality was a major challenge for the company. Many borrowers who had over-borrowed not only for mortgagesbut for other commitments such as for home furniture and motor vehicles, found themselves in difficulties in meeting theirdebt obligations, particularly where household income was reduced or emergencies arose. In addition, the company reval-ued its collateral to reflect the depressed state of the properties market and the fact that many valuations were unrealisti-cally inflated and had no relationship with what the property could be disposed of in a forced sale value situation.Consequently, the company increased its provisions on its portfolio significantly such that provisions to total mortgages andnon-productive mortgages were 6% and 31% respectively as compared to 5 % and 28 % recorded in 2002 respectively.
The company is expected to continue to have a reasonable year, particularly as intense efforts are being made to recoveron delinquent accounts, new credit policies are to be instituted and staff developed and trained to execute them.
Board of Directors(Same as for ECFH & BOSL)
Principal Officers (as agents for the company)Robert Norstrom General Manager, Bank of Saint Lucia LimitedCecilia Ferdinand Personal Banking ManagerOctavien Charles Consumer Loans ManagerBrian John Senior Branch Manager- Bridge Street BranchJoanna Charles Manager- Gros Islet BranchBradley Felix Manager- Soufriere BranchUlric Williams Manager- Vieux Fort Branch
The Island Legal & Trust Services Company continued to procure legal services on behalf of the Group. In the process,it generated a net income of $59,121 compared with $103,120 for the previous year.The reduction in the volume ofmortgages transacted during the year contributed to the decline in net income.The other main area of significance wasthe cessation of shareholder participation by Francis & Antoine - the main service providers for the Group.As a result,the legal firm of Francis & Antoine is an independent service provider that has no proprietary interest in the Groupexcept for contractual services provided.
Board of Directors
Esther Browne ChairmanAnderson Lake DirectorBrian John DirectorMarius St Rose Group Managing DirectorEstherlita Cumberbatch Corporate Secretary
Principal OfficerEstherlita Cumberbatch Coordinator
5. EC Global Insurance Company Limited
During the year, the Group worked on establishing an insurance subsidiary to provide general and life cover to its customersand others in Saint Lucia and in the rest of the Eastern Caribbean.Towards this end a company, EC Global Insurance CompanyLimited has been registered and a licence is awaited to commence transacting general insurance business.
A strategic partnership has been forged with Grace, Kennedy & Co. Ltd. of Jamaica, who will have a 20% interest in EC GlobalInsurance Company, and which through its insurance subsidiary, Jamaica International Insurance Co., will provide technical, oper-ational and managerial support for the new company.The company is in the process of recruiting its initial staff and is expect-ed to become operational early in the second quarter of 2004.
Its initial product and service offerings will include: General Insurances such as Fire & Special Perils, HomeownersComprehensive, Private and Commercial Motor, Public Liability, Employers’ Liability and Credit Life Insurance.
It is expected that the company will offer a broader range of insurance services than are currently available and at competitiveprices.
With this company in place, the Group will be able to offer to its customers and others, the convenience of transacting a num-ber of financial transactions seamlessly, and under one roof, at very competitive prices.
Board of Directors:Emma Hypolyte ChairmanHildreth Alexander DirectorEdmund Lawrence DirectorMarius St Rose Group Managing DirectorEsther Browne DirectorThaddeus Antoine DirectorEstherlita Cumberbatch Corporate Secretary
Principal Officers:Leathon B. Khan,B.Sc., ACII General ManagerChartered Insurance Practitioner Martina Degazon M. Sc.,(Int. Bus.) B.Sc. (Mgmt) Administrative Manager
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“With this company in place, the Group will be
able to offer to its customers and others, the
convenience of transacting a number of financial
transactions seamlessly, and under one roof, at
very competitive prices.”
Leathon Khan
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6. Bank of Saint Lucia International Limited
Bank of Saint Lucia International LimitedIn order to further diversify the product and service base of the Group, ECFH embarked on the establishment of an internationalprivate bank.This decision was based on the opportunity to profit from the growing amount of international business that SaintLucia is able to attract through its industry leading international financial services legislative and regulatory frameworks. To thisend, ECFH has incorporated a wholly owned subsidiary called Bank of Saint Lucia International Limited and has applied for a ClassA international banking license for the said company. Bank of Saint Lucia International Limited will be regulated by the local reg-ulatory authorities and, unlike many such entities, further regulatory oversight will be carried out by the Eastern Caribbean CentralBank which regulates ECFH and Bank of Saint Lucia Limited.
Bank of Saint Lucia International Limited will offer a wide range of products and services strictly for individuals and corporationsthat are non-resident for tax purposes. In addition to core banking services the Bank will offer both online and personal multi-currency international investment products and services through partnerships with some of the most reputable banks and inter-national investment houses in the world.These relationships will provide a lucrative base for fee generation at minimal cost to thebank. Bank of Saint Lucia International Limited is currently fully staffed, equipped, and ready to commence international privatebanking operations during the first quarter of 2004.
The Board of Directors Marius St.Rose ChairmanRobert Norstrom DirectorEmma Hippolyte DirectorThecla Deterville DirectorThaddeus Antoine DirectorVern Gill DirectorEstherlita Cumberbatch Corporate Secretary
Principal Officers Patrick Holmes CGA, ACIS, PAdm,TEP General ManagerShane Felicien BSc. Accounting Financial ControllerJodi Boodhoo BA, LLB, LLM Compliance ManagerArleta Huntley BSc, ACCA Operations Manager
“In addition to core bankingservices, the Bank will offerboth online and personalmulti-currency internationalinvestment products andservices ”
Patrick Holmes
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Financial Reporting Responsibilties
The Management of East Caribbean Financial Holding Company is responsible for the preparation and fair presenta-tion of the financial statements and other financial information contained in this annual report.The accompanying finan-cial statements were prepared in accordance with generally accepted accounting principles.Where amounts had to bebased on estimates and judgements, these represent the best estimates and judgements of management.
In discharging its responsibility for the integrity and fairness of the financial statements, and for the accounting systemsfrom which they are derived, the management has developed and maintains a system of accounting and reportingwhich provides the necessary internal controls that ensure transactions are properly authorized, assets are safeguard-ed against unauthorized use or disposition and liabilities are recognized.This is supported by written policies and pro-cedures, quality standards in recruiting and training employees, an established organizational structure that permitsaccountability for performance within appropriate and well-defined areas of responsibility.
An Inspection unit that conducts periodic audits of all aspects o the Groups operations further supports the systemof internal controls.
The Board of Directors oversees management’s responsibility for financial reporting through an Audit Committee, whichis composed of directors only who are neither officers nor staff of the Bank except for the Group Managing Director.The primary responsibility of the Audit Committee is to review the Group internal control procedures and planned revi-sion to those procedures and advising directors on auditing matters and financial reporting issues.The Group’s SeniorInspector has full and unrestricted access to the audit committee.
At least once a year, the Eastern Caribbean Central Bank makes such examination and inquiry into the affairs of theGroup as deemed necessary to ensure that the provision of the Banking Act relating to the safety of depositors’ fundsand shareholders equity are being observed and that the Group is in sound financial condition.
PriceWaterhouseCoopers, appointed as auditors of the shareholders of the Group, have examined the financial state-ments and their report follows.The shareholders’ auditors have full and unrestricted access to the Audit Committee todiscuss their audit and related findings as to the integrity of the Groups financial reporting and adequacy of the systemsof internal control.
Marius St. Rose Esther BrowneGroup Managing Director Senior Manager, Finance
Planning Risk and Administration
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April 14, 2004
Auditors’ Report
To the Shareholders of East Caribbean Financial Holding Company Limited
We have audited the accompanying consolidated balance sheet of East Caribbean Financial HoldingCompany Limited (the Company) and its subsidiaries (the Group) as of December 31, 2003 and therelated statements of income, changes in shareholders' equity and cash flows for the year then ended.Thesefinancial statements are the responsibility of the company's management. Our responsibility is to express anopinion on these financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those standards requirethat we plan and perform the audit to obtain reasonable assurance about whether the financial statementsare free of material misstatement. An audit includes examining, on a test basis, evidence supporting theamounts and disclosures in the financial statements.An audit also includes assessing the accounting principlesused and significant estimates made by management, as well as evaluating the overall financial statement pres-entation.We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial posi-tion of the Group as of December 31, 2003 and the results of its operations and its cash flows for the yearthen ended in accordance with International Financial Reporting Standards.
Antigua Charles W. A. Walywn Robert J. WilkinsonBarbados Wayne I. Fields Marcus A. Hatch Phillip St. E. Atkinson Michael R. Boyce (Principal)
R. Michael Bynoe Joyce E. Dear Maurice A. Franklin Geoffrey R. Gregory Stephen A. Jardin J. Andrew Marryshow Lindell E. Nurse Chistopher S. Sambrano R. Charles D. Tibbits
Ann M. Wallace-Elcock Brian RobinsonGrenada Philip St. E. Atkinson (resident in Barbados)St. Lucia Anthony D. Atkinson Richard N. C. Peterkin
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East Caribbean Financial Holding Company LimitedConsolidated Balance Sheet As of December 31, 2003
(expressed in Eastern Caribbean dollars)2003 2002
$ $Assets
Cash and balances with Central Bank (note 4) 59,671,673 45,056,605Treasury bills (note 5) 14,379,000 11,279,000Due from other banks (note 6) 76,633,004 66,385,953Deposits with non – bank financial institution (note 7) 8,313,678 11,591,585Originated loans – loans and advances to customers (note 8) 566,569,588 574,939,896
Total equity and liabilities 981,908,169 886,917,988
Approved by the Board of Directors on April 14, 2004
___________________________________ Director ___________________________________ Director
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East Caribbean Financial Holding Company LimitedConsolidated Statement of Income For the year ended December 31, 2003
(expressed in Eastern Caribbean dollars)2003 2002
$ $
Interest income (note 28) 71,064,483 68,397,180
Interest expense (note 28) 33,293,353 34,822,343
Net interest income 37,771,130 33,574,837
Other income (note 29) 15,180,648 10,158,790
Operating income 52,951,778 43,733,627
Impairment losses on loans and advances (note 9) 6,804,448 12,853,540
Other operating expenses (note 30) 28,673,965 25,991,982
Profit for the year before finance costs and taxation 17,473,365 4,888,105
Finance costs 975,090 1,073,361
Profit for the year before taxation 16,498,275 3,814,744
Taxation (note 31) 1,295,343 295,249
Group profit before minority interest 15,202,032 3,519,495
Minority interest (note 21) 18,740 12,111
Net profit for the year 15,184,192 3,507,384
Earnings per share (note 32)
- basic 1.12 0.21
- diluted 0.99 0.23
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East Caribbean Financial Holding Company LimitedConsolidated Statement of Changes in Shareholders’ EquityFor the year ended December 31, 2003
(expressed in Eastern Caribbean dollars)2003 2002
$ $Share capital
Ordinary shares (note 22)At beginning of year 33,581,819 29,913,996Issued during the year 420,244 2,917,823Bonus issue during the year 10,778,392 –Converted from preference shares – 750,000
At end of year 44,780,455 33,581,819
Preference shares (note 22)At beginning of year 12,900,000 13,650,000Converted to ordinary shares – (750,000)
At end of year 12,900,000 12,900,000
Total share capital 57,680,455 46,481,819
Contributed capital (note 38)At beginning of year 1,525,472 1,525,472Received in the year 375,000 –
At end of year 1,900,472 1,525,472
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East Caribbean Financial Holding Company LimitedConsolidated Statement of Changes in Shareholders’ Equity... continuedAs of December 31, 2003
(expressed in Eastern Caribbean dollars)
2003 2002Reserves $ $
General reserve (note 24)At beginning of year 18,380,101 17,398,016Transferred from retained earnings 3,730,318 982,085Transfer to share capital for bonus issue of shares (10,778,392) –
At end of year 11,332,027 18,380,101
Statutory reserve (note 25)At beginning of year 20,462,815 19,761,390Transferred from retained earnings 3,036,839 701,425
At end of year 23,499,654 20,462,815
Student loan guarantee fund reserve (note 26)Transferred from retained earnings 427,120 -
Special reserve (note 27)At beginning of year 814,179 751,052Transferred from retained earnings 104,050 63,127
At end of year 918,229 814,179
Retirement benefit reserve (note 39)At beginning of year 2,554,681 2,404,656Transfer (to)/from retained earnings (9,914) 150,025
At end of year 2,544,767 2,554,681
Total reserves, end of year 38,721,797 42,211,776
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East Caribbean Financial Holding Company LimitedConsolidated Statement of Changes in Shareholders’ Equity…continuedFor the year ended December 31, 2003
Transfer to general reserve (note 24) (3,730,318) (982,085)
Transfer to statutory reserve (note 25) (3,036,839) (701,425)
Transfer to student loan guarantee fund (note 26) (427,120) -
Transfer to special reserve (note 27) (104,050) (63,127)
Transfer from/(to) retirement benefit reserve (note 39) 9,914 (150,025)
Dividends on ordinary shares (note 23) (1,908,519) (6,531,483)
Dividends on preference shares (note 22) (903,000) (903,000)
At end of year 12,371,098 7,286,838
Minority interest (note 21) 1,264,210 1,247,011
Total equity, end of year 111,938,032 98,752,916
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East Caribbean Financial Holding Company LimitedConsolidated Statement of Cash FlowsFor the year ended December 31, 2003
(expressed in Eastern Caribbean dollars)
2003 2002$ $
Cash flows from operating activitiesProfit for the year before taxation 16,498,275 3,814,744Adjustments for :
Depreciation 2,443,344 2,479,606Gain on disposal of property, plant and equipment (156,600) (36,984)Unrealised exchange (gain)/loss (989,572) 1,034,488Impairment losses on loans and advances 6,804,448 12,853,540Interest income (71,064,483) (68,397,180)Interest expense 33,293,353 34,822,343Pension benefits 9,914 (150,025)
Cash flows before changes in operating assets and liabilities (13,161,321) (13,579,468)
Increase in mandatory deposits with Central Bank (3,329,269) (2,307,268)Decrease in loans and advances to customers 479,564 14,407,426Decrease in other assets 530,298 11,843,139Increase in due to customers 63,326,100 56,952,633Increase/(decrease) in other liabilities 15,510,922 (6,724,436)
Cash from operations 63,356,294 60,592,026
Income tax paid (1,986,052) (3,011,494)Interest received 67,836,512 67,939,855Interest paid (32,800,956) (34,363,373)
Net cash from operating activities 96,405,798 91,157,014
Cash flows from investing activitiesPurchase of investment securities and treasury bills (68,467,844) (55,781,479)Purchase of property, plant and equipment (7,517,131) (3,674,691)Proceeds from disposal of property, plant and equipment 541,366 91,124Investment in associated undertaking (4,166,667) –
Net cash used in investing activities (79,610,276) (59,365,046)
Cash flows from financing activitiesProceeds from issuance of shares – 2,917,823Dividends paid to group and minority shareholders (2,188,205) (6,754,280)Proceeds from issuance of bonds – 15,500,000Proceeds from borrowings 11,917,388 6,497,784Repayment of borrowings (8,644,762) (8,111,085)Capital contribution received 375,000 –
Net cash from financing activities 1,459,421 10,050,242
Increase in cash and cash equivalents 18,254,943 41,842,210Cash and cash equivalents, beginning of year 98,974,032 57,131,822
Cash and cash equivalents, end of year (note 33) 117,228,975 98,974,032
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
1 Corporate status
East Caribbean Financial Holding Company Limited (the “Company”) was formed pursuant to an Agreement for Amalgamation (“theAgreement”) dated March 31, 2001, between National Commercial Bank of Saint Lucia Limited (NCB), a company incorporated in SaintLucia and continued under the Companies Act, 1996 of Saint Lucia and Saint Lucia Development Bank (SLDB) a company reincorpo-rated under the same Act. Under the terms of the Agreement the companies agreed to amalgamate in accordance with the provisionsof the Companies Act, 1996 from July 1, 2001 and to continue as one company as at the date of the Certificate of Amalgamation.TheCertificate of Amalgamation was issued on June 30, 2001.
In addition to compliance with the Companies Act of Saint Lucia, the Group is subject to the provision of the Banking Act, 1991.
The principal activity of the Group is the provision of financial services.The registered office and principal place of business of the com-pany is located at No.1 Bridge Street, Castries, St. Lucia.
The company is listed on the Eastern Caribbean Securities Exchange.
2 Significant accounting policies
The principal accounting policies adopted in the preparation of these financial statements are set out below:
Basis of preparationThese consolidated financial statements are prepared in accordance with International Financial Reporting Standards.The consolidated finan-cial statements are prepared under the historical cost convention, as modified by the revaluation of available-for-sale investment securities.During the year the Group early adopted IAS 27 Consolidated and Separate Financial Statements (2003). As a result minority interest hasbeen presented under IAS 27 (33) in the consolidated balance sheet within equity, separately from the parent shareholders’ equity.
The preparation of financial statements in conformity with generally accepted accounting principles requires the use of estimates andassumptions that affect the reported amounts of assets and liabilities and disclosure of contingent assets and liabilities at the date of thefinancial statements and the reported amount of revenues and expenses during the reporting period.Although these estimates are basedon management’s best knowledge of current events and actions actual results ultimately may differ from those estimates.
Group accountsSubsidiaries, which are those companies in which the Group, directly or indirectly, has power to govern the financial and operating poli-cies, are consolidated (note 36).
Subsidiaries are consolidated from the date on which control is transferred to the Group and are no longer consolidated from the datethat control ceases.The purchase method of accounting is used to account for the acquisition of subsidiaries.The cost of an acquisitionis measured at the fair value of the assets given up, shares issued or liabilities undertaken at the date of acquisition, plus costs directlyattributable to the acquisition.The excess of the cost of acquisition over the fair value of the net assets of the subsidiary acquired is record-ed as goodwill. Intercompany transactions, balances and unrealized gains on transactions between group companies are eliminated, unre-alized losses are also eliminated unless cost cannot be recovered.Where necessary, accounting policies of subsidiaries have been changedto ensure consistency with the policies adopted by the Group.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
2 Significant accounting policies…continued
Group accounts…continuedInvestments in associates are accounted for by the equity method of accounting. Under this method, the Group’s share of post-acquisi-tion profits or losses of associates is recognised in the income statement, and its share of post-acquisition movement in reserves is recog-nised in reserves. The cumulative post-acquisition movements are adjusted against the cost of the investment.
Associates are entities over which the Group has between 20% and 50% of the voting rights, or over which the Group has significantinfluence, but which it does not control. Unrealised gains on transactions between the Group and its associates are eliminated to theextent of the Group’s interest in the associates; unrealized losses are also eliminated unless the transaction provides evidence of animpairment of the asset transferred.When the Group’s share of losses in an associate equals or exceeds its interest in the associate theGroup does not recognise further losses unless the Group has incurred obligations or made payments on behalf of the associates.
Cash and cash equivalentsCash and cash equivalents are carried in the balance sheet at cost. For the purposes of the cash flow statement, cash and cash equiva-lents comprise balances with less than 90 days maturity from the date of acquisition including: cash on hand and balances with the CentralBank, treasury bills, due from other banks and deposits with a non-bank financial institution.
Originated loans and provisions for loan impairmentLoans originated by the Group by providing money directly to the borrower at draw down, and debt securities, which were purchasedat original issuance where the funds were transferred directly to the issuer, are categorised as loans originated by the Group and are car-ried at amortised cost. Amortised cost is defined as the fair value of cash consideration given to originate those loans as is determinableby reference to market prices at origination date.Third party expenses, such as legal fees, incurred in securing a loan are treated as partof the cost of the transaction.
All loans and advances are recognised when cash is advanced to borrowers.
An allowance for loan impairment is established if there is objective evidence that the Group will not be able to collect all amounts dueaccording to the original contractual terms of loans.The amount of the provision is the difference between the carrying amount and therecoverable amount, being the present value of expected cash flows, including amounts recoverable from guarantees and collateral, dis-counted based on the interest rate at inception.
The loan loss provision also covers losses where there is objective evidence that probable losses are present in components of the loanportfolio at the balance sheet date.These have been estimated based upon historical patterns of losses in each component, the creditratings allocated to the borrowers and the current economic climate in which the borrowers operate.When a loan is uncollectible, it iswritten off against the related provision for impairments; subsequent recoveries are credited to provision for loan impairment in theincome statement.
Statutory and other regulatory loan loss reserve requirements exceeding these amounts are dealt with in the general banking reserveas an appropriation of retained earnings.
If the amount of the impairment subsequently decreases due to an event occurring after the write-down, the release of the provision iscredited as a reduction of the provision for loan losses.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
2 Significant accounting policies…continued
Investment securitiesInvestment securities are classified into the following two categories: held-to-maturity and available-for-sale assets. Investment securitieswith fixed maturity where management has both the intent and the ability to hold to maturity are classified as held-to-maturity. Investmentsecurities intended to be held for an indefinite period of time, which may be sold in response to needs for liquidity or changes in inter-est rates, exchange rates or equity prices are classified as available-for-sale. Management determines the appropriate classification of itsinvestments at the time of the purchase.
Investment securities are initially recognised at cost (which includes transaction costs). Held-to-maturity investments are carried at amor-tised cost using the interest rates in effect, less any provision for impairment. Available-for-sale financial assets are subsequently re-meas-ured at fair value based on quoted bid prices. Unrealised gains and losses arising from changes in the fair value of securities classified asavailable-for-sale are recognised in the income statement. Equity securities for which fair values cannot be measured reliably are recog-nised at cost less impairment. When securities are disposed or impaired, the related accumulated fair value adjustments are included inthe income statement as gains and losses from investment securities.
A financial asset is impaired if its carrying amount is greater than its estimated recoverable amount.The amount of the impairment lossfor assets carried at amortised cost is calculated as the difference between the assets’ carrying amount and the present value of expect-ed future cash flows discounted at the financial instrument’s original effective interest rate. By comparison, the recoverable amounts of aninstrument measured at fair value is the present value of expected future cash flows discounted at the current market rate of interest fora similar financial asset. Interest earned whilst holding investment securities is reported as interest income.
All purchases and sales of investment securities are recognised at trade date, which is the date that the Group commits to purchase orsell assets. Derivative instruments are not utilised.
Property, plant and equipmentProperty, plant and equipment is stated at historical cost less accumulated depreciation.
Depreciation and amortisation are calculated on the straight-line method to write down the cost of such assets to their residual valuesover their estimated useful lives as follows:
When the carrying amount of an asset is greater than its recoverable amount it is written down immediately to its recoverable amount.
Gains and losses on disposals are determined by comparing proceeds with carrying amount and are included in operating income.
Repairs and maintenance are charged to the income statement during the financial period in which they are incurred.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
2 Significant accounting policies…continued
Property, plant and equipment…continuedThe cost of major renovations is included in the carrying amount of the asset when it is probable that future economic benefits in excessof the originally assessed standard of performance of the existing assets will flow to the Group. Major renovations are depreciated overthe remaining useful life of the related asset.
Impairment of long lived assetsProperty, plant and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in cir-cumstances indicate that the carrying amount may not be recoverable. An impairment loss is recognised for the amount by which thecarrying amount of the asset exceeds its recoverable amount which is the higher of an assets net selling price and value in use. For thepurposes of assessing impairment, assets are grouped at the lowest level for which there are separately identifiable cash flows.
Investment propertiesInvestment properties are shown at cost less accumulated depreciation. Depreciation on buildings is calculated at 2% on the straight-linemethod which is considered adequate to write off the cost of the assets over their estimated useful lives.
Property that is being constructed or developed for future use as investment property is classified as work-in-progress in property, plantand equipment and stated at cost until construction or development is complete at which time it is reclassified and subsequently account-ed for as investment property.
Deferred income taxesDeferred income tax is provided in full, using the liability method, on temporary differences arising between the tax bases of assets andliabilities and their carrying amounts in the financial statements.
The principal temporary differences arise from depreciation of property, plant and equipment and their tax base, tax losses carried for-ward and pension gains.The rates enacted or substantially enacted at the balance sheet date are used to determine deferred income tax.
Deferred tax assets are recognised to the extent that it is probable that future taxable profit will be available against which the tempo-rary differences can be utilised.
Income tax payable on profits, based on the applicable tax law is recognised as an expense in the period in which profits arise.The taxeffect of income tax losses available to carry forward are recognised as an asset when it is probable that future taxable profits will beavailable which these losses can be utilised against.
BorrowingsBorrowings are recognised initially at their issue proceeds net of transaction costs incurred. Borrowings are subsequently stated at amor-tised cost and any differences between net proceeds and the redemption value is recognised in the income statement over the periodof the borrowings using the effective yield method.
Guarantees and letters of creditGuarantees and letters of credit comprise undertakings by the Group to pay bills of exchange drawn on customers.The Group expectsmost guarantees and letters of credit to be settled simultaneously with the reimbursement from the customers. Guarantees and lettersof credit are accounted for as off-balance sheet transactions and are disclosed as contingent liabilities and commitments.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
2 Significant accounting policies…continued
Share capital
(i) Share issue costsIncremental costs directly attributable to the issue of new shares, other than on a business combination, are deducted from equity netof any related income taxes.
(ii) Dividends on ordinary sharesDividends on ordinary shares are recognised in equity in the period in which they are declared. Dividends for the year which aredeclared after the balance sheet date are dealt with in the subsequent event note (note 40).
(iii)Preference sharesPreference shares which are convertible to ordinary shares are classified as equity. The resulting dividends are recognised in theperiod they fall due.
Interest income and expenseInterest income and expense are recognised in the income statement for all interest bearing instruments on an accrual basis usingeffective interest rates. Interest income includes coupons earned on fixed income investment and accrued discount and premium ontreasury bills.When loans become doubtful of collection, they are written down to their recoverable amounts and interest income isthereafter recognised based on the rate of interest that was used to discount the future cash flows for the purpose of measuring therecoverable amount.
Other incomeCommission income is recognised when received. Loan fees are recognised on income when earned.
Foreign currency translationForeign currency transactions are translated into the measurement currency using the exchange rates prevailing at the dates of transac-tions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation of monetary assetsand liabilities denominated in foreign currencies, are recognised in the income statement
Translation differences on debt securities and other monetary financial assets measured at fair value are included in foreign exchangegains and losses.
Employee benefitsThe company contributes to a defined benefit pension plan for all monthly paid employees. A defined benefit plan defines an amount ofpension benefit to be provided, usually as a function of one or more factors such as age, years of service or compensation.The assets ofthe plan are held separately.The pension plan is funded by payments from employees and the Group, taking account of the recommen-dations of independent qualified actuaries who carry out a full valuation of the plan once every three years.
The retirement benefit asset in respect of defined benefit pension plans is the present value of the defined benefit obligation at the bal-ance sheet date minus the fair value of plan assets, together with adjustments for unrecognised actuarial gains/losses and past service cost.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
2 Significant accounting policies…continued
Employee benefits…continuedThe valuation method used is the projected unit credit method. Under this method the cost of providing pensions is charged to theincome statement so as to spread the regular cost over the service lives of employees in accordance with the advice of the qualified actu-aries.The pension obligation is measured as the present value of the estimated future cash outflows using interest rates of governmentsecurities which have terms to maturity approximating the terms of the related liability.Actuarial gains and losses are recognised using the“corridor” approach. Any actuarial gains and losses (arising from both defined benefit obligations and any related plan assets) which falloutside of the higher of 10% of the present value of the defined benefit obligation or 10% of the fair value of plan assets, are amortisedover a 5-year period.
It is the policy of the Group to maintain a retirement benefit reserve at an amount equal to the retirement benefit asset (notes 16 and 39).
Financial instrumentsFinancial instruments carried on the balance sheet include cash resources, investment securities, loans and advances to customers, cus-tomers’ deposits and borrowed funds. The particular recognition methods adopted are disclosed in the individual policy statementassociated with each item.
ComparativesWhere necessary, comparative figures have been adjusted to conform with changes in the presentation in the current year.
3 Financial risk management
Strategy in using financial instrumentsBy its nature, the Group’s activities are principally related to the use of financial instruments.The Group accepts deposits from customersat both fixed and floating rates and for various periods and seeks to earn above average interest margins by investing these funds in highquality assets.The Group seeks to increase these margins by consolidating short-term funds and lending for longer periods at higher rateswhilst maintaining sufficient liquidity to meet all claims that may fall due.
The Group also seeks to raise its interest margins by obtaining above average margins, net of provisions, through lending to commercialand retail borrowers with a range of credit standing. Such exposures involve not just on balance sheet loans and advances but the Groupalso enters into guarantees and other commitments such as letters of credit and other bonds.
Credit riskThe Group takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due.The Groupstructures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower, or groups ofborrowers, and to industry segments. Such risks are monitored on a revolving basis and subject to an annual or more frequent review.
Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and cap-ital repayment obligations and by changing these lending limits where appropriate. Exposure to credit risk is also managed in part byobtaining collateral and corporate and personal guarantees.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
3 Financial risk management…continued
Credit related commitmentsThe primary purpose of these instruments is to ensure that funds are available to customers as required. Guarantees and standby let-ters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet itsobligations to third parties, carry the same credit risk as loans. Documentary and commercial letters of credit, which are written under-takings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount underspecific terms and conditions, are collateralised by the underlying shipment of goods to which they relate and therefore carry less riskthan a direct borrowing.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or lettersof credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal tothe total unused commitments. However, the likely amount of loss is less than the total unused commitments since most commitmentsto extend credit are contingent upon customers maintaining specific credit standards.The Group monitors the term maturity of creditcommitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments.
Geographical and sectoral concentrations of assets and liabilitiesThe Group operates primarily in St. Lucia.
Economic sector risk concentrations within the customer loan portfolio were as follows:
Total before deduction of allowance for losses on loans and advances and unearned interest on discount loans 625,426 629,949
Currency riskThe Group takes on exposure to effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cashflows. The Board of Directors sets limits on the level of exposure by currency and in total for both overnight and intra-day positions,which are monitored daily.The Group’s exposure to currency risk is minimal since most of its assets and liabilities in foreign currenciesare held in United States dollars.The exchange rate of the Eastern Caribbean dollar (EC$) to the United States dollar (US$) has beenformally pegged at EC$2.7169 = US$1.00 since 1974.The following table summarizes the Group’s exposure to foreign currency exchangerate risk at 31 December.
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East
Car
ibbe
an F
inan
cial
Hol
ding
Com
pany
Lim
ited
Not
es t
o C
onso
lidat
ed F
inan
cial
Sta
tem
ents
Dec
embe
r 31
,200
3
(exp
ress
ed in
Eas
tern
Car
ibbe
an d
olla
rs)
3Fi
nanc
ial r
isk
man
agem
ent…
cont
inue
d
Con
cent
ratio
ns o
f ass
ets
and
liabi
litie
sEC
$U
S$BD
SEU
ROG
BPC
AD
Oth
erTo
tal
At
Dec
embe
r 31
,200
3A
sset
sC
ash
and
bala
nces
with
Cen
tral
Ban
k 56
,691
,502
1,78
7,04
414
9,85
963
9,93
129
8,59
860
,864
43,8
7559
,671
,673
Trea
sury
bills
14
,379
,000
––
––
––
14,3
79,0
00D
ue fr
om o
ther
ban
ks
48,1
03,1
7719
,163
,892
8,82
0,41
364
,267
218,
028
239,
459
23,7
6876
,633
,004
Dep
osits
with
non
- ba
nk fi
nanc
ial i
nstit
utio
n–
2,98
8,65
3–
4,45
1,89
287
3,13
3–
–8,
313,
678
Orig
inat
ed lo
ans
– lo
ans
and
adva
nces
to
cust
omer
s 55
3,65
8,21
512
,911
,373
––
––
–56
6,56
9,58
8–
bond
s10
,284
,568
––
––
––
10,2
84,5
68In
vest
men
t se
curit
ies
– he
ld-t
o-m
atur
ity47
,950
,553
108,
626,
229
––
––
52,4
9715
6,62
9,27
9–
avai
labl
e-fo
r-sal
e1,
101,
200
16,5
23,1
45–
––
–19
7,95
217
,822
,297
Inve
stm
ent
in a
ssoc
iate
d un
dert
akin
g 4,
166,
667
––
––
––
4,16
6,66
7Pr
oper
ty,p
lant
and
equ
ipm
ent
42,6
20,8
89–
––
––
–42
,620
,889
Inve
stm
ent
prop
ertie
s 13
,699
,944
––
––
––
13,6
99,9
44O
ther
ass
ets
8,20
4,12
4–
––
––
–8,
204,
124
Inco
me
tax
reco
vera
ble
2,91
3,45
8–
––
––
–2,
913,
458
Tota
l ass
ets
803,
773,
297
162,
000,
336
8,97
0,27
25,
156,
090
1,38
9,75
930
0,32
331
8,09
298
1,90
8,16
9
Liab
ilitie
sD
ue t
o ot
her
bank
s15
,129
,444
––
––
––
15,1
29,4
44D
ue t
o cu
stom
ers
662,
136,
786
4,96
1,93
0–
––
––
667,
098,
716
Borr
owin
gs82
,412
,324
78,4
45,9
40–
4,62
1,79
91,
427,
654
–50
7,14
116
7,41
4,85
8O
ther
liab
ilitie
s 17
,640
,177
––
––
––
17,6
40,1
77D
ivid
ends
pay
able
1,86
4,73
2–
––
––
–1,
864,
732
Def
erre
d ta
x lia
bilit
ies
822,
210
––
––
––
822,
210
Tota
l lia
bilit
ies
780,
005,
673
83,4
07,8
70–
4,62
1,79
91,
427,
654
–50
7,14
186
9,97
0,13
7
Net
cur
renc
y ex
posu
re23
,767
,624
78,5
92,4
668,
970,
272
534,
291
(37,
895)
300,
323
(189
,049
)11
1,93
8,03
2
At
Dec
embe
r 31
,200
2A
sset
s78
0,71
1,96
710
4,73
6,54
623
1,99
040
1,31
457
3,24
716
7,76
595
,159
886,
917,
988
Liab
ilitie
s70
6,70
5,99
075
,148
,148
–4,
214,
315
1,52
4,87
06,
274
565,
475
788,
165,
072
Net
cur
renc
y ex
posu
re74
,005
,977
29,5
88,3
9823
1,99
0(3
,813
,001
)(9
51,6
23)
161,
491
(470
,316
)98
,752
,916
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
3 Financial risk management…continued
Interest rate riskThe Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on its financial position andcash flows. Interest margins may increase as a result of such changes but may reduce or create losses in the event that unexpected move-ments arise.The Board of Directors sets limits on the level of mismatch of interest rate repricing that may be undertaken.
Liquidity riskThe Group is exposed to daily cash calls on its available cash resources from overnight deposits, current accounts, maturing deposits, loandraw downs, and guarantees.The Group does not maintain cash resources to meet all of these needs as experience shows that a mini-mum level of reinvestment of maturing funds can be predicted with a high level of certainty.The Board of Directors sets limits on theminimum proportion of maturing funds available to meet such calls and on the minimum level of interbank and other borrowing facilitiesthat should be in place to cover withdrawals at unexpected levels of demand.
The following table analysis assets and liabilities of the Group into relevant maturity groupings based on the remaining period at balancesheet date to the contractual maturity date.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
3 Financial risk management…continued
Liquidity risk…continued
Maturities of assets and liabilities
1 Year 1-5 Years Over 5 years Total$ $ $ $
At December 31, 2003AssetsCash and balances with Central Bank 59,671,673 – – 59,671,673Treasury bills 3,119,400 11,259,600 – 14,379,000Due from other banks 76,633,004 – – 76,633,004Deposits with non-bank financial institution 8,313,678 – – 8,313,678Originated loans - loans and advances to customers 63,639,850 147,386,753 355,542,985 566,569,588- bonds – – 10,284,568 10,284,568
Total liabilities 698,252,738 83,073,746 88,643,653 869,970,137
Net liquidity gap (419,769,702) 116,451,699 415,256,035 111,938,032
As at December 31, 2002Total assets 251,646,833 191,174,196 444,096,959 886,917,988Total liabilities 622,727,724 77,603,434 87,833,914 788,165,072
Net liquidity gap (371,080,891) 113,570,762 356,263,045 98,752,916
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
3 Financial risk management…continued
Liquidity risk…continuedThe matching and controlled mismatching of the maturities and interest rates of assets and liabilities is fundamental to the managementof the Group. It is unusual for banks ever to be completely matched since business transacted is often of uncertain term and of differenttypes. An unmatched position potentially enhances profitability, but also increases the risk of losses.
The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearing liabilities as they mature, are impor-tant factors in assessing the liquidity of the Group and its exposure to changes in interest rates and exchange rates.
Liquidity requirements to support calls under guarantees and standby letters of credit are considerably less than the amount of the com-mitment because the Group does not generally expect the third party to draw funds under the agreement.The total outstanding con-tractual amount of commitments to extend credit does not necessarily represent future cash requirements, since many of these com-mitments will expire or terminate without being funded.
Fair values of financial assets and liabilitiesFair value amounts represent estimates of the consideration that would currently be agreed upon between knowledgeable willing partieswho are under no compulsion to act and is best evidenced by a quoted market value, if one exists. The following methods and assump-tions were used to estimate the fair value of financial instruments.
The fair values of cash resources, other assets and liabilities, cheques and other items in transit and due to other banks are assumed toapproximate their carrying values due to their short term nature.The fair value of off balance sheet commitments are also assumed toapproximate the amounts disclosed in note 35 due to their short term nature.
The fair values of securities are assumed to be equal to the estimated market value. The fair values of unquoted securities are estimat-ed at book value which is not significantly different from their carrying values.
The estimated fair values of loans reflect changes in interest rates that have occurred since the loans were originated and is determinedby discounting contractual future cash flows, over the remaining term to maturity, at current interest rates.The estimated fair values ofloans is not significantly different from their carrying values.
The estimated fair value of deposits with no stated maturity, which includes non-interest bearing deposits is the amount repayable ondemand. Deposits payable on a fixed date are at rates which reflect market conditions and are assumed to have fair values which approx-imate carrying values.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
4 Cash and balances with Central Bank2003 2002
$ $
Cash in hand 12,487,138 11,257,310Balances with Central Bank other than mandatory deposits 16,675,755 6,619,784
Included in cash and cash equivalents (note 33) 29,162,893 17,877,094Mandatory deposits with Central Bank 30,508,780 27,179,511
59,671,673 45,056,605
Mandatory reserve deposits, as required under Section 17 of the Banking Act, 1991 are not available to finance the Group’s day-to-dayoperations. Cash and balances with Central Bank are non-interest bearing.
5 Treasury bills2003 2002
$ $
Treasury bills – cash and cash equivalents (note 33) 3,119,400 3,119,400Treasury bills – more than 90 days to maturity 11,259,600 8,159,600
14,379,000 11,279,000
Treasury bills are debt securities issued by the Government of St. Lucia, St.Vincent and Grenada for terms of three months to five years.The weighted average effective interest rate on bills at December 31, 2003 was 7.32% (2002 – 7.69%). Amounts totalling $8,118,800(2002 - $8,118,800) have been pledged to the Central Bank to secure the Group’s on going borrowings on the inter-bank market.
6 Due from other banks2003 2002
$ $
Items in the course of collection 7,049,797 5,171,162Placements with other banks 16,111,859 10,807,266Interest bearing deposits 53,471,348 50,407,525
Included in cash and cash equivalents (note 33) 76,633,004 66,385,953
The weighted average effective interest of interest bearing deposits at December 31, 2003 was 3.17% (2002 – 4.27%).
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
7 Deposits with non-bank financial institution2003 2002
Unearned interest on discount loans (10,995,021) (13,143,906)Less allowance for losses on loans and advances (note 9) (47,861,596) (41,864,703)
566,569,588 574,939,896
The weighted average effective interest rate on productive loans stated at amortised cost at December 31, 2003 was 10.85% (2002 –10.36%) and advances stated at amortised cost was 11.52% (2002 – 12.09%).
The aggregate amount of interest not accrued on non-performing loans amounted to $37,579,186.
9 Allowance for losses on loans and advances2003 2002
$ $
At beginning of year 41,864,703 33,270,834Written off during the year as uncollectible (807,555) (4,259,671)Provision for loan impairment 6,804,448 12,853,540
At end of year 47,861,596 41,864,703
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
10 Originated loans – bonds2003 2002
$ $
Government bonds 10,284,568 10,247,397
Government bonds are purchased from and issued directly by the Government of Saint Lucia.The weighted average effective interestrate at December 31, 2003 in respect of Government bonds at amortised cost was 7% (2002 – 7%).
11 Investment securities2003 2002
$ $Securities held-to-maturityDebt securities at amortised cost– Unlisted 156,629,279 103,818,941
Asset in the balance sheet (2,544,767) (2,554,681)
The amounts recognised in the income statement are as follows:2003 2002
$ $
Current service cost 788,725 714,575Interest cost 739,987 613,378Expected return on plan assets (893,804) (801,969)Net actuarial losses/(gains) recognised in the year 61,209 (68,617)
696,117 457,367
The actual return on plan assets was $475,660 (2002 - $521,095).
Movement in the asset recognised in the balance sheet:2003 2002
$ $
Net asset at start of year (2,554,681) (2,404,656)Total expense as shown above (note 34) 696,117 457,367Contributions paid (686,203) (607,392)
Net asset at end of year (2,544,767) (2,554,681)
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
16 Retirement benefit asset…continuedThe principal actuarial assumptions used were as follows:
2003 2002% %
Discount rate 7.00 7.00Expected return on plan assets 7.00 7.00Future promotional salary increases 3.00 3.00Future inflationary salary increases 3.00 3.00Future pension increases – –Proportion of employees opting for early retirement – –
17 Due to other banks2003 2002
$ $
Deposits from other banks 1,888,194 1,413,185Funds managed for other banks 13,241,250 1,600,000
15,129,444 3,013,185
Funds managed for other banks represent monies received which were invested in held-to-maturity and available-for-sale securities (note11). The effective interest is dependant on the return achieved by the Group in respect of such investments. Projected interest ratesrange from 4.0% to 7.5%.
18 Due to customers2003 2002
$ $
Time deposits 333,013,888 331,996,696Savings deposits 218,531,170 186,492,649Demand deposits 110,868,312 83,569,191Funds managed for customers 4,685,346 1,714,079
667,098,716 603,772,615
Funds managed for customers represent monies received which were invested in held-to-maturity and available-for-sale securities (note 11).The effective interest is dependant on the return achieved by the Group in respect of such investments. Projected interest rates range from5.75% to 12.20%.The weighted average effective interest rate of customers’ deposits at December 31, 2003 was 3.60% (2002 – 4.58%)
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
19 BorrowingsInterest rate 2003 2002
$ $LoansCaribbean Development Bank 4.65% 75,234,481 69,051,687National Insurance Corporation 6.81% 49,744,804 53,199,598European Investment Bank 4.00% 7,452,607 7,322,877Sagicor Life Inc. 7.75% 7,000,000 7,273,479IFAD/Government of Saint Lucia 4.00% 3,197,116 3,107,396Agence Francaise De Development 4.00% 1,385,202 1,514,554The Export – Import Bank of the Republic of China 5.00% 1,134,497 1,574,969
145,148,707 143,044,560
Bonds 8.13% 22,266,151 22,265,456
167,414,858 165,310,016
Certain of the above loans are secured by Government of Saint Lucia guarantees as well as securities held with respect to sub-loans made tocustomers under the various lines of credit. Security for loans issued to Property Holding and Development Company of Saint Lucia Limitedincludes a first hypothecary obligation over the building and property known as the Financial Center, which is located at #1 Bridge Street.
The bond issue matures in various periods ranging from September 21, 2006 to April 12, 2012.
20 Other liabilities 2003 2002
$ $
Interest payable 7,713,017 6,983,856Managers’ cheques outstanding 4,479,219 3,477,245Trade and other payables 4,703,716 2,264,873Agency loans 620,865 200,488Deferred rental income 123,360 50,525Items in transit, net – 614,052
17,640,177 13,591,039
The agency loans are funds issued to the Group by the Government of Saint Lucia for disbursement to the related projects. The Groupearns an agency fee on the amounts disbursed. The funds belong to the Government of Saint Lucia.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
21 Minority interest2003 2002
$ $
At beginning of year 1,247,011 1,234,988Acquisition 40,000 20,000Disposal (23,866) –Share of net income of subsidiaries 18,740 12,111Dividend paid (17,675) (20,088)
At end of year 1,264,210 1,247,011
During the year the Group decreased it’s shareholding in Island Legal & Trust Incorporated (note 36).
22 Share capitalNo. of 2003 No. of 2002Shares $ Shares $
Issued and fully paid:At beginning of year 11,005,211 33,581,819 10,421,716 29,913,996Issued during the year 60,035 420,244 433,495 2,917,823Bonus issue during the year (note 23) 1,658,214 10,778,392 – –Converted from preference shares – – 150,000 750,000
At end of year 12,723,460 44,780,455 11,005,211 33,581,819
At beginning of year 2,580,000 12,900,000 2,730,000 13,650,000Converted to ordinary shares – – (150,000) (750,000)
At end of year 2,580,000 12,900,000 2,580,000 12,900,000
Total preference and ordinary shares 15,303,460 57,680,455 13,585,211 46,481,819
The preference shares are non-voting and are to be converted to ordinary shares on transfer thereof.The company has imposed certainrestrictions with respect to the number of preference shares that can be converted to ordinary shares in any one year.
Dividends due and unpaid on the preference shares at year end amounted to $903,000 (2002 - $903,000).
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
23 Dividends 2003 2002
Dividends Dividends per share per share
$ $ $ $On ordinary sharesFinal – relating to 2001 – – 0.50 5,210,859Interim – relating to 2002 – – 0.12 1,320,624Interim – relating to 2003 0.15 1,908,519 – –
0.15 1,908,519 0.62 6,531,483
At the meeting on March 31, 2003 the Board of Directors declared a bonus issue of three (3) ordinary shares for every twenty (20)ordinary shares held by shareholders on record date April 7, 2003 (note 22).
24 General reserveIt is the policy of the Group to maintain a general reserve for reinvestment in operations.Transfers to the reserve are based on a maxi-mum of 35% of net income of Group consolidated net profit after transfers to statutory reserve.
25 Statutory reserveThis reserve is maintained in accordance with Section 14(1) of the Banking Act of St. Lucia No.7 of 1991, which requires that everylicensed financial institution maintain a reserve fund and shall, out of its net profit of each year transfer to that fund a sum equal to notless than 20% of such profits whenever the amount of the fund is less than one hundred percent of the paid-up capital of the financialinstitution.
26 Student loan guarantee fund reserveThis is a non-distributable reserve. Transfers are made to the reserve at an amount equal to the net profit of the subsidiary Student LoanGuarantee Fund Limited of $427,120 (2002 – $nil).
27 Special reserveThe finance contract between the European Investment Bank (“EIB”) and the former St. Lucia Development Bank, now assumed by Bankof Saint Lucia Limited, requires the Group to establish and maintain a special reserve.Annually, an amount as specified under Section 6.05of the Contract is credited to the reserve.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
28 Net interest income2003 2002
$ $Interest incomeLoans 59,102,285 60,956,624Treasury bills and investment securities 10,577,241 6,375,240Deposits with banks 1,384,957 1,065,316
Commissions and loan fees 5,654,641 5,962,231Exchange earnings from foreign currency transactions 7,065,090 2,893,955Rental 929,107 852,370Other 714,415 267,390Fair value gains on available-for-sale investments 302,065 –Gain on disposal of property, plant and equipment 156,600 36,984Management fees 132,420 124,371Dividends received 114,795 21,489Gain on disposal of investment 111,515 –
15,180,648 10,158,790
30 Other operating expenses2003 2002
$ $
Staff costs (note 34) 16,580,346 14,961,007Depreciation and amortisation of leasehold impairments 2,443,344 2,479,606Other expenses 9,650,275 8,551,369
28,673,965 25,991,982
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
31 Taxation2003 2002
$ $
Current 1,307,363 341,086Deferred (12,020) (45,837)
1,295,343 295,249
Tax on the Group’s net income before tax differs from the theoretical amount that would arise using the statutory tax rate of 33%(2002–33.33%) as follows:
2003 2002$ $
Profit for the year before taxation 16,498,275 3,814,744
Tax calculated at the applicable tax rate of 33% (2002 -33.33%) 5,444,431 1,271,454Tax effect of income not subject to tax (4,065,026) (1,472,997)Deferred tax asset not previously recognised, net (751,520) (183,621)Tax effect of expenses not deductible for tax purposes 226,120 680,413Tax effect of expired tax losses 447,241 –Tax effect of change in tax rates (5,903) –
1,295,343 295,249
Deferred taxThe movement on the deferred liability is as follows:
2003 2002$ $
At beginning of year 834,230 880,067Recovered during the year, net (12,020) (45,837)
At end of year 822,210 834,230
The deferred tax account is detailed as follows:2003 2002
$ $
Accelerated capital allowances 21,746 123,279Fair value of pension assets 839,773 851,475Unutilised tax losses (39,309) (140,524)
822,210 834,230
The Group has unutilised tax losses of $119,118 (2002 - $421,614). Unutilised tax losses may be carried forward and deducted againstfuture taxable income within six years following the year in which the losses were incurred. The losses are based on income tax returns,which have not yet been assessed by the Inland Revenue Department. The losses deductible are restricted to 50% of taxable income inany one year and expire in 2008.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
31 Taxation…continued
The basis for allocating expenses relating to exempt income of the development operations of the Group had not been finalised withthe Inland Revenue Department at the reporting date. Adjustments arising, if any will be reflected in the period in which agreement hasbeen reached.
32 Earnings per share
BasicThe calculation of basic earnings per share is based on the net profit attributable to shareholders of $14,281,192 (2002 - $2,604,384)and 12,708,451 (2002 – 12,443,927) shares, being the weighted average number of ordinary shares in issue in each year.
DilutedThe calculation of diluted earnings per share is based on after tax earnings of $15,184,192 (2002 - $3,507,384) and 15,288,451 (2002 –15,173,927) shares, being the weighted average number of shares in issue taking into account the preference shares had they been con-verted to ordinary shares.
33 Cash and cash equivalents
For the purposes of the cash flow statement, cash and cash equivalents comprise the following balances:
2003 2002$ $
Cash and balances with Central Bank (note 4) 29,162,893 17,877,094Due from other banks (note 6) 76,633,004 66,385,953Deposits with non-bank financial institution (note 7) 8,313,678 11,591,585Treasury bills (note 5) 3,119,400 3,119,400
The average number of employees in 2003 was 295 (2002 – 270).
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
35 Commitments
The following table indicates the contractual amounts of the Group financial instruments that commit it to extend credit to customers.2003 2002
$ $
Loans and advances approved by the Group but not yet disbursed 61,782,104 58,943,324
Guarantees and letters of credit 12,512,443 7,743,200
ContingencyMortgage loans totalling $23.4 million (2002 - $23.4 million) were sold to the Eastern Caribbean Home Mortgage Bank (ECHMB). Underthe terms of the agreement Bank of Saint Lucia Limited is obligated to indemnify ECHMB with respect to any default, loss or title defi-ciency occurring during the life of the loans secured or by the purchased mortgages.Amounts outstanding at December 31, 2003 totalled$20,863,079 (2002–$21,910,447).
36 Principal subsidiary undertakings2003 2002
Holding Holding % %
Bank of Saint Lucia Limited 100 100Property Holding and Development Company of Saint Lucia Limited 91 89Mortgage Finance Company of St. Lucia Limited 100 100Island Legal & Trust Incorporated 48 67Offshore Finance & Services Company of Saint Lucia Limited 100 100St. Lucia Development & National Commercial Holding Limited 100 100Bank of Saint Lucia International Limited 100 –ECFH Insurances Limited 100 –Student Loan Guarantee Fund Limited ** –Productive Sector Equity Fund Incorporated ** –
** The legal formalities in respect of the allotment of shares have not been completed at the reporting date.
All other holdings are in the ordinary share capital of the undertaking concerned.The companies noted above are all incorporated anddomiciled in Saint Lucia.
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East Caribbean Financial Holding Company LimitedNotes to Consolidated Financial StatementsDecember 31, 2003
(expressed in Eastern Caribbean dollars)
37 Related party transactions and balances
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the otherparty by making financial and operational decisions.
Interest income and interest expense with related parties were as follows:
2003 2002Income Expense Income Expense
$ $ $ $
Government of Saint Lucia 981,941 4,552,721 3,076,933 5,252,136Statutory bodies 4,402,701 6,971,846 3,943,075 4,643,760Directors and key management 129,700 31,636 116,872 29,638
At December 31, 2003, related parties had the following balances with the Group:
2003 2002Loans Deposits Loans Deposits
$ $ $ $
Government of Saint Lucia 6,192,000 187,125,000 6,126,000 192,464,000Statutory bodies 43,976,000 148,796,000 44,630,000 116,111,000Directors and key management 1,687,471 1,075,740 1,418,122 468,675
38 Contributed capital
In 1996 a subsidiary of the company, St. Lucia Development & National Commercial Holding Limited received a capital contribution fromthe Government of Saint Lucia in the sum of $1,525,472. In 2003 a subsidiary Productive Sector Equity Fund Incorporated received acapital contribution of $375,000 from the National Insurance Corporation.
39 Retirement benefit reserve
This is a non-distributable reserve. During the year $9,914 (2002 - $150,025) was transferred from/(to) retained earnings to/(from) theretirement benefit reserve account.
40 Subsequent event
At the meeting on April 7, 2004 the Board of Directors declared a final dividend in respect of 2003 of $0.38 per share for ordinary sharesheld by shareholders on record date April 12, 2004.
