Assurance | Tax | Advisory

Liberian Bank for Development and Investment (LBDI)

Independent Auditors’ Report and Financial Statements

For the Year ended December 31, 2013

LIBERIAN BANK FOR DEVELOPMENT AND INVESTMENT (LBDI)

FINANCIAL STATEMENTS

FOR THE YEAR ENDED DECEMBER 31, 2013

Assurance | Tax | Advisory

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Our Shared Values

The

Baker Tilly International

Mission Statement

To operate a network whose members deliver, with integrity and objectivity, superior independent audit, accounting, tax and financial services to clients through global resources and relationships

.

B

AKER

T

ILLY

V

ALUES

1.

We lead by example.

2.

We deliver a quality service with an emphasis on integrity.

3.

We are open and honest in all communications.

4.

We act ethically.

5.

We foster teamwork and collaboration with other Baker Tilly member firms.

6.

We maintain a supportive environment in which our individuals can flourish

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Contents

Corporate Information

Report of the Directors

Independent Auditors’ Report

Statement of Profit / Loss and other Comprehensive Income

Statement of Financial Position

Statement of Cash Flows

Income statement

Notes to the Annual Financial Statements

Contents

Corporate Information

Report of the Directors

Statement of Cash Flows

Notes to the Annual Financial Statements

Page

Page

3

4-5

9

10

11

3

9

8

9

10 - 38

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Corporate information

Registered Office:

Liberian Bank for Development and Investment

P.O. Box 10 – 0547 – 1000 Monrovia 10

Corner of Tubman Boulevard & 9 th Street, Sinkor

Directors :

Amara M. Konneh Chairman – Board of Directors

John B. S. Davies, III – President and Chief Executive Officer

Chairman – Executive Committee

Norwu K. Hoff – Chairman - Audit & Compliance Committee

David C. Johnson – Chairman - Credit & Risk Management Committee

Ashton Towler – Chairman - Asset and Liability Committee

James S. P. Cooper – Member

Samuel Kofi Woods – Member (Resigned on May, 2013)

Paarock VanPercy – Member

Dewitt vonBallmoos – Member

Isaac O. A. Olagunju – Member

Corporate Secretary:

Gloria Y. Menjor, General Manager/Deputy Chief Executive Officer

Solicitor :

Cooper & Togbah Law Office

Auditors: BAKER TILLY LIBERIA

(Certified Public Accountants)

King Plaza, 2-4 th

80 Broad Street

Floor

Monrovia

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Report of the Directors

The directors have pleasure in submitting their report to the shareholders together with the financial statements for the period ended 31 December 2013.

Directors’ responsibility statement

The Bank’s Directors are responsible for the preparation and fair presentation of the financial statements, comprising the statement of financial position at 31 December 2013 and the income statement, the statement of changes in equity and of cash flows statement for the year then ended, and the notes to the financial statements, which include a summary of significant accounting policies and other explanatory notes, in accordance with International Financial

Reporting Standards (IFRS), and in the manner required by the New Financial Institutions Act

(FIA) of 1999 and the Prudential Regulations of the Central Bank of Liberia (CBL), and for such internal control as the directors determine is necessary to enable the preparation of financial statements that are free from material misstatement, whether due to fraud or error.

The directors have made an assessment of the bank’s ability to continue as a going concern and have no reason to believe the business will not be a going concern in the year ahead.

Results

The results for the year and the state of the bank’s affairs are set out in the attached financial statements.

Approval of the financial statements

The financial statements of the Bank were approved by the Board of Directors on

_________________, 2014.

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Report of the Directors

(continued)

Secretary

The Secretary of the Bank is Ms. Gloria Y. Menjor, General Manager/Deputy Chief

Executive Officer (DCEO).

Auditors

The auditors, Baker Tilly Liberia, have expressed their willingness to remain in office. In accordance with the New Financial Institution Act, a resolution for the re-appointment of

Baker Tilly Liberia, as auditors of the Bank, is to be proposed at the forthcoming Annual

Meeting.

By Order of the Board

……………………………………

Director

………………………………..

Director

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Liberian Bank for Development & Investment (LBDI)

Independent Auditors’ Report and Financial Statements

For the year ended December 31, 2013

King Plaza

Independent Auditors’ Report

To: The Board of Directors and Shareholders of the

Liberian Bank for Development and Investment (LBDI)

2 nd – 4 th Floors

Broad Street

P. O. Box 10-0011

1000 Monrovia 10 Liberia

T : +231 (0) 886 514 965

F : +1 905 469 0986 info@bakertillyliberia.com www.bakertillyliberia.com

We have audited the financial statements of the Liberian Bank for Development and Investments which comprise the Statement of Financial Position as at December 31, 2013, the Statement of

Profit or Loss and Other Comprehensive Income, the Statement of Changes in Equity and the

Statement of Cash Flows for the year then ended, as well as the summary of significant accounting policies and other explanatory notes. These financial statements are prepared in accordance with the accounting polices set out on pages 12 to 60.

Managements’ responsibility for the financial statements

Management is responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards, and in the manner required by the provisions of the Act of the National Legislature, the Financial Institution Act (FIA) of 1999 and the

Prudential Regulations of the Central Banks of Liberia (CBL). This responsibility includes designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error, selecting and applying appropriate accounting policies, and making accounting estimates that are reasonable in the circumstances.

Auditors’ responsibility

Our responsibility is to express an opinion on these financial statements based on our audit. We conducted our audit in accordance with International Auditing Standards (IAS). Those standards require that we comply with ethical requirements and plan and perform the audit to obtain reasonable assurance about whether the financial statements are free of material misstatement.

An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the financial statements. The procedures selected depend on the auditors’ judgement including the assessment of risks of material misstatement of the financial statements whether due to fraud or error.

Partners: G. Fonderson (Executive Chairman), T. Joseph (Managing Partner)

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In making those risk assessments, we consider internal control relevant to the entity’s preparation and fair presentation of the financial statements in order to design audit procedures that are appropriate in the circumstances but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control.

An audit also includes evaluating the appropriateness of the accounting policies used and the reasonableness of accounting estimates made by the Directors, as well as evaluating the overall financial statements presentation.

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

Opinion

In our opinion, the financial statements give a true and fair view of the financial position of the

Liberian Bank for Development and Investment (LBDI) as at December 31, 2013 and of its financial performance and its cash flows for the year then ended in accordance with International Financial

Reporting Standards (IFRS) and the requirements of the New Financial Institutions Act (FIA) of

1999.

Report on other Legal and Regulatory Requirements

In accordance with the requirements of Section 21-1(a) of the New Financial Institution Act of 1999, we report that, we received satisfactory explanations/information from the officers and /or agents of the bank, regarding the bank’s compliance with the Act.

(

Certified Public Accountants)

Monrovia

June 9, 2014

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Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2013

In Liberian dollars Note

Interest income

Interest expense

Net interest income

Loan impairment charges

Net interest income after loan impairment charges

Net interest and commission on Loans & Advances

31-Dec-2013 31-Dec-2012

9

10

11

409,750,644

(116,890,508)

246,930,807

(75,433,548)

292,860,136

-

292,860,136

171,497,259

(7,148,989)

164,348,270

650,169,355 575,350,588

Other operating income

Personnel expenses

General and administrative expenses

Operating lease expenses

Amortization

Depreciation

Other operating expenses

Profit for the period

21

22

15

12

13

14

112,899,547

(302,863,435)

(338,684,508)

75,770,665

(256,206,172)

(270,220,891)

(21,547,232)

(12,314,226)

(70,010,617)

(16,056,098)

(18,156,280)

(35,744,039)

(41,603,889)

(23,955,006)

(26,661,433)

28,076,338

Profit attributable to:

Equity holders of the entity

- Profit for the period from continuing operations (23,955,006) 28,076,338

Earnings per share for the profit/loss from continuing operations attributable to the equity holders of the company entity during the period (expressed in Liberian dollars per share): (0.03) 0.04

The notes on pages 12 to 60 are integral parts of these financial statements

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Statement of Financial Position

As at 31 December 2013

In Liberian dollars

Note 31-Dec-2013

Assets

Cash and cash equivalents

Investment in securities

Available for sale

Held- to- maturity

Loans and Advances to Customers

Other assets

Other current investments

Investment property

Equity investment

Intangible assets

Property and equipment

Total assets

Liabilities

Deposits from Customers

Due to Central Bank

Due to (ECOWAS Bank for Int. & Dev. - EBID)

Unearned fees and commission

Current income tax liabilities

Other liabilities

Total liabilities

Equity

Share capital

Share Premium

Statutory Reserves

Revaluation Surplus

Credit Risk Reserves

Treasury stock

Translation Adjustments

Retained earnings / (Accumulated losses)

Total equity attributable to the owners of the bank

Total liabilities and equity

_________________________

John B.S.Davies III

President/Chief Executive Officer

31-Dec-2012

As at

1-Jan-2012

16

17

17.1

17.2

18

19

20

21

22

2,212,343,154 3,057,671,600

87,122,310

286,183,315

4,956,381,357

3,348,745,557

595,441,081

432,000,000

24,835,965

73,410,911

1,044,740,850

-

-

2,315,570,976

2,627,259,573

388,500,000

432,000,000

24,083,360

74,929,026

967,243,911

2,936,592,372

-

-

-

2,217,190,189

2,515,014,315

421,200,000

432,000,000

-

91,329,848

926,059,450

13,061,204,500 9,887,258,447 9,539,386,174

23

24

25

8,546,977,825

1,607,683,810

247,500,000

65,353,028

6,566,717

530,460,286

7,178,531,179

807,170,001

-

956,738

2,214,443

433,970,120

6,484,945,181

71,670,001

-

2,797,937

2,787,735

1,562,524,758

11,004,541,666 8,422,842,481 8,124,725,613

26

27a

27b

28

388,228,269

140,958,544

132,781,956

671,483,524

381,108,545

(3,481,992)

338,260,961

7,323,026

388,228,269

140,958,544

132,781,956

671,483,524

119,119,169

(3,481,992)

-

15,326,496

316,228,269

68,958,544

125,762,867

648,629,004

287,605,583

(3,481,992)

-

(29,041,713)

2,056,662,834 1,464,415,966 1,414,660,562

13,061,204,500 9,887,258,447 9,539,386,175

________________________

Amara M. Konneh

Chairman, Board of Directors


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Cash flows from operating activities

Profit for the period

Adjustments for: Depreciation and amortization of property and equipment

Translation differences

Changes in:

Loans and advances to customers

Other assets

Deposits from customers


Other liabilities

Net cash from/(used in) operating activities

Cash flows from investing activities

Net sale/(purchase) of investment securities

Purchase of propety and equipment

Investment in treasury bills

Investment in Liberia Cement Corporation shares

Revaluation of investment property

Translation/(loss) gain on Equity

Other investments

Revaluation of property and equipment

Net cash from/(used in) investing activities

(23,955,006)

82,324,843

545,093,143

28,076,338

52,144,860

(169,832,105)

603,462,980 (89,610,907)

(2,640,810,381)

(721,485,984)

1,368,446,646

64,396,291

96,490,166

(98,380,786)

(112,245,258)

693,585,998

(1,841,199)

(1,128,554,638)

(1,229,500,283) (737,046,790)

(122,513,826)

(286,183,315)

(87,122,310)

-

(266,380,468)

(206,941,081)

305,299,027

(663,841,973)

(76,928,502)

-

-

22,854,520

-

32,700,000

-

(21,373,982)

Cash flows from financing activities

Sale of shares

Increase in loans from the Central Bank of Liberia

Due to ECOWAS Bank for Investment & Development - EBID

Net cash from/(used in) financing activities

-

800,513,809

247,500,000

1,048,013,809

144,000,000

-

735,500,000

879,500,000

Net (decrease) / increase in cash and cash equivalents

Cash and cash equivalent at beginning of period

Cash and cash equivalent at end of period

(845,328,446)

3,057,671,600

2,212,343,154

121,079,228

2,936,592,372

3,057,671,600


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Statement of changes in equity

For the period ended 31 Decemer 2013

Share

capital

In Liberian dollars

Share

Premium

Revaluation reserves

Credit

Risk Reserves

Statutory reserves

Treasury stock

Translation

Adjustments

Retained earnings Total

Balance at 1 January 2013

Shares issued: Class B Common stock $10 par value

Share premium (Paid - in Capital in excess of par)

Revaluation reserves on land and buildings

Revaluation reserves on investment properties

Writeback of Provision

Additional provision due to impairment loss

Unearned fees and commission revised

388,228,269 140,958,544

-

-

-

-

-

-

-

-

-

-

-

-

-

-

15,326,496 1,464,415,967

82,072,155

-

(65,353,035)

-

-

-

-

82,072,155

261,989,376

(65,353,035)

Revaluation of staff loans 733,095 733,095

De-recognition of training cost from Intangible assets

Transfer to Statutory Reserve

Other adjustment (Exchange rate movements from functional to presentation currency

Total comprehensive income for the period:


Other comprehensive income, net of tax

Foreign currency translation difference (EURO & GBP Transactions)

Total other comprehensive income

Total comprehensive income

-

-

-

-

-

-

-

-

-

-

-

-

-

-

388,228,269

-

-

140,958,544

-

-

671,483,524 381,108,545

-

-

132,781,956


-

-

338,260,961

-

-

-

(3,481,992)

-

338,260,961

(23,955,006)

(1,500,679)

-

-

338,260,961

-

-

(23,955,006)

-

-

(1,500,679)

7,323,026 2,056,662,834




NOTES TO THE FINANCIAL STATEMENTS

1.0

Establishment and operation of LBDI

The Liberian Bank for Development and Investment (LBDI) was established in 1962 by the Government of Liberia in accordance with chapter 41 section 965 through 1004 of an Act of the National Legislature approved into law in the same year. The Act was amended twice, the final amendment being on March

22, 1965, following which the Bank commenced operations on November 24 of that year.

The Bank was established to facilitate, inter alia, the following economic policies of the Government of

Liberia: a) Develop the national economy through the free enterprise system; b) Encourage the economic development of the country by facilitating international trade and investment of private capital for productive purposes; c) Fund the establishment and expansion of small and medium enterprises; d) Assist in the establishment, expansion and modernization of private enterprise; e) In general, provide and nurture a climate favorable to the investment of private capital for the purpose of increasing the productive capacities of the national economy.

1.1

Activities of LBDI

LBDI was originally established to provide development banking services as outlined above. However, in

1988 the scope of operations of the Bank was expanded to include commercial banking services. The Act establishing the Bank was amended on July 21, 1988 to authorize the expansion and the Bank commenced commercial banking activities on September 1, 1988 after being licensed by the then

National Bank of Liberia, the predecessor of the Central Bank of Liberia.

2.0

Significant Accounting Policies

2.1 Basis of preparation

The financial statement of the bank has been prepared in accordance with International Financial

Reporting Standards (IFRS). This is the first financial statements prepared by the Bank in compliance with IFRS as at the date of transition to IFRS, 1 January 2012 and earliest comparative period of 31

December 2012. This is in preparation for the Bank’s adoption of IFRS as at December 31, 2013 .

2.2 Currency of Accounting and Reporting

The accounting policies set out below have been applied consistently to all periods presented in these financial statements.

2.2.1 Functional and presentation currency

These financial statements are presented in Liberian dollars in accordance with the requirements of the

Financial Institution Act of 1999. However, supplementary financial statements are included in United

States dollars because the bank operates in an economy with dual currencies. However, the bank functional currency is the United States Dollars. LBDI followed the standard on IAS 38, 39A & 42A in carrying out this exercise.

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2.3 Basis of measurement

These financial statements have been prepared on the historical cost basis and fair value and have been applied where necessary.

2.4 Use of estimates and judgments.

The preparation of the financial statements in conformity with IFRS requires the Directors to make judgments, estimates and assumptions that affect the application of policies and related amounts of assets and liabilities, income and expenses. The estimates and associated assumptions are based on historical experience and various other factors that are believed to be reasonable under the circumstances, the results of which form the basis of making the judgments about carrying values of assets and liabilities that are not readily apparent from other sources. Actual results may differ from these estimates. The estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimate is revised and in any future periods affected.

Other Accounting Policies

Foreign currency translation

(i) Functional and presentation currency

Items included in the financial statements are measured using the currency of the primary economic environment in which the entity operates (‘the functional currency’).

(ii) Transactions and balances

Foreign currency transactions that require settlement, in a foreign currency are translated into the functional currency using the exchange rates prevailing at the dates of the transactions. Monetary items denominated in foreign currency are translated using the closing rate as at the reporting date. Non-monetary items denominated in foreign currency are measured and translated at historical rate (rate at the date of initial recognition). Foreign exchange gains and losses resulting from the settlement of foreign currency transactions and from the translation at period-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognized in the Income statement.

All foreign exchange gains and losses recognized in the Income statement are presented net in the Income statement. Foreign exchange gains and losses on other comprehensive income items are presented in other comprehensive income within the corresponding item.

2.2

Interest Income and Expense

Interest income and expense for all interest bearing financial instruments are recognized in the Income

Statement within “interest income” and “interest expense” section using the effective interest rate method.

The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, the next repricing date) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Bank estimates future cash flows considering all contractual terms of the financial instruments but not future credit losses.

The calculation of the effective interest rate includes contractual fees and charges paid or transaction costs received, and discounts or premiums that are an integral part of the effective interest rate. Transaction costs are incremental costs that are directly attributable to the acquisition, issue or disposal of a financial asset or liability.

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Interest income and expense presented in the Income Statement include:

 Interest on financial assets and liabilities measured at amortized cost calculated on an effective interest rate basis.

2.3 Fees and commission

Fees and Commission that are integral to the effective interest rate on a financial asset are included in the measurement of the effective interest rate. Fees, such as processing and management fees charged for assessing the financial position of the borrower, evaluating and reviewing guarantee, collateral and other security, negotiation of instruments’ terms, preparing and processing documentation and finalizing the transaction are an integral part of the effective interest rate on a financial asset or liability and are included in the measurement of the effective interest rate of financial assets or liabilities.

Other fees and commissions which relates mainly to transaction and service fees, including loan account structuring and service fees, investment management and other fiduciary activity fees, sales commission, placement line fees, syndication fees and guarantee issuance fees are recognized as the related services are provided / performed.

2.4 Net trading income

Net trading income comprises trading gains and losses on trading in foreign Exchange.

2.5

Leases

Leases are accounted for in accordance with IAS 17 and IFRIC 4. They are divided into finance leases and operating leases .

The Bank is the lessee

Operating lease

Leases in which a significant portion of the risks and rewards of ownership are retained by another party, the lessor, are classified as operating leases. Payments, including prepayments, made under operating leases (net of any incentives received from the lessor) are charged to the income statement on a straightline basis over the period of the lease. When an operating lease is terminated before the lease period expires, any payment required to be made to the lessor by way of penalty is recognized as an expense in the period in which the termination takes place.

2.6

Financial assets and liabilities

(i) Recognition

The Bank initially recognizes loans and advances, deposits amounts, due from Central

Bank and to intercompany on the date that the transactions are originated. All other financial assets and liabilities are initially recognized on the trade date at which the Bank becomes a party to the contractual provisions of the instrument.

(ii) Classification

The classification of financial instruments depends on the purpose, characteristics and management’s intention for which the financial instruments were acquired. The Bank’s classification of financial assets and liabilities are in accordance with IAS 39. a) Loans and Receivables .

Loans and advances are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Bank does not intend to sell immediately or in the near term.

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For the year ended December 31, 2013 b) Investment Securities

(i) Available-for-sale

Loans are initially recognized at their transaction price, which is the cash amount advance to the borrower. In addition, the net of direct and incremental transaction costs and fees are included in the initial carrying amount of the loans. These loans are subsequently measured at amortized cost using the effective interest method less impairment.

Loans which have been acquired as assets purchased are initially recognized at fair value at the acquisition date. The fair value at the acquisition date incorporates expected cash flow which considers the credit quality of these loans including any incurred losses.

Cash and cash equivalents include notes and coins on hand, unrestricted balances held with the Central Bank of Liberia and highly liquid financial assets with original maturities of less than three months, as well as cash on deposit with premier correspondent banks, which are subject to insignificant risk of changes in their fair value, and are used by the

Bank in the management of its short-term financial commitments. Cash and cash equivalents are carried at amortized cost in the Statement of financial position.

Available-for-sale assets are those intended to be held for an indefinite period of time, which may be sold in response to the bank’s needs for liquidity or changes in interest rates, exchange rates, or equity prices.

Investment securities and treasury bills with a maturity of 182 days or less are classified as available for sale.

Financial assets not classified as at fair value through profit or loss or as loans are classified as Available-forsale (AFS). A financial assets is initially recognized at its fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. Financial assets classified as AFS are carried at fair value with the changes in fair value reported in other comprehensive income, unless the asset is subject to a fair value hedge, in which case changes in fair value resulting from the risk of being hedged, in which case changes in fair value are recorded in other income.

Financial assets classified as available-for-sale (AFS) are assessed for impairment as discussed in the section entitle ‘Impairment of financial assets’.

Shares of Blue chip companies held for sale to the public are classified as available-for-sale and are recognized on trade-date-the date on which the bank commits to the purchase of the instrument.

(ii) Held-to maturity

Held-to-maturity assets are non-derivative financial assets with fixed or determinable payments and fixed maturities that management has an intention and ability to hold to maturity. Were the entity is to sell more than a insignificant amount of held-to-maturity assets, the entire category would have to be reclassified as available for sale. Treasury bills with an original maturity of more than 182 days, treasury notes and other government bonds are classified as held-to-maturity. c) Government Bonds

Government bonds are measured at the face amount of the instrument and recognized at the date the instrument is issued. Bonds interests are amortized over the life of the instrument. Government Bonds are reported or carried at amortized costs. d) Restricted Assets

These are reported when restrictions on the use of the assets change the nature or the normal understanding of the availability of the assets. For example, cash held with correspondent banks are normally classified as cash and cash equivalents, and

Page | 15



For the year ended December 31, 2013 normal understanding of these presumes that restrictions do not limit the bank’s ability to use the resources to pay current liabilities. But cash and investment held in a separate account that can only be used to pay obligation, for example, a letter of credit commitment as required by the arrangements and cannot be used to settle other current obligations are reported as restricted assets and classified under other

Assets on the statement of financial position, e) Financial assets classified as Available-for-sale (AFS)

Financial assets that are not classified as at fair value through profit or loss or as loans are classified as Available-for-sale (AFS). A financial asset is initially recognized as its fair value plus transaction costs that are directly attributable to the acquisition of the financial assets. The amortization of premiums and accretion of discount are recorded in net interest income. Financial assets classified as AFS are carried at fair value with the changes in fair value reported in other comprehensive income, unless the asset subject to a fair value hedge, in which case changes in fair value resulting from the risk of being hedged are recorded in other income.

Financial assets classified as available-for-sale (AFS) are assessed for impairment as discussed in the section entitled ‘Impairment of financial assets’. Realized gain or losses are recognized in Net gain on financial assets available-for-sale.

(iii) Measurement

All financial instruments are measured initially at their fair value plus transaction costs.

For assets and liabilities not quoted in active markets, fair value is determined using valuation techniques, such as discounted cash flows models or option pricing models.

Such valuation techniques estimate the price that would have been paid in an arm-length transaction motivated by normal business consideration on the balance sheet date.

Non-tradable financial liabilities are measured at amortized cost. Subsequent recognition of financial assets and liabilities is at amortized cost or fair value. a) Amortized cost measurement

The amortized cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest rate method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment. b) Fair value measurement

Fair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.

(iv) Offsetting

Financial assets and liabilities are set off and the net amount presented in the statements of financial position when, and only when, the Bank has a legal right to set off the amounts and intends either to settle on a net basis or to realize the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a group of similar transactions such as in the Bank’s trading activity.

Page | 16




(v) De-recognition

On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and the sum of (i) the consideration received (including any new asset obtained less any new liability assumed) and (ii) any cumulative gain or loss that had been recognized in other comprehensive income is recognized in profit or loss.

The Bank derecognizes a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the rights to receive the contractual cash flows in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or when it is no longer permissible to continue carrying the asset under IFRS.

In certain transactions the Bank retains the obligations to service the transferred financial asset for a fee. The transferred asset is derecognized if it meets the de-recognition criteria. An asset or liability is recognized for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing.

The Bank enters into transactions whereby it transfers assets recognized on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognized. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. In transactions in which the Bank neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Bank continues to recognize the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset.

The Bank derecognizes a financial liability other than financial guarantees and loan commitments as measured at amortized cost.

(vi) Identification and measurement of impairment

Assets carried at amortized cost

The Bank assesses at each reporting date whether there is objective evidence that a financial asset or group of financial assets is impaired. A financial asset or a group of financial assets is impaired and impairment losses are incurred only if there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the asset (a ‘loss event’) and that loss event (or events) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. The criteria that the Bank uses to determine that there is objective evidence of an impairment loss include:

(a) significant financial difficulty of the issuer or obligor;

(b) a breach of contract, such as a default or delinquency in interest or principal payments;

(c) the lender, for economic or legal reasons relating to the borrower’s financial difficulty, granting to the borrower a concession that the lender would not otherwise consider;

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(d) it becomes probable that the borrower will enter bankruptcy or other financial re-organization;

(e) the disappearance of an active market for that financial asset because of financial difficulties; or

(f) observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of financial assets since the initial recognition of those assets, although the decrease cannot yet be identified with the individual financial assets in the portfolio, including:

(i) adverse changes in the payment status of borrowers in the portfolio; and

(ii) national economic conditions that correlate with defaults on the assets in the portfolio.

The estimated period between a loss occurring and its identification is determined by local management for each identified portfolio. In general, the periods used vary between three months and 12 months; in exceptional cases, longer periods are warranted.

The Bank first assesses whether objective evidence of impairment exists individually for financial assets that are individually significant, and individually or collectively for financial assets that are not individually significant. If the Bank determines that no objective evidence of impairment exists for an individually assessed financial asset, whether significant or not, it includes the asset in a group of financial assets with similar credit risk characteristics and collectively assesses them for impairment. Assets that are individually assessed for impairment and for which an impairment loss is or continues to be recognized are not included in a collective assessment of impairment.

The amount of the loss is measured as the difference between the asset’s carrying amount and the present value of estimated future cash flows (excluding future credit losses that have not been incurred) discounted at the financial asset’s original effective interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the loss is recognized in the Income Statement. If a loan or held-to-maturity investment has a variable interest rate, the discount rate for measuring any impairment loss is the current effective interest rate determined under the contract. As a practical expedient, the Bank may measure impairment on the basis of an instrument’s fair value using an observable market price.

The calculation of the present value of the estimated future cash flows of a collateralized financial asset reflects the cash flows that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.

For the purposes of a collective evaluation of impairment, financial assets are grouped on the basis of similar credit risk characteristics (that is, on the basis of the Bank’s grading process that considers asset type, industry, geographical location, collateral type, past-due status and other relevant factors). Those characteristics are relevant to the estimation of future cash flows for groups of such assets by being indicative of the debtors’ ability to pay all amounts due according to the contractual terms of the assets being evaluated.

Future cash flows in a group of financial assets that are collectively evaluated for impairment are estimated on the basis of the contractual cash flows of the assets in the bank and historical loss experience for assets with credit risk characteristics similar to those in the bank. Historical loss experience is adjusted on the basis of current observable data to reflect the effects of current conditions that did not affect the period on which the historical loss experience is based and to remove the effects of conditions in the historical period that do not currently exist.

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Estimates of changes in future cash flows for groups of assets should reflect and be directionally consistent with changes in related observable data from period to period (for example, changes in unemployment rates, property prices, payment status, or other factors indicative of changes in the probability of losses in the Bank and their magnitude). The methodology and assumptions used for estimating future cash flows are reviewed regularly by the Bank to reduce any differences between loss estimates and actual loss experience.

When a loan is uncollectible, it is written off against the related allowance for loan impairment.

Such loans are written off after all the necessary procedures have been completed and the amount of the loss has been determined. Impairment charges relating to loans and advances to banks and customers are classified in loan impairment charges whilst impairment charges relating to investment securities (held to maturity category) are classified in ‘Net impairment loss on financial assets’.

If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the allowance account. The amount of the reversal is recognized in the Income

Statement.

2.7 Property, plant and equipment

(i) Recognition and measurement

The bank recognizes items of property, plant and equipment at the time the cost is incurred. These costs include costs incurred initially to acquire or construct an item of property and equipment. This cost also includes the costs of its dismantlement, removal or restoration, the obligation for which an entity incurs is a consequence of using the item during a particular period.

Items of property, plant and equipment are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset.

When parts of an item of property, plant or equipment have different useful lives, they are accounted for as separate items (major components) of property, plant and equipment.

(ii) Land and Buildings

The Bank reports all land and buildings at their revalued amount, being their fair value less any subsequent accumulated depreciation and impairment losses.

Revaluation is carried out with sufficient regularity, in this case, every five (5) years to ensure that the carrying amount does not defer materially from that which would be determined using fair value at the end of the reporting period.

If the asset carrying amount is increased as a result of revaluation, the increase is recognized in other comprehensive income and accumulated in equity under a heading

“ Revaluation surplus” . However, the increase is recognized in profit and Loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit and loss. If an asset carrying amount is decreased as a result of a revaluation, the decrease is recognized in profit and loss. However, the decrease can be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation Surplus in respect of that asset.

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The assets’ carrying values and useful lives are reviewed, and written down if appropriate, at each date of the Statements of financial position. Assets are impaired whenever events or changes in circumstances indicate that the carrying amount is less than the recoverable amount on impairment of non-financial assets.

(iii) Leasehold Improvements

Leasehold improvements are additions or improvements the bank makes to lease properties. They are typically referred to as improvements made to buildings or land (real properties) that the Bank currently occupies through an operating lease. Expenditure made to improve leased properties are capitalized if the lease term is more than one year and reported as a line item with Property, Plant and Equipment in the statement of financial position. Leasehold improvements are amortized over the shorter of the remaining life of the lease term or the useful life of the asset.

(iv) Subsequent costs

The cost of replacing part of an item of Property, Plant or Equipment is recognized in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Bank and its cost can be measured reliably.

The carrying amount of the replaced part is derecognized. The costs of the day-to- day servicing of property and equipment are recognized in the income statement as incurred.

(v) Depreciation

Depreciation is recognized in the income statement on a straight-line basis to write down the cost of each asset, to their residual values over the estimated useful lives of each part of an item of property, plant and equipment. Leased assets under finance lease are depreciated over the shorter of the lease term and their useful lives.

Depreciation begins when an asset is available for use and ceases at the earlier of the date that the asset is derecognized or classified as held for sale in accordance with IFRS 5. A non-current asset or disposal group is not depreciated while it is classified as held for sale.

The estimated useful lives for the current and comparative periods are as follows:

Item of Property, Plant and Equipment Estimated Useful Life

Leasehold improvements Over the shorter of the useful

Life of the item or lease term

Buildings 50 years

Furniture and equipment 5 years

Computer hardware 3 years

Motor vehicles 3 years

Other transportation equipment 10 years

Capital work in progress is not depreciated. Upon completion it is transferred to the relevant asset category. Depreciation methods, useful lives and residual values are reassessed at each reporting date.

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2.8

(iv) De-recognition

An item of property and equipment is derecognized on disposal or when no future economic benefits are expected from its use. Any gain or loss arising on de-recognition of the asset (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in the income statement in the year the asset is derecognized.

Investment Properties

Investment properties include office buildings and other real properties that are held for longterm rental yields and/or capital appreciation. Investment properties include properties constructed or developed for future use as investment properties.

Investment properties are recognized initially at cost and subsequently carried at fair value determined every five years by independent valuers on the highest and best-use basis. Changes in fair values are recognized in profit or loss. Investment properties are subject to renovations and improvements at regular intervals.

The cost of major renovations and improvements is capitalized and the carrying amount of the replaced component is recognized in profit or loss. The cost of repairs, maintenance and minor improvements are recognized in profit or loss when incurred. On disposal of investment properties, the difference between the carrying amount and disposal proceeds is recognized in profit or loss.

2.9

Intangible assets

2.9.1

Software

Software acquired by the Bank is stated at cost less accumulated amortization and accumulated impairment losses.

Expenditure on internally developed software is recognized as an asset when the Bank is able to demonstrate its intention and ability to complete the development and use the software in a manner that will generate future economic benefits, and can reliably measure the costs to complete the development. Development costs previously expensed cannot be capitalized. The capitalized costs of internally developed software include all costs directly attributable to developing the software and capitalized borrowing costs, and are amortized over its useful life.

Internally developed software, if any, is stated at capitalized cost less accumulated amortization and impairment.

Subsequent expenditure on software assets is capitalized only when it increases the future economic benefits embodied in the specific asset to which it relates (e.g. upgrading or modification cost). All other expenditure is expensed as incurred.

Amortization is recognized in profit or loss on a straight-line basis over the estimated useful life of the software, from the date that it is available for use since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset. The maximum useful life of software is between five and ten years.

Amortization methods, useful lives and residual values are reviewed at each financial year-end and adjusted if appropriate.

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2.10 Impairment of non-financial assets

The carrying amounts of the Bank’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists then the asset’s recoverable amount is estimated, an impairment loss is determined and recognized on the asset. For intangible assets that have indefinite useful lives or that are available for use, the recoverable amount is estimated each year. However, the Bank chooses the cost model measurement to reassess intangible assets after initial recognition i.e. depreciated cost less any accumulated impairment losses.

An impairment loss is recognized if the carrying amount of an asset or its cash-generating unit exceeds its recoverable amount. A cash-generating unit is the smallest identifiable asset group that generates cash flows that largely are independent from other assets and groups. Impairment losses are recognized in the income statement. Impairment losses recognized in respect of cashgenerating units are allocated first to reduce the carrying amount of any goodwill allocated to the units and then to reduce the carrying amount of the other assets in the unit (group of units) on a pro rata basis.

The recoverable amount of an asset or cash-generating unit is the greater of its value in use and its fair value less costs to sell. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

2.11

Impairment losses recognized in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s recoverable amount does not exceed the carrying amount that would have been determined, net of depreciation or amortization, if no impairment loss had been recognized.

Deposits

Deposits are the Bank’s sources of debt funding. When the Bank sells a financial asset and simultaneously enters into a “repo” or “stock lending” agreement to repurchase the asset (or a similar asset) at a fixed price on a future date, the arrangement is accounted for as a deposit, and the underlying asset continues to be recognized in the Bank’s financial statements.

The Bank classifies capital instruments as financial liabilities or equity instruments in accordance with the substance of the contractual terms of the instruments.

Deposits are initially measured at fair value plus transaction costs, and subsequently measured at their amortized cost using the effective interest method.

2.12 Provisions

A provision is recognized if, as a result of a past event, the Bank has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability.

A provision for restructuring is recognized when the Bank has approved a detailed and formal restructuring plan, and the restructuring either has commenced or has been announced publicly.

The Bank recognizes no provision for future operating losses.

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A provision for onerous contracts is recognized when the expected benefits to be derived by the

Bank from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Bank recognizes any impairment loss on the assets associated with that contract.

2.13 Financial guarantees

Financial guarantees are contracts that require the Bank to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are initially recognized at their fair value, and the initial fair value is amortized over the life of the financial guarantee.

The guarantee liability is subsequently carried at the higher of this amortized amount and the present value of any expected payment (when a payment under the guarantee has become probable). Financial guarantees, principally consisting of letters of credit are included within other liabilities.

2.14 Employee benefits

(i) Defined contribution plans

A defined contribution plan is a pension plan under which the Bank pays fixed contributions to a separate entity. The Bank has no legal or constructive obligations to pay further contributions if the fund does not hold sufficient assets to pay all employees the benefits relating to employee service in the current and prior periods.

(ii) Termination benefits

Termination benefits are recognized as an expense when the Bank is demonstrably committed, without realistic possibility of withdrawal, to a formal detailed plan to terminate employment before the normal retirement date. Termination benefits for voluntary redundancies are recognized if the Bank has made an offer encouraging voluntary redundancy, it is probable that the offer will be accepted, and the number of acceptances can be estimated reliably. If benefits are payable more than 12 months after the reporting date, then they are discounted to their present value.

(iii) Short-term employee benefits

Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided.

A liability is recognized for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably.

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2.15 Share capital and reserves

(i) Share issue costs

Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instrument.

(ii) Dividend on the Bank’s ordinary shares

Dividends on the Bank’s ordinary shares are recognized in equity when approved by the

Bank’s shareholders.

2.16 Earnings per share

The Bank presents basic earnings per share (EPS) for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Bank by the weighted average number of ordinary shares outstanding during the period.

3.0 Financial risk management

3.1 Introduction and overview

The Liberian Bank for Development and Investment (LBDI) has a robust and functional Enterprise-wide

Risk Management (ERM) Framework that is responsible for identifying and managing the whole universe of inherent and residual risks facing the Bank. The bank has exposure to the following risks from its use of financial instruments:

 Credit risk

 Liquidity risk

 Market risks

 Foreign exchange risk

 Strategy risk and

 Reputational risk

This note presents information about the bank’s exposure to each of the risks stated above, the bank’s policies and processes for measuring and managing risks, and the bank’s management of capital.

3.2 Risk management philosophy

The risk management philosophy of the bank is drawn from its mission and vision statements and seeks to achieve maximum optimization of the risk – return trade off, while ensuring strong commitment to the following key indices:

 excellent service delivery across business segments;

 sound performance reporting (financial and non-financial);

 sound corporate governance;

 consistent appreciation of shareholders’ value; and

 appreciation of contribution of employees.

The bank will continue to adhere to the following risk principles to perform consistently on the above stated indices:

 the Bank will not take any action that will compromise its integrity. Sound performance reporting (financial and non-financial);

 the Bank will adhere to the risk management practice of identifying, measuring, controlling and reporting risks;

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 risk control will not constitute an impediment to the achievement of the Bank's Strategic objectives;

 the Bank will always comply with all government regulations and embrace global best practices; and

 the Bank will only assume risks that fall within its risk appetite which commensurate with returns.

3.3 Risk management framework

The bank’s risk management policies are established to identify and analyze the risks faced by the bank, set appropriate risk limits and controls, monitor risks and adherence to limits. This policy is subject to review at least once a year at the level of the Board of Directors. More frequent reviews may be conducted in the opinion of the Board, when changes in laws, market conditions or the bank’s activities are material enough to impact on the continued adoption of existing policies. The bank, through its training and management standards and procedures, aims to develop a disciplined and constructive control environment, in which all employees understand their roles, obligations and responsibilities.

The Board of Directors has overall responsibility for the establishment and oversight of the bank’s risk management framework via its committees – The Board’s Risk Management Committee, Credit

Committee, and Audit Committee. These committees are responsible for developing and monitoring risk policies in their specified areas and report regularly to the Board of Directors on their activities. All Board committees have both executive and non-executive members.

The Board Committees are assisted by the various Management Committees in identifying and assessing risks arising from the day to day activities of the bank. These committees are:

 The Executive Credit Committee (ECC)

 Management Assets and Liabilities Committee (M-ALCO)

 Audit Committee

 Other Ad-hoc Committees

These committees meet on a regular basis while others are set up on an ad-hoc basis as dictated by circumstances.

The bank’s Audit Committee is responsible for monitoring compliance with the risk management policies and procedures, and for reviewing the adequacy of the risk management framework in relation to risks faced by the bank. The Audit Committee is assisted by the Internal Audit department, in carrying out these functions. Internal Audit undertakes both regular and ad-hoc reviews of risk management controls and procedures, the results of which are reported to the Audit Committee.

Risk management of the Bank is structured as follows:

The Board’s Risk Management Committee is responsible for reviewing and recommending risk management policies, procedures and profiles including risk philosophy, risk appetite and risk tolerance levels of the bank. The oversight functions cut across all risk areas. The committee monitors the Bank’s plans and progress towards meeting regulatory Risk-Based Supervision requirements and migration to

Basel II compliance as well as the overall Regulatory and Capital Adequacy and the Bank’s transition to

IFRS.

The bank’s Board of Directors has delegated responsibility for the management of credit risk to the

Board Credit Committee . The Board Credit Committee considers and approves all lending exposures, including treasury investment exposures, as well as insider-related credits in excess of limits assigned to the Executive Credit Committee by the Board.

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Management Credit Committee formulates credit policies in consultation with business units, covering credit assessment, risk grading and reporting, collateral, regulatory and statutory requirements. The committee also assesses and approves all credit exposures in excess of the Management as approved by the Board.

The Assets & Liabilities Management Committee establishes the bank’s standards and policies covering the various components of Market and Liquidity Risks. These include issues on Interest Rate

Risk, Liquidity Risk, Investment Risk and Trading Risk. It ensures that the authority delegated by the

Board and Management Risk Committees with regards to Market Risk is exercised, and that Market

Risk exposures are monitored and managed effectively. Furthermore, the Committee limits and monitors the potential impact of specific pre-defined market movements on the comprehensive income of the

Bank through stress tests and simulations.

The Credit Risk Management Committee is responsible for identifying, controlling, monitoring and reporting credit risk related issues. The Head of Credit Administration (CAD) of the bank also serves as the secretariat for the Executive Credit Committee .

Credit risk is the most critical risk for the bank as credit exposures, arising from lending activities account for the major portion of the bank’s assets and source of its revenue. Thus, the bank ensures that credit risk related exposures are properly monitored, managed and controlled.

The Credit Risk Management Department is responsible for managing the credit exposures, which arise as a result of the lending and investment activities as well as other unfunded credit exposures that have default probabilities; such as contingent liabilities.

3.4 Risk management methodology

The bank recognizes that it is in the business of managing risks to derive optimal satisfaction for all stakeholders. It has therefore, over the years detailed its approach to risk management through various policies and procedures, which include the following:

 ERM Policies

 Credit Policy Guide

 Human Resources Policy Manual

 Standard Operating Procedures

 IT Policies

 Treasury policies

To ensure adherence to the policies and procedures, several exception reports on customers and activities of the bank are generated by the various audit control units for management’s decision making. These include:

 Monthly Management Profitability Reports (MPR) for the marketing teams including branches and business units;

 Monthly Operations Performance Reports (OPR) for the support teams;

 Quarterly Business Profitability Review ;

 Annual Bank-wide performance appraisal systems

 Criticized Asset Committee Report

 Monthly Expense Control Monitoring Report

 Semi-annual Strategy Review

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3.5 Risk management overview

The bank operates a functional Risk Management Department that manages mainly credit risk. Other aspects of risk including threats and opportunities are managed through a bank-wide risk management process that allows risks other types of risks to be managed through board level committees. The risk management infrastructure therefore encompasses a comprehensive and integrated approach to identifying, managing and reporting risks:

(i) the 3 main inherent risk groups –Credit, Market/Liquidity and Operational;

(ii) additional core risks such as Reputation and Strategy risks.

In addition to this, in compliance with the Central Bank of Liberia’s ‘Risk-based Supervision’ guidelines, and also to align with Basel II Capital Accord / best global practices, the bank is in the process of incorporating a strategic framework for efficient measurement and management of the bank’s risks and capital through an Enterprise Risk management process. The bank has implemented the Basel II recommended capital measurement approaches for the estimate of the bank’s economic capital required to cope with unexpected losses. It is putting in place other qualitative and quantitative measures that will assist with enhancing risk management processes and creating a platform for more risk-adjusted decisionmaking.

3.6 Credit risk

Lending and other financial activities form the core business of the bank. The bank recognizes this and has laid great emphasis on effective management of its exposure to credit risk. The bank defines credit risk as the risk of counterparty’s failure to meet the terms of any lending contracts with the bank or otherwise to perform as agreed. Credit risk arises anytime the bank’s funds are extended, committed, invested or otherwise exposed through actual or implied contractual agreements.

The bank’s specific credit risk objectives, as contained in the Credit Risk Management Framework, are:

 maintenance of an efficient loan portfolio;

 institutionalization of sound credit culture in the Bank;

 adoption of international best practices in credit risk management;

 minimizing the bank’s exposure to potential bad credit; and

 development of Credit Risk Management professionals.

Each business unit is required to implement credit policies and procedures in line with the credit approval authorities granted by the Board. Each business unit is responsible for the quality and performance of its credit portfolio and for monitoring and controlling all credit risks in its portfolio, including those subject to Management Credit Committee’s approval.

The Internal Audit and Credit Administration units respectively undertake regular audits of business units and credit quality reviews.

The bank continues to focus attention on intrinsic and concentration risks inherent in its business in order to manage its portfolio risk. It sets portfolio concentration limits that are measured under the following parameters: concentration limits per obligor, business lines, industry, sector, rating grade and geographical area within Liberia. Sector limits reflect the risk appetite of the bank.

The bank drives the credit risk management processes using a combination of appropriate technology and market experience to achieve global best practices.

For Credit Risk Capital Adequacy computation under Basel ll Pillar l, the bank has commenced with the use of the Standardized Approach for Credit Risk Measurement, while collating relevant data required for migration to the Internal Rating Based (Foundation) Approach.

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For risk management purposes, credit risk arising on trading securities is managed independently, but reported as a component of market risk exposure.

3.7 Management of credit risk

The Board of Directors has delegated responsibility for the management of credit risk to its Board Credit

Committee. The Board Credit committee is responsible for oversight of the bank’s credit risk, including:

 Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, documentary and legal procedures, and compliance with regulatory and statutory requirements.

 Establishing the authorization structure for the approval and renewal of credit facilities.

Authorization limits are allocated to the Executive Credit Committee, Deputy Chief

Executive Officer, Chief Executive Officer and the Board Credit Committee/Board of

Directors as appropriate.

 Reviewing and assessing credit risk . Management Credit Committee assesses all credit exposures, prior to facilities being committed to customers by the business unit concerned. Renewals and reviews of facilities are subject to the same review process.

 Developing and maintaining the bank’s risk grading in order to categorize exposures according to the degree of risk of financial loss faced and to focus management on the attendant risks. The current risk grading framework consists of ten grades reflecting varying degrees of risk of default and the availability of collateral or other credit risk mitigation.

The responsibility for approving the risk grades lies with the Board Credit Committee.

The risk grades are subject to regular reviews by the Risk Management Group.

 Reviewing compliance of business units with agreed exposure limits, including those for selected industries, country risk and product types. Regular reports are provided to the

Board Risk Management Committee on the credit quality of portfolios and appropriate corrective action is taken.

 Providing advice, guidance and specialist skills to business units to promote best practice throughout the bank in the management of credit risk.

There were no changes in the bank’s risk management policies. As credit is centralized, each business unit is required to implement credit policies and procedures, in line with credit approval policies authorized by the Board Credit Committee.

3.8 Credit risk measurement

In line with IAS 39, the bank adopted incurred loss approach and intends to migrate to the expected loss approach outlined under IFRS 9. The incurred loss approach takes into consideration the emergence period (EP) to arrive at losses that have been incurred at the reporting date. To enable the bank migrate to the internal rating based (foundation approach) as well as the expected loss approach as outlined under

IFRS 9, the bank has developed its internal rating models.

LBDI undertakes lending activities after careful analysis of the borrowers’ character, capacity to repay, cash flow, credit history, industry and other factors. The bank acknowledges that there are diverse intrinsic risks inherent in its different business segments and, as a result, applies different parameters to adequately dimension the risks in each business segment.

The Bank’s rating grades reflect the range of parameters developed to predict the default probabilities of each rating class in line with international best practices and in compliance with BASEL II requirements.

The grades reflect granularities and are handled by Account Officers and Relationship Managers with further check by Credit Risk Analysis Unit in Credit Risk Management Department.

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Rating grade Description Characteristics

1 (AAA)

Exceptional Credit

 Exceptional credit quality

 Obligors with overwhelming capacity to meet obligations

 Top multinationals / corporations

 Good track record

 Strong brand name

 Strong equity and assets

 Strong cash flows

 Full cash coverage

2 (AA)

Superior Credit

3 (A) Minimal Risk

 Very high credit quality

 Exceptionally high cash flow coverage (historical and projected)

 Very strong balance sheets with high liquid assets

 Excellent asset quality

 Access to global capital markets

 Typically large national corporate in stable industries and with significant market share

 High quality borrowers

 Good asset quality and liquidity position

 Strong debt repayment capacity and coverage

 Very good management

 Though credit fundamentals are strong, it may suffer some temporary setback if any of them are adversely affected

 Typically in stable industries

4(BBB)

5 (BB)

Above Average

Average

 Good asset quality and liquidity

 Very good debt capacity but smaller margins of debt service coverage

 Good management in key areas

 Temporary difficulties can be overcome to meet debt obligations

 Good management but depth may be an issue

 Good character of owner

 Typically good companies in cyclical industries

 Satisfactory asset quality ad liquidity

 Good debt capacity but smaller margins of debt service coverage

 Reasonable management in key areas

 Temporary difficulties can be overcome to meet debt obligations

 Good management but depth may be an issue

 Satisfactory character of owner

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 Typically good companies on cyclical industries

6 (B)

7(CCC)

8 (CC)

9 (C)

Acceptable Risk

Watch-list

Substandard Risk

 Limited debt capacity and modest debt service coverage

 Could be currently performing but susceptible to poor industry conditions and operational difficulties

 Declining collateral quality

 Management and owners are good or passable

 Typically borrowers in declining markets or with small market share and operating in cyclical industries

 Eliciting signs of deterioration as a result of well-defined weaknesses that may impair repayment

 Typically start-ups / declining markets/deteriorating industries with high industry risk.

 Financial fundamentals below average

 Weak management

 Poor information disclosure

 Well-defined weaknesses though significant loss unlikely; orderly liquidation of debt under threat

 Continued strength is on collateral or residual repayment capacity of obligor

 Partial losses of principal and interest possible if weaknesses are not promptly rectified

 Questionable management skills

10 (D)

Doubtful Risk

Lost

 High probability of partial loss

 Very weak credit fundamentals which make full debt repayment in serious doubt

 Factors exist that may mitigate the potential loss but awaiting appropriate time to determine final status

 Demonstrate management weaknesses, poor repayment, weaknesses and poor repayment profile

 A definite loss of principal and interest

 Lack of capacity to repay unsecured debt

 Bleak economic prospect

 Though it is still possible to recover sometime in the future, it is imprudent to defer write-offs

Standardize methods have been used to estimate the amount of credit exposures, as the value of a product varies with changes in market variables, expected cash flows and time. The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of defaults occurring.

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3.9 Risk Limit Control and Mitigation Policies

The bank applies limits to control credit risk concentration and diversification of its risk assets portfolio.

The Bank maintains limits for individual borrowers and groups of related borrowers, business lines, rating grade and geographical area.

The Bank adopted obligor limits as set by the regulators and it is currently at 20% of the Bank’s shareholders’ funds. The obligor limit covers exposures to counterparties and related parties. Although the Bank is guided by this regulatory limit, we apply additional parameters internally in determining the suitable limits that an individual borrower should have.

These include: obligor rating, position in the industry and perceived requirements of key players (e.g. import finance limit may be determined by the customer’s import cycle and volume during each cycle), financial analysis, etc.

The Bank imposes industry/economic sector limits to guide against concentration risk as a result of exposures to sets of counterparties operating in a particular industry. The industry limits are arrived at after rigorous analysis of the risks inherent in the industry/economic sectors. The limits are usually recommended by the Bank’s Board Credit Committee and approved by the Board. The limits set for each industry or economic sector depend on the historical performance of the sector as well as the intelligence report on the outlook of the sector. During the period, limits can be realigned (by way of outright removal, reduction or increase) to meet the exigencies of the prevailing macroeconomic events.

The Bank also sets internal credit approval limits for various levels of officers in the credit process.

Approval decisions are guided by the Bank’s strategic focus as well as the stated risk appetite and the other limits established by the board or regulatory authorities such as Aggregate Large Exposure Limits,

Single Obligor Limits, and Geographical Limits, Industry / Economic sector limits etc. The lending authority in the Bank flows through the management hierarchy with the final authority residing with the

Board of Directors as indicated below:

Designation Limit

Board of Directors above US$500,000 or LD$ equivalent

Board Credit Committee above US$300,000 or LD$ equivalent up to US$500,000 or

LD$ equivalent

Executive Credit Committee all credits up to US$300,000 or LD$ equivalent

The above limits are subject to the following overriding approvals:

The deposit required for all cash collateralized facilities (with the exception of bonds, guarantees and indemnities) must be 125% of the facility amount to provide a cushion for interest and other charges.

3.10 Collateral policies

The Bank ensures that each credit is reviewed and granted based on the strength of the borrowers’ cash flow. However, the Bank also ensures its credit facilities are well secured as a second way out strategy.

The policies that guide collateral for facilities are embedded within the Bank’s Credit Policy Guide.

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These include the following policy statements amongst others:

(i) Loans to individuals or sole proprietors must be secured by tangible, marketable collateral that has a market value that is supported by a valuation report from a registered estate valuer who is acceptable to the Bank. The collateral must also be easy to check and easy to dispose of. This collateral must be in the possession of, or pledged to the Bank

(ii) Client’s account balances must be within the scope of cover provided by its collateral

(iii) All collateral offered must have the following attributes:

- there must be good legal title;

- the title must be easy to transfer;

- it should be easy and relatively cheap to value;

- the value should be appreciating or at least stable; and

- the security must be easy to sell.

All collateral must be fully insured. Exceptions include cash collateral, securities in safe keeping, indemnity or guarantees, or where our interest is general (for instance in a negative pledge). The insurance policy has to be issued by an insurer acceptable to the Bank.

The main collateral types acceptable to the Bank for loans and advances include:

(i) mortgages over residential properties;

(ii) chattels over business premises, fixed and floating assets as well as inventory; and

(iii) charges over financial instruments such as equities, other assets, etc.

The Bank ensures that other financial assets, aside from loans and advances, such as Bank placements, are secured.

3.11 Off-balance sheet engagements

These instruments are contingent in nature and carry the same credit risk as loans and advances. As a policy, the Bank ensures that all its off-balance sheet exposures are subjected to the same rigorous credit analysis, like that of the on-balance sheet exposures, before availment. The major off-balance sheet items in the Bank’s books are Bonds and Guarantees, which the Bank will only issue where it has full cash collateral or a counter indemnity from a first class bank, or another acceptable security.

3.12 Contingencies

Contingent assets which include transaction related bonds and guarantees, letters of credit and short term foreign currency related transactions, are not recognized in the annual financial statements but are disclosed when, as a result of past events, it is highly likely that economic benefits will flow to the bank, but this will only be confirmed by the occurrence or non-occurrence of one or more uncertain future events which are not wholly within the bank’s control.

Contingent liabilities include transaction related bonds and guarantees, letters of credit and short term foreign currency related transactions. Contingent liabilities are not recognized in the annual financial statements but are disclosed in the notes to the annual financial statements unless they are remote.

3.13 Placements

The Bank has placement lines for its Bank counterparties. The lines cover the settlement risks inherent in our activities with these counterparties. The limits are arrived at after conducting fundamental analysis of the counterparties, presentation of findings to, and approval by the Bank’s Management Credit

Committee. The lines are monitored by Risk Management Department/Unit.

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3.14 Impairment and provisioning policies

3.15.1 Impaired loans and securities

Impaired loans and securities are loans and securities for which the bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan

/securities agreement(s). These are loans and securities specifically impaired and are graded 8 to 10 in the bank’s internal credit risk grading system.

3.15.2 Past due but not impaired loans

Loans and securities where contractual interest or principal payments are past due but the bank believes that impairment is not appropriate on the basis of the level of security / collateral available and / or the stage of collection of amounts owed to the bank.

3.15.3 Loans with renegotiated terms

Loans with renegotiated terms are loans that have been restructured due to deterioration in the borrower’s financial position and where the bank has made concessions that it would not otherwise consider. Once the loan is restructured it remains in this category independent of satisfactory performance after restructuring or as prescribed by the regulations.

3.15.4 Allowances for impairment

The bank establishes an allowance for impairment losses that represents its estimate of incurred losses in its loan portfolio. The main components of this allowance are a specific loss component that relates to individually significant exposures, and a collective loan loss allowance, established for groups of homogeneous assets in respect of losses that have been incurred but have not been identified on loans subject to individual assessment for impairment.

3.15.5 Write-off policy

The bank writes off a loan / security balance (and any related allowances for impairment losses) when

Executive Credit Committee, with approval from the Board, determines that the loans / securities are uncollectible. This determination is reached after considering information such as the occurrence of significant changes in the borrower / issuer’s financial position such that the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balances standardized loans, charge off decisions are generally based on a product specific past due status.

3.16 Loans and advances

All loans and advances are categorized as follows:

 Neither past due nor impaired:

These are loans and advances where contractual interest or principal payments are not past due.

These loans and advances belong to the investment grade (rating grades 1 – 3).

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3.17

 Past due but not impaired:

These are loans and advances where contractual interest or principal payments are past due but individually assessed as not being impaired. The bank believes that impairment is not appropriate on the basis of the level of receivable/security/collateral available and/or the stage of collection of amounts owed to the bank.

 Individually impaired:

Individually impaired are loans and advances for which the bank determines that it is probable that it will be unable to collect all principal and interest due according to the contractual terms of the loan/advance agreement(s). These are loans and advances specifically impaired and are graded 8 to 10 in the bank’s internal credit risk grading system.

 Collectively impaired:

Collectively impaired are portfolios of homogenous characteristics where contractual interest or principal payments are not past due, but have been assessed for impairment by the bank. E.g.

Mortgage & Credit cards and loans given collectively to individual employee in public and private institution.

Liquidity risk

The Bank’s liquidity risk management process is primarily the responsibility of the Treasury and

Risk Management Departments.

A brief overview of the bank’s liquidity management processes during the year includes the following:

1.

maintenance of minimum levels of liquid and marketable assets above the regulatory requirement of 15%. The Bank has also set for itself more stringent in-house limits of 30% and above the regulatory requirement to which it adheres;

2.

monitoring of its cash flow and balance sheet trends. The Bank also makes forecasts of anticipated deposits and withdrawals to determine their potential effect on the

Bank;

3.

regular measurement & monitoring of its liquidity position/ratios in line with regulatory requirements and in-house limits;

4.

regular monitoring of non-earning assets;

5.

monitoring of deposit concentration;

(i)

6. ensure diversification of funding sources;

7. monitoring of level of undrawn commitments; and

8. maintaining a contingency funding plan.

Funding approach

The Bank’s overall approach to funding is as follows:

1. generation of large pool of low cost deposits; and

2. maintenance of efficiently diversified sources of funds along product lines, business segments and also regions to avoid concentration risk.

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3.19

3.20

The bank was able to meet all its financial commitments and obligations without any liquidity risk exposure in the five years. The bank’s Management Asset and Liability

Committee (ALCO) is charged with the responsibility of managing the bank’s daily liquidity position. A daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions.

All liquidity policies and procedures are subject to review and approval by Board ALCO.

The Board ALCO sets limits which are in conformity with the regulatory limits. The limits are monitored regularly and exceptions are reported to the Board ALCO as appropriate. In addition gap reports are prepared monthly to measure the maturity mismatches between assets and liabilities. The cumulative gap over total assets is not expected to exceed 15%.

(ii) Exposure to liquidity risk

The key measure used by the bank for managing liquidity risk is the ratio of net liquid assets to deposits from customers and designated liabilities. For this purpose, net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities issued, other borrowings and commitments maturing within the next month. A similar calculation is used to measure the bank’s compliance with the liquidity limit established by the Bank’s lead regulator (The Central Bank of Liberia).

Settlement risk

The bank’s activities may give rise to risk at the time of settlement of transactions and trade.

Settlement risk is the risk of loss due to the failure of a company to honor its obligations to deliver cash, securities or other assets as contractually agreed. For certain types of transactions the bank mitigates this risk by conducting settlements through a settlement clearing agent to ensure that a trade is settled only when both parties have fulfilled their contractual settlement obligations. Settlement limits form part of the credit approval / limit monitoring process described earlier. Acceptance of settlement risk on free settlement trade requires transaction specific or counterparty specific approvals from Risk Management Department.

Market risk

Market risk is the risk that changes in market prices, such as interest rate, equity prices, foreign exchange rates and credit spreads (not relating to changes in the obligor’s / issuer’s credit standing) will affect the bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimizing the return on risk.

(i) Management of market risk

The bank separates its exposure to market risk between trading and non-trading portfolios. Trading portfolios are mainly held by the Treasury Management Department, and include positions arising from market making and proprietary position taking, together with financial assets and liabilities that are managed on a fair value basis. With the exception of translation risk arising on the bank’s net investment in its foreign operations, all foreign exchange risks within the bank are monitored by the Management

ALCO Committee. Accordingly, the foreign exchange position is treated as part of the bank’s trading portfolios for risk management purposes. Overall authority for market risk is vested in Management ALCO Committee.

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3.21

However, they are also responsible for the development of detailed risk management policies (subject to review and approval by the Board ALCO and for the day-to-day review of their implementation.

(ii) Exposure to market risks – trading portfolios

The principal tool used to measure and control market risk exposure within the bank’s trading portfolios is the open position limits using the Earning-at-Risk approach.

Specific limits (regulatory and in-house) have been set across the various trading portfolios to prevent undue exposure and the Treasury Management Department ensures that these limits and triggers are adhered to by the bank.

Exposure to interest rate risk – Trading and non-trading portfolios

The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for re-pricing bands. The M-ALCO is the monitoring body for compliance with these limits and is assisted by Risk Management in its day-to-day monitoring activities.

A summary of the bank’s interest rate gap position on trading and non-trading portfolios is as follows:

The Bank makes use of limit monitoring, earnings-at-risk, gap analyses and scenario analyses to measure and control the market risk exposures within its trading and banking books.

The bank also performs regular stress tests on its banking and trading books. In performing this, the bank ensures that there are quantitative criteria in building the scenarios. The bank determines the effect of changes in interest rates on interest income; volatility in prices on trading income; and changes in funding sources and uses on the bank’s liquidity. However, all potential risk exposures in the course of the year were successfully mitigated as mentioned above.

(i) Exposure to other market risks – non-trading portfolios (continued)

The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the bank’s financial assets and liabilities to various scenarios. Credit spread risk (not relating to changes in the obligor / issuer’s credit standing) on debt securities held by the bank and equity price risk is subject to regular monitoring by Management ALCO and the Risk Management Department, but is not currently significant in relation to the overall results and financial position of the bank. Interest rate movement affect reported equity in the following ways:

 Retained earnings arising from increase or decrease in net interest income and the fair value changes reported in profit or loss.

 Fair value reserves arising from increases or decreases in fair value of financial instruments reported directly in other comprehensive income.

Overall non-trading interest rate risk positions are managed by Treasury, which uses advances to banks and deposits from banks to manage the overall position arising from the bank’s non- trading activities. However, as at December 31, 2012 no significant interest rate changes occurred that impacted the bank.

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4.0 Capital management and Other Risks

4.1 Regulatory capital

The bank’s lead regulator, the Central Bank of Liberia, sets and monitors capital requirements for the

Bank. The banking operation is directly supervised by the Central Bank of Liberia and other regulatory authorities in the country.

In implementing current capital requirements, Central Bank of Liberia requires the Bank to maintain a prescribed ratio of total capital to total risk-weighted assets. The Bank’s regulatory capital is analyzed into two tiers:

Tier 1 capital, which includes ordinary share capital, share premium, retained earnings, translation reserve and non-controlling interests after deductions for goodwill and intangible assets, and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy purposes.

The Bank and its individually regulated operations have complied with all externally imposed capital requirements throughout the period. There have been no material changes in the Bank’s management of capital during the year.

4.2 Capital adequacy ratio

The capital adequacy ratio is the quotient of the capital base of the bank and the bank’s risk weighted asset base. In accordance with Central Bank of Liberia regulations, a minimum ratio of 10% is to be maintained as capital adequacy ratio.

4.3 Operational risk

LBDI defines Operational Risk Management ‘’Operations Risk’’ as “the direct/indirect risk of loss resulting from inadequate and/or failed internal processes, people, and systems or from external events”.

This definition requires the review and monitoring of all strategies and initiatives deployed in its people management, process engineering and re-engineering, technology investment and deployment, management of all regulatory responsibilities and response to external threats.

To ensure a holistic framework is implemented, Operational Risk Management also monitors Strategic and Reputational Risks from a broad perspective.

The following practices, tools and methodologies have been implemented for this purpose:

 Loss Incident Reporting – An in-house developed manual Loss Incident Reporting System is deployed thorough the Bank’s Internal system of logging operational risk incidents bank-wide.

All staff members are encouraged to report operational risk incidents that occurred within their work places whether it crystallize into actual losses or not. As a result, LBDI has collated

Operation Risk loss data for five years. Information gathered is used to identify risk concentrations and for appropriate operational risk capital calculation.

 Fraud Risk Management Initiatives – Causal analysis of key fraud and forgeries trends identified in the Bank or prevalent in local and global business environments are carried out and reported on a monthly basis. Likely and unlikely loss estimations are also determined in the process as input in the Operation Risk capital calculation process. The focus in Fraud Risk

Management is to ensure that processes for preventing, deterring, detecting fraud and forgeries incidents, and sanctioning offenders are effective.

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 Business Continuity Management (BCM) in line with BS 25999 Standards – To ensure the resilience of our business to any disruptive eventuality, the Bank has in place a robust Business

Continuity Plan (BCP) which assures timely resumption of its business with minimal financial losses or reputational damage and continuity of service to its customers, vendors and regulators.

Desktop and UPS Walkthrough Tests are being conducted bank-wide to ensure that recovery plans and processes are effective and that all staff are aware of of their roles and responsibilities when there is an alert. This plan is reviewed monthly and when necessary, it is updated to ensure reliability and relevance of information contained.

 Information on Risk Management Awareness and Monitoring – Strategies for ensuring the

Confidentiality, Availability and Integrity of all the Bank’s information assets (hardware, software, documents, backup media, etc.) are continuously reviewed and key risks identified reported to key stakeholders. Where applicable, implementation of controls by relevant stakeholders is also tracked and reported on.

 Compliance and Legal Risk Management – Compliance Risk Management involves close monitoring of KYC compliance by the Bank, escalation of Audit Non-conformances,

Complaints Management, and observance of the Bank’s zero-tolerance culture for regulatory breaches.

It also entails an oversight role for monitoring adherence to regulatory guidelines and global best practices on an on-going basis.

Legal Risk Management involves the monitoring of litigations against the Bank to ascertain likely financial or non-financial loss exposures. It also involves conduct of causal analysis on identified points of failure that occasioned these litigations. Medium – High risk factors identified are duly reported and escalated for appropriate treatment where necessary.

 Occupational Health and Safety procedures and initiatives – Global best practices for ensuring the health and safety of all staff, customers and visitors to the Bank’s premises are advised, reported on to relevant stakeholders and monitored for implementation. As a result, the following are conducted and monitored: Fire Risk Assessments, Burglaries and Injuries that occur within the Bank’s premises are reviewed and evaluated for appropriateness.

5.0 Operational Risk Management Philosophy and Principles

5.1 Governance Structure

 The Board through its Board Risk Management Committee (BRMC) oversees the operational risk function in the Bank. It ensures that the Operation Risk policy is robust and provides a framework on the Bank’s Operation Risk profile and limits. It also determines the adequacy and completeness of the Bank’s risk detection, and measurement systems, assesses the adequacy of risk mitigates, reviews and approves contingency plans for Specific Risks and lays down the principles on how operational risk incidents are to be identified, assessed, controlled, monitored and measured. The BRMC reviews OpRisk Reports on a quarterly basis.

 The Management Risk Committee monitors the activities of Operation Risk and approves key decisions made before presentation to the Board. It ensures the implementation of the guiding

Operation Risk framework bank-wide, and ensures that all departments in the Bank are fully aware of the risks embedded in respective process flows and business activities.

 All process owners are responsible for the day-to-day management of OpRisks prevalent in respective departments, Sections, Units, Branches of the Bank.

 The Internal Audit Department conducts independent reviews on the implementation of

Operation Risk Policies and Procedures bank-wide.

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6.0 Approach to Managing Operation Risk

 The Bank adopts operational risk procedures and practices that are “fit for purpose” and will increase the efficiency and effectiveness of the bank's resources, minimize losses and utilize opportunities.

 This outlook embeds Operation Risk practices in the bank's day-to-day business activities.

6.1 Principles

 Operational risks inherent in all products, activities, processes and systems are assessed periodically for timely identification of new risks and trending of prevalent risks. The Bank ensures that before any new products, processes, activities and systems are introduced or undertaken, the operational risks inherent are assessed and likely plan put in place to mitigate the risks.

 In accordance with this, the Bank ensures regular monitoring of its operational risk profile and material exposure to losses.

 Pertinent information is reported regularly to Senior Management and the Board to ensure proactive management of operational risk.

 In addition to this, the Bank’s Business Continuity Plan outlines the Bank’s requirements for contingency and business continuity plans to ensure its ability to operate on an ongoing basis and limit losses in the event of severe business disruption.

6.2 Treatment of Operational Risks

 The Operation Risk identification and assessment process provides a guide on the decisionmaking process for the extent and nature of risk treatment to be employed by the Bank. In line with best practices, the cost of risk treatments introduced must not exceed the reward.

 The following comprise the Operation Risk treatments adopted by the Bank:

- Risk Acceptance and Reduction: The Bank accepts the risk because the reward of engaging in the business activity far outweighs the cost of mitigating the risk.

Residual risks retained by the business after deploying suitable mitigants are accepted

- Risk Transfer (Insurance): This involves another party or parties bearing the risk, by mutual consent. Relationships are guided by the use of contracts and insurance arrangements

- Risk Sharing (Outsourcing): Risk is shared with other parties that provide expert solutions required to mitigate risk or reduce risk burden whether operationally or financially.

- Risk Avoidance: Requires discontinuance of the business activity that gives rise to the risk.

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7.0 Strategy Risk Management

Strategic Risk Management is the process for identifying, assessing and managing risks and uncertainties, affected by internal and external events or scenarios, that could inhibit the Bank’s ability to achieve its strategy and strategic objectives with the ultimate goal of creating and protecting shareholder and stakeholder value.

In LBDI, it is also regarded as the possibility that the Bank’s strategy may be inappropriate to support its long-term corporate goals due to the inadequacy of its strategic planning and/or decision-making process or the inadequate implementation of such strategies. This could include the risk that the strategy is unclear, clear but not viable or clear and viable but badly implemented, or strategy failure due to unexpected circumstances.

A specialized process is in place for monitoring and tracking Strategic Risk and tracking key activities designed or defined by the Bank to achieve its strategic intent in the short, medium and long term.

One of such process is the Monthly Performance Review process in which actual performance is reviewed against planned performance.

7.1 Reputational Risk Management

The bank regularly reviews its policies and procedures for safeguarding against reputational risk. This is an evolutionary process which takes account of relevant developments, industry guidance, best practices and societal expectations.

As an indigenous Liberian bank which has survived over the year, LBDI has always aspired to the highest standards of conduct and, as a matter of routine, take account of reputational risks to its business.

Reputational risks can arise from a wide variety of causes. As a banking concern, good reputation depends not only upon the way in which we conduct our business, but also by the way in which clients, to whom we provide financial services, conduct themselves.

Functions with responsibility for activities that attract reputational risk are represented at the Bank’s

Executive Management Committee (EMC) level, which is chaired by the Chief Executive Officer of the

Bank. In addition to the primary role of the EMC, it is also mandated to consider areas and activities presenting significant reputational risk and, where appropriate, to make recommendations to the Board of

Directors for a policy or procedural changes to mitigate such risk.

Standards on all major aspects of business are set for LBDI and for individual branches, businesses units and functions. Reputational risks, including environmental, social and governance matters, are considered and assessed by the Board, the Risk Management committee, Board committees and senior management through the EMC during the formulation of policy and the establishment of standards. These policies, which form an integral part of the internal control system, are communicated through manuals and statements of policy and are promulgated through internal communications and training. The policies set out the bank’s risk appetite and operational procedures in all areas of reputational risk, including money laundering deterrence, counter-terrorist financing, environmental impact, anti-bribery and corruption measures and employee relations. The policy manuals address risk issues in detail, and co-operation between departments and businesses is required to ensure a strong adherence to its risk management system and sustainability practices.

7.2 Capital allocation

The allocation of capital between specific operations and activities is, to a large extent, driven by optimization of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital, but in some cases the regulatory requirements do not reflect fully the varying degree of risk associated with different activities.

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In such cases the capital requirements may be flexed to reflect differing risk profiles, subject to the overall level of capital to support a particular operation or activity not falling below the minimum required for regulatory purposes. The process of allocating capital to specific operations and activities is undertaken independently of those responsible for the operation, by the bank Finance Department, and is subject to review by the bank’s Board or Asset and Liability Committee as appropriate.

Although maximization of the return on risk-adjusted capital is the principal basis used in determining how capital is allocated within the bank to particular operations or activities, it is not the sole basis used for decision making. Account also is taken of synergies with other operations and activities, the availability of management and other resources, and the fit of the activity with the bank’s longer term strategic objectives. The bank’s policies in respect of capital management and allocation are reviewed regularly by the Board of Directors.

8.0 Key sources of estimation uncertainty

Allowances for credit losses

Assets accounted for at amortized cost are evaluated for impairment on a basis described in accounting policy 2.9.1.

The specific counterparty component of the total allowances for impairment applies to claims evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgments about a counter party’s financial situation and the net realizable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function.

Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances and held to maturity investment securities with similar economic characteristics when there is objective evidence to suggest that they contain impaired loans and advances and held to maturity investment securities, but the individual impaired items cannot yet be identified. A component of collectively assessed allowances is for country risks. In assessing the need for collective loan loss allowances, management considers factors such as credit quality, portfolio size, concentrations, and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modeled and to determine the required input parameters, based on historical experience and current economic conditions.

The accuracy of the allowances depends on how well future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances are estimated.

Determining fair values

The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy 2.6). For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.

Critical accounting judgments in applying the bank’s accounting policies

Critical accounting judgments made in applying the bank’s accounting policies include:

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Depreciation and carrying value of property and equipment

The estimation of the useful lives of assets is based on management’s judgment. Any material adjustment to the estimated useful lives of items of property and equipment will have an impact on the carrying value of these items.

Determination of impairment of property and equipment, and intangible assets

Management is required to make judgments concerning the cause, timing and amount of impairment. In the identification of impairment indicators, management considers the impact of changes in current competitive conditions, cost of capital, availability of funding, technological obsolescence, discontinuance of services and other circumstances that could indicate that impairment exists. The bank applies the impairment assessment to its separate cash generating units. This requires management to make significant judgments and estimates concerning the existence of impairment indicators, separate cash generating units, remaining useful lives of assets, projected cash flows and net realizable values.

Management’s judgment is also required when assessing whether a previously recognized impairment loss should be reversed.

Impairment of Held-to-Maturity investments (Treasury bills)

The bank determines that Treasury bills investments are impaired when there has been a significant or prolonged decline in the fair value below cost. This determination of what is significant or prolonged requires judgment. In making this judgment, the bank evaluates among other factors, the volatility in the price of treasury bills. In addition, objective evidence of impairment may be deterioration in the financial health of the investee, in this case, political instability in the country and financing cash flows.

Valuation of financial instruments

The bank’s accounting policy on fair value measurements is discussed under note 2.9.1

The bank measures fair values using the following hierarchy of methods.

Level 1: Quoted market price in an active market for an identical instrument.

Level 2: Valuation techniques based on observable inputs. This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.

Level 3: This includes financial instruments, the valuation of which incorporate significant inputs for the asset or liability that is not based on observable market date (unobservable inputs). Unobservable inputs are those not readily available in an active market due to market illiquidity or complexity of the product.

These inputs are generally determined based on inputs of a similar nature, historic observations on the level of the input or analytical techniques.

This category includes loans and advances to banks and customers, investment securities, deposits from banks and customers, debt securities and other borrowed funds.

Accounting classification measurement basis and fair values

Financial instruments at fair value (including loans and those held to maturity (Treasury bills)) are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using a valuation model, the methodology is to calculate the expected cash flows under the terms of each specific contract, where applicable, and then discount these values back to a present value. The expected cash flows for each contract are determined either directly by reference to actual cash flows implicit in observable market prices or through modeling cash flows using appropriate financial markets pricing models.

Wherever possible these models use as their basis observable market prices and rates including, for example, interest rate yield curves, equities and prices.

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Explanation of transition to IFRS

(a) Implementation of IFRS

As stated in note 2 on significant accounting policies, these are the Bank’s first financial statements prepared in accordance with IFRS. The Bank is expected to publish comparative information for its first published IFRS financial statement for year ended December 31, 2013. These financial statements provide opening balances which represent the start of the earliest period of comparative information to be presented as well as comparative information for the bank’s December 31, 2013 financial statements. The opening statement of financial position as at January 1, 2012, comparative statement of financial position as at December 31, 2012 and Income statement for year ended

December 31, 2012 have been shown accordingly. The accounting policies as set out in note 2 have been applied in these financial statements.

In preparing its opening IFRS statement of financial position, comparative statement of financial position and income statements, the Bank has adjusted amounts reported previously in financial statements prepared in accordance with previous US GAAP. An explanation of how the transition from previous US GAAP to IFRSs has affected the Bank’s opening financial position is set out in the following tables and the notes that accompany the tables.

The most significant IFRS impact for the Bank originated from the implementation of IAS 39-

Financial instruments: Measurement and recognition which requires initial recognition of financial assets and liabilities at fair value and impairment of financial assets to only be accounted if there is objective evidence that a loss event has occurred after initial recognition but before the date of statement of financial position; IAS 38 - Intangible assets which requires recognition of Computer software as Intangible assets and IAS 18; Revenue, which requires recognition of upfront fees that are incidental to the granting of loans and advances effective interest method as set out in IAS 39 and

IFRS 1 exemption regarding the use of revalued (fair value) amount for long-term asset as deemed costs for a first time adopter of IFRS.

Transitional arrangements

The Bank is to adopt IFRS effective January 1, 2013. The key principle of IFRS 1 – First time adoption of International Financial Reporting Standards for reporting entities with adoption date subsequent to 1 January 2006 is a full retrospective application of IFRS.

However, this statement provides exemption from retrospective application in certain instances due to costs and practical considerations. The bank’s transitional elections in this regard are set out below:

Key impact analysis of IFRS on the financial position as at 31 December, 2011, date of transition i Property, plant and equipment

A first time adopter may elect to use the fair value of individual property, plant and equipment at transition date as the deemed cost. The Bank made use of this transitional exemption and elected measure certain items of property, plant and equipment at fair value at January 1, 2012. The valuation of the properties performed at December 31,

2013 assessed its fair value at US$14.3million, an increase of US$4.8million from US

GAAP in 2012.

Page | 43




IAS 32, 39 and IFRS 7 Financial instruments

Under IFRS, financial assets are required to be classified as held for trading, fair value through the profit and loss, fair value through equity, loans and receivables and held to maturity financial assets. US GAAP does not require such classification of financial instruments and measurement.

The basis of valuation of individual instruments is provided in the accompanying statement of accounting policy. ii. Impairment of loans and advances:

Under US GAAP, loans and advances are measured at costs net of provisions. A specific risk provision for loan impairment is established to provide for management’s estimate of credit losses as soon as the recovery of an exposure is identified as doubtful. This provision is made for each account that is not performing in accordance with the terms of the related facility. A general provision of at least 1% is made for all performing accounts to recognize losses in respect of risks inherent in any credit portfolio.

Under IFRS, an impairment loss can only be accounted for if there is objective evidence that a loss has occurred after the initial recognition but before the date of statement of financial position. IFRS also allows for the creation of a credit impaired for incurred but not reported losses in order to provide latent losses in a portfolio of loans that have not yet been individually identified as impaired and the general reserve to be reversed.

Generally, the impairment for credit losses was lower than the level required by the regulatory authorities. The provision already made under US GAAP is L$596,811,160 and under IFRS is L$305,389,023. Thereby reducing the impairment in December 31,

2013 to L$291,422,136.

However, the difference has been recognized in credit risk reserve within total equity.

The difference in the measurement basis of impairment loss assessment between IFRS and the impairment requirement of the Central Bank of Liberia and US GAAP increased the net assets of the bank by L$272,103,465 (January 2012): and L$97,098048

(December 2012).

(iii) Initial recognition of Staff Loans at Fair value

Under US GAAP, loans granted to employees at below the market rate are recognized at cost. However, under IFRS, initial recognition of loans and receivable is at fair value.

The difference in measurement basis of staff loans resulted into reduction in carrying value of staff loans by L$19million (January 2012); L$26million (December 2012) and recognition of Prepaid benefits on employee loans by same amount.

(iv) Land and Buildings

The Bank carries all Land and buildings at their revalued amount, being their fair value less any subsequent accumulated depreciation and impairment losses. Revaluation is carried out with sufficient regularity, in this case, every five (5) years to ensure that the carrying amount does not defer materially from that which would be determined using fair value at the end of the reporting period.

If the asset carrying amount is increased as a result of revaluation, the increase is recognized in other comprehensive income and accumulated in equity under a heading

“ Revaluation surplus” . However, the increase is recognized in profit and Loss to the extent that it reverses a revaluation decrease of the same asset previously recognized in profit and loss. If an asset carrying amount is decreased as a result of a revaluation, the decrease is recognized in profit and loss. However, the decrease can be recognized in other comprehensive income to the extent of any credit balance existing in the revaluation Surplus in respect of that asset.

Page | 44




The assets’ carrying values and useful lives are reviewed, and written down if appropriate, at each date of the Statements of financial position. Assets are impaired whenever events or changes in circumstances indicate that the carrying amount is less than the recoverable amount on impairment of non-financial assets. v. De-recognition of capitalized training costs

The Bank capitalizes all expenditures on training in line with provisions of US GAAP and as generally practiced in Liberia. However, IFRS (IAS 38.64b) requires all expenditures on professional training to be explicitly excluded from capitalization, due principally to the lack of control over the employees driven by the fact the employees can deprive the Bank of the benefits of this knowledge if they quit their jobs. The IASB therefore assume that in this case, the criterion for control is not fulfilled. Management has therefore written off/de-recognized capitalized training expenditure of L$33 million (January 2012 US$22); L$11 million (December

2012) from Retained Earnings in line with this arrangement. vi. Loans and advances, origination fees and effective interest rate method

Under IFRS, loans and receivables are subsequently measured at amortized cost. This is the amount at which loans and receivables are measured at initial recognition, minus principal repayments, plus or minus the cumulative amortization using the effective interest method of any difference between the initial amount recognized and the maturity amount, minus any reduction for impairment. Origination fees, which impact amortized cost measurement of loans and receivables, are recognized in income statement on a bullet basis under US GAAP. However, they are amortized over the life of the financial assets on an effective interest method basis under IFRS. The bank has therefore reclassified unearned origination fees of L$2.8million (January 2012);

L$1million (December 2012) from retained earnings to Loans and Receivables in line with this requirements. vii. Explanation of material adjustments to cash and cash equivalents

The net impact of application of IFRS on the cash and cash equivalent of the Bank is a decrease in cash and cash equivalents of L$1,532,086,432 (January 2012);

L$1,739,201,459 (December 2012). This represents the reclassification of restricted deposits with central bank of Liberia and deposit amounts from foreign banks cash collateral balances from cash and cash equivalents to other assets.

Page | 45



For the year ended December 31, 2013 For the year ended December 31, 2013

Statement of Effects of Transition

Dec-13

Effect of transition to IFRS

31 December 2012 In Liberian dollars Previous GAAP

Assets

Cash and cash equivalents (short term)

Loans and Advances ( to customers)


Available for sale

Held- to- maturity

Other assets

Investment property

Other investments

Equity investment

Property and equipment (long-term assets)

Intangibles

Total assets

IFRS

31 Dec. 2012 Previous GAAP


31 December 2011

IFRS

1 Jan. 2012

4,796,873,059

2,218,472,928

(1,739,201,459)

97,098,048

3,057,671,600

2,315,570,976

4,468,678,804

1,945,086,724

(1,532,086,432)

272,103,465

2,936,592,372

2,217,190,189

865,488,353

89,898,864

388,500,000

661,944,884

108,461,011

9,129,639,099

1,761,771,220

342,101,136

-

305,299,027

(33,531,985)

733,535,988

-

-

2,627,259,573

432,000,000

388,500,000

24,083,360

967,243,911

74,929,026

9,887,258,447

967,233,984

88,670,024

-

620,760,423

113,725,504

8,204,155,464

1,547,780,331

343,329,976

305,299,027

(22,395,656)

914,030,711

-

-

2,515,014,315

432,000,000

421,200,000

-

926,059,450

91,329,848

9,539,386,174

Liabilities

Deposits from customers (Customer deposits)

Due to Central bank

7,178,531,179

807,170,001




Other liabilities


2,214,443

460,926,233

8,448,841,856

-

-

-

(26,956,113)

(26,956,113)

7,178,531,179

807,170,001

-

956,738

2,214,443

433,970,120

8,422,842,481

6,484,945,181

71,670,001

-

-

2,787,735

1,562,524,758

8,121,927,675

-

2,797,937

2,797,937

6,484,945,181

71,670,001

-

2,797,937

2,787,735

1,562,524,758

8,124,725,612

Equity

Share capital

Share Premium

Revaluation Reserves

Regulatory Risk Reserves

Statutory Reserves

Treasury stock

Retained earnings (Accumulated losses)

Total equity attributable to owners of the bank


388,228,269

140,958,544

-

-

132,781,956

(3,481,992)

22,310,466

-

-

671,483,524

119,119,169

-

-

(6,983,970)

388,228,269

140,958,544

671,483,524

119,119,169

132,781,956

(3,481,992)

15,326,496

316,228,269

68,958,544

-

-

125,762,867

(3,481,992)

(4,039,899)

-

-

648,629,004

287,605,583

-

-

(25,001,813)

316,228,269

68,958,544

648,629,004

287,605,583

125,762,867

(3,481,992)

(29,041,712)

680,797,243

9,129,639,099

783,618,723 1,464,415,967

756,662,610 9,887,258,447

-

503,427,789 911,232,774

8,625,355,464 914,030,711

-

1,414,660,562

9,539,386,174

-





Dec-13

In Liberian dollars Previous GAAP


31 December 2012

Interest income

Interest expense

Net interest income



Fee and commission income

Fee and commission expense

IFRS

31 Dec. 2012 Previous GAAP


31 December 2011

IFRS

1 Jan. 2012

246,930,807

(75,433,548)

-

-

171,497,259

(7,148,989)

-

-

164,348,270 -

411,002,318 -

575,350,588 -

246,930,807

(75,433,548)

222,861,865

(53,120,064)

-

-

171,497,259

(7,148,989)

169,741,800

(102,632,565)

-

287,605,583

222,861,865

(53,120,064)

169,741,800

184,973,019

164,348,270 67,109,235 287,605,583 354,714,819

411,002,318

575,350,588

303,656,264

-

370,765,500

-

-

287,605,583

303,656,264

-

658,371,083


Personnel expenses


Depreciation and amortization


Profit for the year

75,770,665 -

(256,206,172) -

(286,276,967) -

(53,900,319) -

(26,661,433) -

28,076,362 -

75,770,665 47,180,138 -

(256,206,172) (221,082,729) -

(286,276,967) (311,079,711) -

(53,900,319)

(26,661,433)

(33,410,297)

(16,435,502)

-

-

47,180,138

(221,082,729)

(311,079,711)

(33,410,297)

(16,435,502)

28,076,361 (164,062,601) 287,605,583 123,542,982




Accounting classification measurement basis and fair values (continued)

Financial instruments at fair value (including those held for trading, designated at fair value, derivatives and available-for-sale) are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using a valuation model, the methodology is to calculate the expected cash flows under the terms of each specific contract and then discount these values back to a present value. The expected cash flows for each contract are determined either directly by reference to actual cash flows implicit in observable market prices or through modeling cash flows using appropriate financial markets pricing models. Wherever possible these models use as their basis observable market prices and rates including, for example, interest rate yield curves, equities and prices.

9 Interest income

31-Dec-2013 31-Dec-2012

In Liberian dollars


Cash and Cash equivalent

409,750,644

-

409,750,644

246,930,807

-

246,930,807

Geographical location

10

Interest income earned in Liberia

Interest income earned outside Liberia

409,750,644 246,930,807

409,750,644 246,930,807

Interest income for the year ended 31 December 2012 includes L$ accrued on impaired financial assets.

Interest expense

31-Dec-2013 31-Dec-2012

In Liberian dollars

Deposit from banks

Deposit from customers

Other borrowed funds

-

(95,397,008)

(21,493,500)

(116,890,508)

-

(75,433,548)

-

(75,433,548)

11 Fee and commission income

In Liberian dollars

Fees and commissions on loan and advances

Commission on Western Union operations

Commission on transfers and drafts

Service charges on customer deposits

Commission on guarantees and bonds

Other commission and fees

31-Dec-2013 31-Dec-2012

39,536,302

45,458,716

98,012,738

76,694,014

3,752,677

93,854,772

357,309,219

59,090,739

83,919,678

88,966,155

99,492,896

26,780,587

52,752,263

411,002,318

Page | 48




12 Other operating income

In Liberian dollars

Income on GOL/Bond

Income on call deposits

Other

Rental income

13 Personnel expense

In Liberian dollars

Wages and salaries

Contributions to defined contribution plans

Other staff cost

15

14 General and administrative expenses

In Liberian dollars

Other premises and equipment costs

Directors' emoluments

Professional services

Office expenses

Licenses and fees

Operational expenses-investment property

Bank service and note import charges

Advertising and business promotion

Other operating expenses

In Liberian dollars

Scholarships and donations

Foreign travel

Local travel & transportation

Sundry expenses

Other/Cash short and over

Prior year items

31-Dec-2013 31-Dec-2012

17,166,194

2,722,104

51,952,656

41,058,593

112,899,547

11,829,798

2,420,199

25,390,366

36,130,302

75,770,665

31-Dec-2013 31-Dec-2012

211,163,040

22,740,738

68,959,658

302,863,435

3,821,209

19,229,133

233,155,830

256,206,172

31-Dec-2013 31-Dec-2012

122,758,852

18,178,371

61,359,191

84,146,016

29,989,985

3,730,971

3,259,012

15,262,109

338,684,508

107,556,305

15,334,610

40,597,770

73,166,794

8,880,000

3,253,288

3,322,918

18,109,206

270,220,891

31-Dec-2013 31-Dec-2012

4,642,391

5,761,775

3,505,314

28,674,575

(973,904)

(6,261)

41,603,889

1,687,677

3,715,043

5,902,084

16,164,143

788,852

(1,596,365)

26,661,433

Page | 49




16 Cash and cash equivalents

In Liberian dollars

Cash and balances with banks

Unrestricted balances with banks

31-Dec-2013 31-Dec-2012

827,374,730

1,384,968,424

2,212,343,154

2,025,949,752

1,031,721,848

3,057,671,600

17 Investment in securities

17.1 Available-for-sale

1. Available-for-sale instruments

In 2013, the bank acquired shares of the Liberia Cement

Corporation at US$1,056,028 (2012:NIL) sale to Liberians interested in acquiring equity investment in company. The bank has designated the shares as available-for-sale investment securities as at December 31, 2013. Premium on the sale of the shares is to be shared between the bank and Government of Liberia. Liberia Cement Corporation is not a listed company on any of the stock exchanges in West Africa but the parent company Heildberg Cement AG is quoted on many stock exchanges in Europe.

17.2 Treasury bills

During the year, the bank acquired treasury bills from both the government of Liberia and Central Bank. The maturity of the instruments is April 30, 2014. Details are as follows:

31-Dec-2013 31-Dec-2012

In Liberian dollars

Investment securities

Held- to- maturity

GOL

CBL

49,500,000

236,683,315

286,183,315 -

-

-

18 Loans and Advances to Customers

31-Dec-2013

In Liberian dollars

Loans to individuals

Loans to non-individuals

Gross amount

3,621,741,050

1,626,165,088

Portfolio

Impairment

(291,524,781)

-

Total

Impairment

(291,524,781)

-

Carrying amount

3,330,216,269

1,626,165,088

5,247,906,138 (291,524,781) (291,524,781) 4,956,381,357

As at

31-Dec-2012

In Liberian dollars



Gross amount

368,439,498

2,365,716,579

Portfolio

Impairment

-

(418,585,101)

Total

Impairment

-

(418,585,101)

Carrying amount

368,439,498

1,947,131,478

2,734,156,077 (418,585,101) (418,585,101) 2,315,570,976

Page | 50




19 Other current assets

In Liberian dollars

Accounts receivable

Prepayments

Restricted deposits with Central bank

Stock/Stationery

31-Dec-2013 31-Dec-2012

1,080,521,640

145,096,836

2,085,401,080

37,726,001

724,662,249

131,689,413

1,739,201,459

31,706,451

3,348,745,557 2,627,259,572

Page | 51




20 Investment properties

Investment Properties have been measured at fair value in the statement of financial position and are categorized by levels according to the inputs used in the market measurement..

December 31, 2013

L$

Current valued prices for identical properties

Level 1

L$ significant other observable inputs

Level 2

L$

Significant unobservable inputs

Level3

L$


E.E. Sleeby Property/Buildings

Total

432,000,000 432,000,000

432,000,000 432,000,000 -

432,000,000

432,000,000

Fair value for Investment properties are calculated using the direct income capitulazation method, which results in the measurement being classified as level 1 in the fair view value hierarchy. In applying the direct imcome capitalization method, the stabilized net operating income (NOI) of each property id divided by an appropriate capitalization rate.

Capitalisation Rate:

Based on actual location, size and quality of the property and taking into account any available market data at the valuation date.

Revenue less any property operating expenses adjusted for item such as any ,lease up costs, long-term vacancy rate, non-recoverable capital expenditures, management fees, straight-line rents and other non-recurring costs.

Stabilized NOI:

Investment properties are valued on a highest and best use basis. For the Bank's investment properties, the current use is considered the highest and best use.

Valuation Processes

The Bank obtains external valuation for all of its investment properties. Each property is valued by an independent valuer at least once every five years. The external valuation are prepared by independent professional qualified valuers who hold a recognised relevant profession qualification and have recent experience in the location and catogy of the respective property.

The Finance department team verifies all major inputs to the valuation and reviews the result with the independent valuer. The

Finance department team report to the Chief Financial Officer (CFO) and the Audit Committee (AC). Discussion of valuation processes, key inputs and results are held between the CFO and AC.

Page | 52




21 Intangible assets

In Liberian dollars

Cost:

Balance at beginning of the year

Additions

Disposals

Reclassifications

Accumulated amortization:

Balance at beginnig of the year

Amortization for the year

Adjustment

Carrying amounts

31-Dec-2013 31-Dec-2012

109,362,555

-

-

-

109,362,555

-

-

-

109,362,555 109,362,555

34,433,528

12,314,226

(10,796,110)

18,032,707

16,400,821

-

35,951,644 34,433,528

73,410,911 74,929,027

Page | 53




22




Property and equipment

For the year ended 31 December, 2013

In Liberian dollars

Land & building

Leasehold improvement Equipment

Furniture &

Fixtures

Motor

Vehicles

Miscellaneous property

Work in

Progress Total

Cost:


Additions

Disposals

Adjustment

Revaluation

637,304,840

6,271,302

-

(144,359,813)

305,299,027

804,515,355

138,775,457

16,189,651

(1,600,500)

(23,332,559)

-

130,032,049

250,023,840

18,510,698

(40,854,263)

-

227,680,275

47,269,362

2,747,518

(5,090,762)

(6,834,962)

-

38,091,156

43,693,087

21,598,500

-

(9,933,321)

-

55,358,266

3,113,876

23,653

-

(477,337)

-

2,660,192

17,533,292

57,172,504

-

(48,143,016)

-

26,562,780

1,137,713,753

122,513,826

(6,691,262)

(273,935,271)

305,299,027

1,284,900,072

Accumulated depreciation


Charge for the year

Disposals

9,939,521

8,302,561

-

18,242,081

35,779,134

5,399,587

-

41,178,721

78,589,940

47,382,063

(71,156)

125,900,847

10,073,936

4,886,737

-

14,960,673

33,866,077

3,536,595

(250,080)

37,152,593

2,221,233

503,073

-

2,724,306

-

-

-

-

170,469,841

70,010,617

(321,236)

240,159,222

Carrying amounts

Balance at 31 Dec 2013


786,273,274

627,365,319

88,853,328

102,996,324

101,779,428

171,433,899

23,130,483

37,195,426

18,205,673

9,827,010

(64,115)

892,642

26,562,780

17,533,292

1,044,740,850

967,243,911




23 Deposits from customers

In Liberian dollars

Term deposits

Current deposits

Savings deposits

31-Dec-2013 31-Dec-2012

274,065,000

3,802,086,479

4,470,826,346

392,200,000

2,994,607,874

3,791,723,305

8,546,977,825 7,178,531,179

24 Due to Central Bank

24.1

In December 2010, the Central Bank of Liberia made a three year placement of US$1million at 3% with the Liberian

Bank for Development & Investment (LBDI) for the purpose of intermediation through low cost medium-term loans to Liberian-owned enterprises at a total servicing cost (interest, fees and other charges) not exceeding eight percent (8%) per annum. The placement is for three (3) years repayable by 23rd December, 2013. The repayment was effected in the Central Bank by a one time debit of the total placement and accrued interest to LBDI's account at

CBL.

24.2

In November 2012, the CBL again provided additional US$ 7 million and L$ 217.5 million at 3% for the purpose of intermediation through long-term affordable mortgage loans to Liberian Nationals, also at a total servicing cost

(interest, fees and other charges) not exceeding eight percent (8%) per annum. The placement is for ten (10) years repayable in full on November 14, 2022. Interest payment shall be made on a quartely basis and at maturity, the remaining interest plus principal shall be made via debit to the relevant LBDI account at the CBL.

31-Dec-2013 31-Dec-2012

1,607,683,810 807,170,001

25 Other Liabilities

In Liberian dollars

Accounts payable

Other liabilities

Provision for employee benefits

31-Dec-2013 31-Dec-2012

399,599,576

25,147,310

105,713,400

334,717,448

17,272,315

81,980,357

530,460,286 433,970,120

Page | 55




26 Paid - in - Capital

Share Capital

Class A Common stock $10 par value

(Authorized 1,000,000 shares)

Issued and outstanding at beginning of year 301,070 shares

Issued during the year

Issued and outstanding at end of year 301,070 shares

Class B Common stock $10 par value

(Authorized 1,000,000 shares )


Issued during the year (100,000 shares)

Total Share Capital

Paid - in Capital in excess of par

Total Paid - in Capital

31-Dec-2013 31-Dec-2012

219,991,038

-

219,991,038

219,991,038

-

219,991,038

96,237,231

72,000,000

96,237,231

72,000,000

388,228,269 388,228,269

140,958,544 140,958,544

529,186,813 529,186,813

27a Statutory Reserve

Section 1001 of the bank’s charter requires that “before the bank may determine the profit available for dividends, the bank shall set aside in each year in a special reserve fund a sum equal to not less than 25% of the net profit of the bank as shown in the bank’s financial statements for that year, until the aggregate of that amounts so set aside equals the amount of the loans to the bank then outstanding. In addition to amounts set aside as special reserve, the Directors shall set aside from any profits otherwise available for the payments of dividends such other reserves as they deem prudent.”

27b Revaluation Surplus

31-Dec. – 2013 31-Dec. – 2012

671,483,524 671,483,524

The bank exercised an option to fair value all buildings it owned at the date of transition to market value from the portfolio of fixed assets on its books including investment properties. The impact of the fair valuation was an increased in the value of the assets. The bank has reclassified the surplus to a Revaluation Surplus account. The revaluation surpluses is now L$ 671,483,524. The closing rate used to consolidate the statement of Financial

Position was L$82.50 to US$1.00 as at December 31, 2013. This was done in conformity with IAS 38, 39 A &

42A

28 Credit Risk Reserve

The credit risk reserve warehouses the difference between the impairment on loans and advances determined using the Central Bank of Liberia prudential guidelines, compared with the incurred loss model used in determining the impairment loss under IFRSs.

Where the loan loss impairment determined using the Central Bank of Liberia prudential guidelines is higher than the loan loss impairment determined using the incurred loss model under IFRSs, the difference is transferred to credit risk reserve and the reverse case is also applicable.

Page | 56




29 Contingencies

29.1 Claims and Litigation

The bank has contingent liabilities in respect of legal claim arising in the ordinary course of business as at

December 31, 2013. It is not anticipated that any material liability will arise from the contingent liabilities.

29.2 Contingent Liabilities and Commitments

In common with other banks, the bank conducts business involving acceptances, performance bonds and indemnities. The majority of these facilities are offset by corresponding obligations of third parties. Contingent liabilities and commitments comprise acceptances, guaranties and letters of credit.

29.3 commitments for capital expenditure

The bank had no commitments for capital expenditure as at December 31, 2013 (2012: Nil)

30 Related Parties

Parties are considered to be related if one party has the ability to control the other party or exercise influence over the other party in making financial and operational decisions, or one other party controls both.

Transactions with Executive Directors and Key Management Personnel

Key management personnel are defined as those persons having authority and responsibility for planning, directing and controlling the activities of LBDI (directly or indirectly) and comprise the Director and senior management of the bank. There were no material transactions with companies in which Directors or other members of key management personnel (or any connected persons) are related

Remunerations of Executive Directors and Other Key Management Personnel are as follows:

2013 2012

L$ L$

Salaries and other short term benefits 18,178,371

22,740,738

15,334,610

19,229,133 Contributions to defined contribution plans

Page | 57




DISCLOSURES TO THE FINANCIAL STATEMENTS

Currency Risk Exposure relating to on balance sheet assets are as follows:

Dec-13

In Liberian Dollars

Classification


Financial assets held for trading

Investment securities:

- Available for sale

- Held to maturity



Intangible assets

Current income tax assets

Other assets

TOTAL LBD USD GBP EUR

2,212,343,154

-

-

87,122,310

286,183,315

4,989,101,646

1,907,989,501

73,410,911

-

3,348,745,557

12,904,896,394

813,314,892

-

-

87,122,310

470,511,028

14,736,114

1,287,270,651

-

-

286,183,315

4,518,590,618

1,893,253,387

73,410,911

61,829,323

1,447,513,667

3,286,916,234

11,345,625,115

2,742,436

-

-

-

-

-

-

-

-

-

2,742,436

109,015,176

-

-

-

-

-

-

-

-

-

109,015,176

Deposits from banks


Due to central bank

Due to Intercompany


Deferred tax liabilities

Other liabilities

8,546,977,825

1,607,683,810

-

-

-

613,124,834

10,767,786,469

1,989,509,524

443,764,841

-

-

-

122,624,967

2,555,899,332

6,557,468,301

1,163,918,969

-

-

-

490,499,867

8,211,887,137

-

-

-

-

-

-

-

-

-

-

-

-

-

-




Dec-12

In Liberian Dollars




- Available for sale

- Held to maturity

-Equity investments

Other Investments



Intangible assets

Current income tax assets

Other assets

TOTAL

3,057,671,600

LBD

24,253,894

USD

2,791,101,287

GBP

5,946,236

EUR

236,370,182

-

-

24,083,360

388,500,000

2,315,570,976

1,692,060,339

74,929,026

-

1,022,333,522

8,575,148,823

-

-

225,760,429

18,279,048

101,108,937

-

-

24,083,360

388,500,000

2,089,810,547

1,673,781,291

7,352,074

-

-

378,263,403

723,411,816

644,070,119

4,827,597,391

-

-

-

-

-

-

-

-

-

-

-

-

-

-

Deposits from banks


Due to central bank

Due to Intercompany


Deferred tax liabilities

Other liabilities

7,178,531,179

807,170,001

-

-

-

460,926,233

8,446,627,413

1,588,152,953

218,500,001

-

-

-

170,542,706

1,977,195,660

5,590,278,226

588,670,000

-

-

-

290,383,527

6,469,331,753

-

-

-

-

-

-

-

-

-

-

-

-

-

-




CASH AND CASH EQUIVALENTS

Dec-13

In Liberian Dollars TOTAL


Unrestricted balances with Central bank

Money market placements

Total

LBD USD GBP EUR

481,460,388

1,366,249,362

364,633,404

2,212,343,154

167,664,757

857,433,090

-

1,025,097,847

287,425,298

508,816,272

184,000,000

980,241,570

2,418,254

-

-

2,418,254

23,952,108

-

75,544,000

99,496,108

INVESTMENT SECURITIES

- GOL Treasury bills

- CBL Treasury bills

- Government Bond

Total

Dec-13

51,828,169

234,355,146

595,441,081

881,624,396

51,828,169

234,355,146

-

286,183,315

-

-

595,441,081

595,441,081

-

-

-

-

-

-

-

-

DEPOSITS FROM CUSTOMERS

Current deposits

Savings deposits

Term deposits

Call deposits

Total

Dec-13

3,835,756,751

4,439,101,236

272,119,838

-

8,546,977,825

604,186,920

1,445,934,073

-

-

2,050,120,993

3,231,569,831

2,993,167,163

272,119,838

-

6,496,856,832

-

-

-

-

-

-

-

-

-

-




THE LIBERIAN BANK FOR DEVELOPMENT & INVESTMENT (LBDI)

SUPPLEMENTARY DATA

FOR THE YEAR ENDED DECEMBER 31, 2013

CONTENT:

INTRODUCTORY COMMENTS

STATEMENT OF PROFIT / LOSS AND

OTHER COMPREHENSIVE INCOME

STATEMENT OF FINANCIAL POSITION

STATEMENT OF CASH FLOWS

STATEMENT OF CHANGES IN EQUITY

NOTES TO THE FINANCIAL STATEMENTS

62

63

64

65

66

67-86

Page | 61




THE LIBERIAN BANK FOR DEVELOPMENT & INVESTMENT

SUPPLEMENTARY DATA


Introductory Comments

The financial statements for the year ended December 31, 2013 are presented on pages 8 to 60, in accordance with the requirements of law and International Financial Reporting Standard (IFRS). Presented on a supplementary basis in this section (pages 61-86) are the corresponding summary financial statements denominated in equivalent United States dollars. This presentation is intended for the benefit of readers who may not be adequately familiar with the Liberian dollar.

Page | 62




Statement of Profit or Loss and Other Comprehensive Income

For the year ended 31 December 2013

In United States dollars

Interest income

Interest expense

Net interest income

Bad and doubtful loan expenses




Net fee and commission income

Net gains/(losses) on financial instruments classifiedas held for trading


Personnel expenses


Operating lease expenses

Amortization

Depreciation


Profit for the period

Note

21

22

15

12

13

14

31-Dec-2013 31-Dec-2012

9

10

-

11

5,004,282 3,336,903

(1,427,583) (1,019,372)

3,576,699

-

3,576,699

4,369,814

-

2,317,531

(96,608)

2,220,923

5,554,085

-

7,946,513 7,775,008

1,378,842 1,023,928

(3,698,870) (3,462,246)

(4,136,352) (3,651,634)

(263,156) (216,974)

(150,394) (245,355)

(855,039) (483,028)

(503,758) (360,290)

(282,214) 379,410

Profit attributable to:

Equity holders of the entity


Page | 63




Statement of Financial Position

As at 31 December 2013


Note

Assets



Available for sale

Head-to-maturity


Other assets

Investment property

Other investments

Equity investment

Intangibles


Total assets

16

17

18

19

20

21

22

Liabilities

Deposits from Customers

Due to Central Bank

Due to (ECOWAS Bank for Int. & Dev. - EBID)



Other liabilities


23

24

25

25

25

Equity

Share capital

Share Premium

Statutory Reserves


Credit Risk Reserves

Treasury stock

Retained Earnings / (Accumulated losses)

Total equity


26

27a

27b

28

31-Dec-2013 31-Dec-2012

As at

1-Jan-2012

26,816,281 41,319,886 40,786,005

1,056,028

3,468,889

60,243,200

39,032,810

6,000,000

7,217,468

301,042

889,829

14,337,215

159,362,760

-

-

31,589,082

34,468,884

6,000,000

5,979,627

301,042

1,045,264

13,317,676

134,021,462

-

30,794,308

34,930,754

6,000,000

5,850,000

-

1,270,134

12,147,468

131,778,670

103,599,731

19,487,076

3,000,000

792,158

79,597

7,195,521

97,007,178

10,953,475

-

282,260

29,925

3,591,732

90,068,683

1,014,286

-

38,860

38,718.54

19,161,072

134,154,083 111,864,570 110,321,619

7,724,240

2,442,754

2,938,994

7,294,542

7,724,240

2,442,754

2,938,994

7,294,542

4,777,871

(63,309)

93,585

1,609,719

(63,309)

209,952

6,724,240

1,442,754

2,844,141

7,294,542

3,994,522

(63,309)

(779,839)

25,208,676 22,156,891 21,457,051

159,362,760 134,021,462 131,778,670

_________________________

John B.S.Davies III

________________________

Amara M. Konneh

President/Chief Executive Officer Chairman, Board of Directors


Page | 64




Statement of cash flows for the year ended 31 December 2013


Cash flows from operating activities


Adjustments for: Depreciation and amortization of property and equipment

Amortization of intangibles

Gain on disposal of property and equipment

Translation differences

Changes in:


Other assets



Other liabilities

Net cash from/(used in) operating activities

Cash flows from investing activities

Net sale/(purchase) of investment securities

Purchase of propety and equipment

Investment in treasury bills

Investment in Liberia Cement Corporation shares

Revaluation of investment property

Other investments

Revaluation of property and equipment

Net cash from/(used in) investing activities

Cash flows from financing activities

Sale of shares

Increase in loans from the Central Bank of Liberia


Net cash from/(used in) financing activities

Net (decrease) / increase in cash and cash equivalents

Cash and cash equivalent at beginning of period

Cash and cash equivalent at end of period

2013 2012

(282,214)

1,005,433

-

379,410

1,007,014

-

(168,999) 11,765

554,220 1,398,189

(28,654,118)

(4,563,926)

6,592,553

509,898

3,603,789

(794,774)

461,870

6,938,495

243,400

(15,569,340)

(21,957,584) (7,322,160)

(1,485,016)

(1,056,028)

(3,468,889)

-

(1,237,841)

3,168,152

(4,079,621)

(1,568,719)

-

-

-

(129,627)

(2,384,803)

(4,083,149)

-

8,533,602

3,000,000

11,533,602

2,000,000

9,939,189

-

11,939,189

(14,503,604)

41,319,886

26,816,281

533,880

40,786,005

41,319,886

Page | 65




Statement of changes in equity

For the period ended 31 Decemer 2013

Share

capital

Share

Premium

Revaluation reserves

Credit

Risk Reserves

Statutory reserves

Treasury stock

Retained earnings



Shares issued: Class B Common stock $10 par value

Share premium (Paid - in Capital in excess of par)

Revaluation reserves on land and buildings

Revaluation reserves on investment properties

Writeback of Provision

Additional provision due to impairment loss

Unearned fees and commission revised

Revaluation of staff loans

De-recognition of training cost from Intangible assets

Transfer to Statutory Reserve

Other adjustment

Total comprehensive income for the period:


Other comprehensive income, net of tax

Foreign currency translation difference

Total other comprehensive income

Total comprehensive income

Total

7,724,240 2,442,754 7,294,542 1,609,719 2,938,994 (63,309) 209,952 22,156,891

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

-

7,724,240

-

-

2,442,754

-

-

7,294,542

-

-

-

-

3,533,634 -

-

-

(365,482)

-

-

4,777,871

-

-

2,938,994

-

-

-

-

994814 994,814

3,533,634

(792,158) (792,158)

8,886 8,886

-

-

-

(365,482)

-

-

(282,214) (282,214) -

-

-

(45,695) (45,695) -

-

(63,309) 93,585 25,208,676




Notes to the financial statements


Accounting classification measurement basis and fair values ( continued)

Financial instruments at fair value ( including those held for trading, designated at fair value, derivatives and available-for-sale) are either priced with reference to a quoted market price for that instrument or by using a valuation model. Where the fair value is calculated using a valuation model, the methodology is to calculate the expected cash flows under the terms of each specifc contract and then discount these values back to a present value. The expected cash flows for each contract are determined either directly by reference to actual cash flows implicit in observable market prices or through modelling cash flows using appropriate financial markets pricing models. Wherever possible these models use as their basis observable market prices and rates including, for example, interest rate yield curves, equities and prices.

9 Interest income

31-Dec-2013 31-Dec-2012



Cash and Cash equivalent

5,004,282

-

5,004,282

3,336,903

-

3,336,903

Geographical location

Interest income earned in Liberia

Interest income earned outside Liberia

5,004,282

-

5,004,282

3,336,903

-

3,336,903

Interest income for the year ended 31 December 2012 includes L$ accrued on impaired financial assets.

10 Interest expense


Deposit from banks

Deposit from customers


31-Dec-2013 31-Dec-2012

(1,165,083)

(262,500)

(1,427,583)

-

(1,019,372)

-

(1,019,372)

11 Fee and commission income


Fees and commissions on loan and advances

Commission on Western Union operations

Commission on transfers and drafts

Service charges on customer deposits

Commission on guarantees and bonds

Other commission and fees

31-Dec-2013 31-Dec-2012

488,855

555,187

1,197,029

936,664

45,831

1,146,248

4,369,814

811,452

1,134,050

1,202,245

1,344,499

361,900

699,940

5,554,085

Page | 67




12 Other operating income


Income on GOL/Bond

Income on call deposits

Other

Rental income

13 Personnel expense


Wages and salaries

Contributions to defined contribution plans

Other staff benefits

14 General and administrative expenses


Other premises and equipment costs

Directors' emoluments

Professional services

Office expenses

Licenses and fees

Operational expenses-investment property

Bank service and note import charges

Advertising and business promotion

31-Dec-2013 31-Dec-2012

209,651

33,245

634,498

501,448

1,378,842

159,862

32,705

343,114

488,247

1,023,928

31-Dec-2013 31-Dec-2012

51,448

277,733

3,369,689

3,698,870

51,638

259,853

3,150,755

3,462,246

31-Dec-2013 31-Dec-2012

1,499,254

222,012

749,379

1,027,675

366,268

45,566

39,802

186,396

4,136,352

1,453,464

207,224

548,619

988,741

120,000

43,963

44,904

244,719

3,651,634

Page | 68




15 Other operating expenses


Scholarships and donations

Foreign travel

Local travel & transportation

Sundry expenses

Other/Cash short and over

Prior year items

31-Dec-2013 31-Dec-2012

56,698

70,369

42,810

350,202

(16,298)

(23)

503,758

22,806

50,203

79,758

245,171

(16,077)

(21,571)

360,290

16 Cash and cash equivalents



Unrestricted balances with Central bank

31-Dec-2013 31-Dec-2012

10,018,785

16,787,496

26,806,281

27,377,699

13,942,187

41,319,886

17 Investment in securities

17.1 Avalilable-for-sale

In 2013, the bank acquired 130,067 shares of Libeira Cement Corporation at US$1,056,028 (2012: NIL) for sale to

Liberians interested in acquiring equity interest in the company. The bank designated the shares as available-for-sale investment securities as at December 31, 2013. Premium on the sale of the shares is to be shared between the bank and

Government of Liberia. Liberia Cement Corporation is not a listed company on any of the stock exchanges in West

Africa but the parent company Heidelberg Cement AG is quoted on many stock exchanges in Europe.

17.2 Treasury bills

During the year, the bank acquired treasury bills from both the government of Liberia and Central Bank. The maturity of the instruments is April 30, 2014. Details are as follows:

In Liberian dollars

Investment securities

Held- to- maturity

GOL

CBL

31-Dec-2013 31-Dec-2012

600,000

2,868,889

3,468,889

-

-

-

-

Page | 69




18 Loans and Advances to Customers

31-Dec-2013




Gross amount

44,065,741

19,711,092

Portfolio

Impairment

(3,533,634)

-

Total

Impairment

(3,533,634)

-

Carrying amount

40,532,108

19,711,092

63,776,833 (3,533,634) (3,533,634) 60,243,200

As at

31-Dec-2012




Gross amount

4,978,912

32,266,726

Portfolio

Impairment

-

(5,656,555)

Total

Impairment

-

(5,656,555)

Carrying amount

4,978,912

26,610,170

37,245,638 (5,656,555) (5,656,555) 31,589,082

19 Other assets


Accounts receivable

Prepayments

Restricted amount

31-Dec-2013

31-Dec-2012

11,539,187

1,758,750

25,277,589

9,792,733

744,963

23,502,722

428,466

39,032,810

34,468,884

Page | 70




20 Investment properties

Investment Properties have been measured at fair value in the statement of financial position and are categorized by levels according to the inputs used in the market measurement..

significant other Significant

December 31, 2013 Current value price observable for identical properties

Level 1 inputs

Level 2

US$ US$ US$ unobservable inputs

Level3

US$


E.E. Sleeby Property/Buildings 6,000,000 6,000,000 6,000,000

Total 6,000,000 6,000,000 6,000,000

Fair value for Investment properties are calculated using the direct income capitulazation method, which results in the measurement being classified as level 1 in the fair view value hierarchy. In applying the direct capitalization method, the stabilized net operating income (NOI) of each property is divided by an appropriate capitalization rate.

Capitalisation Rate:

Based on actual location, size and quality of the property and taking into account any available market data at the valuation date.

Revenue less any property operating expenses adjusted for item such as any ,lease up costs, long-term vacancy rate, non-recoverable capital expenditures, management fees, straightline rents and other non-recurring costs.

Stabilized NOI:

Investment properties are valued on a highest and best use basis. For the Bank's investment properties, the current use is considered the highest and best use.

Valuation Processes

At each financial year -end date, the Bank obtains external valuation for all of its investment properties. Each property is valued by an independent valuer at least once every five years. The external valuation are prepared by independent professional qualified valuers who hold a recognised relevant profession qualification and have recent experience in the location and catogy of the respective property.

The Finance department team verifies all major inputs to the valuation and reviews the result with the independent valuer. The

Finance department team report to the Chief Financial Officer (CFO) and the Audit Committee (AC). Discussion of valuation processes, key inputs and results are held between the CFO and AC.

Page | 71




21 Intangible assets


Cost:


Additions

Disposals

Reclassifications

Accumulated amortization:

Balance at beginnig of the year

Amortization for the year

Disposals

Carrying amounts

Balance at the end of the year

31-Dec-2013 31-Dec-2012

1,511,224

-

-

1,511,224

-

-

-

1,511,224 1,511,224

465,961

150,394

(5,060)

239,327

226,634

-

611,295 465,961

899,929 1,045,263

Page | 72




Notes to the financial statements


22 Property and equipment

Land & building


Furniture &

Fixtures

Motor

Vehicles

Miscellaneo us property

Work in

Progress In United States dollars

Cost:


Additions

Disposals

Adjustment

Revaluation

Total

8,750,483

76,016

-

(1,763,066)

3,816,238

10,879,671

1,905,450

196,238

(19,400)

(284,960)

-

1,797,327

3,432,940

224,372

-

(498,953)

-

3,158,359

649,030

33,303

(61,706)

(83,475)

-

537,151

599,926

261,800

-

(121,316)

-

740,410

42,755

287

-

(5,830)

-

37,212

240,740

693,000

-

(587,970)

-

345,770

15,621,323

1,485,016

(81,106)

(3,345,570)

3,816,238

17,495,900



Charge for the year

Disposals

134,318

101,399

483,502

65,945

1,062,026

578,677

136,134

59,682

457,650

43,192

30,017

6,144

-

-

235,717 549,447 1,640,703 195,816 500,842 36,161 -

2,303,647

855,039

-

3,158,686

Carrying amounts



10,643,954

8,616,165

1,247,880

1,421,948

1,517,656

2,370,914

341,335

512,895

239,568

142,276

1,051

12,738

345,770

240,740

14,337,215

13,317,676





22 Property and equipment

In Liberian dollars

Land & building


Furniture &

Fixtures

Motor

Vehicles

Miscellaneo us property

Work in

Progress

Cost:


Additions

Adjusments

Total

6,310,471

211,784

2,228,228

2,758,682

120,838

(974,070)

3,469,874

829,014

(865,947)

732,154

65,242

(148,367)

645,729

90,500

(136,303)

44,607

7,823

(9,676)

52,927

243,518

(55,705)

14,014,445

1,568,719

38,159

8,750,483 1,905,450 3,432,940 649,030 599,926 42,755 240,740 15,621,323



Charge for the year

Adjusments

73,967

58,470

1,879

452,761

42,824

(12,082)

868,813

513,992

(320,779)

83,416

54,959

(2,241)

366,329

101,221

(9,900)

21,691

8,913

(587)

-

-

-

134,317 483,502 1,062,026 136,134 457,650 30,017 -

1,866,977

780,380

(343,710)

2,303,647

Carrying amounts



6,236,504

8,616,167

2,305,922

1,421,947

2,601,060

2,370,914

648,738

512,895

279,400

142,275

22,917

12,738

52,927

240,740

12,147,468

13,317,676




23 Deposits from customers


Term deposits

Current deposits

Savings deposits

25 Other Liabilities


Accounts payable

Taxes Payable


Other liabilities

Payables on employee benefits

26 Paid - in - Capital

Share Capital

Class A Common stock $10 par value

(Authorized 1,000,000 shares)


Issued during the year

Issued and outstanding at end of year 301,070 shares

Class B Common stock $10 par value

(Authorized 1,000,000 shares )


Issued during the year (100,000 shares)

Issued and outstanding at end of year 340,485 shares

Total Share Capital

Paid - in Capital in excess of par

Total Paid - in Capital

31-Dec-2013 31-Dec-2012

3,322,000

46,085,897

54,191,834

5,300,000

40,467,674

51,239,504

103,599,731 97,007,178

31-Dec-2013 31-Dec-2012

5,529,734

79,597

792,158

304,815

1,281,375

2,220,055

29,925

282,260

233,409

1,107,843

7,987,679 3,873,492

31-Dec-2013 31-Dec-2012

4,226,533

-

4,226,533

4,226,533

-

4,226,533

2,114,422

1,383,285

3,497,707

2,114,422

1,383,285

3,497,707

7,724,240 7,724,240

2,442,754 2,442,754

10,166,994 10,166,994

Page | 75




27a Statutory Reserve

Section 1001 of the bank’s charter requires that “before the bank may determine the profit available for dividends, the bank shall set aside in each year in a special reserve fund a sum equal to not less than 25% of the net profit of the bank as shown in the bank’s financial statements for that year, until the aggregate of that amounts so set aside equals the amount of the loans to the bank then outstanding. In addition to amounts set aside as special reserve, the Directors shall set aside from any profits otherwise available for the payments of dividends such other reserves as they deem prudent.”

27b Revulation Reserve

31-Dec-2013 31-Dec-2012

72,494,542 72,494,542

The bank exercised an option to fair value all building it owned at the date of transition to market value from the portfolio of fixed assets on its books including investment properties. The impact of the fair valuation was an increased in the value of the assets.

The bank has reclassified the surplus to a Revaluation Reserve account.

28 Credit Risk Reserve

The credit risk reserve warehouses the difference between the impairment on loans and advances determined using the Central

Bank of Liberia prudential guidelines, compared with the incurred loss model used in determining the impairment loss under

IFRSs.

Where the loan loss impairment determined using the Central Bank of Liberia prudential guidelines is higher than the loan loss impairment determined using the incurred loss model under IFRSs, the difference is transferred to credit risk reserve and the reverse case is also applicable.

Page | 76





Dec-13


Assets




Available for sale

Head-to-maturity

Other assets

Investment property

Equity investment


Intangibles

Total assets

Liabilities

Deposits from customers (Customer deposits

Due to Central bank


Other liabilities


Equity

Share capital

Share Premium


Regulatory Risk Reserves

Statutory Reserves

Treasury stock

Retained earnings (Accumulated losses)

Total equity


Previous GAAP

Effect of transition to IFRS

31 December 2012

IFRS

31 Dec. 2012 Previous GAAP



IFRS

1 Jan. 2012

64,822,609

29,979,364

5,979,627

-

10,966,162

2,540,478

-

9,501,438

1,422,345

125,212,022

(23,502,722)

1,609,719

-

23,502,722

3,459,522

-

3,816,238

(377,082)

8,508,397

41,319,886

31,589,082

-

-

5,979,627

34,468,884

6,000,000

301,042

13,317,676

1,045,264

134,021,462

62,064,983

27,015,093

5,850,000

13,433,805

2,521,696

8,331,230

1,582,923

120,799,731

(21,278,978)

3,779,215

-

-

40,786,005

30,794,308

21,496,949

3,478,304

3,816,238

(312,788)

10,978,939

-

5,850,000

34,930,754

6,000,000

-

12,147,468

1,270,134

131,778,670

97,007,178

10,953,475

29,925

3,861,064

111,851,642

-

-

-

(269,332)

(269,332)

97,007,178

10,953,475

29,925

3,591,732

111,582,310

90,068,683

1,014,286

38,719

19,161,072

110,282,759

-

-

-

38,860

38,860

90,068,683

1,014,286

38,719

19,199,932

110,321,619

7,724,240

2,442,754

-

-

2,938,994

(63,309)

317,702

-

-

7,576,803

1,609,719

-

-

(107,750)

7,724,240

2,442,754

7,576,803

1,609,719

2,938,994

(63,309)

209,952

6,724,240

1,442,754

-

-

2,844,141

(63,309)

(430,854)

-

-

7,294,542

3,994,522

-

-

(348,985)

6,724,240

1,442,754

7,294,542

3,994,522

2,844,141

(63,309)

(779,839)

13,360,381 9,078,772 22,439,152 10,516,972 10,940,079 21,457,051

125,212,022 8,809,440 134,021,462 120,799,731 10,978,939 131,778,670





In United States dollars Previous GAAP



IFRS

31 Dec. 2012 Previous GAAP



IFRS

1 Jan. 2012

Interest income

Interest expense

Net interest income





3,336,903

(1,019,372)

-

-

2,317,531

(96,608)

-

-

2,220,923 -

5,554,085

-

7,775,008

-

-

3,336,903

(1,019,372)

3,125,692

(745,022)

-

-

2,317,531

(96,608)

2,380,670

(1,439,447)

-

-

2,220,923 941,223 -

5,554,085

-

7,775,008

4,258,854

-

5,200,077

-

-

-

3,125,692

(745,022)

2,380,670

(1,439,447)

941,223

4,258,854

-

5,200,077

Net gains/(losses) on financial instruments classified as held for trading

Other operating income 1,023,928 1,023,928 661,713 661,713

Personnel expenses


Operating lease expense

Depreciation and amortization


Profit for the year

(3,462,246) -

(3,868,608) -

(728,383)

(360,290)

379,410 -

-

-

(3,462,246) (3,100,740)

(3,868,608) (4,362,969)

-

-

-

(728,383)

(360,290)

(468,588) -

(222,860) -

379,410 (2,293,366) -

(3,100,740)

(4,362,969)

(468,588)

(222,860)

(2,293,366)

Page | 81




Page | 78

Page | 80




Disclosures to the Financial Statements

December-2013

Carrying

amount

Gross nominal inflow/outflow

Less than1

3 months In US Dollars

Financial assets


Loans and advances to banks



Hedging derivatives

Investment Securities:

– Available for sale

– Other Investments

– Held to maturity

Assets pledged as collateral

Other Assets

Financial liabilities

Deposits from banks


Due to central bank

Due to Intercompany

Debt securities in issue


Other Liabilities

Gap (asset - liabilities)

Cumulative liquidity gap

26,332,257

-

61,101,376

3 to 6 months

6 to 12 months

1 to 5 years

More than

5 years

26,332,257

17,948,963 1,450,900 7,318,000 30,220,575 4,162,938

1,056,028

7,518,510

3,468,889

39,032,810

138,509,870 -

3,468,889

39,032,810

86,782,918 1,450,900

1,056,028

7,217,468

8,374,028 37,438,043

301,042

4,463,980

-

103,599,800

19,480,969

-

-

3,000,000

7,431,816

133,512,585

4,997,285

4,997,285

-

-

-

46,086,125 54,191,675

7,431,816

53,517,941

33,264,977

33,264,977

54,191,675

(52,740,775)

(19,475,798)

3,322,000

3,000,000

3,322,000

5,052,028

(14,423,770)

3,000,000

34,438,043

20,014,273

19,480,969

19,480,969

(15,016,989)

4,997,285

1 Includes balances with no specific contractual maturities

Page | 79




December-2012

In US Dollars

Financial assets


Loans and advances to banks



Hedging derivatives

Investment Securities:

– Available for sale

-Other Investments

– Held to maturity

Assets pledged as collateral

Other Assets

Financial liabilities

Deposits from banks


Due to central bank

Due to Intercompany

Debt securities in issue


Other Liabilities

Gap (asset - liabilities)

Cumulative liquidity gap

Carrying

amount

41,319,886

31,589,082

6,280,669

34,468,884

113,658,521

97,007,178

10,953,475

Gross nominal Less than1

inflow/ outflow 3 months

-

10,241,650

34,468,884

86,030,420

41,319,886

40,466,095

3 to 6 months

889,635.14

5,979,627

6,869,262

51,241,083.5

6 to 12 months

3,684,000

5,300,000

1 to 5 years

3,684,000 14,728,014

14,728,014

More than

5 years

2,045,784

301,042

2,346,826

10,953,475

263,335

108,223,988

5,434,533

5,434,533

-

-

-

263,335

40,729,429

45,300,990

45,300,990

51,241,084

(44,371,821)

(44,371,821)

5,300,000

(1,616,000)

(1,616,000)

-

14,728,014

14,728,014

10,953,475

(8,606,649)

(8,606,649)

1 Includes balances with no specific contractual maturities

Page | 80





- Government Bond

2,868,889

7,217,468

-Equity Investment 301,042

-

5,979,627

301,042

Loans and advances to customers:

- Loans to individuals

- Loans to non-individuals

5,330,991

55,770,385

3,229,289

28,359,793

Other assets

Total

2

Loans exposure to total exposure

Other exposure to total exposure

12,779,169

111,200,200

%

55%

45%

13,317,676

92,507,313

%

28%

72%

2

Balances included in Other Assets above are those subject to credit risks. Items not subject to credit risk, which 'include

Stock/Stationery and Prepaid benefit on employees loan have been excluded.

The table above shows a worst-case scenario of credit risk exposure to the Bank as at 31 December 2013 and 31 December 2012 without taking account of any collateral held or other credit enhancements attached.

Loans and advances to customers is analysed below:

In United States dollars

Loans to individuals:

Overdraft

Loans

Loans to non-individuals:

Overdraft

Loans

Dec -2013

1,709,350

3,621,642

5,330,991

16,239,074

39,531,311

55,770,385

Dec -2012

1,578,038

1,651,251

3,229,289

14,862,579

19,697,174

34,559,753

Page | 81







Overdraft

Loans

Dec -2013


Overdraft

Loans

1,709,350

3,621,642

5,330,991

16,239,074

39,531,311

55,770,385

Dec -2012

1,578,038

1,651,251

3,229,289

14,862,579

19,697,174

34,559,753

Credit risk exposures relating to off-blance sheet items are as follows:


Maximum exposure

Dec -2013

Financial guarantees

Other contingents

3,437,866

2,440,352

5,878,218

Dec -2012

2,132,983

425,154

2,558,137

Geographical Sector

Concentration of risks of financial assets with credit risk exposure

The following table breaks down the bank’s credit exposure (without taking into account any collateral held or other credit support), as categorised by geographical region as at the reporting date.

Page | 82




Credit risk exposure relating to On-Balance Sheet

Dec-13


Classification

Cash and cash equivalents:

- Balances held with other banks

- Unrestricted balances with Central banks

- Money market placements




- Government Bond

Liberia

6,826,271

16,261,686

3,244,300

Rest of Africa

-

-

-

600,000

2,868,889

7,217,468

-

-

-

Loans and advances to customers:



Other assets

Total

2

5,330,991

55,770,385

12,779,169

110,899,158

-

-

-

-

2 Balances included in Other Assets above are those subject to credit risks. Items not subject to credit risk, which include Stock/Stationery and Prepaid benefit on employees loan have been excluded.

Page | 83





Dec-13



Overdraft

Loans


Overdraft

Loans

Liberia Rest of Africa

1,709,350

3,621,642

5,330,991

-

-

-

16,239,074

39,531,311

55,770,385

-

-

-

Page | 84




Dec-12


Classification

Cash and cash equivalents:

- Balances held with other banks

- Unrestricted balances with Central banks

- Money market placements




- Government Bond

Loans and advances to customers:



Other assets 2

Total


12,993,836

20,942,027

7,384,023

-

-

-

-

-

5,979,627

-

-

-

3,229,289

34,559,753

-

-

13,317,676

98,406,231

-

-

Page | 85




Loans and advances to customers is analysed below:

Dec-12



Overdraft

Loans


1,578,038

1,651,251

3,229,289

-

-

-


Overdraft

Loans

14,862,579

19,697,174

34,559,753 -

-

-

Page | 86