Corporate Financial State ments for the year ended ...

2019 Corporate Financial Statements

Corporate Financial Statements

for the year ended December 31, 2019


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CONTENTS

INDEPENDENT AUDITOR'S REPORT 3

CORPORATE FINANCIAL STATEMENTS 7

Corporate Statement of Financial Position as at December 31, 2019 8

Corporate Statement of Comprehensive Income for the Year 2019 9

Corporate Statement of Changes in Equity for the Year 2019 10

Corporate Statement of Cash Flow for the Year 2019 11

Notes to the Corporate Financial Statements 12


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INDEPENDENT AUDITOR’S REPORT

Grant Thornton Aruba L.G. Smith Boulevard 62OranjestadAruba

T +297 522 1647 F +297 582 4864

Independent auditor’s report

Our opinion

In our opinion, the corporate financial statements give a true and fair view of the financial position of AIB Bank N.V., Aruba (the Company) standing alone as at December 31, 2019 and its financial performance and its cash flows for the year then ended in accordance with International Financial Reporting Standards.

What we have audited

The Company’s financial statements comprise:

the corporate statement of financial position as at December 31, 2019 of the Company standing

alone;

the corporate statement of comprehensive income for the year 2019;

the corporate statement of changes in equity for the year 2019;

the corporate statement of cash flow for the year 2019; and

the notes to the corporate financial statements for the year 2019, which include a summary of

significant accounting policies.

Basis for opinion

We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the Auditor’s responsibilities for the audit of the corporate financial statements section of our report.

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

Independence

We are independent of the Company in accordance with the International Ethics Standards Board for Accountants’ Code of Ethics for Professional Accountants (IESBA Code). We have fulfilled our other ethical responsibilities in accordance with the IESBA Code. Furthermore, we have complied with the ‘Verordening gedrags- en beroepsregels accountants’ (VGBA – Dutch Code of Ethics).

Emphasis of Matter – Effects of Coronavirus (COVID-19)

We draw attention to note 24 of the corporate financial statements which includes the Management Board’s assessment of the Coronavirus (COVID-19) on the future results, cash flows and financial position of the Company. As stated in this note, based on its assessment of the impact of the Coronavirus for the year 2020 and beyond, and taking into account the uncertainties that exist as per the date of issuance of these corporate financial statements, the Management Board concludes that it does not consider the impact to cast significant doubt upon the Company’s ability to continue as a going concern.

Our opinion is not modified in respect of this matter.

To the Management Board, Board of Supervisory Directors and the Shareholders of AIB Bank N.V. Aruba

Our ref: 133189/ A-31515

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Responsibilities of Management Board and the Board of Supervisory Directors for the corporate financial statements

The Management Board is responsible for the preparation of the corporate financial statements that give a true and fair view in accordance with International Financial Reporting Standards, and for such internal control as the Management Board determines is necessary to enable the preparation of corporate financial statements that are free from material misstatement, whether due to fraud or error.

In preparing the corporate financial statements, the Management Board is responsible for assessing the Company’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless the Management Board either intends to liquidate the Company or to cease operations, or has no realistic alternative but to do so.

The Board of Supervisory Directors is responsible for overseeing the Company’s financial reporting process.

Auditor’s responsibilities for the audit of the corporate financial statements

Our objectives are to obtain reasonable assurance about whether the corporate financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not a guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and are considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of users taken on the basis of these corporate financial statements.

As part of an audit in accordance with ISAs, we exercise professional judgment and maintain professional scepticism throughout the audit. We also:

Identify and assess the risks of material misstatement of the corporate financial statements, whetherdue to fraud or error, design and perform audit procedures responsive to those risks, and obtainaudit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of notdetecting a material misstatement resulting from fraud is higher than for one resulting from error, asfraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override ofinternal control.

Obtain an understanding of internal control relevant to the audit in order to design audit proceduresthat are appropriate in the circumstances, but not for the purpose of expressing an opinion on theeffectiveness of the Company’s internal control.

Evaluate the appropriateness of accounting policies used and the reasonableness of accountingestimates and related disclosures made by the Management Board.

Conclude on the appropriateness of the Management Board’s use of the going concern basis ofaccounting and, based on the audit evidence obtained, whether a material uncertainty exists relatedto events or conditions that may cast significant doubt on the Company’s ability to continue as agoing concern. If we conclude that a material uncertainty exists, we are required to draw attention inour auditor’s report to the related disclosures in the corporate financial statements or, if suchdisclosures are inadequate, to modify our opinion. Our conclusions are based on the audit evidenceobtained up to the date of our auditor’s report. However, future events or conditions may cause theCompany to cease to continue as a going concern.

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Evaluate the overall presentation, structure and content of the corporate financial statements,including the disclosures, and whether the corporate financial statements represent the underlyingtransactions and events in a manner that achieves fair presentation.

We communicate with the Board of Supervisory Directors regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit.

Aruba, April 17, 2020 Grant Thornton Aruba

Original signed by Edsel N. Lopez


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CORPORATE

FINANCIAL STATEMENTS


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CORPORATE STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2019

December 31, 2019 December 31, 2018 (In Afl.)

Assets Cash and Cash Equivalents (5) 27,409,754 32,280,065 Financial Assets Held-for-Sale (6) - 4,704,260 Loans - Amortized Cost (7) 147,444,289 118,185,592 Investment Securities (8) 8,971,722 8,971,722 Investment in Subsidiaries (9) 42,051,653 34,932,857 Trade and Other Receivables (10) 5,172,999 3,718,670 Property and Equipment (11) 4,727,147 4,943,272

Total Assets 235,777,564 207,736,438

Liabilities Trade and Other Liabilities (12) 5,700,758 5,281,515 Current Tax Liability 335,867 307,674 Borrowings (13) 116,992,955 99,310,775 Provisions (14) 385,855 383,474 Deferred Tax Liability (15) 206,867 227,096

123,622,302 105,510,534 Equity Ordinary Shares (16) 14,920,000 14,920,000 Share Premium Reserve 1,440,810 1,440,810 Regulatory Loan Loss Reserve 4,953,454 3,916,787 Retained Earnings 90,840,998 81,948,307 Shareholders’ Equity 112,155,262 102,225,904

Total Liabilities and Equity 235,777,564 207,736,438

The accompanying notes form an integral part of the financial statements.


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CORPORATE STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR 2019

2019 2018 (In Afl.)

Interest Income (17) 9,987,902 9,881,434 Interest Expenses (17) (4,557,973) (4,430,112) Net Interest Income 5,429,929 5,451,322

Net Fee and Commission Income (18) 7,552,215 6,729,602 Other Income 2,422 3,305

Total Income 12,984,566 12,184,229

Release/(addition) to Allowance for Credit Impairment Losses 147,375 1,332,021

147,375 1,332,021

Staff Costs (19) (5,884,669) (5,657,138) Administrative Expenses (20) (1,784,236) (1,783,783) Depreciation Expense (11) (472,753) (454,802) Total Operating Expenses (8,141,658) (7,895,723)

Operating Result before Profit Tax 4,990,283 5,620,527 Result Subsidiaries (9) 7,118,796 6,393,222

Operating Result before Profit Tax 12,109,079 12,013,749 Profit Tax (21) (687,721) (1,146,658)

Comprehensive Income 11,421,358 10,867,091

Proposal for Profit Appropriation Proposed Dividend 1,492,000 1,492,000 Proposed addition to Retained Earnings 9,929,358 9,375,091

Total 11,421,358 10,867,091 The accompanying notes form an integral part of the financial statements. Note: The comprehensive income equals the net result.


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CORPORATE STATEMENT OF CHANGES IN EQUITY FOR THE YEAR 2019

Share

Capital

Share

Premium

Reserve

Regulatory

Loan Loss

Reserve

Retained

Earnings

Total Share-

holders’

Equity

(In Afl.)

Balance per January 1, 2018 14,920,000 1,440,810 4,154,401 72,639,588 93,154,799

Comprehensive Income 2018 - - - 10,867,091 10,867,091

Dividend 2017 Declared and Paid in 2018 - - - (1,492,000) (1,492,000)

Transfer to Regulatory Loan Loss reserve - - (237,614) 237,614 -

Adjustment prior year - - - (303,986) (303,986)

Balance per December 31, 2018 14,920,000 1,440,810 3,916,787 81,948,307 102,225,904

Comprehensive Income 2019 - - - 11,421,358 11,421,358

Dividend 2018 Declared and Paid in 2019 - - - (1,492,000) (1,492,000)

Transfer to Regulatory Loan Loss reserve - - 1,036,667 (1,036,667) -

Balance per December 31, 2019 14,920,000 1,440,810 4,953,454 90,840,998 112,155,262



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CORPORATE STATEMENT OF CASH FLOW FOR THE YEAR 2019 Note 2019 2018

(In Afl.)

Cash Flow from Operating Activities: Interests and Commissions Received (10) 17,557,836 16,642,856 Interests Paid (12) (4,463,091) (4,754,042) Cash Paid to Suppliers and Employees (12) (8,989,910) (16,989,560) Income Taxes Paid (679,757) (1,157,462) Cash Flows from Operating Profits before Changes in Loans Granted 3,425,078 (6,258,208)

Loans Granted (7) (58,670,312) (34,000,758) Loan Repayments (7) 29,487,522 38,613,597

(29,182,790) 4,612,839 Net Cash (Used in)/ Provided by Operating Activities (25,757,712) (1,645,369)

Cash Flow from Investing Activities: Purchases of Investments (8) - (310,000) Proceeds from Investments (6) 4,953,849 3,772,753 Capital Expenditure (11) (256,628) (1,198,157)

Net Cash Used/Provided by Investing Activities 4,697,221 2,264,596

Cash Flow from Financing Activities: Proceeds from Borrowings (13) 49,842,955 6,230,775 Repayment of Borrowings (13) (32,160,775) (11,230,775) Dividend Paid (16) (1,492,000) (1,492,000)

Net Cash (Used in)/Provided by Financing Activities 16,190,180 (6,492,000)

Net Change in Cash and Cash Equivalents

(4,870,311) (5,872,773)

Cash and Cash Equivalents at the Beginning of the Year 32,280,065 38,152,838

Cash and Cash Equivalents at the End of the Year 27,409,754 32,280,065



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NOTES TO THE CORPORATE FINANCIAL STATEMENTS FOR THE YEAR 2019

1. General Information

AIB BANK N.V. (the Bank) is a limited liability company and is incorporated on October 20, 1987 and domiciled in Aruba. The address of its registered office is as follows: Wilhelminastraat 36.

The objectives of the Bank are: - to promote the execution of projects which, in the opinion of the Bank, are important to the

economic development of Aruba;- to provide medium or long term capital and other means of financing to individuals who are

conducting a business and to corporations among others in the form of granting credits, providingloans, issue of guarantees and other forms of security, participation in equity and serving asintermediary in these matters;

- to manage funds - whether or not in its own name - on behalf of others for specific developmentpurposes;

- to administer and manage financial or other institutions and assist in establishing such institutions;- to render technical, administrative and financial assistance and to provide advice in banking activities

including - though not exclusively - formation of bank syndicates and serving as intermediary inmergers and acquisitions of companies;

- to perform all acts and services which, in the opinion of the Bank, may be important or necessary forthe realization of the Bank's objectives including rendering advice on management, bankingtransactions, receiving money in deposit, collections, payments and transactions in foreign currency;all this as it relates to the projects of the Bank; and

- to act as holding company.

The shares of the Bank are held by a variety of shareholders. None of the Shareholders has power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights.

The Bank has prepared these separate corporate financial statements in accordance with International Financial Reporting Standards (IFRS), and serve as the statutory financial statements. The Bank has also prepared consolidated financial statements in accordance with IFRS for the Bank and its subsidiaries (the “Group”). In the consolidated financial statements, subsidiary undertakings – which are those companies in which the Bank, directly or indirectly, has an interest of more than half of the voting rights or otherwise has power to exercise control over the operations – have been fully consolidated. Users of these corporate financial statements should read them together with the Group’s consolidated financial statements in order to obtain full information on the financial position, changes in equity, and results of operations of the Group as a whole.

The consolidated financial statements and statutory statements have been approved for issue by the Board of Supervisory Directors April 14, 2020 and presented at the Shareholders’ Annual General Meeting on April 30, 2020.


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2. Significant Accounting Policies

2.1. New or Revised Standards and Interpretations

2.1.1. Changes in Accounting Policies and Disclosures

IFRS 16 Leases

The Bank has adopted International Financial Reporting Standard (IFRS) 16 Leases with a date of transition of January 1, 2019, which resulted in changes in accounting policies and no adjustments to the amounts previously recognized in the financial statements. The Bank did not early adopt IFRS 16 in previous periods.

The new standard replaces the existing standard IAS 17 Leases along with three Interpretations; IFRIC 4 Determining whether an Arrangement contains a Lease, SIC 15 Operating Leases-Incentives and SIC 17 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. IFRS 16 applies to all leases for both lessee and lessor, except for a few scope exclusions. The new standard requires lessees to account for leases ‘on-balance sheet’ by recognizing a ‘right-of-use’ and a lease liability, measured at the present value of future lease payments. The right-of-use is accounted for similarly to a purchased asset and depreciated or amortised. The lease liability is accounted for similarly to a financial liability using the effective interest rate method.

The agreements of the Bank containing a lease are limited to low value assets. Hence the adoption of IFRS 16 has had no significant impact on the corporate financial statements of the Bank. The entity elected to apply the practical expedients in IFRS 16 for short-term leases and leases for which the underlying asset is of low value. Short-term leases with a term not exceeding 12 months (and no purchase option) as well as leases where the underlying asset is of low value are not recognized using the option under IFRS 16.5.

2.1.2. New Standards and Interpretations not yet Adopted

At the date of authorization of these financial statements, several new, but not yet effective, Standards, amendments to existing Standards, and Interpretations have been published by the IASB. None of these Standards, Amendments or Interpretations have been adopted early by the Bank. Other Standards and amendments that are not yet effective and have not been adopted early by the Bank include:

• IFRS 17 Insurance Contracts (effective for annual reporting periods beginning on or after 1January 2021);

• Definition of a Business (Amendments to IFRS 3) (effective for annual reporting periodsbeginning on or after 1 January 2020 and required to be applied prospectively);

• Definition of Material (Amendments to IAS 1 and IAS 8) (effective from 1 January 2020 andrequired to be applied prospectively);

• Conceptual Framework for Financial Reporting (effective for annual reporting periods beginningon or after 1 January 2020)


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Management anticipates that all relevant pronouncements will be adopted for the first period beginning on or after the effective date of the pronouncement. New Standards, Amendments and Interpretations not yet adopted have not been disclosed as they are not expected to have a material impact on the Bank’s corporate financial statements.

2.2. Summary of Significant Accounting Policies

The principal accounting policies applied in the preparation of these financial statements are set out below. These policies have been consistently applied to all years presented, unless otherwise stated.

- Basis of Measurement

The financial statements have been prepared under the historical cost convention except for thefollowing:• Financial Instruments at Fair Value through Profit or Loss (FVTL) are measured at fair value;• Financial Assets at FVOCI are measured at fair value through other comprehensive income.

- PresentationThe assets and liabilities in the statement of financial position are presented based on liquidity.

- Foreign Currency Transactions

Functional and Presentation CurrencyItems included in the financial statements of the Bank are measured using the currency of theprimary economic environment in which the entity operates (“the functional currency”). Thefinancial statements are presented in Aruban Florins, which is the Bank’s functional and presentationcurrency.

Transaction and BalancesTransactions occurring in United States dollars (USD) are converted at the rate of US$ 1 toAfl. 1.79. Other foreign currency transactions are translated into the functional currency using theexchange rate prevailing at the dates of the transactions, or valuation where items are re-measured.Foreign exchange gains and losses resulting from the settlement of such transactions and from thetranslation at year-end exchange rate of monetary assets and liabilities denominated in foreigncurrencies are recognized in the statement of comprehensive income.

Changes in the fair value of monetary securities denominated in foreign currency classified asavailable for sale are analyzed between translation differences resulting from changes in theamortized cost of the security and other changes in the carrying amount of the security. Translationdifferences related to changes in the amortized cost are recognized in profit or loss, and otherchanges are recognized in other comprehensive income.

Translation differences on non-monetary items, such as equities held at fair value through profit andloss, are reported as part of the fair value gain or loss. Translation differences on non-monetaryitems, such as equities classified as Financial Assets at FVOCI, are included in the fair value reservein other comprehensive income.


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- Financial Assets

ClassificationThe Bank classifies its financial assets in the following categories: fair value through profit or loss(FVPL), fair value through other comprehensive income (FVOCI) or amortized cost (AC). Theclassification depends on:• The Banks’ assessment of the overall objective of the business model within which the financial

assets are held; and• The contractual cash flow characteristics of the financial assets.

Business Model Assessment The business model reflects how the Bank manages its financial assets in order to generate cash flows, that is, whether the objective is to collect contractual cash flows, sell financial assets or both. The Bank assesses the business model at a portfolio level reflective of how a group of financial assets are managed together to achieve a particular business objective. Factors considered by the Bank in determining the business model for a group of financial assets include: • How performance is evaluated and reported to key management personnel;• The risks that affect performance and how they are managed;• How managers are compensated; and• The frequency and volume of sales in prior periods and expectations about future sales activity.

Contractual Cash Flow Characteristics Assessment Where the business model is to hold financial assets to collect contractual cash flows or to collect contractual cash flows and sell, the Bank determines if they give rise to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding that is consistent with a basic lending arrangement. In this context, ‘principal’ is the fair value of the financial asset on initial recognition and ‘interest’ is consideration for the time value of money and credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs as well as profit margin.

If the Bank identifies any contractual cash flows, such that cash flows are no longer consistent with a basic lending arrangement, the related financial asset is classified and measured at FVPL. In making this assessment, the Bank considers: • Contingent events;• Leverage features;• Prepayment and term extensions; and• Terms that limit the Bank’s recourse to specific financial assets and features that modify

consideration of the time value of money.

Recognition and Measurement Financial assets are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets are recognized when the entity becomes a party to the contractual provisions of the instrument. Regular way purchases and sales of financial assets are recognized on trade date.


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Investment in Subsidiaries The Bank holds 100% of the shares in Capital Providers Bank N.V. and Alicante Properties N.V., all domiciled in Aruba. The investments in subsidiaries are accounted for by applying the equity method, whereby the investment is initially recognized at cost and adjusted thereafter for the post-acquisition change in the Bank’s share of the investee’s net assets. The Bank’s profit or loss includes its share of the investee’s profit or loss and the Bank’s other comprehensive income includes its share in the investee’s other comprehensive income. Distributions received from an investee reduce the carrying amount of the investment. Investment in subsidiaries is outside the scope of IFRS 9.

Debt Instruments Measured at Amortized Cost Debt instruments are measured at amortized cost if they are held within a business model whose objective is to hold for collection of contractual cash flows, and where those cash flows represent solely payments of principal and interest (SPPI). After initial measurement, debt instruments in this category are carried at amortized cost using the effective interest rate method. The amortized cost is the amount at which the financial asset or financial liability is measured at initial recognition amount minus the principal repayments, plus or minus the cumulative amortization using the Effective Interest Rate (EIR) method of any difference between the initial amount and the maturity amount and, for financial assets, adjusted for any loss allowance.

Purchases and sales of debt instruments at amortized cost are recognized at trade date – the date on which the Bank commits to purchase or sell the asset – and are measured at amortized cost when cash is advanced to the borrowers.

Debt instruments of the Bank comprise loans and investment securities that are sovereign bonds. After assessing its business model for loans and sovereign bonds, which are held to collect the contractual cash flows, and where the cash flows represent solely payments of principal and interest, these instruments were measured at amortized cost.

Interest income using the effective interest rate method is recognized in the Statement of Comprehensive Income through profit or loss. Impairment on debt instruments measured at amortized cost is calculated using the expected credit loss (ECL) approach. Loans and debt securities measured at amortized cost are presented net of allowance for credit losses in the Statement of Financial Position.

Debt Instruments Measured at FVOCI Debt instruments are measured at FVOCI if they are held within a business model whose objective is to hold both for collection of contractual cash flows and for the sale of financial assets, where the financial assets’ cash flows represent payments that are solely payments of principal and interest, and that are not designated at FVPL. Subsequent to initial recognition, unrealized gains and losses on debt instruments measured at FVOCI are taken through other comprehensive income (OCI) in full, unless the instrument is designated in a fair value hedge relationship.

When the asset is derecognized, the cumulative gain or loss previously recognized in OCI is reclassified from equity to profit or loss and recognized in ‘Net Investment Income’. Foreign exchange gains and losses that relate to the amortized cost of the debt instrument are recognized through profit or loss.


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Impairment on debt instruments measured at FVOCI is calculated using the expected credit loss approach. The expected credit loss on debt instruments measured at FVOCI does not reduce the carrying amount of the asset in the Statement of Financial Position, which remains at its fair value. Instead, an amount equal to the allowance that would arise if the financial assets were measured at amortized cost is recognized in OCI with a corresponding amount taken to Credit Impairment Losses in the Statement of Comprehensive Income. The accumulated amount recognized in OCI is recycled through profit or loss upon derecognition of the debt instrument.

Debt Instruments Measured at FVPL Financial assets that do not meet the criteria for amortized cost or FVOCI are measured at fair value through profit or loss.

Financial Assets Mandatorily Measured at FVPL Financial assets meeting either of the conditions below are mandatorily measured at fair value through profit or loss (other than in respect of an equity investment designated as at fair value through other comprehensive income):

• Financial assets with contractual terms that do not give rise on specified dates to cash flowsthat are solely payments of principal and interest on the principal amount outstanding; and

• Financial assets held within a business model whose objective is achieved neither by collectingcontractual cash flows nor by both collecting contractual cash flows and selling financialassets. This includes financial assets held within a portfolio that is managed and whoseperformance is evaluated on a fair value basis. It further includes portfolios of financial assetsthat are ‘held for trading’.

Financial Assets Designated as Measured at FVPL A financial asset may be designated at fair value through profit or loss only if doing so eliminates or significantly reduces measurement or recognition inconsistencies (an ‘accounting mismatch’) that would otherwise arise from measuring financial assets or liabilities or recognizing gains and losses on them on different basis. They are carried in the Statement of Financial Position at fair value, with all changes in fair value recorded in profit or loss in the Statement of Comprehensive Income.

Equity Instruments Equity instruments are measured at FVPL, unless an election is made to designate them at FVOCI upon purchase. For equity instruments measured at FVPL, changes in fair value are recognized in the Statement of Comprehensive Income as part of net gain/loss from other financial instruments carried at fair value. Instruments elected to be classified as non-trading equity instruments at FVOCI are made upon initial recognition, on an instrument-by-instrument basis and once made, is irrevocable. Gains and losses on these instruments including when derecognized/sold are recorded in OCI and are not subsequently reclassified to the income statement. Dividend received is recorded in the income statement.

Reclassification The Bank reclassifies debt instruments when and only when its business model for managing those assets changes. The reclassification is applied prospectively from the reclassification date, which is the first day of the first reporting period following the change in business model that results in the reclassification. Any previously recognized gains, losses or interest are not restated.


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De-recognition Financial assets are derecognized when the contractual rights to receive the cash flows from the financial assets have expired, or when they have been transferred and either: • The Bank transfers substantially all the risks and rewards of ownership; or• The Bank neither transfers nor retains substantially all the risks and rewards of ownership and

the Bank has not retained control.

- Financial Liabilities

Classification, Recognition and Subsequent MeasurementThe Bank classifies its financial liabilities as being measured at amortized cost unless it has designatedliabilities at fair value through profit or loss or is required to measure liabilities mandatorily at fairvalue through profit or loss. Financial liabilities are initially recognized at fair value, (normally theissued proceeds, that is, the fair value of consideration received) less, in the case of financialliabilities subsequently carried at amortized cost, transaction costs. For financial liabilities carried atamortized cost, any difference between the proceeds, net of transaction costs, and the redemptionvalue is recognized in the Statement of Comprehensive Income through profit or loss using theeffective interest method.

A financial liability may be designated as at fair value through profit or loss only when:• It eliminates or significantly reduces a measurement or recognition inconsistency (an

‘accounting mismatch’) that would otherwise arise from measuring assets or liabilities orrecognizing the gains and losses on them on different basis; or

• A group of financial assets, financial liabilities or both is managed and its performance isevaluated on a fair value basis in accordance with documented risk management orinvestment strategy; or

• A contract contains one or more embedded derivatives that significantly change the cashflows of the contract and the separation of the embedded derivative(s) is not prohibited.

The movement in own credit risk related to financial liabilities designated at fair value through profit or loss is recorded in other comprehensive income unless this would create or enlarge an accounting mismatch in profit or loss for the Bank (in which case all gains or losses are recognized through profit or loss).

Derecognition Financial liabilities are derecognized when they are extinguished, for instance, when the obligation specified in the contract is discharged, cancelled or expires.

- Impairment of Financial Assets

ScopeThe Bank recognizes impairment loss allowances for expected credit losses (ECL) for the followingcategories of financial instruments, unless measured at fair value through profit or loss:

• Financial assets that are debt instruments;• Loan commitments;• Financial guarantee contracts issued and not accounted for under IFRS 4 Insurance Contracts;

and


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• Receivables and contract assets recognized under IFRS 15 Revenue from Contracts withCustomers.

Expected Credit Loss (ECL) Model The determination of impairment losses and allowance moves from an incurred credit loss model whereby credit losses are recognized when a defined loss event occurs under IAS 39, to an expected credit loss model under IFRS 9, where credit losses are taken upon initial recognition of the financial asset, based on expectations of potential credit losses at the time of initial recognition. Under IFRS 9, the Bank first evaluates individually whether objective impairment exists for financial assets that are individually significant. It then collectively assesses financial assets that are not individually significant and loans which are significant but for which there is no objective evidence of impairment.

The Bank uses an ECL model developed to meet the requirements of IFRS 9. The allowance for credit losses calculations are outputs of models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies. This model measures credit loss allowances using a three-stage approach based on the extent of credit deterioration since origination. Please refer to Note 3 for further explanation on the three-stage approach.

New models and systems were developed to meet the requirements of IFRS 9.

The Bank assesses on a forward-looking basis, the expected credit losses (ECL) associated with its debt instrument assets carried at amortized cost and FVOCI and with the exposure arising from loan commitments and financial guarantee contracts. The Bank recognizes a loss allowance for such losses at each reporting date. The measurement of ECL reflects:

• An unbiased and probability-weighted amount that is determined by evaluating a range ofpossible outcomes;

• The time value of money; and• Reasonable and supportable information that is available without undue cost or effort at the

reporting date about past events, current conditions and forecasts of future economicconditions.

Presentation of Allowance for Credit Losses in the Statement of Financial Position • Financial assets measured at amortized cost: presented as a deduction from the gross carrying

amount of the financial assets;• Debt instruments measured at FVOCI: no allowance is recognized in the Statement of Financial

Position because the carrying value of these assets is their fair value. However, the allowancedetermined is presented in the accumulated other comprehensive income; and

• Off-balance sheet credit risks including undisbursed loan commitments and financial guarantees:presented as a provision within the liabilities section of the Statement of Financial Position.

Write-offs When a debt instrument is uncollectible, it is written off against the related provision for credit loss impairment and reduces the gross carrying amount of the debt instrument. Such debt instruments are written off after all the necessary procedures have been completed and the amount of the loss has been determined.


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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 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 Statement of Comprehensive Income through profit or loss.

Modified Loans Loans are identified as renegotiated and classified as credit-impaired when the Bank modifies the contractual payment terms due to significant credit distress of the borrower. Renegotiated loans remain classified as credit-impaired until there is sufficient evidence to demonstrate a significant reduction in the risk of nonpayment of future cash flows and retain the designation of renegotiated until maturity or de-recognition. A loan that is renegotiated is derecognized if the existing agreement is cancelled and a new agreement is made on substantially different terms or if the terms of an existing agreement are modified such that the renegotiated loan is a substantially different financial instrument. Any new loans that arise following de-recognition events in these circumstances are considered to be purchased or originated credit-impaired financial assets (POCI) and will continue to be disclosed as renegotiated loans. Other than originated credit-impaired loans, all other modified loans could be transferred out of stage 3 if they no longer exhibit any evidence of being credit-impaired and, in the case of renegotiated loans, there is sufficient evidence to demonstrate a significant reduction in the risk of non-payment of future cash flows, over the minimum observation period, and there are no other indicators of impairment. These loans could be transferred to stage 1 or 2 by comparing the risk of a default occurring at the reporting date (based on the modified contractual terms) and the risk of a default occurring at initial recognition (based on the original, unmodified contractual terms). Any amount written off as a result of the modification of contractual terms would not be reversed.

Modified Loans that are not Credit-Impaired Loan modifications that are not identified as renegotiated are considered to be restructured. Where a restructuring results in a modification such that the Bank’s rights to the cash flows under the original contract have expired, the old loan is derecognized and the new loan is recognized at fair value. The rights to cash flows are generally considered to have expired if the restructure is at market rates and no payment-related concession has been provided.

Non-Performing Loans The Bank’s approach to classifying performing versus non-performing loans is through utilization of the internal credit risk grading process. With the transition to IFRS 9, all loans graded doubtful and loss are considered credit-impaired and require individual provisions or ‘Stage 3’ ECL.

- Property and EquipmentProperty and equipment are stated at historical cost less depreciation. Historical cost includesexpenditure that is directly attributable to the acquisition of the items. Subsequent costs areincluded in the asset’s carrying amount or recognized as a separate asset, as appropriate, only whenit is probable that future economic benefits associated with the item will flow to the Bank and thecost of the item can be measured reliably. The carrying amount of the replaced part is derecognized.All other repairs and maintenance are charged to the Statement of Comprehensive Income duringthe financial period in which they are incurred. Land is not depreciated. Depreciation on all other


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assets is calculated using the straight-line method to allocate their cost over the estimated useful lives as follows:

o Buildings 25 years o Automobiles 5 years o Office Furniture 5 years o Premises Improvements 2-10 yearso Machines & equipment 3 years

The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Assets that are subject to amortization are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An asset’s carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. The recoverable amount is the higher of the asset’s fair value less costs to sell and value in use.

Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in administrative expenses in the Statement of Comprehensive Income.

- LeasesAs described in Note 2, the Bank has applied IFRS 16 using the modified retrospective approach andtherefore comparative information has not been restated. Under IFRS 16 a lease is defined as ‘acontract, or part of a contract, that conveys the right to use an asset (the underlying asset) for aperiod of time in exchange for consideration’.

Accounting policy applicable from 1 January 2019

The Bank as a lesseeFor any new contracts entered into on or after 1 January 2019, the Bank considers whether acontract is, or contains a lease. A lease is defined as ‘a contract, or part of a contract, that conveysthe right to use an asset (the underlying asset) for a period of time in exchange for consideration’.To apply this definition the Bank assesses whether the contract meets three key evaluations whichare whether:

• the contract contains an identified asset, which is either explicitly identified in the contractor implicitly specified by being identified at the time the asset is made available to the Bank;

• the Bank has the right to obtain substantially all of the economic benefits from use of theidentified asset throughout the period of use, considering its rights within the defined scopeof the contract;

• the Bank has the right to direct the use of the identified asset throughout the period of use.The Bank assesses whether it has the right to direct ‘how and for what purpose’ the asset isused throughout the period of use.

Measurement and recognition of leases as a lessee

At lease commencement date, the Bank recognises a right-of-use asset and a lease liability on the balance sheet. The right-of-use asset is measured at cost, which is made up of the initial measurement of the lease liability, any initial direct costs incurred by the Bank, an estimate of any costs to dismantle and remove the asset at the end of the lease, and any lease payments made in advance of the lease commencement date (net of any incentives received).


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The Bank amortizes the right-of-use assets on a straight-line basis from the lease commencement date to the earlier of the end of the useful life of the right-of-use asset or the end of the lease term. The Bank also assesses the right-of-use asset for impairment when such indicators exist.

At the commencement date, the Bank measures the lease liability at the present value of the lease payments unpaid at that date, discounted using the interest rate implicit in the lease if that rate is readily available or the Bank’s incremental borrowing rate.

Lease payments included in the measurement of the lease liability are made up of fixed payments (including in substance fixed), variable payments based on an index or rate, amounts expected to be payable under a residual value guarantee and payments arising from options reasonably certain to be exercised.

Subsequent to initial measurement, the liability will be reduced for payments made and increased for interest. It is remeasured to reflect any reassessment or modification, or if there are changes in in-substance fixed payments.

When the lease liability is remeasured, the corresponding adjustment is reflected in the right-of-use asset, or profit and loss if the right-of-use asset is already reduced to zero.

The Bank has elected to account for short-term leases and leases of low-value assets using the practical expedients. Instead of recognizing a right-of-use asset and lease liability, the payments in relation to these are recognized as an expense in profit or loss on a straight-line basis over the lease term.

The Bank as a lessor The Bank’s accounting policy under IFRS 16 has not changed from the comparative period. As a lessor the Bank classifies its leases as either operating or finance leases. A lease is classified as a finance lease if it transfers substantially all the risks and rewards incidental to ownership of the underlying asset and classified as an operating lease if it does not.

- Impairment of Non-financial AssetsAssets that have an indefinite useful life are not subject to amortization and are tested annually forimpairment. Assets that are subject to depreciation or amortization are reviewed for impairmentwhenever events or changes in circumstances indicate that the carrying amount may not berecoverable. An impairment loss is recognized for the amount by which the asset’s carrying amountexceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value lesscosts to sell and value in use. For the purpose of assessing impairment, assets are grouped at thelowest levels for which they are separately identifiable cash flows (cash generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal ofthe impairment at each reporting date.

- Financial Assets Held-for-SaleFinancial assets (or groups of financial assets) are classified as Financial Assets Held-for-Sale whentheir carrying amount is to be recovered principally through a sale transaction and a sale isconsidered highly probable within the next 12 months. They continue to be measured in accordancewith IFRS 9.


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- Trade and Other ReceivablesIf collection is expected in one year or less trade and other receivables are classified as currentassets. If not, they are presented as non-current assets. The Bank makes use of a simplified approachin accounting for Trade and Other Receivables and records the loss allowance as lifetime expectedcredit losses. These are the expected shortfalls in contractual cash flows, considering the potentialfor default at any point during the life of the financial instrument. In calculating, the Bank uses itshistorical experience, external indicators and forward-looking information to calculate the expectedcredit losses using a provision matrix.

The Bank assesses impairment of trade receivables on a collective basis as they possess sharedcredit risk characteristics, they have been grouped based on the days past due.

- Cash and Cash EquivalentsIn the Statement of Cash Flows, Cash and Cash Equivalents comprises cash in hand, deposits held atcall with banks, other short-term highly liquid investments with original maturities of three monthsor less which are subject to an insignificant risk of changes in value and bank overdrafts. In theStatement of Financial Position, bank overdrafts, if any, are shown within borrowings.

- Share CapitalOrdinary shares are classified as equity.

Incremental costs directly attributable to the issue of new ordinary shares or options are shown inequity as a deduction, net of tax, from the proceeds. Where any group company purchases thecompany’s equity share capital (treasury shares), the consideration paid, including any directlyattributable incremental costs (net of income taxes) is deducted from equity attributable to theBank’s equity holders until the shares are cancelled or reissued. Where such ordinary shares aresubsequently reissued, any consideration received, net of any directly attributable incrementaltransaction costs and the related income tax effects, is included in equity attributable to the Bank’sequity holders.

- Regulatory Loan Loss ReserveRegulatory Loan loss Reserve is based on the applicable State Ordinance on the Supervision of theCredit System (AB 1998 no.16). The Regulatory Loan Loss Reserve is calculated in accordance withthe Supervisory Directives as issued by the Central Bank of Aruba.

- Trade and Other LiabilitiesTrade and Other Liabilities are recognized initially at fair value and subsequently measured atamortized cost using the effective interest rate method.

- Borrowing CostsGeneral and specific borrowing costs directly attributable to the acquisition, construction orproduction of qualifying assets, which are assets that necessarily take a substantial period of time toget ready for their intended use or sale, are added to the cost of those assets, until such time as theassets are substantially ready for their intended use or sale. Investment income earned on thetemporary investment of specific borrowings pending their expenditure on qualifying assets isdeducted from the borrowing costs eligible for capitalization. All other borrowing costs arerecognized in the Statement of Comprehensive Income through profit or loss in the period in whichthey are incurred.


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- Current and Deferred Income TaxThe tax expense for the period comprises current and deferred tax. Tax is recognized in theStatement of Comprehensive Income through profit or loss, except to the extent that it relates toitems recognized in other comprehensive income or directly in equity. In this case, the tax is alsorecognized in other comprehensive income or directly in equity, respectively.

The current income tax charge is calculated on the basis of the tax laws enacted or substantivelyenacted at the reporting date in the country where the company and its subsidiaries operate andgenerate taxable income. Management periodically evaluates positions taken in tax returns withrespect to situations in which applicable tax regulation is subject to interpretation. It establishesprovisions where appropriate on the basis of amounts expected to be paid to the tax authorities.

Deferred income tax is recognized, using the liability method, on temporary differences arisingbetween the tax bases of assets and liabilities and their carrying amounts in the financial statements.However, deferred tax liabilities are not recognized if they arise from the initial recognition ofgoodwill; deferred income tax is not accounted for if it arises from initial recognition of an asset orliability in a transaction other than a business combination that at the time of the transaction affectsneither accounting nor taxable profit or loss. Deferred income tax is determined using tax rates(and laws) that have been enacted or substantively enacted by the reporting date and are expectedto apply when the related deferred income tax asset is realized or the deferred income tax liability issettled.

Deferred income tax assets are recognized only to the extent that it is probable that future taxableprofit will be available against which the temporary differences can be utilized.

Deferred income tax is provided on temporary differences arising on investments in subsidiaries andassociates, except for deferred income tax liability where the timing of the reversal of thetemporary difference is controlled by the Bank and it is probable that the temporary difference willnot reverse in the foreseeable future.

Deferred income tax assets and liabilities are offset when there is a legally enforceable right to offsetcurrent tax assets against current tax liabilities and when the deferred income taxes assets andliabilities relate to income taxes levied by the same taxation authority on either the same taxableentity or different taxable entities where there is an intention to settle the balances on a net basis.

- ProvisionsProvisions are recognized when the Bank has a present legal or constructive obligation as a result ofpast events; it is probable that an outflow of resources will be required to settle the obligation; andthe amount has been reliably estimated. Provisions are not recognized for future operating losses.

Where there are a number of similar obligations, the likelihood that an outflow will be required insettlement is determined by considering the class of obligations as a whole. A provision isrecognized even if the likelihood of an outflow with respect to any one item included in the sameclass of obligations may be small.

In accordance with the State Ordinance Cessantia the Bank has a legal obligation to make severancepayments at retirement date to employees who meet the criteria set in article 3 of the StateOrdinance. The provision is recorded at the present value of the expected expenditures required to


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settle the obligation resulting from the State Ordinance Cessantia. Furthermore, in accordance with the Personnel Policies of the Bank, the Bank has a legal obligation to pay jubilee grants to its employees. The provision is recorded at the net present value based on the projected unit credit-method as required by IAS 19 Employee Benefits.

- Revenue Recognition

The Effective Interest Rate (EIR) MethodUnder both IFRS 9 and IAS 39, interest income is recorded using the EIR method for all financialassets measured at amortized cost. Interest income on interest-bearing financial assets measured atFVOCI under IFRS 9 are also recorded using the EIR method. Interest expense is also calculatedusing the EIR method for all financial liabilities held at amortized cost.

The EIR is the rate that exactly discounts estimated future cash receipts through the expected life ofthe financial asset or liability or, when appropriate, a shorter period, to the gross carrying amount ofthe financial asset. The EIR is calculated by taking into account transaction costs and any discount orpremium on acquisition of the financial asset, as well as fees and costs that are an integral part of theEIR.

When calculating the effective interest rate for financial instruments other than credit-impairedassets, the Bank estimates future cash flows considering all contractual terms of the financialinstrument, but not expected credit losses.

For purchased or originated credit-impaired (POCI) financial assets – assets that are credit-impairedat initial recognition – the Bank calculates the credit-adjusted effective interest rate, which iscalculated based on the amortized cost of the financial asset instead of the gross carrying amountand incorporates the impact of expected credit losses in estimated future cash flows.

If expectations of fixed rate financial assets’ or liabilities’ cash flows are revised for reasons otherthan credit risk, then changes to future contractual cash flows are discounted at the original EIR witha consequential adjustment to the carrying amount. The difference from the previous carryingamount is booked as a positive or negative adjustment to the carrying amount of the financial assetor liability in the Statement of Financial Position with a corresponding increase or decrease ininterest income or expense calculated using the effective interest rate method.

Interest incomeInterest income and expense are recognized in the Statement of Comprehensive Income throughprofit or loss using the effective interest rate method and disclosed separately to providesymmetrical and comparable information.

Interest income and expense include:• Interest on financial assets and financial liabilities measured at amortized cost calculated using

the effective interest rate method; and• Interest on debt instruments measured at FVOCI calculated using the effective interest rate

method.


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The Bank calculates interest income on financial assets, other than those considered credit-impaired, by applying the EIR to the gross carrying amount of the financial asset. When a financial asset becomes credit impaired as set out in Note 3 and is therefore regarded as ‘Stage 3’, the Bank calculates interest income by applying the EIR to the net amortized cost of the financial asset. If the financial assets cures and as outlined in Note 3 are no longer credit-impaired, the Bank reverts to calculating interest income on a gross basis.

Fee and Commission Income Fee and Commission Income (not in scope of IFRS 9 but in scope of IFRS 15) arises mainly from loan commitments and administration, other financial service-related products (syndication) and fund management.

To determine whether to recognize revenue, the Bank follows a 5-step process: 1. Identifying the contract with a customer2. Identifying the performance obligations3. Determining the transaction price4. Allocating the transaction price to the performance obligations5. Recognizing revenue when/as performance obligation(s) are satisfied.

Revenue is recognized at a point in time, when (or as) the Bank satisfies performance obligations by transferring the promised services to its customers.

The Bank recognizes contract liabilities for consideration received in respect of unfulfilled performance obligations and reports these amounts as other liabilities in the statement of financial position. Similarly, if the Bank satisfies a performance obligation before it receives the consideration, the Bank recognizes either a contract asset or a receivable in its Statement of Financial Position, depending on whether something other than the passage of time is required before the consideration is due.

The Bank provides corporate finance, syndication and fund management services. Revenue from these services is recognized on a time basis as the services are provided or when performance obligations are satisfied. Customers are invoiced as work progresses and/or when performance obligations are satisfied. Any amounts remaining unbilled at the end of a reporting period are presented in the Statement of Financial Position as trade receivable as only the passage of time is required before payment of these amounts will be due.

- Employee BenefitsThe Bank operates a defined contribution plan. The Bank pays contributions to a separatelyadministered pension insurance fund. The Bank has no further payment obligations once thecontributions have been paid. The contributions are charged to the Statement of ComprehensiveIncome through profit or loss in the year to which they relate and disclosed as pension costs inNote 20.

- Dividend DistributionDividends that are declared and paid during the period are accounted for as an appropriation ofRetained Earnings in the Statement of Changes in Equity. Dividends that are proposed and declaredafter the reporting date are not shown as a liability on the Statement of Financial Position but aredisclosed as a note to the financial statements.


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3. Financial Risk Management

The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis,evaluation, acceptance and management of some degree of risk or combination of risks. Taking riskis core to mainly the financial business of the Bank, and the operational risks are an inevitableconsequence of being in business. The Bank’s aim is therefore to achieve an appropriate balancebetween risk and return and minimize potential adverse effects on the Bank’s financial performance.

The Bank’s risk management policies and guidelines are designed to identify and analyze these risks,to set appropriate risk limits and controls, and to monitor the risks and adherence to limits bymeans of reliable and up-to-date information systems. The Bank regularly reviews its riskmanagement policies and systems to reflect changes in markets, products and emerging bestpractice.

Risk management is carried out under policies approved by the Board of Supervisory Directors. Themost important types of risk are credit risk, liquidity risk, market risk and other operational risk.Market risk includes currency risk and interest rate risk.

- Credit RiskThe Bank takes on exposure to credit risk, which is the risk that a counter party will cause afinancial loss for the Bank by failing to discharge an obligation. Credit risk is the most important riskfor the Bank’s financial business; management therefore carefully manages its exposure to creditrisk. Credit exposures arise principally in lending activities that lead to loan and investment activitiesthat bring debt securities and other bills into the Bank’s asset portfolio. There is also credit risk inoff-balance sheet financial instruments, such as loan commitments. The credit risk management isthe responsibility of the Management Board.

- Expected Credit Loss MeasurementIFRS 9 outlines a ‘three-stage’ approach for impairment based on changes in credit quality sinceinitial recognition as summarized below:

Stage 1: 12-month ECL (Performing, not Credit-Impaired)These are financial instruments where there has not been a Significant Increase in Credit Risk (SICR)since initial recognition. An impairment loss allowance equal to a 12-month ECL is recognized. Thisis the portion of lifetime ECL resulting from default events that are possible within the next 12-months. Credit risk is continuously monitored by the Bank.

Stage 2: Lifetime ECL (Underperforming, not Credit-Impaired)These are financial instruments where there has been a Significant Increase in Credit Risk (SICR)since initial recognition but which are not credit impaired. An impairment loss allowance equal tolifetime ECL is recognized. Lifetime ECLs are the ECL resulting from all possible default events overthe expected life of the financial instrument. Refer to paragraph Significant Increase in Credit Risk(SICR) Since Initial Recognition below for a description of how the Bank determines when a SignificantIncrease in Credit Risk (SICR) has occurred.

Stage 3: Lifetime ECL (Non-Performing, Credit-Impaired)These are financial instruments that are credit-impaired at the reporting date but were not credit-impaired at initial recognition. An impairment loss allowance equal to lifetime ECL is recognized.


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Please refer to paragraph Credit-Impaired Financial Assets at Stage 3 below for a description of how the Bank defines credit-impaired and default.

Significant Increase in Credit Risk (SICR) Since Initial Recognition IFRS 9 requires the recognition of 12-month expected credit losses (the portion of lifetime expected credit losses from default events that are expected within 12 months of the reporting date) if credit risk has not significantly increased since initial recognition (stage 1), and lifetime expected credit losses for financial instruments for which the credit risk has increased significantly since initial recognition (stage 2) or which are credit impaired (stage 3). The Bank assesses when a Significant Increase in Credit Risk (SICR) has occurred based on quantitative and qualitative assessments.

Exposures are considered to have resulted in a Significant Increase in Credit Risk (SICR) and are moved to stage 2 when:

• Quantitative Testo The relative change in PD from origination to reporting date PD exceeds a relative

movement of 10%.• Qualitative Test

o In short term forbearanceo Extension to terms grantedo Significant increase in credit spreado Actual or expected forbearance or restructuringo Early signs of cash flow/ liquidity problems such as delays in servicing of loan

• Backstop Criteriao A backstop has been applied and the financial instrument considered to have

experienced a Significant Increase in Credit Risk (SICR) if the borrower is more than 30days due on its contractual payments.

The Bank will continually monitor and assess the defined quantitative and qualitative criteria to reflect changes in markets, products and emerging best practice.

Loss allowances for trade receivables are always measured at an amount equal to lifetime ECL, as these do not contain a significant financing component. The Bank considers certain loans and investments measured at amortized cost to have low credit risk and the loss allowance recognized is based on the 12 months expected loss. Management consider ‘low credit risk’ to be those with high quality external credit ratings (investment grade) or that have reporting date PDs equivalent to the PD of high-quality external credit ratings (investment grade).

Credit-Impaired Financial Assets at Stage 3 The Bank has aligned its definition of credit impaired under IFRS 9 to when a financial asset has defaulted or become non-performing for regulatory purposes. Credit-impaired is when the exposure has defaulted.

The determination of whether a financial asset is credit-impaired focuses exclusively on default risk, without taking into consideration the effects of credit risk mitigants such as collateral or guarantees. A financial asset is credit-impaired in Stage 3 when the Bank considers the obligor is unlikely to pay its credit obligations to the Bank. Determination may include forbearance actions, where a concession has been granted to the borrower or economic or legal reasons that are qualitative


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indicators of credit impairment, or contractual payments of either principal or interest by the obligor are past due by more than 90 days.

Purchased or Originated Credit Impaired Financial Assets in Stage 3 Purchased or originated credit-impaired financial assets are those financial assets that are credit-impaired on initial recognition. Their ECL is always measured on a lifetime basis. All subsequent changes in lifetime expected credit losses, whether positive or negative, are recognized in the Statement of Comprehensive Income through profit of loss as a component of the credit impairment losses.

The Bank determines appropriate groups of assets when ECL is measured on a collective basis. Please refer to Note 7, 8 and 10 for the grouping of assets.

Measuring ECL – Basis of Inputs, Assumptions and Estimation Techniques IFRS 9 does not distinguish between individually significant or not individually significant financial assets. As such, the Bank calculates expected credit losses for each financial asset individually.

The Bank uses three main components to measure ECL: Probability of Default (PD), Exposure at Default (EAD), and Loss Given Default (LGD).

Details of these statistical parameters/inputs are as follows: • PD – The probability of default is an estimate of the likelihood of default over a given time

horizon. A default may only happen at a certain time over the remaining estimated life, if thefacility has not been previously derecognized and is still in the portfolio.

• EAD – The exposure at default is an estimate of the exposure at a future default date, takinginto account expected changes in the exposure after the reporting date, includingrepayments of principal and interest, whether scheduled by contract or otherwise, expecteddrawdowns on committed facilities, and accrued interest from missed payments.

• LGD – The loss given default is an estimate of the loss arising in the case where a defaultoccurs at a given time. It is based on the difference between the contractual cash flows dueand those that the lender would expect to receive, including from the realization of anycollateral. It is usually expressed as a percentage of the EAD.

Forward-Looking Macroeconomic Factors A pervasive concept in measuring ECL in accordance with IFRS 9 is that it should consider forward-looking information. The measurement of expected credit losses for each stage and the assessment of Significant Increase in Credit Risk (SICR) considers information about past events and current conditions as well as reasonable and supportable forecasts of future events and economic conditions. The estimation and application of forward-looking information requires significant judgement. Management have considered publicly available unemployment, GDP, inflation and tourist stay-over visitors rate data for Aruba sourced from the Central Bureau of Statistics, Central Bank of Aruba and Aruba Tourism Association in their models.


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Segmentation IFRS 9 requires that exposures be appropriately grouped into homogenous segments based on shared credit characteristics that are expected to react to the current environment. Forward-Looking Information (FLI) and macroeconomic factors in a similar way with respect to changes in the level of credit risk.

- Risk Limit Control and Mitigation PoliciesThe Bank manages limits and controls concentrations of credit risk wherever they are identified inparticular, to individual counterparties and groups, industries and countries. The Bank structures thelevels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to oneborrower, or groups of borrowers, and to geographical and industry segments. Such risks aremonitored on a revolving basis and subject to an annual or more frequent review, when considerednecessary.

Exposure to credit risk is also managed through regular analysis of the ability of borrowers andpotential borrowers to meet interest and capital repayment obligations and by changing theselending limits where appropriate. Some other specific control and mitigation measures are outlinedbelow.

CollateralThe Bank employs a range of policies and practices to mitigate credit risk. The most common ofthese is accepting collateral for funds advanced. The Bank has internal policies on the acceptability ofspecific classes of collateral or credit risk mitigation. The Bank’s policies regarding obtainingcollateral have not significantly changed during the reporting period and there has been no change inthe overall quality of the collateral held by the Bank.The Bank prepares a valuation of the collateral obtained as part of the loan origination process. This

assessment is reviewed periodically. The principal collateral types for loans are:o Mortgages over properties;o Lien on business assets such as premises, inventory and accounts receivable; ando Lien on financial instruments such as debt securities and equities.

Longer-term finance and lending to corporate entities are generally secured.

The Bank closely monitors collateral held for financial assets considered credit-impaired, as it becomes more likely that the Bank will take possession of collateral to mitigate potential credit losses.

- Impairment Provisioning PoliciesThe Bank has established policies that describe its principles for the identification, assessment andrecognition of impairment and for loss provisioning in respect of all financial assets except thosemeasured at FVPL. The internal risk rating system assists management to determine whetherobjective evidence of impairment exists based on the criteria set out by the Bank in Note 2.2,Summary of Significant Accounting Policies.

For expected credit loss provisions modelled on a collective basis, a grouping of exposures isperformed based on shared risk characteristics, such that risk exposures with in a group arehomogenous.


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Individually Assessed Impairment Under IFRS 9, whilst individual assessment remains for individually significant assets, the assessment is of expected rather than incurred loss. The expected loss calculation is a present value calculation of the credit losses expected from default events that may occur during a specified time period. The required time period being determined by risk at the reporting date relative to that at origination. Collateral valuation, timing, and costs of recovery forms part of the assessment.

Collectively Assessed Impairment ECL assessments under IFRS 9 are based upon forward looking modelled PD, EAD and LGD parameters which are run at account level (at minimum for material portfolios) and applied across all assets from the point of origination/booking. Where account level modelling is not feasible or justifiable, segment level models or pooled assessments are applied. In such cases, segments are defined on the basis of similar risk characteristics. Where segment/pooled assessments are not feasible, benchmark parameters from relevant peer portfolios are applied in the short term.

Maximum Exposure to Credit Risk Credit risk exposures relating to on and off-balance sheet exposures are as follows:

Maximum Exposure 2019 2019 (%) 2018 2018 (%)

(in Afl. 1,000) Cash and Cash Equivalents (1) 27,410 10.7% 32,280 14.6%

Financial Assets Held-for-Sale* (1) - - 4,704 2.1%

Loans - Amortized Cost - Term Loans (1) 47,514 18.6% 28,622 12.9%

- Mortgages (1) 100,722 39.4% 89,564 40.4%

148,236 58.0% 118,186 53.3%

Investments - Investments - Amortized Cost (1) 8,987 3.5% 8,972 4.1%

- Investments in Subsidiaries (2) 42,052 16.4% 34,933 15.8%

- Investments – FVOCI (3) - - - -

51,039 19.9% 43,905 19.9%

Trade and Other Receivables - Trade and Other Receivables (1) 5,913 2.3% 4,437 2.0%

5,913 2.3% 4,437 2.0%

Credit Risk Exposures Relating to Off-balance Sheet Items are as Follows: Financial Guarantees 11,618 4.5% 2,500 1.1%

Loan Commitments and Other Credit Related Liabilities 11,749 4.6% 15,534 7.0%

At December 31 255,965 100.0% 221,546 100.0%


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*This item relates to a loan which met Held-for-Sale (HFS) criteria. In accordance with IFRS 5, financial assets meeting HFS criteria are classified inaccordance with IFRS 5 requirement, with the measurement basis in accordance with IFRS 9. The item is included in the above table for informationalpurposes as the carrying amount is exposed to credit risk. Financial Assets Held-for-Sale are disclosed in Note 6.

(1) Items measured at Amortized Cost.(2) Investments in Subsidiaries are measured using the Equity Method. These investments are included in the above table for

informational purposes as the carrying amount is exposure to credit risk.(3) Items measured at FVOCI.

The above table represents a worse-case scenario of credit risk exposure to the Bank at December 31, 2019 and 2018, without taking account of any collateral held or other credit enhancements attached. For on-balance sheet assets, the exposures set out above are based on carrying amounts as reported in the Statement of Financial Position.

The table below summarizes the composition and risk profile of the Bank’s Financial Assets at Amortized Cost.

Financial Assets - Amortized Cost 2019 2018

ECL - Stages Total Stage 1 Stage 2 Stage 3 Purchase

Total

Credit grade Good 144,032,585 - - - 144,032,585 127,152,097 Acceptable 37,961,400 - - - 37,961,400 34,610,313 Special mention 7,164,889 - - - 7,164,889 1,424,747 Substandard - 646,526 - - 646,526 833,491 Doubtful - - - - - - Loss - - 739,868 - 739,868 6,027,251

Gross Carrying Amount* 189,158,874 646,526 739,868 - 190,545,268 170,047,899

Credit Loss Allowance (806,636) - (739,868) - (1,546,504) (2,187,590)

Net Carrying Amount* 188,352,238 646,526 - - 188,998,764 167,860,309

Transfer to Financial Asset Held-for-Sale* - - - - - (4,704,260)

Carrying Amount 188,352,238 646,526 - - 188,998,764 163,156,049

*Included within Gross Carrying Amount is a loan which met Held-for-Sale (HFS) criteria. In accordance with IFRS 5, financial assetsmeeting HFS criteria are classified in accordance with IFRS 5 requirement, with the measurement basis in accordance with IFRS 9.The transfer is included in the above table for informational purposes. Financial Assets Held-for-Sale are disclosed in Note 6.


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The table below summarizes the changes in the credit loss allowance. Stage 1 Stage 2 Stage 3 Purchased

credit-impaired Total Financial Assets - Amortized Cost 12-month ECL Lifetime ECL Lifetime ECL

Loss Allowance as at January 1, 2018 595,560 2,241,802 769,702 - 3,607,064Movements with P&L Impact Transfers: Transfer from Stage 1 to Stage 2 - - - - - Transfer from Stage 1 to Stage 3 - - - - - Transfer from Stage 2 to Stage 1 543,394 (543,394) - - - New Financial Assets Originated or Purchased - - - - - Changes in PDs/LGDs/EADs - - - - -

Changes to Model Assumptions and Methodologies (552,637) 918,832 (502,988) - (136,793)Modification of Contractual Cash Flows of Financial Assets - - - - - Unwind of Discount (51,122) (1,144,106) - - (1,195,228) Total net P&L Charge / (Release) during the Period (60,365) (768,668) (502,988) - (1,332,021)Transfers: Transfer from Stage 2 to Stage 3 - (1,125,785) 1,125,785 - - Transfer from Stage 3 to Stage 2 - - - - - Financial Assets Derecognized during the Period - - (87,453) - (87,453)Loss Allowance as at December 31, 2018

535,195 347,349 1,305,046 - 2,187,590Transfer to Financial Asset Held-for-Sale* - - (585,613) - (585,613)

Loss Allowance as at December 31, 2018* 535,195 347,349 719,433 - 1,601,977Movements with P&L Impact Transfers: Transfer from Stage 1 to Stage 2 - - - - - Transfer from Stage 1 to Stage 3 - - - - - Transfer from Stage 2 to Stage 1 347,349 (347,349) - - -

New Financial Assets Originated or Purchased - - - - - Changes in PDs/LGDs/EADs (75,907) - 20,435 - (55,472)Changes to Model Assumptions and Methodologies - - - - -

Modification of Contractual Cash Flows of Financial Assets - - - - - Unwind of Discount - - - - -

Total net P&L Charge / (Release) during the Period 271,442 (347,349) 20,435 - (55,472)Transfers: Transfer from Stage 2 to Stage 3 - - - - - Transfer from Stage 3 to Stage 2 - - - - - Financial Assets Derecognized during the Period - - - - -

Loss Allowance as at December 31, 2019 806,637 - 739,868 - 1,546,505*Included within Gross Carrying Amount as per December 31, 2018 is a loan which met Held-for-Sale (HFS) criteria. In accordancewith IFRS 5, financial assets meeting HFS criteria are classified in accordance with IFRS 5 requirement, with the measurement basisin accordance with IFRS 9. The transfer is included in the above table for informational purposes. Financial Assets Held-for-Sale aredisclosed in Note 6.


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- Cash and Balances with BanksBalances on demand are held at local commercial banks which are under the supervision of theCentral Bank of Aruba, and one non-resident commercial bank. These banks have no external creditrating.

- Loans - Amortized CostThe table below summarizes the composition and risk profile of the Bank’s Loans - Amortized Cost.

Loans - Amortized Cost 2019 2018

ECL - Stages Total Stage 1 Stage 2 Stage 3 Purchase

Total

Credit grade Good 103,147,878 - - - 103,147,878 83,076,674 Acceptable 37,961,400 - - - 37,961,400 34,610,313 Special mention 7,126,369 - - - 7,126,369 1,365,869 Substandard - - - - - - Doubtful - - - - - - Loss - - - - - 5,289,873

Gross Carrying Amount* 148,235,647 - - - 148,235,647 124,342,729

Credit Loss Allowance (791,358) - - - (791,358) (1,452,877)

Net Carrying Amount* 147,444,289 - - - 147,444,289 122,889,852 Transfer to Financial Asset Held-for-Sale* - - - - - (4,704,260)

Carrying Amount 147,444,289 - - - 147,444,289 118,185,592 *Included within Gross Carrying Amount as per December 31, 2018 is a loan which met Held-for-Sale (HFS) criteria. In accordancewith IFRS 5, financial assets meeting HFS criteria are classified in accordance with IFRS 5 requirement, with the measurement basisin accordance with IFRS 9. The transfer is included in the above table for informational purposes. Financial Assets Held-for-Sale aredisclosed in Note 6.


35

- Credit Loss AllowanceThe table below summarizes the changes in the credit loss allowance between the beginning and theend of the reporting period.

Stage 1 Stage 2 Stage 3 Purchased credit-

impaired Total Loans - Amortized Cost 12-month ECL Lifetime ECL Lifetime ECL Loss Allowance as at January 1, 2018 580,809 2,241,801 40,737 - 2,863,347

Movements with P&L Impact Transfers: Transfer from Stage 1 to Stage 2 - - - - - Transfer from Stage 1 to Stage 3 - - - - - Transfer from Stage 2 to Stage 1 543,394 (543,394) - - - New Financial Assets Originated or Purchased - - - - - Changes in PDs/LGDs/EADs (553,164) 918,832 (580,909) - (215,241)Changes to Model Assumptions and Methodologies - - - - -

Modification of Contractual Cash Flows of Financial Assets - - - - - Unwind of Discount (51,122) (1,144,106) - - (1,195,228) Total net P&L Charge / (Release) during the period (60,892) (768,668) (580,909) - (1,410,469)Transfers: Transfer from Stage 2 to Stage 3 - (1,125,785) 1,125,785 - - Transfer from Stage 3 to Stage 2 - - - - - Financial Assets Dercognized during the

d - - - - -

Loss Allowance as at December 31,

519,917 347,348 585,613 - 1,452,878Transfer to Financial Asset Held-for-Sale* - - (585,613) - (585,613)Loss Allowance as at December 31, 2018* 519,917 347,348 - - 867,265

Movements with P&L Impact Transfers: Transfer from Stage 1 to Stage 2 - - - - - Transfer from Stage 1 to Stage 3 - - - - - Transfer from Stage 2 to Stage 1 347,349 (347,349) - - - New Financial Assets Originated or Purchased - - - - - Changes in PDs/LGDs/EADs (75,908) - - (75,908)

Changes to Model Assumptions and Methodologies - - - - -

Modification of Contractual Cash Flows of Financial Assets - - - - - Unwind of Discount - - - - -

Total net P&L Charge / (Release) during the Period 271,441 (347,349) - - (75,908) Transfers: Transfer from Stage 2 to Stage 3 - - - - - Transfer from Stage 3 to Stage 2 - - - - - Financial Assets Dercognized during the P d

- - - - - Loss Allowance as at December 31, 2019 791,358 - - - 791,358


36

*Included within Gross Carrying Amount as per December 31, 2018 is a loan which met Held-for-Sale (HFS) criteria. In accordancewith IFRS 5, financial assets meeting HFS criteria are classified in accordance with IFRS 5 requirement, with the measurement basisin accordance with IFRS 9. The transfer is included in the above table for informational purposes. Financial Assets Held-for-Sale aredisclosed in Note 6.

- Debt Securities Measured at Amortized CostThe Investments – Amortized Cost comprise of sovereign bonds with remaining duration of 8-14years at an interest rate of 4% and 5.75%. The sovereign bonds have a most recent country rating ofBBB positive, based on S&P’s rating scale. Management therefore treats the related credit risk in thesame manner as loans.

- Trade and Other ReceivablesIf collection is expected in one year or less trade and other receivables are classified as currentassets. If not, they are presented as non-current assets. The Bank makes use of a simplified approachin accounting for Trade and Other Receivables and records the loss allowance as lifetime expectedcredit losses. These are the expected shortfalls in contractual cash flows, considering the potentialfor default at any point during the life of the financial instrument. In calculating, the Bank uses itshistorical experience, external indicators and forward-looking information to calculate the expectedcredit losses using a provision matrix. Impairment on receivables is disclosed in Note 10.

As per December 31, 2019 Good Past due

1-3 months Past due

over 3 months Impaired Total

(In Afl.)

Accrued Interest 692,309 13 - - 692,322 Trade Receivables 3,647,181 38,508 646,526 739,868 5,072,083 Prepayments 111,313 - - - 111,313 Other Receivables 37,149 - - - 37,149 Allowances for Doubtful Receivables - - - (739,868) (739,868)

4,487,952 38,521 646,526 - 5,172,999

As per December 31, 2018 Good Past due

1-3 months Past due

over 3 months Impaired Total

(In Afl.)

Accrued Interest 706,159 1,461 - 707,620 Trade Receivables 1,991,519 57,417 833,491 737,378 3,619,805 Prepayments 100,886 - - - 100,886 Other Receivables 9,794 - - - 9,794 Allowances for Doubtful Receivables - - - (719,435) (719,435)

2,808,358 58,878 833,491 17,943 3,718,670

- Concentration of Risks of Financial Assets with Risk Exposure(a) Geographical Sectors


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The Bank’s exposure for the year 2019 is concentrated in Aruba and Turks and Caicos. The credit risks of these geographical sectors are considered similar.

(b) Industry SectorsDecember 31, 2019 December 31, 2018 Loans Loans (%) Loans Loans (%)

(In Afl.)

Real Estate, Renting and Business 45,326,749 31.3% 27,789,062 24.1% Construction 19,749,928 13.6% 22,944,838 19.9% Wholesale and Retail Trade 14,059,286 9.7% 15,489,932 13.4% Condominiums 6,862,884 4.8% 8,539,224 7.4% Utilities - - 11,200,604 9.7% Hotels 35,973,317 24.8% 11,062,549 9.6% Manufacturing 4,518,710 3.1% 5,454,387 4.7% Transport, Storage and Communication 7,695,336 5.3% 7,589,065 6.6% Public Administration 2,668,219 1.8% 2,668,219 2.3% Tour Operation 6,480,479 4.5% 1,463,325 1.3% Education 1,557,994 1.1% 1,094,940 1.0%

Total Direct Lending 144,892,902 100.0% 115,296,145 100.0%

- Market RiskThe Bank takes on exposure to market risks, which is the risk that the fair value or future cashflows of a financial instrument will fluctuate because of changes in market prices. Market risks arisefrom open positions in interest rate, currency and equity products, all of which are exposed togeneral and specific market movements and changes in the level of volatility of market rates orprices such as interest rates, credit spreads, foreign exchange rates and equity prices.

- Foreign Exchange RiskThe financial assets of the Bank are denominated in Aruban Florins and in US dollars. The ArubanFlorin is pegged to the United States Dollar according to a fixed rate (see Note 2). Due to theabsence of material exposure in other foreign currencies Management considers the foreignexchange risks as minor.

- Interest Rate RiskCash flow interest rate risk is the risk that the future cash flows of a financial instrument willfluctuate because of changes in market interest rates. Fair value interest rate risk is the risk that thevalue of a financial instrument will fluctuate because of changes in market interest rates. The Banktakes on exposure to the effects of fluctuations in the prevailing levels of market interest rates onboth its fair value and cash flow risks.

Interest margins may fluctuate as a result of changes in the event that unexpected movements arise.The Bank operates its business predominantly in Aruba and provides mainly fixed rate financing. It isnormal practice for the interest rates of both interest bearing assets and liabilities to move in thesame directions. Consequently, the Bank’s exposure to interest rate risk is not significant. The Bankis proactive in managing its exposure to interest rates. The level of mismatch of interest raterepricing that may be undertaken is monitored monthly by an Assets and Liabilities Committee(ALCO).


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The Bank is exposed to various risks associated with the effects of fluctuations in the prevailing levels of market rates on its financial position and cash flow. The table below summarizes the Bank’s exposure to interest rate risks. Included in the table are the Bank’s assets and liabilities at carrying amounts, categorized by maturity date.

As per December 31, 2019

0-3 Months

4-12 Months

From 1 Year to 5 Years

Over 5 Years

Non- Interest Bearing

Total

(In Afl.)

Financial Assets Cash and Cash Equivalents 20,015,148 - - - 7,394,606 27,409,754 Loans 1,587,434 14,703,737 32,046,011 99,898,465 - 148,235,647 Investments (1) - - - 8,987,000 42,355,639 51,342,639 Allowance for Expected Credit Losses - - - - (807,640) (807,640) Other Financial Assets - - - - 5,172,999 5,172,999 Total Financial Assets 21,602,582 14,703,737 32,046,011 108,885,465 54,115,604 231,353,399

Financial Liabilities Borrowings 15,929,411 35,753,544 55,810,000 9,500,000 - 116,992,955 Other Financial Liabilities 5,700,758 5,700,758 Total Financial Liabilities 15,929,411 35,753,544 55,810,000 9,500,000 5,700,758 122,693,713

Interest Sensitivity Gap 5,673,171 (21,049,807) (23,763,989) 99,385,465 48,414,846 108,659,686 (1) Included within Investments in the above table is Investments in Subsidiaries which are measured using the Equity Method. Theseinvestments are included in the above table for informational purposes.


0-3 Months

4-12 Months


Over 5 Years

Non- Interest Bearing

Total

(In Afl.)

Financial Assets Cash and Cash Equivalents 17,529,955 - - - 14,750,110 32,280,065 Loans 1,604,944 27,979,326 29,530,127 59,938,460 - 119,052,857 Investments (1) - - - 8,987,000 35,236,843 44,223,843 Allowance for Expected Credit Losses - - - - (882,543) (882,543) Other Financial Assets - - - - 3,718,670 3,718,670 Total Financial Assets 19,134,899 27,979,326 29,530,127 68,925,460 52,823,080 198,392,892

Financial Liabilities Borrowings 430,000 21,730,775 73,150,000 4,000,000 - 99,310,775 Other Financial Liabilities - - - - 5,281,515 5,281,515 Total Financial Liabilities 430,000 21,730,775 73,150,000 4,000,000 5,281,515 104,592,290

Interest Sensitivity Gap 18,704,899 6,248,551 (43,619,873) 64,925,460 47,541,565 93,800,602 (1) Included within Investments in the above table is Investments in Subsidiaries which are measured using the Equity Method. Theseinvestments are included in the above table for informational purposes.


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The interest sensitivity gaps are related to loans and investments, which are stated by maturity date and not by interest revision date. New borrowings are agreed upon for tenors to match as much as possible the interest revision period of the loans granted.

As of December 31, 2019, if interest rates had been 100 basis points higher (2018: 100 basis points higher) with all other variables held constant, pre-tax profit for the year would have been Afl. 472,421 (2018: Afl. 633,395) higher. If interest rates had been 100 basis points lower (2018:100 basis points lower) with all other variables held constant, pre-tax profit for the year would have been Afl. 472,421 (2018: Afl. 633,395) lower.

- Liquidity RiskLiquidity risk is the risk that the Bank is unable to meet its payment obligations associated with itsfinancial liabilities when they fall due and to replace funds when they mature. The consequence maybe failure to meet its obligations to repay fund providers and fulfill commitments to lend.

The Bank’s liquidity management process, as carried out within the Bank and monitored by ALCO,includes;o Day-to-day funding managed by monitoring future cash flows to ensure that requirements

can be met. These include replenishment of funds as they mature or are borrowed bycustomers;

o Maintaining highly marketable assets that can easily be liquidated as protection against anyunforeseen interruption to cash flow;

o Monitoring balance sheet liquidity ratios against internal and regulatory requirements; ando Managing the concentration and profile of debt maturities.Monitoring and reporting take the form of cash flow measurement and projections for the week andmonth respectively, as these are key periods for liquidity management. The starting point for thoseprojections is an analysis of the contractual maturity of the financial liabilities. The contractualmaturity approximates the expected maturity of the financial liabilities. ALCO also monitors thelevel and type of undrawn lending commitments, the usage of overdraft facilities and the impact ofcontingent liabilities such as performance bonds and guarantees. Amounts in the following tablerefer to undiscounted values.As per December 31, 2019

0-3 Months

4-12 Months


Over 5 Years Total

(In Afl.)

Liabilities Borrowings 16,105,050 37,256,735 58,001,025 9,920,250 121,283,060 Other Liabilities 3,608,016 - - - 3,608,016

19,713,066 37,256,735 58,001,025 9,920,250 124,891,076


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0-3 Months

4-12 Months


Over 5 Years Total

(In Afl.)

Liabilities Borrowings 449,350 22,608,544 76,222,125 4,199,000 103,479,019 Other Liabilities 3,283,654 - - - 3,283,654 Total Liabilities 3,733,004 22,608,544 76,222,125 4,199,000 106,762,673

- Capital ManagementThe Bank manages its capital considering both regulatory and economic capital.

Regulatory CapitalThe Central Bank of Aruba (CBA) as regulator sets and monitors capital requirements for the Bank.The Bank is required to comply with provisions of the CBA supervisory directives in respect ofregulatory capital.

The Bank’s regulatory capital is analyzed into two tiers:o Tier 1 capital, which includes ordinary share capital, share premium, retained earnings less

deductions for goodwill and intangible assets, and equity investments in subsidiaries; ando Tier 2 capital, which includes qualifying subordinated liabilities, collective impairment

allowances and the element of the fair value reserve relating to unrealized gains/losses onequity instruments measured at fair value through other comprehensive income.

Risk weighted assets are determined according to specified requirements that seek to reflect the varying levels of risk attached to assets and exposures not recognized in the Statement of Financial Position.

The Bank’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on shareholders’ return is also recognized and the Bank recognizes the need to maintain a balance between higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Bank has complied with all externally imposed capital requirements throughout the period.


41

The Bank’s regulatory capital position under the CBA Supervisory Directives at December 31 is as follows:

2019 2018 (In Afl. 1,000)

Tier 1 Capital Paid Share Capital 14,920 14,920 Share Premium 1,441 1,441 Retained Earnings 80,825 73,544 Less: Equity Investment in Subsidiaries (42,356) (35,237)

54,830 54,668

Tier 2 Capital Balance of Income and Expenditure 10,927 9,808 Regulatory Loan Loss Reserve 4,953 3,917 Subordinated Debt - - Less: Investment in Debt Capital of Subsidiaries - -

15,880 13,725

Total regulatory capital 70,710 68,393

4. Critical Accounting Estimates and Judgments

The preparation of the financial statements requires the use of accounting estimates that, by definition, will seldom equal the actual results. Management also needs to exercise judgment in applying the Bank’s accounting policies, IAS 1 Presentation of Financial Statements paragraph 122.

Impairment of Financial Instruments at Amortized Cost and FVOCI

Note 2.1.1 and Note 3 - In determining ECL, management is required to exercise judgement in defining what is considered a significant increase in credit risk and in making assumptions and estimates to incorporate relevant information about past events, current conditions and forecasts of economic condition.

Explanation of the inputs, assumptions and estimation techniques used in measuring ECL is presented in Note 3.


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5. Cash and Cash equivalents

The Cash and Cash equivalents comprise of:


Cash on hand 16,621 16,187 Balances with Banks 27,393,133 32,263,878

Cash and Cash equivalents 27,409,754 32,280,065

Cash and Cash equivalents as per December 31, 2019 are not restricted and due on demand. Some balances are subject to fixed interest.

6. Financial Assets Held-for-Sale

The Financial Assets Held-for-Sale relate to one non-performing loan by year-end 2018. On December 21, 2018 the Bank reached an agreement with a co-lender whereby the co-lender issued a guarantee letter to the Bank for full repayment of the loan in the first quarter of 2019 in case a potential sale to a prospect buyer does not materialize. As per December 31, 2018 the loan was classified as Financial Assets Held-for-Sale in accordance with the Classification requirements of IFRS 5 Non-current Assets Held for Sale and Discontinued Operations, with the measurement basis in accordance with IFRS 9 as required by IFRS 5 paragraph 5 (c). The sale of the Financial Assets Held-for-Sale at December 31, 2018 materialized in April 2019.

7. Loans - Amortized Cost

Loans - Amortized Cost can be specified as follows:


Direct Lending 145,684,260 116,158,491 Loans to Staff & Management 2,551,387 2,894,366

148,235,647 119,052,857

Allowance for Expected Credit Losses (791,358) (867,265)

147,444,289 118,185,592

Loans, sub-classified in remaining repayment periods, can be specified as follows:


0-3 Months 1,587,435 1,604,944 4-12 Months 14,703,737 27,979,326 13 Months – 5 Years 32,046,011 29,530,127 Over 5 Years 99,898,464 59,938,460

148,235,647 119,052,857


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Allowance for Expected Credit Losses

Movements in the allowances for expected credit losses relating to Loans - Amortized Cost are summarized as follows:

2019 2018 (In Afl.)

Balance at Beginning of the Year 867,265 -

IFRS 9 Transition Adjustment January 1 - 2,863,347 Allowance released to the Statement of Comprehensive Income - through profit or loss (325,496) (1,410,469) Allowance transferred from/(to) Financial Assets Held-for-Sale 249,589 (585,613)

Balance at End of the Year 791,358 867,265

The allowance for expected credit losses relate to Direct Lending and the Loans to Staff & Management.

8. Investment Securities

The Investment Securities can be specified as follows:


Investment Securities Measured at Amortized Cost 8,987,000 8,987,000 Allowances for Expected Credit Losses (15,278) (15,278)

8,971,722 8,971,722

The Investment Securities Measured at Amortized Cost comprises of sovereign bonds, with remaining duration of 8-14 years at an interest rate between 4.0% and 5.75%.


44

9. Investment in Subsidiaries

The movements in Investment in Subsidiaries can be specified as follows:

Alicante Properties N.V.

Capital Providers Group N.V.

Total

(In Afl.)

Balance at January 1, 2018 28,475,884 367,737 28,843,621

Result Subsidiaries 2018 6,393,502 (280) 6,393,222

Adjustment prior year (303,986) - (303,986)

Balance per December 31, 2018 34,565,400 367,457 34,932,857

Result Subsidiaries 2019 7,119,076 (280) 7,118,796

Balance per December 31, 2019 41,684,476 367,177 42,051,653

The prior year adjustment regards a correction of financing costs incurred by AIB Vastgoed N.V. in 2017 for the arrangement and underwriting of the loan facility provided by Stichting Algemeen Pensioenfonds Aruba. In 2018 this item has been corrected through retained earnings as the deferral of finance cost is not allowed under reporting standards (IFRS for SMEs) of the financial statements of AIB Vastgoed N.V.

10. Trade and Other Receivables

The Trade and Other Receivables comprise of:


Accrued Interest 692,322 707,620 Trade Receivables 5,070,775 3,385,838 Receivables Related Parties 1,308 233,967 Prepayments 111,313 100,886 Other Receivables 37,149 9,794 Allowances for Expected Credit Losses (739,868) (719,435)

5,172,999 3,718,670

The estimated fair values of Trade and Other Receivables are the discounted amount of the estimated future cash flows expected to be received and approximate their carrying amounts. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs.


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Allowances for Expected Credit Losses for Receivables

Movements in the Allowances for Expected Credit Losses for Receivables are summarized as follows:

Accrued Interest

Trade Receivables

Other Receivables

Total

(In Afl.)

Balance at January 1, 2018 - 728,965 - 728,965

Allowance charged to the Statement of Comprehensive Income - through profit or loss 87,451 - - 87,451 Receivables Written-off (37,197) - - (37,197)) Allowance released to the Statement of Comprehensive Income - through profit or loss - (9,530) - (9,530) Allowance transferred to Financial Assets Held-for-Sale (50,254) - - (50,254)

Balance per December 31, 2018 - 719,435 - 719,435

Allowance charged to the Statement of Comprehensive Income - through profit or loss - 407,375 - 407,375 Receivables Written-off - (207,942) - (207,942) Allowance released to the Statement of Comprehensive Income - through profit or loss (50,254) (179,000) - (229,254) Allowance transferred from Financial Assets Held-for-Sale 50,254 - - 50,254

Balance at December 31, 2019 - 739,868 - 739,868


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11. Property and Equipment

Property and Equipment can be specified as follows:

Machines Equipment

Office Furniture

Premises Improvement Automobiles Land &

Buildings Total

(In Afl.)

Book Value December 31, 2017: Purchase Value 883,299 812,298 569,898 642,613 6,404,149 9,312,257 Accumulated Depreciation (824,595) (753,238) (239,979) (306,890) (2,987,638) (5,112,340)

58,704 59,060 329,919 335,723 3,416,511 4,199,917

Movements 2018: Additions 50,840 63,291 - 408,358 776,257 1,298,746 Disposals (3,898) (105,040) - (373,829) (39,177) (521,944) Accumulated Depreciation Disposals 3,898 96,245 - 284,857 36,355 421,355 Depreciation (45,744) (24,046) (48,856) (126,983) (209,173) (454,802)

5,096 30,450 (48,856) 192,403 564,262 743,355

Book Value December 31, 2018: Purchase Value 930,241 770,549 569,898 677,142 7,141,229 10,089,059 Accumulated Depreciation (866,441) (681,039) (288,835) (149,016) (3,160,456) (5,145,787)

63,800 89,510 281,063 528,126 3,980,773 4,943,272

Movements 2019: Additions 154,292 - 9,328 84,000 32,383 280,003 Disposals (5,410) - - (82,500) - (87,910) Accumulated Depreciation Disposals 5,410 - - 59,125 - 64,535 Depreciation (34,175) (25,939) (47,571) (135,641) (229,427) (472,753)

120,117 (25,939) (38,243) (75,016) (197,044) (216,125)

Book value December 31, 2019: Purchase Value 1,079,123 770,549 579,226 678,642 7,173,612 10,281,152 Accumulated Depreciation (895,206) (706,978) (336,406) (225,532) (3,389,883) (5,554,005)

183,917 63,571 242,820 453,110 3,783,729 4,727,147


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12. Trade and Other Liabilities

This financial line item comprises of:


Interest Payable 1,245,523 611,646 Interest Payable Related Parties 847,219 1,386,215 Committed Participations 400,000 400,000 Trade Payables 1,717,003 1,685,139 Payroll Related Payables 1,225,495 977,231 Other Payables 265,518 221,284

5,700,758 5,281,515

The estimated fair values of Trade and Other Liabilities are the discounted amount of the estimated future cash flows expected to be paid and approximate their carrying amounts. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs.

13. BorrowingsBorrowings consist of bonds of the Debt Issuance Program of the Bank (DIP) for an original maturity ofbetween one (1) to twelve (12) years and in the amount of at least Afl. 300,000. Borrowings are subjectto fixed interest rates (1.85% - 5.2%).

Borrowings sub-classified in remaining repayment periods can be specified as follows:

The fair value of Borrowings approximates their carrying amount, as the impact of discounting is not significant. The fair values are based on the discounted future cash flows using the borrowings contractual rate. They are classified as level 3 fair values in the fair value hierarchy due to the inclusion of unobservable inputs.


0-3 Months 15,929,411 430,000 4-12 Months 35,753,544 21,730,775 13 Months – 5 Years 55,810,000 73,150,000 Over 5 Years 9,500,000 4,000,000

116,992,955 99,310,775


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14. Provisions

Movements in the Provisions are as follows:

Cessantia Provision

Jubilee Provision

Total

(In Afl.)

Balance per January 1, 2018 121,806 232,694 354,500

Provision charged to the Operating Expenses 16,969 66,287 83,256 Benefits paid out - (54,282) (54,282)

Balance per December 31, 2018 138,775 244,699 383,474

Provision charged to the Operating Expenses 654 51,790 52,444 Benefits paid out - (50,063) (50,063)

Balance per December 31, 2019 139,429 246,426 385,855

The cessantia provision is related to the present obligation of the Bank to make severance payments at retirement date to employees who meet the criteria set in article 3 of the State Ordinance Cessantia. The provision is recorded at the present value of the expected expenditures required to settle the obligation resulting from the State Ordinance Cessantia. For 2019 Management has assumed the discount rate at 5.0% (2018: 5.0%). The current portion of the provision amounts to Afl. 79,830 (2018: Afl. 84,992).

The jubilee provision is related to the legal obligation of the Bank to make jubilee grants to employees as set in the Personnel Policies of the Bank. The provision is recorded at the net present value based on the projected unit credit-method as required by IAS 19.

The principal actuarial assumptions used are as follows:

The mortality per year is based on average mortality 20-60 according to GBMV0005 (as used by most local insurers).

2019 2018

Discount rate 5.00% 5.00% Annual salary increase 3.00% 3.00% Turnover per year 10.00% 10.00% Mortality per year 0.20% 0.20% Retirement age 65 65


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15. Deferred Tax Liability

The deferred tax liability is calculated as follows:

Property, Plant and Equipment

Regulatory Loan Loss

Reserve

Allowance for Expected

Credit Losses

Total

(In Afl.)

Balance per January 1, 2018 70,208 710,580 - 780,788

IFRS 9 Transition Adjustment (719,525) (719,525) (Addition)/Release Allowance for Expected Credit Losses 352,486 352,486 Lower Fiscal Depreciation (7,186) - - (7,186) Difference on Sale of Assets (1,822) - - (1,822) Addition/(Release) Regulatory Loan Loss Reserve - (177,645) - (177,645) Charged/(credited) to the Statement of Comprehensive Income - through profit or loss (9,008) (177,645) (367,039) (553,692)

Balance per December 31, 2018 61,200 532,935 (367,039) 227,096

(Addition)/Release Allowance for Expected Credit Losses 165,380 165,380 Lower Fiscal Depreciation (9,442) - - (9,442) Difference on Sale of Assets 1,478 - - 1,478 Addition/(Release) Regulatory Loan Loss Reserve - (177,645) - (177,645) Charged/(credited) to the Statement of Comprehensive Income - through profit or loss (7,964) (177,645) 165,380 (20,229)

Balance per December 31, 2019 53,236 355,290 (201,659) 206,867

Results from subsidiaries are exempt from profit tax. Deferred profit tax is calculated on temporary differences under the liability method using the domestic tax rate of 25% (2018: 25%). In 2018 the Bank entered into an agreement with the Tax Authorities to reduce the deferred profit taxes on the regulatory loan loss reserve in 5 years to nil effective fiscal year 2017.


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16. Shareholders’ Equity

Ordinary Shares

The authorized capital of the Bank consists of 25,000 shares with a face value of Afl. 1,000 each. The authorized capital is divided in: - 10,714 class "A" shares, of which 5,953 have been issued and fully paid.- 7,143 class "B" shares, of which 4,000 have been issued and fully paid.- 7,143 class "C" shares, of which 4,967 have been issued and fully paid.

Issued In Afl.

December 31, 2018 14,920 14,920,000

December 31, 2019 14,920 14,920,000

Class "A" shareholders: 81 in total, are non-bank financial institutions, corporations doing business in Aruba and individuals residing in Aruba.

Class "B" shareholders: 5 in total, are banks operating in Aruba. Class "C" shareholders: 8 in total, are non-resident banks, non-banklike financial institutions,

corporations doing business in Aruba and individuals residing in Aruba. Each Class of shares has the right to nominate a Supervisory Director. Furthermore, each share has one voting right and equal rights on dividends.

Regulatory Loan Loss Reserve This reserve represents transfers from retained earnings to meet qualifying capital requirements under relevant banking legislation. This reserve is not distributable.

Proposed Dividend The dividends declared and paid in 2019 were Afl. 100 per share (2018: Afl 100 per share). A dividend in respect of 2019 of Afl. 100 per share, amounting to a total dividend of Afl. 1,492,000 is to be proposed at the Annual General Meeting on April 30, 2020. These financial statements do not reflect this dividend payable.

17. Net Interest Income

Interest Income


2019 2018 (In Afl.)

Cash and Cash equivalents 297,543 292,450 Investment Securities - Amortized Cost 378,623 370,937 Loans - Amortized Cost 9,311,736 9,218,047

9,987,902 9,881,434


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Interest Expense


2019 2018 (In Afl.)

Borrowings Local Currency 4,528,935 4,430,112 Borrowings Foreign Currency 29,038 -

4,557,973 4,430,112

18. Net Fee and Commission IncomeThis financial line item comprises of loan-related and management fees, fees obtained for activities carried out onbehalf of third parties (i.e. capital raising fees, investment banking advice to public management and fundsmanagement) amounting to Afl. 7,552,215 (2018: Afl. 6,729,602).

19. Staff CostsThis financial line item comprises of:

2019 2018 (In Afl.)

Wages and Salaries 4,752,297 4,837,588 Social Security Costs 493,219 465,695 Pension Costs Defined Contribution Plans 586,709 270,599 Addition to / (Release from) Provisions 52,444 83,256

5,884,669 5,657,138

20. Administrative ExpensesThis financial line item comprises of:

2019 2018 (In Afl.)

Advertising Expenses 146,742 215,471 Maintenance and Utility Expenses 498,702 604,525 Professional Fee Expenses 615,155 404,155 General Expenses 137,693 97,471 Rent and Other Accommodation Expenses 42,483 78,312 Other Expenses 343,461 383,849

1,784,236 1,783,783


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21. Profit TaxProfit Tax for the year comprises current tax and the change in deferred tax. The Profit Tax is calculated inconformity with the rates in force, taking into account the applicable tax facilities.

2019 2018 (In Afl.)

Difference tax on profits previous years (304,375) - Tax on Profits for Current Year 1,012,325 980,825 Deferred Tax (Note 12/16) (20,229) 165,833

687,721 1,146,658

The reconciliation of the effective profit tax rate can be specified as follows:

2019 2018 (in Afl.)

Net Result for the Year 11,421,358 10,867,091 Total Profit Tax Expense 687,721 1,146,658 Profit excluding Profit Tax 12,109,079 12,013,749

Income tax using the company’s domestic tax rate 25.00% 3,027,270 25.00% 3,003,437 Effect of result subsidiaries not being taxed (16.80%) (2,033,830) (15.37%) (1,846,415) Effect of tax incentive (0,02%) (2,927) (0.09%) (10,344) Effect of non-deductible expenses 0.01% 1,592 - - Effect of differences tax on profit previous years (2.51%) (304,375) - - Effect of rounding to nearest hundred (0.00%) (9) (0.00%) (20)

5.68% 687,721 9.55% 1,146,658

22. Related Party TransactionsThe following entities are considered as related parties:

• Capital Provider Group N.V., which is a full subsidiary of the Bank;• Alicante Properties N.V., which is a full subsidiary of the Bank;• Alicante Management Company N.V., which is a full subsidiary of Alicante Properties N.V.;• AIB Vastgoed N.V., which is a full subsidiary of Alicante Properties N.V.;• Casanare Properties N.V., which is a full subsidiary of Alicante Properties N.V.;• AIB Lease N.V. (formerly Cordia Lease N.V.), which is a full subsidiary of Alicante Properties

N.V.;• Arugas Holding N.V., which is a full subsidiary of Alicante Properties N.V.;• Aruba Gas Voorzieningsmaatschappij N.V., which is a full subsidiary of Arugas Holding N.V.;• Bonick Gas & Oil Terminal N.V., which is a full subsidiary of Arugas Holding N.V.;• Evert van Woudenberg N.V., which is a full subsidiary of Arugas Holding N.V.;• Algemeen Pensioenfonds van Aruba (APFA), which owns 35% of the shares of the Bank.

Of the remaining 65% of the shares, 34% are held by two shareholders and 31% are widely held.


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A number of transactions are entered into with related parties in the normal course of business. These include loans and borrowings. The volumes of related party transactions, outstanding balances at the year end, and relating expense and income for the year are as follows:

Note Directors and Key Management Personnel

Shareholders and Subsidiaries

2019 2018 2019 2018 (In Afl.)

Loans 7 1,316,409 887,638 - - Undisbursed Commitments 23 - - - -

Borrowings 13 - - 34,500,000 55,000,000

Interest and Fee Income 17 - - 40,363 Management Fees 18 - - 446,809 180,000 Interest Expense 17 - - 1,970,583 2,690,278

Interest rates on the loans granted to and borrowings with related parties are in accordance with the prevailing market conditions. The loans granted to Directors and Key management personnel are in accordance with the personnel policies of the Bank.

2019 2018 (In Afl.)

Key Management Compensation Salaries and Other Short-Term Benefits 2,239,498 2,097,823 Post-Employment Benefits 138,592 124,942

As all members of the Board are non-executive directors fixed remuneration is applicable. The total fees paid during the 2019 amounted to Afl. 147,660 (2018: Afl. 142,845).

Related Party Balances included in Trade and Other Receivables and Trade and Other Liabilities are disclosed in these notes (10 and 13).

23. Contingent Liabilities and CommitmentsCommitments and Guarantees

The commitments and guarantees can be specified as follows:


Undisbursed Commitments 11,748,657 15,534,231 Financial Guarantees 11,618,000 2,500,000

Undisbursed Commitments are presented net of allowance for expected credit losses.


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24. Events After the Reporting PeriodDue to the impact of the Coronavirus (COVID-19), Management has assessed its impact on the futureresults, cash flows and financial position of the Bank. Management emphasizes that as per the date ofissuance of these financial statements, it is uncertain to estimate what the eventual impact of theCoronavirus will be on the (Aruban) economy and the Bank’s future results, cash flows and financialposition.

Thus far the Bank observed various lending clients requesting an alleviation with respect to their contractual obligations for interest and principal repayments.

Notwithstanding the uncertainty, Management has assessed the Bank’s future results, cash flows and financial position by estimating the impact of the Coronavirus by: - Assessing various scenarios with respect to estimating the impact of increased probabilities of

default, loss given defaults and decreases in estimated collateral values on the Bank’s ECL allowance;- Assessing various scenarios with respect to estimating the impact on the liquidity of the Bank.

Overall, based on its assessment of the impact of the Coronavirus for the year 2020 and beyond, and taking into account the uncertainties that exist as per the date of issuance of these financial statements, Management concludes that it does not consider the impact to cast significant doubt upon the Bank’s ability to continue as a going concern.

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