Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1697736316011.pdf (Fiji)
FIJI DEVELOPMENT BANK 2016 ANNUAL REPORT VISION To be a dynamic financial service provider in the development of Fiji.

MISSION We provide finance, financial and advisory services to assist in the economic development of Fiji and in particular the development of agriculture, commerce and industry.

CORPORATE OBJECTIVE To be a profitable and self-sustaining financial institution.

STRATEGIC OBJECTIVES 1.

To be commercially viable and reduce reliance on government assistance.

2.
2.

To enhance our role as Fiji’s only development Bank.

3.

To inculcate an environment that values, empowers and rewards our employees.

3 OUR VALUES Development FDB continuously focuses on the economic development of our country that is why we exist!

We believe in the development of Fiji and bringing success to its entire people.
Innovation FDB continuously strives to exceed customer’s expectations with products and services that would meet the changing needs of all customer’s and also taking advantage of emerging opportunities before competitor’s can.

Collaboration FDB always works as one team and communicates one message for the development of Fiji and its people.

Integrity FDB exhibits the highest level of objectivity, honesty, transparency, fairness and responsibility at all times.
Accountability FDB acknowledges and assumes responsibility for its actions with the overarching obligation to report, explain and be answerable for resulting consequences.

The Fiji Development Bank takes great pride in working with the Education Ministry to communicate to the children of Fiji the rewards that good and informed money management will bring in later life.

A BANK FOR FIJI AND HER PEOPLE The Fiji Development Bank was established under the Fiji Development Bank Act (Cap 214) on 1 July, 1967.
It is an autonomous statutory body, operations of which are controlled by a Board of Directors appointed by the Minister for Economy, (formerly termed Minister for Finance).

Under the Act, the Bank provides finance for projects The Bank plays a very significant role in developing a that contribute to the development of Fiji’s economy spread of economic sectors, with a particular focus and that improve the quality of life for the country’s on Agriculture.

FDB is at the same time proactive in people.


Loan funds are made available for Agriculture, addressing its corporate social responsibilities.

It takes Corporate, as well as of a Small and Medium nature.
great pride in working with the Education Ministry to Government uses FDB as a financial instrument in its communicate to the children of Fiji the rewards that own development projects, and in special assistance good and informed money management will bring in programmes that from time to time become later life.

necessary.
necessary.

Another special focus for FDB is effective support and Over the years FDB has introduced a growing range encouragement for entrepreneurs, and operators of of loan packages and services aligned with both small and medium business enterprises.
To this end, its strategic objectives and customer demand, and the Bank continues to sponsor the hotly-contested designed with a full awareness of competing products annual Small Business Awards recently upgraded to promoted by the Banking and finance sector.

the Small & Medium Enterprise Awards in 2015.
Celebrating Progress Fiji Development Bank2016 Annual Report 4 CONTENTS Letter to the Minister for Economy Executive Report Organigram Board of Directors Corporate Governance Executive Management Financial Year In Review Operational Review Human Resource & Training Risk Management Corporate Social Responsibility Financial Report Celeb r a t i n g P rogress 5 6 9 10 12 18 19 24 29 31 34 36 Fiji Development Bank2016 Annual Report CHAIRMAN’S LETTER 5 Development Bank Centre 360 Victoria Parade GPO Box 104 Suva, Fiji Tel: 3314866 Fax: 3314886 8, February, 2017 Hon Aiyaz Sayed-Khaiyum, Attorney-General and Minister for Economy, Public Enterprises, Public Service & Communications, Suvavou House, SUVA.
Dear Sir, RE: 2016 ANNUAL REPORT On behalf of the Board it is my pleasure to submit the Fiji Development Bank’s Annual Report and accounts for the financial year ending 30 June, 2016.

It pleases me to inform you that the Bank was able to deliver a net profit of $7.31MM for the financial year, representing an increase of 18.98% on the corresponding 2015 figure.

This impressive performance was achieved through the application of stringent cost control measures and an intensified focus on bad debt recovery.
The Bank’s continued collaboration with Government and private sector stakeholders resulted in numerous high quality projects gaining approval.

At 30th June, 2016 the Bank’s portfolio stood at 4,608 accounts with loans totalling $375.52MM.

This was an increase of 10% in size and 2% in value over 2015.
Just as we greatly appreciate the role Government continues to play in supporting our endeavours, the Board and I must similarly commend the contribution of the Bank’s Executive Management and Staff to the many notable achievements of a highly satisfying financial year for FDB.

Yours sincerely, Robert G. Lyon CHAIRMAN Celebrating Progress Fiji Development Bank2016 Annual Report 6 EXECUTIVE REPORT The 2016 financial year is defined as July 1, 2015 to June 30, 2016.
This period is referred to as 2016 throughout this document.

The Bank’s performance for 2016 was commendable, and especially so given the social and economic chaos that our country faced in the wake of Tropical Cyclone Winston.

Of necessity, this immediately and overwhelmingly became our prime focus, as we simultaneously strove to maintain the highest levels of service on the day-to-day business front.
We are proud to be playing a very significant role in the recovery of the businesses and livelihoods of large numbers of our customers following the catastrophic event, which saw the Reserve Bank’s forecast of 3.5% economic growth for the year revised to 2.4%.

That FDB itself should emerge from such a grave situation fully intact and in enhanced financial health, speaks to the soundness of its core infrastructure, and the mettle of its people.
Increased assets, greater net profit, more accounts An increase in total net assets from $361.83MM to $374.90MM was accomplished, with liquid assets, fixed assets and other receivables all showing gains on 2015.

At year’s end, with total net profit of $7.31MM achieved, an improvement of 18.98% on 2015, the Bank’s portfolio stood at 4,608 accounts with loans totalling $375.52MM, an increase of 10% in size and 2% in value.
The number one contributor to the increased account numbers was Agriculture, our prime sector of interest, and the one most severely affected by Tropical Cyclone Winston.

The value increase came largely from the Wholesale, Retail, and Hotels & Restaurants sectors, while Transport, Communication & Storage contributed to both areas of gain, with Taxi Business Loans specifically bringing in $5MM.

This was due to the Bank’s competitive edge in terms of interest rate and quality of service delivery.
Focus sectors accounted for 79% of the total portfolio by number, and 42% by value, with Agriculture the highest contributor, and Transport, Communication & Storage second Deve Toganivalu Chief Executive Officer “The number one contributor to the increased account numbers was Agriculture, our prime sector of interest, and the one most severely affected by Tropical Cyclone Winston.” Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 7 highest.
Notwithstanding the inherent risks, the Bank’s commitment to the resource based sectors, in line with Government strategic objectives, remains firm.

Loans to the focus sectors showed a 61% value increase, totalling $58MM for the year, from $36MM in 2015.

Due to the unprecedented scale of destruction and disruption suffered nationwide in late February 2016, $50,000 of available funding was thought best diverted to a single recipient, the Prime Minister’s Tropical Cyclone Winston Appeal Fund.
The non-focus sector makes up 21% of the total portfolio in account numbers and 58% of its value, up 2%, or $7MM on 2015, with Tourism being the top contributor.

Loan approvals and disbursements Based on a positive economic outlook at the outset of 2016, and the Bank’s own creditable performance for 2015, disbursement targets were set that were clearly unachievable post-Winston.
The situation was compounded by market forces that gave Commercial Banks an interest rate advantage over the Bank throughout the year.

As a consequence, loans totalling $19MM were refinanced elsewhere, and some loan approvals not taken up due to various reasons.

The Bank was successful however, in the disbursement of loans totalling $29MM to key sectors Agriculture, Transport, Communication & Storage.
While Commercial Banks have the lion’s share of Agriculture business at 47%, the Bank is within touching distance at 44%.

It continues to dominate the Sugar sector convincingly, with its 96% share.

Levelling the playing field In 2016, the Bank was severely disadvantaged by the fact that its cost of funds was far in excess of those of the Commercial Banks.

While the FDB figure peaked in June, 2016 at 3.01%, the Commercial Banks enjoyed nominal rates of 0.5% to 2.0% over the course of the year.
An application by the Bank for a deposit-taking license, which is where the Commercial Banks now hold the upper hand, will put FDB on an equal footing in this regard.

Welcome relief The Bank was quick to offer a Disaster Rehabilitation Package to hundreds of its customers who suffered potentially ruinous losses primarily from a single weather event: the most powerful and destructive cyclone to strike these islands in recorded history.
An initial assessment found that accounts constituting 23% of the Bank’s portfolio were affected.

Repayment moratoriums, temporary interest freezes and additional loans for rehabilitation assisted these customers as they took the first critical steps on the road to recovery.

Additional assistance through the PM’s Appeal Fund As is traditional, the Bank was able to assist a number of carefully selected worthy causes through its Donations and Sponsorships programme in 2016.
Specific beneficiaries for the year ranged from St John Ambulance to Suva Special School.

Sowing the seeds of a vibrant new growth Organic farming, once a small niche industry, is fast becoming big business globally, as families become ever more health conscious, and increasingly reject the use of chemicals in the production of the fruits and vegetables they consume.

Here in Fiji as anywhere else, farmers have the opportunity to tap into this lucrative and fast expanding sub-sector.
The Bank is developing special new lending policies to encourage the rapid adoption of organic farming methods, while markets await both at home and abroad.

Joining the push to turn the tide Also on the drawing board are new products to promote sustainable energy enterprises, and other initiatives aimed at protecting the environment.

Fiji has a special interest in pushing for the increased employment of green options worldwide, and along with the rest of the world, we need to change.
As the Prime Minister has made crystal clear to world leaders, coastal communities throughout these islands are already feeling the impact of rising sea levels brought about by global warming.

Fiji can be, and should be, part of a global transition to sustainable energy and clean technologies that is gaining momentum by the day, and the Bank stands ready to support Fiji initiatives that see business opportunities here that will generate local jobs and incomes.
Changing lives through education and inspiration The Bank continues to partner with the Education Ministry in empowering new generations of young Fijians with financial skills for life, through its innovative Money $mart and Invest $mart programmes.

It continues also to staunchly support small and medium enterprises, and to invite more loan applications from the sector.
Through its sponsorship of the annual Small & Medium Enterprise Awards, FDB lends encouragement to the entrepreneurial spirit that burns within so many Fijians of all ages, and from all backgrounds.

We do this because we recognise the rewards that bright new business ideas may bring not only to the individuals responsible, but to whole communities, with potential benefits also for Fiji exports and the economy.

I refer you to the article on a case in point, found on page 28 of this publication.
During the course of the year, the Bank worked with the Ministry of Industry, Trade and Tourism on the design and implementation of a Government Grant scheme encouraging entrepreneurial enterprise among young, and vulnerable, Fijians.

An unexpectedly high number of applications caused logistical problems that we are now working to solve, so that we are better prepared in future.
Celebrating Progress Fiji Development Bank2016 Annual Report 8 The new look, new feel Bank Board approval for the 2016 Bank Realignment Scheme has already seen some of the changes that will lead to enhanced portfolio quality and customer satisfaction, through improved service delivery.

Three Regional Managers have been appointed.

The Head Office Corporate, Small & Medium Enterprises, and Agriculture centres have merged as Suva Branch.

A service platform for high value clients is also to be established.
Over the course of coming months, management will work to engender a new sense of purpose and spirit throughout the entire organisation, fixing in place the cornerstones for a new, risk conscious corporate culture.

New compliance checks will be a very visible outward sign of this, and additional to the Bank’s very extensive existing risk control structure.
Work is already underway to promote this new look, new feel Bank, with the simultaneous refurbishing of the Suva Head Office and the Nausori and Rakiraki branches.

Sink or swim for Fiji’s sugar industry While Tourism, one of the two great industries that underpin the Fiji economy, can look to a bright future, the other is about to confront the biggest challenge of its life.

From a scheduled expiry in 2017, the E.U.


preferential price agreement that has enabled our Sugar sector to keep its head above water will no longer be there to support it.

A positive outlook for 2017 Cementing of bonds between Fiji and the international community, and our increasing visibility on the world stage are all factors that have contributed to an impressive and still-increasing rise of investor interest and confidence in our resource rich country.
Government remains committed to the development of resource based sectors, and disaster recovery initiatives applied in those sectors can be seen to be achieving their purpose.

The Bank is firmly of the view therefore, that the outlook for 2017 is positive.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report - - - - a v u S s e h c n a r B i r o s u a N - a k o t a g S - i a k o t u a L - i d a N - a B - i k a r i k a R - a s a b a L - u v a s u v a S - a q a q a e S - i n u e v a T - l u a w u o b a N - s s e n i s u B & s n o i t a e R r e m o t s u C  l t n e m e g a n a M k s i R e s i r p r e t n E  t i n U t n e m e g a n a M t e s s A  s d r o c e R / e c n a r u s n I /    - .
’ / S M I    - - - Celebrating Progress Fiji Development Bank2016 Annual Report 10 BOARD OF DIRECTORS Mr. Robert G. Lyon Chairman (Appointed August 2010 – reappointed 30th September 2013) Robert ‘Bob’ Lyon ranks among the South Pacific’s most experienced and best-regarded business leaders.
During his 43 years with ANZ, twelve of these as Managing Director Pacific, he had responsibility also for ANZ retail operations in Asia.

He has held numerous Board positions both in Fiji and overseas, including his past chairmanship of FINTEL/Kidanet and of Melbourne City Marketing.

He has also served on the Boards of Melbourne Chamber of Commerce, Pacific Economic Bulletin, Australia Papua New Guinea Business Council and Australia Pacific Islands Business Council.
He spent 14 years with the Australia Fiji Business Council, of which he was President for 5 years.

In addition to being chair of the Fiji Development Bank, he currently chairs Foundation for Development Cooperation, Sunergise Group and Kula Fund Investment Board.

Mr Lyon holds a Graduate Diploma in Organisation Development from RMIT University.
He is a Fellow of both the Australian Human Resources Institute and the Australian Institute of Company Directors and a Senior Fellow of the Financial Services Institute of Australasia.

In 2005 he was awarded the 30th Independence Anniversary Commemorative Medal by the PNG Government for services to the Banking industry.

A Chiefly Samoan title is further evidence of the respect afforded him throughout the region.
Mr. Vadivelu Pillay a.k.a Wella Pillay Deputy Chairman (Appointed December 2015) Mr Pillay is the Chief Executive Officer of Gecko Trucking (Fiji) Ltd, Construction Equipment Hire (Lautoka) Ltd and Wairiki Logging Ltd.

Previously with the Sigatoka Branch of Bank of New Zealand he temporarily relocated to New Zealand before returning to Fiji to launch his current business ventures.
In his private capacity Mr Pillay devotes time to community initiatives through TISI Global Sangam, and is a trustee for Friends of Fiji Heart Foundation.

Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 11 Ms. Olivia Mavoa Director (Appointed January 2011 - reappointed 6th January 2014) Ms Mavoa is the body corporate representative for Denarau Villas Ltd and has vast experience in the tourism industry.
From 1994 to 2004 she served as Chief Executive Officer of the Fiji Hotel Association, following which she operated her own tourism and business consultancy for five years.

She is also a past General Manager of Musket Cove Resort and Manager Northern for the Fiji Trade and Investment Board (now Investment Fiji).

Ms Mavoa holds a Postgraduate Diploma in Business Administration from Central Queensland University.
Mr. Inia Naiyaga Director (Appointed December 2015) Mr Naiyaga has a wealth of executive banking experience acquired over the course of 40 years in the field.

Following a 3-year spell with Fiji Sugar Corporation, he launched his banking career in 1974 with a move to ANZ.
In 2014 he retired from his pinnacle position as Deputy Governor of the Reserve Bank of Fiji, having by then served in the same capacity with the Reserve Bank of Tonga, and with RBF as General Manager (International) and Chief Manager Financial Institutions.
Mr Naiyaga is also the Chairman of Fijian Holding’s Trustees Ltd, a member of the University of the South Pacific Finance & Investment Committee, a long-standing full member of the Fiji Institute of Accountants and a Fellow of Fiji Institute of Bankers.

He holds a Bachelor of Arts Degree majoring in Accounting & Economics.

Mr. Rajesh Patel Director (Appointed December 2015) Mr Patel is the Director for R.C.

Manubhai Group of companies and the Director for Nando’s Fiji.
He holds a Diploma in Textile Engineering from M.S.

University.

He is also a Justice of Peace, Board of governance at Xavier College, Vice President at the Oceania Football Conference and President of the Fiji Football Association.
“The cementing of bonds between Fiji and the international community, and our increasing visibility on the world stage are all factors that have contributed to an impressive and still-increasing rise of investor interest and confidence in our resource rich country.” Celebrating Progress Fiji Development Bank2016 Annual Report 12 CORPORATE GOVERNANCE As the body ultimately responsible for all decision- making, the Bank’s Board of Directors recognises the critical importance of good governance at every level.
Its core objective is to effectively represent and promote the interests of shareholders while enhancing the Bank’s performance and long-term value.

Beyond this, the Board believes that a solid governance framework is the key to building and maintaining a corporate culture of trust and transparency.

The Board is guided by a Charter that sets out its function, assigns responsibilities and regulates procedures.
It is the Board that determines the Bank’s management structure, and in the interests of efficiency, it delegates some of its powers to purpose-appointed Committees.

Some of its powers are entrusted to the Chief Executive Officer, who is additionally responsible for ensuring that the Bank’s Executive Management executes its duties in accordance with the Board policy.
Board Composition FDB Board members are appointed by the Minister for Economy (formerly termed Minister for Finance), and operate under the provisions of the FDB Act (Cap 214).

Both the Minister and the Bank will consider it essential to preserve a balance of skills, knowledge, experience and perspective in the composition of the FDB Board.
In carrying out their duties Board members are required to interact with customers across every sector of the Fiji economy, and are expected to have as deep an understanding of these sectors and the economic factors that influence them – both domestic and global – as the customers themselves.

Directors’ Remuneration FDB Directors receive a sitting allowance.

If required to travel beyond their area of residence on Bank business, a travel allowance is also paid.
Directors who serve on Board committees are paid an additional fee as appropriate.

Board Departures In 2016 The 2016 financial year saw some major changes in the FDB Board.

In November 2015, having served three terms as Deputy Chairman, Mr Jitoko Tikolevu resigned in order to take up a position overseas.

Mr Tikolevu was the longest serving member on the Bank’s Board, being first appointed in 2010.

The following month the Board bid farewell also to Mr. Joseva Serulagilagi who has retired.
Like Mr Tikolevu, Mr Serulagilagi was in his third term, having joined the Board in September 2014.

New Board Appointments In 2015 In December 2015 the Minister for Finance (now Minister for Economy) announced three new appointments to the FDB Board, one of them being Mr Inia Naiyaga, a former Deputy Governor of the Reserve Bank of Fiji who brings with him 40 years of Banking experience and expertise.
Mr Wella Pillay CEO of the Gecko Group of Companies was appointed FDB Deputy Chairman, while Mr Rajesh Patel, a Director of R C Manubhai was appointed as a Board member.

The three new Board members join incumbent FDB Chairman Mr Robert Lyon and Director Olivia Mavoa.

They will serve for a period of two years and are eligible for re-appointment by the Minister for a further two terms.

Further information on all Board members is found on pages 10 and 11.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 13 Celebrating Progress Fiji Development Bank2016 Annual Report 14 Mr. Bob Lyon Mr. Wella Pillay Mr. Inia Naiyaga Mr. Rajesh Kumar Patel Ms. Olivia Pareti Date of Appointment Number of terms appointed 29 September 2013 Second term Chairman Deputy Chairman Member Member December 2015 December 2015 December 2015 Member 6 January 2014 First term First Term First Term Second Term The FDB Chairman and Deputy Chairman are appointed by the Minister for Economy.
The Chief Executive Officer is appointed by the Board.

The Chairman takes the lead role in maintaining a high standard of corporate governance, and has the full support of the Deputy Chairman, other Board colleagues and Senior Management.

The two key aspects of the management of the Bank are umbrella governance by the Chairman and Board, and day- to-day management by others in line with Board-approved strategic objectives, corporate plans, overall risk policy and risk management procedures.
The Role of the Chairman The Chairman sets guidelines on the flow of information from Senior Management, and closely monitors it.

This is to ensure that material facts are provided in a timely manner, allowing the Board to make informed and considered decisions.
He also encourages close and mutually supportive relations between the Board and Senior Management in order that information on issues concerning the Bank’s progress, or any shortfall in meeting strategic business objectives or financial targets is routinely shared, together with any other information relevant to the Bank’s operations and performance.
The Role of the Chief Executive Officer The CEO, assisted by Senior Management, makes strategic proposals to the Board and implements its decisions concerning the management and development of the Bank’s business.

He is also required to serve on all Board Committees.

The Role of the Board Secretary The Board Secretary schedules meetings and prepares agendas according to the flow of the Bank’s operations.
He also administers, attends and prepares minutes of Board proceedings and assists the Chairman in ensuring that Board procedures are adhered to.

He also assists the Chairman and the Board in implementing and strengthening corporate governance practices and Celeb r a t i n g P rogress processes, with a view to enhancing long-term shareholder value.
Board Access to Necessary Information and Advice Board papers are distributed to the Directors at least five days before a Board meeting in order that they may fully acquaint themselves with facts and figures relevant to the issues to be discussed prior to the event, and are able to provide informed answers to any questions that the meeting may put to them.

Where an issue is sensitive, it may be tabled at the meeting itself without notice.
Board Meetings The Board meets six times a year and as warranted by particular circumstances, with Board Committee meetings held once per quarter.

The number of Board and Board Committee meetings held over the course of the 2016 financial year are shown in the table below, together with the attendance figures.

A special Board meeting called during the period took the total to 7.
While there were no meetings of the Credit Risk Committee for the year, a total of 20 Credit flying minutes were ratified in full Board meetings.
Board Meeting Board Committee Meeting Audit Human Credit Resource Risk Mr. R.G Lyon Mr. Jitoko Tikolevu Ms. Olivia Mavoa Mr. Josefa Serulagilagi Mr. Wella Pillay Mr. Rajesh Patel Mr. Inia Naiyaga Total number of meeting held in FY 2016 7 3 7 1 4 3 4 7 2 - 1 - - 1 1 2 2 - 2 - - 1 - 2 0 Board Committees Three Board Committees assist the Board in monitoring key assets and operations.

Each of these committees is led by a Director having expertise in the relevant area.

All Board Committees include the CEO.


Board Audit Committee The Board should demand integrity in financial reporting and in the timeliness and balance of corporate disclosures.

The Fiji Development Bank Board is committed to absolute transparency in the auditing and reporting of the Bank’s financial performance, and has established a Board Audit Committee to play a central role in achieving that goal.
As at June 2016, this committee comprised of Mr. Inia Naiyaga, Mr. Robert Lyon and Chair Mr Rajesh Kumar Patel.

Fiji Development Bank2016 Annual Report 15 The main role of the Board Audit Committee is to act on behalf of the Board in overseeing all material aspects of FDB financial reporting and control audit functions, barring those for which another standing committee of the Board bears specific responsibility.
Additionally, this committee is required to focus on the qualitative aspects of financial reporting to the Government, and on the Bank’s processes for the management of business/financial risk, and compliance with legal, ethical and regulatory requirements.

Human Resource Committee The remuneration of directors, executives and employees should be transparent, fair and reasonable.
The principle function of the Human Resource Committee is to oversee Bank strategies and policies relating to organisational structure, culture, employee performance and development, succession planning, growth and remuneration.

As at June 2016, the committee comprised of Mr Rajesh Patel, Mr Robert Lyon and Chair Ms Olivia Mavoa.

Performance Management Formal procedures are in place to evaluate the performance of the Bank’s employees.
This process is managed by the Manager Human Resource in liaison with the Chief Executive Officer.

Evaluations of the Chief Executive Officer and the senior management team are based on a more involved set of criteria, including the performance of the business, the accomplishment of long term strategic objectives and other non-quantitative objectives.

During the financial year, performance evaluations of the Chief Executive Officer and senior management team were completed as planned.
Credit Risk Subcommittee Directors should have a sound understanding of the key risks faced by the business.

The Board should regularly verify that the entity has appropriate processes that identify and manage potential and relevant risk.

The Credit Risk Committee assists the Board in the management of the credit risk policy and strategy of the Bank in achieving its corporate goals.
The main role of this committee is to review and recommend credit risk management policies, including portfolio concentrations, lending limits, economic risk capital and any off-balance sheet activities (guarantees and indemnities) outside the normal course of business for Board approval.

As at June 2016, this committee comprised of Mr Inia Nayaga, Mr Wella Pillay and Chair Mr Robert Lyon.
Due to the urgency of decisions on some critical loans requiring Board intervention, instead of calling a meeting, flying papers are made.

These papers are then ratified in the next full Board meeting.

Board meetings are scheduled every second month.


Executive Management The Board delegates aspects of its management function to the Executive Management, and gives clear directions as to the powers of the Executive Management as to the matters that must be approved by the Board before decisions are made on behalf of the Bank.
The overriding aim of Executive Management is to achieve the Government goal of maximising shareholder value without detriment to the interests of other stakeholders, and it operates within the boundaries and policy framework laid down by the Board.

While the Board is responsible for ensuring that the principles of corporate governance are adhered to and enforced, the onus of implementation lies with Executive Management.
As at June 2016, the Bank’s Executive Management comprised of General Manager Relationship and Sales, General Manager Business Risk Services and General Manager Finance and Administration.

General Manager Human Resource and Training was part of the Bank’s Executive team until March 2016 when he departed the Bank for greener pastures.

Audit and Regulatory Compliance The Board should ensure the quality and independence of the external and internal audit process.
Internal Audit The Bank has an independent internal audit division headed by the Manager Audit, who reports to the Board through the Board Audit Committee.

The committee reviews and may approve the internal auditor’s findings and recommendations concerning the Bank’s internal financial, operational, compliance and information technology controls.
All such findings and recommendations for 2016 were presented to the Audit Committee and additionally discussed at an exit meeting attended by the CEO, line General Manager and Manager Audit.

External Audit In accordance with the Financial Management Act (FMA) of 2004 under the Fiji Development Bank Act (Cap 214), and subsequent amendment promulgation (No 21) of 2007, the Bank’s financials are independently audited annually by the Auditor General.
The external audit provides an evaluation of the Bank’s operation, governance, internal control and financial reporting.

This is an independent and unbiased assessment of the Bank’s governance and financial health.

Reserve Bank of Fiji Prudential Supervision The Bank complies fully with the Banking and Supervision Guideline of the Reserve Bank of Fiji as part of RBF prudential supervision requirements.
Reports are submitted to RBF on a monthly and quarterly basis, ensuring the transparency of information to the public.

Internal Control and Risk Management A sound system of internal control contributes to safeguarding the stakeholder’s investment and the Bank’s assets.

Celebrating Progress Fiji Development Bank2016 Annual Report 16 The Bank ensures that effective internal and financial controls are in place and safeguarding the Bank from financial risks.
Responsibility for the Bank’s internal control and risk management systems lies with the Board and Senior Management.
The Board takes the following factors into consideration when deliberating on its internal control and risk management policies: • The nature and extent of the risks faced by the Bank • The extent and categories of risk which it regards as acceptable for the Bank to bear • The likelihood of the risks concerned materialising • The Bank’s ability to reduce the incidence and impact on the Bank of risks that do materialise • The cost of operating particular controls relative to the benefit thereby obtained in the management of related risks.
The Bank recognises that professional development is essential to both its own success and that of its individual employees, and so schedules staff training exercises in-house, locally and internationally on an ongoing basis.

The Fiji National University and the Government of India are among those who support us in these endeavors.

Our customers Customer satisfaction is an uppermost priority for the Bank as we strive to establish life-long customer relationships.
Our products are some of the most flexible available.

Close contact with our customers is maintained throughout Fiji, including the remote islands, by FDB Relationship and Sales Officers.

Their visits enable them to gain a full understanding of grass roots customer needs.

Stakeholder Interests The Board respects the interests of all stakeholders taking into account the Bank’s fundamental purpose.
The Bank offers customers a Complaints Management process whereby they can lodge any concerns directly with the Chief Executive Officer and have them promptly addressed.

Complaints are normally resolved within five working days.

Our employees As with any other organisation of its size, the Bank routinely experiences a degree of staff turnover, and manages occasional staff losses without difficulty through good forward planning.
At the same time, it seeks to retain quality staff through the provision of a pleasant working environment, appropriate compensation and clear opportunities for career advancement.

Team spirit is encouraged within a Bank culture promoting inclusivity.

Customer confidentiality is maintained at all times.

Community Corporate social responsibility is embedded in FDB core values, and guides us in the conduct of our business.

It is a key factor in the development and delivery of our products and services.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 17 Celebrating Progress Fiji Development Bank2016 Annual Report 18 EXECUTIVE MANAGEMENT Mr Deve Toganivalu Chief Executive Officer Mr Toganivalu holds a Bachelor of Commerce from Australia’s James Cook University.

He has more than 30 years of Banking experience, having spent twelve years with the Bank of New Zealand prior to joining Fiji Development Bank in 1987.
He has held numerous managerial positions with FDB including General Manager Operations, General Manager Agriculture and Development Finance, General Manager New Business and General Manager Business Risk Services.

Mr Toganivalu is also a Board member of Fiji Sugar Corporation.

Mr Toganivalu is also a member of the Fiji Institute of Bankers.
Mr Nafitalai Cakacaka General Manager Business Risk Services Mr Cakacaka holds a Bachelor of Arts in Business Management from the University of the South Pacific and a certificate in Master level from the USA’s Pacific Coast Banking School.

Prior to assuming his current position, he served as FDB Manager Risk (Corporate).

Mr Cakacaka is also a member of the Fiji Institute of Bankers.
Mr Tevita Madigibuli General Manager Relationship & Sales Mr Madigibuli holds a Masters in Business Administration, a Bachelor of Arts in Business Studies and a Diploma in Tropical Agriculture from the University of the South Pacific.

Prior to his current appointment, he headed the Bank’s Asset Management Unit.
Mr Saiyad Hussain General Manager Finance & Administration Mr Hussain is a chartered accountant and holds a Postgraduate Diploma in Financial Management, a Bachelor of Arts Degree in Accounting and Financial Management and a Diploma in Economics from the University of the South Pacific.

Prior to taking up his current position, he served as FDB Manager Finance.
Mr Uraia Rasake General Manager Human Resource & Training Mr Rasake is a certified Starwood Leadership, Service Culture and Brand Trainer, a qualification attained through Australia’s Starwood Cares Leadership University.

He also holds a Human Resource Advance Certificate from the Starwood Cares Leadership University USA, and an Occupational Health & Safety Certificate from Australia’s Ballarat University.
Prior to taking up this FDB appointment, he was Regional (Pacific) Human Resource Director with Warwick International Hotels and is an earlier Director of Human Resources at Sheraton and Westin Resorts, Fiji.

*Mr Rasake left us in March 2016 to concentrate on his consultancy business.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 19 FINANCIAL YEAR IN REVIEW Overview The Bank continues to improve its financial performance despite intense competition in the market and the fallout from Tropical Cyclone Winston, which struck in the third quarter of the financial year.

The cyclone had severe repercussions for most of the Bank’s Western and Northern division customers and we were obliged to come to their assistance.
Despite this, FDB recorded a net profit of $7.31M for 2016, an increase of 18.98% on the previous financial year.

This was achieved through the stringent cost control measures set by Management and significant success in the area of bad debt recovery.
($MM) 8 7 6 5 4 3 2 1 0 Net Profit 7.31 6.14 4.32 3.82 3.48 2.36 2.50 2.86 4.89 4.13 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 The Bank’s total operating income for 2016 was $28.17MM, an increase of 9% compared to the same period the previous year, while its total expenses, including allowances for impaired assets, amounted to $20.86MM, an increase of 5.88%.
Income Statement ($MM) Net Interest income Other operating income Operating Income Operating Expenses Profit before Allowances Total Allowances Net Profit Celebrating Progress Fiji Development Bank2016 Annual Report 20 Net Interest Income The Bank’s net interest income reduced by 8.14% in 2016 due to a decrease in market- weighted average interest rates, which led to a reduction of Bank’s lending interest rate.
The Bank’s average interest-earning assets, however, showed growth.

Other Operating Income Other operating income increased by a noteworthy 55.29%, for 2016.

Bad debt recoveries were up by $3.59MM, largely attributable to collection from a single major customer.

Rental income rose by $0.38MM as vacant properties were tenanted.

A third significant contribution came from fees and charges which increased by $0.32MM due to volume growth achieved in the Bank’s loans and advances portfolios.
Operating Expenses Operating expenses grew by 3.23%, compared to 2015.

These were mainly due to an increase in other expenses by $0.66MM of this resulted from impairment loss, primarily attributable to the non-renewal of land leases in the Western Division.

Depreciation and amortisation increases accounted for a further $0.10MM of the total, as new Bank assets were purchased.
($MM) Interest Income and Interest Cost 50 45 40 35 30 25 20 15 10 5 0 45.03 39.04 39.24 34.73 32.90 30.36 Interest Income (MM) Borrowing Expenses (MM) 27.33 25.54 24.24 23.85 21.16 20.50 18.20 16.90 14.67 10.95 8.67 6.33 6.53 5.38 2007 2008 2009 2010 2011 2012 2013 2014 2015 2016 ($MM) 14 Total Operating Expenses Total Operating Expenses (MM) Staff Cost (MM) Allowance for Credit Impairment Total credit impairment charged relating to lending assets showed a slight increase of $0.77MM over the year due to many accounts adversely affected by Tropical Cyclone Winston.
2008 2010 2012 2014 2016 Assets Structure Balance Sheet Review ($MM) 2016 2015 2014 2013 2012 56.549 49.579 50.040 42.200 53.622 2.035 2.035 2.035 2.070 2011 44.733 .070 2010 21.513 0.070 2.035 294.845 3.471 - 291.629 2.529 - 265.205 276.946 258.662 272.142 325.211 1.911 1.777 2.754 - Liquid Assets Investments Net loans and advances Receivables Land Held for Resale Fixed Assets including intangibles Total Assets Liabilities Accounts payable and accruals Short term borrowings Other Liabilities Bond- held to maturity Total Liabilities Total Equity Total Liabilities and Equity Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report Liabilities Structure Growth of 1.42%, was seen in the Bank’s total liabilities for 2016.
A favourable growth in the Bank’s total loan portfolio was noted, collaborating with an increase in borrowings, while an increase of $3.08MM in short-term borrowings was recorded.
Borrowing Portfolio/Average Cost of Funds 6.92% 5.62% 6.59% 5.37% 6.08% 4.45% Long Term (Bold-held-to maturity) Short Term (Term Deposit & Promissory Notes) Weighted Average Cost of Funds Other Finance and Adminstration Activites 1) Properties Administration Department The Bank’s Properties Department employs innovative skills and technology to provide a safe and comfortable environment for its staff, tenants and customers.
During 2016 the Department managed the planning, programming, design and implementation of new construction and renovation projects adding value to the Bank.

A key project commenced in 2016 and currently in progress is a major facelift for the Bank’s Head Office, to reflect and promote a new corporate image.

In addition to the refurbishing of the building’s exterior, the work includes improvements to staff recreational facilities and storage areas, and a re-designed executive garage.
Related renovation work on the Bank’s Nausori and Rakiraki branches was also initiated during the year.

Over the course of 2016, various feasibility analyses were conducted as part of the Bank’s green energy drive.

Subsequently, Seaqaqa branch was selected to initiate a new project.

Other branches will later follow Seaqaqa’s lead which is towards implementing solar panels for electricity supply.
2) ICT Operation The ICT Department is an important support arm of the Bank, tasked with responsibility for the management and administration of information technology systems critical to every aspect of the Bank’s operations and the attainment of its strategic objectives.

The Department supports the core business of the Bank by providing employees with tools to improve their effectiveness and productivity within a conducive and innovative work environment.
The year saw the commissioning of several key infrastructure capital projects initiated in 2015.

• Virtualisation of the Bank’s Data Centre.

A majority of the mission-critical business applications including Financial GL, BMS and the HRMS/Payroll System were migrated to the VMware virtualised environment.

• Offsite Disaster Recovery.

The Bank’s offsite DR is now real-time co-location and fully virtualised providing the Bank a truly redundant failover option.

• Wireless Networks.


The Department is to install wireless networks at Head Office and all branches, bringing an end to legacy copper cabling expansion.

• Enhancing Storage Capacity.

Additional SAN volumes will boost storage capacity.

• A major cable rehabilitation project involving the installation of fibre-optic backbones and new switches is underway at Head Office to address network performance, bottlenecks and latency.

Similar upgrades within the branches will follow.


• The Bank collaborated with Home Finance Company on a reciprocal BCP arrangement MOU.

In addressing business continuity at the gateway level the Bank implemented multiple/redundant ISP connectivity to minimize loss due to outage of external communication.

As part of its system and software development programme, the Department is working on replacing the current Banking system with an advanced system.
This is expected to be completed within a two-year time frame.

The project team will first conduct site visits to evaluate similar systems in order to establish a benchmark.

The Department continues to enjoy the collaboration of its Finance and Policy and Procedures department colleagues in the testing of various module development and enhancement equipment.

This is of value in ensuring that change control requests are documented thoroughly and that turnaround time is reduced.
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6 1 0 2 e n u J 0 3 t a s a k n a B t n e m p o e v e D l Celebrating Progress Fiji Development Bank2016 Annual Report 24 OPERATIONAL REVIEW Overview In the past three years, national economic growth has averaged 4.7%.

According to the Reserve Bank of Fiji, this growth is supported by accommodative fiscal and monetary policies, improved investor confidence, an upward credit cycle and the re-engagement of development partners following Fiji’s return to parliamentary democracy.
A growth forecast for 2016 of 3.5% was revised to 2.4% due to the devastating impact of Tropical Cyclones Winston and Zena in February and April 2016.

Sectors most heavily affected by the two cyclones were Agriculture – Sugarcane and Forestry in particular – Manufacturing, Electricity and Water.

As a major financier of agricultural projects in the country, Fiji Development Bank stepped in immediately to offer various forms of financial assistance to those of its clients affected.
This took the form of repayment moratoriums, temporary interest freezes and further loans for rehabilitation.

An initial assessment found that 923 accounts representing 23% of the Bank’s portfolio were affected, and an estimated cost of $4MM incurred.

The Bank’s portfolio was projected to grow by 5.7% during the 2016 financial year, with a disbursement target of $120MM.

In the circumstances it managed to disburse only $63MM however, representing 53% of its target, and to grow its portfolio by just 2%.
The Bank’s Performing Loan Portfolio increased from $303MM in 2015 to $312MM for 2016, representing a 3% increase.

Trouble & Impaired Assets decreased by 1%, from $64MM to $63MM.

There was a marked increase from 3,527 Performing Loan accounts in 2015 to 4,002 for 2016, while the number of Trouble & Impaired Assets accounts fell significantly, from 661 to 606.
With the ongoing implementation of post-disaster rehabilitation programmes and Government’s continued focus on the development of resource based sectors, the Bank sees the outlook for 2017 as positive.

Review Of Lending Activity Portfolio The Bank’s total portfolio at the close of the 2016 financial year was up by 2% in value and 10% in account numbers by comparison to 2015.

The main contributor to the increase in account numbers was Agriculture.
The Wholesale, Retail, and Hotels & Restaurants sectors accounted for the slight increase in value.

A notable increase in both account numbers and value was seen from the Transport, Communication & Storage sector during the year, largely due to the approval of 298 Taxi Business Loans valued at $5MM.

This can be attributed to the Bank having a competitive edge in this field, with its minimal interest rate and superior service delivery.
Focus sectors accounted for 79% by number of the FDB portfolio for 2016, and 42% by value.

The highest contribution came from Agriculture, followed by Transport, Communication & Storage.

Despite the inherent risks, the Bank’s commitment to its developmental role in assisting the resource based Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 25 sectors and supporting related strategic objectives of Government remains firm.
This was evident from loans totalling $58MM to the focus sector for 2016, an increase by 61% on the 2015 figure of $36MM.

The non-focus sector now makes up 21% of the total portfolio in account numbers and 58% of its value, an increase of 2%, or $7MM, on 2015.

A Notable contribution to the increase in non-focus sector is from the Tourism portfolio with majority of the projects on progressive funding from 2015 FY loan approval.
While recognising its obligation to support development within the non-focus sector, the Bank is acutely aware of the balancing act it has to play in order to remain sustainable.

Loan Approvals During the year the Bank approved total lending of $120MM against a target of $167MM.

The highest contribution of $39MM came from the Wholesale, Retail, and Hotels & Restaurants sectors.

Hotel funding was especially prominent.


Agriculture accounted for $24MM, with Building & Construction and Transport, Communication & Storage each contributing $12MM.

Other sectors together accounted for a further $33MM.

32% 28% 10% 10% 20% Wholesale, Retail, and Hotels & Restaurants Agriculture Building & Construction Transport, Communication & Storage Others Loan Disbursement The Bank had a projected $120MM disbursement target for 2016, up 26% on the 2015 figure of $95MM.
The increase was based on 2015 performance and the positive economic outlook for 2016.

Actual loan disbursement for 2016 was only $63MM, a sharp decrease of 34% on 2015, primarily due to the impact of Tropical Cyclone Winston.

A second significant factor was the high liquidity situation in the market, which enabled Commercial Banks to offer relatively low interest rates to potential and existing FDB clients.
Loans totalling $19MM were refinanced by our commercial competitors, while a number of FDB loan approvals were not taken up.

The Bank’s policy guideline of lending up to 15% of its paid-up capital was a limitation for corporate clients wishing to source more significant loan funds.

On a positive note, the Bank’s resolute efforts saw the successful disbursement of loans to key economic sectors such as Agriculture, at $20MM, and Transport, Communication & Storage at $9MM.
14% 14% 7% 30% 35% Wholesale, Retail, and Hotels & Restaurants Agriculture Building & Construction Transport, Communication & Storage Others Portfolio Management During the year, the Relationship and Sales team continued its task of implementing, disbursing and monitoring all loans approved by the appropriate discretionary levels.

The team effectively addressed arrears through various recovery strategies, including working with clients to restructure loans.
283 accounts valued at $7MM were migrated from Performing Loan Portfolio (PLP) accounts to Trouble & Impaired Assets (TIA) accounts, while 100 accounts valued at $2MM made the reverse transition.

The collection rate during the year for PLP accounts averaged 80% against a target of 85%, while the collection rate for TIA accounts averaged 19% against a target of 50%.
A significant decline experienced in February and March 2016 was attributable to a number of accounts being approved for repayment moratoriums, in consideration of damage incurred during Tropical Cyclone Winston.

A sharper decline seen in June resulted from non-payment by a major corporate client, whose monthly repayment contributed to 58% of the Bank’s total monthly dues.
Collection Rate for PLP and TIA accounts – 2016 FY 100 92% 89% 89% 89% 90% 86% 80 60 40 20 0 83% 82% 81% 64% 65% PLP TIA 38% 27% 28% 25% 19% 19% 23% 20% 19% 14% 14% 14% 9% 5 1 ul- J 5 1 - g u A 5 1 - p e S 5 1 - t c O 5 1 - v o N 5 1 - c e D 6 1 - n a J 6 1 - b e F 6 1 r- a M 6 1 r- p A 6 1 - y a M 6 1 - n u J 100 80 60 40 20 0 Celebrating Progress Fiji Development Bank2016 Annual Report 26 Disaster Rehabilitation Package On 23 February 2016, in response to the Reserve Bank of Fiji’s Natural Disaster Rehabilitation Scheme, the Bank activated its Disaster Rehabilitation Package (DRP).
It’s primarily purpose is to support Government rehabilitation and reconstruction initiatives by assisting in the post-cyclone recovery of existing FDB customers, and offers repayment moratoriums, interest rate assistance, and rehabilitation loans.

Availability is expected to continue into the first half of the New Year.
Market Share At the end of June 2016 the total market share of the Bank’s portfolio in relation to total loans and lease advances outstanding by all Commercial Banks and other Licensed Credit Institutions stood at 6%.

The Bank continues to prioritise Agriculture in its lending activity.

While Commercial Banks hold the highest share in Agriculture at 47%, FDB runs a close second with 44%.

The Bank continues to dominate the Sugarcane portfolio at 96%.
Strengthening Outreach and Accessibility The Bank has its Head Office in Suva and eleven strategically located branch offices.

These are at Nausori, Rakiraki, Ba, Lautoka, Nadi, Sigatoka, Savusavu, and Labasa.

Three sub-branches at Nabouwalu, Taveuni & Seaqaqa complete a nationwide network created to deliver FDB services to towns and communities throughout Fiji’s three largest islands.
Bank staff conduct regular client visits and marketing exercises in and around areas served by their workplaces, including outer islands.

Visitations by Management to the Northern and Western Branches are another key element of the Bank’s outreach efforts.

Their purpose is to update local staff on the Bank’s strategic direction, and to make first hand assessments of existing and prospective progressive funding projects in those divisions.
Realignment of Relationship and Sales On 30 June 2016, the Board approved the 2016 Bank Realignment scheme in line with the agreed 2015-2017 Strategic Plan.

The scheme’s end objective is to enhance portfolio quality and customer satisfaction through improved service delivery.

Changes within the Relationship & Sales Division include the appointment of three Regional Managers tasked with driving sales, growing business and efficiently managing loan portfolios.
Other changes include the merging of the Head Office Corporate, Small & Medium Enterprises and Agriculture centers into Suva Branch.

These moves are seen as essential in addressing changing customer needs and boosting the Bank’s competitiveness.

Going Forward The Bank has identified a need to create a dynamic and empowering team concept in the coming year that will take the Bank forward, with the realignment process at the heart of it.
With the new changes, the Bank will continue to support Government strategies for the development of resource base commodities through sustainable lending.

This sector remains a critical contributor to the Fiji economy, providing employment for thousands of Fijians nationwide.

Value chain financing will become a more conspicuous component of the drive towards SME lending and increased utilisation of agricultural land aimed at boosting production for domestic and export markets.
The Bank is also developing new lending policies specifically designed to encourage and support organic farming.

While in its infancy in Fiji, elsewhere in the world this niche sector has become big business.

It has huge potential for farmers able to adapt to sustainable and environmentally friendly farming methods.

Local and overseas market demand for healthy, organically-grown produce is very much evident, and on the rise.
New lending policies to grow other sector portfolios – tourism, sustainable energy and climate change mitigation and adaptation – will set new standards and dovetail with global benchmarks.

The Bank’s commitment to these sectors supports Government strategies for the creation of jobs, environment protection and enhanced foreign exchange performance.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 27 Celebrating Progress 2016 Financial Year Data Based On RBF ClassificationSector/RBF MajorApprovals No.Value% by No.% by ValueFocus1,346 58,126,978 88.0%48.3%Agriculture82524,293,874 54.0%20.2%Electricity, Gas & Water377,900 0.2%0.1%Manufacturing1516,961,791 1.0%14.1%Mining and Quarrying3790,922 0.2%0.7%Transport, Communication & Storage36411,806,555 23.8%9.8%Professional & Business Services19720,546 1.2%0.6%Wholesale, Retail, Hotel & Restaurants1173,475,390 7.7%2.9%Non-Focus183 62,331,737 12.0%51.7%Building & Construction1212,740,105 0.8%10.6%Non- Bank Financial Institutions00 0.0%0.0%Others545,205,167 3.5%4.3%Private Individuals105781,985 6.9%0.6%Real Estate98,079,588 0.6%6.7%Professional & Business Services00 0.0%0.0%Wholesale, Retail, Hotels & Restaurants335,524,892 0.2%29.5%Total1,529120,458,714 Lending Activities During The YearSector/RBF MajorPortfolio No.Value% by No.% by ValueFocus3,644158,706,19479.08%42.26%Agriculture2,40972,744,28252.28%19.37%Electricity, Gas & Water1719,759,0320.37%5.26%Manufacturing4120,935,8880.89%5.58%Mining and Quarrying6557,7150.13%0.15%Professional & Business Services822,275,3351.78%0.61%Transport, Communication & Storage67931,897,89814.74%8.49%Wholesale, Retail, Hotel & Restaurants41010,536,0448.90%2.81%Mining & Quarrying Non-Focus964216,806,49520.92%57.74%Building & Construction4454,809,4290.95%14.60%Non- Bank Financial Institutions12,047,5270.02%0.55%Others1285,027,9502.78%1.34%Private Individuals70720,912,32115.34%5.57%Professional & Business Services000.00%0.00%Public Enterprises116,680,6110.02%4.44%Real Estate7070,397,8941.52%18.75%Wholesale, Retail, Hotels & Restaurants1346,930,7630.28%12.50%Total4,608375,512,690 Fiji Development Bank2016 Annual Report 28 SHELVING A PhD TO EXPORT KAVA – THE ARUNESH CHAND STORY When Arunesh Asis Chand left Fiji for Tuvalu and Kiribati to do his thesis, he had no idea the 2013 trip would inspire a family business venture that would swiftly go from strength to strength.
Today Arunesh is the managing director of A1 Kava & Spice Dealer, a company based in Bulileka, Labasa, exporting premium-quality kava and spices.

Kava of course, botanical name piper methysicum, is a relaxant and social drink widely used throughout the Pacific.

“I travelled to Kiribati and Tuvalu to do my thesis on climate change, that is analysing Climate Change Vulnerable atoll nations, for my PhD.
Whilst studying I found that the islanders drank a lot of kava, and that all this kava was imported because they couldn’t grow it.

So I thought, this is a business worth exploring, since Fiji has an abundance of kava,” Arunesh said.

His first experimental consignment was sent to Tuvalu, but by the time it arrived, the goods had been damaged.

“It was a mess as I didn’t know anything about exporting.
The kava wasn’t vacuum-packed and I was totally clueless about the proper process.” Armed with a better understanding of what was required he sent his second consignment to Kiribati.

Encouraged by worthwhile returns from his exports, Arunesh invested in a permanent warehouse and office.

In August 2014, he approached his local FDB branch in Labasa for a loan to purchase kava stocks for export (along with spices) to Tuvalu, Kiribati and the U.S.
He then searched for more overseas markets, and in April 2015 A1 Kava & Spice won a contract to supply kava from Fiji to Royal Global Marketing & Distributors Ltd of New Zealand.

On the spices side, the Labasa company’s two lead products are turmeric, or haldi, sourced from local farmers, and masala, a blend of ground spices that commonly features in Northern Indian and other South Asian cuisines.

Ingredients include black peppercorns, mace, cinnamon, cloves, brown and green cardamom and nutmeg.
“We have grown very quickly and our products are making a name for themselves in the market.

We already have plans to build a two-storey factory- warehouse with bulk storage space for seasonal raw materials, at a cost of around $25MM.

Government is assisting us in this and we are now in talks with Fiji Development Bank for additional finances for this project.
“The first floor will be taken up by our sister company Sumati Apparels (Fiji) Ltd, for use as a garment factory employing thirty or more full-time workers.

The ground floor will be entirely for the processing of kava and spices.” Arunesh highlights that the vision of the company is not only to supply its customers with the best product, but also to maximise returns to the growers.

“We buy direct from farmers around Vanua Levu at a higher price than middlemen pay.
Our aim is to increase our export earnings while improving the lives of our farmers and providing others in our community with steady jobs and incomes.” Arunesh says the secret to the company’s success is that they have the best products, the friendliest staff and the finest reputation with their customer base.

He has learned firsthand what it takes to produce and export a product and is now reaping the rewards of an award-winning business.
A1 Kava & Spice came top of its category in the 2015 FDB Small & Medium Enterprise Awards.

Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 29 HUMAN RESOURCE AND TRAINING The Bank continues to invest in staff development both professional and personal, in order to position both the individual and the Bank for future success.
Skills and character development activities are aligned to three priorities: the building of leadership capabilities and development of future leaders; the fostering of an environment supporting sustainable performance; and the promotion of continual professional and personal development for every individual on our team, from those on the bottom rung of the ladder to others nearing the very top.
HUMAN RESOURCE & TRAINING STATISTICS Employee Training 2012/2013 2013/2014 2014/2015 2015/2016 Year (31st December) Banking & Finance Leadership (External) Overseas Programs FDB Sponsored Students, ie; USP 72 51 2 17 68 107 16 14 77 40 9 17 8 26 23 4 Source: FDB Training Department STAFF STATS Total Staff Average Years of Service Annual Staff Turnover (%) Vacancy Rate Retention Rate (%) 2013 189 FINANCIAL YEAR 2014 177 2015 179 2016 171 13.72 years 12.55 years 14.99 years 13.83 years 8% 11% 96% 15% 13% 93% 6% 11% 101% 7.0 % 19% 94 % Source: FDB HR Department THE 2015 STAFF SURVEY In November 2015 the Bank conducted a staff survey aimed at giving management a detailed understanding of how each of its employees feels about the Bank and their immediate working environment, and how effectively they are able to engage with their managers and peers.
Celebrating Progress Fiji Development Bank2016 Annual Report 30 Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 31 RISK MANAGEMENT Risk Management Profile Our Business Risk Services division ensures that all necessary assessments are completed and risk factors identified during the loan appraisal cycle.

The assessment assists in risk mitigation and helps prevent or minimise the impact of any undesirable event that may occur.
Our Asset Management Unit is responsible for seeing that any necessary recovery operations are effective, and that a high rate of success is attained.

In some cases recovery is achieved even after an account has moved into the bad debt book.

With the exception of one major account, the efforts of the Unit have seen a decrease in non-performing portfolios to below the 10% target.

Risk Conscious Culture Creation Under a new strategic plan, a fresh challenge has emerged.
It is to create a risk conscious culture across the Bank through all its processes, systems and practices.

This initiative is reflected in most of the strategic objectives set out under the various thematic areas in the plan, and will be evident in new compliance checks.

Corporate culture is one of the key driving forces in any successful institution today, and this dramatic new initiative is a major milestone for FDB.
Credit Risk Management The Credit Risk function is pivotal to the Bank’s entire operation.

To ensure independence in the Bank’s credit assessment process, separation is therefore maintained between the Sales team, which is spread across all branch offices, and the Credit Risk function, which is centralised, its team of six reporting direct to the General Manager Risk.
The second stream of assessment by the Credit Risk team provides a buffer against common errors and oversights from a risk standpoint, so that project and Bank risk is minimised.

The General Manager Business Risk has overall control of the Bank’s risk management systems and process, as delegated by the Executive Management Committee, and monitors the performance of the delegated approval and control authority.
The function includes the reviewing of relevant policies and guidelines in meeting the expectations without compromising standards and practices.

The next organisational layer comprises the implementing arms of subcommittees including the Credit Risk Board Committee, which consolidates the credit position and plans, directs and approves the Bank’s risk appetite in focus and non-focus sectors.
Oversight Regular internal oversight compliance checks are conducted to ensure that the Bank observes its own policies and guidelines.

The hindsight team carries out regular reviews based on samples and spot checks for compliance purposes.

The Bank responds to the external requirement under the Reserve Bank of Fiji’s (RBF) banking supervision policies as part of its governance and management of portfolios.
These supervision policies are guidelines for best practices in the financial sector and are at par with international supervisory standards.

FDB was enacted through the Fiji Development Act (Cap 214) of 1967 and is primarily accountable to the Minister for Economy.

Given the vastness of the Banking environment, the Bank adheres to many other statutory and ethical policies in its normal course of business.
These include Fiji Revenue and Customs Authority policies on requirements for business, the Consumer Credit Act, to remove any information gaps between a customer and the Bank regarding the lending activity, and the reporting of suspicious transactions requirement of the Financial Intelligence Unit of the Reserve Bank of Fiji.

By encompassing these policies in our day- to-day business, the Bank works in the best interests of its customers and remains a credible financial institution.
Asset Quality Review In addition to the established oversight systems, in May 2015 the Board commissioned an Australian based company (Credit Review Associates) to review the Bank’s Credit systems and processors.

The objective was to ascertain compliance with internationally recognised industry practices and to identify any shortcomings of the system tools.
The consultant was able to confirm that the Client Quality Rating and Credit Risk Rating system used for evaluating credit risk in the FDB loan portfolio follows international practice.

There was, however, room for improvement in the application of the system at account level.

Policy Directives On 1 November 2013, at the direction of The Reserve Bank of Fiji, FDB reduced rates for RBF facilities facilitated by the Bank, e.g.
Import Substitution and Export Finance Facility Celebrating Progress Fiji Development Bank2016 Annual Report 32 (ISEFF), Sustainable Energy Financing Project (funded through ISEFF) and Natural Disaster Rehabilitation Facility (NDRF).

Clients will continue to reap the benefits of the lower rates until at least the year 2018.
The Bank was heavily involved in the design and implementation of the Government grant scheme with the Ministry of Trade and Tourism found under the Community & Environment thematic area six of our strategic plan.

Its purpose is to promote young and new entrepreneurship including among the more vulnerable sections of society, offering individuals who struggle to survive an opportunity to greatly improve their situation.
An overwhelming number of applications presented a major challenge to our human and monetary resources as we sought to balance promised assistance with the continuing delivery of quality service to existing customers.

Based on the experience, the Bank will work with the Ministry on the improvement and streamlining of the processors for better and cost effective outcome for future programmes.
Competition and Competitive Strategies Today’s Banking and finance industry is fiercely competitive, with six Commercial Banks and various other credit institutions besides FDB constantly gunning for a greater market share.

Other entities have recently succeeded in tapping into the Agriculture and SME sectors previously dominated by FDB.

The Bank, however, regards competition as healthy, fair and stimulating.
It provides an impetus to further enhance our services and seek additional and new markets, especially in the unbanked sector.

The FDB tradition of working closely with Government and other interested parties to understand the issues and develop financial solutions to promote growth and development that raises living standards for the people of Fiji will continue.

The Bank also continues to specialise in finance for the Agriculture and SME sectors.
These focused sectors attract subsidised rates for loans under $50,000 and are vital to the national economy.

In addition to generating valuable export income, they provide precious livelihoods for individuals and families throughout rural Fiji.

FDB’s prime competitive strength lies in the quality of its customer service, delivered by staff proud to serve towns and communities from the bustling centres to remote outer islands.
Its innovative products address core customer needs and the Bank’s lending officers have an expert understanding of what these are.

Taken as a package FDB has a winning combination and this is the key to its continuing success.

Liquidity Risk At the close of December 2015, the Fiji economy liquidity level stood at $488MM and it fluctuated very little over the six months to mid-2016.

At the end of June 2016, it stood at $499MM.


This indicates that interest rates on loans and deposits remained steady during this period with high levels of competition from the different financial institutions.

Interest Rate Risk The Bank’s interest rates are arrived at through a process of calculations that includes taking the cost of funds to the Bank into account.

Finding a balance between low interest rates and a high cost of funds is a challenging task.
The cost of funds for the Bank in 2016 was high; in July 2016, 2.62% compared to 2.48% in July 2015.

In June 2016, it soared to 3.01%.

The Bank’s cost of funds was far higher than that of Commercial Bank competitors having a deposit-taking licence advantage, and paying nominal rates of just 0.5% to 2.0%.

FDB is currently applying for a deposit- taking license in order to similarly cushion the cost of funds and allow the Bank to provide affordable products to its customers.
External factors affecting the cost of funds such as economic conditions, the political situation and RBF policies are beyond the Bank’s control.

Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 33 Other Risk Factors The Fiji political environment is very stable currently, and providing a good foundation for investment.

Relationships with overseas countries are flourishing, and, together with locals, foreign investors are showing confidence in Fiji.
International investment is pouring into some sectors.

Reserve Bank of Fiji had estimated the Fiji economy to grow by 3.5% in 2016.

This figure was revised downwards to 2.4% only after the devastation caused by Tropical Cyclone Winston, and later flooding.

2017 will see lower than expected activity in sectors such as Agriculture, Manufacturing, Finance, Insurance and ICT.
Construction can be expected to spike however, as the post-Winston rebuilding of Fiji continues tourism remains a growing industry regardless.

Many of the Bank’s clients in the Agriculture sector were very badly affected by weather-related events during the year, and the Bank’s emergency mechanisms were there to assist them.
Tropical Cyclone Winston rehabilitation packages were made available, providing repayment moratoriums, interest rate assistance and rehabilitation financing, to help customers rebuild their properties, businesses and lives following the category five event.

Provisions for Loan Impairment The Bank adheres to standards stipulated by the Central Bank in preparing for potential future losses from its portfolios.
Credit Accounts are assessed individually on an annual basis using processes of the Reserve Bank of Fiji, Individually Assessed Allowance (IAA) facility.

The IAA identifies non- performing accounts or Troubled and Impaired Assets and assigns adequate provisions accordingly.

As required by Reserve Bank of Fiji, over 70% of FDB loans and advances are assessed in this way.

All provisions and allowances accounted for are compliant with International Financial Reporting Standards (IFRS) and Basel III.
The Bank kept a close watch on non-performing and potentially troublesome accounts during the year and experienced no major problems in this area Future Outlook For almost five decades, Fiji Development Bank has provided a range of financial services tailored to answer the diverse needs of Fiji business operators large and small.

It has remained constant even in times of crisis, ever looking to its own sustainability and growth together with that of its customers, no matter the challenges of the day.
FDB continues to engage with the Ministry of Industry, Trade and Tourism in making the Micro and Small Business Grant available to worthy recipients.

Past submission numbers have signalled keen competition for the grant, as more and more Fijians have come to understand the rewards of entrepreneurship and the breakthrough opportunities the award presents for accelerated success.

Grant holders can expect a head start too when applying for FDB loans for the later expansion of their award-winning businesses.
The Fiji economy remains heavily dependent on the Sugar sector, constantly affected over the years by droughts and flooding, production costs, price issues and in recent times, the non-renewal of land leases, farmer retirements and devastating cyclones.

The expiry of the historically critical preferential price agreement with the European Union in 2017 is a matter of tremendous concern, not least for the estimated 20% of the Fiji population who are either fully or partially reliant on the sugar industry.
It is in all stakeholders’ interests, including the Bank’s, to work closely together in finding ways for this great Fiji industry not just to survive, but once again thrive.

The future for Fiji’s tourism and construction industries is in little doubt.

Both may be confident of further growth, and the Bank will continue to play its part in seeing them succeed.

The objectives and targets that are to translate into the Bank’s own future success and prosperity are set out in its 2014 - 2017 Strategic Plan.
An organisational realignment earmarked for 2017 will enable the Bank to operate more efficiently and effectively in providing customers with levels of value added service even higher than seen to date.

Celebrating Progress Fiji Development Bank2016 Annual Report 34 CORPORATE SOCIAL RESPONSIBILITY The depth of Fiji Development Bank’s commitment to its corporate social responsibility is clearly seen in its various community and financial literacy programmes, sponsorships and monetary donations.
Money $mart and Invest $mart Ever since 1967, FDB has been creating opportunities for entrepreneurs through a variety of attractive and empowering loan facilities.

And in 2007 the Bank took the further step of instilling the critical importance of financial knowledge in young people via the Money $mart and later Invest $mart programmes.

Operated in partnership with the Ministry of Education, Money $mart is designed to give school children an early appreciation of money and knowledge of how to manage it.
There is a strong emphasis on budgeting, wise spending and the importance of saving.

The programme’s resource book is directly linked with course content specified in the Ministry of Education Commercial Studies syllabus.

Noting the improved attitudes of students towards saving brought about by the Money $mart programme, FDB then initiated a partner programme, Invest $mart, which teaches students how to profit from their savings.
A number of these youngsters then opened Bank accounts, enrolled as voluntary members of the Fiji National Provident Fund or began investing through the Unit Trust of Fiji.

Small & Medium Enterprise Awards In August 2015 FDB hosted its second Small & Medium Enterprise Awards, a progression from the former Small Business Awards first sponsored by the Bank in 2004.
This increased inclusivity is in support of ongoing government efforts to eradicate poverty by encouraging the significant expansion of the SME sector.

The awards now accommodate businesses that are 100% locally owned and with gross annual sales of $30,000 to $500,000 per annum.

The FDB policy here, as elsewhere, is one of continuing improvement and for 2015 a ‘Rookie Entrepreneur of the Year’ category was introduced to lend encouragement to those just starting off in self-created businesses.
Winners of the SME Awards for 2015: • AGRICULTURE (Mixed Farming) - Mr Balbir Singh of Subrans Farm.

• AGRICULTURE (Livestock/Aquaculture) - Mr Penioni & Senivalati of Vueti Au Cooperative.

• WHOLESALE/RETAIL (Sole Trader) - Mr Arunesh Chand of A1 Kava & Spice.

• WHOLESALE/RETAIL (Partnership) - Mr & Mrs Ali of Chicken Bites.

• MANUFACTURING (Sole Trader) - Mrs Mala Chawda of Coconut Kids Fiji.

• MANUFACTURING (Partnership) - Mr Jeffery John & Ms Moira Solvalu of 8 Mountains.
• TOURISM (Sole Trader) - Mrs Alice Hill of Hot Glass Fiji.

• TOURISM (Partnership) - Mr & Mrs Arvind Kumar of Taveuni Handicraft & Souvenirs.

• PROFESSIONAL BUSINESS SERVICES (Sole Trader) - Ms Ana Tuiketei of AP Legal.

• PROFESSIONAL BUSINESS SERVICES (Partnership) - Mr & Mrs Pillay of Nadroga Car & Rentals.

• BEST BUSINESS PRACTICE - Mr Uday Singh of Bilo Café.

• BEST RISK MANAGEMENT AWARD - Mr Uday Singh of Bilo Café.

• GREEN CONSCIOUS AWARD - Mrs Alice Hill of Hot Glass Fiji.
• ROOKIE ENTREPRENEUR AWARD - Mr Rajneil Sharma of Broadway Fiji.

• SME OF THE YEAR AWARD - Mrs Mala Chawda of Coconut Kids Fiji.

Donations and Sponsorship The Bank’s Donations and Sponsorship Programme operates under strictly enforced guidelines designed to ensure that entities receiving funds are deserving of assistance.

All civil society and non-government organisations seeking donations are required to register with the Bank on an official form, and to provide evidence of their legal status.
Successful applicants will be credible, educational, non-profit organisations or charities having strong and sustainable community based service delivery programmes of their own.

Under the donations component of the guidelines, entities eligible for funding must be welfare and/or humanitarian related and inclusive of minorities in the provision of their services.
Assistance cannot be used for the funding of capital and upgrading works, administrative costs, medical treatments and evacuations, workshops or entertainment events.

During the 2016 financial year the Bank gave $63,975 in sponsorships and donations to fifteen good causes.

In the prevailing desperate and unprecedented circumstances, the bulk of this – $50,000 – went to the Prime Ministers Tropical Cyclone Winston Appeal Fund.
Among other beneficiaries were Saint John’s Ambulance, Fiji Association of the Deaf, Red Cross, and Suva Special School.

Expos and Road Shows Despite the nationwide havoc inflicted by Tropical Cyclone Winston compounded by the arrival of Tropical Zena weeks later, the Bank’s traditional schedule of participation in annual community based expositions and road shows was sluggish during the second half of the financial year.
During the year FDB participated in events organised by the Ministry of Agriculture in Labasa, Savusavu, Nasinu, Seaqaqa and Ba, and, as always, set up its always popular microfinance village at the Suva Hibiscus Festival.

Such events again provided the platform for the Bank to meet with the grassroots community in a fully relaxed and informal manner and discuss the Bank’s financial and advisory services with interested members of the public one on one.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report WINNERS OF THE 2015 SME AWARDS 35 Winner Agriculture Category (Mixed Farming) Mr. Balbir Singh of Subrans Farm.

Winner Agriculture Category (Livestock/Aquaculture) Penioni & Senivalati of Vuetiau Cooperative.

Winner Wholesale/Retail Category (Partnership) Mr. & Mrs. Ali of Chicken Bites.

Winner Wholesale/Retail Category (Sole Trader) Mr. Arunesh Chand of A1 Kava & Spice.
Winner Manufacturing Category (Sole Trader) & SME of the year award Mrs. Mala Chawda of Coconut Kids Fiji.

Winner Manufacturing Category (Partnership) Mr. Jeffery John & Moira Solvalu of 8 Mountains.

Winner Tourism Category (Partnership) Mr. & Mrs. Arvind Kumar of Taveuni Handicraft & Souvenirs.

Winner Tourism Category (Sole Trader) & Green Conscious Award, Mr. & Mrs. Hill of Hotglass Fiji.

Winner Professional Business Services (Sole Trader), Ms. Ana Tuiketei of AP Legal.
Winner Best Business Practice & Best Risk Management Mr. Uday Singh of Bilo Café.

Winner Rookie Entrepreneur of the year, Mr. Rajneil Sharma of Broadway Fiji.

Winner Professional Business Services Category (Partnership), Mr. & Mrs. Pillay of Nadroga Car & Rentals.
Celebrating Progress Fiji Development Bank2016 Annual Report 36 FINANCIAL REPORT Directors’ Report Statement by Directors Independent Audit Report Consolidated Statement of Financial Position Consolidated Statement of Comprehensive Income Consolidated Statement of Cash Flow Consolidated Statement of Changes in Equity 38 39 41 43 44 45 46 Notes to and forming part of the Financial Statements 47 - 66 Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 37 Celebrating Progress Fiji Development Bank2016 Annual Report 38 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY DIRECTORS’ REPORT FOR THE YEAR ENDED 30 JUNE 2016 In accordance with the resolution of the board of directors, the directors herewith submit the statements of financial position of the Fiji Development Bank (the Bank) and of the Group, being the Bank and its subsidiary as at 30 June 2016, the related statements of profit and loss and other comprehensive income, statements of cash flows and statements of changes in equity for the year ended on that date and report as follows.
DIRECTORS The following were directors of the Bank at any time during the financial year and up to the date of this report: Current Directors Mr Robert G. Lyon Mr Vadivelu Pillay a.k.a Wella Pillay Mr Inia Rokotui Naiyaga Mr Rajesh Patel Ms Olivia Mavoa Former Director Mr Jitoko Tikolevu Mr Joseva Serulagilagi - - - - - - - Chairperson; reappointed on 30/09/2013 Deputy Chairperson; appointed on 23/12/2015 Appointed on 23/12/2015 Appointed on 23/12/2015 Reappointed on 06/01/2014 Resigned on 21/12/2015 Resigned on 26/11/2015 PRINCIPAL ACTIVITIES The principal business activities of the Group during the course of the financial year were providing finance, financial and advisory services to assist in the development of agriculture, commerce and industry in Fiji.
There were no significant changes in the nature of the activities of the Group during the year.

RESULTS The consolidated profit for the year ended 30 June 2016 was $7,303,944 (2015 – $6,089,619).

The profit for the Bank for the year was $7,305,292 (2015 - $6,139,906).

DIVIDENDS The directors recommend that no dividend be declared or paid for the year.
BAD AND DOUBTFUL DEBTS Prior to the completion of the financial statements, the directors took reasonable steps to ascertain that action had been taken in relation to writing off of bad debts and the allowance recorded by the Group.

In the opinion of the directors, adequate allowance has been made for doubtful debts.
As at the date of this report, the directors are not aware of any circumstances, which would render the amount written off for bad debts, or the allowance for doubtful debts in the Group inadequate to any substantial extent.
UNUSUAL TRANSACTIONS Apart from those matters and other matters specifically referred to in the financial statements, in the opinion of the directors, the results of the operations of the Group during the year were not substantially affected by any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect substantially the results of the operations of the Group in the current financial year.
NON-CURRENT ASSETS Prior to the completion of the financial statements of the Bank, the directors took reasonable steps to ascertain whether any non-current assets were unlikely to be realized in the ordinary course of the business compared to the values as recorded in the accounting records of the Bank and its subsidiary.

Where necessary these assets have been written down or adequate provision has been made to bring the values of such assets to an amount that they might be expected to realise.
As at the date of this report, the directors are not aware of any circumstances that will cause the value of non-current assets in the financial statements to be misleading.

Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 39 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY STATEMENT BY DIRECTORS FOR THE YEAR ENDED 30 JUNE 2016 SIGNIFICANT EVENTS There were no significant changes in the state of affairs of the Bank or its subsidiary during the financial year.
EVENTS SUBSEQUENT TO BALANCE DATE There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the directors, to affect significantly the operations of the Group, the results of those operations or the state of affairs of the Bank in subsequent financial years.
OTHER CIRCUMSTANCES As at the date of this report: (i) no charge on the assets of the Bank or its subsidiary have been given since the end of the financial year to secure liabilities of any other person; (ii) no contingent liabilities have arisen since the end of the financial year for which the Bank and its subsidiary could become liable; and (iii) no contingent liabilities or other liabilities of the Bank or its subsidiary have become or is likely to become enforceable within the year of twelve months after the end of the financial year which, in the opinion of the directors, will or may substantially affect the ability of the Bank and the subsidiary company to meet its obligations as and when they fall due.
As at the date of this report, the directors are not aware of any circumstances that have arisen, not otherwise dealt with in this report or the financial statements, which would make adherence to the existing method of valuation of assets or liabilities of the Bank or its subsidiaries misleading or inappropriate.
DIRECTORS’ BENEFITS Since the end of the previous financial year, no director has received or become entitled to receive a benefit (other than those included in the aggregate amount of emoluments received or due and receivable by the directors shown in the financial statements or received as the fixed salary of a full-time employee of the Bank or of a related corporation) by reason of contract made by the Bank or by a related corporation with the director or with a firm of which he is a member, or with a company in which he has a substantial financial interest.
Signed on behalf of the board of directors in accordance with a resolution of the directors this ____ day of ________ 2016.
Director Director Celebrating Progress Fiji Development Bank2016 Annual Report 40 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY STATEMENT BY DIRECTORS FOR THE YEAR ENDED 30 JUNE 2016 In accordance with a resolution of the Board of Directors of Fiji Development Bank, we state that in the opinion of the directors: (i) the accompanying statements of profit and loss and other comprehensive income are drawn up so as to give a true and fair view of the results of the Bank and the Group for the year ended 30 June 2016; (ii) the accompanying statements of changes in equity are drawn up so as to give a true and fair view of the changes in equity of the Bank and the Group for the year ended 30 June 2016; (iii) the accompanying statements of financial position are drawn up so as to give a true and fair view of the state of affairs of the Bank and the Group as at 30 June 2016; (iv) the accompanying statements of cash flows are drawn up so as to give a true and fair view of the cash flows of the Bank and the Group for the year ended 30 June 2016; (v) at the date of these statements there are reasonable grounds to believe the Bank and the Group will be able to pay their debts as and when they fall due; and (vi) all related party transactions have been adequately recorded in the books of the Bank and of the Group.
Signed on behalf of the board of directors in accordance with a resolution of the directors this ____ day of ________ 2016.
Director Director Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 41 Celebrating Progress Fiji Development Bank2016 Annual Report 42 Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 43 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY STATEMENTS OF FINANCIAL POSITION AS AT 30 JUNE 2016 Notes CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ 56,566,428 2,030,650 294,844,851 - 3,440,924 - 15,001 17,795,839 211,438 49,596,669 2,029,850 291,628,618 - 2,504,217 - Assets Cash and cash equivalents Investments held to maturity Loans and advances Receivable due from subsidiary Other receivables Investment in subsidiary Investments Property and equipment Computer software - intangibles TOTAL ASSETS Liabilities Accounts payable and accruals Debt securities Other liabilities Employee entitlements Deferred income TOTAL LIABILITIES Equity Capital Reserves Accumulated profits TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 374,905,131 361,832,153 374,906,639 361,829,717 On behalf of the Board Director Director The statements of financial position are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 47 to 66.
Celebrating Progress Fiji Development Bank2016 Annual Report 44 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY STATEMENTS OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED 30 JUNE 2016 Notes CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ INCOME Interest income Interest expense Net interest income Fee income Other income OPERATING INCOME OPERATING EXPENSES OPERATING PROFIT BEFORE ALLOWANCES Allowance for credit impairment Allowance for Interest & Fees 3 4 5 6 9 23,854,646 (6,525,024) 17,329,622 3,576,481 7,267,062 24,241,576 (5,376,158) 18,865,418 3,280,088 3,728,066 23,854,646 (6,525,024) 17,329,622 3,576,481 7,266,238 24,241,082 (5,376,158) 18,864,924 3,280,088 3,702,170 28,173,165 25,873,572 28,172,341 25,847,182 (12,291,253) (11,980,752) (12,289,081) (11,904,075) 15,881,912 13,892,820 15,883,260 13,943,107 (6,929,397) (1,648,571) (5,815,476) (1,987,725) (6,929,397) (1,648,571) (5,815,476) (1,987,725) PROFIT BEFORE TAX 7,303,944 6,089,619 7,305,292 6,139,906 Tax expense 1(q) - - - - PROFIT FOR THE YEAR OTHER COMPREHENSIVE INCOME Items that will not be re-classified to profit or loss Revaluation of property and equipment TOTAL COMPREHENSIVE INCOME FOR THE YEAR 7,303,944 6,089,619 7,305,292 6,139,906 2,513,217 9,817,161 - 6,089,619 2,513,217 9,818,509 - 6,139,906 The statements of comprehensive income are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 47 to 66.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 45 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY STATEMENTS OF CASH FLOWS FOR THE YEAR ENDED 30 JUNE 2016 CONSOLIDATED THE BANK 2016 $ Inflows 2015 $ Inflows 2016 $ Inflows 2015 $ Inflows Notes (Outflows) (Outflows) (Outflows) (Outflows) 23,233,005 (6,367,833) (63,363,904) 57,612,777 3,977,097 (11,513,090) 1,183,180 24,240,198 (5,270,648) (95,489,516) 61,262,552 4,004,791 (11,247,926) 3,094,304 23,233,129 (6,367,833) (63,363,904) 57,612,777 3,977,097 (11,513,090) 1,183,180 24,241,082 (5,270,648) (95,489,516) 61,262,552 4,004,791 (11,222,830) 3,068,408 OPERATING ACTIVITIES Interest and subsidy received Interest and other costs of borrowing paid Customer loans granted Customer loans repaid Fees received Cash paid to suppliers and employees Other receipts Net cash provided/ (used in) by operating activities 4,761,232 (19,406,245) 4,761,356 (19,406,161) INVESTING ACTIVITIES Proceeds from the insurance claim Proceeds from the sale of property and equipment Payments for property and equipment - - (867,670) 72,187 85,000 (991,213) - - (867,670) 72,187 85,000 (991,213) Net cash (used in) investing activities (867,670) (834,026) (867,670) (834,026) FINANCING ACTIVITIES Proceeds from long-term borrowings Repayment of long-term borrowings Proceeds from short-term borrowings Repayment of short-term borrowings 40,000,000 (25,013,227) 46,734,000 (58,644,576) 97,671,600 (77,891,567) 18,500,000 (18,500,000) 40,000,000 (25,013,227) 46,734,000 (58,644,576) 97,671,600 (77,891,567) 18,500,000 (18,500,000) Net cash provided by financing activities 3,076,197 19,780,033 3,076,197 19,780,033 Net increase/(decrease) in cash and cash equivalents 6,969,759 (460,238) 6,969,883 (460,154) Cash and cash equivalents at the beginning of the financial year 49,596,669 50,056,907 49,579,398 50,039,552 Cash and cash equivalents at the end of the financial year 26 56,566,428 49,596,669 56,549,281 49,579,398 The statements of cash flows are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 47 to 66.
Celebrating Progress Fiji Development Bank2016 Annual Report 46 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY STATEMENTS OF CHANGES IN EQUITY FOR THE YEAR ENDED 30 JUNE 2016 Notes Capital $ General reserve $ Revaluation Accumulated Total reserve $ profits $ $ CONSOLIDATED Balance at 30 June 2014 22 56,050,636 8,064,000 4,471,291 57,913,784 126,499,711 Total other comprehensive income Net profit for the 2015 year - - - - - - - - 6,089,619 6,089,619 Balance at 30 June, 2015 56,050,636 8,064,000 4,471,291 64,003,403 132,589,330 Total other comprehensive income Net profit for the 2016 year Balance at 30 June 2016 - - - - 2,513,217 - 2,513,217 - 7,303,944 7,303,944 56,050,636 8,064,000 6,984,508 71,307,347 142,406,491 THE BANK Capital $ General reserve $ Revaluation Accumulated Total reserve $ profits $ $ Balance at 30 June 2014 22 56,050,636 8,064,000 4,471,291 57,868,656 126,454,583 Total other comprehensive income Net profit for the 2015 year Balance at 30 June, 2015 Total other comprehensive income Net profit for the 2016 year Balance at 30 June 2016 - - - - - - - - 6,139,906 6,139,906 56,050,636 8,064,000 4,471,291 64,008,562 132,594,489 - - 2,513,217 - 2,513,217 - - 7,305,292 7,305,292 56,050,636 8,064,000 6,984,508 71,313,854 142,412,998 The statements of changes in equity are to be read in conjunction with the notes to and forming part of the financial statements set out on pages 47 to 66.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 47 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS FOR THE YEAR ENDED 30 JUNE 2016 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES Fiji Development Bank (The Bank) is a fully owned Government of Fiji (“Government”) entity domiciled in Fiji.

The address of the registered office is 360 Victoria Parade, Suva, Fiji.
The consolidated financial statements of the Bank for the year ended 30 June 2016 comprise the Bank and its subsidiary company (The Group).

The Bank is primarily involved in the provision of finance, financial and advisory services to assist in the development of agriculture, commerce and industry in Fiji.

The financial statements were authorised for issue by the directors on 26th October, 2016.
The significant policies which have been adopted in the preparation of these financial statements are: (a) Statement of compliance The financial statements are presented in Fiji dollars, rounded to the nearest dollar.

The consolidated financial statements have been drawn up in accordance with International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board and the requirements of the FDB Act.
(b) Basis of preparation The measurement base adopted is that of historical cost as modified by the fair value measurement of available for sale of financial assets and financial instruments held at fair value through profit or loss.

In addition, land and buildings are carried at re-valued amount.
(c) Accounting standards not yet effective The following accounting standards are available for early adoption but have not been applied by the Bank in these financial statements: IFRS 9 Financial Instruments The IASB issued the final version of IFRS 9 in 2014.

IFRS 9 is not mandatorily effective for the Bank until 1 July 2018.

When operative, this standard will replace IAS 39 Financial Instruments: Recognition and Measurement.
IFRS 9 addresses recognition and measurement requirements for financial assets and financial liabilities, impairment requirements that introduce an expected credit loss impairment model and general hedge accounting requirements which more closely align with risk management activities undertaken when hedging financial and non-financial risks.

The Bank is not yet able to reasonably estimate the impact on its financial statements on applying these changes.
IFRS 15 Revenue from Contracts with Customers The IASB issued IFRS 15 in 2014.

The standard is not mandatorily effective for the Bank until 1 July 2018.

IFRS 15 contains new requirements for the recognition of revenue and additional disclosures about revenue.

It is expected that a significant proportion of the Bank’s revenue will be outside the scope of IFRS 15.

However, the Bank is still in the process of determining the impact of the applying these changes.
IFRS 16 Leases The IASB issued IFRS 16 in 2016.

The standard is not mandatorily effective for the Bank until 1 July 2019.

The standard removes the classification of leases as either operating or finance lease for leases, effectively treating all leases as finance leases.

The Bank is not yet able to reasonably estimate the impact on its financial statements on applying these changes.
(d) Use of estimates and judgements The preparation of financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses.

Actual results may differ from these estimates.

Estimates and underlying assumptions are reviewed on an ongoing basis.
Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected.
In particular, information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the financial statements are included in the following notes: • • Note 1(i) and Note 8– Allowance for credit impairment Note 14 – Valuation of land and buildings (e) Principles of consolidation Subsidiary The consolidated financial statements of the group include the financial statements of the Bank and its wholly owned subsidiary as disclosed in Note 12.
Control exists when the Bank has the power, directly or indirectly, to govern the financial and operating policies of an enterprise so as to obtain benefits from its activities.

The financial statements of the subsidiary are included in the consolidated financial statements from the date that control commences until the date that controls ceases.
Celebrating Progress Fiji Development Bank2016 Annual Report 48 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) The investment in subsidiary is measured at cost less impairment loss in the financial statements of the Bank.
Transactions eliminated on consolidation The balances and effects of transactions between the Bank and the controlled entity have been eliminated in the consolidated financial statements.

(f) Revenue recognition Revenue is recognised to the extent that it is probable that economic benefits will flow to the Bank and that the revenue can be reliably measured.

The principal sources of revenue are interest income, government interest subsidies, fees and charges.
Interest income Interest income on investments, loans and advances is recognised in profit or loss using the effective interest method.

Unearned interest on lease finance is brought into account at the time of realisation.

Government interest subsidies Government provides interest subsidies on certain loans schemes.

These interest subsidies are recognised as interest income in profit or loss using the effective interest rate method.
Fees and charges Lending fees Fees and direct costs relating to loan origination, financing or restructuring and to loan commitments are deferred and amortised to interest income over the term of the loan using the effective interest method.

Lending fees not directly related to the origination of a loan are recognised over the period of service.
Other fees and charges When other fees and charges relate to specific transactions or events, they are recognised in profit or loss over the period that the service is provided to the customer.

Fees on impaired loans are recognised as income only when received.

(g) Debt securities issued FDB registered bonds and promissory notes are measured at fair value on initial recognition.

Subsequent to initial recognition they are measured at amortised cost.
Any discount on these bonds is amortized to interest expense on a straight-line basis over the term of the bond to which it relates.

(h) Property and equipment Items of equipment are measured at cost less accumulated depreciation and impairment loss.

Items purchased at less than $500 are expensed.

Land & buildings are measured at revalued amounts being the fair value at the date of revaluation less any subsequent accumulated depreciation and impairment losses.
Revaluations reflect independent assessments of the fair market value of land and buildings based on existing use.

Revaluation increments are credited directly to the revaluation reserve in equity.

Revaluation decrements are debited directly to equity to the extent they reverse a previous revaluation surplus.

Any remaining decrease is debited to profit or loss.

All other items of property and equipment are carried at cost less accumulated depreciation and impairment losses.
Depreciation Property and equipment with the exception of freehold land are depreciated over their expected useful lives using the straight-line method of depreciation at the following rates, whilst leasehold land and improvements are amortised over the shorter of their useful lives and the terms of their respective leases.
Buildings and improvements Equipment, furniture and fittings Motor vehicles Computer hardware Computer software Leasehold land Celeb r a t i n g P rogress 1-2% 10% 20% 20% 20% Term of the lease Fiji Development Bank2016 Annual Report 49 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (h) Property and equipment (Continued) The carrying values of property and equipment are reviewed for impairment when events or changes in circumstances indicate the carrying value may not be recoverable.
If any such indication exists and where the carrying values exceed the estimated recoverable amount, the asset or cash- generating units are written down to their recoverable amount.

The recoverable amount of property and equipment is the higher of fair value less costs to sell and value in use.

For an asset that does not generate largely independent cash inflows, the recoverable amount is determined for the cash-generating unit to which the asset belongs.
Impairment losses are recognised in the statement of profit and loss and other comprehensive income.

(i) Intangible assets The Bank recognises internally generated Banking Software (Bank Management System) and any other externally purchased software as intangible assets in its books.

Due to the finite life of the software, it is amortised on straight line basis at 20% per annum.
(j) Loans and advances Loans and advances net of lending allowances include direct finance provided to customers such as term loans, lease finance, working capital and import letter of credits.

Term loans are carried at amortised cost using effective interest method plus outstanding interest accrued.

Finance leases are shown net of unearned interest.

There were no new finance leases granted in the current financial year.
Policies adopted in classifying loans Each customer account is graded individually using established guidelines.

Critical factors include collectability of all principal and interest based on the contractual agreement and the security offered by the borrower.

Impaired and past due assets The Bank has disclosed components of its loan portfolio that have been classified as impaired and past due assets.
The following broad categories have been used in classifying impaired and past due assets: (i) (ii) Non-accrual loans A loan is classified as non-accrual if there is reasonable doubt over the ultimate recoverability of the principal or interest based on the contractual agreement.

Non accrual loans are those where interest and fees receivable, are not recognised in the statement of profit or loss and other comprehensive income but are recognised only when received.
Restructured loans Restructured loans are those where the original terms of the contract have been modified to provide concessions of principal and/or interest to the borrower because of financial difficulties.

(iii) Past due loans Facilities that are classified under past due are loans that are more than 30 days in arrears but which are not non-accrual.

(k) Loans and advances – Impairment allowance Loan accounts are reviewed throughout the year to assess the allowance for impairment.
The Bank has individually assessed allowances and collectively assessed allowances.

Individually assessed allowances Individually assessed allowance is maintained to cover identified impairment.

The individually assessed allowance requirement (representing new and increased individually assessed allowances less individually assessed releases) is recorded in profit or loss.
Individually assessed allowances are made against individually significant financial assets and those that are not individually significant, including groups of financial assets with similar credit risk characteristics.

The determination of the amount of specific allowance is based on many factors including credit evaluation of the borrowers, value of security and collateral held, current economic conditions and past experience.
Recoveries, representing excess transfers to the specific allowance, are credited to the profit or loss.
Celebrating Progress Fiji Development Bank2016 Annual Report 50 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (k) Loans and advances – Impairment allowance (continued) Collective allowance All other loans and advances that do not have an individually assessed allowance are assessed collectively for impairment.
Collective allowances are maintained to reduce the carrying amount of portfolios of similar loans and advances to their estimated recoverable amounts at the balance date.

Collective allowance is maintained on all loans based on the Credit Risk Rating “(CRR)” and is allocated to reflect the associated risk.

The collective allowance is based on a percentage and is reviewed on a yearly basis.
Bad debts written off / recovered Bad debts are written off against the allowance in the year in which the debt is recognised as being irrecoverable.

Where not previously included in the allowance, bad debts are written off directly to profit or loss.

Debts previously written off and subsequently recovered are credited to profit or loss in the year in which they are recovered.

Impairment The Bank assesses at each balance date whether there is any objective evidence of impairment.
If there is objective evidence that an impairment loss on loans, advances and other receivables has been incurred, the amount of the loss is measured as the difference between the asset’s carrying amount and the present value of the expected future cash flows (excluding future credit losses that have not been incurred), discounted at the financial asset’s original effective interest rate.

Short-term balances are not discounted.


(l) Investments Investments are those securities that the Bank has purchased with positive intent and ability to hold until maturity.

These securities are initially recorded at fair value and subsequently adjusted for amortisation of premium or discounts.

Premiums and discounts are capitalised and amortised using the effective interest method from date of purchase to maturity.

Interest income is recognised using the effective interest method.
Borrowing costs are recognised as expenses in the period in which they are incurred.

(m) Land held for resale The cane estate and other land held for subdivision and resale are carried at the lower of their carrying amount and fair value less cost to sell.
(n) Cash and cash equivalents Cash and cash equivalents includes cash on hand and at Bank and highly liquid financial assets with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of its short- term commitments.

(o) Other debtors Other receivables are stated at amortised cost less impairment losses.
(p) Accounts payable and accruals Accounts payable and accruals are stated at amortised cost.

(q) Taxation The Bank has made no provision for taxation, as it is not subject to income tax in accordance with section 17(29) of the Income Tax Act; 1985.

However, the Bank’s subsidiary FDB Nominees Ltd adopts the principles of tax effect accounting and thus is the basis of recognition of tax expense in consolidated financial statements of the Bank.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 51 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 1 STATEMENT OF SIGNIFICANT ACCOUNTING POLICIES (Continued) (r) Employee entitlements Annual leave The accrual for annual leave represents the amount which the Bank has a present obligation to pay, resulting from employees’ services provided up to the balance date.
The accrual is based on current wage and salary rates and includes related on-costs.

Long service leave The liability for employees’ entitlements to long service leave represents the amount payable to employees, based on current wage and salary rates, for services provided up to balance date.

The liability for long service leave increases according to the number of years of service completed by the employee.
Gratuity The accrual for gratuity represents amounts payable to employees who have achieved in excess of the minimum ten years of service on retirement, and is based on current wage and salary rates.

Triennial leave The triennial leave is payable to employees on completion of every three years of service and is based on staff’s grade.

Number of employees The number of employees as at 30 June 2016 was 172 (2015: 180).
(s) Contingent liabilities and credit commitments The Bank is involved in a range of transactions that give rise to contingent and / or future liabilities.

The Bank discloses a contingent liability when it has a possible obligation arising from past events that will be confirmed by the occurrence or non-occurrence of one or more uncertain future events not wholly within the Bank’s control.
A contingent liability is disclosed when a present obligation is not recognised because it is not probable that an outflow of resources will be required to settle an obligation, or the amount of the obligation cannot be measured with sufficient reliability.

The Bank issues commitments to extend credit, letters of credit, guarantees and other credit facilities.

These financial instruments attract fees in line with market prices for similar arrangements.

They are not sold or traded.


The items generally do not involve cash payments other than in the event of default.

The fee pricing is set as part of the broader customer credit process and reflects the probability of default.

They are recorded as contingent liabilities at their face value.

Information on the face value and credit equivalents of commitments and contingent liabilities is shown in note 23.
(t) Deferred income Deferred income represents establishment fees charged and is deferred and amortised using the effective interest rates over the term of the loan.

(u) Deposits and other borrowings Deposits and other borrowings include certificates of deposits, interest bearing deposits and other related interest bearing financial instruments.

They are measured at amortised cost.

The interest expense is recognised using the effective interest method.
Celebrating Progress Fiji Development Bank2016 Annual Report 52 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 2.
FAIR VALUE ESTIMATION “Fair value” is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Bank has access at that date.

When available, the Bank measures the fair value of an instrument using the quoted price in an active market for that instrument.
A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis.

If there is no quoted price in an active market, then the Bank uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs.

The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction.
The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of relevant observable inputs and maximising the use of unobservable inputs.

The different levels have been defined as follows: • Level 1 fair value measurement are those instruments valued based on quoted prices (unadjusted) in active markets for identical assets and liabilities.
• • Level 2 fair value measurements are those instruments valued based on inputs other than quoted prices included in Level 1 that are observable for the asset or liability, either directly (i.e as prices) or indirectly (i.e derived from prices).

Level 3 fair value measurements are those instruments valued based on inputs for the asset or liability that are not based on observable market data (unobservable) inputs.
The following table analyses the financial instruments measured at fair value at the reporting date by level in the fair value hierarchy into which the fair value measurement is categorised.

It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation of fair value.
Carrying amount Held to maturity Other Financial Liabilities Total Level 1 Level 2 Level 3 Total Fair value Assets Investments held to maturity 2,000,000 2,000,000 - - 2,000,000 2,000,000 Liabilities Bonds Promissory notes - - 139,200,000 37,500,000 176,700,000 139,200,000 37,500,000 176,700,000 - - - - - 2,744,981 2,744,981 139,293,106 37,064,429 176,357,535 - - - - - 2,744,981 2,744,981 139,293,106 37,064,429 176,357,535 Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 53 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ 3 INTEREST INCOME Included in interest income are interest subsidies received / receivable from the Government for: - Agricultural loans - Commercial Loans to Fijians scheme - Economic Rehabilitation Package Scheme - Small Business Scheme - Northern Rehabilitation Package 4 FEE INCOME Application fees Establishment fees Commitment fees Bank Service fees Arrears fees Legal fees Other fee income 5 OTHER INCOME The following items are included in other income: Gain on sale of property, plant and equipment Bad debts recovered Insurance commission Rental income Other Income 6 OPERATING EXPENSES Items included in administrative expenses: Amortisation of bond discounts Auditors’ remuneration Directors’ fees Depreciation and amortisation Employee costs Other Expenses Celebrating Progress Fiji Development Bank2016 Annual Report 54 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 7 CASH & CASH EQUIVALENTS Petty cash Overdraft facility Western Union facility Deposit accounts -Branches Bank of South Pacific- Call account Bank of Baroda- Head Office HFC Bank - Head office CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ The Bank maintains an overdraft facility of $15,000 to cater for staff withdrawals based on their eligibility level and also maintains $12,000 for Western Union money transfer facility.
Deposit accounts are maintained for the Bank’s daily transactions with it’s clients and the accounts earn interest at floating rates based on daily rates.
8 INVESTMENTS HELD TO MATURITY CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ Investment In bonds 2,030,650 2,029,850 2,000,000 2,000,000 Investment in bonds relates to $2,000,000 of Investments with the Reserve Bank of Fiji at 12.31%, with maturity year being 2022 and $30,650 of investment by FDB Nominees Limited held in Home Finance Corporation at 3.50% and 4.00% for a term of 12 months respectively.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 55 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 9 LOANS AND ADVANCES Loans and advances Allowance for Interest and fees suspended Allowance for credit impairment Total loans and advances CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ 375,521,302 (15,939,012) 359,582,290 (64,737,439) 294,844,851 367,242,048 (16,208,684) 351,033,364 (59,404,746) 291,628,618 375,521,302 (15,939,012) 359,582,290 (64,737,439) 294,844,851 367,242,048 (16,208,684) 351,033,364 (59,404,746) 291,628,618 Loans and advances include finance lease provided to customers.
There were no new finance leases granted in the current financial year.
Allowance for credit impairment is represented as follows: Individually assessed allowance Balance at the beginning of the year Charge to the profit or loss Transfer from collective provision Bad debts written off against allowance for credit impairment Balance at the end of the year Collectively assessed allowance Balance at the beginning of the year Charge to the profit or loss Transfer from collective provision Total allowance for credit impairment 52,735,790 6,596,365 55,263 59,387,418 50,819,837 4,536,390 724,756 56,080,983 52,735,790 6,596,365 55,263 59,387,418 50,819,837 4,536,390 724,756 56,080,983 (1,596,704) 57,790,714 (3,345,193) 52,735,790 (1,596,704) 57,790,714 (3,345,193) 52,735,790 6,668,956 333,032 (55,263) 6,946,725 64,737,439 6,114,627 1,279,085 (724,756) 6,668,956 59,404,746 6,668,956 333,032 (55,263) 6,946,725 64,737,439 6,114,627 1,279,085 (724,756) 6,668,956 59,404,746 Celebrating Progress Fiji Development Bank2016 Annual Report 56 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 10 RECEIVABLE FROM SUBSIDIARY FDB Nominees Limited 11 OTHER RECEIVABLES Government guarantees & grants Impairement loss - government guarantee & grants Government interest subsidies Other Impairement loss is represented as follows: Total Impairement at the beginning of the year Charge to profit or loss Total Impairement at the end of the year 12 INVESTMENT IN SUBSIDIARY FDB Nominees Ltd CONSOLIDATED THE BANK 2016 $ - 2015 $ - 2016 $ 2015 $ 404,820 401,359 5,499,216 (5,499,216) - 2,115,371 1,325,553 5,499,216 (5,499,216) - 1,493,854 1,010,363 5,499,216 (5,499,216) - 2,115,371 950,038 5,499,216 (5,499,216) - 1,493,854 633,689 3,440,924 2,504,217 3,065,409 2,127,543 5,499,216 - 5,499,216 5,499,216 - 5,499,216 5,499,216 - 5,499,216 5,499,216 - 5,499,216 CONSOLIDATED THE BANK 2016 $ - 2015 $ - 2016 $ 20,000 2015 $ 20,000 The Bank has 100% beneficial interest in the ordinary share capital of the subsidiary company which is incorporated in Fiji.
13 INVESTMENTS Shares in companies - at cost Impairment 3,334,291 (3,319,290) 6,599,291 (6,584,290) 3,334,291 (3,319,290) 6,599,291 (6,584,290) 15,001 15,001 15,001 15,001 Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 57 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 CONSOLIDATED THE BANK 14 LAND HELD FOR RESALE Nasarawaqa Estate Cost Impairment Contributions to project 2016 $ 99,426 (94,531) 4,895 (4,895) - 2015 $ 99,426 (94,531) 4,895 (4,895) - 2016 $ 99,426 (94,531) 4,895 (4,895) - CONSOLIDATED AND THE BANK 15 PROPERTY, PLANT AND EQUIPMENT Land and buildings $ Equipment $ Fixtures and fittings $ Work in progress $ Cost or valuation Balance at 1 July 2014 Acquisitions during the year Transfer in /(out) Disposals Balance at 1 July 2015 Acquisitions during the year Revaluation Transfer in /(out) Disposals Impairment Balance at 30 June 2016 Accumulated Depreciation Balance at 1 July 2014 Depreciation charge for the year Disposals Balance at 1 July 2015 Depreciation charge for the year Revaluation Disposals Balance at 30 June 2016 Carrying amount Balance at 1 July 2014 Balance at 30 June 2015 Balance at 30 June 2016 13,730,816 1,515 106,312 (100,969) 13,737,674 - 1,898,020 - - (494,782) 15,140,912 371,622 167,552 (8,621) 530,553 172,438 (615,197) - 87,794 13,359,194 13,207,121 15,053,118 6,947,792 855,764 14,900 (1,462,218) 6,356,238 467,546 - 345,847 (388,683) - 6,780,948 4,633,351 662,974 (1,387,828) 3,908,497 743,133 - (388,658) 4,262,972 2,314,441 2,447,741 2,517,976 132,093 - - (1,454) 130,639 1,379 - - (12,043) - 119,975 114,457 6,168 (1,126) 119,499 5,679 - (12,043) 113,135 17,636 11,140 6,840 121,212 345,847 (121,212) - 345,847 217,905 - (345,847) - - 217,905 - - - - - - - - 2015 $ 99,426 (94,531) 4,895 (4,895) - Total $ 20,931,913 1,203,126 - (1,564,641) 20,570,398 686,830 1,898,020 - (400,726) (494,782) 22,259,740 5,119,430 836,694 (1,397,575) 4,558,549 921,250 (615,197) (400,701) 4,463,901 121,212 345,847 217,905 15,812,483 16,011,849 17,795,839 The Directors have adopted a policy of obtaining regular independent valuations for all of the Bank’s properties on an existing use basis of valuation.
The land and buildings were re-valued by Rolle Associates and these valuations were adopted by the Bank within the financial year.

The Bank’s Nadi property lease which expired on 30th June 2016 will not be renewed.

Hence, impairment loss has been recognised for this property at the end of the financial year.
Celebrating Progress Fiji Development Bank2016 Annual Report 58 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 16 COMPUTER SOFTWARE - INTANGIBLES CONSOLIDATED THE BANK Balance at the end of the year Acqusitions during the year Work in Progress Balance at the end of the year Accumulated Amortisation Balance at the end of the year Amortisation charge for the year Balance at the end of the year Carrying amount Balance at the end of the year Balance at the end of the year 2016 $ 133,833 197,058 10,682 341,573 87,884 42,251 130,135 45,949 211,438 2015 $ 128,284 5,549 - 133,833 64,394 23,490 87,884 63,890 45,949 2016 $ 133,833 197,058 10,682 341,573 87,884 42,251 130,135 45,949 211,438 2015 $ 128,284 5,549 - 133,833 64,394 23,490 87,884 63,890 45,949 17 OPERATING LEASE Leases as Lessee Minimum lease payments under non-cancellable operating leases are payable as follows: Not Later than one year Between one and five years More than 5 years 52,007 208,027 2,076,265 2,336,299 54,480 217,920 2,238,783 2,511,183 52,007 208,027 2,076,265 2,336,299 54,480 217,920 2,238,783 2,511,183 The above operating Lease Rentals relate to TLTB and Government of Fiji lease payments the Bank is required to make anually.
18 ACCOUNTS PAYABLE AND ACCRUALS Interest accruals Others 19 DEBT SECURITIES Short term borrowings Term deposits Promissory Notes RBF Export Facility FDB Registered bonds - face value Short term borrowings Non-current - Bonds Term deposits RBF Export Facility FDB Registered bonds - face value Unamortised discount Long term borrowings 901,627 2,135,711 3,037,338 768,251 1,356,582 2,124,833 901,627 2,130,712 3,032,339 768,251 1,348,987 2,117,238 5,434,000 37,500,000 2,755,424 36,000,000 81,689,424 - 36,005,404 103,200,000 23,815 139,229,219 220,918,643 18,700,000 25,000,000 14,400,000 20,500,000 78,600,000 2,700,000 37,290,608 99,200,000 28,023 139,218,631 217,818,631 5,434,000 37,500,000 2,755,424 36,000,000 81,689,424 - 36,005,404 103,200,000 23,815 139,229,219 220,918,643 18,700,000 25,000,000 14,400,000 20,500,000 78,600,000 2,700,000 37,290,608 99,200,000 28,023 139,218,631 217,818,631 The above short term borrowings have a repayment term of less than 1 year and have been guaranteed by The Government of Fiji.
The interest rate for the short term borrowing ranges from 1.70% to 4.00% (2015: 0.25% to 5.12%).

The borrowings under RBF Export Facility has term of 2 to 5 years.

The FDB registered bonds have a repayment term varying between 1 to 15 years and have been guaranteed by Government of Fiji.

.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 59 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 20 OTHER LIABILITIES CONSOLIDATED THE BANK Non-current Seed Capital Fund Staff Savings account Export Facility Farmers Assistance Scheme 2016 $ 2,471,498 1,124,763 950,000 110,118 4,656,379 2015 $ 2,563,631 1,301,006 1,500,000 110,118 5,474,755 2016 $ 2015 $ 2,471,498 1,124,763 950,000 110,118 4,656,379 2,563,631 1,301,006 1,500,000 110,118 5,474,755 Seed Capital Fund is a revolving fund from the Government of Fiji for lending to specialised business activities in forestry, fishing and eco- tourism.
Principal repayments for the seed capital loans are added back to the initial fund for re-lending.

Seed Capital Fund amounts that are not utilised are repayable to the Government.

Staff savings are stated at amortised cost and are repayable on demand at an average interest rate of 2.5% per annum.
21 EMPLOYEE ENTITLEMENTS At 1 July 2015 Utilised during the year Arising during the year At 30 June 2016 1,810,117 (774,734) 435,794 1,471,177 1,065,998 (210,037) 954,156 1,810,117 1,810,117 (774,734) 435,794 1,471,177 1,065,998 (210,037) 954,156 1,810,117 The employee entitlement includes accrued leave and gratuity.

The gratuity is accrued for all tenure staff after continuous service of 10 years and the staff is eligible for payment on retirement after reaching the age of 55 years.
22 CAPITAL Authorised capital Contributed capital 100,000,000 100,000,000 100,000,000 100,000,000 56,050,636 56,050,636 56,050,636 56,050,636 The Bank was formed by an Act of Parliament and the contributed capital of $56,050,636 consists of equity contribution from the Government of Fiji.
23 COMMITMENTS AND CONTINGENT LIABILITIES (a) Commitments (i) Loans approved but not disbursed (b) Capital Commitments (i) Work In Progress (c) Contingent liabilities (i) Guarantees (i) Litigation 2016 $ 2015 $ 98,585,439 75,154,472 320,188 858,482 2,079,521 - 950,000 780,000 There are number of cases that are subject to legal proceedings.

At year end, management have not provided for these claims on the basis that it is not considered probable that the claims will be successful.
Celebrating Progress Fiji Development Bank2016 Annual Report 60 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 24 RELATED PARTY TRANSACTIONS Directors The following were directors of the Bank during the financial year ended 30 June 2016: Current directors Mr Robert G. Lyon Mr Vadivelu Pillay a.k.a Wella Pillay Mr Rajesh Patel Mr Inia Rokotui Naiyaga Ms Olivia Mavoa Former directors Mr Jitoko Tikolevu Mr Joseva Serulagilagi Reappointed on 30/09/2013 as chairperson Deputy chairperson; appointed on 23/12/2015 Appointed on 23/12/2015 Appointed on 23/12/2015 Reappointed on 06/01/2014 Resigned on 21/12/2015 Resigned on 26/11/2015 CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ Directors’ fees 83,973 87,815 83,973 87,815 Loans amounting to $3,898,481 (2015:$3,888,424) were advanced to a Company where a Director has a related party interest and are included in “Loans and Advances” (refer note 8).
The loans were provided under normal terms and conditions.

Key Management Personnel Details of Compensation Key management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the entity, directly or indirectly, including any director (whether executive or otherwise) of that entity.
During the year the following persons were the executives identified as key management personnel, with the greatest authority and responsibility for the planning, directing and controlling the activities of the Bank.
Name Deve Toganivalu Tevita Madigibuli Saiyad Hussain Nafitalai Cakacaka Uraia Rasake Current title Chief Executive Officer General Manager Relationship & Sales General Manager Finance and Administration General Manager Business Risk Services General Manager Human Resource and Training -Resigned on 04/03/2016 The aggregate compensation of the above key management personnel (excluding Directors) comprises only short-term benefits and is set out below: CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ Short-term benefits 824,979 829,241 824,979 829,241 The Key Management Personnel are contracted employees and are entitled to short term benefits only.
There is no long term benefits payable.

Loans amounting to $339,268/(2015: $247,215) to executives are included in “Loans and Advances” ( refer note 8).

The loans were provided under normal terms and conditions.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 61 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 25 RISK MANAGEMENT POLICY Credit risk Credit risk is the risk of financial loss if a customer or counterparty to a financial instrument fails to meet its contractual obligations and arises principally from loans and advances.
The credit risk framework is in place across the organization with the end-objective of ensuring a structured and disciplined approach in pursuing the targets mutually set by the board and management.

The framework focuses on corporate mission, policies, procedures, people, skills, values, controls and portfolio balance exposures.
It is supported by regular portfolio analysis and detailed underwriting evaluation that identifies risk areas / concentrations, with recommended risk remedies and monitoring procedures in order to avert any probable negative impact of the account and of the portfolio.

The authority to make credit decision is layered.

The board subcommittee known as board credit committee retains the authority to approve loan amounts above a threshold that is set by the board.
On the other hand, the management (EXCO) has authority and discretion to delegate defined approving limits to Risk Officers under certain conditions.

The delegated credit decision authority, particularly below the threshold level is reviewed from time to time on the Officer’s performance, exercise of delegated authority and changes to Bank’s policy guidelines.
Managers are also obliged to meet reporting and review requirements, to monitor credit risk exposure under their control and to report promptly any deteriorating situations that affect the Bank.

The Bank also ensures that all customers go through a comprehensive credit screening check as well as credit rating with other institutions.

The other component of the Bank’s rating system for customers is a Client Quality Rating (CQR).
This rating represents the Bank’s view as to the “financial health” of the business during the past and in future.

Furthermore, the Bank uses Credit Risk Rating (CRR) Systems, which was developed internally and integrates the different qualitative and quantitative variables of a borrower.

The grading method takes into focus the history of the borrower, its financial performance, regulatory mandates (e.g.
RBF regulations, Basel 2), industry/sectoral outlook, customer’s liquidity to meet his contractual obligation and the probable loss in the event of default, a factor of the security value taken to support the facility.

The credit risk grading system is robust and consistently applied on all borrowing customers.

Any exceptions or variations on the risk grading for specific borrower is brought to EXCO or Board for final approval.
The Bank considers and consolidates all elements of credit risk exposure (such as individual default risk, country risk and sector risk).

Forecasts are made using different statistical methodologies and pricing models in order to determine the relative volatility of the portfolios against market conditions.
This includes forms of analysis such as but not limited to value-at-risk; durated term of loan assets; interest rate elasticity and gaps, with the end-objective of maintaining a balance structure between the Bank’s assets and liabilities; and a balance between developmental and commercial activities.
As part of credit risk management process, portfolios are subjected to systematic stress tests in order to determine the probable loss of values due to changes in interest rates (financial market condition), default ratios and durated term structure.

The stress testing also covers asymmetric risk-radicals that are unexpectedly sprouted on the portfolio thereby changing the estimated risk pattern previously established.

CREDIT RISK CONCENTRATION The Bank lends to various industry sectors.
The concentration of credit risk in relation to these industry sectors is set out below: Industry Agriculture Building and construction Manufacturing Mining and quarrying Private individuals Professional and business services Real estate Transport, communication and storage Wholesale, retail, hotels and restaurants Others Total gross loans and advances 2016 $ 72,746,312 54,809,429 20,935,888 557,715 20,903,175 2,275,335 70,397,894 31,897,898 57,466,808 43,530,848 2015 $ 65,528,534 51,506,424 28,571,749 329,765 24,517,925 2,235,342 71,213,945 27,687,633 47,552,363 48,098,368 375,521,302 367,242,048 Celebrating Progress Fiji Development Bank2016 Annual Report 62 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 25 RISK MANAGEMENT POLICY (continued) Impaired and Past-Due Assets Non-accrual loans without individual assessed allowance THE BANK 2016 $ 2015 $ Gross Less: Interest and Fees suspended 9,574,510 (2,018,693) 5,789,455 (822,098) Net non-accrual loans without individual assessed allowance 7,555,817 4,967,357 Non-accrual loans with individual assessed allowance Gross Less: Interest and Fees suspended Less: individual assessed allowance 53,370,860 (13,877,451) 39,493,409 (35,693,523) 57,793,125 (15,346,710) 42,446,415 (22,280,263) Net non-accrual loans with individual assessed allowance 3,799,886 20,166,152 Restructured loans without individual assessed allowance Gross Less: Interest and Fees suspended Net restructured loans without individual assessed allowance Restructured loans with individual assessed allowance Gross Less: Interest and Fees suspended Less: individual assessed allowance - - - 106,387 (28,597) 77,790 (43,202) 95,396 (1,703) 93,693 117,234 (23,485) 93,749 (100,160) Net restructured loans with individual assessed allowance 34,588 (6,411) Other impaired loans Gross Less: Interest and Fees suspended Net other classified loans Total impaired and past-due loans Past-due loans Gross Less: Interest and Fees suspended Total past-due loans Celeb r a t i n g P rogress 394,705 - 394,705 188,707 - 188,707 11,784,996 25,409,498 55,379,292 (15,243,284) 47,496,385 (14,939,664) 40,136,008 32,556,721 Fiji Development Bank2016 Annual Report 63 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 25 RISK MANAGEMENT POLICY (continued) Default risk Default risk is a risk that some loans may not be repaid; implications of asset mix on risk based capital and asset quality on ability to leverage the bank’s capital.
Liquidity risk management Liquidity risk involves the inability of the Bank to fund increases in assets, manage unplanned changes in funding sources and to meet obligations when required, without incurring additional costs or inducing a cash flow crisis.

The Bank generates its funding through issuance of bonds, with one to seven years maturities, term deposits and promissory notes of maturities less than a year.
The Bank’s strong and effective liquidity risk management policy and framework ensures that Bank has sufficient liquid assets to meet liabilities that fall due in the short term and to meet any unexpected demands for funds by its depositors or creditors.

The Bank’s executive committee manages the Bank’s liquidity and cost of funds.

The Bank performs a daily cash forecast for the next three months (one quarter) to identify any probable liquidity stress points.
In addition to this, the Bank performs a stress-test on its cost of funds twice a month to measure any probable deviation from its forecasted forward rates and cost benchmarks by: • quantifying liquidity outflows in all scenarios for each risk driver; • identifying cash flows to mitigate liquidity shortfalls identified; • determine net liquidity position under each scenario.
Since the Bank does not have trading activities or hedge facilities to cushion unexpected liquidity gaps, it retains a policy of maintaining 10% of its total liability position in liquid assets at all times.

Fully aware of maturity mismatched between its assets and liabilities, the bank places a heavy emphasizes on collection efficiency of its lending units.
The determination of the adequacy of FDB’s liquidity position depends upon an analysis of the Bank’s position relative to the following factors: • historical funding requirements • current liquidity position • anticipated future funding needs • present and anticipated asset quality • present and future earning capacity • sources of funds.

All of the Bank’s borrowings are at interest rates that are fixed for the timing of the borrowing.
Therefore, there is no material sensitivity to changes in interest rates.

Celebrating Progress Fiji Development Bank2016 Annual Report 64 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 25 RISK MANAGEMENT POLICY (continued) Liquidity risk management (continued) Maturity Analysis The following analysis of Financial assets and liabilities is based on contractual terms.
The majority of longer term loans and advances are variable rate products.
2016 At call Assets $’000 Investments held to maturity 2,000 16,849 Loans and advances 1 day to 3 Over 3 months months to 1 year $’000 185 98,382 $’000 61 10,296 Over 1 year to 5 years Over 5 years Specific provision Total $’000 985 184,074 $’000 193 65,920 $’000 - (32,809) $’000 3,424 342,712 Total 18,849 10,357 98,567 185,059 66,113 (32,809) 346,136 Liabilities Other Liabilities Accounts Payables Borrowings 8,543 3,032 - - - 21,234 - - 60,456 - - 139,205 Total 11,575 21,234 60,456 139,205 - - 24 24 - - - 8,543 3,032 220,919 - 232,494 2015 Assets Investments held to maturity 2,000 13,101 Loans 61 5,355 185 81,490 985 203,373 440 63,923 - (22,492) 3,671 344,750 Total 15,101 5,416 81,675 204,358 64,363 (22,492) 348,421 Liabilities Other Liabilities Accounts Payables Borrowings 9,299 2,117 - - - 20,950 - - 57,650 - - 139,191 Total 11,416 20,950 57,650 139,191 - - 28 28 - - - 9,299 2,117 217,819 - 229,235 Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report 65 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 25 RISK MANAGEMENT POLICY (continued) Market risk Market risk refers to the uncertainty of future earnings resulting from changes in interest rates, exchange rates, market prices and volatilities.
Normally financial institutions assume market risk from consumer and corporate loans, position taking, and trading and investment activities.

The impacts of market risks to the Bank are on three dimensions, namely: • Interest rate movement as it impacts the overall weighted cost of funds; • As it impacts the interest rate margin; and • As it changes the value of the earning assets; or putting it in another perspective, as it changes the value-at-risk of earning assets.
The strategy for controlling Bank’s market risk involves: • Investing surplus funds in other Banks and financial institutions; • Stringent control and limits; • Timely Review of loan and deposit pricing; • Regular independent review of all controls and limits; and • Rigorous testing and auditing of all pricing, trading, risk management and accounting systems.
Market risk analysis is focused on the contemplated term of borrowing, which is then expressed by the rate offers of the Bond or Promissory Note buyers.

In line with the term structure of interest rate defined by the financial market (investors or lenders), the Bank further consider the impact of such rates to its overall cost of funds.
To achieve this, the Bank determines a benchmark on its weighted average cost of funds and stresses this benchmark by simulating different rate levels which the market may tender, when the Bank makes its offering.

In relation to overall cost of borrowings, the Bank re-calibrates its interest rate margin, which is the difference between the average interest yield of earning assets and the projected weighted average cost of funds.
To cure the probable risk on margins, the Bank uses the reference curve approach where the durated term of groups of earning assets is matched with the durated term of group of fund sources.

By matching the durated term and yield of earning assets with specific durated term and cost of borrowings, the target margin is often achieved under normal conditions.
While the Bank’s assets are of longer term maturities, they are repriced after a certain period thereby enabling the Bank to change its pricing structure and protecting its target interest margins.

The volatility of market interest rates impacts the value of the Bank’s earning assets (also known as value-at-risk).

While loan assets carry a repricing provision, they are committed for a fixed and long term, thereby making the asset structure immobile for probable contraction when warranted.
Given these conditionalities, the Bank forecasts the probable market interest rates and measures its value-at-risk on its assets under the forecast conditions.

Historical V-a-R is used to determine the relative depletion of asset value at existing conditions.

Forecast V-a-R is then computed base on simulated conditions, integrating thereto the other risk variables that would impact the value at risk.
The value-at-risk is analyzed base on “likelihood to happen” (very low, low, medium, high and very high) and the respective consequences of each likelihood which is then measured in terms of probable losses (dollar values – quantitative; and reputational impact - qualitative).
Sensitivity Analysis Market Risk Market risk sensitivity due to ± 2.50% fluctuation in weighted average lending rate As at June 2016 Increase in Lending Rate (+2.50%) Decrease in Lending Rate (-2.50%) Weighted Average Lending Rate (%) Interest Income ($) Impact on profit or loss ($) 5.25 23,854,646 8,226,679 7.75 9,388,033 9,388,033 2.75 (9,388,033) (9,388,033) Celebrating Progress Fiji Development Bank2016 Annual Report 66 FIJI DEVELOPMENT BANK AND ITS SUBSIDIARY COMPANY NOTES TO AND FORMING PART OF THE FINANCIAL STATEMENTS (CONTINUED) FOR THE YEAR ENDED 30 JUNE 2016 25 RISK MANAGEMENT POLICY (continued) OPERATIONAL RISK Operational risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events.
This definition includes legal risk but excludes strategic and reputational risk.

The Business & Risk Services Division, through its Portfolio Management Process & Procedure Unit develops the policies governing the operations of the Bank.

The Internal Audit Department oversees the implementation of these policies and procedures across the organization.

A more recent development is the application of Risk Base Audit in contrast with the traditional audit approach where compliance is the focus.
Most operational risks are best managed within the departments in which they arise.

However, overall planning, coordination, and monitoring should be provided by a centralized operational risk management department.

This should closely coordinate with market risk and credit risk management departments within an overall enterprise risk management framework.
26 NOTES TO THE STATEMENT OF CASH FLOWS For the purpose of the statement of cash flows, cash includes cash at bank and on hand and highly liquid financial assets with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in fair value, and are used by the Group in the management of its short-term commitments.
CONSOLIDATED THE BANK 2016 $ 2015 $ 2016 $ 2015 $ Cash 56,566,428 49,596,669 56,549,281 49,579,398 27 COMPARATIVES Where necessary, comparative information has been reclassified to achieve consistency in disclosure with current financial year amounts and other disclosures 28 SUBSEQUENT EVENTS There has not arisen in the interval between the end of the financial year and the date of this report any item, transaction or event of a material and unusual nature likely, in the opinion of the management, to affect significantly the operations of the Group or the Bank, the results of those operations, or the state of affairs of the Group or the Bank in subsequent financial years.
Celeb r a t i n g P rogress Fiji Development Bank2016 Annual Report Seaqaqa Labasa Savusavu Nabouwalu Taveuni Rakiraki Ba Lautoka Nadi Sigatoka Nausori Suva Suva Branch 360 Victoria Parade, G.P.O Box 104, Suva.

Ph: (679) 3314 866 Fax: (679) 3314 886 Ba Branch Varoka, P.O Box 110, Ba.

Ph: (679) 6674 211 Fax: (679) 6674 031 Labasa Branch Nasekula Road, P.O Box 41, Labasa.

Ph: (679) 8811 944 Fax: (679) 8814 009 Lautoka Branch 38 Vitogo Parade, P.O Box 716, Lautoka.
Ph: (679) 6660 639 Fax: (679) 6665 950 Nabouwalu Branch Nabouwalu, P.O.

Box 51, Bua.

Ph: (679) 8280 400 Fax: (679) 8280 401 Nadi Branch Main Street, P.O Box 1718, Nadi.

Ph: (679) 6701 900 Fax: (679) 6703 552 Nausori Branch 60 Main Street, P.O.Box 317, Nausori.

Ph: (679) 3477 277 Fax: (679) 3400 484 Savusavu Branch Hugh Street, Verevere P.O Box 42, Savusavu.

Ph: (679) 8850 055 Fax: (679) 8850 629 Seaqaqa Branch Seaqaqa Township, P.O Box 62, Seaqaqa.
Ph: (679) 8860 166 Fax: (679) 8860 168 Sigatoka Branch Vunasalu Road, P.O Box 81, Sigatoka.

Ph: (679) 6500 122 Fax: (679) 6520 399 Rakiraki Branch Vaileka Parade, P.O Box 82, Rakiraki.

Ph: (679) 6694 088 Fax: (679) 6694 784 Taveuni Branch Somosomo, P.O.

Box 215, Waiyevo, Taveuni.

Ph: (679) 8880 084 Fax: (679) 8880 057 HEAD OFFICE: 360 Victoria Parade, Suva, Fiji.

G.P.O.

Box 104, Suva, Fiji.

Ph: (679) 3314 866 Fax: (679) 3314 886 Website: www.fdb.com.fj Fiji Development Bank