Source document: https://docs-lawep.s3.us-east-2.amazonaws.com/1698079700790.pdf (Seychelles)
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED AUDITED ANNUAL FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 CONTENTS Corporate Information Directors' Report Independent Auditor's Report Statement of Financial Position Statement of Profit or Loss and Other Comprehensive Income Statement of Changes in Equity Statement of Cash Flows Notes to the Financial Statements PAGE 1 2 - 2(a) 3 - 3(d) 4 - 4(a) 5 6 7 8 - 68 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 1 CORPORATE INFORMATION BOARD OF DIRECTORS : Abdul Gafoor Yakub Ahmad Saeed David Howes Michael Bluemner Appointed effective July 1, 2021 Andrew Bainbridge Helene Maiche Michael Benstrong Odile Vidot Oliver Bastienne Resigned effective July 1, 2021 Anil Dua Damien Thesee Vincent Van Heyste SECRETARY : ACM Consultants (Pty) Limited PO Box 12890, First floor Allied Plaza, Francis Rachel Street, Victoria, Mahé, Seychelles REGISTERED OFFICE : Nouvobanq House, Victoria, Mahé, Seychelles AUDITORS : BDO Associates Chartered Accountants Seychelles SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 2 DIRECTORS' REPORT The Directors are pleased to present their report together with the audited financial statements of the Seychelles International Mercantile Banking Corporation Limited ("the Bank") for the year ended December 31, 2021.
PRINCIPAL ACTIVITIES The principal activities of the Bank consist of the provision of banking and financial services in Seychelles.

The Bank operates mainly locally and its offshore activities are negligible and; therefore no separate disclosures are presented in these Financial Statements.

There has been no change to these activities for the financial year under review.
RESULTS Profit for the year Retained earnings brought forward Retained earnings carried forward DIVIDENDS SR' 000 298,772 437,802 736,574 In light of the impact of the COVID-19 pandemic, the Central Bank of Seychelles (CBS) made key policy interventions and implemented several new measures to safeguard the soundness, stability and integrity of the Seychelles’ financial system and the broader economy.

One of the measures introduced was the prohibition of declaration of dividends by Financial institutions.
This directive was communicated during the second quarter of 2020, applicable to the financial years ended December 31, 2019 to December 31, 2020.

As a result the Directors did not declare any dividend for the financial year under review (2020: Same).

This directive was lifted by the CBS as part of the “Unwinding Strategy – Covid-19 Policy and Relief Measures” which was published in February 2022.
Commercial banks are now allowed to declare dividends for the financial year ended December 31, 2021 as per Section 31 of the Financial Institutions Act 2004 (amended).

[Refer to note 32] PROPERTY AND EQUIPMENT The property and equipment of the Bank and the movements therein are detailed in Note 8 to the financial statements.

Property and equipment are stated at cost less accumulated depreciation.
The Directors have estimated that the carrying amount of property and equipment at the reporting date approximate their fair value.
DIRECTORS' AND THEIR INTEREST IN THE BANK The Directors of the Company from the date of the last report and to-date are: Reappointment Appointed effective July 1, 2021 Resigned effective July 1, 2021 Abdul Gafoor Yakub Ahmad Saeed David Howes Michael Bluemner Andrew Bainbridge Helene Maiche Michael Benstrong Odile Vidot Oliver Bastienne Anil Dua Damien Thesee Vincent Van Heyste None of the Directors held any interest in the Bank during the financial year under review (2020: Nil).
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 2(a) DIRECTORS' REPORT (CONT'D) STATEMENT OF DIRECTORS' RESPONSIBILITIES The Directors are responsible for the overall management of the affairs of the Bank including the operations of the Bank and making investment decisions.
The Directors are responsible for the preparation and fair presentation of these financial statements in accordance with International Financial Reporting Standards (IFRS) and in compliance with the Companies Act 1972, the Financial Institutions Act 2004, as amended, and the regulations and directives of the Central Bank of Seychelles.
This responsibility includes: designing, implementing and maintaining internal control relevant to the preparation and fair presentation of financial statements that are free from material misstatement, whether due to fraud or error; selecting and applying appropriate accounting policies that fall within the accounting policies adopted by the Bank as a whole; and making accounting estimates that are reasonable in the circumstances.
The Directors have the general responsibility of safeguarding the Bank's assets.

The Directors confirms that the financial statements presented for audit are free from material misstatement and they have met their aforesaid responsibilities.

AUDITORS The retiring auditors, Messers.

BDO Associates, being eligible offer themselves for re-appointment.
BOARD APPROVAL Abdul Gafoor Yakub Director Ahmad Saeed Director David Howes Director Michael Bluemner Director Andrew Bainbridge Director Helene Maiche Director Michael Benstrong Director Odile Vidot Director Oliver Bastienne Director Dated: 28 APR 2022 Victoria, Seychelles SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2021 ASSETS Cash and bank balances Loans and advances Investment in financial assets Property and equipment Intangible assets Right-of-use assets Retirement benefit assets Deferred tax assets Other assets Total Assets LIABILITIES AND SHAREHOLDERS' EQUITY LIABILITIES Customers deposits Borrowings Retirement benefit obligation Current tax liabilities Other liabilities Total Liabilities EQUITY Share capital Statutory reserve Fair value reserve Actuarial gains Retained earnings Total Equity Notes 10(b) 11(a) 12(b) 13 14 15 11(a) 16(a) 17 18 19 20 20 4 2021 SR' 000 2020 SR' Total Liabilities and Equity 9,893,536 10,827,759 CONTINGENT LIABILITIES Guarantees, bills of collection, letters of credit, and other obligations on account of customers Loan commitments 30(a) 486,887 521,102 593,291 412,106 The notes on pages 8 to 68 form an integral part of these financial statements Auditor's Report on pages 3 to 3(d) SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31, 2021 4(a) These financial statements were approved for issue by the Board of Directors on: 28 APR 2022 Abdul Gafoor Yakub Director Ahmad Saeed Director David Howes Director Michael Bluemner Director Andrew Bainbridge Director Helene Maiche Director Michael
 Benstrong Director Odile Vidot Director Oliver Bastienne Director The notes on pages 8 to 68 form an integral part of these financial statements Auditor's Report on pages 3 to 3(d) SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED STATEMENT OF PROFIT OR LOSS AND OTHER COMPREHENSIVE INCOME FOR THE YEAR ENDED DECEMBER 31, 2021 5 Interest income Interest expense Net interest income Fees and commission income Fees and commission expense Net fee and commission income Net interest, fee and commission income Net trading income Other operating income Exceptional income - collateral realised Total operating income Non-interest expense Other operating expenses Depreciation of property and equipment Amortisation of intangibles Depreciation of right-of-use Total operating expenses Operating profit before impairment Expected credit loss credit/(charge) Profit before tax Tax expenses Profit for the year Other Comprehensive Income Notes 26 27 8 9 10(b) 29 16(b) 2021 SR' 000 297,391 (40,570) 256,821 88,124 (68,059) 20,065 276,886 151,731 3,227 - 431,844 (90,752) (12,416) (4,076) (4,105) 2020 SR' 000 278,756 (45,371) 233,385 65,453 (41,047) 24,406 257,791 157,818 2,295 144,960 562,864 (94,498) (12,268) (3,905) (2,607) (111,349) (113,278) 320,495 123,586 444,081 (145,309) 298,772 449,586 (180,870) 268,716 (51,341) 217,375 Items that will be reclassified to Statement of Profit or Loss Reserve on property foreclosed 26 - (124,600) Items that will not be reclassified to Statement of Profit or Loss Remeasurement of retirement benefit obligations (RBO) Deferred tax effect on remeasurement of RBO Net change in fair value of financial assets at FVTOCI Other Comprehensive Income net of tax for the year Total Comprehensive Income for the year 11(c) 12(b) 7(a)(ii) (7,023) 2,318 (87,895) (92,600) 12,890 (4,254) 128,704 12,740 206,172 230,115 The notes on pages 8 to 68 form an integral part of these financial statements Auditor's Report on pages 3 to 3(d) SEYCHELLES
 INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED DECEMBER 31, 2021 6 Reserve on Actuarial Share Statutory property Fair value gains/ Retained capital SR' 000 reserve foreclosed SR' 000 SR' 000 reserve SR' 000 (losses) SR' 000 earnings SR' 000 Total SR' 000 At January 1, 2021 100,000 100,000 - 295,220 5,919 437,802 938,941 Total Comprehensive Income for the year - - - (87,895) (4,705) 298,772 206,172 At December 31, 2021 100,000 100,000 - 207,325 1,214 736,574 1,145,113 At January 1, 2020 100,000 100,000 124,600 166,516 (2,717) 220,427 708,826 Total Comprehensive Income for the year - - (124,600) 128,704 8,636 217,375 230,115 At December 31, 2020 100,000 100,000 - 295,220 5,919 437,802 938,941 The notes on pages 8 to 68 form an integral part of these financial statements Auditor's Report on pages 3 to 3(d) SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED DECEMBER 31, 2021 7 Notes 2021 SR' 000 2020 SR' 000 444,081 268,716 OPERATING ACTIVITIES Profit before taxation Adjustments for: Expected credit loss (credit)/charge Interest accrued - receivable Depreciation of property and equipment Property and equipment written off Amortisation of intangible assets Amortisation of right-of-use assets Interest accrued - payable Retirement benefit obligations charge Effect of foreign exchange differences Impairment loss Operating profit before working capital changes Changes in working capital - Loans and advances - Other assets net of recycled fair value - Movement in mandatory balance with central bank - Customer deposits - Other liabilities Net cash generated from operations Employer's contribution and direct benefits paid Tax refund received Tax paid Net cash (outflow)/inflow from operating activities 29 6 & 7 8 8 9 10(b) 14 11(d)(ii) & (e) 13 5(b) 14 17 11(d)(ii) & (e) 16(a) 16(a) INVESTING ACTIVITIES Purchase of investments in financial assets Maturity of
 investments in financial assets Placement above three months net of short term investments Purchase of property and equipment Purchase of intangible assets Net cash outflow/(inflow) from investing activities FINANCING ACTIVITIES Borrowings received Borrowings repaid Repayment of principal portion of lease liabilities Net cash inflow from financing activities 7(a) 7(a) 5(b) 8 9 15 15 10(c) (123,586) (38,236) 12,416 - 4,076 4,105 9,863 812 (35,338) 278,193 421,632 2,085 210,885 (1,173,322) (24,445) (284,972) (1,315) - (105,495) (391,782) (5,715,090) 5,166,806 946,987 (5,081) - 393,622 180,870 (9,094) 12,268 118 3,905 2,607 12,905 3,762 (23,076) 452,981 (438,195) 41,601 (269,547) 3,013,161 (28,304) 2,771,697 (4,591) 3,114 (90,089) 2,680,131 (5,879,536) 5,223,974 (241,253) (4,232) (1,150) (902,197) 64,768 (3,384) (2,787) 58,597 28,948 (926) (2,564) 25,458 Net change in cash and cash equivalents 60,437 1,803,392 Movement in cash and cash equivalents: At January 1, Increase Effect of foreign exchange difference At December 31, 3,705,978 60,437 35,338 3,801,753 1,879,510 1,803,392 23,076 3,705,978 5(b) The notes on pages 8 to 68 form an integral part of these financial statements Auditor's Report on pages 3 to 3(d) SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 8 1.
GENERAL INFORMATION Seychelles International Mercantile Banking Corporation Limited is a limited liability company incorporated and domiciled in Seychelles.

The Bank holds a banking license issued by the Central Bank of Seychelles under the Financial Institutions Act, 2004 as amended.

The principal place of business is situated at the Nouvobanq House, Victoria, Mahé, Seychelles.

The principal activities of the Bank are as stated on page 2 of the Directors' Report.
These financial statements will be submitted for consideration and approval at the forthcoming Annual General Meeting of Shareholders of the Bank.

2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The principal accounting policies applied in the preparation of these financial statements are set out below.

These policies have been consistently applied for all years presented, unless otherwise stated.
Where necessary, comparative figures have been amended to conform with the change in presentation in the current year.
(a) Basis of preparation The financial statements of Seychelles International Mercantile Banking Corporation Limited have (IFRS) and been prepared in accordance with International Financial Reporting Standards interpretations issued by the IFRS Interpretations Committee (IFRS IC) applicable to companies reporting under IFRS and are in compliance with the Seychelles Companies Act, 1972, the Financial Institutions Act, 2004 as amended and Regulations and Directives of the Central Bank of Seychelles and presented in Seychelles Rupee (SR).
These financial statements have been prepared under the historical cost convention as modified by the application of fair value measurements required or allowed by relevant accounting standards.

The preparation of financial statements is in compliance with adopted IFRS which requires the use of certain critical accounting estimates.

It also requires Bank's Management to exercise judgement in applying the bank's accounting policies.
The areas where significant judgements and estimates have been made in preparing the financial statements and their effect are disclosed in note 4.

(b) Going concern The Directors consider that it is appropriate to continue to adopt the going concern basis in preparing these financial the Directors have considered the implications of the COVID-19 pandemic macroeconomic and geopolitical headwinds upon the Bank's performance and projected funding and capital position.
In reaching this assessment, statements.

(c) New and amended standards and interpretations (i) Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 & IFRS 16 The amendments provide temporary reliefs which address the financial reporting effects when an interbank offered rate (IBOR) is replaced with an alternative nearly risk-free interest rate (RFR).
The amendments include the following practical expedients: • A practical expedient to require contractual changes, or changes to cash flows that are directly required by the reform, to be treated as changes to a floating interest rate, equivalent to a movement in a market rate of interest; SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 9 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (c) New and amended standards and interpretations (Cont'd) (i) Interest Rate Benchmark Reform – Phase 2: Amendments to IFRS 9, IAS 39, IFRS 7, IFRS 4 & IFRS 16 (Cont'd) • • Permit changes documentation without the hedging relationship being discontinued; and required by IBOR reform to be made to hedge designations and hedge Provide temporary relief to entities from having to meet the separately identifiable requirement when an RFR instrument is designated as a hedge of a risk component.
These amendments had no impact on the consolidated financial statements of the Bank.

The Bank intends to use the practical expedients in future periods if they become applicable.

(ii) Covid-19-Related Rent Concessions beyond June 30, 2021 Amendments to IFRS 16 On 28 May 2020, the IASB issued Covid-19-Related Rent Concessions - amendment to IFRS 16 Leases.
The amendments provide relief to lessees from applying IFRS 16 guidance on lease modification accounting for rent concessions arising as a direct consequence of the Covid-19 pandemic.

As a practical expedient, a lessee may elect not to assess whether a Covid-19 related rent concession from a lessor is a lease modification.
A lessee that makes this election accounts for any change in lease payments resulting from the Covid-19 related rent concession the same way it would account for the change under IFRS 16, if the change were not a lease modification.
The amendment was intended to apply until June 30, 2021, but as the impact of the Covid-19 pandemic is continuing, on March 31, 2021, the IASB extended the period of application of the practical expedient to June 30, 2022.The amendment applies to annual reporting periods beginning on or after April 1, 2021.

However, the Company has not received Covid-19-related rent concessions.
(d) Standards, Amendments to published Standards and Interpretations issued but not yet effective Certain standards, amendments to published standards and interpretations have been issued that are mandatory for accounting periods beginning on or after January 1, 2022 or later periods, but which the Bank has not early adopted.
(i) The following amendments are effective for the period beginning January 1, 2022: • Onerous Contracts – Cost of Fulfilling a Contract (Amendments to IAS 37); • Annual Improvements to IFRS Standards 2018-2020 (Amendments to IFRS 1, IFRS 9, IFRS 16 and IAS 41); • Property, Plant and Equipment: Proceeds before Intended Use (Amendments to IAS 16); and • References to Conceptual Framework (Amendments to IFRS 3).
(ii) The following amendments are effective for the period beginning January 1, 2023: • Disclosure of Accounting Policies (Amendments to IAS 1 and IFRS Practice Statement 2); • Deferred Tax Related to Assets and Liabilities arising from a Single Transaction (Amendments to IAS 12); • Definition of Accounting Estimates (Amendments to IAS 8); and • IFRS 17 Insurance Contracts (effective January 1, 2023) - In June 2020, the IASB issued amendments to IFRS 17, including a deferral of its effective date to January 1, 2023.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 10 2.

SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (e) Foreign Currencies Functional and presentation currency Items included in the financial statements are measured using Seychelles Rupee, the currency of the primary economic environment in which the entity operates ("functional currency").
The Financial Statements of the Bank are presented in Seychelles Rupee, which is its functional and presentation currency.

Transactions and balances Foreign currency transactions are translated into the functional currency using the exchange rates prevailing on the dates of the transactions.
Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the Statement of Profit or Loss.

Non-monetary items that are measured at historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
Non-monetary items that are measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value was determined.

(f) Financial instruments (i) Initial recognition Financial assets and liabilities, with the exception of loans and advances to customers and balances due to customers, are initially recognised on the trade date, i.e., the date on which the Bank becomes a party to the contractual provisions of the instrument.
This includes regular way trades, i.e., purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place.

Loans and advances to customers are recognised when funds are transferred to the customers’ accounts.

The Bank recognises balances due to customers when funds are transferred to the Bank.
The classification of financial instruments at initial recognition depends on their contractual terms and the business model for managing the instruments.

Financial instruments are initially measured at their fair value, except in the case of financial assets and financial liabilities recorded at Fair Value Through the Statement of Profit or Loss (FVTPL), transaction costs are added to, or subtracted from, this amount.

Trade receivables are measured at their transaction prices.
(ii) Classification and measurement The Bank classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms, measured either at Amortised Cost or Fair Value Through Other Comprehensive Income (FVTOCI).

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 11 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (ii) Classification and measurement (Cont'd) Financial Assets measured at Amortised Cost The Bank measures Cash and cash equivalents, Loans and advances and Investment in financial assets and Other assets at amortised cost only if both of the following conditions are met: • • The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual cash flows; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest (SPPI) on the principal amount outstanding.
Business model assessment The Bank determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objectives: • • • The risks that affect the performance of the business model (and the financial assets held within that business model) and, in particular, the way those risks are managed; How managers of the business are compensated (for example, whether the compensation is based on the fair value of the assets managed or on the contractual cash flows collected); and Other factors considered by the Bank in determining the business model for a group of assets include past experience on how the cash flows for these assets were collected, performance of the asset’s is evaluated and reported to key management personnel, the expected frequency and value and timing of sales.
The SPPI test As a second step of its classification process the Bank assesses the contractual terms of the financial asset to identify whether they meet the solely payments of principal and interest (SPPI) test.

Principal, for the purpose of SPPI test, is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount).
The most significant elements of interest within a lending arrangement are typically the consideration for the time value of money and credit risk.

To make the SPPI assessment, the Bank applies judgement and considers relevant factors such as the currency in which the financial asset is denominated, and the period for which the interest rate is set.
In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are solely payments of principal and interest on the amount outstanding.

In such cases, the financial asset is required to be measured at FVTOCI.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 12 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (ii) Classification and measurement (Cont'd) Equity instruments measured at Fair Value Through Other Comprehensive Income (FVTOCI) Upon initial recognition, the Bank occasionally elects to classify irrevocably some of its equity investments as equity instruments at FVTOCI when they meet the definition of Equity under IAS 32 Financial Instruments: Presentation and are not held for trading.
Such classification is determined on an instrument-by-instrument basis.

Gains and losses on these equity instruments are never recycled to the Statement of Profit or Loss.

Dividends are recognised in the Statement of Profit or Loss as other operating income when the right of the payment has been established, except when the Bank benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in Statement of Other Comprehensive Income.
Equity instruments at Fair Value through Other Comprehensive Income are not subject to an impairment assessment.

Financial Liabilities measured at Amortised Cost After initial measurement, debt issued and other borrowed funds are subsequently measured at amortised cost.

Amortised cost is calculated by taking into account any discount or premium on issued funds, and costs that are an integral part of the Effective Interest Rate (EIR).
Financial guarantees, letters of credit and undrawn loan commitments The Bank issues financial guarantees, letters of credit and loan commitments.

Financial guarantees are initially recognised in the financial statements (within Provisions) at fair value, being the premium received.
Subsequent to initial recognition, the Bank’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the Statement of Profit or Loss, and an Expected Credit Loss (ECL) allowance.

The premium received is recognised in the Statement of Profit or Loss in "fees and commission income" on a straight line basis over the life of the guarantee.
Undrawn loan commitments and letters of credits are commitments under which, over the duration of the commitment, the Bank is required to provide a loan with pre-specified terms to the customer.

Similar the ECL requirements.

these contracts are within the scope of to financial guarantee contracts, letters of credit and undrawn loan The nominal contractual value of commitments, where the loan agreed to be provided is on market terms, are not recorded in the Statement of Financial Position.
The Bank has not provided any commitment to provide loans at a below-market interest rate, or that can be settled net in cash or by delivering or issuing another financial instrument.

financial guarantees, SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 13 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (iii) Reclassification of financial assets and liabilities Financial assets are reclassified only when the business model for managing the portfolio as a whole changes.

The reclassification has a prospective effect and takes place from the beginning of the first reporting period that follows after the change in the business model.
The Bank did not change its business model during the current and comparative period and did not make any reclassifications.

However financial liabilities will never be reclassified but continue to be classified as 'at amortised cost'.

(iv) Derecognition of financial assets and liabilities Derecognition of financial assets due to substantial modification of terms and conditions The Bank sometimes renegotiates or otherwise modifies the contractual cash flows of loans to customers.
When this happens, the Bank assesses whether or not the new terms are substantially different to the original terms.
The Bank does this by considering, among others, the following factors: - - - - - - If the borrower is in financial difficulty, whether the modification merely reduces the contractual cash flows to amounts the borrower is expected to be able to pay; Whether any substantial new terms are introduced, such as a profit share/equity-based return that substantially affects the risk profile of the loan; Significant extension of the loan term when the borrower is not in financial difficulty; Significant change in the interest rate; Change in the currency the loan is denominated in; and Insertion of collateral, other security or credit enhancements that significantly affect the credit risk associated with the loan.
If the terms are substantially different, the Bank derecognises the original financial asset and recognises a ‘new’ asset at fair value and recalculates a new effective interest rate for the assets.

The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purposes, including for the purpose of determining whether a significant increase in credit risk has occurred.
However, the Bank also assesses whether the new financial asset recognised is deemed to be credit- impaired at initial recognition, especially in circumstances where the renegotiation was driven by the debtor being unable to make the originally agreed payments.

Differences in the carrying amount are also recognised in the Statement of Profit or Loss in net impairment of financial assets.
If the terms are not substantially different, the renegotiation or modification does not result in derecognition, and the Bank recalculates the gross carrying amount based on the revised cash flows of the financial asset and recognises a modification gain or loss in the Statement of Profit or Loss.
The new gross carrying amount is recalculated by discounting the modified cash flows at the original effective interest rate (or credit-adjusted effective interest rate for purchased or originated credit- impaired financial assets).

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 14 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (iv) Derecognition of financial assets and liabilities (Cont'd) Financial asset derecognition other than on a modification Financial assets, or a portion thereof, are derecognised when the contractual rights to receive the cash flows from the assets have expired, or when they have been transferred and either (i) the Bank transfers substantially all the risks and rewards of ownership, or (ii) the Bank neither transfers nor retains substantially all the risks and rewards of ownership and the Bank has not retained control.
If the Bank enters into transactions where it retains the contractual rights to receive cash flows from assets but assumes a contractual obligation to pay those cash flows to other entities and transfers substantially all of the risks and rewards.
These transactions are accounted for as ‘pass through’ transfers that result in derecognition if the Bank: - - - Has no obligation to make payments unless it collects equivalent amounts from the assets; Is prohibited from selling or pledging the assets; and Has an obligation to remit any cash it collects from the assets without material delay.

Derecognition of financial liabilities A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
Where an existing financial liability is replaced by another from the same lender on substantially different terms, or the terms of an existing liability are substantially modified, such an exchange or modification is treated as a derecognition of the original liability and the recognition of a new liability.

The difference between the carrying value of the original financial liability and the consideration paid is recognised in the Statement of Profit or Loss.
(v) Impairment of financial assets (i) Overview of the ECL principles The Bank records an allowance for Expected Credit Loss (ECL) for all loans and receivables and other debt financial assets not held at FVPL, together with loan commitments and financial guarantee contracts, in this section all referred to as ‘financial instruments’.
The ECL allowance is based on the credit losses expected to arise over the life of the asset (the lifetime expected credit losses or LTECL), unless there has been no significant increase in credit risk since origination, in which case, the allowance is based on the 12 months’ expected credit losses (12mECL).

The Bank’s policies for determining if there has been a significant increase in credit risk are set out in note 3.3.3(f).
The 12mECL is the portion of LTECLs that represent the ECL that result from default events on a financial instrument that are possible within the 12 months after the reporting date.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 15 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (v) Impairment of financial assets (i) Overview of the ECL principles (Cont'd) Both LTECL and 12mECL are calculated on either an individual basis or a collective basis, depending on the nature of the underlying portfolio of financial instruments.

The Bank’s policy for grouping financial assets measured on a collective basis is explained in note 3.3.3(b) .
The Bank has established a policy to perform an assessment, at the end of each reporting period, of whether a financial instrument’s credit risk has increased significantly since initial recognition, by considering the change in the risk of default occurring over the remaining life of the financial instrument.

This is further explained in note 3.3.3(f) .


Based on the above process, the Bank groups its loans into Stage 1, Stage 2 and Stage 3, as described below: Stage 1: When loans are first recognised, the Bank recognises an allowance based on 12mECL.

Stage 1 loans also include facilities where the credit risk has improved and the loan has been reclassified from Stage 2.
(Refer to 3.3.3(g)) Stage 2: When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the LTECL.

Stage 2 loans also include facilities, where the credit risk has improved and the loan has been reclassified from Stage 3.

(Refer to 3.3.3(g)) Stage 3: Loans considered credit-impaired (as outlined in note 3.3.3(a)) , the Bank records an allowance for the LTECL.
(ii) The calculation of ECL The Bank calculates ECL based on probability of default (PD) to measure the expected cash shortfalls, discounted at an approximation to the EIR.

A cash shortfall is the difference between the cash flows that are due to a Bank in accordance with the contract and the cash flows that the entity expects to receive.
The mechanics of the ECL calculations are outlined below and the key elements are, as follows: PD PD is defined as the probability that a borrower will be unable to meet a debt obligation over a stipulated time.

The PD estimate incorporates information relevant to assess the borrower's ability and willingness to repay debts, as well as information about the economic environment in which the borrower operates.
A default may only happen at a certain time over the assessed period, if the facility has not been previously derecognised and is still in the portfolio.

The concept of PD is further explained in note 3.3.3(c)(ii) .

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 16 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (v) Impairment of financial assets (Cont'd) (ii) The calculation of ECL (Cont'd) The mechanics of the ECL calculations are outlined below and the key elements are, as follows (Cont'd): EAD The Exposure at Default (EAD) is an estimate of the exposure at a future default date, taking into account expected changes in the exposure after the reporting date, including repayments of principal and interest, whether scheduled by contract or otherwise, expected drawdowns on committed facilities, and accrued interest from missed payments.
The EAD is further explained in note 3.3.3(d) .

LGD The Loss Given Default is an estimate of the loss arising in the case where a default occurs at a given time.

It is based on the difference between the contractual cash flows due and those that the lender would expect to receive, including from the realisation of any collateral or credit enhancements that are integral to the loan and not required to be recognised separately, as set out in note 2(f)(vi).
It is usually expressed as a percentage of the EAD.

The LGD is further explained in note 3.3.3(e) .

The maximum period for which the credit losses are determined is the contractual life of a financial instrument unless the Bank has a legal right to call it earlier.

Impairment losses and releases are accounted for and disclosed separately from modification losses or gains that are accounted for as an adjustment of the financial asset’s gross carrying value.
The calculation of ECL including the ECL related to the undrawn element if any is as explained below: Stage 1 - The 12mECL is calculated as the portion of LTECL that represents the ECL resulting from default events on a financial instrument that are possible within the 12 months after the reporting date.

The Bank calculates the 12mECL allowance based on the expectation of a default occurring in the 12 months following the reporting date.
These expected 12-months default probabilities are applied to a forecast EAD and multiplied by the expected LGD and discounted by an approximation to the original EIR.

Stage 2 - When a loan has shown a significant increase in credit risk since origination, the Bank records an allowance for the LTECL.

The mechanics are similar to those explained on stage 1 assets, including the use of multiple scenarios, but PDs and LGDs are estimated over the lifetime of the instrument.
The expected cash shortfalls are discounted by an approximation to the original EIR.

Stage 3 - For loans considered credit-impaired (as defined in note 3.3.3(a)), the Bank recognises the lifetime expected credit losses for these loans.

The method is similar to that for Stage 2 assets, with the PD set at 100%.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 17 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (v) Impairment of financial assets (Cont'd) (ii) The calculation of ECL (Cont'd) Loan commitments and letters of credit - When estimating LTECL for undrawn loan commitments, the Bank estimates the expected portion of the loan commitment that will be drawn down over its expected life.
The ECL is then based on the present value of the expected shortfalls in cash flows if the loan is drawn down, based on a probability of default.

The expected cash shortfalls are discounted at an approximation to the expected EIR on the loan.

For 'Deferred cards' and related undrawn commitment if any, ECL is calculated and presented together with 'Provision' same as loan commitments and letters of credit, the ECL is recognised within provisions under other liabilities.
To the extent that the combined expected credit losses exceed the gross carrying amount of the loan, the expected credit losses are recognised as a provision.

Financial guarantee contracts - The Bank’s liability under each guarantee is measured at the higher of the amount initially recognised less cumulative amortisation recognised in the Statement of Profit or Loss, and the ECL provision.
For this purpose, the Bank estimates ECL based on the present value of the expected payments to reimburse the holder for a credit loss that it incurs.

The shortfalls are discounted by the risk-adjusted interest rate relevant to the exposure.

The calculation is made using a probability of default and the ECL is recognised within provisions under other liabilities.
(iii) Purchased or originated credit impaired financial assets (POCI) For POCI financial assets, the Bank only recognises the cumulative changes in LTECL since initial recognition in the loss allowance.

There were however none during the period under review.

(iv) Deferred cards The Bank’s products offering includes a variety of corporate and retail credit cards facilities termed Deferred card, in which the Bank has the right to cancel and/or reduce the facilities with one day’s notice.
The Deferred cards portfolio of the Bank has not been combined with the retail portfolio.

The deferred cards portfolio has not seen any historical defaults within the Bank.

This portfolio is secured and backed by eligible financial collaterals.

The ongoing assessment of whether a significant increase in credit risk has occurred for revolving facilities is similar to other lending products.
This is based on shifts in the customer’s internal credit grade, as explained in note 3.3.3(c) , but greater emphasis is also given to qualitative factors such as changes in usage.

The calculation of ECL, including the estimation of the expected period of exposure and discount rate is made, as explained in note 3.3.3(b) , on a collective basis.

The collective assessments are made separately for portfolios of facilities with similar credit risk characteristics.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 18 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (v) Impairment of financial assets (Cont'd) (v) Forward looking information The Bank incorporates forward looking information/Macro economic overlay on retail and corporate portfolio through the following methods: The Bank uses general government gross debt and current account balance as percent of GDP specific to Seychelles on Corporate portfolio while GDP per capita at constant prices, total investments as percent of GDP and general government net debt) for Retail Portfolio.
The forward looking estimates were arrived through computation of a five year macroeconomic scalar for the above segments.

The scalar is multiplied on a rolling basis to the PD term structure to arrive at the macroeconomic adjusted PD term structure.

(vi) Credit enhancements: collateral valuation and financial guarantees To mitigate its credit risks on financial assets, the Bank seeks to use collaterals, where possible.
The collaterals come in various forms, such as cash, securities, letters of credit/guarantees, real estate, receivables, inventories and other non-financial assets.

Collateral, unless repossessed, is not recorded on the Bank’s Statement of Financial Position.
Cash flows expected from credit enhancements which are not required to be recognised separately by IFRS standards and which are considered integral to the contractual terms of a financial asset which is subject to ECL, are included in the measurement of those ECL.

On this basis, the fair value of collaterals affect the calculation of ECL.

Collateral is generally assessed, at a minimum, at inception and re-assessed on practical basis by Management.
However, some collaterals, for example, cash or securities relating to margining requirements, is valued daily.

The Bank does not use active market data for valuing financial assets held as collaterals.

The Bank relies on the market value provided by professional valuers as at the time a request is made.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 19 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (f) Financial instruments (Cont'd) (vi) Credit enhancements: collateral valuation and financial guarantees (Cont'd) Guarantees held are included in the measurement of loan ECLs when either they are specified in the contractual terms of the loan or else are integral to the loan, in that they formed part of the basis on which the loan was extended.
Guarantees that are not integral to the loan’s contractual terms are accounted as separate units of accounts subject to ECL.

(vii) Write-offs Financial assets are written-off, in whole or in part, when the Bank exhausted all practical recovery efforts and has concluded that there is no reasonable expectation of recovery.

The write-off represents a derecognition event.


Indicators that there is no reasonable expectation of recovery include among others, customer files for bankrupcy, the failure of a customer to engage in a repayment plan with the Bank, and a failure to make contractual payments for a period of greater than 365 days past due.
The Bank may write-off financial assets that are still subject to enforcement activity when the Bank seeks to recover amounts that are contractually due, however, there is no reasonable expectation of recovery.
(g) Cash and cash equivalents Cash and cash equivalents as referred to in the Statement of Cash Flows comprises cash on hand, highly liquid financial assets that are subject to an insignificant risk of changes in their fair value and are used by the Bank in the management of its short-term commitments, non–restricted current accounts with Central Bank of Seychelles and amounts due from banks on demand or with an original maturity of three months or less and bank overdrafts.
(h) Fair value 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.

The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either in the principal market for the asset or liability or in the absence of a principal market, in the most advantageous market for the asset or liability.
The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest.

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 unobservable inputs.
All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 20 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (h) Fair value (Cont'd) Level 1 - Quoted (unadjusted) market prices in active markets for identical assets or liabilities.

Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable.

Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the Bank determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period.

(i) Property and equipment Property and equipment are carried at historical cost less accumulated depreciation.
Historical cost includes expenditure that is directly attributable to the acquisition of the items.

Subsequent costs are included in the assets' carrying amount or recognised as a separate asset as appropriate, only when it is probable that future economic benefits associated with the item will flow to the Bank and the cost of the item can be measured reliably.
Depreciation is calculated on the straight line method to write off the cost of the assets to their residual values over their estimated useful life as follows: Buildings Leasehold improvements Furniture and fittings Office equipment Premises' fixed equipment Motor vehicles Years Leasehold period Leasehold period 5 5 5 to 10 4 The assets' residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period.
Where the carrying amount of an asset is greater than its estimated recoverable amount, it is written down immediately to its recoverable amount.

(as outlined on note 2(l)) Gains and losses on disposals of property and equipment are determined by comparing the proceeds with their carrying amount and are included in the Statement of Profit or Loss.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 21 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (j) Leases The Bank assesses at contract inception whether a contract is, or contains, a lease.

That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration.

The Bank applies a single recognition and measurement approach for all leases, except for short-term leases and leases of low-value assets.
The Bank recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets.

Right-of-use assets The Bank recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use).

Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities.
The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received.

Right-of-use assets are depreciated on a straight-line basis over the lease term.

The right-of-use assets are subject to impairment in line with the Bank’s policy as described in note 2(l) impairment of non-financial assets.
Lease liabilities At the commencement date of the lease, the Bank recognises lease liabilities measured at the present value of lease payments to be made over the lease term.

The lease payments include fixed payments (less any lease incentives receivable), variable lease payments that depend on an index or a rate, and amounts expected to be paid under residual value guarantees.
The lease payments also include the exercise price of a purchase option reasonably certain to be exercised by the Bank and payments of penalties for terminating the lease, if the lease term reflects exercising the option to terminate.

Variable lease payments that do not depend on an index or a rate are recognised as expenses in the period in which the event or condition that triggers the payment occurs.
(k) Intangible assets Acquired computer software Intangible assets comprise of software and licenses which have a finite economic life.

Acquired computer software and licenses are capitalised on the basis of costs incurred to acquire and bring to use the specific software and are amortised using the straight line method over the estimated useful life of 5 years.

The amortisation period and the amortisation method are reviewed at least at the end of each reporting period.
Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 22 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (k) Intangible assets (Cont'd) The amortisation expense on intangible assets is recognised in the Statement of Profit or Loss.

Computer software is subject to impairment in line with the Bank’s policy as described in note 2(l) impairment of non-financial assets.
(l) Impairment of non-financial assets The Bank assesses, at each reporting date, whether there is an indication that Property and equipment, Right of use assets, Intangible assets and Other assets may be impaired.

If any indication exists, or when annual impairment testing for an asset is required, the Bank estimates the asset’s recoverable amount.

An asset’s recoverable amount is the higher of an asset’s or cash generating unit's (CGU) fair value less costs of disposal and its value in use.
The recoverable amount is determined for an individual asset, unless the asset does not generate cash inflows that are largely independent of those from other assets or groups of assets.

When the carrying amount of an asset or CGU exceeds its recoverable amount, the asset is considered impaired and is written down to its recoverable amount.
In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset.

In determining fair value less costs of disposal, recent market transactions are taken into account.

If no such transactions can be identified, an appropriate valuation model is used.
Impairment losses are recognised in the Statement of Profit or Loss in Other operating expenses.

(m) Taxation Current tax Tax in the Statement of Profit or Loss relates to current year's tax which is the expected amount of tax payable in respect of taxable profit for the year and is measured using the tax rates that have been enacted at the end of the reporting period.
Deferred tax Deferred tax is provided for using the liability method on all taxable temporary differences arising between the tax bases of assets and liabilities and their carrying amounts in the financial statements.

The principal temporary differences arise from depreciation of equipment, provision for credit impairment on loans and advances, provision for retirement benefit obligation, excess of lease obligation over right-of-use, cummulative actuarial gains/losses.
Deferred tax assets and liabilities are measured at the tax rates that are expected to apply in the year when the asset is realised or the liability is settled.

The tax rates (and tax laws) that have been enacted or substantively enacted at the reporting date are used to determine deferred tax.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 23 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (m) Taxation (Cont'd) Current and deferred taxes are recognised as income tax benefits or expenses in the Statement of Profit or Loss except for tax related to remeasurement of actuarial gains/losses which are charged or credited to Statement of Other Comprehensive Income.

Deferred tax assets are recognised to the extent that it is possible that future taxable profit will be available against which the temporary differences can be utilised.
(n) Retirement benefit obligations (i) Short-term employee benefits The cost of short-term employee benefits, (those payable within 12 months after the service is rendered, such as paid vacation leave and sick leave, bonuses, and non-monetary benefits such as medical care), are recognised in the period in which the service is rendered and are not discounted.
The expected cost of compensated absences is recognised as an expense as the employees render services that increase their entitlement or, in the case of non-accumulating absences, when the absence occurs.

The expected cost of profit sharing and bonus payments is recognised as an expense when there is a legal or constructive obligation to make such payments as a result of past performance.
(ii) Defined contribution plans A defined contribution plan is a pension plan under which the Bank pays a fixed contribution into a separate entity.

The Bank has no legal or constructive obligations to pay further contributions if the funds do not hold sufficient assets to pay all employees the benefits relating to employees service in the current and prior periods.

The Bank and Seychellois employees contributes to the Seychelles Pension Fund (SPF).
This is a pension scheme which was promulgated under the Seychelles Pension Fund Act, 2005.

(iii) Length of service compensation The amendments to the Seychelles Employment Act in the year 1999 entitled one day wage for each completed month of service provided the employee has completed five years continuous service.

The Bank accrues this liability on a current basis and carries it to a provision account for payments to be made as and when they occur.
(iv) Defined benefit plan A defined benefit plan is a pension plan that is not a defined contribution plan.

Typically defined benefit plans define an amount of pension benefit that an employee will receive on retirement, usually dependent on one or more factors such as age, years of service and compensation.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 24 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (n) Retirement benefit obligations (Cont'd) (iv) Defined benefit plan (Cont'd) The liability recognised in the Statement of Financial Position in respect of the defined benefit plan is the present value of the defined obligation at the reporting period less fair value of plan assets.

The defined benefit obligation is calculated annually by independent actuaries using the projected unit credit method.
Remeasurement of the net defined benefit liability, which comprise actuarial gains and losses arising from experience adjustments and changes in actuarial assumptions, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest), is recognised immediately in other comprehensive income in the period in which they occur.
Remeasurements are accumulated in a separate reserve and will not be reclassified to the Statement of Profit or loss in the subsequent periods.

The Bank recognises the following changes in the net benefit obligation under 'employment benefit expenses 'in the Statement of Profit or Loss: - Service costs comprising current service costs, past-service costs, gains and losses on curtailments and non-routine settlements; and - Net interest expense or income.
(o) Provisions Provisions are recognised when the Bank has a present legal or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made.
When the Bank expects some or all of a provision to be reimbursed, for example, under an insurance contract, the reimbursement is recognised as a separate asset, but only when the reimbursement is virtually certain.

The expense relating to a provision is presented in the Statement of Profit or Loss net of any reimbursement.
(p) Equity reserves The reserves recorded in equity on the Bank’s Statement of Financial Position include: The cumulative net change in the fair value of Equity instruments classified at FVTOCI; The statutory reserve is maintained in accordance with section 24(1) of the Financial Institutions Act 2004 as amended; Unrealised profits emanating from assets repossesed for which loans and advances had been previously written off.
This is subsequntly released to the Statement of Other Comprehensive Income upon disposal of the repossessed assets.

(refer to note 2(f)(vii)); and Cumulative actuarial gains/losses emanating from defined benefit obligation.

(as set out on note n (ii)).

- - - - SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 25 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (q) Dividends on ordinary shares Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank’s Shareholders and Central Bank of Seychelles.

Interim dividends are deducted from equity when they are declared and are no longer at the discretion of the Bank.

Dividends for the year that are approved after the reporting date are disclosed as an event after the reporting date.
(r) Interest income and expense (i) The effective interest rate (EIR) method Under IFRS 9, interest income is recorded using the EIR method for all financial assets measured at amortised cost.

Interest income on interest bearing financial assets measured at FVOCI under IFRS 9 is also recorded using the EIR method.

Interest expense is also calculated using the EIR method for all financial liabilities held at amortised cost.
The EIR is the rate that exactly discounts estimated future cash receipts through the expected life of the financial asset or liability or, when appropriate, a shorter period, to the gross carrying amount of the financial asset.

The EIR (and therefore, the amortised cost of the financial asset) is calculated by taking into account transaction costs and any discount or premium on the acquisition of the financial asset, as well as fees and costs that are an integral part of the EIR.
The Bank recognises interest income using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loan.

Hence, the EIR calculation also takes into account the effect of potentially different interest rates that may be charged at various stages of the financial asset’s expected life, and other characteristics of the product life cycle (including prepayments, penalty interest and charges).
If expectations of fixed rate financial assets’ or liabilities’ cash flows are revised for reasons other than credit risk, then changes to future contractual cash flows are discounted at the original EIR with a consequential adjustment to the carrying amount.
The difference from the previous carrying amount is booked as a positive or negative adjustment to the carrying amount of the financial asset or liability on the Statement of Financial Position with a corresponding increase or decrease in Interest revenue/expense calculated using the effective interest method.
For floating-rate financial instruments, periodic re-estimation of cash flows to reflect the movements in the market rates of interest also alters the effective interest rate, but when instruments were initially recognised at an amount equal to the principal, re-estimating the future interest payments does not significantly affect the carrying amount of the asset or the liability.
(ii) Interest and similar income/expense Net interest income comprises interest income and interest expense calculated using both the effective interest method and other methods.

These are disclosed separately on the face of the Statement of Profit or Loss for both interest income and interest expense to provide symmetrical and comparable information.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 26 2.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONT'D) (r) Interest income and expense (Cont'd) (ii) Interest and similar income/expense (Cont'd) Interest income/expense is calculated using the effective interest method, the Bank only includes interest on those financial instruments that are set out in note 2(r)(i) above.

Interest income/expense on all trading financial assets/liabilities is recognised as a part of the fair value change in ‘Net trading income’.
The Bank calculates interest income on financial assets, other than those considered credit-impaired, by applying the EIR to the gross carrying amount of the financial asset.

When a financial asset becomes credit-impaired as set out in note 3.3.3(a ) and is therefore regarded as ‘Stage 3’, the Bank calculates interest income by applying the EIR to the net amortised cost of the financial asset.
If the financial asset cures (as outlined in note 3.3.3(a) ) and is no longer credit- impaired, the Bank reverts to calculating interest income on a gross basis.

For purchased or originated credit-impaired (POCI) financial assets (as set out in note 3.3.3(a)) , the Bank calculates interest income by calculating the credit-adjusted EIR and applying that rate to the amortised cost of the financial asset.
The credit-adjusted EIR is the interest rate that, at initial recognition, discounts the estimated future cash flows (including credit losses) to the amortised cost of the POCI financial asset.

However for the financial years 2021 and 2020 the Bank did not recognise interests of all loans and advances that were 90 days past due.

These were credited to an interest in suspense account and adjusted to Loan and advance balance under (note 6) .
The Bank release suspended interest once outstanding dues have been cleared per the backward transition explained on note 3.3.3(g) .

(s) Fees and commission Fees and commissions are recognised on an accrual basis when the service has been provided.
Commission and fees arising from negotiating, or participating in the negotiations of a transaction for a third party, such as the acquisition of loans, shares or other securities or the purchase or sale of businesses, are recognised on completion of the underlying transaction.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 27 3.
FINANCIAL RISK MANAGEMENT 3.1 Financial risk factors and management The Bank's activities expose it to a variety of financial risk, market risk (including currency and fair value interest risk), credit risk and liquidity risk.

It's overall risk management programme focuses on the unpredictability of financial markets and seeks to minimise potential adverse effect of the Bank's financial performance.
The Bank also seeks to raise its interest margins, net of provisions, through lending to commercial and retail borrowers with a range of credit standing.

Its exposures are not restricted to just on- Statement of Financial Position loans and advances but also to other commitments such as acceptances, letters of credit and bank guarantees.

A description of the significant risks is given as follows together with the risk management policies applicable.
It is the Bank's policy to take deposits from customers at variable rates mostly by investing these funds in a wide range of assets.

3.2 Capital adequacy In line with requirements of the Financial Institutions (Capital Adequacy) Regulations 2010, capital adequacy ratio is closely monitored in line with the requirements of the Financial Institutions Act, 2004 as amended and those of the Central Bank of Seychelles.
The ratio is given below: Capital Base: Tier I Capital Tier II Capital Total Capital Base (a) Total Risk Weighted Assets for Credit risk Operational Risk Capital Requirement Total Risk-adjusted Assets (b) Capital adequacy (a/b)*100 Minimum requirement 2021 SR'000 2020 SR'000 936,574 41,768 978,342 637,802 26,260 664,062 3,175,753 610,878 3,786,631 3,932,755 529,055 4,461,810 25.84% 14.88% 12% 12% The Bank has adhered to the capital requirements of Central Bank of Seychelles for the year under review.
3.3 Credit risk The Bank is exposed to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower.

Such risks are monitored on a revolving basis and are subject to frequent reviews.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 28 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.3 Credit risk (Cont'd) Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these limits where appropriate.

Exposure to credit risk is also managed by obtaining collateral and personal guarantees.

3.3.1 Credit risk management Bank’s approach to credit risk management is based on the foundation of independence and integrity of risk management.
This is ensured through a well-defined and robust organisation structure duly supported by various risk committees, forums, systems, policies, procedures and processes providing a strong risk infrastructure and management framework.

The Bank’s credit policy focuses on the core credit principles, lending guidelines and parameters, control and monitoring requirements, problem loan identification, management of high risk counterparties and provisioning.
Standard procedures specific to businesses have been established to manage various types of risks across different business segments, products and portfolios.

Portfolio performance is periodically measured against risk appetite parameters and breaches if any are actioned by the Bank’s Senior Management.

(a) Retail & Corporate banking credit risk management Credit facilities are granted based on the detailed credit risk assessment of the counterparty.
The assessment considers amongst other things the purpose of the facility, sources of re-payment, prevailing and potential macro-economic factors, industry trends, customers’ credit worthiness and standing within the industry.

The credit facility administration process is undertaken by an independent function to ensure proper execution of all credit approvals, maintenance of documentation and proactive controls over maturities, expiry of limits and collaterals.
Operations are managed by independent units responsible for processing transactions in line with credit approvals and standard operating guidelines.

The Bank has a well-defined process for identification and management of Early Alert (EA), Watch List (WL) & Impaired Non Performing Loans (NPL).

There are policies which govern credit review of EA, WL & NPL accounts and impairment, in line with Basel Guidelines, International Financial Reporting Standards and regulatory guidelines.
(b) Consumer banking credit risk management The Bank has a structured management framework for Consumer Banking risk management.

The framework enables the Bank in identification and evaluation of the significance of all credit risks that the Bank faces, which may have an adverse material impact on its financial position.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 29 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.3 Credit risk (Cont'd) 3.3.1 Credit risk management (Cont'd) (b) Consumer banking credit risk management In the Consumer Banking portfolio, losses stem from outright default due to inability or unwillingness of a customer to meet commitments in relation to lending transactions.

The Bank’s provisioning policy, which is in line with the IFRS and the regulatory guidelines, allows the Bank to prudently recognise impairment on its portfolios.
3.3.2 Credit–related commitments risks The main purpose of these instruments is to ensure that funds are available to a customer as required.

Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as loans.
Documentary and commercial letters of credit, which are written undertakings by the Bank to pay a third party, on behalf of its customers up to a stipulated amount under specific terms and conditions, are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct borrowing.

Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit.
With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments.

However, the likely amount of loss is less than the total unused commitments since most commitments to extend credit are contingent upon customers continuously adhering to specific credit standards.
The Bank monitors the term to maturity of credit commitments because longer term commitments generally have a greater degree of credit risk than shorter term commitments.

3.3.3 Impairment assessment The Bank’s impairment assessment and measurement approach is set out below.

It should be read in conjunction with the summary of significant accounting policies note 2(f)(v).
(a) Definition of default and impairment The Bank considers a financial instrument defaulted for ECL calculations in all cases when the borrower becomes 90 days past due on its contractual payments unless the entity has reasonable and supportable information to demonstrate that a more lagging default criterion is more appropriate.
The Bank considers treasury and interbank balances defaulted and takes immediate action when the required intraday payments are not settled by the close of business as outlined in the individual agreements.

In addition, the Bank may identify certain exposures as defaulted where, in the opinion of the Management, there is a threat of the exposure having to be classified as default in a short period of time.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 30 3.

FINANCIAL RISK MANAGEMENT (CONT'D) 3.3 Credit risk (Cont'd) 3.3.3 Impairment assessment (Cont'd) (a) Definition of default and impairment (Cont'd) The Bank has aligned its definition of credit impaired assets under IFRS 9 to prudent global definition of non-performing loans (‘NPLs’).
(b) Segmentation of financial assets The Bank extends credit facilities to individual customers and to corporate entities.

Its portfolio is broadly categorized as detailed below: Corporate portfolio include overdraft and term loans.

This has been segmented based on the size of each industry within the loan book.
Real estate, Tourism and Trade categories were identified to have significant segments and have been modelled individually to arrive at the Probability of Default (PD) and the remaining industries have been combined together for the modelling purpose.

Retail portfolio includes Mortgage loans, Private households loans and Consumer loans.

The loan book is relatively smaller in size, and therefore has not been considered for distinct segmentation.
The Bank evaluate Deferred cards portfolio separately including the evaluation of each risk component.

For the investments portfolio, the ECL computation was done separately for each product.

This includes Treasury Bills, Treasury Bonds, Placements, Letter of Credits (LC's) and Guarantees.
(c) The Bank’s internal rating and Probability of Default (PD) estimation process The Bank allocates each exposure to credit risk grade based on a variety of data that is determined to be predictive of risk of default and applying experienced credit judgement.

For the loans and advances, credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default.

These factors vary depending on the nature of the exposure and the type of the borrower.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 31 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.3 Credit risk (Cont'd) 3.3.3 Impairment assessment (Cont'd) (c)(i) Bank's Grading The Bank does not have an approved grading system, however for financial reporting the Bank adopted below grading which is based on allocation of each exposure to credit risk grade in turn based on a variety of data that is determined to be predictive of risk of default and applying experienced credit judgement.
In particular, grading of loans and advances is based on the modified Central Bank of Seychelles grading guidelines aligning to the Bank's Days Past Due (DPD) days as below: C B S grading Bank's grading DPD Date Staging Pass Special mention Sub standard, Doubtful Loss High to Standard Sub standard, Non performing loans Non performing loans Non performing loans 0 - 30 31 - 90 91 - 180 181 - 365 > 365 Stage 1 and Stage 2 Stage 2 and Stage 3 Stage 3 Stage 3 Stage 3 Grading of other financial assets is based on Moody's rating which comprises grading from 1-4 is classified as high grade, 5-16 as standard grade, 17-19 as sub standard grading and 20 as non- performing.
(c)(ii) Probability of Default (PD) The PD computation is based on Vintage analysis by considering a rolling window of 5 years (January 2015 – December 2019) for both the corporate and retail portfolios.

(Refer to table below) .

Data of year 2020 was not included for the PD model because of data unavailability as majority of the loans were in moratorium.

The PDs computed through this process are Through the Cycle (TTC) PDs.
The macro model built in 2020 financial year took the quarterly default rates from 2015 to 2019.

Data of year 2020 & 2021 was not included for the PD model for this current year because of data unavailability as majority of the loans were in moratorium.

So, the same FY2020 macroeconomic model was used, but updated with the latest IMF estimates for year 2021-2025.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 32 3.
FINANCIAL RISK MANAGEMENT (Cont'd) 3.3 Credit risk (Cont'd) 3.3.3 Impairment assessment (Cont'd) (c)(ii) Probability of Default (PD) (Cont'd) Macroeconomic variable time series data (2021-2025) pertaining to the Seychelles economy and sourced from the International Monetary Fund (IMF), and quarterly default rates (2015-2019) were used to build a macroeconomic overlay model.
The macroeconomic overlay/impact computed from macroeconomic overlay model is applied on Through the Cycle (TTC) PD to come up with Point in Time (PIT) PD.

The methodology followed and the assumptions used while arriving at the PD and the corresponding PD Term structure have been detailed in the following sections.

Corporate Portfolio PD Computation The PD computation for the corporate portfolio has been based on Vintage analysis.
The corporate portfolio was segmented within the Bank based on the industries in which they have an exposure.

For the PD model, the segmentation done for the corporate portfolio was based on the number of accounts present in the following industries: (a) Real Estate, (b) Tourism, (c) Trade and (d) Others.

Based on this analysis, 4 segments were created to compute the TTC PD’s for the Bank.

A separate Vintage analysis was performed to track the accounts for each of the four segments.
Retail Portfolio PD Computation The Bank combined the entire retail portfolio and computed a single TTC PD using Vintage analysis as explained above.

This was due to few defaults noted in the Bank’s historic performance as well as materiality of the portfolio.

Through the cycle (TTC) PD was computed using data that covered an economic cycle of at least 5 – 7 years.

For the Bank, 5 years of default data was considered.
The PD computation was used to create a term structure for the portfolio using survival analysis.

Deferred Cards Portfolio PD Computation The deferred cards portfolio have not seen any historical defaults within the Bank.

This portfolio is secured and backed by eligible financial collaterals.

Each month any outstanding balance is recovered from cash security held by the Bank.

The Bank has concluded that no ECL should be levied on Deferred Cards.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 33 3.

FINANCIAL RISK MANAGEMENT (Cont'd) 3.3 Credit risk (Cont'd) 3.3.3 Impairment assessment (Cont'd) (c)(ii) Probability of Default (PD) (Cont'd) Investments Portfolio PD Computation The Investments portfolio have been treated individually.

Since the investments have no historical defaults within the Bank, no model has been built to arrive at the PD estimates.
The Bank adopted Basel prescribed minimum floor on the PD component of 0.03%.

This floor was applied to all the investments.

(d) Exposure at default (EAD) EAD is defined as the gross exposure under a facility upon default of an obligor.

The amortised principal and the interest accrued has been considered for the EAD computation.
The Bank computes EAD for undisbursed portion of exposure by applying a credit conversion factor of 20% if the original maturity is less than a year and a factor of 50% if the original maturity is greater than 1 year.

This application has been aligned with the Basel guidelines.

EAD = Disbursed Exposure * 100% + Undisbursed Exposure * CCF factor (e) Loss given default (LGD) LGDs for both the Retail & Corporate portfolios, Deferred Card and Investment were based on the foundation – IRB approach.
The foundation IRB approach (F-IRB) is based on regulatory prescribed LGD’s.

In a situation where the Bank is not able to arrive at internal estimates for their risk components based on their internal data, the Regulator prescribed an LGD value based on haircuts that can be applied on the collaterals.

For the Bank, this methodology was adopted due to the paucity of default data.

The FIRB approach which considers some other forms of collateral, known as eligible IRB collateral, and were also recognized.
These include receivables, specified commercial and residential real estate, and other physical collateral, where they met the minimum requirements.

(f) Significant increase in credit risk (SICR) The Bank's portfolio were classified into three stages based on comparisons made between an account’s credit risk at origination and its credit risk on the reporting date.

The Bank continuously monitors all assets subject to ECL.
In order to determine whether an instrument or a portfolio of instruments is subject to 12mECL or LTECL, the Bank assessed whether there has been a significant increase in credit risk since initial recognition.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 34 3.
FINANCIAL RISK MANAGEMENT (Cont'd) 3.3 Credit risk (Cont'd) 3.3.3 Impairment assessment (Cont'd) (f) Significant increase in credit risk (SICR) (Cont'd) The Bank used the number of days past due (DPD) to determine significant increase in credit risk.

Credit gradings are assigned to facilities granted by sectors upon initial recognition based on available information.

For Corporate and Retail loans Stage 1: 0-29 DPD, Stage 2: 30-89 DPD and Stage 3: 90+ DPD+.
The Bank however considered each investment (across every product mentioned above) and checked if the instrument was invoked.

If such was the case, then the account would be classified as Stage 3, else, it would be in Stage 1. Credit risk is deemed to have increased significantly if credit ratings have deteriorated at the reporting date.
When estimating ECLs on a collective basis for a group of similar assets (as set out in note 3.3.3(b)), the Bank applied the same principles for assessing whether there has been a significant increase in credit risk since initial recognition.

The Bank also applied a secondary qualitative method for triggering a significant increase in credit risk for an asset, such as moving a customer/facility to the watch list, or the account becoming forborne.
Regardless of the change in credit grades, if contractual payments are more than 30 days past due, the credit risk was deemed to have increased significantly since initial recognition.

In 2020, Nouvobanq granted moratorium to several borrowers due to COVID-19.

In such cases, DPD did not give a clear picture of borrowers’ risk.
The below qualitative and qualitative criterias were considered when the Bank took the decision to classify Borrowers in stage two: Qualitative criteria for Corporate portfolio: Borrowers who were in moratorium as at December 2021 and classified under 'severely impacted industry by Bank's Management were those who were considered to be severely impacted by COVID- 19.
Borrowers who were in moratorium as at December 2021, but classified in 'moderately and less impacted' industries by the Bank's Management, and whose interests were being capitalised.

Other risk industry like tourism were reclassified to Stage 2.

Quantitative criteria for Corporate portfolio: Borrowers, (irrespective of moratorium or interest paid), who were in 30+dpd during Mar-19 to Feb- 20.
(g) Treatment of restructuring, curing and backward transitions The Bank keeps the restructured accounts in Stage 3 where restructurations of cash flows are done on the account due to the financial stress of the customers.

Portfolios are then moved to Stage 2 based on Management's outlook with appropriate evidences of timely payments for at least 3 months.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 35 3.
FINANCIAL RISK MANAGEMENT (Cont'd) 3.3 Credit risk (Cont'd) 3.3.3 Impairment assessment (Cont'd) (g) Treatment of restructuring, curing and backward transitions (Cont'd) When an improvement to the credit quality occurs, and there are adequate and documented reasons that make it possible to transfer credit claims from Stage 3 to Stage 2, or from Stage 2 to Stage 1, the Bank transfers credit exposure from upper stage to lower stage after verifying the credit status of the claim and obligation through payment of monthly installments.
Upon transition back from higher risk grades to lower risk grades i.e.

from Stage 3 to Stage 2 or Stage 2 to Stage 1, the following are considered: - That all payments are up-to-date i.e.

all outstanding payments on the credit facility are made on time and no payments are in arrears; and - The PD has remained below the threshold that is considered a 'significant increase' period of 3 months (Probation period) as per Central Bank of Seychelles.
'for a minimum 3.3.4 Concentration risk and exposure to credit risk The Bank’s concentration risk is managed by client and industry sector as shown in 3.3.4(b) .

The Bank takes on exposure to credit risk which is the risk that a counterparty will be unable to pay amounts in full when due.

The Bank structures the levels of credit risk it undertakes by placing limits on the amount of risk accepted in relation to one borrower.
Such risks are monitored on a revolving basis and subject to an annual or more frequent review.

Limits on the level of credit risk are approved by the Board of Directors with discretionary limits set for the Bank's Management.

Exposure to credit risk is managed through regular analysis of the ability of borrowers and potential borrowers to meet interest and capital repayment obligations and by changing these limits where appropriate.
Exposure to credit risk is also managed by obtaining collateral, corporate and personal guarantees.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 36 3.

FINANCIAL RISK MANAGEMENT (Cont'd) / Credit risk (Cont'd) 3.3.4 Concentation risk and exposure to credit risk (Cont'd) (a) The table that follow shows the maximum exposure of financial assets to credit risk for the components of the Statement of Financial Position.
2021 2020 Description Gross exposure E C L Net exposure Cash and bank balances (note 5) Loans and advances (note 6) Investment in financial assets (note 7) Other assets excluding prepayments (note 13) 4,821,125 2,262,114 2,614,026 34,280 (380) 4,820,745 (86,966) 2,175,148 (321) - 2,613,705 34,280 Gross exposure 5,883,222 2,670,494 2,129,025 34,633 Commitments (SOFP)(notes 17 & 30) 1,007,989 (1,962) 1,006,027 1,005,397 E C L Net exposure (517) (203,072) (244) - (9,382) 5,882,705 2,467,422 2,128,781 34,633 996,015 Total 10,739,534 (89,629) 10,649,905 11,722,771 (213,215) 11,509,556 (b) Analysis of concentration risk Financial Government December 31, 2021 services SR' 000 of Seychelles SR' 000 Real estate SR' 000 Tourism SR' 000 Trade SR' 000 Personal SR' 000 Others SR' 000 Total SR' 000 Cash and bank balances Loans and advances Investment in financial assets Other assets Commitments 4,742,056 120,116 234,162 14,591 - Total concentration of risk 5,110,925 - 370,701 2,379,864 - - 2,750,565 - 344,526 - - 50,034 - 593,735 - - 60,734 394,560 654,469 - 81,496 - - 156,021 237,517 - 207,784 - - 10,637 79,069 543,756 - 19,689 730,563 4,821,125 2,262,114 2,614,026 34,280 1,007,989 218,421 1,373,077 10,739,534 December 31, 2020 Total concentration of risk 6,293,975 1,921,987 603,632 767,764 156,624 223,023 1,755,766 11,722,771 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 37 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.4 Currency risk Currency risk is defined as the risk that movements in foreign exchange rates adversely affect the value of the Bank's foreign currency positions.

The latter is exposed with respect to foreign currency risk arising from trading in foreign currency and acceptances.

In order to ensure adequacy of its foreign exchange requirements, foreign currency cash flow forecasts are prepared regularly, expenses monitored and actions taken accordingly.
The Bank managed its foreign currency exposure during the year under review to remain within limits set by the Financial Institutions (Foreign Currency Exposure) Regulations, 2009 as amended issued by the Central Bank of Seychelles which requires that long and short position to capital ratio is not more than 30% respectively.
At December 31, 2021, if the Seychelles Rupee had weakened/strengthened by 5% against foreign currencies (mainly US dollar and Euro) with all other variables held constant, profit for the year would have been SR 16.6mm (2020: SR 23.8m) higher/lower, mainly as a result of foreign exchange gains/(losses) on translation of foreign currency denominated assets and liabilities balances.
On-Statement of Financial Position (SOFP) as at December 31, 2021 EURO SR'000 USD SR'000 SCR SR'000 Others SR'000 Total SR'000 1,179,762 481,182 605 - - - - - 6,908 1,668,457 2,841,441 512,235 232,921 - - - - - 532 3,587,129 710,328 1,268,697 2,380,500 187,627 5,913 25,369 18,653 8,105 30,831 4,636,023 89,594 - - - - - - - - 89,594 4,821,125 2,262,114 2,614,026 187,627 5,913 25,369 18,653 8,105 38,271 9,981,203 Assets Cash and cash equivalents Loans and advances Investment in financial assets Property and equipment Intangible asset Right-of-use assets Deferred tax assets Retirement benefit assets Other assets Liabilities Deposits from banks & customers Borrowings Retirement benefit obligations Other liabilities Current tax liabilities 1,660,733 - - 854 - 1,661,587 3,251,377 - - 11,290 - 3,262,667 3,579,330 89,406 12,191 45,183 16,658 3,742,768 79,985 - - 1,416 - 81,401 8,571,425 89,406 12,191 58,743 16,658 8,748,423 Net on-SOFP position 6,870 324,462 893,255 8,193 1,232,780 Less ECL on SOFP financial assets (notes 5, 6 & 7) (87,667) 1,145,113 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 38 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.4 Currency risk (Cont'd) Off Statement of Financial Position (SOFP) as at December 31, 2021 Acceptances, letters of credit and guarantees Loan commitments Less off SOFP ECL exposure (note 17) EURO SR'000 USD SR'000 SCR SR'000 Others SR'000 Total SR'000 4,720 9,545 14,265 372,665 229,801 602,466 103,399 281,756 385,155 6,103 - 6,103 486,887 521,102 1,007,989 (1,962) 1,006,027 On-Statement of Financial Position (SOFP) as at December 31, 2020 EURO SR'000 USD SR'000 SCR SR'000 Others SR'000 Total SR'000 Total assets Total liabilities Net on-SOFP position 1,919,600 1,916,752 2,848 4,761,371 4,287,674 473,697 4,247,165 3,589,413 657,752 103,456 94,979 8,477 11,031,592 9,888,818 1,142,774 Less ECL on SOFP financial assets (notes 5, 6 & 7) (203,833) 938,941 Off Statement of Financial Position (SOFP) as at December 31, 2020 Acceptances, letters of credit and guarantees Loan commitments Less off SOFP ECL exposure (note 17) EURO SR'000 USD SR'000 SCR SR'000 Others SR'000 Total SR'000 9,476 40,480 49,956 479,750 169,604 649,354 101,977 202,022 303,999 2,088 - 2,088 593,291 412,106 1,005,397 (9,382) 996,015 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 3.
FINANCIAL RISK MANAGEMENT (CONT'D) / 3.5 Liquidity Risk 39 The Bank is exposed to daily calls on its available cash resources from deposits at call and short notice or maturing deposits, loan disbursements, guarantees and from margin and other calls.

The Bank maintains cash resources to meet all of these needs based on ongoing analysis of volatile funds and past experience.
It also sets limits on the minimum proportion of maturing funds available to meet such calls and on the minimum level of interbank and other borrowing that should be in place to cover withdrawals at unexpected levels of demand.
Maturity profile of assets and liabilities is as follows: At December 31, 2021 Assets Cash and cash equivalents Loans and advances Investment in financial assets Right-of-use assets Property and equipment Intangible assets Deferred tax assets Retirement benefit assets Other assets Liabilities Deposits from banks and customers Borrowings Retirement benefit obligation Other liabilities Current tax liabilities Up to 3 month SR'000 3 - 12 months SR'000 1 - 5 years SR'000 Over 5 Non-maturity items SR'000 years SR'000 3,379,672 175,146 422,081 - - - - - 30,665 4,007,564 8,206,816 - - 32,987 16,658 8,256,461 529,163 76,340 768,324 - - - - - - 1,373,827 358,835 - - 129 - 358,964 - 1,086,123 928,043 - - - - - - 2,014,166 - 919,834 261,416 - - - - - - 1,181,250 912,290 4,671 234,162 25,369 187,627 5,913 18,653 8,105 7,606 1,404,396 5,774 - - 3,394 - 9,168 - 89,406 - 18,063 - 107,469 - - 12,191 4,170 - 16,361 Total SR'000 4,821,125 2,262,114 2,614,026 25,369 187,627 5,913 18,653 8,105 38,271 9,981,203 8,571,425 89,406 12,191 58,743 16,658 8,748,423 Maturity gap (4,248,897) 1,014,863 2,004,998 1,073,781 1,388,035 1,232,780 Less ECL on SOFP financial assets (notes 5, 6 & 7) (87,667) 1,145,113 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 40 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.5 Liquidity risk (Cont'd) At December 31, 2020 Total assets Total liabilities Maturity gap Less ECL on SOFP financial assets (notes 5, 6 & 7) Up to 3 month SR'000 3 - 12 months SR'000 1 - 5 years SR'000 Over 5 years SR'000 Non-maturity items SR'000 Total SR'000 4,905,215 9,259,928 1,828,219 515,263 (4,354,713) 1,312,956 1,632,670 38,515 1,594,155 848,639 19,466 829,173 1,816,849 55,646 1,761,203 11,031,592 9,888,818 1,142,774 (203,833) 938,941 The Bank also complies with the Central Bank of Seychelles' requirements as a commercial bank and maintains liquid assets of an amount which shall not, as a daily average each month, be less than 20% of the Bank's total liabilities under the Financial Institutions (Liquidity Risk Management) Regulations, 2009 as amended in 2012.
The Bank met the guidelines of the Central Bank of Seychelles in terms of its liquidity ratio during the years 2021 and 2020.

3.6 Interest rate risk Interest rate risk arises from changes in interest rates.
The main type of interest rate risk to which the Bank is exposed is “Re-pricing Risk”, which is defined as: The risk arising from timing differences in the maturity (for fixed rates) and re-pricing (for floating rates) of Bank assets, liabilities and off Statement of Financial Position exposures, which can expose a Bank’s income and/or underlying economic value to unanticipated fluctuations as interest rates vary.
It is the policy of the Bank to limit exposure of its Statement of Financial Position and off Statement of Financial Position to re-pricing risk by systematically inserting a clause in its contract that allows the Bank to re-price as and when required in line with changes in interest rates, thereby mitigating the re- pricing risk.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 3.6 FINANCIAL RISK MANAGEMENT (CONT'D) / Interest rate risk (Cont'd) 41 At December 31, 2021 Assets Cash and cash equivalents Loans and advances Investment in financial assets Right-of-use assets Property and equipment Intangible assets Deferred tax assets Retirement benefit assets Other assets Liabilities Deposits from banks and customers Borrowings Retirement benefit obligation Other liabilities Current tax liabilities Up to 12 months SR'000 2,813,067 256,156 1,164,826 - - - - - - 4,234,049 1,969,839 - - 168 - 1,970,007 1 to 3 years SR'000 - 565,832 446,026 - - - - - - 1,011,858 5,774 - - 915 - 6,689 Over 3 years SR'000 Non-interest items SR'000 - 1,440,126 743,434 - - - - - - 2,183,560 - - - 20,542 - 20,542 2,008,058 - 259,740 25,369 187,627 5,913 18,653 8,105 38,271 2,551,736 6,595,812 89,406 12,191 37,118 16,658 6,751,185 Total SR'000 4,821,125 2,262,114 2,614,026 25,369 187,627 5,913 18,653 8,105 38,271 9,981,203 8,571,425 89,406 12,191 58,743 16,658 8,748,423 Interest sensitivity gap 2,264,042 1,005,169 2,163,018 (4,199,449) 1,232,780 Less ECL on SOFP financial assets (notes 5, 6 & 7) At December 31, 2020 Total assets Total liabilities Maturity gap Less ECL on SOFP financial assets (notes 5, 6 & 7) 6,657,875 1,990,653 4,667,222 962,570 5,480 957,090 1,518,374 24,479 1,493,895 1,892,773 7,868,206 (5,975,433) (87,667) 1,145,113 11,031,592 9,888,818 1,142,774 (203,833) 938,941 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 42 3.
FINANCIAL RISK MANAGEMENT (CONT'D) 3.6 Interest rate risk (Cont'd) If interest rates had been 5 points higher/lower and all other variables were held constant as at year- end, the Bank’s results would have been increased/decreased as follows: Increase/Decrease 4.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS 2021 SR' 000 2020 SR' 000 128 117 The preparation of the financial statements of the Bank requires Management to make judgements, estimates and assumptions that affect the reported amounts of revenues, expenses, assets and liabilities, and the disclosure of contingent liabilities, at the end of the reporting period.
However, uncertainty about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of the asset or liability affected in future periods.

Estimates and judgements are continuously evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances.

The Bank makes estimates and assumptions concerning the future.
The resulting accounting estimates will, by definition, seldom equal the related actual results.

The estimates and assumptions that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year are discussed below.
4.1 Impairment losses on financial assets (a) Expected Credit Loss Under IFRS 9 The measurement of impairment losses under IFRS 9 requires judgement, in particular, the estimation of the amount and timing of future cash flows and collateral values when determining impairment losses and the assessment of a significant increase in credit risk.

These estimates are driven by a number of factors, changes which can result in different levels of allowances.
The Bank’s ECL calculations are outputs from complex models with a number of underlying assumptions regarding the choice of variable inputs and their interdependencies.
Elements of the ECL models that are considered accounting judgements and estimates include: - The Bank's criteria for assessing if there has been a significant increase in credit risk and so allowances for financial assets should be, measured on a life time Expected Credit Losses (LTECL) basis and the qualitative assessment; (note 3.3.3(f)) - The segmentation of financial assets when their ECL is assessed on a collective basis; (note 3.3.3(b)) - Development of ECL models, including the various formulas and the choice of inputs; (note 3.3.3) - Determination of associations between macroeconomic scenarios and, economic inputs, such as unemployment levels and collateral values, and the effect on PDs, EADs and LGDs; (notes 3.3.3(c), 3.3.3(d) and 3.3.3(e)) and SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 43 4.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT'D) 4.1 Impairment losses on financial assets (Cont'd) - Selection of forward-looking macroeconomic scenarios and their probability weightings, to derive the economic inputs into the ECL models.

(note 3.3.3(c)(ii)) .

It has been the Bank's policy to regularly review its models in the context of actual loss experience and adjust when necessary.
(b) Management overlay in view of COVID-19 The Bank faced significant set of challenges to adapt IFRS 9 Expected Credit Loss (ECL) frameworks for the new normal.

Formulating a response to these challenges in measuring ECL during the Covid-19 pandemic required the Bank to increase the use and reliance on Management overlays given the environment of increased uncertainty and a limited view on risks in the portfolio.
While complying with international practices advocating post-model overlays/adjustments in instances where effects of COVID-19 cannot be accurately reflected in models and given relative lack of data, the Bank has used multipliers to overlay on its IFRS 9 Expected Credit Loss model.

The post model adjustments were segmentation based and the portfolios of the Bank were segmented by sectors of exposure and multipliers were used to overlay the modelled Expected Credit Loss.
The multiplier value was estimated based on the Bank’s perception to risk of a particular sector based on the sectors resilience to COVID-19.
Table below highlights the Covid-19 multipliers that are currently being used: Sectors Multiplier Sectors Multiplier Agriculture & Horticulture Art & Entertainment Building & Construction Cars/Boats Community, Social & Personal Education Financial Institutions Fishing Governmental Organizations Telecommunication, Computer & Information 1 2 4 1 1 1 1 1 1 1 Manufacturing Non-Profit Organizations Health Real Estate Tourism Trade Transport Others Professional, Scientific & Technical Services 1 1 2 2 8 4 4 1 1 The Mutiplier is expected to address the clients from the standpoint of the facility risk and not only the borrower’s risk.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 44 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 4.

SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT'D) 4.2 Business model assessment Classification and measurement of financial assets depends on the results of the SPPI and the business model test.

The Bank determines the business model at a level that reflects how groups of financial assets are managed together to achieve a particular business objective.
This assessment includes judgement reflecting all relevant evidence including how the performance of the assets is evaluated and their performance measured, the risks that affect the performance of the assets and how these are managed and how the managers of the assets are compensated.
The Bank monitors financial assets measured at amortised cost prior to their maturity to understand the reason for their disposal and whether the reasons are consistent with the objective of the business for which the asset was held.
Monitoring is part of the Bank’s continuous assessment of whether the business model for which the remaining financial assets are held continues to be appropriate and if it is not appropriate whether there has been a change in business model and so a prospective change to the classification of those assets.

No such changes were required during the periods presented.
4.3 Going concern The Bank’s Management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future.

Furthermore, Management is not aware of any material uncertainties that may cast significant doubt on the Bank’s ability to continue as a going concern.

Therefore, the financial statements continue to be prepared on the going concern basis.
4.4 Asset lives and residual values Property and equipment are depreciated over their useful lives taking into account residual values, where appropriate.

The actual lives of the assets and residual values are assessed annually and may vary depending on a number of factors.

In reassessing asset lives, factors such as technological innovation, product life cycles and maintenance programmes are taken into account.
Residual value assessments consider issues such as future market conditions, the remaining life of the asset and projected disposal values.

Consideration is also given to the extent of current profits and losses on the disposal of similar assets.

4.5 Impairment of non financial assets At each financial reporting year end, Bank's Management reviews and assesses the carrying amounts of other assets and where relevant, write them down to their recoverable amounts based on best estimates.
4.6 Fair value estimation A number of the Bank’s accounting policies and disclosures require the measurement of fair values, for both financial and non-financial assets and liabilities.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 45 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 4.
SIGNIFICANT ACCOUNTING ESTIMATES AND JUDGEMENTS (CONT'D) 4.6 Fair value estimation (Cont'd) The Bank has an established control framework with respect to the measurement of fair values.

This includes a valuation team that has overall responsibility for overseeing all significant fair value measurements, including Level 3 fair values, and reports directly to the Board of Directors.

When measuring the fair value of an asset or a liability, the Bank uses observable market data as far as possible.
Fair values are categorised into different levels in a fair value hierarchy based on the inputs used in the valuation techniques (Note 2(h)).

Significant valuation issues are reported to the Board of Directors and further information about the assumptions made in measuring fair values is included relevant notes.

4.7 Retirement benefit obligations The cost of defined benefit pension plans is determined using actuarial valuations.
The actuarial valuation involves making assumptions about discount rates, expected rates of return on assets, future salary increases, mortality rates and future pension increases.

Due to the long term nature of these plans, such estimates are subject to significant uncertainty.

4.8 Limitation of sensitivity analysis Sensitivity analysis in respect of market risk demonstrates the effect of a change in a key assumption while other assumptions remain unchanged.
In reality, there is a correlation between the assumptions and other factors.

It should also be noted that these sensitivities are non-linear and larger or smaller impacts should not be interpolated or extrapolated from these results.

Sensitivity analysis does not take into consideration that the Bank's assets and liabilities are actively managed.
Other limitations include the use of hypothetical market movements to demonstrate potential risk that only represent the Bank's views of possible near-term market changes that cannot be predicted with any certainty.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 46 5.
CASH AND BANK BALANCES Cash in hand Balances with Central Bank of Seychelles (CBS) Balances with banks abroad (note 5(a)) Balances with local banks Gross carrying amount (notes 5(b) and 5(e)) Less: Allowance for expected credit loss (notes 5(c), 5(d) & 5(e)) Net carrying amount (a) Balances with banks abroad are reconciled as follows: Balances with original maturity of less than three month Balances with original maturity above three month (note 5(b)) 2021 SR' 000 2020 SR' 000 79,069 1,190,674 3,515,621 35,761 4,821,125 (380) 110,436 1,503,148 3,691,969 577,669 5,883,222 (517) 4,820,745 5,882,705 2021 SR' 000 2020 SR' 000 2,986,458 529,163 3,515,621 2,198,505 1,493,464 3,691,969 (b) For the purpose of the Statement of Cash Flows, cash and cash equivalents comprised the following at the end of the reporting period: Gross cash and bank balances Add: Short term investments (note 7) Less: Placements with original maturity above three month (note 5(a)) Less: Mandatory cash balance with CBS 2021 SR' 000 2020 SR' 000 4,821,125 422,081 (529,163) (912,290) 5,883,222 439,395 (1,493,464) (1,123,175) 3,801,753 3,705,978 (c) Allowance for expected credit loss Expected credit loss (ECL) relates to short term investments with Banks abroad.
The Directors have estimated that ECL on mandatory cash and balances with banks to be nil.

Per internal rating grades, all cash and bank balances are standard graded.

These have been perfoming and have been classified within stage 1.
(d) Movement in ECL during the year is as follows: As at January 1, ECL (credit)/charge for the year (note 29) As at December 31, 2021 SR' 000 2020 SR' 000 517 (137) 380 332 185 517 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 47 5.

CASH AND BANK BALANCES (e) There were no transfers between stages during the year (2020: none).
A reconciliation of changes in gross carrying amount and corresponding ECL allowances in stage 1 is as follows: 2021 2020 Gross amount SR' 000 ECL SR' 000 Gross amount SR' 000 ECL SR' 000 At January 1, New assets originated or purchased Payments and assets derecognised At December 31, 5,883,222 4,821,125 (5,883,222) 4,821,125 517 380 (517) 380 3,545,954 5,883,222 (3,545,954) 5,883,222 332 517 (332) 517 6.
LOANS AND ADVANCES Loans and advances to customers Interest accrued Gross carrying amount Less: Allowance for credit impairment (notes 6(a) and 6(b)) (a) Movement in ECL during the year is as follows: As at January 1, (Credit)/Charge for the year (note 29) As at December 31, 2021 SR' 000 2020 SR' 000 2,248,490 13,624 2,262,114 (86,966) 2,662,163 8,331 2,670,494 (203,072) 2,175,148 2,467,422 2021 SR' 000 203,072 (116,106) 86,966 2020 SR' 000 29,208 173,864 203,072 (b) Credit quality and the maximum exposure to credit risk based on the Bank’s internal credit rating system and year-end stage classification by segment.
(i) Corporate lending Internal rating grade Performing High to Standard Sub-standard grade Non-performing Individually impaired Gross carrying amount Expected credit loss Net carrying amount 2021 Stage 1 SR Stage 2 SR Stage 3 SR Total SR 1,033,698 427 1,008,570 24 5,778 - 2,048,046 451 - - 5,820 5,820 1,034,125 1,008,594 11,598 2,054,317 (17,425) (63,153) (6,158) (86,736) 1,016,700 945,441 5,440 1,967,581 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 48 6.
LOANS AND ADVANCES (CONT'D) (b) Credit quality and the maximum exposure to credit risk based on the Bank’s internal credit rating system and year-end stage classification by segment.
(Cont'd) (i) Corporate lending Internal rating grade Performing High to Standard Sub-standard grade Non-performing Individually impaired Gross carrying amount Expected credit loss Net carrying amount (ii) Retail lending Internal rating grade Performing High to Standard Sub-standard grade Non-performing Individually impaired Gross carrying amount Expected credit loss Net carrying amount Internal rating grade Performing High to Standard Sub-standard grade Non-performing Individually impaired Gross carrying amount Expected credit loss Net carrying amount Stage 1 SR 739,051 - - 2020 Stage 2 SR 1,683,288 17 - 739,051 1,683,305 Stage 3 SR Total SR - 620 2,422,339 637 13,254 13,874 13,254 2,436,230 (19,615) (176,306) (6,825) (202,746) 719,436 1,506,999 7,049 2,233,484 Stage 1 SR 207,465 217 - 207,682 (178) 207,504 Stage 1 SR 148,936 44 - 148,980 (110) 148,870 2021 Stage 2 SR Stage 3 SR Total SR - - - - - - 2020 Stage 2 SR 85,088 27 23 85,138 (152) 84,986 - - 115 115 (52) 63 Stage 3 SR 87 59 - 146 (64) 82 207,465 217 115 207,797 (230) 207,567 Total SR 234,111 130 23 234,264 (326) 233,938 (c) The credit concentration risk of loans and advances by industry sectors is shown under note 3.3.4(b) .
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 49 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 6.

LOANS AND ADVANCES (CONT'D) (d) The currencies and maturities profiles of loans and advances are shown under notes 3.4 and 3.5 respectively.
(e) Reconciliation of gross carrying amount and ECL (i) A reconciliation of changes in gross carrying amount and corresponding allowance for ECL by stage for Loans and advances is as follows: Stage 1 Stage 2 Stage 3 Total Gross amount carrying SR'000 ECL SR'000 Gross amount carrying SR'000 ECL SR'000 Gross amount carrying SR'000 ECL SR'000 Gross amount carrying SR'000 ECL SR'000 At January 1, 2020 2,200,294 New assets originated or purchased 519,873 20,245 14,036 1,756 - 6 - 21,918 8,957 2,223,968 - - 519,873 29,208 14,036 Payments and assets derecognised (278,996) (7,285) (1,086,293) (29,330) (11,104) (4,849) (1,376,393) (41,464) Transfers to Stage 1 Transfers to Stage 2 Transfers to Stage 3 Other movements - - - - (2,278,566) (170,899) 2,278,566 170,899 (270) (255) - - 725,696 163,883 574,414 34,883 - - 270 2,936 - - 255 - - - - - - 2,526 1,303,046 201,292 At December 31, 2020 888,031 19,725 1,768,443 176,458 14,020 6,889 2,670,494 203,072 New assets originated or purchased 347,317 9,953 240,274 26,696 737 158 588,328 36,807 Payments and assets derecognised (177,675) (36,381) (85,659) (28,668) (1,054) (1,015) (264,388) (66,064) Transfers to Stage 1 Transfers to Stage 2 Transfers to Stage 3 Other movements 560,201 77,113 (559,581) (76,853) (620) (260) (214,663) (1,024) 214,663 1,024 (140) (273) (205) (111) - 345 (161,264) (51,510) (569,341) (35,393) (1,715) - 384 54 - - - - - - (732,320) (86,849) At December 31, 2021 1,241,807 17,603 1,008,594 63,153 11,713 6,210 2,262,114 86,966 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 50 6.
LOANS AND ADVANCES (CONT'D) (f) Sensitivity analysis The Bank's ECL on corporate and retail loans based on baseline values from IMF amounted to SR 88.8m (2020: SR 212.7m) for drawn and undrawn corporate and retail portfolio.

If the International Monetary Fund variables used in adopting Macro overlay had worsened by 10%, the ECL of the Bank would have increased by 3.62% (2020: 1.67%).
If the International Monetary Fund variables used in adopting Macro overlay had improved by 10%, the ECL of the Bank decrease by 1.94% (2020: 1.83%).

7.
INVESTMENTS IN FINANCIAL ASSETS Debt instruments at amortised cost (notes 7(a)(i) Balances with original maturity above three months Balances with original maturity of less than three months (note 5(b)) Interest accrued Equity instruments measured at FVOCI (note 7(a)(ii)) Gross carrying amount 2021 SR' 000 2020 SR' 000 2,379,864 1,806,968 1,933,171 1,366,810 422,081 24,612 234,162 439,395 763 322,057 2,614,026 2,129,025 Less: Allowance for expected credit loss (note 7(c)) (321) (244) Net carrying amount 2,613,705 2,128,781 (a) Movement in financial assets is as follows: (i) Debt instruments at amortised cost Treasury Treasury bill SR' 000 bond SR' 000 DBS bond SR' 000 D A A Total SR' 000 SR' 000 As at January 1, 2021 1,600,767 206,201 Additions during the year 2,543,872 984,225 Matured during the year (2,979,813) - Interest accrued - 24,612 As at December 31, 2021 1,164,826 1,215,038 - - - - - - 1,806,968 2,186,993 5,715,090 (2,186,993) (5,166,806) - - 24,612 2,379,864 As at January 1, 2020 901,453 25,202 50,345 173,643 1,150,643 Additions during the year 2,795,387 180,236 - 2,903,913 5,879,536 Matured during the year (2,096,073) Interest accrued - - 763 As at December 31, 2020 1,600,767 206,201 (50,345) (3,077,556) (5,223,974) - - - - 763 1,806,968 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 51 7.
INVESTMENT IN FINANCIAL ASSETS (CONT'D) (a) Movement in financial assets is as follows: (Cont'd) (ii) Equity instruments measured at FVOCI As at January 1, 2020 Fair value net of exchange difference (note 20) As at December 31, 2020 Fair value net of exchange difference (note 20) As at December 31, 2021 (b) Fair value measurement Visa shares SR' 000 107,395 78,736 186,131 (55,023) 131,108 Mastercard shares SR' 000 43,757 34,122 77,879 (22,142) 55,737 Afrexim shares SR' 000 SWIFT SCRL SR' 000 investment Total SR' 000 SR' 000 Unquoted 41,193 15,611 56,804 (10,728) 46,076 372 235 607 (2) 605 636 - 636 - 636 193,353 128,704 322,057 (87,895) 234,162 The Bank's fair value methodology and the governance over its models includes a number of controls and other procedures to ensure appropriate safeguards are in place to ensure its quality and adequacy.
All new product initiatives (including their valuation methodologies) are subject to approvals by Senior Management.
The following table shows an analysis of financial instruments recorded at fair value by level of the fair value hierarchy: At December 31, 2021 - Class C Visa shares - Mastercard shares - Afrexim shares - SWIFT SCRL - Unquoted investment Total financial assets measured at fair value Valuation method Fair value Fair value Fair value Fair value Cost Level 1 SR' 000 Level 2 SR' 000 Level 3 Total SR' 000 SR' 000 - - - 605 - 605 131,108 55,737 46,076 - - 232,921 - - - - 636 636 131,108 55,737 46,076 605 636 234,162 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 52 7.
INVESTMENT IN FINANCIAL ASSETS (CONT'D) (b) Fair value measurement (Cont'd) At December 31, 2020 - Class C Visa shares - Mastercard shares - Afrexim shares - SWIFT SCRL - Unquoted investment Total financial assets measured at fair value (c) Movement in ECL during the year is as follows: As at January 1 ECL charge during the year (note 29) As at December 31, Valuation method Fair value Fair value Net asset value Fair value Cost Level 1 SR' 000 Level 2 SR' 000 Level 3 Total SR' 000 SR' 000 - - - 607 - 607 186,131 77,879 - - - - - 56,804 - 636 186,131 77,879 56,804 607 636 264,010 57,440 322,057 2021 SR' 000 2020 SR' 000 244 77 321 155 89 244 The Bank's debt instrument were held through Cental Bank of Seychelles/Government of Seychelles and Development Bank of Seychelles.
Per internal rating grades, all local debt instruments are standard grades.

There was no transfer between stages during the year (2020: none).

(d) In 2021, the Bank received dividends of SR 2.17m (2020: SR 1.62m) from its FVOCI equities which was recorded in the Statement of Profit or Loss as other operating income.

Refer to note 25.

(e) The currencies and maturities profiles of investment in financial assets are shown under notes 3.4 and 3.5 respectively.
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 53 8.
PROPERTY AND EQUIPMENT Building SR' 000 158,101 - - 158,101 - - - 158,101 4,739 1,777 - 6,516 1,777 - - 8,293 COST At January 1, 2020 Additions Write offs At December 31, 2020 Additions Disposals Write offs At December 31, 2021 ACCUMULATED DEPRECIATION At January 1, 2020 Charge for the year Write-off adjustments At December 31, 2020 Charge for the year Disposals adjustments Write-off adjustments At December 31, 2021 NET BOOK VALUE At December 31, 2021 149,808 At December 31, 2020 151,585 9.
INTANGIBLE ASSETS COST At January 1, Additions At December 31, AMORTISATION CHARGE At January 1, Charge for the year At December 31, NET CARRYING VALUE At December 31, Improvement on leasehold assets SR' 000 Furniture, fixtures & equipment SR' 000 Motor vehicles SR' 000 1,909 - - 1,909 - - - 1,909 1,894 2 - 1,896 2 - - 1,898 11 13 Total SR' 000 246,277 4,232 (2,570) 247,939 5,081 (425) (851) 251,744 42,771 12,268 (2,452) 52,587 12,416 (35) (851) 64,117 82,832 3,807 (2,570) 84,069 5,081 - (851) 88,299 33,873 9,959 (2,452) 41,380 10,270 - (851) 50,799 3,435 425 - 3,860 - (425) - 3,435 2,265 530 - 2,795 367 (35) - 3,127 37,500 308 187,627 42,689 1,065 195,352 2021 SR' 000 2020 SR' 000 35,506 - 35,506 25,517 4,076 29,593 34,356 1,150 35,506 21,612 3,905 25,517 5,913 9,989 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 54 10.
LEASES (a) Lease contracts The Bank has lease contracts for the land on which the Nouvobanq Building is found, branches offices, ATM houses and staff accomodations.

Leases of Branches offices, ATM houses and staff accomodations have lease terms ranging between 1 and 10 years, while lease of land is 99 years.

The Bank’s obligations under its leases are secured by the lessors' titles to the leased assets.

Generally, the Bank is restricted from assigning and subleasing the leased assets.
The Bank applied the short-term leases exemption for leases amounting to SR 1.1m (2020: SR 1.3m) and has been shown as rental expenses (note 27).

(b) Right-of-use assets Set out below are the carrying amounts of right-of-use assets recognised and the movements during the period under review.
As at January 1, 2020 Additions Effect of modification to lease terms Depreciation charge for the year (note 10(d)) As at December 31, 2020 Additions Effect of modification to lease terms Depreciation charge for the year (note 10(d)) As at December 31, 2021 (c) Lease liabilities Land SR' 000 Buildings SR' 000 4,561 - - (53) 4,508 - - (53) 4,455 3,966 24,108 77 (2,554) 25,597 (726) 95 (4,052) 20,914 Total SR' 000 8,527 24,108 77 (2,607) 30,105 (726) 95 (4,105) 25,369 The carrying amounts of lease liabilities (included under ‘Other liabilities’ in note 17) and the movements noted during the period as follows: As at January 1, 2020 Additions Finance cost (notes 10(d) & 22) Exchange movement Payments As at December 31, 2020 Additions Finance cost (notes 10(d) & 22) Exchange movement Payments As at December 31, 2021 SR' 000 4,083 24,108 515 179 (3,079) 25,806 (726) 1,409 (668) (4,196) 21,625 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 55 10.
LEASES (CONT'D) (c) Lease liabilities (Cont'd) The Bank had total cash outflows for leases of SR 6.11m (2020: SR 6.02m) and the maturity analysis of lease liabilities is disclosed in note 3.5.
(d) The following are the amounts have been recognised in the Statement of Profit or Loss: Depreciation expense of right-of-use assets (note 10(b)) Interest expense on lease liabilities (notes 10(c) and 22) Expense relating to short-term leases included in: - Other operating expenses (note 27) - Employment benefit expenses (note 28) Total amount recognised in Statement of Profit or Loss 2021 SR' 000 4,105 1,409 1,915 1,114 801 7,429 2020 SR' 000 2,607 515 2,143 1,343 800 5,265 (e) The Bank entered into a 99 years lease agreement with Government of Seychelles on June 20, 2007.
Lease premium and relevant taxes totalling SR 5.25m were paid in advance and were classified and amortised in other assets.

Upon adoption of IFRS 16 on January 1, 2019, the Bank transferred the net of SR 4.61m made of SR 5.25m upfront lease payments and SR 0.64m accumulated amortisation to right- of-use asset.

11.
RETIREMENT BENEFIT (ASSETS)/OBLIGATIONS (a) Statement of Financial Position as at December 31, Defined pension benefits (notes 11(d)(ii) and 11(d)(iii)) Other post retirement benefits (note 11(e)) (b) Statement of Profit or Loss (SPL): Defined pension benefits (notes 11(d)(ii), 11(d)(vi) and 28) Other post retirement benefits (notes 11(e) and 28) 2021 SR' 000 (8,105) 12,191 4,086 2021 SR' 000 (132) 944 812 2020 SR' 000 (14,996) 12,561 (2,435) 2020 SR' 000 1,695 2,067 3,762 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 56 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 11.
RETIREMENT BENEFIT (ASSETS)/OBLIGATIONS (CONT'D) (c) Statement of Other Comprehensive Income (OCI) 2021 SR' 000 2020 SR' 000 Retirement benefit obligations (notes 11(d)(ii), 11(d)(vii) and 20) (7,023) 12,890 (d) Defined pension benefits (i) The Bank contributes towards a defined pension plan which provides benefits to members in the form of a guaranteed level of pension payable for life.

The level of benefits provided depends on members' length of service and their salary in the final years of retirement.
The assets of the plan are administered by SIMBC Fiduciary Pension Fund.

The most recent actuarial valuation of the plan assets and the present value of the defined benefit obligations were carried out at December 31, 2021 by Aon Hewitt Ltd (Actuarial Valuer).
(ii) Reconciliation of net defined benefit asset: At January 1, (Credit)/Charge to SPL (notes 11(b) and 11(d)(vi)) Charge/(Credit) to OCI (note 11(d)(vii)) Less: Employer contributions paid (note 11(d)(v)) At December 31, 2021 SR' 000 (14,996) (132) 7,023 - (8,105) (iii) The amounts recognised in the Statement of Financial Position are as follows: Defined benefit obligation (note 11(d)(iv)) Fair value of plan assets (note 11(d)(v)) At December 31, 2021 SR' 000 46,913 (55,018) (8,105) (iv) The movement in the defined benefit obligations over the year is as follows: At January 1, Current service cost (note 11(d)(vi)) Interest cost Liability experience (gain)/loss (note 11(d)(vii) Liability (gain)/loss on change in financial assumption (note 11(d)(vii) Benefits paid (note 11(d)(v)) At December 31, 2021 SR' 000 38,222 1,368 3,677 (469) 7,095 (2,980) 46,913 2020 SR' 000 (1) 1,695 (12,890) (3,800) (14,996) 2020 SR' 000 38,222 (53,218) (14,996) 2020 SR' 000 46,589 1,825 3,237 701 (13,412) (718) 38,222 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED 57 NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 11.
RETIREMENT BENEFIT (ASSETS)/OBLIGATIONS (CONT'D) (v) The movement in the fair value of plan assets of the year is as follows: At January 1, Interest income Employer contributions (note 11(d)(ii)) Benefits paid (note 11(d)(iv)) Return on plan assets exclusing interest income (note 11(d)(vii)) Effect of asset ceiling (note 11(d)(vii)) At December 31, Fair value percentages of plan assets by category: Equity in Seychelles Property in Seychelles Cash and others Unquoted debts in Seychelles (vi) Amounts recognised in the Statement of Profit or Loss: Current service cost (note 11(d)(iv)) Net interest on defined benefit plan (notes 11(d)(iv) and 11(v)) (vii) Amounts recognised in Statement of Other Comprehensive Income: Liability experience (gain)/loss (note 11(d)(iv)) Liability (gain)/loss on financial assumptions (note 11(d)(iv)) Change in effect of asset ceiling in OCI (note 11(v)) Change in effect of asset ceiling in SPL Return on plan assets exclusing interest income (note 11(d)(v)) (viii) Principal assumptions used at the end of the period: Discount rate Rate of salary increases Rate of pension increases Average retirement age (ARA) & Average life expectancy for: 2021 SR' 000 53,218 5,324 - (2,980) (2,018) 1,474 55,018 2021 % 15 62 5 18 100 2021 SR' 000 1,368 (1,500) (132) 2021 SR' 000 (469) 7,095 (1,474) (147) 2,018 7,023 2021 8.5% 3.0% 0.0% 2020 SR' 000 46,590 3,367 3,800 (718) 1,653 (1,474) 53,218 2020 % 16 62 22 - 100 2020 SR' 000 1,825 (130) 1,695 2020 SR' 000 701 (13,412) 1,474 - (1,653) (12,890) 2020 10.0% 3.0% 0.0% - Male - Female - Male at ARA - Female at ARA 63 year 60 year 17.5 years 24.3 years 63 year 60 year 17.3 years 24.3 years SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 58 11.
RETIREMENT BENEFIT (ASSETS)/OBLIGATIONS (CONT'D) (ix) Sensitivity analysis on defined benefit obligation at end of period Increase in discount rate Decrease in discount rate 2021 SR' 000 5,219 4,276 2020 SR' 000 3,619 3,021 The above sensitivity analysis has been carried out by recalculating the present value of obligation at end of the period after increasing or decreasing the discount rate by 1% while leaving all other assumption unchanged.
Any similar variation in the other assumptions who have shown smaller variations in the defined benefit obligation.

(x) The defined benefit pension plan exposes the Bank to normal risks associated with defined benefit pension plans such as investment, interest, longetivity and salary risks.

The funding requirements are based on the pension fund's actuarial measurement framework set out in the funding policies of the plan.

There has been no plan amendment, curtailment in settlement during the year.
(xi) The Bank is not expected to contribute to its post-employment benefit plans for the year ending December 31, 2022.

The weighted average duration of the defined benefit obligation is 10 years at the end of the reporting period.

(e) Other post retirement benefits Other post retirement benefits relates to length-of-service compensation payable under the Seychelles Employment Act, as amended.
Movement in length-of-service compensation is as follows: At January 1, Charge to Statement of Profit or Loss (notes 11(b) and 28) Paid during the year At December 31, 12.

DEFERRED TAX 2021 SR' 000 12,562 944 (1,315) 12,191 2020 SR' 000 11,286 2,067 (791) 12,562 (a) Deferred taxes are calculated on all temporary differences under the liability method at applicable rates as mentioned in note 16(d).
(b) There is a legally enforceable right to offset deferred tax assets and deferred tax liabilities when the deferred taxes relate to the same fiscal authority for the same entity.

Net deferred tax assets (note 12(c)) 18,653 58,053 2021 SR' 000 2020 SR' 000 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 59 12.
DEFERRED TAX (CONT'D) The movement in deferred tax account and amounts shown in the Statement of Financial Position are as follows: At January 1, (Charge)/Credit to Statement of Profit or Loss (notes 16(b) & 12(c)) Credit/(Charge) to Statement of Other Comprehensive Income (notes 12(c) & 20) At December 31, Analysed as follows: Deferred tax assets (note 12(c)(ii)) Deferred tax liabilities (note 12(c)(i)) 2021 SR' 000 58,053 (41,718) 2,318 18,653 2021 SR' 000 34,564 (15,911) 18,653 2020 SR' 000 4,997 57,310 (4,254) 58,053 2020 SR' 000 75,589 (17,536) 58,053 (c) Deferred tax is recognised in the Statement of Financial Position with respect to the following: (i) DEFERRED TAX ASSETS Excess of Actuarial obligation to right-of-use SR' 000 losses SR' 000 Payroll provisions* SR' 000 Provision for credit impairment SR' 000 Total SR' 000 At January 1, 2020 Credit to Statement of Profit or Loss 913 - 39 30 3,724 10,674 15,350 1,434 59,688 61,152 Charge to Statement of Other Comprehensive Income (913) - - - (913) At December 31, 2020 Credit to Statement of Profit or Loss At December 31, 2021 - - - 69 5,158 70,362 75,589 165 234 (406) 4,752 (40,784) 29,578 (41,025) 34,564 * Payroll provisions include gratuity and compensation of SR 12.2m (2020: SR 12.6m) (note 11) and leave pay provision amounting to SR 2.2m (2020: SR 3.1m) included in other liabilities (note 17).
SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 60 12.
DEFERRED TAX (CONT'D) (ii) DEFERRED TAX LIABILITIES Accelerated tax depreciation SR' 000 Actuarial gains SR' 000 Retirement benefit assets SR' 000 Total SR' 000 At January 1, 2020 Credit/(Charge) to Statement of Profit or Loss (10,353) 1,107 - - - (10,353) (4,949) (3,842) Charge to Statement of Other Comprehensive Income - (3,341) - (3,341) At December 31, 2020 (9,246) (3,341) (4,949) (17,536) (2,967) - 2,274 (693) (Charge)/Credit to Statement of Profit or Loss Credit to Statement of Other Comprehensive Income - 2,318 - At December 31, 2021 (12,213) (1,023) (2,675) 13.
OTHER ASSETS Prepayments Refundable deposits Stocks of stationeries Other receivables 2021 SR' 000 3,991 272 3,343 30,665 38,271 2,318 (15,911) 2020 SR' 000 5,723 257 3,014 31,362 40,356 (a) The carrying amounts of 'other assets' approximate their fair value and the Directors are of the opinion that risk of default is remote and no impairment is required at December 31, 2021 (2020: Nil).

(b) The currency profile and maturity terms are detailed under notes 3.4 and 3.5 respectively.

14.
14.

CUSTOMER DEPOSITS Current accounts Term deposits Interest accrued 2021 SR' 000 7,789,603 771,959 9,863 8,571,425 2020 SR' 000 8,899,166 822,813 12,905 9,734,884 (a) The range of interest on customer deposits varied from 0.05% to 6.00% (2020: 0.15% to 6.15%).

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 61 15.
BORROWINGS At January 1, Additions during the year Repayments during the year At December 31, 2021 SR' 000 28,022 64,768 (3,384) 89,406 2020 SR' 000 - 28,948 (926) 28,022 (a) The Central Bank of Seychelles extended lines of credit to financial institutions at zero interest rate for lending to entities affected by COVID-19 pandemic and are denominated in Seychelles Rupees.

The lines of credit are available to Micro Business Small and Medium Enterprises (MSME) and Large Corporates (LC).
The Government of Seychelles has agreed to guarantee 70% of the loans to MSME and 50% of the loans to Large Corporates.

As at December 31, 2021 the Bank had drawn an amount of SR 89.4m (2020: SR 28m).

Out of this, SR 28.5m (2020: SR 13m) had been lent to MSME and SR 60.9m (2020: SR 15m) to Large Corporates.
(b) All funds received from the borrowers in repayment of any principal amount of a loan are to be remitted to CBS every quarter, commencing December 31, 2021 and shall be made within 15 days after the end of the relevant quarter.

Refer to note 3.5 for maturity profile.

16.
CURRENT TAX (a) Statement of Financial Position At January 1, Charge to Statement of Profit or Loss (notes 16(b) and 16(c)) Tax refund received Payments during the year At December 31, (b) Statement of Profit or Loss Current tax based on the profit for the year (note 16(c)) Deferred tax charge/(credit) (note 12(b)) Tax expenses 2021 SR' 000 18,562 103,591 - (105,495) 16,658 2021 SR' 000 103,591 41,718 145,309 2020 SR' 000 (3,114) 108,651 3,114 (90,089) 18,562 2020 SR' 000 108,651 (57,310) 51,341 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 62 16.
CURRENT TAX (CONT'D) (c) Reconciliation between tax expense and accounting profit is as follows: Tax on the Bank's profit before tax differs from the theoretical amount that would arise using the basic tax rate of the Bank as follows: Profit before taxation Tax calculated at applicable tax rates (note 16(d)) - Income not subject to tax - Expenses not deductible for tax purposes - Excess of capital allowance over depreciation (d) Applicable tax rates are as follows: Taxable income threshold < SR 1,000,000 > SR 1,000,000 17.
OTHER LIABILITIES Foreign drafts and local cheques payable Other payables ECL provision for off SOFP items (notes 17(a) and 17(b)) Lease liabilities (note 10(c)) Provision for leave liability 2021 SR' 000 2020 SR' 000 444,081 268,716 146,466 (715) (39,196) (2,964) 103,591 88,596 (42,005) 62,142 (82) 108,651 2021 & 2020 25% 33% 2020 SR' 000 21,455 35,078 9,382 25,806 3,068 94,789 2021 SR' 000 15,013 17,935 1,962 21,625 2,208 58,743 (a) ECL on off-SOFP is classified in Stage 1 and there were no movements within stages during the year under review.
(b) Movement in ECL during the year is as follows: As at January 1 ECL (credit)/charge during the year (note 29) As at December 31, 18.

SHARE CAPITAL Authorised, issued and fully paid-up: 100,000 ordinary shares of SR 1,000 each 2021 SR' 000 9,382 (7,420) 1,962 2020 SR' 000 2,650 6,732 9,382 2021 & 2020 SR' 000 100,000 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 63 19.
STATUTORY RESERVE At December 31, 2021 & 2020 SR' 000 100,000 The statutory reserve is maintained in accordance with section 24(1) of the Financial Institutions Act 2004 as amended and is equivalent to the share capital of SR 100 million.

20.
OTHER RESERVES Actuarial gain/ (losses) SR' 000 Fair value reserve SR' 000 Total SR' 000 At January 1, 2020 Defined benefit plan (note 11(d)(vii)) Deferred tax on actuarial movements (note 12(b)) Fair value adjustments (note 7(a)(ii)) At December 31, 2020 Defined benefit plan (note 11(d)(vii)) (2,717) 12,890 (4,254) - 5,919 (7,023) Deferred tax on actuarial movements (note 12(b)) 2,318 166,516 163,799 - - 128,704 295,220 - - 12,890 (4,254) 128,704 301,139 (7,023) 2,318 Fair value adjustments (note 7(a)(ii)) - (87,895) (87,895) At December 31, 2021 1,214 207,325 208,539 21.
INTEREST INCOME Investments in financial assets Cash and short term funds Loans and advances 22.

INTEREST EXPENSE Customer deposits Interest expense on lease liabilities (note 10(c)) 2021 SR' 000 18,994 131,179 150,173 147,218 297,391 2021 SR' 000 39,161 1,409 40,570 2020 SR' 000 38,548 77,986 116,534 162,222 278,756 2020 SR' 000 44,856 515 45,371 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 64 23.
FEE INCOME AND COMMISSIONS Fees and commissions arising on: - Card fees - Commission on sale of forex - Letter of credit fees - Loan commitment fees - Portfolio and other management fees - Other fees received 24.

NET TRADING INCOME Net foreign exchange gains Recovery of charges 25.

OTHER OPERATING INCOME Dividend received (note 7(b)) Cashiers Surplus Miscellaneous income 26.
EXCEPTIONAL INCOME 2021 SR' 000 55,103 9,482 1,155 8,450 5,487 8,447 88,124 2021 SR' 000 142,944 8,787 151,731 2021 SR' 000 2,166 28 1,033 3,227 2020 SR' 000 34,164 10,028 5,978 6,037 5,637 3,609 65,453 2020 SR' 000 149,640 8,178 157,818 2020 SR' 000 1,621 20 654 2,295 Exceptional income in 2020 relates to proceeds from realisation of repossessed collateral acquired by the Bank as settlement of an overdue loan in 2018.
This repossession had been legally enforced through the Court upon default of the customer.

The Bank sold this collateral in 2020 at a total consideration of USD 10m equivalent to SR 173.35m.

The associated fair value initially recognised at SR 124.60m was recycled to Statement of Profit or Loss since it formed part of the exceptional income - collateral realised of SR 144.96m.

27.
27.

OTHER OPERATING EXPENSES Employee benefit expenses (note 28) Auditors' remuneration Administrative expenses Computer costs Rental expenses (notes 10(a) & 10(d)) Maintenance and other related costs 2021 SR' 000 44,479 412 25,151 8,582 1,114 11,014 90,752 2020 SR' 000 47,044 386 31,032 5,148 1,343 9,545 94,498 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 65 28.
EMPLOYEE BENEFIT EXPENSE Salaries and wages Directors' emoluments (note 28(a)) Defined benefit obligations (notes 11(b) and 11(d)(vi)) Other retirement benefit obligations (notes 11(b) and 11(e)) Other staff costs** ** This includes short term lease of SR 801k (2020: SR 800k).
(a) Directors' emoluments: Ahmad Saeed Abdul Gafoor Yakub Vincent Van Heyste Damien Thesee Anil Dua David Howes Michael Bluemner Andrew Bainbridge Helene Maiche Michael Benstrong* Odile Vidot Oliver Bastienne 2021 Directors' fees SR' 000 Other emoluments SR' 000 - - 89 28 28 28 62 62 33 33 33 33 429 2,609 - - - - - - - - 580 - - 3,189 2021 SR' 000 38,336 3,618 (132) 944 1,713 44,479 Total SR' 000 2,609 89 28 28 28 62 62 33 33 580 33 33 3,618 2020 SR' 000 38,096 2,962 1,695 2,067 2,224 47,044 2020 Total SR' 000 2,584 87 60 60 60 60 51 - - - - - 2,962 * The salary and bonus are for the period from July to December 2021.
29.
EXPECTED CREDIT LOSS PROVISION Cash and cash equivalents Loans and advances Investment in financial assets Loan commitments Other commitments Notes 5(d) 6(a) 7(c) 17(b) 17(b) 2021 Stage 1 SR' 000 Stage 2 SR' 000 (137) - Stage 3 SR' 000 - Total SR' 000 (137) (2,122) (113,305) (679) (116,106) 77 (7,401) (19) (9,602) - - - (113,305) - - - (679) 77 (7,401) (19) (123,586) SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 66 29.
EXPECTED CREDIT LOSS PROVISION (CONT'D) Cash and cash equivalents Loans and advances Investment in financial assets Loan commitments Other commitments 5(d) 6(a) 7(c) 17(b) 17(b) 30.
COMMITMENTS AND CONTINGENCIES (a) Loan and other commitments 2020 Stage 1 SR' 000 Stage 2 SR' 000 Stage 3 SR' 000 185 - - Total SR' 000 185 (520) 176,452 (2,068) 173,864 89 6,685 47 6,486 - - - - - 176,452 - (2,068) 89 6,685 47 180,870 2021 SR' 000 2020 SR' 000 Loans and other facilities approved and not yet disbursed 521,102 412,106 Guarantees, bills of collection, letters of credit, and other obligations on account of customers (b) Capital commitments Approved but contracted for Approved but not contracted for (c) Legal claim contingency 486,887 593,291 1,007,989 1,005,397 2021 SR' 000 2020 SR' 000 8,200 - 18,300 16,408 The Bank does not have legal claim contingency as at December 31, 2021 (2020: Nil).
31.
RELATED PARTY TRANSACTIONS During the year ended December 31, 2021, there were the following December 31, 2021: Government of Seychelles State owned or controlled enterprises Minority shareholder of the Bank Directors Interest from related Interest to related parties SR' 000 parties SR' 000 Amount owed by related parties SR' 000 Amount owed to related parties SR' 000 167 1,614 - 2 - 3,763 - 27 87,804 547,972 - 4,599 1,264 1,487,925 496 2,943 SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 67 31.
RELATED PARTY TRANSACTIONS (CONT'D) December 31, 2020: Government of Seychelles State owned or controlled enterprises Minority shareholder of the Bank Directors Interest from related parties SR' 000 Interest to related parties SR' 000 Amount owed by related parties SR' 000 Amount owed to related parties SR' 000 6,078 22,349 - 8 - 3,811 - 103 115,019 557,710 - 87 1,274 1,423,560 496 5,487 (a) Transactions with related parties are made at normal market prices.
(b) Outstanding balances at the end of the reporting period are secured, interest rates are at arm's length and are guaranteed by the Government of Seychelles.

For the year ended December 31, 2021, the Bank recorded an impairment of loans and advances comprising Government of Seychelles and State owned or controlled enterprises amounted to SR 49.9k and SR 354.7k respectively (2020: SR 3.6m and SR 14.3m).

The amounts are estimated based on the Bank's ECL methodologies applicable to other entities.
(c) Key management personnel (i) Salaries and related costs Salaries and other benefits (note 28(a)) Directors' remuneration Pension costs (ii) Transactions during the year Net repayment of loans and advances Net payments from/(to) customers 32.
EVENT AFTER REPORTING DATE Dividends proposed 2021 SR' 000 2020 SR' 000 3,189 429 - 3,618 - 611 611 2,584 378 267 3,229 - 194 194 Early February 2022, the Central Bank of Seychelles (CBS) announced removal of restriction on dividend declaration effective financial year 2021 as part of the unwinding strategy of COVID-19-revision of remedial measures.

Following the above, the Directors declared a dividend of SR 345m representing SR 3,450 per share during the board meeting held on March 24, 2022.
The Dividend had been approved by Central Bank of Seychelles on February 25, 2022.

SEYCHELLES INTERNATIONAL MERCANTILE BANKING CORPORATION LIMITED NOTES TO THE FINANCIAL STATEMENTS FOR THE YEAR ENDED DECEMBER 31, 2021 68 33.
FIVE YEAR FINANCIAL SUMMARY 2021 SR' 000 2020 SR' 000 2019 SR' 000 2018 SR' 000 2017 SR' 000 As restated Profit before tax Tax expense Profit for the year Retained earnings brought forward Profit available for distribution Dividends paid Retained earnings carried forward 444,081 (145,309) 298,772 437,802 736,574 - 268,716 (51,341) 217,375 220,427 437,802 - 249,291 (85,111) 164,180 221,247 385,427 (165,000) 277,615 (132,943) 144,672 301,575 446,247 (225,000) 249,553 (79,773) 169,780 256,795 426,575 (125,000) 736,574 437,802 220,427 221,247 301,575 EQUITY Share capital Statutory reserve Retained earnings Reserve on property foreclosed Fair value reserve Other reserves/(deficit) 100,000 100,000 736,574 - 207,325 1,214 100,000 100,000 437,802 - 295,220 5,919 100,000 100,000 220,427 124,600 166,516 (2,717) 100,000 100,000 221,247 124,600 110,530 (3,193) 100,000 100,000 301,575 - 86,136 122 1,145,113 938,941 708,826 653,184 587,833