Union Bank
UNION BANK OF JAMAICA LIMITED
NOTES TO THE FINANCIAL STATEMENTS
YEAR ENDED DECEMBER 31, 2000
1. IDENTIFICATION
(a) Citizens Bank Limited was incorporated in Jamaica and provided commercial banking facilities to its customers. On June 30, 1999 the Bank changed its name to Union Bank of Jamaica Limited (The Bank). Prior to the change in name to Union Bank, the undertakings and assets of certain financial institutions under the control of the Government of Jamaica were transferred to The Bank, primarily :
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Eagle Commercial Bank Limited
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Island Victoria Bank Limited
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Workers' Savings & Loan Bank
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Island Life Merchant Bank Limited
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Corporate Merchant Bank Limited.
The Bank is 99% owned by Finsac Limited (Finsac) which is also incorporated in Jamaica.
(b) The Bank is licensed under the Banking Act, 1992 and the Banking (Amendment) Act 1997. These financial statements have been prepared in accordance with their provisions.
(c) These financial statements are expressed in Jamaican dollars.
2. SIGNIFICANT ACCOUNTING POLICIES
(a) Accounting convention
These financial statements have been prepared on the basis of the continuation of The Bank as a going concern, which contemplates the realisation of assets and the repayment of liabilities in the ordinary course of business, and under the historical cost convention, as modified by the revaluation of certain fixed assets and investments.
(b) Accounting principles and standards
The accounting principles followed by The Bank are those generally accepted in Jamaica, and these financial statements comply in all material respects with the requirements of applicable statements of standard accounting practice issued by the Institute of Chartered Accountants of Jamaica.
(c) Foreign currencies
Transactions in foreign currencies have been converted to Jamaican dollars at the rates of exchange ruling at the dates of those transactions. Assets and liabilities denominated in foreign currencies are translated to Jamaican dollars at exchange rates current at balance sheet date. All exchange gains and losses are credited to, or charged against, income of the year.
(d) Interest
Interest income is recorded on the accrual basis unless the collection of interest is considered doubtful, or payment is outstanding for over ninety days, in which event interest is taken into account on a cash basis.
(e) Provision for loan losses
The Bank maintains an allowance for credit losses, which in management's opinion is adequate to absorb all credit related losses in its portfolio of both on and off balance sheet items. The provision consists of specific provisions and general provisions for doubtful credits.
Specific provision for loan losses is based on an assessment of non-performing loans and other sub-standard loans. Loans are classified non-current if they are non-performing in excess of ninety days. In assessing each loan, collateral held and other factors including past loan loss experience, business and economic conditions are considered. Collateral held by The Bank is valued in accordance with guidelines issued by the Supervisor.
General provisions for doubtful credits are established against the loan portfolio where a prudent assessment by The Bank of adverse economic trends suggests that losses may occur, but where such losses cannot yet be determined on an item-by-item basis. The Supervisor requires that such a provision should not be less than 0.5% for certain residential mortgages and not less than 1% for all other loans.
(f) Pension funds
The Bank operates contributory pension schemes which are administered by Trustees. The Bank accrues and funds pension costs annually. Pension contributions by employees are at a fixed rate and contributions by employer are at the amounts determined by the actuaries as are required to provide the benefits and expenses of the schemes.
(g) Investments
- Quoted investments are stated at the lower of cost and market values.
- Unquoted investments are stated at cost less reductions to net realisable values where appropriate.
- Investments in Government of Jamaica securities apart from Treasury Bills are stated at cost. Treasury Bills are carried at cost plus interest earned up to the balance sheet date.
- Finsac bonds are stated at cost.
(h) Assets purchased/sold under resale/repurchase agreements
The purchase and sale of securities under resale and repurchase agreements are accounted for as collateralised lending and borrowing transactions. The related interest income/expense is recorded on the accrual basis.
(i) Depreciation
Depreciation is calculated on the straight line basis on cost or revalued amounts over the estimated lives of the assets. Annual depreciation rates are as follows:
Freehold buildings 2.5% Leasehold improvements 10% Furniture and fixtures 10% Equipment, computer hardware and software 10 - 20% Motor vehicles 20%
No depreciation is provided on land.
(j) Financial instruments
Financial instruments carried on the balance sheet include cash resources, investments, loans, other assets, guarantees and letters of credit, deposits, and other liabilities.
The fair values of The Bank's financial instruments are discussed in Note 27.
(k) Use of Estimates
The preparation of financial statements in conformity with generally accepted accounting principles requires management to make estimates and assumptions that affect the reported amount of assets and liabilities and disclosure of contingent assets and liabilities at the date of the financial statements and the reported amounts of revenues and expenses during the reporting period. Actual results could differ from those estimates, and any adjustments that may be necessary would be reflected in the year in which actual results are known.
3. DEPOSITS WITH, AND MONEY AT CALL AT, BANK OF JAMAICA
Cash includes statutory cash reserves of $1,985,518,000 (1999 - $2,560,511,000). This amount is held, under Section 14(1) of the Banking Act, 1992 principally on a non-interest bearing basis at Bank of Jamaica. Accordingly, it is not available for investment or other use by The Bank.
4. OWED BY OTHER BANKS AND FINANCIAL INSTITUTIONS
Deposits totalling US$400,000 are hypothecated by certain institutions against The Bank's liability under letters of credit.
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