Annual financial statement
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kinabank.com.pg Kina Securities Limited Full Year Results as at 31 December 2024 (ABRN 606 168 594) Incorporating the requirements of Appendix 4E For personal use only
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1 ASX Appendix 4E For the Full Year ended 31 December 2024 Comparisons of the current year results to 31 December 2024 (FY2024, reporting period) are with the full year to 31 December 2023 (FY2023, previous corresponding period (PCP)). Change Dec24 vs Dec23 PGK Dec-24 Dec-23 PGK’000 % Revenue from ordinary activities 488,848 404,158 84,690 21% Profit from ordinary activities 184,059 175,541 8,518 5% Underlying Net Profit after tax 111,871 104,965 6,906 7% Net Profit after tax attributable to equity holders 102,468 104,965 (2,497) (2%) Net Tangible Assets per security (PGK) 2.00 1.91 Dividends FY 2024 FY 2023 Dividends distributions (Final dividend) - unfranked (AUD cents per share) 6.0 cents 6.0 cents - unfranked (PGK toea per share) 15.5 toea 15.9 toea Dividends distributions (Interim dividend) - unfranked (AUD cents per share) 4.0 cents 4.0 cents - unfranked (PGK toea per share) 10.6 toea 9.7 toea Full year dividend - unfranked (AUD cents per share) 10.0 cents 10.0 cents - unfranked (PGK toea per share) 26.1 toea 25.6 toea The Directors have declared a final unfranked dividend for the reporting period based on the Net Profit After Tax (NPAT) attributable to equity holders for the full year of PGK 102.5m. This is compared to NPAT of PGK 105.0m for the PCP. The final dividend is converted based on an exchange rate: 1 PGK = 0.3868 AUD. The Record date for determining entitlements to the dividend is 6 March 2025. The financial information contained in this report for the reporting period is presently being audited. The figures for the prior corresponding period are audited numbers. This report should be read in conjunction with the unaudited Consolidated Statements for the full year ended 31 December 2024 in Section 2. This report is provided to the ASX under Listing Rule 4.3A For personal use only
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2 1. Results Overview 3 1.1 Disclosure and Context 6 1.2 Financial results for the full year-ended 31 December 2024 7 1.2.1 Statutory Results 7 1.2.2 Dividends 7 1.2.3 Lending 8 1.2.4 Funding 9 1.2.5 Net Interest Margin 9 1.2.6 Non-Interest Income 10 1.2.7 Operating Expenses 11 1.2.8 Asset Quality and Loan Impairment 11 1.2.9 Capital Adequacy 13 2. Consolidated Financial Statements 14 2.1 Statement of Comprehensive Income – consolidated 14 2.2 Statement of financial position – consolidated 15 2.3 Statement of changes in equity – consolidated 16 2.4 Statement of Cashflow – consolidated 17 2.5 Basis of Preparation 18 2.6 Non-Cash Financing and Investing Activities 18 2.7 Reconciliation of Cash and Cash Equivalents 18 2.8 Ratios 18 2.9 Earnings Per Share - Statutory 18 2.10 Details of aggregate share of profits (losses) of associated entity 18 2.11 Issued Shares 18 2.12 Segment Reporting 19 2.13 Comparison of Profits 20 2.14 Contingent Liabilities 20 3. Compliance Statement 21 Table of contents For personal use only
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3 1. Results Overview Kina Securities Limited (KSL, Kina, Kina Group, Bank, the Business or the Company) has reported an unaudited statutory Net Profit After Tax of PGK 102.5m for the full year to 31 December 2024. This is compared to PGK 105.0 for the full year to 31 December 2023. The statutory profit has been calculated in accordance with International Financial Reporting Standards (IFRS). Underlying profit of PGK 111.9m, 7% growth against PCP, has been calculated by adding back the impact of a decline in deferred tax assets of PGK9.4m. The Board has declared an unfranked final dividend for 2H24 of AUD 6.0 cents per share / PGK 15.5 toea per share. This compares to AUD 6.0 cents per share / PGK 15.9 toea in the PCP. Key results Full Year Ended Dec-24 Dec-23 % Underlying NPAT from ordinary activities (PGK m) 111.9 105.0 7%* Statutory NPAT from ordinary activities (PGK m) 102.5 105.0 (2%) ** Net Profit before tax (PGK m) 184.1 175.5 5% Revenue (PGK m) 488.8 404.2 21% FX Revenue (PGK m) 86.2 51.3 68% Loan impairment expense (PGK m) (18.2) (9.9) 84% Cost to income ratio (%) 58.6 54.1 8%*** Net interest margin (%) 5.8 5.6 4% Return on Equity (%) 15.7 16.8 (7%) Earnings per Share (PGK Toea) underlying 38.9 36.6 6% Earnings per Share (PGK Toea) statutory 35.7 36.6 (2%) Dividend (PGK Toea per share) 26.1 25.6 (1%) Dividend (AUD Cents per share) 10.0 10.0 0% Deposit Growth (PGK m) 4,352.0 4,344.6 0% Net loans and advances (PGK m) 2,882.3 2,562.1 13% Capital adequacy (T1+T2) (%) 18.4 20.0 (8%) * Dec-24 Underlying NPAT includes declared one-off fraud loss of K13.0m ** Dec-24 Statutory NPAT includes the impact of a decrease in the tax rate from 45% to 40% in 2025 and 35% for 2026 onwards . *** Cost to income includes fraud loss provision (CTI adjusted for fraud loss is 56.6%) Operating performance and earnings Kina’s 2024 results were driven by robust revenue growth in core banking products, foreign exchange income, and digital services, aligning with the objectives of the 2025 strategic plan. Kina remains dedicated to delivering improved returns through organic market share growth, diversification of revenue streams, disciplined expense management, and maintaining a resilient balance sheet. The regulatory capital ratio stands at a strong 18.4%, well above the minimum regulatory requirements. Interest income on loans increased by 15% compared to the previous corresponding period (PCP), supported by solid performance in the Business and Home lending segments. FY24 Highlights: • Revenue Growth: Achieved a 21% increase in total revenue compared to the previous corresponding period (PCP), driven by the expansion of the commercial loan book and higher foreign exchange income. • Underlying NPAT: +7% to PGK 111.9 million • Loan Book Expansion: +13% to PGK 2.9 billion. • Net Interest Income: +9% to PGK 222.2 million, up from PGK 203.3 million in the PCP. • Foreign Exchange income: +68% to PGK 86.2m following increase market intervention by the central bank. • Fees and Commissions: +18% supported by the growth of Kina’s digital channels. • Cost to income: Increased to 58.6%, arising from a one off fraud loss, and the effect on PGK value of USD denominated costs with the gradual decline of exchange rate over the year. For personal use only
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4 • Funds Administration: NPAT of PGK 13.3 million (+3%), and 27% revenue growth driven by enhanced value-added services for superannuation clients. • Funds Management: NPAT +38% to PGK 10.0m boosted by total funds reaching PGK 11.6 billion, maintaining Kina’s market share in the sector. Outlook The company expects further earnings growth in 2025. This is underpinned by expected growth in the PNG economy combined with Kina Banks financial capacity and management capability to execute Kina Bank’s strategic plan. Asset Quality Asset quality is measured using an Expected Credit Loss (ECL) methodology which measures and recognises potential impairment losses on financial assets. Kina has further enhanced its internal risk grading model to incorporate estimates for loss allowance based on the credit risk of the assets. The enhanced risk model more effectively utilises three key items: • Probability of Default (PD) • Loss Given Default (LGD); and • Exposure at Default (ED) The model considers past and present outcomes and incorporates future macro-economic forecasts to ensure an appropriate and timely recognition and provisioning for credit losses as changes in credit risks occur. The model allocates relative weightings to base, upside and downside risk scenarios. Section 1.2.8 provides additional explanation. Operating Expenses Total operating cost for the 2024 year was PGK 286.6m, an overall increase of 31%. As reported in the first half, the exceptional payments fraud loss has had an adverse impact of K13.0m, pre-tax. On a normalized basis, some material variances from plan and prior year are due to: • The effect on PGK value of USD denominated costs, with the exchange rate’s gradual 7% decline over the year. • Necessary investment in external expertise for planned improvements to technology and operational risk processes • Overlaps in senior position transitions, including CRO. • General increases in the level of local prices of supplies, induced largely by PGK depreciation Section 1.2.7 provides additional explanation. Underlying Capital The underlying capital of the banking business is strong, with regulatory capital (T1+T2) at 18.4% of risk weighted assets (RWA). Kina remains well above the regulatory minimum of 12%. The higher capital base positions the Group well for further growth opportunities in lending, digital and across the distribution network, and provides a good base for inorganic growth opportunities. 2025 Income Tax Rate decrease In December 2024, during the PNG Government’s roll out of the 2025 national budget, a decrease in the corporate income tax rate from 45% to 40% on smaller commercial banks (defined as those with annual earning up to PGK 300m) was announced effective 1 January 2025. Kina’s Deferred taxes were therefore remeasured as at 31 December 2024 to the new rate in line with IFRS to reflect the change. This has resulted in a decrease in deferred tax asset of PGK 9.4m and a corresponding exceptional tax expense of PGK 9.4m included in the statutory net profit after tax for 31 December 2024. The tax rate for smaller banks is scheduled to decline again in 2026 to 35%. For personal use only
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5 Economic Outlook The PNG economy is poised for robust growth in the coming years, underpinned by a resurgence in the resource sector and sustained momentum in non-resource industries. Official projections indicate that real GDP will expand by a substantial 4.9% in 2024 and 4.7% in 2025, driven by the resumption of operations at the Porgera mine, improved access to foreign exchange, higher commodity prices, and increased government spending. The non-resource sector is also expected to be a significant contributor to this growth, with forecasts suggesting a 4.5% expansion in 2024 and a 5.2% in 2025. This performance will be bolstered by robust agricultural production, public infrastructure investment, favourable commodity prices, exchange rate depreciation, and government spending initiatives. The agriculture sector, it is projected to experience growth in production in 2025, with palm oil (9.3%), cocoa (7.9%), and copra (7.2%), all expected to increase. High palm oil production is largely due to improved productivity and efficient processing in the main palm oil-growing regions. In addition, the continued rollout of the freight subsidy, along with the maturation of more than 3 million cocoa trees, will drive cocoa production higher in 2025. The resource sector, which has been a cornerstone of PNG’s economy, is anticipating a recovery, with growth estimates of 5.9% in 2024 and projections of 3.4% in 2025. The mining and quarrying sector, in particular, is set to benefit from the resumption of operations at the Porgera mine and higher production levels from other mining operations. This optimistic outlook is not without risks. Potential headwinds include a subdued global economy, law and order issues at the Porgera mine, higher inflation stemming from the exchange rate adjustment program, inefficient public investment spending, and a possible grey listing by Financial Actions Task Force (FATF). In terms of inflation, despite a historically low inflation prediction from the National Statistics Office in the second half of 2024, inflationary risks remain a key challenge for businesses in 2025, given the ongoing adjustment to the PGK/USD exchange rate, along with the government’s operating budget of PGK28.4 billion. Inflation is forecasted to be around 4% this year. In the next 12 months, we anticipate that FX liquidity in the market will continue to improve, with shorter waiting times, as BPNG continues to gradually adjust the PGK/USD interbank rate to a market-clearing rate while providing much-needed FX to the market. Further to its policy measure, BPNG introduced a weekly FX auction system in 2024, providing the market with a regular supply of FX and a more transparent and predictable mechanism for accessing it. For personal use only
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6 1.1 Disclosure and Context Financial reporting The statutory result for the twelve months to 31 December 2024 was a consolidated Net Profit After Tax of PGK 102.5m. This includes results from the combined operations of Kina Securities Limited and its subsidiaries. The results presented in this report have been presented on a statutory basis. Future performance. Forward looking statements The information in this document is for general information only. To the extent that certain statements contained in this document may constitute “forward-looking statements” or statements about “future matters”, the information reflects Kina’s intent, belief or expectations at the date of this document. Subject to any continuing obligations under applicable law or any relevant listing rules of the Australian Securities Exchange (ASX) or PNG’s National Stock Exchange (PNGX), Kina disclaims any obligation or undertaking to disseminate any updates or revisions to this information over time. Any forward-looking statements, including projections, guidance on future revenues, earnings and estimates, are provided as a general guide only and should not be relied upon as an indication or guarantee of future performance. Forward-looking statements involve known and unknown risks, uncertainties and other factors that may cause Kina’s actual results, performance or achievements to differ materially from any future results, performance or achievements expressed or implied by these forward-looking statements. Rounding All amounts in this report have been rounded to the nearest million Kina (PGK) (PNG’s currency) unless otherwise stated. For personal use only
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7 1.2 Financial results for the full year-ended 31 December 2024 1.2.1 Statutory Results Full Year Ended Dec-24 PGK'000 Dec-23 PGK'000 Change (%) Continuing Operations Interest income on investments 50,883 59,225 (14%) Interest income on loans 223,586 194,115 15% Interest expense (52,246) (50,020) 4% Net interest income 222,223 203,320 9% Fee and commission income 161,683 136,979 18% Fee and commission expense (32) (16) 106% Net fee and commission income 161,651 136,964 18% Foreign exchange income 86,196 51,342 68% Dividend income 944 660 43% Net (losses)/gain from financial assets through profit and loss 9,583 2,733 251% Other operating income 8,251 9,139 (10%) Non-interest income 266,625 200,838 33% Operating income before impairment losses and operating expenses 488,848 404,158 21% Impairment losses (18,151) (9,900) 83% Other operating expenses (286,638) (218,717) 31% Profit before tax 184,059 175,541 5% Income tax expense (81,591) (70,576) 16% Net Profit for the full year attributable to the equity holder of the Company 102,468 104,965 (2%) Other comprehensive income - - - Total comprehensive income for the full year attributable to the equity holder of the Company 102,468 104,965 (2%) The above information has been extracted from the unaudited consolidated financial statements of Kina Securities Limited for the year-ended 31 December 2024, and where applicable, calculated by reference to the 31 December 2023 audited financial statements. The above information is being audited at the time of this report. 1.2.2 Dividends Dec-24 Dec-23 Earnings per share (PNG Toea) 35.6 36.6 Earnings per share (A cents) 13.8 13.8 Dividend per share (PGK toea) 26.1 25.6 Dividends per share (A cents) 10.0 10.0 For personal use only
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8 1.2.3 Lending Full Year Ended PGK Millions Dec-24 Dec-23 Change % Overdraft 98.9 97.6 1% Business Loan 1,942.3 1,651.3 18% Personal Loan 85.7 84.0 2% Investment Property Loan 113.0 109.8 3% Asset Financing 97.9 92.6 6% Home Loan 607.5 576.0 5% Credit Cards 6.1 3.3 85% Gross 2,951.4 2,614.6 13% Provision (67.9) (52.5) 29% Total 2,883.5 2,562.1 13% Overall lending increased by 13% compared to PCP, reaching PGK 2.9 billion. This growth includes a notable combined increase of PGK 322.5 million in the Business Loans and Home Loan portfolios. Additionally, the expansion of the business customer base, supported by enhancements in the operating model across transactional, lending, and digital banking services for businesses and SMEs, has significantly contributed to this strong performance. The business lending segment experienced robust loan origination in the second half of the year, successfully onboarding several major new customers and expanding loan footings within the existing customer base. This growth reflects the bank's strategic efforts to strengthen its market presence and cater to the evolving needs of its business clients. In the home loan sector, volumes saw a moderate growth of 5%. The first half of the year witnessed a slower start with a 2% increase. However, the second half saw a significant boost, driven by activation of targeted market campaigns. This initiative not only streamlined operations but also enhanced customer engagement, contributing to the overall growth in home loan volumes. Asset Financing continues to experience robust positive momentum, driven primarily by the thriving equipment hire, construction, and building industries. This sustained growth highlights the increasing demand for asset financing solutions within these sectors, reflecting their ongoing expansion and development. The synergy between asset financing and these industries not only underscores the critical role of financial support in facilitating infrastructure projects but also demonstrates the sector's resilience and adaptability in meeting evolving market needs. Dec-24 Dec-23 PGK million % of total loans PGK million % of total loans Agriculture, Forestry & Fishing 11.0 0.4% 4.1 0.2% Mining 11.9 0.4% 15.5 0.6% Manufacturing 24.8 0.8% 21.1 0.8% Electrical, Gas & Water 12.2 0.4% 0.9 0.0% Building and Construction 250.7 8.5% 183.6 7.0% Wholesale & Retail 846.9 28.7% 770.9 29.5% Hotel & Restaurants 95.6 3.2% 75.1 2.9% Transport & Storage 76.4 2.6% 67.8 2.6% Financial Intermediation 0.6 0.0% 0.7 0.0% Real Estate/Renting/Business Services 425.6 14.4% 360.1 13.8% Equipment Hire 20.9 0.7% 34.0 1.3% Other Business 319.6 10.8% 285.7 10.9% Personal Banking 758.7 25.7% 698.5 26.7% Post & Telecommunication 96.7 3.3% 96.7 3.7% Gross Loans 2,951.4 100.0% 2,614.6 100.0% For personal use only
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9 The Wholesale & Retail sector remains the dominant force among the industry sectors, accounting for a substantial 28.7% of the total loan book. This sector's prominence underscores its critical role in the overall economic landscape. Moreover, the lending growth has been significantly bolstered by increased exposure to several key areas. Notably, the Building and Construction sector, along with Real Estate and Personal Banking, have collectively contributed to this upward trend. These sectors now represent 48.6% of the total portfolio, reflecting a diversified and robust lending strategy. This strategic allocation not only highlights the dynamic nature of the lending environment but also showcases the institution's commitment to supporting a broad range of economic activities. By focusing on these vital sectors, the institution is well-positioned to drive sustainable growth and stability within the financial ecosystem. 1.2.4 Funding Deposits experienced marginal growth of 0.2%, to PGK 4.4b. The nominal growth in funds was primarily driven by an increase in low- cost transaction accounts, such as Current and Savings Accounts. Despite a decline in Cash Management Accounts and Fixed Term Deposits, the overall cost of funds remained reasonable. This strategic shift towards more cost-effective transaction accounts highlights an effort to optimize the deposit portfolio, ensuring sustainable growth and financial efficiency. Full Year Ended PGK Millions Dec-24 Dec-23 Change (%) On Call 2,971.6 2,925.6 1.6% 1 month 325.4 310.4 4.9% 2 months 269.6 186.1 44.8% 3 months 98.4 117.0 (15.9%) 6 months 205.0 378.1 (45.8%) 12 months 406.1 387.0 4.9% 24 months 76.0 40.4 88.3% Total 4,352.0 4,344.6 0.2% The bank's balance sheet funding was bolstered by a strategic blend of On Call and 12-month deposits, reflecting the ongoing favorable liquidity conditions in the domestic market. This prudent approach not only ensured a stable funding base but also allowed the bank to remain agile in response to market dynamics. Consequently, the loan to deposit ratio (LDR) saw an uptick to 66%, positioning the bank advantageously to capitalize on emerging lending opportunities. This increase in LDR underscores the bank's proactive stance in leveraging its liquidity to fuel growth and meet the evolving needs of its clientele. 1.2.5 Net Interest Margin Full Year Ended PGK Million Dec-24 Dec-23 Change (%) Net interest income 224.7 204.8 Interest Income Loans 223.6 194.1 15.2% Avg Interest Yield Loans 8.2% 8.2% Interest Income Investments 50.9 59.2 (14.1%) Avg Interest Yield Investments 4.5% 4.6% Interest Expense (49.8) (48.6) 2.5% Avg Cost of Funds (1.1%) (1.2%) Full Year Ended PGK Millions Dec-24 Dec-23 Change (%) Fixed Term 1,429.9 1,471.0 (2.8%) Cash Management Accounts 349.9 497.0 (29.6%) Current Accounts 2,008.5 1,864.3 7.7% Savings Accounts 563.7 512.3 10.0% Total 4,352.0 4,344.6 0.2% For personal use only
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10 Average interest earning assets 3,847.5 3,663.7 5.3% Average interest-bearing liabilities 4,348.3 4,120.8 5.5% Net interest spread (loans) 7.1% 7.1% Net interest spread (investments) 3.4% 3.4% Net Interest Margin 5.8% 5.6% The Net Interest Margin (NIM) reached 5.8%, marking an increase of 20 basis points over the year. This improvement was driven by several key factors. Firstly, the market continued to exhibit robust lending rates, which contributed significantly to the overall margin. Additionally, there was a gradual uplift in yields from non-loan investments, further bolstering the NIM. Lastly, the stability of the deposit book provided a solid foundation, ensuring consistent funding and supporting the bank's financial health. These combined elements underscore the bank's effective management of its interest-earning assets and liabilities, positioning it well for sustained profitability. 1.2.6 Non-Interest Income Full Year Ended PGK Millions Dec-24 Dec-23 Change (%) Banking Foreign exchange income 85.7 51.4 67% Fees and commissions* 118.0 102.0 16% Other 15.9 10.8 47% Total 219.6 164.2 34% Wealth Management Fund Administration 27.4 23.2 18% Investment Management 11.3 10.4 9% Shares 2.4 1.5 60% Foreign exchange income 0.5 0.0 2,253% Other 5.4 1.5 265% Total 47.0 36.6 28% Total 266.6 200.8 33% *see further analysis below Overall non-interest income growth was 33% to PGK 266.6m, attributed largely to an uplift in foreign exchange income together with fees and commissions. Foreign Exchange income increased by 67% to PGK 85.7m, facilitating timely settlement of customer foreign currency backlog and new orders as a result of increased market intervention by the central bank. Income from digital channels and partnerships surged by 27%, driven by several key factors. The expansion in the number of Visa cards issued played a significant role, with both domestic and international transactions contributing to this growth. Additionally, there was continued robust growth in core merchant payment services, reflecting the bank's successful efforts to enhance its digital offerings and strengthen its partnerships. These developments underline the bank's commitment to leveraging technology and strategic alliances to drive revenue and improve customer experience. Revenues in the Wealth business grew 28% compared to the PCP. This impressive growth was underpinned by the funds under administration business, which successfully implemented key efficiency programs. These initiatives were designed to streamline operations and ensure the preservation of normal revenue streams, thereby enhancing the overall financial performance of the Wealth business. The strategic focus on efficiency and operational excellence has positioned the Wealth segment for sustained growth and profitability. Other income in the PCP included foreign exchange valuation gains at period end. For personal use only
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11 The table below shows the increase in fees and commissions (banking). Banking - PGK millions Dec-24 Dec-23 Change (PGK) Change (%) Merchant fees 35.6 31.4 4.2 13% VISA Fees 36.9 26.6 10.3 39% Mobile Banking fees 5.3 3.8 1.5 39% Internet Banking fees 3.1 2.1 1.0 48% Total digital 80.9 63.9 17.0 27% Bank fees and commission income 22.6 24.8 (2.2) (9%) Loan fees 7.2 5.9 1.3 22% ATM fees 7.3 7.4 (0.1) (1%) Total other 37.1 38.1 1.4 (3%) Total fees and commissions 118.0 102.0 21.0 16% 1.2.7 Operating Expenses Total operating cost as at December 2024 was PGK 286.6m, an overall increase of 31%. Staff, administrative and occupancy costs contributed 39%, 36% and 15% respectively to total operating costs for the year. Full Year ended Figures in PGK Million Dec-24 Dec-23 Change (%) Administration 111.5 82.0 35% Staff 102.9 86.6 20% Occupancy 43.1 39.4 9% Other Operating expenses 24.9 7.9 215% Board of Directors cost 2.9 2.1 38% Investor Relationship 1.3 1.0 44% Total operating expenses 286.6 219.0 31% Costs negatively impacted NPAT, and the cost-to-income ratio did not continue its improvement from prior reporting periods, standing at 54% for the second half and 59% for the full year. As reported in the first half, an exceptional payments fraud loss had an adverse impact of K13.0m. On a normalized basis, several material variances from the plan and the prior year are attributable to: • The effect on PGK value of USD denominated costs (mostly in technology), with the exchange rate’s gradual 7% decline over the year. • Necessary investment in external expertise for improvements to technology and operational risk processes • Overlaps in senior position transition costs, including CRO. • Introduction of benefits for housing assistance for staff. • General increases in the level of local prices of supplies, induced largely by PGK depreciation against major currencies. 1.2.8 Asset Quality and Loan Impairment Information about how risk is quantified and managed for potential impairment of Kina’s loan assets requires robust risk management and model application. Kina has an IFRS9 compliant model which evaluates how economic and credit changes will affect its loan portfolio under a variety of scenarios including the application of critical estimates and judgements. The Probability of Default, Exposure at Default and the Loss Given Default metrics are used in the computation of ECL across three distinct portfolios of assets: • Loans • Overdrafts and • Credit Cards Each portfolio is assessed by analysing the default stages, level of security (the collateral held by the Bank) and various economic and For personal use only
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12 scenario analysis to formulate the ECL and level of provisioning. Kina has significantly enhanced its provisioning model to ensure timely and adequate provisioning for credit losses. The bank's approach incorporates a conservative stance in its final provisioning outcomes, supported by increased scenario testing and thorough individual asset reviews. This alignment of management focus between Finance and Risk places the bank in a strong position to effectively manage its asset base. Kina remains vigilant in monitoring its systems and processes to maintain robust credit quality across its loan book, consistently applying a disciplined approach to the Group’s lending standards. Asset Quality Full year ended Figures in PGK Million Dec-24 % of GLA Dec-23 % of GLA Loan impairment expense 19.2 0.7% 9.8 0.4% Non-performing loans and loans in arrears 238.1 8.1% 163.6 6.3% - 90-day arrears 45.5 1.5% 22.2 0.8% - Gross non-performing loans (> 180 days) 192.6 6.5% 141.4 5.4% Total provision (67.9) (2.3%) (52.5) (2.0%) As of December 31, 2024, the impairment expense amounted to PGK 19.2 million. This increase is predominantly attributed to the expansion of the underlying loan book and the elevated risk associated with the Personal Banking portfolio. These risks are being managed diligently to ensure stability and mitigate potential impacts. Consequently, the bank remains committed to maintaining robust financial health and resilience in the face of evolving market conditions. Total non-performing loans (NPL) as a percentage of gross loans increased from 6.3% in 2023 to 8.1% in 2024. This rise is primarily due to elevated risks within the Personal Banking portfolio. Nevertheless, these risks are being managed effectively, ensuring financial stability and fostering conditions for future growth. Loan Impairment expense Figures in PGK'000 Dec-24 Dec-23 Change (PGK) Change (%) Provision Expense 18,524 10,490 8,034 76.6% Net Write-offs (572) (499) (73) 14.6% Provision on loans 17,952 9,991 7,961 79.7% Trade Debtors 1,212 (162) 1,374 848.1% Total impairment (loans & advances) 19,164 9,829 9,335 95.0% Provision on GIS* (1,013) 14 (1,084) (1526.8%) Total Impairment Expense 18,151 9,843 8,251 83.3% * see note below on investments An analysis of the loan portfolio and provision based on enhancement ECL model is set out as follows: Loans and advances to customers Stage 1 12 Month ECL Stage 2 Lifetime ECL Stage 3 Lifetime ECL POCI Total Dec 2024 Total Dec 2023 Overdraft 71.3 2.5 26.2 - 100.0 97.6 Credit Cards 3.8 - 2.6 - 6.4 3.2 Loans 2,506.9 42.7 286.6 8.8 2,845.0 2,513.7 Total Gross Carrying Amount 2,582.0 45.2 315.4 8.8 2,951.4 2,614.6 Loss Allowance (27.6) (3.7) (36.6) - (67.9 ) (52.5) Carrying Amount 2,554.4 41.5 278.8 8.8 2,883.5 2,562.1 The IFRS 9 compliant model establishes a three stage impairment criteria based on changes to credit quality since date of initial recognition to the reporting date, with 91.9% of Kina Bank’s overall loan book representing performing loans. Investments In FY2020, as part of the BPNG’s market intervention and quantitative easing requirements due to COVID-19, Kina (together with other financial institutions) took on greater placements of Governments Inscribed Stock (GIS) issued by the PNG Government. Kina For personal use only
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13 took on a total of PGK 100m with terms greater than 5 years. In accordance with IFRS 9 requirements, the Company was required to assess the ECL on these investments, thereby resulting in a positive impact to P&L of PGK 1,013k. 1.2.9 Capital Adequacy BPNG Prudential Standard 1/2003 Capital Adequacy prescribes ranges of overall capital adequacy ratios and leverage capital ratios to measure whether a bank is adequately capitalised. Kina exceeds the existing BPNG prudential capital adequacy requirements and qualifies as ‘well capitalised’ as at 31 December 2024. Kina is an authorised institution licensed by the BPNG to accept or collect deposits from the public and lend to the public and is required to comply with the prudential standards issued by BPNG. The reported ratios are at the consolidated level of the Group. Capital ratios at the end of December 2024 remained above BPNG’s requirement, with combined tier 1 (T1) and tier 2 (T2) capital equal to 18.4% of Risk-Weighted Assets, compared with the regulatory minimum of 12%. The Bank also has maintained leverage ratio at 7.8%, above BPNG’s minimum requirement of 6%. Regulatory Capital Ratios Dec-24 Dec-23 RWA 2,838.7 2,516.9 Capital: T1 (PGK'm) 384.2 365.9 Capital: T2 (PGK'm) 138.0 136.4 Capital: T1 + T2 (PGK'm) 522.2 502.3 Capital adequacy Ratio: T1 13.5% 14.5% Capital adequacy: T2 4.9% 5.4% Capital adequacy: T1 + T2 18.4% 20.0% Leverage Ratio 7.8% 7.6% The objective of Kina’s Capital Management Plan is to maintain a strong, profitable financial risk profile and capacity to meet financial commitments. Capital adequacy and liquidity ratios are monitored against internal targets and triggers that are above minimum capital requirements set by the Board. These are reviewed on a monthly basis by the Asset and Liability Committee. For personal use only
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14 2. Consolidated Financial Statements 2.1 Statement of Comprehensive Income – consolidated Full Year Ended Dec-24 PGK'000 Dec-23 PGK'000 Change (%) Continuing Operations Interest income on investments 50,883 59,225 (14%) Interest income on loans 223,586 194,115 15% Interest expense (52,246) (50,020) 4% Net interest income 222,223 203,320 9% Fee and commission income 161,683 136,979 18% Fee and commission expense (32) (16) 106% Net fee and commission income 161,651 136,964 18% Foreign exchange income 86,196 51,342 68% Dividend income 944 660 43% Net (losses)/gain from financial assets through profit and loss 9,583 2,733 251% Other operating income 8,252 9,139 (10%) Non-interest income 266,625 200,838 33% Operating income before impairment losses and operating expenses 488,848 404,158 21% Impairment losses (18,151) (9,900) 83% Other operating expenses (286,638) (218,717) 31% Profit before tax 184,059 175,541 5% Income tax expense (81,591) (70,576) 16% Net Profit for the full year attributable to the equity holder of the Company 102,468 104,965 (2%) Other comprehensive income - - - Total comprehensive income for the full year attributable to the equity holder of the Company 102,468 104,965 (2%) The above information has been extracted from the unaudited consolidated financial statements of Kina Securities Limited for the year-ended 31 December 2024, and where applicable, calculated by reference to the 31 December 2023 audited financial statements. The above information is being audited at the time of this report. For personal use only
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15 2.2 Statement of financial position – consolidated Dec-24 Dec-23 Change % PGK'000 PGK'000 Assets Cash and due from banks 530,102 396,840 34% Central bank bills 762,088 1,236,496 (38%) Regulatory deposits 522,784 433,274 21% Financial assets at fair value through profit and loss 45,606 35,816 27% Loans and advances to customers 2,883,500 2,562,079 13% Investments in government inscribed stocks 93,331 157,554 (41%) Deferred tax assets 36,803 35,099 5% Property, plant and equipment 69,210 71,954 (4%) Goodwill 92,786 92,786 0% Intangible assets 35,986 27,608 30% Other assets 148,875 129,829 15% Total Assets 5,221,071 5,179,335 1% Liabilities Due to other banks (427) (13,912) (90%) Due to customers (4,351,990) (4,344,571) 0% Current income tax liabilities (12,106) (11,461) 6% Employee provisions (14,472) (16,461) (12%) Lease Liabilities (31,484) (33,775) (7%) Other liabilities (142,224) (118,831) 20% Total Liabilities (4,552,703) (4,539,011) 0% Net Assets 668,368 640,324 4% Share capital and reserves Issued and fully paid ordinary shares (397,254) (394,693) 1% Share-based payment reserve (1,878) (2,776) (32%) Retained earnings (269,236) (242,855) 11% Total capital and reserves (668,368) (640,324) 4% The above information has been extracted from the unaudited consolidated financial statements of Kina Securities Limited for the year-ended 31 December 2024, and where applicable, calculated by reference to the 31 December 2023 audited financial statements. The above information is being audited at the time of this report. For personal use only
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16 2.3 Statement of changes in equity – consolidated Share Capital Share based payment Reserve Retained Earnings Total PGK'000 PGK'000 PGK'000 PGK'000 Balance as at 31 December 2022 394,693 2,477 212,133 609,303 Profit for the period - - 104,964 104,964 Additional shares issued - - - - Other comprehensive income - - - - Contributions by and distributions to owners - - - - Employee share scheme - vested rights - (1,529) - (1,529) Employee share scheme - value of employee services - 2,073 - 2,073 Deferred tax asset on share-based payment - (245) - (245) Dividend paid - - (74,242) (74,242) Balance as at 31 December 2023 394,693 2,776 242,855 640,324 Profit for the period - - 102,468 102,468 Additional shares issued 2,561 - - 2,561 Other comprehensive income - - - - Contributions by and distributions to owners - - - - Employee share scheme - vested rights - (3,738) - (3,738) Employee share scheme - value of employee services - 2,674 - 2,674 Deferred tax asset on share-based payment - 166 - 166 Dividend paid - - (76,087) (76,087) Balance as at 31 December 2024 397,254 1,878 269,236 668,368 The above information has been extracted from the unaudited consolidated financial statements of Kina Securities Limited for the year-ended 31 December 2024, and where applicable, calculated by reference to the 31 December 2023 audited financial statements. The above information is being audited at the time of this report. For personal use only
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17 2.4 Statement of Cashflow – consolidated Dec-24 Dec-23 PGK'000 PGK'000 Cash flows from operating activities Interest received 265,208 245,205 Interest paid (50,630) (51,865) Foreign exchange gain 86,196 51,342 Dividend received 944 660 Fee, commission and other income received 154,294 137,286 Fee and commission expense paid (32) (16) Net trading and other operating income received 24,456 15,256 Recoveries on loans previously written-off 572 499 Cash payments to employees and suppliers (277,870) (198,036) Income tax paid (82,461) (68,506) Cash flows from operating profits before changes in operating assets 120,676 131,825 Changes in operating assets and liabilities: - net (increase)/ decrease in regulatory deposits (89,510) (50,191) - net increase in loans and advances to customers (313,280) (402,486) - net (increase)/ decrease in other assets (25,820) (53,632) - net increase in due to customers 5,804 467,581 - net increase in due to other banks (13,484) 11,851 - net increase/ (decrease) in other liabilities 23,933 (5,428) Net cash flows from operating activities (291,681) 99,518 Cash flows from investing activities Purchase of property, equipment and software (27,334) (12,817) Purchase of Convertible Note - (17,821) Proceeds from sale of property and equipment 154 89 Proceeds from/(Purchase of) investment securities 536,776 (21,712) Net cash flows from investing activities 509,597 (52,261) Cash flows from financing activities Dividend payment (76,088) (74,242) Cashflows from lease liabilities (12,449) (11,839) Issuance of new shares 2,561 - Net cash flow from financing activities (85,976) (86,081) Net increase/ (decrease) in cash and cash equivalents 131,940 (38,823) Effect of changes in the foreign exchange rates on cash and cash equivalents 1,323 2,175 Cash and cash equivalents at beginning of period 396,840 433,488 Cash and cash equivalents at the end of the period 530,102 396,840 The above information has been extracted from the unaudited consolidated financial statements of Kina Securities Limited for the year-ended 31 December 2024, and where applicable, calculated by reference to the 31 December 2023 audited financial statements. The above information is being audited at the time of this report. For personal use only
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18 2.5 Basis of Preparation The accounting policies, estimation methods and measurement basis used in the preparation of the consolidated financial statements for the full year ended 31 December 2024 are consistent with those used in preparing the 31 December 2023 financial statements of the Group. 2.6 Non-Cash Financing and Investing Activities There are no financing and investing transactions which have had a material effect on consolidated assets and liabilities but did not involve cash flow. 2.7 Reconciliation of Cash and Cash Equivalents Dec-24 PGK'000 Dec-23 PGK'000 Cash and due from other banks 530,102 396,840 Total cash at the end of the period 530,102 396,840 2.8 Ratios Dec-24 Dec-23 Profit before tax / Operating Income Consolidated profit from ordinary activities before tax as a percentage of revenue 37.7% 43.4% Profit after tax / equity interests Consolidated net profit from ordinary activities after tax attributable to members as a percentage of equity (similarly attributable) 15.3% 16.4% 2.9 Earnings Per Share - Statutory Details of basic and diluted earnings per share (EPS) reported separately in accordance with IAS 33: Earnings Per Share are as follows; Dec-24 Dec-23 Calculation of the following in accordance with IAS33 (a) Basic EPS 35.65 36.67 (b) Diluted EPS 35.44 36.39 (c) Weighted average number of ordinary shares outstanding during the period used in the calculation of the Basic EPS 287,414,404 286,935,900 *Weighted average calculated as the average of shares outstanding at the beginning of the reporting period and at the end of the reporting period. 2.10 Details of aggregate share of profits (losses) of associated entity The company has no significant investment in associates. There are also no material interests in entities that are not controlled entities. 2.11 Issued Shares The total number of shares at 31 December 2024 was 287,949,279 (31 December 2023: 286,935,900) Total Number Ordinary shares Number Quoted Ordinary shares Changes during the period ended 31 December 2023 Opening Balance of number of shares 286,935,900 286,935,900 Increase through issue of shares 1,013,379 1,013,379 Closing Balance of number of shares 31 December 2024 287,949,279 287,949,279 For personal use only
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19 2.12 Segment Reporting Banking & Finance Wealth Management Total 31 December 2024 PGK'000 PGK'000 PGK'000 Total external income 440,927 47,921 488,848 Total external expense (290,934) (13,855) (304,789) Profit before inter-segment revenue and expenses 149,993 34,066 184,059 Inter-segment income 2,077 - 2,077 Inter-segment expense - (2,077) (2,077) Profit before tax 152,070 31,989 184,059 Income tax expense (73,746) (7,845) (81,591) Profit after tax 78,324 24,144 102,468 Segment assets 5,199,997 21,073 5,221,071 Segment liabilities (4,547,756) (4,947) (4,552,703) Net assets 652,241 16,126 668,368 Capital expenditure 27,334 - 27,334 Depreciation (31,317) - (31,317) Banking & Finance Wealth Management Total 31 December 2023 PGK'000 PGK'000 PGK'000 Total external income 366,716 37,442 404,158 Total external expense (219,873) (8,744) (228,617) Profit before inter-segment revenue and expenses 146,843 28,698 175,541 Inter-segment income (179) - (179) Inter-segment expense - 179 179 Profit before tax 146,664 28,877 175,541 Income tax expense (62,081) (8,495) (70,576) Profit after tax 84,583 20,382 104,965 Segment assets 5,154,984 14,107 5,169,091 Segment liabilities (4,521,191) (7,574) (4,528,765) Net assets 633,793 6,533 640,326 Capital expenditure 12,817 - 12,817 Depreciation (29,946) - (29,946) For personal use only
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20 2.13 Comparison of Profits Dec-24 Dec-23 PGK'000 PGK'000 Consolidated profit from continuing operations after tax attributable to members reported for the full year 102,468 104,965 2.14 Contingent Liabilities The Company is a party to a number of litigations as at 31 December 2024. The consolidated financial statements include provision for any losses where there is reasonable expectation that the litigations will result in a loss to the Company. Ongoing litigations are not expected to result in a material loss to the Kina Group. Kina guarantees the performance of customers by issuing bank guarantees to third parties. As at 31 December 2024, these totaled PGK 60.9m (31 December 2023: PGK 62.1m). For personal use only
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21 3. Compliance Statement 1. This report has been prepared in accordance with Australian Accounting Standards Board (AASB) Standards, other AASB authoritative pronouncements and Urgent Issues Group Consensus Views or other standards acceptable to ASX and to PNGX. Identify other standards used: International Financial Reporting Standards 2. This report, and the accounts upon which the report is based (if separate), use the same accounting policies 3. This report gives a true and fair view of the matters disclosed (see note 2) 4. This report is based on accounts to which one of the following applies. The accounts have been audited The accounts have been subject to review The accounts are in the process of being audited or reviewed The accounts have not yet been audited or reviewed 5. The entity has a formally constituted audit committee. x For personal use only