Bahamas - FirstCaribbean International Bank

FIRSTCARIBBEAN INTERNATIONAL BANK (BAHAMAS) LIMITEDNotes to Consolidated Financial StatementsOctober 31, 2002(expressed in thousands of Bahamian dollars)25 Use of financial instruments…continuedELiquidity risk…continuedThe matching and controlled mismatching of the maturities and interest rates of assets and liabilities isfundamental to the management of the Bank. It is unusual for banks ever to be completely matchedsince business transacted is often of uncertain term and different types. An unmatched positionpotentially enhances profitability, but also increases the risk of losses.The maturities of assets and liabilities and the ability to replace, at an acceptable cost, interest-bearingliabilities as they mature, are important factors in assessing the liquidity of the Bank and its exposure tochanges in interest rates and exchange rates.Liquidity requirements to support calls under guarantees and standby letters of credit are considerablyless than the amount of the commitment because the Bank does not generally expect the third party todraw funds under the agreement. The total outstanding contractual amount of commitments to extendcredit does not necessarily represent future cash requirements, since many of these commitments willexpire or terminate without being funded.FFair values of financial assets and liabilitiesDue from other banksDue from other banks includes inter-bank placements and items in the course of collection.The fair value of floating rate placements and overnight deposits is their carrying amount. The estimatedfair value of fixed interest bearing deposits is based on discounted cash flows using prevailing moneymarket interest rates for debts with similar credit risk and remaining maturity.Loans and advances to customersLoans and advances are net of specific and other provisions for impairment. The estimated fair value ofloans and advances represents the discounted amount of estimated future cash flows expected to bereceived. Expected cash flows are discounted at current market rates to determine fair value.81