© 2010 First Citizens Investment Services Limited. All rights reserved.

Mr. Richard Duncan

Managing Director
Grenada Co-Operative Bank Limited
#8 Church Street, St. George’s,
Grenada.

Research Report
Pursuant to the request by Grenada Co-Operative Bank Limited (GCBL or the Bank), we (First Citizens Investment Services (FCIS), a subsidiary of First Citizens Bank
Limited) have conducted a comprehensive review of the Bank and have produced a research report comprising a valuation estimate, using financial statements as at
September 30th 2016 (valuation date).
The objective of the project was to prepare a research report containing a valuation estimate on 100% of the shareholdings in Grenada Co-Operative Bank. We understand that
the Bank is preparing to list on the Eastern Caribbean Securities Exchange (ECSE) and as such require an independent report and valuation. This document was prepared on the
request of the General Manager of the Bank using documents provided by GCBL. All work contained herein gives due consideration to all applicable financial valuation
theories and international best practice guidelines.

Scope of work
It shall be understood and mutually agreed upon by all users of this report that the Grenada Co-Operative Bank Limited is responsible for all source data, not limited to
financial data, that has been presented in the research report and subsequently used in the valuation of the Bank’s shares. Readers should also appreciate that the work we have
performed does not in any way constitute an audit of the Grenada Co-Operative Bank Limited and as such, shall not be viewed as verification of the reliability or completeness
of the information received by FCIS.

Purpose and Restrictions imposed on the use of all work done

All users of this report shall read the document in its entirety to fully understand and appreciate the operational workings of GCBL and the basis of our recommended valuation
estimate of the Bank. We understand and accept that it is the intention of GCBL to have this report and all information contained herein to be circulated according to the
guidelines set by the ECSE. Additionally, according to the ECSE the objective of this report should be, “To provide investors with information on current market value as well
as expected returns.” Users of this document should note that we at FCIS, in our opinion, have crafted this report with such due considerations to the mandate set by the ECSE.
Furthermore, the ECSE states that “ After listing, these reports should be generated periodically.” As of the date of the dissemination, FCIS does not accept responsibility for
the periodic updating of this report. As such, we assume no responsibility in respect to changes in GCBL’s operating environment or business operations which may affect the
Bank after our valuation date. These aforementioned changes have the potential to substantially alter all valuations estimates presented herein.

2
Executive Summary 3

Business Overview 5

Operating Environment 16

Analysis of Business 25

Financial Performance and Analysis 28

Competitor Analysis 33

SWOT Analysis 34

Share Valuation of Grenada Co-Operative Bank 36

Appendix 1 38
 Grenada Co-Operative Bank Limited (GCBL) was founded in 1932 with the core function of servicing the Grenadian population. The Bank, now evolved to a full fledged
financial institution capable of serving all sectors of the economy, has five Retail Banking Units and a staff complement of 166 persons, operates in the jurisdiction of the
Grenada who is in the Eastern Caribbean Currency Union and regulated by the Eastern Caribbean Central Bank. GCBL’s major strengths include its robust local image and a
targeted diversification thrust aimed at increasing income outside of its core lending business. GCBL’s Board of Directors and senior management are highly qualified and
experienced, thus, capable of ensuring that the bank meets all of its strategic goals. Directors and their affiliates comprise approximately 15% of total shareholding while the
top 10 shareholders comprise 35%, thereby demonstrating the breadth of shareholding in the company.
GCBL’s operations is wholly focused on the Grenadian population and as such may not have the revenue diversification benefit as their main competitors. As a result the
financial performance of the Bank is directly correlated to the health of the Grenadian economy. Given the anemic economic growth registered following the Global Financial
Crisis of 2009, leading to a Sovereign debt default/selective restructuring program headed by the Government and supported by the IMF, the local banking sector and by
extension GCBL saw a contracting top line and in 2013 this translated to a loss for the company. Although economic conditions are improving, structural inefficiency
embedded in the public system may take some time to be alleviated. However we are of the view that the Government of Grenada remains steadfast in its mandate and would
continue along the path of structural reforms and then engage in driving growth projects once a comfortable level of indebtedness is achieved.
The banking sector of Grenada is awash with liquidity and loan growth is only now beginning to get a lift from the private sector businesses. GCBL, having to grapple with the
inherent operating environment, was faced with the closure of branches by international competitors, thus, further increasing the Bank’s liquidity. Despite these issues GCBL
has been able to register commendable bottom line growth over the last five years, with 2013 being the exception. The Bank’s liquidity management is set to improve while
new business lines, aimed at increasing “non-core” revenue streams are being aggressively pursued. Strategic partnerships with other regional banks as well as investments in
technology, both aimed at increasing efficiency have begun to positively impact operations. The key themes of the Bank, moving towards 2019, are : 1) Increasing Operation
Efficiency. 2) Enhancing Credit Operations. 3) Utilizing Technology to advance banking operations. Although the Bank’s main focus has traditionally been in the mortgage
category, we believe that leadership now has a better relationship with statutory bodies as well as Private Sector companies thereby strategically re-positioning the Bank for the
impending increase in Public/Private spending.
In valuing the shares of Grenada Co-Operative Bank, we have used historical data as a base starting point of future earnings potential with the realization that the outlook for
economy and by extension the sector, is improving. The fair value of the 7,600,000 shares issued by GCBL was found to be XCD8.88 or within a range of XCD6.80 to
XCD11.18.

4
 1.1 History of Grenada Co-Operative Bank (GCBL)

Grenada Co-operative Bank Limited was incorporated as a limited liability company under the Companies Ordinance Cap 47 on July 26, 1932 and continues under the
Companies Act 1994 of Grenada and is licensed in accordance with Section 3(1) of the Banking Act 2015. Affectionately referred to as the “Penny Bank” and in more recent
times “Co-op Bank”, Grenada Co-operative Bank Limited emerged at a time when the low and middle-income people of Grenada were denied banking services because of the
high initial deposits required by the existing foreign banks at the time of account opening.

Preceding the inception of Co-op Bank in 1932, Grenada’s Banking industry was predominantly controlled by foreign multi-national banks whose major clients and focus were
the country's Government and the affluent business class. In order to bring equity to the entire Grenadian populace, a group of local businessmen in the persons of Arnold
Williamson, P.G. Hosten, R.O. Williams, W.E. Julien, T.E. Noble Smith, Sam Brathwaite and C.F.P. Renwick conceptualized and later launched GCBL. These aforementioned
men became the first Directors of the Bank and developed the well-established motto “Thrift and Industry”, with its symbol being a beehive.

The first General Manager of the Bank was Mr. Sam Brathwaite, who was succeeded by Mr. Kenneth Williams and then Mr. Irie Bain. Mr. Gordon V. Steele O.B.E. is the
most recently retired General Manager to have built on the tradition of excellence through innovation, credibility and allegiance to the Grenadian people. Currently, the Bank’s
management team is lead by Mr. Richard Duncan who continues to build upon the legacy inherited.

In July of 1933, the Bank opened its doors for business on Young Street, St. George’s. Business operations were subsequently relocated to the present Head office on No. 8
Church Street, St. George’s. The year 1977 saw the Bank extending its services to the people of St. Andrew, when it opened its branch in Grenville to provide more adequate
and efficient service to the farmers and agricultural workers of that parish in the wake of the closure of the operations of a foreign bank.

The Bank, which now has 5 Retail Banking Units and a staff complement of 166 persons, operates in the jurisdiction of the Eastern Caribbean Currency Union, regulated by the
ECCB. All retail banking units of Grenada Co-operative Bank Limited are opened to the public Monday to Thursday from 8:00 a.m. to 2:00 p.m. and on Fridays from 8:00 a.m.
to 4:00 p.m.

5
 1.2 Corporate Governance
1.2.1 Board of Directors
The Board of Directors has the general responsibility of providing strategic guidance to the Bank as well as overseeing the Company’s corporate governance framework.
Additionally, the Board has the added charge of exercising effective oversight of senior management as well as the various sub-committees. The Bank’s corporate structure
could be described as hierarchical as defined layers of management exist thus creating clear reporting lines between staff and management.
The well enshrined and documented Governance policies, that outline the role and responsibilities of all Directors of the Bank, guide the decisions and behaviors of all members
of The Board of Directors of GCBL. Board meetings serve as the main forum through which Directors and Executives share information and deliberate on the Bank’s
performance, plans and policies. Meetings are held regularly to review the Bank’s financial performance, policy issues and discuss major capital expenditure items. Thirteen
(13) Board meetings were convened in 2016 (2015: 14) and a participation rate of 92% (2014: 88%) was achieved. Shareholders elect the Members of the Board of Directors
(nine (9) members) on rotation at the Annual Shareholders Meeting. Save and except for the Managing Director, all other Directors are independent non-executive directors.

In order to ensure effectiveness and

efficiency in the conduct of its oversight
role, the Board has four (4) sub-committees:
Audit and Risk Management, Credit,
Budget and Human Resources &
Compensation.
The various sub-committees of the Board
meet frequently, in accordance with their
Charters, and carry out their regular duties
and special assignments as mandated by the
full Board.
Appointments to Directorship are guided by
the company’s Articles of Association and
By-Law No.1. Currently, the nine Directors
hold 6.62% of the company shares
indicative of the breadth of the bank’s
ownership structure.

6
 1.2 Corporate Governance
1.2.1 Board of Directors
Directorate
Mr. Derick Steele- Chairman, Acc.Dir.
Mr. Derick Steele completed his Engineering studies at South East College of Technology, London, UK 1969. He established Steele Auto Supplies in 1969 as Managing
Director/Owner. He has served as past First Vice president and Second Vice President of the Grenada Chamber of Industry and Commerce, in addition to being a director of
Grenada’s National Transport Board for more than 10 years. He is currently Chairman of Board of Directors of a local real estate company for seven years. He has been a
director of the Grenada Co-operative Bank Limited for more than 15 years.

Mr. Gordon V. Steele, O.B.E- Deputy Chairman.

Mr. Gordon V. Steele, O.B.E has been a career banker and the Managing Director of the Grenada Co-operative Bank Ltd. for more than thirty years. Under his leadership the
bank grew from XCD1.2 million to over XCD300 million in assets. His vision has always been to see the Grenada Co-operative Bank Limited as the number one financial
institution in Grenada.

Mr. Richard W. Duncan- Acc. Dir. B.Sc., M.A., FCGA, FCIS.

Richard W. Duncan is the Managing Director of Grenada Co-operative Bank Ltd. An Economist and Accountant, he joined the bank in 1996 as its Financial Manager. He
previously worked in the Grenada Public Service in the areas of public policy analysis, debt management, public finance and public sector investment programming. He has
held several directorships including the Grenada Model Farms Corporation, Grenada Postal Corporation, the Rotary Club of Grenada and Chairman of the NIS Investment
Committee. Currently he is Chairman of Caribbean Credit Card Corporation (4Cs).

Mr. Richard Mc Intyre- Acc.Dir.

Owner and Managing Director of General Insurance Agency trained in the UK in General Insurance and Liability Insurance. He became a Director of Mc Intyre Bros. Ltd.
and it’s subsidiary Companies in the late 1960’s. He formed his own Company Richard Mc Intyre Insurance Company in 1987 after leaving Mc Intyre Bros. Ltd. His
company is currently the local agents for Caribbean Alliance Insurance, which offers non-life insurance coverage. He also later established another company Marine World
Limited, which sells fishing and other marine supplies and accessories.

7
 1.2 Corporate Governance
1.2.1 Board of Directors
Directorate
Ms. Lisa M. Taylor- B.A. (Hons), LL.B (Hons).
Ms. Taylor is an Attorney-at-Law by profession since 1996 whose practice areas include Corporate Law, Land Law, Insolvency and Family Law. She studied at Brooklyn
College (City University of New York) and the University of the West Indies (UWI), where she obtained qualifications of Bachelor of Arts (B.A.) (Hons.) in Political Science
and Bachelor of Laws (LI.B) (Hons.) respectively. Ms. Taylor currently serves as a Director of Jonas Browne & Hubbard (Grenada) Ltd and the UWI Regional Endowment
Fund Ltd. and has been the Vice-President and Secretary of the Grenada Bar Association. She joined the team of Directors in January 2010.

Mr. Ambrose Phillip- B.Sc., M.Sc.

Mr. Phillip is a 1981 graduate of the University of the West Indies’ Management Studies Programme and holds an M.Sc in Ports and Shipping Administration from the World
Maritime University. He also holds a certificate in Legal Education and is a Court-Connected Mediator of the Eastern Caribbean Supreme Court. Mr. Phillip has a wealth of
experience, having served in Management and Directorship positions at the Grenada Board of Tourism, Grenlec and the Public Service Co-operative Credit Union.

Mr. Leslie Ramdhanny- B.Sc, Acc.Dir.

Holds a B.Sc. Agricultural Science from the University of the West Indies. He is the Owner and Manager of Hardware Company and has been a Businessman for over 30
years. He has also served as Director on several national boards including the National Development Foundation, the Grenada Chamber of Industry and Commerce and the
Grenada Solid Waste Management Company. He has been a five (5) time District Governor’s representative for the Rotary Clubs of Grenada.

Ms. Alfred Logie- Lic. Acc. Dir.

Mr. Logie holds a Licentiate Degree in Economic Planning from the University of Camagüey, Cuba and has held senior positions at the National Insurance Scheme, where he
is the present Director. He is a former CEO of the Grenada Cooperative Nutmeg Association and has served as a Director on the Board of GRENLEC, Grencoda and Grenreal
Corporation.

8
 1.2 Corporate Governance
1.2.1 Board of Directors
Directorate
Mr. Daryl Brathwaite- Acc. Dir.
Businessman and Managing Director of Hi-Tech Printery completed studies at the London School of Accountancy, London, UK. He is an experienced businessman having
worked in the UK, Latin America and the Caribbean before returning to Grenada in 1988 to establish Hi-Tech Printery Ltd. as the Managing Director/Owner. He served as
Vice-President of the Senate and on several Government Committees and Statutory Boards. He is a past president Grenada Chamber of Industry & Commerce. He has been
Director of the Grenada Co-operative Bank Ltd. from 2003 to present.

1.2.2 Executive Management

The Executive Management team is mandated to oversee the undertakings of staff as well as assist in strategic planning. The executive branch reports to the Managing Director
(MD) who is appointed by and reports to the Board of Directors. The chief responsibility of the MD is to ensure the successful daily management of the Bank.

Executive team
Richard W. Duncan - Acc. Dir., B.Sc., M.A., FCGA, FCIS - Managing Director
Richard W. Duncan holds a Bachelor of Science Degree in Economics and Accounting from the University of the West Indies and a Masters of Arts Degree in Public
Administration from Carleton University. Mr. Duncan has attended and made presentations at various seminars and conferences in the areas of Corporate Governance,
Strategic Planning and Bank Management. He is also a Fellow Certified Professional Accountant; an Associate of the Institute of Canadian Bankers; and a Fellow of the
Chartered Institute of Secretaries and Administrators (ICSA Canada); and has held various positions in the management of Grenada’s Public Service, such as Accountant
General and Deputy Director of Budget and Fiscal Policy. Prior to becoming Managing Director, he was the Bank’s Manager of Finance & Corporate Affairs. Mr. Duncan
currently serves as a Director on several Boards and is currently the Chairman of the Caribbean Credit Card Corporation.

9
 1.2 Corporate Governance
1.2.2 Executive Management

Deon Moses - B.Sc., M.B.A., FCIB – Chief Operating Officer

Mr. Deon Moses is a graduate of the University of the West Indies’ Undergraduate Management Studies Programme, and holds a M.Sc in Business Administration from the
University of Phoenix. He is also a Fellow of the Institute of Canadian Bankers and has received numerous training from a number of recognized Professional Training
Agencies. Mr. Moses joined the Co-op Bank family in 2011 with a wealth of experience, having served in Management capacities at the Retail and Commercial Banking levels
at two regional banking institutions. His experience in the Commercial Banking Industry spans a period of over twenty-five years, and contributed significantly
to the realization of goals within the institutions where he would have served .

Julia G. Lawrence – B.Sc., MBA-IBF - Chief Audit Executive

Ms. Julia Lawrence is a career Auditor, having been employed with a major audit firm in Grenada and as the Director of Audit for the Government of Grenada. Ms. Lawrence
holds a Masters in Business Administration in International Banking and Finance from the University of Birmingham; and a Bachelor of Science Degree in Management; and
also a Bachelor of Science Degree in Accounting from Barry University. Ms. Lawrence is a member of the Institute of Internal Auditors; and holds several certificates in
Internal Auditing. She has also attended various seminars and conferences in Strategic Planning, Internal Audit for Banks and Risk Management.

Aaron Logie - FCCA, MBA - Executive Manager, Finance

Mr. Aaron Logie holds a Masters in Business Administration Degree from the St. George’s University and is also a Fellow of the Association of Chartered Certified
Accountants. Prior to becoming the Executive Manager, Finance at the Bank, Mr. Logie held various positions in the field of audit, taxation and finance in Canada and
Grenada, having been employed with a major audit firm in Grenada.

Nicola Philip-Walcott - B.Sc., MBA. - Executive Manager, Human Resources

Mrs. Philip-Walcott is qualified as a Certified Credit Professional, holds a B.Sc. in Business Administration; and is currently pursuing the Chartered Banker MBA (CBMBA).
To date, Mrs. Philip-Walcott has had a distinguished career at the Bank. Prior to taking on responsibility for the Human Resources of the Bank, she managed the Recoveries &
Collections function, carried out the duties of Manager’s Assistant, Corporate & Commercial Banking and Internal Auditor’s Assistant.

10
1.2 Corporate Governance
1.2.2 Executive Management
Floyd Dowden - AML/CA, AICB, MBA-IB - Executive Manager, Operations & Administration
Mr. Floyd C. Dowden is a career Banker and holds a Masters in Business Administration in International Business from the St. George’s University. He is an Associate of the
Institute of Canadian Bankers and has attended several seminars, workshops and conferences regionally and internationally on the Bank’s core banking software, Management
of I.T. Infrastructures and Anti-Money Laundering and Counter Terrorist Financing. Mr. Dowden served for four consecutive years as the Chairman of the Caribbean Bankers’
Users Group and is also an Anti-Money Laundering Certified Associate of the Florida International Bankers Association AML/BSA Institute and the Florida International
University.

Willvorn Grainger - Dip. Management (Hons.), CRU - Executive Manager, Retail Banking
Mr. Willvorn Grainger joined Grenada Co-Operative Bank in 2005 as a Loans Officer, having worked with two other financial institutions. In February of 2014 Mr. Grainger
was promoted to Executive Manager, Retail Banking; a position he currently holds. Willvorn holds a Graduate Diploma in General Management from the University of the
West Indies; and is a Certified Residential Underwriter with the Real Estate Institute of Canada; and has completed the “Bank Branch Management” course with the New York
Institute of Finance. He also holds a certificate in Advanced Commercial Lending from Wilfrid Laurier University in Canada. Mr. Grainger has attended and participated in
several credit and credit underwriting related training courses. He is currently pursuing a Masters Degree in Finance & Investments.

Nadia Francis-Sandy - B.Sc., M.Sc., Ph.D. - Executive Manager, Corporate & Commercial Banking
Nadia Francis-Sandy is a career banker with sixteen years managerial level experience in Corporate & Commercial Banking and extensive training in commercial lending,
credit appraisal techniques, and commercial real estate. Mrs. Francis-Sandy is also a student of accountancy with the Chartered Institute of Management Accountants and a
Walden University doctoral candidate with specialty in Finance.

Jennifer Marshall- Robertson -Dip. Banking, AICB, CIRM, CRU - Executive Manager, Risk
Jennifer Marshall-Robertson is a career banker, whose career in banking commenced July 3, 1995 as a Teller. She brings to the bank, bottom-up experience having served in
various lending and management capacities, including Loans Officer, RBU Manager, Deputy Manager, Corporate & Commercial Banking, Senior Manager, Credit Risk and
Executive Manager, Risk, the position she now holds. She holds several designations in the credit and risk management fields and is currently pursuing a Chartered Banker
MBA from the Bangor University.

11
 1.3 Ownership Structure
The top ten shareholders of GCBL account for 35.50% of the company, thus illustrating the wide breadth of the Bank’s ownership structure. Stock illiquidity is a major issue
facing many frontier and emerging markets and frequently results in an illiquidity premium being placed on the instruments due to investor difficulty in acquiring and disposing
of shares. GCBL, having 64.5% of its outstanding shares in free float, should not be affected by an illiquidity premium.

1.4 Corporate Information Ten (10) Largest Shareholders as at September 30th 2016
Shareholder % Ownership
1.41 Mission Statement National Insurance Scheme 10.70%
Grenada Ports Authority 6.10%
To be the leading Grenadian provider of high quality financial and related services to Derick John Steele 3.70%
individuals and organizations in local and international markets, maximizing benefits for
Guardian General Insurance (OECS) Limited 3.10%
all stakeholders.
Slinger Investments Limited 2.60%
1.42 Products and Services Gordon V. Steele 2.20%
Humphrey Michael Blackburn 2.00%
Grenada Co-operative Bank Limited offers a wide range of retail, commercial and Kenny Alban Lalsingh 1.90%
corporate banking products and services. These include, but are not limited to: Cosmo Allan St. Bernard 1.60%
Deposit Account Foreign Currency L.L. Ramdhanny & Co. Ltd 1.60%
Types Loans offered Denominated Non-Banking Other
Residential Foreign Currency
Fixed Deposit Mortgage Savings Accounts Loan syndication Safety Deposit Box Facilities
Commercial Foreign Exchange Bonds and
Savings Mortgage Transactions Guarantees Night Deposit Services
Brokerage and
Merchant Point of Investment
Chequing Consumer Loans Sales Services Letters of Credit
Education Higher
Investment Plan Education Loans ATM Facilities
Wire Transfers
Local and Foreign Drafts
Credit Card Facilities
Merchant Point of Sales
VISA International Debit
Cards
E-Banking
12
 1.4 Corporate Information

1.43 Corresponding Banking Relationships

In order to deliver transfer services that cater to all Grenadians, both home and abroad, GCBL has maintained strategic relationships with the following international banks:

Bank Transaction Currency

Bank of Montreal Canadian Currency Transfers
St. Kitts-Nevis-Anguilla National Bank XCD Currency Transfers
Lloyds TSB GBP/ EUR Currency Transfers
Bank of America USD Currency Transfers
Royal Bank of Trinidad & Tobago TTD Currency Transfers
Republic Bank (Barbados) Limited BBD Currency Transfers

1.44 Capital Structure

2016 2015
Stated Capital
XCD XCD
Authorized Capital
Unlimited ordinary voting shares with no par
Unlimited Unlimited
value
Issued Capital
7,600,000 ordinary voting shares with no par
24,871,739 24,871,739
value

13
 1.4 Corporate Information

1.45 Dividend Policy and Statutory Reserves

The Bank’s dividend policy is designed so as to maintain a delicate balance between organically increasing the capital base while simultaneously meeting shareholders’
expectation of a reasonable return, consequent on profit generation.

The following is the policy guideline on dividend payments:

1) The outright retention of a predetermined amount of after tax profits before any consideration of dividend payment has been made.

2) The amount of the outright retention and maximum dividend payout are fixed in a scale (see below) :
• No dividends are paid when after tax profits are less than XCD1,000,000.

• Beyond profits of XCD1,000,000, after the outright retention, the Bank shall distribute 40% of the balance of net after tax profits as dividends.

N.B. A cap has been applied on dividend payments; such that dividends per share is fixed at XCD0.11 until net after tax profits reaches the XCD5,000,000 mark.

3) The level of dividend payments must be sustainable in the medium term i.e. 3 – 5 years. Generally, increases in the level of dividends would somewhat lag increases in the
level of earnings. Therefore, management should have some level of confidence as to whether or not higher dividend payment levels could be sustained.

4) Dividend payments to be made annually. The declaration of a dividend would be based on the profits made for the financial year then ended.

14
 1.4 Corporate Information

1.45 Dividend Policy and Statutory Reserves

Dividend
Payout
Net After Tax Outright Dividend Payment Dividend per share Ratio Statutory General Reserves
Profit Withholdings {40% *(1-2)} { (3)/ 7.6Mn shares} {(3)/(1)} Reserves* {2.5%*(1)}
(1) (2) (3) (4) (5) (6) (7)
Less than
XCD1,000,000 XCD0 XCD0 0% 20% 2.5%
XCD1,000,000
XCD1,000,000 -
XCD1,000,000 XCD800,000 XCD0.11 27% 20% 2.5%
XCD3,000,000
XCD3,000,000 -
XCD2,000,000 XCD1,200,000 XCD0.16 24% 20% 2.5%
XCD5,000,000
XCD5,000,000 -
XCD3,000,000 XCD1,600,000 XCD0.21 23% 20% 2.5%
XCD7,000,000

* The Banking Act of 2015 under Sub-section 45 (1) requires that a minimum of 20% of net after tax profits in each year be transferred to a Statutory Reserve Fund until the
balance of this fund is equal to the issued Share Capital. The reserve is not available for distribution as dividends or any form of appropriation.

15
 2.1 Geographic location and Governance Structure
Grenada, know as the “Spice Isle,” is located northwest of Trinidad and Tobago, northeast of Venezuela, and southwest of Saint Vincent and the Grenadines. The country
consists of the mainland itself as well as six smaller islands at the southern end of the Grenadines in the southeastern Caribbean Sea. Although the island is only 344 square
kilometers in size and comprises of a total population of 110,000, Grenada boasts a rich cultural heritage as well as an expanding economy.
As a Commonwealth realm, Queen Elizabeth II is the country’s Head of State. The Crown is represented by a Governor-General, currently Cécile La Grenade. Ultimately,
executive power lies with the Head of Government, the Prime Minister. Although appointed by the Governor-General, the Prime Minister is usually the leader of the largest
party in the Parliament.
The Parliament consists of a Senate (thirteen members) and a House of Representatives (fifteen members). The senators are appointed by the government and the opposition,
while the representatives are elected by the population for five-year terms.
On February 19, 2013, Prime Minister Keith Claudius Mitchell, 65, led the New National Party (NNP) to victory with a clean sweep of 15 seats. Mitchell is Grenada's ninth
prime minister since the country attained political independence from Britain in 1974.

16
 2.2 Economy Overview

The structure of the Grenadian economy has historically been typical of countries in the Caribbean region; that is, small open economies heavily dependent on advanced
economic states such as the U.S. and Europe to guarantee economic prosperity. High debt burden, large current account and fiscal deficits (Excluding Trinidad and Tobago),
underpinned by low economic growth had been the modus operandi of regional Governments in the region for decades. Adverse shocks such as Terrorist activities in 2001,
strong hurricane activities, the global financial crisis of 2008 followed by a string of more natural disasters set many economies in the region on a turbulent path. Grenada,
Jamaica, Antigua and Barbuda and St. Kitts and Nevis are recent case-studies of sovereign debt selective-default/restructuring. However, in the face of economic calamity, the
resolve of regional Governments has been tested and those who have heeded the advice of the International Monetary Fund (IMF) for comprehensive economic reforms
inclusive of fiscal consolidation and structural changes have begun to see some benefit. Undoubtedly the region has considerable reformatory work to complete with regards to
financial sector oversight, ease of doing business, public sector efficiency and corruption, inclusive of white collar crimes.
Over the past two decades, the Grenadian economy has undergone a structural swing. The country’s economy has shifted from being dominated by agriculture to a services-
dominant one, with the latter estimated to have contributed over 75% of Grenada’s Gross Domestic Production (GDP) in 2016. Although agriculture’s contribution to GDP has
diminished from the highs of 1980s (2016 est. 6.7% of GDP), the sector continues to be an important driver of economic growth and a major player in the long-run
sustainability of the county's economy. The country’s core export crops are the spices nutmeg and mace while cocoa, citrus fruits, bananas, clove and cinnamon account for a
smaller share of the country’s export balance.
Tourism related services is the largest earner of foreign exchange in Grenada and contributed approximately 27% to 2015 GDP and initial projections suggest an increase in the
contribution to GDP for 2016. The total contribution of Travel & Tourism to employment, including jobs indirectly by the industry, was 24% of total employment in 2015 with
projections indicating that this figure should rise to 13,000 jobs in 2025 (26.5% of total employment). Surely, the country’s economy is still susceptible to external shocks,
which could directly dampen Grenada’s growth through lower tourism arrivals, remittances, and FDI. However, the ability of Grenada’s Government to stay the course of the
fiscal adjustment/ structural reform programme initiated by the IMF as well as engage all key stakeholders in order to pass key public sector reforms, inclusive of changes to
the sector’s wage bill within agreed upon benchmarks, would aid in the build up of financial buffers and a strong fiscal structure that would minimize the impact of any adverse
external shock.

17
 2.2 Economy Overview
2.21 Macroeconomic overview

Top 10 Sector Contribution to 2016 & 2017f GDP Sector Contribution to 2016 & 2017f GDP Growth
Sector 2016 2017
Construction 38.4% 21.4%
Education
zvc Agriculture, Livestock and Forestry -33.5% 20.8%
Transport, Storage and Communications Transport, Storage and Communications 38.9% 16.6%
Real Estate, Renting and Business Activities Education 19.4% 11.2%
Real Estate, Renting and Business Activities 7.1% 6.6%
Wholesale & Retail Trade Wholesale & Retail Trade 6.7% 5.8%
Construction Hotels & Restaurants 6.4% 4.9%
Financial Intermediation 2.7% 2.8%
Public Admin, Defence & Compulsory Social Security
Public Admin, Defence & Compulsory Social Security 3.0% 2.6%
Agriculture, Livestock and Forestry Manufacturing 1.6% 1.7%
Electricity & Water 5.8% 1.7%
Financial Intermediation
2017
Other Community, Social & Personal Services 0.5% 1.1%
Hotels & Restaurants Fishing 0.5% 1.1%
2016 Mining & Quarrying 1.7% 0.9%
Electricity & Water
Health and Social Work 0.7% 0.7%
0% 5% 10% 15% 20% Total Estimated GDP Growth 3.1% 2.8%
Source: ECCB, FCIS- Research

The Grenadian economy is driven by the services sector, which in 2016 value added accounted for around 75% of GDP, starkly higher than the sector’s contribution in the
1980s. Tourism is the main driver of activity in the services sector. Travel services, a segment of the tourism industry, accounted for 67% of Grenada’s services exports in
2016, an increase from around 62% in 2000. Traditionally, the Grenadian economy has also depended on exports of commodities, primarily spices and bananas. However, the
banana industry on the island virtually disappeared with the loss of European trade preferences in 2006, while hurricanes Ivan (in 2004) and Emily (in 2005) devastated the
nutmeg industry, resulting in a decline in agriculture’s share of GDP from 24% in 1980 to less than 5% by 2013. The agriculture sector has since staged somewhat of a
recovery as a result of Government investment in enhancing agricultural infrastructure and promoting crop diversity, thus resulting in the sector contributing on average 6.7%
of GDP over the last three years. The manufacturing industry expanded in 2010, due predominantly to increases in production of beverages and rum and now accounts for
approximately 3.3% of GDP (2016). Most other areas of manufacturing, however, are largely dependent on the domestic market and have therefore moved in line with
overall economic activity.

18
 2.2 Economy Overview
2.21 Macroeconomic overview
Inflation trends in Grenada has been historically low. Since 1980 the annual rate of inflation has averaged 3.12%, and for the period 2012-2015 deflation averaged just 0.25%.
Despite falling food prices, headline CPI increased throughout the first half of the year to 3.0% (y/y) in June 2016. This upturn mostly reflected a 26% increase in prices of
telecoms services in September 2015 and a further 5.7% increase in June 2016. Consequently, core CPI (excluding fuel and food) rose by 2.6% in 2015 and is projected to
increase by about 6.8% in 2016. With food deflation continuing, annual headline inflation is projected at 2.0% for 2016. Grenada is a member of the Eastern Caribbean
Currency Union, the common currency framework for the Organization of Eastern Caribbean States (OECS).

The slowdown in world economic growth, during the 2008/2009

Inflation Figures across select Caribbean Economies Global Financial Crisis, had a negative effect on macroeconomic
10.00
fundamentals in Grenada. Key industries, such as construction and
8.00 tourism, suffered significant declines in output, resulted in a
6.00 considerable deterioration in the country's employment profile
Inflation (%)

(although growth resumed in some leading industries from 2013).

4.00
Based on the latest available employment statistics (2015), it is
2.00 estimated that 29% of Grenada’s labour force is without a job, with
0.00 the levels of unemployment among young people and females likely
to be higher. After contracting by 6.6% in 2009, the economy grew
-2.00 by an average of just 2.21% a year in 2010-16. In 2011 Grenada had
-4.00 one of the lowest levels of GDP per head in the Caribbean region and
Grenada Barbados Jamaica Trinidad & Tobago internationally, at just under USD10,000, compared with an average
2014e -0.63 2.30 6.20 8.50 of around USD14,000 in other small Caribbean states. The slowdown
2015e 1.11 -2.50 3.70 1.50 in economic activity has had a damaging effect on the government's
2016e 2.00 2.00 1.80 3.90 finances, with the result that Grenada is currently one of the most
2017f 1.8 3.00 4.20 5.30 heavily indebted small-island developing states in the world (2016
2014e 2015e 2016e 2017f Debt/GDP: 84.3%) .
Source: ECCB, BMI, FCIS-Research

Global economic growth is projected at 2.7% for 2017, however these predictions come at a time
of much uncertainty in the US and Europe. If growth estimates for the advanced international
economy negatively deviate from its expected path, local sectors such as the improving tourism
and construction industries could reverse recent patterns. There are three key potential external
threats to future economic development in Grenada: (1) slow economic growth in more developed
economies, (2) fluctuations in international commodity prices and (3) weak foreign direct
investment flows.
19
2.2 Economy Overview
2.22 Major Sector Review
Services:
The services sector plays a primary role in domestic production and employment in Most firms in the industry cater primarily to the domestic market. Wholesale and
Grenada. The country’s industrial structure is dominated by services: three industries, retail trade in Grenada is one of the largest industries in the economy. According to
namely education; real-estate, renting and business activities; and transport, storage and national-accounts data published by the Eastern Caribbean Central Bank, total value
communications, together account for just over 45% of GDP. Tourism is the main added in the wholesale and retail industry in 2016 represented 8% of GDP. The
driver of activity in the services sector, with education services also playing an industry is highly competitive, and is largely price-driven due to the existence of
increasingly important role. Quite notably, the tourism industry after losing growth many small traders operating beside larger established entities. The industry is
momentum in 2008-2010 due to the weakness of the global economic environment, has dominated by Brydens & Minors, which employs around 120 people.
regained a sound footing and remains the largest earner of foreign exchange in
Grenada. The island offers the traditional "sea, sand and sun" tourist experience that is
available in much of the Caribbean, but has also developed attractions in many other
areas, including heritage tourism, ecotourism and "edu-tourism". In response to the
thrust of tourism, the Grenadian government in 2005 constructed a cruise-ship terminal,
and has upgraded its yachting and marina facilities in order to take advantage of these
industries. Tourism in Grenada is dominated by arrivals from the US, the UK and the
rest of the Caribbean, and is therefore dependent on the economic fortunes of these
source markets. Construction in Grenada largely supports the growth and development
of many other sub-industries, and it is an important part of the economy owing to the
substantial amount of employment that it generates. The Caribbean Development Bank
estimated that 19% of Grenadians were employed in construction in 2008 and that
figure has been estimated to be within the 2016 range. The industry’s contribution to
total value added in 2008 was modest, at just 7.3%, which incidentally is close to its
7.62% contribution in 2016, but it had been as high as 19% in 2005 and 13.8% in 2006,
before the downturn in the local economy caused by the global financial crisis. As in
most other economic industries in Grenada, the majority of firms in the construction
industry are privately owned. The main construction companies on the island include
Quinn Design and Construction and the Creative Design and Building Construction
Company.

20
 2.2 Economy Overview
2.22 Major Sector Review
Agriculture:
Latest Sector Employment data (2008)
From a high of 24% of GDP in 1980, the share of agricultural production 40.0% 15.0%
in Grenada's economy has fallen to a low of 3.5% in 2013 and has now 35.0%

(% of total employment)
Sector Employment
stabilized somewhat at a 3 year average of 6.7% of GDP. Agriculture in 30.0% 10.0%
Grenada is characterized by a significant number of small farms 25.0%
occupying less than 5 acres each. In 2013, around 8% of the island's 20.0% 5.0%
labour force was employed in agriculture, meaning that further growth in 15.0%
the industry could contribute usefully to overall job creation. Exports of 10.0% 0.0%
food and live animals constitute Grenada's largest category of 5.0%
merchandise exports (72%), and this has been the only category of goods 0.0% -5.0%
Services Construction Education and Agriculture and Manufacturing
exports to record significant growth since 2007. There is tremendous Social Work Fishing
scope for growth in agro-processing, with significant employment
currently being generated in the honey and honey-products segment, Employment (% of total employment) Sector 8-Year Average Growth in contribution to GDP
confectionery, snacks and dried fruits, spices, craft products and Source: ECCB, FCIS-Research
cosmetics. The 2014/15 reforms to the Marketing and National Import Education:
Board (MNIB) which has expanded the number of farmers from which it The education sector has grown in almost every year since 2001, and is the only industry in
purchases, encouraged diversification into non-traditional crops, Grenada that was not significantly affected by the global economic downturn. Most of this growth
improved productivity, and strengthened the linkages between the has been due to activity at St George's University, which began life in 1976 as an offshore medical
agricultural and tourism sectors. Production of bananas, which has been university providing training for careers in the US but has since expanded to offer degrees in
significantly affected by extreme weather events such as the hurricanes veterinary medicine, arts and sciences, as well as graduate studies. The institution currently has
in 2004 and 2005, has begun to show signs of recovery in recent years: over 7,000 enrolled students, primarily from the US and the UK. Education is also a key foreign-
banana production rose by 16.8% in the first three quarters of 2016 . exchange-generating industry for Grenada. St George's University contributes over USD100m
Meanwhile, nutmeg production rose by 59% in 2007 and by 23% in annually to the island's economy in the form of salaries, hotel accommodation, housing, recreation,
2009. In recent years these traditional industries have given some food, construction, goods and services, advertising expenditure and charitable donations. In 2016
impetus to overall economic growth. Grenada was also affected by a the education industry accounted for 18% of GDP, and its share is expected be maintained in the
drought that had a significant adverse impact on crops in 2010 and range 18% -20% of GDP. The industry provides jobs for an estimated 8% of the employed labour
force.
recently in 2015/2016.

21
2.3 Grenada’s Economic Performance Review & Outlook
2.3.1 Fiscal Accounts
Grenada’s strong fiscal performance continued its trend into the end of 2016, which ironically Grenada’s outlook for long-term debt sustainability has improved and
represented the beginning of the final year of the country’s IMF assisted program. Robust growth current restructuring agreements provided debt relief amounting to 8.8% of
in revenues across the different sectors in the first half of 2016 were related to improved 2016 GDP. The country is expected to benefit by a further 5.6% in 2017,
compliance and overall strong economic activity. Primary expenditure was kept below the conditional on the successful completion of the IMF’s program. In
associated end-June IMF quantitative performance criterion and the public wage bill (under the addition, fiscal consolidation efforts and robust economic growth have put
old Chart of Accounts―CoA―classification) was 5% lower than the monitoring target. This was Grenada’s public debt-to-GDP ratio on a downward trajectory. Debt to
partly attributed to continued implementation of the attrition policy: public employment declined GDP is now projected to fall to 57.5% by 2020, contingent on meeting
from 7,000 to 6,810 between December and June, which was also below the monitoring target. fiscal adjustment targets and complying with the new Fiscal Responsibility
Further cuts in expenditure saw Government Social spending, under the IMF program, meet the Act in addition to the other legislations dealing with responsible
Government expenditure.
indicative target for the first time. After much delay, the new Management Information System
(MIS) under the World Bank-supported SEED (Support for Education, Empowerment and
Development) programme was implemented. Accordingly, SEED spending met the XCD7 Enacted and Proposed Structural Benchmarks (SB)
million end-June indicative target. In August 2016, the authorities indicated that a full participant Proposed Structural Benchmarks
audit into the program had been started in order to increase efficiency and deliver the best Enacted Structural Benchmarks Date
services to those most vulnerable. Parliament approval of 2017 Budget
Cabinet approval of wage bill for 2017
consistent with parameters of the
at or under 8.8% of GDP.
FRA December 31, 2016
Consequently, the primary surplus reached 3% of projected 2016 GDP at end-June and Cabinet approval to make permanent
outperformed the agreed requirements. In tandem with the progress achieved with the IMF, the Publication of the debt statistics
the Department of Public Admin’s.
bulletin on a quarterly basis
Government sought further fiscal adjustments of 7.6% of GDP from a home-grown adjustment control of hiring and of the size of the
December 31, 2016
programme, marking a significant turnaround in the fiscal position. Grenada’s external position public service.
has stabilized in line with the growth in Tourism. As a result, the current account deficit is Complete and make functional the
Cabinet approval of Public Sector
human resource registry March 31,
expected to narrow slightly to 14.5% of GDP in 2016. As at June 2016, imputed international Wage Bill Management Reform Plan.
2017
reserves increased to USD194 million (5.3 months of imports). The IMF has calculated that Preparation of a public service human Cabinet approval of public sector
Grenada’s real exchange rate depreciated by 0.8% relative to other tourism competitors in 2015, resource registry based on existing ‘Wage Bill Management Reform
but appreciated by 4% relative to its main tourism customers. systems information. Strategy’ March 31, 2017
Parliament approval of amendments
to the revised Grenada Investment
Development Corp. Act.

22
 2.3 Grenada’s Economic Performance Review & Outlook
2.3.2 Monetary Conditions
Monetary conditions in Grenada have improved and total growth in credit to the private sector turned positive in the first half of 2016, although the total system credit demand
contracted by approximately 2%. Lending rates fell by 40 basis points (y/y) in June, reflecting the continuation of the pass through of the May 2015 reduction in the minimum
savings deposit rate to 2%. Credit conditions in the banking sector remained tight, though, as pass through from easier monetary conditions to credit was weak with banks
minimizing risks and strengthening balance sheets. Banks’ deposits and liquidity continued to rise, as a direct result of the closure of branched by two international banks,
leading to increased net foreign assets and the accumulation of reserves at the ECCB. That said, the pace of decline in bank lending that started in 2013 has slowed sharply in
2016. Lending by credit unions rose by 4.6% in the first half of 2016, increasing their market share of total credit to almost 23%. This contributed to positive growth in total
credit to the private sector of 0.4% y/y in June, the first increase in over three years.

Grenada Monetary Conditions Structure of Key Interest Rates

12.0%
8.0% 6.0%
6.0% 4.0% 10.0%
4.0% 2.0%
0.0%
8.0%
2.0% 0.6% -2.0% 6.0%
0.0%
-4.0%
-2.0% -1.0%
-6.0% 4.0%
-4.0% -8.0%
-6.0% -10.7% 2.0%
-10.0%
-8.0% -12.0% 0.0%
2012 2013 2014 2015 2016 2008 2009 2010 2011 2012 2013 2014 2015 2016
Grenada- Financial system- Average Deposit rate
System Growth (Y-O-Y) in Private Sector Credit Grenada- Financial system -Average Lending rate
ECCB policy rate, % eop, ECCB/BMI
System Growth (Y-O-Y) in Savings Deposits
Source: ECCB;BMI; IMF; FCIS-Research US Prime Lending rate, %, eop, IMF
Source: ECCB; FCIS-Research System Growth (Y-O-Y) in Total Domestic Credit

23
 2.3 Grenada’s Economic Performance Review & Outlook
2.3.3 Economic outlook
The outlook for Grenada's economy is positive despite the fact that structural vulnerabilities continue to persist. Arguably, the very volatile and dynamic nature of the drivers
of the economy, namely Tourism and Agriculture, increase the risk associated with assuming a sustainable growth path. However, medium term projections indicate that a
rebound in Agriculture and Construction activity in addition to the marketing of Grenada as a “complete tourism destination” would see economic growth average within the
range of 2.5%-3.5% annually. Undoubtedly, the somewhat austere measure undertaken by the Government in the recent past would have weighed on the country’s
population, but the recorded economic statistics suggest that it may just have been worth the struggle. Surely, the country’s economy is still susceptible to external shocks as
risks related to a further depreciation of the Pound or slower growth in the U.K. related to “Brexit” could affect tourism, particularly since British visitors account for just
below one-fifth of arrivals. Additionally, Higher international oil prices are expected to generate some upward price pressures, pushing CPI inflation to 2.9% in 2017, still
within an acceptable range. Fiscal risks arising from higher-than-expected public sector wage increases and delays in bill reforms are possible, especially as the IMF
agreement comes to an end and the fact that the country in entering the build up to a new government cycle. Policy reversals or relapse into policies of the previous decade
demonstrate would result in debt reverting to its unsustainable path. In this respect, the commitment to medium term goals in the coming years will be important to safeguard
the progress achieved so far, and to broaden the reach of the benefits of the IMF initiated program.

Amendments to structural deficiencies are imperative, given the situation from which the Grenada economy has emerged. However, the path to sustainable economic growth
is indubitably a two lane one; where fundamental inefficiencies are minimized and growth enhancing policies and opportunities are maximized. Shifting focus on the latter,
efforts to improve the business environment have been slow, but accelerated in 2016. Efforts to address weaknesses have focused on legal and regulatory reforms including
the amendment of the Investment Act in 2015 which now includes streamlined investment procedures, codified investment requirements and incentive criteria. The core of
the reform effort in 2016 has been with amendments that strengthen the legal framework for investment facilitation, bankruptcy and insolvency, and building quality control
and regulation as well as address factors affecting structural unemployment. Additionally, reforms to the Marketing and National Import Board (MNIB) which has expanded
the number of farmers from which it purchases, encouraged diversification into non-traditional crops, improved productivity, and strengthened the linkages between the
agricultural and tourism sectors. We acknowledge that Grenada’s debt burden is still very much unsustainably high, especially total external debt which stood at 58.2% of
GDP in June 2016. However , the restructuring of the Debt Management Unit in addition to the policy agreements with the IMF and the World Bank we see a sustainable
debt path by 2020, contingent on policy continuation and prudent fiscal management. To that end, external shocks is inevitable, however, if the Grenada continues on its
current path, the build up of financial buffers as well as a diverse composition of the economy would act as a support cushion.

We at First Citizens have assumed that current macro-economic trends would continue in the medium term and as such these projections have been incorporated
into the valuations of Grenada Co-Operative Bank which can be see in later sections.

24
 3.1 Market Analysis
3.1.1 Financial Intermediaries Sector outlook
The Grenadian Banking sector could be considered a sub-sector of the Financial Intermediaries (Comprises of Banks & Insurance companies) component of GDP. On an
aggregate level, Financial Intermediaries have contributed on average 7.0% to Grenada’s GDP within the last five years. Growth within the sector tumbled in 2013 and 2014
(-4.25% and -1.63% respectively) due to the Paris Club debt restructuring agreements made with the Government’s creditors aided by IMF intervention. An uptick in the sector
occurred in 2015 (↑4.41%) and growth is expected to average 1.22% to 2018.
As a direct result of the agreements made with the country’s creditors and the resultant necessary constraints imposed by the IMF on Government spending, the sector saw a
steady retracement in Public Sector credit demand, falling by an estimated 52% Y-O-Y in 2016 and over 80% from the 2011 recorded figures. There are however some positive
manifestations in the country’s credit demand as private sector business credit demand is estimated to have seen a 1.3% increase Y-O-Y in 2016. We hold the view that given
the financial constraints of the Government, albeit reducing, the burden of growth investments should shift to the private sector while the public policy makers do all in its
power to create an investor friendly climate. We have begun to see this change occur in Grenada and as a result a number of private sector construction projects are on the cards
for 2017/2018. Undoubtedly the Government would continue to be largest contributor to the country’s infrastructural development, however creating a sustainable model is
what is being crafted and as such the responsibility has fallen on the private sector, in the face of improving business friendly policies, to drive the financial sector and economy
forward.

Commercial Banks' Loans & Deposit Growth Composition of Commercial Banks' Loan Book
$3,000,000 1,300,000 120,000
$2,800,000 1,200,000
100,000
1,100,000
$2,600,000
Loans ($'000)

Loans ($'000)
1,000,000 80,000
$2,400,000 900,000
60,000
800,000
$2,200,000
700,000 40,000
$2,000,000 600,000
20,000
$1,800,000 500,000
400,000 -
$1,600,000 2011 2012 2013 2014 2015
Commercial Banks' Total Loans and Advances by Households
$1,400,000
2011 2012 2013 2014 2015 2016 Commercial Banks' Total Loans and Advances by Private Businesses
Commercial Banks' Total Deposits Commercial Banks' Total Loans and Advances by Central and Local Government

Source: ECCB, FCIS-Research Commercial Banks' Total Loans and Source: ECCB, FCIS-Research
Advances

25
 3.1 Market Analysis
3.1.2 Grenada’s Banking sub-Sector Review
Commercial Banks Gross Spread over
The responsibility for ensuring the stability of the banking sector of Grenada, and by
Deposits
10.0
extension the rest of the Organisation of Eastern Caribbean States, falls under the purview

Interest Rate (%)

of the Eastern Caribbean Central Bank (ECCB) who is so guided by legislation such as the 8.0
Banking Act of 2015. As such, the ECCB has oversight over five banks in Grenada: 6.0
Grenada Co-Operative Bank, Republic Bank Grenada Limited, RBTT, Scotiabank Limited 4.0
and First Caribbean International Bank, with the last three being subsidiaries of foreign
multinational banks. As is usually seen during an economic slowdown or periods of 2.0
uncertainty, there is a flight to safety as businesses hold off on the financing of new -
projects as well as an increase in house hold savings. The end result is, most often, the 31-Jan-12 31-Jan-13 31-Jan-14 31-Jan-15 31-Jan-16
build up of system liquidity at the banks. The scenario described, is typical of what
transpired in Grenada which when coupled with the recent closure of branches of two
foreign banks resulted in further deposit growth in the absence of sector loan growth or Source: ECCB, FCIS-Research Deposits- Savings Min Lending- Prime Lending
local investment opportunities. In response, which can only be described as somewhat
reactive, the ECCB lowered the regional Minimum Savings Rate (MSR) to 2% from 3% in
April 2015. In response to the Prime Lending Rate also adjusted downwards to 6% from Change in deposits at GCBL versus Change in
8.5%. In the 85th Meeting of the ECCB’s Monetary Council it was acknowledged that these Total System deposits
rate changes had minimal effect on lending rates and thus did not significantly improve $200,000,000
credit demand. $150,000,000
Grenada Co-Operative Bank Limited being the only “home-grown” bank on the island and $100,000,000
having the reputation of being “the people's bank” had been the major recipients of deposit
inflows second only to Republic Bank (Grenada) Limited. As a result, between 2013-2015 $50,000,000
the change in deposits at GCBL as a percentage of the total system change in deposits
$-
averaged around 50% . In 2016, indicators suggest that the change in deposits at GCBL
2011 2012 2013 2014 2015 2016E
surpassed the total system change thus indicating the effect from the bank closures alluded $(50,000,000)
to above. The rise in deposits would typically increase a bank’s interest expense , however
due to a number of strategies ranging from changes in the bank’s marketing mix of deposit $(100,000,000)
accounts to exogenous factors have actually decreased the bank’s cost of funding. Change in deposits at GCB

Change in Total Deposits

Source: ECCB, FCIS-Research

26
 3.1 Market Analysis
3.1.2 Grenada’s Banking sub-Sector Review
Vital to GCBL is the effect of the operating environment on the company’s loan book.
Arguably, growth in customer deposits would not necessarily be a cause of concern if loan Change in GCBL's Loan Book versus Change in
demand was strong. As we highlighted earlier, total loans have been on the decline since Total System Loan advances
2013 with a slight reversal trend emerging in 2016. One can infer that GCBL’s loan book 50,000,000
followed the trend of the sector, albeit at a slower pace (see chart). However, in 2016, it
seems as if the change in GCBL’s loan book moved contradictory to that of the sector. As -
we would see further in the report, GCBL’s loan book is predominantly comprised of
mortgages and as noted earlier, the positive movement in system loan advances were (50,000,000)
driven mainly by private sector business advances.
(100,000,000)
Additionally, a cause of concern for the banking sector is the steady rise of the Credit
Unions on the island. A general rise in the sector’s Non-Performing Loan Ratio (NPLR), as
(150,000,000)
a result of the general cooling of the job market and increased taxes thereby reducing 2,011 2,012 2,013 2,014 2,015 2016E
consumers discretionary income needed for basic payments of mortgages, has forced
Bank’s to cease and foreclose many properties. A general sentiment locally is that many Change in GCB Loan Book
Banks may have been hasty to foreclose on properties instead of working with citizens; and Change in Total Commercial Banks' Loan
this in itself, along with loose oversight of credit unions, has given rise to the notable Source: ECCB, FCIS-Research advances
growth by the non-banks.
A major crisis facing banks in the region is what has been coined the De-risking of many
of the international banks, which has seen the termination of many correspondent banking
relationships with regional players. Correspondent banking relationships are critical for
enabling key financial and economic transactions, such as, remittances, foreign direct
investments and international trade in goods and services, which contribute significantly to
the region’s growth and development. The ECCB is the authority ultimately responsible for
ensuring the stability of the sector and in response has assumed full responsibility for Anti
Money Laundering /Counter Financing of Terrorists regulation of all institutions licensed
under the Banking Act of 2015. To date, GCBL has reported that there has been no loss in
correspondent banking relationships and the company is working with both the regulators
and their foreign counterparts to ensure relationship growth.

27
 4.1 Historical Performance
4.1.1 Historical Performance of Key Balance Sheet Components

Grenada Co-Operative Bank’s primary focus has been the delivery of consistent shareholder return in the face of exogenous, systemic factors. Return on Average Equity has
averaged 3.57% over the past five years.

The following tables illustrate many key components of GCBL’s financial performance for the period 2012-2016.

Key Asset Components 5- Year

(XCD) 2016 2015 2014 2013 2012 Trend CAGR

Cash and balances with

180,483,293 208,924,065 131,951,532 77,582,060 62,864,645 23%
Central Bank and other banks

Customers' loans and

405,129,648 412,188,631 415,946,938 434,086,530 427,634,876 -1%
advances

Financial investments 179,035,852 63,455,598 49,828,819 61,676,769 56,334,745 26%

Premises and equipment 41,031,738 40,751,416 42,100,428 43,288,904 44,783,592 -2%

Other assets and

19,032,412 23,446,359 13,670,196 11,019,030 5,577,026 28%
prepayments

Deferred tax asset 335,502 668,119 1,108,590 1,256,175 3,298,429 -37%

Total Assets 825,048,445 749,434,188 654,606,503 628,961,127 600,527,183 7%

Key Liability Components 5- Year

(XCD) 2016 2015 2014 2013 2012 Trend CAGR

Amount due to other banks - - 5,000,000 35,755,698 34,320,875 -100%

Customers' deposits 768,598,674 695,517,632 601,102,761 532,961,783 505,134,323 9%

Trade and Other liabilities 7,563,556 7,425,780 6,647,313 6,491,630 7,448,675 0%

Income tax payable 231,137 317,483 92,960 - 10,033,475 -53%

28 Total Liabilities 776,393,367 703,260,895 612,843,034 589,597,444 556,937,348 7%

 4.1 Historical Performance
4.1.1 Historical Performance of Key Balance Sheet Components

Key Equity Components 5- Year Overall, the past five years has been relatively successful
(XCD) 2016 2015 2014 2013 2012 Trend CAGR for GCBL despite the structural issues that the country
Stated capital 24,871,739 24,871,739 24,871,739 24,871,739 24,871,739 0% continues to face. The company’s only loss for the period
was registered in 2013 and was a direct result of, among
Statutory reserve 10,096,857 9,219,916 8,682,386 8,186,429 8,186,429 4% other things, the debt restructuring agreement and the
IMF intervention.
Accumulated Comp. Income
6,030,321 5,368,435 4,818,406 4,836,411 3,399,159 12%
and Other reserves The Bank registered a 16% 5-Year CAGR for the period
despite a 6% fall off in Interest income as both loan
Retained earnings 7,656,161 4,383,029 3,390,938 1,469,104 7,132,508 1%
demand and prime rates fell. At the same time the
reduction in the MSR would have aided interest payments
Total Equity 48,655,078 43,843,119 41,763,469 39,363,683 43,589,835 2%
on increasing deposits.

4.1.2 Historical Performance of Key Income Statement Components A steady increase in Other Operating Income was
partially offset by an overall 6% increase in operating
Key Income Statement 5- Year expenses, thus tempering PAT growth.
Components (XCD) 2016 2015 2014 2013 2012 Trend CAGR

Interest Income 30,912,704 32,468,498 36,251,598 36,146,741 41,056,778 -6% The steady increase in PAT and dividends per share
would have a certain appeal to investors. It is however
Interest expense 9,494,609 12,712,085 15,913,469 17,021,719 17,207,460 -11% worth mentioning that due to the composition and drivers
of the Grenadian economy, the sovereign wealth of the
Net interest income 21,418,095 19,756,413 20,338,129 19,125,022 23,849,318 -2% country is still overly susceptible to external shocks, in
addition to the weak job market and reduced public sector
Other Operating income 17,852,993 13,875,993 7,784,251 6,866,486 5,972,318 24% spending, the company would have a “lower quality” of
Impairment charge for earnings when compared to other Banks in the
6,316,994 5,134,075 4,266,419 4,557,731 6,489,432 -1% Caribbean.
credit losses
General and administrative
27,602,031 24,929,739 21,081,005 22,305,335 20,873,638 6%
expenses
Net Profit after Tax 4,384,705 2,687,650 2,479,786 (3,694,152) 2,069,870 16%

Basic earnings per share 0.58 0.35 0.33 - 0.27 17%

Dividends per share 0.11 0.08 0.08 - 0.07 9%

29
 4.2 Profitability and Return Analysis

(XCD) 2016 2015 2014 2013 2012 5-Year Trend The Bank’s top line experienced a CAGR, over the 5-
Customer Loans and year period, of approximately 6% aided by a 25%
30,803,953 32,309,282 33,252,594 32,611,928 37,224,207 increase in other income, in the face of declining
Advances
Operating income 39,271,088 33,632,406 28,122,380 25,991,508 29,821,636 customer loans and advances. Although GCBL’s
Operating Profit margin and Net Profit margins have
Operating Profit Margin 15.78% 11.87% 10.95% -5.98% 7.71% shown some level of volatility in the past,- namely
Allowance Increase for 2013-they both appear to be strong and we expect the
6,316,994 5,134,075 4,266,419 4,557,731 6,489,432
Impairment charge for credit growth trend to continue. Additionally, the Bank’s
Asset Utilization 4.99% 4.80% 4.39% 4.24% 5.11% ROAE has displayed a constant growth pattern of a
Net Profit Margin (%) 11.17% 7.99% 8.82% -14.21% 6.94% 14% 5-year CAGR and was recorded at 9.48% in 2016.
Conversely, GCBL’S ROA, while expanding modestly
Return on Assets (%) 0.56% 0.38% 0.39% -0.60% 0.35% over the 5-year period is still below the ideal range of
Return on Average Equity
9.48% 6.28% 6.11% -8.91% 4.86% 1.0%-1.5%. GCBL’s Efficiency Ratio has been stable
(%) over the 5-year period , however, we believe that the
Efficiency Ratio 70.29% 74.12% 74.96% 85.82% 69.99% ratio is still too high. In 2016 the Efficiency Ratio stood
at 70.29%, indicating that every XCD1 of Revenues
Book Value per Share 6.40 5.77 5.50 5.18 5.74 generated XCD0.70 of overhead costs.

We are of the view that the Bank’s core profitability

Statistic 2016 2015 2014 2013 2012 5-Year Trend trends would continue into the immediate future as the
focus on Other Income has intensified and should
Cost of Funding 1.30% 1.96% 2.81% 3.28% 3.39%
compensate for the fall off in Interest Income from the
Average return on slowing loan book contraction.
5.08% 5.63% 6.28% 6.52% 7.82%
Interest bearing Assets
Effective Spread 3.78% 3.66% 3.48% 3.24% 4.42%
Net Interest Margin 3.73% 3.59% 3.53% 3.45% 4.54%

Given the advances made by the Government to restructure its debt profile and the public sector in addition to the projected economic growth for
2017-2018, we believe that Banking Sector should see medium term expansion. Additionally, given the strategic positioning of GCBL we believe
that the bank should outperform sector expansion.

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 4.2 Profitability and Return Analysis
4.2.2 GCBL’s Loan Book

Top 5 Contributors to GCBL's Loan Book NPL RATIO

70% 16%
60% 14%
2016 2015
50% 12%
40% 10%
30% 8%
20%
6% NPL RATIO
10%
4%
0%
Personal Tourism Professional Distribution Manufacturing 2%
and other trades 0%
services 2012 2013 2014 2015 2016

Source: GCBL's 2016 Financial Statements Source: GCBL's 2016 Financial Statements

The major contributors to a Bank’s profitability is the composition of their loan book, the quality of loans advanced as well as the average rate earned on those
instruments. The top five contributors to GCBL’s loan book accounts for 88% total loans advance with personal lending accounting for 59%. We believe that GCBL’s
loan book needs to increase its diversification efforts to prevent over exposure to any one sector. Mortgages, on average has typically accounted for over 70% of personal
loans, thus heavily exposing the bank to that segment. That being said, the company’s NPL ratio has steadily declined over the past 4 years and now stands below the
ECCB’s benchmark of 5%. According to the company, “The significant reduction of the Non-Performing Loans Ratio within the prudential benchmark in 2016 is
attributed to the application, over the last six (6) years of tactical methods to minimize the migration of loans into non-performing status, enhanced marketing strategies
and effective asset recovery measures. These methods will be maintained in 2017.” After reviewing GCBL’s credit policy we are satisfied that strong provisioning in
addition to overall policy is sufficient enough to maintain the NPL ratio below the guidelines.

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 4.3 Liquidity and Solvency Metrics
4.3.1 Liquidity Metrics (In XCD, unless other indicated)
Statistic 2016 2015 2014 2013 2012 5-Year Trend
The Liquidity ratios of a company attempt to measure a
Liquid Assets company's ability to pay off its short-term debt
407,853,000 272,073,000 278,621,000 264,230,000 222,752,000
(Maturities < 1Yr)
obligations. Solvency ratios on the other hand attempt to
Liabilities
771,590,000 501,890,000 599,607,000 575,398,000 534,896,000 gauge the ability of an institution to meet its short, middle
(Maturities < 1Yr)
and long term financial obligations. Solvency is also
Liquidity Gap
(363,737,000) (229,817,000) (320,986,000) (311,168,000) (312,144,000) defined as the ability of a financial institution to meet its
(Maturites < 1 Yr)
obligations in the event of cessation of activity or
Liquid Investments to
liquidation.
Funding Base-
79% 81% 79% 78% 78%
(Assuming
Liquidation)* The liquidity ratios of GCBL does suggest some
Interest Earning weakness in the event of a “run on the bank” due to short
Assets to Funding term shocks. The liquidity gap which speaks to the banks
81% 81% 85% 85% 86% ability to meet its short term liabilities, typically with
Base- (Assuming
Liquidation)* maturities less than one year with, by the sale of its most
liquid assets. We have noticed that the bank’s liquid
*Liquidation assumes that GCBL would have to take a 20% discount on held due weak asset demand at assets have been increasing however so too has the
that point in time.
liabilities, indicative of the rise in customer deposits. As a
ECCB result, the Liquidity Gap has steadily increased over the
Statistic 2016 2015 2014 3-Year Trend Benchmarks past 5 years. Investors should note that the operating
model of many banks is structured around a negative gap;
Minimum Reserves 11% 14% 10% 6%
meaning the acceptance of short term deposits and
Loans to Deposits 53% 60% 70% 53%
extending liabilities in the form of loans for an extended
time horizon.
Net Liquidity Ratio 27% 36% 29% 20%

A proactive approach to liquidity management and a thrust into increasing both loans to customers and holdings of foreign investment, should help in
alleviating the large negative liquidity gap. The solvency of the Bank seems secure. After a negative 20% adjustment to the firm’s financial asset
base, assuming difficulty in asset disposal in the event of a systemic crisis, the bank would be able to cover XCD0.80 for every XCD1 of liability
incurred. These numbers have not incorporated the equity in the bank, as a clear picture of depositor risk was the intention. Overall we conclude that
there is room for improvement in liquidity management however acknowledging the troubled operating environment, we strongly believe that the
metrics would improve in the medium term, thus lowering investor risk.

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 Competitor Analysis
GCBL RBGL FCIB SCOTIA
XCD 2016 2015 2016 2015 2016 2015 2016 2015
Customer Loans and
405,129,648 412,188,631 468,508,000 476,924,000 176,974,000 129,160,000 381,996,308 387,793,639
Advances
Customers' deposits 768,598,674 695,517,632 769,232,000 728,603,000 382,903,000 361,344,000 552,213,464 591,567,127

Financial investments 179,035,852 63,455,598 208,202,333 142,225,000 4,972,000 4,991,000 191,948,102 184,407,977

Cost of Funding 1.30% 1.96% 1.22% 1.61% 1.47% 1.89% 1.26% 1.53%
Average return on
Interest bearing 5.08% 5.63% 6.23% 6.73% 5.60% 7.96% 5.47% 5.50%
Assets
Effective Spread 3.78% 3.66% 5.01% 5.12% 4.13% 6.07% 4.21% 3.97%

Efficiency Ratio 70.29% 74.12% 78.70% 81.82% 95.90% 111.00% 48.92% 61.30%

Profit After Tax 4,384,705 2,687,650 5,464,000 3,353,000 2,684,000 3,887,000 13,791,471 7,615,394

Net Profit Margin 11.17% 7.99% 12.12% 8.20% 13.08% 24.12% 37.61% 22.75%
Non-Performing
4.87% 8.00% 7.50% 9.21% N/A N/A N/A N/A
Loans (% )
Return on Average
9.48% 6.28% 3.44% 3.63% N/A N/A 2.19% 1.21%
Equity (% )

As highlighted in the banking sub-sector review, the banking industry is comprised of five banks with GCBL being the only indigenous one. Some
important trends to note are that the majority of the highlighted banks, excluding SCOTIA, saw increases in customer deposits , while FCIB was the only
Bank to see an expansion in loan advances. Similarly, as all players faced an operating environment where credit demand remained muted for 2016, a
thrust to boost top line by increasing investments and fee income resulted in the majority of players growing their financial investments holdings .

The Industry’s cost of funding, which represents the average return paid on customer’s deposits, declined in 2016 and was reflected by all banks while the
average return on interest bearing assets weakened in line with the subdued demand for credit. As investors may expect during a period of slowing top
line growth , all Banks focused on cost efficiency and expenditure control. Highlighting this point was the fact that the Efficiency Ratio-which measure
the non-interest expenditure incurred for ever dollar of revenue generated- for all of the Bank’s declined in 2016, thus offering a slight buffer to a slowing
top line.

Quite notably, with the exception of FCIB, all Banks registered an improvement in Profit after tax for 2016 with Net Profit Margin highlighting the trend.
Investors should note RBGL, in our opinion, is indeed the closet matching competitor to GCBL. While RBGL’s Loan book and PAT is higher than that
of GCBL, on a risk adjusted basis, accounting for NPLs, Grenada Co-Operative Bank may be more attractive to investors. We do note that the banking
sector faces several headwinds, with the rise of credit unions being a major concern. We however maintain the view that the crackdown on NPLs were
needed and the improving economy should translate to a better quality loan book.
33
 SWOT Analysis

• A strong local image and the only indigenous bank in Grenada. We believe that
GCBL’s decision making would be positively impacted by its in-depth knowledge
of customers and the local environment.

• The steady influx of deposits into GCBL is indicative of the trust and faith that the
population has embedded in the security of the bank. As the economy improves
and sustainable growth returns we believe that this would translate itself into a
faster expansion of the loan book compared to peers.
Strengths
• The diversification thrust to Fee and Investment Income (Other Income) augers
well for the bank during this current period of a contracting loan book and heavy
liquidity.

• After executing a site visit and meeting with various members of GCBL we are of
the view that the Bank’s leadership is strong and collectively the bank would meet
most of its strategic 2019 goals under the current leadership.

• We believe that, despite current efforts, there is some room for improvement in the
bank’s liquidity management. As the loan book continues to grow the liquidity and
solvency ratios should improve, however any shocks to the sector could cause
further deterioration.

• The Banks is heavily dependent on mortgages as the main source of loans. While
Weakness this is typical of most banks we believe that GCBL should act on its competitive
advantage and promote itself to be the lender of choice of the Grenadian
Government in the much anticipated “pick up” in public as well as private sector
projects.

34
 SWOT Analysis

• One concern articulated was the Bank’s desire to improve on the efficiency of
operations and decision making. To that effect the Bank has began implementing
an imaging solution throughout in order to reduce transaction time and increase
processing speed. Additionally, GCBL has entered into a strategic partnership with
another regional bank to capitalize on functional cooperation and attain process
synergies.

• In the first quarter of 2017, GCBL should roll out new services related to its
recently received Broker-Dealer licence. This would open new revenue channels
for the bank and contribute to Fee income.
Opportunities
• There are a range of products in the pipelines concerning homeowners that we
believe would significantly contribute to the profitability of GCBL.

• The closure of a number of branches by the “Foreign Banks” present opportunities

to GCBL to create new relationships or re-establish old ones. A targeted marketing
approach as the, “Bank that is always there for its people” should generate
goodwill among the customer base.

• The largest risk facing many regional financial institutions is the de-risking of many
international banks, resulting in the termination of correspondent banking
relationships. The Bank, along with the ECCB is monitoring the threat and has
advised that there is indeed frequent communication between them and their
international counterparts in order to preserve the relationship.
Threats
• The Grenadian economy, despite recent structural advancements, remains
susceptible to external shocks and as a result the local banking sector is not immune
to these adverse effects.

• The increasing market share of the Credit Unions on the island should pose some
concern to GCBL.
35
 Valuation

Share Valuation of GCBL In order to estimate the fair value of the equity in the company,
$18.00 three valuation models were used. The Dividend Discount, Excess
$16.00 Returns and Relative Valuation Models were judged to be the best
$14.00 fit for the valuation of the company. Fundamental assumptions as
$12.00 well as earnings and dividends projections are based mainly on
$10.00 three scenarios : The Base, Bear and Bull cases, all with different
$8.00 assumptions about growth and future economic conditions some of
$6.00 which are highlighted in the table blow.
$4.00
$2.00 7.1 Dividend Discount Model
$0.00 This model is based on the determination of the present value of
Dividend Relative
Excess Return Average Price
Discount Valuation (P/E) the projected cash flow, in the form of dividends during a medium
Bear $5.47 $6.03 $8.89 $6.80 term time horizon, that an investor is expected to receive. Key to
Base $9.71 $6.57 $9.84 $8.71 this approach is the range bound growth estimates of dividends in
Bull $15.74 $6.73 $10.92 $11.13 addition to an appropriate discount factor. Having been provided
Intrinsic Price $8.88 $8.88 $8.88 $8.88 projected financial statements to December 2019 by GCBL and a
clear dividend policy estimating dividend growth would have been
Key Assumptions Bear Base Bull fairly straightforward. It should be noted that we received financial
projections to 2019 from Grenada Co-Operative Bank and have
Cost of Equity 10.98% 10.48% 9.98% used these estimates as the base inputs for all models. Additionally,
Sustainable Growth Rate 7.64% 8.15% 8.40% the factors common to all models were:
Average Intrinsic P/E Ratio 10.99 14.24 18.05 1) The Discount Factor or Cost of Equity.

Average Intrinsc Price $6.80 $8.71 $11.13 2) Sustainable Growth Rate

7.1.1 Discount Factor

In determining the discount factor several issues were taken into consideration. Typically, the Capital Asset Pricing Model (CAPM) would have been
used to determine the Cost of Equity; which states that the Cost of Equity= Risk free Rate+ β *(Risk of the Market-Risk free Rate). Given the lack of
historical data for 10-year Government securities, we decided to use the 5-year average of the 10-year point off the Government of St. Lucia yield curve
that is internally generated by FCIS (See appendix 1). The 5 and 10-year average ECSE stock market returns were negative and therefore we had to use
the return for 2016. The company’s Beta was calculated as the average regression of the Banks listed on the ECSE, who acted as a proxy. Given that the
conditions were not ideal we sought to utilize another approach to calculating the Cost of Equity, namely the ‘Build up Method” which begins with the
Equity Risk Premium (i.e. Risk of Market- Risk Free rate) for a mature market (U.S) and adjusts for the country and equity market risks of Grenada.
In the end both methods gave close and reasonable estimates in our view: CAPM : 11.93%, Build up: 9.04%. The base Discount factor used throughout
36 all our models was 10.48% or the average of the results of both models.
 Valuation

7.1.2 The Sustainable Growth Rate

The sustainable growth rate is the maximum rate of growth that a firm could sustain without having to increase financial leverage or its fixed costs. This rate was
calculated as the product of the company’s 5-year average ROAE an its plowback rate. This sustainable growth rate was used as the base rate at which the company could
have stable growth from 2020 forward. The growth rates applied to the different scenarios could be seen in the previous table of “Key Assumptions.”

7.2 Excess Returns Model

In this model, the value of the firm could be written as the sum of the capital invested currently in the firm and the present value of the excess return , over the cost of the
firm’s equity, that the Bank expects to make in the future. Given that it is fairly difficult to define total capital in a financial services firm , due to the fact that deposits may
be viewed more as raw material rather than debt, it makes the argument for focusing on the pure equity of the Bank. The book value of the Bank’s equity is marked up to
market thereby painting a more realistic picture of financial standing. There are two core inputs needed to value equity in this model are: 1) A measure of current equity
capital invested in the firm. 2) Expected excess returns to equity investors in future periods. Given that we had projections to 2019 the main calculations were in
determining a Terminal/Stable expected excess return for 2020 outwards.

7.3 Relative Valuation

The final model, a more simplistic one, is the typical P/E multiple approach. We began with using a base proxy P/E ratio for GCBL, calculated as the average of RBGL,
the Trinidad Banking Sector as well as the Jamaican Banking sector. The base P/E ratio was calculate at 14.5X and when applied to the estimated growth rate for earnings
resulted in a base price of XCD9.84.

7.4 Intrinsic Value

Using the highlighted valuation methods, under the different scenarios, the fair value estimate for Grenada Co-Operative Bank Limited is estimated at XCD8.88
or within a range of XCD6.80 to XCD11.18. Investors should note that in 2010 the company issued 2,500,000 common shares for a net consideration of XCD17,251,739
thereby placing the per share value at XCD6.90. At the current estimated price per share, the CAGR over the 6-year period would be 4.29% which seems reasonable,
despite the slowdown in 2013.More importantly, the share price should reflect the future opinions on all factors that would affect the success of GCBL. First Citizens
Research & Analytics is satisfied that the range of the intrinsic value of GCBL -XCD6.80 to XCD11.18- fairly reflects these future expectations of the Grenadian Bank.

37
 Construction of the First Citizens Research & Analytics Yield Curves

The sovereign yield curve is constructed using a combination of input points from Government benchmark issues, actual trade data as well as market reads. Then, using a
linear interpolation method the intermediate points are calculated. If there were no new government issues for a three month period market reads are done using no less than
three reliable sources to determine what the market would pay for Government paper at that point in time. Counterparties selected for market reads are prominent players
who are active in the market and who would therefore have a good understanding of yields, a list of the approved counterparties used is shown in the Market Read section
below. The yields obtained from market reads effectively represent what market participants would expect for new government securities at the respective tenors. See
below for a further description of the market read process. Trade data are obtained from the relevant units within the First Citizens Group and any trade data available on
the secondary bond trading platform are analyzed in the derivation of the yield curve with specific criteria (see trade data process).

When the benchmark yields are determined whether from actual issues, market reads or trade data, a full curve is constructed by interpolating the intermediate points and
the spot curve is then determined using the following interpolation formula :
at = {(an – a1)/n-1} + att-1,
where: a1 is first number
an is nth number
n is number of subintervals
But substantially, the Microsoft Excel interpolation formula is utilized to fill in the intermediate points.

The Market Read Process

For inactive markets such as the domestic markets in Trinidad, Barbados and St Lucia/OECS there is the challenge that Government bonds are not issued regularly enough
to ensure that the yield curve remains up to date. To address this shortfall a decision was made to take a poll of the major market players to determine the current market
yield expectations for various tenors assuming Government risk on a monthly basis. For this process, a minimum of three market reads must be obtained and a simple
average taken to determine the yield to be used. If there are new Government bond issues the market reads can be dropped before the end of the three month period. Market
reads are primarily done to gauge market perception of Government rates but can also be done for specific Government and corporate issues. If there are no new
government issues and no new market reads are available, which meet the criteria above, then the point on the curve will be interpolated. It is recommended that a market
read be kept for no longer than three pricing months, however, in extenuating circumstances, (lack of new data, inability to interpolate), the market read can be maintained
for a longer period.

38
 Construction of the First Citizens Research & Analytics Yield Curves

Any licensed Banking or Securities company that is active in the bond market of their respective territory can be considered a prospective market read participant. The
persons contacted in these institutions are Portfolio Managers, Senior Finance, and Investment and Treasury personnel.

Because the deadline for yield curve construction is the first working day of the next month, it is not always possible to acquire three new reads every month. Previously,
this meant that whatever new reads were acquired would be discarded and the previous month’s average read would be retained. Effective 31st December 2015, whatever
new market reads have been acquired will be incorporated into the new average and that the ‘missing’ reads will be taken from the previous month to meet the minimum
requirement of three reads.

The participant(s) brought forward from the previous month will be the most market significant players from those available. The same participant will not be represented
twice. When selecting reads from participants for qualification to be used in the market read average for the respective tenor, there must be certain criteria that must be met.

This includes:

Following an initial simple average of all participants being taken for the pricing month, the qualifying reads that will used in the final average of the respective tenor,
must fall within +/- 150 basis points of the initial simple average. This will be applied to all curves with the exception of the Trinidad and Tobago TTD and USD
Curves. For the GOTT TTD and GOTT USD curves, qualifying reads must fall within +/- 100 basis points of the average. All outliers will be excluded and the
remaining reads will be averaged and used in the construction of the yield curve. It should be noted that a minimum of three market participants will be needed when
conducting both the initial and final average. In the absence of sufficient reads, previous market reads can be maintained for a longer period (in excess of three
months).

39
 Construction of the First Citizens Research & Analytics Yield Curves

Trade Data Process

Transaction data are collected from two sources:

• The Trinidad and Tobago Stock Exchange Secondary Bond Trading Platform
• Trades executed within the First Citizens Group with an external counterparty.

The trade data will then be used to approach the market for reads for that particular tenor identified by the units above, and will be averaged out.

Treatment of Private Placements

A private placement is the sale of securities to a relatively small number of select investors as a way of raising capital and is not required to be registered with the Securities
Exchange Commission in the respective jurisdiction. To reduce subjectivity and bias, private placement issues will not be considered for inclusion in the respective yield
curve, since the results may be skewed and not fully reflective of prevailing market conditions.

40
 DISCLAIMER
This report has been prepared by First Citizens Investment Services Limited, a subsidiary of First Citizens Bank Limited. It is provided for
informational purposes only and without any obligation, whether contractual or otherwise. All information contained herein has been obtained
from sources that First Citizens Investment Services believes to be accurate and reliable. All opinions and estimates constitute the author’s
judgment as at the date of the report. First Citizens Investment Services does not warrant the accuracy, timeliness, completeness of the
information given or the assessments made. Opinions expressed may change without notice. This report does not constitute an offer or
solicitation to buy or sell any securities discussed herein. The securities discussed in this report may not be suitable to all investors, therefore
Investors wishing to purchase any of the securities mentioned should consult an investment adviser.

DISCLOSURE
We, First Citizens Investment Services Limited hereby state that (1) the views expressed in this Research report reflects our personal view about
any or all of the subject securities or issuers referred to in this Research report, (2) we not a beneficial owner of securities of the issuer (3) no
part of our compensation was, is or will be directly or indirectly related to the specific recommendations or views expressed in this Research
report (4) we have not acted as underwriter in the distribution of securities referred to in this Research report in the three years immediately
preceding and (5) we do not have a direct or indirect financial or other interest in the subject securities or issuers referred to in this Research
report.

41