TIDM95HX
RNS Number : 4216F
GFH Financial Group B.S.C
16 November 2020
GFH FINANCIAL GROUP B. S. C.
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
30 SEPTEMBER 2020
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Commercial registration : 44136 (registered with Central Bank of Bahrain
as an Islamic wholesale Bank)
Registered Office : Bahrain Financial Harbour
Office: 2901, 29(th) Floor
Building 1398, East Tower
Block: 346, Road: 4626
Manama, Kingdom of Bahrain
Telephone +973 17538538
Directors : Jassim Al Seddiqi, Chairman
H.E. Shaikh Ahmed Bin Khalifa Al-Khalifa , Vice Chairman
Hisham Ahmed Alrayes
Rashid Nasser Al Kaabi
Mustafa Kheriba
Ghazi Faisal Ebrahim Alhajeri
Ali Murad (from 9 April 2020)
Ahmed Abdulhamid AlAhmadi (from 9 April 2020)
Alia Al Falasi (from 30 September 2020)
Fawaz Talal Al Tamimi (from 30 September 2020)
Amro Saad Omar Al Menhali (till 30 September 2020 )
Mazen Bin Mohammed Al Saeed (till 31 March 2020)
Mosabah Saif Al Mautairy (till 30 September 2020 )
Bashar Mohamed Al Mutawa (till 1 April 2020)
Chief Executive Officer : Hisham Ahmed Alrayes
Auditors : KPMG Fakhro
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2020
CONTENTS Page
Independent auditors' report on review of condensed consolidated
interim financial
information 1
Condensed consolidated interim financial information
Condensed consolidated statement of financial position 2
Condensed consolidated income statement 3
Condensed consolidated statement of changes in owners' equity
4-5
Condensed consolidated statement of cash flows 6
Condensed consolidated statement of changes in restricted investment accounts 7
Condensed consolidated statement of sources and uses of zakah and charity fund 8
Notes to the condensed consolidated interim financial
information 9-32
Supplementary information (not reviewed) 33-35
Independent auditors' report on review of condensed consolidated
interim financial information
To
The Board of Directors
GFH Financial Group BSC
Manama
Kingdom of Bahrain 12 November 2020
Introduction
We have reviewed the accompanying 30 September 2020 condensed
consolidated interim financial information of GFH Financial Group
BSC (the "Bank") and its subsidiaries (together the Group"), which
comprises:
-- the condensed consolidated statement of financial position as at 30 September 2020;
-- the condensed consolidated income statement for the three-month and nine-month periods ended 30 September 2020;
-- the condensed consolidated statement of changes in owners' equity for the nine-month
period ended 30 September 2020;
-- the condensed consolidated statement of cash flows for the nine-month period
ended 30 September 2020;
-- the condensed consolidated statement of changes in restricted
investment accounts for the nine-month period ended 30 September
2020;
-- the condensed consolidated statement of sources and uses of
zakah and charity fund for the nine-month period ended 30 September
2020; and
-- notes to the condensed consolidated interim financial information.
The Board of Directors of the Bank is responsible for the
preparation and presentation of this condensed consolidated interim
financial information in accordance with the basis of preparation
stated in note 2 of the condensed consolidated interim financial
information. Our responsibility is to express a conclusion on this
condensed consolidated interim financial information based on our
review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410, "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity". A
review of condensed consolidated interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with Auditing Standards for Islamic
Financial Institutions and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying
30 September 2020 condensed consolidated interim financial
information is not prepared, in all material respects, in
accordance with the basis of preparation stated in note 2 of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2020 US$ 000's
note 30 September 31 December 30 September
2020 2019 2019
(reviewed) (audited) (reviewed)
(restated (restated
notes 3(a),14) notes 3(a),14)
ASSETS
Cash and bank balances 337,361 364,598 404,126
Treasury portfolio 9 1,767,975 1,588,661 1,655,850
Financing assets 10 1,234,951 1,272,777 1,316,727
Real estate Investments 11 1,840,586 1,806,009 1,815,757
Proprietary investments 12 287,898 268,175 276,527
Co-investments 13 103,774 96,507 74,352
Receivables and prepayments 482,435 444,689 491,911
Property and equipment 107,146 103,857 103,001
------------- ---------------- ----------------
Total 6,162,126 5,945,273 6,138,251
============= ================ ================
LIABILITIES
Clients' funds 94,320 70,858 74,469
Placements from financial, non-financial
institutions and individuals 2,278,800 2,447,249 2,675,375
Customer current accounts 124,001 147,487 169,432
Term financing 15 933,275 301,411 290,009
Payables and accruals 400,382 466,852 544,845
------------- ---------------- ----------------
Total 3,830,778 3,433,857 3,754,130
------------- ---------------- ----------------
Equity of investment account
holders 1,122,234 1,218,545 971,485
OWNERS' EQUITY
Share capital 8 975,638 975,638 975,638
Treasury shares (66,142) (73,419) (47,158)
Statutory reserve 8 15,039 125,312 117,301
Investment fair value reserve (21,785) 7,737 4,121
Foreign currency translation
reserve (35,733) (29,425) (36,655)
Retained earnings 8 7,455 (2,498) 58,009
Share grant reserve 1,321 1,198 1,198
------------- ---------------- ----------------
Total equity attributable to
shareholders of Bank 875,793 1,004,543 1,072,454
Non-controlling interests 333,321 288,328 340,182
Total owners' equity 1,209,114 1,292,871 1,412,636
------------- ---------------- ----------------
Total liabilities, equity of
investment account holders and
owners' equity 6,162,126 5,945,273 6,138,251
============= ================ ================
The Board of Directors approved the condensed consolidated
interim financial information on 12 November 2020 and signed on its
behalf by:
Jassim Al Seddiqi Hisham Alrayes
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the nine months ended 30 September 2020 US$ 000's
Nine months ended Three months ended
30 September 30 September 30 September 30 September
2019 2019
2020 (reviewed) 2020 (reviewed)
(reviewed) (reviewed)
Continuing operations
Investment banking income
Asset management 3,765 2,007 1,038 649
Deal related income 62,015 77,012 23,778 34,923
------------- -------------
65,780 79,019 24,816 35,572
------------- ------------- -------------
Commercial banking income
Income from financing 60,908 61,416 19,641 22,654
Treasury and investment
income 26,568 21,240 9,196 3,910
Fee and other income 4,878 13,526 1,672 2,781
Less: Return to investment
account holders (24,648) (29,615) (8,670) (10,485)
Less: Finance expense (22,879) (14,143) (9,385) (4,355)
------------- -------------
44,827 52,424 12,454 14,505
--------------- ------------- -------------
Income from proprietary
and co-investments
Direct investment income,
net 20,374 10,371 1,074 285
Restructuring related
income - 29,406 - -
Dividend from co-investments 6,415 1,607 2,306 1,099
------------- -------------
26,789 41,384 3,380 1,384
--------------- ------------- -------------
Real estate income
Development and sale 10,707 18,012 1,451 4,495
Rental and operating income 3,119 1,901 1,962 654
------------- -------------
13,826 19,913 3,413 5,149
--------------- ------------- -------------
Treasury and other income
Finance income 66,493 18,094 31,253 8,671
Dividend and net (loss/)
gain on treasury investments (19,193) 21,851 (8,260) 9,757
Other income, net 17 15,579 12,308 520 10,847
------------- -------------
62,879 52,253 23,513 29,275
--------------- ------------- -------------
Total income 214,101 244,993 67,576 85,885
--------------- ------------- -------------
Operating expenses 80,483 70,209 22,835 21,425
Finance expense 101,190 84,669 34,246 30,965
Impairment allowances 18 2,120 28,433 573 16,269
Total expenses 183,793 183,311 57,654 68,659
---------------
Profit from continuing
operations 30,308 61,682 9,922 17,226
Loss from discontinued
operations, net - (467) - -
------------- -------------
Profit for the period 30,308 61,215 9,922 17,226
=============== ============= ============= =============
Attributable to:
Shareholders of the Bank 23,167 64,532 8,113 19,835
Non-controlling interests 7,141 (3,317) 1,809 (2,609)
-------
30,308 61,215 9,922 17,226
======= ======== ====== ========
Earnings per share
Basic and diluted earnings
per share (US cents) 0.69 1.91 0.24 0.60
-------
Earnings per share - continuing
operations
Basic and diluted earnings
per share (US cents) 0.69 1.93 0.24 0.60
------- -------- ------ --------
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS'
EQUITY
for the nine months ended 30 September 2020 US$ 000's
Attributable to shareholders of the Bank
Foreign
30 September Investment currency Share Non Total
2020 Share Treasury Statutory fair value translation Retained grant -controlling owners'
(reviewed) capital shares reserve reserve reserve earnings reserve Total interests equity
Balance at 1
January 2020 975,638 (73,419) 125,312 7,737 (29,425) (2,498) 1,198 1,004,543 288,328 1,292,871
Profit for
the period - - - - - 23,167 - 23,167 7,141 30,308
Fair value
changes
during the
period - - - (16,326) - - - (16,326) (64) (16,390)
Transfer to
income
statement on
disposal of
sukuk - - - (13,196) - - - (13,196) - (13,196)
Total
recognised
income and
expense 975,638 (73,419) 125,312 (21,785) (29,425) 20,669 1,198 998,188 295,405 1,293,593
Additional
capital
contribution
to
subsidiary
(note 1) - - - - - (59,893) - (59,893) (14,311) (74,204)
Modification
loss on
financing
assets (note
2a, 10) - - - - - (13,892) - (13,892) (11,179) (25,072)
Government
grant (note
2b) - - - - - 3,686 - 3,686 1,266 4,952
Dividends
declared for
2019 - - - - - (30,000) - (30,000) - (30,000)
Transfer to
zakah and
charity fund - - - - - (1,388) - (1,388) (258) (1,646)
Purchase of
treasury
shares - (84,849) - - - - - (84,849) - (84,849)
Sale of
treasury
shares - 108,652 - - - (22,000) - 86,652 - 86,652
Treasury
shares
acquired for
share
incentive
scheme - (16,526) - - - - 123 (16,403) - (16,403)
Foreign
currency
translation
differences - - - - (6,308) - - (6,308) (1,349) (7,656)
NCI arising
from
acquisition
of a
subsidiary
(note 16) - - - - - - - - 63,747 63,747
Adjustment of
accumulated
losses (note
8) - - (110,273) - - 110,273 - - - -
Balance at
30
September
2020 975,638 (66,142) 15,039 (21,785) (35,733) 7,455 1,321 875,793 333,321 1,209,114
======== ========== =========== =========== ============ ========= ======== ========== ============= ==========
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS'
EQUITY
for the nine months ended 30 September 2020 (continued) US$
000's
Attributable to shareholders of the Bank
Foreign Non
Investment currency Share Non -controlling Total
30 September 2019 Share Treasury Statutory fair value translation Retained grant -controlling interests owners'
(reviewed) capital shares reserve reserve reserve earnings reserve Total interests held-for-sale equity
Balance at 1
January 2019 *
(as previously
reported) 975,638 (85,424) 117,301 (4,725) (43,380) 98,318 1,086 1,058,814 323,408 40,556 1,422,778
Reclassification
of subsidiary
held-for-sale to
held-for-use
(note 14) - - - - - - - - 25,396 (25,396) -
--------- ---------- ----------- ----------- ------------ --------- -------- ------------------------------ ------------- -------------- ----------
Balance at 1
January 2019 *
(restated) 975,638 (85,424) 117,301 (4,725) (43,380) 98,318 1,086 1,058,814 348,804 15,160 1,422,778
Profit for the
period - - - - - 64,532 - 64,532 (3,317) - 61,215
Fair value
changes during
the period - - - 8,846 - - - 8,846 - - 8,846
Total recognised
income and
expense - - - 8,846 - 64,532 - 73,378 (3,317) - 70,061
Bonus shares
issued 55,000 - - - - (55,000) - - - - -
Extinguishment of
treasury shares (55,000) 50,549 - - - 4,451 - - - - -
Dividends
declared for
2018 - - - - - (30,000) - (30,000) - - (30,000)
Transfer to zakah
and charity fund - - - - - (2,219) - (2,219) (223) - (2,442)
Issue of shares
under incentive
scheme - - - - - - 112 112 - - 112
Purchase of
treasury shares - (146,592) - - - - - (146,592) - - (146,592)
Sale of treasury
shares - 134,309 - - - (22,504) - 111,805 - - 111,805
Foreign currency
translation
differences - - - - 6,725 - - 6,725 (5,082) - 1,643
Acquisition of
NCI without a
change in
control - - - - - 431 - 431 - (15,160) (14,729)
Balance at 30
September 2019 975,638 (47,158) 117,301 4,121 (36,655) 58,009 1,198 1,072,454 340,182 - 1,412,636
========= ========== =========== =========== ============ ========= ======== ============================== ============= ============== ==========
* The Bank used to recognise gain / (loss) on sale of treasury
shares in the statutory reserve. The Bank has regrouped the losses
on sale of treasury shares of US$ 24,818 thousand for the year
ended 2018 to retained earnings.
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS-
for the nine months ended 30 September 2020 US$ 000's
30 September 30 September
2020 2019 (reviewed)
(reviewed) (restated)
OPERATING ACTIVITIES
Profit for the period 30,308 61,215
Adjustments for:
Income from deal related income - (77,012)
Income from commercial banking (25,322) (15,926)
Income from proprietary investments (26,789) (11,851)
Income from dividend and gain / (loss)
on treasury investments (44,550) (21,851)
Foreign exchange (gain) / loss (1,275) 1,567
Restructuring related income - (29,406)
Finance expense 124,031 84,672
Impairment allowances 2,120 28,433
Depreciation and amortisation 3,515 1,636
62,038 21,477
Changes in:
Placements with financial institutions
(original maturities of more than 3 months) 344,392 (123,305)
Financing assets 37,826 (107,780)
Other assets (13,593) (122,752)
CBB Reserve and restricted bank balance 40,827 (13,165)
Clients' funds 23,462 27,830
Placements from financial and non-financial
institutions (168,449) 1,046,986
Customer current accounts (23,486) (8,474)
Equity of investment account holders (96,311) 74,575
Payables and accruals (33,610) 9,045
------------------
Net cash from operating activities 173,096 804,437
------------------
INVESTING ACTIVITIES
Payments for purchase of equipment (329) (556)
Proceeds from sale of proprietary investment
securities, net (39,074) 2,156
Purchase of treasury portfolio, net (560,013) (419,306)
Cash acquired on acquisition of a subsidiary 32,856 -
Proceeds from sale of investment in real
estate 944 38,352
Dividends received from proprietary investments
and co-investments 8,377 4,164
Advance paid for development of real estate (14,917) (16,282)
Net cash used in investing activities (572,156) (391,472)
FINANCING ACTIVITIES
Financing liabilities, net 653,857 11,312
Finance expense paid (136,913) (67,569)
Dividends paid (34,927) (30,590)
Acquisition of NCI - (9,026)
Purchase of treasury shares, net (14,764) (12,283)
------------------
Net cash from / (used in) financing activities 467,253 (108,156)
------------------
Net increase in cash and cash equivalents
during the period 68,193 304,809
Cash and cash equivalents at 1 January 367,533 397,620
------------------- ------------------
Cash and cash equivalents at 30 September
* 435,726 702,429
=================== ------------------
Cash and cash equivalents comprise:
Cash and balances with banks (excluding
CBB Reserve balance and restricted cash) 294,099 333,483
Placements with financial institutions
(original maturities of 3 months or less) 141,627 368,946
------------------- ------------------
435,726 702,429
=================== ==================
* net of expected credit loss of US$ 167 thousand (30 September
2019: US$ 55 thousand). The accompanying notes 1 to 24 form an
integral part of the condensed consolidated interim financial
information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED
INVESTMENT ACCOUNTS
for the nine months ended 30 September 2020
30 September
2020 Balance at 1 January Balance at 30 September
(reviewed) 2020 Movements during the period 2020
Average Average
value Group's value
No of per Investment/ Gross Dividends fees as Administration No of per
units share Total (withdrawal) Revalua-tion income paid an agent expenses units share Total
Company (000) US$ US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's (000) US$ US$ 000's
----- ------- --------- ------------ ------------ --------- --------- --------- -------------- ----- ------- ---------
Mena Real
Estate
Company
KSCC 150 0.33 50 - - - - - - 150 0.33 50
Al Basha'er
Fund 13 7.91 103 (8) - - - - - 12 7.91 95
Safana
Investment
(RIA
1) 6,254 2.65 16,573 - - - - - - 6,254 2.65 16,573
Shaden Real
Estate
Investment
WLL (RIA 5) 3,434 2.65 9,100 - - - - - - 3,434 2.65 9,100
Locata
Corporation
Pty
Ltd (RIA 6) 2,633 1.00 2,633 - - - - - - 2,633 1.00 2,633
28,459 (8) - - - - - 28,451
========= ============ ============ ========= ========= ========= ============== =========
30 September
2019 Balance at 1 January Balance at 30 September
(reviewed) 2019 Movements during the period 2019
Average Average
value Group's value
No of per Investment/ Gross Dividends fees as Administration No of per
units share Total (withdrawal) Revalua-tion income paid an agent expenses units share Total
Company (000) US$ US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's (000) US$ US$ 000's
----- ------- --------- ------------ ------------ --------- --------- --------- -------------- ----- ------- ---------
Mena Real
Estate
Company
KSCC 150 0.33 50 - - - - - - 150 0.33 50
Al Basha'er
Fund 13 7.03 91 - 12 - - - - 13 7.91 103
Safana
Investment
(RIA
1) 6,254 2.65 16,573 - - - - - - 6,254 2.65 16,573
Shaden Real
Estate
Investment
WLL (RIA 5) 3,434 2.65 9,100 - - - - - - 3,434 2.65 9,100
Locata
Corporation
Pty
Ltd (RIA 6) 2,633 1.00 2,633 - - - - - - 2,633 1.00 2,633
28,447 - 12 - - - - 28,459
========= ============ ============ ========= ========= ========= ============== =========
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF SOURCES AND USES OF ZAKAH AND CHARITY FUND
for the nine months ended 30 September 2020 US$ 000's
30 September 30 September
2020 2019
(reviewed) (reviewed)
Sources of zakah and charity fund
Contribution by the Group 1,646 2,437
Non-Islamic income 103 282
Total sources 1,749 2,719
-------------- ----------------
Uses of zakah and charity fund
Contributions to charitable organisations (222) (1,466)
Total uses (222) (1,466)
-------------- ----------------
0B Surplus of sources over uses 1,527 1,253
Undistributed zakah and charity fund at
beginning of the period 5,407 4,636
1B Undistributed zakah and charity fund
at end of the period 6,934 5,889
============== ================
Represented by:
Zakah payable 1,493 944
Charity fund 5,441 4,945
6,934 5,889
============== ==============
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
1 Reporting entity
The condensed consolidated interim financial information for the
nine months ended 30 September 2020 comprise the financial
information of GFH Financial Group BSC (GFH or the "Bank") and its
subsidiaries (together referred to as "the Group").
The following are the principal subsidiaries consolidated in the
condensed consolidated interim financial information.
Effective
ownership
Country of interests
Investee name incorporation 2020 Activities
GFH Capital Limited United Arab 100% Investment
Emirates management
--------------- ----------- ---------------------
Khaleeji Commercial Bank Kingdom of 55.41% Islamic retail
BSC ('KHCB') * Bahrain bank
--------------- ----------- ---------------------
Al Areen Project companies 100% Real estate
development
--------------- ----------- ---------------------
Falcon Cement Company BSC 51.72% Cement manufacturing
(c) ('FCC')
----------- ---------------------
Global Banking Corporation 50.41% Islamic investment
BSC (c) (GBCORP) (note bank
16)
--------------- ----------- ---------------------
Morocco Gateway Investment Cayman Islands 89.26% Real estate
Company ('MGIC') development
--------------- ----------- ---------------------
Tunis Bay Investment Company 82.92% Real estate
('TBIC') development
--------------- ----------- ---------------------
Energy City Navi Mumbai 80.27% Real estate
Investment Company & Mumbai development
IT & Telecom Technology
Investment Company (together
"India Projects")
--------------- ----------- ---------------------
Gulf Holding Company KSCC State of 51.18% Investment
Kuwait in real estate
--------------- ----------- ---------------------
Residential South Real Bahrain 100% Real estate
Estate Development Company development
(RSRED)
--------------- ----------- ---------------------
* During the period, KHCB issued Additional Tier 1 (AT1)
securities of US$ 191 million which were fully subscribed for by
the Bank in the form of cash and transfer of certain assets. As
KHCB is an existing subsidiary, the transaction is accounted for as
transactions between equity holders while retaining control (i.e.
non-controlling interests of KHCB and the Bank). Accordingly, the
premium of US$ 59.8 million towards the subscription of the AT1
securities (representing the excess of the difference between
contribution and parents share of net assets of the subsidiary) is
considered as an adjustment to retained earnings and
non-controlling interests of KHCB. The share of costs of the AT1
issuance attributable to the non-controlling interests of KHCB were
charged to the non- controlling interests component in equity.
2 Basis of preparation
The condensed consolidated interim financial information of the
Group has been prepared in accordance with applicable rules and
regulations issued by the Central Bank of Bahrain ("CBB"). These
rules and regulations require the adoption of all Financial
Accounting Standards (FAS) issued by the Accounting and Auditing
Organisation of Islamic Financial Institutions (AAOIFI), except
for:
a) recognition of modification losses on financial assets
arising from payment holidays provided to customers impacted by
COVID-19 without charging additional profits, in equity instead of
profit or loss as required by FAS issued by AAOIFI. Any other
modification gain or loss on financial assets are recognised in
accordance with the requirements of applicable FAS. Please refer to
note 10 for further details; and
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
2 Basis of preparation (continued)
b) recognition of financial assistance received from the
government and/ or regulators as part of its COVID-19 support
measures that meets the government grant requirement, in equity,
instead of profit or loss as required by the statement on
"Accounting implications of the impact of COVID-19 pandemic" issued
by AAOIFI to the extent of any modification loss recognised in
equity as a result of (a) above. In case this exceeds the
modification loss amount, the balance amount is recognized in the
profit or loss account. Any other financial assistance is
recognised in accordance with the requirements of FAS. Please refer
to note 19 for further details.
The above framework for basis of preparation of the condensed
consolidated interim financial information is hereinafter referred
to as 'Financial Accounting Standards as modified by CBB'.
The modification to accounting policies have been applied
retrospectively and did not result in any change to the financial
information reported for the comparative period.
In line with the requirements of AAOIFI and the CBB rule book,
for matters not covered by AAOIFI standards, the group takes
guidance from the relevant International Financial Reporting
Standards ("IFRS") issued by the International Accounting Standards
Board ("IASB"). Accordingly, the condensed consolidated interim
financial information of the Group has been presented in condensed
form in accordance with the guidance provided by International
Accounting Standard 34 - 'Interim Financial Reporting', using
'Financial Accounting Standards as modified by CBB'.
The condensed consolidated interim financial information does
not include all the information required for full annual financial
statements and should be read in conjunction with the Group's last
audited consolidated financial statements for the year ended 31
December 2019. However, selected explanatory notes are included to
explain events and transactions that are significant to an
understanding of the changes in the Group's financial position and
performance since the last annual audited consolidated financial
statements as at and for the year ended 31 December 2019.
3 Significant accounting policies
The accounting policies and methods of computation applied by
the Group in the preparation of the condensed consolidated interim
financial information are the same as those used in the preparation
of the Group's last audited consolidated financial statements as at
and for the year ended 31 December 2019, except as described in
note 2 'basis of preparation" above and those arising from adoption
of the following standards and amendments to standards effective
from 1 January 2020. Adoption of these standards and amendments did
not result in changes to previously reported net profit or equity
of the Group, however it has resulted in additional
disclosures.
a. Adoption of new standards during the period
i. FAS 31 - Investment Agency (Al-Wakala Bi Al-lstithmar)
The Group has adopted FAS 31 as issued by AAOIFI in 2019 on its
effective date of 1 January 2020.
The objective of this standard is to establish the principles of
accounting and financial reporting for investment agency (Al-Wakala
Bi Al-Istithmar) instruments and the related assets and obligations
from both the principal (investor) and the agent perspectives.
The Group uses Wakala structure to raises funds from interbank
market and from customers, and these were reported as liabilities
under placements from financial institutions and placements from
non-financial institutions and individuals, respectively as of 31
December 2019. All funds raised using Wakala structure, together
called "Wakala pool" are comingled with the Bank's jointly financed
pool of funds based on an underlying equivalent mudarba
arrangement.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
3 Significant accounting policies (continued)
This comingled pool of funds is invested in a common pool of
assets of in the manner which the Group deems appropriate without
any restrictions as to where, how and for what purpose the funds
should be invested. After adopting FAS 31 on 1 January 2020, the
Wakala pool is now classified as part of the Mudaraba pool of
funding under equity of investment account holders and the profit
paid on these contracts is reported as part of determination of
return on investment of equity of investment account holders.
As per the transitional provisions of FAS 31, the entity may
choose not to apply this standard on existing transactions executed
before 1 January 2020 and have an original contractual maturity
before 31 December 2020. The adoption of this standard has resulted
in a change in classification of all Wakala based funding contracts
as part of equity of investment accountholders and additional
associated disclosures.
ii. FAS 33 Investment in sukuks, shares and similar instruments
The Group has early adopted FAS 33 as issued by AAOIFI effective
1 January 2021. The objective of this standard is to set out the
principles for the classification, recognition, measurement and
presentation and disclosure of investment in Sukuk, shares and
other similar instruments made by Islamic financial institutions.
This standard shall apply to an institution's investments whether
in the form of debt or equity securities. This standard replaces
FAS 25 Investment in Sukuk, shares and similar instruments.
The standard classifies investments into equity type, debt-type
and other investment instruments. Investment can be classified and
measured at amortized cost, fair value through equity or fair value
through the income statement. Classification categories are now
driven by business model tests and reclassification will be
permitted only on change of a business model and will be applied
prospectively.
Investments in equity instruments must be at fair value and
those classified as fair value through equity will be subject to
impairment provisions as per FAS 30 "Impairment, Credit Losses and
Onerous Commitments". In limited circumstances, where the
institution is not able to determine a reliable measure of fair
value of equity investments, cost may be deemed to be best
approximation of fair value.
The standard is effective 1 January 2021 with an option to early
adopt and is applicable on a retrospective basis. However, the
cumulative effect, if any, attributable to owners' equity, equity
of investment account holders relating to previous periods, shall
be adjusted with investments fair value pertaining to assets funded
by the relevant class of stakeholders.
The adoption of FAS 33 has resulted in changes in accounting
policies for recognition, classification and measurement of
investment in sukuks, shares and other similar instruments,
however, the adoption of FAS 33 had no significant impact on any
amounts previously reported in the condensed consolidated interim
financial information for the period ended 30 September 2019 and
the consolidated financial statement of the Group for the year
ended 31 December 2019. Set out below are the details of the
specific FAS 33 accounting policies applied in the current
period.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
3 Significant accounting policies (continued)
Changes in accounting policies
Categorization and classification
FAS 33 sets out classification and measurement approach for
investments in sukuk, shares and similar instruments that reflects
the business model in which such investments are managed and the
underlying cash flow characteristics. Under the standard, each
investment is to be categorized as either investment in:
i) equity-type instruments;
ii) debt-type instruments, including:
- monetary debt-type instruments; and
- non-monetary debt-type instruments; and
iii) other investment instruments
Unless irrevocable initial recognition choices as per the
standard are exercised, an institution shall classify investments
as subsequently measured at either of (i) amortised cost, (ii) fair
value through equity (FVTE) or (iii) fair value through income
statement (FVTIS), on the basis of both:
- the Group's business model for managing the investments; and
- the expected cash flow characteristics of the investment in
line with the nature of the underlying Islamic finance
contracts.
Reclassification of assets and liabilities
The adoption of FAS 33 has resulted in the following change in
the classification of investments based on the reassessment of
business model classification of the assets at 1 January 2020:
Investment securities Original New Original New
classification classification carrying carrying
under FAS under FAS amount amount
25 33 under under
FAS 25 FAS 33
US$ US$ 000's
000's
Investment
in
sukuk FVTIS FVTE 284,904 284,904
---------------------- --------------------------- -------------------- ---------------------
Amortised Amortised
cost cost 517,375 517,375
---------------------- --------------------------------------------------- -------------------- ---------------------
Investment
in
shares FVTIS FVTIS 239,807 239,807
---------------------- --------------------------- -------------------- ---------------------
FVTIS FVTE 21,765 21,765
---------------------- --------------------------------------------------- -------------------- ---------------------
FVTE FVTE 219,425 219,425
---------------------- --------------------------------------------------- -------------------- ---------------------
The impact from the adoption of FAS 33 is given below:
Retained earnings Investment fair value reserve
US$ 000's US$ 000's
Balance as of 1 January 2019
(previously reported) 123,136 (4,725)
Effect on reclassification of
financial instruments - -
Balance as of 1 January 2019
(restated) 123,136 (4,725)
============================= =========================================
Retained earnings Investment fair value reserve
US$ 000's US$ 000's
Balance as of 31 December 2019
(previously reported) 10,070 (4,831)
Effect on reclassification of
financial instruments (12,568) 12,568
Balance as of 31 December 2019
(restated) (2,498) 7,737
============================= =========================================
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
3 Significant accounting policies (continued)
b. New standards, amendments and interpretations issued but not yet effective
FAS 32 - Ijarah
AAOIFI has issued FAS 32 "Ijarah" in 2020. This standard
supersedes the existing FAS 8 "Ijarah and Ijarah Muntahia
Bittamleek".
The objective of this standard is set out principles for the
classification, recognition, measurement, presentation and
disclosure for Ijarah (asset Ijarah, including different forms of
Ijarah Muntahia Bittamleek) transactions entered by the Islamic
Financial Institutions as a lessor and lessee. This new standard
aims to address the issues faced by the Islamic finance industry in
relation to accounting and financial reporting as well as to
improve the existing treatments in line with the global
practices.
This standard shall be effective for the financial periods
beginning on or after 1 January 2021 with early adoption permitted.
The Group is currently evaluating the impact of this standard.
4 Estimates and judgements
Preparation of condensed consolidated interim financial
information requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates. The areas
of significant judgments made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the audited consolidated
financial statements as at and for the year ended 31 December 2019.
However, the process of making the required estimates and
assumptions involved further challenges due to the prevailing
uncertainties arising from COVID-19 and required use of management
judgements.
Expected credit Losses
The economic uncertainties caused by COVID-19, and the
volatility in oil prices impacting the Middle East economic
forecasts have required the Group to update the inputs and
assumptions used for the determination of expected credit losses
("ECLs") as at 30 September 2020. ECLs were estimated based on a
range of forecast economic conditions as at that date and
considering that the situation is fast evolving, the Group has
considered the impact of higher volatility in the forward-looking
macro-economic factors, when determining the severity and
likelihood of economic scenarios for ECL determination.
Scenario analysis has been conducted with various stress
assumptions taking into consideration all model parameters i.e.
probability weighting of economic scenarios, probability of
default, loss given default, exposure of default and period of
exposure. Furthermore, an assessment has been conducted on the
corporate portfolio based on various factors including but not
limited to financial standing, industry outlook, facility
structure, depth of experience, shareholder support etc.
Each industry under the portfolio has a wide spectrum of
clients, ranging from clients vulnerable to the outbreak to clients
having strong financial standing to withstand the downturn, and the
qualitative adjustments have considered these variables
accordingly. Given the fact that the client base is primarily based
in Bahrain and the region, all Government relief efforts to
mitigate the impact of COVID-19 is also expected to have a
mitigating impact on ECL assessment. The Group has factored the
impact of these efforts in the likely severity of its ongoing ECL
assessment.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
4 Estimates and judgements (continued)
The judgements and associated assumptions have been made within
the context of the impact of COVID-19 and reflect historical
experience and other factors that are relevant, including
expectations of future events that are believed to be reasonable
under the circumstances. In relation to COVID-19, judgements and
assumptions include the extent and duration of the pandemic, the
impacts of actions of governments and other authorities, and the
responses of businesses and consumers in different industries,
along with the associated impact on the global economy.
Accordingly, the Group's ECL estimates are inherently uncertain
and, as a result, actual results may differ from these
estimates.
Significant increase in credit risk (SICR)
A SICR occurs when there has been a significant increase in the
risk of a default occurring over the expected life of a financial
instrument. In the measurement of ECL, judgement is involved in
setting the rules and trigger points to determine whether there has
been a SICR since initial recognition of a financing facility,
which would result in the financial asset moving from 'stage 1' to
'stage 2'.
The Group continues to assess borrowers for other indicators of
unlikeliness to pay, taking into consideration the underlying cause
of any financial difficulty and whether it is likely to be
temporary as a result of COVID-19 or longer term.
During the period, in accordance with CBB instructions the Group
has granted payment holidays to its eligible/impacted customers by
deferring up to six months instalments. These deferrals are
considered as short-term liquidity to address borrower cash flow
issues. The relief offered to customers may indicate a SICR.
However, the Group believes that the extension of these payment
reliefs does not automatically trigger a SICR and a stage migration
for the purposes of calculating ECL, as these are being made
available to assist borrowers affected by the Covid-19 outbreak to
resume regular payments. At this stage sufficient information is
not available to enable the Group to individually differentiate
between a borrowers' short-term liquidity constraints and a change
in its lifetime credit risk.
Reasonableness of forward-looking information
Judgement is involved in determining which forward looking
information variables are relevant for particular financing
portfolios and for determining the sensitivity of the parameters to
movements in these forward-looking variables. The Group derives a
forward looking "base case" economic scenario which reflects the
Group's view of the most likely future macro-economic
conditions.
Any changes made to ECL to estimate the overall impact of
Covid-19 is subject to very high levels of uncertainty as limited
forward-looking information is currently available on which to base
those changes.
The Group has previously performed historical analysis and
identified key economic variables impacting credit risk and ECL for
each portfolio and expert judgement has also been applied in this
process. These economic variables and their associated impact on
PD, EAD and LGD vary by financial instrument. Forecast of these
economic variables (the "base, upside and downside economic
scenario") are obtained externally on an annual basis.
The Group continues to individually assess significant corporate
exposures to adequately safeguard against any adverse movements due
to COVID-19.
Probability weights
Management Judgement is involved in determining the probability
weighting of each scenario considering the risks and uncertainties
surrounding the base case scenario.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
4 Estimates and judgements (continued)
In light of the current uncertain economic environment, the
Group has re-assessed the scenario weighting to reflect the impact
of current uncertainty in measuring the estimated credit losses for
the period ended 30 September 2020. In making estimates, the Group
assessed a range of possible outcomes by stressing the previous
basis (that includes upside, based case and downside scenarios) and
changed the downside weightings through to 100%.
As with any economic forecasts, the projections and likelihoods
of the occurrence are subject to a high degree of inherent
uncertainty and therefore the actual outcomes may be significantly
different to those projected.
5 Financial risk management
The Group's financial risk management objectives and policies
are consistent with those disclosed in the audited consolidated
financial statements for the year ended 31 December 2019 except as
described below:
Credit risk
The uncertainties due to COVID-19 and resultant economic
volatility has impacted the Group's financing operations and is
expected to affect most of the customers and sectors to some
degree. Although it is difficult to assess at this stage the degree
of impact faced by each sector, the main industries impacted are
hospitality, tourism, leisure, airlines/transportation and
retailers. In addition, some other industries are expected to be
indirectly impacted such as contracting, real estate and wholesale
trading. Also, the volatility in oil prices during the early part
of 2020, will have a regional impact due to its contribution to
regional economies.
Considering this evolving situation, the Group has taken
pre-emptive measures to mitigate credit risk by adopting more
cautious approach for credit approvals thereby tightening the
criteria for extending credit to impacted sectors. Payment holidays
have been extended to customers, including private and SME sector,
in line with the instructions of CBB. These measures may lead to
lower disbursement of financing facilities, resulting in lower net
financing income and decrease in of other revenue.
Liquidity risk and capital management
The effects of COVID-19 on the liquidity and funding risk
profile of the banking system are evolving and are subject to
ongoing monitoring and evaluation. The CBB has announced various
measures to combat the effects of COVID-19 and to ease liquidity in
banking sector. Following are some of the significant measures that
have an impact on the liquidity risk and regulatory capital profile
of the Group:
-- payment holiday for 6 months to eligible customers;
-- for stage 1 ECL, increase in the number of days from 30 days
to 74 days;
-- concessionary repo to eligible banks at zero percent;
-- reduction of cash reserve ratio from 5% to 3%;
-- reduction in LCR and NSFR ratio from 100% to 80%; and
-- Aggregate of modification loss and incremental ECL provision
for stage 1 and stage 2 for the period from March to December 2020
to be added back to Tier 1 capital for the two years ending 31
December 2020 and 31 December 2021. And to deduct this amount
proportionately from Tier 1 capital on an annual basis for three
years
ending 31 December 2022, 31 December 2023 and 31 December 2024
The management of the Group has enhanced its monitoring of the
liquidity and funding requirements.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
5 Financial risk management (continued)
In response to COVID-19 outbreak, the Group invoked its
liquidity contingency plan and continues to monitor and respond to
all liquidity and funding requirements that are presented. The
Group continues to calibrate stress testing scenarios to current
market conditions in order to assess the impact on the Group in
current extreme stress. As at the reporting date the liquidity and
funding position of the Group remains strong and is well placed to
absorb and manage the impacts of this disruption. Further
information on the regulatory liquidity and capital ratios as at 30
September 2020 have been disclosed below.
Operational risk management
In response to COVID-19 outbreak, there were various changes in
the working model, interaction with customers, digital modes of
payment and settlement, customer acquisition and executing
contracts and carrying out transactions with and on behalf of the
customers. The management of the Group has enhanced its monitoring
to identify risk events arising out of the current situation and
the changes in the way business is conducted. The operational risk
department has carried out a review of the existing control
environment and has considered whether to update the risk registers
by identifying potential loss events based on their review of the
business processes in the current environment.
As of 30 September 2020, the Group did not have any significant
issues relating to operational risks.
IBOR reforms
IBOR reforms are heading to second phase, which relates to the
replacement of benchmark rates with alternative risk-free rates.
The impact of rate replacement on the Group's products and services
is one of the critical drivers of this project. With an aim to
achieve an orderly transition and to mitigate the risks resulting
from the transition, the Group's management is in the process of
planning for the Group's transition project and continues to engage
with various stakeholders.
This project is expected to have a pervasive impact on the
entity, in terms of scale and complexity and will impact products,
internal systems and processes.
Regulatory ratios
a. Net stable funding Ratio (NSFR)
The objective of the NSFR is to promote the resilience of banks'
liquidity risk profiles and to incentivise a more resilient banking
sector over a longer time horizon. The NSFR limits overreliance on
short-term wholesale funding, encourages better assessment of
funding risk across all on-balance sheet and off-balance sheet
items, and promotes funding stability.
NSFR as a percentage is calculated as "Available stable funding"
divided by "Required stable funding".
The Consolidated NSFR calculated as per the requirements of the
CBB rulebook, as of 30 September 2020 is as follows:
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
5 Financial risk management (continued)
US$ 000's
More than
6 months
Less and less
No Specified than than one Over Total weighted
No. Item Maturity 6 months year one year value
Available Stable Funding (ASF):
---------------------------------------------------------------------------------------------------------
1 Capital:
---------------------------------------------------------------------------------------------------
2 Regulatory Capital 994,846 - - 58,019 1,052,865
------------------------------- ------------- ---------- ---------- ---------- ---------------
3 Other Capital Instruments - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
4 Retail deposits and deposits from small business customers:
---------------------------------------------------------------------------------------------------
5 Stable deposits - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
6 Less stable deposits - 697,183 255,120 289,190 1,146,262
------------------------------- ------------- ---------- ---------- ---------- ---------------
7 Wholesale funding:
---------------------------------------------------------------------------------------------------
8 Operational deposits - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
9 Other Wholesale funding - 1,872,325 533,217 868,395 1,661,740
------------------------------- ------------- ---------- ---------- ---------- ---------------
10 Other liabilities:
---------------------------------------------------------------------------------------------------
11 NSFR Shari'a-compliant
hedging contract liabilities - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
All other liabilities
not included in the above
12 categories - 76,175 5,648 181,281 181,281
------------------------------- ------------- ---------- ---------- ---------- ---------------
13 Total ASF - - - - 4,042,148
------------------------------- ------------- ---------- ---------- ---------- ---------------
Required Stable Funding (RSF):
---------------------------------------------------------------------------------------------------------
Total NSFR high-quality
14 liquid assets (HQLA) 793,375 - - - 45,223
------------------------------- ------------- ---------- ---------- ---------- ---------------
15 Deposits held at other
financial institutions
for operational purposes - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
Performing financing
16 and sukuk/ securities: - 444,998 - 954,017 877,665
------------------------------- ------------- ---------- ---------- ---------- ---------------
17 Performing financial
to financial institutions
by level 1 HQLA - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
Performing financing
to financial institutions
secured by non-level
1 HQLA and unsecured
performing financing
18 to financial institutions - - - 298,093 253,379
------------------------------- ------------- ---------- ---------- ---------- ---------------
Performing financing
to non- financial corporate
clients, financing to
retail and small business
customers, and financing
to sovereigns, central
19 banks and PSEs, of which: - 138,697 89,224 - 113,961
------------------------------- ------------- ---------- ---------- ---------- ---------------
20 With a risk weight of
less than or equal to
35% as per the CBB Capital
Adequacy Ratio guidelines - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
21 Performing residential
mortgages, of which: - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
22 With a risk weight of
less than or equal to
35% under the CBB Capital
Adequacy Ratio Guidelines - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
Securities/sukuk that
are not in default and
do not qualify as HQLA,
including exchange-traded
23 equities - 207,586 33,000 359,202 479,495
------------------------------- ------------- ---------- ---------- ---------- ---------------
24 Other assets: - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
25 Physical traded commodities,
including gold - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
26 Assets posted as initial
margin for Shari'a-compliant
hedging contracts and
contributions to default
funds of CCPs - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
27 NSFR Shari'a-compliant
hedging assets - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
28 NSFR Shari'a-compliant
hedging contract liabilities
before deduction of variation
margin posted - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------------
All other assets not
included in the above
29 categories 2,492,860 - - - 2,492,860
------------------------------- ------------- ---------- ---------- ---------- ---------------
30 OBS items - - - - 15,720
------------------------------- ------------- ---------- ---------- ---------- ---------------
31 Total RSF - 791,281 122,224 1,611,312 4,278,302
------------------------------- ------------- ---------- ---------- ---------- ---------------
32 NSFR (%) - - - - 94%
------------------------------- ------------- ---------- ---------- ---------- ---------------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
5 Financial risk management (continued)
More
than
6 months
Less and less Total
No Specified than than Over weighted
No. Item Maturity 6 months one year one year value
Available Stable Funding (ASF):
------------------------------------------------------------------------------------------------------------
1 Capital:
------------------------------------------------------------------------------------------------------
2 Regulatory Capital 1,058,107 - - 35,340 1,093,447
------------------------------------- ------------- ---------- ---------- ---------- ----------
3 Other Capital Instruments - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
4 Retail deposits and deposits from small business customers:
------------------------------------------------------------------------------------------------------
5 Stable deposits - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
6 Less stable deposits - 1,151,743 198,247 165,704 1,380,695
------------------------------------- ------------- ---------- ---------- ---------- ----------
7 Wholesale funding:
------------------------------------------------------------------------------------------------------
8 Operational deposits - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
9 Other Wholesale funding - 1,686,007 582,773 380,354 1,272,035
------------------------------------- ------------- ---------- ---------- ---------- ----------
10 Other liabilities:
------------------------------------------------------------------------------------------------------
11 NSFR Shari'a-compliant hedging
contract liabilities - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
All other liabilities not
12 included in the above categories - 142,220 18,724 161,563 161,563
------------------------------------- ------------- ---------- ---------- ---------- ----------
13 Total ASF - - - - 3,907,740
------------------------------------- ------------- ---------- ---------- ---------- ----------
Required Stable Funding (RSF):
------------------------------------------------------------------------------------------------------------
Total NSFR high-quality liquid
14 assets (HQLA) - - - - 64,391
------------------------------------- ------------- ---------- ---------- ---------- ----------
15 Deposits held at other financial
institutions for operational
purposes - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing and
16 sukuk/ securities: - 767,378 26,099 914,636 906,346
------------------------------------- ------------- ---------- ---------- ---------- ----------
17 Performing financial to financial
institutions by level 1 HQLA - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing to financial
institutions secured by non-level
1 HQLA and unsecured performing
18 financing to financial institutions - 1,095 - 140,212 119,728
------------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing to non-
financial corporate clients,
financing to retail and small
business customers, and financing
to sovereigns, central banks
19 and PSEs, of which: - 176,780 54,449 - 115,615
------------------------------------- ------------- ---------- ---------- ---------- ----------
20 With a risk weight of less
than or equal to 35% as per
the CBB Capital Adequacy
Ratio guidelines - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
21 Performing residential mortgages,
of which: - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
22 With a risk weight of less
than or equal to 35% under
the CBB Capital Adequacy
Ratio Guidelines - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
Securities/sukuk that are
not in default and do not
qualify as HQLA, including
23 exchange-traded equities - 172,216 10,000 106,945 198,053
------------------------------------- ------------- ---------- ---------- ---------- ----------
24 Other assets: - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
25 Physical traded commodities,
including gold - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
26 Assets posted as initial
margin for Shari'a-compliant
hedging contracts and
contributions to default
funds of CCPs - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
27 NSFR Shari'a-compliant hedging
assets - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
28 NSFR Shari'a-compliant hedging
contract liabilities before
deduction of variation
margin posted - - - - -
------------------------------------- ------------- ---------- ---------- ---------- ----------
All other assets not included
29 in the above categories 2,450,439 - - - 2,450,439
------------------------------------- ------------- ---------- ---------- ---------- ----------
30 OBS items - 133,645 15,801 105,685 12,757
------------------------------------- ------------- ---------- ---------- ---------- ----------
31 Total RSF - 1,251,114 106,348 1,267,478 3,867,329
------------------------------------- ------------- ---------- ---------- ---------- ----------
32 NSFR (%) 101 %
------------------------------------- ------------- ---------- ---------- ---------- ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
5 Financial risk management (continued)
b. Liquidity Coverage Ratio (LCR)
LCR has been developed to promote short-term resilience of a
bank's liquidity risk profile. The LCR requirements aim to ensure
that a bank has an adequate stock of unencumbered high-quality
liquidity assets (HQLA) that consists of assets that can be
converted into cash immediately to meet its liquidity needs for a
30-calendar day stressed liquidity period. The stock of
unencumbered HQLA should enable the Bank to survive until day 30 of
the stress scenario, by which time appropriate corrective actions
would have been taken by management to find the necessary solutions
to the liquidity crisis.
LCR is computed as a ratio of Stock of HQLA over the Net cash
outflows over the next 30 calendar days.
Average balance
30 September 31 December
2020 2019
US$ 000's US$ 000's
-------------
Stock of HQLA 190,371 205,525
Net cashflows 134,215 117,139
LCR % 142% 188%
Minimum required by CBB 80% 100%
------------- ------------
c. Capital Adequacy Ratio
30 September 31 December
2020 2019
US$ 000's US$ 000's
CET 1 Capital before regulatory adjustments 999,550 1,078,079
Less: regulatory adjustments - -
CET 1 Capital after regulatory adjustments 999,550 1,078,079
T 2 Capital adjustments 62,521 44,792
Regulatory Capital 1,076,265 1,122,871
Risk weighted exposure:
Credit Risk Weighted Assets 7,407,020 7,776,802
Market Risk Weighted Assets 50,263 79,231
Operational Risk Weighted Assets 474,052 474,052
Total Regulatory Risk Weighted Assets 7,931,335 8,330,085
Investment risk reserve (30% only) 2 2
Profit equalization reserve (30%
only) 3 3
Total Adjusted Risk Weighted Exposures 7,931,330 8,330,080
Capital Adequacy Ratio 13.57% 13.48%
Tier 1 Capital Adequacy Ratio 12.78% 13.06%
Minimum required by CBB 12.50% 12.50%
------------- -------------------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
6 Seasonality
Due to the inherent nature of the Group's business (investment
banking, commercial banking and leisure and hospitality management
business), the nine-month results reported in this condensed
consolidated interim financial information may not represent a
proportionate share of the overall annual results.
7 Comparatives
The condensed consolidated interim financial information is
reviewed, not audited. The comparatives for the condensed
consolidated statement of financial position have been extracted
from the Group's audited consolidated financial statements for the
year ended 31 December 2019 and the reviewed condensed consolidated
interim financial information for the nine months ended 30
September 2019. The comparatives for the condensed consolidated
statements of income, cash flows, changes in owners' equity,
changes in restricted investment accounts and sources and uses of
zakah and charity fund have been extracted from the reviewed
condensed consolidated interim financial information for the nine
months ended 30 September 2019.
8 Appropriations
Appropriations, if any, are made when approved by the
shareholders.
i) In the shareholders meeting held on 6 April 2020, the
following were approved and effected during the period:
a) Cash dividend of 3.34% of the paid-up share capital amounting to US$ 30 million;
b) Appropriation of US$ 500 thousand towards charity for the year 2019;
c) Appropriation of US$ 568 thousand towards zakah for the year 2019; and
d) Transfer of US$ 8 million to statutory reserve.
ii) In the meeting held on 30 September 2020, the shareholders
approved netting off accumulated losses of US$ 110,273 thousand
against the statutory reserve.
9 Treasury portfolio
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Placements with financial
institutions 254,528 546,575 668,839
Equity type investments
At fair value through income
statement
* Structured notes 296,120 239,807 216,060
Debt type investments
At fair value through equity
* Quoted sukuk 541,572 284,904 265,610
At amortised cost
* Quoted sukuk * 675,755 517,375 505,341
1,767,975 1,588,661 1,655,850
============= ===================== =============
* Includes sukuk of US$ 159,501 thousand (31 December 2019: Nil)
pledged against medium-term borrowing of US$ 115,681 thousand.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
10 Financing assets
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Murabaha 901,488 1,008,580 982,207
Musharaka 276 277 6,237
Wakala 13,281 13,280 13,280
Mudharaba 2,804 2,776 2,776
Istisnaa 2,427 4,597 3,000
Assets held-for-leasing 398,329 350,976 394,855
------------ -------------
1,318,605 1,380,486 1,402,355
Less: Impairment allowances (83,654) (107,709) (85,628)
------------- ------------ -------------
1,234,951 1,272,777 1,316,727
============= ============ =============
Murabaha financing receivables are net of deferred profits of
US$ 52,973 thousand
(2019: US$ 68,233 thousand) and un-amortised modification loss
of US$ 7,544 thousand. The modification loss has been calculated as
the difference between the net present value of the modified cash
flows calculated using the original effective profit rate and the
current carrying value of the financial assets on the date of
modification. The Group provided payment holidays on financing
exposures amounting to US$ 118,382 thousand as part of its support
to customers impacted by COVID-19.
The movement on financing assets and impairment allowances is as
follows:
Stage 1 and
Financing assets 2 Stage 3 Total
US$ 000's US$ 000's US$ 000's
Financing assets (gross) 1,157,366 161,239 1,318,605
Expected credit loss (23,452) (60,202) (83,654)
Financing assets (net) 1,133,914 101,037 1,234,951
=========== ========= =========
Impairment allowances Stage 1 Stage 2 Stage 3 Total
US$ 000's US$ 000's US$ 000's US$ 000's
At 1 January 2020 12,687 8,239 88,945 109,871
Net movement between
stages 2,813 (5,554) 2,741 -
Net charge for the
period 116 5,151 713 5,980
Write back for the
period - - (5,277) (5,277)
Write off - - (26,920) (26,920)
--------- --------- --------- ---------
At 30 September 2020 15,616 7,836 60,202 83,654
========= ========= ========= =========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
11 Real estate investments
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Investment Property
* Land 469,286 490,412 465,847
* Building 64,424 40,841 40,841
------------- ------------ -------------
533,710 531,253 506,688
------------- ------------ -------------
Development Property
* Land 796,857 797,535 796,639
* Building 510,019 477,221 512,430
------------- ------------ -------------
1,306,876 1,274,756 1,309,069
------------- ------------ -------------
1,840,586 1,806,009 1,815,757
============= ============ =============
12 Proprietary investments
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Equity type investments
At fair value through income
statement
* Structured notes 40,000 - -
------------- ------------ -------------
40,000 - -
------------- ------------ -------------
At fair value through equity
* Listed securities 19,404 27,324 27,246
* Unquoted securities 152,904 125,234 102,969
------------- ------------
172,308 152,558 160,650
Equity-accounted investees 75,590 115,617 115,877
------------- ------------ -------------
287,898 268,175 276,527
============= ============ =============
13 Co-investments
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
At fair value through equity
* Unquoted securities 103,774 96,507 74,352
------------- ------------
103,774 96,507 74,352
============= ============ =============
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
14 Assets held-for-sale and liabilities related to it
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Assets - 101,213 101,213
Liabilities - 39,936 39,936
Assets and related liabilities held-for-sale represents the
assets and liabilities of Falcon Cement Company BSC (c) (' FCC'),
the Group's subsidiary acquired in 2018.
Restatement
During the period, the Group had re-classified its investment in
a subsidiary, Falcon Cement Company BSC (c), from assets
held-for-sale to held-for-use because the investments no longer
meet the criteria to be classified as held-for-sale.
In accordance with IFRS 5 Non-current assets held-for-sale and
discontinued operations, upon reclassification as held-for-use, the
subsidiary was consolidated on a line by line basis including
earlier periods resulting in restatement of the prior year as if
the subsidiary had always been consolidated and reclassifying
'non-controlling interest held-for-sale' to 'non-controlling
interests'. The reclassification did not had any impact on the
previously reported profits or owners' equity.
The effect of restatement on the previously reported assets and
liabilities are given below:
As at As at
31 December 2019 30 September 2019
previously previously
restated reported restated reported
US$ 000's US$ 000's US$ 000's US$ 000's
ASSETS
Cash and bank balances 364,598 362,345 404,126 401,873
Treasury portfolio 1,588,661 1,588,661 1,655,850 1,655,850
Financing assets 1,272,777 1,272,777 1,316,727 1,316,727
Real estate Investments 1,806,009 1,806,009 1,815,757 1,815,757
Proprietary investments 268,175 268,175 276,527 276,527
Co-investments 96,507 96,507 74,352 74,352
Assets held-for-sale - 101,213 - 101,213
Receivables and
prepayments 444,689 424,146 491,911 471,368
Property and equipment 103,857 25,440 103,001 24,584
---------- ---------- -----------
Total 5,945,273 5,945,273 6,138,251 6,138,251
========== =========== ========== ===========
LIABILITIES
Clients' funds 70,858 74,469 74,469 61,097
Placements from
financial, non-financial
institutions and
individuals 2,447,249 2,675,375 2,675,375 2,789,757
Customer current
accounts 147,487 169,432 169,432 163,683
Term financing 301,411 268,016 290,009 221,953
Liabilities directly
associated with
assets held-for-sale - 39,936 - -
Payables and accruals 466,852 526,902 544,845 525876
---------- ----------
Total 3,433,857 3,754,130 3,754,130 3,762,366
========== =========== ========== ===========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
15 Term financing
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Murabaha financing 596,938 249,435 196,158
Sukuk * 284,481 - -
Ijarah financing 22,863 24,653 25,182
Other borrowings 28,993 27,323 68,669
933,275 301,411 290,009
============ =========== ============
* During the period, the Group raised US$ 300 million through
issuance of sukuk certificates with a profit rate of 7.5% p.a.
repayable by 2025.
16 Acquisition of additional interests in an equity accounted investee
During the period, the Group acquired additional stake in Global
Banking Corporation BSC (c) (GBCORP), an equity-accounted investee
resulting in the Group obtaining control as at 30 June 2020.
The Group's existing stake and additional stake acquired are
given below:
Current Additional Total
Stake stake acquired stake
GBCORP 28.69% 21.72% 50.41%
Consideration transferred and non-controlling interests
The consideration transferred for the acquisition was in the
form of investments held by the Group. The consideration
transferred is generally measured at fair value and the stake held
by shareholders other than the Group in the subsidiaries is
recognised in the consolidated financial statements under
"Non-controlling interests" based on the proportionate share of
non-controlling shareholders' in the recognised amounts of the
investee's net assets or fair value at the date of acquisition of
the investee on a transaction by transaction basis based on the
accounting policy choice of the Group.
Identifiable assets acquired and liabilities assumed
All entities acquired were considered as businesses. The fair
value of assets, liabilities, equity interests have been reported
on a provisional basis. If new information, obtained within one
year from the acquisition date about facts and circumstances that
existed at the acquisition date, identifies adjustments to the
above amounts, or any additional provisions that existed at the
acquisition date, then the acquisition accounting will be revised.
Revisions to provisional acquisition accounting are required to be
done on a retrospective basis.
The reported amounts below represent the adjusted acquisition
carrying values of the acquired entities as at 30 June 2020, being
the effective date of acquisition, and have been reported on a
provisional basis as permitted by accounting standards.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
16 Acquisition of additional interests in an equity accounted investee (continued)
30 June 2020
US$ 000's
Cash and bank balances, placements with financial
institutions 32,856
Investment securities 50,167
Investment property 42,477
Property and equipment 2,709
Receivables and prepayments 1,440
Total assets 129,649
Accruals and other liabilities 1,101
Total liabilities 1,101
Total net identifiable assets and liabilities (A) 128,548
Fair value of Group's previously held equity interest 34,812
Value of consideration transferred 21,571
Non-controlling interests recognised 63,747
Total consideration (B) 120,130
Negative goodwill (B-A) (provisional) 8,418
The acquisition of additional stake in GBCORP resulted in a
bargain purchase and the Group has recognised negative goodwill of
US$ 8,418 thousand which is included in the income statement under
'Income from proprietary and co-investments, Direct investment
income'. The bargain purchase was due to pressure on the sellers to
exit their holdings due to change in their business plans. The
acquisition resulted in net cash inflow of US$ 32,856 thousand.
17 Other income
Other income comprises mainly of recoveries from project
companies of US$ 8.4 million, write back of liabilities no longer
required of US$ 3.2 million and income of non-financial
subsidiaries of US$ 2 million
18 Impairment allowances
Nine months ended
30 September 30 September
2020 2019
US$ 000's US$ 000's
(reviewed) (reviewed)
Expected credit loss on:
* Bank balances 27 7
* Treasury portfolio (503) 816
* Financing assets, net (note 10) 703 17,952
* Other receivables 1,719 2,580
* Commitments and financial guarantees 174 -
--------------- ------------
2,120 21,355
Investment in equity securities - 7,078
--------------- ------------
2,120 28,433
=============== ============
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
19 Government assistance and subsidies
Governments and central banks across the world have responded
with monetary and fiscal interventions to stabilize economic
conditions. The Government of Kingdom of Bahrain has announced
various economic stimulus programmes ("Packages") to support
businesses in these challenging times.
During the period the Group received financial assistance
amounting to US$ 4,954 thousands representing reimbursement of
staff costs and waiver of fees, levies, utility charges and cost of
Repo funding received from the government and/ or regulators that
has been recognized directly in equity.
20 Related party transactions
The significant related party balances and transactions as at 30
September 2020 are given below:
Related parties as per FAS
1
Assets
Significant under management
shareholders (including
/ entities special
Associates in which purpose
30 September and joint Key management directors and other
2020 (reviewed) venture personnel are interested entities) Total
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
----------- --------------- ---------------- ------------------ ----------
Assets
Financing assets - 8,212 17,692 30,250 56,154
Proprietary investments 23,975 - 6,058 47,735 77,768
Co-investments 76,955 - - 48,170 125,125
Receivables and
prepayments 3,639 - - 41,095 44,734
Liabilities
Placements from
financial, non-financial
institutions and
individuals - 6,939 51,907 - 58,846
Customer accounts 454 387 12,034 3,228 16,103
Payables and accruals - - 3,387 21,215 24,602
Equity of investment
account holders 1,085 666 3,534 912 6,197
Income
Income from Investment
banking - - - 49,899 49,899
Income from commercial
banking (50) 212 (2,220) (11) (2,069)
Income from proprietary
and co-investments (950) - - 6,415 5,465
Treasury and other
income - - - 4,837 4,837
Expenses
Operating expenses - 6,664 385 56 7,105
Finance expense - 122 - - 122
Transactions during
the period
Sale of proprietary
investment - - - 27,000 27,000
----------- --------------- ---------------- ------------------ ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
20 Related party transactions (continued)
Related parties as per FAS
1
Assets
Significant under management
shareholders (including
/ entities special
Associates in which purpose
30 September 2019 and joint Key management directors and other
(reviewed) venture personnel are interested entities) Total
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
----------- --------------- ---------------- ------------------ ----------
Assets
Financing assets - 5,621 3,166 60,530 69,317
Proprietary investments 103,868 - 6,058 52,798 162,724
Co-investments - - - 29,795 29,795
Receivables and
prepayments 13,235 - 13,257 233,634 260,126
Liabilities
Clients' funds 72 - - 14,661 14,733
Placements from
financial, non-financial
institutions and
individuals - 4,761 396 - 5,157
Customer accounts 167 371 13,237 3,199 16,974
Term financing 39,936 - - - 39,936
Payables and accruals 1,398 - 10,010 93,312 104,720
Equity of investment
account holders 1,111 1,886 25,516 1,103 29,616
Income
Income from Investment
banking - - - 78,917 78,917
Income from commercial
banking (143) 42 325 (95) 129
Income from proprietary
and co-investments 7,814 - - 1,606 9,420
Real estate income - 50 17,962 - 18,012
Treasury and other
income 313 - - 876 1,189
Expenses
Operating expenses - 11,437 - - 11,437
Finance expense - - 623 - 623
Transactions during
the period
Sale of real estate
investment - - 40,000 - 40,000
----------- --------------- ---------------- ------------------ ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
21 Segment reporting
The Group is organised into business units based on their nature
of operations and independent reporting entities and has four
reportable operating segments namely real estate development,
investment banking, commercial banking and corporate and
treasury.
Real estate Investment Commercial Corporate
development banking banking and treasury Total
US$ '000s US$ '000s US$ '000s US$ '000s US$ '000s
------------- ----------- ----------- -------------- ----------
30 September 2020 (reviewed)
Segment revenue 13,826 92,569 42,049 65,657 214,101
Segment expenses (16,756) (61,488) (21,567) (83,983) (183,794)
Segment result * (2,930) 31,082 20,482 (18,326) 30,308
Segment assets 1,741,508 697,537 2,651,962 1,071,119 6,162,126
Segment liabilities 291,541 505,450 1,114,432 1,919,355 3,830,778
Other segment information
Impairment allowance 246 875 1,229 (230) 2,120
Proprietary investments (Equity-accounted
investees) 5,702 18,273 46,186 - 70,161
Equity of investment account holders - - 892,950 229,284 1,122,234
Commitments 24,735 - 143,050 - 167,785
------------- ----------- ----------- -------------- ----------
* Includes segment result of discontinued operations, net.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
21 Segment reporting (continued)
Real estate Investment Commercial Corporate
development banking banking and treasury Total
US$ '000s US$ '000s US$ '000s US$ '000s US$ '000s
------------- ----------- ----------- -------------- ----------
30 September 2019 (reviewed)
Segment revenue 19,914 111,371 52,425 61,283 244,993
Segment expenses (22,570) (34,658) (52,453) (74,097) (183,778)
Segment result * (2,657) 76,713 (28) (12,813) 61,215
Segment assets 1,844,981 392,433 2,450,381 1,450,456 6,138,251
Segment liabilities 370,409 700,932 1,004,223 1,681,568 3,757,132
Other segment information
Impairment allowance 49 130 54,081 4 54,264
Proprietary investments (Equity-accounted
investees) 46,300 57,317 12,000 - 115,617
Equity of investment account holders - - 970,892 593 971,485
Commitments 43,586 - 214,090 21,575 279,251
------------- ----------- ----------- -------------- ----------
* Includes segment result of discontinued operations, net.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
22 Commitments and contingencies
The commitments contracted in the normal course of business of
the Group:
30 September 31 December 30 September
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Undrawn commitments to extend
finance 115,552 182,695 194,056
Financial guarantees 27,499 31,395 33,509
Capital commitment for infrastructure
development projects 10,734 17,541 27,086
Commitment to lend 14,000 23,500 16,500
Other commitments - - 8,100
------------- ------------ -------------
167,785 255,131 279,251
============= ============ =============
Performance obligations
During the ordinary course of business, the Group may enter
performance obligations in respect of its infrastructure
development projects. It is the usual practice of the Group to pass
these performance obligations, wherever possible, on to the
companies that own the projects. In the opinion of the management,
no liabilities are expected to materialise on the Group at 30
September 2020 due to the performance of any of its projects.
Litigations, claims and contingencies
The Group has several claims and litigations filed against it in
connection with projects promoted by the Bank in the past and with
certain transactions. Further, claims against the Bank also have
been filed by former employees. Based on the advice of the Bank's
external legal counsel, the management is of the opinion that the
Bank has strong grounds to successfully defend itself against these
claims. Appropriate provision has been made in the books of
accounts. No further disclosures regarding contingent liabilities
arising from any such claims are being made by the Bank as the
directors of the Bank believe that such disclosures may be
prejudicial to the Bank's legal position.
23 Financial instruments
Fair values
Fair value is an amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in
an arm's length transaction. This represents the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.
Underlying the definition of fair value is a presumption that an
enterprise is a going concern without any intention or need to
liquidate, curtail materially the scale of its operations or
undertake a transaction on adverse terms.
The COVID-19 pandemic has resulted in a global economic slowdown
with uncertainties in the economic environment. The global capital
and commodity markets have also experienced great volatility and a
significant drop in prices. The Group's fair valuation exercise
primarily relies on quoted prices from active markets for each
financial instrument (i.e. Level 1 input) or using observable or
derived prices for similar instruments from active markets (i.e.
Level 2 input) and has reflected the volatility evidenced during
the period and as at the end of the reporting date in its
measurement of its financial assets and liabilities carried at fair
value. Where fair value measurements was based in full or in part
on unobservable inputs (i.e. Level 3), management has used its
knowledge of the specific asset/ investee, its ability to respond
to or recover from the crisis, its industry and country of
operations to determine the necessary adjustments to its fair value
determination process.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
23 Financial instruments (continued)
Fair value hierarchy
The table below analyses the financial instruments carried at
fair value, by valuation method. The different levels have been
defined as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e.as prices) or indirectly (i.e. derived from
prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
30 September 2020 (reviewed) Level Level Level Total
1 2 3
US$ 000's US$ 000's US$ 000's US$ 000's
i) Proprietary investments
Investment securities carried
at fair value through:
* income statement - - 40,000 40,000
* equity 19,404 - 152,904 172,308
---------- ---------- ---------- ----------
19,404 - 192,904 212,308
---------- ---------- ---------- ----------
ii) Treasury portfolio
Investment securities carried
at fair value through:
* income statement - - 296,120 296,120
* equity 541,572 - - 541,572
---------- ---------- ---------- ----------
541,572 - 296,120 837,492
---------- ---------- ---------- ----------
iii) Co-investments
Investment securities carried
at fair value through equity - - 103,774 103,774
---------- ---------- ---------- ----------
560,976 - 592,798 1,153,774
========== ========== ========== ==========
30 September 2019 (reviewed) Level Level Level Total
1 2 3
US$ 000's US$ 000's US$ 000's US$ 000's
i) Proprietary investments
Investment securities carried
at fair value through:
* equity 27,246 - 102,969 130,215
---------- ---------- ---------- ----------
27,246 - 102,969 130,215
---------- ---------- ---------- ----------
ii) Treasury portfolio
Investment securities carried
at fair value through:
* income statement - - 216,060 216,060
* equity 265,610 - - 265,610
265,610 - 216,060 481,670
iii) Co-investments
Investment securities carried
at fair value through equity - - 74,532 74,532
292,856 - 393,381 686,237
========== ========== ========== ==========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the nine months ended 30 September 2020
23 Financial instruments (continued)
The following table analyses the movement in Level 3 financial
assets during the period:
30 September 31 December
2020 2019
US$ 000's US$ 000's
(reviewed) (audited)
At beginning of the period 461,548 202,879
Gains (losses) in income statement 1,057 21,242
Disposals at carrying value (378,718) (380,161)
Purchases 508,911 617,588
-------------
At end of the period 592,798 461,548
============= ============
24 ASSETS UNDER MANAGEMENT AND CUSTODIAL ASSETS
1. The Group provides corporate administration, investment
management and advisory services to its project companies, which
involve the Group making decisions on behalf of such entities.
Assets that are held in such capacity are not included in these
consolidated financial statements. At the reporting date, the Group
had assets under management of US$ 2,041 million (31 December 2019:
US$ 1,975 million). During the period, the Group had charged
management fees amounting to US$ 3,765 thousand (30 September 2019:
US$ 2,007 thousand) to its assets under management.
2. Custodial assets comprise of discretionary portfolio
management ('DPM') accepted from investors amounting to US$ 376,252
thousand out of which US$ 147,566 thousand has been invested to the
Bank's own investment products. Further, the Bank is also holding
Sukuk of US$ 41,389 thousand on behalf of the investors.
(The attached information do not form part of the condensed
consolidated interim financial information)
UNREVIEWED SUPPLEMENTARY DISCLOURE TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL INFORMATION
On 11 March 2020, the Coronavirus (COVID-19) outbreak was
declared, a pandemic by the World Health Organization (WHO) and has
rapidly evolved globally. This has resulted in a global slowdown
with uncertainties in the economic environment. This included
disruption to capital markets, deteriorating credit markets and
liquidity concerns. Authorities have taken various measures to
contain the spread including implementation of travel restrictions
and quarantine measures.
The pandemic as well as the resulting measures have had a
significant knock-on impact on the Bank and its principal
subsidiaries and its associates (collectively the "Group"). The
Group is actively monitoring the COVID-19 situation, and in
response to this outbreak, has activated its business continuity
plan and various other risk management practices to manage the
potential business disruption on its operations and financial
performance.
The Central Bank of Bahrain (CBB) announced various measures to
combat the effect of COVID- 19 to ease liquidity conditions in the
economy as well as to assist banks in complying with regulatory
requirements. Theses measure include the following:
-- Payment holiday for 6 months to eligible customers without any additional profits;
-- Concessionary repo to eligible retail banks at zero Percent;
-- Reduction of cash reserve ratio from 5% to 3%;
-- Reductions of liquidity coverage ratio (LCR) and net stable
funding ratio (NSFR) from 100% to 80%;
-- Aggregate of modification loss and incremental expected
credit losses (ECL) provisions for stage 1 and stage 2 from March
to December 2020 to be added to Tier 1 capital for two years ending
31 December 2020 and 31 December 2021. And to deduct this amount
proportionality from Tier 1 capital on an annual basis for three
years ending December 2022, 31 December 2023 and 31 December
2024.
The onset of COVID-19 and the aforementioned measures resulted
in the following significant effects to the financial position and
operations of the Group:
-- The CBB mandated 6-month payment holiday required the retail
banking subsidiary of the Group to recognize a one-off modification
loss directly in equity. The modification loss has been calculated
as the difference between the net present value of the modified
cash flows calculated using the original effective profit rate and
the carrying value of the financial assets on the date of
modification.
-- The Government of Kingdom of Bahrain has announced various
economic stimulus programmes ("Packages") to support businesses in
these challenging times. The Group received various forms of
financial assistance representing specified reimbursement of a
portion of staff costs, waives of fees, levies and utility charges
and zero cost funding received from the government and/or
regulators, in response to its COVID-19 support measures.
-- The mandated 6 months payments holiday also included the
requirement to suspend minimum payments and service fees on credit
card balances and reduction in transaction related charges, this
resulted in a significant decline in the Group's fees income from
its retail banking operations.
-- The strain caused by COVID-19 on the local economy resulted
in a slow-down in the sale of new asset management products and
booking of new corporate financing assets by the Group. During the
nine months ended 30 September 2020, placements of AuM were lower
by 19.5% and financing assets bookings were lower by 26.3% than the
same period of the previous year.
UNREVIEWED SUPPLEMENTARY DISCLOURE TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL INFORMATION (Continued)
-- Decreased consumer spending caused by the economic slow-down
in the booking of new consumer financing assets by the Bank,
whereas, deposit balances decreased compared to the same period of
the previous year. These effects partly alleviated the liquidity
stress faced by the Group due to the mandated 6 months payments
holiday. The Group's liquidity ratios and regulatory CAR were
impacted but it continues to meet the revised regulatory
requirement. The consolidated CAR, LCR and NSFR as of 30 September
2020 was 13.81%, 259% and 94% respectively.
-- The stressed economic situation resulted in the Bank
recognizing incremental ECL on its financing exposures.
-- The overall economic effect of the pandemic was also
reflected in the displacement and volatility in global debt and
capital markets in YTD 2020 due to which the group had to recognize
valuation losses on its Sukuk and investment portfolios.
In addition to the above areas of impact, due to the overall
economic situation certain strategic business and investment
initiatives have been postponed until there is further clarity on
the recovery indicators and its impact on the business environment.
Overall, for the period, the Bank achieved a net profit of USD 30.3
million, which is lower than USD 70.2 million in the same period of
the previous year, registering a drop of 56.8%.
A summary of the significant areas of financial impact described
above is as follows:
Net Impact Net Impact Net Impact
recognized on the Group's recognized
in the Group's consolidated in the Group's
consolidated financial consolidated
income statement position owners' equity
------------------ ------------------- ------------------
USD' 000 USD' 000 USD' 000
---------------------------------- ------------------ ------------------- ------------------
Average reduction of cash
reserve - 22,828 -
------------------ ------------------- ----------------
Concessionary repo at
0% - 129,676 -
------------------ ------------------- ----------------
Modification loss - (25,292) (25,292)
------------------ ------------------- ----------------
Investment portfolio decline (19,193) (31,576) (20,643)
------------------ ------------------- ----------------
Modification loss amortization 17,475 17,475 -
------------------ ------------------- ----------------
Incremental ECL provisions (1,547) (1,547) -
------------------ ------------------- ----------------
Government grants - - 4,953
------------------ ------------------- ----------------
Lower fee income (retail
banking) (830) - -
------------------ ------------------- ----------------
Information reported in the table above only include components
or line items in the financial statements where impact was
quantifiable and material. Some of the amounts reported above
include notional loss of income or incremental costs and hence may
not necessarily reconcile with amounts reported in the interim
financial information for 30 September 2020.
The above supplementary information is provided to comply with
CBB circular number OG/259/2020 (reporting of Financial Impact of
COVID-19), dated 14 July 2020. This information should not be
considered as indication of the results if the entire year or
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