TIDM95HX
RNS Number : 7229I
GFH Financial Group B.S.C
16 August 2021
GFH FINANCIAL GROUP BSC
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
30 June 2021
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 Charirman
(resigned wef 25 Feb 2021)
Hisham Ahmed Alrayes
Rashid Nasser Al Kaabi
Ghazi Faisal Ebrahim Alhajeri
Ali Murad
Ahmed Abdulhamid AlAhmadi
Alia Al Falasi
Fawaz Talal Al Tamimi
Edris Mohammed Rafi Alrafi
Chief Executive Officer : Hisham Ahmed Alrayes
Auditors : KPMG Fakhro
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the six months ended 30 June 2021
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 9-30
Supplementary information (not reviewed) 31-33
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 August 2021
Introduction
We have reviewed the accompanying 30 June 2021 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 June 2021;
-- the condensed consolidated income statement for the three-month and six-month periods
ended 30 June 2021;
-- the condensed consolidated statement of changes in owners' equity for the six-month
period ended 30 June 2021;
-- the condensed consolidated statement of cash flows for the
six-month period ended 30 June 2021;
-- the condensed consolidated statement of changes in restricted
investment accounts for the six-month period ended 30 June
2021;
-- the condensed consolidated statement of sources and uses of zakah and charity fund for the
six-month period ended 30 June 2021; 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 June 2021 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.
Other matter
Due to the outbreak of the novel coronavirus (COVID-19) in early
2020, the Central Bank of Bahrain vide its circular OG/124/2020
dated 30 March 2020 had exempted all public shareholding companies
and locally incorporated banks from preparation and publication of
condensed consolidated interim financial information for the
three-month period ended 31 March 2020. We have not reviewed
comparative information presented for the three-month period ended
30 June 2020 in the condensed consolidated statement of income
statement which has been extracted from management accounts of the
Group and, we do not express any review conclusion on them.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2021 US$ 000's
note 30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
ASSETS
Cash and bank balances 593,229 536,502 598,969
Treasury portfolio 9 2,379,758 1,878,546 1,594,462
Financing assets 10 1,252,936 1,267,266 1,275,622
Investment in real estate 11 1,817,499 1,812,315 1,808,534
Proprietary investments 12 171,357 216,108 251,328
Co-investments 13 128,272 126,319 98,558
Receivables and prepayments 578,336 605,658 399,555
Property and equipment 135,741 144,149 107,743
----------- ------------ -----------
Total 7,057,128 6,586,863 6,134,771
=========== ============ ===========
LIABILITIES
Clients' funds 88,776 130,935 104,383
Placements from financial, non-financial
institutions and individuals 2,722,879 2,418,000 2,296,788
Customer current accounts 150,462 140,756 127,694
Term financing 14 1,269,419 1,089,077 929,532
Payables and accruals 428,670 465,038 396,175
----------- ------------ -----------
Total 4,660,206 4,243,806 3,854,572
----------- ------------ -----------
Equity of investment account
holders 1,221,554 1,156,993 1,098,723
OWNERS' EQUITY
Share capital 8 1,000,638 975,638 975,638
Treasury shares 8 (62,234) (63,979) (76,801)
Statutory reserve 8 24,058 19,548 125,312
Investment fair value reserve 4,109 5,593 (12,906)
Foreign currency translation
reserve (50,258) (46,947) (48,929)
Retained earnings 8 17,940 22,385 (110,273)
Share grant reserve 1,093 1,093 1,198
----------- ------------ -----------
Total equity attributable to
shareholders of Bank 935,346 913,331 853,239
Non-controlling interests 240,022 272,733 328,237
----------- ------------ -----------
Total owners' equity 1,175,368 1,186,064 1,181,476
----------- ------------ -----------
Total liabilities, equity of
investment account holders and
owners' equity 7,057,128 6,586,863 6,134,771
=========== ============ ===========
The Board of Directors approved the condensed consolidated
interim financial information on 12 August 2021 and signed on its
behalf by:
Jassim Al Seddiqi Hisham Alrayes
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2021 US$ 000's
Six months ended Three months ended
note 30 June 30 June 30 June 30 June
2021 2020 2021 2020
(reviewed) (reviewed) (reviewed) (unreviewed)
Investment banking income
Asset management 1,599 2,727 794 1,889
Deal related income 33,138 38,237 16,353 24,624
------------ --------------
34,737 40,964 17,147 26,513
------------ ------------ --------------
Commercial banking income
Income from financing 39,784 41,268 18,126 19,173
Treasury and investment income 33,323 17,372 22,509 9,184
Fee and other income 2,257 3,206 701 1,124
Less: Return to investment
account holders (16,093) (15,978) (7,804) (6,620)
Less: Finance expense (17,558) (13,494) (8,991) (5,492)
------------ --------------
41,713 32,374 24,541 17,369
------------ ------------ --------------
Income from proprietary and
co-investments
Direct investment income,
net 13,921 19,300 2,780 11,215
Dividend from co-investments 5,010 4,109 2,610 1,863
------------ --------------
18,931 23,409 5,390 13,078
------------ ------------ --------------
Real estate income
Development and sale 7,346 9,256 3,913 6,436
Rental and operating income 2,134 1,157 990 563
------------ --------------
9,480 10,413 4,903 6,999
------------ ------------ --------------
Treasury and other income
Finance income 6,405 35,240 3,208 27,695
Dividend and net gain on
treasury investments 52,493 (10,933) 26,040 (21,967)
Other income, net 17,251 15,059 9,392 7,381
------------ -------------- ------------ --------------
76,149 39,366 38,640 13,109
------------ ------------ --------------
Total income 181,010 146,526 90,621 77,068
------------ ------------ --------------
Operating expenses 59,760 57,649 27,575 30,908
Finance expense 63,396 66,944 29,733 34,637
Impairment allowances 15 13,709 1,547 8,508 (2,081)
Total expenses 136,865 126,140 65,816 63,464
Profit for the period 44,145 20,386 24,805 13,604
------------ -------------- ------------ --------------
Attributable to:
Shareholders of Bank 37,044 15,054 20,922 9,972
Non-controlling interests 7,101 5,332 3,883 3,632
44,145 20,386 24,805 13,604
======== ============= ======= =======
Earnings per share
Basic and diluted earnings per
share (US cents) 16 1.21 0.45 0.68 0.30
-------- ------------- ------- -------
The Board of Directors approved the condensed consolidated
interim financial information on 12 August 2021 and signed on its
behalf by:
Jassim Al Seddiqi
Hisham Alrayes
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS'
EQUITY
for the six months ended 30 June 2021 US$ 000's
Attributable to shareholders of the Bank Non Total
-controlling owners'
interests equity
Foreign
Investment currency Share
30 June 2021 Share Treasury Statutory fair value translation Retained grant
(reviewed) capital shares reserve reserve reserve earnings reserve Total
----------
Balance at 1
January 2021
(as previously
reported) 975,638 (63,979) 19,548 5,593 (46,947) 22,385 1,093 913,331 272,733 1,186,064
Effect of
adoption of
FAS 32 (note
3) - - - - - (2,096) - (2,096) - (2,096)
---------- ---------- ----------- ----------- ------------ --------- -------- --------- ------------- ----------
Balance at 1
January 2021
(restated) 975,638 (63,979) 19,548 5,593 (46,947) 20,289 1,093 911,235 272,733 1,183,968
Profit for the
period - - - - - 37,044 - 37,044 7,101 44,145
Fair value
changes during
the period - - - 11,200 - - - 11,200 (6) 11,194
Transfer to
income
statement on
disposal of
sukuk - - - (12,684) - - - (12,684) - (12,684)
Total
recognised
income and
expense - - - (1,484) - 37,044 - 35,560 7,095 42,655
Bonus Shares
issued 25,000 - - - - (25,000) - - - -
Dividends
declared for
2020 - - - - - (17,000) - (17,000) - (17,000)
Transfer to
zakah and
charity fund - - - - - (1,572) (1,572) (142) (1,714)
Transfer to
statutory
reserve - - 4,510 - - (4,510) - - - -
Purchase of
treasury
shares - (26,777) - - - - - (26,777) - (26,777)
Sale of
treasury
shares - 28,522 - - - 921 - 29,443 - 29,443
Foreign
currency
translation
differences - - - - (3,311) - - (3,311) (1,411) (4,722)
Acquisition of
NCI without a
change in
control - - - - - 7,768 - 7,768 (38,253) (30,485)
Balance at 30
June 2021 1,000,638 (62,234) 24,058 4,109 (50,258) 17,940 1,093 935,346 240,022 1,175,368
========== ========== =========== =========== ============ ========= ======== ========= ============= ==========
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS'
EQUITY
for the six months ended 30 June 2021 (continued) US$ 000's
Attributable to shareholders of the Bank
Foreign
Investment currency Share Non Total
30 June 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
(page 3) - - - - - 15,054 - 15,054 5,332 20,386
Fair value
changes
during the
period - - - (20,643) - - - (20,643) (267) (20,910)
Total
recognised
income and
expense - - - (20,643) - 15,054 - (5,589) 5,065 (524)
Additional
capital
contribution
to
subsidiary
(note 1) - - - - - (59,893) - (59,893) (14,311) (74,204)
Modification
loss on
financing
assets (note
2a, 10) - - - - - (14,016) - (14,016) (11,279) (25,295)
Government
grant (note
2b) - - - - - 3,118 - 3,118 936 4,054
Dividends
declared
(note 8) - - - - - (30,000) - (30,000) - (30,000)
Transfer to
zakah and
charity fund
(page 8) - - - - - (1,388) - (1,388) (258) (1,646)
Purchase of
treasury
shares - (48,237) - - - - - (48,237) - (48,237)
Sale of
treasury
shares - 69,907 - - - (20,650) - 49,257 - 49,257
Treasury
shares
acquired for
share
incentive
scheme - (25,052) - - - - - (25,052) - (25,052)
Foreign
currency
translation
differences - - - - (19,504) - - (19,504) (3,991) (23,495)
NCI arising
from
acquisition
of a
subsidiary - - - - - - - - 63,747 63,747
Balance at
30 June
2020 975,638 (76,801) 125,312 (12,906) (48,929) (110,273) 1,198 853,239 328,237 1,181,476
======== ========== =========== =========== ============ ========== ======== ========== ============= ==========
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS-
for the six months ended 30 June 2021 US$ 000's
30 June
2021 30 June
(reviewed) 2020 (reviewed)
OPERATING ACTIVITIES
Profit for the period 44,145 20,386
Adjustments for:
Income from commercial banking (33,065) (16,470)
Income from proprietary investments (18,931) (23,409)
Income from dividend and gain / (loss)
on treasury investments (85,628) (8,623)
Foreign exchange (gain) / loss (1,105) (1,174)
Finance expense 80,953 80,408
Impairment allowances 13,709 1,547
Depreciation and amortisation 2,621 1,308
2,699 53,973
Changes in:
Placements with financial institutions
(maturities of more than 3 months) (100,995) 346,762
Financing assets 14,330 (2,845)
Other assets 44,773 31,581
CBB Reserve and restricted bank balance (10,319) 44,145
Clients' funds (42,159) 33,526
Placements from financial and non-financial
institutions 304,879 (150,461)
Customer current accounts 9,706 (19,793)
Equity of investment account holders 64,561 (119,822)
Payables and accruals (36,367) (52,731)
---------------------
Net cash generated from operating activities 251,108 164,335
------------
INVESTING ACTIVITIES
Payments for purchase of equipment (851) (233)
Proceeds from sale of proprietary investment
securities, net 22,068 1,008
Purchase of treasury portfolio, net (411,882) (268,797)
Cash acquired on acquisition of a subsidiary - 32,856
Proceeds from sale of investment in real
estate 1,061 342
Dividends received from proprietary investments
and co-investments 7,449 7,128
Advance paid for development of real estate (5,081) (12,197)
Net cash used in investing activities (387,236) (239,893)
------------ ---------------------
FINANCING ACTIVITIES
Financing liabilities, net 180,341 650,040
Finance expense paid (72,767) (82,595)
Dividends paid (17,299) (33,397)
Purchase of treasury shares, net 1,746 (24,124)
---------------------
Net cash generated from financing activities 92,021 509,924
------------ ---------------------
Net (decrease)/increase in cash and cash
equivalents during the period (44,107) 434,366
Cash and cash equivalents at 1 January 655,455 367,533
------------ ---------------------
Cash and cash equivalents at 30 June 611,348 801,899
============ ---------------------
Cash and cash equivalents comprise:
Cash and balances with banks (excluding
CBB Reserve balance and restricted cash) 538,438 559,020
Placements with financial institutions
(less than 3 months) 72,910 242,879
------------ ---------------------
611,348 801,899
============ =====================
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED
INVESTMENT ACCOUNTS
for the six months ended 30 June 2021
30 June 2021 Balance at 1 January Balance at 30 June
(reviewed) 2021 Movements during the period 2021
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 12 7.91 95 (2) - - - - - 12 7.91 93
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
28,451 (2) - - - - - 28,449
========= ============ ============ ========= ========= ========= ============== =========
30 June 2020 Balance at 1 January Balance at 30 June
(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 (10) - - - - - 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 (10) - - - - - 28,451
========= ============ ============ ========= ========= ========= ============== =========
The accompanying notes 1 to 22 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 six months ended 30 June 2021 US$ 000's
30 June 30 June
2021 2020
(reviewed) (reviewed)
Sources of zakah and charity fund
Contribution by the Group 1,714 1,646
Non-Islamic income 18 103
---------------- --------------
Total sources 1,732 1,749
---------------- --------------
Uses of zakah and charity fund
Contributions to charitable organisations (1,828) (185)
---------------- --------------
Total uses (1,828) (185)
---------------- --------------
0B Surplus of sources over uses (96) 1,564
Undistributed zakah and charity fund at
beginning of the period 5,346 5,407
---------------- --------------
1B Undistributed zakah and charity fund
at end of the period 5,250 6,971
================ ==============
Represented by:
Zakah payable 1,013 1,426
Charity fund 4,237 5,545
--------------- --------------
5,250 6,971
=============== ==============
The accompanying notes 1 to 22 form an integral part of the
condensed consolidated interim financial information.
1 Reporting entity
The condensed consolidated interim financial information for the
six months ended 30 June 2021 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
interests
Country as at 30
Investee name of incorporation June 2021 Activities
GFH Capital Limited United Arab 100% Investment
Emirates management
------------------ ----------- ---------------------
Khaleeji Commercial Bank Kingdom 69.01% Islamic retail
BSC ('KHCB') of Bahrain bank
------------------ ----------- ---------------------
Al Areen Project companies 100% Real estate
development
------------------ ----------- ---------------------
Falcon Cement Company BSC 51.72% Cement manufacturing
(c) ('FCC')
----------- ---------------------
GBCORP BSC (c) ('GBCORP') 62.91% Islamic investment
firm
----------- ---------------------
Residential South Real Estate 100% Real estate
Development Company (RSRED) development
----------- ---------------------
Athena Private School for 100% Educational
Special Education WLL institution
------------------ ----------- ---------------------
Morocco Gateway Investment Cayman Islands 90.27% Real estate
Company ('MGIC') development
------------------ ----------- ---------------------
Tunis Bay Investment Company 82.97% Real estate
('TBIC') development
------------------ ----------- ---------------------
Energy City Navi Mumbai Investment 80.27% Real estate
Company & Mumbai IT & Telecom development
Technology Investment Company
(together "India Projects")
------------------ ----------- ---------------------
Gulf Holding Company KSCC State of 51.18% Investment
Kuwait in real estate
------------------ ----------- ---------------------
Roebuck A M LLP United Kingdom 60% Property
asset management
Company
------------------ ----------- ---------------------
The Bank has other investment holding companies, SPV's and
subsidiaries, which are set up to supplement the activities of the
Bank and its principal subsidiaries.
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:
2 Basis of preparation (continued)
i. 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. Any other modification gain or
loss on financial assets are recognised in accordance with the
requirements of applicable FAS.;
ii. 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; and
iii. recognition of specific impairment allowances and expected
credit losses in line with the specific CBB guidelines for
application of staging rules issued as part of its COVID-19
response measures.
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.
Modification loss
During the period ended 30 June 2020, based on a regulatory
directive issued by the CBB as concessionary measures to mitigate
the impact of COVID-19, the one-off modification loss amounting to
US$ 25,295 thousand arising from the six month payment holiday
provided to financing customers without charging additional profits
was recognised directly in equity.
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'.
These condensed consolidated interim financial information are
reviewed and not audited. 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 2020. 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 2020.
Due to the outbreak of the novel coronavirus (COVID-19) in early
2020, the Central Bank of Bahrain had exempted all public
shareholding companies and locally incorporated banks from
preparation and publication of their condensed consolidated interim
financial information for the three-month period ended 31 March
2020. Accordingly, the comparatives for the condensed consolidated
statement of financial position have been extracted from the
audited consolidated financial statements for the year ended 31
December 2020 and comparatives for the condensed consolidated
income statement, cash flows, changes in equity, changes in
restricted investment accounts and sources and uses of zakah and
charity fund have been extracted from the management accounts of
the Group for the three month period ended 30 June 2020 and
adjusted for accounting policy changes, if any, applied in
preparation of the annual consolidated financial statements for the
year ended 31 December 2020. Hence, the comparative information
included in the current period financial position, income
statement, cash flows, changes in equity, changes in restricted
investment accounts and sources and uses of zakah and charity fund
were not reviewed.
3 Significant accounting policies
The accounting policies and methods of computation applied by
the Group in the preparation of the condensed cfaonsolidated
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 2020, except
those arising from adoption of the following standards and
amendments to standards effective from 1 January 2021. The impact
of adoption of these standards and amendments is set out below.
a. Adoption of new standards during the period
i. FAS 32 - Ijarah
AAOIFI issued FAS 32 "Ijarah" in 2020, this standard is
effective for financial periods beginning on or after 1 January
2021. The standard supersedes the existing FAS 8 "Ijarah and Ijarah
Muntahia Bittamleek"
FAS 32 sets out principles for the classification, recognition,
measurement, presentation and disclosure of Ijarah (Ijarah asset,
including different forms of Ijarah Muntahia Bittamleek)
transactions entered into by the Islamic financial institutions as
a lessor and lessee.
The Group has applied FAS 32 "Ijarah" from 1 January 2021. The
impact of adoption of this standard is disclosed in (b) below.
(a) Change in accounting policy
Identifying an Ijarah
At inception of a contract, the Bank assesses whether the
contract is Ijarah, or contains an Ijarah. A contract is Ijarah, or
contains an Ijarah if the contract transfers the usufruct (but not
control) of an identified asset for a period of time in exchange
for an agreed consideration.
Measurement
For a contract that contains an Ijarah component and one or more
additional Ijarah or non-Ijarah components, the Bank allocates the
consideration in the contract to each Ijarah component on the basis
of relative stand-alone price of the Ijarah component and the
aggregate estimated stand-alone price of the non-Ijarah components,
that may be charged by the lessor, or a similar supplier, to the
lessee.
At the commencement date, a lessee shall recognise a
right-of-use (usufruct) asset and a net ijarah liability.
i) Right-of-use (usufruct) asset
On initial recognition, the lessee measures the right-of-use
asset at cost. The cost of the right-of-use asset comprises of:
-- The prime cost of the right-of-use asset;
-- Initial direct costs incurred by the lessee; and
-- Dismantling or decommissioning costs.
The prime cost is reduced by the expected terminal value of the
underlying asset. If the prime cost of the right-of-use asset is
not determinable based on the underlying cost method (particularly
in the case of an operating Ijarah), the prime cost at commencement
date may be estimated based on the fair value of the total
consideration paid/ payable (i.e. total Ijarah rentals) against the
right-of-use assets, under a similar transaction.
After the commencement date, the lessee measures the
right-of-use asset at cost less accumulated amortisation and
impairment losses, adjusted for the effect of any Ijarah
modification or reassessment.
3 Significant accounting policies (continued)
The Bank amortises the right-of-use asset from the commencement
date to the end of the useful economic life of the right-of-use
asset, according to a systematic basis that is reflective of the
pattern of utilization of benefits from the right-of-use asset. The
amortizable amount comprises of the right-of-use asset less
residual value, if any.
The Bank determines the Ijarah term, including the contractually
binding period, as well as reasonably certain optional periods,
including:
-- Extension periods if it is reasonably certain that the Bank
will exercise that option; and/ or
-- Termination options if it is reasonably certain that the Bank
will not exercise that option.
The Bank carries out impairment assessment in line with the
requirements of FAS 30 "Impairment, Credit Losses and Onerous
Commitments" to determine whether the right-of-use asset is
impaired and to account for any impairment losses. The impairment
assessment takes into consideration the salvage value, if any. Any
related commitments, including promises to purchase the underlying
asset, are also considered in line with FAS 30 "Impairment, Credit
Losses and Onerous Commitments".
ii) Net ijarah liability
The net ijarah liability comprises of the gross Ijarah
liability, plus deferred Ijarah cost (shown as a
contra-liability).
The gross Ijarah liability shall be initially recognised as the
gross amount of total Ijarah rental payables for the Ijarah term.
The rentals payable comprise of the following payments for the
right to use the underlying asset during the Ijarah term:
-- Fixed Ijarah rentals less any incentives receivable;
-- Variable Ijarah rentals including supplementary rentals;
and
-- Payment of additional rentals, if any, for terminating the
Ijarah (if the Ijarah term reflects the lessee exercising the
termination option).
Advance rentals paid are netted-off with the gross Ijarah
liability.
Variable Ijarah rentals are Ijarah rentals that depend on an
index or rate, such as payments linked to a consumer price index,
financial markets, regulatory benchmark rates, or changes in market
rental rates. Supplementary rentals are rentals contingent on
certain items, such as additional rental charge after provision of
additional services or incurring major repair or maintanence. As of
30 June 2021, the Bank did not have any contracts with variable or
supplementary rentals.
After the commencement date, the Bank measures the net Ijarah
liability by:
-- Increasing the net carrying amount to reflect return on the
Ijarah liability (amortisation of deferred Ijarah cost);
-- Reducing the carrying amount of the gross Ijarah liability to
reflect the Ijarah rentals paid; and
-- Re-measuring the carrying amount in the event of reassessment
or modifications to Ijarah contract, or to reflect revised Ijarah
rentals.
-- The deferred Ijarah cost is amortised to income over the
Ijarah terms on a time proportionate basis, using the effective
rate of return method. After the commencement date, the Bank
recognises the following in the income statement:
-- Amortisation of deferred Ijarah cost; and
-- Variable Ijarah rentals (not already included in the
measurement of Ijarah liability) as and when the triggering events/
conditions occur
Ijarah contract modifications
After the commencement date, the Bank accounts for Ijarah
contract modifications as follows:
-- Change in the Ijarah term: re-calculation and adjustment of
the right-of-use asset, the Ijarah liability, and the deferred
Ijarah cost; or
-- Change in future Ijarah rentals only: re-calculation of the
Ijarah liability and the deferred Ijarah cost only, without
impacting the right-of- use asset.
3 Significant accounting policies (continued)
An Ijarah modification is considered as a new Ijarah component
to be accounted for as a separate Ijarah for the lessee, if the
modification both additionally transfers the right to use of an
identifiable underlying asset and the Ijarah rentals are increased
corresponding to the additional right-of-use asset. For
modifications not meeting any of the conditions stated above, the
Bank considers the Ijarah as a modified Ijarah as of the effective
date and recognises a new Ijarah transaction. The Bank recalculates
the Ijarah liability, deferred Ijarah cost, and right-of-use asset,
and de-recognise the existing Ijarah transaction and balances.
Expenses relating to underlying asset
Operational expenses relating to the underlying asset, including
any expenses contractually agreed to be borne by the Bank, are
recognised by the Bank in income statement in the period incurred.
Major repair and maintenance, takaful, and other expenses
incidental to ownership of underlying assets (if incurred by lessee
as agent) are recorded as receivable from lessor.
Recognition exemptions and simplified accounting for the
lessee
A lessee may elect not to apply the requirements of Ijarah
recognition and measurement of recognizing right-of-use asset and
lease liability for the following:
-- Short-term Ijarah; and
-- Ijarah for which the underlying asset is of low value.
Short-term Ijarah exemption can be applied on a whole class of
underlying assets if they have similar characteristics and
operational utility. However, low-value Ijarah exemption can only
be applied on an individual asset/ Ijarah transaction, and not on
group/ combination basis.
Impact as lessor on accounting for Ijara Muntahia Bittamleek
contracts
There was no change in the accounting policies for Ijarah
Muntahia Bittamleek portfolio upon adoption of this standard.
(b) Impact on adoption of FAS 32
The impact of adoption of FAS 32 as at 1 January 2021 has
resulted in an increase in right-of-use asset and an increase in
lease liability as stated below. The lease contracts comprise
office premises, school premises, leasehold lands, ATM sites,
branches etc.
Total Assets Total Liabilities Total Equity
and EIAH
Closing balance (31 December
2020) 6,586,863 5,400,799 1,186,064
Impact on adoption:
Right-of-use asset 58,949 - -
Lease liability - 61,045 -
Opening impact of FAS 32 - - (2,096)
------------- ------------------ ----------------
Balance on date of initial
application of 1 January
2021 6,645,812 5,461,844 1,183,968
------------- ------------------ ----------------
b. New standards, amendments and interpretations issued but not yet effective
(i) FAS 38 Wa'ad, Khiyar and Tahawwut
AAOIFI has issued FAS 38 Wa'ad, Khiyar and Tahawwut in 2020. The
objective of this standard is to prescribe the accounting and
reporting principles for recognition, measurement and disclosures
in relation to shariah compliant Wa'ad (promise), Khiyar (option)
and Tahawwut (hedging) arrangements for Islamic financial
institutions. This standard is effective for the financial
reporting periods beginning on or after 1 January 2022.
3 Significant accounting policies (continued)
This standard classifies Wa'ad and Khiyar arrangements into two
categories as follows:
a) "ancillary Wa'ad or Khiyar" which is related to a structure
of transaction carried out using other products i.e. Murabaha,
Ijarah Muntahia Bittamleek, etc.; and
b) "product Wa'ad and Khiyar" which is used as a stand-alone
Shariah compliant arrangement.
Further, the standard prescribes accounting for constructive
obligations and constructive rights arising from the stand-alone
Wa'ad and Khiyar products.
The Group is currently evaluating the impact of adopting 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 similar to those applied to the audited consolidated financial
statements as at and for the year ended 31 December 2020. 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.
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 2020.
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".
5 Financial risk management (continued)
The Consolidated NSFR calculated as per the requirements of the
CBB rulebook, is as follows:
As at 30 June 2021
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:
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Regulatory
2 Capital 1,098,373 - - 78,499 1,176,872
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
3 Other Capital - - - - -
Instruments
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
4 Retail deposits and deposits from small business customers:
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
5 Stable deposits 168,788 34,091 6,630 199,365
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
Less stable
6 deposits - 701,110 400,593 84,451 1,075,984
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
7 Wholesale funding:
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
8 Operational - - - - -
deposits
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
Other Wholesale
9 funding - 2,199,754 1,080,997 742,800 1,698,305
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
10 Other liabilities:
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
11 NSFR - - - - -
Shari'a-compliant
hedging contract
liabilities
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
All other
liabilities
not included
in the above
12 categories - 132,517 229 103,339 103,339
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
13 Total ASF 4,253,864
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
Required Stable Funding (RSF):
-----------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------
Total NSFR
high-quality
liquid assets
14 (HQLA) - - - - 69,878
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
15 Deposits held - - - - -
at other
financial
institutions
for operational
purposes
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
Performing
financing
and sukuk/
16 securities: - 630,954 - 894,189 854,704
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
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
to financial
18 institutions - 37,963 - 130,982 130,316
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
Performing
financing
to non- financial
corporate
clients,
financing to
retail and small
business
customers,
and financing
to sovereigns,
central banks
and PSEs, of
19 which: - 199,793 110,278 34,882 177,709
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
5 Financial risk management (continued)
More than
6 months
Less and less
No Specified than than one Over Total weighted
No. Item Maturity 6 months year one year value
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 - 451,905 208,472 220,903 551,091
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
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 2,554,646 - - - 2,554,646
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
30 OBS items - - - 20,253
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
31 Total RSF 1,320,615 318,750 1,280,956 4,358,598
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
32 NSFR (%) 98%
------------------ ----------------------------------- ------------------------- --------------------------------- ----------------------------- -----------------------------
As at 31 December 2020
More than
6 months
Less and less Total
No Specified than than one Over weighted
No. Item Maturity 6 months year one year value
Available Stable Funding (ASF):
-----------------------------------------------------------------------------------------------------
1 Capital:
-----------------------------------------------------------------------------------------------
2 Regulatory Capital 1,009,571 - - 85,635 1,095,206
------------------------------ ------------- ---------- ---------- ---------- ----------
3 Other Capital Instruments - - - - -
------------------------------ ------------- ---------- ---------- ---------- ----------
4 Retail deposits and deposits from small business customers:
-----------------------------------------------------------------------------------------------
5 Stable deposits - - - - -
------------------------------ ------------- ---------- ---------- ---------- ----------
6 Less stable deposits - 793,480 306,688 231,458 1,221,609
------------------------------ ------------- ---------- ---------- ---------- ----------
7 Wholesale funding:
-----------------------------------------------------------------------------------------------
8 Operational deposits - - - - -
------------------------------ ------------- ---------- ---------- ---------- ----------
9 Other Wholesale funding - 2,042,390 485,665 1,016,610 1,845,431
------------------------------ ------------- ---------- ---------- ---------- ----------
10 Other liabilities:
-----------------------------------------------------------------------------------------------
NSFR Shari'a-compliant
11 hedging contract liabilities - - - - -
------------------------------ ------------- ---------- ---------- ---------- ----------
All other liabilities
not included in the
12 above categories - 81,718 29,287 182,725 182,725
------------------------------ ------------- ---------- ---------- ---------- ----------
13 Total ASF - - - - 4,344,971
------------------------------ ------------- ---------- ---------- ---------- ----------
Required Stable Funding (RSF):
-----------------------------------------------------------------------------------------------------
Total NSFR high-quality
14 liquid assets (HQLA) - - - - 50,531
------------------------------ ------------- ---------- ---------- ---------- ----------
Deposits held at other
financial institutions
15 for operational purposes - - - - -
------------------------------ ------------- ---------- ---------- ---------- ----------
Performing financing
16 and sukuk/ securities: - 453,447 20,628 906,357 838,420
------------------------------ ------------- ---------- ---------- ---------- ----------
5 Financial risk management (continued)
No. Item No Specified Less More Over Total
Maturity than than one year weighted
6 months 6 months value
and less
than
one year
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 - 127,045 - 214,171 245,568
------------------------------ ------------- ---------- ---------- ---------- ----------
Performing financing
to non- financial
corporate clients,
financing to retail
and small business
customers, and financing
to sovereigns, central
banks and PSEs, of
19 which: - 147,516 101,279 - 124,398
------------------------------ ------------- ---------- ---------- ---------- ----------
With a risk weight
of less than or equal
to 35% as per the
CBB Capital Adequacy
20 Ratio guidelines - - - 22,064 14,342
------------------------------ ------------- ---------- ---------- ---------- ----------
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 - 260,664 19,500 395,881 535,963
------------------------------ ------------- ---------- ---------- ---------- ----------
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 2,652,216 - - - 2,652,216
------------------------------ ------------- ---------- ---------- ---------- ----------
30 OBS items - - - - 13,743
------------------------------ ------------- ---------- ---------- ---------- ----------
31 Total RSF - 988,673 141,407 1,538,473 4,475,181
------------------------------ ------------- ---------- ---------- ---------- ----------
32 NSFR (%) - - - - 97%
------------------------------ ------------- ---------- ---------- ---------- ----------
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 June 2021 31 December
2020
-------------
Stock of HQLA 269,144 244,049
Net cashflows 128,580 103,188
LCR % 215% 240%
Minimum required by CBB 80% 80%
------------- ------------
c. Capital Adequacy Ratio
30 June 2021 31 December
2020
CET 1 Capital before regulatory
adjustments 1,052,184 1,025,835
Less: regulatory adjustments - -
CET 1 Capital after regulatory
adjustments 1,052,184 1,025,835
T 2 Capital adjustments 65,758 76,062
Regulatory Capital 1,117,942 1,101,897
Risk weighted exposure:
Credit Risk Weighted Assets 7,715,258 7,647,064
Market Risk Weighted Assets 56,600 72,038
Operational Risk Weighted Assets 552,821 552,821
Total Regulatory Risk Weighted
Assets 8,324,679 8,271,923
Investment risk reserve (30%
only) 2 2
Profit equalization reserve (30%
only) 3 3
Total Adjusted Risk Weighted
Exposures 8,324,674 8,271,918
Capital Adequacy Ratio (CAR) 13.43% 13.49%
Tier 1 Capital Adequacy Ratio 12.64% 12.57%
Minimum CAR required by CBB 12.50% 12.50%
------------- ------------
6 Seasonality
Due to the inherent nature of the Group's business (investment
banking, commercial banking and leisure and hospitality management
business), the six-month results reported in this condensed
consolidated interim financial information may not represent a
proportionate share of the overall annual results.
7 Comparatives
The comparative figures have been regrouped in order to conform
with the presentation for current year. Such regrouping did not
affect previously reported profit for the period or total equity.
FAS 32 was adopted prospectively effective 1 January 2021 and
comparative figures have not been restated.
8 Appropriations
In the shareholders meeting held on 6 April 2021, the following
were approved:
a) Cash dividend of 1.86% of the paid-up share capital amounting to US$ 17 million;
b) Stock dividend of 2.56% of the paid-up share capital amounting to US$ 25 million;
c) Appropriation of US$ 1,104,000 towards charity, civil society
institutions and Zakat for the year 2020; and
d) Transfer of US$ 4,509,500 to statutory reserve.
Treasury shares
As at 30 June 2021, the Bank holds 81,592,696 shares as part of
its treasury shares which were previously held under a market
making arrangement with an approved securities broker. During the
shareholders meeting held on 6th April 2021 the shareholders have
approved the cancellation of up to a maximum of 141,335,000 numbers
of treasury shares as a result of cancellation of the market making
agreement which were subject to the approval of the Central Bank of
Bahrain. However, the Central Bank of Bahrain did not accede to the
share cancellation and instead has instructed the Market Maker to
liquidate the shares, as a result of cancellation of the market
making agreement, without hampering the normal market operations
nor misleading other market participants. The Market Maker is
currently in the process of liquidating the treasury share
portfolio in a phased manner.
9 Treasury portfolio
30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
Placements with financial
institutions 180,736 169,998 353,409
Equity type investments
At fair value through income
statement
* Structured notes 452,040 368,431 297,950
Debt type investments
At fair value through equity
* Quoted sukuk 981,894 648,991 345,610
At amortised cost
* Quoted sukuk * 770,936 693,737 597,493
* Unquoted sukuk 3,494 3,493 -
Less: Impairment allowances (9,342) (6,104) -
2,379,758 1,878,546 1,594,462
=========== ============ ===========
* Includes quoted sukuk of US$ 307,316 thousand (31 December
2020: US$ 302,260 thousand) pledged against term-financing of US$
204,191 thousand (31 December 2020: US$ 200,204 thousand).
10 Financing assets
30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
Murabaha 949,930 971,164 919,739
Musharaka 277 276 276
Wakala 239 239 13,280
Mudharaba 2,624 2,690 2,776
Istisnaa 37 3,565 6,533
Assets held-for-leasing 366,886 345,342 386,609
------------ -----------
1,319,993 1,323,276 1,329,213
Less: Impairment allowances (67,057) (56,010) (53,591)
----------- ------------ -----------
1,252,936 1,267,266 1,275,622
=========== ============ ===========
Murabaha financing receivables are net of deferred profits of
US$ 42,180 thousand
(31 December 2020: US$ 50,032 thousand).
10 Financing assets (continued)
The movement on financing assets and impairment allowances is as
follows:
Financing assets Stage 1 Stage 2 Stage 3 Total
Financing assets (gross) 1,010,225 180,066 129,703 1,319,994
Expected credit loss 22,066 4,732 40,260 67,058
---------- -------- --------
Financing assets (net) 988,159 175,334 89,443 1,252,936
========== ======== ======== ==========
Impairment allowances Stage 1 Stage 2 Stage 3 Total
At 1 January 2021 20,841 6,255 28,914 56,010
Net movement between
stages 984 (862) (122) -
Net charge for the period 240 (661) 11,468 11,047
At 30 June 2021 22,065 4,732 40,260 67,057
======= ======= ======= =======
Financing assets Stage 1 Stage 2 Stage 3 Total
31 December 2020 (audited)
Financing assets (gross) 1,025,534 149,350 146,380 1,321,264
Expected credit loss 21,389 5,130 27,479 53,998
---------- --------
Financing assets (net) 1,004,145 144,220 118,901 1,267,266
========== ======== ======== ==========
Impairment allowances Stage 1 Stage 2 Stage 3 Total
At 1 January 2020 11,601 8,366 89,754 109,721
Net movement between
stages 228 (4,512) 4,285 1
Net charge for the year 9,298 2,401 (2,542) 9,157
Write-offs - - (29,204) (29,204)
Disposal (286) - (33,379) (33,665)
At 31 December 2020 20,841 6,255 28,914 56,010
======== ======== ========= =========
11 Investment in real estate
30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
Investment Property
* Land 481,370 481,315 470,285
* Building 63,854 63,757 63,597
----------- ------------ -----------
545,224 545,072 533,882
Development Property
* Land 761,206 761,032 782,056
* Building 511,069 506,211 492,596
----------- ------------ -----------
1,272,275 1,267,243 1,274,652
1,817,499 1,812,315 1,808,534
=========== ============ ===========
12 Proprietary investments
30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
Equity type investments
At fair value through income
statement
* Unlisted fund 10,000 10,000 21,764
----------- ------------ -----------
10,000 10,000 21,764
----------- ------------ -----------
At fair value through equity
* Listed securities 13 19,060 17,492
* Unquoted securities 84,902 108,998 136,445
----------- ------------ -----------
84,915 128,058 153,937
----------- ------------ -----------
Equity-accounted investees 76,442 78,050 75,627
----------- ------------ -----------
171,357 216,108 251,328
=========== ============ ===========
13 Co-investments
30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
At fair value through equity
* Unquoted securities 120,689 126,319 98,558
At fair value through income
statement
* Unquoted securities 7,583 - -
----------- ------------ -----------
128,272 126,319 98,558
=========== ============ ===========
14 Term financing
30 June 31 December 30 June
2021 2020 2020
(reviewed) (audited) (reviewed)
Murabaha financing 885,289 748,265 463,628
Sukuk 308,995 289,818 285,484
Ijarah financing 45,914 22,303 23,421
Other borrowings 29,221 28,691 156,999
---------- ----------- ----------
1,269,419 1,089,077 929,532
========== =========== ==========
15 Impairment allowances
Six months ended
30 June 30 June
2021 2020
(reviewed) (reviewed)
Expected credit loss on:
Bank balances 13 67
Treasury portfolio 3,238 545
Financing assets, net (note 10) 11,047 165
Other receivables (1,394) 770
Commitments and financial guarantees 335 -
---------- ----------
13,239 1,547
Impairment on investment in equity securities 470 -
---------- ----------
13,709 1,547
========== ==========
16 EARNING PER SHARE
The calculation of basic earning per share has been based on the
following profit attributable to the ordinary shareholders and
weighted-average number of ordinary shares outstanding. The Group
does not have any diluted potentialy ordinary shares as of the
reporting dates. Hence, the basic and diluted earning per share is
similar.
Six months ended Three months ended
30 June 2021 30 June 2020 30 June 2021 30 June 2020
(reviewed) (reviewed) (reviewed) (reviewed)
Profit for the
period attributable
to shareholders
of the Bank 37,044 15,054 20,922 9,972
Weighted average
number of shares
outstanding during
the period (in
thousands) 3,056,479 3,321,367 3,056,605 3,285,565
Basic and diluted
earning per share
(US Cents) 1.21 0.45 0.68 0.30
============= ============= ============= =============
17 Related party transactions
The significant related party balances and transactions as at 30
June 2021 are given below:
Related parties as per FAS
1
Assets
Significant under management
shareholders (including
/ entities special
Associates in which purpose
30 June 2021 and joint Key management directors and other
(reviewed) venture personnel are interested entities) Total
Assets
Treasury portfolio - - 37,148 - 37,148
Financing assets - 7,751 32,778 21,165 61,694
Proprietary investments 112,434 - 23,105 186,231 321,770
Co-investments - - - 67,238 67,238
Receivables and
prepayments 6,816 623 4,000 134,143 145,582
Liabilities
Placements from
financial, non-financial
institutions and
individuals - 6,377 29 - 6,406
Customer accounts 321 1,544 6,962 4,528 13,355
Payables and accruals - 554 1,204 62,966 64,724
Equity of investment
account holders 1,077 260 53,441 772 55,550
Income
Income from Investment
banking - - - 29,637 29,637
Income from commercial
banking
* Income from financing - 109 1,575 56 1,740
* Fee and other income (1,833) - - 698 (1,135)
* Less: Return to investment account holders 16 3 1,925 11 1,955
* Less: Finance expense - 48 1,403 - 1,451
Income from proprietary
and co-investments (45) - 8,017 10,457 18,429
Income from real
estate - 120 - - 120
Treasury and other
income - - (698) 635 (63)
Expenses
Operating expenses - 4,509 - 85 4,594
17 Related party transactions (continued)
Related parties as per FAS
1
Assets
Significant under management
shareholders (including
/ entities special
Associates in which purpose
31 December 2020 and joint Key management directors and other
(audited) venture personnel are interested entities) Total
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
----------- --------------- ---------------- ------------------ ----------
Assets
Treasury portfolio - - 35,000 - 35,000
Financing assets - 9,485 17,695 29,848 57,028
Proprietary investments 114,250 - 16,058 49,170 179,478
Co-investments - - - 70,715 70,715
Receivables and
prepayments 4,622 - - 132,616 137,238
Liabilities
Customer accounts 358 225 17,995 3,212 21,790
Placements from
financial, non-financial
institutions and
individuals - 5,584 112,568 - 118,152
Payables and accruals - 500 2,732 74,242 77,474
Equity of investment
account holders 1,095 639 99,579 865 102,178
30 June 2020 (reviewed)
Income
Income from Investment
banking - - - 40,963 40,963
Income from commercial
banking (32) 212 1,111 - 1,291
Income from proprietary
and co-investments (950) - - 4,109 3,159
Real estate income - 56 - - 56
Treasury and other
income - - - 4,000 4,000
Expenses
Operating expenses - 5,252 - - 5,252
Finance expense 19 122 3,332 66 3,539
----------- --------------- ---------------- ------------------ ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2021 ` US$ 000's
18 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
30 June 2021 (reviewed)
Segment assets 1,755,380 1,043,102 2,761,279 1,497,367 7,057,128
Segment liabilities 184,536 679,654 1,162,469 2,633,547 4,660,206
Other segment information
Proprietary investments (Equity-accounted
investees) 5,764 18,290 52,388 - 76,442
Equity of investment account holders - - 1,062,868 158,686 1,221,554
Commitments 27,038 - 126,180 - 153,218
Segment revenue 9,480 34,737 41,713 95,080 181,010
Segment expenses (11,040) (36,437) (25,731) (63,657) (136,865)
Segment result (1,560) (1,700) 15,982 31,423 44,145
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2021 ` US$ 000's
18 Segment reporting (continued)
Real estate Investment Commercial Corporate
development banking banking and treasury Total
US$ '000s US$ '000s US$ '000s US$ '000s US$ '000s
31 December 2020 (audited)
Segment assets 1,746,751 929,392 2,693,884 1,216,836 6,586,863
Segment liabilities 256,879 615,022 1,159,795 2,212,110 4,243,806
Other segment information
Proprietary investments (Equity-accounted
investees) 5,702 18,335 54,013 - 78,050
Equity of investment account holders - - 858,057 298,936 1,156,993
Commitments 35,449 - 110,263 - 145,712
30 June 2020 (reviewed)
Segment revenue 13,630 66,429 30,156 36,311 146,526
Segment expenses (14,872) (49,305) (15,076) (46,887) (126,140)
Segment result (1,242) 17,124 15,080 (10,576) 20,386
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2021 US$ 000's
19 Commitments and contingencies
The commitments contracted in the normal course of business of
the Group:
30 June 31 December 30 June
2021 2020 2020
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Undrawn commitments to extend
finance 86,412 83,260 120,793
Financial guarantees 41,788 27,003 27,374
Capital commitment for infrastructure
Development projects 20,104 22,449 14,064
Commitment to lend 4,914 13,000 14,500
153,218 145,712 176,731
============ ============ ============
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 June
2021 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 Group entities
also have been filed by former employees and customers. 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. Where applicable, 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.
20 ACQUISITION OF SUBSIDIARIES
During the period, the Group acquired additional stake in the
following key subsidiaries:
The Group's existing stake and additional stake acquired are
given below.
Current Additional Total
Stake stake acquired stake
Khaleeji Commercial Bank BSC
('KHCB') 55.41% 13.6% 69.01%
GBCORP BSC (c) ('GBCORP') 50.41% 12.5% 62.91%
--------------- -------
The consideration transferred for the acquisition was in the
form of cash and non-cash assets held. The change in net assets
arising out of the acquisition of additional interests has the
following effect on the consolidated financial statements:
US$ 000's
Carrying amount of NCI acquired (based on historical
cost) 34,846
Consideration to NCI (based on transaction price) 27,063
Increase in equity attributable to shareholders of
the Bank 7,783
=========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2021 US$ 000's
21 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.
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 June 2021 (reviewed) Level Level Level Total
1 2 3
i) Proprietary investments
Investment securities carried
at fair value through:
* income statement - 10,000 - 10,000
* equity 13 - 84,902 84,915
--------- --------- --------- -----------
13 10,000 84,902 94,915
--------- --------- --------- -----------
ii) Treasury portfolio
Investment securities carried
at fair value through:
* income statement - 297,714 154,326 452,040
* equity 981,894 - - 981,894
--------- --------- --------- -----------
981,894 297,714 154,326 1,433,934
--------- --------- --------- -----------
iii) Co-investments
Investment securities carried
at fair value through
* equity - - 120,689 120,689
* income statement - - 7,583 7,583
--------- --------- --------- -----------
- - 128,272 128,272
--------- --------- --------- -----------
981,907 307,714 367,500 1,657,121
========= ========= ========= ===========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2021 US$ 000's
21 Financial instruments (continued)
30 June 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 - - 21,764 21,764
* equity 17,792 - 136,145 153,937
---------- ---------- ---------- ----------
17,792 - 157,909 175,701
---------- ---------- ---------- ----------
ii) Treasury portfolio
Investment securities carried
at fair value through:
* income statement - 145,200 152,750 297,950
* equity - 233,814 111,796 345,610
---------- ---------- ---------- ----------
- 379,014 264,546 643,560
---------- ---------- ---------- ----------
iii) Co-investments
Investment securities carried
at fair value through equity - - 98,558 98,558
917 ,
17,792 379,014 521,013 819
========== ========== ========== ==========
The following table analyses the movement in Level 3 financial
assets during the period:
30 June 31 December
2021 2020
(reviewed) (audited)
At beginning of the period 390,567 221,741
Gains (losses) in income statement 154 (1,326)
Transfer (to) / from Level 2 (924) 155,250
Disposals at carrying value (35,380) (41,685)
Purchases 9,472 63,623
Fair value changes during the period 3,611 (7,036)
------------ ------------
At end of the period 367,500 390,567
============ ============
22 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$ 4,415 million (31 December 2020:
US$ 4,360 million). During the period, the Group had charged
management fees amounting to US$ 1,599 thousand (30 June 2020: US$
2,727 thousand) to its assets under management.
2. Custodial assets comprise of discretionary portfolio
management ('DPM') accepted from investors amounting to US$ 442,828
thousand out of which US$ 253,162 thousand has been invested in the
Bank's own investment products. Further, the Bank is also holding
Sukuk of US$ 18,200 thousand on behalf of the investors.
(The attached information do not form part of 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. This has
been recognized directly in the Group's equity.
-- 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
six months ended 30 June 2021, financing assets bookings were lower
by 49.31% than the same period of the previous year.
-- 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 June 2021
was 13.43%, 215% and 98% respectively.
-- The stressed economic situation resulted in the Bank
recognizing incremental ECL on its financing exposures.
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 six-month period ended 30 June 2021, the Bank
achieved a net profit of USD 37.0 million, which is higher than USD
15.1 million in the same period of the previous year, registering a
increase of 146.1%.
A summary of the significant areas of cumulative financial
impact on the Bahrain banking operations described above since
March 2020 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 - 26,188 -
Concessionary repo at 0%
(#) (737) 129,676 (737)
Modification loss - (25,072) (25,072)
Modification loss amortization 25,072 25,072 -
ECL attributable to COVID-19 (5,835) (5,835) -
Government grants - - 4,953
Lower fee income (retail
banking) (830) - -
----------------- ------------------- ---------------
# Concessionary repo was only provided in the prior year and no
such facilities continue in the current period.
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 June 2021.
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 and only covers impact on Bahrain
banking operations of the Group. This information should not be
considered as indication of the results if the entire year or
relied upon for any other purposes. Since the situation of COVID-19
is uncertain and is still evolving, the above impact is as of date
of preparation of this information. Circumstances may change which
may result in this information to be out-of-date. In addition, this
information does not represent a full comprehensive assessment of
COVID-19 impact on the Group. This information has not been subject
to a formal review by external auditors.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
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