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Name | Symbol | Market | Type |
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Gfh Sukuk 25 | LSE:95HX | London | Bond |
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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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http://www.rns-pdf.londonstockexchange.com/rns/4216F_1-2020-11-16.pdf
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 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.
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END
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November 16, 2020 07:17 ET (12:17 GMT)
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