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TIDM95HX
RNS Number : 6007T
GFH Financial Group B.S.C
25 November 2021
GFH FINANCIAL GROUP BSC CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 30 September 2021 Commercial registration : 44136 (registered with Central Bank of Bahrain
as an Islamic wholesale Bank)
Registered Office : Bahrain Financial Harbour
Office: 2901, 29(th) Floor
Building 1398, East Tower
Block: 346, Road: 4626
Manama, Kingdom of Bahrain
Telephone +973 17538538
Directors : Jassim Al Seddiqi, Chairman
H.E. Shaikh Ahmed Bin Khalifa Al-Khalifa , Vice Chairman
(resigned wef 25 Feb 2021)
Hisham Ahmed Alrayes
Rashid Nasser Al Kaabi
Ghazi Faisal Ebrahim Alhajeri
Ali Murad
Ahmed Abdulhamid AlAhmadi
Alia Al Falasi
Fawaz Talal Al Tamimi
Edris Mohammed Rafi Alrafi
Chief Executive Officer : Hisham Ahmed Alrayes Auditors : KPMG Fakhro
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2021
CONTENTS Page
Independent auditors' report on review of condensed consolidated interim financial
information
1
Condensed consolidated interim financial information
Condensed consolidated statement of financial position 2
Condensed consolidated income statement 3
Condensed consolidated statement of changes in owners' equity 4-5
Condensed consolidated statement of cash flows 6
Condensed consolidated statement of changes in restricted investment accounts 7 Condensed consolidated statement of sources and uses of zakah and charity fund 8
Notes to the condensed consolidated interim financial information 9-30
Supplementary information (not reviewed) 31-33
Independent auditors' report on review of condensed consolidated interim financial information
To
The Board of Directors
GFH Financial Group BSC
Manama
Kingdom of Bahrain 11 Nov 2021
Introduction
We have reviewed the accompanying 30 September 2021 condensed consolidated interim financial information of GFH Financial Group BSC (the "Bank") and its subsidiaries (together the Group"), which comprises:
-- the condensed consolidated statement of financial position as at 30 September 2021;
-- the condensed consolidated income statement for the three-month and nine-month periods ended 30 September 2021;
-- the condensed consolidated statement of changes in owners' equity for the nine-month period ended 30 September 2021;
-- the condensed consolidated statement of cash flows for the nine-month period ended 30 September 2021;
-- the condensed consolidated statement of changes in restricted investment accounts for the nine-month period ended 30 September 2021;
-- the condensed consolidated statement of sources and uses of zakah and charity fund for the nine-month period ended 30 September 2021; and
-- notes to the condensed consolidated interim financial information.
The Board of Directors of the Bank is responsible for the preparation and presentation of this condensed consolidated interim financial information in accordance with the basis of preparation stated in note 2 of the condensed consolidated interim financial information. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review.
Scope of review
We conducted our review in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of condensed consolidated interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with Auditing Standards for Islamic Financial Institutions and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that causes us to believe that the accompanying
30 September 2021 condensed consolidated interim financial information is not prepared, in all material respects, in accordance with the basis of preparation stated in Note 2 of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2021 US$ 000's
note 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) ASSETS Cash and bank balances 479,444 536,502 337,361 Treasury portfolio 9 2,726,882 1,878,546 1,767,975 Financing assets 10 1,275,680 1,267,266 1,234,951 Real estate Investments 11 1,851,407 1,812,315 1,840,586 Proprietary investments 12 172,148 216,108 287,898 Co-investments 13 135,813 126,319 103,774 Receivables and prepayments 655,455 605,658 482,435 Property and equipment 138,134 144,149 107,146 ------------- ------------ ------------- Total 7,434,963 6,586,863 6,162,126 ============= ============ ============= LIABILITIES Clients' funds 132,610 130,935 94,320 Placements from financial, non-financial institutions and individuals 2,947,392 2,418,000 2,278,800 Customer current accounts 130,977 140,756 124,001 Term financing 14 1,311,877 1,089,077 933,275 Payables and accruals 485,554 465,038 400,382 ------------- ------------ ------------- Total 5,008,410 4,243,806 3,830,778 ------------- ------------ ------------- Equity of investment account holders 1,218,909 1,156,993 1,122,234 OWNERS' EQUITY Share capital 8 1,000,638 975,638 975,638 Treasury shares (35,779) (63,979) (66,142) Statutory reserve 8 24,058 19,548 15,039 Investment fair value reserve (13,717) 5,593 (21,785) Foreign currency translation reserve (53,762) (46,947) (35,733) Retained earnings 8 44,422 22,385 7,455 Share grant reserve 1,093 1,093 1,321 ------------- ------------ ------------- Total equity attributable to shareholders of Bank 966,953 913,331 875,793 Non-controlling interests 240,691 272,733 333,321 ------------- ------------ ------------- Total owners' equity 1,207,644 1,186,064 1,209,114 ------------- ------------ ------------- Total liabilities, equity of investment account holders and
owners' equity 7,434,963 6,586,863 6,162,126 ============= ============ =============
The Board of Directors approved the condensed consolidated interim financial information on 11 November 2021 and signed on its behalf by:
Jassim Al Seddiqi Hisham Alrayes
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 22 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the nine months ended 30 September 2021 US$ 000's
Nine months ended Three months ended 30 September 30 September 30 September 30 September 2020 2020 2021 (reviewed) 2021 (reviewed) (reviewed) (reviewed) Continuing operations Investment banking income Asset management 2,354 3,765 755 1,038 Deal related income 55,786 62,015 22,648 23,778 ------------- ------------- 58,140 65,780 23,403 24,816 ------------- ------------- ------------- Commercial banking income Income from financing 58,842 60,908 19,058 19,641 Treasury and investment income 46,292 26,568 12,968 9,196 Fee and other income 4,021 4,878 1,765 1,672 Less: Return to investment account holders (23,950) (24,648) (7,856) (8,670) Less: Finance expense (26,716) (22,879) (9,159) (9,385) ------------- ------------- 58,489 44,827 16,776 12,454 ------------- ------------- ------------- Income from proprietary and co-investments Direct investment income, net 14,344 20,374 424 1,074 Dividend from co-investments 10,445 6,415 5,433 2,306 ------------- ------------- 24,789 26,789 5,857 3,380 ------------- ------------- ------------- Real estate income Development and sale 12,268 10,707 4,922 1,451 Rental and operating income 4,135 3,119 2,001 1,962 ------------- ------------- 16,403 13,826 6,923 3,413 ------------- ------------- ------------- Treasury and other income Finance income 9,211 19,410 2,806 6,240 Dividend and net gain/(loss) on treasury investments 80,396 27,890 27,904 16,753 Other income, net 23,179 15,579 5,928 520 ------------- ------------- 112,786 62,879 36,638 23,513 ------------- ------------- ------------- Total income 270,607 214,101 89,597 67,576 ------------- ------------- ------------- Operating expenses 86,638 80,483 26,877 22,835 Finance expense 98,252 101,190 34,856 34,246 Impairment allowances 15 17,441 2,120 3,733 573 Total expenses 202,331 183,793 65,466 57,654 ------------- Profit for the period 68,276 30,308 24,131 9,922 ============= ============= ============= ============= Attributable to: Shareholders of the Bank 60,340 23,167 23,296 8,113 Non-controlling interests 7,936 7,141 835 1,809 ------- 68,276 30,308 24,131 9,922 ======= ======= ======= ====== Earnings per share Basic and diluted earnings per share (US cents) 1.78 0.69 0.69 0.24 ------- ------- ------- ------
The Board of Directors approved the condensed consolidated interim financial information on 11 November 2021 and signed on its behalf by:
Jassim Al Seddiqi Hisham Alrayes
Chairman Chief Executive Officer & Board member
The accompanying notes 1 to 22 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
for the nine months ended 30 September 2021 US$ 000's
Attributable to shareholders of the Bank Non Total -controlling owners' interests equity Foreign Investment currency Share 30 September Share Treasury Statutory fair value translation Retained grant 2021 (reviewed) capital shares reserve reserve reserve earnings reserve Total ---------- Balance at 1 January 2021 (as previously reported) 975,638 (63,979) 19,548 5,593 (46,947) 22,385 1,093 913,331 272,733 1,186,064 Effect of adoption of FAS 32 (note 3) - - - - - (2,096) - (2,096) - (2,096) ---------- ---------- ----------- ----------- ------------ --------- -------- --------- ------------- ---------- Balance at 1 January 2021 (restated) 975,638 (63,979) 19,548 5,593 (46,947) 20,289 1,093 911,235 272,733 1,183,968 Profit for the period - - - - - 60,340 - 60,340 7,936 68,276 Fair value changes during the period - - - 2,693 - - - 2,693 439 3,132 Transfer to income statement on disposal of sukuk - - - (22,003) - - - (22,003) - (22,003) Total recognised income and expense - - - (19,310) - 60,340 - 41,030 8,375 49,405 Bonus Shares issued for 2020 25,000 - - - - (25,000) - - - - Dividends declared for 2020 - - - - - (17,000) - (17,000) - (17,000) Transfer to zakah and charity fund - - - - - (1,572) - (1,572) (142) (1,714) Transfer to statutory reserve - - 4,510 - - (4,510) - - - - Purchase of treasury shares - (26,777) - - - - - (26,777) - (26,777) Sale of treasury
shares - 54,977 - - - 4,092 - 59,069 - 59,069 Foreign currency translation differences - - - - (6,815) - - (6,815) (2,022) (8,837) Acquisition of NCI without a change in control (Note 20) - - - - - 7,783 - 7,783 (38,253) (30,470) Balance at 30 September 2021 1,000,638 (35,779) 24,058 (13,717) (53,762) 44,422 1,093 966,953 240,691 1,207,644 ========== ========== =========== =========== ============ ========= ======== ========= ============= ==========
The accompanying notes 1 to 22 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY
for the nine months ended 30 September 2021 (continued) 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 - - - (29,522) - 23,167 - (6,355) 7,077 722 Additional capital contribution to subsidiary (note 1) - - - - - (59,893) - (59,893) (14,311) (74,204) Modification loss on financing assets - - - - - (13,892) - (13,892) (11,180) (25,072) Government grant - - - - - 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) (1,348) (7,656) NCI arising from acquisition of a subsidiary - - - - - - - - 63,747 63,747 Adjustment of accumulated losses - - (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 22 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS-
for the nine months ended 30 September 2021 US$ 000's
30 September 2021 30 September (reviewed) 2020 (reviewed) OPERATING ACTIVITIES Profit for the period 68,276 30,308 Adjustments for: Income from commercial banking (45,959) (25,322) Income from proprietary investments (24,789) (26,789) Income from dividend and gain / (loss) on treasury investments (129,189) (44,550) Foreign exchange (gain) / loss (1,505) (1,275) Finance expense 124,967 124,031 Impairment allowances 17,441 2,120 Depreciation and amortisation 3,533 3,515 12,775 62,038 Changes in: Placements with financial institutions (original maturities of more than 3 months) (96,339) 344,392 Financing assets (8,414) 37,826 Other assets (53,684) (13,593) CBB Reserve and restricted bank balance (13,342) 40,827 Clients' funds 1,675 23,462 Placements from financial and non-financial institutions 529,392 (168,449) Customer current accounts (9,779) (23,486) Equity of investment account holders 61,916 (96,311) Payables and accruals 20,516 (33,610) ------------------- Net cash generated from operating activities 444,716 173,096 ------------------- INVESTING ACTIVITIES Payments for purchase of equipment (1,054) (329) Proceeds from sale of proprietary investment securities, net 32,020 (39,074) Purchase of treasury portfolio, net (730,773) (560,013) Cash acquired on acquisition of a subsidiary - 32,856 Proceeds from sale of investment in real estate 1,061 944 Dividends received from proprietary investments and co-investments 14,154 8,377 Advance paid for development of real estate (6,688) (14,917) Net cash used in investing activities (691,280) (572,156) FINANCING ACTIVITIES Financing liabilities, net 222,800 653,857 Finance expense paid (116,618) (136,913) Dividends paid (17,485) (34,927) Purchase of treasury shares, net 28,200 (14,764) ------------------- Net cash generated from financing activities 116,897 467,253 ------------------- Net increase/(decrease) in cash and cash equivalents during the period (129,667) 68,193 Cash and cash equivalents at 1 January 655,455 367,533 ------------- ------------------- Cash and cash equivalents at 30 September 525,788 435,726 ============= ------------------- Cash and cash equivalents comprise: Cash and balances with banks (excluding CBB Reserve balance and restricted cash) 421,631 294,099 Placements with financial institutions
(original maturities of 3 months or less) 104,157 141,627 ------------- ------------------- 525,788 435,726 ============= ===================
The accompanying notes 1 to 22 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED INVESTMENT ACCOUNTS
for the nine months ended 30 September 2021
30 September 2021 Balance at 1 January Balance at 30 September (reviewed) 2021 Movements during the period 2021 Average Average value Group's value No of per Investment/ Gross Dividends fees as Administration No of per units share Total (withdrawal) Revaluation income paid an agent expenses units share Total Company (000) US$ US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's (000) US$ US$ 000's ----- ------- --------- ------------ ----------- --------- --------- --------- -------------- ----- ------- --------- Mena Real Estate Company KSCC 150 0.33 50 - - - - - - 150 0.33 50 Al Basha'er Fund 12 7.91 95 (2) - - - - - 12 7.91 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 (45) 5 119 - - - 2,633 1.03 2,712 28,451 (47) 5 119 - - - 28,530 ========= ============ =========== ========= ========= ========= ============== ========= 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 ========= ============ ============ ========= ========= ========= ============== =========
The accompanying notes 1 to 22 form an integral part of the condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF SOURCES AND USES OF ZAKAH AND CHARITY FUND
for the nine months ended 30 September 2021 US$ 000's
30 September 30 September 2021 2020 (reviewed) (reviewed) Sources of zakah and charity fund Contribution by the Group 1,714 1,646 Non-Islamic income 30 103 Total sources 1,744 1,749 ---------------- -------------- Uses of zakah and charity fund Contributions to charitable organisations (1,911) (222) Total uses (1,911) (222) ---------------- -------------- 0B Surplus of sources over uses (167) 1,527 Undistributed zakah and charity fund at beginning of the period 5,346 5,407 1B Undistributed zakah and charity fund at end of the period 5,179 6,934 ================ ============== Represented by: Zakah payable 1,013 1,493 Charity fund 4,166 5,441 5,179 6,934 ============== ==============
The accompanying notes 1 to 22 form an integral part of the condensed consolidated interim financial information.
1 Reporting entity
The condensed consolidated interim financial information for the nine months ended 30 September 2021 comprise the financial information of GFH Financial Group BSC (GFH or the "Bank") and its subsidiaries (together referred to as "the Group").
The following are the principal subsidiaries consolidated in the condensed consolidated interim financial information.
Effective ownership interests as at 30 Country September Investee name of incorporation 2021 Activities GFH Capital Limited United Arab 100% Investment Emirates management ------------------ ----------- --------------------- Khaleeji Commercial Bank Kingdom 69.01% Islamic retail BSC ('KHCB')* of Bahrain bank ------------------ ----------- --------------------- Al Areen Project companies 100% Real estate development ------------------ ----------- --------------------- Falcon Cement Company BSC 51.72% Cement manufacturing (c) ('FCC') ----------- --------------------- GBCORP BSC (c) ('GBCORP') 62.91% Islamic investment firm ----------- --------------------- Residential South Real Estate 100% Real estate Development Company (RSRED) development ----------- --------------------- Athena Private School for 100% Educational Special Education WLL institution ------------------ ----------- --------------------- Morocco Gateway Investment Cayman Islands 90.27% Real estate Company ('MGIC') development ------------------ ----------- --------------------- Tunis Bay Investment Company 82.97% Real estate
('TBIC') development ------------------ ----------- --------------------- Energy City Navi Mumbai Investment 80.27% Real estate Company & Mumbai IT & Telecom development Technology Investment Company (together "India Projects") ------------------ ----------- --------------------- Gulf Holding Company KSCC State of 51.18% Investment Kuwait in real estate ------------------ ----------- --------------------- Roebuck A M LLP United Kingdom 60% Property asset management Company ------------------ ----------- ---------------------
*During the period, the Group has made a voluntary pre-conditional offer to acquire up to 100% of the issued and paid-up ordinary shares of Khaleeji Commercial Bank BSC ("KHCB"), representing up to 187,589,034 ordinary shares of KHCB (constituting voting rights), not currently owned by the Group reprensting up to 21.03% stake of KHCB's issued and paid-up share capital, by way of shares exchange of 0.914 GFH shares per KHCB Share at the discretion of each shareholder of Khaleeji Commercial Bank BSC.
The Bank has other investment holding companies, SPV's and subsidiaries, which are set up to supplement the activities of the Bank and its principal subsidiaries.
2 Basis of preparation
The condensed consolidated interim financial information of the Group has been prepared in accordance with applicable rules and regulations issued by the Central Bank of Bahrain ("CBB"). These rules and regulations require the adoption of all Financial Accounting Standards (FAS) issued by the Accounting and Auditing Organisation of Islamic Financial Institutions (AAOIFI), except for:
2 Basis of preparation (continued)
i. recognition of modification losses on financial assets arising from payment holidays provided to customers impacted by COVID-19 without charging additional profits, in equity instead of profit or loss as required by FAS. Any other modification gain or loss on financial assets are recognised in accordance with the requirements of applicable FAS.;
ii. recognition of financial assistance received from the government and/ or regulators as part of its COVID-19 support measures that meets the government grant requirement, in equity, instead of profit or loss as required by the statement on "Accounting implications of the impact of COVID-19 pandemic" issued by AAOIFI to the extent of any modification loss recognised in equity as a result of (a) above. In case this exceeds the modification loss amount, the balance amount is recognized in the profit or loss account. Any other financial assistance is recognised in accordance with the requirements of FAS; and
iii. recognition of specific impairment allowances and expected credit losses in line with the specific CBB guidelines for application of staging rules issued as part of its COVID-19 response measures.
The above framework for basis of preparation of the condensed consolidated interim financial information is hereinafter referred to as 'Financial Accounting Standards as modified by CBB'. The modification to accounting policies have been applied retrospectively.
Modification loss
During the period ended 30 June 2020, based on a regulatory directive issued by the CBB as concessionary measures to mitigate the impact of COVID-19, the one-off modification loss amounting to US$ 25,295 thousand arising from the six month payment holiday provided to financing customers without charging additional profits was recognised directly in equity.
In line with the requirements of AAOIFI and the CBB rule book, for matters not covered by AAOIFI standards, the group takes guidance from the relevant International Financial Reporting Standards ("IFRS") issued by the International Accounting Standards Board ("IASB"). Accordingly, the condensed consolidated interim financial information of the Group has been presented in condensed form in accordance with the guidance provided by International Accounting Standard 34 - 'Interim Financial Reporting', using 'Financial Accounting Standards as modified by CBB'.
These condensed consolidated interim financial information are reviewed and not audited. The condensed consolidated interim financial information does not include all the information required for full annual financial statements and should be read in conjunction with the Group's last audited consolidated financial statements for the year ended 31 December 2020. However, selected explanatory notes are included to explain events and transactions that are significant to an understanding of the changes in the Group's financial position and performance since the last annual audited consolidated financial statements as at and for the year ended 31 December 2020.
3 Significant accounting policies
The accounting policies and methods of computation applied by the Group in the preparation of the condensed cfaonsolidated interim financial information are the same as those used in the preparation of the Group's last audited consolidated financial statements as at and for the year ended 31 December 2020, except those arising from adoption of the following standards and amendments to standards effective from 1 January 2021. The impact of adoption of these standards and amendments is set out below.
a. Adoption of new standards during the period i. FAS 32 - Ijarah
AAOIFI issued FAS 32 "Ijarah" in 2020, this standard is effective for financial periods beginning on or after 1 January 2021. The standard supersedes the existing FAS 8 "Ijarah and Ijarah Muntahia Bittamleek"
FAS 32 sets out principles for the classification, recognition, measurement, presentation and disclosure of Ijarah (Ijarah asset, including different forms of Ijarah Muntahia Bittamleek) transactions entered into by the Islamic financial institutions as a lessor and lessee.
The Group has applied FAS 32 "Ijarah" from 1 January 2021. The impact of adoption of this standard is disclosed in (b) below.
(a) Change in accounting policy
Identifying an Ijarah
At inception of a contract, the Bank assesses whether the contract is Ijarah, or contains an Ijarah. A contract is Ijarah, or contains an Ijarah if the contract transfers the usufruct (but not control) of an identified asset for a period of time in exchange for an agreed consideration.
Measurement
For a contract that contains an Ijarah component and one or more additional Ijarah or non-Ijarah components, the Bank allocates the consideration in the contract to each Ijarah component on the basis of relative stand-alone price of the Ijarah component and the aggregate estimated stand-alone price of the non-Ijarah components, that may be charged by the lessor, or a similar supplier, to the lessee.
At the commencement date, a lessee shall recognise a right-of-use (usufruct) asset and a net ijarah liability.
i) Right-of-use (usufruct) asset
On initial recognition, the lessee measures the right-of-use asset at cost. The cost of the right-of-use asset comprises of:
-- The prime cost of the right-of-use asset;
-- Initial direct costs incurred by the lessee; and
-- Dismantling or decommissioning costs.
The prime cost is reduced by the expected terminal value of the underlying asset. If the prime cost of the right-of-use asset is not determinable based on the underlying cost method (particularly in the case of an operating Ijarah), the prime cost at commencement date may be estimated based on the fair value of the total consideration paid/ payable (i.e. total Ijarah rentals) against the right-of-use assets, under a similar transaction.
After the commencement date, the lessee measures the right-of-use asset at cost less accumulated amortisation and impairment losses, adjusted for the effect of any Ijarah modification or reassessment.
3 Significant accounting policies (continued)
The Bank amortises the right-of-use asset from the commencement date to the end of the useful economic life of the right-of-use asset, according to a systematic basis that is reflective of the pattern of utilization of benefits from the right-of-use asset. The amortizable amount comprises of the right-of-use asset less residual value, if any.
The Bank determines the Ijarah term, including the contractually binding period, as well as reasonably certain optional periods, including:
-- Extension periods if it is reasonably certain that the Bank will exercise that option; and/ or
-- Termination options if it is reasonably certain that the Bank will not exercise that option.
The Bank carries out impairment assessment in line with the requirements of FAS 30 "Impairment, Credit Losses and Onerous Commitments" to determine whether the right-of-use asset is impaired and to account for any impairment losses. The impairment assessment takes into consideration the salvage value, if any. Any related commitments, including promises to purchase the underlying asset, are also considered in line with FAS 30 "Impairment, Credit Losses and Onerous Commitments".
ii) Net ijarah liability
The net ijarah liability comprises of the gross Ijarah liability, plus deferred Ijarah cost (shown as a contra-liability).
The gross Ijarah liability shall be initially recognised as the gross amount of total Ijarah rental payables for the Ijarah term. The rentals payable comprise of the following payments for the right to use the underlying asset during the Ijarah term:
-- Fixed Ijarah rentals less any incentives receivable;
-- Variable Ijarah rentals including supplementary rentals; and
-- Payment of additional rentals, if any, for terminating the Ijarah (if the Ijarah term reflects the lessee exercising the termination option).
Advance rentals paid are netted-off with the gross Ijarah liability.
Variable Ijarah rentals are Ijarah rentals that depend on an index or rate, such as payments linked to a consumer price index, financial markets, regulatory benchmark rates, or changes in market rental rates. Supplementary rentals are rentals contingent on certain items, such as additional rental charge after provision of additional services or incurring major repair or maintanence. As of 30 September 2021, the Bank did not have any contracts with variable or supplementary rentals.
After the commencement date, the Bank measures the net Ijarah liability by:
-- Increasing the net carrying amount to reflect return on the Ijarah liability (amortisation of deferred Ijarah cost);
-- Reducing the carrying amount of the gross Ijarah liability to reflect the Ijarah rentals paid; and
-- Re-measuring the carrying amount in the event of reassessment or modifications to Ijarah contract, or to reflect revised Ijarah rentals.
-- The deferred Ijarah cost is amortised to income over the Ijarah terms on a time proportionate basis, using the effective rate of return method. After the commencement date, the Bank recognises the following in the income statement:
-- Amortisation of deferred Ijarah cost; and
-- Variable Ijarah rentals (not already included in the measurement of Ijarah liability) as and when the triggering events/ conditions occur
Ijarah contract modifications
After the commencement date, the Bank accounts for Ijarah contract modifications as follows:
-- Change in the Ijarah term: re-calculation and adjustment of the right-of-use asset, the Ijarah liability, and the deferred Ijarah cost; or
-- Change in future Ijarah rentals only: re-calculation of the Ijarah liability and the deferred Ijarah cost only, without impacting the right-of- use asset.
3 Significant accounting policies (continued)
An Ijarah modification is considered as a new Ijarah component to be accounted for as a separate Ijarah for the lessee, if the modification both additionally transfers the right to use of an identifiable underlying asset and the Ijarah rentals are increased corresponding to the additional right-of-use asset. For modifications not meeting any of the conditions stated above, the Bank considers the Ijarah as a modified Ijarah as of the effective date and recognises a new Ijarah transaction. The Bank recalculates the Ijarah liability, deferred Ijarah cost, and right-of-use asset, and de-recognise the existing Ijarah transaction and balances.
Expenses relating to underlying asset
Operational expenses relating to the underlying asset, including any expenses contractually agreed to be borne by the Bank, are recognised by the Bank in income statement in the period incurred. Major repair and maintenance, takaful, and other expenses incidental to ownership of underlying assets (if incurred by lessee as agent) are recorded as receivable from lessor.
Recognition exemptions and simplified accounting for the lessee
A lessee may elect not to apply the requirements of Ijarah recognition and measurement of recognizing right-of-use asset and lease liability for the following:
-- Short-term Ijarah; and
-- Ijarah for which the underlying asset is of low value.
Short-term Ijarah exemption can be applied on a whole class of underlying assets if they have similar characteristics and operational utility. However, low-value Ijarah exemption can only be applied on an individual asset/ Ijarah transaction, and not on group/ combination basis.
Impact as lessor on accounting for Ijara Muntahia Bittamleek contracts
There was no change in the accounting policies for Ijarah Muntahia Bittamleek portfolio upon adoption of this standard.
(b) Impact on adoption of FAS 32
The impact of adoption of FAS 32 as at 1 January 2021 has resulted in an increase in right-of-use asset and an increase in lease liability as stated below. The lease contracts comprise office premises, school premises, leasehold lands, ATM sites, branches etc.
Total Assets Total Liabilities Total Equity and EIAH Closing balance (31 December 2020) 6,586,863 5,400,799 1,186,064 Impact on adoption: Right-of-use asset 58,949 - - Lease liability - 61,045 - Opening impact of FAS 32 - - (2,096) ------------- ------------------ ---------------- Balance on date of initial application of 1 January 2021 6,645,812 5,461,844 1,183,968 ------------- ------------------ ---------------- b. New standards, amendments and interpretations issued but not yet effective
(i) FAS 38 Wa'ad, Khiyar and Tahawwut
AAOIFI has issued FAS 38 Wa'ad, Khiyar and Tahawwut in 2020. The objective of this standard is to prescribe the accounting and reporting principles for recognition, measurement and disclosures in relation to shariah compliant Wa'ad (promise), Khiyar (option) and Tahawwut (hedging) arrangements for Islamic financial institutions. This standard is effective for the financial reporting periods beginning on or after 1 January 2022.
3 Significant accounting policies (continued)
This standard classifies Wa'ad and Khiyar arrangements into two categories as follows:
a) "ancillary Wa'ad or Khiyar" which is related to a structure of transaction carried out using other products i.e. Murabaha, Ijarah Muntahia Bittamleek, etc.; and
b) "product Wa'ad and Khiyar" which is used as a stand-alone Shariah compliant arrangement.
Further, the standard prescribes accounting for constructive obligations and constructive rights arising from the stand-alone Wa'ad and Khiyar products.
The Group is currently evaluating the impact of adopting this standard.
4 Estimates and judgements
Preparation of condensed consolidated interim financial information requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. The areas of significant judgments made by management in applying the Group's accounting policies and the key sources of estimation uncertainty were similar to those applied to the audited consolidated financial statements as at and for the year ended 31 December 2020. However, the process of making the required estimates and assumptions involved further challenges due to the prevailing uncertainties arising from COVID-19 and required use of management judgements.
5 Financial risk management
The Group's financial risk management objectives and policies are consistent with those disclosed in the audited consolidated financial statements for the year ended 31 December 2020.
Regulatory ratios
a. Net stable funding Ratio (NSFR)
The objective of the NSFR is to promote the resilience of banks' liquidity risk profiles and to incentivise a more resilient banking sector over a longer time horizon. The NSFR limits overreliance on short-term wholesale funding, encourages better assessment of funding risk across all on-balance sheet and off-balance sheet items, and promotes funding stability.
NSFR as a percentage is calculated as "Available stable funding" divided by "Required stable funding".
5 Financial risk management (continued)
The Consolidated NSFR calculated as per the requirements of the CBB rulebook, is as follows:
As at 30 September 2021
More than 6 months Less and less No Specified than than one Over Total weighted No. Item Maturity 6 months year one year value Available Stable Funding (ASF): ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 1 Capital: ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Regulatory 2 Capital 1,046,974 - - 58,792 1,105,766 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 3 Other Capital Instruments - - - - - ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 4 Retail deposits and deposits from small business customers:
------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 5 Stable deposits - - - - - ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- Less stable 6 deposits - 1,409,607 278,177 49,769 1,568,775 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 7 Wholesale funding: ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 8 Operational deposits - - - - - ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- Other Wholesale 9 funding - 2,501,267 687,676 807,447 1,781,039 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 10 Other liabilities: ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- 11 NSFR Shari'a-compliant hedging contract liabilities - - - - - ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- All other liabilities not included in the above 12 categories - 158,683 228 137,520 137,520 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 13 Total ASF - - - - 4,593,100 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- Required Stable Funding (RSF): ------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------------- Total NSFR high-quality liquid assets 14 (HQLA) 1,392,111 - - - 74,645 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 15 Deposits held at other financial institutions for operational purposes - - - - - ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- Performing financing and sukuk/ 16 securities: - 684,093 - 888,384 857,740 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 17 Performing financial to financial institutions by level 1 HQLA - - - - - ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- Performing financing to financial institutions secured by non-level 1 HQLA and unsecured performing financing to financial 18 institutions - 19,000 - 79,709 77,253 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- Performing financing to non- financial corporate clients, financing to retail and small business customers, and financing to sovereigns, central banks and PSEs, 19 of which: - 249,545 74,233 13,958 170,961 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 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 - 457,055 406,651 305,938 737,791 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 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 2,556,518 - - - 2,556,518 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 30 OBS items - - - - 28,508 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 31 Total RSF - 1,409,693 480,884 1,287,989 4,503,416 ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 32 NSFR (%) - - - - 102% ------------------ ---------------------------------- ------------------------- -------------------------------- ---------------------------- ---------------------------------- 5 Financial risk management (continued) As at 31 December 2020 More than 6 months Less and less Total No Specified than than one Over weighted No. Item Maturity 6 months year one year value Available Stable Funding (ASF): ----------------------------------------------------------------------------------------------------- 1 Capital: ----------------------------------------------------------------------------------------------- 2 Regulatory Capital 1,009,571 - - 85,635 1,095,206 ------------------------------ ------------- ---------- ---------- ---------- ---------- 3 Other Capital Instruments - - - - - ------------------------------ ------------- ---------- ---------- ---------- ---------- 4 Retail deposits and deposits from small business customers: ----------------------------------------------------------------------------------------------- 5 Stable deposits - - - - - ------------------------------ ------------- ---------- ---------- ---------- ---------- 6 Less stable deposits - 793,480 306,688 231,458 1,221,609 ------------------------------ ------------- ---------- ---------- ---------- ---------- 7 Wholesale funding: ----------------------------------------------------------------------------------------------- 8 Operational deposits - - - - - ------------------------------ ------------- ---------- ---------- ---------- ---------- 9 Other Wholesale funding - 2,042,390 485,665 1,016,610 1,845,431 ------------------------------ ------------- ---------- ---------- ---------- ---------- 10 Other liabilities: ----------------------------------------------------------------------------------------------- NSFR Shari'a-compliant 11 hedging contract liabilities - - - - - ------------------------------ ------------- ---------- ---------- ---------- ---------- All other liabilities not included in the 12 above categories - 81,718 29,287 182,725 182,725 ------------------------------ ------------- ---------- ---------- ---------- ---------- 13 Total ASF - - - - 4,344,971 ------------------------------ ------------- ---------- ---------- ---------- ---------- Required Stable Funding (RSF): ----------------------------------------------------------------------------------------------------- Total NSFR high-quality 14 liquid assets (HQLA) - - - - 50,531 ------------------------------ ------------- ---------- ---------- ---------- ---------- Deposits held at other financial institutions 15 for operational purposes - - - - - ------------------------------ ------------- ---------- ---------- ---------- ---------- Performing financing 16 and sukuk/ securities: - 453,447 20,628 906,357 838,420 ------------------------------ ------------- ---------- ---------- ---------- ---------- 5 Financial risk management (continued) No. Item No Specified Less More Over Total Maturity than than one year weighted 6 months 6 months value and less than one year 17 Performing financial to financial institutions by level 1 HQLA - - - - - ------------------------------- ------------- ---------- ---------- ---------- ---------- Performing financing to financial institutions secured by non-level 1 HQLA and unsecured performing financing 18 to financial institutions - 127,045 - 214,171 245,568 ------------------------------- ------------- ---------- ---------- ---------- ---------- Performing financing to non- financial corporate clients, financing to retail and small business customers, and financing to sovereigns, central 19 banks and PSEs, of which: - 147,516 101,279 - 124,398 ------------------------------- ------------- ---------- ---------- ---------- ---------- With a risk weight of less than or equal to 35% as per the CBB Capital 20 Adequacy Ratio guidelines - - - 22,064 14,342 ------------------------------- ------------- ---------- ---------- ---------- ---------- 21 Performing residential mortgages, of which: - - - - - ------------------------------- ------------- ---------- ---------- ---------- ---------- 22 With a risk weight of less than or equal to 35% under the CBB Capital Adequacy Ratio Guidelines - - - - - ------------------------------- ------------- ---------- ---------- ---------- ---------- Securities/sukuk that are not in default and do not qualify as HQLA, including exchange-traded 23 equities - 260,664 19,500 395,881 535,963 ------------------------------- ------------- ---------- ---------- ---------- ---------- 24 Other assets: - - - - - ------------------------------- ------------- ---------- ---------- ---------- ---------- 25 Physical traded commodities, including gold - - ------------------------------- ------------- ---------- ---------- ---------- ---------- 26 Assets posted as initial margin for Shari'a-compliant hedging contracts and contributions to default funds of CCPs - - - - - ------------------------------- ------------- ---------- ---------- ---------- ---------- 27 NSFR Shari'a-compliant hedging assets - - - - -
------------------------------- ------------- ---------- ---------- ---------- ---------- 28 NSFR Shari'a-compliant hedging contract liabilities before deduction of variation margin posted - - - - - ------------------------------- ------------- ---------- ---------- ---------- ---------- All other assets not included in the above 29 categories 2,652,216 - - - 2,652,216 ------------------------------- ------------- ---------- ---------- ---------- ---------- 30 OBS items - - - - 13,743 ------------------------------- ------------- ---------- ---------- ---------- ---------- 31 Total RSF - 988,673 141,407 1,538,473 4,475,181 ------------------------------- ------------- ---------- ---------- ---------- ---------- 32 NSFR (%) - - - - 97% ------------------------------- ------------- ---------- ---------- ---------- ---------- 5 Financial risk management (continued) b. Liquidity Coverage Ratio (LCR)
LCR has been developed to promote short-term resilience of a bank's liquidity risk profile. The LCR requirements aim to ensure that a bank has an adequate stock of unencumbered high-quality liquidity assets (HQLA) that consists of assets that can be converted into cash immediately to meet its liquidity needs for a 30-calendar day stressed liquidity period. The stock of unencumbered HQLA should enable the Bank to survive until day 30 of the stress scenario, by which time appropriate corrective actions would have been taken by management to find the necessary solutions to the liquidity crisis.
LCR is computed as a ratio of Stock of HQLA over the Net cash outflows over the next 30 calendar days.
Average balance 30 September 31 December 2021 2020 ------------- Stock of HQLA 257,276 244,049 Net cashflows 122,583 103,188 LCR % 214% 240% Minimum required by CBB 80% 80% ------------- ------------ c. Capital Adequacy Ratio 30 September 31 December 2021 2020 CET 1 Capital before regulatory adjustments 1,046,974 1,025,835 Less: regulatory adjustments - - CET 1 Capital after regulatory adjustments 1,046,974 1,025,835 T 2 Capital adjustments 58,792 76,062 Regulatory Capital 1,105,766 1,101,897 Risk weighted exposure: Credit Risk Weighted Assets 7,812,539 7,647,064 Market Risk Weighted Assets 38,325 72,038 Operational Risk Weighted Assets 552,821 552,821 Total Regulatory Risk Weighted Assets 8,403,685 8,271,923 Investment risk reserve (30% only) 2 2 Profit equalization reserve (30% only) 3 3 Total Adjusted Risk Weighted Exposures 8,403,681 8,271,918 Capital Adequacy Ratio (CAR) 13.16% 13.49% Tier 1 Capital Adequacy Ratio 12.46% 12.57% Minimum CAR required by CBB 12.50% 12.50% ------------- ------------ 6 Seasonality
Due to the inherent nature of the Group's business (investment banking, commercial banking and leisure and hospitality management business), the 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 comparative figures have been regrouped in order to conform with the presentation for current year. Such regrouping did not affect previously reported profit for the period or total equity. FAS 32 was adopted prospectively effective 1 January 2021 and comparative figures have not been restated.
8 Appropriations
In the shareholders meeting held on 6 April 2021, the following were approved:
a) Cash dividend of 1.86% of the paid-up share capital amounting to US$ 17 million; b) Stock dividend of 2.56% of the paid-up share capital amounting to US$ 25 million;
c) Appropriation of US$ 1,104,000 towards charity, civil society institutions and Zakat for the year 2020; and
d) Transfer of US$ 4,509,500 to statutory reserve.
Treasury shares
As at 30 September 2021, the Bank holds 39,000,000 (31 December 2020 - 94,300,000) shares as part of its treasury shares which were previously held under a market making arrangement with an approved securities broker. During the shareholders meeting held on 6 April 2021 the shareholders have approved the cancellation of up to a maximum of 141,335,000 numbers of treasury shares as a result of cancellation of the market making agreement which were subject to the approval of the Central Bank of Bahrain. However, the Central Bank of Bahrain did not accede to the share cancellation and instead has instructed the Market Maker to liquidate the shares, as a result of cancellation of the market making agreement, without hampering the normal market operations nor misleading other market participants. The Market Maker is currently in the process of liquidating the treasury share portfolio in a phased manner.
9 Treasury portfolio 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) Placements with financial institutions 207,223 169,998 254,528 Equity type investments At fair value through income statement * Structured notes 443,956 368,431 296,120 Debt type investments At fair value through equity * Quoted sukuk 1,330,074 648,991 541,572 At amortised cost * Quoted sukuk * 751,771 693,737 675,874 * Unquoted sukuk 3,493 3,493 - Less: Impairment allowances (9,635) (6,104) (119) 2,726,882 1,878,546 1,767,975 ============= ============ =============
Out of the Group's debt type investments, US $ 14,113 is classified as stage 2 (31 December 2020: Nil) and remaining is in stage 1.
* Includes quoted sukuk of US$ 290,642 thousand (31 December 2020: US$ 302,260 thousand) pledged against term-financing of US$ 215,077 thousand (31 December 2020: US$ 200,204 thousand).
10 Financing assets 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) Murabaha 968,412 971,164 901,488 Musharaka - 276 276 Wakala 239 239 13,281 Mudharaba 2,599 2,690 2,804 Istisnaa - 3,565 2,427 Assets held-for-leasing 372,769 345,342 398,329 ------------ ------------- 1,344,019 1,323,276 1,318,605 Less: Impairment allowances (68,339) (56,010) (83,654) ------------- ------------ ------------- 1,275,680 1,267,266 1,234,951 ============= ============ =============
Murabaha financing receivables are net of deferred profits of US$ 44,576 thousand
(31 December 2020: US$ 50,032 thousand).
10 Financing assets (continued)
The movement on financing assets and impairment allowances is as follows:
Financing assets Stage 1 Stage 2 Stage 3 Total Financing assets (gross) 1,027,826 185,082 131,111 1,344,019 Expected credit loss 19,286 7,958 41,095 68,339 ---------- -------- -------- Financing assets (net) 1,008,540 177,124 90,016 1,275,680 ========== ======== ======== ========== Impairment allowances Stage 1 Stage 2 Stage 3 Total At 1 January 2021 20,841 6,255 28,914 56,010 Net movement between stages 1,231 398 (1,629) - Net charge for the period (2,786) 1,305 14,463 12,982 Write-offs - - (11) (11) Transfer to Off-BS ECL - - (642) (642) -------- ------- -------- ------- At 30 September 2021 19,286 7,958 41,095 68,339 ======== ======= ======== ======= Financing assets Stage 1 Stage 2 Stage 3 Total 31 December 2020 (audited) Financing assets (gross) 1,024,986 150,475 147,815 1,323,276
Expected credit loss 20,841 6,255 28,914 56,010 ---------- -------- Financing assets (net) 1,004,145 144,220 118,901 1,267,266 ========== ======== ======== ========== Impairment allowances Stage 1 Stage 2 Stage 3 Total At 1 January 2020 11,601 8,366 89,754 109,721 Net movement between stages 228 (4,512) 4,285 1 Net charge for the year 9,298 2,401 (2,542) 9,157 Write-offs - - (29,204) (29,204) Disposal (286) - (33,379) (33,665) At 31 December 2020 20,841 6,255 28,914 56,010 ======== ======== ========= ========= 11 Investment in real estate 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) Investment Property * Land 481,370 481,315 469,286 * Building 64,098 63,757 64,424 ------------- ------------ ------------- 545,468 545,072 533,710 Development Property * Land 788,217 761,032 796,857 * Building 517,722 506,211 510,019 ------------- ------------ ------------- 1,305,939 1,267,243 1,306,876 1,851,407 1,812,315 1,840,586 ============= ============ ============= 12 Proprietary investments 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) Equity type investments At fair value through income statement * Unlisted fund 10,000 10,000 40,000 ------------- ------------ ------------- 10,000 10,000 40,000 ------------- ------------ ------------- At fair value through equity * Listed securities 13 19,060 19,404 * Unquoted securities 84,409 108,998 152,904 ------------- ------------ ------------- 84,422 128,058 172,308 ------------- ------------ ------------- Equity-accounted investees 77,726 78,050 75,590 ------------- ------------ ------------- 172,148 216,108 287,898 ============= ============ ============= 13 Co-investments 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) At fair value through equity * Unquoted securities 128,229 126,319 103,774 At fair value through income statement * Unquoted securities 7,584 - - ------------- ------------ ------------- 135,813 126,319 103,774 ============= ============ ============= 14 Term financing 30 September 31 December 30 September 2021 2020 2020 (reviewed) (audited) (reviewed) Murabaha financing 896,150 748,265 596,938 Sukuk 276,271 289,818 284,481 Ijarah financing 109,964 22,303 22,863 Other borrowings 29,492 28,691 28,993 ------------ ----------- ------------ 1,311,877 1,089,077 933,275 ============ =========== ============ 15 Impairment allowances Nine months ended 30 September 30 September 2021 2020 (reviewed) (reviewed) Expected credit loss on: Bank balances (2) 27 Treasury portfolio 3,531 (503) Financing assets, net (note 10) 13,078 703 Other receivables (248) 1,719 Commitments and financial guarantees 393 174 ------------ --------------- 16,752 2,120 Impairment on investment in equity securities 689 - ------------ --------------- 17,441 2,120 ============ =============== 16 EARNING PER SHARE
The calculation of basic earning per share has been based on the following profit attributable to the ordinary shareholders and weighted-average number of ordinary shares outstanding. The Group does not have any diluted potentially ordinary shares as of the reporting dates. Hence, the basic and diluted earning per share is similar.
Nine months ended Three months ended 30 September 30 September 30 September 30 September 2021 2020 2021 2020 (reviewed) (reviewed) (reviewed) (reviewed) Profit for the period attributable to shareholders of the Bank 60,340 23,167 23,296 8,113 Weighted average number of shares outstanding during the period (in thousands) 3,393,154 3,368,791 3,387,663 3,374,481 Basic and diluted earning per share (US Cents) 1.78 0.69 0.69 0.24 ============= ============= ============= ============= 17 Related party transactions
The significant related party balances and transactions as at 30 September 2021 are given below:
Related parties as per FAS 1 Assets Significant under shareholders management / entities (including in which special Associates Key directors purpose 30 September and joint management are and other 2021 (reviewed) venture personnel interested entities) Total Assets Treasury portfolio - - 37,148 - 37,148 Financing assets - 7,817 32,407 16,754 56,978 Proprietary investments 114,322 - 23,104 48,011 185,437 Co-investments - - - 74,778 74,778 Receivables and prepayments 9,756 623 4,000 166,406 180,785 Liabilities Placements from financial, non-financial institutions and individuals - 4,430 - - 4,430 Customer accounts 1,488 366 10,517 64 12,435 Payables and accruals - 57 1,528 138,643 140,228 Equity of investment account holders 1,088 355 54,276 772 56,491 Income Income from Investment banking - - - 53,040 53,040 Income from commercial banking * Income from financing - 310 2,332 - 2,642 * Treasury and investment income (1,915) - - 698 (1,217)
* Less: Return to investment account holders 24 3 5,111 13 5,151 * Less: Finance expense - 50 - - 50 Income from proprietary and co-investments (61) - 8,017 15,891 23,847 Income from real estate - 120 - - 120 Treasury and other income - - (819) 957 138 Expenses Operating expenses - 6,202 743 117 7,062 17 Related party transactions (continued) Related parties as per FAS 1 Assets Significant under management shareholders (including / entities special Associates in which purpose 31 December 2020 and joint Key management directors and other (audited) venture personnel are interested entities) Total US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's ----------- --------------- ---------------- ------------------ ---------- Assets Treasury portfolio - - 35,000 - 35,000 Financing assets - 9,485 17,695 29,848 57,028 Proprietary investments 114,250 - 16,058 49,170 179,478 Co-investments - - - 70,715 70,715 Receivables and prepayments 4,622 - - 132,616 137,238 Liabilities Customer accounts 358 225 17,995 3,212 21,790 Placements from financial, non-financial institutions and individuals - 5,584 112,568 - 118,152 Payables and accruals - 500 2,732 74,242 77,474 Equity of investment account holders 1,095 639 99,579 865 102,178 30 September 2020 (reviewed) 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 2021 ` US$ 000's
18 Segment reporting
The Group is organised into business units based on their nature of operations and independent reporting entities and has four reportable operating segments namely real estate development, investment banking, commercial banking and corporate and treasury.
Real estate Investment Commercial Corporate development banking banking and treasury Total 30 September 2021 (reviewed) Segment assets 1,749,611 1,067,151 2,780,492 1,837,709 7,434,963 Segment liabilities 178,636 716,567 1,148,308 2,964,899 5,008,410 Other segment information Proprietary investments 5,764 18,274 53,688 - 77,726 Equity of investment account holders - - 1,078,062 140,847 1,218,909 Commitments 21,888 - 146,279 - 168,167 Segment revenue 16,403 58,140 58,489 137,575 270,607 Segment expenses (11,582) (40,568) (35,126) (115,055) (202,331) Segment result 4,822 17,572 23,363 22,519 68,276
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2021 ` US$ 000's
18 Segment reporting (continued) Real estate Investment Commercial Corporate development banking banking and treasury Total 31 December 2020 (audited) Segment assets 1,746,751 929,392 2,693,884 1,216,836 6,586,863 Segment liabilities 256,879 615,022 1,159,795 2,212,110 4,243,806 Other segment information Proprietary investments 5,702 18,335 54,013 - 78,050 Equity of investment account holders - - 858,057 298,936 1,156,993 Commitments 35,449 - 110,263 - 145,712 30 September 2020 (reviewed) Segment revenue 13,826 92,569 42,049 65,657 214,101 Segment expenses (16,756) (61,488) (21,567) (83,982) (183,793) Segment result (2,930) 31,082 20,482 (18,326) 30,308
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2021 US$ 000's
19 Commitments and contingencies
The commitments contracted in the normal course of business of the Group:
30 September 31 December 30 September 2021 2020 2020 US$ 000's US$ 000's US$ 000's (reviewed) (audited) (reviewed) Undrawn commitments to extend finance 104,459 83,260 115,552 Financial guarantees 41,820 27,003 27,499 Capital commitment for infrastructure Development projects 16,974 22,449 10,734 Commitment to lend 4,914 13,000 14,000 168,167 145,712 167,785 ============= ============ =============
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 2021 due to the performance of any of its projects.
Litigations, claims and contingencies
The Group has several claims and litigations filed against it in connection with projects promoted by the Bank in the past and with certain transactions. Further, claims against the Group entities also have been filed by former employees and customers. Based on the advice of the Bank's external legal counsel, the management is of the opinion that the Bank has strong grounds to successfully defend itself against these claims. Where applicable, appropriate provision has been made in the books of accounts. No further disclosures regarding contingent liabilities arising from any such claims are being made by the Bank as the directors of the Bank believe that such disclosures may be prejudicial to the Bank's legal position.
20 ACQUISITION OF SUBSIDIARIES
During the period, the Group acquired additional stake in the following key subsidiaries:
The Group's existing stake and additional stake acquired are given below.
Current Additional Total Stake stake acquired Stake Khaleeji Commercial Bank BSC ('KHCB') 55.41% 13.6% 69.01% GBCORP BSC (c) ('GBCORP') 50.41% 12.5% 62.91% --------------- -------
The consideration transferred for the acquisition was in the form of cash and non-cash assets held. The change in net assets arising out of the acquisition of additional interests has the following effect on the consolidated financial statements:
US$ 000's Carrying amount of NCI acquired (based on historical cost) 34,846 Consideration to NCI (based on transaction price) 27,063 Increase in equity attributable to shareholders of the Bank 7,783 =========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2021 US$ 000's
21 Financial instruments
Fair values
Fair value is an amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm's length transaction. This represents the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date.
Underlying the definition of fair value is a presumption that an enterprise is a going concern without any intention or need to liquidate, curtail materially the scale of its operations or undertake a transaction on adverse terms.
The COVID-19 pandemic has resulted in a global economic slowdown with uncertainties in the economic environment. The global capital and commodity markets have also experienced great volatility and a significant drop in prices. The Group's fair valuation exercise primarily relies on quoted prices from active markets for each financial instrument (i.e. Level 1 input) or using observable or derived prices for similar instruments from active markets (i.e. Level 2 input) and has reflected the volatility evidenced during the period and as at the end of the reporting date in its measurement of its financial assets and liabilities carried at fair value. Where fair value measurements was based in full or in part on unobservable inputs (i.e. Level 3), management has used its knowledge of the specific asset/ investee, its ability to respond to or recover from the crisis, its industry and country of operations to determine the necessary adjustments to its fair value determination process.
Fair value hierarchy
The table below analyses the financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
-- Level 2: inputs other than quoted prices included within Level 1 that are observable for the asset or liability, either directly (i.e.as prices) or indirectly (i.e. derived from prices).
-- Level 3: inputs for the asset or liability that are not based on observable market data (unobservable inputs).
30 September 2021 (reviewed) Level Level Level Total 1 2 3 i) Proprietary investments Investment securities carried at fair value through: * income statement - 10,000 - 10,000 * equity 13 - 84,409 84,422 ---------- -------- -------- ---------- 13 10,000 84,409 94,422 ---------- -------- -------- ---------- ii) Treasury portfolio Investment securities carried at fair value through: * income statement - 256,525 187,431 443,956 * equity 1,330,074 - - 1,330,074 ---------- -------- -------- ---------- 1,330,074 256,525 187,431 1,774,030 ---------- -------- -------- ---------- iii) Co-investments Investment securities carried at fair value through * equity - - 128,229 128,229 * income statement - - 7,584 7,584 ---------- -------- -------- ---------- - - 135,813 135,813 ---------- -------- -------- ---------- 1,330,087 266,525 407,653 2,004,265 ========== ======== ======== ==========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2021 US$ 000's
21 Financial instruments (continued) 30 September 2020 (reviewed) Level Level Level Total 1 2 3 US$ 000's US$ 000's US$ 000's US$ 000's iii) 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 ---------- ---------- ---------- ---------- iv) Treasury portfolio Investment securities carried at fair value through: * income statement - - 296,120 296,120 * equity 541,572 - - 541,572 ---------- ---------- ---------- ---------- 541,572 - 296,120 837,692 ---------- ---------- ---------- ---------- iii) Co-investments Investment securities carried at fair value through equity - - 103,774 103,774 ---------- ---------- ---------- ---------- 560,976 - 592,798 1,153,774 ========== ========== ========== ==========
The following table analyses the movement in Level 3 financial assets during the period:
30 September 31 December 2021 2020 (reviewed) (audited) At beginning of the period 390,567 221,741 Gains (losses) in income statement (6,898) (1,326) Transfer (to) / from Level 2 32,181 155,250 Disposals at carrying value (25,522) (41,685) Purchases 13,714 63,623 Fair value changes during the period 3,611 (7,036) ------------- ------------ At end of the period 407,653 390,567 ============= ============ 22 ASSETS UNDER MANAGEMENT AND CUSTODIAL ASSETS
1. The Group provides corporate administration, investment management and advisory services to its project companies, which involve the Group making decisions on behalf of such entities. Assets that are held in such capacity are not included in these consolidated financial statements. At the reporting date, the Group had assets under management of US$ 5,263 million (31 December 2020: US$ 4,360 million). During the period, the Group had charged management fees amounting to US$ 2,354 thousand (30 September 2020: US$ 3,765 thousand) to its assets under management.
2. Custodial assets comprise of discretionary portfolio management ('DPM') accepted from investors amounting to US$ 539,878 thousand out of which US$ 369,635 thousand has been invested in the Bank's own investment products. Further, the Bank is also holding Sukuk of US$ 17,367 thousand on behalf of the investors.
(The attached information do not form part of the condensed consolidated interim financial information)
On 11 March 2020, the Coronavirus (COVID-19) outbreak was declared, a pandemic by the World Health Organization (WHO) and has rapidly evolved globally. This has resulted in a global slowdown with uncertainties in the economic environment. This included disruption to capital markets, deteriorating credit markets and liquidity concerns. Authorities have taken various measures to contain the spread including implementation of travel restrictions and quarantine measures.
The pandemic as well as the resulting measures have had a significant knock-on impact on the Bank and its principal subsidiaries and its associates (collectively the "Group"). The Group is actively monitoring the COVID-19 situation, and in response to this outbreak, has activated its business continuity plan and various other risk management practices to manage the potential business disruption on its operations and financial performance.
The Central Bank of Bahrain (CBB) announced various measures to combat the effect of COVID- 19 to ease liquidity conditions in the economy as well as to assist banks in complying with regulatory requirements. Theses measure include the following:
-- Payment holiday for 6 months to eligible customers without any additional profits; -- Concessionary repo to eligible retail banks at zero Percent; -- Reduction of cash reserve ratio from 5% to 3%;
-- Reductions of liquidity coverage ratio (LCR) and net stable funding ratio (NSFR) from 100% to 80%;
-- Aggregate of modification loss and incremental expected credit losses (ECL) provisions for stage 1 and stage 2 from March to December 2020 to be added to Tier 1 capital for two years ending 31 December 2020 and 31 December 2021. And to deduct this amount proportionality from Tier 1 capital on an annual basis for three years ending December 2022, 31 December 2023 and 31 December 2024.
The onset of COVID-19 and the aforementioned measures resulted in the following significant effects to the financial position and operations of the Group:
-- The CBB mandated 6-month payment holiday required the retail banking subsidiary of the Group to recognize a one-off modification loss directly in equity. The modification loss has been calculated as the difference between the net present value of the modified cash flows calculated using the original effective profit rate and the carrying value of the financial assets on the date of modification.
-- The Government of Kingdom of Bahrain has announced various economic stimulus programmes ("Packages") to support businesses in these challenging times. The Group received various forms of financial assistance representing specified reimbursement of a portion of staff costs, waives of fees, levies and utility charges and zero cost funding received from the government and/or regulators, in response to its COVID-19 support measures. This has been recognized directly in the Group's equity.
-- The mandated 6 months payments holiday also included the requirement to suspend minimum payments and service fees on credit card balances and reduction in transaction related charges, this resulted in a significant decline in the Group's fees income from its retail banking operations.
-- The strain caused by COVID-19 on the local economy resulted in a slow-down in the sale of new asset management products and booking of new corporate financing assets by the Group. During the nine months ended 30 September 2021, financing assets bookings were lower by 24.9% than the same period of the previous year.
-- Decreased consumer spending caused by the economic slow-down in the booking of new consumer financing assets by the Bank, whereas, deposit balances decreased compared to the same period of the previous year. These effects partly alleviated the liquidity stress faced by the Group due to the mandated 6 months payments holiday. The Group's liquidity ratios and regulatory CAR were impacted but it continues to meet the revised regulatory requirement. The consolidated CAR, LCR and NSFR as of 30 September 2021 was 13.16%, 241% and 102% respectively.
-- The stressed economic situation resulted in the Bank recognizing incremental ECL on its financing exposures.
In addition to the above areas of impact, due to the overall economic situation certain strategic business and investment initiatives have been postponed until there is further clarity on the recovery indicators and its impact on the business environment. Overall, for the nine-month period ended 30 September 2021, the Bank achieved a net profit of USD 60.3 million, which is higher than USD 23.2 million in the same period of the previous year, registering a increase of 160.5%.
A summary of the significant areas of cumulative financial impact on the Bahrain banking operations described above since March 2020 is as follows:
Net Impact Net Impact Net Impact recognized on the Group's recognized in the Group's consolidated in the Group's consolidated financial consolidated income statement position owners' equity USD' 000 USD' 000 USD' 000 Average reduction of cash reserve - 26,188 - Concessionary repo at 0% (#) (737) 129,676 (737) Modification loss - (25,072) (25,072) Modification loss amortization 25,072 25,072 - ECL attributable to COVID-19 (5,835) (5,835) - Government grants - - 4,953 Lower fee income (retail banking) (830) - - ----------------- ------------------- ---------------
# Concessionary repo was only provided in the prior year and no such facilities continue in the current period.
Information reported in the table above only include components or line items in the financial statements where impact was quantifiable and material. Some of the amounts reported above include notional loss of income or incremental costs and hence may not necessarily reconcile with amounts reported in the interim financial information for 30 September 2021.
The above supplementary information is provided to comply with CBB circular number OG/259/2020 (reporting of Financial Impact of COVID-19), dated 14 July 2020 and only covers impact on Bahrain banking operations of the Group. This information should not be considered as indication of the results if the entire year or relied upon for any other purposes. Since the situation of COVID-19 is uncertain and is still evolving, the above impact is as of date of preparation of this information. Circumstances may change which may result in this information to be out-of-date. In addition, this information does not represent a full comprehensive assessment of COVID-19 impact on the Group. This information has not been subject to a formal review by external auditors.
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