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TIDM95HX
RNS Number : 8781F
GFH Financial Group B.S.C
09 November 2022
GFH FINANCIAL GROUP BSC CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION 30 SEPTEMBER 2022 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 : Ghazi Faisal Ebrahim Alhajeri , Chairman
Edris Mohd Rafi Mohd Saeed Alrafi, Vice Chairman
Jassim Al Seddiqi, (Resigned wef 04 April 2022)
Hisham Ahmed Alrayes
Rashid Nasser Al Kaabi
Ali Murad
Ahmed Abdulhamid AlAhmadi, (Resigned wef 07 June 2022)
Alia Al Falasi
Fawaz Talal Al Tamimi
Darwish Al Ketbi
Yusuf Abdulla Taqi, (Appointed wef 19 June 2022)
Chief Executive Officer : Hisham Ahmed Alrayes Auditors : KPMG Fakhro
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022
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 9-34
Independent auditors' report on review of condensed consolidated interim financial information To the Board of Directors GFH Financial Group BSC Manama, Kingdom of Bahrain We have reviewed the accompanying 30 September 2022 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 2022; * the condensed consolidated income statement for the three-month and nine-month periods ended 30 September 2022; * the condensed consolidated statement of changes in owners' equity for the nine-month period ended 30 September 2022; * the condensed consolidated statement of cash flows for the nine-month period ended 30 September 2022; * the condensed consolidated statement of changes in restricted investment accounts for the nine-month period ended 30 September 2022; * the condensed consolidated statement of sources and uses of zakah and charity fund for the nine-month period ended 30 September 2022; 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 and presentation as stated in note 2 of this condensed consolidated interim financial information. Our responsibility is to express a conclusion on this condensed consolidated interim financial information based on our review. We conducted our review in accordance with the International Standard on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of 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. Based on our review, nothing has come to our attention that causes us to believe that the accompanying 30 September 2022 condensed consolidated interim financial information is not prepared, in all material respects, in accordance with the basis of preparation and presentation as stated in note 2 of this condensed consolidated interim financial information. 09 November 2022
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 September 2022 US$ 000's
Note 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) ASSETS Cash and bank balances 550,978 722,471 479,444 Treasury portfolio 8 3,749,371 3,090,049 2,726,882 Financing assets 9 1,473,711 1,311,002 1,275,680 Investment in real estate 10 1,270,291 1,905,598 1,851,407 Proprietary investments 11 1,108,063 211,514 172,148 Co-investments 12 135,334 171,877 135,813 Receivables and other assets 13 642,925 531,488 655,455 Property and equipment 73,679 139,687 138,134 ------------- Total assets 9,004,352 8,083,686 7,434,963 ============= ============ ============= LIABILITIES Clients' funds 84,010 216,762 132,610 Placements from financial, non-financial institutions and individuals 4,154,673 3,052,092 2,947,392 Customer current accounts 157,589 133,046 130,977 Term financing 14 1,957,119 1,750,667 1,311,877 Other liabilities 539,479 404,654 485,554 ------------- ------------ ------------- Total liabilities 6,892,870 5,557,221 5,008,410 ------------- ------------ ------------- Total equity of investment account holders 1,090,593 1,358,344 1,218,909 OWNERS' EQUITY Share capital 1,015,638 1,000,638 1,000,638 Treasury shares (99,788) (48,498) (35,779) Statutory reserve 27,970 27,970 24,058 Investment fair value reserve (75,070) (28,561) (13,717) Foreign currency translation reserve - (70,266) (53,762) Retained earnings 86,661 81,811 44,422 Share grant reserve - - 1,093 ------------- ------------ ------------- Total equity attributable to shareholders of the Bank 955,411 963,094 966,953 Non-controlling interests 65,478 205,027 240,691 ------------- ------------ ------------- Total owners' equity 1,020,889 1,168,121 1,207,644
------------- ------------ ------------- Total liabilities, equity of investment account holders and owners' equity 9,004,352 8,083,686 7,434,963 ============= ============ =============
The Board of Directors approved the condensed consolidated interim financial information on 09 November 2022 and signed on its behalf by:
Ghazi Faisal Ebrahim Alhajeri 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 2022 US$ 000's
Nine months ended Three months ended Note 30 September 30 September 30 September 30 September 2021 2021 2022 (reviewed) 2022 (reviewed) (reviewed) (reviewed) Investment banking income Asset management 5,885 2,354 2,301 755 Deal related income 67,838 55,786 26,324 22,648 ------------- -------------- ------------- 73,723 58,140 28,625 23,403 ------------- -------------- ------------- Commercial banking income Income from financing 68,435 58,842 25,460 19,058 Treasury and investment income 43,953 46,292 17,336 12,968 Fee and other income 2,979 4,021 1,019 1,765 Less: Return to investment account holders (28,626) (23,950) (9,988) (7,856) Less: Finance expense (28,285) (26,716) (12,230) (9,159) ------------- -------------- ------------- 58,456 58,489 21,597 16,776 ------------- -------------- ------------- Income from proprietary and co-investments Income from sale of assets 12,643 12,268 10,711 4,922 Leasing and operating income 13,859 4,135 6,594 2,001 Direct investment income, net 3,451 14,405 204 440 Share of profit from equity-accounted investees 19,281 (61) 8,781 (16) Dividend from co-investments 24,583 10,445 8,718 5,433 -------------- ------------- -------------- ------------- 73,817 41,192 35,008 12,780 -------------- ------------- -------------- ------------- Treasury and other income Finance and treasury portfolio income, net 74,387 89,607 22,283 30,710 Other income, net 13,495 23,179 3,602 5,928 ------------- -------------- ------------- 87,882 112,786 25,885 36,638 ------------- -------------- ------------- Total income 293,878 270,607 111,115 89,597 -------------- ------------- -------------- ------------- Operating expenses 83,971 86,638 24,406 26,877 Finance expense 138,151 98,252 57,460 34,856 Impairment allowances 15 281 17,441 3,150 3,733 Total expenses 222,403 202,331 85,016 65,466 Profit for the period 71,475 68,276 26,099 24,131 -------------- ------------- -------------- ------------- Attributable to: Shareholders of the Bank 66,235 60,340 24,055 23,296 Non-controlling interests 5,240 7,936 2,044 835 ------- 71,475 68,276 26,099 24,131 ======= ======= ======= ======= Earnings per share Basic and diluted earnings per share (US cents) 16 1.91 1.76 0.73 0.68 ------- ------- ------- -------
Ghazi Faisal Ebrahim Alhajeri 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 STATEMENT OF CHANGES IN OWNERS' EQUITY
for the nine months ended 30 September 2022 US$ 000's
Attributable to shareholders of the Bank Foreign Investment currency Total 30 September 2022 Share Treasury Statutory fair value translation Retained Non-Controlling owners' (reviewed) capital shares reserve reserve reserve earnings Total Interests (NCI) equity ---------- Balance at 1 January 2022 1,000,638 (48,498) 27,970 (28,561) (70,266) 81,811 963,094 205,027 1,168,121 Profit for the period - - - - - 66,235 66,235 5,240 71,475 Transfer on reclassification from FVTE to amortised cost (Note 8) - - - 41,320 - - 41,320 - 41,320 Fair value changes during the period - - - (85,315) - - (85,315) (3,072) (88,387) Transfer to income statement on disposal of sukuk - - - (2,514) - - (2,514) - (2,514) Total recognised income and expense - - - (46,509) - 66,235 19,726 2,168 21,894 Bonus shares issued 15,000 - - - - (15,000) - - - Dividend declared - - - - - (45,000) (45,000) - (45,000) Purchase of treasury shares - (83,177) - - - - (83,177) - (83,177) Transfer to zakah and charity fund - - - - - (1,483) (1,483) - (1,483) Sale of treasury shares - 31,887 - - - 98 31,985 - 31,985 Transferred to income statement on deconsolidation of subsidiaries - - - - 70,266 - 70,266 - 70,266 Adjusted on deconsolidation
of subsidiaries (Note 22) - - - - - - - (142,080) (142,080) Additional NCI on acquisition of subsidiary (Note 23) - - - - - - - 363 363 ---------- ---------- ----------- ----------- ------------ --------- --------- ---------------- ---------- Balance at 30 September 2022 1,015,638 (99,788) 27,970 (75,070) - 86,661 955,411 65,478 1,020,889 ========== ========== =========== =========== ============ ========= ========= ================ ==========
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 2022 (continued) US$ 000's
Attributable to shareholders of the Bank Non Total -controlling owners' interests equity Foreign Investment currency Share 30 September 2021 Share Treasury Statutory fair value translation Retained grant (reviewed) capital shares reserve reserve reserve earnings reserve Total ---------- Balance at 1 January 2021 (as previously reported) 975,638 (63,979) 19,548 5,593 (46,947) 22,385 1,093 913,331 272,733 1,186,064 Effect of adoption of FAS 32 - - - - - (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 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 2022 US$ 000's
30 September 2022 30 September (reviewed) 2021 (reviewed) OPERATING ACTIVITIES Profit for the period 71,475 68,276 Adjustments for: Income from commercial banking (43,135) (45,959) Income from proprietary investments (73,817) (24,789) Income from dividend and gain on treasury investments (77,273) (129,189) Foreign exchange (gain) (9,911) (1,505) Finance expense 138,151 124,967 Impairment allowances 281 17,441 Depreciation and amortisation 1,317 3,533 7,088 12,775 Changes in: Placements with financial institutions (original maturities of more than 3 months) (270,415) (96,339) Financing assets (162,709) (8,414) Other assets (265,250) (53,684) CBB Reserve and restricted bank balance (10,876) (13,342) Clients' funds (132,752) 1,675 Placements from financial and non-financial institutions 1,102,581 529,392 Customer current accounts 24,543 (9,779) Equity of investment account holders (267,751) 61,916 Payables and accruals 99,160 20,516 ------------------ Net cash generated from operating activities 123,619 444,716 ------------------ INVESTING ACTIVITIES Payments for purchase of equipment (443) (1,054) Purchase of proprietary investment securities, net (44,662) 32,020 Purchase of treasury portfolio, net (319,498) (730,773) Cash acquired on acquisition of a subsidiary 1,353 - Proceeds from sale of investment in real estate - 1,061 Cash paid on acquisition of a subsidiary (9,205) - Dividends received from proprietary investments and co-investments 26,817 14,154 Advance paid for development of real estate (8,367) (6,688) Net cash used in investing activities (354,005) (691,280) FINANCING ACTIVITIES Financing liabilities, net 244,577 222,800 Finance expense paid (134,724) (116,618) Purchase of GFH sukuk, net (8,135) - Dividends paid (44,651) (17,485) Purchase of treasury shares, net (51,287) 28,200 ------------------ Net cash generated from financing activities 5,780 116,897 ------------------ Net decrease in cash and cash equivalents during the period (224,606) (129,667) Cash and cash equivalents at 1 January 844,344 655,455
-------------- ------------------ Cash and cash equivalents at 30 September 619,738 525,788 ============== ------------------ Cash and cash equivalents comprise: Cash and balances with banks (excluding CBB Reserve balance and restricted cash) 482,020 421,631 Placements with financial institutions (original maturities of 3 months or less) 137,718 104,157 -------------- ------------------ 619,738 525,788 ============== ==================
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 2022
30 September 2022 Balance at 1 January Balance at 30 September (reviewed) 2022 Movements during the period 2022 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 7.87 94 - - - - - - 12 7.87 94 Safana Investment (RIA 1) 1247 2.65 3,305 - - - - - - 1247 2.65 3,305 Shaden Real Estate Investment WLL (RIA 5) 269 2.65 713 - - - - - - 269 2.65 713 4,162 - - - - - - 4,162 ========= ============ =========== ========= ========= ========= ============== ========= 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 ========= ============ =========== ========= ========= ========= ============== =========
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 2022 US$ 000's
30 September 30 September 2022 2021 (reviewed) (reviewed) Sources of zakah and charity fund Contribution by the Group 2,548 1,714 Non-Islamic income 51 30 Total sources 2,599 1,744 ---------------- ---------------- Uses of zakah and charity fund Contributions to charitable organisations (1,890) (1,911) Total uses (1,890) (1,911) ---------------- ---------------- 0B Surplus / (deficit) of sources over uses 709 (167) Undistributed zakah and charity fund at beginning of the period 5,192 5,346 1B Undistributed zakah and charity fund at end of the period 5,901 5,179 ================ ================ Represented by: Zakah payable 753 1,013 Charity fund 5,148 4,166 5,901 5,179 ============== ==============
The accompanying notes 1 to 24 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 2022 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 of September Investee name incorporation 2022 Activities GFH Capital Limited United Arab 100% Investment Emirates management ---------------- ----------- ------------------- GFH Capital S.A. Saudi Arabia 100% Investment management ---------------- ----------- ------------------- Khaleeji Commercial Bank Kingdom of 85.14% Islamic retail BSC ('KHCB') Bahrain bank ---------------- ----------- ------------------- Al Areen Project companies 100% Real estate development ---------------- ----------- ------------------- GBCORP Tower Group Ltd 62.91% Own & lease real estate ----------- ------------------- GBCORP B.S.C (c) 62.91% Islamic investment firm ----------- ------------------- Residential South Real 100% Real estate Estate Development Company development (RSRED) ----------- ------------------- Harbour House Row Towers 100% Own & lease W.L.L. real estate
----------- ------------------- Britus International School 100% Educational for Special Education W.L.L institution ---------------- ----------- ------------------- Gulf Holding Company KSCC State of Kuwait 53.63% Investment in real estate ---------------- ----------- ------------------- SQ Topco II LLC (Note 23) United States 51% Property asset management Company ---------------- ----------- ------------------- Big Sky Asset Management United States 51% Real estate LLC investment (Note 23) manager ---------------- ----------- ------------------- Roebuck A M LLP United Kingdom 60% Property asset management Company ---------------- ----------- -------------------
The Bank has other investment holding companies, SPV's and subsidiaries, which are set up to supplement the activities of the Bank and its principal subsidiaries.
GFH Group has carried out a group restructuring program (the 'program') which involves the spinning out of its infrastructure and real estate assets under a new entity "Infracorp B.S.C." ("Infracorp"), which has been capitalized with more than US$1 billion in infrastructure and development assets. Infracorp will specialise in investments focusing on accelerating growth and development of sustainable infrastructure assets and environments across the gulf and global markets.
Under this program certain real estate and infrastructure assets as well as certain investments in securities, equity accounted investees and subsidiaries have been transferred from the Group to Infracorp for an in-kind consideration in the form of Sukuk and/ or equity shares issued by Infracorp. A majority stake of 60% in Infracorp equity was divested during the period ended
31 March 2022. See note 22 for more details.
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).
The accounting policies used in the preparation of annual audited consolidated financial information of the Group for the year ended 31 December 2020 and 31 December 2021 were in accordance with FAS as modified by CBB (refer to the Group's audited financial statements for the year ended 31 December 2021 for the details of the COVID-19 related modifications applied). Since the CBB modification were specific to the financial year 2020 and no longer apply to both the current and comparative periods presented, the Group's interim financial information for the nine months ended 30 September 2022 has been prepared in accordance with FAS issued by AAOIFI (without any modifications).
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 2021. 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 2021.
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 2021, except those arising from adoption of the following standards and amendments to standards effective from 1 January 2022. The impact of adoption of these standards and amendments is set out below.
a. New standards, amendments and interpetations issued and effective for annual periods beginning on or after 1 January 2022:
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.
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.
There was no material impact on the Group upon adoption of this standard.
3 Significant accounting policies (continued) b. New standards, amendments and interpretations issued but not yet effective
(i) FAS 39 Financial Reporting for Zakah
AAOIFI has issued FAS 39 Financial Reporting for Zakah in 2021. The objective of this standard is to establish principles of financial reporting related to Zakah attributable to different stakeholders of an Islamic financial Institution. This standard supersedes FAS 9 Zakah and is effective for the financial reporting periods beginning on or after 1 January 2023 with an option to early adopt.
This standard shall apply to institution with regard to the recognition, presentation and disclosure of Zakah attributable to relevant stakeholders. While computation of Zakah shall be applicable individually to each institution within the Group, this standard shall be applicable on all consolidated and separate / standalone financial statements of an institution.
This standard does not prescribe the method for determining the Zakah base and measuring Zakah due for a period. An institution shall refer to relevant authoritative guidance for determination of Zakah base and to measure Zakah due for the period.
The Group is assessing the impact of adoption of this standard.
(ii) FAS 1 General Presentation and Disclosures in the Financial Statements
AAOIFI has issued the revised FAS 1 General Presentation and Disclosures in the Financial Statements in 2021. This standard describes and improves the overall presentation and disclosure requirements prescribed in line with the global best practices and supersedes the earlier FAS 1. It is applicable to all the Islamic Financial Institutions and other institutions following AAOIFI FAS's. This standard is effective for the financial reporting periods beginning on or after 1 January 2023 with an option to early adopt.
The revision of FAS 1 is in line with the modifications made to the AAOIFI conceptual framework for financial reporting. Some of the significant revisions to the standard are as follows:
a) Revised conceptual framework is now integral part of the AAOIFI FAS's;
b) Definition of Quasi equity is introduced;
c) Definitions have been modified and improved;
d) Concept of comprehensive income has been introduced;
e) Institutions other than Banking institutions are allowed to classify assets and liabilities as current and non-current;
f) Disclosure of Zakah and Charity have been relocated to the notes;
g) True and fair override has been introduced;
h) Treatment for change in accounting policies, change in estimates and correction of errors has been introduced;
i) Disclosures of related parties, subsequent events and going concern have been improved;
j) Improvement in reporting for foreign currency, segment reporting;
k) Presentation and disclosure requirements have been divided into three parts. First part is applicable to all institutions, second part is applicable only to banks and similar IFI's and third part prescribes the authoritative status, effective date an amendments to other AAOIFI FAS's; and
l) The illustrative financial statements are not part of this standard and will be issued separately.
The Group is assessing the impact of adoption of this standard and expects changes in certain presentation and disclosures in its consolidated financial statements.
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 2021.
Russia-Ukraine conflict
On 24 February 2022, a military conflict between Russia and Ukraine emerged (the "conflict"). Owing to this various countries and international bodies have imposed trade and financial sanctions on Russia and Belarus. Further, various organisations have discontinued their operations in Russia. This conflict has resulted in an economic downturn and increased volatility in commodity prices due to disruption of supply chain.
The management has carried out an assessment of its portfolio and has concluded that it does not have any direct exposures to / from the impacted countries. However, indirect impact is pervasive in the market and at this stage it is difficult to quantify the full impact of this conflict since it depends largely on the nature and duration of uncertain and unpredictable events, such as further military action, additional sanctions, and reactions to ongoing developments by global financial markets. The management will continue to closely monitor impact of this evolving situation on its portfolio to assess indirect impact, if any. During the period ended 30 September 2022, the Group's investment portfolio reduced in market value by US$ 85,315 thousand for investments carried as FVTE and US$ 37,753 thousand for investments carried as FVTPL due to volatile market movements. However, the Group does not trade in such securities and does not expect to liquidate any of it's market portfolio in short term.
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 2021.
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, is as follows:
As at 30 September 2022
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 997,943 46,501 1,044,444 --------------------------- ------------- ---------- ---------- ---------- --------------- 3 Other Capital Instruments --------------------------- ------------- ---------- ---------- ---------- --------------- 4 Retail deposits and deposits from small business customers: ----------------------------------------------------------------------------------------------- 5 Stable deposits 166,869 14,517 19,248 191,565 --------------------------- ------------- ---------- ---------- ---------- --------------- 6 Less stable deposits 1,337,336 370,139 231,057 1,767,783 --------------------------- ------------- ---------- ---------- ---------- --------------- 7 Wholesale funding: ----------------------------------------------------------------------------------------------- 8 Operational deposits --------------------------- ------------- ---------- ---------- ---------- --------------- Other Wholesale 9 funding 3,107,783 1,207,584 1,093,578 2,354,639 --------------------------- ------------- ---------- ---------- ---------- --------------- 10 Other liabilities: ----------------------------------------------------------------------------------------------- 11 NSFR Shari'a-compliant hedging contract liabilities --------------------------- ------------- ---------- ---------- ---------- --------------- All other liabilities not included in 12 the above categories 365,804 44,576 44,576 --------------------------- ------------- ---------- ---------- ---------- --------------- 13 Total ASF 5,403,007 --------------------------- ------------- ---------- ---------- ---------- --------------- Required Stable Funding (RSF): ------------------------------------------------------------------------------------------------------ Total NSFR high-quality 14 liquid assets (HQLA) 1,668,845 80,767 --------------------------- ------------- ---------- ---------- ---------- --------------- 15 Deposits held at other financial institutions for operational purposes --------------------------- ------------- ---------- ---------- ---------- --------------- Performing financing 16 and sukuk/ securities: 1,009,668 785,258 818,920 --------------------------- ------------- ---------- ---------- ---------- --------------- 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 20,151 1,077,124 925,631 --------------------------- ------------- ---------- ---------- ---------- --------------- Performing financing to non- financial corporate clients, financing to retail and small business customers, and financing to sovereigns, central banks and PSEs, of 19 which: 286,701 99,807 280,746 375,739 --------------------------- ------------- ---------- ---------- ---------- --------------- 5 Financial risk management (continued) More than 6 months No Specified Less and less Total Maturity than than one Over weighted No. Item ," 6 months year one year value 20 With a risk weight of less than or equal to 35% as per the CBB Capital Adequacy Ratio guidelines ------------------------ ------------- ---------- ---------- ---------- ---------- 21 Performing residential mortgages, of which: ------------------------ ------------- ---------- ---------- ---------- ---------- 22 With a risk weight of less than or equal to 35% under the CBB Capital Adequacy Ratio Guidelines ------------------------ ------------- ---------- ---------- ---------- ---------- Securities/sukuk that are not in default and do not qualify as HQLA, including exchange-traded 23 equities 924,114 423,972 455,845 1,129,889 ------------------------ ------------- ---------- ---------- ---------- ---------- 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 29 the above categories 1,915,363 1,915,363 ------------------------ ------------- ---------- ---------- ---------- ---------- 30 OBS items 40,406 ------------------------ ------------- ---------- ---------- ---------- ---------- 31 Total RSF 2,220,483 543,930 2,598,974 5,286,714 ------------------------ ------------- ---------- ---------- ---------- ----------
32 NSFR (%) 102% ------------------------ ------------- ---------- ---------- ---------- ----------
As at 31 December 2021
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 1,070,314 - - 49,953 1,120,267 ------------------------ ------------- ---------- ---------- ---------- ---------- Other Capital 3 Instruments - - - - - ------------------------ ------------- ---------- ---------- ---------- ---------- Retail deposits and deposits from small business 4 customers: ------------------------ ------------- ---------- ---------- ---------- ---------- 5 Stable deposits - 182,112 25,962 2,749 200,420 ------------------------ ------------- ---------- ---------- ---------- ---------- 6 Less stable deposits - 1,314,514 430,372 90,957 1,661,355 ------------------------ ------------- ---------- ---------- ---------- ---------- 7 Wholesale funding: ------------------------ ------------- ---------- ---------- ---------- ---------- 8 Operational deposits - - - - - ------------------------ ------------- ---------- ---------- ---------- ---------- Other Wholesale 9 funding - 2,860,814 861,346 773,058 1,896,078 ------------------------ ------------- ---------- ---------- ---------- ---------- 10 Other liabilities: ------------------------ ------------- ---------- ---------- ---------- ---------- NSFR Shari'a-compliant hedging contract 11 liabilities - - - - - ------------------------ ------------- ---------- ---------- ---------- ---------- All other liabilities not included in the above 12 categories - 136,864 18,759 71,437 71,437 ------------------------ ------------- ---------- ---------- ---------- ---------- 13 Total ASF 4,949,558 ------------------------ ------------- ---------- ---------- ---------- ---------- Required Stable Funding (RSF): --------------------------------------------------------------------------------------------- Total NSFR high-quality liquid assets 14 (HQLA) 1,493,881 73,941 ------------------------ ------------- ---------- ---------- ---------- ---------- 5 Financial risk management (continued) More than 6 months Less and less Total No Specified than than one Over weighted No. Item Maturity 6 months year one year value Deposits held at other financial institutions for operational 15 purposes ------------------------ ------------- ---------- ---------- ---------- ---------- Performing financing 16 and sukuk/ securities: - 636,283 - 720,739 708,071 ------------------------ ------------- ---------- ---------- ---------- ---------- 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 - 5,000 - 174,023 150,419 ------------------------ ------------- ---------- ---------- ---------- ---------- Performing financing to non- financial corporate clients, financing to retail and small business customers, and financing to sovereigns, central banks and PSEs, of 19 which: - 320,720 91,696 205,595 339,845 ------------------------ ------------- ---------- ---------- ---------- ---------- 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 - 615,521 634,536 291,421 916,449 ------------------------ ------------- ---------- ---------- ---------- ---------- 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 2,672,214 - - - 2,672,214 ------------------------ ------------- ---------- ---------- ---------- ---------- 30 OBS items - - - 27,946 ------------------------ ------------- ---------- ---------- ---------- ---------- 31 Total RSF 1,577,524 726,232 1,391,778 4,888,886 ------------------------ ------------- ---------- ---------- ---------- ---------- 32 NSFR (%) 101% ------------------------ ------------- ---------- ---------- ---------- ---------- 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 2022 2021 ------------- Stock of HQLA 264,151 292,998 Net cashflows 194,780 148,599 LCR % 142% 221% Minimum required by CBB 100% 80% ------------- ------------ c. Capital Adequacy Ratio 30 September 31 December 2022 2021 CET 1 Capital before regulatory adjustments 1,014,810 1,063,515 Less: regulatory adjustments - - CET 1 Capital after regulatory adjustments 1,014,810 1,063,515 T 2 Capital adjustments 52,944 53,374 Regulatory Capital 1,067,754 1,116,889 Risk weighted exposure: Credit Risk Weighted Assets 7,478,848 7,574,496 Market Risk Weighted Assets 35,956 38,325 Operational Risk Weighted Assets 655,034 655,034 Total Regulatory Risk Weighted Assets 8,170,839 8,267,855 Investment risk reserve (30% only) 2 2 Profit equalization reserve (30% only) 3 3 Total Adjusted Risk Weighted Exposures 8,170,834 8,267,850 Capital Adequacy Ratio (CAR) 13.07% 13.51% Tier 1 Capital Adequacy Ratio 12.42% 12.86% 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.
8 Treasury portfolio 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) Placements with financial institutions 408,228 180,000 207,223 Equity type investments At fair value through equity * Quoted sukuk 31,793 20,344 20,436 At fair value through income statement * Structured notes 315,437 403,986 443,956 Debt type investments At fair value through equity * Quoted sukuk 879,487 1,635,744 1,309,638 At amortised cost * Quoted sukuk * 2,125,947 860,616 751,771 * Unquoted sukuk 3,494 3,486 3,493 Less: Impairment allowances (15,015) (14,127) (9,635) 3,749,371 3,090,049 2,726,882 ============= ============ =============
* Short-term and medium-term facilities of US$ 1,671,696 thousand ( 31 December 2021 : US$ 1,417,800 thousand) are secured by quoted sukuk of US$ 2,295,705 thousand ( 31 December 2021 : US$ 2,070,315 thousand), structured notes of US$ 315,437 thousand ( 31 December 2021 : US$ 403,986 thousand).
Reclassification
During the period, based on completion of the Group re-organization and on review of the overall balance sheet funding structure the Bank has reassessed its business model of managing its yielding treasury portfolio. In anticipation of the short-term and long-term liquidity needs, during the first quarter of 2022, the Bank has re-assessed the objective of its treasury portfolio wherein it would manage the underlying assets the following distinct business models:
i) Held-to-collect business model
This portfolio includes short-term and long-term Sukuk and treasury instruments that are held to meet core liquidity requirements of high-quality liquid assets and are typically held to their contractual maturity. Assets under this model are classified and measured at amortised cost. Although management considers fair value information, it does so from a liquidity perspective, and the main focus of its review of financial information under this business model is on the credit quality and contractual returns.
8 Treasury portfolio (continued)
ii) Classified as fair value through P&L
These include instruments that do not meet the contractual cash flow characteristic and include embedded option features or instruments held under an active trading portfolio for short-term profit taking. This portfolio includes structured notes and other hybrid debt-type instruments that are do not have a typical constant yield features.
iii) Both held-to-collect and for sale business model
The remaining fixed income treasury portfolio is held under active treasury management to collect both contract cash flows and for sale. These include Sukuk and other treasury instruments where yield is determinable. The key management personnel consider both of these activities as integral in achieving the objectives set for the Treasury business unit. This portfolio, while generating returns primarily through yield, is also held to meet expected or unexpected commitments, or to fund anticipated acquisitions or growth in other business units. Assets under this model are classified and measured at fair value through equity.
Until 31 December 2021, the Bank classified its whole Sukuk portfolio as FVTE only under a 'both held-to-collect and for sale' business model. The Board of Directors have assessed that the group re-organisation has significantly changed the liquidity management and strategy within the Bank and the above classification of the treasury portfolio best reflects the way the assets will be managed in order to meet the objectives of the new business model and the way information is provided to management. Due to the above change in the business model, the Bank has reclassified its treasury portfolio as at 1 January 2022 as follows:
US$ 000's
Assets subject to Fair value through Reversal of Reclassified reclassification equity (FVTE) amounts recognized to amortised in investment cost fair value reserve Sukuk 894,194 41,320 935,514 ------------------- -------------------- -------------- 9 Financing assets 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) Murabaha 1,062,836 995,324 968,412 Wakala 239 239 239 Mudharaba 14,166 2,576 2,599 Assets held-for-leasing 470,017 384,312 372,769 ------------ 1,547,258 1,382,451 1,344,019 Less: Impairment allowances (73,547) (71,449) (68,339) ------------- ------------ ------------- 1,473,711 1,311,002 1,275,680 ============= ============ =============
9. Financing assets (continued)
Murabaha financing receivables are net of deferred profits of US$ 54,817 thousands
(31 December 2021: US$ 44,979 thousands).
The movement on financing assets is as follows:
30 September 2022 (reviewed) Stage 1 Stage 2 Stage 3 Total Financing assets (gross) 1,256,399 190,061 100,798 1,547,258 Expected credit loss (24,473) (6,058) (43,016) (73,547) --------- ------- -------- Financing assets (net) 1,231,926 184,003 57,782 1,473,711 ========= ======= ======== ========= 31 December 2021 (audited) Stage 1 Stage 2 Stage 3 Total Financing assets (gross) 1,015,953 251,500 114,998 1,382,451 Expected credit loss (19,995) (7,109) (44,345) (71,449) --------- ------- -------- Financing assets (net) 995,958 244,391 70,653 1,311,002 ========= ======= ======== ========= 30 September 2021 (reviewed) 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 ========= ======= ======== =========
The movement on impairment allowances is as follows:
Stage 1 Stage 2 Stage 3 Total At 1 January 2022 19,991 7,109 44,345 71,445 Net movement between stages 1,279 (1,719) 440 - Net charge for the period 3,203 668 1,164 5,035 Writeoffs - - (2,933) (2,933) At 30 September 2022 (reviewed) 24,473 6,058 43,016 73,547 ======= ======= ======= ======= Stage 1 Stage 2 Stage 3 Total At 1 January 2021 20,841 6,255 28,914 56,010 Net movement between stages 796 822 (1,618) - Net charge for the period (1,640) (64) 18,080 16,376 Transfer to off balance sheet - - (12) (12) Disposal (2) 96 (1,019) (925) At 31 December 2021 (audited) 19,995 7,109 44,345 71,449 ======= ======= ======= ======
9. Financing assets (continued)
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 (reviewed) 19,286 7,958 41,095 68,339 ======= ======= ======= ====== 10 Investment in real estate 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) Investment Property * Land 518,997 529,076 481,370 * Building 221,482 63,758 64,098 ------------- ------------ ------------- 740,479 592,834 545,468 Development Property * Land 129,405 592,926 788,217 * Building 400,407 719,838 517,722 ------------- ------------ ------------- 529,812 1,312,764 1,305,939 1,270,291 1,905,598 1,851,407 ============= ============ ============= 11 Proprietary investments 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) Equity type investments At fair value through income statement * Structured notes 38,610 41,197 - 17,254 - * Listed securities - * Unlisted fund 10,000 10,000 10,000 ------------- ------------ ------------- 65,864 51,197 10,000 ------------- ------------ ------------- At fair value through equity * Listed securities - 13 13 * Unquoted securities * 923,009 91,425 84,409 ------------- ------------ ------------- 923,009 91,438 84,422 ------------- ------------ ------------- Equity-accounted investees * 119,383 69,003 77,726 Less: Impairment allowances (193) (124) - ------------- ------------ ------------- 1,108,063 211,514 172,148 ============= ============ =============
* Comprises of Bank's 40% equity stake in issued share capital of Infracorp B.S.C. (c) ("IC") and holdings of perpetual sukuk issued by IC.
12 Co-investments 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) At fair value through equity * Unquoted securities 124,704 164,547 128,229 At fair value through income statement * Unquoted securities 10,630 7,330 7,584 ------------- ------------ ------------- 135,334 171,877 135,813 ============= ============ ============= 13 Receivables and other assets 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) Investment banking receivables 198,868 148,985 156,255 Financing to projects, net 47,727 42,383 43,428 Receivable on sale of development properties - 59,914 14,296 Advances and deposits 106,360 58,222 92,432 Employee receivables 16,725 18,898 33,244 Profit on sukuk receivable 17,863 17,273 26,907 Lease rentals receivable 4,974 2,175 355 Prepayments and other receivables 255,432 194,313 293,407 Less: Impairment allowances net of write-off (5,024) (10,675) (4,869) 642,925 531,488 655,455 ============= ============ ============= 14 Term financing 30 September 31 December 30 September 2022 2021 2021 (reviewed) (audited) (reviewed) Murabaha financing * 1,699,286 1,449,852 896,150 Sukuk ** 238,030 250,943 276,271 Ijarah financing 18,235 20,093 109,964 Other borrowings 1,568 29,779 29,492 ------------ ----------- ------------ 1,957,119 1,750,667 1,311,877 ============ =========== ============
* Murabaha financing comprise :
Short-term and medium-term facilities of US$ 1,671,696 thousand (31 December 2021: US$ 1,417,800 thousand) are secured by quoted sukuk of US$ 2,295,705 thousand (31 December 2021: US$ 2,070,315 thousand), structured notes of US$ 315,437 thousand (31 December 2021: US$ 403,986 thousand).
** Sukuk
During 2020, the Group raised US$ 500,000 thousand through issuance of unsecured sukuk certificates with a profit rate of 7.5% p.a. repayable by 2025. The Bank has repurchased cumulative sukuk of US$ 264,921 thousand during the year ended 31 December 2020 and 2021 and the period ended 30 September 2022. The outstanding sukuk also includes accrued profit of US$ 3,514 thousand.
15 Impairment allowances Nine months ended 30 September 30 September 2022 2021 (reviewed) (reviewed) Expected credit loss on: Bank balances (15) (2) Treasury portfolio 888 3,531 Financing assets, net (note 9) 5,035 13,078 Other receivables (5,651) (248) Commitments and financial guarantees (46) 393 Impairment on investment in equity securities 70 689 ------------ ------------ 281 17,441 ============ ============ 16 Earnings 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 2022 2021 2022 2021 (reviewed) (reviewed) (reviewed) (reviewed) Profit for the period attributable to shareholders of the Bank 66,235 60,340 24,055 23,296 Weighted average number of shares outstanding during the period (in thousands) 3,460,779 3,430,821 3,300,757 3,406,213 Basic and diluted earning per share (US Cents) 1.91 1.76 0.73 0.68 ============= ============= ============= ============= 17 Related party transactions
The significant related party balances and transactions as at 30 September 2022 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 2022 (reviewed) venture personnel interested entities) Total Assets Cash and bank balances - - - 13,350 13,350 Treasury portfolio - - - 70,934 70,934 Financing assets - 8,048 39,538 17,429 65,015 Proprietary investments 981,517 - 149,748 11,252 1,142,517 Co-investments - - 5,430 118,685 124,115 Receivables and prepayments 84,378 17,007 1,021 215,122 317,528 Liabilities Placements from financial, non-financial institutions and individuals - 3,403 - 6,793 10,196 Customer accounts 2,406 2,265 2,589 14,523 21,783 Payables and accruals 87,746 2,715 - 142,650 233,111 Equity of investment account holders 37,792 671 32,657 38,786 109,906 Income Income from Investment banking - - - 73,723 73,723 Income from commercial banking * Income from financing - 443 944 - 1,387 * Fee and other income - - - - - * Less: Return to investment account holders (21) (11) (5,546) (11) (5,589) * Less: Finance expense - (66) (1,390) - (1,456) Income from proprietary and co-investments 16,872 - - 37,431 54,303 Treasury and other income - - 2,873 2,468 5,341 Real estate income - - - - - Expenses Operating expenses * Staff cost - (6,191) - - (6,191) Finance cost - (531) - (4,605) (5,136) 17 Related party transactions (continued) Related parties as per FAS 1 Assets Significant under shareholders management / entities (including in which special Associates Key directors purpose and joint management are and other 31 December 2021 venture personnel interested entities) Total (audited) Assets Cash and bank balance - - - 14,725 14,725 Treasury portfolio - - 37,148 - 37,148 Financing assets - 7,817 33,407 16,482 57,706 Proprietary investments 114,387 - 20,328 48,011 182,726 Co-investments - - - 76,794 76,794 Receivables and prepayments 8,060 623 300 171,559 180,542 Liabilities Placements from financial, non-financial institutions and individuals - 4,430 - 231,117 235,547 Customer accounts 1,488 366 872 14,725 17,451 Payables and accruals - 2,688 1,528 33,678 37,894 Equity of investment account holders 1,088 355 54,276 772 56,491 30 September 2021 (reviewed) Income Income from Investment banking - - - 53,040 53,040 Income from commercial banking * Income from financing - 310 2,332 - 2,642 * Fee and other 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 Operating expenses - Staff cost - (6,202) - - (6,202) Finance Cost - - (743) (117) (860)
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 ` 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 investment banking, commercial banking and corporate and treasury.
Investment Commercial Corporate banking banking and treasury Total 30 September 2022 (reviewed) Segment revenue 73,723 58,456 161,699 293,878 Segment expenses (59,169) (28,159) (135,075) (222,403) Segment result 14,554 30,297 26,624 71,475 Segment assets 999,680 3,439,369 4,565,303 9,004,352 Segment liabilities 781,689 1,791,806 4,319,375 6,892,870 Equity of investment account holders - 1,083,191 7,402 1,090,593 Other segment information Impairment allowance - 4,600 (4,319) 281 Proprietary investments (Equity-accounted investees) - 33,650 85,733 119,383 Commitments 56,400 154,135 25,117 235,652
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 ` US$ 000's
18 Segment reporting (continued) Investment Commercial Corporate banking banking and treasury Total 30 September 2021 (reviewed) Segment revenue 58,140 58,489 153,978 270,607 Segment expenses (40,568) (35,126) (126,637) (202,331) Segment result 17,572 23,363 27,341 68,276 Segment assets 1,067,151 2,780,492 3,587,320 7,434,963 Segment liabilities 716,567 1,148,308 3,143,535 5,008,410 Equity of investment account holders - 1,078,062 140,847 1,218,909 Other segment information Impairment allowance 917 13,341 3,183 17,441 Proprietary investments (Equity-accounted investees) 18,274 53,688 5,764 77,726 Commitments - 146,279 21,888 168,167
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 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 2022 2021 2021 US$ 000's US$ 000's US$ 000's (reviewed) (audited) (reviewed) Undrawn commitments to extend finance 111,363 95,347 104,459 Financial guarantees 66,866 39,995 41,820 Capital commitment for infrastructure development projects 56,890 16,171 16,974 Commitment to invest 533 3,915 4,914 235,652 155,428 168,167 ============= ============ =============
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 2022 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 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.
The fair value of quoted Sukuk carried at amortised cost (net of impairment allowances) of USD 2,125,947 thousand (31 December 2021: USD 860,616 thousand) is USD 2,063,969 thousand as at 30 September 2022 (31 December 2021: USD 883,618 thousand). There are no material changes in the fair values of the Sukuk's carried at amortised cost subsequent to the reporting date until the date of signing the condensed consolidated interim financial information for the period ended 30 September 2022.
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.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$ 000's
20 Financial instruments (continued)
Fair value hierarchy
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).
The following table shows the valuation techniques used in measuring Level 3 fair values, as well as the significant unobservable inputs used:
Type Valuation technique Significant Inter-relationship unobservable between significant inputs unobservable inputs and fair value measurement Structured Fair value of underlying Credit risk Ability of the Group note reference portfolio of counterparty to hold the structure adjusted for embedded and volatility note to maturity derivatives that protect assumptions and impact of the downside risk and cap for time to value of embedded upside potential over maturity derivatives (strike the period of the contract. prices and barriers for coupon and principal). --------------------------------------- ----------------- ---------------------------- Equity Discounted cash flow Marketability Ability of Group investments factor and to exit these investments Discount rate and their impact on the overall value as these are unquoted investments. --------------------------------------- ----------------- ----------------------------
The potential effect of change in assumptions used above would have the following effects.
30 September 2022 (reviewed) 30 September 2021 (reviewed) Profit or FVTE Profit or FVTE loss Loss ------------------ ----------- Equity instruments- marketability factor ( +/- 10%) 2,788 14,771 758 21,264 Structure notes- impact in underlying index ( +/- 5%) 18,202 - 22,698 - ------------------ ------------ ----------- -------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$ 000's
20 Financial instruments (continued)
The table below analyses the financial instruments carried at fair value, by valuation method.
Level Level Level Total 30 September 2022 (reviewed) 1 2 3 i) Proprietary investments Investment securities carried at fair value through: * income statement - 48,610 17,254 65,864 * equity 900,000 - 23,009 923,009 ---------- -------- -------- ---------- 900,000 48,610 40,263 988,873 ---------- -------- -------- ---------- ii) Treasury portfolio Investment securities carried at fair value through: * income statement - 230,900 84,537 315,437 * equity 911,280 - - 911,280 ---------- -------- -------- ---------- 911,280 230,900 84,537 1,226,717 ---------- -------- -------- ---------- iii) Co-investments Investment securities carried at fair value through * equity - - 124,704 124,704 * income statement - - 10,630 10,630 ---------- -------- -------- ---------- - - 135,334 135,334 ---------- -------- -------- ---------- 1,811,280 279,510 260,134 2,350,924 ========== ======== ======== ========== Level Level Level Total 31 December 2021 (audited) 1 2 3 i) Proprietary investments Investment securities carried at fair value through: * income statement - 51,197 - 51,197 * equity 13 - 91,425 91,438 ---------- --------- --------- ---------- 13 51,197 91,425 142,635 ---------- --------- --------- ---------- ii) Treasury portfolio Investment securities carried at fair value through: * income statement - 224,086 179,900 403,986 * equity 1,656,088 - - 1,656,088 ---------- --------- --------- ---------- 1,656,088 224,086 179,900 2,060,074 ---------- --------- --------- ---------- iii) Co-investments Investment securities carried at fair value through * equity - - 164,547 164,547 * income statement - - 7,330 7,330 ---------- --------- --------- ---------- 171,877 171,877 ---------- --------- --------- ---------- 1,656,101 275,283 443,202 2,374,586 ========== ========= ========= ==========
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$ 000's
20 Financial instruments (continued)
The following table analyses the movement in Level 3 financial assets during the period:
30 September 31 December 2022 2021 (reviewed) (audited) At beginning of the period 443,202 390,567 Total gains / (losses) in income statement (37,753) (17,223) Transfer from Level 2 (78,109) 24,650 Disposals at carrying value (29,634) (27,532) Purchases (37,572) 69,129 Fair value changes during the period - 3,611 ------------- ------------ At end of the period 260,134 443,202 ============= ============ 21 Assets under management and custodial assets
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$ 7,346 million (31 December 2021: US$ 5,297 million). During the period, the Group had charged management fees amounting to US$ 5,885 thousands (30 September 2021: US$ 2,354 thousands) to its assets under management.
Assets under management includes funds under discretionary portfolio management ('DPM') accepted from investors amounting to US$ 661,694 thousands (31 December 2021: US$ 639,599 thousand ) out of which US$ 641,737 thousands (31 December 2021: US$ 407,877 thousand ) has been invested in to Bank's own investment products.
22 Deconsolidation of subsidiaries
During the period, GFH Group has carried out a group restructuring program (the 'program') which involves the spinning off of its infrastructure and real estate assets under a new entity "Infracorp" ("the Company"), which wase capitalized with US$1.1 billion in infrastructure and development assets. Infracorp will specialise in investments focusing on accelerating growth and development of sustainable infrastructure assets and environments across the Gulf and global markets.
Under this program certain real estate and infrastructure assets were transferred from the group entities, including the Bank, to Infracorp for an in-kind consideration financed by US$ 200 million of equity shares and US$ 900m of Hybrid Sukuk (perpetual equity) issued by Infracorp.
The transfer of these assets were affected in the quarter ended 31 March 2022. Subsequent to the transfer of these assets GFH sold 60% of its equity in Infracorp to third party investors, resulting in loss of controlling stake and this resulted in Infracorp no longer being a subsidiary of GFH as at
30 September 2022 and has been accounted for as an equity accounted investee. The results of operation of Infracorp till the date of its disposal are consolidated in these condensed interim consolidated financial statements. The impact of the disposal of Infracorp is presented below:
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$ 000's
22. Deconsolidation of subsidiaries (continued) 30 September 2022 (reviewed) ASSETS Cash and bank balances 80,119 Treasury portfolio 50,912 Financing assets 38,100 Real estate investment 847,221 Proprietary investment 67,861 Co-Investments 120,735 Receivables & prepayments 87,645 Property and equipments 81,201 Total 1,373,794 ------------- LIABILITIES Term financing 24,467 Payables and accruals 108,032 ------------- Total 132,499 ------------- Non-controlling interest 141,295
------------- Net assets transferred 1,100,000 ============= Consideration on the date of transfer: Equity in Infracorp 200,000 Hybrid perpetual sukuk 900,000 ------------- 1,100,000 ============= 30 September 2022 (reviewed) Net profit included in the current period condensed consolidated income statement ** (438) -------------
** Net profits includes cumulative profit from all the assets and subsidiaries transferred as part of the consolidation of subsidiaries
Discontinuing operations :
The assets of the business forming part of Infracorp were not necessarily operated as stand-alone segment and largely reflect land bank and infrastructure development projects of the Bank that were carved-out under a new business model. Hence, the net assets transferred in infracorp were not classified as discountinued operations other than as disclosed below in relation to its industrial operations.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$ 000's
22. Deconsolidation of subsidiaries (continued) A. Results of discontinued operation 30 September 30 September 2022 2021 Revenue 5,391 5,226 Expenses 5,347 5,305 ------------- Net profit 44 (79) ============= ============= B. Cash flows used in discontinued operation 30 September 30 September 2022 2021 Net cash flow from operating activities 182 (863) Net cash flow used in investing activities (317) (1) Net cash flow from financing activities 3 266 ------------- Net cash flows used in discontinued operation (132) (598) ============= ============= 23 Acquisition of subsidiaries
During the year, the Group acquired controlling stake in the following subsidiaries.
% stake acquired Place of Nature of activities incorporation SQ Topco II LLC 51% United States Property asset management Company Big Sky Asset Management LLC 51% United States Real estate investment manager -------------- -----------------------
Consideration transferred and non-controlling interests
The consideration transferred for the acquisition was in the form of cash and in-kind for the services rendered 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. Where consideration includes contingent consideration payable in future based on performance and service obligations of continuing employees, these are accounted under IFRS 2 - Share based payments.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$000
23 Acquisition of subsidiaries (continued)
Identifiable assets acquired and liabilities assumed
Entity acquired was considered as a business. 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 at the date of acquisition reported on a provisional basis as permitted by accounting standards.
Total Intangible asset 8,350 Trade receivables 1,353 Cash and bank balances 2,045 Total assets 11,748 Accruals and other liabilities 1,722 Total liabilities 1,722 Total net identifiable assets and liabilities (A) 10,026 Total Consideration 9,205 Non-controlling interests recognised 821 Total consideration (B) 10,026 Goodwill / Bargain purchase (B-A) -
For the purpose of consolidated statement of cash flows, net cash acquired on business combination is given below:
Total Cash and bank balances acquired as part of business combination 1,353 Less: Cash consideration (9,205) Net cash flows from acquisition of subsidiaries (7,852) =======
The Group has also acquired assets under management of US $ 1,315,915 thousand along with the above acquisition. Income for the first nine months assuming the transaction was done at the beginning of the year would have been USD 1,200 thousand.
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the nine months ended 30 September 2022 US$000
24 Appropriations
Appropriations, if any, are made when approved by the shareholders.
In the shareholders meeting held on 3 April 2022, the following were approved:
a) Cash dividend of 4.57% of the paid-up share capital amounting to US$ 45,000; b) Stock dividend of 1.5% of the paid-up share capital amounting to US$ 15,000; c) Appropriation of US$ 1,483 towards charity, civil society institutions and Zakat d) Transfer of US$ 8,422 to statutory reserve; and, e) Board remuneration of US$ 2,400.
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November 09, 2022 10:29 ET (15:29 GMT)
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