TIDM95HX
RNS Number : 5685W
GFH Financial Group B.S.C
19 August 2020
GFH FINANCIAL GROUP BSC
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
30 JUNE 2020
Commercial registration : 44136 (registered with Central Bank of Bahrain
as an Islamic wholesale Bank)
Registered Office : Bahrain Financial Harbour
Office: 2901, 29(th) Floor
Building 1398, East Tower
Block: 346, Road: 4626
Manama, Kingdom of Bahrain
Telephone +973 17538538
Directors : Jassim Al Seddiqi, Chairman
H.E. Shaikh Ahmed Bin Khalifa Al-Khalifa , Vice Chairman
Hisham Alrayes
Amro Saad Omar Al Menhali
Mazen Bin Mohammed Al Saeed (till 30 March 2020)
Mosabah Saif Al Mautairy
Ghazi Faisal Ebrahim Alhajeri
Bashar Mohamed Al Mutawa (till 1 April 2020)
Rashid Nasser Al Kaabi
Mustafa Kheriba
Ali Murad (from 9 April 2020)
Ahmed AlAhmadi (from 9 April 2020)
Chief Executive Officer : Hisham Alrayes
Auditors : KPMG Fakhro
CONDENSED CONSOLIDATED INTERIM FINANCIAL INFORMATION
for the six months ended 30 June 2020
CONTENTS Page
Independent auditors' report on review of condensed consolidated
interim financial
information
1
Condensed consolidated interim financial information
Condensed consolidated statement of financial position 2
Condensed consolidated income statement 3
Condensed consolidated statement of changes in owners' equity 4-5
Condensed consolidated statement of cash flows 6
Condensed consolidated statement of changes in restricted investment accounts 7
Condensed consolidated statement of sources and uses of zakah and charity fund 8
Notes to the condensed consolidated interim financial
information 9-32
Supplementary information 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 17 August 2020
Introduction
We have reviewed the accompanying 30 June 2020 condensed
consolidated interim financial information of GFH Financial Group
BSC (the "Bank") and its subsidiaries (together the Group"), which
comprises:
-- the condensed consolidated statement of financial position as at 30 June 2020;
-- the condensed consolidated income statement for the six-month period ended 30 June 2020;
-- the condensed consolidated statement of changes in owners' equity for the six-month
period ended 30 June 2020;
-- the condensed consolidated statement of cash flows for the
six-month period ended 30 June 2020;
-- the condensed consolidated statement of changes in restricted
investment accounts for the six-month period ended 30 June
2020;
-- the condensed consolidated statement of sources and uses of
zakah and charity fund for the six-month period ended 30 June 2020;
and
-- notes to the condensed consolidated interim financial information.
The Board of Directors of the Bank is responsible for the
preparation and presentation of this condensed consolidated interim
financial information in accordance with the basis of preparation
stated in note 2 of the condensed consolidated interim financial
information. Our responsibility is to express a conclusion on this
condensed consolidated interim financial information based on our
review.
Scope of review
We conducted our review in accordance with International
Standard on Review Engagements 2410, "Review of Interim Financial
Information Performed by the Independent Auditor of the Entity". A
review of condensed consolidated interim financial information
consists of making inquiries, primarily of persons responsible for
financial and accounting matters, and applying analytical and other
review procedures. A review is substantially less in scope than an
audit conducted in accordance with Auditing Standards for Islamic
Financial Institutions and consequently does not enable us to
obtain assurance that we would become aware of all significant
matters that might be identified in an audit. Accordingly, we do
not express an audit opinion.
Conclusion
Based on our review, nothing has come to our attention that
causes us to believe that the accompanying
30 June 2020 condensed consolidated interim financial
information is not prepared, in all material respects, in
accordance with the basis of preparation stated in note 2 of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION
As at 30 June 2020 US$ 000's
note 30 June 31 December 30 June
2020 2019 2019
(reviewed) (audited) (reviewed)
(restated (restated
notes 3(a),14) notes 3(a),14)
ASSETS
Cash and bank balances 598,969 364,598 371,805
Treasury portfolio 9 1,594,462 1,588,661 1,682,405
Financing assets 10 1,275,622 1,272,777 1,300,231
Real estate Investments 11 1,808,534 1,806,009 1,821,444
Proprietary investments 12 251,328 268,175 279,048
Co-investments 13 98,558 96,507 77,048
Receivables and prepayments 399,555 444,689 502,877
Property and equipment 107,743 103,857 103,116
----------------
Total 6,134,771 5,945,273 6,137,974
=========== ================ ================
LIABILITIES
Clients' funds 104,383 70,858 61,097
Placements from financial, non-financial
institutions and individuals 2,296,788 2,447,249 2,789,757
Customer current accounts 127,694 147,487 163,683
Term financing 15 929,532 301,411 221,953
Payables and accruals 396,175 466,852 525,876
Total 3,854,572 3,433,857 3,762,366
----------- ---------------- ----------------
Equity of investment account holders 1,098,723 1,218,545 995,837
OWNERS' EQUITY
Share capital 975,638 975,638 975,638
Treasury shares 8 (76,801) (73,419) (58,890)
Statutory reserve 125,312 125,312 117,301
Investment fair value reserve (12,906) 7,737 (5,641)
Foreign currency translation reserve (48,929) (29,425) (43,150)
Retained earnings (110,273) (2,498) 50,298
Share grant reserve 1,198 1,198 1,198
-----------
Total equity attributable to shareholders
of Bank 853,239 1,004,543 1,036,754
Non-controlling interests 328,237 288,328 343,017
Total owners' equity 1,181,476 1,292,871 1,379,771
Total liabilities, equity of investment
account holders and owners' equity 6,134,771 5,945,273 6,137,974
=========== ================ ================
The Board of Directors approved the condensed consolidated
interim financial information on 17 August 2020 and signed on its
behalf by:
Jassim Al Seddiqi Hisham Alrayes
Chairman
Chief Executive Officer & Board member
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED INCOME STATEMENT
for the six months ended 30 June 2020 US$ 000's
Six months ended
note 30 June 2020 30 June 2019
(reviewed) (reviewed)
(restated
note 3 (a),14)
Continuing operations
Investment banking income
Asset management 2,727 1,358
Deal related income 38,237 42,089
40,964 43,447
---------------
Commercial banking income
Income from financing 41,268 38,762
Treasury and investment income 17,372 17,330
Fee and other income 3,206 10,745
Less: Return to investment account
holders (15,978) (19,130)
Less: Finance expense (13,494) (9,788)
32,374 37,919
---------------
Income from proprietary and co-investments
Direct investment income, net 19,300 10,086
Restructuring related income - 29,406
Dividend from co-investments 4,109 507
23,409 39,999
---------------
Real estate income
Development and sale 9,256 13,517
Rental and operating income 1,157 1,248
10,413 14,765
---------------
Treasury and other income
Finance income 35,240 25,459
Fair value loss on treasury investments,
net (10,933) -
Other income, net 17 15,059 1,956
--------------- -----------------
39,366 27,415
---------------
Total income 146,526 163,545
---------------
Operating expenses 57,649 48,783
Finance expense 66,944 53,705
Impairment allowances 18 1,547 12,164
Total expenses 126,140 114,652
Profit from continuing operations 20,386 48,893
Loss from discontinued operations,
net - (467)
--------------- -----------------
Profit for the period 20,386 48,426
=============== =================
Attributable to:
Shareholders of Bank 15,054 49,134
Non-controlling interests 5,332 (708)
20,386 48,426
============= =======
Earnings per share
Basic and diluted earnings per share (US
cents) 0.45 1.45
------------- -------
Earnings per share (continuing operations)
Basic and diluted earnings per share (US
cents) 0.45 1.47
----- -----
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 six months ended 30 June 2020 US$ 000's
Attributable to shareholders of the Bank
Foreign
Investment currency Share Non Total
30 June 2020 Share Treasury Statutory fair value translation Retained grant -controlling owners'
(reviewed) capital shares reserve reserve reserve earnings reserve Total interests equity
Balance at 1
January 2020 975,638 (73,419) 125,312 7,737 (29,425) (2,498) 1,198 1,004,543 288,328 1,292,871
Profit for
the period
(page 3) - - - - - 15,054 - 15,054 5,332 20,386
Fair value
changes
during the
period - - - (20,643) - - - (20,643) (267) (20,910)
Total
recognised
income and
expense - - - (20,643) - 15,054 - (5,589) 5,065 (524)
Additional
capital
contribution
to
subsidiary
(note 1) - - - - - (59,893) - (59,893) (14,311) (74,204)
Modification
loss on
financing
assets (note
2a, 10) - - - - - (14,016) - (14,016) (11,279) (25,295)
Government
grant (note
2b) - - - - - 3,118 - 3,118 936 4,054
Dividends
declared
(note 8) - - - - - (30,000) - (30,000) - (30,000)
Transfer to
zakah and
charity fund
(page 8) - - - - - (1,388) - (1,388) (258) (1,646)
Purchase of
treasury
shares - (48,237) - - - - - (48,237) - (48,237)
Sale of
treasury
shares - 69,907 - - - (20,650) - 49,257 - 49,257
Treasury
shares
acquired for
share
incentive
scheme - (25,052) - - - - - (25,052) - (25,052)
Foreign
currency
translation
differences - - - - (19,504) - - (19,504) (3,991) (23,495)
NCI arising
from
acquisition
of a
subsidiary
(note 16) - - - - - - - - 63,747 63,747
Balance at
30 June
2020 975,638 (76,801) 125,312 (12,906) (48,929) (110,273) 1,198 853,239 328,237 1,181,476
======== ========== =========== =========== ============ ========== ======== ========== ============= ==========
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN OWNERS'
EQUITY
for the six months ended 30 June 2020 (continued) US$ 000's
Attributable to shareholders of the Bank
Foreign Non
Investment currency Share Non -controlling Total
30 June 2019 Share Treasury Statutory fair value translation Retained grant -controlling interests owners'
(reviewed) capital shares reserve reserve reserve earnings reserve Total interests held-for-sale equity
Balance at 1
January 2019 *
(as previously
reported) 975,638 (85,424) 117,301 (4,725) (43,380) 98,318 1,086 1,058,814 323,408 40,556 1,422,778
Reclassification
of subsidiary
held-for-sale to
held-for-use
(note 14) - - - - - - - - 25,396 (25,396) -
Balance at 1
January 2019 *
(restated) 975,638 (85,424) 117,301 (4,725) (43,380) 98,318 1,086 1,058,814 348,804 15,160 1,422,778
Profit for the
period (page 3) - - - - - 49,134 - 49,134 (708) - 48,426
Fair value
changes during
the period - - - (916) - - - (916) - - (916)
Total recognised
income and
expense - - - (916) - 49,134 - 48,218 (708) - 47,510
Bonus shares
issued 55,000 - - - - (55,000) - - - - -
Extinguishment of
treasury shares (55,000) 50,549 - - - 4,451 - - - - -
Dividends
declared (note
8) - - - - - (30,000) - (30,000) - - (30,000)
Transfer to zakah
and charity fund
(page 8) - - - - - (2,219) - (2,219) (223) - (2,442)
Issue of shares
under incentive
scheme - - - - - - 112 112 - - 112
Purchase of
treasury shares - (109,627) - - - - - (109,627) - - (109,627)
Sale of treasury
shares - 85,612 - - - (14,817) - 70,795 - - 70,795
Foreign currency
translation
differences - - - - 230 - - 230 (4,856) - (4,626)
Acquisition of
NCI without a
change in
control - - - - - 431 - 431 - (15,160) (14,729)
Balance at 30
June 2019 975,638 (58,890) 117,301 (5,641) (43,150) 50,298 1,198 1,036,754 343,017 - 1,379,771
========= ========== =========== =========== ============ ========= ======== ============================ ============= ============== ==========
* The Bank used to recognise gain / (loss) on sale of treasury
shares in statutory reserve. The Bank has regrouped the losses on
sale of treasury shares of US$ 24,818 thousand for the year ended
31 December 2018 to retained earnings.
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS-
for the six months ended 30 June 2020 US$ 000's
30 June
2020 30 June
(reviewed) 2019 (reviewed)
OPERATING ACTIVITIES
Profit for the period 20,386 48,426
Adjustments for:
Income from commercial banking (16,470) (13,560)
Income from proprietary investments (23,409) (10,482)
Income from dividend and gain / (loss)
on treasury investments (8,623) (16,530)
Foreign exchange (gain) / loss (1,174) 623
Restructuring related income - (29,406)
Finance expense 80,408 63,493
Impairment allowances 1,547 12,164
Depreciation and amortisation 1,308 1,097
53,973 55,825
Changes in:
Placements with financial institutions
(maturities of more than 3 months) 346,762 (280,537)
Financing assets (2,845) (91,284)
Other assets 31,581 (179,515)
CBB Reserve and restricted bank balance 44,145 (15,783)
Clients' funds 33,526 14,458
Placements from financial and non-financial
institutions (150,461) 1,161,368
Customer current accounts (19,793) (14,223)
Equity of investment account holders (119,822) 98,927
Payables and accruals (52,731) (48,042)
------------------
Net cash generated from operating activities 164,335 701,194
------------------------
INVESTING ACTIVITIES
Payments for purchase of equipment (233) (273)
Proceeds from sale of proprietary investment
securities, net 1,008 2,156
Purchase of treasury portfolio, net (268,797) (261,748)
Cash acquired on acquisition of a subsidiary 32,856 -
Proceeds from sale of investment in real
estate 342 38,118
Dividends received from proprietary investments
and co-investments 7,128 3,065
Advance paid for development of real estate (12,197) (11,734)
Net cash used in investing activities (239,893) (230,416)
------------------------ ------------------
FINANCING ACTIVITIES
Financing liabilities, net 650,040 (59,028)
Finance expense paid (82,595) (25,794)
Dividends paid (33,397) (27,829)
Acquisition of NCI - (9,026)
Purchase of treasury shares, net (24,124) (39,182)
------------------
Net cash used in financing activities 509,924 (160,859)
------------------------ ------------------
Net increase in cash and cash equivalents
during the period 434,366 309,919
Cash and cash equivalents at 1 January
* 367,533 397,620
------------------------ ------------------
Cash and cash equivalents at 30 June 801,899 707,539
======================== ------------------
Cash and cash equivalents comprise: *
Cash and balances with banks (excluding
CBB Reserve balance and restricted cash) 559,020 298,544
Placements with financial institutions
(less than 3 months) 242,879 408,995
------------------------ ------------------
801,899 707,539
======================== ==================
* net of expected credit loss of US$ 612 thousand (31 December
2019: US$ 1,098 thousand).
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED
INVESTMENT ACCOUNTS
for the six months ended 30 June 2019
30 June 2020 Balance at 1 January Balance at 30 June
(reviewed) 2020 Movements during the period 2020
Average Average
value Group's value
No of per Investment/ Gross Dividends fees as Administration No of per
units share Total (withdrawal) Revalua-tion income paid an agent expenses units share Total
Company (000) US$ US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's (000) US$ US$ 000's
----- ------- --------- ------------ ------------ --------- --------- --------- -------------- ----- ------- ---------
Mena Real
Estate
Company
KSCC 150 0.33 50 - - - - - - 150 0.33 50
Al Basha'er
Fund 13 7.91 103 (10) - - - - - 12 7.91 95
Safana
Investment
(RIA
1) 6,254 2.65 16,573 - - - - - - 6,254 2.65 16,573
Shaden Real
Estate
Investment
WLL (RIA 5) 3,434 2.65 9,100 - - - - - - 3,434 2.65 9,100
Locata
Corporation
Pty
Ltd (RIA 6) 2,633 1.00 2,633 - - - - - - 2,633 1.00 2,633
----- ------- --------- ------------ ------------ --------- --------- --------- -------------- ----- ------- ---------
28,459 (10) - - - - - 28,451
========= ============ ============ ========= ========= ========= ============== =========
30 June 2019 Balance at 1 January Balance at 30 June
(reviewed) 2019 Movements during the period 2019
Average Average
value Group's value
No of per Investment/ Gross Dividends fees as Administration No of per
units share Total (withdrawal) Revalua-tion income paid an agent expenses units share Total
Company (000) US$ US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's (000) US$ US$ 000's
----- ------- --------- ------------ ------------ --------- --------- --------- -------------- ----- ------- ---------
Mena Real
Estate
Company
KSCC 150 0.33 50 - - - - - - 150 0.33 50
Al Basha'er
Fund 13 7.03 91 - 12 - - - - 13 7.91 103
Safana
Investment
(RIA
1) 6,254 2.65 16,573 - - - - - - 6,254 2.65 16,573
Shaden Real
Estate
Investment
WLL (RIA 5) 3,434 2.65 9,100 - - - - - - 3,434 2.65 9,100
Locata
Corporation
Pty
Ltd (RIA 6) 2,633 1.00 2,633 - - - - - - 2,633 1.00 2,633
28,447 - 12 - - - - 28,459
========= ============ ============ ========= ========= ========= ============== =========
The accompanying notes 1 to 24 form an integral part of the
condensed consolidated interim financial information.
CONDENSED CONSOLIDATED STATEMENT OF SOURCES AND USES OF ZAKAH
AND CHARITY FUND
for the six months ended 30 June 2020 US$ 000's
30 June 30 June
2020 2019
(reviewed) (reviewed)
Sources of zakah and charity fund
Contribution by the Group 1,646 2,437
Non-Islamic income 103 256
Total sources 1,749 2,693
-------------- ----------------
Uses of zakah and charity fund
Contributions to charitable organisations (185) (1,368)
Total uses (185) (1,368)
-------------- ----------------
Surplus of sources over uses 1,564 1,325
Undistributed zakah and charity fund at
beginning of the period 5,407 4,636
Undistributed zakah and charity fund at
end of the period 6,971 5,961
============== ================
Represented by:
Zakah payable 1,426 973
Charity fund 5,545 4,988
6,971 5,961
============== ==============
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
six months ended 30 June 2020 comprise the financial information of
GFH Financial Group BSC (GFH or the "Bank") and its subsidiaries
(together referred to as "the Group").
The following are the principal subsidiaries consolidated in the
condensed consolidated interim financial information.
Effective
ownership
Country of interests
Investee name incorporation 2020 Activities
GFH Capital Limited United Arab 100% Investment
Emirates management
--------------- ----------- ---------------------
Khaleeji Commercial Bank Kingdom of 55.41% Islamic retail
BSC ('KHCB') * Bahrain bank
--------------- ----------- ---------------------
Al Areen Project companies 100% Real estate
development
--------------- ----------- ---------------------
Falcon Cement Company BSC 51.72% Cement manufacturing
(c) ('FCC')
----------- ---------------------
Global Banking Corporation 50.41% Islamic investment
BSC (c) (GBCORP) (note bank
17)
--------------- ----------- ---------------------
Morocco Gateway Investment Cayman Islands 89.26% Real estate
Company ('MGIC') development
--------------- ----------- ---------------------
Tunis Bay Investment Company 82.92% Real estate
('TBIC') development
--------------- ----------- ---------------------
Energy City Navi Mumbai 80.27% Real estate
Investment Company & Mumbai development
IT & Telecom Technology
Investment Company (together
"India Projects")
--------------- ----------- ---------------------
Gulf Holding Company KSCC State of 51.18% Investment
Kuwait in real estate
--------------- ----------- ---------------------
Residential South Real Bahrain 100% Real estate
Estate Development Company development
(RSRED)
--------------- ----------- ---------------------
* During the period, KHCB issued Additional Tier 1 (AT1)
securities of US$ 191 million which were fully subscribed by the
Bank in the form of cash and transfer of certain assets. As KHCB is
an existing subsidiary, the transaction is accounted for as
transactions between equity holders while retaining control (i.e.
non-controlling interests of KHCB and the Bank). Accordingly, the
premium of US$ 59.8 million towards the subscription of the AT1
securities (representing the excess of the difference between
contribution and parents share of net assets of the subsidiary) is
considered as an adjustment to retained earnings and
non-controlling interests of KHCB. The share of costs of the AT1
issuance attributable to the non-controlling interests of KHCB were
charged to the non- controlling interests component in equity.
2 Basis of preparation
The condensed consolidated interim financial information of the
Group has been prepared in accordance with applicable rules and
regulations issued by the Central Bank of Bahrain ("CBB"). These
rules and regulations require the adoption of all Financial
Accounting Standards (FAS) issued by the Accounting and Auditing
Organisation of Islamic Financial Institutions (AAOIFI), except
for:
a) recognition of modification losses on financial assets
arising from payment holidays provided to customers impacted by
COVID-19 without charging additional profits, in equity instead of
profit or loss as required by FAS issued by AAOIFI. Any other
modification gain or loss on financial assets are recognised in
accordance with the requirements of applicable FAS. Please refer to
note 10 for further details; and
2 Basis of preparation (continued)
b) recognition of financial assistance received from the
government and/ or regulators as part of its COVID-19 support
measures that meets the government grant requirement, in equity,
instead of profit or loss as required by the statement on
"Accounting implications of the impact of COVID-19 pandemic" issued
by AAOIFI to the extent of any modification loss recognised in
equity as a result of (a) above. In case this exceeds the
modification loss amount, the balance amount is recognized in the
profit or loss account. Any other financial assistance is
recognised in accordance with the requirements of FAS. Please refer
to note 19 for further details.
The above framework for basis of preparation of the condensed
consolidated interim financial information is hereinafter referred
to as 'Financial Accounting Standards as modified by CBB'.
The modification to accounting policies have been applied
retrospectively and did not result in any change to the financial
information reported for the comparative period.
In line with the requirements of AAOIFI and the CBB rule book,
for matters not covered by AAOIFI standards, the group takes
guidance from the relevant International Financial Reporting
Standards ("IFRS") issued by the International Accounting Standards
Board ("IASB"). Accordingly, the condensed consolidated interim
financial information of the Group has been presented in condensed
form in accordance with the guidance provided by International
Accounting Standard 34 - 'Interim Financial Reporting', using
'Financial Accounting Standards as modified by CBB'.
The condensed consolidated interim financial information does
not include all of the information required for full annual
financial statements and should be read in conjunction with the
Group's last audited consolidated financial statements for the year
ended 31 December 2019. However, selected explanatory notes are
included to explain events and transactions that are significant to
an understanding of the changes in the Group's financial position
and performance since the last annual audited consolidated
financial statements as at and for the year ended 31 December
2019.
3 Significant accounting policies
The accounting policies and methods of computation applied by
the Group in the preparation of the condensed consolidated interim
financial information are the same as those used in the preparation
of the Group's last audited consolidated financial statements as at
and for the year ended 31 December 2019, except as described in
note 2 'basis of preparation" above and those arising from adoption
of the following standards and amendments to standards effective
from 1 January 2020. Adoption of these standards and amendments did
not result in changes to previously reported net profit or equity
of the Group, however it has resulted in additional
disclosures.
a. Early adoption of standards issued during the year
i) FAS 31 - Investment Agency (Al-Wakala Bi Al-lstithmar)
The Group has adopted FAS 31 as issued by AAOIFI in 2019 on its
effective date of 1 January 2020.
The objective of this standard is to establish the principles of
accounting and financial reporting for investment agency (Al-Wakala
Bi Al-Istithmar) instruments and the related assets and obligations
from both the principal (investor) and the agent perspectives.
The Group uses wakala structure to raises funds from interbank
market and from customers, and these were reported as liabilities
under placements from financial institutions and placements from
non-financial institutions and individuals, respectively as of 31
December 2019. All funds raised using wakala structure, together
called "wakala pool" are comingled with the Bank's jointly financed
pool of funds based on an underlying equivalent mudarba
arrangement.
3 Significant accounting policies (continued)
This comingled pool of funds is invested in a common pool of
assets of in the manner which the Group deems appropriate without
any restrictions as to where, how and for what purpose the funds
should be invested. After adopting FAS 31 on 1 January 2020, the
Wakala pool is now classified as part of the Mudaraba pool of
funding under equity of investment account holders and the profit
paid on these contracts is reported as part of determination of
return on investment of equity of investment account holders.
As per the transitional provisions of FAS 31, the entity may
choose not to apply this standard on existing transactions executed
before 1 January 2020 and have an original contractual maturity
before 31 December 2020. The adoption of this standard has resulted
in a change in classification of all Wakala based funding contracts
as part of equity of investment accountholders and additional
associated disclosures.
ii) FAS 33 Investment in sukuks, shares and similar instruments
The Group has adopted FAS 33 as issued by AAOIFI effective 1
January 2021. The objective of this standard is to set out the
principles for the classification, recognition, measurement and
presentation and disclosure of investment in Sukuk, shares and
other similar instruments made by Islamic financial institutions.
This standard shall apply to an institution's investments whether
in the form of debt or equity securities. This standard replaces
FAS 25 Investment in Sukuk, shares and similar instruments.
The standard classifies investments into equity type, debt-type
and other investment instruments. Investment can be classified and
measured at amortized cost, fair value through equity or fair value
through the income statement. Classification categories are now
driven by business model tests and reclassification will be
permitted only on change of a business model and will be applied
prospectively.
Investments in equity instruments must be at fair value and
those classified as fair value through equity will be subject to
impairment provisions as per FAS 30 "Impairment, Credit Losses and
Onerous Commitments". In limited circumstances, where the
institution is not able to determine a reliable measure of fair
value of equity investments, cost may be deemed to be best
approximation of fair value.
The standard is effective 1 January 2021 with an option to early
adopt and is applicable on a retrospective basis. However, the
cumulative effect, if any, attributable to owners' equity, equity
of investment account holders relating to previous periods, shall
be adjusted with investments fair value pertaining to assets funded
by the relevant class of stakeholders.
The adoption of FAS 33 has resulted in changes in accounting
policies for recognition, classification and measurement of
investment in sukuks, shares and other similar instruments,
however, the adoption of FAS 33 had no significant impact on any
amounts previously reported in the condensed consolidated interim
financial information for the period ended 30 June 2019 and the
consolidated financial statement of the Group for the year ended 31
December 2019. Set out below are the details of the specific FAS 33
accounting policies applied in the current period.
3 Significant accounting policies (continued)
Changes in accounting policies
Categorization and classification
FAS 33 sets out classification and measurement approach for
investments in sukuk, shares and similar instruments that reflects
the business model in which such investments are managed and the
underlying cash flow characteristics. Under the standard, each
investment is to be categorized as either investment in:
i) equity-type instruments;
ii) debt-type instruments, including:
- monetary debt-type instruments; and
- non-monetary debt-type instruments; and
iii) other investment instruments
Unless irrevocable initial recognition choices as per the
standard are exercised, an institution shall classify investments
as subsequently measured at either of (i) amortised cost, (ii) fair
value through equity (FVTE) or (iii) fair value through income
statement (FVTIS), on the basis of both:
- the Group's business model for managing the investments; and
- the expected cash flow characteristics of the investment in
line with the nature of the underlying Islamic finance
contracts.
Reclassification of assets and liabilities
The adoption of FAS 33 has resulted in the following change in
the classification of investments based on the reassessment of
business model classification of the assets at 1 January 2020:
Investment securities Original New Original New
classification classification carrying carrying
under FAS under FAS amount amount
25 33 under under
FAS 25 FAS 33
US$ US$ 000's
000's
Investment
in
sukuk FVTIS FVTE 284,904 284,904
---------------------- --------------------------- -------------------- ---------------------
Amortised Amortised
cost cost 517,375 517,375
---------------------- --------------------------------------------------- -------------------- ---------------------
Investment
in
shares FVTIS FVTIS 239,807 239,807
---------------------- --------------------------- -------------------- ---------------------
FVTIS FVTE 21,764 21,764
---------------------- --------------------------------------------------- -------------------- ---------------------
FVTE FVTE 219,425 219,425
---------------------- --------------------------------------------------- -------------------- ---------------------
The impact from the adoption of FAS 33 is given below:
Retained earnings Investment fair value reserve
US$ 000's US$ 000's
Balance as of 1 January 2019
(previously reported) 123,136 (4,725)
Effect on reclassification of
financial instruments - -
Balance as of 1 January 2019
(restated) 123,136 (4,725)
============================= =========================================
Retained earnings Investment fair value reserve
US$ 000's US$ 000's
Balance as of 31 December 2019
(previously reported) 10,070 (4,831)
Effect on reclassification of
financial instruments (12,568) 12,568
Balance as of 31 December 2019
(restated) (2,498) 7,737
============================= =========================================
3 Significant accounting policies (continued)
b. New standards, amendments and interpretations issued but not yet effective
FAS 32 - Ijarah
AAOIFI has issued FAS 32 "Ijarah" in 2020. This standard
supersedes the existing FAS 8 "Ijarah and Ijarah Muntahia
Bittamleek".
The objective of this standard is set out principles for the
classification, recognition, measurement, presentation and
disclosure for Ijarah (asset Ijarah, including different forms of
Ijarah Muntahia Bittamleek) transactions entered into by the
Islamic Financial Institutions as a lessor and lessee. This new
standard aims to address the issues faced by the Islamic finance
industry in relation to accounting and financial reporting as well
as to improve the existing treatments in line with the global
practices.
This standard shall be effective for the financial periods
beginning on or after 1 January 2021 with early adoption permitted.
The Group is currently evaluating the impact of this standard.
4 Estimates and judgements
Preparation of condensed consolidated interim financial
information requires management to make judgments, estimates and
assumptions that affect the application of accounting policies and
the reported amounts of assets and liabilities, income and
expenses. Actual results may differ from these estimates. The areas
of significant judgments made by management in applying the Group's
accounting policies and the key sources of estimation uncertainty
were the same as those applied to the audited consolidated
financial statements as at and for the year ended 31 December 2019.
However, the process of making the required estimates and
assumptions involved further challenges due to the prevailing
uncertainties arising from COVID-19 and required use of management
judgements.
Expected credit Losses
The economic uncertainties caused by COVID-19, and the
volatility in oil prices impacting the Middle East economic
forecasts have required the Group to update the inputs and
assumptions used for the determination of expected credit losses
("ECLs") as at 30 June 2020. ECLs were estimated based on a range
of forecast economic conditions as at that date and considering
that the situation is fast evolving, the Group has considered the
impact of higher volatility in the forward-looking macro-economic
factors, when determining the severity and likelihood of economic
scenarios for ECL determination.
Scenario analysis has been conducted with various stress
assumptions taking into consideration all model parameters i.e.
probability weighting of economic scenarios, probability of
default, loss given default, exposure of default and period of
exposure. Furthermore, an assessment has been conducted on the
corporate portfolio based on various factors including but not
limited to financial standing, industry outlook, facility
structure, depth of experience, shareholder support etc.
Each industry under the portfolio has a wide spectrum of
clients, ranging from clients vulnerable to the outbreak to clients
having strong financial standing to withstand the downturn, and the
qualitative adjustments have considered these variables
accordingly. Given the fact that the client base is primarily based
in Bahrain and the region, all Government relief efforts to
mitigate the impact of COVID-19 is also expected to have a
mitigating impact on ECL assessment. The Group has factored the
impact of these efforts in the likely severity of its ongoing ECL
assessment.
4 Estimates and judgements (continued)
The judgements and associated assumptions have been made within
the context of the impact of COVID-19 and reflect historical
experience and other factors that are considered to be relevant,
including expectations of future events that are believed to be
reasonable under the circumstances. In relation to COVID-19,
judgements and assumptions include the extent and duration of the
pandemic, the impacts of actions of governments and other
authorities, and the responses of businesses and consumers in
different industries, along with the associated impact on the
global economy. Accordingly, the Group's ECL estimates are
inherently uncertain and, as a result, actual results may differ
from these estimates.
Significant increase in credit risk (SICR)
A SICR occurs when there has been a significant increase in the
risk of a default occurring over the expected life of a financial
instrument. In the measurement of ECL, judgement is involved in
setting the rules and trigger points to determine whether there has
been a SICR since initial recognition of a financing facility,
which would result in the financial asset moving from 'stage 1' to
'stage 2'.
The Group continues to assess borrowers for other indicators of
unlikeliness to pay, taking into consideration the underlying cause
of any financial difficulty and whether it is likely to be
temporary as a result of COVID-19 or longer term.
During the period, in accordance with CBB instructions the Group
has granted payment holidays to its eligible/impacted customers by
deferring up to six months instalments. These deferrals are
considered as short-term liquidity to address borrower cash flow
issues. The relief offered to customers may indicate a SICR.
However, the Group believes that the extension of these payment
reliefs does not automatically trigger a SICR and a stage migration
for the purposes of calculating ECL, as these are being made
available to assist borrowers affected by the Covid-19 outbreak to
resume regular payments. At this stage sufficient information is
not available to enable the Group to individually differentiate
between a borrowers' short-term liquidity constraints and a change
in its lifetime credit risk.
Reasonableness of forward-looking information
Judgement is involved in determining which forward looking
information variables are relevant for particular financing
portfolios and for determining the sensitivity of the parameters to
movements in these forward-looking variables. The Group derives a
forward looking "base case" economic scenario which reflects the
Group's view of the most likely future macro-economic
conditions.
Any changes made to ECL to estimate the overall impact of
Covid-19 is subject to very high levels of uncertainty as limited
forward-looking information is currently available on which to base
those changes.
The Group has previously performed historical analysis and
identified key economic variables impacting credit risk and ECL for
each portfolio and expert judgement has also been applied in this
process. These economic variables and their associated impact on
PD, EAD and LGD vary by financial instrument. Forecast of these
economic variables (the "base, upside and downside economic
scenario") are obtained externally on an annual basis.
The Group continues to individually assess significant corporate
exposures to adequately safeguard against any adverse movements due
to COVID-19.
Probability weights
Management Judgement is involved in determining the probability
weighting of each scenario considering the risks and uncertainties
surrounding the base case scenario.
4 Estimates and judgements (continued)
In light of the current uncertain economic environment, the
Group has re-assessed the scenario weighting to reflect the impact
of current uncertainty in measuring the estimated credit losses for
the period ended 30 June 2020. In making estimates, the Group
assessed a range of possible outcomes by stressing the previous
basis (that includes upside, based case and downside scenarios) and
changed the downside weightings through to 100%.
As with any economic forecasts, the projections and likelihoods
of the occurrence are subject to a high degree of inherent
uncertainty and therefore the actual outcomes may be significantly
different to those projected.
5 Financial risk management
The Group's financial risk management objectives and policies
are consistent with those disclosed in the audited consolidated
financial statements for the year ended 31 December 2019 except as
described below:
Credit risk
The uncertainties due to COVID-19 and resultant economic
volatility has impacted the Group's financing operations and is
expected to affect most of the customers and sectors to some
degree. Although it is difficult to assess at this stage the degree
of impact faced by each sector, the main industries impacted are
hospitality, tourism, leisure, airlines/transportation and
retailers. In addition, some other industries are expected to be
indirectly impacted such as contracting, real estate and wholesale
trading. Also, the volatility in oil prices during the early part
of 2020, will have a regional impact due to its contribution to
regional economies.
Considering this evolving situation, the Group has taken
pre-emptive measures to mitigate credit risk by adopting more
cautious approach for credit approvals thereby tightening the
criteria for extending credit to impacted sectors. Payment holidays
have been extended to customers, including private and SME sector,
in line with the instructions of CBB. These measures may lead to
lower disbursement of financing facilities, resulting in lower net
financing income and decrease in of other revenue.
Liquidity risk and capital management
The effects of COVID-19 on the liquidity and funding risk
profile of the banking system are evolving and are subject to
ongoing monitoring and evaluation. The CBB has announced various
measures to combat the effects of COVID-19 and to ease liquidity in
banking sector. Following are some of the significant measures that
have an impact on the liquidity risk and regulatory capital profile
of the Group:
-- payment holiday for 6 months to eligible customers;
-- for stage 1 ECL, increase in the number of days from 30 days
to 74 days;
-- concessionary repo to eligible banks at zero percent;
-- reduction of cash reserve ratio from 5% to 3%;
-- reduction in LCR and NSFR ratio from 100% to 80%; and
-- Aggregate of modification loss and incremental ECL provision
for stage 1 and stage 2 for the period from March to December 2020
to be added back to Tier 1 capital for the two years ending 31
December 2020 and 31 December 2021. And to deduct this amount
proportionately from Tier 1 capital on an annual basis for three
years
ending 31 December 2022, 31 December 2023 and 31 December 2024
The management of the Group has enhanced its monitoring of the
liquidity and funding requirements.
5 Financial risk management (continued)
In response to COVID-19 outbreak, the Group invoked its
liquidity contingency plan and continues to monitor and respond to
all liquidity and funding requirements that are presented. The
Group continues to calibrate stress testing scenarios to current
market conditions in order to assess the impact on the Group in
current extreme stress. As at the reporting date the liquidity and
funding position of the Group remains strong and is well placed to
absorb and manage the impacts of this disruption. Further
information on the regulatory liquidity and capital ratios as at 30
June 2020 have been disclosed below.
Operational risk management
In response to COVID-19 outbreak, there were various changes in
the working model, interaction with customers, digital modes of
payment and settlement, customer acquisition and executing
contracts and carrying out transactions with and on behalf of the
customers. The management of the Group has enhanced its monitoring
to identify risk events arising out of the current situation and
the changes in the way business is conducted. The operational risk
department has carried out a review of the existing control
environment and has considered whether to update the risk registers
by identifying potential loss events based on their review of the
business processes in the current environment.
As of 30 June 2020, the Group did not have any significant
issues relating to operational risks.
IBOR reforms
IBOR reforms are heading to second phase, which relates to the
replacement of benchmark rates with alternative risk-free rates.
The impact of rate replacement on the Group's products and services
is one of the critical drivers of this project. With an aim to
achieve an orderly transition and to mitigate the risks resulting
from the transition, the Group's management is in the process of
planning for the Group's transition project and continues to engage
with various stakeholders.
This project is expected to have a pervasive impact on the
entity, in terms of scale and complexity and will impact products,
internal systems and processes.
Regulatory ratios
a. Net stable funding Ratio (NSFR)
The objective of the NSFR is to promote the resilience of banks'
liquidity risk profiles and to incentivise a more resilient banking
sector over a longer time horizon. The NSFR limits overreliance on
short-term wholesale funding, encourages better assessment of
funding risk across all on-balance sheet and off-balance sheet
items, and promotes funding stability.
NSFR as a percentage is calculated as "Available stable funding"
divided by "Required stable funding".
The Consolidated NSFR calculated as per the requirements of the
CBB rulebook, as of 30 June 2020 is as follows:
5 Financial risk management (continued)
US$ 000's
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 964,166 - - 44,792 1,008,958
---------------------------------- ------------- ---------- ---------- ---------- ----------
3 Other Capital Instruments - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
4 Retail deposits and deposits from small business customers:
-------------------------------------------------------------------------------------------------
5 Stable deposits - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
6 Less stable deposits - 764,773 212,507 234,039 1,113,591
---------------------------------- ------------- ---------- ---------- ---------- ----------
7 Wholesale funding:
-------------------------------------------------------------------------------------------------
8 Operational deposits - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
9 Other Wholesale funding - 1,675,977 865,428 785,445 1,609,087
---------------------------------- ------------- ---------- ---------- ---------- ----------
10 Other liabilities:
-------------------------------------------------------------------------------------------------
11 NSFR Shari'a-compliant
hedging contract liabilities - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
All other liabilities not
12 included in the above categories - 94,566 25,958 173,569 173,569
---------------------------------- ------------- ---------- ---------- ---------- ----------
13 Total ASF 3,905,205
---------------------------------- ------------- ---------- ---------- ---------- ----------
Required Stable Funding (RSF):
-------------------------------------------------------------------------------------------------------
Total NSFR high-quality
14 liquid assets (HQLA) 770,769 - - - 22,721
---------------------------------- ------------- ---------- ---------- ---------- ----------
15 Deposits held at other
financial institutions
for operational purposes - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing and
16 sukuk/ securities: - 621,817 - 926,477 880,778
---------------------------------- ------------- ---------- ---------- ---------- ----------
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 - - - 108,536 92,256
---------------------------------- ------------- ---------- ---------- ---------- ----------
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: - 131,091 100,544 - 115,817
---------------------------------- ------------- ---------- ---------- ---------- ----------
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: - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
With a risk weight of less
than or equal to 35% under
the CBB Capital Adequacy
22 Ratio Guidelines - - - 8,968 5,829
---------------------------------- ------------- ---------- ---------- ---------- ----------
Securities/sukuk that are
not in default and do not
qualify as HQLA, including
23 exchange-traded equities - 205,573 123,600 674,257 838,844
---------------------------------- ------------- ---------- ---------- ---------- ----------
24 Other assets: - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
25 Physical traded commodities,
including gold - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
26 Assets posted as initial
margin for Shari'a-compliant
hedging contracts and
contributions to default
funds of CCPs - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
27 NSFR Shari'a-compliant
hedging assets - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
28 NSFR Shari'a-compliant
hedging contract liabilities
before deduction of variation
margin posted - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
All other assets not included
29 in the above categories 2,499,017 - - - 2,499,017
---------------------------------- ------------- ---------- ---------- ---------- ----------
30 OBS items - - - - 14,606
---------------------------------- ------------- ---------- ---------- ---------- ----------
31 Total RSF - 958,481 224,144 1,718,238 4,469,869
---------------------------------- ------------- ---------- ---------- ---------- ----------
32 NSFR (%) 87.4 %
---------------------------------- ------------- ---------- ---------- ---------- ----------
5 Financial risk management (continued)
US$ 000's
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 1,058,107 - - 35,340 1,093,447
---------------------------------- ------------- ---------- ---------- ---------- ----------
3 Other Capital Instruments - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
4 Retail deposits and deposits from small business customers:
---------------------------------------------------------------------------------------------------
5 Stable deposits - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
6 Less stable deposits - 1,151,743 198,247 165,704 1,380,695
---------------------------------- ------------- ---------- ---------- ---------- ----------
7 Wholesale funding:
---------------------------------------------------------------------------------------------------
8 Operational deposits - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
9 Other Wholesale funding - 1,686,007 582,773 380,354 1,272,035
---------------------------------- ------------- ---------- ---------- ---------- ----------
10 Other liabilities:
---------------------------------------------------------------------------------------------------
11 NSFR Shari'a-compliant
hedging contract liabilities - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
All other liabilities not
12 included in the above categories - 142,220 18,724 161,563 161,563
---------------------------------- ------------- ---------- ---------- ---------- ----------
13 Total ASF 3,907,740
---------------------------------- ------------- ---------- ---------- ---------- ----------
Required Stable Funding (RSF):
---------------------------------------------------------------------------------------------------------
Total NSFR high-quality
14 liquid assets (HQLA) - - - 64,391
---------------------------------- ------------- ---------- ---------- ---------- ----------
15 Deposits held at other
financial institutions
for operational purposes - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing and
16 sukuk/ securities: - 767,378 26,099 914,636 906,346
---------------------------------- ------------- ---------- ---------- ---------- ----------
17 Performing financial to
financial institutions
by level 1 HQLA - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing to
financial institutions
secured by non-level 1
HQLA and unsecured performing
financing to financial
18 institutions - 1,095 - 140,212 119,728
---------------------------------- ------------- ---------- ---------- ---------- ----------
Performing financing to
non- financial corporate
clients, financing to retail
and small business customers,
and financing to sovereigns,
central banks and PSEs,
19 of which: - 176,780 54,449 - 115,615
---------------------------------- ------------- ---------- ---------- ---------- ----------
20 With a risk weight of less
than or equal to 35% as
per the CBB Capital Adequacy
Ratio guidelines - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
21 Performing residential
mortgages, of which: - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
22 With a risk weight of less
than or equal to 35% under
the CBB Capital Adequacy
Ratio Guidelines - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
Securities/sukuk that are
not in default and do not
qualify as HQLA, including
23 exchange-traded equities - 172,216 10,000 106,945 198,053
---------------------------------- ------------- ---------- ---------- ---------- ----------
24 Other assets: - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
25 Physical traded commodities,
including gold - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
26 Assets posted as initial
margin for Shari'a-compliant
hedging contracts and
contributions to default
funds of CCPs - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
27 NSFR Shari'a-compliant
hedging assets - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
28 NSFR Shari'a-compliant
hedging contract liabilities
before deduction of variation
margin posted - - - - -
---------------------------------- ------------- ---------- ---------- ---------- ----------
All other assets not included
29 in the above categories 2,450,439 - - - 2,450,439
---------------------------------- ------------- ---------- ---------- ---------- ----------
30 OBS items - 133,645 15,801 105,685 12,757
---------------------------------- ------------- ---------- ---------- ---------- ----------
31 Total RSF - 1,251,114 106,348 1,267,478 3,867,329
---------------------------------- ------------- ---------- ---------- ---------- ----------
32 NSFR (%) 101 %
---------------------------------- ------------- ---------- ---------- ---------- ----------
5 Financial risk management (continued)
b. Liquidity Coverage Ratio (LCR)
LCR has been developed to promote short-term resilience of a
bank's liquidity risk profile. The LCR requirements aim to ensure
that a bank has an adequate stock of unencumbered high-quality
liquidity assets (HQLA) that consists of assets that can be
converted into cash immediately to meet its liquidity needs for a
30 calendar day stressed liquidity period. The stock of
unencumbered HQLA should enable the Bank to survive until day 30 of
the stress scenario, by which time appropriate corrective actions
would have been taken by management to find the necessary solutions
to the liquidity crisis.
LCR is computed as a ratio of Stock of HQLA over the Net cash
outflows over the next 30 calendar days.
Average balance
30 June 31 December
2020 US$ 2019
000's US$ 000's
-----------
Stock of HQLA 112,355 205,525
Net cashflows 95,240 117,139
LCR % 118% 188%
Minimum required by CBB 80% 100%
----------- ------------
c. Capital Adequacy Ratio
30 June 31 December
2020 2019
US$ 000's US$ 000's
CET 1 Capital before regulatory adjustments 989,275 1,078,079
Less: regulatory adjustments - -
CET 1 Capital after regulatory adjustments 989,275 1,078,079
T 2 Capital adjustments 44,792 44,792
Regulatory Capital 1,034,067 1,122,871
Risk weighted exposure:
Credit Risk Weighted Assets 7,373,146 7,776,802
Market Risk Weighted Assets 76,250 79,231
Operational Risk Weighted Assets 474,052 474,052
Total Regulatory Risk Weighted Assets 7,923,448 8,330,085
Investment risk reserve (30% only) 2 2
Profit equalization reserve (30% only) 3 3
Total Adjusted Risk Weighted Exposures 7,923,443 8,330,080
Capital Adequacy Ratio 13.05% 13.48%
Tier 1 Capital Adequacy Ratio 12.60% 13.06%
Minimum required by CBB 12.50% 12.50%
----------------- -------------------
6 Seasonality of operations
Due to the inherent nature of the Group's business (investment
banking, commercial banking and leisure and hospitality management
business), the six month results reported in this condensed
consolidated interim financial information may not represent a
proportionate share of the overall annual results.
7 Comparatives
The condensed consolidated interim financial information is
reviewed, not audited. The comparatives for the condensed
consolidated statement of financial position have been extracted
from the Group's audited consolidated financial statements for the
year ended 31 December 2019 and the reviewed condensed consolidated
interim financial information for the six months ended 30 June
2019. The comparatives for the condensed consolidated statements of
income, cash flows, changes in owners' equity, changes in
restricted investment accounts and sources and uses of zakah and
charity fund have been extracted from the reviewed condensed
consolidated interim financial information for the six months ended
30 June 2019. The comparatives have been restated for the effect of
adoption of FAS 33 (refer note 3 (a) (ii)) and reclassification of
certain assets as held-for-use from held-for-sale (note 14)
8 Appropriations
Appropriations, if any, are made when approved by the
shareholders.
In the shareholders meeting held on 6 April 2020, the following
were approved and effected during the period:
a) Cash dividend of 3.34% of the paid-up share capital amounting to US$ 30 million;
b) Appropriation of US$ 500 thousand towards charity for the year 2019;
c) Appropriation of US$ 568 thousand towards zakah for the year 2019; and
d) Transfer of US$ 8 million to statutory reserve.
9 Treasury portfolio
30 June 31 December 30 June
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
(restated) (restated)
Placements with financial institutions 353,409 546,575 866,120
Equity type investments
At fair value through income
statement
* Structured notes 297,950 239,807 178,988
Debt type investments
At fair value through equity
* Quoted sukuk 345,610 284,904 155,326
At amortised cost
* Quoted sukuk * 597,493 517,375 481,971
1,594,462 1,588,661 1,682,405
=========== ============ ===========
* Includes sukuk of US$ 331,050 thousand pledged against
medium-term borrowing of US$ (211,236) thousand.
10 Financing assets
30 June 31 December 30 June
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Murabaha 919,739 1,008,580 985,179
Musharaka 276 277 7,327
Wakala 13,280 13,280 13,280
Mudharaba 2,776 2,776 2,799
Istisnaa 6,533 4,597 6,900
Asset held-for-leasing 386,609 350,976 360,763
----------- ------------ -----------
1,329,213 1,380,486 1,376,248
Less: Impairment allowances (53,591) (107,709) (76,017)
----------- ------------ -----------
1,275,622 1,272,777 1,300,231
=========== ============ ===========
Murabaha financing receivables are net of deferred profits of
US$ 52,973 thousand
(2019: US$ 68,233 thousand) and un-amortised modification loss
of US$ 7,544 thousand (page 4).
The modification loss has been calculated as the difference
between the net present value of the modified cash flows calculated
using the original effective profit rate and the current carrying
value of the financial assets on the date of modification. The
Group provided payment holidays on financing exposures amounting to
US$ 118,382 thousand as part of its support to impacted
customers.
The movement on impairment allowances is as follows:
2020 Stage 1 Stage 2 Stage 3 Total
US$ 000's US$ 000's US$ 000's US$ 000's
At 1 January 2020 12,149 7,241 88,319 107,709
Net movement between
stages 3,591 (4,042) 451 -
Net charge for the
period 2,168 1,698 (1,793) 2,073
Write off - - (26,920) (26,920)
Disposal - - (29,271) (29,271)
--------- --------- --------- ---------
At 30 June 2020 17,908 4,897 30,786 53,591
========= ========= ========= =========
11 Real estate investments
30 June 31 December 30 June
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Investment Property
* Land 470,285 490,412 485,504
* Building 63,597 40,841 40,841
----------- ------------ -----------
533,882 531,253 526,345
----------- ------------ -----------
Development Property
* Land 782,056 797,535 806,827
* Building 492,596 477,221 488,272
----------- ------------ -----------
1,274,652 1,274,756 1,295,099
----------- ------------ -----------
1,808,534 1,806,009 1,821,444
=========== ============ ===========
12 Proprietary investments
30 June 31 December 30 June
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Equity type investments
At fair value through income
statement
* Unquoted securities 21,764 29,640 34,875
At fair value through equity
* Listed securities (at fair value) 17,492 27,324 26,511
* Unquoted securities 136,445 95,594 103,006
----------- ------------
153,937 122,918 129,517
Equity-accounted investees 75,627 115,617 114,656
----------- ------------ -----------
251,328 268,175 279,048
=========== ============ ===========
13 Co-investments
30 June 31 December 30 June
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
At fair value through equity
* Unquoted securities 98,558 96,507 77,048
----------- ------------
98,558 96,507 77,048
=========== ============ ===========
14 Assets held-for-sale and associated liabilities
30 June 31 December 30 June
2020 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Assets - 101,213 101,213
Liabilities - 39,936 39,936
Non-controlling interests - 25,396 25,396
Assets and related liabilities held-for-sale represents the
assets and liabilities of Falcon Cement Company BSC (c) (' FCC'),
the Group's subsidiary acquired in 2018.
Restatement
During the period, the Group had re-classified its investment in
a subsidiary, Falcon Cement Company BSC (c), from assets
held-for-sale because the investments no longer meet the criteria
to be classified as held-for-sale, to held-for-use.
In accordance with IFRS 5 Non-current assets held-for-sale and
discontinued operations, upon reclassification as held-for-use, the
subsidiary was consolidated on a line by line basis including
earlier periods resulting in restatement of the prior year as if
the subsidiary had always been consolidated and reclassifying
'non-controlling interest held-for-sale' to 'non-controlling
interests'. The reclassification did not had any impact on the
previously reported profits or owners' equity.
14 Assets held-for-sale and associated liabilities
The effect of restatement on the previously reported assets and
liabilities are given below:
31 December 2019 30 June 2019
previously previously
restated reported restated reported
US$ 000's US$ 000's US$ 000's US$ 000's
ASSETS
Cash and bank balances 364,598 362,345 371,805 369,552
Treasury portfolio 1,588,661 1,588,661 1,682,405 1,682,405
Financing assets 1,272,777 1,272,777 1,300,231 1,300,231
Real estate Investments 1,806,009 1,806,009 1,821,444 1,821,444
Proprietary investments 268,175 268,175 279,048 279,048
Co-investments 96,507 96,507 77,048 77,048
Assets held-for-sale - 101,213 - 101,213
Receivables and
prepayments 444,689 424,146 502,877 482,334
Property and equipment 103,857 25,440 103,116 24,699
---------- ---------- -----------
Total 5,945,273 5,945,273 6,137,974 6,137,974
========== =========== ========== ===========
LIABILITIES
Clients' funds 70,858 70,858 61,097 61,097
Placements from
financial, non-financial
institutions and
individuals 2,447,249 2,447,249 2,789,757 2,789,757
Customer current
accounts 147,487 147,487 163,683 163,683
Term financing 301,411 279,418 221,953 199,960
Liabilities directly
associated with
assets held-for-sale - 39,936 - 39,936
Payables and accruals 466,852 448,909 525,876 507,933
---------- ----------
Total 3,433,857 3,433,857 3,762,366 3,762,366
========== =========== ========== ===========
15 Term financing
30 June 31 December 30 June
2019 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Murabaha financing 463,628 249,435 119,461
Sukuk liability * 285,484 - -
Ijarah financing 23,421 24,653 25,724
Other borrowings 156,999 27,323 76,768
929,532 301,411 221,953
========== =========== ==========
* During the period, the Group obtained an unsecured financing
of US$ 300 million through issuance of sukuk certificates with a
profit rate of 7.5% repayable by 2025.
16 Acquisition of additional interests in an equity accounted investee
During the period, the Group acquired additional stake in Global
Banking Corporation BSC (c) (GBCORP), an equity-accounted investee
resulting in the Group obtaining control as at 30 June 2020.
The Group's existing stake and additional stake acquired are
given below:
Current Additional Total
Stake stake acquired stake
GBCORP 28.69% 21.72% 50.41%
Consideration transferred and non-controlling interests
The consideration transferred for the acquisition was in the
form of investments held by the Group. The consideration
transferred is generally measured at fair value and the stake held
by shareholders other than the Group in the subsidiaries is
recognised in the consolidated financial statements under
"Non-controlling interests" based on the proportionate share of
non-controlling shareholders' in the recognised amounts of the
investee's net assets or fair value at the date of acquisition of
the investee on a transaction by transaction basis based on the
accounting policy choice of the Group.
Identifiable assets acquired and liabilities assumed
All entities acquired were considered as businesses. The fair
value of assets, liabilities, equity interests have been reported
on a provisional basis. If new information, obtained within one
year from the acquisition date about facts and circumstances that
existed at the acquisition date, identifies adjustments to the
above amounts, or any additional provisions that existed at the
acquisition date, then the acquisition accounting will be revised.
Revisions to provisional acquisition accounting are required to be
done on a retrospective basis.
The reported amounts below represent the adjusted acquisition
carrying values of the acquired entities as at 30 June 2020, being
the effective date of acquisition, and have been reported on a
provisional basis as permitted by accounting standards.
30 June 2020
US$ 000's
Cash and bank balances, placements with financial
institutions 32,856
Investment securities 50,167
Investment property 42,477
Property and equipment 2,709
Receivables and prepayments 1,440
Total assets 129,649
Accruals and other liabilities 1,101
Total liabilities 1,101
Total net identifiable assets and liabilities (A) 128,548
16 Acquisition of additional interests in an equity accounted investee (continued)
30 June 2020
US$ 000's
Fair value of Group's previously held equity interest 34,812
Value of consideration transferred 21,571
Non-controlling interests recognised 63,747
Total consideration (B) 120,130
Negative goodwill (B-A) (provisional) 8,418
The acquisition of additional stake in GBCORP resulted in a
bargain purchase and the Group has recognised negative goodwill of
US$ 8,418 thousand which is included in the income statement under
'Income from proprietary and co-investments, Direct investment
income'. The bargain purchase was due to pressure on the sellers to
exit their holdings due to change in their business plans. The
acquisition resulted in net cash inflow of US$ 32,856 thousand.
17 Other income
Other income mainly comprise of recoveries from project
companies amounting to US$ 8.4 million, write back of liabilities
no longer required of US$ 3.2 million, income of non-financial
subsidiaries of US$ 2 million
18 Impairment allowances
Six months ended
30 June 2020 30 June
2019
US$ 000's US$ 000's
(reviewed) (reviewed)
Expected credit loss on:
* Bank balances 67 7
* Placement with financial institutions 545 10,751
* Financing assets 165 694
* Other receivables 770 712
1,547 12,164
============ ==========
19 Government assistance and subsidies
Governments and central banks across the world have responded
with monetary and fiscal interventions to stabilize economic
conditions. The Government of Kingdom of Bahrain has announced
various economic stimulus programmes ("Packages") to support
businesses in these challenging times.
During the period the Group received financial assistance
amounting to US$ 4,054 thousands representing reimbursement of
staff costs and waiver of fees, levies, utility charges and cost of
Repo funding received from the government and/ or regulators that
has been recognized directly in equity.
20 Related party transactions
The significant related party balances and transactions as at 30
June 2020 are given below:
Related parties as per FAS
1
Assets
Significant under management
shareholders (including
/ entities special
Associates in which purpose
30 June 2020 and joint Key management directors and other
(reviewed) venture personnel are interested entities) Total
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
----------- --------------- ---------------- ------------------ ----------
Assets
Financing assets - 8,212 17,692 31,723 57,628
Proprietary investments 29,442 - 6,058 47,735 83,236
Co-investments 76,955 - - 42,955 119,910
Receivables and
prepayments 3,228 - - 8,833 12,060
Liabilities
Clients' funds
Placements from
financial, non-financial
institutions and
individuals - 6,939 51,907 - 58,846
Customer accounts 454 387 12,034 3,228 16,103
Payables and accruals - - 3,387 4,086 7,473
Equity of investment
account holders 1,085 666 234,798 912 237,462
Income
Income from Investment
banking - - - 40,963 40,963
Income from commercial
banking (32) 212 1,111 - 1,292
Income from proprietary
and co-investments (950) - - 4,109 3,159
Real estate income - - - - -
Treasury and other
income - - - 4,000 4,000
Expenses
Operating expenses - 5,252 - - 5,252
Finance expense 19 122 3,332 66 3,538
----------- --------------- ---------------- ------------------ ----------
20 Related party transactions (continued)
Related parties as per FAS
1
Assets
Significant under management
shareholders (including
/ entities special
Associates in which purpose
and joint Key management directors and other
30 June 2019 (reviewed) venture personnel are interested entities) Total
US$ 000's US$ 000's US$ 000's US$ 000's US$ 000's
----------- --------------- ---------------- ------------------ ----------
Transactions
Sale of real estate
investment - - 40,000 - 40,000
Assets
Financing assets - 5,621 15,146 29,552 50,319
Proprietary investments 102,632 - 6,058 54,416 163,106
Co-investments - - - 23,638 23,638
Receivables and
prepayments 3,236 - 13,257 193,905 210,398
Liabilities
Clients' funds 3,445 - - 15,161 18,606
Placements from
financial, non-financial
institutions and
individuals - 4,817 2,873 - 7,690
Customer accounts 199 151 16,300 3,912 20,562
Payables and accruals 1,398 - 9,519 19,731 30,648
Equity of investment
account holders 1,101 2,804 38,152 1,101 43,158
Income
Income from Investment
banking - - - 43,344 43,344
Income from commercial
banking (133) 24 124 (13) 2
Income from proprietary
and co-investments 1,651 - - 508 2,159
Real estate income - 50 9,248 - 9,298
Treasury and other
income 120 - - 827 947
Expenses
Operating expenses - 10,252 - 45 10,297
Finance expense - - 623 - 623
----------- --------------- ---------------- ------------------ ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2020
21 Segment reporting
The Group is organised into business units based on their nature
of operations and independent reporting entities and has four
reportable operating segments namely real estate development,
investment banking, commercial banking and corporate and
treasury.
Real estate Investment Commercial Corporate
development banking banking and treasury Total
US$ '000s US$ '000s US$ '000s US$ '000s US$ '000s
------------- ----------- ----------- -------------- ----------
30 June 2020 (reviewed)
Segment revenue 13,630 66,429 30,156 36,311 146,526
Segment expenses (14,872) (49,305) (15,076) (46,887) (126,140)
Segment result * (1,241) 17,124 15,080 (10,576) 20,386
Segment assets 1,732,160 473,439 2,524,152 1,405,019 6,134,771
Segment liabilities 252,703 226,987 1,088,179 2,536,703 4,104,572
Other segment information
Proprietary investments (Equity-accounted
investees) 11,132 18,310 76,955 - 106,397
Equity of investment account holders - - 848,126 597 848,723
Commitments 28,564 148,167 176,731
------------- ----------- ----------- -------------- ----------
NOTES TO THE CONDENSED CONSOLIDATED INTERIM FINANCIAL
INFORMATION
for the six months ended 30 June 2020
21 Segment reporting (continued)
Real estate Investment Commercial Corporate
development banking banking and treasury Total
US$ '000s US$ '000s US$ '000s US$ '000s US$ '000s
------------- ----------- ----------- -------------- ----------
30 June 2019 (reviewed)
Segment revenue 44,048 64,178 37,920 17,399 163,545
Segment expenses (13,057) (53,613) (28,010) (19,972) (114,652)
Segment result * 30,991 10,565 9,910 (2,573) 48,893
Segment assets 2,011,374 1,126,011 2,538,667 461,921 6,137,973
Segment liabilities 379,961 1,078,917 1,047,090 1,256,398 3,762,366
Other segment information
Proprietary investments (Equity-accounted
investees) 46,214 56,418 12,024 - 114,656
Equity of investment account holders - - 995,250 587 995,837
Commitments 114,314 - 122,167 18,000 254,481
------------- ----------- ----------- -------------- ----------
* Includes segment result of discontinued operations, net.
22 Commitments and contingencies
The commitments contracted in the normal course of business of
the Group:
30 June 31 December 30 June
2019 2019 2019
US$ 000's US$ 000's US$ 000's
(reviewed) (audited) (reviewed)
Undrawn commitments to extend
finance 120,793 182,695 179,196
Financial guarantees 27,374 31,395 28,061
Capital commitment for infrastructure
development projects 14,064 17,541 35,518
Commitment to lend 14,500 23,500 16,500
Other commitments - - 7,000
------------ ------------ ------------
176,731 255,131 266,275
============ ============ ============
Performance obligations
During the ordinary course of business, the Group may enter into
performance obligations in respect of its infrastructure
development projects. It is the usual practice of the Group to pass
these performance obligations, wherever possible, on to the
companies that own the projects. In the opinion of the management,
no liabilities are expected to materialise on the Group at 30 June
2020 due to the performance of any of its projects.
Litigations, claims and contingencies
The Group has a number of claims and litigations filed against
it in connection with projects promoted by the Bank in the past and
with certain transactions. Further, claims against the Bank also
have been filed by former employees. Based on the advice of the
Bank's external legal counsel, the management is of the opinion
that the Bank has strong grounds to successfully defend itself
against these claims. Appropriate provision have been made in the
books of accounts. No further disclosures regarding contingent
liabilities arising from any such claims are being made by the Bank
as the directors of the Bank believe that such disclosures may be
prejudicial to the Bank's legal position.
23 Financial instruments
Fair values
Fair value is an amount for which an asset could be exchanged,
or a liability settled, between knowledgeable, willing parties in
an arm's length transaction. This represents the price that would
be received to sell an asset or paid to transfer a liability in an
orderly transaction between market participants at the measurement
date.
Underlying the definition of fair value is a presumption that an
enterprise is a going concern without any intention or need to
liquidate, curtail materially the scale of its operations or
undertake a transaction on adverse terms.
The COVID-19 pandemic has resulted in a global economic slowdown
with uncertainties in the economic environment. The global capital
and commodity markets have also experienced great volatility and a
significant drop in prices. The Group's fair valuation exercise
primarily relies on quoted prices from active markets for each
financial instrument (i.e. Level 1 input) or using observable or
derived prices for similar instruments from active markets (i.e.
Level 2 input) and has reflected the volatility evidenced during
the period and as at the end of the reporting date in its
measurement of its financial assets and liabilities carried at fair
value. Where fair value measurements was based in full or in part
on unobservable inputs (i.e. Level 3), management has used its
knowledge of the specific asset/ investee, its ability to respond
to or recover from the crisis, its industry and country of
operations to determine the necessary adjustments to its fair value
determination process.
23 Financial instruments (continued)
Fair value hierarchy
The table below analyses the financial instruments carried at
fair value, by valuation method. The different levels have been
defined as follows:
-- Level 1: quoted prices (unadjusted) in active markets for identical assets and liabilities.
-- Level 2: inputs other than quoted prices included within
Level 1 that are observable for the asset or liability, either
directly (i.e.as prices) or indirectly (i.e. derived from
prices).
-- Level 3: inputs for the asset or liability that are not based
on observable market data (unobservable inputs).
30 June 2020 (reviewed) Level Level Level Total
1 2 3
US$ 000's US$ 000's US$ 000's US$ 000's
i) Proprietary investments
Investment securities carried
at fair value through:
* income statement - - 21,764 21,764
* equity 17,492 - - 17,492
---------- ---------- ---------- ----------
17,492 - 21,764 39,256
---------- ---------- ---------- ----------
ii) Treasury portfolio
Investment securities carried
at fair value through:
* income statement 297,950 - - 297,950
* equity 357,185 - - 357,185
---------- ---------- ---------- ----------
655,135 - - 655,135
---------- ---------- ---------- ----------
iii) Co-investments
Investment securities carried
at fair value through equity - - 98,558 98,558
792 ,
672,627 - 120,322 949
========== ========== ========== ==========
30 June 2019 (reviewed) Level Level Level Total
1 2 3
US$ 000's US$ 000's US$ 000's US$ 000's
i) Proprietary investments
Investment securities carried
at fair value through:
* income statement - - 34,875 34,875
* equity 26,511 - - 26,511
---------- ---------- ---------- ----------
26,511 - 34,875 61,386
---------- ---------- ---------- ----------
ii) Treasury portfolio
Investment securities carried
at fair value through:
* income statement 178,988 - - 178,988
* equity 155,326 - - 155,326
---------- ---------- ---------- ----------
334,314 - - 334,314
---------- ---------- ---------- ----------
iii) Co-investments
Investment securities carried
at fair value through equity - - 77,048 77,048
360,825 - 111,923 472,748
========== ========== ========== ==========
23 Financial instruments (continued)
The following table analyses the movement in Level 3 financial
assets during the period:
30 June 31 December
2020 2019
US$ 000's US$ 000's
(reviewed) (audited)
(restated)
At beginning of the period 128,198 133,433
Gains (losses) in income statement - (5,235)
Disposals at carrying value (29,640) -
Purchases 21,764 -
At end of the period 120,322 128,198
============ ============
24 ASSETS UNDER MANAGEMENT AND CUSTODIAL ASSETS
i.) The Group provides corporate administration, investment
management and advisory services to its project companies, which
involve the Group making decisions on behalf of such entities.
Assets that are held in such capacity are not included in these
consolidated financial statements. At the reporting date, the Group
had assets under management of US$ 2,040 million (31 December 2019:
US$ 1,975 million). During the period, the Group had charged
management fees amounting to US$ 2,726 thousand (30 June 2019: US$
1,358 thousand) to its assets under management.
ii.) Custodial assets comprise of discretionary portfolio
management ('DPM') accepted from investors amounting to US$ 380,194
thousand out of which US$ 141,566 thousand has been invested to the
Bank's own investment products. Further, the Bank is also holding
Sukuk of US$ 39,111 thousand on behalf of the investors.
(The attached information do not form part of the condensed
consolidated interim financial information)
UNREVIEWED SUPPLEMENTARY DISCLOURE TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL INFORMATION
On 11 March 2020, the Coronavirus (COVID-19) outbreak was
declared, a pandemic by the World Health Organization (WHO) and has
rapidly evolved globally. This has resulted in a global slowdown
with uncertainties in the economic environment. This included
disruption to capital markets, deteriorating credit markets and
liquidity concerns. Authorities have taken various measures to
contain the spread including implementation of travel restrictions
and quarantine measures.
The pandemic as well as the resulting measures have had a
significant knock-on impact on the Bank and its principal
subsidiaries and its associates (collectively the "Group"). The
Group is actively monitoring the COVID-19 situation, and in
response to this outbreak, has activated its business continuity
plan and various other risk management practices to manage the
potential business disruption on its operations and financial
performance.
The Central Bank of Bahrain (CBB) announced various measures to
combat the effect of COVID- 19 to ease liquidity conditions in the
economy as well as to assist banks in complying with regulatory
requirements. Theses measure include the following:
-- Payment holiday for 6 months to eligible customers without any additional profits;
-- Concessionary repo to eligible retail banks at zero Percent;
-- Reduction of cash reserve ratio from 5% to 3%;
-- Reductions of liquidity coverage ratio (LCR) and net stable
funding ratio (NSFR) from 100% to 80%;
-- Aggregate of modification loss and incremental expected
credit losses (ECL) provisions for stage 1 and stage 2 from March
to December 2020 to be added to Tier 1 capital for two years ending
31 December 2020 and 31 December 2021. And to deduct this amount
proportionality from Tier 1 capital on an annual basis for three
years ending December 2022, 31 December 2023 and 31 December
2024.
The onset of COVID-19 and the aforementioned measures resulted
in the following significant effects to the financial position and
operations of the Group:
-- The CBB mandated 6-month payment holiday required the retail
banking subsidiary of the Group to recognize a one-off modification
loss directly in equity. The modification loss has been calculated
as the difference between the net present value of the modified
cash flows calculated using the original effective profit rate and
the carrying value of the financial assets on the date of
modification.
-- The Government of Kingdom of Bahrain has announced various
economic stimulus programmes ("Packages") to support businesses in
these challenging times. The Group received various forms of
financial assistance representing specified reimbursement of a
portion of staff costs, waives of fees, levies and utility charges
and zero cost funding received from the government and/or
regulators, in response to its COVID-19 support measures.
-- The mandated 6 months payments holiday also included the
requirement to suspend minimum payments and service fees on credit
card balances and reduction in transaction related charges, this
resulted in a significant decline in the Group's fees income from
its retail banking operations.
-- The strain caused by COVID-19 on the local economy resulted
in a slow-down in the sale of new asset management products and
booking of new corporate financing assets by the Group. During the
six months ended 30 June 2020, placements of AuM were lower by
53.5% and financing assets bookings were lower by 26.3% than the
same period of the previous year.
UNREVIEWED SUPPLEMENTARY DISCLOURE TO THE CONDENSED CONSOLIDATED
INTERIM FINANCIAL INFORMATION (Continued)
-- Decreased consumer spending caused by the economic slow-down
in the booking of new consumer financing assets by the Bank,
whereas, deposit balances decreased compared to the same period of
the previous year. These effects partly alleviated the liquidity
stress faced by the Group due to the mandated 6 months payments
holiday. The Group's liquidity ratios and regulatory CAR were
impacted but it continues to meet the revised regulatory
requirement. The consolidated CAR, LCR and NSFR as of 30 June 2020
was 13%, 158% and 91% respectively.
-- The stressed economic situation resulted in the Bank
recognizing incremental ECL on its financing exposures.
-- The overall economic effect of the pandemic was also
reflected in the displacement and volatility in global debt and
capital markets in H1 2020 due to which the group had to recognize
valuation losses on its Sukuk and investment portfolios.
In addition to the above areas of impact, due to the overall
economic situation certain strategic business and investment
initiatives have been postponed until there is further clarity on
the recovery indicators and its impact on the business environment.
Overall, for the period, the Bank achieved a net profit of USD 17.0
million, which is lower than USD 49.1 million in the same period of
the previous year, registering a drop of 65.4%.
A summary of the significant areas of financial impact described
above is as follows:
Net Impact Net Impact Net Impact
recognized on the Group's recognized
in the Group's consolidated in the Group's
consolidated financial consolidated
income statement position owners' equity
------------------ ------------------- ------------------
USD' 000 USD' 000 USD' 000
---------------------------------- ------------------ ------------------- ------------------
Average reduction of cash
reserve - 22,828 -
------------------ ------------------- ----------------
Concessionary repo at
0% - 129,676 -
------------------ ------------------- ----------------
Modification loss - (25,292) (25,292)
------------------ ------------------- ----------------
Investment portfolio decline (10,933) (31,576) (20,643)
------------------ ------------------- ----------------
Modification loss amortization 17,475 17,475 -
------------------ ------------------- ----------------
Incremental ECL provisions (1,547) (1,547) -
------------------ ------------------- ----------------
Government grants - - 4,054
------------------ ------------------- ----------------
Lower fee income (retail
banking) (830) - -
------------------ ------------------- ----------------
Information reported in the table above only include components
or line items in the financial statements where impact was
quantifiable and material. Some of the amounts reported above
include notional loss of income or incremental costs and hence may
not necessarily reconcile with amounts reported in the interim
financial information for 30 June 2020.
The above supplementary information is provided to comply with
CBB circular number OG/259/2020 (reporting of Financial Impact of
COVID-19), dated 14 July 2020. This information should not be
considered as indication of the results if the entire year or
relied upon for any other purposes. Since the situation of COVID-19
is uncertain and is still evolving, the above impact is as of date
of preparation of this information. Circumstances may change which
may result in this information to be out-of-date. In addition, this
information does not represent a full comprehensive assessment of
COVID-19 impact on the Group. This information has not been subject
to a formal review by external auditors.
This information is provided by RNS, the news service of the
London Stock Exchange. RNS is approved by the Financial Conduct
Authority to act as a Primary Information Provider in the United
Kingdom. Terms and conditions relating to the use and distribution
of this information may apply. For further information, please
contact rns@lseg.com or visit www.rns.com.
END
IR GLGDIUSBDGGC
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