Al-Amanah Islamic Investment Bank of the Philippines: Annual Report 2020

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2. 2020 ANNUAL REPORT
3. 2 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES TABLE OF CONTENTS 3 Corporate Policy Company Profile Mission Statement Vision Statement Core Values 4 Message from the Chairman and CEO 5 Financial Summary 6 Financial Conditions and Results of Operations 8 Highlights of Major Activities , Corporate Social Responsibility and Strategic Initiatives, and Challenges 10 Risk Management Framework 18 Corporate Governance 40 Corporate Information 41 Products and Services 42 Audited Financial Statement with Auditor’s Opinion 49 Notes to Financial Statements
4. 2020 ANNUAL REPORT CORPORATE POLICY Al-Amanah Islamic Investment Bank of the Philippines (“AAIIBP” or “Amanah Islamic Bank”) is the only bank authorized to offer Islamic banking in the Philippines. AAIIBP is licensed as a universal bank and offers both Islamic and conventional banking services. MISSION STATEMENT To become a full Islamic Bank and afford Filipinos of the blessings and benefits of Islamic banking, financing, and investment. VISION STATEMENT To be the leading and choice Islamic financial institution providing alternative banking services in response to the emerging global Islamic markets and to promote and accelerate the socioeconomic developments of the Islamic communities in the Philippines by 2022. CORE VALUES • Adherence to Shari’ah Principles • Integrity, Excellence Competence and AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (AAIIBP), formerly Philippine Amanah Bank, is the first and the only Islamic bank in the country. AAIIBP’s primary purpose under its charter is “to promote and accelerate the socioeconomic development of the Autonomous Region by performing banking, financing and investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking”. The Bank was first established as Philippine Amanah Bank in 1973 by virtue of Presidential Decree No. 264 through the initiative of then President Ferdinand Marcos. It was later on amended by Presidential Decree No. 542 in the year 1974 wherein it was directed to implement the Islamic concept of banking. Under this legislative fiat, the Bank was enjoined to pursue ethics in Islamic banking and finance such as the “no-interest” doctrine and the so-called two-tier silent partnership principle. However, since the clamor for conventional banking in the country was massive, the said directive was carried out only partially. With the signing of Republic Act No. 6848 in the year 1990, AAIIBP was granted an authorized capital stock of One billion pesos (P1,000,000,000) divided into ten million par value shares of One hundred pesos each. The Bank had developed primarily as an Islamic bank with the central importance of ‘Shari’ah Compliance’ for its various contracts. In the performance of its daily operations, the Bank not only ensured its adherence to the Philippine Banking Laws but also its conformity to Shari’ah. In 2007, the Development Bank of the Philippines’ (DBP) Board approved the acquisition of AAIIBP and took full control of it in 2008 by owning 99.9% of its total subscribed shares. In 2009, the Monetary Board approved the Bank's 5-year Rehabilitation Plan, which focused on four corporate strategies (4Rs) namely, Recapitalization, Restoration of Financial Viability, Reorganization and Reforms Institutionalization. Under the Rehabilitation Plan, AAIIBP is allowed to do both conventional and Islamic banking ad infinitum. Accordingly, DBP infused P1.0 billion capital to AAIIBP which marked as the partial completion of the recapitalization strategy. The AAIIBP functions as a subsidiary of DBP – a government owned bank. Operating as the only Bank that offers Islamic banking services in the Philippines, it provides deposit products, as well as commercial and investment banking services. It maintains its nine branches located in Cagayan de Oro, Cotabato, Davao, Jolo, Iligan, General Santos, Marawi, San Juan, and Zamboanga City. A business plan was created in 2018 to define and fix objectives and programs of the Bank towards maximization of the utilization of meager resources with the end view of reducing losses or at least breakeven over the 5-year period 2019-2023. 3
5. 4 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES MESSAGE FROM THE CHAIRMAN AND CEO Greetings of peace for everyone . Year 2020 is the Covid-19 pandemic that stunned the whole world, especially the global banking and financial market, spinning in a spectrum of shock with daunting challenges as the global mobility halted if only to stay safe from that tiny virus. Fortunate for those with sophisticated connectivity and digital banking systems, they rendered the needed services which somehow became the world’s moonlight during such dark period. But, our little bank, the Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) do not have such facilities and, thus, most affected. In 2017, we started gearing towards full Islamic banking by piloting the newly enhanced and developed Islamic products of the Bank, particularly the Islamic Microfinance (IM) and Car Islamic Financing (CIF) products which highly contributed in the increase of deposit level of the Bank from 2016 to 2019 by over 117%, not to mention that the IM products have earned an annual profit of not less than 16% and the CIF was zero past due from 2018 to 2019. Year 2020 for AAIIBP was filled with ambitious but achievable strategic plan to start the 2019 AAIIBP’s Roadmap to Sustainability and Growth by piloting our General Islamic Investment Account (GIIA) through our investment window, primarily aiming to source out capital or funds for the Institutionalization of the first Islamic Microfinance Banking Window (IMBW) in the Philippines along with our Responsive Modernization Program. Unfortunately, pandemic happened which caused the swift decline of AAIIBP’s Capital Adequacy Rate (CAR) way below the threshold resulting in the inevitable suspension of the Islamic financing facilities of the Bank in October 2020. To recover thereto, we revised our Roadmap to Rehabilitation, Sustainability and Growth which aims the (1) Rehabilitation of AAIIBP through the Institutionalization of the IBMW and (2) its Transformation to full Islamic banking. The sudden plummet of AAIIBP’s CAR prompted us to submit to Department of Finance (DOF) Secretary Carlos Dominguez III our AAIIBP’s Financial Economic Recovery Program (AFERP), designed to address the crucial situation of the Bank. After our thorough presentation and explanation, the good Secretary directed the Development Bank of the Philippines, through its President Emmanuel G. Herbosa, to help AAIIBP address its must-needed financial assistance and in addressing its needed capitalization as well. By way of capital infusion, DBP infused an additional capital of PhP150Million to AAIIBP in June, 2021. Due to the perils of the pandemic, we had to revise our 2018 Roadmap to 2020 AAIIBP’s Roadmap to Rehabilitation, Sustainability and Growth. Since five months from our appointment to Office in March 2017, we have addressed and emphasized to our supervisors and regulators, included Congress, the must-needed sufficient capitalization of AAIIBP for its transformation to full Islamic banking so it can fully serve its mandate. Only with sufficient capital can AAIIBP flourish to its fullest vibrant capacity and serve its purpose pursuant to its mandate as an alternative banking system under its Charter (R.A. 6848), particularly its authority to take its role and participation in the socio-economic development of the nation, primarily the now Bangsamoro Autonomous Region in Muslim Mindanao (BARMM). Nonetheless, we survived the covid year of 2020 as a financial institution. But if we continue to flourish in the coming years as such, we can look back to 2020 as the year we finally became a member of the Swift System which gave us the opportunity to connect with thousands of other banks worldwide. Through this network our Investment Banking Group was able to create deals with international banks that will continue to create income for Amanah Islamic Bank, without the need to use our own funds. To my mind, this was an upside of the very difficult year that was 2020. To our regulators, thank you for your unwavering support through your critical assessment that have guided us formulate reformative policies to ensure transparent, regular and smooth operation of the Bank. ALEX P. BANGCOLA Chairman and CEO
6. 2020 ANNUAL REPORT FINANCIAL SUMMARY COMPARATIVE STATEMENT OF EARNINGS AND EXPENSES (In Million Peso) 2020 (Audited) Total Interest Income 2019 (Audited) 13.70 22.09 2.45 2.05 Total Net Interest Income 11.25 20.04 Add: Non-interest Income 11.38 14.49 Less: Non-interest Expense 103.68 106.87 Pre-provision profit(loss) (81.05) (72.34) Less: Allowance for Losses 5.02 2.52 (86.07) (74.86) Less: Interest Expense NET INCOME (LOSS) COMPARATIVE STATEMENT OF CONDITION (In Million Peso) ACCOUNT 2020 (Audited) 2019 (Audited) Cash & Cash Equivalents Gross Loans Allowance for Losses Unearned Commission & Discount LIQUID ASSETS Other Investments Other Resources TOTAL ASSETS 436.79 191.61 (12.69) (1.20) 614.51 29.58 50.53 694.62 395.66 248.07 (7.26) (0.01) 636.46 29.46 40.02 705.94 Islamic Deposits Conventional Deposits Other Liabilities TOTAL LIABILITIES 171.42 472.86 41.12 685.40 122.37 442.17 47.61 612.15 1,005.24 (996.02) 9.22 1,005.24 (911.45) 93.79 Capital Stock Retained Earnings TOTAL EQUITY OTHER FINANCIAL INFORMATION 2020 CET1 Capital Ratio Tier 1 Capital Ratio Capital Adequacy Ratio Return On Assets Return On Equity Book value per share Net Income per share Cash Dividends Declared 2019 2.61% 2.61% 3.43% 22.72% 22.72% 23.58% -12.29% -167.12% -9.96% -57.05% 4.61 - 46.89 - 5
7. 6 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES FINANCIAL CONDITIONS AND RESULTS OF OPERATIONS RESULTS OF OPERATIONS 2020 (Audited) 2019 (Audited) VARIANCE Gross Earnings 25.08 36.57 (11.09) Less: Cost Of Funds 1.28 1.40 (0.12) Gross Margin 23.80 35.17 (11.37) Less: Personnel Cost 62.04 59.18 2.86 Other Exp 47.83 50.85 (3.02) (86.07) (74.86) (11.21) Admin. NET LOSS FINANCIAL PERFORMANCE The cumulative net loss for CY 2020 amounted to P86.07 M as compared to last year figure of P74.86 M. The increase in net loss can be attributed to the decrease in Gross Margin of P 11.37 M and the net decrease in operating expenses of P 0.16 M – P 2.86 increase in Personnel Cost and P 5.30 decrease in Other Administrative Expenses. 2020 ACTUAL VS TARGETS Income Total Gross Earnings for the year is reported at P25.08 M and is lower than the previous year’s earnings by P 11.09 M. Major contributor in the decrease in Gross Earnings is the restriction on loan releases due to the low Single Borrower’s Limit and depleting Capital Adequacy Ratio (CAR) therefore the lower profit on Islamic Financing and Conventional Loans. The Commission on RRP had decline also due to the decrease in interest rates imposed by BSP. The bank realized only sixty-three percent (63%) or (P 25.08 M) of its targeted Earnings for the year of (P 40.11 M).The P8.37M or 33% of the total earnings earned from Islamic Financing. Expenses The total operating expenses to date of P 109.87 M is below the annual budget of P 126.32M due to cost-savings from the training, travels and other expenses. Net Loss The actual net loss of P 86.07 M is higher than the projected net loss of P 84.71 M mainly because only 63% of the Target Earnings was realized, The Total Expenses is within budget. FINANCIAL CONDITION Cash & Cash Equivalents Islamic Financing, net Loans &Discounts, net Other Investments Other Resources TOTAL ASSETS 436.79 137.27 40.45 29.58 50.53 694.62 395.66 167.53 73.27 29.46 40.02 705.94 10.40% (18.06%) (44.79%) 0.41% 26.26% (1.60%) Islamic Deposits Conventional Deposits Other Liabilities Total Liabilities 171.42 472.86 41.12 685.40 122.37 442.17 47.61 612.15 40.08% 6.94% (13.63%) 11.97% 1,005.24 (996.02) 9.22 1,005.24 (911.45) 93.79 9.28% 9.28% Capital Stock Retained Earnings Total Equity
8. 2020 ANNUAL REPORT CAPITAL STRUCTURE AND ADEQUACY Amount 2020 200 ,002,400.00 2019 200,002,400.00 805,238,260.00 805,238,260.00 -909,948,905.34 -83,896,843.67 -4,693,643.80 6,701,267.19 0 0 -836,590,578.80 -74,860,735.90 -2,942,500.02 90,846,845.28 0 0 TOTAL TIER 1 CAPITAL 6,701,267.19 90,846,845.28 General loan loss provision Regulatory Adjustments to Tier 2 capital TOTAL TIER 2 CAPITAL TOTAL QUALIFYING CAPITAL 2,108,150.98 0 2,108,150.98 8,809,418.17 3,425,258.38 0 3,425,258.38 94,272,103.66 Total Credit Risk-Weighted Assets Total Market Risk-Weighted Assets Total Operational Risk-Weighted Assets TOTAL RISK-WEIGHTED ASSETS 197,951,580.93 0 59,047,658.41 256,999,239.34 345,811,990.38 0 53,966,549.70 399,778,540.08 2.61% -3.39% 2.61% 3.43% 22.72% 16.72% 22.72% 23.58% Item Paid-up common stock Common stock dividends distributable Additional paid-in capital 1/ Deposit for common stock subscription Retained earnings Undivided profits Regulatory Adjustments to CET1 Capitala/ TOTAL COMMON EQUITY TIER 1 CAPITAL Additional Tier 1 Capital Regulatory Adjustments to Additional Tier 1 Capital Common Equity Tier 1 Ratio Capital Conservation Buffer Tier 1 Capital Ratio TOTAL CAPITAL ADEQUACY RATIO The total Paid-up common stock consists of 2,000,024 common shares with P100 par value, issued and outstanding. Of these shares, 1,997,639 are Series A common shares which are made available to the National Government and other financial entities as it may designate. The remaining 2,385 are Series B common shares which are made available to Filipino individuals and/or institutions. Total outstanding unsecured credit accomodations, both direct and indirect, to directors, officers, stockholders and their related interests (DOSRI) 33,333.32 150,000.02 Other intangible assets 1,909,810.48 Other equity investments in non-financial allied undertakings and non-allied undertakings 42,000.00 2,750,500.00 2,750,500.00 Regulatory Adjustments to CET1 Capital 4,693,643.80 2,942,500.02 Common Equity Tier 1 Ratio = CET 1 CAPITAL TOTAL RISK-WEIGHTED ASSETS Tier 1 Capital Ratio = TIER 1 CAPITAL TOTAL RISK-WEIGHTED ASSETS CAPITAL ADEQUACY RATIO= TOTAL QUALIFYING CAPITAL TOTAL RISK-WEIGHTED ASSETS 7
9. 8 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES HIGHLIGHTS OF MAJOR ACTIVITIES , CORPORATE SOCIAL RESPONSIBILITY & STRATEGIC INITIATIVES, & CHALLENGES Al-Amanah Islamic Investment Bank of the Philippines (AIIBP) was created in 1990 through R.A.6848, replacing Philippine Amanah Bank, the purpose of which is to “to promote and accelerate the socio-economic development of the Autonomous Region by performing banking, financing and investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking”. Due to the lack of government regulations on Islamic Banking and the issue on undercapitalization, not to mention that it is the only Islamic Bank in the Philippines, AAIIBP has been struggling to fully operate under its mandate. Despite these challenges, we continued to strengthen the bank’s corporate governance and marketing strategies in order to be relevant in addressing economic and social problems primarily in the Bangsamoro Autonomous Region in Muslim Mindanao (BARMM) which has always been the bank’s priority. Among the products developed by AAIIBP to participate in socio-economic development, financial inclusion and poverty alleviation are: 1. General Islamic Investment Account (GIIA) – This operates as a Mudarabah Account where the funder or investors become partners in pursuit of a specific economic activity or project. 2. Trust Waqf Facilities (TWF) – This operates as a Trust Fund with intention to generate income out of the Humanitarian Assistance Programs of AAIIBP by offering humanitarian Islamic Microfinance for the purpose of funding the Charitable Assistance Programs of the Bank including but not limited to scholarship program, health & medical assistance program, and women welfare assistance program. ORGANIZATIONAL QUALIFICATION Currently being the sole Islamic Bank in the Philippines, AAIIBP is the only financing institution empowered and authorized to offer Islamic banking products and services in the country. With the needed funding support, it has the full capacity to function according to its mandate and become an essential tool in fostering inclusive economic growth. Although it is restricted by its limited capital, it has built up its corporate governance policies and procedures. As a government-owned and controlled corporation, it is required to comply with all rules and regulations for banks intended to guide the bank with respect to its management, accounting and reporting. Essentially, AAIIBP is bounded by strict supervisory and regulatory requirements in the conduct of its operations. AAIIBP 2020 ROADMAP The AAIIBP 2020 Roadmap for Rehabilitation, Sustainability and Growth is aimed for the transformation of AAIIBP into full Islamic banking concomitant to its compelling rehabilitation including the following: Rehabilitation through the Institutionalization of the ⮚ First Islamic Microfinance window in the Philippines by AAIIBP for its essential and responsive participation in poverty alleviation program of the Government, primarily in BARMM and her similarly situated neighbors in Mindanao. Transformation of AAIIBP to Full Islamic Banking, ⮚ Financing and Investment to realize its significance as an economic vehicle for socio-economic development in pursuit to nation building. Participation of AAIIBP in the Development of ⮚ Takaful or Islamic Insurance in the Philippines to promote its promising potential role in national economic stability. ISLAMIC MICROFINANCE AAIIBP’s Islamic Microfinance was essentially crafted to afford financing assistance to small enterprises, merchants, farmers and fisher folks to establish or enhance their source of livelihood. It was carefully crafted to become efficient, relevant and responsive to the needs of the target beneficiaries [or clients], particularly to Muslim Filipinos in the BARMM and their similarly situated neighbours. The Institutionalization of Islamic Microfinance Window is the first phase of AAIIBP’s 2020 Roadmap to Sustainability and Growth. However, this phase shall require at least PhP3Billion funding. Since the Islamic Microfinance Window shall operate under the Humanitarian Assistance Program of AAIIBP (HAP), AAIIBP are looking for partners who may be interested to extend “financial grant” for the Institutionalization of the first Islamic Microfinance Banking Window in the Philippines. Once the IM Window, operating under the HAP, starts to generate income, it shall establish and support the AAIIBP’s Charitable Assistance Programs (CAP). GENERAL ISLAMIC INVESTMENT ACCOUNT (GIIA) AAIIBP’s GIIA is based on Islamic concept of Mudarabah which is partnership between two or more persons who put together their funds in pursuit of a business or economic activity with intention to share proportionately in the profit and loss. It is intended to pool funds from domestic and foreign investors to capitalize an asset-based or asset backed economic activity or project of the government or private person or entity for a definite period of time. On December 8, 2020, AAIIBP and its project partners signed a tripartite Memorandum of Agreement (MOA) at the Manila Hotel for the development of Waste to Energy (WTE) facility which will be piloted in Cagayan Economic Zone Authority. The WTE project will be outsourced through AIB’s General Islamic
10. 2020 ANNUAL REPORT Investment Account . The AIB acts as conduit for the project proponent and the investor. In consonance to AIB’s mission to support green finance and participate in national socio-economic development, this project will benefit the Local Government Unit (LGU) of Cagayan as it will generate jobs in the area and it will generate income from the sales of energy such as biochar and feedstock derived from processed and converted waste. As the Philippine economy suffered harshly during the COVID19 pandemic, this project is timely because the economy is gradually opening and the government has prepared an economic recovery plan for various sectors including the Energy sector. AAIIBP SADQAH Under the leadership of Chairman & CEO Alex P. Bangcola and through the initiative of Chief Operating Officer/Legal Counsel Imelda Tarhata F. Macarambon, the officers and employees of the Almanah Islamic Bank raised funds out of their own salary to extend sadqah (charitable assistance) to students of Mindanao State University who were stranded inside its campus or areas were its Units are situated due to sudden Declaration State of Health Emergency by President Rodrigo Duterte on March 8, 2020, which placed the entire Nation under Enhanced Community Quarantine (ECQ) or Lockdown. The sadqah (donated amount) for food and other basic provision to affected students was handed to MSU Crisis Management Committee on Covid 19 through MSU President Habib W. Macaayong at his Office in MSU Campus, Marawi City. 2020 ISLAMIC BANKING AND FINANCE TRAINING The Officers of Amanah Islamic Bank participated in a series of Islamic Banking Training for Bankers and other Stakeholders granted by the Asian Development Bank’s (ADB) Knowledge and Support Technical Assistance on Islamic Finance for the Philippines. These trainings are in line with the Bangko Sentral ng Pilipinas’ (BSP) thrust to promote Islamic Banking in the country as part of its financial inclusion agenda which were held in the BSP Headquarters in Manila on January 27-31 and February 6-7, 2020. The topics discussed are Foundations of Islamic Finances, Shari’ah Governance, Islamic Banking, Microfinance, Islamic Capital Markets, and the Foundations and Principles of Takaful. These insightful and highly educational topics were facilitated by the Islamic Finance Advisory and Assurance Services (IFAAS) Group. The Bank also tapped ADB for a possible exclusive training focused on Islamic product development for AAIIBP. 9
11. 10 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES RISK MANAGEMENT Risk Management is an integral part of Bank operation , business planning and review cycle. Prior to the approval of Service Level Agreement (SLA), the Development Bank of the Philippines (DBP) is covering the risk management functions for Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP). With the approval of the Bank’s Board of Directors, the Bank designated Mr. Oliver E. Saniano as the Center Person for Risk Management function who gathers all the data for submission to the DBP Enterprise Risk Management Department thru Ms. Carla Cristina M. Capuno of DBP’s Market Risk Management Department. Taking and managing risk is vital to the Bank. The risk management framework sets out how the bank organizes and applies its risk management practices to ensure that all activities are conducted in line with the principles and limits mandated by the management. Risk Philosophy c. The Bank’s risk philosophy sets the tone on how the Bank understands risk and its management as follows: d. e. “The Al-Amanah Islamic Investment Bank of the Philippines identifies, understands, measures and controls the different risks inherent in all aspects of its operation ensuring adequate return on the capital that is at risk. Risk Management is applicable to all employees, all levels of management and all branches and subsidiaries and affiliates of the Bank.” The continuous process is integrated into business and decision-making processes which involve the following: a. b. Risk Identification: identifying risks Risk Assessment: assessing potential consequences and likelihood of risks Risk Measurement: evaluating the risk level, control gaps and priorities Risk Control: developing control, and Risk Monitoring: mitigation plans, monitor the potential changes of risks. Assessment of the probability or likelihood of the risk event actually occurring is established giving due consideration to the effectiveness of existing control measures. Score Frequency 1 Improbable. Rare 2 Unlikely 3 Possible 4 Likely 5 Certain Risk Mission “AAIIBP commits to develop a risk/return consciousness in the Bank with appropriate risk management strategies geared towards loss prevention or minimization to preserve capital and ensure adequate return on capital.” Key Functions in a Risk Process The following are the three (3) key functions in a risk process vis-à-vis respective roles: 1. Front Office or the Risk-Taking Personnel (RTP) - Initiates and is directly accountable for all risks taken with appropriate approval. 2. Middle Office or the Risk Management Group (RM) - A separate and independent function with no risk-taking accountability that serves as a liaison to help the RTP obtain approval. 3. Risk Compliance and Control (RCC) - Performs the important day-to-day oversight of actual risks against approved limits and generates reports. It functions separately and independently from the risk takers. The function may be done suitably by the Operations, Financial Control and /or Audit Units. Description Occurrence Highly unlikely, but it may occur in exceptional circumstances. Not expected, but there’s a slight possibility it may occur at some time. The event might occur at some time as this has manifested itself occasionally in the Bank and/or similar institutions. There is a strong possibility the event will occur as there is a history of frequent occurrence in the Bank and/or similar institutions. Very likely. The event is expected to occur in most circumstances as there is a history of regular occurrence in the Bank and/or similar institutions. once or no incidence in a year 2 to 4 times a year 3 to 4 times in a quarter several times in a month several times in a day
12. 2020 ANNUAL REPORT Materiality Threshold The Internal Capital Adequacy Assessment Process (ICAAP) Working Group chose AAIIBP’s Single Borrower’s Limit (SBL) as basis for the materiality threshold. The SBL is the maximum amount of credit accommodation that AAIIBP can extend to its borrowers. Loss of this amount is considered significant or material for the Bank. Range of amounts were assigned accordingly for each score. Score 1 2 3 4 5 Descriptor Insignificant Minor Damage and Liability • Financial Loss less than Php2M • Negotiable business disruption • Loss of power and unavailability of critical systems for short period of time • Financial Loss at least Php2M but not more than Php4M • Inconvenient business disruption • Loss of power and unavailability of critical systems for several hours • First aid treatment • Disclosure of Personal Information Significant (Material) • Financial Loss at least Php4M but not more than Php6M • Client dissatisfaction • Loss of power or unavailability of critical systems for less than a day • Injury / illness • Environmental damage Major • Financial Loss at least Php6M but not more than Php8M • Series of prolonged outages • Serious injury / illness • Violation of law (i.e. Regulations, Criminal Code) • Disclosure of Sensitive Information Catastrophic • Financial Loss at least Php8M • Death or permanent disability • Disclosure of Highly Sensitive or Classified Information • Serious violation of law • Permanent environmental damage Operational Effects • Less than 1% of the affected target will not be achieved. • May require some staff overtime • Less than 5% of the affected target will not be achieved. • Schedule delays to minor projects • Some unfavorable local media attention / client perception • Some unfavorable observations by review groups (BSP, IAG, COA) • 6% to 10% of the affected target will not be achieved. • Disruption of some services • Schedule delays on major projects • Some loss of client group trust • Negative media attention • With minor audit findings/ criticisms by review agencies (BSP, IAG, COA) • 11% to 15% of the affected target will not be achieved. • Disruption of numerous services for 1-7 days • Some loss of client group trust • Loss of corporate knowledge • Negative media attention on nationwide scale • With major audit findings/ criticisms by review agencies (BSP, IAG, COA) • More than 15% of the affected target will not be achieved. • Disruption of services to clients for more than 7 days. • Cancellation of major project • Loss of key corporate knowledge • Significant loss of client trust • Media/Public outcry for removal of corporate officials • Recurring audit findings/ criticism by review agencies (BSP, IAG, COA) and demand for government inquiry 11
13. 12 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES The Risk rating Matrix or “Heat Map” has been adopted for the Bank in which potential risks are ranked as Low, Medium, High, and Extreme. There were no changes in the parameters in the Risk Rating Matrix, and such parameters were aligned with those for DBP. This is as follows: Facing a wide range of risks which demand continuous and close attention by management, the Bank is currently formulating a Contingency Funding Plan (CFP) to establish procedures that will ensure the liquidity of the bank is properly managed in a stress or crisis situation. The contingency funding plan will address AAIIBP’s strategy for handling liquidity crisis. In line with the continuing implementation of an enterprise-wide risk management for the Development Bank of the Philippines (DBP), the DBP Trust & Subsidiaries Risk Unit of the Market Risk Management Department (MRMD) and the designated representatives from the Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) conduct monthly risk monitoring on the subsidiaries’ respective risk exposures. Prioritizing Risks The purpose of prioritizing the risk is to determine the level of action needed for the identified and assessed risks. Product (L x I) Score 1 - 5 Ranking Low Score 6 – 10 Medium Score 12 - 16 High Score 20 - 25 Extreme What should the Bank do? Manage through routine procedures. Unlikely to need specific application of Bank’s resources Specific monitoring or procedures are required; Management responsibility must be specified. Action plan is required; Board of Directors and Senior Management attention is needed. Immediate action is required. The purpose of defining a risk response is to bring risk in line with the defined risk tolerance for the enterprise after due risk analysis. Risk Response Reduce Accept Transfer Avoid Description Action is taken to reduce the frequency and/or impact of risk Recognizing the existence of risk and knowingly decide to allow the risk to remain without further mitigation A decision to reduce loss through sharing the risk loss with another organization (i.e. insurance) Exiting the activities or conditions that give to risk and / or when no other risk response is adequate. Results of the monthly risk monitoring for Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) as submitted by the Market Risk Management Department (MRMD) to the Risk Oversight Committee. We likewise provide the possible impact of the ongoing COVID-19 pandemic to the operations of AAIIBP in aid of the company’s decision-making. A. CREDIT RISK Loan Portfolio As of month-end December 2020, AAIIBP’s total loan portfolio was at PHP190.41 Million, lower than January’s PHP225.20 Million. Current loans amounted to PHP145.49 Million or 76.41% of the December portfolio. The remaining portion of 23.59%, equivalent to PHP44.93 Million, was classified as past due. For the January portfolio, current loans amounted to PHP199.89 Million or 88.76% of the portfolio, while past due and performing loans was at PHP25.31 Million or 11.24% of the portfolio.
14. 2020 ANNUAL REPORT Based on loan portfolio by industry classification , most of AAIIBP’s loan portfolio for the period of January to December was in Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles (32.91%) and Activities of Household as Employers (20.38%). As such, credit exposures are concentrated to these two industries and accounted for 53.29% of the portfolio for the said period. Portfolio By Industry Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles Activities of Households as Employers, and Undifferentiated Goods and Services-Producing Activities of households for Own Use Construction Water Supply, Sewerage, Waste management and Remediation Activities Mining and Quarrying Percentage of Exposure Past Due Ratio From December 2019 to December 2020, AAIIBP’s past due ratio showed an increasing trend from 10.77% to 23.59%. This trend was due to the rise in past due levels from PHP26.71 Million to PHP44.93 Million, coupled by the gradual decline in total portfolio from PHP248.06 Million to PHP190.41 Million. Past due level must be closely monitored as more businesses and individuals face difficulty in their finances and capacity to pay during this pandemic. 33.43% 21.25% 14.58% 7.58% 6.10% Real Estate Activities 5.91% Transport and Storage 3.67% Manufacturing 3.38% Agriculture, Forestry and Fishing Administrative and Support Service Activities Information and Communication 1.85% Human Health and Social Work Activities Accommodation and Food Service Activities 0.61% 0.71% 0.67% 0.26% Meanwhile, exposures were all in current status as of monthend December, except for PHP40.78 Million in Wholesale and Retail Trade, PHP2.11 Million from Manufacturing, and PHP2.03 Million in Agriculture, Forestry and Fishing. B. MARKET RISK For the period of January to December 2020, majority of AAIIBP’s investments were placed in the BSP overnight deposit facility (ODF) with amounts ranging between PHP139 Million to PHP346 Million. It was followed by reverse repurchase (RRP) of PHP36.25 Million to PHP200 Million and government securities booked as held-to-maturity (GS-HTM) with steady sum of PHP27 Million. As of month-end December, AAIIBP’s investments stood at PHP352.87 Million comprised of ODF (PHP274 Million), RRP (PHP51.87 Million), and GS-HTM (PHP27 Million). 13
15. 14 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES C . OPERATIONAL RISK Operational Loss Monitoring There were no loss events reported for January and February 2020. For the months of March to December 2020, Cagayan de Oro branch reported the effects of COVID-19 pandemic to bank operations. One effect was shortened banking hours resulting to limited service and lesser opportunity to accept deposits. Another effect was risky work environment, which would be compensated by hazard pay given to the employees. A loss event happened on June 22, 2020 when a fire broke out on the same branch, involving non-bank personnel. Said event resulted to a temporary bank holiday as the incident hampered the branch’s operations. The branch resumed its operations on July 22, 2020. Risk and Control Self-Assessment As part of groupwide operational risk management of the Development Bank of the Philippines (DBP), AAIIBP is required to accomplish the risk and control self-assessment (RCSA). AAIIBP’s final 2019 RCSA, together with the RCSAs of DBP business units, was approved by DBP Board of Directors on April 1, 2020. Based on the 2019 RCSA, AAIIBP has 34 business processes, which were evaluated based on seven operational risk types, resulting to the following risk levels: Low – 146 and Medium – 71. Business processes classified as medium risk are listed below. To further mitigate risks from these processes, AAIIBP established Risk Treatment Plan (RTP) for these risks. • • • • • • • • • • • Tellering Cashiering Accounting/Bookkeeping Servicing of Disbursements New Accounts Opening Loan Documentation, including preparation of Documentation-Related Legal Opinion, Formal Legal Advice, Review and/or Preparation of Contracts and/or Documents Litigation Matters (Monitoring of Legal Cases, Processing of Request for Legal Action, including Administrative Investigation) Branch Review Preparation and submission of Regulatory Reports (COA/BSP/etc.) Preparation and Submission of Management Reports to BOD, Committees and other internal departments/units Overall liquidity position and compliance of BSP reserve requirements • • • • • • • • • • • • • • Processing of Outgoing Fund Transfer and inward and outward RTGS through the BSP PhilPass Browser Processing, monitoring and reporting of Remittance Transactions from PESONet System and DBP Remittance System (TCS) Recruitment and hiring Consolidation of Various Reports Anti-Money Laundering Program Compilation of Relevant Laws and Dissemination of Regulatory Facts and Developments Issuance of New Regulations for Compliance Accurate recognition of daily transactions Processing of payments (including payroll) Portfolio Generation - Loans and Financing Data Cleansing of Customer Information File (CIF) Systems Development, Enhancement, and Maintenance Third Party Software Developed Processing of Incident and Service Requests Business Continuity Management During the period of the enhanced community quarantine (ECQ), AAIIBP activated its business continuity plan and created a team that would assess the bank’s status during the duration of the pandemic. The San Juan branch, which was the most affected branch, implemented its skeletal operation with shortened banking hours and limited number of workdays in a week. Likewise, work from home arrangement was implemented for the selected areas of operations of the bank. Submission of daily accomplishment reports was also required from each unit to ensure that said unit and its personnel were still able to perform their respective functions. For the work environment, the branch head requested the building administrator to have the branch and executive office to be disinfected. Safety protocols, such as temperature checks for all persons entering the bank, were observed. AAIIBP is still in skeletal force to properly observe social and physical distancing. D. LIQUIDITY RISK Maximum Cumulative Outflow AAIIBP posted net cumulative inflow of PHP6.21 Million as of month-end December, notably lower than January’s PHP84.66 Million. Significant inflows were expected from (1) cash and due from banks, (2) loans and discounts, (3) held to maturity investments and (4) other assets in the “Demand”, “2 to 3 months”, “4 to 5 months”, and from “11 to 12 months” up to “4 to 5 years” time bands. Outflows would mainly come from deposits from “Demand” up to “4 to 5 months” and “Over 5
16. 2020 ANNUAL REPORT years ” time bands. Net cumulative outflows were noted from “Day 14” to “3 to 4 years” time bands. While the Islamic bank showed overall net cumulative inflow, the net cumulative cashflow for time bands “Demand up to 12 months” and “Over 5 years” showed notable decline from June 2017 to December 2020. Net cumulative cashflow for “Demand up to 12 months” declined from net inflow of PHP123.81 Million to net outflow of PHP137.97 Million, while for “Over 5 years” time band, it decreased from net inflow of PHP281.01 Million to PHP6.21 Million. This significant decline in net cumulative cashflow could be attributed to the decrease in outstanding conventional loans from PHP140.61 Million in June 2017 to PHP41.64 Million in December 2020, estimated five-month retention for demand and savings deposits, and to the continued losses generated by the Islamic bank. The Net Stable Funding Ration (NSFR), which complements the LCR, is the ratio of available stable funding (ASF) to required stable funding (RSF). This ratio promotes long- term resilience of the bank against liquidity risk, such that the bank will maintain stable funding profile in relation to the composition of its assets and off-balance sheet activities. From January to December 2020, NSFR ranged from 200% to 247%, which complies the BSP requirement of 100%. As of December 31, 2020, AAIIBP reported 243% NSFR, where ASF was PHP519.80 Million and RSF was PHP214.08 Million, against BSP requirement of 100%. Financial Ratios Regulatory Liquidity Ratios The Liquidity Coverage Ratio (LCR) is the ratio of the bank’s high-quality liquid assets (HQLA) to its total net cash outflows. This ratio measures the short-term resilience of the bank’s liquidity profile over a thirty-calendar day horizon, such that the bank will have adequate level of unencumbered HQLA, comprised of cash or assets that can be converted to cash at little or no loss of value, to offset net cash outflows under a liquidity stress scenario. From January to December 2020, AAIIBP’s LCR complies with BSP’s requirement of 100%, with highest ratio being recorded on June at 1,258.84%. Lowest LCR was recorded in December 2020 at 454.31%, where HQLA was PHP412.10 Million and net cash outflows were PHP90.71 Million. AAIIBP’s posted net loss of PHP8.83 Million as of month-end December 2020. Said negative bottom-line in annualized terms resulted to return on total equity of -77.50%. To address its continued losses, AAIIBP is currently working on their roadmap, which includes a recapitalization plan that aims to identify sources of funds that will be used for the bank’s sustainability and growth. E. RISK ASSESSMENT UNDER COVID-19 SCENARIO The BSP required DBP to submit an Internal Capital Adequacy Assessment Process (ICAAP) Ancillary Document which presents the assessment of risks and their impact to capital under the COVID-19 scenario. The AAIIBP Working Group reassessed two risks as high risk under the pandemic scenario: Borrower Risk and Planning and Execution Risk. Meanwhile, Funding Liquidity Risk, Recruiting and Retention Risk, and Business Risk are maintained as high risks for the initial ICAAP submission and for the Ancillary Document. Borrower Risk is reassessed to high risk from medium risk. Due to the pandemic, many businesses and individuals face difficulty with their finances. Borrowers of AAIIBP are mostly comprised of small businesses and individuals, who are vulnerable to the economic impact of the pandemic. Past due ratio has gradually increased during the pandemic relative to yearend 2019 figure. To address this high risk, there is constant monitoring of the Branch Heads and their respective Account 15
17. 16 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES Officers . Likewise, AAIIBP maintains open communication with the clients, especially those who seem to be affected by the pandemic. COMPLIANCE SYSTEM AND ANTI-MONEY LAUNDERING Planning and Execution Risk is also reassessed to high risk from medium risk. Due to COVID-19, there are disruptions in the usual business operations, which would affect the launch of products and programs, such as the fund generating Waqf and AAIIBP’s Road Map toward full Islamic banking, and the accomplishment of targets for the year. To address this risk, AAIIBP’s Road Map was revised and recently approved by the AAIIBP Board of Directors. There is also the tie-up initiated with Asian Development Bank (ADB) through Islamic Finance Advisory and Assurance Services (IFAAS) for an online seminar on Product Development. The Bank’s compliance system is implemented to mitigate business risks that erode the bank’s franchise value and to strengthen the Bank’s internal control towards effective delivery of its compliance functions. The compliance system as approved by the Board of Directors and effectively implemented by Senior Management shall be responsive to the regulatory requirements from existing laws and regulatory bodies to promote high standard and acceptable practices of good governance. Funding Liquidity Risk is maintained as high risk as the Islamic bank posted higher net outflow for “Demand up to 12 months” time band and lower net inflow for “Over 5 years” time band. The decline in net cumulative cashflow could be attributed to the decline in loan portfolio and continued losses. To address this high risk, AAIIBP is continuously implementing austerity measures. It is presently operating below its projected expenses. Likewise, different meetings with various agencies and institutions were made for possible funding, investment and projects. AAIIBP had a meeting with the Department of Finance for possible projects and other source of funds, aside from the request that was sent by AAIIBP for capital infusion. The AAIIBP Management also requested the approval of the Board of the Directors to allow the Islamic bank to sell its stocks. Lastly, the revised Road Map was approved by the Board of Directors on October 22, 2020. Recruiting and Retention Risk is maintained as high risk since the hiring process, especially exams and interviews, were postponed due to the implementation of the community quarantine. To address this risk, the Human Resource Management Department (HRMD) requested the IT Department to digitize the examination documents, but the applicants must still go to any of the branches of AAIIBP. The officer in the branch will assist HRMD personnel during the examination. Business Risk is maintained as high risk, as the capitalization of AAIIBP has been put on hold by DBP as the parent bank. On the part of AAIIBP, several project proposals, discussions and meetings with different agencies and institutions were made beginning last year for possible capitalization and/or investments. These initiatives include proposal for loans or investment from DBP; tie-up with Department of Trade and Industry; discussion with Department of Finance for possible projects and other sources of funds aside from the request for capital infusion; and meetings with ADB and IFAAS. AAIIBP had also considered the sale of its stocks. Compliance System Although AAIIBP is a wholly-owned subsidiary of the Development Bank of the Philippines (DBP), it has its own Chief Compliance Officer. However, coordinated working relationship with the DBP’s Chief Compliance Officer is established for a group-wide compliance policy and implementation. The Compliance Office promotes compliance awareness among officers and staff through dissemination of regulatory issuances, regular monitoring and assessment of the bank’s fulfillment of regulatory responsibilities. The Bank’s Compliance program is periodically updated to strengthen implementation of a more robust, dynamically responsive compliance system, taking into consideration all banking and consumer laws and regulations. Anti-Money Laundering In compliance with Bangko Sentral ng Pilipinas’ prescribed Money Laundering and terrorist financing prevention program (MLPP), the Bank’s MLPP incorporates legal and regulatory updates of Anti-Money Laundering (AML) and Combating the Financing of terrorism (CFT) policies and procedures. The Bank constantly reviews and updates the MLPP to ensure compliance with the latest legislative and policies on AML and CFT. The bank continuously conducts Annual Training for updates on new AML/CFT policies and regulations, for this year the training was conducted through Virtual/Online Training.
18. 2020 ANNUAL REPORT 2020 VIRTUAL AML SEMINARS TO AAIIBP EMPLOYEES Branch Cashiers and Bookkeepers Branch Accountant , New Accounts Clerk and Account Officers Zamboanga Head Office, Manila Executive Office, Branch Heads and Tellers 17
19. 18 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES CORPORATE GOVERNANCE Accountability , transparency, and adherence to Sharia’h principles— these are some of the values making the Bank’s corporate governance efficient and robust. Like all other dedicated governmental bodies, Amanah Islamic Bank (AIB)’s Corporate Governance is established to facilitate entrepreneurial, effective and prudent management that aims the long-term success of the Bank and the achievement of its paramount goal that is to be the country’s leading Islamic Bank sufficient to cater the needs of its clients. Truly, AIB is a staunch exponent for good corporate governance. Under the Bank’s Manual on Corporate Governance, its business activities are all subject to Sharia’h compliance and confirmation by the Shariah Advisory Committee. It is the responsibility of the Management to ensure that the Bank conducts its business in accordance with Shariah principles as determined by the Shariah Advisory Committee. The Bank anchors its business strategies and principles on the following philosophies: Participative Management The Bank shall conduct all decision-making processes on a collective manner and consensus of the majority will always be respected. Consultations with employees and relevant stakeholders will be conducted in an environment conducive to free expression of ideas. The Bank in the exercise of its functions guarantees that the following core principles are upheld: Fiduciaries of the State The directors and officers of the Bank accept the responsibilities as fiduciaries of the state and that: (a) they have the legal obligation and duty to always act in the best interest of the Bank, with utmost good faith in all dealings with the properties, interest and monies of the Bank, and (b) they are constituted as trustees in relation to the properties, interests and monies of the Bank. Norms of Conduct as Public Servants As Public Officials, directors and officers of the Bank are covered by the provisions of the “Code of Conduct and Ethical Standards for Public Officials and Employees” and abide with the following principles: To promote a high standard of ethics in public service; and Be accountable to the people and shall discharge their duties with utmost responsibility, integrity, competence and loyalty, act with patriotism and justice, lead modest lives and uphold public interest over personal interest. Respect for and Obedience to the Constitution and the Law The Bank shall adhere to the principles of sound management and will maintain fairness, responsibility, accountability, and proper disclosure. Respect and obey the Constitution, and comply, and cause the Bank to faithfully and timely comply, with all legal provisions, rules and regulations, and corporate governance standards, applicable to the directors and officers and to the Bank and to act within the bounds of the Bank’s Charter (RA #6848) and its By-Laws. Transparency Duty of Diligence Information will be made freely available and accessible to those who will need and has interest to the transaction, subject to the limitations of existing laws on confidentiality and disclosure. The fiduciary duty of diligence of Directors and Officers to always act in the best interest of the Bank, with utmost good faith in all its dealings with the property and monies of the Bank, including the obligation to:(1) Exercise extraordinary diligence, skill and utmost good faith in the conduct of the business and in dealing with the properties of the Bank, using the utmost diligence of a very cautious person with due regard to all the circumstances; (2) Apply sound business principles to ensure the financial soundness of the Bank; and (3) Elect and/or employ only Officers who are fit and proper to hold such office with due regard to the qualifications, competence, experience and integrity as prescribed by Sec. 19(e) of R.A. No. 10149 and BSP Circular No. 749 series of 2012. Good Governance People Development The Bank shall aim to be a high performing organization with deep concern for human resource development. Through the years, AIB has continuously taken reforms and initiatives to upgrade and strengthen its corporate governance practices to align with the evolving national and global standards and practices. It ensures that the fundamental principles and vital concepts of corporate governance is incorporated in all its dealings and operations. Every director and officers, by the act of accepting such position in the Bank, affirms and agrees: (1) To have a working
20. 2020 ANNUAL REPORT knowledge of the statutory and regulatory requirements affecting the Bank he is to serve , including the contents of its Charter and By-Laws, the requirements of the GCG, and where applicable, the requirements of other Supervising Agencies like BSP; and (2) To always keep himself informed of industry developments and business trends in order to safeguard the Bank’s interests and preserve its competitiveness. Duty of Loyalty The Directors and Officers of the Bank, acknowledging the fiduciary duty of loyalty, commits to always act in the best interest of the Bank, with utmost good faith in all its dealings with the property and monies of the Bank, including the obligation to:(1) Act with utmost and undivided loyalty to the Bank; (2) Avoid conflicts of interest and declare any interest they may have in any particular matter before the Board, and (3) Avoid (a.) taking for themselves opportunities related to the Bank’s business; (b.) using the Bank’s property, information or position for personal gain; or (c.) competing with the Bank’s business opportunities. Avoid Conflict of Interest Directors and Officers shall at all times avoid any actual or potential conflict of interest with the Bank. Each shall also avoid any conduct, or situation, which could reasonably be construed as creating an appearance of a conflict of interest. Any question about a Director’s or Officer’s actual or potential conflict of interest with the Bank shall be brought promptly to the attention of the Chairman of the Board, who will review the question and determine an appropriate course of action. Trustee Relation to Bank’s Properties, Interests and Monies Except for the per diem received for actual attendance in board meetings and the reimbursement for actual and reasonable expenses and incentives as authorized by the GCG, any and all realized and unrealized profits and/or benefits including, but not limited to, the share in the profits, incentives of Directors or Officers in excess of that authorized by GCG, stock options, dividends and other similar offers or grants from corporations where the GOCC is a stockholder or investor, and any benefit from the performance of Directors or Officers acting for and in behalf of the Bank in dealing with its properties, investments in other corporations, management of Subsidiaries and other interest, are to be held in trust by such Director or Officer for the exclusive benefit of the Bank. Taking of Corporate Opportunities Where a Director or an Officer, by reason of his being a member of the Board or an Officer of the Bank, acquires or receives for himself/herself a benefit or profit of whatever kind or nature, including but not limited to, the acquisition of shares in corporations where such Bank has an interest, the use of the properties of the Bank for his/her own benefit, the receipt of commission(s) on contract(s) with the Bank or its assets, or the taking advantage of corporate opportunities of the Bank, all such profits or benefits shall be subject to restitution pursuant to Sec. 24 of R.A No. 10149, without prejudice to any administrative, civil or criminal action against members of such Director or Officer. The remedy of restitution shall apply notwithstanding the fact that such Director or Officer risked his/her own funds in the venture. Restitution The Director or Officer receiving without authority properties or monies belonging to the Bank or that profits earned in violation of his/her fiduciary duty, or the aggregate per diems, allowances and incentives received in a particular year in excess of the limits provided under R.A. No. 10149, shall immediately return the same to the Bank upon the determination and report of the Commission on Audit (COA) pursuant to a Notice of Disallowance which has become final and executory. Failure by a Director or Officer to make the restitution within thirty (30) days after a written demand has been served shall, after trial and final judgment, subject such Director or Officer to the punishment of imprisonment for one (1) year and a fine equivalent to twice the amount to be restituted and, in the discretion of the court of competent jurisdiction, disqualification to hold public office pursuant to Art. 24 of R.A. No. 10149. Limits to Compensation, Per Diems, Allowances and Incentives The Directors and Officers of the Bank commit to observe the limits of compensation, per diems, allowances and incentives as prescribed by the Bank’s Charter, the governing law of the country and as determined by the GCG using as reference, among others, Executive Order No. 24, dated February 10, 2011. Directors of the Bank shall not be entitled to retirement benefits. No Gift Policy Bank’s Directors and Officers shall not solicit, nor accept, directly or indirectly, any gift, gratuity, favor, entertainment, loan or anything of monetary value (“Gift”) from any person where such gift: (1.) Would be illegal or in violation of law; (2) Is part of an attempt or agreement to do anything in return; (3) Has a value beyond what is normal and customary in the Bank’s business; (4) Is being made to influence the member of Board’s, or Officer’s actions as such; or (5) Could create the appearance of a conflict of interest. 19
21. 20 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES The particular set of rules governing the “No Gift Policy” of AAIIBP is presented in a separate Memorandum Circular No. 05A-2013 (re-issued) dated April 7, 2014, signed by the Chairman and CEO and issued as implementing policy of the Board of Directors’ approval. systematize policies, rules and procedures, avoid red tape and develop an understanding and appreciation of the socioeconomic conditions prevailing in the country, especially in the depressed rural and urban areas. Nationalism and Patriotism Duty of Confidentiality Pursuant to their duties of diligence and loyalty, the Board and Officers of the Bank affirm not to use or divulge confidential or classified information officially made known to them by reason of their office and not made available to the public, either: (1) to further their private interests, or give undue advantage to anyone; or (2) which may prejudice the public interest. Transparency The Board and Officers of the Bank shall ensure transparency in disclosures over the Bank’s operations, public disclosure, financial reporting of all business matters of the Bank at all times and promote policies, such as the Bank’s Whistleblower Protection Policy, that lead to a positive and ethical workplace, and prevent retaliation against any employee who will raise issues pertaining to business conduct and ethics. Professionalism The Board and Officers of the Bank commit to perform and discharge duties with the highest degree of excellence, professionalism, intelligence and skill. Fairness and Sincerity At all times, the Board and Officers of the Bank shall act with fairness and sincerity and shall not discriminate against anyone especially the poor and the underprivileged, and shall respect the rights of others and refrain from doing acts contrary to law, good morals, good customs, public policy, public order, public safety and public interest. Political Neutrality The Board and Officers of the Bank shall provide service to everyone without unfair discrimination, regardless of party affiliation or preference. Responsiveness to the Public The Board and Officers of the Bank shall extend prompt, courteous, and adequate service to the public. Unless otherwise provided by law, or when required by public interest, the Board and Officers and employees of the Bank shall provide information of the Bank’s policies and procedures in clear and understandable language, ensure openness of information, conduct public consultations and hearings, wherever appropriate, encourage suggestions, simplify and The Board and Officers of the Bank commit to be loyal to the Republic and to the Filipino people, especially the Muslim community, promote the use of locally produced goods, resources and technology and encourage appreciation and pride of country and people. Commitment to Democracy The Board and Officers of the Bank commit to the democratic way of life and values, maintain the principle of public accountability and manifest by deeds the supremacy of civilian authority over the military. Compliance to Shariah Rules The Board Officers of the Bank shall adhere to the Shariah rules in the conduct of the Bank’s business and in its dealings with the stakeholders and shall uphold the Islamic culture in the Bank’s environment. Overall, the foregoing covers all relevant areas in corporate governance. AIB envisions to be at par with other financial institutions in the country so as with other Islamic Banks abroad in the long-run. Ultimately, AIB’s goal is to contribute to the development of the country’s capital market especially in the BARMM area and other neighboring locality. It must be underscored that the compliance to all foregoing will be put to naught unless a well-built and functional enforcement authority would be in place. This task of ensuring proper observance of government practices and policies rests with the Board of Directors.
22. 2020 ANNUAL REPORT THE BOARD OF DIRECTORS Section 25 of the Bank ’s Charter (Republic Act 6848) provides that: “The Board of Directors composed of nine (9) members duly elected by the General Shareholders Meeting, as provided for in this Act, shall convene at the principal office once every three (3) months at the most upon due notice by the Chairman or, whenever the need arises, upon the request of the three (3) members of the Board of Directors. The Board may convene outside the Islamic Bank’s principal office as the members shall determine in the By-laws of the Islamic Bank. The Board of Directors has the broadest powers to manage the Bank. Part of it is the adoption of policy guidelines necessary to carry out effectively the Charter of the Bank as well as internal rules and regulations necessary for the conduct of its Islamic banking business and all matters related to personnel organization, office functions and salary administration. Under the Bank Charter, the Board of Directors has the power to appoint managers, authorize agents or legal representatives and vest them with signing authority on behalf of the Bank. maintaining a relationship of trust with board members and ensures sound decision-making process. He also encourages and promotes critical discussions and ensures that dissenting views can be expressed and discussed within the decisionmaking process. OVERALL RESPONSIBILITY OF THE BOARD OF DIRECTORS General Responsibilities and Duties under the Bank’s Corporate Governance Manual The Governing Board is responsible for providing policy directions, monitoring, and overseeing Management actions, as articulated in Section 26 of RA #6848 (Charter), and other relevant legislation, rules and regulations. These mandated functions and responsibilities include the following: (a) Provide the corporate leadership of the Bank subject to the rule of law and the objectives set by the National Government through the Supervising Agencies and the GCG; (b) SELECTION PROCESS FOR BOARD & SENIOR MANAGEMENT Compliance with the principles of good corporate governance starts with the Board of Directors, duly elected at the General Shareholders Meeting as provided for in Section 25 of the Charter of the bank under RA 6848, s. 1990 amending PD No. 264 and PD No. 542. As of December 31, 2020, the Board is composed of qualified professionals sitting alongside Directors from DBP. The new members of the Board of Directors are given an orientation on the Bank’s overall businesses. The members of the Board attended the required seminar on Corporate Governance Orientation Program for GOCCs conducted by the Institute of Corporate Directors (ICD). It is the Board’s responsibility to foster the long-term success of the Bank and secure its sustained competitiveness in a manner consistent with its fiduciary responsibility, which it shall exercise in the best interest of the Bank, the Filipino people, and other stakeholders. The Board conduct itself with utmost honesty and integrity in the discharge of its duties, functions, and responsibilities. In the observance of the fundamental principles of fairness, transparency and accountability, the Board of Directors is setting the tone to ensure that a culture of ethics, compliance and social responsibility pervade in all levels of banking operations and in accordance with acceptable Shari’ah principles. The Chairman and CEO provides the leadership in the Board. He also ensures effective functioning of the board, including Establish the Bank’s vision and mission, strategic objectives, policies and procedures, as well as defining the Bank’s values and standards through: • • • Charter Statements; Strategy Maps Other control mechanism mandated by best business practices; (c) Formulate important policies that bear on the character of the Bank to foster its long-term success, ensure its longterm viability and strength, and secure its sustained competitiveness; (d) Determine the organizational structure of the Bank, defining the duties and responsibilities of its Officers and employees and adopting a compensation and benefit scheme that is consistent with the Bank’s Compensation and Position Classification System (CPCS) developed by GCG and formally approved by the President of the Philippines; (e) Ensure that personnel selection and promotion shall be on the basis of merit and fitness and that all personnel action shall be in pursuit of the applicable laws, rules and regulations; (f) Provide sound written policies and strategic guidelines on the Bank’s operating budget and major capital expenditures, and approve the annual and supplemental budgets of the GOCC; (g) Comply with all reportorial requirements, as required in the Charter and By-Laws, as well as applicable laws, rules and regulations; 21
23. 22 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (h) Formally adopt and conduct annually the mandated Performance Evaluation System (PES) and the Performance Scorecard and timely and accurate report the results to the GCG; (i) Ensure the fair and equitable treatment of all Stakeholders and enhancing the Bank’s relations with its Stakeholders. (j) Approve and oversee the implementation of the Bank’s strategic objectives, risk strategies, corporate governance and corporate values; (k) Ensure that Bank’s assets and resources are used efficiently and that Bank’s exposure to all forms of liabilities and subsidies is warranted and incurred through prudent means; (l) (f) (g) Monitor and manage potential conflicts of interest of Directors, management and shareholders, including misuse of corporate assets and abuse in related party transactions; (h) Implement a system of internal checks and balances, which may be applied in the first instance to the Board; and ensure that such systems are reviewed and updated on a regular basis; (i) Ensure the integrity of the Bank’s accounting and financial reporting systems, including independent audit, and that appropriate systems of control are in place, in particular, systems for risk management, financial and operational control, and compliance with the law and relevant standards; (j) Identify and monitor, and provide appropriate technology and systems for the identification and monitoring of key risks and performance areas; Ensure that the operation and governance are carried out in a transparent, responsible, and accountable manner and with the utmost degree of professionalism and effectiveness; and (m) Comply faithfully with the reporting and evaluation system governing the Bank, including the periodic disclosure and examination of their operations and management, their assets and finances, revenues, and expenditures. Specific Duties and Functions under the Bank’s Corporate Governance Manual In addition to those functions expressly specified in the Bank’s Charter and By-Laws, the Board shall perform the following specific functions: (a) Execute a Formal Charter of Expectations at the start of their term and List of Disclosures as required by GCG, including a Statement confirming the truth and fairness of the Bank’s financial statements; (b) Meet regularly, ideally at least once every month, to properly discharge its responsibilities, with independent views expressed during such meeting being given due consideration, and that all such meetings shall be properly documented or minuted; (c) Determine the Bank’s purpose and value, as well as adopt strategies and policies, (d) including risk management policies and programs, in order to ensure that the Bank survives and thrives despite financial crises and that its assets and reputation are adequately protected; (e) Monitor and evaluate on a regular basis the implementation of corporate strategies and policies, business plans and operating budgets, as well as Management’s over-all performance to ensure optimum results; Adopt a competitive selection and promotion process, a professional development program, as well as a succession plan to ensure that the Officers of the Bank have the necessary motivation, integrity, competence and professionalism; (k) Adopt, implement and oversee the process of disclosure and communications; (l) Constitute an Audit Committee and such other specialized committees as may be necessary, or required by applicable regulations, to assist the Board in discharging its functions; (m) Conduct and maintain the affairs of the Bank within the scope of its authority, as prescribed in its Charter and ByLaws, and applicable laws, rules and regulations; (n) Approve and oversee implementation of policies governing major areas of the Bank’s operation including: 1. 2. 3. 4. Defining the Bank’s level of risk tolerance in its major areas of banking operation; Providing for a mechanism that will ensure compliance with established policies and procedures including compliance with reportorial requirements; Setting out of matters and authorities reserved to it for decision which include, among others, major capital expenditures, equity investments and divestments; and Establishing limits of discretionary powers of each officer, committee, sub-committee and such other groups for purposes of lending, investing or any other financial undertaking which exposes the Bank to significant risks. (o) Oversee the selection and performance of Senior Management through:
24. 2020 ANNUAL REPORT 1 . 2. 3. 4. 5. 6. 7. Appointment of competent management teams who are qualified to administer the Bank’s affairs effectively and soundly; Appointment/employment only of officers who are fit and proper to hold such offices with due regard to their qualifications, competence, experience and integrity; Monitoring and assessment of the performance of the management team based on established performance standards consistent with the Bank’s strategic objectives; Establishment of appropriate plan of succession for members of Senior Management; Conduct of regular meetings with Senior Management to engage in discussion, question and critically review the reports and information as provided by the latter; Regular review of the Bank policies, internal controls and self-assessment functions with Senior Management to determine areas for improvement; and Provide over-all independent check on management. 8. (q) Define appropriate governance policies and practices for the Bank and for its own work and to establish means to ensure that such are followed and periodically reviewed for ongoing improvement including: 1. 2. 3. 4. (p) Consistently conduct the affairs of the Bank with a high degree of integrity by: 1. 2. 3. 4. 5. 6. 7. Taking the lead in establishing the tone of good governance and in setting corporate values, codes of conduct and other standards of appropriate behavior for itself, senior management and other employees. Articulating clear policies on the handling of any transaction with Directors, Officers, Stockholders and Related Interests (DOSRI) and other related parties ensuring that there is effective compliance with existing laws, rules and regulations at all times and that no stakeholder is unduly disadvantaged; Articulating acceptable and unacceptable activities, transactions and behaviours that could result or potentially result in conflict of interest, personal gain at the expenses of the institution or unethical conduct; Articulating policies that will prevent the use of facilities of the Bank in furtherance of criminal and other improper or illegal activities; Regularly monitoring and reviewing the compensation scheme to ensure that it operates and achieves the objectives as intended; Ensuring that employee pension funds are fully funded or the corresponding liability appropriately recognized in the books of the Bank at all times; Allowing employees to communicate, with protection from reprisal, legitimate concerns about illegal, unethical or questionable practices through its Whistleblower Protection Policy and Grievance Machinery, among others; and Articulating policies to effectively communicate corporate values, codes of conduct and other standards in the Bank as well as the means to confidentially report concerns or violations to an appropriate body. 5. 6. Ensuring that the Bank’s organizational structure facilitates effective decision-making and good governance; Maintaining and periodically updating the Bank’s organizational rules or other similar documents setting out its organization, rights, responsibilities and key activities; Ensuring that independent views in Board meetings are given full consideration and that all such meetings are duly minuted; Conducting and maintaining the affairs of the institution within the scope of its authority as prescribed in its charter and existing laws and regulations; Establishing a system of checks and balances which applies in the first instance to the Board itself; and Assessing, at least annually, its performance and effectiveness as a body, as well as its various committees, the President/CEO, the individual directors and the Bank itself. (r) Constitute committees to increase efficiency and allow for deeper focus in specific areas including: 1. 2. Approving, reviewing and updating, at least annually or whenever there are significant changes therein, the respective charters of each Board committee; and Ensuring that each committee maintains appropriate records of their deliberations and decisions. (s) Non-executive board members shall meet regularly other than in meetings of the audit and risk oversight committees, in the absence of senior management, with the external auditor and heads of the internal audit, compliance and risk management functions. (t) Approve loans, fix rates of interest on loans and prescribe such terms and conditions for loans and credits as may be deemed necessary, consistent with the provisions of the Bank’s Charter; Provided, that the Board may delegate the authority to approve loans to such competent officer or officers as may be deemed necessary; 23
25. 24 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (u) Be responsible for the proper administration and management of trust and other fiduciary businesses including determination and formulation of general policies and guidelines on the handling of trust accounts; Specific Duties and Functions in relation to Subsidiaries and Affiliates The Governing Board of the Bank, being a parent company, shall have overall responsibility for defining an appropriate corporate governance framework that shall contribute to the effective oversight over entities which the group, while at the same time, respecting the independent legal and governance responsibilities that may apply to the regulated subsidiary boards. THE DIRECTORS A Director’s Office is one of trust and confidence. He shall act in a manner characterized by accountability, fairness, integrity and transparency. The Bank’s Directors, being public servants, are covered by the provisions of the Code of Conduct and Ethical Standards for Public Officials and Employees (R.A. 6713) and shall, in turn, abide by their fiduciary duties of diligence, loyalty and confidentiality. Duties and Responsibilities of a Director 1. 2. 3. 4. 5. 6. 7. 8. 9. To remain fit and proper for the position for the duration of his/her term, which entails: a. Possession of Qualifications and non-possession of disqualification as a continuing requirement during the entire Term of Office under GCG Memorandum Circular No. 2012-06 and BSP Circular No. 7492012; b. Possession of unquestionable credibility to make decisions objectively and resist undue influence; c. Treatment of Board directorship as a profession; and d. Maintenance of professional integrity and continuous enhancement of skills, knowledge and understanding of the activities that the Bank is engaged in or intends to pursue in the future. To conduct fair business transactions with the Bank and ensure that personal interest does not influence Board decisions including avoidance of use of position to make profit or acquire benefit to himself and/or related interest and of situations that would give rise to conflict of interest; To devote time and attention necessary to properly discharge his duties and responsibilities; To be constantly aware of the institution’s condition and be knowledgeable enough to contribute meaningfully to the Board’s work. To attend and actively participate in Board and committee meetings; To contribute significantly to the decision-making process of the Board; To act judiciously; To exercise independent judgment; To have a working knowledge of the statutory and regulatory requirements affecting the Bank, including the 10. 11. 12. 13. contents of its Charter and By-Laws, the requirements of the BSP and where applicable, the requirements of other regulatory agencies; To observe confidentiality; To ensure the continuing soundness, effectiveness and adequacy of the Bank’s control of the environment; To act honestly and in good faith, with loyalty and in the best interest of the Bank and other stakeholders such as its depositors, investors, borrowers, other clients and the general public; and That their detailed duties and responsibilities are made available to all stakeholders and to the public. THE INDEPENDENT DIRECTORS The Bank shall maintain Independent Directors who are nonexecutive members and not part of the executive committee or day to day management of banking operations. BSP Circular No. 749-2012 provides that at least twenty percent (20%) but not less than two (2) members of the Board shall be independent directors. In selecting independent directors, the number and types of entities where the candidate is likewise elected as such, shall be considered to ensure that he will be able to devote sufficient time to effectively carry-out his duties and responsibilities. For this purpose, the Independent Director shall be required to submit a certification under oath that he/she is an Independent Director as defined above. In relation ot the mandate of BSP Circular 969 s.2017 otherwise known as the Enhanced Corporate Governance Guidelines for BSP-Supervised Financial Institutions, the following are the qualifications imposed by the Bank for an Independent Director: 1. 2. 3. 4. 5. 6. Is not or has not been a member of the executive committee of the Board of Directors, an officer or employee of the Bank, its subsidiaries or affiliates or related interests during the past three (3) years counted from the date of his election; Is not a director or officer of the related companies of the Bank’s majority stockholder; Is not a stockholder with shares of stock sufficient to elect one seat in the board of directors of the Bank, or in any of its related companies or of its majority corporate shareholders; Is not a relative, within the fourth degree of consanguinity or affinity, legitimate or common-law, of any director, officer or a stockholder holding shares of stock sufficient to elect one seat in the Board of the Bank or any of its related companies; Is not acting as a nominee or representative of any director or substantial shareholders; and Is not retained as professional adviser, consultant, agent or counsel of the Bank, any of its related companies or any of its substantial shareholders, either in his personal capacity or through his firm; is independent of management and free from any business or other
26. 2020 ANNUAL REPORT relationship , has not engaged and does not engage in any transaction with the Bank or with any of its related companies or with any of its substantial shareholders, whether by himself or with other persons or through a firm of which he is a partner or a company of which he is a director or substantial shareholder, other than transactions which are conducted at arm’s length and could not materially interfere with or influence the exercise of his judgment. An Independent Director of the Bank shall serve for a maximum cumulative term of nine (9) years only. The Independent Director shall be perpetually barred from serving as ID but may continue to serve as regular director of the Bank (BSP Memorandum No. M-2021-025). The foregoing terms and phrases used in Items “(1) to (6)” above shall the following meaning: (a) (b) (c) (d) (e) Parent is a corporation which has control over another corporation directly or indirectly through one (1) or more intermediaries; Subsidiary means a corporation more than fifty percent (50%) of the voting stock of which is owned or controlled directly or indirectly through one (1) or more intermediaries by a Bank; Affiliate is a juridical person that directly or indirectly, through one (1) or more intermediaries, is controlled by, or is under common control with the Bank or its affiliates; Related interests as defined under Sections 12 and 13 of R.A. No. 8791 shall mean individuals related to each other within the fourth degree of consanguinity or affinity, legitimate or common law, and tow (2) or more corporations owned or controlled by a single individual or by the same family group or the same group of persons. Control exists when the parent owns directly or indirectly through subsidiaries more than one-half of the voting power of an enterprise unless, an exceptional circumstance, it can be clearly demonstrated that such ownership does not constitute control. Control may also exist even when ownership of one-half or less of the voting power of an enterprise when there is: i. ii. iii. iv. v. (f) Power over more than one-half of the voting rights by virtue of an agreement with other stockholders; or Power to govern the financial and operating policies of the enterprise under a statute or an agreement; or Power to appoint or remove the majority of the members of the board of directors or equivalent governing body; or Power to cast the majority votes at meetings of the board of directors or equivalent governing body; or Any other arrangement similar to any of the above. Related company means another company which is: (a) its parent or holding company; (b) its subsidiary or affiliate; or (3) a corporation where a bank or its majority stockholder own such number of shares that will allow/enable him to elect at least one (1) member of the board of directors or a partnership where such majority stockholder is a partner. (g) Substantial or major shareholder shall mean a person, whether natural or juridical, owning such number of shares that will allow him to elect at least one (1) member of the board of directors of a bank or who is directly or indirectly the registered or beneficial owner of more than ten percent (10%) of any class of its equity security. (h) Majority stockholder or majority shareholder means a person, whether natural or juridical, owning more than fifty percent (50%) of the voting stock of a bank. THE CHAIRMAN OF THE BOARD Under Section 31 of R. A. 6848 (Charter of the Bank), the Chairman shall be the Chief Executive Officer of the Bank. He shall preside at all meetings of the shareholders and the Board of Directors. Aside from those which may have been assigned to him by the Board, his powers and duties shall include the following: 1. 2. 3. 4. To execute and administer the policies, measures, orders and resolutions approved by the Board of Directors; He shall have the power and duty to execute all contracts in behalf of the Bank; To enter into all necessary obligations required or permitted by the Bank’s charter; To report weekly to the Board of Directors the main facts concerning the operations during the preceding week and suggest changes in policy or policies which will serve the best interest of the Bank. The Chairman’s responsibilities include the following: 1. 2. 3. 4. Calling meetings to enable the Board to perform its duties and responsibilities Approving meeting agenda in consultation with the Corporate Secretary Exercising control over quality, quantity and timeliness of the flow of information between Management and the Board; and Assisting in ensuring compliance with the Bank’s guidelines on corporate governance For legal purposes, the Chairman of the Governing Board shall be considered as the “Head of Agency” of the Bank. 25
27. 26 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES THE BOARD OF DIRECTORS ’ PROFILE Alex P. Bangcola, Chairman and CEO On February 17, 2017, Mr. Alex P. Bangcola took his oath of office as Board Director of the Al-Amanah Islamic Investment Bank of the Philippines. His oath was administered by the Chairman of the Governance Commission for Government Owned or Controlled Corporations (GCG), Chairman Samuel G. Dagpin, Jr. at the GCG Head Office in Makati City. Mindanao State University, he also served as Director of Manila International Airport Authority from 1990 to 1992. Dir. Garcia is a graduate of San Beda College. He earned his degree in Bachelor of Arts in the year 1967. He took Bachelor of Laws thereafter and graduated in 1971. He passed the Bar Examination in the following year. Director Garcia became also the Governor of the PDP-Western Mindanao Region in 2005-2007 and likewise the Deputy of the IBP Commission on Bar Discipline in 2007-2009 and 2016. He was appointed as member of the Board of Trustees of the Knight of Columbus Fraternal Assn. Inc. (KCFAPI). He became the President of the JCI Senate Philippines, Inc., in 2013-2016. He was earlier appointed as Board Director by President Rodrigo R. Duterte on January 31, 2017 and was elected as Chairman and CEO of the Bank on March 2, 2017. Chairman Bangcola is an accomplished bank manager with more than 20 years of professional work in finance, marketing, academe and energy development. He has worked with several banks including United Coconut Planters Bank, where he received an award by former President Fidel V. Ramos for his contribution to the government’s dollar repatriation program as Head of International Remittance. He has also held positions as Area Head – Europe for Rizal Commercial Banking Corporation, and as First Assistant Vice President for Asiatrust Development Bank. Ret. Gen. Miguel C. Abaya, Director Retired General Miguel de la Cruz Abaya is a member of the Board of Directors of AAIIBP since September 28, 2017. He likewise serves as Board Member of the Development Bank of the Philippines (DBP). Director Abaya formerly served as the Regional Commander of the PC-INP. A graduate of Philippine Military Academy (PMA) in 1959, he took his post-graduate studies in University of the Philippines Cebu and graduated in the year 1982. He thereafter took International Defense Management in 1985 at the Naval Post Graduate School, Monterey California, USA. Director Abaya passed away on March 23, 2021. Atty. Rogelio V. Garcia, Director Director Garcia is a member of the Board of Directors of AAIIBP. He likewise serves as a member of the Board of Development Bank of the Philippines (DBP) on September 28, 2017. Prior to his involvement in the Bank, he was once a member of the Parliament of Batasang Pambansa. He also served as a Deputy Minister/Undersecretary of the Department of Labor and Employment. A former Lecturer and Legal Officer of Maria Lourdes A. Arcenas, Director Maria Lourdes Laurel-Avancena Arcenas is a clinical psychologist by profession. Her expertise is resiliency strengthening and competencebuilding. She obtained an AB degree in Psychology from St. Scholastica’s College-Manila graduated Cum Laude and an MA in Clinical-Counselling Psychology from Ateneo de Manila University. Ms. Arcenas is Rotary Ambassadorial Scholar at Stanford University, California where she received an MA in International Development Education. She has an accreditation certificate in Partnerships Brokering for Sustainable Development from the Overseas Development Institute Program, Deakins University, Australia and in Conflict Resolution/ Peace Building from Chulalongkorn University, Thailand. Her career experience spans psychodiagnostics, human resources management, crisis communication, team building, and resource governance. She is currently Senior Advisor-Corporate Social Responsibility to local and international corporations in the mining, power, forestry, infrastructure sectors. She is pro-bono Trustee of the Mothers for Peace Social Enterprise Inc. that provides women in peacebuilding roles with opportunities of building capacity for sustainable livelihoods. She was elected as Director of the Bank on September 28, 2017. Abdelnooh Kong Hadjirul, Director Director Hadjirul earned his Bachelor’s Degree in Civil Engineering in Cebu Institute of Technology, Cebu City in the year 1985. Before he joined the Bank as Director, he was practicing his profession thru his involvement in various
28. 2020 ANNUAL REPORT private construction companies . He was employed as Civil Engineer in Department of Public Work and Highways from 1989-1990. He was appointed as a Director of the Bank on March 22, 2018. Abdul Hannan Magarang Tago, Director Director Abdul Hannan M. Tago has been appointed as Member of the Board of Directors of Al-Amanah Islamic Investment Bank of the Philippines on December 12, 2019 and was elected as Vice Chairman of the Board. Dir. Tago is currently the Acting President of Dhaylafullah Islamic Institute and Chairman of Saudi Philippines Business. He is also the Executive Director of Bangsamoro Federal Business. He was likewise the Executive Director and Consultant of Southern Philippines Muslim and Non-Muslim Unity and Development Association (SPMUDA) and Philippine Economic Zone Authority (PEZA), respectively. Initial jobs of Dir. Tago include Senior Staff Writer, Bureau Chief, Assistant to Spokesman and Executive Secretary in Saudi Arabia, among others. Dir. Tago earned his Degree in Arabic Literature from Al-Azhar University in Cairo, Egypt. Saidah Tabao Pukunum, Director Director Saidah T. Pukunum has been appointed as Member of the Board of Directors of Al-amanah Islamic Investment Bank of the Philippines (AAIIBP) on December 12, 2029. Dir. Pukunum is an entrepreneur and the current Chairwoman/Founder of Philippine Muslim Women Business. Dir. Pukunum is a graduate of Bachelor of Science in Nursing and Elementary Education and has a diploma in Midwifery. Atty. Mamarico “Rikky” L. Sansarona, Jr. Atty. Mamarico L. Sansarona, Jr.was appointed as AAIIBP Independent Director on August 6, 2020. Currently, he is connected with the National Commission on Muslim Filipinos (NCMF) as Chief in Legal Division. He is also a Partner at De Guzman, Rafal and Sansarona Law in Pasay City. Atty. Sansarona also worked as consultant, Corporate/Associate Lawyer in several government and private agencies. Atty. Sansarona obtained his degrees in Bachelor of Science in Business Administration mayor in Management and Juris Doctor from the Mindanao State University, Marawi City. He was admitted in Philippine Bar in November 2011. Habib Mudjahab A. Hashim Director Hashim was re-appointed as Director of the Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) on August 06, 2020. He was a former Director of the AAIIBP from June 30, 2003 up to February 16, 2006. He also served as Administrator/CEO of the Southern Philippine Development Authority (SPDA) from October 2002 to March 2003 and a former Director of the Coconut Industry Investment Fund Oil Mills Group based in Iligan City. Director Hashim also served as Consultant of the Office of the Presidential Assistant on the Peace Process (OPAPP) from August 2016 to December 2018. Director Hashim obtained his degree in Bachelor of Arts in Zamboanga City and also studies Bachelor of Laws at the University of Manila. Sisinio S. Narisma Director Sisinio S. Narisma has been appointed as Member of the Board of Directors of Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP) on June 14, 2019 and end his term on December 31, 2020. Dir. Narisma is currently a Senior Vice President at the Development Bank of the Philippines. Prior to this, he became a Vice President and Assistant Vice President in the same bank in 2014 and 2009, respectively. He first joined DBP as Property Appraiser and was promoted to various positions until he became a Bank Executive Officer I in 1997. Dir. Narisma earned his Bachelor of Science in Agricultural Engineering degree from Visayas State University and holds his Master’s Degree in Public Administration from Bukidnon State University. THE CORPORATE SECRETARY Atty. Cruz served as Corporate Secretary of AAIIBP until October 30, 2020. He was the Senior Consultant and Deputy Administrator for Legal Affairs of the Subic Bay Metropolitan Authority, and First Senior Vice President and Chief Legal Counsel and later became the Executive Vice President of the 27
29. 28 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES Development Bank of the Philippines . He was also a board member of the DBP Management Corporation, DBP Service Corporation, PISCOR Steel Corporation, Philippine International Trade Corporation, San Carlos Fruit Corporation, LBP Leasing Corporation, Philippine Biotechnology Co., Inc., and Ventures in Industry and Business Enterprises. He was also the Vice President and Chief Legal Counsel of the Philippine National Bank and also held key positions in several private institutions. Atty. Carlos R. Cruz obtained his Bachelor of Laws and B.S. Jurisprudence from the University of the Philippines in 1962. THE SHARI’AH ADVISORY COUNCIL The Shari’ah Advisory Council is selected from among Islamic Scholars and jurists of comparative law pursuant to Section 4 of the Charter of the Bank under RA 6848, s.1990 amending PD No. 264 and PD No. 542. The members are elected at a general shareholder’s meeting of the Bank every three (3) years from a list of nominees prepared by the Board of Directors. The functions of the Shari’ah Council, among others are (i) to offer advice and undertake review pertaining to the application of the principles and rulings of the Islamic Shari’ah to the Islamic Bank transactions, but it shall not directly involve itself in the operations of the Bank; and upon invitation, (ii) to sit in the regular or special meeting of the Board of Directors to expound his views on matters of the Islamic Shari’ah affecting a particular transaction but with no power to vote on the question presented before the Board meetings. Salih D. Musa Salih D. Musa has been elected as a member of AAIIBP’s Shariah Advisory Council on July 01, 2019. Mr. Musa earned his Bachelor’s Degree in Shariah Law from the Islamic University of Medina, Kingdom of Saudi Arabia in 1985 and an MA in Education Major in Educational Management from Quezon College of Southern Philippines in 2007. He was admitted in Philippine Shariah Bar in 1988. Shariah Advisor Musa is currently the Secretary-General of National HALAL Accreditation Board of the Philippines and the President of WAMY-Academy in General Santos City, Philippines. He was also a former Shariah Judge in Buluan, Maguindanao. COMMITTEES OF THE BOARD OF DIRECTORS Executive Committee The Executive Committee is a standing Committee of the Board. The Committee’s purpose is to assist the Board in performing their duties and responsibilities, to efficiently manage their time and ensure the proper understanding and resolution of all issues affecting the Bank and the proper handling of all concerns, and allows the Board to effectively utilize the expertise of the members of the Board. Accomplishments: • Review and approval of various credit applications. Name Chairman Alex P. Bangcola Vice Chairman Rogelio V. Garcia Members Maria Lourdes A. Arcenas Miguel C. Abaya Abdenooh K. Hadjirul Date Covered January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 Audit and Compliance Committee The Audit and Compliance Committee provides oversight over, (i) the Bank’s financial reporting policies, practices and control, and monitoring of compliance with applicable laws, rules and regulations; (ii) the internal audit functions; (iii) the adequacy and effectiveness of the Bank’s internal control system; (iv) the compliance functions and/or oversee the Bank’s compliance program; and (v) the Bank’s compliance with legal and regulatory requirements, including the Bank’s disclosure controls and procedures; (vi) The coordination and overall supervision of Commission on Audit (COA) related matters. Accomplishments: • Oversight over Compliance Function, including review of the BSP Report of Examination, COA Annual Audit Report and DBP Internal Audit Report. • Review and approval of the updates on policies and Manuals relating Audit and Compliance, Compliance Manual and MLPP Name Chairman Abdul Hannan M. Tago Vice Chairman Sisinio S. Narisma Member Saidah T. Pukunum Date Covered January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020
30. 2020 ANNUAL REPORT Risk Oversight Committee Human Resource Committee Risk Oversight Committee commits to develop a risk /return consciousness in the Bank with appropriate risk management strategies geared towards loss prevention or minimization to preserve capital and ensure adequate return on capital.” The Committee on Risk Management (CRM)/Risk Oversight Committee (ROC), a Board Committee, shall be responsible for the development and oversight of the Bank's Risk Management Program. It shall develop risk management strategies geared towards loss prevention to preserve the Bank's capital, increase shareholder value & optimize capital allocation for all risk-taking activities of the Bank. Human Resource Committee is responsible for the review, screening, and formalizing management recommendations on HR-related matters for the Board’s approval, including, but not limited to (i) provide oversight over remuneration of directors, senior management and other key personnel (ii) Review Compensations (iii) Review organization plans and structure to ensure soundness and adequacy; (iv) Review organization and manpower plans (v) Review management development programs. Accomplishments: • Approved various credit and operational risk policies such as the IT Risk Register and updates on the Bank’s Business Continuity Plan and adherence to BSP Circular 855 on Credit Risk Management. Name Chairman Saidah T. Pukunum Vice Chairman Neogen M. Chaves Member Abdul Hannan M. Tago Date Covered January 01, 2020 to December 31, 2020 January 01, 2020 to June 30, 2020 January 01, 2020 to December 31, 2020 Corporate Governance Committee Corporate Governance Committee is a standing committee of the Board. The Committee’s purpose is to assist the Board in carrying out its oversight responsibilities to promote the importance of adopting global principles and best practices in directing and governing the affairs of the Bank with the end in view of maximizing its long term value for the benefit of its stakeholders and to ensure that a culture of ethics, compliance and social responsibility pervade in all level of banking operations. Accomplishments: • Review and approval of various updates on activities pursuant to Service Level Agreement between AAIIBP and DBP • Corporate Governance Scorecard Assessment Result Name Chairman Abdul Hannan M. Tago Vice Chairman Miguel C. Abaya Member Saidah T. Pukunum Date Covered January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 Accomplishments: • Reviewed and approved various policies related to human resource as recommended by the Management Committee. Name Chairman Alex P. Bangcola Vice Chairman Maria Lourdes A. Arcenas Member Abdelnooh K. Hadjirul Date Covered January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 January 01, 2020 to December 31, 2020 29
31. 30 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES MEMBERS OF THE BOARD COMMITTEES (As of December 31, 2020) Name of Director Position ALEX P. BANGCOLA ABDUL HANNAN M. TAGO SAIDAH T. PUKUNUM ABDELNOOH K. HADJIRUL MARIA LOURDES A. ARCENAS ROGELIO V. GARCIA MIGUEL C. ABAYA SISINIO S. NARISMA NEOGEN M. CHAVES MAMARICO L. SANSARONA, JR. HABIB MUDJAHAB A. HASHIM Chairman and CEO Independent Director Independent Director Director Director Director Director Director Director Director Director The Principal stockholder represented if nominee Development Bank of the Philippines (DBP) DBP DBP DBP DBP DBP DBP DBP DBP DBP DBP Number of years of Service 3 1 1 2 3 3 3 1 0 0 0 ATTENDANCE AT THE BOARD AND COMMITTEE MEETINGS Regular Board Meetings Name of Director ALEX P. BANGCOLA MARIA LOURDES A. ARCENAS MIGUEL C. ABAYA ROGELIO V. GARCIA ABDELNOOH K. HADJIRUL SISINIO S. NARISMA ABDUL HANNAN M. TAGO SAIDAH T. PUKUNUM MAMARICO L. SANSARONA, JR. * HABIB MUDJAHAB A. HASHIM** Position Chairman and CEO Director Director Director Director Director Independent Director Independent Director Director Director Total Number of Meetings1 Actual Attendance2 4 4 4 4 4 4 4 4 4 3 4 4 4 4 4 3 4 3 4 3 Executive Committee Total Number of Meetings1 Actual Attendance2 0 0 0 0 0 0 0 0 0 0 Audit & Compliance Committee Total Number of Meetings1 Actual Attendance2 0 0 0 0 0 0 *elected August 6, 2020 **elected October 22, 2020 Corporate Governance Committee Name of Director Position ALEX P. BANGCOLA MARIA LOURDES A. ARCENAS ABDELNOOH K. HADJIRUL Chairman and CEO Director Director SAIDAH T. PUKUNUM NEOGEN M. CHAVES ABDUL HANNAN M. TAGO Independent Director Director Independent Director MIGUEL C. ABAYA ABDUL HANNAN M. TAGO SAIDAH T. PUKUNUM Director Independent Director Independent Director Total Number of Meetings1 Actual Attendance2 Risk Oversight Committee Total Number of Meetings1 0 0 0 0 0 0 0 0 0 Actual Attendance2 0 0 0 HR Committee Total Number of Meetings1 Actual Attendance2 0 0 0 0 0 0
32. 2020 ANNUAL REPORT MONITORING AND ASSESSMENT Each Board Committee shall report regularly to the Board . Performance Evaluation System (PES) per GCG MC No. 201302 (Re-Issued) shall be implemented in the Bank to provide the framework for setting the organizational targets and measuring the actual performance in a given year. The PES shall also serve as the basis for the following: 1. 2. 3. 3.2. Director Performance Evaluation: 20%- The individual contribution of a Director shall be measured based on the following: (a) Self-Appraisal Rating = 6% (b) Peer Appraisal Rating= 14% 3.2.1. Guidelines on the Director Performance Review (DPR) (a) Appraisal Forms Determining the grant of Performance-Based Incentives; Determining whether Appointive Directors are eligible for reappointment as a component of the Performance Evaluation for Directors (PED); and Ascertain whether the Bank should be reorganized, merged, streamlined, abolished or privatized. o Self-Appraisal Form (SAF) – Each member of the Governing Board shall accomplish their respective SAF. o Peer Appraisal Form (PAF) – Each member of the Governing Board shall likewise accomplish a PAF for each of his/her co-member. All the members of the Governing Board shall evaluate one another as follows: The PES shall require submission of the following: 1. 2. Performance Agreement - Performance Agreement shall be entered into between the Bank, as represented by its Governing Board, and the State, as represented by the GCG, following the format provided in GCG MC No. 201302 (Re-Issued); Other Documents 2.1. The Charter Statement and Strategy Map 2.2. The Performance Scorecard following the prescribed format of GCG 2.3. The Strategic Initiatives 2.4. Briefer 2.5. Board Resolution approving the submission of the requirements to GCG. To be Reviewed Chairman President/CEO Members of the Governing Board (b) Schedule (i) A Performance Evaluation for Directors (PED) shall be implemented by the Bank that will evaluate annually the performance of each Member of the Board pursuant to GCG MC No. 2014-03. The PED shall follow the following rules and policies: 1. 2. 3. Purpose: To strengthen the competence and character of the Members of the Bank’s Board. Coverage: The PED shall cover all Appointive Directors of the Bank. Components of the PED: The PED measures the overall performance of an Appointive Director based on the following weighted-average of the following components: 3.1. Bank’s performance based on application of the Performance Evaluation System (PES) for the Bank under GCG Memorandum Circular No. 201302: 60% Peer Evaluators All Members of the Governing Board (whether Appointive or Ex Officio) All Members of the Governing Board (whether Appointive or Ex Officio) All Members of the Governing Board (whether Appointive or Ex Officio) (ii) (iii) Individual Performance Levels – The Bank’s Compliance Officer/Corporate Secretary shall distribute the Self and Peer Appraisal forms to the members of the Governing Boards starting on the first working day of February each year, ensuring that the confidentiality of the forms and their contents once filled up are preserved. Submission and Tabulation- Within ten (10) working days, the Bank must have submitted the accomplished forms to the Governance Commission for tabulation and evaluation. DPR Results – The Governance Commission shall release the DPR results to the Supervising Agency and the Bank within thirty (30) calendar days from receipt of the complete SAF and PAF. A separate DPR result will also be provided for each of the member of the Governing Board showing the aggregated scores of their individual appraisal results. The DPR results will be integrated in the PED Summary Report. 31
33. 32 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (c) The Compliance Officer or Corporate Secretary shall ensure the confidentiality of the names and rating results generated in the DPR. 3.3. Director Attendance Score: 20% 3.3.1. Rules on Attendance - An Appointive Director must have attended at least 75% of all authorized and duly called for Board and Committee meetings (to which he/she is officially designated) in any given year or at least 50% during the immediately preceding semester. In determining the total number of authorized and duly called for Board and Committee meetings, the following rules shall be observed: Attendance through teleconferencing or video conferencing in accordance with the Securities and Exchange Commission (SEC) Memorandum Circular No. 15, 2001, is allowed. (b) Absences arising from the actual conduct of official business for the Bank, its subsidiary, affiliate, or for the National Government are considered excused absence, provided, the Bank of the Appointive Director shall submit the proper documentation of such official business, such as, but not limited to, a travel authority; Provided further, that the total approved leaves for official business of an Appointive Director can only account for at most 10% of the total number of authorized and duly called for Board and Committee meetings, and any absences in excess shall be counted against the Appointive Director. (c) Absences arising from filial obligations shall not be considered excused, even if approved by the Governing Board. (d) Vacation leaves shall not be considered as excused, even if approved. shortlist for proper consideration of the President with proper explanation thereof. Results of the PED On or before the 31st of March of each year, the GCG shall submit to the Supervising Agency and the Bank Chairman the summary report of the results of the PED. In addition, each Director shall receive a confidential report of his overall grade and concerns/issues raised in the PAF. Overall Grade Equivalent (a) 3.3.2. Individual Attendance Score - The Compliance Officer/Corporate Secretary shall submit to the GCG the attendance record for the year of all members of the Governing Board, both Appointive and Ex Officio, by the second week of March. Eligibility for Reappointment Appointive Directors who receive an overall rating of less than 85% will not be qualified to be included in the shortlist of nominees for the following term; Provided, however, that no score in any component should be less than 50%; Provided, further, that when in the GCG’s evaluation, the down-rating received by an Appointive Director is not warranted, the particular Appointive Director may still be included in the Overall Score Scale Equivalent 100% - 93% 92.99% - 85% 84.99% - 80% 79.99% - 75% 74.99% and below 5 4 3 2 1 Outstanding Above Average Average Below Average Poor Checklist of Submissions a) b) c) Self Appraisal Forms (SAF) of each member of the Governing Board (PED Forms 1, 2, and 3); Peer Appraisal Forms (PAFs) accomplished by the peer evaluators in assessing the performance of their fellow members in the Bank’s Governing Board (PED Forms 4, 5, and 6) Supporting documents determined initially by the Bank, without prejudice to the request for further documents/records by the GCG from the Bank. Sanction Failure of an appointive Director to comply with the conditions of the PED shall be basis for the Governance Commission not to include his/her name in the shortlist of Appointive Directors and the non-entitlement to PBI.
34. 2020 ANNUAL REPORT THE MANAGEMENT COMMITTEE CHAIRPERSON : ALEX P. BANGCOLA Chairman and CEO VICE CHAIRPERSON: ATTY. IMELDA TARHATA F. MACARAMBON Acting Chief Operating Officer / Legal Counsel MEMBERS: LILIAN Q. DUBAL Head, Branch Banking Services ROWENA C. THAKUR Corporate Communications Officer NURSALYN H. LADJABASSAL Head, Treasury Department ATTY. JOMAILA G. RANGIRIS Acting Head, Operations Sector JAMEMAH T. CAMPONG Acting Head, Accounting and Finance JULIE N. RICARTE Acting Head, Human Resource Management ARLETH A. MENDOZA Head, Investment Banking Unit REINA MADONNA M. GAYAK Head, Product Development MOHAMAD ASHRAF P. ADER Acting Head, Greenhills SJC Branch OBSERVERS: OLIVER E. SANIANO Risk Officer APRILIE MAE B. MALACAY Compliance Officer EDWIN B. DE TORRES Acting Head, Information Technology LIST OF SENIOR OFFICERS ALEX P. BANGCOLA Chairman and CEO LILIAN Q. DUBAL Senior Vice President ROWENA C. THAKUR Bank Executive Officer III 33
35. 34 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES TABLE OF ORGANIZATION
36. 2020 ANNUAL REPORT TRAININGS & CONTINUOUS PROFESSIONAL PROGRAM The Bank, in its efforts to continuously enhance the technical capacities and competencies of its talents, ensures that appropriate and suitable trainings are being conducted. A Competency-Based Learning and Development Management System (CBLDMS) has been established where the standards, process and procedures are put into place. The Bank adheres to the overall Learning and Development philosophy “Shaping the Servant-Hero Towards Public Service Excellence”. The goal is to align all L&D interventions to the Bank’s mission and strategic objectives as it strives to become the country’s leading Islamic Bank. organization. L&D shall be based on development needs as determined by competency assessment and performance assessment exercises. L&D shall likewise consider the differentiated needs of women and men in the Bank to ensure equitable access to L&D interventions. 3. Learning and Development shall focus on the development, improvement, or enhancement of competencies required by the current or future position/job of the official/employee. 4. Learning and Development is a shared responsibility of the management, supervisors, and the employees. While the Bank provides the nurturing and enabling environment by opening up opportunities, among others, employees and their respective supervisors have an equal responsibility to plan and manage their development and career by determining, seeking, and seizing available opportunities. 5. The Bank regards investment for learning and development as equally important as investments in researches, information technology (IT), purchase of equipment, and product development. Capacity development of the Bank officials and employees is given equal, if not a paramount importance in terms of allocating resources. Partnership with other institutions shall be explored to supplement existing resources for L&D. 6. Learning and Development shall be designed to increase the portability of skills of employees. This, therefore, requires an approach or various approaches that will allow Heads of Offices and/or supervisors, to easily recognize skills which may be transferable between jobs and/or assignments. 7. Continuing upgrading of competencies is essential to the maintenance of a corps of professional officials and employees of the Bank. It aims to develop a competent, credible, and high performing workforce. Continuing competence is maintained and enhanced through lifelong learning and integration of learning into every facet of the Bank’s official or employee’s working life. The L&D philosophy affirms the organization’s overall focus on creating an excellent and high-performing organization through its people supporting the strategic objectives in the Bank’s Balance Scorecard. • • • • High-performing, Competent, and Credible not only as Bank Employees but also as Civil Servants; Provide excellent HR processes; Enhance the competency of the Bank’s workforce; and Cultivate partnerships with Local and International institutions. Emphasizing that women and men in the organization matter, the Bank’s aim is always to create significant changes in the workplace through programs that help the Bank officials and employees: • • • Strengthen mission-critical competencies particularly those of strategic groups such as the executives/managers, branch heads, and supervisors; Develop the right capabilities, perspectives, and mindset required to contribute meaningfully to the efficient, effective, and ethical achievement of the Bank’s strategic priorities and to work harmoniously with others and with respect gender equality; and Improve their self-knowledge and human potentials and strengthen their employability. L&D interventions in the Bank are hinged on the following overall principles: 1. Every AIB official and employee is an important resource valued by the organization. The Bank gives priority and invests on Learning and Development of every official and employee. 2. Learning and Development interventions for the Bank’s officials and employees shall be purposive and aligned with the organization’s strategic objectives and goals. L&D is a means to upgrade the capability and expertise of the Bank to address and respond to the multi-faceted HRM needs of the Learning and Development shall drive performance management. It shall integrate recognition and rewards mechanism as a strategy to ensure learning application in everyday work settings. 35
37. AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES THE CURRICULUM FRAMEWORK Leadership / Management Competencies AMANAH ISLAMIC BANK Organizational Competencies Professional/ Supervisory Clerical/ General Staff Functional/ Technical Competencies New Hires Core Competencies Middle Management Technical Competencies Senior Management Core Competencies Leadership Competencies The establishment of the AIB Competency Model and Framework (February 2016) determined the position profile of the Bank. This provides the basis for the L&D interventions appropriate to levels of positions or job families, as follows: Organizational Competencies 36 The following matrix provides a menu, which is a combination of training programs and other L&D interventions, to help employees navigate through current and future posts over a period of employment with the Bank. From date of hiring to 1 year More than 1 year to 5 years From assumption to continuing New Hires Clerical/ General Staff Professional/ Supervisory Orientation Program for New Hires Improving Planning and Delivery Islamic Banking and Finance Middle Management Senior Management Delivering Personal Effectiveness: Interpersonal Skills Customer Relations Verbal and Non-Verbal Communication Skills Listening and Speaking Skills Managerial and Leadership Program Advanced Program on Islamic Banking and Finance Executive and Good Governance Program Gender Sensitivity and Mainstreaming (GSM) Continuing Programs Conferences, Symposia, Grants Abroad Legal Practitioners’ Conferences Accountants and Budget Officers Conference, Executive Conference CNet Conference, GAD Focal Point System (GFPS) Conference CSC-HRM Symposium / Conference Islamic Banking and Finance Short Term Course Other technical/professional conferences and colloquia, including International Conferences
38. 2020 ANNUAL REPORT RETIREMENT AND SUCCESSION POLICY Leadership is essential in providing direction in attaining the thrusts of an organization especially in the public sector where delivery of continuous public service is crucial . Leadership does not just happen nor exercised by anyone at any given time; it takes years to groom an effective leader. In the hierarchy of positions or in a table of organization, leaders are identified in the ranks of supervisors, managers, executives. Should there be a vacancy in these ranks, when someone retires or is separated from the Bank, important questions arise: Who succeeds? Is the successor qualified to assume the duties of subject positions? Is the successor ready? The matter of succession planning then becomes an imperative. The Bank, in its efforts to establish and sustain sound operational business strategy aims to: 1. To prepare the employee who will take the role of a manager or a leader in the organization by providing appropriate competencies and experiences to ensure continuity of management. 2. To systematically enable the Management in identifying talented employees and provide development opportunities to fill key or critical organizational positions. 3. To create a match between the organization’s future needs and the qualifications of a potential candidate for succession. 4. To serve as an interface between the human resource functions and the strategic direction of the Management. Succession Policy is created and a Succession Plan Matrix is established that being updated whenever necessary. Role of Management and Employees in Succession Plan To ensure the success of the Succession Plan, support and cooperation of management and employees are indispensable. The following are highly expected from the Management and Employees: 1. Personal involvement of senior leaders. 2. Accountability of senior leaders for growing leaders. 3. Commitment of employees toward self-development. 4. Linkage between strategic planning and talent investment in the future. 5. Reliable workforce data and analysis. 6. Emphasis on leadership competencies as basis for selection and development. 7. Use of deep selection in process regardless of rank and position. 8. Prioritization for identification and development of a pool of talent. With all these in place, the Bank believes that proper planning and learning and development interventions, the pool of highly technical staff, supervisors, managers, and executives can succeed the vacated positions. REMUNERATIONS POLICY Section 1 of Executive Order No. 24, series of 2011 states: “Cognizant of the role of the Board of Directors/Trustees as steward of the corporation it serves and caretaker of the best interests of the people who are the true shareholders of the corporation, the rationalization of the compensation for members of the Board of Directors/Trustees in GOCCs shall be anchored on the following policy considerations of the State: a) Promote transparency, accountability, and prudence in government spending; b) Enable the GOCCs to perform their mandated developmental, social, commercial, proprietary, and regulatory functions, and respond to the demands for an effective and efficient delivery of essential public services, thereby significantly contribute to national development; c) Strengthen the overall governance and management of GOCCs by, among others, attracting highly qualified and competent individuals; d) Improve the monitoring, supervision, and evaluation of the management and operations of GOCCs; and e) Provide for the standardization and rationalization of the compensation of members of the Board of Directors/Trustees that is reasonable, justifiable, and appropriate to prevent abuses in the grant of salaries, per diems, allowances, bonuses, incentives, and other benefits.” The Bank nonetheless complies with the provisions contained in the Executive Order No. 24, series of 2011, which governs the compensation and reimbursable expenses of the members of the Board of Directors. 37
39. 38 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES POLICIES ON RELATED PARTY TRANSACTIONS CONSUMER PROTECTION AAIIBP ’s regulations in the granting of credit to Directors, Officers, Stockholders and their Related Interest (DOSRI) and Related Party Transactions (RPT) are embodied under CPM 14 dated November 17, 2016. The CPM underscores the Bank’s major policies and procedures in the granting of credit to the subject DOSRI and RPTs. The Manual on Consumer Protection Program of AAIIBP was approved by the Board of Directors last December 17, 2015 and was initially implemented by the Dedicated Head, Consumer Assistance Office of the Bank. The purpose of this Manual is to set out minimum standards of consumer protection in the areas of disclosure and transparency, protection of client information, fair treatment, effective recourse and financial education. On August 14, 2018, the AAIIBP Board has also approved CPM-14-A to cover and simplify the policies under CPM 14 in consonance with BSP Circular No. 914, Series of 2016, also known as the “Amendments to Prudential Policy on Loans, Other Credit Accommodations, and Guarantee Granted to Directors, Officers, Stockholders, and their Related Interests (DOSRI), Subsidiaries and Affiliates”, which amends relevant provisions of the Manual of Regulations for Banks/Manual of Regulations for Non-Bank Financial Institutions (MORB/MORBNBFI). CPM 14-A presents the specific covered parties and covered transactions with the corresponding ceilings as set forth under the preceding CPM 14. Its scope and coverage includes: DOSRI with related interests (RI), Government agencies and GOCCs with RI, subsidiaries, affiliates and other RI. As a control measure, under the policy, creation, updating and maintaining of data base reflecting the names of spouses and covered relatives of directors, officers, and stockholders of the Bank, including a list of the names of their covered relatives, shall be undertaken by the IT Department. Full dissemination of the Financial Consumer Protection Manual and Consumer Assistance Mechanism Policies and Procedures to the Branch Consumer Assistance Officers during the Consumer Protection Seminar and Training on Interpersonal Skills/Customer Service and Dealing with Difficult People on April of 2016. Also, tarpaulins of the Consumer Assistance Mechanisms are visibly posted in the Branches lobby and Public Assistance Complaints Desk is provided. Organizational Structure of Consumer Assistance Unit The role of the Board of Directors through the Audit and Compliance Committee serves as an oversight in the effective implementation of the Consumer Protection Compliance Program. The Senior Management implements the consumer protection policies approved by the Board. The Dedicated Head, Consumer Assistance Officer is the one responsible in monitoring the assistance process and reports BOARD OF DIRECTORS AUDIT AND COMPLIANCE COMMITTEE CHAIRMAN AND CEO INTERNAL CONTROL AND SELF-ASSESSMENT FUNCTION MANAGEMENT COMMITTEE The Bank’s internal control system is designed and implemented by the Board of Directors and Senior Management to provide reasonable assurance on the achievement of objectives through efficient and effective operations. The Board and Management provide a comprehensive assessment of the Bank’s performance on a periodic basis, including reportorial requirements of the regulatory bodies. The Board of Directors is primarily responsible for the governance of the Bank, ensuring that the Bank runs in a sound manner with high standards of its core values. The Board of directors is responsible in reviewing, providing guidance and approves the corporate strategy and major plans; sets performance objectives; monitors implementation and overall accomplishments in order to sustain the Bank’s long-term viability and strength. JAMES B. PORTO Dedicated Head, Bank Consumer Assistance Officer Branch Consumer Assistance Unit Officers \ to senior and Audit and Compliance Committee on a quarterly basis. Consumer Assistance Channel Consumers may log their concerns through any reasonable means such as our centralized web-portal (www.amanahbank.gov.ph to any of our branches), walk-in or personal visit, letter, e-mail, telephone and facsimile.
40. 2020 ANNUAL REPORT The Bank maintains a Consumer Assistance Helpdesk or Hotline dedicated for consumer concerns and service manned by Consumer Assistance Officer in Branches . Consumer Assistance and Timeline ACTIVITY Acknowledgement Processing and resolution (assess, SIMPLE COMPLEX COMPLAINTS COMPLAINTS Within Within 2 2 calendar days calendar days Within Within 7 45 calendar days calendar days Communication of Within Within Resolution calendar days investigate, and resolve) Contact Information 9 47 calendar days 39
41. 40 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES CORPORATE INFORMATION HEADQUARTERS Head Office : PHIDCO Bldg. A, Veterans Avenue, Zamboanga City, Philippines (062) 991-2846 Executive Office: 2/F Greenhills McKinley Arcade, MA-104B, Ortigas Avenue, San Juan City (062) 893-4350 Website: http://amanahbank.gov.ph/ NETWORKS: Cagayan de Oro City Asmia A. Mira-ato, Acting Branch Head V. Neri St., Cagayan de Oro City (088) 858-9880 Cotabato City Amer Hussien Y. Mitmug, Acting Branch Head G/F Hua Hing Bldg., Sinsuat Ave.Cotabato City (064) 421-2002 Davao City Camaliah T. Dianalan, Branch Head G/F Nicolas Comm. Center, Quirino Ave., Davao City (082) 221-2204 General Santos City Amina L. Saliao, Branch Head G/F JMP Bldg., Osmena St.General Santos City (083) 552-4013 Iligan City Sittie S. Usman, Branch Head G/F Norpen Bldg., Roxas Ave., Iligan City (063) 221-3340 Jolo Al-Khram A. Pandangan, Acting Branch Head G/F Honeybee Bldg., Serantes St.Jolo City Greenhills SJC Mohamad Ashraf P. Ader, Acting Branch Head Greenhills McKinley Arcade, MA-104B, Ortigas Ave., San Juan City (02) 8893-5036 Marawi City Sittie Hanniyah G. Guro, Acting Branch Head G/F, Cultural Center, 2nd St., MSU Main Campus, Marawi City Zamboanga City Sherry Grace J. Aspi, Acting Branch Head G/F PHIDCO A Bldg., Veterans Ave., Zamboanga City (062) 991-4158
42. 2020 ANNUAL REPORT PRODUCTS AND SERVICES ISLAMIC DEPOSIT PRODUCTS ISLAMIC FINANCING PRODUCTS Savings Account (Wadiah or Safekeeping) - represent deposits which are evidenced by a passbook and can be withdrawn upon presentation of a properly accomplished withdrawal slip together with the corresponding passbook Al-Ijarah Muntahia Bittamleek (Leasing ending in transfer of ownership) - a form of leasing where a property is leased by the Bank (the lessor) to the client (the lessee) in a way that at the end of an agreed lease period, the lessee becomes the owner of the property. Current Account (Wadiah or Safekeeping) - represent deposits which are repayable on demand and without notice of intended withdrawal through issuance of checks. This account is otherwise known as demand or checking account. General Investment Account (Profit Sharing Scheme) represent deposits of definite sums of money for fixed periods on profit sharing basis under the principle of Mudarabah evidenced by certificates issued by the Bank Pilgrimage Savings Plan - a type of savings deposit account under the “Wadiah Yad Dhamanah” (Guaranteed safe-custody) principle available to customers to build up their savings to finance future Muslim pilgrimages (Umrah or Hajj) BAHSIT Savings Account - a basic deposit account under Wadiah Yad Dhamanah (Guaranteed safe-custody) principle. It is a non-interest bearing account designed to promote financial inclusion. Hence, this will enable the bank’s customers especially the unserved and underserved Filipinos to receive and make payments, as well as have a facility for store of value. It is characterized by ease, accessibility, convenience, and reasonable cost for both AAIIBP and its customers. CONVENTIONAL DEPOSIT PRODUCTS Savings Account - during the rehabilitation period and prior to being a full Islamic Bank, AAIIBP shall accept conventional savings deposit accounts. These accounts shall earn interest based on prevailing interest rates, payable quarterly and computed based on the average daily balance of the account. Current Account - AAIIBP, during the rehabilitation period and prior to being a full Islamic Bank, shall accept conventional current accounts called Interest Earning Checking Accounts (IECA). Unlike the Wadiah current accounts that are placed in the bank for safe-keeping without profit, these IECA earn interest based on the average daily balance (ADB) for the quarter. Time Deposits/Special Savings - represent deposits which are evidenced by a Certificate of Time deposit (CTD) that is non-transferable. Each deposit account is assigned a specific CTD number and earns interest for a specific term. The interest rate of Time Deposits shall be provided regularly by Treasury which shall be based on prevailing investment rate/Treasury Bill rates. Bai Bithaman Ajil Financing (Deferred Payment Sale) represents financing for the acquisition of a given asset through the concept of a Deferred Payment Sale. Under this scheme, the Bank purchases the asset concerned and subsequently sells the same to the customer at an agreed price which comprises the actual cost of the asset to the Bank and Bank’s the margin of profit and allows the customer to settle the payment by installments within the period and in the manner so agreed. Murabaha Financing (Cost-plus profit) - follows the principle under which the Bank purchases the goods or assets required by the client and sells at an agreed mark-up to the client. This principle is also known as cost plus mark-up concept. This financing is for working capital or fixed assets depending on the client’s needs. CONVENTIONAL LOANS Credit Line Term Loans Local Government Unit Financing OTHER SERVICES Collection Agreements Fund Transfers/OFW Remittance 41
43. 42 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES AUDITED FINANCIAL STATEMENT
44. 2020 ANNUAL REPORT 43
45. 44 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES
46. 2020 ANNUAL REPORT AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (A subsidiary of the Development Bank of the Philippines) STATEMENTS OF FINANCIAL POSITION As at December 31, 2020 and 2019 ( In Philippine Peso ) Note 2020 2019 6 7 8 9 10 11 12 13 436,791,610 26,834,778 184,604,898 1,998,628 2,750,500 22,000,125 1,909,810 17,732,166 694,622,515 395,667,375 26,709,077 246,381,393 1,985,991 2,750,500 21,732,101 42,000 10,664,257 705,932,694 14 15 16 17 18 19 644,277,506 2,042,173 9,455,473 2,745,858 12,578,967 14,304,269 685,404,246 564,537,211 1,784,283 7,755,494 2,879,719 10,519,026 24,667,614 612,143,347 20 1,005,240,660 (996,022,391) 9,218,269 1,005,240,660 (911,451,313) 93,789,347 694,622,515 705,932,694 ASSETS Cash and cash equivalents Financial assets at amortised cost Receivables, net Inventories Other investments Property and equipment, net Intangible assets, net Other assets, net TOTAL ASSETS LIABILITIES AND EQUITY LIABILITIES Deposit liabilities Financial liabilities Lease Liability Inter-agency payables Provisions Other payables EQUITY Share capital Retained earnings/(Deficit) TOTAL LIABILITIES AND EQUITY 45
47. 46 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (A subsidiary of the Development Bank of the Philippines) STATEMENTS OF COMPREHENSIVE INCOME For the years ended December 31, 2020 and 2019 ( In Philippine Peso ) Note 2020 2019 INCOME Service and business income Other non-operating income 21 22 23,577,135 1,505,150 25,082,285 34,884,838 1,689,226 36,574,064 (62,463,941) (27,633,344) (2,625,394) (18,433,091) (111,155,770) (59,851,567) (36,536,977) (2,230,436) (12,815,820) (111,434,800) (86,073,485) (74,860,736) 0 0 (86,073,485) (74,860,736) 0 0 (86,073,485) (74,860,736) EXPENSES Personnel services Maintenance and other operating expenses Financial expenses Non-cash expenses 23.1 23.2 23.3 23.4 NET LOSS BEFORE TAX Provision for income tax NET LOSS FOR THE PERIOD Other comprehensive income TOTAL COMPREHENSIVE LOSS 24
48. 2020 ANNUAL REPORT AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (A subsidiary of the Development Bank of the Philippines) STATEMENTS OF CHANGES IN EQUITY For the years ended December 31, 2020 and 2019 ( In Philippine Peso ) Note Balance, December 31, 2018 Net loss for the period Balance, December 31, 2019 Adjustment Net loss for the period Balance, December 31, 2020 Common Stock (Note 20) Additional Paid-In Capital No. of Shares Amount (Note 20) 2,000,024 200,002,400 805,238,260 2,000,024 200,002,400 805,238,260 25 2,000,024 200,002,400 805,238,260 Retained Earnings/ (Deficit) (Note 25) Total (836,590,577) 168,650,083 (74,860,736) (74,860,736) (911,451,313) 93,789,347 1,502,407 1,502,407 (86,073,485) (86,073,485) (996,022,391) 9,218,269 47
49. 48 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (A subsidiary of the Development Bank of the Philippines) STATEMENTS OF CASH FLOWS For the years ended December 31, 2020 and 2019 ( In Philippine Peso ) Note CASH FLOWS FROM OPERATING ACTIVITIES Collection of service and business income Collection of other non-operating income Collection of loans and receivables Deposits to (Withdrawals of) clients' accounts Receipt of unearned income/revenue Receipt of unused petty cash fund Other miscellaneous receipts Grant of loans Payment of personnel services Payment of maintenance and other operating expenses Payment of financial services Payment of prior year’s accrued expenses Purchase of Inventory held for consumption Advances for operating expenses Remittance of taxes withheld Remittance to GSIS/Pag-IBIG/PhilHealth Net cash used in operating activities 2020 2019 21,280,779 67,882 171,092,420 26,926,997 122,917 42,500 345,478 (73,066,307) (51,600,770) (26,356,478) (1,447,978) (936,495) (1,203,669) (4,644,697) (6,723,506) (10,062,734) 43,836,339 32,726,324 1,684,970 375,073,184 (155,157,627) 14,583 0 4,256 (177,397,110) (55,349,550) (39,478,069) (1,401,329) (3,465,254) (2,000,313) (2,019,892) (9,262,049) (11,061,923) (47,089,799) CASH FLOWS FROM INVESTING ACTIVITIES Proceeds from matured investments Constructions of buildings and other structures Purchase of machinery and equipment Purchase of furniture, fixtures and books Purchase of other property and equipment Investment in stocks/bonds/marketable securities Purchase of intangible assets Net cash used in investing activities 2,296,356 0 (62,002) (16,000) (2,950,357) 0 (1,980,101) (2,712,104) 2,154,249 (4,465,604) (414,700) (75,840) (345,927) (7,000,000) 0 (10,147,822) NET DECREASE IN CASH AND CASH EQUIVALENTS 41,124,235 (57,237,621) CASH AND CASH EQUIVALENTS, BEGINNING OF YEAR CASH AND CASH EQUIVALENTS, END OF YEAR 6 395,667,375 452,904,996 436,791,610 395,667,375
50. 2020 ANNUAL REPORT NOTES TO FINANCIAL STATEMENTS AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES (A subsidiary of the Development Bank of the Philippines) NOTES TO FINANCIAL STATEMENTS December 31, 2020 and 2019 (Amounts in Philippine Peso unless otherwise stated) 1. GENERAL/CORPORATE INFORMATION The Al-Amanah Islamic Investment Bank of the Philippines (AAIIBP or the “Bank”), formerly known as the Philippine Amanah Bank, was created thru Republic Act (R.A.) No. 6848 otherwise known as “The Charter of the Al-Amanah Islamic Investment Bank of the Philippines”. R.A. No. 6848 was signed into law on January 26, 1990 by then President Corazon C. Aquino. The Bank is called the Islamic Bank with principal domicile and place of business in Zamboanga City. The Bank’s primary purpose is to promote and accelerate the socio-economic development of the Autonomous Region by performing banking, financing and investment operations and to establish and participate in agricultural, commercial and industrial ventures based on the Islamic concept of banking. On February 6, 2008, the Board of Directors of the Development Bank of the Philippines (DBP), in accordance with DBP Board Resolution No. 0050 series of 2008 approved the acquisition of AAIIBP. On October 30, 2008, DBP completed the acquisition of the shareholdings of the National Government, Privatization and Management Office, Social Security System and Government Service Insurance System, thereby, controlling up to 99.53 per cent of issued, subscribed and paid-up capital of AAIIBP. DBP took full control of AAIIBP’s operations on July 16, 2008, with the deployment of seconded DBP employees in the nine Branches and interlocking officers in the Metro Manila Executive Office. With the ratification of the Bangsamoro Organic Law (BOL) on January 21, 2019, the Bank endorsed the following: a. Inclusion of the AAIIBP as the government depository bank of the Bangsamoro territories. AAIIBP can deliver Islamic banking and financing services that are suitable and responsive to the Bangsamoro needs and requirements in attaining economic independence. b. Prioritizing AAIIBP charter amendment. The two main features of the draft amendment include: (1) additional capitalization of the Bank and, (2) the duty to select and appoint qualified administrator (President/CEO) of the Bank. If sufficiently capitalized and ran by qualified people, the Bank can finance developmental projects of the government by issuing sukuk (Islamic bonds) and also by instituting and running its own takkaful (Islamic insurance). These two Islamic financial facilities are the main requirements of giant investors from Muslim countries and have contributed to the fast economic growth of some parts in Africa, Indonesia, Malaysia, Singapore, China, Russia, United States of America (USA), United Kingdom (UK) and some parts in Europe. AAIIBP has eight branches in Mindanao, namely, Zamboanga, Jolo, Cagayan de Oro, Iligan, Marawi, Davao, General Santos and Cotabato branches and one branch in San Juan City with its Metro Manila Executive Office. As at December 31, 2020, the Bank has 99 employees (CY 2019 – 97). The Bank’s financial statements have been approved and authorized for issuance by the Board of Directors on February 4, 2021. 2. CHANGES IN ACCOUNTING POLICIES AND DISCLOSURES 2.1. New standards and amendments issued and effective from January 1, 2020 Amendments to PFRS 3 Business Combinations – Definition of a Business. The amendments clarify that to be considered a • business, an acquired set of activities and assets must include, at a minimum, an input and a substantive process that together significantly contribute to the ability to create outputs. It narrows the definitions of a business and of outputs by focusing on goods and services provided to customers and by removing the reference to an ability to reduce costs. In addition, it provides guidance and illustrative examples to help entities assess whether a substantive process has been acquired and remove the assessment of whether market participants are capable of replacing any missing inputs or processes and continuing to produce outputs. The amendment also 49
51. 50 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES adds an optional concentration test that permits a simplified assessment of whether an acquired set of activities and assets is not a business . The amendments are effective for annual periods beginning on or after January 1, 2020, with earlier application permitted. The amendments had no material impact on the disclosures and amounts recognized on the Bank’s financial statements. Amendments to PFRS 9 Financial Instruments, PAS 39 Financial Instruments: Recognition and Measurement and PFRS 7 • Financial Instruments: Disclosures – Interest Rate Benchmark Reform. The amendment states: - entities would continue to apply certain hedge accounting requirements assuming that the interest rate benchmark on which the hedged cash flows and cash flows from the hedging instrument are based will not be altered as a result of interest rate benchmark reform; are mandatory for all hedging relationships that are directly affected by the interest rate benchmark reform; are not intended to provide relief from any other consequences arising from interest rate benchmark reform (if a hedging relationship no longer meets the requirements for hedge accounting for reasons other than those specified by the amendments, discontinuation of hedge accounting is required); and require specific disclosures about the extent to which the entities’ hedging relationships are affected by the amendments. The application of this amendment had no material impact on the Bank’s financial statements. Amendment to PFRS 16 Leases – Covid-19-Related Rent Concessions. The amendment provides lessees with an exemption • from assessing whether a COVID-19-related rent concession is a lease modification. The application of this amendment had no material impact on the Bank’s financial statements. Amendments to PAS 1 Presentation of Financial Statements and Amendment to PAS 8 Accounting Policies, Changes in • Accounting Estimates and Errors – Definition of Material. The amendments clarify that information is material if omitting, misstating or obscuring it could reasonably be expected to influence decisions that the primary users of general-purpose financial statements make on the basis of those financial statements, which provide financial information about a specific reporting entity. The amendments will not have an impact on the disclosures and amounts recognized on the Bank’s financial statements. 2.2. New standards effective after the reporting period ended December31, 2020. The standards and interpretations that have been issued but are not yet effective as of December 31, 2020 are listed below: Amendments to PFRS 9 Financial Instruments, PAS 39 Financial Instruments: Recognition and Measurement, PFRS 7 • Financial Instruments: Disclosures, PFRS 4 Insurance Contracts and PFRS 16 Leases – Interest Rate Benchmark Reform - Phase 2.The amendments relate to the modification of financial assets, financial liabilities and lease liabilities, specific hedge accounting requirements, and disclosure requirements applying PFRS 7 to accompany the amendments regarding modifications and hedge accounting. Management is currently assessing the impact of this new standard in its financial statements. Amendments to PFRS 3 Business Combination – Reference to the Conceptual Framework (effective January 1, 2022). The • amendments update an outdated reference to the Conceptual Framework in IFRS 3 without significantly changing the requirements in the standard as follows: update PFRS 3 so that it refers to the 2018 Conceptual Framework instead of the 1989 Framework; add to PFRS 3 a requirement that, for transactions and other events within the scope of PAS 37 or IFRIC 21, an acquirer applies PAS 37 or IFRIC 21 (instead of the Conceptual Framework) to identify the liabilities it has assumed in a business combination; and add to PFRS 3 an explicit statement that an acquirer does not recognise contingent assets acquired in a business combination. Management is currently assessing the impact of this new standard in its financial statements. Amendments to PAS 16 Property, Plant and Equipment — Proceeds before Intended Use (effective for annual periods • beginning on or after January 1, 2022 with early application permitted). The amendments prohibit deducting from the cost of an item of property, plant and equipment any proceeds from selling items produced while bringing that asset to the location and condition necessary
52. 2020 ANNUAL REPORT for it to be capable of operating in the manner intended by management . Instead, an entity recognises the proceeds from selling such items, and the cost of producing those items, in profit or loss. Management is currently assessing the impact of this new standard in its financial statements. Amendments to PAS 37 Provisions, Contingent Liabilities and Contingent Assets – Onerous Contracts - Cost of Fulfilling a • Contract (effective for annual periods beginning on or after January 1, 2022 with early application permitted). The amendments specify that the ‘cost of fulfilling’ a contract comprises the ‘costs that relate directly to the contract’. Costs that relate directly to a contract can either be incremental costs of fulfilling that contract (examples would be direct labor, materials) or an allocation of other costs that relate directly to fulfilling contracts (an example would be the allocation of the depreciation charge for an item of property, plant and equipment used in fulfilling the contract). The application of this amendment had no impact on the Bank’s financial statements. • Annual Improvements to PFRS Standards 2018–2020 (effective January*1,2022) PFRS 1 First-time Adoption of International Financial Reporting Standards – Subsidiary as a first-time adopter. The amendment permits a subsidiary that applies paragraph D16(a) of PFRS 1 to measure cumulative translation differences using the amounts reported by its parent, based on the parent’s date of transition to PFRSs. PFRS 9 Financial Instruments – Fees in the ‘10 per cent’ test for derecognition of financial liabilities. The amendment clarifies which fees an entity includes when it applies the ‘10 per cent’ test in paragraph B3.3.6 of PFRS 9 in assessing whether to derecognise a financial liability. An entity includes only fees paid or received between the entity (the borrower) and the lender, including fees paid or received by either the entity or the lender on the other’s behalf. PFRS 16 Leases – Lease incentives. The amendment to Illustrative Example 13 accompanying PFRS 16 removes from the example the illustration of the reimbursement of leasehold improvements by the lessor in order to resolve any potential confusion regarding the treatment of lease incentives that might arise because of how lease incentives are illustrated in that example. PAS 41 Agriculture – Taxation in fair value measurements. The amendment removes the requirement in paragraph 22 of PAS 41 for entities to exclude taxation cash flows when measuring the fair value of a biological asset using a present value technique. This will ensure consistency with the requirements in PFRS 13. Management is currently assessing the impact of these amendments in its financial statements. Amendments to PFRS 4 Insurance Contracts – Extension of the Temporary Exemption from Applying PFRS 9. The • amendment changes the fixed expiry date for the temporary exemption in PFRS 4 Insurance Contracts from applying PFRS 9 Financial Instruments, so that entities would be required to apply PFRS 9 for annual periods beginning on or after January 1, 2023. The new standard will not have an impact on the disclosures and amounts recognized on the Bank’s financial statements. PFRS 17 Insurance Contracts. The new standard establishes principles for the recognition, measurement, presentation and • disclosure of insurance contracts, including reinsurance contracts held and investment contracts with discretionary participation features issued. The objective of the standard is to ensure that entities provide relevant information in a way that faithfully represents those contracts. This information gives a basis for users of financial statements to assess the effect that contracts within the scope of the standard have on the entity’s financial position, financial performance and cash flows. The standard is effective for annual periods beginning on or after January 1, 2023, with earlier application permitted. The new standard will not have an impact on the disclosures and amounts recognized on the Bank’s financial statements. Amendments to PAS 1 Presentation of Financial Statements – Classification of Liabilities as Current or Non-Current (effective • for annual periods beginning on or after January 1, 2022 deferred to January 1, 2023). The amendments aim to promote consistency in applying the requirements by helping companies determine whether, in the statement of financial position, debt and other liabilities with an uncertain settlement date should be classified as current (due or potentially due to be settled within one year) or non-current. Management is currently assessing the impact of this new standard in its financial statements. 51
53. 52 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 3 . SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES 3.1. Basis of financial statement preparation The Bank’s financial statements comprise the statements of financial position, statements of comprehensive income, statements of changes in equity, statements of cash flows and the notes to financial statements. The financial statements of the Bank reflect the combined financial transactions of the Makati Executive Office and its nine branches nationwide. Based on the preference of clients, branches have been organized to adopt both the Islamic and Conventional banking systems. The financial statements are presented in Philippine Peso, the Bank’s functional currency. These financial statements have been prepared on a historical cost basis, unless otherwise stated. 3.2. Statement of compliance The Bank’s financial statements have been prepared in compliance with the Philippine Financial Reporting Standards (PFRSs)/Philippine Accounting Standards (PASs). 3.3. Recognition of interest income 3.3.1. The effective interest rate method Under PFRS 9, interest income is recorded using the effective interest method for all financial instruments. The effective interest rate (EIR) is the rate that exactly discounts estimated future cash receipts through the expected life of the financial instrument or, when appropriate, a shorter period, to the net carrying amount of the financial asset. The EIR (and therefore, the amortised cost of the asset) is calculated by taking into account any discount or premium on acquisition, fees and costs that are an integral part of the EIR. The Bank recognizes interest income using a rate of return that represents the best estimate of a constant rate of return over the expected life of the loan. Hence, it recognizes the effect of potentially different interest rates charged at various stages, and other characteristics of the product life cycle (including prepayments, penalty interest and charges). If expectations regarding the cash flows on the financial asset are revised for reasons other than credit risk, the adjustment is booked as a positive or negative adjustment to the carrying amount of the asset in the statement of financial position with an increase or reduction in interest income. The adjustment is subsequently amortised through profit or loss. 3.3.2. Interest and similar income The Bank calculates interest income by applying the EIR to the gross carrying amount of financial assets other than credit-impaired assets. When a financial asset becomes credit-impaired and is, therefore, regarded as ‘Stage 3’, the Bank calculates interest income by applying the EIR to the net amortised cost of the financial asset. If the financial assets cures and is no longer credit-impaired, the Bank reverts to calculating interest income on a gross basis. For Purchased or Originated Credit Impaired (POCI) financial assets, the Bank calculates interest income by calculating the creditadjusted EIR and applying that rate to the amortised cost of the asset. The credit-adjusted EIR is the interest rate that, at original recognition, discounts the estimated future cash flows (including credit losses) to the amortised cost of the POCI financial assets. In addition, the Bank presents income from Islamic financing separately from interest income from conventional loans and credit accommodations. 3.4. Financial assets and financial liabilities 3.4.1. Date of recognition Financial assets and liabilities, with the exception of loans and receivables and balances due to customers, are initially recognized on the settlement date, that is, the date that the Bank becomes a party to the contractual provisions of the instrument. This includes regular way trades, purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation
54. 2020 ANNUAL REPORT or convention in the market place . Loans and receivables are recognized when funds are transferred to the customers’ accounts. The Bank recognizes balances due to customers when funds are transferred to the Bank. 3.4.2. Initial recognition The classification of financial instruments at initial recognition depends on their contractual terms and the business model for managing the instruments. Financial instruments are initially measured at their fair value, except in the case of financial assets and financial liabilities recorded at Fair Value through Profit or Loss (FVTPL), transaction costs are added to, or subtracted from, this amount. Trade receivables are measured at the transaction price. When the fair value of financial instruments at initial recognition differs from the transaction price, the Bank accounts for the Day 1 profit or loss, as described below. 3.4.3. Day 1 profit or loss When the transaction price of the instrument differs from the fair value at origination and the fair value is based on a valuation technique using only inputs observable in market transactions, the Bank recognizes the difference between the transaction price and fair value in profit or loss. In those cases where fair value is based on models for which some of the inputs are not observable, the difference between the transaction price and the fair value is deferred and is only recognized in profit or loss when the inputs become observable, or when the instrument is derecognized. 3.4.4. Measurement categories of financial assets and liabilities The Bank classifies all of its financial assets based on the business model for managing the assets and the asset’s contractual terms, measured at either: (a) amortised cost; (b) Fair Value through Other Comprehensive Income (FVOCI); or (c) FVTPL. 3.5. Financial assets and liabilities 3.5.1. Cash in banks, Loans and receivables, Financial investments at amortised cost The Bank only measures Cash in banks, Loans and receivables and other financial investments at amortised cost if both of the following conditions are met: The financial asset is held within a business model with the objective to hold financial assets in order to collect contractual • cash flows; and The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and • interest (SPPI) on the principal amount outstanding. The details of these conditions are outlined below. 3.5.1.1. Business model assessment The Bank determines its business model at the level that best reflects how it manages groups of financial assets to achieve its business objective. The Bank’s business model is not assessed on an instrument-by-instrument basis, but at a higher level of aggregated portfolios and is based on observable factors such as: How the performance of the business model and the financial assets held within that business model are evaluated and • reported to the Bank’s key management personnel; The risks that affect the performance of the business model (and the financial assets held within that business model) and, in • particular, the way those risks are managed; How managers of the business are compensated (for example, whether the compensation is based on the fair value of the • financial assets managed or on the contractual cash flows collected); and The expected frequency, value and timing of sales are also important aspects of the Bank’s assessment. • The business model assessment is based on reasonably expected scenarios without taking ‘worst case’ or ‘stress case’ scenarios into account. If cash flows after initial recognition are realized in a way that is different from the Bank’s original expectations, the Bank does not change the classification of the remaining financial assets held in that business model, but incorporates such information when assessing newly originated or newly purchased financial assets going forward. 53
55. 54 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 3 .5.1.2. The SPPI test The Bank assesses the contractual terms of financial assets to identify whether they meet the SPPI test. ‘Principal’ for the purpose of this test is defined as the fair value of the financial asset at initial recognition and may change over the life of the financial asset (for example, if there are repayments of principal or amortisation of the premium/discount). The most significant elements of interest within a lending arrangement are typically the consideration for the time value of money and credit risk. To make the SPPI assessment, the Bank applies judgment and considers relevant factors such as the currency in which the financial asset is denominated, and the period for which the interest rate is set. In contrast, contractual terms that introduce a more than de minimis exposure to risks or volatility in the contractual cash flows that are unrelated to a basic lending arrangement do not give rise to contractual cash flows that are SPPI on the amount outstanding. In such cases, the financial asset is required to be measured at FVTPL. 3.5.2. Debt instruments at FVOCI The Bank applies the new category under PFRS 9 of debt instruments measured at FVOCI when both of the following conditions are met: The instrument is held within a business model, the objective of which is achieved by both collecting contractual cash flows • and selling financial assets The contractual terms of the financial asset meet the SPPI test • These instruments largely comprise assets that had previously been classified as Available for Sale(AFS)financial assets under PAS 39. FVOCI debt instruments are subsequently measured at fair value with gains and losses arising due to changes in fair value recognized in other comprehensive income (OCI). Interest income and foreign exchange gains and losses are recognized in profit or loss in the same manner as for financial assets measured at amortised cost. Where the Bank holds more than one investment in the same security, they are deemed to be disposed of on a first-in first-out basis. On derecognition, cumulative gains or losses previously recognized in OCI are reclassified from OCI to profit or loss. 3.5.3. Equity instruments at FVOCI Upon initial recognition, the Bank occasionally elects to classify irrevocably some of its equity investments as equity instruments at FVOCI when they meet the definition of “equity” under PAS 32, Financial Instruments: Presentation, and are not held for trading. Such classification is determined on an instrument-by- instrument basis. Gains and losses on these equity instruments are never recycled to profit or loss. Dividends are recognized in profit or loss as “Other non-operating income” when the right of the payment has been established, except when the Bank benefits from such proceeds as a recovery of part of the cost of the instrument, in which case, such gains are recorded in OCI. Equity instruments at FVOCI are not subject to an impairment assessment. All equity securities of the Bank are irrevocably designated at FVOCI. 3.5.4. Islamic financing Islamic Financing represents financing contracts with customers consisted mainly of: Al-Ijarah Muntahia Bittamleek. This type of financing is a lease whereby the legal title of the leased asset passes at the end • of the Ijarah (lease term), provided that all Ijarah installments are settled. As a policy, the assets under the Ijarah Muntahia Bitamleek are initially recognized at cost. Upon leasing of the asset, the Bank records the transaction as Islamic Financing – Ijarah Muntahia Bittamleek, which is essentially comprised cost of the asset and the unearned income or profit margin from the related financing. Income is recognized upon periodic payment of the customer.
56. 2020 ANNUAL REPORT Al-Bai Bitthaman Ajil (BBA). BBA financing is an Islamic lending product adopted by the Bank in 1992. This form of financing • is given through a deferred payment scheme that includes the principal plus one year markup which was recorded as Unearned Income. Income is recognized upon actual collection. Al-Bai Bitthaman Ajil (BBA) – ROPA investment. The BBA-ROPA facility was adopted as a disposal medium for the • conversion of the Bank’s existing acquired assets through sale on installment under a settlement plan ranging from one to three years with a mandatory down payment of 15 per cent plus two percent one time service charge of the agreed selling price. The installment payments are due monthly according to an approved amortisation schedule pursuant to the terms of the BBA-ROPA agreement. Transactions are accounted for like the conventional sales contract receivable in accordance with the accounting entries approved on July 29, 1998 by the Director of the Department of Commercial Banks of the Bangko Sentral ng Pilipinas, as amended. Al-Murabahah. This type of financing follows the principle under which the fund-owner purchases the goods or assets required • by the fund-user and sells at an agreed mark-up to the fund-users. This concept transforms the traditional lending activity into a sale and purchase agreement under which the lender buys goods whether in the form of raw materials, machines or other equipment as required by the borrower for resale to the borrower at a higher price agreed upon by both parties. Al-Qard Al- Hassan. This is an Islamic financing product adopted from the Islamic concept of Qard, which is a non-interest • bearing loan or financing (fungible, marketable wealth) extended to a borrower by a lender on the basis of ihsan or irfaq (benevolence). 3.5.5. Debt issued and other borrowed funds After initial measurement, debt issued and other borrowed funds are subsequently measured at amortised cost. Amortised cost is calculated by taking into account any discount or premium on issue funds, and costs that are an integral part of the EIR. 3.5.6. Financial assets and financial liabilities at FVTPL Financial assets and financial liabilities in this category are those that are not held for trading and have been either designated by management upon initial recognition or are mandatorily required to be measured at fair value under PFRS 9. Such designation is determined on an instrument-by-instrument basis. Management only designates an instrument at FVTPL upon initial recognition when one of the following criteria are met: The designation eliminates, or significantly reduces, the inconsistent treatment that would otherwise arise from measuring the • assets or liabilities or recognizing gains or losses on them on a different basis; The liabilities and assets until January 1, 2018 under PAS 39 are part of a group of financial liabilities or financial assets, or • both under PAS 39, which are managed and their performance evaluated on a fair value basis, in accordance with a documented risk management or investment strategy; or The liabilities and assets until January 1, 2018 under PAS 39 containing one or more embedded derivatives, unless they do • not significantly modify the cash flows that would otherwise be required by the contract, or it is clear with little or no analysis when a similar instrument is first considered that separation of the embedded derivative(s) is prohibited. Financial assets and financial liabilities at FVTPL are recorded in the statements of financial position at fair value. Changes in fair value are recorded in profit and loss with the exception of movements in fair value of liabilities designated at FVTPL due to changes in the Bank’s own credit risk. Such changes in fair value are recorded in OCI and do not get recycled to the profit or loss. Interest earned or incurred on instruments designated at FVTPL is accrued in interest income or interest expense, respectively, using the EIR, taking into account any discount/premium and qualifying transaction costs being an integral part of instrument. Interest earned on assets mandatorily required to be measured at FVTPL is recorded using the contractual interest rate. Dividend income from equity instruments measured at FVTPL is recorded in profit or loss as other operating income when the right to the payment has been established. 3.6. Reclassification of financial assets and liabilities The Bank does not reclassify its financial assets subsequent to their initial recognition, apart from the exceptional circumstances in which the Bank acquires, disposes of, or terminates a business line. Financial liabilities are never reclassified. 3.7. Derecognition of financial assets and liabilities 55
57. 56 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 3 .7.1. Derecognition due to substantial modification of terms and conditions The Bank derecognizes a financial asset, such as a loan to a customer, when the terms and conditions have been renegotiated to the extent that, substantially, it becomes a new loan, with the difference recognized as a derecognition gain or loss, to the extent that an impairment loss has not already been recorded. The newly recognized loans are classified as Stage 1 for Expected Credit Losses (ECL)measurement purposes, unless the new loan is deemed to be POCI. When assessing whether or not to derecognize a loan to a customer, among others, the Bank considers the following factors: • • • • Change in currency of the loan Introduction of an equity feature Change in counterparty If the modification is such that the instrument would no longer meet the SPPI criterion If the modification does not result in cash flows that are substantially different, the modification does not result in derecognition. Based on the change in cash flows discounted at the original EIR, the Bank records a modification gain or loss, to the extent that an impairment loss has not already been recorded. 3.7.2. Derecognition other than for substantial modification 3.7.2.1. Financial assets A financial asset (or, where applicable, a part of a financial asset or part of a group of similar financial assets) is derecognized when the contractual rights to receive cash flows from the financial asset expire. The Bank also derecognizes the financial asset if it has both transferred the financial asset and the transfer qualifies for derecognition. The Bank has transferred the financial asset if, and only if, either: The Bank has transferred its contractual rights to receive cash flows from the financial asset; or • It retains the rights to the cash flows, but has assumed an obligation to pay the received cash flows in full without material • delay to a third party under a ‘pass-through’ arrangement Pass-through arrangements are transactions whereby the Bank retains the contractual rights to receive the cash flows of a financial asset (the ‘original asset’), but assumes a contractual obligation to pay those cash flows to one or more entities (the ‘eventual recipients’), when all of the following three conditions are met: The Bank has no obligation to pay amounts to the eventual recipients unless it has collected equivalent amounts from the • original asset, excluding short-term advances with the right to full recovery of the amount lent plus accrued interest at market rates; The Bank cannot sell or pledge the original asset other than as security to the eventual recipients; and • The Bank has to remit any cash flows it collects on behalf of the eventual recipients without material delay. In addition, the • Bank is not entitled to reinvest such cash flows, except for investments in cash or cash equivalents including interest earned, during the period between the collection date and the date of required remittance to the eventual recipients. A transfer only qualifies for derecognition if either: The Bank has transferred substantially all the risks and rewards of the asset; or • The Bank has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control • of the asset The Bank considers control to be transferred if and only if, the transferee has the practical ability to sell the asset in its entirety to an unrelated third party and is able to exercise that ability unilaterally and without imposing additional restrictions on the transfer. When the Bank has neither transferred nor retained substantially all the risks and rewards and has retained control of the asset, the asset continues to be recognized only to the extent of the Bank’s continuing involvement, in which case, the Bank also recognizes an associated liability. The transferred asset and the associated liability are measured on a basis that reflects the rights and obligations that the Bank has retained. Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower of the original carrying amount of the asset and the maximum amount of consideration the Bank could be required to pay.
58. 2020 ANNUAL REPORT If continuing involvement takes the form of a written or purchased option (or both) on the transferred asset, the continuing involvement is measured at the value the Bank would be required to pay upon repurchase. In the case of a written put option on an asset that is measured at fair value, the extent of the entity's continuing involvement is limited to the lower of the fair value of the transferred asset and the option exercise price. 3.7.2.2. Financial liabilities A financial liability is derecognized when the obligation specified in the contract is discharged, cancelled or expires. Where there has been an exchange between an existing borrower and lender of debt instruments with substantially different terms, or the terms of an existing financial liability are substantially modified, such an exchange or modification is treated as a derecognition of the original financial liability and the recognition of a new financial liability. The difference between the carrying value of the original financial liability and the consideration paid is recognized in profit or loss. 3.8. Inventories Inventories consist of printed forms, stationery and other office supplies and accountable forms purchased by the bank. Inventories are initially recognized at cost. The cost of inventories includes all costs of purchase and other costs incurred in bringing the inventories to their present location and condition. Inventories are subsequently expensed when consumed. 3.9. Property and Equipment Bank premises including leasehold rights and improvements, furniture, fixtures and equipment are booked at cost less accumulated depreciation and any impairment in value. When the assets are disposed/sold, the cost and accumulated depreciation and amortisation shall be derecognized or taken out from the books and any gain or loss resulting from disposal is included in profit or loss from derecognition. The Bank computes depreciation on its depreciable assets net of residual value equivalent to ten percent of acquisition cost, using the straight-line method, wherein cost is spread over the useful lives of the assets. The computation of depreciation expense starts on the following month after the purchase/completion of the Bank premises, furniture, fixtures and equipment, irrespective of the date within the month. Impairment is recognized when there is a substantial evidence of decline in value of the bank premises, furniture, fixtures and equipment and recoverable amount is less than the carrying amount. The cost of leasehold improvements is amortised over the term of the lease or the estimated useful life of the improvements, whichever is shorter. Major renovations and betterments expected to extend the life of the asset are capitalized, whereas minor expenditures for replacement, maintenance and repairs are expensed as incurred. The asset’s residual values, useful lives and method of depreciation is reviewed, and adjusted if appropriate, at each financial year-end. Properties that are no longer needed or uneconomical to maintain are derecognized upon disposal in accordance with existing guidelines. As of reporting period, useful lives of the Bank’s properties are as follows: Leased asset Leasehold improvement Computer equipment Office machine equipment Furniture and fixtures Transportation equipment 3.10. Useful Life 2-3 years 5 years 5 years 5 years 5 years 7 years Leases Lease contracts are no longer classified as Operating or Finance Leases. Upon commencement of lease, the Bank has recognized right-of-use (ROU) asset and corresponding lease liability. Periodic payment of lease contract reduces the lease liability. The ROU asset is depreciated on a straight-line basis. 57
59. 58 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES For short-term leases and low-value assets , the Bank has neither recognized a ROU asset nor a liability account but rather recognized expense on lease payments as incurred. 3.11. Investment Properties Investment properties are the foreclosed assets held by the Bank in settlement of clients’ obligations, recorded at the balance of the client’s obligation/loan exposure or the bid price, whichever is lower. Legal fees and direct cost incurred in the foreclosure as well as holding costs subsequent to the foreclosure or acquisition of the properties are charged to operations as incurred. 3.12. Intangible Assets This refers to the identifiable non-monetary asset without physical substance. It includes but not limited to Computer Software, Card Management System, and Switch. The Bank recognized its intangible assets at cost less accumulated amortisation and allowance for losses, if any. 3.13. Other Assets Include expenses paid in advance and other miscellaneous assets which cannot be classified under any other account. Advances and prepayments are measured based on the amount granted or disbursed. 3.14. Trade and Other Payables Refers to other obligations of the Bank under open account arrangements such as: a. b. c. d. e. f. g. deposits made by loan applicants for various expenses in connection with pending loan applications; payments on loans pending liquidation; interest rebates on loan accounts which have not been claimed by clients; deposits in connection with the purchase/redemption of property acquired; proceeds of collections pending remittance to clients/payees; balances of current accounts closed due to improper handling; and indebtedness for purchases of office supplies, printed forms, furniture, fixtures and equipment. It is measured based on the amount to be paid upon settlement of the liability. 3.15. Share Capital 3.15.1. Common Stock Refers to the total amount of fully paid common stock, including stock dividends, for which the corresponding certificates have been issued. 3.15.2. Additional Paid-in Capital Stock Refers to the premium on the sale of common stock. Common stocks are valued at par. Any excess over the par value is charged under Additional paid-in capital. 3.16. Retained Earnings (Deficit) Refers to the accumulated profits (deficit) of the Bank excluding other comprehensive income and less dividend declared. 3.17. Revenues Revenues comprise profit from Islamic Financing and investing assets, interest income on conventional loans, deposit and placements, and other miscellaneous income.Revenue is recognized when it is probable that the economic benefits associated with the transaction will flow to the Bank and the amount of the revenue can be reliably measured.
60. 2020 ANNUAL REPORT 3 .18. Expenses It includes payments or accruals for compensation, for purchase of goods and services, and for financial liabilities. Expenses are measured in terms of the cost of goods or services rendered which can be associated to a given period. Non-cash expenses are based on the cost allocated for the period. 3.19. Income Tax Expense This account is used to recognize income tax imposed upon the taxable income after deducting allowable expenses. It also includes other income taxes paid and/or accrued during the period. Current Tax. Current tax assets and liabilities for the current and prior periods are measured at the amount expected to be recovered from or paid to the taxation authorities. The tax rates and tax laws used to compute the amount are those that are enacted or substantially enacted as at the end of the reporting date. Deferred Tax. Deferred tax is provided, using the balance sheet liability method, on all temporary differences at the balance sheet date between the tax bases of assets and liabilities and their carrying amounts for financial reporting purposes. Deferred tax liabilities are recognized for all taxable temporary differences, including asset revaluations. Deferred tax assets are recognized for all deductible temporary differences, carry forward of unused tax credits from the excess of minimum corporate income tax (MCIT) over the regular income tax and unused net operating loss carry-over (NOLCO), to the extent that it is probable that sufficient taxable income will be available against which the deductible temporary differences and carry forward of unused tax credits from MCIT and unused NOLCO can be utilized. Deferred income tax, however, is not recognized on temporary differences that arise from the initial recognition of an asset or liability in a transaction that is not a business combination and at the time of the transaction, affects neither the accounting income nor taxable income or loss. The carrying amount of deferred tax assets is reviewed at each reporting date and reduced to the extent that is no longer probable that sufficient taxable income will be available to allow all or part of the deferred tax asset to be utilized. Unrecognized deferred tax asset are reassessed at each reporting date and are recognized to the extent that it has become probable that future taxable profit will allow the deferred tax asset to be recovered. Deferred tax assets and liabilities are measured at the tax rates that are applicable to the period when the asset is realized or the liability is settled, based on tax rates and tax laws that have been enacted or substantially enacted as at reporting date. Deferred tax assets and deferred tax liabilities are offset if a legally enforceable right exists to offset current tax assets against current tax liabilities and deferred taxes related to the same taxable entity and the same taxation authority. 3.20. Prior Period Errors Prior period errors refer to omissions or misstatements in the previous financial statements due to mistakes in application of accounting policies, unavailability of information, or oversight. An entity must correct all material prior period errors retrospectively in the first set of financial statements authorised for issue after their discovery by restating the comparative amounts for the prior period(s) presented in which the error occurred; or if the error occurred before the earliest prior period presented, restating the opening balances of assets, liabilities and equity for the earliest prior period presented. However, if it is impracticable to determine the period-specific effects of an error on comparative information for one or more prior periods presented, the entity must restate the opening balances of assets, liabilities, and equity for the earliest period for which retrospective restatement is practicable (which may be the current period). Further, if it is impracticable to determine the cumulative effect, at the beginning of the current period, of an error on all prior periods, the entity must restate the comparative information to correct the error prospectively from the earliest date practicable. 59
61. 60 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 3 .21. Related Party Transaction Parties are considered to be related if one party has the ability, directly or indirectly, to control the other party or exercise significant influence over the other party in making financial and operating decisions. Parties are also considered to be related if they are subject to common control or common significant influence. The AAIIBP functions as a subsidiary of DBP. Information regarding related party transaction shall include but not limited to the nature and amount of the transaction. 3.22. Events After End of the Reporting Period Events after the balance sheet date and before the financial statements are authorized for issue by the Board include those that provide further evidence of conditions that existed at the end of the reporting period and may require adjusting entries and those events or conditions that arose after the end of the end of reporting period but do not require adjustment of financial statements. The latter shall, however, be disclosed as much as it may affect the decision or evaluation of the user of the reports. 4. SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES The preparation of the Bank’s financial statements in compliance with PFRS requires Management to make judgments and estimates that affect certain reported amounts and disclosures. The judgments and estimates used in the financial statements give due consideration to materiality, and are based on Management’s evaluation of relevant facts and circumstances as of the date of the financial statements. These judgments and estimates are continually evaluated and are based on historical experience, including expectations of future events that are believed to be reasonable under the circumstances. 4.1 Impairment losses of loans and receivables An evaluation of the Bank’s loans and receivables is designed to identify potential charges to the allowance for probable losses on a continuous basis throughout the year. PFRS 9 requires the Bank to record an allowance for ECLs for all loans and other debt financial assets not held at FVTPL, together with loan commitments and financial guarantee contracts. The allowance is based on the ECLs associated with the probability of default in the next 12 months unless there has been a significant increase in credit risk since origination. If the financial asset meets the definition of purchased or originated credit-impaired (POCI), the allowance is based on the change in the ECLs over the life of the asset. 4.2 Impairment of non-financial assets The carrying amounts of the Bank’s assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, the assets’ recoverable amount is estimated. An impairment loss is recognized whenever the carrying amount of an asset exceeds its recoverable amount. Impairment losses, if any, are charged to current operation. Recoverable amount is the higher of fair value less costs to sell and value in use. In assessing value in use, the estimated future cash flows are discounted to their present value using a pre-tax discount rate that reflects current market assessment of the time value and the risk specific to the asset for which the estimates of future cash flows have not been adjusted. If the recoverable amount of an asset (or cash-generating unit) is estimated to be less than its carrying amount, the carrying amount of the asset (or cash-generating unit) is reduced to its recoverable amount, in which case the impairment loss is treated as revaluation decrease. When an impairment loss subsequently reverses, the carrying amount of the asset (or cash-generating unit) is increased to the revised estimate of its recoverable amount, so that the increased carrying amount does not exceed the carrying amount that would have been determined had no impairment loss have been recognized for the asset (or cash generating unit) in prior years. A reversal of an impairment loss is recognized immediately in profit or loss, unless the relevant asset is carried at revalued amount, in which case the reversal of the impairment loss is treated as revaluation increase.
62. 2020 ANNUAL REPORT 5 . MANAGEMENT OF RISKS RELATED TO FINANCIAL INSTRUMENTS The Bank’s financial instruments comprise financial assets and financial liabilities. The main purpose of these financial instruments is to finance the Bank’s operations. The various financial assets held by the Bank are loans and receivables and cash and cash equivalents, which arise directly from its operations. 5.1 Credit Risk Credit risk arises when a client or counterparty fails to discharge an obligation and cause the Bank to incur a financial loss. Abrupt changes in the country’s macroeconomic condition or shift in business climate of a particular industry segment for which the Bank’s portfolio may be concentrated could alter the risk profile of its exposures. In building a quality portfolio of eligible borrowers, credit transactions follow the standard process of credit initiation, conduct of due diligence and evaluation, and securing approvals from appropriate authorities. The approving authority levels for financing of the Bank depends on the nature of the risk, type of security and amount of credit proposed. All credit facilities are deliberated by the credit committee where credit recommendations are approved based on Delegated Authorized Credit Limit (DACL). Thereafter, credit proposals are presented and deliberated for approval of credit either to the Executive Committee, for a specific Board-approved ceiling, or to the Board of Directors. The Bank manages credit risk by transacting only with recognized, creditworthy third parties. It is the Bank’s policy that all customers are subjected to credit verification procedures and are monitored on an ongoing basis. Account management involves ensuring the quality of credit and includes follow-through activities such as conduct of term loan reviews, updated credit investigation and collateral appraisal. Establishment of a system of limit is one of the control mechanisms for prudent credit management. For credit risks, limits are monitored to address over-concentration, and cushion the Bank from adverse effect of default. The established limits indicate the risk appetite of Management and the Board of Directors based on certain parameters. In addition, periodic monitoring and regulatory credit limits are reported to the Board of Directors. The Bank assesses the probability of default of individual counterparties. All past due loans and receivables in the statements of financial position are classified as Stage 2 or Stage 3 depending on number of days past due with Life time ECL. The maximum exposure to credit risk for loans and receivables is equivalent to the carrying amount carried in the statements of financial position. Credit Quality The following table shows the credit quality of financial assets: 2020 Loans and Receivables * Neither past due nor impaired Past due but not impaired Impaired Allowance for impairment and credit losses 156,384,292 44,926,650 0 201,310,942 (16,706,044) 184,604,898 2019 Loans and Receivables * Neither past due nor impaired Past due but not impaired Impaired Allowance for impairment and credit losses 230,944,558 26,712,417 0 257,656,975 (11,275,582) 246,381,393 Loan and Advances to Bank ** 427,847,131 0 0 427,847,131 0 427,847,131 Investment Securities *** Loan and Advances to Bank ** 383,246,033 0 0 383,246,033 0 383,246,033 Investment Securities *** 29,585,278 0 0 29,585,278 0 29,585,278 29,459,577 0 0 29,459,577 0 29,459,577 Total 613,816,701 44,926,650 0 658,743,351 (16,706,044) 642,037,307 Total 643,650,168 26,712,417 0 670,362,585 (11,275,582) 659,087,003 61
63. 62 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES * Comprise Loans and Discounts, Islamic Financing, Accounts Receivables, Accrued Interest Receivable - net of unearned commission and discount, General loan loss provision and Allowance for impairment and credit losses ** Comprise Due from BSP and Due from other banks *** Comprise Other Investments - INMES and Financial Assets – Debt Instrument at AmortizedCost With respect to credit risk arising from other financial assets of the Bank, which comprise cash and cash equivalents, the Bank’s exposure to credit risk from default of the counterparty is with a maximum exposure equal to the carrying amount of these instruments. The table below shows the credit quality of investment securities that are neither past due nor impaired: 2020 High Grade FVOCI Amortised Cost Standard 0 26,834,778 26,834,778 Past Due or Impaired Substandard 2,750,500 0 2,750,500 0 0 0 Total 0 0 0 2,750,500 26,834,778 29,585,278 2019 High Grade FVOCI Amortised Cost Standard 0 26,709,077 26,709,077 Past Due or Impaired Substandard 2,750,500 0 2,750,500 0 0 0 Total 0 0 0 2,750,500 26,709,077 29,459,577 Collateral held as security and other credit enhancements The Bank holds collaterals against loans and receivables in the form of real estate mortgage, chattel mortgage and hold-out on deposits, and assignment of Internal Revenue Allotment (IRA) of LGUs. Summary of appraised value of collaterals held against loans and receivables is as follows: 2020 11,252,591 39,894,101 139,266,665 190,413,357 Real Estate Mortgage Chattel Mortgage Deposits on Hold 2019 18,916,813 44,640,464 184,499,520 248,056,797 The Bank’s classification as to security of loans and financing are as follows: Loans and Receivables Current Secured* Unsecured* Past Due Secured* Unsecured* Total Islamic Financing Current Secured Unsecured Past Due Secured Unsecured Total 2020 2019 23,784,215 14,486,562 38,270,777 35,757,032 35,960,445 71,717,477 3,371,289 0 3,371,289 41,642,066 3,031,326 0 3,031,326 74,748,803 2020 2019 96,777,694 9,241,388 106,019,082 136,834,667 12,792,237 149,626,904 42,752,209 0 42,752,209 148,771,291 23,681,090 0 23,681,090 173,307,994
64. 2020 ANNUAL REPORT Credit Concentration The Bank seeks to prevent excessive exposure to individuals , related or groups of counterparties with similar characteristics. Concentration of credit risk exposure based on the carrying amount is shown below: 2020 0 3,522,347 11,613,723 6,444,504 14,428,229 Loan and Advances to Bank 427,847,131 0 0 0 0 27,766,176 63,655,635 Loans and Receivables Financial and Insurance Activities Agriculture, Hunting and Fishing Mining and Quarrying Manufacturing Water Supply, Sewerage, Waste Management and Remediation Activities Construction Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles Accommodation and Food Services Activities Transport and Storage Information and Communication Administrative and Support Service Activities Real Estate Activities Public Administration and Defense; Compulsory Social Security Education Human health and Social Work Activities Activities of Households for Own use Others Allowance for Impairment Investment Securities Total 29,585,278 0 0 0 457,432,409 3,522,347 11,613,723 6,444,504 14,428,229 0 0 0 0 27,766,176 63,655,635 490,792 6,982,290 1,279,802 1,350,000 11,252,591 0 0 0 0 0 0 0 0 0 0 0 0 0 490,792 6,982,290 1,279,802 1,350,000 11,252,591 0 0 1,163,030 40,464,239 10,897,584 201,310,942 (16,706,044) 184,604,898 0 0 0 0 427,847,131 0 427,847,131 0 0 0 0 29,585,278 0 29,585,278 0 1,163,030 40,464,239 10,897,584 658,743,351 (16,706,044) 642,037,307 2019 0 8,611,710 12,607,661 8,406,397 30,651,602 Loan and Advances to Bank 383,246,033 0 0 0 0 21,500,325 88,859,758 Loans and Receivables Financial and Insurance Activities Agriculture, Hunting and Fishing Mining and Quarrying Manufacturing Water Supply, Sewerage, Waste Management and Remediation Activities Construction Wholesale and Retail Trade, Repair of Motor Vehicles, Motorcycles Accommodation and Food Services Activities Transport and Storage Information and Communication Administrative and Support Service Activities Real Estate Activities Public Administration and Defense; Compulsory Social Security Education Human health and Social Work Activities Activities of Households for Own use Others Allowance for Impairment Investment Securities Total 29,459,577 0 0 0 412,705,610 8,611,710 12,607,661 8,406,397 30,651,602 0 0 0 0 21,500,325 88,859,758 715,129 8,187,232 1,592,217 1,379,334 11,616,245 4,929,676 0 0 0 0 0 0 0 0 0 0 0 0 715,129 8,187,232 1,592,217 1,379,334 11,616,245 4,929,676 49,952 2,210,049 46,739,510 9,600,178 257,656,975 (11,275,582) 246,381,393 0 0 0 0 383,246,033 0 383,246,033 0 0 0 0 29,459,577 0 29,459,577 49,952 2,210,049 46,739,510 9,600,178 670,362,585 (11,275,582) 659,087,003 63
65. 64 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 5 .2. Market Risk Market Risk is the adverse deviation of the mark-to-market value of the trading portfolio due to price movements in market variables, such as interest rates, foreign exchange rate, equity prices and commodity prices. Market risks are primarily controlled by restricting trading operations within permissible instruments available from the BSP. 5.3 Liquidity Risk Liquidity risk refers to the inability to raise funds at normal costs to effectively accommodate the Bank’s obligations, deposits and other liabilities. The Bank monitors its risk related to shortage of funds through monitoring of financial assets and projected cash flows from operations. The objectives of Management in managing liquidity are to meet commitments on their due dates without incurring unnecessary costs and to ensure that adequate funding is available at all times. The table below shows the liquidity coverage ratio of the Bank in compliance with BangkoSentral ng Pilipinas (BSP) Circular No. 1074. Basel III LCR Report Solo Basis As of 31-December-2020 SINGLE CURRENCY PART I. CALCULATION OF LIQUIDITY COVERAGE RATIO Item Nature of Item Weighted Amount A. Total Stock of High-Quality Liquid Assets (After Cap) [Net of A.3 and A4] A.1 Stock of Level 1 Assets 412,096,306.93 A.2 Stock of Level 2 Assets 0.00 A.3 Total Stock of High Quality Liquid Assets (Before Cap) [Sum of A.1 and A.2] 412,096,306.93 A.4 Adjustment for 40% Cap on Level 2 Assets 0.00 B. Total Net Cash Outflows [Net of B.1 and B.2] B.1 Total Expected Cash Outflows 135,328,598.84 B.2 Total Expected Cash Inflows Before Ceiling 44,620,674.72 B.3 Adjustment for 75% Ceiling on Cash Inflows 0.00 B.4 Total Expected Cash Inflows After Ceiling 44,620,674.72 C. LIQUIDITY COVERAGE RATIO [A/B] 412,096,306.93 90,707,924.12 454.31% To promote short-term resilience of a bank's liquidity risk profile, a bank shall maintain, over a 30-calendar day horizon, an adequate level of unencumbered high-quality liquid assets (HQlAs) that consists of cash or assets that can be converted into cash at little or no loss of value in private markets, to offset the net cash outflows it could encounter under a liquidity stress scenario. At a minimum, the stock of liquid assets should enable the bank to withstand significant liquidity shocks that 30 calendar days, which would give time for corrective actions to be taken by the bank management and/or the BSP. The LiquidityCoverage Ratio(LCR) is the ratio of HQLAs to total net cash outflows. Under a normal situation, the value of the ratio should be no lower than 100 per cent on a daily basis because the stock of unencumbered HQLA is intended to serve as a defense against the potential onset of liquidity stress. BASEL III NET STABLE FUNDING RATIO REPORT Solo As of 31-December-2020 CONTROL PROOFLIST CALCULATION OF NET STABLE FUNDING RATIO Item A. Available Stable Funding Capital Retail Deposits Wholesale Deposits Secured and Unsecured Funding Other Liabilities and Equities B. Required Stable Funding NSFR High-Quality Liquid Assets (HQLA) Deposits Held at other Financial Instutions Performing Loans and Non-HQLA Securities Other assets Off-Balance Sheet Exposures C. Net Stable Funding Ratio [A/B] 519,795,404.85 13,503,061.97 402,572,899.99 103,719,442.89 0.00 0.00 214,075,498.00 1,341,738.92 24,695,302.77 134,729,138.30 53,309,318.00 0.00 2.43
66. 2020 ANNUAL REPORT To promote long-term resilience of a bank /quasi-bank (QB) against liquidity risk, it shall maintain a stable funding profile in relation to the composition of its assets and off-balance sheet activities. The Net Stable Funding Ratio (NSFR) seeks to meet this objective by limiting overreliance on short-term wholesale funding and promoting enhanced assessment of funding risk across all on- and off-balance sheet accounts. The NSFR complements the LCR, which promotes short term resilience of a bank's/QB's liquidity profile. The covered bank/QB shall maintain an NSFR of at least 100 per cent at alltimes. 5.4. Interest Rate Risk Interest rate risk arises from the possibility that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market interest rates. The Bank’s exposure to interest rate risk is significantly low since there are no borrowings or long-term obligations recognized. 5.5. Operational Risk Operational Risks are the risks related to the malfunction of the information systems, reporting systems, internal risk-monitoring rules and internal procedures designed to take timely corrective actions, or the compliance with the internal risk policy rules. This includes Shariah Compliance Risk which is a type of operational risk that can lead to non-recognition of income and resultant losses. The Bank identifies and assesses the operational risk inherent in all material products, activities, processes and systems. The Bank also regularly monitors operational risk profiles and material exposures to losses, and reporting of pertinent information to senior management and the Board of Directors. Risk Self-Assessment The Bank assesses its operations and activities against a menu of potential operational risk vulnerabilities. This process is internally driven and incorporates checklists and/or workshops to identify the strengths and weaknesses of the operational risk environment. Business Continuity Plan The Business Continuity Plan is issued to prepare the Bank in the event of extended service outages caused by factors beyond its control (e.g., natural disasters, man-made events), and to restore services to the widest extent possible in a minimum time frame. The plan identifies vulnerabilities and recommends necessary measures to prevent extended service outages. It is a plan that encompasses all of the Bank’s system sites and operations facilities. 5.6. Capital Management The Basel II framework was adopted by the Philippine banking industry, as regulated by the BSP starting July 2007 to promote safety and soundness in the financial system and maintain at least the current overall level of capital in the system, enhance competitive equality, constitute a more comprehensive approach to addressing risks. BSP required the full implementation of Basel III by January 2014 considering that universal and commercial banks have higher capital ratios to begin with, as documented in the Discussion Paper entitled “Basel III Implementation in the Philippines” which was released in January 2012. Implementing guidelines on Basel III capital requirements was also approved by the Monetary Board on December 14, 2012 and was documented per BSP Circular 781. The Bank gauges its risk capital using the Basel III capital adequacy framework. The objective of the Bank in its capital management is to safeguard its ability to continue as a going concern so that it can continue to provide returns for stockholders and benefits for other stakeholders. The BSP requires a minimum of 10 per cent Capital Adequacy Ratio (CAR). The following tables show the CAR and Leverage Ratio as at December 31, 2020 in compliance with BSP Circular No. 1074. 65
67. 66 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES BASEL III CAPITAL ADEQUACY REPORT As of December 31 , 2020 CONTROL PROOFLIST PART I. CALCULATION OF RISK-BASED CAPITAL ADEQUACY RATIO (In Absolute Amount) Item Nature of Item A. Qualifying Capital A.1 Tier 1 Capital A.1.1 Common Equity Tier 1 Capital A.1.2 Additional Tier 1 Capital A.2 Tier 2 Capital A.3 Total Qualifying Capital (Sum of A.1 and A.2) B. Total Risk Weighted Assets B.1 Total Credit Risk-Weighted Assets B.2 Total Market Risk-Weighted Assets B.3 Total Operational Risk-Weighted Assets B.4 Total Risk-Weighted Assets (sum of B.1 to B.3) C. RISK-BASED CAPITAL ADEQUACY RATIO C.1 Common Equity Tier 1 Ratio C.1.1 Capital Conservation Buffer C.2 Tier 1 Capital Ratio C.3 Total Capital Adequacy Ratio Reference Part II (Item A.7) Part II (Item A.3) Part II (Item A.6) Part II (Item B.3) Amount Amount 6,701,267.190 6,701,267.190 2,108,150.980 8,809,418.170 Part III (Item D) Part IV (Item C) Part V (Column 10) 197,951,580.930 59,047,658.410 256,999,239.340 2.61% -3.39% 2.61% 3.43% The risk based CAR of universal banks (UBs) and commercial banks (KBs), expressed as a percentage of qualifying capital to riskweighted assets, shall not be less than 10 per cent . The CAR requirement will be applied to all UBs and KBs on both solo and consolidated bases. The application of the requirement on a consolidated basis is the best means to preserve the integrity of capital in banks with subsidiaries by eliminating double gearing. However, as one of the principal objectives of supervision is the protection of depositors, it is essential to ensure that capital recognized in capital adequacy measures is readilyavailable for those depositors. Accordingly, individual banks should likewise be adequately capitalized on a stand-alone basis. Further, the Bank had breached the Minimum Ratio with only 3.43 per cent CAR as of reporting date December 31, 2020. The BSP is already aware of this, in fact, letters and other documents have been submitted such as the “Request for Regulatory Relief from Compliance with the Minimum Risk-Based CAR Requirements”and the letter contained the updates on initiatives to build up capital position and action plan in addressing the drop of the CAR during the nationwide community quarantine and the likes. BASEL III LEVERAGE RATIO REPORT As of December 31, 2020 CONTROL PROOFLIST PART I. CALCULATION OF BASEL III LEVERAGE RATIO Item Nature of Item A. CAPITAL MEASURE A.1 Tier 1 Capital B. EXPOSURE MEASURE (Sum of B.1, B.2, B.3 and B.4) B.1 Total On-balance sheet exposures (B.1.1 minus B.1.2) B.1.1 On-balance sheet items 1/ B.1.2 Regulatory Adjustments 2/ B.2 Total Derivative exposures (Sum of B.2.1 to B.2.3) B.2.1 Replacement Cost associated with all derivatives transactions B.2.2 Add-on amounts for potential future exposure associated with all derivative transactions B.2.3 Adjusted effective notional amount of written credit derivatives B.3 Total Securities Financing Transaction (SFT) exposures (Sum of B.3.1 and B.3.2 ) B.3.1 Gross SFT assets (with no recognition of netting) B.3.2 CCR exposures for SFT assets B.4 Off-balance Sheet Exposures C. BASEL III LEVERAGE RATIO (Ratio of A to B) Amount 6,701,267.19 6,701,267.19 698,510,006.03 646,173,365.03 648,083,175.51 1,909,810.48 0.00 0.00 0.00 0.00 51,866,470.00 51,866,470.00 0.00 470,171.00 0.96% The leverage ratio under the Basel III framework relates the level of a bank’s Tier 1capital as against its total on-book and off-book exposure. The Monetary Board approved the ratio to be five percent at a minimum. This effectively means that the maximum exposure that a bank can keep is 20x its Tier 1 capital. Under the Basel III reform agenda, the leverage ratio needs to be appreciated along side the CAR. Both ratios relate a measure of capital against an indicator of bank exposure, providing quantitative guidance on the extent of assets that a bank can carry for a given level of capital. The main difference between the two ratios is that the leverage ratio treats both on-book and off-book assets uniformly without adjusting for differences in riskiness.
68. 2020 ANNUAL REPORT The table below shows the assets and liabilities analyzed according to when they are expected to be recovered or settled . Up to 3 mos. Assets: Cash on hand 2020 Over 3-6 mos. Over 6 mos-1 yr Over 1-5 yrs Over 5 yrs Total 8,944,479 0 0 0 0 8,944,479 403,151,828 0 0 0 0 403,151,828 13,250,332 0 0 0 0 13,250,332 11,444,971 0 0 0 0 0 0 0 0 0 26,834,778 0 0 0 2,750,500 11,444,971 26,834,778 2,750,500 50,373,240 0 10,260,546 8,188,072 1,998,628 95,397 10,226,172 0 550,331 115,668,345 0 25,455,557 149,069 0 5,280,270 184,604,898 1,998,628 41,462,101 497,425,396 10,282,097 10,776,503 167,958,680 8,179,839 694,622,515 584,470,328 59,807,178 0 0 0 644,277,506 12,670,040 19,226,275 1,785,791 3,174,853 4,269,780 41,126,739 Total 597,140,368 79,033,453 1,785,791 3,174,853 4,269,780 685,404,245 Asset-Liability gap (99,714,972) 8,990,712 164,783,828 3,910,059 9,218,270 Over 6 mos-1 yr Over 1-5 yrs Over 5 yrs Cash in bank – Local Currency, BSP Cash in bank – Local Currency, Current Account Cash in bank – Local Currency, Savings Account Financial assets – Held to Maturity Other investments Loans and receivables accounts Inventories Other assets Total Liabilities: Deposit Other Liabilities Up to 3 mos. Assets: Cash on hand Cash in bank – Local Currency, BSP Cash in bank – Local Currency, Current Account Cash in bank – Local Currency, Savings Account Financial assets – Held to Maturity Other investments Loans and receivables accounts Inventories Other assets Total Liabilities: Deposit Other Liabilities Total (68,751,356 ) 2019 Over 3-6 mos. Total 12,421,342 0 0 0 0 12,421,342 320,272,386 0 0 0 0 320,272,386 11,482,668 0 0 0 0 11,482,668 51,490,979 0 0 0 0 0 0 0 0 0 26,709,077 0 0 0 2,750,500 51,490,979 26,709,077 2,750,500 54,619,144 0 0 23,832,111 1,985,991 2,117,092 7,976,229 0 427,416 105,315,977 0 29,846,669 54,637,932 0 47,181 246,381,393 1,985,991 32,438,358 450,286,519 27,935,194 8,403,645 161,871,723 57,435,613 705,932,694 505,994,881 58,542,330 0 0 0 564,537,211 12,422,523 25,572,835 1,181,260 7,785,208 644,310 47,606,136 518,417,404 84,115,165 1,181,260 7,785,208 644,310 612,143,347 (68,130,885) (56,179,971 ) 7,222,385 154,086,515 56,791,303 93,789,347 Asset-Liability gap 67
69. 68 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 6 . CASH AND CASH EQUIVALENTS For purposes of reporting cash flows, cash and cash equivalents includes the following: Cash on hand Cash in bank – local currency * 2020 8,944,479 427,847,131 436,791,610 2019 12,421,342 383,246,033 395,667,375 2020 2019 * Exclusive of accrued interest receivable as follows: Cash in bank – local currency, BangkoSentral ng Pilipinas 6.1 49,186 0 Cash on hand This account includes the following: 2020 Petty cash Local currency on hand 0 8,944,479 8,944,479 2019 11,403 12,409,939 12,421,342 Local currency on hand consists of cash on hand – cashier or cash-in-vault. 6.2 Cash in bank – local currency This account represents the balance of the demand and savings deposit account in local currency maintained with the BangkoSentral ng Pilipinas, Development Bank of the Philippines and Land Bank of the Philippines to serve as a clearing account for interbank claims subject to existing rules and regulations. This account also includes the following: Cash in bank – local currency, BangkoSentral ng Pilipinas Cash in bank – local currency, savings account Cash in bank – local currency, current account 7. 2020 403,151,828 13,250,332 11,444,971 427,847,131 2019 320,272,386 51,490,979 11,482,668 383,246,033 FINANCIAL ASSETS AT AMORTISED COST This account consists of Treasury Notes issued by the Republic of the Philippines in local currency. These government securities are covered by a Deed of Pledge between AAIIBP and the BangkoSentral ng Pilipinas. This is the only asset of the Bank pledged as security, for application and attainment of an Overdraft Credit Line (OCL). Treasury Notes maturing in different periods are as follows: 2020 Maturity Date January 26, 2022 March 8, 2023 March 20,2024 15,013,901 4,925,280 6,895,597 26,834,778 2019 15,026,252 4,870,961 6,811,864 26,709,077
70. 2020 ANNUAL REPORT 8 . RECEIVABLES, NET This account consists of: 2020 149,968,139 41,642,066 7,519,972 3,377,613 202,507,790 (1,196,848) (2,152,793) (14,553,251) 184,604,898 Islamic financing Loans and discounts Accounts receivables Accrued interest receivable Unearned commission and discount General loan loss provision Allowance for impairment and credit losses 2019 173,307,994 74,763,387 7,404,380 2,195,797 257,671,558 (14,583) (3,425,258) (7,850,324) 246,381,393 The Unearned Commission and Discount represents Unpaid Profit and Other Charges (UPOC) of one restructured Islamic Financing Account. 8.1 Islamic financing account consists of: Al-Ijarah Muntahia Bitaamleek (Lease ending in transfer of ownership) Al-Murabaha Working Capital Financing Al-Bai Bithaman Ajil-Financing Al-Qard Al-Hassan-Benevolent Loan Allowance for impairment and credit losses General Loan Loss Provision 2020 82,091,048 64,048,240 3,258,713 570,138 149,968,139 (9,802,825) (1,694,797) 138,470,517 2019 83,688,025 81,067,377 6,346,204 2,206,388 173,307,994 (3,090,421) (2,592,810) 167,624,763 An analysis of Islamic financing as to maturity as of December 31, 2020 and 2019 is shown below: 2020 Within one year Beyond one year but not beyond five years Beyond five years Total Al-Ijarah AlMurabaha 3,313,865 78,777,183 0 82,091,048 48,658,241 15,389,999 0 64,048,240 Al-Bai Bithaman Ajil 2,541,546 717,167 0 3,258,713 Al-Qard AlHassan 399,305 170,833 0 570,138 Al-Bai Bithaman Ajil Al-Qard AlHassan 1,210,555 995,833 0 2,206,388 Total 54,912,957 95,055,182 0 149,968,139 2019 Within one year Beyond one year but not beyond five years Beyond five years Total Al-Ijarah AlMurabaha 2,210,988 81,477,037 0 83,688,025 81,067,377 0 0 81,067,377 0 6,346,204 0 6,346,204 Total 84,488,920 88,819,074 0 173,307,994 The Islamic financing on Al-Murabaha Working Capital is a facility extended to a client for the financing of cash purchases or credit sales. The Islamic financing on Al-Bai Bithaman Ajil, commonly referred to as BBA, represents the installment sale of existing acquired assets with a settlement plan ranging from one to three years with a mandatory down payment of 15 per cent plus two per cent one time service charge of the agreed selling price. 69
71. 70 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES The Bank has an outstanding Islamic loan accounts to its directors , officers, stockholders and related interests (DOSRI) amounting to P33,333.32, booked in Al-Qard-Hassan-Benevolent Loan. 8.1.1 An analysis of AAIIBP’s Al-Ijarah Muntahia Bitaamleek (Finance Lease Receivable) as of December 31, 2020 and 2019 is shown below: 2020 Receivables from customers: Finance lease receivables Residual value of leased assets Net Investment in finance lease receivables Allowance for impairment and credit losses Finance lease receivable, net 2019 65,796,241 16,294,807 82,091,048 (565,560) 81,525,488 61,645,774 22,042,251 83,688,025 (180,745) 83,507,280 The residual value of leased assets represents the estimated proceeds from the disposal of the leased asset at the end of the lease term, which approximates the amount of the lease deposit paid by the lessee at the inception of the lease. At the end of the lease term, the residual value of the leased asset is generally applied against the lease deposit of the lessee. The residual value of the leased asset is presented as part of the Receivable, net in the statement of financial position. Maturity analysis of gross investments in Al-Ijarah Muntahia Bitaamleek (Finance Lease Receivable): Within one year Beyond one year but not beyond five years Beyond five years Total 2020 2,606,807 63,189,434 0 65,796,241 2019 1,761,702 59,884,072 0 61,645,774 Maturity analysis of gross investments in Residual value of leased assets: Within one year Beyond one year but not beyond five years Beyond five years Total 2020 707,059 15,587,748 0 16,294,807 2019 449,286 21,592,965 0 22,042,251 Summary analysis of AAIIBP’s net investment in Al-Ijarah Muntahia Bitaamleek (FinanceLease Receivable) follows: Within one year Beyond one year but not beyond five years Beyond five years Total 2020 3,313,865 78,777,183 0 82,091,048 2019 2,210,988 81,477,037 0 83,688,025 8.2 The loans and discounts represent all conventional credit accommodation of the Bank as of December 31, 2020. 8.3 The movements of the Allowance/Provision for Impairment and Credit Losses are as follows: 2020 At January 1 Loans and discounts Islamic Financing Accounts Receivable Sales Contract Receivable Provisions for the year Accounts charged-off/other adjustments At December 31 (1,579,523) (5,683,231) (4,012,828) 0 (11,275,582) (5,020,504) (409,958) (16,706,044) 2019 (1,629,205) (6,098,904) (4,012,828) 0 (11,740,937) (1,043,720) 1,509,075 (11,275,582)
72. 2020 ANNUAL REPORT An analysis of Allowance /Provision for Impairment and Credit Losses as of December 31, 2020 and 2019 is shown below: At January 01, 2020 Loans and discounts Islamic Financing Accounts Receivable At December 31 (1,579,523) (5,683,231) (4,012,828) (11,275,582) Provision for the Year 0 (5,020,504) 0 (5,020,504) Accounts charged off/ other adjustments 383,929 (793,887) 0 (409,958) At December 31, 2020 (1,195,594) (11,497,622) (4,012,828) (16,706,044) The increase of impairment and credit losses of loans under Islamic Financing was due to the increase of past due accounts and account restructuring. At January 01, 2019 Loans and discounts Islamic Financing Accounts Receivable At December 31 (1,629,205) (6,098,904) (4,012,828) (11,740,937) Provision for the Year 0 (1,043,720) 0 (1,043,720) Accounts charged off/ other adjustments 49,682 1,459,393 0 1,509,075 At December 31, 2019 (1,579,523) (5,683,231) (4,012,828) (11,275,582) The decrease of impairment and credit losses of loans under Islamic Financing was due to the decrease of past due for Al-Ijara accounts. 9. INVENTORIES This account includes inventory held for consumption as follows: Office supplies inventory Accountable forms, plats and stickers inventory 10. 2020 1,310,320 688,308 1,998,628 2019 1,493,671 492,320 1,985,991 OTHER INVESTMENTS This account is composed of the following: Philippine Clearing House Corp. Marawi Resort Hotel Inc. 2020 2,200,000 550,500 2,750,500 2019 2,200,000 550,500 2,750,500 The Philippine Clearing House Corporation (PCHC) and Marawi Resort Hotel Inc. (MRHI) shares are Investments in Non-Marketable Equity Securities (INMES), for which quoted market prices are not readily available. These investments pertain to equity securities irrevocably designated at FVOCI (Note 3.5.3). 11. PROPERTY AND EQUIPMENT, NET This account comprises the following assets: 71
73. 72 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 2020 18 ,233,814 15,192,932 10,954,375 4,175,232 11,022,363 2,508,154 62,086,870 (40,086,745) 22,000,125 Right-of-Use Asset Leasehold improvement Computer equipment Office machine equipment Furniture and fixtures Transportation equipment Accumulated depreciation 2019 13,414,293 15,172,931 9,447,913 4,124,208 10,808,323 2,508,154 55,475,822 (33,743,721) 21,732,101 Details of the accounts presented above are as follows: 2020 Computer Equipment Office Machine Equipment Furniture and Fixtures Transporta tion Equipment 15,172,931 20,001 0 0 15,192,932 9,447,913 2,423,629 (972,712) 55,545 10,954,375 4,124,208 62,002 (6,878) (4,100) 4,175,232 10,808,323 16,000 0 198,040 11,022,363 2,508,154 0 0 0 2,508,154 55,475,822 9,468,522 (3,106,959) 249,485 62,086,870 ACCUMULATED DEPRECIATION AND AMORTISATION At January 1, 2020 7,391,598 11,536,707 Depreciation/Amortization 8,876,570 2,636,180 6,705,578 769,357 3,135,773 227,303 3,350,782 491,315 1,623,283 290,332 33,743,721 13,291,057 Right to Use Asset COST At January 1, 2020 Additions Disposals Adjustments At December 31, 2020 Adjustments At December 31, 2020 Net Carrying Amount at December 31, 2020 13,414,293 6,946,890 (2,127,369) 0 18,233,814 Leasehold Improvement Total (6,386,818) 9,881,350 0 14,172,887 (723,339) 6,751,596 (55,429) 3,307,647 217,553 4,059,650 0 1,913,615 (6,948,033) 40,086,745 8,352,464 1,020,045 4,202,779 867,585 6,962,713 594,539 22,000,125 2019 Right-of-Use Asset COST At January 1, 2019 Additions Disposals Adjustments At December 31, 2019 13,414,293 0 0 0 13,414,293 Leasehold Improvement Computer Equipment Office Machine Equipment Furniture and Fixtures Transportati on Equipment Total 11,690,656 4,912,332 0 (1,430,057) 15,172,931 9,667,284 596,279 0 (815,650) 9,447,913 5,432,717 298,318 0 (1,606,827) 4,124,208 5,591,487 6,020,631 0 (803,795) 10,808,323 2,508,154 0 0 0 2,508,154 48,304,591 11,827,560 0 (4,656,329) 55,475,822 ACCUMULATED DEPRECIATION AND AMORTISATION At January 1, 2019 0 10,085,130 Depreciation 7,391,598 1,451,577 Adjustments 0 0 At December 31, 2019 7,391,598 11,536,707 Net Carrying Amount at 6,698,657 657,679 (650,758) 6,705,578 4,578,680 78,121 (1,521,028) 3,135,773 3,699,695 377,166 (726,079) 3,350,782 1,332,951 290,332 0 1,623,283 26,395,113 10,246,473 (2,897,865) 33,743,721 December 31, 2019 2,742,335 988,435 7,457,541 884,871 21,732,101 6,022,695 3,636,224
74. 2020 ANNUAL REPORT 12 . INTANGIBLE ASSETS, NET In the year 2010, the Bank purchased its general ledger system from Byte per Byte Solutions, Inc. costing P2,542,995 classified as other intangibles – software with a foreseeable useful life of 5 years. This was fully amortised in the year 2015. It was upgraded in the current year of 2017 in the amount of P90,000.00amortised in 5 years. In 2018, the Bank made partial payment to Infoserve, Inc. for the Card Management and Switch, recorded as intangible asset amounting to P4,949,409.The system is not yet put into place pending the bank’s application as Issuer. The total amount capitalized has not been subjected to amortization. Mentioned asset was reclassified to Property, Plant and Equipment in CY 2019. Details of this account are as follows: 2020 Cost At beginning of the year Additions Adjustment At end of the year Accumulated amortization At beginning of the year Amortisation Adjustment At end of the year Net carrying amount 13. 2019 2,888,945 1,980,101 92,400 4,961,446 7,128,492 255,950 (4,495,497) 2,888,945 2,846,945 121,530 83,161 3,051,636 1,909,810 2,571,495 45,095 230,355 2,846,945 42,000 OTHER ASSETS, NET This account consists of the following: Foreclosed property/assets Prepayments Other assets Allowance for impairment and credit losses 2020 6,236,729 545,225 20,335,182 27,117,136 (9,384,970) 17,732,166 2019 8,360,141 2,019,892 9,562,787 19,942,820 (9,278,563) 10,664,257 Other assets consist primarily of receivables from various accounts recorded prior to DBP take-over namely: Department of Agrarian Reform for Tiptipon properties (P1.240 million); Mr. Bonsalagan and Alug on case with Land Bank of the Philippines filed at Regional Trial Court, Lanao del Sur; and from Bangko Sentral ng Pilipinas pending final decision on a settlement case with BIR regarding documentary stamps taxes and Transactions due from Nationlink/FEXCO. Breakdown of Allowance for impairment and credit losses Foreclosed property/assets Other assets 2020 1,932,805 7,452,165 9,384,970 2019 1,826,398 7,452,165 9,278,563 73
75. 74 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES 14 . DEPOSIT LIABILITIES This account consists of the following: Islamic deposits Private Private – (Pilgrimage Plan) Government Conventional deposits Private Government 15. 2020 2019 162,413,496 8,834,243 171,094 171,418,833 114,035,579 8,205,532 129,197 122,370,308 256,504,822 216,353,851 472,858,673 644,277,506 213,544,517 228,622,386 442,166,903 564,537,211 2020 1,589,725 239,838 212,610 2,042,173 2019 1,365,914 207,924 210,445 1,784,283 2020 7,426,115 2,029,358 0 9,455,473 2019 1,903,976 5,851,518 0 7,755,494 FINANCIAL LIABILITIES This account consists of the following: Accounts payable Interest payable Due to officers and employees 16. LEASE LIABILITY Maturity Analysis of lease liability as of December 31, 2020 and 2019 is as follows: Not later than one year Later than one year but not later than three years Later than three years Lease Liability Interest expense amounting toP1,177,415 and P648,586for 2020 and 2019, respectively, represents the difference between the actual amounts paid on the lease and the amortisation of the lease liability discounted using the Bank’s weighted average incremental borrowing rate was recognized in the Statement of Comprehensive Income. 17. INTER-AGENCY PAYABLES This account consists of the following: Due to Treasurer of the Philippines Due to GSIS Due to BIR Due to Pag-IBIG Due to PhilHealth 18. 2020 1,181,260 755,763 616,881 117,490 74,464 2,745,858 2019 1,181,260 735,500 760,509 142,978 59,472 2,879,719 PROVISIONS This includes accrual of money value of the earned leave credits of the Bank’s personnel and other provisions for litigation and other legal claims.
76. 2020 ANNUAL REPORT Leave benefits payable Other provisions 19 . 2020 8,309,186 4,269,781 12,578,967 2019 6,249,246 4,269,780 10,519,026 2020 3,487,992 3,150,631 29,715 7,635,931 14,304,269 2019 3,137,262 3,145,138 29,715 18,355,499 24,667,614 OTHER PAYABLES This account consists of: Treasurer/Cashier/Manager’s Check Miscellaneous liabilities Unclaimed balances Other payables The Other payables account includes accrual on operating expenses such as professional fees, utilities expenses, communication expenses and other maintenance and other Operating Expenses, overages and sundry credits. Breakdown of Other payables 2020 4,832,964 1,540,571 1,189,906 72,490 0 7,635,931 Accrued other expenses payable Inter-office float Items Accrued Zakat fund payable Trust fund – Islamic Overages 20. 2019 6,543,885 9,953,334 1,779,290 72,490 6,500 18,355,499 SHARE CAPITAL This account consists of common shares, of which 10,000,000 shares were authorized at P100 par value. Details are as follows: Name of Stockholders Development Bank of the Philippines Private individuals Paid, issued and outstanding at par value Additional paid-in capital 21. No. of Shares 1,997,639 2,385 2,000,024 Type of Shares Common A Common B Amount 199,763,900 238,500 200,002,400 805,238,260 1,005,240,660 SERVICE AND BUSINESS INCOME This account consists of: Business income Service income 2020 22,067,132 1,510,003 23,577,135 2019 32,800,072 2,084,766 34,884,838 The service income includes Bank fees and commissions. The business income consists of: Interest income Financing Income 2020 13,695,972 8,371,160 22,067,132 2019 22,088,499 10,711,573 32,800,072 75
77. 76 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES The interest income is derived from the following : Interest Income from Investment Loans and discounts 22. 2020 10,340,592 3,355,379 13,695,971 2019 14,862,621 7,225,878 22,088,499 OTHER NON-OPERATING INCOME This account consists of income which cannot be appropriately classified under the income accounts of the Bank. 23. OPERATING EXPENSES 23.1 Personnel services Salaries and other personnel expenses Other compensation Personnel benefit contributions Other personnel benefits 23.2 2020 37,929,690 16,130,255 4,906,154 3,497,842 62,463,941 2019 37,541,743 14,919,505 4,741,433 2,648,886 59,851,567 2020 10,084,228 5,687,882 2,638,767 1,460,692 1,388,282 1,218,603 1,126,099 516,924 250,271 115,269 3,146,327 27,633,344 2019 9,712,179 6,896,349 2,921,676 1,485,032 1,662,628 1,532,766 2,470,165 507,125 1,355,530 149,925 7,843,602 36,536,977 2020 2,155,106 304,940 235,025 201,230 155,000 53,028 36,800 0 5,198 3,146,327 2019 6,345,411 308,944 338,241 507,865 150,000 101,112 62,800 22,403 6,826 7,843,602 Maintenance and other operating expenses General services Taxes, insurance premiums and other fees Communication expenses Supplies and materials expenses Utility expenses Professional fees Travelling expenses Repairs and maintenance Training and scholarship expenses Confidential, intelligence and extraordinary expenses Other maintenance and other operating expenses* *Other maintenance and other operating expenses: Rent/Lease expenses Documentary stamp expenses Fees and commissions expenses Representation expenses Directors and committee members’ fees Advertising, promotional and marketing expenses Membership dues and contribution to organizations Subscription expenses Other maintenance and other operating expenses
78. 2020 ANNUAL REPORT 23 .3 Financial expenses Interest expenses Interest expenses on lease liability Management supervision/Trusteeship fees Other financial charges 23.4 2020 1,274,608 1,177,415 170,632 2,739 2,625,394 2019 1,398,567 648,830 180,277 2,762 2,230,436 2020 13,291,057 5,020,504 121,530 0 18,433,091 2019 10,246,473 1,043,720 45,095 1,480,532 12,815,820 2020 (86,073,484) 0 (86,073,484) 30% 0 2019 (74,860,736) 0 (74,860,736) 30% 0 Non-cash expenses Depreciation (Note 11) Provision for probable losses Amortisation (Note 12) Bad debt expense Bad debts expense represents loan accounts written off. 24. PROVISION FOR INCOME TAX Computations of income tax expense are as follows: Financial Loss Add (Deduct): Reconciling items Taxable Income (NOLCO) Tax rate Provision for Income Tax Under existing laws and regulations, Normal Corporate Income Tax rate is computed at 30 per cent of taxable income effective January 1, 2009. The company is also subject to Minimum Corporate Income Tax (MCIT) which is two per cent of gross income. Any excess MCIT over Normal Income Tax (NIT) shall be carried forward and credited against the NIT for the next three immediately succeeding taxable years. The net operating loss of the business or enterprise for any taxable year immediately preceding the current taxable year, which had not been previously offset as deduction from gross income shall be carried over as a deduction from the gross income for the next three consecutive taxable years immediately following the year of such loss. Details of Net Operating Loss Carry-Over (NOLCO) are as follows: Year Incurred 2019 2018 2017 Total Amount 74,860,736 77,141,141 62,378,715 214,380,592 Applied Previous Year/s Applied Current Year 0 0 0 0 Expired 0 0 0 0 0 0 62,378,715 62,378,715 Unapplied Amount 74,860,736 77,141,141 0 152,001,877 Pursuant to Section 4(bbbb) of Bayanihan II and as implemented under RR No. 25-2020, NOLCO for taxable years 2020 and 2021 can be carried over as deduction from gross income for the next 5 consecutive taxable years following the year of such loss. Details are shown below: 77
79. 78 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES Year Incurred 2020 Total Amount Applied Previous Year /s 86,073,484 86,073,484 Applied Current Year 0 0 Expired 0 0 0 0 Unapplied Amount 86,073,484 86,073,484 New Tax Regulation Subsequent to Reporting Date Republic Act (RA) No. 11534, An Act Reforming the Corporate Income Tax and Incentive System, was passed into law on March 26, 2021. RA No. 11534 provides that an income tax of 25 per cent effective July 1, 2020 shall be imposed upon the taxable income derived during each taxable year from all sources within and without the Philippines by every corporation. Provided that corporations with net taxable income not exceeding P5 million and with total assets not exceeding P100 million excluding land on which the particular business entity’s office, plant and equipment are situated during the taxable year for which the tax is imposed, shall be taxed at 20 per cent. As provided in RA No. 11534, effective July 1, 2020 until June 30, 2023, the MCIT rate shall be one per cent. 25. RETAINED EARNINGS/(DEFICIT) The adjustment of P1,502,407 pertains to the over recognition of expenses related to the adoption of PFRS 16which was recorded in the current year by a debit to Accumulated Depreciation – Right to Use Asset account and a credit to Retained Earnings account. 26. RELATED PARTY TRANSACTIONS AAIBP’s related parties include the Development Bank of the Philippines (DBP), key management personnel, and the retirement benefit fund as described in the succeeding paragraphs. The summary of the Bank’s transactions with related parties and the related outstanding balances as of December 31, 2020, and 2019 are as follows: a. AAIIBP maintains a current and savings account with the Development Bank of the Philippines. As of December 31, 2020, and 2019, current and savings accounts maintained with DBP are included in the Cash and Cash Equivalents account in the Statements of Financial Position. These deposits generally earn interest at annual rates of 0.25 percent to 0.375 percent in 2020 and 2019. Interest income earned on these deposits in 2020 and 2019 is included as part of Interest Income under Income in the Statement of Comprehensive Income. Cash in bank – local currency, current account Cash in bank – local currency, savings account 2020 7,970,964 10,886,421 2019 8,875,005 48,331,768 b. AAIIBP leases its office premises from DBP. Related rent expense, power, light, and water expenses incurred in 2020 and 2019 are presented as part of Maintenance and Other Operating Expenses under Expenses in the Statements of Comprehensive Income. Rental expense Utilities expense 2020 775,689 7,313 2019 2,134,880 77,216 c. Compensation of Key management personnels’ (covering principal officers) included as part of Salaries and other personnel expenses under expenses in the Statement of Comprehensive Income. Remuneration of key management personnel for the years 2020 and 2019 are as follows: Short-term benefits Post-employment benefits 2020 8,546,192 1,996,765 2019 6,893,533 1,378,517
80. 2020 ANNUAL REPORT The bank also granted loans to officers with minimal interest . Outstanding loans to officers are presented as part of the Receivables in the Statements of Financial Position. As at December 31, 2020 and 2019, the outstanding loan balance is P33,333.32and P150,000, respectively. 27. SUPPLEMENTARY INFORMATION REQUIRED UNDER REVENUE REGULATIONS (RR) NO. 15-2010 In compliance with the requirements set forth by Bureau of Internal Revenue RR No. 15-2010, hereunder are the information on taxes, duties and license fees paid or accrued during the taxable year. The Bank reported and/or paid the following taxes for the year ended December 31, 2020: a. Amount of VAT output tax i. ii. VAT input tax Deferred VAT input tax 0 0 b. Amount of VAT input tax 1. 2. Beginning of the year: i. VAT input tax ii. Deferred VAT input tax 0 0 Current year’s domestic purchases/payments for: i. Goods for resale/manufacture or further processing ii. Goods other than for resale or manufacture iii. Capital goods subject to amortization iv. Capital goods not subject to amortization v. Services lodged under cost of goods vi. Services lodged under other accounts 0 0 0 0 0 0 3. Claims for tax credit/refund and other adjustments 0 4. Balance at the end of the year: i. VAT input tax ii. Deferred VAT input tax 0 0 c. The landed cost of imports and the amount of customs duties and tariff fees paid or accrued 0 thereon. d. The amount of excise tax/es, classified per major product category, i.e. tobacco products, alcohol products, automobiles, minerals, oil and petroleum, etc. paid on: 1. Locally produced excisable items, and 2. Imported excisable items. e. Documentary stamp tax (DST) on loan instruments, shares of stock and other transactions subject thereto 0 0 763,918 f. All other taxes, local and national, including real estate taxes, license and permit fees lodged under the Taxes and Licenses account both under the Cost of Sales and Operating Expense accounts: Local Real estate taxes Mayor’s permit/ Municipal Taxes National BIR annual registration Percentage taxes Total 3,091 235,825 6,130 1,444,186 1,689,232 79
81. 80 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES g . The amount of withholding taxes categorized into: Tax on compensation and benefits Creditable withholding taxes Final withholding taxes Total 3,723,053 791,131 251,339 4,765,523 h. Amount/s of deficiency tax assessments, whether protested or not 0 i. Tax cases, and amounts involved, under preliminary investigation, litigation and/or Not Applicable prosecution in courts or bodies outside the BIR 28. SUPPLEMENTARY INFORMATION REQUIRED UNDER BANGKO SENTRAL NG PILIPINAS CIRCULAR NO. 1074 The following are basic quantitative indicators of financial performance: 2020 a. Return on Average Equity b. Return on Average Assets c. Net Interest Margin 29. 2019 (167.12) (12.29) 2.31 (57.05) (9.96) 3.83 STATEMENT OF COMPLIANCE WITH COA CIRCULAR NO. 2016-006 The presentation and aggregation of comparative amounts in the financial statements and accompanying Notes to Financial Statements are also based on the Revised Chart of Accounts per compliance with COA Circular No. 2016-006 dated December 29, 2016, Conversion from the Philippine Government Chart of Accounts under the New Government Accounting System. 30. CONTINGENT ACCOUNTS These consist of contingent assets and liabilities as at December 31, 2020 as follows: Semi-Expendable Items for Inventory RD Bad Debts Written-Off Late Deposits/Payment Received Expense – Written-Off Security Held as Collateral Items Held for Safekeeping/Custodians 723 883 699,940 48 35 80 701,709 The Bank is a defendant in legal cases arising from normal business activities. Management believes that the ultimate liability, if any, resulting from them will not materially affect the Bank’s financial position. Particulars 1. Civil Case No. 97-4534; C.A.-G.R. 82860, Sps. Adora and Lucman Ibrahim vs. AAIIBP and Sheriff Blanco 2. Civil Case 1528-98, RTC Marawi Branch 9, Hadji Yusoph Polog vs. AAIIBP, et. al. 3. Civil Case No. 2422-16, RTC of Lanao del Sur, Br 9, Marawi City, Late Aminah Gumamac Sanggacala, Represented by her son, Ibrahim Mongandaya Gumamac vs. Philippine Amanah bank or Amanah Islamic Bank (Specific Performance – delivery of real property) Amount 1,000,000 3,000,000 1
82. 2020 ANNUAL REPORT THE BRANCHES Cagayan de Oro Cotabato Davao General Santos Iligan Jolo Greenhills SJC Marawi Zamboanga 81
83. 82 AL-AMANAH ISLAMIC INVESTMENT BANK OF THE PHILIPPINES