Barwa Bank: Consolidated Financial Statements - 31 December 2017

Transcription

1. CONSOLIDATED FINANCIAL STATEMENTS BARWA BANK Q .S.C. FOR THE YEAR ENDED 31 DECEMBER 2017
2. BARWA BANK Q .S.C. CONTENTS CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 Page Independent auditors’ report 1–4 Consolidated statement of financial position 5 Consolidated income statement 6 Consolidated statement of changes in owners’ equity Consolidated statement of cash flows Consolidated statement of changes in restricted investment accounts 7-8 9 10 Notes to the consolidated financial statements 11–78 Supplementary information to the consolidated financial statements 79–80
3. QR . 83157 RN: 000220/WS/FY2017 Barwa Bank Q.S.C. - Annual audited consolidated financial statements for the year ended 31 December 2017 INDEPENDENT AUDITOR’S REPORT To the Shareholders Barwa Bank Q.S.C. Doha - Qatar Report on the audit of the consolidated financial statements Opinion We have audited the consolidated financial statements of Barwa Bank Q.S.C. (the “Bank”) and its subsidiaries (together the Group), which comprise the consolidated statement of financial position as at 31 December 2017, and the consolidated income statement, consolidated statement of changes in owners’ equity, consolidated statement of cash flows and consolidated statement of changes in restricted investment accounts for the year then ended, and a summary of significant accounting policies and other explanatory information. In our opinion, the accompanying consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2017, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with Financial Accounting Standards (“FAS”) issued by Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI”) and the applicable provisions of Qatar Central Bank regulations. Basis for opinion We conducted our audit in accordance with International Standards on Auditing (ISAs). Our responsibilities under those standards are further described in the auditor’s responsibilities for the audit of the consolidated financial statements section of our report. We are independent of the Group in accordance with the International Ethics Standards Board for Accountants’ Codes of Ethics for Professional Accountants (IESBA Code) together with the ethical requirements that are relevant to our audit of the consolidated financial statements in the State of Qatar, and we have fulfilled our other ethical responsibilities. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our opinion.
4. INDEPENDENT AUDITOR ’S REPORT (CONTINUED) Other information Board of Directors is responsible for the other information. The other information comprises the Board of Directors Report which we obtained prior to the date of this auditor’s report and the Annual Report, which is expected to be made available to us after the date of this auditor’s report. The other information does not include the consolidated financial statements and our auditor’s report thereon. Our opinion on the consolidated financial statements does not cover the other information and we do not express any form of assurance or conclusion thereon. In connection with our audit of the consolidated financial statements, our responsibility is to read the other information identified above and, in doing so, consider whether the other information is materially inconsistent with the consolidated financial statements or our knowledge obtained in the audit, or otherwise appears to be materially misstated. If, based on the work we have performed on the other information that we obtained prior to the date of this auditor’s report, we conclude that there is a material misstatement of this other information, we are required to report that fact. We have nothing to report in this regard. Responsibilities of the board of directors for the consolidated financial statements Board of Directors is responsible for the preparation and fair presentation of the consolidated financial statements in accordance with FAS issued by AAOIFI and the Qatar Central Bank regulations, and for such internal control as Board of Directors determines is necessary to enable the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error. In preparing the consolidated financial statements, Board of Directors is responsible for assessing the Group’s ability to continue as a going concern, disclosing, as applicable, matters related to going concern and using the going concern basis of accounting unless Board of Directors either intends to liquidate the Group or to cease operations, or has no realistic alternative but to do so. Board of Directors is responsible for overseeing the Group’s financial reporting process. Auditor’s responsibilities for the audit of the consolidated financial statements Our objectives are to obtain reasonable assurance about whether the consolidated financial statements as a whole are free from material misstatement, whether due to fraud or error, and to issue an auditor’s report that includes our opinion. Reasonable assurance is a high level of assurance, but is not guarantee that an audit conducted in accordance with ISAs will always detect a material misstatement when it exists. Misstatements can arise from fraud or error and considered material if, individually or in the aggregate, they could reasonably be expected to influence the economic decisions of user taken on the basis of these consolidated financial statements. As part of an audit in accordance with ISAs, we exercise professional judgement and maintain professional skepticism throughout the audit. We also: Identify and assess the risk of material misstatement of the consolidated financial statements, whether due to fraud or error, design and perform audit procedures responsive to those risks, and obtain audit evidence that is sufficient and appropriate to provide a basis for our opinion. The risk of not detecting a material misstatement resulting from fraud is higher than for one resulting from error, as fraud may involve collusion, forgery, intentional omissions, misrepresentations, or the override of internal control.
5. INDEPENDENT AUDITOR ’S REPORT (CONTINUED) Auditor’s responsibilities for the audit of the consolidated financial statements (continued) Obtain an understanding of internal control relevant to the audit in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the Group’s internal control. Evaluate the appropriateness of accounting policies used and reasonableness of accounting estimates and related disclosures made by management. Conclude on the appropriateness of Board of Directors use of the going concern basis of accounting and, based on the audit evidence obtained, whether a material uncertainty exists related to events or conditions that may cast significant doubt on the Group’s ability to continue as a going concern. If we conclude that a material uncertainty exists, we are required to draw attention in our auditor’s report to the related disclosures in the consolidated financial statements or, if such disclosure is inadequate, to modify our opinion. Our conclusions are based on the audit evidence obtained up to the date of our auditor’s report. However, future events or conditions may cause the Group to cease to continue as a going concern. Evaluate the overall presentation, structure and content of the consolidated financial statements, including the disclosures, and whether the consolidated financial statements represent the underlying transactions and events in a manner that achieves fair presentation. Obtain sufficient appropriate audit evidence regarding the financial information of the entities or business activities within the Group to express an opinion on the consolidated financial statements. We are responsible for the direction, supervision and performance of the group audit. We remain solely responsible for our audit opinion. We communicate with those charged with governance regarding, among other matters, the planned scope and timing of the audit and significant audit findings, including any significant deficiencies in internal control that we identify during our audit. We also provide those charged with governance with a statement that we have complied with relevant ethical requirements regarding independence, and communicate with them all relationships and other matters that may reasonably be thought to bear on our independence, and where applicable, related safeguards.
6. INDEPENDENT AUDITOR ’S REPORT (CONTINUED) Report on other legal and regulatory requirements We are also of the opinion that proper books of account were maintained by the Group. We have obtained all the information and explanations which we considered necessary for the purpose of our audit. We further confirm that the consolidated financial information included in the Board of Directors’ report addressed to the General Assembly is in agreement with the books and records of the Group. To the best of our knowledge and belief and according to the information given to us, no contraventions of the applicable provisions of Qatar Central Bank Law, Qatar Commercial Companies Law and the Bank’s and subsidiaries’ Articles of Association were committed during the year which would materially affect the Group’s financial position or its financial performance. Doha - Qatar March XX, 2018 For Deloitte & Touche Qatar Branch Walid Slim Partner License No. 319  
7. BARWA BANK Q .S.C. CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at 31 December ASSETS Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment properties Fixed assets Intangible assets Other assets QAR ‘000s Note 8 9 10 11 12 13 14 15 16 TOTAL ASSETS 2017 2016 1,383,847 2,946,480 31,676,882 10,958,738 217,730 4,662 243,761 777,230 427,824 1,582,534 2,696,054 29,778,499 10,348,286 298,308 4,662 246,842 777,230 317,265 48,637,154 46,049,680 LIABILITIES Due to banks Sukuk financing Customer current accounts Other liabilities TOTAL LIABILITIES 17 18 19 20 11,445,073 2,201,270 1,673,772 899,316 16,219,431 5,739,803 2,197,594 1,590,923 871,534 10,399,854 EQUITY OF INVESTMENT ACCOUNT HOLDERS 21 24,796,114 28,386,614 3,000,000 2,396,003 (38,349) 695,563 3,208 141 574,002 977,361 3,000,000 2,245,357 (38,349) 695,563 (11,320) 107 530,224 818,380 7,607,929 13,680 7,621,609 7,239,962 23,250 7,263,212 48,637,154 46,049,680 OWNERS’ EQUITY Share capital Legal reserve Treasury shares Risk reserve Fair value reserve Foreign currency translation reserve Other reserves Retained earnings TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE BANK Non-controlling interests TOTAL OWNERS’ EQUITY 22(a) 22(b) 22(e) 22(c) 11 12(a) 22(d) 23 TOTAL LIABILITIES, EQUITY OF INVESTMENT ACCOUNT HOLDERS AND OWNERS’ EQUITY These consolidated financial statements were approved by the Board of Directors on 05 March 2018 and were signed on its behalf by: ---------------------------------------------------------Mohamed Bin Hamad Bin Jassim Al Thani Chairman -----------------------------------------Khalid Yousef Al-Subeai Group Chief Executive Officer The attached notes 1 to 39 form an integral part of these consolidated financial statements. 5
8. BARWA BANK Q .S.C. CONSOLIDATED INCOME STATEMENT QAR ‘000s 2017 2016 1,540,034 460,609 2,000,643 1,393,688 401,738 1,795,426 174,467 (4,734) 169,733 143,896 (8,403) 135,493 56,776 (6,286) 27,723 2,248,589 24,918 5,078 41,242 2,002,157 27 14 28 (303,426) (28,985) (176,111) (229,445) (737,967) (284,921) (33,711) (138,765) (167,923) (625,320) 11 10(b) (26,198) (48,596) (8,608) (78,098) 1,435,828 1,290,131 (681,504) (551,329) Net profit for the year 754,324 738,802 Net profit for the year attributable to: Equity holders of the Bank Non-controlling interests Net profit for the year 753,228 1,096 754,324 738,286 516 738,802 2.54 2.49 For the year ended 31 December Net income from financing activities Net income from investing activities Total net income from financing and investing activities Fee and commission income Fee and commission expense Net fee and commission income Net foreign exchange gain Share of results of associates and joint ventures Other income Total income Staff costs Depreciation Other expenses Finance cost Total expenses Net impairment loss on investment securities Net impairment loss on financing assets Note 24 25 26 12 Profit for the year before return to investment account holders Net return to investment account holders Earnings per share Basic and diluted earnings per share (QAR per share) 21 33 The attached notes 1 to 39 form an integral part of these consolidated financial statements. 6
9. BARWA BANK Q .S.C. CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY QAR ‘000s For the year ended 31 December 2017 Share capital Balance at 1 January 2017 Fair value reserve movement (note 11) Share of associates foreign currency translation reserve (note 12a) Net investment hedge gain (note 12a) Legal reserve 3,000,000 2,245,357 - Treasury shares Risk reserve Fair value reserve Foreign currency translation reserve (38,349) - 695,563 - (11,320) 15,664 107 - 530,224 - 818,380 - (1,136) Other reserves Total equity attributable to Retained equity holders of the Bank earnings Noncontrolling interests Total owners’ equity 7,239,962 15,664 23,250 - 7,263,212 15,664 - - - - - - - (1,136) - (1,136) - - - - - 34 - - 34 - 34 Profit for the year - - - - - - - 753,228 753,228 1,096 754,324 Total recognised income and expense for the year - - - - 14,528 34 - 753,228 767,790 1,096 768,886 Dividend paid - - - - - - - (399,823) (399,823) - (399,823) Transfer to legal reserve - 150,646 - - - - - - (150,646) - - - - - - - - - - 43,778 (43,778) - - - - - - - - - - - - (10,666) (10,666) 3,000,000 2,396,003 (38,349) 695,563 3,208 574,002 977,361 13,680 7,621,609 Transfer to risk reserve Change in other reserves, net Change in ownership stake (note 23) Balance at 31 December 2017 141 7,607,929 The attached notes 1 to 39 form an integral part of these consolidated financial statements. 7
10. BARWA BANK Q .S.C. CONSOLIDATED STATEMENT OF CHANGES IN OWNERS’ EQUITY (CONTINUED) QAR ‘000s For the year ended 31 December 2016 Share capital Balance at 1 January 2016 Fair value reserve movement (note 11) Share of associates foreign currency translation reserve (note 12a) Net investment hedge gain (note 12a) Legal reserve 3,000,000 2,097,700 - Risk reserve Fair value reserve Foreign currency translation reserve (38,349) - 616,776 - (15,430) 2,499 1,002 (1,084) Treasury shares Total equity attributable to equity holders ofNon-controlling the Bank interests Other reserves Retained earnings 426,951 - 705,976 - 6,794,626 2,499 30,242 - Total owners’ equity 6,824,868 2,499 - - - - 1,611 - - 527 - 527 - - - - - 189 - - 189 - 189 Profit for the year - - - - - - - 738,286 738,286 516 738,802 Total recognised income and expense for the year - - - - 4,110 - 738,286 741,501 516 742,017 Dividend paid - - - - - - - (296,165) (296,165) - (296,165) Transfer to legal reserve - 147,657 - - 78,787 - - - (147,657) (78,787) - - - - - - - - - 103,273 (103,273) - - - - - - - - - - - - (7,508) (7,508) 3,000,000 2,245,357 (38,349) 695,563 107 530,224 818,380 7,239,962 23,250 7,263,212 Transfer to risk reserve Change in other reserves, net Change in ownership stake (note 23) Balance at 31 December 2016 (11,320) (895) The attached notes 1 to 39 form an integral part of these consolidated financial statements. 8
11. BARWA BANK Q .S.C. CONSOLIDATED STATEMENT OF CASH FLOWS For the year ended 31 December Cash flows from operating activities Net profit for the year Adjustments for: Impairment loss on financing assets Impairment loss on investment securities Depreciation Employees’ end of service benefits provision Net loss / (gain) on sale of investment securities Dividend income Share of results of associates and joint ventures Gain on disposal of fixed assets Profit before changes in operating assets and liabilities QAR ‘000s Note 11 14 20.1 25 25 12 Change in reserve account with Qatar Central Bank Change in due from banks Change in financing assets Change in other assets Change in due to banks Change in sukuk financing Change in customer current accounts Change in other liabilities Dividends received Employees’ end of service benefits paid Net cash from / (used in) operating activities Cash flows from investing activities (Acquisition) / Disposal of investment securities Disposal of associates and joint ventures, net Acquisition of fixed assets Proceeds from sale of fixed assets Net cash (used in) / from investing activities 25 20.1 14 Cash flows from financing activities Change in unrestricted investment accounts Dividends paid Net cash (used in) / from financing activities Net increase in cash and cash equivalents Cash and cash equivalents at 1 January Cash and cash equivalents at 31 December 34 2017 2016 754,324 738,802 84,735 26,198 28,985 20,266 6,546 (65,388) 6,286 (361) 861,591 116,921 8,608 33,711 15,657 (4,863) (59,073) (5,078) (153) 844,532 220,894 444,641 (1,983,118) (110,559) 5,705,270 3,676 82,849 13,782 5,239,026 65,388 (6,266) 5,298,148 (171,968) 149,668 (1,397,782) 17,288 (1,702,264) (2,197,594) (158,106) (210,346) (4,826,572) 59,073 (8,464) (4,775,963) (638,198) 73,190 (29,627) 4,084 (590,551) 862,266 7,203 (13,406) 736 856,799 (3,590,500) (399,823) (3,990,323) 4,670,835 (296,165) 4,374,670 717,274 2,205,072 455,506 1,749,566 2,922,346 2,205,072 The attached notes 1 to 39 form an integral part of these consolidated financial statements. 9
12. BARWA BANK Q .S.C. CONSOLIDATED STATEMENT OF CHANGES IN RESTRICTED INVESTMENT ACCOUNTS QAR ‘000s For the year ended 31 December 2017 At 1 January 2017 Total value Discretionary Portfolio Management Other Restricted Wakalas At 31 December 2017 Movements during the year Investment / Gross Dividends Revaluation (withdrawal) Income paid Group’s fee as an agent Total value 103,958 105,950 1,567 320,953 (11,561) - 2,907 - - - 96,871 426,903 209,908 322,520 (11,561) 2,907 - - 523,774 For the year ended 31 December 2016 At 1 January 2016 Discretionary Portfolio Management Other Restricted Wakalas At 31 December 2016 Movements during the year Gross Dividends Revaluation Income paid Total value Investment / (withdrawal) Group’s fee as an agent 198,985 105,950 (98,506) - 1,941 - 1,538 - - - 103,958 105,950 304,935 (98,506) 1,941 1,538 - - 209,908 Total value The attached notes 1 to 39 form an integral part of these consolidated financial statements. 10
13. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 1. . REPORTING ENTITY Barwa Bank (the “Bank”) was incorporated as a Qatari Shareholding Company in the State of Qatar under Commercial Registration No. 38012 dated 28 January 2008 (the “date of incorporation”). The Bank commenced its activities on 1 February 2009 under Qatar Central Bank (“QCB”) License No. RM/19/2007. The Bank operates through its head office situated on Grand Hamad Street, Doha and its 6 branches in Doha, State of Qatar. The Bank and its subsidiaries (together referred to as the “Group” and individually referred to as “Group entities”) are primarily engaged in investing, financing and advisory activities in accordance with Islamic Shari’a principles as determined by the Shari’a Committee of the Bank and provisions of its Memorandum and Articles of Association. Investment activities are carried out for proprietary purpose and on behalf of customers. The Bank is owned 20.36% by General Retirement and Social Insurance Authority, 20.36% by Military Pension Fund (Qatar), 12.13% by Qatar Holding, the strategic and direct investment arm of Qatar Investment Authority being the sovereign wealth fund of the State of Qatar; with remaining shares are owned by several individuals and corporate entities. The Bank and two other local banks, namely Masraf Al Rayan Q.P.S.C. and International Bank of Qatar Q.S.C., announced on 19 December 2016 that they have entered into initial negotiations regarding a potential merger of the three banks. The potential merger is subject to the approval of the Qatar Central Bank (“QCB”), the QFMA, the Ministry of Economy and Commerce and other relevant official bodies in the State of Qatar, and the approval of the shareholders in each of the three banks after completion of a detailed legal and financial due diligence. If the merger is approved, the new merged entity will maintain all its dealings in compliance with Shari’a principles. A committee composed of the management of the three banks has been established in order to oversee the merger according to an initial timeline which has been approved by the Boards of Directors of the three banks. Initial legal and financial due diligence performed by the individual banks are currently under review by the regulator. The principal subsidiaries of the Group are as follows: Name of subsidiary Country of incorporation Date of Percentage of Acquisition / incorporation ownership 2017 2016 The First Investor P.Q.S.C. (“TFI”) Qatar 13 December 2009 100% 100% First Finance Company P.Q.S.C. (“FFC”) Qatar 12 July 2010 100% 100% First Leasing Company P.Q.S.C (“FLC”) Qatar 13 July 2010 100% 100% TFI GCC Equity Opportunities Fund Qatar 31 October 2012 84% 75% - - BBG Sukuk limited (i) (ii) (iii) (iv) (v) Cayman Islands 30 April 2015 TFI provides a full range of investment banking products and services that comply with Shari’a principles. FFC is engaged in Shari’a compliant financing activities in accordance with its Articles of Association and QCB regulations. FLC is primarily engaged in the Islamic leasing business. TFI GCC Equity Opportunities Fund is an open end fund founded by the Bank and managed by TFI. It invests in marketable equities and debt securities of entities, having Shari’a compliant business model and incorporated in GCC to earn return for its unit holders. BBG Sukuk Limited was incorporated in the Cayman Islands as an exempted company with limited liability for the sole purpose of Sukuk financing (issuance) for the benefit of the Bank. 11
14. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 2. BASIS OF PREPARATION (a) Statement of compliance The consolidated financial statements have been prepared in accordance with Financial Accounting Standards (“FAS”) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI”) and the applicable provisions of Qatar Central Bank (“QCB”) regulations. In line with the requirements of AAOIFI, for matters that are not covered by FAS, the Group uses guidance from the relevant International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). (b) Basis of measurement The consolidated financial statements have been prepared under the historical cost basis except for investments carried at fair value through equity, investments carried at fair value through the income statement, investment property and risk management instruments, which are measured at fair value. (c) Functional and presentation currency These consolidated financial statements are presented in Qatari Riyal (“QAR”), which is the Bank’s functional currency. Except as otherwise indicated, financial information presented in QAR has been rounded to the nearest thousands. The functional currencies for the Group entities have also been assessed as Qatari Riyal. (d) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with FAS requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgments in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in note 5. 12
15. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. . SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by Group entities except the adoption of new financial accounting standards as detailed in note 3 (z). (a) (i) Basis of consolidation Subsidiaries Subsidiaries are entities controlled by the Group. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Control is the power to govern the financial and operating policies of an entity so as to obtain benefits from its activities and is generally assumed when the Group holds, directly or indirectly, majority of the voting rights of the entity. In assessing control, the Group takes into consideration potential voting rights that currently are exercisable. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Group. (ii) Non-controlling interests Interests in the equity of subsidiaries not attributable to the parent are reported in consolidated statement of financial position in owners’ equity. Profits or losses attributable to non-controlling interests are reported in the consolidated income statement as income attributable to non-controlling interests. Losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. The Group treats transactions with non-controlling interests as transactions with equity owners of the Group. For purchases from non-controlling interests, the difference between any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in owners’ equity. Gains or losses on disposals to non-controlling interests are also recorded in owners’ equity. When the Group ceases to have control or significant influence, any retained interest in the entity is remeasured to its fair value, with the change in carrying amount recognised in consolidated income statement. The fair value is the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate, joint venture or financial asset. In addition, any amounts previously recognised in owners’ equity in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other equity are reclassified to consolidated income statement. If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in equity is reclassified to consolidated income statement where appropriate. (iii) Transactions eliminated on consolidation Intra-group balances, income and expenses (except for foreign currency transaction gains or losses) arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 13
16. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (a) Basis of consolidation (continued) (iv) Associates and joint ventures Associates are entities over which the Bank has significant influence but not control, generally significant influence presumed to exist when the Group has 20% or more of the voting rights. Joint Ventures are those entities over whose activities the group has joint control, established by contractual agreement and requiring unanimous consent for strategic, financial and operating decisions. A joint venture is a joint arrangement whereby the parties that have joint control of the arrangement have rights to the net assets of the arrangement. Investments in associates and joint ventures are accounted for by the equity method of accounting and are initially recognised at cost (including transaction costs directly related to acquisition of investment in associate). The Bank’s investment in associates and joint ventures includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Bank’s share of its associates’ and joint ventures post-acquisition profits or losses is recognised in the consolidated income statement; its share of post-acquisition movements in reserve is recognised in equity. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Bank’s share of losses in an associate or joint venture equals or exceeds its interest in the associate or joint venture, including any other unsecured receivables, the Bank does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate or joint venture. Intergroup gains on transactions between the Bank and its associates and joint ventures are eliminated to the extent of the Bank’s interest in the associates and joint ventures. Intragroup losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Dilution gains and losses in associates and joint ventures are recognised in the consolidated income statement. The accounting policies of associates and joint ventures have been changed where necessary to ensure consistency with policies adopted by the Group. (b) Foreign currency transactions and balances Foreign currency transactions are denominated, or that require settlement in a foreign currency are translated into the respective functional currencies of the operations at the spot exchange rates at the transaction dates. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences resulting from the settlement of foreign currency transactions and arising on translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in consolidated income statement. 14
17. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Foreign currency transactions and balances (Continued) . Foreign currency differences are generally recognised in consolidated income statement. However, foreign currency differences arising from the translation of the following items are recognized in consolidated statement of changes in equity: -Fair value through equity investments (except on impairment, in which case foreign currency differences that have been recognized in consolidated statement of changes in equity are reclassified to consolidated income statement); -A financial liability designated as a hedge of net investment in a foreign operation to the extent that the hedge is effective. Foreign operations The assets and liabilities of foreign operations are translated into Qatari Riyal at the rate of exchange prevailing at the reporting date and their income statement is translated at exchange rates prevailing at the dates of the transactions. The exchange differences arising on the translation are recognised in consolidated statement of changes in equity. On disposal of a foreign operation, the component of consolidated statement of changes in equity relating to that particular foreign operation is recognised in the consolidated income statement. Hedge of a net investment in foreign operation The Group applies hedge accounting to foreign currency differences arising between the functional currency of the foreign operation and the Company’s functional currency. To the extent that the hedge is effective, foreign currency differences arising on the translation of a financial liability designated as a hedge of a net investment in a foreign operation are recognised in consolidated statement of changes in equity and accumulated in the foreign currency translation reserve. Any remaining differences are recognised in consolidated income statement. When the hedged net investment is disposed of, the relevant amount in the foreign currency translation reserve is transferred to consolidated income statement as part of the gain or loss on disposal. (c) Investment securities Investment securities comprise investments in debt-type and equity-type financial instruments. (i) Classification Debt-type instruments are investments that have terms that provide fixed or determinable payments of profits and capital. Equity-type instruments are investments that do not exhibit features of debt-type instruments and include instruments that evidence a residual interest in the assets of an entity after deducting all its liabilities. Debt-type instruments Investments in debt-type instruments are classified into the following categories: 1) at amortised cost or 2) at fair value through income statement. A debt-type investment is classified and measured at amortised cost only if the instrument is managed on a contractual yield basis or the instrument is not held for trading and has not been designated at fair value through the income statement. 15
18. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) (i) Investment securities (continued) Classification (continued) Debt-type investments classified and measured at fair value through income statement include investments held for trading or designated at fair value through income statement. At inception, a debttype investment managed on a contractual yield basis, can only be designated at fair value through income statement if it eliminates an accounting mismatch that would otherwise arise on measuring the assets or liabilities or recognising the gains or losses on them on different bases. Equity-type instruments Investments in equity type instruments are classified into the following categories: 1) at fair value through income statement or 2) at fair value through equity. Equity-type investments classified and measured at fair value through income statement include investments held for trading or designated at fair value through income statement. An investment is classified as held for trading if acquired or originated principally for the purpose of generating a profit from short-term fluctuations in price or dealer’s margin. Any investments that form part of a portfolio where there is an actual pattern of short-term profit taking are also classified as ‘held for trading’. Equity-type investments designated at fair value through income statement include investments which are managed and evaluated internally for performance on a fair value basis. On initial recognition, the Bank makes an irrevocable election to designate certain equity instruments that are not designated at fair value through income statement to be classified as investments at fair value through equity. (ii) Recognition and derecognition Investment securities are recognised at the trade date i.e. the date that the Group contracts to purchase or sell the asset, at which date the Group becomes party to the contractual provisions of the instrument. Investment securities are de-recognised when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risk and rewards of ownership. (iii) Measurement Initial recognition Investment securities are initially recognised at fair value plus transaction costs, except for transaction costs incurred to acquire investments at fair value through income statement which are charged to consolidated income statement. Subsequent measurement Investments at fair value through income statement are re-measured at fair value at the end of each reporting period and the resultant re-measurement gains or losses is recognised in the consolidated income statement in the period in which they arise. Subsequent to initial recognition, investments classified at amortised cost are measured at amortised cost using the effective profit method less any impairment allowance. All gains or losses arising from the amoritisation process and those arising on derecognition or impairment of the investments, are recognised in the consolidated income statement. 16
19. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Investment securities (continued) (iii) Measurement (continued) Investments at fair value through equity are re-measured at their fair values at the end of each reporting period and the resultant gain or loss, arising from a change in the fair value of investments are recognised in the consolidated statement of changes in owners’ equity and presented in a separate fair value reserve within equity. When the investments classified as fair value through equity are sold, impaired, collected or otherwise disposed of, the cumulative gain or loss previously recognised in the consolidated statement of changes in equity is transferred to the consolidated income statement. Investments which do not have a quoted market price or other appropriate methods from which to derive a reliable measure of fair value when on a continuous basis cannot be determined, are stated at cost less impairment allowance, (if any). (iv) Measurement principles Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus capital repayments, plus or minus the cumulative amortisation using the effective profit method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. The calculation of the effective profit rate includes all fees and points paid or received that are an integral part of the effective profit rate. Fair value measurement Fair value is the amount for which an asset could be exchanged or an obligation settled between well informed and willing parties (seller and buyer) in an arm’s length transaction. The Group measures the fair value of quoted investments using the market closing bid price for that instrument. For unlisted investments, the Group recognises any increase in the fair value when they have reliable indicators to support such an increase and to evaluate the fair value of these investments. These reliable indicators are limited to the most recent transactions for the specific investment or similar investments made in the market on a commercial basis between willing and informed parties. 17
20. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. . SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Financing assets Financing assets comprise Shari’a compliant financing provided by the Group with fixed or determinable payments. These include financing provided through Murabaha, Mudaraba, Musawama, Ijarah, Istisna’a, Wakala and other modes of Islamic financing. Financing assets are stated at their amortised cost less impairment allowances (if any). Murabaha and Musawama Murabaha and Musawama receivables are sales on deferred terms. The Group arranges a Murabaha and Musawama transaction by buying a commodity (which represents the object of the Murabaha) and selling it to the Murabeh (a beneficiary) at a margin of profit over cost. The sales price (cost plus the profit margin) is repaid in installments by the Murabeh over the agreed period. Murabaha and Musawama receivables are stated net of deferred profits and impairment allowance (if any). Based on QCB instructions Chapter VII, Section D, Para 3/2/1, the Bank applies the rule of binding the purchase orderer to its promise in the Murabaha sale, and not enters into any Murabaha transaction in which the purchase orderer does not undertake to accept the goods if they meet the specifications. Mudaraba Mudaraba financing are partnerships in which the Group contributes the capital. These contracts are stated at fair value of consideration given less impairment allowance (if any). Ijarah Ijarah receivables arise from financing structures when the purchase and immediate lease of an asset are at cost plus an agreed profit (in total forming fair value). The amount is settled on a deferred payment basis. Ijarah receivables are carried at the aggregate of the minimum lease payments, less deferred income (in total forming amortised cost) and impairment allowance (if any). Istisna’a Istisna’a is a sales contract in which the Group acts as ‘al-sani’ (a seller) with an ‘al-mustasni’ (a purchaser) and undertakes to manufacture or otherwise acquire a product based on the specification received from the purchaser, for an agreed upon price. Istisna’a revenue is the total price agreed between the seller and purchaser including the Group’s profit margin. The Group recognises Istisna’a revenue and profit margin based on percentage of completion method by taking in account the difference between total revenue (cash price to purchaser) and Group’s estimated cost. The Group’s recognises anticipated losses on Istisna’a contract as soon as they are anticipated. Wakala Wakala contracts represent agency agreements between two parties. One party, the provider of funds (Muwakkil) appoints the other party as an agent (Wakeel) with respect to the investment of the Muwakkil funds in a Shari’a compliant transaction. The Wakeel uses the funds based on the nature of the contract and offer an anticipated return to the Muwakkil. Wakala contracts are stated at amortised cost. 18
21. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. . SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (e) Other financial assets and liabilities (i) Recognition and initial measurement The Group initially recognises due from banks, financing assets, customer current accounts, due to banks, and financing liabilities including sukuk financing on the date at which they are originated. All other financial assets and liabilities are initially recognised on the settlement date at which the Group becomes a party to the contractual provisions of the instrument. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through income statement, transaction costs that are directly attributable to its acquisition or issue. (ii) De-recognition of financial assets and financial liabilities The Group de-recognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for de-recognition that is created or retained by the Group is recognised as a separate asset or liability in the consolidated statement of financial position. On de-recognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any new asset obtained less any new liability assumed) is recognised in consolidated income statement. The Group enters into transactions whereby it transfers assets recognised on its consolidated statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognized. Transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. In certain transactions the Group retains the obligation to service the transferred financial asset for a fee. The transferred asset is de-recognised if it meets the de-recognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing. The Group de-recognises a financial liability when its contractual obligations are discharged or cancelled or expire. (iii) Offsetting Financial assets and liabilities are offset only when there is a legal or religious enforceable right to set off the recognised amounts and the Group intends to either settle on a net basis, or to realise the asset and settle the liability simultaneously. 19
22. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. (f) . SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of financial assets The Group assesses at each consolidated statement of financial position date whether there is objective evidence that an asset is impaired. Objective evidence that financial assets (including equity-type investments) are impaired can include default or delinquency by a counterparty / investee, restructuring of financing facility or advance by the Group on terms that the Group would not otherwise consider, indications that a counterparty or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of counterparty or issuers in the group, or economic conditions that correlate with defaults in the group. In addition, for an investment in equity-type instruments, a significant or prolonged decline in its fair value below its cost is objective evidence of impairment. Equity-type investments classified as fair value through equity In the case of equity-type investments classified as fair value through equity and measured at fair value, a significant (where market value has declined by a minimum of 20%) or prolonged (where market value has declined for 9 months at least) decline in the fair value of an investment below its cost is considered in determining whether the investments are impaired. If any such evidence exists for equity-type investments classified as fair value through equity, the cumulative loss previously recognised in the consolidated statement of changes in equity is removed from equity and recognised in the consolidated income statement. Impairment losses recognised in the consolidated income statement on equity-type investments are subsequently reversed through equity. Financial assets carried at amortised cost (including investment in debt-type instruments classified as amortised cost) For financial assets carried at amortised cost, impairment is measured as the difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets’ original effective profit rate. Losses are recognised in consolidated income statement and reflected in an allowance account. When a subsequent event causes the amount of impairment loss to decrease, the impairment loss is reversed through the consolidated income statement, to the extent of previously recognised impairment losses. The Group considers evidence of impairment for financial assets carried at amortised cost at both a specific asset and collective level. All individually significant financial assets are assessed for specific impairment. All individually significant financial assets found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Financial assets that are not individually significant are collectively assessed for impairment by grouping assets together with similar risk characteristics. (g) Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with maturities of less than three months from the reporting date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the consolidated statement of financial position. 20
23. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. . SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Investment property Properties held for rental or for capital appreciation purpose are classified as investment property and are measured at fair value with any change therein recognised in equity within the fair value reserve. An investment property is derecognised upon disposal or when the investment property is permanently withdrawn from use and no future economic benefits are expected from the disposal. Any gain or loss arising on derecognition of the property (calculated as the difference between the net disposal proceeds and the carrying amount of the asset) is included in profit or loss in the period in which the property is derecognised. (i) Risk management instruments Risk management instruments are measured at fair value on the consolidated statement of financial position and any resulting gain or loss is recognised in the consolidated income statement. (j) Fixed assets Items of fixed assets are measured at cost less accumulated depreciation and impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. Purchased software that is integral to the functionality of the related equipment is capitalised as part of related equipment. The gain or loss on disposal of an item of fixed asset is determined by comparing the proceeds from disposal with the carrying amount of the item of fixed assets, and is recognised in other income/other expenses in consolidated income statement. Depreciation is recognised in consolidated income statement on a straight-line basis over the estimated useful lives of each part of an item of fixed assets since this closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset and is based on cost of the asset less its estimated residual value. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Land is not depreciated. The estimated useful lives for the current and comparative years are as follows: Buildings 20 years IT Equipment (hardware/software) 3-5 years Fixtures, fittings and office equipment 4-7 years Motor vehicles 5-7 years Useful lives and residual values are reassessed at each reporting date and adjusted prospectively, if appropriate. (k) Intangible assets Goodwill that arises upon the acquisition of subsidiaries is included in intangible assets. Subsequent to initial recognition goodwill is measured at cost less accumulated impairment losses. Intangible assets other than goodwill are amortised over their useful lives, and carried net of accumulated amortisation and impairment losses. Useful life of intangible assets are as follows: Identifiable intangibles 3-5 years 21
24. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. (l) . SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. For goodwill and intangible assets that have indefinite useful lives or that are not yet available for use, the recoverable amount is estimated each year at the same time. An impairment loss is recognised if the carrying amount of an asset or its Cash Generating Unit (“CGU") exceeds its estimated recoverable amount. The recoverable amount of an asset or CGU is the greater of its value in use and its fair value less costs to sell. 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 assessments of the time value of money and the risks specific to the asset or CGU. For the purpose of impairment testing, assets that cannot be tested individually are grouped together into the smallest group of assets that generates cash inflows from continuing use that are largely independent of the cash inflows of other assets or CGU. Subject to an operating segment ceiling test, for the purposes of goodwill impairment testing, CGUs to which goodwill has been allocated are aggregated so that the level at which impairment testing is performed reflects the lowest level at which goodwill is monitored for internal reporting purposes. Goodwill acquired in a business combination is allocated to groups of CGUs that are expected to benefit from the synergies of the combination. The Group’s corporate assets do not generate separate cash inflows and are utilised by more than one CGU. Corporate assets are allocated to CGUs on a reasonable and consistent basis and tested for impairment as part of the testing of the CGU to which the corporate asset is allocated. Impairment losses are recognised in consolidated income statement. Impairment losses recognised in respect of CGUs are allocated first to reduce the carrying amount of any goodwill allocated to the CGU (group of CGUs) and then to reduce the carrying amount of the other assets in the CGU (group of CGUs) on a pro rata basis. An impairment loss in respect of goodwill cannot be subsequently reversed. In respect of other assets, impairment losses recognised in prior periods are assessed at each reporting date for any indications that the loss has decreased or no longer exists. An impairment loss is reversed if there has been a change in the estimates used to determine the recoverable amount. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. (m) Customer current accounts Balances in current accounts are recognised when received by the Bank. The transactions are measured as the amount received by the Bank at the time of contracting. At the end of the reporting period, these accounts are measured at amortised cost. 22
25. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. . SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (n) Equity of investment account holders Equity of investment account holders is funds held by the Group, which it can invest at its own discretion. The investment account holders authorises the Group to invest the account holders’ funds in a manner which the Group deems appropriate without laying down any restrictions as to where, how and for what purpose the funds should be invested. The Bank charges a management fee (Mudarib fees) to investment account holders. Of the total income from investment accounts, the income attributable to account holders is allocated to investment accounts after deducting the Group’s share of income as a Mudarib. The allocation of income is determined by the management of the Group within the allowed profit sharing limits as per the terms and conditions of the investment accounts. Investment accounts are carried at their book values (amortised cost). (o)      (p) Distribution of profit between equity of investment account holders and owners The Bank complies with the directives of the QCB as follows: Net profit is arrived at after taking into account all income and expenses at the end of the financial year, and is distributed between investment account holders and owners. The share of profit of investment account holders is calculated on the basis of their daily deposit balances over the year, after reducing the Bank’s agreed and declared Mudaraba fee. In case of any expense or loss, which arises out of negligence on the part of the Bank due to noncompliance with QCB regulations and instructions, then such expenses or loss shall not be borne by the investment account holders. Such matter is subject to the QCB decision. In case the results of the Group at the year-end are net losses, then QCB, being the authority responsible for determining the Bank’s accountability for these losses, shall decide how these shall be treated without violation to the Islamic Shari’a rules. Due to pooling of investment funds with the Group’s funds for the purpose of investment, no priority has been given to either party in the appropriation of profit. Provisions Provisions are recognised when the Group has a present obligation (legal or constructive) as a result of a past event, it is probable that the Group will be required to settle the obligation, and a reliable estimate can be made of the amount of the obligation. The amount recognised as a provision is the best estimate of the consideration required to settle the present obligation at the end of the reporting period, taking into account the risks and uncertainties surrounding the obligation. When a provision is measured using the cash flows estimated to settle the present obligation, its carrying amount is the present value of those cash flows (when the effect of the time value of money is material). When some or all of the economic benefits required to settle a provision are expected to be recovered from a third party, a receivable is recognised as an asset if it is virtually certain that reimbursement will be received and the amount of the receivable can be measured reliably. Present obligations arising under onerous contracts are recognised and measured as provisions. An onerous contract is considered to exist where the Group has a contract under which the unavoidable costs of meeting the obligations under the contract exceed the economic benefits expected to be received from the contract. 23
26. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (q) Employee benefits . Defined contribution plans The Group provides for its contribution to the State administered retirement fund for Qatari employees in accordance with the retirement law, and the resulting charge is included within the staff cost under note 27 in the consolidated income statement. The Group has no further payment obligations once the contributions have been paid. The contributions are recognised when they are due. Defined benefit scheme The Group provides for employees end of service benefits determined in accordance with the requirements of Qatar Labour law pertaining to retirement and pensions, wherever required. These unfunded charges are made by the Group on the basis of employees’ salaries and the number of years of service at the statement of financial position date. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under shortterm cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. (r) Revenue recognition Murabaha and Musawama Profit from Murabaha and Musawama transactions is recognised when the income is both contractually determinable and quantifiable at the commencement of the transaction. Such income is recognised on a time-apportioned basis over the period of the transaction. Where the income from a contract is not contractually determinable or quantifiable, it is recognised when it is actually realised. Income related to non-performing accounts is excluded from the consolidated income statement. Mudaraba Income on Mudaraba financing is recognised when the right to receive payment is established or on distribution by the Mudarib, whereas losses are charged to the consolidated income statement on declaration by the Mudarib. Ijara Ijara income is recognised on time-apportioned basis over the lease period. Income related to nonperforming accounts is excluded from the consolidated income statement. Istisna’a Revenue and the associated profit margin are recognised in the Group’s consolidated income statement according to the percentage of completion method. Wakala Income from Wakala placements is recognised on a time apportioned basis so as to yield a constant periodic rate of return based on the balance outstanding. 24
27. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (r) . Revenue recognition (continued) Income from investment banking services Income from investment banking services (presented in fee and commission income), including placement, advisory, marketing and performance fees, is recognised as per contractual terms when the service is provided and income is earned. This is usually when the Group has performed all significant acts in relation to a transaction and it is highly probable that the economic benefits from the transaction will flow to the Group. Significant acts in relation to a transaction are determined based on the terms agreed in the contracts for each transaction. The assessment of whether economic benefits from a transaction will flow to the Group is based on the extent of binding firm commitments received from other parties. Fees and commission income Fees and commission income that are integral to the effective profit rate on a financial asset carried at amortised cost are included in the measurement of the effective profit rate of the financial asset. Other fees and commission income, including account servicing fees, sales commission, management, arrangement and syndication fees, are recognised as the related services are performed. Dividend income Dividend income is recognised when the right to receive the dividend is established. (s) Earnings per share The Bank presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the net profit or loss attributable to owners of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the net profit or loss attributable to owners and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. (t) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the Group Management Committee (being the chief operating decision maker) to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. (u) Fiduciary activities The Group acts as fund manager and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, corporate and other institutions. These assets and income arising thereon are excluded from these consolidated financial statements, as they are not assets of the Group. (v) Earnings prohibited by Shari’a The Bank is committed to avoid recognising any income generated from non-Islamic sources. Accordingly, all non-Islamic income is credited to a charity account, the Bank reserve these funds for charitable purposes. 25
28. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) . (w) Taxation The Group is currently exempt from income tax. However, the Bank and certain subsidiaries of the Group that meet the Tax Law criteria are required to file income tax returns with the Public Revenues and Taxes department. (x) Financial information of the parent A statement of financial position and income statement of the Parent as disclosed at the end of the consolidated financial statements are prepared following the same accounting policies as mentioned above except for investment in subsidiaries and associates which are carried at cost. (y) Financial guarantees In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit and guarantees. Financial guarantees are initially recognized in the consolidated financial statements at fair value, being the premium received on the date the guarantee was given, and the initial fair value is amortised over the life of the financial guarantee. Subsequent to initial recognition, the Group’s liability under such guarantees are measured at the higher of the amortised amount and the best estimate of the expenditure required to settle any financial obligation arising at the reporting date. These estimates are determined based on experience of similar transactions and history of past losses, supplemented by the judgment of Management. Any increase in the liability relating to guarantees is taken to the consolidated statement of income. The amortisation of the premium received is recognized in the consolidated statement of income under “fee and commission income”. (z) New standards and interpretations New standards, amendments and interpretations issued but not yet effective FAS 30 Impairment, Credit losses and onerous commitments AAOIFI has issued FAS 30 Impairment, Credit losses and onerous commitments in 2017. The objective of this standard is to establish the principles of accounting and financial reporting for the impairment and credit losses on various Islamic financing, investment and certain other assets of Islamic financial institutions (the institutions), and provisions against onerous commitments enabling in particular the users of financial statements to fairly assess the amounts, timing and uncertainties with regard to the future cash flows associated with such assets and transactions. FAS 30 will replace FAS 11 Provisions and Reserves and parts of FAS 25 Investment in Sukuk, shares and similar instruments that deal with impairment. FAS 30 classifies assets and exposures into three categories based on the nature of risks involved (i.e. credit risk and other risks) and prescribes three approaches for assessing losses for each of these categories of assets: 1) Credit Losses approach, 2) Net Realizable Value approach (“NRV”) and 3) Impairment approach. 26
29. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (z) . New standards and interpretations (continued) Expected credit losses (‘ECL’) FAS 30 introduces the Credit Losses approach with a forward-looking ‘expected credit loss’ model. The Credit Losses approach for receivables and off balance sheet exposures uses a dual measurement approach, under which the loss allowance is measured as either a 12-month expected credit loss or a lifetime expected credit loss. The new impairment model will apply to financial assets which are subject to credit risk, and a number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:     Determining criteria for significant increase in credit risk (SICR); Choosing appropriate models and assumptions for the measurement of ECL; Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and Establishing group of similar financial assets for the purposes of measuring ECL. The standard is effective from financial periods beginning on or after 1 January 2020 with early adoption permitted. The Bank is currently awaiting guidance from Qatar Central Bank (“QCB”) in this regard. However, the Bank has assessed the estimated impact of applying the ECL regulations issued by the QCB during the year, with effective date of 1 January 2018, on its consolidated financial statements as below: Retained earnings Closing balance as at 31 December 2017 Estimated risk reserve transfer on 1 January 2018 Non-controlling interest In QAR’000 977,361 645,563 In QAR’000 13,680 - 1,264 - 10,454 1,066,439 - 128,375 1,206,532 - 416,392 13,680 Impact on recognition of Expected Credit Losses Expected credit losses for due from banks Expected credit losses for debt type securities at amortized cost Expected credit losses for financing assets Expected credit losses for off balance sheet exposures subject to credit risk Estimated adjusted opening balance on date of initial application of 1 January 2018 The Group is expected to utilize part of the risk reserve to record the initial cumulative impact of the ECL after obtaining the necessary approval from the QCB. The above assessment is preliminary because not all transition work has been finalized. The actual impact of adopting the QCB’s ECL regulations on 1 January 2018 and on adoption of FAS 30 may change because: 27
30. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 3. SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (z) New standards and interpretations (continued)      . the QCB’s ECL regulations and FAS 30 will require the Bank to revise its accounting process and internal controls and these changes are yet to complete; although parallel runs were carried out in second half of 2017, the new systems and associated controls in place have not been operational for a more extended period; the Bank has not finalized the testing and assessment of controls over its new IT systems and changes to its governance framework; the Bank is refining and finalizing its models for ECL calculations in line with FAS 30; and the new accounting policies, assumptions, judgements and estimation techniques employed are subject to change until the Bank receives final implementation guidelines from QCB and presents its first [consolidated] financial statements that include the date of initial application as of and for the period ending March 2018. (aa) Share capital and reserves Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the shareholders’ of the Bank. (ab) Sukuk financing Financing raised under Sukuks program are recognised at amortised cost and disclosed as a separate line in the consolidated financial statements as “Sukuk financing”. Profits are recognised periodically till maturity. Sukuk financing bears variable profit rate which is fixed on semi-annual basis along with the profit payment. (ac) Restricted investment accounts Restricted investment accounts represents assets acquired by funds provided by holders of restricted investment accounts and their equivalent and managed by the Group as an investment manager based on either a Mudaraba contract or (Wakala) agency contract. The restricted investment accounts are exclusively restricted for investment in specified projects as directed by the investments account holders. Assets that are held in such capacity are not included as assets of the Group in the consolidated financial statements. 28
31. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. (a) . FINANCIAL RISK MANAGEMENT Introduction and overview The Group’s business involves taking on risks in a targeted manner and managing them professionally. The core functions of the Group’s risk management are to identify all key risks for the Group, measure these risks, manage the risk positions and determine capital allocations. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and best market practice. The Group’s aim is to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Group’s financial performance. The Group defines risk as the possibility of losses or profits foregone, which may be caused by internal or external factors. The risks arising from financial instruments to which the Group is exposed are financial risks, which include credit risk, liquidity risk, market risks and operational risk. Risk Management Structure The Board of Directors is ultimately responsible for identifying and controlling risks, however, there are separate independent functions responsible for managing and monitoring risks. Risk Management and Compliance Committee The Risk Management and Compliance Committee has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits. Credit Committee The Board of Directors has delegated authority to Credit Committee to approve, sub-delegate, direct, monitor and reviews the Group's financing activities, within specified limits, and to ensure that the credit policies are adhered to, and credit operations are conducted in the most effective manner. The Credit Committee is the highest level of executive credit approval authority in the Group and is responsible for taking credit decisions within its delegated authority, recommending credit policies and future direction of the credit activities in the Group. Asset Liability Committee (ALCO) ALCO is responsible for the overall balance sheet management of the Group. ALCO set guidelines for the overall management of the liquidity and profit rate risk. ALCO also determine the borrowing and funding strategy (asset allocation) of the Group in order to maximize the profit and minimize risk. Operational Risk Committee The Operational Risk Committee is responsible for managing and overseeing all aspects of operational risk in the Group. The Committee is responsible for the effective implementation of all operational risk policies and standards. Internal Audit Risk management processes are audited by the Group Internal Audit function which examines both the adequacy and compliance with the procedures in addition to a specific audit of the Group Risk function itself as per the approved audit plan. Group Internal Audit discusses the results of all assessments with management and reports its findings and recommendations to the Audit Committee. 29
32. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. (b) . FINANCIAL RISK MANAGEMENT (CONTINUED) Credit risk Credit risk is the risk of financial loss to the Group if a customer or counterparty to a financial instrument fails to meet its contractual obligations. The Group manages credit risk through diversification of investments, capital markets, lending and financing activities to avoid undue concentrations of credit risk with individuals or groups of customers in specific locations or businesses. It also obtains collaterals when appropriate. Credit risk arises from all transactions that give rise to actual, contingent or potential claims against any counterparty, obligor or customer (collectively referred as “counterparties”). It is the risk that a loss will be incurred if counterparty defaults or fails to honor a financial obligation that is due. It takes into account both probability of involuntary default, wherein the counterparty does not possess the financial means to repay, and strategic default, wherein counterparty with the ability to repay deliberately defaults. Credit risk may have the following results: - Delay in payment obligation; - Partial loss of the credit exposure; or - Complete loss of the credit exposure. For risk management reporting purposes, the Group considers and consolidates all elements of credit risk exposure (such as individual obligor default risk, country and sector risk). Management of credit risk The Board of Directors has delegated responsibility for the oversight of credit risk upto a specified limit to its Credit Committee, which is responsible for management of the Group’s credit risk, including:       Formulating credit policies in consultation with business units, covering collateral requirements, credit assessment, risk grading and reporting, compliance with QCB regulations, other applicable legal and statutory requirements; Establishing the authorisation structure for the approval and renewal of credit facilities. Facilities exceeding a certain threshold require Board of Directors approval; Developing and maintaining the Group’s risk grading in order to categorise exposures according to the degree of financial risk; Limiting geographical exposures, concentration risk based on internal and external ratings, exposure limits and QCB guidelines; Collateralising the exposures by adequate tangible and intangible collaterals. The types of collaterals obtained include cash, mortgages over real estate properties, pledges over shares and personal/corporate guarantees, as appropriate; and Reviewing business units compliance of agreed exposure limits, including those for selected industries, country risk and product types. Regular review of the credit quality of Group’s portfolios is performed and appropriate corrective actions are taken when required. The Group has implemented Moody’s Risk Analyst Rating System, in order to effectively monitor credit risk at an obligors level on the Group’s portfolio and align capital adequacy to such risks. The system is globally proven and enables the Group to rate credit risk on a more objective basis. 30
33. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. (b) (i) . FINANCIAL RISK MANAGEMENT (CONTINUED) Credit risk (Continued) Credit risk measurement Group regularly analyze the quality of the overall credit portfolio with particular focus on the problem credits and the remedial management process. This include: - Transaction level review - Obligor level review - Portfolio based review - Exception based review. Credit review and Credit Administration units are responsible to ensure that all financing activity is undertaken within the approved framework and any deviations are promptly detected, reported and followed up for remedial action. Credit portfolio management Objective and responsibility Portfolio management is an integral part of the credit process that enables the Group to limit concentrations, reduce volatility, increase liquidity and achieve optimum earnings. It does so by incorporating portfolio strategy and planning, performance assessment and reporting functions into one comprehensive management process. Group is responsible for carrying out the activities in relation to credit risk portfolio management by seeking information from different business units on a regular basis to perform this function. The portfolio analyst undertakes the review, monitoring and control of limits structures based on the portfolio diversification parameters. Further, it prepares portfolio studies and periodic sector/ regional exposure information for management review. Portfolio diversification The Bank takes into consideration the following parameters to assess the diversification of the credit portfolio across: - Group exposure limits - Industry/ sector exposure limits - Country exposure limits - Product exposure limits - Exposure to a particular credit risk mitigant Stress testing of credit portfolio The Group follows a rigorous and forward looking stress testing procedure (in line with pillar 2 requirements of Basel II Accord as well as taking into consideration QCB guidelines) that identifies possible events or changes in market conditions (or risk factors) that could adversely impact the Group. This requires foreseeing situations under hypothetical scenarios considering the question ‘what-if’ and development of stress tests in such scenarios. This enables the Group to be well equipped to cope with the crisis situations when they arise. Risk function has the responsibility of conducting periodic stress testing of the credit portfolio. 31
34. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. (b) (i) . FINANCIAL RISK MANAGEMENT (CONTINUED) Credit risk (Continued) Credit risk measurement (continued) The stress-testing program of the Group involves the following steps: - Capturing reliable data (accuracy and timeliness) - Identification of risk factors that have an impact on the portfolio value. The different categories of risk factors used by the Group are: a. Obligor rating b. Environment (industry, economic, political, real estate prices, etc.) c. Model (assumptions, holding period, etc.) d. Analytics (correlation, transition matrices, etc.) - Construction of stress tests on the basis of single factor or multi-factor scenarios Deciding magnitude of factor shock Running stress tests Reporting results of stress tests - Assessing the impact of abovementioned results on capital adequacy of the Group Reassessing the relevance of stress tests on yearly basis. Credit risk management information system (MIS) Information on all elements of the Group’s risk asset portfolio, and most particularly on irregular accounts and on those displaying characteristics of deterioration, are readily available with the concerned staff. Reports are thoroughly scrutinized and, where indicated, triggers appropriate response from the department concerned. (ii) Risk limit control and mitigation policies The Group has processes in place for mitigating credit risk which mainly include processes for credit Initiation, credit standards, collateral management and large exposure management. Collateral The Group secures credit exposures through a variety of collaterals including cash margins, lien on fixed deposits, real estate and marketable securities. Independent valuation of real estate collaterals are obtained periodically to determine collateral coverage. The value of marketable securties is constantly monitored to determine whether any replenishments /disposals are required. Financing limits (for risk management instrument and financing books) The Group has defined limits by counterparty, borrowing group, country, Board of Directors, subsidiaries and affliates. Exposures against these limits are monitored and any breach is reported to the Board through Risk Management and Compliance Committee. 32
35. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (Continued) (iii) Maximum exposure to credit risk before collateral held or other credit enhancements 2017 2016 Credit risk exposures relating to financial assets recorded on the consolidated statement of financial position are as follows: Balances with Qatar Central Bank Due from banks Financing assets Investment securities – debt type Other assets 1,211,956 1,410,628 2,946,480 2,696,054 31,676,882 29,778,499 9,868,263 9,102,776 391,984 269,866 46,095,565 43,257,823 8,461,848 7,506,984 Other credit risk exposures are as follows: Guarantees Letters of credit Unutilised credit facilities 1,608,432 2,471,374 7,336,554 10,835,574 17,406,834 20,813,932 The above tables represent a worse-case scenario of credit risk exposure to the Group, without taking account of any collateral held or other credit enhancements attached. For assets recorded on the consolidated statement of financial position, the exposures set out above are based on net carrying amounts as reported on the consolidated statement of financial position. (iv) Concentration of risks of financial assets with credit risk exposure Geographical sectors The following table breaks down the Group’s credit exposure at their carrying amounts (without taking into account any collateral held or other credit support), as categorised by geographical region. For this table, the Group has allocated exposures to regions based on the country of domicile of its counterparties. 2017 Other Qatar GCC Europe Others Total 1,211,956 - - - 1,211,956 Assets recorded on the consolidated statement of financial position: Balances with Qatar Central Bank Due from banks Financing assets Investment securities – debt type Other assets 2,783,069 29,711 28,291 105,409 2,946,480 25,697,307 2,036,989 3,579,652 362,934 31,676,882 9,681,818 39,328 - 147,117 9,868,263 391,984 - - - 391,984 39,766,134 2,106,028 3,607,943 615,460 46,095,565 33
36. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 4. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (Continued) (iv) Concentration of risks of financial assets with credit risk exposure (continued) Geographical sectors (continued) 2016 Other Qatar GCC Europe Others Total Assets recorded on the consolidated statement of financial position: Balances with Qatar Central Bank Due from banks Financing assets Investment securities – debt type Other assets 1,410,628 - - - 1,410,628 1,049,028 940,870 13,265 692,891 2,696,054 22,028,206 3,268,218 3,428,882 1,053,193 29,778,499 8,610,008 199,673 7,601 285,494 9,102,776 214,916 34,717 19,929 304 269,866 33,312,786 4,443,478 3,469,677 2,031,882 43,257,823 2017 Other Other credit risk exposures Guarantees Letters of credit Unutilised credit facilities Qatar GCC Europe Others Total 7,495,469 315,293 128,800 522,286 8,461,848 1,459,014 149,418 - - 1,608,432 6,747,280 225,115 - 364,159 7,336,554 15,701,763 689,826 128,800 886,445 17,406,834 2016 Other Qatar GCC Europe Others Total 6,734,626 358,906 28,396 385,055 7,506,983 2,066,432 277,209 - 127,733 2,471,374 10,396,771 382,879 5 55,920 10,835,575 19,197,829 1,018,994 28,401 568,708 20,813,932 Other credit risk exposures Guarantees Letter of credit Unutilised credit facilities 34
37. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (Continued) (iv) Concentration of risks of financial assets with credit risk exposure (continued) Industry sectors The following table breaks down the Group’s credit exposure at carrying amounts before taking into account collateral held or other credit enhancements, as categorised by the industry sectors of the Group’s counterparties. Funded and unfunded Government Industry and Manufacturing Commercial Financial services Contracting Real estate Personal Services and others Gross Gross exposure exposure 2017 2016 15,189,164 14,756,449 1,087,750 1,150,798 4,351,980 4,307,170 6,129,804 4,451,770 12,485,691 12,101,430 9,695,202 9,843,020 2,416,642 2,232,936 12,146,166 15,228,182 63,502,399 64,071,755 Credit risk exposure The tables below presents an analysis of financial assets by rating agency designation, based on Standard & Poor’s ratings (or their equivalent Moody’s / Fitch): 2017 2016 15,309,880 16,105,443 4,406,670 3,553,772 Equivalent grades AAA to AAA+ to ABBB+ to BBBBB+ to BUnrated 398,311 383,616 102,599 1,043,220 43,284,939 42,985,704 63,502,399 64,071,755 35
38. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 4. FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (Continued) (v) Credit quality Financing assets 2017 2016 22,729,116 20,182,133 Investment securities – debt type Due from banks 2017 2016 2017 2016 Neither past due nor impaired: Investment grade Standard monitoring Special monitoring Carrying amount 1,662,196 3,841,609 2,946,480 - 2,696,054 - - - 2,667,442 2,866,196 27,058,754 26,889,938 2,946,480 2,696,054 9,868,263 9,102,776 - - - - 9,868,263 9,102,776 Past due but not impaired: Investment grade Standard monitoring Special monitoring 2,616,881 1,739,330 - - - - 1,233,058 913,211 - - - - 291,534 235,206 - - - - Carrying amount 4,141,473 2,887,747 - - - - Impaired: Substandard Doubtful Loss Less: impairment allowance-specific Less: impairment allowance-collective Carrying amount – net 470,310 105,334 - - - - 170,060 28,160 - - - - 343,381 326,885 - - - - 983,751 460,379 - (393,470) (5,250) (66,095) 476,655 814 - - - (501,846) - 2,696,054 9,868,263 31,676,882 29,778,499 2,946,480 - 9,102,776 Impaired financing assets Individually impaired financing assets including investment in debt-type securities (other than those carried at fair value through income statement) for which the Group determines that there is objective evidence of impairment and it does not expect to collect all principal and profit due according to the contractual terms of the financing / investment security agreement(s). Financing assets past due but not impaired Past due but not impaired financing assets are those for which contractual profit or principal payments are past due, but the Group believes that impairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collection of amounts owed to the Group. upto 30 days 31 to 60 days 61 – 90 days 2017 2016 1,859,439 1,228,883 1,171,148 1,340,955 1,110,886 317,909 4,141,473 2,887,747 36
39. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. FINANCIAL RISK MANAGEMENT (CONTINUED) . (b) Credit risk (Continued) (v) Credit quality (continued) Renegotiated financing assets Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Restructuring policies and practices are based on indicators or criteria that, in the judgment of management, indicate that payment will most likely continue. These policies are kept under continuous review. As at 31 December 2017, QAR 1,238.4 million (31 December 2016: QAR 1,227.7 million) of deals were restructured. (vi) Collateral The determination of eligible collateral and the value of collateral are based on QCB regulations and are assessed by reference to market price or indexes of similar assets. The Group has collateral in the form of blocked deposits, pledge of shares or legal mortgages against the past dues financing assets. The aggregate fair value of collateral is QAR 40,314.0 million (2016: QAR 41,099.6 million). For 0 day past due QAR 32,237.1 million (2016: QAR 34,336.1 million), past due up to 30 days: QAR 3,216.8 million (2016: QAR 4,582.8 million), past due from 31 to 60 days:QAR 2,962.8 million (2016: QAR 1,758.2 million), past due from 61 and 90 days: QAR 192.1 million (2016: QAR 6.3 million) and past due from 91 and above days: QAR 1,705.2 million (2016: QAR 416.2 million) respectively. (vii) Write-off policy The Group writes off a financing asset or an investment in debt-type security balance, and any related allowances for impairment losses, when the Group determines that the financing asset or security is uncollectible and after QCB approval is obtained. This determination is made after considering information such as the occurrence of significant changes in the borrower’s / issuer’s financial position such that the borrower / issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardised financing assets, write-off decisions generally are based on a productspecific past due status. The amount written off during the year was QAR 1.0 million (2016: QAR 0.9 million). (c) Liquidity risk Liquidity risk is the risk that the Group is unable to meet its obligations when they fall due as a result of e.g. customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities or margin calls for risk management instruments etc. Such outflows would deplete available cash resources for client financing, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in the consolidated statement of financial position and sales of assets, or potentially an inability to fulfil financing commitments. The risk that the Group will be unable to do so is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events including, but not limited to, credit events, merger and acquisition activity, systemic shocks and natural disasters. 37
40. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (Continued) (i) Management of liquidity risk The Group’s approach to managing liquidity is to ensure, as far as possible that it has sufficient liquidity to meet liabilities when due, under both normal and stressed conditions, without incurring unacceptable losses or risk of damage to the Group’s reputation. The primary objective of liquidity risk management over which the Asset and Liability Committee (ALCO) has oversight, is to provide a planning mechanism for unanticipated changes in the demand or needs for liquidity created by customer behavior or abnormal market conditions. The ALCO emphasizes the maximization and preservation of customer deposits and other funding sources. ALCO also monitors deposit rates, levels, trends and significant changes. Deposit mobilization plans are regularly reviewed for consistency with the liquidity policy requirements. A contingency plan is also in place which is reviewed periodically. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. Liquidity policy and procedures are subject to review and approval of the Board of Directors and ALCO. A summary report, including any exceptions and remedial action taken, is submitted regularly to the Board of Directors and ALCO. (ii) Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, other borrowings and commitments maturing within the next month. The Group ratio of liquid assets to customer deposits at the reporting date was 16% (2016: 35%). A similar, but not identical, calculation is used to measure the Group’s compliance with the liquidity limit established by QCB. As at 31 December 2017, liquidity ratio as per QCB prescribed method was 105% (31 December 2016: 113%). The mimimum liquidity ratio determined by the QCB is 100%. 38
41. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (Continued) (iii) Maturity analysis Maturity analysis of Group’s financial assets and liabilities are prepared on the basis of their contractual maturities. The contractual maturities have been determined on the basis of the remaining period at the statement of financial postion and do not take into account effective maturities as indicated by the Group’s deposit retention history. Cash in hand is not considered for liquidity risk management. Carrying amount Less than 1 month 1-3 months 3 months – 1 year 1-5 years More than 5 years 2017 Balances with Qatar Central Bank Due from banks Financing assets Investment securities – debt type Other assets 1,211,956 62,575 - - - 1,149,381 2,946,480 2,687,880 - - 258,600 - 31,676,882 2,002,230 1,177,850 5,842,026 10,362,325 12,292,451 9,868,263 1,945,022 56,079 500,000 2,217,789 391,984 113,469 107,227 28,920 142,368 - Total financial assets 46,095,565 6,811,176 1,341,156 6,370,946 12,981,082 18,591,205 Due to banks Sukuk financing Customer current accounts Other liabilities Total financial liabilities 11,445,073 10,594,226 113,126 7,283 730,438 - 2,201,270 - 908,537 455,188 837,545 - 1,673,772 1,673,772 - - - - 566,484 180,949 287,586 90,537 7,412 - 15,886,599 12,448,947 1,309,249 553,008 1,575,395 - Equiy of investment account holders Total 24,796,114 12,260,011 5,999,287 5,881,851 654,094 871 40,682,713 24,708,958 7,308,536 6,434,859 2,229,489 871 5,412,852 (17,897,782) (5,967,380) (63,913) 10,751,593 18,590,334 Carrying amount Less than 1 month 1-3 months Difference 3 months – 1 year 1-5 years 5,149,373 More than 5 years 2016 Balances with Qatar Central Bank Due from banks Financing assets Investment securities – debt type Other assets Total financial assets Due to banks Sukuk financing Customer current accounts Other liabilities Total financial liabilities Equiy of investment account holders Total Difference 1,410,628 40,353 - - - 2,696,054 1,992,814 - 444,801 258,439 - 29,778,499 1,198,756 1,829,438 2,583,967 8,701,292 15,465,046 3,684,131 1,370,275 9,102,776 - - 435,294 4,983,351 269,896 219,597 11,315 38,984 - - 43,257,853 3,451,520 1,840,753 3,503,046 13,943,082 20,519,452 5,739,803 3,304,615 735,009 567,006 220,941 912,232 2,197,594 - - - 2,197,594 - 1,590,923 1,590,923 - - - - 533,436 360,650 155,073 17,635 78 - 10,061,756 5,256,188 890,082 584,641 2,418,613 912,232 28,386,614 13,541,821 7,493,430 6,846,720 504,643 - 38,448,370 18,798,009 8,383,512 7,431,361 2,923,256 912,232 4,809,483 (15,346,489) (6,542,759) (3,928,315) 11,019,826 19,607,220 39
42. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (Continued) (iv) Maturity analysis (Financial liabilities and risk management instruments) Carrying amount Gross undiscounted cash flows Less than 1 month 1-3 months 3 months – 1 year More than 5 years 1-5 years 2017 Non-derivative financial liabilities Due to banks 11,445,073 11,445,073 10,594,226 Sukuk financing 2,201,270 2,201,270 Customer current accounts 1,673,772 1,673,772 1,673,772 Other liabilities 566,484 566,484 180,949 Total liabilities 15,886,599 15,886,599 12,448,947 Equity of investment account holders Risk management instruments Risk Management: Outflow Inflow 24,796,114 24,796,114 12,260,011 113,126 7,283 730,438 - 908,537 455,188 837,545 - - - - - 287,586 90,537 7,412 - 1,309,249 553,008 1,575,395 - 5,999,287 5,881,851 654,094 871 (10,069) 40,672,644 Carrying amount 3,424,575 709,812 1,198,225 1,481,618 28,369 6,551 (3,530,570) (707,456) (1,191,551) (1,596,643) (28,369) (6,551) 40,576,718 24,711,314 7,315,210 6,319,834 2,229,489 871 3 months – 1 year 1-5 years More than 5 years Gross undiscounted cash flows Less than 1 month 1-3 months 5,739,803 3,304,615 735,009 567,006 220,941 912,232 2,197,594 - - - 2,197,594 - 1,590,923 1,590,923 - - - - 2016 Non-derivative financial liabilities 5,739,803 Due to banks 2,197,594 Sukuk financing Customer current accounts 1,590,923 Other liabilities 533,436 Total liabilities 10,061,756 533,436 360,650 155,073 17,635 78 - 10,061,756 5,256,188 890,082 584,641 2,418,613 912,232 Equity of investment account holders 28,386,614 13,541,821 7,493,430 6,846,720 504,643 - Risk management instruments Risk Management: Outflow Inflow 28,386,614 43,812 38,492,182 3,658,369 731,825 1,108,567 1,771,079 30,453 16,445 (3,656,093) (731,825) (1,108,567) (1,768,803) (30,453) (16,445) 38,450,646 18,798,009 8,383,512 7,433,637 2,923,256 912,232 40
43. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risks The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in profit rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit rates, credit spreads, foreign exchange rates and equity prices. The Group separates exposures to market risk into either trading or non-trading portfolios. The market risks arising from trading and non-trading activities are concentrated in Group Treasury and monitored by two teams separately. Regular reports are submitted to the Board of Directors and heads of each business unit. Trading portfolios include those positions arising from market-making transactions where the Group acts as principal with clients or with the market. Non-trading portfolios primarily arise from the profit rate management of the entity’s retail and corporate banking assets and liabilities. Non-trading portfolios also consist of foreign exchange and equity risks arising from the Group’s debt-type and equity-type investments. (i) Management of market risks Overall authority for market risk is vested in ALCO. Group Market Risk is responsible for the development of detailed risk management policies (subject to review and approval by Board of Directors) and for the day-to-day review of their implementation. The Board of Directors has set risk limits based on different factors including country-wise exposure limits. These limits are closely monitored by senior management and reviewed by ALCO on a regular basis. (ii) Exposure to market risks – trading portfolios The principal tool used to measure and control market risk exposure within the Group’s trading portfolios is Value at Risk (VaR). The VaR of a trading portfolio is the estimated loss that will arise on the portfolio over a specified period of time (holding period) from an adverse market movement with a specified probability (confidence level). A fully integrated VaR computation system is used by the Group to calculate VaR through historical simulation, analytical and Monte Carlo approaches, which is based upon a 99 percent confidence level assuming a 1-day, 10-day and 30-day holding periods. Taking account of market data from the previous one year, and observed relationships between different markets and prices, the model generates a wide range of plausible future scenarios for market price movements. Market Risk limits are set and monitored by the Market Risk Management function endorsed by BOD.The Group uses VaR limits for total market risk and specific foreign exchange, profit rate, equity and other price risks. The overall structure of VaR limits are reviewed by ALCO and approval by the Board of Directors. VaR limits are allocated to trading portfolios The Group’s trading portfolio is comparitively insignificant in size, consist mainly of Equities however, the Group has established policies for VaR measurement to overlook the trends for market risk management. In addition, the Group uses a wide range of stress tests to model the financial impact of a variety of exceptional market scenarios, such as periods of prolonged market illiquidity, on individual trading portfolios and the Group’s overall position. 41
44. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risks (continued) (iii) Exposure to profit rate risk – non-trading portfolios The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market profit rates. Profit rate risk is managed principally through monitoring profit rate gaps and by having pre-approved limits for repricing bands. ALCO is the monitoring body for compliance with these limits and is assisted by Group central Treasury in its day-to-day monitoring activities. The Islamic Financial Services Board (“IFSB”) has issued a document on Risk Management guidelines for Institutions (other than Insurance Institutions) offering only Islamic Financial Service (“IIFS”). This includes sections on ‘Rate of Return Risk’ and ‘Liquidity Risk’. The Group adheres to the guidelines on ‘Rate of Return Risk’ and ‘Liquidity Risk’. A summary of the Group’s profit rate gap position on non-trading portfolios is as follows: Carrying Less than 3-12 amount 3 months months Non-profit Effective 1-5 years rate sensitive profit rate 2017 Balances with Qatar Central Bank Due from banks Financing assets Investment securities-debt type Due to banks Sukuk financing Equity of investment account holders 0.00% 1,211,956 - - - 1,211,956 2,946,480 312,004 - - 2,634,476 2.48% 31,676,882 18,003,708 5,352,227 1,446,190 6,874,757 5.15% 3.75% 9,868,263 - - - 9,868,263 45,703,581 18,315,712 5,352,227 1,446,190 20,589,452 11,445,073 951,378 - - 10,493,695 2,201,270 2,201,270 - - - 2.22% 3.38% 24,796,114 15,430,009 5,881,851 654,965 2,829,289 2.62% Consolidated statement of financial position items - Profit rate sensitivity gap 9,462,394 1,934,325 (529,624) 791,225 7,266,468 Off-consolidated statement of financial position items Cumulative profit rate sensitivity gap 7,336,554 2,726,193 2,992,788 1,617,573 - 16,798,948 4,660,518 2,463,164 2,408,798 7,266,468 4.89% 42
45. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risks (continued) (iii) Exposure to profit rate risk – non-trading portfolios (continued) Carrying Less than 3-12 amount 3 months months Non-profit rate Effective 1-5 years sensitive profit rate 2016 Balances with Qatar Central Bank Due from banks Financing assets Investment securities-debt type Due to banks Sukuk financing Equity of investment account holders Consolidated statement of financial position items - Profit rate sensitivity gap Off-consolidated statement of financial position items Cumulative profit rate sensitivity gap 1,410,628 - - - 1,410,628 - 2,696,054 338,612 364,629 - 1,992,813 1.03% 29,778,499 16,724,643 5,264,940 1,344,408 9,102,776 200,283 42,987,957 17,263,538 6,444,508 4.86% - 8,902,493 3.53% 5,629,569 1,344,408 18,750,442 - 5,739,803 912,234 - - 4,827,569 1.43% 2,197,594 2,197,594 - - - 2.78% 28,386,614 18,024,302 6,846,720 504,643 3,010,949 2.49% (3,870,592) (1,217,151) 839,765 10,911,924 6,663,946 10,835,574 10,661,266 - - 174,308 17,499,520 6,790,674 (1,217,151) 839,765 11,086,232 4.86% Sensitivity analysis Management monitors sensitivity of the Group’s financial assets and liabilities to various standard and Non standard profit rate scenarios. Standard scenario that is considered on a monthly basis include a 10 basis point (bp) parallel fall or rise in yield curve. An analysis of the Group’s sensitivity to an increase or decrease in market profit rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows: 10 bp parallel 10 bp parallel increase decrease 2017 At 31 December Average for the year 7,543 (7,543) 7,537 (7,537) 2016 At 31 December Average for the year (1,780) 1,780 (800) 800 Sensitivity of net profit 43
46. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. FINANCIAL RISK MANAGEMENT (CONTINUED) . (d) Market risks (continued) (iii) Exposure to profit rate risk – non-trading portfolios (continued) Profit rate movements affect reported equity in the following way:  retained earnings arising from increases or decreases in net profit and the fair value changes reported in consolidated income statement. Overall non-trading profit rate risk positions are managed by Treasury & Investments Group (TIG), which uses financial investments, advances to banks, deposits from banks and risk management instruments to manage the overall position arising from the Group’s non-trading activities. The use of risk management instruments to manage profit rate risk. (iv) Exposure to other market risks – non-trading portfolios Foreign currency transactions Foreign exchange risks arise from the movement of the rate of exchange over a period of time. Positions are monitored on a regular basis to ensure positions are maintained within approved limits established by the Board of Directors. As at the reporting date the net foreign currency exposures, other than USD which is pegged to the Qatari Riyal, and their respective sensitivities to a 500 bps change was as follows: Functional currency of the Group entities 2017 2016 13,862 (4,043) Net foreign currency exposure: Pounds Sterling Euro Other currencies* Increase / decrease in profit 5% increase / decrease in currency exchange rate 2017 2016 Pound Sterling Euro Other currencies 693 253 5,443 (202) 10 11,687 5,051 208 108,856 233,740 Increase / decrease in equity 2017 2016 693 253 5,443 (202) 10 11,687 *Other currencies include net exposure to Other GCC currencies amounting to QAR 106.7 million (2016: QAR 232.5 million). 44
47. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risks (continued) Equity price risk Equity price risk is the risk that the fair value of equities decreases as a result of changes in the level of equity indices and individual stocks. The non-trading equity price risk exposure arises from equity securities classified as fair value through income statement and fair value through equity. The Group is also exposed to equity price risk and the sensitivity analysis thereof is as follows: 2017 5% increase / decrease in QE and other index Increase / decrease in profit and loss Increase / decrease in equity 2016 2,586 4,077 54,524 44,570 The above analysis has been prepared on the assumption that all other variables such as profit rate, foreign exchange rate, etc are held constant and is based on historical correlation of the equity securities to the relevant index. Actual movement may be different from the one stated above. (e) Operational risks Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas:           requirements for appropriate segregation of duties, including the independent authorisation of transactions; requirements for the reconciliation and monitoring of transactions; compliance with regulatory and other legal requirements; documentation of controls and procedures; requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; requirements for the reporting of operational losses and proposed remedial action; development of contingency plans; training and professional development; ethical and business standards; and risk mitigation, including insurance where this is effective. 45
48. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (e) Operational risks (continued) The strategy and framework for operational risk management is set by the Operational Risk Committee (ORC) and is implemented consistently across the Group. While the management of operational risk is the primary responsibility of each function or service responsible, the implementation of an integrated Operational Risk Management Framework is coordinated by a dedicated and independent team led by an Operational Risk Manager (ORM). This team reports to the Chief Risk Officer (CRO) of the Group. Each business unit has nominated a “Unit Operational Risk Manager (UORM)” who acts as a single point of contact for ORM regarding all Operational Risks for the respective business unit. The organization has also invested in a state-of-the-art Operational Risk System to create a repository for all Operational risk incidents, losses and near-miss events. There is a robust process for reporting of issues, conducting of root cause analysis (where applicable) and rolling out mitigation plans to avoid recurrence of the issues. (f) Capital management Regulatory capital The Group’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on owners’ return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period. The capital adequacy ratio of the Group is calculated in accordance with the Basel Committee guidelines as adopted by the QCB. The Group’s regulatory capital position under Basel III and QCB regulations at 31 December was as follows: Tier 1 capital Tier 2 capital Total regulatory capital 2017 6,420,808 6,420,808 2016 5,372,086 412,180 5,784,266 Eligible capital (numerator in Capital Adequecy Ratio) consists of Tier 1 and Tier 2 capitals Tier 1 consists of two parts: Common Equity Tier 1 (CET1), and Aditional Tier 1 (AT1) CET1, is part of Tier 1 capital and is the purest form of capital, which includes share capital, statutory reserves, general reserve, retained earnings, exchange translation reserve and non-controlling interests, risk reserve and other regulatory adjustments relating to items that are included in equity but are treated differently for capital adequacy calculation purposes. The bank deducts intangible assets(including goodwill) and treasury stock from CET1/ Tier1. 46
49. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 4. . FINANCIAL RISK MANAGEMENT (CONTINUED) (f) Capital management (Continued) Regulatory capital (continued) The Group is following the standardised approach for credit and market and Basic Indicator approach for operational risk as permitted by the Qatar Central Bank and as per Pillar 1 of Basel 3. Capital adequacy and the use of regulatory capital are monitored on a regular basis by the Bank's management, employing techniques based on the guidelines developed by the Basel Committee and the Qatar Central Bank. The required information is computed and monitored on monthly basis and filed with the regulators on a quarterly basis after getting reviewed by Bank appointed external auditors. In Addition to Capital standards suggested by Basel 3, the Bank is also calculating leverage ratio at consolidated level which is well above the 3% requirement suggested by BCBS ( Basel Committee for Banking Supervision) and QCB. The two liquidity standards (Liquidity Coverage Ratio and Net Stability Funding Ratio) suggested under Basel 3 accord are also fully implemented and complied by the Bank. Furthermore, these liquidity ratios are regularly being monitored by the Bank Group ALCO. Risk weighted assets and carrying amounts Balances with Qatar Central Bank Due to banks Financing assets Investment securities Investment in associates and joint ventures Other assets Off balance sheet assets Total risk weighted assets for credit risk Risk weighted assets for market risk Risk weighted assets for operational risk Risk weighted assets Regulatory capital Risk weighted assets as a percentage of regulatory capital (capital ratio) 2017 2016 2017 2016 Basel III Basel II Carrying Carrying Risk Risk amount amount weighted weighted amount amount - - 1,211,956 1,410,628 1,111,810 1,209,963 2,946,480 2,696,054 25,141,367 25,311,949 31,676,882 29,778,499 766,272 914,205 10,199,819 9,456,880 325,062 449,984 217,730 298,308 680,326 572,848 848,138 740,675 4,592,545 4,515,413 17,406,834 20,813,932 32,617,382 32,974,362 64,507,839 65,194,976 1,645,607 2,016,760 758,919 891,406 2,456,696 2,305,685 - - 4,102,303 4,322,445 758,919 891,406 2017 2016 36,719,685 37,296,807 6,420,808 5,784,266 17.5% 15.5% The minimum ratio limit determined by QCB is 12.5% while the current Basel III capital adequacy requirement is 10.5%. 47
50. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 5. USE OF ESTIMATES AND JUDGMENTS (a) Going concern The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has resources to continue in the business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. (b) Key sources of estimation uncertainty The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgments are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Allowances for credit losses Assets accounted for at amortised cost are evaluated for impairment on a basis described in significant accounting policies.The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgments about a counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function. Minimum impairment on specific counter parties are determined based on the QCB regulations. Collectively assessed impairment allowances cover credit losses inherent in portfolios of financing and investment securities measured at amortised cost with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired financial assets, but the individual impaired items cannot yet be identified. In assessing the need for collective allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. (ii) Goodwill Determining whether goodwill is impaired requires an estimation of the value in use of the cash-generating units to which goodwill has been allocated. The value in use calculation requires the management to estimate the future cash flows expected to arise from the cash-generating unit and a suitable discount rate in order to calculate present value. Where the actual future cash flows are less than expected, a material impairment loss may arise. (iii) Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in significant accounting policies. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. 48
51. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 5. USE OF ESTIMATES AND JUDGMENTS (CONTINUED) (c) (i) Critical accounting judgments in applying the Group’s accounting policies Valuation of financial instruments The Group’s accounting policy on fair value measurements is discussed in the significant accounting policies section. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.  Level 1: Quoted market price (unadjusted) in an active market for an identical instrument.  Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e.  derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data. Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using valuation techniques. Valuation techniques include net present value and discounted cash flow models, comparison to similar instruments for which market observable prices exist, Black-Scholes and polynomial option pricing models and other valuation models. Assumptions and inputs used in valuation techniques include risk-free and benchmark profit rates, credit spreads and other premia used in estimating discount rates, bond and equity prices, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date, that would have been determined by market participants acting at arm’s length. 49
52. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 . 5. USE OF ESTIMATES AND JUDGMENTS (CONTINUED) (c) (ii) Critical accounting judgments in applying the Group’s accounting policies (continued) Financial asset and liability classification The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised: Level 1 Level 2 Level 3 Total Risk management instruments – assets Investment securities carried at fair value 758,919 758,919 - 7,319 331,556 338,875 7,319 1,090,475 1,097,794 Risk management instruments – liabilities - - 32,026 32,026 32,026 32,026 Risk management instruments – assets Investment securities carried at fiar value 891,406 891,406 - 55,331 354,104 409,435 55,331 1,245,510 1,300,841 Risk management instruments – liabilities - - 11,519 11,519 11,519 11,519 In thousands 2017 2016 The Group’s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances:   in classifying financial assets or liabilities as trading, the Group has determined that it meets the description of trading assets and liabilities set out in accounting policies. in designating financial assets or liabilities at fair value through income statement, the Group has determined that it has met one of the criteria for this designation set out in accounting policies. For the purpose of disclosure of fair value of financial assets and liabilities which are carried at amortised cost, the level 2 valuation method has been used except for the impaired financing assets for which level 3 valuation method has been used. Details of the Group’s classification of financial assets and liabilities are given in note 7. 50
53. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 5. (c) . USE OF ESTIMATES AND JUDGMENTS (CONTINUED) Critical accounting judgments in applying the Group’s accounting policies (continued) (iii) Impairment of investments in equity and debt securities Investments in equity and debt securities are evaluated for impairment on the basis described in the significant accounting policies note 3. (iv) Useful lives of fixed assets The Group’s management determines the estimated useful life of fixed assets for calculating depreciation. This estimate is determined after considering the expected usage of the asset, physical wear and tear, technical or commercial obsolescence. (v) 6. Useful life of intangible assets The Group’s management determines the estimated useful life of its intangible asssets for calculating amortisation. This estimate is determined after considering the expected economic benefits to be received from the use of intangible assets. OPERATING SEGMENTS The Group has four reportable segments, as described below, which are the Group’s strategic divisions. The strategic divisions offer different products and services, and are managed separately based on the Group’s management and internal reporting structure. For each of the strategic divisions, the Group Management Committee reviews internal management reports on at least a monthly basis. The following summary describes the operations in each of the Group’s reportable segments. Wholesale Banking Personal Banking and Includes financings, deposits and other transactions and balances with wholesale customers Private Includes financings, deposits and other transactions and balances with retail and private customers Treasury and Investments division Undertakes the Group’s funding and centralised risk management activities through borrowings, issues of debt securities, use of risk management instruments for risk management purposes and investing in liquid assets such as short-term placements and corporate and government debt securities. Further also manages Group’s trading of investments and corporate finance activities. Investment Banking Asset Management Operates the Group’s funds management activities. Mainly includes financial advisory services, including deal sourcing, structuring, valuations and advisory services, equity structuring, restructuring and placement; debt structuring, restructuring and placement including project finance, securitisation and sukuk; client portfolios management, structuring of liquidity products; structuring and marketing and management of open and closed ended funds; structuring, acquisition, placement and initial public offering of private equities; and private equity, equity structuring, private placements and initial public offerings. and 51
54. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 6. QAR ‘000s OPERATING SEGMENTS (CONTINUED) Information regarding the results, assets and liabilities of each reportable segment is included below. Performance is measured based on segment profit, as included in the internal management reports that are reviewed by the Group Management Committee. Segment profit is used to measure performance as management believes that such information is the most relevant in evaluating the results of certain segments relative to other entities that operate within these industries. Information about operating segments 2017 Wholesale banking Personal and Private banking Treasury and Investments division Investment Unallocated banking and Asset management Total Total income from financing and investing activities Net fee and commission income Foreign exchange gain Other income Share of results of associates and joint ventures Total segment revenue 894,144 74,870 8,239 15,386 992,639 680,300 33,831 6,688 9,786 730,605 416,255 4,540 41,849 67 (11,000) 451,711 9,944 56,492 2,484 4,714 73,634 - 2,000,643 169,733 56,776 27,723 (6,286) 2,248,589 Other material non-cash items: Net impairment loss on investment securities Net impairment loss on financing assets (31,314) (17,282) (5,963) - (20,235) - - (26,198) (48,596) Reportable segment net profit 226,723 336,430 159,535 31,636 - 754,324 Reportable segment assets 20,647,348 12,718,931 14,041,585 452,060 777,230 48,637,154 Reportable segment liabilities 21,758,064 5,315,214 13,926,853 15,414 - 41,015,545 52
55. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 6. OPERATING SEGMENTS (CONTINUED) Information about operating segments 2016 Wholesale banking Personal and Private banking Treasury and Investments division Investment banking and Asset management Unallocated Total Total income from financing and investing activities Net fee and commission income Foreign exchange gain Other income Share of results of associates and joint ventures Total segment revenue 753,763 60,719 4,095 20,529 839,106 639,925 27,543 5,799 19,142 692,409 392,470 (835) 15,024 406,659 9,268 48,066 1,571 5,078 63,983 - 1,795,426 135,493 24,918 41,242 5,078 2,002,157 Other material non-cash items: Net impairment loss on investment securities Net impairment loss on financing assets (65,913) (12,185) (8,608) - - - (8,608) (78,098) Reportable segment net profit 290,095 276,979 135,552 36,176 - 738,802 Reportable segment assets 18,893,391 12,687,589 13,014,866 676,604 777,230 46,049,680 Reportable segment liabilities 23,959,606 6,689,041 8,092,188 45,633 - 38,786,468 53
56. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 7. QAR ‘000s FAIR VALUE AND CLASSICIATION OF FINANCIAL INSTRUMENTS The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities: Fair value through income Fair value Amortised statement through equity cost Total carrying amount Fair value 2017 Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities: - Carried at fair value - Carried at amortised cost Risk management instruments - - 1,383,847 2,946,480 31,676,882 1,383,847 2,946,480 31,676,882 1,383,847 2,946,480 31,676,882 51,711 7,319 59,030 1,038,764 1,038,764 9,868,263 45,875,472 1,090,475 9,868,263 7,319 46,973,266 1,090,475 9,832,382 7,319 46,937,385 Due to banks Sukuk financing Customer current accounts Risk management instruments 32,026 32,026 - 11,445,073 2,201,270 1,673,772 15,320,115 11,445,073 2,201,270 1,673,772 32,026 15,352,141 11,445,073 2,201,270 1,673,772 32,026 15,352,141 Equity of investment account holders 32,026 - 24,796,114 40,116,229 24,796,114 40,148,255 24,796,114 40,148,255 54
57. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 7. QAR ‘000s FAIR VALUE AND CLASSICIATION OF FINANCIAL INSTRUMENTS (CONTINUED) The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities: Fair value through income statement Fair value through equity Amortised cost Total carrying amount Fair value 2016 Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities: - Carried at fair value - Carried at amortised cost Risk management instruments - - 1,582,534 2,696,054 29,778,499 1,582,534 2,696,054 29,778,499 1,582,534 2,696,054 29,778,499 81,542 55,331 136,873 1,163,968 1,163,968 9,102,776 43,159,863 1,245,510 9,102,776 55,331 44,460,704 1,245,510 9,099,058 55,331 44,456,986 Due to banks Sukuk financing Customer current accounts Risk management instruments 11,519 11,519 - 5,739,803 2,197,594 1,590,923 9,528,320 5,739,803 2,197,594 1,590,923 11,519 9,539,839 5,739,803 2,197,594 1,590,923 11,519 9,539,839 Equity of investment account holders 11,519 - 28,386,614 37,914,934 28,386,614 37,926,453 28,386,614 37,926,453 55
58. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 8. QAR ‘000s CASH AND BALANCES WITH QATAR CENTRAL BANK Cash Cash reserve with QCB* Other balances with QCB 2017 2016 171,891 1,149,381 62,575 1,383,847 171,906 1,370,275 40,353 1,582,534 *The cash reserve with QCB is not available for use in the Group’s day to day operations. 9. DUE FROM BANKS Current accounts Wakala placements with banks Mudaraba placements Commodity Murabaha receivable 2017 2016 157,141 2,459,400 71,339 258,600 2,946,480 99,838 1,669,085 223,890 703,241 2,696,054 10. FINANCING ASSETS (a) By type 2017 2016 Murabaha Murabaha commodity Musawama Istisna’a Ijarah Muntahia Bittamleek Cards Acceptances Others Total financing assets 2,891,501 21,196,232 1,711,346 336,434 6,738,062 65,060 405,085 10,646 33,354,366 4,015,819 17,695,609 1,908,303 358,867 7,147,457 47,466 324,520 2,936 31,500,977 Less: Deferred profit Provision for impairment on financing assets – Specific Provision for impairment on financing assets – Collective Suspended profit related to non-performing financing assets Net financing assets 1,128,835 501,846 5,250 41,553 31,676,882 1,229,266 393,470 66,095 33,647 29,778,499 The total non-performing financing assets at 31 December 2017 amounted to QAR 984 million, representing 3.0% of the net financing assets (2016: QAR 460 million, representing 1.5%). 56
59. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 10. FINANCING ASSETS (CONTINUED) (a) By type (continued) 2017 2016 Government Corporate Retail and Private 3,457,596 17,135,777 12,760,993 33,354,366 1,174,601 17,409,974 12,916,402 31,500,977 Less: Deferred profit Provision for impairment on financing assets – Specific Provision for impairment on financing assets – Collective Suspended profit related to non - performing financing assets 1,128,835 501,846 5,250 41,553 31,676,882 1,229,266 393,470 66,095 33,647 29,778,499 (b) Movement in the provision for impairment on financing assets: 2017 2016 Written off during the year 459,565 84,735 (36,139) 48,596 (1,065) 382,354 116,921 (38,823) 78,098 (887) Balance at 31 December 507,096 459,565 Break down as below: Provision for impairment on financing assets – Specific 501,846 393,470 5,250 66,095 2017 2016 Balance at 1 January Additions during the year Recoveries during the year 33,647 12,933 (5,027) 7,906 31,685 9,887 (7,925) 1,962 Balance at 31 December 41,553 33,647 Balance at 1 January Provisions made during the year Recoveries during the year Provision for impairment on financing assets – Collective (c) Movement in the suspended profit on non performing financing assets: 57
60. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 10. FINANCING ASSETS (CONTINUED) (d) Movement in the provision for impairment and suspended profit on financing assets- sector wise: Balance at 1 January Provision made during the year Recoveries during the year Written off during the year Balance at 31 December 2017 Balance at 1 January Provision made during the year Recoveries during the year Written off during the year Balance at 31 December 2017 Corporates SMEs Retail and Private Total 285,521 24,515 (16,072) 293,964 103,839 36,999 (10,028) (250) 130,560 103,852 36,154 (15,066) (815) 124,125 493,212 97,668 (41,166) (1,065) 548,649 Corporates SMEs Retail and Private Total 221,398 79,038 (14,028) (887) 285,521 96,896 21,277 (14,334) 103,839 95,745 26,493 (18,386) 103,852 414,039 126,808 (46,748) (887) 493,212 (e) By sector Government Industry and Manufacturing Commercial Contracting Real estate Personal Services Others Total financing assets Less: Deferred profit Provision for impairment on financing assets – Specific Provision for impairment on financing assets – Collective Suspended profit related to non performing financing assets Net financing assets 2017 2016 3,457,596 663,906 6,266,736 3,808,150 8,323,366 2,895,873 7,488,150 450,589 33,354,366 1,174,601 754,942 6,533,270 2,819,483 8,385,849 2,791,057 7,963,942 1,077,833 31,500,977 1,128,835 1,229,266 501,846 393,470 5,250 66,095 41,553 31,676,882 33,647 29,778,499 The sector wise breakup include financing to Government sector entities amounting to QAR 607 million (31 December 2016: QAR 765 million). 58
61. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 11. INVESTMENT SECURITIES 2017 Quoted Unquoted Total 2016 Unquoted Quoted Total Investments classified as fair value through income statement - Investments classified as held for trading:  debt-type investments  equity-type investments Debt-type investments classified at amortised cost - Fixed rate* - Floating rate 51,711 51,711 - 51,711 51,711 1,485,278 8,382,985 9,868,263 1,485,278 8,382,985 9,868,263 81,542 81,542 - 81,542 81,542 1,537,694 7,364,799 - 200,283 1,537,694 7,565,082 8,902,493 200,283 9,102,776 Equity-type investments classified as fair value through equity 809,864 354,104 1,163,968 707,208 331,556 1,038,764 2,429,100 7,919,186 10,348,286 2,244,197 8,714,541 10,958,738 * Investments in unquoted debt-type instruments classified at amortised cost represent investments in Sovereign securities. The carrying amount of the debt-type investments pledged under repurchase agreements amounted to QAR 2,503 million (2016: QAR 1,180 million). The cumulative change in fair value of equity-type investments designated as fair value through equity, during the year is as follows: 2016 2017 Balance at 1 January Net change in fair value Share of associates and joint venture fair value changes (note 12) Transferred to consolidated income statement on impairment Appropriated to equity of investment account holders (note 21) Net change in fair value reserve during the year Balance at 31 December (11,320) (9,663) (15,430) (5,762) (1,136) 1,611 26,198 15,399 8,608 4,457 (871) (347) 14,528 3,208 4,110 (11,320) As at 31 December 2017, the cumulative positive and negative balances in the fair value reserve are QAR 18.3 million (31 December 2016: QAR 23.2 million) and QAR 15.1 million (31 December 2016: QAR 34.7 million). During the year, QAR 26.2 million (31 December 2016: QAR 8.6 million) was transferred to income statement from negative fair value reserve. 59
62. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 12. INVESTMENT IN ASSOCIATES AND JOINT VENTURES 2017 298,308 (25,490) (6,286) (49,936) (1,136) 2,317 (47) 217,730 Balance at 1 January Disposal during the year Share of results Cash dividend Share of associates and joint venture fair value changes Share of associates currency translation reserve (12a) Other movements Balance at 31 December Name of the Associates and Joint Ventures Activities Country Ownership % Emdad Equipment Leasing Company Qatar W.L.L. (Emdad) TFI-Investra UK Property Income Fund (TFI-Investra) TFI-Tanween Investment Company (Tanween Inv.) Juman Village Tanween W.L.L. (Tanween) Shatter Abbas Total Amount in QAR’000 2016 2017 2016 299,717 5,078 (1,805) 1,611 (6,294) 1 298,308 2017 2016 Machinery and equipment leasing Real estate Qatar 39.2% 39.2% 20,216 31,216 UK 19.7% 19.7% 23,286 21,425 Real estate Qatar 50.0% 50.0% 7,868 32,849 Real estate Saudi Arabia Qatar 27.4% 27.4% 24,080 24,150 48.0% 48.0% 105,494 152,775 Qatar 49.0% 49.0% 36,786 217,730 35,893 298,308 Real Estate development management Restaurant The Group holds significant influence on all above listed associates. The financial position, revenue and results of significant associates and joint ventures based on latest financial statements, as at and for the year ended 31 December 2017 are as follows: 31 December 2017 Total assets Total liabilities Total revenue Net profit Share of profit 31 December 2016 Total assets Total liabilities Total revenue Net profit Share of profit TFI-Investra Shatter Abbas          158,734             22,878               5,457             21,535             14,871             49,039               7,713                1,822  893 1,493 TFI-Investra Shatter Abbas 229,940 15,039 14,013 114,166 13,467 43,272 8,090 1,582 1,605 775 Emdad Tanween       89,148         272,716         52,374           64,632         27,156         112,141         (30,677)             3,837 (11,000) 1,842 Emdad 129,081 41,455 89,869 6,578 - Juman Village Tanween Inv.           164,612              89,696                      11                 (138) (23)          15,884                     ‐               1,074             1,016  509 Tanween Juman Village Tanween Inv. 167,280 65,700 377,277 80,638 72,922 102,710 8 3,226 2,816 (1,465) 3,181 1,351 (243) 1,590 60
63. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 12. INVESTMENT IN ASSOCIATES AND JOINT VENTURES (CONTINUED) (a) Foreign currency translation reserve Balance at 1 January Share of associates foreign currency translation reserve changes Share of associate foreign currency translation reserve changes designated as net investment hedge Gain on foreign currency revaluation of liability designated as net investment hedge Net investment hedge* Balance at 31 December Share of associates foreign currency translation reserve changes Share of associate foreign currency translation reserve changes designated as net investment hedge 2017 107 - 2016 1,002 (1,084) 2,317 (5,210) (2,283) 34 141 5,399 189 107 2017 - 2016 (1,084) 2,317 2,317 (5,210) (6,294) *Net Investment Hedge The Group hedges part of the currency risk of its net investment in foreign operations using foreign currency borrowings. Included in due to banks at 31 December 2017 was borrowing of GBP 5.0 million designated as a hedge of Group’s net investment in foreign operations, and is being used to hedge the Group’s exposure to foreign exchange risk. At the end of reporting period, the net investment hedge was highly effective. 13. INVESTMENT PROPERTIES The carrying amount of investment property as of 31 December 2017 is QAR 4,662 million (2016: QAR 4,662 million). The fair value of the investment properties is not materially different from the carrying amount as of the reporting date. 61
64. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 14. FIXED ASSETS Land and Buildings IT Fixtures, Equipment Fittings and office equipment Motor Vehicles Total Cost Balance at 1 January 2016 Acquisitions Disposals 197,381 - 135,100 6,471 (5) 165,943 6,166 - 21,661 769 (1,136) 520,085 13,406 (1,141) Balance at 31 December 2016 197,381 141,566 172,109 21,294 532,350 Balance at 1 January 2017 Acquisitions Disposals 197,381 - 141,566 22,331 (116) 172,109 2,851 (249) 21,294 4,445 (8,338) 532,350 29,627 (8,703) Balance at 31 December 2017 197,381 163,781 174,711 17,401 553,274 Accumulated depreciation and impairment losses Balance at 1 January 2016 Depreciation charged during the year Disposals 6,592 757 - 91,242 23,735 (5) 148,931 4,925 - 5,590 4,294 (553) 252,355 33,711 (558) Balance at 31 December 2016 7,349 114,972 153,856 9,331 285,508 Balance at 1 January 2017 Depreciation charged during the year Disposals 7,349 757 - 114,972 20,124 (116) 153,856 4,925 (178) 9,331 3,179 (4,686) 285,508 28,985 (4,980) Balance at 31 December 2017 8,106 134,980 158,603 7,824 309,513 Carrying amounts Balance at 31 December 2016 Balance at 31 December 2017 190,032 189,275 26,594 28,801 18,253 16,108 11,963 9,577 246,842 243,761 62
65. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 15. INTANGIBLE ASSETS QAR ‘000s 2016 2017 Goodwill Balance at 1 January 777,230 777,230 Impairment allowance* 777,230 Balance at 31 December 777,230 *Impairment testing for cash-generating unit containing goodwill For the purpose of impairment testing, goodwill is allocated to the cash generating units (“CGU”), being the Group’s subsidiaries, which represents the lowest level within the Group at which the goodwill is monitored for internal management purposes. The impairment testing of the CGU carried out at the year-end did not result in any impairment. 16. OTHER ASSETS Accrued profit Prepayments and advances Operating lease receivables Positive fair value of risk management instruments Sundry debtors Projects under process Others Provision for impairment 2017 2016 284,603 21,127 1,201 156,974 17,046 1,561 7,319 71,799 12,718 29,482 428,249 (425) 427,824 55,331 3,862 14,579 68,337 317,690 (425) 317,265 2017 2016 3 2,502,521 8,942,549 11,445,073 1,227 1,133,176 4,605,400 5,739,803 17. DUE TO BANKS Current accounts Commodity Murabaha payable* Wakala payable *This includes amount held under repurchase agreements amounting to QAR 2,503 million (2016: QAR 951 million). 18. SUKUK FINANCING Through Sharia’a compliant USD sukuk program and after getting Sharia’a Board approval, the Bank raised medium term funding in 2016. Current outstanding balance is QAR 2,201 million (2016: 2,198) with maturities varying from 2018 (the equivalent of QAR 1,365 million) to 2019 (the equivalent QAR 836 million). It bears average profit rate of three months LIBOR + 1.74%. The sukuk program is listed on the Irish Stock Exchange. 63
66. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 19. CUSTOMER CURRENT ACCOUNTS Current accounts by sector: - Government & GREs - Non-Banking Financial Institutions - Corporate - Individuals 2017 2016 332,385 66,482 912,296 362,609 1,673,772 150,603 122,706 1,015,394 302,220 1,590,923 20. OTHER LIABILITIES Unearned commission income Sundry creditors Negative fair value of risk management instruments Cash margins Accrued expenses Acceptances Employees' end of service benefits (note 20.1) Others 2017 2016 60,330 47,920 32,026 53,137 136,841 405,085 79,308 84,669 899,316 85,949 45,287 11,519 60,988 171,131 324,520 65,308 106,832 871,534 2017 2016 65,308 20,266 (6,266) 79,308 58,115 15,657 (8,464) 65,308 20.1 Movement in employees’ end of service benefits is as follows: Balance at 1 January Charge for the year Payments made during the year Balance at 31 December 64
67. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 21. EQUITY OF INVESTMENT ACCOUNT HOLDERS 2017 2016 Investment account holders balance before share of profit (a) Distributable profits to investment account holders for the year (b) Profit already distributed during the year Profit payable to investment account holders Share in fair value reserve Total investment account holders balance 24,688,087 681,504 (572,724) 108,780 (753) 24,796,114 28,283,432 551,329 (446,523) 104,806 (1,624) 28,386,614 By type: Saving accounts Call accounts Term accounts Total (a) 2,514,105 727,241 21,446,741 24,688,087 2,552,252 458,697 25,272,483 28,283,432 By sector: Government & GREs Non-banking financial institution Retail Corporate Total (a) 11,064,649 3,761,186 3,691,191 6,171,061 24,688,087 14,386,201 3,345,596 3,519,852 7,031,783 28,283,432 2017 2016 698,824 (663,882) 646,562 (17,320) 681,504 651,870 (619,276) 518,735 (100,541) 551,329 41,029 1,786 128,624 199,872 71,678 41 238,474 681,504 44,660 1,936 150,638 134,083 62,218 628 157,166 551,329 2017 2016 (1,624) 871 (753) (1,971) 347 (1,624) Investment account holders’ share of profit for the year Bank shares as Mudarib Owners’ contribution Distributable profits to investment account holders for the year-net return(b) Net return breakup: Saving accounts Call accounts Term accounts - 1 month Term accounts - 3 month Term accounts - 6 month Term accounts - 9 month Term accounts - 1 year and above Total(b) Movement in share of fair value reserve: Balance at 1 January Share in fair value reserve movement (note 11) Balance at 31 December 65
68. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 22. OWNERS’ EQUITY (a) Share capital In thousands of shares In issue at 1 January New shares issued In issue at 31 December Ordinary shares 2017 2016 300,000 300,000 300,000 300,000 At 31 December 2017 the authorised share capital comprised 400,000 thousand ordinary shares (2016: 400,000 thousand), having a par value of QAR 10 each share. Out of these 300,000 thousand ordinary shares (2016: 300,000 thousand) are issued and fully paid. (b) Legal reserve In accordance with QCB Law No. 13 of 2012 as amended and the Memorandum and Articles of Association of the Bank, 20% of net profit attributable to the owners (equity holders) of the Group for the year is required to be transferred to the reserve until the legal reserve equals 100% of the paid up share capital. This reserve is not available for distribution except in circumstances specified in Qatar Commercial Companies Law No. 11 of 2015 and after QCB approval. During the year ended 31 December 2017 the appropriation made to legal reserve amounts to QAR 150.6 million (2016: QAR 147.7 million).The legal reserve includes the share premium received on issuance of new shares in accordance with Qatar Commercial Companies Law No.11 of 2015. (c) Risk reserve In accordance with QCB regulations, a risk reserve should be created to cover contingencies on both the public and private sector financing assets, with a minimum requirement of 2.5% of the total private sector exposure granted by the Group inside and outside Qatar after the exclusion of the specific provisions and profit in suspense. The finance provided to/or secured by the Ministry of Finance – Qatar or finance against cash guarantees is excluded from the gross direct finance. The total amount of the transfer made to the risk reserve was QAR Nil (2016: QAR 78.8 million). (d) Other reserves In accordance with Qatar Central Bank regulations, income recognised from the share of profit from associates and joint ventures is not available for distribution, except to the extent of dividend received from the associates and joint ventures, and should be transferred to a separate reserve account in Owners’ equity. Further, the Bank has set aside QAR 100 million (2016: QAR 100 million) as a contingency reserve from retained earnings to protect the Group from any future losses that may arise from any unforeseen events on recommendation of the Board of Directors. 2016 2017 Opening balance 426,951 530,224 Share of associates and joint ventures profit 5,078 (6,286) (1,805) Dividend received from associates and joint ventures (49,936) 100,000 Contigency reserve 100,000 103,273 43,778 530,224 574,002 The balance consists of: 130,224 - Undistributed profit from investments in associates and joint ventures 74,002 400,000 - Contigency reserve 500,000 (e) Treasury shares Treasury shares represent ordinary shares of Barwa Bank with nominal value of QAR 10 each. These shares are carried at cost of QAR 16.8 each. Treasury shares are presented as a deduction from equity. 66
69. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 22. OWNERS’ EQUITY (CONTINUED) QAR ‘000s (f) Proposed dividend The Board of Directors in their meeting held on 05 March 2018 proposed a cash dividend of 14.0% (2016: 13.5%) of the paid up share capital amounting to QAR 414.6 million – QAR 1.40 per share (2016: QAR 399.8 million – QAR 1.35 per share), which is subject to approval at the Annual General Meeting of the shareholders of the Bank. 23. NON-CONTROLLING INTERESTS This represents the Group’s non-controlling interests in TFI GCC Fund, a Group’s subsidiary, founded by the Bank, amounting to 16% (2016: 25%). During the year, non-controlling interests decreased by QAR 10.7 million (2016: QAR 7.5 million). 24. NET INCOME FROM FINANCING ACTIVITIES Murabaha Musawama Commodity Murabaha Ijarah Istisna’a Others 2017 2016 126,773 148,750 868,664 361,334 9,535 24,978 1,540,034 141,676 164,472 707,939 316,033 11,654 51,914 1,393,688 25. NET INCOME FROM INVESTING ACTIVITIES Coupon income from investment in debt-type instruments, net of amortisation Dividend income Net gain on sale of debt-type investments Net loss on sale of equity-type investments Income from inter-bank and murabaha placements with Islamic banks Net fair value gain/(loss) on investment securities carried as fair value through income statement Other investments / derivatives related net income 2017 2016 364,665 65,388 397 (6,943) 36,383 307,887 59,073 6,373 (1,510) 31,909 628 91 460,609 (1,009) (985) 401,738 2017 2016 72,163 66,327 4,345 29,278 467 1,887 174,467 (4,734) 169,733 53,262 50,446 38,359 1,829 143,896 (8,403) 135,493 26. NET FEE AND COMMISSION INCOME Management and other fee income Commission income Advisory fee income Performance fee income Placement fee income Structuring fee Commission expense Net fee and commission income 67
70. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 27. STAFF COSTS Basic salaries Housing allowance Transport allowance Staff indemnity costs Medical expenses Social Allowance Education fee Others 28. OTHER EXPENSES Rent Advertising and marketing expenses Utility and services IT expenses Legal and professional fees Government fee and charges Travel expenses Repair and maintenance Board of Directors’ remuneration Other expenses 2017 QAR ‘000s 2016 122,867 41,209 23,547 20,266 7,745 6,658 10,238 70,896 303,426 123,675 41,240 23,731 15,657 7,716 7,000 9,343 56,559 284,921 2017 2016 34,264 12,038 17,018 20,845 30,007 962 1,304 6,575 16,200 36,898 176,111 33,631 9,445 14,975 13,144 8,538 126 879 3,024 15,400 39,603 138,765 2017 2016 7,336,554 8,461,848 1,608,432 17,406,834 10,835,574 7,506,984 2,471,374 20,813,932 135,146 3,486,097 278,769 36,415 3,603,317 3,621,243 3,918,501 29. CONTINGENT LIABILITIES AND COMMITMENTS a) b) Contingent liabilities Unused credit facilities Guarantees Letters of credit Commitments Profit rate swaps Options Other risk management instruments - WAAD Unused facilities Commitments to extend credit represent contractual commitments to make financings and revolving credits. The majority of these expire in the next year. Since commitments may expire without being drawn upon, the total contractual amounts do not necessarily represent future cash requirements. Guarantees and Letters of credit Guarantees and letters of credit commit the group to make payments on behalf of customers in the event of a specific event. Guarantees and standby letters of credit carry the same credit risk as financings. Lease commitments The Group leases a number of branches and office premises under operating leases. Non-cancellable operating lease rentals are payable as follows: 2017 2016 Within one year After one year but not more than five years 27,445 88,483 28,414 35,394 68
71. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 30. CONCENTRATION OF ASSETS, LIABILITIES AND EQUITY OF INVESTMENT ACCOUNT HOLDERS Geographical sector Following is the concentration of assets, liabilities and equity of investment account holders into geographical sectors regions: 2017 Cash and balances with central bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment property Fixed assets Intangible assets Other assets Total assets Qatar Other GCC Europe North America Others Total 1,383,847 2,783,069 25,697,307 9,792,371 29,711 2,036,989 1,018,513 28,291 3,579,652 3,616 103,987 2,231 - 1,383,847 1,422 2,946,480 362,934 31,676,882 142,007 10,958,738 162,496 4,662 243,761 777,230 407,239 41,251,982 24,080 13,266 3,122,559 31,154 7,319 3,650,032 106,218 217,730 4,662 243,761 777,230 427,824 506,363 48,637,154 Liabilities and equity of investment account holders Liabilities Due to banks Sukuk financing Customer current accounts Other liabilities Total liabilities 10,340,488 1,656,199 720,022 12,716,709 138,640 17,102 129,472 285,214 403,328 2,201,270 320 45,323 2,650,241 - 562,617 11,445,073 - 2,201,270 151 1,673,772 4,499 899,316 567,267 16,219,431 Equity of investment account holders 24,470,934 61,382 101,648 88,190 73,960 24,796,114 Total liabilities and equity of investment account holders 37,187,643 346,596 2,751,889 88,190 641,227 41,015,545 69
72. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 30. CONCENTRATION OF ASSETS, LIABILITIES AND EQUITYOF INVESTMENT ACCOUNT HOLDERS (CONTINUED) Geographical sector (continued) Following is the concentration of assets, liabilities and equity of investment account holders into geographical sectors regions: 2016 Cash and balances with central bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment property Fixed assets Intangible assets Other assets Total assets Qatar Other GCC Europe North America Others Total 1,582,534 1,049,028 22,035,662 8,737,832 940,869 3,260,762 1,179,201 13,265 3,428,882 11,494 246,627 231,471 - 1,582,534 446,265 2,696,054 1,053,193 29,778,499 188,288 10,348,286 252,659 4,662 246,842 777,230 262,467 34,948,916 24,224 34,717 5,439,773 21,425 19,929 3,494,995 152 478,250 298,308 4,662 246,842 777,230 317,265 1,687,746 46,049,680 3,728,650 1,567,282 795,422 6,091,354 974,838 23,641 76,112 1,074,591 853,887 2,197,594 3,051,481 - 182,428 5,739,803 - 2,197,594 - 1,590,923 871,534 182,428 10,399,854 Equity of investment account holders 27,626,768 522,139 98,511 139,196 - 28,386,614 Total liabilities and equity of investment account holders 33,718,122 1,596,730 3,149,992 139,196 182,428 38,786,468 Liabilities and equity of investment account holders Liabilities Due to banks Sukuk financing Customer current accounts Other liabilities Total liabilities 70
73. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 31. CONCENTRATION OF ASSETS, LIABILITIES AND EQUITY OF INVESTMENT ACCOUNT HOLDERS Industrial sector Following is the concentration of assets, liabilities and equity of investment account holders into industrial sectors regions: 2017 Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment property Fixed assets Intangible assets Other assets Total assets Real estate Construction, Oil and engeering and gas manufacturing Financial services Individuals Others 2,496,171 16,804,903 - 9,577,716 Total 8,700,985 191,066 3,339,623 90,194 335,200 6,782 1,383,847 2,946,480 1,092,980 47,366 4,662 84,200 113,362 24 3,128 777,230 13,171 9,028,279 3,543,203 345,110 6,213,708 - 7,746,588 2,201,270 - 3,698,485 - 11,445,073 2,201,270 2,295 66,482 4,970 37,985 7,265 10,052,325 362,609 54 362,663 770,258 709,870 5,178,613 1,673,772 899,316 16,219,431 16,638,608 24,796,114 4,053,854 21,817,221 41,015,545 42,565 1,383,847 2,946,480 31,676,882 10,958,738 57,002 243,761 284,736 217,730 4,662 243,761 777,230 427,824 2,538,736 26,968,118 48,637,154 Liabilities and equity of investment account holders Liabilities Due to banks Sukuk financing Customer current accounts Other liabilities Total liabilities Equity of investment account holders Total liabilities and equity of investment account holders - - 72,279 16,198 88,477 399,849 130,239 530,088 206,986 295,463 427,572 957,660 70,571 3,761,186 77,836 13,813,511 3,691,191 *Others include stake in Government and Government related entities of QAR 13.0 billion under total assets and QAR 15.1 billion under total liabilities and equity of investment account holders. 71
74. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 31. QAR ‘000s CONCENTRATION OF ASSETS, LIABILITIES AND EQUITY OF INVESTMENT ACCOUNT HOLDERS (CONTINUED) Industrial sector (continued) Following is the concentration of assets, liabilities and equity of investment account holders into industrial sectors regions: 2016 Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment property Fixed assets Intangible assets Other assets Total assets Real estate Construction, engeering and manufacturing Oil and gas Financial services Individuals Others Total 8,278,945 348,707 2,566,666 124,373 355,847 7,274 1,582,534 2,696,054 955,879 2,232,894 16,344,147 - 8,912,053 1,582,534 2,696,054 29,778,499 10,348,286 56,999 4,662 39,605 8,728,918 174,201 3,021 2,868,261 363,121 777,230 56,092 6,067,789 67,108 246,842 218,547 2,232,894 25,788,697 298,308 4,662 246,842 777,230 317,265 46,049,680 Liabilities and equity of investment account holders Liabilities Due to banks Sukuk financing Customer current accounts Other liabilities Total liabilities - - - 5,739,803 2,197,594 - - 5,739,803 2,197,594 81,482 1,347 82,829 331,567 95,065 426,632 119 119 122,706 13,721 8,073,824 302,220 302,220 752,829 761,401 1,514,230 1,590,923 871,534 10,399,854 Equity of investment account holders 718,933 492,616 365,467 3,343,972 3,519,852 19,945,774 28,386,614 Total liabilities and equity of investment account holders 801,762 919,248 365,586 11,417,796 3,822,072 21,460,004 38,786,468 *Others include stake in Government and Government related entities of QAR 9.8 billion under total assets and QAR 11.5 billion under total liabilities and equity of investment account holders. 72
75. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 32. MATURITY PROFILE 2017 Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment property Fixed assets Intangible assets Other assets Total financial assets Up to 3 months 3 to 6 months 6 months - 1 year 1 to 3 years Over 3 years Total 234,466 2,687,880 3,180,080 2,070,711 1,995,916 - 3,846,110 500,000 - 1,149,381 1,383,847 258,600 - 2,946,480 3,605,763 19,049,013 31,676,882 1,229,788 7,158,239 10,958,738 222,936 8,396,073 19,868 2,015,784 29,864 4,375,974 217,730 217,730 4,662 4,662 243,761 243,761 777,230 777,230 15,321 139,835 427,824 5,109,472 28,739,851 48,637,154 Liabilities and equity of investment account holders Liabilities Due to banks Sukuk financing Customer current accounts Other liabilities Total liabilities 10,707,352 908,537 1,673,772 514,895 13,804,556 7,283 455,188 125,236 587,707 120,072 120,072 837,545 19,507 857,052 730,438 11,445,073 - 2,201,270 - 1,673,772 119,606 899,316 850,044 16,219,431 Equity of investment account holders 18,259,298 1,499,148 4,382,703 367,844 287,121 24,796,114 Total liabilities and equity of investment account holders 32,063,854 2,086,855 4,502,775 1,224,896 1,137,165 41,015,545 (23,667,781) (71,071) (126,801) 3,884,576 27,602,686 Maturity gap 7,621,609 73
76. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 32. MATURITY PROFILE (CONTINUED) 2016 Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities Investment in associates and joint ventures Investment property Fixed assets Intangible assets Other assets Total financial assets Up to 3 months 3 to 6 months 6 months - 1 year 1 to 3 years Over 3 years Total 212,259 1,992,813 3,028,195 1,016,553 1,256,174 100,000 444,801 1,327,792 200,283 - 1,370,275 1,582,534 258,440 - 2,696,054 3,559,859 20,606,479 29,778,499 3,715,322 5,316,128 10,348,286 270,832 6,520,652 16,341 1,372,515 30,092 2,002,968 4,039,626 1,590,923 741,038 6,371,587 372,898 29,509 402,407 194,108 12,381 206,489 220,941 2,197,594 43,571 2,462,106 912,230 5,739,803 - 2,197,594 - 1,590,923 45,035 871,534 957,265 10,399,854 Equity of investment account holders 21,035,252 1,737,671 5,109,048 141,946 362,697 28,386,614 Total liabilities and equity of investment account holders 27,406,839 2,140,078 5,315,537 2,604,052 1,319,962 38,786,468 (20,886,187) (767,563) (3,312,569) 4,929,569 - 298,308 298,308 4,662 4,662 246,842 246,842 777,230 777,230 317,265 7,533,621 28,619,924 46,049,680 Liabilities and equity of investment account holders Liabilities Due to banks Sukuk financing Customer current accounts Other liabilities Total liabilities Maturity gap 27,299,962 7,263,212 74
77. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 33. BASIC AND DILUTED EARNINGS PER SHARE Earnings per share is calculated by dividing the net profit for the year attributable to the owners of the Group by the weighted average number of ordinary shares in issue during the year. 2017 2016 753,228 296,165 738,286 296,165 2.54 2.49 2017 2016 Weighted average number of shares at 1 January Issued during the year 296,165 - 296,165 - Weighted average number of shares at 31 December 296,165 296,165 Net profit for the year attributable to the owners of the Group Weighted average number of outstanding shares Basic and diluted earning per share (QAR) The weighted average number of shares have been calculated as follows: 34. CASH AND CASH EQUIVALENTS For the purpose of the statement of cash flows, cash and cash equivalents comprise the following balances with maturities of less than three months: 2016 2017 Cash and balances with Qatar Central Bank (excluding QCB restricted reserve account) 212,259 234,466 Due from banks 1,992,813 2,687,880 2,205,072 2,922,346 75
78. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 35. RELATED PARTIES Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions. Related parties include the significant owners’ and entities over which the Group and the owners’ exercise significant influence, directors and executive management of the Group. All transactions conducted with related parties are at arm’s length. The related party transactions and balances included in these consolidated financial statements are as follows: 2017 2016 Subsidiaries Board of Others Subsidiaries Board of Others directors directors Assets: Customer financing 24,644 1,684,221 - 72,507 Liabilities: Customer deposits 519,995 60 4,327,746 431,259 150,414 3,460,194 Off balance sheet items: Unfunded credit facilities 198,163 149,317 - 151,380 151,752 - 100,363 22,031 110,427 1,401 6,291 93,229 10,021 69,530 Consolidated income statement items: Profit income 813 Profit expense 9,597 2,745,261 - Transactions with key management personnel Key management personnel and their immediate relatives have transacted with the Group during the year as follows: 2017 2016 Credit card Other financings 321 6,221 6,542 10 3,353 3,363 Key management personnel compensation for the year comprised: Short-term employee benefits Post-employment benefits 2017 2016 34,836 3,022 37,858 31,921 2,869 34,790 76
79. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 36. RISK MANAGEMENT INSTRUMENTS Positive fair value At 31 December 2017: Risk management instruments: Profit rate swaps Options Forward foreign exchange contracts Total 7,319 2,915 10,234 At 31 December 2016: Risk management instruments: Profit rate swaps Options Forward foreign exchange contracts Total 9,243 46,088 55,331 Negative fair value Notional amount Notional / expected amount by term to maturity within 3 - 12 1-5 More than 3 months months years 5 years 7,319 135,146 1,508 (27,622) 3,486,097 1,895,300 (20,303) 3,621,243 1,896,808 9,243 2,276 11,519 278,769 36,415 3,603,317 1,839,233 3,918,501 1,839,233 4,049 1,590,797 1,594,846 22,199 22,199 107,390 107,390 36,415 1,764,084 1,800,499 - 278,769 278,769 77
80. BARWA BANK Q .S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s 37. ZAKAH Zakah is directly borne by the owners. The Group does not collect or pay Zakah on behalf of its owners, in accordance with the Articles of Association. 38. SHARI’A SUPERVISORY BOARD The Shari’a supervisory Board of the Group consists of three scholars who are specialised in Shari’a principles and they ensure the Group’s compliance with general Islamic principles and work in accordance with the issued Fatwas and guiding rules. The Board’s review includes examining the evidence related to documents and procedures adopted by the Group in order to ensure that its activities are according to the principles of Islamic Shari’a. 39. COMPARATIVE FIGURES The comparative figures presented for 2016 have been reclassified where necessary to preserve consistency with the 2016 figures. However, such reclassifications did not have any effect on the consolidated net profit, or the total consolidated equity for the comparative year. 78
81. BARWA BANK Q .S.C. SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s PARENT BANK The statement of financial position and income statement of the Parent are presented below: i. STATEMENT OF FINANCIAL POSITION OF THE PARENT 2017 2016 ASSETS Cash and balances with Qatar Central Bank Due from banks Financing assets Investment securities Investment in subsidiaries, associate and joint venture Fixed assets Other assets 1,382,814 2,881,473 30,208,031 10,782,706 2,426,576 185,427 356,105 1,581,825 2,664,205 28,302,422 10,140,642 2,426,621 183,675 286,368 TOTAL ASSETS 48,223,132 45,585,758 LIABILITIES Due to banks Sukuk financing Customer current accounts Other liabilities TOTAL LIABILITIES 11,445,073 2,201,270 1,674,323 824,616 16,145,282 5,739,803 2,197,594 1,591,764 766,364 10,295,525 EQUITY OF INVESTMENT ACCOUNT HOLDERS 25,316,311 28,818,656 3,000,000 1,594,641 (26,550) (15,070) 2,208,518 6,761,539 3,000,000 1,594,641 (26,550) (32,477) 1,935,963 6,471,577 48,223,132 45,585,758 As at 31 December OWNERS' EQUITY Share capital Legal reserve Treasury shares Fair value reserve Retained earnings TOTAL OWNERS’ EQUITY TOTAL LIABILITIES, EQUITY OF INVESTMENT ACCOUNT HOLDERS AND OWNERS’ EQUITY 79
82. BARWA BANK Q .S.C. SUPPLEMENTARY INFORMATION TO THE CONSOLIDATED FINANCIAL STATEMENTS As at and for the year ended 31 December 2017 QAR ‘000s ii. INCOME STATEMENT OF THE PARENT 2017 2016 1,382,932 449,706 1,240,085 392,470 1,832,638 1,632,555 114,622 (4,734) 109,888 92,024 (8,403) 83,621 Net foreign exchange gain Dividend from subsidiaries Other income Total income 56,666 43,957 2,043,149 25,233 31,957 17,665 1,791,031 Staff costs Depreciation and amortisation Other expenses Finance cost Total expenses (244,565) (21,013) (157,153) (229,445) (652,176) (218,998) (24,918) (116,490) (167,923) (528,329) (5,963) (19,938) (8,608) (67,628) 1,365,072 (691,101) 1,186,466 (557,620) 673,971 628,846 For the year ended 31 December Net income from financing activities Net income from investing activities Total net income from financing and investing activities Fee and commission income Fee and commission expense Net fee and commission income Net impairment loss on investment securities Net impairment loss on financing assets Profit for the year before return to investment account holders Net return to investment account holders Net profit for the year 80