Riyad Bank: Consolidated Financial Statements - 31 December 2017

Transcription

10. RIYAD BANK CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at December 31 , 2017 and 2016 ASSETS Cash and balances with SAMA Due from banks and other financial institutions Positive fair value of derivatives Investments, net Loans and advances, net Investment in associates Other real estate Property and equipment, net Other assets Total assets 18,504,255 9,372,200 115,890 46,369,903 138,837,618 564,769 235,119 1,752,408 530,009 216,282,171 12 6 13 14 15, 26 7,056,168 77,923 154,365,549 8,016,639 8,142,899 177,659,178 8,836,713 138,638 156,683,538 8,018,373 6,968,678 180,645,940 16 17 18 30,000,000 3,922,592 686,865 2,873,536 1,140,000 38,622,993 216,282,171 30,000,000 2,936,093 532,929 2,604,039 900,000 36,973,061 217,619,001 4 5 6 7 8 9 10 11 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Due to banks and other financial institutions Negative fair value of derivatives Customer deposits Debt securities in issue Other liabilities Total liabilities Shareholders' equity Share capital Statutory reserve Other reserves Retained earnings Proposed dividends Total shareholders' equity Total liabilities and shareholders' equity 2017 SAR'000 2016 SAR'000 (Restated) 21,262,177 4,567,155 189,295 45,157,381 142,909,367 548,594 245,017 1,862,349 877,666 217,619,001 Note 26 The accompanying notes 1 to 41 form an integral part of these consolidated financial statements. Page 1 of 59
11. RIYAD BANK CONSOLIDATED STATEMENT OF INCOME For the years ended December 31 , 2017 and 2016 Note 20 20 Special commission income Special commission expense Net special commission income Fee and commission income, net Exchange income, net Trading income, net Dividend income Gains on non-trading investments, net Other operating income Total operating income, net 21 22 23 Salaries and employee-related expenses Rent and premises-related expenses Depreciation of property and equipment Other general and administrative expenses Impairment charge for credit losses, net Impairment charge for investments, net Other operating expenses Total operating expenses, net 24 10 8 Net operating income Share in earnings of associates, net Net income for the year Basic and diluted earnings per share (in SAR) 25 The accompanying notes 1 to 41 form an integral part of these consolidated financial statements. Page 2 of 59 2017 SAR'000 7,425,107 1,490,030 5,935,077 2016 SAR'000 7,312,590 2,011,561 5,301,029 1,510,314 290,207 21,815 50,786 283,137 33,875 8,125,211 1,503,113 400,628 14,398 48,882 190,515 243,715 7,702,280 1,572,514 320,498 282,180 775,812 1,227,488 23,833 4,202,325 1,596,375 328,095 288,790 756,322 1,286,397 100,000 39,330 4,395,309 3,922,886 3,306,971 23,110 35,516 3,945,996 3,342,487 1.32 1.11
12. RIYAD BANK CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME For the years ended December 31 , 2017 and 2016 Net income for the year Other comprehensive income: Items that are or maybe reclassified back to consolidated statement of income in subsequent periods - Available for sale investments Net change in fair value (note 18) Net amounts transferred to consolidated statement of income (note 18) - Impairment of investments - (Gain) on sale of investments Items that cannot be reclassified back to consolidated statement of income in subsequent periods Other comprehensive income for the year Total comprehensive income for the year The accompanying notes 1 to 41 form an integral part of these consolidated financial statements. Page 3 of 59 2017 SAR'000 3,945,996 2016 SAR'000 3,342,487 422,221 (268,285) (268,285) 309,784 (74,322) 100,000 (174,322) - - 153,936 4,099,932 235,462 3,577,949
13. RIYAD BANK CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS ' EQUITY For the years ended December 31, 2017 and 2016 SAR'000 31 December 2017 Balance at the beginning of the year- (Restated) (note 26) Total comprehensive income Net change in fair value of available for sale investments Net amounts relating to available for sale investments transferred to consolidated statement of income Net income Total comprehensive income Final dividends - 2016 (note 26) Interim dividend - 2017 (note 26) Provision for zakat Transfer to statutory reserve (note 17) Final proposed dividend - 2017 (note 26) Balance at the end of the year 31 December 2016 Balance at the beginning of the year as originally stated Effect of restatement- Provision for zakat for 2016 (note 26) Balance at the beginning of the year- (Restated) (note 26) Total comprehensive income Net change in fair value of available for sale investments Net amounts relating to available for sale investments transferred to consolidated statement of income Net income Total comprehensive income Final dividends - 2015 (note 26) Interim dividend - 2016 (note 26) Provision for zakat Transfer to statutory reserve (note 17) Final proposed dividend - 2016 (note 26) Balance at the end of the year (Restated) (note 26) Share capital Statutory reserve Other reserves Retained earnings Proposed dividends Total 30,000,000 2,936,093 532,929 2,604,039 900,000 36,973,061 - - 422,221 - - 422,221 - - (268,285) - - (268,285) 30,000,000 986,499 3,922,592 153,936 686,865 3,945,996 3,945,996 (1,050,000) (500,000) (986,499) (1,140,000) 2,873,536 (900,000) 1,140,000 1,140,000 3,945,996 4,099,932 (900,000) (1,050,000) (500,000) 38,622,993 30,000,000 2,100,471 297,467 2,847,174 1,300,000 36,545,112 - 30,000,000 2,100,471 297,467 2,847,174 (250,000) 1,050,000 (250,000) 36,295,112 - - 309,784 - - 309,784 - - (74,322) - - (74,322) - 835,622 - 235,462 - 3,342,487 3,342,487 (1,050,000) (800,000) (835,622) (900,000) (1,050,000) 900,000 3,342,487 3,577,949 (1,050,000) (1,050,000) (800,000) - 30,000,000 2,936,093 532,929 2,604,039 900,000 36,973,061 The accompanying notes 1 to 41 form an integral part of these consolidated financial statements. Page 4 of 59
14. RIYAD BANK CONSOLIDATED STATEMENT OF CASH FLOWS For the years ended December 31 , 2017 and 2016 Note OPERATING ACTIVITIES Net income for the year Adjustments to reconcile net income for the year to net cash from (used in) operating activities: Accretion of discounts and amortisation of premium, net on non-trading investments, net Gains on non-trading investments, net Gains on trading investments, net Depreciation of property and equipment Share in earnings of associates, net Impairment charge for investments, net Impairment charge for credit losses, net Net (increase) decrease in operating assets: Statutory deposit with SAMA Due from banks and other financial institutions maturing after three months from date of acquisition Positive fair value of derivatives Held for trading investments (FVIS) Loans and advances, net Other real estate Other assets Net increase (decrease) in operating liabilities: Due to banks and other financial institutions Negative fair value of derivatives Customer deposits Other liabilities Net cash from (used in) operating activities INVESTING ACTIVITIES Proceeds from sales and maturities of non-trading investments Purchase of non-trading investments Purchase of property and equipment, net Net cash used in investing activities FINANCING ACTIVITIES Dividend and zakat paid Cash used in financing activities Net increase (decrease) in cash and cash equivalents Cash and cash equivalents at beginning of the year Cash and cash equivalents at end of the year Special commission received during the year Special commission paid during the year 28 2017 SAR'000 2016 SAR'000 3,945,996 3,342,487 (55,606) (283,137) (4,232) 282,180 (23,110) 1,227,488 5,089,579 (32,541) (190,515) 288,790 (35,516) 100,000 1,286,397 4,759,102 221,760 (2,200,000) 73,405 (300,000) 2,844,261 9,898 347,657 636,006 (1,585,000) 8,244 870,427 13,394 (108,598) (1,780,545) (60,715) (2,317,989) 706,409 2,633,720 4,337,020 (48,491) (11,169,275) (222,025) (2,509,196) 18,495,446 (18,905,857) (172,239) (582,650) 22,491,578 (22,505,924) (256,438) (270,784) (1,982,187) (1,982,187) 68,883 16,082,760 16,151,643 (2,179,112) (2,179,112) (4,959,092) 21,041,852 16,082,760 7,327,389 1,557,748 7,134,963 1,812,369 153,936 235,462 Supplemental non-cash information Net changes in fair value and transfers to consolidated statement of income The accompanying notes 1 to 41 form an integral part of these consolidated financial statements. Page 5 of 59
15. RIYAD BANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31 , 2017 and 2016 1. GENERAL Riyad Bank (The "Bank") is a Saudi Joint Stock Company incorporated in the Kingdom of Saudi Arabia, formed pursuant to the Royal Decree and the Council of Ministers’ Resolution No. 91 dated 1 Jumad Al-Awal 1377H (corresponding to November 23, 1957G). The Bank operates under commercial registration No. 1010001054 dated 25 Rabi Al-Thani 1377H (corresponding to November 18, 1957G) through its 340 branches (2016: 337 branches) in the Kingdom of Saudi Arabia, a branch in London-United Kingdom, an agency in Houston-United States, and a representative office in Singapore. The number of the Group's employees stood at 6,332 as at December 31, 2017 (2016: 6,337). The Bank’s Head Office is located at the following address: Riyad Bank King Abdulaziz Road – Al-Murabba District P.O. Box 22622 Riyadh 11416 Kingdom of Saudi Arabia The objective of the Bank is to provide a full range of banking and investment services. The Bank also provides to its customers Islamic (non-special commission based) banking products which are approved and supervised by an independent Shariah Board established by the Bank. The consolidated financial statements comprise the financial statements of Riyad Bank and its wholly owned subsidiaries,( the Bank and the subsidiaries are collectively referred to as the “Group”), a) Riyad Capital (engaged in investment services and asset management activities related to dealing, managing, arranging, advising and custody of securities regulated by the Capital Market Authority), b) Ithra Al-Riyad Real Estate Company (formed with the objective to hold, manage, sell and purchase real estate assets for owners or third parties for financing activities); c) Riyad Company for Insurance Agency (which acts as an agent for selling insurance products owned and managed by another principal insurance company), incorporated in the Kingdom of Saudi Arabia; d) Curzon Street Properties Limited incorporated in the Isle of Man; and e) Riyad Financial Markets incorporated in the Cayman Islands - a netting and bankruptcy jurisdiction country, to execute derivative transactions with international counterparties on behalf of Riyad Bank. 2. BASIS OF PREPARATION 2.1 Statement of compliance The consolidated financial statements of the Group have been prepared; a) in accordance with ‘International Financial Reporting Standards (IFRS) as modified by SAMA for the accounting of zakat and income tax’, which requires, adoption of all IFRSs as issued by the International Accounting Standards Board (“IASB”) except for the application of International Accounting Standard (IAS) 12 - “Income Taxes” and IFRIC 21 - “Levies” so far as these relate to zakat and income tax. As per the SAMA Circular no. 381000074519 dated April 11, 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and income tax (“SAMA Circular”), the Zakat and Income tax are to be accrued on a quarterly basis through shareholders equity under retained earnings. b) in compliance with the provisions of Banking Control Law, the Regulations for Companies in the Kingdom of Saudi Arabia and the By-Laws of the Bank Further, the above SAMA Circular has also repealed the existing Accounting Standards for Commercial Banks, as promulgated by SAMA, and are no longer applicable from January 1, 2017. Refer note 3.1 i) for the accounting policy of zakat and income tax and note 26 for the impact of change in the accounting policy resulting from the SAMA Circular. Page 6 of 59
16. RIYAD BANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS For the years ended December 31 , 2017 and 2016 2. BASIS OF PREPARATION (continued) 2.2 Basis of measurement and presentation These consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of derivatives, available for sale investments and FVIS investments. In addition, financial assets or liabilities that are hedged in a fair value hedging relationship, and otherwise carried at cost, are carried at fair value to the extent of the risk being hedged. The consolidated statement of financial position is stated broadly in order of liquidity. 2.3 Functional and presentation currency These consolidated financial statements are presented in Saudi Arabian Riyals (SAR), which is the Group’s functional currency. Except as indicated, financial information presented in SAR has been rounded off to the nearest thousand Saudi Arabian Riyals. 2.4 Critical accounting judgements, estimates and assumptions The preparation of these consolidated financial statements in conformity with IFRS requires the management to use certain critical accounting judgements, estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgement in the process of applying the Group’s accounting policies. Such judgements, estimates and assumptions are continually evaluated and are based on historical experience and other factors, including obtaining professional advices and expectations of future events that are believed to be reasonable under the circumstances. Significant areas where management has used estimates, assumptions or exercised judgements are as follows: i ) Impairment for credit losses on loans and advances The Bank reviews its loan portfolios to assess specific and collective impairment on a quarterly basis. In determining whether an impairment loss should be recorded, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group. Management uses estimates based on historical loss experience for loans with credit risk characteristics and objective evidence of impairment similar to those in the portfolio, when estimating its cash flows. The methodology and assumptions used for estimating both the amount and the timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. ii ) Fair value measurement Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: - In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous market for the asset or liability The principal or the most advantageous market must be accessible by the Group. The fair value of an asset or a liability is measured using the assumptions, that market participants would use, when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a nonfinancial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorised within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: - Level 1: Quoted (unadjusted) market prices in active markets for identical assets or liabilities - Level 2: Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable - Level 3: Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable Page 7 of 59
17. RIYAD BANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the years ended December 31 , 2017 and 2016 2. BASIS OF PREPARATION (continued) 2.4 Critical accounting judgements, estimates and assumptions (continued) ii ) Fair value measurement(continued) For assets and liabilities that are recognised in the financial statements on a recurring basis, the Group determines whether transfers have occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value measurement as a whole) at the end of each reporting period. iii ) Impairment of available for sale investments The Group exercises judgement in considering impairment on the available for sale equity investments. This includes determination of a significant or prolonged decline in the fair value below its cost. In making this judgement, the Group evaluates among other factors, the normal volatility in share price. In addition, the Group considers impairment to be appropriate when there is objective evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. The Group reviews its debt securities classified as available for sale at each reporting date to assess whether they are impaired. This requires similar judgement as applied to individual assessment of loans and advances. iv ) Classification of held-to-maturity investments The Group follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as held-to-maturity. In making this judgement, the Group evaluates its intention and ability to hold such investments to maturity. v ) Determination of control over investees Investment funds The Group acts as Fund Manager to a number of investment funds. Determining whether the Group controls such an investment fund usually focuses on the assessment of the aggregate economic interests of the Group in the Fund (comprising any carried interests and expected management fees) and the investor's rights to remove the Fund Manager. As a result the Group has concluded that it acts as an agent for the investors in all cases, and therefore has not consolidated these funds. Special Purpose Entities (SPEs) The Bank is party to certain SPEs, primarily to facilitate Shariah compliant financing arrangements. The exposures to these entities are included in the Bank's loans and advances portfolio. vi ) Defined benefit scheme The Group operates an End of service benefit scheme for its employees based on the prevailing Saudi Labor laws. The liability is being accrued based on projected unit credit method in accordance with the periodic actuarial valuation. For details of assumptions and estimate please refer note 27. Page 8 of 59
18. RIYAD BANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the years ended December 31 , 2017 and 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below. Except for the change in accounting policies resulting from new and amended IFRS and IFRIC and SAMA guidance, as detailed in note 3.1 below, the accounting policies adopted in the preparation of these consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended December 31, 2016. 3.1 Changes in accounting policies The accounting policies used in the preparation of these consolidated financial statements include the change in accounting policy of Zakat as mentioned below and adoption of an amendment to an existing standard mentioned below, which has had no material impact on the consolidated financial statements of the Group on the current period or prior periods and is expected to have an insignificant effect in future periods: i ) Zakat Due to the reason set out in note 2.1, the Group amended its accounting policy relating to zakat and have started to accrue zakat on a quarterly basis and charging it to retained earnings. Previously, zakat was deducted from dividends upon payment to the shareholders and was recognized as a liability at that time. Where no dividends were paid, zakat was accounted for on a payment basis. The Group has accounted for this change in the accounting policy relating to zakat retrospectively and the effects of the above change are disclosed in note 26 to the consolidated financial statements. ii ) Amendments to existing standards Amendment to IAS 7, Statement of cash flows on disclosure initiative: Applicable for annual periods beginning on or after January 1, 2017. This amendment introduces an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. This amendment is part of the IASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. This has no material impact on the consolidated financial statements other than certain additional disclosures. The Group has chosen not to early adopt the amendments and revisions to the International Financial Reporting Standards which have been published and are mandatory for compliance for the accounting years beginning on or after January 1, 2018 (please refer note 39). Page 9 of 59
19. RIYAD BANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the years ended December 31 , 2017 and 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.2 Basis of consolidation These annual consolidated financial statements comprise the financial statements of Riyad Bank and its subsidiaries drawn up to 31 December each year. The financial statements of the subsidiaries are prepared for the same reporting year as that of the Bank, using consistent accounting policies. Subsidiaries are investees controlled by the Bank. The Bank controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Balances between the Bank and its subsidiaries, and any income and expenses arising from intra-group transactions are eliminated in preparing the consolidated financial statements. Generally, there is a presumption that a majority of voting rights results in control. However, under individual circumstances, the Bank may still exercise control with less than 50% shareholding or may not be able to exercise control even with ownership over 50% of an entity’s shares. When assessing whether it has power over an investee and therefore controls the variability of its returns, the Bank considers all relevant facts and circumstances, including: - The purpose and design of the investee - The relevant activities and how decisions about those activities are made and whether the Bank can direct those activities - Contractual arrangements such as call rights, put rights and liquidation rights - Whether the Bank is exposed, or has rights, to variable returns from its involvement with the investee, and has the power to affect the variability of such returns A change in the ownership interest of a subsidiary, without loss of control, is accounted for as an equity transaction. If the Group loses control over a subsidiary, it derecognises the related assets (including goodwill), liabilities, non-controlling interest (NCI) and other components of equity, while any resultant gain or loss is recognised in profit or loss. Any investment retained is recognised at fair value at the date of loss of control. The Bank is party to certain special purpose entities (SPEs), primarily for the purpose of facilitation of certain Shariah compliant financing arrangements. The Group concluded that these entities cannot be consolidated in its financial statements as it could not establish control over these SPEs. 3.3 Settlement date accounting All regular way purchases and sales of financial assets are recognised and derecognised on the settlement date, i.e. the date the asset is delivered to the counter party. The Group accounts for any change in fair value between the trade and the settlement date in the same way as it accounts for the acquired assets. Regular way purchases or sales are purchases or sales of financial instruments that require delivery of assets within the time frame generally established by regulation or convention in the market place. Page 10 of 59
20. RIYAD BANK NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS - continued For the years ended December 31 , 2017 and 2016 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) 3.4 Investment in associates An associate is an entity, including an unincorporated entity such as a partnership, over which the investor has significant influence and that is neither a subsidiary nor an interest in a joint venture. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies. Investments in associates are accounted for using the equity method of accounting. The equity method is a method of accounting whereby the investment is initially recognised at cost and subsequently adjusted for the post-acquisition change in the investor’s share of net assets of the investee. The profit or loss of the investor includes the investor’s share of the profit or loss of the investee. Distribution received from the investee reduces the carrying amount of the investment. 3.5 Derivative financial instruments and hedge accounting Derivative financial instruments, including foreign exchange contracts, special commission rate swaps and currency options (both written and purchased), are initially recognised at fair value on the date on which the derivative contract is entered into, with transaction costs recognised in the consolidated statement of income and, are subsequently re-measured at fair value. All derivatives are carried at their fair value as assets where the fair value is positive and as liabilities where the fair value is negative. Fair values are obtained by reference to quoted market prices, discounted cash flow models and pricing models, as appropriate. The treatment of changes in their fair value depends on their classification into the following categories: i) Derivatives held for trading Any changes in the fair value of derivatives that are held for trading purposes are taken directly to the consolidated statement of income and disclosed in trading income/ loss. Derivatives held for trading also include those derivatives, which do not qualify for hedge accounting described below. ii) Hedge accounting The Group designates certain derivatives as hedging instruments in qualifying hedging relationships. For the purpose of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposure to changes in the fair value of a recognised asset or liability or an unrecognised firm commitment or an identified portion of such an asset, liability or firm commitment, that is attributable to a particular risk and could affect the reported net gain or loss; and (b) cash flow hedges which hedge exposure to variability in cash flows that is either attributable to a particular risk associated with a recognised asset or liability, or to a highly probable forecasted transaction that will affect the reported net gain or loss. In order to qualify for hedge accounting, the hedge should be expected to be highly effective, i.e. the changes in fair value or cash flows of the hedging instrument should effectively offset corresponding changes in the hedged item, and should be reliably measurable. At the inception of the hedge, the risk management objective and strategy is documented, including the identification of the hedging instrument, the related hedged item, the nature of risk being hedged, and how the Group will assess the effectiveness of the hedging relationship. Subsequently, the hedge is required to be assessed and determined to be an effective hedge on an ongoing basis. Page 11 of 59