Ahli United Bank K.S.C.P. Kuwait: Consolidated Financial Information - 31 March 2017

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1. AHLI UNITED BANK K .S.C.P. KUWAIT INTERIM CONDENSED CONSOLIDATED FINANCIAL INFORMATION 31 MARCH 2017 (UNAUDITED)
2. Ahli United Bank K .S.C.P. Kuwait Interim Condensed Consolidated Financial Information 31 March 2017 Contents Review Report Page 1-2 Interim Condensed Consolidated Statement of Profit or Loss (Unaudited) 3 Interim Condensed Consolidated Statement of other Comprehensive Income (Unaudited) 4 Interim Condensed Consolidated Statement of Financial Position (Unaudited) 5 Interim Condensed Consolidated Statement of Changes in Equity (Unaudited) 6 Interim Condensed Consolidated Statement of Cash Flows (Unaudited) 7 Notes to the Interim Condensed Consolidated Financial Information (Unaudited) 8 – 15
3. Ahli United Bank K .S.C.P. Interim Condensed Consolidated Statement of Profit or Loss For the period ended 31 March 2017 (Unaudited) Notes Financing income Distribution to depositors Net financing income 3 4 Three months ended 31 March 2016 2017 KD’000 KD’000 33,572 (10,216) 23,356 32,056 (10,819) 21,237 Net fees and commission income Foreign exchange gains Net gain on sale of investment properties Net gain on sale of investments Share of results from associate Other income Total operating income 2,872 615 1,401 (99) 156 28,301 2,816 986 2,949 73 (137) 290 28,214 Provision and impairment losses Operating income after provision and impairment losses (2,935) 25,366 (3,706) 24,508 Staff costs Depreciation Other operating expenses Total operating expenses (5,437) (553) (2,637) (8,627) (5,107) (777) (2,156) (8,040) PROFIT FROM OPERATIONS Zakat National Labour Support Tax Contribution to Kuwait Foundation for the Advancement of Sciences PROFIT FOR THE PERIOD 16,739 16,468 (167) (419) (149) 16,004 (163) (409) (148) 15,748 16,004 16,004 15,592 156 15,748 Net profit for the period attributable to Bank’s equity shareholders Net profit attributable to non-controlling interests Basic and diluted earnings per share attributable to the Bank’s equity shareholders (fils) 5 10.3 The attached notes 1 to 15 form part of the interim condensed consolidated financial information. 3 10.0
4. Ahli United Bank K .S.C.P. Interim Condensed Consolidated Statement of other Comprehensive Income For the period ended 31 March 2017 (Unaudited) Three months ended 31 March 2016 2017 KD’000 KD’000 Profit for the period 16,004 Other comprehensive income (loss): Other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods: Net movement in cumulative changes in fair values of investments available for sale Exchange differences on translation of foreign operations Net other comprehensive income (loss) to be reclassified to profit or loss in subsequent periods 15,748 297 - (150) (302) 297 (452) Total comprehensive income for the period 16,301 15,296 Total comprehensive income attributable to Bank's equity shareholders Total comprehensive income (loss) attributable to non- controlling interests 16,301 16,301 15,346 (50) 15,296 The attached notes 1 to 15 form part of the interim condensed consolidated financial information. 4
5. Ahli United Bank K .S.C.P. Interim Condensed Consolidated Statement of Financial Position As at 31 March 2017 (Unaudited) Notes ASSETS Cash and balances with banks Deposits with Central Bank of Kuwait Deposits with other banks Financing receivables Investments available for sale Investments held for trading Investment in associate Investment properties Premises and equipment Other assets Assets classified as held for sale TOTAL ASSETS 6 7 8 31 March 2017 KD’000 (Audited) 31 December 2016 KD’000 31 March 2016 KD’000 60,651 418,323 267,631 2,749,372 205,171 10,011 23,015 31,527 15,518 3,781,219 44,144 426,847 227,280 2,706,054 203,973 10,162 23,055 31,393 19,253 3,692,161 311,248 373,234 389,198 2,779,148 154,072 242 10,296 23,696 31,184 16,956 12,657 4,101,931 764,976 2,502,152 70,819 3,337,947 702,152 2,491,871 52,450 3,246,473 824,138 2,855,621 49,637 3,494 3,732,890 173,237 253,352 426,589 (43,957) 382,632 60,640 443,272 3,781,219 173,237 255,768 429,005 (43,957) 385,048 60,640 445,688 3,692,161 157,488 250,883 408,371 (43,957) 364,414 4,627 369,041 4,101,931 LIABILITIES AND EQUITY LIABILITIES Deposits from banks and financial institutions Deposits from customers Other liabilities Liabilities directly associated with assets held for sale EQUITY Share capital Reserves 8 9 Treasury shares Attributable to Bank’s equity shareholders Perpetual Tier 1 Sukuk Non-controlling interests TOTAL EQUITY TOTAL LIABILITIES AND EQUITY 9 10 Dr. Anwar Ali Al-Mudhaf Chairman Richard Groves Chief Executive Officer The attached notes 1 to 15 form part of the interim condensed consolidated financial information. 5
6. Ahli United Bank K .S.C.P. Interim Condensed Consolidated Statement of Changes in Equity For the period ended 31 March 2017 (Unaudited) Attributable to the Bank’s equity shareholders Reserves Share capital KD’000 Balance as at 1 January 2017 Profit for the period Other comprehensive income for the period Total comprehensive income for the period Dividend –2016 (Note 9) Issue of bonus shares – 2016 (Note 9) Balance as at 31 March 2017 Balance as at 1 January 2016 Profit for the period Other comprehensive loss for the period Total comprehensive income (loss) for the period Dividend –2015 (Note 9) Issue of Bonus shares – 2015 (Note 9) Balance as at 31 March 2016 Bonus shares under issuance KD’000 Share Statutory premium reserve KD’000 KD’000 General reserve KD’000 Cumulative Retained changes in earnings fair values KD’000 KD’000 Property Treasury revaluation shares reserve reserve KD’000 KD’000 Foreign currency translation reserve KD’000 Total reserves KD’000 Treasury shares KD’000 Perpetual NonTier 1 controlling Sukuk interests KD 000 KD’000 Total KD’000 173,237 - - 12,883 - 74,199 - 22,660 - 131,048 16,004 3,924 - 10,050 - 974 - 30 - 255,768 16,004 (43,957) - 60,640 - - 445,688 16,004 - - - - - - 297 - - - 297 - - - 297 - - - - - 16,004 (18,717) 297 - - - - 16,301 (18,717) - - - 16,301 (18,717) - 13,859 - - - (13,859) - - - - - - - - - 173,237 13,859 12,883 74,199 22,660 114,476 4,221 10,050 974 30 253,352 (43,957) 60,640 - 443,272 157,488 - - 12,883 - 7,792 - 10,014 - 974 - 153 - 242,627 15,592 (43,957) - - 4,677 156 360,835 15,748 - - - - - (96) - - (150) (246) - - (206) (452) - - - - - 15,592 (7,090) (96) - - - (150) - 15,346 (7,090) - - (50) - 15,296 (7,090) - - (15,749) - - - - - - - - - 110,942 7,696 10,014 974 3 250,883 (43,957) - 4,627 369,041 - 15,749 - 157,488 15,749 12,883 69,962 - 69,962 22,660 - 22,660 118,189 15,592 - The attached notes 1 to 15 form part of the interim condensed consolidated financial information. 6
7. Ahli United Bank K .S.C.P. Interim Condensed Consolidated Statement of Cash Flows For the period ended 31 March 2017 (Unaudited) Note OPERATING ACTIVITIES Profit for the period Adjustments for: Net gain on sale of investment properties Net gain on sale of investments Share of results from associate Dividend income Net income from investment properties Depreciation Provision and impairment losses Operating profit before changes in operating assets and liabilities Three months ended 31 March 2016 2017 KD’000 KD’000 16,004 15,748 (1,401) 99 (24) (109) 553 2,935 18,057 (2,949) (73) 137 (175) (108) 777 3,706 17,063 Changes in operating assets / liabilities: Deposits with Central Bank of Kuwait Deposits with other banks Financing receivables Other assets Deposits from banks and financial institutions Deposits from customers Other liabilities Net cash from operating activities 10,524 6,597 (45,136) 3,756 62,823 10,281 (1,209) 65,693 (48,032) (36,896) (112,250) 7,743 (5,851) 194,992 (7,099) 9,670 INVESTING ACTIVITIES Purchase of investments available for sale Sale and redemption of investments available for sale Proceeds from sale of investment properties Purchase of premises and equipment Dividends income received Net income from investment properties Net cash used in investing activities (98,892) 99,207 (686) 24 109 (238) (82,138) 67,203 8,784 (1,514) 175 108 (7,382) NET INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at 1 January CASH AND CASH EQUIVALENTS AT 31 MARCH 65,455 77,048 142,503 2,288 552,644 554,932 6 The attached notes 1 to 15 form part of the interim condensed consolidated financial information. 7
8. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 1 INCORPORATION AND ACTIVITIES Ahli United Bank K.S.C.P. (the “Bank”) is a public shareholding company incorporated in Kuwait in 1971 and is listed on Kuwait Stock Exchange. It is engaged in carrying out banking activities in accordance with Islamic Sharia'a and is regulated by the Central Bank of Kuwait (“CBK”). Its registered office is at Darwazat Al-Abdul Razzak, P. O. Box 71, Safat 12168, Kuwait. The Bank has commenced operations as an Islamic bank from 1 April 2010. From that date, all activities are conducted in accordance with Islamic Sharia’a, as approved by the Bank’s Fatwa and Sharia’a Supervisory Board. The Bank is a subsidiary of Ahli United Bank B.S.C., a Bahraini bank (the “Parent”), listed on the Bahrain and Kuwait Stock Exchanges. The Bank’s principal subsidiary is Kuwait and Middle East Financial Investment Company K.S.C.P. (“KMEFIC”), a company incorporated in the State of Kuwait, listed on the Kuwait Stock Exchange and engaged in investment and portfolio management activities for its own account and for clients. The Bank held 50.12% effective interest in KMEFIC as at 31 March 2017 (31 December 2016: 50.12% and 31 March 2016: 50.18%). The interim condensed consolidated financial information of the Bank and its subsidiary (“the Group”) for the three months period ended 31 March 2017 were authorised for issue in accordance with a resolution of the Board of Directors of the Bank on 10 April 2017. 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.1 Basis of preparation The interim condensed financial information of the Bank has been prepared in accordance with International Accounting Standard (“IAS”) 34: Interim Financial Reporting. The accounting policies used in the preparation of this interim condensed consolidated financial information are consistent with those used in the preparation of the annual consolidated financial statements for the year ended 31 December 2016, except for the adoption of the amendments and annual improvements to International Financial Reporting Standards (IFRSs), relevant to the Group which are effective for annual reporting period starting from 1 January 2017 and did not result in any material impact on the accounting policies, financial position or performance of the Group. The annual consolidated financial statements for the year ended 31 December 2016 were prepared in accordance with the regulations of the State of Kuwait for financial services institutions regulated by the CBK. These regulations require adoption of all IFRS except for the IAS 39: Financial instruments: Recognition and Measurement (“IAS 39”) requirement for collective provision, which has been replaced by the CBK’s requirement for a minimum general provision. The interim condensed consolidated financial information does not contain all information and disclosures required for full financial statements prepared in accordance with IFRS, and should be read in conjunction with the Group’s annual consolidated financial statements for the year ended 31 December 2016. Further, results for the three months period ended 31 March 2017, are not necessarily indicative of the results that may be expected for the financial year ending 31 December 2017. The Central Bank of Kuwait and the Bank's Fatwa and Sharia'a Supervisory Board have approved a time frame upto 28 May 2017 to convert or dispose all remaining conventional investments and products of the Group to be Sharia'a compliant. 8
9. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 3 FINANCING INCOME Financing income includes interest income amounting to KD 14 thousand (31 March 2016: KD 41 thousand) received from non-converted loans and advances granted before conversion to an Islamic Bank, which represents 0.04% (31 March 2016: 0.1%) of the total financing income for the three months ended 31 March 2017. Treatment of interest income is subject to resolutions of the Bank’s Fatwa and Sharia’a Supervisory Board. 4 DISTRIBUTION TO DEPOSITORS The Board of Directors of the Bank determines the depositors’ share of profit based on the Bank’s results for the three months period ended 31 March 2017. 5 BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share for periods presented in the interim condensed consolidated statement of profit or loss are calculated as follows: Profit for the period attributable to the Bank’s equity shareholders (KD’ 000) Weighted average number of shares outstanding during the period Basic and diluted earnings per share attributable to the Bank’s equity shareholders (fils) Three months ended 31 March 2016 2017 15,592 16,004 1,559,731,902 1,559,731,902 10.3 10.0 For calculating the earnings per share for the period ended 31 March 2017, Bank has not considered the bonus shares approved by the Annual General Assembly held on 30 March 2017 as appropriate regulatory approvals are awaited. As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical. 6 CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the interim condensed consolidated statement of cash flows consists of the following: (Audited) 31 March 31 March 31 December 2017 2016 2016 KD’000 KD’000 KD’000 Cash and balances with banks Deposits with Central banks and other banks - with an original maturity of seven days or less 7 60,651 44,144 311,248 81,852 142,503 32,904 77,048 243,684 554,932 FINANCING RECEIVABLES Financing receivables as at 31 March 2017 comprises of only Sharia’a compliant Islamic Financing while the comparative period includes loans and advances carried forward from prior periods before conversion to an Islamic Bank amounting to KD 964 thousand as at 31 December 2016 and KD 1,717 thousand as at 31 March 2016. 9
10. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 8 ASSETS HELD FOR SALE The Board of Directors had approved sale of its entire equity interest in a non-converted asset and recorded this as asset held for sale per IFRS 5 during 2015. During the year ended 31 December 2016, out of the above, investment of KD 10.5 million was reclassified to Investment in an associate and the remaining carrying value of assets held for sale which are not Sharia’a compliant was fully provided for in accordance with CBK instruction during 2016. 9 EQUITY a) The shareholders’ Annual General Assembly held on 30 March 2017, approved the audited consolidated financial statements of the Bank for the year ended 31 December 2016 and the distribution of cash dividend of 12 fils per share (2015: 5 fils per share) to the Bank’s equity shareholders registered in Bank’s records as of the date of Annual General Assembly Meeting and issuance of bonus shares of 8% (2015:10%) to Bank’s equity shareholders on record at the date of regulatory approval. b) Treasury shares Number of treasury shares Treasury shares as a percentage of total shares issued Cost of treasury shares (KD 000) Market value of treasury shares at the reporting date (KD 000) Weighted average market value per treasury share (Fils) 31 March 2017 (Audited) 31 December 2016 31 March 2016 172,636,620 172,636,620 156,942,382 9.97% 43,957 9.97% 43,957 9.97% 43,957 79,413 69,918 69,055 435 412 448 Amount equivalent to cost of treasury shares has been retained out of reserves as non-distributable throughout the holding period of the treasury shares. 10 PERPETUAL TIER 1 SUKUK In October 2016, the Bank through a Sharia'a compliant Sukuk arrangement issued Tier 1 Sukuk amounting to USD 200 million. Tier 1 Sukuk is a perpetual security in respect of which there is no fixed redemption date and constitutes direct, unsecured, deeply subordinated obligations (senior only to share capital) of the Bank subject to the terms and conditions of the Mudaraba Agreement. The Tier I Sukuk is listed on the Irish Stock Exchange and NASDAQ Dubai and callable by the Bank after five-year period ending October 2021 (the "First Call Date") or any profit payment date thereafter subject to certain redemption conditions including prior CBK approval. The net proceeds of Tier 1 Sukuk are invested by way of Mudaraba with the Bank (as Mudareb) on an unrestricted basis, by the Bank in its general business activities carried out through the general Mudaraba pool. Tier I Sukuk bears profit rate of 5.5% per annum to be paid semi-annually in arrears until the First Call Date subject to terms of the issue. After that, the expected profit rate will be reset based on then prevailing 5 years U.S Mid Swap Rate plus initial margin of 4.226 % per annum. At the issuer's sole discretion, it may elect not to make any Mudaraba distributions expected and in such event, the Mudaraba profit will not be accumulated and the event is not considered an event of default. 11 TRANSACTIONS WITH RELATED PARTIES The Group enters into transactions with the parent, subsidiaries, associates, major shareholders, directors and key management, close members of their families and entities controlled, jointly controlled or significantly influenced by such parties in the ordinary course of business. The terms of these transactions are approved by the Group’s management. 10
11. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 11 TRANSACTIONS WITH RELATED PARTIES (CONTINUED) The related party balances in the interim condensed consolidated financial information are as follows: Parent KD’000 Others KD’000 Total KD’000 As at 31 March 2017 Financing receivables Credit cards Deposits with other banks Deposits from banks and financial institutions Deposits from customers Commitments and contingent liabilities Islamic Forward Agreements 39,067 36,762 22,620 2,641 11,696 47 6,323 440,978 5,152 8,740 - 11,696 47 45,390 477,740 5,152 31,360 2,641 As at 31 December 2016 (Audited) Financing receivables Credit cards Deposits with other banks Deposits from banks and financial institutions Deposits from customers Commitments and contingent liabilities Islamic Forward Agreements 86,227 46,236 17,385 8,367 12,346 40 6,294 480,094 1,437 8,025 - 12,346 40 92,521 526,330 1,437 25,410 8,367 As at 31 March 2016 Financing receivables Credit cards Deposits with other banks Deposits from banks and financial institutions Deposits from customers Commitments and contingent liabilities Islamic Forward Agreements 93,778 57,513 41,617 4,515 8,444 43 16,960 358,125 1,867 6,479 - 8,444 43 110,738 415,638 1,867 48,096 4,515 Parent KD’000 Others KD’000 Total KD’000 Transactions For the period ended 31 March 2017 Financing income Distribution to depositors 197 70 105 2,340 302 2,410 For the period ended 31 March 2016 Financing income Distribution to depositors 166 79 97 1,348 263 1,427 11
12. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 12 COMMITMENTS AND CONTINGENT LIABILITIES a) Financial instruments with contractual amounts representing credit risk: 31 March 2017 KD’000 Acceptances Letters of credit Guarantees 34,092 69,712 443,875 547,679 (Audited) 31 December 2016 KD’000 31 March 2016 KD’000 30,272 68,452 435,614 534,338 26,391 92,849 410,053 529,293 Irrevocable credit commitments to extend credit as at the statement of financial position date amounted to KD 7,804 thousand (31 December 2016: KD 24,077 thousand and 31 March 2016: KD 7,606 thousand). b) The capital commitment for purchase of assets as at 31 March 2017 is KD 2,076 thousand (31 December 2016: KD 1,631 thousand and 31 March 2016: KD 1,333 thousand). 13 ISLAMIC FORWARD AGREEMENTS In the ordinary course of business, the Bank enters into various types of transactions that involve financial instruments represented in forward foreign exchange agreements (Waad) to mitigate foreign currency risk. A Waad is a financial transaction between two parties where payments are dependent upon movements in price of one or more underlying financial instruments, reference rate or index in accordance with Islamic Sharia’a. The notional amount, disclosed gross, is the amount of a Waad’s underlying asset/ liability and is the basis upon which changes in the value are measured. The notional amounts indicate the volume of transactions outstanding at the period-end and are neither indicative of the market risk nor credit risk. The table below shows the notional amounts of the Waad transactions: Waad Assets (Positive) KD’000 31 March 2017 31 December 2016 (Audited) 31 March 2016 14 Notional amounts Liabilities Less than 1 1 to 3 3 to 12 (Negative) month months months KD’000 KD’000 KD’000 KD’000 Total KD’000 35 36 1,410 3,158 4,984 9,552 123 168 4,235 6,406 1,704 12,345 64 86 9,953 2,854 4,893 17,700 SEGMENT REPORTING The Group’s operating segments are determined based on the reports reviewed by the Senior management that are used for strategic decisions. These segments are strategic business units having similar economic characteristics that offer different products and services. These operating segments are monitored separately by the Group for the purpose of making decisions about resource allocation and performance assessment. 12
13. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 14 SEGMENT REPORTING (CONTINUED) These operating segments meet the criteria for reportable segments and are as follows:  Retail and Commercial Banking - comprising a full range of banking operations covering credit and deposit services provided to customers and correspondent banking. The Bank uses a common marketing and distribution strategy for its commercial banking operations.  Treasury and Investment Management - comprising clearing, money market, foreign exchange, Sukuk, other treasury and miscellaneous operations, proprietary investment, securities trading activities and fiduciary fund management activities. Segment results include revenue and expenses directly attributable to a segment and an allocation of overhead cost. The Group measures the performance of operating segments through segment profit or loss net of taxes in management and reporting systems. Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment. Segment information for the three months period ended 31 March 2017 and 2016 are as follows: Retail and Commercial Banking 2016 2017 KD’000 KD’000 Treasury and Investment Management 2016 2017 KD’000 KD’000 Net financing income 16,714 19,003 4,353 Fees, commissions and others 2,875 3,298 1,647 Total operating income 19,589 22,301 6,000 Provision and impairment losses (979) (2,052) (883) Operating expenses and taxation (7,351) (7,748) (1,614) Segment result 11,259 12,501 3,503 Add: Non-controlling interest Net profit for the period attributable to Bank’s equity shareholders Total 2017 KD’000 2016 KD’000 4,523 4,102 8,625 23,356 4,945 28,301 21,237 6,977 28,214 (2,727) (2,935) (3,706) (1,409) 4,489 (9,362) 16,004 16,004 (8,760) 15,748 (156) 15,592 Retail and Commercial Banking KD’000 Treasury and Investment Management KD’000 As at 31 March 2017 Segment assets Segment liabilities 3,143,895 1,830,118 637,324 1,507,829 3,781,219 3,337,947 As at 31 December 2016 (Audited) Segment assets Segment liabilities 3,080,985 1,704,182 611,176 1,542,291 3,692,161 3,246,473 As at 31 March 2016 Segment assets Segment liabilities 3,183,095 2,096,604 918,836 1,636,286 4,101,931 3,732,890 13 Total KD’000
14. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 15 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS The following table provides the fair value measurement hierarchy of the Group’s financial instruments: Fair value measurement hierarchy for assets and liabilities as at 31 March 2017 is as follows: Level: 1 KD’000 31 March 2017 Assets measured at Fair Value Financial assets Investments available for sale Islamic Forward Agreements Waad Liability measured at fair value Islamic Forward Agreements Waad Islamic Forward Agreements Waad Liability measured at fair value Islamic Forward Agreements Waad 4,292 205,031 195,497 35 5,277 4,292 35 205,066 36 36 - 36 36 Level: 1 KD 000 Level: 2 KD 000 Level: 3 KD 000 Total KD 000 193,464 6,077 4,292 203,833 193,464 123 6,200 4,292 123 203,956 Level: 1 KD’000 Islamic Forward Agreements Waad Liability measured at fair value Islamic Forward Agreements Waad 168 168 Level: 2 KD’000 - 168 168 Level: 3 KD’000 Total KD’000 133,966 242 10,983 - 8,983 - 153,932 242 134,208 64 11,047 8,983 64 154,238 86 86 - 86 86 - 14 Total KD’000 5,242 - 31 March 2016 Assets measured at Fair Value Financial assets Investments available for sale Investments held for trading Level: 3 KD’000 195,497 - 31 December 2016 (Audited) Assets measured at fair value Financial assets Investments available for sale Level: 2 KD’000
15. Ahli United Bank K .S.C.P. Notes to the Interim Condensed Consolidated Financial Information As at 31 March 2017 (Unaudited) 15 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (CONTINUED) The primary medium and long-term financial liabilities are subordinated liabilities. The fair values of these financial liabilities are not materially different from their carrying values, since these liabilities are repriced at intervals of three or six months, depending on the terms and conditions of the instrument and the resultant applicable margins approximate the current spreads that would apply for borrowings with similar maturities. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:Level 1 : Quoted (unadjusted) prices in active markets for identical assets or liabilities Level 2 : Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly. Level 3 : Techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data. 15