Al Rajhi Bank: Interim Condensed Consolidated Financial Statements - 30 September 2017

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1. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017
4. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION Notes 30 September 2017 SAR'OOO (Unaudited) 3 1 December 30 September 2016 2016 SAR'OOO SAR'OOO (Audited) (Unaudited) ASSETS Cash and balances with Saudi Arabian Monetary Authority ("SAMA1") and other central banks 33,836,730 42,149,905 41,469,344 Due from banks and other financial institutions 21,228,267 26,578,525 16,839,666 Investments 3 35,691,642 34,032,879 33,752,767 Financing, net 4 233,180,894 224,994,124 225,863,197 Investment properties, net 1,318,222 1,330,868 1,335,084 Property and equipment, net 7,299,421 6,485,162 6,148,990 Other assets, net 5,474,680 4,140,354 5,107,171 338,029,856 339,711,817 330,516,219 7,043,425 8,916,970 2,003,510 270,102,216 272,593,136 272,599,968 7,507,824 284,653,465 6,254,839 287,764,945 6,129,600 280,733,078 16,250,000 16,250,000 16,250,000 16,250,000 16,250,000 16,250,000 4,554,122 3,873,362 3,756,901 Retained earnings 16,322,269 12,236,010 13,526,240 Proposed gross dividends and Zakat Total shareholders' equity TOTAL LIABILITIES AND SHAREHOLDERS' EQUITY 53,376,391 3,337,500 51,946,872 49,783,141 338,029,856 339,711,817 330,516,219 TOTAL ASSETS LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Due to banks and other financial institutions Customers' deposits 5 Other liabilities Total liabilities Shareholders' equity Share capital 11 Statutory reserve Other reserves 7 The accompanying notes from 1 to 16 form an integral part of these interim condensed consolidated financial statements. -3-
5. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONSOLIDATED STATEMENT OF INCOME (UNAUDITED) Notes For the three-month For the nine-month period period ended ended 30 September 30 September 2017 2016 2017 2016 SAR'OOO SAR'OOO SAR'OOO SAR'OOO INCOME Gross financing and investment income Return on customers', banks' and financial institutions' time investments 3,178,439 3,075,163 9,299,727 8,666,140 (146,332) (160,685) (427,460) (364,284) Net financing and investment income 3,032,107 2,914,478 8,872,267 8,301,856 Fee from banking services, net 708,226 692,905 2,011,722 2,370,171 Exchange income, net 200,392 203,174 623,149 694,905 35,632 67,293 199,264 162,129 3,976357 3,877,850 11,706,402 11,529,061 7303^5 759,628 2,183,076 2,189,362 77,963 75,177 230,970 206,980 Depreciation and amortization 107,731 108,001 328,547 317,364 Other general and administrative expenses 385,175 354,909 1,108,469 1,036,536 Impairment charge for financing, net 409,884 541,436 1,187,581 1,634,206 Total operating expenses 1,711,148 29,208 1,868,359 5,038,643 65,923 5,450,371 Net income for the period Weighted average number of shares outstanding Basic and diluted earnings per share (SAR) 2,265.209 2,009,491 6,667,759 6,078,690 11 1,625,000 1,625,000 1,625,000 1,625,000 12 1.39 1.24 4.10 3.74 Other operating income, net Total operating income EXPENSES Salaries and employees related benefits Rent and premises related expenses Impairment charge for available-for-sale investments The accompanying notes from 1 to 16 form an integral part of these interim condensed consolidated financial statements. .4.
6. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (UNAUDITED) Net income for the period For the three-month period ended 30 September 2016 2017 SAR'OOO SAR'OOO For the nine-month period ended 30 September 2017 2016 SAR'OOO SAR'OOO 2,265,209 2,009,491 6,667,759 6,078,690 (52,808) (117,163) (100,085) (155,457) 14,676 39,200 (35,327) 82,738 29,321 22,008 71,646 59,451 2,256,398 1,953,536 6,603,993 6,065,422 Other comprehensive income Items that are or may be reclassified to consolidated statement of income in subsequent periods - Available-for-sale investments: Net change in fair value Net amounts transferred to consolidated statement of income Exchange difference on translation of foreign operations Total comprehensive income for the period The accompanying notes from I to 16 form an integral part of these interim condensed consolidated financial statements. -5-
7. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS 1 EQUITY (UNAUDITED) Notes For the nine-month period ended 30 September 2017 Balance at 1 January 2017 (audited) Transfer to other reserves Dividends paid forthe second halfof 2016 Dividends paid forthe first half of 2017 Net change in fair value of available - for - sale investments Net amounts transferred to consolidated statement of income for available - for - sale investment Net movement in foreign currency translation reserve Net loss recognized directly in equity Net income for the period Total comprehensive income for the period Zakat payable transferred to other liability Zakat paid Balance at the end of the period (unaudited) Share capital SAR'OOO Statutory reserve SAR'OOO 16,250,000 7 14 14 Other reserves SAR'OOO 16,250,000 . - . - - - 3,873362 900.000 . Retained earnings SAR'OOO I2,236,oin Proposed gross dividends and Zakat SAR'OOO 3337,500 (900,000) (2,437,500) (2,437,500) Total SAR'OOO 51,946.872 (2,437,500) (2,437,500) (100,085) (100,085) (35,327) "1.646 (35,327) (63.766) (63,766) 71,646 6,667,759 (63,766) 6,667,759 6.667,759 6,603,993 (144,000) (144.000) (155,474) 53,376.391 (155.474) .'.I-".""' 1h.:?lM)00 4,554.122 16.322,269 8,666,300 For the nine-month period ended 30 September 2016 Balance at 1 January 2016 (audited) Transfer to other reserves Dividends paid forthe second halfof 2015 Dividends paid forthe first halfof 2016 Net change in fair value of available - for - sale investments Net amounts transferred to consolidated statement of income for available - for - sale investment Net movement in foreign currency translation reserve Net loss recognized directly in equity Net income for the period Total comprehensive income for the period 16,250,000 16,250,000 2.997,754 7 - - 850.000 14 14 . . . - (1.218,7501 (155,457) 82.738 59,451 59,451 (13.268) 82,738 (13,268) 6,078,690 6,078,690 6.078.690 6,065,422 (77,585) -6- 1 6,250.000 (1,625,000) (1,218,750) (155,457) (13,268) 1 h 25i i dOO 46,639.054 (850,0001 (1,625,000) Zakat paid Balance at the end of the period (unaudited) 2,475,000 3.75(> 90! (77,585) 1 3,526,240 49,783,141
8. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) For the nine-month period ended 30 September Notes CASH FLOWS FROM OPERATING ACTIVITIES Net income tor the period Adjustments to reconcile net income to net cash (used in) / from operating activities: Gain on investments held al fair value through statement of income (KVSI) Depreciation and amortization of property and equipment Depreciation of investment properties Gain on sale of property and equipment Impairment charge for financing, net Impairment charge for availahle-for-sale investments Share of profit in an associate CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 6,078.690 (10,649) (14,328) 328,547 317,364 1,187,581 1,634,206 (22,526) (7,802) 65,923 CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Purchase of available -for-sale investments Proceeds from sale and maturity of investments held at amortized cost Purchase of investments held at amortized cost Proceeds from sale of property and equipment Net cash (used in) / from investing activities NET (DECREASE) / INCREASE IN CASH AND CASH EQUIVALENTS Cash and cash equivalents at beginning of the period 6,667,759 (548) Net increase / (decrease) in operating liabilities Due to hanks and other financial institutions Customers' deposits Other liabilities Net eash (used in) / from operating activities Net cash used in financing activities 2016 SAR'OOO 12,646 Net (increase) / decrease in operating assets Statutory deposit with SAMA and other central banks Due from hanks and other financial institutions Financing Investments held as FVSI Other assets, net CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Zakat paid 2017 SAR'OOO 14 (91,804) (555,150) 3,649,662 11,479,000 (9,374,351) (17,279,535) (822) (1,262,680) (416,507) (1,873,545) (2,554,714) (2,490,920) 1,092,336 (2,189,314) 14,778,327 (488,568) 14,051.861 (1,143,069) (872,507) 1,014,955 (281,477) (328,602) 86,045,694 98.973.590 (87,524,395) (93,652.358) 811 . (2,902,436) 4,120,123 (4,858^51) (2,826,311) ( 1 55,474) (77,585) (5,013.825) (2,903,896) (10,105,575) 15,268,088 32,683,985 12,382,480 22,578,410 27.650.568 The accompanying notes from 1 to 16 form an integral part of these interim condensed consolidated financial statements.
9. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS (UNAUDITED) For the nine-month period ended 30 September Notes Gross financing and investment income received during the period Return on customers', banks' and financial institutions' time investments paid during the period 2017 SAR'OOO 2016 SAR'OOO 9,202,082 8.307.927 (430,519) (378,097) (135,412) (72,719) Non-cash transactions: Net change in fair value less transferred to interim consolidated statement of income from available-tbr-sale investments The accompanying notes from 1 to 16 form an integral part of these interim condensed consolidated financial statements. -8-
10. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 1. GENERAL Al Rajhi Banking and Investment Corporation (the “Bank”), a Saudi Joint Stock Company, was formed and licensed pursuant to Royal Decree No. M/59 dated 3 Dhul Qada 1407H (corresponding to 29 June 1987) and in accordance with Article 6 of the Council of Ministers’ Resolution No. 245, dated 26 Shawwal 1407H (corresponding to 23 June 1987). The Bank operates under Commercial Registration No. 1010000096 and its Head Office is located at the following address: Al Rajhi Bank Olaya Street P.O. Box 28 Riyadh 11411 Kingdom of Saudi Arabia The objectives of the Bank are to carry out banking and investment activities in accordance with its Articles of Association and By-laws, the Banking Control Law and the Council of Ministers Resolution referred to above. The Bank is engaged in banking and investment activities for its own account and on behalf of others inside and outside the Kingdom of Saudi Arabia through network branches. The Bank has established certain subsidiary companies (together with the Bank hereinafter referred to as the “Group") in which it owns all or the majority of their shares (see note 2. III). SHARI’A AUTHORITY As a commitment from the Bank for its activities to be in compliance with Islamic Shari’a legislations, since its inception, the Bank has established a Shari’a Authority to ascertain that the Bank’s activities are subject to its approval and control. The Shari’a Authority had reviewed several of the Bank’s activities and issued the required decisions thereon. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I. BASIS OF PREPARATION During 2017, SAMA issued a Circular no. 381000074519 dated 11 April 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and tax. The impact of these amendments are as follows: - the Accounting Standards for Commercial Banks promulgated by SAMA are no longer applicable from 1 January 2017; and Zakat and tax are to be accrued on a quarterly basis and recognized in consolidated statement of shareholders’ equity with a corresponding liability recognized in the consolidated statement of financial position. Applying the above framework, the interim condensed consolidated financial statements of the Group as at and for the nine month period ended 30 September 2017 have been prepared using the IAS 34 and SAMA guidance for the accounting of zakat and tax. Until 2016, the consolidated financial statements of the Group were prepared in accordance with the Accounting Standards for Commercial Banks promulgated by SAMA and IFRS. This change in framework resulted in a change in accounting policy for zakat (as disclosed in note 2.IV below). -9-
11. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) I. BASIS OF PREPARATION(CONTINUED) The Group also prepares its interim condensed consolidated financial statements to comply with the Banking Control Law and the Regulations for Companies in the Kingdom of Saudi Arabia. These interim condensed consolidated financial statements do not include all of the information required for full annual consolidated financial statements and should be read in conjunction with the annual financial statements as of and for the year ended 31 December 2016. The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities and income and expenses. Actual results may differ from these estimates. In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the consolidated financial statements as of and for the year ended 31 December 2016, except for the change in the accounting policy in relation to SAMA guidance for the accounting of zakat and tax as mentioned above, which is effective 1 January 2017. The change in accounting policy has had no significant financial impact on the consolidated financial statements of the Group. The interim condensed consolidated financial statements are expressed in Saudi Riyals (SAR) and are rounded off to the nearest thousand. II. BASIS OF CONSOLIDATION The financial statements of the subsidiaries are prepared for the same reporting period as that of the Bank, using consistent accounting policies. Adjustments have been made to the interim condensed consolidated financial statements of the subsidiaries, where necessary, to align with the Bank’s interim condensed consolidated financial statements. III. SUBSIDIARIES Subsidiaries are investees controlled by the Group. The Group controls an investee when, it is exposed, or has a right, to variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. When the Group has less than a majority of the voting or similar rights of an investee entity, it considers relevant facts and circumstances in assessing whether it has power over the entity, including: The contractual arrangement with the other voters of the investee entity Rights arising from other contractual arrangements The Group’s current and potential voting rights granted by equity instruments such as shares - 10 -
12. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) III. SUBSIDIARIES (CONTINUED) The Group re-assesses whether or not it controls an investee entity if facts and circumstances indicate that there are changes to one or more elements of control. Subsidiaries are consolidated from the date on which the control is transferred to the Bank and are ceased to be consolidated from the date on which the control is transferred from the Bank. The results of subsidiaries acquired or disposed of during the period are included in the interim statements of comprehensive income from the date of the acquisition or up to the date of disposal, as appropriate. Intra-group balances and any unrealized income and expenses arising from intra-group transactions, are eliminated in preparing the interim condensed consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. The interim condensed consolidated financial statements comprise the financial statements of the Bank and its subsidiaries (collectively referred to as “the Group”). As at 30 September, the following subsidiaries were included in the interim condensed consolidated financial statements: Name of subsidiaries Al Rajhi Capital Company – KSA Shareholding % 2016 2017 100% 100% Al Rajhi Development Company KSA 100% 100% Al Rajhi Corporation Limited – Malaysia 100% 100% 11 A limited liability company registered in Kingdom of Saudi Arabia to act as principal agent and/or to provide brokerage, underwriting, managing, advisory, arranging and custodial services. A limited liability company registered in Kingdom of Saudi Arabia to support the mortgage programs of the Bank through transferring and holding the title deeds of real estate properties under its name on behalf of the Bank, collection of revenue of certain properties sold by the Bank, provide real estate and engineering consulting services, provide documentation service to register the real estate properties and overseeing the evaluation of real estate properties. A licensed Islamic Bank under the Islamic Financial Services Act 2013, incorporated and domiciled in Malaysia.
13. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 Al Rajhi Takaful Agency Company – KSA 99% 99% Al Rajhi Company for management services – KSA 100% 100% A limited liability company registered in Kingdom of Saudi Arabia to act as an agent for insurance brokerage activities per the agency agreement with Al Rajhi Company for Cooperative insurance. A limited liability company registered in Kingdom of Saudi Arabia to provide recruitment services. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Since the subsidiaries are wholly or substantially owned by the Bank, the non-controlling interest is insignificant and therefore not disclosed. All the above-mentioned subsidiaries have been consolidated. IV. ACCOUNTING POLICIES The accounting policies used in the preparation of these interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2016, except for: a) Change in the accounting policy in relation to accounting for zakat The Group amended its accounting policy relating to zakat and now recognize a liability for zakat on a quarterly basis. 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. Consistent with previous periods, zakat and income tax continues to be charged to retained earnings. The above change in accounting policy did not have material impact on interim condensed consolidated financial statements for any of the year/period presented and therefore, corresponding figures have not been restated. b) Amendments to existing standards that had no significant impact on the Bank’s Interim condensed consolidated financial statements: o Amendments to IASs - Disclosure Initiative” applicable from 1 January 2017. o Amendments to IAS 12 - “Recognition of Deferred Tax Assets for Unrealized Losses” applicable from 1 January 2017. o Amendments to IAS 7 - “Statement of Cash Flows”, which is applicable for annual periods beginning on or after 1 January 2017. The amendments require disclosures that enable users of financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. 12
14. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 3. INVESTMENTS Investments comprise the following: 30 September 2017 (Unaudited) SAR’000 31 December 2016 (Audited) SAR’000 30 September 2016 (Unaudited) SAR’000 111,806 89,280 83,320 Investments held at amortized cost Murabaha with SAMA Sukuk 25,443,283 8,587,530 30,451,217 2,100,895 30,416,448 2,214,885 Total investments held at amortized cost 34,030,813 32,552,112 32,631,333 126,743 115,272 120,467 800,381 621,899 1,422,280 851,169 425,046 1,276,215 737,541 180,106 917,647 35,691,642 34,032,879 33,752,767 Investment in an associate* Investments held at fair value through statement of income (FVSI) Mutual funds Available-for-sale investments Equity investments Mutual funds Total available-for-sale investments Investments *Investment in an associate The Bank owns 22.5% (31 December 2016 and 30 September 2016: 22.5%) shares of Al Rajhi Company for Cooperative Insurance, a Saudi Joint Stock Company. 4. FINANCING, NET Net financing comprises the following: Corporate Mutajara Installment sales Murabaha Credit cards Performing financing Non-performing financing Gross financing Provision for financing impairment Financing, net 13 30 September 2017 (Unaudited) SAR’000 31 December 2016 (Audited) SAR’000 30 September 2016 (Unaudited) SAR’000 49,658,198 171,166,379 16,047,872 227,092 237,099,541 1,732,206 238,831,747 (5,650,853) 233,180,894 44,884,996 168,105,163 15,294,878 474,187 228,759,224 2,867,601 231,626,825 (6,632,701) 224,994,124 46,344,683 166,840,936 15,554,380 364,490 229,104,489 3,204,306 232,308,795 (6,445,598) 225,863,197
15. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 5. CUSTOMERS’ DEPOSITS Customers’ deposits by type comprise the following: Demand deposits Customers’ time investments Other customer accounts Total 30 September 2017 (Unaudited) SAR’000 31 December 2016 (Audited) SAR’000 30 September 2016 (Unaudited) SAR’000 248,470,783 16,568,809 5,062,624 270,102,216 245,707,815 21,645,586 5,239,735 272,593,136 244,519,827 22,343,260 5,736,881 272,599,968 30 September 2017 (Unaudited) SAR’000 31 December 2016 (Audited) SAR’000 30 September 2016 (Unaudited) SAR’000 804,763 269,188 5,287,901 2,633,429 8,995,281 1,042,924 708,989 5,264,324 5,644,159 12,660,396 1,183,078 896,660 5,566,349 3,285,407 10,931,494 6. COMMITMENTS AND CONTINGENCIES Commitment and contingencies are as following: Letters of credit Acceptances Letters of guarantee Irrevocable commitments to extend credit Total 7. OTHER RESERVES This includes the reserve that is created by the Bank for the difference between the Bank’s Zakat calculation and the General Authority for Zakat and Tax (GAZT) zakat’s assessment. Zakat calculated by the Bank and retained in other reserves until such time that the final amount of Zakat payable can be determined, at which time, the amount of Zakat payable is transferred from other reserves to other liabilities. Further, this also includes reserve for employee share plan, whereby the Bank grants its shares to certain eligible employees. The exercise price of the stock option is the market value of these shares at the date of granting the program to these employees. The condition for granting these options is the completion of two years of employment with the Bank. Exercising these stock options by the employees is subject to fulfillment of certain requirements for profitability and growth in the Bank. The Bank has no legal or expected commitment to repurchase or settle these options in cash. 14
16. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 8. CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the interim consolidated statement of cash flows comprise the following: 31 December 30 September 30 September 2016 2016 2017 (Audited) (Unaudited) (Unaudited) SAR’000 SAR’000 SAR’000 Cash in hand Due from banks and other financial institutions maturing within 90 days from the date of purchase Balances with SAMA and other central banks (current accounts) Mutajara with SAMA 9,531,320 8,335,452 10,526,825 6,976,929 8,677,525 4,168,666 489,957 290,605 5,388,439 15,181,051 12,664,472 22,578,410 32,683,985 27,650,568 681,722 Cash and cash equivalents 9. OPERATING SEGMENTS The Bank identifies operating segments on the basis of internal reports about the activities of the Bank that are regularly reviewed by the chief operating decision maker, principally the Chief Executive Officer, in order to allocate resources to the segments and to assess its performance. For management purposes, the Bank is organized into the following four main businesses segments: Retail: Includes individual customers’ deposits, credit facilities, fees from banking services and remittance business. Corporate: Includes deposits of high net worth individuals, credit facilities, and corporate customers. Treasury: Includes treasury services, Murabaha with SAMA, deposits and international Mutajara portfolio. Investment services and brokerage: Includes investments of individuals and corporate in mutual funds, local and international share trading services and investment portfolios. Transactions between the above segments are on normal commercial terms and conditions. Assets and liabilities for the segments comprise operating assets and liabilities, which represents the majority of the Bank’s assets and liabilities. The Bank carries out its activities principally in the Kingdom of Saudi Arabia. As of 30 September 2017, the Bank has five subsidiaries (2016: five subsidiaries), of which one operates outside the Kingdom of Saudi Arabia, additional to overseas branches which operate in Jordan and Kuwait. The total assets, liabilities, commitments, contingencies and results of operations of these subsidiaries are not significant to the Bank’s interim condensed consolidated financial statements as a whole. 15
17. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 9. OPERATING SEGMENTS (CONTINUED) The Bank’s total assets and liabilities as at 30 September 2017 and 2016 together with the total operating income and expenses, and net income for the nine-month periods then ended, for each business segment, are analyzed as follows: 30 September 2017(Unaudited) Retail SAR’000 Corporate SAR’000 Treasury SAR’000 Investment services and brokerage SAR’000 Total assets 183,142,240 66,224,578 86,219,326 2,443,712 338,029,856 Total liabilities Gross financing and investments income from external customers Inter-segment operating income / (expense) Gross financing and investments income Return on customers’, banks’ and financial institutions’ time investments 244,011,636 30,320,240 10,189,293 132,296 284,653,465 6,008,761 2,104,258 1,170,732 15,976 9,299,727 1,222,612 (614,521) (608,091) - - 7,231,373 1,489,737 562,641 15,976 9,299,727 (53,232) (197,244) (176,984) - (427,460) 385,657 15,976 8,872,267 Net financing and investments income Total SAR’000 7,178,141 1,292,493 Fee from banking services, net Exchange income, net Other operating income 1,265,509 416,371 29,778 300,064 2,011,722 113,063 - 623,149 79,152 7,049 623,149 199,264 Total operating income Depreciation and amortization Impairment charge for financing, net Other operating expenses Total operating expenses 8,556,713 1,708,864 1,117,736 323,089 11,706,402 (317,001) (3,763) (3,358) (4,425) (328,547) (1,062,335) (124,871) (375) - (1,187,581) (3,085,524) (282,806) (58,635) (95,550) (3,522,515) (4,464,860) (411,440) (62,368) (99,975) (5,038,643) 4,091,853 1,297,424 1,055,368 223,114 6,667,759 Net income for the period 16
18. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 9, OPERATING SEGMENTS (CONTINUED) 30 September 2016 (Unaudited) Retail SAR’000 Corporate SAR’000 Treasury SAR’000 Investment services and brokerage SAR’000 Total assets 178,423,873 63,778,348 86,244,136 2,069,862 330,516,219 Total liabilities Gross financing and investments income from external customers Inter-segment operating income/ (expense) Gross financing and investments income Return on customers’, banks’ and financial institutions’ time investments Net financing and investments income Fee from banking services, net Exchange income, net Other operating income, net 241,353,222 34,339,348 4,904,318 136,190 280,733,078 6,021,345 1,727,102 900,274 17,419 8,666,140 791,370 (484,165) (307,205) - - 6,812,715 1,242,937 593,069 17,419 8,666,140 (48,979) (214,855) (100,450) - (364,284) 6,763,736 1,028,082 492,619 17,419 8,301,856 1,612,213 - 374,312 - 29,684 694,905 353,962 - 2,370,171 694,905 52,689 414 25,574 83,452 162,129 Total operating income Depreciation and amortization Impairment charge for financing, net Impairment charge for availablefor-sale investments Other operating expenses Total operating expenses 8,428,638 1,402,808 1,242,782 454,833 11,529,061 (297,520) (1,958) (2,274) (15,612) (317,364) (925,176) (708,943) (87) - (1,634,206) Net income for the period Total SAR’000 - - (65,923) - (65,923) (2,974,955) (264,697) (70,088) (123,138) (3,432,878) (4,197,651) (975,598) (138,372) (138,750) (5,450,371) 4,230,987 427,210 1,104,410 316,083 6,078,690 17
19. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 10. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES Determination of fair value and fair value hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices in active markets for the same instrument (i.e. without modification or additions). Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data. Level 3: valuation techniques for which any significant input is not based on observable market data. 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 takes place either: - In the accessible principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous accessible market for the asset or liability Fair values of financial assets and financial liabilities are as follows. It does not include fair value information for financial assets and financial liabilities not measured at fair value if the carrying amount is a reasonable approximation to fair value. (SAR‘000) 30 September 2017 (Unaudited) Financial assets Financial assets measured at fair value: Investments held at FVSI Available-for- sale investments Carrying value Level 1 Level 2 Level 3 Total 126,743 1,422,280 776,900 126,743 621,899 23,481 126,743 1,422,280 Financial assets not measured at fair value: Due from banks and other financial institutions Investments held at amortized cost: - Murabaha with SAMA - Sukuk Gross Financing Total 21,228,267 - - 21,171,874 21,171,874 25,443,283 8,587,530 238,831,747 295,639,850 776,900 748,642 25,448,096 8,502,144 248,879,272 304,024,867 25,448,096 8,502,144 248,879,272 305,550,409 Financial liabilities Financial liabilities not measured at fair value: Due to banks and other financial institutions Customers’ deposits Total 7,043,425 270,102,216 277,145,641 - - 7,043,417 270,097,993 277,141,410 7,043,417 270,097,993 277,141,410 18
20. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE THREE-MONTH AND NINE-MONTH PERIODS ENDED 30 SEPTEMBER 2017 10. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED) (SAR‘000) 31 December 2016 (Audited) Financial assets Financial assets measured at fair value: Financial assets at FVSI Available-for- sale investments Carrying value Level 1 Level 2 115,272 1,276,215 827,732 115,272 425,046 23,437 115,272 1,276,215 - 26,460,455 26,460,455 - 30,493,097 2,115,057 - 240,304,256 540,318 299,396,302 30,493,097 2,115,057 240,304,256 300,764,352 Financial assets not measured at fair value: Due from banks and other financial institutions Investments held at amortized cost: - Murabaha with SAMA - Sukuk Gross Financing Total 26,578,525 - 30,451,217 2,100,895 231,626,825 292,148,949 827,732 Financial liabilities Financial liabilities not measured at fair value: Due to banks and other financial institutions Customers’ deposits Total 8,916,970 272,593,136 281,510,106 - Level 3 - 8,916,640 272,597,959 281,514,599 Total 8,916,640 272,597,959 281,514,599 FVSI and Available-for-sale investments classified as level 2 include mutual funds, the fair value of which is determined based on the fund’s latest reported net assets value (NAV) as at the date of statement of interim condensed consolidated statement of financial position. The level 3 financial assets measured at fair value represent investments recorded at cost. Gross financing classified as level 3 has been valued using expected cash flows discounted at relevant SIBOR. Investments held at amortized cost, due to / from banks and other financial institution have been valued using the actual cash flows discounted at relevant SIBOR / SAMA Murabaha rates. The value obtained from the relevant valuation model may differ from the transaction price of a financial instrument. The difference between the transaction price and the model value commonly referred to as ‘day one profit and loss’ is either amortized over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable data, or realized through disposal. Subsequent changes in fair value are recognized immediately in the statement of income without reversal of deferred day one profits and losses. 19