Al Rajhi Bank: Interim Condensed Consolidated Financial Statements - 30 September 2020

Transcription

1. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE NINE–MONTH PERIOD ENDED 30 SEPTEMBER 2020
9. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 1. GENERAL Al Rajhi Banking and Investment Corporation, a Saudi Joint Stock Company, (the “Bank”) 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 8467 King Fahd Road - Al Muruj Dist. Unit No 1 Riyadh 12263 - 2743 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 (“KSA”) through network branches and subsidiaries. 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 has reviewed several of the Bank’s activities and issued the required decisions thereon. 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES I. BASIS OF PREPARATION The interim condensed consolidated financial statements of the Group as at and for the period ended 30 September 2020 and 30 September 2019, have been prepared in accordance with International Accounting Standard 34 Interim Financial Reporting (“IAS 34”) as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by the Saudi Organization for Certified Public Accountants (“SOCPA”). The interim consolidated financial statements do not include all the information and disclosures required in the annual financial statements, and should be read in conjunction with the Group’s annual financial statements as at 31 December 2019. The consolidated financial statements of the Group as at and for the year ended 31 December 2019, were prepared in accordance with International Financial Reporting Standards as endorsed in the Kingdom of Saudi Arabia and other standards and pronouncements issued by the SOCPA. The accounting policies, estimates and assumptions used in the preparation of these interim condensed consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended 31 December 2019 except for the effects of government grants and derivatives financial instruments accounting policies mentioned in note 2.IV below. -7-
10. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 II. BASIS OF CONSOLIDATION The interim condensed consolidated financial statements comprise the financial statements of the Group. 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. Subsidiaries are investees controlled by the Group. The Group controls an investee when it is exposed to, or has a right to, variable returns from its involvement with the investees 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 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 Group and are ceased to be consolidated from the date on which the control is transferred from the Group. The results of subsidiaries acquired or disposed of during the period, if any, are included in the interim condensed consolidated statements of comprehensive income from the effective date of the acquisition or up to the effective 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. III. SUBSIDIARIES As at 30 September 2020 and 2019, the following subsidiaries were included in the interim condensed consolidated financial statements: Name of subsidiaries Al Rajhi Capital Company – KSA Shareholding % 2020 2019 100% 100% Al Rajhi Takaful Agency Company – KSA 99 % 99% Al Rajhi Company for management services – KSA 100 % 100% Al Rajhi Bank – Kuwait 100 % 100% -8- A Saudi Closed Joint Stock Company authorized by the Capital Market Authority to carry on securities business in the activities of Dealing/brokerage, Managing assets, advising, Arranging, and Custody. 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 Cooperative insurance company. A limited liability company registered in Kingdom of Saudi Arabia to provide recruitment services. A foreign branch registered with the Central Bank of Kuwait.
11. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 2. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) III. SUBSIDIARIES (CONTINUED) Name of subsidiaries Al Rajhi Bank – Jordan Shareholding % 2020 2019 100% 100% Al Rajhi Development Company – KSA 100% 100% Al Rajhi Corporation Limited – Malaysia 100% 100% Emkan Finance Company – KSA 100% - Tawtheeq company – KSA 100% - Al Rajhi Financial Markets Ltd 100% - -9- A foreign branch operating in Hashemite Kingdom of Jordan, providing all financial, banking, and investments services and importing and trading in precious metals and stones in accordance with Islamic Sharia’a rules and under the applicable banking law. 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. A closed joint stock company registered in the Kingdom of Saudi Arabia providing micro consumer financing, finance lease and small and medium business financing. A closed joint stock company registered in Kingdom of Saudi Arabia providing financial leasing contracts registration to organize contracts data and streamline litigation processes. A Limited Liability Company registered in the Cayman Islands with the objective of managing certain treasury related transactions on behalf of the Bank.
12. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 2. IV. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AMENDMENTS TO ACCOUNTING POLCIES Government grants The Bank recognizes a government grant related to income, if there is a reasonable assurance that it will be received, and the Bank will comply with the conditions associated with the grant. The benefit of a government deposit at a below-market rate of profit is treated as a government grant related to income. The below-market rate deposit is recognized and measured in accordance with IFRS 9 Financial Instruments. The benefit of the below-market rate of profit is measured as the difference between the initial fair value of the deposit determined in accordance with IFRS 9 and the proceeds received. The benefit is accounted for in accordance with IAS 20. The government grant is recognised in the statement of income on a systematic basis over the period in which the Bank recognises as expenses the related costs for which the grant is intended to compensate. The grant income is only recognised when the ultimate beneficiary is the Bank. Where the customer is the ultimate beneficiary, the Bank only records the respective receivable and payable amounts. Derivative financial instruments Derivative financial instruments include foreign exchange forward contracts and profit rate swaps. These derivatives financial instruments are initially recognised at fair value on the date on which the derivative contract is entered into. These instruments 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. In the ordinary course of business, the Bank utilises the following derivative financial instruments for trading purposes: a) Profit rate swaps Swaps are commitments to exchange one set of cash flows for another. For profit rate swaps, counterparties exchange fixed and floating profit rate payments in a single currency without exchanging principal. b) Foreign exchange forwards Forwards are contractual agreements to either buy or sell a specified currency at a specified price and date in the future. Forwards are customised contracts transacted in the over-the-counter markets. Foreign currencies are transacted in standardised amounts on regulated exchanges and changes in futures contract values are settled daily. Held for trading purposes Most of the Bank’s derivative trading activities relate to sales and positioning. Sales activities involve offering products to customers and banks in order, inter alia, to enable them to transfer, modify or reduce current and future risks. Positioning involves managing market risk positions with the expectation of profiting from favourable movements in prices, rates or indices. Any changes in the fair value of derivatives that are held for trading purposes are taken directly to the interim condensed consolidated statement of income and disclosed in foreign exchange income for foreign exchange forward contracts and in other income for profit rate swap contracts. - 10 -
13. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 2. IV. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) AMENDMENTS TO ACCOUNTING POLCIES (CONTINUED) IBOR Transition (Profit Rate Benchmark Reforms): A fundamental review and reform of major profit rate benchmarks is being undertaken globally. The International Accounting Standards Board (“IASB”) is engaged in a two-phase process of amending its guidance to assist in a smoother transition away from IBOR. Management is running a project on the Bank’s overall transition activities and continues to engage with various stakeholders to support an orderly transition. The project is significant in terms of scale and complexity and will impact products, internal systems and processes. 3. CASH AND BALANCES WITH SAMA AND OTHER CENTRAL BANKS Cash and balances with SAMA and central banks comprise of the following: 30 September 2020 (Unaudited) Cash in hand Statutory deposit Current account with SAMA Mutajara with SAMA Total 7,168,289 22,010,001 359,871 7,913,000 37,451,161 (SAR’000) 31 December 2019 (Audited) 7,404,276 20,663,503 371,320 10,855,000 39,294,099 30 September 2019 (Unaudited) 7,639,522 19,963,666 256,424 751,000 28,610,612 In accordance with the Banking Control Law and regulations issued by SAMA and other central banks, the Bank is required to maintain a statutory deposit with SAMA and other central banks at stipulated percentages of its customers’ demand deposits, customers’ time investment and other customers’ accounts calculated at the end of each Gregorian month. 4. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS Due from banks and other financial institutions comprise the following: Current accounts Mutajara Total 30 September 2020 (Unaudited) 763,259 26,753,783 27,517,042 - 11 - (SAR’000) 31 December 2019 (Audited) 798,168 31,260,014 32,058,182 30 September 2019 (Unaudited) 861,609 32,298,535 33,160,144
14. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 5. INVESTMENTS, NET Investments comprise the following: (SAR’000) 30 September 31 December 30 September 2020 2019 2019 (Unaudited) (Audited) (Unaudited) 218,622 196,235 185,991 Investment in an associate Investments held at amortized cost Murabaha with Saudi Government and SAMA Sukuk Less: Impairment (Stage 1) Total investments held at amortized cost 25,364,916 24,196,768 (32,192) 49,529,492 24,991,978 17,973,379 (22,270) 42,943,087 24,968,100 17,498,831 (28,337) 42,438,594 Investments held at fair value through statement of income (FVSI) Mutual funds Sukuk Total FVSI investments 2,402,294 1,767,712 4,170,006 1,230,711 800,000 2,030,711 1,370,963 800,000 2,170,963 FVOCI investments Equity investments 3,193,278 1,672,597 1,150,368 Total investments 57,111,398 46,842,630 45,945,916 6. DERIVATIVE FINANCIAL INSTRUMENTS The table below summarises the positive and negative fair values of derivative financial instruments, together with the notional amounts. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the period-end, do not necessarily reflect the amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Bank’s exposure to credit risk, which is generally limited to the positive fair value of the derivatives, nor market risk. Derivative financial instruments 30-Sep-20 (SAR’000) Held for trading: Profit rate swaps Foreign exchange contracts Positive fair value Negative fair value Notional amount Total 37,001 33,357 4,276,978 1,922 234 1,047,307 forward - 12 -
15. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 7. FINANCING, NET 7.1 Net financing held at amortized cost: 30 September 2020 (unaudited) SAR' 000 Performing financing Non-performing financing Gross financing Provision for financing impairment Financing, net 31 December 2019 (audited) SAR' 000 Performing financing Non-performing financing Gross financing Provision for financing impairment Financing, net 30 September 2019 (unaudited) SAR' 000 Performing financing Non-performing financing Gross financing Provision for financing impairment Financing, net Retail Corporate 228,721,976 606,142 229,328,118 65,753,479 1,853,667 67,607,146 294,475,455 2,459,809 296,935,264 (4,145,854) 225,182,264 (3,060,690) 64,546,456 (7,206,544) 289,728,720 Retail 189,925,781 629,719 190,555,500 (3,832,473) 186,723,027 Retail 179,160,488 653,270 179,813,758 (3,869,474) 175,944,284 Corporate 64,459,827 1,687,074 66,146,901 (3,187,123) 62,959,778 Corporate 70,315,056 1,718,150 72,033,206 (3,391,525) 68,641,681 7.2 The movement in the allowance for impairment of financing is as follows: For the nine-month period ended SAR' 000 Balance at the beginning of the period Provided for the period Bad debt written off against provision for the period Balance at the end of the period Total 30 September 2020 (Unaudited) 30 September 2019 (Unaudited) 7,019,596 2,522,934 7,832,471 1,520,072 (2,335,986) 7,206,544 (2,091,544) 7,260,999 7.FINANCING, NET (CONTINUED) - 13 - Total 254,385,608 2,316,793 256,702,401 (7,019,596) 249,682,805 Total 249,475,544 2,371,420 251,846,964 (7,260,999) 244,585,965
16. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 7.3 The allowance for impairment of financing charged to the interim consolidated statement of income comprise of the following: For the nine-month period ended SAR' 000 Provided for the period Recovery of written off financing for the period Allowance for financing impairment, net Allowance for other financial assets impairment, net Charge for the period 7.4 30 September 2020 (Unaudited) 30 September 2019 (Unaudited) 2,522,934 (907,235) 1,615,699 1,615,699 1,520,072 (672,753) 847,319 260,000 1,107,319 The movement in ECL allowances for impairment of financing by stages is as follows: 30 September 2020 (unaudited) SAR' 000 Balance at the beginning of the period Provided for the period Bad debt written off against provision for the period Balance at the end of the period 30 September 2019 (unaudited) SAR' 000 Balance at the beginning of the period Provided for the period Bad debt written off against provision for the period Balance at the end of the period Lifetime ECL not credit impaired 12 months ECL Lifetime ECL credit impaired Total 2,501,529 587,965 2,735,544 (50,441) 1,782,523 1,985,410 7,019,596 2,522,934 (345,799) (309,824) (1,680,363) (2,335,986) 2,743,695 2,375,279 2,087,570 7,206,544 Lifetime ECL not credit impaired Lifetime ECL credit impaired 2,949,209 145,645 3,020,819 (139,441) 1,862,443 1,513,868 7,832,471 1,520,072 (259,126) (266,438) (1,565,980) (2,091,544) 2,835,728 2,614,940 1,810,331 7,260,999 12 months ECL Total Allowances for impairment of financing closing balance as of 30 September 2020 does not include impairment allowance related to off balance sheet items amounting to SAR 457 million (30 September 2019: SAR 211 million) which is accounted for in other liabilities. - 14 -
17. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 8. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS Due to banks and other financial institutions comprise the following: (SAR’000) 30 September 31 December 2020 2019 (Unaudited) (Audited) Current accounts Banks’ time investments Total 167,485 11,126,795 11,294,280 545,572 1,674,032 2,219,604 30 September 2019 (Unaudited) 475,613 2,697,200 3,172,813 In order to offset the modification losses that the Bank is expected to incur in deferring the payments as disclosed in note 21, the Bank has received profit free deposits of (SAR 2.97 billion for 3 years, SAR 674 million for 1.5 years and SAR 5.2 billion for 1 year). Please refer to note 21. 9. CUSTOMERS’ DEPOSITS Customers’ deposits by type comprise the following: (SAR’000) 30 September 31 December 30 September 2020 2019 2019 (Unaudited) (Audited) (Unaudited) Demand deposits Customers’ time investments Other customer accounts Total 10. 317,149,742 284,299,851 20,804,460 22,126,226 7,368,076 5,979,746 283,569,115 9,559,314 5,682,589 345,322,278 312,405,823 298,811,018 CONTINGENT LIABILITIES Contingent liabilities comprise the following: ` Letters of credit Acceptances Letters of guarantee Irrevocable commitments to extend credit Total 30 September 2020 (Unaudited) (SAR’000) 31 December 2019 (Audited) 30 September 2019 (Unaudited) 1,730,386 427,429 5,723,685 8,067,912 890,942 324,962 4,973,200 11,636,094 1,305,683 281,221 5,119,494 7,641,620 15,949,412 17,825,198 14,348,018 The Bank is subject to legal proceedings in the ordinary course of business. There have been no significant changes in the status of legal proceedings as disclosed in the 31 December 2019 year-end consolidated financial statements. - 15 -
18. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 11. OTHER RESERVES Other reserves include FVOCI investments reserve, foreign currency translation reserve and employees’ end of service benefits reserve. 12. ZAKAT The Group is subject to Zakat in accordance with the regulations of the General Authority of Zakat and Income Tax (“GAZT”). Zakat expense is charged to the interim condensed consolidated statement of income. Zakat is not accounted for as income tax and as such no deferred tax is calculated relating to zakat. 13. CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the interim condensed consolidated statement of cash flows comprise the following: 30 September 2020 (Unaudited) 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 Cash and cash equivalents - 16 - (SAR’000) 31 December 2019 (Audited) 30 September 2019 (Unaudited) 7,168,289 7,404,276 7,639,522 5,527,462 2,480,803 1,568,332 359,872 7,913,000 20,968,623 371,320 10,855,000 21,111,399 256,424 751,000 10,215,278
19. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 14. 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: Includes individual customers’ deposits, credit facilities, customer debit current accounts (overdrafts), fees from banking services and remittance business. Incorporates deposits of VIP, corporate customers’ deposits, credit facilities, and debit current accounts (overdrafts). Includes treasury services, Murabaha with SAMA and international Mutajara portfolio. Retail segment: Corporate segment: Treasury segment: 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 Group’s total assets and liabilities as at 30 September 2020 and 2019 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: Investment services and brokerage segments: 30 September 2020 (unaudited) Retail segment SAR’000 Corporate segment SAR’000 Treasury segment SAR’000 Total assets 246,751,554 63,954,117 116,203,535 Total liabilities 284,147,915 75,542,937 9,004,271 Financing and investment income from external customers Inter-segment operating income / (expense) Gross financing and investment income Return on customers’, banks’ and financial institutions’ time investments Net financing and investment income Fee from banking services, net Exchange income, net Other operating income, net Total operating income Depreciation Impairment charge for financing and other financial assets, net Other operating expenses Total operating expenses Income before Zakat Investment services and brokerage segment SAR’000 Total SAR’000 3,391,186 430,300,392 15,527,355 163,183 375,381,390 2,007,162 1,571,436 34,596 12,617,465 (378,976) (406,711) 785,687 - - 8,625,295 1,600,451 2,357,123 34,596 12,617,465 (149,158) (79,521) (114,158) - (342,837) 8,476,137 1,144,771 122,204 63,193 9,806,305 1,520,930 216,872 92,564 1,830,366 2,242,965 35,604 359,577 126,744 2,764,890 34,596 398,579 92,719 525,894 12,274,628 1,795,826 574,345 282,656 14,927,455 (771,683) (35,726) (16,873) (5,179) (829,461) (896,492) (3,603,789) (5,271,964) (689,872) (299,248) (1,024,846) (29,335) (138,958) (185,166) (106,972) (112,151) (1,615,699) (4,148,967) (6,594,127) 4,534,341 805,520 2,579,724 413,743 8,333,328 - 17 -
20. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 14. OPERATING SEGMENTS (CONTINUED) 30 September 2019 (unaudited) Retail segment SAR’000 Corporate segment SAR’000 Treasury segment SAR’000 Investment services and brokerage segment SAR’000 Total SAR’000 3,183,927 367,870,504 Total assets 197,605,634 64,264,782 102,816,161 Total liabilities 287,101,154 23,163,778 8,714,588 123,824 319,103,344 8,137,822 2,511,845 1,885,601 15,706 12,550,974 1,137,073 (880,384) (256,689) - - 9,274,895 1,631,461 1,628,912 15,706 12,550,974 (141,418) (105,210) (136,080) - (382,708) 9,133,477 777,376 113,063 70,266 10,094,182 1,526,251 288,185 53,154 16,897 1,884,487 1,492,832 197,308 413,549 87,196 2,190,885 15,706 268,115 27,905 311,726 12,168,266 1,530,984 579,766 202,264 14,481,280 (701,854) (10,684) (39,400) (4,665) (756,603) (975,408) (3,248,373) (4,925,635) (132,571) (233,096) (376,351) 660 (299,221) (337,961) (106,371) (111,036) (1,107,319) (3,887,061) (5,750,983) 5,168,547 1,508,136 1,852,924 200,690 8,730,297 Financing and investment income from external customers Inter-segment operating income / (expense) Gross financing and investment income Return on customers’, banks’ and financial institutions’ time investments Net financing and investment income Fee from banking services, net Exchange income, net Other operating income, net Total operating income Depreciation Impairment charge for financing and other financial assets, net Other operating expenses Total operating expenses Income before Zakat - 18 -
21. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 15. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES Determination of fair value and fair value hierarchy The Group 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. The following table shows the carrying amount and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy for financial instruments measured at fair value and financial instruments not measured at fair value: (SAR ‘000) 30 September 2020 (unaudited) Financial assets Financial assets measured at fair value Investments held at FVSI FVOCI investments Sukuk Carrying value Level 1 2,402,294 3,193,278 1,767,712 3,168,907 - Financial assets not measured at fair value Due from banks and other financial institutions Investments held at amortized cost - Murabaha with Saudi Government and SAMA - Sukuk Gross Financing Total 27,517,042 - 25,364,916 24,196,768 296,935,264 381,377,274 3,168,907 Financial liabilities Financial liabilities not measured at fair value Due to banks and other financial institutions Customers’ deposits Total 11,294,280 345,322,278 356,616,558 - - 19 - Level 2 Level 3 Total 1,648,179 - 754,115 24,371 1,767,712 2,402,294 3,193,278 1,767,712 28,128,505 28,128,505 25,681,498 24,979,874 - 301,470,034 1,648,179 382,806,109 25,681,498 24,979,874 301,470,034 387,623,195 - - 11,397,995 345,326,992 356,724,987 11,397,995 345,326,992 356,724,987
22. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 15. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (CONTINUED) (SAR ‘000) 31 December 2019 (Audited) Financial assets Financial assets measured at fair value FVSI Investments – Mutual funds FVOCI equity investments FVSI Sukuk Financial assets not measured at fair value Due from banks and other financial institutions Investments held at amortized cost - Murabaha with Saudi Government and SAMA - Sukuk Gross Financing Total Financial liabilities Financial liabilities not measured at fair value Due to banks and other financial institutions Customers’ deposits Total Carrying value Level 1 Level 2 1,230,711 1,672,597 800,000 1,648,242 - 1,230,711 - 32,058,182 - 24,991,978 17,973,379 256,702,401 335,429,248 2,219,604 312,405,823 314,625,427 Level 3 Total 24,355 800,000 1,230,711 1,672,597 800,000 - 32,300,842 32,300,842 1,648,242 1,230,711 25,268,177 18,357,588 275,942,492 352,693,454 25,268,177 18,357,588 275,942,492 355,572,407 - - 2,219,642 312,405,823 314,625,465 2,219,642 312,405,823 314,625,465 FVSI investments classified as level 2 and 3 represent 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 the interim condensed consolidated statement of financial position. Gross financing classified as level 3 has been valued using expected cash flows discounted at relevant current effective profit rate. Investments held at amortized cost, due to / from banks and other financial institutions 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 interim condensed consolidated statement of income without reversal of deferred day one profit and loss. - 20 -
23. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 16. SHARE CAPITAL The authorized, issued and fully paid share capital of the Bank consists of 2,500 million shares of SAR 10 each as of 30 September 2020 (31 December 2019: 2,500 million shares of SAR 10 each and 30 September 2019: 2,500 million shares of SAR 10 each). On the 4th of April 2019, the Bank’s extraordinary general assembly approved to increase the share capital from SAR 16,250 million to SAR 25,000 million through issuance of stock dividends (7 shares for every 13 shares held). The amount of the capital increase was transferred from retained earnings. 17. EARNINGS PER SHARE Basic and diluted earnings per share for the period ended 30 September 2020 and 2019 is calculated by dividing the net income for the period by 2,500 million shares. The diluted earnings per share is the same as the basic earnings per share. 18. CAPITAL ADEQUACY The Bank's objectives when managing capital are to comply with the capital requirements set by SAMA to safeguard the Bank's ability to continue as a going concern and to maintain a strong capital base. Capital adequacy and the use of regulatory capital are monitored daily by the Bank's management. SAMA requires the banks to hold the minimum level of the regulatory capital and also to maintain a ratio of total regulatory capital to the risk-weighted assets at or above 8%. The Bank monitors the adequacy of its capital using ratios established by SAMA. These ratios measure capital adequacy by comparing the Bank’s eligible capital with its consolidated statement of financial position, commitments and contingencies to reflect their relative risks: The following table summarizes the Bank's Pillar-I Risk Weighted Assets, Tier I and Tier II Capital and Capital Adequacy Ratios. 30 September 2020 (Unaudited) SAR’000 Credit risk weighted assets Operational risk weighted assets Market risk weighted assets Total Pillar I - risk weighted assets Tier I capital Tier II capital Total tier I & II capital Capital Adequacy Ratio % Tier I ratio Tier I & II ratio 31 December 2019 (Audited) SAR’000 30 September 2019 (Restated note 20) (Unaudited) SAR’000 262,473,705 30,784,119 8,405,941 301,663,765 234,299,968 30,784,119 7,236,637 272,320,724 230,543,998 28,094,351 7,827,894 266,466,243 54,919,002 3,280,921 58,199,923 51,191,657 2,928,750 54,120,407 49,180,839 2,881,800 52,062,639 18.21% 19.29% 18.80% 19.87% 18.46% 19.54% - 21 -
24. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 19. DIVIDENDS The Board of Directors proposed on 2 February 2020, distribution of final dividends to shareholders for the year ended 31 December 2019, amounting to SAR 3,750 million, being SAR 1.5 per share. The proposed final dividends for 2019 was approved from the Annual General Assembly in its meeting held on 29 March 2020. These dividends were subsequently paid on 6 April 2020. 20. COMPARATIVE FIGURES a. Capitalization of property and equipment The Bank performed an analysis of capital work in progress reported under property and equipment in the consolidated statement of financial position during 2019. As a result of that analysis, the management identified certain assets amounting to SAR 1,902 million as at 31 December 2019 that were not capitalized on a timely basis, which has resulted in an understatement of depreciation expenses in the previous years. The correction of the above error has resulted in the following impact on the line items of the consolidated statement of income, consolidated statement of financial position and consolidated statement of changes in shareholders' equity as detailed below: As at 1 January 2019: Financial statement impacted Interim condensed consolidated statement of financial position Interim condensed consolidated statement of changes in shareholders’ equity Account As previously stated as at 1 January 2019 SAR’000 Property and equipment Retained earnings Effect of Restatement SAR’000 As restated as at 1 January 2019 SAR’000 8,897,587 (248,152) 8,649,435 12,747,323 (248,152) 12,499,171 As at and for the period ended 30 September 2019: Financial statement impacted Interim condensed consolidated statement of financial position Interim condensed consolidated statement of changes in shareholders’ equity Interim condensed consolidated statement of income Interim condensed consolidated statement of income Account Property and equipment As previously stated as at and for the nine-month period ended 30 September 2019 SAR’000 Effect of Restatement SAR’000 As restated as at and for the ninemonth period ended 30 September 2019 SAR’000 10,624,210 (413,679) 10,210,531 5,253,565 (413,679) 4,839,886 Depreciation 591,076 165,527 756,603 Earnings per share 3.20 (0.06) 3.14 Retained earnings - 22 -
25. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 20. COMPARATIVE FIGURES (CONTINUED) Capitalization of property and equipment (CONTINUED) As at and for the three -month period ended 30 September 2019: Financial statement impacted Account Interim condensed consolidated statement of income Depreciation Interim condensed consolidated statement of income Earnings per share As previously stated for the three-month period ended 30 September 2019 SAR’000 Effect of Restatement SAR’000 As restated for the three-month period ended 30 September 2019 SAR’000 226,569 90,505 317,074 1.13 (0.03) 1.10 21. IMPACT OF COVID-19 ON EXPECTED CREDIT LOSSES (“ECL”) AND SAMA PROGRAMS The Coronavirus (“COVID-19”) pandemic continues to disrupt global markets as many geographies are beginning to experience a “second wave” of infections despite having previously controlled the outbreak through aggressive precautionary measures such as imposing restrictions on travel, lockdowns and strict social distancing rules. The Government of Kingdom of Saudi Arabia (“the Government”) however has managed to successfully control the outbreak to date, owing primarily to the effective measures taken by the Government, following which the Government has now ended the lockdowns and has begun taking phased measures to normalize international travel and resume Umrah pilgrimages. The Bank continues to be cognisant of both the micro and macroeconomic challenges that COVID-19 has posed, the teething effects of which may be felt for some time, and is closely monitoring its exposures at a granular level. This has entailed reviewing specific economic sectors, regions, counterparties and collateral protection and taking appropriate customer credit rating actions and initiating restructuring of loans, where required. The prevailing economic conditions do require the Bank to continue to revise certain inputs and assumptions used for the determination of expected credit losses (“ECL”). These primarily revolve around either adjusting macroeconomic factors used by the Bank in the estimation of ECL or revisions to the scenario probabilities currently being used by the Bank. As the situation continues to be fluid, the management considers certain effects cannot be fully incorporated into the ECL model calculations at this point in time. Accordingly, management’s ECL assessment includes sector-based analysis / staging analysis depending on the impacted portfolios and macroeconomic analysis. The Bank has therefore recognised overlays of SR 295 million as at 30 September 2020. The Bank will continue to reassess as more reliable data becomes available and accordingly determine if any adjustment in the ECL is required in subsequent reporting periods. - 23 -
26. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 21. IMPACT OF COVID-19 ON EXPECTED CREDIT LOSSES (“ECL”) AND SAMA PROGRAMS (CONTINUED) SAMA support programs and initiatives Private Sector Financing Support Program (“PSFSP”) In response to COVID-19, SAMA launched the Private Sector Financing Support Program (“PSFSP”) in March 2020 to provide the necessary support to the Micro Small and Medium Enterprises (“MSME”) as per the definition issued by SAMA via Circular No. 381000064902 dated 16 Jumada II 1438H. The PSFSP mainly encompasses the following programs: • Deferred payments program; • Funding for lending program; • Facility guarantee program; and • Point of sale (“POS”) and e-commerce service fee support program. As part of the deferred payments program launched by SAMA, the Bank was required to defer payments for six months on lending facilities to eligible MSMEs. The payment reliefs were considered as shortterm liquidity support to address the borrower’s potential cash flow issues. The Bank effected the payment reliefs by deferring the instalments falling due within the period from 14 March 2020 to 14 September for a period of six months without increasing the facility tenor. The accounting impact of these changes in terms of the credit facilities has been assessed and were treated as per the requirements of IFRS 9 as modification in terms of arrangement. This resulted in modification losses which have been presented as part of net financing income. The Bank continues to believe that in the absence of other factors, participation in the deferment programme on its own, is not considered a significant increase in credit risk. Further to the above, on 1 September 2020, SAMA extended the deferred payments program by allowing additional three months payment deferrals for eligible MSMEs until 14 December 2020. The Bank has effected the payment reliefs by deferring the instalments falling due within the period from 15 September 2020 to 14 December 2020 for a period of additional three months without increasing the facility tenor. The accounting impact of these changes in terms of the credit facilities has been assessed and are treated as per the requirements of IFRS 9 as modification in terms of the arrangement. This resulted in the Bank recognizing an additional modification loss of SR 26.7 million during the period ended 30 September 2020. Since the inception of the deferred payments program by SAMA and by the end of Q3 2020, the Bank has recognised SR 115.8 million of related modification losses of which SR 52 million have been unwound. In order to compensate the related cost that the Bank is expected to incur under the SAMA and other public authorities program, during the nine months period ended 30 September 2020 the Bank received profit free deposits from SAMA amounting to SR 3.648 billion with varying maturities, which qualify as government grants. Management has determined based on the communication from SAMA, that the government grant primarily relates to compensation for the modification loss incurred on the deferral of payments. The benefit of the subsidised funding rate has been accounted for on a systematic basis, in accordance with government grant accounting requirements. By the end of 30 September 2020, total income of SR 101.2 million has been recognised in the statement of income. The management has exercised certain judgements in the recognition and measurement of this grant income. During the nine months period ended 30 September 2020, SR 13.5 million has been recognized in the statement of income relating to unwinding. - 24 -
27. AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (UNAUDITED) (CONTINUED) FOR THE NINE-MONTH PERIOD ENDED 30 SEPTEMBER 2020 21. IMPACT OF COVID-19 ON EXPECTED CREDIT LOSSES (“ECL”) AND SAMA PROGRAMS (CONTINUED) As at 30 September 2020, the Bank is yet to participate in SAMA’s funding for lending and facility guarantee programs. Furthermore, during the nine months period ended 30 September 2020, the Bank has recognised reimbursement from SAMA for the forgone POS and e-commerce service fees amounting to SR 89.8 million. SAMA liquidity support for the Saudi banking sector amounting to SAR 50 billion In line with its monetary and financial stability mandate, SAMA injected an amount of fifty billion riyals in order to: • • • • enhance the liquidity in the banking sector and enable it to continue its role in providing credit facilities to private sector companies; restructure current credit facilities without any additional fees; support plans to maintain employment levels in the private sector; and provide relief for a number of banking fees that have been waived for customers. In this regard, during Q2 2020, the Bank received SR 5.2 billion profit free deposit with one year maturity. Management has determined based on the communication received from SAMA, that this government grant primarily relates to liquidity support. The benefit of the subsidised funding rate has been accounted for on a systematic basis, in accordance with government grant accounting requirements. This resulted in a total income of SR 57 million, of which SR 14.2 million has been recognised in the statement of income as at 30 September 2020 and with the remaining amount deferred. Bank’s initiative - Health care sector support In recognition of the significant efforts that our healthcare workers are putting in to safeguard the health of our citizens and residents in response to the COVID-19 outbreak, the Bank has decided to voluntarily postpone payments for all public and private health care workers who have credit facilities with the Bank for three months. This resulted in the Bank recognising a day 1 modification loss of SR 243.7 million in March 2020, which was presented as part of net financing income. SR 37.6 million has been recognised in the statement of income on unwinding of this modification loss during the nine months period ended Q3 2020. 22. APPROVAL OF THE BOARD OF DIRECTORS The interim condensed consolidated financial statements were approved by the Board of Directors on 8 Rabi’ul-Awwal 1442H (corresponding to 25 October 2020). - 25 -