Arab National Bank: Interim Condensed Consolidated Financial Statements For the period ended - 30 June 2017

Transcription

1. Arab National Bank (A Saudi Joint Stock Company) Interim Condensed Consolidated Financial Statements For the period ended 30 June 2017
3. ARAB NATIONAL BANK – Saudi Joint Stock Company INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION (SAR’000) As at Notes June 30, 2017 (Unaudited) December 31, 2016 (Audited) June 30, 2016 (Unaudited) (Restated) 18,791,622 19,503,973 11,656,065 6,858,683 4,030,850 8,016,898 ASSETS Cash and balances with SAMA Due from banks and other financial institutions Positive fair value of derivatives 8 632,330 459,770 321,910 Investments, net 5 24,879,737 25,548,399 23,036,993 Loans and advances, net 6 114,883,981 115,511,521 117,877,371 Investments in associates 632,912 616,395 604,172 Other real estate 220,697 136,634 136,634 Investment property, net 1,638,963 1,651,363 1,663,782 Property and equipment, net 1,754,954 738,362 1,839,222 710,595 1,929,364 1,335,275 171,032,241 170,008,722 166,578,464 Other assets Total assets LIABILITIES AND EQUITY Liabilities Due to banks and other financial institutions 9,143,448 3,858,871 7,500,402 Negative fair value of derivatives 8 616,805 439,789 409,531 Customers’ deposits 7 130,746,573 135,907,457 129,159,477 4,226,303 2,015,701 3,859,862 2,018,190 4,788,965 2,015,618 146,748,830 146,084,169 143,873,993 10,000,000 10,000,000 10,000,000 9,446,000 9,446,000 8,732,000 207,404 166,514 (51,398) 3,937,453 - 3,172,847 450,000 3,308,352 - Non-controlling interests 23,590,857 692,554 23,235,361 689,192 21,988,954 715,517 Total equity 24,283,411 23,924,553 22,704,471 171,032,241 170,008,722 166,578,464 Other liabilities Sukuk Total liabilities Equity Equity attributed to equity holders of the Bank Share capital 12 Statutory reserve Available-for-sale financial assets reserve Retained earnings Proposed dividends Total equity attributed to equity holders of the Bank Total liabilities and equity The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 1
4. ARAB NATIONAL BANK – Saudi Joint Stock Company INTERIM CONSOLIDATED STATEMENT OF INCOME (Unaudited) (SAR’000) For the three month period ended For the six month period ended June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016 1,530,912 1,426,146 3,035,705 2,707,443 315,546 339,927 751,416 659,543 1,215,366 1,086,219 2,284,289 2,047,900 Fees and commission income, net 253,765 265,465 525,618 567,340 Exchange income, net Unrealized gain/(loss) on FVIS financial investments, net 103,710 115,813 208,380 245,368 - (5,609) 31 (5,813) 6,069 7,781 16,267 7,953 25,010 22,260 29,069 29,559 7,943 31 8,482 23,283 24,100 25,644 44,407 49,305 1,635,963 1,517,604 3,116,543 2,964,895 300,966 327,249 607,900 661,486 Rent and premises related expenses 41,037 39,908 92,195 81,867 Depreciation and amortization 55,721 60,600 112,451 118,265 129,943 130,469 256,492 276,017 266,675 140,525 443,577 265,306 - 8,853 - 8,853 Total operating expenses 794,342 707,604 1,512,615 1,411,794 Net operating income 841,621 810,000 1,603,928 1,553,101 9,469 11,482 16,518 20,055 851,090 821,482 1,620,446 1,573,156 849,039 817,984 1,617,084 1,567,175 2,051 3,498 3,362 5,981 851,090 821,482 1,620,446 1,573,156 0.85 0.82 1.62 1.57 Note Special commission income Special commission expense Net special commission income Trading income, net Dividend income Gains on non-trading investments, net Other operating income, net Total operating income Salaries and employee related expenses Other general and administrative expenses Impairment charges for credit and other losses, net Impairment charges for investment, net Share in earnings of associates, net Net income for the period Attributable to: Equity holders of the Bank Non-controlling interests Net income for the period Basic and diluted earnings (in SAR per share) 12 The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 2
5. ARAB NATIONAL BANK – Saudi Joint Stock Company INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) (SAR’000) For the three month period ended For the six month period ended June 30, 2017 June 30, 2016 June 30, 2017 June 30, 2016 851,090 821,482 1,620,446 1,573,156 129,666 (20,020) 49,176 (139,019) Net income for the period Other comprehensive income: Items that are or may be reclassified to interim consolidated statement of income in subsequent periods Available for sale investments: - Net changes in fair value - Net amounts transferred to interim consolidated statement of income Total other comprehensive income /(loss) for the period (7,747) 8,822 (8,286) (14,430) 121,919 (11,198) 40,890 (153,449) Total comprehensive income for the period 973,009 810,284 1,661,336 1,419,707 970,958 806,786 1,657,974 1,413,726 2,051 3,498 3,362 5,981 973,009 810,284 1,661,336 1,419,707 Attributable to: Equity holders of the Bank Non-controlling interest Total comprehensive income for the period The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 3
6. ARAB NATIONAL BANK – Saudi Joint Stock Company INTERIM CONSOLIDATED STATEMENT OF CHANGES IN EQUITY For the six month period ended June 30, 2017 and 2016 (Unaudited) (SAR’000) Attributable to equity holders of the Bank 2017 Notes Balance at the beginning of the period Share capital 10,000,000 Available for sale financial Statutory assets reserve reserve 9,446,000 Changes in equity for the period: Net changes in fair values of available for sale investments Net amounts transferred to interim consolidated statement of income Net income for the period Total comprehensive income for the period Noncontrolling Total interests Retained earnings Proposed dividends 166,514 3,172,847 450,000 23,235,361 Total equity 689,192 23,924,553 49,176 - - 49,176 - 49,176 (8,286) - - (8,286) - (8,286) - 1,617,084 - 1,617,084 3,362 1,620,446 40,890 1,617,084 2016 final dividends - - 1,657,974 3,362 1,661,336 - (450,000) (450,000) - (450,000) 2017 interim dividends 13 - (550,000) - (550,000) - (550,000) Zakat for the current period 4a - (181,737) - (181,737) - (181,737) Income tax for the current period 4a - (120,741) - (120,741) - (120,741) 207,404 3,937,453 - 23,590,857 Balance at the end of the period 10,000,000 9,446,000 692,554 24,283,411 Attributable to equity holders of the Bank 2016 (Restated) Notes Balance at the beginning of the period Changes in equity for the period: Net changes in fair values of available for sale investments Net amounts transferred to interim consolidated statement of income Share capital Statutory reserve Available for sale financial assets reserve 10,000,000 8,732,000 102,051 2,509,946 550,000 21,893,997 737,856 22,631,853 (139,019) - - (139,019) - (139,019) (14,430) - - (14,430) - (14,430) - 1,567,175 - 1,567,175 5,981 1,573,156 (153,449) 1,567,175 - 1,413,726 5,981 1,419,707 - - - - (28,320) (28,320) Net income for the period Total comprehensive income for the period Distributions from a subsidiary 2015 final dividends Retained earnings Proposed dividends Total Non-controlling interests Total equity - - - - (550,000) (550,000) - (550,000) 2016 interim dividends 13 - - - (450,000) - (450,000) - (450,000) Zakat for the current period 16 - - - (190,599) - (190,599) - (190,599) Income tax for the current period 16 - - - (128,170) - (128,170) - (128,170) 10,000,000 8,732,000 (51,398) 3,308,352 - 21,988,954 715,517 22,704,471 Balance at the end of the period The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 4
7. ARAB NATIONAL BANK – Saudi Joint Stock Company INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS For the six month period ended (Unaudited) (SAR’000) Note OPERATING ACTIVITIES Net income for the period Adjustments to reconcile net income to net cash from (used in) operating activities for the period: Accretion of premiums/(discounts) on non-trading investments, net Special commission expense on sukuk Gains on non-trading investments, net Unrealized (gains)/losses on FVIS financial investments, net Dividend income Depreciation of investment property Depreciation and amortization of property and equipment Losses on disposal of property and equipment, net Impairment charges for investments, net Share in earnings of associates, net Impairment charges for credit and other losses, net Net (increase) / decrease in operating assets: Statutory deposit with SAMA Investments held at FVIS Positive fair value of derivatives Loans and advances, net Other assets Other real estate Net increase / (decrease) in operating liabilities: Due to banks and other financial institutions Negative fair value of derivatives Customers’ deposits Other liabilities Net cash from (used in) operating activities INVESTING ACTIVITIES Proceeds from sale of and matured non-trading investments Purchase of non-trading investments Investment in associates Purchase of investment property Purchase of property and equipment Proceeds from sale of property and equipment Dividends received Net cash from investing activities FINANCING ACTIVITIES Dividends paid Special commission paid on sukuk Non-controlling interest Net cash used in financing activities Net increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Special commission received during the period 10 Special commission paid during the period June 30, 2017 June 30, 2016 1,620,446 1,573,156 3,047 36,459 (8,482) (31) (29,069) 12,400 112,451 3,439 (16,518) 443,577 (13,258) 28,330 (23,283) 5,813 (29,559) 12,407 118,265 206 8,853 (20,055) 265,306 2,177,719 1,926,181 204,405 757 (172,560) 220,902 (27,766) - 99,444 1,313,836 (31,751) (2,508,480) (470,471) 23,259 5,284,577 177,016 (5,160,884) (599,122) 1,827,289 70,582 (6,601,717) (43,852) 2,105,044 (4,395,680) 2,929,490 (2,225,950) (33,102) 1,480 29,069 700,987 20,486,651 (11,598,462) (52,500) (323) (102,535) 120 29,559 8,762,510 (447,196) (38,948) (486,144) (545,511) (23,982) (28,320) (597,813) 2,319,887 16,347,323 18,667,210 3,769,017 8,680,518 12,449,535 2,942,954 (718,642) 2,684,491 (655,530) 49,176 (139,019) Supplemental non-cash information Net changes in fair value of available for sale investments The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 5
8. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 1. General Arab National Bank (a Saudi Joint Stock Company, the Bank) was formed pursuant to Royal Decree No. M/38 dated Rajab 18,1399H (corresponding to June 13, 1979). The Bank commenced business on February 2, 1980 by taking over the operations of Arab Bank Limited in the Kingdom of Saudi Arabia. The Bank operates under Commercial Registration No. 1010027912 dated Rabi Awal 1, 1400H (corresponding to January 19, 1980) through its 148 branches (2016: 152 branches) in the Kingdom of Saudi Arabia and one branch in the United Kingdom. The address of the Bank’s head office is as follows: Arab National Bank P.O. Box 56921 Riyadh 11564 Kingdom of Saudi Arabia The objective of the Bank is to provide a full range of banking services. The Bank also provides its customers non-commission based banking products which are approved and supervised by an independent Shariah Board established by the Bank. The interim condensed consolidated financial statements comprise the interim condensed financial statements of the Bank and the following subsidiaries: Arab National Investment Company (ANB Invest) In accordance with the Capital Market Authority (CMA) directives, the Bank has established ANB Invest, a wholly owned subsidiary (directly and indirectly), a Saudi closed joint stock company, registered in the Kingdom under Commercial Registration No. 1010239908 issued on Shawwal 26, 1428H (corresponding to November 7, 2007), to takeover and manage the Bank's investment services and asset management activities related to dealing, managing, arranging, advising and custody of securities regulated by the CMA. The subsidiary commenced its operations effective on Muharram 3, 1429H (corresponding to January 12, 2008). Accordingly, the Bank started consolidating the financial statements of the above mentioned subsidiary effective January 12, 2008. On Muharram 19, 1436H (corresponding to November 12, 2014), the subsidiary changed its legal structure from a limited liability company to a closed joint stock company. The objective of the subsidiary was amended and approved by CMA Board of Commissioners on Muharram 28, 1437 H (corresponding to November 10, 2015) through a resolution number S/1/6/14832/15 to include dealing as a principal. The objective of the subsidiary was further amended on Sha’ban 26, 1437H (corresponding to June 2, 2016) to provide loans to the subsidiary’s customers to trade in financial papers as per the Saudi Arabian Monetary Authority’s circular No. 371000014867 dated 5/2/1437H, and the CMA’s circular No. S/6/16287/15 dated 10/3/1437H. Arabian Heavy Equipment Leasing Company (AHEL) An 87.5% owned subsidiary incorporated in the Kingdom, as a Saudi closed joint stock company, under Commercial Registration no 1010267489 issued in Riyadh dated Jumada I 15, 1430H (corresponding to May 10, 2009). The company is engaged in the leasing of heavy equipment and operates in compliance with Shari’ah principles. The Bank started consolidating the subsidiary’s financial statements effective May 10, 2009, the date the subsidiary started its operations. On May 6, 2014 the Bank increased its ownership percentage in this subsidiary from 62.5% to reach 87.5%. Arab Insurance Agency A Saudi limited liability company established during 2013 as a wholly owned subsidiary, registered in the Kingdom under Commercial Registration no. 1010396423 issued in Riyadh dated Muharram 28, 1435H (corresponding to December 1, 2013). The subsidiary obtained its license from the Saudi Arabian Monetary Authority (SAMA) to start its activities on Jumada I 5, 1435H (corresponding to March 6, 2014). Al-Manzil Al-Mubarak Real Estate Financing Ltd. A wholly owned Saudi limited liability company, registered in the Kingdom under the commercial registration no. 1010199647 issued in Riyadh dated Jumada I 18, 1425H (corresponding to July 6, 2004). The subsidiary is engaged in the purchase, sale and lease of land and real estate for investment purposes. 6
9. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 1. General (continued) ANBI Business Gate Fund (the Fund) The Bank owns indirectly 25.47% of the Fund, which is a closed-ended private placement real estate investment fund launched on August 25, 2014 for a period of 5 years starting from date of closure of first offering on January 11, 2015. CMA has been informed of the offering of the Fund through letter number 8/14//411 dated Shawwal 9, 1435H (corresponding to August 5, 2014). The Fund’s purpose is to acquire real estate assets, an income generating real estate property located in the city of Riyadh, out of which the Fund will receive rental and hotel operating income over the Fund term. The Group has significant aggregate economic interest in the Fund and manages the Fund through an agreement between Arab National Investment Company (the “Fund Manager”) and the Fund Investors (the “Unitholders”). As a result, management has concluded that the Group has effective control of the Fund and started consolidating the Fund’s financial statements effective December 31, 2015, the date of effective control. ANB Global Markets Limited The Bank established on January 31, 2017 ANB Global Markets Limited, as a limited liability company registered in the Cayman Islands. The Bank has 100% ownership. The objective of ANB Global Markets Limited is trading in derivaties and Repo activities on behalf of the Bank. 2. Basis of preparation During 2017, SAMA issued a Circular no. 381000074519 dated April 11, 2017 and subsequent amendments to the circular were made by SAMA 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 January 1, 2017; and - Zakat and tax are to be accrued on a quarterly basis and recognized in the 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 six-month period ended June 30, 2017 have been prepared using the International Accounting Standard (IAS) 34 – Interim Financial Reporting 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 International Financial Reporting Standards (“IFRS“). This change in framework resulted in a change in accounting policy for zakat and income tax (as disclosed in note 4(a)) and the effects of this change are disclosed in note 16 to the interim condensed consolidated financial statements. The interim condensed consolidated financial statements do not include all information and disclosures required in the annual consolidated financial statements and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2016. The preparation of interim condensed consolidated financial statements requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these interim condensed consolidated financial statements, the significant judgements 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 annual consolidated financial statements for the year ended December 31, 2016. These interim condensed consolidated financial statements are expressed in Saudi Arabian Riyals (SAR) and are rounded off to the nearest thousand, except where indicated otherwise. 7
10. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 3. Basis of consolidation The interim condensed consolidated financial statements comprise the interim condensed financial statements of the Bank and its subsidiaries (collectively referred to as 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 financial statements of the subsidiaries where necessary to align them 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 rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the interim condensed consolidated financial statements from the date that control commences until the date that control ceases. Specifically, the Group controls an investee if and only if the Group has:    Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee); Exposure, or rights, to variable returns from its involvement with the investee; and The ability to use its power over the investee to affect its returns. When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee, including:    The contractual arrangements with the other vote holders of the investee; Rights arising from other contractual arrangements; and The Group’s voting rights and potential voting rights granted by equity instruments such as shares. The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Consolidation of a subsidiary begins when the Group obtains control over the subsidiary and ceases when the Group loses control of the subsidiary. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the period are included in the interim consolidated statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. If the Group loses control over a subsidiary, it:        Derecognises the assets (including goodwill) and liabilities of the subsidiary; Derecognises the carrying amount of any non-controlling interests; Derecognises the cumulative translation differences recorded in equity; Recognises the fair value of the consideration received; Recognises the fair value of any investment retained; Recognises any surplus or deficit in profit or loss; and Reclassifies the parent’s share of components previously recognised in Other Comprehensive Income to profit or loss or retained earnings, as appropriate, as would be required if the Group had directly disposed of the related assets or liabilities. Non-controlling interests represent the portion of net income or loss and net assets not owned, directly or indirectly, by the Bank and are presented separately in the interim consolidated statement of income and within equity in the interim consolidated statement of financial position, separately from the equity holders of the Bank. Any losses applicable to the non-controlling interests in a subsidiary are allocated to the non-controlling interests even if doing so causes the non-controlling interests to have a deficit balance. Acquisitions of non-controlling interests are accounted for using the purchase method of accounting, whereby, the difference between the cost of acquisition and the fair value of the share of the net assets acquired is recognized as goodwill. Transactions with non-controlling interests that do not result in loss of control are accounted for as equity transactions – that is, as transactions with the owners in their capacity as owners. The difference between fair value of any consideration paid and the relevant share acquired of the carrying value of net assets of the subsidiary is recorded in equity. Gains or losses on disposals to non-controlling interests are also recorded in equity. Non-controlling interests are subsequently adjusted for their share of changes in equity of the consolidated subsidiary after the date of acquisition. All intra-group assets and liabilities, equity, income and expenses relating to transactions between members of the Group are eliminated in full on consolidation. 8
11. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 4. Significant Accounting policies The accounting policies, estimates and assumptions 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 December 31, 2016 except for: a) Change in the accounting policy in relation to accounting for Zakat and income tax The Group amended its accounting policy relating to zakat and income tax and have started to accrue zakat and income tax on a quarterly basis and charging it to retained earnings. Previously, zakat and income tax were deducted from dividends upon payment to the shareholders and was recognized as a liability at that time. In case no dividends were paid, zakat and income tax were accounted for as part of the appropriation of retained earnings. The Group has accounted for this change in the accounting policy relating to zakat and income tax retrospectively and the effects of the above change are disclosed in note 16 to the interim condensed consolidated financial statements. b) Adoption of the following amendments to existing standards mentioned below which have had no significant financial impact on the interim condensed consolidated financial statements of the Group in the current or prior periods and are expected to have no significant effect in future periods: - Amendments to IAS 7, Statement of cash flows on disclosure initiative: Applicable for annual periods beginning on or after 1 January 2017 These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. This amendment is part of the IASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. 5. Investments, net Investments are classified as follows: June 30, 2017 (Unaudited) - December 31, 2016 (Audited) - June 30, 2016 (Unaudited) 198 - 726 710 Other investments held at amortized cost 8,864,284 16,015,453 9,457,044 16,090,629 9,819,858 13,216,227 Total 24,879,737 25,548,399 23,036,993 June 30, 2017 (Unaudited) December 31, 2016 (Audited) June 30, 2016 (Unaudited) Commercial loans and overdrafts 91,328,492 91,307,234 92,031,959 Consumer loans 24,678,162 25,410,888 27,083,779 494,328 504,504 458,255 116,500,982 117,222,626 119,573,993 1,279,528 1,006,686 904,809 117,780,510 118,229,312 120,478,802 (2,896,529) (2,717,791) (2,601,431) 114,883,981 115,511,521 117,877,371 Trading securities Designated as fair value through income statement (FVIS) Available for sale 6. Loans and advances, net Loans and advances (all held at amortized cost) comprise the following: Credit cards Performing loans and advances Non-performing loans and advances, net Gross loans and advances Impairment charges for credit losses, net Loans and advances, net 9
12. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 7. Customers’ deposits June 30, 2017 (Unaudited) December 31, 2016 (Audited) June 30, 2016 (Unaudited) 66,100,267 61,358,685 91,908 3,195,713 130,746,573 65,092,740 65,003,835 93,124 5,717,758 135,907,457 65,320,903 60,407,117 81,614 3,349,843 129,159,477 Demand Time Saving Others Total 8. Derivatives The table below sets out the positive and negative fair values of derivative financial instruments, together with their notional amounts, analysed by the term to maturity. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the end of the period, do not necessarily reflect the amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Group’s exposure to credit risk, which is generally limited to the positive fair value of the derivatives, nor to market risk. June 30, 2017 (Unaudited) Positive Negative fair value fair value December 31, 2016 (Audited) Notional Positive Negative amount fair value fair value June 30, 2016 (Unaudited) Notional Positive Negative amount fair value fair value Notional amount Held for trading: Commission rate and cross currency swaps Commission rate futures and options Forward foreign exchange and commodity contracts Currency and commodity options 288,996 265,990 19,038,188 126,909 119,737 8,593,057 62,957 54,381 7,509,440 240,815 236,835 9,546,335 138,665 133,890 10,174,085 18,792 13,621 3,849,904 73,031 40,457 8,359,024 131,360 97,055 10,346,134 114,023 85,185 15,996,859 16,924 15,667 4,364,215 36,558 35,030 7,704,165 86,388 74,722 13,381,557 57,856 9,547,986 26,278 54,077 8,689,459 39,750 181,622 12,935,074 616,805 50,855,748 459,770 439,789 45,506,900 321,910 409,531 53,672,834 Held as fair value hedges: Commission rate swaps Total 12,564 632,330 Derivatives have been disclosed at gross amounts as at the date of the interim consolidated statement of financial position, and have not been netted off by cash margins placed and received against derivatives, amounting to SAR 93,600 thousands (December 31, 2016: SAR 12,290 thousands, and June 30, 2016: SAR 130,665 thousands). 9. Credit related commitments and contingencies a) The Group is subject to legal proceedings in the ordinary course of business. There was no change in the status of legal proceedings as disclosed at December 31, 2016. b) The Group’s consolidated credit related commitments and contingencies are as follows: June 30, 2017 (Unaudited) December 31, 2016 (Audited) June 30, 2016 (Unaudited) Letters of credit Letters of guarantee Acceptances Irrevocable commitments to extend credit Other 4,638,161 24,031,152 2,182,023 2,851,263 98,592 Total 33,801,191 3,976,896 25,114,398 1,619,502 3,010,172 101,726 33,822,694 4,881,555 25,670,743 1,361,755 2,251,543 107,093 34,272,689 The unutilized portion of non-firm commitments as at June 30, 2017 which can be revoked unilaterally at any time by the Bank, amounts SAR 15,935 million (December 31, 2016: SAR 18,591 million and June 30, 2016: SAR 18,250 million). 10
13. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 10. Cash and cash equivalents Cash and cash equivalents included in the interim consolidated statement of cash flows comprise the following: Cash and balances with SAMA excluding statutory deposit Due from banks and other financial institutions maturing within 90 days from the acquisition date Total June 30, 2017 (Unaudited) December 31,2016 (Audited) June 30, 2016 (Unaudited) 11,808,527 12,316,473 4,432,637 6,858,683 4,030,850 8,016,898 18,667,210 16,347,323 12,449,535 11. Operating segments IFRS 8 requires operating segments to be identified on the basis of internal reports about components of the Group that are regularly reviewed by the chief executive officer in order to allocate resources to segments and to assess its performance. For management purposes, the Group is organized into the following major operating segments: Retail banking Deposit, credit and investment products for individuals. Corporate banking Loans and advances, deposits and other credit products for corporate and institutional customers, small to medium sized businesses, and the Bank’s London Branch. Treasury Manages the Bank’s trading and investment portfolios and the Bank’s funding, liquidity, currency and commission rate risks. Investment and brokerage services Investment management services and asset management activities related to dealing, managing, arranging and advising, and custody of securities. Other Includes income on capital and unallocated costs, assets and liabilities pertaining to the Head Office and other supporting departments. Transactions between the operating segments are reported as recorded in the Group’s transfer pricing system. The Group has amended the transfer pricing methodology, effective from January 1, 2016 to enhance the business segment reporting. These changes have been applied retrospectively, hence the basis for determining intersegment operating income/(expense) for the current period are consistent with the basis used for June 30, 2016. Segment assets and liabilities comprise mainly operating assets and liabilities. The Group’s primary business is conducted in the Kingdom of Saudi Arabia with one international branch in London. However, the total assets, liabilities, commitments and results of operations of this branch are not material to the Group’s overall interim condensed consolidated financial statements. 11
14. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 11. Operating segments (continued) The Group’s total interim consolidated assets and liabilities as at June 30, 2017 and 2016, its total operating income, expenses and net income for the six months then ended, by operating segments, are as follows: Treasury 47,735,630 11,018,844 Investment and brokerage services 1,719,379 128,481 Other 2,092,405 632,912 1,741,864 Total 171,032,241 632,912 146,748,830 2,000,426 (62,236) 82,849 54,283 3,116,543 (787,541) 573,402 - 53,694 - 1,212,885 511,166 82,849 107,977 3,116,543 953,147 270,626 251,645 6,745 7,983 33,897 58,059 56,582 2,284,289 525,618 302,055 - - - 443,577 - - - - - 2,581 554,296 - 1,781 47,982 - 1,144 48,910 - 47,229 21,067 16,518 112,451 1,512,615 16,518 - - - 3,362 3,362 658,589 463,184 33,939 100,066 1,617,084 Corporate banking 82,132,933 64,065,892 Treasury 39,277,513 9,626,542 Investment and brokerage services 1,753,922 164,586 Other 1,958,197 604,172 1,771,630 Total 166,578,464 604,172 143,873,993 1,810,468 (104,555) 70,265 83,236 2,964,895 (779,023) 621,861 3 81,962 - 1,031,445 517,306 70,268 165,198 2,964,895 766,835 288,810 244,899 5,424 (11,422) 39,303 85,107 44,804 2,047,900 567,340 137,607 - - - 265,306 - 8,853 - - 8,853 1,669 405,981 - 1,782 63,683 - 1,990 46,635 - 46,251 44,183 20,055 118,265 1,411,794 20,055 - - - 5,981 5,981 625,464 453,623 23,633 135,089 1,567,175 June 30, 2017 Retail (Unaudited) banking 36,664,674 Total assets Investments in associates 65,583,881 Total liabilities Operating income / (loss) from 1,041,221 external customers Intersegment operating 160,445 income/(expense) 1,201,666 Total operating income Of which: 1,013,455 Net special commission income 157,768 Fees and commission income, net Impairment charges on loans and 141,522 advances, net Impairment charges for investments, net 59,716 Depreciation and amortization 840,360 Total operating expenses Share in earnings of associates, net Net income attributed to noncontrolling interest Net income attributed to equity 361,306 holders of the Bank Corporate banking 82,820,153 68,275,760 June 30, 2016 (Restated) Retail (Unaudited) banking 41,455,899 Total assets Investments in associates 68,245,343 Total liabilities Operating income / (loss) from 1,105,481 external customers Intersegment operating 75,197 income/(expense) 1,180,678 Total operating income Of which: 962,481 Net special commission income 188,999 Fees and commission income, net Impairment charge on loans and 127,699 advances, net Impairment charges for investments, net 66,573 Depreciation and amortization 851,312 Total operating expenses Share in earnings of associates, net Net income attributed to noncontrolling interest Net income attributed to equity 329,366 holders of the Bank 12
15. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 12. Share capital and earnings per share As at June 30, 2017, the authorized, issued and fully paid share capital of the Bank consists of 1,000 million shares of SAR 10 each (December 31, 2016 and June 30, 2016: 1,000 million shares of SAR 10 each). Basic and diluted earnings per share for the periods ended June 30, 2017 and 2016 are calculated by dividing the net income for the period attributable to equity holders of the Bank by 1,000 million shares. The diluted earnings per share is the same as the basic earnings per share. 13. Interim Dividends The Board of Directors has approved an interim dividend of SAR 550 million for distribution to the shareholders from the net income for the period ended 30 June 2017 (30 June 2016: SAR 450 million). This interim dividend resulted in a payment to the shareholders of SAR 0.55 per share, net (30 June 2016: SAR 0.45 per share, net). 14. Fair values of financial assets and liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: i) In the accessible principal market for the asset or liability; or ii) In the absence of a principal market, in the most advantageous accessible market for the asset or liability. The fair values of on-balance sheet financial instruments are not significantly different from their carrying amounts included in the interim condensed consolidated financial statements. 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 repacking); 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; and Level 3: valuation techniques for which any significant input is not based on observable market data. a. Carrying amounts and fair value 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. 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 of fair value. Financial assets June 30, 2017 (Unaudited) Carrying value Level 1 Fair value Level 2 Level 3 Total Financial assets measured at fair value Available for sale investments Positive fair value of derivatives 8,864,284 7,700,958 632,330 - 1,147,397 15,929 8,864,284 632,330 - 632,330 Financial assets not measured at fair value Due from banks and other financial institutions Other investments at amortised cost Loans and advances 6,858,683 - - - 6,858,683 16,015,453 504,186 15,380,070 - 15,884,256 114,883,981 13 - 116,200,557 - 116,200,557
16. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 14. Fair values of financial assets and liabilities (continued) a. Carrying amounts and fair value (continued) Carrying value December 31, 2016 (Audited) Level 1 Fair value Level 2 Level 3 Total Financial assets measured at fair value FVIS investments Available for sale investments Positive fair value of derivatives 726 - 726 - 726 9,457,044 7,974,102 1,458,727 24,215 9,457,044 459,770 - 459,770 - 459,770 4,030,850 - - - 4,030,850 16,090,629 523,474 15,378,858 - 15,902,332 - 116,570,946 - 116,570,946 Financial assets not measured at fair value Due from banks and other financial institutions Other investments at amortised cost Loans and advances 115,511,521 Financial Liabilities Carrying value June 30, 2017 (Unaudited) Level 1 Fair value Level 2 Level 3 Total Financial liabilities measured at fair value Negative fair value of derivatives Financial liabilities not measured at fair value Due to banks and other financial institutions Customer deposits Sukuk December 31, 2016 (Audited) 616,805 - 616,805 - 616,805 9,143,448 - - - 9,143,448 130,746,573 - - - 130,746,573 2,015,701 Carrying value - 1,929,436 Level 1 - 1,929,436 Fair value Level 2 Level 3 Total Financial liabilities measured at fair value Negative fair value of derivatives 439,789 - 3,858,871 - 135,907,457 2,018,190 439,789 - 439,789 - - 3,858,871 - - - 135,907,457 - 1,906,366 - 1,906,366 Financial liabilities not measured at fair value Due to banks and other financial institutions Customer deposits Sukuk 14
17. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 14. Fair values of financial assets and liabilities (continued) b. Measurement of fair values i. Valuation technique and significant unobservable inputs The following table shows the valuation techniques used in measuring level 2 and Level 3 fair values at June 30, 2017 and December 31, 2016 as well as the significant unobservable inputs used. Type Valuation technique Financial assets designated at FVIS Fair value is determined based on the fund’s most recent reported net assets value of the funds. Fair valued using simple discounted cash flow techniques that use observable market data inputs for yield curves and credit spreads. Available for sale investments classified as Level 2 include plain vanilla bonds for which market quotes are not available. Available for sale investments classified as Level 3 include Private Equity Funds Forward exchange contract and commission rate swaps Corporate debt securities Fair value is determined based on the fund’s most recent reported net assets value of the funds. The fair values are based on market quotes. Similar contracts are traded in an active market and the quotes reflect the actual transactions in similar instruments. The fair values are based on either market prices wherever available or relevant and observable market in-puts like CDS spread, zero rate curves etc. Significant unobservable inputs Inter-relationship between significant unobservable inputs and fair value measurement None Not applicable None Not applicable None Not applicable None Not applicable 10bps are added to the CDS spread to account for any potential model discrepancy or any stressed market conditions Higher the spread, lower the valuation will be vice-versa ii. Transfer between levels of the fair value hierarchy There have been no transfers within levels of the fair value hierarchy during the six months period ended June 30, 2017 and 2016. iii. Level 3 fair values Reconciliation of Level 3 fair values Financial investments designated as available for sale: The following table shows a reconciliation from the opening balances to the closing balances for Level 3 fair values. June 30, 2017 June 30, 2016 (Unaudited) (Unaudited) Balance at the beginning of the period Total gains (losses) in other comprehensive income Settlements Balance at the end of the period 15 24,215 4,693 (12,979) 15,929 85,794 (7,190) (51,737) 26,867
18. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 15. Capital Adequacy The Group’s objectives when managing capital are, to comply with the capital requirements set by SAMA; to safeguard the Group’s ability to continue as a going concern; and to maintain a strong capital base. During the period, the Group has fully complied with regular capital requirements. The Group monitors the adequacy of its capital using ratios established by SAMA. These ratios measure capital adequacy by comparing the Group’s eligible capital with its interim consolidated statement of financial position assets, commitments and notional amount of derivatives at a weighted amount to reflect their relative risk. SAMA has issued the framework and guidance regarding implementation of the capital reforms under Basel III – which are effective starting January 1, 2013. Accordingly, the Group’s pillar I consolidated Risk Weighted Assets (RWA), total capital and related ratios are as follows: June 30, 2016 June 30, 2017 December 31, 2016 (Unaudited) (Unaudited) (Audited) (Restated) Credit Risk RWA 146,015,989 142,002,565 148,416,759 13,176,799 1,190,698 12,892,057 933,982 12,633,999 2,039,174 160,383,486 155,828,604 163,089,932 22,785,361 Tier II Capital 23,590,857 2,971,451 2,881,451 21,988,954 2,881,451 Total Tier I & II Capital 26,562,308 25,666,812 24,870,405 Tier I ratio 14.71% 14.62% 13.48% Tier I + Tier II ratio 16.56% 16.47% 15.25% Operational Risk RWA Market Risk RWA Total Pillar-I RWA Tier I Capital Capital Adequacy Ratio % The Group maintains an actively managed capital base to cover risks inherent in the business. The adequacy of the Group's capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision as adopted by the SAMA in supervising the Bank. 16. Comparative figures a. During the current period, recoveries on credit losses relating to prior period have been reclassified from other operating income (net) to impairment charges for credit losses (net) in the interim consolidated statement of income to conform to the current period’s presentation. The impact of these reclassifications on the interim consolidated statement of income is disclosed below. June 30, 2016 (unaudited) For the three months period ended As originally reported Reclassification Other operating income, net Impairment charges for credit losses, net Amounts reported after reclassification 54,228 (169,109) (114,881) (28,584) 28,584 - 25,644 (140,525) (114,881) 105,790 (321,791) (216,001) (56,485) 56,485 - 49,305 (265,306) (216,001) For the six months period ended Other operating income, net Impairment charges for credit losses, net 16
19. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the six month period ended June 30, 2017 and 2016 (Unaudited) )SAR’000( 16. Comparative figures (continued) b. The change in the accounting policy for zakat and income tax (as explained in note 4(a)) has the following impact on the line items of interim consolidated statements of financial position and changes in equity as of and for the period ended June 30, 2016: June 30, 2016 (unaudited) As originally reported Restatement Amounts reported after restatement 4,470,196 3,627,121 8,097,317 318,769 (318,769) - 4,788,965 3,308,352 8,097,317 Other liabilities Retained earnings The above change in accounting policy did not have an impact on interim consolidated statements of income, comprehensive income and cash flows for any of the periods presented. 17. Board of Directors’ approval The interim condensed consolidated financial statements were approved by the Board on Shawwal 25, 1438 (corresponding to July 19, 2017). 17