Arab National Bank: Interim Condensed Consolidated Financial Statemnets - 30 September 2017

Transcription

1. Arab National Bank (A Saudi Joint Stock Company) Interim Condensed Consolidated Financial Statements For the period ended 30 September 2017
3. ARAB NATIONAL BANK – Saudi Joint Stock Company INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION (SAR’000) As at September 30, 2017 (Unaudited) Notes December 31, 2016 (Audited) September 30, 2016 (Unaudited) (Restated) 12,612,587 19,503,973 12,836,104 3,249,371 4,030,850 7,630,949 ASSETS Cash and balances with SAMA Due from banks and other financial institutions Positive fair value of derivatives 8 735,798 459,770 295,062 Investments, net 5 25,759,420 25,548,399 25,665,602 Loans and advances, net 6 115,931,970 115,511,521 115,624,770 Investments in associates 631,527 616,395 610,549 Other real estate 220,697 136,634 136,634 Investment property, net 1,632,862 1,651,363 1,657,698 Property and equipment, net 1,716,110 1,152,836 1,839,222 710,595 1,883,245 922,838 163,643,178 170,008,722 167,263,451 Other assets Total assets LIABILITIES AND EQUITY Liabilities Due to banks and other financial institutions 2,966,452 3,858,871 9,656,198 Negative fair value of derivatives 8 696,138 439,789 330,980 Customers’ deposits 7 128,546,906 135,907,457 128,235,909 4,663,617 2,033,104 3,859,862 2,018,190 3,845,445 2,032,326 138,906,217 146,084,169 144,100,858 10,000,000 10,000,000 10,000,000 9,446,000 9,446,000 8,732,000 46,198 166,514 (172,753) 4,550,683 - 3,172,847 450,000 3,884,812 - Non-controlling interests 24,042,881 694,080 23,235,361 689,192 22,444,059 718,534 Total equity 24,736,961 23,924,553 23,162,593 163,643,178 170,008,722 167,263,451 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 nine month period ended September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 1,489,116 1,489,321 4,524,821 4,196,764 305,178 422,361 1,056,594 1,081,904 1,183,938 1,066,960 3,468,227 3,114,860 Fees and commission income, net 206,613 251,119 732,231 818,459 Exchange income, net Unrealized gain/(loss) on FVIS financial investments, net 100,455 110,176 308,835 355,544 - 2,847 31 (2,966) 2,560 (1,320) 18,827 6,633 22,535 16,052 51,604 45,611 127,840 24,640 136,322 47,923 32,808 23,494 77,215 72,799 1,676,749 1,493,968 4,793,292 4,458,863 323,338 317,338 931,238 978,824 Rent and premises related expenses 39,903 43,444 132,098 125,311 Depreciation and amortization 55,154 57,783 167,605 176,048 156,215 132,469 412,707 408,486 327,629 195,831 771,206 461,137 5,970 28,792 5,970 37,645 Total operating expenses 908,209 775,657 2,420,824 2,187,451 Net operating income 768,540 718,311 2,372,468 2,271,412 8,445 6,377 24,963 26,432 776,985 724,688 2,397,431 2,297,844 775,459 721,671 2,392,543 2,288,846 1,526 3,017 4,888 8,998 776,985 724,688 2,397,431 2,297,844 0.78 0.72 2.40 2.30 Note Special commission income Special commission expense Net special commission income Trading income /(loss), 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 nine month period ended September 30, 2017 September 30, 2016 September 30, 2017 September 30, 2016 776,985 724,688 2,397,431 2,297,844 (39,336) (125,507) 9,840 (264,526) (121,870) 4,152 (130,156) (10,278) (161,206) (121,355) (120,316) (274,804) 615,779 603,333 2,277,115 2,023,040 614,253 600,316 2,272,227 2,014,042 1,526 3,017 4,888 8,998 615,779 603,333 2,277,115 2,023,040 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 loss for the period Total comprehensive income for the period 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 nine month period ended September 30, 2017 and 2016 (Unaudited) (SAR’000) Attributable to equity holders of the Bank Share Statutory capital reserve Available for sale financial assets reserve Retained earnings Proposed dividends 10,000,000 9,446,000 166,514 3,172,847 450,000 23,235,361 9,840 - - 9,840 - 9,840 (130,156) - - (130,156) - (130,156) - 2,392,543 - 2,392,543 4,888 2,397,431 2017 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 Net income for the period Total comprehensive income for the period (120,316) 2,392,543 2016 final dividends 2017 interim dividends Noncontrolling Total interests Total equity 689,192 23,924,553 - 2,272,227 4,888 2,277,115 - - - - (450,000) (450,000) - (450,000) 13 - - - (550,000) - (550,000) - (550,000) Zakat for the current period 4(a) - - - (279,074) - (279,074) - (279,074) Income tax for the current period 4(a) - - - (185,633) - (185,633) - (185,633) 10,000,000 9,446,000 46,198 4,550,683 - 24,042,881 Balance at the end of the period 694,080 24,736,961 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 Statutory reserve Available for sale financial assets reserve Retained earnings Proposed dividends Total Non-controlling interests Total equity 10,000,000 8,732,000 102,051 2,509,946 550,000 21,893,997 737,856 22,631,853 (264,526) - - (264,526) - (264,526) (10,278) - - (10,278) - (10,278) - 2,288,846 - 2,288,846 8,998 2,297,844 (274,804) 2,288,846 - 2,014,042 8,998 2,023,040 - - - (28,320) (28,320) Share capital Net income for the period Total comprehensive income for the period Distributions from a subsidiary - - - - - - - (550,000) (550,000) - (550,000) - - - (450,000) - (450,000) - (450,000) Zakat for the current period - restated 16(b) - - - (277,423) - (277,423) - (277,423) Income tax for the current period - restated 16(b) - - - (186,557) - (186,557) - (186,557) 10,000,000 8,732,000 (172,753) 3,884,812 - 22,444,059 718,534 23,162,593 2015 final dividends 2016 interim dividends Balance at the end of the period 13 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 nine month period ended (Unaudited) (SAR’000) Note September 30, 2017 September 30, 2016 2,397,431 2,297,844 (11,733) 45,038 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 3,247 53,862 (136,322) (31) (51,604) 18,501 167,605 4,839 (24,963) 5,970 771,206 3,209,741 (47,923) 2,966 (45,611) 18,600 176,048 214 (26,432) 37,645 461,137 2,907,793 (182,303) 757 (276,028) (1,256,151) (442,241) - 340,095 1,317,433 (4,904) (470,479) (58,033) 23,259 Net increase / (decrease) in operating liabilities: Due to banks and other financial institutions Negative fair value of derivatives Customers’ deposits Other liabilities (892,419) 256,349 (7,360,551) 357,098 Net cash used in operating activities (6,585,748) 3,983,085 (7,969) (7,525,285) (644,215) (139,220) 3,663,620 (3,902,677) (51,500) 2,168 51,604 (236,785) 20,666,494 (14,558,538) (52,500) (432) (118,147) 4,060 45,611 5,986,548 (993,686) (38,948) (1,032,634) (991,268) (23,982) (28,320) (1,043,570) (7,855,167) 16,347,323 8,492,156 4,803,758 8,680,518 13,484,276 4,264,184 (985,185) 4,134,550 (1,077,136) 9,840 (264,526) OPERATING ACTIVITIES Net income for the period Adjustments to reconcile net income to net cash 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 Share in earnings of associates, net Impairment charges for investments, net Impairment charges for credit and other losses, net 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 (used in) from investing activities FINANCING ACTIVITIES Dividends paid Special commission paid on sukuk Non-controlling interest Net cash used in financing activities Net (decrease) 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 10 Special commission received during the period Special commission paid during the period 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 nine month period ended September 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 144 branches (2016: 151 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%. ANB 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 of lands and real estates and invest them through sale or rent in favor of the company, maintenance and management of owners and others’ assets as guarantee, sale and purchase of real estates for financing purposes as per SAMA approval No. 361000109161 da ted 10/8/1436H. 6
9. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 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 c ontrol. 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 nine-month period ended September 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 nine month period ended September 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 nine month period ended September 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: September 30, 2017 December 31, 2016 September 30, 2016 (Unaudited) (Audited) (Unaudited) Designated as fair value through income statement (FVIS) - 726 158 Other investments held at amortized cost 8,356,154 17,403,266 9,457,044 16,090,629 9,607,453 16,057,991 Total 25,759,420 25,548,399 25,665,602 September 30, 2017 December 31, 2016 (Unaudited) (Audited) September 30, 2016 (Unaudited) Available for sale 6. Loans and advances, net Loans and advances (all held at amortized cost) comprise the following: Commercial loans and overdrafts 92,766,169 91,307,234 90,771,481 Consumer loans 24,313,934 535,801 25,410,888 504,504 25,965,434 524,360 117,615,904 1,249,765 117,222,626 1,006,686 117,261,275 1,029,804 Impairment charges for credit losses, net 118,865,669 (2,933,699) 118,229,312 (2,717,791) 118,291,079 (2,666,309) Loans and advances, net 115,931,970 115,511,521 115,624,770 Credit cards Performing loans and advances Non-performing loans and advances, net Gross loans and advances 9
12. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 30, 2017 and 2016 (Unaudited) )SAR’000( 7. Customers’ deposits September 30, 2017 (Unaudited) Demand Time Saving Others 65,456,764 59,568,064 89,338 3,432,740 128,546,906 Total 8. December 31, 2016 September 30, 2016 (Audited) (Unaudited) 65,092,740 65,003,835 93,124 5,717,758 135,907,457 64,437,462 60,594,766 77,107 3,126,574 128,235,909 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. September 30, 2017 (Unaudited) Positive Negative fair value fair value December 31, 2016 (Audited) Notional Positive Negative amount fair value fair value September 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 341,169 316,604 19,684,561 126,909 119,737 8,593,057 77,511 69,708 7,530,832 292,074 288,703 10,395,596 138,665 133,890 10,174,085 12,232 7,287 3,924,932 62,334 27,389 5,117,287 131,360 97,055 10,346,134 106,870 67,400 12,780,320 12,350 12,204 2,919,851 36,558 35,030 7,704,165 48,330 46,944 10,147,959 Held as fair value hedges: Commission rate swaps Total 27,871 51,238 11,124,727 26,278 54,077 8,689,459 50,119 139,641 10,957,699 735,798 696,138 49,242,022 459,770 439,789 45,506,900 295,062 330,980 45,341,742 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 105,491 thousands (December 31, 2016: SAR 12,290 thousands, and September 30, 2016: SAR 55,368 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: September 30, 2017 (Unaudited) December 31, 2016 (Audited) September 30, 2016 (Unaudited) Letters of credit Letters of guarantee Acceptances Irrevocable commitments to extend credit Other 4,240,590 22,732,279 1,567,585 2,217,653 96,482 Total 30,854,589 3,976,896 25,114,398 1,619,502 3,010,172 101,726 33,822,694 4,377,829 25,378,802 1,381,274 2,730,537 103,580 33,972,022 The unutilized portion of non-firm commitments as at September 30, 2017 which can be revoked unilaterally at any time by the Bank, amounts SAR 14,255 million (December 31, 2016: SAR 18,591 million and September 30, 2016: SAR 17,684 million). 10
13. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 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: September 30, 2017 (Unaudited) Cash and balances with SAMA excluding statutory deposit Due from banks and other financial institutions maturing within 90 days from the acquisition date Total December 31,2016 September 30, 2016 (Audited) (Unaudited) 5,242,785 12,316,473 5,853,327 3,249,371 4,030,850 7,630,949 8,492,156 16,347,323 13,484,276 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 September 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 nine month period ended September 30, 2017 and 2016 (Unaudited) )SAR’000( 11. Operating segments (continued) The Group’s total interim consolidated assets and liabilities as at September 30, 2017 and 2016, its total operating income, expenses and net income for the nine months then ended, by operating segments, are as follows: September 30, 2017 Retail (Unaudited) banking Total assets 36,551,018 Investments in associates Total liabilities 66,341,458 Operating income from external 1,531,930 customers Intersegment operating 246,007 income/(expense) Total operating income 1,777,937 Of which: Net special commission income 1,508,204 Fees and commission income, net 226,168 Impairment charges for credit and 244,426 other losses, net Impairment charges for investments, net Depreciation and amortization 88,013 Total operating expenses 1,299,905 Share in earnings of associates, net Net income attributed to equity 478,032 holders of the Bank Net income attributed to noncontrolling interest September 30, 2016 (Restated) Retail (Unaudited) banking Total assets 40,383,919 Investments in associates Total liabilities 67,163,964 Operating income / (expense) from 1,665,260 external customers Intersegment operating 164,887 income/(expense) Total operating income 1,830,147 Of which: Net special commission income 1,473,207 Fees and commission income, net 252,293 Impairment charges for credit and 222,411 other losses, net Impairment charges for investments, net Depreciation and amortization 98,091 Total operating expenses 1,308,265 Share in earnings of associates, net Net income attributed to equity 521,882 holders of the Bank Net income attributed to noncontrolling interest Treasury 38,804,571 4,742,859 Investment and brokerage services 1,718,639 129,455 Other 2,191,633 631,527 2,226,924 Total 163,643,178 631,527 138,906,217 2,957,485 87,477 123,766 92,634 4,793,292 (1,128,919) 1,828,566 805,156 892,633 123,766 77,756 170,390 4,793,292 1,475,671 379,558 380,086 9,882 14,261 47,262 90,005 69,361 3,468,227 732,231 526,780 - - - 771,206 4,029 904,110 - 5,970 2,871 74,072 - 1,716 71,768 - 70,976 70,969 24,963 5,970 167,605 2,420,824 24,963 924,456 818,561 51,998 119,496 2,392,543 - - - 4,888 4,888 Corporate banking 80,578,621 63,249,985 Treasury 42,457,518 11,684,680 Investment and brokerage services 1,731,686 136,351 Other 2,111,707 610,549 1,865,878 Total 167,263,451 610,549 144,100,858 2,852,012 (174,280) 100,363 15,508 4,458,863 (1,265,115) 1,586,897 974,735 800,455 100,363 125,493 141,001 4,458,863 1,154,416 440,268 373,710 7,408 (16,369) 53,093 129,896 65,397 3,114,860 818,459 238,726 - - - 461,137 2,546 629,474 - 37,645 2,668 115,290 - 2,994 68,951 - 69,749 65,471 26,432 37,645 176,048 2,187,451 26,432 957,423 685,165 31,412 92,964 2,288,846 - - - 8,998 8,998 Corporate banking 84,377,317 65,465,521 12
15. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 30, 2017 and 2016 (Unaudited) )SAR’000( 12. Share capital / Basic and diluted earnings per share As at September 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 September 30, 2016: 1,000 million shares of SAR 10 each). Basic and diluted earnings per share for the periods ended September 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 Steptember 30, 2017 (September 30, 2016: SAR 450 million). This interim dividend resulted in a payment to the shareholders of SAR 0.55 per share, net (September 30, 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. It does not include the fair value hierarchy 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 September 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 8,356,154 7,416,873 735,798 929,764 9,517 8,356,154 - 735,798 - 735,798 - - - 3,249,371 510,949 16,806,428 - 17,317,377 Financial assets not measured at fair value Due from banks and other financial institutions 3,249,371 Other investments at amortised cost 17,403,266 Loans and advances 115,931,970 13 - - 117,578,231 117,578,231
16. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 30, 2017 and 2016 (Unaudited) )SAR’000( 14. Fair values of financial assets and liabilities (continued) a. Carrying amounts and fair value (continued) December 31, 2016 (Audited) Carrying value Fair value Level 2 Level 3 Level 1 Total Financial assets measured at fair value FVIS investments 726 Available for sale investments Positive fair value of derivatives - 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 - - - 4,030,850 523,474 15,378,858 - 15,902,332 Financial assets not measured at fair value Due from banks and other financial institutions Other investments at amortised cost Loans and advances 16,090,629 115,511,521 - - 116,570,946 116,570,946 Financial Liabilities Carrying value September 30, 2017 (Unaudited) Level 1 Level 2 Fair value 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) 696,138 - 696,138 - 696,138 2,966,452 - - - 2,966,452 128,546,906 - - - 128,546,906 2,033,104 - - 2,000,027 2,000,027 Fair value Level 2 Level 3 Total Carrying value Level 1 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 - - 1,924,556 1,924,556 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 nine month period ended September 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 September 30, 2017 and December 31, 2016 as well as the significant unobservable inputs used. Inter-relationship between significant Significant unobservable unobservable inputs inputs and fair value measurement Type Valuation technique FVIS investments Fair value is determined based on the fund’s most recent reported net assets value of the funds. Available for sale investments classified as Level 2 include plain vanilla bonds for which market quotes are not available. 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 3 include Private Equity Funds Fair value is determined based on the fund’s most recent reported net assets value of the funds. Derivatives classified as Level 2 are comprised of over the counter special commission rate swaps, currency swaps, special commission rate futures and options, spot and forward foreign exchange contracts, currency and commodity options and other derivative financial instruments These instruments are fair valued using the Bank’s proprietary valuation models that are based on discounted cash flow techniques. The data inputs on these models are based on observable market parameters relevant to the markets in which they are traded and are sourced from widely used market data service providers. Financial assets and liabilities that are disclosed at fair value and classified as Level 2 include loans and advances, investments held at amotized cost, and debt issuances. These instruments are fair valued using simple discounted cash flow techniques that use observable market data inputs for yield curves and credit spreads. None Not applicable None Not applicable None Not applicable None Not applicable Additional buffer is added to the credit spreads to account for any potential model discrepancy or any stressed market conditions. The higher is the credit spread, the lower is the valuation; 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 nine months period ended September 30, 2017 and 2016. 15
18. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 30, 2017 and 2016 (Unaudited) )SAR’000( 14. Fair values of financial assets and liabilities (continued) b. Measurement of fair values (continued) 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. September 30, 2017 September 30, 2016 (Unaudited) (Unaudited) Balance at the beginning of the period 24,215 85,794 Total losses in other comprehensive income (39) (7,844) (14,659) (52,622) Settlements 9,517 Balance at the end of the period 25,328 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: September 30, 2017 (Unaudited) December 31, 2016 (Audited) September 30, 2016 (Unaudited) (Restated) 143,487,130 142,002,565 144,621,427 13,269,300 1,703,666 12,892,057 933,982 12,881,909 772,969 158,460,096 155,828,604 158,276,305 22,785,361 Tier II Capital 24,042,881 3,066,451 2,881,451 22,444,059 2,881,451 Total Tier I & II Capital 27,109,332 25,666,812 25,325,510 Tier I ratio 15.17% 14.62% 14.18% Tier I + Tier II ratio 17.11% 16.47% 16.00% Credit Risk RWA 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
19. ARAB NATIONAL BANK – Saudi Joint Stock Company Notes to the Interim Condensed Consolidated Financial Statements (continued) For the nine month period ended September 30, 2017 and 2016 (Unaudited) )SAR’000( 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. September 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 39,890 (212,227) (172,337) (16,396) 16,396 - 23,494 (195,831) (172,337) 145,680 (534,018) (388,338) (72,881) 72,881 - 72,799 (461,137) (388,338) For the nine months period ended Other operating income, net Impairment charges for credit losses, net 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 September 30, 2016: September 30, 2016 (unaudited) As originally reported Restatement Amounts reported after restatement 3,381,465 4,348,792 7,730,257 463,980 (463,980) - 3,845,445 3,884,812 7,730,257 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 Safar 4, 1439 (corresponding to October 24, 2017). 17