Bank ABC Islamic: Interim Condensed Consolidated Financial Statements 30-Jun-2018 (Reviewed)

Transcription

1. ABC Islamic Bank (E.C.) INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 (REVIEWED)
2. Ernst & Building working better world a Young Middle East Tel: +973 1753 5455 PD. Box 140 Fax: +973 1753 5405 10th Floor, East Tower Bahrain World Trade Center CR. No. 29977 manama@bh.ey.com Manama Kingdom of Bahrain REPORT ON REVIEW OF INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS TO THE BOARD OF DIRECTORS OF ABC ISLAMIC BANK (E.C.) Introduction We have reviewed the accompanying interim consolidated statement of financial position of (E.C.) ["the Bank"] and its subsidiary [together "the Group"] as of 30 June 2018, and the related interim consolidated statement of income, cash flows, changes in owners' equity and sources and uses of Zakah and charity funds for the six month period then ended and explanatory notes. The Board of Directors is responsible for the preparation and presentation of these interim condensed consolidated financial statements. Our responsibility is to express a conclusion on these interim condensed consolidated financial ABC Islamic Bank statements based Scope We on our review. of Review conducted our review in accordance with International Standards on Review Engagements 2410, "Review of Interim Financial Information Performed by the Independent Auditor of the Entity". A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing and consequently does not enable us to obtain assurance that we would become aware of all significant matters that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion Based on our accompanying review, nothing has come to our attention that material respects, in accordance with the accounting interim condensed consolidated financial statements. M+ 30 July causes us interim condensed consolidated financial statements 2018 Manama, Kingdom of Bahrain policies are to believe that the not prepared, in all disclosed in note 2 of the
3. ABC Islamic Bank (E.C.) INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 June 2018 (Reviewed) Note Reviewed Audited 30 June 31 December 2018 2017 US$ '000 US$ ’000 11,160 567,103 958,889 197,145 16,721 590,036 753,130 189,967 17 25 15,060 9,135 1,749,374 1,559,014 16,681 1,397,285 14,233 1,211,930 1,413,966 1,226,163 132,500 202,908 132,500 200,351 335,408 332,851 1,749,374 1,559,014 ASSETS Cash and bank balances Investments 3 Murabaha receivables 4 ljarah Equipment 5 Other assets TOTAL ASSETS LIABILITIES AND OWNERS' EQUITY Liabilities Other liabilities Murabaha payables Owners' Share equity capital Reserves TOTAL LIABILITIES AND OWNERS' EQUITY We Dr. Khaled S. Kawan Chairman Hammad Hasan Managing Director The attached notes 1 to 11 form part of these interim condensed consolidated financial statements 2
4. ABC Islamic Bank (‘E.C.) INTERIM CONSOLIDATED STATEMENT OF INCOME Six-month period ended 30 June 2018 (Reviewed) Reviewed Reviewed Three months ended Six months ended 30 June Note 30 June 2018 2017 2018 2017 US$ '000 US$ '000 U88 '000 U88 '000 OPERATING INCOME Income from financial institutions - income from investments Income from Murabaha receivables Ijarah income Profit Gain on on net - Murabaha 5 payables sale of investments Fee and commission income Total income operating Allowances for credit losses Net net - net 6 184 11,197 3,938 1,609 15,395 4,052 11,168 7,854 3,136 17,075 11,278 30,644 22,342 (8,935) (4,490) (15,253) 8,140 6,788 15,391 13,650 (8,692) 2,745 2,685 1,413 934 2,517 3.371 2.018 9,553 10,467 20,593 19,039 (345) operating income - 5,848 8,969 2,258 - - - 5,731 - (1.206) - 9,208 10,467 19,387 19,039 1,154 1.120 2,454 2,727 4 3 8 7 564 535 1,107 993 expenses 1,722 1,658 3,569 3,727 PROFIT FOR THE PERIOD BEFORE ZAKAH 7,486 8,809 15,818 15,312 OPERATING EXPENSES Staff costs Depreciation Other expenses Total operating Zakah (94) NET PROFIT FOR THE PERIOD 7,392 (90) 8,719 (187) 15,631 W’s Dr. Khaled S. Kawan Hammad Hasan Chairman Managing Director The attached notes 1 to 11 form part of these interim condensed consolidated financial statements 3 (181) 15,131
5. ABC Islamic Bank (E.C.) INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS Six—month period ended 30 June 2018 (Reviewed) Reviewed Six months ended 30 June Note 2018 2017 US$ ’000 US$ '000 OPERATING ACTIVITIES profit for the period Adjustments for: Depreciation Net Gain on sale of investments Allowances for credit losses Operating profit Changes before 15,631 15,131 8 7 (2,685) - changes in operating (3.371) 1 ,206 net assets and liabilities 14,160 - 1 1 ,767 in: Due from financial institutions - Murabaha receivables (214,964) (7,404) (5,935) ljarah Other assets Murabaha Net cash used in operating (765) (206,185) (334) (29,553) (65,419) 185,355 payables Other liabilities activities 75,000 31,701 17,102 5.530 INVESTING ACTIVITIES Purchase of investments Proceeds from Purchase redemption of equipment Net cash flows from / sale of investments investing equivalents (44,842) 97,989 115,072 (1) - activities 23,992 NET CHANGE IN CASH AND CASH EQUIVALENTS Cash and cash (73,997) at the beginning of the period CASH AND CASH EQUIVALENTS AT THE END OF THE PERIOD 70,229 (5,561 ) 4,810 1 6,721 6,317 11,1 60 1 1,127 The attached notes 1 to 11 form part of these interim condensed consolidated financial statements 4
6. ABC Islamic Bank (E.C.) INTERIM CONSOLIDATED STATEMENT OF CHANGES IN OWNERS' EQUITY Six-month period ended 30 June 2018 (Reviewed) Reserves Total Investments At 1 January 2018 Transition adjustment Restated balance 1 as changes At 30 June 2018 At 1 January Net profit Cumulative in fair value (reviewed) 2017 for the period changes At 30 June 2017 fair value Retained Total capital reserve reserve earnings reserves Owners’ equity US$ '000 US$ ’000 US$ ’000 US$ '000 US$ '000 US$ ’000 132,500 24,408 1,745 174,198 200,351 332,851 - — - 132,500 24,408 1,745 (12,635) (12,635) (12,635) 161,563 15,631 187,716 15,631 320,216 15,631 of January 2018 profit for the period Cumulative Statutory on adoption of FAS 30 as of 1 January 2018 (Note. 2.4) Net Share in fair value (reviewed) - - - - - (439) - (439) (439) 132,500 24,408 1,306 177,194 202,908 335,408 132,500 21,851 1,153 151,186 174,190 306,690 15,131 15,131 15,131 373 373 189,694 322,194 - - - - 132,500 21 ,851 - 373 1,526 - 166,317 The attached notes 1 to 11 form part of these interim condensed consolidated financial statements 5
7. ABC Islamic Bank (E.C.) INTERIM CONSOLIDATED STATEMENT OF SOURCES AND USES OF ZAKAH AND CHARITY FUNDS Six-month period ended 30 June 2018 (Reviewed) Reviewed Six months ended 30 June Sources of Zakah and Balance at 1 charity January Zakah due from the Bank sources of Zakah and 201 7 US$ '000 US$ ’000 funds Charity Total 2018 charity funds 954 652 7 185 187 181 1,148 1,018 Uses of Zakah and Zakah and charity funds charity paid to the poor and needy (234) (13) Undistributed Zakah and funds at end of the charity period 914 The attached notes 1 to 11 form part of these interim condensed consolidated financial statements 6 1,005
8. ABC Islamic Bank (E.C.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 1 (Reviewed) INCORPORATION AND ACTIVITIES exempt joint stock company incorporated in the Kingdom of registered with the Ministry of Industry, Commerce and Tourism under commercial registration number 16864. The Bank and its subsidiary [together the Group] operate under a wholesale banking license issued by the Central Bank of Bahrain [the CBB] and are engaged in financial trading in accordance with the teachings of Islam (Shari’a). The postal address of the Bank’s registered office is P O Box 2808, Manama, Kingdom of Bahrain. ABC Islamic Bank Bahrain Arab on is (E.C.) [the Bank] an 10 December 1985 and Banking Corporation (B.S.C.) [ABC (B.S.C.)], which operates under by the CBB, holds 100% of the share capital of the Bank. a wholesale banking license issued The Bank's Shari'a Supervisory Board is entrusted with the responsibility principles in its transactions and activities. to ensure the Group's adherence to Shari’a rules and The interim condensed consolidated financial statements the Board of Directors The ownership in the on 30 July subsidiary of the Bank as authorised for issue at 30 June 2018 is Nature of Date of Name business ABC Islamic Investment Clearing Company were by a resolution of 2018. Company as follows: Amount and incorporation Country of incorporation 30 November Cayman US$ 2.000 1993 Islands % of holding 100% management shares The Bank operates only in the Kingdom of Bahrain and does not have any branches. 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.1 Accounting convention The interim condensed consolidated financial statements convention as through equity" modified for measurement at fair value of are prepared under the historical "equity type instruments carried at fair and Tabdeel. The interim condensed consolidated financial statements have been [US$], being the functional currency '000) unless otherwise stated. 2.2 cost value Basis of of the Group. All values are presented in United States Dollars rounded to the nearest thousand (US$ preparation The interim condensed consolidated financial statements for the six—month period ended 30 June 2018 guidance given by International Accounting Standard 34 have been prepared in accordance with the Reporting. The interim condensed consolidated financial statements do not contain all information and disclosures required in the annual consolidated financial statements, and should be read in conjunction with the Group's annual consolidated financial statements as at 31 December 2017. In addition, results for the six-month period ended 30 June 2018 are not necessarily indicative of the results that may be expected for the financial year ending 31 December 2018. Interim Financial The consolidated financial statements accordance with the Financial for the year ended 31 December 2017 were prepared in Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions [AAOIFI], the Islamic Shari'a rules and principles as by the Shari'a Supervisory Board of the Group, and the applicable provisions of the Bahrain Commercial Companies Law and the Central Bank of Bahrain and Financial Institutions Law and the CBB Rule Book (volume 2) and applicable provisions of volume 6 and the CBB directives. In accordance with the requirements of AAOIFI, for matters for which no AAOIFI standards exist, the Group uses International Financial Reporting Standards [IFRS] issued by the International Accounting Standards Board [IASB]. determined
9. ABC Islamic Bank (E.C.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 (Reviewed) BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2 Significant accounting policies accounting policies adopted in the preparation 2.3 The statements are consistent with those used in statements for the year ended 31 December 2017 (continued) of the interim condensed consolidated financial preparation of the annual consolidated financial except for the early adoption of FAS 30. the , Early adoption of FAS 30 Impairment, Credit Losses and Onerous Commitments ("FAS 30") The Group has early adopted FAS 30, effective from 1 January 2018 which has a mandatory date of initial application of 1 January 2020. The requirements of FAS 30 represent a significant change from FAS 11 2.4 - "Provisions and Reserves". permitted by FAS 30, the standard has been applied retrospectively and the comparative amounts have impact of the early adoption of FAS 30 has been recognised in retained earnings in the consolidated statment of changes in equity. The standard eliminates the use of the existing FAS 11 incurred loss impairment model approach. As not been restated. The Transition Changes in accounting policies resulting from the adoption of FAS 30 have been applied retrospectively, except comparative periods which have not been restated. Differences in the carrying amounts of financial assets and financial liabilities resulting from the adoption of FAS 30 are recognised in retained earnings and January 2018. Accordingly, the information presented for 2017 does not reflect the requirements of FAS 30 and therefore is not comparable to the information presented for 2018 under FAS reserves as at 1 30. Impact of adopting FAS 30 Following is the impact of early adoption of FAS 30: Balance 31 Restated Transition December Retained earnings Murabaha receivables Ijarah Other assets Other liabilities key changes (b). to the adjustment US$ ’000 US$ ’000 (12,635) 161,563 16,721 590,036 753,130 189,967 9,135 14,233 Investments The 2017 US$ '000 174,198 Cash and bank balances Group’s accounting policies resulting balance 1 from its adoption January 16,721 589,096 745,250 189,236 9,118 17,300 - (940) (7,880) (731) (17) (3,067) of FAS 30 2018 are summarized in note 2.5 2.5 Summary of significant accounting policies 3) Financial contracts Financial contracts consist of balances with banks and the Central Bank of Bahrain, Murabaha Sukuk, Murabaha receivables (net of deferred profits), Ijarah Muntahia Bittamleek, other assets, commitments and financial guarantee contracts. Balances relating to these contracts allowance for credit losses. b) Impairment assessment (policy applicable from 1st are payables, financing stated net of January 2018) Impairment of financial assets FAS 30 replaces the 'incurred Ioss’ model in FAS 11 with ECL model. The new impairment model also applies to certain financing commitments and financial guarantee contracts but not to equity investments.
10. ABC Islamic Bank (E.C.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 (Reviewed) 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.5 Summary of significant accounting policies (continued) b) Impairment assessment (policy applicable from 1st (continued) January 2018) (continued) Impairment of financial assets (continued) Group applies three-stage approach to measure ECL Assets migrate through the following three stages based recognition. The on on financial assets carried at amortised cost. the change in credit quality since initial 1: Twelve months ECL Stage For credit exposures where there has not been a Significant increase in Credit Risk recognition but that are not credit impaired. a lifetime ECL is recognised. ("SICR") since initial Twelve-month ECL events (Stage 1) is the portion of ECL that reporting date. results from probable default on a financial contract within twelve months after the 2: Lifetime ECL Stage Lifetime ECL (Stage 2) - not credit is a impaired probability-weighted estimate of credit losses and is determined based on the difference between the present value of all cash shortfalls. The cash shortfall is the difference between all contractual cash flows that are due to the Group and the present value of the recoverable amount, for financial assets that are not credit-impaired at the reporting date. 3: Lifetime ECL Stage Financial contracts impact For on Stage are - credit impaired assessed credit as impaired when one or more events that have a detrimental the estimated future cash flows of that asset have occurred. 3 financial contracts. the provisions for credit-impairment are determined based on the difference carrying amount and the recoverable amount of the financial contract. As this uses the between the net same criteria as under FAS 11, the Group methodology for specific allowance for credit losses remains largely unchanged. Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost impaired. Evidence that a financial asset is credit-impaired includes the following observable data: - - - significant financial difficulty a breach of contract such probability are credit- of the borrower as a default that the borrower will enter or or issuer; past due event; and bankruptcy or other financial reorganization. Measurement of ECL The - - - key inputs Probability into the measurement of ECL are the following variables: of Default (PD); (LGD); and Default (EAD). Loss Given Default Exposure At These parameters are generally derived from internally developed models and other historical data. These are adjusted to reflect forward-looking information as described below. Definition of default Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as liquidating collateral; or the borrower is past due 90 days or more or any credit obligation to the Group. in assessing whether a borrower is in default, the Group considers both qualitative factors such as breaches of covenants and quantitative factors such as overdue status and non-payment on another obligation of the same issuer to the Group. The
11. ABC Islamic Bank (E.C.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 (Reviewed) 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.5 Summary b) Impairment of (continued) significant accounting policies (continued) assessment (policy applicable from 1st January 2018) (continued) Probability of default Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The Group collects performance and default information about its credit risk exposures. The Group employs statistical models for analysing the data collected and generate estimates of PD of exposures and how these are expected to change as a result of the passage of time. This analysis includes the identification and calibration of relationships between changes in default rates and changes in key macro-economic factors, across various geographies in which the Bank has taken exposures. For most exposures, the key macro-economic indicators include gross domestic product (GDP) growth, real interest rates, oil prices and equity prices. Incorporation of forward looking information The Group employs statistical models to incorporate macro-economic factors on historical default rates. In case none of the macro-economic parameters are statistically significant or the results of forecasted PDs are significantly deviated from the present forecast for the economic conditions, quantitative PD overlay shall be used by the management after analyzing the portfolio. - Incorporating fonNard-Iooking information increases the level of macroeconomic factors will affect the ECL to the judgment as to how 1 and in these changes 2 exposures which are The methodologies and applicable stage stage performing (Stage 3 are the exposures under default category). assumptions involved, including any forecasts of future economic conditions, are reviewed periodically. considered as Loss Given Default LGD is the the magnitude of the likely loss if there is a Group estimates LGD parameters based on counterparties, based on historical data using both default. The of recovery rates of claims against defaulted internal and external factors including hair cuts. history Exposure At Default EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amounts allowed under the contract including amortisation. The EAD of a financial asset is its gross carrying amount. For financing commitments and financial guarantees, the EAD is converted to consolidated statement of financial position equivalents. Significant Increase in Credit Risk determining whether the risk of default on a financial contracts has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis. based on the Group’s historical experience and expert credit assessment including fonlvard-Iooking information. When The criteria for include determining whether credit risk has increased significantly vary quantitative and qualitative factors, including days past due and risk rating. Renegotiated financial assets a financing The contractual terms of may be modified for conditions, and other factors not related to the current or a number of potential reasons on a portfolio level and including changing credit deterioration of a market customer. Group considers renegotiated financing to customers due to financial difficulties as one of the reasons determining the significant increase in credit risk. This may involve extending the payment arrangements and documenting the agreement of new conditions for providing finance. Management continuously reviews renegotiated facilities to ensure that all criteria are met and that future payments are likely to occur. The for 10
12. ABC Islamic Bank (E.C.) NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS 30 June 2018 (Reviewed) 2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES 2.5 Summary b) Impairment of (continued) significant accounting policies (continued) assessment (policy applicable up to 31st December 2017) (continued) Renegotiated financial assets (continued) are performing prior to restructuring but restructured due to financial difficulty under categorised stage 2. The accounts that are non-performing or meet any criteria for classifying as performing (prior to restructuring), then such restructured accounts are categorized under stage 3. The accounts which are non- Backward transition FAS 30 staging model is of symmetrical nature as exposures may migrate from lifetime ECL measurement (Stage 2 and Stage 3) to 12 month ECL measurement (Stage 1). Once such indicators are no longer triggered, movement back to Stage 1 or Stage 2 are subject to certain criterias such as cooling off period, SICR indicators and payment history, where applicable. Credit Conversion Factor The estimation of EAD takes into account any unexpected changes in the exposure after the assessment date, including expected drawdowns on committed facilities through the application of a credit conversion factor (CCF). The EAD is estimated using the outstanding exposure adjusted by CCF times undrawn portion of the facilities. In case of financial guarantee, EAD is estimated as CCF times the committed amount. The outstanding exposure is calculated as principal plus profit. The undrawn portion refers to the portion of the unutilized credit limit. Write-offs Financing contracts are written-off (either partially or in full) when there This is generally the case when the Group determines that the borrower is no realistic prospect of recovery. or sources of does not have assets income that could generate sufficient cash flows to repay the amounts subject to the write-off. However, are written-off could still be subject to enforcement activities in order to comply with the financial assets that Group's procedures for recovery of amounts due. Presentation of allowance for credit losses in the consolidated statement of financial Allowance for credit losses - are presented in the consolidated financial assets measured at amortised cost, as a statement of financial deduction from the gross position carrying position as follows: amount of the assets; and - - financing where the ECL a commitments and financial guarantee financial contract includes both on the financing contracts: generally as a provision, drawn and undrawn component, and the Group has identified commitments / off-balance sheet component separately from those on the drawn a component, the Group presents allowance for credit losses for drawn components. The amount is presented as a deduction from the gross carrying amount of the drawn component. Allowance for credit losses for the undrawn component is presented as a provision in other liabilities. adoption of FAS 30, the Group reviewed its financing contracts at each reporting date to assess an impairment provision should be recorded in the consolidated financial statements. In particular, judgment by management was required in the estimation of the amount and timing of future cash flows when determining the level of provision required. Such estimates were based on assumptions about factors involving varying degrees of judgment and uncertainty and actual results could differ resulting in future changes to the provisions. Prior to whether In addition to impairment against individually impaired financing contracts, the Group also made a collective impairment provision against exposures which, although not specifically identified as requiring an individual impairment, had a greater risk of default than when originally granted. That took into consideration factors such as any deterioration in country risk, industry, and technological obsolescence, as well as identified structural weaknesses or deterioration in cash flows. 11