Bank Albilad: Annual Report - 2017

Transcription

2. Board of Directors Report Bank AlBilad Annual Report 2017 Kingdom of Saudi Arabia Riyadh - Al Malaz , 381 Salah el-Din st. P.O.Box 140, Zip code 11411 Telephone Number: +966 11 479 8888 Fax Number: +966 11 291 5101 2 3
3. Content Vision , Mission and Core Values Board Members Statement of the Chairman of the Board Statement of the Chief Executive Officer Board of Directors Report Consolidated Financial Statements Notes on the Consolidated Financial Statements Basel III Pillar 3 Qualitative and Quantitative Disclosures
4. .‫وﻣﻮﻇﻔﻴﻦ وﻣﺴﺎﻫﻤﻴﻦ‬ Initiative and Innovation Care and Partnership Trust and Accountability ‫اﻟﻤﺒﺎدرة واﻻﺑﺘﻜﺎر‬ ‫اﻻﻫﺘﻤﺎم واﻟﻤﺸﺎرﻛﺔ‬ ‫اﻟﺜﻘﺔ واﻟﻤﺴﺆوﻟﻴﺔ‬ ‫اﻟﺮؤﻳــﺔ‬ ‫اﻟﺮﺳــﺎﻟﺔ‬ .‫أن ﻧﻜﻮن اﻟﺨﻴـﺎر اﻷﻓﻀﻞ ﻓﻲ ﺗﻘﺪﻳﻢ اﻟﺤﻠﻮل اﻟﻤﺼﺮﻓﻴﺔ اﻹﺳﻼﻣﻴﺔ اﻟﺤﻘﻴﻘﻴﺔ‬ ‫اﻟﻘﻴﻢ اﻷﺳﺎﺳﻴﺔ‬ Vision Mission To strive initiatives and innovation to provide our banking ‫اﻟﻤﺼﺮﻓﻴﺔ‬ ‫ﻟﺘﻮﻓﻴﺮ‬ ‫اﻟﺴﻌﻲ ﻣﻦ ﺧﻼل اﻟﻤﺒﺎدرة‬ services on a genuine Islamic basis‫ﻋﻠﻰ‬ to meet the ‫ﺧﺪﻣﺎﺗﻨﺎ‬ ambitions of‫واﻻﺑﺘـﻜﺎر‬ our ‫ﻋﻤﻼء‬ ‫ﻣﻦ‬ ‫ﺷﺮﻛﺎﺋﻨﺎ‬ ‫ﺗﻄﻠﻌﺎت‬ ‫ﻟﺘﺤﻘﻴﻖ‬ ‫أﺳﺲ ﺷﺮﻋﻴﺔ ﺣﻘﻴﻘﻴﺔ‬ stakeholders: clients, employees and shareholders Core Values To be the preferred choice of genuine Islamic banking solutions
5. Board of Directors Report 8 Bank AlBilad 9
6. Board of Directors Report 10 Bank AlBilad 11
7. Board of Directors Report 12 Bank AlBilad 13
8. Board of Directors Report Bank AlBilad Board Members & Chief Executive Officer Mr. Khalid Al-Rajhi Ahmed Alhussan Board member Member of the Executive Committee Mr. Khalid Aljasser Board member 14 Board member Chairman of the Risk Committee Mr. Fahad Bindekhayel Board member Member of the Executive Committee Mr. Mr. Nasser AlSubeaei Board member Vice Chairman of the board Member of the Executive Committee Board member Member of the Nominations & Compensations Committee Board member Chairman of the Nominations & Compensations Committee Chairman of the Compliance & Governance Committee Chairman of the Board Chairman of the Executive Committee Saud Alfaiz Board member Chairman of the Audit Committee Omar Babaker Abdulrhman Addas Abdulrahman AlHumaid Mr. Mr. Eng. Mr. Dr. Abdulaziz Alonaizan Chief Executive Officer Member of the Executive Committee Mr. Khalid AlMukairin Board Member Member of Executive Committee Member of Nomination and Remuneration Committee Mr. Fahad Alkassim Board member Member of the Risk Committee 15
9. In The Name of Allah , The Most Beneficent, The Most Merciful Praise be to Allah, and prayers and peace be upon the Messenger of Allah and his family and companions. Then, in my name and on behalf of the Board of Directors, I am pleased to present to the respected shareholders of the Bank, the annual report of the fiscal year 2017 that shows the general performance of the Bank, gives details about its main activities, illustrates the balance sheet, the shareholders’ equity and the financial statements for the year ended in 31 December 2017. With the help of God and the efforts of Albilad›s employees (ambassadors), the Bank was able to achieve positive financial and operational results and appreciated growth during last year which ended in 31 December 2017. The financial and monetary policy adopted by the good government of the Kingdom has played the main role in enhancing the capacities of Bank Albilad and Saudi Banks in general, through strengthen their financial positions, increasing their abilities to deal with risks and keeping a high and stable financial solvency level. During 2017, as per the good performance that developed over last years- in order for the board of director to achieve the interests of the Bank›s shareholders among them, their rights to have regular profits- the Bank has disbursed interim dividend on the first half of 2017 with total amount of 180 Million Saudi Riyal, in the amount of 0.3 Riyal per share that is equal to 3% of the nominal value of the share. Moreover, the board of directors has advised the general assembly on 14.01.2018 to disburse dividends on the second half of 2017 with total amount of 240 Million Saudi Riyal, in the amount of 0.4 Riyal per share that is equal to 4% of the nominal value of the share. Therefore, the total amount distributed to the shareholders for the fiscal year 2017 is 420 Million Saudi Riyal, in the amount of 0.70 Riyal per share that is equal to 7% of the nominal value of the share. Statement of the Chairman of the Board 2017 In addition to the financial results achieved, the board of directors, in order to achieve its vision and objectives towards the society, has paid special attention to the main three elements of the society – environment, development and people- out of its community-based responsibility. The Bank adopted several community initiatives that enhanced its role in serving and developing the society. We as the board members will continue working in this field to dedicate the Bank›s community-based responsibility. I am honored to express in my name and on behalf of the board of directors and the executive management and all those associated with the Bank, our deepest gratitude, respect and appreciation to his Highness the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz and the Crown Prince his Highness Muhammad bin Salman- may God protect themfor their continuous support provided specially for the Banking sector. Also, I want to thank under my name and on behalf of the board of directors and the executive management, all the governmental entities, especially the Saudi Arabian Monetary Fund, Ministry of Finance, Ministry of Commerce and Investment and Capital Market Authority. We are also thankful for their excellencies the head of Shariah Committee and its members and for the head of the review committee and its members, for all the board of directors› committees and the executive committee for the efforts they exert to make sure that the Bank abides by the Sharia standards on one hand and abides by all the Laws, regulations, highest standards and best practical applications from the other hand in providing all its services and working on achieving the vision of the Bank›s board of directors and its shareholders to a prominent Bank for the modern Islamic Banking. Our gratitude extends to the respected shareholders, partners and customers of Bank Albilad for their trust that is so valuable for the Bank and also to those associated with the Bank- Albilad Employees (ambassadors) who worked and always working with dedication, loyalty, persistence and professionalism, and they were and will always be – the main reasonafter Almighty God›s Conciliation- for what the Bank has achieved and will achieve in terms of the exponential growth and good results. We fully trust them that they will not save any effort in order to continue this hard work and achieve the required progress for gaining more growth and prosperity during this year and the following years God willing. Finally, I would like to express our sincere gratitude and appreciation for your trust in the management of the Bank and its employees. I am also honored to meet you during the annual meeting of the Bank at the general assembly to reply to any inquiries about this report, whether they were directed to me as the chairman of the board or directed to any of the heads of the board›s committees and my conciliation comes only from God. May the peace, mercy and blessings of God be with you. Your brother/ Abdul-rahman bin Ibrahim Al-Humaid
10. In The Name of Allah , The Most Beneficent, The Most Merciful Praise be to Allah, and prayers and peace be upon the Messenger of Allah and his family and companions. Dear Respected Stakeholders of Bank AlBilad, Peace be upon you Thanks to Allah, then the efforts and collaboration of the Bank’s Ambassadors, Bank Albilad continued its growth during 2017, despite the economic challenges and the very competitive environment that require increase use of technology, improving regulatory standards related to adequacy of capital, liquidity coverage and abidance by applying the governance principles of companies. The Bank continued strengthening its relationships will all segments of customers in various banking business sectors related to individuals, trade sectors, small and medium enterprise sector, which led to achieving growth in all indicators, including operational income growth and net profit of the Bank as well as supporting the main infrastructure to support business in order to serve our clients effectively and remarkably. Financial Performance: Statement of the Chief Executive Officer 2017 As a result of these wide-scale initiatives, the Bank was able to increase the net income of 942 Million Saudi Riyal for 2017 with growth percentage of 17% than last year. Hence, the income from investing and financing assets portfolio jumped 24% to achieve 1.739 Billion Saudi Riyal, , while Total Operating Income rose by 14%. On the other hand, total operational expenses, grew by 14% led by an increase in provisions and operating expenses with percentages of 59% and 6% respectively. Additionally, fees and commissions were increased by 3% to achieve 834 Million Saudi Riyal, supported by an increase in the received service fees. Regarding the financial position of the Bank, the assets of the Bank has recorded an increase of 17% at the end of 2017 to reach 63.208 Billion Saudi Riyal and the net financing reached 43.447 Billion Saudi Riyal with an increase of 20% than last year. Moreover, the deposits increased with 19% to reach 47.783 Billion Saudi Riyal. Expanding our Products Offers: 2017 witnessed the introduction of new products and services that fulfill the needs and expectations of our customers, including traditional products and services as well as providing electronic banking services. In the light of focusing on the development of the Personal Banking Sector, the Bank currently has a wide range of financing products for individuals including, real estate financing, personal financing, cars financing, in addition to many types of credit cards. The Bank is proud to be one of the leading banks that entered into partnership with Ministry of Housing and Real Estate Development Fund through providing many housing financing prodcuts such as: Accelerated financing, supported financing and concessional financing that were all prepared specifically to help the citizens of the Kingdom in achieving their dreams about owning private houses and better life as per the Kingdom’s aspiring Vision 2030. The Bank has also developed its strategies related to Small and Medium Enterprises (SMEs) sector through providing more options of products and services to the customers of this segment. This will have a great impact on increasing the market share that will develop the Bank’s portfolio in this sector. Additionally, the Bank is working on the preparation and development of more financing products that are compliance with Sharia to serve this sector that will contribute in increasing the gross domestic product from 20% to 35% in 2030. Regarding money transfer field, Bank Albilad has enhanced its leading position in the market through (Injaz) sector by launching new immediate transfer service as the transfer is done between the beneficiaries accounts immediately and on the same day. The process of money transfer was improved through providing the electronic Enjaz network and a mobile application which made the transfer process more easier and comfortable for the customers. Regarding Treasury Sector, the diversity in investment portfolio size was increased, in addition to, expanding our network of relationships with international banks and our investment relationships with the customers that result in supporting the growth of the Bank. Enhancing the Customers’ Experience through Special Service and Digital Transformation: Technology and information security are the main two elements of the Bank strategy related to the efficiency in performing banking transactions and improving the quality of the customer service. Therefore, the Bank has invested enormous amounts of money as the keystone of our digital banking project has been set, in order to transfer Bank Albilad to a comprehensive digital work environment that aims at improving the customer’s experience in completing all his/her banking transactions at all channels of the Bank quickly and in a better way. Improvements included also several alternative channels such as restructuring IVR system for banking phone through adding new functions and services. E-commerce products were developed and made available on the website of Albilad for business that is related to segment of companies banking customers; communication methods with the customer were widened that facilitated their deals in products and services. We continued our exerted efforts in re-distributing our branches network through opening five (5) new sales centers and three (3) Enjaz centers, adding more cash deposit machines and coins machines. We have also started the trial run for interactive ATM to provide the best service for the customers. 2017 has also witnessed a focus on redeployment plan of ATMs and Point of Sales machines to ensure providing a high level of performance and operation. Accordingly, we provide electronic banking services that are comfortable for our customers 24 hours a day. The positive impact of these initiatives is revealed in the increase use of electronic platforms by our customers via the Bank website (Albilad Net) and the mobile application (Albilad Maak). Enhancing the culture of Excellent Performance and Community Care: Bank Albilad is always proud of its constant care about its employees, as we give out employees in general the same attention we give to our customers and we support excellent employees through recognition programs, in addition to our commitment to develop their skills, provide specialized training programs and give them opportunities to achieve progress in their professional lives. We aim at creating an ideal work environment that attracts qualified employees and its foundation is based on creativity and excellent performance. Community participation is considered a keystone in Bank Albilad’s strategy, represented in the community responsibility programs as we support various projects and initiatives intended for serving and developing the community. To conclude, we will strive as Bank Albilad ambassadors to sustain our growth trajectory and achieve better results for 2018 through providing the best Islamic Banking solutions, improving the service quality, enhancing our relationships and increasing our customers’ base by common sale initiatives, in addition to increasing the operating efficiency through investment in modern technology and human capital as well as supporting community responsibility programs and most importantly, working on effective contribution that achieve the objectives of Vision 2030 of the Kingdom and its aspirations. What the Bank has achieved during 2017 is a result of continuous care and guidance that provided by our respected Board of Directors to the management team of the Bank and its constant monitoring to the Executive Management in order to achieve the approved strategies. Finally, we would like to express our deepest gratitude and thanks to his Highness the Custodian of the Two Holy Mosques, King Salman bin Abdulaziz Al Saud and the Crown Prince his Highness Muhammad bin Salman may God protect them. We would like also to thank our good government for its support and care provided to the banking sector, commercial, industrial, agricultural and other sectors; thank all the shareholders, customers and ambassadors of Bank Albilad for their trust and support that had always great impact on pushing us towards achieving quantum leaps that go in line with their aspirations. At the end, I would like to express our greatest appreciation for the Saudi Arabian Monetary Authority for executing wise monetary policies that ensure the stability and growth of the Banking Sector. May Allah Bless Us All Your brother/ Abdulaziz bin Mohammed Alonaizan
11. Board of Directors Report Bank AlBilad And the challenge for success continues steadily in God ’s will 20 21
12. Board of Directors Report Bank AlBilad Board of Directors Report Supporting Tarahum (Compassion) Committee Financial support was provided to the National Committee for the Welfare of Prisoners and their Families (TARAHUM) 22 Program Tarahum 23
13. Board of Directors Report Bank AlBilad Dear : Shareholders of Bank Albilad Greetings, The board of directors is pleased to present to the shareholders of Bank Albilad the annual report related to the Bank performance, its subsidiaries, its main activities and achievements for the fiscal year ended in 31 December 2017. Operational Results: Net income attributable for the shareholders of the Bank reached in 2017 an amount of 942 Million Saudi Riyal, with 16.6% increase from 2016. This increase was due to 14.5% increase in the operations income to reach 2,960 Million Saudi Riyal as a result of a growth in the net income of the investment and funding assets portfolio with a percentage of 23.5% to reach 1,739 Million Saudi Riyal. In return, the total operational expenses has increased with a percentage of 13.8% to reach 2,024 Million Saudi Riyal as a result of the increase in the allocations reserved for the funding portfolio as well as the item of other general and administrative expenses and employees› salaries. 3,500 2,960 3,000 2,500 2,000 1,917 2,097 2,295 942 2,587 1,000 900 1,500 800 700 1,000 600 500 864 788 808 2014 2015 2016 400 300 500 0 729 2013 2014 2015 2016 Total Operating Income in the last five years (in Millions Riyals) Balance Sheet: 2017 200 100 0 2013 2017 Net income attributable for the shareholders of the Bank in the last five years (in Millions Riyals) The assets of the Bank at the end of 2017 have reached an amount of 63,208 Million Saudi Riyal with 17.6% increase from last year. The customers’ deposits at the end of the current year have reached 47,783 Million Saudi Riyal, recording an increase with amount of 7,548 Million Saudi Riyal from last year, which represents 18.8% increase. The net funding portfolio has increased at the end of 2017 to reach 43,447 Million Saudi Riyal, in comparison with 36,178 Million Saudi Riyal for last year with an increase percentage 20.1%. 24 25
14. Board of Directors Report Bank AlBilad Shareholders ' Equity: 75,000 45,000 30,000 36,323 15,000 28,355 23,415 0 2,635 2,949 2013 2014 2015 Net Funding 60,000 31,222 45,000 30,000 39,339 36,724 3,081 5,140 2016 2017 Net Investments 44,778 42,179 43,447 36,178 34,255 1,667 Total Assets 63,208 53,749 51,220 45,230 46,597 40,235 (in Millions Riyals) 55,619 47,783 29,108 The shareholders' equity belongs to the shareholders of the Bank at the end of 2017 has reached 7,589 Million Saudi Riyal, in comparison with an amount of 7,112 Million Saudi Riyal at the end of 2016, with 6.7% increase. The number of the common shares issued reached 600 million share and the capital adequacy rate has reached 18.5% at the end of 2017, in comparison to the minimum required percentage which is 8%. The Bank has also achieved revenues on the assets average that reached 1.61% while the revenues on the shareholders' equity average have reached 12.78% and earnings per share reached 1.56 Saudi Riyal per one share. 9 105 240 Formation of the Shaerholders' Equity belongs to the Shareholders of the Bank (in Millions Riyals) 531 867 Statutory reserve 47 Other reserves Retained profits Proposed distribution of cash dividends Treasury stocks Capital Employee share program 6,000 15,000 0 2013 Total Liabilities 2014 2015 2016 Financial Comparisons: 2017 Customers' Deposits (in Millions Riyals) Liabilities Formation (In Millions Riyals) Assets Formation (In Millions Riyals) Balances at the Saudi Arabian Monetary Authority Cash and balances at the Saudi Arabian Monetary Authority Balances at Banks and other financial institutions, net Balances at Banks and other financial institutions, net Customers' Deposits Investments, net Bonds Funding, net Other Liabilities Property and Equipment, net 2,007 5,689 2,012 Investments, Net Funding, Net Total Assets Customers' Deposits Total Liabilities Total shareholders'' equity belongs to the shareholders of the Bank Other Assets 2,068 A) Analysis of the most important items of the consolidated balance sheet: 7,706 (in Millions Saudi Riyals) 2017 2016 2015 2014 2013 5,140 3,081 2,949 2,635 1,667 43,447 36,178 34,255 28,355 23,415 63,208 53,749 51,220 45,230 36,323 47,783 40,235 42,179 36,724 29,108 55,619 46,597 44,778 39,339 31,222 7,589 7,112 6,442 5,891 5,101 5,140 1,749 876 350 Investments, Net Funding, Net Total Assets Customers' Deposits Total Liabilities 47,783 26 43,447 Total shareholders'' equity belongs to the shareholders of the Bank 2016 2015 Changes Changes Prcentage 5,140 3,081 2,059 66.8% 43,447 36,178 7,269 20.1% 63,208 53,749 9,459 17.6% 47,783 40,235 7,548 18.8% 55,619 46,597 9,022 19.4% 7,589 7,112 477 6.7% 27
15. Board of Directors Report Bank AlBilad B ) Analysis of the most important items of the consolidated income statement: (in Millions Saudi Riyals) 2017 2016 2015 2014 2013 1,739 1,408 1,162 1,019 947 834 812 779 719 666 310 311 317 293 245 2,960 2,587 2,295 2,097 1,917 - - - (5) 0.2 47 13 - - 378 191 79 (8) 175 2,024 1,778 1,506 1,233 1,188 936 809 788 864 729 Shareholders of the Bank 942 808 788 864 729 (6) 1 - - - Net income for the year 936 809 788 864 729 Net income from investment and funding assets Income from fees and commissions, net Earnings from currency exchange, net Total operating income Reverse allocation of low goods murabaha Allocation of low investment available for sale Allocation/ (reverse funding, net allocation) of low Total operating expenses Net income for the year Revenues for: Non-controlling interest (in Millions Saudi Riyals) Net income from investment and funding assets Income from fees and commissions, net Earnings from currency exchange, net Total operating income Reverse allocation of low goods murabaha Allocation of low investment available for sale 2015 1,739 1,408 331 834 812 22 2.7% 310 311 (1) (0.3%) 2,960 2,587 373 14.4% - - 0/0% 23.5% 0.2 47 (47) (99.6%) 378 191 187 97.9% 2,024 1,778 246 13.8% 936 809 127 15.7% Shareholders of the Bank 942 808 134 16.6% (6) 1 (7) (700.0%) Net income for the year 936 809 127 15.7% Allocation/ (reverse allocation) of low funding, net Total operating expenses Net income for the year Revenues for: Non-controlling interest 28 Changes Changes Prcentage 2016 Geographical analysis for Bank’s revenues and its subsidiaries: Analysis for total revenues as per provinces Total Revenues for 2017 (in Millions Saudi Riyals) Central Western Eastern Total 1,908 630 422 2,960 Most revenues of the Bank and its subsidiaries are achieved mainly from their activities in the Kingdom of Saudi Arabia and the Bank doesn’t have any branches or subsidiaries or establishments that work outside the Kingdom of Saudi Arabia. Accounting Standards Applied Bank Albilad in it preparation of its consolidated financial statements follows the accounting standards for the financial institutions issued from the Saudi Arabian Monetary Authority, International Accounting Standards (IAS), International Financial Reporting Standards (IFRS). The Bank also prepares its consolidated financial statements in a way that complies with the Banking Control Law and the Companies Law applied in the Kingdom of Saudi Arabia. It is worth mentioning that the Capital Market Authority has issued a circular whereby stresses on the companies’ board of directors to ensure that the report of the board of directors on the fiscal years 2015 and 2016 should include the details of the plan applying the International Accounting Standards in full -after completing its approval from the Saudi Organization for Certified Public Accountants- on the financial statements prepared for the financial periods starting in 1 January 2017 or later, in addition to the stages of the plan implementation and the readiness of the company to apply the International Accounting Standards in 1 January 2017. Given that the Bank is already adopting the International Accounting Standards while preparing its consolidated financial statements, it has no plans regarding what has been mentioned in the circular. Strategies and Future Plans of the Bank: As an affirmation on the Bank continuous commitment to its institutional values and in accordance with the current economic changes, the Bank’s board of directors during 2017 has updated the strategy approved since 2013 and extended it for the next five years (2017- 2021). Hence, the strategic directions have been reviewed while taking into consideration the expected investment opportunities and acceptable risk levels, in order to achieve the vision and objectives of the Bank , represented in increasing its market share, achieving growth in revenues and net profits and expanding its capital base. The strategic plans targeted expanding the database of the business sectors clients with their different segments, improving the quality standards of the services provided to them, offering secure and modern products and services that match their ambition. The strategy also included improving the efficiency of the Banking and financial channels of the Bank, increasing productivity in general through improving the effectiveness of the procedures, the performance of the branches and their prevalence, ATMs locations and developing the operational and technical infrastructure. 29
16. Board of Directors Report Bank AlBilad Banking Services Expansion : During 2017, the strategy of branches redeployment was continued while focusing on improving the efficiency of the branches network performance through ensuring the collaboration between all branches to achieve the targeted profits. As a result of implementing the study related to this matter, some branches were merged and two Banking branches and five self-service branches (sales centers) were opened. Thus, the number of branches reached 112 working branch, in addition to 34 division for ladies. 3 Enjaz centers were opened, therefore, the number of Enjaz centers reached 179 center. Regarding card issuance, 432040 Banking card were issued in 2017 divided into pre-paid cards, credit cards and Mada cards. In the field of electronic Banking services, self-service working devices reached 860 device in 2017. The reason behind reducing the number of self-service devices goes back to reducing the operational expenses and changing the location of some devices to better locations. In addition, 5099 point of sale devices were added during 2017, so their numbers reached 10.783 device at the end of 2017. 200 120 176 179 160 171 120 114 112 158 116 151 102 144 88 40 0 2016 900 914 860 800 2014 2013 2012 Enjaz Branches Bank Branches 10,000 2015 953 896 856 728 700 600 12,000 500 10,000 400 8,000 300 6,000 200 4,000 100 2,000 0 2017 2016 2015 2014 2012 0 10,783 • Achieving workforce nationalization with a percentage more than 87% and with 97% on the executive team level. • Hiring more than 900 male and female in the last three years. • Continuing to support “Albilad Future” program that aims at training and qualifying fresh graduates to be the future leaders. • Establishing “Albilad Academy” to train and develop the employees of the Bank. • Participating in “Your Job First And Then Your Scholarship Program” launched by Ministry of Education. 7,978 4,254 2017 2016 2015 2,690 2014 2,123 2013 1,751 2012 Point of sale devices Social Responsibility: The social responsibility for Bank Albilad is the constant commitment of the Bank towards the society that emerges from its awareness of its national role and its contribution in the society as a responsible cooperate 30 In the field of the environment preservation and not harming the natural resources, Bank Albilad gives a great attention to this field since its establishment through taking into account environmental building standards in all the facilities of the Bank in terms of insulation and construction materials that contribute in power consumption rationalization. The Bank participates annually at the global Earth Hour program that aims at raising the awareness of the importance of reducing carbon emissions and their danger upon Earth. To facilitate procedures for orphans and their families, Bank Albilad initiated an e-portal for all services provided by the Charity Committee for Orphans Care (Ensan) to its beneficiaries. Ensan Charity Committee Ensan Charity Committee ATMs 2013 The social responsibility program in Bank Albilad has started an #Albilad initiative in 2011 with “every soul can” that aims at promoting noble values in the society. This was the beginning of an effective contribution in development of the society under the #Albilad initative . In the field of human development and work environment improvement, Bank Albilad exerted enormous efforts in this field such as: 80 2017 through having high professional ethics, avoiding harming the environment, rationalizing of natural resources Utilization, playing a positive role in the country economy in order to achieve economic growth, working on improving the usual business practices of the Bank which will have a direct and sustainable effect, as per the updated social responsibility policy that is approved by the general assembly during 2017 and related organizing documents. 31
17. Board of Directors Report Bank AlBilad Awards obtained by the Bank in 2017 : 1. Award of best Islamic Bank in 2016, on the sideline of ceremony of best 50 trademarks in the Kingdom that was organized by BNC Publishing. 2. First-place award from Bursa Malaysia in 2016 as the biggest Bank dealing in commodities for third year in a row. 3. Bank Albilad ranked 25th in the list of the top 100 Saudi companies in 2017 that is issued by Al Eqtisadiah (economic) newspaper. 4. “Albilad Capital” has been awarded the best local fund in the Middle East granted by Thomson Reuters Lepper, in recognition of the performance of “Amwal Fund”, which invests in the shares of Islamic Banks and financial institutions. Bank Subsidiaries: Establishment Date Main Activity Strategic Investments: Name of the Company Establishment Date Capital Main State for its Operations Country of Incorporation Ownership Rate Investment Information December Company 2015 Company "Albilad 2007 Capital" management activities represented in dealing with, arranging, 200 Million Riyadh, Kingdom Kingdom of Saudi Riyals of Saudi Arabia Saudi Arabia 100% managing, counseling and Real Estate Company Ltd. 17 September 2006 500 estate guarantees received Thousand by the Bank from its customers Country of Incorporation Ownership Rate information services, valuation services, 100 Million 50 Million credit valuation Saudi Riyals Saudi Riyals and consulting g Riyadh, Kingdom of Saudi Arabia Kingdom of Saudi Arabia 15% Groups, business sectors and key activities of the Bank and its subsidiaries: The Bank and its subsidiaries practice the following activities: Carry out registration procedures related to real Main State for its Operations businesses keeping securities. Albilad Paid-Up Capital for companies and services and assets 20 November Authorized Capital provides credit Perform investment Albilad Main Activity The Company Bayan Credit 28 The Bank owns two subsidiaries shown as follows: Name of the Company The Consolidated Financial Statements of the group include the Financial Statements of the Bank and its subsidiaries, namely, Albilad Investment Company and Albilad Real Estate Company collectively referred to as the “Group”. Saudi Riyals Riyadh, Kingdom Kingdom of of Saudi Arabia Saudi Arabia Personal Banking Activity (Retail) 100% Includes services and products provided to individuals, such as deposits, finance for individuals, remittances and foreign exchange. Includes services and products provided to companies and legal Corporate Banking Activity: person customers, such as deposits, finance and business services to customers. Treasury Activity Includes Capital Market and the provision of treasury services. Includes investment management services and assets management Investment and Brokerage Services Activity activities associated with the services of handling, management, arrangement, counseling and maintenance of securities provided by AlBilad Investment Company, which is owned by the Bank. The following is a summary of the work of Banks Groups, business sectors and its subsidiaries:   32 33
18. Board of Directors Report Bank AlBilad Personal Banking Division : Enjaz Division During the year 2017, the business was developed by launching several products and services, including flexible mortgage finance (Murabaha), real estate financing in the form of leasing, government-supported financing in collaboration with the Ministry of Housing and the Real Estate Development Fund, concessional financing and additional financing in cooperation with the Real Estate Development Fund, educational financing, personal financing for mortgage; in addition to signing several real estate marketing agreements and designing programs and marketing promotions to several companies. Moreover, current services and products were developed and improved in a way that serves sales channels and fulfills the needs of the customers. This led to achieving unremarkable financial results during the year 2017, hence, the personal finance portfolio has increased until the closing of December 2017, with an amount of 2.8. Billion Saudi Riyals, i.e. a growth percentage of 20% in comparison with the same period of last year. Also, the real estate finance portfolio with an amount of 1.2 Billion Saudi Riyals, i.e. a growth percentage of 88%, in addition, the personal finance portfolio has increased with an amount of 1 Billion Saudi Riyals, i.e. a growth percentage of 9%. Additionally, auto lease finance portfolio has increased with an amount of 423 Million Saudi Riyals, i.e. a growth percentage of 110%. Tamayuz program has been re-issued under two new looks and names (Tamayuz Gold and Tamayuz Diamond) that depends mainly on the principle of relationship management and close communication with the customers, in order to provide the best service and seeking to promote the service level to new horizons. Moreover, a new set of products and services were added to Tamayuz program in a very competitive prices, including cards of different benefits, transactions and safe deposit boxes. Enjaz division has achieved a remarkable growth during the year 2017, as currently “Enjaz” is becoming one of the most important service providers of remittances and currency exchange in the Kingdom. The confidence of Enjaz’s customers comes as a reflection to what the Sector had witnessed from continued development for transfer channels, and development of systems in order to keep pace with the global technological development; In addition to expanding the network of correspondents by contracting with major Banks around the world. Moreover, the Bank had increased the geographical spread of Enjaz centers of which amounted to 179 centers by the end of 2017. New set of products and services were launched, including Tamkeen credit cards and digital cards (prepaid). Mukafaat Albilad program was launched in collaboration with Visa International Company. The service of requesting cards on the internet via the website has been launched without the need to visit the branch, as well as the service of customers’ installments to buy their procurements by installment and launcing the service of Visa Checkout , beside the existing products and services that are currently provided such as customer relationship management, ATM services, POS, safe deposit boxes, “Albilad Maak” service. In addition to providing guaranties, service payment, deposit, withdrawal, private Banking customer services, and currency exchange service, and internal and external remittances. The customer service was also developed through social media channels, so that the service is provided to the customers 24 hours a day through the staff at the call center. In 2018, Personal Banking Division will continue to work to expand customers base and development of revenues by introducing new products that meet the desires of its customers, and it also aims to expand in developing advanced and modern methods to attract and recruit its customers to meet their current and future aspirations. Treasury Sector The Treasury Sector’s efforts and directions during 2017 focused on main pillars such as expanding in investment portfolios, investment in bonds of the Government of Saudi Arabia, financial Murabaha portfolios, investment portfolios related to leas and direct investment in shares portfolios. It focused also on the field of capital markets and currencies, expanding the long-term investment, increasing and diversifying relationships with local and international financial institutions. It has also started providing hedge product against currency fluctuations through Murabaha and enabling the Bank to be the first option and to be competitor of all local and regional Banks in covering its requirements at various works related to treasury. It also focuses on the customer service of the Bank to companies, large and medium establishments and private Banking institutions to cover their needs of currencies and direct investment through direct dealings with the treasury sector. These efforts and directions led to increasing and diversifying sources of income, in addition to increasing market share and raising the level of customers service in addition to risk management in a very professional and accurate way. Corporate Banking division During 2017, the Bank was able to achieve an outstanding quantitative and qualitative growth at the financing portfolio of the Bank and the customers base of the Bank in the establishments, companies and financing huge national projects. The Bank also pays attention to enhance its market share in the field of small and medium-sized enterprises (SMEs) as the Bank has provided many specialized services and products for this category via a specialized and trained team in the field of SMEs. During 2017, the Bank has performed the project of automation of the processes related to giving facilitations to establishments, companies and financial institutions, which saves a lot of time and effort, facilitate the monitoring process, raise the quality level in terms of strict control and risks reduction. Since the year 2017 had many national and governmental initiatives among the national transformation process and Vision 2030, the Bank has studies these programs and initiatives to work on achieving the most positive and effective contribution, in addition to achieving the highest returns for the Bank and increasing its market share, which will reflect positively on the shareholders and other stakeholders.   34 35
19. Board of Directors Report Micro , Small and Medium Enterprises (MSMEs) A- Qualitative Disclosure The most important actions taken by the Bank in this regard are as follows: • Collaborating with the advisory the International Finance Corporation (IFC), a member the World Bank to achieve and the main objective was to set a correct foundation for the development of this sector as well as building the necessary capacities for this. The Bank has benefited from the international experience of the IFC in the field of small and medium enterprises (SMEs) as this is associated with the mission of making this sector the financial services in the region. This participation included four related models: strategy, business model, products development, training and capacity building, risk and credit management and it gave the bank a new vision to set the appropriate strategy and business approach for this segment. • Working on the development of credit policy and reducing obstacles in order to serve the small and medium enterprises. • Launching many programs about products that target specific sectors within the small and medium enterprises sector. • Distributing the managers of relationships in the small and medium enterprises sector in many branches at the main cities across the Kingdom. • Approving the incentives plans for the provided recommendations to the small and medium enterprises sector. • Continuous improvement for banking business through the website of business and other electronic channels that guarantee an easy access for this segment to the Bank services. • Conducting many workshops and training courses to enhance and develop the skills of the relationships managers with a total of 99 training days for the employees. Bank AlBilad B- Quantitative Disclosure: 2017 Details (Amounts in Millions) Micro Small Medium Total Direct facilities provided to Micro, Small and Medium Enterprises NA 595 1744 2,339.00 Indirect facilities provided to Micro, Small and Medium Enterprises NA 216.59 310.3 526.89 Direct facilities provided to Micro, Small and Medium Enterprises in connection with total direct facilities 1% 4% 5% Direct facilities provided to Micro, Small and Medium Enterprises in connection with total indirect facilities 3% 5% 8% Number of direct and indirect facilities - Number of customers of direct and indirect facilities Number of direct and indirect and guaranteed facilities through Kafala Program Total direct and indirect and guaranteed facilities through Kafala Program 2016 Details 207 155 362.00 78 10 88.00 178.11 41 219.11 (Amounts in Millions) Micro Small Medium Total Direct facilities provided to Micro, Small and Medium Enterprises NA 563.45 897.18 1,460.63 Indirect facilities provided to Micro, Small and Medium Enterprises (nominal value) NA 167.98 251.78 419.76 Direct facilities provided to Micro, Small and Medium Enterprises in connection with total direct facilities 2% 2% 4% Direct facilities provided to Micro, Small and Medium Enterprises in connection with total indirect facilities 2% 4% 6% 158 137 295.00 64 7 71.00 126.5 23.81 150.31 Number of direct and indirect facilities Number of customers of direct and indirect facilities Number of direct and indirect and guaranteed facilities through Kafala Program Total direct and indirect and guaranteed facilities through Kafala Program 36 37
20. Board of Directors Report Activities of Albilad Investment Company “Albilad Capital” for the year 2017 AlBilad Investment Company “Albilad Capital” was established in 2008 as a limited liability company with the approval of the Capital Market Authority of Saudi Arabia, and has a capital of SAR 200,000,000, which is the investment arm of the Bank Albilad. Its headquarters is in Riyadh and its business is in line with the principles of Islamic Sharia. In 2017, the company was transformed from a limited liability company into a single shareholder closed joint stock company as the Minister of Commerce and Investment has issued his resolution No. Q/166 on 03.06.1438 AH on the approval of the transformation of the company. Brief of financial results of Bank Albilad and its subsidiaries (the Group) as on 31 December 2017: 2017 In thousands of Saudi Riyals Personal Banking Sector (Retail) Corporate Sector Investment and Brokerage Services Sector Treasury Sector Others Total Total Assets 19,226,564 25,567,342 16,460,585 444,834 1,508,351 63,207,676 Total Liabilities 31,939,534 11,782,080 7,532,423 17,710 4,347,136 55,618,883 632,925 1,237,930 232,096 14,238 - 2,117,189 (114,619) (40,881) (145,190) - (77,504) (378,194) Pot financing 228,727 (397,990) 48,881 - 120,382 - Albilad Investment Company performs its activity independently in all areas of investment and investment Banking services, including investment Banking consultancy and corporate finance. It manages assets such as investment funds, private portfolios, brokerage, securities and custody. Net Income from Investment and Finance Assets 747,033 799,059 135,787 14,238 42,878 1,738,995 826,316 134,744 111,856 91,374 56,499 1,220,789 Regarding new services that the Company provided and excelled at during 2017, the Company has launched for the first time in the Kingdom the service of electronic margin financing that enables the customer to request the service and receive financing without the need to visit the branch of the Company. The Company has also launched the service of opening an investment account and investment portfolio online through the new website of the Company on the internet. Net Fees and Commissions Income and others Net Operational Income 1,573,349 933,803 247,643 105,612 99,377 2,959,784 71,597 306,784 - - - 378,381 - - - - 244 244 83,403 9,761 1,412 1,943 - 96,519 Other Operational Expenses 1,152,703 250,102 67,666 78,002 - 1,548,473 Total Operational Expenses 1,307,703 566,647 69,078 79,945 244 2,023,617 265,646 367,156 178,565 25,667 99,133 936,167 265,646 367,156 178,565 25,667 105,013 942,047 - - - - 5,880) (5,880) 265,646 367,156 178,565 25,667 99,133 936,167 The Company’s vision is represented in becoming the best investment company for meeting the aspirations of its customers in the individuals and business sectors, and its employees and shareholders. Its mission lies in providing investment solutions based on the lenient Islamic Sharia principles. The securities service management that established by the Company in 2015 won the first place in assets protection for real estate funds and private ownership funds that represent an icon of the product of this management as the value of the assets under protection has reached more than 40 Billion Saudi Riyal. The Company took the second place in direct protection service market and it is expected that the value of the assets under protection will reach 100 Billion Saudi Riyal before the end of 2018. Achieving the expectations of the Company in its report for 2016, the total real estate assets under this management has reached during 2017 to 2.1 Billion Saudi Riyal, this reflects the extent of efforts and growth achieved by the Company as the real estate funds became one of the main pillars that show the positive growth of the Company. Regarding the financial results, the Company has achieved in 2017 a good financial performance, despite that many sectors and business retreated and the challenges faced the local and international markets in this year. Hence, the Company’s income has increased with a percentage of 15% in comparison to 2016, however this was not shown in the profit of the Company due to hiring more employees, and expanding in capital expenses to expanding the business of the Company and absorbing future demands which led to reducing the achieved profits with 17% in comparison with 2016. Income from Investment and Finance Assets Return on deposits and financial liabilities Net Provision for the Finance Impairment Losses Provision for the Impairment of Availablefor-Sale Depreciations Year’s Net Income Return to: Bank Shareholders Non-controlling share Year’s Net Income Bank Albilad is continuously improving the Fathkourouni App for smart phones which is related to Prayer times, Qibla direction, the Holy Quraan and Prophet sayings. Fathkourouni Application Fathkourouni Application Moreover, Albilad Capital has a recognized excellence in issuing reports on Saudi Financial Market, companies and main sectors that are led by the research management in the Company which is considered one of the most active financial and economic research center in the region as it has issued 127 report during 2017. The research management has expanded its existence in international financial databases such as Reuters and Bloomberg agencies. 38 Bank AlBilad 39
21. Board of Directors Report The Consolidated Financial Statements include the Financial Statements of the Bank and its subsidiaries , mainly, Albilad Investment Company and Albilad Real Estate Company collectively referred to as the “Group”. Bank AlBilad Percentage of the profits distributed during the year Finance and Issued Instruments In the course of its normal transactions, the Bank exchanges finance with Banks and the Saudi Arabian Monetary Authority (SAMA). On 30 August 2016, the Bank issued 2,000 instruments certificates of capital appreciation of 1 million Saudi Riyals per instrument, payable quarterly on 29 February, 30 May, 30 August and 30 November of each year until 30 August 2026, the date on which such instruments are due. The Bank may exercise the redemption option on or after August 30, 2021, if certain conditions are met in accordance with the provisions of its Prospectus. The Bonds may also be redeemed if certain other conditions are met in accordance with the provisions contained in the above Prospectus, in case the Bank has not failed to make payments (profits) due during this year 2017. Profits Per Share Basic and diluted profits per share for the two periods ending on 31 December 2017 and 2016 were calculated by dividing the net income for the period return to the shareholders of the Bank on the weighted average of the numbers of shares in that amount to 596 million shares in 2017 (595 million shares in 2016) existing during the period and after removing treasury shares. The weighted average has been amended retroactively for the number of shares of 2016 due to issuance of award of bonus shares. Profit Distribution Policy The distribution of the Bank’s annual net profits, which are determined after deducting all the general expenses and other costs and the preparation of the necessary precautions to face questionable debts, investment losses and contingent liabilities that the Board deems necessary in conformity with the provisions of the Banking Control Law and the directives of the Saudi Arabian Monetary Authority (SAMA), are as follows: 1. The amounts needed to pay the Zakat due on the shareholders are calculated, and the Bank pays these amounts to the competent authorities. Percentage of the profits proposed to be distributed at the end of the year Total Profit 3% 4% 7% 180 Million Saudi Riyals 240 Million Saudi Riyals 420 Million Saudi Riyals First half of 2017 Percentage Total Current and Future Risks: The Bank may be exposed through its activities to current and future risks, which is an essential part of the nature of the Bank’s business. These risks are monitored and managed by the Bank’s Risk Management Division that is responsible for the management of credit risk, market risk, operational risk and information security, in addition to complying with the requirements of the Basel Committee. A complete description of these risks has been stated in the notes attached to the consolidated financial statements from 30 to 32 as accompaniment to the Board of Directors’ report. The most important of which are the following: During 2017, the Risk Management Division worked in a manner that contributes to the effectiveness of the risk management system, in addition to achieving good applications and practices, and ensuring that the Bank’s actions achieve an appropriate balance between the return and the expected risk. The framework of the Risk Management Division relies on three pillars, which are the sound principles for risk management, the organizational structure and the risk control and measurement processes, which conform to the Banking activities to ensure the maintenance of an acceptable level for these risks. Furthermore, the function of Risk Management Division is independent and separate from the business divisions and sectors of the Bank, based on SAMA’s instructions and Basel Committee instructions. The Bank has frameworks for defining, measuring, monitoring and managing risks. The Banking Risk Management Process includes different types of Banking risks such as credit risk, liquidity risk, operational risk and market risk. The Bank also reviews the Risk Management systems and policies periodically to adapt to the changes taking place in markets and products to reach the best international Banking practices: 2. At least twenty five percent (25%) of the remaining net profit will be carried over after deducting the Zakat to the statutory reserve, so that the mentioned reserve will be at least equal to the paid-up capital. Supporting patients in need of various medical equipment in cooperation with the Patient Friends Committee in Riyadh. Mo’afa Mo’afa 3. An amount not less than five percent (5%) of the paid-up capital is allocated from the remaining profits after deducting the statutory reserve and the Zakat; in order to be distributed to the shareholders, according to the Board’s proposal and is decided by the General Assembly. If the remaining profit rate accrued to shareholders is not enough to pay this percentage, the shareholders cannot claim to pay them during the year or the following years, and the General Assembly is not allowed to decide the distribution of a percentage of the profits exceeding what is proposed by the Board of Directors. 4. After allocating the amounts mentioned in the paragraphs (1, 2, and 3), the remainder would be used as by the Board of Directors recommendation and by the General Assembly decision. 40 41
22. Board of Directors Report A ) Credit Risk: The credit risk is one of the most important risks assumed by the Bank, as the Bank is exposed to credit risk through its finance and investment activities, and the credit risk’s work is divided into multiple units operating under one system in accordance with the approved credit policies and procedures. Measurement of Credit Risk Degree: The Bank works on measuring the degree of credit risk for the purpose of reaching the maximum quantity and quality measurement degree to determine the credit risk degree faced by the Bank. Furthermore, Bank Albilad uses an advanced assessment system to assist in the internal assessment of the credit risk degree for corporate customers and private Banking customers as well as financial institutions, in order to measure the probability of default, the size of the amounts that are likely to be defaulted, and the losses resulting from defaults. The Bank is constantly striving to develop the internal assessment methods for the risk degree for the customers; as the Bank has assessment forms to evaluate customers of small and medium enterprises and customers with high solvency aside from the form designed for corporate customers; to give a more accurate and fair assessment. During 2017, the Bank completed applying a system for measuring the assessment of the individual customers risk degree who are financed by approved financing programs. Credit Risk Controls and Mitigations: The Bank follows several methods to mitigate the credit risk degree to acceptable limits, and from the most important methods is conducting analytical studies on the future data to measure the possibility of the customer’s payment of his obligations. The credit approvals are carried out by several credit committees composed of executive members in the Bank or through Board-level committees in proportion to the degree of credit risk and the size of credit facilities for each competent authority. In addition, the Bank meets the guarantees in exchange for the facilities whenever the need arises, and the Bank goes for the most liquid, organizational and enforceable guarantees; as the forms of the existing guarantees in the Bank vary in exchange for the credit facilities, for example: cash cover, mortgage of some investments and assets for the Bank or mortgage/reservation of some commercial and residential real estate assets, in addition to, approved waive on the revenues of projects in case of financing specific projects, and the presence of a security in exchange for the facilities, whether personal or financial security or a third party security; fulfilling the security needed for Kafalah Program that supports financing SMEs whenever the conditions and standards of the programs are met; noting that the granting of finance for individuals is based on finance programs that include the transfer of the customer’s wage to the Bank. It is taken into account not to allow the presence of credit concentration in the credit portfolio, in addition to ensuring the conformity of the size of credit exposure with the controls stated in this regard, whether for the exposure with a certain authority or a certain sector (activity). Monitoring and Reports: A comprehensive credit review of the financial and credit position is carried out annually for all corporate and private Banking customers who receive finance to ensure the continuity of the customer’s activity and his financing need and the continuance of a proper functioning credit relationship, in addition to reviewing the reports of the customers’ through frequent visits throughout the year. Corporate customers who have high credit risk rates are considered and rated on the list of customers who require special supervision; as this credit exposure is monitored and pursued accurately and carefully to reduce the shrinking of this credit exposure properly and in a semiannually manner. The portfolio of the individual customers, who obtain 42 Bank AlBilad credit facilities for consumption purposes, and the credit cards are followed up with on a comprehensive basis through the assessment of the criteria established for this portfolio for each segment individually. The Bank calculates the credit provisions in the Bank’s financial statements and record in accordance with the applicable International Financial Reporting Standards (IFRS) for accounts that are likely to achieve losses, in the presence of indicators implying the need to carry out these provisions, which may affect the expected cash flows from these assets or investments. The Bank is also preparing a comprehensive monthly report for the status of the Bank’s portfolio, containing an analysis of the credit concentrations analysis to be reviewed and supervised by senior management of the Bank. B) Market Risk: Most of the Banks’ activities are exposed to market risks; as the fluctuation in profits margins and currency prices lead to positive or negative results, resulting in a gain or loss for the Bank; furthermore, the sudden and high fluctuations in prices may affect the liquidity of the Bank in addition to the Bank’s financing ability. There are main risks from the market faced by the Bank and they are as follows: Return Rate Risk or Profit Rate Risk: The return rate risk or the profit rate risk are known as the potential impact on the Bank’s profitability as a result of the changes in the rates of returns on the market, and the price changes often occur either due to overall market movements, the source or certain reasons for the borrower. Foreign Exchange Risk: The risk resulting from the impact of the fluctuations in the currency exchange rates on the existing currency centers at the Bank. Share Investment Risks: The risks resulting from fluctuations in share prices and thus the impact on the Bank’s profitability and the shareholders’ equity. In general, the objective of the Market Risk Management for the Bank is to manage and control exposures to market risks in order to increase the revenues within the approved policies for market risk and the Bank’s acceptable risk level. The sources of exposure to market risks for the Bank are divided into: Trading Portfolios: The exposure to market risks in the trading portfolio in foreign currencies arises due to meeting the requirements of the Bank and its customers from foreign currencies. Non-Trading Portfolios: The exposure to market risks in the non-trading portfolios primarily arises due to the lack of conformity of the assets and its maturity dates with the maturity dates of the liabilities, and the impact of the price changes with the implementation of the re-investment operations. C) Liquidity Risk: The liquidity risk is considered one of the most important risks faced by the Banking sector in general or a specific Bank in particular; taking into account the likelihood of the Bank’s inability to meet the financing requirements at a reasonable cost (liquidity finance risk), or its inability to liquidate its positions at a reasonable speed, while maintaining the appropriate price (market liquidity risk). • Governance of Market Risk and Liquidity Risk: Market Risk Management is working on developing limitations and control for the extent of the compliance thereto by applying policies and limitations approved by the Board of Directors; and the Assets and Liabilities Committee (ALCO) is considered responsible for managing the market risk at the strategic level under the tasks and responsibilities delegated to it. The limitations of the portfolios Bank Albilad products and risk types are specified based on the size of the liquidity in the market, the credit risks associated with it, the implemented analysis and the extent of using the limitations. 43
23. Board of Directors Report The Market Risk Management is classified as an independent regulatory management responsible for implementing the market risk policies effectively , and it is also responsible for the development of the methods and methodologies of the Market Risk Management in the Bank, the measurement mechanisms and the behavioral assumptions for liquidity and investment, in addition to the immediate reporting of any violations of the established limits to the Senior Management, in accordance with the strict mechanisms and procedures approved and certified by the Board of Directors, along with the regular reporting of the exposure to market risks and the violations of the limitations to the Asset and Liabilities Committee and the Board of Directors. The Bank works on diversifying the financing sources in order to reduce exposure to liquidity risks; which results in reducing the degree of concentration and maintaining an acceptable level of assets for liquidation; in addition to developing a number of policies and standards for Liquidity Risk Management, as well as providing an emergency plan in line with the best practices issued by the Basel Committee regarding Liquidity Risk Management. The policies and procedures regarding Liquidity Risk Management are reviewed periodically and subjected to the approval of the Assets and Liabilities Committee and the Board of Directors. Furthermore, there are additional control factors that often work on maintaining the level of market risk exposure within acceptable readiness levels in the event of adverse events (such as stress tests and procedures for approving new products); as the periodic receipt of the stress tests results determines the impact of the changes in the profit rates, the foreign currency exchange rates and other risk factors on the Bank’s profitability, capital adequacy, and liquidity. The results of the stress tests are sent periodically to the Executive Management and the Board of Directors to evaluate the potential financial impact in the event of extraordinary events. During 2017, the Risk Management Group has worked on developing technological systems that help in liquidity risks measurement process, assets and liabilities management, related studies, reports preparation and stress tests. This was worked on as part of the system related to the various types of financial risks measurement systems that need to be developed. D) Operational Risk: Operational risk are known as the risk of loss resulting from inadequate or failed internal operations, individuals, technical systems or external events, and the definition includes the legal risk and excludes the strategic risk and the reputational risk. Operational risks are collateral risks inherent in all the Bank’s products activities, operations, and IT systems, which are caused by internal factors, unlike the credit risks and the market risks that arise from external factors. Taking into account the above, Bank Albilad has adopted a strategy that relies on the active participation of the Senior Management in managing this type of risk; because of its impact on the various activities of the Bank; as the Bank is constantly trying to work on reducing the effects of the operational risk to achieve the Bank’s strategic objectives through the following: 44 • Analyze and assess the objectives and sub-activities and work on reducing the exposure to operational risk. • Identify the operational risks in the current and new products, activities, operations and IT systems through the use of the following operational risk management tools: Calculation of the operating losses in order to identify the regulatory gaps that led to these losses and working on developing the corrective actions to reduce their recurrence in the future; the assessment of the collateral risks inherent in the various activities of the Bank and the applicable regulatory elements to address the risks, and the collection of key risk indicators in order to monitor and control the level of exposure to the operational risk as an initial warning before the risk occurs. Bank AlBilad • A proactive initiative from the Bank’s Management to address the operational risks. • An independent and continuous assessment of the regulatory elements, policies, procedures and performance of the Bank’s activities. • Ensure compliance with the regulators’ instructions and the international standards in the Operational Risk Management. • Providing the Executive Management and the Board of Directors with periodic reports on the results of the risk assessment and the operational losses suffered by the Bank and its corrective actions. E) Fraud Risks: Fraud risk is known to be one of the operation risks that institutions including Banking institutions are exposed to. As the Bank pursues to apply the best practices and requirements of the regulatory and supervisory entities to limit these risks, the anti-fraud management was restructured and included within the risks management group. This link will surely increase the effectiveness of monitoring and analysis process. The Bank has continued in 2017 the development process of policies and work procedures related to antifraud management, in accordance with the strategy of the Bank to limit the risks within acceptable margins and it also started to develop monitoring tools that will facilitate the work and increase its effectiveness. Compliance with Regulations and Laws: Bank AlBilad is committed to abide by legal, ethical and professional laws and regulations as a fundamental pillar of its orientation, policies, plans, strategic decisions and main objectives. The Bank is committed to all relevant laws, regulations and controls, and all issued by the regulatory and supervisory authorities such as the Saudi Arabian Monetary Authority (SAMA), the Capital Market Authority (CMA) and the Ministry of Commerce and Investment and others, including the relevant approved international standards. The Bank’s Commitment and Anti-Financial Crimes Sector is keen on developing its instruments and refining its capabilities in order to achieve the desired objectives and implement the adopted strategy which contributes to the elimination of all illegal transactions and to ensure the Bank’s compliance with all relevant regulations, instructions and requirements of the Saudi Arabian Monetary Authority (SAMA), in particular, to improve the efficiency of Anti-Money Laundering (AML) and Combating the Financing of Terrorism (CFT) laws and to participate in the training and sensitization of the Bank’s staff in the field of AML/CFT. Internal Audit: Internal Audit is an independent and objective function reporting directly to the Audit Committee that is formed by the General Assembly of the Bank. It aims to provide reasonable assurance to the Audit Committee and the Bank’s Senior Management on the adequacy and effectiveness of the Internal Audit System by applying a systematic approach to evaluating and improving the effectiveness of governance, risk and control management. The internal audit sector follows the risk-based audit methodology in the planning and implementation of audit work. It also follows up on correcting the observations contained in the audit reports to ensure that they are implemented according to the schedule and procedures established to ensure the integrity of the internal controls. The internal audit sector relies on the continuous development of its staff to upgrade their capabilities. The sector shall also ensure that the internal audit standards are applied through the quality assurance program covering all internal audit activities. 45
24. Board of Directors Report The internal audit sector ’s framework includes all the activities and sectors of the Bank. In 2017, the sector implemented internal audit works as per the approved plan from the audit committee that is based on an integrated study and comprehensive risks assessment for the units subjected to the audit across the Bank. Additionally, the internal audit sector has implemented many other tasks assigned to it by the managements of the Bank or the Monetary Authority. Internal Audit System: The Bank’s Executive Management is responsible for establishing an appropriate and effective Internal Audit System, including policies, procedures and processes prepared under the supervision of the Board of Directors to achieve the Bank’s strategic objectives. Accordingly, an integrated system of internal control has been established as recommended by the regulatory and supervisory authorities. It begins with the general framework of governance in the Bank, which defines the roles and responsibilities assigned to the Board of Directors and its committees, as well as the executive management committees so as to ensure appropriate control at the Bank level. All groups, departments and managements of the Bank are making concerted and integrated efforts to improve the control environment through continuous development and review of policies and procedures to reduce any abuses and to prevent and correct any deficiencies in the Internal Audit System. In addition to control work made by the risk and compliance sector, internal audit is a separate line of defense about executive management, and involves the evaluation of the effectiveness of the Internal Audit System, including adherence to policies and procedures. Audit shall be reported including weaknesses points in the Internal Audit System as well as corrective procedures are submitted to the Audit Committee and to the Senior Executive Management. The Audit Committee monitors the adequacy and effectiveness of the Internal Audit System to reduce risks and protect the interests of the Bank. Based on the ongoing internal audit assessment results during 2017, the Bank Management believes that the current internal audit system is sufficient, functioning effectively and is regularly monitored. Nevertheless, the Management continuously seeks to strengthen the Internal Audit System. The Board of Directors believes that the Internal Audit System is adequately designed and implemented effectively and that there are no control gaps or material weaknesses in the Bank’s business for 2017. This is based on reasonable assurance by the Board of the design integrity and effectiveness of the Internal Audit System application, knowing that any Internal Audit System, no matter how well designed and effective, cannot provide absolute assurance in this regard. Bank AlBilad reached 3,159 training opportunities. Furthermore, human resources sector complies with high professional and ethical standards by its competent management. End-of-Service Gratuity: The gratuities accrued to the Bank employees are calculated at the end of their service, according to the Saudi Labor Law, and they are included in the other liabilities section in the Consolidated Statement of Financial Position. Employee Share Program The Bank provides its qualified employees with incentive programs that are paid based on the shares as per a program approved by the Saudi Arabian Monetary Authority (SAMA). Under the terms of this program, the Bank grants shares to qualified employees, and they will be kept as part of their annual remunerations. The cost of these programs is measured based on the fair value at the shares’ grant date, and the cost of the programs is recognized throughout the period during which the service requirement is fulfilled, which ends with the date on which the concerned employees are entitled to the granting of the shares (maturity date). The cumulative expenses, which are calculated under these programs from the preparation date of all the financial statements until the maturity date, show the extent of the maturity date, and the best Bank estimates for the number of shares that will be granted at the end. The amount charged or restricted on the consolidated income statement for a year represents the movement in the cumulative expense registered at the beginning and end of that year. After obtaining the approval of the Saudi Arabian Monetary Authority (SAMA), the Bank entered into an agreement with a neutral third party to retain the shares involved in the program, in addition to the benefits accrued from these shares. The important benefits of the program are as follows: At the end of 2017, the number of Bank employees has reached 3,394 employees compared to 3,341 employees by the end of 2016, the Saudization percentage was 87% of the total personnel at the end of 2017. As the Bank believes in the importance of the human capital, the human resources sector has recruited and developed qualified employees. Hence, the Bank prepared and implemented specialized training courses for new employees including graduates of universities and management institutes, and it has also prepared development courses for all employees; as the number of training opportunities for the Bank employees has 46 We have renovated a branch equipping it with the full capabilities necessary to serve the people with special needs, which enables the people with movement, hearing and visual disabilities of performing all of their banking operations quite easily. Comprehensive Access Branch Comprehensive Access Branch Human Resources and Saudization: 47
25. Board of Directors Report Bank AlBilad Details 2017 Maturity Date 25 % 1 January 2018 25% 1 January 2019 50% 1 January 2020 Number of Shares Granted on the Grant Date Grant Date 14 May 2017 The Shariah Board consists of six members from scholars and specialists proficient in the jurisprudence of financial transactions and the economy, namely: 1 His Excellency Sheikh Abdullah Bin Suleiman Al Manea 2 His Excellency Sheikh Prof. Dr. Abdullah Bin Mohamed Al Mutlaq (Deputy) 733,620 3 His Eminence Sheikh Prof. Dr. Abdullah Ibn Musa Al-Amar (Member) Share price on the Grant Date (Saudi Riyals) 18.12 The Value of the Shares Granted on the Grant Date (in Thousands of Saudi Riyals) 4 His Eminence Sheikh Dr. Muhammad Ibn Saud Al-Osaimi (Member) 13,293 5 His Eminence Sheikh Prof. Dr. Abdul Aziz bin Fauzan Al-Fawzan (Member) Maturity Period 3 years 6 His Eminence Sheikh Prof. Dr. Yusuf Al-Shubaili (Member) Grant Condition Completion of Service Period Payment Method Shares The following is a statement of the movement in the number of shares 2017 for the Employees Share Program during the year: At the beginning of the year 822,646 Shares Granted during the year 733,620 Waivered ( 204,445 ) Disbursed ( 399,887 ) At the end of the year 951,934 These shares were granted with an essential condition; which is the completion of the service period and it is not linked to the market conditions. Shariah Division: Out of Bank Albilad’s policy, in which it stipulated the Bank’s commitment to the Islamic Sharia provisions, and to achieve this purpose, the General Assembly of the Bank has selected the members of the Shariah Board and agreed to its regulations, which states its independence from the Bank, and the most notable highlights in this regulation are as follow: 1. The Bank does not apply any product, contract or agreement without the consent of the Shariah Board. 2. The Shariah Board’s decisions are binding on the Bank with all its managements and subsidiaries. 3. The Shariah Board and the Shariah Sector participate in the product development process, in accordance with the Sharia provisions. 4. The Shariah Board and the Shariah division contribute in spreading awareness of Islamic Banking. (Board’s Chairman) A preparatory committee emerges from the Shariah Board consisting of Some of the virtuous members of the Shariah Division, and the Preparatory Committee exercises the powers provided thereto by the Shariah Board, and has several tasks, most notably: Studying the subjects received from the Bank in order to be submitted to the Shariah Board to reach a decision; studying the Shariah inquiries related to the financial and Banking matters received from the Bank’s employees and customers and providing guidance in this regard; and studying the initial ideas for products and providing guidance in this regard. In 2017, five (5) Shariah Board meetings, and eighteen (18) Preparatory Committee meetings were held. The Shariah division of the Bank works through the Shariah Studies and Research Managemen and Shariah Supervisory Management and support unit; as the Shariah Studies and Research Management prepares the subjects received by the Shariah Board, and prepares the necessary studies and research, in addition to participating in the development of Islamic Banking products and their clearances and spreading awareness of Islamic Banking. Whereas the Shariah Supervisory Management works on verifying the Bank’s commitment to the decisions of the Shariah Board by implementing supervisory field visits to audit all the Bank’s business on a regular basis to make sure of the Bank’s commitment to the Shariah Board’s decisions and controls. The support unit works on arranging and coordinating the meetings of the Shariah Board and serving its results, in addition to, monitoring, executing projects and business that contribute in spreading the awareness of Islamic Banking inside and outside the Bank, like printing scientific research project that the Shariah Sector has contributed since its establishment in printing research that aim at spreading the Shariah knowledge in connection with jurisprudence of financial transactions and Islamic economy. In 2017, the Sector has issued three scientific research which are: • Cooperative Banks book, applicable jurisprudence study. • Cost of loan book, applicable jurisprudence study. • Usury rules book, a critical study on the most important rules for usury prohibition. The awareness training project about Islamic Banking that is provided to the employees of the Bank and knowledge sharing project that aim at linking the theoretical part to the practical part in financial transactions and understanding the Shariah forms, Islamic Banking products to teachers and students of the universities during their visit to the Shariah Sector. 48 49
26. Board of Directors Report Bank AlBilad Governance : The Bank’s Board of Directors is committed to provide a growing shareholder value over the long term, and it appreciates the role of an effective governance system in achieving sustainable growth, and that is achieved through the formulation of strategic objectives and translating them into appropriate work programs, and working on their achievement with a commitment to the transparency, disclosure and fairness standards. Based on the requirements and decisions of the regulatory authorities represented in the Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority (CMA), and others and given the awareness and belief of the Bank’s Board of Directors and its Executive Management in the importance of governance, the Board of Directors has adopted the Bank’s corporate governance documents, including the Corporate Governance Manual, its annexes and a group of related policies and documents; in full conformity with the Companies Law, Governance Regulation and Principles and all Regulations issued by the relevant Regulatory and Supervisory Authorities as well as the Bank’s Articles of Association. Governance – as a concept in Bank Albilad- is a system of rules used in directing and guiding the Bank, including mechanisms to regulate the relationship between the Board of Directors, the Executive Management, shareholders and other stakeholders, where special regulations and procedures are applied to facilitate decision making and transparency in order to protect the rights of shareholders and stakeholders and achieve justice and transparency in the financial and business environment. The Bank’s corporate governance is based on fair treatment on the basis of equality between the interests of the various concerned parties, including shareholders, management, customers, suppliers or government agencies (including Regulatory and Supervisory Authorities), and all community sectors. The Board of Directors and the Executive Management stresses the need to adhere to the governance controls as an effective method to develop the concepts of effective transparency, integrity and control, and achieving high professional performance, thus enhancing the confidence of the above mentioned stakeholders locally. This report demonstrates the extent to which the Bank complies with the terms and conditions of corporate governance. 50 The Board of Directors consists of eleven members, elected at the Extraordinary General Assembly meeting held on 04/07/1437AH, corresponding to 11/04/2016, for a period of three years commencing from 17/04/2016 and ending on 16/04/2019. Names and titles of the Board Members: SN. Name Membership Nature Member Classification 1 Dr. Abdul Rahman bin Ibrahim Hamid Chairman Non-Executive 2 Mr. Nasser Bin Mohammed Al-Subaie Deputy-Chairman Non-Executive 3 Mr. Saud bin Mohammed al-Fayez Member Independent 4 Mr. Abdul Rahman bin Mohammed Ramzi Addas Member Independent 5 Mr. Fahad bin Abdullah bin Dakhil Member Non-Executive 6 Mr. Khaled bin Abdulaziz Al-Mukairin Member Non-Executive 7 Mr. Ahmed Bin Abdul-Rahman Al- Hosan Member Independent 8 Eng. Omar bin Saleh Babiker Member Independent 9 Mr. Khalid bin Suleiman Al - Jasser Member Non-Executive 10 Mr. Fahd bin Abdullah al-Qasim Member Non-Executive 11 Mr. Khalid bin Abdul Rahman Al Rajhi Member Non-Executive Providing an ambulance to the Ta’akhi Association for the Care of the elderly. Supporting the Elderly Supporting the Elderly One of the most prominent achievements in this regard during the year 2017, the Corporate Governance Manual and its annexes were updated and approved, including general rules for the Board of Directors and Executive Management and their committees and introducing many policies and documents that are approved by the Board of Directors or the General Assembly according to what is required by the laws and regulations of approval and to be consistent specifically with the Updated Corporate Governance Regulations issued by the Capital Market Authority on 13.02.2017. In addition to the controls and regulatory procedures issued for implementing the Companies Law in connection with joint stock companies enlisted that is issued on 17.10.2016 and updated on 23.03.2017 and the main principles of Bank governance –first update on March 2014- issued by Saudi Arabian Monetary Authority , and in accordance with Companies Law and its regulation and others relevant regulations. The Board and its committees follow up with the Executive Management to ensure its commitment in the application of all that is stipulated by these regulations and policies permanently and effectively. Board of Directors: 51
27. Board of Directors Report Bank AlBilad Major Stakeholders : Attendance Record of Board of Directors for the Eights Extraordinary General Assembly Meeting: The Bank’s major stakeholders are the ones who own more than 5% of the shares as the case at the end of trading on (31.12.2017), as follows: SN. Shareholder Name Albilad Ramadan Basket Name Attendance Record 08 May 2017 Percentage (%) 1 Dr. Abdul Rahman bin Ibrahim Hamid √ 1 Mohammed Ibrahim Al-Subaie & Sons Company 19.10 2 Mr. Nasser Bin Mohammed Al-Subaie √ 2 Abdullah Ibrahim Al-Subaie Investment Company 11.14 3 Mr. Saud bin Mohammed al-Fayez √ 3 Khaled Abdurahman Saleh Al-Rajhi 10.55 4 Mr. Abdul Rahman bin Mohammed Ramzi Addas √ 4 Abdulrahman Abdulaziz Saleh Al-Rajhi 6.58 5 Mr. Fahad bin Abdullah bin Dakhil 5 Mohammed Saleh Hamza Sirf 5.09 6 Mr. Khaled bin Abdulaziz Al-Mukairin √ 7 Mr. Ahmed Bin Abdul-Rahman Al- Hosan √ The Bank adopted the aforementioned data based on the Bank records of EDAA Center Company by the end of trading on 31.12.2016. 8 Eng. Omar bin Saleh Babiker √ 9 Mr. Khalid bin Suleiman Al - Jasser General Assemblies held during the year 2017 10 Mr. Fahd bin Abdullah al-Qasim √ 11 Mr. Khalid bin Abdul Rahman Al Rajhi √ Bank Albilad held one assembly meeting for its shareholders during the fiscal year 2017, which is the eights extraordinary general assembly held on 12 Sha’ban 1438 AH corresponding to 08 May 2017. 52 SN. Albilad Ramadan Basket Didn't Attend Didn't Attend Board Meetings Attendance Record: Distributing food baskets to families in need during the holy month of Ramadan. 53
28. Board of Directors Report Bank AlBilad The Board of Directors has held (6) meetings during 2017 to enhance its role. The dates of the meetings and the attendance records are as follows: Attendance Record SN. Name (65) (66) (67) (68) (69) (70) 13.03.2017 24.04.2017 12.06.2017 18.09.2017 25.09.2017 18.12.2017 1 Dr. Abdul Rahman bin Ibrahim Hamid √ √ √ √ √ √ 2 Mr. Nasser Bin Mohammed Al-Subaie √ √ √ √ √ √ 3 Mr. Saud bin Mohammed al-Fayez √ √ √ √ √ √ 4 Mr. Abdul Rahman bin Mohammed Ramzi Addas √ × √ √ √ √ 5 Mr. Fahad bin Abdullah bin Dakhil √ √ √ √ √ √ 6 Mr. Khaled bin Abdulaziz Al-Mukairin √ √ √ √ √ √ 7 Mr. Ahmed Bin AbdulRahman Al- Hosan √ √ √ √ √ √ 8 Eng. Omar bin Saleh Babiker √ × √ √ √ √ 9 Mr. Khalid bin Suleiman Al - Jasser √ √ √ √ √ √ 10 Mr. Fahd bin Abdullah al-Qasim √ × √ √ √ √ 11 Mr. Khalid bin Abdul Rahman Al Rajhi √ × √ √ √ √ Date of General Assembly Last Meeting Attendee 54 08.05.2017 √ Names Absentee of the Companies inside or outside the Kingdom, in which the × Board Member is/was currently/ previously a member in their Board of Directors or one of their Managers. Member Name Currently a member of the Board of Directors of Companies or one of their managers Inside the Kingdom/ Outside the Kingdom Legal Entity Previously a member of the Board of Directors of Companies or one of their managers Dr. Abdul Rahman bin Ibrahim Hamid 1- Board member of Saudi Vitrified Clay Pipe Company (SVCP) Listed Joint Stock Company Listed Joint Stock Company None 2- Board Member of Mohammed Abdulaziz Al Rajhi & Sons Company - Al Rajhi Holding Closed Joint Stock Company 3- Board Member of Mohammad Ibrahim Al-Subaie & Sons Investment Company (MASIC) Closed Joint Stock Company 4- Board Member of Obeikan Investment Group Company Closed Joint Stock Company 5- Board Member of Saudi Agricultural and Livestock Investment Company (SALIC) Stateowned Joint Stock Company 1- Vice-Chairman of Dur Hospitality Company Inside the Kingdom Nasser Bin Mohammed Al-Subaie Inside the Kingdom/ Outside the Kingdom Legal Entity Listed Joint Stock Company 2- Vice-Chairman of Mohammad Ibrahim Al-Subaie & Sons Investment Company (MASIC) Closed Joint Stock Company 3- Chairman of Al-Argan Projects Company Closed Joint Stock Company 4- Board Member of Akwan Real Estate Company Closed Joint Stock Company 5- Chairman of Zakher Company Closed Joint Stock Company 6- Board Member of Fajr Capital Limited Liability Company 55
29. Board of Directors Report Saud bin Mohammed al-Fayez Bank AlBilad None 1- Board Member of National Manufacturing Company Inside the Kingdom 2- Board Member of Saudi Travellers Cheque Company 3- Board Member of Saudi Spanish Bank Abdul Rahman bin Mohammed Ramzi Addas 1- Chairman of Diyar Al Khayyal Real Estate Development Company Inside the Kingdom 2- Board Member of ARCOMA Company 3- Chairman and Risk Committee Member- Tunisian Saudi Bank Fahd bin Abdullah bin Dakhil 56 1-Chairman of Albilad Capital Company Closed Joint Stock Company Limited Liability Company Inside the Kingdom Inside the Kingdom A company owned by the Saudi Ministry of Finance and Tunisian Ministry of Finance Closed Joint Stock Company 2- Chairman of - National Petroleum Services Company Limited Liability Company 3- Chairman of Al Hekma Company for Commercial and Industrial Investment Limited Liability Company 4- Chairman of Al Wafaa Industries Company Limited Liability Company 5- Board Member of Family Investment Company Limited Liability Company 1- Board Member , Review Committee Member and Nomination and Remuneration Committee Member of Al Sorayai Trading And Industrial Group Listed Joint Stock Company Listed Joint Stock Company Joint Stock Unlisted Company Outside the Kindom Inside the Kingdom Joint Bank Join Stock Listed Company 2- Board Member of Red Sea Markets Limited Company Limited Liability Company 3- Board Member, Review Committee Member and Nomination Committee Member of AbdulAziz Alsaghyir Group A Financial Company authorized by the CMA as a private company 4- Board Member, Review Committee Member and Risk and Commitment Member of Quantum Investment Bank Outside the Kingdom 1- National Petroleum Services Company- Dubai Outside the Kingdom A Financial Company authorized by the CMA, Dubai Khaled bin Abdulaziz Al-Mukairin 1- Chairman of AlMaktaba Company for Marketing Closed Joint Stock Company 1- Albilad Capital Company 2- Chairman of Family Investment Company Limited Liability Company 2- Chamber of Commerce and Industry 3- Chairman of Khaled AlMukairin & Sons Holding Limited Liability Company Ahmed Bin Abdul-Rahman Al- Hosan None Omar bin Saleh Babiker 1- Board Member of Al Ahlia Cooperative Insurance Company Khalid bin Sulaiman Al-Jasser Inside the Kingdom Inside the Kingdom Closed Joint Stock Company Governmental Entity None Inside the Kingdom Listed Joint Stock Company 1- Ishraq Real Estate Company Outside the Kingdom Listed Joint Stock Company Closed Joint Stock Company 1- Al Qussaim Cement Company Inside the Kingdom Listed Joint Stock Company 2- Board Member of United Cooperative Insurance Company Listed Joint Stock Company 2- Travellers Cheque Company 3- Chief Executive Officer of Al Arabia Centers Limited Liability Company 4- Board Member of Middle Outside the East Shopping Center Kingdom Limited Liability Company 2- Chairman of Saleh Babiker Sons for Trading Limited Liability Company 3- Chairman of Babiker for Catering Limited Liability Company 4- Chairman of Al Haikaliyah Contracting Company Limited Liability Company 5- Bina Ready Mix Company Limited Liability Company 6- Board Member of East Asia Agricultural Investment Company Closed Joint Stock Company 1- Board Member of Albilad Capital Company Inside the Kingdom Limited Liability Company Limited Liability Company 57
30. Board of Directors Report Fahd bin Abdullah Al Qasim 1- Board Member of Savola Group Listed Joint Stock Company 1- Abdullatif Alissa Holding Group 2- Board Member of Jarir Marketing Company Listed Joint Stock Company 2- National Public Company for Cars 3- Board Member of Al Dur Hospitality Company Listed Joint Stock Company 4- Board Member of Dallah Health Company Listed Joint Stock Company 5- Chairman of Fahad bin Abdullah Al Kassem and Sons for Trading and Investment Company Closed Joint Stock Company 6- Board Member (representative of Dor Company) in the Saudi Heritage Hospitality Company Closed Joint Stock Company 7- Board Member of Dr Mohamed Rashid Al Fagih and his Partners Company Closed Joint Stock Company 8- Board Member of Rakeen Najd International Company Closed Joint Stock Company 9- Board Member (representative of Saudi Post) in Naqel Company Closed Joint Stock Company 10- Board Member and Partner in Amwal Financial Consultants Limited Limited Liability Company 11- Board Member and Partner in Arez for Commercial Investment Limited Company Limited Liability Company 12- Board Member of Raj Real Estate Company Limited Liability Company 13- Board Member of Al Rajhi Alpha Investment Holding Limited Liability Company 14- Board Member of Rakeen Najd International Company Limited Liability Company 15- Board Member of Saudi Post Public Corporation Governmental Entity 16- Partner in Bwabt Al Lulu Limited Liability Company 17- Partner in Facilities Company Limited Liability Company 18- Partner in Fincorp Company 58 Bank AlBilad Inside the Kingdom Outside the Kingdom Inside the Kingdom Unlisted Joint Stock Company Limited Liability Company Khalid Bin Abdulrahman Al-Rajhi 1- Chairman and Head of Executive Committee of Saudi Cement Company Inside the Kingdom Listed Joint Stock Company 1- Dana Gas Company Listed Joint Stock Company 2- Board Member, Head of Investment Company and Member in Risk Committee of Saudi United Cooperative Insurance Company (Wala'a) Listed Joint Stock Company 2- Naas Company Outside the Kingdom Listed Joint Stock Company 3- Chairman of Nominations and Remuneration Committee in Takween Advanced Industries Company Listed Joint Stock Company 3- Saudi Telecom Company Inside the Kingdom Listed Joint Stock Company 4- Board Member of Tanami Arabian Company Closed Joint Stock Company 4- National Shipping Company of Saudi Arabia 5- Board Member of Albilad Capital Company Closed Joint Stock Company 6- Chief Executive Officer of Abdulrahman Al-Rajhi and Partners Limited Company Limited Liability Company Listed Joint Stock Company Limited Liability Company 59
31. Board of Directors Report Bank AlBilad Current and previous positions of the board members and their qualifications and expertise : Name Current Position Previous Position Qualifications Expertise Abdul Rahman bin Ibrahim Hamid • Retired from King Saud University • Businessman and board member in many joint stock companies • Member in many review committee for Saudi joint stock companies. • Member of Board Trustee in the International Financial Accounting Standards Board for the Middle East and North Africa. • Member of Board Trustee in Prince Sultan University since its establishment until now. • Member in many local, regional and international professional associations. • Accounting and auditing professor in King Saud University. • Head of Accounting Section at King Saud University • PhD in financial accounting and auditing from Louisiana State Governmental University - 1981 • Consultancy ManagerAl Rashid Certified Accountants and Auditors 1986. • Board Member of the Saudi Organization for Certified Public Accountants (two rounds). • Head of Examination Committee-Saudi Organization for Certified Public Accountant. • Head of Accounting Standards CommitteeSaudi Organization for Certified Public Accountant for 10 years. • Head of Examination Committee- Gulf Cooperation Council Accounting and Auditing Organization. • Head of Securities Committee – Riyadh Chamber of Commerce and Industry for 5 years. • Member in First Instance and Zakat Committees for 10 years. • Councilman for Al Madina Al Munawara for the First Round. Nasser Bin Mohammed Al-Subaie 60 • Vice-Chairman of Mohammad Ibrahim Al-Subaie & Sons Investment Company (MASIC • Businessman and board member in many joint stock companies. None • BSc in Administrative sciences (accounting section)- King Saud University 1399 AH. • Long experience in financial and banking field. • Long experience in real estate and investment fields Saud bin Mohammed al-Fayez • Retired • Chief Executive Officer of the Arabian Company for Pipes 1996-2014. • General Manager Assistant for Credit Control Affairs in Riyadh Bank 1984- 1994. • Project manager at Saudi Industrial Development Fund 1977-1984. • BSc in business administration 1977- Jordanian University –Amman. • City Bank Credit Program- Athena, Greece 1983. • Chase Bank Credit Program- New York, USA- 1979. • Arther Anderson and Partners for Accounting and Auditing- Chicago, USA- - 1979. • Multiple courses and short programs in management and leaderships from Europe and USA. • Long experience in financial and banking fields and risk management. Abdul Rahman bin Mohammed Ramzi Addas • Financial consultant authorized by the Ministry of Trade for financial consultancy of non-securities from March 2010 until now. • Managing Director for Real Estate Investment at SEDCO Company from July 2007 to January 2010. • He occupied many managerial positions. Last position was the head of corporate sector in Al Ahli Commercial Bank from March 1980 to April 2007. • Master degree in business administration, specialty: financial management from University of Denver at Colorado State in the USA- 1986. • BSc in business administration from King Abdul-Aziz University in Jeddah with First Class Honors Degree in 1979. • Banking experience including all financing ,investment and risk management bank sectors, in addition to, work experience in investment management in general and real estate investment in particular. Fahad bin Abdullah bin Dakhil •Businessman • Chairman of Albilad Capital Company. • Vice-Chairman of Riyadh Chamber of Commerce and Industry. • Postgraduate diploma in monetary and business. • BSc in Economy from King Saud University. • Executive PartnerAl-Mukairin for exchange and investment from 1983 to 2005. • Chairman of Khaled AlMukairin & Sons Holding. • Chairman of AlMaktaba Company for Marketing. • Chairman of Family Investment Company. Ahmed Bin Abdul-Rahman Al- Hosan • Head of Al Thurya Centre for financial consultancy. • General Manager Deputy for financial issues in Al Rajhi Banking and Investment Company. • Regional Director of the central region for Al Rajhi Banking and Investment Company. • Financial Controller at the Ministry of Finance. • BSc in business administration. • Diploma in financial control from management institute. • Postgraduate diploma in financial management. • Diploma in bank creditThe Arab Academy for Financial and Banking Sciences. • Attended many specialized courses and conferences inside and outside the Kingdom. • Permanent member in the higher committee for granting international credit facilities. • Member in the higher management committee. • Long experience in banking and financial fields. 61
32. Board of Directors Report Omar bin Saleh Babiker • Executive manager of Saleh Abdul-Aziz Babiker Sons Company (1989-2002). • Manager of the High Commission Project for the development of Riyadh City (1983- 1989). • BSc in civil engineeringKing Saud University (1984). • Long experience in trading and contracting. Khalid bin Suleiman Al Jasser • Chief Executive Officer of of Al Arabia Centers • Chief Executive Officer of Bank Albilad. • Executive vice-president of the human resources department in Riyad Bank. • Regional manager of the eastern region of Riyad Bank. • Manager of group of branches at Riyad Bank. • BSc in business administration. • Long experience in banking and financial fields. Fahd bin Abdullah al-Qasim • Chairman of Amwal Financial Consultants. • Consultant of the Board of Directors (Al Rajhi United Investment Holding) • Chief Executive Officer for Amwal Financial Consultancy (20012011). • General Director- Othaim Commercial Group (2000-2001). • Partner- ManagerKPMG International Company (1995- 1999). • Executive Manager – Dallah Hospital (19911995). • Partner- Al Qassem Office for Certified Chartered Accountants (1990-1991). • BSc in administrative sciences (accounting)King Saud University. • Advanced management and leadership program- Oxford University. • Financial, administrative and auditing consultancy (20 years). • Executive managementHealth Care facility (5 years). • Executive managementwholesale and retail trading (one year). • Board Member in Dana Gas (United Arab Emirates). • Board Member – Saudi Telecom Company. • Board Member of Executive Management and Committee - National Shipping Company of Saudi Arabia. • Board Member of Naas Company (Bahrain). • BSc in financial management- King Fahd University of Petroleum and Minerals. Khalid Bin Abdulrahman Al-Rajhi 62 • Chairman of Babiker Group Bank AlBilad • Chairman of the Board and the Executive Committee of Saudi Cement Company. • Board Member, Head of Investment Company and Member in Risk Committee of Saudi United Cooperative Insurance Company (Wala’a). • Board Member and head of Remuneration Committee in Takween Advanced Industries Company. • Chief Executive Officer of Abdulrahman Al-Rajhi and Partners Limited Company. • Financial Management. • Cash transfer and transactions. • Investments. 3. Current and Previous Positions of the Committee Members related to Board of Directors (Members outside the Board) as well as their qualifications and expertise: Name Current Position Previous Position Qualifications Expertise Ahmed Abdullah AlMoghames Audit Committee Member • The General Secretary of the Saudi Organization for Certified Public Accountants • Assistant Professor at King Saud University. • PhD in Business Administration (Accounting Section) • Member in Board of Trustee at the Accounting and Auditing Organization for Islamic Financial Institutions. • Vice-President of the Development Committee for Accounting Female Authorities under International Union for Accountants. • Core Member of Saudi Organization for Certified Public Accountants. • Head of Management Committee in Saudi Accounting Association. • Member in the Permanent Committee for Capital Investment Phenomenon. • Member in Postgraduate Studies Committee at King Saud University. • Member in National Commission for Academic Accreditation and Assessment, Ministry of Higher Education. • Member in Audit Committee at Saudi Cement Company and Saudi Telecom Company. • Board Member and Head of Audit Committee at the National Shipping Company of Saudi Arabia Suliman bin Nasser Al Hatlan Audit Committee Member • Chief Executive Officer of Bayt National Consultancy Company. • Member in Training Authority at the General Management Institute. • Master Degree in Professional Accounting. • Accounting, internal audit, financial reports, merging, acquisition, administrative management and companies assessment. Adib bin Mohammed Abanme Commitment and Governance Committee • Chartered accountant- Abanme Chartered Accountants and Auditors. • Second Consultant- Capital Market Authority. • Lecturer- Imam Muhammad ibn Saud Islamic University -Financial AnalystSaudi Development Fund. • Master degree in accounting. • BSc in accounting. • 26 years experience in accounting and audtiting. Abdel Fattah bin Ibrahim Al-Tawil Commitment and Governance Committee • Executive manager of IT Consultancy Company. • Head of governance, risk and commitment sector in Alkhubair Finance. • Master degree in business administration from Texas University, USA. • 30 years experience in banking services and held many positionsHead of governance, risk and commitment sector and executive manager for credit department in Al Ahli Commercial Bank and Commercial Bank of Qatar. 63
33. Board of Directors Report Khaled Bin Saleh Al-Hathal Nomination and Remuneration Committee Member • Chief Executive Officer of Mozn Investment Company. Bank AlBilad • Chief Executive Officer of Al Faisalia Group for Common Services. • Vice-president of Hael Economic City. • Master degree in business administration. Bashar bin Zakaria alMishal Nomination and Remuneration Committee Member • Administrative consultant- Recruitment and assessment of executive managers and board members. • Administrative consultant. • Technical Projects Manager. • Computer and Electronics Engineer. Mohammed bin Sulaiman Al Hajelan Risk Committee Member • Financial Consultancy. • General Manager of • BSc in economy Dubai National Bank from Emporia (Branch of Saudi University in KanArabia). sas, USA. • Cards and personal loans management director and credit director at the branches group management of Saudi Fransi Bank. • Personal loans management director, small enterprises management director at Saudi American Bank. • Credit and collect manager at credit cards management at Saudi American Bank. • BSc in Computer Engineering. • Master degree in Management Sciences. • Master degree in General Managements. • More than 23 years experience in several commercial sectors. Ministry of Housing and Public Works- General Electric CompanyAl Faisalia Group. • Executive manager of strategy for Mohammed & Abdullah Ibrahim Al-Subaie Companies and family consultant. • Vice-president of Hael Economic City. • Board Member of Nominations and Compensations at Albilad Capital. • Board Member and Head of Nominations and Compensations at Mohammad AlSubaie & Sons Investment Company (MASIC). • Board Member of: Al Maktba Marketing Company- Simplify International Company- Manazl Qortba Fund. • Chairman of Mozn Investment Company and Logistic Services Company. • Member of Nominations and Compensations Committee at Arjan Company. • 12 years experience in the field of administrative consultancy, recruitment and assessment of executive managers and board members. • 10 years experience in computer engineering. • Credit and risks for individuals and companies. • Strategic Planning. • Membership of board of directors and executive/ credit committee. Abdulaziz Mohammed Alonaizan Executive Committee Member • Chief Executive Officer of Bank Albilad from 2016. • Executive manager for Bank Albilad business 2014-2016. • General manager of treasury- Alinma Bank 2008- 2014. • Alinma Investment Company 2008-2014. • Arab National Bank 2004-2008. • Samba Financial Group 1991- 2004. • BSc in quantitative methods 1987. • Several courses and specialized training and administrative programs- 30 years experience in banking and financial institutions fields. The Balance of the Board Members Shares, their Spouses and their Minor Children: The number of the Board members’ shares, their spouses and their minor children at the beginning and at the end of the fiscal year 2017: SN. Stakeholder Name 1 Dr. Abdul Rahman bin Ibrahim Hamid 2 Mr. Nasser Bin Mohammed Al-Subaie (and those he support) * 3 Numbers of shares at the beginning of 2017 Numbers Ownership of shares percentat the end age of 2017 Ownership Net percentChange age Change percentage 1,999 0.0003 1,999 0.0003 0 0 2,064,842 0.3441 2,058,051 0.3430 -6,791 -0.3 Mr. Saud bin Mohammed al-Fayez 2,400 0.0004 2,400 0.0004 0 0 4 Mr. Abdul Rahman bin Mohammed Ramzi Addas 3,998 0.0007 3,998 0.0007 0 0 5 Mr. Fahad bin Abdullah bin Dakhil 1,500 0.0003 1,500 0.0003 0 0 6 Mr. Khaled bin Abdulaziz Al-Mukairin (and those he support) * 959,880 0.6100 588,265 0.0980 -371,615 -38.7 7 Mr. Ahmed bin Abdulrahman Al-Hosan 1,500 0.0003 1,500 0.0003 0 0 8 Eng. Omar bin Saleh Babeker 1,900,989 0.3168 1,900,989 0.3168 0 0 9 Mr. Khalid bin Suleiman Al - Jasser 659,210 0.1099 659,210 0.1099 0 0 10 Mr. Fahd bin Abdullah al-Qasim 1,440 0.0002 1,440 0.0002 0 0 11 Mr. Khalid Bin Abdulrahman Al-Rajhi 63,277,420 10.5462 63,277,420 10.5462 0 0 (*) Wife and children less than 16 years old. 64 65
34. Board of Directors Report Bank AlBilad The Balance of Senior Executives Shares , their Spouses and their Minor Children: The balance of shares of senior executives, their spouses and their minor children by at the beginning and at the end of the fiscal year 2017: SN. Name 1 Mr. Abdulaziz bin Mohammed Al-Anizan 2 Mr. Mossadak Ajaz 3 Mr. Hesham bin Ali Al Aql Numbers of shares at the beginning of 2017 Numbers Ownership of shares percentat the end age of 2017 Ownership Net percentChange age Change percentage 64,766 0.0108 64,766 0.0108 0 0 4,806 0.0008 4,806 0.0008 0 0 38 0.00001 38 0.00001 0 0 Remunerations and Compensations: Remunerations, compensations and disclosure process thereof shall be set out under the Companies Law, and as per the “Regulations and Regulatory Procedures concerning the Listed Joint Stock Companies, that were issued in implementation of the Companies Law on 17/10/2016 and as amended on 23/03/2017”, which require the disclose the remuneration policies, and the mechanisms to identify them, the rules, principles and regulations of SAMA, CMA and related approved international standards. The Bank shall also adhere to its disclosure policy under the disclosure requirements in the Board of Directors’ report. The following shows the mechanism set to determine the remunerations and allowances of the Board members and the Board committees and the details of what have been paid to the Board members, the Board’s committees and Senior Executives: Ruminations Policy for Board Members, Board’s Committees and Senior Executives: A- Ruminations Policy for Board Members, Board Committees: Remunerations standards and policies for Board Members, Board Committees are subjected to rules related to the Companies Law, its regulations such as controls, regulatory procedures issued to implement the Companies Law in connection with Listed Joint Stock Companies and the updated regulation of Companies governance; related circulations and principles of the Saudi Arabian Monetary Authority, the Bank’s Article of Associations. The most important rules and mechanisms items used to determine the remunerations of the Board Members and the Board Committees are shown as follows: General Rules of Remunerations: 1-1 The amounts of money disbursed to the board members shall not exceed (5%) five percent of net profits, under all circumstances, the total amount received by the board member in terms of remunerations, financial or in kind privileges shall not exceed (500) five hundred thousand Riyals per year, including attendance allowance that shouldn’t exceed (5000) five thousand Riyals per meeting. This shall be implemented in accordance with the control stipulated in the Companies Law, controls and regulatory 66 procedures for the Companies Law, Companies Governance Regulation, principles and instructions (circulations) of the Saudi Arabian Monetary Authority and related policies of the Bank. 1-2 The Board Member shall have the right to receive a remuneration in exchange for his memberships in the audit committee formed by the General Assembly or in exchange of any additional works, executive, technical, administrative or consultancy positions by virtue of professional license that are assigned to him by the Bank; in addition to remunerations he received in his capacity as a board member and a member in the committee formed by the Board of Directors, as per the Companies Law and the Company’s Article of Associations and this policy. 1-3 In case any committee member didn’t attend the meetings, an amount of money shall be deducted from its annual remuneration in a percentage proportional to his absenteeism, through dividing the total amount of remunerations by the total number of meetings held by the committee during the year and deducting the remuneration due to the member for the meeting or the meetings he didn’t attend. 1-4 The Board Member shall not have the right to vote on the remunerations item of Board Members in the General Assembly. 1-5 If the General Assembly decided to end the membership of the absent Board Member due to his absenteeism in three consecutive meetings of the Board without valid reason, this member shall not be entitled to any remunerations for the period preceding the last meeting he attended and he should return all the remunerations disbursed to him for this period. 1-6 The remunerations of the board members may vary in an extent that reflects the experience of the member, tasks assigned to him, his specialty, independency, number of sessions attended and other considerations. 2- Mechanisms used to determine the remunerations of Board Members and Board Committees: 2-1 Without prejudice to the above-mentioned general rules and in accordance with the Companies Law, controls and regulatory procedures for issued to implement the Companies Law related to the Listed Joint Stock Companies, the updated Companies Governance Regulation, and the related principles and circulations of the Saudi Arabian Monetary Authority, especially the ones related to the minimum and maximum that shall not exceed five hundred thousand Saudi Riyals (500,000 Riyals), the mechanisms used to determine the concerned parties of this policy such as board members and board committees shall be specified as per the policies and decisions issued by the board of directors and in accordance with specific rules applied by the audit committee, as per the Companies Laws and its regulations and related controls and regulations. 2-2 Each board member shall have the actual expenses amount incurred by the member to attend the board of directors meetings and the committee meetings, including accommodation expenses, first class air tickets, in addition to the lump-sum remuneration and attendance allowance amount as per the above-mentioned controls. 2-3 Each member of the committee board (external) who are not board members, shall have the actual expenses amount incurred by the member to attend the committee meetings, including accommodation expenses, business class air tickets, in addition to the lump-sum remuneration and attendance allowance amount as per the above-mentioned controls. 67
35. Board of Directors Report End-of-service gratuity Total (**) Expenses allowance The amounts of remunerations and incentives related to the performance shall be determined based on profit rate that is connected to the degree of risks and as per the rules and principles of the Saudi Arabian Monetary Authority in connection with remunerations, incentives and the standards of the Financial Stability Board (FSB). Total 6- Awarded shares (insert value) The remuneration must conform with the size, nature and degree of risks at the Bank. Long-term incentives plans 5- Short-term incentives plans To specify the remuneration based on the level of post, tasks, responsibilities, academic qualifications, work experiences, skills and level of performance of the office-holder. Periodical remunerations (*) 4- Profit percentage To focus on connecting the standards of giving remuneration to performance. Total 3- Remunerations the chairman of the board or the managing director or the secretary if he is one of the members. To specify the standards of giving remuneration its disclosure mechanism and make sure of its implementation. Remunerations of technical, administrative and consultancy works. 2- Variable Remunerations In-kind privileges To conform with the Bank’ strategy and objectives. Fixed Remunerations Total of attendance board sessions allowance 1- (1) Board Members’ Remunerations: Attendance board sessions allowance Without prejudice to the above-mentioned rules and general standards and in accordance with the related Laws and Regulations, the updated Companies Governance Regulation and principles and circulations of the Saudi Arabian Monetary Authority, the mechanisms of the remunerations of the employees in general and the senior executive members in particular shall be determined according to the policies and decisions issued by the Board of Directors. These mechanisms shall take into consideration the related controls and standards mentioned in the nominations and remunerations approved by the General Assembly and the rules of remunerations issued by the Saudi Arabian Monetary Authority such as: Determining what is paid to the board members and board committees in the form of remunerations, allowances and other compensations: Specific Amount B- Policies of Remunerations for Executive Management Members and its Mechanisms: Bank AlBilad Saud bin Mohammed Alfaiz 360,000 18,000 15,000 - - - 393,000 0.042 140,000 - - - 140,000 - 500,000 - Abdulrhman Bin Mohammed Ramzi Addas 360,000 15,000 24,000 - - - 399,000 0.042 140,000 - - - 140,000 - 500,000 10,000 Ahmed bin Abdulrahman Al-Hosan 360,000 18,000 21,000 - - - 399,000 0.042 140,000 - - - 140,000 - 539,000 - Omar bin Saleh Babiker 360,000 15,000 12,000 - - - 387,000 0.041 - - - - - - 387,000 - 1,440,000 66,000 72,000 - - - 1,578,000 0.168 420,000 - - - 420,000 - First: Independent Members Total 1,926,000 10,000 Second: Non-Executive Members Abdul Rahman bin Ibrahim Hamid 360,000 18,000 55,000 - - - 433,000 0.046 140,000 - - - 140,000 - 500,000 - Nasser Bin Mohammed Al-Subaie 360,000 18,000 55,000 - - - 433,000 0.046 - - - - - - 433,000 - Fahad bin Abdullah bin Dakhil 360,000 18,000 50,000 - - - 428,000 0.045 - - - - - - 428,000 - Khaled bin Abdulaziz Al-Mukairin 360,000 18,000 64,000 - - - 442,000 0.047 - - - - - - 442,000 - Khalid bin Suleiman Al-Jasser 360,000 18,000 - - - - 378,000 0.040 - - - - - - 378,000 - Fahd bin Abdullah Al-Qasim 360,000 15,000 15,000 - - - 390,000 0.041 - - - - - - 390,000 - Khalid bin Abdul Rahman Al Rajhi 360,000 15,000 50,000 - - - 425,000 0.045 - - - - - - 425,000 - 2,520,000 120,000 289,000 - - - 2,929,000 0.311 140,000 - - - 140,000 - 2,996,000 - Total Third: Executive Members There are no executive members. (*) Remunerations of head of committees; in case one member is the chairman of more than one committee, he shall receive a total amount of (140) thousand Riyals. 68 69
36. Board of Directors Report Bank AlBilad (*) Remunerations of head of committees; in case one member is the chairman of more than one committee, he shall receive a total amount of (140) thousand Riyals. (**) Maximum amounts that the member can receive in return of the board membership only or the board membership and committee membership jointly shall not exceed in all cases an amount of (500) thousand Riyals per year, except for the chairman and members of the audit committee. (2) Remunerations of the board committees members (members from outside the board) Fixed Remunerations (Except for sessions attendance allowance) Sessions Attendance Allowance Total Abdulaziz bin Mohammed Alonaizan 120,000 50,000 170,000 Total 120,000 50,000 170,000 Committee Members Executive committee members from outside the board: Audit committee members from outside the board: Ahmed Abdullah Al-Moghames 120,000 21,000 141,000 Suliman bin Nasser Al Hatlan 120,000 21,000 141,000 Hamad bin Nasser Al Kanhal (**) 51,429 9,000 60,429 Total 291,429 51,000 342,429 Nominations and remunerations committee members from outside the board: Khaled Bin Saleh Al-Hathal 120,000 12,000 132,000 Bashar ibn Zakaria al-Mishal (*) 90,000 9,000 99,000 Total 210,000 21,000 231,000 Risks committee members from outside the board: Mohammed bin Sulaiman Al Hajelan 120,000 15,000 135,000 Total 120,000 15,000 135,000 Commitment and governance committee members from outside the board: Adib bin Mohammed Abanme 120,000 12,000 132,000 Abdel Fattah bin Ibrahim Al-Tawil 120,000 12,000 132,000 Total 240,000 24,000 264,000 (**) If any committee member didn’t attend the meetings of the concerned committee, an amount of his annual remunerations shall be deducted in proportion with his absenteeism rate. - 70 The remunerations policy of the board members, board committees and senior executives has been updated and shall be effective starting from the fiscal year 2018, after being approved from the 9th Ordinary General Assembly held on 09.01.2018. Statement In thousands Saudi Riyals Seven senior executives including chief executive officer and financial manager Salaries and compensations 12,116 Allowances, periodical and annual remunerations 7,824 Total 19,940 Board Committees: The Board Committees carry out their tasks and responsibilities based on the policies, regulations and other related governance documents approved by the Board or the General Assembly, as the case may be, which determine their powers and working procedures. These committees were formed for a period of three years with the formation of the Board of Directors starting from 17.04.2016 to 16.04.2019. Accordingly, the Board of Directors set up five committees emerging from the Board, and their membership was formed by the Board members, independent and non-executive members from outside the Bank from experts and specialists, and an executive member, which are as follows: Executive Committee: The Committee’s responsibilities are represented in ensuring the effectiveness of the decision-making process at its highest levels in order to achieve the Bank’s objectives with all flexibility and according to the set schedule; in addition to assisting the Board of Directors in assuming its responsibilities and activating its role in promoting, following-up and implementing the strategy to support the effective performance, review and monitoring of the Bank’s business on a regular basis, along with making necessary recommendations. At the same time, the Committee is also responsible for discussing issues that need in-depth review and detailed study before being submitted to the Board for adjudication and issuing a final decision in this regard; in addition to any other tasks delegated or assigned by the Board. The Committee held (13) meetings during 2017. The Committee consists of 6 members, 5 of them are non-executive members and one executive, namely; In cooperation with Mawaddah Women Charity for Reduction of Divorce and its effects, we conducted several training courses in cooking, sewing and decoupage which all aim to enable divorcés to work and provide for their families. Pioneer Craftswomen Program Pioneer Craftswomen Program (*) What has been disbursed to Mr./ Hamad bin Nasser Al Kanhal, for due amounts during 01.01.2017 until his resign on 21.05.2017. Details of other remunerations, salaries, allowances and compensations paid to senior executives: 71
37. Board of Directors Report Membership Nature The Committee held (4) meetings during 2017: The current session of the committee consists of five (5) members; i.e. three members from the Board of Directors, two members from outside the Bank, namely: (125) (126) (127) (128) (129) (130) (131) (132) (133) (134) (135) (136) (137) 21.01.2017 05.03.2017 09.04.2017 24.04.2017 08.05.2017 28.05.2017 12/06.2017 27.07.2017 13.09.2017 08.10.2017 12.11.2017 11.12.2017 Number and date of the meeting 15.01.2017 Name Bank AlBilad Dr. Abdul Rahman bin Ibrahim Hamid Chairman of the committee √ √ √ √ √ √ √ √ √ √ √ √ √ Mr. Nasser Bin Mohammed Al-Subaie Member √ √ √ √ √ √ √ √ √ √ √ √ √ Mr. Fahad bin Abdullah Member bin Dakhil √ √ √ √ √ × √ √ √ √ √ √ √ Mr. Khaled bin Abdulaziz Al-Mukairin Member √ √ √ √ √ √ √ √ √ √ √ √ √ Mr. Khalid bin Abdul Rahman Al Rajhi Member √ √ √ √ × √ √ √ √ √ √ √ × Abdulaziz Mohammed Alonaizan Member √ × √ √ √ √ √ √ √ √ √ √ √ Attendee √ Absentee × Nomination and Remuneration Committee: The Committee’s responsibility is represented in annual audit of the appropriate skills required for Board membership, the committees affiliated to the board and the Shariah Division in a way that is appropriate to its nature and regulation, in addition to reviewing the structure, forming the Board of directors from time to time, making recommendations regarding the strengths and weaknesses of the Board members and giving suggestions to them. It is also responsible for submitting its recommendation to the Board of Directors in this regard, and about the candidates of the board membership, its committees and the qualifications and expertise needed for the membership. It also checks the convening of the Board’s regular meetings on a regular basis and ensures the independence of the independent members on a yearly basis, and the absence of any conflicting interests. The committee also is responsible for studying the situation, developing, updating and suggesting policies related to the remuneration and incentives paid to the members of the Board and the Executive Management, following up with the matters relating to the structure of posts and human resources, and making recommendations to the Board of Directors. 72 Number and date of the meeting Name Membership Nature (45) (46) (47) (48) 12.03.2017 11.06.2017 17.09.2017 17.12.2017 Mr. Abdul Rahman bin Mohammed Ramzi Addas Chairman of the committee √ √ √ √ Mr. Khaled bin Abdulaziz Al-Mukairin Member × √ √ √ Eng. Omar bin Saleh Babiker Member √ √ √ √ Mr. Khaled Bin Saleh Al-Hathal Member √ √ √ √ Mr. Bashar ibn Zakaria al-Mishal Member √ √ × √ Attendee √ Absentee × Risk Committee: The main purpose of the Risk Committee is to provide advice and consultation to the Board on the current and future overall plans and strategies regarding the Bank’s capacity and ability to bear risks; in addition to supervising the enforcement of the Bank’s Executive Management for such plans and strategies. In general, the Committee works on assisting the Board in overseeing all the activities and decisions related to the Risk Management at the Bank, represented in market and credit risks, the investment, financial and operational risks and the liquidity and reputational risks, business continuity and technical systems risks; in addition to any tasks or responsibilities that may be assigned to it by the Board of Directors without prejudice with the tasks and responsibilities of the other Board committees. The Committee’s responsibility is represented in overseeing the risk level at the Bank to ensure that the work is carried out within the approved risk limits and to ensure that the Bank has adequate policies and procedures adopted by the competent authority; in addition to reviewing the Bank’s internal policies related to risks and submitting them to the Board of Directors for approval; along with adopting the distribution of the acceptable credit risks, meeting the credit responsibilities and all the risks approved by the Board of Directors, conducting periodic audit and assessment for the risk limits and the new products risks, ensuring the compliance with the instructions of the regulatory authorities and applying the appropriate control systems. 73
38. Board of Directors Report Bank AlBilad The Committee held (5) meetings during 2017 and the Committee consists of (3) members, i.e. two members of the Board of Directors and an independent member from outside the Bank. namely: Name Membership Nature (01/17) (02/17) (03/17) (04/17) (05/17) 27.02.2017 16.04.2017 29.05.2017 10.09.2017 04.12.2017 Chairman of the committee √ √ √ √ √ Mr. Fahd bin Abdullah al-Qasim Member √ √ √ √ √ Mr. Mohammad bin Sulaiman Al Hejilan Member √ √ √ √ √ √ Absentee × Compliance and Governance Committee: The Committee’s responsibility is to supervise, strengthen and maintain the highest standards of corporate governance and that is by ensuring, on behalf of the Board of Directors, the proper compliance with the corporate governance practices in all activities undertaken by the Bank. The Committee bears the responsibility of ensuring the Bank’s commitment to all the local, regional and international legislations, regulations and rules related to its activities, and conducts an annual review of the public governance framework and the relevant mechanisms; in addition to reviewing the regulations of the Board committees and the Executive Management and making recommendations to the Board in this regard, along with monitoring and ensuring that the Bank’s possession of sufficient mechanisms to identify cases of conflict of interest in operational activities. Furthermore, the Committee adopts the annual program/ plan of the Compliance Sector and the annual report submitted to the regulatory authorities; in addition to following-up with the adequacy and effectiveness of the Compliance division regarding the implementation of the Compliance policy and manual, along with reviewing the periodic and annual reports, and ensuring the effective correction of any identified gaps or violations. In order to fulfill its role, the Committee held four (4) meetings during 2017. The current session of the Compliance and Governance Committee consists of (3) members; i.e. one member from the Board of Directors and two external independent experienced and specialist members namely: 74 Name Number and date of the meeting Mr. Saud bin Mohammed Al Fayez Attendee Number and date of the meeting Membership Nature (07/17) (08/17) (09/17) (10/17) 12.03.2017 11.06.2017 17.09.2017 17.12.2017 Mr. Abdul Rahman bin Mohammed Ramzi Addas Chairman of the committee √ √ √ √ Mr. Adib bin Mohammed Abanme Member √ √ √ √ Mr. Abdel Fattah bin Ibrahim Al-Tawil Member √ √ √ √ Attendee √ Absentee × Audit Committee: The Audit Committee supports the Board of Directors in enhancing the confidence in the Internal Audit System. The Audit Committee’s responsibility is represented in overseeing the Internal Audit Sector. This includes verifying the independency and effectiveness of the sector, approving annual audit plan, verifying also the availability of human resources and studying the reports issued from the Audit Sector and followingup how the Bank’s management compliance to correcting these notes on timely manner. The Committee also nominates external auditors for the Bank, determining their fees, supervising their activities and reviewing their plan; along with discussing their notes, evaluating their performance and verifying their independence. The task of the Committee also includes studying the interim and annual financial statements before approved by the Board of Directors and gives recommendation about them in connection with their fairness and to what extent they conform with the acceptable accounting standards. The Committee also verify the compliance of the Bank to the related instructions and policies, review contracts and transactions that the Bank suggested to perform with concerned parties and all other regulatory acts that fall under the Committee, in accordance with the Bank’s Corporate Governance Manual that is approved by the Board of Directors including the regulation approved by the General Assembly. The Committee held seven meetings during 2017, to cover all the tasks and responsibilities assigned to it as per the approved plan for the fiscal year 2017. The current session of the Audit Committee consists of four members, i.e. the Committee Chairman, who is one of the Bank’s Board members and three external members from specialists, namely: 75
39. Board of Directors Report Bank AlBilad Sanctions imposed on the Bank and its subsidiaries by the Supervisory Authorities : First Meeting 12 January 2017 Second Meeting 23 February 2017 Third Meeting 3 April 2017 Fourth Meeting 25 May 2017 Fifth Meeting 13 July 2017 Sixth Meeting 18 October 2017 Seventh Meeting 14 December 2017 Number and date of the meeting 1- Ahmed bin Abdulrahman Al-Hosan Chairman of the committee √ √ √ √ √ √ √ 2- Dr. Ahmed Abdullah Al-Moghames Member √ √ √ √ √ √ √ 3- Sulaiman bin Nasser Al Hatlan Member √ √ √ √ √ √ √ 4- Hamad bin Nasser Al Kanhal* Member √ √ √ - - - - Name Membership Nature Attendee √ Absentee × * Board Member Mr. Hamad bin Nasser Al Kanhal has resigned on 21.05.2017. Mechanisms and methods used to evaluate the performance of the board of directors, the board committees and their members: During 2017, financial sanctions were imposed on the Bank and its subsidiaries as a result of operating works and these sanctions were addressed. A statement of the sanctions imposed on the Bank by the Supervisory Authorities as follows: Number of Sanctions Total Amount of Sanctions Violations of the Supervisory Authority instructions. 7 1,246 Violations of the Authority instructions related to safety of the customers. 1 80 Violations of the Authority instructions related to due diligence. - - Violations of the Authority instructions related to the performance level of the ATMs. And POS. 4 535 Violations of the Authority instructions related to due diligence in anti-money laundering and terrorism financing. 2 550 Ministry of Municipal and Rural Affairs and General Authority of Civil Aviation 118 745 Total 132 3,156 Supervisory Authorities The Saudi Arabian Monetary Authority The board of directors depends in evaluating its performance and the performance of its committees and their members on a mechanism that makes the nominations and remunerations committee, due to its specialty, perform an annual assessment for the boards of directors and its affiliated committees. This is performed through assessment models specially designed for this purpose: (board of directors assessment model/ self-assessment model of the board member/ assessment model of the committees affiliated to the board/ assessment model of the committees members affiliated to the board). The committee studies and discuss the assessment results to know the points of strength, in order to be enhanced and the points of weakness, in order to be addressed by the board or its committees. Then, a summary of the results with the needed recommendations of the committee shall be submitted to the board of directors at the earliest meeting of the board, knowing that there is a current study for developing the assessment mechanism through using the help of consultants or experts from outside the bank or from inside the bank in members assessment process and to conduct training courses for the board of directors and its affiliated committee, whenever needed. 76 77
40. Board of Directors Report Bank AlBilad Transactions with related parties : The Bank deals in its normal business cycle with related parties and the transactions with related parties are subjected to the controls stipulated in the Banks control system and instructions issued by the Saudi Arabian Monetary Authority. Nature and balances of these transactions for the year ended in 31 December 2017 (all amounts in thousands Saudi Riyals): Related Parties In thousands Saudi Riyals 2017 SN. Contract Duration Lease contract of an ATM in Riyadh, owned by Mohammad Ibrahim Al-Subaie & Sons Company. Board Member. Nasser Bin Mohammed AlSubaie (in his capacity as the vice-chairman of the board and a partner) From: 03.07.2015 to 02.07.2025 100,000 Lease contract of the Injaz Center- Southern Khalidia Branch in Dammam City, owned by Mohammad Ibrahim Al-Subaie & Sons Company. Board Member. Nasser Bin Mohammed AlSubaie (in his capacity as the vice-chairman of the board and a partner) From: 05.12.2016 to 04.12.2026 174,790 Lease contract of Injaz Center Second Industrial in Riyadh owned by Mohammad Ibrahim Al-Subaie & Sons Company. Board Member. Nasser Bin Mohammed AlSubaie (in his capacity as the vice-chairman of the board and a partner) From: 06.04.2016 to 05.04.2016 472,000 Board Member .Khaled bin Abdulaziz Al-Mukairin (in his capacity as the chairman of the board and an owner) From: 01.01.2013 to 31.12.2017 (it has not been renewed) 1,287,000 4 Lease contract for the showroom No. (2) at the ground floor rented for Albilad Investment Company; located on King Fahd Road in Riyadh (Smart Tower), and owned by Khaled bin Abdulaziz Al-Mukairin & Sons Holding Company. Board Member .Khaled bin Abdulaziz Al-Mukairin (in his capacity as the chairman of the board and an owner) From 01.01.2013 to 31.12.2018 1,168,200 5 Lease contract for the site of the Albilad Investment Company; i.e. the two offices no. (101) and (102); located on King Fahd Road in Riyadh (Smart Tower), and owned by Khaled bin Abdulaziz Al-Mukairin & Sons Holding Company. Board Members * Finance * Possible undertakings and liabilities 0 1,176 2 * Current accounts Companies and corporate with guarantee from board members * Finance * Possible undertakings and liabilities 483,025 3,048 3 Other main shareholders (own more than 5% of the Bank's capital * Finance * Contingent Undertakings and Commitments 1,544,748 78,465 * Current accounts * Other liabilities Common funds * Investments in funds * (Credit Cards Limits) this represents the credit cards limits for the board members and their families members. The information below is regarding the works and contracts conducted during 2017 that the Bank is one of its parties and one of the board members or one of the senior executives or anyone related to them has an interest in (all amounts are in thousand Saudi Riyals) 78 Annual Contract Value (in Saudi Riyal) Related Party Name 1 Nature of the Contract 79
41. Board of Directors Report Lease contract for the site of the Albilad Investment Company ; i.e. the two offices no. (103) and (104); located on King Fahd Road in Riyadh (Smart Tower), and owned by Khaled bin Abdulaziz Al-Mukairin & Sons Holding Company. Board Member .Khaled bin Abdulaziz Al-Mukairin (in his capacity as the chairman of the board and an owner) Lease contract of the Injaz Center in Al-Khafji Governorate, owned by Abdulrahman bin Saleh Al Rajhi. Board Member . Khalid bin Abdul Rahman Al Rajhi (in his capacity as the son of the property's owner) From: 08.08.2016 to 31.12.2019 150,000 Lease contract of an ATM No (26) in Some Cities of the Kingdom, owned by Arabian Centres Company Limited. Board Member. Khalid bin Suleiman Aljasser (in his capacity as the Chief Executive Officer of the Company) From 09.07.2013 to 15.05.2018 2,792,400 Supply contract of furniture for Albilad Tower- Al Maktabia Limited Company. Board Member .Khaled bin Abdulaziz Al-Mukairin (in his capacity as the chairman of the board) From: 21.11.2017 to 20.11.2018 Supply contract of stationary for Albilad Bank- Jurair bookshop company for marketing. Board Member. Fahad Abdullah Alkassim (in his capacity as board member) From: 09.04.2015 to 08.04.2018 1,390,904.08 (contract is per unit – consumption of 2017) Lease contract of the Main Injaz Center in Yanbu City, owned by Abdulrahman bin Abdulaziz bin Saleh Al Rajhi. Abdulrahman bin Abdulaziz bin Saleh Al Rajhi, (as a senior shareholder) From: 09.08.2015 to 08.08.2025 180,000 12 Lease contract of Branch of the Albilad’s Khubaib in Buraidah City, owned by Abdulrahman bin Abdulaziz bin Saleh Al Rajhi. Abdulrahman bin Abdulaziz bin Saleh Al Rajhi, (as a senior shareholder) From: 01.06.2015 to 31.05.2025 13 Lease contract of Branch of the Albilad main in Dammam City, owned by Abdulrahman bin Abdulaziz bin Saleh Al Rajhi. Abdulrahman bin Abdulaziz bin Saleh Al Rajhi, (as a senior shareholder) From: 15.09.2010 to 14.09.2025 6 7 8 9 10 11 80 Bank AlBilad From: 01.01.2013 to 31.12.2018 1,089,000 The Group deals with the related parties during the course of its regular work. These dealing are subject to the controls and rules set out in the laws, regulations and instructions issued by the Supervisory Authorities and as per the mechanisms mentioned in the approved governance documents of the bank. On the other hand, Senior shareholders are those who own 5% or more of the Bank’s issued capital; and the Senior Management Personnel are these individuals, who have the authority and responsibility to carry out the planning, direction and supervision of the Bank’s activities, whether directly or indirectly. The nature and balances of these transactions for the year ended on the 31st of December 2017 are as follows: A- The Balances of the Board Members and Other Senior Shareholders, in addition to the Companies Affiliated to them and the Investment Funds Managed by the Group: Details In thousands Saudi Riyals 2017 Finance 17,545,864 Deferred Sale 2,017,422 Participation 13,331 Contingent Undertakings and Commitments 81,512 Contingent Undertakings and Commitments Deposits On Demand 64,390 Albilad Account (Speculation) 88,625 Others 5,750 B- The Senior Management Personnel and the Companies Affiliated to them: Details In thousands Saudi Riyals 2017 Finance 400,000 500,000 Installment Sales 11,481 Deposits On Demand 2,271 Albilad Account (Speculation) 14,203 81
42. Board of Directors Report Bank AlBilad Means for Communication with Shareholders : C- Investment Funds of the Group: Details Customers' Deposits Investments D- Revenues and Expenses: Details In thousands Saudi Riyals 2017 196 220,367 In thousands Saudi Riyals 2017 Revenues Finance Income Net Fees and Commissions Income and others Net Fees and Commissions Income and others – Albilad Investment Funds 36,833 622 12,277 Expenses Albilad Account (Speculation) 2,664 Rents of Buildings 27,250 Remuneration of Board Members 4,922 The Balances of the Senior Management Personnel and the Companies Affiliated to them: Details In thousands Saudi Riyals 2017 Revenues Finance Income 156 Expenses Albilad Account (Speculation) 84 The following is a statement of the total compensation paid to the Senior Management Personnel during the year: Details Benefits for Employees In thousands Saudi Riyals 2017 69,523 Pursuant from the Bank’s keen on strengthening its relationship with shareholders and all investors and customers, and in its belief in the principle of disclosure and transparency of information to investors, the Bank’s Board of Directors works constantly to promote these principles that include governance principles that work on ensuring fair treatment for all shareholders and determining the responsibility of the Board of directors towards the Bank and its shareholders; and so the Bank follows the regulations, standards and guidelines of the Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority (CMA), and the Basel Committee’s recommendations on corporate governance. The Bank provides comprehensive information on all of its activities and business within the annual report and the brief financial statements published in the local newspapers, and on the Tadawul website and the Bank’s website (www.bankalbilad. com), which contains additional information and news about the Bank. A new page was created on the website for the relationships of the shareholders, including all the important and necessary information needed by the shareholders and other stakeholders, among them: putting a copy of: (the bank’s article of associations/ shareholder guide/ all the ordinary and extraordinary General Assembly meetings that conducted by the Bank since its establishment until the last meeting held), in addition to other information such as capital increase, dividend distributed on the shareholders. Furthermore, The Bank takes specific note of the inquiries received from the shareholders and responding to them, in addition to encouraging shareholders to attend the annual General Assembly meetings that discuss the Bank’s business, whether in person or through electronic voting. The procedures taken by the board of directors to inform its members–especially non-executive members about the recommendations of the shareholders and their notes about the company and its performance: The Bank always works on protecting the rights of the stakeholders, especially the shareholders. This has been included in the Bank’s articles of association or in the policies, evidences and relevant procedures. The most important relevant rights is the right to attend the ordinary and extraordinary General Assembly meetings, discussing its topics and directing questions to the board, auditors and the executive management. They have the right to submit their recommendations and notes regarding the company and its performance as per the mechanisms specified for this and the board members shall be informed about them whether through General Assembly meetings by reading the minutes of the meetings that include the details or by presenting to the members in the first meeting will be held by the board ,the recommendations submitted by the shareholders and others through channels specified for this and this should be included in the minutes of the meetings- if available- knowing that all the board members are currently non-executive or independent. Interests in the category of shares entitled to voting: There is no interest that benefits in the category of the shares entitled to voting that belong to the individuals (other than the issuing Board of Directors of the Bank, the senior executives, and their spouses and minor children) and the Bank must be informed about these rights. Waiver of interests by shareholders, board members or senior employees. 82 83
43. Board of Directors Report Bank AlBilad - There are no arrangements or agreements with any Board members or senior executives to waive any wages , remunerations or compensations. - There are no arrangements or agreements with any of the shareholders to waive any rights in profits. Number of Bank’s requests for the record of the shareholders, dates and reasons of these requests: Number of requests for the shareholders' record Date of request Date of ownership files Request reasons 1 01.01.2017 31.12.2016 Bank procedures 2 12.03.2017 12.03.2017 Bank procedures 3 04.04.2017 31.03.2017 Bank procedures 4 07.05.2017 08.05.2017 Bank procedures 5 11.05.2017 10.05.2017 Bank procedures 6 03.08.2017 22.06.2017 Bank procedures 7 18.07.2017 17.07.2017 Bank procedures 8 01.10.2017 30.09.2017 Bank procedures 9 04.10.2017 03.10.2017 Profits file Accrued Regulatory Payments: Details In thousands Saudi Riyals 2017 Legal Zakat (1) 30.0 General Organization for Social Insurance (2) 7.3 1- Legal Zakat – the Zakat statement will be provided by the bank for the fiscal year 2017 during the first quarter of 2018, and the Zakat accrued for the fiscal year 2017, amounting to 30 million Saudi Riyals (2016: 25 million Saudi Riyals) will be paid along with the Zakat statement. 2- The receivables of the General Organization for Social Insurance, amounting to 7.3 million Saudi Riyals (2016: 6.2 million Saudi Riyals), will be paid in January 2018. Zakat: The Bank has submitted an appeal at the Higher Appeal Committee about the basis in which the additional Zakat demands were created, and the management expects that the result of the abovementioned appeal will be in favor of the Bank, consequently, the allocation of this matter was not put aside in these consolidated financial statements. The final assessments for 2015 and 2016 were not performed by the General Authority for Zakat and Income until now. Accordingly, the final assessments that were completed by the General Authority for Zakat for the above-mentioned years, if the long-term investments were excluded and the long-term finance was added to the Zakat base, this will result in material additional Zakat demands. This matter still represents a point of concern for the banks sector in general. Statements of paid and accrued regular payments for the period ended on 31 December 2017: Bank Albilad (in Thousand Saudi Riyals) Statement Paid Accrued till the end of the fiscal year and wasn't paid Brief summary Reasons * Zakat 10,881 30,000 Amount paid as Zakat for 2016 and amount accrued for Zakat for 2017 from the records. Legal Zakat on income * Tax 3,553 602 Tax on nonAmount paid for tax for resident of the the months from January to November 2017 and the Kingdom amount paid for tax for December 2017. General Organization for Social Insurance 48,617 3,994 Social Insurance Amount paid for social subscriptions insurance for the months from January to November 2017 and the amount paid for social insurance for December 2017. Governmental Fees 3,895 - Amount paid during 2017 as governmental fees. Governmental fees * This includes the Bank and its subsidiaries. The Bank provided its Zakat statements to the General Authority of Tax and Income and paid Zakat amounting to 177 Million Saudi Riyals for the fiscal years from 2006 until 2016, and received the assessment for 2006 till 2014, where additional demands estimated to 615.3 Million Saudi Riyal long-term investments were excluded and the long-term finance was added to the Zakat base. During 2016, the Bank has paid additional demands for Zakat estimated with 58 Million Saudi Riyal in connection with the general assessment 2006, however the Bank has appealed against the case at the Higher Appeal Committee. 84 85
44. Board of Directors Report Bank AlBilad Bank Albilad Statement (in Thousand Saudi Riyals) Paid Accrued till the end of the fiscal year and wasn't paid Brief summary Reasons * Tax 63 55 Tax on non-resident of the Tax on non-resident Kingdom of the Kingdom General Organization for Social Insurance 4,235 378 Social Insurance subscriptions Social Insurance subscriptions Visas and passports costs 42 - Residency renewal and sponsorship transfer fees Residency renewal and sponsorship transfer fees Labor Office Fees 1 - Work permit renewal fees Work permit renewal fees Capital Market Authority 323 - Fees of fund registration request + authority permits renewal fees+ registration fees of the employees of the company at the authority. Capital Market Authority fees for the registration of a new fund and fees of authority permits renewal and the registration fees of the employees of the company. Riyadh City Municipality 18 - Municipality fees Municipality fees Ministry of Commerce 30 - Commercial register + trademark of Albilad Capital registration + Publishing Ministerial Decree Registration of Joint Stock Company In September 2017, the Board of Directors decided to distribute the cash profits of the first half of 2017 with an amount of 180 Million Saudi Riyals (0.3 per share). These profits were disbursed on the shareholders on 19 October 2017. 86 In thousands Saudi Riyals 2017 Details Net income of the year attributed to the shareholders of the bank 942 Transferred to statutory reserve 236 Zakat from retained profits 30 Cash profits distribution of the first half 180 Proposed cash profits distribution of the second half 240 Compliance with Corporate Governance Regulation: The Bank’s Board of Directors works according to the updated Corporate Governance Regulation issued by the Capital Market Authority (CMA), the controls and regulatory procedures issued to implement the Companies Law related to the Listed Joint Stock Companies issued on 17.10.2016 and updated on 23.03.2017, in addition to the General Principles of Governance in Banks working in the Kingdom of Saudi Arabia, whose first update was issued on March 2014 by the Saudi Arabian Monetary Authority, and all the instructions issued from it and as per the Companies Law, its regulations and the relevant policies of the Bank. The Bank has committed itself to the application of the clauses of the above-mentioned Corporate Governance Regulation issued by the Capital Market Authority , with the exception of the following clauses: Article 50 Paragraph 4 Text of article/ paragraph The committee members number shall not be less than three and don't exceed five. Reasons for non-application It is applied on all the committees of the board except the executive committee and this will be applied during 2018. Capital Adequacy: The Group’s objectives when managing the capital are to comply with the capital requirements set by the Saudi Arabian Monetary Authority (SAMA) to maintain the Group’s ability to continue its work, in accordance with the continuity principle and the maintenance of a strong capital base. The Group’s Management monitors the capital adequacy and the use of regulatory capital. The instructions of the Saudi Arabian Monetary Authority (SAMA) requires the maintenance of a minimum level of regulatory capital, and the ratio of the total regulatory capital to the risk-weighted assets must be at or exceeding the agreed minimum of 8% . The Group monitors the capital adequacy using the ratios stated by the Saudi Arabian Monetary Authority (SAMA); and by which the capital adequacy is measured by comparing the eligible capital clauses for the Group with the assets listed in the consolidated statement of financial position and the potential liabilities using the risk-weighted assets to show its relative risks. 87
45. Board of Directors Report Bank AlBilad The Saudi Arabian Monetary Authority (SAMA) issued the guidelines and frameworks for capital restructuring, according to the recommendations of the Basel III Committee, which took effect as of the 1st of January 2013. According to the frameworks of the Basel III Committee, the Group’s consolidated risk-weighted assets, the total capital and the relevant ratios were calculated on a consolidated basis for the Group. As of 31 December 2017 and 31 December 2016 during the year ended on 31 December 2017, the Bank is committed to the requirements of the regulatory capital. The following table summarizes the Group’s first pillar for the risk-weighted assets, the core capital, the supplementary capital and the capital adequacy ratio: Details Credit Risk-Weighted Assets External Auditors: In the General Assembly meeting held on 08 May 2017, M/S Price Waterhouse Coopers Office and KPMG Al Fozan and their Partners have been appointed as external auditors for the Bank for the fiscal year 2017. As for the year 2018, the auditors will be appointed at the meeting of the General Assembly scheduled to be held in the early second quarter 2018, with Allah’s willing. 49,050,813 4,899,270 Market Risk-Weighted Assets 1,512,788 55,462,871 Core Capital 7,588,793 Supplementary Capital 2,693,286 Total of Core Capital and Supplementary Capital The Bank’s auditors have submitted an unqualified audit report on the Bank’s consolidated financial statements for the current fiscal year. In thousands Saudi Riyals 2017 Operational Risk-Weighted Assets Total First Pillar for Risk-Weighted Assets Report of the Bank’s Auditors 10,282,079 Capital Adequacy Ratio Core Capital Ratio 13.68% Ration of Core Capital and Supplementary Capital 18.54% Basel Pillar 3 Disclosures These disclosures were prepared as per the requirements of the Saudi Arabian Monetary Authority regarding the quantitative and qualitative disclosures due to Basel Pillar 3 disclosures. Please visit the website of the Bank on the following link: www.bankalbilad.com to view the disclosures. The Board of Directors Declarations: The Bank’s Board of Directors confirms the following: 88 - The accounting records were prepared properly. - The Internal Audit System was prepared on a sound basis and implemented effectively. - There is no doubt in the Bank’s ability to continue its activity. 89
46. Board of Directors Report Bank AlBilad The Board of Directors , the Chief Executive Officer and all the Group employees are honored to extend their deepest thanks and appreciation to the Custodian of the Two Holy Mosques King Salman bin Abdulaziz Al Saud, may Allah protect him; and the Crown Prince, Deputy Prime Minister and the Minister of Defense, His Royal Highness Prince Mohammed bin Salman bin Abdul Aziz, may Allah protect him. We also thank the Ministry of Finance, the Ministry of Commerce and Industry, the Saudi Arabian Monetary Authority (SAMA) and the Capital Market Authority (CMA) for the help, support and encouragement received by In Conclusion .the Banks and Financial Institutions Sector 90 The Board is pleased to express its thanks and appreciation to all shareholders and customers for their precious support and trust. The Board also thanks the bank ambassadors for their constant and sincere efforts to develop and improve performance and achieve the Bank’s The Board Directors Settelments The Board of Directors of the Bank Confirms the Following: •The accounting records have been prepared correctly •The internal control system has been properly prepared and implemented effectively. •There is no doubt about the Bank’s ability to continue its Enterprises. Bank’s Auditors Report The Bank’s auditors have submitted an unqualified audit report on the Bank’s consolidated financial statements for the current financial year External Auditor’s At the meeting of the General Assembly held on 12 Sha’ban 1438H (corresponding to 08 May 2017), PwC and KPMG Al Fouzan & Co. were appointed as external auditors for the year 2017 As for the year 2018, auditors will be appointed at the meeting of the General Assembly whcih will be held at the beginning of the second quarter of 2018 .purposes and their desired objectives 91
47. Board of Directors Report Bank AlBilad Consolidated Financial Statements BANK ALBILAD (A Saudi Joint Stock Company) Consolidated Financial Statements For the year ended December 31, 2017 Setting up an Albilad Employees blood donation campaign for those in need of blood whereas more than 200 patients benefited. 92 Blood Donation Program 93
48. The Consolidated Financial Statement 94 Bank AlBilad 95
49. The Consolidated Financial Statement 96 Bank AlBilad 97
50. The Consolidated Financial Statement 98 Bank AlBilad 99
51. The Consolidated Financial Statement 100 Bank AlBilad 101
52. The Consolidated Financial Statement Bank AlBilad CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT DECEMBER 31 , 2017 AND 2016 CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 Notes 2017 SAR’ 000 2016 SAR’ 000 (Restated) ASSETS 2017 SAR’ 000 2016 SAR’ 000 (Restated) INCOME: Cash and balances with SAMA 4 5,688,931 4,528,825 Income from investing and financing assets 20 2,117,189 1,770,534 Due from banks and other financial institutions, net 5 7,706,382 7,950,844 Return on deposits and financial liabilities 21 (378,194) (362,626) Investments, net 6 5,140,017 3,080,945 Income from investing and financing assets, net 1,738,995 1,407,908 Financing, net 7 43,447,429 36,178,387 Property and equipment, net 8 875,424 802,424 834,107 812,276 Investment property 9 - 1,000,000 309,909 311,175 Other assets 10 349,493 207,245 Dividend income 7,539 6,805 63,207,676 53,748,670 Gains on non-trading investments, net 7,820 4,040 61,414 45,224 2,959,784 2,587,428 953,585 902,222 252,012 250,461 96,519 96,327 342,876 290,998 Total assets Fee and commission income, net Other operating income Liabilities Total operating income 2,012,518 2,006,214 Due to banks and other financial institutions 11 1,748,937 996,391 Customers’ deposits 12 47,782,959 40,234,715 Sukuk 13 2,006,575 2,007,047 Rent and premises-related expenses Other liabilities 14 2,067,894 1,352,419 Depreciation 55,618,883 46,596,786 Total Liabilities Equity attributable to the equity holders of the Bank Share capital 15 6,000,000 6,000,000 Statutory reserve 16 866,508 630,997 Other reserves 18 47,420 25,280 530,805 260,188 240,000 300,000 (104,575) (113,207) 8,635 8,720 7,588,793 7,111,978 - 39,906 7,588,793 7,151,884 63,207,676 53,748,670 Retained earnings Proposed cash dividend 17 Treasury shares Employees’ share plan reserve Total equity attributable to the equity holders of the Bank Non-controlling interest Total equity Total liabilities and equity 38 22 Exchange income, net LIABILITIES AND SHAREHOLDERS’ EQUITY Due to SAMA 102 Notes EXPENSES: Salaries and employee-related benefits 24 8 Other general and administrative expenses Impairment charge for financing, net 7(b) 378,381 191,214 Impairment charge on available for sale investments 6(b) 244 47,183 2,023,617 1,778,405 936,167 809,023 942,047 807,723 (5,880) 1,300 936,167 809,023 1.56 1.36 Total operating expenses Net income for the year Attributable to: Equity holders of the Bank Non-controlling interest Net income for the year Basic and diluted earnings per share (attributable to ordinary equity holders of the Bank) (Saudi Riyals) 25 103
53. The Consolidated Financial Statement Bank AlBilad CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED DECEMBER 31 , 2017 AND 2016 Notes CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 2017 SAR’ 000 936,167 Net income for the year 2016 SAR’ 000 (Restated) 809,023 Items that can be recycled back to consolidated statement of income in subsequent periods / have been recycled in the current year Effect of change in accounting policy 18 Net changes in fair value 29,716 (6,151) Net amount transferred to consolidated statement of income on disposal (7,820) (4,040) 244 47,183 22,140 36,992 958,307 846,015 964,187 844,715 Non-controlling interest (5,880) 1,300 Total comprehensive income for the year 958,307 846,015 Impairment charge on available for sale investments Total other comprehensive income Total comprehensive income for the year Attributable to: Equity holders of the Bank 2017 SAR’ 000 Notes Balance at the beginning of the year - as previously reported Other comprehensive income: - Available for sale financial assets Attributable to the equity holders of the Bank Share capital 6,000,000 Statutory reserve 630,997 3(a) Balance at the beginning of the year - as restated 6,000,000 630,997 Retained earnings Proposed cash dividend 169,201 285,188 300,000 (143,921) (25,000) 25,280 260,188 Other reserves Treasury shares (113,207) Employees’ share plan 8,720 7,280,899 39,906 (168,921) 300,000 (113,207) 8,720 7,111,978 Total equity 7,320,805 (168,921) 39,906 7,151,884 Changes in the equity for the year Net changes in fair values of available for sale investments 29,716 29,716 29,716 Net amount transferred to consolidated statement of income on disposal (7,820) (7,820) (7,820) Impairment charge on available for sale investments 244 244 244 Other comprehensive income 22,140 22,140 22,140 Net income for the year 942,047 Total comprehensive income for the year 22,140 2016 final cash dividend paid 2017 interim cash dividend paid 2017 proposed final cash dividend 17 942,047 - Employees’ share plan reserve Transfer to statutory reserve 16 6,000,000 866,508 47,420 (5,880) 958,307 (180,000) - (180,000) (180,000) (240,000) 240,000 - - 8,632 8,632 (85) (85) (15,919) (15,919) (15,919) (235,511) - - Non-controlling interest removed on de-consolidation Balance at end of the year 964,187 (300,000) (85) 235,511 936,167 (300,000) 38 19(e) (5,880) (300,000) 8,632 Zakat for the transferred to other liabilities 942,047 - Treasury shares 104 Noncontrolling interest Total 530,805 240,000 (104,575) 8,635 - (34,026) (34,026) 7,588,793 - 7,588,793 105
54. The Consolidated Financial Statement Bank AlBilad CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEARS ENDED DECEMBER 31 , 2017 AND 2016 CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED DECEMBER 31, 2017 AND 2016 OPERATING ACTIVITIES Attributable to the equity holders of the Bank 2016 SAR’ 000 Notes Balance at the beginning of the year – as previously reported Effect of change in accounting policy Share capital Statutory reserve 5,000,000 961,066 Other reserves (11,712) 3(a) Balance at the beginning of the year – as restated Retained earnings Proposed cash dividend 591,317 - Treasury shares (113,758) Employees’ share plan 15,326 (85,255) 5,000,000 961,066 (11,712) 506,062 Noncontrolling interest Total 6,442,239 - (85,255) - (113,758) 15,326 6,356,984 Net income for the year Total equity 6,442,239 6,356,984 Changes in the equity for the year Gains on disposal of non-trading investments, net (7,820) (4,040) Gains from disposal of property and equipment, net (1,359) (917) 105,218 96,327 Depreciation Impairment charge for financing, net 7(b) 378,381 191,214 Impairment charge on available for sale investments 6(b) 244 47,183 77,662 29,015 8,547 6,431 1,497,040 1,174,236 Profit on sukuk Net changes in fair values of available for sale investments (6,151) Net amount transferred to consolidated statement of income on disposal (4,040) Impairment charge on available for sale investments Other comprehensive income (6,151) Employees’ share plan (4,040) (4,040) Operating profit before changes in operating assets and liabilities 47,183 47,183 47,183 Statutory deposit with SAMA (323,044) 96,888 36,992 36,992 36,992 Due from banks and other financial institutions maturing after ninety days from the date of acquisition (314,249) 828,154 Commodity murabaha with SAMA maturing after ninety days from the date of acquisition (148,228) 358,715 (7,647,423) (2,114,978) (142,248) (32,510) (10,919) (78,666) 6,304 2,006,214 752,546 (425,261) 7,548,244 (1,944,745) 710,475 150,360 1,928,498 18,407 (2,400,147) (743,592) Net income for the year (6,151) 807,723 Total comprehensive income for the year - Proposed cash dividend 17 Issuance of bonus shares 15 - 36,992 807,723 (300,000) 1,000,000 (532,000) 300,000 38 Zakat charged transferred to other liabilities 19(e) Transfer to statutory reserve 16 25,280 1,300 846,015 551 551 (6,606) (6,606) (83,666) (83,666) (83,666) (201,931) - - Non-controlling interest removed on de-consolidation 630,997 844,715 - (6,606) 6,000,000 809,023 - (468,000) 201,931 1,300 - 551 Employees’ share plan reserve 807,723 - Treasury shares Balance at end of the year – as restated 809,023 Adjustments to reconcile net income to net cash from / (used in) operating activities: (85,255) - 936,167 260,188 300,000 (113,207) 8,720 - 38,606 38,606 7,111,978 39,906 7,151,884 Net (increase) / decrease in operating assets: Financing Other assets Zakat paid Net increase / (decrease) in operating liabilities: Due to SAMA Due to banks and other financial institutions Customers’ deposits Other liabilities Net cash generated from operating activities INVESTING ACTIVITIES Purchase of non-trading investments 106 107
55. The Consolidated Financial Statement Bank AlBilad Notes 2016 SAR ’ 000 (Restated) 2017 SAR’ 000 Proceeds from sale of non-trading investments 519,014 546,788 Disposal of a subsidiary 991,301 - - (1,000,000) (170,157) (106,806) 1,997 1,055 (1,057,992) (1,302,555) - 2,000,000 (78,134) (21,968) - (12,486) (480,000) - (34,026) 38,606 (592,160) 2,004,152 278,346 720,004 8,786,280 8,066,276 9,064,626 8,786,280 1,463,295 1,697,624 278,027 348,648 22,140 36,992 - 1,000,000 Acquisition of a subsidiary Purchase of property and equipment Proceeds from sale of property and equipment Net cash used in investing activities FINANCING ACTIVITIES Issuance of sukuk Profit paid on sukuk Purchase of shares for employees’ share plan Dividend paid 17 Non-controlling interest Net cash (used in) / generated from financing activities Net change in cash and cash equivalents Cash and cash equivalents at the beginning of the year Cash and cash equivalents at the end of the year 26 Supplemental information Income received from investing and financing assets Return paid on deposits and financial liabilities Total other comprehensive income Issuance of bonus shares 108 15 109
56. Notes to the Consolidated Financial Statements Providing medical and educational tools and devices for the blind , to facilitate their daily work in collaboration with the Blind charity Association "Roya". Roya Blind Charity Association
57. Notes to the Consolidated Financial Statements Bank AlBilad 1 .GENERAL 2. BASIS OF PREPARATION a) Incorporation and operation a) Statement of compliance Bank AlBilad (the “Bank”), a Saudi Joint Stock Company incorporated in the Kingdom of Saudi Arabia, was formed and licensed pursuant to Royal Decree No. M/48 dated 21 Ramadan 1425H (corresponding to November 4, 2004), in accordance with the Counsel of Ministers’ resolution No. 258 dated 18 Ramadan 1425H (corresponding to November 1, 2004). The Bank is listed on Tadawul (Saudi Stock Exchange). The (consolidated) financial statements of the Bank (Group) have been prepared; - in accordance with ‘International Financial Reporting Standards (IFRS) as modified by Saudi Arabian Monetary Authority (SAMA) for the accounting of zakat and income tax’, which requires, adoption of all IFRSs as issued by the International Accounting Standards Board (“IASB”) except for the application of International Accounting Standard (IAS) 12 - “Income Taxes” and IFRIC 21 - “Levies” so far as these relate to zakat and income tax. As per the SAMA Circular no. 381000074519 dated April 11, 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and income tax (“SAMA Circular”), the Zakat and Income tax are to be accrued on a quarterly basis through shareholders equity under retained earnings. - in compliance with the provisions of Banking Control Law, the Regulations for Companies in the Kingdom of Saudi Arabia and the Article of Association of the Bank. The Bank operates under Commercial Registration No. 1010208295 dated 10 Rabi Al Awal 1426H (corresponding to April 19, 2005) and its Head Office is located at the following address: Bank AlBilad P.O. Box 140 Riyadh 11411 Kingdom of Saudi Arabia These consolidated financial statements comprise the financial statements of the Bank and its subsidiaries, ‘Albilad Investment Company’ and ‘Albilad Real Estate Company’ (collectively referred to as “the Group”). Albilad Investment Company and AlBilad Real Estate Company are 100% owned by the Bank. All subsidiaries are incorporated in the Kingdom of Saudi Arabia. Further, the above SAMA Circular has also repealed the existing Accounting Standards for Commercial Banks, as promulgated by SAMA, and are no longer applicable from January 1, 2017. As at 31 December 2016, the Bank had 80% ownership in Makkah Al Diyafah Fund (the Fund) and it was consolidated as at December 31, 2016. However, during the current year, the Fund has issued further units and accordingly, the Bank’s holding percentage reduced to 29.75% on 31 August 2017, and the Bank lost control of the Fund and the Fund was de-consolidated with effect from 1 September 2017. b) Basis of measurement and presentation The Group’s objective is to provide full range of banking services and conduct, financing and investing activities through various Islamic instruments. The activities of the Bank are conducted in compliance with Islamic Shariah and within the provisions of the Articles of Association and the Banking Control Law. The Bank provides these services through 112 banking branches (2016: 114) and 179 exchange and remittance centers (2016: 176) in the Kingdom of Saudi Arabia. b) Shariah Authority The Bank has established a Shariah Authority (“the Authority”). It ascertains that all the Bank’s activities are subject to its approval and control. Refer note 3(l) for the accounting policy of zakat and income tax and note 3(a) for the impact of change in the accounting policy resulting from the SAMA Circular. These consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of ‘available-for-sale’ investments. The Group presents its consolidated statement of financial position in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non–current) is presented in note 32. c) Functional and presentation currency These consolidated financial statements are presented in Saudi Arabian Riyals (SAR), which is the functional currency of the Bank and its subsidiaries. The financial information presented in SAR has been rounded to the nearest thousand except otherwise indicated. d) Critical accounting judgments and estimates The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting judgments, estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgment in the process of applying the Group’s accounting policies. Such judgments, estimates and assumptions are continually evaluated and are based on 112 113
58. Notes to the Consolidated Financial Statements historical experience and other factors , including obtaining professional advice and expectations of future events that are believed to be reasonable under the circumstances. The resulting accounting estimates will, by definition, seldom equal the related actual results. Significant areas where management uses estimates, assumptions or exercised judgments and that have a significant risk of causing a material adjustment to the carrying amount of assets and liabilities in the next financial year are as follows: (i) Impairment for losses on financing The Group reviews its financing portfolio to assess specific and collective impairment on a regular basis. In determining whether an impairment loss should be recorded, the Group makes judgments as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows. The evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group. Management uses estimates based on historical loss experience for financing with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when estimating cash flows. The methodology and assumptions used for estimating both the amount and the timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Also, see note 3(i)(a) and 7. (ii) Fair value measurement The Group measures financial instruments at fair value at each statement of financial position date. 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: • in the principal market for the asset or liability, or • in the absence of a principal market, in the most advantageous market for the asset or liability. The principal or the most advantageous market must be accessible to the Group. The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their best economic interest. The Group uses valuation techniques that are appropriate in the circumstances and for which sufficient data is available to measure fair value, maximizing the use of relevant observable inputs and minimizing the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the consolidated financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: 114 Bank AlBilad • Level 1- Quoted (unadjusted) market prices in active markets for identical assets or liabilities. • Level 2 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is directly or indirectly observable. Level 3 - Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics and risks of the asset or liability and the level of the fair value hierarchy as explained above. (iii)Impairment of available-for-sale equity, sukuk and mutual funds investment The Group exercises judgment to consider impairment on the available-for-sale equity and mutual fund investments at each reporting date. This includes determination of a significant or prolonged decline in the fair value of investment below its cost. The determination of what is significant and prolonged requires judgment. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. In assessing whether it is prolonged, the decline is evaluated against the period in which the fair value of the asset has been below its original cost at initial recognition. In making this judgment, the Group evaluates among other factors, the normal volatility in the investment price, deterioration in the financial health of the investee, industry and sector performance, changes in technology and operational and financing cash flows. The Group reviews its sukuk investments classified as available for sale at each reporting date to assess whether they are impaired. This requires similar judgment as applied to assess individual corporate financings for impairment. Also, see note 3(i)(b). Also, see note 6(b) for details of impairment loss recorded during the year. (iv)Determination of control over investees The control indicators set out in note 3 (b) are subject to management’s judgments that can have a significant effect in case of the Group’s interests in investment funds. Al Bilad Investment Company acts as a Fund Manager to a number of investment funds. Determining whether the Group controls such an investment fund usually focuses on the assessment of the aggregate economic interests of the Group in the Fund comprising any carried interests and expected management fees and the investors’ rights to remove the Fund Manager. As a result the Group has concluded that it acts as an agent for the investors in all cases and therefore has not consolidated these funds except for Makkah Al Diyafah fund which was consolidated till August 31, 2017. [for details refer to note 1(a) and 3(b)]. (v) Provisions for liabilities and charges The Group receives legal claims against it in the normal course of business. Management has exercised judgments as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately 115
59. Notes to the Consolidated Financial Statements depends on the due process being followed as per law . For details please refer note 19(a). (vi)Defined benefit plans Bank operates an End of service benefit plan for its employees based on the prevailing Saudi Labor laws. The liability is being accrued based on projected unit method in accordance with the periodic actuarial valuation. For details of assumptions and estimate please refer note 27. (vii) Fee from banking services The management has established a threshold for the purpose of recording documentation / financing processing charges as an adjustment to effective yield. The amounts below this threshold are not capitalized and the impact is considered as immaterial. (viii) Going concern The management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group and the Bank have the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt on the Group’s ability to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on a going concern basis. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES Bank AlBilad The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below. a) Changes in accounting policies The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended December 31, 2016 except for the change in accounting policy of Zakat and tax and adoption of the amendments to existing standards mentioned below. The amendments to existing standards has had no material impact on the consolidated financial statements of the Group on the current period or prior periods and is expected to have an insignificant effect in future periods. The impact of change in accounting policy for zakat has resulted in restatement of the consolidated financial statements. • Zakat and income tax The Bank 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 in accordance with SAMA guidance on zakat and income tax, with corresponding accrual under other liabilities. Previously, zakat and income tax payment was recorded as receivable from the shareholders under other assets and adjusted against dividends upon payment to the shareholders. The Group has accounted for this change in the accounting policy relating to Zakat retrospectively and the effects of the above change on the respective line items of statements of financial position, changes in equity and cash flows are disclosed below: As at January 1, 2016 Account Balance as previously reported at January 1, 2016 SR’000 Effect of restatement SR’000 Restated balance at January 1, 2016 SR’000 Consolidated statement of financial position Other assets 239,990 (65,255) 174,735 1,177,059 20,000 1,197,059 Retained earnings 591,317 (85,255) 506,062 Other reserves (11,712) - (11,712) (51,335) 22,269 (29,066) Other liabilities Consolidated statement of cash flows Other assets As at December 31, 2016 116 117
60. Notes to the Consolidated Financial Statements Account Bank AlBilad Balance as previously reported at December 31 , 2016 SR’000 Effect of restatement SR’000 Restated balance at December 31, 2016 SR’000 Consolidated statement of financial position 351,166 (143,921) 207,245 1,327,419 25,000 1,352,41 Retained earnings 285,188 (25,000) 260,188 Other reserves 169,201 (143,921) 25,280 78,666 (32,510) Other assets Other liabilities Consolidated statement of cash flows Other assets • (111,176) Amendments to existing standards - 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. These adoptions have no material impact on the consolidated financial statements other than certain additional disclosures. The Bank has chosen not to early adopt the amendments and revisions to the International Financial Reporting Standards which have been published and are mandatory for compliance by the banks for the accounting years beginning on or after January 1, 2018 (please also refer note 37). b) Basis of consolidation These consolidated financial statements comprise the financial statements of the Bank and its subsidiaries. The financial statements of the subsidiaries are prepared for the same reporting year as that of the Bank, using consistent accounting policies. 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 these consolidated financial statements from the date that control commences until the date that control ceases. The Bank’s subsidiaries ‘Albilad Investment Company’ and ‘Albilad Real Estate Company’ are 100% owned by the Bank and both are incorporated in the Kingdom of Saudi Arabia. securities regulated by CMA. Albilad Real Estate Company’s principal activity is to act as custodian for assets provided by customer of the Bank as collateral. The consolidated financial statements have been prepared using uniform accounting policies and valuation methods for the transactions and other events in similar circumstances. 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 amount of 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 arrangement with the other vote holders of the investee • Rights arising from other contractual arrangements • The Group’s voting rights and potential voting rights granted by equity instruments such as shares or mutual funds. 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 year are included in the statement of comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Non-controlling interests represent the portion of net income / (loss) and net assets of subsidiaries owned, directly or indirectly, by the Bank. Makkah Al Diyafah Fund was a subsidiary of the Bank till August 31, 2017 and accordingly, is presented separately in the consolidated statement of income. 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. Also, see note 1(a) and 1(d)(iv). 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. Albilad Investment Company’s principal activity is dealing, managing, arranging, advising and custody of 118 119
61. Notes to the Consolidated Financial Statements Inter-group balances and any income and expenses arising from intra-group transactions , are eliminated in preparing these consolidated financial statements. Unrealized losses are eliminated in the same way as unrealized gains, but only to the extent that there is no evidence of impairment. by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Group. When the group ceases to consolidate or equity account for an investment because of a loss of control or significant influence, any retained interest in the entity is remeasured to its fair value with the change in carrying amount recognised in statement of income. This fair value becomes the initial carrying amount for the purposes of subsequently accounting for the retained interest as an associate or financial asset. In addition, any amounts previously recognised in other comprehensive income in respect of that entity are accounted for as if the Group had directly disposed of the related assets or liabilities. This may mean that amounts previously recognised in other comprehensive income are reclassified to statement of income. f) Due from banks and other financial institution Due from banks and other financial institutions are initially measured at fair value and subsequently measured at amortized cost. g)Investments If the ownership interest in an associate is reduced but significant influence is retained, only a proportionate share of the amounts previously recognised in other comprehensive income are reclassified to statement of income, where appropriate All investments in securities are initially recognized at fair value and except for investments classified at fair value through statement of income (FVSI), include the acquisition costs associated with the investment. Transaction costs if any are not added to fair value measurement at initial recognition of investments classified at FVSI. c) Trade date accounting Premiums are amortized and discounts are accreted using the effective yield method and are taken to consolidated statement of income. All regular-way purchases and sales of financial assets are initially recognized and derecognized on the trade date, i.e. the date that the Group becomes a party to contractual provision of an instrument. Regular-way purchases or sales are purchases or sales of financial assets that require delivery of those assets within the time frame generally established by regulation or convention in the market place. For securities traded in organized financial markets, the fair value is determined by reference to the exchange quoted market bid prices at the close of business on the reporting date. Fair value of managed assets and investments in mutual funds are determined by reference to the declared net asset values which approximate the fair value. All other financial asset and financial liabilities are initially recognized on trade date at which the Group becomes a party to the contractual provisions of the instrument. For securities where there is no quoted market price, a reasonable estimate of the fair value is determined by reference to the current market value of another instrument which is substantially the same, or is based on the expected cash flows of the security. Where the fair values cannot be derived from active markets, they are recognized at cost. d) Foreign currencies The Group’s consolidated financial statements are presented in Saudi Arabian Riyals, which is also the Bank’s and group companies’ functional currency. Transactions in foreign currencies are translated into Saudi Riyals (‘SAR’) at exchange rates prevailing on the date of the transactions. Monetary assets and liabilities at year-end, denominated in foreign currencies, are translated into SAR at exchange rates prevailing at the reporting date. Realized and unrealized gains or losses on exchange are credited or charged to the consolidated statement of income. e) Offsetting financial instrument Financial assets and financial liabilities are offset and reported net in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts and when the Group either intends to settle on a net basis or to realize the asset and settle the liability simultaneously. Income and expenses are not offset in the consolidated statement of income unless required or permitted 120 Bank AlBilad Following initial recognition, subsequent transfers between the various classes of investments are permissible only if certain conditions are met. The subsequent period-end reporting values for each class of investment are determined on the basis as set out in the following paragraphs. (i) Held as FVSI Investments in this category are classified if they are held for trading or designated by management as FVSI on initial recognition. The Group does not have any FVSI financial instruments. (ii) Available for sale Available-for-sale investments are those equity, sukuk and mutual funds investments which are neither classified as held to maturity investments, financing nor designated as FVSI, that are intended to be held for an unspecified period of time, which may be sold in response to needs for liquidity or changes in profit rates, exchange rates or equity prices. Investments which are classified as “available-for-sale” are initially recognized at fair value including direct 121
62. Notes to the Consolidated Financial Statements and incremental transaction costs and subsequently measured at fair value except for unquoted equity securities whose fair value cannot be reliably measured and are carried at cost . Unrealized gains or losses arising from changes in fair value are recognized in other comprehensive income until the investment is derecognized or impaired whereupon any cumulative gain or loss previously recognized in other comprehensive income are reclassified to consolidated statement of income. Financing comprises bei-ajel, installment sales, musharakah and ijarah originated or acquired by the Group and are initially recognized at fair value including acquisition costs and is subsequently measured at amortized cost less any amounts written off and provision for impairment, if any. Financing is recognized when cash is advanced to borrowers, and is derecognized when either the customers repay their obligations, or the financing is sold or written off, or substantially all the risks and rewards of ownership are transferred. Financing and investing income is recognized in the consolidated statement of income on effective yield basis. Dividend income is recognized in the consolidated statement of income when the Group becomes entitled to the dividend. Foreign exchange gains or loss on available for sale debt security investments are recognized in consolidated statement of income. Bei-ajel and installment sales - These financing contracts are based on Murabaha whereby the Group sells to customers a commodity or an asset which the Group has purchased and acquired based on a promise received from the customer to buy. The selling price comprises the cost plus an agreed profit margin. Bei ajel is used for corporate customers whereas installment sale is used for retail customers. A security held as available for sale may be reclassified to “other investments held at amortized cost” if it otherwise would have met the definition of “other investments held at amortized cost” and if the Group has the intention and ability to hold that financial asset for the foreseeable future or until maturity. Ijarah muntahia bittamleek is an agreement whereby the Group, acting as a lessor, purchases or constructs an asset for lease according to the customer (lessee) request, based on his promise to lease the asset for an agreed rent and for a specific period. Ijarah could end by transferring the ownership of the leased asset to the lessee. (iii) Held to maturity Musharakah is an agreement between the Group and a customer to contribute to a certain investment enterprise or the ownership of a certain property ending up with the acquisition by the customer of the full ownership. The profit or loss is shared as per the terms of the agreement. Investments having fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity are classified as held to maturity. Held to maturity investments are initially recognized at fair value including direct and incremental transaction costs and subsequently measured at amortized cost, less provision for impairment in value. Amortized cost is calculated by taking into account any discount or premium on acquisition using an effective yield basis. Any gain or loss on such investments is recognized in the consolidated statement of income when the investment is derecognized or impaired. Investments classified as held to maturity cannot ordinarily be sold or reclassified without impacting the Group’s ability to use this classification. However, sales and reclassifications in any of the following circumstances would not impact the Group’s ability to use this classification. • Sales or reclassifications that are so close to maturity that the changes in market rate of commission would not have a significant effect on the fair value. • Sales or reclassifications after the Group has collected substantially all the assets’ original principal. • Sales or reclassifications attributable to non-recurring isolated events beyond the Group’s control that could not have been reasonably anticipated. (iv)Other investments held at amortized cost 122 Bank AlBilad i) Impairment of financial assets a) Financing and investments held at amortized cost An assessment is made at each reporting date to determine whether there is objective evidence that a financial asset or a group of financial assets may be impaired at the reporting date. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss, based on the net present value of future expected cash flows, is recognized for changes in its carrying amounts. The Group considers evidence of impairment for financing and advances and investments held at amortized cost at both specific asset and collective level. When a financial asset is uncollectible, it is either written off against the related provision for impairment or directly by a charge to the consolidated statement of income. Financial assets are written off only in circumstances where effectively all possible means of recovery have been exhausted, and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the debtor’s credit rating), the previously recognized impairment loss is reversed by adjusting the impairment allowance account. The amount of the reversal is recognized in the consolidated statement of income in impairment charge account. Investment securities with fixed or determinable payments that are not quoted in an active market are classified as “other investments held at amortized cost”. Such investments are stated at amortized cost using effective yield basis, less provision for impairment. Any gain or loss is recognized in the consolidated statement of income when the investment is derecognized or impaired. Financing whose terms have been renegotiated are no longer considered to be past due but are treated as new financing. Restructuring policies and practices are based on indicators or criteria which, indicate that payment will most likely continue. The financing continue to be subject to an individual or collective impairment assessment, calculated using the financing’s original effective yield rate. h)Financing Financing are generally renegotiated either as part of an ongoing customer relationship or in response 123
63. Notes to the Consolidated Financial Statements to an adverse change in the circumstances of the borrower . In the latter case, renegotiation can result in an extension of the due date of payment or repayment plans under which the Group offers a revised rate of commission to genuinely distressed borrowers. This results in the asset continuing to be overdue and individually impaired as the renegotiated payments of commission and principal do not recover the original carrying amount of the financing. In other cases, renegotiation lead to a new agreement, this is treated as a new financing. The Group also considers evidence of impairment at a collective financing assets level. The collective provision is based on following criteria i.e. deterioration in internal grading, external credit ratings allocated to the group of borrowers, the current economic climate in which the borrowers operate and the experience and historical default patterns that are embedded in the components of the credit portfolio. b) Available for sale investments In the case of sukuk investment classified as available-for-sale, the Group assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the consolidated statement of income. If, in a subsequent period, the fair value of a sukuk investments increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. Fees and commission income (above certain threshold for fee related to financing) that are integral to the effective yield rate are included in the measurement of the relevant assets. Fees and commission income that are not integral part of the effective yield calculation on a financial asset or liability are recognized when the related service is provided as follows: • Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, usually on a time-proportionate basis. • Fee received on asset management, wealth management, financial planning, custody services and other similar services that are provided over an extended period of time, are recognized over the period when the service is being provided. • Performance linked fees or fee components are recognized when the performance criteria are fulfilled. • Financing commitment fees for financing that are likely to be drawn down and other credit related fees are deferred (together with any incremental costs) and recognized as an adjustment to the effective yield on the financing. When a financing commitment is not expected to result in the drawdown of a financing, financing commitment fees are recognized on a straight-line basis over the commitment period. • Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the transaction is completed or the service, is received. iii- Exchange income / (loss) For equity and mutual funds investments held as available-for-sale, a significant or prolonged decline in fair value below its cost represents objective evidence of impairment. The impairment loss cannot be reversed through consolidated statement of income as long as the asset continues to be recognized i.e. any increase in fair value after impairment can only be recognized in equity. On derecognition, any cumulative gain or loss previously recognized in equity is included in the consolidated statement of income. Exchange income/ (loss) is recognized as discussed in foreign currencies policy above. j) Revenue recognition Unrealized gain/loss for a change in fair value is recognized in other comprehensive income until the investment is derecognized or impaired where upon any cumulative gains or losses previously recognized in other comprehensive income are recycled back to consolidated statement of income. i- Income on investing and financing assets, and return on financial liabilities Income on investing and financing assets, and return on financing liabilities is recognized in the consolidated statement of income using the effective yield method on the outstanding balance over the term of the contract. The calculation of effective yield takes into account all contractual terms of the financial instruments including all fees (above certain threshold), transaction costs, discounts that are integral part of the effective yield method but does not include the future financing loss. Transactional costs are incremental costs that are directly attributable to acquisition of financing assets and financial liabilities. ii- Fees and commission income 124 Bank AlBilad iv- Dividend income Dividend income from investment in equities is recognized when the Group’s right to receive the dividend is established which is generally when the shareholders approve the dividend. v- Gain/ (loss) from non-trading investments k) Derecognition of financial instruments A financial asset (or a part of a financial asset, or a part of a group of similar financial assets) is derecognized, when the contractual rights to receive the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for derecognition. In instances where the Group is assessed to have transferred a financial asset, the asset is derecognized if the Group has transferred substantially all the risks and rewards of ownership. Where the Group has neither transferred nor retained substantially all the risks and rewards of ownership, the financial asset is derecognized only if the Group has not retained control of the financial asset. The Group recognises 125
64. Notes to the Consolidated Financial Statements Bank AlBilad separately , as assets or liabilities, any rights and obligations created or retained in the process. A financial liability (or a part of a financial liability) can only be derecognized when it is extinguished, that is when the obligation specified in the contract is either discharged, cancelled or expired. i) Where the Group is the lessee l) Zakat and Withholding Tax Zakat is computed on the Saudi shareholders’ share of equity or net income using the basis defined under the Zakat regulations. Income taxes are computed on the foreign shareholders share adjusted of net income for the year. Zakat and income tax are accrued on a quarterly basis and charged to retained earnings in accordance with SAMA guidance for the accounting of zakat and income tax. Previously, zakat and income tax was deducted from dividends upon payment to the shareholders and was recognized as a liability at that time. Withholding tax is withheld from payments made to non-resident vendors for services rendered and goods purchased according to the tax law applicable in Saudi Arabia and are directly paid to the General Authority for Zakat and Tax (GAZT) on a monthly basis. m) Financial guarantees In ordinary course of business, the Group provides financial guarantees, consisting of letter of credit, guarantees and acceptances. Financial guarantees are initially recognized in the consolidated financial statements at fair value in other liabilities, being the value of the premium received. Subsequent to the initial recognition, the Group’s liability under each guarantee is measured at the higher of the amortized premium and the best estimate of expenditure required to settle any financial obligations arising as a result of guarantees. Any increase in the liability relating to the financial guarantee is taken to the consolidated statement of income in “impairment charge for financing, net”. The premium received is recognized in the consolidated statement of income in “Fees and commission income, net” on a straight line basis over the life of the guarantee. n)Provisions Provisions are recognized when a reliable estimate can be made by the Group for a present legal or constructive obligation arising as a result of past events and it is more likely that an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate of the amount of the obligation can be made. Provisions are reviewed at each consolidated statement of financial position date and are adjusted to reflect the current best estimate. o) Accounting for leases Leases that do not transfer to the Group substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Consequently, all of the leases entered into by the Group are all operating leases. Payments made under operating leases are charged to the consolidated statement of income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty, net of anticipated rental income (if any), is recognized as an expense in the period in which termination takes place. The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is then accounted for separately. ii) Where the Group is the lessor When assets are transferred under Ijara Muntahia Bittamleek the present value of the lease payments is recognized as a receivable and disclosed under “Financing”. The difference between the gross receivable and the present value of the receivable is recognized as unearned finance income. Lease income is recognized over the term of the lease using the net investment method, which reflects a constant periodic rate of return. p) Cash and cash equivalents For the purpose of the consolidated statement of cash flows, “cash and cash equivalents” include cash in hand, balances and murabaha with SAMA excluding statutory deposit, and due from banks and other financial institutions with original maturities of three months or less from the date of acquisition which is subject to insignificant changes in their fair value. q) Property and equipment Property and equipment is stated at cost less accumulated depreciation, and impairment, if any. The cost of property and equipment is depreciated using the straight-line method over the estimated useful lives of the assets, as follows: Building 33 years Leasehold improvements Over lease period or economic life (10 years), whichever is shorter Equipment and furniture and motor vehicles 4 to 6 years Computer hardware and software 5 years The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each reporting date. Gains and losses on disposals are determined by comparing proceeds with carrying amounts and are included in the consolidated statement of income. All assets are reviewed for impairment whenever events or changes in circumstances indicate that the carrying 126 127
65. Notes to the Consolidated Financial Statements amount may not be recoverable . Carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. r) Investment in property Properties that are held to earn rentals or for capital appreciation or both are classified as investment properties. Investment property is measured at cost including transaction costs. Transaction costs include transfer fees, professional fees for legal services and initial leasing commissions to bring the property to the condition necessary for it to be capable of operating. The carrying amount also includes the cost of replacing part of an existing investment property at the time that cost is incurred if the recognition criteria are met. Subsequent to initial recognition, investment property is stated at cost less accumulated depreciation and accumulated impairment and reviewed at each reporting date for any decline in the value of the investment. Gains from this investment are reported upon the sale of investment property. The estimated useful life of the investment property is 40 years starting from the date of the utilization of the properties. v) Employees’ share plan The Bank offers its eligible employees an equity-settled share-based payment plan as approved by SAMA. As per the plan, eligible employees of the Bank are offered stocks to be withheld out of their annual bonus payments. The cost of the plan is measured by reference to the fair value at the date on which the stocks are granted. The cost of the plan is recognized over the period in which the service condition is fulfilled, ending on the date on which the relevant employees become fully entitled to the stock option (‘the vesting date’). The cumulative expense recognized for the plan at each reporting date until the vesting date, reflects the extent to which the vesting period has expired and the Bank’s best estimate of the number of equity instruments that will ultimately vest. The charge or credit to the consolidated statement of income for a year represents the movement in cumulative expense recognized as at the beginning and end of that year. The Bank, with the approval from SAMA, has entered into an agreement with an independent third-party for custody of the shares under the plan, plus any benefits accrued there-on. w) Treasury shares s) Financial liabilities Treasury shares are recorded at cost and presented as a deduction from the equity as adjusted for any transaction costs, dividends and gains or losses on sale of such stocks. Subsequent to their acquisition, these shares are carried at the amount equal to the consideration paid. All customer deposits, due to SAMA ,due to banks and other financial institutions, sukuk and other financial liabilities are initially recognized at fair value and subsequently measured at amortized cost. These shares are acquired by the Bank with the approval of SAMA, primarily for discharging its obligation under its share-based payment plans. t) Investment management services x) Employees’ end of service benefits The Group offers investment services to its customers, through its subsidiary, which include management of certain investment funds in consultation with professional investment advisors. The Group’s share of investment in these funds is included in the available-for-sale investment and fee income earned from managing these funds is disclosed under related party transactions. Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and accordingly, are not included in the consolidated financial statements. u) Income excluded from the consolidated statement of income The Shariah Authority of the Bank conducts from time to time Shariah reviews to ensure compliance of its Shariah decisions. In cases where revenue have been wrongly or inadvertently recognized which does not conform to Shariah principles, the Board of Directors of the Bank shall, at the request of the Chief Executive Officer (CEO), authorize the exclusion of such revenue from the Group’s income for its final disposal. 128 Bank AlBilad The liability for employees’ end of service benefits is determined based on an actuarial valuation conducted by an independent actuary. The actuarial valuation process takes into account the provisions of the Saudi Arabian Labour Law. Also refer note 27. 4. CASH AND BALANCES WITH SAMA Notes Statutory deposit 4.1 Cash in hand Other balances Total 4.2 2017 SAR’ 000 2016 SAR’ 000 2,735,257 2,412,213 1,724,325 1,518,636 1,229,349 597,976 5,688,931 4,528,825 4.1 In accordance with the Banking Control Law and Regulations issued by SAMA, the Bank is required to maintain a statutory deposit with SAMA at stipulated percentages of its demand, saving, time and other deposits, calculated at the end of each month. The statutory deposit with SAMA is not available to finance the Bank’s day to day operations and therefore is not part of cash and cash equivalents. 129
66. Notes to the Consolidated Financial Statements Bank AlBilad 4 .2 This includes cash management account with SAMA of SAR 1,075 million (2016: SAR 325 million). 6. INVESTMENTS, NET 5. DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS, NET a) Investments as at December 31 comprise the following: 2017 SAR’ 000 157,645 Demand 2017 2016 SAR’ 000 Domestic 467,716 Note Commodity murabaha - performing Commodity murabaha - non performing Allowance for impairment on commodity murabaha Total 7,548,737 7,483,128 90,923 90,923 (90,923) (90,923) 7,548,737 7,483,128 7,706,382 7,950,844 Quoted SAR’ 000 International Unquoted SAR’ 000 Quoted SAR’ 000 Total Unquoted SAR’ 000 SAR’ 000 Available-for-sale investments 132,254 158,393 - - 290,647 Mutual fund 374,539 319,317 8,333 3,869 706,058 Sukuk 630,698 1,308,036 311,777 - 2,250,511 1,137,491 1,785,746 320,110 3,869 3,247,216 - 1,892,801 - - 1,892,801 1,137,491 3,678,547 320,110 3,869 5,140,017 Equities, net of impairment 6 (b) Held at amortized cost The credit quality of due from banks and other financial institutions is managed using external credit rating agencies. Commodity murabaha with SAMA Total The table below shows the credit quality by class - performing Class 2017 SAR’ 000 2016 SAR’ 000 Excellent 6,381,810 5,714,178 Very good 1,300,736 2,236,666 23,836 - 7,706,382 7,950,844 Unrated 2016 For details of categories of credit quality, please refer note 7(c). Domestic Note Quoted SAR’ 000 International Unquoted SAR’ 000 Quoted SAR’ 000 Total Unquoted SAR’ 000 SAR’ 000 Available-for-sale investments 130,320 157,500 - - 287,820 Mutual fund 279,365 - - - 279,365 Sukuk 250,791 470,644 47,747 - 769,182 660,476 628,144 47,747 - 1,336,367 - 1,744,578 - - 1,744,578 660,476 2,372,722 47,747 - 3,080,945 Equities, net of impairment 6 (b) Winter Gift Program for Northern Region Students Held at amortized cost 130 Commodity murabaha with SAMA Total Winter Gift Program for Northern Region Students For the third consecutive year, Albilad ambassadors distribute winter clothing as gifts to students in need in the Northern region in cooperation with Takaful Charity Foundation. 131
67. Notes to the Consolidated Financial Statements Bank AlBilad b ) Movement in impairment charge through consolidated statement of income are summarized as follows: 2017 SAR’ 000 Balance at the beginning of the year Provided during the year Balance at the end of the year 2016 SAR’ 000 60,291 13,108 244 47,183 60,535 60,291 No impairment recognized on sukuk and mutual funds. In thousands of Saudi Riyals 2017 Commercial Bei ajel 2016 SAR’ 000 3,015,391 1,744,578 Investment grade 410,465 298,538 Others 717,456 470,644 4,143,312 2,513,760 Total 44,164,204 309,456 - 82,702 140,018 532,176 27,330,961 140,816 1,549,079 15,675,524 44,696,380 (891,203) (684) (123,912) (233,152) (1,248,951) 26,439,758 140,132 1,425,167 15,442,372 43,447,429 In thousands of Saudi Riyals 2017 Commercial Bei ajel Performing Total 2017 SAR’ 000 2016 SAR’ 000 Government and quasi government 3,015,391 1,744,578 Corporate 2,124,626 1,336,367 Total 5,140,017 3,080,945 e) Equities reported under available-for-sale investments include unquoted shares of SAR 158.4 million (2016: SAR 157.5 million) carried at cost as management believes that cost of such investments approximate their fair value. Management also believes cost of Commodity murabaha with SAMA and unquoted sukuk approximates its fair value. Musharakah Installment sales / Ijarah Total 180,086 1,158,166 12,671,433 36,676,913 252,995 - 91,612 162,518 507,125 22,920,223 180,086 1,249,778 12,833,951 37,184,038 (687,644) (2,696) (105,446) (209,865) (1,005,651) 22,232,579 177,390 1,144,332 12,624,086 36,178,387 b) Allowance for impairment for financing: In thousands of Saudi Riyals 2017 Commercial Consumer Total Balance at the beginning of the year 795,786 209,865 1,005,651 Provided during the year 332,377 99,499 431,876 Recoveries of amounts previously provided (17,820) (35,675) (53,495) 314,557 63,824 378,381 (94,544) (40,537) (135,081) 1,015,799 233,152 1,248,951 Amounts written off during the year Balance at the end of the year 132 Ijarah Consumer 22,667,228 Allowance for impairment Financing, net Total 15,535,506 Non-performing d) The analysis of investments by counterparty is as follows: Installment sales / Ijarah 1,466,377 ‘Sovereign’ includes exposures to the central government and corresponding central bank. ‘Investment grade’ includes exposures in the range of “substantially credit risk free to very good credit risk quality”. Musharakah 140,816 Allowance for impairment Financing, net Ijarah Consumer 27,021,505 Non-performing 2017 SAR’ 000 Total a) Held at amortized cost Performing c) Analysis of investments by credit quality Sovereign 7. FINANCING, NET 133
68. Notes to the Consolidated Financial Statements Bank AlBilad In thousands of Saudi Riyals c ) Credit quality of financing 2017 Commercial Consumer Total Balance at the beginning of the year 673,226 191,000 864,226 Provided during the year 195,452 66,923 262,375 Recoveries of amounts previously provided (44,653) (26,508) (71,161) 150,799 40,415 191,214 Amounts written off during the year (28,239) (21,550) (49,789) Balance at the end of the year 795,786 209,865 1,005,651 These include impairment provision on ijarah lease receivables amounting to SAR 12 million (2016: SAR 11 million). The charge for the year for impairment on ijarah financing was SAR 3 million (2016: SAR 3 million). The financing categories have the following classifications: (i) Neither past due nor impaired Grades Bei ajel 2017 Consumer Ijarah Musharakah 2016 2017 2016 2017 2016 Total Installment sales / Ijarah 2017 2016 2017 2016 Excellent 2,232,502 3,954,779 - - 148,700 333,866 - - 2,381,202 4,288,645 Good 4,742,443 4,422,040 - - 228,625 406,845 - - 4,971,068 4,828,885 Satisfactory 9,338,705 9,485,549 475,080 142,645 - - 9,954,601 9,808,280 Fair risk 6,582,563 4,291,385 - - 520,617 258,631 - - 7,103,180 4,550,016 Watch list 1,630,345 296,124 - - 74,740 - - 1,705,085 296,124 24,526,558 22,449,877 - - 26,115,136 23,771,950 14,900,406 12,272,572 14,900,406 12,272,572 41,015,542 36,044,522 Total commercial Consumer satisfactory Total 134 Commercial In thousands of Saudi Riyals 140,816 140,816 180,086 180,086 1,447,762 1,141,987 135
69. Notes to the Consolidated Financial Statements Bank AlBilad Excellent : Strong financial position with excellent liquidity, capitalization, earnings, cash flow, management and capacity to repay are excellent. In thousands of Saudi Riyals 2016 Commercial Bei Ajel SAR’ 000 Good: Healthy financial position with good liquidity, capitalization, earnings, cash flow, management and capacity to repay are good. Satisfactory: 1 to 30 days Ijarah SAR’ 000 Consumer Musharakah SAR’ 000 Installment sales / Ijarah SAR’ 000 Total SAR’ 000 209,051 - 15,695 321,423 546,169 8,301 - 484 77,437 86,222 Total 217,352 - 16,179 398,860 632,391 Fair value of collaterals 294,464 - 6,002 86,852 387,318 31 to 90 days Acceptable financial position with reasonable liquidity, capitalization, earnings, cash flow, management and capacity to repay are good. All performing retail financing are also categorized as Satisfactory. Neither past due nor impaired and past due but not impaired comprise the total performing financing. Fair risk: (iii)Credit quality of financing (individually impaired financing) The table below sets out gross balances of individually impaired financing, together with the fair value of related collaterals held by the Group as at December 31, as follows: Financial position is fair but volatile. However, capacity to repay remains acceptable. Watch list: Cash flow problems may result in delay in payment of profit / installment. Facilities require frequent monitoring. However management considers that full repayment will be received. 2017 Commercial Bei Ajel SAR’ 000 1 to 30 days Individually impaired financing Total SAR’ 000 2,398,997 - 8,281 535,810 2,943,088 95,950 - 10,334 99,290 205,574 Total 2,494,947 - 18,615 635,100 3,148,662 Fair value of collaterals 2,924,052 - 7,553 203,663 3,135,268 31 to 90 days 309,456 Ijarah SAR’ 000 Consumer Installment Musharakah sales / Ijarah SAR’ 000 SAR’ 000 82,702 - Total SAR’ 000 140,018 532,176 Consumer Installment Musharakah sales / Ijarah SAR’ 000 SAR’ 000 Ijarah SAR’ 000 Commercial Bei Ajel SAR’ 000 (ii) Ageing of portfolio (past due but not impaired) In thousands of Saudi Riyals 2017 In thousands of Saudi Riyals 2016 In thousands of Saudi Riyals Commercial Bei Ajel SAR’ 000 Individually impaired financing 252,995 Ijarah SAR’ 000 91,612 Consumer Musharakah SAR’ 000 - Installment sales / Ijarah SAR’ 000 162,518 Total SAR’ 000 507,125 The Bank holds collateral amounting SAR 667 million (2016: SAR 596 million), against some of the nonperforming customers, but as a matter of abundant caution these have not been considered while calculating the impairment against these customers, as the management believes that it may not be able to realize these collaterals immediately. 136 137
70. Notes to the Consolidated Financial Statements Bank AlBilad d )Collateral The Bank in the ordinary course of its financing activities holds collateral as security to mitigate credit risk. The collateral mostly includes project receivables deposits, financial guarantees, local equities and real estate. Collateral is held against corporate and retail real estate facilities and is managed against relevant exposures at their net realizable values. e) Economic sector risk concentration for financing and allowance for impairment: 2017 Performing financing SAR’ 000 Nonperforming financing SAR’ 000 Commercial 4,619,301 Industrial Building and construction Allowance for impairment SAR’ 000 Financing, net SAR’ 000 166,309 (271,564) 4,514,046 5,618,660 98,185 (186,548) 5,530,297 9,981,591 50,361 (252,295) 9,779,657 Transportation and communication 744,765 574 (8,460) 736,879 Electricity, water, gas & health services 941,828 3,000 (8,079) 936,749 2,155,851 4,945 (62,281) 2,098,515 475,978 - (28,545) 447,433 9,609 - (24) 9,585 15,535,506 140,018 (233,152) 15,442,372 Other 4,081,115 68,784 (198,003) 3,951,896 Total 44,164,204 532,176 (1,248,951) 43,447,429 In thousands of Saudi Riyals Services Agriculture and fishing Mining & Quarrying Personal 2017 In thousands of Saudi Riyals Allowance for impairment SAR’ 000 Financing, net SAR’ 000 Commercial 4,414,769 195,980 (235,450) 4,375,299 Industrial 4,248,322 32,243 (85,005) 4,195,560 Building and construction 7,572,156 52,626 (179,120) 7,445,662 Transportation and communication 588,989 - (3,932) 585,057 Electricity, water, gas & health services 373,664 - (1,870) 371,794 2,236,429 3,198 (37,679) 2,201,948 797,830 - (64,026) 733,804 17,517 - (85) 17,432 12,703,669 162,518 (209,865) 12,656,322 Other 3,723,568 60,560 (188,619) 3,595,509 Total 36,676,913 507,125 (1,005,651) 36,178,387 Services Agriculture and fishing Mining & Quarrying Personal f) Financing include finance lease receivables, which are as follows: In thousands of Saudi Riyals 2017 Consumer 2016 Commercial Consumer Commercial Gross receivables from ijarah financing: Less than 1 year 218,929 - 181,770 359,594 1 to 5 years 810,472 142,494 - 186,427 Over 5 years 129,675 - - 1,614 1,159,076 142,494 181,770 547,635 (274,342) (1,678) (1,684) (105,050) 884,734 140,816 180,086 442,585 Unearned finance income on ijarah financing Net receivables from ijarah financing In thousands of Saudi Riyals Net receivables from ijarah receivables: Less than 1 year 1 to 5 years Over 5 years 138 Nonperforming financing SAR’ 000 Performing financing SAR’ 000 2017 Consumer 2016 Commercial Consumer Commercial - 241,604 180,086 298,500 140,816 578,796 - 142,944 - 64,334 - 1,141 140,816 884,734 180,086 442,585 139
71. Notes to the Consolidated Financial Statements Bank AlBilad 9 . INVESTMENT PROPERTY Leasehold improvements Equipment, furniture & motor vehicles Computer hardware & software 457,231 587,736 332,432 Additions during the year - 113,637 Disposals 457,231 In thousands of Saudi Riyals Land and building Total 2017 Total 2016 395,364 1,772,763 1,668,394 13,590 42,930 170,157 106,806 (573) (17,409) (42,392) (60,374) (2,437) 700,800 328,613 395,902 1,882,546 1,772,763 Cost: As at the beginning of the year As at December 31 At the beginning of the year 2,957 393,268 250,255 323,859 970,339 876,310 Charge for the year 1,467 30,210 24,136 40,706 96,519 96,327 - (549) (16,838) (42,349) (59,736) (2,298) 4,424 422,929 257,553 322,216 1,007,122 970,339 As at December 31, 2017 452,807 277,871 71,060 73,686 875,424 As at December 31, 2016 454,274 194,468 82,177 71,505 As at December 31 10.OTHER ASSETS 2017 SAR’ 000 Net book value: 93,935 Advances to suppliers 18,408 13,110 Management fee receivable 40,159 41,085 Others 177,836 59,115 Total 349,493 207,245 11.DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS 2017 SAR’ 000 802,424 Leasehold improvements include work-in-progress as at December 31, 2017 amounting to SAR 141.4 million (2016: SAR 35.1 million). 2016 SAR’ 000 346,546 62,758 Direct investment 1,402,391 933,633 Total 1,748,937 996,391 Demand Bank Albilad cooperated with Bunyan Charity on the development program for Al Sebala district in Riyadh to rebuild condemned residential units. 500+ beneficiaries 140 2016 SAR’ 000 113,090 Prepaid expenses Accumulated depreciation: Disposals Investment property represents cost of properties in the Holy city of Makkah which aims to provide investors with dividends and capital growth in the medium and long term. This investment had resulted from the consolidation of Makkah Al Diyafah Fund which is managed by Albilad Investment Company, a subsidiary controlled by the Group. As of August 31, 2017 the Group has lost control of Makkah Al Diyafah Fund due to the change in ownership percentage. Accordingly, the Group derecognized related assets, liabilities and non-controlling interest of Makkah Al Diyafah Fund (See note 1 and 3). Charity Housing Association Charity Housing Association 8. PROPERTY AND EQUIPMENT, NET 141
72. Notes to the Consolidated Financial Statements Bank AlBilad 12 .CUSTOMERS’ DEPOSITS Demand 14.OTHER LIABILITIES Note 2017 SAR’ 000 2016 SAR’ 000 12-1 27,442,213 26,974,543 Accounts payable 955,842 559,930 6,623,054 6,496,933 Accrued expenses 450,698 304,502 12,811,178 5,937,828 Accrued zakat 30,000 25,000 906,514 825,411 631,354 462,987 47,782,959 40,234,715 2,067,894 1,352,419 Direct investment Albilad account (Mudarabah) Others 12-2 Total 12-1 Demand includes foreign currency deposits of SAR 537 million (2016: SAR 594 million). 12-2 Other includes Margins held for irrevocable commitments of SAR 906 million (2016: SAR 825 million). Margins includes foreign currency margin of SAR 51 million (2016: SAR 54 million). 12-3 The above include foreign currency deposits as follows: The above include foreign currency deposits as follows: 2017 SAR’ 000 2016 SAR’ 000 Demand 537,050 593,565 Direct investment 890,352 930,906 51,037 54,340 1,478,439 1,578,811 Others Total 13.SUKUK On August 30, 2016, the Bank issued 2,000 Sukuk Certificates (Sukuk) of SR 1 million each, and payable quarterly in arrears on February 29, May 30, August 30, November 30 each year until August 30, 2026, on which Sukuk will be redeemed. The Bank has a call option which can be exercised on or after August 30 2021 upon meeting certain conditions and as per the terms mentioned in the related offering circular. The Sukuk may also be called upon occurrence of certain other conditions as per the terms specified in the offering circular. The Bank has not defaulted on any of payments (profit / principal) due during the year. The expected profit distribution on the sukuk is the base rate for three months in addition to the profit margin of 2%. 2017 SAR’ 000 Others Total 2016 SAR’ 000 15.SHARE CAPITAL The authorized issued and fully paid-up capital of the Bank consists of 600 million shares of SAR 10 each (2016: 600 million shares of SAR 10 each). In the Extra-ordinary General Assembly meeting of the Bank held on April 11, 2016 approval was given for a bonus issuance of one share for every five shares increasing the Bank’s capital from SAR 5,000 million to SAR 6,000 million. The bonus share has been issued by capitalizing an amount of SAR 468 million from retained earnings, and transfer of an amount of SAR 532 million from statutory reserve as per the approval from SAMA increasing the number of shares outstanding after the bonus issuance from 500 million shares to 600 million shares. 16.STATUTORY RESERVE In accordance with Article 13 of the Banking Control Law, a minimum of 25% of the annual net income is required to be transferred to the statutory reserve until this reserve equals the paid-up capital of the Bank. Accordingly, SAR 236 million (2016: SAR 202 million) has been transferred to the statutory reserve. The statutory reserve is not available for distribution to shareholders. 17.DIVIDENDS Dividend of SAR 300 million i.e. SAR 0.5 per share has been approved by the Extra-ordinary General Assembly meeting of the Bank held on May 8, 2017. In addition, dividend of SAR 180 million i.e. SAR 0.3 per share for the first half of 2017 has been approved by the Board of Directors of the Bank in their meeting held on September 25, 2017. On January 14, 2018, the Board of Directors recommended to pay a cash dividends of SAR 240 million (SAR 0.4 per share). This dividend is subject to final approval of shareholders in the upcoming general assembly. 18.OTHER RESERVES Other reserves represent the net unrealized revaluation (losses) / gains on available for sale investments. This reserve is not available for distribution to shareholders. Movement in other reserves is as follows: 142 143
73. Notes to the Consolidated Financial Statements Bank AlBilad 2017 SAR ’ 000 2016 SAR’ 000 2017 In thousands of Saudi Riyals Balance at beginning of the year 25,280 (11,712) Net change in fair value of available for sale investments 29,716 (6,151) Letters of credit Transfer to consolidated statement of income (7,820) (4,040) 244 Net movement during the year Balance at the end of the year Impairment charge on available for sale investments Less than 3 months From 3 months to 12 months From 1 to 5 years More than 5 years Total 338,317 531,557 61,467 - 931,341 Letters of guarantee* 750,241 2,296,408 1,171,030 114,921 4,332,600 47,183 Acceptances 197,253 213,569 1,812 - 412,634 22,140 36,992 47,420 25,280 Irrevocable commitments to extend credit - - 568,010 - 568,010 1,285,811 3,041,534 1,802,319 114,921 6,244,585 19.COMMITMENTS AND CONTINGENCIES Total a) Legal proceedings 2016 In thousands of Saudi Riyals As at December 31, 2017, there were legal proceedings outstanding against the Bank. Provisions have been made for some of these legal cases based on the assessment of the Bank’s legal advisers. Letters of credit Less than 3 months From 3 months to 12 months From 1 to 5 years More than 5 years Total 198,678 634,673 62,381 - 895,732 b) Capital commitments Letters of guarantee 210,483 2,184,562 1,719,423 127,464 4,241,932 Acceptances 137,527 79,905 - - 217,432 As at December 31, 2017, the Bank had capital commitments of SAR 52 million (2016: SAR 131 million) relating to leasehold improvements and equipment purchases. Irrevocable commitments to extend credit - - 1,633,518 - 1,633,518 546,688 2,899,140 3,415,322 127,464 6,988,614 c) Credit related commitments and contingencies The primary purpose of these instruments is to ensure that funds are available to customers as required. Guarantee and standby letters of credit, which represent irrevocable assurances that the Group will make payments in the event that a customer cannot meet its obligations to third parties, carry the same credit risk as financing. Cash requirements under guarantees and standby letters of credit are considerably less than the amount of the commitment because the Group does not generally expect the third party to draw funds under the agreement. Documentary letters of credit, which are written undertakings by the Group on behalf of a customer authorizing a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions, are generally collateralized by the underlying shipments of goods to which they relate, and therefore have significantly less risk. Acceptances comprise undertakings by the Group to pay bills of exchange drawn on customers. The Group expects most acceptances to be presented before being reimbursed by the customers. Commitments to extend credit represent unused portions of authorization to extend credit, principally in the form of financing, guarantees or letters of credit. With respect to credit risk relating to commitments to extend credit, the Group is potentially exposed to a loss in an amount which is equal to the total unused commitments. The amount of any related loss, which cannot be reasonably estimated, is expected to be considerably less than the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specific credit standards. The total outstanding commitments to extend credit do not necessarily represent future cash requirements, as many of these commitments could expire or terminate without being funded. 144 (i) Contractual maturity structure of the Group’s commitments and contingencies: Total The outstanding unused portion of commitments as at December 31, 2017 which can be revoked unilaterally at any time by the Group, amounts to SAR 6.8 billion (2016: SAR 5.6 billion). * This is as per contractual period of the guarantee and in event of default may be payable on demand and therefore current in nature. (ii) Commitments and contingencies by counterparty: 2017 SAR’ 000 2016 SAR’ 000 Corporate 5,105,524 6,091,729 Financial institutions 1,052,347 827,039 86,714 69,846 6,244,585 6,988,614 Others Total d) Operating lease commitments The future minimum lease payments under non-cancelable operating leases where the Group is the lessee are as follows: 145
74. Notes to the Consolidated Financial Statements Bank AlBilad 2017 SAR ’ 000 2016 SAR’ 000 Less than one year 139,496 159,975 One year to five years 416,836 437,183 Over five years 272,358 357,884 Total 828,690 955,042 e)Zakat The Bank has filed its Zakat returns with the General Authority for Zakat and Tax (GAZT) and paid Zakat for financial years 2006 to 2016 of SAR 177 million The Bank has received the assessments for the years 2006 to 2014 in which the GAZT raised additional demands aggregating to SAR 615.3 million on account of “disallowance of long-term investments and the addition of long term financing to the Zakat base”. During the year 2016, the Bank paid an additional zakat liability of SAR 58 million in respect of the assessment for financial year 2006. The basis for the additional Zakat liability is being contested by the Bank before the Higher Appeal Committee. The management expects a favorable outcome on the aforementioned appeals and have therefore not made any provisions in respect of the above. The final assessments for the years 2015 and 2016 are yet to be raised by the GAZT. However, if long-term investments are disallowed and long-term financing is added to the Zakat base, in line with the assessments finalized by GAZT for the years referred to above, it would result in significant additional zakat exposure to the Bank which remains an industry wide issue. 20.INCOME FROM INVESTING AND FINANCING ASSETS 2017 SAR’ 000 2016 SAR’ 000 Investments and due from banks and other financial institutions - Banks and other financial institutions Income from sukuk 45,999 28,275 141,766 210,098 46,339 18,083 1,287,711 999,161 528,819 448,768 3,485 3,217 63,070 62,932 2,117,189 1,770,534 Income from financing: Bei ajel Installment sales Ijarah Musharakah Total 146 2017 SAR’ 000 2016 SAR’ 000 53,271 46,611 - Albilad account (Mudarabah) 109,326 47,255 - Direct investment 137,935 239,745 77,662 29,015 378,194 362,626 Return on: Due to banks and other financial institutions Deposits Sukuk Total 22.FEES AND COMMISSION INCOME, NET 2017 SAR’ 000 2016 SAR’ 000 Fees and commission income Remittance 465,651 486,830 ATM and point of sale 204,568 191,517 Facilities management fee 90,704 87,862 Letters of credit and guarantee 47,585 42,154 Management fee (mutual fund and others) 61,286 47,476 Brokerage income 27,013 31,895 Documentation charges 69,825 39,260 Others 59,184 56,974 1,025,816 983,968 142,092 130,233 Brokerage expenses 4,089 3,052 Remittance 7,360 4,846 38,168 33,561 Total fees and commission expenses 191,709 171,692 Fees and commission income, net 834,107 812,276 Total fees and commission income Income from Commodity murabaha with - SAMA 21.RETURN ON DEPOSITS AND FINANCIAL LIABILITES Fees and commission expenses ATM and point of sale Others 147
75. Notes to the Consolidated Financial Statements Bank AlBilad 23 .OTHER OPERATING INCOME Employees Compensation and Benefits 2017 SAR’ 000 1. Quantitative disclosure: 2016 SAR’ 000 Recovery of directly written-off financing 38,652 25,948 Others 22,762 19,276 Total 61,414 45,224 This disclosure has to be bifurcated between the following categories, whereby the meaning of each category is mentioned below: a. Senior executive requiring SAMA no objection: 24.SALARIES AND EMPLOYEE RELATED BENEFITS Whose appointment is subject to approval of SAMA: This includes all staff which requires prior approval of SAMA before appointment, such as: CEO, COO, CRO, CFO, CBO, Head of Internal Audit, Head of Compliance, etc. The following table summarizes compensation practices and includes total of fixed and variable compensation paid to employees during the year ended December 31, 2017 and 2016, and the form of such payments: This comprises of management staff within various business lines i.e. corporate, retail, treasury, trade Services, private Banking etc. who are responsible for executing and implementing the business strategy of the Bank. Number of Employees 2017 Senior executives requiring SAMA no objection 2016 2017 2016 c. Employees engaged in control functions: Variable Compensation Paid Fixed compensation In thousands of Saudi Riyals Cash Shares Total In thousands of Saudi Riyals 2017 2016 2017 2016 2017 2016 9 9 14,845 12,461 6,774 3,365 1,318 5,608 8,092 8,973 Employees engaged in risk taking activities 271 267 82,976 80,628 12,572 9,304 1,801 1,609 14,373 10,913 Employees engaged in control functions 264 268 74,914 71,853 7,922 6,406 1,802 1,149 9,724 7,556 Other employees 2,849 2,897 393,780 396,793 46,185 41,601 3,221 2,972 49,406 44,573 457 374 71,917 59,124 30 0 0 30 42 3,850 3,815 638,432 620,859 8,142 11,338 81,625 72,057 Variable compensation accrued 109,618 73,748 Other employee related benefits 205,535 207,615 Total salaries and employee related expenses 953,585 902,222 Outsourced employees Total 73,483 42 60,718 b. Employees engaged in risk taking activities: This comprises of employees working in divisions that are not involved in risk taking activities but engaged in review functions i.e. risk management, compliance, head of internal audit, treasury operations, finance and accounting, etc. d. Other employees: All regular employees other than those mentioned in (a) to (c) above. e. Outsourced employees: This includes staff employed by various agencies who supply services to the Bank on a full time basis in noncritical roles. None of these roles require risk undertaking or control. 2. Qualitative disclosure: The Bank has developed a Compensation Policy based on the ‘Rules on Compensation Practices’ issued by SAMA as well as the guidelines provided by the Financial Stability Board and the Basel Committee on Banking Supervision in this respect. The Compensation Policy has been approved by the Board of Directors (BOD). The BOD have also established a Nominations and Remuneration Committee, comprising of five members, the Chairman and two members of the Committee are independent to oversee the implementation of the Policy. The mandate of the Committee is to oversee the compensation system design and operation, prepare and periodically review the Compensation Policy and evaluate its effectiveness in line with the industry practice. Policy objectives The policy sets guidelines for determination of both fixed and variable compensation to be paid to the employees of the Group. The scope of the Policy includes all compensation elements, approval and reporting process, stock options, bonus and its deferral, etc. 148 149
76. Notes to the Consolidated Financial Statements The objective of the Policy is to ensure that the compensation is governed by the financial performance evaluation and is linked to the various risks associated , at an overall level. Key staff members of the Bank are eligible to variable compensation which is derived from Risk Adjusted Net Income of the Bank which accounts for significant existing and potential risks in order to protect the Bank’s Capital Adequacy and to mitigate the risk of potential future losses. Compensation structure The compensation structure of the Bank is based on appropriate industry benchmarking and includes both fixed and variable components. The variable component is designed to ensure key employee retention and is based on three year vesting period. a. Fix components: Provide a competitive salaries or wage according to annual Market alignment. Including (Basic, Housing, Transportation and Fix allowance) which is written in the employee’s contract. b. Variable components: Taking into account the risk associated with the Bank’s performance & individual performance appraisal, all these factors are assessed on periodical basis and the results are shared with the stakeholders based on which the incentive is announced at the close of each accounting period. Including (LTIP or the Stoke Options & STIP as Incentives scheme, Annual Bonus and Annual tickets allowance). Performance management system The performance of all employees is measured by way of a balance score card methodology taking in to consideration, financial, customer, process and people factors with appropriate weightage to each factor based on the respective assignments. 25. BASIC AND DILUTED EARNINGS PER SHARE Basic and diluted earnings per share for the years ended December 31, 2017 and 2016 is calculated by dividing the net income for the period attributable to the equity holders by the weighted average number of outstanding shares 2017: 596 million shares (2016: 595 million shares) during the period adjusted for treasury shares. The weighted average number of shares for 2016 were adjusted retrospectively due to bonus share issue. Bank AlBilad 26. CASH AND CASH EQUIVALENTS 2017 SAR’ 000 2016 SAR’ 000 1,724,325 1,518,636 Due from banks and other financial institutions (maturing within ninety days from acquisition) 5,810,887 6,369,598 Held at amortized cost (maturing within ninety days from acquisition) 300,065 300,070 1,229,349 597,976 9,064,626 8,786,280 Class 2017 SAR’ 000 2016 SAR’ 000 Excellent 8,090,448 6,405,975 950,342 2,380,305 23,836 - 9,064,626 8,786,280 Note Cash in hand Balances with SAMA (excluding statutory deposit) Total 4 4 The table below shows the credit quality by class Very good Unrated 27.EMPLOYEE BENEFIT OBLIGATION a) General description The Bank operates an End of Service Benefit Plan for its employees based on the prevailing Saudi Labor Laws. Accruals are made in accordance with the actuarial valuation under projected unit credit method while the benefit payments obligation is discharged as and when it falls due. b) The amounts recognized in the statement of financial position and movement in the obligation during the year based on its present value are as follows: 2017 SAR’ 000 Defined benefit obligation at the beginning of the year Current service cost Interest cost Benefits paid Unrecognized actuarial loss / (gain)* Defined benefit obligation at the end of the year 2016 SAR’ 000 161,307 142,565 47,770 31,072 8,700 7,128 (16,461) (9,567) - (9,891) 201,316 161,307 The current service cost for the year was SAR 48 million (2016: SAR 31 million). *Unrecognized actuarial gain / (loss) has not been reflected in other comprehensive income being immaterial. 150 151
77. Notes to the Consolidated Financial Statements Bank AlBilad c ) Principal actuarial assumptions (in respect of the employee benefit scheme) 2017 SAR’ 000 Corporate banking 2016 SAR’ 000 Discount rate 5% 5% Expected rate of salary increase 5% 5% • Male 60 years 60 years • Female 55 years 55 years Normal retirement age Assumptions regarding future mortality are set based on actuarial advice in accordance with the published statistics and experience in the region. d) Sensitivity of actuarial assumptions The table below illustrates the sensitivity of the Defined Benefit Obligation valuation as at December 31, 2017 to the discount rate (5%), salary escalation rate (5%), withdrawal assumptions and mortality rates. In thousands of Saudi Riyals Impact on defined benefit obligation - Increase / (decrease) Base Scenario Change in assumption Increase in assumption Decrease in assumption Discount rate 5% 1% (10.23%) 12.01% Expected rate of salary increase 5% 1% 14.85% (12.57%) • Male 60 years 20% (3.28%) 3.59% • Female 55 years 20% (3.28%) 3.59% Services and products to corporate and commercial customers including deposits, financing and trade services. Treasury Money market and treasury services. Investment banking and brokerage Investment management services and asset management activities related to dealing, managing, arranging, advising and custody of securities. Other All other support functions. Transactions between the above operating segments are under the terms and conditions of the approved Fund Transfer Pricing (FTP) system. The support segments and Head Office expenses are allocated to other operating segments, based on an approved criteria. a) The Group total assets and liabilities, together with its total operating income and expenses, and net income /(loss), for the years ended December 31, 2017 and 2016 for each segment are as follows: 2017 In thousands of Saudi Riyals Corporate banking Treasury Total assets 19,226,564 25,567,342 16,460,585 Total liabilities 31,939,534 11,782,080 632,925 Other Total 444,834 1,508,351 63,207,676 7,532,423 17,710 4,347,136 55,618,883 1,237,930 232,096 14,238 - 2,117,189 (114,619) (40,881) (145,190) - (77,504) (378,194) Funding Pool 228,727 (397,990) 48,881 - 120,382 - Net income from investing and financing assets 747,033 799,059 135,787 14,238 42,878 1,738,995 Fee, commission and other income, net 826,316 134,744 111,856 91,374 56,499 1,220,789 1,573,349 933,803 247,643 105,612 99,377 2,959,784 Impairment charge for financing, net 71,597 306,784 - - - 378,381 Impairment charge on available for sale investments - - - - 244 244 83,403 9,761 1,412 1,943 - 96,519 1,152,703 250,102 67,666 78,002 - 1,548,473 Normal retirement age The above sensitivity analyses are based on a change in an assumption holding all other assumptions constant. 28. SEGMENTAL INFORMATION Operating segments, based on customer groups are identified on the basis of internal reports about components of the Group that are regularly reviewed by the Assets and Liabilities Committee (ALCO) in order to allocate resources to the segments and to assess its performance. The Group’s main business is conducted in the Kingdom of Saudi Arabia. There has been no change to the basis of segmentation or the measurements basis for the segment profit or loss since December 31, 2016. For management purposes, the Group is divided into the following five operating segments: Retail banking Services and products to individuals, including deposits, financing, remittances and currency exchange. 152 Investment banking & brokerage Retail banking Income from investing and financing assets Return on deposits and financial liabilities Total operating income Depreciation Other operation expenses 153
78. Notes to the Consolidated Financial Statements Total operating expenses Net income for the year Bank AlBilad 1 ,307,703 566,647 69,078 79,945 244 2,023,617 265,646 367,156 178,565 25,667 99,133 936,167 265,646 367,156 178,565 25,667 105,013 942,047 - - - - (5,880) (5,880) 265,646 367,156 178,565 25,667 99,133 936,167 Non-controlling interest Net income for the year Investment banking & brokerage Retail banking Corporate banking Treasury Total assets (Restated) 18,343,093 22,537,142 11,480,857 Total liabilities (Restated) 25,620,006 8,180,533 Income from investing and financing assets 523,121 Return on deposits and financial liabilities Corporate Treasury Total 15,442,372 28,005,057 11,849,694 55,297,123 - 3,148,960 - 3,148,960 2016 In thousands of Saudi Riyals Commitments and contingencies Retail Corporate Treasury Total 12,624,086 23,554,301 10,456,604 46,634,991 - 3,657,416 - 3,657,416 Other Total 227,406 1,160,172 53,748,670 9,436,781 15,932 3,343,534 46,596,786 990,957 247,173 9,283 - 1,770,534 29.FINANCIAL RISK MANAGEMENT (79,554) (12,862) (241,195) - (29,015) (362,626) 31,505 (316,576) 151,489 - 133,582 - Net income from investing and financing assets 475,072 661,519 157,467 9,283 104,567 1,407,908 Banking activities involve varieties of financial risks which are assessed by conducting set of analysis, evaluation, acceptance and management of some degree of risk or combination of risks. The Group’s aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Group’s financial performance with ultimate objective of enhancing the shareholders’ value. Fee, commission and other income, net 819,216 134,288 94,492 83,662 47,862 1,179,520 1,294,288 795,807 251,959 92,945 152,429 2,587,428 Impairment charge for financing, net 26,659 164,555 - - - 191,214 Impairment charge on available for sale investments - - - - 47,183 47,183 85,741 7,557 1,300 1,729 - 96,327 Other operation expenses 1,091,063 233,334 57,436 60,093 1,755 1,443,681 Total operating expenses 1,203,463 405,446 58,736 61,822 48,938 1,778,405 90,825 390,361 193,223 31,123 103,491 809,023 Funding Pool Total operating income Depreciation Net income for the year Attributable to Equity holders of the Bank Non-controlling interest Net income for the year 154 Retail Commitments and contingencies Total assets 2016 In thousands of Saudi Riyals 2017 In thousands of Saudi Riyals Total assets Attributable to Equity holders of the Bank (b) Credit exposure by operating segments is as follows: 90,825 390,361 193,223 31,123 102,191 807,723 - - - - 1,300 1,300 90,825 390,361 193,223 31,123 103,491 809,023 Group credit exposure is comprised of due from bank and other financial institutions, investments and financing. The credit equivalent value of commitments and contingencies are included in credit exposure as calculated in accordance with SAMA regulations. The Group’s risk management policies, procedures and systems are designed to identify and analyze these risks and to set appropriate risk mitigants and controls. The Group reviews its risk management policies and systems on an ongoing basis to reflect changes in markets, products and emerging best practice. The Group’s Board of Directors have appointed the Risk and Compliance Committee which has the responsibility to monitor the overall risk process within the Group. The Risk and Compliance Committee has the overall responsibility for the development of the risk strategy and implementing principles, frameworks, policies and limits. It is the responsible for managing risk decisions and monitoring risk levels. The Risk and Compliance Committee reports on a regular basis to the Board of Directors. 30.CREDIT RISK The Group manages exposure to credit risk, which is the risk that one party to a financial instrument will fail to discharge an obligation and cause the other party to incur a financial loss. Credit exposures arrive principally in financing and investment activities. There is also credit risk in off-financial position financial instruments, such as letters of credit, letter of guarantees and financing commitments. The Group assesses the probability of default of counterparties using internal rating tools. Also, the Group uses external ratings from major rating agencies, where available. 155
79. Notes to the Consolidated Financial Statements The Group attempts to control credit risk by monitoring credit exposures , limiting transactions with specific counterparties and continually assessing the creditworthiness of counterparties. The Group’s risk management policies are designed to identify and to set appropriate risk limits and to monitor the risks and adherence to limits. Actual exposures against limits are monitored daily. In addition to monitoring credit limits, the Group manages the credit exposure relating to its trading activities by entering into master netting agreements and collateral arrangements with counterparties in appropriate circumstances, and limiting the duration of exposure. Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities or activities in the same geographic region or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions. Concentrations of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographical location. The Group seeks to manage its credit risk exposure through diversification to ensure that there is no undue concentration of risks with individuals or groups of customers in specific locations or businesses. It also takes security when appropriate. The Group also seeks additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant facilities. Management requests additional collateral in accordance with the underlying agreement and monitors the market value of collateral obtained during its review of the adequacy of the allowance for impairment of financings. The Group regularly reviews its risk management policies and systems to reflect changes in market products and emerging best practice. Analysis of investments by counterparty is provided in note 6(d), for financing in note 7 and for commitments and contingencies in note 19. The information on the Group’s maximum credit and credit risk exposure by operating business segments is given in note 28(b). Bank AlBilad a) Geographical concentration (i) The geographical distribution of assets, liabilities, commitments and contingencies and credit risk exposure as of December 31: 2017 In thousands of Saudi Riyals Kingdom of Saudi Arabia Other GCC and Middle East Europe North America Latin America South East Asia Other countries Total Assets Cash and balances with SAMA 5,688,931 - - - - - - 5,688,931 • Cash in hand 1,724,325 - - - - - - 1,724,325 • Balances with SAMA 3,964,606 - - - - - - 3,964,606 Due from Banks and other financial institutions 5,757,587 1,808,903 79,857 6,277 - 35,933 17,825 7,706,382 - 17,753 79,857 6,277 - 35,933 17,825 157,645 • Commodity murabaha 5,757,587 1,791,150 - - - - - 7,548,737 Investments, net 4,815,538 311,777 8,833 3,869 - - - 5,140,017 • Available for sale 2,922,737 311,777 8,833 3,869 • Held at amortized cost 1,892,801 - - - - - - 1,892,801 Financing, net 43,447,429 - - - - - - 43,447,429 • Retail 15,442,372 - - - - - - 15,442,372 • Corporate 28,005,057 - - - - - - 28,005,057 875,424 - - - - - - 875,424 - - - - - - - - 349,493 - - - - - - 349,493 60,934,402 2,120,680 88,690 10,146 - 35,933 17,825 63,238,604 Due to SAMA 2,012,518 - - - - - - 2,012,518 Due to banks and other financial institutions 1,221,517 91,955 - 245,539 - 181,885 8,041 1,748,937 - 69,428 - 245,539 - 23,537 8,041 346,545 • Direct investment 1,221,517 22,527 - - - 158,348 - 1,402,392 Customer deposits 47,782,959 - - - - - - 47,782,959 • Demand 27,442,213 - - - - - - 27,442,213 6,623,054 - - - - - - 6,623,054 12,811,178 - - - - - - 12,811,178 906,514 - - - - - - 906,514 2,006,575 - - - - - - 2,006,575 • Demand Property and equipment, net Investment in property Other assets Total 3,247,216 Liabilities • Demand • Direct investment • Albilad account (Mudarabah) • Other Sukuk 156 157
80. Notes to the Consolidated Financial Statements Other liabilities Total 2 ,067,894 55,091,463 Bank AlBilad - - 91,955 - 245,539 - 181,885 8,041 2,067,894 55,618,883 Due to SAMA 2,006,214 - - - - - - 2,006,214 727,153 145,854 - - - 93,897 29,487 996,391 - 33,228 - - - 43 29,487 62,758 727,153 112,626 - - - 93,854 - 933,633 Customer deposits 40,234,715 - - - - - - 40,234,715 • Demand 26,974,543 - - - - - - 26,974,543 Due to banks and other financial institutions • Demand Commitments and contingencies • Direct investment 931,341 - - - - - - 931,341 4,332,600 - - - - - - 4,332,600 • Acceptances 412,634 - - - - - - 412,634 • Direct investment 6,496,933 - - - - - - 6,496,933 • Irrevocable commitments to extend credit 568,010 - - - - - - 568,010 • Albilad account (Mudarabah) 5,937,828 - - - - - - 5,937,828 6,244,585 - - - - - - 6,244,585 825,411 - - - - - - 825,411 Sukuk 2,007,047 - - - - - - 2,007,047 3,148,960 - - - - - - 3,148,960 Other liabilities 1,352,419 - - - - - - 1,352,419 46,327,548 145,854 - - - 93,897 29,487 46,596,786 895,732 - - - - - - 895,732 4,241,932 - - - - - - 4,241,932 217,432 - - - - - - 217,432 1,633,518 - - - - - - 1,633,518 6,988,614 - - - - - - 6,988,614 3,657,416 - - - - - - 3,657,416 • Letters of credit • Letter of Guarantee Credit risk (stated at credit equivalent amounts) on commitments and contingencies • Other Total Commitments and contingencies 2016 In thousands of Saudi Riyals Kingdom of Saudi Arabia Other GCC and Middle East North America Europe Latin America South East Asia Other countries Total Cash and balances with SAMA 4,528,825 - - - - - - 4,528,825 • Cash in hand 1,518,636 - - - - - - 1,518,636 • Balances with SAMA 3,010,189 - - - - - - 3,010,189 Due from Banks and other financial institutions 3,631,585 3,894,954 109,779 161,736 - 97,968 54,822 7,950,844 - 43,411 109,779 161,736 - 97,968 54,822 467,716 • Commodity murabaha 3,631,585 3,851,543 - - - - - 7,483,128 Investments, net 3,024,900 47,747 8,298 - - - - 3,080,945 • Available for sale 1,280,322 47,747 8,298 - - - - 1,336,367 • Held at amortized cost 1,744,578 - - - - - - 1,744,578 Financing, net 36,178,387 - - - - - - 36,178,387 • Retail 12,624,086 - - - - - - 12,624,086 • Corporate 23,554,301 - - - - - - 23,554,301 802,424 - - - - - - 802,424 1,000,000 - - - - - - 1,000,000 206,821 424 - - - - - 207,245 49,372,942 3,943,125 118,077 161,736 - 97,968 54,822 53,748,670 Property and equipment, net Investment in property Other assets Total • Letter of Guarantee • Acceptances Assets • Demand • Letters of credit • Irrevocable commitments to extend credit Credit risk (stated at credit equivalent amounts) on commitments and contingencies Credit equivalent amounts reflect the amounts that result from translating the Group’s commitments and contingencies into the risk equivalent of financing facilities using credit conversion factors prescribed by SAMA. Credit conversion factor is used to capture the potential credit risk resulting from the Group meeting its commitments. Liabilities 158 159
81. Notes to the Consolidated Financial Statements Bank AlBilad (ii) The geographical distribution of the impaired available for sale investments, financing assets and commodity murabaha and the allowance for impairment is set out as below: 2017 In thousands of Saudi Riyals Non-Performing financing Allowance for financing impairment Impaired available for sale investments and commodity murabaha Allowance for impairment for investments and commodity murabaha Kingdom of Saudi Arabia Other GCC and Middle East Europe North America Latin America South East Asia Other countries Total 532,176 - - - - - - 532,176 1,248,951 - - - - - - 1,248,951 547 244 90,923 - 90,923 - - - - - - - - - 91,470 91,167 b. Foreign exchange rate risk a. Foreign exchange rate risk represents the risk of change in the value of financial instruments due to change in exchange rates. The Group is exposed to the effects of fluctuations in foreign currency exchange rates on both its financial position and on its cash flows. The Group’s management sets limits on the level of exposure by individual currency and in total for intra day positions, which are monitored daily. The Group had the following summarized exposure to foreign currency exchange rate risk as at December 31: In thousands of Saudi Riyals 2017 Saudi Riyal 2016 Foreign currency Saudi Riyal Foreign currency Assets 2016 In thousands of Saudi Riyals Non-Performing financing Allowance for financing impairment Impaired available for sale investments and commodity murabaha Allowance for impairment for investments and commodity murabaha Kingdom of Saudi Arabia Other GCC and Middle East Europe North America Latin America South East Asia Other countries Total 507,125 - - - - - - 507,125 1,005,651 - - - - - - 1,005,651 5,620,789 68,142 4,451,004 77,821 Due from banks and other financial institutions, net 7,548,737 157,645 7,389,269 561,575 Investments, net 4,568,759 571,258 3,024,899 56,046 43,244,465 202,964 35,982,360 196,027 - - 1,000,000 - 325,782 23,711 173,639 33,606 2,012,518 - 2,006,214 - 716,830 1,032,107 781,615 214,776 46,304,520 1,478,439 38,655,903 1,578,812 Sukuk 2,006,575 - 2,007,047 - Other liabilities 2,060,342 7,552 1,347,246 5,173 Equity 7,588,708 85 7,112,501 (523) - - 39,906 - Financing, net Investment property 102,182 90,923 - - - - - 193,105 47,183 90,923 - - - - - 138,106 31.MARKET RISK Market risk is the risk that the fair value to future cash flows of the financial instruments will fluctuate due to changes in market variables such as profit rate, foreign exchange rates and equity prices. a. Profit rate risk Cash flow profit rate risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market profit rates. The Group does not have any significant exposure to the effects of fluctuations in prevailing level of market profit rates on its future cash flows as a significant portion of profit earning financial assets and profit bearing liabilities are at fixed rates and are carried in the consolidated financial statements at amortized cost. In addition to this, a substantial portion of the Group’s financial liabilities are non-profit bearing. 160 Cash and balances with SAMA Other assets Liabilities and equity Due to SAMA Due to banks and other financial institutions Customer deposits Non-controlling interest 161
82. Notes to the Consolidated Financial Statements Bank AlBilad A substantial portion of the net foreign currency exposure to the Group is in US Dollars , where SAR is pegged to US Dollar. The other currency exposures are not considered significant to the Group’s foreign exchange rate risks and as a result the Group is not exposed to major foreign exchange rate risks. The Bank has performed a sensitivity analysis over one year time horizon for the probability of changes in foreign exchange rates, other than US Dollars, using historical average exchange rates and has determined that there is no significant impact on its net foreign currency exposures. At the end of the year, the Group had the following significant net exposures denominated in foreign currencies: In thousands of Saudi Riyals 2017 2016 (1,474,290) (970,868) Kuwaiti Dinars (2,253) 3,417 Pakistani Rupees 10,018 49,681 Euro (8,443) 6,965 UAE Dirhams (3,129) 19,851 Bangladeshi Takas (2,308) 11,698 (14,058) 6,095 (1,494,463) (873,161) US Dollars Others Total c. Investment price risk Investment risk refers to the risk of decrease in fair values of equities, mutual funds and sukuk in the Group’s available-for-sale investment portfolio as a result of possible changes in levels of market indices over a one year time horizon and the value of individual stocks. The effect on the Group’s investments held as available for sale due to reasonable possible change in market indices, with all other variables held constant is as follows: Security types December 31, 2017 Change in investment price % Effect In December 31, 2016 Change in investment price % Effect In Equity Quoted Unquoted 162 Quoted Unquoted ± 10 13,225 ± 10 13,032 ±2 3,168 ±2 3,150 ± 10 38,287 ± 10 27,937 ±2 6,464 ±2 - ± 10 94,248 ± 10 29,854 ±2 26,161 ±2 9,413 Sukuk Quoted Unquoted b. Currency position In thousands of Saudi Riyals Mutual Funds 32.LIQUIDITY RISK Liquidity risk is the risk that the Group will not be able to meet its net funding requirements. Liquidity risk can be caused by market disruptions or credit downgrades, which may cause certain sources of funding to dry up immediately. To mitigate this risk, management has diversified funding sources and assets are managed with liquidity in mind, maintaining a healthy balance of cash, cash equivalents and readily marketable securities. Management monitors the maturity profile to ensure that adequate liquidity is maintained. The daily liquidity position is monitored and regular liquidity stress testing is conducted under a variety of scenarios covering both normal and more severe market conditions. All liquidity policies and procedures are subject to review and approval by Assets Liability Committee (ALCO). Daily reports cover the liquidity position of both the Bank and operating subsidiaries. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO. In accordance with Banking Control Law and the regulations issued by SAMA, the Bank maintains a statutory deposit with SAMA equal to 7% (2016: 7%) of total demand deposits and 4% (2016: 4%) of time deposits. In addition to the statutory deposit, the Bank also maintains liquid reserves of not less than 20% of its total deposits, in the form of cash and assets, which can be converted into cash within a period not exceeding 30 days. The Bank has the ability to raise additional funds through special investment arrangements facilities with SAMA. a. Analysis of discounted assets and liabilities by expected maturities The table below summarises the maturity profile of the Group’s assets and liabilities. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the consolidated statement of financial position date to the contractual maturity date and do not take account of the effective maturities as indicated by the Group’s deposit retention history. The amounts disclosed in the table are the contractual discounted cash flows, whereas the Group manages the inherent liquidity risk based on expected discounted cash inflows. 163
83. Notes to the Consolidated Financial Statements 2017 In thousands of Saudi Riyals Bank AlBilad Within 3 Months 3 months to 1 year Over one year to 5 years Over 5 years No fixed maturity The cumulative maturities of commitments & contingencies are given in note 19 of the financial statements Total *It does not include non-financial assets and liabilities. Assets Cash and balances with SAMA 2,953,674 - - - 2,735,257 5,688,931 • Cash in hand 1,724,325 - - - - 1,724,325 Assets • Balances with SAMA 1,229,349 - - - 2,735,257 3,964,606 Due from Banks and other financial institutions Cash and balances with SAMA 2,116,612 - - 6,391,004 360,579 954,799 - - 7,706,382 • Cash in hand 1,518,636 - 157,645 - - - - 157,645 597,976 • Commodity murabaha 6,233,359 360,579 954,799 - - 7,548,737 Investments, net 1,628,633 10,230 497,500 2,006,948 996,706 5,140,017 • Demand 37,532 10,230 497,500 1,705,248 996,706 3,247,216 • Held at amortized cost 1,591,101 - - 301,700 - 1,892,801 Financing, net 9,927,147 20,042,406 10,868,928 2,608,948 - 43,447,429 • Available for sale 623,114 3,284,472 9,655,390 1,879,396 - 15,442,372 9,304,033 16,757,934 1,213,538 729,552 - 28,005,057 Investment in property - - - - - - Other assets* - - - - 64,024 64,024 20,900,458 20,413,215 12,321,227 4,615,896 3,795,987 62,046,783 • Demand • Available for sale • Consumer • Commercial Total assets Liabilities 2,012,518 - - - - 2,012,518 Due to banks and other financial institutions 1,236,723 512,214 - - - 1,748,937 • Demand 346,546 - - - - 346,546 • Direct investment 890,177 512,214 - - - 1,402,391 Customer deposits 46,266,291 1,516,668 - - - 47,782,959 • Demand 27,442,213 - - - - 27,442,213 5,106,386 1,516,668 - - - 6,623,054 12,811,178 - - - - 12,811,178 906,514 - - - - 906,514 Sukuk - - - 2,006,575 - 2,006,575 Other liabilities* - - - - 1,448,034 1,448,034 2,028,882 - 2,006,575 1,448,034 3,041,534 1,802,319 114,921 - • Albilad account (Mudarabah) • Other Total Liabilities Commitments & contingencies Total - 2,412,213 4,528,825 - - - 1,518,636 - - - 2,412,213 3,010,189 6,628,766 960,684 361,394 - - 7,950,844 467,716 - - - - 467,716 • Commodity murabaha 6,161,050 960,684 361,394 - - 7,483,128 Investments, net 1,243,704 199,287 290,993 779,777 567,184 3,080,945 - - 290,993 478,190 567,184 1,336,367 • Held at amortized cost 1,243,704 199,287 - 301,587 - 1,744,578 Financing, net 7,560,003 18,226,823 9,655,969 735,592 - 36,178,387 721,116 2,758,780 8,417,725 726,465 - 12,624,086 6,838,887 15,468,043 1,238,244 9,127 - 23,554,301 Investment in property - 800,000 - - 200,000 1,000,000 Other assets* - - - - 48,201 48,201 17,549,085 20,186,794 10,308,356 1,515,369 3,227,598 52,787,202 - 2,006,214 - - - 2,006,214 794,485 201,906 - - - 996,391 62,758 - - - - 62,758 731,727 201,906 - - - 933,633 Customer deposits 38,756,872 1,477,843 - - - 40,234,715 • Demand 26,974,543 - - - - 26,974,543 • Direct investment 5,937,828 - - - - 5,937,828 • Albilad account (Mudarabah) 5,019,090 1,477,843 - - - 6,496,933 - - - 825,411 Due from Banks and other financial institutions • Consumer • Commercial Total assets Due to SAMA • Direct investment No fixed maturity • Balances with SAMA 49,515,532 1,285,811 54,999,023 6,244,585 3 months to 1 year Over 5 years Liabilities Due to SAMA Due to banks and other financial institutions • Demand • Direct investment • Other 825,411 Sukuk - - - 2,007,047 - 2,007,047 Other liabilities* - - - - 922,084 922,084 39,551,357 3,685,963 - 2,007,047 922,084 46,166,451 546,688 2,899,140 3,415,322 127,464 - 6,988,614 Total Liabilities Commitments & contingencies 164 Within 3 Months Over one year to 5 years 2016 In thousands of Saudi Riyals 165
84. Notes to the Consolidated Financial Statements Bank AlBilad The cumulative maturities of commitments & contingencies are given in note 19 of the financial statements *It does not include non-financial assets and liabilities. 2017 In thousands of Saudi Riyals Within 3 Months 3 months to 1 year Over one year to 5 years Over 5 years No fixed maturity Total Due to SAMA 2,014,309 - - - - 2,014,309 Due to banks and other financial institutions 1,237,279 515,578 - - - 1,752,857 46,274,649 1,533,665 - - - 47,808,314 2016 In thousands of Saudi Riyals Within 3 Months 3 months to 1 year Due to banks and other financial institutions Customers’ deposits Carrying value Level 1 Level 2 Level 3 Total December 31, 2017 Available for sale investments Equities 290,647 132,254 - 158,393 290,647 Mutual funds 706,058 382,872 323,186 - 706,058 2,250,511 942,475 - 1,308,036 2,250,511 Due from banks and other financial institutions, net 7,706,382 - - 7,706,382 7,706,382 Investments held at amortized cost 1,892,801 - - 1,892,801 1,892,801 43,447,429 - - 42,356,960 42,356,960 Sukuks Financial assets not measured at fair value Over one year to 5 years Over 5 years No fixed maturity Total Financial liabilities Due to SAMA Fair value Financial assets measured at fair value Financial liabilities Customers’ deposits In thousands of Saudi Riyals - 2,020,908 - - - 2,020,908 794,574 203,716 - - - 998,290 38,771,144 1,489,250 - - - 40,260,394 33.FAIR VALUES OF FINANCIAL INSTRUMENTS 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: Financing, net In thousands of Saudi Riyals Fair value Carrying value Level 1 Level 2 Level 3 Total December 31, 2016 Financial assets measured at fair value Available for sale investments Equities 287,820 130,320 - 157,500 287,820 Mutual funds 287,365 279,365 - - 279,365 Sukuks 761,182 298,538 - 470,644 769,182 Due from banks and other financial institutions, net 7,950,844 - - 7,950,844 7,950,844 Quoted prices in active markets for the same or identical instrument that an entity can access at the measurement date; Investments held at amortized cost 1,744,578 - - 1,744,578 1,744,578 36,178,387 - - 35,613,860 35,613,860 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 Investment property 1,000,000 - - 1,290,637 1,290,637 Level 3: Valuation techniques for which any significant input is not based on observable market data. - In the principal market for the asset or liability, or - In the absence of a principal market, in the most advantageous accessible market for the asset or liability Determination of fair value and fair value hierarchy The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: Financial assets not measured at fair value Financing, net The following table shows the carrying amount and fair values of financial assets and financial liabilities, including their levels in the fair value hierarchy: 166 167
85. Notes to the Consolidated Financial Statements In thousands of Saudi Riyals Bank AlBilad Reconciliation of level 3 fair values held as available for sale Fair value Carrying value Level 1 Level 2 Level 3 Total December 31 , 2017 Financial liabilities not measured at fair value Due to SAMA 2,012,518 - - 2,012,518 2,012,518 Due to banks and other financial institutions 1,748,937 - - 1,748,937 1,748,937 47,782,959 - - 47,782,959 47,782,959 2,006,575 - - 2,006,575 2,006,575 Customers’ deposits Sukuk In thousands of Saudi Riyals Fair value Carrying value Level 1 Level 2 Level 3 Total December 31, 2016 Financial liabilities not measured at fair value Due to SAMA Due to banks and other financial institutions Customers’ deposits Sukuk 2,006,214 - - 2,006,214 2,006,214 996,391 - - 996,391 996,391 40,234,715 - - 40,234,715 40,234,715 2,007,047 - - 2,007,047 2,007,047 The fair values of financial instruments which are not measured at fair value in these consolidated financial statements are not significantly different from the carrying values included in the consolidated financial statements. The fair values of profit bearing customer deposits, held at amortized cost investment, due from and due to banks and other financial institutions which are carried at amortized cost, are not significantly different from the carrying values included in the consolidated financial statements, since either the current market profit rates for similar financial instruments are not significantly different from the contracted rates, or for the short duration of certain financial instruments particularly due from and due to banks and other financial institutions or a combination of both. An active market for these instruments is not available and the Group intends to realize the carrying value of these financial instruments through settlement with the counterparty at the time of their respective maturities. 168 In thousands of Saudi Riyals 2017 2016 Balance at the beginning of the year 628,144 455,068 Purchase 830,284 269,414 - (97,568) 8,001 1,230 1,466,429 628,144 Sales Net changes in fair value (unrealised) Total 34.RELATED PARTY BALANCES AND TRANSACTIONS In the ordinary course of business, the Group transacts business with related parties. The related party transactions are governed by limits set by the Banking Control Law and the regulations issued by SAMA. Major shareholders are those shareholders who own 5% or more of the Bank’s issued share capital. Key management personnel include the Chief Executive Officer and other officers having authority and responsibility for planning, directing, and controlling the activities of the Bank. The nature and balances of transactions with the related parties for the years ended December 31 are as follows: In thousands of Saudi Riyals 2017 2016 a) Directors, and other major shareholders and their affiliates balances: Financing 2,017,422 1,126,699 13,331 16,376 81,512 90,642 Demand 64,390 84,728 Albilad account (Mudarabah) 88,625 2,611 5,750 5,750 Bei ajel Musharaka Commitments and contingencies Commitments and contingencies Deposits Other Financing classified as level 3 has been valued using expected cash flows discounted at relevant SIBOR. Also see note 7(e). In thousands of Saudi Riyals Available for sale investments classified as level 3 include unlisted sukuk which have been measured by the management at fair value using broker quotes or estimating present value by discounting cash flows using adjusted discount rate. The adjusted discount rate is calculated using CDS of a similar entity using publicly available information. The valuation method has been approved by ALCO. Financing Deposits During the current year, no financial assets / liabilities have been transferred between level 1 and / or level 2 fair value hierarchy. Albilad account (Mudarabah) 2017 2016 b) Key management personnel and their affiliates balances: Installment sales Demand 11,481 9,381 2,271 5,707 14,203 5,326 169
86. Notes to the Consolidated Financial Statements In thousands of Saudi Riyals Bank AlBilad 2017 Key management personnel and their affiliates : 2016 c) Group’s mutual funds*: In thousands of Saudi Riyals These are the outstanding balances with Group’s mutual funds as of December 31: Income 196 196 220,367 47,164 Financing - 811,800 Sukuk issued by the Bank - 8,000 Customers’ deposits Investments – units *these includes certain balances pertaining to Makkah AlDiyafah Fund which were consolidated in 2016 but are not being consolidated in 2017 and accordingly included in these balances in 2017. d) Income and expense: The following is an analysis of the related party income and expenses included in the consolidated statement of income for the years ended December 31, 2017 and 2016: Directors, and other major shareholders and their affiliates and mutual funds managed by the Group: In thousands of Saudi Riyals 2017 2016 Income Income from financing Fee and commission income, net Fee and commission income, net (AlBilad mutual funds) 36,833 39,699 622 626 12,277 11,790 Expenses Albilad account (Mudarabah) Buildings rents Board of Directors’ remuneration 2,664 16 10,404 11,054 4,883 5,480 Income from financing 2017 2016 156 100 84 16 Expenses Albilad account (Mudarabah) The total amount of compensation paid to key management personal during the year is as flows: In thousands of Saudi Riyals 2017 2016 Employee benefits 69,523 96,905 35.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. Capital adequacy and the use of regulatory capital are monitored regularly by the Group’s management. SAMA requires holding the minimum level of the regulatory capital and maintaining a ratio of total regulatory capital to the risk-weighted asset at or above the agreed minimum of 8%. 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 consolidated statement of financial position assets and commitments 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 from January 1, 2013. Accordingly, the Group’s consolidated Risk Weighted Assets (RWA), total capital and related ratios on a consolidated group basis, are calculated under the Basel III framework. As at December 31, 2017, and December 31 2016 and during the year ended December 31 2017, Bank is in compliance with the regulatory capital requirements. The following table summarizes the Group’s Pillar-I Risk Weighted Assets, Tier I and Tier II Capital and Capital Adequacy Ratios. 170 171
87. Notes to the Consolidated Financial Statements In thousands of Saudi Riyals Credit Risk RWA Bank AlBilad 2017 2016 49 ,050,813 42,831,321 Operational Risk RWA 4,899,270 4,340,692 Market Risk RWA 1,512,788 991,676 Total Pillar-I RWA 55,462,871 48,163,689 Tier I Capital 7,588,793 7,320,805 Tier II Capital 2,693,286 2,532,325 10,282,079 9,853,130 Tier I ratio 13.68% 15.20% Tier I + Tier II ratio 18.54% 20.46% Total Tier I & II Capital 37.PROSPECTIVE CHANGES IN THE INTERNATIONAL FINANCIAL REPORTING FRAMEWORK The Bank has chosen not to early adopt the standards and amendments which have been published and are mandatory for compliance by the Banks effective from accounting period beginning on or after January 1, 2018. Standard, and amendments Effective date IFRS 2 -- “Share-based Payment” January 1, 2018 The amendments cover classification and measurement of three accounting areas, first, measurement of cash-settled share-based payments, second, classification of share-based payments settled net of tax withholdings, and third, accounting for a modification of a share-based payment from cashsettled to equity-settled. The impact is not material for the Bank. IFRS 15 – “Revenue from contracts with customers” January 1, 2018 This is a converged standard from the IASB and Financial Accounting Standards Board (FASB) on revenue recognition. This standard will improve the financial reporting of revenue and improve comparability of the top line in financial statements globally. IFRS 16 – “Leases” January 01, 2019 The new standard eliminates the current dual accounting model for lessees under IAS 17, which distinguishes between on-balance sheet finance leases and off-balance sheet operating leases. Instead, IFRS 16 proposes on-balance sheet accounting model. Capital Adequacy Ratio % 36.INVESTMENT MANAGEMENT AND BROKERAGE SERVICES The Bank offers investment management services to its customers through its subsidiary, AlBilad Investment Company. These services include the management of 7 public mutual funds (2016: 7 public mutual funds) with assets under management (AUM) totaling SAR 921 million (2016: SAR 946 million). Al Bilad Investment acts as the fund manager of these funds. All of these funds comply with Shariah rules and are subject to Shariah controls on a regular basis. Some of these mutual funds are managed in association with external professional investment advisors. Brief description of changes The Group also manages private investment portfolios on behalf of its customers amounting to SAR 1,105 million (2016: SAR 1,644 million). The financial statements of these funds and private portfolios are not included in the consolidated financial statements of the Group. However, the transactions between the Group and the funds are disclosed under related party transactions (see note 34). The Bank is in the process of assessing the impact of IFRS 2, IFRS 16 and IFRS 15 on bank’s financial statements, however, no major impact is expected. Implementation and impact analysis of IFRS 9 a. Implementation strategy In July 2014, the IASB issued IFRS 9 Financial Instruments, the standard that replaces IAS 39 Financial Instruments: Recognition and Measurement effective from 1 January 2018, with early adoption permitted. The Bank considers implementing IFRS 9 as a significant project and therefore has set up a multidisciplinary implementation team with members from its Credit risk and Market RIsk, Finance, IT, Operations and other respective businesses to achieve a successful and robust implementation. The project is jointly managed by the Chief Financial Officer and the Chief Risk Officer. 172 173
88. Notes to the Consolidated Financial Statements b . Classification and measurement The classification and measurement of financial assets (except equity instruments) will depend on how these are managed (the entity’s business model) and their contractual cash flow characteristics. These factors determine whether the financial assets are measured at amortised cost, fair value through other comprehensive income (‘FVOCI’) or fair value through statement of income (‘FVSI’). For equity instruments that are not held for trading, the bank may irrevocably elect to designate them as FVOCI, with no subsequent reclassification of gains or losses to the income statement. This election is made on an investment-by-investment basis. The majority of the bank’s debt instruments that are currently classified as available for sale (AFS) will satisfy the conditions for classification as at fair value through other comprehensive income (FVOCI) and hence there will be no change in the accounting for these assets except for new impairment requirements. Equity investments currently measured at FVSI will continue to be measured on the same basis under IFRS 9. The majority of financial assets that are classified as Financing are measured at amortised cost under IAS 39 are expected to be measured at amortised cost under IFRS 9 as well. instruments that are classified as AFS under IAS 39 may, under IFRS 9, be measured at amortised cost, FVOCI or FVSI, depending on particular circumstances. Under IFRS 9, the accounting for financial liabilities will largely remain similar to IAS 39, except for the treatment of gains or losses arising from an entity’s own credit risk relating to liabilities designated at FVSI. The de-recognition rules have been transferred from IAS 39 and have not been changed. The Bank therefore does not expect any material impact on its financial liabilities and the de-recognition accounting policy. c.Impairment Bank AlBilad The Bank will also consider the forward-looking information in its assessment of significant deterioration in credit risk since origination as well as the measurement of ECLs. The forward-looking information will include the elements such as macroeconomic factors (e.g., unemployment, Oil Prices, Private Consumption, Government Consumption, profit rates and economic forecasts obtained through internal and external sources. The selection of variables was made after multiple scenario analysis and analyzing the impact on the Bank’s portfolio. The Bank is now ready to implement IFRS-9 after due validation by the external auditors of the whole IFRS 9 framework. d. Hedge accounting The general hedge accounting requirements aim to simplify hedge accounting, creating a stronger link with risk management strategy and permitting hedge accounting to be applied to a greater variety of hedging instruments and risks. However, they do not explicitly address macro hedge accounting strategies, which are particularly important for banks. As a result, IFRS 9 allows an accounting policy choice to continue to apply hedge accounting requirements of IAS 39 instead of the requirements of IFRS 9. The Bank does not have any hedging instruments as at December 31, 2017. e. Overall expected impact The Bank has reviewed its financial assets and liabilities and is expecting the following impact from the adoption of IFRS 9 on 1 January 2018: • According to transitional provisions for initial application of IFRS 9, the bank is allowed to recognize any difference between previous carrying amount under IAS 39 and the carrying amount at the beginning of the annual reporting period that includes the date of initial application in opening retained earnings. Accordingly, the overall impact on equity and the aggregated carrying value of relevant financial assets is estimated to be (1%) to (2.3%) and (0.1%) to (0.27%) respectively on the date of initial application arising due to application of expected credit loss model as against Incurred loss model; • Furthermore and as a result, the bank’s Tier 1 ratio will be impacted primarily from potential increase in credit impairment provisions. • Based on the balances as at December 31, 2017, the day 1 impact of IFRS 9 (applicable from 1 January 2018) would be an estimated reduction of approximately 0.30% to 0.35% in Capital Adequacy Ratio which would be transitioned over five years in accordance with SAMA guidelines. Further, the key impacts worth highlighting are as follows: The Bank will recognize impairment allowances based on a forward looking Expected Credit Loss (ECL) approach on financial assets that are not measured via FVSI. This mainly include financing, investments that are measured at amortised cost or at FVOCI (other than equity investments), interbank placements, financial guarantees, lease receivables and credit commitments. No impairment loss will be recognised on equity investments. The key inputs into the measurement of ECL are the term structure of the following variables: • Probability of default (PD) • Loss given default (LGD) • Exposure at default (EAD) The above parameters are generally derived from internally developed statistical models, other historical data and are adjusted for forward looking information. The Bank will categorize its financial assets into following three stages in accordance with IFRS 9 methodology: 174 • Stage 1: Performing assets: Financial asset(s) that have not significantly deteriorated in credit quality since origination. The impairment allowance will be recorded based on 12 months ECL. • Stage 2: Underperforming assets: Financial asset(s) that have significantly deteriorated in credit quality since origination. The impairment allowance will be recorded based on lifetime ECL. • Stage 3: Impaired assets: For Financial asset(s) that are impaired, the Bank will recognise the impairment allowance based on lifetime ECL. a) Gains or losses realized on the sale of equity instruments classified as FVOCI will no longer be transferred to profit or loss. During the year ended 31 December 2017, gains amounting to SAR 7.820 million (2016: SAR 4.040 million) were recognised in profit or loss in relation to the disposal of AFS financial assets. 175
89. Notes to the Consolidated Financial Statements • Bank AlBilad The new standard also introduces extended disclosure requirements and changes in presentation. These are expected to change the nature and extent of the bank’s disclosures about its financial instruments particularly in the year of the adoption of the new standard. Caveat: The estimated decrease in shareholders’ equity includes the impact of both statement of financial position classification and measurement changes and the increase to credit impairment provisions compared to those applied at 31 December 2017 under IAS 39. The assessment above is a point in time estimate and is not a forecast. The actual effect of the implementation of IFRS 9 on the Bank could vary significantly from this estimate. The Bank continues to refine models, methodologies and controls, and monitor developments in regulatory rulemaking in advance of IFRS 9 adoption on 1 January 2018. 39.COMPARATIVE FIGURES Certain prior year figures have been reclassified to conform to the current year presentation. 40. BOARD OF DIRECTORS’ APPROVAL OF THE CONSOLIDATED FINANCIAL STATEMENTS These consolidated financial statements were approved by the Bank’s Board of Directors on 25 Jumada Al Awwal 1439H (corresponding to 11 February, 2018). 38.EMPLOYEES’ SHARE PLAN Significant features of the share based payment plan is as follows: 2017 2016 Grant date 14 May 2017 21 June 2016 Maturity Date 25% 1 Jan 2018 25% 1 Jan 2019 50% 1 Jan 2020 25% 1 Jan 2017 25% 1 Jan 2018 50% 1 Jan 2019 Number of shares offered on the grant date 733,620 483,477 Share price on the grant date (SAR) 18.12 24.07 Value of shares offered on grant date (SAR' 000) 13,293 11,637 Vesting period 3 years 3 years Vesting condition Employees to be in service Employees to be in service Method of settlement Equity Equity The movement in the number of shares, during the year, under employees’ share plan is as follows: 2017 2016 Beginning of the year 822,646 1,129,439 Granted during the year 733,620 483,477 Forfeited (128,563) (332,598) Exercised (399,887) (457,672) End of the year 1,027,816 822,646 The shares are granted only under service condition with no market condition associated with them. 176 177