Banque Saudi Fransi: Interim Condensed Consolidated Financial Statements For The Six Months Period Ended June 30, 2017

Transcription

1. INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE SIX MONTHS PERIOD ENDED June 30 , 2017
4. BANQUE SAUDI FRANSI INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION As at SAR '000 Notes ASSETS Cash and balances with SAMA Due from banks and other financial institutions June 30, 2017 (Unaudited) Page 2 Dec 31, 2016 (Audited) June 30, 2016 (Unaudited) 18,335,023 20,344,108 10,452,136 27,218,468 25,338,632 25,185,052 Investments, net 3 25,441,300 24,074,379 23,889,125 Positive fair value derivative 7 1,922,927 1,741,695 2,069,045 Loans and advances, net 4 129,382,565 129,457,869 129,636,625 Investment in associates 5 116,752 113,220 109,950 728,912 716,656 695,778 2,198,298 1,642,150 1,874,473 205,344,245 203,428,709 193,912,184 1,922,509 4,288,532 13,510,558 Property and equipment, net Other assets Total assets LIABILITIES AND EQUITY Liabilities Due to banks and other financial institutions Customers' deposits 6 163,904,255 158,458,472 138,809,840 Negative fair value derivative 7 1,348,440 1,678,105 2,953,236 Debt securities and sukuks 3,904,225 6,726,112 6,722,054 Other liabilities 2,635,464 2,578,485 3,275,115 Total liabilities 173,714,893 173,729,706 165,270,803 12,053,572 12,053,572 12,053,572 11,805,933 11,805,933 10,928,375 General reserve 982,857 982,857 982,857 Other reserves (138,612) (863,584) (1,335,453) Retained earnings 7,064,175 5,139,428 6,012,030 Proposed dividend - 647,995 - (138,573) (67,198) - Total equity 31,629,352 29,699,003 28,641,381 Total liabilities and equity 205,344,245 203,428,709 193,912,184 Equity Share capital 12 Statutory reserve Treasury shares 13 The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements.
5. BANQUE SAUDI FRANSI INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME Unaudited SAR '000 Page 3 For the three months ended Jun 30, 2017 Special commission income Jun 30, 2016 For the six months ended Jun 30, 2017 Jun 30, 2016 1,675,151 1,433,233 3,298,173 2,800,041 507,785 364,437 1,019,273 668,426 1,167,366 1,068,796 2,278,900 2,131,615 256,240 361,429 594,211 726,803 Exchange income, net 85,063 101,281 178,390 204,681 Trading income, net 80,276 36,089 202,347 122,232 4,067 8,112 4,468 8,286 Gains on non-trading investments, net 14,331 7,856 19,137 2,388 Other operating income 23,051 29,317 49,505 61,797 1,630,394 1,612,880 3,326,958 3,257,802 315,651 299,761 637,493 603,328 Rent and premises related expenses 44,430 40,239 86,311 81,531 Depreciation and amortization 37,927 35,737 73,309 68,494 162,348 160,730 326,798 320,889 58,568 36,578 87,611 78,317 Impairment charge / (reversal) for investments, net 3,500 (9,563) 3,500 (20,813) Other operating expenses 5,604 2,928 6,891 3,588 628,028 566,410 1,221,913 1,135,334 1,002,366 1,046,470 2,105,045 2,122,468 2,324 1,716 3,535 3,520 1,004,690 1,048,186 2,108,580 2,125,988 0.84 0.87 1.76 1.76 Special commission expense Net special commission income Fee and commission income, net Dividend income Total operating income Salaries and employee related expenses Other general and administrative expenses Impairment charge for credit losses, net Total operating expenses Net operating income Share in earnings of associates, net Net income for the period Basic and diluted earnings per share for the period (SAR) note 12 The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements.
6. BANQUE SAUDI FRANSI INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited SAR '000 For the three months ended Jun 30, 2017 Net income for the period Page 4 Jun 30, 2016 For the six months ended Jun 30, 2017 Jun 30, 2016 1,004,690 1,048,186 2,108,580 2,125,988 43,574 (20,177) 38,581 (75,138) (14,331) (7,856) (19,137) (2,388) Net change in the fair value 525,114 (687,778) 756,927 (54,789) Income transferred to interim condensed consolidated statement of income (54,494) (12,163) (51,399) (108,339) 1,504,553 320,212 2,833,552 1,885,334 Other comprehensive income (loss): Items that can be recycled back to consolidated statement of income in subsequent periods Available for sale investments Net change in the fair value Income transferred to interim condensed consolidated statement of income Cash flow hedge Total comprehensive income for the period The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements.
7. BANQUE SAUDI FRANSI INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN EQUITY Unaudited Page 5 SAR '000 Other reserves Available for sale Cash flow investments hedge Share capital Statutory reserve General reserve Retained earnings Proposed dividend Treasury shares 12,053,572 11,805,933 982,857 5,139,428 31,343 (894,927) 647,995 (67,198) 29,699,003 - - - 2,108,580 - 38,581 756,927 - - 2,108,580 795,508 12,053,572 11,805,933 982,857 (47,789) (136,044) 7,064,175 (19,137) 50,787 (51,399) (189,399) (32,791) (84,838) (530,366) - (71,375) (138,573) (70,536) (80,580) (220,882) (71,375) (530,366) 31,629,352 12,053,572 10,928,375 982,857 3,886,042 67,669 (1,162,468) 727,754 - 27,483,801 - - - 2,125,988 - (75,138) (54,789) - - 2,125,988 (129,927) - - - - (2,388) (108,339) - - (110,727) - - - - - - (727,754) - (727,754) 12,053,572 10,928,375 982,857 6,012,030 (9,857) (1,325,596) - - 28,641,381 Total For the six months period ended June 30, 2017 Balance at the beginning of the period Total comprehensive income for the period Net income for the period Net change in the fair value Net amount transferred to interim condensed consolidated statement of income Zakat liability Tax liability Treasury shares purchased Final Dividend paid -2016 Balance at the end of the period For the six months period ended June 30, 2016 Balance at the beginning of the period Total comprehensive income for the period Net income for the period Net change in the fair value Net amount transferred to interim condensed consolidated statement of income Final Dividend paid -2015 Balance at the end of the period The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements.
8. BANQUE SAUDI FRANSI INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS Unaudited SAR '000 OPERATING ACTIVITIES Page 6 Note Net income for the period Adjustments to reconcile net income to net cash used in operating activities: Accretion of discounts on non trading investments, net Gains on non trading investments, net Depreciation and amortization (Gains) / loss on disposal of property and equipment, net Impairment charge for credit losses, net Share in earnings of associates, net Impairment charge for investments, net Change in fair value of financial instruments Operating income before changes in operating assets and liabilities For the six months ended June 30, 2017 June 30, 2016 2,108,580 2,125,988 841 (19,137) 73,309 (144) 87,611 (3,535) 3,500 444 5,988 (2,388) 68,494 27 78,317 (3,520) 1,142 2,251,469 2,274,048 (502,589) 398,899 (3,934,000) (7,562,000) (150,692) (13,758) (31,035) (70,541) (5,943,537) 546,562 (2,366,023) 5,445,783 (465,716) 11,953,368 (3,042,260) 119,663 233,439 (1,325,798) 2,695,545 (3,877,531) (85,613) 192 (1,267,407) 8,734,826 (4,216,311) 293 (73,213) 43 4,445,638 (647,995) (71,375) (2,812,500) (3,531,870) (727,754) (727,754) (4,565,838) 24,674,790 20,108,952 3,097,737 918,617 2,392,086 16,667,485 19,059,571 2,568,946 618,973 Net (increase) / decrease in operating assets: Statutory deposit with SAMA Due from banks and other financial institutions maturing after ninety days from the date of acquisition Investments held as FVIS, trading Loans and advances Other assets Net increase / (decrease) in operating liabilities: Due to banks and other financial institutions Customers' deposits Other liabilities Net cash from /(used in) operating activities INVESTING ACTIVITIES Proceeds from sales and maturities of non trading investments Purchase of non trading investments Dividends received from associates Purchase of property and equipment Proceeds from sale of property and equipment Net cash (used in)/ from investing activities FINANCING ACTIVITIES Dividends paid Purchase of Treasury shares Debt securities and sukuks Net cash used in financing activities (Decrease)/ increase in cash and cash equivalents Cash and cash equivalents at the beginning of the period Cash and cash equivalents at the end of the period Special commission received during the period Special commission paid during the period Supplemental non-cash information Net changes in fair value and transferred to interim condensed consolidated statement of 9 724,972 income The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements. (240,654)
9. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 7 1. General Banque Saudi Fransi (the Bank) is a Saudi Joint Stock Company established by Royal Decree No. M/23 dated Jumada Al Thani 17, 1397H (corresponding to June 4, 1977). The Bank formally commenced its activities on Muharram 1, 1398H (corresponding to December 11, 1977), by taking over the branches of the Banque de l’Indochine et de Suez in the Kingdom of Saudi Arabia. The Bank operates under Commercial Registration Number 1010073368 dated Safar 4, 1410H (corresponding to September 5, 1989), through its 85 branches (June 30, 2016: 84 branches) in the Kingdom of Saudi Arabia, employing 3,180 people (June 30, 2016: 3,180). The objective of the Bank is to provide a full range of banking services, including Islamic products, which are approved and supervised by an independent Shariah Board. The Bank’s Head Office is located at King Saud Road, P.O. Box 56006, Riyadh 11554, Kingdom of Saudi Arabia. The Bank owns a subsidiary, Saudi Fransi Capital (100% share in equity) engaged in brokerage, asset management and corporate finance business. The Bank owns Saudi Fransi Insurance Agency (SAFIA), Saudi Fransi Financing & Leasing and Sofinco Saudi Fransi having 100% share in equity. The Bank owns 100% (95% direct ownership and 5 % indirect ownership through its subsidiary) share in Sakan Real Estate Financing. These subsidiaries are incorporated in the Kingdom of Saudi Arabia. The Bank also owns BSF Sukuk Limited having 100% share in equity, incorporated in the Cayman Islands. The Bank also formed a subsidiary, BSF Markets Limited registered in Cayman Islands having 100% share in equity .The objective of this company is derivative trading and Repo activities. The Bank has investments in associates and owns 27% shareholding in Banque BEMO Saudi Fransi, incorporated in Syria and 32.5% shareholding in Saudi Fransi Corporative Insurance Company (Allianz Saudi Fransi) incorporated in the Kingdom of Saudi Arabia. 2. Basis of preparation The interim condensed consolidated financial statements of the Bank as at and for the quarter ended 30 June 2017 have been prepared using the IAS 34 – Interim Financial Reporting and SAMA guidance for the accounting of zakat and tax. The Bank also prepares its interim condensed consolidated financial statements to comply with the Banking Control Law and the Regulations for Companies in the Kingdom of Saudi Arabia. The impact of SAMA Circular no. 381000074519 dated 11 April 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and tax are as follows: - the Accounting Standards for Commercial Banks promulgated by SAMA are no longer applicable from 1 January 2017; and - Zakat and tax are to be accrued on a quarterly basis and recognized in consolidated statement of shareholders’ equity with a corresponding liability recognized in the consolidated statement of financial position Until 2016, the consolidated financial statements of the Bank was prepared in accordance with the Accounting Standards for Commercial Banks promulgated by SAMA and IFRS. This change in framework resulted in a change in accounting policy for zakat and tax. The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates.
10. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 8 2. Basis of preparation (continued) The interim condensed consolidated financial statements do not include all information and disclosures required for the annual consolidated financial statements, and should be read in conjunction with the annual consolidated financial statements for the year ended December 31, 2016. In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements as at and for the year ended December 31, 2016. The accounting policies, estimates and assumptions used in the preparation of these interim condensed consolidated financial statements are consistent with those of the annual consolidated financial statements for the year ended December 31, 2016 as described in the annual consolidated financial statements for the year ended December 31, 2016, except for: a) Change in the accounting policy in relation to accounting for zakat and tax The Bank amended its accounting policy relating to zakat and tax and have started to accrue zakat and tax on a quarterly basis and charging it to retained earnings. Previously, zakat and tax were deducted from dividend upon payment to the shareholders and was recognized as a liability at that time. When dividend was proposed, zakat and tax were initially recorded as part of the proposed dividend apportioned from retained earnings and disclosed within equity. Subsequently upon approval of dividend by the shareholders at the general assembly, it was reclassified to other liabilities. The Bank has accounted for this change in the accounting policy relating to zakat and tax prospectively as the impact of the change in the accounting policy for prior period / year presented was not considered material and hence comparative information has not been restated. The adoption of amendments to the existing standards as mentioned below which has had no significant financial impact on the financial statements of the Bank. 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. Amendments to IAS 12, ‘Income taxes’ on Recognition of deferred tax assets for Unrealised losses: Annual periods beginning on or after 1 January 2017 These amendments clarify how to account for deferred tax assets related to debt instruments measured at fair value. Basis of consolidation The interim condensed consolidated financial statements comprise the financial statements of the Bank and its subsidiaries; Saudi Fransi Capital, Saudi Fransi Insurance Agency, Saudi Fransi Financing & Leasing, Sofinco Saudi Fransi, Sakan real estate financing, BSF Sukuk Limited and BSF Markets Limited. The financial statements of the subsidiaries are prepared for the same reporting period as that of the Bank, using consistent accounting policies. Adjustments are made wherever necessary in the financial statements of the subsidiaries to align with the Bank’s interim condensed consolidated financial statements.
11. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 9 2. Basis of preparation (continued) Subsidiaries are the entities that are controlled by the Bank. The Bank controls an entity when it is exposed, or has a right, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over that entity. Subsidiaries are consolidated from the date on which control is transferred to the Bank and cease to be consolidated from the date on which the control is transferred from the Bank. The results of subsidiaries acquired or disposed during the period, if any, are included in the interim condensed consolidated statement of income from the effective date of the acquisition or up to the effective date of disposal, as appropriate. Balances between the Bank and its subsidiaries, and any unrealised income and expenses arising from intragroup transactions, are eliminated in preparing the interim condensed consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. 3. Investments, net Investments are classified as follows: SAR '000 June 30, 2017 Dec 31, 2016 June 30, 2016 (Unaudited) (Audited) (Unaudited) 331,169 177,556 281,166 9,119,114 7,576,637 7,987,637 - 75,821 75,774 Other investments held at amortised cost 15,991,017 16,244,365 15,544,548 Total 25,441,300 24,074,379 23,889,125 Held as FVIS Available for sale Held to maturity Investments held as FVIS represent investments held for trading. 4. Loans and advances, net SAR'000 June 30, 2017 (Unaudited) Dec 31, 2016 (Audited) June 30, 2016 (Unaudited) Credit cards 11,536,103 118,456,299 502,356 10,987,324 119,253,027 515,372 10,645,251 119,762,026 505,205 Performing loans and advances 130,494,758 130,755,723 130,912,482 1,938,857 1,706,897 1,104,568 Gross loans and advances Allowance for impairment 132,433,615 (3,051,050) 132,462,620 (3,004,751) 132,017,050 (2,380,425) Loans and advances, net 129,382,565 129,457,869 129,636,625 Consumer loans Commercial loans and overdrafts Non-performing loans and advances ,net
12. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 10 5. Investment in associates SAR '000 June 30, 2017 Dec 31, 2016 June 30, 2016 (Unaudited) (Audited) (Unaudited) Cost 106,427 106,430 151,645 Share of earnings 112,325 108,790 60,305 (102,000) (102,000) (102,000) 116,752 113,220 109,950 Impairment provision Total 6. Customers’ deposits June 30, 2017 (Unaudited) SAR'000 Demand Dec 31, 2016 (Audited) June 30, 2016 (Unaudited) 90,205,806 88,525,872 86,324,056 485,808 618,883 502,260 Time 68,544,655 65,672,408 47,933,003 Other 4,667,986 3,641,309 4,050,521 Total 163,904,255 158,458,472 138,809,840 Saving 7. Derivatives The table below sets out the positive and negative fair values of derivative financial instruments held, together with their notional amounts. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the end of period, do not necessarily reflect the amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Bank’s exposure to credit risk (which is generally limited to the positive fair value of the derivatives) nor to market risk. June 30, 2017 (Unaudited) SAR '000 Positive fair value Held for trading Special commission rate swaps Special commission rate futures and options Forward rate agreements Forward foreign exchange contracts Currency options Others Held as fair value hedges Special commission rate swaps Held as cash flow hedges Special commission rate swaps Total Negative fair value Dec 31, 2016 (Audited) Notional amount Positive fair value Negative fair value June 30, 2016 (Unaudited) Notional amount Positive fair value Negative fair value Notional amount 1,155,332 945,657 167,414,422 968,787 774,571 159,744,832 1,366,330 1,366,037 163,892,288 48,189 48,189 71,308,852 11,574 25,098 70,206,099 8,039 8,039 75,574,144 296 237,941 19,309 21,221 132,053 19,309 21,221 1,500,000 48,731,812 9,347,122 746,467 334,087 93,133 42,358 261,526 93,133 42,358 52,424,564 20,166,633 1,316,557 325,087 212,406 31,923 309,247 212,406 31,923 57,840,023 36,506,980 1,704,343 - 3,376 264,000 786 4,719 3,076,500 10,882 9,849 3,076,500 440,639 1,922,927 178,635 1,348,440 69,018,630 368,331,305 290,970 1,741,695 476,700 1,678,105 74,607,678 381,542,863 114,378 2,069,045 1,015,735 2,953,236 79,182,976 417,777,254
13. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 11 8. Credit related commitments and contingencies The Bank's credit related commitments and contingencies are as follows: SAR '000 June 30, 2017 (Unaudited) Letters of credit Dec 31, 2016 (Audited) June 30, 2016 (Unaudited) 7,998,856 7,511,482 9,029,599 46,284,841 47,874,186 49,783,440 Acceptances 2,537,213 2,691,122 3,166,781 Irrevocable commitments to extend credit 3,530,234 4,340,502 4,207,328 60,351,144 62,417,292 66,187,148 Letters of guarantee Total 9. Cash and cash equivalents Cash and cash equivalents included in the interim condensed consolidated statement of cash flows comprise the following: SAR '000 Cash and balances with SAMA excluding statutory deposit Due from banks and other financial institutions maturing within three months from the date of acquisition Total June 30, 2017 Dec 31, 2016 June 30, 2016 (Unaudited) (Audited) (Unaudited) 9,286,484 11,798,158 2,111,519 10,822,468 20,108,952 12,876,632 24,674,790 16,948,052 19,059,571 10. Segment information Operating segments are identified on the basis of internal reports about components of the Bank that are regularly reviewed by the Bank’s Board of Directors in its function as chief decision maker in order to allocate resources to the segments and to assess its performance. Transactions between operating segments are approved by the management as per agreed terms and are reported according to the Bank’s internal transfer pricing policy. These terms are in line with normal commercial terms and conditions. The revenue from external parties report to the Board is measured in a manner consistent with that in the consolidated statement of income. There have been no changes to the basis of segmentation or the measurement basis for the segment profit or loss since 31 December 2016. The Bank is organised into the following main operating segments: Retail banking – incorporates private and small establishment customers' demand accounts, overdrafts, loans, saving accounts, deposits, credit and debit cards, consumer loans, certain forex products and auto leasing. Corporate banking – incorporates corporate and medium establishment customers' demand accounts, deposits, overdrafts, loans and other credit facilities and derivative products.
14. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 12 10. Segment information (Continued) Treasury – incorporates treasury services, trading activities, investment securities, money market, Bank’s funding operations and derivative products. Investment banking and brokerage – Investment management services and asset management activities related to dealing, managing, arranging, advising and custody of securities, retail investments products, corporate finance and international and local shares brokerage services and insurance. The Bank's total assets and liabilities as at June 30, 2017 and 2016, together with total operating income, total operating expenses and net income for the six months then ended, by operating segments, are as follows: (Unaudited) SAR '000” Investment banking and brokerage Retail banking Corporate banking Treasury Total assets 17,706,913 115,133,284 71,273,136 1,230,912 205,344,245 Total liabilities Total June 30, 2017 (unaudited) 82,110,630 80,866,290 9,608,784 1,129,189 173,714,893 Total operating income 775,439 1,553,209 874,482 123,828 3,326,958 Total operating expenses 629,594 354,849 152,736 84,734 1,221,913 Share in earnings of associates, net - - 3,535 - 3,535 Net income for the period 145,845 1,198,360 725,281 Inter-segment revenue (496,972) 39,094 - 2,108,580 - 433,367 63,605 Impairment charges for credit losses, net 50,770 36,841 - - 87,611 Impairment charges for Investments, net - - 3,500 - 3,500 Total assets 16,500,468 116,504,685 69,346,485 1,077,071 203,428,709 Total liabilities 82,875,331 72,637,713 17,272,000 944,662 173,729,706 Total assets 17,187,171 116,629,179 58,898,989 1,196,845 193,912,184 Total liabilities 79,106,783 60,148,693 24,917,742 1,097,585 165,270,803 Total operating income 765,221 1,566,517 776,818 149,246 3,257,802 Total operating expenses 579,099 343,436 118,858 93,941 1,135,334 - - 3,520 - 3,520 Net income for the period 186,122 1,223,081 661,480 Inter-segment revenue 2,125,988 - December 31, 2016 (Audited) June 30, 2016 (unaudited) Share in earnings of associates, net 431,560 62,953 (494,513) 55,305 - Impairment charges for credit losses, net 29,102 49,215 - - 78,317 Impairment reversal for Investments, net - - (20,813) - (20,813) 11. Fair values of financial assets and liabilities Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either 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. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
15. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 13 11. Fair values of financial assets and liabilities (Continued) Valuation models Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discount rates, bond and equity prices and foreign currency exchange rates. The objective of valuation techniques is to arrive at a fair value measurement that reflects the price that would be received to sell the asset or paid to transfer the liability in an orderly transaction between market participants at the measurement date. The Bank uses widely recognized valuation models for determining the fair value of common and simpler financial instruments. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchangetraded derivatives and simple over-the-counter derivatives such as interest rate swaps. Availability of observable market prices and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. Valuation models that employ significant unobservable inputs require a higher degree of management judgment and estimation in the determination of fair value. Management judgment and estimation are usually required for selection of the appropriate valuation model to be used, determination of expected future cash flows on the financial instrument being valued, determination of the probability of counterparty default and prepayments and selection of appropriate discount rates. Fair value estimates obtained from models are adjusted for any other factors, such as liquidity risk or model uncertainties; to the extent that the Bank believes that a third party market participant would take them into account in pricing a transaction. Fair values aims also to reflect the credit risk of the instrument and include adjustments to take account of the credit risk of the Bank and the counterparty where appropriate. Valuation Framework The Bank has an established control framework with respect to the measurement of fair values. This framework includes a Market Risk Department, which is independent of Front Office management and reports to the Chief Risk Officer, and which has overall responsibility for independently verifying the results of trading and investment operations and all significant fair value measurements. Determination of fair value and fair value hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices in active markets for the same instrument (i.e. without modification or repackaging) Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data: and Level 3: valuation techniques for which any significant input is not based on observable market data. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgment depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument.
16. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 14 11. Fair values of financial assets and liabilities (Continued) Derivative products valued using a valuation technique with market observable inputs are mainly commission rate swaps and options, currency swaps and forward foreign exchange contracts. The most frequently applied valuation techniques include forward pricing and swap models, using present value calculations. The models incorporate various inputs including foreign exchange spot and forward rates and commission rate curves. Other investments in level 2 are valued based on market observable date including broker rates etc. SAR’ 000 Level 1 Level 2 Level 3 Total June 30, 2017 (Unaudited) Financial assets Derivative financial instruments positive fair value - 1,922,927 - 1,922,927 325,100 6,069 - 331,169 Financial investments available for sale 1,483,539 4,738,646 2,896,929 9,119,114 Total Financial Liabilities 1,808,639 6,667,642 2,896,929 11,373,210 Derivative financial instruments negative fair value - 1,348,440 - 1,348,440 Total - 1,348,440 - 1,348,440 - 1,741,695 - 1,741,695 171,550 6,006 - 177,556 Financial investments available for sale 1,629,634 2,764,884 3,182,119 7,576,637 Total 1,801,184 4,512,585 3,182,119 9,495,888 Derivative financial instruments negative fair value - 1,678,105 - 1,678,105 Total - 1,678,105 - 1,678,105 - 2,069,045 - 2,069,045 281,166 - - 281,166 Financial investments available for sale 2,494,265 2,373,807 3,119,565 7,987,637 Total 2,775,431 4,442,852 3,119,565 10,337,848 - 2,953,236 - 2,953,236 - 2,953,236 - 2,953,236 Financial investments designated at FVIS (trading) December 31, 2016 (Audited) Financial assets Derivative financial instruments positive fair value Financial investments designated at FVIS (trading) Financial Liabilities June 30, 2016 (Unaudited) Financial assets Derivative financial instruments positive fair value Financial investments designated at FVIS (trading) Financial Liabilities Derivative financial instruments negative fair value Total
17. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 15 11. Fair values of financial assets and liabilities (Continued) The fair values of investments held at amortized cost are SAR 15,912 million (December 31, 2016: 16,110 million and June 30, 2016 : 15,637 million) against carrying value of SAR 15,991 million (December 31, 2016: 16,244 million and June 30, 2016: 15,545 million). The fair values of commission bearing customers’ deposits, debt securities, 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 interim condensed consolidated financial statements, since the current market commission rates for similar financial instruments are not significantly different from the contracted rates, and due to the short duration of due from and due to banks and other financial institutions. An active market for these instruments is not available and the Bank intends to realize the carrying value of these financial instruments through settlement with the counter party at the time of their respective maturities. The estimated fair values of the held to maturity investments and other investments held at amortized cost, are based on quoted market prices when available or pricing models when used in the case of certain fixed rate bonds. Consequently, differences can arise between carrying values and fair value estimates. The fair values of derivatives are based on the quoted market prices when available or by using the appropriate valuation technique. Financial investments available for sale comprise Mudarabah SAR 2,845 million (December 31, 2016: SAR 3,146 million and June 30, 2016: 3,083 million) which is classified as level 3. These Mudarabah investments are valued based on discounted cash flow methods, which incorporate assumptions regarding an appropriate credit spread. The Bank uses the discounted cash flow method using current yield curve to arrive at the fair value of loans and advances after adjusting internal credit spread which is SAR 131,417 million (December 31, 2016: SAR 131,720 million and June 30, 2016: SAR 131,464 million). The carrying values of those loans and advances are SAR 129,383 million (December 31, 2016: SAR 129,458 million and June 30, 2016 SAR 129,637 million). 12. Share capital and Earnings per share The authorised, issued and fully paid share capital of the Bank consists of 1,205 million shares of SAR 10 each (December 31, 2016: 1,205 million shares of SAR 10 each and June 30, 2016: 1,205 million shares of SAR 10 each). Basic and diluted earnings per share for the periods ended June 30, 2017 and 2016 are calculated on a weighted average basis by dividing the net income for the period by 1,205 million shares after excluding treasury shares consists of 6 million shares as of June 30, 2017 (31 December 2016: 3.1 shares and June 30, 2016: Nil shares). The final net dividend of SAR 0.50 per share for the year ended 2016 has been approved by the shareholders at the General Assembly Meeting held on April 20, 2017. 13. Treasury Shares During quarter three 2016, the Bank initiated a plan to acquire treasury shares as authorised by the Board under its Long Term Incentives (LTI) plan which will grant appreciation award of the Bank share performance to its eligible employees as per LTI scheme. The eligible employees will benefit from the appreciation in value of the Bank Shares over the Vesting Period. The Long Term Incentives plan scheme has not been commenced as of 30 June 2017. 14. Interim dividends The Board of Directors recommended on 09 July 2017 an interim net dividend of SAR 1.05 per share (June 30,2016: SAR 0.55 per share) of SAR 1,141 million ( June 30,2016: 551 million) for the six months period ended June 30, 2017.
18. BANQUE SAUDI FRANSI NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS For the six months ended June 30 , 2017 and 2016 Page 16 15. Comparative figures The cumulative adjustment due to change in accounting policy, as mentioned in note 2(a), on the statement of changes in equity and statement of financial position has been recorded in the current period interim condensed consolidated financial statements which is clear from the table below. SAR’ 000 June 30, 2017 (Unaudited) Interim consolidated statement of changes in equity Retained earnings Proposed dividend Zakat for the period Tax for the period Interim consolidated statement of financial position Other Liabilities (47,789) (32,791) (80,580) (136,044) (84,838) (220,882) (183,833) (117,629) (301,462) Total Certain prior period figures have been reclassified to conform to the current period’s presentation. 16. Capital Adequacy The Bank’s objectives when managing capital are, to comply with the capital requirements set by SAMA; to safeguard the Bank’s ability to continue as a going concern; and to maintain a strong capital base. Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management. The Bank monitors the adequacy of its capital using ratios established by SAMA. These ratios measure capital adequacy by comparing the Bank’s eligible capital with its statement of financial position assets, commitments and notional amount of derivatives at a weighted amount to reflect their relative risk. SAMA requires holding the minimum level of the regulatory capital of and maintaining a ratio of total regulatory capital to the risk-weighted asset (RWA) at or above the agreed minimum of 8%. Bank's total risk weighted assets and total Tier I & II Capital are as follows: SAR’ 000 June 30, 2017 (Unaudited) Dec 31, 2016 (Audited) June 30, 2016 (Unaudited) Credit Risk RWA Operational Risk RWA Market Risk RWA 184,311,515 11,977,600 4,248,309 176,255,171 11,660,390 3,901,349 179,846,701 11,230,063 3,907,264 Total RWA 200,537,424 191,816,910 194,984,028 Tier I Capital Tier II Capital 31,780,871 3,795,925 30,235,959 3,869,475 29,436,739 4,044,161 Total Tier I & II Capital 35,576,796 34,105,434 33,480,900 15.85% 17.74% 15.76% 17.78% 15.10% 17.17% Capital Adequacy Ratio % Tier I ratio Tier I + Tier II ratio