Doha Bank Consolidated Financial Statements For The Year Ended 31 December 2017

Transcription

1. CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017
2. DOHA BANK Q .P.S.C. CONTENTS CONSOLIDATED FINANCIAL STATEMENTS Page(s) Independent auditor’s report 1-5 Consolidated statement of financial position 6 Consolidated income statement 7 Consolidated statement of comprehensive income 8 Consolidated statement of changes in equity 9-10 Consolidated statement of cash flows 11 Notes to the consolidated financial statements 12-72 Supplementary information 73-74
9. DOHA BANK Q .P.S.C. CONSOLIDATED INCOME STATEMENT QAR ‘000s For the year ended 31 December 2017 Notes 2017 2016 Interest income Interest expense Net interest income 21 22 3,630,853 (1,375,382) 2,255,471 3,168,995 (1,108,349) 2,060,646 Fee and commission income Fee and commission expense Net fee and commission income 23 24 516,313 (51,788) 464,525 502,948 (43,169) 459,779 62,315 (17,195) (37,918) 7,202 65,237 (33,794) (23,419) 8,024 25 26 27 106,544 49,822 62,276 218,642 2,945,840 102,246 55,584 54,879 212,709 2,741,158 28 13 11 10 29 (531,109) (98,820) (142,067) (592,541) (472,664) (1,837,201) (516,304) (93,642) (139,499) (480,224) (459,445) (1,689,114) 1,108,639 158 1,108,797 1,277 1,052,044 (46) 1,051,998 1,783 1,110,074 1,053,781 3.02 3.12 Gross written premium Premium ceded Net claims paid Net income from insurance activities Net foreign exchange gain Income from investment securities Other operating income Net operating income Staff costs Depreciation Impairment loss on investment securities Net impairment loss on loans and advances to customers Other expenses Profit before share of results of associate Share of results of associate Profit before tax Income tax reversal 12 30 Profit Earnings per share: Basic and diluted earnings per share (QAR) 31 The attached notes 1 to 36 form an integral part of these consolidated financial statements. 7
10. DOHA BANK Q .P.S.C. CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME QAR ‘000s For the year ended 31 December 2017 Note Profit Other comprehensive income: Items that are or may be subsequently reclassified to income statement: Foreign currency translation differences for foreign operations Net movement in fair value of available-for-sale investment securities 20 (d) Other comprehensive income Total comprehensive income 2017 2016 1,110,074 1,053,781 11,540 (5,166) 35,857 47,397 166,264 161,098 1,157,471 1,214,879 The attached notes 1 to 36 form an integral part of these consolidated financial statements. 8
11. DOHA BANK Q .P.S.C. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY QAR ‘000s For the year ended 31 December 2017 Equity attributable to shareholders of the Bank Foreign Fair currency Risk value translation Retained reserve reserve reserve earnings Instruments eligible as additional capital Share capital Legal reserve Balance as at 1 January 2017 2,583,723 4,317,561 1,372,000 (103,412) (24,991) 1,235,654 9,380,535 4,000,000 13,380,535 Total comprehensive income: Profit Other comprehensive income - - - 35,857 11,540 1,110,074 - 1,110,074 47,397 - 1,110,074 47,397 516,744 - 85 775,116 - - 3,100,467 5,092,762 1,372,000 35,857 (67,555) 11,540 (13,451) 1,110,074 (85) (220,000) (27,752) (775,117) 1,322,774 1,157,471 (220,000) (27,752) 1,291,860 (775,117) 10,806,997 4,000,000 1,157,471 (220,000) (27,752) 1,291,860 (775,117) 14,806,997 Total comprehensive income Transfer to legal reserve Transfer to risk reserve Distribution for Tier 1 capital notes Contribution to social and sports fund Increase in share capital (note 20 a) Dividends paid (note 20 f) Balance as at 31 December 2017 The attached notes 1 to 36 form an integral part of these consolidated financial statements. 9 Total Total equity
12. DOHA BANK Q .P.S.C. CONSOLIDATED STATEMENT OF CHANGES IN EQUITY (CONTINUED) QAR ‘000s For the year ended 31 December 2017 Equity attributable to shareholders of the Bank Foreign Fair currency Risk value translation reserve reserve reserve Share capital Legal reserve Balance as at 1 January 2016 2,583,723 4,316,950 1,292,000 (269,676) (19,825) 1,283,946 9,187,118 4,000,000 13,187,118 Total comprehensive income: Profit Other comprehensive income - - - 166,264 (5,166) 1,053,781 - 1,053,781 161,098 - 1,053,781 161,098 2,583,723 611 4,317,561 80,000 1,372,000 166,264 (103,412) (5,166) (24,991) 1,053,781 (611) (80,000) (220,000) (26,345) (775,117) 1,235,654 1,214,879 (220,000) (26,345) (775,117) 9,380,535 Total comprehensive income Transfer to legal reserve Transfer to risk reserve Distribution for Tier 1 capital notes Contribution to social and sports fund Dividends paid (Note 20 f) Balance as at 31 December 2016 The attached notes 1 to 36 form an integral part of these consolidated financial statements. 10 Retained earnings Instruments eligible as additional capital Total 4,000,000 Total equity 1,214,879 (220,000) (26,345) (775,117) 13,380,535
13. DOHA BANK Q .P.S.C. CONSOLIDATED STATEMENT OF CASH FLOWS QAR ‘000s For the year ended 31 December 2017 Notes 2017 2016 1,108,797 1,051,998 592,541 142,067 98,820 44,121 (10,571) 83 (158) 1,975,700 480,224 139,499 93,642 11,502 5,095 446 46 1,782,452 Change in due from banks Change in loans and advances to customers Change in other assets Change in due to banks Change in customer deposits Change in other liabilities Social and sports fund contribution Income tax paid Net cash from operating activities 1,663,729 (1,294,604) (41,430) (1,270,275) 3,738,376 (40,483) (26,345) 1,277 4,705,945 541,188 (4,480,255) (173,003) 3,499,206 2,963,337 51,487 (34,343) 1,783 4,151,852 Cash flows from investing activities Acquisition of investment securities Proceeds from sale of investment securities Acquisition of property, furniture and equipment Proceeds from the sale of property, furniture and equipment Net cash used in investing activities (7,634,121) 4,731,199 (36,684) 46 (2,939,560) (8,066,482) 5,578,839 (89,143) 9,997 (2,566,789) 438,462 1,291,860 (1,823,000) 661,071 (170,000) (775,117) (376,724) 1,541,940 (773,273) (220,000) (775,117) (226,450) 1,389,661 8,916,014 1,358,613 7,557,401 10,305,675 8,916,014 3,606,557 1,292,252 39,251 3,200,642 1,041,332 48,215 Cash flows from operating activities Profit before tax Adjustments for: Net impairment loss on loans and advances to customers Impairment loss on investment securities Depreciation Amortisation of financing cost Net (gains) / loss on investment securities Loss on sale of property, plant and equipment Share of results of the associate Profit before changes in operating assets and liabilities Cash flows from financing activities Proceeds from other borrowings Proceeds from right issues Repayment of debt security Proceeds from issue of debt securities Distribution on Tier 1 capital notes Dividends paid Net cash used in from financing activities 10 11 13 26 12 13 18 Net increase in cash and cash equivalents Cash and cash equivalents as at 1 January Cash and cash equivalents at 31 December Net cash flows from operating activities: Interest received Interest paid Dividends received 33 The attached notes 1 to 36 form an integral part of these consolidated financial statements. 11
14. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 1 REPORTING ENTITY Doha Bank Q. P. S. C. (“Doha Bank” or the “Bank”) is an entity domiciled in the State of Qatar and was incorporated on 15 March 1979 as a Joint Stock Company under Emiri Decree No. 51 of 1978. The commercial registration of the Bank is 7115. The address of the Bank’s registered office is Doha Bank Tower, Corniche Street, West Bay, P.O. Box 3818, Doha, Qatar. Doha Bank is engaged in conventional banking activities and operates through its head office in Qatar (Doha) and 27 local branches, six overseas branches in the United Arab Emirates (Dubai & Abu Dhabi), State of Kuwait, the Republic of India (two branches in Mumbai and one branch in Kochi) and representative offices in United Kingdom, Singapore, Turkey, China, Japan, South Korea, Germany, Australia, Hong Kong, United Arab Emirates (Sharjah), Canada, Bangladesh and South Africa. The consolidated financial statements for the year ended 31 December 2017 comprise the Bank and its subsidiaries (together referred to as “the Group”). The principal subsidiaries of the Group are as follows: Company’s name 2 Country of incorporation Doha Bank Assurance Company L.L.C. Qatar Doha Finance Limited Cayman Island DB Securities Limited Cayman Island Company’s capital Company’s activities Percentage of ownership 2016 2017 General Insurance 100% 100% 182 Debt Issuance 100% 100% 182 Derivatives Transactions 100% - 100,000 BASIS OF PREPARATION a) Statement of compliance The consolidated financial statements of the Group (“consolidated financial statements”) have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and the applicable provisions of the Qatar Central Bank (“QCB”) regulations. b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the derivative financial instruments, financial assets held for trading and available-for-sale financial assets that have been measured at fair value. In addition, the carrying values of recognised assets that are hedged items in fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risk that are being hedged. c) Functional and presentation currency These consolidated financial statements are presented in Qatari Riyals (“QAR”), which is the Group’s functional and presentation currency. Except as otherwise indicated, financial information presented in QAR has been rounded to the nearest thousand. d) Use of estimates and judgements The preparation of the consolidated financial statements in conformity with IFRS requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses, and the accompanying disclosures, and the disclosure of contingent liabilities Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in note 5. 12
15. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES a) New and amended standards and interpretations adopted by the Group The accounting policies adopted in the preparation of the consolidated financial statements are consistent with those of the previous financial year, except for the following new and amended IFRS recently issued by the IASB and International Financial Reporting Interpretations Committee (“IFRIC”) interpretations effective as of 1 January 2017. The following standards, amendments and interpretations, which became effective as of 1 January 2017, are relevant to the Group: i) Disclosure Initiative (Amendments to IAS 7) The amendments require disclosures that enable users of (consolidated) financial statements to evaluate changes in liabilities arising from financing activities, including both changes arising from cash flow and non-cash changes. The adoption of this amendment had no significant impact on the consolidated financial statements. ii) Recognition of Deferred Tax Assets for Unrealized Losses (Amendments to IAS 12) The amendments clarify the accounting for deferred tax assets for unrealized losses on debt instruments measured at fair value. The amendments clarify that the existence of a deductible temporary difference depends solely on a comparison of the carrying amount of an asset and its tax base at the end of the reporting period, and is not affected by possible future changes in the carrying amount or expected manner of recovery of the asset. Therefore, assuming that the tax base remains at the original cost of the debt instrument, there is a temporary difference. The adoption of this standard had no significant impact on the consolidated financial statements. iii) Annual Improvements to IFRSs 2012–2014 Cycle – various standards The annual improvements to IFRSs to 2014-2016 cycles include certain amendments to various IFRSs. Standards issued but not yet effective A number of new standards and amendments to standards are effective for annual periods beginning after 1 January 2017 and earlier application is permitted; however; the Group has not early applied the following new or amended standards in preparing these consolidated financial statements. i) IFRS 9 Financial Instruments The Bank will adopt IFRS 9 on 1 January 2018 and will not restate the comparative information in accordance with applicable Qatar Central Bank (QCB) guidelines. IFRS 9 will replace IAS 39 Financial Instruments: Recognition and Measurement and introduces new requirements for the classification and measurement of financial assets and financial liabilities, a new model based on expected credit losses for recognizing loan loss provisions and provides for simplified hedge accounting by aligning hedge accounting more closely with an entity’s risk management methodology. 13
16. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Standards issued but not yet effective (continued) i) IFRS 9 Financial Instruments (continued) The Bank has assessed the estimated impact that the initial application of IFRS 9 will have on its consolidated financial statements as below. Retained Fair value earnings reserve Closing balance under IAS 39 (31 December 2017) 1,322,774 (67,555) Estimated risk reserve transfer on 1 January 2018 Impact on reclassification and remeasurements (a) : Investment securities (equity) from available-for-sale to those measured at fair value through other comprehensive income (a.1) Investment securities (debt) from held to maturity to those measured at fair value through other comprehensive income (a.2) Investment securities (equity) from available-for-sale to those measured at fair value through profit or loss (a.3) Investment securities (mutual funds) from available-for-sale to those measured at fair value through profit or loss (a.3) Investment securities (debt) from available-for-sale to those measured at amortized cost (a.4) 1,372,000 - 157,401 (157,401) - (1,216) 7,546 (7,546) 7,441 (7,441) 172,388 (38) (173,642) (17,179) (1,418) - (10,319) (1,305,554) (344,261) (1,678,731) - 1,188,431 (241,197) Impact on recognition of Expected Credit Losses (b) Expected credit losses for due from banks Expected credit losses from debt securities at amortized cost Expected credit losses for debt securities at fair value through other comprehensive income Expected credit losses for loan and advances Expected credit losses for off balance sheet exposures subject to credit risk Estimated adjusted opening balance under IFRS 9 on date of initial application of 1 January 2018 The above assessment is preliminary because not all transition work has been finalised. The actual impact of adopting IFRS 9 on 1 January 2018 may change because: • IFRS 9 will require the Bank to revise its accounting processes and internal controls and these changes are not yet complete; • although parallel runs were carried out in the second half of 2017, the new systems and associated controls in place have not been operational for a more extended period; • the Bank has not finalized the testing and assessment of controls over its new IT systems and changes to its governance framework; • the Bank is refining and finalizing its models for ECL calculations; and • the new accounting policies, assumptions, judgements and estimation techniques employed are subject to reassessment and changes upon instructions of the regulatory authority. (a) Classification and measurement IFRS 9 contains a new classification and measurement approach for financial assets that reflects the business model in which financial assets are managed and the underlying cash flow characteristics. IFRS 9 contains three principal classification categories for financial assets: measured at Amortised Cost (AC), Fair Value through Other Comprehensive Income (FVOCI) and Fair Value through Profit or Loss (FVPL). Under IFRS 9, derivatives embedded in contracts where the host is a financial asset are never bifurcated. Instead, the hybrid financial instrument as a whole is assessed for classification. Based on the Bank’s assessment, the new IFRS 9 classification requirements is expected to have a material impact on its accounting for loans, investments in debt securities and investments in equity securities as follows and will be adjusted in the financial statements for the period starting 1 January 2018: 14
17. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 (a.1) At 31 December 2017, the Bank had equity investments classified as available-for-sale with a fair value of QAR 701.6 million that are held for long-term strategic purposes. Under IFRS 9, the Bank has designated these investments as measured at FVOCI. Due to this reclassification, an increase of QAR 157.4 million is estimated in the retained earnings along with a corresponding decrease in fair value reserve due to reclassification of impairment on equity investments measured at fair value through other comprehensive income to the reserves. (a.2) At 31 December 2017, the Bank had debt investments classified as held-to-maturity with a carrying value of QAR 1,986 million. Under IFRS 9, the Bank has designated these investments as measured at FVOCI based on the business model. Due to this reclassification, a decrease of QAR 1.2 million is estimated in the fair value reserve. (a.3) At 31 December 2017, the Bank had investments in mutual funds and equity instruments classified as availablefor-sale with carrying values of QAR 58.5 million and QAR 122.4 million respectively. Under IFRS 9, the Bank has designated these investments as measured at FVTPL based on the business model. Due to this reclassification, an increase of QAR 15 million is estimated in the retained earnings and equivalent decrease is estimated in fair value reserve. (a.4) At 31 December 2017, the Bank had debt investments classified as available-for-sale with a carrying value of QAR 670.1 million. Under IFRS 9, the Bank has designated these investments as measured at amortised cost based on the business model. Due to this reclassification, a decrease of QAR 0.04 million is estimated in the fair value reserve. (b) Expected credit losses IFRS 9 replaces the ‘incurred loss’ model in IAS 39 with a forward-looking ‘expected credit loss’ (ECL) model. The new impairment model will apply to financial assets measured at amortised cost or FVOCI, except for investments in equity instruments. A number of significant judgements are also required in applying the accounting requirements for measuring ECL, such as:  Determining criteria for significant increase in credit risk (SICR);  Choosing appropriate models and assumptions for the measurement of ECL;  Establishing the number and relative weightings of forward-looking scenarios for each type of product/market and the associated ECL; and  Establishing Banks of similar financial assets for the purposes of measuring ECL. (c) Financial liabilities Most of the requirements in IAS 39 for classification and measurement of financial liabilities were carried forward unchanged to IFRS 9. The key change is that an entity will be required to present the effects of changes in own credit risk of financial liabilities designated at fair value through profit or loss in other comprehensive income. No significant changes are expected for financial liabilities, other than changes in the fair value of financial liabilities designated at FVTPL that are attributable to changes in the instrument's credit risk, which will be presented in other comprehensive income. (d) Hedge accounting IFRS 9’s hedge accounting requirements are designed to align the accounting more closely to the risk management framework; permit a greater variety of hedging instruments; and remove or simplify some of the rule-based requirements in IAS 39. The elements of hedge accounting: fair value, cash flow and net investment hedges are retained. When initially applying IFRS 9, the Bank has the option to continue to apply the hedge accounting requirements of IAS 39 instead of the requirements in IFRS 9. However, the Bank determined that all existing hedge relationships that are currently designated in effective hedging relationships would continue to qualify for hedge accounting under IFRS 9. The new hedge accounting requirements under IFRS 9 will not have a material impact on hedge accounting applied by the Bank. (e) Disclosure IFRS 9 also introduces expanded 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 IFRS 9. i) IFRS 15 Revenue from Contracts with Customers IFRS 15 establishes a comprehensive framework for determining whether, how much and when revenue is recognised. It replaces existing revenue recognition guidance, including IAS 18 Revenue, IAS 11 Construction Contracts and IFRIC 13 Customer Loyalty Programmes. IFRS 15 is effective for annual reporting periods beginning on or after 1 January 2018, with early adoption permitted. 15
18. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) Standards issued but not yet effective (continued) ii) IFRS 15 Revenue from Contracts with Customers (continued) The Group plans to adopt IFRS 15 using the cumulative effect method, with the effect of initially applying this standard recognised at the date of initial application (i.e. 1 January 2018). As a result, the Group will not apply the requirements of IFRS 15 to the comparative period presented. The Group has assessed the impact of IFRS 15 and expects that the standard will have no material effect, when applied, on the consolidated financial statements of the Group. iii) IFRS 16 Leases IFRS 16 introduces a single, on-balance lease sheet accounting model for lessees. A lessee recognises a right-ofuse asset representing its right to use the underlying asset and a lease liability representing its obligation to make lease payments. There are optional exemptions for short-term leases and leases of low value items. Lessor accounting remains similar to the current standard- i.e. lessors continue to classify leases as finance or operating leases. IFRS 16 replaces existing leases guidance including IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15 Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a Lease. The standard is effective for annual periods beginning on or after 1 January 2019. Early adoption is permitted for entities that apply IFRS 15 Revenue from Contracts with Customers at or before the date of initial application of IFRS 16. The Group is currently performing an initial assessment of the potential impact of the adoption of IFRS 16 on its consolidated financial statements. b) Basis of consolidation The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries (“the Group”) as at 31 December 2017. Control is achieved when the Group is exposed, 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. Specifically, the Group controls an investee if and only if the Group has:    Power over the investee Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect its returns When the Group has less than a majority of the voting or similar rights of an investee, the Group considers all relevant facts and circumstances in assessing whether it has power over an investee. 16
19. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) b) Basis of consolidation (continued) 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 consolidated statement of income and consolidated statement of other comprehensive income from the date the Group gains control until the date the Group ceases to control the subsidiary. Profit or loss and each component of Other Comprehensive Income (“OCI”) are attributed to the equity holders of the parent of the Group and to the non-controlling interests, even if this results in the non-controlling interests having a deficit balance. These consolidated financial statements are prepared using uniform accounting policies for like transactions and other events in similar circumstances. When necessary, adjustments are made to the financial statements of subsidiaries to bring their accounting policies into line with the Group’s accounting policies. All intra-group assets and liabilities, equity, income, expenses and cash flows relating to transactions between members of the Group are eliminated in full on consolidation. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. c) Business combinations and goodwill Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured as the aggregate of the consideration transferred, which is measured at acquisition date fair value, and the amount of any non-controlling interests in the acquiree. For each business combination, the Group elects whether to measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s identifiable net assets. Acquisition-related costs are expensed as incurred and included in administrative expenses. When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate classification and designation in accordance with the contractual terms, economic circumstances and pertinent conditions as at the acquisition date. This includes the separation of embedded derivatives in host contracts by the acquiree. Any contingent consideration to be transferred by the acquirer will be recognised at fair value at the acquisition date. Contingent consideration classified as an asset or liability that is a financial instrument and within the scope of IAS 39 Financial Instruments: Recognition and Measurement, is measured at fair value with the changes in fair value recognised in the income statement. Goodwill is initially measured at cost (being the excess of the aggregate of the consideration transferred and the amount recognised for non-controlling interests) and any previous interest held over the net identifiable assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at the acquisition date. If the reassessment still results in an excess of the fair value of net assets acquired over the aggregate consideration transferred, then the gain is recognised in income statement. After initial recognition, goodwill is measured at cost less any accumulated impairment losses. For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition date, allocated to each of the Group’s cash-generating units that are expected to benefit from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those units. Where goodwill has been allocated to a cash-generating unit (CGU) and part of the operation within that unit is disposed of, the goodwill associated with the disposed operation is included in the carrying amount of the operation when determining the gain or loss on disposal. Goodwill disposed in these circumstances is measured based on the relative values of the disposed operation and the portion of the cash-generating unit retained. d) Associates Associates are entities over which the Group has significant influence. Significant influence is the power to participate in the financial and operating policy decisions of the investee, but not control or joint control over those policies. Investments in associates are accounted for by the equity method of accounting and are initially recognised at cost including transaction costs directly related to acquisition of investment in associate. 17
20. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) d) Associates (continued) The Group’s share of its associate’s post-acquisition profits or losses is recognised in the consolidated income statement; its share of post-acquisition movements in equity is recognised in reserves. The cumulative postacquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associate equals or exceeds its interest in the associate, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associate. Intergroup gains on transactions between the Group and its associates are eliminated to the extent of the Group’s interest in the associates. Intergroup losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. The Group’s share of the results of associates is based on financial statements and adjusted to conform to the accounting policies of the Group. Intergroup gains on transactions are eliminated to the extent of the Group’s interest in the investee. Intergroup losses are also eliminated unless the transaction provides evidence of impairment in the asset transferred. The consolidated financial statements of the Group include the associate stated below: Company name Doha Brokerage and Financial Services Limited Country of incorporation and operation India Ownership interest % 2016 2017 44.02% 44.02% Principal activity Brokerage and assets management e) Foreign currency Foreign currency transactions and balances Foreign currency transactions that are transactions denominated, or that require settlement in a foreign currency are translated into the respective functional currencies of the operations at the spot exchange rates at the dates of the transactions. Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction. Foreign currency differences resulting from the settlement of foreign currency transactions and arising on translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. f) Foreign operations The results and financial position of all the Group’s entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows:    assets and liabilities for each statement of financial position presented are translated at the closing rate at the reporting date; income and expenses for each income statement are translated at average exchange rates; and all resulting exchange differences are recognised in other comprehensive income. Exchange differences arising from the above process are reported in shareholders’ equity as ‘foreign currency translation reserve’. On consolidation, exchange differences arising from the translation of the net investment in foreign entities, and of borrowings and other currency instruments designated as hedges of such investments, are taken to ‘Other comprehensive income’. When a foreign operation is disposed of, or partially disposed of, such exchange differences are recognised in the consolidated income statement as part of the gain or loss on sale. 18
21. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Financial assets and financial liabilities i) Recognition and initial measurement All financial assets and liabilities are initially recognised on the trade date, i.e., the date that the Group becomes a party to the contractual provisions of the instrument. This includes “regular way trades”: purchases or sales of financial assets that require delivery of assets within the time frame generally established by regulation or convention in the market place. A financial asset or financial liability is measured initially at fair value plus, for an item not at fair value through profit or loss, transaction costs that are directly attributable to its acquisition or issue. ii) Classification The classification of financial instruments at initial recognition depends on their purpose and characteristics and the management’s intention in acquiring them. Financial assets At inception, a financial asset is classified in one of the following categories:  loans and receivables;  held to maturity (HTM);  available-for-sale (AFS); or  fair value through profit of loss (FVTPL) Financial liabilities The Group has classified and measured its financial liabilities at amortised cost. iii) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability in the statement of financial position. On derecognition of a financial asset, the difference between the carrying amount of the asset and consideration received including any new asset obtained less any new liability assumed is recognised in profit or loss. The Group enters into transactions whereby it transfers assets recognised on its statement of financial position, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. In transactions in which the Group neither retains nor transfers substantially all the risks and rewards of ownership of a financial asset and it retains control over the asset, the Group continues to recognise the asset to the extent of its continuing involvement, determined by the extent to which it is exposed to changes in the value of the transferred asset. The transferred asset is derecognised if it meets the derecognition criteria. An asset or liability is recognised for the servicing contract, depending on whether the servicing fee is more than adequate (asset) or is less than adequate (liability) for performing the servicing. The Group derecognises a financial liability when its contractual obligations are discharged or cancelled or expire. iv) Offsetting Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a currently enforceable legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. 19
22. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Financial assets and financial liabilities (continued) v) Measurement principles Amortised cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment loss. Amortised cost is calculated by taking into account any discount or premium on acquisition and fees that are integral part of the effective interest rate. Fair value measurement 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 fair value for financial instruments traded in active markets at the reporting date is based on their quoted market price or dealer price quotations (bid price for long positions and ask price for short positions), without any deduction for transaction costs. For the financial instruments that are not traded in an active market, the fair value is determined by using appropriate valuation techniques. Valuation techniques include the discounted cash flow method, comparison with similar instruments for which market observable prices exist, options pricing models, credit models and other relevant valuation models. The fair value of investments in mutual funds and portfolios whose units are unlisted are measured at the net asset value provided by the fund manager. The foreign currency forward contracts are measured based on observable spot exchange rates, the yield curves of the respective currencies as well as the currency basis spreads between the respective currencies. All contracts are fully cash collateralised, thereby eliminating both counterparty and the Group’s own credit risk. The fair value of unquoted derivatives is determined by discounted cash flows. 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 in note 5. Identification and measurement of impairment The Group assesses at each reporting date whether there is any objective evidence that a financial asset or a group of financial assets is impaired. A financial asset or a group of financial assets is impaired when objective evidence demonstrates that a loss event has occurred after the initial recognition of the assets, and that the loss event has an impact on the future cash flows of the assets that can be estimated reliably. Objective evidence that financial assets including equity securities are impaired can include significant financial difficulty of the borrower or issuer, default or delinquency by a borrower, restructuring of a loan or advance by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group. The Group considers evidence of impairment loss for loans and advances to customers and held-to-maturity investment securities at both a specific asset and collective level. All individually significant loans and advances to customers and held-to-maturity investment securities are assessed for specific impairment. All individually significant loans and advances to customers and held-to-maturity investment securities found not to be specifically impaired are then collectively assessed for any impairment that has been incurred but not yet identified. Loans and advances to customers and held-to-maturity investment securities that are not individually significant are collectively assessed for impairment by grouping together loans and advances to customers and held-to-maturity investment securities with similar risk characteristics. 20
23. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) g) Financial assets and financial liabilities (continued) v) Measurement principles (continued) Identification and measurement of impairment (continued) Impairment losses on assets carried at amortised cost are measured as the difference between the carrying amount of the financial asset and the present value of estimated future cash flows discounted at the asset’s original effective interest rate. Impairment losses are recognised in profit or loss and reflected in an allowance account against loans and advances to customers. In assessing collective impairment, the Group uses historical experience and credit rating in addition to the assessed inherent losses which are reflected by the economic and credit conditions for each identified portfolio. For listed equity investments, generally a significant decline in the market value from cost or for a prolonged period, are considered to be indicators of impairment. Impairment losses on available-for-sale investment securities are recognised by transferring the cumulative loss that has been recognised in other comprehensive income to profit or loss as a reclassification adjustment. The cumulative loss that is reclassified from other comprehensive income to profit or loss is the difference between the acquisition cost, net of any principal repayment and amortisation, and the current fair value, less any impairment loss previously recognised in profit or loss. Impairment losses recognised in the consolidated income statement on equity instruments are not recycled through the consolidated income statement. In case of debt instruments, if in a subsequent period, the fair value of a debt instrument classified as available-for-sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognised in consolidated income statement, the impairment loss is reversed through the consolidated income statement. h) Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value, and are used by the Group in the management of its short-term commitments. Cash and cash equivalents are carried at amortised cost in the consolidated statement of financial position. i) Due from banks and loans and advances to customers Due from banks and loans and advances to customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term. Due from banks and loans and advances to customers are initially measured at the transaction price which is the fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest method. Write-off of loans and advances to customers Loans and advances to customers (and the related impairment allowance accounts) are normally written off, either partially or in full, when there is no realistic prospect of recovery. Where loans are secured, this is generally after receipt of any proceeds from the realisation of security. In circumstances where the net realisable value of any collateral has been determined and there is no reasonable expectation of further recovery, write-off may be earlier. All write- offs of loans and advances to customers are recorded after obtaining approvals from QCB for such writeoffs. j) Investment securities Subsequent to initial recognition investment securities are accounted for depending on their classification as either held-to-maturity, fair value through profit or loss or available-for-sale. Held-to-maturity financial assets Held-to-maturity investments are non-derivative assets with fixed or determinable payments and fixed maturity that the Group has the positive intent and ability to hold to maturity, and which were not designated as at fair value through profit or loss or as available-for-sale. Held-to-maturity investments are carried at amortised cost using the effective interest method. 21
24. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) j) Investment securities (continued) Fair value through profit or loss The Group has classified its investments as held for trading where such investments are managed for short-term profit taking or designated certain investments as fair value through profit or loss. Fair value changes on these investments are recognised immediately in profit or loss. Available-for-sale financial assets Available-for-sale investments are non-derivative investments that are designated as available-for-sale or are not classified as another category of financial assets. Where the fair value is not reliably available, unquoted equity securities are carried at cost less impairment, and all other available-for-sale investments are carried at fair value. Interest income is recognised in profit or loss using the effective interest method. Dividend income is recognised in profit or loss when the Group becomes entitled to the dividend. Foreign exchange gains or losses on available-forsale debt security investments are recognised in the consolidated income statement. Other fair value changes are recognised in other comprehensive income until the investment is sold or impaired, where upon the cumulative gains and losses previously recognised in consolidated statement of comprehensive income are reclassified to consolidated income statement. k) Derivatives Derivatives held for risk management purposes and hedge accounting Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value on the consolidated statement of financial position. The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments as hedging instruments in qualifying hedging relationships. On initial designation of the hedge, the Group formally documents the relationship between the hedging derivative instruments and hedged items, including the risk management objective and strategy in undertaking the hedge, together with the method that will be used to assess the effectiveness of the hedging relationship. The Group makes an assessment, both at the inception of the hedge relationship as well as on an ongoing basis, as to whether the hedging instruments are expected to be highly effective in offsetting the changes in the fair value or cash flows of the respective hedged items during the period for which the hedge is designated, and whether the actual results of each hedge are within a range of 80-125 percent. The Group makes an assessment for a cash flow hedge of a forecast transaction, as to whether the forecast transaction is highly probable to occur and presents an exposure to variations in cash flows that could ultimately affect profit or loss. These hedging relationships are discussed below. Fair value hedges When a derivative is designated as the hedging instrument in a hedge of the change in fair value of a recognised asset or liability or a firm commitment that could affect profit or loss, changes in the fair value of the derivative are recognised immediately in consolidated income statement together with changes in the fair value of the hedged item that are attributable to the hedged risk. If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for fair value hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. Any adjustment up to that point to a hedged item, for which the effective interest method is used, is amortised to consolidated income statement as part of the recalculated effective interest rate of the item over its remaining life. Other non-trading derivatives When a derivative is not held for trading, and is not designated in a qualifying hedge relationship, all changes in its fair value are recognised immediately in consolidated income statement. Derivatives held for trading purposes The Group’s derivative trading instruments includes forward foreign exchange contracts. The Group sells these derivatives to customers in order to enable them to transfer, modify or reduce current and future risks. These derivative instruments are fair valued as at the end of reporting date and the corresponding fair value changes is taken to the consolidated income statement. 22
25. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) l) Property and equipment Recognition and measurement Items of property and equipment are measured at cost less accumulated depreciation and accumulated impairment losses. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items of property and equipment. The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment, and is recognised in other income/other expenses in profit or loss. Subsequent costs The cost of replacing a component of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. Depreciation Depreciable amount is the cost of property and equipment, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset and is based on cost of the asset less its estimated residual value. Leased assets under finance leases are depreciated over the shorter of the lease term and their useful lives. Land and capital work-in-progress are not depreciated. The estimated useful lives for the current and comparative years are as follows: Buildings Leasehold improvements, furniture and equipment Vehicles 20 years 3-7 years 5 years Depreciation methods, useful lives and residual values are re-assessed at each reporting date and adjusted prospectively, if appropriate. m) Impairment of non-financial assets The carrying amounts of the Group’s non-financial assets, other than deferred tax assets are reviewed at each reporting date to determine whether there is any indication of impairment. If any such indication exists, then the asset’s recoverable amount is estimated. An impairment loss is reversed only to the extent that the asset’s carrying amount does not exceed the carrying amount that would have been determined, net of depreciation or amortisation, if no impairment loss had been recognised. n) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. 23
26. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) o) Onerous contracts A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract. p) Financial guarantees Financial guarantee contracts are contracts that require the issuer to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Such financial guarantees are given to banks, financial institutions and other bodies on behalf of customers to secure loans, overdrafts and other banking facilities. Financial guarantees are initially recognised in the financial statements at fair value on the date that the guarantee was given, being the premium received. Subsequent to initial recognition, the Group’s liabilities under such guarantees are measured at the higher of the initial measurement, less amortisation calculated to recognise in the statement of income any fee income earned over the period, and the best estimate of the expenditure required settling any financial obligation arising as a result of the guarantees at the reporting date. q) Employee benefits The Group provides for end of service benefits in accordance with the employment policies of the Group. The provision is calculated on the basis of the individual’s final salary and period of service at the reporting date. This provision is included in other provisions within other liabilities. With respect to Qatari and other GCC employees, the Group makes a contribution to the Qatari Pension Fund calculated on a percentage of the employees’ salaries, in accordance with the Retirement and Pension Law No. 24 of 2002. The Group’s obligations are limited to these contributions. r) Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. s) Share capital and reserves i) Share issue costs Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments. ii) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Group’s shareholders. Dividends for the year that are declared after the date of the consolidated statement of financial position are dealt with in the subsequent events note. t) Revenue recognition Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognised: Interest income and expense For all financial instruments measured at amortised cost and interest bearing financial assets classified as available -for-sale and fair value through profit or loss, interest income or expense is recorded using the effective interest rate, which is the rate that exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a short period, where appropriate, to the net carrying amount of the financial assets or financial liabilities. Interest that is 90 days or more overdue is excluded from income. Interest on impaired loans and advances and other financial assets is not recognised in consolidated statement of income. Premium on insurance Premium on insurance contracts are recognized as revenue (earned premiums) proportionately over the period of coverage. The portion of premium received on in-force contracts that relates to unexpired risks at the reporting date is reported as unearned premium liability on a 1/365 days basis. 24
27. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) t) Revenue recognition (continued) Fees and commission income and expense Fees and commission income and expense that are integral to the effective interest rate of a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, sales commission and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the drawdown of a loan, the related loan commitment fees are recognised 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 services are received. Income from investment securities Gains or losses on the sale of investment securities are recognised in profit or loss as the difference between fair value of the consideration received and carrying amount of the investment securities. Income from held to maturity investment securities is recognised based on the effective interest rate method. Dividend income Dividend income is recognised when the right to receive income is established. u) Tax expense Tax expense comprises current and deferred tax. Current tax and deferred tax are recognised in profit or loss except to the extent that it relates to items recognised directly in equity or in other comprehensive income. Current tax is the expected tax payable or receivable on the taxable income or loss for the year, using tax rates enacted or substantively enacted at the reporting date, and any adjustment to tax payable in respect of previous years. Taxes are calculated based on applicable tax laws or regulations in the countries in which the Group operates. The provision for deferred taxation is made based on the evaluation of the expected tax liability. Currently there is no corporate tax applicable to the Bank in the State of Qatar. However, corporate tax is applicable on foreign branches operating outside the State of Qatar and to one subsidiary in the Qatar Financial Center. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is not recognised for:  temporary differences on the initial recognition of assets or liabilities in a transaction that is not a business combination and that affects neither accounting nor taxable profit or loss;  temporary differences related to investments in subsidiaries to the extent that it is probable that they will not reverse in the foreseeable future; and  temporary differences arising on the initial recognition of goodwill Deferred tax is measured at the tax rates that are expected to be applied to the temporary differences when they reverse, based on the laws that have been enacted or substantively enacted by the reporting date. Deferred tax assets and liabilities are offset if there is a legally enforceable right to offset current tax liabilities against current tax assets, and they relate to taxes levied by the same tax authority on the same taxable entity, or on different tax entities, but they intend to settle current tax liabilities and assets on a net basis or their tax assets and liabilities will be realised simultaneously. A deferred tax asset is recognised for unused tax losses, tax credits and deductible temporary differences to the extent that it is probable that future taxable profits will be available against which they can be utilised. Deferred tax assets are reviewed at each reporting date and are reduced to the extent that it is no longer probable that the related tax benefit will be realised. v) Earnings per share The Group presents basic and diluted earnings per share (“EPS”) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary shareholders of the Group by the weighted average number of ordinary shares outstanding during the year. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary shareholders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. 25
28. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 3 SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) w) Segment reporting An operating segment is a component of the Group that engages in business activities from which it may earn revenues and incur expenses, including revenues and expenses that relate to transactions with any of the Group’s other components, whose operating results are reviewed regularly by the chief operating decision maker to make decisions about resources allocated to each segment and assess its performance, and for which discrete financial information is available. x) Fiduciary activities Assets held in a fiduciary capacity are not treated as assets of the Group and accordingly are not part of the consolidated statement of financial position. y) Repossessed collateral Repossessed collaterals against settlement of customers’ debts are stated within the consolidated statement of financial position under "Other assets" at their carrying value net of allowance for impairment, if any. According to QCB instructions, the Group should dispose of any land and properties acquired against settlement of debts within a period not exceeding three years from the date of acquisition although this period can be extended after obtaining approval from QCB. z) Comparatives Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or disclosed with comparative information. aa) Parent bank financial information Statement of financial position and income statement of the Parent bank disclosed as Supplementary information, are prepared following the same accounting policies as mentioned above except for investment in subsidiaries, associates which are not consolidated and carried at cost. 4 FINANCIAL RISK MANAGEMENT a) Introduction and overview Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification, measurement and monitoring subject to risk limits and other controls. The key risks Group is exposed are to credit risk, liquidity risk, operational risk and market risk, which includes trading and non-trading risks. The independent risk control process does not include business risks such as changes in the environment, technology and industry. They are monitored through the Group’s strategic planning process. The Board of Directors is ultimately responsible for identifying and controlling risks; however, there are separate independent bodies such as the risk management department, internal audit committee, the credit committee, assets and liabilities committee responsible for managing and monitoring those risks. Monitoring and controlling risks are primarily performed based on limits established by the Group. These limits reflect the business strategy and market environment of the Group as well as the level of risk that the Group is willing to accept. As part of its overall risk management, the Group also uses derivatives and other instruments to manage exposures resulting from changes in interest rates, foreign currencies, equity risks, credit risks, and exposures arising from forecast transactions. The risk profile is assessed before entering into hedge transactions, which are authorized by the appropriate level of authority within the Group. The Group applies an internal methodology to estimate the market risk of positions held and the maximum losses expected, based upon a number of assumptions for various changes in market conditions. The Group has a set of limits of risks that may be accepted, which are monitored on a daily basis. There has been no change to the Group’s exposure to market risks or the manner in which it manages and measures the risk. The risks arising from financial instruments to which the Group is exposed are financial risks, which include credit risk, liquidity risk, market risks and operational risk. 26
29. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) b) Credit risk Credit risk is the risk that the Group will incur a loss because its customers or counterparties fail to discharge their contractual obligations in accordance with the agreed terms. Credit risk makes up the largest part of the Group’s risk exposure; therefore, the Group carefully manages its exposure to credit risk. Credit risk is attributed to financial instruments such as balance with central banks, due from banks, loans and advances to customers, debt securities and other bills, certain other assets and credit equivalent amounts related to off-balance sheet financial instruments. Note 10 to the consolidated financial statements disclose the distribution of the loans and advances to customers by economic sectors. Note 4 to the consolidated financial statements disclose the geographical distribution of the Group’s credit exposure. i) Credit risk measurement All credit policies are reviewed and approved by the Risk Management Department and the Board of Directors. The Risk Management team centrally approves all significant credit facilities and limits for all corporate, treasury and capital markets, financial institutions and SME clients of the Group. Such approvals are carried out in pursuance to a set of delegated Credit authority limits and in accordance with the Group’s approved credit policy. Furthermore, all credit facilities are independently administered and monitored by the Credit Control Department. The Group further limits risk through diversification of its assets by geography and industry sectors. Credit exposure is controlled by counterparty limits that are reviewed and approved by the risk management committee annually. The Group also follows the guidelines issued by Qatar Central Bank with regard to the granting of loans which limits exposure to counterparties. The amount and type of collateral required depend on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. Whenever possible, loans are secured by acceptable forms of collateral in order to mitigate credit risk. The amount and type of collateral required depend on an assessment of the credit risk of the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The main types of collateral obtained are cash, mortgages, local and international equities, financial guarantees and other tangible securities. The collaterals are held mainly against commercial and consumer loans and are managed against relevant exposures at their net realizable values. The Group has a credit administration process that ensures compliance with terms of approval, documentation and continuous review to ensure quality of credit and collaterals. While securities such as listed equities are valued regularly, credit policy mandates securities obtained by way of legal mortgage over real estate to be valued at least once in 3 years or more frequently if situation warrants. 27
30. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) b) Credit risk (continued) ii) Analysis of maximum exposure to credit risk before taking account of collateral held or other credit enhancements The table below represents credit risk exposure to the Group, without taking account of any collateral held or other credit enhancements attached. For assets recorded on the statement of financial position, the exposures set out below are based on the net carrying amounts as reported in the consolidated statement of financial position. 2017 2016 Credit risk exposures relating to assets recorded on the statement of financial position are as follows: Balances with central banks Due from banks Loans and advances to customers Investment securities – debt Other assets 6,161,687 7,821,983 59,804,174 16,509,641 669,821 3,824,450 10,505,250 59,186,222 13,625,492 554,396 Total as at 31 December 90,967,306 87,695,810 Other credit risk exposures are as follows: Guarantees Letters of credit Unutilised credit facilities 18,380,848 5,958,391 3,737,358 22,246,187 7,196,260 3,577,504 Total as at 31 December 28,076,597 33,019,951 119,043,903 120,715,761 28
31. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) b) Credit risk (continued) iii) Analysis of concentration of risks of financial assets with credit risk exposure Geographical sectors The following table breaks down the Group’s credit exposure based on carrying amounts without taking into account any collateral held or other credit support, as categorized by geographical region. The Group has allocated exposures to regions based on the country of domicile of its counterparties. Balances with central banks Due from banks Loans and advances to customers Investment securities - debt Other assets Balances with central banks Due from banks Loans and advances to customers Investment securities - debt Other assets Guarantees Letters of credit Unutilised credit facilities Guarantees Letters of credit Unutilised credit facilities Qatar Other GCC Other Middle East Rest of the World 2017 Total 4,279,678 4,326,023 46,421,475 13,898,740 635,667 1,866,134 445,895 7,234,902 1,487,632 8,472 1,403,904 1,169,942 - 15,875 1,646,161 4,977,855 1,123,269 25,682 6,161,687 7,821,983 59,804,174 16,509,641 669,821 69,561,583 11,043,035 2,573,846 7,788,842 90,967,306 Qatar Other GCC Other Middle East Rest of the World 2016 Total 2,319,749 4,396,420 1,385,028 2,396,738 696,609 119,673 3,015,483 3,824,450 10,505,250 43,900,118 11,436,573 492,743 9,576,525 1,714,345 13,923 820,061 1,812 1,525 4,889,518 472,762 46,205 59,186,222 13,625,492 554,396 62,545,603 15,086,559 1,520,007 8,543,641 87,695,810 Qatar Other GCC Other Middle East Rest of the World 2017 Total 10,112,460 5,009,036 2,998,508 3,467,079 129,235 622,215 311,331 358,342 - 4,489,978 461,778 116,635 18,380,848 5,958,391 3,737,358 18,120,004 4,218,529 669,673 5,068,391 28,076,597 Qatar Other GCC Other Middle East Rest of the World 2016 Total 12,455,861 5,459,057 2,727,640 4,674,749 276,249 724,758 182,969 130,304 - 4,932,608 1,330,650 125,106 22,246,187 7,196,260 3,577,504 20,642,558 5,675,756 313,273 6,388,364 33,019,951 29
32. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) b) Credit risk (continued) iii) Analysis of concentration of risks of financial assets with credit risk exposure (continued) Industry sectors The following table breaks down the Group’s credit exposure based on the carrying amounts, before taking into account collateral held or other credit enhancements, as categorized by the industry sectors of the Group’s counterparties. Funded and unfunded Government and related agencies Industry Commercial Services Contracting Real estate Personal Others Guarantees Letters of credit Unutilised credit facilities Gross exposure 2017 Gross exposure 2016 23,966,226 842,863 11,091,291 17,503,016 10,455,938 17,457,955 8,430,725 1,219,292 18,380,848 5,958,391 3,737,358 20,491,337 1,981,446 9,300,278 20,129,988 10,287,927 13,897,943 10,400,778 1,206,113 22,246,187 7,196,260 3,577,504 119,043,903 120,715,761 iv) Credit risk exposure The tables below presents an analysis of financial assets by rating agency designation based on ratings published by external rating agencies: Equivalent grades Sovereign (State of Qatar) AAA to AAA+ to ABBB+ to BBBBB+ to BBelow BUnrated (equivalent internal grading) 2017 2016 23,063,033 4,562,335 10,406,989 3,096,070 1,934,023 82,381 75,899,072 20,201,854 3,581,667 11,970,506 3,562,554 1,495,400 469,757 79,434,023 119,043,903 120,715,761 Unrated exposure represents credit facilities granted to corporations and individuals who do not have external credit ratings. Also, the equivalent internal ratings used by the Group are in line with the ratings and definitions published by the international rating agencies. 30
33. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) b) Credit risk (continued) v) Credit quality for class of assets The table below shows the credit quality by class of asset for consolidated statement of financial position lines, based on the Group’s credit rating system. Loans and advances to customers 2016 2017 Due from banks 2016 2017 Investment securities debt 2016 2017 Neither past due nor impaired (low risk): Standard monitoring Special monitoring 52,265,262 - 54,262,221 90,198 7,821,983 10,505,250 - 16,482,565 - 13,600,441 - 52,265,262 54,352,419 7,821,983 10,505,250 16,482,565 13,600,441 5,925,997 2,172,198 2,347,074 2,883,666 - - - 8,098,195 5,230,740 - - - 296,944 350,832 1,610,914 327,954 288,082 1,396,266 - - 42,857 39,245 2,258,690 2,012,302 - - 42,857 39,245 (2,282,717) - - (15,781) (14,194) (111,563) (126,522) - - (2,817,973) (2,409,239) - - (15,781) (14,194) 59,804,174 59,186,222 7,821,983 10,505,250 16,509,641 13,625,492 Investment securities - debt Held to maturity Held for trading Available for sale Less: Impairment allowance - - - - 5,708,651 10,816,771 (15,781) 6,405,787 5,657 7,228,242 (14,194) Carrying amount – net - - - - 16,509,641 13,625,492 59,804,174 59,186,222 7,821,983 10,505,250 16,509,641 13,625,492 Past due but not impaired Standard monitoring Special monitoring Impaired Substandard Doubtful Loss Less: Impairment allowancespecific Less: Impairment allowancecollective Carrying amount – net (2,706,410) - Total carrying amount 31
34. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) b) Credit risk (continued) v) Credit quality for class of assets (continued) Impaired loans and advances to customers and investment in debt securities Individually impaired loans and advances to customers and investment debt securities for which the Group determines that there is objective evidence of impairment and it does not expect to collect all principal and interest due according to the contractual terms of the loan/investment security agreements. Loans and advances to customers past due but not impaired Past due but not impaired loans and advances to customers are those for which contractual interest or principal payments are past due, but the Group believes that impairment is not appropriate on the basis of the level of security/collateral available and/or the stage of collection of amounts owed to the Group. 2017 2016 Up to 30 days 31 to 60 days 61 to 90 days 1,492,349 1,716,215 4,889,631 766,042 871,716 3,592,982 Gross 8,098,195 5,230,740 Rescheduled loans and advances to customers Restructuring activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Restructuring policies and practices are based on indicators or criteria that, in the judgement of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Restructuring is most commonly applied to term loans – in particular, customer finance loans. Collateral The determination of eligible collateral and the value of collateral are based on QCB regulations and are assessed by reference to market price or indexes of similar assets. The Group has collateral in the form of blocked deposits, pledge of shares or legal mortgage against the past dues loans and advances to customers. The aggregate collateral in respect to the past due but not impaired loans are QAR 10,582 million as of 31 December 2017 (2016: QAR 6,943 million). The aggregate collateral in respect to the loans and advances to customers are QAR 57,205 million as of 31 December 2017 (2016: QAR 46,913 million). Repossessed collateral The group has acquired properties held as collateral in settlement of debt of carrying value of QAR 134 million as at 31 December 2017 (2016: Nil). Write-off policy The Group writes off a loan or an investment debt security balance, and any related allowances for impairment losses, when Group Credit determines that the loan or security is uncollectible and after QCB approval. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, write-off decisions are generally based on a product-specific past due status. The amount written off during the year was QAR 394 million (2016: QAR 315 million). 32
35. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) c) Liquidity risk Liquidity risk is the risk that an institution will be unable 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 cease immediately. Ultimate responsibility for liquidity risk management rests with the board of directors, which has built an appropriate liquidity risk management framework for the management of the Group’s short, medium and longterm funding and liquidity management requirements. To mitigate this risk, the Group has diversified funding sources and assets are managed with liquidity in mind, in order to maintain a healthy balance of cash, cash equivalents and readily marketable securities. i) Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Group’s compliance with the liquidity limit established by the Group’s lead regulator, QCB. Details of the reported Group ratio of net liquid assets to deposits from customers during the year were as follows: Average for the year Maximum for the year Minimum for the year 33 2017 2016 102.50% 122.67% 86.12% 95.50% 104.90% 87.14%
36. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) c) Liquidity risk (continued) i) Exposure to liquidity risk (continued) Maturity analysis of assets and liabilities The table below summarizes the maturity profile of the Group’s assets and liabilities based on contractual maturity dates. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at the reporting date to the contractual maturity date, and do not take account of the effective maturities as indicated by the Group’s deposit retention history and the availability of liquid funds. The Group routinely monitors assets and liabilities maturity profiles to ensure adequate liquidity is maintained. Carrying amount Less than 1 month 1-3 months 3 months – 1 year Subtotal 1 year Above 1 year Undated 31 December 2017 Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in an associate Property, furniture and equipment Other assets 6,669,609 7,821,983 59,804,174 17,512,610 11,126 708,580 967,199 4,380,783 4,241,565 7,500,295 131,765 967,199 1,752,628 2,897,038 620,939 - 1,028,494 6,062,788 2,959,754 - 4,380,783 7,022,687 16,460,121 3,712,458 967,199 799,296 43,344,053 12,809,223 - 2,288,826 990,929 11,126 708,580 - Total 93,495,281 17,221,607 5,270,605 10,051,036 32,543,248 56,952,572 3,999,461 Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total equity 11,005,061 59,468,326 657,669 5,432,936 2,124,292 14,806,997 5,575,610 23,041,228 2,124,292 - 2,330,768 18,790,178 145,252 - 2,162,168 13,451,078 96,947 2,582,369 - 10,068,546 55,282,484 96,947 2,727,621 2,124,292 - 936,515 4,185,842 560,722 2,705,315 - 14,806,997 Total 93,495,281 30,741,130 21,266,198 18,292,562 70,299,890 8,388,394 14,806,997 - (13,519,523) (15,995,593) (8,241,526) (37,756,642) 48,564,178 (10,807,536) Maturity gap 34
37. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) c) Liquidity risk (continued) i) Exposure to liquidity risk (continued) Maturity analysis of assets and liabilities (continued) Carrying amount Less than 1 month 1-3 months 3 months – 1 year Subtotal 1 year Above 1 year Undated 31 December 2016 Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in an associate Property, furniture and equipment Other assets 4,260,410 10,505,250 59,186,222 14,706,110 10,343 770,845 925,769 2,222,898 5,943,514 10,533,174 1,909,720 925,769 749,601 2,965,159 511,456 - 956,616 7,539,618 525,009 - 2,222,898 7,649,731 21,037,951 2,946,185 925,769 2,855,519 38,148,271 10,679,307 - 2,037,512 1,080,618 10,343 770,845 - Total 90,364,949 21,535,075 4,226,216 9,021,243 34,782,534 51,683,097 3,899,318 Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total equity 12,275,336 55,729,950 1,819,598 4,994,474 2,165,056 13,380,535 8,421,017 22,226,469 2,165,056 - 3,036,060 14,754,528 1,819,598 364,150 - 619,055 17,337,454 2,928,876 - 12,076,132 54,318,451 1,819,598 3,293,026 2,165,056 - 199,204 1,411,499 1,701,448 - 13,380,535 Total 90,364,949 32,812,542 19,974,336 20,885,385 73,672,263 3,312,151 13,380,535 - (11,277,467) (15,748,120) (11,864,142) (38,889,729) 48,370,946 (9,481,217) Maturity gap 35
38. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) c) Liquidity risk (continued) i) Exposure to liquidity risk (continued) Maturity analysis of assets and liabilities (continued) The table below summarises contractual expiry dates of the Group’s contingent liabilities: Carrying amount Up to 3 months 3 months – 1 year 1-5 years Above 5 years 31 December 2017 Guarantees Letters of credit Unutilised credit facilities 18,380,848 5,958,391 3,737,358 5,374,261 1,326,526 429,823 6,397,523 4,622,253 1,677,178 6,438,060 9,112 1,463,364 171,004 500 166,993 Total 28,076,597 7,130,610 12,696,954 7,910,536 338,497 31 December 2016 Guarantees Letters of credit Unutilised credit facilities 22,246,187 7,196,260 3,577,504 6,097,173 1,506,415 705,170 8,136,881 1,036,875 2,073,448 7,847,552 72,292 495,662 164,581 4,580,678 303,224 Total 33,019,951 8,308,758 11,247,204 8,415,506 5,048,483 36
39. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) c) Liquidity risk (continued) i) Exposure to liquidity risk (continued) Maturity analysis of assets and liabilities (continued) The table below summarises the maturity profile of the Group's financial liabilities and derivatives at 31 December based on contractual undiscounted repayment obligations: Carrying amount Gross undiscounted cash flows Less than 1 month 1-3 months 3 months - 1 year 1-5 years More than 5 years 31 December 2017 Non-derivative financial liabilities Due to banks Customer deposits Debt securities Other borrowings Other liabilities 11,005,061 59,468,326 657,669 5,432,936 2,076,793 11,022,022 59,751,373 678,341 5,585,480 2,076,793 5,578,969 23,057,949 2,076,793 2,333,779 18,848,642 150,615 - 2,162,380 13,590,750 97,428 2,634,227 - 943,841 4,254,032 580,913 2,800,638 - 3,053 - Total liabilities 78,640,785 79,114,009 30,713,711 21,333,036 18,484,785 8,579,424 3,053 1-5 years More than 5 years - - Derivative financial instruments: Generally, forward foreign exchange contracts are settled on a gross basis and interest rate swaps are settled on a net basis. Total Derivative financial instruments: Outflow Inflow (7,111,781) 7,194,020 37 Up to 1 year (7,111,781) 7,194,020
40. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) c) Liquidity risk (continued) i) Exposure to liquidity risk (continued) Maturity analysis of assets and liabilities (continued) Carrying amount Gross undiscounted cash flows Less than 1 month 1-3 months 3 months - 1 year 1-5 years More than 5 years 31 December 2016 Non-derivative financial liabilities Due to banks Customer deposits Debt securities Other borrowings Other liabilities 12,275,336 55,729,950 1,819,598 4,994,474 2,136,080 12,301,844 56,007,999 1,832,520 5,120,105 2,136,080 8,429,774 22,240,996 2,136,080 3,045,531 14,795,865 1,832,520 387,392 - 624,849 17,503,288 2,988,799 - 201,690 1,467,850 1,743,914 - - Total liabilities 76,955,438 77,398,548 32,806,850 20,061,308 21,116,936 3,413,454 - Derivative financial instruments: Generally, forward foreign exchange contracts are settled on a gross basis and interest rate swaps are settled on a net basis. Derivative financial instruments: Outflow Inflow 38 Total Up to 1 year 1-5 years More than 5 years (30,716,511) 30,748,829 (30,716,511) 30,748,829 - -
41. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) d) Market risks The Group takes on exposure to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Group separates exposures to market risk into either trading or non-trading portfolios. The market risks arising from trading and non-trading activities are concentrated in Group Treasury and monitored by Market Risk team. Regular reports are submitted to the Board of Directors and ALCO. i) Management of market risks Overall authority for market risk is vested in ALCO. Financial Risk Management department is responsible for the development of detailed market risk management policies (subject to review and approval by ALCO) and for the day-to-day review and monitoring. The Group has adopted a detailed policy framework drafted in accordance with the Qatar Central Bank guidelines for governing investments portfolio including proprietary book. The governance structure includes policies including Treasury and Investment manual, Financial Risk policy and Hedging policy, etc. These policies define the limit structure along with the risk appetite under which the investment activities are undertaken. The limits structure focuses on total investment limits which in accordance with QCB guidelines are 70% of Group’s capital and reserves along with various sub limits such as position and stop loss limits for trading activities. The policies also define various structured sensitivity limits such as VaR and duration for different asset classes within the investment portfolio. The performance of the portfolio against these limits is updated regularly to senior management including ALCO and investment committee. Investment Committee approve all the investment decision for the Group. Financial Risk Management department is vested with the responsibility of measuring, monitoring risk and reporting risk in the portfolio. 39
42. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) d) Market risks (continued) ii) Exposure to interest rate risk The principal risk to which the banking and trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. ALCO is the monitoring body for compliance with these limits and is assisted by Group Treasury in its day-to-day monitoring activities. A summary of the Group’s interest rate gap position on banking and trading portfolios is as follows: Carrying amount Less than 3 months Repricing in: 3-12 months 31 December 2017 Cash and cash equivalents Due from banks Loans and advances to customers Investment securities Investment in an associate Property, furniture and equipment Other assets 6,669,609 7,821,983 59,804,174 17,512,610 11,126 708,580 967,199 1,811,200 6,859,593 57,018,060 752,759 - 331,611 224,905 2,960,240 - 78,643 12,808,682 - 4,858,409 630,779 2,482,566 990,929 11,126 708,580 967,199 Total 93,495,281 66,441,612 3,516,756 12,887,325 10,649,588 Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total equity 11,005,061 59,468,326 657,669 5,432,936 2,124,292 14,806,997 6,704,202 44,630,023 5,432,936 - 3,971,888 13,249,203 96,947 - 187,852 1,589,100 560,722 - 141,119 2,124,292 14,806,997 Total 93,495,281 56,767,161 17,318,038 2,337,674 17,072,408 Interest rate sensitivity gap - 9,674,451 (13,801,282) 10,549,651 (6,422,820) Cumulative interest rate sensitivity gap - 9,674,451 (4,126,831) 6,422,820 - 40 Above 1 year Non-interest sensitive
43. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) d) Market risks (continued) ii) Exposure to interest rate risk (continued) Carrying amount Less than 3 months Repricing in: 3-12 months Above 1 year Non-interest sensitive 31 December 2016 Cash and cash equivalents Due from banks Loans and advances to customers Investment securities Investment in an associate Property, furniture and equipment Other assets 4,260,410 10,505,250 59,186,222 14,706,110 10,343 770,845 925,769 449,916 8,626,205 56,365,664 904,644 - 70,969 1,588,272 335,657 454,039 - 164,612 12,266,809 - 3,739,525 290,773 2,320,289 1,080,618 10,343 770,845 925,769 Total 90,364,949 66,346,429 2,448,937 12,431,421 9,138,162 Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total equity 12,275,336 55,729,950 1,819,598 4,994,474 2,165,056 13,380,535 9,970,519 38,173,092 1,819,598 4,994,474 - 2,025,252 16,153,845 - 71,498 1,403,013 - 208,067 2,165,056 13,380,535 Total 90,364,949 54,957,683 18,179,097 1,474,511 15,753,658 Interest rate sensitivity gap - 11,388,746 (15,730,160) 10,956,910 (6,615,496) Cumulative interest rate sensitivity gap - 11,388,746 (4,341,414) 6,615,496 - 41
44. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) d) Market risk (continued) ii) Exposure to interest rate risk (continued) Sensitivity analysis The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 100 basis points (bp) parallel fall or rise in all yield curves worldwide and a 10 bp rise or fall in the greater than 12-month portion of all yield curves. An analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no asymmetrical movement in yield curves and a constant financial position, is as follows: 10 bp 10 bp parallel parallel increase decrease Sensitivity of net interest income 2017 At 31 December (6,154) 6,154 2016 At 31 December (5,673) 5,673 10 bp parallel increase 10 bp parallel decrease Sensitivity of reported equity to interest rate movements 2017 At 31 December (31,720) 31,720 2016 At 31 December (27,285) 27,285 Overall non-trading interest rate risk positions are managed by Group Treasury, which uses investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Group’s non-trading activities. iii) Exposure to other market risks Currency risk The Group is exposed to fluctuations in foreign currency exchange rates. The Board of Directors sets limits on the level of exposure by currency, and in total for both overnight and intra-day positions, which are monitored daily. The Group had the following significant net exposures: 2017 2016 156,510 49,022 3,073 1,257 3,551,605 16,193 1,133 39,415 230 820,807 Net foreign currency exposure: Pound Sterling Euro Kuwaiti Dinar Japanese Yen Other currencies Foreign currency sensitivity analysis The following table details the Group’s sensitivity to a percentage increase or decrease in the Qatari Riyals against the relevant foreign currencies except for US Dollars which is pegged to the Qatari Riyal. The sensitivity analysis includes only outstanding foreign currency denominated items and the impact of a change in the exchange rates are as follows: 42
45. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) d) Market risk (continued) iii) Exposure to other market risks (continued) Increase / (decrease) in profit or loss 2016 2017 5% increase / (decrease) in currency exchange rate Pound Sterling Euro Kuwaiti Dinar Japanese Yen Other currencies 810 57 1,971 11 41,040 7,826 2,451 154 63 177,580 Equity price risk Equity price risk is the risk that the fair value of equities decreases as a result of changes in the equity indices and individual stocks. The equity price risk exposure arises from equity securities classified as available-for-sale and fair value through profit or loss. The Group is also exposed to equity price risk and the sensitivity analysis thereof is as follows: 2016 2017 5% increase / (decrease) in Qatar Exchange 5% increase / (decrease) in Other than Qatar Exchange Effect on OCI Effect on income statement Effect on OCI Effect on income statement ± 24,442 - ± 31,016 - ± 4,641 - ± 17,193 - ± 29,083 - ± 48,209 - The above analysis has been prepared on the assumption that all other variables such as interest rate, foreign exchange rate, etc. are held constant and is based on historical correlation of the equity securities to the relevant index. Actual movement may be different from the one stated above. e) Operational risks Operational risk is the risk of loss arising from inadequate or failed internal processes, people and systems, or from external events. The Group has detailed policies and procedures that are regularly updated to ensure a robust internal control mechanism. The Group closely reviews the various recommendations issued by the Basel Committee on ‘Sound Practices for the Management and Supervision of Operational Risk’ for implementation. The Group continues to invest in risk management and mitigation strategies, such as a robust control infrastructure, business continuity management or through risk transfer mechanisms such as insurance and outsourcing. The Group has a well-defined Operational Risk Management Framework and an independent operational risk function. The Operational Risk Management Committee oversees the implementation of an effective risk management framework that encompasses appropriate systems, practices, policies and procedures to ensure the effectiveness of risk identification, measurement, assessment, reporting and monitoring within the group. In addition, the Internal Audit department carries out an independent assessment and provides assurance of the actual functioning of the overall Operational Risk Management Framework. The Group manages operational risk based on a framework that enables the determination of operational risk profile of business units and how it relates to risk measurement, risk mitigation and priorities. 43
46. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) e) Operational risks (continued) A number of techniques are applied to effectively manage the operational risk across the Group. These include:  Effective staff training, documented processes/procedures with appropriate controls to safeguard assets and records, regular reconciliation of accounts and transactions, introduction process of new products, reviews of outsourcing activities, information system security, segregation of duties, financial management and reporting are some of the measures adopted by the Group to manage Group-wide operational risk;  Reporting of any operational risk event, which is used to help identify where process and control requirements are needed to reduce the recurrence of risk events. Risk events are analyzed, reported, mitigated, recorded on a central database and reported quarterly to the Board of Directors; and  Introduction of a bottom-up ‘Control Risk Self-Assessment’ across business and support units including subsidiaries and overseas branches. This approach results in detailed understanding of inherent and residual risks with evaluation of controls across the Group. Therefore, it enhances the determination of specific operational risk profile for the business and support units while corrective action points are captured and the changes of the operational risk profile are monitored on an ongoing basis. f) Capital management Regulatory capital The Group maintains an actively managed capital base to cover the risks inherent in the business. The adequacy of the Group’s capital is monitored using, among other measures, the rules and ratios established by the Basel Committee on Banking Supervision and adopted by the Qatar Central Bank. The primary objective of the Group’s capital management is to ensure that the Group complies with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximizes shareholders’ value. The Group manages its capital structure and makes adjustment to it in light of changes in economic conditions and the risk characteristics of its activities. In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders or issue capital securities. Common Equity Tier 1 Capital Additional Tier 1 Capital Additional Tier 2 Capital Total Eligible Capital 2017 2016 9,700,840 4,000,000 111,564 8,247,923 4,000,000 126,522 13,812,404 12,374,445 2017 Basel III Risk weighted amount 2016 Basel III Risk weighted amount 72,260,750 1,350,948 5,274,077 72,201,446 2,275,992 4,993,761 78,885,775 79,471,199 Risk weighted assets Total risk weighted assets for credit risk Risk weighted assets for market risk Risk weighted assets for operational risk 44
47. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 4 FINANCIAL RISK MANAGEMENT (CONTINUED) f) Capital management (continued) Risk weighted assets (continued) Risk weighted assets Total eligible capital Risk weighted assets as a percentage of total eligible capital Capital adequacy ratio 2017 2016 78,885,775 13,812,404 79,471,199 12,374,445 17.51% 15.57% The Bank has followed QCB Basel III capital adequacy ratio (“CAR”) with effect from 1 January 2014 in accordance with QCB regulations. The minimum accepted CAR under QCB Basel III requirements are as follows: - Minimum limit without Capital Conservation Buffer is 10% Minimum limit including Capital Conservation Buffer is 12.75% The adoption of IFRS 9 on 1 January 2018 is not expected to have a material impact on the total eligible capital based on guidance regulatory guidance to date. 5 USE OF ESTIMATES AND JUDGEMENTS a) Key sources of estimation uncertainty The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. i) Impairment allowances for credit losses Assets accounted for at amortised cost are evaluated for impairment on a basis described in accounting policy. The specific counterparty component of the total allowances for impairment applies to financial assets evaluated individually for impairment and is based upon management’s best estimate of the present value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about counterparty’s financial situation and the net realisable value of any underlying collateral. Each impaired asset is assessed on its merits, and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function. Minimum impairment on specific counter parties is determined based on the QCB regulations. The Bank reviews its loan portfolio to consolidate impairment at the end of each reporting period. In determining whether an impairment loss should be recorded in the consolidated statement of income, the Bank makes judgements as to whether there is any observable data indicating that there is a measurable decrease in the estimated future cash flows from a portfolio of loans before the decrease can be identified with an individual loan in that portfolio. This evidence may include observable data indicating that there has been an adverse change in the payment status of borrowers in a group, or national or local economic conditions that correlate with defaults on assets in the group. Management uses estimates based on historical loss experience for assets with credit risk characteristics and objective evidence of impairment similar to those in the portfolio when scheduling its future cash flows. The methodology and assumptions used for estimating both the amount and timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Collectively assessed impairment allowances cover credit losses inherent in portfolios of loans and advances to customers and investment securities measured at amortised cost with similar credit risk characteristics when there is objective evidence to suggest that they contain impaired financial assets, but the individual impaired items cannot yet be identified. In assessing the need for collective loss allowances, management considers factors such as credit quality, portfolio size, concentrations and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowances depends on the estimates of future cash flows for specific counterparty allowances and the model assumptions and parameters used in determining collective allowances. 45
48. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 5 USE OF ESTIMATES AND JUDGEMENTS (CONTINUED) a) Key sources of estimation uncertainty (continued) ii) Determining fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in accounting policy. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Where the fair values of financial assets and financial liabilities cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives. b) Critical accounting judgements in applying the Group’s accounting policies i) Valuation of financial instruments The Group’s accounting policy on fair value measurements is discussed in the significant accounting policies section. The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements.  Level 1: Quoted market price unadjusted in an active market for an identical instrument.  Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly or indirectly observable from market data.  Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are valued based on quoted prices for similar instruments where significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments the Group determines fair values using valuation techniques. Valuation techniques include net present value and discounted cash flow models, comparison to 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, foreign currency exchange rates, equity and equity index prices and expected price volatilities and correlations. The objective of valuation techniques is to arrive at a fair value determination that reflects the price of the financial instrument at the reporting date that would have been determined by market participants acting at arm’s length. 46
49. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 5 USE OF ESTIMATES AND JUDGEMENTS (CONTINUED) b) Critical accounting judgements in applying the Group’s accounting policies (continued) ii) Fair value measurement The following table provides the fair value measurement hierarchy of the Group’s assets and liabilities. Quantitative disclosures fair value measurement hierarchy for assets and liabilities as at 31 December 2017: Assets measured at fair value: Available-for-sale investment securities Derivative instruments: Interest rate swaps Forward foreign exchange contracts Date of valuation Level 1 Level 2 Level 3 Total 31 Dec 2017 11,216,316 549,509 - 11,765,825 31 Dec 2017 31 Dec 2017 - 59,610 102,253 - 59,610 102,253 11,216,316 711,372 - 11,927,688 Assets for which fair values are disclosed (note 7) Cash and balances with central banks Due from banks Loans and advances to customers Held to maturity investment securities Other Assets 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 3,232,502 - 2,475,331 - 6,669,609 7,821,983 59,804,174 669,821 6,669,609 7,821,983 59,804,174 5,707,833 669,821 Liabilities measured at fair value: Derivative instruments: Interest rate swaps Forward foreign exchange contracts 31 Dec 2017 31 Dec 2017 - 27,485 20,014 - 27,485 20,014 - 47,499 - 47,499 657,669 - 11,005,061 59,468,326 5,432,936 1,364,771 - 11,005,061 59,468,326 657,669 5,432,936 1,364,771 Liabilities for which fair values are disclosed (note 7) Due to banks Customer deposits Debt securities Other borrowings Other liabilities 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 31 Dec 2017 There have been no transfers between Level 1, level 2 and Level 3 fair value measurement during the year. 47
50. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 5 USE OF ESTIMATES AND JUDGEMENTS (CONTINUED) b) Critical accounting judgements in applying the Group’s accounting policies (continued) ii) Fair value measurement (continued) Fair value hierarchy for financial instruments measured at fair value as at 31 December 2016: Assets measured at fair value: Available-for-sale investment securities Investment securities classified as held for trading Derivative instruments: Interest rate swaps Forward foreign exchange contracts Date of valuation Level 1 Level 2 Level 3 Total 31 Dec 2016 6,597,526 1,652,081 - 8,249,607 31 Dec 2016 5,657 - - 5,657 31 Dec 2016 31 Dec 2016 - 55,601 52,145 - 55,601 52,145 6,603,183 1,759,827 - 8,363,010 4,260,410 10,505,250 59,186,222 554,396 4,260,410 10,505,250 59,186,222 6,492,540 554,396 Assets for which fair values are disclosed (note 7) Cash and balances with central banks Due from banks Loans and advances to customers Held to maturity investment securities Other Assets 31 Dec 2016 31 Dec 2016 31 Dec 2016 31 Dec 2016 31 Dec 2016 3,819,815 - 2,672,725 - Liabilities measured at fair value: Derivative instruments: Interest rate swaps Forward foreign exchange contracts 31 Dec 2016 31 Dec 2016 - 9,149 19,827 - 9,149 19,827 - 28,976 - 28,976 1,819,598 - 12,275,336 55,729,950 4,994,474 1,458,503 - 12,275,336 55,729,950 1,819,598 4,994,474 1,458,503 Liabilities for which fair values are disclosed (note 7) Due to banks Customer deposits Debt securities Other borrowings Other liabilities 31 Dec 2016 31 Dec 2016 31 Dec 2016 31 Dec 2016 31 Dec 2016 During the reporting period 31 December 2016, there were no transfers between Level 1 and Level 3 fair value measurements. Available for sale equity investments amounting to QAR 52.3 million (2016: QAR 59.3 million) are recorded at cost since the fair value cannot be reliably measured. iii) Financial asset and liability classification The Group’s accounting policies provide scope for assets and liabilities to be designated at inception into different accounting categories in certain circumstances:    in classifying financial assets or liabilities as trading, the Group has determined that it meets the description of trading assets and liabilities set out in accounting policies. in designating financial assets at fair value through profit or loss, the Group has determined that it has met one of the criteria for this designation set out in accounting policies. in classifying financial assets as held-to-maturity, the Group has determined that it has both the positive intention and ability to hold the assets until their maturity date as required by accounting policies. Details of the Group’s classification of financial assets and liabilities are given in Note 7. 48
51. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 5 USE OF ESTIMATES AND JUDGEMENTS (CONTINUED) iv) Qualifying hedge relationships In designating financial instruments in qualifying hedge relationships, the Group has determined that it expects the hedges to be highly effective over the period of the hedging relationship. In accounting for derivatives as fair value hedges, the Group has determined that the hedged interest rate exposure relates to highly probable future cash flows. v) Impairment of investments in equity and debt securities Investments in equity and debt securities are evaluated for impairment on the basis described in the significant accounting policies section. vi) Going concern The Group’s management has made an assessment of its ability to continue as a going concern and is satisfied that it has the resources to continue in business for the foreseeable future. Furthermore, management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. vii) Useful lives of property and equipment The Group’s management determines the estimated useful life of property and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset, physical wear and tear, technical or commercial obsolescence. 6 OPERATING SEGMENTS The Group organizes and manages its operations by two business segments, which comprise conventional banking and insurance activities. Conventional Banking Corporate Banking provides a range of product and service offerings to business and corporate customers including funded and non-funded credit facilitates deposits to corporate customers. It also undertakes funding and centralised risk management activities through borrowings, issue of debt securities, use of derivatives for risk management purposes and investing in liquid assets such as short-term placements and corporate and government debt securities. Retail Banking provides a diversified range of products and services to individuals. The range includes loans, credit cards, deposits and other transactions with retail customers. Insurance Activities Insurance activities to customers include effecting contracts of insurance, carrying out contracts of insurance, arranging deals in investments and advising on investments. 49
52. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 6 OPERATING SEGMENTS (CONTINUED) a) By operating segment Details of each segment as of and for the year ended 31 December 2017 are stated below: Corporate Banking 2017 Retail Banking Unallocated Total Insurance Total Interest income Net income from insurance activities Other income 3,250,115 382,774 380,738 228,807 64,474 3,630,853 676,055 7,202 7,112 3,630,853 7,202 683,167 Segmental revenue 3,632,889 609,545 64,474 4,306,908 14,314 4,321,222 (102,245) - - (592,541) (142,067) - (592,541) (142,067) 1,109,493 423 1,109,916 Net impairment loss on loans and advances to customers Impairment loss on investment securities (490,296) (142,067) Segmental profit Share of results of the associate 158 Net profit for the year Other information Assets Investments in an associate 1,110,074 78,699,654 6,452,639 8,082,441 93,234,734 249,421 93,495,281 Total Liabilities Contingent items 93,484,155 11,126 68,614,334 28,028,028 9,065,643 48,569 50 913,438 - 78,593,415 28,076,597 94,869 - 78,688,284 28,076,597
53. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 6 OPERATING SEGMENTS (CONTINUED) a) By operating segment Corporate Banking 2016 Retail Banking Unallocated Total Insurance Total Interest/similar income Net income from insurance activities Other income 2,776,038 452,121 392,957 158,228 54,874 3,168,995 665,223 8,024 7,265 3,168,995 8,024 672,488 Segmental revenue 3,228,159 551,185 54,874 3,834,218 15,289 3,849,507 (73,008) - - (728) (480,224) (139,499) Net impairment loss on loans and advances to customers Impairment loss on investment securities (407,216) (138,771) Segmental profit (480,224) (138,771) 1,050,765 3,062 Share of results of the associate (46) Net profit for the year Other information Assets Investments in an associate 1,053,781 78,461,105 - 6,970,182 - 4,657,665 - 90,088,952 - 265,654 - Total Liabilities Contingent items 1,053,827 90,354,606 10,343 90,364,949 65,790,217 32,881,346 10,404,519 138,605 51 679,716 - 76,874,452 33,019,951 109,962 - 76,984,414 33,019,951
54. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 6 OPERATING SEGMENTS (CONTINUED) b) Geographical areas The following table shows the geographic distribution of the Group’s operating income based on the geographical location of where the business is booked by the Group. Qatar Other GCC India Total 2017 Net operating income 2,633,167 295,275 17,398 2,945,840 Net profit 1,134,303 (15,286) (8,943) 1,110,074 Total assets 84,640,595 8,329,454 525,232 93,495,281 Total liabilities 71,203,556 7,129,544 355,184 78,688,284 2016 Net operating income 2,424,359 290,870 25,929 2,741,158 Net profit 1,081,566 (33,909) 6,124 1,053,781 Total assets 80,021,671 9,721,550 621,728 90,364,949 Total liabilities 68,015,770 8,516,098 452,546 76,984,414 52
55. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 7 FINANCIAL ASSETS AND LIABILITIES a) Accounting classifications and fair values The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities: Fair value through profit or loss Held to maturity Loans and receivables Availablefor-sale Other amortised cost Total carrying amount Fair value 161,863 - - 6,669,609 7,821,983 - - - 59,804,174 - - 6,669,609 7,821,983 161,863 59,804,174 6,669,609 7,821,983 161,863 59,804,174 - 5,694,456 - - 11,818,154 - 507,958 11,818,154 5,694,456 507,958 11,818,154 5,707,833 507,958 161,863 5,694,456 74,295,766 11,818,154 507,958 92,478,197 92,491,574 47,499 - - - - 11,005,061 59,468,326 657,669 5,432,936 1,364,771 47,499 11,005,061 59,468,326 657,669 5,432,936 1,364,771 47,499 11,005,061 59,468,326 657,669 5,432,936 1,364,771 47,499 - - - 77,928,763 77,976,262 77,976,262 31 December 2017 Cash and balances with central banks Due from banks Positive fair value of derivatives Loans and advances to customers Investment securities: Measured at fair value Measured at amortised cost Other assets Negative fair value of derivatives Due to banks Customer deposits Debt securities Other borrowings Other liabilities 53
56. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 7 FINANCIAL ASSETS AND LIABILITIES (CONTINUED) a) Accounting classifications and fair values (continued) The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities: Fair value through profit or loss Held to maturity Loans and receivables Availablefor-sale Other amortised cost Total carrying amount Fair value 107,746 - - 4,260,410 10,505,250 - - - 59,186,222 - - 4,260,410 10,505,250 107,746 59,186,222 4,260,410 10,505,250 107,746 59,186,222 5,657 - 6,391,593 - - 8,308,860 - 554,396 8,314,517 6,391,593 554,396 8,314,517 6,492,540 554,396 113,403 6,391,593 73,951,882 8,308,860 554,396 89,320,134 89,421,081 28,976 - - - - 12,275,336 55,729,950 1,819,598 4,994,474 1,458,503 28,976 12,275,336 55,729,950 1,819,598 4,994,474 1,458,503 28,976 12,275,336 55,729,950 1,819,598 4,994,474 1,458,503 28,976 - - - 76,277,861 76,306,837 76,306,837 31 December 2016 Cash and balances with central banks Due from banks Positive fair value of derivatives Loans and advances to customers Investment securities: Measured at fair value Measured at amortised cost Other assets Negative fair value of derivatives Due to banks Customer deposits Debt securities Other borrowings Other liabilities Investment securities – unquoted equity securities at cost The above table includes to QAR 52.3 million (2016: QAR 59.3 million) at 31 December 2017 of unquoted equity investments in both the carrying amount and fair value columns that were measured at cost and for which disclosure of fair value was not provided because their fair value was not considered to be reliably measureable. 54
57. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 8 CASH AND BALANCES WITH CENTRAL BANKS Cash Cash reserve with QCB* Cash reserve with other central banks* Other balances with central banks 2017 2016 507,922 2,227,944 60,882 3,872,861 435,960 1,926,658 110,854 1,786,938 6,669,609 4,260,410 *Cash reserve with QCB and other central banks are mandatory reserves that are not available for use in the Group’s day to day operations. 9 DUE FROM BANKS 2017 2016 610,761 3,941,114 3,270,108 1,331,053 5,124,797 4,049,400 7,821,983 10,505,250 2017 2016 Loans Overdrafts Bills discounted Other loans* 56,027,009 5,588,715 443,389 584,501 54,456,707 5,903,930 520,874 715,293 (Note-i) Less : Deferred profit Specific impairment of loans and advances to customers Collective impairment allowance 62,643,614 61,596,804 (21,467) (2,706,410) (111,563) (1,343) (2,282,717) (126,522) Net loans and advances to customers 59,804,174 59,186,222 Current accounts Placements Loans to banks 10 LOANS AND ADVANCES TO CUSTOMERS a) By type 55
58. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 10 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED) a) By type The aggregate amount of non-performing loans and advances to customers amounted QAR 2,258.7 million, which represents 3.61 % of total loans and advances to customers (2016: QAR 2,012.3 million, 3.27% of total loans and advances to customers). During the year, the Group has written-off fully provided non-performing loans amounting to QAR 194 million (2016: QAR 290.7) as per Qatar Central Bank circular no. 68/2011. Specific impairment of loans and advances to customers includes QAR 451 million of interest in suspense (2016: QAR 457 million). *This includes acceptances pertaining to trade finance amounting to QAR 224 million (2016: QAR 308 million). Note-i: Government and related agencies Corporate Retail b) 2017 2016 3,535,924 50,232,365 8,875,325 4,906,445 45,826,545 10,863,814 62,643,614 61,596,804 By industry Loans Overdrafts Bills discounted Other loans Total 1,357,833 1,589,511 603,026 10,480,480 5,885,439 9,527,115 17,871,715 8,361,916 349,974 2,178,091 20,990 906,795 313,004 1,095,701 416,432 504,333 153,369 31,141 147,383 170,074 31,992 17,851 9,076 35,872 5,123 93,217 111,885 324,575 11,938 37,763 3,535,924 1,594,634 748,374 11,646,543 6,368,517 10,979,383 18,317,936 8,875,325 576,978 56,027,009 5,588,715 443,389 584,501 62,643,614 At 31 December 2017 Government and related agencies Non-banking financial institutions Industry Commercial Services Contracting Real estate Personal Others Less: Deferred profit Specific impairment of loans and advances to customers Collective impairment allowance (21,467) (2,706,410) (111,563) 59,804,174 56
59. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 10 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED) b) By industry (continued) Loans Overdrafts Bills discounted Other loans Total 2,359,726 1,750,013 1,551,236 8,290,573 6,352,930 9,090,955 14,147,652 10,320,926 592,696 2,546,719 53,450 961,795 249,268 1,248,194 315,635 462,389 66,480 67,707 145,951 161,080 95,194 40,013 7,823 3,106 17,278 273,710 11,564 310,208 11,496 72,676 18,361 4,906,445 1,750,013 1,689,671 9,672,029 6,774,842 10,744,551 14,514,796 10,863,814 680,643 54,456,707 5,903,930 520,874 715,293 61,596,804 At 31 December 2016 Government and related agencies Non-banking financial institutions Industry Commercial Services Contracting Real estate Personal Others Less: Deferred profit Specific impairment of loans advances to customers Collective impairment allowance (1,343) and (2,282,717) (126,522) 59,186,222 c) Movement in impairment loss on loans and advances to customers Balance at 1 January Foreign currency translation Provisions made during the year Recoveries during the year Net allowance for impairment during the year* Written off/transfers during the year Balance at 31 December 2017 2016 2,409,239 3,680 903,964 (104,578) 2,070,296 (895) 753,184 (98,360) 799,386 (394,332) 654,824 (314,986) 2,817,973 2,409,239 *The movement includes the effect of interest suspended on loans and advances to customers as per QCB regulations amounting to QAR 206.9 million during the year (2016: QAR 174.6 million). 57
60. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 10 LOANS AND ADVANCES TO CUSTOMERS (CONTINUED) c) Movement in impairment loss on loans and advances to customers (continued) Reconciliations of the allowance for impairment losses for loans and advances to customers, by class, is as follows: Corporate lending SME lending Retail Lending Real estate mortgage lending Total Balance at 1 January Foreign currency translation Provisions made during the year Recoveries during the year Written off during the year 1,960,662 2,527 726,420 (55,884) (328,308) 60,389 4 31,023 (2,035) (1,191) 341,283 (72) 146,457 (44,212) (64,721) 46,905 1,221 64 (2,447) (112) 2,409,239 3,680 903,964 (104,578) (394,332) Balance at 31 December 2017 2,305,417 88,190 378,735 45,631 2,817,973 Corporate lending SME lending Retail lending Real estate mortgage lending Total Balance at 1 January Foreign currency translation Provisions made during the year Recoveries during the year Written off during the year 1,553,606 (681) 618,295 (31,279) (179,279) 68,745 18,529 (4,907) (21,978) 362,421 (214) 109,429 (32,971) (97,382) 85,524 6,931 (29,203) (16,347) 2,070,296 (895) 753,184 (98,360) (314,986) Balance at 31 December 2016 1,960,662 60,389 341,283 46,905 2,409,239 11 INVESTMENT SECURITIES The analysis of investment securities is detailed below: 2017 2016 Available-for-sale Investment securities classified as held for trading Held-to-maturity* 12,065,115 5,708,651 8,524,454 5,657 6,405,787 Impairment losses 17,773,766 (261,156) 14,935,898 (229,788) Total 17,512,610 14,706,110 *The Group has pledged State of Qatar Bonds amounting to QAR 4,606 million (2016: QAR 2,545 million) against repurchase agreements. 58
61. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 11 INVESTMENT SECURITIES (CONTINUED) a) Available-for-sale Equities State of Qatar debt securities Other debt securities Mutual funds Less: Impairment losses Total Quoted 2017 Unquoted Total Quoted 2016 Unquoted Total 1,077,288 6,549,715 3,717,547 107,538 (235,772) 63,518 524,275 25,234 (11,189) 1,140,806 7,073,990 3,742,781 107,538 (246,961) 1,109,292 3,282,312 2,293,850 118,877 (206,805) 68,042 1,652,005 76 (8,789) 1,177,334 4,934,317 2,293,926 118,877 (215,594) 11,216,316 601,838 11,818,154 6,597,526 1,711,334 8,308,860 Fixed rate securities and floating rate securities amounted to QAR 10,246.7 million and QAR 570.1 million respectively as of 31 December 2017 (2016: QAR 7,130 million and QAR 98.7 million respectively). Investment securities classified as held for trading The investment securities classified as held for trading comprise quoted bonds amounted to QAR Nil million. (2016: Quoted bonds amounting to QAR 5.3 million. b) Held-to-maturity Quoted 2017 Unquoted Total Quoted 2016 Unquoted Total -By issuer State of Qatar debt securities Other debt securities Less: Impairment losses 2,886,237 347,083 (14,194) 1,639,649 835,682 - 4,525,886 1,182,765 (14,194) 3,351,341 381,721 (14,194) 1,675,596 997,129 - 5,026,937 1,378,850 (14,194) Total 3,219,126 2,475,331 5,694,457 3,718,868 2,672,725 6,391,593 -By interest rate Fixed rate securities Floating rate securities Less: Impairment losses 3,233,319 (14,194) 2,475,332 - 5,708,651 (14,194) 3,733,062 (14,194) 2,672,725 - 6,405,787 (14,194) Total 3,219,125 2,475,332 5,694,457 3,718,868 2,672,725 6,391,593 The fair value of held-to-maturity investments amounted to QAR 5,707.8 million at 31 December 2017 (2016: QAR 6,492.5 million). c) Movement in impairment losses on investment securities Balance at 1 January Provision for impairment loss created during the year Recoveries during the year Balance at 31 December 59 2017 2016 229,788 142,067 (110,699) 213,602 139,499 (123,313) 261,156 229,788
62. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 12 INVESTMENT IN AN ASSOCIATE 2017 2016 Balance at 1 January Foreign currency translation Acquisition during the year Share of results Cash dividend 10,343 693 158 (68) 8,908 (257) 1,738 (46) - Balance at 31 December 11,126 10,343 The financial position and results of the associates based on audited financial statements, as at and for the year ended 31 December is as follows: 2017 2016 Total assets 45,955 30,140 Total liabilities 30,861 16,295 Total revenue 11,226 8,300 Profit / (loss) 359 (104) Share of profit / (loss) 158 (46) 31 December 60
63. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 13 PROPERTY, FURNITURE AND EQUIPMENT At 31 December 2017 Cost: Balance at 1 January Additions/ transfers Disposals/Write-off Depreciation: Balance at 1 January Depreciation Disposals/Write-off Net Book Value Land and buildings Leasehold improvements Furniture and equipment 811,510 69 - 179,691 19,270 (3,310) 493,211 16,777 (269) 9,734 568 (2,224) 1,494,146 36,684 (5,803) 811,579 195,651 509,719 8,078 1,525,027 219,911 32,611 - 131,863 15,349 (3,244) 363,223 50,232 (206) 8,304 628 (2,224) 723,301 98,820 (5,674) 252,522 143,968 413,249 6,708 816,447 559,057 51,683 96,470 1,370 708,580 Land and buildings At 31 December 2016 Cost: Balance at 1 January Additions/ transfers Disposals Depreciation: Balance at 1 January Depreciation Disposals Net Book Value Leasehold improvements Furniture and equipment Vehicles Vehicles Total Total 821,100 91 (9,681) 156,429 26,169 (2,907) 449,557 62,196 (18,542) 11,931 687 (2,884) 1,439,017 89,143 (34,014) 811,510 179,691 493,211 9,734 1,494,146 187,558 32,673 (320) 121,561 13,210 (2,908) 333,556 47,127 (17,460) 10,555 632 (2,883) 653,230 93,642 (23,571) 219,911 131,863 363,223 8,304 723,301 591,599 47,828 129,988 1,430 770,845 61
64. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 14 OTHER ASSETS Interest receivable Prepaid expenses Repossessed collaterals* Positive fair value of derivatives (Note 34) Deferred tax asset Sundry debtors Others 2017 2016 190,238 39,538 134,000 161,863 132,205 12,130 297,225 165,942 53,573 107,746 89,177 2,122 507,209 967,199 925,769 *This represents the value of the properties acquired in settlement of debts which are stated at their carrying value. The estimated market values of these properties as at 31 December 2017 are not materially different from the carrying values 15 DUE TO BANKS Balances due to central banks Current accounts Certificate of deposits Short-term loan from banks Repo borrowings 16 CUSTOMER DEPOSITS a) By type Current and call deposits Saving deposits Time deposits b) 2017 2016 1,638,675 148,216 3,270,792 5,947,378 728,300 208,068 700,000 8,272,925 2,366,043 11,005,061 12,275,336 2017 2016 7,972,033 2,056,231 49,440,062 10,022,348 2,312,654 43,394,948 59,468,326 55,729,950 2017 2016 29,911,274 8,981,229 17,318,389 3,257,434 21,543,253 10,218,732 22,291,246 1,676,719 59,468,326 55,729,950 By sector Government and semi government agencies Individuals Corporates Non-banking financial institutions 62
65. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 17 DEBT SECURITIES The Group has issued subordinated debt notes and senior guaranteed notes as follows: Senior guaranteed notes 2017 2016 657,669 1,819,598 657,669 1,819,598 Note During current year, the Group issued USD 75 million and JPY 11.9 billion senior unsecured debt under its updated EMTN programme. On 14 March 2012, the Group issued US$ 500 million senior guaranteed notes at 98.964% of the nominal value. The notes have a minimum nominal denomination of US$ 200,000. The notes mature in 2017 and carry interest at fixed rate of 3.50% payable semi-annually. 18 OTHER BORROWINGS Term loan facilities 2017 2016 5,432,936 4,994,474 2017 2016 2,727,621 2,705,315 3,293,026 1,701,448 5,432,936 4,994,474 2017 2016 297,763 72,124 131,020 50,904 34,678 47,499 98,108 437,537 54,092 11,831 27,752 860,984 281,650 58,030 125,207 58,231 31,308 28,976 83,387 315,179 48,178 8,240 26,345 1,100,325 2,124,292 2,165,056 The table below shows the maturity profile of other borrowings. Up to 1 year Between 1 and 3 years 19 OTHER LIABILITIES Interest payable Accrued expense payable Provision for end of service benefits (note-i) Staff provident fund* Tax payable Negative fair value of derivatives ( note 34) Unearned income Cash margins Dividend payable Unclaimed balances Proposed transfer to social and sport fund Others** Total * Staff provident fund contribution was ceased effective July 2016 except for the Qatari and other GCC nationals. **This includes acceptances pertaining to trade finance amounting to QAR 224 million (2016: QAR 308 million). 63
66. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 19 OTHER LIABILITIES (CONTINUED) Note-i Provision for end of service benefits 2017 2016 Balance at 1 January Provision for the year Provisions used during the year* 125,207 19,222 (13,409) 216,122 35,245 (126,160) Balance at 31 December 131,020 125,207 * 50% of the end of service benefits had been paid to all staff during the year 20 EQUITY a. Share capital Ordinary shares 2017 2016 In thousands of shares On issue at the beginning of the reporting period 310,047 258,372 On issue at 31 December 310,047 258,372 At 31 December 2017, the authorised share capital comprised 310,047 thousands ordinary shares (2016: 258,372 thousands). These instruments have a par value of QAR 10. All issued shares are fully paid. On 9 May 2017, the Bank closed its right issue subscription and received QAR 1,292 million from its shareholders towards the Bank’s offer to increase its share capital through the issuance of 51,674,450 new shares at a premium of QAR 15, in addition to a nominal value of QAR 10 per share, as resolved by the bank’s Extraordinary General Assembly held on 6 March 2017. Shares were listed on Qatar Exchange as on 12 July 2017 and the paid up capital of the Bank has been increased to QAR 3,100,467,020. The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at meetings of the Group. b. Legal reserve In accordance with Qatar Central Bank’s Law No. 13 of 2012, 10% of the net profit for the year is required to be transferred to legal reserve until the legal reserve equals 100% of the paid up capital. This reserve is not available for distribution except in circumstances specified in the Qatar Commercial Companies’ Law No. 11 of 2015 and is subject to the approval of QCB. No transfer was made during the year as the legal reserve is in excess of 100% of the paid up capital. The legal reserve includes share premium received on issuance of new shares in accordance with Qatar Commercial Companies Law 11 of 2015. c. Risk reserve In accordance with the Qatar Central Bank regulations, a minimum requirement of 2.5% of the net loans and advances to customers except for facilities granted to Government, is required as risk reserve to cover any contingencies. The Group has an outstanding balance of QAR 1.37 billion under its risk reserve as at year ended 2017 which is in line with the minimum requirement (2016: QAR 80 million transferred to risk reserve). 64
67. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 20 EQUITY (CONTINUED) d. Fair value reserve This reserve comprises the fair value changes recognised on available-for-sale financial assets. Balance at 1 January Net unrealized (loss) on available-for-sale investment securities Reclassified to consolidated statement of Income Net change in fair value of available – for – sale investment securities Balance at 31 December e. 2017 2016 (103,412) (100,156) 136,013 35,857 (269,676) (34,035) 200,299 166,264 (67,555) (103,412) Foreign currency translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations. f. Proposed dividend The Board of Directors of the Group has proposed a cash dividend of 30% of paid up share capital amounting to QAR 930.1 million - QAR 3.00 per share (2016: 30% of paid up share capital amounting to QAR 775.1 million QAR 3.00 per share) which is subject to approval at the Annual General Meeting of the shareholders. g. Instrument eligible as additional capital Issued on 31 December 2013 Issued on 30 June 2016 2017 2016 2,000,000 2,000,000 2,000,000 2,000,000 4,000,000 4,000,000 The Group has issued regulatory Tier I capital notes totaling to QAR 4 billion. These notes are perpetual, subordinated, unsecured and each has been priced at a fixed rate for the first six years and shall be re-priced thereafter. The coupon is discretionary and the event on non-payment is not considered as an event of default. The notes carry no maturity date and have been classified under Tier 1 capital. 21 INTEREST INCOME Balance with central banks Due from banks and non-banking financial institutions Debt securities Loans and advances to customers 65 2017 2016 3,429 98,624 566,699 2,962,101 1,774 100,393 446,879 2,619,949 3,630,853 3,168,995
68. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 22 INTEREST EXPENSE Due to banks Customer deposits Debt securities 23 231,118 798,725 78,506 1,375,382 1,108,349 2017 2016 88,002 667 258,167 136,667 32,810 108,741 645 232,601 134,113 26,848 516,313 502,948 2017 2016 1,051 50,737 1,185 41,984 51,788 43,169 2017 2016 25,643 80,901 47,169 55,077 106,544 102,246 2017 2016 10,571 39,251 (5,095) 60,679 49,822 55,584 FOREIGN EXCHANGE GAIN Dealing in foreign currencies Revaluation of assets and liabilities 26 361,654 996,384 17,344 FEE AND COMMISSION EXPENSE Bank fees Others 25 2016 FEE AND COMMISSION INCOME Credit related fees Brokerage fees Bank services fee Commission on unfunded facilities Others 24 2017 INCOME FROM INVESTMENT SECURITIES Net gains/(loss) on investment securities Dividend income 66
69. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 27 OTHER OPERATING INCOME 2017 2016 31,199 12,797 18,280 28,875 12,509 13,495 62,276 54,879 2017 2016 505,151 5,168 19,222 1,568 469,159 9,845 35,245 2,055 531,109 516,304 2017 2016 33,329 27,534 44,727 19,736 123,441 37,468 10,494 6,909 169,026 33,424 42,529 51,841 15,221 100,686 38,159 11,734 7,189 158,662 472,664 459,445 2017 2016 35,508 158 32,207 29 35,666 32,236 Deferred tax expense Temporary differences (36,943) (34,019) Income tax (reversal) (1,277) (1,783) Recoveries from loans and advances to customers previously written-off Rental income Others 28 STAFF COSTS Staff cost Staff pension fund costs End of service benefits Training 29 OTHER EXPENSES Advertising Professional fees Communication and insurance Board of Directors’ remuneration Occupancy and maintenance Computer and IT costs Printing and stationery Travel and entertainment costs Others 30 TAX EXPENSE Current tax expense Current year Adjustments for prior years 67
70. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 31 BASIC AND DILUTED EARNINGS PER SHARE Earnings per share of the Group is calculated by dividing profit for the year attributable to the equity holders (further adjusted for interest expense on tier 1capital notes) of the Bank by the weighted average number of ordinary shares in outstanding during the year: 2016 2017 Profit for the year attributable to the equity holders of the Group 1,110,074 1,053,781 (220,000) (220,000) 890,074 295,152 833,781 267,575 3.02 3.12 2017 2016 295,152 267,575 2017 2016 Contingent liabilities Unused facilities Guarantees Letters of credit Others 3,737,358 18,380,848 5,958,391 207,200 3,577,504 22,246,187 7,196,260 161,142 Total 28,283,797 33,181,093 7,091,767 3,256,877 30,696,684 1,822,890 10,348,644 32,519,574 Deduct : Interest on Tier 1 capital notes Net profit attributable to equity holders of the Group Weighted average number of outstanding shares (in thousands) Earnings per share (QAR) The weighted average number of shares are as follows: In thousands of shares Weighted average number of shares at 31 December 32 CONTINGENT LIABILITIES AND OTHER COMMITMENTS Other commitments Forward foreign exchange contracts Interest rate swaps Total Unused facilities Commitments to extend credit represent contractual commitments to make loans and revolving credits. The majority of these expire within a year. Since commitments may expire without being drawn upon, the total contractual amounts do not necessarily represent future cash requirements. Guarantees and Letters of credit Guarantees and letters of credit commit the Group to make payments on behalf of customers in the event of a specific event. Guarantees and standby letters of credit carry the same credit risk as loans. Lease commitments The Group has entered into commercial leases on certain buildings. These leases have an average duration between three and five years. There are no restrictions placed upon the Group by entering into these leases. 68
71. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 32 CONTINGENT LIABILITIES AND OTHER COMMITMENTS (CONTINUED) Future minimum lease payments under non-cancellable leases as at December 31 are as follow: 2017 2016 12,304 20,957 3,918 14,375 21,830 2,584 37,179 38,789 2017 2016 4,380,783 5,924,892 2,222,899 6,693,115 10,305,675 8,916,014 Less than one year Between one and five years More than five years 33 CASH AND CASH EQUIVALENTS Cash and balances with central banks* Due from banks and other financial institutions maturing within 3 months *Cash and balances with central banks do not include the mandatory cash reserve. 69
72. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year 31 December 2017 34 DERIVATIVES Notional / expected amount by term to maturity within 3 - 12 1-5 More than 3 months months years 5 years Positive fair value Negative fair value Notional Amount 102,253 20,014 7,091,767 4,555,558 2,536,209 - - 59,610 27,485 3,256,877 7,283 20,028 993,765 2,235,801 Positive fair value Negative fair value Notional Amount At 31 December 2016: Derivatives held for trading: Forward foreign exchange contracts 52,145 19,827 30,696,684 26,292,656 4,404,028 - - Derivatives held for fair value hedges: Interest rate swaps 55,601 9,149 1,822,890 - 25,491 733,398 1,064,001 At 31 December 2017: Derivatives held for trading: Forward foreign exchange contracts Derivatives held for fair value hedges: Interest rate swaps 70 Notional / expected amount by term to maturity 3 - 12 1-5 More than within 3 months months years 5 years
73. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 35 RELATED PARTIES Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial and operating decisions, Related parties include entities over which the Group exercises significant influence, major shareholders, directors and key management personnel of the Group. The Group enters into transactions, arrangements and agreements involving directors, senior management and their related concerns in the ordinary course of business at commercial interest and commission rates. The related party transactions and balances included in these consolidated financial statements are as follows: 2016 2017 Others Board of directors Others 2,599,973 - 1,350,895 - Liabilities: Customer deposits 371,327 13,055 394,631 19,506 Unfunded items: Contingent liabilities and other commitments 998,210 - 754,262 - 8,305 - 8,305 - 49,751 10,035 1,131 430 40,669 7,825 515 Assets: Loans and advances to customers Board of directors Other assets Income statement items: Interest, commission and other income Interest, commission and other expense No impairment losses have been recorded against balances outstanding during the period with key management personnel. Key management personnel (including Board of Directors) compensation for the year comprised: Salaries and other benefits End of service indemnity benefits and provident fund 71 2017 2016 63,763 3,167 57,282 6,352 66,930 63,634
74. DOHA BANK Q .P.S.C. NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS QAR ‘000s As at and for the year ended 31 December 2017 36 COMPARATIVES The comparative figures have been reclassified where necessary to preserve consistency with the current year. However, such reclassification did not have any effect on the consolidated net profit or equity for the comparative year. 72
75. DOHA BANK Q .P.S.C. QAR ‘000s SUPPLEMENTARY INFORMATION As at 31 December 2017 FINANCIAL STATEMENTS OF THE PARENT SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS Statement of Financial Position – Parent Bank As at 31 December 2017 2016 ASSETS Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in an associate Property, furniture and equipment Other assets TOTAL ASSETS 6,669,495 7,756,325 59,804,174 17,511,786 11,126 707,951 903,385 93,364,242 4,260,410 10,434,909 59,186,222 14,707,791 10,343 770,292 848,286 90,218,253 LIABILITIES Due to banks Customer deposits Debt securities Other borrowings Other liabilities TOTAL LIABILITIES 11,005,061 59,483,483 657,669 5,432,936 2,032,648 78,611,797 12,275,336 55,745,593 1,819,598 4,994,474 2,058,409 76,893,410 EQUITY Share capital Legal reserve Risk reserve Fair value reserves Foreign currency translation reserve Proposed dividend Retained earnings TOTAL EQUITY ATTRIBUTABLE TO SHAREHOLDERS OF THE BANK Instrument eligible as additional capital TOTAL EQUITY 3,100,467 5,080,853 1,372,000 (62,581) (13,451) 930,140 345,017 2,583,723 4,305,737 1,372,000 (100,001) (24,991) 775,117 413,258 10,752,445 4,000,000 14,752,445 9,324,843 4,000,000 13,324,843 TOTAL LIABILITIES AND EQUITY 93,364,242 90,218,253 73
76. DOHA BANK Q .P.S.C. QAR ‘000s SUPPLEMENTARY INFORMATION For the year ended 31 December 2017 FINANCIAL STATEMENTS OF THE PARENT BANK (CONTINUED) SUPPLEMENTARY INFORMATION TO THE FINANCIAL STATEMENTS (CONTINUED) Income Statement – Parent Bank 2017 2016 3,630,853 (1,375,497) 2,255,356 3,168,995 (1,109,061) 2,059,934 Fee and commission income Fee and commission expense Net fee and commission income 516,313 (51,788) 464,525 502,948 (43,169) 459,779 Foreign exchange gain Income from investment securities Other operating income 106,544 49,524 59,405 215,473 102,246 54,020 54,541 210,807 2,935,354 2,730,520 (521,984) (98,563) (142,067) (592,541) (471,997) (1,827,152) (505,068) (93,388) (138,771) (480,224) (464,462) (1,681,913) Profit for the year before tax Tax reversal 1,108,202 1,291 1,048,607 2,158 Profit for the year 1,109,493 1,050,765 Interest income Interest expense Net interest income Net operating income Staff costs Depreciation and amortisation Impairment loss on investment securities and due from banks Net impairment loss on loans and advances to customers Other expenses 74