Riyad Bank: Interim Condensed Consolidated Statements - 30 September 2017

Transcription

1. EY pwc Building a better workinq world Independent auditors ' review [('port on the Interim Condensed Consolidated Financial Statements To the Shareholders of Riyad Bank (A Saudi Joint Stock Company) Introduction: We have reviewed the accompanying interim condensed consolidated statement of financial posicion of Riyad Bank (the "Bank") and its subsidiaries (collectively referred to as the "Group") as at 30 June 2017, and the related interim condensed consolidated statements of income and comprehensive income for the three-month and six-month period then ended and interim condensed consolidated statements of changes in shareholders' equity and cash flows for the six-month period then cnded and explanatory notes (the "interim condensed consolidated financial statcments"). Management is rcsponsible for the preparation and presentation of these interim condensed consolidated financial statements in accordance with International Accounting Standard 34, "Interim Financial Reporting" ("lAS 34") and Saudi Arabian Monetary Authority ("SAMA") guidance on accounting for zakat and tax. Our responsibility is to express a conclusion on thcse interim condensed consolidated financial statements based on our review. Scope of Review: We conducted our revicw in accordance with International Standard on Review Engagements 2410, "Review of Interim Financial Infonnation Performed by thc Independent Auditor of the Entity" endorsed in the Kingdom of Saudi Arabia. A review of interim financial information consists of making inquiries, primarily of persons responsible for financial and accounting matters, and applying analytical and other review procedures. A review is substantially less in scope than an audit conducted in accordance with International Standards on Auditing endorsed in the Kingdom of Saudi Arabia and consequently docs notcnable us to obtain assurance that we would become aware of all significant mailers that might be identified in an audit. Accordingly, we do not express an audit opinion. Conclusion: Based on our review, nothing has come to our attention that causes us to believe that the accompanying interim condensed consolidated financial statements are not prepared, in all material respects, in accordance with lAS 34 and SAMA guidance on accounting for zakat and tax. Other Regulatory Matlers: As required by SAMA, ccrtain capital adequacy information has becn discloscd in note (15) to the accompanying interim condensed consolidated financial statements. As part of our review, we compared the information in notc (15) to the relevant analysis prepared by the Bank for submission to SAMA and found no material inconsistencies. PriccwaterhouseCoopers Ernst & Young P.o. Box 2732 Riyadh 11461 P.O. Box 8282 Riyadh 11482 Kingdom of Saud Ara .a KingdOmO~ ~\; Bader I. Benmohareh .Fahad 1\1.AI Toaimi Certified Public Accountant Registration No. 354 Certified Public Accountant Registration No. 471 25 Shawwal l438H 19July2017
2. RIYAD BANK INTERIM CONDENSED CONSOLIDATED STATEMENT OF FINANCIAL POSITION Note ASSETS Cash and balances with SAMA Due from banks and other financial institutions Positive fair value of derivatives Investments , net Loans and advances, net Investment in associates Other real estate Property and equipment, net Other assets 8 5 6 Total assets 30 September 2017 31 December 2016 30 September 2016 SAR'000 SAR'000 SAR'000 (Unaudited) (Audited) (Unaudited) (Restated) (Restated) 13,313,044 21,262,177 16,934,326 11,806,196 4,567,155 6,510,458 148,150 189,295 215,915 46,883,547 45,157,381 44,009,002 142,067,876 142,909,367 152,631,133 554,667 548,594 541,521 230,990 245,017 238,355 1,785,676 1,862,349 1,923,209 1,434,204 877,666 467,779 218,224,350 217,619,001 223,471,698 LIABILITIES AND SHAREHOLDERS' EQUITY Liabilities Due to banks and other financial institutions Negative fair value of derivatives Customer deposits Debt securities in issue Other liabilities 8 7 Total liabilities 8,307,224 104,829 156,050,942 8,049,269 8,043,686 180,555,950 8,836,713 138,638 156,683,349 8,018,373 6,968,867 180,645,940 10,424,799 257,099 160,821,155 8,054,009 6,866,053 186,423,115 30,000,000 2,936,093 866,147 3,866,160 - 30,000,000 2,936,093 532,929 2,604,039 900,000 30,000,000 2,100,471 701,816 4,246,296 - 37,668,400 218,224,350 36,973,061 217,619,001 37,048,583 223,471,698 Shareholders' equity Share capital Statutory reserve Other reserves Retained earnings Proposed dividends Total shareholders' equity Total liabilities and shareholders' equity The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements. Page 1 of 14
3. RIYAD BANK INTERIM CONDENSED CONSOLIDATED STATEMENT OF INCOME (Unaudited) For the three month period ended 30 September 2017 2016 For the nine month period ended 30 September 2017 2016 Special commission income Special commission expense Net special commission income SAR'000 1,912,975 374,297 1,538,678 SAR'000 1,888,820 568,275 1,320,545 SAR'000 5,571,938 1,134,735 4,437,203 SAR'000 5,365,928 1,417,944 3,947,984 Fee and commission income, net Exchange income, net Trading income, net Dividend income Gains on non-trading investments, net Other operating income Total operating income, net 382,482 71,868 9,889 21,119 39,446 12,644 2,076,126 319,741 115,316 (1,465) 16,301 81,576 2,863 1,854,877 1,131,644 214,908 13,329 44,338 199,929 25,975 6,067,326 1,147,353 314,259 15,217 44,983 159,888 239,355 5,869,039 Salaries and employee-related expenses Rent and premises-related expenses Depreciation of property and equipment Other general and administrative expenses Impairment charge for credit losses, net Impairment charge for investments Other operating expenses Total operating expenses, net 392,536 76,900 68,634 174,206 288,121 4,422 1,004,819 422,797 76,574 76,126 168,186 335,218 50,000 10,005 1,138,906 1,190,751 239,776 208,563 570,243 876,687 22,169 3,108,189 1,188,704 236,186 219,658 540,562 525,142 100,000 38,752 2,849,004 Net operating income 1,071,307 715,971 2,959,137 3,020,035 5,539 13,455 12,984 29,087 1,076,846 729,426 2,972,121 3,049,122 0.36 0.24 0.99 1.02 Note Share in earnings of associates, net Net income for the period Basic and diluted earnings per share (in SAR) 14 The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements. Page 2 of 14
4. RIYAD BANK INTERIM CONDENSED CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME (Unaudited) For the three month period ended 30 September Net income for the period Other comprehensive income: Items that are or may be reclassified back to interim condensed consolidated statement of income in subsequent periods - Available for sale investments Net change in fair value Net amounts transferred to interim condensed consolidated statement of income Other comprehensive income for the period Total comprehensive income for the period For the nine month period ended 30 September 2017 SAR'000 1,076,846 2016 SAR'000 729,426 2017 SAR'000 2,972,121 2016 SAR'000 3,049,122 220,685 (36,468) 197,153 (25,676) 520,728 (187,510) 462,761 (58,412) 184,217 171,477 333,218 404,349 1,261,063 900,903 3,305,339 3,453,471 The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements. Page 3 of 14
5. RIYAD BANK INTERIM CONDENSED CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS ' EQUITY (Unaudited) For the nine month period ended 30 September 2017 & 2016 SAR'000 Share capital 30 September 2017 Balance at the beginning of the period as originally stated Statutory reserve Other reserves Retained earnings Proposed dividends Total 30,000,000 2,936,093 532,929 2,604,039 1,700,000 37,773,061 Effect of restatement- Provision for zakat for 2016 (note 13) - - - - (800,000) (800,000) Balance at the beginning of the period- (Restated) (note 13) 30,000,000 2,936,093 532,929 2,604,039 900,000 36,973,061 Net change in fair value of available for sale investments - - 520,728 - - 520,728 Net amounts relating to available for sale investments transferred to interim condensed consolidated statement of income - - (187,510) - - (187,510) 30,000,000 2,936,093 333,218 866,147 2,972,121 2,972,121 (1,050,000) (660,000) 3,866,160 (900,000) - 2,972,121 3,305,339 (900,000) (1,050,000) (660,000) 37,668,400 30,000,000 30,000,000 2,100,471 2,100,471 297,467 297,467 2,847,174 2,847,174 1,300,000 (250,000) 1,050,000 36,545,112 (250,000) 36,295,112 - - 462,761 - - 462,761 - - (58,412) - - (58,412) 30,000,000 2,100,471 404,349 701,816 3,049,122 3,049,122 (1,050,000) (600,000) 4,246,296 (1,050,000) - 3,049,122 3,453,471 (1,050,000) (1,050,000) (600,000) 37,048,583 Total comprehensive income for the period Net income for the period Total comprehensive income for the period Final dividends - 2016 (note 13) Interim dividends - 2017 (note 13) Provision for zakat (note 13) Balance at the end of the period 30 September 2016 Balance at the beginning of the period as originally stated Effect of restatement- Provision for zakat for 2015 (note 13) Balance at the beginning of the period- (Restated) (note 13) Total comprehensive income for the period Net change in fair value of available for sale investments Net amounts relating to available for sale investments transferred to interim condensed consolidated statement of income Net income for the period Total comprehensive income for the period Final dividends - 2015 Interim dividends - 2016 (note 13) Provision for zakat (note 13) (Restated) Balance at the end of the period (Restated) The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements. Page 4 of 14
6. RIYAD BANK INTERIM CONDENSED CONSOLIDATED STATEMENT OF CASH FLOWS (Unaudited) Note OPERATING ACTIVITIES Net income for the period Adjustments to reconcile net income for the period to net cash from (used in) operating activities: Accretion of discounts and amortisation of premium, net on non-trading investments, net Gains on non-trading investments, net Gains on trading investments, net Depreciation of property and equipment Share in earnings of associates, net Impairment charge for investments Impairment charge for credit losses, net Net (increase) decrease in operating assets: Statutory deposit with SAMA Due from banks and other financial institutions maturing after three months from date of acquisition Positive fair value of derivatives Held for trading investments (FVIS) Loans and advances Other real estate Other assets Net increase (decrease) in operating liabilities: Due to banks and other financial institutions Negative fair value of derivatives Customer deposits Other liabilities Net cash from (used in) operating activities For the nine month period ended 30 September 2017 2016 SAR'000 SAR'000 2,972,121 3,049,122 (6,036) (199,929) (2,711) 208,563 (12,984) 876,687 14,517 (159,888) 219,658 (29,087) 100,000 525,142 3,835,711 3,719,464 (59,515) (1,189,997) 41,145 (300,000) (35,196) 14,027 (556,538) 525,806 (426,312) (18,376) (8,090,084) 20,056 301,289 (529,489) (33,809) (632,407) 445,592 999,524 5,925,106 69,970 (7,030,978) (125,708) (5,129,767) 15,058,448 (15,904,913) (131,890) (978,355) 17,875,022 (16,613,507) (248,166) 1,013,349 (1,980,773) (1,980,773) (1,959,604) 16,082,760 14,123,156 (2,178,734) (2,178,734) (6,295,152) 21,041,852 14,746,700 5,473,360 1,198,413 5,144,511 1,203,858 333,218 404,349 INVESTING ACTIVITIES Proceeds from sales and maturities of non-trading investments Purchase of non-trading investments Purchase of property and equipment, net Net cash (used in) from investing activities FINANCING ACTIVITIES Dividend and Zakat paid Net cash used in financing activities Net decrease in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period 10 Special commission received during the period Special commission paid during the period Supplemental non-cash information Net changes in fair value and transfers to interim condensed consolidated statement of income The accompanying notes 1 to 16 form an integral part of these interim condensed consolidated financial statements. Page 5 of 14
7. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 1. GENERAL Riyad Bank (the “Bank”) is a Saudi Joint Stock Company incorporated in the Kingdom of Saudi Arabia, formed pursuant to the Royal Decree and the Council of Ministers’ Resolution No. 91 dated 1 Jumad Al-Awal 1377H (corresponding to 23 November 1957G). The Bank operates under commercial registration No. 1010001054 dated 25 Rabi Al-Thani 1377H (corresponding to 18 November 1957G) through its 340 branches (30 September 2016: 334) in the Kingdom of Saudi Arabia, a branch in London, United Kingdom, an agency in Houston, United States, and a representative office in Singapore. The registered address of the Bank’s Head Office is as follows: Riyad Bank King Abdulaziz Road – Al-Murabba District P.O. Box 22622 Riyadh 11416 Kingdom of Saudi Arabia The objective of the Bank is to provide a full range of banking services. The Bank also provides to its customers Islamic (non-interest based) banking products which are approved and supervised by an independent Shariah Board established by the Bank. The interim condensed consolidated financial statements comprise the financial statements of Riyad Bank and its wholly owned subsidiaries, a) Riyad Capital (engaged in investment services and asset management activities related to dealing, managing, arranging, advising and custody of securities regulated by the Capital Market Authority), b) Ithra Al-Riyad Real Estate Company (formed with the objective to hold, manage, sell and purchase real estate assets for owners or third parties for financing activities); c) Riyad Company for Insurance Agency (which acts as an agent for selling insurance products owned and managed by another principal insurance company), incorporated in the Kingdom of Saudi Arabia; d) Curzon Street Properties Limited incorporated in the Isle of Man; and e) Riyad Financial Markets incorporated in the Cayman Islands - a netting and bankruptcy jurisdiction country, to execute derivative transactions with international counterparties on behalf of Riyad Bank. These entities are collectively referred to as “the Group”. 2. BASIS OF PREPARATION During 2017, Saudi Arabian Monetary Authority (SAMA) issued a Circular no. 381000074519 dated 11 April 2017 relating to the accounting for zakat and tax and subsequent amendments to the Circular were made by SAMA, through certain clarifications. The impact of the above are as follows: - the Accounting Standards for Commercial Banks promulgated by SAMA are no longer applicable from 1 January 2017; and - Zakat and tax are to be accrued on a quarterly basis and recognized in consolidated statement of changes in shareholders’ equity with a corresponding liability recognized in the consolidated statement of financial position. Applying the above framework, the interim condensed consolidated financial statements of the Group as at and for the period ended 30 September 2017 have been prepared using the International Accounting Standard (IAS) 34 – Interim Financial Reporting and SAMA guidance for the accounting of zakat and tax. Until 2016, the consolidated financial statements of the Group were prepared in accordance with the Accounting Standards for Commercial Banks promulgated by SAMA and IFRS. This change in framework resulted in a change in accounting policy for zakat (as disclosed in note 4) and the effects of this change are disclosed in note 13 to the interim condensed consolidated financial statements. The Group also prepares its interim condensed consolidated financial statements to comply with the Banking Control Law and the Regulations for Companies in the Kingdom of Saudi Arabia. The interim condensed consolidated financial statements do not include all information and disclosures required for the annual consolidated financial statements, and should be read in conjunction with the annual consolidated financial statements for the year ended 31 December 2016. The preparation of interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expenses. Actual results may differ from these estimates. In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Group’s accounting policies and the key sources of estimation uncertainty were the same as those that applied to the annual consolidated financial statements for the year ended 31 December 2016. These interim condensed consolidated financial statements are presented in Saudi Arabian Riyals (SAR), which is the Bank's functional currency, and are rounded off to the nearest thousand except as otherwise indicated. Page 6 of 14
8. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 3. BASIS OF CONSOLIDATION The interim condensed consolidated financial statements include the financial statements of the subsidiaries which are prepared for the same reporting period as that of the Bank, using consistent accounting policies. Subsidiaries are investees controlled by the Group. The Group controls an investee when it is exposed to, or has rights to, variable returns from its involvement with the investee and has ability to affect those returns through its power over the investee. The financial statements of the subsidiaries are included in the consolidated financial statements from the date that control commences until the date that control ceases. Balances between the Bank and its subsidiaries, and any unrealised income and expenses arising from intra-group transactions, are eliminated in preparing the interim condensed consolidated financial statements. Unrealised losses are eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. The Group acts as a Fund Manager to a number of investment funds. Determining whether the Group controls such an investment fund usually focuses on the assessment of the aggregate economic interests of the Group in the Fund (comprising any carried interests and expected management fees) and the investors' rights to remove the Fund Manager. As a result the Group has concluded that it acts as an agent for the investors in all cases, and therefore has not consolidated these funds. 4. SIGNIFICANT ACCOUNTING POLICIES The accounting policies used in the preparation of the interim condensed consolidated financial statements are consistent with those followed in the preparation of the Group’s annual consolidated financial statements for the year ended 31 December 2016, except for: a) Change in the accounting policy in relation to accounting for Zakat The Group amended its accounting policy relating to zakat and have started to accrue zakat on a quarterly basis and charging it to retained earnings. Previously, zakat was deducted from dividends upon payment to the shareholders and was recognized as a liability at that time. Where no dividends were paid, zakat was accounted for on a payment basis. The Group has accounted for this change in the accounting policy relating to zakat retrospectively (see note 2) and the effects of the above change are disclosed in note 13 to the interim condensed consolidated financial statements b) Amendments to IAS 7, Statement of cash flows on disclosure initiative: Applicable for annual periods beginning on or after 1 January 2017. These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. This amendment is part of the IASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. Page 7 of 14
9. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 5. INVESTMENTS, NET 30 September 2017 31 December 2016 30 September 2016 (Unaudited) (Audited) (Unaudited) SAR'000 SAR'000 SAR'000 302,711 16,096,859 16,013,987 15,975,545 30,483,932 29,141,896 28,028,225 45 1,498 5,232 46,883,547 45,157,381 44,009,002 - Held for Trading (FVIS) - Available for sale, net - Other investments held at amortised cost, net - Held to maturity, net Total On September 1, 2008, the Group reclassified investments held in trading portfolio reported under its investments at fair value through income statement ("FVIS") category to the Available for sale category. The carrying and fair value of these reclassified investments as at 30 September 2017 was SAR 2,517 million (30 September 2016 was SAR 2,840 million). Had the reclassification not occurred, the interim condensed consolidated income statement for the nine months period ended 30 September 2017 would have included unrealised fair value gain on such reclassified investments amounting to SAR 186.5 million (Nine months period ended 30 September 2016: unrealised fair value gain of SAR 220.9 million). 6. LOANS AND ADVANCES, NET Loans and advances held at amortised cost comprise the following: 30 September 2017 31 December 2016 30 September 2016 (Unaudited) (Audited) (Unaudited) SAR'000 SAR'000 SAR'000 39,893,502 38,035,114 37,825,528 101,664,593 105,520,275 114,863,395 782,918 773,471 850,870 142,341,013 144,328,860 153,539,793 1,399,055 1,158,022 1,289,811 143,740,068 145,486,882 154,829,604 (1,672,192) (2,577,515) (2,198,471) 142,067,876 142,909,367 152,631,133 Consumer loans Commercial loans and overdrafts Credit cards Performing loans and advances Non-performing loans and advances Gross loans and advances Allowance for credit impairment Total 7. CUSTOMER DEPOSITS Customer deposits comprise the following: 30 September 2017 31 December 2016 30 September 2016 (Unaudited) (Audited) (Unaudited) SAR'000 SAR'000 SAR'000 74,027,027 77,846,981 69,526,829 347,508 324,982 314,603 70,597,828 67,811,458 80,528,979 11,078,579 10,699,928 10,450,744 156,050,942 156,683,349 160,821,155 Current Saving Time Others Total Page 8 of 14
10. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 8. DERIVATIVES The table below sets out the positive and negative fair values of derivative financial instruments, together with their notional amounts. The notional amounts, which provide an indication of the volumes of the transactions outstanding at the end of the period, do not necessarily reflect the amounts of future cash flows involved. These notional amounts, therefore, are neither indicative of the Group's exposure to credit risk, which is generally limited to the positive fair value of the derivatives, nor to market risk. 30 September 2017 (Unaudited) 31 December 2016 (Audited) 30 September2016 (Unaudited) Positive fair value SAR'000 Negative fair value SAR'000 Notional amount SAR'000 Positive fair value SAR'000 Negative fair value SAR'000 Notional amount SAR'000 Positive fair value SAR'000 Negative fair value SAR'000 Notional amount SAR'000 93,487 (61,459) 9,314,333 57,693 (26,803) 7,992,359 97,622 (62,948) 9,654,126 49,664 (38,656) 27,709,439 91,894 (71,763) 25,510,910 50,512 (125,683) 29,208,703 4,713 Currency options Held as fair value hedges: 286 Special commission rate swaps (4,714) 4,486,865 39,708 (39,708) 8,376,319 67,745 (67,745) 9,646,903 - 187,510 - (364) 75,000 36 (723) 1,775,000 148,150 (104,829) 41,698,147 189,295 (138,638) 41,954,588 215,915 (257,099) 50,284,732 Held for trading: Special commission rate swaps Forward foreign exchange contracts Total 9. CREDIT RELATED COMMITMENTS AND CONTINGENCIES AND OTHERS a) The Group’s credit related commitments and contingencies are as follows: 30 September 2017 31 December 2016 30 September 2016 (Unaudited) (Audited) (Unaudited) SAR'000 6,622,103 65,473,329 1,497,011 11,250,883 84,843,326 Letters of credit Letters of guarantee Acceptances Irrevocable commitments to extend credit Total SAR'000 7,620,798 71,849,338 2,119,841 12,140,732 93,730,709 SAR'000 7,274,679 74,877,302 2,230,317 11,425,880 95,808,178 b) Others During the period ended 30 September 2017, there has been no change in the status of the Group’s Zakat assessments. The Group’s position with respect to stance on these assessments, has remained the same as that disclosed in the annual consolidated financial statements for the year ended 31 December 2016. 10. CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the interim condensed consolidated statement of cash flows comprise the following: 30 September 2017 31 December 2016 30 September 2016 (Unaudited) (Audited) (Unaudited) SAR'000 SAR'000 SAR'000 Cash and balances with SAMA excluding statutory deposit Due from banks and other financial institutions maturing within three months from date of acquisition Total Page 9 of 14 5,091,957 9,031,199 14,123,156 13,100,605 2,982,155 16,082,760 8,662,554 6,084,146 14,746,700
11. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 11. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted market price: financial instruments with quoted unadjusted prices for identical instruments in active markets. Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data: and Level 3: valuation techniques for which any significant input is not based on observable market data. Following are the financial instruments carried at fair value in the interim condensed consolidated financial statements. Fair value and fair value hierarchy Level 1 Level 2 Level 3 Total Financial assets - Derivative financial instruments - Held for trading investments - Available for sale investments 302,711 15,827,519 148,150 1,593 267,747 148,150 302,711 16,096,859 Financial liabilities - Derivative financial instruments - 104,829 - 104,829 30 September 2017 SAR'000 (Unaudited) 31 December 2016 SAR'000 (Audited) Financial assets - Derivative financial instruments - Available for sale investments Level 1 Level 2 Level 3 Total 15,478,675 189,295 268,663 266,649 189,295 16,013,987 Financial liabilities - Derivative financial instruments - 138,638 - 138,638 Page 10 of 14
12. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 11. FAIR VALUES OF FINANCIAL ASSETS AND LIABILITIES (Continued) Nine month period ended 30 September 2017 30 September 2016 Reconciliation of movement in Level 3 (Unaudited) Opening balance Total gains or losses - recognised in interim condensed consolidated statement of income - recognised in other comprehensive income Closing balance (Unaudited) (Unaudited) SAR'000 266,649 SAR'000 253,006 1,098 267,747 297 599 253,902 There were no transfers between the fair value hierarchy levels during the current or prior period. The fair values of on-statement of financial position financial instruments, except for loans and advances, other investments held at amortised cost and held-to-maturity investments are not significantly different from the carrying values included in the interim condensed consolidated financial statements. The fair values of customer deposits, debt securities in issue, cash and balances with SAMA, due from and due to banks and other financial institutions which are carried at amortised cost, are not significantly different from the carrying values included in the interim condensed consolidated financial statements, since the current market special commission rates for similar financial instruments are not significantly different from the contracted rates, and for the short duration of due from and due to banks and other financial institutions. The management uses discounted cash flow method, using the current yield curve adjusted for credit risk spreads to arrive at the fair value of loans and advances. The estimated fair values of loans and advances was SAR 146.2 billion at 30 September 2017 (31 December 2016: SAR 146.7 billion). The estimated fair value of held-to-maturity investments and other investments held at amortised cost are based on quoted market prices when available or pricing models when used in the case of certain fixed rate bonds. The estimated fair values of these investments was SAR 30.8 billion at 30 September 2017 (31 December 2016: SAR 29.1 billion). 12. OPERATING SEGMENTS The Group determines and presents operating segments based on the information that is provided internally to the chief operating decision maker in order to allocate resources to the segments and to assess its performance. The operating segments are managed separately based on the Group's management and internal reporting structure. The Group’s primary business is conducted in the Kingdom of Saudi Arabia with one international branch, a representative office and an agency. However, the total assets, liabilities, commitments and results of operations of this branch, representative office and agency are not material to the Group’s overall interim condensed consolidated financial statements and as a result have not been separately disclosed. The transactions between the Bank's operating segments are recorded as per the Bank's transfer pricing system.There are no other material items of income or expenses between the operating segments. Page 11 of 14
13. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 12. OPERATING SEGMENTS (continued) The Group’s reportable segments under IFRS 8 are as follows: Retail banking Deposits, credit and investment products for individuals and small to medium sized businesses. Investment banking and brokerage Investment management services and asset management activities related to dealing, managing, arranging, advising and custody of securities. Corporate banking Principally handling corporate customers’ current accounts, deposits and providing loans, overdrafts and other credit facilities and derivative products. Treasury and investment Principally providing money market trading and treasury services as well as the management of the Group’s investment portfolios. Other Includes income on capital and unallocated costs pertaining to head office, finance division, human resources, technology services and other support departments and unallocated assets and liabilities. The Group’s total assets and liabilities at 30 September 2017 and 2016 and its total operating income, total operating expenses and net income for the nine months periods then ended, by operating segments, are as follows: 30 September 2017 SAR'000 (Unaudited) Total assets Total liabilities Total operating income, net of which - Net special commission income - Fee and commission income, net Inter segment revenues Total operating expenses, net of which - Depreciation of property and equipment - Impairment charge for credit losses, net - Impairment charge for investments Share in earnings of associates, net Net income (loss) Retail 47,401,765 63,348,547 1,992,164 1,746,631 245,884 258,094 735,095 79,928 (42,033) 1,257,069 Investment banking and brokerage 890,054 57,871 224,820 70,076 150,849 68,875 98,949 102 125,871 - 30 September 2016 SAR'000 (Unaudited) Total assets Total liabilities Total operating income, net of which - Net special commission income - Fee and commission income, net Inter segment revenues Total operating expenses, net of which - Depreciation of property and equipment - Impairment charge for credit losses, net - Impairment charge for investments Share in earnings of associates, net Net income (loss) Retail 44,646,770 59,451,393 1,834,047 1,548,485 274,348 17,293 908,111 77,395 122,820 925,936 - Investment banking and brokerage 796,051 55,868 214,165 45,096 167,745 38,827 116,576 50 97,589 Page 12 of 14 Corporate 100,271,660 90,223,470 2,625,760 1,879,808 740,134 (425,009) 1,196,055 7,784 918,720 1,429,705 - Corporate 113,999,244 102,222,889 2,152,154 1,428,522 714,458 (468,043) 675,594 6,631 402,322 1,476,560 Treasury and investment 58,137,998 9,496,990 990,821 537,491 6,760 (284,649) 16,214 5,877 974,607 - Treasury and investment 52,992,399 8,996,243 953,594 444,622 (3,942) (233,816) 133,666 6,468 100,000 819,928 Other 11,522,873 17,429,072 233,761 203,197 (11,983) 382,689 1,061,876 114,872 12,984 (815,131) - Other 11,037,234 15,696,722 715,079 481,259 (5,256) 645,739 1,015,057 129,114 29,087 (270,891) Total 218,224,350 180,555,950 6,067,326 4,437,203 1,131,644 3,108,189 208,563 876,687 12,984 2,972,121 - Total 223,471,698 186,423,115 5,869,039 3,947,984 1,147,353 2,849,004 219,658 525,142 100,000 29,087 3,049,122
14. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 13. DIVIDENDS AND ZAKAT On 27 March 2017, the shareholders in the Extra Ordinary General Assembly meeting approved the distribution of dividends to shareholders for the second half of 2016. The amount of such dividend, net of zakat amounted to SAR 900 million (SAR 0.30 per share) and the distribution date for the dividend was 10 April 2017. The Board of Directors initially approved interim dividend of SAR 1,050 million for the first half of 2017, which was finally ratified and announced on 20 June 2017, resulting in dividends of SAR 0.35 per share (2016: SAR 1,050 million, at SAR 0.35 per share announced on 18 July 2016). The change in the accounting policy for zakat (as explained in note 4) has the following impacts on the line items of statements of financial position and changes in shareholders' equity: As at 31 December 2016 (Audited) Account Other Liabilities Proposed dividends (Equity) As at 30 September 2016 (Unaudited) Account Other Liabilities Retained earnings (Equity) Balance as previously reported as at 31 December 2016 SAR 000s 6,168,867 1,700,000 Effect of restatement Balance as restated at 31 December 2016 SAR 000s 800,000 (800,000) SAR 000s 6,968,867 900,000 Balance as previously reported as at 30 September 2016 Effect of restatement Other reclassification* SAR 000s 600,000 (600,000) (257,099) SAR 000s 6,523,152 4,846,296 SAR 000s - Balance as restated at 30 September 2016 SAR 000s 6,866,053 4,246,296 In addition to the changes noted in the above table, the change in accounting policy also resulted in a zakat charge to retained earnings for the nine months period ended 30 September 2017 amounting to SR 660 million (nine months period ended 30 September 2016 amounting to SR 600 million). Moreover, the proposed dividend as at 1 January 2016 was also restated and reduced by an amount of SR 250 million with a corresponding increase in other liabilities. *Negative fair value of derivatives have been reclassified from other liabilities and shown separately on the interim condensed consolidated statement of financial position, to conform with the current period presentation Page 13 of 14
15. RIYAD BANK NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) For the nine months period ended 30 September 2017 & 2016 14. BASIC & DILUTED EARNINGS PER SHARE Basic and diluted earnings per share for the period ended 30 September 2017 and 2016 are calculated by dividing the net income for the period by 3,000 million outstanding shares. 15. CAPITAL ADEQUACY The Group's objectives when managing capital are to comply with the capital requirements set by SAMA to safeguard the Group's ability to continue as a going concern and to maintain a strong capital base. The Group monitors the adequacy of its capital using the methodologies and ratios established by the Basel Committee on Banking Supervision and as adopted by SAMA, with a view to maintain a sound capital base to support its business development and meet regulatory capital requirement as defined by SAMA. The Group management reviews on a periodical basis its capital base and level of risk weighted assets to ensure that capital is adequate for risks inherent in its current business activities and future growth plans. In making such assessments, the management also considers the Group’s business plans along with economic conditions which directly and indirectly affects its business environment. SAMA has issued the framework and guidance regarding implementation of the capital reforms under Basel III - which are effective from 1 January 2013. Accordingly, the Group’s consolidated Risk Weighted Assets (RWA), total eligible capital and related ratios on a consolidated group basis are calculated under the Basel III framework. The following table summarizes the Bank's Pillar-1 Risk Weighted Assets, Tier 1 and Tier 2 capital and capital adequacy ratios. Risk weighted assets Credit Operational Market Total Pillar-I Risk Weighted Assets Eligible capital Tier I Capital Tier II Capital Total Tier I & II Capital 30 September 2017 31 December 2016 30 September 2016 (Unaudited) SAR Millions 212,327 14,018 1,702 228,047 (Audited) SAR Millions 211,833 13,890 495 226,218 (Unaudited) SAR Millions 216,070 13,874 3,000 232,944 37,668 5,072 42,740 16.5% 18.7% Tier I Capital Adequacy Ratio % Total Capital Adequacy Ratio % 36,973 5,072 42,045 16.3% 18.6% 37,049 5,072 42,121 15.9% 18.1% 16. COMPARATIVE FIGURES Apart from the impact as stated in note 13, certain other comparative amounts have been reclassified to conform with the current period presentation Page 14 of 14