SABB: Interim Condensed Consolidated Financial Statements For The Six Months Period Ended 30 June 2017

Transcription

1. Interim Condensed Consolidated Financial Statements For the six months period ended 30 June 2017 (Unaudited) The Saudi British Bank 1
2. The Saudi British Bank INTERIM CONSOLIDATED STATEMENT OF FINANCIAL POSITION 30 June 2017 Unaudited SAR ’ 000 31 December 2016 Audited SAR’ 000 30 June 2016 Unaudited SAR’ 000 Cash and balances with SAMA 25,163,603 24,121,821 13,950,773 Due from banks and other financial institutions 14,342,157 8,217,746 14,668,296 Notes ASSETS Derivatives 9 483,361 721,912 756,649 Investments, net 4 21,316,536 29,273,055 28,128,752 Loans and advances, net 5 117,883,379 120,964,815 131,101,160 Investment in an associate and a joint venture 6 606,099 642,297 599,817 Property and equipment, net 1,052,239 1,038,352 1,022,661 Other assets 1,671,138 1,075,896 1,642,487 Total assets 182,518,512 186,055,894 191,870,595 1,938,541 3,419,174 2,326,289 LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Due to banks and other financial institutions Customers’ deposits 7 138,314,103 140,639,785 150,268,554 Debt securities in issue 8 2,997,904 4,517,636 4,515,958 1,683,418 1,709,958 31,321 458,928 604,793 789,190 Other liabilities 4,376,366 3,885,620 4,137,610 Total liabilities 149,769,260 154,776,966 162,068,922 15,000,000 15,000,000 15,000,000 9,098,625 8,557,339 7,583,656 104,848 24,052 (436,802) 8,545,779 7,127,537 7,654,819 - 570,000 - 32,749,252 31,278,928 29,801,673 182,518,512 186,055,894 191,870,595 Borrowings Derivatives 9 Shareholders’ equity Share capital Statutory reserve Other reserves Retained earnings Proposed dividends Total shareholders’ equity Total liabilities and shareholders’ equity Mathew Pearce David Dew Chief Financial Officer Managing Director & Authorized Member The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 1
3. The Saudi British Bank INTERIM CONSOLIDATED STATEMENT OF INCOME Unaudited Notes Three months ended 30 June 30 June 2016 2017 SAR ’000 SAR’000 Six months ended 30 June 30 June 2016 2017 SAR’000 SAR’000 Special commission income 1,507,157 1,514,898 3,032,352 2,884,872 Special commission expense 222,839 333,059 497,382 586,367 Net special commission income 1,284,318 1,181,839 2,534,970 2,298,505 Fee and commission income, net 322,157 348,988 666,821 753,611 Exchange income, net 106,863 127,635 213,989 257,983 - 3,182 - 6,932 Trading income, net 64,154 74,123 178,502 194,504 Dividend income 21,000 18,900 21,000 18,900 2,023 6,426 9,186 26,219 95 16 209 14 1,800,610 1,761,109 3,624,677 3,556,668 293,010 305,672 591,286 611,043 Rent and premises related expenses 36,642 34,880 72,417 69,581 Depreciation 30,333 27,733 59,586 54,742 General and administrative expenses 159,798 149,297 315,349 301,474 Provision for credit losses, net 164,903 103,289 391,197 248,255 - (460) 50,000 (460) 684,686 620,411 1,479,835 1,284,635 1,115,924 1,140,698 2,144,842 2,272,033 13,240 10,956 20,302 21,297 1,129,164 1,151,654 2,165,144 2,293,330 0.75 0.77 1.44 1.53 Income from FVIS financial instruments Gain on non-trading investments, net Other operating income, net Total operating income Salaries and employee related expenses (Reversal) / impairment of other financial assets Total operating expenses Income from operating activities Share in earnings of an associate and a joint venture 6 Net income for the period Basic and diluted earnings per share (in SAR) 13 Mathew Pearce David Dew Chief Financial Officer Managing Director & Authorized Member The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 2
4. The Saudi British Bank INTERIM CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME Unaudited Three months ended 30 June 2016 30 June 2017 SAR ’ 000 SAR’ 000 Six months ended 30 June 2016 30 June 2017 SAR’ 000 SAR’ 000 1,129,164 1,151,654 2,165,144 2,293,330 184,357 36,454 13,056 (55,450) (2,023) (6,426) 40,814 (26,219) 39,106 (18,206) 65,523 (458) (34,139) (5,484) (44,134) (5,681) Total other comprehensive income / (loss) for the period 187,301 6,338 75,259 (87,808) Total comprehensive income for the period 1,316,465 1,157,992 2,240,403 2,205,522 Net income for the period Other comprehensive income to be reclassified to statement of income in subsequent period: Available for sale financial assets - Net change in fair value - Transfer to interim consolidated statement of income Cash flow hedges - Net change in fair value - Transfer to interim consolidated statement of income Mathew Pearce David Dew Chief Financial Officer Managing Director & Authorized Member The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 3
5. The Saudi British Bank INTERIM CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS ’ EQUITY For the six months period ended 30 June Unaudited Share Statutory Other Retained Proposed capital reserve reserves earnings dividends Total SAR ‘000 SAR ‘000 SAR ‘000 SAR ‘000 SAR ‘000 SAR ‘000 15,000,000 8,557,339 24,052 7,127,537 570,000 31,278,928 2017 Balance at beginning of the period Total comprehensive income for the period Net income for the period - - Net changes in fair value of cash flow hedges Net changes in fair value of available for sale investments Transfer to interim consolidated statement of income - - - - 2,165,144 - 2,165,144 65,523 - - 65,523 - 13,056 - - 13,056 - (3,320) - - 75,259 2,165,144 (3,320) 2,240,403 Treasury Shares - - 11,155 - - 11,155 Employee share plan reserve - - (5,618) - - (5,618) Transfer to statutory reserve - 541,286 - (541,286) - - Zakat for the period (note 17) - - - (32,466) (27,000) (59,466) Income tax for the period (note 17) - - - (173,150) (131,068) (304,218) 2016 final dividend paid net of zakat and income tax Balance at end of the period - - - (411,932) 15,000,000 9,098,625 104,848 8,545,779 15,000,000 7,583,656 (340,608) 5,361,489 - (411,932) 32,749,252 2016 Balance at beginning of the period 570,000 28,174,537 Total comprehensive income for the period Net income for the period - - - 2,293,330 - 2,293,330 Net changes in fair value of cash flow hedges Net changes in fair value of available for sale investments Transfer to interim consolidated statement of income - - (458) - - (458) - - (55,450) - - (55,450) - - (31,900) - - (87,808) 2,293,330 - Treasury Shares - Employee share plan reserve - 2015 final dividend paid - - Balance at end of the period (1,307) (7,079) - 15,000,000 - 7,583,656 (436,802) - 7,654,819 (31,900) 2,205,522 (570,000) - (1,307) (7,079) (570,000) 29,801,673 Mathew Pearce David Dew Chief Financial Officer Managing Director & Authorized Member The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 4
6. The Saudi British Bank INTERIM CONSOLIDATED STATEMENT OF CASH FLOWS For the six months period ended 30 June Unaudited 2017 SAR ’ 000 2016 SAR’ 000 2,165,144 2,293,330 6,774 59,586 (9,186) (44,134) (20,302) 391,197 5,537 50,000 23,737 (6,932) 54,742 (26,219) (5,681) (21,297) 248,255 4,864 (460) 2,604,616 2,564,339 790,366 (997,483) 2,690,239 (291,168) 351,724 (372,116) (5,402,779) (202,788) (1,480,633) (2,325,682) 35,635 491,383 1,381,376 558,008 1,025,890 (630,853) 16,674,312 (8,711,511) 56,500 (73,473) 32,319,873 (24,993,375) 114,715 (85,948) 7,945,828 7,355,265 FINANCING ACTIVITIES Debt securities in issue Borrowings Dividends paid Treasury shares purchased (1,519,732) (26,540) (466,369) - 3,020 (15,667) (495,084) (13,250) Net cash used in financing activities (2,012,641) (520,981) 6,959,077 6,203,431 22,958,777 13,338,227 29,917,854 19,541,658 3,059,469 2,757,624 594,513 507,147 75,259 (87,808) Note OPERATING ACTIVITIES Net income for the period Adjustments to reconcile net income to net cash from (used in) operating activities: Amortisation of premium on non-trading investments, net Income from FVIS financial instruments Depreciation Gains on non-trading investments, net Cash flow hedge gain transfer to interim consolidated statement of income Share in earnings of associate and joint venture Provision for credit losses, net Employee share plan reserve Impairment / (reversal) of other financial assets Net (increase) decrease in operating assets: Statutory deposit with SAMA Due from banks and other financial institutions Loans and advances Other assets and derivatives Net increase (decrease) in operating liabilities: Due to banks and other financial institutions Customers’ deposits Other liabilities and derivatives Net cash from / (used in) operating activities INVESTING ACTIVITIES Proceeds from sale of and maturities of non-trading investments Purchase of non-trading investments Dividend received from investment in a joint venture Purchase of property and equipment 6 Net cash from investing activities Net increase in cash and cash equivalents Cash and cash equivalents at beginning of the period Cash and cash equivalents at end of the period 11 Special commission received during the period Special commission paid during the period Supplemental non cash information Total other comprehensive income / (loss) Mathew Pearce David Dew Chief Financial Officer Managing Director & Authorized Member The accompanying notes 1 to 17 form an integral part of these interim condensed consolidated financial statements. 5
7. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements 30 June 2017 1 . General The Saudi British Bank (“SABB”) is a Saudi Joint Stock Company and was established by Royal Decree No. M/4 dated 12 Safar 1398H (21 January 1978). SABB formally commenced business on 26 Rajab 1398H (1 July 1978) with the taking over of the operations of The British Bank of the Middle East in the Kingdom of Saudi Arabia. SABB operates under Commercial Registration No. 1010025779 dated 22 Dhul Qadah 1399H (13 October 1979) as a commercial bank through a network of 84 branches (2016 : 84 branches) in the Kingdom of Saudi Arabia. SABB employed 3,247 staff as at 30 June 2017 (2016 : 3,362). The address of SABB’s head office is as follows: The Saudi British Bank P.O. Box 9084 Riyadh 11413 Kingdom of Saudi Arabia The objectives of SABB are to provide a range of banking services. SABB also provides Shariah approved products, which are approved and supervised by an independent Shariah Board established by SABB. SABB has 100% (2016 : 100%) ownership interest in a subsidiary, SABB Insurance Agency, a limited liability company registered in the Kingdom of Saudi Arabia under commercial registration No. 1010235187 dated 18 Jumada II 1428H (3 July 2007). SABB has 98% direct and 2% indirect ownership interest in its subsidiary (the indirect ownership is held via Arabian Real Estate Company Limited, registered in the Kingdom of Saudi Arabia). The principal activity of the subsidiary is to act as a sole insurance agent for SABB Takaful Company (an associate company of SABB - see note 6) within the Kingdom of Saudi Arabia as per the agreement between the subsidiary and the associate. However, the articles of association of the subsidiary do not restrict the subsidiary from acting as an agent to any other insurance company in the Kingdom of Saudi Arabia. SABB has 100% (2016 : 100%) ownership interest in a subsidiary, Arabian Real Estate Company Limited, a limited liability company registered in the Kingdom of Saudi Arabia under commercial registration No. 1010188350 dated 12 Jumada I 1424H (12 July 2003). SABB has 99% direct and 1% indirect ownership interest in its subsidiary (the indirect ownership is held via SABB Insurance Agency, a limited liability company registered in the Kingdom of Saudi Arabia). The subsidiary is engaged in the purchase, sale and lease of land and real estate for investment purpose. SABB has 100% (2016 : 100%) ownership interest in a subsidiary, SABB Real Estate Company Limited, a limited liability company registered in the Kingdom of Saudi Arabia under commercial registration No. 1010428580 dated 12 Safar 1436H (4 December 2014). SABB has 99.8% direct and 0.2% indirect ownership interest in its subsidiary (the indirect ownership is held via Arabian Real Estate Company Limited, a limited liability company registered in the Kingdom of Saudi Arabia). The subsidiary’s main purpose is the registration of real estates and to hold and manage collaterals on behalf of the Bank. SABB had 100% (2016 : 100%) ownership interest in a subsidiary, SABB Securities Limited, a Saudi limited liability company formed in accordance with Capital Market Authority's Resolution No. 2007-35-7 dated 10 Jamada II 1428H (25 June 2007) and registered in the Kingdom of Saudi Arabia under Commercial Registration No. 1010235982 dated 8 Rajab 1428H (22 July 2007). During the period, the subsidiary has been liquidated. SABB has participated in three Structured Entities for the purpose of effecting syndicated loan transactions and to secure collateral rights over specific assets of the borrowers under Islamic financing structures. The entities have no other business operations. 1. Saudi Kayan Assets Leasing Company. 2. Rabigh Asset Leasing Company. 3. Yanbu Asset Leasing Company. SABB owns 50% (2016 : 50%) share in each entity. SABB does not consolidate the entities as it does not have the right to variable returns from its involvement with the entities and ability to affect those returns through its power over the entities. The related underlying funding to the borrower is recorded on SABB’s books. These interim condensed consolidated financial statements were approved by the Board of Directors on 2 Dhul Qadah 1438H (Corresponding 25 July 2017). 6
8. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 2. Basis of preparation Effective 2017, SAMA issued a Circular no. 381000074519 dated 11 April 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and income tax, with the following implications: - the Accounting Standards for Commercial Banks promulgated by SAMA are no longer applicable from 1 January 2017; and zakat and income tax are accrued on a quarterly basis and recognized in the 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 Bank as at and for the period ended 30 June 2017 have been prepared using International Accounting Standard (IAS) 34 – Interim Financial Reporting and SAMA guidance on accounting for zakat and income tax. Until 2016, the consolidated financial statements of the Bank 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 and income tax as disclosed in note 16 to the interim condensed consolidated financial statements. The interim condensed consolidated financial statements 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 in 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 these interim condensed consolidated financial statements requires management to make judgments, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets and liabilities, income and expense. Actual results may differ from these estimates. In preparing these interim condensed consolidated financial statements, the significant judgments made by management in applying the Bank’s accounting policies and the key sources of estimation uncertainty were the same as those that were applied to the annual consolidated financial statements as at and for the year ended 31 December 2016. SABB presents its statement of financial position in order of liquidity. Financial assets and financial liabilities are offset and the net amount reported in the interim consolidated statement of financial position only when there is a legally enforceable right to offset the recognised amounts and there is an intention to settle on a net basis, or to realise the asset and settle the liability simultaneously. Income and expenses are not offset in the interim consolidated income statement unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Bank. These interim condensed consolidated financial statements are expressed in Saudi Arabian Riyals (SAR) and are rounded off to the nearest thousand. (i) Basis of consolidation The interim condensed consolidated financial statements comprise the financial statements of SABB and its subsidiaries, as mentioned in note 1 (collectively referred to as the “Bank”). The financial statements of the subsidiaries are prepared for the same reporting period as that of SABB, using consistent accounting policies. Subsidiaries are entities which are directly or indirectly controlled by SABB. SABB controls an entity (the “investee”) over which it 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. Subsidiaries are consolidated from the date on which control is transferred to SABB and cease to be consolidated from the date on which the control is transferred from SABB. Intra-group transactions and balances have been eliminated in preparing these interim condensed consolidated financial statements. 3. Accounting policies The accounting policies used in the preparation of these interim condensed consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended 31 December 2016, except for: 7
9. The Saudi British Bank Notes to the Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 a) the change in the accounting policy in relation to accounting for zakat and income tax as prescribed by SAMA effective 1 January 2017 (see note 2); and b) the adoption of the following amendments to existing standards mentioned below, which had an insignificant effect/no financial impact on the interim condensed consolidated financial statements of the Bank on the current period or prior period, and is not expected to have any significant effect in future periods. Amendments to existing standards - Amendments to IAS 7, Statement of cash flows on disclosure initiative: Applicable for annual periods beginning on or after 1 January 2017 These amendments introduce an additional disclosure that will enable users of financial statements to evaluate changes in liabilities arising from financing activities. This amendment is part of the IASB’s Disclosure Initiative, which continues to explore how financial statement disclosure can be improved. 4. Investments, net Investment securities are classified as follows: SAR’000 30 June 2017 (Unaudited) 31 December 2016 (Audited) 30 June 2016 (Unaudited) 14,678,016 23,007,811 22,368,016 6,638,520 6,265,244 5,760,736 21,316,536 29,273,055 28,128,752 Investments: - Available for sale, net - Held at amortised cost, net Total 5. Loans and advances, net Loans and advances are comprised of the following: 30 June 2017 (Unaudited) 31 December 2016 (Audited) 30 June 2016 (Unaudited) 2,109,794 2,308,508 2,135,654 Consumer loans 23,258,433 24,380,165 24,728,620 Commercial loans and overdrafts 94,053,713 95,510,374 105,257,975 119,421,940 122,199,047 132,122,249 1,591,439 1,655,479 1,548,284 121,013,379 123,854,526 133,670,533 (3,130,000) (2,889,711) (2,569,373) 117,883,379 120,964,815 131,101,160 SAR’000 Credit cards Performing loans and advances, gross Non-performing loans and advances, net Total loans and advances Provision for credit losses (specific and collective) Loans and advances, net 8
10. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 6. Investment in an associate and a joint venture SAR’000 30 June 2017 (Unaudited) 31 December 2016 (Audited) 30 June 2016 (Unaudited) 513,678 565,898 565,898 19,702 62,495 20,494 (56,500) (114,715) (114,715) 476,880 513,678 471,677 128,619 127,337 127,337 600 1,282 803 129,219 128,619 128,140 606,099 642,297 599,817 HSBC Saudi Arabia Limited Balance at beginning of the period / year Share of undistributed profit Dividend received SABB Takaful Balance at beginning of the period / year Share of undistributed profit Total SABB owns 51% (2016 : 51%) of the shares of HSBC Saudi Arabia Limited, a joint venture with HSBC. SABB does not consolidate the entity as it does not have rights to variable returns from its involvement with the entity and ability to affect those returns through its power over the entity. The main activities of HSBC Saudi Arabia Limited are to provide a full range of investment banking services including investment banking advisory, brokerage, debt and project finance as well as Islamic finance. It also manages mutual funds and discretionary portfolios. SABB owns 32.5% (2016 : 32.5%) of the shares of SABB Takaful, a Saudi Joint Stock Company. SABB Takaful carries out Shariah compliant insurance activities and offers family and general Takaful products. The market value of investment in SABB Takaful as of 30 June 2017 is SAR 273.6 million (30 June 2016 : SAR 269.1 million). 7. Customers’ deposits SAR’000 30 June 2017 (Unaudited) 31 December 2016 (Audited) 30 June 2016 (Unaudited) Demand 81,422,004 82,345,754 82,387,639 Savings 7,399,401 7,320,350 7,770,643 48,591,747 49,386,046 58,277,470 900,951 1,587,635 1,832,802 138,314,103 140,639,785 150,268,554 Time Margin deposits Total 8. Debt securities in issue During the period, a SAR 1,500 million Sukuk issued by SABB in 2012 matured. 9
11. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 9. 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 Bank’s exposure to credit risk, which is generally limited to the positive fair value of the derivatives, nor market risk. 31 December 2016 (Audited) 30 June 2017 (Unaudited) SAR’000 Positive fair value Negative fair value 30 June 2016 (Unaudited) Notional amount Positive fair value Negative fair value Notional amount Positive fair value Negative fair value Notional amount Derivatives held for trading: Special commission rate swaps 246,591 (189,087) 46,998,397 229,698 (206,844) 36,848,122 350,326 (253,735) 41,775,927 Special commission rate options 50,092 (50,092) 10,386,492 87,500 (87,500) 8,815,118 62,519 (62,519) 6,773,426 Forward foreign exchange contracts 82,878 (64,239) 13,588,449 116,874 (49,190) 19,420,843 75,043 (55,179) 20,319,042 Currency options 30,376 (30,859) 79,528,550 145,808 (148,103) 143,436,015 250,186 (255,496) 220,388,861 Currency swaps 17,593 (16,030) 3,017,454 14,028 (11,472) 1,423,750 14,794 (12,233) 1,423,750 5,496 (5,496) 360,836 425 (425) 425,786 3,781 (3,782) 429,778 27,454 (62,737) 5,055,000 86,254 (54,188) 3,904,331 - (107,905) 2,297,944 15,795 (17,601) 1,640,000 32,875 (34,092) 2,465,000 - (38,341) 1,300,000 7,086 (22,787) 898,544 8,450 (12,979) 1,071,317 - - - 483,361 (458,928) 161,473,722 721,912 (604,793) 217,810,282 756,649 (789,190) 294,708,728 Others Derivatives held as fair value hedges: Special commission rate swaps Derivatives held as cash flow hedges: Special commission rate swaps Currency swaps Total 10. Commitments and contingencies a) Legal proceedings As at 30 June 2017, there are legal proceedings outstanding against the Bank. No material provision has been made as professional advice indicates that it is not probable that any significant loss will eventuate. 10
12. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 b) Credit related commitments and contingencies The Bank’s credit related commitments and contingencies are as follows: SAR’000 Letters of credit Letters of guarantee Acceptances Irrevocable commitments to extend credit Total 30 June 2017 (Unaudited) 31 December 2016 (Audited) 30 June 2016 (Unaudited) 9,896,406 52,737,314 4,051,360 3,250,872 11,219,310 54,997,784 3,139,667 2,363,594 10,995,292 57,635,512 3,946,490 3,699,773 69,935,952 71,720,355 76,277,067 11. Cash and cash equivalents Cash and cash equivalents included in the interim consolidated statement of cash flows comprise the following: 30 June 2017 (Unaudited) 31 December 2016 (Audited) 30 June 2016 (Unaudited) Cash and balances with SAMA excluding statutory deposit 17,101,054 15,268,906 5,246,130 Due from banks and other financial institutions with an original maturity of three months or less from the date of acquisition 12,816,800 7,689,871 14,295,528 Total 29,917,854 22,958,777 19,541,658 SAR’000 12. Operating segments The Bank’s primary business is conducted in the Kingdom of Saudi Arabia. Transactions between the operating segments are on normal commercial terms and conditions. Segment assets and liabilities comprise operating assets and liabilities, being the majority of the balance. a) The Bank’s reportable segments are as follows: Retail Banking – caters mainly to the banking requirements of personal and private banking customers. Corporate Banking – caters mainly to the banking requirements of commercial and corporate banking customers. Treasury – manages the Bank’s liquidity, currency and special commission rate risks. It is also responsible for funding the Bank’s operations and managing the Bank’s investment portfolio and liquidity position. Others – includes activities of investment in a joint venture and an associate. Transactions between the operating segments are reported as recorded by the Bank’s transfer pricing system. The Bank’s total assets and liabilities as at 30 June 2017 and 2016, its total operating income and expenses, and the results for the six-month periods then ended, by operating segment, are as follows: 11
13. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 30 June 2017 (Unaudited) SAR’ 000 Retail Banking Total assets 29,958,973 92,193,996 59,759,444 606,099 182,518,512 Total liabilities 60,969,568 69,858,951 18,940,741 - 149,769,260 1,280,610 1,650,335 693,732 - 3,624,677 821,427 584,533 73,875 - 1,479,835 - - - 20,302 20,302 Net income for the period 459,183 1,065,802 619,857 20,302 2,165,144 Credit losses and impairment provision, net 209,220 227,125 4,852 - 441,197 Total operating income Other operating expenses Share in earnings of associate and joint venture Corporate Banking Treasury Others Total 30 June 2016 (Unaudited) SAR’ 000 Retail Banking Corporate Banking Treasury Total assets 34,346,189 101,567,140 55,357,449 599,817 191,870,595 Total liabilities 61,810,423 76,767,169 23,491,330 - 162,068,922 1,164,022 1,625,740 766,906 - 3,556,668 736,798 471,921 75,916 - 1,284,635 - - - 21,297 21,297 Net income for the period 427,224 1,153,819 690,990 21,297 2,293,330 Credit losses and impairment provision (reversal), net 133,871 114,384 (460) - 247,795 Total operating income Other operating expenses Share in earnings of associate and joint venture Others Total b) Total operating income by operating segments 30 June 2017 SAR’000 (Unaudited) External Inter-segment Total operating income 30 June 2016 SAR’000 (Unaudited) External Inter-segment Total operating income Retail Banking Corporate Banking Treasury Total 1,072,718 2,237,903 314,056 3,624,677 207,892 (587,568) 379,676 - 1,280,610 1,650,335 693,732 3,624,677 Retail Banking Corporate Banking Treasury Total 1,148,186 2,095,578 312,904 3,556,668 15,836 (469,838) 454,002 - 1,164,022 1,625,740 766,906 3,556,668 12
14. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 13. Basic and diluted earnings per share Basic and diluted earnings per share for the period ended 30 June 2017 and 30 June 2016 are calculated by dividing the net income for the periods attributable to the equity holders by 1,500 million shares. 14. Capital adequacy The Bank’s objectives when managing capital are, to comply with the capital requirements set by SAMA; to safeguard the Bank’s ability to continue as a going concern; and to maintain a strong capital base. Capital adequacy and the use of regulatory capital are monitored regularly by the Bank’s management. SAMA requires the Bank to hold the minimum level of the regulatory capital and to maintain a ratio of total regulatory capital to the riskweighted assets at or above the agreed minimum of 8%. The Bank monitors the adequacy of its capital using the methodology and ratios established by SAMA. These ratios measure capital adequacy by comparing the Bank’s eligible capital with its assets, commitments and contingencies, and notional amount of derivatives at a weighted amount to reflect their relative risk. 30 June 2017 SAR’000 (Unaudited) 31 December 2016 SAR’000 (Audited) 30 June 2016 SAR’000 (Unaudited) 161,328,367 161,899,067 175,074,157 13,536,866 13,333,290 13,034,195 2,411,488 2,514,488 1,735,813 177,276,721 177,746,845 189,844,165 Tier I Capital 32,749,252 31,278,928 29,801,673 Tier II Capital 3,755,831 3,600,244 3,913,516 36,505,083 34,879,172 33,715,189 Risk Weighted Assets (RWA) Credit Risk RWA Operational Risk RWA Market Risk RWA Total RWA Total I & II Capital 19.62% Capital Adequacy Ratio % Tier I ratio 18.47% 17.60% 15.70% Tier I + Tier II ratio 20.59% 19.62% 17.76% 15. Fair values of financial instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction in the principal (or the most advantageous) market between market participants at the measurement date under current market conditions regardless of whether that price is directly observable or estimated using another valuation technique. Consequently, differences can arise between the carrying values and fair value estimates. The fair values of recognised financial instruments are not materially different from their carrying values, except for loans and advances and customer deposits. Determination of fair value and fair value hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices in active markets for the same instrument (i.e., without modification or repacking): 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. 13
15. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 SAR’ 000 Level 1 30 June 2017 (Unaudited) Level 2 Level 3 Total Financial assets Derivative financial instruments - 483,361 - 483,361 1,087,364 13,555,501 35,151 14,678,016 Investments held at amortised cost - 6,626,841 - 6,626,841 Loans and advances - 116,466,534 - 116,466,534 Customers deposits - 138,417,309 - 138,417,309 Derivative financial instruments - 458,928 - 458,928 Debt securities in issue - 2,997,904 - 2,997,904 Borrowings - 1,683,418 - 1,683,418 Financial investments available for sale Financial Liabilities Level 1 31 December 2016 (Audited) Level 2 Level 3 Total Financial assets Derivative financial instruments - 721,912 - 721,912 1,022,685 21,949,953 35,173 23,007,811 Investments held at amortised cost - 6,269,003 - 6,269,003 Loans and advances - 119,380,837 - 119,380,837 Customers deposits - 140,760,543 - 140,760,543 Derivative financial instruments - 604,793 - 604,793 Debt securities in issue - 4,517,636 - 4,517,636 1,709,958 - 1,709,958 Financial investments available for sale Financial Liabilities - Borrowings Derivatives classified as Level 2 comprise over the counter special commission rate swaps, currency swaps, special commission rate futures and options, spot and forward foreign exchange contracts, currency options and other derivative financial instruments. These derivatives are fair valued using the bank's proprietary valuation models that are based on discounted cash flow techniques. The data inputs to these models are based on observable market parameters relevant to the markets in which they are traded and are sourced from widely used market data service providers. Available for sale investments classified as Level 2 include bonds for which market quotes are not available. These are fair valued using simple discounted cash flow techniques that use observable market data inputs for yield curves and credit spreads. Available for sale investments classified as Level 3 include Private Equity Funds, the fair value of which is determined based on the fund's latest reported net assets value (NAV) as at the balance sheet date. The movement in Level 3 financial instruments during the period relates to fair value and capital repayment movement only. The total amount of the changes in fair value recognised in the interim consolidated statement of income, which was estimated using valuation technique, is positive SAR 29 million (2016 : positive SAR 49.4 million). 14
16. The Saudi British Bank Notes To The Interim Condensed Consolidated Financial Statements (continued) 30 June 2017 The values obtained from valuation model may be different from the transaction price of financial instrument on transaction date. The difference between the transaction price and the model value is commonly referred to as ‘day one profit and loss’. It is either amortized over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable data or realized through disposal. Subsequent changes in fair value are recognized immediately in the interim consolidated income statement without reversal of deferred day one profits and losses. Valuation techniques include net present value and discounted cash flow models, comparison with similar instruments for which market observable prices exist. Assumptions and inputs used in valuation techniques include risk-free and benchmark interest rates, credit spreads and other premium used in estimating discounts rates, bond and equity prices and foreign currency exchange rates. The Bank uses widely recognized valuation models for determining the fair value of common and simpler financial instruments. Observable prices or model inputs are usually available in the market for listed debt and equity securities, exchange-traded derivatives and simple over-the-counter derivatives such as interest rate swaps. Availability of observable market process and model inputs reduces the need for management judgment and estimation and also reduces the uncertainty associated with determining fair values. Availability of observable market prices and inputs varies depending on the products and markets and is prone to changes based on specific events and general conditions in the financial markets. 16. Interim dividend An interim dividend of SAR 1,125 million from the net income for the six-month period ended 30 June 2017 (30 June 2016 : SAR 585 million) has been approved on 19 July 2017 for payment to shareholders. After deducting zakat, this interim dividend will result in a net payment of SAR 0.71 per share (30 June 2016 : SAR 0.35 per share) to the Saudi shareholders. The income tax liability of the foreign shareholders will be deducted from their share of the dividend. 17. Comparative figures Effective 1 January 2017, SAMA issued a Circular no. 381000074519 dated 11 April 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and income tax, with the following implications: - the Accounting Standards for Commercial Banks promulgated by SAMA are no longer applicable from 1 January 2017; and zakat and income tax are accrued and recognized in the consolidated statement of changes in shareholders’ equity with a corresponding liability recognized in the consolidated statement of financial position. Consequently, the Bank amended its accounting policy to accrue zakat and income tax and charge to retained earnings. Previously, zakat and income tax were deducted from the payment of dividend. When dividends were proposed, zakat and income tax were initially recorded as part of the proposed dividends apportioned from retained earnings and disclosed within equity. Subsequently upon approval of dividends by the shareholders at the general assembly, they were reclassified to other liabilities. The impact of the change in the accounting policy was not considered material and hence comparative information has not been restated. The cumulative adjustment due to change in accounting policy has been recorded in the current period interim condensed consolidated financial statements as disclosed in the table below. 30 June 2017 (Unaudited) Interim consolidated Interim consolidated statement statement of financial of changes in equity position SAR’000 Retained earnings Other Liabilities Zakat for the period 32,466 32,466 Income tax for the period 173,150 173,150 Total 205,616 205,616 Certain other prior period figures have been reclassified to conform with the current period's presentation. 15