Samba Financial Group (Samba Bank) Interim Consolidated Financial Statements - 1Q 2017

Transcription

1. SAMBA FINANCIAL GROUP INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS FOR THE THREE MONTH PERIOD ENDED MARCH 31 , 2017 PUBLIC
6. SAMBA FINANCIAL GROUP STATEMENTS OF CONSOLIDATED COMPREHENSIVE INCOME (Unaudited) Three months ended Mar 31, 2017 Mar 31, 2016 (SR '000) (SR '000) Net income for the periods 1,231,353 1,260,159 4,248 )6,239( (192,027) (59,884) (5,685) )49,557( 43,798 3,221 Other comprehensive income for the periods - items that may be reclassified subsequently to the statement of consolidated income: Exchange differences on translation of foreign operations Available for sale financial assets: - Change in fair values - Transfers to statements of consolidated income Cash flow hedges: - Change in fair values - Transfers to statements of consolidated income Other comprehensive loss for the period (12,328) )12,043( (161,994) (124,502) Total comprehensive income for the periods 1,069,359 1,135,657 1,067,615 1,134,099 1,744 1,558 1,069,359 1,135,657 Attributable to: Equity holders of the Bank Non-controlling interest Total The accompanying notes 1 to 17 form an integral part of the interim condensed consolidated financial statements. PUBLIC 5
7. SAMBA FINANCIAL GROUP STATEMENTS OF CONSOLIDATED CHANGES IN EQUITY (Unaudited) Attributable to equity holders of the Bank Note (SR ‘000) Share capital Statutory reserve General reserve Exchange translation reserve Other reserves AFS financial assets Cash flow hedges Retained earnings (126,493) 7,884,606 Proposed dividends Treasury stocks Total Noncontrolling interest Total equity 101,489 42,781,015 For the three months period ended March 31, 2017 Balance at the beginning of the period as originally reported Effect of change in accounting policy 20,000,000 17 Balance at the beginning of the period as restated 20,000,000 Net changes in treasury stocks Provision for Zakat & income tax - 16 Subtotal 14,554,971 14,554,971 130,000 130,000 (168,991) - - (168,991) 217,056 (126,493) - 1,234,000 (236,247) 7,884,606 997,753 - - - - - - 24 - - - - - - - (151,795) - (126,493) 7,732,835 20,000,000 14,554,971 130,000 Net income for the period - - - Other comprehensive income/(loss)for the period - - - (168,991) 217,056 - Total comprehensive Income for the period Balance at end of the period 217,056 - - 997,753 (1,045,623) - 42,679,526 (236,247) (236,247) - (1,045,623) 42,443,279 1,095 1,119 - 1,119 (15195) - (151,795) (1,044,528) 101,489 42,544,768 42,292,603 101,489 42,394,092 1,230,587 766 1,231,353 1,230,587 - - - - - (162,972) 978 (161,994) - - 1,067,615 1,744 1,069,359 34 (194,476) 31,470 34 (194,476) 31,470 1,230,587 20,000,000 14,554,971 130,000 (168,957) 22,580 (95,023) 8,963,422 997,753 (1,044,528) 43,360,218 103,233 43,463,451 20,000,000 13,303,555 130,000 )168,374( 365,824 8,057 6,523,875 1,134,000 )1,046,336( 40,250,601 109,256 40,359,857 For the three months period ended March 31, 2016 Balance at the beginning of the period as originally reported Effect of change in accounting policy 17 )239,110( - - - - - - 20,000,000 13,303,555 130,000 )168,374( 365,824 8,057 - - - - - - 13 - - - - - - - (139,500) - 20,000,000 13,303,555 130,000 )168,374( 365,824 8,057 Net income for the period - - - - - - Other comprehensive income/(loss)for the period - - - Balance at the beginning of the period as restated Net changes in treasury stocks Provision for Zakat & income tax Subtotal 16 Total comprehensive Income for the period Balance at end of the period - restated 20,000,000 13,303,555 130,000 1 )116,236( )8,822( 1 )116,236( )8,822( 249,588 )765( )168,373( 6,523,875 6,384,388 1,259,156 1,259,156 7,643,544 894,890 894,890 6 )239,110( - )1,046,336( 40,011,491 1,481 1,494 - 1,494 (139,500) - (139,500) - 109,256 39,873,485 - - 1,259,156 - - )125,057( 555 )124,502( - - 1,134,099 1,558 1,135,657 894,890 )1,044,855( 41,007,584 109,256 40,120,747 )1,044,855( The accompanying notes 1 to 17 form an integral part of the interim condensed consolidated financial statements. PUBLIC )239,110( - 1,003 110,814 39,982,741 1,260,159 41,118,398
9. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (Unaudited) General Samba Financial Group ("the Bank"), a Joint Stock Company incorporated in the Kingdom of Saudi Arabia, was formed pursuant to Royal Decree No. M/3 dated 26 Rabie Al-Awal 1400H (12 February 1980). The Bank commenced business on 29 Shabaan 1400H (12 July 1980) when it took over the operations of Citibank in the Kingdom of Saudi Arabia. The Bank operates under commercial registration no. 1010035319 dated 6 Safar 1401H (13 December 1980). The Bank's head office is located at King Abdul Aziz Road, P.O. Box 833, Riyadh 11421, Kingdom of Saudi Arabia. The objective of the Bank is to provide a full range of banking and related services. The Bank also provides its customers Shariah approved Islamic banking products. 1. The interim condensed consolidated financial statements include financial statements of the Bank and its following subsidiaries, hereinafter collectively referred to as "the Group": Samba Capital and Investment Management Company (Samba Capital) In accordance with the Securities Business Regulations issued by the Capital Market Authority ("CMA"), the Bank has established a wholly owned subsidiary, Samba Capital and Investment Management Company formed as a limited liability company under commercial registration number 1010237159 issued in Riyadh dated 6 Shabaan 1428H (19 August 2007), to manage the Bank's investment services and asset management activities related to dealing, arranging, managing, advisory and custody businesses. The Company is licensed by the CMA and commenced its business effective 19 January 2008. Samba Bank Limited, Pakistan (SBL) An 84.51% owned subsidiary incorporated as a banking company in Pakistan and engaged in commercial banking and related services, and listed on the Pakistan Stock Exchange. Co-Invest Offshore Capital Limited (COCL) A wholly owned company incorporated under the laws of Cayman Islands for the purpose of managing certain overseas investments through an entity; Investment Capital (Cayman) Limited (ICCL) which is fully owned by COCL. ICCL has invested in approximately 41.2% of the share capital of Access Co-Invest Limited, also a Cayman Island limited liability company, which manages these overseas investments. Samba Real Estate Company A wholly owned subsidiary incorporated in Saudi Arabia under commercial registration no. 1010234757, issued in Riyadh, dated 9 Jumada II, 1428H (24 Sep 2007). The company has been formed with the approval of SAMA for the purpose of managing real estate projects on behalf of Samba Real Estate Fund - a fund under management by Samba Capital, and the Bank. Samba Global Markets Limited A wholly owned company incorporated as a limited liability company under the laws of Cayman Islands on February 1, 2016, with the objective of managing certain treasury related transactions. The company started its commercial operations during the fourth quarter of 2016. Basis of Preparation Saudi Arabian Monetary Authority (“SAMA”) has issued a circular no. 381000074519 dated 11 April 2017 and subsequent amendments through certain clarifications relating to the accounting for zakat and tax. The impact of these amendments are as follows: 2. - 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 statement of consolidated changes in equity with a corresponding liability recognized in the statement of consolidated financial position. Applying the above guidance, the interim condensed consolidated financial statements of the Group as at and for the quarter ended 31 March 2017 have been prepared using and are in compliance with: - IAS 34 and the SAMA guidance for accounting of zakat and tax; and - The Banking Control Law and the Regulations for Companies in the Kingdom of Saudi Arabia. The consolidated financial statements of the Group up to and for the year ended December 31, 2016 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 4 below. PUBLIC 8
10. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) These 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 of the Group 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 expense. Actual results may differ from these estimates. In preparing these 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 applied to the annual consolidated financial statements as at and for the year ended 31 December 2016. 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 recognized amounts and there is an intention to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are not offset in the statement of consolidated income unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Bank. The interim condensed consolidated financial statements are expressed in Saudi Arabian Riyals (SR) and amounts are rounded to the nearest thousand. 3. Basis of Consolidation These interim condensed consolidated financial statements include the financial position and results of Samba Financial Group and its subsidiary companies. The financial statements of subsidiaries are prepared for the same reporting period as that of the Bank except for COCL whose financial statements are made up to the previous quarter end for consolidation purposes to meet the Group reporting timetable. Wherever necessary, adjustments have been made to the financial statements of the subsidiaries to align with the Bank's financial statements. Significant inter-group balances and transactions are eliminated upon consolidation. Subsidiaries are the entities that are controlled by the Bank. The Bank controls an entity when it is exposed, or has a right, to variable returns from its involvement with the entity and has the ability to affect those returns through its power over that entity. Subsidiaries are consolidated from the date on which control is transferred to the Bank and cease to be consolidated from the date on which control is transferred from the Bank. The results of subsidiaries acquired or disposedoff during the period are included in the statements of consolidated income from the date of the acquisition or up to the date of disposal, as appropriate. Non-controlling interest represent the portion of net income or loss and net assets not owned, directly or indirectly, by the Bank in subsidiaries and are presented in the statement of consolidated income and within equity in the statement of consolidated financial position, separately from the equity holders of the Bank. The purchase method of accounting is used to account for the acquisition of subsidiaries by the Bank. The cost of acquisition is measured at the fair value of the consideration given at the date of exchange. The acquired identifiable assets, liabilities and contingent liabilities are measured at their fair value at the date of acquisition. The excess of the cost of acquisition over the fair value of the Bank’s share of identifiable net assets acquired is recorded as intangible asset – goodwill. In addition to the subsidiaries stated above under note 1, the Bank is also a party to certain special purpose entities which are formed with the approval of SAMA solely to facilitate certain Shariah-compliant financing arrangements. The Bank has concluded that these entities cannot be consolidated as it does not control these entities. However, the exposures to these entities are included in the Bank’s loans and advances portfolio. 4. Significant Accounting Policies The accounting policies used in the preparation of these interim condensed consolidated financial statements are consistent with those used in the Group's annual consolidated financial statements for the year ended 31 December 2016 except for the:- PUBLIC 9
11. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited)  amendment to accounting policy relating to zakat and income tax. The Group now accrues liabilities for zakat and income tax. Previously, zakat and income tax were deducted from dividends upon payment of dividend to the shareholders and was recognized as a liability at that time. The above change in accounting policy has been accounted retrospectively in the interim condensed consolidated financial statements for any of the year/period presented and therefore, corresponding figures have been restated and the effects of the above change are disclosed in note 17(a) to the interim condensed consolidated financial statements. Consistent with previous periods, zakat and income tax continues to be charged to retained earnings as required by SAMA circular relating to accounting for Zakat and Income tax.  amendments to existing standards and new standards mentioned below effective as of 1 January 2017, which the Bank has adopted: 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. 5. Investments, net Investment securities are classified as follows: Mar 31, 2017 (Unaudited) (SR'000) Held at fair value through income statement (FVIS) Dec 31, 2016 (Audited) (SR'000) Mar 31, 2016 (Unaudited) (SR'000) 2,180,196 2,801,253 2,869,237 23,178,632 19,745,114 35,986,576 3,001,829 2,981,574 3,236,616 Other investments held at amortized cost 25,907,739 25,864,869 21,139,990 TOTAL 54,268,396 51,392,810 63,232,419 Available for sale (AFS) Held to maturity FVIS investments above include investments held for trading amounting to SR 243.7 million (December 31, 2016: SR 861.8 million, March 31, 2016: SR 798.1 million). 6. Loans and Advances, net The total loans and advances, which are held at amortised cost, are as follows: Mar 31, 2017 (Unaudited) (SR'000) Credit cards 1,418,622 Dec 31, 2016 (Audited) (SR'000) 1,389,502 Mar 31, 2016 (Unaudited) (SR'000) 1,390,788 17,802,157 18,267,992 19,303,141 Commercial loans and advances 105,917,405 106,372,320 112,588,165 Performing loans and advances 125,138,184 126,029,814 133,282,094 1,072,991 1,076,191 1,109,934 126,211,175 127,106,005 134,392,028 (1,944,995) (1,871,675) )2,033,428( 124,266,180 125,234,330 132,358,600 Consumer loans Non-performing loans and advances Gross loans and advances Provision for credit losses Total PUBLIC 10
12. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 7. Customer Deposits Customer deposits are as follows: Mar 31, 2017 Dec 31, 2016 Mar 31, 2016 (Unaudited) (Audited) (Unaudited) (SR'000) (SR'000) (SR'000) 107,564,920 103,678,452 112,401,511 7,196,461 7,009,304 7,045,500 Time 48,569,101 53,407,586 49,725,679 Other 7,079,949 7,980,374 9,153,743 Total 170,410,431 172,075,716 178,326,433 Demand Saving 8. Derivatives The table below sets out the positive and negative fair values of derivative financial instruments, which have been accounted for in these interim condensed consolidated financial statements, 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. All derivatives are reported in the consolidated statement of financial position at fair value. In addition, where applicable, all such contracts covered by master netting agreements are reported net. Gross positive or negative fair values are netted with the cash collateral received or paid to a given counterparty pursuant to a valid master netting agreement. Held for trading Commission rate swaps Commission rate futures and options Forward foreign exchange contracts Currency Options Swaptions Equity & commodity options Other Held as fair value hedges: Commission rate futures & options Commission rate swaps Held as cash flow hedges Commission rate swaps Sub-total Cash collateral received / paid TOTAL Positive Fair Value Mar 31, 2017 (Unaudited) (SR’000) Negative Fair Value Notional Amount Positive Fair Value Mar 31, 2016 (Unaudited) (SR’000) Negative Fair Value 5,921,313 4,462,527 126,006,678 3,788,223 3,388,485 111,190,682 2,554,012 2,509,945 93,478,941 29,935 40,841 4,255,095 25,100 30,368 5,011,454 20,473 22,789 2,777,357 340,650 208,433 29,401,777 231,433 104,650 34,929,272 131,339 82,078 34,538,070 220,374 75,616 117,592 - 232,298 62,912 117,592 - 26,891,014 5,625,000 1,506,220 2,531 318,614 61,141 119,700 - 297,223 53,710 119,700 - 39,767,990 5,625,000 1,847,442 - 565,976 3,096 202,979 1,748 517,423 4,969 222,086 1,693 70,646,253 2,655,060 107,702 - 10,378 1,613,625 - - 47,301 4,591,512 (149,453) 90,999 4,095,513 (2,609,884) 4,442,059 1,485,629 Notional Amount - - - - 8,338 3,000,000 10,225 6,715,705 (205,845) 109,268 5,242,209 (1,958,171) 3,403,200 200,091,515 6,509,860 3,284,038 Positive Fair Value PUBLIC 11 Dec 31, 2016 (Audited) (SR’000) Negative Fair Value Notional Amount - - - - - - - 7,003,200 206,988,665 63,962 3,543,585 )358,238( 53,986 3,414,969 )2,805,529( 3,778,200 207,981,583 3,185,347 609,440
13. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 9. Credit Related Commitments and Contingencies The Group's credit related commitments and contingencies are as follows: Mar 31, 2017 (Unaudited) Dec 31, 2016 (Audited) Mar 31, 2016 (Unaudited) (SR '000) (SR '000) (SR '000) 5,618,957 5,965,918 6,791,306 35,903,886 36,173,787 39,737,243 Acceptances 2,041,126 1,452,599 2,277,026 Irrevocable commitments to extend credit 2,706,531 3,183,024 4,723,022 299,267 222,771 247,679 46,569,767 46,998,099 53,776,276 Letters of credit Letters of guarantee Other TOTAL 10. Cash and Cash Equivalents Cash and cash equivalents included in the statement of consolidated cash flows comprise the following: Mar 31, 2017 (Unaudited) (SR '000) Cash and balances with central banks excluding statutory deposits Due from banks and other financial institutions maturing within ninety days TOTAL Dec 31, 2016 (Audited) (SR '000) Mar 31, 2016 (Unaudited) (SR '000) 25,763,712 27,784,295 11,775,251 989,235 8,877,752 7,900,524 26,752,947 36,662,047 19,675,775 11. Operating Segments The Group is organized into the following main operating segments: Consumer banking - comprises of individual customer time deposits, current, call and savings accounts, as well as credit cards, retail investment products, individual and consumer loans. Corporate banking - comprises of corporate time deposits, current and call accounts, overdrafts, loans and other credit facilities as well as the Group's customer derivative portfolios and its corporate advisory business. Treasury - principally manages money market, foreign exchange, commission rate trading and derivatives for corporate and institutional customers as well as for the Group's own account. It is also responsible for funding the Group's operations, maintaining liquidity and managing the Group's investment portfolio and statement of financial position. Investment banking - engaged in investment management services and asset management activities related to dealing, managing, arranging, advising and custody businesses. The investment banking business is housed under a separate legal entity Samba Capital and Investment Management Company. PUBLIC 12
14. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The Group's primary business is conducted in the Kingdom of Saudi Arabia with three overseas branches and three overseas subsidiaries. However, the results of overseas operations are not material to the Group's overall interim condensed consolidated financial statements. On 8 June 2016, the Board of Directors of the Group has decided to close the operations of UK branch as its operations are no longer consistent with the business strategy of the Group. The management believes that the financial impact of this decision will not be material to the overall operations of the Group. Transactions between the operating segments are on normal commercial terms. Funds are ordinarily reallocated between segments, resulting in funding cost transfers. Special commission charged for these funds is based on market-based interbank rates. There are no other material items of income or expense or other internal revenues between the operating segments. The Group's total assets and liabilities as at March 31, 2017 and 2016, together with total operating income, total operating expenses, provisions for credit losses, net income, capital expenditure, and depreciation expense for the periods then ended, by operating segments, are as follows: SR'000 Total assets Consumer Mar 31, 2017 (Unaudited) Investment Corporate Treasury banking Total 35,685,869 105,925,329 90,231,565 92,578 231,935,341 100,838,245 74,520,333 12,970,162 143,150 188,471,890 Special commission income, net 527,767 528,850 296,738 5,195 1,358,550 Total operating income 713,095 731,150 382,729 152,212 1,979,186 Total operating expenses, of which: 463,298 205,633 30,338 48,564 747,833 Provisions for credit losses 34,122 73,317 - - 107,439 Depreciation 12,148 16,402 213 2,577 31,340 249,797 525,517 352,391 103,648 1,231,353 24,015 21,421 53 4,505 49,994 Total liabilities Net income for the period Capital expenditure Mar 31, 2016 (Unaudited) Investment Corporate Treasury banking SR'000 Consumer Total assets 38,873,586 109,244,855 87,007,507 119,162 235,245,110 102,116,328 79,385,062 12,509,736 115,586 194,126,712 Special commission income, net 449,236 487,765 310,935 4,193 1,252,129 Total operating income 615,687 684,068 452,965 188,643 1,941,363 Total operating expenses, of which: 442,786 165,721 32,688 40,009 681,204 Provisions for credit losses 38,160 6,550 - - 44,710 Depreciation 11,979 16,122 199 2,595 30,895 161,318 529,856 420,352 148,633 1,260,159 21,076 48,844 Total liabilities Net income for the period Capital expenditure PUBLIC 13 2,702 1,891 Total 74,513
15. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) 12. Share Capital The authorized, issued and fully paid share capital of the Bank consists of 2,000 million shares (2016: 2,000 million shares) of SR 10 each. 13. Basic and Diluted Earnings per Share Basic and diluted earnings per share for the periods ended March 31, 2017 and 2016 are calculated by dividing the net income for the periods attributable to the equity holders of the Bank by 2,000 million shares. 14. Fair Values of Financial Instruments Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: Level 2: Level 3: Quoted prices in active markets for the same instrument (i.e. without modification or repackaging); 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 Valuation techniques for which any significant input is not based on observable market data. The fair values of the financial assets, financial liabilities and the derivative financial instruments classified under the appropriate valuation hierarchy, is given below: SR '000 Financial Assets: Investments held at FVIS Investments available for sale Investments held to maturity Other Investments held at amortized cost Derivative assets Loans and advances, net Total Financial Liabilities: Financial liabilities designated at FVIS Derivative liabilities Total SR '000 Financial Assets: Investments held at FVIS Investments available for sale Investments held to maturity Other Investments held at amortized cost Derivative assets Loans and advances, net Total Financial Liabilities: Financial liabilities designated at FVIS Derivative liabilities Total Level 1 113,450 12,895,711 2,971,865 29 15,981,055 - 88 88 Level 1 755,520 14,614,514 3,034,858 4,561 18,409,453 5,937 5,937 PUBLIC 14 Mar 31, 2017 (Unaudited) Level 2 Level 3 2,066,746 9,209,775 1,073,146 176,251 25,573,791 172,852 6,509,831 124,532,800 168,069,194 1,245,998 494,203 3,283,950 3,778,153 - Mar 31, 2016 (Unaudited) Level 2 Level 3 2,113,717 20,184,881 1,187,181 452,485 21,178,102 166,844 3,180,786 132,677,695 179,787,666 1,354,025 125,523 603,503 729,026 - Total 2,180,196 23,178,632 3,148,116 25,746,643 6,509,860 124,532,800 185,296,247 494,203 3,284,038 3,778,241 Total 2,869,237 35,986,576 3,487,343 21,344,946 3,185,347 132,677,695 199,551,144 125,523 609,440 734,963
16. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) The fair values of on-balance sheet financial instruments, except for other investments held at amortized cost and held-tomaturity investments which are carried at amortized cost, are not significantly different from the carrying values included in the consolidated financial statements. The Group’s portfolio of loans and advances to customer is well diversified by industry. More than three quarters of the portfolio reprices within less than a year and accordingly the fair value of this portfolio approximates the carrying value, subject to any significant movement in credit spreads. The fair value of the remaining portfolio is not significantly different from its carrying values. The fair values of special commission bearing customers’ deposits, due from and due to banks and other financial institutions which are carried at amortized cost, are not significantly different from the carrying values included in the consolidated financial statements, since 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. During the period, there have been no transfers within levels of the fair value hierarchy. The estimated fair values of held-to-maturity investments and other investments held at amortized cost are based on quoted market prices when available or pricing models when used in the case of certain fixed rate bonds respectively. The value obtained from the relevant valuation model may differ, with the transaction price of a financial instrument. The difference between the transaction price and the model value is commonly referred to as ‘day-one profit or 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 statements of consolidated income without reversal of deferred day-one profits or losses. The valuation of each publicly traded investment is based upon the closing market price of that stock as of the valuation date, less a discount if the security is restricted. Investments classified as Level 2 are fair valued using discounted cash flow techniques that generally use observable market data inputs for yield curves, credit spreads and reported net asset values of the funds. Derivatives classified as Level 2 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 in which they are traded and are sourced from independent brokers. Fair values of private equity investments classified in Level 3 are determined based on the investees’ latest reported net assets values as at the date of statements of financial position. The movement in Level 3 financial instruments during the period relates to fair value movement only. 15. Capital Adequacy The Group monitors the adequacy of its capital using the methodology 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. These ratios measure capital adequacy by comparing the Group’s eligible capital with its statement of financial position assets, commitments and contingencies, notional amount of derivatives at a weighted amount to reflect their relative credit risk, operational risk and market risk. During the period, the Group has fully complied with such regulatory capital requirement. The 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 Group’s business plans along with economic conditions which directly and indirectly affects business environment. The overseas subsidiary manages its own capital as prescribed by local regulatory requirements. SAMA has issued the framework and guidance regarding implementation of the capital reforms under Basel III and the related disclosures which are effective from January 1, 2013. Accordingly, calculated under the Basel III framework, the Group’s consolidated Risk Weighted Assets (RWA), total capital and related ratios on a consolidated group basis and on a standalone basis for its significant banking subsidiary calculated for the credit, operational and market risks, are as follows: PUBLIC 15
17. SAMBA FINANCIAL GROUP NOTES TO THE INTERIM CONDENSED CONSOLIDATED FINANCIAL STATEMENTS (continued) (Unaudited) Samba Financial Group (consolidated) Mar 31, 2017 (Unaudited) (SR '000) Dec 31, 2016 (Audited) (SR '000) Mar 31, 2016 (Unaudited) (SR '000) Credit risk RWA Operational risk RWA Market risk RWA 204,988,197 13,303,620 13,384,713 171,634,477 13,122,515 11,325,363 181,361,863 13,122,515 11,693,163 Total RWA 231,676,530 196,082,355 206,177,541 Tier I capital Tier II capital 43,459,908 1,110,141 42,810,511 1,223,471 41,387,853 1,219,423 Total tier I & II capital 44,570,049 44,033,982 42,607,276 Capital Adequacy Ratio % Tier I ratio Tier I + II ratio 18.8% 19.2% 21.8% 22.5% 20.1% 20.7% Capital adequacy ratios for SBL are as follows: Tier I ratio Tier I + II ratio 24.1% 25.4% 24.1% 25.1% 28.2% 30.2% 16. Zakat and Income Tax Zakat attributable to Saudi shareholders for the first quarter 2017 is estimated at SR 143.5 million (2016: SR 131.3 million) on a shareholding of 96.44% (2016: 96.44%). Income tax for Non-Saudi shareholders is estimated at SR 8.3 million (2016: 8.3 million) on a shareholding of 3.56% (2016: 3.56%). The estimate of Zakat and income tax liabilities is based on the results of operations of the Bank for the period ended March 31, 2017 and the financial position as of that date. 17. Prior Period Restatement and Reclassifications a. The change in the accounting policy for Zakat and income tax, as fully explained in note 4 has the following impact on the line items of statements of consolidated financial position and consolidated changes in equity: December 31, 2016 (SR’000) Account Other liabilities Retained earnings Proposed dividends Balance as previously reported SR’000 4,265,449 7,884,606 1,234,000 Effect of restatement SR’000 236,247 )236,247( Balance as restated SR’000 4,501,696 7,884,606 997,753 Balance as previously reported SR’000 3,436,373 7,783,044 1,134,000 Effect of restatement SR’000 378,610 )139,500( )239,110( Balance as restated SR’000 3,814,983 7,643,544 894,890 March 31, 2016 (SR’000) Account Other liabilities Retained earnings Proposed dividends The change in accounting policy did not have any impact on the statements of consolidated income and consolidated comprehensive income for any of the period and the year presented. b. Certain prior period numbers have been reclassified to conform to the current period presentation. PUBLIC 16