The Commercial Bank: Consolidated Financial Statements - 31 December 2019

Transcription

1. The Commercial Bank (P.S.Q.C.) CONSOLIDATED FINANCIAL STATEMENTS 31 December 2019
9. The Commercial Bank (P.S.Q.C.) CONSOLIDATED STATEMENT OF INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 2019 2018 (Restated) Notes Interest income Interest expense Net interest income 25 26 6,795,410 (3,832,227) 2,963,183 6,077,322 (3,595,000) 2,482,322 Fee and commission income Fee and commission expense Net fee and commission income 27 28 1,289,220 (374,374) 914,846 1,117,965 (360,727) 757,238 Net foreign exchange gain Net income from investment securities Other operating income Net operating income 29 30 31 281,045 68,993 118,578 4,346,645 202,247 (18,826) 85,576 3,508,557 Staff costs Depreciation Amortization of intangible assets Net impairment reversal/(losses) on investment securities Net impairment losses on loans and advances to customers Net impairment (losses)/reversal on other financial assets Impairment on Investment in an Associate Other expenses Profit before share of results of associates and a joint arrangement Share of results of associates and a joint arrangement Profit before tax Income tax expense Profit for the year 32 14 15 (796,352) (149,994) (55,023) 6,797 (594,427) (66,108) (413,881) (226,644) 2,051,013 (6,799) 2,044,214 (23,173) 2,021,041 (676,466) (129,227) (54,749) (399) (927,164) 92,055 (312,893) 1,499,714 181,483 1,681,197 (7,272) 1,673,925 2,021,040 1 2,021,041 1,673,924 1 1,673,925 0.44 0.35 10 33 12 Attributable to: Equity holders of the bank Non-controlling interests Profit for the year Earnings per share Basic/diluted earnings per share (QAR) 34 The attached notes 1 to 40 form an integral part of these consolidated financial statements.
10. The Commercial Bank (P.S.Q.C.) CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 2019 Notes Profit for the year 2018 (Restated) 2,021,041 1,673,925 23 (129,811) (432,940) 23 28,059 (24,959) 23 9,053 24,436 663,769 (9,091) 2,128 (10,001) 23 (34,072) (19,484) 23 (6,008) (5,423) 23 521,899 19,126 (447,117) Total comprehensive income for the year 2,542,940 1,226,808 Attributable to: Equity holders of the bank Non-controlling interests Total comprehensive income for the year 2,542,939 1 2,542,940 1,226,807 1 1,226,808 Other comprehensive income for the year: Items that are, or may be subsequently reclassified to profit or loss: Foreign currency translation differences from foreign operation Share of other comprehensive income of investment in associates and a joint arrangement Net movement in cash flow hedges-effective portion of changes in fair value Net change in fair value of investments in debt securities designated at FVOCI : Net change in fair value Net amount transferred to consolidated statement of income Items that may not be subsequently reclassified to profit or loss: Net change in fair value of equity investments designated at FVOCI Share of other comprehensive income of investment in associates and a joint arrangement Revaluation reserve on land and buildings Other comprehensive income /(loss) for the year 23 The attached notes 1 to 40 form an integral part of these consolidated financial statements.
11. The Commercial Bank (P.S.Q.C.) CONSOLIDATED STATEMENT OF CHANGES IN EQUITY FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s Notes Balance as at 1 January 2019 Profit for the year Other comprehensive income Total comprehensive income for the year Transfer to legal reserve Transfer to risk reserve Share Capital Legal Reserve 4,047,254 9,745,152 General Reserve Risk Reserve 26,500 886,151 Fair Value Reserve Foreign Currency Translation Reserve Treasury Shares (96,333) (179,507) Other Reserves (1,816,866) Revaluation Reserve 959,764 1,283,920 Retained Earnings 1,000,413 2,021,040 22 - 8,803 - - 535,085 651,710 651,710 - - (129,811) (129,811) - - - 2,021,040 (8,803) (525,000) FVOCI instrument loss transferred to Retained earnings 22 - - - - 44,717 - - - - (44,717) Dividend for instruments eligible for additional capital 22 - - - - - - - - - (240,000) Total Equity Attributable to Equity Holders of the Bank 15,856,448 2,021,040 521,899 2,542,939 10,085 (240,000) NonControlling Interests 11 Instruments Eligible for Additional Capital 4,000,000 1 1 Total Equity 19,856,459 2,021,041 521,899 2,542,940 10,085 - - - - - - (240,000) - - - - - - - - (99,871) - 99,871 - Provision for Sports and Social Activities Support Fund 24 - - - - - - - - - (50,526) (50,526) - - (50,526) Movement in treasury shares Transactions with equity holders, recognised directly in equity Contributions by and distributions to equity holders of the bank: Dividends for the year 2018 Total contributions by and distributions to equity holders of the bank Net movement in non-controlling interests Balance as at 31 December 2019 22 - 87,378 - - - 16,334 244,359 - - 244,359 22 - - - - - - - - - (607,088) (607,088) - - (607,088) - - - - - - - - - (607,088) (607,088) - - (607,088) Net movement in other reserve 4,047,254 Notes Balance as at 1 January 2018 Transition adjustments on adoption of IFRS 9 on 1 January 2018 (Restated) Balance as at 1 January 2018 – restated Profit for the year Other comprehensive loss (Restated) Total comprehensive income for the year Transfer to legal reserve Transfer to risk reserve Net movement in other reserves and fair value reserve (Restated) 22 Dividend for Instruments eligible for additional capital 9,841,333 Share Capital Legal Reserve 4,047,254 9,742,066 - 22 4,047,254 - 140,647 26,500 General Reserve Risk Reserve 26,500 600,094 Fair Value Reserve (Restated) 1,890,408 (44,500) - (1,529,257) (18,530) 26,500 - 361,151 525,000 (63,030) (33,303) (33,303) - 9,742,066 3,086 - 1,421,236 (38,860) (1,946,677) Foreign Currency Translation Reserve Treasury Shares (179,507) (179,507) - Other Reserves (Restated) (1,383,926) - 859,893 (1,383,926) (432,940) (432,940) - 1,283,920 Revaluation Reserve 1,064,189 1,264,794 1,661,524 Retained Earnings (Restated) 594,226 17,021,504 15 51,510 (1,705,558) - 854,908 - 1,264,794 19,126 19,126 - 645,736 1,673,924 1,673,924 (3,086) (525,000) 15,315,946 1,673,924 (447,117) 1,226,807 - 15 1 1 - 104,856 - (104,856) - - - - - 22 - - - - - - - - - (240,000) Provision for Sports and Social Activities Support Fund 24 - - - - - - - - - (41,580) Transactions with equity holders, recognised directly in equity Contributions by and distributions to equity holders of the bank: Dividends for the year 2017 Total contributions by and distributions to equity holders of the bank Net movement in non-controlling interests Balance as at 31 December 2018 22 - 4,047,254 9,745,152 The attached notes 1 to 40 form an integral part of these consolidated financial statements. 26,500 886,151 (96,333) (179,507) (1,816,866) NonControlling Interests - - - Total Equity Attributable to Equity Holders of the Bank (2) 10 (209,281) - - 17,756,217 959,764 - 1,283,920 - 4,000,000 Instruments Eligible for Additional Capital 4,000,000 (2) 21,756,227 Total Equity 21,021,519 - (1,705,558) 4,000,000 - 19,315,961 1,673,925 (447,117) 1,226,808 - - - (240,000) - - (240,000) (41,580) - - (41,580) (404,725) (404,725) (404,725) (404,725) 1,000,413 - 15,856,448 - - - (5) 11 4,000,000 - (404,725) (404,725) (5) 19,856,459
12. The Commercial Bank (P.S.Q.C.) CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEAR ENDED 31 DECEMBER 2019 Notes Cash flows from operating activities Profit before tax Adjustments for: Net impairment losses on loans and advances to customers Impairment (reversal) / losses on investment securities Net impairment losses / (reversal) on other financial assets Depreciation Amortization of intangible assets and transaction costs Gain on Sale of Treasury shares Net (gain) / loss income on investment securities Gain on disposal of property and equipment Impairment on Investment in an Associate Share of results of associates and a joint arrangement Operating profit before working capital changes Working capital changes Change in due from banks Change in loans and advances to customers Change in other assets Change in due to banks Change in customer deposits Change in other liabilities Contribution to social and sports fund Net cash flows from / (used in) operating activities Cash flows from investing activities Acquisition of investment securities Investment in associate participating in right issue Proceeds from sale of treasury shares Dividend received from associates and a joint arrangement Proceeds from sale/maturity of investment securities Acquisition of property and equipment and intangible assets Proceeds from the sale of property and equipment and other assets Net cash flows used in investing activities Cash flows from financing activities Proceeds from issue of debt securities Repayment of debt securities Repayment of other borrowings Proceeds from other borrowings Payment of Lease Liability Payment on Coupon of instrument eligible for Tier 1 Capital Dividends paid (note 16) Net cash flows (used in) / from financing activities Net (decrease) / increase in cash and cash equivalents Effect of exchange rate fluctuation Cash and cash equivalents as at 1 January Cash and cash equivalents at the end of the year Net cash flows from interest and dividend: Interest paid Interest received Dividend received 14 30 12 12 14&15 19 19 20 20 36 The attached notes 1 to 40 form an integral part of these consolidated financial statements. 2,044,214 QAR ‘000s 2018 (Restated) 1,681,197 594,427 (6,797) 66,108 149,994 90,926 (87,378) (64,642) 3,902 413,881 6,799 3,211,434 927,164 399 (92,055) 129,227 97,592 24,131 (91) (181,483) 2,586,081 (3,845,259) (5,821,742) (2,341,566) 10,167,792 5,702,956 490,037 (41,580) 7,522,072 908,197 (898,316) (1,322,483) 673,265 (3,148,142) 522,206 (15,091) (694,283) (8,620,481) 228,025 93,072 4,255,059 (157,359) 6,801 (4,194,883) (7,323,607) (272,491) 76,627 3,977,082 (286,431) 4,184 (3,824,636) 3,486,978 (9,932,780) (3,735,723) 7,793,321 (39,499) (240,000) (607,088) (3,274,791) 52,398 19,027 9,984,546 10,055,971 9,508,091 (5,055,194) (6,634,330) 6,583,404 (240,000) (404,725) 3,757,246 (761,673) 424,784 10,321,435 9,984,546 3,829,417 6,916,197 4,350 3,455,544 5,864,966 5,305 2019
13. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 1- REPORTING ENTITY The Commercial Bank (P.S.Q.C.) (the “Bank”) is an entity domiciled in the State of Qatar and was incorporated in 1974 as a public shareholding company under Emiri Decree No.73 of 1974. The commercial registration number of the Bank is 150. The address of the Bank’s registered office is PO Box 3232, Doha, State of Qatar. The consolidated financial statements of the Bank comprise the Bank and its subsidiaries (together referred to as the “Group”). The Group is primarily engaged in conventional banking, brokerage services and the credit card business and operates through its head office, branches and subsidiaries. The principal subsidiaries of the Group are as follows: Country of incorporation Capital of the subsidiary Activity of the subsidiary Alternatifbank A.S. Commercial Bank Financial Services L.L.C. Turkey Qatar TRY 1,730,655,000 QAR 100,000,000 CBQ Finance Limited Bermuda US$ 1,000 Banking services Brokerage services Debt issuance for the Bank Name of subsidiary Percentage of ownership 2019 2018 100% 100% 100% 100% 100% 100% 2- BASIS OF PREPARATION (a) Statement of compliance The consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (“IFRS”) issued by the International Accounting Standards Board (“IASB”) and the applicable provisions of the Qatar Central Bank (“QCB”) regulations. The Group presents its consolidated statement of financial position broadly in the order of liquidity. An analysis regarding recovery or settlement of assets/liabilities within twelve months after the end of the reporting date (“current”) and more than twelve months after the reporting date (“non-current”) is presented in Note 4(c) (iii). (b) Basis of measurement The consolidated financial statements have been prepared on the historical cost basis except for the following assets and liabilities that are measured at fair value: • derivative financial instruments; • investments measured at fair value through profit or loss ('FVTPL'); • other financial assets designated at fair value through profit or loss ('FVTPL'); • financial investment measured at fair value through other comprehensive income ('FVOCI'); • land and buildings; and • the carrying values of recognised assets and liabilities that are hedged items in quantifying fair value hedges, and otherwise carried at amortised cost, are adjusted to record changes in fair value attributable to the risks that are being hedged. (c) Functional and presentation currency These consolidated financial statements are presented in Qatari Riyals (“QAR”), which is the Bank’s functional and presentation currency. Except as otherwise indicated, financial information presented in QAR has been rounded to the nearest thousand. (d) Use of estimates and judgments The preparation of the consolidated financial statements in conformity with IFRS and QCB regulations requires management to make judgements, estimates and assumptions that affect the application of accounting policies and the reported amounts of assets, liabilities, income and expenses. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any future periods affected. Information about significant areas of estimation uncertainty and critical judgements in applying accounting policies that have the most significant effect on the amounts recognised in the consolidated financial statements are described in note 5.
14. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in these consolidated financial statements, and have been applied consistently by the Group entities. (a) New standards, amendments and interpretations New standards, amendments and interpretations effective from 1 January 2019 The following standards, amendments and interpretations, which became effective as of 1 January 2019, are relevant to the Group: IFRS 16 Leases 1-Jan-19 IFRIC 23 Uncertainty over Income Tax Treatment 1-Jan-19 IFRS 9 (Amendments) Prepayment Features with Negative Compensation 1-Jan-19 IFRS 9/IAS 39 and IFRS (Amendments) Interest Rate Benchmark Reform 1-Jan-19 The adoption of the above did not result in any changes to previously reported net profit or equity of the Group except as mentioned below. (i) IFRS 16 Leases IFRS 16 was issued in January 2016. It will result in almost all leases being recognized on the balance sheet by lessee, as the distinction between operating and finance leases is removed. Under the new standard, an asset (the right to use the leased item) and a financial liability to pay rentals are recognized. The only exception are short-term and low-value leases. The Group has applied the standard from its mandatory adoption date of 1 January 2019. The Group has applied the simplified transition approach and has not restated comparative amounts, priorto the date of the standard. Further the Group has used the following practical expedients on initial application: -Used the Group's previous assessment of which existing contracts are or contain lease; -Where the unexpired lease term of less than 12 months or leases are of low value (USD 5,000 or less), then the Group has elected to use the short term lease exemption. The Group’s activities as a lessor are not material and there is no significant impact on the financial statements. When measuring lease liabilities, the Group discounted lease payments using its incremental borrowing rate at 1 January 2019. The following amounts are recognised under the new standard and included in the respective headings of the consolidated statement of financial position and consolidated statement of income: 31-Dec-2019 1-Jan-2019 Right of use Asset (Property & Equipment) Lease Liability (Other Liabilities) Depreciation charge for Right of Use Asset Interest expense on lease liabilities 132,616 133,333 142,020 130,373 31-Dec-2019 34,220 11,149 Standards issued but not yet effective A number of standards and amendments to standards are issued but not yet effective and the Group has not adopted these in the preparation of these consolidated financial statements. The below standards may have a significant impact on the Group's consolidated financial statements, however, the Group is currently evaluating the impact of these new standards. The Group will adopt these new standards on the respective effective dates. Amendments to IFRS 3: Definition of a Business Amendments to IAS 1 and IAS 8: Definition of Material (b) Basis of consolidation (i) Business combination The Group applies the acquisition method to account for business combinations. The consideration transferred for the acquisition of a subsidiary is the fair value of the assets transferred, the liabilities incurred to the former owners of the acquiree and the equity interests issued by the Group. The consideration transferred includes the fair value of any asset or liability resulting from a contingent consideration arrangement. Identifiable assets acquired and liabilities and contingent liabilities assumed in a business combination are measured initially at their fair values at the acquisition date. If the business combination is achieved in stages, the acquisition date carrying value of the acquirer’s previously held equity interest in the acquiree is re-measured to fair value at the acquisition date; any gains or losses arising from such re-measurement are recognised in profit or loss. Any contingent consideration to be transferred by the Group is recognised at fair value at the acquisition date. Subsequent changes to the fair value of the contingent consideration that is deemed to be an asset or liability is recognised in accordance with IFRS 9 either in profit or loss or as a change to other comprehensive income. Contingent consideration that is classified as equity is not re-measured, and its subsequent settlement is accounted for within equity.
15. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (b) Basis of consolidation (Continued) (i) Business combination (Continued) The excess of the consideration transferred of any non-controlling interest and the acquisition-date fair value of any previous equity interest over the fair value of the identifiable net assets acquired is recorded as goodwill. If the total of consideration transferred, non-controlling interest recognised and previously held interest measured is less than the fair value of the net assets of the subsidiary acquired in the case of a bargain purchase, the difference is recognised directly in the statement of income. Transaction costs are expensed as incurred, except if they are related to the issue of debt or equity securities. (ii) Non-controlling interests (NCI) In accordance with IFRS 3R, for each business combination, the acquirer can measure, at the acquisition date, components of NCI in the acquired business that represent ownership interests and entitle its holders to a proportionate share of the entity's net assets in the event of liquidation at either: (a) fair value on the acquisition date; or (b) the present ownership instruments' proportionate share in the recognised amounts of the acquiree's identifiable net assets. NCI is measured only on initial recognition. The Group measures the NCI at fair value, including its share of goodwill. (iii) Subsidiaries Subsidiaries are entities controlled by the Group. The Group ‘controls’ an investee if it is exposed to, 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. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The accounting policies of subsidiaries are consistent with the accounting policies adopted by the Group. (iv) Transactions eliminated on consolidation Intra-group balances, and income and expenses arising from intra-group transactions, are eliminated in preparing the consolidated financial statements. (v) Associates and joint arrangements Associates and joint arrangements are entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights. Investments in associates and joint arrangements are accounted for by the equity method of accounting and are initially recognised at cost (including transaction costs directly related to acquisition of investment in associates and joint arrangement). The Group’s investment in associates and joint arrangements includes goodwill (net of any accumulated impairment loss) identified on acquisition. The Group’s share of its associates’ and joint arrangement’s post-acquisition profits or losses is recognised in the consolidated income statement; its share of post-acquisition reserve movements is recognised in reserves. The cumulative post-acquisition movements are adjusted against the carrying amount of the investment. When the Group’s share of losses in an associates and joint arrangements equals or exceeds its interest in the associates and joint arrangements, including any other unsecured receivables, the Group does not recognise further losses, unless it has incurred obligations or made payments on behalf of the associates and joint arrangement. The Bank performs impairment assessment of investment in associates on an annual basis. Impairment testing involves calculating the value in use (VIU) by estimating the present values of future cash flows based on management’s estimates of future earnings available to ordinary shareholders and observable market inputs. Where the carrying amount exceeds the VIU, an impairment would be recognized in the statement of income and the carrying amount will be reduced. Intergroup gains on transactions between the Group and its associates and joint arrangement are eliminated to the extent of the Group’s interest in the associates and joint arrangements. Intergroup losses are also eliminated unless the transaction provides evidence of an impairment of the asset transferred. Associates' financial statements are being prepared using similar accounting policies and period end as the parent. (vi) Funds management The Group manages and administers assets held in unit trusts and other investment vehicles on behalf of investors. The financial statements of these entities are not included in these consolidated financial statements except when the Group controls the entity. Information about the Group’s funds management is set out in Note 38. (c) Foreign Currency (i) Foreign currency transactions and balances Foreign currency transactions that require settlement in a foreign currency are translated into the respective functional currencies of the operations at the spot exchange rates at the date of the transactions Monetary assets and liabilities denominated in foreign currencies at the reporting date are translated into the functional currency at the spot exchange rate at that date. Non-monetary assets and liabilities denominated in foreign currencies that are measured at fair value are retranslated into the functional currency at the spot exchange rate at the date that the fair value was determined. Non-monetary assets and liabilities that are measured in terms of historical cost in a foreign currency are translated using the exchange rate at the date of the transaction.
16. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (c) Foreign Currency (Continued) (i) Foreign currency transactions and balances (Continued) Foreign currency differences resulting from the settlement of foreign currency transactions and arising on translation at period end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in profit or loss. (ii) Foreign operations The results and financial position of all the Group’s entities that have a functional currency different from the presentation currency are translated into the presentation currency as follows: - Assets and liabilities for each statement of financial position presented are translated at the closing rate at the reporting date; - Income and expenses for each income statement are translated at average exchange rates (unless this average is not a reasonable approximation of the cumulative effect of the rates prevailing on the transaction dates, in which case income and expenses are translated at the dates of the transactions); and - All resulting exchange differences are recognised in other comprehensive income. Exchange differences arising from the above process are reported in equity and NCI as ‘foreign currency translation reserve”. When the Group has any foreign operation that is disposed of, or partially disposed of, such exchange differences are recognised in the consolidated income statement as part of the gain or loss on sale. Goodwill and fair value adjustments arising on the acquisition of a foreign entity are treated as assets and liabilities of the foreign entity and translated at the closing rate. When the settlement of a monetary item receivable from or payable to a foreign operation is neither planned nor likely in the foreseeable future, foreign exchange gains and losses arising from such a monetary item are considered to form part of the net investment in the foreign operation and are recognised in other comprehensive income, and presented in the foreign exchange translation reserve in equity. (d) Financial assets and financial liabilities (i) Recognition and initial measurement The Group initially recognises loans and advances to customers, due from / to banks, customer deposits, debt securities and other borrowings on the date at which they are originated. All other financial assets and liabilities are initially recognised on the trade date at which the Group becomes a party to the contractual provisions of the instrument. (ii) Classification Financial assets On initial recognition, a financial asset is classified as measured at: amortised cost, FVOCI or FVTPL. A financial asset is measured at amortised cost if it meets both of the following conditions and is not designated as at FVTPL: • The asset is held within a business model whose objective is to hold assets to collect contractual cash flows; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. A debt instrument is measured at FVOCI only if it meets both of the following conditions and is not designated as at FVTPL: • The asset is held within a business model whose objective is achieved by both collecting contractual cash flows and selling financial assets; and • The contractual terms of the financial asset give rise on specified dates to cash flows that are solely payments of principal and interest on the principal amount outstanding. On initial recognition of an equity investment that is not held for trading, the Group may irrevocably elect to present subsequent changes in fair value in OCI. This election is made on an investment-by-investment basis. All other financial assets are classified as measured at FVTPL. In addition, on initial recognition, the Group may irrevocably designate a financial asset that otherwise meets the requirements to be measured at amortised cost or at FVOCI or at FVTPL if doing so eliminates or significantly reduces an accounting mismatch that would otherwise arise. Business model assessment The Group makes an assessment of the objective of a business model in which an asset is held at a portfolio level because this best reflects the way the business is managed and information is provided to management. The information considered includes: • The stated policies and objectives for the portfolio and the operation of those policies in practice. • How the performance of the portfolio is evaluated and reported to the Group’s management; • The risks that affect the performance of the business model (and the financial assets held within that business model) and how those risks are managed; • How managers of the business are compensated The frequency, volume and timing of sales in prior periods, the reasons for such sales and its expectations about future sales activity. Financial assets that are held for trading or managed and whose performance is evaluated on a fair value basis are measured at FVTPL because they are neither held to collect contractual cash flows nor held both to collect contractual cash flows and to sell financial assets.
17. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Financial assets and financial liabilities (continued) (ii) Classification (continued) Assessment whether contractual cash flows are solely payments of principal and interest For the purposes of this assessment, 'principal' is defined as the fair value of the financial asset on initial recognition. 'Interest' is defined as consideration for the time value of money and for the credit risk associated with the principal amount outstanding during a particular period of time and for other basic lending risks and costs (e.g. liquidity risk and administrative costs), as well as profit margin. In assessing whether the contractual cash flows are solely payments of principal and interest (“the SPPI test”), the Group considers the contractual terms of the instrument. This includes assessing whether the financial asset contains a contractual term that could change the timing or amount of contractual cash flows such that it would not meet this condition. In making the assessment, the Group considers contingent events that would change the amount and timing of cash flows, prepayment and extension terms, terms that limit the Group's claim to cash flows from specified assets and features that modify consideration of the time value of money. Reclassifications Financial assets are not reclassified subsequent to their initial recognition, except in the period after the Group changes its business model for managing financial assets. The reclassification takes place from the start of the first reporting period following the change. Financial liabilities The Group has classified and measured its financial liabilities at amortized cost. (iii) Derecognition The Group derecognises a financial asset when the contractual rights to the cash flows from the financial asset expire, or when it transfers the financial asset in a transaction in which substantially all the risks and rewards of ownership of the financial asset are transferred or in which the Group neither transfers nor retains substantially all the risks and rewards of ownership and it does not retain control of the financial asset. Any interest in transferred financial assets that qualify for derecognition that is created or retained by the Group is recognised as a separate asset or liability. On derecognition of a financial asset, the difference between the carrying amount of the asset (or the carrying amount allocated to the portion of the asset transferred), and consideration received (including any new asset obtained less any new liability assumed) is recognised in profit or loss. Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in the consolidated income statement on derecognition of such securities. A financial asset (in whole or in part) is derecognised where: - the rights to receive cash flows from the asset have expired; - the Group has transferred its rights to receive cash flows from the asset or has assumed an obligation to pay the received cash flows in full without material delay to a third party under a 'pass-through' arrangement; and either (a) the Group has transferred substantially all the risks and rewards of ownership or (b) when it has neither transferred or retained substantially all the risks and rewards and when it no longer has control over the financial asset, but has transferred control of the asset. The Group enters into transactions whereby it transfers assets recognised, but retains either all or substantially all of the risks and rewards of the transferred assets or a portion of them. If all or substantially all risks and rewards are retained, then the transferred assets are not derecognised. Transfers of assets with retention of all or substantially all risks and rewards include, for example, securities lending and repurchase transactions. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expired. (iv) Modification of financial assets and liabilities Financial Assets If the terms of a financial asset are modified, the Group evaluates whether the cash flows of the modified asset are substantially different. If the cash flows are substantially different, then the contractual rights to cash flows from the original financial asset are deemed to have expired. In this case, the original financial asset is derecognised and a new financial asset is recognised at fair value, and recalculates a new effective interest rate for the asset. The date of renegotiation is consequently considered to be the date of initial recognition for impairment calculation purpose, including for the purpose of determining whether a significant increase in credit risk has occurred. If the cash flows of the modified asset carried at amortised cost are not substantially different, then the modification does not result in derecognition of the financial asset. In this case, the Group recalculates the gross carrying amount of the financial asset based on the revised cash flows of the financial assets and recognises the amount arising from adjusting the gross carrying amount as a modification gain or loss in the consolidated income statement. If such a modification is carried out because of financial difficulties of the borrower, then the gain or loss is presented together with impairment losses. In other cases, it is presented as interest income. Financial Liabilities The Group derecognises a financial liability when its terms are modified and the cash flows of the modified liability are substantially different. In this case, a new financial liability based on the modified terms is recognised at fair value. The difference between the carrying amount of the financial liability extinguished and the new financial liability with modified terms is recognised in the consolidated income statement (v) Offsetting Financial assets and liabilities are offset and the net amount presented in the consolidated statement of financial position when, and only when, the Group has a legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Income and expenses are presented on a net basis only when permitted under IFRS, or for gains and losses arising from a group of similar transactions such as in the Group’s trading activity.
18. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (d) Financial assets and financial liabilities (continued) (vi) Measurement principles - Amortized cost measurement The amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective interest method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment loss. The calculation of effective interest rate includes all fees paid or received that are an integral part of the effective interest rate (EIR). - Fair value measurement ‘Fair value’ is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal or, in its absence, the most advantageous market to which the Group has access at that date. The fair value of a liability reflects its non-performance risk. When available, the Group measures the fair value of an instrument using the quoted price in an active market for that instrument. A market is regarded as active if transactions for the asset or liability take place with sufficient frequency and volume to provide pricing information on an ongoing basis. If there is no quoted price in an active market, then the Group uses valuation techniques that maximise the use of relevant observable inputs and minimise the use of unobservable inputs. The chosen valuation technique incorporates all of the factors that market participants would take into account in pricing a transaction. The best evidence of the fair value of a financial instrument at initial recognition is normally the transaction price – i.e. the fair value of the consideration given or received. If the Group determines that the fair value at initial recognition differs from the transaction price and the fair value is evidenced neither by a quoted price in an active market for an identical asset or liability nor based on a valuation technique that uses only data from observable markets, then the financial instrument is initially measured at fair value, adjusted to defer the difference between the fair value at initial recognition and the transaction price. Subsequently, that difference is recognized in profit or loss on an appropriate basis over the life of the instrument but no later than when the valuation is wholly supported by observable market data or the transaction is closed out. If an asset or a liability measured at fair value has a bid price and an ask price, then the Group measures assets and long positions at a bid price and liabilities and short positions at an ask price. Portfolios of financial assets and financial liabilities that are exposed to market risk and credit risk that are managed by the Group on the basis of the net exposure to either market or credit risk are measured on the basis of a price that would be received to sell a net long position (or paid to transfer a net short position) for a particular risk exposure. Those portfolio-level adjustments are allocated to the individual assets and liabilities on the basis of the relative risk adjustment of each of the individual instruments in the portfolio. The fair value of a demand deposit is not less than the amount payable on demand, discounted from the first date on which the amount could be required to be paid. (vii) Impairment The Group recognises loss allowances for expected credit losses (ECL) on the following financial instruments that are not measured at FVTPL: - Financial assets that are debt instruments; and - Loan commitments and financial guarantee contracts. No impairment loss is recognised on equity investments. The Group measures loss allowances at an amount equal to lifetime ECL, except for the following, for which they are measured as 12-month ECL: - debt investment securities that are determined to have low credit risk at the reporting date; and - other financial instruments on which credit risk has not increased significantly since their initial recognition 12-month ECL are the portion of ECL that result from default events on financial instruments that are possible with the 12 months after the reporting date. The Group applies three-stage approach to measure expected credit losses (ECL) on financial assets carried at amortised cost and debt instruments classified as FVOCI. Assets migrate through the following three stages based on the change in credit quality since initial recognition. Stage 1: 12 months ECL - not credit impaired Stage 1 includes financial assets on initial recognition and that do not have a significant increase in credit risk since the initial recognition or that have low credit risk. For these assets, ECL are recognised on the gross carrying amount of the asset based on the expected credit losses that result from default events that are possible within 12 months after the reporting date. Interest is computed on the gross carrying amount of the asset. Stage 2: Lifetime ECL - not credit impaired Stage 2 includes financial assets that have had a significant increase in credit risk (SICR) since initial recognition but that do not have objective evidence of impairment. For these assets, lifetime ECL are recognised, but interest is still calculated on the gross carrying amount of the asset. Lifetime ECL are the expected credit losses that result from all possible default events over the expected life of the financial instrument. Stage 3: Lifetime ECL - credit impaired Stage 3 includes financial assets that have objective evidence of impairment at the reporting date. For these assets, lifetime ECL are recognised. Measurement of ECL ECL are a probability-weighted estimate of credit losses. They are measured as follows: - Financial assets that are not credit-impaired at the reporting date: as the present value of all cash shortfalls (i.e. the difference between the cash flows due to the entity in accordance with the contract and the cash flows that the Group expects to receive); - Financial assets that are credit-impaired at the reporting date: as the difference between the gross carrying amount and the present value of estimated future cash flows; - Undrawn loan commitments: as the present value of the difference between the contractual cash flows that are due to the Group if the commitment is drawn down and the cash flows that the Group expects to receive; and - Financial guarantee contracts: the expected payments to reimburse the holder less any amounts that the Group expects to recover.
19. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (vii) Impairment (continued) Restructured financial assets If the terms of a financial asset are renegotiated or modified or an existing financial asset is replaced with a new one due to financial difficulties of the borrower, then an assessment is made of whether the financial asset should be derecognised and ECL are measured as follows. - if the expected restructuring will not result in derecognition of the existing asset, then the expected cash flows arising from the modified financial asset are included in calculating the cash shortfalls from the existing asset. - if the expected restructuring will result in derecognition of the existing asset, then the expected fair value of the new asset is treated as the final cash flow from the existing financial asset at the time of its derecognition. This amount is included in calculating the cash shortfalls from the existing financial asset that are discounted from the expected date of derecognition to the reporting date using the original effective interest rate of the existing financial asset. Credit-impaired financial assets At each reporting date, the Group assesses whether financial assets carried at amortised cost and debt financial assets carried at FVOCI are credit impaired. A financial asset is ‘credit-impaired’ when one or more events that have a detrimental impact on the estimated future cash flows of the financial asset have occurred. Evidence that a financial asset is credit-impaired includes the following observable data: - Significant financial difficulty of the borrower or issuer; - A breach of contract such as a default or past due event; - The restructuring of a loan or advance by the Group on terms that the Group would not consider otherwise; - It is becoming probable that the borrower will enter bankruptcy or other financial reorganisation; or - the disappearance of an active market for a security because of financial difficulties. (e)Cash and cash equivalents Cash and cash equivalents include notes and coins on hand, unrestricted balances held with central banks and highly liquid financial assets with original maturities of three months or less from the acquisition date that are subject to an insignificant risk of changes in their fair value and are used by the Group in the management of its short-term commitments. Cash and cash equivalents includes amounts due from banks and with an original maturity of 90 days or less. (f) Loans and advances to customers Loans and advances to customers are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market and that the Group does not intend to sell immediately or in the near term. Loans and advances to customers are initially measured at the transaction price, which is the fair value plus incremental direct transaction costs, and subsequently measured at their amortised cost using the effective interest rate method, except for the financial assets which are classified to be measured at FVTPL, which are measured at fair value with changes recognised immediately in the consolidated income statement. (g) Investment Securities The 'investment securities' includes: - Debt investment securities measured at amortised cost; these are initially measured at fair value plus incremental direct transaction costs, and subsequently at their amortised cost using the effective interest method; - Debt and equity investment securities mandatorily measured at FVTPL or designated as at FVTPL; these are at fair value with changes recognised immediately in profit or loss; - Debt securities measured at FVOCI; and - Equity investment securities designated at FVOCI For debt securities measured at FVOCI, gains and losses are recognised in OCI, except for the following, which are recognised in profit or loss in the same manner as for financial assets measured at amortised cost: - Interest income using the effective interest method; - Expected credit losses and reversals; and - Foreign exchange gains and losses When a debt security measured at FVOCI is derecognised, the cumulative gain or loss previously recognised in OCI is reclassified from equity to consolidated income statement. The Group elects to present in OCI changes in the fair value of certain investments in equity. The election is made on an instrument by instrument basis on initial recognition and is irrevocable. Gains and losses on such equity instruments are never subsequently reclassified to consolidated income statement, including on disposal. Impairment losses (and reversal of impairment losses) are not reported separately from other changes in fair value. Dividends, when representing a return on such investments, continue to be recognised in consolidated income statement, unless they clearly represent a recovery of part of the cost of the investment, in which case they are recognised in OCI. Cumulative gains and losses recognised in OCI are transferred to retained earnings on disposal of an investment.
20. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (h) Derivatives (i) Derivatives held for risk management purposes and hedge accounting Derivatives held for risk management purposes include all derivative assets and liabilities that are not classified as trading assets or liabilities. Derivatives held for risk management purposes are measured at fair value. The Group designates certain derivatives held for risk management as well as certain non-derivative financial instruments as hedging instruments in qualifying hedging relationships. The general hedge accounting requirements of IFRS 9 retain the three types of hedge accounting mechanisms in IAS 39. However, greater flexibility has been introduced to the types of transactions eligible for hedge accounting, specifically broadening the types of instruments that qualify as hedging instruments and the types of risk components of non-financial items that are eligible for hedge accounting. In addition, the effectiveness test has been overhauled and replaced with the principle of an ‘economic relationship’. Retrospective assessment of hedge effectiveness is no longer required. The Group has also elected to continue to apply the hedge accounting requirements of IAS 39 on adoption of IFRS 9. Fair value hedges When a derivative is designated as the hedging instrument in a hedge of the change in fair value of a recognised asset or liability or a firm commitment that could affect profit or loss, changes in the fair value of the derivative are recognised immediately in profit or loss together with changes in the fair value of the hedged item that are attributable to the hedged risk. If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for fair value hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. Any adjustment up to that point to a hedged item, for which the effective interest method is used, is amortised to profit or loss as part of the recalculated effective interest rate of the item over its remaining life. Cash flow hedge When a derivative is designated as the hedging instrument in a hedge of the variability in cash flows attributable to a particular risk associated with a recognised asset or liability or a highly probable forecast transaction that could affect profit or loss, the effective portion of changes in the fair value of the derivative is recognized in other comprehensive income in the hedging reserve. The amount recognised in other comprehensive income is reclassified to profit or loss as a reclassification adjustment in the same period as the hedged cash flows affect profit or loss, and in the same line item in the statement of comprehensive income. Any ineffective portion of changes in the fair value of the derivative is recognised immediately in profit or loss. If the hedging derivative expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for cash flow hedge accounting, or the hedge designation is revoked, then hedge accounting is discontinued prospectively. In a discontinued hedge of a forecast transaction the cumulative amount recognised in other comprehensive income from the period when the hedge was effective is reclassified from equity to profit or loss as a reclassification adjustment when the forecast transaction occurs and affects profit or loss. If the forecast transaction is no longer expected to occur, then the balance in other comprehensive income is reclassified immediately to profit or loss as a reclassification adjustment. The effective portion of changes in the fair value of derivatives that are designated and qualify as cash flow hedges is recognised in other comprehensive income. The gain or loss relating to the ineffective portion is recognised immediately in the consolidated income statement within ‘Other gains/ (losses) – net’. Amounts accumulated in equity are reclassified to profit or loss in the periods when the hedged item affects profit or loss (for example, when the forecast sale that is hedged takes place). When a hedging instrument expires or is sold, or when a hedge no longer meets the criteria for hedge accounting, any cumulative gain or loss existing in equity at that time remains in equity and is recognised when the forecast transaction is ultimately recognised in the consolidated income statement. When a forecast transaction is no longer expected to occur, the cumulative gain or loss that was reported in equity is immediately transferred to the consolidated income statement within ‘Other gains/ (losses) – net’. (ii) Derivatives held for trading purposes The Group’s derivative trading instruments includes, forward foreign exchange contracts and interest rate swaps. The Group sells these derivatives to customers in order to enable them to transfer, modify or reduce current and future risks. These derivative instruments are fair valued as at the end of reporting date and the corresponding fair value changes is taken to the profit or loss. (i) Property and equipment (i) Recognition and measurement Items of property and equipment are initially measured at cost and subsequently at cost less accumulated depreciation and accumulated impairment losses, if any, except for land and building which are subsequently measured at fair value. Revaluations of freehold land and buildings are carried out by an independent valuer. Net surpluses arising on revaluation are credited to a revaluation reserve, except that a revaluation increase is recognised as income to the extent that it reverses a revaluation decrease of the same asset previously recognised as an expense. A decrease as a result of a revaluation is recognised as an expense, except that it is charged directly against any related revaluation surplus to the extent that the decrease does not exceed the amount held in the revaluation surplus in respect of that same asset. On disposal the related revaluation surplus is credited to retained earnings. Cost includes expenditures that are directly attributable to the acquisition of the asset. The cost of self-constructed assets includes the cost of materials and direct labour, any other costs directly attributable to bringing the assets to a working condition for their intended use, the costs of dismantling and removing the items and restoring the site on which they are located and capitalised borrowing costs. Purchased software that is integral to the functionality of the related equipment is capitalised as part of that equipment. When parts of an item of property or equipment have different useful lives, they are accounted for as separate items (major components) of property and equipment. The gain or loss on disposal of an item of property and equipment is determined by comparing the proceeds from disposal with the carrying amount of the item of property and equipment, and is recognised in other income/other expenses in profit or loss. (ii) Subsequent costs The cost of replacing a component of an item of property or equipment is recognised in the carrying amount of the item if it is probable that the future economic benefits embodied within the part will flow to the Group and its cost can be measured reliably. The carrying amount of the replaced part is derecognised. The costs of the day-to-day servicing of property and equipment are recognised in profit or loss as incurred. (iii) Depreciation The depreciable amount is the cost of property and equipment, or other amount substituted for cost, less its residual value. Depreciation is recognised in profit or loss on a straight-line basis over the estimated useful lives of each part of an item of property and equipment since this most closely reflects the expected pattern of consumption of the future economic benefits embodied in the asset and is based on cost of the asset less its estimated residual value. Land and Capital work in progress are not depreciated. During 2019, the Group conducted a useful economic life review of the buildings, which resulted in changes in the useful life of certain buildings.
21. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (i) Property and equipment (Continued) (iii) Depreciation (Continued) The estimated useful lives for the current and comparative years are as follows: Buildings Leasehold improvements Furniture and equipment Motor vehicles 20 - 30 years 6 - 10 years 3 - 8 years 5 years (vi) Right-of-use assets (Leases) The Group assesses at contract inception whether a contract is, or contains, a lease. That is, if the contract conveys the right to control the use of an identified asset for a period of time in exchange for consideration. The Group applies a single recognition and measurement approach for all leases, except for short-term leases less than 12 months and leases of low-value assets (USD 5,000 or less). The Group recognises lease liabilities to make lease payments and right-of-use assets representing the right to use the underlying assets. The Group recognises right-of-use assets at the commencement date of the lease (i.e., the date the underlying asset is available for use). Right-of-use assets are measured at cost, less any accumulated depreciation and impairment losses, and adjusted for any remeasurement of lease liabilities. The cost of right-of-use assets includes the amount of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the commencement date less any lease incentives received. Right-of-use assets are depreciated on a straight-line basis over the shorter of the lease term and the estimated useful lives of the assets, as follows: Buildings 2 - 40 years At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of lease payments to be made over the lease term. In calculating the present value of lease payments, the Group uses its incremental borrowing rate at the lease commencement date. Right-of-use assets are subject to impairment in line with the policy for the impairment of non-financial assets. The carrying amount of lease liabilities is remeasured if there is a modification, a change in the lease term, a change in the lease payments or a change in the assessment of an option to purchase the underlying asset. (j) Impairment of goodwill and intangible assets (i) Goodwill Goodwill arises on the acquisition of subsidiaries and represents the excess of the consideration transferred over the Group’s interest in net fair value of the net identifiable assets, liabilities and contingent liabilities of the acquiree and the fair value of the non-controlling interest in the acquiree. Goodwill impairment reviews are undertaken annually or more frequently if events or changes in circumstances indicate a potential impairment. The carrying value of goodwill is compared to the recoverable amount, which is the higher of value in use and the fair value less costs of disposal. Any impairment is recognised immediately as an expense and is not subsequently reversed. (ii) Intangible assets The cost of intangible assets acquired in a business combination is their fair value at the date of acquisition. Following initial recognition, intangible assets are carried at cost less any accumulated amortisation and accumulated impairment losses. Internally generated intangibles, excluding capitalised development costs, are not capitalised and the related expenditure is reflected in profit or loss in the period in which the expenditure is incurred.
22. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (j) Impairment of goodwill and intangible assets (continued) (ii) Intangible assets (Continued) The useful lives of intangible assets are assessed as either finite or indefinite Intangible assets with finite lives are amortised over the useful economic life and assessed for impairment whenever there is an indication that the intangible asset may be impaired. The amortisation period and the amortisation method for an intangible asset with a finite useful life are reviewed at least at the end of each reporting period. Changes in the expected useful life or the expected pattern of consumption of future economic benefits embodied in the asset are considered to modify the amortisation period or method, as appropriate, and are treated as changes in accounting estimates. The amortisation expense on intangible assets with finite lives is recognised in the statement of profit or loss as the expense category that is consistent with the function of the intangible assets. The estimated useful economic life of intangible assets with finite lives are; Brand 18 to 19 years, Customer relationship 11 to 12 years, Core deposit 13 to 16 years and Internally developed software and others 5 years. Intangible assets with indefinite useful lives are not amortised, but are tested for impairment annually, either individually or at the cash-generating unit level. The assessment of indefinite life is reviewed annually to determine whether the indefinite life continues to be supportable. If not, the change in useful life from indefinite to finite is made on a prospective basis. Gains or losses arising from de-recognition of an intangible asset are measured as the difference between the net disposal proceeds and the carrying amount of the asset and are recognised in the statement of profit or loss when the asset is derecognised. (k) Impairment of non-financial assets Assets that have an indefinite useful life are not subject to amortisation and are tested annually for impairment. An impairment loss is recognised for the amount by which the asset’s carrying amount exceeds its recoverable amount. The recoverable amount is the higher of an asset’s fair value less costs to sell and value in use. For the purposes of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows (cash-generating units). Non-financial assets other than goodwill that suffered impairment are reviewed for possible reversal of the impairment at each reporting date. (l) Provisions A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation. Provisions are determined by discounting the expected future cash flows at a pre-tax rate that reflects current market assessments of the time value of money and, where appropriate, the risks specific to the liability. (m) Financial guarantee contract and loan commitments Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified debtor fails to make payment when due in accordance with the terms of a debt instrument. Financial guarantee liabilities are recognised initially at their fair value, and this initial fair value is amortised over the life of the financial guarantee. The financial guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment when a payment under the guarantee has become probable. Financial guarantees are included within other liabilities. (n) Employee benefits Defined contribution plans The Bank provides for its contribution to the State administered retirement fund for Qatari employees in accordance with the retirement law, and the resulting charge is included in staff cost in the consolidated income statement. The Bank has no further payment obligations once the contributions have been paid. The contributions are recognised when they are due. Defined benefit plan The Bank makes provision for end of service benefits payable to its expatriate employees on the basis of the employees’ length of service in accordance with the employment policy of the Bank and the applicable provisions of the Labour Law. This provision is included in other provisions as part of other liabilities in the consolidated statement of financial position. The expected costs of these benefits are accrued over the period of employment. Alternatifbank, under Turkish Labour Law, is required to pay termination benefits to each employee who has completed at least one year of service and whose employment is terminated without due cause, is called up for military service, dies or who retires. There are certain transitional provisions relating to length of service prior to retirement. The amount payable consists of one month’s salary subject to a maximum threshold per employee for each year of service. There are no agreements for pension commitments other than the legal requirement as explained above. The liability is not funded, as there is no funding requirement. Short-term employee benefits Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is provided. A liability is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if the Group has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee and the obligation can be estimated reliably. Share-based payments Employees (including senior management) of the Bank receive remuneration in the form of share-based payments, whereby employees are granted share appreciation rights, which are settled in cash (cash settled transactions). cash settled transactions The cost of cash settled transactions is measured at fair value at the grant date using Black Scholes model, further details of which are given in Note 21. The fair value is measured initially and at each reporting date up to and including the settlement date, with changes in fair value recognised in employee benefits expense Note 32. The fair value is expensed over the period until the vesting date with recognition of a corresponding liability. (o) Share capital and reserves (i) Share issue costs Incremental costs directly attributable to the issue of an equity instrument are deducted from the initial measurement of the equity instruments. (ii) Dividends on ordinary shares Dividends on ordinary shares are recognised in equity in the period in which they are approved by the Bank’s equity holders. (p) Interest income and expense Interest income and expense are recognised in the consolidated income statement using the effective interest rate method. The effective interest rate is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective interest rate, the Group estimates future cash flows considering all contractual terms of the financial instrument, but not future credit losses. For the financial assets that have become credit-impaired subsequent to initial recognition, interest income is calculated by applying the effective interest rate to their amortised cost (i.e. net of the expected credit loss provision). If the asset is no longer credit-impaired, then the calculation of interest income reverts to the gross basis. The calculation of the effective interest rate includes all transaction costs and fees paid or received that are an integral part of the effective interest rate.
23. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 3- SIGNIFICANT ACCOUNTING POLICIES (CONTINUED) (p) Interest income and expense (continued) Transaction costs include incremental costs that are directly attributable to the acquisition or issue of a financial asset or liability. QAR ‘000s Interest income and expense include: - Interest on financial assets and financial liabilities measured at amortised cost calculated on an effective interest rate basis; - The effective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of variability in interest cash flows, in the same period that the hedged cash flows affect interest income / expense; - The ineffective portion of fair value changes in qualifying hedging derivatives designated in cash flow hedges of interest rate risk; and - Fair value changes in qualifying derivatives, including hedge ineffectiveness, and related hedged items in fair value hedges of interest rate risk Interest income on investment (debt) securities measured at FVOCI and measured at amortised cost is calculated using effective interest rate method and is also included in interest income. (q) Fee and commission income and expense Fees and commission income and expense that are integral to the effective interest rate on a financial asset or liability are included in the measurement of the effective interest rate. Other fees and commission income, including account servicing fees, investment management fees, sales commission, placement fees and syndication fees, are recognised as the related services are performed. When a loan commitment is not expected to result in the draw-down of a loan, the related loan commitment fees are recognised on a straight-line basis over the commitment period. Other fees and commission expense relate mainly to transaction and service fees, which are expensed as the services are received. (r) Income from investment securities Gains or losses on the disposal of investment securities are recognised in profit or loss as the difference between fair value of the consideration received and carrying amount of the investment securities. Unrealised gains or losses on fair value changes from remeasurement of investment securities classified as held for trading or designated as fair value through profit or loss are recognised in profit or loss Any cumulative gain/loss recognised in OCI in respect of equity investment securities designated as at FVOCI is not recognised in the consolidated income statement on derecognition of such securities (s) Dividend income Dividend income is recognised when the right to receive dividend income is established. (t) Income tax expenses Taxes are calculated based on tax laws and regulations in the countries in which the Group operates. Tax is recognized based on an evaluation of the expected tax charge/credit. Income tax and deferred tax mainly arising from Alternatif bank operations. Deferred tax is recognised in respect of temporary differences between the carrying amounts of assets and liabilities for financial reporting purposes and the amounts used for taxation purposes. Deferred tax is measured at the tax rates that are expected to apply to the period when the asset is realised or the liability is settled, based on laws that have been enacted at the reporting date. (u) Earnings per share The Bank presents basic and diluted earnings per share (EPS) data for its ordinary shares. Basic EPS is calculated by dividing the profit or loss attributable to ordinary equity holders of the Bank by the weighted average number of ordinary shares outstanding during the period. Diluted EPS is determined by adjusting the profit or loss attributable to ordinary equity holders and the weighted average number of ordinary shares outstanding for the effects of all dilutive potential ordinary shares. (v) Segment reporting Operating segments are reported in a manner consistent with the internal reporting provided to the chief operating decision maker. The chief operating decision maker is the person or group that allocates resources to and assesses the performance of the operating segments of an entity. The Group has determined the Chief Executive Officer of the Bank as its chief operating decision maker. All transactions between operating segments are conducted on an arm’s length basis directly associated with each segment are included in determining operating segment performance. (w) Fiduciary activities The Group acts as fund manager and in other fiduciary capacities that result in the holding or placing of assets on behalf of individuals, corporate and other institutions. These assets and income arising thereon are excluded from these consolidated financial statements, as they are not assets of the Group. (x) Repossessed collateral Repossessed collaterals in settlement of customers’ debts are stated under "Other assets" at carrying value of debts or fair value if lower. According to QCB instructions, the Group should dispose of any land and properties acquired in settlement of debts within a period not exceeding three years from the date of acquisition although this period can be extended with the approval of QCB. (y) Comparatives Except when a standard or an interpretation permits or requires otherwise, all amounts are reported or disclosed with comparative information. 4- FINANCIAL RISK MANAGEMENT a) Introduction and overview The Group’s business involves taking risks in a targeted manner and managing them professionally. The core functions of the Group’s risk management are to identify all key risks for the Group, measure these risks, manage the risk positions and determine capital allocations. The Group regularly reviews its risk management policies and systems to reflect changes in markets, products and best market practice. The Group’s aim is to achieve an appropriate balance between risk and return and minimise potential adverse effects on the Group’s financial performance. The Group defines risk as the possibility of losses or profits foregone, which may be caused by internal or external factors. Financial instruments Financial instruments comprise the Group’s financial assets and liabilities. Financial assets include cash and balances with Central banks, due from banks, loans and advances, investment securities, derivative financial assets and certain other assets and financial liabilities include customer deposits, borrowings under repurchase agreements and interbank takings, debt issued and other borrowed funds, derivative financial liabilities and certain other liabilities. Financial instruments also include rights and commitments included in off- balance sheet items. Note 3(d) describes the accounting policies followed by the Group in respect of recognition and measurement of the key financial instruments and their related income and expense. Risk management The Group derives its revenue from assuming and managing customer risk for profit. Through a robust governance structure, risk and return are evaluated to produce sustainable revenue, to reduce earnings volatility and increase shareholder value. The most important types of risk are credit risk, liquidity risk, market risk and operational risk. Credit risk reflects the possible inability of a customer to meet his/her repayment or delivery obligations. Market risk, which includes foreign currency, interest rate risks and other price risks, is the risk of fluctuation in asset and commodity values caused by changes in market prices and yields. Liquidity risk results in the inability to accommodate liability maturities and withdrawals, fund asset growth or otherwise meet contractual obligations at reasonable market rates. Operational risk is the potential for loss resulting from events involving people, processes, technology, legal issues, external events or execution or regulatory issues.
24. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (a) Introduction and overview (continued) Risk and other committees The governance structure of the Group is headed by the Board of Directors. The Board of Directors evaluates risk by engaging with the Group Chief Executive Officer and Chief Risk Officer alongwith the following Board and Management Committees: 1). Board Risk Committee is responsible for all aspects of Risk Management across the Group including but not restricted to credit risk, market risk, and operational risk. This committee sets the policy on all risk issues and maintains oversight of all Group risks through the Management Risk Committee. 2). Board Audit and compliance Committee is responsible for setting the policy on all Audit issues and maintains oversight of all Bank audit issues through the Chief Internal Auditor. In addition, the committee is also responsible for Compliance & Anti-Money Laundering which is managed through the Chief Compliance Officer. 3). Board Executive Committee is responsible for evaluating and granting credit facilities and approval of the Group’s investment activities within authorized limits per Qatar Central Bank and Board of Directors’ guidelines. In addition, this committee is also responsible for all policies and strategies of the business and compliance of corporate governance. 4). Management Credit Committee (MCC) is the third highest-level authority on all Counterparty Credit Risk Exposures, after the Board of Directors and Board Executive Committee. The MCC also is reponsible for watch list and non performing assets to minimize risks, prevent losses, maximize recoveries and restore profits through rehabilitation, restructuring, workout, collection or legal actions. MCC exercises its credit authorisation as conferred upon them by the Delegation of Authority (“DoA”) as approved by the Board. 5). Management Risk Committee is the highest management authority on all risk related issues in the Group and its subsidiaries and affiliates in which it has strategic investments. This committee provides recommendations on all risk policy and portfolio issues to the Board Risk Committee. 6). Asset and Liability Committee (ALCO) is a management committee which is a decision making body relating to Asset and Liability management. (i.e. balance sheet structure, funding, pricing, hedging, setting limits etc.) Under the overall risk management framework, ALCO is a key component of risk management within the Bank. 7). Investment Committee (IC) is the decision making committee for Bank's investment activities, with a view to optimize returns, ensuring that the investment book provides a liquidity buffer for the bank and mitigate market risk attached to the nature of targeted investment. 8). Crisis Management Committee (CMC) is the authority for management of a crisis, entailing business continuity, prevention, planning, testing, and evaluation. The CMC’s objective is to mitigate and minimize the consequences of crisis events. (b) Credit risk Credit risk is defined as the potential that a borrower or counterparty will fail to meet its obligations in accordance with agreed terms. The goal of credit risk management is to maximize the Group’s risk-adjusted rate of return by maintaining credit risk exposure within acceptable parameters. Loans and advances are the largest sources of credit risk for the Group. Other sources of credit risk exist throughout the activities of the Group, including in the banking book and in the trading book, and both on and off the balance sheet. The Group also faces credit risk (or counterparty risk) in various financial instruments other than loans, including: acceptances, interbank transactions, trade financing, foreign exchange transactions, derivative instruments, and in the extension of commitments and guarantees, as well as the settlement of transactions. The Group maintains well defined, written policies and procedures for identifying, measuring, monitoring, and controlling credit risk, governing credit-granting activities in conformance with the risk appetite and limits defined by the Board. All extensions of credit are made on an arm’s length basis in accordance with the Group’s creditgranting approval process by a combination of authorized individuals, groups or credit committees, depending on the size and nature of the credit, who have the experience, knowledge and background to exercise prudent judgement in assessing, approving and managing credit risks. (i) Credit risk measurement 1. Loans and advances The Group’s aim is to maintain a sound asset portfolio by optimizing its loan mix. This is being achieved through a strategy of reducing exposure to non-core client relationships while selectively increasing the size of the consumer portfolio comprising of consumer loans, vehicle loans, credit cards and residential mortgages. In measuring credit risk of loan and advances to customers and to banks, the Group reflects three components (i) the ‘probability of default’ by the client or counterparty on its contractual obligations; (ii) current exposures to the counterparty and its likely future development, from which the Group derive the ‘exposure at default’; and (iii) the likely recovery ratio on the defaulted obligations (the ‘loss given default’). (i) The Group assesses the probability of default of individual counterparties using internal rating tools tailored to the various categories of counterparty. They combine statistical analysis along with the business relationship officers and credit risk officers assessment and are independently validated. Clients of the Group are segmented based on a 10-point rating scale (22 notches including modifiers) for the corporate book and product based application scores for the retail products. The Group’s rating scale reflects the range of default probabilities defined for each rating class. This means that, in principle, the probability of default changes with the migration of ratings. The rating tools are kept under review and upgraded as necessary. The ratings of the major rating agency are mapped to Group’s rating grades based on the long-term average default rates for each external grade. The Group uses the external ratings where available to benchmark internal credit risk assessment. Observed defaults per rating category vary year on year, especially over an economic cycle. (ii) Exposure at default is based on the amounts the Group expects to be owed at the time of default. For example, for a loan this is the carrying value. For a commitment, the Group includes any amount already drawn plus the further amount that may have been drawn by the time of default, should it occur. For undrawn facilities, the Group applies credit conversion factors that are prescribed by Qatar Central Bank and are aligned to Bank of International Settlements (BIS) guidelines. (iii)Loss given default or loss severity represents the Group’s expectation of the extent of loss on a claim should default occur. It is expressed as percentage loss per unit of exposure and typically varies by type of counterparty, type and seniority of claim and availability of collateral or other credit mitigation. 2. Debt securities and other bills For debt securities and other bills, external ratings such as Standard & Poor’s and Moody’s ratings or their equivalents are used by Treasury for managing the credit risk exposures. The investments in those securities and bills are viewed as a way to improve the overall asset quality, enhance yield and provide a readily available source to meet the funding requirement. (ii) Risk limit control and mitigation policies Portfolio diversification Portfolio diversification is an overriding principle, therefore, the credit policies are structured to ensure that the Group is not over exposed to a given client, industry sector or geographic area. To avoid excessive losses if any single counter-party is unable to fulfil its payment obligations, large exposure limits have been established per credit policy following the local regulations. Limits are also in place to manage exposures to a particular country or sector. These risks are monitored on an ongoing basis and subject to an annual or more frequent review, when considered necessary. Collateral In order to proactively respond to credit deterioration, the Group employs a range of policies and practices to mitigate credit risk. The most traditional of these is the taking of security for funds advanced, which is common practice. The Group implements guidelines on the acceptability of specific classes of collateral or credit risk mitigation. The principal collateral types for loans and advances are: ● Mortgages over residential properties; ●Lending against lien marked deposits; ● Charges over business assets such as premises, inventory and accounts receivable; ● Charges over financial instruments such as debt securities and equities.
25. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) (ii) Risk limit control and mitigation policies (continued) Collateral (continued) Longer-term finance and lending to corporate entities are generally secured; working capital credit facilities are generally unsecured. In addition, in order to minimise the credit loss, the Group will seek additional collateral from the counterparty as soon as impairment indicators are noticed for the relevant individual loans and advances. Collateral held as security for financial assets other than loans and advances is determined by the nature of the instrument. Debt securities, treasury and other eligible bills are generally unsecured, with the exception of asset-backed securities and similar instruments, which are secured by portfolios of financial instruments. Credit-related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby letters of credit carry the same credit risk as loans. Documentary and commercial letters of credit – which are written undertakings by the Group on behalf of a customer authorising a third party to draw drafts on the Group up to a stipulated amount under specific terms and conditions – are collateralised by the underlying shipments of goods to which they relate and therefore carry less risk than a direct loan Commitments to extend credit represent unused portions of authorisations to extend credit in the form of loans, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Group is potentially exposed to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards. The Group monitors the term to maturity of credit commitments because longer-term commitments generally have a greater degree of credit risk than shorter-term commitments. Credit risk arising from derivative financial instruments is, at any time, limited to those with positive fair values, as at the reporting date. With gross-settled derivatives, the Group is also exposed to a settlement risk, being the risk that the Group honours its obligation but the counterparty fails to deliver the countervalue. (iii) Maximum exposure to credit risk before collateral held or other credit enhancements 2019 2018 Credit risk exposures relating to assets recorded on the consolidated statement of financial position are as follows: Balances with central banks Due from banks Loans and advances to customers Investment securities - debt Other assets Total as at 31 December Other credit risk exposures are as follows: Guarantees Letters of credit Unutilised credit facilities Total as at 31 December 5,250,971 6,111,773 12,396,433 88,009,448 26,408,148 1,690,200 133,755,200 9,474,893 84,642,464 21,436,688 1,426,928 123,092,746 21,353,539 22,057,901 1,706,950 4,287,871 2,148,781 4,373,836 27,348,360 28,580,518 161,103,560 151,673,264 The above table represents a worse-case scenario of credit risk exposure to the Group, without taking account of any collateral held or other credit enhancements attached. (iv) Concentration of risks of financial assets with credit risk exposure Geographical sectors The following table breaks down the Group’s credit exposure at their carrying amounts (without taking into account any collateral held or other credit support), as categorized by geographical region. For this table, the Group has allocated exposures to regions based on the country of domicile of its counterparties. 2019 Balances with central banks Due from banks Loans and advances to customers Investment securities - debt Other assets 2018 Balances with central banks Due from banks Loans and advances to customers Investment securities - debt Other assets Qatar 3,698,747 4,275,094 73,308,248 19,914,595 1,302,765 102,499,449 Qatar 4,661,672 2,742,306 70,419,832 17,204,539 738,229 95,766,578 Other GCC 675,608 474,138 364,868 516 1,515,130 Other GCC 630,912 581,968 256,110 27,274 1,496,264 Other Middle East Rest of the World 1,552,224 4,089,664 13,491,026 4,059,685 276,834 23,469,433 3,356,067 736,036 2,069,000 110,085 6,271,188 Other Middle East Rest of the World 1,450,101 2,407,217 12,413,261 2,507,842 415,971 19,194,392 3,694,458 1,227,403 1,468,197 245,454 6,635,512 Total 5,250,971 12,396,433 88,009,448 26,408,148 1,690,200 133,755,200 Total 6,111,773 9,474,893 84,642,464 21,436,688 1,426,928 123,092,746
26. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) (iv) Concentration of risks of financial assets with credit risk exposure (continued) Geographical sectors (continued) 2019 Guarantees Letters of credit Unutilised credit facilities 2018 Guarantees Letters of credit Unutilised credit facilities Qatar Other GCC 9,723,889 1,326,800 3,179,533 14,230,222 Qatar Other Middle East 1,303,244 463 828,211 2,131,918 Other GCC 11,101,817 1,910,758 3,293,914 16,306,489 Rest of the World 253,249 253,249 Other Middle East 1,346,053 3,300 828,219 2,177,572 10,073,157 379,687 280,127 10,732,971 Rest of the World 1,657,008 1,657,008 7,953,023 234,723 251,703 8,439,449 Total 21,353,539 1,706,950 4,287,871 27,348,360 Total 22,057,901 2,148,781 4,373,836 28,580,518 Industry sectors The following table breaks down the Group’s credit exposure at carrying amounts before taking into account collateral held or other credit enhancements, as categorized by the industry sectors of the Group’s counterparties. Gross exposure Gross exposure 2019 2018 Funded Government Government agencies Industry Commercial Services Contracting Real estate Consumers Other sectors Total funded 39,234,483 3,975,558 8,091,993 13,710,085 38,612,198 2,857,702 19,495,282 5,907,053 1,870,846 133,755,200 30,554,077 5,912,184 7,127,587 10,052,752 34,749,235 3,055,669 22,513,464 6,175,154 2,952,624 123,092,746 3,446,069 11,986,717 11,915,574 27,348,360 1,471,520 3,632,236 23,476,762 28,580,518 161,103,560 151,673,264 Un-funded Government institutions & semi government agencies Services Commercial and others Total un-funded Total (v) Credit Quality The following table sets out information about the credit quality of financial assets, commitments and financial guarantees 2019 Cash and Balances with Central Banks (Excluding Cash on Hand) and Due from Stage 1 Stage 2 Stage 3 Investment grade - ORR 1 to 4 9,174,366 Sub-investment grade - ORR 5 to 7 5,459,786 - - 3,043,808 - Substandard - ORR 8 - - - Doubtful - ORR 9 - - - Loss - ORR 10 Total - Gross Loss allowance 2018 Total Total 9,174,366 8,503,594 - -17,677,960 - 15,580,437 (7,515) 14,626,637 (33,037) 3,010,771 - (40,552) 17,637,408 9,996 17,647,404 (13,698) 15,566,739 19,927 15,586,666 Stage 1 Stage 2 2018 Stage 3 Total 36,969,262 110,704 - Sub-investment grade - ORR 5 to 7 34,143,968 15,204,195 - Substandard - ORR 8 - 545 Doubtful - ORR 9 - - Loss allowance Accrued Interest Carrying amount ORR (Obligatory Risk Rating) - - Investment grade - ORR 1 to 4 Total - Gross - 3,043,808 2019 Loss - ORR 10 5,816,904 --- 14,634,152 Accrued Interest Carrying amount Loans and advances to Customers 9,763,533 Total 37,079,966 49,348,163 - 12,522,973 1,025,370 1,345,136 963,139 1,345,136 - 962,594 70,134,165 1,902,502 71,113,230 15,315,444 2,179,512 4,487,242 2,179,512 90,915,916 - 1,963,246 87,548,256 (61,964) 71,051,266 (872,666) 14,442,778 (2,751,042) 1,736,200 (3,685,672) 87,230,244 779,204 88,009,448 (3,846,625) 83,701,631 940,833 84,642,464
27. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) (v) Credit Quality (continued) Investment Securities - Debt Investment grade - ORR 1 to 4 Sub-investment grade - ORR 5 to 7 Substandard - ORR 8 Doubtful ORR 9 Loss - ORR 10 Total - Gross Loss allowance 2019 2018 Stage 1 17,397,199 6,947,653 24,344,852 Stage 2 270,761 295,715 566,476 (4,071) 24,340,781 566,476 Stage 3 - Accrued interrest Carrying amount Total 17,667,960 7,243,368 24,911,328 (4,071) 24,907,257 138,199 25,045,456 2019 Loan Commitments and financial Guarantees Investment grade - ORR 1 to 4 Sub-investment grade - ORR 5 to 7 Substandard - ORR 8 Doubtful ORR 9 Loss - ORR 10 Total - Gross Loss allowance Carrying amount Stage 1 5,490,388 17,271,678 22,762,066 (26,345) 22,735,721 Stage 2 100,661 4,141,518 8,509 4,250,688 (41,764) 4,208,924 Total 18,102,960 2,818,337 20,921,297 (24,053) 20,897,244 96,238 20,993,482 2018 Stage 3 45,426 518 289,662 335,606 (27,644) 307,962 Total 5,591,049 21,413,196 53,935 518 289,662 27,348,360 (95,753) 27,252,607 Total 12,847,456 15,245,527 75,362 26,295 385,878 28,580,518 (103,972) 28,476,546 Rescheduled loans and advances to customers Rescheduled activities include extended payment arrangements, approved external management plans, modification and deferral of payments. Restructuring policies and practices are based on indicators or criteria that, in the judgement of local management, indicate that payment will most likely continue. These policies are kept under continuous review. Following restructuring, a previously overdue customer account is reset to a normal status and managed together with other similar accounts as non impaired. The accounts which are restructured due to credit reasons in past 12 months will be clasiified under stage 2. Collateral The determination of eligible collateral and the value of collateral are based on QCB regulations and are assessed by reference to market price or indices of similar assets. The Group has collateral in the form of blocked deposits, pledge of shares or legal mortgage against loans and advances to customers. Aggregate collateral for stage 1 as at 31 December 2019 is QAR 56,806 million (2018: QAR 61,363 million), stage 2 QAR 13,272 million (2018: QAR 21,520 million) and stage 3 QAR 3,587 million (2018: QAR 3,670 million). (vi) Repossessed collateral During the year, the Group acquired ownership of land and building by taking possession of collateral held as security for an amount of QAR 1,922 million (2018: QAR 450 million). Repossessed properties proceeds are used to reduce the outstanding indebtedness and are sold as soon as practicable. Repossessed property is classified in the consolidated statement of financial position within other assets. (vii) Write-off policy The Group writes off a loan or an investment in debt security balance, and any related allowances for impairment losses, when the relevant Credit Committees determines that the loan or security is uncollectible. QCB approval is required for local write offs when the amount to be written off exceeds Qatar Riyal one hundred thousand. This determination is made after considering information such as the occurrence of significant changes in the borrower’s/issuer’s financial position such that the borrower/issuer can no longer pay the obligation, or that proceeds from collateral will not be sufficient to pay back the entire exposure. For smaller balance standardized loans, write-off decisions generally are based on a product-specific past due status. The amount written off during the year was QAR 1,076 million (2018: QAR 2,863 million). (viii) Inputs, assumptions and techniques used for estimating impairment Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Group considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis including internal credit risk grading system, external risk ratings, where available, delinquency status of accounts, credit judgement and, where possible, relevant historical experience.The Group may also determine that an exposure has undergone a significant increase in credit risk based on particular Qualitative indicators that it considers are indicative of such and whose effect may not otherwise be fully reflected in its Quantitative analysis on a timely basis. In determining whether credit risk has increased significantly since initial recognition following criteria are considered: i) Two ‘absolute’ notches downgrade for ratings better than Rating Grade 5 at the time of origination and one ‘absolute’ notch rating downgrade for rated customers ii) Facilities restructured during previous twelve months iii) Facilities overdue by 30 days as at the reporting date in case of Retail Products and overdue by 60 days for corporate customers Credit risk grades Credit risk grades are defined using qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. Exposures are subject to on-going monitoring, which may result in an exposure being moved to a different credit risk grade Generating the term structure of Probability of Default (PD) The Group uses its own database of default history to model estimates of PD for respective ratings that are used in credit decision making. Yearly transition matrices are developed to capture the rating migration of borrowers and yearly PDs are calculated over 5 years to get the through-the-cycle (TTC) PD. In oder the transform the TTC PD to point in time, a credit index for the last five historical years is calculated based upon minimizing the sum of the squared differences between the TTC PD and Point-intime (PIT) PD matrix elements. This analysis includes the identification and calibration of relationships between changes in default rates and changes in key macroeconomic factors, across various geographies in which the Group has exposures. Renegotiated financial assets The contractual terms of a loan may be modified for a number of reasons, including changing market conditions, customer retention and other factors not related to a current or potential credit deterioration of the customer. This may involve extending the payment arrangements and documenting the agreement of new loan conditions. Management continuously reviews renegotiated loans to ensure that all criteria are met and that future payments are likely to occur. The accounts which are restructured due to credit reasons in past 12 months will be classified under Stage 2.
28. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) (viii) Inputs, assumptions and techniques used for estimating impairment (continued) Definition of default The Group considers a financial asset to be in default when: - the borrower is unlikely to pay its credit obligations to the Group in full, without recourse by the Group to actions such as realising security (if any is held); or - the borrower is past due more than 90 days on any material credit obligation to the Group; or - the borrower is rated 9 (Doubtful) or 10 (Loss). In assessing whether a borrower is in default, the Group also considers indicators that are: - quantitative – e.g. overdue status and non-payment on another obligation of the same issuer to the Group; and - based on data developed internally and obtained from external sources. Inputs into the assessment of whether a financial instrument is in default and their significance may vary over time to reflect changes in circumstances. The definition of default largely aligns with that applied for regulatory capital purposes. Measurement of ECL The key inputs into the measurement of ECL are the term structure of the following variables: - probability of default (PD); - loss given default (LGD); and - exposure at default (EAD). These parameters are generally derived from internally developed statistical models and other historical data. They are adjusted to reflect forward-looking information as described above. PD estimates are estimates at a certain date, which are calculated based on statistical rating models. These statistical models are primarily based on internally compiled data comprising both quantitative and qualitative factors. LGD is the magnitude of the likely loss if there is a default. The Group has applied LGD factors based on the type of collateral available and has used the LGD floors that are prescribed by QCB for certain collateral types. LGD estimation icludes: 1) Cure Rate: Defined as the ratio of accounts which have fallen to default and have managed to move backward to the performing accounts. 2) Recovery Rate: Defined as the ratio of liquidation value to market value of the underlying collateral at the time of default would also account for expected recovery rate from a general claim on the individual’s assets for the unsecured portion of the exposure. Discounting Rate: Defined as the opportunity cost of the recovery value not being realized on the day of default adjusted for time value. EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current exposure to the counterparty and potential changes to the current amount allowed under the contract including amortisation. The EAD of a financial asset is its gross carrying amount. For lending commitments and financial guarantees, the EAD includes the amount drawn, as well as potential future amounts that may be drawn under the contract, which are estimated based on historical observations and forward-looking forecasts. Incorporation of forward-looking information Incorporating forward-looking information increases the level of judgement as to how changes in these macroeconomic factors will affect the Expected Credit Loss (ECL) applicable to the stage 1 and stage 2 exposures which are considered as performing. The methodologies and assumptions involved, including any forecasts of future economic conditions, are reviewed periodically. The assessment of Significant Increase in Credit Risk (SICR) and the calculation of ECL both incorporate forward-looking information. The Group has performed historical analysis and identified the key economic variables impacting credit risk and expected credit losses for each portfolio. The Group employs statistical models to incorporate macro-economic factors on historical default rates. In the case that none of the macro-economic parameters are statistically significant or the results of forecasted PDs are too deviated from the present forecast of the economic conditions, qualitative PD overlay is used by management based on portfolio analysis. These economic variables and their associated impact on the PD, EAD and LGD vary by financial instrument. Expert judgement has also been applied in this process. Forecasts of these economic variables (the ‘base economic scenario’) are based on available information and include mean reversion approaches for long-term forecasts. The impact of these economic variables on the PD, EAD and LGD has been determined by performing statistical regression analysis to understand the impact changes in these variables have had historically on default rates and on the components of LGD and EAD. In addition to the base economic scenario, other possible scenarios are assessed along with scenario weightings. The number of other scenarios used is set based on the analysis of each major product type to ensure non linearities are captured. At 31 December 2019, the Group concluded that three scenarios appropriately captured non linearities for all portfolios. The scenario weightings are determined by a combination of statistical analysis and expert credit judgement, taking account of the range of possible outcomes each chosen scenario is representative of. The assessment of SICR is performed using the lifetime PD under each of the base, and other scenarios, multiplied by the associated scenario weighting, along with qualitative and backstop indicators. This determines whether the whole financial instrument is in Stage 1, Stage 2 or Stage 3 and hence whether 12-month or lifetime ECL should be recorded. Following this assessment, the Group measures ECL as either a probability weighted 12 month ECL (Stage 1), or a probability weighted lifetime ECL (Stages 2 and 3). These probability-weighted ECLs are determined by running each scenario through the relevant ECL model and multiplying it by the appropriate scenario weighting (as opposed to weighting the inputs). As with any economic forecasts, the projections and likelihoods of occurrence are subject to a high degree of inherent uncertainty and therefore the actual outcomes may be significantly different to those projected. The Group considers these forecasts to represent its best estimate of the possible outcomes. Predicted relationships between the key indicators and default and loss rates on various portfolios of financial assets have been developed based on analyzing historically data estimate of expected credit losses. In reality there will be interdependencies between the various economic inputs and the exposure to sensitivity will vary across the economic scenarios. The most significant period end assumption used for ECL estimate as at 31 December 2019 is the oil price and revenue (as a % of GDP) given the high level of correlation between this and other economic indicators. The scenarios ‘base’, ‘best’ and ‘worst’ were used for all portfolios. The weightings assigned to each economic scenario at 31 December 2019 were base (70%), best (15%) and worst (15%). Other forward-looking considerations not otherwise incorporated within the above scenarios, such as the impact of any regulatory, legislative or political changes, have also been considered, but are not deemed to have a material impact and therefore no adjustment has been made to the ECL for such factors. This is reviewed and monitored for appropriateness on a quarterly basis.
29. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (b) Credit risk (continued) (viii) Inputs, assumptions and techniques used for estimating impairment (continued) 2019 Movement in ECL Stage1 Stage2 Stage3 Total Opening Balance as at 1 January 2019 Due from banks and balances with central banks 619 13,079 13,698 50,382 952,226 2,844,017 3,846,625 Loans and advances to customers 236 23,817 24,053 Investment Securities (Debt) 25,711 76,308 1,953 103,972 Loan Commitments and Financial Guarantees 76,948 1,065,430 2,845,970 3,988,348 ECL Charge for the Period (net) 7,019 19,958 26,977 Due from banks and balances with central banks 2,750 (39,394) 963,815 927,171 Loans and advances to customers 4,041 (10,838) (6,797) Investment Securities (Debt) 6,122 (34,116) 67,125 39,131 Loan Commitments and Financial Guarantees 19,932 (64,390) 1,030,940 986,482 Write offs / Transfer Due from banks and balances with central banks (10,084) (1,024,756) (1,034,840) Loans and advances to customers Investment Securities (Debt) (41,198) (41,198) Loan Commitments and Financial Guarantees (10,084) (1,065,954) (1,076,038) Exchange differences (123) (123) Due from banks and balances with central banks Loans and advances to customers 8,832 (30,082) (32,034) (53,284) Investment Securities (Debt) (5,488) (428) (236) (6,152) Loan Commitments and Financial Guarantees 3,221 (30,510) (32,270) (59,559) Closing Balance as at 31 December 2019 7,515 33,037 40,552 Due from banks and balances with central banks Loans and Advances to Customers 61,964 872,666 2,751,042 3,685,672 4,277 12,979 17,256 Investment Securities (Debt) 26,345 41,764 27,644 95,753 Loan Commitments and Financial Guarantees 100,101 960,446 2,778,686 3,839,233 2018 31,632 5,478,995 23,654 269,339 5,803,620 (17,934) 1,401,477 399 (74,120) 1,309,822 (2,772,216) (90,965) (2,863,181) (261,631) (282) (261,913) 13,698 3,846,625 24,053 103,972 3,988,348
30. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) Inter Bank Offered Rate (IBOR) Reforms A fundamental review and reform of major interest rate benchmarks is being undertaken globally. There is uncertainty as to the timing and the methods of transition for replacing existing benchmark interbank offered rates (IBORs) with alternative rates. As a result of these uncertainties, significant accounting judgement is involved in determining whether certain hedge accounting relationships that hedge the variability of foreign exchange and interest rate risk due to expected changes in IBORs continue to qualify for hedge accounting as at 31 December 2019. IBOR continues to be used as a reference rate in financial markets and is used in the valuation of instruments with maturities that exceed the expected end date for IBOR. Therefore, the Group believes the current market structure supports the continuation of hedge accounting as at 31 December 2019. (c) Liquidity risk Liquidity risk is the risk that the Group is unable to meet its obligations when they fall due as a result of e.g. customer deposits being withdrawn, cash requirements from contractual commitments, or other cash outflows, such as debt maturities or margin calls for derivatives etc. Such outflows would deplete available cash resources for client lending, trading activities and investments. In extreme circumstances, lack of liquidity could result in reductions in the consolidated statement of financial position and sales of assets, or potentially an inability to fulfil lending commitments. The risk that the Group will be unable to do so is inherent in all banking operations and can be affected by a range of institution-specific and market-wide events including, but not limited to, credit events, merger and acquisition activity, systemic shocks and natural disasters. (i) Management of liquidity risk The management of liquidity risk is governed by the Group’s liquidity policy. The primary objective of liquidity risk management; over which ALCO has oversight, is to provide a planning mechanism for unanticipated changes in the demand or needs for liquidity created by customer behaviour or abnormal market conditions. ALCO emphasises the maximisation and preservation of customer deposits and other funding sources. ALCO also monitors deposit rates, levels, trends and significant changes. Deposit marketing plans are regularly reviewed for consistency with the liquidity policy requirements. ALCO has in place a contingency plan, which is periodically reviewed. The Group’s ability to raise wholesale and/or long term funding at competitive costs is directly impacted by the Bank’s credit ratings, which are as follows: Moody’s: Long Term A3, Short Term P2, financial strength Ba1 and outlook Stable. Fitch Long Term A, Short Term F1, financial strength bb+ and outlook Stable. : Standard & Poor’s: Long Term BBB+, Short Term A-2, financial strength bb+ and outlook stable (ii) Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to deposits from customers. For this purpose, net liquid assets are considered as including cash and cash equivalents and investment grade debt securities for which there is an active and liquid market less any deposits from banks, debt securities, other borrowings and commitments maturing within the next month. A similar, but not identical, calculation is used to measure the Group’s compliance with the liquidity limit established by the Group’s lead regulator, QCB under the heading ‘Liquidity adequacy ratio’ (LAR). The minimum ratio limit set by QCB is 100%. Following table sets out the LAR position of the Group during the year as follows: At 31 December Average for the year Maximum for the year Minimum for the year (iii) Maturity analysis 2019 (%) 2018 (%) 108.11 109.14 120.18 100.48 106.60 105.57 111.84 95.06 The following table sets out the maturity profile of the Group’s assets and liabilities. The contractual maturities of assets and liabilities have been determined on the basis of the remaining period at 31 December to the contractual maturity date and do not take account of the effective maturities as indicated by the Group’s deposit retention history and the availability of liquid funds. Management monitors the maturity profile to ensure that adequate liquidity is maintained. Carrying amount Demand / within 1 month 1-3 months 3 months – 1 year 6,075,044 1,631,106 - - 12,396,433 88,009,448 7,554,562 560,646 2,875,551 9,618,237 2,450,468 11,421,574 26,844,226 4,021,239 19,971 365,272 1,890,660 -10,190,094 1,776,949 26,089 147,536,484 20,600,825 3,402,475 22,530,782 76,296,592 10,951,690 44,985,571 Subtotal 1 year 1-5 years More than 5 years No Maturity 2019 Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in associates and a joint arrangement Property and equipment and all other assets Total Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total Difference 9,524,590 12,043,167 5,385,126 125,780,257 21,756,227 - 10,990,759 23,490,279 1,405,674 45,425,601 11,085,124 2,275,903 -- 13,047,121 - -1,803,038 4,690,583 16,187,785 40,191,085 38,236,946 56,510,725 4,768,171 4,483,820 253,384 14,842,913 20,203,681 71,283,527 2,073,717 11,455,043 5,013,065 297,430 752,320 422,229 1,334,034 5,340,550 1,142,730 18,997,408 (15,594,933) 545,907 25,965,510 (9,777,725) - 1,193,476 7,096,813 7,069,889 4,977,001 104,754,498 408,125 19,511,150 18,725,796 (64,563,413) 4,946,354 4,443,938 - 19,093,568 - - 143,726 3,288,364 59,791,580 (39,190,755) 1,631,106 436,078 - 4,021,239 - 3,696,473 - 12,597,728 - 1,261,225 1,514,609 54,996,116 12,597,728
31. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (continued) (iii) Maturity analysis (continued) Carrying amount Demand / within 1 month 1-3 months 3 months – 1 year 6,729,798 3,172,984 - 9,474,893 84,642,464 5,451,328 2,742,734 1,208,136 5,627,287 2,368,452 7,918,349 22,206,077 4,512,940 253,067 -7,361,577 Subtotal 1 year 1-5 years More than 5 years No Maturity 2018 (Restated) Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in associates and a joint arrangement Property and equipment and all other assets Total Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total 3,172,984 9,402,198 15,914,088 72,695 - 3,556,814 - - 23,776,426 44,951,950 9,702,429 - 2,763,829 -- 8,970,428 - 1,119,690 17,856 67,524 -1,205,070 2,594,198 134,927,749 15,624,356 5,129,042 11,704,771 32,458,169 35,413,747 54,654,379 13,950,459 71,785,783 7,612,664 2,352,838 2,567,534 253,383 13,534,260 12,501,134 12,533,036 67,555,154 1,164,040 41,519,760 4,230,629 - - 2,510,762 16,071,746 8,379,734 290,559 487,244 7,185,615 172,030 1,496,057 1,884,124 4,883,568 115,071,290 3,217,720 52,812,733 (37,188,377) 942,387 18,812,786 (13,683,744) 567,555 24,705,962 (13,001,191) 19,856,459 Difference - - 7,963,418 3,552,211 6,846,644 4,727,662 96,331,481 155,906 17,224,742 18,189,005 (63,873,312) 769,391 - 4,512,940 - 3,562,309 12,401,454 - - - 1,261,684 4,827,523 - 1,515,067 53,139,312 12,401,454 (iv) Maturity analysis (financial liabilities and derivatives) The table below summarises the maturity profile of the Group's financial liabilities at 31 December based on contractual undiscounted repayment obligations 2019 Carrying amount Gross undiscounted cash flows Less than 1 month 1-3 months 3 months – 1 year 1-5 years 5,542,683 15,125,744 920,432 5,471,222 27,060,081 2,164,738 5,109,472 7,839,350 5,255,053 20,368,613 3 months – 1 year 1-5 years 2,804,214 12,797,217 7,518,549 2,116,633 25,236,613 1,283,573 4,322,836 7,543,965 5,207,846 18,358,220 More than 5 years Non-derivative financial liabilities Due to banks Customer deposits Debt securities Other borrowings 22,530,782 76,296,592 9,524,590 12,043,167 120,395,131 Total liabilities 2018 Carrying amount 24,001,339 77,685,628 11,999,211 12,639,842 126,326,020 Gross undiscounted cash flows 11,148,211 45,794,237 155,456 432,450 57,530,354 Less than 1 month 4,851,681 11,656,175 303,258 1,481,117 18,292,231 1-3 months 294,026 2,780,715 3,074,741 More than 5 years Non-derivative financial liabilities Due to banks Customer deposits Debt securities Other borrowings Total liabilities 13,950,459 71,785,783 16,071,746 8,379,734 110,187,722 14,544,569 73,484,438 17,813,184 9,082,420 114,924,611 7,765,249 42,493,340 330,178 212,890 50,801,657 2,392,305 13,871,045 514,117 1,545,051 18,322,518 299,228 1,906,375 2,205,603
32. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (c) Liquidity risk (continued) (iv) Maturity analysis (financial liabilities and derivatives) (continued) Derivative financial instruments: Generally, forward foreign exchange contracts are settled on a gross basis and interest rate swaps are settled on a net basis. 3 months – 1 2019 Total 1-3 months 1-5 years More than 5 years year Derivatives Held for Trading: Forward foreign exchange contracts Outflow (23,838,530) (7,255,454) (2,133,677) (9,976,329) (4,473,070) Inflow 23,884,092 7,327,951 2,135,873 9,947,720 4,472,548 Interest rate swaps: Outflow (806,861) (159) (3,665) (267,615) (535,422) Inflow 826,333 1,661 9,207 279,601 535,864 Derivatives Held as Fair Value Hedges: Interest rate swaps: Outflow (348,207) (3,902) (17,550) (89,924) (236,831) Inflow 304,973 4,506 14,934 76,081 209,452 Derivatives Held as Cash Flow Hedges: Forward foreign exchange contracts: Outflow (2,399,405) (87,966) (2,311,439) Inflow 2,233,481 15,137 2,218,344 Interest rate swaps: Outflow (28,455) (9,111) (19,344) Inflow 15,210 5,003 10,207 (27,421,458) (7,268,626) (2,262,202) (12,645,307) (5,245,323) Total Outflows 27,264,089 7,339,121 2,185,358 12,521,746 5,217,864 Total inflows 2018 Derivatives Held for Trading: Forward foreign exchange contracts Outflow Inflow Interest rate swaps: Outflow Inflow Derivatives Held as Fair Value Hedges: Interest rate swaps: Outflow Inflow Derivatives Held as Cash Flow Hedges: Forward foreign exchange contracts: Outflow Inflow Interest rate swaps: Outflow Inflow Total Outflows Total inflows Total 1-3 months 3 months – 1 year 1-5 years More than 5 years (21,165,182) 21,422,087 (13,099,457) 13,190,695 (3,803,913) 3,903,026 (4,234,125) 4,242,510 (27,687) 85,856 (291,328) 322,395 (719) 1,637 (7,170) 14,915 (274,028) 295,184 (9,411) 10,659 (354,777) 310,303 (5,140) 5,572 (21,612) 18,132 (91,194) 77,147 (236,831) 209,452 (165,234) 105,719 (1,807,608) 1,586,047 (27,292) 24,152 (4,025,221) 4,065,944 (8,354) 6,683 (6,415,309) 6,207,571 (1,972,842) 1,691,766 (45,252) 40,968 (23,829,381) 23,787,519 (9,606) 10,133 (13,114,922) 13,208,037 (273,929) 305,967 (v) Off-balance sheet items The table below summarises contractual expiry dates of the Group's off - financial position financial instruments: Below 1 Year Above 1 Year 2019 Total Loan commitments Guarantees and other financial facilities Capital commitments Total liabilities 2018 1,854,247 12,131,603 421,352 14,407,202 Below 1 Year 2,433,624 10,928,886 13,362,510 Above 1 Year 4,287,871 23,060,489 421,352 27,769,712 Total Loan commitments Guarantees and other financial facilities Capital commitments Total liabilities 1,968,142 12,816,899 157,569 14,942,610 2,405,694 11,389,783 13,795,477 4,373,836 24,206,682 157,569 28,738,087
33. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risk The Group takes exposure to market risk, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate because of changes in market prices. Market risks arise from open positions in interest rate, currency and equity products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as interest rates, credit spreads, foreign exchange rates and equity prices. The Group separates exposures to market risk into either trading or non-trading portfolios and by product type. The market risks arising from trading and non-trading activities are concentrated in Group Treasury and monitored by two teams separately. Regular reports are submitted to the Board of Directors and heads of each business unit. Trading portfolios include those positions arising from market-making transactions where the Group acts as principal with clients or with the market. Non-trading portfolios primarily arise from the interest rate management of the entity’s retail and commercial banking assets and liabilities. Non-trading portfolios also consist of foreign exchange and soverign bond investments. (i) Management of market risks Overall authority for market risk is vested in ALCO. Group Market Risk is responsible for the development of detailed risk management policies (subject to review and approval by ALCO) and for the day-to-day review of their implementation. The Group’s proprietary investments are managed according to the Group’s internal investment policy, which has been approved by the Board of Directors and drafted in accordance with the Qatar Central Bank guidelines. The Group’s trading activities are conducted by Treasury and Investments Division. These activities are subject to business line guidelines and policies. The Group employs several techniques to measure and control activities including sensitivity analysis, position limits and risk based limits. Investment proposals are approved at the Investment Committee and decisions driven by the investment strategy, which is developed by the business line under ALCO oversight and approved by the Board. (ii) Exposure to interest rate risk – non – trading portfolio The principal risk to which non-trading portfolios are exposed is the risk of loss from fluctuations in the future cash flows or fair values of financial instruments because of a change in market interest rates. Interest rate risk is managed principally through monitoring interest rate gaps and by having pre-approved limits for repricing bands. ALCO is the monitoring body for compliance with these limits and is assisted by Group Treasury in its day-to-day monitoring activities. The Group takes on exposure to the effects of fluctuations in the prevailing levels of market interest rates on both its fair value and cash flow risks. Interest margins may increase as a result of such changes but may reduce losses in the event that unexpected movements arise. The Board sets limits on the level of mismatch of interest rate repricing that may be undertaken, which is monitored daily by Group Treasury The Asset and Liability Management (“ALM”) process, managed through ALCO, is used to manage interest rate risk associated with non-trading financial instruments. Interest rate risk represents the most significant market risk exposure to the Group’s non-trading financial instruments. The Group’s goal is to manage interest rate sensitivity so that movements in interest rates do not adversely affect net interest income. Interest rate risk is measured as the potential volatility to the net interest rate income caused by changes in market interest rates. The Group typically manages the interest rate risk of its non-trading financial instruments by segmenting these assets and liabilities into two broad portfolios: non–discretionary and discretionary. The non-discretionary portfolio consists of the Group’s customer driven loans and deposit positions and securities required to support regulatory requirements. To manage the resulting interest rate sensitivity of the Group’s non-discretionary portfolio, the Group uses a discretionary portfolio of securities, long dated deposits, inter-bank takings and placements, and when warranted, derivatives. Strategically positioning the discretionary portfolio, the Group largely manages the interest rate sensitivity in the non-discretionary portfolio. The following table summarises the interest sensitivity position at year end, by reference to the re-pricing period or maturity of the Group’s assets and liabilities. A summary of the Group’s interest rate gap position on non-trading balances are as follows: Repricing in: 2019 Cash and balances with central banks Carrying amount Less than 3 months 3-12 months - More than 5 years 1-5 years - - - - Non-interest sensitive Effective interest rate % 6,075,044 2,392,663 Due from banks 12,396,433 8,115,209 4,281,224 3,682,381 Loans and advances to customers 88,009,448 37,268,422 43,780,437 4,785,851 705,096 1,469,642 6.67% Investment securities 26,844,226 1,621,866 2,895,737 11,659,216 10,231,329 436,078 4.73% - 3.01% Investment in associates and a joint arrangement 4,021,239 - - - - 4,021,239 - Property and equipment and all other assets 10,190,094 - - - - 10,190,094 - 19,799,434 - Due to banks Customer deposits Debt securities Other borrowings Other liabilities Equity 147,536,484 49,398,160 50,957,398 (22,530,782) (15,918,496) (6,612,286) (76,296,592) (44,590,651) (15,265,298) (5,013,065) (9,524,590) (441,156) (1,064,513) (6,757,695) (12,043,167) (2,434,614) (9,529,003) (79,550) - (5,385,126) (97,059) (30,449) (19,197) (65,236) (5,173,185) - (21,756,227) - - - - (21,756,227) - (147,536,484) 16,445,067 - 10,936,425 (1,261,226) (11,427,578) 3.61% 3.71% - 3.95% - 3.84% (63,481,976) (32,501,549) (11,869,507) (1,326,462) (38,356,990) - (18,557,556) - Interest rate sensitivity gap - (14,083,816) 18,455,849 4,575,560 9,609,963 Cumulative Interest rate sensitivity gap - (14,083,816) 4,372,033 8,947,593 18,557,556 - -
34. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risks (continued) (ii) Exposure to interest rate risk – non – trading portfolio (continued) A summary of the Group’s interest rate gap position on non-trading balances are as follows: Repricing in: 2018 (Restated) Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in associates and a joint arrangement Property and equipment and all other assets Carrying amount Customer deposits Debt securities Other borrowings Other liabilities Equity 3-12 months More than 5 years 1-5 years Non-interest sensitive Effective interest rate % 6,729,798 3,100,216 - - - 3,629,582 - 9,474,893 8,170,614 1,231,479 72,800 - - 2.72% 84,642,464 39,381,081 38,914,437 4,159,870 471,349 1,715,727 6.18% 22,206,077 1,602,503 3,535,118 7,570,881 8,728,185 769,390 4.24% 4,512,940 - - - - 4,512,940 - 7,361,577 - - - - 7,361,577 - 134,927,749 Due to banks Less than 3 months 52,254,414 43,681,034 11,803,551 (13,950,459) (10,933,365) (3,017,094) (71,785,783) (43,626,394) (12,501,134) (4,230,677) - (16,071,746) (229,825) (2,395,058) (12,185,179) (8,379,734) (1,768,303) (6,134,016) (477,415) 9,199,534 (1,261,684) - 17,989,216 (11,427,578) 4.47% 3.53% - 2.93% - 4.07% (4,883,568) - - - - (4,883,568) - (19,856,459) - - - - (19,856,459) - (134,927,749) (56,557,887) (24,047,302) (16,893,271) (1,261,684) (36,167,605) (18,178,389) Interest rate sensitivity gap - (4,303,473) 19,633,732 (5,089,720) 7,937,850 Cumulative Interest rate sensitivity gap - (4,303,473) 15,330,259 10,240,539 18,178,389 - - Sensitivity analysis The management of interest rate risk against interest rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial assets and liabilities to various standard and non-standard interest rate scenarios. Standard scenarios that are considered on a monthly basis include a 50 basis point (bp) parallel fall or rise in all yield curves worldwide and a 50 bp rise or fall in the greater than 12-month portion of all yield curves. An analysis of the Group’s sensitivity to an increase or decrease in market interest rates, assuming no a symmetrical movement in yield curves and a constant financial position, is as follows: 50 bp parallel increase 50 bp parallel decrease At 31 December 17,838 (17,838) Average for the year 45,392 (45,392) At 31 December 68,654 (68,654) Average for the year Average for the year 65,555 (65,555) 50 bp parallel increase 50 bp parallel decrease At 31 December 344 (344) Average for the year 176 (176) 9 720 (9) (720) Sensitivity of net interest income 2019 2018 Sensitivity to reported Fair value reserve in equity of interest rate movements 2019 2018 At 31 December Average for the year Interest rate movements affect reported equity in the following ways: • Retained earnings arising from increases or decreases in net interest income and the fair value changes reported in profit or loss; and • Fair value reserves arising from increases or decreases in fair values of debt securities which are reported directly in other comprehensive income. Overall non-trading interest rate risk positions are managed by Group Treasury, which uses investment securities, advances to banks, deposits from banks and derivative instruments to manage the overall position arising from the Group’s non-trading activities.
35. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (d) Market risks (continued) (iii) Exposure to other market risks – non-trading portfolios Foreign currency transactions The Group monitors any concentration risk in relation to any individual currency in regard to the translation of foreign currency transactions and monetary assets and liabilities. The table shows the net foreign currency exposure by major currencies at the end of the reporting period along with the sensitivities if there were to be a change in the currency exchange rate. Net foreign currency exposure: 2019 2018 Pounds Sterling (498,768) Euro USD Other currencies Increase (decrease) in profit or loss 5% increase in currency exchange rate 2019 Pound Sterling Euro USD Other currencies (143,989) (324,782) (3,097,484) (8,241,260) (12,519,651) 2,058,159 (1,997,530) Increase (decrease) in fair value reserve 2018 2019 2018 (24,938) (7,199) - - (16,239) (154,874) -- - (412,063) (625,983) - 307 102,908 99,876 - - Open exchange position in other currencies represents Group’s investment in subsidiary, associates and a joint arrangement denominated in TL, OMR and AED. Equity price risk Equity price risk is the risk that the fair value of equities decreases as a result of changes in the equity indices and individual stocks The non-trading equity price risk exposure arises from equity securities classified as fair value through other comprehensive income. A 10 per cent increase in the Qatar Exchange market index at 31 December 2019 would have increased equity by QAR nil (2018: QAR Nil). An equivalent decrease would have resulted in an equivalent but opposite impact. The Group is also exposed to equity price risk and the sensitivity analysis there of is as follows: 2018 2019 Increase / (decrease) in other comprehensive income: Qatar Exchange - - The above analysis has been prepared on the assumption that all other variables such as interest rate, foreign exchange rate, etc. are held constant and is based on historical correlation of the equity securities to the relevant index. Actual movement may be different from the one stated above and is subject to impairment assessment at the end of each reporting period. (e) Operational risks Operational risk is the risk of direct or indirect loss arising from a wide variety of causes associated with the Group’s involvement with financial instruments, including processes, personnel, technology and infrastructure, and from external factors other than credit, market and liquidity risks such as those arising from legal and regulatory requirements and generally accepted standards of corporate behaviour. The Group’s objective is to manage operational risk so as to balance the avoidance of financial losses and damage to the Group’s reputation with overall cost effectiveness and to avoid Control procedures that restrict initiative and creativity. The primary responsibility for the development and implementation of controls to address Operational risk is assigned to senior management within each business unit. This responsibility is supported by the development of overall Group standards for the management of operational risk in the following areas: • requirements for appropriate segregation of duties, including the independent authorisation of transactions; • requirements for the reconciliation and monitoring of transactions; • compliance with regulatory and other legal requirements; • documentation of controls and procedures; • requirements for the periodic assessment of operational risks faced, and the adequacy of controls and procedures to address the risks identified; • requirements for the reporting of operational losses and proposed remedial action; • development of contingency plans; • training and professional development; • ethical and business standards; and • risk mitigation, including insurance where this is effective. (f) Capital management Regulatory capital The Group’s policy is to maintain a strong capital base so as to ensure investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on equity holders’ return is also recognised and the Group recognises the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group and its individually regulated operations have complied with all externally imposed capital requirements throughout the period. The Capital Adequacy Ratio (CAR) of the group is calculated in accordance with the Basel Committee guidelines as adopted by Qatar Central Bank (QCB). From 1st January 2014 QCB adopted Basel III guidelines for CAR calculation.
36. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 4- FINANCIAL RISK MANAGEMENT (CONTINUED) (f) Capital management (continued) The Group’s regulatory capital position under Basel III QCB regulations as at 31 December was as follows: Basel III 2019 13,020,429 Basel III 2018 11,898,725 Common Equity Tier 1 (CET 1) Capital - Additional Tier 1 Capital - 3,962,723 3,962,963 Tier 1 Capital - 16,983,152 15,861,688 Tier 2 Capital - 2,282,590 1,772,890 Total Eligible Capital 19,265,742 17,634,578 Risk Weighted Assets for Credit Risk 108,221,142 105,121,959 Risk Weighted Assets for Market Risk 2,559,342 7,026,182 1,494,331 7,032,731 117,806,666 113,649,021 Risk Weighted Assets for Operational Risk Total Risk Weighted Assets 16.35% Total Capital Ratio Tier 1 and 2 capital Total capital CET 1 ratio CET 1 ratio Tier 1 capital ratio ratio including including capital Without Capital Including Capital including capital capital conservation buffer Conservation buffer Conservation buffer conservation buffer conservation buffer and DSIB’ buffer 15.52% Total capital including conservation buffer, DSIB’ buffer and ICAAP Pillar II capital charge 2019 Actual Minimum QCB limit 11.05% 11.05% 14.42% 16.35% 16.35% 16.35% 6.00% 8.50% 10.50% 12.50% 13.00% 14.00% 10.47% 10.47% 13.96% 15.52% 15.52% 15.52% 6.00% 8.50% 10.50% 12.50% 13.00% 14.00% 2018 Actual Minimum QCB limit 5- USE OF ESTIMATES AND JUDGMENTS (a) Key sources of estimation uncertainty The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectations of future events that are believed to be reasonable under the circumstances. (i) Going concern The Group’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the Group has resources to continue in the business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability to continue as a going concern. Therefore, the financial statements continue to be prepared on the going concern basis. (ii) Allowances for credit losses Assessment of whether credit risk on the financial assets has increased significantly since initial recognition and incorporation of forward looking information in the measurement of ECL, refer to note 4(b)(viii). (iii) Determing fair values The determination of fair value for financial assets and liabilities for which there is no observable market price requires the use of valuation techniques as described in the accounting policy. For financial instruments that trade infrequently and have little price transparency, fair value is less objective, and requires varying degrees of judgement depending on liquidity, concentration, uncertainty of market factors, pricing assumptions and other risks affecting the specific instrument. Where the fair values of financial assets and financial liabilities cannot be derived from active markets, they are determined using a variety of valuation techniques that include the use of mathematical models. The inputs to these models are taken from observable markets where possible, but where this is not feasible, a degree of judgment is required in establishing fair values. The judgments include considerations of liquidity and model inputs such as correlation and volatility for longer dated derivatives. (iv) Goodwill impairment Goodwill is tested annually for impairment; assets are grouped together into smallest group of assets that generates cash inflows from continuing use that is largely independent of the cash inflows of other assets or Cash Generating Units (CGUs). Goodwill arising from a business combination is allocated to the CGU which is expected to benefit from the synergies of the combination. The ‘recoverable amount’ of an asset or CGU is the greater of its value in use and its fair value less costs to sell. ‘Value in use’ is based on the estimated future cash flows, discounted to their present value using a pre-tax discount rate that reflects current market assessments of the time value of money and the risks specific to the asset or CGU. An impairment loss is recognized if the carrying amount of an asset or CGU exceeds its recoverable amount. Impairment losses are recognized in profit or loss. They are allocated first to reduce the carrying amount of any goodwill allocated to the CGU, and then to reduce the carrying amounts of the other assets in the CGU on a pro rata basis.
37. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 5- USE OF ESTIMATES AND JUDGMENTS (CONTINUED) (b) Critical accounting judgements in applying the Group’s accounting policies (i) Valuation of financial instruments The Group’s accounting policy on fair value measurements is discussed in the significant accounting policies section The Group measures fair values using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. • Level 1: Inputs that are quoted market prices (unadjusted) in active markets for identical instruments. • Level 2: Inputs other than quoted prices included within Level1 that are observable either directly (i.e.as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. • Level 3: Inputs that are unobservable. This category includes all instruments for which the valuation technique includes inputs not based on observable data and the unobservable inputs have a significant effect on the instrument’s valuation. This category includes instruments that are value based on quoted prices for similar instruments for which significant unobservable adjustments or assumptions are required to reflect differences between the instruments. Fair values of financial assets and financial liabilities that are traded in active markets are based on quoted market prices or dealer price quotations. For all other financial instruments, the Group determines fair values using valuation techniques. Valuation techniques include net present value and discounted cash flow models and comparison to similar instruments for which market observable prices exist. The table below analyses financial instruments measured at fair value at the end of the reporting period, by the level in the fair value hierarchy into which the fair value measurement is categorised: 2019 Level 1 Level 2 Derivative assets Investment securities 29,102 6,685,822 1,004,890 6,416,150 29,102 7,450,142 526,643 526,643 - - Level 1 Level 2 Derivative assets Derivative liabilities 764,320 5,651,830 - Investment securities Carrying amount 1,004,890 Derivative liabilities 2018 Level 3 764,320 - 526,643 526,643 Level 3 Carrying amount 371,716 - 371,716 35,825 4,891,639 35,825 5,263,355 164,951 5,464,131 - 353,499 353,499 - 353,499 353,499 - 164,951 5,092,415 - There have been no transfers between level 1 and level 2 Reconciliation of level 3 investments are as follows : Balance at 1 January 164,951 2018 84,107 Cost movement (68,340) 113,879 Profit and loss movement (16,934) (23,793) Fair value reserve movement (50,575) (9,242) 29,102 164,951 2019 Balance at 31 December (ii) Financial asset and liability classification Assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding. Refer to note 3 (d) (ii) for further information. (iii) Qualifying hedge relationships In designating financial instruments in qualifying hedge relationships, the Group has determined that it expects the hedges to be highly effective over the period of the hedging relationship. (iv) Impairment of investments in equity and debt securities Assessment of whether credit risk on the financial asset has increased significantly since initial recognition and incorporation of forward –looking information in the measurement of ECL. Refer to note 4 (b) (viii) Inputs, assumptions and techniques used for estimating impairment of financial assets for more information. (v) Useful lives of property and equipment The Group’s management determines the estimated useful life of property and equipment for calculating depreciation. This estimate is determined after considering the expected usage of the asset, physical wear and tear, technical or commercial obsolescence. During 2019, the Group conducted a useful economic life review of the buildings, which resulted in changes in the useful life of certain buildings. The useful life of these identified buildings increased from 20 years to 30 years. (vi) Useful life of intangible assets The Group’s management determines the estimated useful life of its intangible assets for calculating amortization. This estimate is determined after considering the expected economic benefits from the use of intangible assets. (vii) Fair value of land and buildings The fair value of land and building is determined by valuations from an external professional real estate valuer using recognised valuation techniques and the principles of IFRS 13 “Fair Value Measurement” (viii) Leases - Estimating the incremental borrowing rate The Group uses its incremental borrowing rate (IBR) to measure lease liabilities. The IBR is the rate of interest that the Group would have to pay to borrow over a similar term, and with a similar security, the funds necessary to obtain an asset of a similar value to the right-of-use asset in a similar economic environment. The IBR therefore reflects what the Group ‘would have to pay’, which requires estimation when no observable rates are available or when they need to be adjusted to reflect the terms and conditions of the lease. The Group estimates the IBR using observable inputs (such as market interest rates).
38. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 6- OPERATING SEGMENTS For management purposes, the Group is divided into four operating segments, which are based on business lines, together with its associates and joint arrangement companies, as follows: Commercial Bank: 1. Wholesale Banking provides an extensive range of conventional funded and non-funded credit facilities, demand and time deposit services, currency exchange facilities, interest rate swaps and other derivative trading services, loan syndication and structured financing services to corporate, commercial and multinational customers. Money market funds and proprietary investment portfolio are also managed by this operating segment. 2. Retail Banking provides personal current, savings, time and investment account services, credit card and debit card services, consumer and vehicle loans, residential mortgage services and custodial services to retail and individual customers. Subsidiaries: 3. Alternatif Bank: A subsidiary that provides banking services through its branch network in Turkey. Abank also has its subsidiaries. The Group reported Abank group result under this operating segment. a) Commercialbank Financial Services L.L.C. provides brokerage services in the State of Qatar. b) CBQ Finance Limited, a SPV used for debt issuance for the bank, Unallocated assets, liabilities and revenues are related to certain central functions and non-core business operations. (For example, Group headquarters, staff apartments, common property & equipment, cash functions and development projects and related payables, net of intra-group transactions). Associates and joint arrangement Companies – includes the Group’s strategic investments in the National Bank of Oman in the Sultanate of Oman, United Arab bank in the United Arab Emirates and Massoun Insurance Services L.L.C. which operate in the State of Qatar. All Associates and joint arrangement Companies are accounted for under the equity method. Management monitors the results of the operating segments separately to make decisions about resource allocation and performance assessment. Transfer prices between operating segments are on an arm’s length basis.
39. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 6- OPERATING SEGMENTS (CONTINUED) (a) By operating segment Segment assets and liabilities comprise operating assets and liabilities which are directly handled by the operating segment and income or expenses are attributed with the assets and liabilities’ ownership. The following table summarizes performance of the operating segments: Commercial Bank 2019 Wholesale Banking Net interest income Net fee, commission and other income Segmental revenue Net Impairment reversal on investment securities Net impairment loss on loans and advances to customers and other financial assets Impairment for investment in an associate Segmental profit Share of results of associates and a joint arrangement Net profit for the period 1,658,244 671,412 2,329,656 6,856 Subsidiaries Total Retail Banking Commercial Bank 982,968 2,641,212 556,855 1,228,267 1,539,823 3,869,479 6,856 Alternatif bank Others Unallocated 383,831 189,876 573,707 (59) 5,181 21,177 26,358 - (204,912) (240,822) (445,734) (214,829) 28 - - 2,588,971 100,126 13,197 58,349,751 18,125,456 11,534,241 41,446,278 1,389,525 76,475,207 42,835,803 Customer deposits 43,306,921 23,282,182 Liabilities (other than above) 41,202,171 868,859 Other information Loans and advances to customers Investments in associates and a joint arrangement Assets (other than above) Total (67,041) (55,858) (122,899) - 2,963,183 1,383,462 4,346,645 6,797 (660,535) (413,881) (674,454) (413,881) 2,027,840 (6,799) 2,021,041 - - 4,434,806 297,193 7,937,995 88,009,448 4,021,239 55,505,797 147,536,484 66,589,103 9,686,498 20,991 - 42,071,030 7,278,368 30,321 103,946 76,296,592 49,483,665 125,780,257 Contingent items 22,080,759 224,543 22,305,302 4,483,058 560,000 - 27,348,360 Intra-group transactions are eliminated from this segmental information (Assets: QAR 2,789 million, Liabilities: QAR 1,262 million). Commercial Bank 2018 (Restated) Subsidiaries Total Retail Banking Commercial Bank 1,307,822 845,913 2,153,735 299,102 575,600 874,702 Wholesale Banking Net interest income Net fee, commission and other income Segmental revenue Net Impairment reversal / (losses) on investment securities Net impairment loss on loans and advances to customers and other financial assets Alternatif bank Others Unallocated Total 390,494 89,729 5,135 27,405 (67,042) 34,399 2,482,322 1,026,235 1,606,924 (399) 1,421,513 - 3,028,437 (399) 480,223 - 32,540 - (32,643) - 3,508,557 (399) (374,247) (336,829) (711,076) (124,573) 540 - (835,109) 1,441,990 90,642 13,911 (54,101) 1,492,442 Segmental profit Share of results of associates and a joint arrangement 181,483 Net profit for the period 1,673,925 Other information Loans and advances to customers Investments in associates and a joint arrangement 53,187,845 - 19,455,991 - 72,643,836 11,949,749 - - Assets (other than above) 32,527,616 1,292,358 33,819,974 5,868,200 Customer deposits 40,858,866 21,644,591 62,503,457 9,270,185 Liabilities (other than above) 34,638,044 777,470 35,415,514 7,372,989 Contingent items 23,208,775 628,245 23,837,020 4,183,497 Intra-group transactions are eliminated from this segmental information (Assets: QAR 2,015 million, Liabilities: QAR 613 million). 273,094 38,069 560,001 48,879 - 84,642,464 4,512,940 5,811,077 12,141 45,772,345 134,927,749 71,785,783 458,935 43,285,507 - 115,071,290 28,580,518
40. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 6- OPERATING SEGMENTS (CONTINUED) (b) By geography Consolidated statement of financial position Qatar Other GCC countries Other Middle East Europe North America Rest of the world Total 2019 Cash and balances with central banks 4,431,379 - 1,643,665 - - - 6,075,044 Due from banks 4,275,094 675,608 4,089,664 1,364,764 838,935 1,152,368 12,396,433 Loans and advances to customers 73,308,248 - 139,692 88,009,448 Investment securities 19,951,886 612,636 4,060,018 231,367 594,220 1,394,099 26,844,226 7,924 4,013,315 - - - - 4,021,239 8,798,664 15,738 1,163,612 202,962 - 9,118 10,190,094 Investment in associates and a joint arrangement Property and equipment and all other assets Total assets Due to banks Customer deposits Other liabilities Equity Total liabilities and equity 13,491,026 596,344 110,773,195 5,791,435 24,447,985 2,395,437 6,865,322 1,895,718 2,396,674 10,799,162 54,401,976 2,225,789 9,516,489 1,588,987 1,733,336 7,791,254 Debt securities Other borrowings 474,138 - - 1,433,155 853,982 - 2,695,277 147,536,484 573,906 22,530,782 7,709,369 76,296,592 - 9,524,590 501,300 782,157 3,062,483 3,235,029 2,196,931 2,265,267 4,307,492 17,250 642,387 340,816 15,154 62,027 5,385,126 21,756,217 - - - 21,756,227 87,832,307 Qatar 10 4,920,914 Other GCC countries Consolidated statement of Income 17,351,379 Other Middle East 23,755,248 Europe 3,066,067 North America 10,610,569 Rest of the world 12,043,167 147,536,484 Total Year ended 31 December 2019 Net interest income Net fee, commission and other income 3,464,077 1,054,288 (44,592) 68,913 Net operating income 4,518,365 24,321 Staff cost Depreciation Amortization of intangible assets Impairment loss on investment securities (663,231) (125,482) (46,268) - Net impairment loss on loans and advances to customers Net impairment losses on other financial assets Impairment on Investment in an Associate Other expenses Profit before share of results of associates and a joint arrangement Share of results of associates and a joint arrangement 6,856 (377,030) 534,091 228,124 762,215 (133,112) (24,512) (8,755) (59) 28 (68,704) 2,963,183 1,383,462 (588,158) (47,543) (322,555) 4,346,645 (9) (796,352) (149,994) (55,023) - - - - 2,596 - - - (66,108) - - - (413,881) - - (217,425) (69,517) 3,087,607 (389,532) 311,431 2,571 (9,370) - Profit for the year before tax 3,090,178 (398,902) 311,431 Income tax expenses Net profit for the year 3,089,801 - (344,551) 21,996 - (413,881) - (398,902) (47,543) - - (156,899) (377) (598,299) 10,141 (22,796) 288,635 (588,158) (47,543) (588,158) (588,158) 6,797 (594,427) (228) (226,644) (322,792) 2,051,013 (47,543) (47,543) (322,792) (322,792) (6,799) 2,044,214 (23,173) 2,021,041
41. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 6- OPERATING SEGMENTS (CONTINUED) (b) By geography (continued) Consolidated statement of financial position Qatar Other GCC countries Other Middle East Europe North America Rest of the world Total 2018 (Restated) Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in associates and a joint arrangement 5,206,929 - 1,522,869 - - - 2,742,307 630,912 2,407,217 1,217,740 1,338,149 1,138,568 9,474,893 544,341 84,642,464 70,419,832 581,968 12,413,262 683,061 - 6,729,798 17,321,411 736,731 2,527,474 55,933 774,792 789,736 22,206,077 12,603 4,500,337 - - - - 4,512,940 Property and equipment and all other assets Total assets Due to banks Customer deposits 5,984,569 10,481 1,170,600 194,000 - 1,927 7,361,577 101,687,651 6,460,429 20,041,422 2,150,734 2,112,941 2,474,572 134,927,749 5,314,714 823,977 2,193,552 21,050 13,950,459 51,801,046 2,457,201 7,235,696 71,785,783 Debt securities Other borrowings Other liabilities Equity Total liabilities and equity 212,031 3,941,445 19,856,448 81,125,684 Qatar 503,399 3,784,577 Other GCC countries Consolidated statement of Income 5,597,166 - 9,089,715 1,185,586 16,539 2,567,407 13,504,339 - 1,447,427 3,832,769 1,107,196 1,276,912 698,379 216,985 13,473 13,286 4,883,568 11 15,996,491 24,336,845 1,137,208 8,546,944 19,856,459 134,927,749 Other Middle East Europe North America - Rest of the world 16,071,746 8,379,734 Total Year ended 31 December 2018 (Restated) Net interest income Net fee, commission and other income 2,797,758 939,302 44,576 (5,059) Net operating income Staff cost Depreciation Amortization of intangible assets 3,737,060 39,517 (532,741) (119,438) (47,339) - (399) - Impairment loss on investment securities Net impairment loss on loans and advances to customers Net impairment losses on other financial assets Other expenses Profit before share of results of associates and a joint arrangement (822,184) 541 387,357 93,789 481,146 (143,461) (9,789) (7,410) (105,521) (520,112) (18,679) (59,742) 9,174 (167,515) 7,708 2,482,322 1,026,235 (538,791) (50,568) (159,807) 3,508,557 (264) - (676,466) (129,227) (54,749) - - - - - (399) - - - (927,164) - - - 92,055 - (19,053) (215,477) - (97,265) (151) (312,893) 2,110,590 40,058 98,647 (538,791) (50,568) (160,222) 1,499,714 Profit for the year before tax 3,785 2,114,375 177,698 217,756 98,647 (538,791) (50,568) (160,222) 181,483 1,681,197 Income tax expenses Net profit for the year (189) 2,114,186 217,756 (7,083) 91,564 (538,791) (50,568) (160,222) (7,272) 1,673,925 Share of results of associates and a joint arrangement 111,108 - -
42. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s 7- FINANCIAL ASSETS AND LIABILITIES Accounting classifications and fair values The table below sets out the carrying amounts and fair values of the Group’s financial assets and financial liabilities: Fair value through other comprehensive income Fair value through Profit or loss Consolidated statement of financial position Debt instruments Equity instruments Equity instruments Debt instruments Amortised Cost Total carrying amount Fair value 2019 Cash and balances with central banks Due from banks Loans and advances to customers Investment securities 1,362,693 1,362,693 430,878 430,878 4,921,729 4,921,729 5,199 5,199 6,075,044 12,396,433 88,009,448 20,123,727 126,604,652 6,075,044 12,396,433 88,009,448 26,844,226 133,325,151 6,075,044 12,396,433 88,009,448 27,063,912 133,544,837 - - - - 22,530,782 76,296,592 9,524,590 12,043,167 22,530,782 76,296,592 9,524,590 12,043,167 22,530,782 76,296,592 9,736,064 12,043,167 - Due to banks Customer deposits Debt securities Other borrowings - - - - 120,395,131 Equity instruments Amortised Cost 120,395,131 120,606,605 - Fair value through other comprehensive income Fair value through Profit or loss Consolidated statement of financial position Debt instruments Equity instruments Debt instruments Total carrying amount Fair value 2018 Cash and balances with central banks Due from banks Loans and advances to customers Investment securities: 4,619 443,206 447,825 658,617 658,617 3,899,727 3,899,727 110,774 110,774 6,729,798 9,474,893 84,637,845 17,093,753 117,936,289 6,729,798 9,474,893 84,642,464 22,206,077 123,053,232 6,729,798 9,474,893 84,642,464 22,201,752 123,048,907 - - - - 13,950,459 71,785,783 16,071,746 8,379,734 13,950,459 71,785,783 16,071,746 8,379,734 13,950,459 71,785,783 16,079,143 8,379,734- Due to banks Customer deposits Debt securities Other borrowings - - - - 110,187,722 110,187,722 110,195,119 8- CASH AND BALANCES WITH CENTRAL BANKS Cash Cash reserve with central banks * Other balances with central banks Accrued interest 2019 2018 824,073 3,619,864 3,531,400 1,629,546 6,073,483 1,561 6,075,044 2,566,633 6,716,058 13,740 6,729,798 2019 2018 618,025 * The cash reserve with central banks is mandatory reserve not available for use in the Group's day to day operations. 9- DUE FROM BANKS Current accounts Placements Loans to banks Accrued interest Allowance for impairment of due from bank 2,009,118 6,540,135 3,879,297 12,428,550 1,794,590 5,182,478 2,505,336 9,482,404 8,435 (40,552) 12,396,433 6,187 (13,698) 9,474,893
43. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 10- LOANS AND ADVANCES TO CUSTOMERS (a) By type 2019 Loans Overdrafts Bills discounted Bankers acceptances 2018 79,403,992 9,734,710 303,614 1,480,885 90,923,201 (7,285) 90,915,916 779,204 (2,751,042) (934,630) 88,009,448 Deferred profit Accrued interest Allowance for impairment of loans and advances to customers* ECL on loans and advances to customers Net loans and advances to customers * 80,356,664 5,069,471 367,098 1,766,122 87,559,355 (11,099) 87,548,256 940,833 (2,844,016) (1,002,609) 84,642,464 *The aggregate amount of non-performing loans and advances to customers amounted QAR 4,487 million which represents 4.94% of total loans and advances to customers (2018: QAR 4,891 million 5.59% of total loans and advances to customers). **Allowance for impairment of loans and advances to customers includes QAR 711 million of interest in suspense (2018: QAR 563 million). (b) By sector 2019 Loans Government and related agencies 9,194,619 847,212 Non-banking financial institutions 8,168,393 10,488,416 -23,018,547 Industry Commercial Services Contracting 2,710,789 18,764,910 5,006,804 1,204,302 Real estate Personal Others 79,403,992 Accrued interest Less: Deferred profit Allowance for impairment of loans and advances to customers Overdrafts Bills discounted Bankers acceptances Total 5,845,271 29,475 8,015 256,924 1,257,758 666,143 237,111 1,407,199 26,814 12,618 5,510 52,223 108,689 124,574 - 4,049 10,423 973,560 231,998 260,232 623 15,043,939 889,305 8,192,341 11,771,123 24,616,992 3,761,738 19,002,021 6,414,003 1,231,739 9,734,710 303,614 1,480,885 90,923,201 779,204 (7,285) (2,751,042) ECL on loans and advances to customers (934,630) (2,913,753) Net loans and advances to customers 2018 88,009,448 Loans Overdrafts Bankers acceptances Government and related agencies 7,741,511 Non-banking financial institutions 1,575,772 Industry 7,408,275 10,405 6,083 11,614 7,916,044 24,312,889 288,218 72,704 732,073 238,557 150,710 451,151 Contracting 3,468,394 367,274 112,365 568,770 Real estate 21,784,703 5,191,694 162,561 1,476,295 Commercial Services Personal - 957,382 49,286 80,356,664 5,069,471 Others Accrued interest Less: Deferred profit Allowance for impairment of loans and advances to customers ECL on loans and advances to customers Net loans and advances to customers 2,476,875 Bills discounted - - 25,236 - 367,098 2,514 1,766,122 Total 10,218,386 1,601,008 7,436,377 9,009,039 25,153,307 4,516,803 21,947,264 6,667,989 1,009,182 87,559,355 940,833 (11,099) (2,844,016) (1,002,609) (2,916,891) 84,642,464
44. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 10- LOANS AND ADVANCES TO CUSTOMERS (CONTINUED) (c) Movement in allowance for impairment of loans and advances to customers 2019 Balance at 1 January 2018 3,846,625 4,274,363 - 1,315,988 Allowance made during the year 1,086,841 1,913,098 Recoveries / reversals during the year (159,670) (511,621) 927,171 1,401,477 (1,034,840) (2,883,572) Transition adjustment on adoption of IFRS 9 on 1 January 2018 Net allowance for impairment during the year * Written off / transferred during the year Exchange differences Balance at 31 December (53,284) (261,631) 3,685,672 3,846,625 *This includes net interest suspended during the year QAR 212.6 million (2018: QAR 474.3 million) as per QCB regulations. Net impairment losses on loans and advances to customers 2019 2018 Gross allowance made during the year 1,086,841 1,913,098 Less: Recoveries / reversals during the year (159,670) (511,621) 927,171 1,401,477 Less: Interest suspended during the year (212,595) (474,313) Less: Recoveries on previously written off loans (120,149) - 594,427 927,164
45. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 10- LOANS AND ADVANCES TO CUSTOMERS (CONTINUED) (c) Movement in allowance for impairment of loans and advances to customers Commercial Bank Stage 1 Wholesale Banking Stage 2 Retail Banking Wholesale Banking Subsidiaries Stage 3 Retail Banking Wholesale Banking Stage 1 Retail Banking Total Commercial Bank Stage 3 Stage 1 Alternatif bank 30,393 - 43,181 - 680,475 - 11,938 - 1,449,129 - 1,009,833 - 481 (481) (41,060) 41,060 (59,756) 59,756 Allowance made during the year 14,149 - (1,762) - 87,048 - (9,176) - - - - 250,230 (4,242) - 446,077 (72,550) - 786,566 (76,792) - 54,931 (64,568) - 100,991 (218,257) - 144,353 199,975 - 300,275 (82,850) - 45,023 40,938 (10,084) - (303,257) 1,332,104 (227,189) 1,215,927 (540,530) 3,394,193 8,832 (23,997) (30,081) 112,466 (494,310) (32,035) 191,211 (494,310) (53,284) 279,680 Written off / transferred during the year Exchange differences Balance at 31 December 2019 43,822 716,379 - (23,192) - 259,813 - 373,228 - Wholesale Banking Balance at 1 January 2018 Transition adjustment on adoption of IFRS 9 on 1 January 2018 - Stage 2 Retail Banking - Wholesale Banking - - Wholesale Banking 2,879,220 Retail Banking 869,910 537 820 890,711 42,105 42,361 (210,236) (30,167) Recoveries/reversal during the year - - - - (214,259) (80,382) Written off / transferred during the year - - - - (2,417,706) (337,145) 30,393 43,181 11,938 1,449,129 1,009,833 Exchange differences Balance at 31 December 2018 680,475 - Stage 1 29,856 Allowance made during the year - Total - - 11,827 - 3,846,625 - - (28) 11,799 1,086,841 (159,670) (1,034,840) (53,284) - - 3,685,672 Subsidiaries Stage 3 Retail Banking Stage 3 Others 609,849 - - Commercial Bank Stage 1 Stage 2 Total Alternatif Bank Balance at 1 January 2019 Adjustment due to reclassification between segments Recoveries/reversal during the year 3,224,949 - Stage 2 1,201,874 557,450 Total Commercial Bank 3,749,130 934,173 1,591,138 (294,641) (2,754,851) 3,224,949 Stage 2 Stage 3 Alternatif bank - - 512,865 - Stage 1 Total Alternatif Bank 512,865 - Stage 3 Others Total - - 12,368 4,274,363 381,815 321,960 - - - - - - - - - (541) - 1,315,988 1,913,098 (511,621) (2,883,572) (261,631) 11,827 3,846,625 (41,914) 423,729 122,381 23,900 (103,358) (75,250) (37,831) (301) 6,919 (135,339) (216,439) (128,721) - (23,192) (119,485) 259,813 (142,146) 373,228 (261,631) 609,849 175,679 Stage 2 -
46. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 11- INVESTMENT SECURITIES 4,899,768 1,786,054 20,012,686 2018 (Restated) 3,992,624 1,099,791 17,015,392 26,698,508 22,107,807 145,718 26,844,226 98,270 22,206,077 2019 Fair value through other comprehensive income (FVOCI) Fair value through profit & loss (FVTPL) Amortised cost (AC) Accrued interest *The carrying value of investment securities pledged under repurchase agreements (REPO) is QAR 10,610 million (2018: QAR 7,656 million). (a) Fair value through other comprehensive income: Quoted Equities State of Qatar debt securities Debt and other securities* Total 3,624,920 1,215,752 4,840,672 Quoted Equities State of Qatar debt securities Debt and other securities* Total 2,568,724 1,270,436 3,839,160 2019 Unquoted Total 5,198 53,898 59,096 2018 Unquoted 5,198 3,624,920 1,269,650 4,899,768 110,774 42,690 153,464 110,774 2,568,724 1,313,126 3,992,624 Total * Fixed rate securities and floating rate securities amounted to QAR 1,201 million and QAR 69 million respectively (2018: QAR 1,311 million and QAR 2 million respectively). (b) Fair value through profit & loss: Quoted Equities State of Qatar debt securities Debt and other securities Investment funds Total 390,718 111,000 1,207,774 7,439 1,716,931 Quoted Equities State of Qatar debt securities Debt and other securities Investment funds Total 2019 Unquoted 8,321 36,400 24,402 69,123 2018 Unquoted 569,696 61,000 343,774 26,068 1,000,538 26,752 36,400 36,101 99,253 Quoted 15,533,030 4,197,774 19,730,804 Unquoted 281,882 281,882 Quoted Unquoted Total 399,039 111,000 1,244,174 31,841 1,786,054 Total 596,448 61,000 380,174 62,169 1,099,791 (c)Amortised Cost: 2019 By Issuer State of Qatar debt securities Debt and other securities Total 2019 By Interest Rate Fixed Rate Securities Floating Rate Securities Total Total 15,533,030 4,479,656 20,012,686 19,577,298 153,506 19,730,804 281,882 281,882 Total 19,859,180 153,506 20,012,686
47. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 11- INVESTMENT SECURITIES (Continued) (c)Amortised Cost (continued) By Issuer 2018 Quoted State of Qatar debt securities 12,482,962 Debt and other securities* Unquoted 1,605,250 2,927,180 Total 15,410,142 By Interest Rate 1,605,250 Total 14,088,212 2,927,180 17,015,392 2018 Quoted Fixed Rate Securities Floating Rate Securities Total Unquoted Total 16,884,538 - 130,854 - 16,884,538 130,854 17,015,392 - 17,015,392 Investment in securities include an amount of Nil (2018: QAR 1.92 billion) in a subsidiary which were re-classified and designated as amortized cost from FVOCI. The associated FVR within the statement of OCI increased by Nil (2018: QAR 202 million) with a corresponding increase in the carrying value of the investment.The profit and loss impact impact was not material. 12- INVESTMENT IN ASSOCIATES AND A JOINT ARRANGEMENT The Group’s investment in associates and a joint arrangement are as follows: 2019 Balance at 1 January Share of results -(note 22) Cash dividend - (note 22) Other movements Reclassified from asset held for sale - (note 13)* Impairment of investment in an associate Balance at 31 December 2018 (Restated) 4,512,940 (6,799) (93,072) 22,051 2,088,158 181,483 (76,627) (239,665) (413,881) 4,021,239 2,559,591 4,512,940 * Reclassified assets held for sale includes rights issue by UAB in 2018, amounting to QAR 272 million. Name of the Entity National Bank of Oman SAOG (‘NBO’) United Arab Bank PJSC (‘UAB’)* Carrying Value and % of interest held 2018 2019 (Restated) % % Price per share (QAR) Classification Country Activities Associate Oman Banking 2,163,815 34.9% 2,083,707 34.9% 1.74 Associate UAE Banking 1,849,500 40.0% 2,416,630 40.0% 0.99 Qatar Insurance brokerage 7,924 50.0% 12,603 50.0% Not listed Massoun Insurance Services L.L.C Joint venture 4,021,239 4,512,940 ** Refer to note 13 The summarised financial position and results of NBO and UAB as at the end of reporting period is as follows: 2019 2018 (Restated) Total assets 53,395,161 54,093,441 Total liabilities 46,000,933 46,515,921 1,752,987 1,861,059 38,419 554,895 129,713 450,597 (9,370) 177,698 Operating income Net profit Total comprehensive income Share of results 13- ASSET HELD FOR SALE The Group had previously classified its investment in UAB as an asset held for sale as they were under advanced stages of discussion with a third party which was not realized. The management has hence reclassified the investment to an Investment in an Associate in fourth quater of 2019, effective from 1 January 2019 with prior year balances restated in line with IFRS.
48. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 14- PROPERTY AND EQUIPMENT Land and buildings Right of use assets Leasehold improvements Furniture and equipment Motor vehicles Capital work in progress Total Cost Balance at 1 January 2018 Additions / transfers Revaluation on land & buildings Disposals Exchange differences Balance at 31 December 2018 Balance at 1 January 2019 Adjustment on transition to IFRS 16 Additions / transfers Revaluation on land & buildings Disposals Exchange differences Balance at 31 December 2019 1,998,459 177,909 - 135,713 6,067 1,184,804 79,056 4,825 456 21,592 - - - (414) - (11,000) (12,014) (905) (21,264) - (11,820) (20,282) (217) - 417,663 8,641 - 2,176,282 2,176,282 - 142,020 118,960 118,960 - 1,231,564 1,231,564 - 4,159 4,159 - 426,304 426,304 - 6,543 (6) (18,334) 28,981 (4,282) (1,178) 7,724 (5,729) (3,095) 58,274 (5,898) (6,192) 3,891 (38) (231) 66,747 -- 2,164,485 165,541 117,860 1,277,748 7,781 493,051 113,324 4,424 985,508 84,534 3,294 640 - - - -- 3,741,464 272,129 21,592 (24,333) (53,583) 3,957,269 3,957,269 142,020 172,160 -(15,953) (29,030) 4,226,466 Accumulated depreciation 48,351 39,629 - Revaluation on land & buildings - - - - Disposals Exchange differences - - (7,652) (11,687) (901) - - (6,711) (14,018) (168) Balance at 1 January 2018 Depreciation for the year Balance at 31 December 2018 Balance at 1 January 2019 Depreciation for the year Revaluation on land & buildings Disposals Exchange differences Balance at 31 December 2019 Net carrying amounts Balance at 31 December 2018 Balance at 31 December 2019 Right of use asset pertains to the following: Land and buildings Vehicles (211) 87,769 87,769 32,057 (1) (311) 34,220 (692) (603) 103,385 103,385 3,921 (3,444) (1,660) 1,044,337 1,044,337 79,023 (5,296) (3,512) 2,865 2,865 773 (31) (46) - 119,514 32,925 102,202 1,114,552 3,561 - 2,088,513 2,044,971 132,616 15,575 15,658 187,227 163,196 1,294 4,220 426,304 493,051 1,150,477 129,227 -(20,240) (21,108) 1,238,356 1,238,356 149,994 -(9,464) (6,132) 1,372,754 2,718,913 2,853,712 2019 131,592 1,024
49. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 15- INTANGIBLE ASSETS Goodwill Brand Customer Core deposit Internally relationship developed software Total Cost 73,878 28,300 Acquisitions - 5,001 - - - 9,301 - Disposals - - - - (188) Exchange differences (70,971) (23,463) (15,718) (6,165) (7,418) -(188) (123,735) Balance at 31 December 2018 180,249 69,401 270,761 67,713 29,995 618,119 Balance at 1 January 2019 180,249 -- 69,401 -- 270,761 -- 67,713 -- 29,995 -- 618,119 -- --- 10,716 -- 14,180 -- Balance at 1 January 2018 Additions / transfers Additions / transfers Acquisitions Disposals 251,220 --- 87,863 3,464 -- 286,479 --- 727,740 14,302 - Exchange differences (20,593) (6,976) 15,488 2,758 (2,431) (11,754) Balance at 31 December 2019 159,656 65,889 286,249 70,471 38,280 620,545 297,562 54,749 - Amortisation and Impairment Balance at 1 January 2018 49,800 46,940 147,576 33,292 19,954 Amortisation during the year - 3,449 36,894 8,323 6,083 Acquisitions - - - - - Impairment during the year - (12,360) - (4,881) 49,800 49,800 - 38,029 38,029 - 184,470 184,470 - 41,615 41,615 - 21,156 Impairment during the year Exchange differences Balance at 31 December 2019 ---49,800 3,414 --(2,955) 38,488 36,892 --221,362 8,323 --49,938 21,156 6,394 --(2,970) 24,580 Net carrying amounts Balance at 31 December 2018 Balance at 31 December 2019 130,449 109,856 31,372 27,401 86,291 64,887 26,098 20,533 8,839 13,700 Exchange differences Balance at 31 December 2018 Balance at 1 January 2019 Amortisation during the year Acquisitions - --(17,241) 335,070 335,070 55,023 --(5,925) 384,168 283,049 236,377 Impairment testing for CGU containing goodwill For the purpose of impairment testing, goodwill is allocated to the Group’s CGU-Alternatifbank. A cost of equity of 24.7% and a terminal growth rate of 2.5 % were used to estimate the recoverable amount of Alternatifbank. The recoverable amount for the CGU has been calculated based on the ‘Value in Use Method’, determined by discounting the future cash flows expected to be generated from the continuing use of the CGU. The discount rate was a pre-tax measure based on the Government Bonds 10 year yield TL, adjusted for an equity market risk premium and equity beta. Five years of cash flows are included in the discounted cash model. A long term growth rate into perpetuity has been determined as the lower of the nominal GDP rates for the country in which CGU operate and the long term compound annual profit before taxes, depreciation and amortization growth rate estimated by the management. The key assumptions described above may change as economic and market conditions change. No impairment loss is recognized in 2019 nil (2018: nil) as the recoverable amount of this CGU was determined to be higher than its carrying amount. 16- OTHER ASSETS 2019 Accrued income Prepaid expenses Accounts receivable Repossessed collateral* Positive fair value of derivatives (note 37) Clearing cheques Others 2018 69,973 56,441 615,812 68,481 60,366 392,869 4,531,182 764,320 240,094 822,183 7,100,005 2,605,213 371,716 218,861 642,109 4,359,615 This represents the value of the properties acquired in settlement of debts and subsequent additions, which have been stated at their carrying value net of any allowance for impairment and credit enhancement. The estimated market values of these properties at the end of the reporting period are not materially different from the carrying values.
50. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 17- DUE TO BANKS 2019 1,193,687 844,499 11,107,326 9,223,815 161,455 22,530,782 Balances due to central banks Current accounts Placement with banks Repurchase agreements with banks Accrued interest Total 2018 561,311 323,873 6,773,721 6,161,638 129,916 13,950,459 18- CUSTOMER DEPOSITS 2019 Current and call deposits Saving deposits Time deposits Accrued interest Total 16,310,290 4,389,075 50,622,085 75,840,625 71,321,450 455,967 76,296,592 464,333 71,785,783 2019 Government Government and semi government agencies Individuals Corporate Non-banking financial institutions Accrued interest 2018 18,712,151 4,746,766 52,381,708 2018 6,788,520 12,286,077 24,049,009 28,516,188 4,200,831 75,840,625 455,967 10,610,571 8,641,978 22,064,871 26,865,471 3,138,559 71,321,450 464,333 76,296,592 71,785,783 2019 7,038,935 466,805 1,261,225 727,556 30,069 9,524,590 2018 7,809,032 2,888,175 3,441,222 1,860,110 73,207 16,071,746 19- DEBT SECURITIES EMTN unsecured Programme – Senior unsecured notes * Senior Notes* Subordinated Notes * Others# Accrued interest Total * The following table provides the breakdown of the Debt Securities as at close of 31 December 2019. Instrument EMTN - Senior notes Subordinated Notes Senior Notes Issuer CBQ Finance Ltd CBQ Finance Ltd CBQ Finance Ltd CBQ Finance Ltd CBQ Finance Ltd CBQ Finance Ltd CBQ Finance Ltd CBQ Finance Ltd Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Alternatifbank Issued amount USD 750 million * USD 500 million * CHF 335 million * CHF 150 million * CHF 100 million * USD 36 million * USD 25 million * USD 24.9 million * USD 297 million USD 50 million TL 50 million TL 30 million TL 87 million TL 9 million TL 113 million TL 59 million TL 26 million TL 51 million TL 40 million TL 35 million TL 43 million TL 8 million TL 93 million TL 115 million TL 13 million TL 8 million * Issued for and Guaranteed by the Bank # Others include Commercial Papers and certificate of deposits issued by the bank. Issued on Jun-16 May-18 Mar-18 Oct-19 Oct-18 Feb-19 Sep-19 Nov-19 Apr-16 Jun-15 Aug-19 Nov-19 Nov-19 Nov-19 Nov-19 Nov-19 Nov-19 Nov-19 Nov-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Dec-19 Maturity Jun-21 May-23 Mar-21 Oct-23 Oct-22 Feb-24 Sep-22 Nov-21 Apr-26 Jun-25 Aug-21 Jan-20 Feb-20 Jan-20 Jan-20 Jan-20 Jan-20 Feb-20 Feb-20 Feb-20 Feb-20 Mar-20 Mar-20 Mar-20 Mar-20 Mar-20 Coupon Fixed Rate 3.25% Fixed Rate 5.00% Fixed Rate 0.697% Fixed Rate 0.38% Fixed Rate 1.115% LIBOR + 1.95% LIBOR + 1.15% LIBOR + 1% Fixed Rate 8.75% LIBOR +6.00% Fixed Rate 14.29% Fixed Rate 13.13% Fixed Rate 12.50% Fixed Rate 12.61% Fixed Rate 12.94% Fixed Rate 12.50% Fixed Rate 12.23% Fixed Rate 12.28% Fixed Rate 11.60% Fixed Rate 11.62% Fixed Rate 11.71% Fixed Rate 10.58% Fixed Rate 10.86% Fixed Rate 10.72% Fixed Rate 10.44% Fixed Rate 10.25%
51. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 19- DEBT SECURITIES (CONTINUED) Movement in debt securities are analysed as follows: 2019 Balance at 1 January Additions Repayments Amortisation of discount and transaction cost Accrued interest Exchange difference Balance at 31 December 16,071,746 3,486,978 (9,932,780) 23,826 (43,138) (82,042) 9,524,590 2018 11,604,890 9,508,091 (5,055,194) 29,119 73,207 (88,367) 16,071,746 The table below shows the maturity profile of debt securities: Up to 1 year Between 1 and 3 years Over 3 years Total 2019 2018 1,193,838 4,568,449 3,762,303 9,524,590 7,958,305 4,679,586 3,433,855 16,071,746 2019 2018 20- OTHER BORROWINGS Bilateral loans Syndicated loans Others Accrued interest Total 180,559 4,616,940 7,144,995 100,673 12,043,167 4,848,032 3,453,796 77,906 8,379,734 Movement in other borrowings are as follows: 2019 Balance at 1 January Additions Repayments Fair value adjustment on consolidation of Abank Amortisation of discount and transaction cost Accrued interest Exchange difference Balance at 31 December 8,379,734 7,793,321 (3,735,723) 12,077 22,767 (429,009) 12,043,167 2018 9,303,365 6,583,404 (6,634,330) (37,291) 13,724 77,906 (927,044) 8,379,734 The table below shows the maturity profile of other borrowings: 2019 Up to 1 year Between 1 and 3 years Over 3 years Total 7,102,050 4,134,116 807,001 12,043,167 2018 3,526,421 4,096,190 757,123 8,379,734
52. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 21- OTHER LIABILITIES 2019 148,459 194,270 526,643 231,416 663,044 650,715 18,500 50,526 23,373 46,841 12,609 1,480,885 649 133,333 117,462 25,596 965,052 95,753 5,385,126 Accrued expense payable Other provisions (Note i) Negative fair value of derivatives (Note 37) Unearned income Cash margins Accounts payable Directors’ remuneration and meeting attendance fee Provision for sports and social activities support fund (“Daam”) (note 24) Dividend payable Managers' cheque and payment order Unclaimed balances Due for trade acceptances Deferred tax liabilities Lease liabilities (Note ii) Employees' benefit liability (Note32 and Note iii) Income tax payable Others Net impairment losses on loan commitments and financial guarantees Total (i) Other provisions QAR ‘000s 2018 127,238 215,723 353,499 228,529 652,083 443,407 18,500 41,580 19,640 28,164 11,010 1,766,122 12,123 26,634 835,344 103,972 4,883,568 Pension fund Total Total (b) 2019 2018 213,005 2,701 215,706 225,099 Balance at 1 January 13,327 9,156 22,483 19,368 Provision made during the year (note 32) 5,530 5,968 Earnings of the fund 5,530 5,627 4,801 10,428 12,802 Provident fund – staff contribution (16,247) (16,247) (15,460) Transferred to state retirement fund authority (43,117) (10) (43,127) (29,838) Payment during the year (503) (503) (2,216) Exchange difference Balance at 31 December 193,869 401 194,270 215,723 (a) The provident fund includes the Group's obligations for end of service benefits to expatriate staff per Qatar labour law and the employment contracts Provident fund (a) (b) Pension fund contributions in respect of the national staff are paid to the State administered retirement fund at the end of each month. The Group has no further payment obligations once the contributions have been paid. The contributions are recognized when they are due. (ii) Lease liabilities The table below shows the maturity profile of lease liabilities: 2019 2018 26,534 Up to 1 year 106,799 Above 1 year Total 133,333 (iii) Employees' benefit liability The Bank has granted performance rights to employees including senior management. Performance rights represent a contingent right to receive a cash payment by referencing to the value of Bank shares during a specified period of time. These performance rights do not provide any entitlement to receive Bank shares, voting rights or dividends associated with them. The fair value at the grant date was estimated using the Black Scholes model, considering the terms and conditions upon which the performance rights were granted. Performance rights will be settled in cash. The following tables list the inputs to the model used for plan for the year ended 31 Dec 2019: Max Min Expected volatility (%) 30.88% 26.78% Dividend yield (%) 9.92% 3.28% Risk - free int. rate (%) 3.05% 2.43% Number of performance rights 180.7 million Vesting period 3 years Share price (QAR) 4.7 3.56 Average strike price (QAR) 22- EQUITY (a) Share capital The issued, subscribed and paid up share capital of the Bank is QAR 4,047,253,750 (2018: QAR 4,047,253,750) divided into 4,047,253,750 (2018: 404,725,375) ordinary shares of QAR 1 each (2018: QAR 10 each). 2019 2018 4,047,253,750 404,725,375 Authorised number of ordinary shares Nominal value of ordinary shares (QAR) 1 10 4,047,254 4,047,254 Issued and paid up capital (in thousands of Qatar Riyals) On 20 March 2019, the Extraordinary General Meeting of the Bank, shareholders approved the par value of the ordinary share to be QAR 1 instead of QAR 10, as per the instructions of Qatar Financial Markets Authority, and amendment of the related Articles of Association. The share split was implemented on 09 June 2019 and the total number of shares were increased from 404,725,375 to 4,047,253,750 ordinary shares. Consequently, Earnings per share for comparative periods has been restated to reflect this. At 31 December 2019, the authorised share capital comprised 4,047,254 thousand ordinary share (2018: 404,725 thousand). The holders of ordinary shares are entitled to receive dividends as declared from time to time and are entitled to one vote per share at shareholders’ Annual/Extraordinary General meeting of the Bank.
53. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 22- EQUITY (CONTINUED) (b) Legal reserve The legal reserve of Commercial Bank and Alternatifbank are QAR 9,740 million (2018: QAR 9,652 million) and QAR 96 million (2018: QAR 89 million) respectively. In accordance with Qatar Central Bank Law No 13 of 2012, 10% of the net profit of the Group for the year is required to be transferred to legal reserve. Share premium collected from the issuance of new shares and sale of treasury shares is also transferred to legal reserve. Transfer to legal reserve from net profit is mandatory until the legal reserve equals 100% of the paid up capital. This reserve is not available for distribution except in circumstances specified in Qatar Commercial Companies Law No 11 of 2015 and is subject to pre-approval from QCB. In accordance with the Turkish Commercial code, an entity is required to transfer 5% of net profit until the legal reserve is equal to 20% of issued and fully paid up share capital. Rate for transfer to legal reserve goes up to 10% of net profit allocated for distribution excluding the first 5% of the allocated profit. Share premium and proceeds from cancelled shares, if any net of related expenses are also transferred to legal reserve. (c) General reserve As per the Bank’s Articles of Association, the general reserve may only be used in accordance with a resolution from the General Assembly upon the Board of Directors recommendation and after obtaining Qatar Central Bank approval. (d) Risk reserve In accordance with QCB regulations, a risk reserve should be maintained created to cover contingencies on both the public and private sector financing assets, with a minimum requirement of 2.50% of the total loans and advances of the Group inside and outside Qatar after the exclusion of the credit impairment losses and interest in suspense. The finance provided to/or secured by the Ministry of Finance or finance against cash guarantees is excluded from the gross direct finance. On 1st January 2018, after QCB approval QAR 1,529 millions was appropriated from risk reserve for transition adjustment on adoption of IFRS 9. During the year QAR 535 million (2018: QAR 525 million) was transferred to the risk reserve account as per QCB approval. (e) Fair value reserve The fair value reserve arises from the revaluation of the investment securities through FVOCI, cash flow hedges and change of post acquisition fair value reserve of its associates and a joint arrangement. Fair value reserve Balance as at 1 January 2018 (Restated) 2019 (96,333) (44,500) Changes due to adoption of IFRS 9: Transfer to Amortised cost Transfer from retained earnings Restated balance at beginning of the year - 32,980 (96,333) (51,510) (63,030) - on equity securities (34,072) (19,484) - on debt securities 663,769 Impact of revaluation (IFRS 9) : Net amount Transferred to Income statement Net movement in effective portion of Cash Flow hedges Net change in fair value of investment in associates FVOCI instrument loss transferred to Retained earnings Net movement during the year Balance as at 31 December (9,091) 2,355 (10,228) 9,053 24,436 22,051 (30,382) 44,717 - 696,427 600,094 (33,303) (96,333) (f) Treasury shares Treasury shares represents ordinary shares of The Commercial Bank (P.S.Q.C) with nominal value of QAR 1 each. These shares are carried at cost of QAR 2.747 each. Treasury shares are presented as a deduction from equity. (g) Foreign currency translation reserve The translation reserve comprises all foreign exchange differences arising from the translation of the financial statements of foreign operations.
54. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 22- EQUITY (CONTINUED) (h) Other reserves This includes the Group’s share of profit from investment in associates and a joint arrangement and non-distributable profit of subsidiaries, net of cash dividend received, as required by QCB regulations as follows: 2019 Balance as at 1 January 959,764 Transition adjustments on adoption of IFRS 9 on 1 January 2018 Share of result of associates and a joint arrangement (note 12) Dividend from associates and a joint arrangement (note 12) - 2018 (Restated) 1,064,189 (209,281) (6,799) (93,072) 181,483 (76,627) Net movement (99,871) 104,856 Balance as at 31 December 859,893 959,764 (i) Proposed dividend The Board of Directors has proposed a cash dividend of 20% for the year 2019 (2018: 15% cash dividend). This proposal is subject to approval at the Annual General Assembly. (j) Dividends A cash dividend of 15% for the year 2018 (2017: 10% cash dividend), was approved at the Annual General Assembly held on 20 March 2019 and distributed to shareholders. (k) Revaluation reserve This represents the surplus on revaluation of land and buildings that are used in Group’s operations and is not avaliable for distribution until the related assets have been disposed off or used. (l) Instruments eligible for additional capital In December 2013; the Bank raised regulatory tier 1 capital of QAR 2 billion by issuing unsecured perpetual non-cumulative unlisted Tier 1 notes. The coupon payments are discretionary and non-cumulative. On the first call date of 30 December 2019, the interest rates on the notes have been agreed at 5.15% (previous rate 6%) and thereafter to be reset at a prevailing sixth year mid-swap rate plus margin every sixth year which will be at 30 December 2025. In February 2016, the Bank raised additional regulatory tier 1 capital of QAR 2 billion by issuing unsecured perpetual non-cumulative unlisted Tier 1 notes. The coupon payments are discretionary and non-cumulative and priced at a fixed rate of 6% per annum, payable annually until the first call date and thereafter to be reset at a prevailing sixth year mid-swap rate plus margin every sixth year. As per amendments required by Qatar Central Bank the first call date was amended from 27 February 2022 to 31 December 2021. The Notes are ranked junior to the Bank’s existing unsubordinated obligations including existing subordinated debt and depositors, pari passu to all current and future subordinated obligations and senior to the ordinary shares issued by the Bank. The Notes have no fixed redemption date and the Bank can only redeem the Notes in the limited circumstance as mentioned in the term sheet i.e. regulatory / tax redemption and other general redemption conditions solely at the Bank’s discretion. The Bank might be required to write-off the proposed Capital issue, if a “loss absorption” event is triggered and the Bank has non-discretionary obligation to deliver cash or financial assets. These notes have been classified under equity. 23- OTHER COMPREHENSIVE INCOME 2019 Changes in fair value of investments in debt securities designated at FVOCI (IFRS 9): Positive change in fair value Negative change in fair value Net change in fair value Net amount transferred to profit or loss* Foreign currency translation differences for foreign operation Share of other comprehensive income of associates and a joint arrangement Net changes in FV of Cash Flow hedges Net changes in fair value of equity investments designated at FVOCI (IFRS 9): Net changes in FV of equity investments – FVOCI Share of other comprehensive income of associates and a joint arrangement Revaluation Reserve Total other comprehensive income 2018 (Restated) 666,739 (2,970) 663,769 (9,091) (129,811) 28,059 9,053 68,543 (66,415) 2,128 (10,001) (432,940) (24,959) 24,436 561,979 (34,072) (6,008) 521,899 (441,336) (19,484) (5,423) 19,126 (447,117) *Net amount transferred to profit or loss includes a positive change in fair value of QAR 9.7 million (2018: QAR 10.4 million) and a negative change in fair value of QAR 0.6 million (2018: QAR 0.4 million).
55. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 24- CONTRIBUTION TO PROVISION FOR SPORTS AND SOCIAL ACTIVITIES SUPPORT FUND (“DAAM”) Pursuant to Law No. 13 of 2008, the Bank made an appropriation of QAR 50.5 million (2018: QAR 41.6 million) from retained earnings for its contribution to the Social and Sports Activities Support Fund (“Daam”) of Qatar. This amount represents 2.5% of the net profit of the Group for the year ended 31 December 2019. 25- INTEREST INCOME 2019 2018 Loans and advances to customers 5,220,424 4,811,277 Debt securities 1,148,964 895,035 375,151 321,830 Amounts deposited with banks Amounts deposited with central banks 50,871 49,180 6,795,410 6,077,322 The amounts reported above include interest income, calculated using the effective interest method, that relate to, at amortized cost QAR 6,459 million (2018 : QAR 5,763 million) and at fair value QAR 336 million (2018: QAR 314 million). 26- INTEREST EXPENSE 2019 Customer deposits 2018 2,348,258 2,291,014 Debt securities 644,014 591,718 Other borrowings 393,231 364,976 Interest expense on lease liabilities Amount deposited by central banks and other banks 11,149 435,575 347,292 3,832,227 3,595,000 The amounts reported above include interest expense, calculated using the effective interest method, on financial liabilities at amortised cost. 27- FEE AND COMMISSION INCOME 2019 366,114 458,963 168,011 251,633 44,499 2018 327,352 438,709 180,091 137,962 33,851 1,289,220 1,117,965 2019 288,162 2018 269,986 Brokerage services 11,391 23,805 Others 74,821 66,936 374,374 360,727 Loans and advances Credit and debit card fees Indirect credit facilities Banking and other operations Investment activities for customers 28- FEE AND COMMISSION EXPENSE Credit and debit card fees 29- NET FOREIGN EXCHANGE GAIN 2019 Dealing in foreign currencies & revaluation of spot assets 281,045 2018 202,247 30- INCOME FROM INVESTMENT SECURITIES Net gain on disposal of investment securities measured at fair value Net Change in Fair-value of Investment securities Dividend income 2019 25,237 39,405 4,351 68,993 2018 10,267 (34,398) 5,305 (18,826)
56. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 31- OTHER INCOME 2019 Rental and other income 2018 118,578 85,576 32- STAFF COSTS 2019 Salary and benefits (Note) 2018 754,687 637,954 Health care and medical insurance expenses 17,028 16,997 Staff end of services and pension fund contribution (note 21 (i)) 22,483 19,368 Training and education 2,154 2,147 796,352 676,466 2019 26,842 2018 38,021 Professional fees 16,325 25,671 Communication, utilities and insurance 46,914 50,232 Board of Directors’ remuneration 18,500 18,500 Occupancy, IT consumables and maintenance 41,486 68,328 Travel and related costs 1,684 1,800 Printing and stationery 4,376 6,498 38,158 46,361 Note: Salary and benefits include performance rights charge of QAR 117.5 million. 33- OTHER EXPENSES Marketing and advertisement Outsourcing service costs Others 32,359 57,482 226,644 312,893 34- EARNINGS PER SHARE Earnings per share of the Bank is calculated by dividing profit for the year attributable to the equity holders of the Bank by the weighted average number of ordinary shares in issue during the year: 2019 2018 (Restated) Basic and diluted Profit for the year attributable to the equity holders of the Bank 2,021,040 Less: Dividend on Instrument eligible for additonal capital (240,000) (240,000) Profit for EPS calculation 1,781,040 1,433,924 Weighted average number of outstanding shares in thousands (Note 22 (a)) 4,047,254 4,047,254 0.44 0.35 Basic and diluted earnings per share (QAR) 1,673,924 35- CONTINGENT LIABILITIES AND CAPTIAL COMMITMENTS 2019 2018 (a) Contingent liabilities Unutilized credit facilities Guarantees Letters of credit Total 4,287,871 4,373,836 21,353,539 22,057,901 1,706,950 2,148,781 27,348,360 28,580,518 421,352 157,569 (b) Capital commitments Total Unused facilities Commitments to extend credit represent contractual commitments to make loans and revolving credits. The total contractual amounts do not necessarily represent future cash requirements, since commitments may expire without being drawn upon. Guarantees and letters of credit Guarantees and letters of credit make the group liable to make payments on behalf of customers in the event of a specific event. Guarantees and standby letters of credit carry the same credit risk as loans.
57. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 36- CASH AND CASH EQUIVALENTS Cash and balances with central banks * Due from banks up to 90 days 2019 2018 2,453,619 3,184,658 7,602,352 10,055,971 6,799,888 9,984,546 *Cash and balances with central banks exclude the mandatory cash reserve. 37- DERIVATIVES Positive fair value Negative fair value Notional amount within 3 months Interest rate swaps 439,654 333,780 12,540,390 30,599 1,936,671 4,004,935 6,568,185 Forward foreign exchange contracts & others Derivatives held for fair value hedges: 237,389 113,847 47,722,621 14,873,925 3,979,028 19,924,049 8,945,619 86,578 8,086 3,713,772 - 1,092,122 2,621,650 - 62,289 4,426,448 3-12 months 1-5 years More than 5 years At 31 December 2019: Derivatives held for trading: Interest rate swaps - Derivatives held for cash flow hedges: Forward foreign exchange contracts & others Interest rate swaps 699 8,641 526,184 764,320 526,643 68,929,415 Interest rate swaps 210,529 119,502 6,905,474 Forward foreign exchange contracts & others Derivatives held for fair value hedges: 147,758 158,232 42,587,267 13,309 625 3,857,446 120 72,371 1,395,891 Total - - 4,426,448 - 367,105 159,079 6,282,804 29,606,633 18,135,454 66,489 271,270 3,647,959 2,919,756 26,254,574 7,742,516 8,476,634 113,543 168,379 1,239,795 2,449,272 92,094 1,303,797 14,904,524 - At 31 December 2018: Derivatives held for trading: Interest rate swaps - Derivatives held for cash flow hedges: Forward foreign exchange contracts & others Interest rate swaps Total 371,716 2,769 413,065 353,499 55,159,143 26,321,063 8,274,259 - 413,065 15,081,250 5,482,571 The bank maintains strict control limits on net open derivative positions, i.e. the difference between purchase and sale contracts, by both amount and term. At any one time the amount subject to credit risk is limited to the current fair value of instruments that are favourable to the bank (i.e. assets) which in relation to derivatives is only a small fraction of the contract or notional values used to express the volume of instruments outstanding. This credit risk exposure is managed as part of the overall lending limits with customers, together with potential exposures from market movements. Collateral or other security is not usually obtained for credit risk exposures on these instruments, except where the bank requires margin deposits from counter-parties. At 31 December 2019, the Group held the following derivatives as hedging instruments:- Cash Flow Hedges: Interest Rate Swaps Cross Currency Swaps Fair value Hedges: Interest Rate Swaps Hedging instrument Notional in Currency currency Hedged item Description Customer Deposits Bond Issuance Fixed for floating CHF to USD Hedged item Description Currency Govt Bonds Fixed for floating USD Average Rate TRY 860,000,000 22.90% USD CHF 610,905,560 585,000,000 3.96% 0.69% Hedging instrument Notional in currency 260,000,000 Average Rate 2.79%
58. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 38- FUND MANAGEMENT As at the end of the reporting date, the Group holds QAR 392 million (2018: QAR 357 million) worth of international investment securities on behalf of its customers. Out of this amount, investment securities with a value of QAR 338 million (2018: QAR 306 million) are held with an international custody and settlement house. The remaining investment securities are held with the financial institutions through whom the securities were purchased. These financial institutions are industry leaders in their respective fields. The Group has established maximum limits for such holding with each financial institution according to its risk management policy. 39- RELATED PARTIES 2019 2018 1,176,839 1,604,135 798,857 729,255 3,722 13,307 25,835 36,683 Board members of the bank - Loans, advances and financing activities (a) - Deposits - Contingent liabilities and other commitments - Interest and fee income - Interest paid on deposits accounts of board members - Remuneration 8,532 12,017 18,500 18,500 309,400 436,800 10,610 24,333 9,951 14,602 745,942 782,138 Associates and joint arrangement companies Due from banks Due to banks Deposits Contingent liabilities - 26 4,725 2,271 110,941 46,710 - Loans and advances 5,156 * Remuneration and other benefits include cost for performance rights amounting to QAR 71.7 million. 4,636 - Interest earned from associates - Interest paid to associates Senior management of the bank - Remuneration and other benefits* (a) A significant portion of the loans, advances and financing activities' balance at 31 December 2019 and 31 December 2018 with the members of the Board and the companies in which they have significant influence are secured against tangible collateral or personal guarantees. Moreover, the loans, advances and financing activities are performing satisfactorily honouring all obligations.
59. The Commercial Bank (P.S.Q.C.) NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS AS AT AND FOR THE YEAR ENDED 31-DECEMBER-2019 QAR ‘000s 40- COMPARATIVES FIGURES The comparative figures presented have been reclassified where necessary to preserve consistency with current period figures. The below reclassifications did not have any impact on the consolidated net profit or the total consolidated equity for the comparative period. Accrued interest receivable amounting to QAR 1,059 million and accrued interest payable amounting to QAR 745 million as at 31 December 2018 have been reclassified to each of the respective account balances. Particulars 2018 (Previously reported) Reclassification 2018 (Reclassified) Assets Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Other assets Total 6,716,058 9,468,706 83,701,631 22,107,807 5,418,645 13,740 6,187 940,833 98,270 (1,059,030) - 6,729,798 9,474,893 84,642,464 22,206,077 4,359,615 Liabilities Due to banks Customer deposits Debt securities Other borrowings Other liabilities Total 13,820,543 71,321,450 15,998,539 8,301,828 5,628,930 129,916 464,333 73,207 77,906 (745,362) - 13,950,459 71,785,783 16,071,746 8,379,734 4,883,568 In addition to the above, due to the reclassification of assets held for sale to investment in associates and a joint arrangement, comparative figures have been represented for the carrying value of investment and adjustment of share of results in associate in line with IFRS 5. The net impact is as follows: 2018 (Previously reported) Reclassification and adjustement 2018 (Restated) Assets Investment in associates and a joint arrangement Asset held for sale Total 2,096,310 2,559,591 2,416,630 (2,559,591) (142,961) 4,512,940 - Equity Fair value reserve Other reserve* Total (73,466) 1,079,858 (22,867) (120,094) (142,961) (96,333) 959,764 170,738 10,745 181,483 1,663,180 10,745 1,673,925 INCOME STATEMENT Share of results of associates and a joint arrangement Profit for the year * includes QAR 130 million realted to IFRS 9 opening adjustment
60. The Commercial Bank (P.S.Q.C.) FINANCIAL STATEMENTS OF THE PARENT AS AT 31 DECEMBER 2019 (a) Statement of Financial Position - Parent QAR ‘000s 2019 2018 (Restated) ASSETS Cash and balances with central banks Due from banks Loans and advances to customers Investment securities Investment in associates and a joint arrangement and subsidiaries Property and equipment Other assets TOTAL ASSETS 4,431,379 11,767,481 76,475,207 24,407,811 5,445,227 2,639,085 6,403,778 131,569,968 5,206,929 8,934,975 72,643,836 19,811,384 6,052,484 2,523,835 3,678,728 118,852,171 LIABILITIES Due to banks Customer deposits Debt securities Other borrowings Other liabilities TOTAL LIABILITIES 23,348,968 66,854,395 7,791,254 7,256,184 4,779,148 110,029,949 13,569,153 62,738,014 13,504,339 4,991,906 4,201,614 99,005,026 4,047,254 9,739,507 26,500 1,486,994 619,393 (38,860) (1,982,124) 809,892 1,264,794 1,566,669 17,540,019 4,047,254 9,652,129 26,500 951,909 (63,951) (179,507) (1,771,821) 909,764 1,264,794 1,010,074 15,847,145 4,000,000 21,540,019 131,569,968 4,000,000 19,847,145 118,852,171 EQUITY Share capital Legal reserve General reserve Risk reserve Fair value reserve Treasury shares Foreign currency translation reserve Other reserves Revaluation reserve Retained earnings TOTAL EQUITY ATTRIBUTABLE TO EQUITY HOLDERS OF THE Instruments eligible for additional capital TOTAL EQUITY TOTAL LIABILITIES AND EQUITY
61. The Commercial Bank (P.S.Q.C.) FINANCIAL STATEMENTS OF THE PARENT FOR THE YEAR ENDED 31 DECEMBER 2019 QAR ‘000s (b) Income Statement - Parent 2019 2018 5,047,785 (2,473,614) 2,574,171 4,348,781 (2,262,088) 2,086,693 Fee and commission income Fee and commission expense Net fee and commission income 1,118,382 (333,812) 784,570 967,658 (311,412) 656,246 Net foreign exchange gain Net income from investment securities Other operating income Net operating income 189,832 69,955 128,052 3,746,580 171,946 (6,599) 87,508 2,995,794 Staff costs Depreciation Amortization and impairment of intangible assets Net impairment (losses)/reversal on investment securities Net impairment losses on loans and advances to customers Net impairment losses on other financial assets Impairment on Investment in an Associate Other expenses Profit for the year (592,298) (118,921) (46,268) 6,856 (377,030) (68,704) (413,881) (221,817) 1,914,517 (494,179) (118,874) (47,339) (399) (822,184) 111,108 (236,041) 1,387,886 Interest income Interest expense Net interest income