pdf -1.80 MB - Ahli United Bank

Transcription

The consistent increase in AUB’s profit underlines
the success and viability of the Bank’s core
regional business model, based on
diversified and selective growth in
operating income, proactive risk management
and continuous focus on developing
cross border opportunities.
Ahli United Bank
Contents
04 Group mission statement
05 AUB operating divisions
06 Financial highlights
14 Board of Directors' report
18 Board of Directors
20 Chairman's statement
22 Group Chief Executive Officer &
Managing Director’s statement
26 Corporate governance
42 Group business and risk review
48 Group organisation
49 Group management
51 Contact details
53 Consolidated financial statements
107 Pillar III disclosures - Basel II
Ahli United Bank
4
GROUP MISSION STATEMENT
To create an
unrivalled ability to
meet customer
needs, provide
fulfillment and
development for
our staff and deliver
outstanding
shareholder value.
Objectives
AUB Vision & Strategy
•
•
•
Develop an integrated pan regional financial services group
model centered on commercial & retail banking, private
banking, asset management and life insurance with an
enhanced Shari’a compliant business contribution.
•
Acquire banks and related regulated financial institutions in
the Gulf countries (core markets) with minimum targeted 10%
market share to be achieved through mergers, acquisitions
and organic growth.
•
Acquire complementary banking platforms in secondary
markets enjoying strong cross border business flows with
Gulf countries or with economic structures similar to the Gulf
countries.
to maximize shareholder value on a sustainable basis.
to maintain the highest international standards of corporate
governance and regulatory compliance.
• to maintain solid capital adequacy and liquidity ratios.
• to entrench a disciplined risk and cost management culture.
• to develop a cross-cultural meritocratic management
structure.
•
to optimise staff development through business driven
training and profit related incentive.
•
to contribute to the social and economic advancement of the
communities in which the Group operates.
Ahli United Bank
Annual Report
2014
AUB OPERATING DIVISIONS
5
Corporate Banking
Risk Management
This division covers all the Bank’s capital-intensive activities in risk
asset generation and funding regionally and internationally.
This division is responsible for the identification, assessment and
ongoing control of all material risks that could affect the Group’s
business & operations.
•
•
•
•
•
•
Corporate and Trade Finance
Commercial Property Finance
•
Residential Property Finance
•Legal
Acquisition and Structured Finance
•Compliance
Correspondent Banking
Audit
Shari'a Compliant Banking
This division is an integral part of the control environment of the
Group. The role of audit is to understand the key risks of the Bank
and examine and evaluate the adequacy and effectiveness of
the system of risk management and internal control in order to
identify legal, regulatory or policy shortcomings.
Private Banking & Wealth Management
This division generally includes all the low capital-intensive
sectors of the business, offering wealth management services to
individuals and institutions based on performance and a balanced
product mix.
•
•
•
Risk Management
Support Services
Real Estate Fund Management
These divisions provide back end banking services to support ongoing business activities of the Group, as well as supporting the
Group’s expansion through mergers and acquisitions.
Shari'a Compliant Banking
•Finance
Private Banking and Asset Management
Retail Banking
•
Strategic Development
This division covers both conventional and Shari'a Compliant
individual customers’ deposits, loans, overdrafts, credit cards and
residential mortgages.
•
Information Technology
Treasury and Investments
•Services
This division provides money market, trading and treasury services
and is also responsible for the management of the Group’s funding.
•
•
Money Market Services
•
Foreign Exchange Services
•
Hedging and Trading Solutions
•
Structured Products
•
Investment Management
•
Shari’a Compliant Treasury Products
•Operations
Human Resources
Ahli United Bank
6
FINANCIAL HIGHLIGHTS
Ahli United Bank
Annual Report
2014
CONSOLIDATED PERFORMANCE SUMMARY
7
AHLI UNITED BANK B.S.C.
US$ '000
Dec 14
Dec 13
+
Dec 12
Dec 11
Dec 10
Net profit*
482,529
579,374
335,703
310,610
265,499
Total assets
33,444,888
32,651,893
29,872,574
28,329,762
26,457,461
Total loans
18,464,536
17,305,682
15,972,219
15,495,961
14,477,713
Total liabilities
29,614,669
29,086,790
26,711,067
25,418,621
23,705,286
3,390,874
3,148,824
2,776,209
2,537,431
2,392,181
439,345
416,279
385,298
373,710
359,994
Return on average assets (ROAA)
1.6%
1.3%
1.3%
1.2%
1.2%
Return on average equity (ROAE)
15.2%
13.4%
13.0%
12.7%
12.0%
Cost to income ratio
29.7%
30.0%
31.5%
32.4%
33.6%
Financial leverage
7.7
8.2
8.4
8.7
8.6
Risk assets ratio**
15.5%
16.2%
15.6%
16.0%
14.1%
Net interest margin
2.40%
2.32%
2.20%
2.10%
2.30%
Earnings per share (US cents) - basic
8.0
10.0
5.8
5.4
4.7
Earnings per share (US cents) - diluted
8.0
9.9
5.7
5.3
4.7
Shareholders' equity
Non-controlling interest
* Attributable to Bank's equity shareholders
+
Net profit excluding exceptional non-recurring gain related to divested ABQ stake was US$ 366,464 thousands
(2013 Total ROAA including gain related to the divested ABQ stake was 2.0%)
(2013 Total ROAE including gain related to the divested ABQ stake was 20.1%)
** Under BASEL II
Ahli United Bank
8
PRINCIPAL SUBSIDIARIES
KUWAIT:
AHLI UNITED BANK K.S.C.P.
KD' 000s
Dec 14
Dec 13
Dec 12
Dec 11
Dec 10
Net profit*
47,008
42,459
38,539
31,544
27,444
Total assets
3,596,928
3,164,976
2,632,922
2,627,839
2,454,337
Total loans (financing receivables)
2,480,431
2,140,922
1,728,082
1,617,722
1,609,986
Total liabilities
3,257,608
2,841,821
2,337,541
2,352,808
2,189,041
326,868
309,792
282,809
262,190
245,679
12,452
13,363
12,572
12,841
19,616
Return on average assets
1.4%
1.5%
1.4%
1.3%
1.1%
Return on average equity
15.1%
14.9%
14.5%
12.7%
12.2%
32.1%
30.9%
34.2%
39.7%
38.7%
Financial leverage
9.6
8.8
7.9
8.6
8.3
Risk assets ratio **
16.3%
19.2%
19.7%
21.3%
18.8%
36.5
32.9
29.9
24.5
21.3
Earnings per share (fils)
** 2014 under BASEL III as mandated by the Central Bank of Kuwait
Ahli United Bank
Annual Report
2014
9
UNITED KINGDOM:
AHLI UNITED BANK (UK) PLC
US$ '000s
Dec 14
Dec 13
Dec 12
Dec 11
Dec 10
49,028
41,216
36,376
36,380
20,760
Total assets
3,671,428
4,151,944
3,434,061
3,419,561
2,718,253
Total loans
1,414,732
1,597,323
1,609,390
1,767,372
1,560,955
Total liabilities
3,376,748
3,854,676
3,174,424
3,158,780
2,478,638
294,680
297,268
259,637
260,781
239,615
1.3%
1.1%
1.0%
1.2%
0.9%
16.6%
14.8%
13.5%
14.5%
9.1%
36.6%
40.3%
35.6%
30.4%
38.1%
11.5
13.0
12.2
12.1
10.3
19.5%
17.5%
18.9%
17.5%
15.3%
24.5
20.6
18.2
18.2
10.4
Net profit
Financial leverage
Risk assets ratio*
Earnings per share (US cents)
* Under BASEL II
Ahli United Bank
10
IRAQ:
COMMERCIAL BANK OF IRAQ P.S.C.
IQD Millions
Dec 14 *
Dec 13
Dec 12
Dec 11
Dec 10
Net profit
10,462
10,689
14,310
7,980
13,934
Total assets
449,273
334,843
293,437
247,446
204,164
Total loans
23,976
20,230
18,291
12,889
13,845
Total liabilities
164,888
138,264
150,237
112,261
109,625
284,385
196,579
143,200
135,185
94,539
2.7%
3.4%
5.3%
3.5%
6.8%
4.4%
6.3%
10.3%
6.9%
15.6%
45.7%
51.6%
41.0%
48.4%
50.5%
0.6
0.7
1.0
0.8
1.2
760.4%
489.7%
414.5%
566.3%
577.4%
69.7
85.5
125.2
83.4
180.6
Financial leverage
Risk assets ratio
Earnings per share (fils)
Based on financial statements under local GAAP.
* 2014 information are subject to approval at Annual General Meeting
Ahli United Bank
Annual Report
2014
11
EGYPT:
AHLI UNITED BANK (EGYPT) S.A.E.
EGP' 000s
Dec 14
Dec 13
Dec 12
Dec 11
Dec 10
Net profit *
365,425
285,846
244,946
195,868
164,348
Total assets
24,983,857
19,972,167
15,602,707
12,854,828
10,012,348
Total loans
12,072,608
9,387,495
7,456,483
5,802,342
5,443,987
Total liabilities
22,858,290
18,095,779
14,040,037
11,749,022
8,985,425
2,113,922
1,865,685
1,552,780
1,096,322
1,017,506
1.7%
1.7%
1.7%
1.7%
1.9%
18.7%
17.8%
19.6%
18.8%
17.0%
25.8%
26.7%
30.9%
34.9%
39.4%
Financial leverage
10.8
9.6
9.0
10.6
8.7
Risk assets ratio **
12.4%
13.7%
14.6%
13.1%
14.0%
2.2
1.7
1.7
1.8
1.5
Earnings per share (EGP)
** Under Basel II from 2012
Ahli United Bank
12
PRINCIPAL ASSOCIATE
OMAN:
AHLI BANK S.A.O.G.
OMR' 000s
Dec 14
Dec 13
Dec 12
Dec 11
Dec 10
25,127
23,030
21,743
18,224
14,100
Total assets
1,644,811
1,339,485
1,099,230
929,604
805,594
Total loans
1,388,871
1,104,917
927,392
768,606
656,413
Total liabilities
1,445,281
1,154,590
931,716
809,392
703,488
199,530
184,895
167,514
120,212
102,106
1.7%
1.9%
2.1%
2.1%
2.0%
13.1%
13.1%
15.1%
16.4%
14.5%
34.3%
33.9%
31.4%
30.1%
35.9%
7.2
6.2
5.6
6.7
6.9
14.0%
14.6%
16.9%
17.5%
19.7%
19.4
17.8
18.3
16.7
12.9
Net profit
Financial leverage
Risk assets ratio *
Earnings per share (Baiza)
* Basel II until 2012 and under Basel III from 2013
Ahli United Bank
PRINCIPAL ASSOCIATE
Ahli United Bank
14
BOARD OF DIRECTORS' REPORT
The Directors of Ahli United Bank (“AUB” or the “Bank”) are pleased
to submit the Annual Report and accompanying consolidated
Financial Statements for the year ended 31 December 2014.
•
General Operating Environment
The global economic environment in 2014 remained sluggish with
an IMF global world economy growth rate of 3.3% in line with 2013
while emerging market and developing economies achieved a
growth rate of 4.4%, lower than the 4.7% reported in 2013.
This continued weakness has been due to adverse geo-political
and security situations and to a slow-down in major emerging
markets like China which recorded a lower growth rate of 7.4%
from 7.7% in 2013. Given the lukewarm investment sentiment
coupled with an excessive oil supply market led to a sharp decline
in oil prices of circa 60% since June 2014 which remain sustained
to date. Oil exporting countries, if current situation persists, will
face a need to review fiscal spend and/or drawdown on resources
with related economic ramifications. While in the near term
oil importing economies will benefit from the low oil prices,
this advantage is expected to be partially offset by diminished
expectations about the growth prospects for developed and
emerging economies resulting in lower projected FDI flows in
the medium term particularly for regional MENA economies
dependent on GCC investment and employment opportunities.
Considerable downside risks therefore continue to exist on the
international and regional fronts arising from both geo-political
and economic risks. This is reflected in the revised lower IMF 2015
growth forecast for the world at 3.5% (2016:3.7%) while the World
Bank has forecasted a smaller world GDP growth rate at 3.0% with
a marginal improvement to 3.3% in 2016.
Performance Overview
Despite the continuing global uncertainties and continuing
operating challenges faced in its main markets, AUB achieved
another record performance in 2014, a 31.7% growth in the
operating profits, clearly validating the success and viability of its
core business model based on product and market diversification.
•
•
ii) The Non-trading Investments portfolio grew by 4.4% to
reach US$ 5.8 billion as part of ongoing balance sheet
management, effective deployment of liquidity with a
view to optimizing yields and complying with regulatory
liquidity regimes.
•
Customers’ deposits were up by 4.4% to US$ 23.0 billion
(2013: US$ 22.0 billion) to fund the balanced growth in
loans and advances.
•
As part of its funding strategy, the Bank reduced its
higher cost borrowings under re-purchase agreements
by US$ 369.5 million to US$ 901.6 million as outstanding
at 31 December 2014 (US$ 1,271.1 million at 31 December 2013).
•
Continuous focused cost management and higher operating
income resulted in an improvement of the operating cost to
income ratio during the year to 29.7% (2013: 30.0%).
•
•
In November 2014, IFC converted US$ 100 million of its
Optionally Convertible Subordinated Debt held in AUB into
118,609,884 AUB ordinary shares at an effective conversion
price of US 84.31 cents. Post conversion, IFC along with the
IFC Capitalization Fund, hold a 5.2% shareholding in AUB.
IFC’s decision to exercise the conversion option represents a
vote of confidence in AUB’s strong underlying financial and
operational fundamentals.
Recognition
Excluding this item, the growth in the recurring operating
profit of the Bank was 31.7% over the comparable result in 2013.
Ahli United Bank
Excluding the non-recurring gain related to the divested ABQ
stake, operating return on Average Equity increased to 15.2%
(2013: 13.4%) and the operating return on Average Assets
increased to 1.6% (2013: 1.3%).
Strategic & Corporate Development
Consolidated net profit, attributable to the Bank’s equity
shareholders, of US$ 482.5 million as against US$ 579.4 million
in 2013. 2013 net profit included a non-recurring gain of
US$ 212.9 million realized on Bank’s divestment of its 29.4%
stake in Ahli Bank, Qatar (ABQ), which was reported only in
the 2013 result.
Total operating income crossed the US$ 1 billion mark for the
first time since Bank’s inception in 2000 with an increase of
8.7% over 2013 to reach US$ 1,041.3 million. Increase in the
operating income was broad based and underpinned by a
rise in Net Interest Income of US$ 50.1 million (+7.0%) and fees
and other income increasing by US$ 32.9 million (+13.4%).
Total assets increased by 2.4% to US$ 33.4 billion (2013: US$
32.7 billion) contributed by:
i) The Loans and Advances portfolio which increased by
6.7% to US$ 18.5 billion (2013: US$ 17.3 billion).
The key highlights of its performance were:
•
Asset quality improved with the NPL ratio reducing to 2.0%
(2013: 2.3%). The Group’s coverage ratio of total provisions
to impaired loans increased to 159.4% at the end of the year
(2013: 155.5%). Specific provision coverage stood at 83.8% at
31 December 2014 compared to 86.1% in 2013.
AUB Group has been a recipient of a number of prestigious
banking awards during the year and includes the following:
•
Best Regional Bank – GCC in 2014 by Capital Financial
International
•
Best Emerging Market Bank in Bahrain – 2014 awarded by
Global Finance
Annual Report
2014
BOARD OF DIRECTORS' REPORT
•
Best Foreign Exchange Provider in Bahrain – 2015 awarded by
Global Finance
US$ ’000
Best Bank in Bahrain – 2014 awarded by Euromoney
Net profit attributable to Bank’s
equity shareholders
Best Local Private Bank, Bahrain – 2014 awarded by Euromoney
Transfer to statutory reserve
Bank of the Year, Bahrain - 2014 awarded by The Banker magazine
•
Proposed cash dividend – ordinary shares
at US cents 4.5 per share
Best Local Bank in Bahrain – 2014 awarded by Emea Finance
magazine
Proposed donations
•
Private Bank of the Year, Bahrain – 2014 awarded by The Banker
and PWM
•
•
•
•
AUB Kuwait: Islamic Bank of the Year –2014 by The Banker magazine
•
AUB Kuwait: Private Bank of the year – 2014 by The Banker
and PWM.
Directors’ Shareholdings & Remuneration
The number of shares held by directors, senior management
and their related parties as at 31 December 2014 is disclosed
in the Corporate Governance Report.
For Directors’ fees, allowances, expenses, salaries and
remuneration please refer to Note 25 of the financial
statements
Appropriations
On the basis of the results of the Bank for the year ended
31 December 2014, the Board of Directors recommends
the following appropriations of the Bank’s net profit of US$
482,529 thousands for approval by the shareholders:
15
Transfer to retained earnings
482,529
48,253
270,452
1,000
162,824
Conclusion
In my capacity as the Chairman of the Board, it is my pleasure
to thank our shareholders for their continuing support and
confidence reposed in AUB. Our achievements during 2014
were only made possible through the support and trust of our
clients, business partners and customers and the dedication,
professionalism and resilience of our staff as well as the guidance
of our regulators.
While operating challenges remain, we start 2015 with clear
plans and goals to improve on our past performances and we will
continue to strive to meet the aspirations of all our stakeholders.
Mohammad J. Al-Marzooq
Chairman (acting)
22 February 2015
Ahli United Bank
Ahli United Bank
Ahli United Bank
18
BOARD OF DIRECTORS
Hamad M.
Al-Humaidhi
Mohammad Jassim
Al-Marzooq
Rashed Ismail
Al-Meer
Mohammed Saleh
Behbehani
Adnan
Al-Marzouq
Hamad M. Al-Humaidhi
Mohammed Saleh Behbehani
Chairman since 31 March 2015, holds a Bachelor of Art (Law) degree from
University of Kuwait, 1975.
Director General, The Public Institution for Social Security, Kuwait; Chairman
& CEO, Wafra Intervest Corporation; Chairman, Ahli United Bank (UK) PLC;
Chairman, Kuwait Medical City, Kuwait. Former Deputy General, The Public
Institution for Social Security, Kuwait ; Former Legal Advisor, National
Bank of Kuwait; Former Legal Department Manager, Administration
Department Manager, Legal Researcher in Legal Department, The Public
Institution for Social Security, Kuwait ; Former, Legal Researcher, The Civil
Service Commission.
Director since 30 July 2000.
Partner & President, Mohammad Saleh & Reza Yousuf Behbehani Co;
Partner, Mohammad Saleh Behbehani & Co. W.L.L; Partner, Behbehani
Bros., W.L.L, Bahrain; President, Shereen Real Estate Co.; Chairman, Maersk
Logistics Co.W.L.L.; Chairman, Kuwait Insurance Co. S.A.K; Partner &
President, Behbehani Jeep Motors Co. W.L.L.; Partner & President, Shereen
Investment Co; Partner & President, Shereen Motor Co.W.L.L; President,
Behbehani Automall Co. W.L.L; Partner, Al Mulla & Behbehani Motor Co.
W.L.L; Vice Chairman, United Beverage Co; Chairman, Maersk Kuwait Co.
W.L.L; Board & Executive Committee Member, Ahli United Bank K.S.C;
Former Director, Purchase & Imports, Public Works Dept., Govt. of Kuwait;
Former Deputy. Chairman, Al Ahli Bank of Kuwait K.S.C.; Former Board
Member, Ahli United Bank (UK) PLC; Former Director, Swiss Kuwaiti Bank.;
Former Director, UBAF (Hong Kong) Limited.
Chairman of the Board and Executive Committee;
Non-Executive Director
Mohammad Jassim Al-Marzooq
Deputy Chairman and Member of the Executive Committee;
Director since, 27 March 2006, holds a Bachelor of Commerce (Finance
Major) from Kuwait University, 1991.
CEO, Tamdeen Real Estate Co. Kuwait; Chairman, Tamdeen Shopping
Centre, Kuwait; Chairman, Tamdeen Bahraini Real Estate Co, Bahrain;
Chairman, Trustees Bait Al Arab (Kuwait State Stud), Kuwait; Board Member,
Fateh Al Khear Holding Co., Kuwait ; Board Member, The Supreme Council
for Planning & Development, Kuwait; Former Chairman of Tamdeen
Real Estate Co, Kuwait; Former Board Member of Al Maalem Holding
Co, Bahrain; Former Board Member of Global Omani Development &
Investment Co, Oman ; Former, Deputy Chairman, Tamdeen Shopping
Centre Co, Kuwait ; Former Board Member, Bank of Kuwait & The Middle
East, Kuwait ; Former , Vice Chairman, Tamdeen Investment Co, Kuwait;
Former, Board Member, Al Ahli Bank of Kuwait, Kuwait; Former, Board
Member, Kuwait National Cinema Co., Kuwait; Former Board Member,
Arab Financial Consulting Co., Kuwait; Former, Chief of Executive Staff,
Real Estate Investment Fund, Kuwait; Former, Board Member, The Public
Warehousing Co., Kuwait ;
Rashed Ismail Al-Meer
Deputy Chairman and Member of the Executive Committee;
Director since 29 March 2003, holds a High Diploma in Statistics from
the University of Alexandria-Egypt, 1973 and a B.Com from Baghdad
University, Iraq, 1969.
Director, Ahli United Bank (UK) PLC; Chairman, Osool Assets Management
Co.; Chairman, Esterad Investment Co.; Deputy Chairman of the Board
of Directors, Solidarity Group Holding Co.; Director, Social Insurance
Organisation, Director , Al Ahli Real Estate Co. S.P.C.; Former, Chairman,
Former, Director General, Pension Fund Commission; Former, Asst.
Undersecretary for Financial Affairs, Ministry of Finance & National Economy;
Former, Asst. Undersecretary for Economic Affairs, Ministry of Finance &
National Economy; Former, Director of Investment; Various Positions, Central
Bank of Bahrain; Former, Head of Statistics Section, Ministry of Health.
Ahli United Bank
Member of the Compensation Committee;
Independent Director
Adnan Al-Marzouq
Member of the Audit & Compliance Committee and Nominating Committee;
Director Since, 25 March 2014. Holds a Bachelors Degree in Industrial
Systems Engineering from University of Southern California, 1981.
Managing Director, Al-Marzouq Company for Import & Export, Kuwait;
Board Member, Ahli United Bank (UK) PLC. Vice Chairman, Rouyah
Investment & Leasing Co, Kuwait; Formerly: Chairman, The Kuwaiti
Manager Company, Kuwait; Board Member, Kuwait Finance House, Kuwait;
Manager Treasury, Gulf Investment Corporation, Kuwait ; Asst. ManagerTreasury, National Bank of Kuwait.
Annual Report
2014
BOARD OF DIRECTORS
Mohammed Fouad
Al-Ghanim
Abdulla MH
Al-Sumait
Michael Essex
Herschel Post
Lama
Al-Dakheel
Adel A. El-Labban
Mohammed Fouad Al-Ghanim
Member of the Executive Committee;
Director since 29 March 2003, holds a degree in Business Administration
from Kuwait University, 1993.
Vice Chairman & CEO Fouad Alghanim & Sons Group of Companies,
Kuwait; Member of the Board of Directors, Tamdeen Real Estate Company
KSCC, Kuwait; Chairman, Fluor Kuwait Co. K.S.C., Kuwait Former, Chairman,
AlGhanaem Industrial Company K.S.C., Kuwait; Former, Member of the
Supervisory Board, Jet Alliance Holding AG, Austria.
Abdulla MH Al-Sumait
Member of the Audit & Compliance Committee and Nominating Committee ;
Director since 16 May 2001, holds a B.A. in Law from Kuwait University,
1976.
Director, Kuwait Commercial Facilities Company; Director, Ahli United Bank
(Egypt) SAE. Former, Legal Consultant for Director General, The Public
Institution for Social Security, (Kuwait);
Michael Essex
Member of the Audit & Compliance Committee, Nominating Committee
and Compensation Committee;
Director since, 28 March 2012, holds an Executive Development Program
Certificate from Harvard Business School, Boston-USA, 1997, M.A. Public
Administration from Carleton University, Ottawa-Canada, 1975, B.A.
Economics & Political Science from The University of Western Ontario
London- Canada 1972.
Member of the Investment Committee, APIS Growth Fund; Director,
Macquarie Bank India Infrastructure Fund; Formerly, International Finance
Corporation’s Director of Investment & Advisory Operations for the MENA
region- 20 Countries, Pakistan to Morocco; IFC-Deputy Director for Global
Industry & Service Investments and Senior Risk Supervisor for Asia, Bank of
Nova Scotia.
19
Herschel Post
Chairman of the Audit & Compliance Committee, Nominating Committee
and Compensation Committee;
Chairman of the Audit & Compliance Committee, Nominating Committee
and Compensation Committee Director since 25 December 2001, holds a
Financial Advisers Certificate from The Chartered Institute of Bankers, 2000, a
B.A. & M.A. (Rhodes Scholar) from Oxford University 1984, L.L.B from Harvard
Law School, 1966 and a Bachelor of Arts from Yale University, 1961.
Director and Chairman of the Audit Committee, Ahli United Bank (UK) PLC;
Director and Chairman of the Audit Committee, Ahli United Bank (Egypt)
SAE.; Director and Chairman of the Audit Committee, Ahli United Bank
K.S.C., Kuwait; Director and Chairman of the Audit Committee, Kuwait &
Middle East Financial Investment Company (KMEFIC); Chairman , Almazaya
Co.; Director and Chairman of the Audit Committee, Threadneedle Asset
Management Holdings S.A.R.L.; Former Director, Investors Capital Trust
PLC; Former Director, Program Planning Professionals Inc.; Former Director
Christie’s International PLC; Trustee, Earthwatch Institute (Europe). Former
Deputy Chairman of the London Stock Exchange; Former CEO and Deputy
Chairman, Coutts & Co.; Former Chief Operating officer, Lehman Brothers
International Ltd.; Former Director, Euroclearance System Ltd, Director &
Chairman of Audit Committee, Euroclear UK & Ireland PLC.
Lama Al-Dakheel
Member of the Audit & Compliance Committee and Nominating Committee;
Director since, 31 March 2015. Holds a Bachelors Degree in Finance &
Business Administration, Kuwait University, 1995.
Manager, Direct Investment Department, The Public Institution for Social
Security, Kuwait; Former, Supervisor and Analyst Direct Investment
Department, The Public Institution for Social Security, Kuwait
Adel A. El-Labban
Executive Committee Member;
Executive Director
Director since 30 July 2000. Holds a Masters in Economics (Highest
Honors) from the American University, Cairo, 1980, Bachelors in Economics
(Highest Honors) from American University, Cairo, 1977.
Group Chief Executive Officer & Managing Director, Ahli United Bank BSC,
Bahrain; Director, Ahli United Bank (UK) PLC; Director, Ahli United Bank
K.S.C., Kuwait; Deputy Chairman, Ahli United Bank (Egypt) SAE, Egypt; First
Deputy Chairman, Ahli Bank SAOG, Oman; Deputy Chairman, Commercial
Bank of Iraq,; Deputy Chairman, United Bank for Commerce & Investment
S.A.C. Libya; Director Bahrain Association of Banks, Bahrain; Former Chief
Executive Officer and Director of the United Bank of Kuwait PLC, UK;
Former Managing Director, Commercial International Bank (Egypt) SAE;
Former Chairman, Commercial International Investment Company, Egypt;
Former Vice President, Corporate Finance, Morgan Stanley, USA; Former
Assistant Vice President, Arab Banking Corporation, Bahrain.
Ahli United Bank
20
CHAIRMAN'S STATEMENT
With clear plans to develop on existing initiatives,
I am confident in the Group’s proven and tested
capabilities to achieve sustainable growth and to
continue meeting the aspirations of all stakeholders.
Ahli United Bank
Annual Report
2014
CHAIRMAN'S STATEMENT
I am pleased to report that 2014 was another year of record
operating profitability and strong business performance for AUB
across all fronts. Notable success and significant progress was
achieved across the Group’s businesses and operations, clearly
demonstrating its ability to deliver sustainable growth, despite
varying degrees of uncertainty and volatility in market conditions
in its markets.
In the global economy, significant divergences were apparent
with the US showing signs of economic revival, China’s growth rate
slowing down while the Eurozone and Japan struggled to avoid
stagnation. The continued low level of oil prices, which fell by circa
60% in the latter half of the year, will impact oil exporting countries
including the GCC economies going forward, depending on the
duration and intensity of such a drop and will assist MENA oil
importing countries in reducing their balance of trade deficits.
In these challenging conditions, AUB reported a net profit of
US$ 482.5 million for the year 2014 attributable to a strong
multi-platform financial performance based on its prudent and
diversified business model. The growth in the operating profit of
the Bank represented a 31.7% growth over the comparable result
in 2013, excluding the exceptional non-recurring gain of US$ 212.9
million from its Qatari affiliate bank sale included in the previous
year’s profit of US$ 579.4 million.
21
It was gratifying to note that AUB’s market leadership and superior
performance levels continued to achieve wider recognition among
key analysts in the banking industry. In 2014 no less than ten top
awards were received for pre-eminence in particular sectors –
private banking, Islamic banking, and foreign exchange – as well as
awards for ‘best bank’ at both the regional and country levels.
Looking ahead, with economic and socio-political uncertainty
expected to persist, AUB will remain focused on pursuing its
strategy of regional expansion while seeking opportunities to
develop cross border business. With clear plans to develop on
existing initiatives, I am confident in the Group’s proven and
tested capabilities to achieve sustainable growth and to continue
meeting the aspirations of all stakeholders.
Finally, it is my pleasure to thank our shareholders for their
continued support and confidence in AUB. What has been
achieved in 2014 would not have been possible without the
support and trust of our valued customers and business partners
and the firm commitment, dedication and hard work of the staff
as well as the guidance of our regulators.
Hamad M. Al-Humaidhi
Chairman
The consistent increase in AUB’s operating profit underlined the
success and viability of the Bank’s core regional business model
based on diversified and selective growth in operating income,
proactive risk management, supported by an effective control
framework and continuous focus on developing cross border
opportunities while maintaining its intelligent spend culture.
A major milestone was reached with total operating income
surpassing the US$ 1 billion mark for the first time.
As a result, earnings per share were US cents 8.0 for the year ended
31 December 2014 (2013: US cents 10.0). Given the excellent
results achieved, the Board of Directors has recommended a cash
dividend of US cents 4.5 per share (2013: US cents 4.5) together
with a bonus ordinary share issue of 5% (2013: 5%).
During the year, confidence in AUB’s financial and operational
fundamentals was further demonstrated by IFC’s decision to
convert its optionally convertible subordinated debt into AUB
ordinary shares, which, together with the IFC Capitalisation Fund,
increased IFC’s share holding in AUB to 5.2%.
Ahli United Bank
22
GROUP CHIEF EXECUTIVE OFFICER &
MANAGING DIRECTOR'S STATEMENT
As testament to the Bank’s capacity to achieve
sustainable growth, total operating income
exceeded US$ 1 billion for the first time since the
Bank’s inception in 2000.
Ahli United Bank
Annual Report
2014
GROUP CHIEF EXECUTIVE OFFICER &
MANAGING DIRECTOR'S STATEMENT
Despite prevailing global uncertainties and continuing operating
challenges in its major markets, AUB delivered another record
performance in 2014. The Bank’s net profit attributable to its equity
shareholders increased by 31.7% to US$ 482.5 million for the year
2014 compared with US$ 366.5 million in 2013. The overall 2013
net profit of US$ 579.4 million included an exceptional nonrecurring gain of US$ 212.9 million from the sale of a 29.4% stake
in its Qatari affiliate. The increase in the 2014 operating profit
reflected AUB’s strong underlying business fundamentals together
with its effective control framework and resilient business model.
As testament to the Bank’s capacity to achieve sustainable growth,
total operating income exceeded US$ 1 billion for the first time
since the Bank’s inception in 2000, rising by 8.7% to US$ 1,041.3
million compared with US$ 958.0 million in 2013. The surge in
operating income was largely driven by a 7.0% increase in Net
Interest Income to US$ 763.3 million, resulting from higher lending
volumes as well as prudent deployment of liquidity in non-trading
investments within a conservative risk framework complemented
by focused liability cost management. Fees and other income
grew by 13.4% from US$ 245.1 million to US$ 278.0 million. The
increased operating income together with a disciplined cost
culture aligned to “intelligent spend” on business and control
needs across the AUB Group further improved the operating cost
to income ratio to 29.7% from 30.0% in 2013.
23
During the year, AUB made significant progress in developing
cross-border trade finance business among the Group’s operating
countries, in increasing share of wallet from existing customers
and in securing significant new clients. Notable success was also
achieved in expanding the B2B platform for corporate customers,
providing a one-stop solution for cash management including
payments, collections and reconciliations. In continuing to
strengthen the Group’s corporate responsibilities, various ‘green’
initiatives were adopted to conserve natural resources as practical
steps to deliver on AUB's responsibilities as a signatory to the
Equator Principles, a global benchmark for managing social and
environmental risks in project finance.
Finally, I would like to express my gratitude to the Board of
Directors for their active support and guidance. My sincere thanks
are also due to all my colleagues, the management and the staff
of the AUB Group, whose professionalism, commitment and
hard work have been fundamental in achieving another year of
excellent performance and sustainable growth.
Adel A. El-Labban
Group Chief Executive Officer & Managing Director
The Group’s total assets grew by 2.4% amounting to US$ 33.4
billion at 31 December 2014 from US$ 32.7 billion at year end 2013.
The increase in total assets was due primarily to a 6.7% growth in
the loans and advances portfolio to US$ 18.5 billion (31 December
2013: US$ 17.3 billion). The non-trading investments portfolio
rose by 4.4% to US$ 5.8 billion reflecting vigilant balance sheet
management and pursuit of asset profitability and diversified
opportunities as well as effective liquidity deployment to comply
with regulatory liquidity requirements.
Balanced credit growth was underpinned by a 4.4% increase in
customer deposits totalling US$ 23.0 billion (31 December 2013:
US$ 22.0 billion). As part of its funding strategy, the Bank was
successful in reducing higher cost borrowings under repurchase
agreements by US$ 369.5 million. The asset quality of the Group
continued to improve with the non-performing loan ratio
reducing to 2.0% at year end 2014 compared with 2.3% for the
prior year. The total provision coverage ratio, inclusive of collective
impairment provisions, was 159.4% at year end 2014 (2013: 155.5%)
and specific provision coverage stood at 83.8% compared with
86.1% in 2013.
Further improvement was also notable in key financial indicators
with the return on average equity increasing to 15.2% (2013:
13.4%) and return on average assets rising to 1.6% (2013: 1.3%),
adjusted for the exceptional non-recurring item credited in 2013.
Ahli United Bank
26
CORPORATE GOVERNANCE
Good Corporate Governance practices are important in creating
and sustaining shareholder value and ensuring appropriate
disclosure and transparency. The Bank’s Corporate Governance
Policy provides the framework for the principles of effective
Corporate Governance standards across the AUB Group.
The Board of Directors is committed to implementing robust
Corporate Governance practices and to continually review and
align these practices with international best practices, where
appropriate.
The Bank’s management are committed to ensuring that procedures
and processes are in place to reflect and support the Board approved
Corporate Governance practices to ensure the highest standards of
Corporate Governance throughout the AUB Group.
Shareholder Information
The Annual General Ordinary and Extraordinary Meetings were
held on 25 March 2014.
Ordinary Shareholders as at 31 December 2014
(holding 5% and above)
Country
of origin
No. of
shares
% of
Total
Shares
Public Institution For
Social Security
Kuwait
1,158,572,382
18.93%
Social Insurance
Organization
Bahrain
611,400,548
9.99%
Tamdeen Investment
Company
Kuwait
466,526,017
7.62%
Sh. Salim Al-Nasser
Al-Sabah
Kuwait
333,835,556
5.45%
USA
315,551,499
5.16%
International Finance
Corporation
Ahli United Bank
Table -1 Distribution of Ordinary Shares as at 31 December 2014
No of shares
% of
Total
Shares
50% and above
-
-
20% up to less than 50%
-
-
1,158,572,382
18.93%
1,727,313,620
28.22%
1,307,346,327
21.35%
Less than 1%
1,928,651,584
31.50%
6,121,883,913
100.0%
Category
Total
The Bank’s shares are listed on the Bahrain Bourse and the Kuwait
Stock Exchange. As at 31 December 2014, the Bank had issued
6,121,883,913 ordinary shares, each with a nominal value of $ 0.25.
All ordinary shares are fully paid up.
Name
Distribution of Shares
Table- 2 Government Holdings and the distribution of Ordinary
Shares by Nationality
No.
% of
Total
shares
Name
No. of Shares
1
Kuwait Quasi
Government
1,158,572,382
2
Bahrain Quasi
Government
617,731,976
10.09%
3
Qatar Quasi
Government
94,898,026
1.55%
4
Kuwait Individuals
and Corporates
2,898,969,067
47.35%
5
Bahrain Individuals
and Corporates
975,453,311
15.93%
6
Others
376,259,151
6.15%
6,121,883,913
100%
Total
18.93%
Annual Report
2014
27
(continued)
Board
The Board composition represents an appropriate mix of professional skills and expertise. The current Board of Directors was elected at the
Annual General Meeting held on 28 March 2012 for a period of three years. The Board periodically reviews its composition and performance
as well as the performance of each Director. The name and classification of each Director as of 31 December 2014 is listed below:
Directors
Classification
Fahad Al-Rajaan Chairman 1
Independent
Rashed Ismail Al-Meer - Deputy Chairman
Mohammad Jassim Al-Marzooq – Deputy Chairman
Non-Executive
Non-Executive
2
Independent
Independent
Non-Executive
Turki Bin Mohamed Al-Khater
Independent
3
Herschel Post
Independent
Michael Essex
Adnan Al-Marzouq
Independent
Independent
4
Adel A. El-Labban
Notes :
1. Fahad Al-Rajaan - Resigned effective 22 January 2015.
2. Mohammad Al-Marzooq - Appointed as a Deputy Chairman
on 19 February 2014 and Acting Chairman on 22 January 2015.
3. Turki Bin Mohamed Al-Khater – Term of Directorship ceased on 31 March 2015 following Director elections
4. Adnan Al-Marzouq - Appointed on 25 March 2014.
In compliance with the Central Bank of Bahrain (CBB) Corporate
Governance requirements, the Board of Directors has outlined
its criteria and materiality thresholds for the definition of
“Independence” in relation to Directors. The independence criteria
are reassessed annually by the Board and for the year 2014, the 11
Directors comprising the Board were classified as follows:
• 7 Independent Directors
• 3 Non-Executive Directors
• 1 Executive Director
The Role and Responsibilities of the Board of Directors
The Board is responsible to shareholders for creating and delivering
sustainable shareholder value through the prudent management
of the Bank’s business.
The Board, as a whole, is collectively responsible to ensure that an
effective, comprehensive and transparent corporate governance
framework is in place. The Board’s role is to:
1.
2.
3.
ensure adherence to prevailing laws and regulations and
to best business ethics;
provide entrepreneurial leadership of the Bank within a
framework of prudent and effective controls, which enable
all types of relevant risks to be assessed and managed;
set the Bank’s strategic goals, ensure that the necessary
Executive
financial and human resources are in place for the Bank to
meet its objectives and review management performance;
and
4. set the Bank’s values and standards and ensure that its
obligations to its shareholders and others are understood
and met.
In carrying out these responsibilities, the Board must ensure that
management strikes an appropriate balance between promoting
long term growth and delivering short term objectives and
have regard to what is appropriate for the Bank’s business and
reputation, the materiality of the financial and other risks inherent
in the business and the relative costs and benefits of implementing
specific controls.
All Directors must act in the way they consider, in good faith,
would be the most likely to promote the success of the Bank
for the benefit of its shareholders as a whole. In doing so, each
director, must have regard (among other matters) to the:
1.
2.
3.
4.
5.
6.
likely consequences of any decision in the long term;
interests of the Bank's employees and shareholders;
need to foster the Bank's business relationships with
suppliers, customers and others;
impact of the Bank's operations on the community and the
environment;
desirability of the Bank maintaining a reputation for high
standards of business conduct and ethics; and
need to act fairly as between the shareholders of the Bank.
When carrying out their responsibilities, Directors must
1. act with integrity;
2. act with due skill, care and attention;
3. observe proper standards of market conduct;
4. deal with the regulatory authorities in an open and co-operative
way and must disclose appropriately any information of
which the regulator would reasonably expect notice.
Ahli United Bank
28
(continued)
Board Meetings and Attendance
The Board is required to meet at least four times per year.
The Board convenes upon the invitation of the Chairman or upon the request of at least two Directors. All Directors are expected to attend
each meeting, unless there are exceptional circumstances that prevent them from doing so.
A summary of the Board meetings held during 2014 and attendance of each Director are detailed below:
Members’ Names
No. of
Meetings
Meeting
Dates
Meetings
Attended
Fahad Al-Rajaan - Chairman
4
5
3
2
19 Feb 2014
4
25 Mar 2014
5
14 May 2014
2
Herschel Post
17 Sept 2014
4
Michael Essex
3 Dec 2014
5
5
Adnan Al-Marzouq
1
Adel A. El-Labban
5
The CBB Rulebook module HC – 1.3.4 requires individual board
members to attend at least 75% of all board meetings in a
given financial year. During the year, all directors, except four
have attended at least 75% of all Board meetings in the year.
The Directors in question have, on each occasion provided their
prior explanations for not attending the Board meetings, which
indicated that their absence was reasonable and justified. The
attendance of all Directors at the Board meetings is reported to
the CBB on an annual basis.
Meeting papers are prepared and circulated in advance of
meetings and include minutes of meetings of Board Committees
held since the previous Board meeting.
Election and Termination of Appointment of Directors
Directors are elected for a 3 year term. Elections take place in
accordance with the Memorandum and Articles of the Bank,
the Bahrain Commercial Companies Law and the CBB Rulebook.
There is no maximum age limit at which a Director must retire
from the Board. Each Director’s membership shall terminate
upon the expiry of his term, pursuant to the terms of his Letter of
Appointment and/or the provisions of the law.
Induction and Training of Directors
The Bank has an induction programme in place which is designed
for each new Director to ensure his contribution to the Board from
the beginning of his term. The induction programme includes: i)
an introductory pack containing, amongst other things, the Group
Overview, Group Organisational Chart, Terms of Reference of the
Board and Board Committees and key policies; ii) presentations
Ahli United Bank
on significant financial, strategic and risk issues; and iii) orientation
meetings with key management as may be required. As a
standing procedure, all continuing Directors are invited to attend
orientation meetings.
Ongoing professional development for Directors was conducted
during the year.
Board Evaluation
Evaluations of the performance of the Board and the performance
of each Director, for 2014, were conducted. Applying a scoring
methodology proposed by Ernst & Young, rating of “Good” was
achieved for the performance of the Board and a rating of “Excellent”
was achieved for the performance of each director, indicating that
the views of the majority of the Directors are similar and that the
Board is functioning as per its stated role and responsibilities.
Directors’ and Related Parties’ Interests
No Director has entered into, either directly or indirectly, any
material contract with the Bank or any of its subsidiaries, nor does
any Director have any material conflict of interest with the Bank.
The Directors are required to declare any conflict of interest or any
potential conflict of interest that exists or that Directors become
aware of, to the Chairman and Corporate Secretary as soon as they
become aware of them. This disclosure must include all relevant
material facts.
The Bank has a procedure for dealing with transactions involving
Directors and related parties. Any such transaction will require the
approval of the Board, excluding the conflicted Director(s).
Annual Report
2014
29
(continued)
Refer note 25 to the audited consolidated financial statements of
the Group for the year ended 31 December 2014 for related party
transactions disclosures.
The Terms of Reference of the Board require that all Directors, whether
Non-Executive or Executive, should exercise independence in their
decision-making and should abstain from any decisions involving
any actual or potential conflicts of interest. Should any Director have
any doubts with respect to conflicts of interest or potential conflict
of interest, the Director should consult the Chairman prior to taking
any action that might compromise the Bank.
No
Name
All Directors and other Approved Persons have declared all
of their interests in other enterprises or activities (whether as a
shareholder of above 5% of the voting capital of a company, a
manager, or other form of significant participation) in writing to
the Board.
The number of shares owned directly and indirectly by Directors
as at 31 December 2014 are as follows:
Purchases
Sales
No. of shares as of
31-Dec-2014
1
Fahad Al-Rajaan1
-
-
181,744
2
-
-
323,513
3
-
-
167,197
4
Hershel Post
-
-
-
5
8,325,687
-
164,118,387
6
Mohammad Fouad Al-Ghanim
-
-
509,570
7
Abdullah MH Al-Sumait
-
-
-
8
Turki Bin Mohamed Al-Khater2
-
-
-
9
Michael Essex
-
-
-
10
Adnan Al Marzouq
115,500
-
115,500
11
Adel A.El-Labban
-
-
-
Total
Percentage
165,415,911
2.70%
Note : 1. Fahad Al Rajan - Resigned on 22 January 2015.
2. Turki Bin Mohamed Al-Khater - Term of Directorship ceased on 31 March 2015 following Director elections.
As at 31 December 2014, the Directors also held 44,177,565 convertible notes (2013: 68,232,928 convertible notes) that are subject to vesting
and other criteria.
Ahli United Bank
30
(continued)
The numbers of shares owned by Senior Management as at 31 December 2014 are as follows:
No
Name
Purchases
Sales
No of shares as of
31-Dec-2014
1
Adel A. El-Labban
-
-
-
2
Sanjeev Baijal
-
-
1,920,221
3
Keith Gale
1,179,110
-
4,557,488
4
Shafqat Anwar
-
200,000
497,285
5
Abdulla Al-Raeesi
1,054,736
1,772,020
1,604,736
6
Sawsan Abulhassan
1,783,264
1,465,265
1,300,105
7
Amr Gadallah
-
-
-
8
Robert Jones
-
-
-
9
Iman Al-Madani
-
-
10,993
10
James Forster
-
-
-
11
Nevine El-Messeery
-
-
-
12
Nouri Aldubaysi
-
-
-
13
Lloyd Maddock
-
-
-
14
Ayman El-Gammal
-
-
-
As at 31 December 2014, senior management held 11,526,312 convertible notes (2013: 9,885,885 convertible notes) that are subject to vesting
and other criteria.
Material Transactions
Board Committee
Besides large credit transactions that require Board approval as
per the Credit Policy, the Board also approves senior unsecured
medium term (greater than 1 year) funding initiatives, strategic
investments decisions, as well as any other decisions which have
or could have a material financial or reputational impact on the Bank.
The Board may, where appropriate, delegate certain of its powers
to an individual Director or to a Committee of Directors and other
persons, constituted in the manner most appropriate to those tasks.
The Board has constituted a number of Board Committees,
membership of which is drawn from the Directors and to which it
has delegated specific responsibilities, through Terms of Reference
which are reviewed and adopted by the Board on an annual basis.
All Board Committee members are expected to attend each
Committee meeting unless there are exceptional circumstances
that prevent them from doing so.
Each Board Committee has access to independent expert advice
at the Bank’s expense.
Ahli United Bank
Annual Report
2014
31
(continued)
The Board Committees are each composed of an appropriate mix of professional skills and expertise. The Board periodically evaluates
the performance of the Board Committees. The names of the Committee members and their memberships in the Board Committees and
attendance at meetings held during 2014 are detailed below:
Board Committees
Members
Classification
Fahad Al-Rajaan - Chairman
Executive Committee
Nominating Committee
4
19 Feb 2014
14 May 2014
17 Sept 2014
3 Dec 2014
Meetings
attended
3
Non-Executive
Mohammad Jassim Al- Marzooq
Non-Executive
Mohammed Al-Ghanim
Independent
Adel A. El-Labban
Executive
4
Herschel Post - Chairman
Independent
4
Independent
Non- Executive
Independent
Adnan Al-Marzouq
Independent
2
Compensation
Committee
Meeting Dates
Independent
1
Audit and Compliance
Committee
No. of
Meetings
3
Michael Essex
Independent
Fahad Al-Rajaan- Chairman
Independent
Herschel Post
Independent
Independent
Herschel Post - Chairman
Independent
Non- Executive
Independent
Adnan Al-Marzouq
Independent
Michael Essex
Independent
3
4
19 Feb 2014
20 May 2014
17 Sept 2014
2 Dec 2014
4
2
4
1
4
2
2
4
20 Jan 14
2
2
2
2 Dec 14
2
2
16 Sep 14
2
3 Dec 14
2
0
1
2
Notes:
1.
2.
3.
Mohammed Al-Ghanim was appointed as an Executive
Committee member on 19 February 2014.
Mohammed Al-Ghanim resigned from Audit & Compliance
Committee on 19 February 2014.
Adnan Al-Marzouq was appointed as a member of Audit &
Compliance Committee and Nominating Committee on 25
March 2014.
Audit & Compliance Committee
Executive Committee
The Audit and Compliance Committee is combined with the
Corporate Governance Committee and assists the Board in
discharging its responsibilities relating to the Bank’s accounting,
corporate governance and key persons dealings and market
abuse practices, internal audit controls, compliance procedures,
risk management systems, financial reporting functions and
in liaising with the Bank’s external auditors and regulators to
ensure compliance with all relevant regulatory requirements and
consistency with best market practices.
The Executive Committee assists the Board in discharging the
Board’s responsibilities relating to, amongst other things, credit
and market risk.
The Audit and Compliance Committee consists of 5 members
comprising 4 Independent Directors, including the Chairman and
1 Non-executive Director.
The Executive Committee consists of 5 members comprising 2
Independent, 2 Non-Executive Directors and 1 Executive Director,
the Group CEO & Managing Director.
Compensation Committee
The principal Board Committees are:
The Compensation Committee provides an efficient mechanism
for reviewing the Bank’s compensation arrangements for its staff
and Directors and making recommendations for the Board’s
own approval in line with CBB guidelines. The Compensation
Committee, amongst other things, sets the remuneration
framework for the Bank’s Directors, senior management and staff.
The Compensation Committee consists of 3 members comprising
3 Independent Directors including the Chairman.
Ahli United Bank
32
(continued)
The CBB Rulebook Module HC-5.3.1A requires the Chairman
of the Compensation Committee to be independent of risk
taking function or Committees. During 2014, the Chairman of
Compensation Committee was also the Chairman of the Executive
Committee. Following the resignation of the Chairman of these
Committees and the reconstitution of the Board Committees
pursuant to Board elections to be held in March 2015, the bank
will be in compliance with this requirement.
The principal responsibilities of the Nominating Committee
include, identifying and recommending to the Board persons
qualified to become a Director of the Board, or any other officer of
the Bank, as considered appropriate by the Board. The Committee
also oversees the Director’s educational activities in the form of a
formal induction program and on-going orientation activities and
programs.
The Nominating Committee consists of 5 members comprising
4 independent Directors, including the Chairman and 1 NonExecutive Director.
Nominating Committee
The Nominating Committee supports the Corporate Governance
regime of the Bank and instills a best practice approach to the
matters assigned to its responsibilities, at all times acting within
the criteria set by the CBB Rulebook, the relevant sections of the
Bahrain Commercial Companies Law and any other applicable
legislation, following a fair and balanced approach.
Board Committee Evaluation
Evaluations of the performance of the Board Committees have
been conducted. Applying a scoring methodology proposed
by Ernst &Young, a rating of “Excellent” was achieved for each,
indicating that the Board Committees continue to operate with a
high degree of effectiveness.
Senior Management
Names
Title
Adel A. El-Labban
Group CEO & Managing Director
Sanjeev Baijal
Deputy Group CEO - Finance & Strategic Development
Keith Gale
Deputy Group CEO - Risk, Legal & Compliance
Shafqat Anwar
Deputy Group CEO - Operations & Technology
Abdulla Al-Raeesi
Deputy Group CEO - Retail Banking
Sawsan Abulhassan
Deputy Group CEO - Private Banking & Wealth Management
Amr Gadallah
Deputy Group CEO - Treasury & Investments
Robert Jones
Group Head of Audit
Iman Al-Madani
Group Head Human Resources & Development
James Forster
CEO - Ahli United Bank (UK) P.L.C
Nevine El-Messeery
CEO - Ahli United Bank (Egypt) S.A.E.
Nouri Aldubaysi
CEO - Commercial Bank of Iraq P.S.C.
Lloyd Maddock
CEO - Ahli Bank S.A.O.G
Ayman El-Gammal
CEO -United Bank for Commerce & Investment S.A.C
Ahli United Bank
Ahli United Bank
34
(continued)
Management Committees
The Board of Directors has established a management structure
with clearly defined roles, responsibilities and reporting lines.
The Bank’s management monitors the performance of the Bank
and each of its subsidiaries and associates on an ongoing basis
and reports this performance to the Board. The monitoring
of performance is carried out through a regular assessment
of performance trends against budget, and prior periods and
peer Banks in each of the markets and collectively through AUB
Group committees and sub committees at the parent bank and
its subsidiary / affiliated banks’ level. Specific responsibilities as
explained below, have been delegated to each committee, and
the minutes of all management committees are sent to the Audit
and Compliance Committee, that assesses the effectiveness of
these committees.
Group Management Committee
The Group Management Committee is the collective AUB Group
management forum providing a formal framework for effective
consultation and transparent decision-making by the Group
CEO & Managing Director and senior management on crossorganisational matters. Appropriate checks and balances ensure
the “four eyes” regulatory requirement is met. The Committee has
broad mandate encompassing group wide as well as Bank and
unit specific issues as determined by the Group CEO & Managing
Director and other members of the committee. It is chaired by
the Group CEO & Managing Director and comprises of thirteen
other members, including all Deputy Group CEO’s and CEO’s of
subsidiary and affiliated banks.
Group Asset and Liability Committee
The Group Asset and Liability Committee sets, reviews and
manages the liquidity, market risk and funding strategy of the AUB
Group and reviews and allocates capacity on the balance sheet to
achieve targeted return on capital, return on asset and liquidity
ratios. It is chaired by the DGCEO-Treasury & Investment and has
eight other members.
Group New Product Committee
The Group New Product Committee reviews and approves new
products, processes and services for wealth management, treasury,
retail, commercial banking and other areas of the AUB Group. The
committee assesses all related reputational, operational, credit,
liquidity and market risk, IT, legal, compliance, control, staffing and
capital/profit allocation issues related to approving new products.
The approval by the Group New Product Committee follows the
new product or process development requirements according
to the New Product Approval and Development Procedure. It is
chaired by DGCEO-Private Banking & Wealth Management and
has seven other members.
Group Information Technology Steering Committee
The Group Information Technology Steering Committee oversees
the information technology role, strategy formulation, prioritized
implementation and delivery of IT projects of the AUB Group
within an acceptable, secure and standardised framework. It
Ahli United Bank
recommends the annual IT budget to the Group CEO & Managing
Director as part of the annual business planning/budgetary
exercise for submission to the Board of Directors for review and
final approval. It supervises the implementation of the approved IT
annual plan within set deadlines and budgetary/Board approved
allocations within the Bank’s overall capital expenditure policy. It
is chaired by the DGCEO-Retail Banking and comprises of seven
other members.
Group Risk Committee
The Group Risk Committee reviews and manages the risk asset
policies, approvals, exposures and recoveries related to credit,
operational and compliance risks. It acts as a general forum
for the discussions of any aspect of risk facing or which could
potentially face the Bank or its subsidiaries and affiliates resulting
in reputational or financial loss to the AUB Group. It also oversees
the operation of the Group Operational Risk Sub-Committee and
Group Special Assets Sub-Committee. It is chaired by the DGCEORisk, Legal & Compliance and has four other members.
Group Operational Risk Sub-Committee
Group Operational Risk Sub-Committee administers the
management of operational risk throughout the AUB Group. It is
chaired by the DGCEO-Operations & Technology and has eight
other members.
Group Special Assets Sub-Committee
The Group Special Assets Sub-Committee is responsible for the
management of the criticized and non-performing assets of the
Bank. It has responsibility for monitoring accounts downgraded
to watch list and criticized asset status and ensuring that a
focused and disciplined recovery strategy is adopted to maximize
recoveries. It is chaired by DGCEO Risk, Legal & Compliance and
Management Committee
The Management Committee is the senior collective management
forum of the Bank, providing a formal framework for effective
consultation and transparent decision-making on organizational
matters. Appropriate checks and balances ensure the “four
eyes” regulatory requirement is met. The committee operates
in a flexible way with a minimum of formality and a broad
mandate encompassing both Bank-wide and unit specific issues
as determined by the GCEO & Managing Director and its other
members in relation to the business of the Bank, as a legal entity.
It is chaired by the DGCEO Finance & Strategic Development and
AUB Asset and Liability Committee
AUB Asset and Liability Committee sets, reviews and manages the
liquidity, market risk and funding strategy of AUB, the parent bank
reviews and allocates capacity on the balance sheet to achieve
targeted return on capital, return on asset and liquidity ratios. It is
chaired by Group Head of Treasury and has eight other members.
Annual Report
2014
35
(continued)
Other Governance Measures
Compensation disclosures
In addition to the Board and Management Committee structures,
the Board of Directors has approved a number of AUB Group
policies to ensure clarity and consistency in the operation of the
AUB Group. These policies, which are communicated to staff,
include Credit, Anti-money Laundering, Corporate Governance,
Personal Account Dealing, Key Persons Dealings, Banking Integrity,
Compliance, Legal and Human Resources policies.
Ahli United Bank's Compensation Policy (the "Policy") provides
the framework for the Bank to attract, retain and motivate
employees and directors with financial compensation to deliver
optimum personal, functional and Bank performance and reduce
the individual's motivation to take excessive and undue risk.
This is delivered through a compensation system consisting of
Fixed Compensation for employees and directors and Variable
Compensation of short term and long term incentives for
performing employees.
Underpinning these policies is the Board approved Group Code of
Business Conduct which prescribes standards of ethical business
behavior and personal conduct for the Bank’s Directors, its senior
management (officers) and its staff.
The Board of Directors of Ahli United Bank B.S.C. (BoD) annually
reviews and adopts compensation and related policies and
closely monitors the implementation of these policies and
processes with respect to the Bank’s staff and Directors. The AUB
Compensation Policy provides the remuneration framework for
motivating employees and directors with financial motivation
to deliver optimum Group performance. The policy aims at
rewarding performance by individual contribution within a
team oriented approach, remunerating individuals who achieve
personal, divisional and Group results and providing a long term
incentive to performing staff.
The Banking Integrity Policy, which includes detailed policy and
procedures on whistle blowing is specifically designed to facilitate
concerns raised with regard to misconduct occurring within, or
associated with, the AUB Group.
The Board has also adopted a Group Communications Policy.
This policy sets out the authority of AUB Group employees with
respect to the communication of information to third parties in
the course and scope of their employment. The Bank has an open
policy on communication with its stakeholders, which includes:
(i) The disclosure of all relevant information to stakeholders on a
timely basis in a timely manner; and
(ii) The provision of at least the last three years of financial data on the bank’s website.
Shareholders are invited by the AUB Chairman to attend the AGM.
The AUB Chairman and other Directors attend the AGM and are
available to answer any questions. The Bank is at all times mindful
of its regulatory and statutory obligations regarding dissemination
of information to its stakeholders.
The Bank provides information on all events that merit
announcement, either on it’s website, www.ahliunited.com,
Bahrain Bourse, and other forms of publications, such as press
releases, the Bank’s annual report and quarterly financial
statements, and the Corporate Governance Policy are all published
on it’s website.
As a supporting governance measure, the Board also relies on
the ongoing reviews performed by internal and external auditors
on the AUB Group’s internal control functions. These reviews are
conducted in order to identify any weaknesses, which then enable
management to take remedial action.
The Board of Directors reviews and approves on an annual basis,
the HR policy and as its integral part, the Compensation and
related policies and closely monitors the implementation and
administration of these policies and processes with respect to the
Bank's employees and directors.
The CBB has issued mandatory regulations relating to Sound
Remuneration Practices through an amendment to its rulebook
[HC-5 Remuneration of Approved Persons and Material RiskTakers], effective 1 July 2014 applicable to Approved Persons and
Material Risk-Takers of the Bank whose total annual remuneration
(including all benefits) is in excess of BD100,000 equivalent.
As advised by the CBB, the revisions in the Policy and related
schemes have been approved by the shareholders of the Bank in
their Annual General Meeting on 31 March 2015 and applied to
performance related employee compensation payments made
for the financial year 2014. The salient features of the Bank's Policy
including the key changes are summarized below:
The Compensation System
The compensation system includes a fixed component (consisting
of cash salary, allowances and benefits) that rewards the capacity
to hold a role/ position in a satisfactory manner through the
employee displaying the required skills and, a variable component
(consisting of performance related compensation) that aims to
reward collective and individual performance, depending on
objectives defined at the beginning of the year and conditional
on meeting said objectives, according to performance standards
and risk parameters defined by the Bank.
The Compensation system is based on the Bank’s long and short
term performance and matches the full gamut of the Bank’s risks
and their timeline. The system links and adjusts compensation
with all types of risks in the Bank to reduce the incentive for
individuals to take excessive and undue risk. It specifies the
proportion of fixed and variable remuneration to be consistent
with the Board approved Risk Framework. It defers portions of the
variable compensation awards for 2014 and subsequent years for
the designated Approved Persons and Material Risk-Takers of the
Bank over a period of 3 years as required by the CBB. It reduces the
awarded deferred variable remuneration in case of losses by the
Bank and/ or business line during and after the exercise/ vesting
period of the deferred variable compensation as a result of malus
and clawback arrangements.
The policy also outlines the basis and methodology for arriving
at variable compensation, making allocations, implementing risk
adjustments to compensation, the framework for compensation
of Approved Persons and Material Risk-Takers, conditions for
Ahli United Bank
36
(continued)
deferral malus and claw-back clauses, compliance and disclosure
requirements. It also establishes the terms of the Mandatory Share
Plan (MSP) scheme and the extension of the existing Employee
Share Purchase Plan (ESPP) scheme to comply with CBB regulations
and deliver deferred variable compensation in equity/ shares.
All equity schemes awards being limited so as not to exceed an
aggregate 10% of the total issued outstanding ordinary share
capital of the Bank, at any given time.
Compensation levels for each grade/ role are determined by
industry measurable statistics, relative to size of operations,
business needs, cost control and long term business goals
which attracts the appropriate talent to the Bank. Compensation
is determined through job evaluation, market benchmarks,
performance outcome and aligned to long-term value creation
and prudent risk-taking. The Bank ensures that compensation is
equitable and team oriented, clearly communicated and adjusted
for all types of risk, including reputation risk, liquidity risk and
costs of capital. Annual performance and compensation reviews
are conducted in March of each year. Employees are not entitled
to any additional compensation from their membership of or
attendance at Board or Board Committee meetings as a nominee
or representative of the Bank. All such fees are assigned to the Bank.
updates are annually applied to meet the Bank’s objectives and
aligned to CBB regulations, the Kingdom of Bahrain Labour Law
for the Private Sector ("Labour Law") and the Bahrain Commercial
Companies Law, 2001 (the "Companies Law") , where necessary.
The Chairman and members of the Committee are appointed by
the Board from amongst its Directors. The Committee comprises
at least 3 members, which should include only Independent
Directors or, alternatively, only Non-Executive Directors, of
whom a majority are Independent Directors. The Chairman may
appoint an alternate member in case of absence of a member.
Committee details and meeting dates in 2014 are reproduced
in the Corporate Governance Report in this Annual Report. The
aggregate compensation/ fees paid to Committee members for
2014 amounted to US$ 12,000.
Role of the Compensation Committee
The Committee approves the annual aggregate amounts payable
under fixed and performance related variable compensation
schemes for employees. The Committee reviews and approves any
material changes in employee benefits as per market competitive
trends and cost considerations and makes recommendations
with regard to any other employee matters, as brought before it.
The Committee reviews compensation payable to the members
of the Board of Directors and makes recommendations to the
Board of Directors in this regard in line with applicable regulations.
The Compensation Committee (the "Committee") is vested by
the Board of Directors through its Terms of Reference with the
essential responsibility, inter alia, to provide effective oversight
and assure governance over the compensation strategy, structure
and systems, to ensure that they are properly implemented. Such
responsibilities include, but are not limited to, review and oversight
of AUB's compensation and related policies and arrangements for
its employees and directors and ensures that any amendments or
The Committee reviews and tests at least on an annual basis, the
Policy and framework to ensure that compensation arrangements
comply with regulations and internal policies and to ensure that
the compensation system operates as intended and that effective
controls exist through testing of compensation outcomes as per
the Bank’s risk framework with any breaches of the risk framework
used in the evaluation of malus and/ or clawback clauses on
deferred compensation by the Committee.
The authority matrix for compensation approvals are as follows:
Action
a)
Approve the Bank's annual performance bonus pool funding model based on KPI
and KPI and KRI adjustments.
b) Approve the Bank's annual performance bonus amount pool.
c)
Approve the criteria for performance management and distribution of the Bank's
annual performance bonus.
d) Approve the list of designated "Approved Persons and Material Risk Takers" for
previous financial year.
Recommended by
Approved by
Group Head of HR&D
Compensation
Committee
Group Head of HR&D
Compensation
Committee
Group Head of HR&D
Compensation
Committee
Group Head of HR&D
Compensation
Committee
e)
Approve the performance scores, annual increment and annual performance
bonus amounts for the GCEO & MD and his direct reports.
Group Head of HR&D
(except self )
Compensation
Committee
f )
Approve the performance scores, annual increment and annual performance
bonus amounts for the Group Head of Audit and Group Head of Compliance
Audit & Compliance
Committee
Compensation
Committee
Group Head of HR&D
Compensation
Committee
g) Approve the aggregate performance scores, annual increment and annual
performance bonus amounts for all other bank employees.
Ahli United Bank
Annual Report
2014
37
(continued)
Types of Compensation
Compensation for employees includes fixed compensation, benefits
and performance related incentives (short-term and long-term
variable compensation) in cash or shares each as defined and
approved by the Compensation Committee. Compensation for
the Board of Directors is explained later in this report.
External Consultants
Consultants were appointed during the year to advise the Bank on
revisions to the Policy and alignment to the new regulations and
market best practices including providing consulting advice for
the deferred share/ equity-linked schemes.
Compensation of the Board of Directors
The Compensation Committee periodically reviews the
compensation for the Board of Directors and its related
Committees to ensure compliance with the CBB Rule Book, within
the relevant Commercial Companies Law requirements and with
the Articles of Association of the Bank. The Bank is in compliance
with the CBB Rule Book High Level Controls Module Article No.5.2.1
(c) requiring that compensation of the Board of Directors is linked
to attendance and performance with members of the Board of
Directors being paid 1/3 rd of their total compensation prorated on the basis of actual attendance of meetings and the
remaining 2/3rd paid for membership unrelated to attendance.
Compensation for the Board of Directors and its related
committees for 2014 has been approved by the shareholders in
the Annual General Meeting on 31 March 2015. The Bank is in
compliance with its Articles of Association requiring that total
compensation for Directors (excluding sitting fees) is capped at
10% of the Bank's NPAT for 2014, after all the required deductions
outlined in Article 188 of the Bahrain Commercial Companies Law,
2001. The compensation of Non-Executive Directors in 2014 does
not include any performance-related elements such as shares,
share options or other deferred stock-related incentive schemes,
bonuses or pension benefits, in compliance with the CBB Rule Book
High Level Controls Module Article No.5.5.1. AUB Management
Directors who represent or are nominated by AUB or of any of its
subsidiaries or affiliates on the Boards or their related Committees
are excluded from the compensation/ fees structure as per their
contractual arrangements. All Board of Directors' and related
Committee fees or other terms of remuneration (except actual
expenses) related to representation as AUB nominated Directors
are fully credited to AUB. Directors are reimbursed reasonable and
customary expenses for communication, transportation, boarding
and lodging as per AUB HR policy.
Variable Compensation (Performance Bonus)
Pool and Risk Adjustment
Performance-related variable compensation aims at recognizing
and rewarding employee’s contribution beyond their regular
job requirements, particularly those contributions that increase
Bank's productivity and profitability. Performance-related pay
could be paid for positive employee performance and/or Bank’s
performance. The variable compensation pool is aligned to and
due based on the Bank’s short or long term financial performance,
and is subject to reduction in case of the Bank’s poor or negative
financial performance.
The Compensation Committee reviews the accrual of the Variable
Compensation pool for the Bank and ensures it is based on the
overall performance of the Bank and is accrued as a percentage of
Net Profit after Tax (the "NPAT") for the preceding financial year and
aligned to risk-adjusted performance (credit, liquidity, operational
and reputational risk limits formed after considering the full range
of current and potential risks as per the Board approved Risk
Framework) and the payment of which has no material impact on
the capital adequacy ratio of the Bank (Present and Future) taking
into consideration the cost of capital to support the overall risk
profile of the Bank; and the subsequent allocations from the pool.
Accrual and deferral of variable compensation does not oblige
the bank to pay the variable remuneration, particularly when the
anticipated outcome has not materialized or the bank's financial
position does not support such payments.
The Committee at its discretion may propose to reduce or reduce
to nil the bonus accrual for the Bank and each line of business
and/ or the allocation pool of accrued bonus to businesses if
there is a material reduction in the profitability of the Bank or the
individual line of business. The Committee shall use its discretion
to determine whether the particular business is incurring losses
due to a start-up or turnaround situation, in which case, bonus
accrual, allocation and pay-out may be allowed to occur.
HR operates a managed bonus accrual model that adjusts
annual bonus accrual rates for the Bank based on achievement
of specified Key Performance Indicators ("KPI") and Key Risk
Indicators ("KRI"), based on which the Compensation Committee
reviews the adjustment of the overall bonus pool and allocations.
KPI’s measuring the financial and operational performance
against business strategy and capital consumption adjust
the variable compensation pool and may include all or some
factors like: Improvement in Net Profit after Tax, Gross Operating
Income, Return on Average Equity, Total Assets and/ or Liabilities,
Cost to Income ratio and/ or Capital Adequacy. KRI's measured
against compliance to the Bank’s risk framework to adjust the
variable compensation pool and may include the prudent
management of Credit Market, Liquidity, Operational Risk
and Environmental & Social Risk incurred by the bank in the
pursuit of its different commercial operations and may include
all or some factors like: Audit ratings, Avoidance of regulatory
penalties, External ratings, Reduction in non-performing loans,
Improvement of provision coverage, Minimum regulatory capital
requirements.
The Bank does not provide any form of guaranteed bonus as part
of the employment offer or contract to any employee. Severance
compensation (except notice period for a maximum period of 3
months) is prohibited except when the Bank provides for it on
liquidation of a particular business or on closure of a unit.
Employees have committed to not use personal hedging strategies
or compensation and liability-related insurance to undermine
the risk alignment effects embedded in their compensation
arrangements and provide a signed adherence to the prohibitions
on hedging.
Ahli United Bank
38
(continued)
Variable compensation for employees is payable at the end of the performance year in the following manner:
Type of Variable
Compensation
Regulated Roles (Approved Persons and Material Risk Takers)
•
Cash
•
Equity
instuments/
Shares
•
•
40% for Approved Persons in business lines, direct reports to the GCEO &
MD & material risk takers.
60% for Approved Persons in business lines, direct reports to the GCEO &
MD & material risk takers deferred in shares over 3 years.
Compensation of Approved Persons and
Material Risk Takers
The Compensation Committee has ensured that the performance
measures, evaluation and compensation of regulated roles in the
control functions of Risk Management, Internal Audit, Operations,
Finance and AML functions are evaluated in co-ordination with
the Audit and Compliance Committee to ensure independence
of their functions/ job roles from business areas. The fixed and
variable compensation proposals for the Group Heads of Audit
and Compliance are specifically recommended by the Chairman
of the Audit & Compliance Committee.
Deputy Group CEOs
Group Heads
Nil
50% for Approved Persons in control functions deferred in shares over 3 years.
Performance assessment of the Bank's Approved Persons in Risk
Management, Internal Audit, Operations, Finance, Shari'a review/
audit and AML functions has been measured primarily on the
achievement of the objectives and targets of their functions,
ensuring their independence from business areas.
Group CEO & MD
100% immediate
50% for Approved Persons in control functions.
Compensation of Control Functions
Level
All other employees
The performance measurement and the compensation
arrangements for designated Approved Persons and Material
Risk Takers of the Bank for 2014 is reviewed and approved by the
Compensation Committee and is subject to periodic change
depending on the changes in total individual compensation and/
or to changes in the organizational structure and business model.
The regulations have been applied to the variable compensation
awarded to individuals holding these roles in the list. The list
of designated Approved Persons and Material Risk-Takers
includes the GCEO & MD, Direct Reports to the GCEO & MD and
Heads of Qualifying Functions. The regulated roles are based
on the level of the individual role and the material impact it has
on the Bank's risk profile and the type of risk of the activity. The
Committee evaluates the designated Approved Persons and
Material Risk-Takers performance as per their agreed performance
objectives, Bank and/or business strategy, maintenance and/
or improvement of the Board approved risk profile of the Bank
and linked to improvement in the Bank's profit performance
and share-holder return. Performance assessment of the Bank's
designated Approved Persons is as per the following framework:
Area
Group Objectives
Function Objectives
(Business)
100%
-
(Business)
60%
40%
(Control & Support)
40%
60%
(Business)
60%
40%
(Control & Support)
40%
60%
The above performance framework ensures that adequate focus is employed by personnel on their core objectives with Business Heads
being measured for business performance with a majority on group performance and the rest on development of their function, while
control and function heads were measured on a majority of their objectives on the development of their functions and the rest on group
objectives related to their respective responsibilities.
Ahli United Bank
Annual Report
2014
39
(continued)
The Compensation Committee reviews and approves all fixed and
variable compensation including all benefits for the designated
Approved Persons and Material Risk-Takers in regulated roles of
the Bank to ensure that payments made are fair to the individual
and the Bank, that failure is not rewarded and that the duty to
maximize performance and mitigate loss is fully recognized. The
variable compensation awarded to the Approved Persons and
Material Risk-Takers is based on the Bank’s short or long term
financial performance adjusted for all types of risk, and shall be
subject to reduction in case of the Bank’s poor or negative financial
performance. The compensation report for the Bank includes the
regulated roles for 2014 who are Approved Persons in business
lines - 7 (2013: 7), Approved Persons in control functions 9 (2013: 9) and no other material risk takers. Other employees
in Bahrain - 608 (2013: 598) and employees in subsidiaries of the
Bank - 2,046 (2013: 1,979).
Malus and Clawback Policy
The Bank has adopted a malus policy where deferred variable
compensation may be partially reduced or reduced to nil, by
the Committee, before Vesting or Exercise and a clawback policy
where deferred variable compensation may be partially reduced
or reduced to nil, as decided by the Compensation Committee,
after the Vesting or Exercise Date on specific conditions which
include circumstances where:
a.
The annual reports and accounts being materially restated, in
an adverse manner, including but not limited to a reduction
in profit or diminution of capital and reserves, as a result of the
wilful or gross negligent conduct of the Participant.
b.
The Employee has deliberately misled the Board or the
management of the Bank or the market or the Bank's
shareholders regarding the financial performance of the Bank
or of any operating unit regarding the returns, operations and
risks of the Employee's business or support unit at any time
before the Vesting/ Exercise Date.
c.
The Employee's actions have caused harm or may cause
potential harm to the good name or reputation of the Bank
or of any operating unit or to the Participant's reporting unit.
Awards of deferred variable compensation for the designated
Approved Persons and Material Risk-Takers of the Bank shall be
reduced in case of losses by the Bank and/ or business line during
the vesting period of deferred compensation awards as a result of
Malus and/or Clawback.
d. The Employee has been terminated or ceases to be employed
by the Bank for causes as under Article 107 of the Bahrain
Labour Law or the Bank's table of gross misconduct. Normal
resignation shall not affect the rights of departing employees
to receive their rights.
Details of Compensation Paid
•
Members of the Board of Directors
Total Value of Compensation for the fiscal year
Compensation for Membership of the Board of Directors and
related committees
Others (Expenses for the Board)
2014
US$’ 000
2013
US$’ 000
1,632
1,730
92
78
Ahli United Bank
40
(continued)
•
Employees
2014
Fixed Compensation
2013
Variable Compensation
Unrestricted cash
and allowances
Unrestricted
Others1
Unrestricted
Cash
Deferred -shares
/ equity linked
instruments 2
Total
Compensation
Total
Compensation
Approved persons business lines
3,937
3,598
794
1,191
9,520
7,403
Approved persons –
control functions
2,681
759
480
615
4,535
4,629
Other staff – Bahrain
operations
29,856
12,353
6,770
-
48,979
48,818
Staff in subsidiaries
74,175
23,440
10,994
-
108,609
101,182
110,649
40,150
19,038
1,806
171,643
162,032
US$ 000
Note:
1. Others include direct charges such as social security contributions, end of service indemnity accrual charges, life insurance and medical premiums, club memberships, house lease rentals, school fees, vacation air fare, fair value charges for the employee share purchase program and indirect employee expenses such as training, recruitment, Government levies and other costs.
2. Deferred share awards are subject to the malus and clawback policy.
No guaranteed or sign-on bonuses and/ or separation payments have been paid in 2014. These tables include employees in service for part of the year.
Ahli United Bank
41
Ahli United Bank
42
GROUP BUSINESS & RISK REVIEW
Corporate Banking
Market conditions continued to be challenging in a number of
regional geographies during 2014, which affected growth in
corporate banking assets and liabilities. In a demanding business
environment, the division proactively pursued accretion of high
grade credits in order to maintain the quality of incremental assets
acquired during the year. Off balance sheet and trade finance
products remained a key focus for enhancing fee income and, in
continuing to manage down higher cost liabilities, the division
was successful in stabilising net interest margins and achieving
the targeted cost efficiency ratio.
Corporate Banking continued to be strategically structured to
deliver premium services to SMEs and specialized industry groups,
with particular focus on enhancing relationships with local,
regional corporates and government entities. The unit selectively
sought out project finance opportunities and syndication
transactions to enhance profitability and profile across the region
and was equally successful in acquiring operating accounts and
liability business from its corporate clients.
Cross-border business was pursued aggressively while crossselling with the treasury and private banking departments
resulted in increased foreign exchange and fee based revenues.
The ongoing implementation of business-to-business integration
and internet banking solutions continued across the AUB Group,
leading to enhanced transaction volumes and low cost liability
growth.
Going forward, the prospects for domestic growth are expected to
be constrained by high volatility in oil prices and local socio-political
developments. Cross-border financing, Islamic banking and trade
finance remain core activities and will continue to support the
expansion of the Bank’s corporate relationships throughout the
region.
Whilst net loan growth is expected to be moderate in 2015,
profitability is forecasted to remain stable, due to the continued
focus on low cost liabilities, increased fee based activities and
lower impairment charges.
During 2014, AUB continued to strengthen its roots of sustainable
growth, introducing innovative consumer and mortgage
finance products to maintain asset growth momentum. The
Bank has partnered with the Social Housing Project in Bahrain
to provide mortgage finance linked to subsidies which is
targeted to generate significant growth in the mortgage book.
In recognition of future challenges to retail lending across the
region, lending operations were reviewed to identify avenues that
would ensure sustained growth going forward. The introduction
of new products and services at competitive rates, employing
fixed and variable rate structures, has enabled AUB to maintain
growth momentum in the asset portfolio.
The Bank's strong position in low cost liabilities was further
consolidated in 2014 mainly through its flagship product
MyHassad Savings. This market-leading offering continued to
support the largest prize pool in the region and has enabled AUB
to further improve its household penetration market share and
cross sell opportunities.
Focus on progressive technology enhancements remained
imperative in delivering the highest levels of customer service.
Significant developments during the year included the rollout
of an advanced mobile banking application for IOS and Android
smart phones and enhanced functionality for AUB’s Global online
trading platform, the first ever online trading solution launched
by a regional bank in the Middle East. The Bank also initiated
implementation of an advanced front-end branch banking
system which will further enhance branch service as well as
operational capability, cost efficiency and controls. The new
system, incorporating advanced CRM capabilities, provides AUB
front office staff with a 360 degree view of customer relationship
and customer profitability, improving both customer service and
cross sell capability.
Islamic Banking operations were further expanded to include
Oman where the full range of Shari'a compliant banking products
and services was launched through a network of 7 dedicated
Islamic branches. The Bank also rolled out the first Islamic product
in Libya for the auto finance market and continued to strengthen
its well established presence and product range in Bahrain, Kuwait
and the United Kingdom. Retail Banking
AUB has established a leading retail presence with over 136
branches across 7 markets, supported by a commanding ATM
network and comprehensive e-channel services. The strong
regional network spanning the GCC, Egypt, Iraq, Libya and UK
offers customers a wealth of local knowledge, experience and
support across these markets. AUB has successfully leveraged
this network under MyGlobal to provide regional cross border
banking services. MyGlobal clients are empowered to access AUB
network and services from any location and are supported by
dedicated relationship managers with in depth local knowledge
in the various markets.
Ahli United Bank
Other important new initiatives in Retail Banking
included expansion in the Bank’s Premium Banking unit,
distribution of general insurance products through the branch
network with alliance partners, as well as development of payroll
products and new B2B initiatives. Additional growth in Point of
Sale (POS) services also enabled AUB to target new clients for
floats and fee income.
Treasury
2014 presented yet another year of unprecedented challenges
in the markets, with Central Banks' policies continuing to focus
on providing excess liquidity and maintaining historic low levels
of interest rates. Market focus, which in the first six months was
(continued)
consumed by problems that precipitated banks into restructuring
balance sheets and liquidity management, shifted latterly to be
directed more on the US Federal Reserve's Quantitative Easing exit
plan and the near term affects of potential future US interest rate
increases.
In difficult market conditions, Treasury strategy continued to
prioritize broadening AUB’s liability base and further reducing the
dependence on wholesale funding. Proactive and cost effective
management of the liability base enabled both Bahrain and the
Group to maintain prudent levels of liquidity throughout the year,
meeting all of our financial obligations while continuing to remain
a net provider of funds to the wholesale market. Improving the
Bank’s net interest margin was the primary driver for most of the
year, reducing high cost deposit rates to levels more in line with
the Bank’s profit targets.
Annual Report
2014
43
Most notably, equities in developed markets outperformed other
asset classes, backed by positive US data and improving economic
conditions, resulting in the US Federal Reserve concluding the
QE programme. In the Eurozone, a divided mandate on full scale
QE implementation undermined recovery which was further
compromised by political developments arising from the RussiaUkraine confrontation. Most surprisingly, the oil price fell by more
than 50% in the second half of the year, eroding much of the gains
made in Middle Eastern markets. These challenging conditions
were further accentuated by a more restrictive regulatory regime.
Against this backdrop, the Division continued to focus on offering
superior portfolio management services to clients based on
their risk profiling, and on enhancing product platforms for both
conventional and Shari'a compliant structured and third party
offerings as well as developing customised products for clients.
Market volumes continued to decline throughout most of 2014,
mainly due to the continued global slowdown and ongoing
effects of Central Banks' interventions. However, AUB market
share remained secure, with the Bank able to offer clients
very competitive pricing in an exceptionally difficult trading
environment. As a result, Treasury was successful in meeting its
2014 trading budget, taking advantage of various trends which
developed mid-year in both the foreign exchange and interest
rate markets. It was testament to the Bank's performance that AUB
was again named as Best Foreign Exchange Provider in Bahrain for
the ninth consecutive year.
The Division was successful in achieving its objectives with the
enhancement of the total relationship approach to the client
base. Significant progress was also achieved in several key
areas. Assets under management increased across the different
investments portfolios for individual and institutional clients.
Investors' appetite for direct property investment continued to
be stimulated in the residential and commercial UK markets with
financing provided through AUBUK. Growth in the fixed income
portfolio was successfully facilitated backed by client demand for
income generating portfolios and, overall, new client acquisitions
increased.
Going forward, changes in the regulatory environment will be a
determining factor in the near term on how the markets conduct
business. Increased focus on counterparty risk and collateral
management will drive major banks into rationalising credit
policies and a move towards a full clearing system for derivative
trades is seen as inevitable. Market volatility will persist, continuing
to dominate the global trading environment which will present
Treasury with many opportunities to increase profitability by
deploying non-balance sheet products and enable the Bank to
market both technical and professional skills to corporate and
retail customers.
As international trading activity and global economic conditions
improve, market volumes are forecast to increase in 2015. AUB's
preeminent presence in the MENA region positions the Bank
strongly to capitalize on a recovery in global financial markets.
Treasury strategy will continue to focus on client driven activity
and fee based income to enhance profitability and support the
Group's sustainable growth.
In meeting the increasing challenge from market dislocations, the
Division invested resources in strengthening the product platform
by providing wider options with the flexibility to switch across
different asset allocation themes, in line with market movements,
and by adapting to an open architecture facilitating future
product development.
Private Banking & Wealth Management
2014 proved to be a challenging year for the private banking
industry which experienced significant turbulence across the
investment spectrum, with relatively stable market conditions
preceding high volatility in the fourth quarter.
In addition, enhancements to research and risk profiling further
strengthened the relationship management process, enabling
the Division to demonstrate the primary duty of care towards our
clients.
During the year Real Estate Fund Management was successful in
launching and closing UK commerical and US residential sector
funds, both targeted to provide stable income yield. The third
party fund platform was further strengthened with the inclusion of
regional and global asset portfolios offering both conventional and
Shari'a investment opportunities. In support of client requirements
for customised investment solutions, the established structured
product platform was adapted for open architecture and additional
bond and sukuk offerings were provided in line with new issuances.
Acknowledgement of the quality, performance and development
of AUB's Private Banking continued to be widely acclaimed by the
world's leading financial publications - FT Global, Euromoney and
The Banker - which collectively commended AUB with three Best
Private Banking awards.
Ahli United Bank
44
(continued)
Looking ahead, the strategy for Group Private Banking will
focus on growing the client base through new acquisitions
and upgrading the current base together with enhanced cross
border activities. Key factors to promote sustainable growth
include: adding creative products in line with client expectations
to manage volatility; enhancing the investment proposition to
suit wider asset allocation models and improving the systems
capability to facilitate direct client access to their portfolios and,
internally, enable better relationship management by Private
Banking staff.
Information Technology
enhancements were also achieved to support incremental
demands for capacity and growth.
A major strategic focus for the year was placed on the
consolidation, cost efficiency and integration of complementary
processes, through an improved network infrastructure and server
virtualisation program. Significant rationalisation was attained on
the intra-group communications network with specific emphasis
on network security to pro-actively detect and realign defences
against complex external threats. With an increasing number of
business applications being integrated into the IT infrastructure,
priority was placed on improving load balancing to ensure
minimum redundancy across the server infrastructure.
The Information Technology division maintained close alignment
to the Group’s business strategies by delivering customer focused,
innovative and secured solutions. During 2014, IT strategy
continued to focus on standardization of services applied
uniformly across the Group, wherever possible, to achieve the
benefits associated with economies of scale while providing a
consistent customer experience irrespective of location within
the AUB banking network.
In sustaining the highest levels of information security and
customer confidentiality, the Bank achieved accreditation to the
latest ISO and payment card industry security standards while
information leakage prevention and monitoring controls were
further strengthened across customer end-point usage, network
traffic and data storage.
In the retail sector, the successful launch of a mobile banking
app for retail customers, covering both Android and iPhone
platforms, provided customers with an enriched user experience
for conducting banking business ‘on the move’, within a robust
security framework. Retail internet banking services were also
enhanced with updated screens as well as new functionality to
support additional bill payments with a corresponding collection
facility for utility companies.
Among significant benefits derived from the successful rollout of
the business-to business (B2B) platform was the seamless, straightthrough processing capability of banking transactions, eliminating
redundant administrative paper work. All customers, retail and
corporate, are now actively encouraged to enable electronic
statement generation, further reducing paper consumption and
enhancing the Bank’s green credentials. Migrating physical servers
to virtual machines and consolidating the server requirement also
resulted in lowering energy consumption and cooling needs,
reducing the Bank’s carbon footprint.
Significant progress was achieved in the straight-through
processing of SWIFT messaging for clients’ vendor and salary
payments, improving operational efficiency for the customers
and the Bank alike. In addition, the suite of electronic banking
products available to the customer base was further expanded
with an internet portal enabling electronic initiation and tracking
of trade finance business for clients. For Private Banking clients,
enhanced risk profiling tools along with enriched portfolio
reporting was implemented and a new Visa credit card product
was launched for Islamic banking clients.
In recognising the value and importance of access to management
information, AUB Group continued to invest in the enterprisewide data warehousing solution as the single integrated source
of consolidated data, supporting significant enhancements to
financial performance and credit risk modules. New modules and
core banking enhancements were implemented that adhere to
relevant compliance and regulatory frameworks while system
enhancements were developed to support social housing loans.
Deriving maximum value from IT infrastructure investments
remained a key priority. Adopting virtualisation and cluster
technologies enabled the Bank to deliver proficient processing
capabilities across all critical business applications and services.
New and advanced server storage and processing power
Ahli United Bank
Moving forward, a major initiative was launched to develop a front
end system that assists customer facing staff with servicing and
managing customer relationships in a more dynamic and holistic
manner. The new system is scheduled for phased implementation
across Group entities during the next two years.
Human Resources
At year-end 2014, a total of 3,416 permanent staff demonstrated
the stature, diversity and growth of the AUB organisation.
Representing 45 different nationalities employed across 7
countries, total staff, of whom one third was female, increased
3.35% over the prior year.
The Human Resource function continued to invest in initiatives
to select, develop and enhance the skill sets of able and qualified
employees, empowering them with the skills, knowledge and
experience to drive current and future business performance. Staff
productivity, as measured by revenue per unit of employee cost,
increased by more than 25% on a Group-wide basis compared to
the previous year, validating effective deployment of the Bank's
human resources to enhance shareholder value.
In developing an organization-wide culture based on performance
and meritocracy, particular attention was directed on compliance
Annual Report
2014
(continued)
45
with new regulatory requirements in the competency-based
selection, evaluation and rewarding of employees, aligned to
further strengthening the Bank’s capital base and maintaining a
conservative risk profile. Successful implementation of the Group
career development program continued to identify exceptional
individuals and formulate plans that develop their capabilities to
occupy key business and control roles.
oversight and advice on the Board sanctioned risk appetite and
strategy, development and maintenance of a supportive system
for management of risks through procedures and training.
The major risks associated with AUB’s business are credit risk,
market risk (which includes foreign exchange, interest rate and
equity price risk), liquidity risk, operational risk and reputational
risk.
In total, 923 individual training programs were conducted across
the Group in 2014, a 8.5 % increase compared to the prior year,
amounting to almost 35,000 hours of training. The second
edition of the Group credit academy program was successfully
completed with 20 graduates joining designated postings across
the Group. Oversight mechanisms and people management
policies continued to be reviewed and aligned with corporate
governance guidelines set by regulators while a centralised
Group HR infrastructure and ongoing streamlining of processes
was leveraged to reduce resourcing costs. In optimising business
technology, specific programs were conducted for key business
units in partnership with IT to increase the utilisation of new
technology applications and improve productivity.
AUB’s risk management policies have been developed to:
The Bank's responsibility and commitment to its social and
economic environments was further underlined through financial
support for accredited societies, charities and NGOs by funding
youth scholarships, various development projects, and donations
to the local community. The e-services footprint has been
extended across the group by enabling e-salary services to our
staff in AUB Egypt, replacing the traditional paper pay slip, asserted
the Group's green credentials and good corporate citizenship.
Going forward, HR strategy will be shaped by alignment to
regulatory changes, increased pressure for localisation, higher
customer expectations and a changing customer structure.
Training will focus on supporting technology investment and
strengthening leadership capabilities. New initiatives will include
the introduction of the Group treasury school providing a
comprehensive understanding of treasury activities to include
back office and operations and empowered to award the ACI
dealing certificate.
In the face of heightened competition, increased customer
demand and regulatory complexity, AUB's talent management
strategy will focus on sourcing and developing the requisite
skills to innovate and offer new products to our customers and
effectively manage processes. In the GCC, AUB's prominence as a
preferred employer for professionals with the required specialised
skills, qualifications and regional expertise will be commensurate
with sustaining business growth.
Risk Management
Risk management involves the identification, analysis, evaluation,
acceptance and management of all financial and non-financial risks
that could have a negative impact on the Group’s performance
and reputation. The Risk management function provides an
•
identify and analyse these risks,
•
set appropriate risk limits and controls,
•
monitor the risks and adherence to limits.
While risks that are embedded in the banking business cannot
be completely eliminated, the risk management function aims
to effectively manage these risks with the objective of earning
competitive returns over the degree of assumed risk. Risk is
evaluated based on the potential impact on income and asset
value, taking into consideration changes in political, economic and
market conditions, and the creditworthiness of the Bank’s clients.
The risk management function relies on the competence,
experience and dedication of its professional staff, sound risk
management policies and procedures, and ongoing investment
in technology and training.
The Board of Directors and senior management are involved in the
establishment of all risk policies and processes and the periodic
oversight and guidance of the risk management function. The
Board of Directors reviews and approves at least annually the
Bank’s key Risk Management policies. The Risk Management
processes are subject to additional scrutiny by independent
internal and external auditors, and the Bank’s regulators which
help further strengthen the risk management practices.
The risk management and control process is based on detailed
policies and procedures that encompass:
•
business line accountability for all risks taken. Each business line is responsible for developing a plan that includes adequate
risk/return parameters, as well as risk acceptance criteria;
•
a credit function that understands, monitors and independently
controls each credit relationship ensuring that the appropriate
approvals are obtained and a uniform risk management
standard, including objective risk ratings, has been correctly
assigned to each and every credit relationship;
•
product and business policies, which are clearly understood,
monitored and are in agreement with the overall credit policy
and the Board approved risk framework;
Ahli United Bank
46
(continued)
•
the ongoing assessment of portfolio credit risk and approval of new products; and
•
•
an integrated limits structure that permits management to
control exposures and monitor the assumption of risk against
predetermined approved tolerances. The Board of Directors
establishes global limits for each major type of risk which are
sub allocated to individual business units.
•
Credit Risk
Credit risk is the risk of financial loss due to the failure of a counter
party to perform its obligations according to agreed terms.
It arises principally from lending, trade finance and treasury
activities. The credit process is consistent for all forms of credit risk
to a single obligor. Overall exposure is evaluated on an ongoing
basis to ensure a broad diversification of credit risk. Potential
concentrations by country, product, industry, and risk grade are
regularly reviewed to avoid excessive exposure and ensure a
broad diversification.
formulating and implementation of credit policies and
monitoring compliance,
acts as a credit approval body for credits within its delegated
authority,
•
recommends to the Executive Committee all policy issue
changes related to credit risk as well as credits falling outside
its discretion,
•
determines appropriate pricing and security guidelines for all
risk asset products,
•
reviews the ongoing risk profile of the Group as a whole and
by individual products, business sectors and countries,
•
ensures the adequacy of specific and collective impairment
provisions and makes appropriate recommendations to the
Executive Committee.
Market Risk
Credit risk within the Group is actively managed by a rigorous
process from initiation to approval to disbursement. All day-to-day
management is in accordance with well-defined credit policies
and procedures (CP&P) that detail all credit approval requirements
and are designed to identify at an early stage exposures which
require more detailed review and closer monitoring. Specific
impairment provisions are made against credit exposures where
whole or a portion of the credit is considered doubtful of recovery.
If an asset is considered unrecoverable, a mandatory write-off
takes place. This is conducted by a risk management process,
which is completely independent in reporting terms from the
asset generating departments.
Risk rating of individual counterparties plays an important role
in the approval and maintenance of credit limits. The risk rating
process ensures that the quality of the credit portfolio of the
Bank is maintained at the highest possible level and stays within
board approved risk limits. The CP&P includes a robust risk rating
system developed by a leading international rating agency, which
provides a credit rating for each individual credit based on an
extensive set of financial and non-financial parameters. This risk
rating system is essential for the Bank to progress towards Basel II’s
more advanced requirements.
The risk management function stratifies the credit portfolio by level
of risk to monitor the credit quality and to be able to assess the
pricing and aid in the prompt identification of problem exposures.
Management of material problem exposures is vested with Special
Assets Groups in the respective Group operating entities, all of
which report to the Group Risk Management area. All exposures are
subject to quarterly and in certain cases monthly reviews.
In addition to the Group Risk Management function, credit risk
is overseen by the Group Risk Committee (GRC) which is vested
with the overall day-to-day responsibility for all matters relating to
group credit risk. Its responsibilities include the following:
Ahli United Bank
Market risk is the risk that adverse movements in market risk
factors including foreign exchange rates, interest rates, credit
spreads, commodity prices and equity prices will reduce the
Bank’s income or the value of its portfolios.
Given the Group’s ongoing low risk strategy, aggregate market risk
levels are low relative to the size of the Bank’s balance sheet. A
robust control process incorporating well defined limits is applied
to effectively manage market risks and monitor daily position
limits and stop losses. The Group utilizes Value-at-Risk (VaR)
models to estimate potential losses that may arise from adverse
market movements in addition to other quantitative and nonquantitative risk management techniques.
The Group calculates VaR using a one-day holding period at a
confidence level of 95%, which takes into account the actual
correlations observed historically between different markets and rates.
Value at Risk
2014
US$ ’000
2013
US$ ’000
Average
0.83
1.00
Minimum
0.31
0.42
Maximum
1.77
1.64
VaR limits are delegated by the Board to the Group Asset and
Liability Committee (GALCO) and sub-delegated to the Group’s
subsidiary ALCO.
The Group recognizes that VaR is based on the assumption of
normal market conditions and that certain market shocks can
result in losses greater than anticipated. Therefore, supplementary
Annual Report
2014
(continued)
risk management techniques such as stress testing form a core
part of the Group’s risk control processes.
Liquidity Risk
Liquidity risk is the risk of being unable to meet the Bank’s cash
commitments without having to raise funds at unreasonable
prices or sell assets on a forced basis. It is measured by estimating
the Group’s potential liquidity and funding requirements under
different stress scenarios.
The Group’s liquidity management policies and procedures
are designed to ensure that funds are available under all
circumstances to meet the funding requirements of the Group
not only under adverse conditions but at sufficient levels to
capitalize on opportunities for business expansion.
Prudent liquidity controls ensure access to liquidity without
unexpected cost effects. Liquidity projections based on both
normal and stressed scenarios are performed regularly. The
control framework also provides for the maintenance of a
prudential buffer of liquid, marketable assets and an adequately
diversified deposit base in terms of maturity profile and number
of counter parties.
47
Operational Risk
Operational Risk is “the risk of loss resulting from inadequate or failed
internal processes, people and systems or from external events.”
Operational risk is managed by the Group Operational Risk
Committee (GORC). The Group has adopted an ongoing
Operational Risk Self-Assessment (ORSA) process. Assessments
are made of the operational risks facing each function within
the Bank and these are reviewed regularly to monitor significant
changes and the adequacy of controls. Operational risk loss data is
collected and reported to senior management on a regular basis.
During the year, the CBB imposed a financial penalty of BD 50 for
one un-cleaned account information submitted to BCRB.
The Group’s independent audit function regularly evaluates
operational procedures and advises senior management and
the Board of any potential problems. Additionally, the Group
maintains adequate insurance coverage and business continuity
contingency plans utilizing offsite data storage and backup
systems. The adequacy of the Bank’s business continuity plans
are confirmed by a programme of regular testing with oversight
being provided by GORC.
The Group Risk Management function continuously monitors
liquidity risk and actively manages the balance sheet to control
liquidity. At each subsidiary, the respective treasury function
manages this risk with monitoring by the Risk Management
department and jurisdiction of its Assets and Liabilities Committee
(ALCO). At the Group level liquidity risk is managed by the Group
Assets and Liabilities Committee (GALCO), which is vested with
the overall day-to-day responsibility for all matters relating to
Group liquidity.
Ahli United Bank
48
GROUP ORGANISATION
Ahli United Bank
Annual Report
2014
GROUP MANAGEMENT
Adel A. El-Labban
Shafqat Anwar
Group Chief Executive Officer and Managing Director
Deputy Group Chief Executive Officer - Operations and
Technology
Director since 30 July 2000. Holds a Masters in Economics (Highest
Honors) from the American University, Cairo, 1980, Bachelors in
Economics (Highest Honors) from American University, Cairo,
1977. Group Chief Executive Officer & Managing Director, Ahli
United Bank BSC, Bahrain; Director, Ahli United Bank (UK) PLC;
Director, Ahli United Bank KSC, Kuwait; Deputy Chairman, Ahli
United Bank (Egypt) SAE, Egypt; First Deputy Chairman, Ahli
Bank SAOG, Oman; Deputy Chairman, Commercial Bank of Iraq, ;
Deputy Chairman, United Bank for Commerce & Investment S.A.C.
Libya;, Director Bahrain Association of Banks, Bahrain; Former Chief
Executive Officer and Director of the United Bank of Kuwait PLC,
UK; Former Managing Director, Commercial International Bank of
Egypt; Former Chairman, Commercial International Investment
Company, Egypt; Former Vice President, Corporate Finance,
Morgan Stanley, USA; Former Assistant Vice President, Arab
Banking Corporation, Bahrain.
(Total years of experience: 36 years)
49
Director, Ahli Bank S.A.O.G., Oman; Former Director, Ahli United
Finance Company, Egypt; Former Director, Ahli United Bank
(Egypt) S.A.E.; Former Deputy Chief Executive Officer, Finance, Risk
and Operations, Ahli United Bank (Egypt) S.A.E.; Former Group
Head of Operations, Ahli United Bank B.S.C., Bahrain; Former Chief
Operating Officer, Commercial Bank of Bahrain, Bahrain; Former
Chief Operating Officer, Grindlays Bahrain Bank, Bahrain; Former
Operations Manager Gulf, ANZ Grindlays Bank, UAE. Held various
management positions with ANZ Banking Group in Bangladesh,
the UK, the UAE and Australia. Holds a Master of Business
Administration, a Master of Public Administration and a Bachelor
of Social Sciences (BSS) with Honours in Public Administration
from the University of Dhaka, Bangladesh.
Abdulla Al-Raeesi
Deputy Group Chief Executive Officer - Retail Banking
Sanjeev Baijal
Deputy Group Chief Executive Officer - Finance and
Strategic Development
Deputy Chairman Legal and General Gulf B.S.C.(c) & Legal and General
Gulf Takaful B.S.C.(c), Bahrain; Director, Ahli United Bank K.S.C.P.,
Kuwait; Director, Ahli Bank S.A.O.G., Oman; Previous experience as
Group Head of Finance, Ahli United Bank B.S.C., Bahrain; Financial
Controller, Al-Ahli Commercial Bank, Bahrain; Held various positions
at Ernst & Young, Bahrain and Price Waterhouse in India; Chartered
Global Management Accountant under Association of International
Certified Professional Accountants; Member of the American
Institute of Certified Public Accountants (AICPA), and Associate
Member of the Institute of Chartered Accountants of India (ACA).
Deputy Chairman, Ahli United Finance Company, Egypt; Director,
Legal and General Gulf B.S.C.(c) & Legal & General Takaful B.S.C.(c),
Bahrain since March 2009; Former Director, International Chamber
of Commerce, Bahrain; Former: Director, Benefit Company, Bahrain;
Chairman of AUB Group IT Steering Committee, Deputy Chief
Executive Officer Retail Banking, Ahli United Bank B.S.C., Bahrain,
AGM & Head of Delivery Channels, Commercial Bank of Qatar,
Qatar; AGM, Support Group, Doha Bank, Qatar; Head of Business &
Technology Consulting Group, Arthur Andersen. Holds an MBA in
Business Administration from the United Kingdom.
Sawsan Abulhassan
Deputy Group Chief Executive Officer - Private Banking and
Wealth Management
Keith Gale
Deputy Group Chief Executive Officer - Risk, Legal and
Compliance
Director, Ahli United Bank K.S.C.P. Kuwait; Director, Ahli United Bank
S.A.E, Egypt; Director, Ahli Bank S.A.O.G., Oman; Previously Group
Head of Risk Management, Ahli United Bank, Bahrain; Former
Head of Credit and Risk at ABC International Bank PLC; Former
Assistant Vice President, Internal Audit Department, Arab Banking
Corporation, Bahrain. Held various positions in the UK with KPMG
and Ernst & Young. Associate Member of the Institute of Chartered
Accountants England & Wales (ACA) and holds a BA (Hons) in
Accounting and Finance from the University of Lancaster, UK.
Director, Ahli United Bank PLC, UK; Director, AUB Nominees Ltd.;
Director, Securities & Investment Company (SICO), Bahrain; Director,
The Family Bank, Bahrain; Previously with Citibank N.A. Bahrain,
Resident Vice President, Wealth Management and Distribution;
and Head of Wealth Management, Standard Chartered Bank,
Bahrain. Holds an MBA in Finance (with distinction) and a B.Sc. in
Management from the University of Bahrain.
Ahli United Bank
50
GROUP MANAGEMENT
(continued)
Amr Gadallah
Nevine El Messeery
Deputy Group Chief Executive Officer – Treasury and
Investments
Chief Executive Officer at Ahli United Bank, Egypt
Former Senior Vice President and Group Treasurer Arab Banking
Corporation Bahrain , Former Director ABC Islamic Bank , ABC
Investments Jordan , ABC Securities Bahrain and ABC Securities
Egypt . Holds BA (Honors) and MA in Economics from American
University in Cairo.
(Total Years of experience: 31 years)
Robert Jones
Director, Ahli United Bank (Egypt) S.A.E. Former General Manager,
Corporate Banking at Commercial International Bank (CIB), Egypt,
Former Chairman of the Credit Committee, Former Chair of the
Concession Tariff Committee, Former Member of the ALCO
Committee, Former Member of the CIB Life Insurance Company
Management Committee. Has held several roles as Chair of
the Board of Directors in several investment companies and
subsidiaries of CIB. Former General Manager, Egyptian American
Bank (Credit Agricole). Holds a Graduate Degree, Faculty of
Commerce from Cairo University, Egypt.
Group Head - Audit
Former Deputy Chief Executive Officer, Finance, Risk, Operations
and Technology at Ahli United Bank (UK) PLC, Former Head of
Audit for AUB Bahrain, Former Audit Manager in the National
Commercial Bank (Saudi Arabia). Has qualified the Information
Systems Audit and Control Association (CISA) and the Institute of
Chartered Secretaries & Administrators (ACIS) examinations.
Nouri Aldubaysi
Chief Executive Officer at Commercial Bank of Iraq
Director, Commercial Bank of Iraq P.S.C., Iraq. Former Deputy
General Manager, Rasheedi Bank, Iraq. Held senior management
positions with Rafidain Bank and Al Rasheed Bank in Iraq. Holds a
degree in Accounting from International Institute of Accountancy
in Lebanon
Iman Al-Madani
Group Head – Human Resources & Development, CGM
Former Group Head of Human Resources & Head of Human
Resources, Bank of Kuwait & Middle East (BKME). Former Assistant
General Manager Human Resources, Burgan Bank, Kuwait.
Certified Corporate Governance Officer (CCGO) from the London
Business School. Holds a Bachelor of Science in Mathematics
from the University of Denver, USA and an Associate Degree in
Computer Science, Lane College, Oregon State, USA.
Lloyd Maddock
James Forster
Chief Executive Officer at Ahli Bank S.A.O.G, Oman
Former Deputy Group Chief Executive Officer, Corporate Banking,
Ahli United Bank; Former Chief Executive Officer, HSBC Pakistan;
Former Chief Executive Officer, HSBC Kuwait; Former Head of
Wholesale Credit & Risk, HSBC MENA region, subsequent to
working in various senior management roles with HSBC covering
Corporate Banking, Strategy & Risk Management. Holds a Bachelor
in Engineering (Honours) Civil & Mining Engineering 1990 from
the University of Exeter, UK.
Chief Executive Officer at Ahli United Bank, UK
Director, Ahli United Bank (UK) PLC. Former Deputy Chief
Executive Officer, Corporate Banking & Treasury, Ahli United Bank
(UK) PLC, Former Head of Structured Finance, Ahli United Bank
(UK) PLC, Former Group Head of Leveraged Finance (Execution),
The Fuji Bank Limited, UK. Completed education from Haileybury
College, Hertfordshire, UK and Foundation Course in Chartered
Accountancy from City of London Polytechnic.
Ayman El Gammal
Chief Executive Officer at United Bank for Commerce &
Investment, Libya
Director, United Bank for Commerce & Investment S.A.C., Libya.
Former Assistant Managing Director and Head of Investments,
National Investment Bank, Egypt, Former Managing Director,
Asset Management - Private Equity, NAEEM Holdings, Egypt,
Former Managing Director, EFG Hermes Private Equity, Egypt,
Former Executive Director, Commercial International Investment
Company, Former Assistant General Manager, Commercial
International Bank (CIB), Egypt, former board member in various
companies and banks representing employers’ investments .
Holds a BA in Business from Cairo University, Egypt.
Ahli United Bank
Annual Report
2014
CONTACT DETAILS
AHLI UNITED BANK B.S.C.
AHLI BANK S.A.O.G.
Bldg. 2495, Road 2832
Al Seef District 428
P.O. Box 2424, Manama
Kingdom of Bahrain
Telephone : +973 17 585 858
Facsimile : +973 17 580 569
Email: info@ahliunited.com
www.ahliunited.com
P.O. Box 545
Postal Code 116
Mina Al Fahal
Sultanate of Oman
Telephone : +968 24577000
Facsimile : +968 24568001
Email: info@ahlibank.om
www.ahlibank.om
AHLI UNITED BANK (UK) PLC
UNITED BANK FOR COMMERCE &
INVESTMENT S.A.C.
35 Portman Square, London W1H 6LR
United Kingdom
Telephone : +44 20 7487 6500
Facsimile : +44 20 7487 6808
Email: aubuk.info@ahliunited.com
www.ahliunited.com
AHLI UNITED BANK K.S.C.P.
P.O. Box 71 Safat , 12168, Kuwait
Telephone : +965 1802000
Facsimile : +965 22461430
Email: contact@ahliunited.com
www.ahliunited.com
COMMERCIAL BANK OF IRAQ P.S.C.
51
Gumhouria Street - Mansoura Area
Tripoli, Libya
Telephone : +00218 213345602/3/4
Facsimile : +00218 213345601
Email: info@ubci-libya.com
www.ubci-libya.com
KUWAIT AND MIDDLE EAST
FINANCIAL INVESTMENT COMPANY K.S.C.P.
P.O. Box 819, Safat 13009, Kuwait
Telephone : +965 22255000
Facsimile : +965 22252564
Email: info@kmefic.com.kw
www.kmefic.com.kw
Al Sadoon Street, Baghdad, Iraq
Telephone : +964 17 405 583
Telephone : +973 17 566 468/9
Facsimile : +964 17 184 312
AHLI UNITED BANK (EGYPT) S.A.E.
81 Ninety Street
Sector A, Fifth Settlement, New Cairo
P.O. Box 413
Cairo, Egypt
Telephone : +20 2 26149500
:+20 2 26149600
: +20 2 26149700
Facsimile : +20 2 26135160
Email: egypt.callcenter@ahliunited.com
www.ahliunited.com
Ahli United Bank
Ahli United Bank
CONSOLIDATED
FINANCIAL
STATEMENTS
31 December 2014
Independent auditors' report to the shareholders Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Balance Sheet
Consolidated Statement of Cash Flows
Consolidated Statement of Changes in Equity
Notes to the Consolidated Financial Statements
54
55
56
57
58
59
61
Ahli United Bank
54
INDEPENDENT AUDITORS’ REPORT TO
THE SHAREHOLDERS OF AHLI UNITED BANK B.S.C.
Report on the consolidated financial statements
We have audited the accompanying consolidated financial statements of Ahli United Bank B.S.C. ("the Bank") and its subsidiaries ("the
Group"), which comprise the consolidated balance sheet as at 31 December 2014, and the related consolidated statements of income,
comprehensive income, cash flows and changes in equity for the year then ended, and a summary of significant accounting policies and
other explanatory information.
Board of Directors' responsibility for the consolidated financial statements
The Bank's Board of Directors is responsible for the preparation and fair presentation of these consolidated financial statements in accordance
with International Financial Reporting Standards, and for such internal control as the Board of Directors determines is necessary to enable
the preparation of the consolidated financial statements that are free from material misstatement, whether due to fraud or error.
Auditors’ responsibility
Our responsibility is to express an opinion on these consolidated financial statements based on our audit. We conducted our audit in
accordance with International Standards on Auditing. Those standards require that we comply with ethical requirements and plan and
perform the audit to obtain reasonable assurance about whether the consolidated financial statements are free from material misstatement.
An audit involves performing procedures to obtain audit evidence about the amounts and disclosures in the consolidated financial
statements. The procedures selected depend on the auditors’ judgement, including the assessment of the risks of material misstatement of
the consolidated financial statements, whether due to fraud or error. In making those risk assessments, the auditor considers internal control
relevant to the entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that
are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity's internal control.
An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by
the Board of Directors, as well as evaluating the overall presentation of the consolidated financial statements.
We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as
at 31 December 2014 and its consolidated financial performance and its cash flows for the year then ended in accordance with International
Financial Reporting Standards.
Report on other regulatory requirements
As required by the Bahrain Commercial Companies Law and the Central Bank of Bahrain (CBB) Rule Book (Volume 1), we report that:
a) the Bank has maintained proper accounting records and the consolidated financial statements are in agreement therewith; and
b) the financial information contained in the Report of the Board of Directors is consistent with the consolidated financial statements.
We are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain and Financial Institutions Law,
the CBB Rule Book (Volume 1 and applicable provisions of Volume 6) and CBB directives, regulations and associated resolutions, rules and
procedures of the Bahrain Bourse or the terms of the Bank’s memorandum and articles of association during the year ended 31 December
2014 that might have had a material adverse effect on the business of the Bank or on its financial position. Satisfactory explanations and
information have been provided to us by management in response to all our requests.
Partner's registration no: 117
22 February 2015
Manama, Kingdom of Bahrain.
Ahli United Bank
Annual Report
2014
CONSOLIDATED STATEMENT OF INCOME
55
For the year ended 31 December 2014
2014
2013
Note
US$ ’000
US$ ’000
Interest income
4a
1,180,503
1,093,547
Interest expense
4b
417,247
380,298
763,256
713,249
Net interest income
Fees and commissions
5
147,227
141,138
Trading income
6
35,204
34,901
37,724
18,271
24,362
28,086
Other operating income
33,495
22,684
Fees and other income
278,012
245,080
Net gains on investments
Share of profit from associates and joint venture
10
OPERATING INCOME
1,041,268
958,329
Net provision for loan losses and others
8f
132,180
157,358
Provision for investments
9
18,430
59,321
Total provisions
150,610
216,679
NET OPERATING INCOME
890,658
741,650
Staff costs
171,643
162,032
28,673
26,807
Other operating expenses
108,854
98,815
OPERATING EXPENSES
309,170
287,654
Depreciation and impairment
Gain on sale of investment held for sale
10
PROFIT BEFORE TAX
Tax expense
22
NET PROFIT
-
212,910
581,488
666,906
50,234
42,663
531,254
624,243
482,529
579,374
482,529
366,464
NET PROFIT ATTRIBUTABLE TO:
OWNERS OF THE BANK
Owners of the Bank before gain on sale of investment held for sale
NON-CONTROLLING INTEREST
NET PROFIT
-
212,910
48,725
44,869
531,254
624,243
EARNINGS PER SHARE ATTRIBUTABLE TO THE
OWNERS OF THE BANK FOR THE YEAR:
Basic earnings per share (US cents)
23
8.0
10.0
Diluted earnings per share (US cents)
23
8.0
9.9
Chairman (acting)
Rashed Al-Meer
Deputy Chairman
Adel A. El-Labban
Group Chief Executive Officer
& Managing Director
The attached notes 1 to 39 form part of these consolidated financial statements
Ahli United Bank
56
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME
2014
US$ ’000
2013
US$ ’000
531,254
624,243
Net change in fair value of financial assets measured at fair value through OCI
(32,176)
3,424
Net change in pension fund reserve
(18,255)
6,595
640
11,444
(62,527)
(42,312)
Net profit for the year
Other comprehensive income (OCI)
Items that will not be reclassified to
consolidated statement of income
Revaluation of freehold land
Items that may be reclassified subsequently to
consolidated statement of income
Foreign currency translation adjustments
Net change in fair value of cash flow hedges
(19,079)
2,271
Other comprehensive income for the year
(131,397)
(18,578)
399,857
605,665
368,165
563,377
31,692
42,288
399,857
605,665
Total comprehensive income for the year
Total comprehensive income attributable to:
Owners of the Bank
Ahli United Bank
Annual Report
2014
CONSOLIDATED BALANCE SHEET
57
At 31 December 2014
Note
2014
US$ ’000
2013
US$ ’000
Cash and balances with central banks
7a
649,212
820,296
Treasury bills and deposits with central banks
7b
2,611,085
2,587,534
3,823,517
4,409,068
ASSETS
Deposits with banks
Loans and advances
8
18,464,536
17,305,682
Non-trading investments
9
5,771,902
5,527,973
Investment in associates and joint venture
10
288,315
302,258
Investment properties
11
254,490
201,146
Premises and equipment
12
267,002
274,696
Interest receivable and other assets
13
672,890
560,854
Goodwill and other intangible assets
14
641,939
662,386
33,444,888
32,651,893
TOTAL ASSETS
LIABILITIES AND EQUITY
LIABILITIES
Deposits from banks
15
4,499,672
4,366,757
Borrowings under repurchase agreements
16
901,590
1,271,111
Customers’ deposits
17
23,006,768
22,028,457
Interest payable and other liabilities
18
854,993
778,260
Subordinated liabilities
19
351,646
642,205
29,614,669
29,086,790
1,530,471
1,415,570
(3,997)
(20,710)
-
12,500
Reserves
1,864,400
1,741,464
Equity attributable to the owners of the Bank
3,390,874
3,148,824
439,345
416,279
3,830,219
3,565,103
33,444,888
32,651,893
TOTAL LIABILITIES
EQUITY
Ordinary share capital
20
Treasury shares
Preference share capital
20
TOTAL EQUITY
TOTAL LIABILITIES AND EQUITY
Chairman (acting)
Rashed Al-Meer
Deputy Chairman
Adel A. El-Labban
Group Chief Executive Officer
& Managing Director
Ahli United Bank
58
CONSOLIDATED STATEMENT OF CASH FLOWS
Note
2014
US$ ’000
2013
US$ ’000
581,488
666,906
OPERATING ACTIVITIES
Profit before tax
Adjustments for:
Depreciation and impairment
Net gains on investments
28,673
26,807
(37,724)
(18,271)
Gain / income relating to investment held for sale
10
-
(212,910)
8f
132,180
157,358
Provision for non-trading investments
9
18,430
59,321
-
(4,601)
10
(24,362)
(28,086)
698,685
646,524
Gain on subordinated debt disposal
Share of profit from associates and joint venture
Operating profit before changes in operating assets and liabilities
Changes in:
Mandatory reserve deposits with central banks
(64,940)
(40,921)
(23,551)
(601,298)
Deposits with banks
70,244
48,247
Loans and advances
(1,200,780)
(1,469,299)
Deposits from banks
(112,036)
(75,488)
132,915
(239,885)
(369,521)
(590,246)
978,311
3,258,713
78,491
(32,308)
Cash from operations
187,818
904,039
Income tax paid
(39,674)
(30,934)
Net cash from operating activities
148,144
873,105
(1,534,102)
(997,475)
1,263,167
646,696
INVESTING ACTIVITIES
Net increase in non-trading investments
Proceeds from sale or redemption of non-trading investments
-
616,055
Net increase in investment properties
(58,463)
(29,348)
Net increase in premises and equipment
(15,220)
(23,229)
Proceeds from sale of investment held for sale
Dividends received from associates
Net cash (used in) from investing activities
9,124
5,471
(335,494)
218,170
(54,506)
(33,088)
FINANCING ACTIVITIES
Additional investment in subsidiaries
-
27,000
Buy back/repayment of subordinated liabilities
(190,559)
(40,073)
Dividends and other appropriations paid
(252,246)
(211,837)
Dividends paid to non-controlling interest
(20,856)
(19,864)
Proceeds from issue of preference shares
Sale (purchase) of treasury shares - net
Net cash used in financing activities
16,713
(20,710)
(501,454)
(298,572)
(62,527)
(42,312)
(DECREASE) INCREASE IN CASH AND CASH EQUIVALENTS
(751,331)
750,391
Cash and cash equivalents at 1 January
4,174,706
3,424,315
3,423,375
4,174,706
Foreign currency translation adjustments
CASH AND CASH EQUIVALENTS AT 31 DECEMBER
Ahli United Bank
24
Annual Report
2014
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
59
Attributable to the owners of the Bank
Reserves
Ordinary
share
capital
US$ ’000
Preference
share
capital
US$’000
Treasury
shares
US$ ’000
Share
premium
US$ ’000
Statutory
reserve
US$ ’000
Retained
earnings
US$ ’000
Proposed
appropriations
US$ ’000
Other
reserves
(Note 21(h))
US$ ’000
Total
reserves
US$ ’000
Noncontrolling
interest
US$ ’000
Total
US$’000
1,415,570
12,500
(20,710)
648,169
295,814
592,001
255,713
(50,233)
1,741,464
416,279
3,565,103
Mandatorily
Convertible
Preference shares
dividend paid
(note 21(i))
-
-
-
-
-
-
(3,217)
-
(3,217)
-
(3,217)
Ordinary share
dividend paid
(note 21(i))
-
-
-
-
-
-
(251,496)
-
(251,496)
-
(251,496)
Dividends of
subsidiaries
-
-
-
-
-
-
-
-
-
(20,856)
(20,856)
Donations paid
-
-
-
-
-
-
(1,000)
-
(1,000)
-
(1,000)
Balance at
1 January 2014
Bonus shares issued
71,468
-
-
-
-
(71,468)
-
-
(71,468)
-
-
Purchase of
treasury shares
-
-
(4,620)
-
-
-
-
-
-
-
(4,620)
Arising on additional
acquisitions in a
subsidiary
-
-
-
2,245
-
-
-
-
2,245
12,230
14,475
Ordinary shares
issued on conversion
of Class B preference
shares (note 20(c))
13,781
(12,500)
-
(1,281)
-
-
-
-
(1,281)
-
-
Ordinary shares
of convertible
subdebt (note 20(e))
29,652
-
-
70,348
-
-
-
-
70,348
-
100,000
Fair value
amortisation
of share based
transactions
-
-
-
-
-
-
-
4,262
4,262
-
4,262
Sale of treasury
shares
-
-
21,333
-
-
-
-
6,378
6,378
-
27,711
Total comprehensive
income for the year
-
-
-
-
-
482,529
-
(114,364)
368,165
31,692
399,857
Transfer to statutory
reserve (note 21(c))
-
-
-
-
48,253
(48,253)
-
-
-
-
-
Proposed dividend
on ordinary shares
(note 21(i))
-
-
-
-
-
(270,452)
270,452
-
-
-
-
Proposed donations
-
-
-
-
-
(1,000)
1,000
-
-
-
-
1,530,471
-
(3,997)
719,481
344,067
683,357
271,452
(153,957)
1,864,400
439,345
3,830,219
Balance at
31 December 2014
Ahli United Bank
60
CONSOLIDATED STATEMENT OF CHANGES IN EQUITY
Attributable to the owners of the Bank
Reserves
Ordinary
share
capital
US$ ’000
Preference
share
capital
US$’000
Treasury
shares
US$ ’000
Share
premium
US$ ’000
Statutory
reserve
US$ ’000
Retained
earnings
US$ ’000
Proposed
appropriations
US$ ’000
Other
reserves
(Note 21(h))
US$ ’000
Total
reserves
US$ ’000
Noncontrolling
interest
US$ ’000
Total
US$’000
1,303,164
125,000
-
540,508
237,877
390,693
214,880
(35,913)
1,348,045
385,298
3,161,507
Mandatorily
Convertible
Preference shares
dividend paid
(note 21(i))
-
-
-
-
-
-
(4,538)
-
(4,538)
-
(4,538)
Ordinary share
dividend paid
(note 21(i))
-
-
-
-
-
-
(209,342)
-
(209,342)
-
(209,342)
Dividends of
subsidiaries
-
-
-
-
-
-
-
-
-
(19,864)
(19,864)
Donations paid
-
-
-
-
-
-
(1,000)
-
(1,000)
-
(1,000)
Balance at
1 January 2013
Bonus shares issued
65,419
-
-
-
-
(65,419)
-
-
(65,419)
-
-
Transferred on sale
of FVOCI
investments
(note 21(h))
-
-
-
-
-
1003
-
-
1,003
-
1,003
Arising on additional
acquisitions in a
subsidiary
-
-
-
685
-
-
-
-
685
9,430
10,115
Other equity
movements of a
subsidiary
-
-
-
-
-
-
-
-
-
(873)
(873)
41,762
(125,000)
-
83,238
-
-
-
-
83,238
-
-
-
12,500
-
14,500
-
-
-
-
14,500
-
27,000
5,225
-
(20,710)
9,238
-
-
-
1,677
10,915
-
(4,570)
Total comprehensive
income for the year
-
-
-
-
-
579,374
-
(15,997)
563,377
42,288
605,665
Transfer to statutory
reserve (note 21(c))
-
-
-
-
57,937
(57,937)
-
-
-
-
-
Proposed dividend
on IFC Capitalization
(Equity) Fund L.P.
preference shares
(note 21(i))
-
-
-
-
-
(3,217)
3.217
-
-
-
-
Proposed dividend on
ordinary shares
(note 21(i))
-
-
-
-
-
(251,496)
251,496
-
-
-
-
Proposed donations
-
-
-
-
-
(1,000)
1,000
-
-
-
-
Balance at
31 December 2013
1,415,570
12,500
(20,710)
648,169
295,814
592,001
255,713
(50,233)
1,741,464
416,279
3,565,103
Ordinary shares
of mandatorily
convertible
preference shares
(note 20(d))
Issue of Class B
preference shares
(note 20(c))
Treasury shares
Ahli United Bank
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTS
Annual Report
2014
61
31 December 2014
1.
CORPORATE INFORMATION
The parent company, Ahli United Bank B.S.C. (AUB or the Bank) was incorporated in the Kingdom of Bahrain on 31 May 2000 originally as
a closed company and changed on 12 July 2000 to a public shareholding company by Amiri Decree number 16/2000. The Bank and its
subsidiaries as detailed in note 2 below (collectively known as the Group) are engaged in retail, commercial, islamic and investment banking
business, global fund management and private banking services through 104 branches, as at 31 December 2014, in the Kingdom of Bahrain
(21 branches), the State of Kuwait (37 branches), the Arab Republic of Egypt (34 branches), Republic of Iraq (10 branches) and the United
Kingdom (2 branches). It also operates through its managed associates in the Sultanate of Oman (19 branches) and Libya (12 branches)
with a total network of 31 branches as at 31 December 2014. The Bank operates under a retail banking licence issued by the Central Bank of
Bahrain. The Bank's registered office is located at Building 2495, Road 2832, Al Seef District 428, Kingdom of Bahrain.
The consolidated financial statements for the year ended 31 December 2014 were authorised for issue in accordance with a resolution of
the directors dated 22 February 2015.
2.
BASIS OF CONSOLIDATION
The consolidated financial statements comprise the financial statements of the Bank and its controlled subsidiaries as at and for the years
ended 31 December 2014 and 2013. The results of subsidiaries are included in the consolidated financial statements from the date that
control commences until the date that control ceases. Control is achieved where the Bank is exposed, or has rights, to variable returns from
its involvement from its investee and has the ability to affect those returns through its power over the investee. The Bank re-assesses whether
or not it controls an investee if facts and circumstances indicates that there are any change to elements of control. The financial statements
of the subsidiaries are prepared for the same reporting year as the Bank, using consistent accounting policies. Adjustments are made to the
consolidated financial statements to bring into line any dissimilar accounting policies that may exist.
All material intra-group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are
eliminated on consolidation. The Group does not have significant restrictions on its ability to access or use its assets and settle its liabilities.
The following are the Bank's principal subsidiaries:
Group's
nominal holding
Name
Country of
incorporation
31 December
2014
31 December
2013
United Kingdom
100.0%
100.0%
Ahli United Bank K.S.C.P. (AUBK)
State of Kuwait
74.9%
74.9%
Kuwait and Middle East Financial Investment
Co. K.S.C.P. (closed) (KMEFIC), a subsidiary of AUBK*
State of Kuwait
75.3%
75.3%
Ahli United Bank (Egypt) S.A.E. (AUBE)
Arab Republic of Egypt
85.4%
85.4%
Commercial Bank of Iraq P.S.C. (CBIQ)
Republic of Iraq
74.3%
71.3%
Ahli United Bank (U.K.) PLC (AUBUK)
* Adjusted for subsidiary's holdings
Financial information of a subsidiary that has material non-controlling interest is provided below and information pertaining to other
subsidiaries have been published in the Bank's annual report under the section of principal subsidiaries.
Proportion of equity interest held by non-controlling interests are provided below:
Name
Country of
incorporation
31 December
2014
31 December
2013
State of Kuwait
25.1%
25.1%
US$ '000
US$ '000
295,153
288,821
40,958
36,301
Accumulated non-controlling interest as at:
Profit allocated to material non-controlling interest:
Summarised financial information of AUBK is provided below. The information is based on amounts as reported in consolidated financial
statements of AUBK before inter-company eliminations and adjustments.
Ahli United Bank
62
31 December 2014
2.
BASIS OF CONSOLIDATION (continued)
31 December
2014
US$ ’000
31 December
2013
US$ ’000
8,476,917
7,590,845
515,803
244,728
12,292,565
11,221,728
9,894,998
7,420,965
11,132,930
10,075,945
Total operating income
354,925
347,972
162,806
151,301
Total comprehensive income
138,925
165,525
20,856
17,178
(17,873)
533,911
Net cash used in investing activities
(300,168)
(61,153)
Net cash used in financing activities
(82,218)
(67,597)
Balance sheet related information of AUBK
Loans and advances
Total assets
Customers' deposits
Total liabilities
Income statement related information of AUBK
Dividends paid to non-controlling interest
Cash flow related information of AUBK
Net cash (used in) from operating activities
3.
ACCOUNTING POLICIES
3.1
Basis of preparation
The consolidated financial statements have been prepared on a historical cost basis as modified for the re-measurement at fair value of
freehold land, certain financial instruments (as detailed below in note 3.3(c)) and all derivative financial instruments. In addition, as more
fully discussed below in note 3.3(h)(i), carrying values of recognised assets that are designated as hedged items in fair value hedges are
adjusted to the extent of the fair value attributable to the risk being hedged. The consolidated financial statements are presented in US
Dollars which is the Group's functional currency and all values are rounded to the nearest thousand (US Dollars thousand) except where
otherwise indicated.
Statement of compliance
The consolidated financial statements of the Group have been prepared in accordance with International Financial Reporting Standards
(IFRS) as issued by International Accounting Standards Board (IASB) and in conformity with the Bahrain Commercial Companies Law and
the Central Bank of Bahrain and Financial Institutions Law.
(A) New Standards and Interpretations issued but not yet effective
The following new Standards and amendments have been issued by the International Accounting Standards Board (IASB) but are not yet
mandatory as of 31 December 2014:
- IFRS 15 - Revenue from Contracts with customers (effective 1 January 2017). - IFRS 9 – Financial Instruments (effective for annual periods beginning on or after 1 January 2018)
During 2012, the Group early adopted phase 1 of IFRS 9 – “Classification and Measurement”. It is currently evaluating the impact of IFRS 15
and the Impairment and Hedge accounting sections of IFRS 9 which were issued in 2014.
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3.
ACCOUNTING POLICIES (continued)
3.1
Basis of preparation (continued)
(B) New Standards and Interpretations issued and effective
(i) The Group has adopted the following new and amended International Accounting Standards/International Financial Reporting
Standards as of 1 January 2014:
- Investment Entities (Amendments to IFRS 10, IFRS 12 and IAS 27)
-IAS 32 – Financial Instruments: Presentation - Offsetting Financial Assets and Financial liabilities (Amendment)
-IAS 36 – Impairment of Assets - Recoverable Amount Disclosures for Non-Financial Assets (Amendment)
-IAS 39 – Novation of Derivatives and Continuation of Hedge Accounting (Amendment)
The above amendments to IFRSs which are effective for annual accounting periods starting from 1 January 2014 did not have any material
impact on the accounting policies, financial position or performance of the Group.
3.2
Significant accounting judgements and estimates
The preparation of the consolidated financial statements requires management to make judgements and estimates that affect the reported
amounts of income, expenses, financial assets, liabilities, the accompanying disclosures and disclosure of contingent liabilities. Uncertainty
about these assumptions and estimates could result in outcomes that require a material adjustment to the carrying amount of assets or
liabilities affected in future periods. Judgements
Judgements are made in the classification of financial instruments into 'fair value' and 'amortised cost' based on business model. Further
goodwill and intangible assets with indefinite lives have been allocated to cash generating units for impairment testing. Judgements are
also made in determination of the objective evidence that a financial asset is impaired. Business model
In making an assessment of whether a business model’s objective is to hold assets in order to collect contractual cash flows, the Group
considers at which level of its business activities such assessment should be made. Generally, a business model is a matter of fact which can
be evidenced by the way business is managed and the information provided to management. In determining whether its business model for managing financial assets is to hold assets in order to collect contractual cash flows, the
Group considers:
• Management’s stated policies and objectives for the portfolio and the operation of those policies in practice;
• Management's evaluation of the performance of the portfolio;
• Management’s strategy in terms of earning contractual interest revenues or generating capital gains.
Estimates
Pension plans
Estimates and assumptions are used in determining the Group's pension liabilities. The cost of the defined benefit pension plan and other
post-employment medical benefits and the present value of pension obligations are determined using actuarial valuations. An actuarial
valuation involves making various assumptions that may differ from actual developments in the future. These include the determination of
the discount rate, future salary increases, mortality rates and future pension increases.
Impairment losses on loans and advances, non-trading investments and other assets
Estimates are made regarding the amount and timing of future cash flows when measuring the level of provisions required for non-performing
loans, portfolios of performing loans with similar risk characteristics where the risk of default has increased, as well as provisions for non-trading
investments and other assets. These are more fully described in note 3.3 (g).
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3.2
Significant accounting judgements and estimates(continued)
Fair value of financial instruments
Estimates are also made in determining the fair values of financial assets and derivatives that are not quoted in an active market. Such
estimates are necessarily based on assumptions about several factors involving varying degrees of uncertainty and actual results may differ
resulting in future changes in such provisions.
Impairment of goodwill and intangible assets
Impairment exists when carrying value of an asset or cash generating unit (CGU) exceeds its recoverable amount, which is the higher of its
fair value less costs of disposal and its value in use. The key assumptions used to determine the recoverable amount for the different CGUs,
are disclosed and further explained in note 14.
The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any differences between loss
estimates and actual loss experience. 3.3
Summary of significant accounting policies
The principal accounting policies applied in the preparation of these consolidated financial statements, besides those detailed in note 3.1 are
set out below. These policies have been consistently applied to all the years presented.
(a) Investments in associates and joint venture
Associate companies are companies in which the Group exercises significant influence but does not control. Significant influence is the
power to participate in the financial and operating policy decisions of the investee, but is not control or joint control over those policies.
The Group classifies an investment as "joint venture" when it is a party to a joint arrangement whereby the parties that have joint control of
the arrangement have rights to the net assets of the joint venture. Investments in associate companies and joint ventures are accounted for
using the equity method. After application of the equity method, the Group determines whether it is necessary to recognise an impairment
loss on its investment in its associate or joint venture. At each reporting date, the Group determines whether there is objective evidence
that the investment in the associate or joint venture is impaired. If there is such evidence, the Group calculates the amount of impairment as
the difference between the recoverable amount of the associate or joint venture and its carrying value, and then recognises the loss in the
statement of income. The reporting dates of the associates and joint venture and the Group are identical and the associates' and joint venture's accounting
policies materially conform to those used by the Group for like transactions and events in similar circumstances. Adjustments are made to
the consolidated financial statements to bring into line any dissimilar accounting policies that may exist. The Group does not have significant
restrictions on its ability to access or use its assets and settle its liabilities.
(b)
Foreign currency translation
(i)
Transactions and balances
Transactions in foreign currencies are initially recorded in the relevant functional currency at the rate of exchange prevailing on the date of
the transaction.
Monetary assets and liabilities denominated in foreign currencies are translated into the functional currency at the rate of exchange ruling
at the balance sheet date. Any resulting exchange differences are included in "trading income" in the consolidated statement of income.
Non-monetary assets and liabilities that are measured at historical cost in a foreign currency are translated using the exchange rates as at the
dates of the initial transactions. Non-monetary investments classified as fair value through other comprehensive income (FVTOCI) measured
at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined and the differences are
included in other comprehensive income as part of the fair value adjustment of the respective items, unless these items are designated as fair value
through profit or loss (FVTPL) or are part of an effective hedging strategy, in which case it is recorded in the consolidated statement of income.
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3.
3.3
Summary of significant accounting policies (continued)
(b)
Foreign currency translation (continued)
(ii)
Group companies
Assets and liabilities of foreign subsidiaries whose functional currency is not US Dollars are translated into US Dollars at the rates of exchange
prevailing at the balance sheet date. Income and expense items are translated at average exchange rates prevailing for the reporting period.
Any exchange differences arising on translation are included in “foreign exchange translation reserve” forming part of other comprehensive
income except to the extent that the translation difference is allocated to the non-controlling interest. On disposal of foreign operations,
exchange differences relating thereto and previously recognised in other comprehensive income are recognised in the consolidated
statement of income.
(c)
Financial instruments
The classification of financial instruments at initial recognition depends on the purpose for which the financial instruments were acquired
and their characteristics. All financial instruments are initially recognised at the fair value plus, for an item not recorded at FVTPL, transaction
costs that are directly attributable to its acquisition or issue. Premiums and discounts are amortised on a systematic basis to maturity using
the effective interest rate method and taken to interest income or interest expense as appropriate.
(i)
Date of recognition
All “regular way” purchases and sales of financial assets are recognised on the settlement date, i.e. the date that the Group receives or delivers
the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the timeframe
generally established by regulation or convention in the market place.
(ii) Treasury bills and deposits with central banks
Treasury bills and deposits with central banks are initially recognised at cost. Premiums and discounts are amortised to their maturity using
the effective interest rate method.
(iii) Deposits with banks and other financial institutions and loans and advances
Deposits with banks and other financial institutions and loans and advances are financial assets with fixed or determinable payments and
fixed maturities that are not quoted in an active market. After initial recognition, these are subsequently measured at amortised cost using
the effective interest rate method, adjusted for effective fair value hedges, less any amounts written off and provision for impairment. The
losses arising from impairment of these assets are recognised in the consolidated statement of income in "provision for loan losses and
others" and in an impairment allowance account in the consolidated balance sheet. Amortised cost is calculated by taking into account any
discount or premium on acquisition and fees that are an integral part of the effective interest rate. The amortisation is included in "interest
income" in the consolidated statement of income.
(iv) Debt instruments
Debt instruments are measured at amortised cost using the effective interest rate method if:
-
the assets are held within a business model whose objective is to hold assets in order to collect contractual cash flows; and
-
the contractual terms of the financial assets give rise on specified dates to cash flows that are solely payments of principal and interest
on the principal amount outstanding.
If either of these two criteria is not met, the financial assets are classified and measured at fair value through the profit or loss (FVTPL).
Additionally, even if the financial asset meets the amortised cost criteria the Group may choose at initial recognition to designate the
financial asset at FVTPL based on business model.
The Group accounts for any changes in the fair value in the consolidated statement of income for assets classified as "FVTPL". The change in
value is not recognized for assets carried at cost or amortised cost. Ahli United Bank
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3.3
(c) Financial instruments (continued)
(v) Equity investments
Investments in equity instruments are classified as FVTPL, unless the Group designates an equity investment that is not held for trading
as Fair Value through Other Comprehensive Income (FVTOCI) on initial recognition. At initial recognition, the Group can make irrevocable
election on an instrument by instrument basis to designate equity instrument as FVTOCI. If an equity investment is designated as FVTOCI,
all gains and losses, except for dividend income, are recognised in other comprehensive income and are not subsequently included in the
consolidated statement of income.
(vi)
Other financial instruments
A financial asset is classified as held for trading if:
-
it has been acquired principally for the purpose of selling in the near term; -
on initial recognition it is part of a portfolio of identified financial instruments that are managed together and for which there is a
recent actual pattern of short term profitability; or -
it is a derivative and not designated and effective as a hedging instrument or a financial guarantee.
Only financial assets that are measured at amortised cost are tested for impairment.
(vii)
Derivatives (other than hedging instruments)
Changes in fair values of the derivatives held for trading are included in the consolidated statement of income under "trading income".
Derivatives embedded in other financial instruments are not separated from the host contract and the entire contract is considered in order
to determine its classification. These financial instruments are classified as FVTPL and the changes in fair value of the entire hybrid contract
are recognised in the consolidated statement of income.
(viii) Deposits and subordinated liabilities
These financial liabilities are carried at amortised cost, less amounts repaid.
(d) Derecognition of financial assets and financial liabilities
A financial asset (or where applicable, a part of a financial asset or part of a group of similar financial assets) 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; or
-
the Group has transferred its rights to receive cash flows from the asset and either (i) has transferred substantially all the risks and
rewards of the asset, or (ii) has neither transferred nor retained substantially all the risks and rewards of the asset, but has transferred control of the asset.
A financial liability is derecognised when the obligation under the liability is discharged, cancelled or expires.
(e) Repurchase agreements
Where investments are sold subject to a commitment to repurchase them at a predetermined price, they remain on the consolidated balance
sheet and the consideration received is included in “Borrowings under repurchase agreements”. The difference between the sale price and
repurchase price is treated as interest expense and is accrued over the life of the agreement using the effective interest rate method. Ahli United Bank
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3.3
(f)
Determination of fair value
Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants
at the measurement date. The fair value measurement is based on the presumption that the transaction to sell an asset or transfer a liability
takes place either in the principal market, or in the absence of a principal market, in the most advantageous market.
The fair value of financial instruments that are quoted in an active market is determined by reference to market bid prices respectively at the
close of business on the balance sheet date.
The fair value of liabilities with a demand feature is the amount payable on demand.
The fair value of interest-bearing financial assets and financial liabilities that are not quoted in an active market and are not payable on
demand is determined by a discounted cash flow model using the current market interest rates for financial instruments with similar terms
and risk characteristics. For equity investments that are not quoted in an active market, a reasonable estimate of the fair value is determined by reference to the
current market value of another instrument that is substantially similar, or is determined using net present valuation techniques. Equity
securities and funds classified under level 3 are valued based on discounted cash flows and dividend discount models. The significant
inputs for valuation of equity securities classified under level 3 are annual growth rate of cash flows and discount rates and for funds it is
the illiquidity discount. Lower growth rate and higher discount rate, illiquidity discount will result in a lower fair value. The impact on the
consolidated statement of financial position or the consolidated statement of shareholders’ equity would be immaterial if the relevant risk
variables used to fair value the unquoted securities were altered by 5 per cent. There was no material changes in the valuation techniques
used for the purpose of measuring fair value of investment securities as compared to the previous year.
Investments in funds are stated at net asset values provided by the fund managers.
The fair value of unquoted derivatives is determined either by discounted cash flows or option-pricing models.
For the purpose of fair value disclosures, the Group has determined classes of assets and liabilities on the basis of the nature, characteristics
and risks of the assets or liabilities.
For assets and liabilities that are recognised in the financial statements on a recurring basis, the group determines whether transfers have
occurred between Levels in the hierarchy by re-assessing categorisation (based on the lowest level input that is significant to the fair value
measurement as a whole) at the end of each reporting period disclosed in note 34. (g) Impairment of financial assets
An assessment is made at each balance sheet date to determine whether there is any objective evidence that a specific financial asset
or a group of financial assets may be impaired. If such evidence exists, the estimated recoverable amount of that asset or a group of
financial assets is determined and any impairment loss, based on the net present value of future anticipated cash flows, is recognised in the
consolidated statement of income and credited to an allowance account.
Objective evidence that financial assets are impaired can include default or delinquency by a borrower, restructuring of a loan or advance
by the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the
disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes in the
payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group.
The present value of the estimated future cash flows for loans and other interest bearing financial assets is discounted at the financial asset's
original effective interest rate. If a loan has a variable interest rate, the discount rate for measuring any impairment loss is the current effective
interest rate. The calculation of the present value of the estimated future cash flows of a collateralised financial asset reflects the cash flows
that may result from foreclosure less costs for obtaining and selling the collateral, whether or not foreclosure is probable.
In addition to specific provisions against individually significant financial assets, the Group also makes collective impairment provisions on
groups of financial assets, which although not identified as requiring a specific provision, have a greater risk of default than the risk at initial
recognition. Financial assets are grouped on the basis of similar credit risk characteristics that are indicative of the debtors’ ability to pay
all amounts due according to the contractual terms and the collective impairment provision is estimated for any such group where credit
risk characteristics of the group of financial assets has deteriorated. Factors such as any deterioration in country risk, industry, technological
obsolescence as well as identified structural weaknesses or deterioration in cash flows are taken into consideration and the amount of the
provision is based on the historical loss pattern within each group, adjusted to reflect current economic changes.
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3.
3.3
(g) Impairment of financial assets (continued)
Loans together with the associated allowance are written off when there is no realistic prospect of future recovery and all collateral has been
realised or has been transferred to the Group. If, in a subsequent year, the amount of the estimated impairment loss increases or decreases
because of an event occurring after the impairment was recognised, the previously recognised impairment loss is increased or reduced
by adjusting the allowance account. If a write-off is later recovered, the recovery is credited to the 'provision for loan losses and others'
in the consolidated statement of income.
(h)
Hedge accounting
The Group enters into derivative instruments including futures, forwards, swaps and options to manage exposures to interest rate and
foreign currency risks, including exposures arising from forecast transactions. In order to manage particular risks, the Group applies hedge
accounting for transactions which meet the specified criteria. Derivatives are stated at fair value. Derivatives with positive market values are
included in "Interest receivable and other assets" and derivatives with negative market values are included in "interest payable and other
liabilities" in the consolidated balance sheet. At inception of the hedge relationship, the Group formally designates and documents the relationship between the hedged item and the
hedging instrument, including the nature of the risk, management objectives and strategy for undertaking the hedge. The methods that
will be used to assess the effectiveness of the hedging relationship form part of the Group's documentation.
Also at the inception of the hedge relationship, a formal assessment is undertaken to ensure the hedging instrument is expected to be
highly effective in offsetting the designated risk in the hedged item. Hedges are formally assessed at each reporting date. A hedge is
regarded as highly effective if the changes in fair value or cash flows attributable to the hedged risk during the period for which the hedge
is designated were offset in a range of 80% to 125%. For situations where the hedged item is a forecast transaction, the Group assesses
whether the transaction is highly probable and presents an exposure to variations in cash flows that could ultimately affect the consolidated
For the purposes of hedge accounting, hedges are classified into two categories: (i) fair value hedges which hedge the exposure to changes
in the fair value of a recognised asset or liability; and (ii) cash flow hedges which hedge exposure to variability in cash flows that is attributable
to a particular risk associated with a recognised asset or liability or a forecasted transaction.
(i)
Fair value hedges
For fair value hedges which meet the conditions for hedge accounting, any gain or loss from remeasuring the hedging instrument at fair
value is recognised immediately in the consolidated statement of income. The hedged item is adjusted for fair value changes relating to the
risk being hedged and the difference is recognised in the consolidated statement of income.
If the hedging instrument expires or is sold, terminated or exercised, or where the hedge no longer meets the criteria for hedge accounting,
the hedge relationship is terminated. For hedged items recorded at amortised cost, the difference between the carrying value of the hedged
item on termination and the value at which it would have been carried without being hedged is amortised over the remaining term of the
original hedge. If the hedged item is derecognised, the unamortised fair value adjustment is recognised immediately in the consolidated
(ii)
Cash flow hedges
For cash flow hedges which meet the conditions for hedge accounting, the portion of the gain or loss on the hedging instrument which
is determined to be an effective hedge is recognised initially in OCI. The ineffective portion of the fair value of the derivative is recognised
immediately in the consolidated statement of income as "trading income".
The gains or losses on effective cash flow hedges recognised initially in OCI are either transferred to the consolidated statement of income
in the period in which the hedged transaction impacts the consolidated statement of income or included in the initial measurement of the
related asset or liability. Ahli United Bank
Annual Report
2014
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31 December 2014
3.
3.3 Summary of significant accounting policies (continued)
(h)
Hedge accounting (continued)
(ii)
Cash flow hedges (continued)
For hedges which do not qualify for hedge accounting, any gains or losses arising from changes in the fair value of the hedging instrument
are recognised in the consolidated statement of income for the year.
Hedge accounting is discontinued when the hedging instrument expires or is sold, terminated or exercised, or no longer qualifies for hedge
accounting. In the case of cash flow hedges, the cumulative gain or loss on the hedging instrument recognised in OCI remains in OCI until
the forecasted transaction occurs, unless the hedged transaction is no longer expected to occur, in which case the net cumulative gain or
loss recognised in equity is transferred to the consolidated statement of income for the year. (i)
Offsetting financial instruments
Financial assets and financial liabilities are only offset and the net amount reported in the consolidated balance sheet when there is a
currently enforceable legal right to offset the recognised amounts and the Group intends to settle on a net basis. (j)
Revenue recognition
Revenue is recognised to the extent that it is probable that the economic benefits will flow to the Group and the revenue can be reliably
measured. The following specific recognition criteria must also be met before revenue is recognised:
(i)
Interest income and expense
For all interest bearing financial instruments, interest income or expense is recorded using the effective interest rate, which is the rate that
exactly discounts estimated future cash payments or receipts through the expected life of the financial instrument or a short period, where
appropriate, to the net carrying amount of the financial assets or financial liability. Interest that is 90 days or more overdue is excluded from
income. Interest on impaired loans and advances and other financial assets is not recognised in the consolidated statement of income. (ii)
Fees and commissions income
Credit origination fees are treated as an integral part of the effective interest rate of financial instruments and are recognised over their lives,
except when the underlying risk is sold to a third party at which time it is recognised immediately. Other fees and commissions income are
recognised when earned. (iii) Dividend income
Dividend income is recognised when the right to receive payment is established.
(k) Business combinations, goodwill and other intangible assets
Business combinations are accounted for using the purchase method of accounting. Assets and liabilities acquired are recognised at the
acquisition date fair values with any excess of the cost of acquisition over the net assets acquired being recognised as goodwill. Changes
in parent's ownership interest in a subsidiary that do not result in loss of control are treated as transactions between equity holders and are
reported in equity.
Goodwill acquired in a business combination is initially measured at cost being the excess of the cost of the business combination over
the Group's interest in the net fair value of the identifiable assets, liabilities and contingent liabilities acquired. Following initial recognition,
goodwill is reviewed for impairment annually or more frequently if events or changes in circumstances indicate that the carrying value may
be impaired. After initial recognition, goodwill is measured at cost less any accumulated impairment losses.
Intangible assets are measured on initial recognition at their fair values on the date of recognition. Following initial recognition, intangible assets are
carried at originally recognised values less any accumulated impairment losses.
Impairment of goodwill and intangible assets with indefinite life is determined by assessing the recoverable amount of the cash-generating unit
(or group of cash-generating units), to which the goodwill relates. Where the recoverable amount of the cash-generating unit (or group of cashgenerating units) is less than the carrying amount, an impairment loss is recognised immediately in the consolidated statement of income.
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3.
3.3
(k)
Business combinations, goodwill and other intangible assets (continued)
For the purpose of impairment testing, goodwill and intangible assets with indefinite life acquired in a business combination is, from the
acquisition date, allocated to each of the Group's cash-generating units, or groups of cash-generating units, that are expected to benefit
from the synergies of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or groups
of units. Each unit or group of units to which the goodwill is allocated:
-
represents the lowest level within the Group at which the goodwill is monitored for internal management purposes; and
-
is not larger than a segment based on either the Group’s primary or the Group's geographic segment reporting format determined in
accordance with IFRS 8 Operating Segments.
(l)
Freehold land is initially recognised at cost. After initial recognition, freehold land is carried at the revalued amount. The revaluation is carried
out periodically by independent professional property valuers. Fair value is determined by reference to market-based evidence. The resultant
revaluation surplus is recognised, as a separate component under equity. Revaluation deficit, if any, is recognised in the consolidated
statement of income, except that a deficit directly offsetting a previously recognised surplus on the same asset is directly offset against the
surplus in the revaluation reserve in equity.
Premises and equipment are stated at cost, less accumulated depreciation and impairment. Depreciation on buildings and other premises and equipment is provided on a straight-line basis over their estimated useful lives.
The estimated useful lives of the assets for the calculation of depreciation are as follows:
- Freehold buildings
40 to 50 years
- Leasehold land and buildings
Over the lease period - Other premises and equipment
Up to 10 years
(m)
Investment property
Land and buildings held for the purpose of capital appreciation or for long term rental yields and not occupied by the Group is classified
as investment properties. Investment properties are measured at cost less accumulated depreciation (depreciation for buildings based on
an estimated useful life of 30-40 years using the straight line method) and accumulated impairment. Any gains or losses on the retirement
or disposal of an investment property are recognised in the consolidated statement of income in the period of retirement or when sale is
completed.
(n)
Cash and cash equivalents
Cash and cash equivalents comprise cash and balances with central banks, excluding mandatory reserve deposits, together with those
deposits with banks and other financial institutions and treasury bills having an original maturity of three months or less.
(o)
Provisions
Provisions are recognised when the Group has a present obligation arising from a past event and the costs to settle the obligation are both
probable and able to be reliably estimated.
(p)
Employee benefits
Defined benefit pension plan
Pension costs are recognised on a systematic basis so that the costs of providing retirement benefits to employees are evenly matched, so far as
possible, to the service lives of the employees concerned. Remeasurements of the net defined benefit liability, which comprise actuarial gains and
losses, the return on plan assets (excluding interest) and the effect of the asset ceiling (if any, excluding interest) are recognised immediately in OCI.
Defined contribution plans
The Group also operates a defined contribution plan, the costs of which are recognised in the period to which they relate.
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2014
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3.
3.3
(q)Taxes
There is no tax on corporate income in the Kingdom of Bahrain. Taxation on income from foreign entities is provided for in accordance with
the fiscal regulations of the countries in which the respective Group entities operate.
Deferred taxation is provided for using the liability method on all temporary differences calculated at the rate at which it is expected to be
payable. Deferred tax assets are only recognised if recovery is probable.
(r)
Fiduciary assets
Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and, accordingly, are not incorporated in the consolidated
balance sheet.
(s) Non-controlling interests
Non-controlling interests represents the portion of profit or loss and net assets in the subsidiaries not attributable to the Bank’s equity
shareholders. Any change in Group's ownership interest in the subsidiary that does not result in a loss of control is accounted for as an equity
transaction.
(t) Mandatory convertible preference shares
Mandatory convertible preference shares which carry a mandatory coupon, and are convertible to equities at a future date, are recognised
under equity in the consolidated balance sheet. The corresponding dividends on those shares are accounted as appropriation of profits for
the corresponding year.
(u) Dividends on ordinary shares
Dividends on ordinary shares are recognised as a liability and deducted from equity when they are approved by the Bank's shareholders. Dividends for the period that are approved after the balance sheet date are shown as an appropriation and reported in the consolidated
statement of changes in equity, as an event after the balance sheet date.
(v) Employees' share purchase plan
The Group operates an employees' share purchase plan for certain eligible employees. The difference between the issue price and the fair value
of the shares at the grant date is amortised over the vesting period in the consolidated statement of income with a corresponding effect to
equity.
(w) Financial guarantees and loan commitments
In the ordinary course of business, the Group gives financial guarantees, consisting of letters of credit, guarantees and acceptances. Financial
guarantees are contracts that require the Group to make specified payments to reimburse the holders for a loss that is incurred because
a specified debtor fails to make payments when due in accordance with the terms of a debt instrument. Loan commitments are firm
commitments to provide credit under pre-specified terms and conditions.
Financial guarantees are initially recognised in the consolidated financial statements at fair value, adjusted for transaction costs that are directly
attributable to the issuance of the guarantee. Subsequent to initial recognition, the Group's liability under each guarantee is measured at the
higher of the amortised commission and the best estimate of expenditure required to settle any financial obligation arising as a result of the
guarantee.
(x)
Islamic banking
The Islamic banking activities of the group are conducted in accordance with Islamic Shari'a principles, as approved by the Shari’a Supervisory
Board. The financial statements extracts relating to these activities are prepared in accordance with the Financial Accounting Standards issued by
the Accounting and Auditing Organization for Islamic Financial Institutions (AAOIFI), IFRS and Central Bank of Bahrain regulations, as applicable.
- Earnings prohibited by Shari'a
The Islamic operation is committed to avoid recognising any income generated from non-Islamic sources. Accordingly, all non-Islamic
income is credited to the charity account where the Islamic operation uses these funds for charitable purposes. - Commingling of funds
The funds of Islamic operation are not commingled with the funds of the conventional operations of the Bank.
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3.
3.3
(y)
Islamic products
Murabaha
An agreement whereby the Group sells to a customer commodities, real estate and certain other assets at cost plus an agreed profit mark up
whereby the Group (seller) informs the purchaser of the price at which the asset had been purchased and also stipulates the amount of profit to be
recognized.
Ijara
A lease agreement between the Group (lessor) and the customer (lessee), whereby the Group earns profit by charging rentals on assets
leased to customers.
Tawarruq
A sales agreement whereby a customer buys commodities from the Group on a deferred payment basis and then immediately resells them
for cash to a third party.
Mudaraba
An agreement between two parties; one of them provides the funds and is called Rab-Ul-Mal and the other provides efforts and expertise and
is called the Mudarib and is responsible for investing such funds in a specific enterprise or activity in return for a pre-agreed percentage of the
Mudaraba income. In the case of normal loss, the Rab-Ul-Mal would bear the loss of its funds while the Mudarib would bear the loss of its efforts.
However, in the case of default, negligence or violation of any of the terms and conditions of the Mudaraba agreement, only the Mudarib would
bear the losses. The Group acts as Mudarib when accepting funds from depositors and as Rab-Ul-Mal when investing such funds on a
Mudaraba basis.
Wakala
An agreement whereby the Group provides a certain sum of money to an agent who invests it according to specific conditions in return for
a certain fee (a lump sum of money or a percentage of the amount invested). The agent is obliged to return the invested amount in the case
of default, negligence or violation of any of the terms and conditions of the Wakala.
Istisna’a
Istisna’a is a sale contract between a contract owner and a contractor whereby the contractor based on an order from the contract owner
undertakes to manufacture or otherwise acquire the subject matter of the contract according to specifications, and sells it to the contract
owner for an agreed upon price and method of settlement whether that be in advance, by instalments or deferred to a specific
future time.
Revenue recognition
Revenue is recognised on the above Islamic products as follows:
Income from Murabaha, Tawarruq and Istisna’a are recognised on an effective yield basis which is established on the initial recognition of the
asset and is not revised subsequently.
Income from Ijara is recognized over the term of the Ijara agreement so as to yield a constant rate of return on the net investment
outstanding.
Income (loss) on Mudaraba financing is based on expected results adjusted for actual experience as applicable, while similarly the losses are
charged to income.
Estimated income from Wakala is recognised on an accrual basis over the period, adjusted by actual income when received. Losses are
accounted for on the date of declaration by the agent. (z)
Unrestricted investment accounts' share of profit
The profit computed after taking into account all income and expenses at the end of a financial year is distributed between unrestricted
investment account holders which include Mudaraba depositors and the Bank's shareholders. The share of profit of the unrestricted account
holders is calculated on the basis of their daily deposit balances over the year, after reducing the agreed and declared Mudaraba fee.
Unrestricted investment account holders do not bear the expenses relating to non compliance with Shari'a regulations.
Ahli United Bank
Annual Report
2014
73
31 December 2014
4.
NET INTEREST INCOME
(a) INTEREST INCOME
2014
US$’000
2013
US$’000
Treasury bills
60,131
38,875
Deposits with banks and other financial institutions
43,276
54,708
Loans and advances
838,528
774,130
238,568
225,834
1,180,503
1,093,547
2014
US$’000
2013
US$’000
64,373
80,368
339,189
286,392
13,685
13,538
417,247
380,298
763,256
713,249
2014
US$’000
2013
US$’000
130,101
119,556
23,595
26,965
(6,469)
(5,383)
147,227
141,138
(b)
INTEREST EXPENSE
Deposits from banks and other financial institutions
(including repurchase agreements)
Customers' deposits
NET INTEREST INCOME
5. FEES AND COMMISSIONS
Fees and commission income
- Transaction banking services
- Management, performance and brokerage fees
Fees and commission expense
Included in 'management, performance and brokerage fees' is US$ 9.1 million (2013: US$ 9.3 million) of fee income relating to trust and other fiduciary
activities.
6. TRADING INCOME
Foreign exchange
Other trading activities
2014
US$’000
2013
US$’000
34,414
32,123
790
2,778
35,204
34,901
Ahli United Bank
74
31 December 2014
7(a). CASH AND BALANCES WITH CENTRAL BANKS
2014
US$’000
2013
US$’000
Cash and balances with central banks, excluding mandatory reserve deposits (note 24)
320,890
556,914
Mandatory reserve deposits with central banks
328,322
263,382
649,212
820,296
2014
US$’000
2013
US$’000
Central Bank of Bahrain
355,177
410,884
Central Bank of Kuwait
1,180,167
1,338,778
Central Bank of Egypt
464,866
373,274
Central Bank of Iraq
249,675
176,178
Bank of England
211,224
288,420
US Treasury bills
149,976
-
2,611,085
2,587,534
Mandatory reserve deposits are not available for use in day-to-day operations.
7(b). TREASURY BILLS AND DEPOSITS WITH CENTRAL BANKS
The Deposits with Central Banks and Treasury bills above, other than the U.S. Treasury bills, are denominated and funded in local currencies by the Bank's
subsidiaries operating in the respective countries.
8.
LOANS AND ADVANCES
2014
2013
US$ ’000
%
US$ ’000
%
Consumer/personal
3,570,697
18.7
3,714,874
20.7
Residential mortgage
1,746,918
9.1
1,895,617
10.6
Trading and manufacturing
4,272,999
22.4
3,937,762
21.9
Real estate
4,731,155
24.8
3,760,264
21.0
Banks and other financial institutions
1,056,714
5.5
858,758
4.8
Services
3,180,786
16.7
3,246,126
18.1
Government/public sector
269,060
1.4
381,464
2.1
Others
257,738
1.4
148,543
0.8
19,086,067
100.0
17,943,408
100.0
a) By industry sector
Less: Specific impairment provision
(326,770)
(353,092)
Less: Collective impairment provision
(294,761)
(284,634)
18,464,536
17,305,682
Ahli United Bank
Annual Report
2014
75
31 December 2014
8.
LOANS AND ADVANCES (continued)
2014
2013
US$ ’000
%
US$ ’000
%
Kingdom of Bahrain
3,320,036
17.4
3,282,724
18.3
State of Kuwait
9,195,216
48.2
8,350,052
46.5
Other GCC countries
2,192,643
11.5
2,044,449
11.4
United Kingdom
1,724,087
9.0
1,943,119
10.8
2,091,052
11.0
1,859,043
10.4
Europe (excluding United Kingdom)
164,427
0.8
161,429
0.9
Asia (excluding GCC countries)
279,147
1.5
207,550
1.2
Rest of the world
119,459
0.6
95,042
0.5
19,086,067
100.0
17,943,408
100.0
b) By geographic region
Less: Specific impairment provision
(326,770)
(353,092)
Less: Collective impairment provision
(294,761)
(284,634)
18,464,536
17,305,682
Other GCC countries comprise the members from the Gulf Co-operation Council being the Sultanate of Oman, State of Qatar, Kingdom of Saudi Arabia and
the United Arab Emirates.
Please refer note 31 (c) for disclosure of credit quality of loans and advances.
c)
Age analysis of past due but not impaired loans and advances
2014
Up to 30 days
US$ ’000
31 to 60 days
US$ ’000
61 to 89 days
US$ ’000
Total
US$ ’000
Retail
63,132
27,949
7,822
98,903
Corporate
52,116
21,328
40,839
114,283
115,248
49,277
48,661
213,186
Loans and advances
2013
Up to 30 days
US$ ’000
31 to 60 days
US$ ’000
61 to 89 days
US$ ’000
Total
US$ ’000
117,815
29,819
20,242
167,876
72,246
14,388
24,379
111,013
190,061
44,207
44,621
278,889
Loans and advances
Retail
Corporate
The past due loans and advances up to 30 days include those that are only past due by a few days. None of the above past due loans are considered to be impaired.
Ahli United Bank
76
31 December 2014
8.
LOANS AND ADVANCES (continued)
d)
Individually impaired loans and advances
2014
Retail
US$ ’000
Total
US$ ’000
Retail
US$ ’000
Corporate
US$ ’000
Total
US$ ’000
48,114
341,827
389,941
34,370
375,742
410,112
(40,897)
(285,873)
(326,770)
(28,629)
(324,463)
(353,092)
7,217
55,954
63,171
5,741
51,279
57,020
85.0%
83.6%
83.8%
83.3%
86.4%
86.1%
3,162,143
15,923,924
19,086,067
2,938,380
15,005,028
17,943,408
1.5%
2.1%
2.0%
1.2%
2.5%
2.3%
Gross impaired loans
Specific impairment provisions
Impaired loan coverage
Gross loans
Corporate
US$ ’000
2013
Impaired loan ratio
The fair value of collateral that the Group holds relating to loans individually determined to be impaired at 31 December 2014 amounts to US$ 484.2
million (2013: US$ 240.8 million). The collateral consists of cash, securities and properties.
e)
Impairment allowance for loans and advances
A reconciliation of the allowance for impairment losses for loans and advances by class is as follows:
2014
Retail
US$ ’000
Corporate
US$ ’000
2013
Total
US$ ’000
Retail
US$ ’000
Corporate
US$ ’000
Total
US$ ’000
60,248
577,478
637,726
100,785
463,909
564,694
(12,172)
(222,762)
(234,934)
(62,518)
(17,693)
(80,211)
Charge for the year
26,913
210,670
237,583
29,334
137,847
167,181
Recoveries during the year
(4,479)
(7,154)
(11,633)
(8,363)
(5,974)
(14,337)
4,037
(11,248)
(7,211)
1,010
(611)
399
74,547
546,984
621,531
60,248
577,478
637,726
At 1 January
Add/(Less):
Amounts written off during the year
Exchange rate and other adjustments
At 31 December
f)
The net charge for the year for provision for loan losses and others in the consolidated statement of income is determined as follows:
Impairment charge for the year on loans and advances (note 8(e))
2014
US$ ’000
2013
US$ ’000
237,583
167,181
(103,645)
(31,345)
(1,758)
21,522
132,180
157,358
Recoveries from loans and advances during the year
(including from fully provided loans written off in previous years)
Net (recovery) charge for others
Ahli United Bank
Annual Report
2014
77
31 December 2014
9.
NON-TRADING INVESTMENTS
2014
Held at
amortised cost
US$’000
Held at Fair
value
US$’000
Total
US$’000
387,083
-
387,083
1,163,644
-
1,163,644
467,710
-
467,710
2,376,951
-
2,376,951
847,762
-
847,762
Equity shares
-
56,215
56,215
Funds at net asset value
-
37,041
37,041
5,243,150
93,256
5,336,406
259,762
-
259,762
102,658
-
102,658
Equity shares
-
132,437
132,437
-
152,880
152,880
362,420
285,317
647,737
5,605,570
378,573
5,984,143
Quoted investments
GCC government bonds and debt securities
Other government bonds and debt securities
GCC government entities' securities
Floating rate notes and certificates of deposit:
- issued by banks and other financial institutions
- issued by corporate bodies
Unquoted investments
Total
Less: Allowance for impairment
(212,241)
5,771,902
Ahli United Bank
78
31 December 2014
9.
NON-TRADING INVESTMENTS (continued)
2013
Held at
amortised cost
US$’000
Held at Fair
value
US$’000
Total
US$’000
616,778
-
616,778
Other government bonds and debt securities
889,769
-
889,769
560,177
-
560,177
2,087,831
15,262
2,103,093
804,601
-
804,601
Equity shares
-
98,801
98,801
-
66,572
66,572
4,959,156
180,635
5,139,791
243,042
-
243,042
17,590
-
17,590
53,050
-
53,050
Equity shares
-
155,552
155,552
-
142,731
142,731
313,682
298,283
611,965
5,272,838
478,918
5,751,756
Quoted investments
- issued by corporate bodies
Unquoted investments
Total
(223,783)
5,527,973
The fair value of the non-trading investments held at amortised cost is US$ 5,646.1 million as at 31 December 2014 (31 December 2013: US$ 5,378.9 million)
of which US$ 5,269.0 million is classified under level 1 of fair value hierarchy (31 December 2013: US$ 5,033.8 million) and US$ 377.1 million is classified under
level 2 of fair value hierarchy (31 December 2013: US$ 345.1 million).
Investment held at fair value include investments amounting to US$ 9,119 thousand (2013: US$ 79,163 thousand) which are designated as Fair Value Through
Profit or Loss.
Please refer note 31 (c) for disclosure of credit quality of non-trading investments.
The movements in provision for impairment on investments were as follows:
Ahli United Bank
Annual Report
2014
79
31 December 2014
9.
NON-TRADING INVESTMENTS (continued)
2014
US$ ’000
2013
US$ ’000
223,783
168,637
18,430
59,321
-
(6,617)
(29,972)
2,442
At 31 December
212,241
223,783
At 1 January
Add/(Less):
Charge for the year
10.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURE
The principal associates and joint venture of the Group are:
a) Associates
Holding
Name
Country of incorporation
2014
2013
Ahli Bank S.A.O.G.
Sultanate of Oman
35.0%
35.0%
United Bank for Commerce and Investment S.A.L. (UBCI)
Libya
40.0%
40.0%
During the year ended 31 December 2013, the Bank divested its diluted stake of 29.4% in Ahli Bank Qatar (ABQ) to the Qatar Foundation for Education, Science
and Community Development at a price of QR 60 per share, generating a net non-recurring profit of US$ 212.9 million.
b) Joint venture
Holding
Name
Country of incorporation
2014
2013
Legal and General Gulf B.S.C. (c)*
Kingdom of Bahrain
50.0%
50.0%
2014
US$ ’000
2013
US$ ’000
Assets
4,715,286
3,897,656
Liabilities
4,103,343
3,321,838
24,362
28,086
* Provides conventional and takaful life and health insurance.
The summarised financial information of the Group’s associates and joint venture including Ahli Bank S.A.O.G. was as follows:
Net profit and comprehensive income for the year (Group's share)
Ahli United Bank
80
31 December 2014
10.
INVESTMENTS IN ASSOCIATES AND JOINT VENTURE (continued)
Financial information of Ahli Bank S.A.O.G. is provided below. The information is based on amounts as reported in financial statements of Ahli Bank S.A.O.G.
31 December
2014
US$ ’000
31 December
2013
US$ ’000
3,607,457
2,869,914
359,026
209,371
Total assets
4,272,237
3,479,181
Customers' deposits
2,795,298
2,480,662
Total liabilities
3,753,977
2,998,934
134,108
121,040
65,265
59,818
Total comprehensive income
62,634
60,776
8,617
5,471
(202,331)
180,525
Net cash from (used in) investing activities
12,605
(28,312)
Net cash from (used in) financing activities
49,730
29,369
Ahli Bank S.A.O.G.
Balance sheet related information
Loans and advances
Investments & securities
Income statement related information
Total operating income
Dividends received during the year
Cash flow related information
Net cash (used in) from operating activities
The market value of AUB's investment in Ahli Bank S.A.O.G. based on the price quoted in the Muscat Securities Market is US$ 288.5 million (31 December
2013: US$ 213.7 million).
11.
INVESTMENT PROPERTIES
This represents properties acquired by the Group and are recognized at cost. As at 31 December 2014, the fair value of the investment properties
is US$ 360.4 million (2013: US$ 277.8 million). Investment properties were revalued by independent valuers using significant valuation inputs based
on observable market data and is classified under level 2 of the fair value hierarchy.
12.
PREMISES AND EQUIPMENT
The net book values of the Group’s premises and equipment are:
2014
US$ ’000
2013
US$ ’000
124,531
127,087
Freehold buildings
40,766
41,625
Leasehold land and buildings
34,062
38,085
IT equipment and others
50,359
52,021
Capital work-in-progress
17,284
15,878
267,002
274,696
Freehold land
Freehold land was revalued by an independent valuer using significant valuation inputs based on observable market data and is classified under
level 2 of the fair value hierarchy.
Ahli United Bank
Annual Report
2014
81
31 December 2014
13.
INTEREST RECEIVABLE AND OTHER ASSETS
2014
US$ ’000
2013
US$ ’000
5,477
3,864
Interest receivable
156,660
176,864
Derivative assets (note 28)
218,983
110,914
Prepayments and others
291,770
269,212
672,890
560,854
Tax assets (note 22)
Prepayments and others include repossessed assets amounting to US$ 181.6 million (31 December 2013: US$ 187.5 million). Repossessed assets are assets
acquired in settlement of debts. These assets are carried at the lower of their repossessed value or the carrying value of the original secured asset.
14.
GOODWILL AND OTHER INTANGIBLE ASSETS
2014
Goodwill
US$'000
2013
Intangible
assets
US$'000
Total
US$'000
Goodwill
US$'000
Intangible
assets
US$ ’000
Total
US$ ’000
At 1 January
491,513
170,873
662,386
497,548
182,374
679,922
(15,103)
(5,344)
(20,447)
(6,035)
(11,501)
(17,536)
At 31 December
476,410
165,529
641,939
491,513
170,873
662,386
Goodwill:
Goodwill acquired through business combinations has been allocated to the cash-generating units of the acquired entities for impairment testing purposes.
The carrying amount of goodwill and intangible assets allocated to each of the cash-generating units is shown under note 30.
Key assumptions used in estimating recoverable amounts of cash-generating units
The recoverable amount of each cash-generating unit’s goodwill is based on value-in-use calculations using cash flow projections from financial budgets
approved by the Board of Directors, extrapolated for five year projections using nominal projected Gross Domestic Product growth rate in the respective
countries in which they operate. The discount rate applied to cash flow projections represent the cost of capital adjusted for an appropriate risk premium
for these business segments. The discount rate used in goodwill impairment testing was 8.8% to 18.6% (2013: 10.1% to 16.1%). The key assumptions used
in estimating recoverable amounts of cash generating units were sensitised to test the resilience of value-in-use calculations. On this basis, management
believes that reasonable changes in the key assumptions used to determine the recoverable amount of the Group's cash-generating units will not result in
an impairment.
Intangible assets:
Intangible assets comprise primarily the Group's banking licenses which have indefinite lives. Based on an annual impairment assessment of the intangible
assets, no indications of impairment were identified. The fair value of a banking license is determined at the time of acquisition by discounting the future
expected profits from its acquisition and its projected terminal value.
15.
DEPOSITS FROM BANKS
2014
US$ ’000
2013
US$ ’000
Demand and call
1,506,524
1,790,763
Time deposits
2,993,148
2,575,994
4,499,672
4,366,757
16.
BORROWINGS UNDER REPURCHASE AGREEMENTS
The Group has collateralized borrowing lines of credit with various financial institutions through Global Master Repurchase Agreements (GMRA), under which it can borrow
up to US$ 2.4 billion (31 December 2013: US$ 2.4 billion). Collateral is provided in the form of investment grade securities held within the non-trading investments portfolio.
As at 31 December 2014, the borrowings under these agreements were US$ 901.6 million (31 December 2013: US$ 1,271 million) and the fair value of
investment securities that had been provided as collateral was US$ 1,001 million (2013: US$ 1,338 million).
Ahli United Bank
82
31 December 2014
17.
CUSTOMERS' DEPOSITS
2014
US$ ’000
2013
US$ ’000
Current and call accounts
4,465,812
4,874,611
Saving accounts
2,292,850
2,031,014
16,248,106
15,122,832
23,006,768
22,028,457
2014
US$ ’000
2013
US$ ’000
Accruals
103,897
110,586
Interest payable
128,125
120,549
Derivative liabilities (note 28)
270,384
218,202
Other credit balances
315,261
296,829
Tax liabilities (note 22)
37,326
32,094
854,993
778,260
Time deposits
18.
19.
INTEREST PAYABLE AND OTHER LIABILITIES
SUBORDINATED LIABILITIES
These borrowings are subordinated to the claims of all other creditors of the respective banks.
Maturity
2014
US$ ’000
2013
US$ ’000
- Repayable in remaining eight equal semi-annual installments and falling on each Interest Payment
Date falling thereafter up to and including 15 December 2018.*(2013: Convertible into ordinary
shares at the holder's option at the rate of US 88.53 cents per share between the third and eighth
anniversary ending on 17 November 2014)
2018
88,889
200,000
- Repayable in four equal semi-annual installments commencing on 15 April 2019 and falling on
each Interest Payment Date falling thereafter up to and including 15 October 2020.
2020
165,000
165,000
253,889
365,000
International Finance Corporation (IFC):
Others:
- Non-convertible portion (50%) of Class A non-cumulative preference shares **
2015
-
179,068
- Issuer option to redeem after 2 December 2010 subject to one month notice.
2015
67,528
67,528
- 10 year subordinated debt repayable at maturity
2020
17,997
17,997
- Repayable at maturity
5 years & one
day notice
10,724
11,058
- Repayable at maturity
2016
1,508
1,554
97,757
277,205
351,646
642,205
* During the year, in accordance with the terms of the convertible subordinated debt agreement with IFC, US$ 100 million of convertible subordinated debt
were converted into ordinary shares at the rate of US 84.31 cents (118,609,884 shares).
** During the year, in accordance with the terms of the Class A non-cumulative preference share issue, the residual outstanding (representing the non-convertible
subordinated debt portion with original maturity of 1 January 2015) as of the record date 5 February 2014, has been redeemed.
Ahli United Bank
Annual Report
2014
83
31 December 2014
20.
SHARE CAPITAL
(a)
Authorised :
-
2014
US$ ’000
2013
US$ ’000
2,000,000
2,000,000
2014
US$ ’000
2013
US$ ’000
1,530,471
1,415,570
6,121.9
5,662.2
2014
2013
Share capital
8,000 million shares (2013: 8,000 million shares) of US$ 0.25 each
Available for issuance of ordinary shares and various classes of preference shares
(b)
(i)
Issued and fully paid:
Ordinary share capital (US$ 0.25 each)
Number of shares (millions)
Movement in ordinary shares
(number in millions)
5,662.2
5,233.5
55.1
-
286.0
261.7
-
167.0
118.6
-
6,121.9
5,662.2
2014
US$ ’000
2013
US$ ’000
Class B preference shares (US$ 0.25 each)
-
12,500
Number of shares (millions) (refer note 20 (c))
-
50.0
2014
2013
Opening balance as at 1 January
Add: issuance of shares upon conversion of Class B preference shares
Add: bonus share issue
Add: issuance of shares upon conversion of IFC mandatory convertible preference shares (note 20 (d))
Add: issuance of shares upon conversion of IFC subordinated debt (note 19)/(note 20 (e))
Closing balance as at 31 December
(ii)
Movement in class B preference shares
50.0
-
(Converted)/issued during the year
(50.0)
50.0
-
50.0
2014
2013
Movement in IFC Mandatory Convertible preference shares
-
500.0
Less: Conversion to ordinary shares (note 20 (d))
-
(500.0)
-
-
Ahli United Bank
84
31 December 2014
20.
SHARE CAPITAL (continued)
(c)
Issue of Class B preference shares
During 2013, following the recommendation of the Board of Directors and Extraordinary General Assembly and regulatory approvals, the Bank issued 50.0 million Class B non-cumulative fully convertible preference shares at US$ 0.54 per share. These shares are mandatorily convertible into ordinary
shares, as adjusted for any bonus share issues, at the discretion of the Board of Directors. The fair value, estimated as of the grant date, was US$
0.68 per share. Accordingly, on 1 January 2014, the 50.0 million Class B non-cumulative fully convertible preference shares were converted to 55.1 million
ordinary shares.
(d) On 9 October 2013, in accordance with the terms of Mandatorily Convertible Preference Shares (MCPS) invested by International Finance
Corporation Capitalization (Equity) Fund (“IFC Fund”), the MCPS were converted into the Bank's common shares at an effective conversion price
of US 74.83 cents per share, translating into 167,045,454 common shares. (e)
During 2014, in accordance with the terms of the convertible subordinated debt agreement with IFC, US$ 100 million of convertible subordinated
debt were converted into ordinary shares at the rate of US 84.31 cents (118,609,884 shares). Upon conversion, the IFC together with IFC Capitalisation
(Equity) Fund had a 5.16% shareholding in the Bank.
21.
RESERVES a)
Share premium
The share premium arising on the issue of ordinary and preference shares is not distributable except in such circumstances as stipulated in the
Bahrain Commercial Companies Law.
b)
Capital reserve
As required by the Bahrain Commercial Companies Law, any profit on the sale of treasury stock is transferred to a capital reserve. The reserve is
not distributable except in such circumstances as stipulated in the Bahrain Commercial Companies Law.
c)
Statutory reserve
As required by the Bahrain Commercial Companies Law and the Bank’s Articles of Association, 10% of the net profit is transferred to statutory reserve
on an annual basis. The Bank may resolve to discontinue such transfers when the reserve totals 50% of the paid up capital. The reserve is
not distributable except in such circumstances as stipulated in the Bahrain Commercial Companies Law.
d)
Property revaluation reserve
The revaluation reserve arising on revaluation of freehold land is not distributable except in such circumstances as stipulated in the
Bahrain Commercial Companies Law.
e)
Foreign exchange translation reserve
f )
It comprises of translation effects arising on consolidation of subsidiaries, non-monetary equity investments and investments in associates.
g)
This reserve represents changes in the fair values of equity investments that have been classified as fair value through other comprehensive income.
This reserve represents the effective portion of gain or loss on the Group's cash flow hedging instruments.
Other comprehensive income reserve (OCI Reserve)
Cash flow hedge reserve
Ahli United Bank
Annual Report
2014
85
31 December 2014
21.
RESERVES (continued)
h)
Movements in other reserves
Cumulative changes
Capital
reserve
US$ ’000
Property
revaluation
reserve
US$ ’000
Foreign
exchange
translation
reserve
US$ ’000
OCI
reserve
US$ ’000
Cash flow
hedge
reserve
US$ ’000
ESPP
reserve
US$ ’000
Pension
fund
reserve
US$ ’000
Total
other
reserves
US$ ’000
2,102
36,497
(74,507)
20,414
(6,012)
-
(28,727)
(50,233)
Currency translation
adjustments
-
-
(47,459)
-
-
-
-
(47,459)
Transfers to consolidated
statement of income
-
-
-
-
582
-
-
582
6,378
-
-
-
-
-
-
6,378
Net fair value movements
during the year
-
-
-
(30,103)
(19,661)
-
-
(49,764)
Fair value movements
during the year
-
-
-
-
-
4,262
(18,255)
(13,993)
-
532
-
-
-
-
-
532
8,480
37,029
(121,966)
(9,689)
(25,091)
4,262
(46,982)
(153,957)
Balance at 1 January 2014
Sale of treasury shares
Balance at 31 December 2014
Cumulative changes
Capital
reserve
US$ ’000
Property
revaluation
reserve
US$ ’000
Foreign
exchange
translation
reserve
US$ ’000
OCI
reserve
US$ ’000
Cash flow
hedge
reserve
US$ ’000
ESPP
reserve
US$ ’000
Pension
fund
reserve
US$ ’000
Total
other
reserves
US$ ’000
425
26,737
(36,248)
16,778
(8,283)
-
(35,322)
(35,913)
Currency translation
adjustments
-
-
(38,259)
-
-
-
-
(38,259)
Transfers to consolidated
statement of income
-
-
-
-
95
-
-
95
Transfers to retained
earnings
-
-
-
(1,003)
-
-
-
(1,003)
1,677
-
-
-
-
-
-
1,677
Net fair value movements
during the year
-
-
-
4,639
2,176
-
-
6,815
Fair value movements
during the year
-
-
-
-
-
-
6,595
6,595
-
9,760
-
-
-
-
-
9,760
2,102
36,497
(74,507)
20,414
(6,012)
-
(28,727)
(50,233)
Sale of treasury shares
Ahli United Bank
86
31 December 2014
21.
RESERVES (continued)
i)
Dividends paid and proposed
2014
US$’000
Proposed for approval at the forthcoming Annual General Assembly of Shareholders Meeting
270,452
Cash dividend on the Ordinary shares @ US cents 4.5 per share
5%
Bonus share issue
2013
US$’000
Declared and paid during the year
Cash dividend on IFC Capitalization (Equity) Fund L.P Preference shares (2013: US$ 4.5 million)
3,217
Cash dividend on the Ordinary shares @ US cents 4.5 per share (2013: US cents 4.0 per share)
251,496
Bonus share issue (2013: 5%)
5%
22.TAXATION
2014
US$’000
2013
US$’000
889
1,954
4,588
1,910
(37,326)
(32,094)
(31,849)
(28,230)
50,086
44,526
148
(1,863)
50,234
42,663
Consolidated balance sheet (note 13 and note 18):
- Current tax asset
- Deferred tax asset
- Current tax liability
Consolidated statement of income
- Current tax expense on foreign operations
- Deferred tax expense (income) on foreign operations
The Group's tax expense includes all direct taxes that are accrued and paid on taxable profits of entities to the authorities in the respective countries of
incorporation, in accordance with the tax laws prevailing in those jurisdictions. Consequently, it is not practical to provide a reconciliation between the
accounting and taxable profits together with the details of effective tax rates. Tax expense primarily relates to AUBUK, AUBE, AUBK and CBIQ. Effective tax rate
at AUBE is 30 % (2013: 25%) and AUBUK is 21.5% (2013: 24.5%).
Ahli United Bank
Annual Report
2014
87
31 December 2014
23.
EARNINGS PER SHARE
Basic earnings per share is calculated by dividing the net profit for the year attributable to the Bank’s ordinary equity shareholders less preference share dividends, by the weighted average number of ordinary shares outstanding during the period.
Diluted earnings per share amounts are calculated by dividing the net profit attributable to the Bank's ordinary equity shareholders by the weighted average
number of ordinary shares outstanding during the year plus the weighted average number of ordinary shares that would be issued on the conversion of
preference shares into ordinary shares.
The following reflects the income and share data used in basic and diluted earnings per share computations :
2014
US$’000
2013
US$’000
482,529
579,374
-
(3,217)
482,529
576,157
8.0
10.0
482,529
579,374
8.0
9.9
Net profit for basic earnings per share computation
Net profit attributable to Bank's equity shareholders
(Less): IFC mandatorily convertible preference shares dividend (note 21(i))
Adjusted net profit attributable to Bank's ordinary equity shareholders for basic earnings per share
Basic earnings per share (US cents)
Net profit for diluted earnings per share computation
Adjusted net profit attributable to Bank's ordinary equity shareholders for
diluted earnings per share (before preference share dividend)
Diluted earnings per share (US cents)
The basic earnings per share for 2013 without the non-recurring profit on sale of stake in Ahli Bank Qatar was US 6.3 cents per share.
Number of shares (in millions)
2014
2013
Weighted average ordinary shares outstanding during the period adjusted for bonus shares
6,013
5,778
Net weighted average number of ordinary shares for basic earnings per share
6,013
5,778
-
55
6,013
5,833
Add: Effect of dilution – Class B preference shares
Weighted average number of ordinary shares for diluted earnings per share
24.
CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the consolidated statement of cash flows include the following balance sheet amounts:
Cash and balances with central banks, excluding mandatory reserve deposits (note 7(a))
Deposits with Central banks, other banks and financial institutions - with an original maturity of
three months or less
2014
US$ ’000
2013
US$ ’000
320,890
556,914
3,102,485
3,617,792
3,423,375
4,174,706
Ahli United Bank
88
31 December 2014
25.
RELATED PARTY TRANSACTIONS
The Group enters into transactions with major shareholders, associates, directors, senior management and companies which are controlled, jointly controlled
or significantly influenced by such parties in the ordinary course of business at arm's length. All the loans and advances to related parties are performing and
are free of any provision for possible loan losses.
The income, expense and the period end balances in respect of related parties included in the consolidated financial statements were as follows:
2014
US$ ’000
Interest income
Interest expense
Major
shareholders
Associates
Directors
and senior
management
-
1,211
8,083
9,294
57,087
43
50
57,180
Total
-
1,527
19
1,546
Deposits with banks
-
448,038
-
448,038
Loans and advances
-
-
201,315
201,315
Deposits from banks
-
15,241
-
15,241
5,620,379
7,501
45,340
5,673,220
10,725
-
-
10,725
Derivative assets
-
96
-
96
Commitments and contingent liabilities
-
64,738
178,818
243,556
Short term employee benefits
-
-
17,226
17,226
End of service benefits
-
-
2,567
2,567
Directors' fees & related expenses
-
-
1,724
1,724
2013
US$ ’000
Associates
Directors
and senior
management
Total
142
7,703
7,845
65,977
101
315
66,393
-
1,579
-
1,579
Deposits with banks
-
107,826
-
107,826
Loans and advances
-
-
208,477
208,477
Deposits from banks
-
27,143
-
27,143
6,283,042
1,319
36,941
6,321,302
Interest income
Interest expense
Major
shareholders
-
11,058
-
-
11,058
-
120
-
120
Commitments and contingent liabilities
-
38,018
108,454
146,472
Short term employee benefits
-
-
16,364
16,364
Derivative assets
End of service benefits
-
-
2,270
2,270
Directors' fees & related expenses
-
-
1,808
1,808
Customers’ deposits include deposits from GCC government-owned institutions amounting to US$ 5,616 million (31 December 2013: US$ 6,278 million).
The consolidated income statement includes a fair value amortisation charge of US$ 2.1 million (2013: Nil ) relating to share based transactions for
key management personnel.
Ahli United Bank
Annual Report
2014
89
31 December 2014
26.
EMPLOYEE BENEFITS
The Group operates Defined Benefit and Defined Contribution retirement benefit schemes for its employees in accordance with the local laws and regulations
in the countries in which it operates. The costs of providing retirement benefits including current contributions, are charged to the consolidated statement
of income.
Defined benefit plans
The charge to the consolidated statement of income on account of end of service benefits for the year amounted to US$ 9,081 thousand (2013: US$ 8,319
thousand). There are no material differences between the carrying amount of the provision for end of service benefits at both 31 December 2014 and 2013
and the amount arising from an actuarial computation thereof.
AUBUK's defined benefit pension scheme was closed to future service accruals on 31 March 2010. The Group adopted the amended Standard- IAS-19
Employee Benefits issued by the IASB in 2011. In accordance with the amended Standard, the Group immediately recognized the actuarial gains and losses
relating to 'Defined Pension Benefit' scheme through consolidated statement of changes in equity.
Defined contribution plans
The Group contributed US$ 7,256 thousand (2013: US$ 6,495 thousand) during the year towards defined contribution plans. The Group’s obligations are
limited to the amounts contributed to various schemes.
27.
MANAGED FUNDS
Funds administrated on behalf of customers to which the Group does not have legal title are not included in the consolidated balance sheet. The total market
value of all such funds at 31 December 2014 was US$ 4,163 million (2013: US$ 4,277 million).
28.DERIVATIVES
In the ordinary course of business the Group enters into various types of transactions that involve derivative financial instruments. A derivative financial
instrument is a financial contract between two parties where payments are dependent upon movements in price in one or more underlying financial
instruments, reference rates or indices.
Derivatives include financial options, futures and forwards, interest rate swaps and currency swaps, which create rights and obligations that have the effect of
transferring between the parties of the instrument one or more of the financial risks inherent in an underlying primary financial instrument. On inception, a
derivative financial instrument gives one party a contractual right to exchange financial assets or financial liabilities with another party under conditions that
are potential favourable, or a contractual obligation to exchange financial assets or financial liabilities with another party under conditions that are potentially
unfavourable. However, they generally do not result in a transfer of the underlying primary financial instrument on inception of the contract, nor does such
a transfer necessarily take place on maturity of the contract. Some instruments embody both a right and an obligation to make an exchange. Because the
terms of the exchange are determined on inception of the derivative instruments, as prices in financial markets change those terms may become either
favourable or unfavourable.
The table below shows the net fair values of derivative financial instruments.
2014
2013
Derivative
assets
US$ ’000
Derivative
liabilities
US$ ’000
Derivative
assets
US$ ’000
Derivative
liabilities
US$ ’000
13,065
16,609
18,656
17,613
136,546
85,615
14,585
36,450
913
672
1,414
396
33,495
31,397
6,217
6,464
1,621
1,554
21
582
8,553
87,784
70,021
150,685
18,810
46,725
-
6,012
5,980
28
-
-
218,983
270,384
110,914
218,202
Derivatives held for risk management:
Interest rate swaps
Forward foreign exchange contracts
Forward rate agreements
Options
Interest rate futures
Derivatives held as fair value hedges:
Interest rate swaps
Derivatives held as cash flow hedges:
Interest rate swaps
Forward foreign exchange contracts
Counterparties with whom the bank has entered into forward foreign exchange contracts have placed margin monies representing net fair values of contracts
outstanding.
Ahli United Bank
90
31 December 2014
28.
DERIVATIVES (continued)
In respect of derivative assets above, the Group has US$ 81.1 million (2013: US$ 78.2 million) of liabilities that can be offset through master netting arrangements.
These master netting arrangements create a right of set-off that is enforceable only following an event of default, insolvency or bankruptcy of counterparties
or following other predetermined events.
Cash flow hedges
The time periods in which the hedged cash flows are expected to occur and their impact on the consolidated statement of income is as follows:
3 months
or less
US$ ’000
More than
3 months
up to 1 year
US$ ’000
More than
1 year
up to 5 years
US$ ’000
More than
5 years
US$ ’000
Total
US$ ’000
3,042
7,775
10,906
48,640
70,363
1,114
915
11,226
-
13,255
At 31 December 2014
Cash outflows from liabilities
At 31 December 2013
Cash outflows from liabilities
No hedge ineffectiveness on cash flow hedges was recognised in 2014 and 2013.
Fair value hedges
The net fair value of interest rate swap held as fair value hedges as at 31 December 2014 is negative US$ 79.2 million (2013 : Negative US$ 80.7 million). Gain
recognised on the hedged item at 31 December 2014, attributable to the hedged risk is US$ 79.2 million (2013 : US$ 80.7 million). These gains and losses are
included in "trading income" in the consolidated statement of income during 2014 and 2013.
Derivatives held for risk management purposes
Most of the Group’s derivative trading activities relate to customer driven transactions as well as positioning and arbitrage. Positioning involves managing
positions with the expectation of profiting from favourable movements in prices, rates or indices. Arbitrage involves identifying and profiting from price
differentials between markets or products.
Derivatives held for hedging purposes
The Group has adopted a comprehensive system for the measurement and management of risk.
As part of its asset and liability management the Group uses derivatives for hedging purposes in order to reduce its exposure to currency and interest rate
movements. This is achieved by hedging specific financial instruments and forecasted transactions, as well as strategic hedging against overall balance sheet
exposures.
The Group uses options and currency swaps to hedge against specifically identified currency and equity risks. In addition, the Group uses interest rate swaps
and forward rate agreements to hedge against the interest rate risk arising from specifically identified, or a portfolio of, fixed interest rate investments and
loans. The Group also uses interest rate swaps to hedge against the cash flow risks arising on certain floating rate deposits. In all such cases the hedging
relationship and objective, including details of the hedged item and hedging instrument, are formally documented and the transactions are accounted for
as fair value hedges.
Hedging of interest rate risk is also carried out by monitoring the duration of assets and liabilities and entering into interest rate swaps to hedge net interest
rate exposures. Since hedging of net positions does not qualify for special hedge accounting, related derivatives are accounted for the same way as trading
instruments.
29.
COMMITMENTS AND CONTINGENT LIABILITIES
Credit-related commitments
Credit-related commitments include commitments to extend credit, standby letters of credit, guarantees and acceptances which are designed to meet the
requirements of the Group’s customers.
Commitments to extend credit represent contractual commitments to make loans and revolving credits available and generally have fixed expiration dates or
other termination clauses. Since commitments may expire without being drawn upon, the total contract amounts do not necessarily represent future cash
requirements.
Standby letters of credit, guarantees and acceptances (standby facilities) commit the Group to make payments on behalf of customers contingent upon their
failure to perform under the terms of the contract. Standby facilities would have market risk if issued or extended at a fixed rate of interest. However, these
contracts are primarily made at floating rates.
Ahli United Bank
Annual Report
2014
91
31 December 2014
29.
COMMITMENTS AND CONTINGENT LIABILITIES (continued)
Credit-related commitments (continued)
The Group has the following credit related commitments:
2014
US$ ’000
2013
US$ ’000
1,991,159
1,860,647
Acceptances
173,430
121,298
Letters of credit
922,808
914,167
3,087,397
2,896,112
2,220,777
1,814,862
866,620
1,081,250
3,087,397
2,896,112
720,628
532,356
2014
US$ ’000
2013
US$ ’000
Within one year
1,938
2,040
Between one to five years
1,646
3,467
3,584
5,507
Contingent liabilities
Guarantees
Maturity of contingent liabilities is as follows:
- Less than one year
- Over one year
Irrevocable commitments:
Undrawn loan commitments
Please also refer to note 35 for additional liquidity disclosures.
The Group’s commitments in respect of non-cancellable operating leases were as follows:
30.
SEGMENT INFORMATION
For management purposes the Group is organised into four major business segments:
Retail banking Principally handling individual customers’ deposit and current accounts, providing consumer loans, residential mortgages, overdrafts, credit cards and fund transfer facilities.
Corporate banking Principally handling loans and other credit facilities, and deposit and current accounts for corporate and institutional customers.
Treasury & investments Principally providing money market, trading and treasury services, as well as management of the Group’s investments and funding.
Private banking Principally servicing high net worth clients through a range of investment products, funds, credit facilities, trusts and alternative investments.
Ahli United Bank
92
31 December 2014
30.
SEGMENT INFORMATION (continued)
These segments are the basis on which the Group reports its primary segment information. Transactions between segments are conducted at approximate
market rates on an arms length basis. Interest is charged/credited to business segments based on a pool rate which approximates the cost of funds.
Segmental information for the year was as follows:
Retail
banking
US$ ’000
Corporate
banking
US$ ’000
Treasury &
investments
US$ ’000
Private
banking
US$ ’000
Total
US$ ’000
155,038
307,634
248,807
51,777
763,256
34,105
83,482
7,336
22,304
147,227
Share of profits from associates and joint venture
7,255
9,696
7,411
-
24,362
2,003
15,329
88,979
112
106,423
198,401
416,141
352,533
74,193
1,041,268
5,276
124,660
-
2,244
132,180
-
-
18,430
-
18,430
193,125
291,481
334,103
71,949
890,658
Operating expenses
111,761
68,136
90,740
38,533
309,170
PROFIT BEFORE TAX
81,364
223,345
243,363
33,416
581,488
Year ended 31 December 2014:
Net interest income
OPERATING INCOME
50,234
Tax expense
NET PROFIT FOR THE YEAR
531,254
Less : Attributable to non-controlling interest
48,725
482,529
NET PROFIT ATTRIBUTABLE TO THE OWNERS' OF THE BANK
Segment assets
Goodwill
Other intangible assets
3,619,641
14,183,737
11,895,337
1,876,027
31,574,742
167,856
114,778
110,287
83,489
476,410
47,422
44,090
61,984
12,033
165,529
288,315
Unallocated assets
939,892
TOTAL ASSETS
Segment liabilities
Unallocated liabilities
TOTAL LIABILITIES
Ahli United Bank
33,444,888
5,685,485
5,393,421
14,327,175
3,353,595
28,759,676
854,993
29,614,669
Annual Report
2014
93
31 December 2014
30.
Retail
banking
US$ ’000
Corporate
banking
US$ ’000
Treasury &
investments
US$ ’000
Private
banking
US$ ’000
Total
US$ ’000
130,199
309,564
224,543
48,943
713,249
33,438
70,114
14,490
23,096
141,138
5,766
8,668
13,652
-
28,086
969
11,688
63,147
52
75,856
170,372
400,034
315,832
72,091
958,329
3,994
150,954
-
2,410
157,358
-
-
59,321
-
59,321
166,378
249,080
256,511
69,681
741,650
Operating expenses
95,868
67,456
87,785
36,545
287,654
PROFIT BEFORE GAIN ON SALE OF INVESTMENT
HELD FOR SALE
70,510
181,624
168,726
33,136
453,996
Year ended 31 December 2013:
Net interest income
Share of profits from associates and joint venture
OPERATING INCOME
212,910
PROFIT BEFORE TAX
666,906
Tax expense
42,663
624,243
Less : Attributable to non-controlling interest
44,869
NET PROFIT ATTRIBUTABLE TO THE OWNERS' OF THE BANK
Segment assets
Goodwill
Other intangible assets
579,374
3,388,687
13,200,372
12,390,375
1,872,265
30,851,699
172,826
118,734
113,526
86,427
491,513
48,966
45,434
64,026
12,447
170,873
302,258
Unallocated assets
835,550
TOTAL ASSETS
Segment liabilities
Unallocated liabilities
TOTAL LIABILITIES
32,651,893
5,277,870
4,388,045
15,646,962
2,995,653
28,308,530
778,260
29,086,790
Ahli United Bank
94
31 December 2014
30.
Geographic segmentation
Although the management of the Group is based primarily on business segments, the Group's geographic segmentation is based on the countries where
the Bank and its subsidiaries are incorporated. Thus, the operating income generated by the Bank and its subsidiaries based in the GCC are grouped as "GCC
Countries", while those generated by the Bank's subsidiaries located outside the GCC region is grouped under "Rest of the World". Similar segmentation is
followed for the distribution of total assets. The following table shows the distribution of the Group’s operating income and total assets by geographical
segment:
Operating income
Total assets
2014
US$ ’000
2013
US$ ’000
2014
US$ ’000
2013
US$ ’000
GCC Countries
778,325
736,607
21,705,083
20,567,912
Rest of the World
262,943
221,722
11,739,805
12,083,981
1,041,268
958,329
33,444,888
32,651,893
Total
Net profit from Bahrain onshore operations included above is US$ 62.6 million (2013: US$ 48.5 million) amounting to 13.0% (2013: 13.2%) of the Group's net
profit attributable to owners of the Bank before gain on sale of investment held for sale.
RISK MANAGEMENT
31.
CREDIT RISK
Credit risk is the risk that one party to a financial instrument will fail to discharge a financial obligation and cause the other party to incur a financial loss. In
the case of derivatives this is limited to positive fair values. The Group attempts to control credit risk by monitoring credit exposures, limiting transactions with
specific counterparties, and continually assessing the creditworthiness of counterparties.
a) Concentration risk
Concentrations of credit risk arise when a number of counterparties are engaged in similar business activities, or activities in the same geographic region,
or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or
other conditions.
Concentrations of credit risk indicate the relative sensitivity of the Group’s performance to developments affecting a particular industry or geographic location.
The Group manages its credit risk exposure so as to avoid over concentration to a particular sector or geographic location. It also obtains security where
appropriate. Guidelines are in place regarding the acceptability of types of collateral and valuation parameters.
The principal collateral types are as follows:
-
In the personal sector – cash, mortgages over residential properties and assignments over salary income;
-
In the commercial sector – cash, charges over business assets such as premises, inventories, receivables, debt securities and bank guarantees;
-
In the commercial real estate sector – charges over the properties being financed; and
-
In the financial sector – charges over financial instruments, such as debt securities and equities.
The Group monitors the market value of collateral and requests additional collateral when necessary in accordance with the underlying agreement.
Details of the concentration of the loans and advances by industry sector and geographic region are disclosed in note 8(a) and 8(b) respectively.
Details of the industry sector analysis and the geographical distribution of the assets, liabilities and commitments on behalf of customers are set out in note 32.
Ahli United Bank
Annual Report
2014
95
31 December 2014
31.
CREDIT RISK (continued)
b)
Maximum exposure to credit risk without taking account of any collateral and other credit enhancements
The table below shows the maximum exposure to credit risk for the components of the balance sheet. The maximum exposure is shown gross, before the
effect of mitigation through the use of master netting and collateral agreements, but after provision for impairment where applicable.
Gross
maximum
exposure
2014
US$ ’000
Gross
maximum
exposure
2013
US$ ’000
526,277
699,442
2,611,085
2,587,534
Deposits with banks
3,823,517
4,409,068
Loans and advances
18,464,536
17,305,682
5,393,329
5,049,055
471,735
356,339
31,290,479
30,407,120
3,087,397
2,896,112
720,628
532,356
3,808,025
3,428,468
35,098,504
33,835,588
Balances with central banks
Total
Total credit related commitments
Total credit risk exposure
Where financial instruments are recorded at fair value the amounts shown above represent the current credit risk exposure but not the maximum risk
exposure that could arise in the future as a result of changes in values.
c)
Credit quality per class of financial assets
The table below shows distribution of financial assets neither past due nor impaired.
Neither past due nor impaired
High
standard
grade
US$ ’000
Standard
grade
US$ ’000
Total
US$ ’000
526,277
-
526,277
2,361,410
249,675
2,611,085
Deposits with banks
3,602,694
220,823
3,823,517
540,393
2,474,733
3,015,126
10,029,854
5,437,960
15,467,814
4,991,576
613,994
5,605,570
144,547
108,205
252,752
Other assets - derivatives
218,983
-
218,983
At 31 December 2014
Loans and advances
Retail
Corporate
Non trading investments
Ahli United Bank
96
31 December 2014
31.
CREDIT RISK (continued)
c) Credit quality per class of financial assets (continued)
The table below shows distribution of financial assets neither past due nor impaired.
Neither past due nor impaired
High
standard
grade
US$ ’000
Standard
grade
US$ ’000
Total
US$ ’000
699,442
-
699,442
2,411,356
176,178
2,587,534
Deposits with banks
4,109,399
299,669
4,409,068
528,029
2,208,105
2,736,134
9,275,760
5,242,512
14,518,272
5,068,184
204,654
5,272,838
139,448
105,977
245,425
Other assets - derivatives
110,914
-
110,914
At 31 December 2013
Loans and advances
Retail
Corporate
Non trading investments
It is the Group's policy to maintain consistent internal risk ratings across the credit portfolio. The credit quality of the portfolio of loans and advances that
were neither past due nor impaired can be assessed by reference to the Group’s internal credit rating system. This facilitates focused portfolio management
of the inherent level of risk across all lines of business. The credit quality ratings disclosed above can be equated to the following risk rating grades:
Credit quality rating
High standard
Standard
Risk rating
Risk rating 1 to 4
Risk rating 5 to 7
Definition
Undoubted through to good credit risk
Satisfactory through to adequate credit risk
The risk rating system is supported by various financial analytics and qualitative market information for the measurement of counterparty risk.
There are no financial assets which are past due but not impaired as at 31 December 2014 and 2013 other than those disclosed under note 8(c).
Ahli United Bank
Annual Report
2014
97
31 December 2014
32.
CONCENTRATION ANALYSIS
The distribution of assets, liabilities and commitments on behalf of customers by geographic region and industry sector was as follows:
2014
2013
Assets
US$ ’000
Liabilities
US$ ’000
Contingent
liabilities &
commitments
on behalf of
customers
US$ ’000
5,171,915
3,963,028
772,031
5,150,106
4,854,057
566,255
11,886,243
15,962,208
1,305,605
11,033,493
15,458,327
1,069,520
Other GCC countries
4,646,925
2,450,818
437,089
4,384,313
2,502,625
603,061
United Kingdom (UK)
2,661,603
885,419
52,720
3,162,247
1,084,860
6,445
3,761,073
3,136,401
401,980
3,376,180
2,445,830
545,815
Europe (excluding UK)
1,655,800
490,134
41,300
2,233,450
129,176
33,044
Asia (excluding GCC)
2,282,468
1,417,404
21,685
1,231,474
1,537,388
32,037
United States of America
767,638
414,218
16,986
1,534,110
471,003
28,767
Rest of the World
611,223
895,039
38,001
546,520
603,524
11,168
33,444,888
29,614,669
3,087,397
32,651,893
29,086,790
2,896,112
12,604,115
12,953,697
407,361
12,866,213
12,850,477
476,534
Consumer/personal
3,430,805
5,984,584
10,949
3,644,407
5,377,937
14,035
1,717,425
-
750
1,864,406
-
1,280
4,585,362
2,439,286
1,168,875
4,285,216
2,649,755
935,951
Real estate
4,924,536
482,685
67,756
3,865,264
457,360
30,649
Services
3,201,599
1,636,033
1,057,000
3,270,200
1,025,767
996,797
2,704,465
5,038,437
234,792
2,760,243
5,377,978
363,976
276,581
1,079,947
139,914
95,944
1,347,516
76,890
33,444,888
29,614,669
3,087,397
32,651,893
29,086,790
2,896,112
Assets
US$ ’000
Liabilities
US$ ’000
Contingent
liabilities &
commitments
on behalf of
customers
US$ ’000
Geographic region:
Kingdom of Bahrain
State of Kuwait
Industry sector:
Others
33.
MARKET RISK
Market risk is the risk of potential financial loss that may arise from adverse changes in the value of a financial instrument or portfolio of financial instruments
due to movements in interest rates, foreign exchange rates, equity prices, commodity prices and derivatives. This risk arises from asset - liability mismatches,
changes that occur in the yield curve, foreign exchange rates and changes in volatilities/implied volatilities in the market value of derivatives. The Group
classifies exposures to market risk into either trading or non-trading portfolios. Given the Group's low risk strategy, aggregate market risk levels are considered
low. The Group utilises Value-at-Risk (VaR) models to assist in estimating potential losses that may arise from adverse market movements in addition to nonquantitative risk management techniques. The market risk for the trading portfolio is managed and monitored on a VaR methodology which reflects the
inter-dependency between risk variables. Non-trading portfolios are managed and monitored using stop loss limits and other sensitivity analyses. The data
given below is representative of the information during the year.
a. Market risk-trading
The Group calculates Historical Simulation VaR using a one day holding period at a confidence level of 95%, which takes into account the actual correlations
observed historically between different markets and rates.
Since VaR is an integral part of the Group's market risk management, VaR limits have been established for all trading operations and exposures are reviewed
daily against the limits by management. Actual outcomes are compared to the VaR model derived predictions on a regular basis as a means of validating the
assumptions and parameters used in the VaR calculation.
Ahli United Bank
98
31 December 2014
33.
MARKET RISK (continued)
a. Market risk-trading (continued)
The table below summarises the risk factor composition of the VaR including the correlative effects intrinsic to the trading book:
31 December 2014
31 December 2013
b.
Equity price
US$ ’000
Foreign
exchange
US$ ’000
Interest
rate
US$ ’000
Effects of
correlation
US$ ’000
Total
US$ ’000
99
421
150
1
671
1,061
146
61
1
1,269
Market risk-non-trading
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect the value of financial instruments or the future profitability of the Group. The
Group is exposed to interest rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off balance sheet instruments that mature
or reprice in a given period. The Group measures and manages interest rate risk by establishing levels of interest rate risk by setting limits on the interest rate
gaps for stipulated periods. Interest rate gaps on assets and liabilities are reviewed on a weekly basis and hedging strategies are used to reduce the interest
rate gaps to within the limits established by the Bank's Board of Directors.
The following table demonstrates the sensitivity of the Group's net interest income for the next one year, to a change in interest rates, with all other variables
held constant. The sensitivity is based on the floating rate financial assets and financial liabilities held at 31 December 2014 and 31 December 2013 including
the effect of hedging instruments.
Sensitivity analysis - interest rate risk
2014
US$ ’000
2013
US$ ’000
at 10 bps - increase (+)/decrease (-)
+/-
2,724
1,944
at 25 bps - increase (+)/decrease (-)
+/-
6,810
4,860
Currency risk
Currency risk is the risk that the functional currency value of a financial instrument will fluctuate due to changes in foreign exchange rates.
The risk management process manages the Group’s exposure to fluctuations in foreign exchange rates (currency risk) through the asset and liability
management process. It is the Group’s policy to reduce its exposure to currency fluctuations to acceptable levels as determined by the Board of Directors. The
Board has established levels of currency risk by setting limits on currency position exposures. Positions are monitored on a daily basis and hedging strategies
used to ensure positions are maintained within established limits.
Sensitivity analysis - currency risk
All foreign currency exposures with the exception of investments in subsidiaries and associates are captured as part of the trading book. The risk of the
exposures are subject to quantification via a daily VaR calculation, the results of which are disclosed in note 33 (a).
The effect of foreign currency translation on the Group's investments in subsidiaries and associates are reported under the "foreign exchange translation
reserve" under the note 21(h).
Equity price risk
Equity price risk arises from fluctuations in equity indices and prices. The Board has set limits on the amount and type of investments that may be accepted.
This is monitored on an ongoing basis by the Group Risk Committee. The non-trading equity price risk exposure arises from the Group's investment portfolio.
The effect on equity (as a result of a change in the fair value of equity investments held as fair value through other comprehensive income) due to a reasonably
possible change in equity indices, with all other variables held constant is as follows:
Market indices
Kuwait Stock Exchange
Change in
equity
indices %
+/-10 %
+/-
2014
2013
Effect on OCI
US$ ’000
Effect on OCI
US$ ’000
2,857
3,349
Sensitivity to equity price movements will be on a symmetric basis, as financial instruments giving rise to non-symmetric movements are not significant.
Ahli United Bank
Annual Report
2014
99
31 December 2014
34.
FAIR VALUE MEASUREMENT
The fair value of financial assets and financial liabilities, other than those disclosed in the table below and in note 9, approximate their carrying values. Please
refer note 9 for the fair value of non-trading investments carried at amortised cost.
The Group's primary medium and long-term financial liabilities are the term debts and subordinated liabilities. The fair values of these financial liabilities are
not materially different from their carrying values, since these liabilities are repriced at intervals of three or six months, depending on the terms and conditions
of the instrument and the resultant applicable margins approximate the current spreads that would apply for borrowings with similar maturities.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation technique:Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either directly or indirectly.
Level 3: techniques which use inputs which have a significant effect on the recorded fair value that are not based on observable market data.
2014
Financial assets at Fair value
Derivative assets
Derivative liabilities
Level 1
US$ ’000
Level 2
US$ ’000
Level 3
US$ ’000
Total
US$ ’000
52,907
257,938
67,728
378,573
162,546
56,437
-
218,983
(100,857)
(169,527)
-
(270,384)
2013
Level 1
US$ ’000
Level 2
US$ ’000
Level 3
US$ ’000
Total
US$ ’000
Financial assets at Fair value
91,963
315,201
71,754
478,918
Derivative assets
14,606
96,308
-
110,914
(37,032)
(181,170)
-
(218,202)
Derivative liabilities
During the year 2014 and 2013 there have been no transfers between Levels 1, 2 and 3.
For an explanation of valuation techniques used to value these financial instruments please refer to note 3.3 (f ).
35.
LIQUIDITY RISK
Liquidity risk is the risk that the Group does not have sufficient financial resources to meet its obligations as they fall due, or will have to do so at an excessive
cost. This risk arises from mismatches in the timing of cash flows. Funding risk arises when the necessary liquidity to fund illiquid asset positions cannot be
obtained at the expected terms and when required.
The management of the Group’s liquidity and funding management is the responsibility of the Group Asset and Liability Committee (GALCO) under the
chairmanship of the Deputy Group Chief Executive Officer Treasury and Investments supported by the Group Treasurer, and is responsible for ensuring that all
foreseeable funding commitments, including deposit withdrawals, can be met when due, and that wholesale market access is co-ordinated and controlled.
The Group maintains a stable funding base comprising core retail and corporate customer deposits and institutional balances, augmented by wholesale
funding and portfolios of highly liquid assets which are diversified by currency and maturity, in order to enable the Group to respond quickly to any unforeseen
liquidity requirements.
The Group subsidiaries and affiliates maintain a strong individual liquidity position and manage their liquidity profiles so that cash flows are balanced and
funding obligations can be met when due.
Treasury limits are set by the GALCO and allocated as required across the various group entities. Specifically GALCO and the Group Treasurer are responsible for:
-
-
-
-
-
-
-
projecting cash flows by major currency under various stress scenarios and considering the level of liquid assets necessary in relation thereto;
monitoring balance sheet liquidity ratios against internal and regulatory requirements;
maintaining a diverse range of funding sources with adequate back-up facilities;
managing the concentration and profile of debt maturities;
managing contingent liquidity commitment exposures within predetermined caps;
monitoring depositor concentration in order to avoid undue reliance on large individual depositors and ensure a satisfactory overall funding mix; and
maintaining liquidity and funding contingency plans. These plans must identify early indicators of stress conditions and describe actions to be taken in the event of difficulties arising from systemic or other crises while minimising adverse long-term implications for the business.
Ahli United Bank
100
31 December 2014
35.
LIQUIDITY RISK (continued)
The maturity profile of the assets and liabilities at 31 December 2014 given below reflects management's best estimates of the maturities of assets and liabilities. These have been determined on the basis of the remaining period at the balance sheet date to the contractual maturity date, except in the case of
customer deposits. The liquidity profile of customer deposits has been determined on the basis of the effective maturities indicated by the Group’s deposit
retention history.
US$ '000
Less
than
1 year
Above
1 year
Undated
Total
649,212
-
-
649,212
2,611,085
-
-
2,611,085
Deposits with banks
3,679,810
143,707
-
3,823,517
Loans and advances
8,816,320
9,648,216
-
18,464,536
1,389,006
4,382,896
-
5,771,902
-
-
288,315
288,315
-
-
254,490
254,490
-
-
267,002
267,002
553,919
118,971
-
672,890
-
-
641,939
641,939
17,699,352
14,293,790
1,451,746
33,444,888
4,461,172
38,500
-
4,499,672
860,941
40,649
-
901,590
12,015,183
10,991,585
-
23,006,768
554,702
300,291
-
854,993
67,528
284,118
-
351,646
17,959,526
11,655,143
-
29,614,669
(260,174)
2,638,647
1,451,746
3,830,219
ASSETS
Total
LIABILITIES
Deposits from banks
Total
Net liquidity gap
The Group has collateralized borrowing lines of credit with various financial institutions through Global Master Repurchase Agreements (GMRA), under which it
can borrow up to US$ 2.4 billion (31 December 2013: US$ 2.4 billion). Please refer note 16 for further details.
Ahli United Bank
Annual Report
2014
101
31 December 2014
35.
The maturity profile of the assets and liabilities at 31 December 2013 was as follows:
US$' 000
Less
than
1 year
Above
1 year
Undated
Total
820,296
-
-
820,296
2,587,534
-
-
2,587,534
Deposits with banks
4,126,989
282,079
-
4,409,068
Loans and advances
7,987,474
9,318,208
-
17,305,682
944,370
4,583,603
-
5,527,973
-
-
302,258
302,258
-
-
201,146
201,146
-
-
274,696
274,696
438,688
122,166
-
560,854
-
-
662,386
662,386
16,905,351
14,306,056
1,440,486
32,651,893
Deposits from banks
4,303,757
63,000
-
4,366,757
1,230,462
40,649
-
1,271,111
11,775,910
10,252,547
-
22,028,457
565,988
212,272
-
778,260
179,068
463,137
-
642,205
Total
18,055,185
11,031,605
-
29,086,790
Net liquidity gap
(1,149,834)
3,274,451
1,440,486
3,565,103
ASSETS
Total
LIABILITIES
Ahli United Bank
102
31 December 2014
35.
Analysis of financial liabilities by remaining contractual maturities
The table below summarises the maturity profile of the Group's financial liabilities (including interest) based on contractual undiscounted repayment
obligations. However, the Group's expected cash flows on these instruments vary significantly from this analysis. In particular, customer deposits are expected
to maintain stable or increased balances.
US$' 000
Up to
One month
One month
to three
months
Over three
months to
one year
Over one
year to
five years
Over five
years
Total
2,673,581
1,433,130
357,949
38,990
-
4,503,650
236,018
625,442
-
41,075
-
902,535
9,622,995
4,924,192
6,721,351
1,467,409
351,005
23,086,952
-
-
68,683
96,579
220,221
385,483
12,532,594
6,982,764
7,147,983
1,644,053
571,226
28,878,620
Credit related commitments
90,920
110,190
389,378
119,088
11,052
720,628
Derivatives (net)
14,710
54,505
(51,133)
(57,303)
93,029
53,808
As at 31 December 2014
Deposits from banks
Total
US$' 000
Up to
One month
One month
to three
months
Over three
months to
one year
Over one
year to
five years
Over five
years
Total
3,509,058
431,008
367,585
64,034
-
4,371,685
870,282
345,829
15,267
41,316
-
1,272,694
10,239,031
4,323,982
3,970,864
3,676,297
-
22,210,174
-
179,689
-
283,080
214,246
677,015
14,618,371
5,280,508
4,353,716
4,064,727
214,246
28,531,568
13,852
16,666
332,900
153,503
15,435
532,356
2,602
14,026
20,172
33,396
37,302
107,498
As at 31 December 2013
Deposits from banks
Total
Credit related commitments
Derivatives (net)
Ahli United Bank
Annual Report
2014
103
31 December 2014
36.
CAPITAL ADEQUACY
The primary objectives of the Group's capital management policies are to ensure that the Group complies with externally imposed capital requirements and
that the Group maintains strong credit ratings and healthy capital ratios in order to support its business and to maximise shareholders' value. Capital adequacy for
each of the group companies is also managed separately at individual company level. The Group does not have any significant restrictions on its ability to access
or use its assets and settle its liabilities other than any restrictions that may result from the supervisory frameworks within which the banking subsidiaries operate.
In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to shareholders or issue capital securities. No
changes were made in the objectives, policies and processes from the previous years.
The risk asset ratio, calculated in accordance with the capital adequacy guidelines, under Basel II, issued by the Central Bank of Bahrain ("CBB"), for the Group,
is disclosed under Pillar III Table 1, which is included in the Annual Report. The minimum capital adequacy ratio as per CBB is 12.0%. The Group's risk asset ratio
is 15.5% as of 31 December 2014 (31 December 2013: 16.2%).
37.
DEPOSIT PROTECTION SCHEME
Certain customers’ deposits of the Group are covered by deposit protection schemes established by the Central Bank of Bahrain (CBB) and the Financial Services
Compensation Scheme, UK.
Bahrain : Customers' deposits held with the Bank in the Kingdom of Bahrain are covered by the Regulation Protecting Deposits and Unrestricted Investment
Accounts issued by the Central Bank of Bahrain (CBB) in accordance with Resolution No.(34) of 2010. A periodic contribution as mandated by the CBB is paid
by the Bank under this scheme.
UK : Customers' deposits in AUBUK are covered under the Financial Services Compensation Scheme, up to a limit of GBP 85,000 per customer. No up-front
contribution is currently mandated under this scheme and no liability is due unless any member bank of the scheme is unable to meet its depository
obligations.
38.
ISLAMIC BANKING
The Group's Shari'a compliant Islamic banking activities are offered through its fully fledged Islamic Banking subsidiary AUBK and Islamic banking windows at
AUB Bahrain and AUBUK. The results of its Islamic banking activity, which is included in the consolidated financial statements, is presented below.
Balance sheet as at 31 December
Note
2014
US$ ’000
2013
US$ ’000
84,506
292,803
1,180,167
1,338,778
ASSETS
Deposits with central banks
Deposits with banks
(a)
1,605,978
1,479,323
Receivable balances from Islamic financing activities
(b)
10,308,062
8,770,100
Financial investments
579,066
378,927
109,283
117,072
130,526
135,791
54,789
63,089
14,052,377
12,575,883
Profit receivable and other assets
TOTAL ASSETS
LIABILITIES
Deposits from banks
(c)
2,099,278
2,478,516
Customers' deposits
(d)
9,908,966
8,531,510
166,592
99,558
5,158
6,755
12,179,994
11,116,339
609,583
352,591
12,789,577
11,468,930
1,262,800
1,106,953
14,052,377
12,575,883
Profit payable and other liabilities
Restricted investment accounts
Unrestricted investment accounts (URIA)
TOTAL LIABILITIES AND URIA
TOTAL EQUITY
TOTAL LIABILITIES, URIA AND EQUITY
Ahli United Bank
104
31 December 2014
38.
ISLAMIC BANKING (continued)
Statement of income for the year ended 31 December
Note
2014
US$ ’000
2013
US$ ’000
(e)
325,551
306,236
325,551
306,236
30,778
28,276
20,079
11,887
Foreign exchange gains
14,925
14,451
391,333
360,850
64,725
82,794
326,608
278,056
Staff costs
60,289
57,743
Depreciation
12,348
9,132
Other operating expenses
37,566
31,079
OPERATING EXPENSES
110,203
97,954
PROFIT FOR THE YEAR BEFORE TAX
216,405
180,102
7,610
6,884
208,795
173,218
791
1,298
208,004
171,920
166,399
136,043
41,605
35,877
208,004
171,920
2014
US$ ’000
2013
US$ ’000
Murabaha finance with other banks
861,460
793,228
Wakala with banks
404,067
335,946
Current accounts and others
340,451
350,149
1,605,978
1,479,323
Net income from Islamic financing activities
OPERATING INCOME
Provision for impairment
Tax expense
PROFIT FOR THE YEAR BEFORE THE SHARE OF PROFIT OF UNRESTRICTED
INVESTMENT ACCOUNT HOLDERS
Less : Share of profit of unrestricted investment account holders
Attributable to:
Owners of the Bank
Notes
(a) Deposits with banks
Ahli United Bank
Annual Report
2014
105
31 December 2014
38.
Notes (continued)
2014
US$ ’000
2013
US$ ’000
Tawarruq receivables
6,607,555
6,277,568
Murabaha receivables
2,432,509
1,737,255
Ijara receivables
1,561,282
1,015,576
10,436
49,776
(303,720)
(310,075)
10,308,062
8,770,100
2014
US$ ’000
2013
US$ ’000
1,370,242
1,359,966
712,908
1,046,713
16,128
71,837
2,099,278
2,478,516
2014
US$ ’000
2013
US$ ’000
Wakala
5,318,256
4,620,341
Mudaraba
1,031,260
930,864
Current accounts
1,211,910
997,373
Murabaha
2,347,540
1,982,932
9,908,966
8,531,510
(b) Receivable balances from Islamic financing activities
Others
(c) Deposits from banks
Murabaha
Wakala
Current accounts
(d) Customers' deposits
Ahli United Bank
106
31 December 2014
38.
Notes (continued)
2014
US$ ’000
2013
US$ ’000
Income from Tawarruq
247,970
241,034
Income from Murabaha
134,361
104,950
Income from Ijara
69,618
42,966
Income from Financial Investments
12,051
13,277
464,000
402,227
Profit expenses on Murabaha
52,325
37,721
Profit expenses on Wakala
72,220
43,859
Profit expenses on Mudaraba
13,904
14,411
Less: Distribution to depositors
138,449
95,991
Net income from Islamic financing activities
325,551
306,236
(e) Net income from Islamic financing activities
Income from Islamic financing activities
39.
COMPARATIVE INFORMATION
Certain corresponding figures for 2013 have been reclassified in order to conform to the presentation of financial statements for the current year. Such
reclassifications do not affect previously reported net profit or shareholders' equity.
Ahli United Bank
Pillar III
Disclosures
Basel II
31 December 2014
Introduction to the Central Bank of Bahrain's Basel II guidelines Pillar III quantitative & qualitative disclosures
1. Capital structure 2 . Group risk governance structure 3 . Credit risk management 4. Market risk
5. Liquidity risk and funding management
6. Operational risk
7. Information technology risk
8. Strategic risk
9. Legal, compliance, regulatory and reputational risks
10. Environmental risk
108
108
109
110
111
120
123
123
123
123
123
123
Ahli United Bank
108
Pillar III Disclosures - Basel II
31 December 2014
INTRODUCTION TO THE CENTRAL BANK OF BAHRAIN’S BASEL II GUIDELINES
The Central Bank of Bahrain (CBB) Basel II Guidelines, based upon the Bank of International Settlements (BIS) Revised Framework – ‘International Convergence
of Capital Measurement and Capital Standards’, were introduced on 1 January 2008. Basel II is structured around three ‘Pillars’: Pillar I - Minimum Capital
Requirements; Pillar II – the Supervisory Review Process and the Internal Capital Adequacy Assessment Process (ICAAP); and Pillar III - Market Discipline.
Group Structure
The public disclosures under this section have been prepared in accordance with the CBB Rules concerning Public Disclosure Module ("PD"), section
PD-1: Annual Disclosure Requirements. The disclosures under this section are applicable to Ahli United Bank B.S.C. (the "Bank"), which is the parent bank
incorporated in Bahrain. The Bank operates under a retail banking license issued by the CBB. The Bank and its subsidiaries (as detailed under note 2 to the
audited consolidated financial statements) are collectively known as the "Group".
Pillar I – Minimum Capital Requirements
Pillar I deals with the basis for the computation of the regulatory capital adequacy ratio. It defines the calculation of Risk Weighted Assets (RWAs) for credit risk,
market risk and operational risk, as well as the derivation of the regulatory capital base. The capital adequacy ratio is then calculated as the ratio of the Bank’s
regulatory capital to its total RWAs. All Bahrain incorporated banks are currently required to maintain a minimum capital adequacy ratio of 12%. In addition,
the CBB requires banks to maintain an additional 0.5% buffer above the minimum capital adequacy ratio.
The Group ensures that each subsidiary maintains sufficient capital levels for their respective legal and compliance purposes.
Credit risk
Basel II provides three approaches to the calculation of credit risk regulatory capital. The Standardised approach which the Bank has adopted, requires banks
to use external credit ratings to determine the risk weightings applied to rated counterparties, and groups other counterparties into broad categories and
applies standardised risk weightings to these categories.
Market risk
The Bank has adopted the Standardised approach for determining the market risk capital requirement.
Operational risk
Under the Basic Indicator approach, which the Bank has adopted for operational risk, the regulatory capital requirement for operational risk is calculated by
applying a co-efficient of 15 per cent to the average gross income for the preceding three financial years.
Pillar II – The Supervisory Review and Evaluation Process
Pillar II involves the process of supervisory review of a financial institution’s risk management framework and its capital adequacy.
Accordingly, this involves both the Bank and its regulators taking a view on whether additional capital should be held against risks not covered in Pillar I. Part
of the Pillar II process is the Internal Capital Adequacy Assessment Process (ICAAP) which is the Bank’s self assessment of risks not captured by Pillar I.
As part of the CBB’s Pillar II guidelines, each bank is required to be individually reviewed and assessed by the CBB with the intention of setting individual
minimum capital adequacy ratios. The Bank is currently required to maintain a 12 per cent minimum capital adequacy ratio at group level.
Pillar III – Market Discipline
The third pillar is related to market discipline and requires the Bank to publish detailed qualitative and quantitative information of its risk management and
capital adequacy policies and processes to complement the first two pillars and the associated supervisory review process. The disclosures in this report are
in addition to the disclosures set out in the audited consolidated financial statements of the Group for the year ended 31 December 2014.
PILLAR III QUANTITATIVE & QUALITATIVE DISCLOSURES
For the purpose of computing regulatory minimum capital requirements, the Group follows the rules as laid out under the CBB Rulebook module PCD:
Prudential Consolidation and Deduction Requirements, PCD-1 and PCD-2 and the Capital Adequacy (CA) Module. Accordingly,
a) All subsidiaries as per note 2 to the audited consolidated financial statements are consolidated on a line by line basis in accordance with International Financial Reporting Standards (IFRS). Non-controlling interest arising on consolidation is reported as part of Tier 1 capital;
b) Investments in associates as reported under note 10 to the audited consolidated financial statements are pro-rata consolidated for the purpose of
regulatory minimum capital requirements and capital deducted from Tier 1 and 2. The prorated capital is included under Tier 1 and Tier 2 respectively as
aggregation;
c) Goodwill is deducted from Tier 1 capital;
d) Subordinated term debts, as reported under liabilities in the consolidated balance sheet, are reported as part of Tier 2 capital, subject to maximum
thresholds and adjusted for remaining life;
Ahli United Bank
Annual Report
2014
109
31 December 2014
PILLAR III QUANTITATIVE & QUALITATIVE DISCLOSURES (continued)
e) Unrealized gains arising from fair valuing equities is reported only to the extent of 45%;
f ) Property revaluation reserve is included under Tier 2 capital to the extent of 45%; and
g) Collective impairment provisions to the extent of maximum threshold of 1.25% of Credit Risk Weighted Assets are included under Tier 2 capital.
1. CAPITAL STRUCTURE
TABLE - 1
A. NET AVAILABLE CAPITAL
Paid-up share capital
Less: Loans against Employee Stock Purchase Plan
US$ ’000
Tier 1
Tier 2
1,526,474
(4,898)
Reserves:
Share premium
719,481
Capital reserve
8,480
Statutory reserve
Others
295,814
(168,948)
Retained earnings
520,533
Minority interest in the equity of subsidiaries
439,345
Less: Goodwill
Less: Unrealized gross losses arising from fair valuing equities
(476,410)
(684)
Current year profit
482,529
Asset revaluation reserve-property, plant and equipment (45% only)
16,663
Unrealized gains arising from fair valuing equities (45% only)
7,780
Collective impairment provisions
261,290
Eligible subordinated term debt
277,026
TOTAL CAPITAL BEFORE REGULATORY DEDUCTIONS
2,859,187
1,045,288
144,157
144,157
2,715,030
901,131
208,011
25,383
2,923,041
926,514
Less: Regulatory deductions:
Material holdings of equities
Add: Proportionate aggregation
NET AVAILABLE CAPITAL
TOTAL ELIGIBLE CAPITAL BASE (Tier 1 + Tier 2)
3,849,555
RISK WEIGHTED EXPOSURES
Credit Risk Weighted Exposures
Market Risk Weighted Exposures
Operational Risk Weighted Exposures
TOTAL RISK WEIGHTED EXPOSURES
22,269,256
947,225
1,615,893
24,832,374
Tier 1 - Capital Adequacy Ratio
11.8%
Total - Capital Adequacy Ratio
15.5%
The terms and conditions and main features of the capital instruments listed above as part of the Tier 1 and Tier 2 capital are explained in note 19, 20 and note
21 to the audited consolidated financial statements of the Group for the year ended 31 December 2014.
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110
31 December 2014
1. CAPITAL STRUCTURE (continued)
B. CAPITAL ADEQUACY RATIO
As at 31 December 2014, the capital adequacy ratio under Basel II of the Group’s significant subsidiaries were:
Subsidiaries
Ahli United Bank
K.S.C.P
(AUBK)
Ahli United Bank
(U.K.) P.L.C.
(AUBUK)
Ahli United Bank
(Egypt) S.A.E.
(AUBE)
Tier 1 - Capital Adequacy Ratio
17.0%
15.7%
11.0%
Total - Capital Adequacy Ratio
18.7%
19.5%
12.4%
2. GROUP RISK GOVERNANCE STRUCTURE
Risk Governance
The Group Board seeks to optimise the Bank’s performance by enabling the various group business units to realize the Group’s business strategy and meet
agreed business performance targets by operating within the agreed capital and risk parameters and Group risk policy framework.
AUB Group Risk Governance Structure
The above group committees are set up as part of the group risk governance structure. The terms of reference for these committees are approved by the
Board. Group Audit & Compliance Committee also has oversight over Group Compliance Committee.
AUB Group Management Risk Governance Structure
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Annual Report
2014
111
31 December 2014
2. GROUP RISK GOVERNANCE STRUCTURE (continued)
The Board approves the risk parameters and the Group Risk Committee monitors the Group’s risk profile against these parameters.
The Deputy Group CEO – Risk, Legal and Compliance, under the delegated authority of the Group CEO & MD, supported by the Group Head of Risk
Management and the Group Head of Credit Risk has responsibility for ensuring effective risk management and control. Within Group Risk Management,
specialist risk-type heads and their teams are responsible for risk oversight and establishing appropriate risk control frameworks.
Internal Audit is responsible for the independent review of risk management and the Group’s risk control environment.
The Board and its Executive Committee receive quarterly risk updates including detailed risk exposures analysis reports.
The Board approves all risk policies as well as the Group risk framework on an annual basis.
The Group Audit & Compliance Committee considers the adequacy and effectiveness of the Group risk control framework and receives quarterly updates on
any control issues, regulatory and compliance related issues.
Systems and procedures are in place to identify, control and report on all major risks.
3. CREDIT RISK MANAGEMENT
Credit risk is the risk of financial loss if a customer or counterparty fails to meet a financial obligation under a contract. It arises principally from lending, trade
finance and treasury activities. Credit risk also arises where assets are held in the form of debt securities, the value of which may fall.
The Group has policies and procedures in place to monitor and manage these risks and the Group Risk Management function provides high-level centralized
oversight and management of credit risk. The specific responsibilities of Group Risk Management are to:
-
Set credit policy and risk appetite for credit risk exposure to specific market sectors;
-
Control exposures to sovereign entities, banks and other financial institutions and set risk ratings for individual exposures. Credit and settlement risk
limits to counterparties in these sectors are approved and managed by Group Risk Management, to optimize the use of credit availability and avoid risk
concentration;
-
Control cross-border exposures, through the centralized setting of country limits with sub-limits by maturity and type of business;
-
Manage large credit exposures, ensuring that concentrations of exposure by counterparty, sector or geography remain within internal and regulatory
limits in relation to the Group’s capital base;
-
Maintain the Group’s Internal Risk Rating framework;
-
Manage watchlisted and criticised asset portfolios and recommend appropriate level of provisioning and write-offs;
-
Report to the Group Risk Committee, Audit Committee and the Board of Directors on all relevant aspects of the Group’s credit risk portfolio. Regular
reports include detailed analysis of:
-
-
-
-
-
risk concentrations
corporate and retail portfolio performance
specific higher-risk portfolio segments, e.g. real estate
individual large impaired accounts, and details of impairment charges
country limits, cross-border exposures.
- Specialised management and control of all non-performing assets;
- Manage and direct credit risk management systems initiatives; and
- Interface, for credit-related issues, with external parties including the CBB, rating agencies, investment analysts, etc.
All credit proposals are subjected to a thorough comprehensive risk assessment which examines the customer’s financial condition and trading performance,
nature of the business, quality of management and market position. In addition, AUB's internal risk rating model scores these quantitative and qualitative
factors. The credit approval decision is then made and terms and conditions set. Exposure limits are based on the aggregate exposure to the counterparty and
any connected entities across the AUB Group. All credit exposures are reviewed at least annually.
Ahli United Bank
112
31 December 2014
3. CREDIT RISK MANAGEMENT (continued)
Counterparty Exposure Classes
The CBB’s capital adequacy framework for the standardised approach to credit risk sets the following counterparty exposure classes and the risk weightings
to be applied to determine the risk weighted assets:
Exposure Class
Risk Weighting Criteria
Sovereign Portfolio
Exposures to governments of GCC (refer table 4 for definition of GCC) member states and their central banks
are zero % risk weighted. Other sovereign exposures denominated in the relevant domestic currency are also
zero % risk weighted. All other sovereign exposures are risk weighted based on their external credit ratings.
Public Sector Entity [PSE] Portfolio
Bahrain PSEs and domestic currency claims on other PSEs [which are assigned a zero % risk weighting by
their own national regulator] are assigned a zero % risk weighting. Other PSEs are risk weighted based on
their external credit ratings.
Banks Portfolio
Exposures to banks are risk weighted based on their external credit ratings, with a preferential weighting
given to short term exposures (i.e. with an original tenor of 3 months or less).
Investment Company Portfolio
Exposures to investment companies which are supervised by the CBB are treated in the same way as
exposures to banks but without the preferential short term exposure weighting.
Other exposures will be treated as a corporate exposure for risk weighting purposes.
Corporate Portfolio
Exposures to corporates are risk weighted based on their external credit rating. Unrated corporates are 100%
risk weighted. A number of corporates owned by the Kingdom of Bahrain have been assigned a preferential
zero % risk weighting.
Regulatory Retail Portfolio
Eligible regulatory retail exposures are risk weighted at 75%.
Residential Property Portfolio
Exposures fully secured by first mortgages on owner occupied residential property are risk weighted
between 35%-100% based on applicable regulatory guidance.
Commercial Property Portfolio
Exposures secured by mortgages on commercial real estate are subject to a minimum 100% risk weighting,
except where the borrower has an external rating below BB- in which case the rating risk weighting applies.
Equities and Funds Investment Portfolio
Investments in listed equities carry a 100% risk weighting. Unlisted equities are 150% risk weighted.
Investments in rated instruments are risk weighted according to their external rating and treated as a
corporate exposure. If not rated the investment is treated as an equity investment and risk weighted 100%
for listed and 150% for others.
Past Due Portfolio
The unsecured portion of any exposure [other than a residential mortgage loan] that is past due for
90 days or more:
150% risk weighted when specific provisions are less than 20% of the outstanding amount; and
100% risk weighted when specific provisions are greater than 20%.
Holdings of Real Estate
All holdings (directly or indirectly) of real estate in the form of real estate companies, subsidiaries or associate
companies or other arrangements such as trusts, funds or Real Estate Investment Trusts (REITs) are riskweighted at 200%. Premises occupied by the bank are weighted at 100%.
Other Assets
All other assets not classified above are risk weighted at 100%
External Rating Agencies
The Group uses the following external credit assessment institutions (ECAI’s): Moody’s, Standard & Poors and Fitch. The external rating of each ECAI is
mapped to the prescribed internal risk rating that in turn produces standard risk weightings.
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Annual Report
2014
113
31 December 2014
Basel II Reporting of Credit Risk Exposures
As a result of the methodologies applied credit risk exposures presented under Basel II reporting differs in a number of respects from the exposures reported
in the consolidated financial statements.
1. As per the CBB Basel II framework, off balance sheet exposures are converted, by applying a credit conversion factor (CCF), into direct credit exposure equivalents.
2. Under the Basel II capital adequacy framework eligible collateral is applied to reduce exposure.
Credit Risk Mitigation
The Group’s first priority when making loans is to establish the borrower’s capacity to repay and not rely principally on security / collateral. Where the
customer’s financial standing is strong facilities may be granted on an unsecured basis, but when necessary collateral is an essential credit risk mitigations.
Acceptable forms of collateral are defined within the Group risk framework and conservative valuation parameters are also pre-set and regularly reviewed to
reflect any changes in market conditions. Security structures and legal covenants are also subject to regular review to ensure that they continue to fulfill their
intended purpose and remain in line with the CBB's prescribed minimum requirements set out in their capital adequacy regulations.
The principal collateral types are as follows:
- in the personal sector – cash, mortgages over residential properties and assignments over salary income;
-
in the commercial sector – cash, charges over business assets such as premises, inventories, receivables, debt securities and bank guarantees;
-
in the commercial real estate sector – charges over the properties being financed; and
-
In the financial sector – charges over financial instruments, such as debt securities and equities.
Valuation of Collateral
The type and amount of collateral taken is based upon the credit risk assessment of the borrower. The market or fair value of collateral held is closely
monitored and when necessary, top-up requests are made or liquidation is initiated as per the terms of the underlying credit agreements.
Gross Credit Risk Exposures subject to Credit Risk Mitigations (CRM)
The following table details the Group's gross credit risk exposures before the application of eligible Basel II CRM techniques. The CBB’s Basel II guidelines
detail which types of collateral and which issuers of guarantees are eligible for preferential risk weighting. The guidelines also specify the minimum collateral
management processes and collateral documentation requirements necessary to achieve eligibility.
TABLE - 2 GROSS CREDIT RISK EXPOSURES
US$ ’000
As at
31 December
2014
Average
monthly
balance
526,277
640,520
2,611,085
2,429,503
Deposits with banks
3,823,517
4,561,971
Loans and advances
18,464,536
17,638,101
5,393,329
5,293,731
471,735
403,086
31,290,479
30,966,912
3,087,397
3,034,629
720,628
542,765
TOTAL UNFUNDED EXPOSURES
3,808,025
3,577,394
TOTAL CREDIT RISK EXPOSURE
35,098,504
34,544,306
TOTAL FUNDED EXPOSURES
The gross credit exposures reported above are as per the consolidated balance sheet as reduced by exposures which do not carry credit risk.
Ahli United Bank
114
31 December 2014
TABLE - 3 RISK WEIGHTED EXPOSURES
US$ ’000
Gross
exposure
Secured by
eligible
CRM
Risk weighted
exposures
after CRM
Capital
requirement
4,756,078
-
138,056
16,567
639,546
-
593,092
71,171
7,011,021
167,122
2,468,351
296,202
17,093,827
2,785,938
13,801,432
1,656,172
Regulatory retail exposures
1,922,271
122,889
1,349,536
161,944
Residential retail exposures
1,373,592
-
480,757
57,691
52,436
-
52,436
6,292
Equity - Unlisted
132,295
-
198,442
23,813
Investments in funds
168,167
-
233,730
28,048
1,383,856
63,170
1,587,364
190,484
34,533,089
3,139,119
20,903,196
2,508,384
1,366,060
163,927
22,269,256
2,672,311
947,225
113,667
1,615,893
193,907
24,832,374
2,979,885
Claims on sovereigns
Claims on public sector entities
Claims on banks
Claims on corporates
Equity - Listed
Other exposures
TOTAL
Add: Proportionate aggregation
TOTAL CREDIT RISK CAPITAL REQUIREMENT
(STANDARDISED APPROACH)
TOTAL MARKET RISK CAPITAL REQUIREMENT
TOTAL OPERATIONAL RISK CAPITAL
REQUIREMENT (BASIC INDICATOR APPROACH)
TOTAL
The gross exposure in the above table represents the on and off balance sheet credit exposures before credit risks mitigations (CRM), determined in accordance
with the CBB issued Pillar III guidelines. The off balance sheet exposures are computed using the relevant conversion factors.
Under the CBB Basel II Guidelines, banks may choose between two options when calculating credit risk mitigation capital relief. The simple approach which
substitutes the risk weighting of the collateral for the risk weighting of the counterparty or the comprehensive approach whereby the exposure amount is
adjusted by the actual value ascribed to the collateral. The Group has selected to use the comprehensive method where collateral is in the form of cash or bonds
or equities. The Group uses a range of risk mitigation tools including collateral, guarantees, credit derivatives, netting agreements and financial covenants to
reduce credit risk.
Concentration Risk
Refer note 31(a) to the audited consolidated financial statements for definition and policies for management of concentration risk.
As per the CBB’s single obligor regulations, banks incorporated in Bahrain are required to obtain the CBB’s approval for any planned exposure to a single
counterparty, or group of connected counterparties, exceeding 15 per cent of the regulatory capital base. As at 31 December 2014, the Group had no
qualifying single obligor exposures in accordance with Central Bank of Bahrain guidelines which exceed 15 percent of the Group’s regulatory capital base.
Geographic Distribution of Gross Credit Exposures
The geographic distribution of credit exposures is monitored on an ongoing basis by Group Risk Management and reported to the Board on a quarterly basis.
Ahli United Bank
Annual Report
2014
115
31 December 2014
The following table details the Group's geographic distribution of gross credit exposures as at 31 December 2014.
TABLE - 4 GEOGRAPHIC DISTRIBUTION OF GROSS CREDIT EXPOSURES
US$ ’000
Kingdom
of Bahrain
State of
Kuwait
Other GCC
countries *
United
Kingdom
Europe
(excluding
United
Kingdom)
Balances with
central banks
155,124
28,848
-
1,213
-
290,417
50,675
-
526,277
Treasury bills and
deposits with
central banks
355,177
1,180,168
-
211,224
-
464,866
249,675
149,975
2,611,085
81,987
972,124
831,336
358,680
730,871
52,923
300,288
495,308
3,823,517
3,235,548
8,787,809
2,172,534
1,715,334
159,885
2,007,107
268,023
118,296
18,464,536
Non-trading
investments
573,519
-
1,348,703
179,513
690,534
619,412
1,387,481
594,167
5,393,329
Interest receivable
and other assets
225,992
40,059
1,793
74,202
73,878
46,874
1,653
7,284
471,735
4,627,347
11,009,008
4,354,366
2,540,166
1,655,168
3,481,599
2,257,795
1,365,030
31,290,479
772,031
1,305,605
437,089
52,720
41,300
401,980
21,685
54,987
3,087,397
Undrawn loan
commitments
66,416
132,301
198,273
83,722
16,655
217,123
2,333
3,805
720,628
Total unfunded
exposures
838,447
1,437,906
635,362
136,442
57,955
619,103
24,018
58,792
3,808,025
5,465,794
12,446,914
4,989,728
2,676,608
1,713,123
4,100,702
2,281,813
1,423,822
35,098,504
15.6%
35.5%
14.2%
7.6%
4.9%
11.7%
6.5%
4.0%
100.0%
Deposits with
banks
Loans and
advances
Total funded
exposures
Contingent
liabilities
TOTAL
Arab
Republic
of Egypt
Asia
(excluding
GCC
countries)
Rest of the
World
Total
* Other GCC countries are countries which are part of the Gulf Co-operation Council comprising the Sultanate of Oman, State of Qatar, Kingdom of Saudi Arabia and
the United Arab Emirates apart from Kingdom of Bahrain and State of Kuwait which are disclosed separately.
TABLE - 5 SECTORAL CLASSIFICATION OF GROSS CREDIT EXPOSURES
US$ ’000
Funded
Unfunded
Total
%
3,137,362
-
3,137,362
8.9
7,626,493
477,141
8,103,634
23.2
Consumer/personal
3,430,805
14,041
3,444,846
9.8
1,717,425
28,427
1,745,852
5.0
4,585,362
1,351,705
5,937,067
16.9
Real estate
4,644,398
146,325
4,790,723
13.6
Services
3,199,816
1,399,697
4,599,513
13.1
2,704,465
235,939
2,940,404
8.4
Others
244,353
154,750
399,103
1.1
TOTAL
31,290,479
3,808,025
35,098,504
100.0
89.2%
10.8%
100.0%
Ahli United Bank
116
31 December 2014
TABLE - 6 RESIDUAL CONTRACTUAL MATURITY OF GROSS CREDIT EXPOSURES
US$ ’000
Up to
one month
One month
to three
months
Over three
months to
one year
Over one
year to
five years
Over
five to
ten years
Over ten
to twenty
years
Over
twenty
years
Total
Balances with
central banks
526,277
-
-
-
-
-
-
526,277
Treasury bills and
deposits with
central banks
861,979
722,302
1,026,804
-
-
-
-
2,611,085
Deposits with banks
3,053,904
400,514
225,392
143,707
-
-
-
3,823,517
Loans and advances
3,587,196
3,040,489
2,188,635
5,108,832
3,431,756
942,710
164,918
18,464,536
210,457
231,445
891,076
2,861,742
886,913
237,006
74,690
5,393,329
Interest receivable and
other assets
64,156
162,985
132,069
71,396
41,129
-
-
471,735
Total funded exposures
8,303,969
4,557,735
4,463,976
8,185,677
4,359,798
1,179,716
239,608
31,290,479
534,571
503,851
1,182,355
853,411
13,209
-
-
3,087,397
Undrawn loan
commitments
90,920
110,190
378,329
130,137
11,052
-
-
720,628
Total unfunded
exposures
625,491
614,041
1,560,684
983,548
24,261
-
-
3,808,025
8,929,460
5,171,776
6,024,660
9,169,225
4,384,059
1,179,716
239,608
35,098,504
TOTAL
Impairment Provisions
The Group Risk Committee regularly evaluates the adequacy of the established allowances for impaired loans
Two types of impairment allowance are in place:
Individually assessed impairment provisions
These are determined by evaluating the exposure to loss, case by case, on all individually significant accounts based upon the following factors:
- aggregate exposure to the customer;
- the viability of the customer’s business model and its capacity to trade successfully out of financial difficulties, generating sufficient cash flow to service debt obligations;
- the amount and timing of expected receipts and recoveries;
- the extent of other creditors’ commitments ranking ahead of, or pari passu with the Bank, and the likelihood of other creditors continuing to support
the company;
- the realisable value of security (or other credit mitigations) and likelihood of successful repossession;
- the likely dividend available on liquidation or bankruptcy;
- the likely costs involved in recovering amounts outstanding, and
- when available, the secondary market price of the debt.
Collectively assessed impairment provisions
Impairment is assessed on a collective basis as follows:
Incurred but not yet identified impairment
Individually assessed loans for which no evidence of impairment has been specifically identified on an individual basis are grouped together according to
their credit risk characteristics. A collective loan loss allowance is calculated to reflect potential impairment losses estimated at the balance sheet date which
may be individually identified in the future.
Ahli United Bank
Annual Report
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117
31 December 2014
Incurred but not yet identified impairment (continued)
The collective impairment provision is determined based upon:
- historical loss experience in portfolios of similar credit risk characteristics (for example, by industry sector, risk rating or product segment); and
- judgment as to whether current economic and credit conditions are such that the actual level of inherent losses is likely to be greater or less than that suggested by historical experience.
TABLE - 7 SECTORAL BREAKDOWN OF IMPAIRED LOANS AND IMPAIRMENT PROVISIONS
US$ ’000
Impaired and past
due loans
Specific
impairment
provision
*Net specific
charge
for the
year ended
31 December 2014
Write off
during the
year ended 31
December 2014
Collective
impairment
provision
87,092
84,268
86,480
71,646
55,624
113,473
106,051
80,686
74,640
66,482
12,977
11,457
397
8,298
75,300
Consumer/personal
Real estate
Services
6,538
1,648
147
-
27,845
33,868
32,341
9,157
15,413
16,343
123,390
81,584
24,511
64,800
44,912
-
-
-
-
4,293
Others
12,603
9,421
2,306
137
3,962
TOTAL
389,941
326,770
203,684
234,934
294,761
*Net specific charge for the year excludes recoveries from fully provided loans written off in prior years.
TABLE - 8 GEOGRAPHICAL DISTRIBUTION OF IMPAIRMENT PROVISIONS FOR LOANS AND ADVANCES
US$ ’000
Kingdom of
Bahrain
State of
Kuwait
Other
GCC
countries
United
Kingdom
Europe
(excluding
United
Kingdom)
Arab
Republic
of Egypt
Asia
(excluding
GCC
countries)
Rest
of the
world
Total
Specific impairment provision
55,965
216,652
-
570
-
45,032
8,551
-
326,770
Collective impairment
provision
28,523
190,756
20,110
8,183
4,542
38,913
2,572
1,162
294,761
84,488
407,408
20,110
8,753
4,542
83,945
11,123
1,162
621,531
TOTAL
TABLE - 9 MOVEMENT IN IMPAIRMENT PROVISION FOR LOANS AND ADVANCES
US$ '000
TOTAL
Net charge for the year*
Exchange rate adjustments / other movements
Specific
Collective
353,091
284,634
(234,934)
-
203,684
22,266
4,929
(12,139)
326,770
294,761
*Net specific charge for the year excludes recoveries from fully provided loans written off in prior years.
Ahli United Bank
118
31 December 2014
Past Due and Impaired Credit Facilities
As per CBB guidelines, credit facilities are placed on non-accrual status and interest income suspended when either principal or interest is overdue by 90 days
whereupon unpaid and accrued interest is reversed from income. Interest on non-accrual facilities is included in income only when received. Credit facilities
classified as past due are assessed for impairment in accordance with IFRS guidelines. A specific provision is established where there is objective evidence that
a credit facility is impaired. Impaired credit facilities comprise those facilities where there is objective evidence that the Bank will not collect all amounts due, including both principal and
interest. Objective evidence would include: - a breach of contract, such as default or delinquency in interest or principal payments, - the granting of a concession that, for economic or legal reasons relating to the borrower’s financial difficulties, would not otherwise be considered, - indications that it is probable that the borrower will enter bankruptcy or other financial reorganisation, Refer to notes 8(a) to 8(d) and note 31(c) to the audited consolidated financial statements for the year ended 31 December 2014 for the distribution of the
loans and advances portfolio by quality.
Ratings 1 - 4 comprise of corporate facilities demonstrating financial condition, risk factors and capacity to repay that are excellent to good and retail borrowers
where cash collateral [or equivalent such as pledged investment funds] has been provided.
Ratings 5 - 7 represents satisfactory risk and includes corporate facilities that require closer monitoring, and retail accounts which are maintained within
generally applicable product parameters.
TABLE - 10 PAST DUE AND IMPAIRED LOANS - AGE ANALYSIS
i) By Geographical area
US$ '000
Kingdom of Bahrain
State of Kuwait
Other GCC Countries
United Kingdom
Asia (excluding GCC countries)
TOTAL
Ahli United Bank
Three
months to
one year
One
to three
years
Over
three
years
Total
8,783
46,692
7,413
62,888
189,707
33,928
45,514
269,149
-
-
-
-
1,900
-
-
1,900
18,252
11,753
17,569
47,574
-
-
8,430
8,430
218,642
92,373
78,926
389,941
56.1%
23.7%
20.2%
100.0%
Annual Report
2014
119
31 December 2014
TABLE - 10 PAST DUE AND IMPAIRED LOANS - AGE ANALYSIS (continued)
ii) By Sector
US$ '000
Three
months to
one year
One
to three
years
Over
three
years
Total
Consumer/personal
21,975
46,489
18,629
87,093
85,846
13,986
13,641
113,473
Real estate
1,900
5,439
5,638
12,977
3,766
2,773
-
6,539
6,291
1,945
25,631
33,867
Services
97,775
21,585
4,030
123,390
Others
1,089
156
11,357
12,602
TOTAL
218,642
92,373
78,926
389,941
56.1%
23.7%
20.2%
100.0%
TABLE - 11 RESTRUCTURED CREDIT FACILITIES
US$ '000
Balance of any restructured credit facilities as at year end
199,194
Loans restructured during the year
37,157
The above restructurings did not have any significant impact on the present or future earnings and were primarily extensions of the loan tenor
TABLE - 12 COUNTERPARTY CREDIT RISK IN DERIVATIVE TRANSACTIONS
i) Breakdown of the credit exposure
US$ '000
Foreign exchange related
Options & Interest rate related
Derivatives credit exposure
Notional
amount
Gross
positive
fair value
Credit
conversion
factor
8,941,764
142,526
231,317
50,414,026
76,457
144,074
59,355,790
218,983
375,391
Gross positive fair value represents the replacement cost of the derivatives.
US$ '000
ii) Amounts of collateral
41,035
TABLE - 13 RELATED PARTY TRANSACTIONS
Refer note 25 to the audited consolidated financial statements of the Group for the year ended 31 December 2014.
Ahli United Bank
120
31 December 2014
4. MARKET RISK
Market risk is the risk that movements in market risk factors, including foreign exchange rates, interest rates, credit spreads and equity prices will reduce the
Group’s income or the value of its portfolios.
Market Risk Management, Measurement and Control Responsibilities
The Board approves the overall market risk appetite and delegates responsibility for providing oversight on the Bank's market risk exposures and the sub
allocation of Board limits to the Group Asset and Liability Committee (GALCO). Group Risk Management is responsible for the market risk control framework
and for monitoring compliance with the GALCO limit framework.
The Group separates market risk exposures into either trading or non-trading portfolios. Trading portfolios include those positions arising from marketmaking, proprietary position-taking and other marked-to-market positions. Non-trading portfolios include positions that arise from the foreign exchange/
interest rate management of the Group’s retail and commercial banking assets and liabilities, and financial assets designated as at amortised cost and fair value
through other comprehensive income statement.
Each Group operating entity has an independent market risk function which is responsible for measuring market risk exposures in accordance with the Group
Trading Book Policy and the Interest Rate Risk in the Banking Book Policy, and monitoring these exposures against prescribed limits.
Market risk reports covering Trading Book risk exposures and profit and loss are published daily to the Bank’s senior management. A risk presentation covering
both Trading and Banking Book is also compiled monthly and discussed at the GALCO.
The measurement techniques used to measure and control market risk include:
-
-
-
Value at Risk (VaR); and
Stress tests
Sensitivities and position size related metrics
Daily Value at Risk (VaR)
The Group VaR is an estimate of the potential loss which might arise from unfavourable market movements:
Sample
Size
Holding
Period
Confidence
Interval
Frequency of
Calculation
“Management” VaR
260
1 day
95%
Daily
“Regulatory” VaR
260
10 days
99%
Daily
VaR Type
Daily losses exceeding the VaR figure are likely to occur, on average, either once or five times in every 100 business days depending on the confidence interval
employed in the VaR calculation (per the above). The Group routinely validates the accuracy of its VaR models by back testing the actual daily profit and loss
results. The actual number of excesses over a given period can be used to gauge how well the models are performing.
Although a useful guide to risk, VaR should always be viewed in the context of its limitations. For example:
-
-
- - the use of historical data as a proxy for estimating future events may not encompass all potential events, particularly those which are extreme in nature;
the use of a 1-day holding period assumes that all positions can be liquidated or hedged in one day. This may not fully reflect the market risk arising at times
of severe illiquidity, when a 1-day holding period may be insufficient to liquidate or hedge all positions fully;
the use of a confidence level, by definition, does not take into account losses that might occur beyond the applied level of confidence; and
VaR is calculated on the basis of exposures outstanding at the close of business and therefore does not necessarily reflect intra-day exposures.
The VaR for the Group was as follows:
US$ '000
For the year 2014
Ahli United Bank
Average
Minimum
Maximum
826
310
1,768
Annual Report
2014
121
31 December 2014
4. MARKET RISK (continued)
TABLE - 14 CAPITAL REQUIREMENTS FOR COMPONENTS OF MARKET RISK
US$ ’000
Risk-weighted
exposures
Capital
requirement
Maximum
value
Minimum
value
547,275
65,673
65,673
27,118
18,265
2,192
22,525
2,192
Foreign exchange risk
204,245
24,509
24,509
8,750
Options
111,747
13,410
13,410
2,224
881,532
105,784
65,693
7,883
9,398
7,883
947,225
113,667
Interest rate risk
Equity position risk
BEFORE PROPORTIONATE AGGREGATION OF ASSOCIATES
Add : Proportionate aggregation
Interest Rate Risk (non-trading)
Interest rate risk is the risk that the earnings or capital of the Group, or its ability to meet business objectives, will be adversely affected by movements in interest
rates. Accepting this risk is a normal part of banking practice and can be an important source of profitability and shareholder value. Changes in interest rates
can affect a bank's earnings by changing its net interest income and the level of other interest sensitive income and operating expenses. Changes in interest
rates also affect the underlying value of the Group's assets, liabilities and off-balance sheet instruments because the present value of future cash flows and/ or
the cash flows themselves change when interest rates change. The Bank employs a risk management process that maintains interest rate risk within prudent levels.
The Board recognizes that it has responsibility for understanding the nature and the level of interest rate risk taken by the Bank, and has defined a risk framework
pertaining to the management of non trading interest rate risk and has identified lines of authority and responsibility for managing interest rate risk exposures.
The Board has delegated the responsibility for the management of interest rate risk to Group Asset & Liability Committee (GALCO). GALCO is responsible for
setting and monitoring the interest rate risk strategy of the Group, for the implementation of the interest rate risk framework and ensuring that the management
process is in place to maintain interest rate risk within prudent levels.
GALCO reviews the interest rate risk framework annually and submits recommendations for changes to the Executive Committee and Board as applicable.
The responsibility for the implementation of the Bank’s interest rate risk policies resides with the Group Treasurer. An independent review of all interest exposure
present in the Banking Book is undertaken by the Group Market Risk team and communicated to GALCO on a monthly basis.
Interest rate re-pricing reports are based on each product's contractual re-pricing characteristics overlaid where appropriate by behavioral adjustments. Behavioral adjustments are derived by an analysis of customer behavior over time augmented by input from the business units.
Reports detailing the interest rate risk exposure of the Bank are reviewed by GALCO and the Board on a regular basis.
Ahli United Bank
122
31 December 2014
The following table summarizes the re-pricing profiles of the Group’s assets and liabilities as at 31 December 2014.
TABLE - 15 INTEREST RATE RISK
US$'000
Less than
three
months
Three
months to
one year
Over one
year
Total
1,487,705
1,123,380
-
2,611,085
Deposits with banks
3,249,760
349,804
-
3,599,564
Loans and advances
13,947,814
3,086,627
1,427,100
18,461,541
735,891
1,108,915
3,548,523
5,393,329
19,421,170
5,668,726
4,975,623
30,065,519
4,058,348
423,455
-
4,481,803
860,941
40,649
-
901,590
14,384,183
5,887,117
1,364,312
21,635,612
85,525
266,121
-
351,646
19,388,997
6,617,342
1,364,312
27,370,651
On balance sheet gap
32,173
(948,616)
3,611,311
Off balance sheet gap
3,266,425
(214,748)
(3,051,677)
Total interest sensitivity gap
3,298,598
(1,163,364)
559,634
3,298,598
2,135,234
2,694,868
ASSETS
LIABILITIES
Deposits from banks
Customers' deposits
Cumulative interest sensitivity gap
Interest rate risk sensitivity analysis
The Group’s interest rate risk sensitivity is analyzed in note 33(a) to the consolidated financial statements of the Group for the year ended 31 December 2014.
Further, as noted in note 3.1 of the consolidated financial statements, since most of the assets and liabilities of the Group are carried at amortized cost, a
movement of 200 bps will not materially impact the Group’s assets, liabilities and capital.
Equity Risk
Equity risk is the risk of changes in the fair value of an equity instrument. AUB Group is exposed to equity risk on non-trading equity positions that are primarily
focused on the GCC stock markets. The Board has set limits on the amount and type of investments that may be made by the Bank. This is monitored on an
ongoing basis by the Group Risk Committee with pre approved loss thresholds. The Bank's equity risk appetite is minimal.
Valuation and accounting policies:
a) Equity investments held for strategic reasons - investments in associates and joint venture
Associated companies are companies in which the Group exerts significant influence but does not control, normally represented by an interest of between
20% and 50% in the voting capital. The Group classifies its investments as joint venture where it is a party to a contractual joint venture agreement. Investments in associated companies and joint ventures are accounted for using the equity method.
b) Other equity investments
After initial recognition, equity investments are remeasured at fair value. For investments in equity instruments, where a reasonable estimate of the fair value
cannot be determined, the investment is carried at cost less impairment provision.
The fair value of equity instruments that are quoted in an active market is determined by reference to market prices at the close of business on the balance sheet
date. For equity investments that are not quoted in an active market, a reasonable estimate of the fair value is determined using net present valuation techniques.
Ahli United Bank
Annual Report
2014
123
31 December 2014
For accounting policies on equity instruments please refer to note 3.3(c) (v) of the consolidated financial statements.
TABLE - 16 GAINS ON EQUITY INSTRUMENTS
US$ ’000
Unrealized (loss) gains recognized in the balance sheet:
- Tier one (eligible portion)
(684)
- Tier two (eligible portion)
7,780
5. LIQUIDITY RISK AND FUNDING MANAGEMENT
Liquidity risk and funding management of the Group have been explained in note 35 of audited consolidated financial statements for the year ended
31 December 2014.
Maturity Analysis of Assets and Liabilities
A maturity analysis of cash flows payable by the Group under financial liabilities by remaining contractual maturities at the balance sheet date is shown in
note 35 to the audited consolidated financial statements of the Group for the year ended 31 December 2014.
6. OPERATIONAL RISK
Operational risk is the risk of loss arising from inadequate or failed internal processes, people and systems or from external events, whether intentional,
unintentional or natural. This definition includes legal risk, but excludes strategic and reputational risk. It is an inherent risk faced by all businesses and covers a
large number of operational risk events including business interruption and systems failures, internal and external fraud, employment practices and workplace
safety, customer and business practices, transaction execution and process management, and damage to physical assets.
The Board acknowledges that it has ultimate responsibility for operational risk. Oversight rests with the Group Risk Committee, whilst day to day monitoring
is carried out by the Group Operational Risk Committee. The Board has approved the operational risk framework and reviews it annually.
The operational risk management framework has been in place for a number of years and is ingrained in the Bank’s culture and processes. The Bank has
developed a comprehensive 'operational risk self assessment' (ORSA) process.
7. INFORMATION TECHNOLOGY RISK
All computer system developments and operations are centrally controlled and common standard business systems are deployed across the Group wherever
possible. Information security is defined through a common ‘AUB Group Information Security framework’ and is executed through various information security
processes and controls that support the framework. The Group follows an enterprise wide approach to business continuity to ensure that all identified critical
operations, services and systems are recovered in time in the event of a disruption. The Business Continuity Policy is updated annually and the Disaster
Recovery and Business Continuity capabilities are each tested at least once a year and critical systems data are continuously replicated at the disaster recovery
site.
8. STRATEGIC RISK
The Board supported by Strategic Development Unit and the Group Finance manages strategic risk on an ongoing basis. The Board receives regular
performance reports with details of strategic / regulatory issues as they arise.
9. LEGAL, COMPLIANCE, REGULATORY AND REPUTATIONAL RISKS
Protecting the Legal, Compliance, Regulatory and Reputational Risks of the Group is of paramount importance and all management and staff are expected to apply
highest standards of business conduct and professional ethics at all times.
The Board approved policies, including AUB Group Reputation Risk policy, Communications Policy, Personal Account Dealing Policy, Compliance Policy, Anti
Money Laundering policy, Banking Integrity Policy and Code of Business conduct policy, prescribes the required standards of ethical behavior and personal
conduct for all staff (including the Bank’s Directors), and the Board exercises an oversight of these risks through various management functions, including
Legal, Risk Management, Compliance, Human Resources and Internal Audit Department.
10. ENVIRONMENTAL RISK
The Bank recognizes the importance of environmental and social issues within its risk framework, and has established a Social and Environmental Management
System (SEMS) which details the policy, procedures and workflow that will be followed by the Bank and its subsidiaries / affiliates in respect of environmental risk.
The Bank continually endeavours to implement effective social and environmental management practices in all its activities, products and services with a
focus on the applicable national laws on environmental, health, safety and social issues.
The Bank has adopted the Equator Principles (EP), a globally recognized benchmark for managing social and environmental risks in project finance. EP is an
arrangement by financial institutions worldwide to adhere to the environmental, health and safety standards while financing projects.
As such the Bank will finance projects only when they are expected to be designed, built, operated and maintained in a manner consistent with the applicable national laws.
Ahli United Bank
Ahli United Bank B.S.C.
Building 2495, Road 2832, Al-Seef District
P.O. Box 2424, Manama, Kingdom of Bahrain
Telephone: +973 17 585 858, Facsimile: +973 17 580 569
Email: info@ahliunited.com, www.ahliunited.com

pdf -1.80 MB - Ahli United Bank

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