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the first decade
2010annual report
the first decade
The story of our success is grounded in a simple philosophy: “A merger of minds. A merger of markets.” Now, 10 years later, we operate successfully across 7 MENA markets and in the UK. Inspired by our local heritage, our ambition knows no boundaries.
ahli united bank
1
2010 annual report continued
2 Group mission statement
3 AUB operating divisions
4 Financial highlights
14 Board of Directors’ report
18 Board of Directors
20 Chairman’s statement
22 Group Chief Executive Officer & Managing Director’s statement
24 Corporate governance
28 Group business and risk review
36 Group organisation and shareholding
37 Group management
38 Contact details
40 Auditors’ report to the shareholders and consolidated financial statements Auditors’reporttotheshareholders . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .41
Consolidatedstatementofincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .42
Consolidatedstatementofcomprehensiveincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .43
Consolidatedbalancesheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .44
Consolidatedstatementofcashflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .45
Consolidatedstatementofchangesinequity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .46
47 Notes to the consolidated financial statements
69 Pillar III disclosures - Basel II
contents
ahli united bank
2
2010 annual report
groupmission statementTo create an unrivalled ability to meet customer needs, provide fulfillment and development for our staff and deliver outstanding shareholder value. Objectives• tomaximizeshareholdervalueonasustainablebasis .
• tomaintainthehighestinternationalstandardsofcorporategovernanceandregulatorycompliance .
• tomaintainsolidcapitaladequacyandliquidityratios .
• toentrenchadisciplinedriskandcostmanagementculture .
• todevelopacross-culturalmeritocraticmanagementstructure .
• tooptimisestaffdevelopmentthroughbusinessdriventrainingandprofitrelatedincentive .
• tocontributetothesocialandeconomicadvancementofthecommunitiesinwhichthegroupoperates .
AUB vision & strategy• Developanintegratedpanregionalfinancialservicesgroupmodelcenteredoncommercial&retailbanking,privatebanking,assetmanagement
andlifeinsurancewithanenhancedSharia’acompliantbusinessfocusandcontribution .
• AcquirebanksandrelatedregulatedfinancialinstitutionsintheGulfcountries(coremarkets)withminimumtargeted10%marketsharetobe
achievedthroughmergers,acquisitionsandorganicgrowth .
• AcquirecomplementarybankingplatformsinsecondarymarketsenjoyingstrongcrossborderbusinessflowswithGulfcountriesorwith
economicstructuressimilartotheGulfcountries .
ahli united bank
3
2010 annual report group mission statement continued
“
Operating divisionsCorporate Banking, Treasury & InvestmentsThis division covers all the Bank’s capital-intensive activities in risk asset generation and funding regionally and internationally.
• CorporateandTradeFinance
• Treasury
• CommercialPropertyFinance
• ResidentialPropertyFinance
• AcquisitionandStructuredFinance
• CorrespondentBanking
• IslamicBanking
Private Banking & Wealth ManagementThis 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.
• PrivateBankingandAssetManagement
• RealEstateFundManagement
• IslamicBanking
Retail BankingThis division covers both conventional and islamic individual customers’ deposits, loans, overdrafts, credit cards and residential mortgages.
Risk ManagementThis division is responsible for the identification, assessment and ongoing control of all material risks that could affect the Group’s
businesses & operations.
• RiskManagement
• Legal
• Compliance
• Audit
Support ServicesThese divisions provide back end banking services to support on-going business activities of the Group, as well as supporting the
Group’s expansion through mergers and acquisitions.
• Finance
• StrategicDevelopment
• InformationTechnology
• Operations
• Services
• HumanResources
0
60,000
120,000
180,000
240,000
300,000
06 07 08 09 10
265
,499
200,
71825
5,72
3
296,
317
207,
480
06 07 08 09 10
0
2,800,000
5,600,000
8,400,000
11,200,000
14,000,000
14,4
77,7
13
13,2
99,9
99
13,6
32,2
20
12,0
35,1
53
8,87
3,35
7
06 07 08 09 10
0
480,000
960,000
1,440,000
1,920,000
2,400,000
2,39
2,18
1
2,21
3,52
3
1,99
5,43
5
2,30
9,72
0
1,54
3,11
806 07 08 09 10
26,4
57,4
61
23,5
73,9
83
23,5
82,7
27
23,0
49,8
52
20,7
98,9
070
5,400,000
10,800,000
16,200,000
21,600,000
27,000,000
ahli united bank
4
2010 annual report financial highlights continued
financialhighlightsUS$‘000
netprofit
totalloans
totalassets
shareholders’equity
8countries in
which we operate
2000:2bahrainkuwaitqataromanegyptiraqlibyauk
2010:
ahli united bank
6
2010 annual report financial highlights continued
Net profit for the year
2010 2009 2008 2007 2006
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Net profit * 265,499 200,718 255,723 296,317 207,480
Total assets 26,457,461 23,573,983 23,582,727 23,049,852 20,798,907
Total loans 14,477,713 13,299,999 13,632,220 12,035,153 8,873,357
Total liabilities(includingsubordinatedliabilities) 23,705,286 20,992,552 21,187,950 20,401,731 18,972,235
Shareholders’ equity 2,392,181 2,213,523 1,995,435 2,309,720 1,543,118
Non-Controlling interests 359,994 367,908 399,342 338,401 283,554
Return on average assets 1.2% 0.9% 1.3% 1.7% 1.7%
Return on average equity 12.0% 9.6% 11.4% 18.0% 15.1%
Cost to income ratio 35.5% 33.8% 39.1% 37.5% 40.1%
Financial leverage 9.6 9.2 10.2 8.5 12.0
Risk asset ratio ** 14.1% 15.1% 13.8% 16.2% 14.8%
Net interest margin 2.3% 2.4% 2.2% 2.2% 1.8%
Earning per share (US cents) - basic 5.4 4.2 5.3 7.9 5.5
Earning per share (US cents) - diluted 5.4 4.2 5.3 6.9 4.9
* Attributable to Bank’s equity shareholders.
** Under Basel II from 2008.
consolidatedperformancesummary
US$ 265.5million
ahli united bank
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2010 annual report financial highlights continued
2010 2009 2008 2007 2006
US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000 US$ ‘000
Net profit 20,760 7,164 7,088 25,370 15,152
Total assets 2,718,253 2,030,367 2,305,646 2,541,853 3,445,908
Total loans 1,560,955 1,309,903 1,095,061 1,210,724 1,089,040
Total liabilities 2,478,638 1,813,063 2,101,818 2,323,757 3,220,410
Shareholders’ equity 239,615 217,304 203,828 218,096 225,498
Return on average assets 0.9% 0.3% 0.3% 0.8% 0.5%
Return on average equity 9.1% 3.4% 3.4% 11.1% 6.8%
Cost to income ratio 38.1% 41.3% 48.3% 44.1% 70.3%
Financial leverage 10.1 8.2 10.0 10.4 14.0
Risk asset ratio * 15.3% 16.5% 15.6% 14.6% 13.9%
Earning per share (US cents) 10.4 3.6 3.5 12.3 7.6
* Under Basel II from 2008.
principalsubsidiaries
United Kingdom: Ahli United Bank (UK) PLC
ahli united bank
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2010 annual report financial highlights continued
2010 2009 2008 2007 2006
KD’ 000 KD’ 000 KD’ 000 KD’ 000 KD’ 000
Net profit * 27,444 14,262 51,365 48,179 45,111
Total assets 2,454,337 2,260,533 2,237,018 2,238,549 1,929,406
Total loans(financingreceivables) 1,609,986 1,561,104 1,472,932 1,251,476 922,987
Total liabilities 2,189,042 2,023,197 1,965,126 1,935,285 1,672,475
Shareholders’ equity 245,679 213,159 243,066 269,884 235,097
Return on average assets 1.1% 0.6% 2.2% 2.5% 2.7%
Return on average equity 12.2% 6.2% 20.2% 20.5% 21.5%
Cost to income ratio 38.7% 33.4% 32.0% 34.5% 34.2%
Financial leverage 8.7 9.3 7.9 7.0 6.9
Risk asset ratio ** 18.8% 16.8% 14.8% 15.6% 18.1%
Earning per share (fils) 28.4 14.8 53.1 49.9 46.7
* Attributable to Bank’s equity shareholders.
** Under Basel II.
Kuwait: Ahli United Bank K.S.C.
principalsubsidiariescontinued
ahli united bank
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2010 annual report financial highlights continued
2010 2009 2008 2007 2006
KD’ 000 KD’ 000 KD’ 000 KD’ 000 KD’ 000
Net (loss) profit (8,912) (9,443) 3,934 13,262 8,610
Total assets 64,895 86,236 95,107 112,869 81,106
Total loans 9,391 14,418 15,486 13,719 10,129
Total liabilities 27,343 39,607 39,900 48,258 38,367
Shareholders’ equity 35,742 44,797 52,565 62,184 40,792
Return on average assets (12.7%) (10.1%) 3.8% 13.7% 12.4%
Return on average equity (20.5%) (18.0%) 6.9% 27.4% 20.8%
Cost to income ratio 186.7% 114.7% 62.4% 38.1% 46.9%
Earning per share (fils) - basic (34.1) (36.2) 15.1 51.7 34.3
Kuwait continued: Kuwait and Middle East Financial Investment Company K.S.C.(c)
ahli united bank
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2010 annual report financial highlights continued
2009 2008 2007 2006 2005
IQD millions IQD millions IQD millions IQD millions IQD millions
Net profit 4,288 4,263 2,407 2,101 1,660
Total assets 208,304 191,124 191,015 164,594 155,585
Total loans 18,127 16,904 29,961 25,706 25,044
Total liabilities 86,893 89,338 96,559 78,864 92,943
Shareholders’ equity 84,151 67,053 65,304 63,777 62,642
Return on average assets 2.1% 2.2% 1.4% 1.3% 1.8%
Return on average equity 5.7% 6.4% 3.7% 3.3% 11.3%
Cost to income ratio 74.0% 27.2% 26.4% 24.7% 41.6%
Financial leverage 1.0 1.3 1.5 1.2 1.3
Risk asset ratio 351.5% 348.1% 201.5% 114.8% 101.3%
Earnings per share (fils) 71.5 71.1 40.1 35.0 117.1
2010 financial statements are under audit.
Based on financial statements under local GAAP.
Iraq: Commercial Bank of Iraq P.S.C.
principalsubsidiariescontinued
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2010 annual report financial highlights continued
2010 2009 2008 2007 2006
EGP’ 000 EGP’ 000 EGP’ 000 EGP’ 000 EGP’ 000
Net profit* 164,348 128,245 183,056 146,756 222
Total assets 10,012,348 7,604,071 7,282,769 5,773,037 4,029,218
Total loans 5,443,987 4,444,684 4,105,418 2,521,147 1,075,300
Total liabilities 8,985,425 6,660,982 6,418,411 4,956,500 3,359,437
Shareholders’ equity 1,017,506 933,701 864,358 816,537 669,781
Return on average assets 2.0% 1.8% 2.8% 3.0% 0.0%
Return on average equity 15.9% 12.9% 21.8% 21.0% 0.0%
Cost to income ratio 42.1% 44.8% 41.9% 36.2% 54.7%
Financial leverage 8.6 6.9 7.3 5.9 4.8
Risk asset ratio ** 14.0% 16.2% 17.4% 20.4% 46.8%
Earnings per share (EGP) 2.7 2.1 2.8 2.2 -
Based on financial statements under Egyptian Accounting Standards up to 2008 and IFRS from 2009.
* Attributable to Bank’s equity shareholders.
** Under Basel I.
Egypt: Ahli United Bank (Egypt) S.A.E.
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2010 annual report financial highlights continued
2010 2009 2008 2007 2006
QR’ 000 QR’ 000 QR’ 000 QR’ 000 QR’ 000
Net profit 412,329 300,515 425,781 302,652 202,241
Total assets 17,965,718 18,449,561 17,799,276 15,576,381 9,556,360
Total loans 11,338,854 12,407,056 11,547,061 10,105,785 6,294,372
Total liabilities 15,901,448 16,496,986 16,158,893 14,052,534 8,373,890
Shareholders’ equity 2,064,270 1,952,575 1,640,383 1,523,847 1,182,470
Return on average assets 2.3% 1.7% 2.6% 2.7% 2.7%
Return on average equity 21.0% 17.5% 26.0% 24.6% 18.5%
Cost to income ratio 26.9% 31.4% 25.3% 30.0% 37.7%
Financial leverage 7.5 8.3 9.6 9.1 6.9
Risk asset ratio * 14.9% 15.2% 12.0% 12.9% 13.2%
Earnings per share (QR) 6.5 4.9 7.3 5.2 3.5
* Under Basel II.
principalassociates
Qatar: Ahli Bank Q.S.C.
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2010 annual report financial highlights continued
2010 2009 2008 2007 2006
RO’ 000 RO’ 000 RO’ 000 RO’ 000 RO’ 000
Net profit 14,100 8,541 5,933 2,219 3,914
Total assets 805,594 616,058 456,405 305,967 175,178
Total loans 656,413 443,562 375,298 239,413 150,717
Total liabilities 703,488 523,440 369,349 224,978 143,512
Shareholders’ equity 102,106 92,618 87,056 80,988 31,666
Return on average assets 2.0% 1.6% 1.6% 0.9% 2.4%
Return on average equity 14.5% 9.5% 7.1% 3.9% 12.3%
Cost to income ratio 35.9% 44.3% 54.0% 56.0% 36.7%
Financial leverage 6.7 5.5 4.2 2.7 4.4
Risk assets ratio * 19.7% 17.6% 23.4% 40.9% 33.1%
Earnings per share (Baiza) 19.8 12.0 8.3 4.6 8.5
* Under Basel II from 2007.
Oman: Ahli Bank S.A.O.G.
ahli united bank
14
2010 annual report
board ofdirectors’ reportThe 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 2010.
General operating environment Economic growth in the Middle East and North Africa (MENA) region showed signs of recovery in 2010 boosted by higher average oil prices in the midst
of early signs of revival in the USA and continuing strong growth in China and other major emerging markets. The contagion effects of sovereign debt
crisis in the Euro Zone are a potential threat but appear for now to have been mitigated by European Monetary Union fiscal support packages. The
banking industry in the Middle East showed some signs of recovery. However, the adverse real estate market conditions, lacklustre performances by
regional stock markets, limited retail and corporate growth opportunities together with asset quality and provisioning concerns present challenges to a
robust turnaround in 2011.
Performance overviewIn line with the Bank’s continuing core regional commercial banking business model, AUB continues to place its emphasis in the following areas:
• Prudentassetliabilitymanagementframeworkwithaviewtofurtherdiversifyingitsfundingbase,elongatingmaturitieswherenecessaryand
maintainingsufficientliquiditylevelstomeetanyforeseeablecontingencies;
• Closermonitoringofriskexposures,proactiverecognitionofnonperformingloanswithaprudentprovisioningapproach;
• Balancedassetgrowthwithprudentriskparametersfocusingmainlyonstablebusinesssegmentssupportedbycashflowsandappropriate
collateralswithconservativeloantovaluelevels;
• Continuingoperationalstreamlininganddisciplinedcostcontrolwithanintelligentspendapproach .
While the challenges in operating environment continued, the below section highlights key performance achievements during the financial year 2010:
• Consolidated net profit, attributable to the Bank’s equity shareholders, of US$ 265.5 million as against US$ 200.7 million in 2009, reflecting a strong
growth of 32.3%.
• Net interest income increased by 9.0% to US$ 508.8 million.
• Share of profits from all managed associates increased by 26.5% to US$ 51.6 million over 2009.
• Total operating income increased to US$ 714.1 million (2009: US$ 696.4 million).
• Overall provision charge for loan losses and contingencies was contained at US$ 151.7 million, 33.5% lower versus US$ 228.1 million in 2009 with non
performing loans reducing to 2.4% of gross loans and advances (2009:2.8%).
• Return on average equity was 12.0% for 2010 compared to 9.6% for 2009 and return on average assets was 1.2% in 2010 (2009: 0.9%).
• Total assets increased by 12.2% to US$ 26.5 billion (2009: US$ 23.6 billion) with loans and advances increasing by 8.9% (+US$ 1.2 billion) to
US$ 14.5 billion (2009: US$ 13.3 billion).
• Customers’ deposits were up by 12.0% (+US$ 1.6 billion) to US$ 14.8 billion (2009: US$ 13.2 billion), driven by strong focus on sourcing low cost
deposits and diversification of liabilities.
• Higher operating costs associated with the conversion of: AUB’s subsidiary Bank of Kuwait and the Middle East “BKME” (now known as Ahli United
Bank K.S.C.) into a full-fledged Sharia’a compliant Islamic bank as well as necessary incremental IT infrastructure and project spends resulted in an
increased cost to income ratio of 35.5% (2009:33.8%).
ahli united bank
15
2010 annual report board of directors' report continued
Business & strategic diversificationIn April 2010, the Bank’s major subsidiary, BKME in Kuwait, successfully converted into a full-fledged Islamic bank with effect from 1 April 2010. Pursuant
to the conversion, BKME was also re-branded as Ahli United Bank K.S.C. (“AUBK”). This conversion has added an important dimension to the AUB
Group’s product offerings and services and is well poised to take advantage of the growth projected for Islamic banking in the region.
The Group also increased its equity stake in Ahli United Bank (Egypt) S.A.E. (“AUBE”) to 85.1% following Tender Offers to AUBE’s shareholders during
2010. Following consummation of the second tender offer on 8 July 2010, AUBE shares have now been voluntarily delisted from the Egyptian Exchange
(EGX).
In line with the Board approved strategic expansion directives, the Bank also acquired a 40% stake in United Bank for Commerce & Investment (UBCI)
based in Libya through an increase in capital for US$ 53.5 million completed in March 2010. Following the acquisition, AUB also signed a ten year
renewable technical and management services agreement to provide management services to UBCI. Through this strategic acquisition, the AUB Group is
now well poised to tap the potential of cross border flows between its core markets in the Gulf and Egypt with Libya.
The re-affirmation of AUB credit ratings by S&P, Fitch and Capital Intelligence at A-, A- & A respectively with a Stable outlook reflects the success of
AUB’s prudent business and controls stance.
RecognitionThe Bank continued to be recognized as a leading bank in the region as evidenced by its receipt of the following prestigious awards during the year:
• Best Bank in Bahrain 2010 - Global Finance (fifth consecutive year)
• Best Bank in Bahrain 2010 - Euromoney
• Bank of the Year Bahrain 2010 - The Banker Magazine (fifth consecutive year)
• Best Foreign Exchange Bank – Middle East 2011 – Global Finance (fifth consecutive year)
• Best Local Bank – Bahrain 2010 from Emea Finance magazine.
• Elite Quality Recognition Award by J P Morgan Chase (12th consecutive year) and STP Award by Commerzbank AG (3rd consecutive year) as an
acknowledgement of the Bank’s outstanding track record in maintaining highest quality operational performance standards covering funds transfers
and trade finance activities.
• Best Private Bank in Bahrain 2010 by Euromoney
Directors’ shareholdings & remunerationAsat31December2010,Directorsheld271,788,142ordinaryshares(2009:270,694,339),45,302,513Class-Apreferenceshares(2009:45,302,513)
and98,631,221Class-Bpreferencesharesequivalentto135,305,351ordinarysharesonconversion(2009:73,933,904Class-Bpreferenceshares
equivalentto101,424,832ordinarysharesonconversion) .
Directors’fees,allowances,expenses,salariesandremunerationtotaledtoUS$3,630,594(2009:US$3,535,949) .Asat31December2010,senior
managementheld31,513,761Class-Bpreferencesharesequivalentto43,231,424ordinarysharesonconversion(2009:24,828,772Class-B
preferencesharesequivalentto34,060,820ordinarysharesonconversion) .
total assetsin billion US$
2000:3.5
26.52010:
net profitin million US$
2000:40.1
265.52010:
ahli united bank
18
2010 annual report
board ofdirectors
Fahad Al-Rajaan
Mohammed Saleh Behbehani
Turki Bin Mohammed Al-Khater
Adel A. El-Labban
Hamad A. Al Marzouq
Abdulla MH Al-Sumait
Mohammed Jassim Al-Marzouk
Rashid Ismail Al-Meer
Herschel Post
Mohammed Al-Ghanim
ahli united bank
19
2010 annual report board of directors continued
Fahad Al-RajaanChairman and Chairman of the Executive Committee; Non-Executive Director Director since 30 July 2000, holds a BA in Business Administration from the
American University of Washington DC, 1975. Director General, The Public
Institution for Social Security, Kuwait; Chairman, Ahli United Bank (UK) PLC;
Chairman, Wafra Investment Advisory Group, New York; Board Member, National
Industries Group, Kuwait; Chairman, Ahli United Bank (Egypt) S.A.E.
Hamad A. Al MarzouqDeputy Chairman and Member of the Executive Committee; Executive DirectorDirector since 30 July 2000, holds an MBA in Finance & International Business from
Claremont Graduate School, 1987 and a BS in Industrial & System Engineering
from University of Southern California, 1985. Chairman & Managing Director, Ahli
United Bank K.S.C., Kuwait; Chairman, Kuwait Banking Association, Kuwait;
Deputy Chairman, Ahli United Bank (UK) PLC; Deputy Chairman, Ahli United Bank
(Egypt) S.A.E.; Deputy Chairman, Ahli Bank Q.S.C., Qatar; Deputy Chairman,
Ahli Bank S.A.O.G., Oman; Deputy Chairman, Commercial Bank of Iraq P.S.C.,
Iraq; Deputy Chairman, United Bank for Commerce & Investment S.A.L., Libya;
Deputy Chairman, Kuwait & Middle East Financial Investment Company, Kuwait;
Board Member, Middle East Financial Investment Company, Kingdom of Saudi
Arabia; Board Member, Institute of Banking Studies, Kuwait; Board Member, Public
Authority for Higher Education & Training, Kuwait.
Rashid Ismail Al-MeerDeputy Chairman and Member of the Executive Committee; Non-Executive Director 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; Director, Social Insurance Organisation &
Member of Investment Committee; Director, Deputy Chairman and Member of the
Board Investment Committee, Esterad Investment Co.; Deputy Chairman of the
Board of Directors, Solidarity Group Holding and Chairman of Audit Committee;
Formerly Director General, Pension Fund Commission; Formerly, Assistant
Undersecretary for Financial Affairs, Ministry of Finance & National Economy;
Formerly, Assistant Undersecretary for Economic Affairs, Ministry of Finance &
National Economy. Formerly, Director of Investment and various positions, Central
Bank of Bahrain; Formerly, Head of Statistics Section, Ministry of Health.
Mohammed Saleh BehbehaniDirector and Member of the Executive Committee; Independent Director Director since 30 July 2000. Partner & President, Mohammad Saleh & Reza Yousuf
Behbehani Co.; Partner, Mohammad Saleh Behbehani & Co. W.L.L.; Partner &
President, Shereen Travels, Kuwait.; Partner, Behbehani Bros. W.L.L. Bahrain.;
President, Shereen Real Estate Co.; Chairman, Maersk Kuwait Co. W.L.L.;
Chairman, Kuwait Insurance Co. S.A.K.; Partner & President, Behbehani Jeep
Motors Co. W.L.L.; President, Shereen Investment Co.; Chairman, Maersk Logistics
Co. W.L.L.; Vice Chairman, United Beverage Co.; Director and Executive Committee
Member, Ahli United Bank, K.S.C., Kuwait; President, Shereen Motor Co. W.L.L.;
President, Behbehani Automall Co. W.L.L.; Partner, Al Mulla & Behbehani Motor Co.
W.L.L.; Former Deputy Chairman, Al Ahli Bank of Kuwait K.S.C.; Former Board &
Executive Committee Member, Ahli United Bank (UK) PLC; Former Director, Swiss
Kuwaiti Bank; Former Director, U.B.A.F. (Hong Kong) Limited; Director, Purchase &
Imports, Public Works Dept., Government of Kuwait.
Abdulla MH Al-SumaitDirector and Member of the Audit Committee; Executive Director Director since 16 May 2001, holds a B.A. in Law from Kuwait University, 1976. Head
of Legal Department, Public Institution for Social Security, Kuwait; Director, Kuwait
Commercial Facilities Company; Director, Ahli United Bank (Egypt) S.A.E.
Herschel PostDirector and Chairman of the Audit Committee; Independent DirectorDirector since 25 December 2001, holds a Financial Advisers Certificate from The
Chartered Institute of Bankers, 2000, a BA & MA (Rhodes Scholar) from Oxford
University, LLB 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)
S.A.E.; 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; Director Euroclear S.A. / N.V. & Euroclear PLC;
Director and Chairman of the Audit Committee, Euroclear UK and Ireland Limited;
Director, Investors Capital Trust PLC; Director and Chairman of the Audit Committee,
Threadneedle Asset Management Holdings S.A.R.L.; Trustee, Earthwatch Institute
(Europe); Former Deputy Chairman of the London Stock Exchange; Former Chief
Executive Officer and Deputy Chairman, Coutts & Co.; Former Chief Operating
Officer, Lehman Brothers International Limited; Former Director, Christie’s
International Limited.
Turki Bin Mohammed Al-KhaterDirector and Member of the Audit Committee; Independent Director Director since 29 July 2009, holds a BSC in Economics & Social Science from
Portland State University, USA, 1982. President, General Retirement and Social
Insurance Authority, Qatar; Chairman of Dlala Holding Co., Qatar; Board Member,
Masraf Al Rayan, Qatar; Board Member, Qatar Telecommunication Co., Qatar.
Mohammed Jassim Al-MarzoukDirector and Member of the Executive Committee; Non-Executive Director Director since 27 March 2006, holds a Bachelor of Commerce from Major Finance
Kuwait University, 1991. Chairman & Chief Executive Officer, Tamdeen Real Estate
Co., Kuwait; Board Member, Fateh Al Khear Holding Co., Kuwait; Board Member
of Al Maalem Holding Co., Bahrain; Chairman, Tamdeen Bahraini Real Estate
Co., Bahrain; Former Board Member, Global Omani Development & Investment
Co., Oman; Former Deputy Chairman, Tamdeen Shopping Centres Co., Kuwait;
Former Board Member, Ahli United Bank, K.S.C., Kuwait; Former Deputy
Chairman, Tamdeen Investment Co., Kuwait; Former Board Member, Al Ahli Bank
of 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.
Mohammed Al-GhanimDirector and Member of the Audit Committee; Independent DirectorDirector since 29 March 2003, holds a degree in Business Administration from
Kuwait University, 1993. Vice Chairman and Managing Director, Fouad Alghanim
& Sons Group of Companies, Kuwait; Chairman, AlGhanayem Industrial Company
K.S.C., Kuwait; Board Member, Tamdeen Real Estate Company K.S.C.C., Kuwait;
Member, Supervisory Board, Jet Alliance Holding A.G., Austria; Chairman, Fluor
Kuwait Co. K.S.C., Kuwait.
Adel A. El-LabbanDirector and Executive Committee Member; Executive Director Director since 30 July 2000, holds a Masters in Economics from the American
University, Cairo, 1980, Bachelors in Economics from American University, Cairo,
1977 and a General Certificate of Education from London University, 1973. Group
Chief Executive Officer and Managing Director, Ahli United Bank B.S.C., Bahrain;
Director, Ahli United Bank (UK) PLC; Director, Ahli United Bank K.S.C., Kuwait;
Director, Ahli Bank Q.S.C., Qatar; Director, Ahli United Bank (Egypt) S.A.E.; Director,
Ahli Bank S.A.O.G., Oman; Director, Commercial Bank of Iraq P.S.C., Iraq; Director,
Middle East Financial Investment Co., Saudi Arabia; Director, United Bank for
Commerce & Investment S.A.L., 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,
Egypt; Former Chairman, Commercial International Investment Company, Egypt;
Former Vice President, Corporate Finance, Morgan Stanley, USA; Former Assistant
Vice President, Arab Banking Corporation, Bahrain.
(The present Board was elected by the shareholders on 11 March
2009 for a period of 3 years).
ahli united bank
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2010 annual report
chairman’sstatement
If the story of our first decade was largely of impressive growth, it was no less one of remarkable resilience.
“
““
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22
2010 annual report
group chief executive officer and managing director’s statement
The year began with an outlook suggesting the world economy had
reached a floor in 2009 and was poised for renewed growth in 2010.
While fears of a double dip recession have largely subsided, it was
too early to say markets have turned a corner as recovery remained
subdued and tentative in most advanced economies, tempered only by
a stronger than expected double digit growth in China with other major
emerging markets not lagging far behind. Middle Eastern economies
likewise showed signs of partial recovery in 2010, spurred by high oil
prices, increased government spending and a more positive outlook
worldwide. However, the operating environment remained challenging,
weighed down by generally weak real estate and stock market sectors,
sluggish volumes in many business segments and concerns over further
deterioration in credit quality.
In spite of the considerable challenges in the operating environment,
AUB was successful in delivering robust financial results while continuing
to invest in its future. Profitability grew by a solid 32% over 2009 to US$
265.5 million, lifting earnings per share for the year to US$ cents 5.4
from US$ cents 4.2 in 2009, and in line with its strategic objectives, AUB
succeeded in expanding its geographic footprint and increased its stakes
in key subsidiaries.
ahli united bank
24
2010 annual report
Board of DirectorsThe Board is collectively accountable to and reports to the collective body of shareholders of Ahli United Bank B.S.C. in respect of the overall
governance, direction and control of the Bank’s affairs on behalf of the shareholders. It has ultimate authority for the management of the Bank, but
in practice delegates this duty to the Group Chief Executive Officer and Managing Director. It also delegates certain other of its responsibilities to
committees it establishes with defined mandates.
The Executive Committee assists the board in discharging the Board’s responsibilities relating to matters including credit and market risk matters.
The Audit & Compliance Committee assists the board in discharging the Board’s responsibilities relating to the bank’s accounting policies, internal
audit and controls, compliance procedures, risk management system, financial reporting functions besides developing and reviewing effectiveness of the
corporate governance framework and liaison with the bank’s external auditors and regulators. The committee does not oversee the day to day work of
management and has no executive powers.
The Compensation Committee has been established to provide an efficient mechanism for reviewing the bank’s compensation arrangements for its
management, staff and directors and making recommendations for the Board’s approval on these matters.
board ofdirectors
(10 members in total comprising 4 independentDirectors, 3 non-executive Directors and 3 executiveDirectors including the Group CEO and MD)
audit andcompliancecommittee
(4 members comprising3 independent Directors and 1 executive Director)
executivecommittee
(6 members comprising1 independent Director, 3 non-executive Directors and 2 executive Directors including the Group CEO and MD)
compensationcommittee
(3 members comprising1 independent Director1 non-executive and 1 executive Director)
corporategovernance
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2010 annual report corporate governance continued
Compensation CommitteeThe Compensation Committee has been established to provide an efficient mechanism for reviewing the Bank’s compensation arrangements for
its management, staff and Directors and making recommendations for the Board’s approval on these matters. The Chairman and members of the
Committee are appointed by the Board from amongst its Directors. The Committee comprises 3 members including one Independent Director.
The Group Head - Human Resources & Development acts as the Secretary to the Committee.
Principal responsibilities• Considerandapproveguidelines,structureandquantumfortheGroup’sfixedandvariablecompensationarrangements,includingcashand
shareperformancerelatedincentiveremuneration .
• ConsiderandrecommendforBoardapprovaltheformandamountofcompensationforallDirectors .
• ConsiderandapprovetheannualfixedcashandperformancerelatedcompensationoftheGroupChiefExecutiveOfficer&ManagingDirector
andtheseniorexecutiveswhoreportdirectlytotheGroupChiefExecutiveOfficer&ManagingDirector .
• Consider,reviewandapprovethedesignofallequity/equitylinkedperformancerelatedcompensationplansforapprovalbytheBoard .
• Consider,reviewandapproveanymajorchangesinotheremployeebenefitsstructuresthroughouttheGroup .
• ReviewandnoteannuallytheremunerationtrendsacrosstheGroup .
ManagementThe Bank’s management monitors the performance of the parent bank and each of the subsidiaries and associates on an ongoing basis and advises the
Board. The monitoring of performance is carried out through a regular assessment of performance trends against budget, prior periods and peer banks in
each of the markets and collectively through Group Committees and Sub Committees. The minutes of all management committees are sent to the Audit
and Compliance Committee who assess the effectiveness of the committees.
The Group Management Committee (GMC) is the collective group management forum providing a formal framework for effective consultation and
transparent decision-making by the Group Chief Executive Officer & Managing Director and senior management on cross-organisational 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 group wide as well as bank and unit specific issues as determined by the Group Chief Executive Officer &
Managing Director and other members of the committee. It is chaired by the Group Chief Executive Officer & Managing Director and comprises of twelve
other members.
The Group Asset and Liability Committee (GALCO) sets, reviews and manages the liquidity, market risk and funding strategy of the 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 Sr. DGCEO-
Banking Group and has seven other members.
The Group New Product Committee (GNPC) reviews and approves new products, processes and services for wealth management, treasury, retail,
commercial banking and other areas of the Group. GNPC 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 GNPC follows the new product
or process development according to the New Product Approval and Development Procedure. It is chaired by Sr. DGCEO-Banking Group and has seven
other members.
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2010 annual report corporate governance continued
The Group Information Technology Steering Committee (GITSC) oversees the information technology role, strategy formulation, prioritized implementation
and delivery of IT projects of the Group within an acceptable, secure and standardised framework. It recommends the annual IT budget to the Group
Chief Executive Officer & Managing Director in response to and part of the annual business planning/budgetary exercise for submission, on finalisation,
to the Board of Directors for review and approval. It supervises the implementation of the approved IT annual plan within set deadlines and budgetary/
Board approved allocations within the Bank’s CAPEX policy. The Group operates in compliance with regulatory requirements in the respective operating
jurisdictions. It is chaired by the DGCEO-Finance & Strategic Development and comprises of seven other members.
The Group Risk Committee (GRC), 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 AUB or its subsidiaries and
affiliated banks resulting in reputational or financial loss to the Group. It also oversees the operation of the Operational Risk Sub-Committee and Group
Special Assets Sub-Committee. It is chaired by the DGCEO- Risk, Legal & Compliance and has five other members.
The Group Operational Risk Sub-Committee (GORC) administers the management of operational risk throughout the AUB Group. It is chaired by the
Group Head of Risk Management and has eight other members.
The Group Special Assets Committee (GSAC) 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 has seven other members.
The Management Committee (MC) is the senior collective management forum of AUB, the parent Bank, providing a formal framework for effective
consultation and transparent decision-making on cross-organisational 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 Group Chief Executive Officer & Managing Director and its other members in relation to the business of Ahli United
Bank, as a legal entity. It is chaired by the Sr. DGCEO-Banking Group and has six other members.
AUB Solo Assets and Liability Committee (ALCO) sets, reviews and manages the liquidity, market risk and funding strategy of AUB Bahrain 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 Group Head Treasury
and has six other members.
Additional governance measuresIn addition to the Board and management committee structures, the Board of Directors has approved a number of group policies to support clarity
and consistency in the operations of the AUB Group. These policies, which are communicated to staff, cover issues such as the prevention of money
laundering, confidentiality, personal share dealing, communications, legal issues and human resources related issues. Underpinning these policies is the
Group Code of Business Conduct which was introduced by the Board in 2005 to establish standards of ethical business behaviour and personal conduct
for the Bank’s Directors, its senior management (officers) and its employees.
As a supporting governance measure, the Board is able to rely 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 enables management to immediately put
remedial action plans in place. It is important to highlight that the AUB Group maintains adequate insurance coverage and contingency plans for systems
failure including back-up systems with off -site data storage.
The Board of Directors and management believe that these high standards of corporate governance will continue to enhance the AUB Group’s
performance and hence shareholder value over the long-term, as well as provide confidence to all shareholders, customers, regulators, rating agencies
and current and future staff.
corporategovernancecontinued
14.8customers’ depositsin billion US$
2000:
2000:
2010:
2010:1.8
1.8
14.5total loans
in billion US$
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2010 annual report
group business& risk review
Private Banking and Wealth ManagementWith markets lacking sustained direction, investor appetite remained subdued in the face of continued volatility. Against this background Private Banking
continued to perform successfully in an increasingly competitive marketplace, while maintaining and growing share of client mind and wallet.
AUB’s unique facility to leverage its broad capabilities across various alliances and to deliver investment strategies that span a range of asset classes,
enabled Private Banking to provide distinctive solutions for meeting clients’ needs.
Clients, faced with the increased challenges in volatile global markets, continued to seek stability in their financial portfolios. We believe that opportunities
for growing the Group’s Private Banking Wealth Management are facilitated by AUB’s total relationship approach which offers solutions the clients’
financial needs, including leveraging on cross border offerings.
Significant progress was achieved during the year in several key areas, most notably in catering to a fuller spectrum of clients’ needs with both
conventional and Sharia’a compliant products, following the conversion of our subsidiary bank in Kuwait to a full-fledged Islamic bank; also in contributing
along with the UK Residential Mortgages team to exceed the US$ 1 billion mark and in upgrading the AUB UK business platform to offer the Premium
and Private Banking proposition. With the proposition focused on high net worth individuals and related parties, the objective is to increase the targeted
client base by offering prime quality relationship services.
In addition, with the institutional wealth management business continuing to play a key role in contributing to overall assets under management and
profitability, team members based in AUB UK were increased during the year.
In developing solutions to address the challenging market conditions, a number of new initiatives were taken. The UK Student Accommodation Fund
was launched successfully which capitalizes on the favourable demand/supply imbalance between universities’ needs and the market’s ability to deliver
new purpose built student accommodation. A Sharia’a compliant Tracker Fund was introduced that tracks the AUB Al-Hilal Islamic index and was further
expanded with three structured products linked to the Tracker Fund. Private Banking Wealth Management also offered various types of global bond
issues, providing investors with enhanced security compared to direct equity and other forms of equity related investments.
During the year, market awareness of Private Banking in Egypt and Oman increased with the introduction of offshore private banking services to the
existing client base and referrals to potential clients.
Going forward, planning is focused on the continuous development of the client centric model for private banking and wealth management through the
introduction of a clearly defined, systematic investment process, utilizing customer profiling and specific needs. Our long-term focus is on delivering
products to investors that generate favourable risk-adjusted returns independent of market cycles.
Emphasis will also be placed on developing a sustainable business mix, aligned with AUB Group objectives, to focus on improving fee and annuity
revenue streams; expanding the client base across different markets and increasing respective market share; as well as reaching out to Gulf countries
with no current AUB presence.
Retail BankingSupporting growth and profitability, Retail Banking is mandated to leverage Group strengths in building a commanding regional retail banking platform.
With ongoing expansion to the Bank’s branch and remote banking network, AUB has established a robust retail presence with 130 branches across 8
markets, supported by a commanding ATM and remote banking network.
Significant achievements in 2010 included major progress in AUB’s Islamic Banking offering, following the full conversion of the AUB network in Kuwait
and the introduction of a wide range of Sharia’a compliant banking services. The Bank also expanded its Islamic presence and product range in Bahrain,
Qatar and the United Kingdom and aims to offer these services in other markets in the coming years.
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2010 annual report group business & risk review continued
Retail banking in 2010 was driven by a prudent asset strategy and focus on recoveries. Net yields showed significant improvement as a result of higher
margins through effective management of funding costs, lower provisioning requirements and improved recoveries. The Bank also introduced new asset
products linked to variable rates, enhancing customer value and improving acquisition of quality assets.
To enhance sales and service, balance sheet growth and profitability throughout the distribution network, the retail banking division leveraged its
successful business model across its span of territories with the aim of establishing a standard suite of products in various markets with centralization of
all back office functions.
Successful growth in liabilities was consolidated mainly through development of its flagship product, MyHassad Savings across Group entities.
The scheme which supports the largest prize pool in the region, witnessed significant growth and offers a stable base of cost effective funds to improve
retail profitability as well as increasing AUB’s household penetration and opportunities to cross sell other products.
Ongoing technology enhancements included the launch of an improved e-banking platform, partnership with e-Government, SMS banking services,
mobile remit and advancements in the Bank’s contact centres. AUB customers can now access the full range of banking services from the convenience
of their home or office. Further enhancements were also made to the functionality of AUB’s global online trading platform, the first of its kind to be
launched by a regional bank in the Middle East.
With the advantage of a strong regional network, the regional banking requirements of high net worth clients were addressed through the launch of
MyGlobal services, supported by a team of relationship managers fully conversant with the local markets in which AUB operates. The launch of a range
of Bancassurance products, through a joint venture with the UK based Legal & General Group, further complemented the wide array of products and
services available through the AUB network.
In the UK, we continue to extend our market position through delivering a best-in-class customer experience differentiated on advice, dedicated service
and value for money. In the specialised area of Residential Lending, AUB UK continued to make good progress during 2010 whilst maintaining portfolio
quality and increasing facilities through cross-border relationships. Residential Lending, with its focus on acquiring quality mortgage business, recorded a
notable 35% growth in assets.
Further growth in the coming years will continue to be driven by efforts aimed at expanding market share through cost efficient acquisitions, and by
maintaining market leadership in being the first to launch unique product offerings that are aligned to changes in the market environment and the
emergence of new market opportunities.
Corporate BankingRegional markets posted a considerable recovery during 2010 compared with the turbulence of the previous year. Progress was driven by government
intervention, improvement in liquidity and significant infrastructure spending by regional governments.
For Corporate Banking the key attributes of geographic reach, product innovation, and service excellence enabled us to grow our loan portfolio while
maintaining high asset quality. The recent launch of an Internet Banking service for Corporate clients was notable in providing greater flexibility and
reliability for clients within a secure environment while also enabling us to improve transaction volumes.
Growth in the lending portfolio was driven by large, well-structured transactions and from expansion of the client base. Cross-border business also
witnessed a significant increase due to the level of referrals from entities within the AUB group. During the year, the Corporate Banking structure was
further strengthened with the conversion of Bank of Kuwait and the Middle East (BKME) into a full-fledged Islamic finance institution (AUB Kuwait), with
the increase of ownership stake in Group entities especially in Egypt and the commencement of operations in Libya, providing access to significant future
business potential.
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2010 annual report group business & risk review continued
As AUB Group continued to grow its regional footprint, Corporate Banking was successful in consolidating its dominant market share by expanding
relationships with local and international companies and by mapping our clients’ geographical reach. An increased stake in Group entities facilitated
improvement in our lending capability to local companies as well as developing cross-border engagement.
Future growth will focus on selectively financing major infrastructure projects critical to the economic development of MENA region countries, operating
accounts and liability business from our corporate clients and cross-border opportunities in AUB Group locations. Emphasis on technological
engagement through Business to Business integration and Internet Banking will continue to enhance transaction volumes and provide one-stop solutions
to our clients.
Treasury2010 continued where 2009 ended, with Central Bank policies continuing to focus on providing liquidity and maintaining historic low levels of interest
rates. During H2 2010, the market’s concerns shifted away from the problems that had pressured Banks into restructuring their balance sheets and
focused on Government finances and the risks associated with running huge public sector deficits.
Throughout this challenging period, Treasury continued its focus on broadening AUB’s liability base and further reducing the dependence on wholesale
funding. Proactive and cost effective management of the liability base enabled the Group to maintain high liquidity levels throughout the year, meeting all
of its financial obligations while acting as a net provider of funds to the wholesale market.
The high level of Treasury’s excellence and consistency was again recognized as ‘Best Foreign Exchange Provider in the Middle East - 2010’ by the
leading Global Finance magazine for the fifth consecutive year.
Following the significant challenges experienced in global markets since October 2008, a more positive trend in global growth is expected during 2011
with markets adjusting to the removal of liquidity measures imposed by Central Banks during the financial crisis. AUB will continue to source new
products to enhance customers’ returns on deposits and reduce risk on their loan portfolios.
In anticipation of a broader economic recovery, the Bank will adopt a more dynamic approach to further strengthen our client focus and expand our range
of product offerings for both risk and asset management. The Group’s extensive regional presence will continue to be leveraged in enabling Treasury to
provide a one-stop shop for portfolio management.
Information TechnologyThe Information Technology division aligns its target application systems and infrastructure architecture with the Group’s business strategies to deliver
customer services and business support of the highest standard within a secure and robust operational platform.
The strategy of offering standardized customer services across the Group continued with the roll out of an enhanced fully integrated Trade Finance
system at AUB Egypt and Ahli Bank Qatar which followed similar implementation at AUB Bahrain. Commercial Bank of Iraq began to issue MasterCard
debit cards to strengthen the payment services offered to its customers. Core Banking systems for UBCI Libya, the latest addition to the AUB Group, are
already being implemented to improve operational efficiency and realize the benefits of Group wide standardized applications.
Our corporate clients saw the launch of a new Internet Banking service and a Business to Business (B2B) integration solution at AUB. The B2B solution
provides straight through and secured transaction processing from the ERP systems of the corporate clients to AUB banking systems thereby reducing
cost, improving efficiency and enhancing cash flow management processes for corporate customers.
Treasury services in Bahrain were enhanced with the introduction of a sales and relationship management solution. A new Islamic core banking system
was implemented to support the conversion of AUB Kuwait to a fully Islamic banking institution.
Information security is a core requirement in the provision of services to our customers and the protection of our information assets. The implementation
of an Information Security Management System in accordance with internationally recognized standards (ISO 27001) was a key objective in 2010 to
groupbusiness&riskreviewcontinued
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2010 annual report group business & risk review continued
demonstrate our commitment to Information Security. This involved the systematic examination of the Bank’s information security risks, a comprehensive
suite of security controls and a robust management process to ensure controls continue to meet the Bank’s information security needs. AUB Bahrain
achieved external certification of compliance to ISO 27001 during 2010. AUB Bahrain is also one of very few banks in the Middle East to be certified for
both ISO 27001 and the Payment Card Industry Data Security Standard (PCI-DSS).
In terms of IT infrastructure, the strategy for 2010 saw a continuation in the implementation of cost effective resilient communications architecture,
processing capacity and disaster recovery capabilities. These included the initiation of upgrades to the core network backbone that supports the Group
communications network. A new disaster management system allowing centralized control of all critical banking systems was implemented at our newly
relocated premises. Migration to the next generation of resilient communication networks and the development of a Group server infrastructure strategy
through the adoption of new integrated blade technology hardware platforms were the major improvements in IT infrastructure during the year.
2011 will see continued investment in our information technology platform capability and technological products and services, in line with global and
local trends. This will include the implementation of a full range of system upgrades at UBCI Libya, commensurate with the rebuild of a new technology
infrastructure in line with the Group’s standards and protocols.
Human ResourcesAUB maintains a strong commitment to the development of human capital throughout the organization in its mission to become the employer of choice in
the region.
In 2010, Human Resources (HR) focused on supporting the Bank’s overall strategic, tactical and operational goals by providing quality HR services in a
cost-effective manner. During the year, significant progress was achieved in enhancing key HR processes namely, recruitment, performance management
and staff development.
The standardization of documentation and procedures for all HR related mega processes was implemented across the Group. In recruitment, best-in-
class selection tools, including aptitude and psychometric tests, were applied; the AUB Group Assessment Centre for Sales and Management skills was
launched for use in both internal and external recruitment and fast track development programs were initiated for new graduates joining AUB in risk,
credit, private banking and wealth management.
Compensation and benefits structures were revised to align with the employment environment in local markets. In its second year of introduction, AUB’s
corporate branded e-learning solutions gathered momentum with effective utilization across selected entities. A new software toolkit was launched
enabling managers to identify levels of required competencies in staff and training needs. Together with the rigorous evaluation of HR service & delivery
platforms across the group and updating of the HR Business Continuity Plan, progress was made in incorporating UBCI into the Group culture through
standardized implementation of HR mega processes.
During the year, HR continued to fulfil its Corporate Social Responsibility mandate, contributing to a myriad of projects and communities where it
operates, including a major donation to Isa Cultural Centre, Bahrain’s preeminent cultural landmark and one of the largest national libraries in the region.
HR delivery was restructured during the year to facilitate the development of new initiatives including launch of a dedicated HR Relationship Management
and Organizational Development Unit to build strategic relationships with business units, a Staff Services Unit to provide a single point of contact and
internal information service for all staff, and instituting a Quality Manager role responsible for performing self-audits periodically across the Group in order
to address staff issues and monitor adherence to performance levels and standards.
Going forward, HR will focus on strengthening the capacity to realize service quality enhancement and develop metrics that will assist in quantifying HR
performance and the quality of its service deliverables. Active participation in the development of a strong organizational capacity for Corporate Social
Responsibility is a key priority along with unifying elements of corporate behavior to ensure an epitomized working environment and implementing the
necessary measures for successfully sourcing qualified candidates in specialized areas.
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2010 annual report group business & risk review continued
Risk ManagementRisk 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 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.
AUB’s risk management policies have been developed to:
• identifyandanalysetheserisks,
• setappropriaterisklimitsandcontrols,
• monitortherisksandadherencetolimits .
The risk management function is not responsible for eliminating risks that are embedded in any banking business, but aims to effectively manage these
risks with the objective of earning competitive returns over the degree of assumed risk. Risk is financially evaluated as 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 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 control process is based on detailed policies and procedures that encompass:
• businesslineaccountabilityforallriskstaken .Eachbusinesslineisresponsiblefordevelopingaplanthatincludesadequaterisk/return
parameters,aswellasriskacceptancecriteria;
• acreditfunctionthatunderstands,monitorsandindependentlycontrolseachcreditrelationshipensuringthattheappropriateapproval
authoritiesareobtainedandauniformriskmanagementstandardincludingriskratingshavebeencorrectlyassignedtoeachandeverycredit
relationship;
• productandbusinesspolicies,whichareclearlyunderstood,monitoredandareinagreementwiththeoverallcreditpolicyandtheBoard
approvedriskframework;
• theongoingassessmentofportfoliocreditriskandapprovalofnewproducts;and
• anintegratedlimitsstructurethatpermitsmanagementtocontrolexposuresandmonitortheassumptionofriskagainstpredeterminedapproved
tolerances .TheBoardofDirectorsestablishesgloballimitsforeachmajortypeofriskwhicharesuballocatedtoindividualbusinessunits .
groupbusiness&riskreviewcontinued
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2010 annual report group business & risk review continued
Credit RiskCredit risk is the risk of potential financial loss due to the failure of a counter party to perform 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.
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.
The CP&P includes a robust risk rating system that 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 Exposure 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:
• formulatingandimplementationofcreditpoliciesandmonitoringcompliance,
• actsasacreditapprovalbodyforcreditswithinitsdelegatedauthority,
• recommendstotheExecutiveCommitteeallpolicyissuechangesrelatedtocreditriskaswellascreditsfallingoutsideitsdiscretion,
• determinesappropriatepricingandsecurityguidelinesforallriskassetproducts,
• reviewstheongoingriskprofileoftheGroupasawholeandbyindividualproducts,businesssectorsandcountries,
• ensurestheadequacyofimpairmentprovisionsandmakesappropriaterecommendationstotheExecutiveCommittee .
Market RiskMarket 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. 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 non-quantitative
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.
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2010 annual report group business & risk review continued
Market Risk continuedValue at risk 2010 2009
US$ millions US$millions
Average 0.48 0.46
Minimum 0.18 0.19
Maximum 1.45 1.82
VaR limits are delegated by the Board to the Group Asset and Liability Committee (GALCO) and sub-delegated to the Group’s subsidiaries.
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, a strict limit structure and control process is adopted to effectively manage market risks and monitor daily position limits and stop
losses. Additionally, supplementary risk management techniques such as stress testing form a core part of the Group’s risk control processes.
Liquidity RiskLiquidity 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.
The Group Risk Management function continuously monitors liquidity risk and actively manages the balance sheet to control liquidity. At the subsidiary level,
the respective treasury function manages this risk with monitoring by the Risk Management department and under the 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.
Operational RiskAUB defines Operational Risk as “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 adopts 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.
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 off site date 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.
groupbusiness&riskreviewcontinued
130
our staff
2000:478
3317branches
acrossthe region
2000:112010:
2010:
ahli united bank
36
2010 annual report group business & risk review continued
AUBKboard ofdirectors
CEOAUBK
UBCIboard ofdirectors
CEOUBCI
aubboard ofdirectorsgroup CEO andManaging Director
sharia’a advisoryand supervisoryboard
audit committee
executivecommittee
compensationcommittee
DGCEOfinance& strategicdevelopment
DGCEOoperations&technology
group headhumanresources &developmnt.
groupheadaudit
seniorDGCEObankinggroup
DGCEOrisk,legal &compliance
AUBUKboard ofdirectors
CEOAUBUK
ABOboard ofdirectors
CEOABO
CBIQboard ofdirectors
CEOCBIQ
ABQboard ofdirectors
CEOABQ
DGCEOcommercialbanking &treasury
DGCEOretailbanking
DGCEOpb & wm
for business areas (corporate banking, treasury, retail, pb & wm)
AUBEboard ofdirectors
CEOAUBE
DGCEOfinance& strategicdevelopmnt.
DGCEOoperations&technology
group headhumanresources &developmnt.
groupheadaudit
group headcompliance
group headlegal &corporateaffairs(corporatesecretary)
DGCEOrisk,legal &compliance
sharia’a compliance officer
grouporganisation andshareholding
distribution of ordinary shares as on 31.12.10
distribution of preference shares as on 31.12.10
list of major shareholders (5% and above)
Categories No. of Shares No. of Shareholders Percentage of Total Shares
50% and above 0 0 0.00
20% up to less than 50% 0 0 0.00
10% up to less than 20% 1,419,494,344 2 28.93
5% up to less than 10% 696,379,524 2 14.19
1% up to less than 5% 1,324,420,982 12 26.99
Less than 1% 1,467,565,836 3,201 29.89
Total 4,907,860,686 3,217 100.00
Categories No. of Shares No. of Shareholders Percentage of Total Shares
50% and above 0 0 0
20% up to less than 50% 101,256,515 1 20 .25
10% up to less than 20% 164,454,735 2 32 .89
5% up to less than 10% 57,383,498 2 11 .48
1% up to less than 5% 134,528,093 11 26 .91
Less than 1% 42,377,159 346 8 .47
Total 500,000,000 362 100 .00
Categories Nationality No. of Shares %
PublicInstitutionforSocialSecurity Kuwait 921,581,251 18 .78
SocialInsuranceOrganization Bahrain 497,913,093 10 .15
TamdeenInvestmentCompany Kuwait 427,047,437 8 .70
Sh .SalimAl-NasserAl-Sabah Kuwait 269,332,087 5 .49
ahli united bank
37
2010 annual report group business & risk review continued
groupmanagement
Adel A. El-LabbanDirector and Executive Committee Member; Executive Director Director since 30 July 2000, holds a Masters in Economics from the American
University, Cairo, 1980, Bachelors in Economics from American University, Cairo,
1977 and a General Certificate of Education from London University, 1973.
Group Chief Executive Officer and Managing Director, Ahli United Bank B.S.C.,
Bahrain; Director, Ahli United Bank (UK) PLC; Director, Ahli United Bank K.S.C.,
Kuwait; Director, Ahli Bank Q.S.C., Qatar; Director, Ahli United Bank (Egypt)
S.A.E., Director, Ahli Bank S.A.O.G., Oman; Director, Commercial Bank of Iraq
P.S.C., Iraq; Director Middle East Financial Investment Co. (MEFIC), Saudi Arabia;
Director, United Bank for Commerce & Investment L.S.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: 32 years)
Bassel GamalSenior Deputy Group Chief Executive Officer - Banking GroupDirector, Ahli Bank Q.S.C., Qatar; Director, Ahli United Bank K.S.C., Kuwait;
Director, Ahli United Bank (Egypt) S.A.E.; Director, United Bank for Commerce
and Investment S.A.L., Libya; Director, Ahli United Bank Finance Company, Egypt;
Director, Enjaz Property Development B.S.C.(c); Former Chief Executive Officer, Ahli
Bank Q.S.C, Qatar; Former DCEO-Risk, Finance & Operations, Ahli Bank Q.S.C,
Qatar; Former Deputy Group Head of Risk Management, Ahli United Bank B.S.C.,
Bahrain; Former Senior Manager, Corporate Banking-Commercial International
Bank, Egypt. Holds a B.SC. in Economics from the Faculty of Economics and
Political Science, Cairo University, Egypt.
(Total years of experience: 20 years)
Sawsan AbulhassanDeputy Group Chief Executive Officer - Private Banking and Wealth ManagementDirector, Ahli United Bank PLC, UK; Director, AUB Nominees Ltd.; Director and
Chairperson of Audit Committee, Securities & Investment Company (SICO), Bahrain;
Director and Member of the Executive Committee, The Family Bank, Bahrain;
Director, National Social Work Fund, 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 and a
B.Sc. in Management from the University of Bahrain.
(Total years of experience: 19 years)
Abdulla Al-RaeesiDeputy Group Chief Executive Officer - Retail BankingMember of the Board of Directors and Member of Audit, Compliance & Risk
Committee and Policies and Procedures Committee, Ahli Bank Q.S.C., Qatar;
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; Former: Acting Chief Executive
Officer, Ahli Bank Q.S.C, Qatar; 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.
(Total years of experience: 27 years)
Sanjeev BaijalDeputy Group Chief Executive Officer - Finance and Strategic DevelopmentDeputy Chairman, Legal and General Gulf B.S.C.(c) & Legal and General Gulf
Takaful B.S.C.(c), Bahrain; Director and Member of the Audit Committee, Ahli
Bank S.A.O.G., Oman; Member of the Audit Committee and Director, Kuwait and
Middle East Financial Investment Co., Kuwait; Director, Ahli United Bank K.S.C.,
Kuwait; Previously Group Head of Finance, Ahli United Bank B.S.C., Bahrain;
Financial Controller, Al-Ahli Commercial Bank, Bahrain; Ernst & Young, Bahrain
and Price Waterhouse in India; Member of the American Institute of Certified
Public Accountants (AICPA) and Associate Member of the Institute of Chartered
Accountants of India (ACA).
(Total years of experience: 27 years)
Keith GaleDeputy Group Chief Executive Officer - Risk, Legal and ComplianceDirector, 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).
(Total years of experience: 30 years)
Shafqat Anwar
Deputy Group Chief Executive Officer - Operations and TechnologyDirector, Ahli Bank S.A.O.G., Oman; 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.
(Total years of experience: 27 years)
ahli united bank
38
2010 annual report
contact details
Ahli United Bank B.S.C., Bahrain
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: [email protected]
www .ahliunited .com
Ahli United Bank (UK) PLC
35 Portman Square
London W1H 6LR
United Kingdom
Telephone: +44 20 7487 6500
Facsimile: +44 20 7487 6808
Email: [email protected]
www .ahliunited .com
Ahli United Bank K.S.C., Kuwait
P.O. Box 71 Safat
12168
Kuwait
Telephone : +965 1802000
Facsimile : +965 22461430
Email:[email protected]
www .ahliunited .com
Ahli Bank Q.S.C., Qatar
Suhaim Bin Hamad St.
Al Sadd Area
PO Box 2309
Doha, Qatar
Telephone: +974 4232222
Facsimile: +974 4444562
www .ahlibank .com .qa
Commercial Bank Of Iraq P.S.C.
Al Sadoon Street
Baghdad, Iraq
Telephone: +964 1 7405583
Telephone: +973 17566468/9
Facsimile: +964 1 7184312
Ahli United Bank (Egypt) S.A.E.
World Trade Center, 9th Floor
1191 Corniche El Nil
P.O. Box 1159
Cairo, Egypt
Telephone: +20 2 25801200
Facsimile: +20 2 25757052
www .ahliunited .com
Ahli Bank S.A.O.G., Oman
P.O. Box 545
Postal Code 116
Mina Al Fahal
Sultanate of Oman
Telephone: +968 24577000
Facsimile: +968 24568001
Email:[email protected]
www.ahlibank-oman.com
United Bank for Commerce & Investment S.A.L., Libya
Gumhouria Street - Mansoura Area
Tripoli, Libya
Telephone: +00218 213345602/3/4
Facsimile: +00218 213345601
Email: [email protected]
www.ubci.ly
Kuwait and Middle East Financial Investment Company K.S.C.(c)
PO Box 819
Safat 13009, Kuwait
Telephone: +965 2245000
Facsimile: +965 2440627
Email:[email protected]
www .kmefic .com .kw
41 Auditors’ report to the shareholders
42 Consolidated financial statements Consolidatedstatementofincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 42 Consolidatedstatementofcomprehensiveincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 43 Consolidatedbalancesheet . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 44 Consolidatedstatementofcashflows . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 45 Consolidatedstatementofchangesinequity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 46
47 Notes to the consolidated financial statements 1 Corporateinformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 2 Basisofconsolidation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3 Accountingpolicies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47 3.1 Basis of preparation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 47
3.2 Significant accounting judgements and estimates . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
3.3 Summary of significant accounting policies . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 48
4 Interestincome . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 5 Interestexpense . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 6 Feesandcommissions-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 7 Tradingincome-net . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 8 Netlossonavailable-for-saleinvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 9 Cashandbalanceswithcentralbanks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 52 10 Loansandadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 53 11 Non-tradinginvestments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 54 12 Investmentinassociatesandjointventure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 13 Premisesandequipment . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 14 Otherassets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 15 Goodwillandotherintangibleassets . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 16 Customers’deposits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 55 17 Termdebts . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 18 Otherliabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 19 Subordinatedliabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 20 Sharecapital . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 56 21 Reserves . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 57 22 Taxation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 58 23 Earningspershare . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . .58 24 Cashandcashequivalents . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 25 Relatedpartytransactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 26 Employeebenefits . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 27 Managedfunds . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 59 28 Derivatives . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 60 29 Commitmentsandcontingentliabilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 30 Segmentinformation . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 61 31 Creditrisk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 62 32 Concentrationanalysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 33 Marketrisk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 63 34 Fairvalueoffinancialinstruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 64 35 Liquidityrisk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 65 36 Capitaladequacy . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 37 Depositprotectionscheme . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66 38 Islamicbanking . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 66
69 Pillar III disclosures - Basel II
auditors’ report and consolidated financial statements 2010
ahli united bank
40
2010 annual report consolidated financial statements continued
independentauditors’ report
P.O. Box 14014th Floor - The TowerBahrain Commercial ComplexManama, Kingdom of BahrainTel: +973 1753 5455 Fax: +973 1753 [email protected]/meC.R. No. 6700
Report on the Financial StatementsWe have audited the accompanying 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 2010,
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.
Directors’ResponsibilityfortheConsolidatedFinancialStatements
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 management 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 financial position of the Group as at 31 December
2010 and its financial performance and its cash flows for the year then
ended in accordance with International Financial Reporting Standards.
Report on Other Regulatory Requirements We confirm that, in our opinion, proper accounting records have been
kept by the Bank and the consolidated financial statements, and the
contents of the Report of the Board of Directors relating to these
consolidated financial statements, are in agreement therewith. We
further report, to the best of our knowledge and belief, that no violations
of the Bahrain Commercial Companies Law, nor of the Central Bank
of Bahrain and Financial Institutions Law, nor of the memorandum and
articles of association of the Bank have occurred during the year ended
31 December 2010 that might have had a material adverse effect on the
business of the Bank or on its consolidated financial position and that the
Bank has complied with the term’s of its banking licence.
20February2011
Manama,KingdomofBahrain .
to the shareholders of Ahli United Bank B.S.C.
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2010 annual report consolidated financial statements continued
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2010 annual report
The attached notes 1 to 38 form part of these consolidated financial statements
2010 2009
Note US$ ‘000 US$ ‘000
Interestincome 4 893,498 934,283
Interestexpense 5 384,724 467,698
Netinterestincome 508,774 466,585
Feesandcommissions-net 6 123,319 138,530
Tradingincome-net 7 28,219 39,439
Netlossonavailable-for-saleinvestments 8 (22,110) (14,064)
Shareofprofitfromassociatesandjointventure 51,554 40,744
Otheroperatingincome 24,303 25,152
205,285 229,801
OPERATING INCOME 714,059 696,386
Provision for loan losses and contingencies - net 10f 151,671 228,136
NET OPERATING INCOME 562,388 468,250
Staffcosts 142,290 142,151
Depreciation 24,046 20,233
Otheroperatingexpenses 87,079 73,024
OPERATING EXPENSES 253,415 235,408
PROFIT BEFORE TAX 308,973 232,842
Taxexpense 22 16,774 6,756
NET PROFIT FOR THE YEAR 292,199 226,086
Attributable to:
Bank’sequityshareholders 265,499 200,718
Non-controllinginterests 26,700 25,368
292,199 226,086
EARNINGS PER SHARE ATTRIBUTABLE TO THE BANK’S EQUITY SHAREHOLDERS FOR THE YEAR:
Basic and diluted earnings per share (US cents) 23 5.4 4.2
consolidated statement of incomeYearended31December2010
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43
2010 annual report
The attached notes 1 to 38 form part of these consolidated financial statements
2010 2009
US$ ‘000 US$ ‘000
Net profit for the year 292,199 226,086
Other comprehensive income
Directors’feespaid (1,211) (1,168)
Donationsapproved (1,000) (1,000)
Currencytranslationadjustments (11,315) (39,377)
Available-for-sale investments:
Gainsarisingduringtheyear 19,197 134,119
Transferstoconsolidatedstatementofincomeonsaleofavailable-for-saleinvestments 808 23,827
Cash flow hedges:
(Losses)gainsarisingduringtheyear (6,303) 17,166
Transferstoconsolidatedstatementofincome 2,455 38,661
Revaluationoffreeholdland (19,439) (53,874)
Shareofothercomprehensiveincomeofassociates 1,335 (1,236)
Other comprehensive (loss) income for the year (15,473) 117,118
Total comprehensive income for the year 276,726 343,204
Total comprehensive income attributable to:
Bank’sequityshareholders 240,490 341,706
Non-controllinginterests 36,236 1,498
276,726 343,204
consolidated statement of comprehensive incomeYearended31December2010
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2010 annual report
The attached notes 1 to 38 form part of these consolidated financial statements
Fahad Al-RajaanChairman
Hamad Al-MarzouqDeputyChairman
Adel A. El-Labban GroupChiefExecutiveOfficer
&ManagingDirector
2010 2009
Note US$ ‘000 US$ ‘000
ASSETS
Cashandbalanceswithcentralbanks 9 361,376 304,164
Treasurybillsandbonds 301,127 969,114
Tradingsecurities 130 376
Depositswithbanksandotherfinancialinstitutions 4,767,843 3,100,446
Loansandadvances 10 14,477,713 13,299,999
Non-tradinginvestments 11 4,413,172 3,898,592
Investmentsinassociatesandjointventure 12 605,679 537,099
Premisesandequipment 13 373,094 355,956
Otherassets 14 440,969 483,951
Goodwillandotherintangibleassets 15 716,358 624,286
TOTAL ASSETS 26,457,461 23,573,983
LIABILITIES AND EQUITY
LIABILITIES
Depositsfrombanksandotherfinancialinstitutions 6,610,284 5,549,518
Customers’deposits 16 14,835,796 13,241,266
Termdebts 17 946,562 950,054
Otherliabilities 18 693,689 649,498
Subordinatedliabilities 19 618,955 602,216
TOTAL LIABILITIES 23,705,286 20,992,552
EQUITY
Ordinarysharecapital 20 1,223,188 1,193,589
Preferencesharecapital 20 13,937 6,321
Reserves 21 1,155,056 1,013,613
AttributabletotheBank’sequityshareholders 2,392,181 2,213,523
Non-controllinginterests 359,994 367,908
TOTAL EQUITY 2,752,175 2,581,431
TOTAL LIABILITIES AND EQUITY 26,457,461 23,573,983
consolidated balance sheet31December2010
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2010 annual report
The attached notes 1 to 38 form part of these consolidated financial statements
2010 2009
Note US$ ‘000 US$ ‘000
OPERATING ACTIVITIES
Profitbeforetax 308,973 232,842 Adjustmentsfor: Depreciation 24,046 20,233
Netlossonavailable-for-saleinvestments 8 22,110 14,064
Provisionforloanlossesandcontingencies-net 10f 151,671 228,136
Shareofprofitfromassociates (51,554) (40,744)
Staffcosts-fairvalueamortisationofsharebasedtransactions 23 1,689 1,108
Operatingprofitbeforechangesinoperatingassetsandliabilities 456,935 455,639
Changesin:Mandatoryreservedepositswithcentralbanks 39,217 17,713
Treasurybillsandbonds 667,987 267,883
Tradingsecurities 246 22,988
Depositswithbanksandotherfinancialinstitutions (980,143) (429,548)
Loansandadvances (1,329,385) 96,939
Otherassets 42,982 33,920
Depositsfrombanksandotherfinancialinstitutions 1,060,766 396,004
Customers’deposits 1,594,530 63,187
Otherliabilities 44,191 (235,725)
Cashfromoperations 1,597,326 689,000
Incometaxpaid (3,090) (5,184)
Netcashfromoperatingactivities 1,594,236 683,816
INVESTING ACTIVITIES
Purchaseofnon-tradinginvestments (1,089,896) (1,151,162)
Proceedsfromsaleorredemptionofnon-tradinginvestments 596,991 807,290
Investmentsinassociatesandjointventure (53,533) -
Increaseinpremisesandequipment (60,623) (41,052)
Dividendsreceivedfromassociates 36,405 38,786
Netcashusedininvestingactivities (570,656) (346,138)
FINANCING ACTIVITIES
Additionalinvestmentinsubsidiaries 2 (149,004) -
ProceedsfromissueofClass-Bpreferenceshares 20,125 -
Decreaseinsubordinatedliabilities (1,258) (21,360)
Repaymentoftermdebt - (399,946)
Dividendsandotherappropriationspaid (100,229) (142,762)
Treasurysharessold(purchased) 1,783 (1,665)
Netcashusedinfinancingactivities (228,583) (565,733)
Foreigncurrencytranslationadjustments (11,315) (39,377)
INCREASE (DECREASE) IN CASH AND CASH EQUIVALENTS 783,682 (267,432)
Cashandcashequivalentsat1January 2,179,476 2,446,908
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 24 2,963,158 2,179,476
consolidated statement of cash flowsYearended31December2010
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2010 annual report
The attached notes 1 to 38 form part of these consolidated financial statements
Balanceat31December2008
1,126,561 17,128 - 540,029 126,624 237,887 118,319 (171,113) 851,746 399,342
2,394,777
Class-B preference share dividend paid (note 21(j)) - - - - - - (3,493) - (3,493) - (3,493)
Ordinary share dividend paid (note 21(j)) - - - - - - (112,658) - (112,658) - (112,658)
Dividends of subsidiaries - - - - - - - - - (26,611) (26,611)
Bonus shares issued 56,917 - - - - (56,917) - - (56,917) - -
Arising on acquisition of a subsidiary - - - - - - - - - (6,321) (6,321)
Conversion of preference shares (note 20 (d) and (g)) 11,756 (8,998) - 2,281 - - - (5,039) (2,758) - -
Class-B preference shares (surrendered) issued 20 (1,809) - (4,013) - - - - (4,013) - (5,802)
Treasury shares purchased - - (1,665) - - - - - - - (1,665)
Total comprehensive income for the year - - - - - 200,718 (2,168) 143,156 341,706 1,498 343,204
Transfer to statutory reserve (note 21(c)) - - - - 20,072 (20,072) - - - - -
Proposed dividend on Class-B preference shares (note 21(j)) - - - - - (1,129) 1,129 - - - -
Proposed dividend on ordinary shares (note 21(j)) - - - - - (97,043) 97,043 - - - -
Proposed directors’ fees - - - - - (1,211) 1,211 - - - -
Proposed donations - - - - - (1,000) 1,000 - - - -
Balanceat31December2009 1,195,254 6,321 (1,665) 538,297 146,696 261,233 100,383 (32,996) 1,013,613 367,908 2,581,431
consolidated statement of changes in equityYearended31December2010
Attributable to Bank’s equity shareholders
Reserves
Ordinaryshare
capital
Preferenceshare
capitalTreasury
sharesShare
premiumStatutory
reserveRetainedearnings
Proposedappro-
priations
Other reserves(Note 21(i))
Totalreserves
Non-controlling
interests Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000
Balanceat31December2009 1,195,254 6,321 (1,665) 538,297 146,696 261,233 100,383 (32,996) 1,013,613 367,908 2,581,431
IssueofsharesonAUBEacquisition(note 2) 18,540 - - 16,882 - - - - 16,882 - 35,422
Class-Bpreferencesharesissued(note 20(f)) - 13,937 - 7,806 - - - - 7,806 - 21,743
Class-Bpreferencesharedividendpaid(note 21(j)) - - - - - - (1,129) - (1,129) - (1,129)
Ordinarysharedividendpaid(note 21(j)) - - - - - - (97,043) - (97,043) - (97,043)
Dividendsofsubsidiaries - - - - - - - - - (2,057) (2,057)
Bonussharesissued - - - - - - - - - - -
Arisingonadditionalacquisitionofasubsidiary (note 2) - - - (18,422) - - - - (18,422) (36,427) (54,849)
Conversionofpreferenceshares(note 20 (d) and (g)) 13,172 (9,601) - (1,174) - - - (2,397) (3,571) - -
Otherequitymovementsofasubsidiary - - - - - (2,450) - - (2,450) (5,666) (8,116)
Saleoftreasuryshares - - 1,665 - - - - - - - 1,665
Equitysharessurrendered (3,778) 3,280 - (1,120) - - - - (1,120) - (1,618)
Totalcomprehensiveincomefortheyear - - - - - 265,499 (2,211) (22,798) 240,490 36,236 276,726
Transfertostatutoryreserve(note 21(c)) - - - - 26,550 (26,550) - - - - -
ProposeddividendonClass-Bpreferenceshares(note 21(j)) - - - - - (149) 149 - - - -
Proposeddividendonordinaryshares (note 21(j)) - - - - - (122,697) 122,697 - - - -
Proposeddonations - - - - - (1,000) 1,000 - - - -
Balance at 31 December 2010 1,223,188 13,937 - 542,269 173,246 373,886 123,846 (58,191) 1,155,056 359,994 2,752,175
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47
2010 annual report notes to the consolidated financial statements continued
notes to the consolidated financial statements31December2010
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 below (collectively
known as the Group) are engaged in retail, commercial, Islamic and investment
banking business, global fund management and private banking services through
88 branches, as at 31 December 2010, in the Kingdom of Bahrain, the State of
Kuwait, the Arab Republic of Egypt, Republic of Iraq and the United Kingdom. It
also operates in the State of Qatar, Sultanate of Oman and Great Socialist People’s
Libyan Arab Jamahiriya (Libya) through its associates with a network of 42 branches
as at 31 December 2010. 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 2010 were
authorised for issue in accordance with a resolution of the directors on 20 February
2011.
2. Basis of consolidation
The consolidated financial statements comprise the financial statements of the Bank
and its subsidiaries as at and for the year ended 31 December 2010 and 2009. The
financial statements of the subsidiaries are prepared for the same reporting year as
the Bank, using consistent accounting policies.
All material intra-group balances, transactions, income and expenses and profits
and losses resulting from intra-group transactions are eliminated on consolidation.
Subsidiaries are fully consolidated from the date on which control is transferred to
the Group. Control is achieved where the Bank has the power to govern the financial
and operating policies of an entity so as to obtain benefits from its activities. The
results of subsidiaries acquired are included in the consolidated statement of income
from the date of acquisition.
The following are the Bank’s principal subsidiaries:
Nominal holding*
NameCountry of
incorporation
31 December
2010
31December
2009
Ahli United Bank (UK) PLC, (AUBUK) United Kingdom 100.0% 100.0%
Ahli United Bank K.S.C. (Formerly The Bank of Kuwait and the Middle East K.S.C.), (AUBK) State of Kuwait 74.9% 74.9%
Kuwait and Middle East Financial Investment Co. K.S.C. (closed) (KMEFIC), a subsidiary of AUBK State of Kuwait 75.2% 75.2%
Ahli United Bank (Egypt) S.A.E. (AUBE) Arab Republic of Egypt 85.1% 50.7%
Commercial Bank of Iraq P.S.C. (CBIQ) Republic of Iraq 56.1% 51.5%
* Adjusted for subsidiaries’ holdings
During the year, AUB’s equity stake in AUBE initially increased to 79.6% following
a Mandatory Dual Tender Offer to AUBE’s shareholders which concluded on 17
January 2010. This resulted in AUB acquiring 26.6 million shares of AUBE at
Egyptian Pounds (LE) 37 per share. The purchase consideration was settled by
payment in cash of LE 688.8 million (under the cash offer), the issue of 74.2 million
AUB ordinary shares at market value and the issue of US$ 18.0 million subordinated
bonds under the securities offer. The excess of the purchase consideration over the
share of net asset value acquired was debited to shareholders’ equity during the
year as prescribed under IAS 27 - Consolidated and Separate Financial Statements.
Further to the above, AUB’s equity stake in AUBE further increased from 79.6% to
85.1% following a second tender offer to AUBE’s shareholders which concluded
on 8 July 2010. This resulted in AUB acquiring an additional 3.3 million shares in
AUBE at Egyptian Pounds (LE) 37 per share. Following consummation of the tender
offer, AUBE shares have now been voluntarily delisted from The Egyptian Stock
Exchange.
After receiving final approval from the Central Bank of Kuwait, shareholders and
other regulatory authorities, AUBK, with effect from 1 April 2010 converted its
business in accordance with Islamic Sharia’a. As a result, AUBK converted its
conventional banking products into Islamic banking products after negotiation and
agreement with its customers.
3. Accounting policies
3.1 Basis of preparationThe consolidated financial statements have been prepared on a historical cost
basis as modified for the re-measurement at fair value of freehold land, trading
and available-for-sale financial assets and all derivatives. In addition, as more fully
discussed below in note 3.3(h)(i), assets and liabilities that are fair value hedged are
adjusted to the extent of the fair value of 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) and in
conformity with the Bahrain Commercial Companies Law and the Central Bank of
Bahrain and Financial Institutions Law.
New standards and interpretations issued but not yet effective
• IAS 32 Financial Instruments (Revised): Presentation - Classification of Rights Issues effective annual periods commencing 1 February 2010.
• IAS 24 Related Party Disclosures (Revised): effective annual periods commencing 1 January 2011.
• IFRS 9: Financial Instruments: Classification and Measurement effective annual periods commencing 1 January 2013.
The application of the above standards other than IFRS 9 is not expected to have a
material impact on the consolidated financial statements as and when they become
effective. IFRS 9 was issued in November 2009 and replaces the parts of IAS 39
relating to the classification and measurement of financial assets. The standard is
effective for annual periods beginning on or after 1 January 2013. The Group is
assessing the impact and timing of application of IFRS 9 on the Group’s financial
statements.
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48
2010 annual report notes to the consolidated financial statements continued
The Group has adopted the following new and amended International Accounting
Standards/International Financial Reporting Standards as of 1 January 2010.
IFRS 3 - Business Combinations (Revised) and IAS 27 Consolidated and Separate
Financial statements (Amended) effective 1 July 2009 including consequential
amendments to IFRS 7, IAS 21, IAS 28, IAS 31 and IAS 39.
Refer to note 2 for the impact of application of this standard to the Group’s
additional investments in Ahli United Bank (Egypt) S.A.E. (AUBE).
3.2 Significant accounting judgements and estimatesThe preparation of the consolidated financial statements requires management
to make judgements and estimates that affect the reported amount of financial
assets and liabilities and disclosure of contingent liabilities. These judgements and
estimates also affect the revenues and expenses and the resultant provisions as well
as fair value changes reported in equity.
Judgements
Judgements are made in the classification of available-for-sale, held-for-trading and
held-to-maturity investments based on management’s intention at acquisition of the
financial asset, and the allocation and impairment testing of goodwill and intangible
assets with indefinite lives to cash generating units. Judgements are also made in
determination of the objective evidence that a financial asset is impaired.
Estimates
Pension plans
Estimates and assumptions are used in determining the Group’s pension liabilities.
The principal actuarial assumptions used for the defined benefit plan are set out in
note 26 to the consolidated financial statements.
Impairment losses on loans and advances and non-trading investments
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. These are more fully
described in note 3.3 (g).
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.
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 policiesThe principal accounting policies applied in the preparation of these consolidated
financial statements are set out below. These policies have been consistently
applied to all the years presented.
(a) Investments in associates and joint venture
Associated companies are companies in which the Group exercises significant
influence but does not control, normally represented by an interest of between
20% and 50% in the voting capital. The Group classifies an investment as “joint
venture” when it is a party to a contractual joint venture agreement. Investments
in associated companies and joint ventures are accounted for using the equity
method.
The reporting dates of the associates and joint venture and the Group are identical
and the associates’ and joint ventures’ accounting policies materially conform to
those used by the Group for like transactions and events in similar circumstances.
Adjustments are made to bring into line any dissimilar accounting policies that may
exist.
(b) Foreign currency translation
(i) Transactions and balances
Transactions in foreign currencies are initially recorded in the relevant functional
currency rate of exchange ruling at the date of the transaction.
Monetary assets and liabilities denominated in foreign currencies are retranslated at
the relevant functional currency rate of exchange ruling at the balance sheet date.
All differences are taken to “trading income - net” in the consolidated statement of
income.
Non-monetary items that are measured in terms of historical cost in a foreign
currency are translated using the exchange rates as at the dates of the initial
transactions. Non-monetary available-for-sale items measured at fair value in a
foreign currency are translated using the exchange rates at the date when the fair
value was determined and the differences are included in equity as part of the fair
value adjustment of the respective items, unless these items are part of trading
securities as explained in note 3.3(c)(iii) or are part of an effective hedging strategy, in
which case it is recorded in the consolidated statement of income.
(ii) Group companies
Assets and liabilities of foreign subsidiaries 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 period. Any exchange
differences arising on translation are taken to “foreign exchange translation reserve”
forming part of equity.
(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 of consideration
given, including acquisition costs associated with the investment, except in the case
of trading securities, the acquisition costs of which are expensed. Premiums and
discounts are amortised on a systematic basis to maturity using the effective interest
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 time frame generally established by regulation or
convention in the market place.
The Group accounts for any changes in the fair value of the asset to be received
during the period between the trade date and the settlement date in the same way
as it accounts for the acquired asset. The change in fair value is recognised in the
consolidated statement of income for assets classified as “trading securities” and it
is recognized in equity for assets classified as available-for-sale. The change in value
is not recognized for assets carried at cost or amortised cost.
(ii) Treasury bills and bonds
Treasury bills and bonds are initially recognised at cost. Premiums and discounts are
amortised on a systematic basis to their maturity. These treasury bonds are issued
by the respective Central Banks on behalf of the Governments of Kuwait, Iraq and
Egypt and are held to maturity.
(iii) Trading securities
A financial asset is classified as “held-for-trading” if it is acquired or incurred
principally for the purpose of generating profit from short term fluctuations in
price. Trading securities are initially recognised at cost, being the fair value of
the consideration given and are subsequently measured at fair value. Resultant
unrealised gains and losses arising from changes in fair value are included in the
consolidated statement of income under “trading income - net” while dividend
income is recorded in “dividend income” when the right of the payment has been
established.
3. Accounting policies continued
3.1 Basis of preparationcontinued
ahli united bank
49
2010 annual report notes to the consolidated financial statements continued
(iv) Held-to-maturity
Non-trading investments with fixed or determinable payments and fixed maturities
and which the Group has the intention and ability to hold to maturity are classified
as held-to-maturity. After initial measurement, these are subsequently measured
at amortised cost using the effective interest rate method, less allowance for
impairment. The losses arising from impairment of such investments are recognised
in the consolidated statement of income line “net loss on available-for-sale
investments”.
(v) Loans and advances
Loans and advances are financial assets with fixed or determinable payments and
fixed maturities that are not quoted in an active market. This accounting policy
relates to the balance sheet captions “deposits with banks and other financial
institutions” and “loans and advances”. After initial measurement, the loans and
advances 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 such loans and
advances are recognised in the consolidated statement of income in “provision for
loan losses and contingencies-net” 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.
(vi) Available-for-sale
Non-trading investments that are not classified as held-to-maturity, held-for-trading
or loans and advances are classified as available-for-sale. After initial recognition,
available-for-sale 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. Unless
unrealised gains and losses on remeasurement to fair value are part of an effective
hedging relationship, they are reported as a separate component of equity until the
investment is sold, settled or otherwise disposed of, or the investment is determined
to be impaired, at which time the cumulative gain or loss previously reported in
equity is included in the consolidated statement of income for the period.
Any gain or loss arising from a change in fair value of available-for-sale investments,
which is part of an effective hedging relationship, is recognised directly in the
consolidated statement of income to the extent of the changes in fair value being
hedged.
(vii) Derivatives
Changes in fair values of the derivatives held for trading are included in the
consolidated statement of income under “trading income - net”.
Derivatives embedded in other financial instruments are treated as separate
derivatives and recorded at fair value, when their economic characteristics and risks
are not closely related to those of the host contract and the host contract is not
carried as held for trading. The changes in fair value of such embedded derivatives
are recognised in the consolidated statement of income.
(viii) Deposits, term debts and subordinated liabilities
These financial liabilities are carried at amortised cost, less amounts repaid.
(ix) Reclassification of financial assets
As permitted by Reclassification of Financial Assets: Amendments to IAS 39 -
Recognition and Measurement and IFRS 7: Disclosures, the Group made the
following reclassifications with effect from 1 July 2008:
(i) Certain investments classified initially as “available-for-sale” investments into
“loans and receivables” category within “non-trading investments”; and
(ii) Certain investments classified initially as “trading securities” into “available-for-
sale” category.
Refer notes 11(i) and 11(ii) for further details.
(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 and resale agreements
Where investments, including those reclassified into “loans and receivables”,
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
classified as “deposits from banks and other financial institutions”. 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.
Conversely, securities purchased under similar commitments to resell are not
recognised on the consolidated balance sheet and the consideration paid is
recorded in “deposits with banks and other financial institutions”. The difference
between the purchase price and resale price is treated as interest income and is
accrued over the life of the agreement using the effective interest rate method.
(f) Determination of fair value
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.
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.
(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. In the
case of equity investments, impairment is reflected directly as a write down of the
financial asset. Impairment losses on equity investments are not reversed through
the consolidated statement of income while any subsequent increases in their fair
value are recognised directly in equity.
3. Accounting policies continued
3.2 Summary of significant accounting policies continued
ahli united bank
50
2010 annual report notes to the consolidated financial statements continued
Objective evidence that financial assets (including equity securities) 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. In addition, for an investment in
an equity security, a significant or prolonged decline in its fair value below its cost is
objective evidence of impairment.
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.
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 contingencies - net’ 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 “other assets” and derivatives with negative market values are included
in “other liabilities” in the consolidated balance sheet.
At inception of the hedge relationship, the Group formally 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 statement of income.
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 statement of income.
(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 equity. The ineffective portion of the gain or loss,
if any, on the hedging instrument is recognised immediately in the consolidated
statement of income as ”trading income - net”.
The gains or losses on effective cash flow hedges recognised initially in equity 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.
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 taken directly to 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 equity remains in equity 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
Interest income is recognised using the effective interest method, taking account of
the principal outstanding and the rate applicable. Interest that is 90 days or more
overdue is excluded from income. Notional interest is recognised on impaired loans
and advances and other financial assets based on the rate used to discount future
cash flows to their net present values.
(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.
3. Accounting policies continued
3.3 Summary of significant accounting policies continued
(g) Impairment of financial assets continued
ahli united bank
51
2010 annual report notes to the consolidated financial statements continued
(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.
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 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 cash-generating units) is less than the carrying amount, an
impairment loss is recognised immediately in the consolidated statement of income.
For the purpose of impairment testing, goodwill 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) Premises and equipment
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.
Premises and equipment are stated at cost, less accumulated depreciation.
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 15 to 30 years
- Leasehold land and buildings Over the lease period
- Other premises and equipment 2 to 5 years
(m) 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.
(n) 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.
(o) 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. Any excess or deficiency of the actuarial
value of assets over the actuarial value of liabilities of the pension scheme, outside
of a defined corridor, is charged to the consolidated statement of income over the
remaining service lives of the scheme members.
Defined contribution plans
The Group also operates a defined contribution plan, the costs of which are
recognised in the period to which they relate.
(p) 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.
(q) 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.
(r) 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.
(s) Redeemable preference shares
Preference shares which carry a mandatory coupon, and are redeemable at a
fixed future date, are recognised as liabilities in the consolidated balance sheet,
at amortised cost. The corresponding dividends on those shares are charged as
interest expense in the consolidated statement of income.
(t) Dividends on ordinary shares
Dividends on ordinary shares are recognised as 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.
(u) 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.
(v) Financial guarantees
In the ordinary course of business, the Group gives financial guarantees, consisting
of letters of credit, guarantees and acceptances.
Financial guarantees are initially recognised in the consolidated financial statements
at fair value, being the commission received. 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.
(w) Islamic banking
The Islamic banking activities of the group are conducted in accordance with Islamic
Sharia’a principles, as approved by the Sharia’a Supervisory Board. The financial
statements 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.
3. Accounting policies continued
3.3 Summary of significant accounting policiescontinued
ahli united bank
52
2010 annual report notes to the consolidated financial statements continued
(x) 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.
Istisna’a
A sales contract between the Group (contract owner) and a customer (contractor)
whereby the customer, based on an order from the Group, undertakes to
manufacture or otherwise acquire the subject matter of the contract according to
specifications, and sells it to the Group for an agreed-upon price and method of
settlement, whether that be in advance, by instalments or deferred to a specific
future date.
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 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 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 case of default, negligence or violation of any of the terms and
conditions of the Wakala.
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.
(y) 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 depositers 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.
In the case of expenses, which arise out of issues relating to non compliance with
Sharia’a regulations, then such expenses are not to be borne by the unrestricted
investment account holders.
4. Interest income
2010 2009
US$ ’000 US$ ’000
Treasury bills and bonds 42,425 54,022
Deposits with banks and other financial institutions 38,017 41,446
Loans and advances 706,837 730,497
Non-trading investments 106,219 108,318
893,498 934,283
5. Interest expense
2010 2009
US$ ’000 US$ ’000
Deposits from banks and other financial institutions 91,760 85,110
Customers’ deposits 265,997 343,716
Term debts 12,029 18,836
Subordinated liabilities 14,938 20,036
384,724 467,698
6. Fees and commissions - net
2010 2009
US$ ’000 US$ ’000
Fees and commissions income
- Retail and corporate banking 88,296 95,325
- Management, performance and brokerage fees 39,303 47,199
Fees and commissions expense (4,280) (3,994)
123,319 138,530
Included in ‘management, performance and brokerage fees’ is US$ 9.9 million
(2009: US$ 12.4 million) of fee income relating to trust and other fiduciary activities.
7. Trading income - net
2010 2009
US$ ’000 US$ ’000
Foreign exchange gains 27,690 34,336
Loss on trading securities - (819)
Others 529 5,922
28,219 39,439
8. Net loss on available-for-sale investments
2010 2009
US$ ’000 US$ ’000
Realised gains - net 18,500 35,984
(Less): impairment losses - net (40,610) (50,048)
(22,110) (14,064)
9. Cash and balances with central banks
2010 2009
US$ ’000 US$’000
Cash and balances with central banks, excluding mandatory reserve deposits (note 24) 183,137 86,708
Mandatory reserve deposits with central banks 178,239 217,456
361,376 304,164
Mandatory reserve deposits are not available for use in day-to-day operations.
3. Accounting policies continued
3.3 Summary of significant accounting policies continued
ahli united bank
53
2010 annual report notes to the consolidated financial statements continued
10. Loans and advances
2010 2009
US$ ’000 % US$’000 %
(a) By industry sector
Consumer / personal 3,538,629 23.7 3,442,657 25.2
Real estate 4,423,194 29.7 3,908,086 28.6
Trading, manufacturing and services 4,042,613 27.1 3,681,371 26.9
Banks and other financial institutions 967,754 6.5 911,976 6.7
Construction 642,498 4.3 539,889 4.0
Government / public sector 415,291 2.8 425,296 3.1
Others 880,302 5.9 754,919 5.5
14,910,281 100.0 13,664,194 100.0
(Less): Impairment allowance for loan losses (note 10(e)) (432,568) (364,195)
14,477,713 13,299,999
2010 2009
US$ ’000 % US$’000 %
(b) By geographic region
GCC countries 11,793,296 79.1 11,104,185 81.3
Arab Republic of Egypt 1,386,131 9.3 881,271 6.4
United Kingdom 799,778 5.4 670,695 4.9
Europe (excluding United Kingdom) 626,786 4.2 782,021 5.7
Asia (excluding GCC countries) 85,888 0.6 64,923 0.5
Rest of the world 218,402 1.4 161,099 1.2
14,910,281 100.0 13,664,194 100.0
(Less): Impairment allowance for loan losses (note 10(e)) (432,568) (364,195)
14,477,713 13,299,999
GCC countries comprise the members of the Gulf Co-operation Council being
Kingdom of Bahrain, State of Kuwait, Sultanate of Oman, State of Qatar, Kingdom
of Saudi Arabia and the United Arab Emirates.
Refer note 31 (c) for disclosure of credit quality of loans and advances.
(c) Age analysis of past due but not impaired loans and advances
2010
Up to 30 days 31 to 60 days 61 to 89 days Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000
Loans and advances
Retail 45,022 47,201 36,664 128,887
Corporate 34,258 20,981 60,939 116,178
79,280 68,182 97,603 245,065
2009
Up to 30 days 31 to 60 days 61 to 89 days Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000
Loans and advances
Retail 26,551 43,456 36,283 106,290
Corporate 46,274 30,609 99,737 176,620
72,825 74,065 136,020 282,910
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.
(d) Individually impaired loans and advances
2010
Retail Corporate Total
US$ ’000 US$ ’000 US$ ’000
Gross impaired loans 85,785 276,320 362,105
Specific impairment provisions (73,078) (234,890) (307,968)
12,707 41,430 54,137
Impaired loan coverage 85.2% 85.0% 85.0%
2009
Retail Corporate Total
US$’000 US$’000 US$’000
Gross impaired loans 147,216 237,023 384,239
Specific impairment provisions (113,876) (173,836) (287,712)
33,340 63,187 96,527
Impaired loan coverage 77.4% 73.3% 74.9%
The fair value of collateral that the Group holds relating to loans individually
determined to be impaired at 31 December 2010 amounts to US$ 130.2 million
(2009: US$ 71.4 million). The collateral consists of securities, letters of guarantee
and properties.
The carrying amount of renegotiated loans as at 31 December 2010 is US$ 97.2
million (2009: US$ 81.6 million).
(e) Impairment allowance for loans and advances
A reconciliation of the allowance for impairment losses for loans and advances by
class is as follows:
2010
Retail Corporate Total
US$ ’000 US$ ’000 US$ ’000
At 1 January 138,531 225,664 364,195
Add / (Less): Arising on IFRS transition of subsidiary - 18,339 18,339
Amounts written off during the year (63,311) (52,173) (115,484)
Charge for the year 26,234 129,148 155,382
Recoveries during the year (3,374) (16,462) (19,836)
Interest suspended during the year (net) 3,628 5,828 9,456
Exchange rate and other adjustments 409 20,107 20,516
At 31 December 102,117 330,451 432,568
2009
Retail Corporate Total
US$’000 US$’000 US$’000
At 1 January 131,830 158,419 290,249
Add / (Less): Arising on IFRS transition of subsidiary - - -
Amounts written off during the year (14,907) (149,237) (164,144)
Charge for the year 35,901 201,751 237,652
Recoveries during the year (6,981) (9,561) (16,542)
Interest suspended during the year (net) 4,702 15,387 20,089
Exchange rate and other adjustments (12,014) 8,905 (3,109)
At 31 December 138,531 225,664 364,195
(f) Provision for loan losses and contingencies - net
The net charge for the year for provision for loan losses and contingencies in the
consolidated statement of income is determined as follows:
2010 2009
US$ ’000 US$’000
Impairment charge for the year on loans and advances (note 10(e)) 155,382 237,652
Recoveries from loans and advances during the year (including from fully provided loans written off in previous years) (25,748) (19,424)
Net charge for contingencies 22,037 9,908
Provision for loan losses and contingencies - net 151,671 228,136
ahli united bank
54
2010 annual report notes to the consolidated financial statements continued
11. Non-trading investments
2010 2009
Held-to- maturity
Available- for-sale
Loans and receivables Total Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$’000
Quoted investments
GCC government bonds and debt securities - 428,418 152,247 580,665 400,047
Other government bonds and debt securities - 258,006 25,564 283,570 157,724
Floating rate notes and certificates of deposit:
- issued by banks and other financial institutions - 1,143,578 892,915 2,036,493 1,878,989
- issued by corporate bodies 21,220 501,253 467,751 990,224 901,832
Equity shares - 2,351 - 2,351 16,737
Funds at net asset value - 152,984 - 152,984 158,603
21,220 2,486,590 1,538,477 4,046,287 3,513,932
Unquoted investments
GCC government bonds - 109,588 - 109,588 138,547
Other government bonds and debt securities - 35,575 - 35,575 30,544
Floating rate notes and certificates of deposit:
- issued by banks and other financial institutions - 10,995 - 10,995 -
Equity shares at cost - 136,305 - 136,305 123,847
Funds at net asset value - 122,643 - 122,643 119,423
Other investments - 75,344 - 75,344 59,157
- 490,450 - 490,450 471,518
Total 21,220 2,977,040 1,538,477 4,536,737 3,985,450
(Less): Allowance for impairment - (123,565) - (123,565) (86,858)
21,220 2,853,475 1,538,477 4,413,172 3,898,592
2010 2009
US$ ’000 US$’000
Carrying value as at 31 December 1,538,477 1,688,534
Fair value as at 31 December 1,455,024 1,571,622
Fair value losses that would have been recognised in the cumulative changes in available-for-sale reserve had the non-trading investments not been reclassified. (83,453) (116,912)
The Group earned interest income on these investments at an effective interest rate
of 3.7% (2009: 4.3%) and the carrying values of these financial instruments reflect
the cash flows expected to be recovered at the date of reclassification of these
financial assets.
(ii) Financial assets reclassified into the “available-for-
sale” category from “trading securities” category
The carrying value of the financial assets reclassified into the available-for-sale
category from trading securities category as at the date of reclassification of
1 July 2008 was US$ 86,901 thousand and the fair value losses recognised in the
consolidated statement of income up to that date was US$ 3,823 thousand.
2010 2009
US$ ’000 US$’000
Carrying value and fair value as at 31 December 44,036 47,336
Fair value gains that would have been recognised in the consolidated statement of income for the year had the financial assets not been reclassified. 2,857 739
Refer note 31 (c) for disclosure of credit quality of non-trading investments.
Non-trading investments of US$ 1,992 million (2009: US$ 1,042 million) have been
sold under agreements to repurchase, against which the Group had borrowings of
US$ 1,645 million (2009: US$ 878 million), included under “deposits from banks and
other financial institutions”.
The movements in provision for impairment on available-for-sale investments were
as follows:
2010 2009
US$ ’000 US$’000
At 1 January 86,858 88,244
Add / (Less): Charge for the year 40,610 35,975
Amounts written off during the year - (30,722)
Exchange rate and other adjustments (3,903) (6,639)
At 31 December 123,565 86,858
The deterioration in the financial markets in the third quarter of 2008 was viewed
globally as a rare circumstance to have occurred in the financial sector. The
IASB has issued “Reclassification of Financial Assets: Amendments to IAS
39 - Recognition and Measurement and IFRS 7: Disclosures” which permits
the reclassification of certain financial assets under such rare circumstances.
Accordingly, the Group had performed the following reclassifications:
(i) Financial assets reclassified into the “loans and receivables”
category from “available-for-sale” category
The carrying value of the financial assets reclassified into the loans and receivables
category from available-for-sale category as at the date of reclassification of 1 July
2008 was US$ 1,991,712 thousand and the fair value losses recognised in the
cumulative changes in available-for-sale reserve up to that date was US$ 108,527
thousand.
ahli united bank
55
2010 annual report notes to the consolidated financial statements continued
12. Investments in associates and joint venture
The principal associates and joint venture of the Group are:
(a) Associates
NameCountry of
incorporation Holding
2010 2009
Ahli Bank Q.S.C. (ABQ) State of Qatar 36.4% 38.1%
Ahli Bank S.A.O.G. (ABO) Sultanate of Oman 35.0% 35.0%
United Bank for Commerce and Investment S.A.L. (UBCI) Libya 40.0% -
On completion of registration of 2.92 million shares due to a private placement
subscription by the Qatar Investment Authority in Ahli Bank Q.S.C., AUB’s holding
was diluted to 36.4% as of 31 December 2010. Further, during 2011, on completion
of registration of an additional 5.84 million shares due to a private placement
subscription by the Qatar Investment Authority in Ahli Bank Q.S.C., AUB’s holding
will be diluted to 33.3%.
During 2010, the Bank acquired a 40% stake in UBCI at a purchase consideration of
LYD 68.2 million (US$ 53.5 million).
(b) Joint venture
NameCountry of
incorporation Holding
2010 2009
Legal & General Gulf B.S.C. (c)* Kingdom of Bahrain 50% 50%
* Provides conventional and takaful life and health insurance.
The summarised financial information of the Group’s associates and joint venture
was as follows:
2010 2009
US$ ’000 US$’000
Assets 7,333,159 6,705,223
Liabilities 6,413,921 5,904,854
Revenues 287,741 226,847
Net profit for the year 148,640 103,123
13. Premises and equipment
The net book values of the Group’s premises and equipment are:
2010 2009
US$ ’000 US$’000
Freehold land 130,449 138,101
Freehold buildings 25,471 22,987
Leasehold land and buildings 105,762 83,953
Capital work-in-progress 31,301 55,927
Others 80,111 54,988
373,094 355,956
14. Other assets
2010 2009
US$ ’000 US$’000
Tax assets (note 22) 331 4,605
Interest receivable 123,410 85,332
Derivative assets (note 28) 148,247 191,329
Prepayments and others 168,981 202,685
440,969 483,951
15. Goodwill and other intangible assets
2010
GoodwillIntangible
assets Total
US$ '000 US$ '000 US$ '000
At 1 January 505,251 119,035 624,286
Acquisitions during the year - 85,138 85,138
Exchange rate and other adjustments 14,619 (7,685) 6,934
At 31 December 519,870 196,488 716,358
2009
GoodwillIntangible
assets Total
US$'000 US$'000 US$'000
At 1 January 514,517 120,053 634,570
Acquisitions during the year 151 - 151
Exchange rate and other adjustments (9,417) (1,018) (10,435)
At 31 December 505,251 119,035 624,286
Goodwill
Goodwill acquired through business combinations has been allocated to the cash-
generating units of the acquired entities for impairment testing purposes.
The carrying amount of goodwill and intangible assets allocated to each of the cash-
generating units is as follows:
2010 2009
GoodwillIntangible
assets GoodwillIntangible
assets
US$ '000 US$ '000 US$'000 US$'000
Retail banking 182,803 64,841 177,912 39,282
Corporate banking, treasury and investments 222,012 100,209 215,392 60,709
Private banking and wealth management 115,055 31,438 111,947 19,044
519,870 196,488 505,251 119,035
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 senior management, extrapolated for five year projections using nominal 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 relation to the significant portion of the goodwill requiring impairment testing
was 9.8 % (2009: 10.9%). 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 comprises primarily the Group's banking licenses, including the
current year's addition, which have indefinite lives. Based on an annual impairment
assessments 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.
16. Customers’ deposits
2010 2009
US$ ’000 US$’000
Current and call accounts 2,636,332 2,221,678
Saving accounts 1,168,211 857,831
Time deposits 11,031,253 10,161,757
14,835,796 13,241,266
ahli united bank
56
2010 annual report notes to the consolidated financial statements continued
20. Share capital
2010 2009
US$ ’000 US$’000
(a) Authorised :
Ordinary share capital 8,000 million shares (2009: 8,000 million shares) of US$ 0.25 each 2,000,000 2,000,000
Preference share capital 1,000 million (2009:1000 million shares) Class A preference shares of US$ 0.25 each 250,000 250,000
300 million (2009: 250 million) Non-Cumulative Fully Convertible Class B preference shares of US$ 0.25 each 75,000 62,500
(b) Issued and fully paid:
Ordinary share capital 4,907.9 million shares of US$ 0.25 each ( 2009: 4,781.0 million shares of US$ 0.25 each) During the year, the Bank issued 52.7 million ordinary shares of US$ 0.25 each upon conversion of Tranche III of Class B preference shares (notes 20 (e) and (f)) and the issue of 74.2 million shares as part of the dual tender offer (note 2) 1,223,188 1,195,254
As at 31 December 2010, the Group held no treasury shares (2009: 3 million at a
cost of US$ 1,665 thousand).
Preference share capital 55.7 million Non-Cumulative Fully Convertible Class B preference shares of US$ 0.25 each (2009 : 25.3 million Non-Cumulative Fully Convertible Class B preference shares) (note 20 (f)). 13,937 6,321
(c) Conversion of Class A preference shares
As per the terms of issue of the Class A preference shares, 577.5 million ordinary
shares were issued, on 1 January 2008, upon conversion of 50% of Class A
preference shares, including the bonus adjustment for the years 2005 and 2006.
(d) The remaining 50% of the Class A preference shares are redeemable in cash on
1 January 2015, or at an earlier date after 1 January 2010 if exercised by the Bank,
at US$ 0.45 per share. These preference shares not subject to conversion (recorded
as subordinated liabilities) would receive preferential treatment over holders of
ordinary shares and Class B preference shares, but shall be subordinated to all other
liabilities of the Bank. The redeemable portion of the Class A preference shares
amounting to US$ 225 million (31 December 2009: US$ 225 million) is included in
subordinated liabilities (note 19(a)).
(e) An Employee Share Purchase Plan (“ESPP”) was established in accordance with
the Board of Directors’ approval and the subsequent approval of the Extraordinary
General Assembly of Shareholders meeting dated 5 October 2004 and further
regulatory approvals obtained from:
(i) Capital Markets Supervision Directorate of CBB vide their letters dated 2
September 2004, 9 November 2004 and 18 April 2005;
(ii) Banking Supervision Directorate of CBB vide their letters dated 5 September
2004 and 17 April 2005; and
(iii) Ministry of Commerce vide their letters dated 8 September 2004 and 9 April
2005.
Subsequent amendments were duly approved by the regulatory authorities.
As per the approved plan, the Non-Cumulative Fully Convertible Class B preference
shares (“Class B preference shares”) were authorised for issuance to the employees
of the Bank and its subsidiary in UK, in five annual tranches over a five-year period
commencing 1 January 2005 at prices determined by the Board of Directors within
set parameters. The Class B Preference Shares are mandatorily convertible into an
equivalent number of ordinary shares adjusted for any bonus share issues on the
conversion date of each tranche.
17. Term debts
2010 2009
US$ ’000 US$’000
Medium Term Syndicated Deposit 796,562 800,054
(carrying interest rate of three-month LIBOR plus 0.85% per annum, repayable in October 2011)
Long term debt 150,000 150,000
(carrying interest rate of six-month LIBOR plus 0.275% per annum, repayable in September 2012)
946,562 950,054
Of the above medium term syndicated deposit, US$ 618 million has been extended
for a further period up to 30 April 2012 at LIBOR plus 0.85% per annum.
18. Other liabilities
2010 2009
US$ ’000 US$’000
Accruals 95,896 79,010
Interest payable 136,674 127,540
Derivative liabilities (note 28) 243,582 243,287
Other credit balances 217,537 199,661
693,689 649,498
19. Subordinated liabilities
These borrowings are subordinated to the claims of all other creditors of the
respective banks.
2010 2009
US$ ’000 ’000
(a) Ahli United Bank B.S.C.
US Dollars – non-convertible portion (50%) of Class A non-cumulative preference shares carrying interest at 1.50% over twelve-month LIBOR, repayable on 2 January 2015, with an issuer option to redeem after 1 January 2010 subject to three months notice (also refer note 20 (d)). 225,000 225,000
US Dollars – interest at three-month LIBOR plus a margin of 0.95% up to 2 December 2010 and margin of 1.45% thereafter, repayable on 2 December 2015 with an issuer option to redeem after 2 December 2010 subject to one month notice. 75,000 75,000
Great Britain Pounds – interest at six-month LIBOR plus 1.00%, repayable in 2012. 30,910 31,849
US Dollars - interest at six-month LIBOR plus a margin of 0.82%, repayable on 15 December 2016, convertible into ordinary shares at the holder's option at the rate of US$ 1.24 per share between the third and sixth anniversary from the loan agreement dated 18 November 2006 (also refer note 23). 200,000 200,000
US Dollars - interest at 6.5% p.a., repayable at 5 years and one day with an issuer option to extendable for a further period of 5 years and one day at 7% per annum. 50,000 50,000
US Dollars - interest at three-month LIBOR plus a margin of 1% up to 15 March 2015, and three-month LIBOR, plus a margin of 1.5% from 16 March 2015 until maturity date, repayable 10 years from the issue date of 20 January 2010 (note 2). 17,997 -
(b) Ahli United Bank (UK) PLC
US Dollars – interest at six-month LIBOR plus ¾%, repayable in 2013. 2,267 2,267
Great Britain Pounds - interest at six-month LIBOR plus ¾%, repayable in 2013. 2,483 2,558
Great Britain Pounds - interest at six-month LIBOR plus ¾%, repayable in 2011. 1,625 1,675
US Dollars - interest at six-month LIBOR plus ¾%, repayable in 2011. 1,485 1,485
Great Britain Pounds - interest at six-month LIBOR plus ¾%, repayable at 5 years and one day notice. 6,371 6,565
US Dollars - interest at six-month LIBOR plus ¾%, repayable at 5 years and one day notice. 5,817 5,817
618,955 602,216
ahli united bank
57
2010 annual report notes to the consolidated financial statements continued
The details of Class B preference shares issued, conversion dates of respective
issues and the resultant conversion effect duly adjusted for bonus share issues for
the years 2005, 2006, 2007 and 2008 and the rights issue adjustment factor for
2007 are as follows:
Conversion date Numbers in million
2010 2009
Number of Class B preference shares issued :
Tranche - I 1 January 2008 119.9 119.9
Tranche - II 1 January 2009 36.0 36.0
Tranche - III 1 January 2010 38.4 38.4
Tranche - IV, V and VI 1 January 2011 55.7 -
Total Issue Class B preference shares : 31 December 2007 250.0 194.3
Add: Bonus shares @ 5% for 2005 as approved at the Bank’s Annual General Assembly of Shareholders’ meeting held on 27 March 2006. 12.5 9.7
262.5 204.0
Add: Bonus shares @ 10% for 2006 as approved at the Bank’s Annual General Assembly of Shareholders’ meeting held on 25 March 2007. 26.2 20.4
288.7 224.4
Add: Rights issue conversion adjustment factor @ 2.834% as approved at the Bank’s Extraordinary General Assembly of Shareholders’ meeting held on 18 October 2007. 8.2 6.3
296.9 230.7
Less : Conversion of Tranche I of Class B preference shares (refer (f) below). (142.3) (142.3)
154.6 88.4
Add: Bonus shares @ 10% for 2007 as approved at the Bank’s Annual General Assembly of Shareholders’ meeting held on 3 March 2008. 15.5 8.8
170.1 97.2
Less : Conversion of Tranche II of Class B preference shares (refer (f) below). (47.0) (47.0)
123.1 50.2
Add: Bonus shares @ 5% for 2008 as approved at the Bank’s Annual General Assembly of Shareholders’ meeting held on 18 March 2009. 6.1 2.5
129.2 52.7
Less : Conversion of Tranche III of Class B preference shares (refer (f) below). (52.7) -
Total number of ordinary shares when converted (refer (g) below) 76.5 52.7
(f) Conversion of Tranche I, II and III of Class B preference shares
As per the terms of the issue of the Employee Share Purchase Plan (ESPP), upon
conversion of Tranche-I of the Class B preference shares on 1 January 2008,
Tranche II of the Class B preference shares on 1 January 2009 and Tranche III of the
Class B preference shares on 1 January 2010, 142.3 million ordinary shares, 47.0
million ordinary shares and 52.7 million ordinary shares respectively were issued,
including the bonus adjustment for the years 2005, 2006, 2007 and 2008 and the
rights issue adjustment factor for 2007.
Issue of Tranche IV, V and VI of Class B preference shares
During the year, following the recommendation of the Board of Directors and
Extraordinary General Assembly and regulatory approvals, the Bank issued 55.7
million Class B non-cumulative fully convertible preference shares (Class B shares)
under Tranches IV, V and VI at prices of US$ 1.12, US$ 0.63 and US$ 0.39 per
share respectively. These shares are mandatorily convertible into an equal number of
ordinary shares adjusted for any bonus share issues on the conversion date of each
tranche. The fair values of the Tranches, estimated as of the grant date, were US$
1.39, US$ 0.63 and US$ 0.435 per share respectively. The difference between issue
price and fair value is amortised over the vesting period and included under “staff
costs” in the consolidated statement of income.
(g) On 1 January 2011, the 55.7 million Class B non-cumulative fully convertible
preference shares were converted, including the effect of prior year ordinary bonus share
issues, to 76.5 million ordinary shares. These ordinary shares will rank pari-passu with
the other ordinary shares in issue (refer (f) above). Consequent to the above conversion,
the total number of ordinary shares in issue as on 1 January 2011 is 4,984.3 million.
21. Reserves
a) Share premiumThe 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 reserveAs required by the Bahrain Commercial Companies Law and the Bank’s Articles
of Association, 10% of the net profit is transferred to a 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 reserveThe 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 reserveIt comprises of translation effects arising on consolidation of subsidiaries, non-
monetary equity investments and investments in associates.
f) Available-for-sale reserveThis reserve represents changes in the fair values of available-for-sale investments.
g) Cash flow hedge reserve This reserve represents the effective portion of gain or loss on the Group’s cash flow
hedging instruments.
h) Employee share purchase plan reserveThe Group operates an employees’ share purchase plan (ESPP) for certain eligible
employees through the issuance of Non-Cumulative Fully Convertible Class B
Preference Shares. 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 ESPP reserve under
consolidated statement of changes in equity. Upon conversion of these shares, the
fair value reserve is transferred to share premium.
20. Share capital continued
ahli united bank
58
2010 annual report notes to the consolidated financial statements continued
i) Movements in other reserves
Cumulative changes in
Capital reserve
Property revaluation
reserve
Foreign exchange
translation reserve
Available- for-sale reserve
Cash flow hedge
reserve ESPP reserveTotal other
reserves
US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000
Balance at 1 January 2010 307 73,384 11,628 (90,887) (29,825) 2,397 (32,996)
Currency translation adjustments - - (16,034) - - - (16,034)
Share of changes in fair value reserve of associates - - - 1,335 - - 1,335
Transfers to consolidated statement of income - - - 956 2,455 - 3,411
Net fair value movements during the year - - - 12,528 (6,303) - 6,225
Fair value amortisation of share based transactions (note 23) - - - - - 1,689 1,689
Sale of treasury shares 118 - - - - - 118
Conversion of preference shares (note 20(f)) - - - - - (2,397) (2,397)
Revaluation of freehold land - (19,542) - - - - (19,542)
Balance at 31 December 2010 425 53,842 (4,406) (76,068) (33,673) 1,689 (58,191)
Balance at 1 January 2009 307 121,106 38,419 (251,621) (85,652) 6,328 (171,113)
Currency translation adjustments - - (26,791) - - - (26,791)
Share of changes in fair value reserve of associates - - - (1,236) - - (1,236)
Transfers to consolidated statement of income on sale / impairment of available-for-sale investments - - - 21,785 - - 21,785
Transfers to consolidated statement of income - - - - 38,661 - 38,661
Net fair value movements during the year - - - 140,185 17,166 - 157,351
Fair value amortisation of share based transactions (note 23) - - - - - 1,108 1,108
Conversion of preference shares (note 20(f)) - - - - - (5,039) (5,039)
Revaluation of freehold land - (47,722) - - - - (47,722)
Balance at 31 December 2009 307 73,384 11,628 (90,887) (29,825) 2,397 (32,996)
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.
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 Class B 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 Class B
preference shares into ordinary shares.
The convertible subordinated debt issued (note 19(a)) is anti-dilutive for 2010 and
2009 and therefore ignored in calculating diluted earnings per share. The number of
ordinary shares potentially issuable upon conversion of this debt amounts to 161.3
million shares as at 31 December 2010 ( 2009: 161.3 million).
The following reflects the income and share data used in basic and diluted earnings
per share computations :
2010 2009
US$ ’000 US$’000
Net profit for basic earnings per share computation
Net profit attributable to Bank's equity shareholders 265,499 200,718
(Less): Class B preference share dividend (note 21(j)) (149) (1,129)
Adjusted net profit attributable to Bank’s ordinary equity shareholders for basic earnings per share 265,350 199,589
21. Reserves continued
j) Dividends paid and proposed
2010
US$ ’000
Proposed for approval at the forthcoming Annual
General Assembly of Shareholders Meeting
Cash dividend on the Class B Preference shares @ 12 month LIBOR plus 1.5% margin as per terms 149
Cash dividend on the Ordinary shares @ US cents 2.5 per share 122,697
Bonus share issue None
2009
US$’000
Declared and paid during the year
Cash dividend on the Class B Preference shares @ US cents 2.9 per share (2009: US cents 4.7 per share) 1,129
Cash dividend on the Ordinary shares @ US cents 2.0 per share (2009: US cents 2.5 per share) 97,043
Bonus share issue None
22. Taxation
2010 2009
US$ ’000 US$’000
Consolidated balance sheet (note 14):
- Current tax asset 3,147 5,810
- Deferred tax liability (2,816) (1,205)
331 4,605
Consolidated statement of income
- Current tax expense on foreign operations 15,163 5,444
- Deferred tax expense on foreign operations 1,611 1,312
16,774 6,756
The Group’s tax expense includes all direct taxes that are accrued and paid on
taxable profits of entities to the authorities in the respective country of incorporation,
ahli united bank
59
2010 annual report notes to the consolidated financial statements continued
2010 2009
US$ ’000 US$’000
Net profit for diluted earnings per share computation
Net profit attributable to Bank’s equity shareholders before preference share dividend 265,499 200,718
Add: Staff costs - fair value amortisation of share based transactions (note 21 (i)) 1,689 1,108
Adjusted net profit attributable to Bank’s ordinary equity shareholders for diluted earnings per share 267,188 201,826
2010 2009
Number of shares (inmillions)
Weighted average ordinary shares outstanding during the period adjusted for bonus shares 4,887 4,781
Less :- Weighted average treasury shares (1) (2)
Net weighted average number of ordinary shares for basic earnings per share 4,886 4,779
Add: Effect of dilution – Class B preference shares (note 20(e)) 77 40
Weighted average number of ordinary shares for diluted earnings per share 4,963 4,819
24. Cash and cash equivalents
Cash and cash equivalents included in the consolidated statement of cash flows
include the following balance sheet amounts:
2010 2009
US$ ’000 US$’000
Cash and balances with central banks, excluding mandatory reserve deposits (note 9) 183,137 86,708
Deposits with banks and other financial institutions -
with an original maturity of three months or less 2,780,021 2,092,768
2,963,158 2,179,476
25. Related party transactions
The Group enters into transactions with major shareholders, associates, directors,
senior management and companies which are controlled, jointly controlled or
significantly influenced by such parties in the ordinary course of business at arm’s
length. All the loans and advances to related parties are performing and are free of
any provision for possible loan losses.
The income, expense and the period end balances in respect of related parties
included in the consolidated financial statements were as follows:
2010
Major shareholders Associates
Directors and senior
management Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000
Interest income - 773 3,010 3,783
Interest expense 84,389 375 3 84,767
Fees and commissions (net) - 4,075 - 4,075
Deposits with banks and other financial institutions 25 78,409 - 78,434
Loans and advances - - 214,409 214,409
Deposits from banks and other financial institutions - 28,444 - 28,444
Customers’ deposits (a) 4,734,309 17,206 14,816 4,766,331
Subordinated liabilities 91,596 - - 91,596
Commitments and contingent liabilities (notional) - 5,456 2,779 8,235
Derivatives (notional) - 158,028 - 158,028
2009
Majorshareholders Associates
Directorsandsenior
management Total
US$’000 US$’000 US$’000 US$’000
Interest income - 809 4,731 5,540
Interest expense 124,875 28 58 124,961
Fees and commissions (net) - 3,103 - 3,103
Deposits with banks and other financial institutions 24 162,859 - 162,883
Loans and advances - - 196,597 196,597
Deposits from banks and other financial institutions - 28,499 - 28,499
Customers’ deposits (a) 4,097,106 21,341 15,555 4,134,002
Subordinated liabilities 92,705 - - 92,705
Commitments and contingent liabilities (notional) - 5,000 12,034 17,034
Derivatives (notional) - 165,941 - 165,941
(a) Customers’ deposits include deposits from GCC government-owned institutions
totaling to US$ 4,710 million (31 December 2009: US$ 4,091 million).
The compensation of key management personnel of the Group included under staff
costs was as follows:
2010 2009
US$ ’000 US$’000
Short term employee benefits 14,240 14,078
End of service benefits 947 831
Post employment benefits 261 358
Total benefits 15,448 15,267
Included in short term employee benefits is the fair value amortisation charge relating
to share based transactions of US$ 0.6 million (2009: US$ 0.3 million).
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$ 8,486 thousand (2009: US$ 7,095
thousand). There are no material differences between the carrying amount of the
provision for end of service benefits at both 31 December 2010 and 2009 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 charge to consolidated statement of income is calculated in
accordance with IAS 19 corridor method, which is the deficit of the actuarial value of
assets over the actuarial value of liabilities, outside of the defined corridor, over the
average remaining service lives of the scheme.
Defined contribution plans
The Group contributed US$ 5,481 thousand (2009: US$ 6,898 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 2010 was US$ 4,422 million (2009: US$ 4,190 million).
23. Earnings per share continued
ahli united bank
60
2010 annual report notes to the consolidated financial statements continued
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 term 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 together
with the notional amounts. The notional amount is the amount of a derivative’s
underlying asset, reference rate or index and is the basis upon which changes in
the value of derivatives are measured. The notional amounts indicate the volume of
transactions outstanding at year-end and are neither indicative of the market risk nor
credit risk.
2010
Notional amount
Derivative assets
Derivative liabilities
US$ ’000 US$ ’000 US$ ’000
Derivatives held for trading:
Interest rate swaps 1,432,793 46,294 44,661
Forward foreign exchange contracts 5,372,623 72,999 62,971
Forward rate agreements 1,300,000 1,277 205
Options 1,705,243 1,802 998
Interest rate futures 3,136,375 432 370
Credit derivatives 125,000 50 863
Derivatives held as fair value hedges:
Interest rate swaps 2,079,385 12,219 97,645
Currency swaps 150,000 6,420 -
Options 50,535 4,558 -
Derivatives held as cash flow hedges:
Interest rate swaps 2,110,601 2,196 35,869
17,462,555 148,247 243,582
2009
Notionalamount
Derivativeassets
Derivativeliabilities
US$’000 US$’000 US$’000
Derivatives held for trading:
Interest rate swaps 1,634,354 44,967 44,957
Forward foreign exchange contracts 5,070,261 106,652 99,003
Forward rate agreements 1,250,000 3,922 254
Options 226,721 52 170
Interest rate futures 1,500,000 216 216
Credit derivatives 135,000 55 2,524
Derivatives held as fair value hedges:
Interest rate swaps 2,186,812 25,346 61,154
Currency swaps 165,871 2,379 3,417
Options 142,014 5,973 -
Derivatives held as cash flow hedges:
Interest rate swaps 654,084 1,767 31,592
12,965,117 191,329 243,287
Cash flow hedges
The schedule of forecast principal balances on which the expected interest cash
flows arise and their impact on the consolidated financial statements as at 31
December 2010 and 2009 is as follows:
3 months or less
More than 3 months up
to 1 year
More than 1 year up
to 5 yearsMore than
5 years Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000 US$ ’000
At 31 December 2010
Cash outflows from liabilities 21,725 11,174 59,803 9,483 102,185
At 31 December 2009
Cash outflows from liabilities 11,129 1,367 57,311 34,387 104,194
No hedge ineffectiveness on cash flow hedges was recognised in 2010 and 2009.
Fair value hedges
(Losses) gains arising from fair value hedge instruments during 2010 were (US$
51,489) thousand (2009 : US$ 95,304 thousand) while the gains (losses) on the
hedged items attributable to risk were US$ 51,489 thousand (2009 : US$ (95,304)
thousand). These gains and losses are included in “trading income-net” in the
consolidated statement of income during 2010 and 2009.
Derivative product types
Forwards and futures are contractual agreements to either buy or sell a specified
currency, commodity or financial instrument at a specific price and date in the future.
Forwards are customised contracts transacted in the over-the-counter market.
Foreign currency and interest rate futures are transacted in standardised amounts
on regulated exchanges and are subject to daily cash margin requirements. Forward
rate agreements are effectively tailor-made interest rate futures which fix a forward
rate of interest on a notional loan, for an agreed period of time starting on a specified
future date.
Swaps are contractual agreements between two parties to exchange interest or
foreign currency differentials based on a specific notional amount. For interest rate
swaps, counterparties generally exchange fixed and floating rate interest payments
based on a notional value in a single currency.
Options are contractual agreements that convey the right, but not the obligation, to
either buy or sell a specific amount of a commodity or financial instrument at a fixed
price, either at a fixed future date or at any time within a specified period.
Derivatives held for trading 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.
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2010 annual report notes to the consolidated financial statements continued
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.
The Group has the following credit related commitments:
2010 2009
US$ ’000 US$’000
Commitments on behalf of customers:
Guarantees 1,448,486 1,395,462
Acceptances 70,196 45,394
Letters of credit 372,315 248,337
1,890,997 1,689,193
Irrevocable commitments:
Undrawn loan commitments 1,054,589 892,493
The Group’s commitments in respect of non-cancellable operating leases were as follows:
2010 2009
US$ ’000 US$’000
Within one year 1,877 2,017
Between one to five years 7,363 7,652
Over five years 11,001 13,066
20,241 22,735
30. Segment information
For management purposes the Group is organised into three major business
segments:
Retail Banking Principally handling individual customers’ deposit and current accounts, providing consumer loans, residential mortgages, overdrafts, credit cards and fund transfer facilities.
Corporate Banking, Treasury and Investments
Principally handling loans and other credit facilities, and deposit and current accounts for corporate and institutional customers and providing money market, trading and treasury services, as well as management of the Group’s funding.
Private Banking and Wealth Management
Principally servicing high net worth clients through a range of investment products, funds, credit facilities, trusts and alternative investments.
These segments are the basis on which the Group reports its primary segment
information. Transactions between segments are conducted at approximate market
rates on an arm’s length basis. Interest is charged/credited to business segments
based on a pool rate which approximates the cost of funds.
Segmental information for the period was as follows:
Retail
Banking
Corporate Banking,
Treasury and Investments
Private Banking
and Wealth Management Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000
Year ended 31 December 2010:
Net interest income 107,855 365,958 34,961 508,774
Intersegment interest 14,209 (11,301) (2,908) -
Fees and commissions - net 33,403 67,882 22,034 123,319
Other operating income 3,778 78,159 29 81,966
OPERATING INCOME 159,245 500,698 54,116 714,059
Provision for loan losses and contingencies - net 14,331 132,946 4,394 151,671
NET OPERATING INCOME 144,914 367,752 49,722 562,388
Operating expenses 95,972 130,067 27,376 253,415
PROFIT BEFORE TAX 48,942 237,685 22,346 308,973
Tax expense 4,231 9,837 2,706 16,774
NET PROFIT FOR THE YEAR 44,711 227,848 19,640 292,199
Less : Attributable to non-controlling interests 26,700
NET PROFIT ATTRIBUTABLE TO THE BANK’S EQUITY SHAREHOLDERS 265,499
Segment assets 2,793,495 20,467,566 1,060,300 24,321,361
Goodwill and other intangible assets (note 15) 247,644 322,221 146,493 716,358
Investment in associates and joint venture 605,679
Unallocated assets 814,063
TOTAL ASSETS 26,457,461
Segment liabilities 3,176,812 17,602,918 2,231,867 23,011,597
Unallocated liabilities 693,689
TOTAL LIABILITIES 23,705,286
Retail
Banking
CorporateBanking,
TreasuryandInvestments
PrivateBanking
andWealthManagement Total
US$’000 US$’000 US$’000 US$’000
Yearended31December2009:
Net interest income 142,088 292,972 31,525 466,585
Intersegment interest (5,352) 10,716 (5,364) -
Fees and commissions - net 50,138 64,381 24,011 138,530
Other operating income 4,044 86,902 325 91,271
OPERATINGINCOME 190,918 454,971 50,497 696,386
Provision for loan losses and contingencies - net 36,784 191,261 91 228,136
NETOPERATINGINCOME 154,134 263,710 50,406 468,250
Operating expenses 104,296 105,768 25,344 235,408
PROFITBEFORETAX 49,838 157,942 25,062 232,842
Tax expense 1,861 3,107 1,788 6,756
NETPROFITFORTHEYEAR 47,977 154,835 23,274 226,086
Less : Attributable to non-controlling interests 25,368
NETPROFITATTRIBUTABLETOTHEBANK’SEQUITYSHAREHOLDERS 200,718
Segmentassets 3,076,821 17,285,982 1,418,954 21,781,757
Goodwillandotherintangibleassets(note 15) 217,194 276,101 130,991 624,286
Investmentinassociatesandjointventure 537,099
Unallocatedassets 630,841
TOTALASSETS 23,573,983
Segmentliabilities 2,901,758 15,684,112 1,813,731 20,399,601
Unallocatedliabilities 592,951
TOTALLIABILITIES 20,992,552
28. Derivatives continued
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2010 annual report notes to the consolidated financial statements continued
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 together, 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:
30. Segment information continued
GCC Rest of the World Total
2010 2009 2010 2009 2010 2009
US$ ’000 US$’000 US$ ’000 US$’000 US$ ’000 US$’000
Operating income 559,219 574,571 154,840 121,815 714,059 696,386
Total assets 18,837,923 16,700,194 7,619,538 6,873,789 26,457,461 23,573,983
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 riskConcentrations 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 any 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 – mortgages over residential properties and assignments over salary income;
• In the commercial sector – charges over business assets such as premises, inventories, receivables and corporate or 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 10(a) and 10(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.
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
Grossmaximumexposure
2010 2009
US$ ’000 US$’000
Balances with central banks 280,389 289,533
Treasury bills and bonds 301,127 969,114
Deposits with banks and other financial institutions 4,767,843 3,100,446
Loans and advances 14,477,713 13,299,999
Non-trading investments 4,047,110 3,481,447
Other assets 410,670 415,225
Total 24,284,852 21,555,764
Contingent liabilities 1,890,997 1,689,193
Undrawn loan commitments 1,054,589 892,493
Total credit related commitments 2,945,586 2,581,686
Total credit risk exposure 27,230,438 24,137,450
Where financial instruments are recorded at fair value the amounts shown above
represent the current credit risk exposure but not the maximum risk exposure that
could arise in the future as a result of changes in values.
c) Credit quality per class of financial assetsThe table below shows distribution of financial assets neither past due nor impaired.
Neither past due nor impaired
High standard
gradeStandard
grade Total
US$ ’000 US$ ’000 US$ ’000
At 31 December 2010
Balances with central banks 259,406 20,983 280,389
Treasury bills and bonds 301,127 - 301,127
Deposits with banks and other financial institutions 4,368,961 398,882 4,767,843
Loans and advances
Retail 750,335 2,024,543 2,774,878
Corporate 7,137,208 4,391,025 11,528,233
Non trading investments
Available-for-sale 2,303,491 183,922 2,487,413
Held to maturity - 21,220 21,220
Loans and receivables 1,394,785 143,692 1,538,477
Other assets - derivatives 148,247 - 148,247
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2010 annual report notes to the consolidated financial statements continued
2010
Assets Liabilities
Commitments on behalf of
customers
US$ ’000 US$ ’000 US$ ’000
Industry sector:
Banks and other financial institutions 10,014,756 10,270,624 422,891
Consumer / Personal 3,343,687 3,603,717 33,572
Trading, manufacturing and services 4,087,068 1,487,980 585,455
Real estate / construction 5,053,331 433,685 293,165
Government / public sector 1,263,028 3,572,867 7,877
Others 2,695,591 4,336,413 548,037
26,457,461 23,705,286 1,890,997
2009
Industry sector:
Banks and other financial institutions 8,212,699 7,809,843 471,520
Consumer / Personal 3,301,674 3,100,701 24,894
Trading, manufacturing and services 3,917,353 974,854 518,325
Real estate / construction 4,503,192 375,195 181,345
Government / public sector 1,166,639 4,557,428 -
Others 2,472,426 4,174,531 493,109
23,573,983 20,992,552 1,689,193
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 non-quantitative 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-tradingThe 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.
The table below summarises the risk factor composition of the VaR including the
correlative effects intrinsic to the trading book:
Foreign exchange
Interest rate
Effects of correlation Total
US$ ’000 US$ ’000 US$ ’000 US$ ’000
2010 - 31 December 549 (7) 6 548
2009 - 31 December (30) 506 1 477
The table below shows distribution of financial assets neither past due nor impaired.
Neitherpastduenorimpaired
Highstandard
gradeStandard
grade Total
US$’000 US$’000 US$’000
At 31 December 2009
Balances with central banks 289,533 - 289,533
Treasury bills and bonds 863,210 105,904 969,114
Deposits with banks and other financial institutions 3,018,249 82,197 3,100,446
Loans and advances
Retail 654,746 2,338,258 2,993,004
Corporate 6,401,794 3,602,247 10,004,041
Non trading investments
Available-for-sale 1,646,099 157,123 1,803,222
Held to maturity - 15,927 15,927
Loans and receivables 1,554,874 133,660 1,688,534
Other assets - derivatives 191,329 - 191,329
It is the Group’s policy to maintain consistent internal risk ratings across the credit
portfolio. The credit quality of the portfolio of loans and advances that were neither
past due nor impaired can be assessed by reference to the Group’s internal credit
rating system. This facilitates focused portfolio management of the inherent level of
risk across all lines of business. The credit quality ratings disclosed above can be
equated to the following risk rating grades:
Credit quality rating Risk rating Definition
High standard Risk rating 1 to 4 Undoubted through to good credit
risk
Standard Risk rating 5 to 7 Satisfactory through to adequate
credit risk
The risk rating system is supported by a various financial analytics and qualitative
market information for the measurement of counterparty risk.
There are no financial assets which are past due but not impaired as at 31
December 2010 and 2009 other than those disclosed under note 10(c).
32. Concentration analysis
The distribution of assets, liabilities and commitments on behalf of customers by
geographic region and industry sector was as follows:
2010
Assets Liabilities
Commitments on behalf of
customers
US$ ’000 US$ ’000 US$ ’000
Geographic region:
GCC countries 18,837,923 17,814,006 1,564,830
United Kingdom (UK) 1,795,535 468,540 2,120
Europe (excluding UK) 1,502,777 1,023,124 80,476
United States of America 787,733 251,977 17,330
Asia (excluding GCC) 832,533 2,133,461 17,526
Rest of the world (including Arab Republic of Egypt) 2,700,960 2,014,178 208,715
26,457,461 23,705,286 1,890,997
2009
Geographic region:
GCC countries 16,700,194 14,703,507 1,423,469
United Kingdom (UK) 1,404,250 797,392 5,690
Europe (excluding UK) 1,815,378 587,931 32,488
United States of America 795,051 224,055 18,619
Asia (excluding GCC) 576,650 2,317,334 12,845
Rest of the world (including Arab Republic of Egypt) 2,282,460 2,362,333 196,082
23,573,983 20,992,552 1,689,193
31. Credit risk continued
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2010 annual report notes to the consolidated financial statements continued
34. Fair value of financial instruments
The fair value of financial instruments, with the exception of unquoted equity
investments that are carried at cost and held to maturity investments, approximate
their carrying values.
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 fair value of unquoted equity investments cannot be determined with sufficient
accuracy, as future cash flows are not determinable. The Group has unquoted
equity investments carried at cost amounting to US$ 136.3 million (2009: US$ 123.8
million) where the impact of changes in equity prices will only be reflected when the
investment is sold or deemed to be impaired, when the consolidated statement of
income will be impacted; or when a material third party transaction in the investment
gives a reliable indication of fair value which will be reflected in equity.
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.
2010
Level 1 Level 2 Total
US$ ’000 US$ ’000 US$ ’000
Trading securities 130 - 130
Bonds 2,185,704 301,709 2,487,413
Equities and funds 155,335 197,987 353,322
Derivative assets 79,851 68,396 148,247
Derivative liabilities (63,342) (180,240) (243,582)
2,357,678 387,852 2,745,530
2009
Level1 Level2 Total
US$’000 US$’000 US$’000
Trading securities 376 - 376
Bonds 1,505,648 297,574 1,803,222
Equities and funds 175,340 178,580 353,920
Derivative assets 107,063 84,266 191,329
Derivative liabilities (98,247) (145,040) (243,287)
1,690,180 415,380 2,105,560
There are no financial instruments that qualify for classification under Level 3 as at
31 December 2010 and 2009. During the year 2010 there have been no transfers
between Levels 1, 2 and 3.
For an explanation of valuation techniques used to value these financial instruments
refer to note 3.3 (f).
Investments in associates include quoted equity investments of Ahli Bank Q.S.C.
on the Doha Securities Market, and Ahli Bank S.A.O.G. on the Muscat Securities
Market. The table below shows the market value based on closing price as at 31
December 2010 and carrying value of these investments :
2010 2009
US$ (millions) US$(millions)
Market value 591 433
Carrying value 499 483
Impairment testing of the Group’s investments in associates was carried out as
required under IAS 28 and IAS 36 and the results indicated no impairment.
(b) Market risk-non-trading
Interest rate risk
Interest rate risk arises from the possibility that changes in interest rates will affect
the value of financial instruments or the future profitability of the Group. The Group
is exposed to interest rate risk as a result of mismatches or gaps in the amounts of
assets and liabilities and off balance sheet instruments that mature or reprice in a
given period. The Group measures and manages interest rate risk by establishing
levels of interest rate risk by setting limits on the interest rate gaps for stipulated
periods. Interest rate gaps on assets and liabilities are reviewed on a weekly basis
and hedging strategies used to reduce the interest rate gaps to within the limits
established by the Bank's Board of Directors.
The following table demonstrates the sensitivity of the Group's net interest income
to a change in interest rates, with all other variables held constant. The sensitivity
is based on the floating rate financial assets and financial liabilities held at 31
December 2010 including the effect of hedging instruments. Equity is not sensitive
to changes in interest rates as there are no fixed rate instruments held in the
available-for-sale portfolio.
Sensitivity analysis - interest rate risk
2010 2009
US$ ’000 US$’000
at 10 bps - increase (+) / decrease (-) + / - 1,021 958
at 25 bps - increase (+) / decrease (-) + / - 2,552 2,396
Currency risk
Currency risk is the risk that the functional currency value of a financial instrument
will fluctuate due to changes in foreign exchange rates.
The risk management process manages the Group’s exposure to fluctuations in
foreign exchange rates (currency risk) through the asset and liability management
process. It is the Group’s policy to reduce its exposure to currency fluctuations
to acceptable levels as determined by the Board of Directors. The Board has
established levels of currency risk by setting limits on currency position exposures.
Positions are monitored on a daily basis and hedging strategies used to ensure
positions are maintained within established limits.
Sensitivity analysis - currency risk
All foreign currency exposures with the exception of investments in subsidiaries
and associates are captured as part of the trading book. The risk of the exposures
are subject to quantification via a daily VaR calculation, the results of which are
disclosed in note 33 (a).
The effect of foreign currency translation on the Group's investments in subsidiaries
and associates are reported under the "foreign exchange translation reserve" under
the note 21(i).
Equity price risk
Equity price risk arises from fluctuations in equity indices and prices. The Board
has set limits on the amount and type of investments that may be accepted. This
is monitored on an ongoing basis by the Group Risk Committee. The non-trading
equity price risk exposure arises from the Group's investment portfolio.
The effect on equity valuations (as a result of a change in the fair value of equity
investments held as available-for-sale) due to a reasonably possible change in equity
indices, with all other variables held constant is as follows:
2010 2009
Change in equity indices
Effect on equity
Effectonequity
Market indices % US$ ’000 US$’000
Doha Securities Market +10% - 606
Kuwait Stock Exchange +10% 2,475 1,616
Sensitivity to equity price movements will be on a symmetric basis, as financial
instruments giving rise to non-symmetric movements are not significant.
33. Market risk continued
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65
2010 annual report notes to the consolidated financial statements continued
35. Liquidity risk
Liquidity risk is the risk that an institution will be unable to meet its funding
requirements in an orderly and cost efficient manner. Market disruptions or a credit
downgrade, for example, may reduce the availability of certain sources of funding.
To guard against this risk, management has diversified funding sources and assets
are managed with liquidity in mind, maintaining a healthy balance of cash, cash
equivalents and readily marketable securities.
The Group Asset and Liability Committee (GALCO) monitors the maturity profile
on an overall basis with ongoing liquidity monitoring by the Group's treasury
department. The Group's standards for the governance of liquidity risk are
documented in the Group Liquidity Policy and Group Liquidity Contingency Plan.
The maturity profile of the assets and liabilities at 31 December 2010 given below
reflects management's best estimates of the maturities of assets and liabilities.
These have been determined on the basis of the remaining period at the balance
sheet date to the contractual maturity date, except in the case of customer
deposits. The liquidity profile of customer deposits has been determined on the
basis of the effective maturities indicated by the Group’s deposit retention history.
Less than 1 year
Above 1 year Undated Total
US$ '000 US$ ‘000 US$ ‘000 US$ ‘000
Assets
Cash and balances with central banks 361,376 - - 361,376
Treasury bills and bonds 301,127 - - 301,127
Trading securities 130 - - 130
Deposits with banks and other financial institutions 4,766,355 1,488 - 4,767,843
Loans and advances 5,223,277 9,254,436 - 14,477,713
Non-trading investments 849,819 3,563,353 - 4,413,172
Investments in associates and joint venture - - 605,679 605,679
Premises and equipment - - 373,094 373,094
Other assets 359,347 81,622 - 440,969
Goodwill and other intangible assets - - 716,358 716,358
Total 11,861,431 12,900,899 1,695,131 26,457,461
Liabilities
Deposits from banks and other financial institutions 6,370,790 239,494 - 6,610,284
Customers’ deposits 7,349,573 7,486,223 - 14,835,796
Term debts 178,562 768,000 - 946,562
Other liabilities 631,565 62,124 - 693,689
Subordinated liabilities 3,110 615,845 - 618,955
Total 14,533,600 9,171,686 - 23,705,286
Net liquidity gap (2,672,169) 3,729,213 1,695,131 2,752,175
The maturity profile of the assets and liabilities at 31 December 2009Lessthan
1yearAbove1year Undated Total
US$'000 US$‘000 US$‘000 US$‘000
Assets
Cash and balances with central banks 304,164 - - 304,164
Treasury bills and bonds 831,394 137,720 - 969,114
Trading securities 376 - - 376
Deposits with banks and other financial institutions 3,100,446 - - 3,100,446
Loans and advances 5,358,096 7,941,903 - 13,299,999
Non-trading investments 590,542 3,308,050 - 3,898,592
Investments in associates and joint venture - - 537,099 537,099
Premises and equipment - - 355,956 355,956
Other assets 389,906 94,045 - 483,951
Goodwill and other intangible assets - - 624,286 624,286
Total 10,574,924 11,481,718 1,517,341 23,573,983
Liabilities
Deposits from banks and other financial institutions 5,473,485 76,033 - 5,549,518
Customers’ deposits 6,107,355 7,133,911 - 13,241,266
Term debts - 950,054 - 950,054
Other liabilities 582,972 66,526 - 649,498
Subordinated liabilities - 602,216 - 602,216
Total 12,163,812 8,828,740 - 20,992,552
Net liquidity gap (1,588,888) 2,652,978 1,517,341 2,581,431
ahli united bank
66
2010 annual report notes to the consolidated financial statements continued
Analysis of financial liabilities by remaining contractual maturitiesThe table below summarises the maturity profile of the Group’s financial liabilities
(including interest) based on contractual undiscounted repayment obligations.
Less than
1 yearAbove 1 year Total
US$ ‘000 US$ ‘000 US$ ‘000
As at 31 December 2010
Deposits from banks and other financial institutions 6,299,535 327,852 6,627,387
Customers’ deposits 14,534,105 406,739 14,940,844
Term debts 801,571 154,716 956,287
Subordinated liabilities 3,149 666,885 670,034
Total 21,638,360 1,556,192 23,194,552
Credit related commitments and contingencies 1,884,364 1,061,222 2,945,586
Derivatives - net outflow 4,440 113,026 117,466
Lessthan
1yearAbove1year Total
US$‘000 US$‘000 US$‘000
Asat31December2009
Deposits from banks and other financial institutions 5,496,432 80,995 5,577,427
Customers’ deposits 12,952,964 366,134 13,319,098
Term debts 2,100 1,018,358 1,020,458
Subordinated liabilities 26,330 701,552 727,882
Total 18,477,826 2,167,039 20,644,865
Credit related commitments and contingencies 1,768,989 812,697 2,581,686
Derivatives - net outflow (2,408) (50,102) (52,510)
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.
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, approved by the Central Bank of Bahrain, for the Group, is disclosed
under Pillar III Table 1, which is included in the annual report. The risk asset ratio is
14.1% as of 31 December 2010 (2009: 15.1%).
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. The schemes apply to all non-bank private
sector deposits subject to specific exclusions mainly relating to maximum deposit
amounts, maximum total amount covered in one calendar year and maximum total
amount of the Deposit Protection Board’s financial resources. Eligible depositors
are covered by the CBB to the extent of the lower of 75% of the combined total
of eligible deposits held by the depositor and BD 15,000. In the case of AUBUK,
the entire amount of the customer deposit is covered under the Financial Services
Compensation Scheme, subject to a maximum limit of GBP 50,000 per customer.
No up-front contribution is currently required under the schemes and no liability is
due unless any member bank of the Deposit Protection Scheme is unable to meet
its depository obligations.
38. Islamic banking
The balance sheet and statement of income of the Group's Sharia’a compliant
Islamic activities which are incorporated into the consolidated balance sheet and
consolidated statement of income, are presented below:
Balance sheet as at 31 December
2010 2009
US$ ’000 US$’000
ASSETS
Cash in hand 38,118 2,828
Due from banks and other financial institutions a 3,569,767 291,696
Receivable balances from islamic financing activities b 7,441,805 774,808
Property, furniture and equipment 140,302 1,166
Other assets 90,671 4,407
TOTAL ASSETS 11,280,663 1,074,905
LIABILITIES
Due to banks c 5,449,568 791,590
Customers' deposits d 4,580,079 164,728
Other liabilities 161,496 18,099
Restricted investment accounts 24,898 13,992
10,216,041 988,409
Unrestricted investment accounts (URIA) 484,979 59,867
TOTAL LIABILITIES AND URIA
10,701,020 1,048,276
CAPITAL AND RESERVES 447,118 26,629
Non-controlling interests 132,525 -
TOTAL EQUITY 579,643 26,629
TOTAL LIABILITIES, UNRESTRICTED INVESTMENT ACCOUNTS AND EQUITY 11,280,663 1,074,905
Statement of income for the year ended 31 December
2010 2009
US$ ’000 US$’000
Net income from Islamic financing activities e 176,485 12,410
176,485 12,410
Fees and commissions - net 18,487 1,389
Foreign exchange gains 8,451 -
OPERATING INCOME 203,423 13,799
Provision for impairment 8,709 -
NET OPERATING INCOME 194,714 13,799
Staff costs 34,588 949
Depreciation 6,181 241
Other operating expenses 19,796 730
OPERATING EXPENSES 60,565 1,920
PROFIT FOR THE YEAR BEFORE THE SHARE OF PROFIT OF UNRESTRICTED INVESTMENT ACCOUNT HOLDERS 134,149 11,879
Less : share of profit of unrestricted investment account holders (2,470) (538)
NET PROFIT FOR THE YEAR 131,679 11,341
Attributable to:
Bank’s equity shareholders 104,373 11,341
Non-controlling interests 27,306 -
131,679 11,341
35. Liquidity risk continued
ahli united bank
67
2010 annual report notes to the consolidated financial statements continued
Notes
(a) Due from banks and other financial institutions
2010 2009
US$ ’000 US$’000
Murabaha finance with Central Bank of Kuwait 1,491,523 -
Murabaha finance with other banks and financial institutions 1,686,110 291,696
Wakala with banks and financial institutions 191,793 -
Deposits with banks 92,315 -
Current account and others 108,026 -
3,569,767 291,696
(b) Receivable balances from Islamic financing activities
2010 2009
US$ ’000 US$’000
Tawarruq receivables 5,696,485 130
Murabaha receivables 1,442,746 510,373
Ijara receivables 460,753 264,305
Others 3,450 -
Less: Allowance for impairment (161,629) -
7,441,805 774,808
(c) Due to banks
2010 2009
US$ ’000 US$’000
Murabaha 4,007,323 791,590
Wakala 1,345,529 -
Deposits from banks 36,562 -
Current accounts 51,450 -
Mudaraba 8,704 -
5,449,568 791,590
(d) Deposit from customers
2010 2009
US$ ’000 US$’000
Wakala 2,541,790 -
Mudaraba 503,231 -
Current account 553,683 -
Murabaha 981,375 164,728
4,580,079 164,728
(e) Net income from Islamic financing activities
2010 2009
US$ ’000 US$’000
Income from Murabaha 10,884 10,078
Income from Ijara 14,937 5,665
Income from Tawarruq 255,155 6
Income from Islamic financing activities 280,976 15,749
Profit expenses on Wakala 71,990 -
Profit expenses on Mudaraba 6,632 -
Profit expenses on Murabaha 25,869 3,339
Less: Distribution to depositors 104,491 3,339
Net income from Islamic financing activities 176,485 12,410
38. Islamic banking continued
71 Introduction to the Central Bank of Bahrain’s Basel II guidelines
71 Pillar III quantitative & qualitative disclosures
72 Capital structure
Table1 . Capitalstructure . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 72
73 Group risk governance structure
73 Credit risk management Table2 . GrosscreditriskexposuressubjecttoCreditRiskMitigants(CRM) . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Table3 . Eligiblefinancialcollateralandguarantees . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Table4 . CreditriskexposurepostCRMandcreditconversion . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Table5 . Capitalrequirementforcredit,marketandoperationalrisks . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 75
Table6 . Geographicdistributionofgrosscreditexposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Table7 . Sectoralclassificationofgrosscreditexposures . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Table8 . Residualcontractualmaturity . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 76
Table9 . Sectoralbreakdownofimpairedloansandimpairmentprovision . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Table10 . Geographicaldistributionofimpairmentprovisionsforloansandadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Table11 . Movementinimpairmentprovisionforloansandadvances . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 77
Table12 . Pastdueloans-ageanalysis . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Table13 . Restructuredcreditfacilities . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Table14 . Counterpartycreditriskinderivativetransactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
Table15 . Relatedpartytransactions . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 78
79 Market risk Table16 . Capitalrequirementforcomponentsofmarketrisk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 79
Table17 . Interestraterisk . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Table18 . Equitypositioninbankingbook . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
Table19 . Gainsonequityinstruments . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . . 80
81 Liquidity risk and funding management
81 Operational risk
81 Information technology risk
81 Strategic risk
81 Legal, compliance, regulatory and reputational risks
81 Environmental risk
pillar III disclosures - basel II
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69
2010 annual report pillar III disclosures - basel II continued
pillarIIIdisclosures-baselIIcontinued
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71
2010 annual report pillar III disclosures - basel II continued
Introduction to the Central Bank of Bahrain’s Basel II GuidelinesThe 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 structureThe 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 requirementsPillar I deals with the basis for the computation of the regulatory capital ratio. It
defines the various classes and the calculation of Risk Weighted Assets (RWAs)
in respect of credit risk, market risk and operational risk, as well as deriving 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 riskBasel 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 riskThe Bank has adopted the Standardised approach for determining the market risk
capital requirement.
Operational riskUnder 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 processPillar 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 CBB is currently in the process of individually assessing
the financial strength and risk management practices of each institution. Until
finalised, we will be required to continue to maintain a 12 per cent minimum capital
adequacy ratio.
Pillar III – Market disciplineThe 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 2010.
Pillar III quantitative and qualitative disclosuresFor 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 12 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;
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
total Credit Risk Weighted Assets are included under Tier 2 capital.
There are no restrictions on the transfer of funds or regulatory capital within the
Group and all investments are made fully complying with CBB approval instructions.
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2010 annual report pillar III disclosures - basel II continued
1. Capital structure
Table 1.
A. Net available capital Tier 1 Tier 2
US$’000 US$’000
Paid-up share capital 1,237,125
Less: Loans against Employee Stock Purchase Plan (34,958)
Reserves:
Share premium 542,269
Capital reserve -
Statutory reserve 147,120
Others (2,716)
Retained earnings 258,783
Minority interest in the equity of subsidiaries 359,994
Less: Goodwill (519,870)
Less: Unrealized gross losses arising from fair valuing equities (214)
Current year profit 265,499
Asset revaluation reserve-property, plant and equipment (45% only) 24,229
Unrealized gains arising from fair valuing equities (45% only) 12,205
Collective impairment provisions 152,760
Eligible subordinated term debt 517,921
TOTAL CAPITAL BEFORE REGULATORY DEDUCTIONS 1,987,533 972,614
Less: Regulatory deductions: Material holdings of equities 274,038 274,038
1,713,495 698,576
Add: Proportionate aggregation 263,736 78,098
NET AVAILABLE CAPITAL 1,977,231 776,674
TOTAL ELIGIBLE CAPITAL BASE (TIER 1 + TIER 2) 2,753,905
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 and note 20 to the audited
consolidated financial statements of the Group for the year ended 31 December 2010.
B. Capital adequacy ratio
As at 31 December 2010, the capital adequacy ratio of the Group and significant subsidiaries were:
Subsidiaries
ConsolidatedAhli United Bank
K.S.C. (AUBK)Ahli United Bank (UK)
PLC (AUB UK)Ahli United Bank
(Egypt) S.A.E. (AUBE)
Tier 1 - Capital Adequacy Ratio 10.1% 17.0% 13.3% 12.6%
Total - Capital Adequacy Ratio 14.1% 18.8% 15.3% 14.0%
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73
2010 annual report pillar III disclosures - basel II continued
The Board approves the risk appetite and the Group Risk Committee monitors the
Group’s risk profile against this appetite.
The Deputy Group Chief Executive Officer – Risk, Legal and Compliance under
the delegated authority of the Group Chief Executive Officer & Managing Director,
supported by the Group Head of Risk Management and the Group Head of Credit
Risk have 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 profile and control
framework at least annually.
The Group Audit Committee considers the adequacy and effectiveness of the
Group risk control framework and receives quarterly updates on any control issues,
impairment provisions, regulatory and compliance related issues.
Systems and procedures are in place to identify, control and report on all major risks.
2. Group risk governance structure
Risk governanceThe 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
aub group board
Deputy GroupCEO Risk, Legal & Compliance
Head of CreditRisk
Head of Market Risk
Group Head of Audit
Group Head of Risk Management
Group Head of Credit Risk
Group Head ofCompliance
Group ExecutiveCommittee
Group Asset & LiabilityCommittee
Group RiskCommittee
Group CEO& MD
CompensationCommittee
Group Audit& ComplianceCommittee
Sharia ComplianceOfficer
Head of OperationalRisk
Sharia Advisory& SupervisoryBoard
Head of Special Assets
3. Credit risk management
Credit risk is the risk of financial loss if a customer or counterparty fails to meet
an 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, 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 optimise 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 Bank’s Internal Risk Rating framework;
• Manage watchlisted and criticised asset portfolios and recommend appropriate level of provisioning and write-offs;
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74
2010 annual report pillar III disclosures - basel II continued
• 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 our 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.
Counterparty exposure classesThe 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 6 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
Regulatory retail exposures are risk weighted at 75%.
Residential Property Portfolio
Exposures fully secured by first mortgages on owner
occupied residential property are generally 75% risk weighted.
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 more than 90
days is:
• 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%.
External rating agenciesThe 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.
Basel II reporting of credit risk exposuresAs 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 mitigant.
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 fulfil 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 retail / personal sector, mortgages over residential properties, charges over investment portfolios, assignment of salaries;
• in the corporate / commercial sector, charges over business assets such as premises, stock and debtors, financial guarantees from acceptable third parties; and
• in the commercial real estate sector, charges over the properties being financed.
Valuation of collateralThe 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 initiated as per the terms of
the underlying credit agreements.
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Gross credit risk exposures subject to Credit Risk Mitigants (CRM)The following table details the Group gross credit risk exposures before the application
of eligible Basel II CRM techniques. The CBB’s Basel II guidelines details 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 subject to credit risk mitigants (CRM)
As at 31 December 2010
Average monthly balance
US$’000 US$’000
Balances with central banks 280,389 218,600
Treasury bills 301,127 233,097
Deposits with banks and other financial institutions 4,767,843 3,828,601
Loans and advances 14,477,713 13,932,302
Non-trading investments 4,047,110 3,772,823
Other assets 410,670 450,966
TOTAL FUNDED EXPOSURES 24,284,852 22,436,389
Contingent liabilities 1,890,997 1,573,551
Undrawn loan commitments 1,054,589 1,013,784
TOTAL UNFUNDED EXPOSURES 2,945,586 2,587,335
TOTAL CREDIT RISK EXPOSURE 27,230,438 25,023,724
The gross credit exposures reported above are as per the consolidated balance
sheet as reduced by exposures which do not carry credit risk.
Under the CBB Basel II Guidelines, banks may choose between two options when
calculating credit risk mitigation capital relief. The simple approach which substitutes
the risk weighting of the collateral for the risk weighting of the counterparty or the
comprehensive approach whereby the exposure amount is adjusted by the actual
value ascribed to the collateral. The Bank has selected to use the comprehensive
method where collateral is in the form of cash or bonds or equities. The Bank uses
a range of risk mitigation tools including collateral, guarantees, credit derivatives,
netting agreements and financial covenants to reduce credit risk.
Table 3.
Eligible financial collateral and guarantees
Gross exposure Eligible CRM
US$’000 US$’000
Claims on sovereigns 3,428,250 -
Claims on public sector entities 917,176 140,925
Claims on banks 5,680,126 172,968
Claims on corporates 11,864,294 1,451,492
Regulatory retail exposures 1,741,970 39,904
Residential retail exposures 1,022,135 -
Equity 82,036 -
Investments in funds 239,420 -
Other exposures 1,662,767 18,485
Total 26,638,174 1,823,774
The gross exposure in the above table represents the on and off balance sheet
credit exposures before CRM, determined in accordance with the CBB issued Pillar
III guidelines. The off balance sheet exposures are computed using the relevant
conversion factors.
Table 4.
Credit risk exposure post CRM and credit conversion
The following table details group credit exposures after applying risk mitigation.
US$’000
Claims on sovereigns 108,447
Claims on public sector entities 449,956
Claims on banks 1,980,055
Claims on corporates 9,827,125
Regulatory retail exposures 1,276,549
Residential retail exposures 357,747
Equity 104,726
Investments in funds 359,131
Other exposures 1,575,873
16,039,609
Add : Proportionate aggregation 1,674,612
Total 17,714,221
TOTAL CREDIT RISK CAPITAL REQUIREMENT 2,125,707
Table 5.
Capital requirement for credit, market and operational risks
Capital requirement
US$’000
Claims on sovereigns 13,014
Claims on public sector entities 53,995
Claims on banks 237,607
Claims on corporates 1,179,255
Regulatory retail exposures 153,186
Residential retail exposures 42,930
Equity 12,567
Investments in funds 43,095
Other exposures 189,105
1,924,754
Add : Proportionate aggregation 200,953
TOTAL CREDIT RISK CAPITAL REQUIREMENT (STANDARDISED APPROACH) 2,125,707
TOTAL MARKET RISK CAPITAL REQUIREMENT (STANDARDISED APPROACH) 63,902
TOTAL OPERATIONAL RISK CAPITAL REQUIREMENT (BASIC INDICATOR APPROACH) 151,026
Total 2,340,635
Concentration riskRefer note 31(a) to the audited consolidated financial statements for definition and
policies for management of concentration risk.
As per the CBB’s single obligor regulations, banks incorporated in Bahrain are
required to obtain the CBB’s approval for any planned exposure to a single
counterparty, or group of connected counterparties, exceeding 15 per cent of the
regulatory capital base. As at 31 December 2010 the Group had no single obligor
exposures which exceeded 15 per cent of the Group’s regulatory capital base (i.e.
exceeded US$ 413.1 million).
Geographic distribution of gross credit exposuresThe geographic distribution of credit exposures is monitored on an ongoing basis by
Group Risk Management and reported to the Board on a quarterly basis.
The following table details the Group’s geographic distribution of gross credit
exposures as at 31 December 2010.
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Table 6.
Geographic distribution of gross credit exposures
GCC * countries
United Kingdom
Europe (excluding United
Kingdom)Arab Republic
of Egypt
Asia (excluding GCC
countries)Rest of
the World Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balances with central banks 166,664 538 - 92,155 20,984 48 280,389
Treasury bills 23,710 - - 192,742 84,675 - 301,127
Deposits with banks and financial institutions 3,253,370 545,097 497,997 46,461 269,625 155,293 4,767,843
Loans and advances 11,456,580 775,937 617,553 1,334,510 76,014 217,119 14,477,713
Non-trading investments 2,047,863 268,458 380,902 279,810 289,494 780,583 4,047,110
Other assets 337,257 41,094 - 30,168 2,151 - 410,670
Total funded exposures 17,285,444 1,631,124 1,496,452 1,975,846 742,943 1,153,043 24,284,852
Contingent liabilities 1,564,830 2,120 80,476 175,317 17,526 50,728 1,890,997
Undrawn loan commitments 661,048 246,183 120,047 6,597 9,529 11,185 1,054,589
Total unfunded exposures 2,225,878 248,303 200,523 181,914 27,055 61,913 2,945,586
Total 19,511,322 1,879,427 1,696,975 2,157,760 769,998 1,214,956 27,230,438
71.7% 6.9% 6.2% 7.9% 2.8% 4.5% 100.0%
* GCC countries are countries which are part of the Gulf Co-operation Council comprising Kingdom of Bahrain, State of Kuwait, Sultanate of Oman, State of Qatar, Kingdom of
Saudi Arabia and the United Arab Emirates.
Table 7.
Sectoral classification of gross credit exposures
Funded Unfunded Total %
US$’000 US$’000 US$’000 US$’000
Banks and other financial institutions 8,446,926 559,830 9,006,756 33.1
Consumer / personal 3,343,687 133,241 3,476,928 12.8
Real estate and construction 4,865,477 1,010,015 5,875,492 21.6
Trading, manufacturing and services 4,077,682 964,302 5,041,984 18.5
Government / public sector 1,263,028 32,875 1,295,903 4.7
Others 2,288,052 245,323 2,533,375 9.3
Total 24,284,852 2,945,586 27,230,438 100.0
89.2% 10.8% 100.0%
Table 8.
Residual contractual maturity
Up to one month
One month to three months
Over three months to
one year
Over one year to
five years
Over five to
ten years
Over ten to twenty
years
Over twenty
years Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balances with central banks 230,694 49,695 - - - - - 280,389
Treasury bills 73,323 76,985 150,819 - - - - 301,127
Deposits with banks and other financial institutions 3,588,320 780,098 397,937 1,488 - - - 4,767,843
Loans and advances 1,889,738 1,506,073 1,827,466 4,251,651 3,654,127 1,260,131 88,527 14,477,713
Non-trading investments 31,619 53,831 457,981 2,166,145 873,544 232,890 231,100 4,047,110
Other assets 121,348 145,502 71,285 32,415 33,269 6,694 157 410,670
Total funded exposures 5,935,042 2,612,184 2,905,488 6,451,699 4,560,940 1,499,715 319,784 24,284,852
Contingent liabilities 475,897 260,623 496,830 605,011 47,247 5,389 - 1,890,997
Undrawn loan commitments 13,194 460,699 177,120 384,434 19,142 - - 1,054,589
Total unfunded exposures 489,091 721,322 673,950 989,445 66,389 5,389 - 2,945,586
Total 6,424,133 3,333,506 3,579,438 7,441,144 4,627,329 1,505,104 319,784 27,230,438
3. Credit risk management continued
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Impairment provisionsThe 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 mitigants) 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.
Table 9.
Sectoral breakdown of impaired loans and impairment provision
Impaired and past due loans
Specific impairment
provision
Net specific charge for the year ended 31
December 2010
Write off during the year ended
31 December 2010
Collective impairment
provision
US$’000 US$’000 US$’000 US$’000 US$’000
Consumer / personal 112,869 92,551 26,315 99,180 26,816
Trading, manufacturing and services 59,577 50,648 4,898 8,838 34,324
Real estate 64,127 59,755 35,250 5,757 28,678
Banks and other financial institutions 22,156 6,834 11,577 - 9,220
Construction 61,188 59,459 9,762 1,709 9,041
Government / public sector - - - - 2,571
Others 42,188 38,721 11,633 - 13,950
Total 362,105 307,968 99,435 115,484 124,600
Table 10.
Geographical distribution of impairment provisions for loans and advances
GCC countries
United Kingdom
Europe (excluding
United Kingdom)
Arab Republic of Egypt
Asia (excluding GCC
countries)
Rest of the world Total
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Specific impairment provision 251,266 9,412 - 37,580 9,710 - 307,968
Collective impairment provision 85,450 14,429 9,233 14,041 164 1,283 124,600
Total 336,716 23,841 9,233 51,621 9,874 1,283 432,568
Table 11.
Movement in impairment provision for loans and advances
Retail Corporate Total
Specific Collective Total Specific Collective Total Specific Collective
US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000 US$’000
Balance at 1 January 2010 113,877 24,654 138,531 173,835 51,829 225,664 287,712 76,483
Arising on IFRS transition of subsidiary - - - 6,631 11,708 18,339 6,631 11,708
Amounts written off during the year (63,311) - (63,311) (52,173) - (52,173) (115,484) -
Net charge for the year 18,475 4,385 22,860 80,960 31,726 112,686 99,435 36,111
Interest suspended during the year (net) 3,628 - 3,628 5,828 - 5,828 9,456 -
Exchange rate adjustments / other movements 409 - 409 19,809 298 20,107 20,218 298
Balance at 31 December 2010 73,078 29,039 102,117 234,890 95,561 330,451 307,968 124,600
Individually assessed impairment allowances are only reversed when there is
reasonable and reliable evidence of a reduction in the established loss estimate.
Collectively assessed impairment provisionsImpairment is assessed on a collective basis in two circumstances:
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
impairment losses incurred at the balance sheet date which will only be individually
identified in the future.
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
• judgement 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.
Homogeneous groups of loans
Collective impairment provision has been established in respect of homogeneous
groups of loans such as unsecured retail lending products. Collectively assessed
allowances are generally calculated quarterly and charges for new allowances, or
reversals of existing allowances, are determined for each separately identified portfolio.
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Past Due and Impaired Credit FacilitiesAs 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,
• for equity securities classified as available-for-sale, a significant or prolonged decline in fair value below cost is considered in determining whether a security is impaired.
Refer to notes 10(a) to 10(d) and note 31(c) to the audited consolidated financial
statements for the year ended 31 December 2010 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 good to excellent and retail borrowers where
cash collateral [or equivalent such as pledged investment funds] has been provided.
Ratings 5 and 6 represents satisfactory risk and includes corporate facilities that
require closer monitoring, and retail accounts which are maintained within generally
applicable product parameters.
Table 12.
Past due and impaired loans - age analysis
i) By geographical area
Three months to
one year
One to three
years
Over three years Total
US$’000 US$’000 US$’000 US$’000
GCC Countries 106,140 146,010 36,723 288,873
United Kingdom - 19,159 - 19,159
Asia (excluding GCC countries) - - 9,711 9,711
Arab Republic of Egypt 3,949 38,730 1,683 44,362
Total 110,089 203,899 48,117 362,105
30.4% 56.3% 13.3% 100.0%
ii) By sector
Three months to
one year
One to three
years
Over three years Total
US$’000 US$’000 US$’000 US$’000
Consumer / personal 68,329 41,231 3,309 112,869
Trading, manufacturing and services 3,891 54,002 1,684 59,577
Real estate 36,189 27,758 180 64,127
Banks and other financial institutions - 22,156 - 22,156
Construction - 53,428 7,760 61,188
Others 1,680 5,324 35,184 42,188
Total 110,089 203,899 48,117 362,105
30.4% 56.3% 13.3% 100.0%
Table 13.
Restructured credit facilities
US$’000
Balance of any restructured credit facilities as at year end 97,245
Loans restructured during the year 77,520
The above restructurings did not have any significant impact on the present or future
earnings and were primarily extensions of the loan tenor.
Table 14.
Counterparty credit risk in derivative transactions
i) Breakdown of the credit exposure
Notional amount
Gross positive
fair value
Credit conversion
factor
US$’000 US$’000 US$’000
Foreign exchange related 5,372,623 72,999 102,994
Interest rate related 4,840,975 75,532 101,862
Options 123,721 - 8,859
Derivatives credit exposure 10,337,319 148,531 213,715
Gross positive fair value represents the replacement cost of the derivatives
US$’000
ii) Amounts of collateral 35,918
US$’000
iii) Notional value of credit derivative exposures
Protection sold 5,000
Table 15.
Related party transactions
Refer note 25 to the audited consolidated financial statements of the Group for the
year ended 31 December 2010.
3. Credit risk management continued
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The VaR for the Group was as follows:
Average Minimum Maximum
US$’000 US$’000 US$’000
As at 31 December 2010 482 180 1,447
Table 16.
Capital requirement for components of market risk
Capital requirement
Maximum value
Minimum value
US$’000 US$’000 US$’000
Interest rate risk 1,148 12,709 1,148
Equity position risk 31 82 31
Foreign exchange risk 46,937 49,706 45,895
Options 157 379 -
TOTAL MARKET RISK CAPITAL REQUIREMENT BEFORE PROPORTIONATE AGGREGATION OF ASSOCIATES 48,273
Add : Proportionate aggregation 15,628 16,280 6,507
TOTAL MARKET RISK CAPITAL REQUIREMENT (STANDARDISED APPROACH) 63,901
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 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 recognises 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 the 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 behavioural adjustments. Behavioural
adjustments are derived by an analysis of customer behaviour 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.
The following table summarises the repricing profiles of the Group’s assets and
liabilities as at 31 December 2010.
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. The Group is also exposed to interest
rate and potential foreign exchange risks arising from financial assets and liabilities
not held for trading.
Market risk management, measurement and control responsibilitiesThe 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 market-making,
proprietary position-taking and other marked-to-market positions. Non-trading
portfolios include positions that arise from the interest rate management of the
Group’s retail and commercial banking assets and liabilities, and financial assets
designated as available-for-sale and held-to-maturity.
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:
VaR Type Sample SizeHolding Period
Confidence Interval
Frequency of Calculation
“Management” VaR 260 days 1 day 95% Daily
“Regulatory” VaR 260 days 10 day 99% Daily
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.
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2010 annual report pillar III disclosures - basel II continued
Interest rate risk sensitivity analysis The Group’s interest rate risk sensitivity is analysed in note 33(b) to the consolidated
financial statements of the Group for the year ended 31 December 2010.
Equity RiskEquity 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) Equity investments held for capital gains
After initial recognition, equity investments that are held as available-for-sale
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 bid prices respectively 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 by reference to the current
market value of another instruments that is substantially similar, or is determined
using net present valuation techniques.
An assessment is made at each balance sheet date to determine whether there is
any objective evidence that an equity instrument security may be impaired. For an
investment in an equity security, a significant or prolonged decline in its fair value
below its cost is objective evidence of impairment.
Any impairment recognised is reflected directly as a write down of the financial
asset. Impairment losses on equity investments are not reversed through the
consolidated statement of income while any subsequent increase in their fair value
are recognised directly in equity.
Table 18.
Equity position in Banking Book
Gross exposures
Risk-weighted weighted
exposuresCapital
requirement
US$’000 US$’000 US$’000
Listed 36,657 36,657 4,399
Unlisted 45,380 68,070 8,168
Total 82,037 104,727 12,567
Table 19.
Gains on equity instruments
US$’000
Realised gains recognised in the statement of income 2,740
Unrealised (loss) gains recognised in the balance sheet:
- Tier one (eligible portion) (214)
- Tier two (eligible portion) 12,205
Table 17.
Interest rate risk
Less than three
months
Three months to
one year
Over one year Total
US$’000 US$’000 US$’000 US$’000
ASSETS
Treasury bills 174,018 127,109 - 301,127
Deposits with banks and other financial institutions 4,288,357 396,441 1,487 4,686,285
Loans and advances 10,110,168 1,967,693 2,317,107 14,394,968
Non-trading investments 1,119,435 580,640 2,352,038 4,052,113
15,691,978 3,071,883 4,670,632 23,434,493
LIABILITIES
Deposits from banks and other financial institutions 5,702,874 633,372 239,071 6,575,317
Customers' deposits 7,900,428 5,163,389 1,209,170 14,272,987
Term debt 796,562 150,000 - 946,562
Subordinated liabilities 338,045 280,910 - 618,955
14,737,909 6,227,671 1,448,241 22,413,821
On - balance sheet gap 954,069 (3,155,788) 3,222,391
Off - balance sheet gap 2,560,995 (580,463) (1,980,532)
Total interest sensitivity gap 3,515,064 (3,736,251) 1,241,859
Cumulative interest sensitivity gap 3,515,064 (221,187) 1,020,672
4. Market risk continued
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2010 annual report pillar III disclosures - basel II continued
5. Liquidity risk and funding management
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 GALCO under the chairmanship of the Senior Deputy Group
Chief Executive Officer Banking Group 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.
Maturity Analysis of Assets and LiabilitiesA 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 2010.
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. 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 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 systems are employed across the Group wherever possible.
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 reputation of the Group is of paramount importance and all
management and staff are expected to apply the highest standards of business
conduct and professional ethics at all times.
Regulatory and Reputational Risk is jointly managed by the Compliance, Risk
Management, and Legal departments.
10. Environmental risk
The Bank recognises 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.
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 B.S.C.Building2495,Road2832,Al-SeefDistrict,P .O .Box2424,Manama,KingdomofBahrainTelephone:+973 17 585 858,Facsimile:+973 17 580 569,E-mail: [email protected]
