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Annual Report
twenty twelve
Annual Report
Al Hilal Bank
Address Corniche Road Sh. Sultan Bin Khalifa Building PO Box 63111 Abu Dhabi UAE Telephone (02) 499 44 44 800 66 66 66
investorrelations@alhilalbank.ae www.alhilalbank.ae
twentytwelve
Annual Report
twenty twelve
Annual Report
Al Hilal Bank
Address Corniche Road Sh. Sultan Bin Khalifa Building PO Box 63111 Abu Dhabi UAE Telephone (02) 499 44 44 800 66 66 66
investorrelations@alhilalbank.ae www.alhilalbank.ae
CONTENTS
9 Chairmans Message Group Chief Executive Officers 11 Message 17 Business and Economic Review 21 Performance Highlights 25 Al Hilal Bank Group 31 About You 41 About Us 59 Financial Review and Supervisory 65 Fatwa Board Report 67 Audit Report 69 Financial Statements 119 Supplementary Information 135 Branch Network
Al Hilal Bank PJSC (the Bank) was incorporated in Abu Dhabi, United Arab Emirates on 18 June 2007 as a public joint stock company (PJSC) with limited liability. The Bank is wholly owned by the Abu Dhabi Investment Council, an investment arm of the Government of Abu Dhabi. The Banks shares are not listed on a recognised exchange. The Bank commenced operations on 19 June 2008. It is primarily involved in Islamic personal, wholesale, treasury and investment banking activities in the UAE, and in Kazakhstan through a wholly owned subsidiary.
9 CHAIRMANS MESSAGE
Al Hilal Bank Annual Report 2012
We are happy to announce that the Bank has surpassed the UAE average growth in financing book and has increased its capital adequacy, achieved significant portfolio diversification and ended the year with a larger customer base.
In the name of Allah, the Most Gracious, the Most Merciful
Board changes
Accordingly, the Central Bank of the UAE has brought in changes that include limits on retail financings, large exposure ceilings and liquidity regulations. The impact of these reforms will be felt in short-term tightening of will create a healthier and more robust banking industry. We are working to ensure that we comply with these reforms and that our stakeholders concerns are met. This year we said farewell to HE Mohammed Saif Al Suwaidi, who has rendered the Bank invaluable service as a director, bringing great wisdom and insight to the Board from a distinguished career in financial services. We wish him every success.
On behalf of the Board of Directors, I am pleased to present the Annual Report of Al Hilal Bank Group for 2012.
This year, the Bank has yet again delivered on its promises to our shareholder, customers, staff and the community. Continued progress in the implementation of the Groups strategy has seen us grow market share, achieve record profits growing 53% over 2011, and maintain our ranking among UAE Islamic banks for financings size (third place). We are happy to announce that the Bank has surpassed the UAE average growth in financing book and has increased its capital adequacy, achieved significant portfolio diversification and ended the year with a larger customer base.
Strategic vision
A priority this year for the Board and Management Team was the development of a new medium-term corporate strategy. Following research and in-depth analysis of the Banks past performance, an evaluation of our most critical strengths and areas of improvement, a plan has been prepared to maximize what we do best and capitalize on opportunities in the markets, local and international regulatory regimes and the UAE economy, for the benefit of our customers, shareholder and the UAE society at large. During 2013 and beyond, this strategy will focus our efforts internally and externally, ensuring that the Bank is financially healthy, our customers are rewarded with innovative and Sharia compliant products and services, and our shareholders expectations are met.
Key results
The Groups financial performance and position in 2012 have exceeded expectations for profits, return on average equity and capital adequacy ratio. Total revenues of AED 1.8 billion (growth of 7% over 2011) Net profit of AED 310 million (growth of 53% over 2011) Return on average equity of 10.1% (increase of 1.2% over 2011) Total assets of AED 32.1 billion (growth of 14% over 2011) Total financings of AED 22.9 billion (growth of 19% over 2011) Total deposits of AED 25.0 billion (growth of 27% over 2011) These results are the consequence of our client- focused strategy, which enables us to benefit from opportunities in the market, the work we have done to strengthen our infrastructure, and the passion and capabilities of our people. Our excellence in operations is attested by the honor that we received as the Middle Easts Best Regional Retail Bank at 2012s Islamic Business and Finance Awards.
Recognition
On behalf of our shareholder, the Board and Management Team, I would first like to express our most gratitude to the President His Highness Sheikh Khalifa bin Zayed Al Nahyan and His Highness the Crown Prince of Abu Dhabi, Sheikh Mohammed bin Zayed Al Nahyan, for their vision, rule and guidance. Second, on behalf of the Board of Directors, I am honored to convey our thanks to our shareholder for their confidence and support, our deep appreciation of the Banks staff for their untiring effort, and our gratitude to our customers for their sustained loyalty and trust. Finally, we are extremely grateful to the Abu Dhabi Government and the Central Bank of the UAE for their guidance and assistance.
"Banking as we know it will not satisfy the next generation of customers or keep pace with the Groups ambitions. Faithful to Islamic principles and traditions, we believe in transforming the banking experience and the way Islamic banks do business"
Performance
The Group achieved sustained growth in profitability, assets and financings. Consolidated Group net profit was AED 310.3 mn, recording growth above 50 percent over the prior year. As a result, the Group recorded earnings per share (EPS) of AED 0.10, 25% above EPS of 2011. The Groups total assets reached AED 32.1 billion, which represents 13% or AED 3.8bn growth over the prior year largely on account of growth in financings. Total financings reached AED 22.9 billion, which represents 18% or AED 3.6bn growth over the prior year derived from financings in select segments and sectors. Total deposits reached AED 25 billion, which represents 27% or
Risk management
The continued enhancement and investment in robust risk management remains a core strategic pillar to support the growth and strategic targets of the bank within an increasing competitive environment. Group Risk Management Department launched several major transformation initiatives during the course of 2012 including the adoption of advanced approaches under the Basel II framework which are aligned best risk management industry practices. These efforts will ensure the maintenance of a healthy portfolio, continued low loan loss rates and continued overall future success of the bank.
AED 5.4bn growth over the prior year. The UAE witnessed a sharp increase in money supply on the back of high oil prices which resulted in increased deposits and decreasing Eibor rates. The client is always at the centre of everything we do and with this motto in mind the Group grew its loyal client base by 31% over the prior year. Our local network expanded to reach a total of 22 branches and 116 ATMs to better serve our customers. Overseas, the Groups Kazakhstan operations achieved profitability for the first time which attests to the successful traction the Group has achieved in a market newly introduced to Islamic banking.
In the name of Allah, the most gracious, the most merciful
Al salam alaykom
It is my pleasure to share Al Hilal Groups 2012 annual report with you.
Al Hilal Takaful had another successful year with an increase in customer numbers indicating a growing affinity to the Al Hilal brand.
People
We remain conscious that our commitment to service excellence can only be translated through our people. In 2012, the Groups human capital pool grew by 5% reaching 828 personnel to meet the demands of our growing client base. The group continues to demonstrate its commitment to develop the next generation of UAE National banking professionals where 60% of all new appointments in 2012 were represented by UAE Nationals with total representation of 31% of total human capital. Further initiatives included development of a UAE National leadership program as well as secondment and tailored career development plans for UAE Nationals.
About you
In keeping with Groups vision, we continue to toil to set new standards that re-define the Islamic Banking market and exceed customer expectations of a new and fresh banking experience. In meeting and exceeding these expectations, the Wholesale, Personal and Investments Banking Groups made significant strides in the current year. This year, the Wholesale Banking Group participated in several landmark deals, structuring solutions to meet client needs whilst maintaining compliance with Sharia principles. The success of the Global Sukuk Fund, launched by the Investment Banking Group will be followed by the launch of other funds and capital protected instruments in the near future. The Personal Banking Group launched a number of innovative products during the year which included, amongst others, the launch of the Qibla card, a flexible alternative to cash payments with an embedded Qibla finder. Our achievements in personal banking are attested in our recognition as Middle Easts Best Regional Retail Bank for 2012 at the Islamic Banking and Finance Awards.
Recognition
I reiterate our Chairmans recognition of the loyalty, effort and performance of our employees this year, confirming in every sense our belief that they are our greatest asset. I also wish to thank our Board of Directors for its insightful guidance, support and encouragement. With my best wishes, Mohammed Jamil Berro
18
"The UAEs economy has maintained the strength that was restored in 2011, with strong energy sector performance, expansionary Government policies and a return in market confidence"
Although the EIBOR rate has fallen this year, assets, financings and deposits show only marginal increases.
76.5
86.4
2006
2007
2008
-4.80 2009
2007
2008
2009
2010
2011
2012
Source: Bloomberg
833
882
1,097
1,421
2007
2008
2009
2010
2011
2012
Source: Bloomberg
1.30%
0.47%
30-06-12
0.41%
30-09-12
_ _
Libor
Source: Bloomberg
0.31%
31-12-12
225
EIBOR
2011
Abu Dhabi
Dubai
Source: Bloomberg
20
UAE Markets
ESCA Index
Emirates Securities and Commodities Exchange Authority (ESCA) data show a modest improvement in 2012, reversing declines of 2011, reflecting increased confidence in the UAE and global economic indicators.
2,341 2,561
2011
2012
2011
2012
1,071.0
1,107.0 163
2011
2012
2011
2012
2011
2012
21 PERFORMANCE HIGHLIGHTS
Al Hilal Bank Annual Report 2012
22
The Bank stands at 10th place among UAE banks in financings. Profitability is more than 50% higher than that of 2011, reflecting the Banks ability to stand out amongst its peers in a challenging market. Financial
Total Assets (AED bn)
283 321 202.3
Profitability
Consolidated Net Profit (AED mn)
310.3
2011
2012
Benchmark ranking: 11th (all UAE banks) 4th (all UAE Islamic banks)
2011
2012
AED310.3mn
2011
2012
Benchmark ranking: 10th (all UAE banks) 3rd (all UAE Islamic banks)
2011
2012
10.10%
Total Return on Equity (ROE) in 2012
2011
2012
Benchmark ranking: 11th (all UAE banks) 4th (all UAE Islamic banks)
2011
2012
AED0.10
23 PERFORMANCE HIGHLIGHTS
Al Hilal Bank Annual Report 2012
24
Provisions
Collective Cover (%)
2.35 1.96
Services
Branches
22
2011
2012
2.35%
Collective Cover in 2012
19
_ _
2011
2012
UAE
International
25
2011
2012
51%
Specific Cover in 2012
ATM Network
116 112
116 828
2011
2012
236%
Total Cover in 2012
Group Headcount
828 786
2011
2012
26
Al Hilal Takaful
Al Hilal Auto
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The Bank
2012 was the fifth year of the Banks operations. Our aim is to act as an agent of change in Islamic banking, raise and meet the expectations of corporate and retail customers, establishing sector-wide benchmarks for innovation, the use of technology and the banking experience. The Bank has six main business lines: Wholesale Banking, serving private sector corporate and government entities Investment Banking, serving corporate and retail customers with investment products, and managing the Banks investments Personal Banking, serving retail customers Al Hilal Takaful, providing Sharia compliant insurance Al Hilal Bank Kazakhstan, serving the corporate market with Kazakhstans first Islamic bank Al Hilal Auto, providing motor vehicle financing solutions to customers Each year, the Bank identifies new concerns, potential growth segments and strategic opportunities. Still aspiring, we have come through a period of economic uncertainty that affected markets and the industry worldwide, and have entered a phase of health, growth and development.
THE AL HILAL
The Group provides Islamic Banking in the UAE, a full range of takaful products, unique auto financing services, and a pioneering presence as the first Islamic bank in Kazakhstan.
Al Hilal Takaful
In 2008, the Bank incorporated Al Hilal Takaful, an Islamic insurance company. Its products include general, property, casualty, engineering, marine, motor and medical insurance, structured to the requirements of corporate customers. Al Hilal Takaful has four branches in Abu Dhabi and one in Dubai. Internally, the Companys 2012 achievements reflected the Banks emphasis on governance, efficiency and innovation in products and services. The Company concluded programs begun in 2011 for restructuring, process automation, increased process control and underwriting guidelines.
Al Hilal Auto
The Bank established Al Hilal Auto in 2009 as an innovative provider of motor vehicle financing solutions. Al Hilal Auto offers instant finance approval, vehicle registration, takaful, vehicle customization and sourcing. Customers can purchase vehicles with cash or financing from our Bank or other Islamic banks.
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31 ABOUT YOU
SERVING 32 ORGANIZATIONS IN
Creating opportunities for you in Islamic financing is our mission. Our strategy and operations are built to ensure that we develop innovative products and services for you, sustained by our financial health.
You are the individuals, families, corporate entities and communities that we serve. You will determine the future of banking, and thus the way we shape Islamic banking in the years to come.
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Our commitment
Over the last few years we have brought knowledge, in-depth understanding and dedication to the banking needs of public and private sector entities. As your partner, we provide Islamic financing solutions, portfolio management and trade financing support, enabling you and your stakeholders to bring your plans to life. Our role involves building relationships, developing expertise in the nature of your business and creating products and services that satisfy Sharia principles and your industry.
Takaful Services
Marine Non-marine Medical and auto
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2012 brought us closer to our aim of meeting the needs of each generation and type of retail customer, targeting diverse segments with unique products. Serving individuals and their families 2012 innovation, convenience and choice
The Bank added new Personal Banking products and services and extended Internet banking to smart phones and tablets, the first Islamic bank to do so. Next year will see more services on all platforms as we continue to make banking more convenient and bring the Banks services ever closer to customers.
Segmentation
Our segmentation strategy was initiated in 2010 as a three-year project. This year, the Personal Banking Group launched two new segments: Seghaar and Business: The Seghaar segment caters to children up to age 13, and has five pillars: Learn: we have partnered with Emirates National Schools to introduce a program of Islamic banking education for children (Curriculum 2030) Earn: children can earn rewards according to their academic scores, read books at the Al Hilal library, and deposit money in their accounts Save: children can open and manage their own savings accounts Donate: in partnership with Emirates Environmental Group, we teach children about the environment, and we will plant a tree for every Seghaar account opened in a childs name Protect: a program for financing childrens education with easy repayment terms We regard the Seghaar segment as good business, because children are the next generation of banking customers. More importantly, we see this program as a way of helping families ensure that their children are well equipped for their futures as workers, parents and citizens. In addition to the five pillars, the Seghaar segment offers children the opportunity to experience banking at Kidzania, with which the Bank has partnered at Dubai Mall. The Business segment is a program for small businesses (with annual turnover of AED 50 million or less). It includes operating accounts, financing facilities and credit cards, making us a one-stop solution provider for startups and small established companies.
Personal Finance
Personal finance Home finance Construction finance Vehicle finance
Takaful
Assets Medical Dental
Financial Mall
Personal banking Wealth management Etihad kiosk Etisalat kiosk Emirates Identity Authority (EID) Safe deposit lockers Ladies and childrens banking
Card Services
Shopping cards Covered cards Investment Funds Equity funds Investment mandate management
E-Channels
SMS banking Call centre ATMs
Al Hilal Auto
Vehicle purchase Vehicle registration
37 ABOUT YOU
CONTINUING
Corporate Social Responsibility is the way that the Bank supports the communities in which it operates, as a business and as a corporate citizen. It ensures that our products, the environment, our role in the community and our business performance are sustainable.
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39 ABOUT YOU
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Formalizing Corporate Social Responsibility to enhance the achievement of the Banks social mission
In 2012, the Bank published its Corporate Social Responsibility policy, which formalized the Banks approach and methodology for implementing its social mission in alignment with the goals of the Abu Dhabi Economic Vision 2030. The Policy goes beyond support for charitable causes, and commits the Bank to implementing and reporting corporate citizenship and outcomes essential to sustainability in the following areas: Economic performance Environmental performance Employment practices Product and service responsibility Society Monitoring and reporting on the employment of citizens in the countries in which it operates Disclosing information such as staff turnover rates and employee satisfaction data Providing benefits commensurate with local market conditions, including health insurance, maternity leave and end of service benefits Ensuring occupational health and safety Fair access and information about employee training and development programmes Performance appraisal and feedback
Society
Corporate Social Responsibility governs the Banks interaction with the communities that it serves. This is a key element in the Banks vision and mission, and of the way in which the Bank is supporting Abu Dhabis Vision 2030. The Banks community relationships are as follows: Relationships with stakeholders: engagement, two-way communication, transparency in reporting and active solicitation of views and feedback Access points for financial services to stakeholders Prevention of, and action in the event of corrupt practices Demonstration of the Banks commitment to integrity and good governance Red Crescent Khalifa bin Zayed Charity In addition, the Bank actively supports social programs in the community. During 2012, this included donations, sponsorships and partnerships with the following organizations: Zayed Care Make a Wish Foundation Fujairah Care Charities in Sharjah
Economic performance
The Bank contributes to the economies of the countries in which it operates. Its approach to this contribution involves: Support for local suppliers Community investments Transparency and disclosure of its business results, in terms of economic value generated and distributed (e.g., in operating costs and employee wages and benefits) Remunerating employees according to sector best practices Providing opportunities for members of local communities (e.g., Emiratization initiatives and programs)
Environmental performance
The Bank is committed to minimizing waste and reducing the use of environmental inputs, without compromising levels of service and quality, business performance and other aspects of corporate citizenship. Areas of environmental performance include, but are not limited to the careful use of paper, water and energy.
Employment practices
Under the Corporate Social Responsibility Policy, the Bank is committed to providing a safe, healthy and nurturing environment for all its employees. To this end, the Bank has implemented the following processes:
41 ABOUT US
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LEADERSHIP,
The Banks Board of Directors operates on the understanding that sound governance is fundamental to earning the trust of stakeholders, itself critical to sustained performance and stakeholder value.
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The Bank is led by the Chairman and Board of Directors, supported by the Group Chief Executive Officer and his Executive Management. Their roles and responsibilities are defined in the Banks Corporate Governance Framework.
Corporate Governance Framework Governance
Purpose of the Corporate Governance Framework The Banks Corporate Governance Framework enables the Board to balance its risk oversight and strategic counsel roles, and to ensure adherence to regulatory requirements and risk tolerance. The Board is committed to upholding the tenets of good governance, based on the values of: responsibility; accountability; fairness; and transparency. Implementation of the Corporate Governance Framework Management Committees Operations and Functions Wholesale Banking Personal Banking Treasury Investment Banking Finance & Strategic Planning Legal Risk Management Support Services Human Capital & Facilities Management Up to 2010, the first phase of framework implementation was completed. This included the development and approval of governance charters, policies and other governance-related documents. The second phase commenced in 2011, taking governance from a compliance function to a strategic enabler of the Banks longterm success and sustainability, meeting the goals of all the Banks stakeholders. This phase continues, with the establishment of a governance culture that will impact the activity of all employees in their relationships with customers, regulators and other stakeholders.
Management
The Board embraces relevant local and international best practices, and has adopted a phased approach to implementing the Corporate Governance Framework. This approach reflects the Banks growth in maturity and its strategy going forward.
Board
GCEO
Management Investment Committee Management Risk Committee Management Credit Risk Committee
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Board of Directors
The role and structure of the Board The Board is the Bank's highest decision-making body and is ultimately responsible for the management of the Bank. The chairman is non-executive, and two of the three directors are independent, including the deputy chairman. The Board's experience and expertise provide a balance of attributes, which enables the Board to fulfil its duties and responsibilities. Each director brings his own perspective to Board deliberations, and directors are encouraged to offer constructive challenges of each others views. Board responsibilities The manner in which the Board discharges its duties is clearly articulated in the Corporate Governance Framework. They include: Setting the Bank's strategic direction Appointing the Bank's CEO and Executive Management Team to manage the Bank on a day-to-day basis in accordance with the strategic and business plan approved by the Board Overseeing the Bank's management and ensuring that the Bank is managed in the best interest of all stakeholders and in accordance with applicable laws and regulations Understanding the Bank's risk profile, and approving high-level risk policies and risk management procedures Ensuring that a comprehensive risk management and reporting process is in place Approving the Bank's annual budget (and specifically the capital expenditure, investments and disposals) Steering the establishment of the Corporate Governance Framework in addition to approving, reviewing and coordinating its implementation Approving the Bank's financial results announcements, reports and accounts Strategic direction and oversight The Board is responsible for the bank's strategic direction. Management presents the strategy annually, which is discussed and then agreed with the Board. The bank's strategy is based on three equally important, interlocking pillars: Performance - the Bank is a financial enterprise with a business objective of earning profit Health - an institution that manages money and third party funds requires sound policies, procedures and infrastructure, in addition to strong financials Development - the Bank's vision and mission call for the development of Abu Dhabi, the UAE and the global Islamic banking industry The Board ensures that the strategy is aligned with the Bank's values and performance targets, and monitors its implementation with reference to the Bank's risk profile. Financial performance is monitored through quarterly management reports. Board meetings Six Board meetings were held in 2012, with one meeting dedicated to reviewing the Bank's strategy. The table below shows each director's attendance: Name HE Ahmed Ateeq Al Mazrouei HE Jassim Ahmed Al Meraikhi HE Ali Majid AI-Mansoori HE Jamal Sultan Al Hameli HE Mohammed Saif Al Suwaidi Number of Meetings Attended 4 5 4 6 1 Succession planning According to the Banks Articles of Association, succession planning for the Board is the responsibility of the sole shareholder. The Board is satisfied that the Banks current management leadership pipeline and the work under way to strengthen it provide adequate assurance of succession depth over the short and medium terms. Access to information and resources There is ongoing engagement between executive management and the Board, and where necessary the Bank's executive management attends Board and Board Committee meetings by invitation. External auditors are invited to attend audit committee meetings. Directors have unrestricted access to management and Bank information, as well as to any other resources necessary to carrying out their roles and responsibilities. This includes access to external advice at the Banks expense. Board remuneration and evaluation In terms of the Banks Articles of Association, the Banks sole shareholder is responsible for determining the remuneration of the Board. The directors cumulative remuneration for 2012 was AED 1,300,000. During 2012, the board evaluation processes of a number of local and international banks were researched, and the appointment of an independent service provider has been planned, to advise the Board on an appropriate Board evaluation program for the Bank. Board professional development Ongoing director development remains a focus. Directors are kept continuously informed of applicable new legislation, regulations, standards and codes, as well as relevant sector developments that could affect the Bank. During 2012, the board agreed to adopt and implement a formal professional development program for 2013 that would focus on: Board effectiveness The role of the Board in risk management Comparative corporate governance between Islamic and conventional banks
HE Mohammed Saif Al Suwaidi resigned from the Board on 15 March 2012. Board appointment policy According to the Banks Articles of Association, the appointment of the Board falls within the authority of the Banks sole shareholder. The Board was appointed on 10 September 2010 for a renewable period of three years. When appointing directors, the shareholder takes cognisance of their knowledge, skills and experience, as well as other attributes considered necessary for the role.
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The Board comprises the chairman and three non-executive directors, of whom two are independent (HE Jassim Ahmed Al Meraikhi and HE Ali Majid Al Mansoori).
Board Members HE Jassim Ahmed Al Meraikhi HE Jamal Sultan Al Hameli
Deputy Chairman
His Excellency joined the Board as Deputy Chairman in 2010. He has served as a board member of financial concerns including Abu Dhabi Commercial Bank, Abu Dhabi Retirement Pension and Benefits Fund, Oman and Emirates Investment Company, Abu Dhabi Holding, Delma Brokerage and United Brokerage Company. His Excellency is currently a director at Abu Dhabi Investment Authority. He brings extensive financial services and consumer markets expertise to the Bank.
Board Member
His Excellency joined the Board in 2010. He has been appointed recently as the Director of Corporate and Business Communication at Abu Dhabi Investment Council (an Investment arm of the Government of Abu Dhabi). Mr. Al Hameli is a long standing member of one of the Councils two main Governance Committees, ensuring that the Council adheres to the highest international standards of probity, integrity and accountability. His Excellency brings exemplary financial services experience to the Bank.
Board Member
His Excellency joined the Board in 2010. He is the Executive Director at the office of the Vice Chairman at the Executive Council. HE Al Mansoori has held several high level position including being the Director of the External equities Europe and Deputy Director at External Funds-America at the Abu Dhabi Investment Authority (ADIA). Mr. Mansoori hold various board member positions such as Board Member at the Audit Committee at Abu Dhabi Investment Council (ADIC), Board Member at ZonesCorp, Board Member at Al Dar-Sorouh Company and Chairman for Abu Dhabi Airports Company (ADAC). With an outstanding financial services background, His Excellency brings extensive knowledge of North American and European markets to the Board.
Chairman
His Excellency joined the Board as Chairman in 2008. He has served as chairman of Abu Dhabi Securities Market and as a board member of financial concerns including National Bank of Abu Dhabi, Arab Banking Corporation, Arab International Bank and Tunis Emirates Bank. His Excellency started his career with Abu Dhabi Investment Authority and is currently the head of the Infrastructure Department at Abu Dhabi Investment Council. With a strong background in financial services and chairmanship, His Excellency brings extensive international expertise and exemplary governance credentials to his position.
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"Board committees monitor key indicators, advise and recommend action to the Board, and ensure, through the participation of independent members, that stakeholders' interests are safeguarded."
Prominent achievement of the Committee during 2012 include: Initiating a project to define the Groups relationship with subsidiaries Initiating a project to define a comprehensive Delegation of Authority (DOA) framework for the Bank and its subsidiaries Initiating a project for the development of a formal succession and leadership development policy. Adopting a new Committee charter Approving a UAE National allowance increase Adopting a long-term incentive scheme Approving the Reward Policy for 2012
Dr Safieddine was appointed as a member of the Committee because he is a recognized corporate governance expert in the MENA region as well as internationally. Dr Safieddine is Director of the Finance and Corporate Governance Program at the Olayan School of Business at the American University of Beirut. Mr Shawqi Taleb was appointed as a member of the Committee because of his practical corporate governance experience. Mr. Taleb is a CFA charterholder of the CFA Institute and is a financial advisor at the Abu Dhabi Fund for Development. Prominent achievements of the Committee in 2012 include: An audit of the Bank's Corporate Governance Framework A corporate governance review of the Bank's subsidiary in Kazakhstan Recommending a CSR policy for the Bank for approval by the Board Recommending an appropriate formal board professional development program to the Board
Prominent achievements of the Board Risk Committee during 2012 include: Aligning the charters of the Management Risk Committee, Management Credit Risk Committee, Management Remedial Committee, Management Operational Risk Committee and Management Investment Committee to the Banks strategic objectives Approval of the following policies: Risk Rating Policy, Early Alert and Watchlist Policy, Country Risk Policy, Remedial, Provision and Write-off Policy, and Contractor Financing Policy
Mr Taha Al Bahrawi was appointed as a member of the Board Audit Committee in 2011. It is accepted governance practice to appoint nonBoard members to an audit committee. Mr Al Bahrawi is a recognized financial reporting and audit expert.
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The Fatwa and Sharia Supervisory Board ensures that the Banks contracts, operations and transactions are in strict compliance with Sharia rules and principles.
The Banks DOA cascades accountabilities, analysis and decision making from the Board to Executive Management, supported by formal committees for specialised oversight and deliberation.
Executive Management
Group Chief Executive Officer (GCEO)
Mr. Mohammed Jamil Berro is the GCEO of the Bank. Mr. Berro was appointed by the Board in 2008. The GCEO is accountable for all management functions. His responsibilities include, but are not limited to: Developing the Banks strategy for consideration and approval by the Board Developing and recommending annual business plans and budgets that support the Banks long-term strategy Leading the Banks managers and employees in executing the strategy and plans approved by the Board Monitoring and reporting on the performance of the Bank to the Board Establishing an organizational structure for the Bank that is appropriate to the execution of the Banks strategic plan Recommending members of the Executive Management team to the Board On the authority of the Board, the GCEO has established the following management committees to assist in the management of the Bank: Management Executive Committee Management Credit Risk Committee Management Risk Committee Management Investment Committee Management Assets and Liabilities Committee auditor, and the shareholder is informed of the appointment of external auditors. Currently, the Banks external auditor is KPMG. KPMG was appointed by the Board according to authorities set out in the Banks Articles for a renewable period of one year, at the recommendation of the Board Audit Committee.
Members
Sheikh Dr Abdussattar Abu Ghuddah Fatwa and Sharia Supervisory Chairman Dr Abu Ghuddah joined the Fatwa and Sharia Supervisory Board as Chairman in 2008. Dr Abu Ghuddah holds a PhD in Sharia from AlAzhar University, and is a member of Fatwa and Sharia boards at UBS, Standard Chartered Bank, Dow Jones, Calyon Bank, Samba Financial Group, Qatar Islamic Bank, Jordan Islamic and Noor Islamic Bank. Sheikh Nizam MS Yaquby Fatwa and Sharia Supervisory Vice Chairman Sheikh Nizam joined the Fatwa and Sharia Supervisory Board in 2008. He holds a BA from McGill University in Economics and Comparative Religion and is currently a candidate for PhD in Islamic Law at the University of Wales. Sheikh Nizam is a member of the Fatwa and Sharia boards at UBS, Standard Chartered Bank, HSBC, Lloyds, BNP Paribas, Dow Jones, Abu Dhabi Islamic Bank and Samba Financial Group.
External Auditors
The external auditor is independent of the Bank and its directors. The Board Audit Committee is responsible for ensuring that the auditor remains independent and the auditor may not, during assigned audit periods, undertake consultancy work related to its audit activity, where such consulting could affect its decisions or independence as an external auditor. The Board Audit Committee Charter requires that the Board Audit Committee approve all non-audit services provided by the external
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The objective of the Credit, Risk and Compliance Management Group is to achieve optimal risk levels within risk appetite parameters prescribed by the Board. This mitigates potential adverse impacts on the Bank, while ensuring that the Bank can maximize growth and profitability.
Credit, Risk and Compliance Management
Risk management and the assurance of compliance for the Bank is the responsibility of the Credit, Risk and Compliance Management Group.
Risk Management Framework The Risk Management Framework allows the Credit, Risk and Compliance Management Group to develop, maintain, enhance and create associated policies for these risks. Risk management philosophy The Banks risk management philosophy is based on five pillars of risk management, namely; Strong corporate governance Robust risk architecture Adherence to globally accepted risk standards Skilled and seasoned human resources Robust risk culture Risk oversight and governance To ensure effective risk control, monitoring, reporting and communication, the Board has delegated oversight of the Banks risk and controls to the Board Risk Committee. In addition to this committee, the following management committees provide governance, control, oversight, analysis and reporting to evaluate the Banks overall risk profile: Management Risk Committee Management Credit Risk Committee Management Remedial Committee Assets and Liabilities Committee (ALCO) Management Investment Committee Management Operational Risk Committee The Board Audit Committee provides added comfort that the internal control environment and overall risks are managed effectively. The Sharia Supervisory Board ensures that the Bank continues to follow and adopt the principles of Sharia in providing products and services to our customers. The proper management of risk is a fundamental activity as it influences the Banks performance, reputation and ultimate success. Effective risk management involves taking an integrated and balanced approach to risk and reward, thus enabling the Bank to increase financial growth opportunities and mitigate potential loss or damage. Mitigation strategies are of equal importance and need to be effectively aligned and integrated. External oversight Independent reviews of the Credit, Risk and Compliance Management Group are carried out by internal and external auditors, and the Central Bank of the UAE maintains proactive oversight and regular inspections.
Enhancements to infrastructure, systems and processes In 2012, the Credit, Risk and Compliance Management Group instituted enhancements to the Bank's risk management infrastructure, systems and processes. These included: Significant enhancement of the Global Credit Risk Policy Development of Market and Liquidity Risk Policies Enhancement of the Banks risk appetite statement Significant enhancement of the stress testing framework Development of IRB compliant rating models Development of risk adjusted pricing framework Enhancement to IT risk infrastructure and associated MIS reporting Enhancement to the governance structure of risk Development of new, and enhancement of existing training programs to develop and build risk and compliance culture and awareness Enhancement of ICAAP, in particular refinement in the assessment of Pillar 2 risks Credit risk management As part of the risk transformation plan instituted in 2012, the Bank made a number of enhancements to ensure increased credit risk diversification as well as greater levels of control and oversight. The most important of these was the implementation of credit rating models for wholesale banking, a revised internal rating methodology and associated IT platform, which is compliant with IRB standards and best international practices. This also included the development and institution of maximum exposure thresholds by rating and implementation risk adjusted pricing mechanism (RAROC), which will allow the Bank to price more accurately for specific risks. The effective implementation of these initiatives will form the foundation of the Banks ultimate long-term strategic goal of IRB compliance and will eventually allow for a greater cascading of credit approval authority currently residing with the Board Risk Committee and Management Credit Risk Committee.
Achievements in 2012
Risk transformation plan In 2012, the Credit, Risk and Compliance Management Group embarked on an aggressive enterprise wide risk transformation plan. The plan represents a spectrum of initiatives to address policies, processes and IT risk infrastructure enhancement. This transformation plan forms a core part of the Banks strategic goal of a best- in- class risk management framework to support its near and long-term strategic objectives. The adoption of a strong risk management framework and culture is demonstrated in the Banks very low credit and loss ratios. At the same time, the Bank achieved strong growth in terms of asset size and profitability, far superior to the market average. The strong governance culture, combined with material enhancements to, and development of the Banks risk policies, provides increased assurance that risks are assumed in a very measured manner and in line with the Banks risk appetite. This was achieved in a very challenging local market environment and during a period of global market instability and dislocation. Structural enhancements The organizational structure of the Credit, Risk and Compliance Management Group has been enhanced to provide clear lines of communication, transparency and accountability that support the Banks strategic vision.
55 ABOUT US
56
The Banks human capital is its greatest asset. Our success in growing the business and in developing Islamic banking and the UAEs communities are the outcome of the capabilities and focused energy of our people. Our culture supports professional and personal development, and we provide opportunities for structured career progression. Developing the next generation of banking leaders in the UAE is a priority for us.
People
Emiratization Our commitment to UAE National recruitment and development has been at the top of our priorities since 2008. In 2012, we achieved 31% Emiratization, out of a total Group headcount of 828. We support our programs for attracting UAE Nationals with retention strategies to ensure fair and objective progression and development.
UAE nationals 31% Others 69%
Our well-established Boot Camp for senior officers and lower grades trained 143 staff. In addition, 73 staff employees are in certification programs, double the number in 2011. E-learning and e-libraries The Banks e-learning program sets required courses according to employee grade and function. The e-library program, launched in 2012, provides easy access to required reading. Employees are made accountable for completing courses and reading assignments, and their participation is tracked.
Understanding our people This year saw the launch of the National Tour program, in which we visit branches to hold focus groups with National employees to identify their concerns. Employee suggestion schemes brought 103 suggestions during 2012. Recognition and rewards Each month, employees who contribute beyond the call of duty can be given spot awards.
Career growth and human development The launch of Leadership 2020 this year demonstrates our commitment to developing our talent, and to Emiratization. The program is designed to take potential Bank leaders to middle, senior and executive management positions to target positions through a combination of executive education, secondment and job rotation. The Banks sponsorship and scholarship initiatives now have eight UAE Nationals at Emirates Institute of Banking and Financial Services, in a tie-up between the Bank and Tawteen, and other Nationals learning English. 43 Nationals have joined the Bank as interns, and we expect to grow this number next year. 153 UAE National employees have been developed for higher positions in the Bank since 2010, including 30 to the second target position. Training and learning Flagship training programs introduced and conducted during 2012 include: I-know, a program focusing on Bank product and functional knowledge; to date, 350 employees have completed tests in credit risk and operational knowledge Jahez (Know your Bank in Two Weeks), a program launched this year for new joiners
57 ABOUT US
58
The products and services that you receive are delivered by automated systems, managed for security and efficiency.
Ensuring our Strength, Capabilities and Security
Our promise We are committed to fast, convenient and secure services that make banking easy for you. As a Bank that prioritizes innovative customer experience, we invest heavily in technology, process improvement and making sure that our staff can deliver on what we promise. What we have achieved in 2012 During 2012, the Operations Group supported the launch of new products and services such as the Global Sukuk Fund and new credit cards. This was accompanied by significant increases in both inward and outward remittances. We were able to handle substantially higher throughput in spite of a reduced Operations headcount, largely because of process improvement. Overall, productivity is up by 126 percent. Important achievements for Operations in 2012 include i-ban implementation, the adoption of the new UAE fund transfer system and implementation of straight through processing. Along with these achievements, control incidents have been reduced and the Operations Group has passed all its Sharia audits. Key initiatives launched in 2012 include full channel digitization, and service automation from account opening to meeting financing needs. Automation of the liability management system will reduce risk and improve the efficiency of processing transactions in the wakala and mudarib portfolios. IT is essential to the Banks forward strategy and to its overall goal of transforming the banking experience for customers. This year, the IT Division won the Editors Choice Award for innovative ways for which IT delivered a competitive advantage. The division went onto achieve a 100 percent customer SLA satisfaction rate, and system availability was consistently above 99.97%, over the industry benchmark. 2013 and beyond Large-scale implementations, such as T-24, continue, and we expect to bring about greater efficiencies in 2013 without compromising service quality, security and accuracy in transaction processing. Core banking upgrades have also kicked off in 2012 and are due to finish in the middle of next year. This will give additional functionality to our platforms. IT will also focus on providing robust cash management services, corporate internet banking and extensions of the mobile banking service. Such developments in Operations and IT will provide a sound basis for managing our overseas operations in Kazakhstan, and for extending our branch and ATM network, in line with our five-year strategy.
IT supported product launches, significantly retail internet banking, mobile and iPad banking and utility bill payments. The Banks Disaster Recovery program was rolled out to ensure business continuity and the Bank has virtualized the server environment and consolidated the storage environment.
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Total Financings
Total deposits
22.9bn 2.07%
2.03 2.07
25bn 2.11%
1.99 2.11
Total financings in 2012 were AED 22.9 bn, 19 percent higher than 2011s closing level. Financings grew steadily through the year. The Banks market share of total UAE financings was 2.07 percent at year end, an increase of 15 percent on its share at the end of 2011.
The Banks total deposits rose by 27.6 percent in 2012. This increase reflects growth in the Banks customer base and excess liquidity available in the economy. The Banks share of the UAEs total bank deposits rose to 2.11 percent at the end of 2012 from a share of 1.83 percent at the end of 2011.
Total Deposits
2.21 1.83 1.87
19.3
20.8 Mar-12
DEC-11
Financings balance
21.5
224 Sep-12
22.9 DEC-12
Jun-12
_
Share of Total Sector Financings Growth
The Banks share of 2012 financings growth, at 9.9 percent, is almost unchanged since 2011. This demonstrates the Banks ability to maintain its position in the market.
10.1%
19.6
21.4 Mar-12
24.5
DEC-11
Jun-12
22.8 Sep-12
25.0 DEC-12
9.9%
2011
2012
2011
2012
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Total Assets
Net Profit
32.1bn 1.79%
1.84 1.79 1.70
AED310.3mn
In 2012 the Bank exceeded its profits of 2011 by over 50 percent. This was the result of increased revenues, balanced by a continued improvement in efficiency and cost management.
Standing at AED 32.1 bn, the Banks total assets at the end of 2012 were 13.4 percent higher than at the end of 2011. This can be attributed largely to increases in financings, enabling the Bank to expand its share of UAE banking assets to 1.79%.
1.73 1.70
2011 2012
28.3
30.1
DEC-11
Mar-12
Assets balance
31.8 Jun-12
30.0 Sep-12
32.1 DEC-12
Provisions
Total Cover in 2012
AED0.10
Earnings per Share (EPS) were up by 25 percent in 2012, at AED 0.1, compared with 2011s figure of 0.08, the result of higher profits in spite of an increase in share capital.
0.08 0.10
2011 2012
236
The Bank maintained adequate provision to cover non-performing loans.
236 220
2011 2012
2011
2012
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Praise be to Allah and peace be upon His Messenger, Mohammed and upon his family and companions.
In line with Article No. 44 of the Banks Articles of Association, the Fatwa and Shariah Supervisory Board (FSSB) is pleased to present its report as follows: We have examined the policies, procedures and the contracts related to the products and transactions, which the Bank has executed or launched during the period of our required monitoring and supervision, in order to pronounce whether or not the Bank has complied with the Shariah rules and principles as well as with the opinions, resolutions and instructions issued by us taking into consideration of the Sharia Standards of Accounting and Auditing Organization for Islamic Financial Institution (AAOIFI), Bahrain. The FSSB asserts that the responsibility of ensuring the Banks conformity, in its practice, with Shariah rules and principles rests solely with the Executive Committee and Board of Directors of the Bank. However, the responsibility of FSSB is confined only to express an independent opinion based either on its direct supervision of the Banks activities or through the Shariah Supervision Division, and to report our findings thereof to you, in the light of the details shown by the minutes and reports of our meetings and audit; We have reviewed all products launched by the Bank during the year in question, including manuals, execution mechanisms and standard contracts as well as non-standard agreements, especially contracts related to syndicated finance which the Bank has concluded with third parties. With the help of the Shariah Supervision Division, we have planned and performed the Shariah audit on the transactions executed during the year and obtained all the information and explanations which we deem necessary to give us reasonable assurance that the Bank has not violated Shariah rules and principles. Likewise, we have reviewed periodical reports and observations raised to us by the Shariah Audit unit including different kinds of operations carried out by the Bank. The Sharia audits findings have been reviewed by us in the light of the concerned departments clarifications and justifications and according to which resolutions and appropriate instructions have been given. This is in addition to our review of the Banks Consolidated Financial Statements and the associated notes, and also the monthly distribution of profits among the depositors and shareholders. The FSSB held a total number of seven meetings during the year, answered the queries raised to it and approved many new products proposed by the Management. The Executive Member of the Board Dr. Abdul Sattar Abu Ghuddah in his turn, has convened four meetings during the year and answered queries received through phone. Likewise, the Executive Member of the Board His Eminence, Sheikh Nizam Yaqubi has reviewed all corporate transactions presented to him by way of emails, including a number of syndications with other banks. He also provided Shariah proclamations on issues raised to him via telephone calls. In line with the duty of the Board to promulgate Shariah awareness of Islamic banking in the society, especially in those communities where Islamic banking is yet new, the Executive Member of the Board, His Eminence, Sheikh Essam Mohamed Ishaq has delivered highly advanced training programs to a number of senior officials and representatives of government and private institutions and university students in Kazakhstan, in addition to staffs of Al Hilal Islamic Bank in Kazakhstan.
Dr. Abdulsattar Abughuddah Shaikh Nedham Mohamed Yaqoobi Shaikh Esam Mohamed Ishaq Dr. Mohammad Abdulrahim Sultan Alolama Place: Abu Dhabi, UAE. Date: 2-4-1434A.H. 12-2-2013C.E. Chairman Vice-Chairman Member Member
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Introduction
We have audited the accompanying consolidated financial statements of Al Hilal Bank PJSC (the Bank) and its subsidiaries (the Group), which comprise the consolidated statement of financial position as at 31 December 2012, the consolidated income statement and consolidated statements of comprehensive income, changes in equity and cash flows for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
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 our judgment, 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, we consider internal control relevant to the entitys 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 entitys internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by management, as well as evaluating the overall presentation of the consolidated financial statements. We believe that the audit evidence we have obtained is sufficient and appropriate to provide a basis for our audit opinion.
Opinion
In our opinion, the consolidated financial statements present fairly, in all material respects, the consolidated financial position of the Group as at 31 December 2012, and its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
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Note
2012 AED000
1,437,223 2,805,778 17,859,889 5,050,982 2,799,619 39,700 1,369,741 758,976
2011 AED000
Note
2012 AED000
1,498,893 77,123 107,427
2011 AED000
1,381,024 79,376 115,426 141,099 1,716,925 (339,353) (223,849) (280,339) (71,573) 801,811 (621,806) 180,005 202,346 (22,341) 180,005
Assets
Cash and balances with banks Murabaha and wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Investment property Property and equipment Other assets 7 8 9 10 11 12 13 14 1,232,209 2,608,204 15,501,327 3,823,473 3,159,980 125,475 1,219,681 580,729
Income
Income from ijara and Islamic financing activities, net Income from wakala investments Investment income Commission, fees and foreign exchange income, net 19 18
155,405 1,838,848
Expenses
Personnel costs General and administrative expenses Impairment charges on financial assets Depreciation 20 21 13 (386,322) (274,016) (257,282) (72,105) 849,123 22 (583,424) 265,699 310,300 (44,601) 265,699
32,121,908
24,956,664 2,491,598 1,178,004 28,626,266
28,251,078
19,617,830 4,935,829 973,861 25,527,520
Total liabilities
Equity
Share capital Statutory reserve Other reserves Retained earnings Total equity attributable to the equity holder of the Bank Non - controlling interest 17 17 3,090,000 69,410 (11,452) 321,404 3,469,362 26,280 3,495,642 2,590,000 34,252 (17,016) 45,441 2,652,677 70,881 2,723,558
Total equity
32,121,908
28,251,078
Other comprehensive income / (expenses) for the year Total comprehensive income for the year
Attributable to: Equity holder of the Bank Non-controlling interest
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Share capital
Share capital
Total equity
AED000 At 1 January 2012 Profit for the year Other comprehensive income Total comprehensive income for the year Issuance of share capital Transfer to statutory reserve Directors remunerations & others Total transaction with equity holders recorded directly in equity At 31 December 2012 2,590,000 Total comprehensive income for the year:
AED000 34,252 -
AED000 2,723,558 265,699 5,564 271,263 At 1 January 2011 Profit for the year Other comprehensive income Total comprehensive income for the year Issuance of share capital Transfer to statutory reserve Directors remunerations & others Total transaction with equity holders recorded directly in equity At 31 December 2011
AED000 2,000,000 590,000 590,000 2,590,000 Total comprehensive income for the year:
Transaction with equity holders recorded directly in equity 500,000 500,000 3,090,000 35,158 35,158 69,410 (6,747) (4,705) (35,158) 821 (34,337) 321,404 500,000 821 500,821 3,469,362 26,280 500,000 821 500,821 3,495,642
The accompanying notes 1 to 31 are an integral part of these consolidated financial statements The independent auditors report is set out on page 67
The accompanying notes 1 to 31 are an integral part of these consolidated financial statements The independent auditors report is set out on page 67
Total equity
Revaluation reserve
Revaluation reserve
Translation reserve
Translation reserve
Noncontrolling interest
Noncontrolling interest
Retained earnings
Retained earnings
Statutory reserve
Statutory reserve
Total
Total
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2012 AED000
2011 AED000
180,005 71,573 280,339 40,407 572,324 2,669,452 (4,561,228) 284,936 (163,076) 1,508,402 189,895 500,705
adjusted for changes in fair value attributable to the risk being hedged. Other financial assets not held in business model whose objective is to hold assets to collect contractual cash flows or whose contractual terms do not give rise solely to payment of principal and profit are measured at fair value; Investment property is measured at fair value.
2. Basis of preparation
The principal accounting policies applied in the presentation of these consolidated financial statements are set out below. These policies have been consistently applied to all the years presented, unless otherwise stated.
a. Statement of compliance
These consolidated financial statements have been prepared in accordance with International Financial Reporting Standards (IFRS) and the requirement of UAE Federal Law No. 8 of 1984 (as amended)
b. Basis of measurement
These consolidated financial statements have been prepared under the historical cost convention except for the following: Islamic derivative financial instruments, namely promises to exchange currency and / or cash flows, which are non-speculative and intended for hedging purposes, are measured at fair value; Financial instrument designated at fair value through profit and loss are measured at fair value.
The accompanying notes 1 to 31 are an integral part of these consolidated financial statements The independent auditors report is set out on page 67
Investment in equity instruments is measured at fair value; Recognized financial assets and financial liabilities designated as hedged items in qualifying fair value hedge relationships are
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c. Consolidation
i. Subsidiaries Subsidiaries are all entities (including special purpose entities) over which the Group has the power to govern the financial and operating policies generally accompanying a shareholding of more than one half of the voting rights. The existence and effect of potential voting rights that are currently exercisable or convertible are considered when assessing whether the Group controls another entity. Subsidiaries are fully consolidated from the date on which control is transferred to the Group. They are deconsolidated from the date that control ceases. Inter-company transactions, balances and unrealized gains on transactions between group companies are eliminated. Unrealized losses are also eliminated. Accounting policies of subsidiaries have been changed where necessary to ensure consistency with the policies adopted by the Group. ii. Fund management The Group manages and administers assets held in trust or in fiduciary capacity on behalf of investors. The financial statements of these funds are not included in these consolidated financial statements. Information about the Groups fund management and fiduciary activity is set out in Note 29. iii. Special purpose entities Special purpose entities (SPEs) are entities that are created to accomplish a narrow and well-defined objective such as the securitisation of particular assets, or the execution of a specific financing transaction. An SPE is consolidated if, based on an evaluation of the substance of its relationship with the Group and the SPEs risks and rewards, the Group concludes that it controls the SPE.
a. Hedge accounting
In order to manage profit rate risks, the Group enters into a Sharia compliant arrangements including profit rate swaps. Fair value hedges Changes in the fair value of profit rate swaps and that are designated and qualify as fair value hedging instruments are recorded in the consolidated statement of income, along with changes in the fair value of the assets, liabilities or group thereof that are attributable to the hedged risk. Hedge documentation At the inception of the hedge, formal documentation of the hedge relationship must be established. The hedge documentation prepared at the inception of the hedge must include a description of the following: The Groups risk management objective and strategy for undertaking the hedge; The nature of risk being hedged; Clear identification of the hedged item and the hedging instrument; and How the Group will assess the effectiveness of the hedging relationship on an on-going basis.
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e. Work In Progress
Properties or assets in the course of construction for production, supply or administrative purposes, or for purposes not yet determined, are carried at cost, less any recognised impairment loss. Cost includes all direct cost attributable to design and construction of the property including related staff costs, and for qualifying assets, financing costs capitalised in accordance with Groups accounting policy. When the assets are ready for the intended use, the capital work in progress is transferred to the appropriate property and equipment category and is depreciated in accordance with the Groups policies.
j. Share capital
Ordinary shares are classified as equity. Incremental costs directly attributable to the issue of new ordinary shares are recognized as deduction from equity.
all risks and rewards of ownership. Available-for-sale financial assets and financial assets at fair value through profit or loss are subsequently carried at fair value. Receivables from Islamic financing activities are subsequently carried at amortized cost using the effective profit rate method. Gains or losses arising from changes in the fair value of the financial assets at fair value through profit or loss category are presented in the consolidated statement of income in the period in which they arise. Changes in the fair value of monetary and non-monetary securities classified as available for sale are recognized in other comprehensive income. When securities classified as available for sale are sold or impaired, the accumulated fair value adjustments recognized in equity are included in the consolidated statement of comprehensive income. Profit on available-for-sale securities calculated using the effective profit method is recognized in the consolidated statement of income. Dividends on available-for sale equity instruments are recognized in the consolidated statement of income when the Groups right to receive payments is established. Classification after 1 October 2010 As from 1 October 2010, the Group classifies its financial assets in the following categories: those to be measured subsequently at fair value, and those to be measured at amortized cost. This classification depends on whether the financial asset is a Sukuk or equity investment.
k. Revaluation reserve
The revaluation reserve is related to revaluation of investment securities classified at fair value through other comprehensive income, the policy of which is set out in Note 3(m).
f. Qard Hassan
Qard Hassan receivables are non-profit bearing financing receivables whereby the customer borrows funds for a period of time with an understanding that the same amount shall be repaid at the end of the agreed period.
g. Swap transactions
Currency and profit rate swaps are commitments to exchange one set of cash flows for another. Swaps result in an economic exchange of currencies or profit rates (for example, fixed rate for floating rate) or a combination of all these (i.e., cross-currency profit rate swaps). The Banks credit risk represents the potential loss if counterparties fail to fulfill their obligation.
m. Financial assets
Classification prior to 1 October 2010 The Group classifies its financial assets in the following categories: at fair value through profit or loss, receivables from Islamic financing activities, and available-for-sale. The classification depends on the purpose for which the financial assets were acquired. Management determines the classification of its financial assets at initial recognition. i. Financial assets at fair value through profit or loss Financial assets at fair value through profit or loss are financial assets held for trading. A financial asset is classified in this category if acquired principally for the purpose of selling in the short term. ii. Receivables from Islamic financing activities Receivables from Islamic financing activities are non-derivative financial assets with fixed or determinable payments that are not quoted in an active market. iii. Available-for-sale financial assets Available-for-sale financial assets are non-derivatives that are either designated in this category or not classified in any of the other categories. iv. Recognition and measurement Regular purchases and sales of financial assets are recognized on the trade-date the date on which the Group commits to purchase or sell the asset. Investments are initially recognized at fair value plus transaction costs for all financial assets not carried at fair value through profit or loss. Financial assets carried at fair value through profit or loss is initially recognized at fair value, and transaction costs are expensed in the consolidated statement of income. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially
The assets residual values and useful lives are reviewed, and adjusted if appropriate, at the end of each reporting period. An assets carrying amount is written down immediately to its recoverable amount if the assets carrying amount is greater than its estimated recoverable amount. Gains and losses on disposals are determined by comparing the proceeds with the carrying amount and are recognized in the consolidated statement of income. When revalued assets are sold, the amounts included in other reserves are transferred to retained earnings.
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n. Sukuk Investments
i. Financial assets at amortized cost A Sukuk investment is classified as amortized cost only if both of the following criteria are met: objective of the Groups business model is to hold assets to collect the contractual cash flows; and contractual terms give rise on specified dates to cash flows that are solely payments of principal and profit on the principal outstanding. ii. Financial assets at fair value If either of the two criteria above are not met, the Sukuk instrument is classified as fair value through profit or loss. All equity investments are measured at fair value. Equity investments that are held for trading are measured at fair value through profit or loss. For all other equity investments, the Group can make an irrevocable election at initial recognition to recognize changes in fair value through other comprehensive income rather than the consolidated statement of income. Regular purchases and sales of financial assets are recognized on the trade-date the date on which the Group commits to purchase or sell the asset. Financial assets are derecognized when the rights to receive cash flows from the investments have expired or have been transferred and the Group has transferred substantially all risks and rewards of ownership. At initial recognition, the Group measures a financial asset at its fair value plus, in the case of a financial asset not at fair value through profit or loss, transaction costs that are directly attributable to the acquisition of the financial asset. Transaction costs of financial assets carried at fair value though profit or loss are expensed in the consolidated statement of income. A gain or loss on a Sukuk investment that is subsequently measured at fair value and is not part of a hedging relationship is recognized in the consolidated statement of income and presented in the consolidated statement of comprehensive income in the period in which they arise. A gain or loss on a Sukuk investment that is subsequently measured at amortized cost and is not part of a hedging relationship is recognized in the consolidated statement of income when the financial asset is derecognized or impaired and through the amortization process using the effective profit rate method. The Group subsequently measures all equity investments at fair value. Where the Groups management has elected to present unrealized and realized fair value gains and losses on equity investments in other comprehensive income, there is no subsequent recycling of fair value gains and losses to the consolidated statement of income. Dividends from such investments continue to be recognized in the consolidated statement of income as long as they represent a return on investment. The Group is required to reclassify all affected Sukuk investments when and only when its business model for managing those assets changes. The Group makes an assessment of a business model at portfolio level as this reflect the best way the business is managed and information is provided to management. In making an assessment of whether an asset is held within a business model whose objective is to hold assets in order to collect contractual cash flows, the Group considers: managements stated policies and objectives for the portfolio and the operation of those policies in practice; how management evaluates the performance of the portfolio; whether managements strategy focuses on earning contractual cash flow; the degree of frequency of any expected asset sales; the reason of any asset sales; and whether assets that are sold are held for an extended period of time relative to their contractual maturity or are sold shortly after acquisition or an extended time before maturity. Financial assets held for trading are not held within a business model whose objective is to hold the asset in order to collect contractual cash flows. ii. Assets classified as available-for-sale (applicable until 30 September 2010) The Group assesses at the end of each reporting period whether there is objective evidence that a financial asset or a group of financial assets is impaired. For sukuk securities, the Group uses the criteria referred to (i) above. In the case of equity investments classified as available for sale, a significant or prolonged decline in the fair value of the security below its cost is also evidence that the assets are impaired. If any such evidence exists for available-for-sale financial assets, the cumulative loss measured as the difference between the acquisition cost and the current fair value, less any impairment loss on that financial asset previously recognized in the consolidated statement of comprehensive income is removed from equity and recognized in the consolidated statement of income. Impairment losses recognized in the consolidated statement of income on equity instruments are not reversed through the consolidated statement of income. If, in a subsequent period, the fair value of a Sukuk instrument classified as available for sale increases and the increase can be objectively related to an event occurring after the impairment loss was recognized in the consolidated statement of income, the impairment loss is reversed through the consolidated statement of income. The effective profit rate method is a method of calculating the amortised cost of a financial liability and of allocating profit expense over the relevant period. The effective profit rate is the rate that exactly required to unwind estimated future cash payments through the expected life of the financial liability, or (where appropriate) a shorter period, to the net carrying amount on initial recognition. De-recognition of financial liabilities The Group derecognises financial liabilities when, and only when, the Groups obligations are discharged, cancelled or they expire.
r. Revenue recognition
The Group recognizes revenue when the amount of revenue can be reliably measured, it is probable that future economic benefits will flow to the entity and when specific criteria have been met for each of the Groups activities as described below. The Group bases its estimates on historical results, taking into consideration the type of customer, the type of transaction and the specifics of each arrangement. i. Profit income Profit income is recognized using the effective profit rate method. When a financing receivable is impaired, the Group reduces the carrying amount to its recoverable amount, being the estimated future cash flow required to unwind at the original effective profit rate of the instrument, and continues unwinding the discount as profit income. Profit income on impaired finance facilities and receivables is recognized using the original effective profit rate. ii. Dividend income Dividend income is recognized when the right to receive the income is established. Usually this is the ex-dividend date for equity securities. Dividends are presented in net trading income or net income from other financial instruments at fair value through profit or loss based on the underlying classification of the equity investment. Dividends on equity instruments designated as at fair value through other comprehensive income are presented in other revenue in the consolidated statement of income unless the dividend clearly represents a recovery of part of the cost of the investment, in which case it is presented in other comprehensive income. iii. Fee and commission income Fees and commissions income relating to underwriting and financing activities of the Group is recognized when earned.
q. Financial liabilities
Financial liabilities, including Group customers and wakala deposits, are initially measured at fair value, net of transaction costs. Financial liabilities are subsequently measured at amortised cost using the effective profit method, with profit expense recognised on an effective yield basis.
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s. Investment property
Investment property is property held for rental income or for capital appreciation, or both, but not for sale in the ordinary course of business, use in the production, supply of goods or services or for administrative purposes. Investment property is measured at fair value with any change therein recognized in the consolidated statement of income.
y. Financial guarantee
Financial guarantees are contracts that require the Group to make specified payments to reimburse the holder for a loss it incurs because a specified party fails to meet its obligation when due in accordance with the contractual terms. For other financial guarantee contracts, financial guarantees are initially recognised at their fair value (which is the premium received on issuance). The received premium is amortised over the life of the financial guarantee. The guarantee liability is subsequently carried at the higher of this amortised amount and the present value of any expected payment. The premium received on these financial guarantees is included within other liabilities. iv. Gross claims paid Gross claims paid are recognised in the consolidated statement of income when the claim amount payable to policyholders and third parties is determined as per the terms of the Takaful contracts. v. Claims recovered Claims recovered include amounts recovered from re-takaful companies in respect of the gross claims paid by the Group, in accordance with the re-takaful contracts held by the Group. It also includes salvage and claims recoveries. vi. Gross outstanding and IBNR claims Gross outstanding claims comprise the estimated costs of claims incurred but not settled at the consolidated financial position date. Provisions for reported claims not paid as at the end of the reporting period are made on the basis of individual case estimates. This provision is based on the estimate of the loss, which will eventually be payable on each unpaid claim, established by management in the light of currently available information and past experience. An additional net provision is also made for any claims incurred but not reported (IBNR) at the end of the reporting period, on the basis of management estimates. The re-takaful share of the gross outstanding claims is estimated and shown separately. vii. Unearned contribution reserves A provision is made for contribution deficiency arising from general Takaful contracts where the expected value of claims and expenses attributable to the unexpired periods of policies in force at the consolidated financial position date exceeds the unearned contributions provision and already recorded claim liabilities in relation to such policies. The provision for contribution deficiency is calculated by reference to classes of business which are managed together. viii. Re-takaful The Group cedes re-takaful in the normal course of business for the purpose of limiting its net loss potential through the diversification of its risks. Assets, liabilities, income and expense arising from ceded re-takaful contracts are presented separately from the assets, liabilities, income and expense from the related Takaful contracts because the retakaful arrangements do not relieve the Group from its direct obligations to its policyholders. Amounts due to and from re-takaful are accounted for in a manner consistent with the related contributions and is included in re-takaful assets. Re-takaful assets are assessed for impairment at the end of each reporting period. A re-takaful asset is deemed impaired if there is objective evidence, as a result of an event that occurred after its initial recognition, that the Group may not recover all amounts due, and that event has a reliably measurable impact on the amounts that the Group will receive from the reinsurer. Impairment losses on re-takaful assets are recognised in the consolidated statement of income in the year in which they are incurred. Commission in respect of re-takaful contracts is recognised on an accrual basis. ix. Takaful receivables and payables Amounts due from and to policyholders, agents and reinsurers are financial instruments and are included in other assets and other liabilities, respectively, and not in Takaful contract provisions or retakaful assets. x. Liability adequacy test At each reporting date, liability adequacy tests are performed to ensure the adequacy of the contract liabilities using current estimates of future cash flows under Takaful contracts. In performing these, current best estimates of future contractual cash flows and claims handling and administration expenses, as well as investment income from the assets supporting such liabilities are used. Any deficiency in the carrying amounts is immediately charged to the consolidated statement of income by establishing a provision for losses arising from liability adequacy tests (the unexpired risk provision). Where the liability adequacy test requires the adoption of new best estimate assumptions, such assumptions (without margins for adverse deviation) are used for the subsequent measurement of these liabilities.
t. Lease payment
Payments made under operating leases are recognised in the consolidated statement of income on a straight-line basis over the term of the lease. Lease incentives received are recognised as an integral part of the total lease expense, over the term of the lease.
u. Provisions
A provision is recognised if, as a result of a past event, the Group has a present legal or constructive obligation that can be estimated reliably, and it is probable that an outflow of economic benefits will be required to settle the obligation.
z. Takaful contracts
i. Classification The Group issues contracts that transfer either Takaful risk or both Takaful and financial risks. The Group does not issue contracts that transfer only financial risks. Contracts under which the Group accepts significant Takaful risk from another party (the policyholder) by agreeing to compensate the policyholder if a specified uncertain future event (the insured event) adversely affects the policyholder is classified as Takaful contracts. ii. Recognition and measurement Gross written contributions, in respect of annual policies, are recognised in the consolidated statements of income at the inception of the policy. In respect to policies with a term of more than one year, the contributions are spread over the tenure of the policies on a straight line basis, and the unexpired portion of such contributions is included under unearned contributions in the consolidated statement of financial position. iii. Claims Claims incurred comprise the settlement, the internal and external handling costs of paid and changes in the provisions for outstanding claims arising from events occurring during the year. Where applicable, deductions are made for salvage and recoveries. Claims outstanding comprise provisions for the Groups estimate of the ultimate cost of settling all claims incurred but unpaid at the reporting date whether reported or not, and related internal and external claims handling expenses and reduced by expected salvage and recoveries. Claims outstanding are assessed by reviewing individual reported claims. Provisions for claims outstanding are not discounted. Adjustments to claims provisions established in prior periods are reflected in the period in which the adjustments are made. The methods used, and the estimates made, are reviewed regularly by management.
v. Onerous contracts
A provision for onerous contracts is recognised when the expected benefits to be derived by the Group from a contract are lower than the unavoidable cost of meeting its obligations under the contract. The provision is measured at the present value of the lower of the expected cost of terminating the contract and the expected net cost of continuing with the contract. Before a provision is established, the Group recognises any impairment loss on the assets associated with that contract.
x. Directors remuneration
In accordance with the Ministry of Economy and Commerce interpretation of Article 119 of Federal Law No. 8 of 1984 (as amended), Directors remuneration has been treated as an appropriation from equity.
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Kazakhstan AED000
29,649 37,008 338,536 32,939 3,046 441,178 93,551
Others AED000
51,342 183,945 381,118 616,405 -
Total AED000
1,234,239 2,805,778 17,859,889 5,050,982 2,799,619 758,976 30,509,483 10,842,239 2011
Assets
Cash and balances with banks 1,153,248 2,584,825 17,140,235 5,018,043 2,799,619 755,930 29,451,900 Commitments and contingencies (Note 24) 10,748,688 Murabaha and wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara 1,234,239 2,805,778 17,859,889 5,050,982 2,799,619 758,976 30,509,483 10,842,239 926,816 2,608,204 15,501,327 3,823,473 3,159,980 580,729 26,600,529 12,633,267 Investment securities Other assets
2012 AED000
2011 AED000
Assets
Cash and balances with banks (Note 7) Murabaha and wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets Commitments and contingencies (Note 24)
Kazakhstan AED000
154,434 41,375 5,596 201,405 55
Others AED000
91,826 91,826 -
Total AED000
926,816 2,608,204 15,501,327 3,823,473 3,159,980 580,729 26,600,529 12,633,267
The above table represents a worst case scenario of credit risk exposure of the Group at 31 December 2012 and 31 December 2011 without taking account of any collateral held or other credit enhancements attached. For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the consolidated statement of financial position.
Assets
Cash and balances with banks Murabaha and wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets Commitments and contingencies (Note 24) 680,556 2,608,204 15,501,327 3,782,098 3,159,980 575,133 26,307,298 12,633,212
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Public AED000
2,263,368 1,314,270 75,634 489,777
Retail AED000
2,436 6,495,073 2,416,673 758,976 55,694
Public AED000
3,240,405 111,704 912,314
Retail AED000
91,203 5,549,823 2,208,559 20,115 580,729 52,316
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b. Market risk
Had the exchange rate between the various currencies and the AED increased or decreased by 10 %, with all other variables held constant, the impact on the results and equity of the Group would not have been material as the exposure primarily related to currencies that were pegged to the AED. iii. Profit rate risk Profit rate risk in trading book is applicable to the Groups exposure to sukuks issued by Governments and Corporates which are classified as Fair Value through Profit and Loss (FVTPL). The market value of these sukuks is impacted as a result of fluctuations in the prevailing levels of profit rates on cash flows. Senior management sets limits on the maximum exposure allowable as a result of adverse profit rate movement During the year ended 31December2012, if the profit rates increased/decreased by 200 basis points, with all other variables remaining constant, the impact on the market value of sukuks classified in Fair Value through Profit and loss will be as follows:
Impact on results and equity of the Group 2012 2011 AED000 AED000
98,912 141,348 In addition to profit rate risk in trading book, the Groups profit bearing financial assets and liabilities not held for the purpose of trading are also exposed to profit rate risk. This exposure arises as a result of mis-matches in re-pricing of assets and liabilities reflected in the following net position schedule.
Impact on results and equity of the Group 2012 2011 AED000 AED000
9,061 2,685 1,036 2,196
The Group is exposed to the effects of fluctuations in the prevailing foreign currency exchange rates on its financial position and cash flows. Senior management sets limits on the level of exposure by currency and in aggregate for both overnight and intra-day positions, and monitors currency positions on a daily basis. At 31 December 2012 and 31 December 2011, the Groups foreign currency exposure to significant currencies comprised:
2012 AED000
21 164 79 239 353
2011 AED000
17,403 1,108 153 41 (208)
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36 months
AED000 104,508 2,791,403 2,027,098 4,923,009
6 12 months
AED000 50,120 706,196 29,106 785,422
15 years
AED000 2,340,729 60,092 2,321,936 4,722,757
Nonsensitive Total
AED000 1,437,223 179,348 174,716 758,976 AED000 1,437,223 2,805,778 17,859,889 5,050,982 2,799,619 758,976
6 12 months
AED000
15 years
AED000
Nonsensitive
AED000
Total
AED000
Assets
Cash and balances with banks Murabaha and Wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets 2,651,150 8,088,675 2,934,686 177,000 13,851,511
Assets
Cash and balances with banks Murabaha and Wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets 2,511,384 6,865,168 1,801,545 460,000 11,638,097 3,761 964,689 1,936,106 2,904,556 873,762 17,991 891,753 4,855 3,454,349 67,831 2,656,137 6,183,172 3,046,025 3,046,025 1,232,209 88,204 297,334 43,843 580,729 2,242,319 1,232,209 2,608,204 15,501,327 3,823,473 3,159,980 580,729 26,905,922
2,550,263 30,712,467
3,578,105 3,578,105
2,922,659 2,922,659
3,046,025
3,462,206 28,626,266
1,344,904 (2,137,237)
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c. Liquidity risk
Liquidity risk is the risk that the Group will be unable to meet its obligations associated with its financial liabilities. Management of liquidity risk The Groups approach to managing liquidity is to ensure, as far as possible, that it will always have sufficient buffer of liquidity to meet its liabilities during the normal course of business. As part of its strategic liquidity management, contingency funding planning in the Group ensures that the liquidity management center (treasury) is well equipped to tap contingent funding sources during periods of market stress. The Group then maintains a portfolio of short-term liquid assets, largely made up of short-term liquid investment securities and inter-bank facilities, to ensure that sufficient liquidity is maintained within the Group as a whole. The liquidity requirements of business units and subsidiaries are met through short-term financing from the Treasury Department to cover any short-term fluctuations and longer term funding to address any structural liquidity requirements. The daily liquidity position is monitored and regular stress testing is conducted under a variety of scenarios covering the normal and more severe market conditions in order to assess the viability of the contingency funding plan. All liquidity policies and procedures are subject to review and approval by ALCO. Daily reports are produced covering the liquidity position of both the Group and operating subsidiaries. A summary report, including any exceptions and remedial action taken, is submitted regularly to ALCO. The Group relies on customers accounts and Wakala deposits from banks as its primary sources of funding. Customers accounts and Wakala deposits from banks generally have shorter maturities and a large proportion of them are repayable on demand. The short-term nature of these deposits increases the Groups liquidity risk and the Group actively manages this risk through maintaining competitive pricing and constant monitoring of market trends. Exposure to liquidity risk The key measure used by the Group for managing liquidity risk is the ratio of net liquid assets to total liabilities. For this purpose net liquid assets are considered as cash and balances with banks, balances with central bank, central bank CDs and Short Term Wakala Deposits with banks maturing within one month, investment in Sukuk of local or federal government divided by total liabilities. The Group prepares its liquidity risk profile on carrying value basis. A summary of the Groups maturity profile as at 31 December 2012 is as follows:
3 12 months
AED000 154,629 2,932,535 589,523 7,000 3,683,687
1 5 years
AED000 7,480,872 2,062,748 2,563,488 12,107,108
Assets
Cash and balances with banks Murabaha and Wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets 1,437,223 2,651,149 1,617,041 396,711 103,164 758,976 6,964,264
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3 12 months
AED000 3,761 2,827,050 503,829 3,334,640
1 5 years
AED000 4,855 7,077,839 1,363,405 3,116,136 11,562,235
Impairment charge on other financial assets The Group evaluates impairment on financial assets on an ongoing basis and a comprehensive review is carried out at least quarterly to assess whether an impairment charge should be recognized in the consolidated statement of income. In particular, considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of impairment charge required. In estimating these cash flows, management makes judgments about the counterpartys financial situation and other means of settlement and the net realizable value of any underlying collateral. Such estimates are based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such impairment charges. Collective impairment charge on financial assets In addition to specific impairment charge against individually impaired assets, the Group also maintains a collective impairment allowance against portfolios of Murabaha, Wakala and Islamic financing with similar economic characteristics which have not been specifically identified as impaired. In assessing the need for collective impairment charge, management considers concentrations, credit quality, portfolio size and economic factors. In order to estimate the required allowance, assumptions are made to define the way inherent losses are modeled and to determine the required input parameters, based on historical and current economic conditions. Liability arising from claims made under Takaful contracts The estimation of the ultimate liability arising from claims made under Takaful contracts is a critical accounting estimate by the Group. There are several sources of uncertainty that need to be considered in estimating the liability that the Group will ultimately pay for such claims. The provision for claims Incurred But Not Reported (IBNR) is an estimation of claims which are expected to be reported subsequent to the reporting date, for which the insured event has occurred prior to the reporting date. Investment property The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognized professional qualification and recent experience in the location and category of the property being valued. Fair values have been determined using the residual method. The residual method
Assets
Cash and balances with banks Murabaha and Wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets 1,232,209 2,511,384 1,198,286 379,128 40,854 5,361,861
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Level 1
AED000 Equity and other investments Liabilities Islamic derivatives 374,820 -
Level 2
AED000 -
Level 3
AED000 -
Total
AED000 374,820 -
The following table presents the Groups assets and liabilities that are measured at fair value at 31 December 2011:
Level 1
AED000 Equity and other investments Liabilities Islamic derivatives 32,317 -
Level 2
AED000 -
Level 3
AED000 -
Total
AED000 32,317 -
6.Capital management
Regulatory capital The Groups lead regulator the Central Bank of the UAE sets and monitors capital requirements for the Group as a whole. The Group is required to comply with the provisions of the Central Bank of the UAE in respect of regulatory capital. The Groups policy is to maintain a strong capital base so as to maintain investor, creditor and market confidence and to sustain future development of the business. The impact of the level of capital on return is also recognized and the Group recognizes the need to maintain a balance between the higher returns that might be possible with greater gearing and the advantages and security afforded by a sound capital position. The Group has complied with all externally imposed capital requirements throughout the year. Capital allocation The allocation of capital between specific operations and activities is, to a large extent, driven by optimization of the return achieved on the capital allocated. The amount of capital allocated to each operation or activity is based primarily upon the regulatory capital, but in some cases the regulatory requirements do not reflect fully the varying degree of risk associated with different activities. In such cases the capital requirements may be flexed to reflect differing risk profiles, subject to the overall level of capital to support a particular operation or activity not falling below the minimum required for regulatory purposes. The process of allocating capital to specific operations and activities is undertaken independently of those responsible for the operation. Although maximization of the return on risk-adjusted capital is the principal basis used in determining how capital is allocated within the Group to particular operations or activities, it is not the sole basis used for decision-making. Account also is taken of synergies with other operations and activities, the availability of management and other resources, and the fit of the activity with the Groups longer term strategic objectives.
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8.Murabaha and wakala deposits with banks and other financial institutions
2012
AED000 Commodity murabaha with financial institutions Wakala deposits Allowance for impairment (Note 21) 2,817,008 (11,230) 2,805,778
2011
AED000 100,007 2,520,000 (11,803) 2,608,204
Basel II 2012
AED000 Tier 1 Capital Tier 2 Capital Deductions from capital 3,537,917 295,719 (97,866) 3,735,770 25,430,088 14.69%
Basel II 2011
AED000 2,694,593 263,955 (94,342) 2,864,206 21,381,180 13.40%
Total capital base Risk weighted assets Risk asset ratio 7.Cash and balances with banks
2012
AED000 Cash in hand Cash reserve deposits with the Central Bank Current account with the Central Bank Due from banks 202,984 846,257 336,632 51,350 1,437,223 Cash reserve deposits with the Central Bank are not available for the operations of the Group and are non-profit bearing.
2011
AED000 305,393 707,408 127,552 91,856 1,232,209
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2012
AED000 Corporate commodity murabaha Retail musawama and murabaha Islamic credit card receivable Murabaha deferred profit Allowance for impairment (Note 21) 11,680,851 10,624,964 77,530 (3,922,280) (601,176) 17,859,889
2011
AED000 10,026,022 9,936,368 62,118 (4,117,794) (405,387) 15,501,327
Corporate AED000
Retail AED000
21,633 17,650 42,447 81,730 (48,284) 33,446 5,601,414 130,400 39,765 27,384 5,798,963 (82,321) 5,716,642 5,880,693 (130,605) 5,750,088
Outstanding
Specific allowance for impairment
Islamic credit card receivable is comprised of AED 45,703 thousand (2011: AED 56,854 thousand) and AED 31,827 thousand (2011: AED 5,264 thousand) for Ijara and Tawarruq cards respectively.
Carrying amount
Performing: Regular Past due but not impaired 1-29 days 30-59 days 60-89 days Above 90 days
Corporate AED000
Retail AED000
19,580 12,075 73,999 105,654 (87,319) 18,335 6,519,816 59,896 63,848 30,999 6,674,559 (103,967) 6,570,592 6,780,213 (191,286) 6,588,927
Outstanding
Specific allowance for impairment
Outstanding
Collective allowance for impairment
Carrying amount
Performing: Regular Past due but not impaired 1-29 days 30-59 days 60-89 days Above 90 days
Carrying amount
Total outstanding Total allowance for impairment
Outstanding
Collective allowance for impairment
Carrying amount
Total outstanding Total allowance for impairment
104
2012
AED000 Government and public sector Banking sector Corporate and private sector Retail sector 2,291,160 220,674 9,262,873 6,686,358 18,461,065 Movement in allowance for impairment on receivables from Islamic financing activities, during the year:
2011
AED000 3,761,644 750,313 4,871,979 6,522,778 15,906,714
Corporate AED000
Retail AED000
29,401 21,818 119,724 170,943 (48,952) 121,991 1,911,926 26,222 33,403 38,820 2,010,371 (35,010) 1,975,361 2,181,314 (83,962) 2,097,352
Outstanding
2012
AED000
2011
AED000 187,933 217,454 405,387
Carrying amount
Performing: Regular Past due but not impaired 1-29 days 30-59 days 60-89 days Above 90 days
At the beginning of the year Charge of the year, net (Note 21)
2012
AED000 Corporate Ijara Mawsufa Fi-aldhimma Corporate standard Ijara Retail Ijara Mawsufa Fi-aldhimma Retail standard Ijara Allowance for impairment (Note 21) 288,486 2,692,517 220,484 1,960,831 (111,336) 5,050,982
2011
AED000 562,242 1,523,236 325,558 1,492,917 (80,480) 3,823,473
Outstanding
Collective allowance for impairment
Carrying amount
Total outstanding Total allowance for impairment
Ijara assets represent net investment in assets leased for periods which either approximate or cover majority of the estimated useful lives of such assets. The lease agreements stipulate that the lessor undertakes to transfer the leased assets to the lessee upon receiving the final rental payment.
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10.Ijara (continued)
Corporate AED000
Retail AED000
15,148 24,412 80,771 120,331 (35,322) 85,009 1,577,096 53,697 63,327 4,024 1,698,144 (24,760) 1,673,384 1,818,475 (60,082) 1,758,393
2012
AED000 At the beginning of the year 80,480 30,856 111,336 Charge of the year, net (Note 21) At the end of the year
2011
AED000 25,710 54,770 80,480
Outstanding
Specific allowance for impairment
11.Investment securities
2012
AED000
Carrying amount
Performing: Regular Past due but not impaired 1-29 days 30-59 days 60-89 days Above 90 days
2011
AED000 10,363 21,954 3,135,867 (8,204) 3,159,980
Outstanding
Collective allowance for impairment
Carrying amount
Total outstanding Total allowance for impairment
108
2012
AED000 A A1 A2 A3 B+ B1 B3 Ba3 Baa3 BBB+ Unrated 55,088 74,931 53,629 2,219 189,059 6,874 7,000 2,413,757 2,802,557
2011
AED000 110,175 111,054 235,971 389 1,607 136,863 70,002 70,000 1,924 2,430,199 3,168,184
Leasehold improvements
AED000
Computer systems
AED000 132,549 14,200 23,968 170,717 58,725 33,366 92,091 78,626
Total
AED000 1,378,950 222,165 (384) 1,600,731 159,269 72,105 (384) 230,990 1,369,741
Cost
At 1 January 2012 Additions Transfers Disposal of fixed assets At 31 December 2012 181,761 810 5,041 187,612 65,503 22,626 88,129 99,483
Accumulated depreciation
At 1 January 2012 Charge for the year Disposal of fixed assets At 31 December 2012 Net book value at 31 December 2012
12.Investment property
The carrying amount of investment property is the fair value of the property as determined by a registered independent appraiser having an appropriate recognised professional qualification and recent experience in the location and category of the property being valued.
Capital work in progress includes property with a carrying value of AED 1,068 million (2011: AED 942 million). Property and equipment at 31 December 2011 comprise:
2012
AED000 At 1 January Additions Fair value movement At 31 December 125,475 (85,775) 39,700
2011
AED000 144,584 21,298 (40,407) 125,475
Leasehold improvements
AED000
Computer systems
AED000 84,436 11,693 36,420 132,549 34,402 24,323 58,725 73,824
Total
AED000 656,002 722,948 1,378,950 87,696 71,573 159,269 1,219,681
Cost
At 1 January 2011 Additions Transfers At 31 December 2011 151,002 29,626 1,133 181,761 31,906 33,597 65,503 116,258
Accumulated depreciation
At 1 January 2011 Charge for the year At 31 December 2011 Net book value at 31 December 2011
110
14.Other assets
2012
AED000 Prepaid expenses Income receivable Takaful receivable Murabaha inventory Prepaid staff allowances Others Acceptances 38,756 71,683 96,399 83,188 22,347 169,161 277,442 758,976
2011
AED000 48,179 84,036 36,963 91,494 22,012 90,975 207,070 580,729
2012 By Sector
Government Public Corporate / private Retail AED000 11,714,446 168,651 5,244,495 7,829,072 24,956,664
2011
AED000 9,435,556 101,519 4,749,227 5,331,528 19,617,830
Government sector deposits include special deposits amounting to AED 42.2 million (2011: AED 42.2 million) received from the Ministry of Finance with original contractual maturity of 5 years which are exempted from reserve requirements.
Others include promises to buy and sell foreign currencies which are carried at fair value and presented within other assets and other liabilities respectively. The notional amounts of these contracts are disclosed in note 24 of these consolidated financial statements.
16.Other liabilities
2012 2011
AED000 199,709 352,966 6,782 73,056 63,810 70,468 207,070 973,861 AED000 Accounts payable 268,964 328,099 2,896 75,005 105,618 119,980 277,442 1,178,004 Accrued expenses Charity payable Advance administrative fees Takaful liabilities Others Acceptances
15.Customers accounts
2012
AED000 By account: Wakala deposits Current accounts Time deposits Savings accounts 18,684,885 2,143,557 1,666,802 2,461,420 24,956,664 14,782,331 2,087,329 1,324,983 1,423,187 19,617,830
2011
AED000
Others include promises to buy and sell foreign currencies, which are carried at fair value and are presented within other liabilities and other assets respectively. Others include an amount of AED 21.8 million (2011: 15.7 million) of Depositors profit Reserve and the Zakat due on these reserves which pertains to depositors and charity. The group is discharging this Zakat on behalf of the depositors. Charity payable represents profits forfeited by the Fatwa and Shariah Supervisory Board and late payment and over limit fees.
112
17.Share capital
Share capital The authorized share capital of the Bank comprise of 4,000 million ordinary shares of AED1 each. The issued and fully paid up share capital at 31 December 2012 comprise of 3,090 million ordinary shares of AED1 each (2011: 2,590 million ordinary shares of AED1 each). Abu Dhabi Investment Council holds 100% of the issued and fully paid share capital. The Banks shares are not listed on a recognized stock exchange. During 2012, the Bank increased issued and paid up share capital by AED 250 million in April and AED 250 million in September through cash injection. Statutory reserve The UAE Commercial Companies Law No. (8) of 1984 (as amended) and the Banks Articles of Association require that 10% of the annual net profit to be transferred to a statutory reserve until it equals 50% of the paid-up share capital. The statutory reserve is not available for distribution. During the year, AED 35,158 thousand (2011: 20,235 thousand) has been transferred to the Statutory reserve.
2012
AED000 Rent expenses Marketing and advertising expenses Consultancy fees Repair and maintenance Communication Other expenses 78,081 30,525 27,172 16,858 12,215 109,165 274,016
2011
AED000 75,057 24,987 9,255 12,978 9,398 92,174 223,849
21.Impairment charges on financial assets 18.Income from ijara and Islamic financing activities, net
2012
AED000 Income from Murabaha corporate Income from Murabaha retail Income from Ijara corporate Income from Ijara retail 553,149 663,895 134,828 147,021 1,498,893
2011
AED000 497,677 624,658 127,213 131,476 1,381,024 At 1 January Charge for the year Write offs and recoveries
Murabaha and wakala deposits with banks and other financial institutions
2012 AED000 11,803 (573) 11,230 2011 AED000 11,100 703 11,803 2012
Ijara
Investment securities
2012 AED000 8,204 (5,266) 2,938 2011 AED000 1,750 6,454 8,204 2012
Total
2011
AED000 125,963 5,671 (7) 9,472 141,099
At 31 December
Commission, fees and foreign exchange income constitute part of profit distributable to the Shareholder. Fees and commission income include AED 1.7 million from fiduciary activities (2011: AED 0.6 million). Other income includes an amount of AED 1.5 million (2011: AED7.1 million) relating to Takaful activities.
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2012
AED000 Mudaraba Wakala 54,044 529,380 583,424
2011
AED000 47,221 574,585 621,806
31 December 2012
Profit rate swaps
Notional amount
AED000 1,808,420 110,175 1,918,595 3,672,500 3,672,500 5,591,095
2012
AED000 Cash and balances with banks Murabaha and wakala deposits with banks and other financial institutions Wakala deposits from banks 1,437,224 131,535 (202,634) 1,366,125
2011
AED000 1,232,209 288,079 (956,165) 564,123 Profit rate swaps Promises to sell foreign currencies
31 December 2011
Notional amount
AED000 1,766,211 110,175 1,876,386 1,876,386
2011
AED000 443,798 5,963,938 2,319,239 3,906,292 436,447 243,665
85,028
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26.Group entities
Country of incorporation
2012
100% 100% 100% 47% 100%
2011
100% 100% 100% 47% 100%
At 31 December 2012, the balances and transactions with related parties comprise: Balances:
2012
AED000 Islamic financing facilities Investment securities Customers accounts Contingent liabilities Transactions: 2,467,734 55,088 11,837,120 14,561
2011
AED000 2,103,083 9,649,271 4,805
27.Related parties
Identity of related parties Parties are considered to be related if one party has the ability to control the other party or exercise significant influence over the other party in making financial or operational decisions. Related parties comprise major shareholders, directors and key management personal of the Group. The terms of these transactions are approved by the Groups management and are made on terms agreed by the Board of Directors or management. Parent and ultimate controlling party Abu Dhabi Investment Council holds 100% of the issued and fully paid share capital. The Banks shares are not listed on a recognized stock exchange. Compensation of directors and key management personnel Key management remuneration for the years ended 31 December 2012 and 31December2011 comprise:
2012
AED000 Fee and commission income Financing income Depositors share of profits 318 27,179 258,093
2011
AED000 12 76,433 249,881
Save for transactions carried out with the Parent and its group of companies, all transactions with the government and its related concerns are deemed to occur within the normal course of business.
2012
AED000 Short term employment benefits Post employment benefits Directors remuneration Terms and conditions 18,392 1,448 2,647
2011
AED000 17,218 1,458 1,600
Islamic financing and deposits are granted and accepted in various currency denominations and for various time periods. Profit rates earned on Murabaha financing facilities extended to related parties during the year have ranged from 0.65% to 6.85% per annum (2011: 1.50% to 6.5%). Profit distribution rates paid on customers deposits placed by related parties during the year have ranged from 0.51% to 3.76% per annum (2011: 0.71% to 4.5%) Fees and commissions earned on transactions with related parties during the year have ranged from 0.2% to 1.2% per annum (2011: 0.17% to 1.2%). Collaterals against financing to related parties range from being unsecured to fully secure.
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The table below sets out the Groups classification of each class of financial assets and liabilities, and their fair values
The Group manages and administers assets held in trust or in fiduciary capacity on behalf of its customers. The underlying assets held in a custodial or fiduciary capacity are excluded from the consolidated financial statements of the Group.
2012
AED000
FVTPL
FVTOCI
AED000
Amortised cost
AED000
The table below outlines the fair value of the funds and assets under management at the respective reporting dates.
AED000
Total
2012
AED000 Global Sukuk Fund GCC Equity Fund 137,399 23,189
2011
AED000 26,900
Financial assets
Cash and balances with banks Murabaha and wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets 308,900 308,900 65,920 65,920 1,437,223 2,805,778 17,859,889 5,050,982 2,424,799 758,976 30,337,647 24,956,664 2,491,598 1,178,004 28,626,266 1,437,223 2,805,778 17,859,889 5,050,982 2,799,619 758,976 30,712,467 24,956,664 2,491,598 1,178,004 28,626,266
30.Zakah
The Articles of Association of the Bank do not require management of the Bank to pay Zakah on behalf of the Shareholder. Consequently, the Zakah obligation is to be assessed and discharged by the Shareholder.
Financial liabilities
Customers accounts Wakala deposits from banks Other liabilities -
31.Comparative notes
Comparative figures have been reclassified to conform with the presentation for the current year.
2011 FVTPL
AED000
FVTOCI
AED000
Amortised cost
AED000
Total
AED000
Financial assets
Cash and balances with banks Murabaha and wakala deposits with banks and other financial institutions Receivables from Islamic financing activities Ijara Investment securities Other assets 10,363 10,363 21,954 21,954 1,232,209 2,608,204 15,501,327 3,823,473 3,127,663 580,729 26,873,605 19,617,830 4,935,829 973,861 25,527,520 1,232,209 2,608,204 15,501,327 3,823,473 3,159,980 580,729 26,905,922 19,617,830 4,935,829 973,861 25,527,520
Financial liabilities
Customers accounts Wakala deposits from banks Other liabilities -
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Introduction
Al Hilal Bank is in compliance with Basel II Accord and Regulations as published by the Central Bank of U.A.E. As at December 31, 2012, the minimum regulatory requirement set by the Central Bank of U.A.E. is for Banks to maintain a Capital Adequacy ratio (CAR) of 12%. The Bank has adopted the Standardized Approach for Credit Risk and Market Risk and Basic Indicator Approach for Operational Risk. The details of disclosure required under the regulations are in this report.
while the framework is flexible to incorporate new activities the Bank undertakes. The framework is comprehensive and has been communicated from the Board of Directors down to individual Business lines. Al Hilal Banks business strategy is to achieve the objective of being a strong financial player with insight and transparency in risk-taking. The risk governance framework supports this objective and promotes the transparency in the Bank.
Overview (Table 1)
Al Hilal Bank PJSC the Bank was incorporated in United Arab EmiratesAbu Dhabi in the mid of 2008. The Bank is a wholly owned subsidiary of the Abu Dhabi Investment Council (ADIC), which is one of the Sovereign Wealth Funds of the Emirates of Abu Dhabi. The Bank operates as an Islamic Financial Institution and follows the rules of Shariah. The Banks key focus has been to build and roll out robust business models to tap the Corporate and Retail market segments with specially tailored products as per Shariah Compliance and efficient processes to deliver these products. The Banks business philosophy also revolves around the theme of ensuring outstanding service quality, enabled by the best people and technology. Al Hilal Bank operates as a full service Islamic Bank and provides specialist and Islamic banking services through the following subsidiaries: Al Hilal Auto Al Hilal Takaful Al Hilal Leasing - Kazakhstan Al Hilal Islamic Bank - Kazakhstan Al Hilal Bank also has a significant investment in Al Wataniya Development Fund. Al Hilal Bank (AHB) and its subsidiaries, collectively known as the Group assesses its capital adequacy based on the Capital Adequacy Standards of the Central Bank of UAE (CBUAE) issued in November 2009 under Standardized Approach. The Pillar 3 disclosures being made by the Group comply with the BIS Revised Framework International Convergence of Capital Measurement and Capital Standards. These disclosures include qualitative information on the Groups risk management framework, objectives and policies, risk assessment processes and capital adequacy, whilst quantitative information on risk assessment (as per standardized approach) is included as per the guideline provided by CBUAE.
Internal Audit
Independent Assurance
Board Risk Oversight Fatwa and Shariah Supervisory Board Management Investment Committee Board of Directors Management Executive Committee Finance Committee Board Risk Committee Management Risk Committee Management Operational Risk Committee Business & Support Units Human Resource Board Committee Management Credit Committee Management Remedial Committee Board Corporate Governance Committee ALCO
Risk Management
The risk management function is an integral part of the Groups business activities. One of the major risks incurred by the Bank arises from extending credit to customers through trading and financing operations. Beyond credit risk, the Group is also exposed to other risk types such as market risk, operational risk, liquidity risk, concentration risk, profit rate risk in the banking book and other risks that are inherent to the Groups strategy and product range.
Ultimate responsibility for setting the Groups risk appetite and the effective management of risk rests with the Board. Board Risk Committee (BRC) acts within its authority delegated by the Board. The BRC, whose membership is comprised of non-executive directors of the Group, has the responsibility for oversight and review of risks including but not inclusive of, credit risk, market risk, liquidity risk and operational risk. BRC also reviews the overall risk appetite and makes recommendation thereon to the Board. The BRC receives regular comprehensive reports on key risks vis-a-vis the achievement of strategic objectives of AHB, credit risk profile, market and liquidity risk profile, capital adequacy profile and operational risk profile. A key component of Al Hilal Banks business strategy is for risk management to support the objective of being a strong financial partner with insight and transparency in risk-taking. The Banks vision is to adopt best international standards and practices in risk management and to translate this into a comprehensive risk infrastructure that supports this vision.
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Pillar-I (Table 3)
Managing risk is a process operated independently of the business units of Al Hilal Bank. It aims to promote a strong risk management culture through a comprehensive set of policies, processes and tools that are designed to effectively identify, measure, monitor and control risk exposures. The Board of Directors and senior management are involved in the establishment of the risk infrastructure and the periodic oversight and guidance of the risk management function. The processes are subject to additional scrutiny by an independent Shariah Board, as well as, internal and external auditors and the Banks regulators, which help further strengthen the risk management practices within the Bank. Pillar I - deals with the computation of the Regulatory Capital ratio. It involves criteria- based assessment of risk for various asset classes and calculation of Risk Weighted Assets (RWAs) for credit, market and operational risk, to derive the required regulatory capital. All UAE Banks are subject to a minimum capital adequacy ratio of 12%. This is significantly higher than the global required minimum of 8% under Basel II. Al Hilal Bank management aims to ensure the efficient use of capital to meet the Banks overall capital targets. Since the incorporation of the Bank, the Bank has applied Basel II capital adequacy rules. The Banks risk profile considers both capital targets as well as the sufficiency of capital to cover both current and future growth requirements of the Bank. The Board of Directors defines risk and capital targets, whilst Management is responsible for ensuring that these targets are met.
Equity Exposures
This arises as a result of price volatility in various asset classes held by the bank. This includes equities, mutual funds, and other tradable assets. Under Pillar 1, AHB has calculated the capital charge for equity risk on the basis of standardized approach.
Risk Identification
Process Mapping & Risk Analysis Risk & Control Self Assessment Key Risk Indicators Incident Analysis External Event Analysis Scenario Analysis New Initiatives Analysis
Operational Risk
Operational Risk is defined as the risk of loss resulting from inadequate or failed internal processes, people and systems or from external events. The Banks exposure to operational risk arises as a consequence of the Banks Business activities. It is the objective to minimize exposure to operational risk. The Bank computes the capital charge for operational risk by using the Basic Indicator Approach as per the guideline. However, it is strengthening its policy, processes and tools to ensure a gradual transition to higher approaches. The governance structure of operational risk management at the Bank level is through the Management Operational Risk Committee (MORC), that is responsible for overseeing all material operational risks, responses to risk issues and the adequacy and effectiveness of controls. The primary responsibility for the management of operational risk rests with the business and support functions as an integral component of their first line risk management responsibilities. They are assisted in their responsibilities by embedding unit operational risk managers at the grass roots level within Al Hilal Bank.
Risk Assessment
Risk Grading Matrix Real Time Incident Assessment & Escalation
Risk Monitoring
Operational Risk Maps/Profiles Action Plan Tracking
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Liquidity Risk
The risk that the Bank may not be able to meet its obligations when due, at an acceptable market cost, is termed liquidity risk. Liquidity risk is measured by slotting all assets and liabilities with respect to cash inflow and cash outflow in predefined maturity buckets commonly known as liquidity gap analysis. Liquidity risk is defined as the risk of losses because; Banks funding costs increase disproportionately; Lack of funding prevents the Bank from establishing new business; or Lack of funding will ultimately prevent the Bank from meeting its obligations. Liquidity management at Al Hilal Bank is based on monitoring and managing liquidity risks in various scenarios. It is a natural element of the Banks business strategy to assume risks in the management of the liquidity profile of Al Hilal Bank. Al Hilal Banks policies have been defined with respect to the maximum tolerance negative gap the Bank wishes to accept and the funding that is required closing and managing this gap respectively. The management of liquidity risk aims primarily at ensuring that the negative gap in each maturity bucket does not exceed internally set limits which are set in line with Banks risk appetite. In order to meet negative cash flows during ordinary course of business as well as during the stress condition, the Bank keeps a liquidity buffer in the form of liquid assets comprising of Central Bank Reserves and Other Marketable Securities. These are sufficient to meet obligations and ensure the availability of cash or collateral to fulfill those needs at the appropriate time. Contingency plans have been implemented aiming to ensure that Al Hilal Bank is sufficiently prepared to take remedial action if an unfavorable liquidity situation should arise. The Risk Management Group has set limits for liquidity risks, which are applicable on a maximum cumulative cash outflow that the bank can allow within a specific time band. The key business & support unit stakeholders receive reports on the Banks liquidity risks regularly. The ALCO continuously assesses developments in the Banks liquidity position and approves long-term funding plans.
Pillar-II
This refers to the supervisory review process to ensure that Al Hilal Bank not only has adequate capital to support all the risks (both Pillar I and Pillar II) that have been identified, but also to encourage Al Hilal Bank to develop and use better risk management techniques in monitoring and managing its risks. It is through the Internal Capital Adequacy Assessment Process (ICAAP), as well as the Supervisory Review and Evaluation Process (SREP) by the CBUAE that the risk and capital adequacy assessment of the Bank is conducted. The Central Bank of UAE has issued Circular No. 27/2009 dated 17/11/2009 which requires banks to develop the ICAAP. The ICAAP document at AHB is comprehensive in its approach and its coverage includes all material risk types, corporate governance and internal control framework, capital planning and management framework, strategic plans and macro economic factors. This process verifies that management takes steps to ensure that the Bank maintains sufficient internal capital relative to its risk profile (and CBUAE minimum requirements) and that it applies and develops proper risk management systems.
Pillar-III
Pillar III relates to market discipline and requires the Bank to disclose detailed qualitative and quantitative information of its risk management and capital adequacy policies and processes. Disclosures under Pillar III follow the guidelines and formats of the Capital Adequacy Standards (Standardized Approach) provided by the CBUAE.
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Capital Adequacy
AS ON DECEMBER 31, 2012 Quantitative Disclosures Capital Requirements 1. Credit Risk a. Standardized Approach b. Foundation IRB c. Advanced IRB 2. Market Risk a. Standardized Approach b. Models Approach 3. Operational Risk a. Basic Indicator Approach b. Standardized Approach/ASA c. Advanced Measurement Approach Total Capital requirements Capital Ratio a. Total for Top consolidated Group b. Tier 1 ratio only for top consolidated Group 967,568 25,430,088 14.69% 13.91% 265,244 Capital Charge (AED 000s) 24,197,276 Table (3) Capital Ratio (%)
12,760,835 38,471,325
128
112,319
112,319
112,319
152,300 394,660 300,000 394,015 1,077,823 692,713 885,588 144,054 4,599,327 11,850,628 2,307,446 22,910,871
83,011 2,278,180
903,684 561,636 743,985 257,841 472,345 150,100 539,777 55,626 757,470 4,442,465
903,684
152,300 1,298,344 300,000 955,651 1,821,808 950,554 3,504,032 294,154 7,417,283 11,906,254 9,758,626 38,471,325
130
- 1,590,315 - 1,425,241
132
CRM -
AFTER CRM 4,079,349 5,583,437 3,157,619 11,804,650 6,657,220 1,340,310 1,047,279 151,054 2,588,224 36,409,143
10,773,032 11,804,650 6,657,220 1,340,310 1,047,279 151,054 2,588,224 31,681,888 6,657,220 1,340,310 1,047,279 151,054 2,588,224 36,409,143
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REALISED, UNREALISED AND LATENT REVALUATION GAINS (LOSES) DURING THE YEAR 2012
Table (13b) Gains (Losses) Realized gains (losses) from sales and liquidations *Unrealized gains (losses) recognized in the balance sheet but not through profit and loss account **Latent revaluation gains (losses) for investment recorded at cost but not recognized in balance sheet or profit and loss account Total Amount (AED 000s) 651 3,348 3,999
ITEMS IN (2) ABOVE INCLUDED IN TIER 1/TIER 2 CAPITAL: Total Capital Requirement for Market Risk under Standardized Approach
AS ON DECEMBER 31, 2012 Market Risk Profit Rate Risk Equity Position Risk Foreign Exchange Risk Commodity Risk Total Capital Requirement Table (10) Amount (AED 000s) 17,271 14,498 62 31,831 Tier Capital Amount included in Tier I capital Amount included in Tier II capital Total Table (13 c) Amount (AED 000s) 651 651
Equity Position
QUANTITATIVE DETAILS OF EQUITY POSITION:
(AED 000s) Type Equities Collective investment schemes Any other investment Total 156,533 Current Year Publicly Traded 156,533 Previous Year Privately Held Publicly Traded 32,317 32,317 Privately Held Table (13 a)
Available for Sale (Fair Value Through statement of other Comprehensive Income) Held for Trading (Fair Value Through Statement of Income) Total capital requirement
136
Branch Name
Al Ain Al Ain Mall Airport Road Corniche Hamdan Street Mall Muroor Qarm Delma Mall Al Falah Khalifa A Baniyas Bel Rumaitha Bur Dubai Garhoud
Location
Almaty Astana Shymkent
Branch Name
Jsc Islamic Bank Al Hilal Astana Branch Of Jsc Islamic Bank Al Hilal Shymkent Branch Of Jsc Islamic Bank Al Hilal
Branch Manager
Timur Alim Shamil Bibekov Nurlan Turgenbayev
Branch Name
Al Hilal Takaful Dubai Al Hilal Takaful Head Office, Golden Fish Tower Abu Dhabi Traffic Department, Muroor Branch Nationalization & Residency, Immigration Branch Mall Branch
Contact
Fahed Al Kaabi Ahmad Nayef Ahmad Nayef Ahmad Nayef Ahmad Nayef
Dubai Muraqabat Marwan Al Zarouni Dubai Dubai Dubai Dubai Ras Al Khaimah Sharjah Twar Umm Suqeim Money Station Knowledge Village Ras Al Khaimah Sharjah Eissa Shamsi Khalid Al Awadhi Khalid Al Awadhi Jassim Al Hassani Alia Shamsi Eissa Shamsi