AHLI UNITED BANK K.S.C.P. KUWAIT...is regulated by the Central Bank of Kuwait (“CBK”). Its...

AHLI UNITED BANK K.S.C.P.

KUWAIT

INTERIM CONDENSED CONSOLIDATED

FINANCIAL INFORMATION

30 JUNE 2019 (UNAUDITED)

Ahli United Bank K.S.C.P.

Kuwait

Interim Condensed Consolidated Financial Information

30 June 2019

C o n t e n t s

Page

Review Report

1-2

Interim Condensed Consolidated Statement of Profit or Loss (Unaudited)

3

Interim Condensed Consolidated Statement of other Comprehensive Income (Unaudited)

4

Interim Condensed Consolidated Statement of Financial Position (Unaudited)

5

Interim Condensed Consolidated Statement of Changes in Equity (Unaudited)

6

Interim Condensed Consolidated Statement of Cash Flows (Unaudited)

7

Notes to the Interim Condensed Consolidated Financial Information (Unaudited)

8 – 16

3


Interim Condensed Consolidated Statement of Profit or Loss

For the period ended 30 June 2019 (Unaudited)

Three months ended

30 June

Six months ended

30 June

2019 2018 2019 2018

Notes KD’000 KD’000 KD’000 KD’000

Financing income 41,626 38,442 83,048 75,245

Distribution to depositors 4 (20,338) (12,902) (39,367) (24,361)

Net financing income 21,288 25,540 43,681 50,884

Net fees and commission income 2,757 2,581 5,543 5,278

Foreign exchange gains 643 1,467 1,482 2,071

Net gain from investment securities 662 3,963 4,328 3,963

Net gain on sale of investment properties 505 - 1,293 174

Share of results from associate (499) 629 (247) 770

Other income 383 503 596 730

Total operating income 25,739 34,683 56,676 63,870

Provision and impairment losses (1,481) (12,741) (4,808) (15,715)

Operating income after provision and

impairment losses 24,258 21,942

51,868 48,155

Staff costs (5,948) (5,500) (11,673) (10,873)

Depreciation (1,271) (747) (2,547) (1,417)

Other operating expenses (3,224) (2,999) (5,475) (5,560)

Total operating expenses (10,443) (9,246) (19,695) (17,850)

PROFIT FROM OPERATIONS 13,815 12,696

32,173 30,305

Zakat (138) (127) (321) (306)

National Labour Support Tax (345) (317) (803) (765)

Contribution to Kuwait Foundation for

the Advancement of Sciences (125) (115)

(290) (273)

PROFIT FOR THE PERIOD 13,207 12,137 30,759 28,961

Basic and diluted earnings per share 5 6.2 5.6 15.7 14.7

The attached notes 1 to 14 form part of the interim condensed consolidated financial information.

4


Interim Condensed Consolidated Statement of Other Comprehensive Income


Three months ended

30 June

Six months ended

30 June

2019 2018 2019 2018

KD’000 KD’000 KD’000 KD’000

Profit for the period 13,207 12,137

30,759 28,961

Other comprehensive (loss) income:

Other comprehensive (loss) income not to

be reclassified to consolidated statement

of profit or loss in subsequent periods:

Net movement in cumulative changes in

fair values of investment securities

classified as fair value through other

comprehensive income (1,166) 166

(1,172) 321

Net other comprehensive (loss) income

not to be reclassified to consolidated

statement of profit or loss in

subsequent periods (1,166) 166

(1,172) 321

Other comprehensive (loss) income for

the period (1,166) 166

(1,172) 321

Total comprehensive income for the

period 12,041 12,303

29,587 29,282


5


Interim Condensed Consolidated Statement of Financial Position

As at 30 June 2019 (Unaudited)

(Audited)

30 June

2019

31 December

2018

30 June

2018

Notes KD’000 KD’000 KD’000

ASSETS

Cash and balances with banks 6 123,959 76,937 68,424

Deposits with Central Bank of Kuwait 308,445 346,097 378,290

Deposits with other banks 322,789 334,801 144,280

Financing receivables 7 2,904,981 2,799,906 2,744,565

Investment securities 263,255 264,185 263,951

Investment in associate 8,589 8,823 10,398

Investment properties 29,361 36,539 36,620

Premises and equipment 41,920 34,279 33,229

Other assets 13,454 12,086 16,235

TOTAL ASSETS 4,016,753 3,913,653 3,695,992

LIABILITIES AND EQUITY

LIABILITIES

Deposits from banks and financial institutions 941,465 918,651 767,567

Deposits from customers 2,499,768 2,424,516 2,379,336

Other liabilities 82,742 79,084 75,226

3,523,975 3,422,251 3,222,129

EQUITY

Share capital 8 206,273 196,451 196,451

Reserves 269,822 278,268 260,729

476,095 474,719 457,180

Treasury shares 8 (43,957) (43,957) (43,957)

Attributable to Bank’s equity shareholders 432,138 430,762 413,223

Perpetual Tier 1 Sukuk 9 60,640 60,640 60,640

TOTAL EQUITY 492,778 491,402 473,863

TOTAL LIABILITIES AND EQUITY 4,016,753 3,913,653 3,695,992

Dr. Anwar Ali Al-Mudhaf Tareq Muhmood

Chairman Acting Chief Executive Officer


6


Interim Condensed Consolidated Statement of Changes in Equity

For the period ended 30 June 2019 (Unaudited) Attributable to the Bank’s equity shareholders

Reserves

Share

capital

KD’000

Share

premium

KD’000

Statutory

reserve

KD’000

General

reserve

KD’000

Retained

earnings

KD’000

Cumulative

changes in

fair values

KD’000

Property

revaluation

reserve

KD’000

Treasury

shares

reserve

KD’000

Foreign

currency

translation

reserve

KD’000

Total

reserves

KD’000

Treasury

shares

KD’000

Perpetual

Tier 1 Sukuk

KD 000

Total

KD’000

Balance as at 1 January 2019 196,451 12,883 84,264 22,660 143,877 3,772 9,838 974 - 278,268 (43,957) 60,640 491,402

Profit for the period - - - - 30,759 - - - - 30,759 - - 30,759

Other comprehensive loss for the

period - - - - - (1,172) - - - (1,172) - - (1,172)

Total comprehensive income (loss)

for the period - - - - 30,759 (1,172) - - - 29,587 - - 29,587

Dividend-2018 (Note 8) - - - - (26,531) - - - - (26,531) - - (26,531)

Issue of bonus shares – 2018

(Note 8) 9,822 - - -

(9,822) - - - - (9,822) - - -

Profit payment on Tier 1 Sukuk

(Note 9) - - - -

(1,680) - - - - (1,680) - - (1,680)

Transfer of fair value reserve of

investment securities carried at

FVOCI on derecognition - - - - (1,250) 1,250 - - - - - - -

Balance as at 30 June 2019 206,273 12,883 84,264 22,660 135,353 3,850 9,838 974 - 269,822 (43,957) 60,640 492,778

Balance as at 1 January 2018 187,096 12,883 78,877 22,660 134,920 3,478 9,976 974 41 263,809 (43,957) 60,640 467,588

Transition adjustment on adoption

of IFRS 9 at 1 January 2018 -

-

-

-

-

549

-

-

-

549

-

- 549

Balance as at 1 January 2018

(restated) 187,096

12,883

78,877

22,660

134,920

4,027

9,976

974

41

264,358

(43,957)

60,640 468,137

Profit for the period - - - - 28,961 - - - - 28,961 - - 28,961

Other comprehensive income for

the period - - - - - 321 - - - 321 - - 321

Total comprehensive income for

the period - - - - 28,961 321 - - - 29,282 - - 29,282

Dividend-2017 (Note 8) - - - - (21,899) - - - - (21,899) - - (21,899)

Issue of bonus shares – 2017

(Note 8) 9,355 - - - (9,355) - - - -

(9,355) - - -

Profit payment on Tier 1 Sukuk

(Note 9) - - - - (1,657) - - - - (1,657) - - (1,657)

Balance as at 30 June 2018 196,451 12,883 78,877 22,660 130,970 4,348 9,976 974 41 260,729 (43,957) 60,640 473,863


7


Interim Condensed Consolidated Statement of Cash Flows


Six months ended

30 June

2019 2018

Notes KD’000 KD’000

OPERATING ACTIVITIES

Profit for the period 30,759 28,961

Adjustments for:

Net gain from investment securities (4,328) (3,963)

Net gain on sale of investment properties (1,293) (174)

Amortisation of sukuk premium 214 254

Share of results from associate 247 (770)

Dividend income (529) (497)

Net income from investment properties (57) (220)

Depreciation 2,547 1,417

Provision and impairment losses 4,808 15,715

Operating profit before changes in operating assets and liabilities 32,368 40,723

Changes in operating assets / liabilities:

Deposits with Central Bank of Kuwait 37,652 37,336

Deposits with other banks (6,211) 33,052

Financing receivables (115,845) (74,615)

Other assets (2,188) (1,238)

Deposits from banks and financial institutions 22,801 58,658

Deposits from customers 75,252 (46,945)

Other liabilities (1,435) (522)

Net cash from operating activities 42,394 46,449

INVESTING ACTIVITIES

Purchase of investment securities (177,885) (180,406)

Sale and redemption of investment securities 184,854 137,491

Purchase of investment properties (2,529) -

Proceeds from sale of investment properties 10,971 1,500

Purchase of premises and equipment (1,366) (1,372)

Dividends income received 529 497

Net income from investment properties 57 220

Net cash from (used in) investing activities 14,631 (42,070)

FINANCING ACTIVITY

Dividends paid to shareholders 8 (26,531) (21,899)

Profit payment on Tier 1 Sukuk (1,680) (1,657)

Net cash used in financing activities (28,211) (23,556)

NET INCREASE (DECREASE) IN CASH AND CASH

EQUIVALENTS 28,814 (19,177)

Cash and cash equivalents at 1 January 101,210 87,601

CASH AND CASH EQUIVALENTS AT 30 JUNE 6 130,024 68,424

Financing income received amounted to KD 84,287 thousand (30 June 2018: KD 73,998 thousand) and

distribution to depositors made amounted to KD 35,655 thousand (30 June 2018: KD 22,763 thousand).



Notes to the Interim Condensed Consolidated Financial Information


8

1 INCORPORATION AND ACTIVITIES

Ahli United Bank K.S.C.P. (the “Bank”) is a public shareholding company incorporated in Kuwait in 1971 and is

listed on Boursa Kuwait. It is engaged in carrying out banking activities in accordance with Islamic Sharia’a and

is regulated by the Central Bank of Kuwait (“CBK”). Its registered office is at Darwazat Al-Abdul Razzak, P. O.

Box 71, Safat 12168, Kuwait.

The Bank commenced operations as an Islamic bank from 1 April 2010. From that date, all activities are

conducted in accordance with Islamic Sharia’a, as approved by the Bank’s Fatwa and Sharia’a Supervisory

Board.

The Bank is a subsidiary of Ahli United Bank B.S.C., a Bahraini bank (the “Parent”), listed on the Bahrain Stock

Exchange and Boursa Kuwait. As at 30 June 2019, the Bank holds 50.41% (31 December 2018: 50.41% and 30

June 2018: 50.12%) effective interest in its subsidiary, Kuwait and Middle East Financial Investment Company

K.S.C.P. (“KMEFIC”), a company incorporated in the State of Kuwait. KMEFIC is listed on the Boursa Kuwait

and is engaged in investment and portfolio management activities for its own account and for its clients.

The interim condensed consolidated financial information of the Bank and its subsidiaries (collectively, “the

Group”) for the period ended 30 June 2019 were authorised for issue in accordance with a resolution of the Board

of Directors on 4 July 2019.

2 BASIS OF PREPARATION AND SIGNIFICANT ACCOUNTING POLICIES

Basis of preparation

The interim condensed consolidated financial information of the Group has been prepared in accordance with

International Accounting Standard (“IAS”) 34 Interim Financial Reporting except as noted below.

The annual consolidated financial statements for the year ended 31 December 2018 were prepared in accordance

with regulations for financial services institutions as issued by the Central Bank of Kuwait (“CBK”) in the State

of Kuwait. These regulations require expected credit loss (“ECL”) to be measured at the higher of the ECL on

credit facilities computed under IFRS 9 according to the CBK guidelines or the provisions as required by CBK

instructions; the consequent impact on related disclosures; and the adoption of all other requirements of

International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standard Board

(“IASB”).

The accounting policies used in the preparation of these interim condensed consolidated financial information are

consistent with those used in the previous financial year, except for the adoption of IFRS 16 Leases, effective 1

January 2019. The accounting policies for this new standard is disclosed in Note 3.

The interim condensed consolidated financial information does not contain all information and disclosures

required for full financial statements prepared in accordance with IFRS, and should be read in conjunction with

the Group’s annual consolidated financial statements for the year ended 31 December 2018.

Further, results for the six months period ended 30 June 2019, are not necessarily indicative of the results that may

be expected for the financial year ending 31 December 2019.

Other amendments to IFRS which are effective for annual accounting period starting from 1 January 2019 did not

have any material impact on the accounting policies, financial position or performance of the Group.

3 IMPACT OF CHANGES IN ACCOUNTING POLICIES DUE TO ADOPTION OF NEW STANDARD

The key changes to the Group’s accounting policies resulting from its adoption of IFRS 16 are summarised below:

IFRS 16 Leases

IFRS 16 supersedes IAS 17 Leases, IFRIC 4 Determining whether an Arrangement contains a Lease, SIC-15

Operating Leases-Incentives and SIC-27 Evaluating the Substance of Transactions Involving the Legal Form of a

Lease. The standard sets out the principles for the recognition, measurement, presentation and disclosure of leases

and requires lessees to account for most leases under a single on-balance sheet model.

Lessor accounting under IFRS 16 is substantially unchanged from IAS 17. Lessors will continue to classify leases

as either operating or finance leases using similar principles as in IAS 17. Therefore, IFRS 16 did not have an

impact for leases where the Group is the lessor.




9


(CONTINUED)

IFRS 16 Leases (continued)

Upon adoption of IFRS 16, the Group applied a single recognition and measurement approach for all leases that it

is the lessee, except for short-term leases and leases of low-value assets. The Group recognised lease liabilities to

make lease payments and right-of-use assets representing the right to use the underlying assets. The Group

adopted IFRS 16 using the modified retrospective method of adoption with the date of initial application of

1 January 2019 and accordingly, the comparative information is not restated. The Group elected to use the

transition practical expedient allowing the standard to be applied only to contracts that were previously identified

as leases applying IAS 17 and IFRIC 4 at the date of initial application. The Group also elected to use the

recognition exemptions for lease contracts that, at the commencement date, have a lease term of 12 months or less

and do not contain a purchase option (‘short-term leases’), and lease contracts for which the underlying asset is of

low value (‘low-value assets’).

The Group has recorded right-of-use assets representing the right to use the underlying assets under premises and

equipment and the corresponding lease liabilities to make lease payments under other liabilities. The right-of-use

assets and lease liabilities recorded as at 1 January 2019 amounted to KD 8,822 thousand, with no impact on

retained earnings. When measuring lease liabilities, the Group discounted lease payments using its incremental

profit rate of 2.5% at 1 January 2019.

Summary of new accounting policies

The accounting policies of the Group upon adoption of IFRS 16 are as follows:

a) Right of use assets

The Group recognises right of use assets at the commencement date of the lease (i.e., the date the underlying asset

is available for use). Right of use assets are measured at cost, less any accumulated depreciation and impairment

losses, and adjusted for any re-measurement of lease liabilities. The cost of right of use assets includes the amount

of lease liabilities recognised, initial direct costs incurred, and lease payments made at or before the

commencement date less any lease incentives received. Unless the Group is reasonably certain to obtain

ownership of the leased asset at the end of the lease term, the recognised right of use assets are depreciated on a

straight-line basis over the shorter of its estimated useful life and the lease term. Right of use assets are subject to

impairment. The carrying value of the right-of-use assets are recorded under premises and equipment in the

interim condensed consolidated statement of financial position.

Lease costs for the period ended 30 June 2019 relating to the right-of-use assets amounting to KD 895 thousand

are included under depreciation expenses.

b) Lease liabilities

At the commencement date of the lease, the Group recognises lease liabilities measured at the present value of

lease payments to be made over the lease term. The lease payments include fixed payments (including in-

substance fixed payments) less any lease incentives receivable, variable lease payments that depend on an index

or a rate, and amounts expected to be paid under residual value guarantees. The lease payments also include the

exercise price of a purchase option reasonably certain to be exercised by the Group and payments of penalties for

terminating a lease, if the lease term reflects the Group exercising the option to terminate. The variable lease

payments that do not depend on an index or a rate are recognised as expense in the period on which the event or

condition that triggers the payment occurs.

In calculating the present value of lease payments, the Group uses the incremental profit rate at the lease

commencement date if the profit rate implicit in the lease is not readily determinable. After the commencement

date, the amount of lease liabilities is increased to reflect the accretion of profit and reduced for the lease

payments made. In addition, the carrying amount of lease liabilities is remeasured if there is a modification, a

change in the lease term, a change in the in-substance fixed lease payments or a change in the assessment to

purchase the underlying asset and are recorded under other liabilities in the interim condensed consolidated

statement of financial position.




10


(CONTINUED)

IFRS 16 Leases (continued)

Summary of new accounting policies (continued)

c) Significant judgement in determining the lease term of contracts with renewal options

The Group determines the lease term as the non-cancellable term of the lease, together with any periods covered

by an option to extend the lease if it is reasonably certain to be exercised, or any periods covered by an option to

terminate the lease, if it is reasonably certain not to be exercised.

The Group has the option, under some of its leases to lease the assets for additional terms. The Group applies

judgement in evaluating whether it is reasonably certain to exercise the option to renew. That is, it considers all

relevant factors that create an economic incentive for it to exercise the renewal. After the commencement date, the

Group reassesses the lease term if there is a significant event or change in circumstances that is within its control

and affects its ability to exercise (or not to exercise) the option to renew (e.g., a change in business strategy).

4 DISTRIBUTION TO DEPOSITORS

The Board of Directors of the Bank determines the depositors’ share of profit on a quarterly basis based on the

Bank’s results for the three months period ended 30 June 2019.

5 BASIC AND DILUTED EARNINGS PER SHARE

Basic and diluted earnings per share for periods presented in the interim condensed consolidated statement of

profit or loss are calculated as follows:

Three months ended

30 June

Six months ended

30 June

2019 2018 2019 2018

Profit for the period (KD’000) 13,207 12,137 30,759 28,961

Less: Profit payments on Tier 1 sukuks (1,680) (1,657) (1,680) (1,657)

Profit for the period after profit payment on

Tier 1 Sukuks 11,527 10,480 29,079 27,304

Weighted average number of shares

outstanding during the period 1,857,172,776 1,857,172,776 1,857,172,776 1,857,172,776

Basic and diluted earnings per share

attributable to the Bank’s equity

shareholders (fils) 6.2 5.6 15.7 14.7

Earnings per share for the three months and six months ended 30 June 2018 was 5.9 fils and 15.4 fils respectively

before retroactive adjustment to the number of shares following the bonus issue (Note 8).

As there are no dilutive instruments outstanding, basic and diluted earnings per share are identical.

6 CASH AND CASH EQUIVALENTS

Cash and cash equivalents included in the interim condensed consolidated statement of cash flows consists of the

following:

(Audited) 30 June 31 December 30 June 2019 2018 2018 KD’000 KD’000 KD’000 Cash and balances with banks 123,959 76,937 68,424 Deposits with Central banks and other banks - with an

original maturity of seven days or less 6,065 24,273 -

130,024 101,210 68,424




11

7 FINANCING RECEIVABLES

The ECL determined under IFRS 9 guidelines issued by the CBK for financing receivables as of 30 June 2019 is

KD 64,935 thousand (31 December 2018: KD 101,349 thousand), which is lower than the provision for credit losses

calculated in accordance with CBK instructions.

8 EQUITY

a) The shareholders’ Annual General Assembly held on 25 March 2019, approved the audited consolidated

financial statements of the Bank for the year ended 31 December 2018 and the distribution of cash dividend

of 15 fils per share (2017: 13 fils per share) and issuance of bonus shares of 5% (2017: 5%).

b) Treasury shares

(Audited)

30 June 31 December 30 June

2019 2018 2018

Number of treasury shares 205,558,422 195,769,926 195,769,926

Treasury shares as a percentage of total shares issued

9.97% 9.97%

9.97%

Cost of treasury shares (KD’ 000) 43,957 43,957 43,957

Market value of treasury shares at the reporting date

(KD 000)

64,956 58,144

55,794

Weighted average market value per treasury share (fils) 315 301 325

Amount equivalent to cost of treasury shares has been retained out of reserves as non-distributable throughout the

holding period of the treasury shares.

9 PERPETUAL TIER 1 SUKUK

In October 2016, the Bank through a Sharia’a compliant Sukuk arrangement issued Tier 1 Sukuk amounting to

USD 200 million. Tier 1 Sukuk is a perpetual security in respect of which there is no fixed redemption date and

constitutes direct, unsecured, deeply subordinated obligations (senior only to share capital) of the Bank subject to

the terms and conditions of the Mudaraba Agreement. The Tier I Sukuk is listed on the Irish Stock Exchange and

NASDAQ Dubai and callable by the Bank after five-year period ending October 2021 (the “First Call Date”) or

any profit payment date thereafter subject to certain redemption conditions including prior CBK approval.

The net proceeds of Tier 1 Sukuk are invested by way of Mudaraba with the Bank (as Mudareb) on an

unrestricted basis, by the Bank in its general business activities carried out through the general Mudaraba pool.

Tier I Sukuk bears profit rate of 5.5% per annum to be paid semi-annually in arrears until the First Call Date

subject to terms of the issue. After that, the expected profit rate will be reset based on then prevailing 5 years U.S

Mid Swap Rate plus initial margin of 4.226 % per annum.

At the issuer’s sole discretion, it may elect not to make any Mudaraba distributions expected and in such event,

the Mudaraba profit will not be accumulated and the event is not considered an event of default.

10 TRANSACTIONS WITH RELATED PARTIES

The Group enters into transactions with the parent, subsidiaries, associates, major shareholders, directors and key

management, close members of their families and entities controlled, jointly controlled or significantly influenced

by such parties in the ordinary course of business. The terms of these transactions are approved by the Group’s

management.




12

10 TRANSACTIONS WITH RELATED PARTIES (CONTINUED)

The related party balances in the interim condensed consolidated financial information are as follows:

Number of Number of

Board members or related Parent Others Total

executive officers parties KD’000 KD’000 KD’000

As at 30 June 2019

Financing receivables - 6 - 35,250 35,250

Deposits with other banks - 3 116,993 7,649 124,642

Deposits from banks and financial

institutions

-

7

38,252 515,505

553,757

Deposits from customers 14 27 - 18,484 18,484

Commitments and contingent

liabilities

-

7

11,748 43,870 55,618

Islamic Forward Agreements - 1 896 - 896

Profit Rate Swaps - 1 129,748 - 129,748

As at 31 December 2018 (Audited)

Financing receivables - 6 - 42,319 42,319

Deposits with other banks - 4 72,100 314 72,414


institutions

-

7

36,712 503,180

539,892



liabilities

-

6

12,258 41,087 53,345

Islamic Forward Agreements - 1 10,498 - 10,498


As at 30 June 2018

Financing receivables 1 6 - 45,630 45,630

Deposits with other banks - 5 108,397 6,308 114,705


institutions

-

7

40,782 532,635

573,417



liabilities

-

7

9,847 39,748 49,595

Islamic Forward Agreements - 1 14,203 - 14,203


Transactions with related parties included in the interim condensed consolidated financial information are as

follows:

Parent Others Total

KD’000 KD’000 KD’000

Transactions

For the period ended 30 June 2019

Financing income 2,221 860 3,081

Distribution to depositors 394 8,484 8,878

For the period ended 30 June 2018

Financing income 1,150 948 2,098

Distribution to depositors 316 4,740 5,056




13

11 COMMITMENTS AND CONTINGENT LIABILITIES

a) Financial instruments with contractual amounts representing credit risk:

(Audited)

30 June 31 December 30 June

2019 2018 2018

KD’000 KD’000 KD’000

Acceptances 16,283 23,895 35,534

Letters of credit 49,952 69,443 65,616

Guarantees 479,438 449,301 443,738

545,673 542,639 544,888

Irrevocable credit commitments to extend credit as at the statement of financial position date amounted to

KD 11,765 thousand (31 December 2018: KD 919 thousand and 30 June 2018: KD 7,570 thousand).

b) The capital commitment for purchase of assets as at 30 June 2019 is KD 1,592 thousand (31 December 2018:

KD 1,495 thousand and 30 June 2018: KD 2,014 thousand).

12 DERIVATIVE FINANCIAL INSTRUMENTS

Islamic forward agreements (Waad) In the ordinary course of business, the Group enters into various types of transactions that involve financial instruments represented in forward foreign exchange agreements (Waad) to mitigate foreign currency risk. A Waad is a financial transaction between two parties where payments are dependent upon movements in price of one or more underlying financial instruments, reference rate or index in accordance with Islamic Sharia’a. The notional amount, disclosed gross, is the amount of a Waad’s underlying asset/ liability and is the basis upon which changes in the value are measured. The notional amounts indicate the volume of transactions outstanding at the period-end and are neither indicative of the market risk nor credit risk.

Profit rate swaps (PRS) Profit rate swaps are contractual agreements between two parties and may involve exchange of profit or exchange of both principal and profit for a fixed period of time based on contractual terms.

The notional amounts indicate the volume of transactions outstanding at the period-end and are neither indicative of the market risk nor credit risk.

The fair value of derivative financial instruments included in the financial records, together with their notional amounts is summarised as follows:

30 June 2019 (Audited) 31 December 2018 30 June 2018

Positive

fair value

Negative

fair value Notional

Positive

fair value

Negative

fair value Notional

Positive

fair value

Negative

fair value Notional

KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s KD 000’s

Waad 73 77 5,669 422 444 25,673 677 737 49,006

Profit Rate Swaps

(held as fair value

hedge) -

3,908 99,433

508

726 74,536

771 13 56,245

Profit Rate Swaps

(others) 4 4 60,630

315

315 60,660

462 462 60,560 ──────── ──────── ──────── ──────── ──────── ──────── ──────── ──────── ────────

77 3,989 165,732 1,245 1,485 160,869 1,910 1,212 165,811 ═══════ ═══════ ═══════ ════════ ═══════ ════════ ═══════ ═══════ ═══════

All derivative contracts are fair valued based on observable market inputs and are classified as level 2.




14

13 SEGMENT INFORMATION

The Group’s operating segments are determined based on the reports reviewed by the Chief Operating decision maker that are used for strategic decisions. These segments are strategic business units having similar economic characteristics that offer different products and services. These operating segments are monitored separately by the Group for the purpose of making decisions about resource allocation and performance assessment.

These operating segments meet the criteria for reportable segments and are as follows:

Retail and Commercial Banking – comprising a full range of banking operations covering credit and deposit

services provided to customers and correspondent banking. The Group uses a common marketing and

distribution strategy for its commercial banking operations.

Treasury and Investment Management – comprising clearing, money market, foreign exchange, sukuk, other

treasury and miscellaneous operations, proprietary investment, securities trading activities and fiduciary fund

management activities. Segment results include revenue and expenses directly attributable to a segment and an allocation of overhead cost. The Group measures the performance of operating segments through segment profit or loss net of taxes in management and reporting systems.

Segment assets and liabilities comprise those operating assets and liabilities that are directly attributable to the segment. Segment information for the six months periods ended 30 June 2019 and 30 June 2018 are as follows:

Retail and Commercial

Banking

Treasury and Investment

Management Total

2019 2018 2019 2018 2019 2018

KD’000 KD’000 KD’000 KD’000 KD’000 KD’000

Net financing income 32,636 40,785 11,045 10,099 43,681 50,884

Fees, commissions

and others 5,673 5,772 7,322 7,214 12,995 12,986

Total operating

income 38,309 46,557 18,367 17,313 56,676 63,870

Provision and

impairment losses (2,957) (14,420) (1,851) (1,295) (4,808) (15,715)

Operating expenses

and taxation (17,540) (16,002) (3,569) (3,192) (21,109) (19,194)

Segment result 17,812 16,135 12,947 12,826 30,759 28,961

Retail and

Commercial

Banking

KD’000

Treasury and

Investment

Management

KD’000

Total

KD’000

As at 30 June 2019

Segment assets 2,978,581 1,038,172 4,016,753

Segment liabilities 1,980,723 1,543,252 3,523,975

As at 31 December 2018 (Audited)

Segment assets 3,188,710 724,943 3,913,653


As at 30 June 2018

Segment assets 3,122,410 573,582 3,695,992





15

14 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS

The following table provides the fair value measurement hierarchy of the Group’s financial instruments:

Fair value measurement hierarchy for assets and liabilities is as follows:

Level 1 Level 2 Level 3 Total

30 June 2019 KD’000 KD’000 KD’000 KD’000

Assets measured at fair value

Financial assets

Investment securities 12 639 4,563 5,214

Derivative financial instruments

Waad - 73 - 73

Profit Rate Swap - 4 - 4

- 77 - 77

12 716 4,563 5,291

Liability measured at fair value


Waad - 77 - 77

Profit Rate Swap - 3,912 - 3,912

- 3,989 - 3,989

Level 1 Level 2 Level 3 Total

31 December 2018 (Audited) KD 000 KD 000 KD 000 KD 000


Financial assets

Investment securities 16,726 1,166 4,563 22,455

Derivative financial instrument

Waad - 422 - 422


- 1,245 - 1,245

16,726 2,411 4,563 23,700


Derivative financial instrument

Waad - 444 - 444


- 1,485 - 1,485

Level: 1 Level: 2 Level: 3 Total

30 June 2018 KD’000 KD’000 KD’000 KD’000


Financial assets

Investment securities 17,217 1,788 4,466 23,471


Waad - 677 - 677


- 1,910 - 1,910

17,217 3,698 4,466 25,381



Waad - 737 - 737


- 1,212 - 1,212




16

14 FINANCIAL RISK MANAGEMENT AND FINANCIAL INSTRUMENTS (CONTINUED)

The fair values of the other financial liabilities are not materially different from their carrying values, since these

liabilities are repriced at intervals of three or six months, depending on the terms and conditions of the instrument

and the resultant applicable margins approximate the current spreads that would apply for borrowings with similar

maturities.

The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by

valuation technique:

Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities

Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are

observable, either directly or indirectly.

Level 3: Techniques which use inputs which have a significant effect on the recorded fair value that are not based

on observable market data.

Date post:	26-Oct-2020
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