ANNUAL REPORT 2010
Charting the Course to Create and Capture Value in the Global Energy Sector
About First Energy Bank
First Energy Bank B.S.C.(c) (“FEB” or the “Bank”) is an Islamic investment
bank licensed by the Central Bank of Bahrain and headquartered in Manama,
Kingdom of Bahrain.
FEB’s founders believe that the global energy sector and the Middle East and
North Africa (MENA) region offer excellent opportunities for private equity
and Islamic financial investment First Energy Bank offers investors unique and
specialized opportunities that capitalize on the MENA region’s status as the
center for world energy.
The Bank focuses on investments in the production, transportation, storage
and refining of hydrocarbons, as well as oilfield services and energy sector
technologies. FEB also explores new opportunities to invest in the development
of power generation capacity and renewable energy technologies.
FEB operates in accordance with Islamic Sharia’a principles as a financial
partner in project development, joint ventures, mergers and acquisitions and
the purchase of assets and asset portfolios.
FEB was established with an authorized capital of US$2 billion, consisting of 2
billion ordinary shares each with a par value of US$1. The bank’s shareholders
include a range of organizations and individuals with interests in the energy
sector from the Kingdom of Bahrain, the United Arab Emirates, Libya, the
Kingdom of Saudi Arabia, and other countries in the region.
FEB has a host of recent accomplishments highlighting the strength of its team
and the soundness of its investment strategy. These include the successful
construction completion of MENAdrill I and MENAdrill II offshore rigs under
MENAdrill Investment Company. Further MENAdrill I was successfully deployed
in the Gulf of Mexico to commence drilling under a charter contract. Another
successful milestone is the achievement of Early Commercial Operation of Al
Dur Independent Water and Power Production (IWPP) project in which FEB is
ultimately a 9% owner.
FIRST ENERGY BANK ANNUAL REPORT 2010 1
CONTENTS
About First Energy Bank
Board of Directors 2 Sharia’a Supervisory Board 6 Executive Management 8
Chairman’s letter to shareholders 12 Financial Highlights 14
Message from the Acting CEO 16 Business Activities 18 Projects and Investments 20 Corporate Governance 23 Financial Statements 33 Risk and Capital Management 75
Message from the Acting CEO 16
2 FIRST ENERGY BANK ANNUAL REPORT 2010
Board of Directors
Abdulla A. Kareem Showaiter - Board Member
Khalid Mohamed Najibi - Board Member
H.E. Hamad Rashed Al Neaimi - Vice Chairman
Mohamed Ali Al Fahim - Board Member
Sadoun Bin Bargash Al Sadoun - Board Member
Ebrahim Hussain Ebrahim - Board Member
H. E. Khadem Abdulla Al Qubaisi - Chairman(Effective February 2011)
H.E. Ahmed Saif Al Darmaki - Board Member
Adel Abdulaziz Al Jabr - Board Member Khalid Bin Kalban - Board Member
FIRST ENERGY BANK ANNUAL REPORT 2010 3
H. E. Khadem Abdulla Al Qubaisi - Chairman - (Effective February 2011)
H.E. Khadem Abdulla Al Qubaisi, with a broad work experience of over 17 years, served as a key figure on many management teams
throughout the financial industry. Currently, Mr. Al Qubaisi is the Managing Director of International Petroleum Investment Company
(IPIC) in Abu Dhabi. He is also serving as Chairman of Aabar Investments (PJSC), National Central Cooling Co. (Tabreed), Abu Dhabi
National Takaful Co. (Takaful), I-Media Newspaper (Alrroya Aleqtisadiya), Borealis AG in Vienna – Austria, Nova Chemicals Corporation in
Calgary, Alberta – Canada, Falcon Private Bank in Zurich – Switzerland. Additionally, he is the Vice Chairman of Compañía Española de
Petróleos, S.A. (CEPSA) in Madrid, Spain and Supervisory Board of OMV Aktiengesellsch in Vienna, Austria.
Mr. Al Qubaisi is a Board Member in numerous companies such as First Gulf Bank, Emirates Investment Authority.
Mr. Al Qubaisi won the ICIS No. 1 Power Player award for 2009 (for the global chemical sector) and the Arabian Businessman award for 2009.
H.E. Hamad Rashed Al Neaimi - Vice Chairman
H.E. Hamad Rashed Al Neaimi with a broad work experience of over 22 years, is the Chairman of Associated Group which possess around
50 companies under its umbrella. In addition to many key positions, his Excellency is a main shareholder in several companies such as
Reem Investments and Al Mal Capital. He is also the Chairman of Real Estate Investment and Services Co, Chairman and Shareholder
of Electronic Stock and Brokerage Co, and the Chairman and Shareholder of Force 10 UAE. His Excellency is also the Managing Director
of the Office of His Highness Sheikh Saeed Bin Zayed Al Nahyan, Managing Director of the office of His Highness Nahyan Bin Zayed Al
Nahyan, and the Corporate Managing Director of the Office of His Highness Sheikh Diab Bin Zayed Al Nahyan. His Excellency currently is
a board member to various companies that include, International Capital Trading L.L.C, National Investment Corporation, Trasngulf Ready
Mix Concrete, Union Pipes, Abu Dhabi Ship Building, Daman Investment, Daman Securities, and The Buildan.
H.E. Ahmed Saif Al Darmaki - Board Member
H.E. Ahmed Saif Al Darmaki is the Managing Director of The Chairman’s Office and the Planning & Development Director of Abu Dhabi
Water & Electricity Authority. Also, he has been working as the Chairman of Abu Dhabi Water and Electricity Company, the Deputy
Chairman of the Board of Directors for Abu Dhabi National Energy Company (TAQA), as well as a Board Member in Abu Dhabi Future
Energy Company (MASDAR). In addition, Mr. Al Darmaki is a Board Member in several Governmental, Semi-Governmental, and Private
Firms and Organizations in the UAE and has 16 years of work experience.
Abdulla A. Kareem Showaiter - Board Member
Mr. Showaiter is the Acting Chief Executive Officer of Emirates Islamic Bank with a total of 33 years of work experience. He is a board
member in numerous financial institutions and companies such as Khaleeji Commercial Bank, Al Salam Bank - Sudan and Mada’en Real
Estate, Awqaf and Minor Affairs Foundation – Dubai Government.
Sadoun Bin Bargash Al Sadoun - Board Member
Mr. Sadoun Worked in Several oil and gas companies such as: KNPC, Petromin and Saudi ARAMCO with a total experience of 21 years.
He graduated in 1980 as a Mechanical Engineer.
Mr. Sadoun Joined MIDROC International Group (Owned by Sheikh Mohammed Al Amoudi) in 1989 and now President of ABV Rock
Group KB. He is also the Chairman of two oil and gas companies in Saudi Arabia and member of the board of directors in five different
companies within the MIDROC Group.
4 FIRST ENERGY BANK ANNUAL REPORT 2010
Board of Directors (continued)
Adel Abdulaziz Al Jabr - Board Member
Mr. Al Jabr is a Board Member of Al Jabr Trading Company “premier regional leading group of companies in fields of Auto Motors (KIA),
Real Estate, Beverages, Home Appliances and Laundries”.
He is also the General Manager of Al Jabr General Contracting Company “A leading company in the field of Electro-Mechanical works
in Saudi Arabia”, General Manager of Golden Chip Company “A newly established company that works in the field of smart and plastic
cards industry at K.S.A”. Mr. Al Jabr represents Al Jabr Group of Companies with a total experience of 20 years.
Khalid Mohamed Najibi - Board Member
Mr. Khalid is Managing Director & CEO of Capital Management House. He is also the Founding Member and Executive Director of
Bahrain-based Najibi Investment Company. Khalid is a Board Member and Chairman of the Executive Committee of Bahrain Islamic
Bank BSC, Board Member of First Energy Bank BSC and Arbah Capital (Saudi Arabia). He is also Founding Member of Young Arab
Leaders (YAL) Bahrain Chapter.
Mr. Khalid has over 20 years experience in the fields of finance and investment. He holds a B.A. in Business Administration with a major
in Finance from Schiller International, UK, which he gained in 1990. He passed his US Certified Public Accountants Exams in California,
USA in 1993.
Khalid Kalban - Board Member
Mr. Kalban Managing Director and Chief Executive Officer of Dubai Investments, and member of the board of directors of Emirates National
Bank of Dubai, Emirates International Brokerage LLC, Arab Insurance Group and Thuraya Satellite Communications-Telecommunications
Company. He is also the Chairman of National General Insurance and Union Properties.
Mr. Kalban also has a wide experience and thorough knowledge in managing big establishments, particularly those specializing in
insurance services, financial services, chemicals and communications. His experience was gained during his career of 28 years.
Ebrahim Hussain Ebrahim - Board Member
Mr. Ebrahim, a Bahraini national, is currently the Chief Executive Officer and a Board Member of Khaleeji Commercial Bank BSC and was
instrumental in establishing the bank in 2004. He has around 30 years’ experience in both Islamic and conventional banking and has
worked with a number of prominent financial institutions in Bahrain.
Prior to joining Khaleeji Commercial Bank, Mr. Ebrahim was the Chief Executive Officer of the Liquidity Management Centre, Bahrain. In
his long stint at Arab Banking Corporation, he held various positions including Vice President in the Global Marketing Unit, Vice President
in the Treasury and Marketable Securities Department, and General Manager of ABC Securities. He also worked as General Manager of
Bank of Bahrain and Kuwait’s Financial Services Company in addition to holding senor positions in the treasury and financial institutions
division of Shamil Bank.
Mr. Ebrahim is currently a member of the Board of a number of companies including Capital Real Estate Company. He holds a bachelor’s
degree in Finance and is an MBA.
Mohamed Ali Al Fahim - Board Member
Mr. Al Fahim has a degree in Finance from the University of Suffolk, Boston (1999) and has over 12 years of finance experience working
within Abu Dhabi entities. He is also a board member in various companies in the Gulf region and Europe.
FIRST ENERGY BANK ANNUAL REPORT 2010 5
Mustafa Mohamed Zarti - Vice Chairman - (Resigned March 2011)
Mr. Zarti is the Chairman of Ras El Helal Marine Services, one of the most prominent companies in Libya and he is also on the Board of
Directors of the Libyan Italian Advanced Technology Company, with a total of 17 years of work experience. Mr. Zarti holds a Bachelors
of Science Degree in Mechanical Engineering from Tripoli, Libya and also Bachelors of Arts Degree and Masters Degree in Business
Administration from Webster University in Vienna.
Esam Yousif Janahi - Chairman - (Resigned November 2010)
Hesham Al Emadi - Board Member - (Resigned November 2010)
Mehran Jamsheer - Board Member - (Resigned May 2010)
6 FIRST ENERGY BANK ANNUAL REPORT 2010
Sharia’a Supervisory Board
First Energy Bank is guided by a Sharia’a Supervisory Board consisting of three distinguished scholars, they review the bank’s
activities to ensure that all products and investment transactions comply fully with the rules and principles of Islamic Sharia’a.
Sheikh Nizam Mohammed Saleh Yaqubi
Sheikh Nizam Mohammed Saleh Yaqubi is a well-known Sharia’a Scholar and is recognized internationally. He is on the
Sharia’a Supervisory Board of many Islamic financial institutions such as The Accounting and Auditing Organization for Islamic
Financial Institutions, Khaleeji Commercial Bank, Shamil Bank, Bahrain Islamic Bank, and Executive member of Gulf Finance
House, Abu Dhabi Islamic Bank, and a member of the Sharia’a Supervisory Boards of many other leading Islamic banks. He has
contributed to the creation of many AAOIFI Sharia’a standards, participated in many Islamic finance and banking conferences
around the world.
Sheikh Nizam is one of the pioneers in Islamic banking. He is a well-known Sharia’a scholar in all fields of Islamic Banking and
Fiqh Al Mu’amalat.
Sheikh Dr. Mohamed Ali bin Ibrahim Elgari
Dr. Mohamed Ali bin Ibrahim Elgari is an Islamic Economics Professor at the King Abdulaziz University in the department of
Economics and Administration.
In addition to his position at the King Abdulaziz University, he is affiliated with a number of organizations and financial institutions.
Among them being a member of the Sharia’a committees at the National Commercial Bank, Islamic Citibank, Arab National Bank
and the Dow Jones Islamic Index. Dr. Elgari is also on the editorial boards of several Islamic journals, and an advisory member on
the Harvard Series on Islamic Law. He also held the title of director of the Centre for Islamic Economics Research.
Dr. Elgari has participated in various conferences and seminars, both locally and overseas. Extensive research in the field of Islamic
economics and finance has lead to a number of his works published in recognized journals and presented at relevant conferences.
Among them being topics on fiscal deficit in Islamic economics, setting up Sharia’a compliant credit cards and banking systems,
role of Islamic mutual fund and risk management, and issues facing Islamic banks and investments.
A handful of Dr. Elgari’s research is expected to be published in the future. Dr. Elgari holds PhD in Economics from the University
of Berkley, California.
Sheikh Dr. Mohamad Akram Laldin
Dr. Mohamad Akram Laldin is currently the Executive Director of International Sharia’a Research Academy for Islamic Finance
(ISRA). Prior to joining ISRA he was an Assistant Professor at the Kuliyah of Islamic Revealed Knowledge and Human Sciences,
International Islamic University, Malaysia (IIUM). At present he is the Member of four HSBC Committees associated with Sharia’a,
he’s a member of the Amanah Global Advisory Board, Member of Yassar Limited Sharia’a Advisory Board, Sharia’a Advisor to the
Equity Trust Malaysian Berhad and Advisor to ZI Syariah Advisory Malaysia.
Dr. Akram holds a B.A Honours degree in Islamic jurisprudence and Legislation from the University of Jordan, Amman, Jordan
and a PhD in Principles of Islamic Jurisprudence (Usul al-Faqh) from the University of Edinburgh, Scotland, United Kingdom. In
addition he is also a prolific author of academic works specifically in the areas of Islamic Banking and Finance.
FIRST ENERGY BANK ANNUAL REPORT 2010 7
8 FIRST ENERGY BANK ANNUAL REPORT 2010
Mohamed Shukri Ghanem - Acting Chief Executive Officer
Ghanem brings to First Energy Bank (“FEB” or the “Bank”) over 11 years of extensive experience in the regional financing market and in global energy issues. He is responsible for the overall management of the organisation in line with the organisations strategic plan and also responsible for monitoring organisational performance against the strategic plan, working with staff to stay on target and looking ahead to the long term development of the organisation operationally and strategically.
In addition to the Acting CEO role, he has the overall responsibility for the investment and investment placement functions at FEB, including the design and implementation of investment processes for all clients as well as marketing and product placement. He provides high level strategic investment advice including the investment processes and the additional asset classes and investment vehicles across the entire client base. He is also responsible for expanding the client base by ensuring the investment strategy is solid and sustainable.
Prior to joining FEB, Ghanem worked at Arab Banking Corporation (BSC) (“ABC”) as part of the North African business development team at the Global Project and Structured Finance division. He was responsible for the development and origination of advisory assignments throughout North Africa for the corporation, covering the oil, oil field, natural gas and power generation segments of the energy market.
Ghanem also worked with GED Handles G.m.b.H., Vienna in the risk and asset management in the energy and metals sectors. He worked in the trading department as a Senior Trader specializing in oil futures and options.
Ghanem holds a Bachelor of Arts (Major in Business) from Webster University (School of Business and Technology) in Vienna and holds an MBA from Glamorgan University.
Ramzi Al Sewaidi - Head of Investment Banking
Ramzi brings to First Energy Bank (FEB) over 17 years of international and regional experience in the investment and commercial banking sectors.
Ramzi is mainly responsible of identifying and leading the implementation of income generating investment opportunities for FEB through direct investments and in the venture capital space.
Prior to joining FEB, Ramzi worked at Arab Banking Corporation (BSC) (”ABC”) as First Vice President leading project finance and advisory services in the GCC countries and particularly in Saudi Arabia. He also worked with Gulf International Bank and with HSBC Bank of Canada.
Al-Sewaidi holds a Bachelor of Science Degree (Business Administration) from Suffolk University, Boston, MA and holds an MBA from the same university.
David Hudson - Head of Legal & Compliance
David, an English solicitor, brings to First Energy Bank (FEB) over 25 years of international legal and advisory experience in different areas of the banking industry.
David advises the CEO and top management on legal matters. He also oversees FEB’s compliance function, reporting to the board audit committee and (at the functional level) advising senior management and other staff on compliance issues.
Prior to joining FEB, David was a senior counsel and group compliance officer for Arab Banking Corporation (BSC) and manager of Norton Rose’s Bahrain office.
David holds a Bachelor of Laws from the University of Bristol and Diplome d’Etudes Superieures Universitaires from Universite Aix-Marseille (France).
Executive Management
FIRST ENERGY BANK ANNUAL REPORT 2010 9
Eihab Abdul Latif Ahmad - Corporate Secretary / MLRO
Eihab brings to First Energy Bank (FEB) over 16 years of regional legal and compliance experience.
Eihab is the Corporate Secretary of FEB and is responsible for providing wide range of services to the bank including, but not limited to, Board Secretary function, legal and compliance advisory services to the board of directors, the focal point of communication with the Board of Directors, Senior Management and Share holders, providing advice on Corporate Governance principles and practices. He is also approved by the Central Bank of Bahrain as the Money Laundering Reporting Officer (MLRO) to handle all anti money laundering and anti terrorism issues within the bank.
Prior to joining FEB, Eihab worked at the International Investment Bank as Head of Legal & Compliance.
Eihab holds a LL.B – Faculty of Law from the University of Khartoum, Sudan, Sudanese Board of Law Practicing and a Certificate of Certified Compliance Officer (CCO) from the American Academy of Financial Management – Dubai, UAE.
Osama Bahar - Head of Sharia’a Compliance & Advisory
Osama brings to First Energy Bank (FEB) 17 years of experience in the field of Sharia’a compliance and advisory.
He is primarily responsible for providing Sharia’a guidelines and assisting the business lines in structuring the Sharia’a compliant offerings. The Head of Sharia’a Compliance and Advisory is also a primary liaison between the Bank and the Sharia’a Supervisory Board (SSB).
Prior to FEB, he worked at Al Salam Bank as Head of Sharia’a Compliance.
Osama holds a bachelor degree in Islamic Sharia’a from Prince Abdul Qader University of Islamic Studies in Algeria, as well as Masters Degree in Islamic Studies from Al Emam Al Awzae University in Beirut.
Yousif Ahmed Ebrahim - Head of Internal Audit
Yousif has over 17 years of auditing experience in the banking industry. He is principally responsible for analyzing the Bank’s policies, procedures and systems and providing independent and objective assurance to the Board and management on the overall internal control framework.
Prior to joining First Energy Bank, he worked for Gulf International Bank as Vice President, Internal Audit as well as PricewaterhouseCoopers, Audit & Business Assurance Services.
Yousif is a Certified Public Accountant (USA) and a member of the American Institute of Certified Public Accountant.
Youssef El Habety - Head of North Africa - Business Development
Youssef brings to First Energy Bank (FEB) over 13 years of experience in the field of international trading, portfolio investments as well as marketing.
He is primarily responsible for managing large investment projects for FEB with an objective to maximize revenue and asset growth opportunities, by sourcing, transacting and developing deals across North Africa ensuring adequate sectoral / technical understanding in the process.
Prior to FEB, Youssef worked for the Libyan Investment Authority as Deputy Head of portfolio Investment & Head of energy & renewable team assisting the CEO & DCEO in managing and organizing the institution during establishment.
Youssef holds B. Sc Degree in Political Science from Elfatah University, B.A Degree in Business Administration from the African Management College, Higher Diploma in Business Management form London School of Business and Finance .
10 FIRST ENERGY BANK ANNUAL REPORT 2010
Executive Management (continued)
Kubra Shehabi - Head of Credit Management
Kubra brings to First Energy Bank (FEB) over 19 years of experience in the field of risk management.
She is mainly responsible for developing and implementing an enterprise wide “Credit & Investment Risk Management Framework”
for FEB including appropriate policies and procedures to manage the credit & investment risk profile of FEB at macro/micro levels;
ensures that these are in line with the departmental strategy and vision set by the CEO.
Prior to joining FEB, Kubra worked at Al Salam Bank as Senior Vice President – Head of Credit, and prior to that she worked at JP
Morgan Chase Bank as Vice President –Head of Credit, responsible for the risk profile of the bank’s portfolio for the Middle East.
Kubra holds Bachelor’s Degree in Business Administration from University of Bahrain, MBA in Investment and Finance from
University of Hull, UK as well as CPA from State of California, USA.
Vahan Zanoyan - Chief Executive Officer - (Resigned November 2010)
Frank Archibald - Chief Operating Officer - (Resigned January 2011)
FIRST ENERGY BANK ANNUAL REPORT 2010 11
12 FIRST ENERGY BANK ANNUAL REPORT 2010
Chairman’s letter to shareholders
H.E. Khadem Al Qubaisi - Chairman
FIRST ENERGY BANK ANNUAL REPORT 2010 13
Dear Shareholders,
On behalf of the Board of Directors, it is my privilege to present First Energy Bank’s third annual report, for the year ending 31 December 2010.
The energy industry has gone through a very challenging period recently, due mainly to the global economic downturn, which affected almost every sector and industry the world over. This is nothing new for the energy sector though, as it has historically been a very cyclic one, with periods of both peaks and troughs that have impacted those involved to varying degrees. As such, First Energy Bank (“FEB” or the “Bank”) has always taken a conservative, strategic and studied approach to investing in the energy sector, focusing on diversifying our business strategy by targeting the full spectrum of the energy industry.
This strategy has proven to be an extremely successful one for the Bank, as it has ensured that we maintained a solid and intact capital base with an investor base that has remained constant and confident in the Bank’s management, with an extremely skilled and dedicated team.
Despite the challenges the global financial downturn continues to exert on the financial world, the climate has continued to improve steadily, both for the industry at large, and more specifically for FEB. In 2010, for example, our inaugural offshore drilling venture, MENAdrill, saw the first of its two offshore drilling rigs completed and delivered by Maritime Industrial Services (MIS). This first rig has been mobilized to Mexico under a charter to be operated by the Mexican National Oil Company, Pemex. The second rig was floated in July of 2010, and is expected to be delivered in the first quarter of 2011. Final stage discussions are currently underway to charter this rig as well, and an announcement will be made once the details have been finalised. This is a significant milestone for MENAdrill and is a testament to the dedication and commitment of all those involved.
Additionally, in September of 2010, the Al Dur independent water and power project (IWPP), considered one of the largest utility projects in the region, achieved early commercial operation. Al Dur is a much lauded project here in Bahrain, as it goes a long way toward meeting the rising demand for electricity and water capacities in Kingdom.
The year ending 31st December 2010 saw FEB, taking a conservative approach, recording a net loss of US$ 10.1 million, after providing US$ 23.8 million for impairment of assets (as compared to US$ 8.7 million in provisions for impairment of assets in 2009). FEB achieved a gross income of US$ 41.4 million during 2010, as compared to US$ 47.1 million in 2009. Total operating costs were maintained at a low level of US$ 24.1 million, compared to US$24.5 million in 2009.
2011 Plans
We are confident with the state of our business right now, and while the market has continued to exhibit challenging characteristics, FEB is well placed to take advantage of the projected growth the energy sector will see in 2011. We will continue to focus our efforts on diversifying our portfolio across the entire spectrum of the energy industry, investing in high quality projects around the region and across the globe, bearing our strategic goals and objectives for the year in mind. This will naturally help us achieve stable and competitive returns for our shareholders.
Our People
As I have said, FEB is well placed to take advantage of opportunities within the energy industry going forward, which is expected to experience some significant growth in 2011. This would not be possible without the support of the necessary valuable resource. Therefore, we are very keen to maintain our competent staff and to strengthening our human resources with the right expertise to meet our future plans.
Finally, with your continued support as shareholders we can guarantee that FEB remains a pioneer in this industry.
Yours truly,
Khadem Al Qubaisi
14 FIRST ENERGY BANK ANNUAL REPORT 2010
Financial Highlights
First Energy Bank (“the Bank”) has successfully completed its full two year operations in 2010. During 2010, the Bank has
maintained high liquidity and refrained from investing in new Assets due to the challenges faced by the financial sector post
2009 global turmoil. The Bank earned gross income of USD 41.4 million and posted net loss of USD 10.1 million after providing
for impairment allowance of USD 27.4 million of assets. The Bank’s capital adequacy ratio was 86.35% much higher than the
Central Bank of Bahrain’s minimum limit of 12.0%. Following are the key highlights of the financial results:
Amount in USD ’000
Operating Expenses
Impairment Allowances
Total Equity
EPS (basic) in US Cents
Gross Income
Net (Loss) / Income
Total Assets
Return on Average Assets
Operating Expenses to Income Ratio
Total expenses to Income Ratio
Return on Average Equity
Net Income Margin
2009
24,476
8,734
1,054,677
1.42
47,410
14,200
1,233,919
1.27%
51.63%
70.05%
1.39%
29.95%
2010
24,119
27,396
1,039,086
(1.01)
41,391
(10,124)
1,199,844
(0.86%)
58.27%
124.46%
(0.96%)
(24.46%)
FIRST ENERGY BANK ANNUAL REPORT 2010 15
16 FIRST ENERGY BANK ANNUAL REPORT 2010
Message from the Acting CEO
The global economic downturn has continued to send shockwaves throughout the business community the world over, and has
highlighted the importance of preparation and planning to many organisations, and reaffirmed the foresightedness of those
organizations who pride themselves on being forward-looking. First Energy Bank (FEB), the world’s first energy-dedicated Islamic
investment bank, has, since its inception in 2008, followed a conservative and balanced approach to its core business within the
energy industry, and as such was able to weather the global economic downturn relatively well.
First and foremost in our strategy was to ensure a well-diversified portfolio of investments spanning the entire length of the
energy industry value-chain. While 2010 proved to be one of the most difficult years for organizations in the energy industry,
2011 is looking to be rife with opportunities to capitalise on projects and investments that will set the tone for the rest of the
industry. The fruits of our labours are now ripening, and we can confidently say that our new business and investment pipeline
is as strong as it has ever been.
In terms of our existing investments, I am happy to report that they are progressing as planned, and have not been overtly
affected by the recent difficult times. The latest of these investments is the Saudi Polysilicon production facility that is to be
located in the Eastern region of the Kingdom of Saudi Arabia, which will be one of the lowest cost polysilicon producers in the
world once complete.
Another point of pride for us at FEB is the completion of two offshore drilling jack-up rigs by Maritime Industrial Services (MIS)
in Sharjah, UAE late last year. These two rigs, one of which has already been commissioned by Mexican National Oil Company,
Pemex, and has been mobilized to Mexico, are part of FEB’s inaugural investment project, MENAdrill, a Cayman Islands entity
specialising in the offshore drilling industry.
Mohamed Shukri Ghanem - Acting CEO
FIRST ENERGY BANK ANNUAL REPORT 2010 17
Our investment and placement teams are among the most experienced and innovative in the industry, and their work has
provided us with a very strong platform as we look forward to the rest of 2011 and beyond. This, coupled with a strong and intact
capital and investor base, will help ensure that FEB continues along its pioneering path within the energy industry.
Looking forward to 2011, I am pleased to advise we have further enhanced our human capital with the addition of Mr. Kalyan
Sunderam as Chief Credit & Risk Officer since early this year. As a veteran in the Risk Management field with vast experience and
knowledge, Mr. Sunderam would be a strong addition to the senior management team of FEB.
Yours truly,
Mohamed Shukri Ghanem
18 FIRST ENERGY BANK ANNUAL REPORT 2010
First Energy Bank’s (FEB) business model is built around 6 core business lines: Project Development, Private Equity, Islamic Finance, Asset Management, Mergers & Acquisitions and Treasury.
Project Development
The Middle East and North Africa (MENA) region is the world’s major holder of various energy related resources. Developing and producing these resources and converting them to the products needed by the global economy require substantial investments in the energy sector and at different levels of the value chain.
FEB utilizes its strength to develop industrial projects drawing on all its available resources along with aligning itself with strategic partners that it has access to in the energy industry. FEB’s unique strength in this field comes from its strong and diversified shareholder base combined with the management team’s experience in the industry.
In order to capture and maximize value for FEB’s investors, the project development process starts from the early stage of conceptualizing the business idea and developing it to achieve a successful business.
Building on FEB’s financial strength, experience and solid balance sheet, the project development line enjoys the support of a range of other complementing products and services including financial advisory and Islamic finance which are essential elements to achieve a complete and well structured venture.
Private Equity
FEB offers its clients direct investments in private equity opportunities that it identifies in the MENA region specifically as well as in the international arena. The Division’s investment strategy is based on two pillars. The first is to identify and invest in regional entities where FEB has a strong presence. FEB would add value through various activities including increased capitalization, financial restructuring, and effective market expansion utilizing the Bank’s extensive network and expertise in these fields. The second investment route is to identify opportunities in the international market. These opportunities are required to have distinct areas of strengths such as technology, technical expertise, know how, superior assets class, etc. FEB capitalizes on its effective network and marketing capabilities to maximize the value of the investment in the region through business expansion and setting up new joint ventures.
Mergers and Acquisitions
The recent turmoil in global financial markets combined with expected recovery in demand growth, create attractive opportunities for mergers and acquisitions (M&A). The FEB M&A team has a proven track record in successfully executing major transactions across the MENA region. This expertise, backed by FEB’s considerable financial strength, will allow FEB to exploit market opportunities to earn superior returns for its clients.
Islamic Financing
Islamic finance has been one of the fastest growing finance segments in recent years. It has proven to be a resilient and valued sector especially in the Middle East. FEB’s Islamic finance team focuses on providing structuring and financial advisory services, deriving on many years of experience in this field and across the region. The team also focuses on providing “ring fenced” Sharia’a compliant project and structured finance to selected strategic transactions where risks are mitigated by these structures and returns are maximized.
Asset Management
Investors’ demand for Sharia’a compliant investment products has been increasing in recent years. FEB’s strategy is to provide innovative, diversified and well managed products that suit its clients’ needs and meets their return requirements. The FEB team is committed to continuously developing products and providing a well diversified selection of rewarding investments.
Treasury
The Islamic banking treasury sector has become increasingly competitive and sophisticated over the years, with demand being fueled by clients and investors expecting Islamic products to be able to provide the same features and benefits as the conventional investment and hedging products. As such, FEB has laid a solid foundation to cater for the fast growing demand of Islamic products offering a wide range of Sharia’a compliant products managed by a team of dedicated personnel.
Business Activities
FIRST ENERGY BANK ANNUAL REPORT 2010 19
20 FIRST ENERGY BANK ANNUAL REPORT 2010
MENAdrill
Launched in July 2008, MENAdrill is an offshore drilling and services company and one of FEB’s first initiatives.
MENAdrill focuses on providing contract drilling services for offshore exploration and development in the Middle East and globally.
MENAdrill aims to become one of the key drilling companies based in the region, allowing it to capitalize on the significant
levels of drilling activity required to increase offshore oil and gas production throughout the region in particular and globally
in general. MENAdrill’s initial assets include two Super M2 jackup drills constructed at the Maritime Industrial Services (MIS) in
Sharjah. The first rig “MENAdrill I” was successfully delivered in November 2010. It is subsequently transported to Mexico to
commence drilling in the Gulf of Mexico under a charter agreement. The second rig “MENAdrill II” was successfully delivered
in March 2011.
Saudi Polysilicon
Saudi Polysilicon is a world class polysilicon production facility. The first of its kind and scale in the region, it will be located in
the Kingdom of Saudi Arabia, and will cover a total area of 375,000 square meters in Al Jubail Industrial City 2.
The project is spearheaded by the strategic partner, First Energy Bank (FEB). It is being sponsored and developed by Cosmos
Industrial Investment Corporation, a subsidiary of FEB.
The project will use advanced and commercially proven technologies in its production processes deriving benefits from the
economies of scale and will be one of the lowest cost polysilicon producers in the world. It will also aim to promote green and
sustainable energy solutions leading to further economic diversification and expansion of the industrial base.
The Polysilicon project is expected to begin production in 2013 and will have a total production capacity of 7,500 tons per
annum of high quality Polysilicon product capable to cater users in the solar photo voltaic power as well as electronics industry
markets. The future expansion of the project facility (second phase) will include investments in downstream sectors such as the
manufacturing of ingots, wafers, cell and modules.
Al Dur
During 2009, FEB successfully completed a 9% stake acquisition in the Al Dur Independent Water and Power Project (IWPP),
the largest of its kind in the Kingdom of Bahrain. This is part of FEB strategy of building up a book of top quality energy related
infrastructure assets.
The Al Dur project is located on the southeast coast of the Kingdom and is valued at a total of USD2.2 billion. It is expected
to produce 1,234 megawatts of power and 48 million gallons of water per day when operational. This project represents an
important addition to the Kingdom of Bahrain and will help meet the rising demand for both power and electricity going forward.
The project achieved early commercial operation date in September 2010.
ADWOC
FEB has acquired a 40% stake in the Arab Drilling and Workover Company (ADWOC), one of the leading oil and gas onshore
contract drilling and workover companies based out of Libya. Established in 1980, ADWOC has been providing its drilling and
workover services across the Arab World. The ADWOC acquisition fits well into FEB’s investment portfolio as it provides the bank
with the diversity and strong foundation necessary to support future expansion in this sector. Additionally, it complements some
of the other investments that the Bank is involved in, including the offshore drilling investment of MENAdrill.
Projects and Investments
FIRST ENERGY BANK ANNUAL REPORT 2010 21
22 FIRST ENERGY BANK ANNUAL REPORT 2010
FIRST ENERGY BANK ANNUAL REPORT 2010 23
CORPORATE GOVERNANCE
24 FIRST ENERGY BANK ANNUAL REPORT 2010
Corporate governance is the combination of processes and structures implemented by the board in order to inform, direct, manage and monitor the activities of the organisation toward the achievement of its objectives. FEB’s governance and management structure is illustrated below:
Board Of Directors
FEB’s governance structure comprises the main Board of Directors (the Board) and its sub-committees. There were thirteen directors on the Board and their names are listed below:
Name Type of Membership Note
Esam Yousif Janahi Chairman (Resigned November 2010)
H.E. Hamad Al Neaimi V. Chairman
Mustafa Zarti Member (Resigned March 2011)
Abdulla Showaiter Member
Mohamed Ali Al-Fahim Member
H.E. Ahmed Al Darmaki Member
Khalid Kalban Member
Sadoun Al Sadoun Member
Adel Al Jabr Member
Khalid Najibi Member
Ebrahim Hussain Member
Mehran Jamsheer Member (Resigned May 2010)
Hesham Al Emadi Member (Resigned November 2010)
Corporate Governance
FIRST ENERGY BANK ANNUAL REPORT 2010 25
There are four Board sub-committees, namely: the Audit Committee, the Risk Management Committee, the Investment Committee and the Nomination, Remuneration and Governance Committee. Each is required to report its activities to the Board on a regular basis Their functions and membership are described as follows:
Audit Committee
The primary responsibilities of this Committee are:
• ToreviewtheintegrityoftheBank’sfinancialreporting,includingthechoiceofaccountingpolicies.
• ToensuretheinformationneedsoftheBoardtoperformitsmonitoringresponsibilitiesaremet.
• Tooverseetheselectionandcompensationoftheexternalauditorforappointmentandapprovalattheshareholders’meeting.
• Tooverseerelationswiththeexternalauditors,includingensuringtheexternalauditor’sindependence(inparticular,makingsurethatthe external audit firm and its partners have no other financial or business relationship without the Board’s knowledge); reviewing the terms and conditions of the auditor’s appointment; monitoring rotation arrangements for audit engagement partners; monitoring the performance of the external auditor and any non-audit services provided by the external auditor; and meeting with the external auditor at least twice per year (and at least once per year in the absence of any members of executive management).
• To reviewandevaluate theeffectivenessof theBank’s internal controls, theoverall control environment, accountingandfinancialcontrols.
• ToensurethattheBank’soperations,individuallyandcollectivelyaremeasured,monitoredandcontrolledbyappropriateeffectiveandprudent risk management systems that are commensurate with the scope of the Bank’s activities.
• Toregularlyreviewtheactivitiesandperformanceoftheinternalauditandcompliancefunctions.
• ToreviewwhethertheBankcomplieswithallrelevantlaws,regulations,codesandbusinesspractices.
• ToensurethattheBankcommunicateswithshareholdersandrelevantstakeholders(internalandexternal)openlyandpromptly,withsubstance of compliance prevailing over form.
• Todealwithanyconcernsarisingfromthe‘whistleblower’program.
• Toreviewandsupervisetheimplementationof,enforcementofandadherencetotheBank’scodeofconduct.
Generally, the Committee assists the Board in fulfilling its oversight responsibilities by reviewing the financial information which will be provided to the shareholders and others, the systems of internal controls which the management and the Board have established and the audit process and acts as an informed, vigilant and effective overseer of the Bank’s internal controls and financial reporting processes. It also provides an open avenue of communication between the Board, management, the internal auditors and the independent accountants.
The following persons are members of the Audit Committee:
Audit Committee
Name Independent and non-executive Qualified and experienced accountant
Ebrahim Hussain (Chairman) 3 3
Khalid Kalban 3
Mohamed Ali Al-Fahim 3 3
26 FIRST ENERGY BANK ANNUAL REPORT 2010
Risk Management Committee
This Committee makes recommendations to the Board in relation to the Bank’s overall risk appetite and tolerances and the
management of credit, market, operational, liquidity and other risks the Bank faces in carrying out its activities. It assists the Board
to approve and monitor overall risk management by developing across all business activities and operations policies, internal
controls, methods of risk management, compliance procedures and methods of reporting to the Board.
The following persons are members of the Risk Committee:
Risk Committee
Name Type of Membership
Khalid Najeebi Chairman
Adel Al Jabr Member
Sadoun Al Sadoun Member
Nomination, Remuneration and Governance Committee (NRGC)
The Nomination, Remuneration and Governance Committee, mindful of best practice in the field, assists the Board in formulating
and reviewing the Bank’s relevant policies and rules including the administrative policy and governance requirements. It handles
the nomination, remuneration, and governance compensation of the Board and Executive Management and regularly reviews the
Bank’s succession plan.
The following persons are members of the Nomination, Remuneration and Governance Committee:
Nomination, Remuneration and Governance Committee
Name Type of Membership
H. E. Hamad Al Neaimi Chairman
Abdulla Showaiter V. Chairman
Khalid Najibi Member
Adel Al Jabr Member
Investment Committee
The Investment Committee assists the Board in formulating the Bank’s investment policy and making investment transaction
decisions.
The following persons are members of the Investment Committee:
Investment Committee
Name Type of Membership Note
Mustafa Zarti Chairman (Resigned March 2011)
H. E. Hamad Al Neaimi Member
H.E. Ahmed Al Darmaki Member
Abdulla Showaiter Member
Corporate Governance (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 27
Sharia’a Compliance
The Bank has a dedicated Sharia’a department acting as the primary conduit of communication between the Bank and its Sharia’a Supervisory
Board (SSB). The responsibilities of the Sharia’a department include the following:
• Ensuring programmes are in place for all approved products, with detailed procedures signed off by relevant departments.
• EnsuringthereareFatwassupportingallapprovedproductsandthattheconcerneddepartmentsadheretothem.
• EnsuringthattheBankcomplieswithapplicableAAOIFIstandards,theSSB’sandotherapplicableSharia’aguidelinesandtheBank’s
Sharia’a compliance manual.
• ConductingperiodicSharia’aaudits,discussingtheauditfindingswithmanagementandissuingcompliancereports.
• ReportingtotheCEOandSSBontheresultsoftheSharia’aauditsandthestatusofimplementationoftherecommendationsmade
by the Sharia’a Department.
• AssistingrelationshipmanagersandrelevantdepartmentsininterpretingSharia’aguidelines.
• CollatinginquiriesandquestionsfromBankdepartmentsandsubmittingthemtotheSSB.
• ArrangingandminutingSSBmeetings.
Management Committees
The Bank has established 5 Management Committees, both to support the Board committees in carrying out their duties and to ensure
appropriate controls and processes are in place. They are the Risk Management Committee (RMC), the Investment Committee (IC), the Credit
Risk Committee (CRC), the Asset and Liability Committee (ALCO) and the Nomination & Remuneration Committee (NRC). The terms of
reference of each committee are derived from the terms of reference of the corresponding Board committee. Management committees meet
monthly and report to the Board quarterly or more frequently if required or requested.
EachCommitteehasan‘owner’whoisresponsibleforensuringrelevantbusinessmattersarebroughttothecommitteeforconsiderationand
decision; circulating information papers ahead of meetings; forward planning of matters to be considered by the committee over the next 2
months; ensuring the meeting immediately preceding the Board meeting discusses items on the agenda for the Board meeting; and circulating
minutes promptly after meetings.
Committee memberships are as follows:
Members RMC IC CRC ALCO NRC
CEO 3 3 3 3 3
DCEO and Chief Investment Officer 3 3 3 3 3
Chief Operating Officer 3 3 3 3 3
Head of Risk and Credit Owner 3 Owner 3
Head of Investments 3 Owner 3 3
Head of Treasury 3 3 3 Owner
Head of HR & Administration Owner
Head of Islamic Finance 3 3 3
Head of Sharia’a Compliance & Advisory 3
Financial Controller 3
28 FIRST ENERGY BANK ANNUAL REPORT 2010
Risk Management CommitteeThe RMC is the principal body through which the CEO controls and coordinates the management of all risks of the Bank. The principal functions of the RMC are to:
• RecommendriskstrategytotheBoardforapproval.
• RecommendriskpoliciestotheBoardforapprovalandapproveproceduresandmethodologiesformeasuringandmonitoring of risk.
• DefineandsetriskparametersandbenchmarksconsistentwiththeBank’sstrategicbusinessobjectivesandriskprofile.
• Ensuretheimplementationofapprovedriskpoliciesbypromotingastrongcontrolenvironmentandmonitoringtheimplementation of the risk management framework by managers.
• ProactivelyreviewtheBank’sriskprofileandensureitiswithintheriskparametersapprovedbytheBoard
• ReviewtheBank’sprovisioningrequirementandcapitaladequacyandallocatecapitaltobusinessesasrequired.
• MonitortheRiskManagementandCreditDepartment(RMCD),whichisresponsibleforday-to-daymanagementofriskas well as making appropriate recommendations to the Board RMC.
Investment CommitteeThe Investment Committee reviews and recommends investment proposals for further consideration and action. Specifically it is required to:
• ReviewscreeningsheetsandshortlistsforformalapprovalbytheRMCD.
• ReviewinvestmentapplicationspriortofinalapprovalbytheBoardIC.
• Reviewandapproveprivateplacementmemoranda(PPMs).
• Approvethecommencementofformalsellingofinvestments(basedontheapprovedPPM).
• Reviewandapproveorrecommendproposalsforsaleof/exitfrominvestments.
• Reviewthestatusofcurrentprojects.
• Monitortheinvestmentprocess.
Credit Risk CommitteeThe CRC:
• Reviewscreditandinvestmentproposalsagainstrelevantpolicies.
• (Asapplicable)approvesproposalswithinitsauthoritylimitorrecommendstotherelevantapprovingauthoritiesproposals above its authority limit.
Asset and Liability CommitteeALCO’s principal responsibilities are to:
• Proposethenecessarypoliciesandprocedurestomanageliquidityandmarketrisk.
• Reviewandmonitorthebalancesheet(andoff-balancesheetpositions)oftheBank(includingtheimpactofitssubsidiaries) such that the Board’s liquidity and market risk policies are implemented.
• Ensurethatlinesofauthorityandaccountabilitywithintheliquidityandmarketriskmanagementprocessareclearlydelineated.
• OverseecontrolstomanagetheBank’smarketrisk.
• ProposestrategiestotheBoardinrespectofproprietaryinvestmentsandtheuseofderivatives.
• Ensurethatonaday-to-daybasistheBankcomplieswithapplicablelawsandregulations.
Corporate Governance (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 29
Nomination, Remuneration CommitteeThe NRC’s role and responsibilities are to:
• Recommendthenominationofexecutivemanagement.
• FollowupBoardresolutionsandrecommendations.
• MonitorimplementationoftheBank’ssuccessionplan.
• Reviewmanagementadministrativedecisionsrelatedtoterminationandremunerationentitlementsinordertoavoidrewardingpoorperformance in the event of early contract termination.
Other disclosures:
• Names of shareholders owning 5% or more
Name Ownership (%)
Tasameem Real Estate Co. LLC 16.25%
Libyan Investment Authority Government of Libya 16.25%
Abu Dhabi Water and Electricity Authority 15%
Emirates Islamic Bank PJSC 10%
Mohamed Bin Hussain Bin Ali Al Amoudi 5%
Ithmaar Development Co. Ltd 5%
Al Jabr Trading Co. 5%
• Abstention from voting motivated by a conflict
There were no instances of abstention from voting motivated by a conflict of interest or authorisation of a conflict of interest contract or transaction in accordance with the Bank policy.
• Performance linked incentive structure for board and senior managers
None of the Chief Executive, the Managers, the members of the Sharia’a Supervisory Board and the members of the Board benefits from any performance-linked incentives.
• Communication with stakeholders
The Bank has a public disclosure policy approved by the Board of directors. The Bank communicates with its customers and stakeholders in a timely manner through various channels. Information on developments, financial results, new products or any updates of existing products are placed on the Bank’s website www.1stenergybank.com and/or published in the media. Product details are also disseminated to customers and other interested parties through prospectuses, brochures and/or periodic investment updates.
• Mediation and advice bureaus for investors and customers set up by the Bank
No mediation or advice bureaus for investors and customers have been set up by the Bank.
30 FIRST ENERGY BANK ANNUAL REPORT 2010
• Board remuneration policy
The Bank’s has a remuneration policy in place stating that payment of remuneration to directors is determined during the AGM. In 2010, there was no remuneration paid to directors. Additionally, directors who attended Board and committee meetings received only attendance allowance as is dictated by Bank policy.
• Social functions, charitable and annual Zakat contributions of the Bank
In 2010, the Bank was involved in charitable contributions amounting to a total of US$ 100,000. The Bank also paid a total of US$ 460,000 in Zakat to Masaref as per Sharia’a law.
• Investor/consumer awareness programmes for information on new products and services
The Bank ensures that all investors are kept informed of the latest investment and project updates through the compilation, preparation and distribution of regular progress reports to the Bank’s Investor Database, which focus on reviewing developments and changes in the Bank’s existing investments.
Corporate Governance (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 31
32 FIRST ENERGY BANK ANNUAL REPORT 2010
FIRST ENERGY BANK ANNUAL REPORT 2010 33
FINANCIAL STATEMENTS
34 FIRST ENERGY BANK ANNUAL REPORT 2010
In compliance with the terms of our letter of appointment, we are required to report as follows:
The Sharia’a Supervisory Board (“SSB”) has reviewed the principles and contracts relating to the transactions conducted by First Energy Bank (the “Bank”) during the course of the year ending December 31, 2010. Their review was conducted in order to judge whether the Bank followed the principles of the Islamic Sharia’a, specific fatwas, and guidelines issued by the SSB. The Bank’s management is responsible for ensuring that its operations are carried out in compliance with SSB rulings.
The SSB responsibility is to present an independent view of the Bank’s operations and to communicate it to the shareholders.
The review was planned and performed so as to obtain all necessary information and explanations to provide sufficient evidence proving that the Bank has not violated any rules and principles of the Islamic Sharia’a.
In our opinion:
- The Bank’s contracts, transactions and deals for the year ending December 31, 2010 are in compliance with the rules and principles of the Islamic Sharia’a.
- The Bank’s allocation of profit and charging of losses relating to investment accounts are in compliance with the rules and principles of the Islamic Sharia’a.
- Earnings that have been realized from sources that are non-Sharia’a compliant were donated to charity.
- The Bank’s calculation of Zakat is in compliance with the rules and principles of the Islamic Sharia’a.
We beseech the Almighty to grant us excellence and success.
Wassalam Alaikum Wa Rahmat Allah Wa Barakatuh.
Sheikh Nizam Mohammed Saleh Yaqubi
Chairman - Sharia’a Supervisory Board
Sheikh Dr. Mohamed Ali bin Ibrahim Elgari Sheikh Dr. Mohamad Akram Laldin
Member - Sharia’a Supervisory Board Member - Sharia’a Supervisory Board
Sharia’a Supervisory Board Report
FIRST ENERGY BANK ANNUAL REPORT 2010 35
Report on the consolidated financial statementsWe have audited the accompanying consolidated financial statements of First Energy Bank B.S.C (c) (the “Bank”) and its subsidiaries (together, the “Group”) which comprise the consolidated statement of financial position as at 31 December 2010, and the consolidated statements of income, comprehensive income, changes in equity, cash flows and sources and uses of Zakah and charity fund for the year then ended, and notes, comprising a summary of significant accounting policies and other explanatory information.
Responsibility of the board of directors for the consolidated financial statements
The board of directors of the Bank is responsible for the preparation and fair presentation of these consolidated financial statements in accordance with Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions and International Financial Reporting Standards, and for such internal control as the board of directors determine is necessary to enable the preparation of consolidated financial statements that are free from material misstatement, whether due to fraud or error. The board of directors is also responsible for the Group’s undertaking to operate in accordance with Islamic Sharia’a rules and principles.
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 both the Auditing Standards for Islamic Financial Institutions and 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 entity’s preparation and fair presentation of the consolidated financial statements in order to design audit procedures that are appropriate in the circumstances, but not for the purpose of expressing an opinion on the effectiveness of the entity’s internal control. An audit also includes evaluating the appropriateness of accounting policies used and the reasonableness of accounting estimates made by 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 give a true and fair view of the financial position of the Group as at 31 December 2010, and of the results of its operations, its cash flows, changes in equity and sources and uses of Zakah and charity fund for the year then ended in accordance with Financial Accounting Standards issued by the Accounting and Auditing Organisation for Islamic Financial Institutions. and the Sharia’a rules and principles as determined by the Sharia’a Supervisory Board of the Bank.
In addition, in our opinion, the consolidated financial statements give a true and fair view of the consolidated financial position of the Group as at 31 December 2010, and of its consolidated financial performance and its consolidated cash flows for the year then ended in accordance with International Financial Reporting Standards.
Report on other legal and regulatory requirements
As required by the Bahrain Commercial Companies Law and the Central Bank of Bahrain Law, we report that the Bank has maintained proper accounting records and the consolidated financial statements are in agreement therewith; the financial information contained in the chairman’s report is consistent with the consolidated financial statements; we are not aware of any violations of the Bahrain Commercial Companies Law, the Central Bank of Bahrain Law, the terms of the Bank’s license or it’s memorandum and articles of association having occurred during the year that might have had a material adverse effect on the business of the Bank or on its financial position; and satisfactory explanations and information have been provided to us by the management in response to all our requests.
Independent Auditors’ Report to the Shareholders
FIRST ENERGY BANK B.S.C. (c)
Manama, Kingdom of Bahrain 28 February 2011
36 FIRST ENERGY BANK ANNUAL REPORT 2010
CONSOLIDATED STATEMENT OF FINANCIAL POSITION as at 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
Note 2010 2009
ASSETS
Cash and bank balances 4 3,910 12,358
Placements with financial institutions 5 555,658 685,880
Financing receivables 6 267,182 138,544
Investment securities 7 210,945 236,973
Investment in associates 8 97,342 96,787
Other assets 9 49,896 42,333
Property and equipment 10 14,911 21,044
Total assets 1,199,844 1,233,919
LIABILITIES AND EQUITY
Liabilities
Placements from financial institutions 11 148,812 171,464
Other liabilities 12 11,946 7,778
Total liabilities 160,758 179,242
Equity
Share capital 13 1,000,000 1,000,000
Statutory reserve 1,437 1,437
Available for sale investments fair value reserve (32) 148
Foreign exchange translation reserve (2,170) 2,478
Retained earnings 2,252 12,940
Total equity attributable to shareholders of the Bank 1,001,487 1,017,003
Non-controlling interest 37,599 37,674
Total equity (page 39) 1,039,086 1,054,677
Total liabilities and equity 1,199,844 1,233,919
The consolidated financial statements, which consist of pages 36 to 73, were approved by the Board of Directors on 28 February 2011 and signed on its behalf by:
H.E. Khadem Al Qubaisi H. E. Hamad Rashed Nehail Al Neaimi Mohammad Ghanem
Chairman Vice Chairman Acting Chief Executive Officer
FIRST ENERGY BANK ANNUAL REPORT 2010 37
CONSOLIDATED INCOME STATEMENTfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
Note 2010 2009
Income from investment advisory services - 14,402
Income from placements with financial institutions 10,455 17,865
Income from financing 8,290 453
Income from investment securities 14 7,512 4,551
Share of profit of associates 8 15,134 10,139
Total income 41,391 47,410
Staff cost 15 13,459 13,158
Finance expense 766 295
Investment banking related expenses 1,605 2,776
Impairment allowances 16 27,396 8,734
Other operating expenses 17 8,289 8,247
Total expenses 51,515 33,210
(LOSS) / PROFIT FOR THE YEAR (10,124) 14,200
Attributable to:
Shareholders of the Bank (10,049) 14,335
Non-controlling interest (75) (135)
(10,124) 14,200
The consolidated financial statements, which consist of pages 36 to 73, were approved by the Board of Directors on 28 February 2011 and signed on its behalf by:
H.E. Khadem Al Qubaisi H. E. Hamad Rashed Nehail Al Neaimi Mohammad Ghanem
Chairman Vice Chairman Acting Chief Executive Officer
38 FIRST ENERGY BANK ANNUAL REPORT 2010
CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOMEfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
Note 2010 2009
(Loss)/Profit for the year (10,124) 14,200
Other comprehensive income
Net changes in fair value of
available-for-sale investments 7 (180) 148
Exchange differences arising on translation of
investment in an associate8 (4,648) 2,478
Total comprehensive income for the year (14,952) 16,826
Attributable to:
Shareholders of the parent (14,877) 16,961
Non-controlling interest (75) (135)
(14,952) 16,826
FIRST ENERGY BANK ANNUAL REPORT 2010 39
CONSOLIDATED STATEMENT OF CHANGES IN EQUITYfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
Attributable to shareholders of the Bank
Non-controlling
interest Total equity2010 Share
CapitalStatutory
reserve
Available for sale investments fair value reserve
Foreign exchange
translation reserve
Retained earnings Total
Balance at 1 January 2010 1,000,000 1,437 148 2,478 12,940 1,017,003 37,674 1,054,677
Comprehensive income
Loss for the year - - - (10,049) (10,049) (75) (10,124)
Net changes in fair value of available-for-sale investments
- - (180) - - (180) - (180)
Exchange differences arising on translation of investment in an associate
- - - (4,648) - (4,648) - (4,648)
Total comprehensive income (page 38) - - (180) (4,648) (10,049) (14,877) (75) (14,952)
Transfer to Zakah and charity fund (2009) - - - - (639) (639) - (639)
Balance at 31 December 2010 1,000,000 1,437 (32) (2,170) 2,252 1,001,487 37,599 1,039,086
Attributable to shareholders of the Bank
Non-controlling
interest Total equity2009 Share
CapitalStatutory
reserve
Available for sale investments fair value reserve
Foreign exchange
translation reserve
Retained earnings Total
Balance at 1 January 2009 1,000,000 4 - - 38 1,000,042 - 1,000,042
Comprehensive income
Profit for the period - - - - 14,335 14,335 (135) 14,200
Net changes in fair value of available-for-sale investments
- - 148 - - 148 - 148
Exchange differences arising on translation of investment in an associate
- - - 2,478 - 2,478 - 2,478
Total comprehensive income (page 38) - - 148 2,478 14,335 16,961 (135) 16,826
Transfer to statutory reserve - 1,433 - - (1,433) - - -
Contribution from non-controlling interest
- - - - - - 37,809 37,809
Balance at 31 December 2009 1,000,000 1,437 148 2,478 12,940 1,017,003 37,674 1,054,677
40 FIRST ENERGY BANK ANNUAL REPORT 2010
CONSOLIDATED STATEMENT OF CASH FLOWSfor the year ended 31 December 2010 US$ 000’s
2010 2009
OPERATING ACTIVITIES
Receipt of income from investment advisory services - 22,532
Receipt of income from placements with financial institutions 10,455 21,340
Receipt/(payment) of placements with financial institutions, net 56,296 (119,889)
(Payment)/receipt of placements from financial institutions, net (22,568) 171,464
Financing disbursements, net (116,437) (141,048)
Financing income received 1,063 -
Payment for expenses and project costs (28,864) (33,197)
Cash flows from operating activities (100,055) (78,798)
INVESTING ACTIVITIES
Purchase of property and equipment (231) (27,530)
Purchase of software (276) (1,079)
Investments in associates - (92,300)
Dividend received from associates 4,957 -
Acquisition of investment securities (37,644) (268,476)
Sale of investment securities 46,777 34,526
Income from available-for-sale investment 4,597 1,307
Cash flows from investing activities 18,180 (353,552)
FINANCING ACTIVITIES
Contribution from non-controlling interest - 37,809
Payment to charities (499) -
Cash flows from financing activities (499) 37,809
Net decrease in cash and cash equivalents (82,374) (394,541)
Cash and cash equivalents at 1 January 578,349 972,890
Cash and cash equivalents at 31 December 495,975 578,349
Cash and cash equivalents comprise:
Cash and bank balances 3,910 12,358
Placements with financial institutions (note 5) 492,065 565,991
495,975 578,349
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
FIRST ENERGY BANK ANNUAL REPORT 2010 41
CONSOLIDATED STATEMENT OF SOURCES AND USES OF ZAKAH AND CHARITY FUNDfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
2010 2009
Sources of Zakah and charity fund
Contributions by the Bank 639 -
Total sources 639 -
Uses of Zakah and charity fund
Contributions for charitable purposes 499 -
Total uses 499 -
Excess of sources over uses
Balance at the beginning of the period 140 -
Undistributed zakah and charity fund at 31 December (note 12) 140 -
42 FIRST ENERGY BANK ANNUAL REPORT 2010
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
1. INCORPORATION AND PRINCIPAL ACTIVITY
FirstEnergyBankBSC(c)(the‘Bank‘)wasincorporatedon23June2008intheKingdomofBahrainunderCommercialRegistrationNo.
69089.TheBankoperatesasanIslamicWholesaleBankunderalicensegrantedbytheCentralBankofBahrain(‘CBB’).
The Bank’s activities are regulated by the CBB and supervised by a Sharia’a Supervisory Board for compliance with Sharia’a rules and
principles. The principal activities of the Bank include investment advisory services in accordance with Islamic Sharia’a principles and
participation in project development, joint ventures, mergers and acquisitions and the purchase of assets and asset portfolios related to
the energy sector.
Consolidated financial statements
The consolidated financial statements of the Bank as at and for the year ended 31 December 2010 comprise the financial statements
of the Bank and its subsidiaries (together referred to as the “Group” and individually as “Group entities”). The significant subsidiaries of
the Bank include:
Subsidiary% holding /
beneficial interestPrincipal activities
Cosmos Industrial Investment Corporation BSC(c), Bahrain
93%Holding company for investment in a project for development and operation of a polycrystalline silicon plant in the Kingdom of Saudi Arabia
Al Dur Energy Investment Company, Cayman Islands 59%To hold 15% indirect interest in a power and water plant project in the Kingdom of Bahrain
North Africa Investment Company, Cayman Islands 100%To hold the Group’s 40% associate stake in Arab Drilling and Workover Company, Libya
2. SIGNIFICANT ACCOUNTING POLICIES
The significant accounting polices applied in the preparation of these consolidated financial statements are set out below. These
accounting policies have been consistently applied by the Group entities and are consistent with those used in the previous years, except
for the changes resulting from amendments made to accounting standards (refer note 2(c)).
(a) Statement of compliance
The consolidated financial statements have been prepared in accordancewith both the FinancialAccounting Standards (‘FAS’)
issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (AAOIFI) and International Financial Reporting
Standards(‘IFRS/IAS’).
(b) Basis of preparation
The consolidated financial statements are presented in US Dollars, being the principal currency of the Group’s operations and
are prepared on the historical cost basis except for the measurement at fair value of derivative financial instruments and certain
available-for-sale investments. Except as otherwise indicated, financial information presented in US Dollars has been rounded to the
nearest thousand.
The preparation of financial statements requires the use of certain critical accounting estimates. It also requires management to
exercise judgement in the process of applying the Group’s accounting policies. Estimates and underlying assumptions are reviewed
on an ongoing basis. Revisions to accounting estimates are recognised in the period in which the estimate is revised and in any
FIRST ENERGY BANK ANNUAL REPORT 2010 43
future periods affected. Management believes that the underlying assumptions are appropriate and the Group’s financial statements therefore present the financial position and results fairly. The areas involving a higher degree of judgement or complexity, or areas where assumptions and estimates are significant to the consolidated financial statements are disclosed in note 3.
(c) Standards, amendments and interpretations effective on or after 1 January 2010
The following standards, amendments and interpretations, which became effective in 2010 are relevant to the Group:
a) International Financial Reporting Standards and interpretations issued by the IASB
• IAS 27 Consolidated and Separate Financial Statements (amended 2008)
The revised standard requires the effects of all transactions with non-controlling interests to be recorded in equity if there is
no change in control and these transactions will no longer result in goodwill or gains and losses. The standard also specifies the
accounting when control is lost; any remaining interest in the entity is re-measured to fair value, and a gain or loss is recognised in
profit or loss. The Group has applied IAS 27 (revised) prospectively to transactions with non-controlling interests from 1 January
2010. However it had no material impact on the financial statements. In the future, this guidance will also tend to produce higher
volatility in equity and/or earnings in connection with the acquisition of interests by the Group.
• Improvements to IFRSs
Improvements to IFRS issued in April 2009 contained numerous amendments to IFRS that the IASB considers non-urgent but
necessary. ‘Improvements to IFRS’ comprise amendments that result in accounting changes topresentation, recognitionor
measurement purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. The
amendments are effective for annual periods beginning on or after 1 January 2010 with earlier adoption permitted. There were
no material changes to accounting policies of the Group as a result of these amendments.
b) Financial Accounting Standards issued by AAOIFI
•FAS23Consolidation(effectiveforannualperiodsbeginningonorafter1January2010);and
•FAS24InvestmentinAssociates(effectiveforannualperiodsbeginningonorafter1January2010).
The requirements of these standards are largely in line with the current policies followed by the Group for accounting of
subsidiaries and associates and the adoption of these standards did not result in any material impact on the consolidated
financial statements.
(d) Basis of consolidation
(i) Subsidiaries
Subsidiaries are those enterprises (including special purpose entities) controlled by the Group. Control exists when the Group
has the power, directly or indirectly, to govern the financial and operating policies of an entity so as to obtain benefits from its
activities. Subsidiaries are consolidated from the date on which control is transferred to the Group and de-consolidated from the
date that control ceases. Interests in the equity of subsidiaries not attributable to the parent are reported in consolidated equity
as non-controlling interest. Profits or losses and changes in other comprehensive income attributable to non-controlling interest
are reported separately in the consolidated income statement and statement of comprehensive income.
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 borrowing or investment transaction. An SPE is consolidated if,
based on an evaluation of the substance of its relationship with the Group and the SPE’s risks and rewards, the Group concludes
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
44 FIRST ENERGY BANK ANNUAL REPORT 2010
that it controls the SPE. The assessment of whether the Group has control over an SPE is carried out at inception and normally
no further reassessment of control is carried out in the absence of changes in the structure or terms of the SPE, or additional
transactions between the Group and the SPE. Where the Group’s voluntary actions, such as lending amounts in excess of existing
liquidity facilities or extending terms beyond those established originally, change the relationship between the Group and an SPE,
the Group performs a reassessment of control over the SPE.
AccountingforacquisitionofsubsidiariesisgovernedunderIFRS3‘Businesscombinations’.Accountingforbusinesscombinations
under IFRS 3 only applies if it is considered that a business has been acquired. For acquisitions meeting the definition of a
business, the acquisition method of accounting is used. The excess of the cost of acquisition over the fair value of the Group’s
share of the identifiable net assets acquired is recorded as goodwill. Any goodwill arising from initial consolidation is tested for
impairment at least once a year and whenever events or changes in circumstances indicate the need for an impairment. If the
cost of acquisition is less than the fair value of the Group’s share of the net assets acquired, the difference is recognised directly
in the consolidated income statement. For acquisitions not meeting the definition of a business, the Group allocates the cost
between the individual identifiable assets and liabilities. Financial assets and liabilities are recognised at their fair value at the
acquisitiondateasmeasuredinaccordancewithIAS39‘Financialinstruments:Recognitionandmeasurement’andtheremaining
balance of the cost of purchasing the assets and liabilities is allocated to other individual non-financial assets and liabilities based
on their relative fair values at the acquisition date.
(ii) AssociatesAssociates are all entities over which the Group has significant influence but not control, generally accompanying a shareholding of between 20% and 50% of the voting rights.
Investments in associates are initially recognised at cost. The excess of the cost of acquisition over the fair value of the Group’s share of the identifiable net assets acquired is recorded as goodwill. Goodwill on acquisition of an associate is not recognised separately and is included in the carrying value of the investment in associate. If the cost of acquisition is less than the fair value of the Group’s share of the net assets acquired, the difference is recognised directly in the consolidated income statement.
After initial recognition, the carrying amount is increased or decreased to recognise the investor’s share of the profit or loss of the investee after the date of acquisition. Distributions received from an investee reduce the carrying amount of the investment. Adjustments to the carrying amount may also be necessary for change in the investor’s proportionate interest in the investee arising from changes in the investee’s other comprehensive income. If the Group’s share of losses exceeds its interest in an associate, the Group’s carrying amount is reduced to nil and recognition of further losses is discontinued except to the extent that the Group has incurred legal or constructive obligations or made payments on behalf of the associate.
(iii) Transactions eliminated on consolidationIntra-group balances and transactions, and any unrealised gains arising from intra-group transactions with subsidiaries are eliminated in preparing the consolidated financial statements. Intra-group gains on transactions between the Group and its equity accounted associates are eliminated to the extent of the Group’s interest in the investees. Unrealised losses are also eliminated in the same way as unrealised gains, but only to the extent that there is no evidence of impairment. Accounting policies of the subsidiaries and associates that are equity accounted have been changed where necessary to ensure consistency with the policies adopted by the Group.
(e) Foreign currency transactions(i) Functional and presentation currency
Items included in the consolidated financial statements are measured using the currency of the primary economic environment
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 45
in which the entity operates (the functional currency). The consolidated financial statements are presented in US dollars, which is the Bank’s functional and presentation currency. Other than the functional currency of an associate (which is determined to be Libyan dinars), the other Group companies functional currencies are either denominated in US dollars or currencies which are effectively pegged to the US dollars.
(ii) Transactions and balances
Foreign currency transactions are translated into the respective functional currencies of each operation using the exchange rates prevailing at the dates of the transactions. Foreign exchange gains and losses resulting from the settlement of such transactions and from the translation at year-end exchange rates of monetary assets and liabilities denominated in foreign currencies are recognised in the income statement. Translation differences on non-monetary items carried at their fair value, such as certain available-for-sale equity securities, are included in investments fair value reserve.
(iii) Group entities
The assets and liabilities of foreign operations, whose functional currency is different that the Bank’s presentation currency,
are translated into US dollars at spot exchange rates at the reporting date. The income and expenses of foreign operations are
translated into US dollars using the average of the spot exchange rates during the period of the transactions. Foreign currency
differences on the translation of foreign operations are recognised in other comprehensive income. Such differences have been
recognised under a foreign exchange translation reserve in equity. If the operation is an associate, the Group recognises translation
reserve to the extent of its proportionate share in the investee. When a foreign operation is disposed of, the relevant amount in
the foreign exchange translation reserve is reclassified to income statement as part of the profit or loss on disposal. In case of
Group entities whose functional currencies are effectively pegged to the US dollars, the translation of financial statements of the
group entities that have a functional currency different from the presentation currency do not result in exchange differences.
(f) Financial assets and liabilities
Financial assets of the Group comprise bank balances, placements with financial institutions, financing receivables, investment securities, risk management instruments and other receivable balances. Financial liabilities of the Group comprise placements from financial institutions and other payable balances.
(i) Recognition and de-recognition
All financial assets (except investment securities and derivatives) and liabilities are recognised on the date at which they are originated. Investment securities and derivatives are recognised at the trade date i.e. the date that the Group contracts to purchase or sell the asset, at which date the Group becomes party to the contractual provisions of the instrument.A financial asset or liability is initially measured at fair value which is the value of the consideration given (in the case of an asset) or received (in the case of a liability).The Group derecognises a financial asset when the rights to receive cash flows from the financial assets have expired or where the Group has transferred substantially all risk and rewards of ownership. The Group writes off certain financial assets when they are determined uncollectible. The Group derecognises a financial liability when its contractual obligations are discharged, cancelled or expire.Financial assets and liabilities are offset and the net amount presented in the statement of financial position when, and only when, the Group has a legal right to set off the recognised amounts and it intends either to settle on a net basis or to realise the asset and settle the liability simultaneously. Finance income and expenses are presented on a net basis only when permitted under IFRSs, or for gains and losses arising from a group of similar transactions.
(ii) Classification of financial assets and liabilities
The Group allocates financial assets to the following IAS 39 categories: financial assets at fair value through profit or loss; loans
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
46 FIRST ENERGY BANK ANNUAL REPORT 2010
and receivables; held-to-maturity investments; and available-for-sale financial assets. Except for investment securities (refer note 2 (j)) and derivative financial instruments (refer note 2 (k)), the Group classifies all other financial assets as loans and receivables. All of the financial liabilities of the Group are classified at amortised cost. Management determines the classification of its financial instruments at initial recognition.
(iii) Measurement principlesFinancial assets and liabilities are measured either at fair value, amortised cost or in certain cases carried at cost.
Fair value measurementFair value is the amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction on the measurement date.
When available, the Bank measures the fair value of an instrument using quoted prices in an active market for that instrument. A market is regarded as active if quoted prices are readily and regularly available and represent actual and regularly occurring market transactions on an arm’s length basis. If a market for a financial instrument is not active, the Bank uses valuation techniques to establish a reliable measure of fair value.
Amortised cost measurementThe amortised cost of a financial asset or liability is the amount at which the financial asset or liability is measured at initial recognition, minus principal repayments, plus or minus the cumulative amortisation using the effective profit method of any difference between the initial amount recognised and the maturity amount, minus any reduction for impairment. The calculation of the effective profit rate includes all fees and points paid or received that are an integral part of the effective profit rate.
(g) Cash and cash equivalents For the purpose of statement of cash flows, cash and cash equivalents comprise cash and balances with banks and short-term highly liquid assets (placements) with maturities of three months or less when acquired which are subject to insignificant risk of changes in fair value and are used by the Group in the management of its short-term commitments and liquidity.
(h) Placements with and from financial institutionsThese comprise placements made or received in the form of wakala contracts or international commodity murabaha contracts. Placements with and from financial institutions are carried at their amortised cost.
(i) Financing receivablesFinancing receivables comprise Sharia’a compliant financing provided by the Group and are carried at amortised cost less impairment allowances, if any.
(j) Investment securitiesThe Group classifies its investment securities, excluding investment in subsidiaries and equity accounted associates (refer note 2 (d)), in the following categories: investment at fair value through profits or loss; held-to-maturity investments; and available-for-sale investments.
(i) ClassificationInvestments carried at fair value through profit or loss are financial assets that are held for trading or which upon initial recognition are designated by the Group as at fair value through profit or loss.
An investment is classified as held for trading if it is acquired principally for the purpose of selling or repurchasing it in the near
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 47
term or part of a portfolio of identified financial instruments that are managed together and for which there is evidence of a recent actual pattern of short-term profit-taking. The Group currently does not hold trading investments.The Group designates investment securities as at fair value through profit or loss at inception only when it is managed, evaluated and reported on internally on a fair value basis. Currently, the Group has not designated any of its investment securities at fair value through profit or loss.
Held-to-maturity investments are quoted non-derivative financial assets with fixed or determinable payments and fixed maturity that the Group has the positive intention and ability to hold to maturity, and which are not designated as carried at fair value through profit or loss or as available-for-sale. The Group’s current held-to-maturity investments comprise of investment in Sukuk.
Available-for-sale investments are non-derivative financial assets that are not investments carried at fair value through profit or loss or held-to-maturity or loans and receivables. These include investments in certain Sukuk and unquoted equity securities.
(ii) Initial recognitionInvestment securities are initially recognised at fair value, plus transaction costs for all financial assets not carried at fair value through profit or loss. Transaction costs on investments carried at fair value through profit or loss are expensed in profit or loss when incurred.
(iii) Subsequent measurementSubsequent to initial recognition, investments carried at fair value through profit or loss and available-for-sale investments are re-measured to fair value. Gains and losses arising from a change in the fair value of investments carried at fair value through profit or loss are recognised in the income statement in the period in which they arise. Gains and losses arising from a change in the fair value of available-for-sale investments are recognised in the consolidated statement of comprehensive income and presented in a separate fair value reserve within equity. When the available-for-sale investments are sold, impaired, collected or otherwise disposed of, the cumulative gain or loss previously recognised in the statement of comprehensive income is transferred to the income statement.
Available-for-sale investments which do not have a quoted market price or other appropriate methods from which to derive reliable fair values are stated at cost less impairment allowances.
Held-to-maturity investments are measured at amortised cost less any impairment allowances.
(iv) ReclassificationThe Group may choose to reclassify a non-derivative financial asset if permitted by IFRSs. A financial asset classified as available-for-sale that would have met the definition of held-to-maturity (if it had not been designated as available-for-sale at inception) may be reclassified out of the available-for-sale category to the held-to-maturity investments category when the Group has the intention and ability to hold the financial asset for the foreseeable future or until maturity.
Reclassifications are made at fair value as of the reclassification date. For a financial asset reclassified out of the available-for-sale category, any previous gain or loss on that asset that has been recognised in equity is amortised to profit or loss over the remaining life of the investment using the effective profit rate. Any difference between the new amortised cost and the expected cash flows is also amortised over the remaining life of the asset using the effective profit rate. If the asset is subsequently determined to be impaired then the amount recorded in equity is reclassified to the income statement.
(v) Fair value measurement principlesFair value for quoted investments is their market bid price. For other unquoted investments, fair value is determined either by reference to the price of the most recent transactions in the securities, or based on recognised internal valuation models.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
48 FIRST ENERGY BANK ANNUAL REPORT 2010
(k) Risk management instruments and hedge accounting
The Group currently only enters into Sharia’a compliant risk management instruments to cover its exposure to profit rate risks. These
derivative-type risk management instruments are initially recognised at fair value on the date on which a contract is entered into
and are subsequently re-measured at their fair value. The fair value of an instrument is the equivalent of the unrealised gain or loss
from marking to market the instrument using prevailing market rates. Instruments with positive market values (unrealised gains) are
disclosed under other assets and instruments with negative market values (unrealised losses) are disclosed under other liabilities in
the statement of financial position.
Changes in the fair value of these financial instruments that are designated, and qualify as fair value hedges, are included in the
income statement together with the corresponding change in the fair value of the hedged asset or liability that is attributable to
the risk being hedged. Unrealised gains or losses on hedged assets which are attributable to the hedged risk are adjusted against the
carrying values of the hedged assets or liabilities. For risk management instruments that are not designated in a qualifying hedge
relationship, all changes in its fair value are recognised immediately in the income statement.
If the hedging risk management instrument expires or is sold, terminated, or exercised, or the hedge no longer meets the criteria for
fair value hedge accounting, or the hedge designation is revoked, hedge accounting is discontinued prospectively. Any adjustment up
to that point to a hedged item for which the effective profit method is used, is amortised to profit or loss as part of the recalculated
effective profit rate of the item over its remaining life.
Embedded derivatives
Certain derivatives embedded in other financial instruments, such as the conversion option in a debt instrument, are treated as
separate derivatives when their economic characteristics and risks are not closely related to those of the host contract and the host
contract is not carried at fair value through profit or loss. These embedded derivatives are separately accounted for at fair value, with
changes in fair value recognised in the consolidated income statement unless the Group chooses to designate the hybrid contracts at
fair value through profit or loss. The Group uses internal models to measure the fair value of embedde derivatives. These models use
techniques generally recognised as standard within the industry. Some of he inputs to these models may not be market observabe
and are therefore estimated based on assumptions.
(l) Property and equipment
Property and equipment is stated at cost, net of accumulated depreciation and impairment, if any. Land is not depreciated. Depreciation
on equipment is computed using the straight-line method to write off the cost of the assets over their estimated useful lives of three
years. The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each balance sheet date.
(m) Impairment of financial assets
The Bank assesses at each balance sheet date whether there is objective evidence that an asset is impaired. Objective evidence
that financial assets are impaired can include default or delinquency by a borrower, restructuring of a financing or advance by
the Group on terms that the Group would not otherwise consider, indications that a borrower or issuer will enter bankruptcy, the
disappearance of an active market for a security, or other observable data relating to a group of assets such as adverse changes
in the payment status of borrowers or issuers in the group, or economic conditions that correlate with defaults in the group.
Impairment losses are recognised in the income statement and reflected in an allowance account. Impairment assessment in made
for financial assets that are individually significant, or collectively for financial assets that are not individually significant and with
similar credit risk characteristics.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 49
Financial assets carried at amortised cost.
For financial assets carried at amortised cost (financing receivables and held-to-maturity investments), impairment is measured as the
difference between the carrying amount of the financial assets and the present value of estimated cash flows discounted at the assets’
original effective profit rate. Losses are recognised in income statement and reflected in an allowance account. When a subsequent
event causes the amount of impairment loss to decrease, the impairment loss is reversed through the income statement.
Available-for-sale investments
In the case of debt instruments classified as available-for-sale, impairment is assessed based on the same criteria as financial assets
carried at amortised cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between
the amortised cost and the current fair value, less any impairment loss on that investment previously recognised in the income
statement. If, in a subsequent period, the fair value of a debt instrument classified as available for sale increases and the increase can
be objectively related to an event occurring after the impairment loss was recognised in profit or loss, the impairment loss is reversed
through the consolidated income statement.
In case of available-for-sale equity securities carried at fair value, a significant or prolonged decline in the fair value of the security
below its cost is objective evidence of impairment resulting in recognition of an impairment loss. In case of equity securities quoted
in active markets, the Group considers a decline in value of 20% below cost or a decline in value that persists for more than 6
months as an indicator of impairment. If any such evidence exists for available-for-sale investments, 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
recognised in profit or loss – is removed from equity and recognised in the income statement. Impairment losses recognised in the
income statement are not subsequently reversed through the income statement.
For available-for-sale investments carried at cost, the Group makes an assessment of whether there is an objective evidence of
impairment for each investment by assessment of financial and other operating and economic indicators. Impairment is recognised
if the estimated recoverable amount is assessed to be below the cost of the investment.
(n) Impairment of non-financial assets
The carrying amount of the Group’s assets or its cash generating unit, other than financial assets, are reviewed at each reporting
date to determine whether there is any indication of impairment. A cash generating unit is the smallest identifiable asset group that
generates cash flows that largely are independent from other asset and groups. If any such indication exists, the asset’s recoverable
amount is estimated. The recoverable amount of an asset or a cash generating unit is the greater of its value in use or fair value
less costs to sell. An impairment loss is recognised whenever the carrying amount of an asset or its cash generating unit exceeds its
estimated recoverable amount.
Impairment losses are recognised in the income statement. Impairment losses are reversed only if there is an indication that the
impairment loss may no longer exist and there has been a change in the estimates used to determine the recoverable amount.
Separately recognised goodwill is not amortised and is tested annually for impairment and carried at cost less accumulated
impairment losses. Impairment losses on goodwill are not reversed.
(o) Dividends
Dividends to shareholders are recognised as liabilities in the period in which they are declared.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
50 FIRST ENERGY BANK ANNUAL REPORT 2010
(p) Share capital and statutory reserve
Ordinary shares are classified as equity. The Group classifies capital instruments as financial liabilities or equity instruments in
accordance with the substance of the contractual terms of the instruments. Incremental costs directly attributable to the issue of an
equity instrument are deducted from the initial measurement of the equity instruments.
Statutory reserve
The Bahrain Commercial Companies Law 2001 requires that 10 per cent of the annual profit be appropriated to a statutory reserve
which is normally distributable only on dissolution. Appropriations may cease when the reserve reaches 50 per cent of the paid
up share capital.
(q) Revenue recognition
Income from investment advisory services is recognised when the service is provided and income is earned. This is usually when
the Group has performed all significant acts in relation to a transaction and it is highly probable that the economic benefits from
the transaction will flow to the Group. Significant acts in relation to a transaction are determined based on the terms agreed in the
private placement memorandum/ contracts for each transaction.
Finance income from placements with financial institutions, financing receivables and investment in Sukuk is recognised on a time-
apportioned basis using the effective profit method.
Dividend income from available-for-sale investment securities is recognised when the right to receive is established. This is usually
the ex-dividend date for equity securities.
(r) Earnings prohibited by Sharia’a
The Group is committed to avoid recognising any income generated from non-Islamic sources. Accordingly, non-Islamic income (if
any) will be credited to a charity account which is utilised for charitable purposes.
(s) Zakah
The Group is not required to pay Zakah on behalf of its shareholders on its undistributed profits. However, the Bank is required
to calculate and notify, under a separate report, individual shareholders of their pro-rata share of the Zakah payable by them on
distributed profits. These calculations are approved by the Bank’s Sharia’a Supervisory Board.
(t) Employee benefits
(i) Short-term benefits
Short-term employee benefit obligations are measured on an undiscounted basis and are expensed as the related service is
provided. A provision is recognised for the amount expected to be paid under short-term cash bonus or profit-sharing plans if
the Bank has a present legal or constructive obligation to pay this amount as a result of past service provided by the employee
and the obligation can be estimated reliably.
(ii) Post employment benefits
Pensions and other social benefits for Bahraini employees are covered by the General Organisation for Social Insurance scheme,
whichisa‘definedcontributionscheme’innatureunderIAS19‘EmployeeBenefits’,andtowhichemployeesandemployers
contribute monthly on a fixed-percentage-of-salaries basis. Contributions by the Bank are recognised as an expense in income
statement when they are due.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
2 SIGNIFICANT ACCOUNTING POLICIES (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 51
Expatriate employees on fixed contracts are entitled to leaving indemnities payable under the Bahraini Labour Law for the Private
Sectorof1976,basedonlengthofserviceandfinalremuneration.Provisionforthisunfundedcommitment,whichisa‘defined
benefit scheme’ in nature under IAS 19, has been made by calculating the notional liability had all employees left at the balance
sheetdate.Thesebenefitsareinthenatureofa‘definedbenefitscheme’andanyincreaseordecreaseinthebenefitobligation
is recognised in the income statement.
The Bank also operates a voluntary employees saving scheme under which the Bank and the employee contribute monthly on
a fixed percentage of salaries basis. The scheme is in the nature of a defined contribution scheme and contributions by the Bank
are recognised as an expense in the income statement when they are due.
(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.
(v) Segment reporting
A segment is a distinguishable component of the Bank that is engaged either in providing products or services (business segment) or in providing products or services within a particular environment (geographical segment), which is subject to risks and rewards that are different from those of other segment. The Group currently primarily operates as a single investment banking unit and its revenue, expenses and results are reviewed only at a Group level and therefore no separate operating segment results and other disclosures are provided in these consolidated financial statements.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES
The Group makes estimates and assumptions that affect the reported amounts of assets and liabilities within the next financial year. Estimates and judgements are continually evaluated and are based on historical experience and other factors, including expectation of future events that are believed to be reasonable under the circumstances.
Judgements
(i) Classification of investments
In the process of applying the Group’s accounting policies, management decides on acquisition of an investment whether it should be classified as investments designated at fair value through profit or loss, held-to-maturity or available-for-sale investment securities. The classification of each investment reflects the management’s intention in relation to each investment and is subject to different accounting treatments based on such classification [refer note 2 (j)].
(ii) Special purpose entities
The Group sponsors the formation of special purpose entities (SPE’s) primarily for the purpose of allowing clients to hold investments. The Group provides corporate administration, investment management and advisory services to these SPE’s, which involve the Group making decisions on behalf of such entities. The Group administers and manages these entities on behalf of its clients, who are by and large third parties and are the economic beneficiaries of the underlying investments. The Group does not consolidate SPE’s that it does not have the power to control. In determining whether the Group has the power to control an SPE, judgements are made about the objectives of the SPE’s activities, its exposure to the risks and rewards, as well as about the Group intention and ability to make operational decisions for the SPE and whether the Group derives benefits from such decisions.
(iii) Qualifying hedge relationships
In designating financial instruments in qualifying hedge relationships, the Group has determined that it expects the hedges to be highly effective over the period of the hedging relationship.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
52 FIRST ENERGY BANK ANNUAL REPORT 2010
Estimates
(iv) Impairment of financing receivables
Each counterparty exposure is evaluated individually for impairment and is based upon management’s best estimate of the present
value of the cash flows that are expected to be received. In estimating these cash flows, management makes judgements about
counterparty’s financial situation, sources of cash flows available to service the facility, level of subordination available to the Bank
and the net realisable value of any underlying assets. Each asset is assessed on its merits, and the workout strategy and estimate
of cash flows considered recoverable is reviewed independently by the Risk Management Department. In view of the management,
currently no impairment allowances are required.
(v) Impairment of property
The Group acquired land during the year 2009 with a view to develop its office building in the near term (note 10). As at 31 December
2010, the recoverable amount of the land was determined based on the higher of the fair value less cost to sell and its value in use.
The recoverable amount was determined by an independent firm of external valuers with the recognised and relevant professional
qualification and who have recent experience in the location and category of the property being valued.
The value-in-use was determined principally considering the future use of the land by using discounted cash flow projections based
on estimates of future cash flows, expected costs of construction, levels of occupancy and expected future stream of rental income
supported by external evidence such as current market rents for similar properties in the same location and condition, and using
discount rates that reflect current market assessments of the uncertainty in the amount and timing of the cash flows. Fair value
was determined based on the market value of the property through the comparable method, analysing the land rates in the vicinity
for similar assumed zoning regulations. Based on the assessment of fair value less cost to sell, which is higher than the value in use,
an impairment loss of USD 3,800 thousand (2009: USD 8,734 thousand) has been recognised against the carrying value of land
(refer note 10). The decline primarily reflects the larger economic environment and market conditions which continued to decline
throughout 2010 and the reduction in the frequency of property transactions and instability in the local real estate market.
(vi) Impairment on available-for-sale investments
Available-for-sale investments where fair values are not readily available and reliably measurable are carried at cost and the
recoverable amount of such investment is estimated to test for impairment. The Group’s available-for-sale equity investments
comprise investments in entities that are associated with long-term real estate and infrastructure development projects. In making a
judgement of impairment, the Group evaluates among other factors, liquidity of the project, evidence of deterioration in the financial
health of the project, impacts of delays in execution, industry and sector performance, changes in technology, and operational and
financing cash flows. It is reasonably possible, based on existing knowledge, that the current assessment of impairment could require
a material adjustment to the carrying amount of the investments within the next financial year due to significant changes in the
assumptions underlying such assessments.
4. CASH AND BANK BALANCES
31 December 2010 31 December 2009
Cash 8 8
Bank balances 3,902 12,350
3,910 12,358
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
3. CRITICAL ACCOUNTING ESTIMATES AND JUDGEMENTS IN APPLYING ACCOUNTING POLICIES (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 53
5. PLACEMENTS WITH FINANCIAL INSTITUTIONS
31 December 2010 31 December 2009
Gross commodity murabaha contracts 396,819 348,821
Less: Deferred profits (222) (145)
396,597 348,676
Wakala contracts 159,061 337,204
555,658 685,880
Original maturity within 90 days 492,065 565,991
Original maturity after 90 days 63,593 119,889
555,658 685,880
6. FINANCING RECEIVABLES
31 December 2010 31 December 2009
Musharaka 12,304 15,341 Murabaha financing 254,878 123,203
267,182 138,544
Murabaha financing include USD 53,871 thousand (2009: USD 50,477 thousand) representing the debt component of a convertible
murabaha financing provided by the Bank to one of its associate companies. The embedded derivative within the convertible murabaha,
being the equity conversion option, has been separated and disclosed under other assets (refer note 9).
7. INVESTMENT SECURITIES
31 December 2010 31 December 2009
Available-for-sale investments 144,085 172,664
Held-to-maturity investments 66,860 64,309
210,945 236,973
a) Available-for-sale investments
31 December 2010 31 December 2009
Investment in quoted sukuk (at fair value) 39,165 47,744Investment in unquoted equities (at cost) 104,920 124,920
Total Available-for-sale investments (net of impairment) 144,085 172,664
Investments in unquoted equity securities are carried at cost less impairment in the absence of a reliable measure of fair value. Such
investments represent investments in early stage infrastructure and development projects for which a reliable estimate of fair value
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
54 FIRST ENERGY BANK ANNUAL REPORT 2010
cannot be determined. The Group intends to realise these investments principally by means of strategic sell outs or at the time of
sale of underlying assets.
During the year, an impairment allowance of USD 20,000 thousand was provided (2009: Nil), on unquoted available-for-sale equity
investments based on assessment of recoverable amount (note 16).
b) Held-to-maturity investments
31 December 2010 31 December 2009
At 1 January 64,309 -Reclassification from available-for-sale investments - 64,291Accrued finance income 2,551 18
66,860 64,309Held-to-maturity securities include investment in quoted Sukuk.
8. INVESTMENT IN ASSOCIATES
31 December 2010 31 December 2009
At 1 January 96,787 -Acquisitions during the year - 92,300Elimination for intra-group transactions (4,974) (8,130)Share of net profits from associates 15,134 10,139Dividend received (4,957) -Foreign exchange translation differences (4,648) 2,478
At 31 December 97,342 96,787
Intra-group gains on transactions between the Group and its equity accounted associates are eliminated to the extent of the Group’s interest in the investees.
Summarised financial information of associates that have been equity accounted not adjusted for the percentage ownership held by the Group:
2010 2009
Total assets 613,821 533,245
Total liabilities 333,438 269,197
Total revenues 140,043 121,884
Total net profit 21,696 19,600
Investment in associates comprise:
Name Country of incorporation % holding Nature of business
Arab Drilling and Workover Company Libya 40% Lease of oil drilling rigs
MENAdrill investment company Cayman Islands 41% Development and lease of jack up oil rigs
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
7. INVESTMENT SECURITIES (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 55
9. OTHER ASSETS
31 December 2010 31 December 2009
Project work-in-progress 42,148 32,723
Advance paid for acquisition of an investment (note 16) - 3,646
Fair value of risk management instruments - 369
Fair value of equity option embedded in a convertible murabaha (note 6) 1,959 2,957
Intangible assets – software 454 1,003
Others 5,335 1,635
49,896 42,333
Project work-in-progress comprise costs incurred for acquisition and development of a project in the Kingdom of Saudi Arabia by a
subsidiary company.
The Group uses profit rate swap to hedge its exposure to changes in the fair values of certain fixed profit rate sukuk attributable to
changes in market profit rates. The positive fair value of the risk management instruments is disclosed in other assets. As at 31 December
2010, there were no outstanding derivative contracts/positions.
10. PROPERTY AND EQUIPMENT
2010 2009
Land Equipment Computers Furniture and fixture
2010Total
Total
Cost
At 1 January 22,994 124 680 6,757 30,555 3,025
Additions - 61 103 67 231 27,530
Transfer - - - - - -
At 31 December 22,994 185 783 6,824 30,786 30,555
Depreciation/ impairment
At 1 January 8,734 26 188 563 9,511 9
Charge for the year - 56 248 2,260 2,564 768
Impairment allowance (refer note 16) 3,800 - - - 3,800 8,734
At 31 December 12,534 82 436 2,823 15,875 9,511
Net book value as at 31 December 10,460 103 347 4,001 14,911 21,044
11. PLACEMENTS FROM FINANCIAL INSTITUTIONS
These comprise placements (murabaha and wakala) accepted as part of the Group’s treasury activities.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
56 FIRST ENERGY BANK ANNUAL REPORT 2010
12. OTHER LIABILITIES
31 December 2010 31 December 2009
Employee-related accruals 5,571 2,129Account payables 623 725Accrued expenses 1,107 1,224Advance from investors 4,505 3,700Zakat and charity payable 140 -
11,946 7,778
Employee related accruals include end of service indemnity provisions of USD 2,808 thousand (2009: USD 357 thousand).
13. SHARE CAPITAL
31 December 2010 31 December 2009
Authorised:2,000,000,000 ordinary shares of US$ 1 each 2,000,000 2,000,000
Issued, subscribed and paid-up:1,000,000,000 ordinary shares of US$ 1 each 1,000,000 1,000,000
14. INCOME FROM INVESTMENT SECURITIES
2010 2009
Available-for-sale:
Profit earned from investments in Sukuk 2,503 2,794
Held-to-maturity:
Profit earned from investments in Sukuk 2,923 79
Gain on disposal of available-for-sale Sukuk investments 2,086 1,678
7,512 4,551
15. STAFF COST
2010 2010
Salaries and benefits 12,332 12,258
Social insurance expenses 455 413
Other staff expenses 672 487
13,459 13,158
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
FIRST ENERGY BANK ANNUAL REPORT 2010 57
16. IMPAIRMENT ALLOWANCES
2010 2009
Available-for-sale investments (note 7) 20,000 -
Advance paid for acquisition of an investment (note 9) 3,596 -
Land (note 10) 3,800 8,734
27,396 8,734
17. OTHER OPERATING EXPENSES
2010 2009
Rent and utilities 1,572 2,149
Travelling and related expenses 338 498
Professional and consultancy fee 55 1,827
Advertising and marketing expenses 466 838
Board and Sharia’a committee expenses 732 474
Depreciation 2,564 768
Other expenses 2,562 1,693
8,289 8,247
18. TOTAL FINANCE INCOME AND FINANCE EXPENSE
2010 2009
Placements with financial institutions 10,455 17,865
Financing receivable 8,290 453
Held-to-maturity investments 2,923 79
Available-for-sale investments 2,503 2,794
Total finance income 24,171 21,191
Finance expense on placements from financial institutions (766) (295)
Net finance income 23,405 20,896
19. RELATED PARTY TRANSACTIONS
Parties are considered to be related if one party has the ability to control the other party or exercise significant influence or joint control
over the other party in making financial and operating decisions. Related parties include major shareholders, Board of Directors and
Executive Management of the Group and/or entities over which they exercise control and/ or significant influence.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
58 FIRST ENERGY BANK ANNUAL REPORT 2010
The related party transactions and balances included in these consolidated financial statements are as follows:
31 December 2010Significant shareholders / entities in which directors
are interested
Key management
personnelAssociates Total
Assets
Cash and bank balances 190 - - 190
Placements with financial institutions 86,475 - - 86,475
Financing receivables - - 254,878 254,878
Investment securities 42,718 - - 42,718
Investment in associates - - 97,342 97,342
Other assets - - 1,959 1,959
Liabilities
Placements from financial institutions 50,280 - - 50,280
Accruals and other liabilities - 252 4,505 4,757
Income and expenditure(transactions) 2010
Significant shareholders / entities in which directors
are interested
Key management
personnelAssociates Total
Income
Income from financing - - 7,262 7,262
Income from placements with financial institutions 4,786 - - 4,786
Income from investment securities 935 935
Share of profit of associates - - 15,134 15,134
Expenses
Staff cost - 3,161 - 3,161
Finance expenses 409 - - 409
Investment banking related expenses - 7 - 7
Other operating expenses 534 3,746 998 5,278
Impairment allowances 20,000 - - 20,000
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
19. RELATED PARTY TRANSACTIONS (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 59
31 December 2009Significant shareholders / entities in which directors
are interested
Key management
personnelAssociates Total
Assets
Bank balances 398 - - 398
Placements with financial institutions 283,690 - - 283,690
Financing receivables - - 123,203 123,203
Investment securities 57,828 - - 57,828
Investment in associates - - 96,787 96,787
Other assets 146 3,646 2,957 6,749
Liabilities
Placements from financial institutions 106,070 - - 106,070
Accruals and other liabilities - 175 - 175
Income and expenditure (transactions)2009
Significant shareholders / entities in which directors
are interested
Key management
personnelAssociates Total
Income
Income from investment advisory services 5,750 - 8,570 14,320
Income from placements with financial institutions 14,965 - -14,965
Income from investment securities 1,582 - - 1,582
Share of profit of associates - - 10,139 10,139
Expenses
Staff cost - 2,921 - 2,921
Finance expenses 230 - - 230
Investment banking related expenses - 433 - 433
Other operating expenses 577 150 - 727
Key management personnel of the Bank comprise of the Board of Directors and key members of management having authority and
responsibility for planning, directing and controlling the activities of the Bank. The key management personnel compensation is as
follows:
2010 2009
Board member fees 534 320
Salary and other short-term benefits 2,848 2,782
Post employment benefits 313 139
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
60 FIRST ENERGY BANK ANNUAL REPORT 2010
20. ZAKAH
The Bank does not collect or pay Zakah on behalf of its shareholders or investors. Zakah payable by the shareholders is computed by
the Bank on the basis of the method prescribed by the Bank’s Sharia’a Supervisory Board and notified to shareholders annually. Zakah
payable by the shareholders in respect of each share for the year ended 31 December 2010 is US cents 1.74 (2009: US cents 2.40) for
every share held.
21. EARNINGS PROHIBITED BY SHARIA’A
During the year, there were no earnings from non-Islamic transactions that are prohibited by Sharia’a (2009: USD 1.4 thousand).
22. SHARIA’A SUPERVISORY BOARD
The Bank’s Sharia’a Supervisory Board consists of three Islamic scholars who review the Bank’s compliance with general Sharia’a principles
and specific Fatwas, rulings and guidelines issued. Their review includes examination of evidence relating to the documentation and
procedures adopted by the Bank to ensure that its activities are conducted in accordance with Islamic Sharia’a principles.
23. MATURITY PROFILE
The maturity profile of assets and liabilities based on the remaining periods to contractual maturity dates or expected periods to
realisation/ settlement are as follows:-
31 December 2010Up to 3 months
3 to 6 months
6 months to 1 year
1 to 3 years Over 3 years Total
Assets
Cash and bank balances 3,910 - - - - 3,910
Placements with financial institutions 555,658 - - - - 555,658
Financing receivables - 12,060 81,296 57,241 116,585 267,182
Investment securities - - 38,038 142,382 30,525 210,945
Investment in associates - - - 36,684 60,658 97,342
Other assets 4,431 42,147 3,318 - - 49,896
Property and equipment - - - - 14,911 14,911
Total financial assets 563,999 54,207 122,652 236,307 222,679 1,199,844
Liabilities
Placements from financial institutions 128,811 20,001 - - - 148,812
Other liabilities 26 7,376 - - 4,544 11,946
Total financial liabilities 128,837 27,377 - - 4,544 160,758
Commitments 81,715 50,430 1,021 12,912 - 146,078
Derivatives
Gross inflows - - - - - -
Gross outflows - - - - - -
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
FIRST ENERGY BANK ANNUAL REPORT 2010 61
31 December 2009Up to 3 months
3 to 6 months
6 months to 1 year
1 to 3 years Over 3 years Total
Assets
Cash and bank balances 12,358 - - - - 12,358
Placements with financial institutions 565,990 21,663 15,094 83,133 - 685,880
Financing receivables 341 - 6,623 85,727 45,853 138,544
Investment securities - - 2,294 64,309 170,370 236,973
Investment in associates - - - 25,122 71,665 96,787
Other assets 3,646 32,723 1,637 3,959 368 42,333
Property and equipment - - - - 21,044 21,044
Total financial assets 582,335 54,386 25,648 262,250 309,300 1,233,919
Liabilities
Placements from financial institutions
171,464 - - - - 171,464
Other liabilities 1,949 5,829 - - - 7,778
Total financial liabilities 173,413 5,829 - - - 179,242
Commitments 85,305 60,945 80,867 46,434 1,533 275,084
Derivatives
Gross inflows 4 9 18 72 72 175
Gross outflows - 176 176 704 704 1,760
The contractual maturities of the financial assets and liabilities are not significantly different from their contractual maturities. The gross
contractual cash outflows for financial liabilities are not significantly different from their carrying values.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
62 FIRST ENERGY BANK ANNUAL REPORT 2010
24. CONCENTRATION OF ASSETS AND LIABILITIES
a) Industry sector
2010Banks and financial
institutionsEnergy, power and
infrastructureOthers Total
Assets
Cash and bank balances 3,910 - - 3,910
Placements with financial institutions 555,658 - - 555,658
Financing receivables - 254,878 12,304 267,182
Investment securities 66,860 84,920 59,165 210,945
Investments in associates - 97,342 - 97,342
Other assets - - 49,896 49,896
Property and equipment - - 14,911 14,911
Total assets 626,428 437,140 136,276 1,199,844
Liabilities
Placements from financial institutions 148,812 - - 148,812
Other liabilities - - 11,946 11,946
Total liabilities 148,812 - 11,946 160,758
2009Banks and financial
institutionsEnergy, power and
infrastructureOthers Total
Assets
Cash and bank balances 12,358 - - 12,358
Placements with financial institutions 685,880 - - 685,880
Financing receivables - 123,203 15,341 138,544
Investment securities 82,653 84,920 69,400 236,973
Investments in associates - 96,787 - 96,787
Other assets 369 39,325 2,639 42,333
Property and equipment - - 21,044 21,044
Total assets 781,260 344,235 108,424 1,233,919
Liabilities
Placements from financial institutions 171,464 - - 171,464
Other liabilities 23 - 7,755 7,778
Total liabilities 171,487 - 7,755 179,242
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
FIRST ENERGY BANK ANNUAL REPORT 2010 63
b) Geographic sector
2010 GCC MENA Europe and USA Asia Total
Assets
Cash and bank balances 342 - 3,568 - 3,910
Placements with financial institutions 399,954 - 155,704 - 555,658
Financing receivables 267,182 - - - 267,182
Investment securities 190,945 - 20,000 210,945
Investments in associates 36,684 60,658 - - 97,342
Other assets 49,896 - - - 49,896
Property and equipment 14,911 - - - 14,911
Total assets 959,914 60,658 159,272 20,000 1,199,844
Liabilities
Placements from financial institutions 60,181 82,628 - 6,003 148,812
Other liabilities 11,946 - - - 11,946
Total liabilities 72,127 82,628 - 6,003 160,758
2009 GCC MENA Europe and USA Asia Total
Assets
Cash and bank balances 781 - 11,577 - 12,358
Placements with financial institutions 484,994 - 190,886 10,000 685,880
Financing receivables 138,544 - - - 138,544
Investment securities 196,973 20,000 - 20,000 236,973
Investments in associates 41,870 54,917 - - 96,787
Other assets 38,319 - 4,014 - 42,333
Property and equipment 21,044 - - - 21,044
Total assets 922,525 74,917 206,477 30,000 1,233,919
Liabilities
Placements from financial institutions 139,252 32,212 - - 171,464
Other liabilities 7,778 - - - 7,778
Total liabilities 147,030 32,212 - - 179,242
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
64 FIRST ENERGY BANK ANNUAL REPORT 2010
25. COMMITMENTS AND CONTINGENCIES
31 December 2010 31 December 2009
Commitment to finance 75,529 204,000
Other capital commitments 62,066 62,511
Operating lease commitments 2,552 3,573
Forward treasury commitments 5,931 5,000
In its normal course of business, the Bank initially undertakes the contractual commitments in relation to project assets and then places
the project with its investors along with the associated contractual commitments. Further, the Group has arranged for a bank guarantees
amounting to USD 11.94 million (2009: USD 11.94 million) in relation to performance obligations against its investment in a project
through one of its subsidiaries.
26. SOCIAL RESPONSIBILITY
The Bank intends to discharge its social responsibilities through donations to charitable causes and organisations.
27. PROPOSED APPROPRIATIONS
No appropriations are currently being proposed by the Board of Directors. Appropriations, if any, shall be considered for approval of the
shareholders at the annual general meeting.
28. FINANCIAL INSTRUMENTS
a) ACCOUNTING CLASSIFICATION OF FINANCIAL INSTRUMENTS
31 December 2010Available-
for-saleHeld-to
maturityFair value
through profit or loss
Loans and receivables
Other amortised
cost
Total
Assets
Bank balances - - - 3,910 - 3,910
Placements with financial institutions - - - 555,658 - 555,658
Financing receivables - - - 267,182 - 267,182
Investment securities 144,085 66,860 - - - 210,945
Other financial assets - - 1,959 5,337 - 7,296
Total financial assets 144,085 66,860 1,959 832,087 - 1,044,991
31 December 2009 172,664 64,309 3,326 842,055 - 1,082,354
Liabilities
Placements from financial institutions - - - - 148,812 148,812
Other financial liabilities - - - - - -
Total financial liabilities - - - - 148,812 148,812
31 December 2009 - - - - 179,242 179,242
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
FIRST ENERGY BANK ANNUAL REPORT 2010 65
b) FAIR VALUE OF FINANCIAL INSTRUMENTSFair value is an amount for which an asset could be exchanged, or a liability settled, between knowledgeable, willing parties in an arm’s length transaction. Other than certain available-for-sale investments in unquoted equity securities of USD 104,920 thousand (2009: USD 124,920 thousand), the estimated fair values of the Group’s financial assets and liabilities are not significantly different from their book values.
c) FAIR VALUE HIERARCHYThe table below analyses the financial instruments carried at fair value, by valuation method. The different levels have been defined as follows:•Level1:quotedprices(unadjusted)inactivemarketsforidenticalassetsandliabilities•Level2:inputsotherthanquotedpricesincludedwithinLevel1thatareobservablefortheassetorliability,eitherdirectly(i.e.asprices) or indirectly (i.e. derived from prices)•Level3:inputsfortheassetorliabilitythatarenotbasedonobservablemarketdata(unobservableinputs).
2010 Level 1 Level 2 Level 3 Total
Available-for-sale investments 39,165 - - 39,165
Fair value of equity option on commodity murabaha with associates - - 1,959 1,959
39,165 - 1,959 41,124
2009 Level 1 Level 2 Level 3 Total
Available-for-sale investments 47,744 - - 47,744
Fair value of equity option on commodity murabaha with associates - - 2,957 2,957
Fair value of risk management instrument - - 369 369
47,744 - 3,326 51,070
The table below shows the reconciliation of movements in value of financial instruments measured using Level 3 inputs:
2010 2009
Balance at 1 January 3,326 -
Total gains or (losses):
- In profit or (loss) (998) -
- In other comprehensive income - 369
Purchases - 2,957
Settlements (369) -
Transfers into/ out of Level 3 - -
Balance at 31 December 1,959 3,326
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
66 FIRST ENERGY BANK ANNUAL REPORT 2010
29. FINANCIAL RISK MANAGEMENT
The Group has exposure to the following risks from its use of financial instruments:
•creditrisk;
•liquidityrisk;
•marketrisks;
•profitrateinbankingbook;and
•operationalrisk
The Bank has a risk management framework in place for managing these risks which are constantly evolving as the business activities
change in response to credit, market, product and other developments.
This note presents information about the Group’s exposure to each of the above risks, its objectives, policies and processes for measuring
and managing risk, and the Bank’s management of capital.
Risk management framework
The Board of Directors has overall responsibility for the establishment and oversight of the Bank’s risk management framework.
The Bank’s risk management policies are established to identify and analyse the risks faced by the Bank, to set appropriate risk limits and
controls, and to monitor risks and adherence to limits. Risk management policies and systems are reviewed to reflect changes in market
conditions, products and services offered.
Risk Management Committee is responsible for recommending policy and framework to the Board Risk Committee, which in turn is
responsible for reviewing and recommending to the Board for approval. The Risk Management Department is responsible for monitoring
compliance with the Bank’s risk management policies and procedures, and for reviewing the adequacy of the risk management framework
in relation to the risks faced by the Bank.
The principal risks associated with the Group’s business and the related risk management processes are as follows:
Credit risk
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a financial instrument fails to meet its contractual
obligations, and arises principally from the placements with financial institutions, investments in Sukuks and Islamic financing facilities.
Equity investment in banking book is also considered as a component of credit risk.
For risk management reporting purposes, the Bank considers and consolidates all elements of credit risk exposure (such as individual
obligor default risk, country risk and sector risk).
Management of credit risk
Credit risk is assessed on an individual basis for each counterparty and has been reviewed and approved by the Board of Directors as at
31 December 2010. The Bank does not perform a collective assessment of impairment for its credit exposures as the credit characteristics
of each exposure is considered to be unique. Credit exposures are subject to regular reviews by the Risk Management Department.
The Bank attempts to reduce credit risk by assigning limits for each counterparty, monitoring credit exposure, and continuously assessing
the creditworthiness of counterparties.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
FIRST ENERGY BANK ANNUAL REPORT 2010 67
Maximum credit exposure
The maximum exposure to credit risk has been disclosed below:
2010 Bank balances
Placements with
financial institutions
Financing receivables
Investment securities
Derivative financial
instruments
Other assets
Prime to High grade: AAA – AA 141 104,384 - - - -
Medium grade: A – BBB 3,571 239,774 - 97,385 - -
Non-investment/ speculative: BB – B - - - 8,640 - -
Substantial risk: Below B - - - - - -
Doubtful/ Loss - - - - - -
Unrated 198 211,500 267,182 104,920 1,959 5,337
Total carrying amount 3,910 555,658 267,182 210,945 1,959 5,337
2009 Bank balances
Placements with
financial institutions
Financing receivables
Investment Securities
Derivative financial
instruments
Other assets
Prime to High grade: AAA – AA 116 58,445 - 31,694 - -
Medium grade: A – BBB 11,703 228,237 - 62,531 - -
Non-investment/ speculative: BB – B - 107,015 - - - -
Substantial risk: Below B - - - - - -
Doubtful/ Loss - - - - - -
Unrated 531 292,183 138,544 142,748 3,326 5,281
Total carrying amount 12,350 685,880 138,544 236,973 3,326 5,281
The Bank’s credit risk is primarily from bank balances and short term placements with financial institutions which are placed with
financial institutions having good credit ratings. The Bank is also exposed to credit risk from its investments in unlisted equity, sukuks
and financing receivables.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
68 FIRST ENERGY BANK ANNUAL REPORT 2010
The Bank considers key risk factors to assign internal credit rating and rating-based credit limits for all counterparty banks and financial institutions with whom it places short-term funds. All placements during the year were with financial institutions having internal or external credit ratings mapping to “Standard” credit category of the Bank. The Bank conducts detailed assessment of the equity investment opportunities to evaluate the commercial viability of the investments. The Sukuk investments and Islamic Financing Facilities during the year were with obligors or guarantors who were either Banks, sovereigns or sovereign owned companies and were rated externally or internally. The Bank monitors the creditworthiness of the counterparties and the performance of the exposures with regard to timeliness of payments and other credit conditions on an ongoing basis. Annual and interim credit reviews are conducted to check the credit quality and impairment assessment requirement, if any.
During the year, the Bank has also developed rating models for various industries in which it has strategic interest and it intends to start using them in 2011.
During the year, Bank has created an impairment allowance of USD 20,000 on investments, USD 3,800 on land and USD 3,596 on advance paid for acquisition of an investment. The Bank does not have any facilities restructured or considered past due as at 31 December 2010 (2009: Nil). The Bank does not hold collateral against any of its exposures as at 31 December 2010 (2009: Nil).
Concentration RiskConcentration risk is the risk of imperfect diversification of the credit portfolio resulting in adverse impact of an external event on portfolio constituents sensitive to similar risk factors. Concentration risk primarily arises due to name and sector concentration including the geographic concentration.
The Bank strictly adheres to the regulatory guidelines in respect of large exposures and connected and related counterparty exposures to effectively manage the name concentration. Any excesses above the said limits are reported to the CBB and treated in accordance to the regulatory guidelines by way of capital deduction. In addition, the Bank has established internal limits on the maximum permissible exposures to sectors and countries for managing the sector concentration.
In respect of geographical concentration the Bank has defined limits for each country / geography which is based on available ratings by S&P and Fitch. The Bank also closely monitors political risk arising from recent events in each country of exposure.
Market RiskMarket risk is the risk that changes in market prices, such as profit rates, equity prices, foreign exchange rates, commodity prices and credit spreads (not relating to changes in the obligor’s / issuer’s credit standing) will affect the Group’s income or the value of its holdings of financial instruments. Market risk comprises equity position risk, profit rate risk in trading book, commodities risk, currency risk and other price risk.
The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
The Bank does not have a trading portfolio and hence is not exposed to market risk in relation to such instruments. The Bank is not exposed to commodities or price risk as there is no commodity holding either in the banking or trading book. Market risk for the Bank arises only on account of its foreign exchange exposure in the banking book particularly on account of short-term placements.
Currency riskCurrency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. The Bank’s major exposure is in GCC currencies, which are primarily pegged to the US Dollars. The Bank monitors this exposure on an ongoing basis and the net open position is not significant.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
29 FINANCIAL RISK MANAGEMENT (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 69
The Group had the following net exposures denominated in foreign currency (other than GCC currencies) as of 31 December:
2010 US$ Equivalent 2009 US$ Equivalent
Sterling Pounds 62 10
Euros 32 77
Profit rate risk in banking bookProfit rate risk in banking book is the exposure of the Bank’s financial condition to adverse movements in profit rates. Changes in profit rates affect the Bank’s earnings by changing its net profit income and the level of other profit rate sensitive income and operating expenses. Changes in profit rates also affect the underlying value of the Bank’s assets, liabilities, and off-balance-sheet (OBS) instruments because of the absolute or economic value changes of future cash flows due to the change in profit rates. Profit rate risk primarily arises on account of repricing risk, yield curve risk, basis risk and optionality risk.
The Bank is primarily exposed to repricing and yield curve risks. Repricing risk arises on account of mismatch in profit rate fixation periods between assets and liabilities. Yield curve risk arises due to shift in yield curve. The Bank has minimal exposure to basis and optionality risks. Most of the rate sensitive assets and all the rate sensitive liabilities are on account of short-term interbank placements and hence there is a high degree of correlation between profits earned and paid on products with similar risk characteristics. Most of the Bank’s rate sensitive assets and liabilities in the books of the Bank are short-term in nature. In view of this, no significant impact of embedded optionality is expected particularly on account of early redemptions in some these assets and liabilities. Also, no such trend of early redemptions has been observed in the past.
The Bank monitors the timing difference in the re-pricing of the Bank’s rate-sensitive assets and liabilities and also the impact of any parallel shift in the yield curve on the expected Net Profit Income for up to one year horizon and the economic value of equity. The Bank’s profit rate sensitive assets are mainly short-term placements with financial institutions, financing receivables and investment in Sukuk. The Bank has exposures to both fixed and floating rate Sukuk. Fixed rate Sukuk represent 36.9% of the total Sukuk portfolio as at 31 December 2010 (2009: 38.4%). The rate sensitive liabilities comprise of short-term placements from banks and financial institutions only.
Profit rate risk is managed principally through monitoring profit rate gaps and by having pre-approved limits for re-pricing bands. A summary of the Group’s profit rate gap position is as follows:
2010Up to 3 months
3 to 6 months
6 months -1 year
1 to 3 years Over 3 years
Total
Assets
Placements with financial institutions 555,658 - - - -555,658
Financing receivables - 12,060 81,296 57,242 116,584 267,182Investment securities - - 38,039 142,382 30,524 210,945
Total assets 555,658 12,060 119,335 199,624 147,108 1,033,785
LiabilitiesPlacements from financial institutions 128,811 20,001 - - - 148,812
Total liabilities 128,811 20,001 - - - 148,812
Profit rate sensitivity gap 426,847 (7,941) 119,335 199,624 147,108 884,973
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
70 FIRST ENERGY BANK ANNUAL REPORT 2010
2009Up to 3 months
3 to 6 months
6 months -1 year
1 to 3 yearsOver 3
yearsTotal
Assets
Placements with financial institutions 565,990 21,663 15,094 83,133 - 685,880
Financing receivables 341 - 6,623 85,727 45,853 138,544
Investment securities - - 2,294 64,309 170,370 236,973
Total assets 566,331 21,663 24,011 233,169 216,223 1,061,397
Liabilities
Placements from financial institutions 171,464 - - - - 171,464
Total liabilities 171,464 - - - - 171,464
Profit rate sensitivity gap 394,867 21,663 24,011 233,169 216,223 889,933
The management of profit rate risk against profit rate gap limits is supplemented by monitoring the sensitivity of the Group’s financial
assets and liabilities to various standard and non-standard profit rate scenarios. Standard 200 basis point (bp) profit rate shock by way
of parallel shift in all yield curves is considered on a monthly basis to ensure that the resulting impact on the economic value of equity
is within the limit prescribed by the Basel Committee on Banking Supervision.
An analysis of the Group’s sensitivity to an increase or decrease in market profit rates (assuming no asymmetrical movement in yield
curves and a constant statement of financial position) is as follows:
100 bps parallel increase / (decrease) 2010 2009
At 31 December + 8,850 + 8,899Average for the year + 8,931 + 8,887Maximum for the year + 10,093 + 11,554Minimum for the year + 7,985 + 6,717
Overall, profit rate risk positions are managed by Treasury, which uses placements from/ to financial institutions to manage the overall
position arising from the Group’s activities.
The effective profit rates on the financial assets and liabilities as at 31 December were as follows:
2010 2009
Placements with financial institutions 1.86% 1.00%Financing receivables 3.92% 6.00%Investment securities 3.20% 3.50%Placements from financial institutions 0.68% 1.00%
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
29 FINANCIAL RISK MANAGEMENT (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 71
Liquidity risk
Liquidity risk is defined as the risk that an entity will encounter difficulty in meeting obligations associated with financial liabilities that
are to be settled by delivering cash or another financial asset. The Group’s approach to managing liquidity is to ensure, as far as possible,
that it will always have sufficient liquidity to meet its liabilities when due, under both normal and stressed conditions, without incurring
unacceptable losses or risking damage to the Group’s reputation.
The Board of Directors approves all significant policies and strategies related to the management of liquidity. The Management reviews
the liquidity profile of the Group on a regular basis and any material change in the current or prospective liquidity position is notified to
the Board through the Board Risk Committee. The maturity profile of assets and liabilities has been provided in note 23.
The Risk Management Department monitors the liquidity profile of the Bank on an ongoing basis to ensure that the liquidity gap is within
the regulatory limit and the liquidity gap and key liquidity ratios are within the internal Board approved limits.
Details of the Group’s liquid assets to total assets at the reporting date and during the reporting period were as follows:
Liquid asset / Total asset
2010 2009
At 31 December 0.55 0.78
Average for the period 0.58 0.70
Maximum for the period 0.66 0.92
Minimum for the period 0.55 0.54
Operational risk
Operational risk is the risk of loss arising from systems and control failures, fraud and human error, which can result in financial and
reputation loss, and legal and regulatory consequences. The Bank manages operational risk through appropriate controls, instituting
segregation of duties and internal checks and balances. In addition the Bank is committed to the training of its staff. The Bank
conducted the Risk Control Self Assessment (RCSA) of Operational risk in all key departments of the Bank to identify the risks and
assess them with respect to the frequency, severity and efficacy of internal controls. The results of the RCSA were presented to the
Board Risk Committee in November. 2010.
30. CAPITAL MANAGEMENT
The Bank’s regulator, the Central Bank of Bahrain (CBB) sets and monitors capital requirements for the Bank as a whole. The Bank is
required to comply with the provisions of the Capital Adequacy Module of the CBB (revised framework based on the Basel II and IFSB
frameworks) in respect of regulatory capital. The Bank has adopted the standardised approach to credit and market risk measurement and
basic indicator approach for operational risk measurement under the revised framework. In implementing current capital requirements
CBB requires the Bank to maintain a prescribed ratio of eligible capital to total risk-weighted assets. Banking operations are categorised
as either trading book or banking book, and risk-weighted assets are determined according to specified requirements that seek to reflect
the varying levels of risk attached to assets and off-balance sheet exposures.
The Bank’s policy is to maintain strong capital base so as to maintain investor, creditor and market confidence and to sustain the future
development of the business. Capital requirements of CBB have been complied throughout the period.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
72 FIRST ENERGY BANK ANNUAL REPORT 2010
The Bank’s regulatory capital position at 31 December was as follows:
Capital adequacy 2010 2009
Total risk weighted assets 1,053,851 1,140,951
Total regulatory capital 910,030 830,452
Total regulatory capital expressed as a percentage of total risk weighted assets 86.35% 72.79%
31. NEW INTERNATIONAL FINANCIAL REPORTING STANDARDS AND INTERPRETATIONS ISSUED BUT NOT YET EFFECTIVE FOR ADOPTION
The following standards and interpretations have been issued and are expected to be relevant to the Group but not yet effective for
the year ended 31 December 2010:
a) International Financial Reporting Standards and interpretations issued by IASB
• IFRS 9 ‘Financial Instruments’
Standard issued November 2009 (IFRS 9 (2009))
IFRS 9 (2009) “Financial Instruments” is the first standard issued as part of a wider project to replace IAS 39 “Financial instruments:
recognition and measurement”. IFRS 9 (2009) retains and simplifies the mixed measurement model and establishes two primary
measurement categories for financial assets: amortised cost and fair value. The basis of classification depends on the entity’s
business model and the contractual cash flow characteristics of the financial asset. The guidance in IAS 39 on impairment and hedge
accounting continues to apply. The 2009 standard did not address financial liabilities
Standard issued October 2010 (IFRS 9 (2010))
IFRS 9 (2010) adds the requirements related to the classification and measurement of financial liabilities, and derecognition of
financial assets and liabilities to the version issued in November 2009. It also includes those paragraphs of IAS 39 dealing with how
to measure fair value and accounting for derivatives embedded in a contract that contains a host that is not a financial asset, as well
as the requirements of IFRIC 9 “reassessment of Embedded Derivatives”
The Group is yet to assess IFRS9’s full imapct. Given the nature of the Group’s operations, this standard is expected to have a
pervasive impact on the Group’s financial statements.
While adoption of IFRS 9 is mandatory from 1 January 2013, earlier adoption is permitted. Prior periods need not be restated if an
entity adopts the standard for reporting periods beginning before 1 January 2012.
• Improvements to IFRSs (2010)
Improvements to IFRS issued in 2010 contained numerous amendments to IFRS that the IASB considers non-urgent but necessary.
‘Improvements to IFRS’ comprise amendments that result in accounting changes to presentation, recognition ormeasurement
purposes, as well as terminology or editorial amendments related to a variety of individual IFRS standards. The amendments are
effective for the Company’s/ Group’s 2011 annual financial statements with earlier adoption permitted. No material changes to
accounting policies are expected as a result of these amendments.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
30. CAPITAL MANAGEMENT (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 73
b) Financial Accounting Standards issued by AAOIFI
The following accounting standards and interpretations have been issued by AAOIFI during 2010 and are mandatory for the Group’s
accounting for annual periods beginning on or after 1 January 2011 and are expected to be relevant to the Group:
• FAS 25 “Investment in Sukuk, shares and similar instruments”
FAS 25 was issued in July 2010 and replaced FAS 17 “Investments”. FAS 25 retains and simplifies the mixed measurement model and
establishes two measurement categories for investments: amortised cost and fair value.
The standard requires each investment to be first segregated as either debt-type or equity type instruments, and the basis of
classification depends on the entity’s business model and the contractual cash flow characteristics of the investment.
For equity-type investments, an irrevocable election can be made at initial recognition, to recognise unrealised fair value gains and
losses through equity rather than through the income statement. Reclassification between categories is not permitted. The guidance
inFAS17on‘investmentinrealestate’continuestoapply.Thenewstandardrequiresretroactiveapplication.
The Group is currently in the process of evaluating the potential effect of this standard. Given the nature of the Group’s operations,
this standard is expected to have a pervasive impact on the Group’s financial statements.
c) The Group did not early adopt any new or amended standards in 2010.
32. COMPARATIVES
Certain prior year amounts have been regrouped to conform to the current year’s presentation. Such regrouping did not affect previously
reported profit, comprehensive income or equity.
NOTES TO THE CONSOLIDATED FINANCIAL STATEMENTSfor the year ended 31 December 2010 US$ 000’s
The accompanying notes 1 to 32 form an integral part of these consolidated financial statements. The accompanying notes 1 to 32 form an integral part of these consolidated financial statements.
74 FIRST ENERGY BANK ANNUAL REPORT 2010
FIRST ENERGY BANK ANNUAL REPORT 2010 75
RISK AND CAPITAL MANAGEMENT
76 FIRST ENERGY BANK ANNUAL REPORT 2010
Basel II - Pillar III Disclosures
Contents
1 Executive Summary 77
2 Introduction 77
2.1 Pilar I 77
2.2 Pilar II 78
2.3 Pilar III 78
3 Overall Risk and Capital Management 78
3.1 Risk Management Strategy 78
3.2 Risk Management Framework 79
3.3 Capital Management 79
3.4 Risk Types 79
4 Capital Structure and Capital Adequacy Ratio 80
4.1 Capital and Group Structure 80
4.2 Exposures in Excess of 15% Capital Base 80
4.3 Capital Adequacy 80
5 Credit Risk 81
5.1 Credit Risk Management 81
5.2 Capital Requirements for Credit Risk 83
5.2.1 Credit Exposure and Risk-weighted Assets 83
5.2.2 Movement in Credit Exposure 84
5.2.3 Impairment Provisioning for Credit Exposures 85
5.2.4 Equity Investments Held in Banking Book 85
5.3 Quantitative Information on Credit Risk 86
5.4 Concentration Risk 86
5.5 Counterparty Credit Risk 86
5.6 Settlement Risk 86
6 Market Risk 87
6.1 Capital Requirements for Market Risk 87
7 Operational Risk 87
7.1 Operational Risk Management 87
7.2 Legal Compliance and Litigation 87
7.3 Sharia’a Compliance 88
7.4 Capital Requirements for Operational Risk 88
8 Liquidity Risk 88
9 Profit Rate Risk in the Banking Book 89
10 Reputational Risk 90
11 Strategic Risk 90
12 Other Risks 90
FIRST ENERGY BANK ANNUAL REPORT 2010 77
1 Executive summaryFirstEnergyBankB.S.C.(c)(‘FEB’/‘theBank‘)wasincorporatedon23June2008intheKingdomofBahrainunderCommercialRegistration
No.69089.TheBankoperatesasanIslamicWholesaleBankunderalicensegrantedbytheCentralBankofBahrain(‘CBB’).Theprincipal
activities of the Bank include investment banking services which comply with Islamic rules and principles as determined by the Sharia’a
Supervisory Board of the Bank.
The CBB Basel II guidelines became effective on 1 January 2008 as the common framework for the implementation of Basel II capital
adequacy framework for Banks incorporated in the Kingdom of Bahrain. The disclosures in this report have been prepared in accordance
with the CBB requirements outlined in the Public Disclosure Module (“PD”), Section PD-1.3: Disclosures in Annual Reports, CBB Rule
Book - Volume II for Islamic Banks. The requirements of Section PD 1.3 follow the requirements of Basel II - Pillar III and the Islamic
Financial Services Board’s (IFSB) recommended disclosures for Islamic banks.
This report contains a description of the Bank’s risk management and capital adequacy risk and practices, including detailed information
on the capital adequacy process. The Bank has been in compliance with the minimum capital adequacy ratios prescribed by the CBB
throughout 2010.
The disclosures in this report are in addition to, or in some cases serve to clarify, the disclosures set out in the financial statements for
the period ended 31 December 2010, presented in accordance with the Financial Accounting Standards (FAS) issued by the Accounting
and Auditing Organization for Islamic Financial Institutions (AAOIFI) and International Financial Reporting Standards (IFRS). To avoid any
duplication, information required under PD module but already disclosed in other sections of the Annual report has not been reproduced
in these disclosures.
2 IntroductionThe Basel II based framework provides a more risk sensitive approach for the assessment of risk and the calculation of regulatory capital
i.e. the minimum capital that a bank is required to maintain. The framework intends to strengthen the risk management practices and
processes within financial institutions. FEB has accordingly taken steps to comply with these requirements. The CBB’s capital management
framework, consistent with the Basel II accord, is built on three pillars:
•PillarI:calculationoftheriskweightedamountsandregulatorycapitalrequirement.
•PillarII:thesupervisoryreviewprocess,includingtheInternalCapitalAdequacyAssessmentProcess.
•PillarIII:rulesforthedisclosureofriskmanagementandcapitaladequacyinformation.
2.1 Pillar I
Pillar I prescribes the basis for the calculation of the regulatory capital adequacy ratio. Pillar I defines the regulatory minimum
capital requirements for each bank to cover the credit risk, market risk and operational risk inherent in its business model. It also
defines the methodology for measurement of these risks and the various elements of qualifying capital. The capital adequacy
ratio is calculated by dividing the regulatory capital base by the total Risk Weighted Assets (RWAs).
The resultant ratio is to be maintained above a predetermined and communicated level. As required by the CBB, the minimum
capital adequacy ratio for banks incorporated in Bahrain is 12% compared to the Basel Committee’s minimum recommended
ratio of 8%. The CBB also requires banks incorporated in Bahrain to maintain a buffer of 0.5% above the minimum capital
adequacy ratio. In the event that the capital adequacy ratio falls below 12.5%, additional prudential reporting requirements
apply, and a formal action plan setting out the measures to be taken to restore the ratio above the target level is to be formulated
and submitted to the CBB. Consequently, the CBB requires FEB to maintain an effective minimum capital adequacy ratio of
12.5%.
Under the CBB’s Basel II capital adequacy framework, the RWAs are calculated using sophisticated and risk sensitive methods.
The table below summarizes the Pillar I risks and the approaches used by the Bank for calculating the RWAs in accordance with
the CBB’s Basel II capital adequacy framework.
78 FIRST ENERGY BANK ANNUAL REPORT 2010
Risk Type Approach used by FEB
Credit risk Standardised Approach
Market risk Standardised Approach
Operational risk Basic Indicator Approach
2.2 Pillar II
Pillar II deals with the Supervisory Review and Evaluation Process (SREP). It also recommends banks to establish the Internal
Capital Adequacy Assessment Process (ICAAP) for assessing the adequacy of the available capital to cover all material risks
(including those covered under Pillar I).
Under the CBB’s Pillar II guidelines, each bank is to be individually assessed by the CBB for prescribing the bank-specific minimum
capital adequacy ratio. Pending finalization of the assessment process, all banks incorporated in Bahrain are required to continue
to maintain the existing 12% and 8% minimum capital adequacy ratios on consolidated basis and solo basis respectively.
The ICAAP incorporates a review and evaluation of risk management and capital relative to the risks to which the bank is exposed.
During the year under review, the ICAAP framework was approved by the Board. The ICAAP framework includes identification,
assessment, measurement, monitoring and reporting of all material risks and maintain appropriate level of capital in line with
the Bank’s overall risk profile and business plan. The ICAAP is also supplemented by developing stress scenarios and assess the
impact of such scenarios on the portfolios, risk profile, capital adequacy of the Bank and ensure the adequacy of capital in such
instances.
2.3 Pillar III
Pillar III of the CBB’s Basel II framework prescribe the coverage, depth, timelines and medium of communicating the information
by the institution on its governance structure, risk profile, risk management framework and the capital adequacy position. The
disclosures comprise detailed qualitative and quantitative information. The purpose of the Pillar III disclosure requirements is to
complement the first two Pillars and enabling stakeholders and market participants in getting an insight in the institution’s risk
appetite and risk exposures and enable detailed assessment and comparability between different banks.
Under the current requirements of the PD module, partial disclosure consisting mainly of quantitative analysis is required during
half year reporting, whereas full disclosure is required to coincide with the financial year-end reporting.
3 Overall risk and capital management
3.1 Risk management strategy
FEB perceives good risk management capabilities to be the foundation in delivering results to customers, investors and
shareholders. The Bank will continue to endeavour to adopt international best practices of risk management, superior corporate
governance and the highest level of market discipline.
The primary objectives of the risk management strategy of the Bank are to:
•ManagerisksinherentintheBank’sactivitiesinlinewiththeriskappetiteoftheBank;
•StrengthentheBank’sriskmanagementpracticestoreflecttheindustrybestpractices;and
•Aligninternalcapitalrequirementswithriskmateriality.
The risk appetite is articulated through the limit structures for individual risks. These limits are based on the Bank’s business
plans and guided by the regulatory requirements and guidelines. By defining the risk limits, the Bank links its individual risks to
Introduction (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 79
its strategy. The risk appetite defines the level of risk that FEB is prepared to take in order to achieve its objectives. The Bank
reviews and realigns its risk appetite and limits as per the evolving business plan of the Bank with changing economic and market
scenarios. The Bank will also assess its tolerance for specific risk categories and its strategy to manage these risks. The risk appetite
outlines the Bank’s risk exposures and defines its tolerance levels towards accepting or rejecting these risks. Tolerance levels are
reflected in the limits defined by the Bank for each risk area.
3.2 Risk management framework
The Bank’s Board of Directors through its Risk Committee (a sub committee of the Board of Directors) has the responsibility for
ensuring the establishment and effective implementation of an integrated risk management framework for the Bank. Further,
the Risk Management Department is empowered to independently identify and assess risks that may arise from the Bank’s
investing, financing and operating activities; as well as recommend directly to the Risk Management Committee any prevention
and mitigation measures as it deems fit. In addition, the Internal Audit function, which is independent of both operations and the
Bank’s investments units, reviews the risk management process.
3.3 Capital management
The Bank’s policy is to maintain a strong capital base and meet the minimum capital requirements imposed by the regulator
(CBB), so as to maintain investor, creditor and market confidence and to sustain future development of the business. The Bank
assesses the impact of the level of capital on shareholders’ return and the need to maintain a balance between the shareholders’
returns and security offered by a sound capital position.
The allocation of capital between specific operations and activities is primarily driven by the capital management policy while
ensuring that the regulatory requirements are adhered to at all times. The Bank’s capital management policy seeks to optimize
returns within the internally defined risk tolerances while satisfying all the regulatory requirements.
The Bank ensures that the regulatory capital adequacy requirements are complied with at all times.
3.4 Risk types
As an Islamic investment bank dealing predominantly in alternative assets, the Bank is exposed to various risks in the normal
course of its business and these risks include:
a. Credit risk including concentration risk, counterparty credit risk and settlement risk
b. Market risk
c. Operational risk
d. Liquidity risk
e. Profit rate risk in banking book
f. Reputational risk
g. Strategic risk
h. Other risks
The details on exposure of the Bank to these risks and the management framework for them are discussed in the following
sections 5-12 of this document.
80 FIRST ENERGY BANK ANNUAL REPORT 2010
4 Capital structure and capital adequacy ratio
4.1 Capital and group structure
The authorized share capital of the Bank is 2 billion shares of US$ 1 each. The paid up capital of the Bank is US$ 1 billion
comprising 1 billion shares.
The Bank fully consolidates all its subsidiaries for capital computation purposes. The Bank’s associates qualify as commercial
entities and their exposure is risk weighted in accordance with applicable capital computation guidelines of the CBB.
One of the Associates, Menadrill Investment Company has been consolidated for regulatory capital adequacy purpose due to
significant control in the Board of Directors.
Entity name Entity classification
as per PCD Module
Treatment by the Bank
Al Dur Energy Investment Company (ADEIC) -
58.83%
Commercial entity Fully consolidated
Cosmos Industrial Investment Corporation BSC
(c) (CIIC) – 93.47%
Commercial entity Fully consolidated
North Africa Investment Company – 100% Commercial entity Fully consolidated
Menadrill Investment Company - 40.65% Commercial entity Consolidated for regulatory capital
adequacy purpose *
* Based on the instruction from the CBB
4.2 Exposures in excess of 15% capital base
As defined in the PCD Module of the CBB, the Bank is obligated to deduct from its capital base any exposures exceeding the single
obligor limit imposed by the CBB which is 15% of the Bank’s regulatory capital base.
As at 31st December 2010, the following exposures were deducted from the capital base for calculating the eligible capital
base:
USD 000’s
Exposure type Investmentamount
Exposure as percentageof available capital
Capital deductionamount
Equity Investment and Islamic financing (on and off balance sheet) to Menadrill Investment Company
368,514 33.15% 201,747
4.3 Capital adequacy
The Bank’s regulator (CBB) sets and monitors capital requirements for the Bank. In implementing current capital requirements,
CBB requires the Bank to maintain a prescribed ratio of 12% of eligible capital to total risk-weighted assets.
The Bank has adopted the standardised approach to credit and market risk and basic indicator approach for operational risk
FIRST ENERGY BANK ANNUAL REPORT 2010 81
management under the revised framework. The Bank’s regulatory capital position at 31 December 2010 was as follows:
USD 000’s
Tier 1 Tier 2 Total
Share capital 1,000,000 - 1,000,000
Statutory reserve 1,438 - 1,438
Others (2,202) - (2,202)
Retained earnings 2,252 - 2,252
Minority interest in consolidated subsidiaries 110,289 - 110,289
Less regulatory deduction:
Excess amount over maximum permitted large exposure limit (201,747) - (201,747)
Total eligible capital base 910,030 - 910,030
USD 000’s
Risk weighted exposure Capital requirement @ 12%
Credit Risk 817,475 98,097
Market risk 63,425 7,611
Operational 172,951 20,754
Total 1,053,851 126,462
Capital Adequacy Ratio 86.35%
Tier 1 capital adequacy ratio 86.35%
5 Credit risk
Credit risk is defined as the potential that a bank’s borrower or counterparty will fail to meet its obligations in accordance with agreed terms.
5.1 Credit risk management
The credit risk exposures faced by the Bank are by way of its short term liquidity related placements with other financial institutions, Islamic financing facilities made to corporate clients, and in respect of investments in projects, unlisted equity and Sukuks. The investment related funding exposures arise in the ordinary course of its investment banking activities and are generally transacted without collateral or other credit risk mitigants.
Credit Management Department (CMD) is responsible for conducting independent risk review and analysis for all credit applications received from Investment Banking, Islamic Finance, and Treasury Departments. It is also responsible for the ongoing review of the credit worthiness of existing clients through the process of periodic credit reviews, annual or more frequently, if required. The CMD is also responsible for monitoring all approved limits, and reporting breaches, if any to the RMC and the Board.
CMD reviews every Credit Application received from the respective business initiator (LOB) and prepares an independent comprehensive Credit Risk Analysis with recommendation. The Credit Application and the Credit Analysis are submitted to
82 FIRST ENERGY BANK ANNUAL REPORT 2010
the Credit Risk Committee for approval, if within their approval authority, or for review and further submission to appropriate approval authority.
After the credit is approved and draw down allowed, the credit exposures are monitored on an ongoing basis. These include keeping track of counterparties’ compliance with credit terms, identifying early signs of irregularity, conducting periodic valuation of collateral, if applicable, and monitoring timely repayments.
The Bank maintains a strong focus on identification of signs of deterioration in the credit worthiness of counterparties and performance of investments in order to take preventive measures before the facility becomes substandard / doubtful or deteriorates in value.
CMD monitors credit and investment risk exposures against established limits on a daily basis. CMD generates alerts to RMC whenever a limit is breached. CMD also produces periodic exposure and risk reports for the Board as well as reports required for regulatory reporting and public disclosure as required under the Pillar III guidelines.
The problem credit categorisation of the Bank is aligned with the regulatory guidelines. All credit exposures which are regular and for which currently there is no doubt as to their orderly liquidation will be categorised as current.
There are three categories of problem credit exposure classification indicating increasing degrees of potential risk of loss in addition to watch-listing.
Substandard
An obligation or part of an obligation that is inadequately protracted by the current financial condition of the obligor or the collateral pledged. The normal repayment of principal and profit or settlement at maturity may be or has been jeopardised or collateral coverage is clearly deficient. No loss is foreseen but a protracted work-out is a possibility.
Substandard accounts may exhibit one or all of the following characteristics:
Principal or profit repayment is past due for more than 90 days; or•Cash-flow is not sufficient to meet currently maturing financing facility; or•Accounts which carry more than a normal degree of risk due to the absence of updated or satisfactory financial •
information or inadequate collateral documentation.
Doubtful
An obligation or part of an obligation where there is a high probability of some loss, the extent which cannot be currently quantified.
Doubtful accounts may exhibit one or all of the following characteristics:
Principal or profit repayment is past due for more than 180 days; or•Collection in full on the basis of currently existing facts, conditions and values is highly questionable and improbable;•Likelihood of loss is high but decision to classify as Loss has been deferred till an exact decision is determined.•
Loss
An obligation regarded as uncollectable and where loss and consequent write-off is imminent. Once written off these amounts are no longer shown as Loss although eventual recovery may still be a possibility.
Loss accounts may exhibit one or all of the following characteristics:
Principal or profit repayment is past due for more than a year; or•Immediate circumstances indicate that an asset is uncollectable.•
Credit risk (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 83
The Bank regularly assesses its credit portfolio for any indicators of impairment on a periodic basis and would consider provision for impairment on specific credit exposures. The credit portfolio is segregated by geography and industry segments. The Bank segregates all its exposures by four regions namely GCC, MENA, Europe & USA and Asia and several industry sectors of which the main two are “Banks and financial institutions” and “Energy, power and infrastructure”. Currently, the bank does not have a sizeable credit portfolio for assessment of impairment on a collective basis. The Bank shall write-off the exposures (fully / partially as the case may be) when there is reasonable doubt over recovery of the amount. Reasonable doubt shall be based on objective evidence that the balance is impaired and would not be recovered. During 2010, as a prudent measure, the Bank has fully provided for a USD 20 million investment in Libya (MENA region) in the Infrastructure sector in view of the drop in the expected economic value of this investment. The Bank also made certain provisions for impairment of an asset and write-off of an advance paid for an investment. These included a provision of $3.80 million for decline in the market value of a piece of land held for strategic purpose and 100% write-off amounting to $3.60 million for an advance made for an investment.
5.2 Capital requirements for credit risk
The Bank uses the Standardised Approach under the Basel II framework for measuring the regulatory capital requirement for its credit risk. The Bank utilizes, wherever available ratings from External Credit Assessment Institution recognised by the CBB (S&P, Moody’s, Fitch, and Capital Intelligence) for its counterparty banks’ exposures. Moreover, a detailed credit risk assessment of all obligors is performed independently by the credit management department, and approved by the Credit Committee. The Bank manages credit risk by assigning limits for all counterparties, monitoring credit exposure against the assigned limits, and continuously assessing the creditworthiness of counterparties.
The Bank currently is not engaged in providing retail credit facilities and hence it does not use retail credit “scoring” models. The current credit facilities are linked to its investments and exposures to FIs(Placements & Sukuks) and have been assessed on a case-by-case basis. These exposures are evaluated for credit risk on a specific risk assessment basis on each reporting period. The Bank has currently implemented a rating model to evaluate its exposures to financial institutions and rates the exposures in the following credit grades – Prime, High Grade, Upper Medium Grade, Low Medium Grade, Non-Investment Grade, High Speculative, Substantial Risk, Extremely Speculative, In default with little prospect of Recovery and In default. During the year, the Bank has developed rating models for various other industries in which it has strategic interest. Please refer to Note 29 of the consolidated financial statements for details of the credit grading of exposures as at 31 December 2010.
5.2.1 Credit exposure and risk-weighted assets
Following are the components of credit risk as computed for regulatory capital adequacy purposes as at end December 2010:
USD 000’s
Asset categories for credit risk Credit exposures
Averagerisk weights
Credit risk weighted
assets Capital requirements
Cash items 8 0% - -
Total claims on sovereignsSukukOthers
30,524-
0%-
--
--
Total claims on MDBs - - - -
Total claims on banksStandard Risk WeightsPreferential Risk WeightsShort Term Claims
55,013156,777347,769
50%20%20%
27,50631,35569,554
3,3013,7638,346
Claims on corporate 126,960 100% 126,960 15,235
84 FIRST ENERGY BANK ANNUAL REPORT 2010
USD 000’s
Asset categories for credit risk Credit exposures
Averagerisk weights
Credit risk weighted
assets Capital requirements
Investment in securities and SukuksSukukEquity
66,860145,578
150%150%
100,289218,367
12,03526,204
Holding of real estateLandSukukEquity
10,4608,640
20,000
100%200%200%
10,46017,28040,000
1,2552,0744,800
Other assets and specialized financing 175,703 100% 175,703 21,084
Total credit risk weighted assets 1, 144,292 71% 817,475 98,097
Capital requirements by type of Islamic contract
The components of credit risk by type of Islamic contract as at 31st December 2010 are as follows:
USD 000’s
Asset categories for credit riskby Islamic contract types
Creditexposures
Average riskweights
Credit riskweighted
assets
Capital requirements@ 12%
Murabaha contracts with banks 159,061 20% 31,812 3,817
Wakala contracts with banks 396,597 24% 95,823 11,499
Musharaka 12,304 100% 12,304 1,476
Sukuk 106,025 111% 117,570 14,108
Total 673,987 38% 257,509 30,900
5.2.2 Movement in credit exposure
The table below shows the movement of Gross credit exposure during the period along with average credit exposure broken
down under different exposure classes.
Credit risk (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 85
USD 000’s
Average exposures * Gross exposure
Cash and bank balances 11,410 3,910
Placements with financial institutions 559,515 555,658
Financing receivable 211,422 267,182
Investment securities 234,427 210,945
Investment in associates 93,036 97,342
Other assets 40,957 49,897
Property and equipment 25,255 14,911
Total funded exposures 1,176,022 1,199,844
Commitment to finance 118,510 75,529
Other capital commitments 62,208 62,066
Land acquisition - -
Operating lease commitments 2,935 2,552
Treasury commitments 1,483 5,931
Total 185,136 146,078
* Represents monthly average balance for the year 2010 except commitments which represent quarterly averages.
5.2.3 Impairment provisioning for credit exposures
The Bank fully provided for an investment of $20MM during the year. Movement in provision for impairment during the year
was as follows:
USD 000’s
Specific Impairment Provision
At 1 January 2010 0
Charge for the year 20,000
Amounts written off against provision 0
Recoveries & write backs 0
At 31 December 2010 20,000
5.2.4 Equity investments held in banking book
The Bank’s equity investments in the banking book include available-for-sale investments and associate investments in non-
financial entities. Being classified as banking book investments, they are subject to credit risk treatment under the capital
adequacy framework for regulatory capital computation purpose.
These investments are not carried at fair value hence there was no unrealised gain recognised in the equity.
Below is a breakdown of the bank’s equity investments by objectives and market type as at 31 December 2010.
86 FIRST ENERGY BANK ANNUAL REPORT 2010
Objective TypeExposure
(USD 000’s)Risk
Weight %
Risk weighted exposure
(USD 000’s)
Capitalrequirement(USD 000’s)
Capital gain Unquoted 20,000 200% 40,000 4,800
Strategic* Unquoted 145,578 150% 218,367 26,204
* This does not include investement exposure to an associate of USD 36,684 thousand since it is consolidated for capital adequacy computation
purpose (refer note 4.1).
5.3 Quantitative information on credit risk
For information related to the geographic and industry-wise concentration of credit risk exposures and maturity profile of financial assets, refer to the notes 24 and 23 of the consolidated financial statements. The Bank did not have any exposure to highly leveraged and other high risk counterparties, past due, renegotiated or impaired credit exposures as at 31 December 2010. The Bank has total unfunded commitments of USD 146.08 million, within the GCC region and primarily in the energy and real estate sector.
5.4 Concentration Risk
Concentration risk is the risk of imperfect diversification of the portfolio resulting in adverse impact of an external event on portfolio constituents sensitive to similar risk factors. Concentration risk in credit portfolios primarily arises due to name and sector concentration.
The Bank adheres to the regulatory guidelines in respect of large exposures and connected and related counterparty exposures to effectively manage the name concentration. Any excess above the said limit have been reported to the CBB and treated in accordance to the regulatory guidelines in respect of capital deduction for such exposures. In addition, the Bank has established internal limits on the maximum permissible exposures to sectors and countries for managing the sector concentration.
The industry and geography-wise distribution has been detailed in Note 24 to the consolidated financial statements for the year ended 31 December 2010.
5.5 Counterparty credit risk
Counterparty Credit Risk (CCR) is the risk that the counterparty to a transaction could default before the final settlement of the transaction’s cash flows. An economic loss would occur if the transactions or portfolio of transactions with the counterparty has a positive economic value at the time of default. The Bank does not have positions in OTC derivatives, Securities Financing Transactions (SFTs), Margin Lending Transactions or any other long settlement transactions which would expose it to counterparty credit risk.
5.6 Settlement risk
Settlement risk is the risk that a counterparty does not deliver on its obligation or its value in cash as per agreement when the trade was entered though the other counterparty or counterparties have already delivered their obligation as agreed. The Bank is exposed to settlement risk occasionally on account of the foreign exchange spot transaction entered into for business and operational requirements. The Bank has established limit structure based on the credit quality (assessed based on credit rating) for settlement exposures and the limits are monitored on an ongoing basis.
As an enhancement to the internal controls, the Bank has implemented an IT enabled limit monitoring system since January 2011. The system shall enable online monitoring of credit and settlement limits for counterparties. The earlier system is also being used concurrently during the transition period.
Credit risk (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 87
6 Market risk
Market risk is the risk that changes in market prices, such as profit rates, equity prices, foreign exchange rates and commodity prices will affect the Bank’s income or the value of its holdings of financial instruments. The objective of market risk management is to manage and control market risk exposures within acceptable parameters, while optimising the return on risk.
The bank uses the Standardized approach under the Basel II Framework for measuring the regulatory capital required for its marker risk exposure.
The bank does not maintain a trading portfolio in commodities, equities or Sukuk. Therefore, exposure to market risk remained minimal. As at end 2010, the bank’s major source of market risk was from Foreign Exchange open position which resulted in a capital charge of USD 7,611 thousand. The Bank is also exposed to foreign exchange translation risk from its investment in foreign operations (associate in Libya) which is currently un-hedged.
The different types of risks with exposures, objectives, policies and processes to manage the risk have been detailed in Note 29 of the consolidated financial statement for the year ended 31 December 2010.
6.1 Capital requirements for market risk
To assess its capital adequacy requirements for market risk in accordance with the CBB capital adequacy module for Islamic Banks, the Bank adopts the standardised approach. Foreign exchange risk charge is computed based on 8% of overall net open foreign currency position of the Bank and is risk weighted by multiplying with a multiple of 12.5 times.
USD 000’s
Risk weighted exposure
Capital requirement @ 12%
Maximum duringthe year
Minimum duringthe year
Foreign exchange risk 63,425 7,611 76,435 49,809
7 Operational riskOperational risk is the risk of loss arising from systems and control failures, fraud and human error, which can result in financial and reputation loss, and legal and regulatory consequences. The Bank manages operational risk through appropriate controls, instituting segregation of duties and internal checks and balances. In addition the Bank is committed to the training of its staff.
For regulatory capital computation purposes, the Bank uses the Basic Indicator Approach under the Basel II Framework for measuring the regulatory capital requirement for the operational risk.
7.1 Operational risk management
Currently, the Bank conducts its business from a single location. Notwithstanding this, the Bank’s operations are conducted according to well-defined processes and procedures. These processes and procedures include a number of internal controls, including segregation of duties to avoid conflict of interest and other internal checks, which are designed to prevent either inadvertent staff errors or malfeasance prior to the release of a transaction. The data for key departments from the perspective of disaster recovery namely Operations, Human Resources, Treasury and Financial Control is replicated online on the disaster recovery site. The concerned departments have been able to successfully retrieve the data during the test conducted for this purpose. The Bank conducted the Risk Control Self Assessment exercise in all key departments of the Bank to identify the risks and assess them with respect to the frequency, severity and efficiency of internal controls. The results of the RCSA were presented to the Board Risk Committee in November 2010.
7.2 Legal compliance and litigation
As on the reporting date, the Bank had no material legal contingencies including pending legal actions. The Bank’s legal risks are mitigated through legal counsel review of transactions and documentation, as appropriate. Where possible, the Bank uses standard formats for transaction documentation.
88 FIRST ENERGY BANK ANNUAL REPORT 2010
7.3 Sharia’a compliance
The Sharia’a Supervisory Board (SSB) is entrusted with the duty of directing, reviewing and supervising the activities of the Bank
in order to ensure that they are in compliance with the rules and principles of Islamic Sharia’a. The Bank also has a dedicated
internal sharia’a reviewer, who is responsible to perform an ongoing review of the compliance with the fatwas and rulings of
the SSB on products and processes and also reviews compliance with the requirements of the Sharia’a standards prescribed by
AAOIFI. The SSB reviews and approves all products and services before launching and offering to the customers and also conducts
periodic reviews of the transactions of the Bank. An annual audit report is issued by the SSB confirming the Bank’s compliance
with Sharia’a rules and principles. During the year, no non-shari’s compliant income was generated and no instances of Shari’a
violations were identified.
7.4 Capital requirements for operational risk
The Bank adopts the Basic Indicator Approach to calculate the operational risk capital charge in accordance with the CBB capital
adequacy module for Islamic Banks. According to this approach, Bank’s average gross income for three past financial years is
multiplied by a fixed coefficient alpha of 15% set by CBB and a multiple of 12.5x is used to arrive at the risk weighted assets
that are subject to capital charge. As the Bank has been recently set up, the Bank uses 2 year’s actual gross income and projected
budgeted gross income for the next year for computation of operational risk capital requirements.
USD 000’s
Average gross income Risk weighted assets Capital charge at 12%
Operational risk 92,241 172,951 20,754
8 Liquidity risk
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations arising from its financial liabilities. The Bank’s approach for managing liquidity is to ensure, that it will always have sufficient liquidity to meet its liabilities when they become due, under both normal and stressed conditions, without incurring unacceptable losses or risking damage to the Bank’s reputation.
The Board of Directors approve policies and strategies related to the management of liquidity. The Management reviews the liquidity profile of the Bank on a regular basis to ensure that the same is within the regulatory and internal liquidity gap limits approved by the Board and any material change in the Bank’s current or prospective liquidity position is notified to the Board through respective management and Board committees. The Board has also approved limits on the liquidity ratios and adherence to these limits is overseen by the management and also reported to the Board Risk Committee.
The following are the key liquidity ratios which reflect the liquidity position of the Bank as at end 31 December 2010
Liquidity Ratios Report 31 December 2010
Ratio Actual
1 Liquid Assets to Total Assets (%) 55.5%
2 Short-term Assets / Short-term Liabilities 4.74 x
3 Inter Bank Placements to Inter Bank Borrowings 3.73 x
4 Gearing Ratio (Long Term Liabilities / Total Assets) -
The following table provides a detailed maturity profile of assets and liabilities as per the consolidated financial statements of the Bank
for the year ended 31 December 2010.
Operational risk (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 89
2010 Up to 8 days
8 days to 1 month
1 to 3 months
3 to 6 months
6 months to 1 year
1 to 3 years
3 to 5 years
Over 5 years
Total
Assets
Cash and bank balances
3,910 - - - - 3,910
Placements with financial institutions
138,357 234,672 182,629 - - - - 555,658
Financing receivables
- 12,060 81,296 57,241 116,585 267,182
Investment securities
- - 38,038 142,382 30,525 210,945
Investment in associates
- - - 36,684 60,658 97,342
Other assets 4,431 42,147 3,318 - - 49,896
Property and equipment
- - - - - 14,911 14,911
Total financial assets
142,267 234,672 187,060 54,207 122,652 236,307 207,768 14,911 1,199,844
Liabilities
Placements from financial institutions
44,183 15,001 69,627 20,001 - - - 148,812
Other liabilities 26 7,376 - - - 4,544 11,946
Total financial liabilities
44,183 15,001 69,653 27,377 - - - 4,544 160,758
Commitments 5,931 - 75,784 50,430 1,021 12,912 - 146,078
9 Profit rate risk in the banking book
Profit rate risk in banking book is the exposure of the Bank’s financial condition to adverse movements in profit rates. Changes in profit
rates affect the Bank’s earnings by changing its net profit income and the level of other profit rate sensitive income and operating
expenses. Changes in profit rates also affect the underlying value of the Bank’s assets, liabilities, and off-balance-sheet (OBS) instruments
because of the absolute or economic value changes of future cash flows due to the change in profit rates. Profit rate risk primarily arises
on account of repricing risk, yield curve risk, basis risk and optionality risk.
The Bank is primarily exposed to repricing and yield curve risks. Repricing risk arises on account of mismatch in profit rate fixation periods
between assets and liabilities. Yield curve risk arises due to shift in yield curve. The Bank has minimal exposure to basis and optionality
risks. Most of the rate sensitive assets and all the rate sensitive liabilities are on account of short-term interbank placements and hence
there is a high degree of correlation between profits earned and paid on products with similar risk characteristics. Most of the rate
sensitive assets and liabilities in the books of the Bank are short-term in nature. In view of this, no significant impact of embedded
90 FIRST ENERGY BANK ANNUAL REPORT 2010
optionality is expected particularly on account of early redemptions in some these assets and liabilities. Also, no such trend of early
redemptions has been observed in the past.
The Risk Management Committee is responsible for recommending the profit rate policy, setting limits and guidelines. The ALCO is
responsible for the overall management of the profit rate risk and monitoring the risk on a regular basis. ALCO also determines the
borrowing and funding strategy of the Bank in order to optimize risk return trade off.
The Bank’s profit rate sensitive assets comprise; placements with financial institutions, Sukuk investments and Islamic Financing Facilities.
On the liabilities side, the bank’s profit bearing liabilities includes mainly placements from financial institutions. Profit rate risk is managed
principally through maintaining profit rate gaps within pre-approved limits for re-pricing bands. The Bank also assesses the impact of a
parallel shift in the yield curve on the expected Net Profit Income for up to one year horizon and the economic value of Bank’s equity
on a regular basis. The impact on the economic value of equity for a 200 bps shock is with the limit prescribed by the Basel Committee
on Banking Supervision.
Please refer to Note 29 of the audited financial statements for a detailed profit rate gap position of the Bank as at 31 December 2010.
10 Reputational risk
Reputational risk is the risk that negative perception regarding the Bank’s business practices or internal controls, whether true or not, will
cause a decline in the Bank’s investor base, lead to costly litigation that could have an adverse impact on liquidity or capital of the Bank.
Reputation is an important asset and among the issues that could affect the Bank’s reputation is the inability to exit from investments,
lower than expected returns on investments and poor communication with investors. As at 31 December 2010, the Bank was not
exposed to any significant reputational risk. The Bank has developed adequate policies and procedures to identify, monitor and address
all potential risks that may arise from all such activities.
Process of logging investors/customers complaints:
The Bank considers complaints from all investors/customers seriously. These can adversely affect the Bank’s reputation and if it is left
unattended these can also lead to litigation and possible censure by the regulatory authorities. Bank has a formal process of handling
complaints from investors/customers which is as follows:
Relationship Mangers (RM) are designated the responsibility to receive all investor grievances which are forwarded to Investment
Placement (IP) Administration unit for resolution. The unit maintains a log of all investor grievances received. IP Administration unit shall
work towards resolving all investor/customer queries and inform respective RM within 36 working hours. Any investor grievance which
does not get resolved by the RM immediately gets escalated to the Acting Chief Executive Officer. All client queries, grievance logs and
forms are subject to review by the Acting Chief Executive Officer on a fortnightly basis.
11 Strategic Risk
Strategic risk is the current and prospective impact on earnings or capital arising from adverse business decisions, improper implementation
of decisions, or lack of responsiveness to industry changes. Strategic risk management practices are designed to ensure the comparability
of the bank’s strategic goals, the resources deployed against these goals and the quality of implementation. The Bank has developed
adequate policies and procedures to identify, monitor and address all potential risks that may arise from such strategic aspects.
12 Other risks
Other risks include fiduciary risks, displaced commercial risk etc. which are not easily measurable or quantifiable. The Bank currently
does not have funding from Restricted or Unrestricted Investment Account Holders and hence is not exposed to fiduciary or displaced
commercial risk.
Profit rate risk in the banking book (continued)
FIRST ENERGY BANK ANNUAL REPORT 2010 91
92 FIRST ENERGY BANK ANNUAL REPORT 2010
First Energy Bank B.S.C.(c) is a closed joint stock company incorporated in the Kingdom of Bahrain with CR 69089 and licensed as an Islamic wholesale bank by the Central Bank of Bahrain
First Energy Bank B.S.C. (c)
Bahrain Financial Harbour, East Tower (5th & 6th Floor)
P.O. Box 209, Manama, Kingdom of Bahrain
Tel +973 17170000 Fax +973 17170170
www.1stenergybank.com