Annual Report 2015

Transcription

Annual Report 2015

In The Name of Allah
The Most Merciful, The Most Gracious
The Custodian of the Two Holy Mosques
King Salman Bin Abdulaziz Al Saud
His Royal Highness Crown Prince
His Royal Highness Deputy Crown Prince
Mohammad Bin Naif Bin Abdulaziz Al Saud
Mohammad Bin Salman Bin Abdulaziz Al Saud
The Deputy Premier and Minister of Interior
The Second Deputy Premier and Minister of Defence
Within the most intricate of design lie basic shapes and
outlines. Without them, the masterpiece ceases to exist.
This truism illustrates Al Rajhi Bank’s revisit to its ‘basics’.
It has served us well. We have successfully realigned our
strategic roadmap with five strategic imperatives that,
like the basic shapes and outlines, combine in countless
ways to offer limitless opportunities.
Back to Basics
Al Rajhi Bank in 2015
© 2015 Al Rajhi Bank
Scan to view the mobile version
of this Annual Review
The web and mobile HTML versions are published on-line on the same date as the date of issue of this publication at
http://AlRajhiBankin2015.SmartAnnualReport.com
Contents
Messages
Business Model
Management Discussion and Analysis
Stewardship
Identity
Financial Reports
Supplementary Information
12
17
31
57
83
91
163
Journey of a Pioneer
Highlights
Vision, Mission and Values
About this Report
06
08
10
11
Message from the Chairman
Chief Executive Officer’s Review
12
14
Organisational Profile
Operating Environment
Stakeholders
Strategic Direction
18
20
22
23
Financial Capital
Institutional Capital
Investor Capital
Customer Capital
Employee Capital
Social & Environmental Capital
32
41
44
46
50
54
Board of Directors
Corporate Governance Report
Risk Management
Compliance
58
62
74
77
Built on a Heritage, Building for the Future
Sharpening Our Visual Identity
84
88
Independent Auditors’ Report Consolidated Statement of Financial Position
Consolidated Statement of Income
Consolidated Statement of Comprehensive Income
Consolidated Statement of Changes in Shareholders’ Equity
Consolidated Statement of Cash Flows
Notes to the Consolidated Financial Statements
92
94
95
96
97
98
99
Consolidated Statement of Financial Position in USD
Consolidated Statement of Income in USD
Five Year Summary in USD
GRI Content Index
Glossary of Key Islamic Finance Terms
Corporate Information
164
165
166
167
170
172
Highlights
6
About this Report
1957
Saleh Rajhi establishes the first
exchange with his brothers
Sulaiman, Abdullah and
Mohammed, to serve pilgrims
travelling to Saudi Arabia.
1978
All separate exchange houses
established up by the family are
merged together under Al Rajhi
Exchange and Trade Company.
1987
The entity is converted into a
joint-stock company and granted
a banking license by the Saudi
Arabia Monetary Agency (SAMA).
The new bank strictly followed
Islamic Shari’a rules.
Highlights
About this Report
7
2006
Rebranded as Al Rajhi Bank.
2008
Al Rajhi Capital is established
as a subsidiary for investment
banking, brokerage and asset
management, operating under
the Capital Markets Authority
(CMA) rules.
2015
Al Rajhi Bank is the largest Islamic
bank in the world by total assets,
and is the leader in Saudi Arabia
in terms of customer base and
branch network.
Highlights
Financial Highlights
8
About this Report
Key indicators from the consolidated financial statements for the years ended 31 December
2015
2014
Change, %
Operating results for the year, SAR million
9,959
9,817
1.4
13,746
13,667
0.6
Total operating expenses
6,616
6,831
(3.1)
Net income
7,130
6,836
4.3
Total comprehensive income
6,918
6,771
2.2
Financing, net
210,218
205,940
2.1
Customer deposits
256,228
256,077
0.1
Total assets
315,620
307,712
2.6
Total liabilities
268,981
265,815
1.2
46,639
41,896
11.3
Net financing and investment income
Total operating income
Assets and liabilities, SAR million
Total shareholders’ equity
Profitability
Return on average assets, %
2.29
2.33
(4) bp
Return on average equity, %
16.11
17.01
(90) bp
4.39
4.21
4.3
Capital adequacy ratio:Tier I, %
19.74
18.48
126 bp
20.83
19.59
124 bp
Basic and diluted earnings per share, SAR
Regulatory ratios
Tier I and II, %
Highlights
Operational Highlights
About this Report
9
315
billion
Dividend Payout
Ratio of
Net income
increased by
34.2%
4.3%
to SAR 7.1 billion
A sound Loans to
Deposits Ratio of
82%
Largest network in
the KSA with
525
4,500
51,000
branches
ATMs and
First in the market
to install Cash
Deposit Machines
(Lock Boxes)
with over
140
machines
already in
operation
POS devices
Set up e-Branches
incorporating
interactive teller
machines and
self-service kiosks
Leader for remittance in
the region with over
24 million transactions
per month
Completed 10 years
of operations in
Malaysia
Asset base crossed
SAR
Highlights
10
About this Report
Our Vision
Our Mission
Our Values
Integrity and transparency
To be a trusted leader delivering innovative
financial solutions to enhance the quality of life of
people everywhere.
To be most successful bank admired for its innovative
service, people, technology and Shari’a compliant
products, both locally and internationally.
Everything we do is built around our core values,
which puts the customer at the heart of all
our activities.
Being open and honest while maintaining
the highest standards of corporate and
personal ethics
A passion to serve
Anticipating and addressing customer needs to
deliver results that go beyond expectations
Solution oriented
Helping our customers achieve their objectives
through effective and efficient solutions
Modesty and humility
Innovativeness
Meritocracy
Care for society
Being humble in thought, word and deed
Nurturing imagination and fostering creativity
for better results
Defining, differentiating and reinforcing excellence
in people
Contributing towards a better tomorrow
Highlights
About this Report
About this Report
The underlying concepts that provide the structure of this integrated report are discussed in
the section on Business Model commencing on page 17. It is a new approach that aims to
engage our readers more effectively. By integrating both financial reporting and sustainability
reporting, we bring into focus the broader concept of value creation and capital formation –
a recurrent theme that runs throughout this Report.
In preparing this report we have drawn on concepts, principles and guidance given in the
Global Reporting Initiative (GRI) Sustainability Reporting Guidelines G4 (www.globalreporting.org),
The International Integrated Reporting Framework (www.theiirc.org) and the Smart Integrated
Reporting MethodologyTM .
We have used digital technology to serve the information needs of our diverse
stakeholders. The print version is thus complemented by an interactive online report
(http://AlRajhiBankin2015.SmartAnnualReport.com), and a summary report for smartphones.
Report Boundary
The overall boundary of this Report comprises Al Rajhi Bank (‘Bank’) and its subsidiaries
(together referred to as the ‘Group’, detailed in Note 1 on page 99). Key financial aspects are
discussed in the context of the Group (consolidated), while unless otherwise stated the
non-financial aspects are discussed in the context of the Bank and its operations in the
Kingdom of Saudi Arabia (KSA). The Bank’s operations in the KSA dominate Group performance.
Our reporting focuses on aspects that are material or important. It is an assessment based on
the extent to which they may substantively affect the Bank’s ability to create value over the
short, medium and long term.
Compliance
This Report covers the 12-month period from 1 January to 31 December 2015, and is consistent
with our usual annual reporting cycle for financial and sustainability reporting. The information
contained herein is in compliance with all applicable laws, regulations and standards as
well as guidelines for voluntary disclosures. Additional details are given in the Compliance
Report (page 77), Financial Statements and the Notes thereon (pages 94 to 161) and in the
Independent Auditors’ Report (page 92).
We are aware of the social and environmental impacts of our actions. The Bank adopts a
precautionary approach across the Group with regard to sustainability before embarking
on new ventures and initiatives. We are fully compliant with all local regulatory compliance
requirements having in place best in class systems and risk management processes.
Queries
We welcome your comments or questions on this Report. Our contact details are:
Anil Pathak
Senior Director Marketing
[email protected]
This publication – ‘Al Rajhi Bank in 2015’ – is an integrated report. It complements our Annual
Report 2015 while communicating coherently the relationships of the many aspects of our
business, such as strategy, governance, performance and prospects in the context of creating
value over time.
11
Report Structure
12
Al Rajhi Bank posted a
4.3% YoY growth in Group
net income during 2015.
Other key performance
indicators too recorded
sound results. These
results not only hold out
promise of an early return
to sustained profitable
growth but also affirm that
our strategies are
beginning to bear fruit.
At the macro level, as the world’s largest oil exporter, Saudi Arabia enjoys leeway in adjusting
to domestic challenges that an environment of cheaper oil may pose. It comes from its strong
balance sheet and reserves built over the years and the Kingdom’s thrust towards a diversified
economy. Based on this sustained strength, the local economy has proven resilience in facing
external shocks.
Fulfilling long awaited structural reforms, Saudi Government recently approved the National
Transformation Plan, detailing credible efforts for a major economic overhaul primarily aimed at
reducing dependence on oil exports and preparing for the millions of young people who will
be seeking jobs and affordable housing in the coming years.
In the context, there will be considerable opportunities for our sustainable growth in
Saudi Arabia.
Al Rajhi Bank takes due cognisance of these factors. Thanks to prudent practices, the Bank is
well capitalised. Our asset and liability exposures are diversified, with the larger financings
either to the Government or to the wider public sector. As an Islamic bank, our investments are
non-speculative and hence, not volatile. Above all, given the strength and resilience of the
national economy and the low cost of funding and lean cost structures enjoyed by local banks
we expect the Saudi banking sector performance to remain strong overall.
Those reading this Report ‘Al Rajhi Bank in 2015’ may notice an unusual format. This is an
integrated Report, a concept that is contemporary and evolving, which seamlessly blends
both financial and non-financial disclosures in the context of sustainable value creation and
capital formation. It is about how we invent and reinvent our future through a robust business
model built on scanning the operating environment, setting objectives, developing strategic
plans, measuring performance and evaluating the outcomes continually – all coming under
an umbrella of sound corporate governance, prudent risk management and exemplary
compliance.
Messages
Business Model
Stewardship
Identity
Financial Reports
In conclusion, I join the Board of Directors in expressing our appreciation to the Custodian of
the Two Holy Mosques, the Crown Prince, the Deputy Crown Prince and the Government for
their far-sighted policies and pragmatic action in what may be seen as challenging times.
On behalf of the Board, I would also like to express my sincere appreciation to the Ministry of
Finance, Ministry of Commerce and Industry, Saudi Arabian Monetary Agency and the Capital
Market Authority for their consistent co-operation and support in developing the banking
sector, which in turn reinforces the growth of the national economy.
I, together with the Board, express our gratitude to their eminence the Chairman and the
members of the Bank’s Shari’a Board for their advice, patience and explanations on all issues
presented to them as well as for their monitoring the Bank’s Shari’a compliance.
The Board also thanks our shareholders, correspondent banks and customers for their support,
trust and co-operation, which have supported the growth and prosperity of the Bank. Likewise,
the Board extends its sincere appreciation to all employees for their genuine efforts and
devotion in accomplishing their obligations and tasks.
Finally, but not least, I thank my colleagues on the Board of Directors for their support and
valuable counsel in our deliberations.
Abdullah bin Sulaiman Al Rajhi
Chairman
31 March 2016
In this context the Bank made good progress during the year across the many facets of our
transformational journey, underpinned by a refocused strategic plan or ‘Roadmap’. Driving
the team on this journey is Chief Executive Officer Steve Bertamini who joined the Bank in
May 2015. Steve brings with him a wealth of banking experience, and we are confident of his
leadership and capacity to deliver.
13
Shareholders will note that the Bank distributed a dividend of SAR 0.50 per share for the first
half of 2015 (H1 2014: SAR 1.00 per share), followed by a post-Zakat net dividend of SAR 1.50
per share for the second half of 2015 (H2 2014: SAR 1.75 per share). Though lower than the
distribution made in 2014, it is noteworthy that the Bank’s earnings per share improved from
SAR 4.21 in 2014 to SAR 4.39 in 2015. I wish to reassure shareholders that we remain committed
to adding sustainable value to their investment.
14
Overview
During 2015, we maintained our leadership position in retail, reversed a declining financial
performance and ended the year with an increase in net income of 4.3% and a fourth quarter
net income performance of 28% - the highest amongst the banks.
We continued to expand our distribution network and added a total of 28 new locations,
260 ATMS, 18,200 new point of sale machines. To meet the needs of small and medium
businesses we created a new standalone SME banking division and began to rebuild momentum
in our corporate business. Most importantly we developed and began implementing our ABCDE
Roadmap to create a simple and clear direction for our teams for 2016 and beyond.
Each one of the letters in ABCDE stands for a key goal we have set for ourselves with specific
actions and measurable outcomes. But first a bit of background…
Back to Basics
Making it Work
We went ‘back to basics’ to refocus our strategies and plans, and developed a Roadmap to chart
our future direction and transformation. Consequently, we reorganised internal structures and
processes; doubled our training and development effort; elevated our compliance framework
to international standards; refreshed our branding...and much more.
To make our back to basics transformation ‘work’ our Roadmap integrates two aspects – the
‘what’ and the ‘how’.
The ‘what’ includes the strategic objectives and key performance indicators, both financial and
non-financial.
The ‘how’ is about the execution of the plan with the buy-in and commitment from the whole
organization. It is largely about establishing a performance infrastructure comprising people,
processes and tools and taking action to change mindsets and behaviours to ensure the
sustainability of the transformation.
What follows is an overview of the five building blocks – A, B, C, D and E – that underpin our
Roadmap. The details are discussed in the sections that follow elsewhere in this Report.
Messages
Business Model
Stewardship
Identity
Financial Reports
We aim to accelerate sustainable growth by diversifying revenue streams, improving our
cross selling opportunities, enhancing yields, creating a new SME banking division, updating
our value proposition and continuing to focus on growing our deposits.
We began implementing a more effective employee engagement model which includes:
providing relevant training and development opportunities; improving cross-functional
collaboration and reinforcing a performance driven culture that embraces empowerment and
accountability. We also launched a new employee volunteering programme to support the
communities we live and work in.
C. Customer Focus
We invested in training and development of our branch staff to provide our customers with
fast, friendly and accurate service; began to simplify our processes and will always be focused
on earning and maintaining their trust. We also undertook a brand refresh to enhance visual
resonance with both our existing customer and next generation of customers.
D. Digital Leadership
E. Execution
Excellence
We believe digital will transform banking and we plan to be at the forefront of this change.
We have established dedicated teams, materially increased our investment and are committed
to creating a best in class experience for our customers so that we can make banking work the
way they chose in a variety of platforms and channels. This is a challenging but very rewarding
journey as banks that do this well and can integrate the physical with the digital component
will excel with both existing and the next generation of customers.
In any business while strategy matters, what is more critical is the execution as well as the
values of the company. We have set up a rigorous process and dedicated resources to ensure
the first phase of 50 plus projects that make up our ABCDE Roadmap are completed and
delivered as they will be the foundation for the future. Our values provide a compass of what
we stand for and will guide us in the years ahead.
I would like to thank our customers, shareholders, the Board for their support and our staff for
all their hard work during the year.
Steve Bertamini
Chief Executive Officer
31 March 2016
B. Become an
Employer of Choice
15
A. Accelerate Growth
Care for society
Contributing towards a better tomorrow
Business
Model
Stakeholders
Strategic Direction
18
20
22
23
Messages
Business Model
Stewardship
Identity
Financial Reports
18
The Bank
Founding
Al Rajhi Banking and Investment Corporation, rebranded as ‘Al Rajhi Bank’ in 1997 and referred
to as the ‘Bank’ in this publication, is a Saudi joint stock company that was formed and licensed
pursuant to Royal Decree No. M/59 and in accordance with Article 6 of the Council of Ministers’
Resolution No. 245, both of June 1987.
The Bank, headquartered in Riyadh, Kingdom of Saudi Arabia, operates under Commercial
Registration No. 1010000096 and is listed on the Saudi Stock Exchange (Tadawul) with the
Ticker No. RJHI.
Objectives
The objectives of the Bank are to carry out banking and investment activities on its own
account and on behalf of others inside and outside the Kingdom of Saudi Arabia (KSA).
They are carried out in accordance with the Bank’s Articles of Association and Bylaws, the
Banking Control Law and the Council of Ministers’ Resolution noted above, and in strict
compliance with Islamic Shari’a legislations.
Al Rajhi Bank Group
Deeply rooted in Islamic banking principles, the Shari’a-compliant Al Rajhi Bank has seven
subsidiary companies, which together with the Bank are referred to as the ‘Group’. The Group
continues to be instrumental in bridging the gap between modern financial demands and intrinsic
Islamic values, whilst spearheading new product development and numerous industry standards.
Al Rajhi Bank subsidiaries
and overseas branches
Name of Subsidiary
Ownership, %
Type of activity
Country of
operation
Country of
establishment
2015
2014
Al Rajhi Capital Company
100
KSA
KSA
Al Rajhi Development
Company Limited
Al Rajhi Takaful
Agency Company
Al Rajhi Management
Services Company
Al Rajhi Corporation Limited
Al Rajhi Bank (Kuwait branch)
Al Rajhi Bank (Jordan branch)
100
100 Investment services
and brokerage
100 Real estate
KSA
KSA
99
99 Insurance services
KSA
KSA
KSA
KSA
Malaysia
Kuwait
Jordan
Malaysia
KSA
KSA
100
100
100
100
100 Recruitment
services
100 Banking services
Additional details on the subsidiaries are given under Notes 1 and 24 on pages 99 and 136.
Products and Markets
The Bank provides a comprehensive suite of products and services, encompassing retail
banking, corporate banking, SME banking and Treasury products and services. They are
summarised below:
Retail banking: accounts, personal finance, car finance, home finance, credit cards etc.
Corporate banking: trade finance, cash management, corporate products (Akar, Bai Al Ajel,
Eirad, Istisnaa, Murabaha and Musharaka) etc.
Messages
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Stewardship
Identity
Financial Reports
19
SME banking: The small and medium enterprise (SME) sector receives banking products and
services through a dedicated team.
Treasury: Murabaha (deferred sales), direct investment, foreign exchange, banknotes etc.
At Group level, other products and services in the areas of real estate, construction, securities
brokerage, insurance (Takaful) and management services are provided through the subsidiaries
noted above.
Our services are delivered through a variety of channels such as branches, ATMs, POS, online
banking and mobile banking.
Scale of Operations
Tracing its roots to its founding in 1957, Al Rajhi Bank is the largest Islamic bank in the world
with total assets of SAR 316 billion (USD 84 billion).
Amongst retail banks operating in the KSA, Al Rajhi Bank accounted for:
zz
14.5% of total assets and ranked No. 2
zz
15.4% of deposits and ranked No. 2
The Bank’s market capitalisation as at 31 December 2015 was over SAR 84.6 billion
(2014: SAR 83.6 billion).
The Bank maintains the largest network of branches totalling 525 across the Kingdom, backed
by a network of 4,500 ATMs and over 51,000 POS terminals installed with merchants.
The first ladies branch was opened in Al Shmaisi in 1979, and the number has now grown to
over 100 dedicated ladies branches.
Globally, the Bank operates a subsidiary in Malaysia with 24 branches, in addition to six
branches in Jordan and one branch in Kuwait.
Al Rajhi Bank is the leader for remittance in the region, and its 200 remittance centres across the
Kingdom account for over 24 million transactions per month.
The Bank enjoys the largest customer base in the country with over six million current account
holders and is the payroll processor for 50%-60% of the employees in the government sector.
Processing over 70 million transactions per month, the Bank is a leading player in global
transactions that support the Saudi economy, while maintaining over 200 correspondent
banking relationships in 48 countries.
The Bank employed 12,374 persons as of 31 December 2015 (2014: 11,761 persons).
A trusted partner with nearly six decades of local expertise, but with a global perspective, the
Bank offers best-in-class services in today’s rapidly evolving markets.
The Bank has a significant presence in the KSA, and a growing footprint overseas through a
subsidiary in Malaysia and branches in Kuwait and Jordan.
Messages
Business Model
Stewardship
Identity
Financial Reports
20
The Global Economy
Global growth, recorded at 3.1% in 2015, is projected at 3.2% in 2016 and 3.5% in 2017 (World
Economic Outlook – Update of April 2016, IMF). The pickup in global activity is projected to be
gradual, especially in emerging market and developing economies.
Outlook
Global economic activity remained largely subdued in 2015. Growth in emerging market and
developing economies – while still accounting for over 70% of global growth – declined for the
fifth consecutive year, while a modest recovery continued in advanced economies. IMF notes
that three key transitions continue to influence the global outlook:
zz
The gradual slowdown and rebalancing of economic activity in China away from investment
and manufacturing towards consumption and services
zz
Lower prices for energy and other commodities
zz
A gradual tightening in monetary policy in the United States in the context of a resilient
US recovery as several other major advanced economy central banks continue to ease
monetary policy.
Manufacturing activity and trade remain weak globally, reflecting not only developments in
China, but also subdued global demand and investment more broadly – notably a decline in
investment in extractive industries. In addition, the dramatic decline in imports in a number of
emerging market and developing economies in economic distress is also weighing heavily on
global trade.
Oil
Oil prices continue to be depressed reflecting expectations of sustained increases in
production by Organisation of the Petroleum Exporting Countries (OPEC) members amid
continued global oil production in excess of oil consumption. IMF notes that futures markets
are currently suggesting only modest increases in prices in 2016 and 2017. Prices of other
commodities, especially metals, have fallen as well.
While lower oil prices strain the fiscal positions of petroleum exporters and weigh on their
growth prospects, it supports demand in importers, especially in advanced economies where
declines in (unsubsidised) prices are fully passed on to end users.
Though a decline in oil prices driven by higher oil supply should support demand among oil
importers, IMF notes some key factors that have dampened this positive impact:
zz
Financial strains in many oil exporters reduce their ability to smooth the shock, entailing a
sizable reduction in their domestic demand.
zz
The oil price decline has had a notable impact on investment in oil and gas extraction, also
subtracting from global aggregate demand.
zz
The pickup in consumption in oil importers has been somewhat weaker than in past
situations of oil price declines, possibly through a shift towards cleaner sources of energy
and limited pass-through of price declines to consumers in emerging market and
developing economies.
Messages
Business Model
Stewardship
Identity
Financial Reports
21
Saudi Arabia
The world’s largest oil exporter, Saudi Arabia, enjoys leeway in adjusting to an environment of
cheaper oil. It comes from its strong balance sheet and reserves built over the years and the
Kingdom’s thrust towards a diversified economy.
Moderated growth
The silver lining
Posting a GDP growth of 3.6% in 2014 and an estimated growth rate of 3.4% in 2015, IMF
projects more subdued results of 1.2% in 2016 and 1.9% in 2017.
The current environment increases the pressure for structural reform. Recent labour and capital
market adjustment measures are evident, and policymakers have clearly identified a wide range
of imbalances they believe need to be addressed, including spending on subsidies.
A key development in this context is the decision to allow foreign investors direct access to the
equity market in 2015. Being the largest market in the GCC (accounting for over 45% of GCC
market capitalisation) and its healthy risk-adjusted returns over the long term, the Saudi equity
market is bound to be attractive.
Living with cheaper oil
As the decline in oil prices could persist, most oil exporters in the region may well need to
adjust their fiscal positions and diversify. The adjustment would need medium-term fiscal
consolidation plans, which also means limiting current spending, including wage and subsidy
bills. Although some countries, including Saudi Arabia, have already initiated subsidy reforms,
energy subsidies still remain large in the region. The fall in oil prices makes such reforms both
more urgent and politically easier to implement. In addition, careful prioritisation and appraisal
of large investment projects would be important.
Oil exporting countries also need to explore ways of diversifying revenue streams away from
oil. This may entail income and value-added taxes, deeper reforms to improve the business
environment, incentives for private entrepreneurship and increasing private sector employment
of nationals.
Implications for Al Rajhi Bank, particularly in the context of the Saudi banking sector, are
discussed in the section on strategic direction that follows on page 23.
National
Transformation Plan
In order to realise ‘Vision 2030’, Saudi Government recently approved the National
Transformation Plan. The Plan aims to create jobs for the new entrants to the job market,
strengthen partnerships with the private sector, enhance local value addition and reduce
imports and facilitate digital transformation. Successful implementation of these initiatives will
lead to a major economic overhaul and significantly reduce dependence on oil exports.
Following the demise of our beloved King Abdullah in January 2015, we saw continuity and a
seamless succession. We take this opportunity to wish King Salman bin Abdulaziz Al Saud our
very best and pledge our continued support towards the development of the Kingdom and its
economy. We believe the astute leadership of King Salman bin Abdulaziz Al Saud will further
strengthen the position of the KSA in the global arena.
Messages
Business Model
Stakeholders
Stewardship
Identity
Financial Reports
Stakeholder
Identification
Our stakeholders are entities (including individuals) who can be significantly affected by the
Bank’s activities, products, and services; and whose actions can significantly affect the ability of
the Bank to successfully implement its strategies and achieve its objectives.
22
In this context, the Bank’s primary stakeholders are investors, customers, employees, society
and environment in which we operate. Other important stakeholders include our business
partners, regulators and Government authorities.
Stakeholder
Engagement
We make every effort in understanding our key stakeholders, take into account their legitimate
needs and interests and respond accordingly. Summarised below are insights on how we
engage with them and build lasting relationships for mutual benefit.
Investors
Customers
Employees
Society and environment
Principal methods
of engagement
General Assembly meeting, Extraordinary General meeting, annual
report, interim Financial Statements, press releases, announcements
made on the Saudi Stock Exchange, investor presentations, dedicated
investor relations section on the Bank’s corporate website
Key topics discussed
Financial performance of the Bank and Group, future prospects,
shareholder return, corporate governance, risk management
Principal methods
of engagement
Branch and ATM network, online banking, corporate website, call
centres, print and electronic media, social media, customer satisfaction
surveys, research on products and services based on evolving needs,
customer visits
Pricing, ease of access, banking hours, specialised needs
Principal methods
of engagement
Induction programme, employee surveys, recognition schemes,
periodic and ad hoc meetings, staff societies, volunteerism
Corporate values, new developments in the banking industry, training
and development, Saudisation, remuneration and benefits, recognition
Principal methods
of engagement
Corporate social responsibility activities focused on education, youth
employment, microfinance targeting women who work from home,
small & medium enterprise promotion, assistance to the needy
Financial inclusion, affordable financing, community empowerment
Materiality
In planning our response to matters arising from the stakeholder engagement process, we take
into account the importance of the aspect under review.
We regard an aspect to be important (or material) if it substantively affects the Bank’s ability to
create value over the short, medium and long term. Relevance and significance thus determine
materiality, with significance taking account of both the magnitude of the impact as well as its
probability of occurrence.
Messages
Business Model
Strategic Direction
Stewardship
Identity
Financial Reports
23
Business Units
These are supplemented at Group level by investment services and brokerage, real estate,
insurance and recruitment services that are delivered through four subsidiaries as noted on
page 18 (under organisational profile).
Retail banking is the primary driver of performance of the Bank and Group. It accounted for
57% of Group net income and 53% of total assets.
Composition of
Group net income
Investment services
and brokerage
7%
Treasury
22%
Retail 57%
Corporate
14%
Composition of
Group total assets
Investment services
and brokerage
1%
Treasury
29%
Retail
52%
Corporate
18%
The discussion that follows is based on materiality, and is in the context of the Bank and its
business segments noted above.
The operating business segments of the Bank are retail, corporate (including SME banking),
treasury and international business (Malaysia, Kuwait and Jordan).
Messages
Strategic Direction
Business Model
Stewardship
Identity
Financial Reports
24
Market share
The Bank’s market share measured along key metrics over the past few years remained steady.
The position as 31 December 2015 was as follows:
The Bank’s market share measured along key metrics on retail loans and current accounts
remained steady over the past few years. As at 31 December 2015, the Bank accounted for one
fourth of the country’s ATMs and over 40% of the branches and POS machines.
ABCDE Roadmap
A
B
C
D
Accelerate
growth
Become an
employer
of choice
Customer
focus
Digital
leadership
E
Execution
excellence
Objectives
Diversify
revenues

Cross-selling
& yields

Sales force
effectiveness

Empower staff

Customer
value
proposition

Enhance
training and
benefits

Fast, friendly &
accurate service

Partnerships


Network
optimisation
World-class
compliance

Simplify &
standardise

Performance
management
Messages
Strategic Direction
Business Model
Stewardship
Identity
Financial Reports
A significant portion of the portfolio is in Watani (personal finance) while financing primarily
reflects loans to government salaried employees. The Bank’s penetration among the affluent
and private banking customers is relatively low.
There are opportunities to optimise pricing by location, channel and risk; and lending to private
sector and non-salaried segments on mortgages. The latter, however, will require the design of
value propositions and related modifications in the risk appetite and operational processes.
Mobilisation of a substantial portion of funding via current accounts has helped the Bank
maintain lower cost of funds, leading to a lower cost to income ratio. However, there are
opportunities to reduce this further through automation and improving the backoffice to total
staff ratio.
Cognisant of the fact that superior customer service and the resulting overall customer
experience is critical to competing effectively, necessary measures have already been taken to
better align service standards with customer expectations and aspirations and improve systems
and processes to afford highest levels of customer convenience.
In summary, retail banking will build on the established platform, grow the core business and
accelerate growth with revenue diversity. Measures include:
zz
Grow current accounts and increase Watani lending
zz
Increase penetration among the affluent and private banking customers
zz
Improve share of mortgage financing and car lease in the retail asset portfolio
zz
Bundle products and services to increase cross-sell ratio
zz
Target non-salaried and private sector employees
zz
Launch credit cards
zz
Digitise the retail loan application process
zz
Revamp customer experience at branches
zz
Enhance competitor intelligence capabilities to be used in decision making relating to
retail products
The total bankable population in the KSA is over 15 million, with 4% to 5% of them in the
affluent and private banking segments. With strong market share of approximately twice the
size of the immediate competitor, Al Rajhi Bank is a dominant player in retail banking in the
KSA. However, it is imperative that retail banking diversifies from the current concentrations.
25
Retail banking
Messages
Strategic Direction
Business Model
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Financial Reports
Corporate banking
26
The Kingdom has about 2,000 large corporates, 6,500 medium size corporates, 88,000 business
banking clients and 575,000 small and medium enterprises (SMEs). Corporate banking in the KSA
is expected to show good growth, with opportunities in the mid-sized corporates and SMEs.
The bulk of market revenue is from lending products, although transaction banking (such as
FX, cash management and trade finance) is expected to be the key driver of future growth.
To leverage on this opportunity and to enhance customer value proposition most banks are
developing their transaction banking capabilities and incentives for cross-selling.
The Bank’s corporate banking business is dominated by lending, but it is particularly
underpenetrated in the large corporate, business banking and SME segments. Other than for
large corporates, the Bank’s revenue per customer is lower than the leading peer across all
customer segments while the number of non-borrowing customer relationships too is low.
The Saudi market has seen strong credit growth in major sectors such as building &
construction, manufacturing & processing and trade. However, the Bank is under-penetrated
in a number of these segments. There is significant opportunity for the Bank to deepen
relationships with existing clients as well as to grow its client base.
In summary, corporate banking will refocus with clear segmentation and accelerate growth
with revenue diversity. After segmentation of the SME sector (already done), corporate banking
will rebuild the team and improve the credit turnaround time to stabilise and expand corporate
banking (for entities with annual sales turnover over SAR 100 million).
SME banking
Treasury
In order to better focus on the SME sector (entities with annual sales turnover up to
SAR 100 million), SME banking was hived off from corporate banking into an independent
business unit during the year and implemented strategies including launch of innovative
products, branding and marketing.
The Bank has a smaller investment portfolio than its peers, generating yields with less volatility.
This is primarily due to the Bank being successful in its fund-based operations with clients.
Efforts to improve and diversify investment returns need to be carefully balanced with potential
volatility or risk.
Treasury will concentrate on generating returns on underutilised liabilities in an environment of
limited investment avenues and limited cross-sell opportunities while enhancing balance sheet
management capabilities.
Given Shari’a constraints, treasury has limited investment options available. The Bank is
addressing this issue through diversifying its investments into other Shari’a compliant products
through dedicated research. Also, there are cross sell opportunities, particularly with corporate
banking customers.
Correspondent banking business is an important part of our banking proposition. The Bank
currently holds a major share of the Saudi remittance market by providing fast delivery
and low fees through an expansive network of 200 correspondent banks in 48 countries.
Implementation of the strategies identified in the Roadmap will help the Bank increase its
market share in remittance business.
Messages
Strategic Direction
Business Model
Stewardship
Identity
Financial Reports
The Bank has launched the five-pronged ABCDE Roadmap along with clear objectives and
strategies which are duly supported by strong governance, clear plans and accountability,
coupled with regular internal and external reporting. Additional details pertaining to
performance and outcomes are discussed in the management discussion and analysis
that follows.
Our Reporting
Framework
This is our first attempt at integrated reporting. It is a relatively new approach to corporate
reporting that attempts to engage more effectively with key stakeholders. Our framework
integrates both financial reporting and sustainability reporting while discussing the
relationships between the many aspects of the Bank’s business – such as strategy, governance,
risk, performance and prospects - in the context of value creation and capital formation.
Value creation
We take a broad view of value creation. It is a two-way process, as the ability of the Bank to
create sustainable value for itself is also related to the value it creates for its stakeholders. Thus
we distinguish between the Bank and its stakeholders, identify which ones are important to
the Bank, and understand why the Bank is important to them. The materiality determination
process underscores this process.
Going forward
The Bank is currently reassessing its international banking business model with a view to
geographically diversify and enhance its contribution to the Group’s assets and revenue.
27
International banking
Messages
Strategic Direction
Business Model
Stewardship
Identity
Financial Reports
Capital formation
28
Value creation leads to capital formation. As a store of value, capital takes on a broader
meaning in integrated reporting and constitutes the resources and relationships used and
affected by the Bank. We classify capital that is owned by the Bank as being 'internal' capital,
while capital that is not owned as 'external' capital. Ownership is irrelevant here, as the Bank
has access to and uses all forms of its capital to create sustainable value for itself and
its stakeholders.
The Bank’s internal capital comprises financial capital and institutional capital. The former is
what gets reported in the Financial Statements, while the latter are intangibles such as integrity,
trust, specialised knowledge and brand equity. The Bank’s external forms of capital centre on
key stakeholders and comprise investor capital, customer capital, employee capital and social &
environmental capital.
Value creation is a dynamic process, with flows taking place between the various forms of
capital all the time, driven by objectives, strategies, performance and outcomes.
The diagram below is a dynamic view that integrates the key elements of our business model.
An integrated view of our
business model
Objectives
Monitoring &
evaluation
Outcomes
Strategy
formulation
Vision, Mission
and Values
Value creation &
capital formation
Strategies
Business
operations
Performance
Messages
Strategic Direction
Business Model
Stewardship
Identity
Financial Reports
The outcomes are managed through monitoring and evaluation systems at several levels
coupled with oversight mechanisms such as corporate governance (page 62), risk management
(page 74) and environmental scanning (operating environment, page 20).
The outcomes in turn lead to a re-evaluation and fine tuning of corporate objectives, and the
process goes on.
Management
Approach
The Management Discussion and Analysis which follows explains why we consider particular
aspects to be material, what we do to manage them and how we evaluate our performance
and outcomes. The discussion is thus structured along value creation and capital formation,
duly supported by key performance indicators and measures.
Our strategies are implemented through business operations, with results measured through
key performance indicators (KPI). While KPIs focus on time-bound specifics, a more holistic view
of our business takes us to value creation and capital formation – which are the outcomes.
29
Our corporate vision, mission and values (page 10) lie at the core of everything we do. They
explain ‘why’ we exist. Our strategic objectives (page 24) set out ‘what’ we want to achieve.
Translating these objectives into action plans are the strategies (pages 25 - 27), which explain
‘how’ we will do it.
A passion to serve
Anticipating and addressing customer needs to deliver results that go beyond expectations
Messages
Business Model
Stewardship
Identity
Financial Reports
Management
Discussion
and Analysis
Financial Capital
Investor Capital
Customer Capital
Employee Capital
Social & Environmental Capital
32
41
44
46
50
54
Messages
Business Model
Financial Capital
Stewardship
Identity
Financial Reports
32
Overview of Financial
Performance
Profit
Group net income increased by 4.3% during the year to SAR 7,130 million (2014: SAR 6,836 million),
thus reversing a decline seen in 2014 and 2013. This was achieved by a marginal 0.6% YoY
increase in total operating income and a 3.1% YoY decrease in total operating expenses.
Income
Net financing and investment income, which accounts for 72% of total operating income, grew
by 1.4% to SAR 9,959 million during the year (2014: SAR 9,817 million). However, slight declines
in fees from banking services and other operating income resulted in total operating income
growing by only 0.6% to SAR 13,746 million (2014: SAR 13,667 million).
Expenses
Assets
Impairment charge for financing recorded a significant 15.3% decline during the year
which helped to bring down the total operating expenses by 3.1% to SAR 6.616 million
(2014: SAR 6,831 million). Other significant expense items, namely, salaries & employee related
benefits and general & administrative expenses saw moderate increases of 5.8% and 3.3%
during the year in tandem with increased staffing and business growth.
The net financing portfolio, which accounts for 67% of total assets, grew by 2.1% during 2015 to
reach SAR 210 billion (2014: SAR 206 billion). This affected total asset growth, which recorded a
2.6% increase from SAR 308 billion to SAR 316 billion during the year.
Liabilities
Customer deposits, which accounts for 95% of total liabilities, remained flat at SAR 256 billion
during the year. In turn, total liabilities increased by a marginal 1.1% to reach SAR 269 billion
(2014: SAR 266 billion).
Shareholders’ equity
Shareholders’ equity increased by 11.3% to SAR 47 billion (2014: SAR 42 billion) boosted by an
SAR 3.8 billion increase in retained earnings.
Key ratios
Return on shareholders’ equity
Basic and diluted earnings per share
Return on assets
16.1% (2014: 17.1%)
SAR 4.39 (2014: SAR 4.21)
2.3% (2014: 2.3%)
Operating Segments
Operationally, the Group is organised into four business segments (Note 24, page 136). Retail
banking, corporate banking (including SME banking) and treasury are delivered by the Bank,
while investment services and brokerage come under the ambit of Al Rajhi Capital Company,
the Bank’s fully-owned subsidiary.
Key performance
indicators
Indicators of performance of the operating segments for 2015 are summarised below together
with year over year (YoY) comparison with 2014.
Messages
Financial Capital
Business Model
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Financial Reports
Indicator (FYE 2015)
Retail
Analysis of assets and
liabilities by operating
segments, SAR million
Investment
services &
brokerage
Total
9,223
2,240
(5,138)
(1,253)
1,652
631
13,746
(57)
(168)
(6,616)
Net income
4,085
987
1,595
463
7,130
Composition of net income
57.3%
13.8%
22.4%
6.5%
100.0%
YoY growth in net income
3.8%
(8.1%)
13.4%
9.7%
4.3%
Indicator (FYE 2015)
Retail
Corporate
Treasury
Investment
services &
brokerage
Total
Total assets
165,964
55,518
95,459
2,679
315, 620
Total liabilities
242,822
16,418
8,825
916
268,981
Composition of total assets
52.60%
17.60%
29.00%
0.80%
100.00%
Composition of total liabilities
90.30%
6.10%
3.30%
0.30%
100.00%
8.40%
(12.20%)
7.50%
(57.60%)
2.60%
15.00%
(67.60%)
137.20%
864.20%
1.20%
YoY growth in total assets
YoY growth in total liabilities
Group net income
Treasury
Investment services
and brokerage
7%
Treasury
22%
Corporate
14%
Retail 57%
Corporate
33
Analysis of income
by operating segments,
SAR million
Messages
Financial Capital
Business Model
Stewardship
Identity
Financial Reports
Group total assets
34
Investment services
and brokerage
Treasury
29%
1%
Retail 52%
Corporate
18%
Retail banking
Retail banking is the Bank’s primary driver of revenue, accounting for 57.3% Group net income
(2014: 57.5%) and 52.6% of Group total assets (2014: 49.8%).
Although retail banking net income grew by 3.8%, the total operating income saw a minor
decline in 2015 that was compensated by a larger reduction in total operating expenses.
Instalment sale accounts for 99.4% of retail and 71.5% of Group net financing portfolio
respectively. The Bank continues to enjoy a strong market share in the retail banking business.
The section on Strategic Direction commencing on page 25 provides an analysis of issues and
plans for the future regarding this business segment.
Corporate banking
Corporate banking accounted for 13.8% of Group net income (2014: 15.7%) and 17.6% of Group
total assets (2014: 20.5%).
Corporate banking net income for the year declined by 8.1% while total assets declined
by 12.2%. Corporate Mutajara accounted for 66.5% and 18.7% of corporate and Group net
financing portfolio respectively. The corporate Mutajara portfolio declined marginally in 2015
along with steeper declines in other products, namely, instalment sale and Murabaha. The
section on Strategic Direction commencing on page 26 provides an analysis of issues and plans
for the future regarding this business segment.
Treasury
Treasury accounted for 22.4% of Group net income (2014: 13.4%) and 29.0% of Group total
assets (2014: 27.7%).
Treasury net income for the year increased by 13.4% supported by a corresponding growth in
total operating income. The section on Strategic Direction commencing on page 26 provides
an analysis of issues and plans for the future regarding this business segment.
Investment services
and brokerage
Al Rajhi Capital Company (‘ARC’), the wholly-owned investment arm of Al Rajhi Bank, offers
brokerage, asset management and investment banking and advisory services.
This business segment accounted for 6.5% of Group net income (2014: 6.2%) and 0.8% of Group
total assets (2014: 2.1%). Net income grew by 9.7% during the year, supported by a 10.1%
increase in total operating income.
Messages
Financial Capital
Business Model
Stewardship
Identity
Financial Reports
35
Analysis of Income
and Expenses
The Group’s net financing and investment income for the year increased by 4.3% to SAR 9,959
million (2014: SAR 9,817 million). It represents 72% of the total operating income, with financing
income being by far the most dominant component. Within financing, instalment sale is the
largest component (77%) followed by corporate Mutajara (13%).
The 4.3% increase in net financing and investment income was negated by declines in net
fee income from banking services and other operating income. Total operating income thus
remained flat, with a marginal increase of 0.6% from SAR 13,667 million to SAR 13,746 million
during the year.
Composition of total
operating income, 2015
Net exchange
income
7%
Net fees
from banking
services
20%
Operating expenses
Others
1%
Net financing and
investment income
72%
Salaries and employee benefits, which account for a significant 40% of the total operating
expenses, increased by 5.8% during the year. This increase was mainly due to a 5.2% growth in
the total number of employees to support business expansion as well as the implementation of
SAMA instructions related to compensation arrangements.
Other major expense items, general and administrative expenses saw a marginal increase of
3.3%, while the net impairment charge for financing reduced by 15.3%. The overall result was a
3.1% decrease in total operating expenses from SAR 6,831 million to SAR 6,616 million during
the year.
Financing and
investment income
Messages
Financial Capital
Business Model
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Identity
Financial Reports
Composition of total
operating expenses, 2015
36
Impairment
charge for
financing
29%
Salaries and
employee benefits
General and
administrative
Rent and
premises
21%
40%
4%
Depreciation
and amortisation 6%
The overall effect was a 3.1% YoY decrease in Group total operating expenses from
SAR 6,831 million in 2014 to SAR 6,616 million in 2015.
Cost efficiency
Cost efficiency ratios
The Group’s cost to income ratios deteriorated over the past few years, particularly in 2013
and 2014, but have shown signs of turnaround in 2015. Personnel costs (salaries and
employee-related benefits) as a percentage of total operating income increased from 15.7%
in 2011 to 19.4% in 2015, while total operating expenses as a percentage of total operating
income increased from 41.0% in 2011 to 50.0% in 2014 and dropped to 48.1% in 2015.
%
75
60
45
30
15
0
2011
2012
2013
Total operating expenses to total operating income
Personnel expenses to total operating income
2014
2015
Messages
Financial Capital
Business Model
Stewardship
Identity
Financial Reports
Five-year summary
of income and expenses,
SAR million
The twin effects of a marginal 0.6% increase in total operating income and a 3.1% decrease in
total operating expenses resulted in a 4.3% increase in the Group’s consolidated net income for
the year, which grew from SAR 6,836 million in 2014 to SAR 7,130 million in 2015.
Key indicators
Net financing and
investment income
2011
2012
2013
2014
2015
9,070
9,501
9,649
9,817
9,959
12,502
13,983
13,845
13,667
13,746
5,124
6,098
6,407
6,831
6,616
Net income
7,378
7,885
7,438
6,836
7,130
7,378
7,885
7,367
6,771
6,918
Net income for the year
9.00%
6.90%
(5.70%)
(8.10%)
4.30%
for the year
9.00%
6.90%
(6.60%)
(8.10%)
2.20%
YoY change
Product-wise Analysis
of Net Financing
Portfolio
Net financing accounted for 67% of Group total assets in 2015, and its share has remained at
around 65-67% during the past five years.
Products
Instalment sale is the dominant financing product, having increased its share in the Group’s net
financing portfolio from 71% in 2011 to 77% in 2015. Corporate Mutajara, the second largest
component of net financing, saw its overall share decline from 21% in 2011 to 18% of the net
financing portfolio in 2015.
Net income
37
During 2013-2014 Saudi banks saw increasing regulatory pressure on consumer protection;
tighter compliance requirements on anti-money laundering (AML), combating terrorism
financing (CTF) and capital adequacy; as well as the implementation of a new wages protection
scheme. These impacted the Bank through lower profitability, particularly due to regulatory
caps on retail loan processing fees, increased staff costs to meet regulatory requirements
and a slowing growth in the retail market. While we welcome progressive regulation, they
contributed to escalations in operating costs that were not matched by revenue gains in the
short term.
Messages
Financial Capital
Business Model
Stewardship
Identity
Financial Reports
Net financing portfolio
by products,
SAR million
38
Product
Corporate Mutajara
2011
2012
2013
2014
2015
30,109
33,047
36,200
38,249
36,845
100,032
125,762
137,215
153,109
161,048
Murabaha
9,636
12,564
12,936
14,121
11,978
Visa cards
535
568
462
461
347
–
–
–
–
Instalment sale
Istisnaa
1
140,313
Net financing portfolio
by business segments
Net financing
portfolio 2015
171,941
186,813
205,940
210,218
Retail banking accounted for 72% of the Group’s net financing portfolio by end 2015
(2014: 70%), with corporate banking taking up the balance. Instalment sale led the way with
99% of retail and 14% of corporate banking portfolios respectively, with an overall 76% share of
the Group’s net financing portfolio.
Instalment sale
4.0%
Murabaha
5.3%
Mutajara
corporate
18.7%
Instalment sale
71.5%
Visa cards
0.2%
Murabaha
0.3%
Retail (Instalment sale, Murabaha and Visa cards)
Corporate (Mutajara corporate, Instalment sale and Murabaha)
Total Assets
Total assets of the Group grew at a compound annual growth rate of 8.6% over the
period 2011 – 2015, while 2015 recorded a modest 2.6% YoY growth over 2014 to reach
SAR 315,620 million.
Messages
Financial Capital
Business Model
Stewardship
Identity
Financial Reports
39
Five year summary
of financial position,
SAR million
2012
2013
2014
2015
Cash and balances with SAMA
and other central banks
20,419
30,804
29,970
33,585
27,054
Due from banks and other
financial institutions
14,600
16,557
15,463
16,516
26,911
Investments, net
Financing, net
Investment property
38,802
40,880
39,573
42,550
39,877
140,689
172,234
186,813
205,940
210,217
–
–
–
–
1,350
Property, plant and
equipment, net
3,624
3,818
4,321
4,814
Other assets, net
2,597
3,090
3,731
4,306
4,631
Total assets
220,731
267,383
279,871
307,711
315,620
Customer deposits
177,733
221,343
231,589
256,077
256,228
9,509
9,571
9,784
9,738
12,753
187,242
230,914
241,373
265,815
268,981
33,489
36,469
38,498
41,896
46,639
Due to banks and other liabilities
Total liabilities
5,579
Net financing is the largest component of total assets of the Group, accounting for 67% in 2015,
followed by investments at 13% and cash & balances with SAMA and other central banks at 9%.
The relative composition of total assets has not changed significantly over the past five years.
Asset Quality
Non-performing loans ratio measured as impaired loans/gross loans stood at 1.5% as at
31 December 2015. Provision cover measured as reserves for impaired loans/impaired loans
was 176.7% as at 31 December 2015. Reflecting the excellent asset quality, loan impairment
charges/average gross loans was 0.9% only for the year 2015.
Customer Deposits
Total customer deposits amounted to SAR 256,228 million by end 2015, accounting for 95% of
the total liabilities of the Group.
Demand deposits are by far the largest product group within customer deposits, accounting
for 94% of the total customer deposit base (2014: 89%). Demand deposits grew 5.3% in 2015,
which is lower than the compound annual growth rate of 10.0% achieved during the period
2011 – 2015. In tandem, total customer deposits remained flat during the year at approximately
end-2014 levels.
2011
Description
Messages
Financial Capital
Business Model
Stewardship
Identity
Financial Reports
40
Five-year summary of
customer deposits
SAR billion
250
200
150
100
50
0
2011
Demand deposits
2012
2013
Customers' time investments
2014
2015
Other customer accounts
In terms of currency, deposits in Saudi Riyals (SAR) accounted for 96% of the total, similar to
previous years.
Geographical Analysis
The Group financing portfolio continues to be largely domestic accounting for 96% of the total.
Likewise, 98% of the Group’s total operating income was derived from within the Kingdom.
Liquidity
Liquid assets ratio of the Bank was 20.6% at 31 December 2015. With customer deposits
accounting for over 98%, loans/customer deposits being 82% and liquidity coverage ratio at
179%, the Bank had a healthy funding and liquidity position as at 31 December 2015.
Management
of Capital
Apart from meeting the regulatory capital requirements, the Bank always attempts to maintain
a comfortable level of capital to accommodate future business expansion and to support the
desired credit rating. As at 31 December 2015, the Bank had a Tier I capital ratio of 19.74% and
Tier I and II capital ratio of 20.83% against the minimum requirement of 4% and 8% respectively.
Capital Adequacy
The Bank continued to maintain a strong capital base, well above regulatory requirements.
As detailed in Note 32 (page 159), by end 2015 Tier I ratio stood at 19.74% (2014: 18.48%) while
Tier I and II ratio reached 20.83% (2014: 19.59%).
Messages
Business Model
Stewardship
Identity
Financial Reports
The core values of the Bank, described on page 10, are at the centre of everything we do, be
it in dealing with colleagues, customers or the communities and environment in which we
operate. These values are internalised through induction, training, performance management
and other human resources-related activities.
The above, together with the ABCDE Roadmap discussed previously, inter alia serve to
strengthen ongoing activities as well as set in motion several new initiatives that lead to
institutional capital formation.
Caring and Sharing
The Bank maintains an active corporate social responsibility programme. It is structured and
transparent, and targets education, healthcare and housing. The main activities undertaken
during the year and the results are discussed in the section on Social and Environmental Capital
commencing on page 54.
Inspiring Innovation
The Bank has continued to develop internal systems, processes and procedures over the years
which are unique to the institution. Some of the new products launched are noted below:
Electronic tracking
service for letters of
credit and letters of
guarantee
During the year we launched a service for customers to track letters of credit and documentary
collections through the Bank’s website. Before this, we had launched an innovative eService for
customers to verify the data of guarantee letters online via the Bank’s website. Both services
are offered free of charge and without the need for subscription. These electronic tracking and
verification services help to reduce fraud while providing our corporate customers speed and
convenience.
e-Branches
Demonstrating its leadership position in electronic banking delivery channels, the Bank has set
up three e-Branches incorporating interactive teller machines and over 50 self-service kiosks.
These e-Branches facilitate almost all banking transactions in an automated environment.
Cash deposit boxes
for companies
The Bank’s cash deposit machines (‘lock box’) project is an innovative scheme that permits
cash deposits to be made by beneficiary companies round the clock, with deposits being
immediately credited to the customer’s account. Cash deposit machines at customer premises
eliminate cash transfer risk, and also provide high security features such as fingerprint scans of
depositors, bank note verification against forgery and remote monitoring by Bank’s staff.
Living Our Values
41
Institutional capital covers a broad range of non-financial components that are, like financial
capital, internal to the Bank and the Group. They comprise intangibles such as corporate
values, business ethics and integrity, organisational knowledge, systems, processes, intellectual
property, brand equity and so on.
Messages
Business Model
Stewardship
Identity
Financial Reports
42
Serving with Passion
Some of the key initiatives we executed during the year to further enhance customer
experience are noted below:
Brand refresh
We worked on a new, uniform identity route using the ‘hexagon’ in our logo as a building block
to drive all our communications. The strands of these hexagons, in shades of our corporate
blue colour, take on a flow and a path from one point to another as the hexagons progressively
morph into the final message to be communicated.
Customer focus
In line with our Customer Charter, we simplified our systems and processes to focus on four key
aspects that are at the heart of customer service –
Fast
Serving customers quickly, whatever their needs
Friendly
Making customers feel at home
Simple
Making banking simple and easy
Trusted
Providing peace of mind
Branch customer
services
A comprehensive training programme for staff is underway that includes a mix of ‘live’
simulations in a mock branch set up, use of digital tools and coaching. We aim to have
trained all our frontline staff by end of 2016 and provide a new level of customer service at
all our branches.
A refocused
front office
A shift from process to product-focused operations is being introduced. Front office teams
are being restructured along product base and customer type which will lead to significant
reduction in turnaround time.
Providing Practical
Solutions
The information technology function provides services across all units to optimise the overall
performance of the Bank. Continuous staff training on aspects such as IT governance and
service management, IT operations and application development are key to maintaining
cutting edge capabilities in an environment characterised by rapidly changing business needs
and customer expectations.
Messages
Business Model
Stewardship
Identity
Financial Reports
In the field of eCommerce the Bank is one of the pioneers in providing online payment solutions
through SADAD. This is a centralised direct bill payment system that uses multiple channels.
Driving Excellence
Our quest for excellence is all pervasive and cuts across everything we do.
People
Processes
Ours is a culture that defines, differentiates and reinforces excellence and talent in our people.
These aspects are discussed in the section on Employee Capital that begins on page 50.
We have identified ‘execution excellence’ as a key deliverable in our Roadmap. It includes
maintaining a world class compliance framework (discussed on pages 77 - 81), simplified and
standardised processes, and a performance management system with delegated authority
and accountability.
Instilling Integrity
and Transparency
Good governance
Transparency in
consumer financing
Sound business ethics and transparency are aspects that are understood and reinforced in all
our activities. We adopt several frameworks, codes and guidelines for this purpose, often going
beyond what is mandated by law, an example being the Bank’s own governance system that
builds further on the Corporate Governance Act issued by the Capital Market Authority (CMA)
and the principles enunciated by the Saudi Arabian Monetary Agency (Central Bank).
In line with the updated consumer finance regulations the Bank has implemented a full
disclosure policy that replaces the ‘profit margin rate’ with an ‘annual percentage rate’ (APR).
The APR is an internationally recognised and transparent indicator to disclose the actual cost
of financing.
The Al Rajhi Brand
We let the results speak. That’s what we mean by being humble and modest, a corporate value.
An independent survey confirms that the Al Rajhi brand value continues to rise.
Brand equity and brand value represent two different, yet intricately linked, concepts. Brand
equity is a set of elements such as brand associations, market fundamentals and marketing
assets that help distinguish one brand from another. Brand value is the net present value of
future cash flows from a branded product minus the net present value of future cash flows from
a similar unbranded product. It is what the brand is worth to management and shareholders.
The latest 2016 brand valuation by BrandFinance® indicates that ‘Al Rajhi’ continues to
remain as a valuable brand, having moved up from a 98th global rank in 2015 to a 93rd
position in 2016.
SADAD online service
During the year the Bank launched the first automated branch of its kind in the Kingdom that
uses interactive ATMs. Using the latest technology available worldwide, these self-service
devices can be used to produce customer cards, issue cheque books and print statements
instantly, in addition to other processes such as fund transfers and bill payments.
43
First automated
branch
Messages
Business Model
Investor Capital
Stewardship
Identity
Financial Reports
44
The Bank’s investors are persons, both institutional and individual, who provide financial capital
with the expectation of a return. The capital provided is primarily equity, with the expected
return typically covering a mix of short, medium and long term.
Performance
of the Share
Share price
The market value of the Bank’s ordinary share on 31 December 2015 was SAR 52.09, compared
to SAR 51.45 on 31 December 2014. During the 12-month period of 2015, the highest price of
SAR 68.20 was recorded on 17 June 2015, while the lowest price of SAR 47.21 was recorded on
13 December 2015.
Share price movement
Market capitalisation
FYE 31 December
2011
2012
2013
2014
2015
Value, SAR billion
104
98
110
84
85
8.2
7.0
6.2
4.9
5.4
FYE 31 December
2011
2012
2013
2014
2015
Number of days traded
248
251
249
250
251
Total number of market days
248
251
249
250
251
Percentage of market
days traded
100
100
100
100
100
FYE 31 December
2011
2012
2013
2014
2015
235,673
248,384
240,603
370,760
363,113
Percentage of total market cap
Days traded
Frequency of
shares traded
Number of transactions
Distribution of
Shareholding
Shareholding by type
31 December 2015
As at
Individual
Institutional
Total
31 December 2014
Foreign
%
Local
%
Total
%
Foreign
%
Local
%
Total
%
0
99.99
99.99
0
100.00
100.00
0.11
0
0.11
0
0
100.00
0
100.00
Messages
Investor Capital
Business Model
Stewardship
Identity
Financial Reports
31 December 2015
As at
No. of
shares
% shares
held
No. of
shareholders
No. of
shares
% shares
held
01 -
10,000
66,649
78,701,656
4.84
70,841
84,952,347
5.23
10,001 -
100,000
4,693
121,307,244
7.47
5,027
128,611,885
7.90
100,001 -
1,000,000
605
190,090,229
11.70
605
207,936,074
12.80
1,000,001 - 10,000,000
125
316,620,172
19.48
130
307,717,023
18.94
10,000,001 - 100,000,000
19
918,280,699
56.51
18
895,782,671
55.13
0
0
0
0
0
0
72,091 1,625,000,000
100.00
76,621
1,625,000,000
100.00
Over 100,000,000
Total
Return to shareholders
31 December 2014
2011
2012
2013
2014
2015
Share capital, SAR million
15,000
15,000
15,000
16,250
16,250
Total shareholders’ equity, SAR million
33,489
36,469
38,498
41,896
46,639
4.92
5.26
4.58
4.21
4.39
Key performance indicators
Basic and diluted earnings
per share, SAR
No. of
shareholders
45
Shareholding by size
Messages
Business Model
Customer Capital
Stewardship
Identity
Financial Reports
46
Our Portfolio
The Bank accounted for 93.5% of net income and 99.2% of total assets of the Group.
Our discussion in this section will thus focus on the Bank and its three overseas banking
subsidiaries/branches which constitute the core banking business of the Group. The financial
aspects of these businesses were discussed previously in the section on Financial Capital,
beginning on page 32.
Business segments
Geographic locations
The Bank’s portfolio, and hence customers are segmented along the following lines:
zz
Retail banking
zz
Corporate banking (including SME banking)
zz
Treasury
zz
International banking business (subsidiary in Malaysia; branches in Kuwait and Jordan)
The above services within the Kingdom are delivered through our headquarters in Riyadh and
regional departments, namely, Western, Central, Eastern, Qassim, Hail, Al Madina, Northern and
Southern. Our international business operations are through subsidiaries/branches in Malaysia,
Kuwait and Jordan.
Retail Banking
Retail banking accounted for 73% and 53% of the Group’s net financing portfolio and total
assets respectively.
Retail banking provides individuals with a full range of Shari’a compliant financial products and
services such as current accounts, personal finance, car finance, home finance and credit cards
across the Kingdom.
Instalment sale accounted for 99.4% of the retail banking net financing portfolio, followed by
Murabaha and Visa cards.
Exposure of a significant portion of the portfolio to Watani (personal finance) granted to
employees in the government sector who enjoy a stable income, prudent appraisal at loan
approval stage and the thorough post disbursement follow-up have contributed for the Bank to
historically record one of the lowest NPL ratios in the Kingdom.
Customers and reach
With the largest customer base in the Kingdom comprising over 6 million customers, the Bank
commits itself to providing them with the very best in service and value. The Bank is a leader in
terms of network, with 525 branches (and 31 more overseas), 4,500 ATMs, about 51,000 point of
sale (POS) locations and 200 remittance centres across the Kingdom.
We added 12 new branches and eight Silah branches during the year to further improve our
reach in the Kingdom. A number of VIP lounges with contemporary design were also launched,
bringing the total to 280 across the country.
Messages
Customer Capital
Business Model
Stewardship
Identity
Financial Reports
The personal banking business of the Bank enjoys a large number of customers comprising
employees in the government sector where the Bank has a strong presence. They, together
with others in the mass market segment account for over 90% of the personal banking
customer base.
Growth in reach
2011
Number of branches in the KSA
Number of ATMs in the KSA
Ladies banking
2012
2013
2014
2015
455
467
479
501
525
3,034
3,297
3,644
3,997
4,500
The Bank maintains over 100 units specialised in serving women, thus being a major
contributor to increasing the share of women in the labour market. The number of ladies
banking customers increased and the number of accounts continued to grow. During the year
we launched the first ladies’ private banking centre in Riyadh.
In composition terms, ladies banking accounted for a significant share of the retail customer
base as well as the number of accounts, indicating the effectiveness of this specialised service
that contributes towards financial inclusion.
Technology
Electronic banking delivery channels are one of the key strengths of Al Rajhi Bank. The Bank is
determined to improve these channels, expand its reach and migrate customers. Our focus is
to educate customers about internet and mobile banking and motivate them to use alternate
channels for their day-to-day banking needs.
The number of ATM transactions recorded a satisfactory growth year on year. ATM uptime too
has been improving, affording an optimal customer experience.
The value of transactions through our 51,000 POS devices exceeded SAR 71 billion during
the year. The Bank continues to be the market leader with a 28% share of the POS market in
the Kingdom.
The Bank maintains relationships with several financial institutions that serve as correspondent
banks. They exceed 200 in number and are located across 48 countries, facilitating and
enhancing our money transfer services.
47
The Bank is also a leader in the remittance or money transfer business (Tahweel) in the Saudi
market and is the second largest outside the United States, accounting for some 24 million
transactions per month.
Messages
Customer Capital
Business Model
Stewardship
Identity
Financial Reports
48
Corporate Banking
Products and services
A mid-level player in the KSA market, the Bank’s corporate banking portfolio accounted for 27%
of the Group’s net financing by end of 2015. The primary focus of corporate banking is SME
banking and trade finance. They fulfil the working capital, capital expenditure, trade finance
and cash management needs of entities operating in the KSA through Shari’a compliant
products and services.
Corporate Mutajara accounted for the largest share of 66% of the corporate banking net
financing portfolio, followed by Murabaha (19%) and instalment sale (15%).
SME banking
Providing banking products and services to the small and medium enterprise (SME) sector is
one of the key focus areas of the Bank. Accordingly, following our strategic review and launch
of the Roadmap during 2015, SME banking was hived off to function as a separate independent
business unit that will provide financial and non-financial support to customers.
The Bank is an active player in the Kafalah Programme, which is a collaboration between
the Ministry of Finance (represented by the Saudi Industrial Development Fund (SIDF)) and
Saudi banks. The Programme aims to promote financing to the SME sector within the Kingdom
based on clearly articulated objectives. Financing under this Programme goes up to SAR 2
million per customer, with SIDF-Kafala providing a credit guarantee up to 80% of the financing
amount. Al Rajhi Bank ranked 3rd amongst the other market players in terms of the number of
clients served.
Trade finance
Innovations scored high during the year, with many of the services being accessible without
the need to physically visit a branch. Such value added features continue to enhance customer
experience, particularly in terms of convenience, speed, accuracy and security.
Our trade finance letter of guarantee service was enhanced with online security features
enabling the beneficiary to confirm with the Bank about the authenticity of our guarantees.
During the year we added the electronic tracking of letters of credit through the Bank’s website
as a value added service for customers. These electronic tracking and verification services help
to reduce fraud while providing our corporate customers speed and convenience as the need
to contact the Bank is eliminated.
In eCommerce the Bank is one of the pioneers in providing online payment solutions through
SADAD. This is a centralised direct bill payment system that uses multiple channels.
During the year we continued to enhance due diligence capabilities in Know Your Customer
(KYC), Anti-Money Laundering (AML), Combating Terrorism Financing (CTF) and other areas
such as suspicious transaction monitoring and reporting processes. We will continue to
improve and invest further to comply with the increased regulatory requirements while setting
the standard on good governance and compliance for the banking industry.
Messages
Customer Capital
Business Model
Stewardship
Identity
Financial Reports
49
Treasury
Sales and trading
Treasury plays a central role in the management of liquidity and asset-liability position of the
Bank. The aim is to optimise the Bank’s liquidity, make sound financial investments with excess
funds to enhance the yield and manage financial risks. Treasury manages the asset liability
management (ALM) book of the Bank as per the Asset-Liability Committee (ALCO) directives.
All investment decisions made are within the approved risk appetite parameters and
Shari’a guidelines.
Treasury is also the owner of the foreign exchange product. The Bank remains the market leader
in foreign exchange remittances in the country as well as the region by providing competitive
pricing to its retail and corporate customers.
Treasury corporate sales team works closely with customers in understanding their
requirements in foreign exchange, trade finance, short-term placement and hedging solutions
and helps them to execute market transactions. Cross-selling to corporate clients is a key
success factor, which will be developed further in the coming years.
Actively dealing in over 40 currencies and playing a vital role in adding depth and liquidity to
the market, the Bank receives and moves approximately SAR 80 billion per month in cash across
its distribution channels and SAMA.
Product development is carried out in coordination with the Shari’a Group of the Bank. Treasury
is expanding its investment avenues to products such as Sukuk and mutual funds.
Borrowings
Al Rajhi Bank maintains a very strong and stable customer deposit base. As in the previous
years, the funding plan of the Bank continues to maintain its strategy of funding customer
assets with non-profit-bearing customer deposits. Non-profit-bearing current accounts are
expected to continue its strong performance to remain key source of funding for the Bank’s
asset book. The non-profit-bearing deposits also provide an excellent hedge to the Bank
against interest rate volatility in the market, and as such the Bank’s balance sheet is well
positioned to rising interest rate environment through enhancement of yield income.
The Bank has minimum reliance on wholesale term funding. On the USD book, however, the
Bank’s funding profile is similar to the rest of the banking industry in the country, which is
mainly from large wholesale corporates.
International
Banking Business
Going beyond product diversification, the Bank’s expansion overseas provides opportunities
for broadening its revenue streams across different geographic areas and jurisdictions. Such
entry into different markets, some sophisticated and competitive, also serve to provide new
experiences that enrich the Bank’s own accumulated knowledge.
The performance of the Bank’s international business in Malaysia, Jordan and Kuwait, being
relatively of recent origin, is beginning to pick up momentum. Customers are served through
24 branches in Malaysia, six branches in Jordan and one branch in Kuwait.
Balance sheet
management
Messages
Business Model
Employee Capital
Stewardship
Identity
Financial Reports
50
The Bank’s comprehensive ‘Human Resource Transformation Journey’ that commenced in
2014 saw many achievements during the year under review. They served to align our human
resource (HR) strategy with the Bank’s Roadmap (page 24), underpinned by our goal of
becoming ‘an employer of choice’ while reinforcing the importance of ‘living our values’ in all
our business activities.
Staff Strength
The Group employed a total of 12,374 persons as at 31 December 2015 (2014: 11,761
persons), which represents an increase of 5.2% YoY. The figure includes all official employees,
permanent and temporary contracted employees and service providers as explained in
Note 19 on page 133.
Employees
analysed by function
Function
Employees engaged in risk taking activities
2015
2014
Number
%
Number
%
1,175
9.5
1,212
10.3
314
2.5
206
1.8
Other employees
10,885
88.0
10,343
87.9
Total
12,374
100.0
11,761
100.0
Employees engaged in control functions
The number of executives and those engaged in control functions saw increases of over
50% during 2015, although the absolute numbers are relatively very small. Nevertheless, this
increase signifies the Bank’s thrust towards exemplary results on compliance and controls.
Strategic Interventions
The elements of such a transformation have been designed based on business needs, market
best practices and employee feedback. The key focus areas are –
zz
Establishing an overall employment proposition that attracts and retains high performing
and high potential employees
zz
Developing a capable team that is motivated and engaged in delivering high performance to
achieve sustainable financial growth
zz
Building a ‘best in class’ HR function that is recognised for its ability to extend strategic HR
business support to enable the Bank in achieving its overall strategic business goals
zz
Enhancing the HR service delivery and quality to meet and exceed our employees’
expectations
zz
Implementing consistent, transparent and fair HR policies and procedures.
The important activities that we undertook during the year arising from the above are
discussed in the paragraphs that follow:
Messages
Employee Capital
Business Model
Stewardship
Identity
Financial Reports
51
Organisational
Development
In addition, we carried out a workforce planning exercise across the Bank as part of the annual
business planning process, utilising comprehensive manpower and capacity assessment tools
and methodologies. These led to several organisational restructuring initiatives within the
Bank, some going from end to end. Due care was exercised in ensuring effective employee
engagement and communications as part of the whole change management process.
Recruitment and
Retention
The Bank participated at all important career fairs at universities to attract Saudi talent, and
successfully implemented the Saudisation strategic imperatives. The overall Saudisation of the
Bank improved from 89.7% in 2014 to 90.4% in 2015, thus reaching the ‘Platinum Level’ for the
first time.
Whilst the Bank is fully committed to maintaining its Saudisation position, we also look at
attracting high quality personnel, local or foreign, to further strengthen our human capital. In
fact, such talent serve to set benchmarks, and by sharing best practices they coach and groom
our local personnel to move up the ladder.
Performance
Management
Another strategic priority we worked on during the year was to further strengthen and
implement an effective and differentiated performance management proposition. The process
entailed several steps such as –
zz
Developing the overarching key performance indicators (KPIs) and cascading them across all
levels within the Bank
zz
Launching an enhanced performance management system, supporting all employees in
setting their KPIs
zz
Carrying out a quality assurance exercise for all managerial KPIs
zz
Creating awareness on performance management through training sessions and uploading
reading material on the intranet
zz
Restructuring underperforming management processes
zz
Engaging with employees and line managers and assisting them in conducting year-end
performance calibration exercises to obtain the final performance ratings.
We worked closely with the respective business units in reviewing and revamping
organisational structures to better align them with the Bank’s business strategy and goals.
This also entailed developing job descriptions and job evaluations.
Messages
Employee Capital
Business Model
Stewardship
Identity
Financial Reports
Talent Management
The Bank recognises the importance of a comprehensive talent management policy which is
also linked to a robust succession planning process. This includes identifying high potential
employees who can be groomed through tailored career development plans to fill critical and
challenging positions against immediate and future business needs.
52
Board approval was obtained to implement a grading system from January 2016 that will
facilitate the implementation of the above objectives.
Learning and
Development
Learning and development plays a vital part in the overall success of any organisation.
Accordingly, we revamped the historical Training Department into becoming a Learning
and Development enabler that is closely linked with the talent management proposition
of the Bank.
Our approach to learning and development is based on training needs analyses, talent pipeline
development and succession planning, the critical components being –
zz
Tailored individual career development plans for the talent pipeline
zz
Specific training inventories based on needs
zz
Mandatory learning interventions to meet regulatory requirements
zz
Leadership and managerial development programmes which includes soft skills
development
zz
Graduate development initiatives
zz
Tailored retail banking training interventions.
We provided a total of 42,000 person-days of training during 2015, which is double that of the
previous year.
In terms of training content, key areas of focus during the year were on raising the bar on
our expertise in control and corporate governance functions within the Bank, and creating
awareness on all regulatory frameworks and guidelines applicable to all staff. We also continued
to invest in building leadership and managerial skills within the Bank.
Messages
Employee Capital
Business Model
Stewardship
Identity
Financial Reports
53
Compensation
and Benefits
We conduct annual compensation and benefits surveys to successfully implement this strategy,
as it serves to keep abreast of the ongoing market trends. The updated compensation policy
is approved by the Board of Directors, which further enhances the alignment with prudent risk
management and regulatory guidelines.
The Bank’s compensation model is driven by employee performance and potential (talent)
ratings. The Bank uses a combination of fixed and variable compensation to attract and retain
talent. The fixed component is benchmarked annually against other local banks, while the
variable component is related to the employees’ performance and their compatibility to
achieve the agreed on objectives. The variable component includes incentives, performance
bonus and other benefits. The gross variable incentive package is computed as a percentage of
the Bank’s income and is subject to approval by the Board of Directors.
We believe in meritocracy and excellence, a core corporate value, as ultimately it is people who
drive the Bank’s performance. The Bank’s compensation and benefits strategy is thus aimed
at motivating, rewarding and retaining staff, with a focus on our high performing and high
potential employees.
Messages
Business Model
Social and Environmental Capital
Stewardship
Identity
Financial Reports
54
Contributing to a better tomorrow through a ‘caring and sharing’ philosophy, the Bank is ever
mindful of the impact it makes on the local communities and the environment in which it
operates. It is a win-win approach that recognises the truism that the ability of the Bank to
create sustainable value for itself is equally dependent on the value it creates for
its stakeholders.
Responsible Banking
As one of the oldest Islamic banks in the world, our products have been adopted as models
by other banks locally, regionally and internationally. Each of our products is fully Shari’a
compliant, carefully studied and approved, by our Shari’a Committee – a group of the
Kingdom’s most prominent and esteemed Islamic scholars.
Our financing activities are based on responsible investment and take account of
environmental and social risks in the projects and companies the Bank finances.
Social and
Environmental
Policies
The Bank operates within approved policies regarding employment, procurement of goods and
services, project management and internal maintenance, through which we uphold the highest
standards of professionalism and social responsibility.
Given the nature of our business, our activities do not have significant direct environmental
impacts. Nevertheless, we are mindful of our indirect environmental impacts, particularly in the
context of energy usage, paper consumption and disposal of waste. We approach these with a
‘reduce, reuse and recycle’ mindset.
Human Resources
Al Rajhi Bank places a high value in maintaining mutual loyalty and a personal relationship with
each employee. Employer and employee alike share the same vision and corporate values, thus
building an extended family within our organisation.
Messages
Social and Environmental Capital
Business Model
Stewardship
Identity
Financial Reports
55
Corporate Social
Responsibility
Our philanthropic programmes are primarily focused on education, healthcare and housing
that are sustainable. Some examples are described below:
Education and
employment
Healthcare
Housing
zz
The Bank has an agreement with the Ministry of Social Affairs to set up training and
development programmes for both men and women which eventually lead to employment
in the banking sector
zz
We collaborate with the Women’s University in conducting diploma programmes in fields
that train women to establish their own small business ventures when they graduate
zz
To promote a culture of reading and self-development we collaborate with King Abdulaziz
library to establish learning centres in public places
zz
The Bank is a leading participant in the Kafalah programme of the Ministry of Finance
(through the Saudi Industrial Development Fund) to provide financing and technical
assistance to the SME sector.
zz
Our pledge to the Friends of the Sick provides medical equipment for those in need
zz
Our agreement with King Fahad Medical City helps patients to travel to other centres for
advanced medical treatment
zz
We partnered with Enaya to organise an educational road show to prevent blindness caused
by diabetes
zz
Along with the Anti-smoking Foundation we have laid the ground to build and equip a clinic,
and support its operations for three years in the Al Ahsa region.
zz
In agreement with the Prince Salman Housing Project, we have undertaken to pay for
20 housing units between the areas of Al Kharj and Al Mzahmeya
zz
In agreement with the Ministry of Social Affairs, the Bank has developed an investment fund
specifically for orphans.
Some of our CSR initiatives are strategic in nature, aimed at long-term goals that have a
national impact, such as investing in education and employment of youth. Some are
operational in nature, where our financial returns can be more challenging but compensated
through a higher social agenda, like our commitment to developing the SME sector and
empowering women in business. Yet, some initiatives are purely philanthropic in nature, be it
responding to a humanitarian crisis or providing relief to the sick and suffering.
Messages
Business Model
Stewardship
Identity
Financial Reports
Integrity and transparency
Being open and honest while maintaining the highest standards of corporate and personal ethics
Stewardship
Board of Directors
Risk Management
Compliance
58
62
74
77
Messages
Business Model
Board of Directors
Stewardship
Identity
Financial Reports
58
Mohammed bin Abdullah Al Rajhi
Salah bin Ali AbalKhail
Chairman
Director
Director
With varied experience including more than
30 years in banking, he also contributed to
the conversion of Al Rajhi Exchange and
Trading Company into the present day
Al Rajhi Banking and Investment Corporation
(Al Rajhi Bank). He has held a number of
leading positions within Al Rajhi Bank, the
most noted are his tenures as Managing
Director and CEO, as well as his membership
in the Board and in a number of Board’s
committees over a span of more than
15 years. He has presided over the Boards
of some of the Bank’s subsidiaries such as
Al Rajhi Bank, Malaysia and Al Rajhi Capital.
Mr. Abdullah was made Vice Chairman of
the Bank in January 2013 and Chairman
in November 2014. He holds a Bachelor’s
Degree in Business Administration from
King Abdulaziz University.
Mr. Mohammed has diverse investment
experience spanning more than 35
years during which he held a number of
positions in the areas of administration,
finance and industry. He was re-elected
as a member of the Board of Directors
of the Bank in 2014, and also serves on
the Boards of some public joint-stock
companies in the Kingdom including
Tabuk Agricultural Development
Company and East Asian Company for
Agricultural Development & Investment.
Working in advisory and investment
for more than 40 years, Mr. Salah was
re-elected to the Board of Al Rajhi Bank
in 2014. He heads the Governance
Committee of the Bank, in addition to
his membership in the Board of Al Rajhi
Capital. Mr. Salah holds a Bachelor’s
Degree in Engineering from the
University of Arizona.
Messages
Board of Directors
Business Model
Stewardship
Identity
Financial Reports
59
Sulaiman bin Saleh Al Rajhi
Saeed bin Omar Al Issaie
Abdulaziz bin Khaled Al Ghefaily
Director
Director
Director
Mr. Sulaiman has worked in the banking
sector for more than 35 years, during
which he held a number of positions in
administration, finance and international
relations. He has also contributed to
the conversion of Al Rajhi Exchange
and Trading Company into a public
joint-stock company, namely, the
present Al Rajhi Banking and Investment
Corporation (Al Rajhi Bank). He was
re-elected to the Board in 2014 and has
served as a member of a number of the
Board’s committees, in addition to his
membership in the Board of Al Rajhi
Capital, subsidiary of the Al Rajhi Bank.
Mr. Saeed has served on the Board of
Directors of the Bank since 1999. He
counts over 25 years of administrative
and financial experience in the trade and
investment fields, and is a Board member
of several public joint-stock companies.
He holds a Bachelor’s Degree in Industrial
Engineering from the University of Miami.
Working in the field of financial
investment for more than 20 years,
Mr. Abdulaziz has served on the Board of
Directors of Al Rajhi Bank since 2009 in his
capacity as a representative of the General
Organisation for Social Insurance. He
also serves as a Board member of several
public joint-stock companies including
Savola Company and Herfi Company.
He holds a Master’s Degree in economics.
Messages
Board of Directors
Business Model
Stewardship
Identity
Financial Reports
60
Bader bin Mohammed Al Rajhi
Moayed bin Issa Al Qurtas
Ali bin Saleh Al Barrak
Director
Director
Director
Mr. Bader has held several leading
positions in the areas of administration,
industry and real estate investment
over a period of more than 25 years. He
has served as a Director of joint-stock
companies, as well as headed the Boards
of a number of private companies. He
has been a member of the Bank’s Board
of Directors since 2011 and represents
Manafea Holding Company.
Mr. Moayed counts over 30 years of
experience in engineering, industry and
management, during which he held
several positions including those of
CEO and later Managing Director of the
National Industrialisation Company. He
heads the Bank’s Audit Committee and
continues to serve as a member of some
advisory entities and the Boards of listed
and unlisted companies, such as Al Rajhi
Takaful Company as well as Riyadh Cables
Company. He holds a Master’s Degree in
Engineering and a PhD in Management.
With over 30 years of experience in
engineering and administration, Mr. Ali
serves as a member of many Boards of
government, engineering and scientific
entities, both within the Kingdom as well
as abroad. He had previously been the
CEO of the Saudi Electricity Company for
more than six years and presently heads
the Bank’s Nomination and Remuneration
Committee. Mr. Ali holds a Master’s Degree
in Engineering.
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61
Khaled bin Abdulrahman Al Qoaiz
Alaa bin Shakib Al Jabiri
Director
Director
Mr. Khaled is a member of several Boards
of industrial and financial companies, and
is the incumbent Managing Director of
ACWA Holding Group (Arabian company
for water and power development).
With more than 30 years of experience
in banking, finance and industry he had
previously held the position of the CEO
of the Astra Industrial Group for more
than six years.
Counting over 30 years of experience in
banking and finance, Mr. Alaa has held
leading positions in a number of local and
international banks in retail and wholesale
financing and risk management. His
expertise includes foreign investments
and business development, and he
presently serves on the Boards and
committees of several companies while
heading the Bank’s Risk Committee.
Mr. Alaa holds a Master’s Degree in
Financial Administration.
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62
Corporate governance is a system of rules, practices and processes by which an organisation is
directed and controlled. It essentially involves balancing the interests of the many stakeholders
and providing a framework for attaining the Organisation’s goals.
Regulations
Issued by CMA
The Bank observes the provisions of Corporate Governance Regulations issued by the Capital
Market Authority (CMA). The Bank's Board has adopted the Regulations, obligatory Bylaws and
most of the provisions of the guiding regulations, except the following:
Exceptions
Article
Requirements
Reasons for not applying
Clause (C) of
Article (5)
General Assembly date, location and
The Bank was unable to meet
tasks schedule should be announced this requirement due to
20 days minimum before the meeting logistical reasons.
due date.
Clause (B) of
Article (6)
In voting in the General Assembly
for the nomination of the Board
members, the accumulative voting
method shall be applied.
It has been voted upon in the
Extraordinary General Assembly
held on 4 March 2013 wherein
the Assembly approved the
continuation of the normal style
of the vote, and the Bank still
adopts the normal right to vote.
Clause (D) of
Article (6)
Investors who are judicial persons
and who act on behalf of others –
e.g. investment funds – shall disclose
in their Annual Reports their voting
policies, actual voting and ways of
dealing with any material conflict of
interests that may affect the practice
of the fundamental rights in relation
to their investments.
The Bank does not have the legal
capacity to bind investors with
legal status who act on behalf
of others – such as investment
funds – to make disclosures
mentioned in the Annual Reports.
It will be noted that Article 44 of the Bank's Articles of Association allows the Extraordinary
General Assembly to decide upon the proposals of the Board of Directors on the method
of liquidation, and paragraph No. 7-12 of the Bank Governance Manual provides for the
shareholders' right to receive a share of the Bank's net assets at the time of liquidation.
Policies Relating
to the Governance
Manual
In 2014 the Bank issued and adopted a Corporate Governance Manual, a Governance Manual
Supplement and Regulations for Board committees and management committees. These
are reviewed annually. Furthermore, the Bank applies the key principles of the Saudi Arabian
Monetary Agency's (SAMA) corporate governance code for banks operating in the Kingdom of
Saudi Arabia that were issued in June 2012, and its first update issued on 23 March 2014.
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Another important policy adopted is on reporting violations. This policy encourages the
reporting of improper behaviour or any activity that violates the Bank’s policies, procedures
and instructions.
The Bank management applies SAMA’s requirements relating to the remuneration regulation
and what is stated in the Saudi Companies Law.
The Bank ensures through its internal policies and procedures full compliance with the
disclosure of material information to stakeholders, including the disclosure of banking data and
information in line with SAMA and CMA regulations.
Furthermore, the Bank has an adopted policy for social responsibility that aims at strengthening
the social role of the Bank in general.
On joining the Board, all Directors receive an induction manual that helps them understand the
Bank’s activities, including the financial and legal aspects. In addition Directors receive timely,
accurate and relevant information about the Bank’s performance to help them in their tasks,
while they also have access to training on any relevant subject, including the legal, regulatory
and economic aspects of the Bank and its operating environment.
The Bank has in place mechanisms required to settle complaints and disputes arising from
stakeholders, and these are monitored by SAMA.
Bank Policies
The Bank adopted a number of new policies in 2015. They include: anti-fraud policy, marketing
and corporate communications management policy, related party transactions policy, whistle
blowing policy, technical reports management policy and a policy on intermediaries.
The Bank also updated some policies, namely: anti-money laundering and prevention of
terrorism financing, conflict of interest, disaster recovery, compliance, competencies and
succession planning, information technology risk management and the code of professional
conduct.
Delegation of Power
The Bank undertook a comprehensive revision of its delegation of power matrix, which received
the approval of the Board of Directors based on the recommendations of the Governance
Committee. The revised matrix has been distributed to all Bank groups for adoption.
The competencies and functional succession policy has also been adopted. This aims to identify
staff with high potential and prepare them through career development plans, and to assess
their willingness to hold sensitive and difficult positions to meet immediate and future needs of
the Bank.
63
An independent policy of the Bank relating to conflict of interest was adopted following a
decision of the Capital Market Authority (No. 1-33-2011); and a policy for membership in the
Board of Directors was adopted by the General Assembly meeting held on 4 March 2013. In
addition, the policy on related party transactions was approved, which aims to create rules to
deal with their transactions.
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Financial Reports
64
Performance of the
Board and Committees
The Bank has an integrated mechanism with time frames to evaluate the work of the Board of
Directors and its committees, including a mechanism to make use of evaluation findings. These
are made use of in the nomination process for membership of the Board and committees and
in determining future training needs.
Core Announcements
The following are the main Al Rajhi Bank announcements that have been published on the
Saudi Stock Exchange (Tadawul) website during 2015.
Announcements
during 2015
Description
Date
Announcement of annual financial results for the period ended 31 December 2014
15 Jan. 2015
Declaration of dividend to shareholders for the second half of the
fiscal year 2014, of SAR 0.75 per share
15 Jan. 2015
Invitation to attend the twenty-sixth Annual General Meeting
24 Feb. 2015
Announcing the results of the twenty-sixth Annual General Meeting
02 Mar. 2015
Announcement of preliminary financial results for the period
ended 31 March 2015
13 Apr. 2015
Announcement of the resignation of Chief Executive Officer and the
appointment of a new one
10 May 2015
ended 30 June 2015
08 Jul. 2015
Declaration of dividend to shareholders for the first half of 2015,
of SAR 0.50 per share
08 Jul. 2015
ended 30 September 2015
13 Oct. 2015
General Assembly
The Bank always abides by the concerned Government regulations in all matters relating to
ordinary general assembly and extraordinary ones. All regulatory provisions are accompanied
by sufficient information to enable shareholders to make their decisions.
Board of Directors
Board structure
The Board of Directors of the Bank consists of 11 members elected by the Ordinary General
Assembly every three years. Any member may stand for re-election after completing his or her
term in accordance with the Bank’s regulations.
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65
No
Name
Function(s)
Membership type
Membership in other joint stock
companies
1
Abdullah bin
Sulaiman Al Rajhi
Chairman of
the Board of
Directors
Non-Executive
member
Al Rajhi Company for
Cooperative Insurance
2
Mohammed bin
Abdullah Al Rajhi
Board of
Directors
member
Independent
member

Tabuk Agricultural
Development Company
Classification of the
Board of Directors
According to the definitions of Article 2 of the Corporate Governance Regulations issued by
CMA, Board members are classified as follows.

East Asian Co. for
Agricultural Development
& Investment
3
Salah bin Ali
AbalKhail
Board of
Directors
member
Non-Executive
member
4
Sulaiman bin Saleh
Al Rajhi
Board of
Directors
member
Non-Executive
member
5
Saeed bin Omar
Al Issaie
Board of
Directors
member
Independent
member

Yanbu Cement Company

SAHARA Petrochemicals
Abdulaziz bin
Khaled Al Ghefaily
Board of
Directors
member
Non-Executive
member

Savola Company

Herfi Company
Bader bin
Board of
Mohammed Al Rajhi Directors
member
Independent
member

Manafea Holding Company

Mohammed Abdulaziz
Al Rajhi & Sons Holding
Company
Moayed bin Issa
Al Qurtas
Board of
Directors
member
Independent
member

Saudi Vitrified Clay
Pipe Company

Riyadh Cables Group
of Companies

Swicorp Financial
Advisory Services

Arab Company for Water
and Power Development
6
7
8
9
Ali bin Saleh
Al Barrak
Board of
Directors
member
Independent
member
10
Khaled bin
Abdulrahman
Al Qoaiz
Board of
Directors
member
Independent
member
Alaa bin Shakib
Al Jabiri
Board of
Directors
member
Independent
member
11
Construction Products
Holding Company
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66
zz
There are no arrangements or agreements made under which any of the members of the
Board of Directors or Senior Executives waived his salary or compensation to the Bank.
zz
There are no arrangements or agreements made under which any of the Bank’s shareholders
waived any of his or her profit rights.
The Board of Directors held six sessions during 2015 –
Board sessions and
attendance
Session No.
Date
No. of
attendees
Percentage
attended
Absent members
1
14 Jan 2015
11
100%
Nil
2
01 Mar 2015
10
91%
3
15 Apr 2015
9
82%
Sulaiman bin Saleh Al Rajhi,
Number of sessions
attended by each member
during 2015
4
09 Aug 2015
10
91%
5
20 Oct 2015
10
91%
6
21 Dec 2015
10
91%
Name
Attendance
6 sessions
3 sessions
6 sessions
Sulaiman bin Saleh Al Rajhi
5 sessions
6 sessions
6 sessions
Bader bin Mohammed Al Rajhi
6 sessions
6 sessions
5 sessions
5 sessions
6 sessions
Committees of the
Board of Directors
The committees of the Board of Directors execute their functions and missions according to
internal guidelines and regulatory requirements.
The membership term is three years, which ends with the term of the Board. The Board of
Directors is empowered to appoint, reappoint or terminate any member of a committee. The
committees, arising from their course of business, submit their recommendations and copies
of minutes of meetings to the Board of Directors.
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Executive Committee
The Executive Committee is responsible for approving all credit facilities that exceed the
High Credit Committee’s limits, approving real estate guarantees documented for default
facilities, approving contracts that exceed the approved budget or limits set for committees
and the CEO.
The Executive Committee held five sessions in 2015. Its members are –
Nomination and
Remuneration Committee
zz
Abdullah bin Sulaiman Al Rajhi (Chairman)
zz
zz
zz
Abdulaziz bin Khaled Al Ghefaily and
zz
The Nomination and Remuneration Committee’s main purposes include – recommend
the selection of Board Members, committee members and key executives to the Board of
Directors; prepare description of abilities and qualifications required for Board membership;
evaluate the effectiveness and efficiency of the Board and Senior Management; ensure the
independence of Independent members; ensure compliance with the requirements of SAMA
and internal policies on incentives and remuneration to meet the interests of depositors,
shareholders and the Bank’s strategic objectives.
The Nomination and Remuneration Committee held three sessions during 2015.
Its members are –
Governance Committee
zz
Ali bin Saleh Al Barrak (Chairman)
zz
zz
Khaled bin Abdulrahman Al Qoaiz and
zz
The Governance Committee’s main functions include – the annual review of the structure of
the Board of Directors and committees thereof, review of the framework of governance in the
Bank, update policies related to the Board and members thereof, ensure good governance
and avoidance of conflict of interests, provide support to maintain compliance with the
corporate governance requirements of SAMA and CMA. In addition, the Committee ensures
the application of the Governance Manual, its Appendices and the Bank’s matrix of authority
while following up on the work of administrative committees.
The Governance Committee held four sessions during 2015. Its members are –
zz
Salah bin Ali AbalKhail (Chariman)
zz
Ali bin Saleh Al Barrak and
zz
The Executive Committee, headed by the Chairman of the Board of Directors, carries out all the
functions with the authority the Bank entrusts it with, including: assuming responsibility for all
businesses of Al Rajhi Bank, taking quick decisions with respect to urgent matters and issues
related to the business of the Bank.
67
A brief description of the committees of the Board and their function is given below:
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Audit and Compliance
Committee
68
The Audit and Compliance Committee plays a fundamental role in helping the Board of
Directors in supervising the preparation of financial statements, verifying the effectiveness
and efficiency of the internal control system and supervising the business of the Internal Audit
Department and the Compliance Department. Additionally, the Committee recommends the
selection of external auditors and reviews the competence, independence and performance
of the Internal Audit Department, approves the internal audit plan, studies their reports and
monitors the level of compliance in addressing audit observations. Regarding compliance, the
Committee ensures the effectiveness of the Compliance Department in observing all relevant
laws and regulations, approves the annual programme of compliance work and follows up on
its implementation.
The Audit and Compliance Committee held six sessions during 2015. Its members are –
Risks Management
Committee
zz
Moayed bin Issa Al Qurtas (Chairman)
zz
zz
Dr. Sultan bin Mohammed Sultan (Non-Board member)
zz
Faraj Bin Mansour Abootnin (Non-Board member) and
zz
Walid bin Abdullah Tmirk (Non-Board member).
The Risk Management Committee was formed after the election of the current Board of
Directors. The main functions of the Committee are – to help the Board in managing and
assuming responsibility for risks arising from the market, credit, investment and financial
business and protecting the Bank’s reputation. Additionally, it advises the Board on risk
appetite and risk mitigation strategy, internal capital adequacy assessment process, credit
policy, provisions and liquidity policy framework and setting finance and liquidity limits.
The Committee held five sessions during 2015. Its members are –
zz
Alaa bin Shakib Al Jabiri (Chairman)
zz
Bader bin Mohammed Al Rajhi and
zz
Ownership by Board
Members and Senior
Executives
The table below lists the changes in ownership percentages of Board members, senior
executives and their families (wives and children) in respect of the Bank’s shares and debt
items of the Bank or any of its subsidiary companies.
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No.
Name of beneficiary
32,678,804
2.011
35,221,483
2.167
0.156
928,920
0.0572
923,910
0.0569
-0.0003
Sulaiman bin Saleh
bin Abdulaziz Al Rajhi
3,607,120
0.222
4,290,052
0.264
0.042
Saeed bin Omar bin
Qassim Al Issaee
1,512,219
0.093
1,512,219
0.093
0
Salah bin Ali bin Abdullah
Abal Khail
1,350,000
0.083
1,350,000
0.083
0
10.119 165,667,525
10.195
0.076
Mohammed bin Abdullah
6
GOSI
7
Abdulaziz bin Khaled bin
Ali Al Ghefaily
(Representative of GOSI)
164,441,217
0
0
0
0
0
8
Manafea Holding Co.
33,353,641
2.053
33,343,641
2.052
- 0.001
9
Bader bin Mohammed
Al Rajhi (Representative
of Manafea Holding Co.)
12,928
0.0008
14,207
0.0009
0.0001
10
Khaled bin Abdulrahman
Al Qoaiz
1,000
0.0001
1,000
0.0001
0
1,000
0.0001
1,000
0.0001
0
11
12
13
14
Adnan Bin Saleh Al-Olayan
15
Saleh Abdullah Al-Zumai
16
Iain Blacklaw
6,000
0.0004
6,000
0.0004
0
10,400
0.0006
10,400
0.0006
0
0
0
4,461
0.0003
883
0.0001
0
6,082
0.0004
10,372
–
–
0.0006
0.0002
The table below lists the changes in ownership percentages of senior executives and their
families (wives and children) in respect of the Bank’s shares and debt items of the Bank or
any of its subsidiary companies and who are no longer classified as senior executive through
resignation or change of function.
Changes arising from the
resignation or change
of function of senior
executives
No.
Name of beneficiary
At the beginning of 2015
No. of
shares held
1
Sulaiman Bin Abdul Aziz Al Zabin
2
Hisham Ali Alaql
Reason
Ownership
percentage
12,173
0.0007 Ended with resignation
on 17 May 2015
1,583
0.0001 Ended with career
change on 4 March 2015
No. of
shares held
2
5
Composition
change in
Ownership percentage
percentage
points
Ownership
percentage
Abdullah bin Sulaiman
4
At the end of 2015
No. of
shares held
1
3
At the beginning of 2015
69
Shareholdings of Directors,
senior executives and
family members
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Remuneration and
Compensation
The Bank pays the expenses and remunerations of Board members who attend Board sessions,
as well as that of the Board committees. It also pays salaries, remunerations and compensations
to senior executives in accordance with their respective contracts and SAMA requirements.
70
The following is a description of all expenses, remunerations and salaries paid to Board
members and the six senior executives of the Bank, including the CEO and the CFO:
Board and senior
executive compensation
Description
Executive Board
members
Salaries and remunerations
Allowances
Periodic and annual bonuses
Incentive plans
Other remunerations or benefits
paid on a monthly or annual basis
Total
Nil
Non-Executive Board and
independent members
Senior executives
0
9,466,411
375,000
654,026
4,200,000
4,506,795
0
0
0
0
4,575,000
14,627,232
Related Party
Transactions
In the ordinary course of business the Bank transacts business with related parties. The related
party transactions are governed by limits set by the Banking Control Law and the regulations
issued by SAMA. The nature and balances resulting from such transactions are given in Note 28
to the Consolidated Financial Statements.
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71
Regulatory Payments
Regulatory payments
in 2015
Recipient
Zakat due from shareholders
850,000
General Organisation for Social Insurance
216,416
Taxes/fees or any other due payments
Total
Employee Benefits
and Plans
SAR ‘000
8,763
1,075,179
The Bank provides its employees with a number of benefits. Employee benefits are paid during
or at the end of their service and in accordance with Saudi Labour Laws and Bank policies. The
balance for the allocations of end of service reached SAR 614 million at the end of 2015.
An important aspect is the granting Bank shares. It is a programme dedicated to Al Rajhi Bank’s
employees and its local subsidiary companies that offers free shares to senior employees
who are seen as valuable human assets. This enhances long-term commitment from the
beneficiaries. Granting of shares is based on the approval of the Board of Directors upon the
recommendation of the Nomination and Remuneration Committee.
Books of Accounts
The Consolidated Financial Statements are prepared in accordance with the Accounting
Standards for Financial Institutions promulgated by SAMA and the International Financial
Reporting Standards (IFRS). The Bank also prepares its Consolidated Financial Statements to
comply with the requirements of Banking Control Law and the Companies Law in the Kingdom
of Saudi Arabia, and the Bank’s Articles of Association.
The Board of Directors assures the following:
zz
Accounting records have been correctly prepared
zz
The internal supervision and control system has been properly prepared and
efficiently executed
zz
There are no doubts regarding the Bank’s capability to carry on with its activities
The Bank’s regulatory payments during the year 2015 consisted of Zakat due by shareholders,
amounts paid to the General Organisation for Social Insurance (GOSI) represented by the
employees’ insurance contributions, and taxes mainly represented by deductible tax imposed
on foreign investors. Details are given below:
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72
Effectiveness of the
Internal Control
System
Based on an assessment of the framework of internal controls, the Bank in general has a sound
internal control system. It is evaluated continuously, including annual audits, to identify areas
for improvement.
Key controls in operation include the following:
zz
The Bank has set up a general framework of governance, through which appropriate control
is exercised at any level of the Bank. The framework determines the roles and responsibilities
entrusted to all levels, including the Board of Directors and committees thereof and other
administrative committees.
zz
The Bank has a series of policies and procedures that govern its business which are subject
to regular updates and reviews to verify their sufficiency and adequacy.
zz
Most of the Bank’s operations are executed automatically through sophisticated electronic
systems which minimise errors and mitigate opportunities for fraud.
zz
All work in general and major important decisions are supervised through committees
created for this purpose and to ensure the sound conduct of business and protect the safety
and quality of the Bank’s assets.
zz
The Bank has departments specialised in evaluating/monitoring controls, including internal
audit, compliance, anti-fraud and risk management.
zz
Existence of an effective Audit and Compliance Committee which supervises the internal
and external auditors, thereby enhancing their independence. This Committee receives
regular and ad hoc reports on the activities of the units and activities subject to auditing.
zz
Regular supervision of the efficiency and sufficiency of the internal control system based
on an annual plan approved by the Audit and Compliance Committee. Aspects of internal
control are regularly supervised by external auditors and tested by SAMA.
zz
Great attention is paid to the internal control system’s results and every identified issue is
taken into consideration in order to avoid repetition of mistakes.
Accordingly, the Audit and Compliance Committee confirms the integrity of the Bank’s internal
control procedures.
Auditors
During the Ordinary General Assembly of shareholders on 01 March 2015
PricewaterhouseCoopers and KPMG were designated as auditors of the Bank’s accounts for the
fiscal year 2015. The next General Assembly will designate the external auditors for the fiscal
year of 2016, based on a recommendation from the Audit Committee.
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73
Dividend Distribution
The Board of Directors evaluates the risk level under the Banking Control Law and Saudi
Arabian Monetary Agency’s (SAMA) directions, and the following have been taken into
consideration:
zz
The due Zakat amounts scheduled to be paid by shareholders are calculated and the Bank
distributes them to designated parties.
zz
The Bank transfers no less than 25% of what is left from the net profits to the following year
after deducting the Zakat of the regular reserves so that the mentioned reserves become
equal – at least – to the paid capital.
zz
The Bank allocates an amount no less than 5% of the paid capital to the next year’s
transferred amount of profits after deducting the regular reserves and Zakat. This is to be
distributed to shareholders according to what the Board of Directors suggests and what
the General Assembly approves. If the percentage left from the profits due to shareholders
is insufficient to pay the above-mentioned percentage, the shareholders cannot claim it
during the next year(s) and the General Assembly cannot decide to distribute a bigger
percentage of profit than the one suggested by the Board of Directors.
zz
After allocating the amounts mentioned above the rest will be used according to the
recommendations of the Board of Directors and the decision of the General Assembly.
The share of profit is paid to shareholders in the time and place defined by the Board of
Directors. Taking into consideration the performance of the Bank during 2015 the Board
recommends distributing its net profits as follows:
Distribution of profit
Description
SAR ‘000
Profit for the year 2015
7,130,075
Profit retained from the previous year
4,828,845
Interim dividend distribution during the first half of the year 2015
at the rate of SAR 0.50 per share
Proposed final dividend distribution during the second half of the year 2015
at the rate of SAR 1.50 per share net of Zakat
Transfer to statutory reserve
Zakat accruals for year 2015
Retained earnings in FYE 2015
812,500
1,625,000
–
850,000
8,666,300
After the deduction of all expenses and other costs, the Bank distributes its annual net profits
while ensuring adequate retention as reserves for doubtful debts, investment losses, other risks
as well as for investing in its own growth.
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74
Taking risk is an inevitable aspect of the banking business. The aim is therefore to achieve an
appropriate balance between risk and return and to manage any potential adverse effects on
goal achievement and performance.
Financial Risk
Management Framework
Details of the Bank’s financial risk management framework and practices are given in Note 25 to
the Consolidated Financial Statements.
The most important types of financial risks identified by the Group are credit risk, liquidity risk
and market risk. Market risk includes currency risk, profit rate risk, operational risk and price risk.
Credit risk
Credit risk is considered to be the most significant and pervasive risk for the Bank and the
Group. It is the risk that the counterparty to a financial transaction will fail to discharge an
obligation causing the Group to incur a financial loss.
Credit risk arises principally from financing (credit facilities provided to customers) and from
cash and deposits held with other banks. Further, there is credit risk in certain off-balance sheet
financial instruments, including guarantees relating to purchase and sale of foreign currencies,
letters of credit, acceptances and commitments to extend credit.
Credit risk monitoring and control is performed by the Credit and Risk Management Group
which sets parameters and thresholds for the Group’s financing activities. Several business units
are involved in the risk limit control and mitigation process as explained in Note 25-1 to the
Consolidated Financial Statements.
Liquidity risk
Liquidity risk is about the Group being unable to meet its payment obligations associated with
its financial liabilities when they fall due and to replace funds when they are withdrawn. The
consequence may be the failure to meet obligations to repay deposits and financing parties
and fulfil financing commitments.
Liquidity risk can be caused by market disruptions or by credit downgrades, which may cause
certain sources of funding to become unavailable immediately. Diverse funding sources
available to the Group help mitigate this risk. Assets are managed with liquidity in mind,
maintaining a conservative balance of cash and cash equivalents.
The Group’s liquidity risk management process is monitored by the Group’s Asset and Liabilities
Committee (ALCO). Additional details on the role of ALCO, the maturity profile of the Group’s
assets and liabilities are found in Note 25-2 to the Consolidated Financial Statements.
Market risk
Market risk arises when the fair value or future cash flows of a financial instrument fluctuates
due to changes in market prices. It arises on profit rate products, foreign currency and mutual
fund products, all of which are exposed to general and specific market movements and
changes in the level of volatility of market rates or prices such as profit rates, foreign exchange
rates and quoted market prices.
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Risk Management
Practices
Credit and Risk
Management Group
The Credit and Risk Management Group (CRMG), headed by the Group Chief Risk Officer, is an
independent function that is considered strategic to the Bank’s objective of achieving prudent
and effective risk management across the Bank. The function includes credit risk management,
operational risk management and enterprise risk management. The responsibilities and
activities of this function are performed within the risk frameworks and policies approved by
the Board of Directors.
The CRMG provides periodic reports to the Board of Directors and its related committees
across a diverse spectrum of risks, the coverage of which includes credit risks and portfolio
asset quality, internal controls and operational risks, liquidity risks, market risks, reputational
risks and legal risks.
Risk versus return
Adverse business or economic conditions may result in failure by counterparties and customers
to meet their obligations in accordance with agreed terms. Therefore, the Bank aims to balance
its potential risks and returns by setting policies and procedures that help in identifying and
analysing risks faced by the Bank. This process essentially involves agreeing on various risk
thresholds based on the Bank’s risk appetite. These risk management practices are key to the
Bank’s ability to manage its capital effectively and in providing strong and sustainable return
to shareholders.
Board oversight
The Board Risk Committee has oversight of the Bank’s risk management framework and
monitors the Bank’s performance within the boundaries established by its risk appetite and
advises the Board on all risk management matters. It is chaired by an independent Director. The
risk management function operates within the regulatory framework for risk management set
out by SAMA. The Bank’s internal capital adequacy assessment process (ICAAP) encapsulates
the Bank’s risk management framework and sets out the Bank’s risk appetite, risk management
approach and primary risk controls. The ICAAP is an ongoing process and is reviewed and
approved by the Board and submitted to SAMA on an annual basis.
Concentration risk
The Bank operates a wide network of branches serving a broad customer base across a diverse
set of industry sectors. This diversity overcomes concentration risks and provides granularity
that is important for a stable level of deposits that supports the liquidity of the Bank.
The Group, being Shari’a compliant, is not exposed to market risks from speculative operations
such as hedging, options, forward contracts and derivatives. However, its exposure to market
risks arising from banking operations are analysed and mitigated under the following risk types:
profit rate risk, foreign currency risk, price risk and operational risk, as discussed in Note 25-3 to
the Consolidated Financial Statements.
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Market risk exposures are monitored by the Bank’s Treasury and the Credit and Risk
Management Group and reported to ALCO on a monthly basis. ALCO deliberates on the risks
taken to ensure that they are appropriate.
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Outlook
Credit rating
S&P
Fitch
Moody’s
Capital Intelligence
Going forward the Bank will retain focus on increasing its customer base by promoting its
products for retail, corporate and SME sectors while ensuring that risk management practices
continue to adhere with regulatory requirements, international standards and best practices.
The risk management practices regulate the process of on-boarding customers, issuance of
credit and provision of a range of products and services to customers. These characteristics
enable the Bank to take a long-term view and have confidence in lending through the
business cycle.
The Bank has consistently maintained its high credit rating with international credit rating
agencies. However, following the recent downgrade of the country rating for the KSA there was
a consequent downgrade in ratings of all domestically systemically important banks (D-SIBs)
within the KSA.
Al Rajhi Bank being one of the D-SIBs had to face lowering of its long-term rating from ‘A-’ to
‘BBB+’ while the short-term rating was at ‘A-2’ in March 2016. Reflecting the Bank’s resilient
financial profile, the outlook was ‘stable’ in the expectation of a moderate yet manageable
increase in credit losses and lower loan and deposit growth expectations. It is noted that
despite the above, S&P has assessed the Bank’s capital and earnings position as ‘strong’.
The international rating agency Fitch downgraded the Bank’s rating to ‘A’ in April 2016 for longterm issuer default rating and affirmed the F1 rating for short-term issuer default rating. Due to
the negative country outlook, Fitch put the Bank on ‘negative’ outlook in April 2016.
Moody’s long-term rating for the Bank is A1, short-term rating is P-1 and the outlook is ‘stable’.
Capital Intelligence rating agency awarded the Bank a rating of ‘AA-’ for its financial strength
and a ‘negative’ foreign currency outlook.
All the rating agencies have unanimously reflected their rating impact on Al Rajhi Bank only
in the context of a relative sovereign rating review and downgrade. They reaffirm our financial
soundness and the strength and sustainability of Al Rajhi Bank’s financial position.
Messages
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Compliance protects the reputation and credibility of the institution; protects different
stakeholders including shareholders and depositors and provides safeguards against legal
sanctions and other regulatory and financial consequences.
Accordingly, compliance at Al Rajhi Bank is a comprehensive and multi-faceted responsibility
as set out in the Board-approved Compliance Policy. It starts with the Board of Directors and
senior management and ends with all employees, each according to the powers and tasks
entrusted to them. The Policy also defines the relationship between the compliance function
and other control functions such as audit, risk management, legal and anti-fraud management
as well as others including operations, human resources and customer services.
Framework
Al Rajhi Bank strictly follows all rules and regulations applicable to banks operating in Saudi
Arabia as well as those applicable in countries where our branches and subsidiaries operate.
The former include Saudi Arabian Monetary Agency (SAMA), Capital Market Authority (CMA),
Ministry of Commerce and other regulatory bodies. In addition, Al Rajhi Bank complies with
best international practices such as the Basel Committee Principles pertaining to the setting up
of compliance units at banks, resolutions or recommendations issued by the Financial Action
Task Force (FATF), Wolfsburg Standards and others. In executing the transactions, Al Rajhi Bank
also follows applicable rules and regulations of various countries and jurisdictions, including
the US and the UK.
Implementation
The Bank maintains written guidelines to staff on the appropriate implementation of
compliance laws, rules, standards and other relevant documents such as compliance manuals,
internal codes of conduct and best practice guidelines. These are approved by the Board and
are subject to periodic reviews.
The Board’s commitment and support of the compliance function within Al Rajhi Bank is further
demonstrated through oversight by the Audit and Compliance Committee. The Committee’s
main focus is on enhancing the compliance culture across all functions of the Bank, which
is supported through formal training of staff, updates through internal awareness links and
circulars as well as access to all applicable rules and regulations through the Bank’s intranet.
Responsibility
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Our approach to compliance is both preventive and corrective. On the preventive side we work
on promoting a compliance culture, updating and making available all applicable regulations
and circulars, education and training, regular awareness messages etc. On the corrective side,
whenever violations are discovered we conduct investigations and organise workshops in
collaboration with relevant departments to analyse the violation, provide recommendations
and ensure the execution of corrective action plans.
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Compliance
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Relationship with
Regulators
The Bank maintains regular dialogue with regulatory bodies, especially SAMA, that ensures
continuous improvement of the effectiveness of the compliance framework. This commitment
extends to the participation in various forums, including committees established by SAMA with
members from banks operating in Saudi Arabia. Such participation resulted in several initiatives
and recommendations that have helped improve the banking industry in general and the
compliance culture in particular.
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Compliance with
Shari’a Principles
An independent Shari’a Board with a membership of a number of Shari’a scholars, has been in
existence ever since the Bank was founded. The Shari’a Board's regulations are approved by the
General Assembly and all business activities of the Bank are in accordance with Islamic banking
principles. During the year under review, the Shari’a Board held 40 meetings and issued
60 decisions and 230 guidelines.
The Shari’a Board is served by two departments:
The Shari’a Board Secretariat studies and prepares banking products, agreements and contracts
for the various units within the Bank. It also submits Shari’a research and studies to the Shari’a
Board. More than 230 such studies were prepared during 2015.
The Shari’a Supervisory Department ensures Bank-wide compliance with the decisions and
instructions of the Shari’a Board. This is implemented through Shari’a auditing through
automated systems as well as field visits in accordance with professional custom. The
Department also prepares the annual plan and operational quarterly plans, and identifies goals,
tools and methods of auditing.
Compliance Initiatives
at the Bank
Al Rajhi Bank is committed to the global fight against money laundering, terrorist financing and
other criminal activity.
International
consultancy support
Given the increasing regulatory requirements we have taken this opportunity to introduce
significant enhancements to our compliance framework and practices. These measures were
rolled out with consultancy support from our key partners Ernst & Young (EY) and Promontory
Financial Group over the past few years.
zz
The Bank partnered with EY in November 2013 to undertake a comprehensive review of our
Know Your Customer (KYC), anti-money laundering (AML) and Sanctions processes, systems,
data, people capabilities and governance arrangements. We initiated a Transformation
Programme to design and implement best-in-class AML, Sanctions and KYC controls.
zz
We engaged Promontory in January 2014 to carry out a comprehensive assessment of the
Bank’s compliance systems and AML framework. The resulting recommendations provided
the basis for a well-structured roadmap for implementation.
zz
The Bank continues to follow the Board-approved compliance roadmap with additional
improvements underway.
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These were underscored by the publication of a comprehensive vision for ensuring the Bank’s
compliance with AML, combating terrorist financing (CTF) and sanctions screening, while
promoting a fraud prevention culture. To remain truly world-class, the Bank has put in place a
strategy based on three pillars:
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Strengthened reputation: To be regarded in Saudi Arabia and across the GCC as the leading
bank with regard to AML/CTF/sanctions frameworks, and as an institution that encourages
and continually invests in an effective controls based culture.
zz
A stable and risk conscious business model that inspires trust with regulators and the
international banking community: To develop strong global correspondent banking
relationships, with enhanced cost efficiencies and improved customer experience.
zz
‘Established’ state of maturity: To achieve an ‘established’ state of maturity for governance,
controls, processes, technology and people in its AML/CTF/sanctions frameworks, thus
mainstreaming all core elements.
Going forward, Al Rajhi Bank has taken several policy decisions and actions to achieve its overall
compliance and AML strategy by enhanced investments in governance, process, technology,
data and people.
Key Achievements
Management changes
System changes and
enhancements
zz
The Bank’s Board of Directors appointed a new Chief Executive Officer in May 2015, who
previously held the position of Group Executive Director and CEO for Global Consumer
Banking at Standard Chartered Bank after spending 22 years with General Electric (GE) as
Chairman and CEO GE Greater China and President GE Capital Asia.
zz
A number of other senior appointments were also made, including a new Chief Financial
Officer (CFO), Chief Risk Officer (CRO), Chief Compliance Officer and Treasurer.
zz
Technology enabled controls and processes were embedded across the KYC function,
including major upgrades to the core banking system to enhance the quality of KYC data
captured at customer on-boarding.
zz
A major exercise was undertaken to update/cleanse the Bank’s customer KYC data using
Ministry of Interior’s records.
zz
KYC was made more effective by linking core banking systems with the Kingdom’s Ministry of
Interior, Ministry of Commerce & Industry and updating the active customer data using the
Ministry’s database.
zz
Implemented an AML transaction monitoring system (SAS platform) coupled with continuous
fine-tuning and building additional system rules which have resulted in significant
improvement in the quality of alerts.
The Bank-wide AML transformation programme makes the Board of Directors and senior
management responsible for establishing a ‘tone at the top’ culture to address the
importance of adhering to AML compliance and sanctions risks, while strengthening the
Bank’s governance model.
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AML transformation
programme
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80
Organisational changes
Process changes
zz
Implemented enhance Customer Screening and Payment Filtering solutions using industry
leading applications, FircoSoft and SWIFT Cloud.
zz
Implemented SWIFT Cloud solution to screen all SWIFT messages against relevant lists.
zz
The Bank has designed a robust Management Information (MI) dashboard that provides
automated information on the Bank’s Compliance and Financial Crime risk profile.
zz
Major enhancements on Group compliance organisation structure have been taken, with the
revised structure addressing global financial institutions' requirements and leading practices.
zz
A new unit has been established within the Compliance Department for identifying and
monitoring high risk customers and ensuring that they are subject to enhanced due
diligence and approval processes.
zz
A Branch Support Unit has been established and equipped with resources to continuously
educate and train the branch network on enhancements to KYC process, systems and
controls.
zz
A Quality Control Unit has been established and equipped to monitor the quality of KYC
process and results. An enforcement framework (based on KYC error rates) was rolled out to
improve the control conscious behaviour in the branch network.
zz
The Compliance and AML functions were reorganised, leading to several leadership
appointments and a 40% increase in the headcount; while the Bank continues to aggressively
recruit specialists for AML work.
zz
A specialised Central Sanctions Unit was established with a mandate to screen customers and
transactions (all payment gateways), coupled with training of staff on enhanced sanctions
systems, processes and controls while recruitment of additional resources is underway.
zz
An enhanced customer Risk Assessment Methodology (RAM) model developed using SAS
platform interfaced with core-banking application. Improved customer due diligence (CDD)
and enhanced due diligence (EDD) procedures have been implemented.
zz
The Bank’s retail customer on-boarding process enhanced which include system interfaces
with the Ministry of Interior – Yakeen service
zz
Customer on-boarding and update processes for ‘legal entity’ customers have been defined.
zz
The Bank’s systems interface with Commercial Register (Ministry) data – Watheq service.
zz
New improved account opening forms and KYC checklists were rolled out.
zz
Improved KYC forms, AML questionnaires and RAM model have been implemented for the
financial institutions. The Bank undertook a major clean up exercise to update the KYC of the
financial institution portfolio.
zz
Established a control process for ongoing monitoring of financial institutions relationships,
and several de-risking decisions were taken over the past several months to minimise
exposure to higher risk geographies.
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zz
The entire customer and beneficiary database was subject to a comprehensive back book
screening review to ensure that the Bank had no relationship that would have been flagged
as being on any of the globally recognised sanctions lists.
zz
All USD SWIFT messages are subject to an additional manual review prior to release, with
the Payment Operations Unit, independent of the front office, checking the purpose of
remittances and adequacy of supporting documents for commercial transactions.
zz
The Bank continued to actively recruit the best talent for compliance and AML in order to
ensure successful implementation of its transformation programme and achieve its strategic
objectives.
zz
A comprehensive shield programme, built on the ‘tone-from-the-top’ principle, was launched
to train Bank staff on compliance and AML topics.
zz
Through the implementation of technology driven processes, continuous training and
awareness, the effectiveness of the Bank’s compliance and AML functions have improved
significantly over the year under review.
Going Forward
The implementation of the transformation programme is in progress and much has already
been achieved.
The Bank launched a programme in building a world-class compliance function. As a first step,
the Bank initiated Bank-wide compliance risk assessment exercise and monitoring programme.
With the continued commitment and full support of Al Rajhi Bank’s Board of Directors, we will
deploy further resources and enhancements to ensure that this initiative is further developed
and maintained at international standards.
The alert investigation and suspicious transactions reporting processes were improved
significantly.
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People enhancement
zz
Meritocracy
Defining, differentiating and reinforcing excellence in people
Identity
84
88
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Identity
Financial Reports
84
For nearly six decades Al Rajhi Bank has played an important role in driving socio-economic
development in the Kingdom. Guided by our Islamic culture, we continue to drive the growth
of our business while supporting social, economic and environmental development in the
communities in which we operate.
A Unique Culture
Al Rajhi Bank’s purpose has always been to be a trusted leader delivering innovative financial
solutions, be it in Saudi Arabia or in our international markets. To deliver on this vision we
remain committed to maintaining the unique culture of the Bank and our focus on care,
humility, transparency, service and innovation – all of which reflect our history, heritage and
ambition for the future.
Our culture is heavily
guided by the principles
of Islamic banking
We have a strong focus
on fairness, work ethics,
wealth distribution,
risk sharing, and social
and economic justice
All our financial products and services are
influenced by Islamic teachings
Guided by these values, we also embrace global best practices and welcome international
partners. Our expansive network of banking partners, customers, investors and consultants
around the world, as well as our numerous international awards, are a testament to our
business model and operational excellence.
Socio-economic
Development
Our commitment to sustainable growth and development is most pronounced in our home
market in Saudi Arabia, due in part to our unrivalled local network in the country and the fact
that we have been successfully operating in the Kingdom for well over half a century.
Al Rajhi Bank has supported the Saudi Government on several socio-economic initiatives over
the years, and we are proud of this partnership –
zz
Being at the forefront to support economic and social welfare programmes
zz
Innovating financing schemes for home ownership
zz
Assisting the country’s young population in meeting the demand for education and access
to finance as they move into formal employment
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Facilitating payments for social security and unemployment benefits
zz
Enabling remote, dispersed communities access the formal banking sector through the
largest branch network in the country.
We continue to make significant investments to grow our network across all cities, towns and
villages of Saudi Arabia, offering banking products and services of international standards to
our customers.
An Unparalleled Network
Headquartered in Riyadh, we are one of the largest financial institutions in Saudi Arabia –
zz
Total assets of SAR 316 billion
zz
Largest customer base of any bank in Saudi Arabia
zz
Largest branch and ATM network in the Kingdom, with 525 branches and 4,500 ATMs
zz
Processing over 70 million transactions each month; four of every ten banking transactions
completed in Saudi Arabia are done through Al Rajhi Bank
As the world’s largest Islamic bank, we provide customers and partners with the strength and
stability of a world-class banking organisation. At the same time, we leverage our reputation
and scale to introduce new policies, processes and infrastructure that are necessary in today’s
rapidly evolving banking environment.
Strong Performance
Al Rajhi Bank has weathered many a storm and continues to deliver strong results in an
increasingly competitive environment. We led the Saudi banking sector across a number of key
performance indicators as of December 2015 –
zz
#1 bank in the Middle East for remittances
zz
#2 in loans and advances
zz
#2 in market capitalisation (banks and financial institutions)
zz
Strong long-term ratings: S&P ‘A’, Fitch ‘A+’, Moody’s ‘A’
zz
Well capitalised: Tier I at 19.7% and Tier I and II at 20.8%
A Lifeline to
Expatriate Workers
The services we provide remain vital for many millions of people living and working in
Saudi Arabia. Our remittance services - accessible, reliable and fast – enable over six million
predominantly blue collar expatriate workers to support their families across a number of
developing countries.
Developing the local SME sector with financing and much more
zz
85
zz
Messages
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Financial Reports
International
Standards
In addition to elevating our product offering and enhancing our geographical reach, we
are focused on developing a best-in-class compliance infrastructure. As one of the most
progressive banks in the region, we are –
86
zz
Investing in international standards on compliance
zz
Attracting and retaining a deep bench-strength of compliance experts
zz
Delivering on our clearly defined compliance programme to transform and enhance our
existing frameworks
These initiatives enable us to deliver on our vision and provide the local and international
communities we serve with international standards of security.
Venturing Overseas
We were the first Arab bank to start operations in South East Asia, initially opening 14 branches
in Kuala Lumpur and around the Klang Valley. Today, we successfully operate 24 branches in
Malaysia. In addition, we operate six branches in Jordan including four in Amman, and one
branch in Kuwait to offer our customers a full suite of Islamic banking products and services.
Building for the Future
Our business strategy is based on an overarching goal: to be a soundly managed, trusted and
low-risk institution operating in an increasingly global environment.
Built on a heritage, it is about building for our future.
As one of the most progressive banks in the Kingdom, we embrace the latest in technology to
offer cutting edge products and services to customers, while continuing to expand our physical
and virtual distribution channels.
Likewise, our new state-of-the-art head office building that is nearing completion will be an
iconic landmark that reflects the spirit and character of the Bank and its stature in the Kingdom,
the region and the world.
Built on a heritage, it will be a building for the future.
Messages
Business Model
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Identity
Recognition
Financial Reports
F1
OO May
R
P
8
of
1
16
20
87
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Financial Reports
88
We re-established our unique brand to cut the clutter and produced a new, uniform identity as
discussed earlier under brand refresh (page 42).
The new identity route
The building block of Al Rajhi Bank’s logo is a hexagon.
...is brought to life in
communications
Strands of the hexagon in various shades of blue are made to flow from one point to another
while the hexagon progressively morphs into any idea we want.
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...internally
The head office saw a makeover during the weekend of 18 December 2015 followed by
all branches.
...and externally
Hoardings, ATMs and the like too were revamped to have the same standard facade.
Modesty and humility
Being humble in thought, word and deed
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Financial
Reports
Independent Auditors’ Report Consolidated Statement of Financial Position
Consolidated Statement of Changes in Shareholders’ Equity
92
94
95
96
97
98
99
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Independent Auditors’ Report Management Discussion and Analysis
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92
KPMG Al Fozan & Partners
Certified Public Accountants
TO THE SHAREHOLDERS OF AL RAJHI BANKING
AND INVESTMENT CORPORATION
(A SAUDI JOINT STOCK COMPANY)
We have audited the accompanying consolidated financial
statements of Al Rajhi Banking and Investment Corporation
(the “Bank”) and its subsidiaries (collectively referred to as
“the Group”), which comprise the consolidated statement
of financial position as at 31 December 2015 and the
consolidated statements of income, comprehensive income,
changes in shareholders’ equity and cash flows for the
year then ended, and a summary of significant accounting
policies and other explanatory notes from (1) to (36). We
have not audited note (37), nor the information related
to “Disclosure under Basel III framework” cross-referenced
therein, which is not required to be within the scope of
our audit.
Management’s Responsibility for the
Consolidated Financial Statements
Management is responsible for the preparation and fair
presentation of these consolidated financial statements
in accordance with Accounting Standards for Financial
Institutions issued by the Saudi Arabian Monetary Agency
(“SAMA”), International Financial Reporting Standards, the
provisions of the Regulations for Companies, the Banking
Control Law in the Kingdom of Saudi Arabia and the Bank’s
By-Laws. In addition, management is responsible for such
internal controls as management determines is necessary
to enable the preparation of the consolidated financial
statements that are free from material misstatement,
whether due to fraud or error.
Auditors’ Responsibility
Our responsibility is to express an opinion on these
consolidated financial statements based on our audit. We
conducted our audit in accordance with the generally
accepted auditing standards in the Kingdom of Saudi Arabia
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 the auditors’ 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, the auditors consider
internal control relevant to the Group’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 Group’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.
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93
Opinion
In our opinion, the consolidated financial statements taken
as a whole:
zz
present fairly, in all material respects, the consolidated
financial position of the Group as at 31 December 2015,
its consolidated financial performance and consolidated
cash flows for the year then ended in accordance with
Accounting Standards for Financial Institutions issued
by SAMA and with International Financial Reporting
Standards; and
zz
comply with the relevant provisions of the Regulations for
Companies, the Banking Control Law in the Kingdom of
Saudi Arabia and the Bank’s By-Laws in so far as they affect
the preparation and presentation of the consolidated
financial statements.
PricewaterhouseCoopers
P.O. Box 8282
Riyadh 11482
Kingdom of Saudi Arabia
KPMG AI Fozan & Partners
P.O. Box 92876
Riyadh 11663
Mohammed A. Al Obaidi
Certified Public Accountant
Registration No. 367
Khalil Ibrahim Al Sedais
Certified Public Accountant
Registration No. 371
February 18, 2016
(9 Jumada’I 1437H)
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Consolidated Statement of Financial Position
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94
Notes
2015
(SAR ’000)
2014
(SAR ’000)
Cash and balances with Saudi Arabian Monetary Agency (“SAMA”) and other central banks
4
27,053,716
33,585,377
Due from banks and other financial institutions
5
26,911,056
16,516,208
Investments
6
39,876,864
42,549,623
Financing, net
7
210,217,868
205,939,960
Investment property
8
1,350,000
Property and equipment, net
8
5,578,931
4,813,941
Other assets
9
4,631,213
4,306,446
315,619,648
307,711,555
10
4,558,224
2,135,237
11
256,227,769
256,077,047
12,14
8,194,601
7,603,077
268,980,594
265,815,361
As at 31 December
Assets
Total Assets
–
Liabilities and Shareholders’ Equity
Liabilities
Due to banks and other financial institutions
Customer deposits
Other liabilities
Total Liabilities
Shareholders’ Equity
Share capital
13
16,250,000
16,250,000
Statutory reserve
14
16,250,000
16,250,000
Other reserves
14
2,997,754
2,598,599
8,666,300
4,828,845
2,475,000
1,968,750
46,639,054
41,896,194
315,619,648
307,711,555
Retained earnings
Proposed gross dividends and Zakat
Total Shareholders’ Equity
Total Liabilities and Shareholders’ Equity
22
The accompanying notes from pages 99 to 161 form an integral part of these Consolidated Financial Statements.
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2014
(SAR ’000)
Gross financing and investments income
16
10,258,380
10,212,518
Return on customers, banks and financial institutions, time investments
16
(299,438)
(395,198)
Net Financing and Investments Income
16
9,958,942
9,817,320
Fee from banking services, net
17
2,704,091
2,738,465
979,566
952,056
103,176
159,133
13,745,775
13,666,974
2,661,043
2,514,103
243,718
257,033
Income
Exchange income, net
Other operating income
18
Total Operating Income
Expenses
Salaries and employee-related benefits
19
Rent and premises-related expenses
8
374,099
412,716
20
1,374,240
1,330,328
7–3
1,958,025
2,312,179
28
4,575
4,443
Total Operating Expenses
6,615,700
6,830,802
Net Income for the Year
7,130,075
6,836,172
13 & 21 1,625 million
1,625 million
4.39
4.21
Depreciation and amortisation
Other general and administrative expenses
Impairment charge for financing, net
Board of Directors’ remuneration
Weighted average number of shares outstanding
Basic and diluted earnings per share (in SAR)
21
2015
(SAR ’000)
95
Notes
For the years ended 31 December
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96
Notes
2015
(SAR ’000)
2014
(SAR ’000)
7,130,075
6,836,172
Other Comprehensive Income:
Items that are or may be reclassified to consolidated statement of income in subsequent
periods
– Available-for-sale investments
– Net change in fair value
14
(206,914)
3,679
– Net amounts transferred to consolidated statement of income
14
155,010
(133)
(159,878)
(68,561)
6,918,293
6,771,157
– Exchange difference on translation of foreign operations
Total Other Comprehensive Income for the Year
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Other
reserves
(SAR ’000)
(SAR ’000)
(SAR ’000)
Balance at 1 January 2015
Transfer to other reserves
22
Dividends paid for the second half of 2014
Interim dividends paid for the first half of 2015
22
Prior period adjustment
Net change in fair value of available-for-sale
investments
Net amounts transferred to consolidated
statement of income
Net movement in foreign currency
translation reserve
Net income recognised directly in equity
Total comprehensive income for the year
Employees share plan
14
Transfer to accrued Zakat under
other liabilities
12 & 14
14 & 22
16,250,000
–
–
–
–
16,250,000
–
–
–
–
2,598,599
750,000
–
–
–
Balance at 31 December 2015
16,250,000
Retained Proposed Gross
earnings dividends and
Zakat
(SAR ’000)
(SAR ’000)
Total
(SAR ’000)
2015
4,828,845
–
–
(812,500)
(5,120)
1,968,750
(750,000)
(1,218,750)
–
–
41,896,194
–
(1,218,750)
(812,500)
(5,120)
–
–
(206,914)
–
–
(206,914)
–
–
155,010
–
–
155,010
–
–
–
–
–
–
–
–
–
–
(159,878)
(211,782)
–
(211,782)
4,313
–
–
7,130,075
7,130,075
–
–
–
–
–
–
(159,878)
(211,782)
7,130,075
6,918,293
4,313
–
–
–
–
(143,376)
–
–
(2,475,000)
–
2,475,000
(143,376)
–
16,250,000
2,997,754
8,666,300
2,475,000
46,639,054
15,000,000
–
–
15,000,000
–
–
2,161,292
750,000
–
4,086,423
–
–
2,250,000
(750,000)
(1,500,000)
38,497,715
–
(1,500,000)
–
1,250,000
–
–
–
1,250,000
2014
Balance at 1 January 2014
Transfer to other reserves
Dividends paid for the second half of 2013
Interim dividends paid for the first half
of 2014
Bonus shares issued
Transferred to statutory reserves
Net change in fair value of available-for-sale
investments
Net amounts transferred to consolidated
statement of income
Net movement in foreign currency
translation reserve
Net income recognised directly in equity
Total comprehensive income for the year
Employees shares plan
Transfer to accrued Zakat under
other liabilities
Balance at 31 December 2014
22
22
–
–
–
(1,625,000)
(1,250,000)
(1,250,000)
–
–
–
(1,625,000)
–
–
–
–
3,679
–
–
3,679
–
–
(133)
–
–
(133)
14
–
–
–
–
–
–
–
–
–
–
(68,561)
(65,015)
–
(65,015)
10,760
–
–
6,836,172
6,836,172
–
–
–
–
–
–
(68,561)
(65,015)
6,836,172
6,771,157
10,760
12 & 14
14 & 22
–
–
–
–
(258,438)
–
–
(1,968,750)
–
1,968,750
(258,438)
–
2,598,599
4,828,845
1,968,750
41,896,194
16,250,000
16,250,000
Statutory
reserve
97
Share
capital
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98
2015
(SAR ’000)
2014
(SAR ’000)
7,130,075
6,836,172
100,939
374,099
(5,861)
(159,878)
1,958,025
2,496
412,716
(25,615)
(68,561)
2,312,179
(6,858)
4,313
(1,738)
10,760
(1,950,858)
(11,761,834)
(6,235,933)
(334,906)
(329,887)
(1,189,337)
(3,812,319)
(21,438,914)
3,572
(575,268)
2,422,987
150,722
591,524
(1,504,472)
24,487,934
1,458,929
(8,053,331)
6,908,534
(1,141,995)
(45,000)
(514,990)
3,421,670
(1,350,000)
8,767
(912,215)
–
(133)
(2,977,216)
–
31,621
378,452
(3,857,943)
Dividends paid
Zakat paid
(2,031,250)
(143,376)
(3,125,000)
(258,438)
Net cash used in financing activities
(2,174,626)
(3,383,438)
NET CHANGE IN CASH AND CASH EQUIVALENTS
(9,849,505)
(332,847)
Cash and cash equivalents at the beginning of the year
22,231,985
22,564,832
12,382,480
22,231,985
Net change in fair value less realized (loss)/gain from available-for-sale investments
(51,904)
3,546
Transfer of Zakat from other reserves to other liabilities
143,376
258,438
Notes
CASH FLOWS FROM OPERATING ACTIVITIES
Adjustments to reconcile net income to net cash from operating activities:
Loss on investments held at fair value through statement of income (FVSI)
Gain on sale of property and equipment
Foreign currency translation reserve
Impairment charge for financing
Share of profit in an associate
Expenses of employees’ share plan
Net (increase)/decrease in operating assets
Statutory deposit with SAMA and central banks
Financing
Investments held as FVSI
Other assets, net
Net increase/(decrease) in operating liabilities
Customers’ deposits
Other liabilities
18
8
18
7–3
18
Net cash (used in)/provided by operating activities
CASH FLOWS FROM INVESTING ACTIVITIES
Purchase of property and equipment
Investment in an associate
Available-for-sale investments
Investments recorded at amortised cost
Purchase of investment property
Proceeds from sale of property and equipment
8
Net cash provided by/(used in) investing activities
CASH FLOWS FROM FINANCING ACTIVITIES
CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR
23
Non-Cash Transactions:
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Business Model
for the years ended 31 December 2015 and 2014
Stewardship
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Financial Reports
(a) Incorporation and operation
Shareholding %
2015
2014
Al Rajhi
Development
Company –
KSA
100%
100%
A limited liability company
registered in the Kingdom of
Saudi Arabia to support the
mortgage programmes of
the Bank through transferring
and holding the title deeds of
real estate properties under
its name on behalf of the
Bank, collection of revenue
of certain properties sold by
the Bank , provide real estate
and engineering consulting
services, provide documentation
service to register the real estate
properties and overseeing
the evaluation of real estate
properties.
Al Rajhi
Corporation
Limited –
Malaysia
100%
100%
A licensed Islamic Bank under
the Islamic Financial Services
Act 2013, incorporated and
domiciled in Malaysia.
Al Rajhi
Capital
Company –
KSA
100%
100%
Saudi Arabia to act as principal
agent and/or to provide
brokerage, underwriting,
managing, advisory, arranging
and custodial services.
Al Rajhi Bank –
Kuwait
100%
100%
A foreign branch registered
with the Central Bank of Kuwait.
Al Rajhi Bank –
Jordan
100%
100%
A foreign branch operating in
Hashimi Kingdom of Jordan,
providing all financial, banking,
and investments services
and importing and trading in
precious metals and stones in
accordance with Islamic Shari’a
rules and under the applicable
banking law.
99%
99%
registered in the Kingdom
of Saudi Arabia to act as an
agent for insurance brokerage
activities per the agency
agreement with Al Rajhi
cooperative insurance company.
100%
100%
The Bank operates under Commercial Registration
No. 1010000096 and its Head Office is located at the
following address:
Al Rajhi Bank
Olaya Street
P.O. Box 28
Riyadh 11411
The objectives of the Bank are to carry out banking and
investment activities in accordance with its Articles of
Association and Bylaws, the Banking Control Law and the
Council of Ministers’ Resolution referred to above. The Bank
is engaged in banking and investment activities for its own
account and on behalf of others inside and outside the
Kingdom of Saudi Arabia through 569 branches including
the branches outside the Kingdom as at 31 December 2015
(2014: 552 branches) and 12,374 employees as at
31 December 2015 (2014: 11,761 employees). The Bank has
established certain subsidiary companies (together with the
Bank hereinafter referred to as ‘the Group’) in which it owns
all or the majority of their shares as set out below:
Al Rajhi
Takaful
Agency
Company –
KSA
Al Rajhi
company for
management
services – KSA
Saudi Arabia to provide
recruitment services.
Al Rajhi Banking and Investment Corporation, a Saudi Joint
Stock Company, (the ‘Bank’), was formed and licensed
pursuant to Royal Decree No. M/59 dated 3 Dhul Qadah
1407H (corresponding to 29 June 1987) and in accordance
with Article 6 of the Council of Ministers’ Resolution No. 245,
dated 26 Shawal 1407H (corresponding to 23 June 1987).
Names of
subsidiaries
99
1. General
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100
Since the subsidiaries are wholly or substantially-owned
by the Bank, the non-controlling interest is insignificant
and therefore not disclosed. All the above-mentioned
subsidiaries have been consolidated.
(b) Shari’a Authority
As a commitment from the Bank for its activities to be
in compliance with Islamic Shari’a legislations, since its
inception, the Bank has established a Shari’a Authority to
ascertain that the Bank’s activities are subject to its approval
and control. The Shari’a Authority had reviewed several
of the Bank’s activities and issued the required decisions
thereon.
2. Basis of Preparation
(a) Statement of compliance
The Consolidated Financial Statements are prepared in
accordance with the Accounting Standards for Financial
Institutions promulgated by the Saudi Arabian Monetary
Agency (‘SAMA’) and International Financial Reporting
Standards (‘IFRS’) as issued by the International Accounting
Standards Board (‘IASB’). The Bank also prepares its
Consolidated Financial Statements to comply with the
requirements of Banking Control Law and the provision of
Regulations for Companies in the Kingdom of Saudi Arabia
and the Bank’s Articles of Association.
(b) Basis of measurement and preparation
The Consolidated Financial Statements are prepared under
the historical cost convention except for the measurement
at fair value of investments held as fair value through income
statement (‘FVSI’) and available-for-sale.
The Bank presents its statement of financial position in order
of liquidity. An analysis regarding recovery or settlement
within 12 months after the reporting date (current) and
more than 12 months after the reporting date (non–current)
is presented in Note 25-2.
(c) Functional and presentation currency
The Consolidated Financial Statements are presented in
Saudi Arabian Riyal (‘SAR’), the Bank’s functional currency
and are rounded-off to the nearest thousand except
otherwise indicated.
(d) Critical accounting judgments, estimates and
assumptions
The preparation of Consolidated Financial Statements in
conformity with IFRS requires the use of certain critical
accounting estimates and assumptions that affect the
reported amounts of assets and liabilities. It also requires
management to exercise its judgments in the process of
applying the Bank’s accounting policies. Such estimates,
assumptions and judgments are continually evaluated
and are based on historical experience and other factors,
including obtaining professional advice and expectations of
future events that are believed to be reasonable under the
circumstances. Significant areas where management has
used estimates, assumptions or exercised judgments are
as follows:
The key assumptions concerning the future and other key
sources of estimation uncertainty at the reporting date,
that have a significant risk of causing a material adjustment
to the carrying amounts of assets and liabilities within the
next financial year, are described below. The Bank based its
assumptions and estimates on parameters available when
the Consolidated Financial Statements were prepared.
Existing circumstances and assumptions about future
developments, however. may change due to market changes
or circumstances beyond the control of the Bank. Such
changes are reflected in the assumptions when they occur.
(i) Impairment on financing
The Bank reviews its financing portfolios to assess specific
and collective impairment on a quarterly basis.
The specific impairment applies to financing evaluated
individually for impairment and is based on 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 judgments about a customer’s financial
situation and the net realisable value of any underlying
collateral. This evidence may include observable data
indicating that there has been an adverse change in the
payment status of clients in a group. The methodology and
assumptions used for estimating both the amount and the
timing of future cash flows are reviewed regularly to reduce
any differences between loss estimates and actual loss
experience. Each impaired asset is assessed on its merits and
the workout strategy and estimate of cash flows considered
recoverable are independently approved by the credit
risk function.
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(ii) Impairment of available-for-sale and
sukuk investments
The Bank exercises judgment to consider impairment on the
available-for-sale equity investments at each reporting date.
This includes determination of a significant or prolonged
decline in the fair value below its cost. In assessing whether
it is significant, the decline in fair value is evaluated against
the original cost of the asset at initial recognition. The
determination of what is ‘significant’ or ‘prolonged’ requires
judgment. In making this judgment, the Bank evaluates
among other factors, the normal volatility in share price,
deterioration in the financial health of the investee, industry
and sector performance, changes in technology and
operational and financing cash flows. The Bank reviews
its investments in sukuks at each reporting date to assess
whether they are impaired. This requires similar judgment
as applied to individual assessment of financing. In addition,
the Bank considers impairment to be appropriate when
there is evidence of deterioration in the financial health of
the investee, industry and sector performance, changes in
technology and operational and financing cash flows.
The Bank measures financial instruments and non-financial
assets at fair value at each balance sheet date.
Fair value is the price that would be received to sell an
asset or paid to transfer a liability in an orderly transaction
between market participants at the measurement date. The
fair value measurement is based on the presumption that
the transaction to sell the asset or transfer the liability takes
place either:
zz
zz
In the principal market for the asset or liability, or
In the absence of a principal market, in the most
advantageous market for the asset or liability
The principal or the most advantageous market must be
accessible to by the Bank.
The fair value of an asset or a liability is measured using
the assumptions that market participants would use
when pricing the asset or liability, assuming that market
participants act in their economic best interest.
A fair value measurement of a non-financial asset takes into
account a market participant’s ability to generate economic
benefits by using the asset in its highest and best use or by
selling it to another market participant that would use the
asset in its highest and best use.
The Bank uses valuation techniques that are appropriate in the
circumstances and for which sufficient data are available to
measure fair value, maximising the use of relevant observable
inputs and minimising the use of unobservable inputs.
All assets and liabilities for which fair value is measured
or disclosed in the Financial Statements are categorised
within the fair value hierarchy, described as follows, based
on the lowest level input that is significant to the fair value
measurement as a whole:
zz
Level 1 — Quoted (unadjusted) market prices in active
markets for identical assets or Liabilities
zz
Level 2 — Inputs other than quoted prices included within
Level 1 that are observable either directly (i.e. as prices) or
indirectly (i.e. derived from prices). This category includes
instruments valued using: quoted market prices in active
markets for similar instruments; quoted prices for identical
or similar instruments in markets that are considered less
than active; or other valuation techniques in which all
significant inputs are directly or indirectly observable from
market data
In assessing the need for collective loss allowance,
management considers factors such as credit quality,
portfolio size, concentrations and economic factors. To
estimate the required allowance, assumptions are made to
define how inherent losses are modeled and to determine
the required input parameters, based on historical
experience and current economic conditions. The accuracy
of the allowance depends on the model assumptions and
parameters used in determining the collective allowance.
(iii) Fair value of financial instruments
101
A collective component of the total allowance is established
for groups of homogeneous loans that are not considered
individually significant and is established using statistical
methods such as roll rate methodology and internal loss
estimates. The methodology uses statistical analysis of
historical data on delinquency to estimate the amount
of loss. Management applies judgment to ensure that
the estimate of loss arrived at on the basis of historical
information is appropriately adjusted to reflect the economic
conditions and product mix at the reporting date. Roll rates
and loss rates are regularly benchmarked against actual
loss experience.
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102
zz
Level 3 — Valuation techniques for which the lowest level
input that is significant to the fair value measurement is
unobservable
(iv) Classification of Investments held to
amortised cost
The Bank follows the guidance of IAS 39 on classifying
non-derivative financial assets with fixed or determinable
payments and fixed maturity as Investments held at
amortised cost.
(vii) Going concern
The Consolidated Financial Statements have been prepared
on a going concern basis. The Bank’s management has made
an assessment of the Bank’s ability to continue as a going
concern and is satisfied that the Bank has the resources to
continue in business for the foreseeable future. Furthermore,
the management is not aware of any material uncertainties
that may cast significant doubt upon the Bank’s ability to
continue as a going concern.
3. Summary of Significant Accounting Policies
(v) Determination of control over investees
The control indicators set out Note 3 (b) are subject to
management’s judgments that can have a significant effect
in the case of the Bank’s interests in securitisation vehicles
and investments funds.
Investment funds
The group acts as Fund Manager to a number of investment
funds. Determining whether the Group controls such an
investment fund usually focuses on the assessment of
the aggregate economic interests of the Bank in the Fund
(comprising any carried interests and expected management
fees) and the investor’s rights to remove the Fund Manager.
As a result the Bank has concluded that it acts as an
agent for the investors in all cases. and therefore has not
consolidated these funds.
(vi) Provisions for liabilities and charges
The Bank receives legal claims in the normal course of
business. Management has made judgments as to the
likelihood of any claim succeeding in making provisions.
The time of concluding legal claims is uncertain, as is
the amount of possible outflow of economic benefits.
Timing and cost ultimately depends on the due process
being followed as per the legislation in the Kingdom of
Saudi Arabia.
The accounting policies used in the preparation of these
Consolidated Financial Statements are consistent with those
used in the preparation of the annual Consolidated Financial
Statements for the year ended 31 December 2014 except for
the change in accounting policies resulting from new
and amended IFRS. The following changes have no
material impact on the Consolidated Financial Statements
of the Bank:
(a) Amendments to existing standards
(i) Amendments to IAS 19 applicable for annual periods
beginning on or after 1 July 2014 is applicable to defined
benefit plans involving contribution from employees and/or
third parties. This provides relief, based on meeting certain
criteria, from the requirements proposed in the amendments
of 2011for attributing employee / third party contributions
to periods of service under the plan benefit formula or on a
straight-line basis, The current amendment gives an option,
if conditions satisfy, to adjust service cost in period in which
the related service is rendered.
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zz
zz
zz
zz
zz
IFRS 1 – ‘first time adoption of IFRS’: the amendment
clarifies that a first time adopter is permitted but not
required to apply a new or revised IFRS that is not yet
mandatory but is available for early adoption.
IFRS 2 amended to clarify the definition of ‘vesting
condition’ by separately defining ‘performance condition’
and ‘service condition’.
IFRS 3 – ‘business combinations’ amended to clarify
the classification and measurement of contingent
consideration in a business combination. It has been
further amended to clarify that the standard does not
apply to the accounting for the formation of all types of
joint arrangements in IFRS 11.
IFRS 8 – ‘operating segments’ has been amended to
explicitly require disclosure of judgments made by
management in applying aggregation criteria.
IFRS 13 has been amended to clarify measurement of
interest free short-term receivables and payables at their
invoiced amount without discounting, if the effect of
discounting is immaterial. It has been further amended
to clarify that the portfolio exception potentially applies
to contracts in the scope of IAS 39 and IFRS 9 regardless
of whether they meet the definition of a financial asset or
financial liability under IAS 32.
IAS 16 – ‘property, plant and equipment’ and IAS
38 - ‘intangible assets’: - the amendments clarify the
requirements of revaluation model recognising that the
restatement of accumulated depreciation (amortisation)
is not always proportionate to the change in the gross
carrying amount of the asset.
zz
IAS 24 – ‘related party disclosures’ - the definition of a
related party is extended to include a management entity
that provides key management personnel services to the
reporting entity, either directly or indirectly.
IAS 40 – ‘investment property’ clarifies that an entity
should assess whether an acquired property is an
investment property under IAS 40 and perform a separate
assessment under IFRS 3 to determine whether the
acquisition constitutes a business combination.
(b) Basis of consolidation
These Consolidated Financial Statements comprise the
financial statements of the Bank and its subsidiaries as set out
in Note 1 to these financial statements (collectively referred
to as ‘the Group’). The Financial Statements of subsidiaries
are prepared for the same reporting year as that of the Bank,
using consistent accounting policies. The accounting policies
of subsidiaries are changed when necessary to align them
with the policies adopted by the Bank.
Subsidiaries are investees controlled by the Group. The
Group controls an investee if it is exposed to or has rights
to, variable returns from its involvement with the investee
and has the ability to affect those returns through its power
over the investee. The Financial Statements of subsidiaries
are included in the Consolidated Financial Statements from
the date on which control commences until the date when
control ceases.
The Consolidated Financial Statements have been
prepared using uniform accounting policies and valuation
methods for like transactions and other events in similar
circumstances. The accounting policies of subsidiaries have
been changed when necessary to align them with the
policies adopted by the Bank.
zz
zz
103
(ii) Annual improvements to IFRS 2010-2012 and 2011-2013
cycle applicable for annual periods beginning on or after
1 July 2014. A summary of the amendments is contained
as under:
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104
Specifically, the Group controls an investee if and only if the
Group has:
zz
Power over the investee (i.e, existing rights that give it
the current ability to direct the relevant activities of
the investee)
zz
Exposure, or rights, to variable returns from its
involvement with the investee and
zz
The ability to use its power over the investee to affect
amount of its returns
When the Group has less than majority of the voting or
similar rights of an investee entity, the Bank considers all
relevant facts and circumstances in assessing whether it has
power over the entity, including:
zz
The contractual arrangement with the other vote holders
of the investee
zz
Rights arising from other contractual arrangements
zz
The Bank’s voting rights and potential voting rights
granted by equity instruments such as shares
The Group reassesses whether or not it controls an investee
if facts and circumstances indicate that there are changes
to one or more of the three elements of control. Assets,
liabilities, income and expenses of a subsidiary acquired or
disposed of during the year are included in the statement of
comprehensive income from the date the Bank gains control
until the date the Bank ceases to control the subsidiary.
A change in the ownership interest of a subsidiary, without
a loss of control, is accounted for as an equity transaction.
If the Bank loses control over a subsidiary it:
zz
derecognises the assets (including goodwill) and liabilities
of the subsidiary
zz
derecognises the carrying amount of any non-controlling
interests
zz
derecognises the cumulative translation differences
recorded in equity
zz
recognises the fair value of the consideration received
zz
recognises the fair value of any investment retained
zz
recognises any surplus or deficit in profit or loss
zz
reclassifies the parent’s share of components previously
recognised in OCI to profit or loss or retained earnings, as
appropriates would be required if the Bank had directly
disposed of the related assets or liabilities.
Since the subsidiaries are wholly or substantially owned by
the Bank, the non-controlling interest is insignificant and
therefore not disclosed.
Intra-group balances and any income and expenses
arising from intra group transactions, are eliminated in
preparing these Consolidated Financial Statements. As of
31 December 2015 and 2014, interests in subsidiaries not
directly owned by the Bank are owned by representative
shareholders for the beneficial interest of the Bank and
hence are not separately disclosed on the consolidated
statement of financial position or consolidated statement of
comprehensive income.
Investment in associate
Associates are enterprises over which the Bank exercises
significant influence (but not control), over financial and
operating policies and which is neither a subsidiary nor
a joint venture. Investments in associates are initially
recognised at cost and subsequently accounted for under
the equity method of accounting and are carried in the
consolidated statement of financial position at the lower of
the equity-accounted or the recoverable amount.
Equity accounted value represents the cost plus
post-acquisition changes in the Bank’s share of net assets of
the associate (share of the results, reserves and accumulated
gains/losses based on latest available Financial Statements)
less impairment, if any.
The previously recognised impairment loss in respect
of investment in associate can be reversed through the
consolidated statement of income, such that the carrying
amount of the investment in the statement of financial
position remains at the lower of the equity accounted
(before provision for impairment) or the recoverable amount.
On derecognition the difference between the carrying
amount of investment in associate and the fair value of the
consideration received is recognised in the consolidated
statement of income.
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(d) Trade date
All regular way purchases and sales of financial assets are
recognised and derecognised on the trade date (i.e. the date
on which the Bank commits to purchase or sell the assets).
Regular way purchases or sales of financial assets require
delivery of those assets within the time frame generally
established by regulation or convention in the market place.
All other financial assets and liabilities (including assets
and liabilities designated at fair value through statement of
income) are initially recognised on the trade date at which
the Bank became a party to the contractual provision of
the instrument.
(e) Foreign currencies
The Consolidated Financial Statements are presented
in Saudi Arabian Riyal (‘SAR’), which is also the parent
company’s functional currency. Each entity determines its
own functional currency and items included in the Financial
Statements of each entity are measured using that
functional currency.
Transactions in foreign currencies are translated into
Saudi Riyals at exchange rates prevailing on the dates of
the transactions. Monetary assets and liabilities at the year
end (other than monetary items that form part of the net
investment in a foreign operation), denominated in foreign
currencies, are translated into Saudi Riyals at exchange rates
prevailing at the date of the consolidated statement of
financial position.
Realised and unrealised gains or losses on exchange are
credited or charged to the consolidated statement of
The monetary assets and liabilities of foreign subsidiaries are
translated into Saudi Riyals at rates of exchange prevailing at
the date of the consolidated statement of financial position.
The statements of income of foreign subsidiaries are
translated at the average exchange rates for the year.
Non-monetary items that are measured in terms of historical
cost in a foreign currency are translated using the exchange
rates as at the dates of the initial transactions. Non-monetary
items measured at fair value in a foreign currency are
translated using the exchange rates at the date when the fair
value is determined.
As at the reporting date, the assets and liabilities of foreign
operations are translated into Saudi Arabian Riyals at the
rate of exchange as at the statement of financial position
date and their statement of incomes are translated at the
weighted average exchange rates for the year. Exchange
differences arising on translation are recognised in other
When a foreign operation is disposed of such that control,
significant influence or joint control is lost, the cumulative
amount in the translation reserve related to that foreign
operation is reclassified to the statement of income as part
of the gain or loss on disposal. When the Group disposes
of only part of its interest in a subsidiary that includes a
foreign operation while retaining control, the relevant
proportion of the cumulative amount is reattributed to
non-controlling interests.
Zakat is calculated based on the Zakat rules and regulations
in the Kingdom of Saudi Arabia and is considered as a
liability on the shareholders to be deducted from dividends.
Zakat is computed based on equity or net income using
the basis defined under the Zakat regulations. In case of
any differences between the Bank’s calculation and the
Department of Zakat and Income Tax’s (‘DZIT’) assessment,
a reserve is created as other reserve (Note 14) for the
differential.
The foreign currency gain or loss on monetary items is
the difference between amortised cost in the functional
currency at the beginning of the year adjusted for the
effective interest rate and payments during the year and the
amortised cost in foreign currency translated at exchange
rate at the end of the year.
105
(c) Zakat
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(f) Offsetting financial instruments
zz
Fees received to asset management, wealth management,
financial planning, custody services and other similar
services that are provided over an extended period of
time, are recognised over the period when the service
is being provided. Asset management fees related to
investment funds are recognised over the period when in
which the service is being provided. The same principle
applies to Wealth Management and Custody Services that
are continuously recognised over a period of time.
zz
Dividend income is recognised when the right to
receive income is established which is generally when
the shareholders approve the dividend. Dividends are
reflected as a component of net trading income, net
income from FVSI financial instruments or other operating
income based on the underlying classification of the
equity instrument.
zz
Foreign currency exchange income/loss is recognised
when earned/incurred.
zz
Net trading income results from trading activities and
include all realised and unrealised gains and losses
from changes in fair value and related gross investment
income or expense, dividends for financial assets and
financial liabilities held for trading and foreign exchange
differences.
zz
Net income from FVSI financial instruments relates to
financial assets and liabilities designated as FVSI and
include all realised and unrealised fair value changes,
investment inceom, dividends and foreign exchange
differences.
Financial assets and liabilities are offset and are reported net
in the consolidated statement of financial position when
there is a legally enforceable right to set off the recognised
amounts and when the Bank intends to settle on a net basis,
or to realise the asset and settle the liability simultaneously.
Income and expenses are not offset in the consolidated
statement of comprehensive income unless required or
permitted by any accounting standard or interpretation,
and as specifically disclosed in the accounting policies of
the Bank.
(g) Revenue recognition
Revenue is recognised to the extent that it is probable
that the economic benefits will flow to the Group and the
revenue can be reliably measured. The following specific
recognition criteria must also be met before revenue
is recognised.
zz
Income from Mutajara, Murabaha, investments held at
amortised cost, instalment sale, Istisna’a financing and visa
services is recognised based on effective yield basis on
the outstanding balances. The effective yield is the rate
that exactly discounts the estimated future cash payments
and receipts through the expected life of the financial
asset or liability (or, where appropriate, a shorter period)
to the carrying amount of the financial asset or liability.
When calculating the effective yield, the Group estimates
future cash flows considering all contractual terms of the
financial instrument but excluding future credit losses.
zz
Fees and commissions are recognised when the service
has been provided.
(h) Financing and investment
zz
Financing commitment fees that are likely to be drawn
down and other credit related fees are deferred and,
together with the related direct cost, are recognised as an
adjustment to the effective yield on the financing. When
a financing commitment is not expected to result in the
draw down of a financing, financing commitment fees are
recognised on a straight-line basis over the commitment
period.
The Bank classifies its principal financing and investment
as follows:
zz
Portfolio and other management advisory and service fees
are recognised based on the applicable service contracts,
on a time proportionate basis.
The Bank offers non-interest based products including
Mutajara, instalment sales, Murabaha and Istisnaa to its
customers in compliance with Shari’a rules.
(i) Held at amortised cost - such financing and certain
investments which meets the definition of loans and
receivable under IAS 39, are classified as held at amortised
cost and comprise Mutajara, instalment sale, Istisnaa,
Murabaha and visa operations accounts balances.
Investments held at amortised cost are initially recognised
at fair value and subsequently measured at amortised cost
(using effective yield basis) less any amounts written off and
allowance for impairment.
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Following the initial recognition, subsequent transfers
between the various classes of financings is not ordinarily
permissible. The subsequent period end reporting values for
various classes of financings are determined on the basis as
set out in the following paragraphs.
(ii) Held as FVSI - Investments in this category are classified
as either investment held for trading or those designated
as FVSI on initial recognition. Investments classified as
trading are acquired principally for the purpose of selling or
repurchasing in the short-term. These investments comprise
mutual funds and equity investments. Such investments are
measured at fair value and any changes in the fair values are
charged to the consolidated statement of comprehensive
income. Transaction costs, if any, are not added to the fair
value measurement at initial recognition of FVSI investments
and are expensed in the Consolidated Financial Statements.
Investment income and dividend income on financial assets
held as FVSI are reflected as either trading income or income
from FVSI financial instruments under other operating
income in the consolidated statement of income.
Investments at FVSI are not reclassified subsequent to
their initial recognition. Except that non-derivative FVSI
instruments, other than those designated as FVSI upon initial
recognition may be reclassified out of the FVSI (i.e. trading)
category if they are no longer held for the purpose of being
sold or repurchased in the near term and the following
conditions are met:
zz
If the financial asset would have met the definition of
financing and receivables. If the financial asset had not
been required to be classified as held for trading at initial
recognition then it may be reclassified if the entity has
the intention and ability to hold the financial asset for the
foreseeable future or until maturity.
If the financial asset would not have met the definition of
financing and receivables and then it may be reclassified
out of the trading category only in ‘rare circumstances’.
(iii) Available-for-sale – Available-for-sale investments are
those non-derivative equity and sukuk securities which are
neither classified as Held to maturity investments, loans
and receivables nor designated as FVSI, that are intended
to be held for an unspecified period of time which may be
sold in response to needs for liquidity or changes in special
commission rates, exchange rates or equity prices.
Investments which are classified as “available-for-sale”
are initially recognised at fair value including direct and
incremental transaction costs and subsequently measured
at fair value except for unquoted equity securities whose
fair value cannot be reliably measured are carried at cost.
Unrealised gains or losses arising from changes in fair value
are recognised in other comprehensive income until the
investment is derecognised or impaired whereupon any
cumulative gain or loss previously recognised in other
comprehensive income are reclassified to consolidated
A security held as available-for-sale may be reclassified to
‘Other investments held at amortised cost’ if it otherwise
would have met the definition of ‘Other investments held at
amortised cost’ and if the Bank has the intention and ability
to hold that financial asset for the foreseeable future or
until maturity.
(i) Impairment of financial assets
Held at amortised cost
An assessment is made at the date of each consolidated
statement of financial position to determine whether there
is objective evidence of impairment as a result of one or
more events that occurred after the initial recognition of
the financial asset or group of financial asset and that a loss
event(s) has an impact on the estimated future cash flows
of the financial asset or group of financial assets that can
be reliably estimated. If such evidence exists the difference
between the assets carrying amount and the present
value of estimated future cash flows is calculated and any
impairment loss is recognised for changes in the asset’s
carrying amount. The carrying amount of the financial assets
held at amortised cost, is adjusted either directly or through
the use of an allowance for impairment account and the
amount of the adjustment is included in the consolidated
statement of comprehensive income.
All financings are initially measured at fair value, plus
incremental direct transaction costs and are subsequently
measured at amortised cost using effective yield basis.
zz
107
Financing are non-derivative financial assets originated or
acquired by the Bank with fixed or determinable payments.
Financing are recognised when cash is advanced to
borrowers. They are derecognised when either borrower
repays their obligations or the financings are sold or written
off or substantially all the risks and rewards of ownership
are transferred.
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108
A specific provision for credit losses due to impairment of
a financing or any other financial asset held at amortised
cost is established if there is objective evidence that the
Bank will not be able to collect all amounts due. The amount
of the specific provision is the difference between the
carrying amount and the estimated recoverable amount.
The estimated recoverable amount is the present value of
expected cash flows, including amounts estimated to be
recoverable from guarantees and collateral, discounted
based on the original effective yield rate.
Considerable judgment by management is required in the
estimation of the amount and timing of future cash flows
when determining the level of provision required. Such
estimates are essentially based on assumptions about
several factors involving varying degrees of judgment and
uncertainty and actual results may differ resulting in future
changes to such allowance for impairment. In addition to
the specific allowance for impairment described above,
the Bank also makes collective impairment allowance for
impairment, which are evaluated on a group basis and are
created for losses, where there is objective evidence that
unidentified losses exist at the reporting date. The amount
of the provision is estimated based on the historical default
patterns of the investment and financing counterparties as
well as their credit ratings, taking into account the current
economic climate. In assessing collective impairment,
the Bank also uses internal loss estimates and makes an
adjustment if current economic and credit conditions are
such that the actual losses are likely to be greater or lesser
than is suggested by historical trends. Loss rates are regularly
benchmarked against actual outcomes to ensure that they
remain appropriate.
The criteria that the Bank uses to determine that there is an
objective evidence of impairment loss include:
zz
Delinquency in contractual payments of principal or profit.
zz
Cash flow difficulties experienced by the customer.
zz
Breach of repayment covenants or conditions.
zz
Initiation of bankruptcy proceedings against the customer.
zz
Deterioration of the customer’s competitive position.
zz
Deterioration in the value of collateral.
When financing amount is uncollectible, it is written off
against the related provision for impairment. Such financing
is written off after all necessary procedures have been
completed and the amount of the loss has been determined.
If, in a subsequent period, the amount of the impairment
loss decreases and the decrease can be related objectively
to an event occurring after the impairment was recognised
(such as an improvement in the customer’s credit rating),
the previously recognised impairment loss is reversed by
adjusting the provision account. The amount of the reversal
is recognised in the statement of comprehensive income in
impairment charge.
Financial assets are written off only in circumstances
where effectively all possible means of recovery have
been exhausted.
Available-for-sale equity and debt investments
In the case of debt instruments classified as availablefor-sale, the Bank assesses individually whether there is
objective evidence of impairment 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 statement
of income.
If, in a subsequent period, the fair value of a debt instrument
increases and the increase can be objectively related to
a credit event occurring after the impairment loss was
recognised in the statement of income, the impairment loss
is reversed through the statement of income.
For equity investments held as available-for-sale a significant
or prolonged decline in fair value below its cost represents
objective evidence of impairment. The impairment loss
cannot be reversed through the statement of income as
long as the asset continues to be recognised i.e. any increase
in fair value after impairment has been recorded can only be
recognized in equity. On derecognition, any cumulative gain
or loss previously recognised in equity is included in the
consolidated statement of income for the year.
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The Bank, in the ordinary course of business, acquires certain
real estate against settlement of loans and advances. Such
real estate are considered as assets held for sale and are
initially stated at the lower of net realisable value of due
loans and advances and the current fair value of the related
properties, less any costs to sell (if material). No depreciation
is charged on such real estate. Rental income from other real
estate is recognised in the consolidated statement of income.
Property and equipment is stated at cost less accumulated
depreciation and amortisation and accumulated impairment
loss. Land is not depreciated. The cost of other property
and equipment is depreciated or amortised using the
straight-line method over the estimated useful life of the
assets, as follows:
Subsequent to initial recognition, any subsequent write
down to fair value, less costs to sell, are charged to the
consolidated statement of income. Any subsequent
revaluation gain in the fair value less costs to sell of these
assets to the extent this does not exceed the cumulative
write down previously recognised, in the statement of
income. Gains or losses on disposal are recognised in the
(k) Derecognition of financial assets and liabilities
zz
zz
A financial asset (or a part of a financial asset or a part of
a group of similar financial assets) is derecognised when
the contractual rights to the cash flows from the financial
asset expire or the asset is transferred and the transfer
qualifies for derecognition.
A financial liability (or a part of a financial liability) can only
be derecognised when it is extinguished, that is when the
obligation specified in the contract is either discharged,
cancelled or expired.
Leasehold land
improvements
over the lesser of the period of the
lease or the useful life
Buildings
33 years
Leasehold building
improvements
over the lease period or 3 years,
whichever is shorter
Equipment and
furniture
3 to 10 years
The assets’ residual values and useful lives are reviewed,
and adjusted if appropriate, at each statement of financial
position date.
Gains and losses on disposals are determined by comparing
proceeds with carrying amount. These are included in
consolidated statement of comprehensive income.
All assets are reviewed for impairment at each reporting
date and whenever events or changes in circumstances
indicate that the carrying amount may not be recoverable.
Any carrying amount is written down immediately to its
recoverable amount if the asset’s carrying amount is greater
than its estimated recoverable amount.
(l) Investment properties
(n) Customers’ deposits
Investment properties are held for long-term rental yield
and are not occupied by the Group. They are carried at
cost and depreciation is charged to the statement of
consolidated income.
Customer deposits are financial liabilities that are initially
recognised at fair value less transaction cost, being the fair
value of the consideration received and are subsequently
measured at amortised cost.
(m) Property and equipment
109
(j) Other real estate
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(o) Guarantees
2. Where the Group is the lessor
In the ordinary course of business the Bank gives guarantees
which include letters of credit, letters of guarantee,
acceptances and stand by letter of credits. Initially, the
received margins are recognised as liabilities at fair value,
being the value of the premium received and included
in customers’ deposits in the Consolidated Financial
Statements. Subsequent to the initial recognition, the
Bank’s liability under each guarantee is measured at the
higher of the amortised premium and the best estimate
of expenditure required to settle any financial obligations
arising as a result of guarantees. Any increase in the
liability relating to the financial guarantee is taken to the
consolidated statement of income in “impairment charge
for credit losses, net”. The premium received is recognised in
the consolidated statement of income in “Fees from banking
services, net” on a straight-line basis over the life of the
guarantee.
When assets are transferred under a finance lease, including
assets under Islamic lease arrangements (e.g. Ijara Muntahia
Bittamleek or Ijara with ownership promise) (if applicable)
the present value of the lease payments is recognised as a
receivable and disclosed under “Financing”. The difference
between the gross receivable and the present value of the
receivable is recognised as unearned finance income. Lease
income is recognised over the term of the lease using the
net investment method, which reflects a constant periodic
rate of return.
(p) Provisions
Provisions are recognised when the Bank has present legal.
or constructive obligation as a result of past events, it is
probable that an outflow of resources embodying economic
benefits will be required to settle the obligation and a
reliable estimate of the amount of the obligation can
be made.
(q) Accounting for leases
1. Where the Group is the lessee
Leases that do not transfer to the Bank substantially all
risks and benefits of ownership of the asset are classified
as operating leases. Consequently all leases entered into
by the Bank are all operating leases. Payments made
under operating leases are charged to the (consolidated)
statement of income on a straight-line basis over the period
of the lease.
When an operating lease is terminated before the lease
period has expired, any payment required to be made to the
lessor by way of penalty, net of anticipated rental income
(if any), is recognised as an expense in the period in which
termination takes place.
The Group evaluates non-lease arrangements such as
outsourcing and similar contracts to determine if they
contain a lease which is then accounted for separately.
(r) Cash and cash equivalents
For the purposes of the consolidated statement of cash
flows, ‘cash and cash equivalents’ include notes and coins
on hand, balances with SAMA (excluding statutory deposits)
and due from banks and other financial institutions with
original maturity of three months or less from the date of
acquisition which are subject to insignificant risk of changes
in their fair value.
(s) Short-term employee benefits
Short-term employee benefits are measured on an
undiscounted basis and are expensed as the related service
is provided.
(t) Special commission excluded from the
consolidated statement of income
In accordance with the Shari’a Authority’s resolutions, special
commission income received by the Bank is excluded from
the determination of income and is recorded as other
liabilities in the consolidated statement of financial position
and is paid as charities.
(u) Provisions for employees’ end of
service benefits
The provision for employees’ end of service benefits
is accrued using actuarial valuation according to the
regulations of Saudi labour law and local regulatory
requirements.
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The Bank operates an equity-settled, share-based
compensation plan “Employee share grant plan - ESGB”
as approved by SAMA, under which the entity receives
services from the eligible employees as consideration for
equity instruments (options) of the Bank. Under the terms
of the ESGP, eligible employees of the Bank are offered stock
options at a predetermined strike price for a fixed period of
time. At maturity of the plans, the underlying allotted shares
are delivered if the employees exercise the options as per
the terms and conditions of the plan.
The Bank provides its customers with banking products
based on interest avoidance concept and in accordance with
Shari’a regulations. The following is a description of some of
the financing products:
The fair value of the employee services received in exchange
for the grant of the options is recognised as an expense
on the consolidated statement of comprehensive income
over the vesting period, which is the period over which all
specified vesting conditions are to be satisfied.
At the end of each reporting period, the Bank revises its
estimates of the number of options that are expected to
vest based on the non-market vesting conditions. It
recognises the impact of the revision to original estimates,
if any, in the income statement, with a corresponding
adjustment to equity.
(w) Mudaraba funds
The Bank carries out Mudaraba transactions on behalf
of its customers and are treated by the Bank as being
restricted investments. These are included as off balance
sheet items. The Bank’s share of profits from managing such
funds is included in the Bank’s consolidated statement of
(x) Investment management services
The Bank provides investment management services
to its customers, through its subsidiary which include
management of certain mutual funds. Assets held in trust or
in a fiduciary capacity are not treated as assets of the Bank
and, accordingly, are not included in the Bank’s Consolidated
Financial Statements. The Bank’s share of these funds is
included under FVSI investments. Fees earned are disclosed
consolidated statement of comprehensive income.
Mutajara financing:
It is financing agreement whereby the Bank purchases a
commodity or an asset and sells it to the client based on
a purchase promise from the client with a deferred price
higher than the cash price, accordingly the client becomes
debtor to the Bank with the sale amount and for the period
agreed in the contract.
Instalment sales financing:
It is financing agreement whereby the Bank purchases a
commodity or an asset and sells it to the client based on
a purchase promise from the client with a deferred price
higher than the cash price, accordingly the client becomes
debtor to the Bank with the sale amount to be paid through
instalments as agreed in the contract.
Istisnaa financing:
It is a financing agreement whereby the Bank contracts to
manufacture a commodity with certain known and accurate
specifications according to the client’s request. The client
becomes a debtor to the Bank for the manufacturing price
which includes cost plus profit.
Murabaha financing:
It is a financing agreement whereby the Bank purchases a
commodity or asset and sells it to the client with a price
representing the purchase price plus a profit known and
agreed by the client which means that the client is aware of
the cost and profit separately.
(y) Bank’s products definition
111
(v) Share-based payments
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4. Cash and Balances with SAMA and Other Central Banks
Cash and balances with SAMA and central banks as of 31 December comprise of the following:
2015
(SAR ’000)
2014
(SAR ’000)
8,865,284
8,963,159
Statutory deposits
17,432,292
15,481,434
Current accounts
756,140
9,140,784
27,053,716
33,585,377
Cash in hand
Total
In accordance with the Banking Control Law and Regulations issued by SAMA. the Bank is required to maintain a statutory deposit
with SAMA and central banks at stipulated percentages of its customers’ demand deposits, customers’ time investment and other
customers’ account calculated at the end of each Gregorian month.
The above statutory deposits are not available to finance the Bank’s day-to-day operations and therefore are not considered part of
cash and cash equivalents (note 23), when preparing consolidated statement of cash flows.
5. Due from Banks and Other Financial Institutions
Due from banks and other financial institutions as of 31 December comprise the following:
2015
(SAR ’000)
2014
(SAR ’000)
1,463,566
1,979,331
Mutajara
25,447,490
14,536,877
Total
26,911,056
16,516,208
Current accounts
The above due from banks and other financial institutions balances are neither past due nor impaired.
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6. Investments
(a) Net investments comprise the following as of 31 December:
2014
(SAR ’000)
75,518
23,660
36,727,031
39,866,296
1,225,534
1,507,939
37,952,565
41,374,235
23,452
786,257
Mutual funds
1,121,103
124,331
Total investments held as FVSI
1,144,555
910,588
Investment in an associate (a)
Investments held at amortised cost
Murabaha with SAMA
Sukuk
Total investments held at amortised cost
Equity investments
Available-for -sale investments
623,405
Equity investments
Mutual funds
Total available-for-sale investments
Net investments
–
80,821
241,140
704,226
241,140
39,876,864
42,549,623
The designated FVSI investments included above are so designated when the financial instruments are being evaluated on a fair
value basis and are in accordance with the documented risk management strategy of the Bank.
All investments held at amortised costs are neither past due nor impaired as of 31 December 2015.
The Bank owns 22.5% (31 December 2014: 22.5%) of the shares of Al Rajhi Company for Co-operative Insurance, a Saudi Joint Stock
Company. During the year 2015, the Bank has invested additional SAR 45 million as its share of the increase in capital of Al Rajhi
Company for Co-operative Insurance.
(b) The analysis of the composition of investments is as follows:
2015
Quoted
(SAR ’000)
Murabaha with SAMA
–
Unquoted
(SAR ’000)
Total
(SAR ’000)
36,727,031
36,727,031
Sukuk
352,134
873,400
1,225,534
Equities
698,923
23,452
722,375
1,201,924
1,201,924
38,825,807
39,876,864
Mutual funds
Total
–
1,051,057
2015
(SAR ’000)
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2014
Quoted
(SAR ’000)
Murabaha with SAMA
–
Unquoted
(SAR ’000)
Total
(SAR ’000)
39,866,296
39,866,296
Sukuk
433,106
1,074,833
1,507,939
Equities
786,424
23,493
809,917
365,471
365,471
41,330,093
42,549,623
Gross
unrecognised
losses gains
(SAR ’000)
Fair value
(127,317)
(3,271)
36,599,714
1,222,263
Mutual funds
–
Total
1,219,530
(c) The analysis of unrecognised gains and losses and fair values of investments are as follows:
2015
Carrying
values
(SAR ’000)
Murabaha with SAMA
Sukuk
Equities
Mutual funds
Total
Gross
unrecognised
gains
(SAR ’000)
(SAR ’000)
36,727,031
1,225,534
–
–
722,375
–
–
722,375
1,201,924
–
–
1,201,924
39,876,864
–
(130,588)
39,746,276
Gross
unrecognised
losses gains
(SAR ’000)
Fair value
(SAR ’000)
Gross
unrecognised
gains
(SAR ’000)
39,866,296
–
(166,903)
39,699,393
1,503,416
2014
Carrying
value
Murabaha with SAMA
Sukuk
(SAR ’000)
1,507,939
–
(4,523)
Equities
809,917
–
–
809,917
Mutual funds
365,471
–
–
365,471
42,549,623
–
(171,426)
42,378,197
Total
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Investment grade
2015
(SAR ’000)
2014
(SAR ’000)
36,727,031
39,866,296
1,359,654
1,709,302
–
Non-investment grade
Unrated
Total
–
1,790,179
974,025
39,876,864
42,549,623
Investment Grade includes those investments having credit exposure equivalent to Standard and Poor’s rating of AAA to BBB. The
unrated category mainly comprises of private equities, quoted equities and mutual funds.
(e) The following is an analysis of foreign investments according to investment categories as at 31 December:
2015
(SAR ’000)
2014
(SAR ’000)
1,225,534
1,507,939
Investments held at amortised cost
Sukuk
Equity investments
Mutual funds
Total
21,264
21,305
108,693
124,331
1,355,491
1,653,575
2015
(SAR ’000)
2014
(SAR ’000)
36,727,031
39,866,296
646,857
786,257
75,518
23,660
2,427,458
1,873,410
39,876,864
42,549,623
(f ) The following is an analysis of investments according to counterparties as at 31 December:
Government and quasi government
Companies
Banks and other financial institutions
Others
Net investments
Sovereign debt
115
(d) Credit quality of investments
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7. Financing, Net
7.1 Financing
(a) Net financing as of 31 December comprises the following:
2015
Performing Non-performing
– Gross
– Gross
(SAR ’000)
(SAR ’000)
Corporate Mutajara
38,457,006
161,961,316
Instalment sale
1,905,489
1,300,735
Provision
Net
(SAR ’000)
(SAR ’000)
(3,517,892) 36,844,603
(2,214,256) 161,047,795
Murabaha
12,011,879
6,105
(39,467)
11,978,517
Visa cards
294,155
54,582
(1,784)
346,953
212,724,356
3,266,911
Total
(5,773,399) 210,217,868
2014
Performing Non-performing
– Gross
– Gross
(SAR ’000)
(SAR ’000)
Corporate Mutajara
Provision
Net
(SAR ’000)
(SAR ’000)
39,720,497
153,883,993
730,909
1,318,054
(2,202,504)
(2,092,957)
38,248,902
153,109,090
Murabaha
14,433,268
582,402
(894,386)
14,121,284
Visa cards
440,799
24,364
(4,479)
460,684
208,478,557
2,655,729
(5,194,326)
205,939,960
Total
(SAR ’000)
Instalment sale
Total
(b) The net financing by location, inside and outside the Kingdom, as of 31 December is as follows:
2015
Corporate
Mutajara
(SAR ’000)
Instalment
Sale
(SAR ’000)
Murabaha
(SAR ’000)
Visa
Cards
(SAR ’000)
39,945,323
159,556,153
8,352,333
347,076
208,200,885
417,172
3,705,898
3,665,651
1,661
7,790,382
Total
40,362,495
163,262,051
12,017,984
348,737
215,991,267
Provision
(3,517,892)
(2,214,256)
(39,467)
(1,784)
(5,773,399)
Net
36,844,603
161,047,795
11,978,517
346,953
210,217,868
Description
Inside the Kingdom
Outside the Kingdom
Messages
Business Model
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Identity
Financial Reports
117
2014
Instalment
Sale
(SAR ’000)
Murabaha
(SAR ’000)
Visa
cards
(SAR ’000)
40,034,236
Total
(SAR ’000)
151,435,704
11,361,117
462,923
203,293,980
417,170
3,766,343
3,654,553
2,240
7,840,306
Total
40,451,406
155,202,047
15,015,670
465,163
211,134,286
Provision
(2,202,504)
(2,092,957)
(894,386)
(4,479)
(5,194,326)
Net
38,248,902
153,109,090
14,121,284
460,684
205,939,960
Description
Inside the Kingdom
Outside the Kingdom
(c) The net financing concentration risks and the related provision, by major economic sectors at 31 December are as follows:
2015
Performing Non-Performing
(SAR ’000)
(SAR ’000)
Provision
(SAR ’000)
Net financing
(SAR ’000)
Description
Commercial
21,380,148
618,379
(471,772)
21,526,755
Industrial
10,564,357
58,151
(58,151)
10,564,357
(279,920)
9,701,319
9,131,983
849,256
Personal
161,444,714
1,550,878
Services
7,272,909
173,921
(110,901)
7,335,929
637,071
–
(35)
637,036
Other
2,293,174
16,326
(11,478)
2,298,022
Total
212,724,356
3,266,911
Building and construction
Agriculture and fishing
(740,719) 162,254,873
(1,672,976) 214,318,291
Additional portfolio provision
(4,100,423)
(4,100,423)
Balance
(5,773,399) 210,217,868
Corporate
Mutajara
(SAR ’000)
Messages
Business Model
Stewardship
Identity
Financial Reports
118
2014
Performing
(SAR ’000)
Non-Performing
(SAR ’000)
Provision
(SAR ’000)
Net financing
(SAR ’000)
Commercial
24,980,386
393,435
(374,933)
24,998,888
Industrial
10,581,071
5,327
(211)
10,586,187
Description
Building and construction
13,000,833
42,347
(5,576)
13,037,604
Personal
150,910,280
2,177,614
(1,390,405)
151,697,489
Services
5,792,065
36,360
(6,659)
5,821,766
688,026
–
–
688,026
Other
2,525,896
646
(213)
2,526,329
Total
208,478,557
2,655,729
Agriculture and fishing
(1,777,997)
209,356,289
Additional portfolio provision
(3,416,329)
(3,416,329)
Balance
(5,194,326)
205,939,960
(d) The tables below depicts the categories of financing as shown in the statement of financial position as per main business
segments at 31 December:
2015
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
–
40,362,495
40,362,495
154,330,726
8,931,325
163,262,051
Murabaha
637,035
11,380,949
12,017,984
Visa
348,737
–
348,737
155,316,498
60,674,769
215,991,267
(2,194,641)
(3,578,758)
(5,773,399)
153,121,857
57,096,011
210,217,868
Corporate Mutajara
Instalment sale
Total
Less: Allowance for impairment
Financing, net
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119
2014
Instalment sale
Murabaha
Visa
Total
Less: Allowance for impairment
Financing, net
Corporate
(SAR ’000)
Total
(SAR ’000)
–
40,451,406
40,451,406
145,015,399
10,186,648
155,202,047
1,526,085
13,489,585
15,015,670
465,163
–
465,163
147,006,647
64,127,639
211,134,286
(2,892,411)
(2,301,915)
(5,194,326)
144,114,236
61,825,724
205,939,960
(e) The table below summarises financing balances at 31 December that are neither past due nor impaired, past due but not
impaired and impaired, as per the main business segments of the Bank:
2015
Retail
Corporate
Total
Neither past due
nor impaired
(SAR ’000)
Past due but
not impaired
(SAR ’000)
Impaired
Total
(SAR ’000)
(SAR ’000)
153,669,352
291,829
1,355,317
155,316,498
58,467,584
295,591
1,911,594
60,674,769
212,136,936
587,420
3,266,911
215,991,267
Allowance for
impairment
(SAR ’000)
Net
(SAR ’000)
(2,194,641) 153,121,857
(3,578,758)
57,096,011
(5,773,399) 210,217,868
2014
Retail
Corporate
Total
Neither past due
nor impaired
(SAR ’000)
Past due but
not impaired
(SAR ’000)
Impaired
Total
(SAR ’000)
Allowance for
impairment
(SAR ’000)
(SAR ’000)
144,776,254
350,530
62,517,655
834,118
207,293,909
1,184,648
(SAR ’000)
1,879,863
147,006,647
(2,892,411)
144,114,236
775,866
64,127,639
(2,301,915)
61,825,724
2,655,729
211,134,286
(5,194,326)
205,939,960
Financing past due for less than 90 days is not treated as impaired, unless other available information proves otherwise.
Neither past due nor impaired and past due but not impaired comprise the total performing financing.
Net
Corporate Mutajara
Retail
(SAR ’000)
Messages
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120
(f ) The tables below depict the quality of financing past due (up to 90 days) but not impaired at 31 December:
2015
Performing loans – Standard
Performing loans – Special mention
Total
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
238,212
189,292
427,504
53,617
106,299
159,916
291,829
295,591
587,420
2014
Performing loans – Standard
Performing loans – Special mention
Total
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
305,550
502,100
807,650
44,980
332,018
376,998
350,530
834,118
1,184,648
Financing under the standard category are performing, have sound fundamental characteristics and include those that exhibit
neither actual nor potential weaknesses.
The special mention category includes financing that is also performing current and up to date in terms of principal and profit
payments. However, they require close management attention as they may have potential weaknesses both financial and nonfinancial that may, at some future date, result in the deterioration of the repayment prospects of either the principal or the profit
payments. The special mention financing would not expose the Bank to sufficient risk to warrant a worse classification.
(g) The tables below set out the aging of financing past due but not impaired as of 31 December:
2015
Corporate
Mutajara
(SAR ’000)
Instalment
sale
(SAR ’000)
Visa
Total
(SAR ’000)
(SAR ’000)
Up to 30 days
139,079
98,873
60,209
298,161
31– 60 days
137,051
58,658
20,472
216,181
61– 90 days
19,461
31,636
21,981
73,078
295,591
189,167
102,662
587,420
Age
Total
Fair value of collateral
4,031,637
–
–
4,031,637
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121
2014
Instalment
sale
(SAR ’000)
Visa
Total
(SAR ’000)
(SAR ’000)
Age
Up to 30 days
710,076
215,374
11,052
936,502
31– 60 days
67,184
73,346
5,778
146,308
61– 90 days
56,858
39,709
5,271
101,838
Total
834,118
328,429
22,101
1,184,648
793,089
–
–
793,089
The Bank in the ordinary course of financing activities holds collateral as security to mitigate credit risk in financing. This collateral
mostly include customer deposits and other cash deposits, financial guarantees, local and international equities, real estate and
other property and equipment. The collateral is held mainly against commercial and consumer financing and managed against
relevant exposures related to financing.
The fair value of collateral is based on valuation performed by the independent experts, quoted prices (wherever available) and the
valuation techniques. Experts have used various approaches in determining the fair value of real estate collateral including market
comparable approach based on recent actual sales or discounted cash flow approach taking into account risk adjusted discount
rates, rental yields and terminal values.
(h) The tables below sets out gross balances of individually impaired financing, together with the fair value of related collateral held
by the Bank as at 31 December:
2015
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
Individually impaired financing
–
1,911,594
1,911,594
–
1,891,561
1,891,561
2014
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
Individually impaired financing
–
775,866
775,866
–
1,122,045
1,122,045
The retail financing balances that are neither past due nor impaired are classified as standard category. Those balances are
performing and have strong fundamental characteristics of credit history, cash flows and timely repayment, and regular monitoring
is being carried out. Those balances amounted to SAR 153,669,352 thousand as at 31 December 2015 (31 December 2014:
SAR 144,776,254 thousand).
Corporate
Mutajara
(SAR ’000)
Messages
Business Model
Stewardship
Identity
Financial Reports
122
(i) The tables below depict the quality of neither past due nor impaired financing as at 31 December:
2015
Low risk (1-3)
Acceptable risk (4-6)
Watch list risk (7)
Funded
exposure
(SAR ’000)
Non-Funded
exposure
(SAR ’000)
Total
exposure
(SAR ’000)
5,700,307
74,721
5,775,028
45,227,824
6,763,605
51,991,429
7,539,453
875,188
8,414,641
58,467,584
7,713,514
Retail
153,669,352
Total
212,136,936
–
7,713,514
66,181,098
153,669,352
219,850,450
2014
Low risk (1-3)
Watch list risk(7)
Funded
exposure
(SAR ’000)
Non-funded
exposure
(SAR ’000)
Total
exposure
(SAR ’000)
5,941,145
197,086
6,138,231
52,589,143
10,682,192
63,271,335
3,987,367
732,148
4,719,515
62,517,655
11,611,426
Retail
144,776,254
Total
207,293,909
–
11,611,426
74,129,081
144,776,254
218,905,335
(j) The tables below depict the quality of performing financing as at 31 December:
2015
Low risk (1-3)
Watch list risk(7)
Funded
exposure
(SAR ’000)
Non-Funded
exposure
(SAR ’000)
Total
exposure
(SAR ’000)
5,720,854
74,964
5,795,818
45,464,644
6,799,023
52,263,667
7,577,677
879,625
8,457,302
58,763,175
7,753,612
Retail
153,961,181
Total
212,724,356
–
7,753,612
66,516,787
153,961,181
220,477,968
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123
2014
Watch list risk(7)
Non-funded
exposure
(SAR ’000)
Total
exposure
(SAR ’000)
5,955,303
199,715
6,155,018
53,402,951
10,833,276
64,236,227
3,993,519
733,356
4,726,875
63,351,773
11,766,347
75,118,120
Retail
145,126,784
Total
208,478,557
–
11,766,347
145,126,784
220,244,904
(k) The tables below depict the quality of Watch List and Non-Performing financing corporate loans and impaired retail financing
as at 31 December:
2015
(SAR ’000)
2014
(SAR ’000)
8,457,302
4,726,875
Risk Rating 8
1,212,823
492,436
Risk Rating 9
508,464
35,979
Risk Rating 10
190,307
247,451
10,368,896
5,502,741
Retail
1,355,317
1,879,863
Total
11,724,213
7,382,604
Corporate
Watch List
Non-performing:
(l) The table below stratify credit exposures from corporate loans by ranges of loan-to-value (LTV) ratio, LTV is calculated as the
ratio of the gross amount of the loan – or the amount committed for loan commitments – to the value of the collateral. The gross
amounts exclude any impairment allowance.
2015
(SAR ’000)
2014
(SAR ’000)
Less than 50%
3,562,767
3,618,085
51-70%
2,117,022
2,220,949
71-90%
270,361
694,321
91-100%
463,702
124,858
More than 100%
6,370,276
7,837,817
Total Exposure
12,784,128
14,496,030
Low risk (1-3)
Funded
exposure
(SAR ’000)
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Risk Rating 1
Risk Rating 2
Exceptional – Obligors of unquestioned credit standing at the pinnacle of credit quality.
Excellent – Obligors of the highest quality, presently and prospectively. Virtually no risk in lending to this class. Cash flows reflect
exceptionally large and stable margins of protection. Projected cash flows including anticipated credit extensions indicate strong
liquidity levels and debt service coverage. Balance Sheet parameters are strong, with excellent asset quality in terms of value and
liquidity.
Risk Rating 3
Superior – Typically obligors at the lower end of the high quality range with excellent prospects. Very good asset quality and
liquidity. Consistently strong debt capacity and coverage. There could however be some elements, which with a low likelihood
might impair performance in the future.
Risk Rating 4
Good – Typically obligors in the high end of the medium range who are definitely sound with minor risk characteristics. Elements
of strength are present in such areas as liquidity, stability of margins. cash flows, diversity of assets, and lack of dependence on one
type of business.
Risk Rating 5
Satisfactory – These are obligors with smaller margins of debt service coverage and with some elements of reduced strength,
satisfactory asset quality. liquidity and good debt capacity and coverage. A loss year or declining earnings trend may occur, but the
borrowers have sufficient strength and financial flexibility to offset these issues.
Risk Rating 6
Adequate – Obligors with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that
indicate above average risk. Such borrowers have limited additional debt capacity, modest coverage, average or below average asset
quality and market share. Present borrower performance is satisfactory, but could be adversely affected by developing collateral
quality/adequacy etc.
Risk Rating 7
Very high risk – Generally undesirable business constituting an undue and unwarranted credit risk but not to the point of justifying
a substandard classification. No loss of principal or interest has taken place. Potential weakness might include a weakening financial
condition, an unrealistic repayment programme, inadequate sources of funds, or a lack of adequate collateral, credit information
or documentation. The entity is undistinguished and mediocre. No new or incremental credits will generally be considered for this
category.
Risk Rating 8
Substandard – Obligors in default and 90 Days Past Due on repayment of their obligations, unacceptable business credit. Normal
repayment is in jeopardy and there exists well defined weakness in support of the same. The asset is inadequately protected by the
current net worth and paying capacity of the obligor or pledged collateral. SAMA and internal guidelines of Al Rajhi Bank require
25% Specific Provisioning for all exposures in this category.
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Risk Rating 10
Loss – Obligors in default and 360 Days Past Due (DPD) on their obligations. Total loss is expected. An uncollectible assets which
does not warrant classification as an active asset. A 100% Specific Provisioning must be triggered followed by the write-off process
should be effected as per Al Rajhi Bank’s write-off policy.
7.2 Impairment charge for financing
The movement in the allowance for impairment of financing for the years ended 31 December is as follows:
2015
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
Balance as at the beginning of the year
2,892,411
2,301,915
5,194,326
Provided during the year, net
1,027,363
1,378,524
2,405,887
(1,725,133)
(101,681)
1,826,814
2,194,641
3,578,758
5,773,399
Bad debts written off
Balance at the end of the year
2014
Retail
(SAR ’000)
Corporate
(SAR ’000)
Total
(SAR ’000)
Balance as at the beginning of the year
2,575,018
1,743,833
4,318,851
Provided during the year, net
1,727,396
940,227
2,667,623
(1,410,003)
(382,145)
(1,792,148)
2,892,411
2,301,915
5,194,326
Bad debts written off
7.3 Provision movement
The reconciliation of the impairment charge on financing for the year recorded in the consolidated statement of income is
as follows:
Provided during the year
Recovery of written off loans, net
Allowance for impairment, net
2015
(SAR ’000)
2014
(SAR ’000)
2,405,887
2,667,623
(447,862)
(355,444)
1,958,025
2,312,179
Doubtful – Obligors in default and 180 Days Past Due (DPD) on their contracted obligations, however in the opinion of the
management recovery/salvage value is a possibility, and hence write-off should be deferred. Full repayment questionable. Serious
problems exist to the point where a partial loss of principle is likely. Weaknesses are so pronounced that on the basis of current
information, conditions and values. collection in full is highly improbable. SAMA and internal guidelines of Al Rajhi Bank require 50%
Specific Provisioning for all exposures in this category.
125
Risk Rating 9
Messages
Business Model
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Identity
Financial Reports
126
7.4 Financing include finance lease receivables, which are as follows:
2015
(SAR ’000)
2014
(SAR ’000)
28,593,184
24,701,447
1,433,731
16,319
1 to 5 years
18,822,702
14,914,964
Over 5 years
8,336,751
9,770,164
28,593,184
24,701,447
Unearned future finance income on finance lease
(3,485,154)
(2,783,479)
Net receivables from finance lease
25,108,030
21,917,968
Equipment
and furniture
(SAR ’000)
Total
2015
(SAR ’000)
Total
2014
(SAR ’000)
Gross receivables from finance lease
Less than 1 year
8. Investment Property and Property and Equipment, Net
Property and equipment, net comprises the following as of 31 December:
Leasehold
Land
(SAR ’000)
Buildings
Land & buildings
Improvements
(SAR ’000)
(SAR ’000)
Cost
At 1 January
1,845,736
2,275,324
867,466
3,247,721
8,236,247
7,352,731
Additions
111,762
510,540
62,963
456,730
1,141,995
912,215
Disposals
(2,887)
(2,394)
(5,281)
(28,699)
1,954,611
2,783,470
930,429
3,704,451
9,372,961
8,236,247
At 31 December
–
–
Accumulated depreciation and
amortisation
At 1 January
–
245,096
844,585
2,332,625
3,422,306
3,032,283
Charge for the year
–
52,117
27,153
294,829
374,099
412,716
Disposals
–
(2,375)
(2,375)
(22,693)
At 31 December
–
294,838
871,738
2,627,454
3,794,030
3,422,306
5,578,931
–
–
Net book value
At 31 December 2015
1,954,611
2,488,632
58,691
1,076,997
At 31 December 2014
1,845,736
2,030,228
22,881
915,096
4,813,941
Buildings include work-in-progress amounting to SAR 907 million as at 31 December 2015 (2014: SAR 717 million).
Equipment and furniture includes information technology-related assets having net book value SAR 409 million (2014: SAR 578 million).
The net book value of the investment property approximates the fair value.
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127
9. Other Assets, Net
Other assets, net comprise the following as of 31 December:
2014
(SAR ’000)
518,296
783,828
270,383
316,382
1,374,808
1,068,516
Prepaid expenses
441,725
574,152
Accrued income
310,336
279,287
1,014,015
490,354
Customer debit current account
243,356
190,653
Others, net
458,294
603,274
4,631,213
4,306,446
2015
(SAR ’000)
2014
(SAR ’000)
615,352
1,108,552
Banks’ time investments
3,942,872
1,026,685
Total
4,558,224
2,135,237
Advance payments
Receivables
Investment in cars, real estate and other non-financial assets
Total
10. Due to Banks and Other Financial Institutions
Due to banks and other financial institutions, comprise the following as of 31 December:
Current accounts
11. Customers’ Deposits
Customers’ deposits by type comprise the following as of 31 December:
Demand deposits
Customers’ time investments
Other customer accounts
Total
2015
(SAR ’000)
2014
(SAR ’000)
240,988,120
228,791,014
10,389,516
22,513,661
4,850,133
4,772,372
256,227,769
256,077,047
Cheques under collection
2015
(SAR ’000)
Messages
Business Model
Stewardship
Identity
Financial Reports
128
The balance of the other customers’ accounts includes margins on letters of credit and guarantees, checks under clearance
and transfers.
Customers’ deposits by currency comprise the following as of 31 December:
Saudi Riyals
Foreign currencies
Total
2015
(SAR ’000)
2014
(SAR ’000)
245,844,537
242,095,963
10,383,232
13,981,084
256,227,769
256,077,047
2015
(SAR ’000)
2014
(SAR ’000)
12. Other Liabilities
Other liabilities comprise the following as of 31 December:
5,232,223
5,317,260
Provision for employees’ end of service benefits
615,265
653,439
Accrued expenses
684,445
573,598
23,875
34,475
Other
1,638,793
1,024,305
Total
8,194,601
7,603,077
Accounts payable
Charities (See Note 30)
13. Share Capital
The authorised, issued and fully paid share capital of the Bank consists of 1,625 million shares of SAR 10 each (2014: 1,625 million
shares of SAR 10 each).
The Extraordinary General Assembly Meeting held on Jumada’ II 14. 1435H (corresponding to 14 April, 2014), approved the increase
in the share capital from SAR 15,000 million to SAR 16,250 million through transfer of SAR 1,250 million from retained earnings by
issuing one bonus share for every twelve shares.
14. Statutory, General and Other Reserves
The Banking Control Law in Saudi Arabia and the Bylaws of the Bank require a transfer to statutory reserve at a minimum of 25% of
net income for the year. The Bank may discontinue such transfers when the reserve equals the paid up share capital. This reserve
is presently not available for distribution. An amount of SAR 1,250 million was transferred to statutory reserve during 2014 and no
further transfer is required as the cumulative amount i.e., SAR 16,250 million is equal to the share capital.
In addition, the Bank makes an appropriate general reserve for general banking risks and others, if any.
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The movements in available-for-sale investments and foreign currency reserves are summarised as follows:
Balance at the beginning of the year
Net changes in fair value
Net amount transferred to consolidated statement of income
Available-for-sale
investments
(SAR ’000)
Foreign currency
translation
(SAR ’000)
5,380
22,727
(206,914)
155,010
–
28,107
(206,914)
155,010
(159,878)
(159,878)
(46,524)
(137,151)
(183,675)
Available-for-sale
investments
(SAR ’000)
Foreign currency
translation
(SAR ’000)
2014
Total
(SAR ’000)
Balance at the beginning of the year
1,834
91,288
93,122
Net changes in fair value
3,679
–
3,679
(133)
–
(133)
Exchange difference on translation of foreign operations
Net amount transferred to consolidated statement of income
Exchange difference on translation of foreign operations
–
–
2015
Total
(SAR ’000)
–
5,380
(68,561)
(68,561)
22,727
28,107
The Bank under an employee share plan grants its shares to certain eligible employees. The exercise price of the stock option is the
market value of these shares at the date of granting the programme to these employees. The condition for granting these options is
the completion of two years of employment at the Bank. Exercising these stock options by the employees is subject to fulfilment of
some requirements for profitability and growth in the Bank. The Bank has no legal or expected commitment to repurchase or settle
these options in cash.
In addition, other reserves includes available-for-sale investments reserve, foreign currency translation reserve and employee
share plan.
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In accordance with the Bank’s accounting policy, the Bank records the amount of Zakat it calculates in other reserves until such
time when the final amount of Zakat payable can be determined, at which time, the amount of Zakat payable is transferred from
other reserves to other liabilities. During the year, the Bank transferred SAR 143,376 thousand (2014: SAR 258,438 thousand) to other
liabilities as Zakat payable.
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15. Commitments and Contingencies
(a) Legal proceedings
As at 31 December 2015, there were certain legal proceedings outstanding against the Bank in the normal course of business
including those relating to the extension of credit facilities. Such proceedings are being reviewed by the concerned parties.
Provisions have been made for some of these legal cases based on the assessment of the Bank’s legal advisors.
(b) Capital commitments, related to commitments to grant credit
As at 31 December 2015, the Bank had capital commitments of SAR 227 million (2014: SAR 189 million) relating to contracts
for computer software update and development and SAR 532 million (2014: SAR 1.288 million) relating to development and
improvement of new and existing branches.
(c) Credit related commitments and contingencies
The primary purpose of these instruments is to ensure that funds are available to customers as required. Credit related commitments
and contingencies mainly comprise letters of guarantee, standby letters of credit, acceptances and unused commitments to extend
credit, Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the
event that a customer cannot meet his obligations to third parties, carry the same credit risk as financing.
Letters of credit, which are written undertakings by the Bank on behalf of a customer authorising a third party to draw drafts on
the Bank up to a stipulated amount under specific terms and conditions are collateralised by the underlying shipments of goods to
which they relate, and therefore, carry less risk. Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on
customers. The Bank expects most acceptances to be presented before being reimbursed by the customers.
Cash requirements under guarantees and letters of credit are considerably less than the amount of the commitment because the
Bank does not expect the third party to draw funds under the agreement.
Commitments to extend credit represent unused portions of authorisation to extended credit, principally in the form of financing,
guarantees and letters of credit. With respect to credit risk relating to commitments to extend unused credit, the Bank is potentially
exposed to a loss in an amount which is equal to the total unused commitments. The likely amount of loss, which cannot be
reasonably estimated, is expected to be considerably less than the total unused commitments, since most commitments to extend
credit are contingent upon customers maintaining specific credit standards. The total outstanding commitments to extend credit do
not necessarily represent future cash requirements, as many of these commitments could expire without being funded.
1. The contractual maturities of the Bank’s commitments and contingent liabilities are as follows as at 31 December:
2015
Less than
3 months
(SAR ’000)
From 3 to
12 months
(SAR ’000)
From 1 to
5 years
(SAR ’000)
Over
5 years
(SAR ’000)
Total
(SAR ’000)
Letters of credit
526,920
651,273
190,334
23,472
1,391,999
Acceptances
308,551
138,057
4,016
3,189
453,813
Letters of guarantee
42,392
415,177
3,392,102
2,058,129
5,907,800
Irrevocable commitments to extend credit
11,098
1,391,761
849,498
296,082
2,548,439
888,961
2,596,268
4,435,950
2,380,872
10,302,051
Total
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2014
From 3 to
12 months
(SAR ’000)
From 1 to
5 years
(SAR ’000)
Over
5 years
(SAR ’000)
(SAR ’000)
Letters of credit
709,706
808,273
149,901
2,175,766
3,843,646
Acceptances
348,784
149,520
34,845
3,189
536,338
Total
Total
69,130
1,366,896
4,090,204
1,860,133
7,386,363
543,613
3,737,211
1,189,306
1,614,798
7,084,928
1,671,233
6,061,900
5,464,256
5,653,886
18,851,275
2. The analysis of commitments and contingencies by counterparty is as follows as at 31 December:
2015
(SAR ’000)
2014
(SAR ’000)
Corporate
9,157,923
12,615,991
Banks and other financial institutions
1,144,128
6,235,284
10,302,051
18,851,275
Total
(d) Operating lease commitments
The future minimum lease payments under non-cancellable operating leases, where the Bank is the lessee, are as follows
as at 31 December:
2015
(SAR ’000)
Less than one year
One year to five years
Over five years
Total
2014
(SAR ’000)
23,405
20,659
172,250
156,309
44,629
43,046
240,284
220,014
Less than
3 months
(SAR ’000)
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16. Net Financing and Investment Income
Net financing and investment income for the years ended 31 December comprises the following:
2015
(SAR ’000)
2014
(SAR ’000)
Corporate Mutajara
1,320,889
1,298,142
Instalment sale
7,910,838
7,911,152
492,042
520,643
Murabaha with SAMA
269,472
273,430
Mutajara with banks
208,509
148,946
Income from Sukuk
56,630
60,205
10,258,380
10,212,518
(244,011)
(333,926)
(55,427)
(61,272)
9,958,942
9,817,320
2015
(SAR ’000)
2014
(SAR ’000)
Fees from advanced payments on contracts
808,924
1,362,033
Fees from payment service systems
792,346
463,535
Fees from share trading services
469,334
531,817
Fees from remittance business
460,710
387,716
Fees from credit cards
462,435
305,514
Mudaraba fee income
136,878
93,555
Fees from SADAD
142,169
126,393
Other
431,168
377,458
3,703,964
3,648,021
Fees for payment service systems
(890,366)
(795,048)
Fees for share trading services
(109,507)
(114,508)
Total fee expense
(999,873)
(909,556)
2,704,091
2,738,465
Financing
Murabaha
Investments and other
Gross financing and investment income
Return on customers’ time investments
Return on due to banks and financial institutions’ time investments
Net financing and investments income
17. Fee from Banking Services, Net
Fees from banking services, net for the years ended 31 December comprise the following:
Fee income
Total fee income
Fee expenses
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18. Other Operating Income
Other operating income for the years ended 31 December comprises the following:
2014
(SAR ’000)
51,026
34,837
Gain on sale of property and equipment
5,861
25,615
Share of profit from investment in an associate
6,858
1,738
(Loss)/Gain from equity investments and funds
(100,939)
(2,496)
27,420
23,825
Other income, net
112,950
75,614
Total
103,176
159,133
Dividend income
Income from sale of various investments
19. Salaries and Employee-Related Benefits
The following tables provide an analysis of the salaries and employee-related benefits for the years ended 31 December:
2015
Variable compensations paid
Number of
Employees
Executives
Fixed
Compensations
(SAR ’000)
Cash
Shares
(SAR ’000)
(SAR ’000)
65
58,604
5,978
2,807
1,110
319,180
42,029
3,989
314
100,137
15,244
1,621
Other employees
10,885
1,455,810
134,735
2,245
Total
12,374
1,933,731
197,986
10,662
Accrued variable compensations in 2015
–
304,732
–
–
Other employees’ bonuses
–
422,580
–
–
Gross total
12,374
2,661,043
197,986
10,662
2015
(SAR ’000)
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2014
Variable compensations paid
Number of
employees
Executives
Fixed
compensations
(SAR ’000)
Cash
Shares
(SAR ’000)
(SAR ’000)
41
29,030
9,454
2,793
1,171
327,878
51,768
2,748
206
79,253
10,017
810
Other employees
10,343
1,246,459
163,374
2,824
Total
11,761
1,682,620
234,613
9,175
Accrued variable compensations in 2014
–
288,903
–
–
Other employees’ bonuses
–
542,580
–
–
Gross total
11,761
2,514,103
234,613
9,175
Salaries and employee benefits contains end of services. GOSI, business trips, training and other benefits.
As the Kingdom of Saudi Arabia is part of the G-20, instructions were given to all financial institutions in the Kingdom to comply with
the standards and principles of Basel II and the Financial Stability Board.
SAMA, as the regulatory for the financial institutions in Saudi Arabia, issued regulations on compensations and bonus in accordance
with the standards and principles of Basel II and the Financial Stability Board.
In light of SAMA instructions related to the compensations and bonuses, the Bank issued compensation and bonuses policy which
was implemented after the Board of Directors approval.
The scope of this policy is extended to include the Bank and its subsidiary companies (local and international) that are operating
in the financial sector. Accordingly, it includes all official employees, permanent and temporary contracted employees and service
providers (contribution in risk position if SAMA allows the use of external resources).
For consistency with other banking institutions in the Kingdom of Saudi Arabia, the Bank has used a combination of fixed and
variable compensation to attract and maintain talent. The fixed compensation is assessed on a yearly basis by comparing it to other
local banks in the Kingdom of Saudi Arabia including the basic salaries, allowance and benefits which is related to the employee’s
ranks. The variable compensation is related to the employees performance and their compatibility to achieve the agreed on
objectives. It includes incentives, performance bonus and other. Incentives are mainly paid to branches’ employees whereby the
performance bonuses are paid to head office employees and others who do not qualify for incentives.
These bonuses and compensation are approved by the Board of Directors as a percentage of the Bank’s income.
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20. Other General and Administrative Expenses
Other General and Administrative Expenses for the years ended 31 December comprises the following:
2014
(SAR ’000)
Utilities
405,905
369,766
Software
308,686
288,159
Electricity & water
281,122
243,024
Consultancy
63,460
130,680
Government
33,664
45,611
281,403
253,088
1,374,240
1,330,328
Others
Total
21. Earnings Per Share
Earnings per share for the years ended 31 December 2015 and 2014 have been calculated by dividing the net income for the year
by the weighted average number of shares outstanding. The weighted average number of ordinary shares outstanding during the
period is the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares
bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that
the shares are outstanding as a proportion of the total number of days in the period. The calculation of earnings per share for year
ended 31 December 2014 has been adjusted to give the retrospective effect of the bonus shares issued (Note 13).
22. Paid and Proposed Gross Dividends and Zakat
The Bank distributed dividends for the first half of 2015 amounting to SAR 812,500 thousand (i.e. SAR 0.5 per share) (2014:
SAR 1,625,000 thousand (i.e. SAR 1 per share). Also the Board proposed gross dividends for the second half of 2015 amounting to SAR
2,475,000 thousand (2014: SAR 1,968,750 thousand) of which SAR 850,000 thousand (2014: SAR 750,000 thousand) was deducted for
Zakat from the proposed gross dividends. resulting in a net dividend of SAR 1,5 per share for 2015 (2014: SAR 1,75 per share).
The Bank has filed its Zakat returns for the years up to 2014 with the Department of Zakat and Income Tax (the “DZIT”). The Zakat
assessments for the years up to 2001 have been finalized with the DZIT. The Bank has received Zakat assessments from the DZIT in
respect to the years 1998 to 2009 amounting to SAR 2,864,352 thousand, out of which SAR 2,153,811 thousand was calculated and
paid in accordance with the instructions of the Bank’s Shari‘a Board and the remaining balance SAR 710,541 thousand is recorded
under other reserves. Moreover, the Bank calculated the Zakat base for the years from 2010 to 2014 on a basis consistent with DZIT
requirements amounting to SAR 3,99,245 thousand out of which SAR 1,221,643 thousand was calculated and paid in accordance
with the instructions of the Bank’s Shari‘a Board and SAR 2,443,052 thousand is recorded under other reserves. The basis for this
additional liability is being contested by all the Banks in Saudi Arabia, and accordingly, the Bank does not expect any additional
Zakat liability.
The Bank has formally contested these assessments and is awaiting a response from DZIT. The management believes that the
ultimate outcome of the appeals filed and actions taken by the Bank in conjunction with other banks in the Kingdom of Saudi Arabia
cannot be determined reliably at this stage.
2015
(SAR ’000)
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23. Cash and Cash Equivalents
Cash and cash equivalents included in the consolidated statement of cash flows comprise the following:
2015
(SAR ’000)
2014
(SAR ’000)
Cash
8,865,284
8,963,159
Due from banks and other financial institutions mature within 90 days from the date of purchased
2,761,056
4,128,042
756,140
9,140,784
12,382,480
22,231,985
Balances with SAMA and other central banks (current accounts)
Total
24. Operating Segments
The Bank identifies operating segments on the basis of internal reports about the activities of the Bank that are regularly reviewed
by the chief operating decision maker, principally the Chief Executive Officer, in order to allocate resources to the segments and to
assess its performance.
For management purposes, the Bank is organised into the following four main businesses segments:
Retail segment:
Includes individual customer deposits. credit facilities, customer debit current accounts (overdrafts), fees
from banking services and remittance business.
Corporate segment:
Incorporates deposits of VIP, corporate customer deposits, credit facilities and debit current accounts
(overdrafts).
Treasury segment:
Incorporates treasury services, Murabaha with SAMA and international Mutajara portfolio.
Investment services and
brokerage segments:
Incorporates investments of individuals and corporate in mutual funds, local and international share
trading services and investment portfolios.
Transactions between the above segments are on normal commercial terms and conditions. There are no material items of income
or expenses between the above segments. Assets and liabilities for the segments comprise operating assets and liabilities, which
represents the majority of the Bank’s assets and liabilities.
The Bank carries out its activities principally in the Kingdom of Saudi Arabia and has five subsidiaries as of 31 December 2015 and
2014, as listed in Note 1-a, of which one operates outside the Kingdom of Saudi Arabia, additional to overseas branches that operate
in Jordan and Kuwait.
The total assets, liabilities, commitments, contingencies and results of operations of these subsidiaries are not material to the Bank’s
consolidated Financial Statements as a whole.
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Retail
segment
Corporate
segment
Treasury
segment
(SAR ’000)
Investment
services and
brokerage
segment
(SAR ’000)
(SAR ’000)
(SAR ’000)
Total assets
165,964,007
Total liabilities
(SAR ’000)
55,517,678
91,459,316
2,678,647
315,619,648
242,821,617
16,418,369
8,824,775
915,833
268,980,594
Gross financing & investments income
7,676,492
1,961,458
583,185
37,245
10,258,380
(79,393)
(220,045)
Net financing & investments income
7,597,099
1,741,413
583,185
37,245
9,958,942
Fees from banking services, net
1,641,622
499,774
47,589
515,106
2,704,091
–
–
–
979,566
–
–
Total
(299,438)
979,566
(15,802)
(1,482)
41,400
79,060
103,176
9,222,919
2,239,705
1,651,740
631,411
13,745,775
(981,965)
(976,060)
Impairment charge for financing and others
–
–
(1,958,025)
(352,483)
(12,537)
(2,412)
(6,667)
(374,099)
Other operating expenses
(3,803,082)
(264,679)
(54,739)
(161,076)
(4,283,576)
(5,137,530)
(1,253,276)
(57,151)
(167,743)
(6,615,700)
4,085,389
986,429
1,594,589
463,668
7,130,075
2015
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(a) The Bank’s total assets and liabilities, together with its total operating income and expenses. and net income, as of and for the
years ended 31 December for each segment are as follows:
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2014
Retail
segment
Corporate
segment
Treasury
segment
(SAR ’000)
Investment
services and
brokerage
segment
(SAR ’000)
(SAR ’000)
(SAR ’000)
Total assets
153,094,020
Total liabilities
(SAR ’000)
63,217,884
85,087,710
6,311,941
307,711,555
219,330,826
21,945,414
19,531,631
5,007,490
265,815,361
Gross financing & investments income
7,594,527
2,080,721
493,054
44,216
10,212,518
(97,106)
(298,092)
Net financing & investments income
7,497,421
1,782,629
Fees from banking services, net
1,666,389
534,578
–
–
147,951
11,182
9,311,761
2,328,389
(1,371,445)
(940,734)
Impairment charge for financing and others
–
–
Total
(395,198)
493,054
44,216
9,817,320
8,412
529,086
2,738,465
952,056
–
1,453,522
–
–
952,056
–
159,133
573,302
–
13,666,974
(2,312,179)
(392,456)
(12,856)
(2,306)
(5,098)
(412,716)
Other operating expenses
(3,613,755)
(300,967)
(45,681)
(145,504)
(4,105,907)
(5,377,656)
(1,254,557)
(47,987)
(150,602)
(6,830,802)
3,934,105
1,073,832
1,405,535
422,700
6,836,172
(b) The Bank’s credit exposure by business segments as of 31 December is as follows:
2015
Consolidated balance sheet assets
Commitments and contingencies excluding
irrevocable commitments to extend credit
Retail
segment
Corporate
segment
Treasury
segment
Investment
services and
brokerage
segment
Total
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
146,364,449
53,860,939
72,069,402
6,060,998
278,355,788
1,059,590
6,694,022
–
–
7,753,612
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2014
Commitments and contingencies excluding
irrevocable commitments to extend credit
Corporate
segment
Treasury
segment
Investment
services and
brokerage
segment
Total
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
142,515,802
61,443,496
58,835,744
2,210,749
278,355,788
4,294,910
7,471,437
–
–
11,766,347
Credit risks comprise the carrying value of the consolidated statement of financial position. except for cash and balances with SAMA,
investment property, property and equipment and other assets. The credit equivalent value of commitments and contingencies are
included in credit exposure.
25. Financial Risk Management
The Bank’s activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and
management of some degree of risk or combination of risks. Taking risk is core to the banking business, and these risks are an
inevitable consequence of participating in financial markets. The Bank’s aim is therefore to achieve an appropriate balance between
risk and return and minimise potential adverse effects on the Bank’s financial performance.
The Bank’s risk management policies, procedures and systems are designed to identify and analyse these risks and to set appropriate
risk mitigants and controls, The Bank reviews its risk management policies and systems on an ongoing basis to reflect changes in
markets. products and emerging best practice.
Risk management is performed by the Credit and Risk Management Group (“CRMG”) under policies approved by the Board of
Directors. The CRMG identifies and evaluates financial risks in close co-operation with the Bank’s operating units. The most important
types of risks identified by the Bank are credit risk, liquidity risk and market risk. Market risk includes currency risk, profit rate risk,
operational risk and price risk.
25-1 Credit risk
Credit risk is considered to be the most significant and pervasive risk for the Bank. The Bank takes on exposure to credit risk, which
is the risk that the counterparty to a financial transaction will fail to discharge an obligation causing the Bank to incur a financial
loss. Credit risk arises principally from financing (credit facilities provided to customers) and from cash and deposits held with other
banks. Further, there is credit risk in certain off-balance sheet financial instruments, including guarantees relating to purchase and
sale of foreign currencies letters of credit, acceptances and commitments to extend credit. Credit risk monitoring and control is
performed by the CRMG which sets parameters and thresholds for the Bank’s financing activities.
(a) Credit risk measurement
Financing
The Bank has structured a number of financial products which are in accordance with Shari’a law in order to meet the customers
demand. These products are all classified as financing assets in the Bank’s consolidated statement of financial position. In measuring
credit risk of financing at a counterparty level, the Bank considers the overall credit worthiness of the customer based on a
proprietary risk methodology. This risk rating methodology utilises a 10 point scale based on quantitative and qualitative factors with
seven performing categories (rated 1 to 7) and three non-performing categories (rated 8 – 10). The risk rating process is intended to
advise the various independent approval authorities of the inherent risks associated with the counterparty and assist in determining
suitable pricing commensurate with the associated risk.
Consolidated balance sheet assets
Retail
segment
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This process also enables the Bank to detect any weakness in the portfolio quality and make appropriate adjustments to credit
risk allowances, where credit quality has deteriorated and where losses are likely to arise. The Bank evaluates individual corporate
customer balances which are past due to make appropriate allowances against financings. For the remaining (performing) corporate
portfolio, the Bank applies a loss rate to determine an appropriate collective allowance. The loss rate is determined based on
historical experience of credit losses.
Settlement risk
The Bank is also exposed to settlement risk in its dealings with other financial institutions. These risks arise when the Bank pays away
its side of the transaction to the other bank or counterparty before receiving payment from the third party. The risk is that the third
party may not pay its obligation. While these exposures are short in duration but they can be significant. The risk is mitigated by
dealing with highly rated counterparties, holding collateral and limiting the size of the exposures according to the risk rating of the
counterparty.
(b) Risk limit control and mitigation policies
The responsibility for credit risk management is enterprise wide in scope. Strong risk management is integrated into daily processes,
decision-making and strategy setting, thereby making the understanding and management of credit risk the responsibility of every
business segment.
The following business units within the Bank assist in the credit control process:
zz
Corporate Credit Unit
zz
Credit Administration, Monitoring and Control Unit
zz
Remedial Unit
zz
Credit Policy Unit
zz
Retail Credit Unit
The monitoring and management of credit risk associated with these financing are made by setting approved credit limits. The Bank
manages limits and controls concentrations of credit risk wherever they are identified – in particular, to individual customers and
groups, and to industries and countries.
Concentrations of credit risks arise when a number of customers are engaged in similar business activities, activities in the same
geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly
affected by changes in economic, political or other conditions. Concentrations of credit risks indicate the relative sensitivity of the
Bank’s performance to developments affecting a particular industry or geographical location.
The Bank seeks to manage its credit risk exposure through diversification of its financing to ensure there is no undue concentration
of risks with to individuals or groups of customers in specific geographical locations or economic sectors.
The Bank manages credit risk by placing limits on the amount of risk accepted in relation to individual customers and groups, and
to geographic and economic segments. Such risks are monitored on a regular basis and are subject to an annual or more frequent
review, when considered necessary. Limits on the level of credit risk by product, economic sector and by country are reviewed at
least annually by the Executive Committee.
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(b-1) Collateral
The Bank implements guidelines on the level and quality of specific classes of collateral.
The principal collateral types are:
zz
Mortgages over residential and commercial properties
zz
Cash, shares and general assets for customer
zz
Shares for Murabaha (collateralised share trading) transactions
(b-2) Collateralised credit-related commitments
The primary purpose of these instruments is to ensure that funds are available to a customer as required. Guarantees and standby
letters of credit carry the same credit risk as traditional banking products of the Bank.
Documentary and commercial letters of credit – which are written undertakings by the Bank on behalf of a customer authorising
a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralised by the
underlying goods to which they relate, and therefore, risk is partially mitigated.
Commitments to extend credit represent unused portions of authorisations to extend credit in the form of further financing
products, guarantees or letters of credit. With respect to credit risk on commitments to extend credit, the Bank is potentially exposed
to loss in an amount equal to the total unused commitments. However, the likely amount of loss is less than the total unused
commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.
(c) Impairment and provisioning policies
Allowance for impairment is recognised for financial reporting purposes only for losses that have been incurred at the statement of
financial position date based on objective evidence of impairment, and management judgment.
Management determines whether objective evidence of impairment exists under IAS 39, based on the following criteria as defined
by the Bank:
zz
Delinquency in contractual payments of principal or profit
zz
Cash flow difficulties experienced by the customer
zz
Breach of repayment covenants or conditions
zz
Initiation of bankruptcy proceedings against the customer
zz
Deterioration of the customer’s competitive position
zz
Deterioration in the value of collateral
The Bank’s policy requires the review of each individual corporate customer at least annually or more regularly when individual
circumstances require. Impairment allowances on individually assessed accounts are determined by an evaluation of incurred losses
at the statement of financial position date on a case-by-case basis, and by using management judgment.
The assessment normally encompasses collateral held (including reconfirmation of its enforceability) and the anticipated receipts for
that individual account.
Some other specific control and mitigation measures are outlined below:
141
Exposure to credit risk is also managed through regular analysis on the ability of customers and potential customers to meet
financial and contractual repayment obligations and by revising credit limits where appropriate.
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Collectively assessed impairment allowances are provided for:
zz
Portfolios of homogenous assets mainly relating to the retail financing portfolio that are individually not significant.
zz
On the corporate portfolio for financing where losses have been incurred but not yet identified, by using historical experience,
judgment and statistical techniques.
The table below sets out the maximum exposure to credit risk at the reporting date without considering collateral or other credit
enhancements and includes the off-balance sheet financial instruments involving credit risks as at 31 December:
2015
(SAR ’000)
2014
(SAR ’000)
26,911,056
16,516,208
57,096,011
61,825,724
153,121,857
144,114,236
2,136,460
2,042,997
239,265,384
224,499,165
Letters of credit and acceptances
1,845,812
4,379,984
5,907,800
7,386,363
2,548,439
7,084,928
10,302,051
18,851,275
249,567,435
243,350,440
On-balance sheet items:
Financing, net:
Corporate
Retail
Other assets, net
Total on balance sheet items
Off balance sheet items:
Total off balance sheet items
Maximum exposure to credit risk
The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2015 and 2014, without taking
account of any collateral held or other credit enhancements attached, for on-balance-sheet assets, the exposures set out above are
based on net carrying amounts as reported in the consolidated statement of financial position.
25-2 Liquidity risks
Liquidity risk is the risk that the Bank will be unable to meet its payment obligations associated with its financial liabilities when they
fall due and to replace funds when they are withdrawn. The consequence may be the failure to meet obligations to repay deposits
and financing parties and fulfil financing commitments. Liquidity risk can be caused by market disruptions or by credit downgrades,
which may cause certain sources of funding to become unavailable immediately. Diverse funding sources available to the Bank help
mitigate this risk. Assets are managed with liquidity in mind, maintaining a conservative balance of cash and cash equivalents.
Liquidity risk management process
The Bank’s liquidity management process is as monitored by the Bank’s Asset and Liabilities Committee (ALCO), includes:
zz
Day-to-day funding, managed by Treasury to ensure that requirements can be met and this includes replenishment of funds as
they mature or are invested;
zz
Monitoring balance sheet liquidity ratios against internal and regulatory requirements;
zz
Managing the concentration and profile of debt maturities;
zz
Maintain diversified funding sources; and
zz
Liquidity management and asset and liability mismatching.
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Management monitors the maturity profile to ensure that adequate liquidity is maintained. Assets available to meet all of the
liabilities and to cover outstanding financing commitments include cash, balances with SAMA and due from banks. Further, in
accordance with the Banking Control Law and Regulations issued by SAMA, the Bank maintains a statutory deposit equal to a sum
not less than 7% of total customers’ deposits and 4% of total other customers’ accounts. In addition to the statutory deposit, the Bank
maintains a liquid reserve of not less than 20% of the deposit liabilities, in the form of cash, gold or assets which can be converted
into cash within a period not exceeding 30 days. Also, the Bank has the ability to raise additional funds through special financing
arrangements with SAMA including deferred sales transactions.
The contractual maturities of financial assets and liabilities as of 31 December based on discounted cash flows are as follows. The
table below does not reflect the expected cash flows indicated by the deposit retention history of the Group. The current deposits
have been included in ‘less than three months bucket’. Management monitors rolling forecast of the Group’s liquidity position and
cash and cash equivalents on the basis of expected cash flows. This is carried out in accordance with practice and limits set by the
Group and based on the pattern of historical deposit movement. In addition, the Group’s liquidity management policy involves
projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these monitoring balance
sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans.
2015
Less than
3 months
(SAR ’000)
3 to 12
months
(SAR ’000)
1 to 5
years
(SAR ’000)
Over
5 years
(SAR ’000)
Total
(SAR ’000)
3,425,348
27,053,716
Assets
Cash and balance with SAMA and central banks
15,407,536
3,082,812
5,138,020
9,936,803
15,854,285
1,119,968
Financing, net
27,776,037
46,768,663
118,923,659
16,749,509
210,217,868
Investments
22,826,712
10,071,949
3,139,301
3,838,902
39,876,864
Other assets, net
Total
2,136,460
78,083,548
–
–
–
–
75,777,709
128,320,948
24,013,759
2,956,011
934,842
623,672
43,699
254,355,826
1,475,356
396,587
26,911,056
2,136,460
306,195,964
Liabilities
Customer deposits
Other liabilities
6,871,016
–
–
4,558,224
–
256,227,769
–
6,871,016
Total
264,182,853
2,410,198
1,020,259
43,699
267,657,009
Gap
(186,099,305)
73,367,511
127,300,689
23,970,060
38,538,955
The tables below summarise the maturity profile of the Bank’s assets and liabilities, on the basis of the remaining maturity as of the
consolidated statement of financial position date to the contractual maturity date.
143
Monitoring and reporting take the form of analysing cash flows of items with both contractual and non-contractual maturities. The
net cash flows are measured and ensured that they are within acceptable ranges. The Treasury/ALCO also monitors, the level and
type of undrawn lending commitments, usage of overdraft facilities and the potential impact contingent liabilities such as standby
letters of credit and guarantees may have on the Bank’s liquidity position.
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2014
Less than
3 months
(SAR ’000)
3 to 12
months
(SAR ’000)
1 to 5
years
(SAR ’000)
Over
5 years
(SAR ’000)
Total
(SAR ’000)
Assets
Cash and balance with SAMA and central banks
33,585,377
–
–
6,905,454
9,610,754
26,156,352
45,374,329
119,619,864
14,789,415
205,939,960
Investments
18,095,541
23,162,515
10,574
1,280,993
42,549,623
2,042,997
Total
–
–
–
33,585,377
Financing, net
Other assets, net
–
–
–
16,516,208
2,042,997
86,785,721
78,147,598
119,630,438
16,070,408
300,634,165
1,001,991
833,904
236,164
63,178
2,135,237
239,084,695
12,284,314
1,612,806
3,095,232
256,077,047
Liabilities
Customer deposits
Other liabilities
6,341,565
–
–
–
6,341,565
Total
246,428,251
13,118,218
1,848,970
3,158,410
264,553,849
Gap
(159,642,530)
65,029,380
117,781,468
12,911,998
36,080,316
The following tables disclose the maturity of contractual financial liabilities on undiscounted cash flows as at 31 December:
2015
Due to banks and other
Customer deposits
Other liabilities
Total
Less than
3 months
(SAR ’000)
3 to 12
months
(SAR ’000)
1 to 5
years
(SAR ’000)
Over
5 years
(SAR ’000)
No fixed
maturity
(SAR ’000)
(SAR ’000)
2,914,248
934,842
623,672
43,699
43,837
4,560,298
253,709,468
1,475,648
396,587
673,319
256,255,022
6,871,016
263,494,732
–
2,410,490
–
1,020,259
–
–
43,699
–
717,156
Total
6,871,016
267,686,336
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2014
Customer deposits
22,902
2,152,335
240,538,835
10,831,249
Other liabilities
Total
3 to 12
months
(SAR ’000)
6,341,565
246,903,302
–
12,983,584
1 to 5
years
(SAR ’000)
–
996,116
–
996,116
Over
5 years
(SAR ’000)
–
3,731,329
–
3,731,329
No fixed
maturity
(SAR ’000)
Total
(SAR ’000)
–
2,175,237
–
256,097,529
–
6,341,565
–
264,614,331
The cumulative maturities of commitments and contingencies are given in Note 15-c-1 of the Financial Statements.
25-3 Market risks
The Bank is exposed to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate
due to changes in market prices. Market risks arise on profit rate products, foreign currency and mutual fund products, all of which
are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit
rates, foreign exchange rates and quoted market prices.
Market risk exposures are monitored by Treasury/Credit and Risk Department and reported to ALCO on a monthly basis. ALCO
deliberates on the risks taken and ensure that they are appropriate.
(a) Market risks – speculative operations
The Bank is not exposed to market risks from speculative operations. The Bank is committed to Shari’a guidelines which does not
permit it to enter into contracts or speculative instruments such as hedging, options, forward contracts and derivatives.
(b) Market risks – banking operations
The Bank is exposed to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate
due to changes in market prices. Market risks arise on profit rate products, foreign currency and mutual fund products, all of which
are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit
rates, foreign exchange rates and quoted market prices.
Profit rate risk
Cash flow profit rate risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market profit
rates. The Bank does not have any significant exposure to the effects of fluctuations in prevailing level of market profit rates on
its future cash flows as a significant portion of profit earning financial assets and profit bearing liabilities are at fixed rates and are
carried in the Financial Statements at amortised cost. In addition to this, a substantial portion of the Bank’s financial liabilities are
non-interest bearing.
Commission rate risk arises from the possibility that the changes in profit rates will affect either the fair values or the future cash
flows of the financial instruments. The Board has established commission rate gap limits for stipulated periods. The Bank monitors
positions daily and uses gap management strategies to ensure maintenance of positions within the established gap limits.
The following table depicts the sensitivity to a reasonable possible change in profit rates, with other variables held constant, on the
Bank’s statement of income or equity. The sensitivity of the income is the effect of the assumed changes in profit rates on the net
income for one year, based on the floating rate non-trading financial assets and financial liabilities held as at 31 December 2015 and
Less than
3 months
(SAR ’000)
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2014. The sensitivity of equity is same as sensitivity of income since the Bank does not have fixed rate available-for-sale financial
assets as at 31 December 2015 and 2014. All the banking book exposures are monitored and analysed in currency concentrations
and relevant sensitivities are disclosed in SAR million.
2015
Currency
SAR
Increase in basis
+25
Sensitivity of gross financing and investment income
As at
31 December
(SAR million)
Average
Maximum for
Minimum
(SAR million)
(SAR million)
(SAR million)
211
187
225
152
2015
Currency
SAR
Decrease in basis
-25
As at
31 December
(SAR million)
Average
Maximum for
Minimum
(SAR million)
(SAR million)
(SAR million)
-211
-187
-225
-152
2014
Currency
SAR
Increase in basis
+25
As at
31 December
(SAR million)
Average
Maximum for
Minimum
(SAR million)
(SAR million)
(SAR million)
155
147
155
133
2014
Currency
SAR
Decrease in basis
-25
As at
31 December
(SAR million)
Average
Maximum for
Minimum
(SAR million)
(SAR million)
(SAR million)
-155
-147
-155
-133
* Profit rate movements affect reported equity through retained earnings, i.e. increases or decreases in financing and investment income.
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Commission sensitivity of assets, liabilities and off-balance sheet items
2015
3 to 12
months
(SAR ’000)
6 to 12
months
(SAR ’000)
1 to 5
years
(SAR ’000)
Over
5 years
(SAR ’000)
Total
(SAR ’000)
15,407,537
1,027,604
2,055,208
5,138,020
3,425,347
27,053,716
Assets
Cash and balance with SAMA
9,936,803
5,284,762
10,569,523
1,119,968
Investments
22,826,712
3,357,316
6,714,633
3,139,301
3,838,902
39,876,864
Financing, net
27,776,037
15,589,554
31,179,109
118,923,659
16,749,509
210,217,868
–
–
–
–
–
26,911,056
Other assets
2,136,460
2,136,460
Total assets
78,083,549
25,259,236
50,518,473
128,320,948
24,013,758
306,195,964
2,956,011
311,614
623,228
623,672
43,699
4,558,224
254,355,826
491,785
983,571
396,587
Liabilities
Customer deposits
6,871,016
264,182,853
803,399
1,606,799
1,020,259
43,699
267,657,009
Gap
(186,099,304)
24,455,837
48,911,674
127,300,689
23,970,059
38,538,955
Profit rate sensitivity – On-statement
of financial positions
(186,099,304)
24,455,837
48,911,674
127,300,689
23,970,059
38,538,955
24,455,837
–
–
–
279,464
48,911,674
127,300,689
23,970,059
38,538,955
Cumulative profit rate sensitivity gap (185,819,840) (161,364,003) (112,452,329)
14,848,360
38,818,419
77,357,374
Total profit rate sensitivity gap
(185,819,840)
–
–
256,227,769
Total liabilities
279,464
–
–
6,871,016
Profit rate sensitivity – Off-statement
–
–
Other liabilities
The Bank manages exposure to the effects of various risks associated with fluctuations in the prevailing levels of market commission
rates on its financial position and cash flows.
The Board sets limits on the level of mismatch of commission rate reprising that may be undertaken, which is monitored daily by
bank treasury.
The table below summarises the Bank’s exposure to profit rate risks. Included in the table are the Bank’s financial instruments at
carrying amounts, categorised by the earlier of contractual re-pricing or maturity dates.
The Bank is exposed to profit rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off-balance sheet
instruments that mature or re-price in a given period. The Bank manages this risk by matching the re-pricing of assets and liabilities
through risk management strategies.
Less than
3 months
(SAR ’000)
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2014
Less than
3 months
(SAR ’000)
3 to 6
months
(SAR ’000)
6 to 12
months
(SAR ’000)
1 to 5
years
(SAR ’000)
Over
5 years
(SAR ’000)
Total
(SAR ’000)
Assets
Cash and balance with SAMA
33,585,377
6,905,454
–
–
3,203,585
6,407,169
–
–
33,585,377
–
–
16,516,208
Investments
18,095,541
7,720,838
15,441,677
10,574
1,280,993
42,549,623
Financing, net
26,156,352
15,124,776
30,249,553
119,619,864
14,789,415
205,939,960
Other assets
2,042,997
–
–
–
–
2,042,997
Total assets
86,785,721
26,049,199
52,098,399
119,630,438
16,070,408
300,643,165
1,001,991
277,968
555,936
236,164
63,178
2,135,237
239,084,695
4,094,771
8,189,543
1,612,806
3,095,232
256,077,047
Liabilities
Customer deposits
Other liabilities
6,341,565
Total liabilities
246,428,251
4,372,739
8,745,479
1,848,970
3,158,410
264,553,849
Gap
(159,642,530)
21,676,460
43,352,920
117,781,468
12,911,998
36,080,316
Profit rate sensitivity – On-statement
(159,642,530)
21,676,460
43,352,920
117,781,468
12,911,998
36,080,316
Profit rate sensitivity – Off-statement
Total profit rate sensitivity gap
Cumulative profit rate sensitivity gap
587,254
159,055,276
–
–
–
–
–
–
–
–
6,341,565
587,254
21,676,460
43,352,920
117,781,468
12,911,998
36,080,316
(159,055,276) (137,378,816)
(94,025,896)
23,755,572
36,667,570
72,747,886
The off-statement of financial position gap represents the net notional amounts of derivative financial instruments, which are used
to manage the profit rate risk.
The effective profit rate (effective yield) of a monetary financial instrument is the rate that, when used in a present value calculation,
results in the carrying amount of the instrument. The rate is a historical rate for a fixed rate instrument carried at amortised cost and
a current market rate for a floating rate instrument or an instrument carried at fair value.
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The tables below summarise the Bank’s exposure to foreign currency exchange rate risk at 31 December 2015 and 2014 and
the concentration of currency risks. Included in the table are the Bank’s financial instruments at carrying amounts, categorised
by currency:
UAE
Dirham
(SAR ’000)
Japanese
Yen
(SAR ’000)
Euro
(SAR ’000)
Malaysian
Ringgit
(SAR ’000)
US Dollar
(SAR ’000)
Pound
Sterling
(SAR ’000)
Other
Total
(SAR ’000)
(SAR ’000)
61,937
224,823
803,195
117,758
213,775
885,520
30,689
930,146
2,072,340
6,469
1,203,041
2,688,456
Assets
Cash and cash equivalents
21,550
240,074
Financing, net
Investments
Other assets, net
Total assets
–
–
21,819
–
–
4,396,890
6,539,121
–
2,855,760 13,791,771
–
–
357
1,230,346
92,725
–
–
–
–
33,968
61,375
37
34,255
129,635
–
–
66
195,604
41,866
196
12,231
249,963
180,118
6,295,406
8,423,802
37,391
818
239,906
1,294,501
1,868
261,624
21,819
–
1,323,428
5,035,433 20,255,593
Liabilities
72
–
Customer deposits
4,809
25,285
180,737
5,067,733
1,241,850
21,905
Other liabilities
5,766
1,030
22,633
85,567
166,210
5,847
Total liabilities
10,647
26,315
204,188
5,393,206
2,702,561
29,620
250,977
(4,496)
(24,070)
902,200
5,721,241
7,771
Net
8,434
1,545,599
3,840,913 10,383,232
153,002
440,055
4,002,349 12,368,886
1,033,084
7,886,707
2015
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2014
UAE
Dirham
(SAR ’000)
Japanese
Yen
(SAR ’000)
Euro
(SAR ’000)
Malaysian
Ringgit
(SAR ’000)
22,840
168,777
US Dollar
Other
Total
(SAR ’000)
Pound
Sterling
(SAR ’000)
(SAR ’000)
(SAR ’000)
270,847
120,472
11,492
511,228
977,284
416,924
1,313,871
8,077
484,231
2,827,765
Assets
Cash and cash equivalents
40,405
426,395
–
9,490
Financing, net
–
–
–
5,270,717
7,432,936
–
2,152,261
14,855,914
Investments
–
–
398
1,515,395
105,866
–
82,149
1,703,808
Other assets, net
–
–
1,162
295,053
103,218
–
40,751
440,184
193,177
7,768,936
9,076,363
19,569
3,270,620
20,804,955
1,726
3,415,008
858,332
1,867
20,242
4,297,247
Total assets
466,800
9,490
Liabilities
72
–
Customer deposits
7,176
9,124
240,653
3,101,469
8,303,772
21,221
2,297,669
13,981,084
Other liabilities
7,428
1,060
24,010
77,638
523,296
7,309
157,282
798,023
Total liabilities
14,676
10,184
266,389
6,594,115
9,685,400
30,397
2,475,193
19,076,354
452,124
(694)
(73,212)
1,174,821
(609,037)
(10,828)
795,427
1,728,601
Net
Foreign currency risks
Currency risk represents the risk of change in the value of financial instruments due to changes in foreign exchange rates. The Bank
management has set limits on positions by currencies, which are regularly monitored to ensure that positions are maintained within
the limits.
The table below shows the currencies to which the Bank has a significant exposure as at 31 December 2015 on its non-trading
monetary assets and liabilities and forecasted cash flows. The analysis calculates the effect of reasonable possible movement of the
currency rate against SAR, with all other variables held constant, on the statement of income (due to the fair value of the currency
sensitive non-trading monetary assets and liabilities) and equity. A positive effect shows a potential increase in the statement of
income statement of income or equity; whereas a negative effect shows a potential net reduction in the statement of income
or equity.
Change in
currency
rate in %
Effect on net
income
(SAR million)
Effect on
equity
(SAR million)
+/- 2
5.03
5.03
USD
+/- 2
112.55
112.55
EUR
+/- 5
1.52
1.52
INR
+/- 5
0.94
0.94
PKR
+/- 5
2.14
0.94
Currency exposures as at 31 December 2015
AED
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Change in
currency
rate in %
Effect on net
income
(SAR million)
Effect on
equity
(SAR million)
+/- 2
9.03
9.03
USD
+/- 2
15.73
15.73
EUR
+/- 5
0.96
0.96
INR
+/- 5
0.18
0.18
PKR
+/- 5
1.74
1.74
Currency position
The Bank manages exposure to the effects of fluctuations in prevailing foreign currency exchange rates on its financial position
and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total for both overnight and intra-day
positions, which are monitored daily. At the end of the year, the Bank had the following significant net exposures denominated in
foreign currencies:
US Dollar
Japanese Yen
Euro
Pound Sterling
Others
2015
(SAR ’000)
Long/(short)
2014
(SAR ’000)
Long/(short)
5,627,664
(773,272)
(4,350)
(690)
(30,346)
(18,109)
7,823
(2,326)
515,146
1,478,303
(c) Price risk
The Bank has certain investments which are carried at fair value through the income statement (FVSI) and includes investments in
quoted mutual funds and other investments. Price risk arises due to changes in quoted market prices of these mutual funds.
As these investments are in a limited number of funds and are not significant to the total investment portfolio, the Bank monitors
them periodically and determines the risk of holding them based on changes in market prices.
Other investments have little or no risks as these are bought for immediate sales., Investments are made only with a confirmed sale
order and therefore involve minimal risk.
AED
151
Currency exposures as at 31 December 2014
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152
Equity price risk
Equity risk refers to the risk of decrease in fair values of equities in the Bank’s non trading investment portfolio as a result of
reasonable possible changes in levels of equity indices and the value of individual stocks.
The effect on the Bank’s equity investments held as available-for-sale due to reasonable possible change in prices, with all other
variables held constant is as follows:
31 December 2015
Change in
equity price %
31 December 2014
Effect in
(SAR million)
Change in
equity price %
Effect in
(SAR million)
Equity
+/- 10
+/- 62,34
+/- 10
+/- 76,27
Mutual funds
+/- 10
+/- 120,19
+/- 10
+/- 36,54
(d) Operational risk
Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems, and external events.
Operational risk is inherent in most of the Bank’s activities, this necessitates an integrated approach to the identification,
measurement and monitoring of operational risk.
An Operational Risk Management Unit (ORMU) has been established within the Credit and Risk Management Group which facilitates
the management of Operational Risk within the Bank, ORMU facilitates the management of Operational Risk by setting policies,
developing systems, tools and methodologies, overseeing their implementation and use within the business units and providing
ongoing monitoring and guidance across the Bank.
The three primary operational risk management processes in the Bank are Risk Control Self-Assessment, Operational Loss Database
and eventual implementation of Key Risk Indicators which are designed to function in a mutually reinforcing manner.
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(a) The distribution by the geographical region of the major categories of assets, liabilities, commitments, contingencies and credit
exposure accounts as of 31 December is as follows:
Kingdom of
Saudi Arabia
(SAR ’000)
Other GCC
and
Middle East
(SAR ’000)
25,972,657
859,922
Europe
North
America
South
America
South East
Asia
Other
Countries
Total
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
Assets
Cash and balances with
SAMA and central banks
3,273,086
38,521,373
243,820
203,156
221,137
–
223,833
27,053,716
–
534,677
–
4,396,889
–
210,217,868
32,063
357
–
–
1,323,071
–
39,876,864
290,157,338
6,755,226
244,177
203,156
–
6,475,774
3,423,306
722,765
18,101
9,731
–
325,562
Customer deposits
246,551,268
4,608,768
–
5,067,733
Total
249,974,574
5,331,533
18,101
9,731
–
5,393,295
58,759 260,785,993
Commitments and
contingencies
7,978,378
459,752
2,535
230,013
–
1,614,367
17,006
10,302,051
Credit exposure (stated at credit
equivalent value)
6,168,688
459,752
2,535
230,013
–
875,618
17,006
7,753,612
Total
2,590,155
–
–
Investments
23,115,415
–
–
Financing, net
202,547,893
–
26,911,056
223,833 304,059,504
Liabilities
–
–
58,759
–
4,558,224
256,227,769
2015
153
26. Geographical Concentration
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154
2014
Kingdom of
Saudi Arabia
Europe
North
America
South
America
South East
Asia
Other
Countries
Total
(SAR ’000)
Other GCC
and
Middle East
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
(SAR ’000)
32,856,203
457,989
338
180,391
Assets
Cash and balances with
SAMA and central banks
Financing, net
Investments
Total
7,575,121
7,024,185
198,262,770
2,549,224
40,896,048
33,896
398
279,590,142
10,065,294
–
270,847
–
568,677
–
5,127,966
–
205,939,960
–
–
1,619,281
–
42,549,623
181,127
1,067,426
–
7,586,771
100,408
3,621
388,967
–
337,868
197
–
6,172,678
–
100,408
33,585,377
–
–
1,067,426
–
16,516,208
298,591,168
Liabilities
281,597
1,122,987
Customer deposits
247,479,726
2,424,643
Total
247,761,323
3,547,630
3,621
388,967
–
6,510,546
197
258,212,284
16,711,227
446,240
2,840
51,103
–
1,621,200
18,665
18,851,275
Credit exposure (stated at credit
equivalent value)
10,877,943
446,240
2,840
51,103
–
369,556
18,665
11,766,347
Commitments and
contingencies
–
–
2,135,237
256,077,047
Credit equivalent amounts reflect the amounts that result from conversion of the Bank’s off-balance sheet liabilities relating to
commitments and contingencies into the risk equivalent of financing, using credit conversion factors prescribed by SAMA. Credit
conversion factor is meant to capture the potential credit risk related to the exercise of that commitment.
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Non-performing
(SAR ’000)
Allowance for
Net
impairment of non-performing
financing
financing
(SAR ’000)
(SAR ’000)
3,233,791
(1,652,515)
1,581,276
GCC and the Middle East
6,012
(4,047)
1,965
27,108
(16,414)
10,694
3,266,911
(1,672,976)
1,593,935
South East of Asia
Total
2014
Non-performing
GCC and the Middle East
South East of Asia
Total
Refer to Note 7-a for performing financing.
(SAR ’000)
Allowance for
impairment of
financing
(SAR ’000)
Net
non-performing
financing
(SAR ’000)
2,571,777
(1,709,269)
862,508
–
–
–
83,952
(68,728)
15,224
2,655,729
(1,777,997)
877,732
2015
155
(b) The distributions by geographical concentration of non-performing financing and allowance for impairment of financing as of
31 December are as follows:
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156
27. Fair value of Financial Assets and Liabilities
Determination of fair value and fair value hierarchy
The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments:
Level 1: quoted prices in active markets for the same instrument (i,e,, without modification or repacking).
Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs
are based on observable market data.
Level 3: valuation techniques for which any significant input is not based on observable market data.
Assets at fair values are as follows:
2015
Level 1
(SAR ’000)
Level 2
(SAR ’000)
Level 3
(SAR ’000)
Total
(SAR ’000)
Financial assets
Financial assets at FVSI
Available-for-sale
200,250
–
–
–
1,121,103
623,405
80,821
823,655
1,201,924
23,452
–
200,250
1,144,555
704,226
23,452
2,049,031
Level 3
(SAR ’000)
Total
(SAR ’000)
2014
Level 1
(SAR ’000)
Level 2
(SAR ’000)
Financial assets
100,170
Financial assets at FVSI
762,765
Available-for-sale
–
862,935
–
124,331
241,140
365,471
–
23,492
–
23,492
100,170
910,588
241,140
1,251,898
FVSI and available-for-sale investments classified as level 2 include mutual funds, the fair value of which is determined based on the
fund’s latest reported net assets value (NAV) as at the date of statement of consolidated financial position.
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157
The third level of investments represents investments recoded at cost as its fair value cannot be measured reliably.
The value obtained from the relevant valuation model may differ, with the transaction price of a financial instrument, The difference
between the transaction price and the model value commonly referred to as ‘day one profit and loss’ is either amortised over the life
of the transaction, deferred until the instrument’s fair value can be determined using market observable data, or realised through
disposal. Subsequent changes in fair value are recognised immediately in the income statement without reversal of deferred day one
profits and losses.
28. Related Party Transactions
In the ordinary course of business, the Bank transacts business with related parties, The related party transactions are governed by
limits set by the Banking Control Law and the regulations issued by SAMA, The nature and balances resulting from such transactions
as at and for the year ended 31 December are as follows:
2015
(SAR ’000)
2014
(SAR ’000)
Mutajara
914,942
1,407,259
Contingent liabilities*
243,646
279,591
42
40,301
723,558
1,319,775
Related parties
Members of the Board of Directors
Current accounts
Companies and establishments guaranteed by members of the Board of Directors
Mutajara
–
18,945
Other major shareholders (above 5% equity share)
Mutajara
Current accounts
Other liabilities
2,758,530
3,226,989
261,091
256,308
42
–
23,244
22,386
1,201,924
365,471
Mutual funds
Investments in mutual funds
* off-balance sheet items
The fair values of on-statement financial instruments in the statement of financial position, are not significantly different from the
carrying values included in the consolidated financial statements. The fair values of financing due from and due to banks which
are carried at amortised cost, are not significantly different from the carrying values included in the financial statements, since the
current market commission rates for similar financial instruments are not significantly different from the contracted rates, and for the
short duration of due from and due to banks.
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Income and expenses pertaining to transactions with related parties included in the consolidated financial statements for the years
ended 31 December are as follows:
Income from financing and other
Mudaraba fees
Employees’ salaries and benefits (air tickets)
Rent and premises related expenses
Board of Directors’ remunerations
2015
(SAR ’000)
2014
(SAR ’000)
61,549
77,153
100,410
65,207
5,272
12,197
960
850
4,575
4,443
The amounts of compensations recorded in favour of or paid to the Board of Directors and the executive management personnel
during the years ended 31 December are as follows:
Short-term benefits
Provision for end of service benefits
2015
(SAR ’000)
2014
(SAR ’000)
37,102
44,247
1,352
1,488
The executive management personnel are those persons having authority and responsibility for planning, directing and controlling
the activities of the Bank directly or indirectly.
29. Mudaraba Funds
Mudaraba funds as of 31 December comprise the following:
Customers’ Mudaraba and investments
Current accounts, metals
Total
2015
(SAR ’000)
2014
(SAR ’000)
13,250,617
12,945,448
2,040
2,038
13,252,657
12,947,486
Mudaraba and investments represents customer’s investment portfolio managed by Al Rajhi Capital Company and are considered as
off-balance sheet. Consistent with the accounting policies of the Group, such balances are not included in the consolidated financial
statements as these are held by the Group in fiduciary capacity.
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159
30. Special Commissions Excluded from the Consolidated Statement of Income
The following represents the movements in charities account, which is included in other liabilities (see Note 12):
2014
(SAR ’000)
34,475
44,372
Additions during the year
41,822
10,578
Payments during the year
(52,422)
(20,475)
Balance, end of the year
23,875
34,475
31. Investment Management Services
The Bank offers investment services to its customers. The Bank has established a number of Mudaraba funds in different investment
aspects. These funds are managed by the Bank’s Investment Department, and a portion of the funds is also invested in participation
with the Bank, The Bank also offers investment management services to its customers through its subsidiary, which include
management of funds with total assets under management of SAR 35.501 million (2014: SAR 25.924 million). Mutual funds’ financial
statements are not included in the consolidated statement of financial position of the Bank. The Bank’s share of investments in
these funds is included under investments, and is disclosed under related party transactions, Funds invested by the Bank in those
investment funds amounted to SAR 1.201.924 thousand at 31 December 2015 (2014: SAR 365.471 thousand).
32. Capital Adequacy
The Bank’s objectives when managing capital are, to comply with the capital requirements set by SAMA to safeguard the Bank’s
ability to continue as a going concern; and to maintain a strong capital base.
Capital adequacy and the use of regulatory capital are monitored daily by the Bank’s management. SAMA requires the banks to hold
the minimum level of the regulatory capital and also to maintain a ratio of total regulatory capital to the risk-weighted assets at or
above 8%.
The Bank monitors the adequacy of its capital using ratios established by SAMA. These ratios measure capital adequacy by
comparing the Bank’s eligible capital with its consolidated statement of financial position, commitments and contingencies, to
reflect their relative risk as of 31 December 2015 and 2014.
Balance, beginning of the year
2015
(SAR ’000)
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160
Credit risk-weighted assets
Operational risk-weighted assets
Market risk-weighted assets
Total Pillar I – risk-weighted assets
2015
(SAR ’000)
2014
(SAR ’000)
206,329,555
202,080,035
23,808,192
23,971,738
6,150,633
683,906
236,288,380
226,735,679
Tier I – capital
46,639,054
41,896,193
Tier II – capital
2,579,119
2,526,000
49,218,173
44,422,193
Tier I ratio (%)
19,74
18,48
Tier I & II ratio (%)
20,83
19,59
Total tier I & II capital
Capital Adequacy Ratio %
33. Issued IFRS but not yet Effective
The Bank has chosen not to early adopt the following new standards which have been issued but not yet effective for the Bank’s
accounting years beginning on or after 1 January 2015 and is currently assessing their impact.
Following is a brief on the new IFRS and amendments to IFRS effective for annual periods beginning on or after 01 January 2015.
Effective for Annual Periods
beginning on or after
IFRS 9
Financial Instruments
1 January 2018
IFRS 15
Revenue from Contracts with Customers
1 January 2017
IFRS 14
Regulatory Deferral Accounts
1 January 2016
Amendments of IFRS 11
Accounting for Acquisitions of Interests in Joint Operations
1 January 2016
Amendments to IAS 16 and IAS 38
Clarification of Acceptable Methods of Depreciation and Amortisation
1 January 2016
Amendments to IAS 27
Equity Method in Separate Financial Statements
1 January 2016
Amendments to IFRS 10 and IAS 28 Sale or Contribution of Assets between an Investor and its
Associate or Joint Venture
1 January 2016
Amendments to IFRSs
Annual improvements to IFRSs 2012 – 2014 cycle
1 January 2016
Amendments to IFRS 10,
IFRS 12 and IAS 28
Investment Entities: Applying the Consolidation Exception
1 January 2016
Amendments to IAS 1
Disclosure Initiative
1 January 2016
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The Consolidated Financial Statements were approved by the Board of Directors on 9 Jumada I 1437 H (corresponding to
18 February 2016).
Figures have been rearranged or reclassified wherever necessary for the purpose of better presentation, however, no significant
rearrangements or reclassifications have been made in these financial statements.
36. Subsequent Events
The Board of Directors proposed, in its meeting held on 21 January 2016, a distribution of dividends to the shareholders for the
second half of the current year in a net amount of SAR 1.625 million, after Zakat deduction on shareholders, for SAR 1 per share.
The Board’s proposal is subject to the approval of the ordinary General Assembly in its next meeting.
37. Disclosure under BASEL III Framework
Certain qualitative and quantitative disclosures are required under the Basel III framework. These disclosures will be made available
on the Bank’s website (www.alrajhibank.com.sa) within prescribed time as required by SAMA. Such disclosures are not subject to
audit by the external auditors of the Bank.
35. Comparative Figures
161
34. Approval of the Board of Directors
162
Solution oriented
Helping our customers achieve their objectives through effective and efficient solutions
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163
Supplementary
Information
Consolidated Statement of Financial Position in USD
GRI Content Index
164
165
166
167
170
172
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Consolidated Statement of
Financial Position in USD
Stewardship
Identity
Financial Reports
164
2015
(USD ’000)
2014
(USD ’000)
Cash and balances with Saudi Arabian Monetary Agency (“SAMA”) and other central banks
7,214,324
8,956,101
7,176,282
4,404,322
Investments
10,633,830
11,346,566
Financing, net
56,058,098
54,917,323
As at 31 December
Assets
Investment property
Property and equipment, net
360,000
1,487,715
–
1,283,718
Other assets
1,234,990
1,148,386
Total Assets
84,165,239
82,056,415
1,215,526
569,397
Liabilities and Shareholders’ Equity
Liabilities
68,327,405
68,287,213
Other liabilities
2,185,227
2,027,487
Total Liabilities
71,728,158
70,884,096
Share capital
4,333,333
4,333,333
Statutory reserve
4,333,333
4,333,333
Custome deposits
Shareholders’ Equity
799,401
692,960
2,311,013
1,287,692
660,000
525,000
Total Shareholders’ Equity
12,437,081
11,172,318
Total Liabilities and Shareholders’ Equity
84,165,239
82,056,415
Other reserves
Retained earnings
The consolidated statement of financial position and the consolidated statement of income given on pages 94 and 95 are solely
for the convenience of shareholders, investors, bankers and other users of Financial Statements and do not form part of the
Financial Statements.
Exchange Rate of SAR 3.75 per USD has been used for the above conversion of SAR Financial Statements into USD.
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2014
(USD ’000)
2,735,568
2,723,338
Income
Gross financing and investments income
(79,850)
(105,386)
2,655,718
2,617,952
721,091
730,257
261,218
253,882
Return on customers, banks and financial institutions, time investments
Net Financing and Investments Income
27,514
42,435
Total Operating Income
3,665,540
3,644,526
709,611
670,427
64,991
68,542
Expenses
Salaries and employee-related benefits
Rent and premises-related expenses
99,760
110,058
Other general and administrative expenses
366,464
354,754
Impairment charge for financing, net
522,140
616,581
1,220
1,185
Total Operating Expenses
1,764,187
1,821,547
1,901,353
1,822,979
1,625 million
1,625 million
1.17
1.12
Board of Directors’ remuneration
Weighted average number of shares outstanding
Basic and diluted earnings per share (in SAR)
2015
(USD ’000)
165
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166
Key indicators from the consolidated financial statements
2015
2014
2013
2012
2011
Net financing and investment income
2,656
2,618
2,573
2,491
2,419
3,666
3,645
3,692
3,729
3,334
1,764
1,822
1,709
1,626
1,366
Net income
1,901
1,823
1,983
2,103
1,967
1,845
1,806
1,965
2,103
1,967
Financing, net
56,058
54,917
49,817
45,851
37,417
Customer deposits
68,327
68,287
61,757
59,039
47,395
Total assets
84,165
82,057
74,632
71,302
58,862
Total liabilities
71,728
70,884
64,366
61,577
49,931
12,437
11,172
10,266
9,725
8,930
Operating results for the year, USD million
Assets and liabilities, USD million
Profitability
Return on average assets, %
2.29
2.33
2.72
3.23
3.64
Return on average equity, %
16.11
17.01
19.87
22.54
23.10
Basic and diluted earnings per share, USD
1.17
1.12
1.32
1.40
1.31
Dividend per share, USD
0.67
0.73
1.20
0.87
0.87
Tier I, %
19.74
18.48
18.49
14.68
14.71
Tier I and II, %
20.83
19.59
19.60
19.83
20.03
12,374
11,761
10,603
10,054
9,282
525
501
528
513
496
Regulatory ratios
Capital adequacy ratio:
Growth
Staff Nos.
Branches (Nos.)
Exchange Rate of SAR 3.75 per USD has been used for the above conversion of SAR Financial Statements into USD
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Page No./
Explanations
GENERAL STANDARD DISCLOSURES
Strategy and Analysis
G4-1
Most senior decision maker’s statement
12 - 13
G4-3
Name of the Organisation
172
G4-4
Primary brands, products and services
G4-5
Location of the organisation’s headquarters
G4-6
Countries where the organisation operates
G4-7
Nature of ownership and legal form
G4-8
Markets served
18
G4-9
Scale of the reporting organisation
18
G4-10
Total workforce by employment type, age, gender and region
50
G4-13
Changes during the reporting period regarding size, structure or ownership
18
172
46
172
None
Identified Material Aspects and Boundaries
G4-17
List of all entities included in the organisation’s consolidated financial statements
18
G4-18
Process of defining the report content
G4-19
List of all material aspects identified in the process for defining report content
G4-20
Aspect boundary within the organisation
G4-21
Aspect boundary outside the organisation
G4-22
Restatements of previous information
None
G4-23
Significant changes to the scope and boundary from previous reporting periods
None
22
168 - 169
11
11
Stakeholder Engagement
G4-24
List of stakeholder groups engaged by the organisation
22
G4-25
Basis of identification and selection of stakeholders with whom to engage
22
G4-26
Organisation’s approaches to stakeholder engagement, including frequency of engagement by type and
by stakeholder group
22
Key topics and concerns that have been raised through stakeholder engagement
22
G4-27
Report Profile
G4-28
Reporting period
G4-29
Date of most recent previous report
11
G4-30
Reporting cycle
11
G4-31
Contact point regarding the report
11
G4-32
Compliance with GRI G4 guidelines
11
31 December 2014
Index No.
167
This report contains ‘Standard Disclosures from the GRI G4 Sustainability Reporting Guidelines’. This is the Organisation’s first
attempt to comply with the guidelines and hence is not in accordance with core or comprehensive criteria.
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Index No.
Description
Page No./
Explanations
Governance
G4-34
Governance structure of the organisation
64
Ethics and Integrity
G4-56
Organisation’s values, principles, standards and norms of behavior
41 - 43
SPECIFIC STANDARD DISCLOSURES
Category: Economic
Aspect: Economic Performance
G4-EC1
Economic value generated and distributed
G4-EC3
Coverage of the organisation’s defined benefit plan obligations
Not reported
133
Aspect: Indirect Economic Impacts
G4-EC7
Development and impact of infrastructure investments and services supported
84 - 85
Category: Environmental
Aspect: Compliance
G4-EN29
Monetary value of significant fines and non-monetary sanctions with environmental
laws and regulations
No fines reported
during the year
Aspect: Transport
G4-EN30
Environmental impacts of transporting products and other goods
None
Category: Social
Subcategory: Labour Practices and Decent Work
Aspect: Employment
G4-LA1
Number and rates of new employee hires and employee turnover
51
G4-LA2
Benefits provided to full-time employees
53
Aspect: Training and Education
G4-LA9
Average hours of training
52
G4-LA10
Programmes for skills management
52
G4-LA11
Regular performance and career development reviews
51
Subcategory: Human Rights
Aspect: Investment
G4-HR3
Incidents of discrimination and corrective actions taken
None
Aspect: Child Labour
G4-HR5
Incidents of child labour
None
Aspect: Forced or Compulsory Labour
G4-HR6
Incidents of forced or compulsory labour
None
Messages
GRI Content Index
Business Model
Stewardship
Identity
Financial Reports
Description
Page No./
Explanations
Subcategory: Society
Aspect: Local Communities
G4-SO1
Engagement with local community
G4-SO3
Operations assessed for risks related to corruption
G4-SO5
Confirmed incidents of corruption and actions taken
55
74 - 75
None
Aspect: Anticompetitive Behaviour
G4-SO7
Legal actions for anticompetitive behaviour, antitrust and monopoly practices and other outcomes
None
Aspect: Compliance
G4-SO8
Monetary value of fines and non-monetary sanctions for non-compliance with laws and regulations
No fines reported
during the year
Category: Social
Subcategory: Product Responsibility
Aspect: Customer Health and Safety
G4-PR2
Incidents of non-compliance with regulations and voluntary codes concerning the health and safety
impacts of products and services
None
Aspect: Product and Service Labeling
G4-PR4
Incidents of non-compliance with regulations and voluntary codes concerning product and service
information and labelling
None
Aspect: Marketing Communications
G4-PR7
Incidents of non-compliance with regulations and voluntary codes concerning
marketing communications
None
Aspect: Customer Privacy
G4-PR8
Complaints regarding breaches of customer privacy and losses of customer data
None
Aspect: Compliance
G4-PR9
Monetary value of significant fines for non-compliance with laws and regulations concerning the
provision and use of products and services
None
Category: Social
169
Index No.
Messages
Business Model
Stewardship
Identity
Financial Reports
170
Ajr
commission or fee charged for
services
Akar
instalment sale to invest in property
Financing to give customers an
opportunity to invest in property with
repayment to the Bank in the form of
instalments over a period of time.
Bai al Arboon
down payment sale
A sale agreement
in which a down payment is provided
in advance as part payment towards
the price of the commodity for
reserving the commodity. The down
payment is forfeited if the buyer does
not return to take the commodity
and the seller is entitled to sell the
commodity.
Bai Al Ajel
deferred payment sale
A sale on a deferred payment basis.
Equipment or goods are sold by
the Bank to the client for an agreed
lump sum price which includes the
profit required by the Bank without
disclosing the cost. The client may pay
by instalments within a pre-agreed
period, or in a lump sum.
Bai Inah
sale and buy-back
The sale and buy-back of an asset for
a higher price than that for which
the seller originally sold it. The seller
immediately buys back the asset just
sold on a deferred payment basis at
a price higher than the original price.
This can be seen as a loan in the form
of a sale.
Eirad
credit facilities granted against
assignment of an income stream for
a specific period.
Fiqh
Islamic jurisprudence
Gharar
uncertainty
Ijara Thumma Bai
leasing to purchase
Mudaraba
trust financing, profit sharing
One of three fundamental prohibitions
in Islamic finance (the other two being
Riba and Maysir). Gharar is a concept
that covers certain types of haram
uncertainty whereby one or more
parties stand to be deceived through
ignorance of an essential element
in the contract. Gambling is a form
of Gharar because the gambler is
ignorant of the result of the gamble.
The prohibition on Gharar is often
used as the grounds for criticism
of conventional financial practices
such as short selling, speculation and
derivatives.
The same principle governing an Ijara
contract, but at the end of the lease
period the lessee buys the asset for
an agreed price through a purchase
contract.
An investment partnership, whereby
the investor (the Rab al mal) provides
capital to the entrepreneur (the
mudarib) in order to undertake a
business or investment activity. While
profits are shared on a pre-agreed
ratio, losses are born by the investor
alone. The mudarib loses only his
share of the expected income.
Halal
lawful, permissible
Haram
unlawful, forbidden
Activities, professions, contracts
and transactions that are explicitly
prohibited by the Quran or the
Sunnah.
Hawala
bill of exchange, remittance
A contract which allows a debtor to
transfer his debt obligation to a third
party who owes the former a debt.
The mechanism of Hawala is used
for settling international accounts
by book transfers, thus obviating the
need for a physical transfer of cash.
Ijara
leasing
A lease agreement whereby a bank or
financier buys an item for a customer
and then leases it to him over a
specific period, thus earning profits
for the Bank by charging rental. The
duration of the lease and the fee are
set in advance. During the period of
the lease, the asset remains in the
ownership of the lessor (the Bank), but
the lessee has the right to use it. After
the expiry of the lease agreement, this
right reverts to the lessor.
Ijara wa Iqtina
buy-back leasing
Istisnaa
advance purchase of goods or
buildings
A contract of acquisition of goods by
specification or order, where the price
is paid in advance, or progressively in
accordance with the progress of a job.
For example, to purchase a yet to be
constructed house, payments would
be made to the builder according to
the stage of work completed. This
type of financing, along with Salam,
is used as a purchasing mechanism,
and Murabaha and Bai Al Ajel are for
financing sales.
Kafalah
guarantee
Shari’a principle governing guarantees.
It applies to a debt transaction in the
event of a debtor failing to pay.
Maysir
gambling
One of three fundamental
prohibitions in Islamic finance (the
other two being Riba and Gharar).
The prohibition on Maysir is often
used as grounds for criticism of
conventional financial practices such
as speculation, conventional insurance
and derivatives.
The investor has no right to interfere
in the management of the business,
but he can specify conditions that
would ensure better management of
his money. In this way Mudaraba is
sometimes referred to as a sleeping
partnership.
A joint Mudaraba can exist between
investors and a bank on a continuing
basis. The investors keep their
funds in a special fund and share
the profits before the liquidation of
those financing operations that have
not yet reached the stage of final
settlement. Many Islamic investment
funds operate on the basis of joint
Mudaraba.
Mudarib
entrepreneur in a Mudaraba contract
The entrepreneur or investment
manager in a Mudaraba who puts
the investor’s funds in a project or
portfolio in exchange for a share of
the profits. A Mudaraba is similar to
a diversified pool of assets held in
a discretionary asset management
portfolio.
Messages
Business Model
Stewardship
Identity
Financial Reports
The legality of this financing
technique has been questioned
because of its similarity to Riba.
However, the modern Murabaha
has become a popular financing
technique among Islamic banks, used
widely for consumer finance, real
estate and the purchase of machinery
and for financing short-term trade.
Musharaka
joint venture, profit and loss sharing
An investment partnership in which
all partners are entitled to a share in
the profits of a project in a mutually
agreed ratio. Losses are shared in
proportion to the amount invested.
All partners to a Musharaka contribute
funds and have the right to exercise
executive powers in that project,
similar to a conventional partnership
structure and the holding of voting
shares in a limited company.
This equity financing arrangement is
widely regarded as the purest form of
Islamic financing. The two main forms
of Musharaka are –
l Permanent Musharaka: an Islamic
bank participates in the equity of a
project and receives a share of the
profit on a pro rata basis. The length
of contract is unspecified, making
it suitable for financing projects
where funds are committed over a
long period.
l Diminishing Musharaka: this allows
equity participation and sharing
of profits on a pro rata basis, and
provides a method through which
the Bank keeps on reducing its
equity in the project, ultimately
transferring ownership of the asset
to the participants. The contract
provides for payment over and
above the Bank’s share in the profit
for the equity held by the Bank.
Simultaneously the entrepreneur
purchases some of the Bank’s
equity, progressively reducing it
until the Bank has no equity and
thus ceases to be a partner.
A financing agreement whereby the
bank purchases a commodity or an
asset and sells it to the client based
on a purchase promise from the
client with a deferred price higher
than the cash price, thus making the
client a debtor to the Bank for the sale
amount and for the period agreed in
the contract.
Qard Hasan
benevolent loan
A loan contract between two parties
for social welfare or for short-term
bridging finance. Repayment is for
the same amount as the amount
borrowed. The borrower can pay more
than the amount borrowed so long as
it is not stated by contract.
Riba
interest
An increase, addition, unjust return, or
advantage obtained by the lender as
a condition of a loan. Any risk-free or
‘guaranteed’ rate of return on a loan or
investment is Riba. Riba in all its forms
is prohibited in Islam.
In conventional terms, Riba and
‘interest’ are used interchangeably,
although the legal notion extends
beyond mere interest.
Shari’a
Islamic jurisprudence
Sukuk
Islamic bond
An asset-backed bond which is
structured in accordance with Shari’a
and may be traded in the market.
A Sukuk represents proportionate
beneficial ownership in the underlying
asset, which will be leased to the
client to yield the return on the Sukuk.
Takaful
Islamic insurance
Based on the principle of mutual
assistance, Takaful provides mutual
protection of assets and property and
offers joint risk-sharing in the event
of a loss by one of the participants.
Takaful is similar to mutual insurance
in that members are the insurers as
well as the insured. Conventional
insurance is prohibited in Islam
because its dealings contain several
haram elements, such as Gharar
and Riba.
Tawarruq
reverse Murabaha
In personal financing, a client with a
genuine need buys an item on credit
from the Bank on a deferred payment
basis and then immediately resells it
for cash to a third party. In this way,
the client can obtain cash without
taking out an interest-based loan.
Ujrah
fee
The financial charge for using
services, or Manfaat (wages,
allowance, commission, etc.).
Waqf
charitable trust
Zakat
religious tax
An obligatory contribution which
every wealthy Muslim is required to
pay to the Islamic state, or to distribute
amongst the poor. According to
Islam, Zakat – the third pillar of Islam
– purifies wealth and souls. Zakat is
levied on cash, cattle, agricultural
produce, minerals, capital invested in
industry and business.
A form of credit in which the Bank
buys an item and sells it to the
customer on a deferred basis. The
price includes a profit margin agreed
by both parties. Repayment, usually in
instalments, is specified in the contract.
Mutajar
an asset financing mechanism with
deferred payment
171
Murabaha
cost-plus financing
Messages
Business Model
Stewardship
Identity
Financial Reports
172
Name Al Rajhi Banking and Investment Corporation
Trade Name Al Rajhi Bank
Commercial 1010000096
Registration No.
Registered Logo
Legal Form A Saudi joint stock company, formed and licensed pursuant to Royal Decree No. M/59 dated
3 Dhul Qadah 1407H (29 June 1987), in accordance with Article 6 of the Council of Ministers
Resolution No. 245, dated 26 Shawal 1407H (23 June 1987).
Stock Exchange Listing The shares of the Bank are listed on the Saudi Stock Exchange (Tadawul).
Stock code: 1120.SSE
Subsidiary Companies
Name of Subsidiary
and Branches
Country of operation
Country of establishment
Al Rajhi Capital Company
Al Rajhi Development Company Limited
Al Rajhi Takaful Agency Company
Al Rajhi Management Services Company
Al Rajhi Corporation Limited
Malaysia
Malaysia
Al Rajhi Bank (Kuwait branch)
Kuwait
Al Rajhi Bank (Jordan branch)
Jordan
Auditors PricewaterhouseCoopers
Head Office/ Al Rajhi Bank
Registered Office Olaya Street
PO Box 28, Riyadh 11411
Tel: +966920003344 (KSA) | +966114603333 (International)
Fax: +966114603351, +966114600705
Web: www.alrajhibank.com.sa
E-mail: [email protected]
This Al Rajhi Banking and Investment Corporation
report has been produced by Smart Media The Annual
Report Company, a certified carbon neutral organisation.
Additionally, the greenhouse gas emissions resulting from
activities outsourced by Smart Media in the production of
this report, including the usage of paper and printing,
are offset through verified sources.
This Al Rajhi Banking and
Investment Corporation report
has been prepared using the
Smart Integrated Reporting
MethodologyTM of
Smart Media The Annual
Report Company.

Annual Report 2015

Transcription

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