Leading Financial Development

Transcription

Leading Financial Development
ANNUAL REPORT 2009
Designed by Akkas Creative Communications
IN THE NAME OF ALLAH,
MOST GRACIOUS, MOST MERCIFUL
You are not
alone
Development for
the Future
Over the years, BDB has extended its innovative
mix of financial services to reach a large number
of entrepreneurs, spread across a broad range of
economic sub-sectors, including manufacturing,
tourism, health, education, fisheries, agriculture,
professionals, and other value-adding service activities.
By acting as an effective catalyst in the complex
national economic programme of capital creation,
employment generation, export promotion, import
substitution, technological upgradation, privatization
and manpower development, BDB has come to be
widely recognized as a vigorous and successful
promoter of well-planned, market-driven business
enterprises in Bahrain.
Bahrain Development Bank B.S.C. (c)
BDB Building, Diplomatic Area
P.O. Box 20501, Manama, Kingdom of Bahrain.
Tel.: (+973) 17 511111
Fax: (+973) 17 534005
Email: [email protected]
www.bdb-bh.com
His Royal Highness Prince
Khalifa Bin Salman Al Khalifa
His Majesty King
Hamad Bin Isa Al Khalifa
His Royal Highness Prince
Salman Bin Hamad Al Khalifa
The Prime Minister
The King of Bahrain
The Crown Prince &
Deputy Supreme Commander
6 Bahrain Development Bank B.S.C. (c)
Contents
08
Profile
09
Financial Summary
12
Chairman’s Statement
14
Corporate Governance
16
Executive Management
20
CEO’s Statement
29
Financial Review
33
Consolidated Financial Statements
77
Basel II Pillar III Disclosures
7
Profile
Bahrain Development Bank B.S.C. (c) was established as a Bahraini closed share
holding company by Legislative Decree number 19 dated 11 December 1991 and
commenced operations on 20 January 1992. The Bank is operating as a retail bank
with special wavers under a license issue by the Central Bank of Bahrain.
The Group consists of the Bank and the following subsidiaries and associates
Wholly Owned Subsidiaries
Name
Objectives
Bahrain Institute of Technology W.L.L.
To provide high quality educational services in Information Technology.
Bahrain Business Incubator Center S.P.C.
To improve efficiency and foster the growth of small and medium enterprises
by providing space and support services through team of experts and its
affiliation with national and international entities.
Associates
Name
Objectives
Arabian Taxi Company
Provide taxi services.
Venture Capital Fund
Venture Capital Investment Activities in line with Shari ‘a principle.
EBDA Bank
Micro Finance Institution (Provides Loans to Low income families).
Mission Statement
Bahrain Development Bank’s mission is to promote entrepreneurship, innovation
and develop the small and medium enterprises in the Kingdom of Bahrain, assist in
the self employment of Bahrainis in achievement of their career oriented education
goals through best quality financial & advisory services in alignment with the
Economic Vision of the Kingdom.
Financial Summary
2009
2008
2007
Amount in BD 000s
2006
2005
4,704
1,603
4,082
1,473 752 0%
3,904
3,819 3,546 2,010 3,466 0%
2,937 2,833 2,771 1,864 1,135 0%
1,410 1,378 1,953 404 431 0%
966
1,097
1,600
257
206
0%
124,211
78,529
6,657
50,974
33,428
58,167
103,370 50,007 6,521 28,889 21,803 57,663 90,621 41,572 4,768 14,189 13,389 55,491 56,464 33,386 2,949 11,045 505 13,790 51,742
30,061
3,231
6,875
1,103
13,359
1.30%
0.66%
15
65%
6.13%
3.57%
69
46%
3.28%
1.54%
23
48%
3.18%
0.80%
43
70%
1.55%
0.42%
21
78%
Capital
Capital adequacy Equity/Total assets Total deposits/Equity (times) 53%
47%
0.88
66%
56%
0.50
90%
61%
0.26
28%
24%
0.80
28%
26%
0.51
Others
Net Loans and advances/Total assets Net Investments/Total assets Loans and advances/Customer deposits Number of employees 63%
5%
2.35
147
48%
6%
2.29
108
46%
5%
3.10
83
59%
5%
66.11
68
58%
6%
27.25
63
Earnings
Net interest income
Other income Operating expenses Loan Loss Provision
Net profit (loss) Dividend (percentage) Financial Profile
Total assets Loans and Advances – (Net)
Investments Total deposits Customers’ deposits Equity Ratios (percentage) Profitability
Return on average equity Return on average assets
Earnings per share (Fils) Cost-to-income
*Previous year figures have been regrouped wherever necessary.
Net profit (loss)
Loans and Advances
4,000
3,466
3,500
5.0
3,000
100,000
2,500
80,000
1,000
3.0
60,000
52,293
33,386
40,000
206
2008
2007
2006
0.97
20,000
0
2009
1.41
30,061
1.0
431
500
2005
Net profit (loss)
0
2.94
2.0
41,572
1,135
752
3.90
50.007
2,000
1,500
4.70
4.0
65%
46%
48%
2008
2007
70%
78%
0
2009
2008
2007
2006
2005
2009
Net Interest Income
Loans and Advances
2006
2005
Cost to Income Ratio
BDB’s Growing Contribution - Macro-economic Factors Based on Disbursement
Project
Period
Cost
Loans,
Indirect
Financing
& Equity
New
Jobs
Exports
Import
Foreign
Substitution Investment
Foreign
Currency
Value
Added
Jan - Dec
2008
37,837
25,347
2,733
4,209
1,933
4,550
5,664
13,469
Jan - Dec
2009
76,588
51,823
4,623
21,995
4,292
3,288
22,425
36,422
9
Board of Directors
Left to Right Top:
Left to Right Down:
Ebrahim Abduali Al Daaysi, Kamal Ahmed Mohammed, Dr. Mohammed Ahmed Jumaan, Abdul Ellah Ebrahim Al Qasemi, Board Members
Dhaweya Sharaf Al Alawi, Saqer Shaheen Saqer, Board Members, Sh. Mohammed Bin Isa Bin Mohammed Al Khalifa Chairman,
Redha Abdulla Faraj Board member
Bahrain Development Bank B.S.C. (c) 11
Building Lasting
Relationships
A bold vision, strong capital base,
solid Government support, and
the enduring institutional setup
we have built in the Kingdom,
position us for a leading role in
the economic development drive
in the years to come.
Chairman’s
Statement
Mohammed Bin Isa
Bin Mohammed Al Khalifa
Chairman of the Board
On behalf of the Board of Directors of Bahrain
The number of projects financed by BDB in 2009 has reached
Development Bank, it is my pleasure to present to you
1,288 projects compared to 627 projects in 2008, this
the annual report and audited financial statements for
represents a growth of 105.4%
the year ended 31 December 2009.
During the year, BDB continued its policy of adopting a holistic
2009 was another eventful year for BDB with an impressive
approach to SME support and development. Consequently,
record of development on many levels and in different spheres.
the Bank has employed a multi-pronged strategy to achieve
These successes are testimony to the strong foundations upon
its overall development objectives. This strategy emphasized
which the Bank’s business is built and a natural result of the
focus on the following activities:
strong support, commitment and trust that we continue to
receive from Government of Bahrain.
The drive to increase the bank’s capital to enable wider and
deeper penetration into its core client base.
BDB’s performance indicators during 2009 present remarkable
results both in terms of size and development effects. Many
Investment in human capital as the prime proponent of
of these indicators have achieved triple-digit growth levels.
development.
Total financing facilities extended to small and medium
size enterprises more than doubled to BD 52 million with
Broadening
an increase of 105.5% over 2008. Projects and enterprises
consulting services. During 2009, the number of beneficiaries
financed by the Bank have increased their value –added
from training programs has reached 2,721.
training
programs
and
business
support
contributions to the national economy with an impressive
growth of 170% to reach BD 36.4 million.
Expanding BDB’s branch and service centers network 7
units spread around the Kingdom. Extending the successful
Furthermore, the total investment value of the projects and
program such as Pilot Training Finance Program. In this regard,
enterprises supported by BDB have exceeded BD 76.5 million
BDB has signed a BD 6 million agreement with Tamkeen and
with an increase of 102.4%. Meanwhile, these enterprises
Mumtalakat to expand the Pilot Training Program to reach an
have created 4,623 job opportunities registering a growth
ever larger number of beneficiaries.
of 69.2%. This stresses the importance and pivotal role of
the SME sector in sustainable job creation and economic
Concluding the expansion of the Incubation Center and
development.
creation of a new “Enterprise Center”. These initiatives make
available 130 incubation units for Bahraini entrepreneurs.
A special emphasis on supporting and enabling Bahraini
On behalf of the Board of Directors, I would like to express my
“Women Entrepreneurs”. This will be demonstrated by the
sincere gratitude to his Majesty the King, His Royal Highness
visible increase in the number of women beneficiaries from
the Prime Minister, and His Royal Highness the Crown Prince
BDB financing activities who will have received 17% of the
and Deputy Supreme Commander of the Bahrain Defence
total financing extended by BDB in 2010 with a target to
Force, for their wise and inspired leadership of the Kingdom of
reach 30% in 2014. Additionally, a specialized unit named
Bahrain and their tireless work towards continued prosperity
“Woman Service Bureau” has been created within BDB with
and steady development and progress to the nation and to
presence in all BDB network with the objective of extending
every citizen.
special support to this important segment of the Bahraini
society. Furthermore, BDB has reached an agreement with
It is also my pleasure to thank the Board of Directors for their
the Higher Council for Women for the Bank to support the
valuable contributions to BDB progress and leadership in the
creation of a specialist “Enterprise Center” dedicated to
Kingdom’s development effort. My thanks are also extended
Bahraini women to cater for the various needs of Bahraini
to all the sincere efforts of Government Ministries and to the
Women Entrepreneurs.
Bahraini private sector for their cooperation with the Bank
and their support in its development mission.
Bahrain Development Bank reiterates its commitment to enrich
the development process in the Kingdom and to rise to highest
expectations and needs of our customers. BDB will remain
a firm proponent and an integral implementer of Bahrain
Economic Vision 2030 which emphasizes competitiveness,
innovation and productivity, along with fairness and equal
opportunity, and finally sustainability and diversity.
Mohammed Bin Isa
At BDB, our aim is to continue to be the leading development
Bin Mohammed Al Khalifa
institution in the country. Our unwavering embrace of
Chairman of the Board
the National Economic Strategy 2009-2014 will guide our
development work and effort. We will continue to move
ahead with fostering innovation and entrepreneurship in the
Kingdom, supporting small and medium enterprises, and the
creating human capital that is capable of bringing the vision
into reality.
Corporate Governance
The Board of Directors is responsible for the overall governance through continuous review and adherence to international
best practice and standards. The Board determines the Bank’s overall strategy, provides direction to the Executive Management,
ensures that the risk management process working in accordance with best practices and monitors Executive Management’s
performance. The interaction between Board of Directors and Bank Management is shown on the following organization
chart.
ORGANISATION CHART
BOARD OF DIRECTORS
Audit Committee of Board
Internal Audit
CEO
Management Committee
Credit
Committee,
Investment
Committee
Development Banking , SME,
Corporate Banking Syndication,
Export Credit
Remedial Management, Credit
Administration
Entrepreneurial Development,
Operations, Branches, Business
Incubators,
Business Advisory, IT, BIT and
Administration
Revenue
Assurance
Committee
Asset Liability
Committee
Support Services
• Financial Control
• HR & Corporate
Communication
• Risk Management &
Compliance
HR
Committee,
IT Steering
Committee
Board of Directors
Board Committees
The Board has established an Audit sub-committees to assist in carrying out its responsibilities.
Members
Summary Terms of Reference
Mr. Redha Abdullah Faraj – Chairman
Assist the Board in carrying out its duties regarding the integrity of the
Bank’s financial reporting system, adequacy of the Bank’s internal control
Mr. Abdulellah Ebrahim Al-Qassimi
and risk management processes, to oversee the external and internal audit
functions, and Bank’s compliance with legal and regulatory requirements.
Mr. Saqer Shaheen Saqer
Board Meetings and Attendances
During 2009, Board meetings were held in Bahrain on, 23 February, 14 June, 04 October and 7 December. The following
Directors attended the meetings:
Sl. No. Name of the Directors
23 Feb
14 June
4 October
7 December
1
H.E. Sh. Mohammed Bin Essa Al Khalifa 4
4
4
4
2
Mr. Redha Abdulla Faraj 4
4
4
3
Mr. Abdulellah Ebrahim Al Qassimi 4
4
4
4
4
Mr. Saqr Shaheen Saqr 4
4
4
4
5
Mr. Kamal Ahmed Mohammed 4
4
4
6
Dr. Mohammed Ahmed Juman 4
4
4
4
7
Ms. Dhawiya Sayed Sharaf Alawi 4
4
4
4
8
Mr. Ebrahim Abduali Al Daaysi 4
4
4
During 2009, Audit committee meetings were held in Bahrain on, 2 February, 30 April, 20 August,17 November and 29
December. All the members were present for all the five meetings.
Executive Management
The Management Executive Committee is responsible for the day to day operations towards achieving the strategic goals within
the pre defined risk appetite and approved strategy as a whole. Management committee is chaired by the Chief Executive
Officer of the bank and the heads of the functional areas like Development Banking, Entrepreneurial development, Operations,
HR, Finance, Risk Management are the members of the Committee.
Executive Management Profiles
Nedhal Saleh Al Aujan
Chief Executive Officer
Member of the Board of Directors
• Bahrain Telecommunications Company (BATELCO), Board & Audit Committee Member.
• Venture Capital Bank, Board Member & Chairman of the Audit Committee.
• Gulf Diabetes Center, Chairman of the Board.
• Arabian Taxi Company, Chairman of the Board.
• Bahrain Specialist Hospital B.S.C (c), Director.
• Retail Arabia (Geant) , Director.
• Eskan Bank, Director.
Over 25 years banking experience, has held a number of senior managerial positions in local and international banks including
Senior Manager at Standard Chartered Bank and Al Ahli United Bank, joined the Bank in 2000.
Adnan Mahmood Al Balooshi
Deputy General Manager - Banking Development
• OCBS, University of Bahrain. RSA Level I & II, University of Bahrain.
Over 30 years banking experience. He has worked with Bank of Bahrain & Kuwait, Al Ahli Commercial Bank, Gulf Riyad Bank
in various area including Head of credit administration and Corporate Manager. He joined BDB in 2005.
Yacoob Yousif Abdulla
Assistant General Manager - Support Units
• Post Graduate (Business), University of Bahrain
Over 28 years banking experience. He has worked with National Bank of Bahrain in various area including Retail Banking,
Commercial Services, Head of Compliance (Loan Units, Operations, Fixed & Call Deposits). He joined BDB in 2007.
Anil R. Hattangdi
Executive Vice President and Board Secretary
• B.A. Economics, Bombay University. Certified Associate of Indian Institute of Bankers (C.A.I.I.B).
Over 50 years banking experience. He has worked with Al Ahli Commercial Bank, Union Bank of India in successively senior
management positions.. He joined BDB in 1997.
Executive Management Profiles (Continued)
Tawfeek Al Qattan
Head of Entrepreneurial Development
• St. Edwards University ( Computer Information Science/Business Management) (USA).
Over 15 years experience in Information Technology. He worked for St. Edwards University, Siemens Mobile Networking/
Intelligent Networks. He joined BDB in 2005.
Hassan Khalil Akbari
Vice President - Head of Human Resources and Corporate Communications
• B.A. in Government, Eastern Washington University, USA. Bachelor of Art, Spokane Falls Community College, USA.
Over 9 years banking experience. He has worked with Kuwait Finance House as HR Supervisor. He joined BDB in 2005.
Buthayna Ahmed Al Sadiq
Vice President - Head of Financial Control
• BSc. in Accounting, University of Bahrain, MBA (Strathclyde University), CPA (California)
Over 10 years banking experience. She has worked with Nomura Investment Banking and Al-Baraka Islamic Bank in various area
including Administration and Section head of accounts. She joined BDB in 2006.
Dalal Ismail
Vice President - Credit Administration & Control
• Middle Management Diploma from Bahrain University, Advance Diploma in Islamic Finance, Treasury / Capital Markets
Diploma from BIBF.
Over 28 years of banking experience mainly in the fields of Retail, commercial & Project finance in conventional and Islamic
banking with specific expertise in credit control, risk management and legal aspects. She has worked with Ahli United Bank and
Standard Chartered Bank in various area including branches, treasury and credit. She joined BDB in 2003.
Samuel Verghese
Senior Manager - Head of Internal Audit
• B.Com, University of Calicut, India. FCA, Institute of Chartered Accounts of India
Over 21 years of experience he has worked with Steel Authority of India Ltd. (SAIL), The South Indian Bank Ltd., Kerala Financial
Corporation and Oman Development Bank in successively senior management positions. He joined BDB in 2007.
Management Team
Nedhal Saleh Al Aujan
Adnan Mahmood Al Balooshi
Deputy General Manager,
Banking Division
Yacoob Yousif Ahmed
Assistant General Manager,
Support Units
Anil Hattangdi
Adviser
Tawfeeq Ali Al Qattan
Head of Entrepreneurial
Development
Hassan Khalil Akbari
Head of Human Resources &
Corporate Communication
Buthaina Ahmed Al Sadiq
Head of Financial Control
Dalal Ismail Ahmed
Head of Credit Control
Samuel Verghese
Head of Internal Audit
A Stellar
Performance
We have exceeded our
projections in all areas – total
amount of funding, number of
projects supported, creation of
job opportunities for Bahraini
Nationals and enhancing valueadded economic activities.
CEO’s
Statement
Nedhal Saleh Al-Aujan
It is my privilege to present Bahrain Development
The Bank’s expanded network includes 7 units today providing
Bank (BDB) strategy, performance indicators, and
products and services to a variety of customers:
accomplishments in 2009. BDB, as a development
institution, is a specialist bank providing financial
and entrepreneurship support to small and medium
size enterprises (SMEs) in the Kingdom of Bahrain in
congruence with Bahrain Economic Vision 2030.
The Bank’s results for the year 2009 were consistent with the
objectives of its approved strategic plan, in all its elements.
These results are further proof of the success of the Bank’s
Management in effectively implementing the strategy and
- BDB’s branch at the Business Incubation Center in Salman
Industrial Area started its trial runs in 2009. The branch
includes various divisions including an Agricultural and
Fisheries Financing Department, a Collection Department,
in addition to working groups from the Operations
Department and Project Finance Departments.
- Hamad Town Services Centre, which targets entrepreneurs
and SMEs in this town and its surrounding areas.
policies set by the Board of Director. The strategy aims
- Isa Town Services Centre.
at enhancing the BDB’s capabilities and improving the
- Sitra Specialized Industrial Branch which mainly targets
performance of all its organs and associated institutions with
special emphasis on delivering an integrated set of services
to its customers. The successful execution of this strategy
resulted in elevated level of performance both qualitatively
and quantitatively. Furthermore, this success has also
enhanced the confidence in the Bank’s ability in generating a
high level of growth in 2010 and in delivering better products
and services to its customers.
During 2009, BDB has continued the expansion of its network
of branches and service centers with the objective of reaching
a wider customer base in the Kingdom of Bahrain and meeting
the needs of its various customer segments it is targeting. The
expanded network led to a deeper reach and penetration into
the market, provision of better services to customers and a
faster response time to their requirement and needs.
industrial enterprises.
- A special office to provide educational banking facilities to
university students at the premises of Bahrain Institute of
Technology (a BDB subsidiary) located at GOSI Complex.
- A Services Centre at the Bank’s Head Office in the Diplomatic
Area.
- BDB’s branch at the Bahrain Investors Centre in Seef
District.
Aiming at enhancing the efficiency and effectiveness of the
Bank’s services, plans are underway to open more branches
to expand BDB’s footprint and service provision to individuals
and enterprises in other areas of the Kingdom.
In 2009, BDB concluded the expansion of its Incubation
Center in Salman Industrial Area and establishment of a
new “Enterprise Center”. These initiatives make available
Gulf Aviation Academy in the Kingdom of Bahrain will be able
130 incubation units for Bahraini entrepreneurs of a variety
to study civil aviation through an internationally recognized
of sizes and at flexible prices catered for specific needs of
training program. It should be noted that the Academy is a
entrepreneurial projects.
subsidiary of Bahrain Mumtalakat Holding Company and will
In the context of diversifying the types of financing tools
made available to small and medium size enterprises, BDB
has established a new Venture Capital unit that specializes in
providing equity investment funds to new ventures upto 20%
of the equity of these ventures.
The Bank has also approved increasing the cap on projects
financed by the Agricultural and Fishers Finance Program to
BD 20,000 up from 15,000 further boosting its support for
this important segment of economic activity.
provide training and qualification programs for employees in
the aviation sector and those wishing to work in this field.
The program will also provide the necessary funding for
students, with Tamkeen taking the burden of paying the
profits (interest) due on program funding. The program will
also train 100 pilots and qualify them for the Airline Transport
Pilot License (APTL).
In line with the National Economic Strategy 2009-2014, BDB
in partnership with Tamkeen, has launched two initiatives.
The two initiatives concern providing monetary grants to
As part of the on-going support provided by BDB to Bahraini
entrepreneurs as seed capital and funding feasibility studies.
women, 2009 witnessed an increased emphasis funding
Under the singed agreements, an as part of the implementation
women-owned businesses which have accounted for 13% of
of the trial phase of the Financial Assistance Program, approved
the projects funded by the Bank. This support will receive a
entrepreneurial projects will receive financial assistance at the
further boost in 2010 by targeting to increase the number of
initial innovation stage. SMEs will also be eligible to receive
these projects to 17% next year and 30% by 2014.
partial funding to conduct economic feasibility studies. A
During the year, BDB has reached an agreement with the
committee comprising representatives of Tamkeen and BDB
Supreme Council for Women for the Bank to support the
will manage both programs providing funding that amount to
creation of a specialist “Enterprise Center” dedicated to
50% of the financial needs of these approved projects. These
Bahraini women to cater for the various needs of Bahraini
initiatives are important steps in enhancing the availability
Women Entrepreneurs.
of funds to new entrepreneurial projects and ensuring a
Additionally, a specialized unit named “Woman Service
sustainable level of SME development.
Bureau” has been created within BDB with presence in all
Given the increasingly rising number of applications received
BDB network with the objective of extending special support
by the Bank for funding through the ‘facilitated support
to this important segment of the Bahraini society.
financing program’ for SMEs run in partnership with Tamkeen,
It is worth noting that BDB pays a special attention to
attracting Bahraini women to work as part of its staff. This is
demonstrated by the fact that 55% of Bank’s staff are from
this segment who are motivated through recognition and
promotions.
the budget allocated for the program has been increased. The
allocated budget for this program has therefore been increased
to BD 40 million up from BD 20 million. The program has thus
far disbursed BD 30 million from the total allocated of BD 40
million allocated to the program by the end of 2009. The total
number of beneficiaries from this program since inception
Due to the importance of co-operation and co-ordination
stood at 1,064 enterprises. It should be noted that program
between bodies concerned with and keen on developing
focuses mainly on industrial projects and emerging enterprises
SMEs and lending to support entrepreneurial projects, BDB
which are economically viable and those with potential to
has increased its co-operative arrangements and partnerships
make positive contribution to the diversity, development and
in this respect through a number of agreements and
value-addition to the National Economy.
memoranda of understanding signed during the year 2009.
During the year, Bahrain Institute of Technology (BIT) (a
In this respect, BDB has signed an agreement to launch a
subsidiary of the bank) has signed an agreement with the
‘Cadet Pilot Training Program’ in partnership with Bahrain
Strategic Projects Management Company (PMP) to provide
Mumtalakat Holding Company and Tamkeen. The program
advanced training courses in Project Management. This
aims at training and qualifying Bahraini youths between
agreement will enable PMP to provide its training programs
18 and 30 years of age in the aviation field. Under this
to residents of Bahrain through BIT. As a result of this
agreement, secondary school graduates selected to join the
partnership between BIT and PMP, two programs will be
offered to prospective students. The first training course
August 2009, and the second between 15-19 August 2009.
will give students the opportunity to gain certification in
The program aimed at supporting and developing knowledge
project management while the second will deliver advanced
requirements and skills for Bahraini men and women
professional training.
entrepreneurs and supporting them in setting up their own
The Arabian Taxi Company (Arabian Taxi), which is managed
businesses.
by BDB, has signed agreement to with Al Bayan Media
In co-operation with the Centre for Small and Medium
Group. As part of the agreement, Al Bayan will manage the
Enterprises Growth and Development Finance (CESMED)
sale of static and visual (video) advertising space onboard
-India, BDB has also organized an export development
the company-owned cars. Al Bayan will also manage the
program under the title “Enhancing Competitiveness of
creation of promotional and advertising material to promote
SMEs to Reach Global Markets.” This even which took place
the Arabian Taxi service in Bahrain. Arabian Taxi is a company
in the period 29-30 June 2009, is part of the Bank’s efforts
with a capital of BD 2 million and is owned by BDB (which has
to activate and diversify the mechanism of supporting and
a 20% stake) and another 314 shareholders, all of whom are
motivating SMEs in the Kingdom of Bahrain.
widows, minors and elderly people.
In the framework of the advisory services to which the
In addition to providing financing products and facilities to
Bank attaches special importance, BDB excelled in providing
SMEs, BDB continued its integrated approach to supporting
entrepreneurs with new and exciting project advisory and
the entrepreneurial spirit and activities in the Kingdom. This
business services. These services help entrepreneurs in making
approach manifested itself in the various training, promotion,
sound and informed decisions. The services also provide
development, and support schemes that the Bank delivered
business owners with security and peace of mind to stand on
during the year. This has also taken the shape of creating a
a firm ground by relying on the opinions of expert advisors and
network of supporting organizations and institutions that
specialists. The number of beneficiaries of from BDBs advisory
delivered significant support to SMEs and entrepreneurs in
services and training programs from January until December
the country.
2009 totalled 2,721. BDB continued its support and follow
In this context, BDB continued its ‘Entrepreneurs Training
and Development Program’ in cooperation with the Ministry
of Industry and Commerce and United Nations Industrial
Development
Organization
(UNIDO).
This
up of these entrepreneurs and their projects and some of the
most outstanding entrepreneurs received recognition and
honors by the Bank.
successful
During the year, BDB also took part in a number of seminars
program equips entrepreneurs with basic principles of good
and conferences. Some of the most important ones are the
management that help them build their businesses on a
following:
sound basis. The program has turned out 9 batches so for 3
since its launch in 2001 benefiting 660, entrepreneurs by the
end of December 2009.
In continued co-operation with Mohammed Bin Rashid Youth
• The Entrepreneurship Conference - Beirut.
• The 2nd Cultural Week of the four technical schools
and supporting schools - Bahrain.
Welfare Establishment, the Bank managed two events in
• Education and Training Exhibition, 2009 - Bahrain.
Dubai during 2009. The first event was a training program
• The 4th Business Administration Forum at the
held from 12 to 16 April 2009 for a group of 15 government
employees representing various organs of the Government.
The training program was run by a team consisting of BDB
employees and experts from Bahrain Incubation Centre who
delivered the course which covered various aspects of SME
funding programs and the provision of technical, financial
and administrative advisory services.
The second event was entitled “Preliminary Entrepreneurship
Program”. This event was run by Bahrain Incubation Centre
with the support from the AIESEC organization in Bahrain.
Two batches attended the event, the first between 9-13
University of Bahrain.
• Forum on Innovation and Entrepreneurship -Brazil.
• Best
Practices
in
Entrepreneurship
Conference
-Dubai.
• Women’s Role in Economic Development Forum Beirut.
• “Entrepreneurs Day 2009… Enhancing of the Skills
of Future Entrepreneurs” with Tamkeen and AIESEC
Organization -Bahrain.
In addition to all these achievements BDB’s financial
sector in general in increasing the national economy’s
statements demonstrate the exceptional and continued
ability to profitably create new job opportunities.
success year after year.
The number of projects funded by the Bank totalled
The total funding extended by the Bank to SMEs during
1,288 in 2009. This compares favorably with 2008 with
2009 stood at more than BD 52 million, an increase of
nearly 627 projects, a sharp rise of more than 105.4%.
105.5% over the year 2008, which ended at BD 25.3
million.
The total facilities extended for educational and pilots’
training programs by the end of 2009 were nearly BD
The projects funded by BDB contributed to boosting
3 million, with 134 beneficiaries. This means that the
the Kingdom’s exports through their products which
total amount of the facilities extended since the two
flow into global markets reaching BD 22 million, up
programs were launched was more than BD 9.5 million,
from BD 4.2 million in the previous year. This represents
with more than 633 beneficiaries benefiting from the
an outstanding increase of 422.6%. These are clear
two programs.
indicators of the success of these projects and their
ability to post growth and profits and to be competitive
in foreign markets.
As for the Fisheries and Agriculture Funding Program,
total funding extended by the program from January
till December 2009 was BD 1.1 million, with 154
The projects funded by the Bank brought in BD 22.4
beneficiaries. The gross total of funding for the two
million in foreign currencies, a fourfold increase over
programs since inception totalled nearly BD 8.8 million,
the year 2008, when the figure stood at BD 5.7 million.
with a total number of 1,263 beneficiaries.
This massive growth of 296% demonstrates the positive
contributing of these projects to the growth and support
of the national economy.
Through its Taxi funding scheme for individual owners
launched by the Bank in April 2008, a total funding of BD
695,800 was provided between January and December
The projects funded by BDB also produced an added
2009, with 77 beneficiaries. The gross total of funds
value to the national economy during 2009 of BD 36.4
extended by this scheme since its launch reached BD 1.4
million, rising from only BD 13.5 million during the year
million, with nearly 151 beneficiaries.
2008, another massive increase of more than 170%. These
projects have also substituted part of the commodities
and goods previously imported by the Kingdom during
the year 2009. This amounted to a total value of BD 4.3
million, up from only BD 2 million in the year 2008, with
an increase of 122%.
The figures show that the total value of investments
by these projects was BD 76.5 during the year 2009, an
increase of 102.4% over the year 2008 which had a value
of BD 38 million.
The projects directly and indirectly funded by the Bank
The combined total amount of funding for the four
sectors
(education,
pilots’
We, at BDB, despite our remarkable achievements over
the years, will always strive to break our own records
and exceed the highest expectations. We are therefore
confident that 2010 will witness even more outstanding
performance, achievement and progress driven by the
constant support and wise guidance of the judicious
government of our believed country.
foodstuffs, among others) as well as the service
sector (transport, shipping, engineering workshops,
educational and training institutes, advertising, printing
and publishing) as well as the trade sector.
Nedhal Saleh Al-Aujan
These projects have created a total of 4,623 job
emphasizes the importance of SMEs and the private
and
December 2009 was nearly BD 20 million.
sector (aluminum, timber, paper, garments, textiles,
the previous year which created 2,733. This figure
fisheries
agriculture and taxi cars) since launch until the end of
are active in multiple sectors including the manufacturing
opportunities in 2009, with an increase of 69.2% over
training,
Exceed the Highest
Expectations
Management Review
During the last few years, the Gulf Cooperation Council
to the previous year. As a part of our strategy to reach out to
(GCC) has enjoyed high rates of economic growth. The GCC
various strategic geographical regions in Bahrain and provide
has become an emerging centre of finance, industry, and
the people of those Regions easy access to our products and
tourism. The region has seen significant inflows of capital due
services, expansion of branches network continued. During
to high oil prices for several years. This growth is expected to
the year 2009, the Bank opened 2 full fledged branches at
be fluctuating at the recent volatility in the global economic
Hamad Town & Hidd and 1 Satellite branch at Isa Town.
climate.
It was another fruitful year of performance in our economic
In Bahrain, the strong rule of law provides stability and a safe
contribution recording more than 100% growth in number
investment environment. The political reforms our nation has
of jobs generated through various financing schemes and
embraced have built the basis for an inclusive and cohesive
equity participation in 2009 as compared to 2008. Similarly
society, supportive of ambitious programmes for economic
substantial growth has been recorded in all other economic
and social change. While a global recovery is already underway
parameters namely the foreign investment, value additions in
in many economies, there is considerable uncertainty on what
exports and foreign currency earnings.
happens next.
The performance for the year 2009 has indeed been an
exceptional year for the Bank.
Business leaders
Business Banking
The business banking portfolio of the bank showed an
impressive growth during the year 2009 The Bank played a
very active role in meeting the increased financing needs of
the SME sectors, an aftermath of the Global Financial Crisis.
In line with the bank’s main Objective the emphasis and focus
were more on financing small businesses and start up business
Our unique precuts of education finance, fisheries and
agriculture loans have also grown during the year.
Based on the goodwill already created among the SME
community the bank’s strategy in 2010 shall be to reach out
to more number of SMEs, through our well distributed net
work of branches and achieve higher level of performance
both under financial and economic parameters. Our strategy
of promoting new start up enterprises by Bahraini youth and
women shall continue to receive our enhanced focus and
dedicated efforts.
Business Advisory, Training and Business Incubation
ventures and encouraging / motivating more of Bahraini
The non-financial activity portfolio of the bank has grown
youth and women to venture into the challenging careers
hand in hand while complementing the growth of the banking
of entrepreneurship. With the blended version of specially
portfolio. Several new initiatives were undertaken to further
customized finance products and the unique business advisory
stimulate entrepreneurial culture in the society and facilitate
and consultation services, the Bank offered to its clients a
SME development. Keeping in line the country’s economic
package of support to facilitate business establishment and
strategy and Bahrain Economic Vision 2030, greater focus
operational growth.
has been laid on developing the young human capital of
Our specialized financing products under the BDB-Tamkeen
Joint Finance Scheme was well received in the market. The
Bank continued its thrust on lending to SME sector under the
scheme. The Bank could achieve an overall growth of 50.70 %
in the loan and investment portfolio during 2009 as compared
Bahrain and facilitating entrepreneurial career choices by the
Bahraini youth. The non-financial support services of the bank
are implemented under the Entrepreneurial Development
Division and cater to capacity building (training), business
counseling, business incubation and related services. Major
highlights among the initiatives taken are an Export Capacity
Development Program conducted for Bahraini SMEs, an
2009 (336 training days). Given the importance of security
Entrepreneurs Day Program for young Bahraini men and
in financial institutions, majority of staff received information
women, a Youth Entrepreneurship Orientation Program
security training for protection of information assets of
being conducted on continuous basis and establishment
the Bank. Staff was also trained in anti-money laundering
of two unique funds in partnership with Tamkeen aiming
procedures, BDB’s core banking systemTC4, Overdraft and
at encouraging development of innovative products and
other specialized training sessions which were attended by
services and supporting feasibility study requirements of
Key staff from the bank.
entrepreneurs and SMEs. In addition several presentations
were conducted at universities, schools, training institutions
and at societies, business associations etc., creating awareness
on entrepreneurship and encouraging business creation. A
total of 194 start-up businesses were successfully guided for
implementation and linked to bank’s financial scheme.
Incentive Structure
The Bank conducts a formal written appraisal for all
management and staff at least once per year. Depending
on general performance and specific goals achievement,
Management may at its discretion pay an annual performance
Through its non-financial support services, the bank has
bonus and/or award a salary increment. The Directors approve
reached to about 3000 persons during the year including
the aggregate amount of discretionary bonuses, together with
potential entrepreneurs, SME owners, students, young
the specific payments made (if any) to the Chief Executive
graduates and members of various institutions. The expansion
Officer. The CEO approves annual increments within the
phase of the pioneering business incubator project of BDB
aggregate amount of approved annual budget.
reached near to its completion phase by the end of the year
to be ready for businesses in 2010. With expansion the total
capacity of the incubator will reach to 125. Besides planning
phase of Women Business Incubator and the University
Business Incubator were undertaken.
Communications Strategy
A summary of the Bank’s consolidated quarterly and annual
financial statements are published in local and regional
newspapers. All other external communications are handled
On the basis of substantial growth in activities and
by the Public Relation Department, under the direction of the
achievements the aim is to further scale up the provision of
Chief Executive Officer. The Bank maintains a website (www.
these support services by employing and developing capable
bdb-bh.com) which contains the entire latest Annual Report,
Bahraini human resources into the entrepreneurial division,
together with summary financial data covering the previous
extending outreach to the society and by introducing new
three years results. It also contains a profile of the Bank, the
services for budding entrepreneurs and SMEs.
subsidiaries, the details of the principal loan and information
Bahrain Institute of Technology ( BIT) Support Bahrainisation
plans by providing highly qualified Bahraini IT Professionals. It
also implements Government’s Initiative to develop Bahrain
as a Regional Training Hub. BIT has Trained 7500 students
from the year
2001-2009 out of which 6000 students were Bahrainis. BIT is
the first Prometric Approved testing centre for medical & PMP
exams in GCC.
Human Resources
Recognizing that staff is a key asset of the Bank, the Bank
continued to significantly invest in staff welfare and the
provision of the necessary training and development
opportunities. About 88% of our staff (128 employees as
of Dec 2009) attended several In-House training sessions,
courses run by the Bahrain Institute of Banking and Finance
(BIBF) and elsewhere in Bahrain and abroad- during the year
concerning BDB’s other products and services.
Numerous Opportunities for
Training & Development
Firm Proponent and an
Integral Implementer
Financial Review
Overview
During the year ended 31 December 2009 the bank recorded
a net profit of BD 752 K, as compared to BD 3.47 million
during 2008. Total operating income before the exceptional
items grew by 13.07 % to BD 6.33 million, due to increases
in net interest income, fees/commissions and rental income.
expenses reflected a marginal increase of 4.90 % increase
over the previous year. The cost to income ratio before the
exceptional income has decreased from 82 % in December
2008 to 65 % December 2009 indicating better cost control.
Provisions
Total assets at year-end 2009 aggregated to BD 124.21
Bank’s provisioning requirements in respect its non-performing
million, an increase of BD 20.84 million as compared to
portfolio are in line with the International Financial Reporting
year-end 2008. The asset growth came from new loans and
Standards. The loan loss provision for the year net of recoveries
advances, and property plant and equipment’s. Customer
was BD 1.47 million as compared to BD 2.01 million for year
deposits registered an increase of 53.32 % mainly due to
2008. Bank has provided BD 400 K as general provision in
maintaining current accounts by the bank’s customers and
accordance with Central Bank of Bahrain directives.
deposit kept by Tamkeen. All key indicators of profitability
before exceptional items further improved in 2009. Return
on average equity before exceptional income for the year
2009 has improved from 0.09 % to 1.30 %, while return on
average assets increased from 0.05 % to 0.66 %. Earnings
per share improved from 1 fils to 15 fils. Other key financial
ratios remain strong during the year.
Net Interest Income
Net Interest income grew by 20.49 % to BD 4.70 million as
compared to BD 3.90 million of the previous year. The increase
in net interest income was on account of increase in the Loan
portfolio and improved yield from the interbank placements.
Other Income
Other income before exceptional income was BD1.60 million
(2008: 1.70 million) was marginally down on account of
reduction in rate of fee charges to majority of the customers.
Operating Expenses
Operating expenses showed an increase of BD 0.54 million, up
by 15.12 % over the previous year. The increase mainly came
from higher staff expenses and other operating expenses.
Staff expenses rose from BD 2.09 million to BD 2.57 million
due to hiring of additional staff to meet the requirements
of the new branches opened during 2009. Other operating
Assets
Net loans and advances to customers were increased from
BD 50.00 million at year-end 2008 to BD 78.53 million, an
increase of BD 28.52 million or 57.04%. Increase in total
assets mainly attributable to the planned growth in loans &
advances and property plant and equipment.
Equity
As against of minimum capital adequacy ratio of 12%
prescribed by the Central Bank of Bahrain (CBB), the Bank’s
ratio at year end 2009 was 53% (2008: 66%). The ratio, based
on guidelines issued by CBB, which are compatible with those
of the Basel Committee on Banking Supervision, measures
total qualifying capital held by an institution in relation to its
risk weighted assets.
Setting up one’s business, calls
for certain competencies. Those
who have an aptitude to be
successful entrepreneurs can
be assisted in strengthening the
requisite competencies.
With this philosophy, the program designed to suit Bahraini conditions
is aimed at helping potential entrepreneurs translate their ideas into
commercial ventures in manufacturing/service sector. Help will be by
the way of formal training on various aspects of enterprise building
starting from identification of business opportunities, developing
business opportunities, developing entrepreneurial competencies
and acquiring skill in managing a small venture. The participants
will receive conseling / advisory services to facilitate project
implementation.
Build Up Your
Entrepreneurship
Consolidated
Financial
Statements
Auditors’ Report
INDEPENDENT AUDITORS’ REPORT
TO THE SHAREHOLDERS OF
BAHRAIN DEVELOPMENT BANK B.S.C. (c)
We have audited the accompanying
the preparation and fair presentation of
consolidated financial statements of
financial statements that are free from
Bahrain
B.S.C.
material misstatement, whether due to
(c) (“the Bank”) and its subsidiaries
fraud or error; selecting and applying
(“the Group”) which comprise the
appropriate accounting policies; and
consolidated statement of financial
making accounting estimates that are
position as at 31 December 2009
reasonable in the circumstances.
Development
Bank
and the consolidated statements of
income, comprehensive income, cash
flows and changes in equity for the
year then ended, and a summary of
significant
accounting
policies
and
other explanatory notes.
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
Board of Directors’ Responsibility
International Standards on Auditing.
for the Financial Statements
Those standards require that we comply
The Board of Directors is responsible for
the preparation and fair presentation of
these consolidated financial statements
in accordance with International Financial
Reporting Standards. This responsibility
with ethical requirements and plan and
perform the audit to obtain reasonable
assurance
whether
the
financial
statements are free from material
misstatement.
includes: designing, implementing and
An audit involves performing procedures
maintaining internal controls relevant to
to obtain audit evidence about the
amounts and disclosures in the financial
we have obtained is sufficient and
report, to the best of our knowledge
statements. The procedures selected
appropriate to provide a basis for our
and belief, that no violations of the
depend on the auditors’ judgment,
audit opinion.
Bahrain Commercial Companies Law,
including
the
assessment
of
the
risks of material misstatement of the
financial statements, whether due to
fraud or error. In making those risk
assessments, the auditor considers
internal controls relevant to the entity’s
preparation
and
fair
presentation
of the financial statements in order
nor of the Central Bank of Bahrain and
Opinion
In
our
Financial Institutions Law, nor of the
opinion,
the
consolidated
financial statements present fairly, in all
material respects, the financial position
of the Group as of 31 December 2009,
and its financial performance and its
to design audit procedures that are
cash flows for the year then ended in
appropriate
accordance with International Financial
for
the
circumstances,
but not for the purpose of expressing
Reporting Standards.
memorandum and articles of association
of the Bank have occurred during the
year ended 31 December 2009 that
might have had a material adverse
effect on the business of the Bank or on
its consolidated financial position and
that the Bank has complied with the
terms of its banking license.
an opinion on the effectiveness of the
entity’s internal controls. An audit also
Other Regulatory Matters
includes evaluating the appropriateness
We confirm that, in our opinion, proper
of accounting policies used and the
accounting records have been kept by
reasonableness of accounting estimates
the Bank and the consolidated financial
made by the Board of Directors, as well
8 March 2010
statements, and the contents of the
Manama, Kingdom of Bahrain
as evaluating the overall presentation of
the financial statements.
We believe that the audit evidence
Directors’ Report relating to these
consolidated financial statements, are
in agreement therewith. We further
Consolidated Statement of Financial Position
31 December 2009
Notes
2009
2008
BD 000
BD 000
ASSETS
Cash and balances at the Central Bank of Bahrain
4
1,431
1,247
Due from banks and other financial institutions
5
28,770
40,204
Accounts receivable and other assets
6
769
724
Loans and advances to customers
7
78,529
50,007
Available for sale investments
8
4,801
4,587
Investment in associates
9
1,856
1,934
Property, plant and equipment
10
8,055
4,667
124,211
103,370
TOTAL ASSETS
LIABILITIES AND EQUITY
Liabilities
Deposits
11
50,974
28,889
Accounts payable and other liabilities
12
1,611
1,446
Long term loans
13
13,459
15,372
66,044
45,707
50,000
50,000
Total Liabilities
Equity
Share capital
14
Statutory reserve
15
916
841
178
426
7,073
6,396
Total Equity
58,167
57,663
TOTAL LIABILITIES AND EQUITY
124,211
103,370
Cumulative changes in fair value
Retained earnings
15
Chairman
The attached notes 1 to 26 form part of these consolidated financial statements.
Director
Consolidated Statement of Income
Year ended 31 December 2009
Notes
2009
2008
BD 000
BD 000
CONTINUING OPERATIONS
Interest income
16
5,211
4,438
Interest expense
17
(507)
(534)
4,704
3,904
Net interest income
Fee and commission income
671
632
Rental income
294
266
Course fees and related income
246
156
Gain on sale of available for sale investments
-
2,117
Dividend income
362
396
Other income
133
121
9
(78) -
6,332
7,592
-
125
6,332
7,717
Share of loss of associates
Gross profit from Bahrain Atomisers International B.S.C. (c)
Note below
Total operating income
(2,861)
(2,382)
Other operating expenses
(1,221)
(1,164)
PROFIT BEFORE PROVISION AND FOREIGN CURRENCY RETRANSLATION
2,250
4,171
(1,473)
(2,010)
(Loss) /gain on foreign currency retranslation
(25)
6
PROFIT FOR THE YEAR FROM CONTINUING OPERATIONS
752
2,167
Administration expenses
Provision for impairment
DISCONTINUED OPERATION
18
7 & 8
19
Profit on sale of a subsidiary
Attributable to:
-
1,299
752
3,466
Shareholders of the parent
752
3,470
Non-controlling interest
-
(4)
752
3,466
Note:
Gross profit from Bahrain Atomisers International B.S.C. (c)
Sales
-
4,006
Cost of Sales
-
(3881)
Gross profit
-
125
Consolidated Statement of Comprehensive Income
2009
2008
BD 000
BD 000
Profit for the year
752
3,466
changes in fair value - available for sale investments
(248)
(140)
Total comprehensive income for the year
504
3,326
Net movement in cumulative
Attributable to:
504
3,330
-
(4)
504
3,326
Consolidated Cash Flow Statement
2009
2008
BD 000
BD 000
752
2,167
-
1,299
OPERATING ACTIVITIES
Profit from continuing operations
Profit from sale of a subsidiary
Adjustments for:
Depreciation
293
297
1,473
2,010
-
(2,117)
Profit on sale a subsidiary
-
(1,299)
(362)
(396)
Share of loss of an associate
78
-
Loss / (gain) on foreign currency retranslation
25
(6)
-
4
2,259
1,959
9,321
(7,666)
(45)
144
(29,995)
(10,119)
22,085
14,700
165
(615)
3,790
(1,597)
Dividend Income
Operating profit before changes in operating assets and liabilities
Changes in operating assets and liabilities:
Deposits
Net cash from (used in) from operating activities
INVESTING ACTIVITIES
(3,681)
(2,066)
(462)
(3,067)
362
396
Proceeds from available for sale investments
-
2,965
Proceeds from sales of a subsidiary
-
2,500
(3,781)
728
Purchase of property, plant and equipment
Purchase of investments
Dividend Income received
Net cash (used in) from investing activities
FINANCING ACTIVITIES
Repayment of long term loan
(1,913)
(1,589)
Net cash used in financing activity
(1,913)
(1,589)
DECREASE IN CASH AND CASH EQUIVALENTS
(1,904)
(2,458)
Cash and cash equivalents at 1 January
18,600
21,058
CASH AND CASH EQUIVALENTS AT 31 DECEMBER (Note 20)
16,696
18,600
Consolidated Statement of Changes in Equity
Minority
interest
Equity attributable to the shareholders of the parent
Cumulative
Statutory
changes in
Retained
Share
Total
equity
capital
reserve
fair value
earnings
Total
BD 000
BD 000
BD 000
BD 000
BD 000
BD 000
BD 000
Balance at 1 January 2008
50,000 494 566 3,273 54,333 1,158 55,491
-
-
(140)
3,470 3,330 (4)
3,326
Transfer to statutory reserve
-
347 -
(347)
-
-
-
Sale of a subsidiary
-
-
-
-
-
(1,154)
(1,154)
50,000 841 426 6,396 57,663 -
57,663
-
-
(248)
752 504 -
504
Transfer to statutory reserve
-
75 -
(75)
-
-
-
50,000 916 178 7,073 58,167 -
58,167
Balance at 31 December 2008
Balance at 31 December 2009
Notes to the Consolidated
Financial Statements
31 December 2009
1
ACTIVITIES
Bahrain Development Bank B.S.C. (c) (“the Bank” or “BDB”) was established as a Bahraini closed shareholding company by
Legislative Decree number 19 dated 11 December 1991 and commenced operations on 20 January 1992. The Bank is registered
with the Ministry of Industry and Commerce under commercial registration (CR) number 26226. The Bank’s registered office is
situated at building number 170, road number 1703, Diplomatic Area, Kingdom of Bahrain.
The Bank is operating as a retail bank with special waivers under a license issued by the Central Bank of Bahrain (“CBB”).
The core development bank activities consist of advancing loans for project finance, working capital and premises and equipment
for developing industries and service sectors such as tourism, health and education in the Kingdom of Bahrain. As part of this
activity function, the Bank also renders management consultancy services and subscribes to ordinary and preference shares in
Bahraini companies. Additionally, loans are advanced for agriculture, fisheries and higher education purposes. Other activities
of the Bank comprise of making direct contributions towards the economic development of the Kingdom of Bahrain.
The Group consists of the Bank and its following subsidiaries:
Name
Bahrain Institute of
Country of
Ownership
incorporation
interest
Year end
Bahrain
100%
31 December
Principal activity
Providing high quality
Technology W.L.L.
educational services in
information technology.
Bahrain Business
Development and
Bahrain
100%
31 December
Incubator Centre (S.P.C.)
assistance to emerging
Bahraini entrepreneurs.
The consolidated financial statements were authorised for issue in accordance with a resolution of the Board of Directors on
08 March 2010.
2
SIGNIFICANT ACCOUNTING POLICIES
Basis of Preparation
The consolidated financial statements are presented in Bahraini Dinars (BD) which is the functional currency of the Group and
all the values are rounded to the nearest thousand.
31 December 2009
2
SIGNIFICANT ACCOUNTING POLICIES (continued)
Statement of Compliance
The consolidated financial statements are prepared in accordance with International Financial Reporting Standards [IFRS],
Bahrain Commercial Companies Law and the central Bank of Bahrain and Financial Institutions Law.
The consolidated financial statements have been prepared on a historical cost basis except for available for sale investments
that have been measured at fair value.
Changes in accounting policy and disclosures
The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in
previous year except that the Group has adopted the following new and amended IASB Standards and International Financial
Reporting Interpretations Committee (IFRIC) Interpretations during the year.
New standards and interpretations issued but not yet effective
The following standards and interpretations have been issued by the International Accounting Standards Board (IASB) but are
not yet mandotary for the year ended 31 December 2009:
- “IAS 1 (Revised) - Presentation of financial statements effective 1 January 2009.
- IFRS 8 - Operating segments effective 1 January 2009.
- IAS 39 Financial Instruments (Revised) : Recognition and Measurement - Eligible Hedged Items effective annual periods
commencing 1 July 2009.
- IFRS 9 Financial Instruments: effective 1 January 2013.
- IFRS 3 Business Combinations (Revised) and consequential amendments to IAS 27 Consolidated and Separate Financial
Statements: effective annual periods commencing 1 July 2009.
- IFRS 2 Share-based Payment (Revised): effective 1 January 2010.
- IAS 32 Financial Instruments (Revised) : Presentation - Classification of Rights Issues effective 1 February 2010.
- IAS 24 Related Party Disclosures (Revised): effective 1 January 2011.”
The application of the above standards other than IFRS 9 is not expected to have a material impact on the consolidated financial
statements as and when they become effective. IFRS 9 was issued in November 2009 and replaces the parts of IAS 39 relating
to the classification and measurement of financial assets. The standard is effective for annual periods beginning on or after 1
January 2013. The Group is assessing the impact and timing of application of IFRS 9 on the Group’s financial statements.
The Group has adopted the following new and amended Standards as of 1 January 2009.
31 December 2009
2
IAS 1 Presentation of Financial Statements (Revised)
The revised standard, effective for financial years beginning on or after 1 January 2009, requires changes in equity arising from
transactions with shareholders of the Bank in their capacity as owners (i.e. owner changes in equity) to be presented in the
consolidated statement of changes in equity. All other changes in equity (i.e. non-owner changes in equity) are required to be
presented separately in the consolidated statement of comprehensive income. Components of comprehensive income are not
permitted to be presented in the consolidated statement of changes in equity. Comparative information has been restated so
that it also conforms with the revised standard. Since this change only impacts the presentation of the consolidated financial
statements, there is no impact on retained earnings.
Amendment to IFRS 7 - Financial Instruments: Disclosures
During the year the Group has adopted amendments to IFRS 7 - Financial Instruments: Disclosures which requires an entity to
provide a quantitative and qualitative analysis of those instruments recognized at fair value based on a three-level measurement
hierarchy. Furthermore, for those instruments which have significant unobservable inputs (classified at level 3) the amendment
requires disclosures on the transfers into and out of level 3, a reconciliation of the opening and closing balances, total gains and
losses for the year split between those recognised in other comprehensive income, purchases, sales issues and settlements and
sensitivity analysis of reasonably possible changes in assumptions. In addition, disclosure is required of the movements between
different levels of the fair value hierarchy and the reason for those movements. Finally, the standard amends the previous
liquidity risk disclosures as required under IFRS 7 for non-derivative and derivative financial liabilities.
Basis of consolidation
These consolidated financial statements incorporate the financial statements of the Bank and its subsidiaries. The financial
statements of the subsidiaries are prepared for the same reporting year as the Bank using consistent accounting policies.
All intra group balances, transactions, income and expenses and profits and losses resulting from intra-group transactions are
eliminated on consolidation.
Subsidiaries are consolidated from the date on which control is transferred to the Bank and cease to be consolidated from the
date on which control is transferred out of the Bank.
Non-controlling interest represent the portion of profit or loss and net assets not owned, directly or indirectly, by the Bank
and are represented separately in the consolidated statement of income and within equity in the consolidated balance sheet,
separately from parent shareholder’s equity.
The significant accounting policies adopted in the preparation of these consolidated financial statements are set out below:
(i) Cash and balances with Central Bank of Bahrain (CBB)
Cash and cash equivalents comprise of cash, balances with CBB including reserves.
31 December 2009
2
(ii) Due from banks & other financial institutions and loans and advances to customers
These are initially recorded at fair value of the consideration given. After initial measurement these are subsequently measured
at amortised cost using the effective rate method less allowance for impairment.
(iii) Accounts receivable and other assets
Accounts receivable are stated at original invoice amount net of discounts and provisions for any uncollectible amounts. An
estimate for doubtful debts is made when collection of the full amount is no longer probable. Bad debts are written off when
there is no possibility of recovery.
(iv) Investments
Investments comprise available for sale investments and investments in associates.
(a) Available for sale Investments
Available for sale investments are those which are designated as such or do not qualify to be classified as loan and advances.
They comprise of quoted and unquoted equity instruments.
These are initially recognised at cost, being the fair value of consideration given including acquisition costs. Subsequent to
acquisition, these investments are remeasured at fair value, unless fair value cannot be reliably determined in which case they
are measured at cost less impairment. Fair value changes are reported as a separate component of equity until the investment
is derecognised or determined to be impaired. On derecognition or impairment, any cumulative gain or loss previously reported
as “cumulative changes in fair value” within equity is included in the consolidated statement of income for the year.
(b) Investment in associates
An associated company (or associate) is one in which the Group exercises significant influence (but not control) over its
operations, generally accompanying, directly or indirectly, a holding between 20% and 50% of the voting power of the
investee and is accounted for by the equity method.
Under the equity method, the investment in an associate is initially recognised at cost and adjusted thereafter for the postacquisition change in the Group’s share of net assets of the investee. The Group recognises in the consolidated statement of
income its share of the total recognised profit or loss of an associate from the date that influence or ownership effectively
commences until the date that it effectively ceases. Distributions received from an associate reduce the carrying amount of the
investment. Adjustments to the carrying amount may also be necessary for changes in the Group’s share in the associate arising
from changes in its comprehensive income that have not been recognised in the associate’s statement of income. The Group’s
share of those changes is recognised directly in statement of comprehensive income.
Unrealised gains and losses resulting from transactions with associates are eliminated to the extent of the Group’s share in the
associates.
31 December 2009
2
An assessment of investment in an associate is performed when there is an indication that the asset has been impaired, or that
impairment losses recognised in prior years no longer exist. Whenever the impairment requirements of IAS 36 indicate that
investment in an associate may be impaired, the entire carrying amount of investment is tested by comparing its recoverable
amount with its carrying value. The recoverable amount of an asset or a cash-generating unit is the higher of its fair value less
costs to sell and its value in use. Goodwill is included in the carrying amount of an investment in associate and, therefore, is
not separately tested for impairment.
(v) Property, plant and equipment
All items of property, plant and equipment are initially recorded at cost. Depreciation is provided on a straight-line basis over
the estimated useful lives of all property, plant and equipment, other than freehold land, which is deemed to have an indefinite
life, and capital work-in-progress. The estimated useful lives of the assets of the Group for the calculation of depreciation are
as follows:
Freehold premises
Leasehold improvements
15 - 30 years
30 years
Plant, machinery, equipment and electrical installation
5 - 15 years
Furniture, fixtures, vehicles, computers and office equipment
3 – 10 years
(vi) Derecognition of financial assets and liabilities
a) A financial asset is derecognised where:
- the rights to receive cash flows from the asset have been transferred or an obligation is assumed to pay the received cash
flows in full without material delay to a third party under a ‘pass-through’ arrangement; and either (a) the Group has
transferred substantially all the risks and rewards of the asset, or (b) has neither transferred nor retained substantially all the
risks and rewards of the asset, but has transferred the control of the asset.
b) A financial liability is derecognised when the obligation specified in the contract is discharged, cancelled or
expired.
(vii) Deposit
All deposits are carried at cost, less amount repaid.
(viii) Accounts payable and other liabilities
Liabilities are recognised for amounts to be paid in the future for the goods or services received, whether billed by the supplier
or not.
31 December 2009
2
(ix) Provisions
Provisions are recognised when there is a present obligation (legal or constructive) as a result of a past event and the costs to
settle the obligation are both probable and able to be reliably measured.
(x) Employees’ end of service benefits
The Group makes contributions to the General Organization for Social Insurance for its Bahraini employees, calculated as a
percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are expensed when
due.
The Group also provides end of service benefits to its expatriate employees. The entitlement to these benefits is based upon
the employees’ final salary and length of service, subject to the completion of a minimum service period. The expected costs of
these benefits are accrued over the period of employment.
(xi) Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet when there is a legally
enforceable right to set off the recognised amounts and there is an intention to settle on a net basis or to realize the asset and
settle the liability simultaneously.
(xii) Revenue recognition
Interest income and fees which are considered an integral part of the effective yield of a financial asset are recognised using
the effective yield method unless collectibility is in doubt. The recognition of interest income is suspended when loans become
impaired, such as when installments are overdue by more than 90 days. Notional interest is recognised on impaired loans and
other financial assets based on the rate used to discount future cash flows to their net present value.
Dividend income is recognised when the right to receive the dividend is established.
Rental income is recognised on an accrual basis in accordance with the terms of the rental lease agreements.
Fees receivable are recognised as the services are provided.
Training and other fees are recognised when earned.
Interest expense is accrued using effective interest rate method.
(xiii) Cost of sales
Cost of sales includes materials cost, other variable costs, and such factory overheads as related to the normal utilization of
facilities. This also includes freight, insurance, transport and other shipping expenses.
31 December 2009
2
(xiv) Foreign currencies
Transactions in foreign currencies are recorded at the exchange rate ruling at the date of the transaction. Monetary assets and
liabilities in foreign currencies are translated into Bahraini Dinars at rates of exchange prevailing at the balance sheet date. Any
exchange gains or losses are taken to the consolidated statement of income.
(xv) Impairment of financial assets
The Bank assesses at each balance sheet date whether there is any objective evidence that a specific financial asset is impaired.
A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred ‘impairment event’) and that impairment event
(or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence
of impairment may include indications that the borrower is experiencing significant financial difficulty, default or delinquency
in interest or principal payments, the probability that it will enter bankruptcy or other financial reorganisation and where
observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
(a) Loans and advances to customers
If there is objective evidence that an impairment has occurred, the amount of the impairment is measured as the difference
between the asset’s carrying amount and the present value of estimated future cash flows discounted at the original effective
interest rate. The carrying amount of the asset is reduced through the use of an allowance account and the amount of the
impairment is recognised in the consolidated statement of income. Notional interest income is accrued on the reduced carrying
amount based on the original effective interest rate of the asset. Loans together with the associated allowance are written off
when there is no realistic prospect of future recovery and all collateral has been realised or has been transferred to the Bank. If,
in a subsequent year, the amount of the estimated impairment increases or decreases because of an event occurring after the
impairment was recognised, the previously recognised impairment is increased or reduced by adjusting the allowance account.
If a future write-off is later recovered, the recovery is credited to the “provision for impairment”.
(b) Available for sale investments
For available for sale investments, the Bank assesses at each balance sheet date whether there is objective evidence that an
investment or a group of investments is impaired. In the case of equity investments classified as available for sale, objective
evidence would include a significant or prolonged decline in the fair value of the investment below its cost.
Where there is evidence of impairment, the cumulative impairment, measured as the difference between the acquisition
cost and the current fair value less any impairment on that investment previously recognised in the consolidated statement
of income, is removed from equity and recognised in the consolidated statement of income. Impairment charges on equity
investments are not reversed through the statement of income; increases in their fair value after impairment are recognised
directly in equity.
31 December 2009
2
(xvi) Financial instruments
Financial instruments consist of cash, balances with the CBB, due from banks and other financial institutions, loans and advances
to customers, available for sale investments, accounts receivable, accounts payable, and certain other assets and liabilities.
(xvii) Fair values
For instruments actively traded in organised financial markets, fair value is determined by reference to quoted market bid prices
at the close of business on the balance sheet date. Financial instruments for which there is no active market are carried at cost
less impairment.
(xviii) Trade and settlement date accounting
Purchases and sales of financial assets are recognised on the trade date, i.e. the date of commitment of purchase or sale of
the asset.
3
JUDGEMENT
In the process of applying the Group’s accounting policies, the management has made the following judgments and
estimates:
Going concern
The Bank’s management has made an assessment of the Group’s ability to continue as a going concern and is satisfied that the
Group 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 Group’s ability to continue as a going concern. Therefore, the
consolidated financial statements continue to be prepared on the going concern basis.
Classification of investments
On acquisition of an investment, the management decides whether it should be classified as held for trading or available for
sale. Since the Group does not acquire investments primarily for the purpose of making a short term profit, all investments are
classified as available for sale.
Impairment losses on loans and advances and investments
The Group reviews its problematic loans and advances and investments on a quarterly basis to assess whether any provision
for impairment is required to be recorded in the consolidated statement of income. In particular, considerable judgment by
management is required in the estimation of the amount and timing of future cash flows for determining the level of provision
required. Such estimates are necessarily based on assumptions about several factors involving varying degrees of judgment and
uncertainty, and the actual results may differ resulting in future changes to such provisions.
31 December 2009
4
CASH AND BALANCES WITH CENTRAL BANK OF BAHRAIN
2009
2008
BD 000
BD 000
54 44
Balances with Central Bank of Bahrain (CBB)
1,377
1,203
1,431
1,247
2009
BD 000
2008
BD 000
1,152
195
Placements with banks and financial institutions
27,618
40,009
28,770
40,204
Cash in hand
5
DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS
Nostro balances with other banks
Nostro balances with banks include an amount of BD 3 thousand (2008: BD 35 thousand) maintained by the Bank in a fiduciary
capacity (note 13). An equivalent amount is included in accounts payable and other liabilities representing amount payable to
Kuwait Fund for Arab Economic Development (KFAED).
6
ACCOUNTS RECEIVABLE AND OTHER ASSETS
2009
BD 000
2008
BD 000
180 329
12 16
Prepayments and other assets
577 379
769 724
Interest Inventories
31 December 2009
7
LOANS AND ADVANCES TO CUSTOMERS
2009
BD 000
2008
BD 000
Project finance
80,362 51,926
4,469 4,003
515 416
85,346 56,345
(6,417)
(6,208)
(400)
(130)
78,529 50,007
Fisheries and agriculture
Others
Less: Provision for impairment
- Specific
- Collective
The Bank advances loans for the development of fisheries and agricultural activities in the Kingdom of Bahrain. The Government
of the Kingdom of Bahrain reimburses the Bank for any losses and costs in connection with these loans as such the entire
provision for impairment relates to project finance loans.
The movement in loan loss provisions during the year were as follows:
2009
BD 000
2008
BD 000
At 1 January
6,338 4,498
Charge for the year
1,473 1,684
(1,115)
-
121
156
6,817 6,338
Written off during the year
Interest suspended
Balance at 31 December Gross amount of loans, individually assessed to be impaired
before deducting any individually assessed impairment allowance (see note below) 13,159 10,699
Note: This include BD 1,413 thousands (2008: BD 1,068 thousands) relating to agriculture and fisheries loans which are
considered as impaired but no provision has been made on the same due to reimbursement arrangement with the Government
of the Kingdom of Bahrain as mentioned above.
The fair value of collateral that the Bank holds relating to loans individually determined to be impaired at 31 December 2009
amounts to BD 1.7 million (2008: BD 2.1 million). For more detailed description see note 24 (i) (c) collateral and other credit
enhancements.
31 December 2009
8
AVAILABLE FOR SALE INVESTMENTS
The Bank has the following investments which have been classified as “available for sale” investments:
2009
BD 000
2008
BD 000
Quoted
1,147 1,395
Unquoted
4,630 4,168
5,777 5,563
Less: Provision for impairment
(976)
(976)
4,801 4,587
Unquoted investments are stated at cost less provision for impairment, due to the unpredictable nature of future cash flows and
the lack of suitable other methods for arriving at a reliable fair value. The primary objective with which the Bank makes such
investments is to assist in the economic development of the Kingdom and to promote entrepreneurship. The financial position
of the entities in which the investments are made are monitored on an ongoing basis. Once the venture attains stability, the
Bank intends to exit from the investments either through IPO or by way of selling to any strategic investor.
The movement in provisions for impairment of investments during the year were as follows:
At 1 January
Charge for the year
Balance at 31 December
9
2009
BD 000
2008
BD 000
976
650
-
326
976
976
INVESTMENT IN ASSOCIATES
During the previous year, the Bank has acquired 20% interest in Arabian Taxi Company, EBDA Bank and Venture Capital Fund.
Since the EBDA Bank and Venture Capital Fund have yet to commence their operations there is no change in their carrying
value.
2009
BD 000
2008
BD 000
Share of associate’s statement of financial positions:
314 392
EBDA Bank
377 377
Venture Capital Fund
1,165 1,165
1,856
1,934
Share of loss of associates:
(78)
-
Total
(78)
-
31 December 2009
10 PROPERTY, PLANT AND EQUIPMENT
Plant,
Furniture,
machinery,
fixtures,
equipment
Freehold
land
2009
and
leasehold
vehicles
computers
Capital
electrical
and office
work-in-
premises improvements* installations
equipment
progress
Total
Freehold
Buildings on
BD 000
BD 000
BD 000
BD 000
BD 000
BD 000
BD 000
293 1,807 1,477 -
1,298 1,987 6,862
-
2
-
-
238 3,441 3,681
293 1,809 1,477 -
1,536 5,428 10,543
Cost:
At 1 January 2009
Additions
At 31 December 2009
Depreciation:
At 1 January 2009
-
853 320 -
1,022 -
2,195
Charge for the year
-
71 51 -
171 -
293
At 31 December 2009
-
924 371 -
1,193 -
2,488
293 885 1,106 -
343 5,428 8,055
Net book values
At 31 December 2009
31 December 2009
10 PROPERTY, PLANT AND EQUIPMENT (continued)
Plant,
Furniture,
machinery,
fixtures,
equipment
vehicles
Buildings on
and
computers
leasehold
electrical
and office
work-in-
improvements* installations
equipment
progress
Total
Capital
Freehold
Freehold
land
premises
BD 000
BD 000
BD 000
BD 000
BD 000
BD 000
BD 000
293
2,700
1,477
2,335
1,530
46
8,381
2008
Cost:
At 1 January 2008
Additions
-
-
-
-
125
1,941
2,066
Disposals
-
(893)
-
(2,335)
(378)
-
(3,606)
At 31 December 2008
293
1,807
1,477
-
1,277
1,987
6,841
-
1,515
269
1,750
1,178
-
4,712
Depreciation:
At 1 January 2008
Charge for the year
-
72
51
-
174
-
297
Disposals
-
(734)
-
(1,750)
(351)
-
(2,835)
At 31 December 2008
-
853
320
-
1,001
-
2,174
293
954
1,157
-
276
1,987
4,667
Net book values
At 31 December 2008
*These buildings relate to a subsidiary of the Bank and are situated on land leased from the Ministry of Industry and Commerce (note 23). Even
though the current lease expires on 24 October 2024, the directors are confident that the lease will be renewed for a second term of 25 years
at the expiry of the current lease. Hence the buildings on leasehold land are depreciated over 30 years. The capital work in progress as of 31
December 2009 represents amounts incurred for reclamation of land work for expansion of leasehold improvements.
11 DEPOSITS
2009
BD 000
2008
BD 000
Bank deposits
17,546
7,086
Customer deposits
33,428
21,803
50,974
28,889
31 December 2009
12 ACCOUNTS PAYABLE AND OTHER LIABILITIES
Unearned income
2009
BD 000
2008
BD 000
17
18
Amount due to Ministry of Agriculture
425
425
Staff related accruals
451
305
Accounts payable
285
239
56
82
377
377
1,611
1,446
2009
BD 000
2008
BD 000
Kuwait Fund for Arab Economic Development
13,459
15,372
Interest payable
Others
13 LONG TERM LOANS
Kuwait Fund for Arab Economic Development
The Bank had obtained a loan from Kuwait Fund for Arab Economic Development (KFAED) in 1998. The entire facility has
been drawn down and is repayable in thirty equal half yearly installments, which commenced from 15 May 2005. This bears
an interest and management fees of 1.5% and 0.5% (2008: 1.5% and 0.5%) respectively. The outstanding balance as at 31
December 2009 was KD 10.2 million (2008: KD 11.3 million).
The loan proceeds were utilised by the Bank to advance loans to customers. One of the covenants of KFAED’s loan agreement
requires the Bank to repay KFAED, any margin earned in excess of a spread of 2% (“interest differentials”) on such loans to
customers. The interest differentials are deposited into KFAED’s bank account maintained by the Bank in a fiduciary capacity.
The balance at year end was BD 3 thousand (2008: BD 35 thousand). This account can be used only for development activities
such as training, feasibility studies and technical assistance to borrowers agreed by both the parties. During 2009, BD 32
thousand (2008: BD 32 thousand) was utilised for such purposes.
14 SHARE CAPITAL
Ordinary shares of BD 1 each
Authorised
Issued and fully paid
2009
BD 000
2008
BD 000
2009
BD 000
2008
BD 000
100,000
100,000
50,000
50,000
15 STATUTORY RESERVE AND RETAINED EARNINGS
In accordance with the provisions of the Bahrain Commercial Companies Law and the Bank’s articles of association, an amount
equivalent to 10% of the net profit for the year has been transferred to a statutory reserve. The Bank may resolve to discontinue
such annual transfers when the reserve totals 50% of the paid up share capital. This reserve is not distributable, but can be
utlised for the purposes of a distribution in such circumstances as stipulated in the Bahrain Commercial Companies Law and
following the approval of the Central Bank of Bahrain.
31 December 2009
16 INTEREST INCOME
2009
BD 000
2008
BD 000
Loans and advances
Interest recoveries relating to impaired loans
3,831
1,091
289
3,116
1,042
280
5,211
4,438
2009
BD 000
2008
BD 000
Loan from Kuwait Fund for Arab Economic Development
Bank deposits
Customer deposits
286
45
176
325
23
186
507
534
2009
BD 000
2008
BD 000
Staff costs
Depreciation
2,568
293
2,085
297
2,861
2,382
17 INTEREST EXPENSE
18 ADMINISTRATION EXPENSES
19 DISCONTINUED OPERATION
During the previous year, the Bank sold its entire 51% interest in a subsidiary - Bahrain Atomisers International B.S.C. (c) (BAI) for
a consideration of BD 2.50 million, this transaction resulted in a profit of BD 1.30 million.
20 CASH AND CASH EQUIVALENTS
Cash and cash equivalents included in the consolidated statement of cash flows comprise the following balance sheet amounts:
Cash
2009
BD 000
2008
BD 000
54
44
Balances with central Bank of Bahrain excluding reserves
with original maturity of 90 days or less
190
782
16,452
17,774
16,696
18,600
31 December 2009
21 RELATED PARTY TRANSACTIONS
The Group enters into transactions with related parties which comprise of major shareholders, associated companies, directors,
senior management and entities controlled jointly or significantly influenced by such related parties in the ordinary course of
business at commercial interest and commission rates. All the loans and advances to related parties are performing and are free
of any specific impairment provision.
The year end balances in respect of related parties included in the consolidated financial statements are as follows:
Directors
and senior Other related
management
Companies
2009
BD 000
BD 000
Total
BD 000
Deposits
12
229
-
10,526
533
15
10,538
762
15
2008
Deposits
Directors
and senior
management
BD 000
10
1,369
-
Other related
Companies
BD 000
10,517
89
32
Total
BD 000
10,527
1,458
32
The income and expenses in respect of related parties included in the consolidated financial statements are as follows:
2009
Directors
and senior
management
BD 000
Other related
Companies
BD 000
Total
BD 000
Interest income
Interest expense
Rental expenses
Other expenses
12
-
-
-
1
23
7
19
13
23
7
19
2008
Directors
and senior
management
BD 000
Other related
Companies
BD 000
Total
BD 000
Interest income
Interest expense
Rental expenses
Other expenses
63
-
-
-
5
163
5
2
68
163
5
2
Compensation of key management personnel is as follows:
2009
BD 000
2008
BD 000
Short term employee benefits
Termination benefits
Others
399
38
-
276
98
7
437
381
31 December 2009
22 SEGMENTAL INFORMATION
The financial position of the Bank and the Group as of 31 December 2009 was as follows:
Head Office and
Equity Investments
Division*
BD 000
Bank Subsidiaries
Development
Bahrain Bahrain Business
Activities
Institute of
Incubator
Division**
SubtotalTechnology W.L.L.
Centre
BD 000
BD 000
BD 000
BD 000
Total
BD 000
2009
ASSETS
Cash and balances with the Central Bank of Bahrain
-
1,430 1,430 Due from banks and other financial institutions
-
28,766 28,766 Accounts receivable and other assets
-
576 576 1
-
1,431
4
-
28,770
128 65 769
-
78,529 78,529 -
-
78,529
Available for sale investments 4,801 -
4,801 -
-
4,801
1,856 -
1,856 -
-
1,856
1,494 -
1,494 9
6,552 8,055
TOTAL ASSETS
8,151 109,301 117,452 142 6,617 124,211
-
50,974 50,974 -
-
50,974
LIABILITIES
Deposits
807 735 1,542 48 21 1,611
-
13,459 13,459 -
-
13,459
807 65,168 65,975 48 21 66,044
50,000 -
50,000 -
-
50,000
Statutory reserve
916 -
916 -
-
916
178 -
178 -
-
178
7,073 -
7,073 -
-
7,073
58,167 -
58,167 -
-
58,167
(50,823)
44,133 (6,690)
94 6,596 -
8,151 109,301 117,452 142 6,617 124,211
Long term loan
TOTAL LIABILITIES
EQUITY
Share capital
Retained earnings Intra division/Intra group/minority interest balances
* The Head office and Equity Investments division invests in equity participations and holds the Bank’s property.
** The Development Activities division provides loans for developmental projects including fisheries and agricultural loans.
31 December 2009
22 SEGMENTAL INFORMATION (continued)
The financial position of the Bank and the Group as of 31 December 2008 was as follows:
Head Office and
Equity Investments
Division*
BD 000
Bank
Subsidiaries
Development
Activities
Institute of
Incubator
Division**
Subtotal Technology W.L.L.
Centre
BD 000
BD 000
BD 000
BD 000
Total
BD 000
2008
ASSETS
Cash and balances with the Central Bank of Bahrain
-
1,247 1,247 -
-
1,247
-
40,203 40,203 1
-
40,204
510 106 616 76 32 724
-
50,007 50,007 -
-
50,007
Available for sale investments 4,587 -
4,587 -
-
4,587
1,934 -
1,934 -
-
1,934
1,502 -
1,502 9
3,156 4,667
TOTAL ASSETS
8,533 91,563 100,096 86 3,188 103,370
LIABILITIES
Deposits
-
28,889 28,889 -
-
28,889
627 672 1,299 107 40 1,446
-
15,372 15,372 -
-
15,372
627 44,933 45,560 107 40 45,707
50,000 -
50,000 -
-
50,000
Statutory reserve
841 -
841 -
-
841
426 -
426 -
-
426
6,396 -
6,396 -
-
6,396
57,663 -
57,663 -
-
57,663
(49,757)
46,630 (3,127)
(21)
3,148 -
8,533 91,563 100,096 86 3,188 103,370
Long term loan
TOTAL LIABILITIES
EQUITY
Share capital
Retained earnings Intra division/Intra group/minority interest balances
31 December 2009
The income and expenses of the Bank and the Group for the year ended 31 December 2009 are as follows:
Head Office and
Equity Investments
Division*
BD 000
Bank
Subsidiaries
Development
Activities
Institute of
Incubator
Division**
Subtotal Technology W.L.L.
Centre
BD 000
BD 000 BD 000
BD 000
Total
BD 000
2009
Interest income -
5,211 5,211 -
-
5,211
Interest expense
-
(507)
(507)
-
-
(507)
-
4,704 4,704 -
-
4,704
Net interest income Fee and commission income Rental income
-
671 671 -
-
671
187 -
187 -
107 294
-
-
-
246 -
246
362 -
362 -
-
362
Other operating income 100 -
100 (3)
36 133
Share of loss of associates
(78)
-
(78)
-
-
(78)
571 5,375 5,946 243 143 6,332
Dividend income
-
-
-
122 185 307
-
1,473 1,473 -
-
1,473
-
-
-
179 126 305
Exchange gain
-
25 25 -
-
25
-
1,498 1,498 301 311 2,110
571 3,877 4,448 (58)
(168)
4,222
Unallocated administration expenses
(2,554)
-
-
(2,554)
Unallocated operating expenses
(916)
-
-
(916)
PROFIT (LOSS) FOR THE YEAR
978
(58)
(168)
752
978
(58)
(168)
752
Minority interest in subsidiary
-
-
-
-
978
(58)
(168)
752
DIVISIONAL PROFIT (LOSS)
Attributable to:
31 December 2009
The income and expenses of the Bank and the Group for the year ended 31 December 2008 are as follows:
Head Office and
Equity Investments
Division*
BD 000
Bank
Subsidiaries
Development Bahrain Atomisers
Activities
International
Institute of
Incubator
Division**
Subtotal
B.S.C. (c) Technology W.L.L.
Centre
BD 000
BD 000
BD 000
BD 000
BD 000
Total
BD 000
2008
Interest income
-
4,438
4,438
-
-
-
4,438
Interest expense
-
(534)
(534)
-
-
-
(534)
Net interest income
-
3,904
3,904
-
-
-
3,904
Fee and commission income
-
632
632
-
-
-
632
185
-
185
-
-
81
266
-
-
-
-
156
-
156
2,117
-
2,117
-
-
-
2,117
Profit on sale of a subsidiary
1,299
-
1,299
-
-
-
1,299
396
-
396
-
-
-
396
62
-
62
3
18
38
121
Rental income
Dividend income
Other operating income
4,059
4,536
8,595
3
174
119
8,891
Sales
-
-
-
4,006
-
-
4,006
Cost of sales
-
-
-
(3,881)
-
-
(3,881)
Gross profit
-
-
-
125
-
-
125
4,059
4,536
8,595
128
174
119
9,016
-
-
-
64
135
164
363
326
1,684
2,010
-
-
-
2,010
-
-
-
72
218
107
397
Exchange gain
-
(6)
(6)
-
-
-
(6)
326
1,678
2,004
136
353
271
2,764
3,733
2,858
6,591
(8)
(179)
(152)
6,252
Unallocated administration expenses
(2,019)
-
-
-
(2,019)
DIVISIONAL PROFIT (LOSS)
Unallocated operating expenses
(767)
-
-
-
(767)
PROFIT (LOSS) FOR THE YEAR
3,805
(8)
(179)
(152)
3,466
3,805
(4)
(179)
(152)
3,470
Attributable to:
Minority interest in subsidiary
-
(4)
-
-
(4)
3,805
(8)
(179)
(152)
3,466
31 December 2009
23 CONTINGENT LIABILITIES AND COMMITMENTS
The Bank issues letters of credit and guarantees to its existing customers. These instruments commit the Bank to make payments
on behalf of customers in the event of a specific act, generally related to the import of goods.
Irrevocable commitments to extend credit are the loans and advances which had been approved by the Bank but had not been
disbursed as of year-end.
Details of contingent liabilities and commitments are given below:
2009
BD 000
2008
BD 000
1,320
1,202
725
156
2,045
1,358
1,146
4,581
Irrevocable commitments to extend credit
463
3,981
Lease rental commitments
649
660
2,258
9,222
4,303
10,580
Contingent Liabilities:
Letters of guarantee
Letters of credit
Commitments:
Capital expenditure and other commitments
Lease rental commitments include lease rental payable on the land leased from Ministry of Industry and Commerce which is
as follows:
2009
BD 000
2008
BD 000
44
11
Later than 1 year but not later than 5 years
176
176
Later than 5 years
429
473
649
660
Future minimum lease payments:
Within one year
31 December 2009
24 RISK MANAGEMENT STRUCTURE
The Bank is exposed to credit, liquidity, market and operational risks. The Bank’s risk governance is manifested in a set of
established policies, procedures and controls through which the existing organizational structure meets its strategic targets.
This philosophy revolves around the knowledge of various risks and their willingness to accept the same commensurating with
their risk appetite and strategic plan approved by the Board of Directors.
Risk management structure
A cohesive organizational structure is established within the Bank in order to identify, assess, monitor, and control risks.
Board of directors
The apex of risk governance is the centralized oversight by the Board of Directors providing direction and necessary approvals
for strategies and policies in order to achieve defined corporate goals. Audit Committee
This committee comprises of certain members of the Board formed with an objective to assist the Board in carrying out
its duties regarding the integrity of the Bank’s financial reporting system, adequacy of the Bank’s internal control and risk
management processes, to oversee the external and internal audit functions, and the Bank’s compliance with legal and
regulatory requirements.
Senior / Executive management
Senior / Executive management is responsible for the day to day operations towards achieving the strategic goals within the
pre-defined risk appetite and approved strategy as a whole.
Risk Committee – Credit & Investments
The Risk Committee – Credit & Investments has the general responsibility to grant credit and also makes decisions relating to
the execution of investments in line with the Banks investment strategy and management of credit and concentration risks.
Investment committee
The Investment Committee is responsible for the execution of the Bank’s investment strategy and allocation decisions involving
investment related risk.
31 December 2009
24 RISK MANAGEMENT STRUCTURE (continued)
Asset and liability committee
The Asset and Liability committee (“ALCO”) is mainly responsible for defining long-term strategic plans and short-term
tactical initiatives for directing asset and liability allocation prudently for the achievement of the Bank’s strategic goals. ALCO
monitors the Bank’s liquidity and market risks and the Bank’s risk profile in the context of economic developments and market
fluctuations, to ensure that the Bank’s ongoing activities are compatible with the risk/reward guidelines approved by the Risk
Committee – Credit & Investments.
Treasury
The Treasury Department is responsible for the day to day operations necessary to fund the asset book and implement ALCO’s
strategies in managing / optimizing interest rate and liquidity risks.
Risk management
The Risk Management Department is an independent control process responsible for the preparation, implementation and
updating the policies and procedures within the framework of the Bank and in line with the guidelines of the Central Bank
of Bahrain. They are also responsible for the identification and continuous evaluation of all significant risks, design and
implementation of appropriate internal controls to mitigate the risks and the processes involved in the remedial function.
Legal
The Bank has engaged a full-fledged external legal counsel as a retainer to handle all legal cases initiated for recovery of difficult
loan cases. The progress and outcomes on such cases are monitored by the Risk Management Department of the Bank.
Internal audit
Risk management processes are audited annually by Internal Audit, which examines the adequacy of the controls in place
in addition to compliance with the policies by the respective departments. The Internal Audit results are discussed with the
Executive Management Committee and the findings, together with recommendations, to mitigate the findings are presented
to the Audit Committee of the Board.
Risk measurement and reporting systems
Monitoring and controlling risks is primarily performed based on the approved limits and the strong internal control structures
established by the Bank. The limits reflect the business strategy and the market environment in which the Bank operates as well
as the level of risk that the Bank is willing to accept.
31 December 2009
Strict assessment processes are factored during the review and approval processes. In addition, the Bank monitors and measures
the overall risk bearing capacity in relation to the aggregate risk exposure across all risk types and activities.
Specifically tailored risk reports are prepared and distributed to ensure that all business divisions have access to extensive,
necessary and up-to-date information.
Quarterly updates are provided to the Board of Directors and on a monthly basis to all other members of the management on
the utilization of market limits, proprietary investments, liquidity and other developments.
Risk mitigation
Significant risk mitigation activities are focused in the credit area. Risk mitigation process comprise of an appropriate and
adequate structure for the credit facilities at the initial stage followed by ongoing and regular monitoring, enforceable
documentation and collateral.
24 (i)
Credit Risk
Credit risk is the likelihood that a counterparty will not meet its obligations in accordance with the agreed terms. The magnitude
of the credit risk depends on the likelihood of default by the counterparty and on the potential value of the Bank’s contracts
with the customer at the time of default.
Limits and concentrations:
Limits are assigned for each individual counterparty group and for each industrial segment. The Bank also monitors credit
exposures, and continually assesses the creditworthiness of counterparties to the transactions. In addition, the Bank obtains
security, where appropriate, enters into master netting agreements and collateral arrangements with counterparties, and limits
the duration of exposures.
Concentrations arise when a number of counterparties are engaged in similar business activities, 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 indicate the relative sensitivity of the Bank’s performance to developments affecting a
particular industry or geographic location.
In order to avoid excessive concentrations of risk, the Bank’s policies and procedures include specific guidelines to focus on
maintaining a diversified portfolio. Identified concentrations of credit risks are controlled and managed accordingly.
31 December 2009
24 (i) Credit Risk (continued)
External credit assessment
The Bank does not use any external credit assessment institutions and the risk rating for the exposures are based on the internal
credit framework and policy guidelines of the Bank and the Central Bank of Bahrain.
Classification
Exposures are classified as “Non-performing” when interest or principal repayments are past due for over 90 days. Non
performing exposures are further classified into sub-standard, doubtful and loss.
24 (i) (a) Maximum exposure to credit risk without taking account of any collateral
The table below shows the maximum exposure to credit risk for the components of the balance sheet. The maximum exposure
is shown gross, before the effect of mitigation through the use of master netting and collateral agreements.
2009
BD 000
2008
BD 000
1,377 1,203
28,770 40,204
656 632
78,529 50,007
109,332 92,046
Contingent liabilities
2,045 1,358
Commitments
2,258 9,222
4,303 10,580
113,635 102,626
Balances with Central Bank of Bahrain
Due from banks and financial institutions
Accounts receivable and other assets (excluding prepayments and inventory)
Total credit risk exposure
31 December 2009
24 RISK MANAGEMENT (continued)
24 (i) (b) Concentration of credit risk
Since the Group’s operations are restricted only to the Kingdom of Bahrain, it is primarily effected by the changes in the
economic and other conditions prevailing in the Kingdom of Bahrain.
2009
BD 000
2008
BD 000
Banks and financial institutions
30,147 41,407
Trading and manufacturing
32,713 21,530
Education and health
10,919 8,804
Hospitality, media and transportation
9,763 5,549
4,651 4,102
Food processing
2,722 2,431
22,720 18,803
113,635 102,626
Industry sector
Others
24 (i) (c) Collateral and other credit enhancements
The amount and type of collateral required depends on an assessment of the facility structure and the associated credit risk of
the counterparty. Guidelines are implemented regarding the acceptability of types of collateral and valuation parameters. The
main types of collateral obtained are cash margin, bank guarantees, vehicles ownership and real estate title deeds. Assignment
of inventory, trade receivables, and mortgage over business assets also provide additional support.
Market value of collateral is closely monitored by the Bank in addition to requesting additional collateral in accordance with the
underlying agreement and evaluation of the adequacy of the allowance for impairment.
It is the Bank’s policy to normally dispose of repossessed collateral in an orderly fashion after due notice has been provided to
the defaulting customer. The proceeds are used to reduce or settle the outstanding claim. In general, the Bank does not occupy
repossessed properties for its own business use.
The Bank also makes use of master netting agreements with counterparties.
31 December 2009
24 (i) (d) Credit quality per class of financial assets
The credit quality of financial assets is managed by the Bank using internal credit ratings. The table below shows the credit
quality for balance sheet lines, based on the Bank’s credit rating system.
2009
Neither past due nor Past due but
impaired not impaired
High
Standard
grade
grade
BD 000
BD 000
BD 000
Impaired
Total
BD 000
BD 000
1,377 -
-
-
1,377
28,770 -
-
-
28,770
-
615 41 -
656
-
59,550 12,237 6,742 78,529
30,147 60,165 12,278 6,742 109,332
Neither past due nor
impaired
High
Standard
grade
grade
BD 000
BD 000
Past due but
not impaired
Impaired
Total
BD 000
BD 000
BD 000
Total
2008
1,203
-
-
-
1,203
40,204
-
-
-
40,204
(excluding prepayments and inventory)
Total
-
572
60
-
632
-
31,984
13,662
4,361
50,007
41,407
32,556
13,722
4,361
92,046
31 December 2009
24 (i) (e) Aging analysis of past due but not impaired loans per class of financial assets
Less than
31 to 60
61 to 90
More than
2009
30 days
days
days
91 days
Total
BD 000
BD 000
BD 000
BD 000
BD 000
11 7
7
16 41
10,630 2,051 1,373 391 14,445
Total
10,641 2,058 1,380 407 14,486
Less than
31 to 60
61 to 90
More than
30 days
days
days
91 days
Total
2008
BD 000
BD 000
BD 000
BD 000
BD 000
5
3
4
48
60
10,586
2,146
865
65
13,662
Total
10,591
2,149
869
113
13,722
(excluding prepayments)
Of the total aggregate amount of gross past due but not impaired loans and advances to customers, the fair value of collateral
that the Bank held as at 31 December 2009 was BD 2.0 million (2008: BD 2.0 million). See ‘collateral and other credit
enhancements’ for the details of types of collateral held.
24 (i) (f) Carrying amount per class of financial assets whose terms have been renegotiated
The table below shows the carrying amount for renegotiated financial assets.
2009
BD 000
2008
BD 000
3,467
1,308
Where possible, the Bank seeks to restructure loans rather than to take ownership of collateral. This may involve extending
the payment arrangements and the agreement of new loan conditions. Management continuously reviews renegotiated loans
to ensure that all criteria are met and that future payments are likely to occur. The loans continue to be subject to impairment
assessment, calculated using the loan’s original effective interest rate.
31 December 2009
24 (ii) Market risk
Market risk is the risk of loss attributable to adverse changes in the values of financial instruments, whether on- or off- balance
sheet, as a result of changes in market rates (such as interest rates and foreign exchange rates) or price.
24 (ii) (a) Interest rate risk
Interest rate risk arises from the possibility that changes the interest rates will affect future profitability or the fair values of
the financial instruments. The Bank is exposed to interest rate risks due to mismatches of interest rate repricing of assets and
liabilities. Positions are monitored periodically to ensure that this is maintained within the established limits.
Net interest income sensitivity
The Bank’s interest sensitive financial instruments are denominated predominantly in Bahraini Dinars, Kuwaiti Dinars and United
States Dollars. The following table demonstrates the Bank’s sensitivity to a reasonable possible change in interest rates, with all
other variables held constant.
Change in
Change in
basis
Impact of change on Net
basis
Impact of change on Net
points
interest Income
points
interest Income
2009
2008
2009
2008
BD 000
BD 000
BD 000
BD 000
Bahraini Dinars
+100 641 523 -100
(641)
(523)
Kuwaiti Dinars
+100 9
6
-100
(9)
(6)
United States Dollars
+100 160 67 -100
(160)
(67)
The Bank does not have any fixed rate available for sale financial instruments and hence its equity is not sensitive to changes
in interest rates.
31 December 2009
24 (ii) Market risk (continued)
24 (ii) (b) Currency risk
Currency risk is the risk that the value of the financial instrument will fluctuate due to changes in foreign exchange rates. Net
open positions are monitored on a daily basis to ensure compliance within the established limits.
The Bank primarily deals with only 3 currencies, namely Bahraini Dinars, Kuwaiti Dinars and United States Dollars.
The Bank views the Bahraini Dinar as its functional currency. In the opinion of the Bank’s management, the currency risk for
any position held in US dollar is insignificant since the Bahraini Dinar is pegged to the US dollar. The Bank had the following
significant net exposures denominated in foreign currencies as of 31 December:
Kuwaiti Dinars
US Dollars
Equivalent long (short)
2009
BD 000
2008
BD 000
918
643
(12,708)
5,966
The effect of a reasonably possible 5% change in the currency exchange rate for Kuwaiti Dinar, with all other variables constant,
will result in an increase of BD 46 thousand (2008: an increase of BD 32 thousand) in the profit for the year.
31 December 2009
24 (ii) (c) Maturity analysis of assets and liabilities
The table below summarises the maturity profile of the Group’s assets and liabilities as at 31 December 2009 and 31 December 2008 based on
expected maturities.
Up to 1
month
BD 000
1 to 3
months
BD 000
3 to 6
months
BD 000
6 months
to 1 year
BD 000
1 to 3
years
BD 000
Over 3
years
BD 000
Total
BD 000
1,431 -
-
-
-
-
1,431
19,958 8,812 -
-
-
-
28,770
739 7
7
16 -
-
769
1,121 582 1,035 1,371 15,797 58,623 78,529
-
-
-
-
-
4,801 4,801
-
-
-
-
-
1,856 1,856
-
-
-
-
-
8,055 8,055
23,249 9,401 1,042 1,387 15,797 73,335 124,211
30,989 9,135 10,538 312 -
-
50,974
-
1,611 -
-
-
-
1,611
Long term loans
-
-
670 670 2,679 9,440 13,459
Total liabilities
30,989 10,746 11,208 982 2,679 9,440 66,044
Net liquidity gap
(7,740)
(1,345)
(10,166)
405 13,118 2009
Assets
Cash and balances with Central Bank of Bahrain
Loans and advances to customers Total assets
Liabilities
Deposits
63,895 72 Bahrain Development Bank B.S.C. (c)
31 December 2009
24 (ii) (c) Maturity analysis of assets and liabilities (continued)
Up to 1
month
BD 000
1 to 3
months
BD 000
3 to 6
months
BD 000
6 months
to 1 year
BD 000
1 to 3
years
BD 000
Over 3
years
BD 000
Total
BD 000
1,247 -
-
-
-
-
1,247
24,240 6,226 9,738 -
-
-
40,204
669 3
4
48 -
-
724
257 396 878 2,561 15,091 30,824 50,007
-
-
-
-
-
4,587 4,587
-
-
-
-
-
1,934 1,934
-
-
-
-
-
4,667 4,667
26,413 6,625 10,620 2,609 15,091 42,012 103,370
13,721 9,942 4,934 292 -
-
28,889
552 -
40 175 174 505 1,446
-
-
696 696 4,174 9,806 15,372
Total liabilities
14,273 9,942 5,670 1,163 4,348 10,311 45,707
Net liquidity gap
12,140 (3,317)
4,950 1,446 10,743 2008
Assets
Cash and balances with Central Bank of Bahrain
Accounts receivable and
other assets
Loans and advances to customers Total assets
Liabilities
Deposits
Long term loans
31,701 24 (ii) (d) Price risk
Price risk arises from the changes in the market price of the quoted equity instruments held by the Bank. A 5% change in the market price will increase
or decrease the Bank’s equity by BD 57 thousand (2008: 70 thousands).
In addition, the Group also has unquoted investments carried at cost where the impact of changes in equity prices will only be reflected when the
investment is sold or deemed to be impaired, when the consolidated statement of income will be impacted, or when a third party transaction in the
investment gives a reliable indication of fair value which will be reflected in equity.
31 December 2009
24 (iii) Liquidity risk
Liquidity risk is the risk that funds will not be available to the Bank to honor its cash obligations (both on- and off- balance sheet) as they arise.
The table below summarises the maturity profile of the Bank’s financial liabilities at 31 December 2009 and 31 December 2008 based on contractual
undiscounted repayment obligations. See note (c) ‘Maturity analysis of assets and liabilities’ for the expected maturities of these liabilities.
On
demand
BD 000
Up to 1
month
BD 000
1 to 3
months
BD 000
3 to 6
months
BD 000
6 months
to 1 year
BD 000
1 to 3
years
BD 000
Over 3
years
BD 000
Total
BD 000
8,367 22,628 9,135 10,538 330 -
-
50,998
and other liabilities
-
-
1,611 -
-
-
-
1,611
Long term loan
-
-
-
805 798 3,124 10,152 14,879
Total liabilities
8,367 22,628 10,746 11,343 1,128 3,124 10,152 67,488
On
demand
BD 000
Up to 1
month
BD 000
1 to 3
months
BD 000
3 to 6
months
BD 000
6 months
to 1 year
BD 000
1 to 3
years
BD 000
Over 3
years
BD 000
Total
BD 000
4,932 8,790 9,973 4,935 304 -
-
28,934
and other liabilities
-
-
1,446 -
-
-
-
1,446
Long term loan
-
-
-
849 843 4,909 10,546 17,147
4,932 8,790 11,419 5,784 1,147 4,909 10,546 47,527
2009
Deposits
Accounts payable
2008
Deposits
Accounts payable
Total liabilities
31 December 2009
24 (iii) Liquidity risk (continued)
Liquidity risk and funding management
The table below shows the contractual expiry by maturity of the Bank’s contingent liabilities and commitments.
On
demand
BD 000
Less than
3 months
BD 000
3 to 12
months
BD 000
1 to 5
years
BD 000
Total
BD 000
420 577 737 311 2,045
Commitments
463 -
1,190 605 2,258
Total
883 577 1,927 916 4,303
220 187 821 130 1,358
Commitments
3,981 -
4,592 649 9,222
Total
4,201 187 5,413 779 10,580
2009
2008
The Bank expects that not all of the contingent liabilities or commitments will be drawn before expiry of the commitments.
24 (iv) Legal risk and claims
Legal risk is the risk arising from the potential that unenforceable contracts, lawsuits or adverse judgments can disrupt or
otherwise negatively affect the operations of the Group. The Group has developed controls and procedures to identify legal
risks and believes that losses will not be material.
25 FAIR VALUE OF FINANCIAL INSTRUMENTS
For financial assets and financial liabilities that are liquid or having a short term maturity (less than three months) it is assumed
that the carrying amounts approximate their fair value. This assumption is also applied to deposits without a specific maturity
and variable rate financial instruments.
The Group uses the following hierarchy for determining and disclosing the fair value of financial instruments by valuation
technique:
31 December 2009
Level 1: Quoted (unadjusted) prices in active markets for identical assets or liabilities.
Level 2: Other techniques for which all inputs which have a significant effect on the recorded fair value are observable, either
directly or indirectly.
Level 3: Techniques which use inputs which have a significants effect on a recorded fair value that are not based on observable
market data. Quoted equity investments
Level 1
BD 000
Total
BD 000
1147
1147
There are no financial instruments that qualify for classification under Level 2 or Level 3 as at 31 December 2009.
At 31 December 2009 and 2008, the estimated fair values of the financial instruments are not materially different from their
carrying amounts in the financial statements except for unquoted available for sale investments and long term loans.Refer
notes 24 (ii) (c) and 13.
26 CAPITAL ADEQUACY
The risk asset ratio, calculated in accordance with the capital adequacy guidelines approved by the Central Bank of Bahrain,
for the Bank is as follows:
2009
BD 000
2008
BD 000
Tier 1 capital
57,989 53,767
Tier 2 capital
80 3,662
58,069 57,429
110,599 86,560
Capital adequacy ratio (a/b*100)
53%
66%
Minimum requirement
12%
12%
Capital base
Total capital base (a)
Risk-weighted assets (b)
Capital management
The primary objectives of the Bank’s capital management are i) to ensure that the Bank complies with externally imposed capital
requirements ii) maintain healthy capital ratios in order to support its business and iii) to maximise shareholders’ value.
The Bank manages its capital structure and makes adjustments to it in the light of changes in business conditions and the risk
characteristics of its activities. In order to maintain or adjust the capital structure, the Bank may adjust the amount of dividend
payment to shareholders or issue capital securities.
For the year ended 31 December 2009
Page
Table 1
Capital structure
78
Table 2
Capital requirement for credit, market and operational risks
80
Table 3
Gross credit exposures before subject to credit risk mitigants
80
Table 4
Sectoral classification of gross credit exposures
81
Table 5
Credit concentration greater than 15% individual obligor
81
Table 6
Residual contractual maturity
82
Table 7
Counterparty wise breakdown of impaired loans and impairment
83
Table 8
Geographical distribution of impairment provisions for loans and
84
Table 9
Movement in impairment provision for loans and advances and interest in
85
Table 10
Past due loans-age analysis
86
Table 11
Credit risk exposure post credit risk mitigation and credit
87
Table 12
Eligible financial collateral and guarantees
87
Table 13
Sensitivity analysis-interest rate risk
88
Table 14
Equity position in the banking book
88
Table 15
Gain on Equity Investments
88
Table 16
Operational Risk
88
Table 17
Islamic Disclosure
89
For the year ended 31 Decemeber 2009
Table-1 Capital Structure
The Bank’s regulatory capital base comprises of (a) Tier 1 capital which includes share capital, reserves and retained earnings.
(b) Tier 2 capital which consist of current year profit and a portion of unrealized gains arising from fair value of equity.
The Bank’s regulatory capital base of BD 58,069 (BD 57,429 thousands previous year) is as detailed below:
2009
BD 000
A. Net Available Capital
2008
BD 000
Tier 1
Tier 2
Tier 1
Tier 2
50,000
-
50,000
-
916
-
494
-
6,321
-
3,273
-
752
-
3,470
-
-
80
-
192
57,989
80
57,237
192
-
-
57,989
80
57,237
192
58,069
57,429
2009
BD 000
2008
BD 000
Total eligible capital base
58,069
57,429
Credit risk weighted exposures
99,655
78,138
918
675
10,026
7,747
Total risk weighted exposures
110,599
86,560
Tier 1 ratio
52.43%
66.12%
Total capital adequacy ratio
52.50%
66.35%
Paid-up share capital
Reserve:
Statutory reserve
Retained earnings brought forward
Current interim profits
Unrealized gains arising from fair valuing equities (45% only)
TOTAL CAPITAL BEFORE REGULATORY DEDUCTIONS
Less: Regulatory deductions
NET AVAILABLE CAPITAL
TOTAL ELIGIBLE CAPITAL BASE ( Tier 1 + Tier 2)
B. Capital Adequacy Ratio
Market risk weighted exposures
Operational risk weighted exposures
RISK WEIGHTED ASSETS PROFILE AND CAPITAL REQUIREMENT FOR CREDIT, MARKET AND OPERATIONAL RISK
The Bank has adopted the standardized approach for credit risk and basic indicator approach for operation risk for regulatory
reporting purpose.
Credit Risk
The Bank has a diversified funded and unfunded credit exposure. These exposures are classified as standard portfolio per CBB’s
Basel II requirements.
Brief description of applicable standard portfolio are as follows:
a. Claims on banks:
Claims on banks are risk weighted based on external rating agency. Short-term claims on locally incorporated banks are
assigned a risk weighting of 20% where such claims on the banks are of an original maturity of three months or less and the
claims are denominated and funded in either Bahraini Dinars or US Dollar.
Preferential risk weight that is one category more favorable than the standard risk weighting are assigned to claims on foreign
banks licensed in Bahrain of an original maturity of three months or less denominated and funded in the relevant domestic
currency. Such preferential risk weight for short-term claims on banks licensed in other jurisdictions are allowed only if the
relevant supervisor also allows this preferential risk weighting to short-term claims on its banks.
No claim on an unrated bank would receive a risk weight lower than that applied to claims on its sovereign of incorporation.
Investment in securities and financial entities are risk weighted at a minimum risk weight of 100% for listed entities or 150%
for unlisted entities, unless such investments exceed 20% of the eligible capital of investee entity, in which case they are
deducted from the Bank’s capital.
b. Claims on corporates:
Claims on corporates are risk weighted based on credit ratings. Risk weighting for unrated (corporate) claims are assigned at
100%.
c. Equity Portfolio:
Investments in listed equities are risk weighted at 100% while unlisted equities are risk weighted at 150%.
d. Other exposures:
These are risk weighted at 100%.
TABLE-2 CAPITAL REQUIREMENT FOR CREDIT, MARKET AND OPERATIONAL RISKS
2009
2008
BD 000
BD 000
Capital Requirement Capital Requirement
Claims on sovereign
-
-
Claims on public sector entities
-
-
691
1,778
7,771
5,661
Regulatory retail exposures
-
-
Residential retail exposures
-
-
Claims on banks
Claims on corporate
716
677
2,781
1,261
11,959
9,377
110
81
1,203
930
13,272
10,387
Equity
Other exposures
TOTAL CREDIT RISK CAPITAL REQUIREMENT (STANDARDISED APPROACH)
TOTAL MARKET RISK CAPITAL REQUIREMENT (STANDARDISED APPROACH)
TOTAL OPERATIONAL RISK CAPITAL REQUIREMENT (BASIC INDICATOR APPROACH)
TOTAL
QUANTITATIVE DETAILS-RISK MANAGEMENT
Risk is inherent in the Bank’s activities and is managed through a process of ongoing identification, measurement and monitoring,
subject to risk limits and other controls. The Bank is exposed to credit risk, market risk and operational risk that are inherent in its
financial operations. These have been explained in detail under no-24 of notes to accounts of the audited financial statements
for the year ended 31 December 2009.
TABLE-3 GROSS CREDIT EXPOSURES BEFORE SUBJECT TO CREDIT RISK MITIGANTS (CRM)
BD 000
BD 000
As at
31 December
2009
Average
monthly
balance
As at
31 December
2008
Average
monthly
balance
1,377
627
1,203
1,195
28,770
30,162
40,204
33,297
78,529
62,738
50,007
48,367
Other assets
TOTAL FUNDED EXPOSURES
656
633
632
539
109,332
94,160
92,046
83,398
2,045
1,670
1,358
1,683
Other commitments
2,258
5,740
9,222
11,970
TOTAL UNFUNDED EXPOSURES
4,303
7,410
10,580
13,653
TOTAL CREDIT RISK EXPOSURE
113,635
101,570
102,626
97,051
TABLE-4 SECTORAL CLASSIFICATION OF GROSS CREDIT EXPOSURES
2009
BD 000
Funded
Unfunded
Total
30,147
-
30,147
30,668
2,045
32,713
10,919
-
10,919
9,763
-
9,763
4,651
-
4,651
Food processing
2,722
-
2,722
Others
20,462
2,258
22,720
TOTAL
109,332
4,303
113,635
2008
BD 000
Funded
Unfunded
Total
41,407
-
41,407
20,172
1,358
21,530
8,804
-
8,804
5,549
-
5,549
4,102
-
4,102
Food processing
2,431
-
2,431
Others
9,581
9,222
18,803
TOTAL
92,046
10,580
102,626
TABLE-5 CREDIT CONCENTRATION GREATER THAN 15% INDIVIDUAL OBLIGOR LIMIT
2009
2008
BD 000
BD 000
-
-
Total credit exposures in excess of 15% individual obligor limit
Impairment of assets
The Bank assesses at each balance sheet date whether there is any objective evidence that a specific financial asset is impaired.
A financial asset is deemed to be impaired if, and only if, there is objective evidence of impairment as a result of one or more
events that has occurred after the initial recognition of the asset (an incurred ‘impairment event’) and that impairment event
(or events) has an impact on the estimated future cash flows of the financial asset that can be reliably estimated. Evidence
of impairment may include indications that the borrower is experiencing significant financial difficulty, default or delinquency
in interest or principal payments, the probability that it will enter bankruptcy or other financial reorganisation and where
observable data indicate that there is a measurable decrease in the estimated future cash flows, such as changes in arrears or
economic conditions that correlate with defaults.
Pastdue exposures
This includes claims, for which the repayment is overedue for more than 90 days. The risk weighting for such loans is either 100
percent or 150 percent is applied depending on the level of provisions maintained against the assets.
TABLE-6 COUNTERPARTY WISE BREAKDOWN OF IMPAIRED LOANS AND IMPAIRMENT PROVISION
2009
BD 000
Impaired
and past
Specific
due loans
provision
Project Finance
Fisheries and Agriculture
Total
Charge
(recoveries)
for the year
ended
31 Dec 2009
Write off
during
the year
ended
31 Dec 2009
Collective
impairment
11,746
6,414
1,594
1,115
400
1,413
3
-
-
-
13,159
6,417
1,594
1,115
400
Charge
(recoveries)
for the year
ended
31 Dec 2008
Write off
during
the year
ended
31 Dec 2008
Collective
impairment
2008
BD 000
Impaired
and past
Specific
due loans
provision
Project Finance
9,631
6,205
1,840
-
130
1,068
3
-
-
-
10,699
6,208
1,840
-
130
TOTAL
TABLE-7 RESIDUAL CONTRACTUAL MATURITY
Maturity analysis of assets and liabilities
The table below summarises the maturity profile of the Group’s assets and liabilities as at 31 December 2009.
Up to 1
month
BD 000
1 to 3
months
BD 000
3 to 6
months
BD 000
6 months
to 1 year
BD 000
1,431
-
-
-
19,958
8,812
-
739
7
1,121
582
1 to 3 years
BD 000
3 to 5
years
BD 000
5 to 10
years
BD 000
10 to 20
years
BD 000
Total
BD 000
-
-
-
-
1,431
-
-
-
-
-
28,770
7
16
-
-
-
-
769
1,035
1,371
15,797
43,166
15,334
123
78,529
2009
Assets
Cash and balances with CBB
Due from banks and other
financial institutions
-
-
-
-
-
-
4,801
-
4,801
-
-
-
-
-
-
-
1,856
1,856
-
-
-
-
-
-
-
8,055
8,055
23,249
9,401
1,042
1,387
15,797
43,166
20,135
10,034
124,211
30,989
9,135
10,538
312
-
-
-
-
50,974
-
1,611
-
-
-
-
-
-
1,611
Long term loan
-
-
670
670
2,679
2,679
6,761
-
13,459
Total liabilities
30,989
10,746
11,208
982
2,679
2,679
6,761
-
66,044
Net liquidity gap
(7,740)
(1,345)
(10,166)
405
13,118
40,487
13,374
Total assets
Liabilities
Deposits
10,034
TABLE-7 RESIDUAL CONTRACTUAL MATURITY (Contd.)
Maturity analysis of assets and liabilities
The table below summarises the maturity profile of the Group’s assets and liabilities as at 31 December 2008.
Up to 1
month
BD 000
1 to 3
months
BD 000
3 to 6
months
BD 000
6 months
to 1 year
BD 000
1 to 3
years
BD 000
3 to 5
years
BD 000
5 to 10
years
BD 000
10 to 20
years
BD 000
Total
BD 000
1,247
-
-
-
-
-
-
-
1,247
24,240
6,226
9,738
-
-
-
-
-
40,204
669
3
4
48
-
-
-
-
724
2008
Assets
Cash and balances with CBB
Due from banks and other
financial institutions
257
396
878
2,561
15,091
21,577
9,157
90
50,007
-
-
-
-
-
-
4,587
-
4,587
-
-
-
-
-
-
-
1,934
1,934
-
-
-
-
-
2,263
-
2,404
4,667
26,413
6,625
10,620
2,609
15,091
23,840
13,744
4,428
103,370
13,721
9,942
4,934
292
-
-
-
-
28,889
Total assets
Liabilities
Deposits
552
-
40
175
174
505
-
-
1,446
-
-
696
696
2,784
2,784
8,412
-
15,372
Total liabilities
14,273
9,942
5,670
1,163
2,958
3,289
8,412
-
45,707
Net liquidity gap
12,140
(3,317)
4,950
1,446
12,133
20,551
5,332
Long term loan
4,428
TABLE-8 GEOGRAPHICAL DISTRIBUTION OF IMPAIRMENT PROVISIONS FOR LOANS AND ADVANCES
2009
2008
BD 000
BD 000
Bahrain
Bahrian
Specific impairment provision
6,817
6,338
TOTAL
6,817
6,338
TABLE-9 MOVEMENT IN IMPAIRMENT PROVISION FOR LOANS AND ADVANCES AND INTEREST IN SUSPENSE
2009
BD 000
Project FinanceFisheries and Agriculture
Specific
Collective
Total
Specific
Collective
Total
Total
6,205
130
6,335
3
-
3
6,338
(1,115)
-
(1,115)
-
-
-
(1,115)
Charge for the period
1,605
270
1,875
-
-
-
1,875
Recoveries during the period
(402)
-
(402)
-
-
-
(402)
121
-
121
-
-
-
121
-
-
-
-
-
-
-
6,414
400
6,814
3
-
3
6,817
Amounts written off during the period
Interest suspended during the period (net)
Exchange rate adjustments / other movements
At 31 Decemeber 2009
2008
BD 000
Project FinanceFisheries and Agriculture
Specific
Collective
Total
Specific
Collective
Total
Total
4,495
-
4,495
3
-
3
4,498
-
-
-
-
-
-
-
Charge for the period
2,415
130
2,545
-
-
-
2,545
Recoveries during the period
(861)
-
(861)
-
-
-
(861)
156
-
156
-
-
-
156
-
-
-
-
-
-
-
6,205
130
6,335
3
-
3
6,338
Amounts written off during the period
Interest suspended during the period (net)
Exchange rate adjustments/ other movements
At 31 December 2008
TABLE-10 PAST DUE LOANS-AGE ANALYSIS
2009
BD 000
i) By Geographical area
Three
months to
one year
One
to three
years
Over
three
years
Total
Bahrain
7,973
2,159
3,027
13,159
TOTAL
7,973
2,159
3,027
13,159
ii) By Counterparty wise
Three
months to
one year
One
to three
years
Over
three
years
Total
Project finance
6,979
1,999
2,768
11,746
994
160
259
1,413
TOTAL
7,973
2,159
3,027
13,159
2008
BD 000
i) By Geographical area
Three
months to
one year
One
to three
years
Over
three
years
Total
Bahrain
5,361
2,166
3,172
10,699
TOTAL
5,361
2,166
3,172
10,699
ii) By Counterparty wise
Three
months to
one year
One
to three
years
Over
three
years
Total
Project finance
5,134
1,570
2,927
9,631
227
596
245
1,068
TOTAL
5,361
2,166
3,172
10,699
TABLE-11 CREDIT RISK EXPOSURE POST CREDIT RISK MITIGATION AND CREDIT CONVERSION
2009
2008
BD 000
BD 000
Claims on sovereign
-
-
-
-
5,754
14,815
64,762
47,178
Claims on banks
Claims on corporate
5,968
5,640
Other exposures
23,171
10,506
TOTAL
99,655
78,138
Equity
TABLE-12 ELIGIBLE FINANCIAL COLLATERAL AND GUARANTEES
Bank take collateral from borrowers consists of cash deposits, letters of guarantee and properties. Management monitors
the market value of collateral, requests additional collateral in accordance with the underlying agreement and evaluates the
adequacy of the allowance for impairment.
2009
Claims on sovereign
Claims on banks
Claims on corporate
Equity
Other exposures
TOTAL
2008
BD 000
BD 000
Gross
exposure
Eligible
CRM
Gross
exposure
Eligible
CRM
2,509
-
2,334
-
-
-
-
-
5,754
-
14,815
-
64,762
10,843
55,916
8,738
5,968
-
5,640
-
23,171
-
10,506
-
102,164
10,843
89,210
8,738
TABLE-13 SENSITIVITY ANALYSIS-INTEREST RATE RISK
Impact on net interest income for the year ended 31 December 2009:
2009
2008
BD 000
BD 000
Bahraini Dinar
(+) 200 basis points
1,282
1,046
(-) 200 basis points
(1,282)
(1,046)
320
134
(320)
(134)
US Dollar
Kuwaiti Dinar
18
12
(18)
(12)
TABLE-14 EQUITY POSITION IN THE BANKING BOOK
2009
2008
BD 000
BD 000
Gross
exposure
Capital
requirement
Gross
exposure
Capital
requirement
Publicly traded
1,147
138
1,395
167
Privately held
4,821
579
2,830
340
TOTAL
5,968
716
4,225
507
TABLE-15 GAINS ON EQUITY INSTRUMENTS
Realised gains recognised in the income statement
2009
2008
BD 000
BD 000
-
2,117
Unrealised gains recognised in the balance sheet:
-Tier 1
-
-
-Tier 2
178
426
TABLE-16 OPERATIONAL RISK
Operational risk is the risk of direct or indirect loss resulting from inadequate or failed processes, people, and systems or from
external events. Bank uses standardized approach to allocate capital for operational risk.
TABLE-17 ISLAMIC DISCLOSURE
Bank offers Islamic products to its small and medium customers, the brief details of Islamic Financing and investments are as
under:
2009
2008
BD 000
BD 000
Assets
Deposits & Current Accounts
13,251
-
Murabaha Receivables (Net of Provision)
44,009
10,063
Murabaha Investments
2,515
2,242
Investments in Sukuk
1,131
1,131
Liabilities
Banks Deposits
500
-
Deferred Profits
8,156
1,689
1,566
352
306
167
Income
Income from Islamic Financing
Other Income
YOU ARE NOT ALONE

Leading Financial Development

Transcription

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