1999 - Bank ABC

Transcription

1999 - Bank ABC

ABC’s Vision
Our vision is to be the premier and most
innovative international Arab financial group.
Contents
1.
ABC’s Vision
2.
Corporate Governance
3.
Board of Directors
8.
Our Global Network
Our mission is to:
Consistently generate increasing value for our
shareholders.
10. Financial Highlights
Financial Statements
10. Capitalisation and
Principal Shareholders
41. Auditors’ Report
11. Directors’ Report
16. Financial Review
21. Review of Operations and
Support Functions
42. Consolidated Balance Sheet
43. Consolidated Statement of Income
44. Consolidated Statement of
Changes in Equity
45. Consolidated Statement of
Cash Flows
Specialise in Arab-related activities across the world.
Invest in international financial institutions that
diversify and enhance shareholders’ value.
Attract and retain high quality employees by
providing rewarding careers.
46. Notes to the Consolidated Financial
Statements
59. ABC Directory
Our key objectives are to:
Maintain a strong presence in the Arab world
and achieve optimal diversification of its earning
stream.
Maintain a strong risk management process.
Maintain an effectively managed expense base
focused on generating increasing shareholder value.
Build a strong and liquid financial institution
with emphasis on asset quality.
Arab Banking Corporation Annual Report 1999
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Corporate Governance
Board of Directors
Group Organisation
The ABC Group is organised into three business divisions and a central Group Head Office
divided into several functional divisions, reflecting its key objectives as outlined on page one.
Board of Directors
Board Secretary: Dr. Khaled S. Kawan
Audit Committee
Ghazi M. Abdul-Jawad
President & Chief Executive
There are currently 12 Directors on the Board who have varied backgrounds and experience and who individually and collectively exercise independent and objective judgement. All Directors are non-executive.
The Board of Directors meets regularly and has a formal schedule of matters reserved to it, considering key
aspects of the Group’s affairs referred to it for decision. The Board and its committees are supplied with full
and timely information to enable them to discharge their responsibilities. All Directors have access to the advice
and services of the Secretary who is responsible for ensuring that the Board procedures and applicable rules and
regulations are observed; in addition, the Directors are able, if necessary, to take independent professional advice
at the Group’s expense.
The roles of Chairman and Chief Executive Officer are separate, with distinct responsibilities. Directors are
appointed for a specific term and re-appointments are reviewed as each Director approaches the end of his term.
Internal Audit: J. Prasad Abraham
Members of the Board of Directors and Secretary to the Board
Treasury Group
Essam El Wakil, SVP
Group Treasurer
Banking Group
Taher D. Makkiyah, EVP
Chief Banking Officer
Group Treasury Unit
Arab World Division
FX, Precious Metals, Commodities & Sales
George Karam, SVP
Mr. Abdulmohsen Y. Al-Hunaif Chairman Kuwaiti.
B.A. in Commerce, Ain Shams University, Egypt. Undersecretary of the Ministry of Finance in Kuwait and acting
Managing Director of Kuwait Investment Authority. Also Chairman of Banco Atlántico, S.A., Spain. He has been
Chairman of ABC since 1994 and has more than 30 years’ experience as a banker and senior government official.
He sits on the boards of various Middle East and European banks as well as serving with a number of government
organisations.
Options, New Products & Treasury Support
Bahrain Business Unit
Mr. Ageli Abdulssalam Breni Deputy Chairman Libyan.
MM, Islamic, M.E. Currencies & Derivatives
Tunis Branch (OBU)
Fixed income, Equities & Investment Management
ABC Islamic Bank (E.C.)
Arab Banking Corporation - Algeria
Arab Banking Corporation - Egypt (S.A.E.)
(formerly Egypt Arab African Bank (S.A.E.))
Other Treasury Units in the Group
Investment Group
Mr. Khalifa M. Al-Kindi Deputy Chairman U.A.E. citizen.
Omar el-Abd, SVP
B.Sc. in Economics, East Michigan University, U.S.A. Deputy Managing Director of Abu Dhabi Investment Authority
and Director of Abu Dhabi Investment Company. Also Director of ABC International Bank plc, U.K. and a past
Director of International Bank of Asia Ltd., Hong Kong and Banco Atlántico, S.A., Spain. He has been a Director of
ABC since 1992 and has 15 years’ experience as an investment banker as well as holding a number of directorships in
various public corporations.
Investment Coordinator
Arab Banking Corporation (Jordan)
Banco ABC Brasil, S.A.
Arab Banking Corporation - Tunisie, S.A.
Tito Enrique da Silva Neto, President
Representative Offices:
Abu Dhabi, Casablanca, Tehran & Tripoli (Libya)
Banco Atlántico, S.A.
Manuel Montecelos, First General Manager
Dr. Anwar Ali Al-Mudhaf Director Kuwaiti.
Banco de Iberoamérica, S.A.
International Division
International Bank of Asia Ltd
George K. Morton, SVP
Mike M. Murad, Vice Chairman &
Chief Executive Officer
Grand Cayman Branch
Administration Group
Milan Branch
New York Branch
Corporate Communications
Singapore Branch
Global Information Technology
ABC Banque Internationale de Monaco S.A.M.
Human Resources & Administration
ABC Finanziaria S.p.A.
Legal & Compliance
Arab Banking Corporation Daus & Co. GmbH
Operations
ABC International Bank plc
Planning & Financial Controls
London Branch
Premises & Engineering
Paris Branch
Representative Offices:
Houston, Los Angeles & Rome
B.Sc. in Economics, Benghazi University, Libya; M.S. in Economics, Oklahoma State University, U.S.A. Deputy Governor
of Central Bank of Libya. Director of African Development Bank, Ivory Coast. Also Director of ABC International
Bank plc, U.K., and Chairman of Arab Banking Corporation - Tunisie, S.A. He was appointed Director of ABC in 1996.
Mr. Breni has more than 20 years’ experience as a banker.
B.A., Kuwait University; M.B.A. and Ph.D. in Finance, Peter Drucker Management Center, Claremont Graduate School,
California, U.S.A. Dr. Al-Mudhaf joined ABC’s Board in December 1999. He is a Director of the Kuwait Public Institute
for Social Security, Al Mal Kuwaiti Company and Kuwait Health Insurance Company, and a past Director of Al Ahli
Bank of Kuwait.
Mr. Hassan A. Juma Director Bahraini.
Fellow of the Chartered Institute of Management Accountants (FCIMA), U.K. Managing Director of National Bank of
Bahrain as well as serving on the boards of a number of public and corporate bodies in Bahrain. Also Director of Banco
Atlántico, S.A., Spain. Mr. Juma has been a Director of ABC Group since 1994. He has 25 years’ experience as a senior
commercial banker.
Sheikh Khalid A. Al-Turki Director Kuwaiti.
B.A. in Political Science, M.A. in International Relations, American University, Washington D.C., U.S.A.; M.B.A. in
Business Administration, Stanford University, U.S.A. Chairman, Advisory Council, Centre for Middle Eastern Studies,
Harvard University. Chairman of Trading & Development Co. (TRADCO), Saudi Arabia. Also Chairman of ABC
International Bank plc, U.K. Mr. Al-Turki has been a Director of ABC since 1992 and has spent 30 years in both
academic fields and banking and international trade.
Dr. Saleh Lamin El-Arbah Director Libyan.
Credit & Risk Group
Richard Cumberland, SVP
Chief Credit & Risk Officer
Credit Department
Economics
B.A. in Economics, University of Benghazi, Libya; M.B.A. University of Hartford, U.S.A.; Ph.D. in Economics, Academy
of Science, Hungary. General Manager of the Free Zones General Authority, Libya; Director of Salima Holding
Mabrouk, Casablanca, Morocco, and former Undersecretary of the Ministry of Planning, Economy and Commerce,
Libya. Also a Director of Banco Atlántico, S.A., Spain. Dr. El-Arbah has been a Director of ABC since 1996 and has
altogether 28 years’ experience in central government. Dr. El-Arbah is currently on leave from the University of
Gharian (Libya) where he holds a chair in MacroEconomics.
Risk Managment
Credit Risk Control & Policy
Remedial Loans
2
3
Board of Directors
Mr. Abdulwahab A. Al-Tammar Director Kuwaiti.
B.A. in Social Sciences, Economics and Business Administration, American University of Cairo, Egypt. Chairman of
Altammar Economic Consultation and, among the many offices he has held in the past, Mr. Al-Tammar has been
Governor of the Central Bank of Kuwait and Chairman and Chief Executive Officer of Arab Insurance Group, Bahrain.
He has 30 years’ banking experience and is a Member of both Kuwait Economic Society and of Kuwait Society for
Special Studies. He has served as a Director of ABC since 1991 and is also a Director of ABC International Bank plc,
U.K. Mr. Al-Tammar is a past Chairman of ABC and Arab Banking Corporation (Jordan).
Mr. Issa M. Al Sowaidi Director U.A.E. citizen.
B.Sc. in Economics, Northeastern University of Boston, U.S.A. Executive Director of Abu Dhabi Investment Authority
and Director of Abu Dhabi National Oil Company for Distribution, Joint Arab Investment Company, U.A.E. and
Prudential Asia Private Equity L.P. Also Director of International Bank of Asia Ltd., Hong Kong, and Chairman of Arab
Banking Corporation - Egypt (S.A.E.). He has been a Director of ABC since 1995, with 15 years in investment banking.
Mr. Mubarak R. Al-Mansouri Director U.A.E. citizen.
B.Sc. in Finance, M.B.A., University of West Florida, U.S.A. Deputy Director, Abu Dhabi Investment Authority and
Director of Arab International Bank, Egypt. Also Director of Banco Atlántico, S.A., Spain. Director of ABC since 1997.
Mr. Al-Mansouri has eight years’ experience in investment and commercial banking.
Sheikh Ali Jarrah Al Sabah Director Kuwaiti.
B.A. in Economics and Political Science, University of Kuwait. Member of the Higher Planning Council for the State
of Kuwait, Director of Bahrain Middle East Bank and Chairman of Burgan International Trading Co., W.L.L., Kuwait.
Also Chairman of International Bank of Asia Ltd., Hong Kong. Sheikh Ali has been a Director of ABC since 1998 and his
experience covers 25 years in international and commercial banking, as well as international trading and public service.
Mr. Mohammed A. Al Mannai Director Bahraini.
Chairman of Al-Mannai Group, Bahrain, Member of the Consultative Council for the State of Bahrain, the G.C.C.
Commercial Arbitration Centre and Deputy Chairman of Al Ahli Commercial Bank, Bahrain. Mr. Al Mannai serves as
Chairman or member of the board of several Bahraini and Egyptian companies. His more than 35 years’ experience in
commerce and banking has been available to ABC since 1998.
Dr. Khaled S. Kawan Secretary to the Board Libyan.
Ph.D. (Doctorat d’Etat) in Banking Laws, University of Paris (Sorbonne), France. Dr. Kawan has served as in-house
counsel to, and Secretary to the Board of Directors of, ABC since 1991.
Board Committees
Specific responsibilities have been delegated to the Board committees. The two principal Board committees, and
their Board members, are:
Audit Committee
Mr. Issa M. Al Sowaidi
(Chairman)
Dr. Saleh Lamin El-Arbah
Dr. Anwar Ali Al-Mudhaf
Mr. Abdulwahab A. Al-Tammar
The Board of Directors has delegated to the Audit Committee the responsibility for ensuring the existence of an
effective system of accounting and financial controls. Membership of the Committee is comprised of the above
Board members. Audit Committee meetings are held at least four times a year. The Committee also meets
regularly with the Internal and External Auditors. Selected members of management may be invited to meetings
to discuss relevant issues.
During its meetings, the Committee reviews, inter alia, the Group’s annual and interim financial statements,
summaries of all internal audit reports, all reports issued by the Group’s various regulatory authorities, and all
management letters from the external auditors. The Committee also reviews the appointment and retirement of
external auditors.
It is the responsibility of the Group Internal Audit Department to confirm the condition of ABC
Group’s assets and to monitor its activities to ensure that its operations are properly controlled. Internal Audit
reports directly to the Audit Committee. Internal Audit performs independent examinations of all ABC Group’s
operations and lending activities. The frequency and scope of reviews for any given business unit is determined
by the level of risk associated with the unit, and how the unit’s performance was rated at the previous audit.
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Board of Directors
continued
continued
Separate Internal Audit departments have been created in major Group subsidiaries. These departments
report to their Boards through the respective audit committees.
Executive Committee
Mr. Abdulmohsen Y. Al-Hunaif
Mr. Ageli Abdulssalam Breni
Mr. Khalifa M. Al-Kindi
Mr. Hassan A. Juma
Mr. Mohammed A. Al Mannai
(Chairman)
(Deputy Chairman)
(Deputy Chairman)
The Executive Committee exercises all of the responsibilities of the Board between its meetings.
Control environment
ABC Group is committed to the maintenance and development of a culture of policy and procedural adherence
appropriate to a major international banking group. This is achieved through a formal organisational structure
with clearly demarcated lines of responsibility and the issue and review of formal policies and procedures from
the Board through the Chief Executive to the senior management of the Group.
The Group has two main areas of business activity. The first is the ‘core bank’, comprising ABC’s branches
and wholesale banking subsidiaries world-wide, and those retail banking subsidiaries in the Arab region, including
the Middle East and North Africa. These business units are directed, supervised, and supported within a matrix
structure under which commercial banking activities are controlled by the Banking Group, through the Arab World
and International Divisions; foreign exchange dealing, securities trading and related activities are controlled
by the Treasury Group; credit and risk management matters are controlled by the Credit & Risk Group; and
administrative matters are controlled by the Administration Group.
The activities of ABC’s other subsidiaries - Banco ABC Brasil, S.A., Banco Atlántico, S.A., and International
Bank of Asia Ltd. - are coordinated by the Investment Group. These subsidiaries are considerably more autonomous
than the ‘core bank’ units, because of the substantial difference in the nature of their business. Banco Atlántico,
S.A. and International Bank of Asia Ltd. are largely domestic retail banks, and Banco ABC Brasil, S.A. is a
domestic commercial bank with mainly corporate clients. These banks each have their own Head Office structures,
which fully cover their day -to-day activities, within ABC Group’s overall policy, planning and risk management
framework. The assistance and advice of ABC’s Head Office in Bahrain is sought whenever necessary.
The Administration Group provides operational, legal, accounting, communications, information technology,
premises management and human resources support to the business units in pursuit of ABC Group’s main goal
- shareholder value. The emphasis is on service and support, and all of the Administration Group’s activities
are directed to providing these in a timely, efficient and cost-effective manner.
The Administration Group issues and administrates a number of policy and procedural manuals, which
specify the procedures under which authorities are delegated, duties are segregated and credit, trading, expenditure and other limits are authorised to its individual business units.
Planning & Financial Controls provides management information for senior management and the business
units, supervises the planning and budgeting process, and ensures that ABC Group fulfils the financial reporting
requirements of the Bahrain Monetary Agency. The department ensures that the Group’s accounting policies and
reporting functions fully comply with international accounting standards and best practice in the international
banking industry. The department also co - ordinates ABC Group’s tax matters.
Human Resources & Administration establishes ABC Group’s overall human resources strategy and where
appropriate provides direction and guidance to business units in best practice policies and procedures to meet
business needs. As it moves into the 21st century and its third decade, ABC is cognisant of the contribution of
its management and staff, throughout its world - wide network, to its development over the past 20 years. It is
also conscious, looking ahead to the future and particularly to its medium and long-term strategic aims, that the
quality of its people will ultimately determine the extent of its success. Therefore ABC Group is committed
to attracting and retaining the most qualified and effective executives and realising the full potential of all of
its staff through career development and training, the provision of a stimulating and challenging working
environment and a performance-based reward system.
Legal & Compliance Department provides legal advice, guidance and services to Head Office management
and ABC’s branches and business units in connection with all matters of international finance and corporate law.
Group subsidiaries’ in-house legal departments act under the direction and guidance of Head Office Legal &
Compliance Department, which is also responsible for the Group’s compliance with international regulatory
and reporting requirements, save for those directed by the Bahrain Monetary Agency, which fall under the Chief
Internal Auditor.
5
Board of Directors
Board of Directors
continued
continued
Risk Management
Mr. Omar el-Abd Senior Vice President & Investment Coordinator U.S. citizen.
The Board is responsible for establishing the Group’s long-term business strategy, including determining
the degree of risk acceptable to it. The Board has delegated its authority for risk strategy to the Head Office Credit
Committee (HOCC) and the Asset and Liability Committee (ALCO), which are supported by dedicated Group
support divisions.
Bachelor of Commerce, Alexandria University, Egypt. Previously General Manager of Crédit des Bergues, Geneva, for
nine years, earlier with The First Boston Corporation and Saloman Brothers. Joined ABC in 1998 and has brought
to the Group 31 years of experience in international and investment banking.
Mr. Richard Cumberland Senior Vice President, Chief Credit & Risk Officer British
Monitoring and corrective action
The operation of the internal financial controls is the responsibility of senior management subject to independent review by Internal Audit and external auditors and regulators as appropriate. The reports of all of these
review bodies are received on behalf of the Board by the Audit Committee, which ensures that appropriate
corrective action is taken where required. The Audit Committee is informed directly by the Internal Audit’s
reports to the Committee, and by discussions with external auditors as required, of the work they have undertaken and the conclusions they have reached respectively.
Associate of the Institute of Bankers, U.K. Mr. Cumberland joined ABC in 1999 after 23 years with Chase Manhattan
Bank N.A. and brings a total of 37 years’ experience in commercial banking and credit and risk management to
the Group.
Mr. Essam El Wakil Senior Vice President & Global Treasurer Egyptian.
B.A. in Business Administration, Cairo University. Mr. El Wakil has been with ABC since 1980 and has served in both
Bahrain and London’s Treasury Departments. His total experience in Treasury management covers 25 years.
Mr. George Karam Senior Vice President & Division Head, Arab World U.S. citizen.
Compliance
In accordance with the instructions of the Bahrain Monetary Agency, ABC has appointed a Compliance Officer
to act as central coordinator for the Group in respect to all matters relating to B.M.A. regulatory, reporting
and other requirements. This responsibility lies with the Chief Internal Auditor. In regard to other matters
of compliance, or other jurisdictions, the Legal & Compliance Department in Head Office is responsible for
developing, implementing and monitoring programmes for ensuring that all business units in the Group adhere
to laws and governmental regulations wherever they are situated or operate.
B.A. in Economics and Public Administration, American University of Beirut. M.A. in Economics, New School for Social
Research, New York; M.B.A. Finance, Fordham University, New York. Mr. Karam joined ABC in 1998 after 16 years with
Manufacturers Hanover and Chemical Bank N.A. in international commercial and treasury banking.
Mr. George K. Morton Senior Vice President & Division Head, International Canadian and British
B.A. (Hons) in Modern History and M.A. in History (East Asia), University of Toronto. Formerly Vice President, Trade
Finance & Correspondent Banking at Bank of Nova Scotia, Toronto, earlier with National Bank of Bahrain and Gulf
International Bank, Mr. Morton brings a total of 27 years’ experience in international commercial banking to the
Group. He joined ABC in 1998.
Senior Management
The direct responsibilities of the members of the Group’s Senior Management, as briefly outlined in the chart on
page two, are shown below together with details of their background and experience. It should also be noted that
the exercise of Head Office control over subsidiaries is supported by the appointment of senior management to
the boards of the subsidiaries.
Mr. Asaf Mohyuddin First Vice President & Head of Planning & Financial Controls Pakistani.
B.Com. (Hons) in Commerce, Punjab University, Pakistan; Fellow of the Institute of Chartered Accountants of England
& Wales. Mr. Mohyuddin joined ABC in 1983 having formerly been General Manager (Finance) at Pak-Arab Fertilisers,
Pakistan, and with Citibank, N.A. in the Middle East. He assumed his present position in 1998.
Mr. J. Prasad Abraham First Vice President & Chief Internal Auditor, Compliance Officer Indian.
Head Office
Mr. Ghazi M. Abdul-Jawad President & Chief Executive Saudi Arabian.
B.A. in Political Science, Lewis & Clark College, Oregon; M.A. in International Relations, Fletcher School of Law &
Diplomacy, Tufts University, Mass., U.S.A.; Fellow of the Chartered Institute of Bankers. Member of Steering Committee
of Institute of International Finance, Washington, and Steering Committee for the Gulf Executive Management
Strategic Leadership Programme and several other consultative or advisory committees. Director of Al Lujain
Corporation. Also Vice Chairman of Banco Atlántico, S.A., Spain, and Chairman of Arab Banking Corporation – Daus
& Co. GmbH. Previously General Manager of Gulf International Bank (B.S.C.), Bahrain. Mr. Abdul-Jawad has 27 years’
experience as a senior general and commercial banker and in government service, and has held his present position
with ABC Group since 1997.
Mr. Taher D. Makkiyah Executive Vice President & Chief Banking Officer U.S. citizen.
B.B.A. (Accounting major), American University of Beirut; M.B.A. (Finance major), Tulane University, U.S.A., Harvard
Executive Program graduate. Previously Managing Director based in the U.K., in charge of Europe, Middle East and
Africa, of Chase Manhattan Private Bank, a division of Chase Manhattan Bank N.A., earlier Senior Managing Director in
the Emerging Markets Group of Chemical Bank N.A. and a similar position at Manufacturers Hanover Corporation prior
to its merger with Chemical Banking Corporation. During his career, Mr. Makkiyah has served as a member of the boards
of The Far East Trust Bank, Philippines, and The Anglo Romanian Bank Ltd., U.K., and as a member of the Business
Council for International Understanding, the Financial Services Volunteer Corps for Eastern Europe, Builders for Peace
Group, the Philippine American Chamber of Commerce and the American University of Beirut Alumni Association of
North America; and as President of the Arab Bankers Association of North America. He has had 25 years’ experience in
commercial, correspondent and private banking and has been ABC Group’s Chief Banking Officer since 1998.
Mr. Hatem Abou Said Executive Vice President & Chief Administrative Officer. Lebanese - Italian.
Bachelor of Commerce, American University of Beirut. Mr. Abou Said’s career spans 44 years, the last 18 with ABC
Group, first as SVP and General Manager for Italy since the inception of the Milan Branch and Rome Representative
Office in 1982 and 1983 respectively, latterly as Division Head, Europe & Americas and finally as EVP and Chief
Administrative Officer in Head Office since 1998. He retired in February, 2000, retaining however the position of
Executive Chairman of ABC Banque Internationale de Monaco S.A.M.
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B.Sc. in Chemistry, University of Calicut; Diploma in Business Studies, Cochin, India. Formerly of Citibank N.A.,
Mr. Abraham joined ABC in 1983 and has 25 years’ experience in internal audit.
Investment Group
Mr. Manuel Montecelos First General Manager Banco Atlántico, S.A., Spain Spanish.
Degree in Industrial Engineering, High Technical School of Industrial Engineers, Madrid; Degree in Economics,
I.C.A.D.E., Madrid. Formerly with ISOLUX, S.A., joined Banco Atlántico, S.A. in 1975, appointed Deputy General
Manager heading inter alia Strategic Planning and General Accounting and Member of the Management Committee,
in 1986. Appointed General Manager, Commercial Area, in 1996 and to his current position of Chief Executive in July
1999. Mr. Montecelos brings to ABC Group 24 years’ experience in Spanish commercial banking.
Mr. Mike M. Murad Vice Chairman, Managing Director & Chief Executive Officer, International Bank of Asia Ltd., Hong Kong U.S. citizen.
B.A. in Business Administration, Cleary College, Michigan; M.A. in Business Administration, University of Miami;
banking and management degrees from Stonier Graduate School of Banking at Rutgers University, the University of
Michigan Graduate School of Banking, the University of Wisconsin and the Harvard Executive Management Program.
Honorary Doctor of Humane Letters, DePaul University. Mr. Murad joined ABC in 1987 after 20 years in commercial
and retail banking, including several years in senior management positions with Sun Bank of Florida, Inc., U.S.A., and
the Bahrain subsidiary of Arab African International Bank, Egypt. He has been the Vice Chairman, Managing Director
and CEO of the Group’s subsidiary in Hong Kong since 1988 and was additionally the Asia Division Head from 1991
until the reorganisation of ABC Group in 1998. He also served as Chief Operating Officer in Head Office between
1991 and 1995.
Mr. Tito Enrique da Silva Neto President Banco ABC Brasil S.A., Brazil Brazilian.
Degree in Operational Engineering, University of Industrial Engineering, São Paulo. Mr. da Silva Neto’s experience
spans 32 years in Brazilian commercial and investment banking, including 15 years with Banco Finasa de Investimento
S.A. and four years each with Banco do Estado de São Paulo S.A. and Banco Itamarati S.A., before joining Banco ABC
Brasil S.A. in his present position of Director President.
7
Our Global Network
The business and geographic mix of the Group and the knowledge and experience that the
Group’s management has of emerging markets around the world make ABC the leading
Arab bank.
Arab World Division
Investment Group
The ABC Group
Arab Banking Corporation –
Algeria
ABC Banque Internationale
de Monaco S.A.M
Banco ABC Brasil S.A.
1999 Highlights
US$ millions
1999 Highlights
US$ millions
1999 Highlights
US$ millions
Total Assets
Total Loans
Total Deposits
Shareholders’ Funds
Number of Branches
Total Assets
Total Loans
Total Deposits
Number of Branches
122
21
53
22
1
337
90
312
19
1
1999 Highlights
US$ millions
Total Assets
Total Loans
Total Deposits
Number of Branches
1,137
587
864
134
4
Total Assets
Total Loans
Total Deposits
24,358
12,903
19,888
1,857
Banco Atlántico, S.A
1999 Highlights
US$ millions
1999 Highlights
US$ millions
Total Assets
Total Loans
Total Deposits
Number of Branches
232
153
177
53
1
Total Assets
Total Loans
Total Deposits
Number of Branches
1999 Highlights
US$ millions
2,501
1,148
1,404
336
2
Arab Banking Corporation
(Jordan)
1999 Highlights
US$ millions
1999 Highlights
US$ millions
Total Assets
Total Loans
Total Deposits
Number of Branches
Daus & Co GmbH
359
149
257
34
20
Total Assets
Total Loans
Total Deposits
Number of Branches
Total Assets
Total Loans
Total Deposits
Number of Branches
7,694
4,400
5,462
497
262
International Bank of Asia
Limited
1999 Highlights
US$ millions
565
101
492
65
1
Total Assets
Total Loans
Total Deposits
Number of Branches
3,097
1,739
2,436
421
28
Egypt (S.A.E.)
1999 Highlights
US$ millions
Total Assets
Total Loans
Total Deposits
Number of Branches
8
323
179
222
48
6
9
Financial Highlights
Directors’ Report
1999
1998
Earnings (US$ million)
Income before provisions
Income before tax and minority interests
Net Income after tax and minority interests
Net Interest Revenue
Other Income
Earnings per Share (expressed in US dollars)
261
164
112
434
256
$1.19
322
93
25
427
322
$0.27
Financial Position (US$ million)
Total Assets
Loans
Trading Securities
Investment Securities
24,358
12,903
363
3,128
1,857
26,064
13,173
667
2,902
1,740
62
6.2
0.46
57
1.4
0.10
15,767
15,989
12.9
14.7
7.4
6.9
12.9
13.9
6.9
7.6
53.0
14.3
$19.73
50.5
13.7
$18.48
40.9
1.5
44.7
1.7
Ratios (%)
Profitability
Cost: Income ratio
Net Profit as % of Average Shareholders' Funds
Net Profit as % of Average Assets
Capital
Weighted Risk Assets (US$ million)
Risk Asset Ratio - Tier 1
Risk Asset Ratio – Total
Average Shareholders' Funds as % of Average Total Assets
Loans as a multiple of Equity (times)
Asset Quality
Loans as % of Total Assets
Securities as % of Total Assets
Net Asset Value per Share (expressed in US dollars)
Liquidity
Liquid Assets Ratio
Deposits to Loans Cover (times)
Capitalisation and Principal Shareholders
ABC Group’s performance for 1999 was encouraging, and sets the pace for the future. We can
now look forward with increasing confidence to reaping the accumulating benefits of the
change in our business focus. As we embrace our Mission and pursue our goals, we see more
clearly the potential for a permanent shift in the performance of the Group. Our task is now
to realise that potential – never easy and the way ahead may have many obstacles, but nevertheless the road is clear.
Economic Context
The world economy progressed well in its recovery from the series of adverse developments that began in 1997.
Thailand’s currency devaluation that year sparked off a crisis of confidence in Asia, which over the next two
years adversely affected emerging and developed markets alike around the globe. The loss of confidence in Asia
was followed by the maxi-devaluation of the Russian rouble in August 1998. The waves of global retreat finally hit
the shores of Latin America, culminating in the Brazilian Real’s devaluation in January 1999.
After touching rock bottom towards the end of 1998, oil prices firmed throughout 1999, regaining
pre-Asian crisis levels by September. The improved discipline among, and restricted output by, OPEC members
supported by several other major oil producers, together with the resurgent Asian economies, helped to boost
prices. Although soft commodity prices for goods such as rubber and grains remained weak, those of copper
and aluminium began to recover last year. These upward trends have important implications for many emerging
market countries, as well as for energy producers in the Arab world.
The world’s largest economy continued its robust performance, in one of the longest periods of business
activity expansion experienced by the United States. The vigorous economic growth, accompanied by moderate
inflation and virtually full employment, was remarkable. The widely anticipated slowdown during 1999 was
never manifested. With a fully stretched labour market, the vigour of the US economy has been attributed to a
remarkable upward shift in the productivity trend as the fruits of leading-edge technology have emerged.
Few observers expect these trends to continue unabated for much longer, however. The US authorities are
monitoring developments carefully so as to ensure that, when its growth slows, the economy will achieve a
‘soft landing’. This is also linked to the US Federal Reserve’s repeated concern that the prolonged equity
market boom may have had the effect of over-inflating asset values.
Happily, a slowdown of the US economy may be offset by the stronger economic growth evidenced in
Europe, led by France and Germany and continuing expansion in the United Kingdom.
The long - heralded advent of the Euro occurred at the beginning of 1999. However, the new currency
suffered continual decline against the US Dollar and the Yen throughout the year, reaching near parity against
the Dollar by the end of 1999 and falling below that level in early 2000. The European Central Bank did not
appear to be unduly concerned about the Euro’s decline, however, as it helped to boost the price competitiveness
of Euro Zone exports to the rest of the world.
Despite strong gains in European bourses, the American and Japanese capital markets proved most alluring
to global investors. Moreover, interest differentials between North America and Europe have remained wide. The
Japanese recovery from deep recession also began during 1999, albeit weakly and mainly based on consumption
stimulated by massive government spending programmes. Japanese enterprises have yet to regain their confidence
in the sustainability of the economic expansion. Nevertheless, Japan continued to realise a large external surplus
vis-à-vis the rest of the world. The recovery sparked a keen foreign interest in Japanese equity markets and the
consequent inflow of funds resulted in a surge in the value of the Yen against American and European currencies,
despite a large accumulation of Bank of Japan foreign exchange reserves.
Principal Shareholders
Registered Address
Ministry of Finance (Kuwait)
Central Bank of Libya (Libya)
Abu Dhabi Investment Authority (Abu Dhabi)
Individual and Institutional Investors
Arab Banking Corporation Group
ABC Tower, Diplomatic Area
P.O. Box 5698, Manama, Bahrain
Publicly quoted company listed on Bahrain
and Paris Stock Exchanges.
95
96
97
98
99
1,857
1,740
1,721
1,657
1,540
112
1,000
25
Subscribed and fully paid-up
145
1,500
129
Authorised
116
Capitalisation (US$ millions)
Net Income after Tax
US$ millions
US$ millions
95
96
97
98
99
(Commercial Registration Number 10299)
10
11
Directors’ Report
Economic Context
Directors’ Report
continued
continued
Elsewhere in Asia, China and Hong Kong have learnt to live with a lower rate of economic expansion than was
expected in pre-Asian crisis times. Nonetheless, the South Korean economy has staged a robust recovery that is
echoed to some extent in several of the South East Asian economies, notably Malaysia, Singapore and Thailand.
The Latin American countries had survived the early phase of the Asian crisis remarkably well. However, the
Asian crisis finally caught up with South America as commodity prices plunged. Speculation against Brazil’s fixed
rate currency intensified during 1998, resulting in the devaluation of the Real in January 1999. The Argentine
Peso, under a more comprehensive fixed rate regime, stood its ground. However, both the Argentine and
Brazilian economies fell into recession as they struggled to balance budgets and contain their external deficits.
Latin American oil producers, such as OPEC member Venezuela and non-OPEC Mexico, benefited from the
recovery in energy prices during last year, but this failed to prevent Ecuador from defaulting on its Brady bonds
and has cast doubts over some of the weaker regional economies.
The prospects for some of the more successful of the East European economies improved with the recovery
in West Europe. They have also benefited from the enhanced likelihood of their joining the European Union
within the next few years, following the encouraging decisions taken by the European Union in Helsinki last
December. Other, less successful, countries have however been stymied by inadequate economic reforms, or by
the interruption to their trade caused by the 1999 war in Kosovo or as a by-product of the blockage of the Danube
river, a major East European artery and outlet.
For the Arab world, the 1999 recovery in oil and gas prices first benefited the major energy producers,
Algeria, Libya and the GCC states. Other Arab countries should profit indirectly in due course, chiefly from
increased emigrant labour opportunities emanating from the wealthier countries and resultant larger transfers
home. The hopes for a more comprehensive Middle East peace and the lifting of UN sanctions on Libya also
provide encouragement for the year 2000. Some non-oil economies in North Africa and the Levant may also
benefit from stronger growth in the European Union, which is a major market for their goods and services.
Performance
ABC Group’s financial result was within expectations, despite unanticipated loan loss provisioning taken mainly
in response to continuing concerns in China and signs of weakness in the corporate sectors in Spain and the US.
Unless the situation deteriorates further in these areas or unforeseen, new problems emerge in Latin America,
the Group should be at the end of the round of provisioning which began after Thailand’s crisis in 1998. Active
remedial loans management has meanwhile reduced total Group exposure to troubled countries in the Far East
by over US$200 million in 1999 through a combination of recoveries, write-offs and asset sales. We are targeting
a further reduction in 2000. Furthermore, we can now look forward with increasing confidence to reaping the
accumulating benefits of the change in our business focus which followed the new organisational structure in
1998 resulting from the in-depth review of the previous two years.
As we embrace our Mission and pursue our goals, we see more clearly the potential for a sustained improvement in the performance of the Group. Our task is now to realise that potential – never easy and the way ahead
may have many obstacles, but nevertheless the road is clear.
In 1999 we aimed to achieve business targets without imposing unnecessary pressures on the balance
sheet. The total assets were not permitted to grow as the Group rationalised its lending activities through
the choice of better yielding assets and the introduction of more effective exposure management in relation to
countries, industries and clients. Better risk management was achieved through better controls and procedures,
while business development focused increasingly on asset quality vs. rate of return. Increased emphasis was
placed on the business units’ and account managers’ responsibility for the risk management of their portfolios.
At the same time, country and counterparty limits throughout the Group were reviewed, assessed and amended
according to the imperatives of prudent risk control.
continued
Marketing out of the various units of the Group was rationalised through the strengthening of the role of
the Group relationship manager. Consequently, a greater level of coordination was achieved between all parts of
the Group, resulting in stronger bonds of communication with our clients.
Our international network has been refocused on the development and support of Group activities in our
core domestic markets, principally through the key business lines of trade finance and project finance. Non-core
business, unless of excellent quality and return and contributory to other strategic objectives, is no longer being
targeted.
In our primary objective of positioning ABC to become the premier regional bank in the Arab world,
we undertook significant groundwork to retarget our business strategies as regards the Americas, Asia and
Europe. With our efforts increasingly aimed at the Arab markets, and trade and commodity finance products, the
international units are now concentrating their efforts on marketing product lines more intensively within
the Arab world and to that segment of their domestic customer base most active in the Arab world. Product and
distribution capabilities in Europe are being enhanced in order to follow through on successful marketing efforts
in this direction.
In Tunisia, ABC was granted a licence to set up an onshore bank, a unique event for a foreign-owned
institution and a fine example of our cordial relations with the Tunisian authorities and reflection of our
commitment to the market. This subsidiary will commence operations in 2000 and expects to open four branches
during the year. Our Algerian subsidiary, jointly-owned with the International Finance Corporation, the World
Bank subsidiary, The Arab Investment Company (‘TAIC’), and Algerian investors, has completed its first full
year of operation, with great success and anticipates a rewarding 2000 as it, too, expands its network.
The 1999 acquisition of an Egyptian retail/commercial bank has provided the Group with a base from
which to market its international services direct to prime domestic and multinational corporates based locally,
whilst offering its existing global clients contemplating business there both domestic and international services
available on the ground. The branch network will be fortified by selective expansion in centres appropriate to
the targeted client base. At the same time, the formation of a separate investment banking subsidiary in Egypt,
providing asset management and new issue and advisory services to individuals and corporates respectively,
will complement the Group’s commercial banking activities in the country.
The growth of our Islamic banking activities has also proceeded satisfactorily, boosted at the end of the year
by the creation of a new business origination and management base in London at ABC International Bank. This
team will work closely with ABC Islamic Bank in Bahrain in product development, client servicing and distribution.
Group Treasury, responsible for the maintenance of a healthy balance sheet and a strong liquidity profile,
continued to work towards the implementation of a ‘hub and spoke’ concept throughout the Group, under which
funding responsibilities will increasingly be decentralised on to the business units, duplication of relationship
marketing and servicing by different Group units will be reduced, whilst exposure management will continue to
be centralised, for the benefit and security of the Group as a whole. At the same time, Group Treasury has itself
been reorganised, segregating the ABC Group’s key products under separate departmental responsibilities, each
under a dedicated senior manager with specific profit targets and objectives. To this new initiative, moreover,
has been added the introduction of a new Global Marketing Department, which will concentrate all Treasury
product marketing, world-wide, into the hands and under the supervision of a single Head Office department,
reporting primarily to the head of the Arab World Division and only indirectly to the Group Treasurer. In this
way, marketing focus can be maximised to ensure that all of the ABC Group’s products, and not merely those
of the Treasury area, may be efficiently made available to the institutional client.
Consistent with our goal of expense control and optimisation, disciplinary initiatives imposed throughout
the Group have resulted in operating expense growing by less than 1 per cent in 1999. It is intended to continue
to maintain pressure to ensure similar performance in 2000.
Assets Breakdown
per cent
12
Loans
53.0%
Placements
24.2%
Investment securities
12.8%
Trading securities
1.5%
Liquid assets
2.4%
Premises & equipment
1.8%
Others
4.3%
13
Directors’ Report
Directors’ Report
continued
The Future
Our business strategy is now well established. For the year 2000, and beyond, we will focus on marketing our
international representation and expertise to the Arab world and our strong - and expanding - presence in our
base region to our OECD-based and other multinational clients. Our strategy is aimed not only at improving
the Group’s overall profitability but also at creating a greater consistency in that profitability through the
enhancement in asset quality which our familiarity with the region and our customers, coupled with our strong
credit controls and policies, will bring. We will also seek to strengthen, and capitalise on, the synergies between
the different business units in our Group by use of these cross-regional marketing strategies, as well as by the
concentration of our most strategic products (Middle East capital markets, Islamic banking, project and selected
corporate finance, treasury products, trade finance, consumer banking) under regional or Head Office-based
centres responsible for packaging and managing them to a Group-wide client base.
We will invest in Arab world domestic and capital market opportunities that enhance shareholder value.
We will increasingly concentrate on expanding our domestic client base and maximising domestic opportunities,
at the same time diversifying our risk profile.
We will continue to focus on management of our expense base in addition to maximisation of revenue
streams. For example, our New York branch is expected to transfer its operation to Stamford, Connecticut,
leaving a small representation in Manhattan for the maintenance of correspondent relations and client services.
This move is expected to result in significantly reduced costs and enhanced revenues, adding approximately
3 per cent to the branch’s internal return on equity computation. Banco Atlántico, our subsidiary in Spain, has
commenced an ambitious re-engineering process which is expected to produce significant revenue enhancements as well as cost savings over the next few years. Other centres are similarly engaged in reviewing their local
strategies, seeking efficiencies in all areas of the profit and loss account.
In the area of information technology, what was seen hitherto in the market as an important part of the
move to modernisation and globalisation in banking is perceived today rather as an integral and essential part of
our future in product development, risk exposure management and control, and service to clients. Last year, we
foresaw that by the end of 1999 we would have presided over the introduction of a new ‘core system’, or common
technology platform, available to all the banking units of the Group. The system was intended, to the greatest
extent possible, to be constructed from existing available, albeit then ‘state of the art’, technology. However, after
intensive review, we concluded that the rapid pace of technological development within the ABC Group, and the
benefits available from tapping the synergistic potential of our complex Group, demanded far-reaching solutions,
not least in the risk management field. Many and varying systems currently in use throughout the Group need to
be brought together. A dramatic 300 per cent increase in network servicing demand from within the Group calls
for a major expansion of the Head Office technology infrastructure. Finally, new risk management imperatives
demand highly advanced technology to ensure the Group’s full, global, control of exposures of all types, to meet
ambitious internal initiatives as well as anticipated future regulatory requirements.
We have decided that the solution lies in the introduction of new advanced fully customised systems - a
departure from the original plan to minimise customisation - combined with a substantial upgrade to one major
existing system in use in Head Office.
The advantages far outweigh the inconvenience of the wait: ultimate Group data availability, in detail
and in manageable and flexible reporting formats; new management information systems delivering preciselytargeted, daily, information; and faster roll-out of sophisticated risk management systems (for on-line Group
credit exposures, by the second quarter of 2000 and for on-line Group market risk - presently available for core
Group, with end-of-day feed in from non-core units - by the fourth quarter). Finally, the complete integration of
data from all wholesale and retail units, globally.
continued
Thanks to the Head Office-led coordination and management team specifically formed for the purpose,
the Group’s Y2K (Year 2000) compliance programme, started over three years ago, was completed on 30 June
1999, and the year-end passed without any problems experienced by our business units, whether wholesale or
retail. Team members will be re-assigned to the other demanding projects in hand.
ABC Group’s entry into the 21st century is marked not only by Head Office initiatives in the field of
information technology but also by the ideas being generated out of our subsidiaries. Our Hong Kong subsidiary,
International Bank of Asia, is busy preparing for the economy’s emergence from the worst recession in 50 years,
planning the launch of the most advanced internet banking technology yet devised: interactive sites specifically
targeted to a market segment of one, treating the customer as a unique individual with his own unique requirements and interests. Similar work is taking place in Banco Atlántico and other retail units, ranging from the
introduction of internet banking to expansion of existing ATM and telephone banking services.
Good risk management is not just about the search for high asset quality and good liability and exposure
control. It is also about optimising the use of capital in order to achieve an appropriate return for any given level
of risk. This, in turn, means being able to allocate capital efficiently to each and every risk assumed or internal
counterparty or trading limit established. Finally, it means being able to put a price on the amount of that
capital employed for each such purpose, or to calculate the return achieved on a risk taken. Sophisticated systems
and clear policies and procedures are needed for the precise measurements and controls to achieve this. We are
introducing these and the results, we hope, will become evident in the years to come.
As in any service industry, the best banks are those with the best people. Whatever the investment in real
estate, capital equipment and systems required to run a banking operation, it remains true that the most
important contributors to success are a bank’s management and staff. The Group is conscious of this and
actively promotes the development of its people through continuous, needs-based training and the provision of
a career path structured to provide a challenging, stimulating environment with a generous performance-based
reward system. This in turn creates a talent pool upon which the Group can draw as its needs expand.
Training, already a key priority for our Human Resources management, will continue to be key to our
strategy in the years to come, both through in-house programmes in both the parent bank and its subsidiaries as
well as through external courses and graduate and executive programmes. Staff, at all levels, with the potential for
advancement will be carefully selected for these programmes and their careers carefully tracked and monitored.
The Board of Directors extends its grateful thanks to all management and staff, throughout the Group, for
their contribution over the past year and for their part in laying down the groundwork for the Group’s future
success. Their loyalty and hard work are recognised and appreciated. We would also like to acknowledge, with
thanks, the constructive advice and guidance received from the many regulatory authorities, banking, monetary
and others, with whom the Group deals in all parts of the globe, and the Bahrain Monetary Agency in particular
for its unfailing support, advice and guidance.
Abdulmohsen Yousef Al-Hunaif
Chairman
Note: In compliance with the Bahrain Monetary Agency Circular No. BMA/751/93 and EDBC/782/93, dated 8 July
1993 and 17 July 1993 respectively, set out below are the interests of Directors and Senior Managers in the shares of Arab
Banking Corporation (B.S.C.) for the year ended 31 December 1999.
1/1/99
31/12/99
Directors’ Shares
Senior Managers’ Shares
60,000
39,429
60,000
19,829
Total
99,429
79,829
Note: Directors’ remuneration for 1999 amounted to US$580,000 (1998:US$580,000).
14
15
Financial Review
Financial Review
‘ With an increased net operating income, the net profit for the year was US$112 million,
marking a return to the Group’s traditional levels of underlying profit, excluding exceptional
income items, but the first step on the road to the generation of consistently increasing,
reliable revenues principally from its core activities.’
Sources and Uses of Funds
95
16
96
97
98
Geographical and Maturity Distribution of the Balance Sheet
261
322
338
242
266
24,358
In 1999, ABC’s operations in the Arab world and North America increased, whilst those in Western Europe fell
in relative terms. The percentage of assets and liabilities in the Arab world was 17 per cent (1998: 11 per cent)
and 37 per cent (1998: 34 per cent) respectively. In Western Europe it was 41 per cent (1998: 47 per cent) and
35 per cent (1998: 43 per cent) respectively, whilst in North America it was 16 per cent (1998: 14 per cent) and 5
per cent (1998: 3 per cent) respectively. In Latin America it was 8 per cent (1998: 9 per cent) and 8 per cent (1998:
7 per cent) respectively. The percentage of assets in Asia reduced to 15 per cent (1998: 17 per cent) but liabilities
remained at 12 per cent (1998: 12 per cent). Africa and Eastern Europe accounted for most of the remaining
3 per cent of assets (1998: 2 per cent) and 3 per cent of liabilities (1998: 1 per cent).
21,265
10,245
9,643
10,649
11,208
10,483
8,868
10,395
8,426
9,795
7,711
6,986
5,917
6,661
6,512
6,101
5,956
5,680
5,643
5,469
5,199
In pursuance of its key objectives, ABC Group’s expansion in 1999 focused on the Arab world.
Arab Banking Corporation - Algeria, formed in December 1998, was highly successful in both growth
and profit terms: total assets at the end of 1999 reached US$125.4 million, while net profit was US$4.6 million.
Of the total issued capital of US$17.6 million ABC Group holds US$12.3 million. The bank plans to open three
domestic branches during 2000, at moderate cost.
During the year, ABC acquired 95.8 per cent of Egypt Arab African Bank from the Ministry of Finance of
Kuwait and other shareholders. The bank, which is to be called Arab Banking Corporation - Egypt (S.A.E.), will
be the vehicle for ABC Group’s retail and commercial activities in Egypt. It is anticipated that its existing network
of six branches will be expanded in 2000 by two branches, strategically positioned to appeal to high net worth
individuals and prime domestic and multinational corporates.
The total risk-weighted asset equivalent of commitments, contingent liabilities and other off-balance sheet items
was US$2,524 million (1998: US$3,110 million). The total volume of documentary credits, acceptances and
guarantees undertaken during the year was US$6,511 million (1998: US$7,013 million), 38 per cent (1998: 32 per
cent) of which related to the Arab world.
The Group currently uses a range of Treasury off-balance sheet products for the purposes of hedging and
servicing customer-related requirements as well as for managing its own balance sheet.
26,064
Factors Affecting Historical or Future Performance
Commitments, Contingent Liabilities and Other Off-Balance Sheet Items
23,582
ABC Group’s net interest income increased during 1999 by 1.6 per cent to US$434 million (1998: US$427
million). Non-interest income fell 20.5 per cent to US$256 million (1998: US$322 million), as net gains on investment securities returned to more normal levels from 1998’s US$51 million. Net fee and commission income also
fell 3 per cent in line with a slight fall in the volume of documentary credits, acceptances and guarantees. As a
consequence of the reduced investment securities income, total operating income fell by 7.9 per cent to US$690
million (1998: US$749 million).
The ratio of funded to non-funded income in 1999 was 63:37 (1998: 57:43) whilst net interest income to
interest expense rose to 42 per cent (1998: 33 per cent).
A reduced requirement for provisions against loans, advances and other impaired credits of US$97 million
(1998: US$229 million) reflected the Group’s confidence in the gradual return to stability in the South East Asian
economies and the adequacy of the provisions maintained in regard to those countries, as well as Russia, Pakistan
and other troubled regions. However these positive signs were partially offset by the impact of the recession in
Hong Kong, continuing concerns over China and signs of weaknesses emerging in certain segments of the
Spanish and American corporate markets, all of which necessitated increased provisions in those areas.
The net operating income therefore rose by 14 per cent to US$593 million (1998: US$520 million).
Operating expenses increased marginally to US$429 million (1998: US$427 million) with the proportion of
staff-related expenses holding steady at 62 per cent. Overhead expense (cost:income) ratio rose, however, to 62
per cent (1998: 57 per cent) in view of the reduced non-interest income.
Aggregate deductions of US$149 million (1998: US$297 million) from the operating profit comprised
US$97 million (1998: US$229 million) of provisions against impaired credits as stated above, US$21 million (1998:
US$28 million) for the minority interests and US$31 million (1998: US$40 million) for taxes on operations
outside Bahrain.
With an increased net operating income, the net profit for the year was US$112 million (1998: US$25
million), marking a return to the Group’s traditional levels of underlying profit, excluding exceptional income
items, but the first step on the road to the generation of consistently increasing, reliable revenues principally from
its core activities.
22,988
Income Statement
Total liquid assets, including trading and investment securities, placements and liquid funds, were reduced by
14.6 per cent to US$9,969 million (1998: US$11,673 million) as money market placements were trimmed to
match lower intakes of market deposits. In line with the Group’s decision to contain asset growth and focus on
optimising returns, placements with banks were reduced to US$5,891 million (1998: US$7,809 million). These
placements, together with liquid funds of US$587 million (1998: US$295 million), represented 26.6 per cent
(1998: 31 per cent) of total assets. Total liquid assets represented 40.9 per cent (1998: 44.7 per cent) of total assets.
The Group’s total assets decreased by 6.5 per cent to US$24,358 million (1998: US$26,064 million), reflecting the impact of the decline in the value of the Euro against the US Dollar, particularly on the assets of Banco
Atlántico S.A. in Spain, and the Group’s decision to curtail asset growth. The average assets of the Group in 1999
amounted to US$24,597 million, whilst the average of liabilities, excluding shareholders’ equity and minority
interests, was US$22,377 million.
ABC Group’s overall loan exposure fell by 2 per cent to US$12,903 million (1998: US$13,173 million).
However, the total loans to deposits ratio increased to 65 per cent (1998: 60 per cent) in reflection of the Group’s
decision to restrain balance sheet growth, combined with the impact of the Euro’s decline over the year. Short
term lending - loans with a maturity of less than one year - as a proportion of the total portfolio fell to 46 per cent
(1998: 49 per cent). Deposits from customers and central banks fell slightly to US$10,245 million (1998: 10,649
million). Deposits from banks and financial institutions, as mentioned above, were reduced to US$9,643 million
(1998: US$11,208 million). This figure includes US$3,092 million (1998: US$4,985 million) of financings raised
from sale and repurchase agreements.
Term funding totalled US$1,289 million (1998: US$1,420 million). ABC Group raised a total of US$297
million (1998: US$401 million) on international capital markets during the year.
Trends in Loans Portfolio
Trends in Deposits
Total Assets
Operating Profits
US$ millions
US$ millions
US$ millions
US$ millions
99
Short term
Banks
Long term
Customers
95
96
97
98
99
95
96
97
98
99
95
96
97
98
99
17
Financial Review
Financial Review
continued
Geographical and Maturity Distribution of the Balance Sheet
continued
Exposure to the troubled countries mentioned above now stands at US$699 million, as follows:
continued
The geographical breakdown of total credit exposure (including off-balance sheet items) was as follows: Western
Europe accounted for 45 per cent (1998: 48 per cent), Asia’s share was reduced to 9 per cent (1998:
12 per cent) whilst the Arab world’s rose to 20 per cent (1998: 13 per cent). North America’s share was 19 per
cent (1998: 18 per cent) and Latin America’s somewhat lower at 6 per cent (1998: 8 per cent). The balance of
1 per cent (1998: 1 per cent) emanated from Africa, Eastern Europe and multi-country credits.
The geographical breakdown of loans and advances, by contrast, was as follows: Western Europe accounted
for 48 per cent (1998: 38 per cent), Asia’s share was significantly lower at 4 per cent (1998: 21 per cent), whilst
the Arab world accounted for an increased 23 per cent (1998: 16 per cent). North America’s share was 21 per
cent (1998: 13 per cent), whilst Latin America’s fell to 3 per cent (1998: 11 per cent). The balance of 1 per cent
(1998: 1 per cent) emanated from Africa, Eastern Europe and multi-country credits.
An analysis of the maturity profile of assets and liabilities shows that, at the end of 1999, 55 per cent
(1998: 60 per cent) of assets and 82 per cent (1998: 85 per cent) of liabilities did not exceed one year’s maturity.
Loans maturing in less than one year amounted to 46 per cent (1998: 49 per cent) of all loans and advances.
Classified Loans and Provisions
Non-performing loans and off-balance sheet credits are defined as those in default on contractual repayments
of principal or payment of interest in excess of 90 days. Such credits are immediately placed on non-accrual
status, with all past due interest being reversed and accumulated interest thereafter excluded from income
unless received in cash. In practice the Group adopts a highly conservative stance and places all such credits
on non-accrual status as soon as there arises a reasonable doubt as to timely collection.
All credits are classified in accordance with ABC Group’s internal system, under which credits deemed to be
of satisfactory status are categorised into a number of hierarchical rankings. Below satisfactory status a ‘watchlist’
category is maintained (reflecting certain identified weaknesses either in the obligor or in the structure of the
credit itself). The last category before non-performing status is ‘special mention’ under which flawed credits
needing careful management are placed. In the case of the latter two categories, account officers in business units
are responsible for careful monitoring of these credits and a system of regular reporting to the head office of the
ABC Group unit concerned operates. All ‘criticised’ credits, in the lower categories of ‘substandard’, ‘doubtful’
or ‘loss’, carry minimum provisions of the greater of 20 per cent, 50 per cent and 100 per cent respectively and
the specific requirements of the local regulators for the country in which the relevant unit operates.
All such criticised credits within the wholesale business units are reviewed regularly by the business unit’s
account officers and their unit heads, with progress on the credits’ management being reported to ABC’s Head
Office in Bahrain no less frequently than quarterly, and often monthly. Reports are in an ‘Action Plan’ format
demanding firm undertakings from responsible account officers as to actions being taken to reduce exposure
and maximise recoveries. These reports are forwarded to both Division Heads and the Remedial Loans
Department in Head Office and in certain cases are also subjected to detailed in situ case - by -case reviews between
the business units and the Head Office.
Concerted remedial action at the level of the business units most affected by the past three years’ problems
in Thailand, Indonesia, China, Russia, and Pakistan, under the coordination and guidance of Head Office,
helped to reduce ABC Group’s exposure to non-performing credits in 1999 by a total of US$203 million. This
achievement reflected a combination of workouts via debt rescheduling and restructuring, secondary market
asset sales or swaps and the results of bankruptcy proceedings where unavoidable.
(in millions of US Dollars)
Thailand
Indonesia
China
Russia
Pakistan
1999
1998
76
202
293
68
60
118
233
394
73
84
699
902
Loans placed on non-accrual status at the end of 1999 decreased by 9 per cent to US$960 million (1998: US$1,052
million). Aggregate provisions at the end of 1999 amounted to US$869 million (1998: US$890 million), constituting 6 per cent (1998: 6 per cent) of all loans and advances.
An ageing analysis is given below, in millions of US Dollars, in respect of all loans and advances placed on
non-accrual:
Less than 3 months
3 months to 1 year
Over 1 year to 3 years
Over 3 years
Principal
Provisions
Book Value
163
112
417
268
64
43
268
157
99
69
149
111
960
532
428
Following the liquidation of GITIC announced in 1998 and our observation of the actions of the PRC authorities
during the past year in respect to this and similar entities, we have reviewed our ITIC exposure and related
provisions. As a result we have increased our total provisions to US$90 million (US$78 million) and the percentage of cover on Group exposure to China to 31 per cent (1998: 20 per cent). No other significant country
provisions were required over the year.
A further increase in general provisions maintained in Head Office on the Group loan portfolio was
implemented, in line with annual practice. Moreover, the effects of the continuing economic recession in
Hong Kong, as well as an increase in non-performing loans experienced in Spain, necessitated a rise in specific
provisions in the subsidiaries there. New provisions were also required in ABC’s New York branch, reflecting the
strains on some weaker corporates after so many years of unremitting US economic expansion and intensive
competition. Overall, these increases accounted for the bulk of the Group’s total non-country provisions taken
for the year, amounting to US$97 million.
Group Capital Structure and Capital Adequacy Ratios
The Group’s total capital base increased by US$95 million to US$2,310 million (1998: US$2,215 million), improving its consolidated capital ratio from 13.9 per cent to 14.7 per cent.
The Group’s total risk-weighted assets decreased marginally to US$15,767 million (1998: US$15,989 million).
All ABC Group subsidiaries meet the capital adequacy requirements of their respective regulatory authorities.
per cent
Other Ratios
Non-Deposit Sources of
Funds & Shareholders’ Equity
Arab World
15.8%
Asia
US$ millions
15.0%
Shareholders’ Equity
Latin America
8.2%
Certificate of Deposits
North America
17.6%
Europe
41.6%
Others
1.8%
At 31 December 1999 the ratio of the Group’s total debt to Shareholders’ Funds was 0.69:1 (1998: 0.82.:1).
Average Shareholders’ Funds expressed as a percentage of Average Total Assets was 7.4 per cent (1998:
7.6 per cent).
Total Loans and Advances expressed as a multiple of Shareholders’ Funds was 6.9 times (1998: 7.6 times).
Notes & Bonds
95
18
1,289
270
1,857
1,420
241
1,740
1,451
202
1,721
1,299
188
1,657
1,109
Breakdown of Earning Assets
by Region
209
1,540
ABC Shareholders’ Funds as at 31 December 1999 stood at US$1,857 million (1998: US$1,740 million). Average
Shareholders’ Funds amounted to US$1,819 million (1998: US$1,756 million).
96
97
98
99
19
Review of Operations and Support Functions
Banking Group
Arab World Division
‘ Expansion in the Arab World is a key objective of the ABC Group in its mission to be the
leading bank in the region. 1999 was noteworthy for the establishment of a new enterprise
in Tunisia and the acquisition of a bank in Egypt. The Division continued to focus on
investing resources in, and developing its knowledge of, the region, expanding in the fields
of structured, project and trade finance, Islamic banking and in the provision of an all-in
service for selected corporate customers.’
Ghazi Abdul -Jawad
ABC’s senior management team
gathered from around the world in
Bahrain in January to review the
year’s performance and determine
objectives for 2000.
20
The Group pioneered entry into the Algerian market in late 1998, as the first ever foreign- President & Chief Executive
owned bank to set up operations there, contributing US$13.2 million or 70 per cent to the paid
in capital. In the short space of time since then, the new subsidiary has done well in developing its customer
base, while focusing on trade finance transactions. Key banking products and services are being developed to
meet expanding customer requirements. New branches are planned in 2000 and beyond, to provide the network
to enhance its delivery capabilities and establish its presence.
ABC Group successfully launched its operational presence in Egypt by acquiring a majority stake in Egypt
Arab African Bank (S.A.E.), a bank with six domestic branches and 400 staff, since renamed Arab Banking
Corporation – Egypt (S.A.E.). A great deal of modernisation work needs to be done with regard to infrastructure,
staff training, information technology and organisational restructuring. Additional branches will be necessary,
to reflect the change in the target market and to meet the demand for quality banking services. ABC Group is
optimistic that, with the leadership of a new management team, the bank will increase market share and provide
an attractive return on its investment.
In Tunisia, the branch expanded and diversified its customer base and extended its trade finance capabilities to enable it to provide a full range of import and export related banking services and products. It also played
an important role in the Euro 220 million bond issue for the Republic of Tunisia, contributing to its major
success. Its record profitability, as a result, provided a comfortable return on equity.
In July, the Tunisian authorities granted ABC an onshore banking licence, permitting the formation of
a new bank, ABC Tunisie, which will provide a full range of retail commercial banking services to selected
corporate and consumer clients. The bank’s paid in capital is TND18 million (equivalent to US$16 million) and
it plans to start operations early in 2000. The existing offshore branch will continue operating for three years
before being merged into ABC Tunisie. Several new and innovative products have been introduced to the
market and these have proved extremely successful in meeting the needs of local corporate customers. More
are being developed and the Group is confident that the combined activities of the offshore branch and the new
onshore subsidiary will yield very positive results. During 1999, Tunisia continued to show healthy fundamentals,
preserving its investment grade rating from major international rating agencies. Government economic programmes added further encouragement to the already positive business environment and will help to speed
up the economic liberalisation programme. With Tunisia having one of the best performing economies in Africa,
the Group’s new unit there is expected to grow steadily and produce profits in a short period of time.
The Bahrain-based Commercial Banking Department represents the largest unit in the Arab World Division,
both in terms of assets and revenues. This unit performs the function of relationship management for the
Division. Commercial Banking has been organised along the lines of four complementary groups: Corporate
Banking, Governments and Financial Institutions, Syndications and Project Finance. The first two are profit
centres in their own right whilst the latter two are support units.
The direct marketing areas are supported by the rest of the ABC Group, particularly the five representative
offices and the banking subsidiaries established in the Arab world region. The representative offices, dedicated
to their specific geographical areas, feed key market information and client needs to the Commercial Banking
Department’s account officers for individual attention. Similarly, client requirements relating specifically to the
Arab world are identified by the Group’s international offices world- wide and are fed into the Bahrain centre.
The account officers then structure the optimum solutions to address the clients’ problems, calling on the
specialist support units’ expertise in project finance and/or loan syndications as and when required.
The Division aims to be a leader in the field of project finance and syndicated lending. At the same time,
it plans to develop further its established niche in the provision of services to governmental and quasigovernmental departments and agencies, but with an emphasis on asset quality rather than growth for its
own sake. The Arab retail market will be similarly developed. Geographically, it will concentrate in the near
term on organising and expanding its units in North Africa, whilst seeking an appropriate medium for entry
into the Levant and, given the right opportunities, other GCC countries.
21
continued
Business strategy for the current year is based on the anticipation of oil prices remaining high, with
resultant positive government budgets in OAPEC countries. Consequently, although sovereign borrowers may
require less funding for their infrastructure programmes, improved opportunities are foreseen generally in
all these countries for business with financial institutions, as well as for corporate lending, particularly in project,
structured and trade finance facilities. Direct corporate lending will be focused on meeting the Division’s
objective of profitable relationships reached through total client service. The switch to global treasury marketing,
meanwhile, offers a greater opportunity for cross-selling the Group.
Arab Banking Corporation - Egypt (S.A.E.) (ex Egypt Arab African Bank (S.A.E.))
Breadth and depth of
ABC’s commitment to the
Arab world continues to
grow, as does its banking
network.
The quality of economic management in Egypt over the 1990s and steady introduction of economic and
financial reforms have resulted in a sharp reduction in the fiscal gap and the rate of inflation, leading to a
substantial fall in debt-servicing obligations. Sustained external confidence and continuity of on-going reforms
such as privatisation and the opening up of the trade and investment regimes have also attracted foreign capital,
and contributed substantially to the repatriation of Egyptian capital from abroad. Real GDP growth is projected
to increase as reforms are stepped up, with priority given to the privatisation process. The fiscal position is
projected to remain solid in the near term with the maintenance of tight budgetary controls, while monetary
policy has been directed towards market stabilisation and deregulation of the financial sector.
In this positive atmosphere, the Group decided in November 1999 to purchase a controlling interest in
Egypt Arab African Bank (S.A.E.) at a total cost of US$105 million including goodwill. This represents by far
the largest single operation in the Arab World Division, evidencing our strong commitment to the market. This
95.8 per cent owned subsidiary has since been renamed Arab Banking Corporation - Egypt (S.A.E.).
ABC Egypt is a retail commercial bank operating in the domestic market through its head office, main
branch and five branches. It is intended to redirect the activities of the bank in the medium term towards the
provision of retail and commercial services to prime domestic and multinational corporates and higher net worth
individuals, utilising the strengths and placing power of the ABC Group to deliver innovative solutions to its clients.
In expanding the bank’s operations and network, the head office will be moved to Zamaled, a prestigious
Cairo suburb, and the other branches will be extensively refurbished and branded to convey a consistent
ABC image. Staff will undergo thorough retraining, and existing IT systems and procedures will be replaced with
up - to - date technology and speedier transaction processing methods.
Arab Banking Corporation (Jordan)
Bahrain (Manama)
Cairo
Arab Banking Corporation (Jordan) was formed in 1991 following the earlier acquisition of a securities house
and has grown steadily in its relatively short life, creating a widely spread domestic banking infrastructure. It now
boasts 22 branches throughout Jordan and a new Head Office building. It also owns a successful brokerage
subsidiary, and shares ownership in a Visa card company with seven other Jordanian banks and Visa International,
an innovative arrangement which was initiated by it.
In 1999, Jordan experienced its fourth consecutive year of weak economic performance, despite King
Abdallah’s smooth accession to the throne following the death of King Hussein and the quick return of
confidence and political stability. The declines seen in the country’s overall industrial output, particularly
in exports, construction and mining, resulted in reduced trade finance income for ABC Jordan. However, despite
an increase in non-performing loans, an experience which ABC Jordan shared with the banking sector as a
whole, the bank’s net interest income grew over the year, to which was added an exceptional profit from the sale of
its holding in a local mobile telephone company. Gross income therefore increased by some 5 per cent over the year.
ABC Jordan’s strong growth over the years has left it with significant annual amortisation charges against its
development costs, creating a drag on income. It was also adversely affected in 1999 through adherence to new
regulatory requirements for banks to provide against non-performing loans irrespective of the presence or extent
of collateral held against those loans - it is estimated that over 70 per cent of the provisions made by the bank are
ultimately recoverable, given the value of collateral held or in course of liquidation. Nevertheless, the bank
reported a net profit after provisions and taxes of US$0.7 million.
With an improving global economy, the continuing efforts of the government to reduce the country’s
foreign debt and open new markets to Jordan’s industries enhance the Jordanian economy’s outlook.
Membership of the World Trade Organisation, achieved in December 1999, can only benefit Jordan’s economy
in the long term. ABC Jordan’s objective, meanwhile, is to increase its market share through the introduction of
new products, expansion and enhancement of its private banking facilities and the launch of targeted
mutual funds. Over time, the liquidation of collateral held on non-performing loans will result in interest being
brought current and bad debt provisions being written back. The bank therefore anticipates increasing levels
of profitability for the future.
Amman
22
23
continued
continued
ABC Islamic Bank (E.C.) was formed as a wholly-owned subsidiary of ABC in 1998 from its successful Islamic
Banking Division, to provide Sharia-compliant products and services for its own clients and those of the Group.
Following a quiet first year, reflecting the impact of the economic problems in Hong Kong, China and Pakistan,
it performed better in 1999, with a net profit of US$4.9 million and an increased return on shareholders’ funds.
It specialises in trade and capital goods financings, including modaraba, murabaha, musharaka, ijara, ijara wa
iktana, bai salam and istissna transactions and advising on, and structuring, joint venture and other equity-related
investments in accordance with Sharia Law. Its ability, both on its own account and via the placement capabilities
of ABC Group, to syndicate major transactions or arrange substantial in-house financings, provides corporate
investors world-wide with access to new sources of finance, often in highly tax-efficient ways. ABC Islamic Bank
has also introduced two successful Islamic managed funds to the market.
To its existing products, the bank in 1999 added sukook (bond) when it co-led, along with another respected institution, the launch of the first Islamic Bond. It also led three highly successful syndicated Islamic credits
to Gulf-based institutions.
ABC Islamic Bank has historically concentrated its marketing on the Arab world and has renewed this
emphasis in line with Group strategy. In 1999 it established several new business relationships with leading
institutions in the Levant and North Africa, whilst strengthening its existing close contacts with financial
institutions, Islamic investment companies and corporate clients in the GCC countries. The bank is in constant
communication with ABC Group units, assisting them in structuring appropriate transactions, and in 1999 worked
particularly closely with the entities in London, Paris, Hong Kong and São Paulo in the provision of Islamic trade
finance and leasing facilities to their clients.
For the future, the bank expects to develop new business via the ABC network, particularly with ABC
International Bank’s new Islamic Asset Management team in London - responsible for origination and management of Islamic business out of Europe - with which ABC Islamic Bank will work closely in product development,
client servicing and distribution. A leasing fund, managed out of London, is being considered. During 2000 the
bank will be launching the first Islamic credit card, a major breakthrough in terms of new and innovative Islamic
products. Other Islamic products are being developed: planning is in progress to offer commodity murabaha
facilities to clients and to establish a vehicle to facilitate the introduction of an interbank money market to
Bahrain-based Islamic banks.
Arab Banking Corporation - Algeria
In keeping with a key objective of the ABC Group: a strong, expanding and diversified presence in the Arab world,
Arab Banking Corporation -Algeria opened in Algiers as a full commercial bank in December 1998, with 70 per
cent of its shares held by Arab Banking Corporation and the balance held between the World Bank subsidiary,
International Finance Corporation, Washington DC, U.S.A., The Arab Investment Company (‘TAIC’) of Saudi
Arabia and a group of Algerian investors. ABC Group is proud to have been the sponsor of the first commercial
banking licence to be issued to a foreign bank by the Algerian authorities.
Algeria is the second largest country in Africa by land area. It has a population of 30 million with a per
capita income of US$1,700. With abundant reserves of gas, Algeria’s hydrocarbons sector is the pillar of the
economy, with gas exports financing much of the population’s basic needs. An economic reform programme
begun in 1994 has succeeded in ensuring financial stability for the country and has set the scene for the
introduction of a market economy. The government’s determination to disengage from direct control of the
country’s commercial and productive sectors, involving the privatisation of a significant part of the infrastructure
including the banking industry, has led directly to the establishment of a market-oriented banking system.
ABC Algeria is pleased to have contributed to these developments through its financing of a substantial
volume of trade transactions in the past year and its active involvement in the local money markets. ABC’s
confidence in Algeria has been well rewarded: a first-year profit of US$4.6 million providing a 26 per cent return
on shareholders’ equity.
The bank anticipates making an increasing contribution to the country’s economic development. Three new
branches are to be opened in the year 2000, including a second central branch in Algiers, all as part of a new
countrywide branch network aimed at servicing the corporate market. ABC Algeria believes that a diversified
customer base, drawn particularly from the corporate and industrial sectors, will generate a healthy and sustainable
source of long-term revenues and anticipates a bright and profitable future in this rapidly developing country.
The bank’s initial paid in capital was US$10 million, since increased to US$18.8 million following its
successful debut.
24
‘ This was a year of consolidation and re-focus across all units in the International Division.
In line with the Group mission and objectives, and the Division’s emphasis on an improved risk
profile, concentration was on Arab world business, risk management, financial performance
and remedial management. Significant groundwork was undertaken to re-position business
strategies in the Americas, Asia and Europe.’
Financially, 1999 was a year of continuing consolidation in the Division’s international wholesale banking activities.
In line with the Group mission and objectives, renewed emphasis was placed on the following four themes:
Risk Management: Individual responsibility for the proper management of all portfolio risks - credit,
market and operational - was re-emphasised to business units and their account officers. Operating within
strictly defined and enforced country and counterparty limits, the goal was to improve continuously the quality
of asset mix through intensive analysis, selectivity based on merit and careful, continuous, monitoring of each
loan and customer relationship.
Arab World Focus: Capitalising on its international reach, the Division has prioritised the development
and support of the Group’s activities in its core markets in the Arab world. This was achieved principally through
the provision of trade finance and project finance facilities to major multinational corporations active in the Arab
world. Marketing world -wide is increasingly being concentrated in this direction, with unrelated business being
sought only if contributing directly to other Group strategic objectives and meeting the twin criteria of quality
excellence and profitability.
Financial Performance: All units must measure their success in terms of increased shareholder value. Credit
proposals, subjected to increasingly stringent credit hurdles, must nevertheless still pass Group return on equity
thresholds before being accepted. These measures have contained balance sheet growth but increased the
Division’s contribution to Arab world trade and project - related finance, where both criteria can be met.
Remedial Management: Arising from the Division’s emphasis on an improved risk profile, the management
of criticised credits bore significant results in 1999. The number and amounts of non-performing credits were
both reduced significantly, simultaneously with the increase of provisioning levels in respect of major emerging
economies at risk (mainly Russia, Pakistan, Indonesia, Thailand and China). The absolute level of exposure to
the higher risk (but performing) regions of Latin America and East Asia was also reduced dramatically, now
operating within new, smaller, regional caps.
Costs have also been rigorously examined and action taken where appropriate. Application has been made
to the appropriate regulatory authorities to establish a branch in Connecticut and a representative office in
Manhattan. This realignment, made possible through modern communications technology, is expected to result
in significant cost savings and revenue enhancement, adding approximately 3 per cent to our internal return
on equity computation for our US operations. Singapore Branch reduced its staff levels during 1999 in a rationalisation exercise aimed at re-profiling our South East Asian business. Expenses have been trimmed in other
centres as practicable.
In the branch network, New York’s profit was impacted by loan loss provisions against certain corporate
credits, whilst Milan reported a negative result due to losses on its discontinued securities trading activity
and additional country provisions made in compliance with Bank of Italy requirements. Singapore’s net loss was,
however, smaller than expected as bad debt recoveries were higher than anticipated while the branch turned in
a creditable operating profit.
After the financial crises in emerging markets in 1998, which coincided with the major organisational
changes in ABC Group in that year, 1999 was a year of considerable achievement, albeit one of consolidation and
re-focus across all Divisional units, laying the foundations for future success.
Significant groundwork was undertaken to re-position business strategies in the Americas, Asia and Europe.
These efforts, driven by the new focus on Arab world business as well as the Group’s strengths in trade and
commodity finance products, should develop in 2000 into reconfigured business lines organised operationally
in a more cost-effective manner to maximise local advantages inherent in each unit. Ambitious marketing programmes have been implemented at International Division units, aiming to sell their products both directly to key
Arab markets and to their corporate clientele active in the Arab world. Product and distribution capabilities are
being enhanced, particularly in Europe, in the light of these objectives, to ensure that new business opportunities
will be handled efficiently and swiftly in the traditions of the ABC Group. The Division is also seeking greater
synergies in Europe, in the back office, in system support and through common marketing themes being adopted
by all business units there.
25
continued
ABC International Bank plc (‘ABCIB’) commenced business in 1991 to fulfil one of the ABC Group’s objectives,
to establish an OECD-based bank within the European Single Market. Its principal mission is to promote trade
links between the Western Hemisphere and the Middle East and North Africa (‘MENA’) region. ABCIB has
steadily increased its client base since its inception by taking advantage of the ABC Group’s pan-Arab presence
and links to banks and governments in the region. Its U.K. head office oversees the activities of its two branches
in London and Paris.
Economic growth in the U.K. was sustained during 1999 and exports were buoyant despite the continuing
strength of sterling against the Euro. However ABCIB’s business is heavily reliant on the economies of the
MENA region and the collapse of the price of oil and other basic commodities in the first half of 1999 adversely
affected the bank’s income levels in its trade finance activities. ABCIB’s aggregate turnover of letters of credit
and guarantees amounted to US$2.4 billion which is slightly lower than the previous year.
ABCIB’s Structured Trade Finance and Correspondent Banking unit in London arranges supplier and
buyer credit export finance facilities backed by ECGD and other export credit agencies in Finland and Sweden.
The Paris branch, in terms of the value of letters of credit and guarantees issued, is a major force in the market,
principally dealing in soft commodities and in oil, fertilisers and steel, as well as specialising in COFACEguaranteed transactions.
ABCIB’s Commodity Finance unit also demonstrated steady growth, reflecting its success in arranging and
participating in syndicated transactions including pre-payment structures for oil and other commodity exports.
The Project and Specialised Finance units in London structure, arrange and underwrite finance for
infrastructure projects in Europe, the MENA region and Turkey, co -ordinating with the bank’s Syndications unit
and, on larger transactions, working closely with the Bahrain Business Unit. The focus is on power generation,
telecommunications, water and oil and gas production and distribution facilities. In particular, it has developed a
speciality in the telecommunications industry and has participated in major projects in Egypt, Spain, Sweden,
Turkey and Morocco.
ABCIB continues with its strategy of client and product diversification. Its new Islamic Asset Management
unit, established at the end of 1999, is a part of this strategy and will make an important addition to ABCIB’s
product range. The unit will work closely with ABC Islamic Bank in Bahrain to structure, arrange and syndicate
international asset-backed facilities, as well as offering advisory services and establishing a range of Islamic
offshore funds to attract Arab-based investors.
The bank’s net profit in 1999, after provisions and taxes, was £12.7 million (US$21.1 million) compared with
1998’s £8.0 million (US$13.1 million). Net provisions after write-backs amounted to £1.2 million (US$2.0 million)
compared with £8.5 million (US$13.9 million) in 1998.
ABCIB’s balance sheet is conservatively managed, with a Risk Asset Ratio standing at 21.0 per cent as at
the end of 1999, comfortably above the minimum standards set by the Financial Services Authority. Based on tier
I capital alone (less deductions) the Ratio stood at 14.1 per cent. At the end of 1999 the bank’s shorter-term
facilities (repayable up to two years) stood at 83.8 per cent of the total loan portfolio. Its long-term borrowings
formed 19.7 per cent of its total funding requirements. The bank’s cost:income ratio stood at 53:47, higher than
the previous year as staff expenses increased as its product base continued to diversify. This ratio should decrease
during 2000 as income increases.
The bank’s strategy revolves around the concept of the origination, repackaging and distribution of
transactions to its network of market counterparties, with the objective of enhancing returns on capital whilst
maintaining a high level of liquidity. Over the coming year it is anticipated that higher oil prices will create a more
active economic climate for the economies of the oil-exporting Arab countries in terms of the level of exports
to the region and infrastructure developments. ABCIB looks forward to improving its contribution to the ABC
Group’s profitability and will continue to play a leading role within the ABC Group to promote trading links
between the Western world and the MENA region.
ABC’s focus on project and
structured finance actively
supports the enlargement of
the region’s infrastructure.
London
Frankfurt
Monaco
26
27
continued
continued
Investment Group
Arab Banking Corporation - Daus & Co. GmbH
In seeking to maximise the synergistic benefits of its membership of the ABC Group, Arab Banking Corporation
- Daus has increasingly focused on trade-related business. However, it continues to engage, albeit on a selective
basis, in traditional commercial lending and investment banking activities.
In the past few years it has been successful in developing both trade and project-related finance opportunities arising from the increasing commerce between Germany and Central Europe on the one hand, and the MENA
region on the other.
This year was no exception, with ABC Daus financing transactions for its German and Central European
clients related to projects in the oil and gas, transport, environmental, shipping and real estate sectors. Trade
finance transactions increased in the Levant as well as in the U.A.E. and North Africa. The bank also expanded
its existing expertise in extending German export credit guaranteed facilities, structuring similar financings in
respect of Czech exports. Working closely with ABC Group units in Bahrain and the MENA region, it increased
its letter of credit and other trade facilities in assistance of exports from its client countries. As much as 91 per
cent of such facilities now relate to Arab world imports.
In 1999 ABC Daus maintained a stable operating income as, while net interest margin fell, this was more
than matched by the increase in fees, commissions and other income. The latter included a healthy profit
from the securities portfolio, the management of which has now been outsourced to allow the bank to focus more
fully on its main strengths. Operating expenses were also reduced. An improved net profit of Euro 2.4 million or
US$2.6 million (1998: US$0.1 million) was therefore reported.
For the future, the bank will continue to provide its specialised services to an expanding customer base
in Germany and Eastern Europe, the Middle East and North Africa, whilst simultaneously meeting the needs of
its Arab correspondent bank clientele and other ABC Group units in its domestic territory. With the latest
Divisional initiatives to achieve full co - ordination of all European units’ activities, combined with existing
ABC Group synergies, it is well positioned to do so.
28
‘The diversification of risk and enhancement of shareholder value from ABC’s non-core
operations is the objective of the Investment Group. During the year, the commercial/retail
banking operations generated a total of US$45.4 million in net profits for ABC Group. For the
future, the re-engineering of Banco Atlántico, the positioning of International Bank of Asia for
economic recovery in its home territory and the expansion of ABC Brasil’s client base and
specialist product portfolio should help to ensure a growing contribution to net profits. A new
key objective, selective participation in the Arab capital markets, is expected to add value in the
years to come while helping to ensure the capability of providing a full service to our clients.’
The Investment Group is responsible for maintaining and enhancing shareholder value for ABC Group from its
investments in non-core banking operations, in particular Banco Atlántico, S.A., International Bank of Asia
Limited and Banco ABC Brasil S.A. It works closely with these banks, helping them to introduce and market
new investment products and increase fee-generating business. It is also responsible for the introduction of new
capital market-related initiatives throughout the Group.
The Group was recently granted an investment banking licence in Egypt and is in the process of establishing its wholly-owned investment company, ABC Securities (Egypt) S.A.E., which will have an authorised capital of
LE500 million (US$146 million) of which LE100 million (US$30 million) will initially be paid in. The company
will be operational by the second quarter of 2000 and will specialise in providing asset management services to
high net worth individuals and institutional investors, advising public corporations on privatisation and arranging private and public bond and equity issues. It also plans to launch in 2000 a private equity fund, investing in
privately owned corporates prior to their being launched on the equity market via an IPO, as well as a mutual
fund for retail investors, focusing on the Egyptian listed securities market.
The financial objective of the Investment Group for the coming year is to realise a total of US$80 million in
net profits for ABC Group.
Banco Atlántico, S.A.
As part of an international banking group, ABC Monaco has differentiated itself in a highly competitive
environment by combining commercial banking and trade finance services to international customers with
private banking and fund management services. Furthermore, its Arab world connections give it a unique
capability to deliver added value to its clients in both the Principality and the international arena. This strategy
has resulted in the steady increase over the years in customers’ deposits and funds under management, letters
of credit issuances and foreign exchange and securities operations on behalf of its clients.
In 1999, customer deposits and funds under management increased compared with the previous year
and marketable securities held on a fiduciary basis remained relatively stable. This positive result was achieved
in spite of the impact of management change that took place towards the end of 1998. The loan portfolio
was reduced for prudential reasons. Fee and other income stayed strong as, although a fall in loan-related
commissions was recorded, marketable securities and trading income was positively impacted by higher private
banking income. Following a small increase in provisions against a long-outstanding mortgage-backed facility,
the overall result was a reduced net profit of US$0.6 million in 1999.
For the future, ABC Monaco looks forward to increasing interest income from expanding deposit and
loan portfolios generated from new private clients, particularly in the neighbouring European countries as well
as French-speaking North Africa, attracted to Monaco’s stability and healthy financial market. It will also exploit
the increasing opportunities for the extension of its services to ABC Group’s expanding client base, anticipating
more trade-related fee income from international shipping and trading customers and significant growth in
its private banking and credit card businesses.
The Spanish economy maintained its healthy performance through 1999, with GDP growth of 3.6 per cent driven
mainly by domestic demand, which grew by 4.9 per cent and was in turn boosted by a reduced public deficit, falling
interest rates and personal taxation. Both exports and imports expanded, with the growth of imports surpassing
that of exports, reflecting domestic demand. Underlying inflation remained steady at 2.3 per cent p.a.
Private sector credit demand increased significantly - Spanish banks’ lending facilities expanding by 10.7
per cent - simultaneously with a strong 14 per cent growth in deposits. Despite this, the Spanish banks’ overall
net interest margin decreased, in large part owing to the reduction of income from stock portfolios. On the
other hand, the increase in volume terms of commissions on stock exchange transactions more than offset the
disappearance of exchange commissions applied to currencies now linked to the Euro, leading to a moderate rise
in total commissions.
Against this background, Banco Atlántico, S.A. continued to grow, opening seven new retail branches, bringing the total worldwide to 272, including three specialised private banking units in Bahamas, Gibraltar and
Panama and six dedicated corporate banking units. It responded to customer demand for long-term deposits
by launching three new successful products: 25-month and three-year variable rate deposits and a fixed term
deposit of over two years featuring an agreed fixed interest income with an additional income index-linked to
global stock exchanges. Two new proprietary mutual funds were launched in 1999 and the bank promoted, in a
distributor capacity, a number of prime institutions’ international mutual funds.
The year saw a significant increase in Banco Atlántico’s lending facilities and, despite the introduction of
new fiscal measures imposing withholding taxes on certain public debt - related savings products, a moderate rise
in total customer resources also. Gross income and net profit rose - in the latter case by 12.4 per cent to Euro 50.4
million, compared with the average for Spanish banks of a 3.9 per cent increase. However, after accounting
for the effect of the fall of the Euro and for exceptional staff reduction expenses charged directly to reserves
in accordance with Spanish practice - taken however against profit in the ABC Group consolidated accounts - net
profit as reflected in the Group’s books was lower by 3.5 per cent.
29
continued
Banco Atlántico, S.A. continued
Banco Atlántico has commenced a major re-engineering exercise, expected to take several years, to address
the relatively high costs of service distribution and delivery compared with the best practice Spanish banks. The
bank has carried out detailed studies of its processes and identified specific areas for improvement, at the same
time shifting its marketing approach away from product orientation and mass advertising towards ‘one-on-one’
customer focus and relationship building. This involves ‘micro-segmenting’ the market, utilising sophisticated
customer database analysis based on advanced new technology to target and deliver quality services to individual
customers. It will henceforth concentrate on providing a full range of services to the medium to high net worth
individuals and medium corporate segments. The bank aims over the next four years to achieve a substantially
increased return to its shareholders through a combination of expanded market share and increased efficiency.
International Bank of Asia Limited
The return of economic
confidence, globally, enables
ABC to capitalise on its
proven experience and
expertise in trade finance.
Madrid
Hong Kong
Having successfully weathered the storm in Hong Kong in 1998, when the aftermath of the Asian crisis hit GDP,
retail sales, exports, employment levels and property prices in turn, International Bank of Asia Limited (IBA)
positioned itself for the expected upturn in late 1999. It installed new operating systems and procedures to cater
for newly devised products to be introduced.
In the event, the recovery was mixed. By the third quarter, total goods exports had grown by 8 per cent p.a.,
driving GDP growth of 4.5 per cent p.a. - nevertheless, average GDP growth for the year was only 1.8 per cent.
Unemployment, albeit stable, remained high at 6.1 per cent. Deflationary pressure persisted, the Consumer
Price Index falling 4 per cent over the year. Property prices remained soft. Interest rates stayed at historically
high levels, with the banks’ best lending rates at 8.5 per cent p.a., keeping lending demand low. Competition for
good quality mortgage lending amongst the banks forced down spreads, with 90 per cent of recent mortgages
being priced at prime rate, compared with less than 1 per cent a year before. The worst recession for 50 years
led inevitably to a sharp decline in the banking industry’s profit and balance sheet growth.
IBA’s total assets declined by 6.5 per cent, to HK$24 billion (US$3.1 billion), reflecting the prevailing conditions as bank lending declined by 15 per cent in Hong Kong industry-wide in 1999. IBA’s increased liquidity was
deployed into government securities, providing the flexibility to meet increased loan demand, which showed signs
of emerging at the very end of the year. Interest income from loans and advances declined as market rates fell from
the high levels caused by attacks on the Hong Kong Dollar in 1998, as well as lower outstanding loans. Although
deposits increased by 2 per cent during 1999, net interest income was flat. Fee income was lower than 1998 as
a result of reduced consumer spending, trade flows and stock market turnover, affecting credit card spending,
trade finance and brokerage income. The decline in fee income was offset to some extent by the opening of
two investment centres aimed at retail customers, enabling them to trade in shares, and the commencement of
a strategic partnership with Winterthur Insurance, part of the Credit Suisse Group.
Operating expenses were sharply reduced to offset the effects of the recession, falling by 7 per cent despite
higher depreciation expenses related to upgraded computer systems. After prudently increasing provisions for
possible loan losses, reflecting prevailing conditions in Hong Kong and China, the net income for the year was
HK$24 million (US$3.1 million - ABC’s share US$1.7 million).
During the year IBA strengthened the balance sheet. As a retail bank, IBA relies on customer deposits
to fund the loan portfolio, supplementing this with medium-term funding through the FRCD market. As noted
above, deposits increased during the year. The loan-to-deposit ratio was reduced to 68 per cent and liquidity
maintained at 45-50 per cent throughout the year.
In the midst of a severe recession, IBA has concentrated on strengthening its franchise and assisting both
consumer and corporate customers to traverse this very difficult period. An enhanced credit policy, based on
sound practice and current market conditions, along with close monitoring, has improved overall loan quality.
Looking forward to 2000, IBA plans to expand both its deposit base and loan portfolio, keeping a firm
emphasis on credit quality and the maintenance and improvement of key liquidity ratios. Following the
government-legislated introduction of the new Mandatory Provident Fund - a compulsory retirement fund for
all Hong Kong employees - IBA, together with 10 other banks, has formed the ‘Bank Consortium’ to provide
quality trustee and fund management services to customers. In anticipation of economic recovery in the region,
it is preparing the launch of state-of-the-art internet banking technology, featuring interactive sites specifically
targeted to a market segment of one. By focusing on each customer’s unique requirements and interests, the bank
will aim to capture and hold the most profitable segment of the market by providing a personalised service with
specific product targeting. It will also build on the success of its expanded brokerage business by establishing
more investment centres, independent of the branch network, in appropriate locations. Its recently installed
advanced retail computer system has already increased the speed and efficiency of delivery of its service and
it will be introducing more high-technology products, such as computer-based customer call centres and automated payroll accounts, to be rolled out as economic recovery takes root.
São Paulo
30
31
continued
continued
Group Treasury
Brazil faced one of its most challenging years in 1999, beginning with the authorities conceding defeat in their
fight to protect the Real and adopting a floating exchange rate regime. The sharp devaluation and severe
currency volatility that followed impacted confidence in the economy, forcing an interest rate increase to reverse
the substantial withdrawals of foreign financial investments. Fortunately the effect of this on inflation - always a
prime concern in Brazil - was muted, but the expected improvement in the trade balance was not forthcoming,
the latter ending the year with a deficit of US$1,300 million.
This was the context in which Banco ABC Brasil S.A. operated last year. Uncertainty as to the ability of its
clients to adapt to the new environment, and the need to identify any hidden risks arising therefrom, led to a
more than usually thorough review of the entire credit portfolio. Any deficiencies in quality were thereby exposed
and addressed before damage could result. To the effort arising from this reassessment was added the substantial
extra workload involved in facility restructuring for customers faced with the tax implications arising from
their hedge instruments’ technical profits in the aftermath of the devaluation. Planned initiatives for the year,
including an expansion of the client base, were therefore necessarily delayed.
The Brazilian financial system experienced an increase in overall credit delinquency, mainly due to the
impact of losses by companies with large exposures to the US Dollar and defaults in consumer credits with
similar linkages. However, all in all, the impact was less than had been forecast. In the case of ABC Brasil,
delinquencies were kept at a very low level, although some clients’ credit ratings were downgraded. The bank’s
credit portfolio was reduced, with a resultant negative impact on income, both through intentional facility
reductions and the decrease in US Dollar terms in the value of Real-denominated operations.
Although, following the devaluation, many foreign banks reduced their trade lines to Brazilian banks, this
resulted in an increase of spreads on those facilities remaining available in the market - such as those from ABC
Brasil as a result of the facilities accessible to it from its extensive correspondent banking network. Although this
benefit was short-lived, in that spreads returned to normal in the second semester, demand nevertheless led to
increased turnover for the remainder of the year, enhancing the bank’s overall profitability in this sector. On the
other hand, the market for working capital financings reoriented itself towards local debt instruments and away
from US Dollar-related instruments in view of their high volatility. ABC Brasil’s strong funding sources put it in a
good position to benefit from this increased demand in the domestic market.
Treasury activities presented attractive opportunities during the year. High volatility in exchange and
interest rates widened the spreads in derivatives instruments and the bank took advantage of these conditions, and
its good ties with both interbank market and corporate clients, to act as an intermediary for the growing demand.
Without incurring any large exposure on its own account, it made substantial gains in these transactions.
Additionally it was successful in structuring transactions that freed clients from the market risks inherent in
Brazilian treasury bonds, whilst leaving them with the credit risk. Proprietary transactions were also very profitable,
but conservative limitations on the risk carried kept these to a secondary level compared with intermediation
activities. Investment banking operations, such as underwriting and asset management, faced great competition
and the attractiveness of corporate instruments was diminished by aggressive funding policies in the local market.
Fee generation from this source was therefore reduced.
The financial sector presented very different results according to the hedge policy adopted. International
banks such as ABC Brasil were mostly fully hedged, therefore experiencing substantial gains in Real terms although translation losses of course impacted their equity growth in US Dollar terms. On the other hand,
Brazilian banks, which had not hedged, suffered poorer results. Overall, ABC Brasil produced a good result compared with its peer group of banks: fee, commission and treasury income holding steady but with a reduced net
interest margin. Despite a 13 per cent cut in expenses and modest loan loss provisions - themselves a testament to
good risk management - the impact of high Brazilian taxes, calculated on high gross profits in Real terms, resulted
in the net profit in US Dollars being reduced by 46 per cent to US$20.3 million (ABC’s share US$15.6 million).
For 2000, the prospects look better: the economy is expected to grow by about 4 per cent, whilst inflation
should be kept down to 7 per cent p.a. and interest rates look set to stay down at pre-crisis levels of 19 per cent p.a.
The Real should float in the range of BRL1.80 -1.90 to the US Dollar, while the foreign trade balance is forecast to
achieve a surplus of about US$5,000 million. A resurgence of exports and an increase in import substitution efforts
should present good opportunities for the bank. ABC Brasil will focus on enlarging its client base, providing an
ever-widening range of products and services for their use. Sophisticated solutions to the domestic needs of its
clients and creativity, flexibility and security in the course of their production comprise the lifeblood of ABC Brasil
and the bulk of its daily activities, while its strong ties with ABC Group units and other international banks enable
it to be a natural partner to Brazilian groups with international needs.
32
Perceived economic weakness and political uncertainties in the Euro-zone in the early part of the year inspired
a global motion of no confidence in the Euro. This movement saw the Euro fall steadily against the US Dollar
and the Yen throughout the year, reaching near parity against the Dollar by the end of 1999, falling further in
early 2000.
Despite the US government’s major achievement in reducing its outstanding debt, the record current
account deficit tested foreigners’ appetite to hold record volumes of US assets, which helped force up both
spreads and nominal rates.
The dramatic rise in the middle of the year in crude oil prices, partly due to the maintenance of OPEC
production cuts, impacted favourably on local liquidity throughout the Arab world’s major oil producers. With
medium - term prospects for crude prices to stabilise within current price bands, the likely impact on the GCC’s
budget deficits, and thus the region’s investment climate, turned positive.
Group Treasury acts as central coordinator and manager of the ABC Group’s funding and liquidity profile.
In managing the ABC Group’s liability base, in 1999 it lengthened the average weighted maturity of its deposits
at the wholesale units from 97 days to 158 days.
Looking to the future, there is every reason to believe that the move within the Arab world towards more
open economies, and the drive to provide foreign investors with opportunities hitherto denied them, will lead to
an increasing demand for a range of financial products in Arab world currencies. Group Treasury intends to
ensure it is globally positioned to be a provider of high value products encompassing the needs of investors and
hedgers alike, and in the past few years has been steadily building a capability in global market-making in these areas.
Strategically speaking, Group Treasury continues working towards the implementation of a ‘hub and spoke’
concept throughout the Group. Under this programme, market and liquidity risk management will continue to
be centralised for the benefit and security of the Group as a whole but funding responsibilities will increasingly
be devolved on to the business units - the parent bank’s branches as well as the banking subsidiaries - in line with
their on-balance sheet activities.
Moreover, although individual units will continue to market treasury products within their discrete geographical regions, duplication of relationship marketing and servicing by different Group units will be eliminated.
To this end Group Treasury has reorganised itself so that ABC Group’s key products have been segregated
under separate departments, each the responsibility of a dedicated senior manager with specific profit targets
and objectives. A new Global Marketing Department has also been created to take charge of all treasury product
marketing world-wide. This department will report directly to the head of the Arab World Division for strategic
and relationship coordination purposes but to the Group Treasurer on a day-to-day basis. In this way, marketing
efforts will be focused so as to ensure that all of the ABC Group’s products, and not merely those of the Treasury
area, are made available to the institutional client.
Credit & Risk Group
The Credit & Risk Group (CRG) has overall responsibility within the ABC Group for centralised credit policy
and procedure formulation, credit exposure reporting and control, regulatory compliance, remedial loans management and the provision of core economic, geo-political, industry and corporate analytical resources to senior
management. It is also responsible for identifying market risks arising from ABC Group activities, recommending
to the relevant central committees appropriate policies and procedures for managing exposure to such risks
and establishing the systems necessary to implement such controls effectively.
1999 was a challenging year for the CRG, given evidence of continuing weakness in some emerging markets,
particularly those in South East Asia. However, there were welcome signs of growth and improvement in the
quality of economic management in many of these countries.
The expansion of ABC Group’s activities in the Arab world, in keeping with its key objectives, demanded
active support from the CRG units, in tandem with the growth of client and market bases.
The full implementation of the omnibus Group Credit Policy, which was introduced in 1998, was achieved
during the year. Key elements of this effort were the introduction of Group risk exposure parameters at country,
counterparty, industry and product levels, the standardisation of credit risk measurement and quality criteria
through a common risk scoring and rating methodology and the capability to analyse the Group portfolio
through risk segmentation and maturity profile.
CRG and the IT team also successfully evaluated and identified enhanced credit and market risk management systems, which will be introduced in the year 2000.
33
Credit & Risk Group continued
continued
Risk management involves the identification, assessment and ongoing control of material risks that could detrimentally impact on the organisation’s performance and achievement of its long-term objectives. In banking, the
primary goal of risk management is not to avoid those risks that are inherent in the business, but to manage them
consciously and with a view to ensuring the generation of income sufficient to reflect the degree of risk assumed.
The major risks to which the Group is exposed are credit, market, liquidity and operational risks.
The Board of Directors delegates its responsibilities for overall risk management, through the President
& Chief Executive, to several Head Office departments and committees, which determine appropriate strategies
and policies and ensure their adherence.
The parent bank and its banking subsidiaries are governed by specific credit policies which, whilst following
closely Group policies, reflect local practices and regulatory requirements. Notwithstanding this, approval at
Head Office is mandatory where exposure individually or in aggregate exceeds the guidelines set out in Group
Policies and exposure is required to be contained within the country risk limits established group wide by the
HOCC and the ABC’s Board of Directors.
ABC Group maintains a strong credit culture that places the responsibility for the credit firstly and primarily
on the account officer and business unit head exercising delegated authority or recommending the credit to the
next level of decision making. Responsibility for day-to-day management of existing credit exposure is similarly
delegated to the business unit officers who, in turn, must adhere to the detailed requirements for regular review
of the customers and analysis of their financial and economic condition. Recently, standardised credit scoring has
been introduced in the ‘core’ wholesale banking units, to assist in the assessment of the risk on corporate and
financial institution customers and their ratings under ABC’s own proprietary systems. As discussed in the Financial
Review section, these systems rank customers under a series of gradated ‘satisfactory’ ratings (akin to those of the
recognised rating agencies) which also address credit exposure thresholds. This is followed by ‘watchlist’ and
‘special mention’ rankings to assist in the early identification and management of weak credits and then by various
classifications of criticised credits, ‘substandard’, ‘doubtful’ and ‘loss’, against which minimum mandatory provisions
are required in accordance with the Group Credit Policy. It is intended in due course to extend these credit
scoring and rating systems throughout the Group, with suitable adjustments to account for the strongly retail
banking nature of some subsidiaries, where emphasis will be on the product rather than the borrower.
The Group requires collateral to mitigate credit risk where unsecured, or ‘clean’, facilities being sought are
considered to be beyond prudential limits. This collateral may be in the form of cash, securities, charges over the
customer’s assets or third-party guarantees.
At the end of 1999 assets secured by collateral amounted to US$4,229 million, or 17 per cent of total assets.
Internal Audit is responsible for carrying out Risk Asset Reviews of business units to assess the quality of
credit exposures booked in those units and the efficacy of, and adherence to, approval and analytical standards
laid down in Group and individual subsidiaries’ credit policies and procedures. The parent bank and its banking
subsidiaries also maintain head office credit departments responsible for assessing credits prior to approval at a
level higher than the business unit, when this is required, or post-fact following the business unit’s exercise of its
delegated authority - as well as on a regular review basis. In addition, the Head Office Credit Department in
Bahrain assesses the quality of Group common customers (both bank counterparties and corporate customers)
and recommends appropriate Group limits to the HOCC for its consideration and approval. Portfolios are
reviewed in detail at least annually and the weaker credits quarterly.
Group exposures are monitored by the Head Office Credit Risk Control & Policy Department which provides
senior management with consolidated information on Group exposures to counterparties, customers, countries
and industries. The Department is responsible for credit risk management technology development within the
Group. It is also responsible for recommending Group credit policy and procedural amendments and innovations,
and co-ordinating their introduction into the various policy manuals in place throughout the business units.
Credit Risk
Market Risk
Credit risk is the risk of financial loss arising from the inability or unwillingness of a customer or counterparty
to meet an obligation entered into with the Group. It arises from the loan, contingent obligations, treasury
and other activities undertaken by a bank. Direct loans, commitments to extend credit, treasury settlement
exposures, derivatives and securities transactions and obligations are all subject to credit risk. In the normal course
of business the Group, through the parent bank and its diverse subsidiaries, deals with all types of customers
and counterparties, from sovereign states and central banks to other governmental and financial institutions,
correspondent banks, multinational and other major corporates, medium-sized and small corporates to family-run
businesses and individuals.
The primary means of avoidance of loss on credit risk is the initial decision as to whether or not to extend
credit. Authority to approve credits is delegated by the ABC’s Board of Directors under and subject to the
conditions laid down in its Group Credit Policy. At the highest level, the Group Head Office Credit Committee
(‘HOCC’) must approve Group country, industry and customer credit and counterparty limits exceeding
prudential Group pre-set guidelines laid down in the Group Credit Policy. Their purpose is both to guard against
undue concentrations of exposure in any area, geographical or sectoral, as well as to ensure that exposure to
individual customers or customer groupings is kept at prudential levels in relation to their capital and financial
resources and commensurate with their ability to meet their obligations when due. The HOCC is chaired by the
President & Chief Executive and includes the Chief Banking Officer, the Division Heads and the Chief Credit
& Risk Officer.
Market risk is the risk of financial loss to the Group resulting from adverse movements in the level or volatility of
interest rates, foreign exchange rates or equity and other security or commodity prices, including derivatives.
Market risk arises as a normal part of the Group’s banking activities and occurs as a result of both its asset
and liability management (under ‘the banking book’) and its trading activities (‘the trading book’), although
each has different accounting consequences.
The credit management system will allow the evaluation and structuring of an expanded risk rating program, in
preparation for the coming introduction of regulatory-driven risk weighting of credit exposures and related
allocations of Group capital. On the back of this, CRG also plans to introduce subsequently an effective and
realistic methodology, meeting best industry standards, for risk-adjusted capital allocation on a unit -by -unit basis
as well as by each individual credit exposure, throughout the ABC Group. This will greatly enhance its ability to
price credits more precisely in line with risk.
The market risk management system, in turn, will meet the requirements of the regulators and best practice
industry standards in the measurement of all types of market risk and the efficient allocation of capital to those
risks. This will aid in the setting of capital-optimised limits by management and enable traders correctly to assess
gains and losses on complex transactions on the trading book.
The year 2000 will see a continuation of the emphasis on implementing credit best practices across the
Group. With fewer strains on the emerging markets, the remedial loans unit will focus on managing down the
existing non-performing portfolio and prioritising recoveries. New market risk management systems have been
selected for enhanced management of the ‘trading book’ exposures. Existing systems for control of ‘banking
book’ exposures will be upgraded in the early part of the year, ensuring that new international and Bahrain
regulatory requirements standards are fully met.
The economics department will be reviewing the existing internal Group country risk classification system
with a view to expanding and refining the country ratings used in the process of limit and parameter settings.
The latest technological developments offer scope for enhanced credit portfolio management, and CRG will be
ensuring that the credit management system will have built-in capabilities to facilitate segmentation of the entire
Group portfolio, either on a global basis or by individual unit, as well as categorisation by country or region, risk
type or maturity. The resultant data thus extracted may then be utilised to enhance management of the overall
risk profile of the Group.
Risk Management
Overview
34
continued
35
continued
Managing Market Risk
The Group has established risk management policies and limits within which exposure to market risk is monitored
and controlled. Strategic oversight is exercised by the Head Office Asset & Liability Committee (‘ALCO’), which
is chaired by the President & Chief Executive. Membership includes the Chief Banking Officer, Chief
Administrative Officer, Group Treasurer, Investment Coordinator, Chief Credit & Risk Officer, Chief Economist
and heads of the Risk Management, Investment and Planning & Financial Controls Departments. Each major
subsidiary has its own ALCO which assesses and manages the market risks which arise in its business units under
limits approved by its local Board.
The Head Office Risk Management Department, reporting directly to the Chief Credit & Risk Officer
and indirectly to the Group Treasurer, addresses all aspects of market risk including policy development and
implementation, the measurement and monitoring of market risk limits and new product development. With the
introduction of Value-at-Risk (‘VaR’) methodologies in 2000 the rôle of this department will broaden.
ABC Group manages its market risk on a diversified basis, with consolidation at Head Office for management and regulatory capital adequacy reporting. Market risk positions are managed within established limits
by each subsidiary, business unit head and trading desk. The criteria for establishing market risk limits include
market volatility and liquidity, business strategy and individual trader experience.
The Group currently uses a mix of purchased applications and proprietary models developed in-house to
quantify, monitor and control market risk. However, ABC is in the midst of migrating to new, externally sourced
applications - but with additional customisation as necessary to meet its needs - as part of an overall IT strategy
to implement best of breed business solutions.
The Group presently utilises the standardised methodology, consistent with the Basle Accord and BMA
regulations, for the computation of capital required to be set against market risk. However, VaR methodologies,
integrated with the risk management process, will support a change in 2000 to an internal model for management purposes and, if approved by the BMA, regulatory market risk capital allocation.
Interest Rate Risk
Interest rate risk is the risk of an adverse impact on the earnings of the Group or the economic value of its assets,
liabilities and off-balance sheet positions arising, either in the banking or the trading book of the Group, from
one of the following:
Firstly, it arises from the timing differences in the maturity (or repricing) of assets and liabilities (‘mismatch
risk’). Put another way, mismatch risk arises when there are mismatches or gaps in the amount of assets, liabilities
and off-balance sheet instruments that mature or reprice in a given period. These risks can be due to customers’
differing term preferences or to conscious decisions by risk managers to maintain gaps, under limits authorised
to them.
It also arises from changes in the slope and shape of the yield curve, or an imperfect correlation in the
adjustment of rates earned and paid.
Finally, it arises from the effect of interest rate movements and changes in volatilities on the market value of
options held within the Group’s portfolio.
For purposes of illustration, we have calculated the impact on the Group’s operating profits before taxation
and minority interest of an immediate, adverse, 100 basis point, parallel, all curve, interest rate shock as at
31 December 1999. Such a low probability event could reduce the Net Interest Income by US$17.7 million if no
remedial action were to be taken.
In managing the interest rate risk resulting from its trading and banking activities, Head Office does not
differentiate between the way in which the exposure has arisen. Both banking and trading gap positions are
consolidated, by currency, in the reports by the business units - parent bank and Group subsidiaries alike. The
major part of the trading book of the Group is concentrated in the Bahrain Treasury Department, from where it
can be managed directly under the overall supervision of the Group Treasurer.
Individual business units’ aggregate maximum exposures are subject to established limits, as are Group
limits on an overall basis, consistent with overall ABC Group strategy and financial plan targets. Limits are
reviewed regularly by the Head Office ALCO, whose recommendations are submitted to the Board for its
approval prior to implementation.
ABC’s global treasury
marketing initiative is creating
substantial opportunities for
cross-selling the Group
Algiers
Milan
Paris
36
37
continued
Foreign Exchange Rate Risk
Operational Risk
Foreign exchange rate risk is the risk of an adverse impact on the Group’s earnings or shareholders’ equity
due to currency rate movements. The Group is exposed to foreign exchange rate risk through both its trading
portfolios and its structural positions. Exposure management is divided accordingly.
The Group’s trading portfolios are exposed to foreign exchange rate risk in both the spot and forward
foreign exchange markets and in the options markets. Spot foreign exchange risk arises when the total present
value of assets in any currency does not equal the total present value of liabilities in that currency. Forward
foreign exchange risk arises when, for a given currency, the maturity profile of forward purchases differs from the
maturity profile of forward sales. Options risk arises from the effect of interest rate and exchange rate movements
and changes in volatilities on the market value of the options within the Group’s portfolios.
Under the Trading Book Policy statements, foreign exchange rate risk is managed by appropriate limits
and stop loss parameters determined by each subsidiary’s local ALCO and approved by the Board, in the same
way as for interest rate risk-related limits.
The Group’s structural positions relate to its net investment in its foreign subsidiaries and are included
in the net foreign currency exposures detailed in Note 12 to the Financial Statements. The structural positions
are reviewed weekly by Head Office ALCO and managed by Group Treasury in accordance with the Group’s
strategic plans. The Group Treasury employs foreign exchange forward contracts, options and other derivatives
in the management of the Group’s structural positions.
Operational risk is the risk of financial loss or damage to the reputation of the Group arising from inadequate
internal controls and procedures, breakdowns in processes, systems and technology, fraud or deliberate and
malicious damage.
Group policy dictates that the operational functions of booking, recording and monitoring of transactions
should be carried out by staff who are independent of the individuals initiating the transactions. Each operating
unit is guided by comprehensive manuals which specify the policies, procedures and controls that are relevant to
each function. Internal control policies and procedures dictate the segregation of duties, delegation of authorities,
exceptions reporting, exposures management and reporting, reconciliations and disaster recovery and business
continuity planning.
Separate Internal Control units carry out ongoing monitoring of day-to-day procedures and ensure adherence to key control functions. With the improvement in the Group’s technology base, controls are frequently
integrated into processing systems.
In addition, operational activities are reviewed periodically by the Head Office Internal Audit Department.
In Group Head Office as well as in the head offices of Group subsidiaries, Internal Audit departments report to
their respective Audit Committees, advising them of irregularities and procedural failures discovered or identified
and recommending appropriate action.
In certain specific cases, immediate responsibility for assessing and obviating operational risk may be
delegated to other, specialised, areas within the Group. The risk of system failure on the advent of Year 2000 (‘Y2K’)
is a case in point, where Group Head Office Information Technology Department was given overall responsibility
for ensuring system compliance with Y2K standards throughout the ABC Group, reporting to an ad hoc Group
Technology Steering Committee chaired by the President & Chief Executive and including the Chief Internal
Auditor and members of senior management. Full compliance was certified on 30 June 1999.
Equity, Debt Securities and Commodity Risk
This is the potential risk of an adverse impact on the Group’s earnings due to movements in individual equity
or other securities or commodity prices, or general movements in the value of the relevant markets under which
they are traded. The Head Office Investment Department buys and sells securities as part of its management
of the Group’s capital as well as in the course of its fund management activities. Group banking subsidiaries,
particularly those engaged in retail banking, also manage their capital or provide client fund management
services, in addition to buying and selling securities as part of their brokerage activities.
Management of these risks is identical to that explained above in relation to foreign exchange risk, with
limits and stop loss parameters being set throughout the Group.
Liquidity Risk
ABC Group defines liquidity as the ability to meet its obligations as they fall due but recognises that liquidity
can also be defined as the ability to execute specific transactions at or near current market prices without
unduly affecting that market price. The bank deals with the latter by closely monitoring the depth and spreads
of products in which it transacts, as well as limiting activities in less liquid markets or products.
The liquidity management reporting conforms to all local regulations and is reviewed daily by the responsible Treasurer. On a weekly basis a liquidity report prepared by Group Treasury is presented to the Head Office
ALCO and monthly an independent report prepared by Planning & Financial Controls Department is circulated
to the President & Chief Executive and Group Treasurer. The ALCO review consists of consolidated liquidity
profiles of relevant units and the top depositor and borrower concentrations by currency, region and entity.
Derivatives
Derivatives are off balance sheet financial instruments that derive their characteristics from those of underlying
assets, interest rates, exchange rates or indices. These include futures, forwards, swap and options transactions
in the foreign exchange, interest rate and equity markets. Transactions may take place via exchanges or directly
with counterparties.
As a normal part of business, ABC Group enters into many kinds of derivative activities in both its trading
and banking books. In the trading book the Group assists customers and counterparties (typically financial or
governmental institutions or major corporates) to alter their risk profile in a particular area of risk by structuring
deals to suit individual client needs. The positions accumulated from such activity are either passed on to others
in the market or retained as open positions for a time, managed for a profit. The Group’s trading activities
are largely conducted out of Bahrain Treasury and the major retail subsidiaries, with appropriate limits and stop
loss parameters in place as dictated by the Group Trading Policy.
In addition to its role as a dealer, the Group also uses derivatives to manage its own asset and liability
portfolio and structural positions. This activity, under the banking book, is for hedge purposes and is always
executed by Group Treasury under policies approved by Head Office ALCO.
38
continued
Legal Risk
The legal consequence of actions, investments or situations which lead to material unexpected negative results
is known as legal risk. Inadequate documentation, legal and regulatory incapacity or insufficient authority of a
counterparty, contract invalidity or unenforceability are all examples of legal risk. Management of this risk is
through effective consultation with internal and external legal counsel.
The provision of the highest level of integrated, cost-effective, legal advice, guidance and services to
management and the business units is the responsibility of the Head Office Legal & Compliance Department.
This requires detailed and up - to - date knowledge of international finance and corporate law and an understanding of its implications. All major Group subsidiaries have their own in-house legal departments, acting
under the direction and guidance of the Head Office department. The department is also the focus for ABC’s
‘compliance’ activities other than matters relating to the Bahrain Monetary Agency’s regulatory and reporting
requirements which are the responsibility of the Chief Internal Auditor.
The Head Office Global Information Technology Department is responsible for global IT strategy and planning,
as well as the provision of related technical services throughout the Group. The department fulfils a significant
role through its responsibility for assessment of future operational needs, and development and implementation
of new IT systems to meet them. It acts as the focal point in ABC Group for the review and assessment of business
requirements and the project proposals arising from them, matching these business needs with the Group’s
technology strategy and primary concern of delivering efficient, cost-effective systems.
During 1999, Global Information Technology directed its IT focus on the ABC Group’s Year 2000
Compliance Program. The program was completed on target and ABC was able to declare Group compliance
as of 30 June 1999. This was followed by extensive testing of the Group’s Y2K Contingency Plans and Groupwide Command Centres, set up in preparation of the millennium watershed. ABC Group was particularly pleased
that the year-end passed without any problems of any kind being reported by any of our business units.
39
continued
Auditor’s Report to the Shareholders
continued
Significant progress was also made during 1999 on the Group’s major technology upgrade program, the Core
System Project, which was initiated in 1998 to support business growth and improve risk management capabilities
and global data consolidation. A significant part of the strategy involves setting up a global processing hub in
Bahrain, connected through a ‘frame relay’ wide area network (‘WAN’) operative throughout ABC’s branches and
subsidiaries, to provide the communication infrastructure required to support the new technology platforms.
To meet the challenges presented by the Core System Project, a dedicated and highly skilled project team
was formed in Bahrain, consisting of in-house IT professionals, business users and consultants from the software
vendors. During the year, systems were successfully implemented in the Bahrain and London front offices to
support their trading activities; in addition a new trade finance system and an automated reconciliation system to
streamline back office processing capabilities were successfully installed. Currently a new back - office system is
being established.
Also during 1999, a project to implement enterprise-wide risk management systems in the area of Credit and
Market risk was initiated. The systems have been identified and implementation has commenced.
Looking ahead, the Group will continue the essential work of completing the implementation of its new
core systems, together with its new risk management systems, new technology platforms and a data management
communication network for use throughout the Group. With the continuing expansion of the retail banking
operations, Global Information Technology will develop a strategy to integrate the wholesale and retail banking
units for the purpose of consolidating MIS reporting. Finally, Global Information Technology has embarked on
an e-Banking initiative to provide banking products and services by means of internet-based technology.
Capital Management
The Bahrain Monetary Agency (‘BMA’) is the home supervisor for ABC and sets and monitors its capital requirements on both a consolidated basis and an unconsolidated basis. Individual banking subsidiaries are directly
regulated by their local banking supervisors, who set and monitor their capital adequacy requirements. In 1988,
the Group of Ten central banks which form the membership of the Basle Committee on Banking Supervision
agreed guidelines for banks’ capital measurement and standards. Since then, the capital adequacy requirements
of the different banking supervisors of the Group and its ‘core’ banking subsidiaries have tended to converge,
albeit with differences in the extent of capital adequacy required in the case of each. BMA requires each Bahrainbased bank or banking group to maintain a minimum ratio of total capital to risk-weighted assets of 12 per cent,
taking into account both balance sheet assets and off-balance sheet transactions. This is greater than the Basle
Committee’s recommendation of a minimum 8 per cent ratio.
ABC Group’s capital is divided into two tiers: tier 1, comprising shareholders’ funds and minority interests;
and tier 2, comprising general loan loss provisions, property revaluation reserves and the current year’s earnings.
The amount of qualifying tier 2 capital cannot exceed that of tier 1 capital, and term subordinated loan capital
cannot exceed 50 per cent of tier 1 capital. There are also limitations on the amount of general provisions which
may be included in the tier 2 capital. Deductions are made from tier 1 capital in respect of goodwill and intangible assets. Total capital is also reduced by deducting investments in associates, and treasury stock maintained in
ABC’s own shares.
As mentioned in the section on Risk Management, banking operations are divided between ‘trading book’
and ’banking book’. Risk-weighted assets are computed according to the appropriate categorisation. ‘Banking
book’ risk-weighted assets are measured by reference to a scale of risk weights, classified according to the nature
of each asset and counterparty, taking into account any eligible collateral or guarantees. ‘Banking book’ offbalance sheet items giving rise to credit, foreign exchange or interest rate risk are assigned weights appropriate
to the product and category of the counterparty, taking into account any eligible collateral or guarantees.
‘Trading book’ risk-weighted assets are determined by taking into account market-related risks, such as foreign
exchange, interest rate and equity position risks, in addition to counterparty risk.
40
41
Auditor’s Report to the Shareholders
41
Consolidated Balance Sheet
Consolidated Statement of Income
31 December 1999
Year ended 31 December 1999
Note
1999
(US$ million)
1998
(US$ million)
ASSETS
Liquid funds
Trading securities
Placements with banks and other financial institutions
Loans and advances
Interest receivable
Investments in associates
Other investments
Other assets
Premises and equipment
Note
3
4
5
587
363
3,128
5,891
12,903
208
52
85
694
447
295
667
2,902
7,809
13,173
234
62
92
375
455
24,358
26,064
Interest income
Interest expense
Net interest income
Other operating income
1,472
(1,038)
LIABILITIES
427
322
690
749
(97)
(229)
593
520
265
54
110
266
54
107
Total operating expenses
429
427
PROFIT BEFORE TAXATION AND MINORITY INTERESTS
164
93
Total operating income
Provision for losses on loans and advances, net of recoveries
4
OPERATING EXPENSES
6
7
10,245
9,643
270
187
43
423
10,649
11,208
241
133
35
228
1,289
1,420
22,100
23,914
401
410
Staff
Other
Taxation on foreign operations
Minority interests in subsidiaries
10
6
NET PROFIT FOR THE YEAR
MINORITY INTERESTS
1,710
(1,283)
434
256
9
NET OPERATING INCOME AFTER PROVISIONS
TERM NOTES, BONDS AND OTHER TERM FINANCING
1998
(US$ million)
OPERATING INCOME
TOTAL ASSETS
Deposits from customers
Deposits from banks and other financial institutions
Certificates of deposit
Interest payable
Taxation
Other liabilities
1999
(US$ million)
EARNINGS PER SHARE (expressed in US dollars)
24
(31)
(21)
(40)
(28)
112
25
1.19
0.27
EQUITY
Share capital
Treasury stock
Reserves
Retained earnings
TOTAL LIABILITIES AND EQUITY
1,000
(74)
408
523
1,000
(74)
392
422
1,857
1,740
24,358
26,064
Abdulmohsen Yousef Al-Hunaif
Chairman
Ghazi Abdul-Jawad
The attached notes 1 to 27 form part of these consolidated financial statements
42
43
Consolidated Statement of Changes in Equity
Consolidated Statement of Cash Flows
Balance at the end of the year 1997
Share
capital
Treasury
stock
Statutory
reserve
General
reserve
Extraordinary
financial
reserve
1,000
(74)
156
140
10
10
39
71
-
-
3
-
-
-
1
3
-
-
-
-
-
-
-
1,000
(74)
159
140
10
-
-
11
-
-
-
-
1,000
(74)
170
Capital
reserve 2
(US$ million)
Revaluation
Share
reserve 2 premium 2
Foreign
exchange
translation
adjustments
Retained
earnings 3
Total
(27)
396
1,721
land and buildings
-
-
25
(3)
4
-
3
25
4
1
Transfer from retained earnings
Dividend on treasury stock
Acquisition during the year
-
-
(14)
-
(14)
11
42
71
(41)
422
1,740
-
-
-
-
-
112
(11)
112
-
-
-
-
-
-
5
-
5
140
10
11
42
71
(36)
523
1,857
Foreign exchange
translation adjustments
Net profit for the year –1999
Transfer from retained earnings
Foreign exchange
translation adjustments
1. A dividend of US$0.60 per share (1998: nil) has been proposed for approval at the Annual Ordinary General Meeting.
As such, no liability has been recognised in these financial statements.
2. These reserves are not distributable.
3. Retained earnings include non-distributable reserves amounting to US$49 million relating to subsidiaries
(1998: US$ 45 million).
4. Note 8 contains further details of equity.
1998
(US$ million)
112
25
97
25
229
25
(7)
(51)
266
1,481
(386)
(261)
327
(1,141)
288
100
(88)
40
(562)
47
(253)
2,106
(14)
(819)
OPERATING ACTIVITES
Surplus on revaluation of freehold
Net profit for the year –1998
1999
(US$ million)
Net profit for the year
Items not involving cash flow:
Loan loss provisions
Depreciation
Item considered separately:
Gains less losses on investment securities
Changes in operating assets and liabilities:
Trading securities
Loans and advances
Other assets
Other liabilities
Other non-cash movement
Net cash inflow from operating activities
901
685
(1,574)
1,163
(33)
34
(47)
(33)
32
(3,068)
2,414
(50)
38
(59)
64
(458)
(661)
Issue of certificates of deposit - net
Issue of term notes, bonds and other term financing
Repayment of term notes, bonds and other term financing
Dividend paid
35
297
(460)
-
38
401
(438)
(60)
Net cash outflow from financing activities
(128)
(59)
Increase (decrease) in liquid funds
Foreign exchange translation differences
Liquid funds at beginning of the year*
315
(23)
295
(35)
13
317
Liquid funds at end of the year*
587
295
INVESTING ACTIVITIES
Purchase of investment securities
Sale of investment securities
Purchase of investments
Sale of investments
Acquisition of subsidiary (see note 11)
Purchase of premises and equipment
Sale of premises and equipment
Net cash outflow from investing activities
FINANCING ACTIVITIES
* Liquid funds comprise cash, nostro balances and balances with central banks.
44
45
Notes to the Consolidated Financial Statements
31 December 1999
1 Incorporation and Activities
The parent company, Arab Banking Corporation (B.S.C.), [ the Bank ] incorporated in the State of Bahrain by an Amiri
decree, operates under an offshore banking licence issued by the Bahrain Monetary Agency.
2 Significant Accounting Policies
The consolidated financial statements of Arab Banking Corporation (B.S.C.) are prepared in accordance with the Bahrain
Commercial Companies Law and the Bahrain Monetary Agency Law and in conformity with International Accounting
Standards and prevailing practices of the banking industry. The following is a summary of the significant accounting policies:
31 December 1999
h) Foreign currencies
Assets and liabilities in foreign currencies are translated into US Dollars at the market rates of exchange prevailing at the
balance sheet date. Foreign exchange translation gains and losses arising from translating the financial statements of subsidiaries into US Dollars are recorded directly in shareholders’ equity.
Forward exchange contracts are valued at market rates applicable to their respective maturities at the balance sheet
date and the resulting gains and losses are taken to the statement of income. Gains and losses arising from the difference
between spot and forward rates on forward exchange contracts, which are entered into in connection with loans and deposits,
are amortised over the periods of the related contracts.
a) Accounting convention
All other translation gains and losses are taken to the statement of income.
These consolidated financial statements are prepared under the historical cost convention modified by the revaluation of
premises and equipment in respect of certain subsidiaries.
i) Taxation on foreign operations
b) Consolidation
These consolidated financial statements include the financial statements of the parent company and its subsidiaries after adjustment for minority interests and elimination of inter - company transactions and balances. Goodwill arising on consolidation is
amortised over the expected period of benefit (5 to 20 years) on a straight-line basis.
There is no tax on corporate income in the State of Bahrain. Taxation on foreign operations is provided at the rates
applicable in each location. No provision is made for any liability that may arise in the event of distribution of the reserves
of subsidiaries. A substantial portion of such reserves is required to be retained to meet local regulatory requirements.
j) Employee pension and other end of service benefits
c) Investments
Costs relating to employee pension and other end of service benefits are accrued in accordance with actuarial and other
valuations as required by regulations applicable in each location.
Investments in associates owned between 20% and 50% are accounted for by the equity method. Other investments, which are
less than 20% owned, are stated at cost with provision for any decline, other than temporary, in value.
k) Fiduciary assets
d) Securities
Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and, accordingly, are not included in these
financial statements.
Trading securities are stated at market value. Gains and losses on trading and market value adjustments are taken to the statement of income.
l) Off balance sheet financial instruments
Investment securities are acquired for the long term and are stated in the balance sheet at amortised cost with provision for
any decline, other than temporary, in value. Premiums and discounts on acquisition are amortised on a straight-line basis
from date of purchase to maturity.
e) Premises and equipment
Premises and equipment are stated at cost or as revalued to approximate market values in the case of freehold land and buildings based on valuations by independent firms of professional surveyors. The surplus, net of tax if any, on revaluation is
directly credited to revaluation reserves in equity. Any decrease in revaluation is charged first against any previous surplus, in
respect of that asset held in revaluation reserve, and where such surpluses are insufficient, the shortfall is charged to the
statement of income.
Freehold land is not depreciated. Depreciation on other premises and equipment is provided on a straight-line basis over their
estimated useful lives.
Off balance sheet financial instruments arise from forwards, futures, forward rate agreements, swaps and options transactions
in the foreign exchange, interest rate and capital markets. Off balance sheet instruments used in trading activities and to hedge
other trading positions are marked to market and the resultant gains and losses are taken to the statement of income. Gains
and losses on instruments used to hedge exposures to fluctuations in interest and exchange rates in conjunction with asset and
liability management activity are recognised in a manner that matches the accounting treatment of the assets and liabilities
hedged.
m) Repurchase and resale agreements
Repurchase and resale agreements are undertaken in the normal course of business and are stated at contracted rates.
Assets sold with simultaneous commitment to repurchase at a specified future date continue to be carried in the balance
sheet. Proceeds received under these agreements are included in deposits. Assets purchased with simultaneous commitment
to resell at a specified future date are not carried in the balance sheet. Proceeds paid under these agreements are included
in placements.
f) Revenue recognition
Interest income and expense are recognised on a time proportion basis taking account of the principal outstanding and the
rate applicable. Fee income and expense are recognised when earned or incurred.
3 Investment Securities
The market value of investment securities at the year end amounted to US$3,054 million (1998: US$2,945 million).
Premiums, discounts and initial issue expenses on dated securities are amortised on a straight-line basis to the date of
maturity.
4 Loans and Advances
Loans and advances are stated net of provision for loan losses. The classification of loans and advances by industrial sector is
as follows:
g) Loans and advances
Loans and advances are stated net of loan loss provisions. Loan loss provisions comprise both specific and general provisions.
Specific provisions are created where losses are expected to arise on problem loans and advances. Additionally, management
considers it prudent to maintain a general provision which recognises the inherent risks associated with any lending portfolio.
Loans and advances are written off when they are considered to be uncollectable.
Loans and advances are placed on a non-accrual basis when payment of interest or principal is contractually past due by 90
days or earlier when there is reasonable doubt as to ultimate collection. Interest accrued on these loans and advances is not
recognised as income unless received in cash.
46
1999
Total
(US$ million)
1998
Total
(US$ million)
2,299
2,398
1,058
1,166
4,629
1,941
281
2,673
2,413
955
1,070
4,831
1,951
170
13,772
(869)
14,063
(890)
Balance at 31 December
12,903
13,173
Financial
Manufacturing
Construction
Trade
Consumer and other services
Government
Other
47
31 December 1999
31 December 1999
4 Loans and Advances continued
The movements in loan loss provisions during the year were as follows:
General
Specific
6 Taxation
1999
1998
Provisions
Provisions
Total
Interest
in
suspense
General
Specific
(US$ million)
At 1 January
Write-offs
Recoveries
Foreign exchange translation and
other adjustments
Balance sheet:
Current tax liability
Deferred tax liability
Interest
in
suspense
Total
(US$ million)
Income statement:
Current tax on foreign operations
Deferred tax on foreign operations
1999
(US$ million)
1998
(US$ million)
22
21
29
6
43
35
33
(2)
40
-
31
40
118
(9)
772
(84)
(32)
890
(84)
(41)
237
(8)
(26)
103
(3)
593
(65)
(23)
696
(65)
(26)
255
(78)
(30)
(8)
(26)
(34)
(3)
1
29
30
30
Charge for the year
Suspended for the year
101
16
-
630
122
-
731
138
-
200
70
101
17
-
534
238
-
635
255
-
177
60
7 Term Notes, Bonds and Other Term Financing
In the ordinary course of business, the parent company and certain subsidiaries raise term financing through various capital
markets at commercial rates.
At 31 December
117
752
869
270
118
772
890
237
Total obligations outstanding at 31 December 1999
The gross carrying value of loans placed on non-accrual amounted to US$960 million at the year end (1998: US$1,052
million.) Specific provisions of US$752 million (1998: US$772 million) were held against impaired loans, including those on
non-accrual.
5 Premises and Equipment
Land and
buildings
(US$ million)
Cost or valuation:
At 1 January 1999
Additions
Disposals
Foreign exchange translation and other adjustments
Equipment
and other assets
(US$ million)
Parent company
(US$ million)
Subsidiaries
(US$ million)
Total
(US$ million)
260
9
330
250
-
114
183
36
100
7
374
192
366
350
7
849
440
1,289
49
800
440
49
1,240
849
440
1,289
-
13
13
878
542
1,420
1999
(US$ million)
1998
(US$ million)
Authorised - 150 million shares of US$10 each
1,500
1,500
1,000
1,000
Aggregate maturities:
2000
2001
2002
2003
2007
Total
(US$ million)
Interest basis:
Fixed
Floating
408
10
(6)
(11)
260
31
(20)
(29)
668
41
(26)
(40)
401
242
643
51
5
(4)
(4)
162
20
(15)
(19)
213
25
(19)
(23)
At 31 December 1999
48
148
196
Net book value:
At 31 December 1999
353
94
447
Issued, subscribed and fully paid - 100 million shares of US$ 10 each
At 31 December 1998
357
98
455
b) Treasury stock
At 31 December 1999
Depreciation:
At 1 January 1999
Provided during the year
Disposals
Foreign exchange translation and other adjustments
Obligations subject to investor put options prior to stated maturities
Total obligations outstanding at 31 December 1998
8 Equity
a) Share capital
Treasury stock represents the purchase by the Bank of its own shares. At the end of the year the Bank held 5,867,736 shares
(1998 : 5,867,736 shares). The shares are carried at cost adjusted for any gain or loss on subsequent sale.
c) Statutory reserve
As required by the Articles of Association of the Bank and the Bahrain Commercial Companies Law, 10% of the net profit for
the year is transferred to the statutory reserve. Such annual transfers will cease when the reserve totals 50% of the paid up share
capital. The reserve is not available for distribution except in circumstances as stipulated in the Bahrain Commercial
Companies Law and following the approval of the Bahrain Monetary Agency.
d) General reserve
The general reserve underlines the shareholders’ commitment to enhance the strong equity base of the Bank.
48
49
31 December 1999
8 Equity
31 December 1999
11 Investments in Subsidiaries
continued
continued
e) Extraordinary financial reserve
The extraordinary financial reserve has been established to cover any possible future diminution in the carrying value of assets
and is used at the discretion of the Board of Directors.
f) Capital reserve
1999
(US$ million)
Net interest and other income
Net profit
Total assets
2
1
321
The capital reserve arises on the consolidation of subsidiaries acquired at a discount and is not distributable.
The fair values of the assets and liabilities acquired and the cash flow on acquisition were as follows:
g) Revaluation reserve
The revaluation reserve has been created by revaluation of properties in subsidiaries and is not distributable.
h) Foreign exchange translation adjustments
The movements in foreign exchange translation adjustments represent the foreign exchange translation gains and losses
arising from translating financial statements of foreign subsidiaries into US Dollars.
9 Other Operating Income
1999
(US$ million)
Fee and commission income
Fee and commission expense
Gains less losses on trading securities
Gains less losses on investment securities
Gains less losses on dealing in foreign currencies
Dividend income
Other - net
1998
(US$ million)
178
(16)
2
7
23
5
57
184
(17)
10
51
25
3
66
256
322
Liquid funds
Loans and advances
Investment securities and other assets
Term notes, bonds and other term financing
Other
Net assets
Country of
Incorporation
Banco Atlantico S.A. Group companies
Banco de Iberoamerica
International Bank of Asia Ltd.
Arab Banking Corporation - Daus & Co. GmbH
Arab Banking Corporation (ABC) - Jordan
ABC Algeria
Egypt Arab African Bank S.A.E.
Spain
Panama
Hong Kong
United Kingdom
Germany
Monaco
Bahrain
Jordan
Brazil
Algeria
Egypt
Interest of
Arab Banking
Corporation
(B.S.C.)
(%)
67
67
55
100
99
99
100
86
79
70
96
On 18 November 1999, the group acquired a 95.8% stake in the voting capital of Egypt Arab African Bank S.A.E. (EAAB),
a retail bank incorporated in Egypt, for a cash consideration of US$105 million. The acquisition has been accounted for under
the purchase method. The excess of cost of acquisition over the fair values of net assets at the date of acquisition, being
US$53 million, is recognised as goodwill and amortised on a straight-line basis, over 20 years. The amounts included in the
consolidated financial statements in respect of Egypt Arab African Bank S.A.E. are as follows:
105
(58)
Cash outflow on acquisition
47
12 Significant Net Foreign Currency Exposures
Significant net foreign currency exposures, arising mainly from investments in subsidiaries, are as follows:
Euro
Hong Kong dollar *
Saudi riyal
Jordanian dinar
Brazilian real
Egyptian pound
Long
1999
(US$ million)
Short
Long
1998
(US$ million)
Short
220
50
22
103
(12)
(131)
-
42
203
45
-
(82)
(64)
-
* This foreign currency exposure is covered by currency options to minimise the risk of loss from adverse movements in the
foreign currency rates.
13 Commitments, Contingent Liabilities and Other Off Balance Sheet Items
a) Commitments and contingent liabilities
Commitments and contingent liabilities include commitments to extend credit, standby letters of credit, acceptances and
guarantees, which are structured to meet the various requirements of customers. At the balance sheet date, the principal
outstanding and the risk weighted equivalents calculated in accordance with the capital adequacy guidelines established for
the global banking industry were as follows:
Direct credit substitutes, guarantees and acceptances
Forward asset purchase commitments
Short-term self-liquidating trade and transaction-related contingent items
Other commitments (including undrawn loans)
Risk weighted equivalents
50
52
Cost of acquisition
Less: cash balances acquired
10 Staff
The number of staff employed by the Group as of 31 December 1999 was 5,209 (1998: 4,780).
11 Investments in Subsidiaries
The principal subsidiaries, all of which have 31 December as their year end, are as follows:
58
180
42
51
(215)
(36)
(28)
1999
(US$ million)
1998
(US$ million)
1,639
178
1,454
4,916
2,320
332
1,278
4,120
8,187
8,050
2,457
3,044
51
31 December 1999
31 December 1999
13 Commitments, Contingent Liabilities and Other Off Balance Sheet Items
continued
b) Other off balance sheet items
In the ordinary course of business, various types of transactions are entered into involving foreign exchange contracts and
derivative financial instruments. These financial instruments arise from forwards, futures, forward rate agreements, swaps and
options transactions in the foreign exchange, interest rate and capital markets. The notional amounts indicate the volume of
these transactions outstanding at year end. Significantly smaller amounts are subject to risk as a result of offsetting positions.
The credit risk for these instruments is normally the positive market value of the instruments, net of any legally enforceable
right of set-off, which is usually significantly less than the notional amounts. The credit and market risk pertaining to off
balance sheet financial instruments are monitored and controlled in the same way as balance sheet instruments.
15 Interest Rate Exposure
Interest rate exposure is the sensitivity of earnings to changes in interest rates. Such exposures arise in the ordinary course of
business and are managed on a decentralised basis employing the use of off balance sheet interest rate products where appropriate. The respective Asset and Liability Committees of the Bank and its subsidiaries establish the maximum levels of interest
rate mismatch that are permitted. Exposures are regularly monitored by an independent risk control group.
The repricing profile of assets, liabilities and off balance sheet financial instruments used to hedge exposures to interest rate
risk based on the earlier of contractual maturity and the next interest repricing date is as follows:
At 31 December 1999
At the balance sheet date, the outstanding notional amounts and the risk weighted equivalents calculated in accordance with
the capital adequacy guidelines established for the global banking industry were as follows:
Foreign exchange contracts
Interest rate, currency swaps
Interest rate futures
Options
Forward rate agreements
Equity contracts
1999
(US$ million)
1998
(US$ million)
8,117
5,914
1,621
3,739
2,028
71
4,264
5,130
591
3,632
1,532
-
21,490
15,149
67
66
Risk weighted equivalents
14 Maturities of Assets and Liabilities
The maturity analysis of assets and liabilities based on remaining period to the contractual maturity date is as follows:
At 31 December 1999
Within
one month
1-3
months
3-6
months
6 - 12
months
(US$ million)
Over
5 years
Non
interest
bearing
391
(11)
33
971
(18)
14
292
(239)
(1,857)
-
122
413
967
(1,804)
975
(51)
3
219
(331)
148
241
19
419
(1,054)
-
6,127
(6,399)
298
230
927
36
260
(635)
26
115
(408)
-
130
(115)
-
70
(28)
-
141
(1)
-
-
383
(302)
-
286
(293)
15
42
140
-
81
958
(1,590)
443
314
(608)
(85)
755
(541)
(38)
141
(260)
(53)
217
(151)
(62)
67
(14)
7
462
(337)
(347)
2,914
(3,501)
(135)
(189)
(379)
176
(172)
4
60
(222)
(722)
10,832
(13,174)
(4)
4,085
(4,037)
273
3,982
(2,247)
71
1,656
(585)
(152)
968
(494)
119
1,279
(32)
40
1,556
(3,789)
(347)
24,358
(24,358)
-
(2,346)
321
1,806
919
593
1,287
(2,580)
-
Within
one month
1-3
months
3-6
months
6-12
months
1-5
years
(US$ million)
Over
5 years
Non
interest
bearing
Total
Within
one month
1-3
months
3-6
months
6-12
months
1-5
years
(US$ million)
6,756
(6,742)
(621)
1,946
(2,405)
408
1,976
(696)
105
470
(246)
(102)
(607)
(51)
1,385
1,442
(3,452)
174
1,710
(616)
(50)
1,121
(895)
4
(1,836)
1,044
1,676
(1,390)
-
Total
US dollars
Assets
Liabilities
Equity
Off balance sheet
12,802
(10,357)
(1,857)
(163)
425
Euros
Assets
Liabilities
Off balance sheet
Hong Kong dollars
1-5
years
Over
5 years
Undated
Total
Assets
Liabilities
Off balance sheet
Assets
Liquid funds
Trading and investment securities
Placements with banks and
other financial institutions
Loans and advances
Other
587
606
66
144
184
1,127
1,240
124
587
3,491
3,914
1,600
-
1,129
1,386
-
658
1,562
-
156
1,369
-
30
3,515
-
4
3,471
-
1,486
5,891
12,903
1,486
Total assets
6,707
2,581
2,364
1,709
4,672
4,715
1,610
24,358
2,515
(2,244)
271
Other currencies
Assets
Liabilities
Off balance sheet
Gross
Liabilities and equity
Deposits from banks and
Other
Term notes, bonds and other
term financing
Equity
Total liabilities and equity
7,201
1,593
665
294
482
10
-
10,245
6,071
91
-
2,153
128
-
1,047
31
-
304
20
-
46
-
22
-
1,054
9,643
270
1,054
-
-
313
-
61
-
908
-
7
-
1,857
1,289
1,857
13,363
3,874
2,056
679
1,436
39
2,911
24,358
Assets
Off balance sheet
At 31 December 1998
US dollars
At 31 December 1998
Total assets
Total liabilities and equity
8,468
2,691
2,394
2,203
4,167
4,923
1,218
26,064
17,106
3,444
1,141
417
1,407
3
2,546
26,064
Assets
Liabilities
Equity
Off balance sheet
5,695
(7,121)
70
(1,356)
52
1,874
(1,897)
453
430
2,200
(491)
(445)
580
(287)
(184)
397
(202)
6
788
(1)
8
299
(400)
(1,740)
-
11,833
(10,399)
(1,740)
(92)
1,264
109
201
795
(1,841)
(398)
53
31 December 1999
31 December 1999
15 Interest Rate Exposure
continued
Spanish pesetas
Assets
Liabilities
Off balance sheet
3,944
(5,491)
90
1,429
(427)
(3)
634
(133)
6
844
(532)
-
208
(67)
-
371
-
370
(725)
-
7,800
(7,375)
93
(1,457)
999
507
312
141
371
(355)
518
799
(1,277)
-
62
(535)
-
99
(86)
-
124
(87)
-
533
(46)
-
795
-
250
(180)
-
2,662
(2,211)
-
(478)
(473)
13
37
487
795
70
451
1,226
(2,588)
134
760
(906)
60
610
(339)
(33)
407
(97)
24
302
(42)
(72)
157
(14)
(21)
307
(353)
(93)
3,769
(4,339)
(1)
(1,228)
(86)
238
334
188
122
(139)
(571)
11,664
(16,477)
294
4,125
(3,765)
510
3,543
(1,049)
(472)
1,955
(1,003)
(160)
1,440
(357)
(66)
2,111
(15)
(13)
1,226
(3,398)
(93)
26,064
(26,064)
-
(4,519)
870
2,022
792
1,017
2,083
(2,265)
-
17 Geographical Distribution of Assets, Liabilities and Off Balance Sheet Items
Hong Kong dollars
Assets
Liabilities
Off balance sheet
Other currencies
Assets
Liabilities
Off balance sheet
Gross
Assets
Off balance sheet
The effective interest rates of assets, liabilities and off balance sheet instruments in major currencies are as follows:
At 31 December 1999
16 Credit Exposure
Credit risk is the risk that a customer or counterparty will fail to meet a commitment, resulting in financial loss to the
group. Such risk arises from lending, trade finance, treasury and other activities undertaken by the group. Credit risk is
actively monitored in accordance with the credit policies which clearly define delegated lending authorities, policies and
procedures. The management of credit risk also involves the monitoring of risk concentrations by industrial sector as well
as by geographic location.
Within
one month
1-3
months
3-6
months
%
6-12
months
1-5
Years
Over
5 years
Assets
Western Europe
Arab World
Asia
North America
Latin America
Other
6.8
5.7
6.0
6.9
6.1
7.3
7.1
6.5
8.9
8.5
9.6
4.2
8.1
5.4
7.4
6.7
8.4
5.9
4.6
2.7
2.7
4.2
3.2
2.9
3.3
1.4
3.6
4.9
2.6
4.0
5.6
2.4
5.7
5.2
7.0
Euros
Assets
Liabilities
Off balance sheet
Assets
Liabilities
Off balance sheet
9.5
5.9
-
8.2
6.3
-
7.6
6.6
-
9.0
6.8
-
9.3
6.9
-
-
At 31 December 1998
Within
one month
1-3
months
3-6
months
%
6-12
months
1-5
Years
Over
5 years
6.4
6.1
5.6
6.6
5.9
5.3
Assets
Liabilities
Off balance sheet
6.2
5.2
4.2
6.4
5.6
5.4
10,093
4,059
3,590
3,916
2,031
669
8,529
9,077
2,916
1,214
1,968
654
14,391
6,903
1,127
6,151
969
136
12,350
2,827
4,500
3,683
2,259
445
11,202
8,800
3,099
724
1,926
313
11,501
3,399
1,243
5,107
1,883
66
24,358
24,358
29,677
26,064
26,064
23,199
Net interest income
Other operating income
Operating expenses
Profit before taxation and
minority interest
Wholesale
Retail
1999
Total
(US$ million)
139
72
(120)
(18)
295
184
(309)
(79)
434
256
(429)
(97)
122
129
(114)
(167)
305
193
(313)
(62)
427
322
(427)
(229)
73
91
164
(30)
123
93
12,075
12,406
24,481
12,154
14,125
26,279
Intra-group items
Segment liabilities and equity
12,801
11,661
7.4
7.3
1.1
5.9
4.5
5.8
Wholesale
Retail
(215)
24,358
26,064
12,868
13,360
(104)
(164)
24,358
26,064
1999
3.6
2.7
2.7
4.4
2.7
2.7
5.1
3.6
3.6
5.5
1.7
-
6.3
3.7
-
3.8
-
Hong Kong dollars
Assets
Liabilities
Off balance sheet
54
10.6
6.9
-
9.2
7.5
-
10.4
8.7
-
10.4
9.7
-
4.1
8.6
-
4.1
-
26,228
Secondary segment information
Spanish pesetas
Assets
Liabilities
Off balance sheet
1998
Total
(US$ million)
(123)
24,462
Intra-group items
US dollars
Liabilities and
equity
Primary segment information
Total assets employed
Hong Kong dollars
Assets
1998
Off
balance sheet
items
(US$ million)
18 Segmental Information
For management purposes, the group is organised into two major business segments, namely, wholesale and retail. These
segments are the basis on which the group reports its primary segment information. Secondary segment information is based
upon the location of the units responsible for recording the transaction. Transactions between segments are conducted at
estimated market rates on an arm’s length basis.
US dollars
Assets
Liabilities
Off balance sheet
1999
Off
Liabilities and balance sheet
equity
items
(US$ million)
Segment profit before taxation
and minority interests
Segment assets
Arab world
Asia
Europe &
Americas
62
-
102
164
7,467
3,408
13,483
24,358
1998
Asia
Europe &
Americas
67
(111)
137
93
6,523
3,664
15,877
26,064
Total Arab world
(US$ million)
Total
(US$ million)
55
31 December 1999
31 December 1999
19 Repurchase and Resale Agreements
Proceeds from assets sold under repurchase agreements at the year end amounted to US$3,092 million (1998: US$4,985
million) of which US$1,463 million (1998: US$3,617 million) relates to customer product and treasury activities in a major
retail banking subsidiary.
Amounts paid for assets purchased under resale agreements at the year end amounted to US$911 million (1998: US$2,858
million) and relate to customer product and treasury activities in retail banking subsidiaries.
20 Transactions with Related Parties
In the ordinary course of business there are transactions with shareholders, associates and other related parties. Transactions
with these parties are made on the same commercial terms as those applicable to comparable transactions with unrelated
parties and do not involve more than a normal amount of risk. All the loans and advances to related parties are performing
advances and are free of any provision for possible loan losses.
23 Assets Pledged as Security
At the balance sheet date, assets amounting to US$68 million (1998: US$85 million) have been pledged as security for
borrowings and other banking operations.
24 Earnings per Share
“Basic” earnings per share are calculated by dividing the net profit for the year by the number of shares outstanding at the
end of the year. No figures for diluted earnings per share have been presented as the Bank has not issued any capital based
instruments which would have any impact on earnings per share, when exercised.
Net profit for the year (US$ million)
Number of shares outstanding as of 31 December
Basic earnings per share (US$)
1999
1998
112
94,132,264
1.19
25
94,132,264
0.27
The year end balances in respect of related parties included in the consolidated financial statements are as follows:
Loans and advances
Irrevocable commitments and contingencies
1999
(US$ million)
1998
(US$ million)
462
17
17
390
-
5
1999
(US$ million)
1998
(US$ million)
2,040
270
2,071
144
2,310
2,215
Capital base
Tier 1 Capital
Tier 2 Capital
The income and expenses in respect of related parties included in the consolidated financial statements are as follows:
Interest income
Interest expense
25 Capital Adequacy
The risk asset ratio calculations, in accordance with the capital adequacy guidelines established for the global banking
industry, are as follows:
1
8
21 Fiduciary Assets
Funds under management at the year end amounted to US$ 2,936 million (1998: US$ 3,214 million). These assets are held in
a fiduciary capacity and are not included in these consolidated financial statements.
Total capital base
(A)
Risk-weighted
equivalents
1999
1998
(US$ million)
(US$ million)
Balance
1999
(US$ million)
1998
(US$ million)
Risk -Weighted Exposures
22 Fair Value of Financial Instruments
“Fair value” is the amount at which an asset could be exchanged or a liability settled in a transaction between knowledgeable,
willing parties in an arm’s length transaction. The values at which the financial instruments are stated in these consolidated
financial statements (“book values”) are based principally on historical cost and could therefore differ from fair values.
Assets
Cash and claims on, guaranteed by or collateralised by
securities of central governments and central
banks of OECD countries
5,034
7,147
-
-
Fair values are estimated based on generally accepted methods which include quoted market prices or, where appropriate,
quoted market prices of similar financial instruments with appropriate adjustments and the use of discounted cash flow
analysis. Market prices have been used wherever possible. However, in certain cases, including loans and advances, no ready
markets exist wherein exchanges between willing parties can take place. In these cases, estimates which involve subjective
assessments, and which are regarded as reasonable, have been made.
Claims on banks and public sector companies
incorporated in OECD countries and short term claims
on banks incorporated in non- OECD countries
6,871
7,240
1,374
1,448
Claims secured by mortgage of residential property
2,164
2,195
1,082
1,098
Claims on public sector entities, central governments,
central banks and longer term claims on banks
incorporated in non-OECD countries and all other assets,
including claims on private sector entities
9,978
9,571
9,978
9,571
8,187
8,050
2,457
3,044
21,490
15,149
67
66
14,958
809
15,227
762
(B)
15,767
15,989
(A/B)
14.7%
13.9%
Book
value
1999
Excess
(shortfall ) of fair
Fair
value over
value
book value
(US$ million)
Book
value
1998
Excess
(shortfall ) of fair
Fair
value over
value
book value
(US$ million)
Off balance sheet items
Financial Assets
Liquid funds
Trading securities
Placements with banks and
Loans and advances
Investments
Other
587
363
3,128
587
363
3,054
(74)
295
667
2,902
295
667
2,945
43
5,891
12,903
137
902
5,891
12,731
137
902
(172)
-
7,809
13,173
154
609
7,809
12,913
154
609
(260)
-
19,888
270
1,289
1,054
19,871
270
1,289
1,054
17
-
21,857
241
1,420
806
21,840
241
1,420
806
17
-
Financial Liabilities
Deposits
Term notes, bonds and other term financing
Other
Commitments and contingent liabilities
Foreign exchange and interest rate related contracts
Credit risk weighted assets and off balance sheet items
Market risk weighted assets and off balance sheet items *
Total risk weighted assets
Risk asset ratio
(229)
* Market risk capital requirements are based on the standardised measurement methodology.
(200)
It is expected that the book value of loans and advances and investment securities, both of which are held for the long term or
to maturity, will be recovered as adequate provisions have been made for any anticipated shortfalls in recovery.
56
57
ABC Directory
31 December 1999
26 Parent Company
The balance sheet of the parent company, Arab Banking Corporation (B.S.C.) is presented below:
Assets
Liquid funds
Trading securities
Loans and advances
Interest receivable
Investments in subsidiaries
Investments in associates
Other investments
Other assets
Total Assets
1999
(US$ million)
1998
(US$ million)
29
143
1,858
2,471
4,294
98
1,340
33
17
115
38
18
363
1,592
2,491
4,399
116
1,196
35
45
98
26
10,436
10,379
Head Office
Treasury Group
ABC Tower, Diplomatic Area,
PO Box 5698, Manama, Bahrain
Tel: (973) 543000 (General),
(973) 533144/533155
(Foreign Exchange),
Fax: (973) 533163/533062
Tlx: 9432 ABCBAH BN
(General), 9384 ABC DEP
(Foreign Exchange &
Deposits)
Direct Dealing Reuters Code:
ABCB, ABDB
Reuters Monitor: ABCU- ABCZ
Internet:
http://www.arabbanking.com
Group Treasurer
Essam El Wakil, Senior Vice President
Tel: (973) 543375/532933
Ghazi Abdul-Jawad
Internal Audit
Prasad Abraham,
First Vice President
Tel: (973) 543387
Administration Group
Liabilities
Interest payable
Other liabilities
Term Notes, Bonds and Other Term Financing
Equity
Share capital
Treasury stock
Reserves and retained earnings
Total Liabilities and Equity
990
6,523
30
106
81
960
6,635
61
105
Corporate Communications
Dr. Sami Dannish, Vice President
Tel: (973) 543204
Sael Al Waary, First Vice President
Tel: (973) 543707
Human Resources &
Administration
Edward Watson,
Tel: (973) 543347
849
878
8,579
8,639
1,000
(74)
931
1,000
(74)
814
Legal & Compliance
Mounir Ben Slimane,
Legal Counsel
Tel: (973) 543371
1,857
1,740
10,436
10,379
Operations
Alex Richardson,
Tel: (973) 543714
Included in placements with, and deposits from, banks and other financial institutions are balances due from and due to
subsidiaries and associates amounting to US$634 million (1998: US$798 million) and US$233 million (1998: US$420
million) respectively.
27 Comparative Figures
Certain comparative figures have been reclassified to conform with the presentation in the current year.
Planning & Financial Control
Asaf Mohyuddin,
Tel: (973) 543274
Premises & Engineering
Nawaf Beyhum, First Vice President
Tel: (973) 543307
Credit Group
Chief Credit & Risk Officer
Richard Cumberland,
Senior Vice President
Tel: (973) 543280
Credit Dept.
Sherif Abdallah,
Tel: (973) 543283
Risk Management
Peter G James, First Vice President
Tel: (973) 543328
Economics
Paul Papadopoulos, First Vice
President & Chief Economist
Tel: (973) 533049
Credit Risk Control & Policy
Abhijit Choudhury, Vice President
Tel: (973) 543288
Remedial Loans
Stephen Jenkins, Vice President
Tel: (973) 543713
58
FX, Precious Metals, Commodities
& Sales
Karim Dashti, First Vice President
& Assistant Treasurer
Tel: (973) 533144/533155
Options, New Products &
Treasury Support
Amr Gadallah, First Vice President
& Assistant Treasurer
Tel: (973) 533155
MM, Islamic, M.E. Currencies
& Derivatives
Stephen Openshaw, First Vice
President & Assistant Treasurer
Tel: (973) 533155
Fixed Income, Equities &
Investment Management
Mohammed Tariq, First Vice
President & Assistant Treasurer
Tel: (973) 543441/535760
Banking Group
Taher D Makkiyah, Executive Vice
President & Chief Banking Officer
Tel: (973) 543232
ARAB WORLD DIVISION
Division Head
George Karam,
Tel: (973) 533056
Fax: (973) 533832
Global Marketing Unit
Yousif Al Dhaen,
First Vice President & Head
Tel: (973) 543203
Branches
Tunis (OBU)
ABC Building
Les Berges du Lac, 2045 Tunis,
Tunisia
Tel: (216)(1) 861861;
(216)(1) 861110 (Treasury)
Fax: (216)(1) 860921
Tlx: 12505 ABCTU TN
e-mail: [email protected]
ABCT
Swift: ABCOTNTT
Ezzedine Saidane,
General Manager
Representative Offices
Abu Dhabi
The Falcon Tower,
Al Nasr Street,
Office No. 602
PO Box 6689, Abu Dhabi, UAE
Tel: (971)(2) 6344944
Fax: (971)(2) 6328002
Casablanca
201 Boulevard Mohamed
Zerktouni,
Casablanca 20100, Morocco
Tel: (212)(2) 393260/393270
Fax: (212)(2) 393274
Milad Larady, First Vice President &
Chief Representative
Tehran
No. 114, 1st Floor
(opposite 35th St.)
Khaled Eslamboli Avenue
Tehran 15167,
Islamic Republic of Iran
Tel: (98)(21) 8798452/3
Fax: (98)(21) 8774561
Tlx: 216860 ABC IR
Mohammad Nasser Yousefi,
Tripoli
That Emad Administrative Centre
PO Box 3578, Tripoli, Libya
Tel: (218)(21) 3350227/3350228
Fax: (218)(21) 3350229
Tlx: 20359 ABCG REP LY
Ali Dahmani, Chief Representative
Arab Banking Corporation Egypt (S.A.E.)
5 Midan Al Saray Al Koubra
Garden City, Cairo, Egypt
Tel : (202) 7951513/7956236
Fax: (202) 7956239
Hani Seif Al Nasr,
Fathi Sebai Mansoor,
Senior Vice President,
Chief Banking Officer
Farid Araman,
Senior Vice President,
Chief Administrative Officer
Affiliate
Arab Financial Services
Company (E.C.)
Tel: (973) 290333
Fax: (973) 291323/290050
Tlx: 7212 AFS BN
Mahmood Al Koofi,
General Manager
Fax: (973) 291122
Subsidiaries
ABC Tower, Diplomatic Area
Tel: (973) 543000
Fax: (973) 536379/533163
Tlx: 9432/9433 ABC BAH BN
Mohamed A BuQais,
Deputy General Manager
ABC Securities W.L.L.
Office No 204, Building No 49,
Al Hidaya Building No 2,
Government Road,
Manama 305, Bahrain
Tel: (973) 226087/226848
Fax: (973) 241179
Tlx: 9436/9437 ABCBAH BN
Abdul Hameed H Naqi,
General Manager
INTERNATIONAL DIVISION
Division Head
George Morton,
Tel: (973) 543319
Fax: (973) 535639
ABC Tunisie
ABC Building, Les Berges du Lac,
2045 Tunis, Tunisia
Tel: (216)(1) 861861;
(216)(1) 861110 (Treasury)
Fax: (216)(1) 860921
Tlx: 12505 ABCTU TN
ABCT
Swift: ABCOTNTT
Ezzedine Saidane,
General Manager
Arab Banking Corporation
(Jordan)(22 Branches)
PO Box 926691, Amman 11110,
Jordan
Tel: (962)(6) 5664183-5/
5621801-7 (General)
Tel: (962)(6) 5692713/5692723
(Dealing Room)
Tel: (962)(6) 5695084
(Foreign Department)
Tel: (962)(6) 5623684
(Main Branch)
Fax: (962)(6) 5686291
Tlx: 22258/21114 ABC JO;
23022 ABCFX JO
Mohammad Abdulla Al-Mannai,
Chairman
Jawad Hadid, General Manager
Tel: (962)(6) 5691 953
Arab Banking Corporation Algeria
PO Box 367
54 Avenue des Trois Freres
Bouaddou, Bir Mourad Rais
Algiers, Algeria
Tel: (213)(2) 541537/541534/
541600
Fax: (213)(2) 541604/541222
Tlx: 62509/62510 ABC DZ
Mustapha Achour,
General Manager
Branches
Grand Cayman
c/o ABC New York Branch
32nd Floor, 277 Park Avenue
New York, NY 10172-3299,USA
Tel: (1)(212) 5834720
Fax: (1)(212) 5830921
Tlx: 661978/427531 ABCNY
Geoffrey Milton, First Vice President
& General Manager
Milan
Via Santa Maria Fulcorina 6
20123 Milan, Italy
Tel: (39)(02) 863331 (General);
(39)(02) 861574
(Dealing Room)
Fax: (39)(02) 86450117
Tlx: 322240 ABC Mil (General);
322080 ABC FX I
(Dealing Room)
ABCX
SWIFT: ABCOITMM
Marco Simonelli, General Manager
Sami Bengharsa,
Maurizio Testori,
Operations Manager
Luca Gajani, Head of Credit
Guido Bacci, Chief Dealer
Angelo Fossati,
Business Development Manager
59
ABC Directory
continued
INTERNATIONAL DIVISION
New York
32nd Floor, 277 Park Avenue
New York, NY 10172-3299, USA
Tel: (1)(212) 5834720
Fax: (1)(212) 5830921
Tlx: 661978/427531 ABCNY
(General); 421911/661979
ABCFX
(Dealing Room)
ABCN
Geoffrey Milton, First Vice President
& General Manager
Tel: (1)(212) 5834863
Sheldon Tilney, First Vice President
& Deputy General Manager
Tel: (1)(212) 5834757
Robert Fitzsimons, Assistant General
Manager & Treasurer
Tel: (1)(212) 5834779
Derek Hudson, Assistant General
Manager, Latin America Group
Tel: (1)(212) 5834876
Thomas J. Cahalane, Assistant
General Manager, Operations
Tel: (1)(212) 5834747
Barbara Sanderson,
Vice President, Credit
Tel: (1)(212) 5834752
Grant McDonald, Vice
President/Senior Lending Officer,
Corporate Banking
Tel: (1)(212) 5834759
Louise Bilbro, Vice President/Senior
Lending Officer, Corporate Banking
Tel: (1)(212) 5834758
Glenn Corrales, Vice President/
Lending Officer, Latin America
Tel: (1)(212) 5834873
Kenneth J Carroll,
Vice President and Controller
Tel: (1)(212) 5834761
Singapore Branch
20 Raffles Place, #11-03 Ocean
Towers , Singapore 048620
Tel : (65) 5330315 (General)
(65) 5330629
(Dealing Room)
Fax: (65) 5335926/5333944
Tlx: RS28989 ABCSNG
(General)
RS28991 ABCSNG
(Dealing Room)
Cable: ABCBANK
SWIFT: ABCOSGSG
John P. Meads, General Manager
Tel: (65) 5352868/(65) 4282180
Malcolm A. Ferguson,
VP & Deputy General Manager,
Remedial Loans Unit
Tel: (65) 5353503/(65) 4282100
George Yee,
VP & Deputy Branch Manager
Tel: (65) 5337237/4282110
Representative Offices
Houston
600 Travis Street, Suite 1900
Houston, Texas 77002, USA
Tel: (1)(713) 2278444
Fax: (1)(713) 2276507
Wahid O. Bugaighis, First Vice
President & Chief Representative
Stephen A. Plauche, Vice President
Los Angeles
555 South Flower Street,
46th Floor
Los Angeles, CA 90017, USA
Tel: (1)(213) 6890121
Fax: (1)(213) 6891048
Richard Whelan,
Rome
Palazzo Doria Pamphilj, Via del
Corso 303, 00186 Rome, Italy
Tel: (39)(06) 6787805
Fax: (39)(06) 6793516
Subsidiaries
ABC Banque Internationale de
Monaco S.A.M.
Sporting d’Hiver, Place du Casino
B.P. 147 - Monte Carlo
MC 98003, Monaco CEDEX
Tel: (377) 92165757
Fax: (377) 92165750
Tlx: 469163 ABC MC
Hatem Abou Said,
Executive Chairman
Crescencio Lopez de Silanes,
General Manager
Grace D’Ambros,
ABC Finanziaria S.p.A.
Palazzo Doria Pamphilj, Via del
Corso 303, 00186 Rome, Italy
Tel: (39)(06) 6787805
Fax: (39)(06) 6787413
ABC (IT) Services Ltd.
Arab Banking Corporation House,
1-5 Moorgate, London EC2R 6AB,
UK
Tel: (44)(20) 77764050
Fax: (44)(20) 76062708
Tlx: 915687 ABC G
Ian Hyslop,
Acting General Manager
Commercial Banking/Trade Finance
Cecilia Lai, Manager
Tel: (65) 5336351/(65) 4282105
Credit Department
Foo Mui Lian,
Acting Branch Credit Officer
Tel: (65) 4282133
Operations Department
Tan Boon Cheng,
Financial Controller & Head
Tel: (65) 5367003/(65) 4282150
Treasury Department
Vivien Ng, Dealer
Tel: (65) 5330629/(65) 4282122
60
Arab Banking Corporation - Daus
& Co GmbH
Niedenau 13-19,
60325 Frankfurt am Main,
PO Box 170218,
60076 Frankfurt am Main,
Germany
Tel: (49)(69) 714030
Fax: (49)(69) 71403 240
(General);
(49)(69) 71403299
(Domestic);
(49)(69) 71403299
(International);
(49)(69) 71403350
(Treasury)
Tlx: 414811 DAUS D
ABDF (FX + MM)
Swift: ABCADEFF
e-mail:
[email protected]
Ghazi M. Abdul-Jawad,
Chairman of the Supervisory Board
Jens-Ove Stier, General Manager
Juergen Blumschein,
General Manager
(Head Office)
1-5 Moorgate,
London EC2R 6AB, UK
Tel: (44)(20) 77764000
(General)
Fax: (44)(20) 76069987
Tlx: 893748 ABC GEN G
Sheikh Khalid Ali Alturki,
Chairman
Stanislas M. Yassukovich, Deputy
Chairman & Executive Director
Abdulmagid A. Breish,
London (Branch)
1-5 Moorgate,
London EC2R 6AB, UK
Tel: (44)(20) 77764000
(General);
(44)(20) 77264091
(Dealing Room)
Fax: (44)(20) 76069987
Tlx: 893748 ABC GEN G
(General); 892171 ABC FXL G
(Dealing Room)
ABCL
Michael Duval, General Manager
Paris (Branch)
49/51 Avenue George V
75008 Paris, France
Tel: (33)(1) 49525400
Fax: (33)(1) 47207469
Tlx: 648343 ABC F (General);
648483 ABCORP F
(Dealing Room)
ABCP
Jean R. Messinesi,
General Manager
INVESTMENT GROUP
Investment Coordinator
Omar el-Abd, Senior Vice President
Tel: (973) 530776
Fax: (973) 535723
Avenida Paulista 37, 14th/15th
Floors, CEP 01311-902,
São Paulo, SP. Brazil
Tel: (55)(11) 31702000
Fax: (55)(11) 31702001
Tito Enrique da Silva Neto,
President
Banco Atlántico S.A.
(271 Branches)
Gran Via 48, 28013 Madrid, Spain
Tel: (34)(91) 5389000
Fax: (34)(91) 5415474
Tlx: 22009/22109 ATLCO E
Abdulmohsen Yousef Al-Hunaif,
Chairman
Tel: (34)(91) 5389018
Fax: (34)(91) 5423469
Manuel Montecelos,
First General Manager
Tel: (34)(91) 5389042
Fax: (34)(91) 5413625
e-mail:
[email protected]
International Bank of Asia Ltd.
(28 Domestic Branches)
International Bank of Asia Bldg.
38 Des Voeux Road, Central,
Hong Kong
Tel: (852) 28426222
Fax: (852) 28101483
Tlx: 63394 IBA HX
IBAX
Sheikh Ali Jarrah Al-Sabah,
Chairman
Mike Murad, Vice Chairman &
Michael Ipson, Executive Vice
President, Corporate and Investment
Banking Group
Bashar Samra, Executive Vice
President, Consumer Banking Group
David Chan, Executive Vice President,
Financial Control Group
Under establishment
ABC Securities (Egypt)
1191 Corniche El Nile Street,
World Trade Center
Offices Building, 6th Floor,
PO Box 781, Ataba 11511,
Cairo, Egypt
Tel: (202) 5745488/5780417/
5745366
Fax: (202) 5780416
Omar el-Abd, Managing Director

1999 - Bank ABC

Transcription

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