2001 - Bank ABC

Transcription

2001 - Bank ABC

Annual Report 2001
Arab Banking Corporation Group
The premier international
Arab financial group
The new synergies of ABC Group
ARAB BANKING CORPORATION Annual Report 2001
our
vision
To be the premier and most innovative international Arab financial group.
OUR MISSION IS TO:
❊ Consistently generate increasing value for our shareholders
❊ Specialise in Arab-related activities across the world
❊ Invest in international financial institutions that diversify and enhance
shareholder value
❊ Attract and retain high quality employees by providing rewarding careers
OUR KEY OBJECTIVES ARE TO CREATE AND MAINTAIN:
❊ A strong presence in the Arab world and achieve optimal diversification of
our earning stream
❊ A strong risk management process
❊ An effectively managed expense base focused on generating increasing
shareholder value
❊ A strong and liquid financial institution with emphasis on asset quality
1
Annual Report 2001 ARAB BANKING CORPORATION
Financial Highlights
moving for ward by increasing shareholder
EARNINGS
(US$ MILLION )
FINANCIAL POSITION
(US$ MILLION)
RATIOS
(%)
value
Net interest income
Other operating income
Gross operating income
Profit before provisions, tax and minority interests
Provisions for credit losses
Profit before tax and minority interests
Net profit for the year
Total assets
Loans and advances
Placements with banks and other financial institutions
Trading securities
Non Trading securities
Shareholders’ funds
2001
2000
469
293
762
288
(128)
160
102
433
280
713
262
(66)
196
127
26,586
14,225
6,444
341
3,616
1,913
26,676
14,039
7,060
713
3,030
1,904
62
5.4
0.38
1.55
63
6.8
0.50
1.93
17,932
11.8
13.5
7.2
7.4
12.7
53.5
14.9
4.5
94.8
4.3
17,526
11.8
13.5
7.4
7.4
12.8
52.6
14.0
4.7
89.3
4.2
40.8
1.5
42.0
1.5
$1.08
$0.70
$1.35
$0.60
$20.32
$20.23
Profitability
Cost: Income ratio
Net profit as % of average equity
Net profit as % of average assets
Dividend cover (times)
Capital
Risk weighted assets (US$ million)
Risk asset ratio - Tier 1
Risk asset ratio – Total
Average shareholders’ funds as % of average total assets
Loans and advances as a multiple of shareholders’ funds (times)
Total debt as a multiple of shareholders’ funds (times)
Loans and advances as % of total assets
Securities as % of total assets
Non-accrual loans as % of gross loans
Loans loss provisions as % of non-accrual loans
Loan loss provisions as % of gross loans
Liquidity
Liquid assets ratio
Deposits to loans cover (times)
SHARE INFORMATION
CAPITALISATION AND
PRINCIPAL
SHAREHOLDERS
Earnings per share
Dividends paid per share (for previous year)
Net asset value per share
Authorised
1,500
Issued, Subscribed and fully paid-up
1,000
(US$ MILLION)
2
Principal shareholders
Registered address
Kuwait Investment Authority (Kuwait)
Central Bank of Libya (Libya)
Abu Dhabi Investment Authority (Abu Dhabi)
Individual and Institutional Investors
Arab Banking Corporation (B.S.C.)
ABC Tower, Diplomatic Area
P.O. Box 5698, Manama, Kingdom of Bahrain
Publicly quoted company listed on Bahrain
and Paris Stock Exchanges.
(Commercial Registration Number 10299)
Corporate Governance
Global 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 Secretary: Dr. Khaled S. Kawan
Board of Directors
AUDIT COMMITTEE
Ghazi M. Abdul-Jawad
President & Chief Executive
Internal Audit: Prasad Abraham
TREASURY GROUP
Essam El Wakil, SVP Group Treasurer
BANKING GROUP
Group Treasury Unit
Arab World Division
(
George Karam, SVP
(
Bahrain Business Unit
FX, Precious Metals, Commodities & Sales
Money Market, Options, Derivatives & New Products
Marketable Securities
Tunis Branch (OBU)
(
Other Treasury Units in the Group
ABC Islamic Bank (E.C.)
Arab Banking Corporation - Algeria
(
Arab Banking Corporation - Egypt (S.A.E.)
INVESTMENT GROUP
Omar el-Abd, SVP Investment Coordinator
Arab Banking Corporation (Jordan)
ABC Securities (Egypt) S.A.E.
Omar el-Abd, Chief Executive Officer
Arab Banking Corporation - Tunisie, S.A.
(
Representative Offices:
Abu Dhabi, Tehran & Tripoli (Libya)
(
Banco ABC Brasil, S.A.
Tito Enrique da Silva Neto, President
Banco Atlántico, S.A.
Manuel Montecelos, Chief Executive Officer
International Division
( Banco Atlántico Panama, S.A.
George K. Morton, SVP
(
Grand Cayman Branch
(
Milan Branch
New York Branch
Arab Banking Corporation Daus & Co. GmbH
ABC International Bank plc
Mike M. Murad, Vice Chairman & Chief Executive Officer
ADMINISTRATION GROUP
Corporate Communications
Singapore Branch
(
International Bank of Asia Ltd
Global Information Technology
Human Resources & Administration
(
Legal & Compliance
Operations
(
London Branch
Paris Branch
Planning & Financial Controls
Premises & Engineering
(
Representative Offices:
Houston & Los Angeles
CREDIT & RISK GROUP
Richard Cumberland, SVP Chief Credit & Risk Officer
Credit Department
(
Economics
Remedial Loans
Risk Management
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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
INTERNATIONAL DIVISION
Arab Banking Corporation –
Algeria
Arab Banking Corporation
(Jordan)
Tunisie, S.A.
Daus & Co GmbH
2001 Highlights
2001 Highlights
2001 Highlights
2001 Highlights
US$ millions
Total Assets
361
Total Loans and
Advances
72
Total Deposits
293
US$ millions
US$ millions
Total Assets
435
Total Assets
Total Loans and
Advances
171
Total Loans and
Advances
75
Total Loans and
Advances
Total Deposits
367
Total Deposits
97
Total Deposits
123
US$ millions
Total Assets
538
45
473
Shareholders’ Funds
36
39
13
60
Number of Branches
4
Number of Branches
17
Number of Branches
3
Number of Branches
–
2001 Highlights
Egypt (S.A.E.)
2001 Highlights
US$ millions
2001 Highlights
Total Assets
Total Loans and
Advances
Total Deposits
Number of Branches
4
185
135
125
59
–
US$ millions
US$ millions
Total Assets
468
Total Loans and
Advances
245
Total Deposits
381
45
Number of Branches
8
Total Assets
2,052
Total Loans and
Advances
1,172
Total Deposits
1,108
314
Number of Branches
2
moving for ward through Group-wide
synergy
INVESTMENT GROUP
THE ABC GROUP
Banco ABC Brasil S.A.
International Bank of
Asia Limited
ABC Parent (ABC BSC)
2001 Highlights
2001 Highlights
US$ millions
2001 Highlights
US$ millions
Total Assets
11,446
4,402
8,331
1,913
US$ millions
Total Assets
1,534
Total Assets
3,669
Total Loans and
Advances
1,174
Total Loans and
Advances
2,101
Total Deposits
Total Deposits
1,265
Total Deposits
2,902
Total Loans and Advances
193
469
Number of Branches
5
Number of Branches
24
Banco Atlantico S.A.
ABC Securities (Egypt) S.A.E
ABC Group
2001 Highlights
2001 Highlights
2001 Highlights
US$ millions
Total Assets
26,586
14,225
21,465
1,913
US$ millions
Total Assets
US$ millions
8,063
Total Assets
Total Loans and
Advances
4,743
Total Loans and
Advances
–
Total Deposits
Total Deposits
6,873
Total Deposits
–
26
Total Loans and Advances
479
25
Number of Branches
284
Number of Branches
–
5
Board of Directors
The Board of Directors is responsible for the overall direction, supervision and control of the Group. 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 (usually eight times a year) 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 reviews the Group's strategy and financial plans, any significant
changes in the Group's structure and organisation, reports provided to it on the operations of the Group (with a focus on risk
management and exposure) and the performance of executive management. 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 by the shareholders for a specific term and re-appointments are reviewed as each Director approaches the end of his term. None of the Directors
had at any time during the year a direct or indirect material interest in any contract of significance with ABC or any of its subsidiaries.
Members of the Board of Directors and Secretary to the Board
Mr. Khalifa Mohammed Al-Kindi *
Chairman
U.A.E. citizen.
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 Director of International Bank of Asia Ltd., Hong Kong.
Past Director of Banco Atlántico, S.A., Spain. He has been a Director of ABC since 1992 and has over 15 years' experience as an investment banker as well as holding a number of directorships in various public corporations.
Mr. Farhat Omar Ekdara *
Deputy Chairman
Libyan.
B.A. in Economics, Garyounis University, Libya; Master in Money, Banking and Finance, Sheffield University, U.K. Deputy Governor, Libyan
Central Bank; Chairman and General Manager, Public Furniture Company, Libya; Deputy Chairman of Wahda Bank, Libya; Deputy
Chairman of Arab Banking Corporation – Egypt (S.A.E.) and Chairman of ABC International Bank plc, London. Mr. Ekdara has been a
Director of ABC since 2001 and has 18 years’ experience in banking and other business sectors.
Mr. Hilal Mishari Al-Mutairi *
Deputy Chairman
Kuwaiti.
B.Sc. in Economics, Alexandria University, Egypt. Second Vice Chairman, Kuwait Chamber of Commerce & Industry and Director of Kuwait
Investment Authority. Past offices include Minister of Trade and Industry of Kuwait; General Manager of Kuwait Investment Company
and of Kuwait Clearance Company, in addition to membership of various boards of domestic, regional and international investment
and financial institutions. Mr. Al-Mutairi is also the Deputy Chairman of ABC International Bank plc, U.K. He has been a Director of
ABC since 2001 and has more than 35 years of commercial and financial industry experience.
Director
Kuwaiti.
Mr. Abdallah Saud Al Humaidhi *
M.S. American University of Beirut. Chairman and Managing Director, Commercial Facilities Company, Kuwait and Member of the Board
and the Executive Committee of Kuwait Investment Authority. Mr. Al Humaidhi is also a Member of the Board of Kuwait Chamber of
Commerce & Industry, in addition to holding several directorships of companies and public authorities in Kuwait. He has been a Director
of ABC since 2001 and has over 20 years’ experience in the banking and investment sectors.
Dr. Saleh Helwan Al Humaidan
Director.
Saudi.
Ph.D. in Agricultural Economics, Oklahoma State University, U.S.A. General Manager, Arab Investment Company, Riyadh; Member of the
Boards of Saudi International Petrochemical Company, Jubail and Saudi Shares Investment Fund, London, U.K.; Chairman, Saudi Moroccan
Development Investment Company, Casablanca. Dr. Humaidan is also a Director of Arab Banking Corporation Jordan. He has over 25 years
of experience in the economic and investment fields gained through his work at the Saudi Arabian Ministry of Planning, the Saudi
Development Fund, the Arab Investment Company and his participation in many conferences and forums related to investment and
developing capital markets in Arab countries. He joined ABC as a Director in 2001.
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Board of Directors
Dr. Anwar Ali Al-Mudhaf **
Director
Kuwaiti.
B.A., Kuwait University; M.B.A. and Ph.D. in Finance, Peter F. Drucker Graduate School of Management, Claremont Graduate University,
California, U.S.A. Dr. Al-Mudhaf is currently the General Manager of Kuwait Health Insurance Company and a lecturer in corporate
finance, investment management and financial institutions at Kuwait University. He is also a Director and a Member of the Board's
Investment Committee of the Kuwait Public Institute for Social Security; Vice-Chairman of Al-Mal Kuwaiti Company (K.S.C.) and a past
Director of Al-Ahli Bank of Kuwait. Dr. Al-Mudhaf has also provided his expertise to the Kuwaiti Parliament’s Finance and Economic
Committee and is on the Board of Governors of Oxford Institute for Energy Studies. Dr Al-Mudhaf is also the Chairman of International
Bank of Asia Ltd., Hong Kong and Director of Arab Banking Corporation Egypt (S.A.E.). He joined ABC's Board in December 1999 with
more than 10 years’ experience.
Mr. Mubarak R. Al-Mansouri
Director
U.A.E. citizen.
B.Sc. in Finance, M.B.A. University of West Florida, U.S.A. General Manager, Retirement Pensions and Benefits Fund, Abu Dhabi; Director
of Arab International Bank, Egypt; also Director of Banco Atlántico, S.A., Spain. Director of ABC since 1997. Mr. Al-Mansouri has 10 years’
experience in investment and commercial banking.
Mr. Eissa Mohammed Al Suwaidi * **
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 (ADNOC-FOD). 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 over 15 years in investment banking.
Dr. Saleh Lamin El-Arbah **
Director
Libyan.
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.
Director of Accounting and Investments at the Central Bank of Libya; former Undersecretary of the Ministry of Planning, Economy and
Commerce, Libya. Also a Director of Banco Atlántico, S.A., Spain and Arab Banking Corporation (Tunisie). Dr. El-Arbah has been a Director
of ABC since 1996 and has over 30 years' experience in central government. Dr. El-Arbah previously held a chair in MacroEconomics from
the University of Gharian (Libya).
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 ABC International Bank plc, U.K and
ABC Securities (Egypt) S.A.E. Mr. Juma has been a Director of ABC since 1994. He has more than 25 years' experience as a senior
commercial banker.
Mr. Mohammed Layas *
Director
Libyan.
B.A. Accounting and Business Management, University of Benghazi, Libya; Diploma of the Institute of Economic Development, Washington,
U.S.A. Chairman and General Manager, Libyan Arab Foreign Bank. Also Deputy Chairman, British Arab Commercial Bank, London, U.K.;
Deputy Chairman, Banque Inter Continentale Arabe, Paris, France; Director of Arab International Bank, Cairo, Egypt in addition to
membership of the boards of several other banks and investment companies. Mr. Layas, who is also Director of Banco Atlántico, S.A., joined
the Board of ABC in 2001 with over 35 years' experience in international banking.
Director
Bahraini.
Mr. Adnan Ahmed Yousif **
M.B.A. in Business Administration, Hull University, U.K. Chief Executive Officer of Bahrain Islamic Bank, Bahrain, Chairman of AlBaraka
Bank Lebanon and Banque Al Baraka D’Algerie. Mr. Yousif also sits on the boards of several other Middle East banks. He joined the Board
of ABC in 2001 and has more than 25 years of experience as a senior international banker.
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.
* Member of the Executive Committee
** Member of the Audit Committee
7
Board of Directors
Board Committees
Specific responsibilities have been delegated to the Board committees. The two principal Board committees are:
Executive Committee
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Mr.
Khalifa Mohammed Al-Kindi
Farhat Omar Ekdara
Hilal Mishari Al-Mutairi
Abdallah Saud Al Humaidhi
Eissa Mohammed Al Suwaidi
Hassan A. Juma
Mohammed Layas
(Chairman)
(Deputy Chairman)
(Deputy Chairman)
The Executive Committee exercises all of the responsibilities of the Board between its meetings.
Audit Committee
Mr. Eissa Mohammed Al Suwaidi
Dr. Saleh Lamin El-Arbah
Dr. Anwar Ali Al-Mudhaf
Mr. Adnan Ahmed Yousif
(Chairman)
The Board of Directors has delegated to the Group Audit Committee the responsibility for ensuring the existence of an effective system
of accounting and financial controls. The Audit Committee achieves this by ensuring that there is a regular review of the adequacy and
effectiveness of the internal control procedures. The Committee also monitors compliance with the requirements of the regulatory
authorities in the various countries in which ABC Group operates.
Audit Committee meetings are held at least four times a year (six meetings were held in 2001). Selected members of management
are invited to meetings to discuss relevant issues. The Committee also meets regularly with the Internal and External Auditors.
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 various regulatory authorities, reports by External Auditors and other external consultants on
specific investigative or advisory engagements, and all management letters from the External Auditors. The Committee also reviews
the annual audit plans and makes recommendations to the Board regarding the appointment and retirement of External Auditors.
The Committee is kept informed of legal, compliance and regulatory matters as they arise. The Committee also reviews the adequacy
of loan loss provisions.
The Group Internal Audit Department is responsible for providing an independent opinion on the quality of the assets booked
in the various units of ABC. Group Internal Audit also has the responsibility to review all aspects of operations in the various offices
of ABC. These objectives are achieved by it performing independent examinations of operations and lending activities in each of
ABC’s operating units. The frequency and scope of reviews for any given business unit are determined by a number of factors
including the level of financial, operational and credit risk associated with that unit, together with the previous rating assigned to that
unit. Group Internal Audit reports directly to the Group Audit Committee.
Separate Internal Audit departments have been created in major Group subsidiaries. These departments report to their boards
through their respective audit committees.
Senior Management
The direct responsibilities of the members of the Group's Senior Management, as briefly outlined in the chart on page three, are shown
below together with details of their background and experience. The exercise of Head Office control over subsidiaries is supported by
the appointment of senior management to the boards of the subsidiaries.
Head Office
Mr. Ghazi M. Abdul-Jawad
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, U.K. Member of the Steering Committee of the Institute of International Finance Inc., Washington and the
Steering Committee for the Gulf Executive Management Strategic Leadership Programme, Bahrain; Chairman of the Islamic Banking Consultative
Committee, Bahrain and member of several other consultative or advisory committees. Also Vice Chairman of Banco Atlántico, S.A., Spain, Chairman of
the Supervisory Board of Arab Banking Corporation – Daus & Co. GmbH, Germany, Chairman of Arab Banking Corporation (Jordan) and Chairman of
Arab Financial Services Company, Bahrain. Previously General Manager of Gulf International Bank (B.S.C.), Bahrain. Mr. Abdul-Jawad has over 25 years'
experience as a senior general and commercial banker and in government service and has held his present position with ABC Group since 1997.
8
Senior Management
Mr. George Karam
Senior Vice President & Division Head, Arab World
U.S. citizen.
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, U.S.A. Mr. Karam joined ABC in 1998 after 16 years with Manufacturers Hanover and Chemical Bank N.A. in international commercial and treasury banking. He is Deputy Chairman of Arab Banking Corporation (Jordan), Chairman of Arab Banking Corporation - Algeria and
Director of both Arab Banking Corporation - Egypt (S.A.E.) and ABC Securities (Egypt) S.A.E. He has over 25 years’ experience in international commercial 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, Canada. Formerly Vice President, Trade Finance & Correspondent
Banking at Bank of Nova Scotia, Toronto, earlier with National Bank of Bahrain and Gulf International Bank. Member of the Supervisory Board of Arab
Banking Corporation – Daus GmbH, Germany, Director of Banco ABC Brasil, S.A. and Lamco E.C., Bahrain. Mr. Morton brings over 25 years’ experience
in international commercial banking to the Group. He joined ABC in 1998.
Mr. Omar el-Abd
Senior Vice President & Investment Coordinator
U.S. citizen.
Bachelor of Commerce, Alexandria University, Egypt. Previously General Manager of Crédit des Bergues, Geneva for 9 years, earlier with The First Boston
Corporation and Saloman Brothers. Director, ABC Securities (Egypt) S.A.E. and Banco Atlántico Monaco S.A.M. Joined ABC in 1998 and has over 30
years' experience in international and investment banking.
Mr. Essam El Wakil
Senior Vice President & Group Treasurer
Egyptian.
B.A. in Business Administration, Cairo University, Egypt.Mr. El Wakil has been with ABC since 1980 and served in both Bahrain's and London's Treasury
Departments. He took over as Group Treasurer in 1999. He is Deputy Chairman of ABC Islamic Bank, Bahrain, and serves on the boards of Arab Banking
Corporation - Egypt (S.A.E.), Arab Banking Corporation - Tunisie and ABC Securities (Egypt) S.A.E., ABC Clearing Company, Bahrain and ABC Islamic Fund,
Bahrain, in addition to several of the investment and audit committees of those entities. Mr El Wakil has over 25 years’ experience in Treasury Management.
Mr. Richard Cumberland
Senior Vice President, Chief Credit & Risk Officer
British.
Associate of the Chartered Institute of Bankers, U.K. Mr. Cumberland joined ABC in 1999 after 23 years with Chase Manhattan Bank N.A. and has over
35 years’ experience in commercial banking and credit and risk management.
Mr. Asaf Mohyuddin
Senior Vice President & Head of Planning & Financial Controls
Pakistani.
B.Com. (Hons) in Commerce, Punjab University, Pakistan; Fellow of the Institute of Chartered Accountants in England and Wales, U.K. 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. Director of Banco
ABC Brasil, S.A., he assumed his present position in 1998, and has over 25 years' experience in finance and banking.
Mr. Mounir Ben Slimane
Senior Vice President & Legal Counsel
Tunisian.
Diplômes d'Etudes Approfondies (post graduate degrees) in Law, University of Paris (Sorbonne), France. Avocat since 1978, Mr. Ben Slimane is a member
of the Tunis Bar, and of the Paris Bar. He is also a member of the International Bar Association. Immediately prior to joining ABC Mr. Ben Slimane was Head
of the Legal department for the Central Province of Saudi French Bank, the affiliate of Banque Indosuez. He joined ABC as Counsel in 1985, and was
appointed Legal Counsel and Head of Legal & Compliance Department in 1996.
Mr. Prasad Abraham
Senior Vice President & Chief Internal Auditor, Compliance Officer
Indian.
B.Sc. in Chemistry, University of Calicut; Diploma in Business Studies, Cochin, India. Certified Information Systems Auditor. Formerly of Citibank N.A., Mr.
Abraham joined ABC in 1983 and has over 25 years' experience in internal audit. In addition to his position as Secretary of the ABC Audit Committee he
also represents the parent at the Audit Committees of ABC International Bank plc, U.K., Arab Banking Corporation - Daus & Co. GmbH, Germany and Banco
Atlántico, S.A., Spain.
Mr. Sael Al Waary
Senior Vice President & Head of Global Information Technology
British.
B.Sc. (Hons) Computer Science, University of Reading, U.K. Mr. Al Waary joined ABC Group in 1981, and from 1986 was General Manager & Director
of ABC (IT) Services Ltd., the wholly-owned subsidiary and technology arm of ABC, located in London, U.K. In 1997 he relocated to the Head Office at
Bahrain, to head ABC’s Global Information Technology function. A board member of Arab Financial Services Company, Bahrain and ABC (IT) Services
Ltd., U.K., Mr. Al Waary has over 20 years' experience in banking IT.
Mr. Alexander B. Richardson
Senior Vice President & Head of Operations
British.
B.A. (Hons) and M.A. in Chemistry & Statistics, Cambridge University, U.K. Fellow of the Institute of Chartered Accountants in England and Wales, U.K.
Mr. Richardson joined ABC in 1997 having previously held executive positions in offshore and investment banking in Europe, the Middle East and Far
East with E. D. & F. Man Investment Products, Alubaf Arab International Bank and Ernst & Young Management Consultants.
Dr. Lulwa Mutlaq Rashid Mutlaq
Senior Vice President, Head of Human Resources & Administration
Bahraini.
BSc in Medical Radiography and M.A. in Community College Education/Vocational Education, Northern Arizona University, PhD in Education and Human
Development, Vanderbilt University, U.S.A. Fellow of the Chartered Institute of Personnel and Development (FCIPD), U.K. Also Member of the American
Society for Training & Development and of the American Management Association. Dr. Mutlaq joined ABC to head the human resource development
section of Human Resources & Administration Department in 1996 after a career in teaching and employee training in both the public and private
sectors, in addition to past managerial roles. In January 2001 she assumed responsibility for the Personnel and Administration unit and was appointed
head of Human Resources & Administration with effect from December 31, 2001. Dr. Mutlaq currently serves on the boards of several regional societies
and associations concerned with human resources and management issues and has 20 years’ experience in her field.
9
Senior Management
Main Operating Subsidiaries
Mr. Abdulmagid Breish
Managing Director & Chief Executive Officer,
ABC International Bank plc, U.K.
Libyan.
B.A. Political Sciences, American University of Beirut; Financial & Policy Diploma, IMF, Washington D.C., U.S.A. Member of the Guild of International
Bankers, U.K. Mr. Breish joined ABC in 1980 and served as Head of Business Development until 1985 before transferring to Tokyo as Chief
Representative. In 1988 he took over as Managing Director of ABC Investment & Services Co (E.C.) in Bahrain. In 1991 he assumed the position of
General Manager, London Branch of ABC International Bank plc and was appointed the bank's Chief Executive Officer in 1993. He is also Deputy
Chairman of the Supervisory Board of Arab Banking Corporation – Daus & Co. GmbH, Germany and of Arab Banking Corporation - Tunisie and a Director
of ABC Islamic Bank, Bahrain. Mr. Breish's experience in commercial, investment and Islamic banking spans over 25 years.
Mr. Manuel Montecelos
Chief Executive Officer, 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, 1996 and to his current position of Chief Executive
in July 1999. Mr. Montecelos brings to ABC Group over 25 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 served as Chief Operating Officer in
Head Office between 1991 and 1995. He is also Chairman of Net Alliance Co. Ltd., Hong Kong, Member of the Board of Trustees, DePaul University,
U.S.A. and Director, Arab Banking Corporation - Egypt (S.A.E.) and IBA Finance Corporation, Philippines.
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 over 30 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 in 1991.
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
together with the issue and review of formal policies and procedures from the Board through the Chief Executive to the senior
management of the Group.
There are two main areas of business activity within the Group. The first is the ’core bank’, comprising ABC’s branches and
wholesale banking subsidiaries worldwide, and the Arab region’s retail banks. 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 coordinated
by the Administration Group.
The activities of ABC’s other subsidiaries – Banco ABC Brasil, S.A., Banco Atlántico, S.A., International Bank of Asia Ltd. and ABC
Securities (Egypt) S.A.E. – are coordinated under 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, whilst Banco ABC Brasil, S.A. is a domestic commercial bank with mainly corporate clients
and ABC Securities (Egypt) S.A.E. provides asset management, corporate finance, sales and trading and advisory services. These
subsidiaries each have their own Head Office structures covering their day-to-day activities within ABC Group’s overall policy, planning
and risk management framework. The assistance and advice of the Group 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 costeffective manner.
The Administration Group issues and administrates a number of policy and procedural manuals, aimed at providing the business
units with a common platform for operational controls.
Corporate Communications is responsible for public relations, media and employee relations, and shareholders’ relations, its main
role being to encourage effective internal and external communication in all matters related to ABC Group’s business objectives. The
department uses its extensive contacts with local and international publications to disseminate information worldwide about the
Group’s activities and achievements. Its advertising campaigns, occasional shareholders’ newsletters, management of the Group’s
Internet website and participation in regional and international conferences and exhibitions, all contribute to informing shareholders
10
and clients of the Group’s strategy and values. Internally, its employee newsletter ’Al Masrafiyah’ keeps members of the Group informed
on important developments and encourages interaction and exchange of views amongst employees. It spearheads ABC’s commitment
to the enhancement of social and environmental development through the sponsorship of local charitable, healthcare, archaeological
and educational causes.
Global Information Technology is responsible for global IT strategy and planning and related technical services throughout the
Group, assessing the Group’s future operational needs and developing and implementing IT systems to meet them. It is 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.
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. Its aim is the homogenisation
of Group HR strategy, suitably adjusted for local conditions and laws. ABC is cognisant of the ongoing contribution of its worldwide
management and staff to its continuous development and progress and that the ultimate success of its strategy is dependent on the
quality of its people and the opportunities provided for them for personal growth, so that they may meet the challenges that lay ahead.
It is therefore committed to attracting and retaining the most qualified and effective staff, offering them – regardless of gender, ethnic
or national origin, age, disability or political affiliation – equality of opportunity to progress and realise their full potential within a
performance-based reward system, through planned career development and training in a stimulating and challenging working
environment.
Legal & Compliance monitors the provision of legal services to the ABC Group as a whole, through a combination of in-house
resources and outsourcing. The department is directly responsible for the provision of legal services to ABC’s Head Office, branches and
certain of its subsidiaries in connection with all aspects of their business (including regulatory and reporting requirements) and is
also responsible for the Group’s compliance with international regulatory and reporting requirements, with the Chief Internal Auditor
performing the liaison role of Group Compliance Officer vis-à-vis the Bahrain Monetary Agency (BMA). Legal & Compliance also
collaborates with the in-house legal departments of those ABC Group subsidiaries large enough to maintain their own.
Planning & Financial Controls provides corporate financial information, including quarterly and annual financial statements,
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 BMA. 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.
Monitoring and Corrective Action
The Board of Directors has overall responsibility for the Group’s system of internal control and for reviewing its effectiveness. There are
well-established and ongoing procedures in place for identifying, evaluating and managing significant risks faced by the Group. These
procedures are reviewed regularly by the Board. The system of internal control provides for a documented and auditable trail of accountability and applies across the Group’s operations. It covers strategic, credit, operational and market risks. The system is designed to
ensure effective and efficient operation and compliance with all applicable laws and regulations; to manage, rather than eliminate, risk;
and to provide reasonable – although not absolute – assurance against loss or misstatement of financial results.
The risk appetite of the Group is determined by the Board, who is responsible for setting acceptable levels of risks to which the
Group may be exposed, ensuring that the necessary steps are taken by senior management to identify, measure, monitor and control
these risks and for approving the strategy for the managing of risk formulated and submitted to the Board by senior management.
Management has the prime responsibility for identifying and evaluating significant risks to the business of the Group and for the design
and operation of appropriate internal controls. These risks are assessed on a continuous basis.
The various internal and financial controls are subject to independent review by Group 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 Group Audit Committee,
which ensures that appropriate corrective action is taken where required. The Group Audit Committee is informed directly by
Group 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.
Compliance
In accordance with the instructions of the BMA, ABC has appointed a Compliance Officer and a Money Laundering Reporting Officer.
The role of the Compliance Officer is to act as central coordinator for the Group in respect to all matters relating to BMA
regulatory reporting and other requirements. This responsibility lies with the Chief Internal Auditor. The Chief Internal Auditor also
performs the role of Group Compliance Officer. This compliance function covers the broad areas of corporate governance, adherence
to best practices, code of conduct, conflict of interest, etc.
The Money Laundering Reporting Officer’s duty is to ensure that sufficient evidence is obtained in all cases to enable the identity of
every customer to be satisfactorily established, failing which monies cannot be transferred, and to report any suspicions concerning
a customer or account to the BMA and senior management. The MLRO is also responsible for establishing and maintaining
appropriate and effective systems, controls and records to ensure compliance with regulatory obligations in regard to money laundering. This responsibility lies with the Head of Operations in Head Office, who also performs the role of Group MLRO.
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 in their respective countries.
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Risk Management
The Group manages risk strategically to build shareholder value. The key to effective risk management is a strong and well-understood
risk management culture, supported by ongoing strategy and policy development processes. The Board has delegated its authority
for overall risk strategy to the Head Office Credit Committee (HOCC) and the Asset and Liability Committee (ALCO), who determine
appropriate strategies and policies and ensure their adherence, and are in turn supported by dedicated Group support divisions.
The ALCO sets policy for the management of the overall Group balance sheet in relation to capital ratios, structural hedging
and liquidity. Supporting ALCO, Group Treasury is responsible for capital raising, liquidity and structural hedging policies. Operational
responsibility for asset and liability management is, where appropriate, delegated to each major subsidiary.
Overview
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, operational and legal risks.
Credit 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 loans, 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 Group controls credit risk at transaction, counterparty and portfolio levels through the process of initial approval and granting
of credit, subsequent monitoring of counterparty creditworthiness and the active management of credit exposures.
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 ABC’s Board of Directors under and subject to the conditions laid down in the Group Credit Policy. At
the highest executive level, the HOCC must approve Group country, industry and customer credit and counterparty limits within the
guidelines of the Group Credit Policy, including any parameters set by the Board. The HOCC must also approve the allocation of Group
limits to subsidiaries of the Group, for credits to be extended out of those subsidiaries within those pre-set Group limits. The purpose
of these Group limits is both to guard against undue concentrations of exposure in any area – geographical or sectoral – and 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
membership includes the Chief Banking Officer, the Division Heads and the Chief Credit & Risk Officer.
The parent bank and its banking subsidiaries are governed by specific credit policies that, whilst following closely Group policies, are
adjusted to suit local practices and regulatory requirements, and product and sectoral needs. Notwithstanding this, approval by Head
Office is mandatory where exposures, individually or in aggregate, exceed the guidelines set out in Group Policies; furthermore, as
implied above, exposures are required to adhere to the country risk limits established Group-wide by the HOCC and 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. The uniform
credit risk rating system in use in the ’core’ wholesale banking units assists in the assessment and gradation of risk on corporate
and financial institution customers, both at the obligor and facility levels. The system has been extensively modified to create a robust
10-grade risk rating system intended ultimately to be eligible for the BIS Internal Ratings Based (IRB) approach to meeting future
regulatory capital requirements. It ranks customers under a series of six gradated ’satisfactory’ ratings (which correspond to the rating
bands used by the recognised rating agencies). Below these ratings are ’watchlist’ and ’special mention’ rankings, to assist in the early
identification and management of weak credits, followed by ’substandard’, ’doubtful’ and ’loss’, against which minimum mandatory
provisions are required in accordance with the Group Credit Policy. When an asset is considered uncollectable and therefore categorised
as Loss, this implies mandatory write-off of that asset, in all cases. The credit risk rating system is being extended throughout the
Group whilst separate policies and procedures, encapsulating a product and portfolio segmentation approach, are being developed for
the consumer credit and small and medium-sized enterprise components of the Group’s business.
The above risk ratings approach represents a cornerstone in the Group’s credit risk management process and provides the framework for: (a) monitoring of portfolio quality and determination of credit risk portfolio management strategies; (b) linkage of credit
quality assessment with associated pricing – and thereby the basis for estimation of credit loss provisioning and capital allocation; and
(c) determination of the level of approval authorisation.
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, legal charges over the customer’s assets or third-party
guarantees. At the end of 2001 assets secured by collateral amounted to US$5,569 million, or 21 per cent of total assets.
12
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 both Group and individual subsidiaries’
credit policies and procedures. The parent bank and its banking subsidiaries also maintain their own 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. In addition, the business units of the Banking
Group carry out a quarterly overall assessment of their loan portfolios in conjunction with their Division Heads. Additionally, all criticised
credits are reviewed regularly by the respective business unit’s account officers and unit heads, with progress on the credits’ management being reported to the Head Office Remedial Loans Unit and the respective Division Head, no less frequently than quarterly
and often monthly. Reports are in an ’Action Plan’ format demanding firm undertakings from the responsible account officers as to
actions to be taken to reduce exposure and maximise recoveries. These criticised credits are also subjected to occasional detailed in situ
case-by-case reviews between the business units and the Head Office.
Group country limits are reviewed regularly by the HOCC, taking into consideration in-house and external economic reviews and
various quantitative and qualitative data, with particular emphasis on countries where credit risk may be concentrated or greater
exposure is being targeted, or whose economies are evidencing deteriorating economic conditions, and within the context of overall
business strategy taking into account past utilisation and earnings, future business potential and anticipated yields. In each case,
the 10-band in-house rating system is used in conjunction with external agency ratings to determine the Group country limit.
The Head Office Credit Department provides senior management with consolidated information on Group exposures to counterparties, customers, countries and industries. It is also responsible for coordinating credit risk management technology development
within the Group, as well as for submitting Group credit policy and procedural amendments and innovations to the HOCC for approval
and coordinating their introduction into the various policy manuals in place throughout the business units.
The Group continues to follow with keen interest the latest developments in credit risk management and disclosure, in particular
the current dialogue taking place between the Basel Committee on Banking Supervision and the banking community. ABC supports the
establishment of principles aimed at securing an appropriate environment to ensure the existence of sound processes for granting of
credits, their administration, measurement, monitoring and control, and the development of guidance on uniform credit risk disclosures
to ensure transparency in bank reporting.
Market Risk
Market risk is the risk of financial loss to the Group resulting from adverse movements in the value of financial instruments, in turn
arising from changes 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 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. ABC Group is
exposed to market risk in its treasury trading activities because the ’present value’ of its trading positions fluctuates with changes in
market rates and prices. Additionally, the Group is exposed to market risk in its commercial banking activities and investment portfolios
because the revenues from these activities are sensitive to changes in interest rates.
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 ALCO, which is chaired by the President & Chief Executive. Membership includes the
Chief Banking Officer, Group Treasurer, Investment Coordinator, Chief Credit & Risk Officer and heads of the Risk Management,
Marketable Securities and Planning & Financial Controls Departments. Each major subsidiary has its own ALCO, which assesses and
manages the market risks arising in its business activities under limits approved by its local Board.
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 the Group’s risk appetite, market volatility and liquidity, business
strategy and human resources.
At Head Office in Bahrain there is an independent Risk Management Department, reporting directly to the Chief Credit & Risk Officer
and indirectly to the Group Treasurer. The Risk Management Department is responsible for:
i. development of all policies related to market risk;
ii. establishment of methodologies to measure and monitor established limits;
iii. monitoring, in conjunction with Internal Control, of market risk limits;
iv. review and recommendation to ALCO of new or additional trading limits;
v. review of all new trading products;
vi. independent testing of all trading models;
vii. stress testing the portfolios to determine the effect of large unusual market movements.
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Managing Market Risk continued
The Group currently employs a mix of proprietary systems and purchased applications to quantify, monitor and control market risk.
In 2001, ABC completed the acceptance testing of an externally sourced comprehensive market risk management application –
RiskWatch by Algorithmics – designed to provide the Group with Value-at-Risk (VaR) computation. Parallel running of the system was
begun in 2001 and continues as VaR is integrated into dealing limits and management processes. For the computation of market
risk capital the Group presently utilises the standardised methodology, consistent with the Basel Accord and BMA regulations.
VaR methodologies, when fully integrated with the risk management process, will permit a future change to an internal management
model for market risk capital calculation, subject to approval by the BMA.
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 offbalance 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 management to maintain gaps, under limits authorised to them.
It also arises from changes in the slope and shape of the yield curve, differences in repricing references of two instruments or an
imperfect correlation in the adjustment of rates earned and paid.
A liability (or negative) gap exists when liabilities reprice more quickly or in greater proportion than assets during a given period; this
tends to benefit net interest income when rates are falling. An asset (or positive) gap exists when assets reprice more quickly or in
greater proportion than liabilities during a given period; this tends to benefit net interest income when rates are rising. Interest rate
sensitivity may vary during repricing periods and amongst the currencies in which the Group has positions.
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.
In managing the interest rate risk resulting from its trading and banking activities, Head Office does not differentiate between
the ways in which the exposure has arisen. For the core banking units both banking and trading gap positions are consolidated, by
currency, in the reports by the business units. The effect of interest rate movements is assessed using sensitivity analyses and other
modelling techniques. The Group aims to reduce the volatility of net interest income, caused by interest rate fluctuations, by managing
the structural balance sheet positions and by entering into derivative hedging transactions as appropriate.
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 2001. Such a low probability event
could reduce the next 12 months’ Net Interest Income by US$6.7 million (2000: US$2.5 million) if no remedial action were to be taken.
There are established limits on individual business units’ aggregate maximum exposures and on an overall basis for the core
banking units, consistent with 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. Trading activities generating interest rate
risk are concentrated largely in the Bahrain Treasury Department, from where it can be managed directly under the overall supervision
of the Group Treasurer.
Foreign Exchange Rate 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 Group’s 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 significant net foreign
currency exposures detailed in note 12 to the Financial Statements. The structural positions are reviewed weekly by Head Office ALCO
in accordance with the Group’s strategic plans and actively managed by Group Treasury based on the expected and projected changes
in the underlying currencies, in order to provide protection against significant movements. Group Treasury can employ foreign exchange
forward contracts, options and other derivatives when executing ALCO’s strategic decisions in the management of the Group’s
structural positions.
14
Equity, Debt Securities and Commodity Risk
As a normal part of its treasury trading activities, ABC is exposed to the risk of an adverse impact on the Group’s earnings due to
movements in the prices of individual equities or other securities or commodities, or generally in the value of their respective markets,
or in either case their related derivatives. The Marketable Securities Department in Head Office 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 similar to that explained above in relation to foreign exchange risk, with Marketable Securities
Department working within set limits and stop loss parameters.
Liquidity Risk
ABC Group defines liquidity as the ability to meet its obligations as they fall due. A part of the ability to meet obligations is maintaining the capability to execute specific transactions at or near current market prices without unduly affecting those market prices. The
Group deals with the latter by closely monitoring the depth and spreads in markets in which it transacts, as well as limiting activities
in less liquid markets or products.
ABC maintains liquid assets at prudential levels to ensure that cash can quickly be made available to honour its obligations. It has
specific policies regarding liquid assets coverage of short-term wholesale deposits and the potential risk impact of large single
depositors, ensuring that there is no reliance on one customer or a small group of customers. Liquidity management also recognises
the impact of potential cash outflows arising from irrevocable commitments to fund new assets.
Ultimately it is Group Treasury’s responsibility to oversee all subsidiaries to ensure that they maintain sufficient liquidity to meet their
own needs. The overall Group approach to liquidity management is to project liquidity requirements based on both expected and
stressed conditions, with the intention of ensuring sufficient funds availability to meet all financial needs, even in times of crisis. Head
Office adheres to a formal minimum liquidity guideline of 31 days, which has been endorsed by ALCO and approved by the Board.
Liquidity management reporting by ABC’s subsidiaries conforms to all local regulations. The liquidity reports of the major subsidiaries
are reviewed daily by the responsible Treasurer. A report on the wholesale units is prepared by Risk Management Department on a
weekly basis for presentation to the Head Office ALCO. ALCO reviews the 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.
In the normal course 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 corporations) 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 and managed for a profit. The Group’s
trading activities are largely managed in Bahrain Treasury under overall supervision of Group Treasury, with appropriate limits and
stop loss parameters in place as dictated by the Trading Book Policy.
In addition to its role as a dealer, the Group also uses derivatives to manage its own asset and liability portfolios and structural
positions. Such strategic transactions are always executed by Group Treasury under specific approval of Head Office ALCO.
Operational Risk
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.
While operational risk can never by wholly eliminated, the Group endeavours to minimise it by ensuring that the appropriate
infrastructure, controls, systems and trained and competent people are in place throughout the Group. Dedicated professionals are so
placed as to be able to identify and implement best industry practices in the area of operational risk management.
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 for 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.
Disaster recovery is an aspect of operational risk to which the Group pays close attention. Since the early 1990s, Head Office has
ensured that essential operational data maintained centrally in Head Office are backed up in London for reasons of Group security.
With the introduction of the new core systems, the backup discipline has been extensively expanded in that all data required for
business continuity purposes are now backed up, on separate computers both within the Head Office building itself and elsewhere
in Bahrain, in addition to being downloaded hourly to the Group’s computers maintained in London.
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Operational Risk continued
The identification and assessment of all types of risk to which the Group may be subject, and the review of the efficacy of the
procedures in place to control them are essential elements of the role of the Head Office Internal Audit Department. Internal Audit
therefore functions as a second line of defence in regard to operational risk in ABC Group, via the department’s periodic reviews of
both business and support units. In 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 neutralising operational risk may be
delegated to other, specialised, areas within the Group.
Legal Risk
The legal consequence of actions, investments or situations that 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 guidance of the Head Office department. The Legal & Compliance Department is also the focus
for ABC’s ’compliance’ activities within the Group, although the Chief Internal Auditor performs the role of Group Compliance Officer
in matters in liaison with the BMA.
Capital Management
The 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 who form the membership of the Basel 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. The BMA requires each Bahrain-based 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 Basel 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 above, 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’ off-balance 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.
The Group has reviewed the second draft document on the New Capital Adequacy Framework released by the Basel Committee on
Banking Supervision and provided its response via the BMA; it now awaits the Basel Committee’s release of the final draft document.
The Group is keen to prepare itself adequately and play a proactive role both within the region and vis-à-vis the regulatory authorities,
for eligibility under the BIS Internal Ratings Based (IRB) approach to regulatory capital estimation. It also looks forward to an agreed
approach for capital treatment of credit risk mitigation techniques such as credit derivatives, collateral, guarantees and on-balance sheet
netting.
16
Group Financial Review
’In what was a difficult year for the global economy in general and several of the Group’s areas of operations
in particular - principally the United States and Egypt among the core banking group - the net profit fell by
20 per cent to US$102 million. Nevertheless the Group is pleased to note that its underlying performance
continues to deliver steady increases year-on-year in all areas of revenue generation, on a strictly controlled
expense base, maintaining the healthy trend established over recent years.’
Income Statement
ABC Group’s financial performance in 2001 maintained the trend of recent years, marking steady growth in earnings in almost all
areas of business activity. Net interest income grew by 8 per cent, from US$433 million to US$469 million, while non-interest income
rose by 4 per cent to US$293 million (2000: US$280 million) on the back of healthy increases in revenues from derivatives and foreign
exchange operations. Total operating income rose by 7 per cent to US$762 million (2000: US$713 million).
Provisions against loans and advances during 2001 amounted to US$193 million (2000: US$134 million). The net charge,
after recoveries of US$65 million (2000: US$68 million), amounted to US$128 million (2000: US$66 million), reflecting the general
deterioration of global economic conditions impacting on the Group’s credit exposures, chiefly in the United States, Hong Kong, Spain
and Egypt.
After accounting for these provisions, net operating income fell by two per cent to US$634 million (2000: US$647 million).
Operating expenses rose by 5 per cent to US$474 million (2000: US$451 million). Staff expenses were slightly up by $10 million,
mainly from early retirement charges at Banco Atlántico pursuant to its ongoing re-engineering project, personnel recruitment at
International Bank of Asia and ABC Bahrain and salary adjustments in Brazil, New York and Jordan. Increased expenditure on new
systems and property refurbishment in London and Hong Kong, and generally in the North African subsidiaries, was also evident.
However, as a consequence of the greater increase in operating income, the overhead expense (cost: income) ratio reverted to the
62 per cent (2000: 63 per cent) seen in prior years.
The share of profit attributable to minority interests in subsidiaries fell slightly to US$35 million (2000: US$36 million), mainly as a
result of reduced profits at Banco Atlántico. Taxes on operations outside Bahrain fell to US$23 million (2000: US$33 million) for
substantially the same reason, supplemented by a reduction in the tax charge at International Bank of Asia.
Following these deductions, the net profit fell by 20 per cent to US$102 million (2000: US$127 million), in what was a difficult year
for the global economy in general and several of the Group’s areas of operations in particular - principally the United States and
Egypt among the core banking group. Nevertheless the Group is pleased to note that its underlying performance continues to deliver
steady increases year-on-year in all areas of revenue generation, on a strictly controlled expense base, thus maintaining the healthy
trend established over recent years.
Sources and Uses of Funds
Total liquid assets, including marketable securities, together with placements and liquid funds, fell by 3 per cent to US$10,863 million
(2000: US$11,212 million), largely the result of a 9 per cent decrease in money market placements, whilst deposits from the inter-bank
market fell by 13 per cent. Customer deposits including CDs meanwhile, building on the 11 per cent expansion of 2000, were up a
further 10 per cent or US$1,141 million, attributable to Bahrain and other Arab world and European business units. Total deposits
included US$2,213 million (2000: US$2,865 million) relating to sale and repurchase agreements.
Total placements, together with liquid funds of US$462 million (2000: US$409 million), represented 26 per cent (2000: 28 per cent)
of total assets. Together with marketable securities, liquid assets represented 41 per cent (2000: 42 per cent) of total assets.
The total assets of the Group in 2001 fell slightly to US$26,586 million (2000:US $26,676 million). Average assets were US$26,327
while average liabilities, excluding shareholders’ equity and minority interest, amounted to US$24,430 million.
Total Assets US$ millions
Operating Profits US$ millions
97
98
99
00
01
97
98
99
00
01
23,582
26,064
24,358
26,676
26,586
338
322
261
262
288
23
The Group’s overall loan exposure grew marginally to US$14,225 million (2000: US$14,039 million) as significant portfolio expansion
in the Arab world domestic subsidiaries and ABC Brasil was offset by somewhat reduced lending activity in the European wholesale
banking units and Hong Kong. Deposits from customers including CDs grew by 10 per cent to US$12,841 million (2000: US$11,700
million). Deposits from banks and financial institutions, as mentioned above, declined to $8,703 million (2000: $10,058 million). As a
result, the Group’s total loans to deposits ratio increased slightly from 65 per cent to 66 per cent.
Term funding totalled US$1,817 million (2000: US$1,692 million), reflecting modest sums raised during the year by International
Bank of Asia and Banco Atlántico, while the parent bank and other units adopted strategies aligned with declining global interest rates.
Commitments, Contingent Liabilities and Other Off-Balance Sheet Items
At the end of 2001, ABC Group’s consolidated off-balance sheet items stood at US$24,011 million (2000: US$23,004 million). The total
credit risk-weighted asset equivalent of commitments and contingent liabilities and derivatives was US$2,893 million (2000:US $2,591
million). The total volume of documentary credits, acceptances and guarantees undertaken during the year was US$7,460 million
(2000: US$7,561 million), 49 per cent (2000: 48 per cent) of which related to the Arab world.
The Group uses a range of derivative products for the purposes of hedging and servicing customer-related requirements, as well
as for proprietary trading purposes. The total market risk-weighted equivalent of the exposures under these categories at the end
of 2001 was US$621 million (2000: US$566 million).
Geographical and Maturity Distribution of the Balance Sheet
In 2001, ABC Group’s total assets in the Arab world were stable, although the proportion of its liabilities there increased, mainly through
increases in customer deposits taken. Its activities (through the subsidiaries in the Investment Group) in Latin America also increased,
whilst those in Asia and Western Europe fell proportionately.
Assets
(per cent)
Arab world
Western Europe
Asia
North America
Latin America
Others
Liabilities
2001
2000
2001
2000
17
39
17
15
11
1
18
39
17
15
9
2
42
32
12
3
9
2
39
33
14
4
8
2
100
100
100
100
2001
2000
2001
2000
16
40
17
16
10
1
17
38
18
16
9
2
18
37
18
12
14
1
18
36
21
12
12
1
100
100
100
100
Earning Assets
(per cent)
Arab world
Western Europe
Asia
North America
Latin America
Others
Loans and Advances
An analysis of the maturity profiles of assets and liabilities shows that, at the end of 2001, 55 per cent (2000: 54 per cent) of assets
and 81 per cent (2000: 80 per cent) of liabilities did not exceed one year’s maturity. Loans and advances maturing in less than one year
amounted to 43 per cent (2000: 44 per cent) of all loans and advances.
24
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,
accumulated unpaid interest thereafter being excluded from income. 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.
In 2001 ABC made further headway in reducing its earlier exposure to the countries most affected by the Asian crisis and its
aftermath. The exposed business units, working under the coordination and guidance of the Head Office Remedial Loans Unit, have
now reduced total Group exposure to China, Indonesia, Thailand, Pakistan and Russia from US$902 million in 1998 to US$160 million
in 2001. A US$205 million reduction was achieved over the year, mainly through debt rescheduling and restructuring, asset sales
or swaps, repayments and recoveries from bankruptcy proceedings where these were unavoidable. Significant write-offs from existing
provisions were a natural but unavoidable by-product of this process.
Over the last few years, the Group has taken action to limit its exposure to potentially troubled areas, through the strict application
of country caps established at Head Office and allocated throughout the Group units under centralised control. In this manner the
exposure to Turkey and Argentina, for example, has been maintained within prudential levels and under constant scrutiny. The events
in Argentina in particular are being closely monitored, although the Group is comforted by the fact that its exposure is chiefly to the
local branches of prime international banks. Nevertheless, concerns naturally remain in view of the government’s current freeze on
foreign currency payments.
The global downturn – stemming principally from that experienced in the United States – also took its toll on the Group, as indicated in the Directors’ Report. The provisions taken against the accumulated exposures in the New York and London business units to Enron
Corporation, though relatively small in total, when added to those taken against other corporates experiencing difficulties in the United
States, Hong Kong, Egypt and Europe, clearly impacted on this year’s consolidated net profit.
The total of all loans placed on non-accrual status at the end of 2001 decreased by 4 per cent to US$667 million over the
year (2000: US$694 million). Aggregate provisions at the end of 2001 amounted to US$632 million (2000: US$620 million). They
constituted 95 per cent (2000: 89 per cent) of all non-performing loans and 4.3 per cent (2000: 4.2 per cent) of all loans and advances.
An ageing analysis is given below in respect of all loans and advances placed on non-accrual, together with their related provisions:
($ millions)
Less than 3 months
3 months to 1 year
1 to 3 years
Over 3 years
Principal
Provisions
Book Value
124
74
99
370
43
30
57
314
81
44
42
56
667
444
223
Group Capital Structure and Capital Adequacy Ratios
ABC Group’s tier 1 capital rose by US$45 million or 2 per cent to US$2,110 million (2000: US$2,065 million); however, in light of the
2 per cent increase in total risk weighted assets over the year, the tier 1 capital ratio remained unchanged at 11.8 per cent.
Tier 2 capital increased only marginally from US$302 million to US$304 million. Thus, the total capital base increased by US$47
million to US$2,414 million (2000: US$2,367 million), producing a consolidated capital ratio of 13.5 per cent, unchanged from 2000,
well above the minimum requirements for international banks.
Non-Deposit Sources of Funds & Shareholders’ Funds US$ millions
Breakdown of Earnings Assets by Region percent
Arab World
Asia
Latin America
North America
Europe
Others
Certificate of Deposits
Shareholders’ Equity
Notes & Bonds
97
98
99
00
01
202
1,721
1,451
241
1,740
1,420
270
1,857
1,289
249
1,904
1,692
79
1,913
1,817
15.6%
16.9%
10.3%
16.0%
39.8%
1.4%
25
As mentioned above, risk-weighted assets increased in 2001, by US$406 million to US$17,932 million (2000: US$17,526 million),
mainly on account of increased on-balance sheet credits at the Arab world domestic subsidiaries and ABC Brasil.
All ABC Group subsidiaries meet the capital adequacy requirements of their respective regulatory authorities.
ABC shareholders’ funds as at 31 December 2001 stood at US$1,913 million (2000: US$1,904 million). Average shareholders’ funds
amounted to US$1,897 million (2000: US$1,879 million).
Other Ratios
At 31 December 2001 the ratio of the Group’s term financing to Shareholders’ Funds was 0.95:1 (2000: 0.89:1).
Average Shareholders’ Funds expressed as a percentage of Average Total Assets was 7.2 per cent (2000: 7.4 per cent).
Total Loans and Advances expressed as a multiple of Shareholders’ Funds was 7.4 times (2000: 7.4 times).
Factors Affecting Historical or Future Performance
ABC Group’s strategy continues to be based on expansion in the Arab world, both through its domestic banking units in North Africa
and Jordan and its increasing presence and position as a market leader in Middle Eastern project and structured loans, general loans
syndications and a provider of innovative, targeted treasury products. The domestic banking subsidiaries are in several cases planning
the expansion of their branch networks, or undergoing re-engineering and/or refurbishment of their existing networks in others.
They are also continuously engaged in designing and introducing new products to their client base, installing new systems and
implementing revised policies and procedures, all in preparation for the next phase of expansion.
As a strategic aim, the ABC Group seeks greater diversification in its revenue base. It views expansion in the Arab world domestic
markets and its chosen wholesale banking products targeted at clients operating within the region as both a means to that end and
a more reliable and lower risk source of expanding revenues, in view of its familiarity with both the region and the potential client
base. Nevertheless, it is clear, given the dependence of many countries in the region on revenues from oil and gas producing industries
– and thus on world energy prices – and of other countries on international tourism, that the region’s fortunes are in turn tied to
that of the major economies of the United States, Europe and the Far East with which it trades. This multi-dependency is the true
inheritance of the globalisation of trade experienced in the 20th and 21st centuries.
It is therefore appropriate that the Group should be positioned, through its unique combination of international and Arab platforms,
to serve clients at both ends of the trade flows operating between the Arab countries and the rest of the world, whether it is to facilitate imports of consumer and capital goods into the Arab countries or their exports of raw materials or services to the developed world.
By adopting appropriate control systems, both within the operating units themselves and at Head Office level, backed by product
and management support provided out of the centralised specialist departments in Bahrain, the Group anticipates a steady expansion
of revenues without a concurrent expansion in risk factors.
Financial Goals and Factors That May Affect Them
ABC Group’s primary financial goal is consistent generation of value for shareholders, including sustainable growth in earnings and
assets per share. The long-term revenue goal is for a 15 per cent annual post-tax return on equity. Other long-term goals include a
productivity ratio of 2:1 and a capital adequacy ratio of 14 per cent. Based on its evaluation of the following factors, management is
optimistic about the Group’s prospects for meeting these targets, once again over a reasonable period of time:
Political stability – Instability in any of the regions of the Group’s activities may have an adverse impact on its earning potential.
However, this is not axiomatic; for example, the Group’s domestic activities in Brazil have proven profitable in 2001 despite the
unsettling events in Argentina, a close neighbour and major trading partner. On the whole, management believes that the Group’s activities are sufficiently widely diversified such as to provide a cushion against major losses from isolated cases of political instability.
Energy prices – The price of crude oil and gas on the world markets has a direct impact on the economic welfare of many of the
countries in the Arab world, affecting their budgets and capability to introduce infrastructure improvements. This in turn affects the
scale of contracts awarded to the Group’s OECD-based customers who rely on ABC to provide a range of financial services, from
trade finance facilities to export credits, in support of their export and contracting businesses with the energy-exporting countries.
It also affects the Group’s services to energy-exporting agencies themselves. The prognosis is for energy prices to increase steadily
in real terms in the medium to long term.
Foreign currency values – The Parent company’s equity and the Group’s reporting currency is US dollars. However, its subsidiaries
are based in countries with different currencies and the Group is therefore exposed to fluctuations in the values of those currencies.
The Group takes steps to hedge against the risk of such fluctuations where it considers the risk to be unacceptable to it.
Volatility of currency markets – The degree of volatility in foreign exchange rates can affect the amount of foreign exchange
trading revenues. In general, the Group benefits from currency volatility.
Interest rates – Market interest rate levels, the shape of the yield curve and the direction of interest rate changes affect net interest
revenue. The Group’s diversity among both wholesale and domestic banking entities tends to smooth out the effect of interest rates on
its revenue streams.
26
Review of Operations
Ghazi M. Abdul -Jawad
Banking Group
Arab World Division
’Despite a difficult year for several of the economies in which it operates, and the impact of heavy ongoing
expenditure on outlet expansion and service and technology upgrading, the Division performed moderately
well in 2001. It continued the development of its strategic concept, welding its existing and proven skills in the
wholesale markets to the new products and services available out of its domestic business units.’
The Arab World Division is pivotal to the achievement of ABC’s Vision to be the premier and most innovative international Arab
financial group, as well as to one of its most important missions, to specialise in Arab-related activities worldwide. It plays a key role
in the development and expansion of the Group’s business in the Arab world, directly and indirectly contributing a significant portion
of ABC Group’s revenues.
The Division’s philosophy is to combine the Group’s existing strengths in wholesale banking and sophisticated treasury products with
those of the new domestic banking and capital market platforms, to offer its target market the widest possible range of services.
In doing so it aims to achieve diversification and enhancement of revenues and funding sources while continuing to satisfy the needs
of its key wholesale clients, the top tier regional corporates, multinationals, and governmental and financial institutions.
The Division coordinates and directs the activities of all domestic units in the Arab world, encouraging business synergies amongst
the branches, subsidiaries and representative offices of the ABC Group. In Bahrain the Commercial Banking Department, the largest unit
in the Division in terms of both assets and revenues, and the Global Marketing Department – the product of a strategic alliance between
Bahrain Treasury and Commercial Banking – are responsible for wholesale banking. Together they offer term loans, specialist project
finance and trade-related products and services and a wide range of treasury products and treasury-related activities in the Arab world.
Commercial Banking is made up of four complementary but distinct business teams: Government and Financial Institutions,
Corporate Banking, Group Project & Structured Finance and Syndication. While each of these teams is responsible
for business development in different market segments or products, they work together, as required, for a
particular customer or on the development of a specific product or service. Relationship management is further
served by the local domestic banking units and representative offices, which feed in market information from
their own geographical perspectives to the Bahrain units. Similarly, clients based outside the region but with
Arab world-related requirements are directed to the Division headquarters, from where they are routed to the
most appropriate business unit in Bahrain or elsewhere in the Division, thus ensuring they receive the best
possible service and advice from the Division’s specialist personnel.
Following their expansion in 2000, the Global Project and Structured Finance (GP&SF) and Syndication teams
were further strengthened during 2001, increasing the breadth of expertise that the two teams of professionals
are able to offer in project-related or other specialised financing transactions and general fund raising. These
teams work closely with both their own direct clients and their ABC counterparts elsewhere, to provide seamless
service to Group clients regardless of location.
In its first full year the expanded GP&SF team achieved premier position in the Arab world in its field, as it
led the market in project/structured finance in terms of both transaction volume and aggregate value. GP&SF
capped an excellent year with its Ras Laffan IWPP US$600 million project finance deal in Qatar which was awarded ’Power Deal of the Year’ by the prestigious Project Finance International, who also ranked ABC among the
top 30 Global Lead Arrangers in Project Finance. In 2001 ABC’s Syndication team was, for the third consecutive
year, the most mandated loan syndicator in the Middle East as it masterminded, with the efficiency that has
become its hallmark in the region, both GP&SF’s specialist loan syndications and the traditional fundraising for the Government &
Financial Institutions team’s clients.
In line with the Group’s objective to maintain an effective and consistently improving risk management process, during the year the
Division initiated several steps aimed at portfolio quality enhancement in Bahrain and the Arab world units. Over time it had become
clear that the Head Office policies (originally developed for the control of risk exposures to major corporate clients of the wholesale
banking units) imposed on domestic retail units were unnecessarily cumbersome and restrictive when applied to retail and small to
medium-sized corporate customers. The Division therefore joined with the Credit & Risk Group to develop core credit policies aimed at
controlling, within reasonable parameters, exposures to such customers whilst maintaining the Group’s overall conservative stance. With
the additional aid of external consultants, separate policies – more appropriate to these market segments – were designed,
which the Division is confident will facilitate business expansion in the domestic banking units.
The Division, meanwhile, continued its policy of rigorous evaluation of all corporate credit applications, to ensure adherence to
both corporate earnings thresholds and credit and risk parameters. This continuing scrutiny also contributed to both monitoring and
management of overall portfolio quality. General loan loss provisions were raised in the domestic units following an assessment of their
risk profiles.
The Algerian subsidiary substantially expanded its business activities and developed its technical infrastructure, whilst the Tunisian
subsidiary expanded its delivery channels by opening new branches in major cities and other commercially important locations and
introducing ATMs, Internet banking and call centres. Both ABC Algeria and ABC Tunisie are contributing satisfactorily to Group
28
teamwork
moving for ward througth
earnings and the outlook is promising. Plans are on course in Tunisia to pursue retail banking business via a number of smaller retailoriented branches spread throughout the country.
In Egypt, the general economic downturn and pressure on the currency adversely affected business activity, negatively impacting on
the Egyptian banking sector including ABC Egypt. The Division is, however, confident that this subsidiary is appropriately positioned
and will return to profitability as the economic cycle moves on. ABC Egypt meanwhile expanded its branch network, completed the
refurbishment of some of its existing offices, and introduced on-line ATM systems and new credit card services.
Under new management, ABC Jordan is currently undergoing major changes and restructuring as it continues to operate in
very difficult economic and political conditions. Despite Jordan’s continuing GDP growth, the events of the past year have led to a
significant downturn in new investment, affecting real estate prices, capital markets and commercial banking activities generally.
The bank’s provisioning levels were increased in line with Group and Central Bank of Jordan policies, dampening profitability. However,
in anticipation of an improvement in the regional political scene and the Jordanian economy, projections for 2002 are positive.
During the year the Division closed its Casablanca representative office, as it was shown that the European-based operating units
manage the Group’s relationships in Morocco quite effectively on their own.
Despite a difficult year for several of the economies in which it operates, and the impact of heavy ongoing expenditure on outlet
expansion and service and technology upgrading, the Division performed moderately well in 2001. It continued the development of
its strategic concept, welding its existing and proven skills in the wholesale markets to the new products and services available out
of its domestic business units. Meanwhile it continued to enhance the product capability and deliverability of both areas, positioning
itself to meet the anticipated needs of its growing client base.
Arab Banking Corporation - Egypt (S.A.E.)
ABC Egypt is ABC’s 95.8 per cent owned subsidiary in Egypt. It is a combined corporate and retail bank with a target market of the
upper quartiles of domestic and multinational corporates and medium and high net worth individuals. Leveraging on the strengths and
backing of the ABC Group worldwide, it aims to provide its clients with innovative solutions to their needs.
The effects of the 1999 downturn in the Egyptian economy continued to be felt through 2001: capital flight, falling exchange
rates and a slump in share and property prices contributed to a halving of domestic asset values and a two-thirds reduction in net
foreign assets. Additionally, the aftermath of the September 11 attacks led to a major downturn in global tourism that especially hit
the Egyptian tourist industry and related industries. The overall result was a liquidity and foreign currency shortage that, despite an
increased GDP for the country as a whole, imposed a strain on the corporate sector and the already high unemployment rate.
The Egyptian banking market reacted with a rush to quality, shifting from domestic corporate risk towards strong multinationals and
public sector and other infrastructure projects offering attractive loan syndication and fee earning opportunities, in the process further
pushing down margins.
29
Arab Banking Corporation - Egypt (S.A.E.) continued
In this context, ABC Egypt’s Corporate Banking Division did well to achieve a net loan portfolio expansion, notwithstanding an intensive
assessment of existing relationships during the year that resulted in a reduction or restructuring of a significant part of the legacy
portfolio. It provided loans to several important Egyptian banks and public sector entities, including a number of syndicated transactions
in which ABC Egypt took lead or co-lead manager positions. The bank also worked closely with several Arab development agencies
and banks in expanding trade-related business.
The Retail Banking Division, whose major goal is that the bank should establish a leadership position in the Egyptian retail banking
industry, introduced unsecured Visa and MasterCard credit cards – a new phenomenon in Egypt – for selected clients and a series of
sophisticated ATM cards giving customers more efficient access to the bank’s network and services. It also launched tailored personal
instalment loans, targeted specifically at salaried employees, and local and foreign currency saving programmes that have already
expanded the customer deposit base. Pursuing ABC Egypt’s outlet expansion strategy, it continued its branch opening and refurbishment programme and installed more ATMs in selected locations.
ABC Egypt commenced a reengineering project in 2000 to introduce state-of-the-art technology and ’best practice’ international
banking standards within the bank. The Reengineering Division seeks to raise the bank’s virtual infrastructure to the highest standards
of international banking. It is in the process of introducing banking business software that manages core banking, retail and corporate
front-end operations, trade finance, funds transfer and lending process workflow, simultaneously delivering advanced management
information and decision support systems. During 2001 it introduced ABC Egypt’s new on-line service, available to customers through
the ATM network, as well as credit card issuance and account management support technology.
In a difficult year, ABC Egypt earned a total income of US$20.1 million, improving on 2000’s US$17.6 million. The bank took
provisions of US$11.6 million, net of successful recoveries and settlements. Capital and administrative costs increased, partly reflecting
the continuing expenditure on advanced information technology, new ATMs, the new headquarters building and the branch expansion
and refurbishment programmes. After amortisation of goodwill at Head Office, ABC Egypt suffered a net loss of US$4.0 million,
compared with 2000’s US$3.8 million profit.
With the completion of its legacy portfolio review and with a good part of its reengineering programme now implemented, the
bank will increasingly turn its attention to expanding its client base and product range. The move to the new Head Office and
Main Branch in the prestigious area of Zamalek will be completed in 2002, as will the opening of new branches at 6th of October
City and Heliopolis. Its plans opening several new branches and installing more ATM outlets in strategic locations as an integral part
of its present expansion phase. As the anticipated upturn in the global economy gradually feeds through to the domestic scene,
ABC Egypt foresees a quick return to healthy and increasing profit levels and, moreover, is confident that its investment in top quality
product and service capability will ultimately assure the success of its aim – to be amongst Egypt’s premier banks.
In 2001, ABC Jordan continued to demonstrate its capacity for consistent performance allied with even, cautious expansion. In spite of
the negative impact of the continuing Palestinian-Israeli conflict on several sectors of the Jordanian economy, particularly tourism, the
Jordanian government continued to press forward with its programme of economic reform and liberalisation and to push for greater
foreign and private investment. With more than 60 bilateral and regional trade agreements – including free trade agreements with
the European Union and the United States – now in place, and momentum towards privatisation of state-owned enterprises building
steadily, the government is emerging as a successful facilitator and promoter of industry. After four years of sluggish performance the
Jordanian economy exhibited a healthy 3.9 per cent growth, whilst inflation and the public sector deficit remained under control.
Although, mainly due to the generally higher oil prices, the current account moved into deficit following a healthy surplus the year
before, this will narrow in 2002 should oil prices decline.
ABC Jordan’s net interest margin increased by 6 per cent over the year, a direct result of improved portfolio lending margins.
The bank was also successful in expanding the volume of documentary credits processed during the year, adding to the positive income
Project Name
30
Qatar Fertiliser Company
Project Sponsor(s)
Qatar Petroleum / Norsk Hydro
Project Country
Qatar
Purpose
“QAFCO 4” fertiliser plant expansion
Industry
Fertiliser
Deal Size
US$400 million
Financial Close Date
July 2, 2001
ABC Role
Mandated Lead Arranger, Regional Bookrunner
ABC Underwriting
US$75 million
moving for ward with
synergy
from marketable securities investment and trading and an enhanced contribution from ACFICO, its broking subsidiary. An increase
in overall employee levels and promotional and advertising activities, plus a write down in the value of repossessed assets held in the
bank’s portfolio pending sale, led to a 20 per cent increase in total operating expenses. Net income before provisions and taxes was
nevertheless 32 per cent higher than that for 2000. However, the impact of increased provisions, resulting in part from Central
Bank policy compelling annual additional provisions on problem loans irrespective of collateral held (78 per cent of ABC Jordan’s loan
loss provisions are backed by marketable collateral awaiting disposal) reduced the net profit to US$0.8 million equivalent, equal to that
of 2000.
The bank’s objectives remain focused on increasing market share and fee-based activities through the supply of premium services
and the delivery of new and imaginative retail banking and consumer products to its customers. Whilst cognisant of the negative impact
of continuing regional conflict, there is reason to hope that the Jordanian government’s strategy of privatisation of state enterprises
and encouragement of inward investment will lead to a widening tax base and lower foreign debt burden. In an expanding economy,
ABC Jordan’s efficient delivery of quality services should ensure continuing success.
Arab Banking Corporation - Algeria
ABC Algeria, 70 per cent owned by ABC, began operations in December 1998 as the first foreign commercial bank to receive a licence
to conduct business in Algeria. The balance of its share capital is held between International Finance Corporation (IFC), the subsidiary
of the World Bank, The Arab Investment Company (TAIC) of Saudi Arabia and a group of Algerian investors. To date its main target
market has been large corporates and state-owned enterprises and it is active in trade finance, commercial lending and the inter-bank
money market.
The bank has four branches, the head office main branch, a second in central Algiers and one each in Hassi Messaoud and Oran.
This network will shortly be connected on-line. During the past year ABC Algeria, together with TAIC, Caisse Nationale d’Epargne et de
Prevoyance, the IFC and other local shareholders, created Arab Leasing Corporation to introduce leasing to the Algerian market and act
as an additional source of finance for the many investment projects presently at the planning stage in Algeria.
In these benign circumstances, ABC Algeria’s total income grew by 29 per cent to US$9.7 million, benefiting from a 42 per cent
increase in interest margin, as the loan portfolio expanded, whilst other income, mainly loans-related fees and commissions, improved
by 15 per cent. However net income before provisions and taxes fell to US$4.0 million from 2000’s US$5.4 million, as expenses
rose from US$2.1 million to US$5.7 million, primarily on account of a one-time write-off of pre-opening expenses plus the cost of
premiums paid under the new deposit insurance scheme. After slightly increased loan loss provisions on the expanded loan portfolio,
the bank made a net profit of US$2.4 million compared with 2000’s US$4.6 million.
31
Arab Banking Corporation - Algeria continued
Algeria’s foreign reserves increased to over US$15 billion in 2001 as the oil price increase in 2000 continued to benefit its oil
and gas export revenues, enabling further reduction of the official debt and maintenance of strict control over public expenditure.
The state-owned banks reduced their dependence on Central Bank refinancing, resulting in a reduction in average refinancing and
discount rates and, thus, interest rates in general. GDP for the year was estimated at US$56 billion, or US$1,860 per capita. This healthy
economic condition enabled the government to pursue its twin objectives of reinforcing the embryonic market economy through its
ongoing reform programme and restructuring the economic environment to mobilise increased investment.
In these benign circumstances, ABC Algeria’s total income grew by 29 per cent to US$9.7 million, benefiting from a 42 per cent
increase in interest margin, as the loan portfolio expanded, whilst other income, mainly loans-related fees and commissions, improved
by 15 per cent. However net income before provisions and taxes fell to US$4.0 million from 2000’s US$5.4 million, as expenses rose
from US$2.1 million to US$5.7 million, primarily due to expenses connected with the expansion of the branch network, plus the cost
of premiums of US$0.9 million paid under the new deposit insurance scheme. After slightly increased loan loss provisions on the
expanded loan portfolio, the bank made a net profit of US$2.4 million compared with 2000’s US$4.6 million.
Over the next few years, the government is intent on a series of positive steps: reforming the banking system and financial markets;
deregulating import and exchange controls; overhauling the tax system; reorganising public sector companies and their operations;
encouraging inward investment and modernising the infrastructure. As a result, ABC Algeria expects an influx of international banks
into the market, seeking to service the newly privatised national companies and new entrant multinationals. Despite the resultant
competition, it is confident that it will continue to provide its growing customer base with a superior and appropriate standard of service.
It therefore intends to expand its branch network over the next few years as it gears itself up to providing a full retail banking service.
Arab Banking Corporation - Tunisie
ABC Tunisie, a wholly-owned onshore banking subsidiary of ABC whose products and services are designed to complement those of
ABC’s offshore branch, opened for business in mid-2000. Its debut was marked with instant success, as its wide range of products and
focus on quality of customer service was rewarded by immediate and strong portfolio growth and it was profitable from inception.
In 2001 Tunisia completed its ninth five-year economic and social development plan, basically in line with targets. The economy’s
fundamentals continued to improve, evidenced by sustainable GDP growth of around 4.5 per cent, stable inflation of 3 per cent or less,
increasing foreign exchange reserves and continued reduction of the debt ratio.
In this positive environment, ABC Tunisie continued to widen and diversify its customer base, which includes top local private groups
and financial institutions, and sound public sector entities. Both the bank and ABC’s branch continue to benefit from the synergy
between their two discrete operations. During the year ABC Tunisie opened branches in Sfax and Sousse, the second and third largest
cities in Tunisia; this expansion is already proving sufficiently successful that further branches are in the planning stages.
The bank’s total operating income, comprising mainly interest income, was US$3.2 million. After taxes and operating expenses of
US$1.8 million it returned a creditable US$0.9 million net profit in its first full year of operation.
Tunisia’s current 5-year plan envisages annual economic growth of 5.7 per cent on the back of increased exports and a growing
contribution from the private sector, with annual expansion in the services sector forecast at 7.5 per cent, the manufacturing sector at
5 per cent and the telecommunications industry at nearly 19 per cent. The plan anticipates a significant cut in foreign debt, a reduced
budget deficit and the creation of 400,000 new jobs over the period. These improving fundamentals, combined with the positive risk
perception engendered through stable and enlightened management – demonstrated by retention of the country’s investment grade
sovereign debt rating – are naturally expected to result in greater competition and lower spreads in the banking sector, a challenge
which ABC Tunisie is tackling with confidence.
Although corporate banking remains its core business, the bank is working towards diversification through the development of retail
and consumer banking. The new branches are therefore likely to be targeted at the retail sector and positioned in selected commercial
and high net worth areas. To ensure a high standard of service to this market the bank is developing high technology-based products,
including on-line Internet banking and credit card services. The performance of the Tunisian economy and the anticipated acceleration
of the liberalisation programme offer a good basis for ABC Tunisie to achieve its ambitious programme.
ABC Islamic Bank was created in 1998 out of ABC’s Islamic Banking Division, to develop dedicated Islamic banking products and
services for delivery to both its own Arab world clients and ABC Group customers generally. In addition to the usual trade and capital
goods financing facilities offered by most Islamic banks, such as modaraba, murabaha, musharaka, ijara, Ijara Wa-Iktana, bai salam
and Istissna, the bank’s product range has been steadily expanded to include sukook and other Islamic bonds, Islamic investment and
leasing funds and a special-purpose vehicle, ABC Clearing Company, delivering a unique Shari’a-compliant overnight inter-bank money
market capability to the Islamic banking community.
In 2001 the bank concluded several important murabaha transactions in Saudi Arabia, Bahrain and Lebanon. It also successfully
marketed Shares Murabaha, an innovatively structured mechanism providing clients with facilities equivalent to those available to
traders on the London Metal Exchange to support Islamic inter-bank activities.
ABC Islamic Bank was instrumental in the success of the Government of Bahrain’s first issue of Salam Sukook, undertaking the
role of redemption agent for the entire issue of US$25 million. Bahrain Islamic Sukook, the government-sponsored entity, issues
Salam Sukook paper to its participants, yielding good returns at low risk. This type of paper usually facilitates the financing of raw
materials and was successfully employed in 2001 to finance Aluminium Bahrain’s aluminium bar production. The bank also invested
32
for its own account and on behalf of clients in the subsequent Ijara Sukook 4-year bonds, financing the purchase and leaseback of
warehouse facilities, issued by the Bahrain Monetary Agency on behalf of the Bahrain Government.
Having obtained relevant governmental and regulatory approvals for the establishment of the International Credit Company,
a Bahrain-based credit card issuing company, the bank is in advanced negotiations with major international credit card companies
prior to the expected launch of the world’s first Islamic credit card in 2002.
The bank works closely with other ABC Group units in joint arrangement of, and/or participation in, Islamic facilities. Notable examples
in 2001 include murabaha transactions structured jointly with ABC’s Corporate Banking Department and with ABC Brasil, aggregating
over US$30 million, and operating leases coordinated by ABC International Bank (ABCIB) for certain US-based companies and worth over
US$16 million. In 2002 it will also jointly market a new fund, established by ABCIB, tailored for investors in the US real estate market.
In 2001 the bank’s revenues were impacted by the general economic downturn in most OECD countries, exacerbated by the
events of September 11. In this context the results were moderate. Total assets, consisting mainly of murabaha, Ijara Wa-Iktana and
investments, fell by 5 per cent to US$185 million. Murabaha transactions, as usual, dominated the income stream with a contribution
of US$6 million, or over 62 per cent of gross operating income before distribution to investment holders, while Ijara Wa-Iktana
contributed some 13 per cent. After allocation of profit to investment holders, total operating income was US$5.7 million, representing a 17 per cent decline or US$1.2 million over 2000. Operating expenses at US$3.2 million were slightly lower than the previous
year, leaving a net profit of US$2.5 million, US$1.1 million less than 2000.
Banking Group
International Division
’In 2001, the International Division continued the rationalisation of its worldwide physical presence while its
branches and subsidiaries maintained their focus on generating and supporting Arab world-related activities,
especially in the areas of trade and project finance, and providing their multinational customers transacting
business in the Arab world with a wide range of focused services, including specialist advisory services,
treasury products and bonding lines.’
ABC Singapore branch’s remedial efforts were again very successful in 2001, thereby freeing up its resources and enabling it to
focus on its role of marketing and servicing trade-related business emanating from the Middle East and North Africa (MENA) region.
It concentrated on export and import documentary credits and bonding requirements for Far Eastern contractors, in support of their
Arab world regional projects.
ABC New York branch was, not surprisingly, affected by the downturn in the United States economy as well as the unexpected
failure of Enron Corporation with whom it had maintained a modest exposure. Its loan loss provisions for the year, although partially
compensated by enhancements in loan fee income from an increased turnover and interest margin generated in a falling interest rate
environment, led it into a net loss.
ABC Milan branch returned a net profit in excess of last year, on the back of increased marketable securities income and lower than
anticipated costs. ABC International Bank and ABC Daus & Co. both turned in an increased total operating profit, reflecting expanded
business lines, but suffered from unavoidable but necessary cost increases. ABC International Bank also suffered loan loss provisions
resulting from the economic condition of its operating markets.
Meanwhile, the Division continued the rationalisation of its worldwide physical presence. ABC Banque Internationale de Monaco
was sold to Banco Atlántico in the early part of the year to access the greater synergistic value from insertion into Banco Atlántico’s
network and its existing private banking business. Arrangements for the disposal of ABC Finanziaria, the Italian finance company
subsidiary, were completed during the year, while ABC Milan branch sold its building as it re-located to more functional premises
in central Milan.
In 2002, the International Division intends to continue to add to its customer base of multinational corporations in the United States,
Europe and, to a lesser extent, the Far East who have an existing or potential interest in doing business in the Arab world, and to build
closer relationships with existing clients in order to provide them with a complete service tailored specifically to their needs. The Division
will continue to manage its units through imposition of a number of financial hurdles, attainment of which will be achievable through
delivery of greater value to clients. Further consolidation of the European operations – with appropriate changes in the European
corporate structure – is also being studied, within the context of a pan-European strategic approach to targeted business lines and
further cost containment.
33
diversifying
moving for ward through
ABC International Bank (ABCIB)’s prime objective continues to be the promotion of trade and business links between Europe and the
Arab world, particularly in the areas of trade and commodity finance. The bank currently operates through a number of specialist units
out of branches in London and Paris:
Trade Finance and Financial Institutions has the principal strategic objective to finance trade flows between Europe and the Arab
world. It offers documentary credits, forfaiting, contract bonding and financing of receivables as well as buyer-credit facilities
guaranteed by export credit agencies such as ECGD and COFACE. Its ability to provide structured solutions to client needs has given
ABCIB market recognition as one of the leading financial institutions for Euro-Arab world trade. During the year, the London team
arranged and structured a US$40 million syndicated trade finance facility for Motorola GSM equipment for Jordan Mobile Telephone
Services and a US$40 million Middle East Receivable Facility to discount receivables from Arab world telecommunications companies.
Commodity Finance offers trade finance, documentary credit, guarantee and letter of indemnity facilities and maintains direct
bilateral relationships with premier trading houses in Europe and the USA active in crude oil and non-ferrous metals and in coffee, cocoa
and sugar. In 2001 London concluded several pre- and post-shipment financings, including transactions with South Africa, Thailand,
Sri Lanka and Morocco. ABCIB also participated as a lead manager in a number of other short-term commodity export pre-payment
transactions, including two facilities for Sonangol of Angola totalling US$1.1 billion, and completed a US$60 million medium-term trade
facility for Petrobras, Brazil. ABCIB’s Paris branch was active financing North African trade transactions relating to agricultural products,
oil and metals.
Syndications participates in a variety of structured transactions and also works on behalf of other units of the bank, sourcing as
well as advising on the arranging, structuring, pricing and distribution of transactions in the market. In July 2001 it also arranged
and successfully completed ABCIB’s own US$150 million medium-term dual-tranche facility.
Project Finance participates in energy-related projects in the Arab world and Europe. In 2001 the unit arranged finance for the
development of an independent power project in Tunisia by private sector sponsors. As one of three mandated banks, ABCIB undertook extensive due diligence to structure the finance of a major government-to-government fertiliser project in Oman, supported
by European export credit agencies and scheduled to close by July 2002. Paris arranged finance for an offshore drilling ship in the
Gulf of Guinea and supported several transactions in North Africa, backed by export credit agencies, for oil production equipment,
industrial machinery, telecommunication services, and security screening devices.
Specialised Finance has gained considerable experience in supporting new cellular telecommunications operators in the Arab
world and in establishing networks in Europe, to add to its expertise in airline and hotel financing. Last year it also co-arranged the
US$52.5 million finance of a VLCC, reflecting its ongoing commitment to the financing of vessels for oil and gas transportation.
34
Islamic Asset Management offers asset-backed investments and finance through ABCIB Islamic Asset Management Limited. In 2001
it arranged finance for several pools of equipment leasing assets, primarily in North America, and set up a leveraged Multi-Family
Apartment Development Fund, valued at US$150 million, to be launched early in 2002. New ground was broken in structuring two
portfolios of leased real estate assets for securitisation in the fledgling Islamic capital market. Acquisition and development finance
for clients’ real estate projects were also arranged, in an aggregate amount of £50 million.
Treasury Operations, managed by the London Treasury Hub, centralises treasury operations for the ABCIB group. Value-at-Risk
capital measurement and utilisation methodologies were introduced in 2001 to enhance risk control and profitability.
Net interest income increased by 19 per cent to £26.3 million. Earnings from fees and commissions were stable in a competitive
market, notwithstanding the increase in trade finance activity, however income from this and other sources registered an 8 per cent
overall increase. Total operating income thus increased by 15 per cent. Staff costs declined marginally by 2 per cent to £12.6 million
but administrative costs increased by £2.2 million or 28 per cent to £9.5 million, following the bank’s sale of its premises at the end of
2000 to its holding company, to whom it now pays rent. The cost: income ratio, however, improved to 57 per cent from 59 per cent
in 2000. After net loan loss provisions – including a relatively small facility requiring provisioning following the sudden and unforeseen
collapse of Enron Corporation – ABCIB’s net profit after tax fell by 12 per cent to £13.4 million.
The Chairman of the Board, Sheikh Khalid Alturki, resigned with effect from December 31, 2001 after seven years of service to the
bank. Mr. Farat Omar Ekdara was appointed the new Chairman of the Board on February 28, 2002. On December 21 Abdulmagid
Breish, the Chief Executive Officer, was appointed to the Board.
During 2002, ABCIB will continue to develop its core business activities and build long-term relationships with its expanding client
base. In addition to the primary goal of enhancing revenues and managing the cost base the bank will finalise the implementation
of its new core banking systems. The integration of additional branches and expansion of the bank’s operations in Europe will be
closely coordinated with ABC Group Head Office.
Arab Banking Corporation - Daus & Co. GmbH
Economic activity in Germany, already weakening since the autumn of 2000, ground to a halt in the second quarter of 2001, with
average growth for the year of around 0.5 per cent. The global slowdown, and the continuation into 2001 of the previous year’s unexpectedly strong increase in energy and food prices, were largely to blame as the hike in consumer prices dampened private consumption
and neutralised the effects of the government’s tax reductions. The ongoing recession in the construction industry did not help.
Amidst this somewhat gloomy background, ABC Daus continued to focus its business activities on the financing of German exports
to the MENA region including Iran, as demand from those countries continued unabated. The bank’s spread of services – ranging from
short-term trade facilities to multi-sourced, structured, project and capital goods financing schemes – provides a stable source of income
as well as good growth opportunities. The former generate commission and fee income, principally from the importers, whilst the
latter produce lucrative fees and interest income from both importers and exporters. Whilst only 35 per cent of the bank’s overall
interest income comes from the importing countries (the balance emanating from customers in Germany and the rest of the European
Union), fully 85 per cent of commission income stems from customers located in the MENA region.
ABC Daus did well to increase its net interest income by 6 per cent on the back of higher inter-bank placements – which more
than compensated for a reduction in total outstanding loans – and higher coupons on the marketable securities portfolio. This was
offset by a slight decline in commission and fees, despite an increase in documentary credits, reflecting competitive market
pressures. However the disposal of investments, including its managed investment portfolio, produced net additional income of around
2 million euros. Operating expenses rose by a net 6 per cent despite lower administration costs and premises expenses (the bank
having sold its office building in 2000). ABC Daus’ net profit for the year was 3 million euros, demonstrating the underlying improvement
in operating profit.
Project Name
AES Barka
Project Sponsor(s)
AES & Bahwan
Project Country
Oman
Purpose
Power and Water plant construction
Industry
Power Generation
Deal Size
US$350 million
May 2, 2001
ABC Role
ABC Underwriting
US$175 million
35
integration
Investment Group
’In a difficult year for all of their economies, the Investment Group’s constituent banks did well to return
only a marginally reduced aggregate net profit and contribution to the ABC Group. Meanwhile they each
continued their respective preparations to meet their ultimate objective – to be among the best in their areas
of operations.’
The Investment Group is responsible for maintaining and enhancing shareholder value for ABC Group from its non-core banking
operation investments, namely 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 introducing new capital market-related initiatives throughout the Group.
The Investment Group’s continuing objective is to enable the ABC Group to diversify risk and enhance shareholder value through
its non-core investments. In 2001, the combined operations of the Investment Group units contributed US$64.7 million in net profit
to the ABC Group (2000: US$67.9 million). Banco Atlántico acquired ABC Banque Internationale de Monaco from ABC, to assist in the
expansion of its private banking capabilities, and progressed with its reengineering programme. International Bank of Asia, faced with
economic downturn in Hong Kong, focused on credit quality and customer service and in fact increased its contribution to Group net
profit. Banco ABC Brasil managed to maintain healthy results in the face of difficult times in its local market, whilst ABC Securities Egypt
completed its first financial year, also in a difficult environment, but ready to take advantage of the next upturn in the economic cycle.
Banco Atlántico, S.A.
Spain was not excused the global economic slowdown and general contraction of business investment in 2001. The external sector’s
resultant loss of dynamism, combined with deterioration in the labour market, negatively impacted on public spending, a major
contributor to growth in recent times. Nevertheless, the advantages to Spain of its adoption of the euro were amply demonstrated
in the aftermath of the September 11 shock, as the euro experienced considerably less volatility and instability than would previously
have been the case.
In 2001 Banco Atlántico concluded the first stage of the major process of change initiated at the end of 1999, with the
implementation of five reengineering projects affecting its key processes and aimed at enhancing new business generating capacity
and optimising costs. Specifically targeted were the reduction of administrative workload and labour costs, the enhancement of
36
commercial activities and the introduction of a new management information system. These projects have involved significant changes
and efforts, including reduction or redeployment of some 450 staff equivalent, intensive training in new processes and the introduction
of CRM (Customer Relationship Management), data-warehousing and data-mining tools. In this way Banco Atlántico is moving towards
a more integrated, multidimensional information system, enabling intensive analysis by product, customer and business channel and
creating the basis for more effective decision-making. Banco Atlántico’s ambition is to become a reference bank for medium-sized
corporations and medium to high net worth individuals, focused on generating added value for its shareholders.
The second stage of this ’Project of Change’ commenced at the end of 2001 with the creation of two new divisions in the
organisation structure, aimed at adding shareholder value through greater focus on off-balance sheet business (by aggressive
marketing of mutual fund/pension fund management and insurance services) and information technology, whilst continuing to
emphasise the importance of global risk management.
The year saw a marginal increase in Banco Atlántico’s assets over 2000. Given the business environment in which the bank
operated during the year it was heartening that interest margin rose by over 6 per cent. Fees and commissions, including income from
securities and sales of fixed assets, loan fees and foreign exchange, grew marginally. Consequently, gross operating income increased,
by 3 per cent. However, as operating expenses grew by over 6 per cent, mainly as a result of early retirement costs arising from the
change process, and automation expenses, operating profit (before provisions and taxes) declined by nearly 4 per cent to 76.3 million
euros. After deducting loan loss provisions, which increased primarily due to the new statistical insolvency risk reserve introduced by
Banco de España, the Central Bank, net profit fell by 24 per cent to 31.8 million euros.
International Bank of Asia Limited
With an economy not yet recovered from the Asian financial crisis, Hong Kong was badly affected by the slowdown in the US in 2001
and its impact on global worldwide activity, particularly after September 11. GDP declined as exports fell by more than 5 per cent and
domestic consumption proved unable to compensate for the external trade weakness. Property values declined by a further 13 per cent
as unemployment rose to 6 per cent. Stagnant loan demand, coupled with the removal of controls over deposit rates and the impact
of intense competition, reduced yields and led to a substantial slowdown in the banking industry.
At International Bank of Asia (IBA), net interest income increased by 8 per cent partly as a result of the highly successful introduction of a new combined current and savings account (Magic Money Manager, or MMM), reducing its cost of funds, and the bank
recorded a net interest margin of 2.69 per cent, one of the highest among Hong Kong banks. Fee income, however, fell by 16 per
cent, tracking the general economic decline, partially offset by income from the new investment products introduced by the bank and
effective marketing of its insurance and unit trust products. Operating income therefore rose, by 13 per cent to HKUS$1,028 million.
Operating expenses increased by 11 per cent, reflecting the costs of establishing the new Wealth Management and Consumer Finance
Centres, increased marketing and depreciation of the hi-tech equipment installed in 2000. Specific loan loss provisions decreased by
9 per cent, but IBA adopted a conservative view of future economic prospects and increased its general provisions by HKUS$63 million
to 1 per cent of the total loan portfolio. Through active portfolio investment over the year, IBA restructured the investment portfolio to
crystallise gains and position it for the rise in interest rates expected in 2002. After accounting for net gains from securities holdings
and a reduced taxation charge, the net profit was HK$296 million, a 21 per cent rise over 2000.
Over the year the bank expanded its credit card, consumer loan and hire purchase portfolios, and increased its loans to medium and
large corporations, as housing loans were de-emphasised in light of extreme pricing pressures. The result was an increasingly diversified
asset portfolio that preserved net interest margins whilst other banks were suffering from a decline in margins. Liquidity remained high
through judicious management of assets and liabilities and the loans to deposits ratio.
IBA’s top priority is the delivery of shareholder value, which it aims to achieve through a combination of an expanding portfolio
of higher-yield loans, funded by lower-cost consumer deposits; a wide array of fee-generating products and services; emphasis on
credit quality to minimise loan loss provisions; strictly controlled operating costs and a determination to attract and retain high quality
employees by offering challenging career opportunities and unique training programmes.
Project Name
Sixteenth Waha Lease Limited
Project Sponsor(s)
Oasis International Leasing Company
Project Country
UAE
Purpose
To finance the acquisition of a Boeing B777-200ER
Industry
Aircraft
Deal Size
Aircraft Value US$112.5MM, Debt amount US$90MM
March 26, 2001
ABC Role
Mandated Lead Arranger, Bookrunner
ABC Underwriting
US$45 million
37
International Bank of Asia Limited continued
It has merged smaller branches in selected localities into Superbranches – extra large branches with larger frontages and expanded
services – adding three in 2001 to the first one opened in 2000. Again, with the declining importance of the real estate market as the
popular avenue to wealth accumulation, the Wealth Management Centre (personal investment centre) concept, first successfully
introduced in 2000, has been expanded both in terms of the number of locations (now six) and the range of products offered.
In addition to stock brokerage, customers can access insurance products, unit trusts, bond purchases and equity-linked notes. In each
case IBA acts as an agent only, generating increased fee income whilst avoiding assumption of market risk.
Leveraging its consumer loan experience gained over 15 years in credit card operations and hire purchase finance, IBA has
introduced new variations of well-established consumer branded products, and increased delivery channels by opening Consumer
Finance Centres in suitable locations. Consumer loans are thus gradually replacing the residential mortgage portfolio, where pricing
has declined.
Internet banking has been upgraded through IBA’s participation in an emerging new sales channel: Net Alliance, a joint venture
of four banks and a technology company. Other technology initiatives include the development of a telemarketing Call Centre;
the creation of a data warehouse linked to customer relationship management software, permitting targeted marketing; greater
MIS capabilities; enhanced portfolio management and an automated stock trading system for IBA Securities.
IBA has focused particular attention on credit quality, increasing regular reviews of lending and other operations and rigorously
adopting the recommendations of regulators, auditors and parent bank risk review specialists. The favourable results are reflected
in the upgrade of the bank’s rating outlook by Standard & Poor’s, which has maintained its A-3, BBB ratings throughout the Asian
financial crisis and its aftermath; the favourable rating of the HKMA; the upgraded credit process rating issued by ABC Head Office
and the reduction of non-performing loans. Credit quality will remain a very high priority in the uncertain economic conditions that
are unfolding.
The major changes in the Hong Kong economy and the banking industry that have taken place over the last few years clearly
warranted a thorough updating of bank strategy. In IBA’s case, that task has now been completed with the introduction of a rolling
five-year plan. The progress in 2001 on new fee sources, the increase in the current and savings accounts and the ability to maintain
profitability in the face of adverse conditions are all encouraging indications that IBA is on course in the conduct of its current strategy.
Brazilian economic activity in 2001 was enormously affected by the Argentine financial and economic crisis. Reflecting the close ties
between the two countries, instability was the dominant trait in the Brazilian financial markets throughout the year. A shortage in
energy supplies, originating primarily from an extended drought exacerbated by the lack of investment in the energy sector, added
to the general slowdown. It was fortunate that, through the united efforts of all economic sectors, the energy shortage did not
worsen and the worst fears of a total shutdown of the country did not materialise.
These factors negatively impacted the financial markets’ already low levels of confidence and led to strong and persistent pressure
on the real throughout the year. Despite the authorities’ efforts to manage the devaluation smoothly, the third quarter saw a 16 per
cent fall in the value of the real against the US dollar, in turn leading to dramatic falls in stock market and futures indices. Meanwhile,
the fear of reappearance of inflationary pressure, combined with concerns over the Argentine crisis, compelled the authorities to
maintain interest rates at 19 per cent levels throughout the third quarter.
The impact on the corporate sector was grave. Rising capital costs, combined with falling credit availability, led to a tightening
of margins and a reduction in economic demand. Although exporting companies benefited from the fall in the value of the real,
others with high levels of US dollar debt were severely affected.
Finally, in the latter months of the year, the economic perspectives began to improve. A more positive investor perception, both
internally and externally, grew alongside a deepening appreciation of the fundamental differences between Brazil and Argentina.
The exchange rate showed signs of stabilisation and the share indices regained momentum, offsetting at least partially the major
losses of the earlier part of the year. Secondary market prices for fixed income instruments also rebounded and the futures markets
began to show more stable patterns and increased transaction volumes.
In this environment ABC Brasil maintained its conservative approach to its business dealings and avoided excessive risk exposure,
continuing to focus on its core business of structured credit operations, trade finance and financial markets applications. For these
operations, spreads and volumes were very stable during the year, producing a steady flow of income. At the same time, credit risk
(whose monitoring has been enhanced by new software systems introduced during the year) was strictly controlled, with the avoidance
of unpleasant surprises uppermost in mind; as a result no significant additional credit provisions were necessary.
The improving economic scenario towards the end of the year was, however, fundamental in providing opportunities for profit
across the financial markets, both domestic and international. ABC Brasil’s results were in fact much better in the final months of 2001
than the rest of the year, enabling it to achieve a net profit only slightly less than last year.
Total assets increased by 18 per cent in US dollar terms, mainly in loans and advances. Net interest margin increased by 7 per cent
to US$50.9 million; however, a drop in commission and fee income, as well as trading in derivatives, resulted in a 5 per cent reduction
in total operating income to US$69.9 million.
Despite salary adjustments in ABC Brasil, the devaluation of the real led to a drop in administrative and general expenses to
US$30.2 million from US$35.5 million in 2000. The bank’s conservative approach and strict control over credit risk in a difficult environment resulted in only a relatively small increase in loan loss provisions to US$1.7 million, compared with US$0.6 million last year.
38
After taxation of US$6.1 million, ABC Brasil contributed US$31.8 million (before minority interests), down by only 3 per cent over 2000.
ABC Brasil’s shareholders’ funds in US dollar terms registered an increase of US$28.3 million (after a dividend payment of US$6.2 million).
As the real exposure was hedged, the devaluation during the year did not adversely impact ABC Brasil’s equity in US dollar terms.
For the future, ABC Brasil will continue to monitor events in its markets closely and to build further on the risk control-related
systems it has introduced – including a VaR-based market risk control system and internal credit risk rating methodologies recently
implemented at the behest of the Central Bank of Brasil and the Group Head Office. Of greatest importance is its corporate goal:
to deliver reliable and expanding profit through a combination of vigilant customer and risk monitoring, astute financial management
and the continuation of strictly conservative policies.
ABC Securities (Egypt) S.A.E.
ABC Securities (Egypt) commenced operations in 2000 to provide asset management services to high net worth individuals and
institutional investors, advise public corporations on privatisation and arrange private and public bond and equity issues.
In 2001, ABCSE was successful in generating investment banking fee income for the first time. However, the Egyptian capital
market witnessed substantial price deterioration and reduced liquidity, evidenced by low volume and a marked reduction in new
equity and fixed income issues. ABCSE therefore experienced a generally quiet year as its interest income, in a reduced rate
environment, was less than expected and it suffered negative returns from its marketable securities investments, besides being
burdened by the significant devaluation of the Egyptian pound.
As it is currently working on a number of potentially lucrative investment banking transactions in North Africa, ABCSE is confident
of achieving increased revenues in 2002 and, subject to an improvement in market conditions, a more than satisfactory rate of return
for its parent bank.
Group Treasury
Following September 11, Group Treasury took immediate steps to activate its Contingency Funding Plan to ensure that adequate
liquidity was available to meet any contingent demands of ABC Group units worldwide. The smoothness of the ensuing operation
highlighted the wisdom of the ’hub and spoke’ strategic concept introduced in 1999, under which funding responsibilities have been
devolved mainly to the business units in line with their balance sheet activities, leaving market and liquidity risk management centralised
for the benefit and security of the ABC Group as a whole.
While business units market ABC Group’s treasury products within their respective geographic regions, product development,
particularly in relation to Arab world currencies and options, is concentrated in the Bahrain hub, from where newly developed products
are distributed to business units worldwide for introduction to their clients.
Bahrain Treasury is one of the biggest and most active treasuries in the Middle East, offering a wide range of financial services, from
simple forex and money market to the most sophisticated derivative and financially engineered products, to meet all ABC’s clients’
hedging and exposure management objectives. Bahrain Treasury is divided into three separate departments:
Foreign Exchange, which includes the Middle East Currencies, Precious Metals & Commodities and Treasury Sales units, specialises
in meeting all foreign exchange needs of a whole range of corporate, institutional and central bank customers. In addition to its
active involvement in all the major international currencies, the FX desk is a major market maker in Middle Eastern, North African
and Mediterranean currencies. Precious Metals & Commodities addresses the growing demands of its sophisticated clients, in addition
to trading on its own account. It recently expanded into gold trading and gold loan services for regional corporates. Treasury Sales
offers customers a friendly, prompt and efficient service, whether meeting their everyday requirements or structuring innovative
financial solutions to their market exposures.
Project Name
En-Naga Development
Project Sponsor(s)
Lundin Oil
Project Country
Libya
Purpose
Oil exploration
Industry
Oil
Deal Size
US$50 million
October 24, 2001
ABC Role
Mandated Lead Arranger/Documentation Agent
ABC Underwriting
US$30 million
39
Group Treasury continued
Money Market, Options, Derivatives & New Products (including Islamic Murabaha Investments) has one of the most experienced teams
in the region and is active in both currency and interest rate options. Its activities range from market-making for financial institutions
to trading in ’plain vanilla’ and exotic options. Money Market desk plays a vital role in ensuring that ABC maintains adequate liquidity
at all times, also managing interest rate risk for optimum returns. Derivatives desk offers customers a wide variety of interest rate
products, including interest rate swaps, forward rate agreements, caps, collars and swaptions, to smooth out market volatility and
reduce interest rate risk, together with various capital-guaranteed structured investment products for yield enhancement purposes.
New Products concentrates on product development, in 2001 focusing on specialised treasury products to expand the Arab World
Division’s retail units’ range. The Islamic Murabaha Investments unit offers clients the opportunity of investing in financial instruments
that are based strictly on the principles of Islamic Shari’a.
Marketable Securities includes Floating Rate Notes (FRNs), Fixed Income, Equities and Investment Management. The FRN and Fixed
Income teams are involved in trading and investment in governmental and non-governmental bonds, and global equities and equity funds,
respectively. The Investment Management team has recently begun investing in managed funds as part of a strategy to expand into ’fund
of funds’ management. Fixed income securities portfolios managed on behalf of institutional clients reached just under US$3 billion.
Despite the extremes seen in the financial markets in 2001, in general ABC Treasuries throughout the Group had a relatively good
year. Bahrain Treasury did particularly well. The Foreign Exchange unit made more than double its target, mainly from increased
customer-driven business. The Money Market team surpassed its set profit target by 70 per cent as the positions adopted benefited
from the numerous Federal Reserve Bank interest rate cuts over the year. The Derivatives team also did well as, with ABC having
positioned itself as one of the major currency options market makers in the region, currency derivatives’ profitability exceeded
budget by 10 per cent and interest rate derivatives surpassed all expectations by exceeding profit targets by 93 per cent, distributed
over interest rate swaps trading, swaptions, exchange traded interest rate futures and options, and some commodity and index
options. The Marketable Securities unit successfully managed a sizeable portfolio of Middle Eastern and North African Bonds, also
seeing substantial activity in repurchase and resale agreements, producing satisfactory returns in this area as well.
With the expansion of the structured treasury product portfolio, the Global Marketing Department (which reports directly to Arab World
Division and on a matrix basis to the Group Treasurer) plans to extend its marketing activities in 2002 to include the retail and institutional
clients of ABC subsidiaries and branches in the MENA region, including all the Arabian Gulf countries. Meanwhile, Group Treasury will
continue to develop new products geared for the Arab world. The developments in new systems, methodology and liquidity risk management referred to below, on which Group Treasury and Risk Management have worked jointly, will also continue into the new year.
Credit & Risk Group
Credit & Risk Group (CRG) has overall responsibility for centralised credit policy and procedure formulation, country risk, credit
exposure reporting, control and risk-related regulatory compliance, remedial loans management and the provision of 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 effective controls.
Credit Risk Management
Emphasis in 2001 was on (a) maintaining momentum in respect of the anticipated introduction in 2005 by the Basel Committee
on Banking Supervision of ’Basel Two’, the new Basel Capital Accord replacing the 1988 Accord and (b) implementing the more
immediate requirements arising from the introduction by the Bahrain Monetary Agency in July 2001 of the BIS “Best Practice Principles
relating to Credit Risk Management” as the basis for future regulatory supervision. The key areas of focus in the enhancement of
Project Name
40
Ras Laffan Power
Project Sponsor(s)
AES / QP/ QEWC / GIC
Project Country
Qatar
Purpose
Power and Water plant construction
Industry
Power
Deal Size
US$572.25 million
November 20, 2001
ABC Role
ABC Underwriting
US$57.2 million
momentum
moving for ward with
ABC Group’s Credit Risk Management framework, requiring the initiation or development of policies, systems and risk data availability,
were:
Global Credit Exposures Aggregation and Control • Development of the RXM/RWS (Risk Management/Risk Weighting System)
credit limit and exposure monitoring SunGard system with supporting data warehouse – collectively known as ABC’s Credit
Risk Management System Project – commenced in 2000 and was completed, in terms of functionality developments, in early 2001.
The system was then rolled out to the core banking wholesale units, a process involving extensive training and data cleansing, which
is still continuing. Implementation of this system will provide enhanced exposure management capabilities. The key dimensions upon
which the system is structured and configured are (a) a customer hierarchy – incorporating the prescribed regulatory and internal
guidelines on exposure aggregation; (b) a product hierarchy – which sets standard nomenclature and hierarchy for a full range of
products; and (c) a defined ABC group organisational hierarchy for exposure management control and reporting. Supplementing
these key dimensions are additional elements covering industry, country/geography, risk ratings and maturity tenor bucket classifications. The system offers full flexibility in terms of exposure extraction involving a combination of these elements
Improved Credit Risk Measurement Methodologies • The transition to a ’marked-to-market’ based exposure methodology for
counterparty credit risk on treasury products was completed. The introduction of an industry-standard risk rating process, and progressive creation of a risk rating culture within the ABC Group, continues at an aggressive pace. The objective for 2001, to introduce
ratings at the obligor level, was largely achieved; the principal objective for 2002 is the transition to individual credit facility ratings.
The establishment and maintenance of a uniform risk ratings system represent the cornerstone of the credit risk management
framework. As such, its increasing usage, adaptability to different businesses/transactions/risks, and integrity of application by the
different users, remain central to the core risk management programme.
Transparent Pricing Methodology (a capital allocation process) • The next stage of development, following the successful implementation of a risk ratings system, is the creation of a database of default and loss statistics relative to each rating class and, secondly,
a methodology for the estimation and internal allocation of operating costs. These components will underpin a pricing and economic
capital allocation process. In this regard CRG is working with KMV (a San Francisco-based vendor providing software for actual and
surrogate default probability estimates), utilising their suite of products to estimate default norms, where applicable, on the Group
credit portfolio. Following the completion of this project in 2002, an internal database on default probabilities can be constructed.
In addition, ABC Group continued to play a leading role in dialogue with other banks in the region, seeking to develop regional
default and loss benchmarks. ABC actively participated in several regional conferences on ’Basel Two’, hosting a regional banks’
conference to discuss the challenges leading up to 2005.
41
innovation
Credit Risk Management continued
Portfolio Risk Reviews and Control • On-site reviews of ABC unit portfolios, by senior credit and business management, are an
ongoing process. Now, enhanced systems and data availability allow the production of exposure studies by unit, industry and country,
highlighting key areas of concentrations, risk ratings and return on capital – at both portfolio and individual obligor levels. The primary
purpose of these studies is threefold: to provide the credit approval process with empirical portfolio statistics, identify portfolio
concentrations – as related to geographical region/country, industry, counterparty or banking product – and review dynamically the
need for portfolio diversification. Development of this programme continues.
Internal Credit Risk Re-organisation • During 2001 the Head Office Credit Department was restructured and merged with Credit
Risk Control & Policy Unit. Synergies anticipated include a more streamlined credit process, more productive use of resources and
greater focus on developing specific industry and product expertise.
Policies • Revision of both the ABC Group and the parent bank Credit Policy Manuals was completed, incorporating the main
elements of the Credit Risk Management framework outlined above. A key component is an approval structure based on risk ratings,
tenor and other guidelines, including portfolio thresholds and concentrations. Implementation is expected in 2002.
CRG is also assisting in the compilation/review of the Credit Policy Manuals of the domestic banking units specialising in the retail
and small to medium-sized business markets, mainly the Arab World subsidiaries. This process, from a policy and future regulatory
perspective, will provide the basis for business segmentation, and resultant synergies on risk control and credit processes, within the
ABC Group.
Procedures • Rationalisation of the credit process within the ABC Group, aimed at achieving a higher degree of efficiency and Group
control, was completed. Significant enhancements included the streamlining of the processes for reviewing and setting Group country
and Financial Institutions counterparty risk limits.
42
Market Risk Management
Systems • Algorithmics’ RiskWatch, the market risk management system selected to help meet ABC Group’s needs and regulatory
requirements, for the foreseeable future, in data capture and measurement of all types of market risk and efficient allocation of
capital, completed user acceptance testing and went live in April 2001. It provides Historic, Monte Carlo and Variance/Covariance
Value-at-Risk (VaR) calculation as well as marginal VaR and a suite of applications providing enhanced stress testing and modelling
capabilities, including sensitivity calculations aggregated by, inter alia, location, risk and trading desk. Parallel running of the system
commenced in Bahrain and London in 2001 and is continuing. The system will aid in the setting of capital-optimised limits through
providing management with more accurate quantification of exposure risk.
Risk Management Department (RMD) and Group Treasury are currently working on incorporating the new functionality into
business models and limit structures.
Methodology • Value-at-Risk – Historic VaR has been introduced and is being used by RMD. The process was initiated with 2 years’
historic data and augmented with daily market data capture since inception. RMD expects to extend the historic time series from
3 to 5 years in 2002 using an external data provider. VaR systems can now support all levels of activity in the core banking group,
providing full statistical analysis of limit utilisation and risk, broken down by product and/or unit.
The VaR is being calculated using a 98 per cent two-tail confidence, one-day horizon.
Basis Point Value (BPV) – Selective use of BPV was introduced for certain specific trading limits in 2001 in the Bahrain Treasury.
In 2002 this sensitivity measure will be rolled out for all interest rate risk products and positions in both the trading book and the
banking book and offered to ABC branches and subsidiaries.
Limit Setting -Trading – VaR guidelines have been established for treasury trading activities, with the intention of firming guidelines
into limits in 2002 once management is comfortable with the parallel run results.
Liquidity Risk Management (LRM) • LRM Policy was updated to replace the previous policy and to reflect the most recent Treasury
Contingency Funding Plan approved by the Board. The extension of Group-wide liquidity consolidation initiatives continued.
Remedial Loans and Recovery
The Remedial Loans Unit continues to pursue its primary objective of ongoing reduction in the impaired or classified asset portfolio of
ABC Group, through proactive asset management and disposals, practical workouts and debt restructuring exit strategies. It seeks
to maximise the net present value of recoveries whilst minimising the impact of credit losses, where appropriate by employing credit
derivatives and swaps to mitigate against identified but unrealised credit risks.
ABC business units submit quarterly reports on non-performing credits, with provision forecasts, which are evaluated by Head
Office senior management to determine the adequacy of existing provisions. All units submit their impaired asset credit reviews on
a standardised ’Action Plan’ format that analyses recovery potential under at least two alternative identifiable exit scenarios. This helps
to focus account officers’ minds on the need to reduce non-performing credits within agreed deadlines. Remedial Loans is pleased
with progress in 2001. Exposure to the troubled countries of Thailand, Indonesia, China, Russia and Pakistan was reduced in 2000
by US$334 million, and by a further US$205 million in 2001 to a manageable total of US$160 million. This was achieved through
a combination of repayments, debt rescheduling and restructuring, asset sales or swaps and bankruptcy proceedings where these
were unavoidable.
Project Name
Oman LNG
Project Sponsor(s)
Government of Oman, Shell, TotalFinaElf + others.
Project Country
Oman
Purpose
LNG plant refinancing
Industry
LNG
Deal Size
US$1,300 million
March 15, 2002
ABC Role
ABC Underwriting
US$108 million
43
2002 and Beyond
For 2002, the CRG’s ambitious programme includes, in the systems area, further development and rollout of the RXM and the
completion of the KMV pilot project to develop a surrogate default database. In the risk management area, once the parallel runs
mentioned above have been accepted by senior management, treasury limits will be formalised based upon the new aggregated risk
parameters and model validation and back testing results will be used to support an enhanced process for allocation of regulatory
and economic capital. CRG anticipates that by the end of 2002 the VaR of every product offered by the core banking units will
have been established.
2002 will also see the expansion of the credit risk rating methodology to individual credit facilities, the introduction of risk ratingsrelated approval authorities and an updated and revised Group Credit Policy. The introduction of separate product-based credit
policies and procedures, tailored for the small business and retail customer segments of the Arab World subsidiaries, together
with improved, better integrated, reporting systems will significantly enhance Head Office overview of these activities. Development
of the risk-adjusted capital allocation process, begun in 2001, will be significantly progressed. The drive to improve the efficiency
and cost effectiveness of the credit process will continue, with emphasis on the potential offered by electronic processing of credit
applications to streamline the approval process.
Head Office Global Information Technology Department is responsible for global IT strategy and planning, and all related technical
services throughout the Group. The department fulfils an important 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 needs with the Group’s
technology strategy and primary concern for delivering efficient, cost-effective, systems.
The Group’s global technology upgrade and standardisation programme for the core bank units took a further step forward in
October 2001 with the completion of the final phase of the new Core Banking System Project, when the state-of-the-art integrated
back office system went live in Bahrain, effectively switching off the legacy systems.
This was a significant achievement for ABC and one marking the start of a new era, with Head Office benefiting from:
•
•
•
•
•
Deployment of state of the art technology to streamline business processes and increase efficiency, using functionalities such
as Straight Through Processing (STP);
Improved management control over technology;
Advanced reporting capabilities (exposure reporting, regulatory reporting and consolidated reports);
Improved product support for treasury and commercial banking activities (enhancing ABC’s capability to increase product
offerings, volume and revenue);
Improved Management Information quality.
ABC’s new integrated banking systems will be rolled out in 2002 to its overseas units in parallel with the deployment of other
components of the Core Banking Systems, including the real-time front office and trade finance systems. Meanwhile, ABC has
completed the implementation of its Enterprise Risk Management Systems in the areas of credit and market risk providing, for Credit
Risk Management, detailed Group-wide treasury and non-treasury activity and exposure information and, for Market Risk Management,
support for advanced risk analytics such as VaR and simulation techniques.
As part of its ’e-Enable the Enterprise’ initiative, since mid-2001 ABC has availed selected customers with its new in-house banking
solution through the Group’s web portal (ABC On-Line). ABC On-Line provides customers with secure access to their portfolio
information, statements, confirmations and advices and market prices on an on-line, real-time basis. Additional enhancements and
features are in course of on-going implementation and in 2002 ABC is planning to extend its e-business services by offering
ABC On-Line to an increasing number of customers.
In its continuous effort to streamline efficiency and reduce costs, ABC has completed the implementation of a web-based
Enterprise Document Management System that allows for business processes to be automated as part of an electronic workflow for
Head Office departments, and will be seeking to deploy this technology in other areas such as in ’e-Procurement’.
The Group has also made significant advances with key IT initiatives at ABC’s Arab World subsidiaries, launching mobile/phone
banking services in Jordan and progressing the implementation of best-of-breed retail banking systems in ABC Egypt, including the
latter’s new ATM on-line network and credit card processing services, now fully operational.
Global Information Technology dubs 2002 ’the year of customer delivery’, where customers will be further empowered through
instant access to account information and account management capabilities, delivered to their desktops through the Internet,
protected by state-of-the-art security systems and firewalls.
44
Auditors’ Report to the Shareholders
of Arab Banking Corporation (B.S.C.)
We have audited the accompanying consolidated balance sheet of Arab Banking Corporation (B.S.C.) [the bank]
and its subsidiaries [the group] as of 31 December 2001, and the related consolidated statements of income,
cash flows and the changes in equity for the year then ended. These consolidated financial statements are
the responsibility of the bank’s Board of Directors. Our responsibility is to express an opinion on these consolidated
financial statements based on our audit.
We conducted our audit in accordance with International Standards on Auditing. Those Standards require
that we plan and perform the audit to obtain reasonable assurance about whether the consolidated financial
statements are free of material misstatement. An audit includes examining, on a test basis, evidence supporting
the amounts and disclosures in the consolidated financial statements. An audit also includes assessing the
accounting principles used and significant estimates made by management, as well as evaluating the overall
financial statement presentation. We believe that our audit provides a reasonable basis for our opinion.
In our opinion, the consolidated financial statements present fairly, in all material respects, the financial position
of the group as of 31 December 2001 and of the results of its operations and its cash flows for the year then
ended in accordance with International Accounting Standards.
We confirm that, in our opinion, proper accounting records have been kept by the bank and the consolidated
financial statements, and the contents of the directors’ statement relating to these consolidated financial
statements, are in agreement therewith. We further report, to the best of our knowledge and belief, that no
violations of the Bahrain Commercial Companies Law, nor of the Bahrain Monetary Agency Law, nor of the
memorandum and articles of association of the bank have occurred during the year ended 31 December 2001
that might have had a material adverse effect on the business of the bank or on its consolidated financial position
and that the bank has complied with the terms of its banking licence. We obtained all the information and
explanations which we required for the purposes of our audit.
14 February 2002
Manama, Kingdom of Bahrain
45
Consolidated Balance Sheet
31 December 2001
Note
2001
(US$ million)
2000
(US$ million)
462
341
3,616
6,444
14,225
175
46
830
447
409
713
3,030
7,060
14,039
247
41
697
440
26,586
26,676
12,762
8,703
79
142
49
687
11,451
10,058
249
220
48
637
1,817
1,692
24,239
24,355
434
417
1,000
(74)
463
524
1,000
(74)
456
522
1,913
1,904
26,586
26,676
ASSETS
Liquid funds
Trading securities
Non-trading securities
Loans and advances
Interest receivable
Investments in associates
Other assets
Premises and equipment
3
4
5
TOTAL ASSETS
LIABILITIES
Deposits from customers
Deposits from banks and other financial institutions
Certificates of deposit
Interest payable
Taxation
Other liabilities
TERM NOTES, BONDS AND OTHER TERM FINANCING
MINORITY INTERESTS
6
7
EQUITY
Share capital
Treasury stock
Reserves
Retained earnings
TOTAL LIABILITIES, MINORITY INTERESTS AND EQUITY
Khalifa Al-Kindi
Chairman
Ghazi Abdul-Jawad
The attached notes 1 to 28 form part of these consolidated financial statements
46
Consolidated Statement of Income
Year ended 31 December 2001
Note
2001
(US$ million)
2000
(US$ million)
OPERATING INCOME
Interest income
Interest expense
Net interest income
1,524
(1,055)
1,673
(1,240)
469
293
433
280
762
713
(128)
(66)
634
647
291
61
122
281
54
116
Total operating expenses
474
451
PROFIT BEFORE TAXATION AND MINORITY INTERESTS
160
196
(23)
(35)
(33)
(36)
102
127
1.08
1.35
9
Total operating income
Provision for losses on loans and advances, net of recoveries
4
NET OPERATING INCOME AFTER PROVISIONS
OPERATING EXPENSES
Staff
Other
Taxation on foreign operations
Minority interests in subsidiaries
10
6
NET PROFIT FOR THE YEAR
EARNINGS PER SHARE (expressed in US dollars)
25
47
Consolidated Statement of Cash Flows
2001
(US$ million)
2000
(US$ million)
102
127
128
27
66
26
(24)
(21)
308
568
(276)
(65)
1,200
(1,330)
(13)
(88)
(366)
(1,095)
(924)
(46)
853
343
248
141
537
(648)
(3,760)
3,444
(59)
62
(1,616)
1,723
(53)
38
OPERATING ACTIVITIES
Net profit for the year
Items not involving cash flow:
Provisions for losses on loans and advances
Depreciation
Item considered separately:
Gains less losses on non-trading securities
Changes in operating assets and liabilities:
Trading securities
Loans and advances
Other assets
Other liabilities
Other non-cash movements
Net cash inflow (outflow) from operating activities
INVESTING ACTIVITIES
Purchase of non-trading securities
Sale and redemption of non-trading securities
Purchase of premises and equipment
Sale of premises and equipment
Net cash (outflow) inflow from investing activities
(313)
92
FINANCING ACTIVITIES
(Repayment) 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
Net cash (outflow) inflow from financing activities
(171)
1,812
(1,744)
(66)
(15)
1,225
(795)
(56)
(169)
359
Increase (decrease) in liquid funds
Effect of exchange rate changes on liquid funds
Liquid funds at beginning of the year*
55
(2)
409
(197)
19
587
Liquid funds at end of the year*
462
409
* Liquid funds comprise cash, nostro balances and balances with central banks.
48
Consolidated Statement of Changes in Equity
Share
capital
Treasury
stock
Statutory
reserve
General
reserve
Extraordinary
financial
reserve
Capital
reserve 2
Revaluation
reserve 2
Share
premium 2
Retained
earnings 3
Cumulative
changes
in fair
value
Total
(US$ million)
Balance at the end of the
year 1999
Dividend
Net profit for the year – 2000
Transfer from retained earnings
Foreign exchange translation
adjustments
year 2000
1,000
-
170
13
140
-
10
-
11
-
42
(1)
71
-
487
(56)
127
(12)
-
1,857
(56)
127
-
(24)
-
(24)
-
-
-
-
-
-
-
-
1,000
(74)
183
140
10
11
41
71
522
-
1,904
Restatement in accordance
with IAS 39
Dividend
Net profit for the year – 2001
Transfer from retained earnings
adjustments
Transfer to statement of income
on disposal of available for sale
securities (previously included in
retained earnings on adoption
of IAS 39)
Cumulative changes in fair
values
year 2001
(74)
-
-
-
10
-
-
(1)
-
-
(33)
(66)
102
(9)
-
(33)
(66)
102
-
-
-
-
-
-
-
-
-
(14)
-
(14)
-
-
-
-
-
-
-
-
22
-
22
-
-
-
-
-
-
-
-
-
(2)
(2)
193
140
10
10
41
71
524
(2)
1,913
1,000
(74)
1. A dividend of US$0.70 per share (2000: US$0.70 per share) has been proposed for approval at the Annual Ordinary General Meeting.
2. These reserves are not distributable.
3. Retained earnings include:
• non-distributable reserves amounting to US$111 million relating to subsidiaries (2000: US$77 million); and
• negative balance of US$47 million (2000: US$60 million) representing net unrealised losses on translation of investments in foreign subsidiaries into US dollars.
Out of the balance at 1 January 2001 of US$60 million, US$27 million related to ineffective hedges and was absorbed in retained earnings as part of IAS 39
transition adjustments.
4. Note 8 contains further details of equity.
49
Notes to the Consolidated Financial Statements
31 December 2001
1
INCORPORATION AND ACTIVITIES
The parent company, Arab Banking Corporation (B.S.C.), [the Bank] incorporated in the Kingdom 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.) and its subsidiaries [the Group] are prepared in
accordance with the Bahrain Commercial Companies Law and the Bahrain Monetary Agency Law and in conformity with International
Accounting Standards, interpretations issued by the Standing Interpretation Committee and prevailing practices of the banking
industry. The following is a summary of the significant accounting policies:
Accounting convention
These consolidated financial statements are prepared under the historical cost convention, as modified by the revaluation of premises
and the measurement at fair value of derivatives and trading and available-for-sale investment securities. In addition, as more fully
discussed below, assets and liabilities that are hedged are carried at fair value to the extent of the risk being hedged.
Change in accounting policies
The Group has adopted International Accounting Standard IAS 39 “Financial Instruments: Recognition and Measurement” for the year
ended 31 December 2001. This has resulted in significant changes in the accounting policies of the Group in respect of recognition and
measurement of derivatives, as well as the measurement of certain non-derivative financial instruments. In accordance with the transitional provisions of this standard, the Group has accounted for changes in policies with effect from 1 January 2001 and has
not restated comparatives. The major changes are as follows:
Derivatives
As at the beginning of the financial year, the Group has recognised for the first time the fair value of all derivatives in its balance
sheet as either assets or liabilities at their fair values. Prior to the adoption of IAS 39, only the fair values of derivative financial
instruments entered into for trading activities were recognised in the consolidated balance sheet. Derivatives and other off-balance
sheet instruments used to hedge exposures to fluctuation in interest and exchange rates in conjunction with asset and liability activity
were recognised in a manner that would match the accounting treatment of assets and liabilities hedged. Gains or losses (net of
adjustments to related assets or liabilities) on fair value hedges at 31 December 2000 were adjusted against the balance of retained
earnings on 1 January 2001.
Previously, the Group valued all non-trading securities at amortised cost, less provision for impairment. Subsequent to the implementation of IAS 39, the Group reclassified such investments as “held to maturity” and “available for sale” and remeasured those
classified as available for sale to fair value. The gain or loss on remeasuring to fair value was taken to retained earnings on 1 January
2001. On sale the gain or loss is recycled through the statement of income.
Loans and advances
Loans originated by the Group by providing money directly to the borrower or to a sub-participation agent at the drawdown dates are
classified as loans originated by the Group. Purchased loans are classified as held-to-maturity or available-for-sale depending on
management's intent. Originated loans and purchased loans classified as held-to-maturity are stated at amortised cost less provision for
impairment. Loans classified as available for sale are stated at fair value. The carrying values of loans and advances which are being
effectively hedged for changes in fair value are adjusted to the extent of the changes in fair value being hedged.
Prior to adoption of IAS 39, all loans and advances were stated at amortised cost less provision for impairment.
Provision for impairment of financial assets
The calculation of impairment for loans and advances and other financial assets is based on the net present value of anticipated futures
cash flows discounted at original interest rates. Previously future recoveries were not discounted to present values. The difference
arising from recalculating impairment based on the net present value of futures cash flows was taken to retained earnings on 1 January
2001.
Effect of change in accounting policies
The effect of the adoption of this standard is disclosed in the consolidated statement of changes in equity.
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.
Liquid funds
Liquid funds comprise cash, nostro balances and balances with central banks.
Placements with banks and other financial institutions and other money market placements
Placements with banks and other financial institutions and other money market placements are stated at cost net of any amounts
written off and provision for impairment. The carrying values of such assets which are being effectively hedged for changes in fair
value are adjusted to the extent of the changes in fair value being hedged. Resultant gains or losses are recognised in the statement of
income.
50
31 December 2001
Investments in associates owned between 20% and 50% are accounted for by the equity method.
Trading securities
Trading securities are carried at fair value with any gains and losses arising from a change in fair value being included in the statement
of income in the period in which it arises.
These are classified as follows:
• Held to maturity
• Available for sale
All non-trading securities are initially recognised at cost, being the fair value of the consideration given including acquisition charges
associated with the security.
Held to maturity
Securities which have fixed or determinable payments and which are intended to be held to maturity, are subsequently measured at
amortised cost, less provision for impairment in value. Amortised cost is calculated by taking into account any discount or premium on
acquisition.
Available for sale
All securities intended to be held for an indefinite period of time and which may be sold in response to needs for liquidity, changes in
interest rates or equity prices are classified as “available for sale”. They are remeasured at fair value based on quoted market prices
or amounts derived from models as appropriate. Unless unrealised gains and losses on remeasurement to fair value are part of an
effective hedging relationship, they are reported as a separate component of equity until the security is sold, collected or otherwise
disposed of, or the security is determined to be impaired, at which time the cumulative gain or loss previously reported in equity
is included in the statement of income for the period. In relation to investments which are part of an effective hedging relationship
any gain or loss arising from a change in fair value is recognised directly in the statement of income.
Fair values
For securities and investments traded in organised financial markets, fair value is determined by reference to quoted market bid prices.
For securities and investments where there is no quoted market price, a reasonable estimate of the fair value is determined by
reference to the current market value of another instrument which is substantially the same, or is based on the expected cash flows
discounted at current rates applicable for items with similar risk characteristics.
The fair value of unlisted options is determined by internal option pricing models.
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 (held in revaluation reserve in
respect of that asset) 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.
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.
Premiums and discounts on originated loans as well as securities and loans designated as held to maturity or available for sale are
amortised on a systematic basis to maturity using the effective interest method and taken to interest income.
Offsetting
Financial assets and financial liabilities are only offset and the net amount reported in the balance sheet when there is a legally
enforceable right to offset the recognised amounts and the bank intends either to settle on a net basis, or to realise the asset and
settle the liability simultaneously.
Loans and advances
Loans originated by the Group by providing money directly to the borrower or to a sub-participation agent at the drawdown dates
are classified as loans originated by the Group. Purchased loans are classified as held-to-maturity or available-for-sale depending on
management's intent. Originated loans and purchased loans classified as held-to-maturity are stated at amortised cost less provision for
impairment. Loans classified as available for sale are stated at fair value. The carrying values of loans and advances which are being
effectively hedged for changes in fair value are adjusted to the extent of the changes in fair value being hedged.
Impairment and uncollectability of financial assets
An assessment is made at each balance sheet date to determine whether there is objective evidence that a specific financial asset
may be impaired. If such evidence exists, the estimated recoverable amount of that asset is determined and any impairment loss
is recognised in the statement of income. The recoverable amount is based on the net present value of anticipated futures cash flows,
discounted at the original interest rate.
In addition to provisions for specific impaired loans and advances, a general provision is made for impairment against portfolios of
loans and advances based on historical default rates.
51
31 December 2001
2
SIGNIFICANT ACCOUNTING POLICIES (continued)
Foreign currencies
Monetary assets and liabilities in foreign currencies are translated into US dollars at the market rates of exchange prevailing at the
balance sheet date.
The assets and liabilities of foreign subsidiaries are translated at rates of exchange ruling at the balance sheet date. Income and
expense items are translated at average exchange rates for the period. Foreign exchange translation gains and losses arising from
translating the financial statements of subsidiaries into US dollars are recorded directly in retained earnings.
Deposits
All money market and customer deposits are carried at amortised cost. An adjustment is made to these, where effective fair value
hedges have been made, to adjust the value of the deposit for the fair value being hedged with the resultant gains or losses being
recognised in the statement of income.
Taxation on foreign operations
There is no tax on corporate income in the Kingdom of Bahrain. Taxation on foreign operations is provided for in accordance with the
fiscal regulations 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.
Provisions
Provisions are recognised when the bank has a present obligation (legal or constructive) as a result of a past event, it is probable that
an outflow of resources embodying economic benefits will be required to settle the obligation and a reliable estimate can be made
of the amount of the obligation.
Treasury stock
Treasury stock is stated at cost adjusted for any gain or loss on subsequent sale. Treasury stock does not carry the right to dividends.
Employee pension and other end of service benefits
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.
Fiduciary assets
Assets held in trust or in a fiduciary capacity are not treated as assets of the Group and, accordingly, are not included in the consolidated balance sheet.
Repurchase and resale agreements
Assets sold with a simultaneous commitment to repurchase at a specified future date (‘repos’) continue to be recognised in the
balance sheet and are stated in accordance with accounting policies for non-trading securities and loans. The counterparty liability for
amounts received under these agreements is included in deposits from banks and other financial institutions or deposits from customers,
as appropriate. The difference between sale and repurchase price is treated as interest expense and accrued over the life of the repo
agreement. Assets purchased with a corresponding commitment to resell at a specified future date (‘reverse repos’) are not recognised
in the balance sheet, as the bank does not obtain control over the assets. Amounts paid under these agreements are included in
placements with banks and other financial institutions or loans and advances, as appropriate. The difference between purchase and
resale price is treated as interest income and accrued over the life of the reverse repo agreement.
Trade and settlement date accounting
All ‘regular way’ purchases and sales of financial assets are recognised on the trade date, i.e. the date that the bank commits to
purchase the asset. Regular way purchases or sales are purchases or sales of financial assets that require delivery of assets within the
time frame generally established by regulation or convention in the market place.
Derivatives
The Group enters into derivative instruments including forwards, futures, forward rate agreements, swaps and options in the foreign
exchange, interest rate and capital markets. The fair value of a derivative is the equivalent of the unrealised gain or loss from marking
to market the derivative using prevailing market rates or internal pricing models. Derivatives with positive market values (unrealised
gains) are included in other assets, and derivatives with negative market values (unrealised losses) are included in other liabilities in the
consolidated balance sheet.
Changes in the fair values of derivatives held for trading activities or to hedge other trading positions are included in other
operating income in the consolidated statement of income.
For the purposes of hedge accounting, hedges are classified into two categories: (a) fair value hedges which hedge the exposure to
changes in the fair value of a recognised asset or liability; and (b) cash flow hedges which hedge exposure to variability in cash flows
that is attributable to a particular risk associated with a recognised asset or liability or a forecasted transaction.
Changes in the fair value of derivatives that are designated, and qualify, as fair value hedges and that prove to be highly effective in
relation to the hedged risk, are included in other operating income along with the corresponding changes in the fair value of the hedged
assets or liabilities which are attributable to the risk being hedged. If the hedge no longer meets the criteria for hedge accounting or is
discontinued, an adjustment to the carrying amount of a hedged interest-bearing financial instrument is amortised to consolidated
statement of income over the period of maturity.
Changes in the fair value of derivatives that are designated, and qualify, as cash flow hedges and that prove to be highly effective
in relation to the hedged risk, are recognised in a separate component of equity and the ineffective portion is recognised in the
consolidated statement of income. The gains or losses on cash flow hedges recognised initially in equity are transferred to the
consolidated statement of income in the period in which the hedged transaction impacts the consolidated statement of income.
52
31 December 2001
Where the hedged transaction results in the recognition of an asset or a liability, the associated gains or losses that had been initially
recognised in equity are included in the initial measurement of the cost of the related asset or liability.
Hedge accounting is discontinued when the derivative hedging instrument either expires or is sold, terminated or exercised, or no
longer qualifies for hedge accounting. Upon such discontinuance:
• in the case of cash flow hedges, any cumulative gain or loss on the hedging instrument recognised in equity is retained in equity until
the forecasted transaction occurs. When such transaction occurs, the gain or loss retained in equity is recognised in the consolidated
statement of income or included in the initial measurement of the cost of the related asset or liability, as appropriate. Where the hedged
transaction is no longer expected to occur, the net cumulative gain or loss recognised in equity is transferred to the consolidated
statement of income.
• in the case of fair value hedges of interest-bearing financial instruments, any adjustment relating to the hedge is amortised over the
remaining term to maturity.
Certain derivative transactions, while providing effective economic hedges under the Group‘s asset and liability management and risk
management positions, do not qualify for hedge accounting under the specific rules in IAS 39 and are therefore treated as derivatives
held for trading and the related fair value gains and losses reported in other operating income.
3
NON-TRADING SECURITIES
2001
(US$ million)
Held to maturity
Available for sale
38
3,578
Balance at 31 December
3,616
The market value of held to maturity securities at the year-end amounted to US$41 million.
4
LOANS AND ADVANCES
2001
(US$ million)
2000
(US$ million)
2,165
2,335
1,069
1,233
5,984
1,746
325
2,548
2,079
1,030
1,125
5,802
1,696
379
Loan loss provisions
14,857
(632)
14,659
(620)
14,225
14,039
i) By industrial sector
Financial
Manufacturing
Construction
Trade
Consumer and other services
Government
Other
ii) By classification
2001
(US$ million)
Originated
Held to maturity
Available for sale
14,623
8
226
14,857
(632)
14,225
53
31 December 2001
4
LOANS AND ADVANCES (continued)
The movements in loan loss provisions during the year were as follows:
Provisions
At 1 January
Charge for the year
Recoveries
Suspended for the year
Write-offs
and other adjustments
Total
2001
(US$ million)
Interest in suspense
Provisions
2000
(US$ million)
Interest in suspense
620
193
(65)
(103)
242
(18)
53
(23)
869
134
(68)
(298)
270
(15)
90
(98)
(13)
(1)
(17)
(5)
632
253
620
242
The gross carrying value of loans placed on a non-accrual basis amounted to US$667 million at the year-end (2000: US$694 million).
5
PREMISES AND EQUIPMENT
Land and
buildings
(US$ million)
Equipment
and other assets
(US$ million)
Total
(US$ million)
Cost or valuation:
At 1 January 2001
Additions
Disposals
Foreign exchange translation and other adjustments
394
22
(10)
(7)
248
37
(49)
(9)
642
59
(59)
(16)
At 31 December 2001
399
227
626
Depreciation:
At 1 January 2001
Provided during the year
Disposals
Foreign exchange translation and other adjustments
50
7
(2)
1
152
20
(43)
(6)
202
27
(45)
(5)
At 31 December 2001
56
123
179
Net book value:
At 31 December 2001
343
104
447
At 31 December 2000
344
96
440
2001
(US$ million)
2000
(US$ million)
25
24
27
21
49
48
29
(6)
36
(3)
23
33
6
TAXATION ON FOREIGN OPERATIONS
Balance sheet:
Current tax liability
Deferred tax liability
Income statement:
Current tax on foreign operations
Deferred tax on foreign operations
In view of the operations of the Group being subject to various tax jurisdictions and regulations, it is not practical to provide a
reconciliation between the accounting and taxable profits together with the details of effective tax rates.
54
31 December 2001
7
In the ordinary course of business, the parent company and certain subsidiaries raise term financing through various capital markets at
commercial rates.
Total obligations outstanding at 31 December 2001
Parent company
(US$ million)
Subsidiaries
(US$ million)
Total
(US$ million)
330
308
400
-
346
2
352
79
676
310
352
400
79
1,038
779
1,817
1,038
185
594
185
1,632
1,038
779
1,817
1,038
654
1,692
2001
(US$ million)
2000
(US$ million)
Authorised – 150 million shares of US$10 each
1,500
1,500
Issued, subscribed and fully paid – 100 million shares of US$10 each
1,000
1,000
Aggregate maturities:
2002
2003
2004
2005
2008
Interest basis:
Fixed
Floating
Total obligations outstanding at 31 December 2000
8
EQUITY
a) Share capital
b) Treasury stock
Treasury stock represents the purchase by the Bank of its own shares. At the end of the year the Bank held 5,867,736 shares
(2000: 5,867,736 shares).
c) Statutory reserve
As required by the Articles of Association of the Bank and the Bahrain Commercial Companies Law, 10% of the net profit for the
year is transferred to the statutory reserve. Such annual transfers will cease when the reserve totals 50% of the paid up share
capital. The reserve is not available for distribution except in circumstances as stipulated in the Bahrain Commercial Companies Law
and following the approval of the Bahrain Monetary Agency.
d) General reserve
The general reserve underlines the shareholders’ commitment to enhance the strong equity base of the Bank.
e) Extraordinary financial reserve
The extraordinary financial reserve has been established to cover any possible future diminution in the carrying value of assets and is
used at the discretion of the Board of Directors.
f) Capital reserve
The capital reserve arises on the consolidation of subsidiaries acquired at a discount and is not distributable.
g) Revaluation reserve
The revaluation reserve has been created by revaluation of properties in certain subsidiaries and is not distributable.
55
31 December 2001
9
OTHER OPERATING INCOME
2001
(US$ million)
Fee and commission income
Fee and commission expense
Gains less losses on trading securities
Gains less losses on non-trading securities
Gains less losses on dealing in foreign currencies
Credit card income -net
Gains less losses on dealing in derivatives
Other - net
10
2000
(US$ million)
180
(14)
6
24
34
20
8
35
191
(19)
7
21
27
20
33
293
280
Country of
Incorporation
Interest of
Arab Banking
Corporation (B.S.C.)
(%)
Spain
Panama
Monaco
Hong Kong
United Kingdom
Germany
Bahrain
Jordan
Brazil
Algeria
Egypt
Tunis
Egypt
67
67
67
55
100
99
100
87
79
70
96
100
100
STAFF
The number of staff employed by the Group as of 31 December 2001 was 5,309 (2000: 5,270).
11
INVESTMENTS IN SUBSIDIARIES AND ASSOCIATES
The principal subsidiaries, all of which have 31 December as their year-end, are as follows:
Banco Atlantico S.A. Group companies
Banco de Iberoamerica
ABC Banque Internationale de Monaco S.A.M.
International Bank of Asia Ltd.
Arab Banking Corporation – Daus & Co. GmbH
Arab Banking Corporation (ABC) – Jordan
ABC Algeria
Arab Banking Corporation – Egypt [S.A.E.]
ABC Tunisie
ABC Securities [Egypt] S.A.E.
The principal associate is Arab Financial Services (E.C.), incorporated in Bahrain, with 36% ownership.
12
SIGNIFICANT NET FOREIGN CURRENCY EXPOSURES
Significant net foreign currency exposures, arising mainly from investments in subsidiaries, are as follows:
2001
(in million)
Long (short)
Brazilian real
Egyptian pound
Euro
Hong Kong dollar *
Jordanian dinar
Pound sterling
Saudi riyal
Currency
7
439
121
1,997
14
32
(434)
2000
(in million)
US$
3
96
107
256
20
46
(116)
Currency
92
511
82
1,862
28
32
(415)
US$
47
131
76
239
40
48
(111)
* The Hong Kong dollar exposure to the extent of US$241 million (2000: US$221 million) is covered by currency options to minimise
the risk of loss from adverse movements in the foreign currency rates.
56
31 December 2001
13
DERIVATIVES
In the ordinary course of business, the Group enters into various types of transactions that involve derivative financial instruments.
A derivative financial instrument is a financial contract between two parties where payments are dependent upon movements in price
in one or more underlying financial instrument, reference rate or index. Derivative financial instruments include forwards, futures,
swaps and options.
The table below shows the positive and negative fair values of derivative financial instruments, which are equivalent to the market
values, together with the notional amounts analysed by the term to maturity. The notional amount is the amount of a derivative’s
underlying asset, reference rate or index and is the basis upon which changes in the value of derivatives are measured. The notional
amounts indicate the volume of transactions outstanding at year-end and are neither indicative of the market risk nor credit risk.
Positive
fair value
2001
Negative
fair value
(US$ million)
Notional
amount
2000
Notional
amountb
(US$ million)
45
10
4
1
-
61
6
6
1
-
3,851
5,931
1,837
157
703
1,484
2,669
2,626
1,179
183
60
74
12,479
8,141
33
-
10
-
2,477
70
241
174
5,169
907
221
41
33
10
2,962
6,338
93
84
15,441
14,479
673
597
Derivatives held for trading:
Interest rate and currency swaps
Forward foreign exchange contracts
Options
Futures
Equity contracts
Derivatives held as hedgesa
Interest rate and currency swaps
Forward foreign exchange contracts
Options
Futures
Risk weighted equivalents (credit and market risk)
a
Derivatives held as hedges as of 31 December 2001 include:
• cash flow hedges with a notional amount of US$162 million, mainly interest rate swaps of US$151 million, the fair value of
which is immaterial; and
• hedge of net investment in a foreign subsidiary of US$241 million through foreign currency options.
b
Derivatives held for hedging were fair valued and recognised as assets and liabilities from 1 January 2001. The loss of US$8 million
arising on fair valuation of those derivatives together with the related gains on the underlying hedged items was recognised in
retained earnings in accordance with IAS 39.
Derivative product types
Forwards and futures are contractual agreements to either buy or sell a specified currency, commodity or financial instrument at a
specific price and date in the future. Forwards are customised contracts transacted in the over-the-counter market. Foreign currency
and interest rate futures are transacted in standardised amounts on regulated exchanges and are subject to daily cash margin requirements. Forward rate agreements are effectively tailor-made interest rate futures which fix a forward rate of interest on a notional
loan, for an agreed period of time starting on a specified future date.
Swaps are contractual agreements between two parties to exchange interest or foreign currency differentials based on a specific
notional amount. For interest rate swaps, counterparties generally exchange fixed and floating rate interest payments based on a
notional value in a single currency. For cross-currency swaps, fixed interest payments and notional amounts are exchanged in different
currencies. For cross-currency interest rate swaps, notional amounts and fixed and floating interest payments are exchanged in different
currencies.
Options are contractual agreements that convey the right, but not the obligation, to either buy or sell a specific amount of a
commodity or financial instrument at a fixed price, either at a fixed future date or at any time within a specified period.
Derivative related credit risk
Credit risk in respect of derivative financial instruments arises from the potential for a counterparty to default on its contractual
obligations and is limited to the positive fair value of instruments that are favourable to the Group. The majority of the Group’s
derivative contracts are entered into with other financial institutions and there is no significant concentration of credit risk in respect
of contracts with positive fair value with any individual counterparty at the balance sheet date.
57
31 December 2001
13
DERIVATIVES (continued)
Derivatives held or issued for trading purposes
Most of the Group’s derivative trading activities relate to sales, positioning and arbitrage. Sales activities involve offering products
to customers. Positioning involves managing market risk positions with the expectation of profiting from favourable movements in prices,
rates or indices. Arbitrage involves identifying and profiting from price differentials between markets or products.
Derivatives held or issued for hedging purposes
The Group has adopted a comprehensive system for the measurement and management of risk. Part of the risk management process
involves managing the Group’s exposure to fluctuations in foreign exchange rates (currency risk) and interest rates through asset and
liability management activities. It is the Group’s policy to reduce its exposure to currency and interest rate risks to acceptable levels as
determined by the Board of Directors. The Board has established levels of currency risk by setting limits on currency position exposures.
Positions are monitored on a daily basis and hedging strategies used to ensure positions are maintained within established limits. The
Board has established levels of interest rate risk by setting limits on the interest rate gaps for stipulated periods. Interest rate gaps are
reviewed on a daily basis and hedging strategies used to reduce the interest rate gaps to within the limits established by the Board.
As part of its asset and liability management, the Group uses derivatives for hedging purposes in order to reduce its own exposure
to currency and interest rate risks. This is achieved by hedging specific transactions as well as strategic hedging against overall balance
sheet exposures. For interest rate risk this is carried out by monitoring the duration of assets and liabilities using simulations to
estimate the level of interest rate risk and entering into interest rate swaps and futures to hedge a proportion of the interest rate exposure. Since strategic hedging does not qualify for special hedge accounting, related derivatives are accounted for as trading instruments.
The Group uses forward foreign exchange contracts and currency swaps to hedge against specifically identified currency risks.
In addition, the Group uses interest rate swaps and interest rate futures to hedge against the interest rate risk arising from specifically
identified fixed interest rate loans. The Group also uses interest rate swaps to hedge against the cash flow risks arising on certain
floating rate loans. In all such cases the hedging relationship and objective, including details of the hedged item and hedging
instrument, are formally documented and the transactions are accounted for as hedges.
Derivatives held as hedges are predominantly used to hedge fair value changes arising from interest rate fluctuations in loans and
advances, placements, deposits and available for sale debt securities.
14
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
58
2001
(US$ million)
2000
(US$ million)
1,677
41
2,154
4,698
1,398
178
2,103
4,846
8,570
8,525
2,841
2,560
31 December 2001
15
MATURITIES OF ASSETS, LIABILITIES AND OFF BALANCE SHEET ITEMS
The maturity analysis of assets, liabilities and off balance sheet items based on remaining period to the contractual maturity date is
as follows:
At 31 December 2001
Within
one month
1–3
3–6
6 – 12
months months
months
(US$ million)
1–5
years
Over
5 years Undated
Total
Assets
Liquid funds
Trading securities
Loans and advances
Other
462
64
792
5,076
2,115
-
31
387
686
1,424
-
13
412
472
1,170
-
31
101
54
1,405
-
120
946
155
3,375
-
9
874
1
4,736
-
462
73
341
104 3,616
- 6,444
- 14,225
1,498 1,498
Total assets
8,509
2,528
2,067
1,591
4,596
5,620
1,675 26,586
9,343
5,564
18
207
-
1,756
2,197
32
83
-
637
447
21
20
-
570
297
7
366
-
397
129
1
1,062
-
59
69
79
-
- 12,762
- 8,703
79
- 1,817
1,312 1,312
1,913 1,913
15,132
4,068
1,125
1,240
1,589
207
3,225 26,586
Commitments and contingent liabilities
Foreign exchange contracts
Interest rate contracts
Equity and other contracts
1,030
2,760
1,183
3
850
2,647
624
-
1,484
1,179
1,428
221
2,649
1,280
528
277
1,961
78
2,214
202
596
17
800
-
Total
4,976
4,121
4,312
4,734
4,455
1,413
Liabilities, minority interests and equity
Term notes, bonds and other term financing
Minority interests and other
Equity
Total liabilities, minority
interests and equity
Off balance sheet items
-
8,570
7,961
6,777
703
- 24,011
59
31 December 2001
The maturity analysis of assets, liabilities and off balance sheet items based on remaining period to the contractual maturity date is
as follows:
At 31 December 2000
Within
one month
1–3
months
3–6
6 – 12
months
months
(US$ million)
1–5
years
Over
5 years
Liquid funds
Trading securities
Loans and advances
Other
409
340
217
5,457
1,216
-
23
73
1,052
1,787
-
55
101
359
1,569
-
45
54
138
1,595
-
152
976
50
3,946
-
1,481
4
3,918
-
409
98
713
128 3,030
- 7,060
8 14,039
1,425 1,425
Total assets
7,639
2,935
2,084
1,832
5,124
5,403
1,659 26,676
7,733
6,311
40
80
-
2,043
2,618
107
21
-
585
593
54
77
-
441
402
39
106
-
571
57
9
1,323
-
78
77
85
-
- 11,451
- 10,058
249
- 1,692
1,322 1,322
1,904 1,904
14,164
4,789
1,309
988
1,960
240
3,226 26,676
Commitments and contingent liabilities
Foreign exchange contracts
Interest rate contracts
Equity and other contracts
1,294
2,250
1,400
-
709
1,549
2,123
7
1,237
976
815
-
2,768
996
1,106
13
1,980
69
2,622
163
537
390
-
-
Total
4,944
4,388
3,028
4,883
4,834
927
- 23,004
Undated
Total
Assets
Minority interests and other
Equity
Total liabilities, minority interests and equity
16
8,525
5,840
8,456
183
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, and regularly monitor the exposures.
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:Within
1-3
one month months
3-6
months
6-12
months
(US$ million)
1-5
years
Over
5 years
Non
Interest
bearing
Total
At 31 December 2001
US dollars
Assets
Liabilities and minority interests
Equity
4,898 2,694
(7,283) (2,098)
(468)
407
2,462
(583)
198
424
(376)
118
448
(131)
(286)
529
-
434 11,889
(820) (11,291)
(1,913) (1,913)
(31)
(2,853)
1,003
2,077
166
31
529
(2,299) (1,346)
2,198
(3,795)
(21)
2,269
(897)
(41)
969
(342)
53
1,164
(375)
21
387
(287)
2
81
(3)
(9)
619
7,687
(1,627) (7,326)
5
(1,618)
1,331
680
810
102
69
(1,008)
Euro
Assets
60
366
31 December 2001
Within
1-3
one month months
3-6
months
At 31 December 2001
6-12
months
(US$ million)
1-5
years
Non
Interest
bearing
Over
5 years
Total
Hong Kong dollars
Assets
1,813
(1,612)
-
257
(571)
-
41
(116)
-
106
(48)
-
411
(3)
-
66
-
201
(314)
(75)
1,799
(1,786)
(72)
697
(784)
148
414
(193)
(15)
61
10,708 5,917
(14,476) (4,350)
(561)
514
270
2,964
(291) (2,641)
-
58
408
66
271
(295)
(1)
402
(131)
(5)
26
(65)
(29)
437
4,046
(161) (3,415)
26
206
(25)
266
(68)
276
3,886
(1,234)
236
1,965
(1,094)
138
1,648
(552)
(289)
702
(68)
(38)
1,760 26,586
(4,812) (26,586)
-
2,081
2,888
1,009
807
596
(3,052)
1-3
months
3-6
months
1-5
years
Over
5 years
(21)
323
Other currencies
Assets
(59)
657
Gross
Assets
(4,329)
Within
one month
At 31 December 2000
6-12
months
(US$ million)
Non
Interest
bearing
-
Total
US dollars
Assets
Equity
6,712 2,073
(6,486) (2,656)
1,138 (619)
1,842
(945)
(62)
216
(636)
(432)
487
(71)
7
674
470 12,474
(31) (647)(11,472)
- (1,904) (1,904)
14
46
1,364 (1,202)
835
(852)
423
657
3,716 1,772
(4,167) (778)
459
(96)
841
(320)
(57)
972
(228)
145
159
(522)
(61)
898
464
889
(424)
183
(451)
-
39
(63)
-
67
(35)
-
347
(6)
-
102
(268)
(24)
32
341
102
1,257
775
(1,749) (624)
(341) (28)
529
(201)
19
173
(158)
6
265
(31)
(46)
22
(80)
10
277 3,298
(352) (3,195)
(74) (454)
188
(48)
(149)
(2,081) (856)
Euro
Assets
8
138
378 7,976
(86) (1,622) (7,723)
18
408
70 (1,244)
661
Hong Kong dollars
Assets
1,956
(1,787)
169
-
234 2,928
(40) (2,382)
194
546
Other currencies
Assets
(833)
123
347
21
(351)
Gross
Assets
13,641 4,803
3,251
1,428 1,258
(14,189) (4,509) (1,529) (1,057) (630)
1,256 (743)
(100) (281) (100)
708
(449)
1,622
90
528
936 1,359 26,676
(197) (4,565)(26,676)
42
(74)
781 (3,280)
-
61
31 December 2001
16
INTEREST RATE EXPOSURE (continued)
The effective interest rates of assets, liabilities and off balance sheet instruments in major currencies are as follows:
At 31 December 2001
Within
one month
%
1-3
months
%
3-6
months
%
6-12
months
%
1-5
years
%
Over
5 years
%
3.0
2.1
2.0
2.9
2.3
2.2
3.0
3.1
2.3
5.2
3.0
3.2
6.0
5.7
4.5
6.4
-
4.5
2.9
2.6
5.1
3.7
4.0
4.3
4.9
5.3
4.4
3.9
3.9
4.7
2.8
5.2
2.2
5.1
8.3
5.4
1.5
-
4.2
2.0
-
11.3
2.6
-
9.8
3.3
-
5.1
4.4
-
5.1
-
Within
one month
%
1-3
months
%
3-6
months
%
6-12
months
%
1-5
years
%
Over
5 years
%
7.4
6.8
6.3
7.7
7.1
6.7
7.8
7.7
12.0
7.2
6.7
6.9
6.2
3.9
5.3
6.3
6.3
5.9
5.5
4.0
4.3
5.9
5.0
4.2
4.1
4.7
3.7
6.4
4.7
5.1
5.4
2.4
2.4
4.4
5.2
7.1
9.7
5.9
-
7.6
6.1
-
11.1
6.2
-
10.5
6.4
-
7.7
6.9
-
6.4
-
US dollars
Assets
Liabilities
Euros
Assets
Liabilities
Hong Kong dollars
Assets
Liabilities
At 31 December 2000
US dollars
Assets
Liabilities
Euros
Assets
Liabilities
Hong Kong dollars
Assets
Liabilities
17
CREDIT RISK
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. For details
of composition of loans and advances portfolio refer note 4.
18
GEOGRAPHICAL DISTRIBUTION OF ASSETS, LIABILITIES AND OFF-BALANCE SHEET ITEMS
2001
Western Europe
Arab World
Asia
North America
Latin America
Other
62
2000
Liabilities
Assets and equity
Off
balance
sheet
items
(US$ million) (US$ million)
(US$ million)
Assets
Liabilities
and equity
Off
balance
sheet
items
(US$ million) (US$ million) (US$ million)
10,421
4,386
4,502
4,000
2,897
380
8,433
11,299
3,306
675
2,359
514
12,237
5,387
1,293
3,803
961
330
10,304
4,671
4,855
4,060
2,293
493
8,897
10,392
3,617
1,045
2,152
573
13,089
4,243
1,632
2,909
983
148
26,586
26,586
24,011
26,676
26,676
23,004
31 December 2001
19
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.
Primary segment information (US$ million)
Wholesale
Net interest income
Operating expenses
Total assets employed
Total
Wholesale
2000
Retail
469
293
(474)
(128)
120
86
(126)
(16)
313
194
(325)
(50)
433
280
(451)
(66)
40
120
160
64
132
196
12,565
14,108
26,673
13,313
13,572
26,885
Intra-group items
(209)
(87)
26,676
26,586
Segment liabilities, minority interests and equity
Total
332
202
(343)
(71)
137
91
(131)
(57)
Profit before taxation and minority interests
2001
Retail
13,389
13,308
Intra-group items
14,007
26,697
12,756
26,763
(87)
(111)
26,676
26,586
Secondary segment information (US$ million)
Asia
2001
Europe &
Americas
34
42
8,901
3,835
Arab
world
Segment profit before taxation
and minority interests
Segment assets
20
Asia
2000
Europe &
Americas
Total
43
42
111
196
8,799
3,985
13,892
26,676
Total
Arab
world
84
160
13,850
26,586
REPURCHASE AND RESALE AGREEMENTS
Proceeds from assets sold under repurchase agreements at the year-end amounted to US$2,213 million (2000: US$2,865 million) of
which US$838 million (2000: US$1,154 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$433 million (2000: US$1,008 million)
and relate to customer product and treasury activities in retail banking subsidiaries.
21
TRANSACTIONS WITH RELATED PARTIES
In the ordinary course of business there are transactions with shareholders, associates and other related parties. Transactions with
related parties are made on the same commercial terms as those applicable to comparable transactions with unrelated parties and
do not involve more than a normal amount of risk. The year-end balances in respect of related parties included in the consolidated
financial statements are as follows:
Irrevocable commitments and contingencies
2001
(US$ million)
2000
(US$ million)
907
230
3
685
230
19
The income and expenses in respect of related parties included in the consolidated financial statements are as follows:
Interest expense
19
34
There were no loans and advances to related parties outstanding both at 31 December 2001 and 31 December 2000.
63
31 December 2001
22
FIDUCIARY ASSETS
Funds under management at the year-end amounted to US$2,922 million (2000: US$2,434 million). These assets are held in a
fiduciary capacity and are not included in these consolidated financial statements.
23
FAIR VALUE OF FINANCIAL INSTRUMENTS
“Fair value” is the amount at which an asset could be exchanged or a liability settled in a transaction between knowledgeable,
willing parties in an arm’s length transaction. Underlying the definition of fair value is the presumption that the Group is a going
concern without any intention or requirement to curtail materially the scale of its operation.
The table below sets out the estimated carrying values and fair values of those on and off-balance sheet financial instruments that
are not carried at fair value in the consolidated financial statements.
31 December 2001
Carrying
Fair
value
value Difference
(US$ million)
Carrying
value
31 December 2000
Fair
value Difference
(US$ million)
Financial assets
Placements with banks and
other financial institutions
Loans and advances
6,444
14,225
3,616
6,444
14,075
3,619
(150)
3
7,060
14,039
3,030
7,058
13,918
3,020
(2)
(121)
(10)
(133)
(147)
Financial liabilities
Deposits
21,465
21,455
10
21,509
Fair value effect of derivative instruments
held for hedging purposes
Net difference between carrying value and fair value
21,500
9
(8)
(132)
(137)
It is expected that the carrying value of loans and advances 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.
24
ASSETS PLEDGED AS SECURITY
At the balance sheet date, in addition to the items mentioned in note 20, assets amounting to US$188 million (2000: US$125
million) have been pledged as security for borrowings and other banking operations.
25
EARNINGS PER SHARE
“Basic” earnings per share are calculated by dividing the net profit for the year by the number of shares outstanding at the end of
the year. No figures for diluted earnings per share have been presented, as the bank has not issued any capital-based instruments
which would have any impact on earnings per share, when exercised.
Net profit for the year (US$ million)
Number of shares outstanding as of 31 December
Basic earnings per share (US$)
64
2001
2000
102
94,132,264
1.08
127
94,132,264
1.35
31 December 2001
26
CAPITAL ADEQUACY
The risk asset ratio calculations, in accordance with the capital adequacy guidelines established for the global banking industry, are
as follows:
CAPITAL BASE
Tier 1 Capital
Tier 2 Capital
Total capital base
(A)
RISK-WEIGHTED EXPOSURES
Balance
2001
(US$ million)
2000
(US$ million)
2,110
304
2,065
302
2,414
2,367
Risk-weighted Equivalents
2001
2000
(US$ million)
(US$ million)
2001
(US$ million)
2000
(US$ million)
Cash and claims on, guaranteed by or collateralised
by securities of central governments and central
banks of OECD countries
5,023
4,870
-
-
Claims on banks and public sector companies
incorporated in OECD countries and short-term
claims on banks incorporated in non-OECD countries
7,661
8,394
1,532
1,679
Claims secured by mortgage of
residential property
2,224
2,099
1,112
1,050
11,405
11,145
11,405
11,145
8,570
8,525
2,841
2,560
15,441
14,479
52
31
16,942
990
16,465
1,061
(B)
17,932
17,526
(A/B)
13.5%
13.5%
Assets
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
Off-balance sheet items
Commitments and contingent liabilities (note 14)
Derivatives (note 13)
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
* Market risk capital requirements are based on the standardised measurement methodology.
65
31 December 2001
27
PARENT COMPANY
The balance sheet of the parent company, Arab Banking Corporation (B.S.C.), is presented below:
2001
(US$ million)
2000
(US$ million)
47
63
2,431
2,723
4,402
77
1,460
26
186
31
30
305
2,148
3,154
4,659
158
1,397
26
93
39
11,446
12,009
Interest payable
Other liabilities
2,140
6,191
47
1,726
7,092
137
117
1,038
112
1,038
9,533
10,105
ASSETS
Liquid funds
Trading securities
Loans and advances
Interest receivable
Investments in subsidiaries
Other assets
TOTAL ASSETS
LIABILITIES
EQUITY
Share capital
Treasury stock
Reserves and retained earnings
TOTAL LIABILITIES AND EQUITY
1,000
(74)
987
1,000
(74)
978
1,913
1,904
11,446
12,009
Included in the above assets and liabilities are balances due from and due to subsidiaries and associates as follows:
Loans and advances
28
286
300
238
495
291
355
AUTHORISATION OF THE CONSOLIDATED FINANCIAL STATEMENTS
These consolidated financial statements were authorised for issue by the Board of Directors on 14 February 2002 and signed on their
behalf by the Chairman and President & Chief Executive.
66
ABC Directory
• HEAD OFFICE •
ABC Tower, Diplomatic Area,
PO Box 5698, Manama,
Kingdom of Bahrain
Tel: (973) 543000 (General),
(973) 533144 (Money Market)
(973) 533155 (Options)
(973) 533044 (Foreign Exchange),
Fax: (973) 533163/533062
Tlx: 9432 ABCBAH BN (General),
9384 ABC DEP (Foreign Exchange)
Reuters Dealing Code: ABMM-ABCZ
(Monitor), ABCD (FX), ABCB (Options),
ABDB (Money Market)
Internet: http://www.arabbanking.com
e-mail: [email protected]
Ghazi Abdul-Jawad
Internal Audit
Prasad Abraham
Senior Vice President
Tel: (973) 543387
ADMINISTRATION GROUP
Corporate Communications
Dr. Sami Dannish
First Vice President
Tel: (973) 543204
Sael Al Waary
Tel: (973) 543707
Human Resources & Administration
Dr Lulwa Mutlaq
Tel: (973) 543308
Legal & Compliance
Mounir Ben Slimane
Legal Counsel
Tel: (973) 543371
Operations
Alex Richardson
Tel: (973) 543714
Planning & Financial Control
TREASURY GROUP
Branches
Group Treasurer
Tunis (OBU)
Essam El Wakil
Tel: (973) 543375 / 532933
ABC Building
Rue du Lac d'Annecy,
Les Berges du Lac,
1053 Tunis, Tunisia
Tel: (216)(71) 861861;
(216)(71) 861110 (Treasury)
Fax: (216)(71) 860921
Tlx: 12505 ABCTU TN
Direct Dealing Reuters Code: ABCT
SWIFT: ABCOTNTT
Assistant Treasurer, Group
Operations
Ali Mirza
First Vice President & Assistant Treasurer
Tel: (973) 543241
Treasury & Marketable Securities
FX, Precious Metals, Commodities,
M.E. Currencies & Sales Head
Kareem Dashti
Tel: (973) 533044
Derivatives, MM, Islamic, New
Products & Treasury Support Head
Amr Gadallah
Tel: (973) 533155
Marketable Securities & Asset
Management
Tel: (973) 533169
• ARAB WORLD DIVISION •
Division Head
George Karam
Tel: (973) 533056
Fax: (973) 533832
Qutub Yousafali
Tel: (973) 543273
Fax: (973) 532248
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
Ahmed Ebrahim Al Moataz
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
COMMERCIAL BANKING
Corporate & Global Structured
Finance
Mark Yassin
First Vice President & Head
Tel: (973) 543292
That Emad Administrative Centre
Tower 5, 16th Floor
PO Box 3578, Tripoli, Libya
Tel: (218)(21) 3350226/ 3350227/3350228
Fax: (218)(21) 3350229
Corporate Banking
Mansour Abouen
Mohammed El Calamawy
Tel: (973) 543260
Subsidiaries
Nawaf Beyhum
Tel: (973) 543307
Government & Financial Institutions
Rashed Al Khalifa
Tel: (973) 543314
CREDIT GROUP
Syndication
Chief Credit & Risk Officer
Jonathan Ward
Tel: (973) 543331
ABC Tower, Diplomatic Area
PO Box 2808, Manama
Kingdom of Bahrain
Tel: (973) 543000
Fax: (973) 536379/533163
Tlx: 9432/9433 ABC BAH BN
Asaf Mohyuddin
Tel: (973) 543274
Premises & Engineering
Richard Cumberland
Tel: (973) 543280
Head Office Credit Department
Abhijit Choudhury
Tel: (973) 543288
Remedial Loans
Stephen Jenkins
Tel: (973) 543713
Risk Management
Peter G James
Tel: (973) 543328
Global Marketing & Asset Trading
Yousif Al Dhaen
Tel: (973) 543203
Saleh M. Al-Yousef
Chairman
Mohamed A BuQais
General Manager
Abdulrahman Al Kooheji
Assistant General Manager, Marketing
ABC Securities W.L.L.
Office No 204, Building No 49
Al Hidaya Building No 2
Government Road, Manama 305
Kingdom of Bahrain
Tel: (973) 226087/226848
Fax: (973) 241179
Tlx: 9436/9437 ABCBAH BN
Abdul Hameed H Naqi
General Manager
ABC Tunisie
ABC Building, Rue du Lac d'Annecy
Les Berges du Lac, 1053 Tunis, Tunisia
Tel: (216)(71) 861861;
(216)(71) 861110 (Treasury)
Fax: (216)(71) 860921
Tlx: 12505 ABCTU TN
Direct Dealing Reuters Code: ABCT
SWIFT: ABCOTNTT
Ageli Abdulsalam Breni
Chairman
Ezzedine Saidane
General Manager
(16 Branches)
PO Box 926691, Amman 11190, Jordan
Tel: (962)(6) 5664183-5/5621801-7
(General)
Tel: (962)(6) 5692713/5692723
(Dealing Room)
Tel: (962)(6) 5608312
(Foreign Department)
Tel: (962)(6) 5623684 (Main Branch)
Fax: (962)(6) 5686291
Tlx: 22258/21114 ABC JO; 23022
ABCFX JO
Ghazi Abdul-Jawad
Chairman
Dr Ziad Fariz
Chief Executive Officer
Arab Banking Corporation – Algeria
PO Box 367
54 Avenue des Trois Freres Bouaddou
Bir Mourad Rais, Algiers, Algeria
Tel: (213)(21) 541537/
541534/541600
Fax: (213)(21) 541604/541222
Tlx: 62509 / 62510 ABC DZ
George Karam
Chairman
Mustapha Achour
General Manager
Arab Banking Corporation – Egypt (S.A.E.)
1, El Saleh Ayoub Street, Zamalek
Cairo, Egypt
Tel: (202) 7362684 (10 lines) / (202) 6364254
Fax: (202) 7363643
Issa Mohamed Al Sowaidi
Chairman
Tarek Helmi
Acting Chief Executive Officer
Hassan Serag El Din
FVP, Retail Banking Group Head
Gamal Negm
FVP, Credit Group Head
Mohamed Abou Ward
VP, Human Resources Group Supervisor
Amr Bahaa
VP, Treasury Head
Hanaa El Helaly
Human Resources & Corporate Communications
Division Head
Affiliate
Arab Financial Services
Company (E.C.)
PO Box 2152, Manama
Kingdom of Bahrain
Tel: (973) 290333
Fax: (973) 291323/290050
Tlx: 7212 AFS BN
Mahmood Al Koofi
67
ABC Directory
• INTERNATIONAL DIVISION •
Division Head
Treasury
Subsidiaries
George Morton
Tel: (973) 543319
Fax: (973) 535639
Robert Fitzsimons
Assistant General Manager & Treasurer
Tel: (1)(212) 5834779
ABC (IT) Services Ltd.
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
Thomas J. Cahalane
Assistant General Manager, Operations
Tel: (1)(212) 5834747
Kenneth J Carroll
Assistant General Manager and Controller
Tel: (1)(212) 5834761
Barbara Sanderson
Assistant General Manager, Credit
Tel: (1)(212) 5834752
Marianna Adamo
Vice President /Human Resources
Tel: (1)(212) 5834737
Singapore
Milan
Via Turati 16/18, 20121 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)
Direct Dealing Reuters Code: ABCX
SWIFT: ABCOITMM
Marco Simonelli
General Manager
Sami Bengharsa
Deputy General Manager
Angelo Fossati
Business Development Manager
Maurizio Testori
Operations Manager
Luca Gajani
Head of Credit
Guido Bacci
Chief Dealer
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)
Direct Dealing Reuters Code: ABCN
Geoffrey Milton
First Vice President & General Manager
Tel: (1)(212) 5834863
Arab Banking Corporation (B.S.C.)
9 Raffles Place #35-01 Republic Plaza
Singapore 048619
Tel: (65) 6535 9339 General
(65) 6533 0629 Dealers
Telex & Answerback:
RS 28989 ABCSNG General
RS 28991 ABCSNG Dealers
Fax: (65) 6532 6288 /
6532 3998 General
SWIFT: ABCOSGSG
Reuters Dealing Code: ABCS
John P. Meads
General Manager
Andrew Ghim
VP & Deputy General Manager
Tan Boon Cheng
AVP & Head of Operations and Financial Control
Cecilia Lai, Senior Manager, Corporate Finance
Foo Mui Lian
Manager and Branch Credit Officer
Rose Lim
Acting Head, Trade Finance Support
Vivien Ng, Gregory Lim, Dealers (Treasury)
Representative Offices
Houston
600 Travis Street, Suite 1900
Houston, Texas 77002, USA
Tel: (1)(713) 2278444
Fax: (1)(713) 2276507
Harold Dietler
Los Angeles
Corporate Banking
Robert Ivosevich
Deputy General Manager, Head of North America
Corporate Banking
Tel: (1)(212) 5834774
Latin America Group
Derek Hudson
Assistant General Manager, Latin America Group
Tel: (1)(212) 5834876
Middle East and North Africa Group
Lamine Djilani
Assistant General Manager, Middle East &
North Africa Group
Tel: (1)(212) 5834872
555 South Flower Street, 46th Floor
Los Angeles, CA 90071, USA
Tel: (1)(213) 6890121
Fax: (1)(213) 6891048
Tarek Sherlala
Representative
Investment Coordinator
Arab Banking Corporation House
1-5 Moorgate, London EC2R 6AB, UK
Tel: (44)(20) 77764050
Fax: (44)(20) 76062708
Tlx: 915687 ABC G
Sael Al Waary
Director
Daus & Co GmbH
Niedenau 13-19,
D-60325 Frankfurt am Main,
PO Box 170218,
60076 Frankfurt am Main, Germany
Tel: (49)(69) 714030
Fax: (49)(69) 71403240 (General)
(49)(69) 71403299 (Corporate and
Financial Institutions)
(49)(69) 71403350 (Treasury)
Tlx: 414811 DAUS D
Direct Dealing Reuters Code: ABDF (FX + MM)
SWIFT: ABCADEFF
Ghazi M. Abdul-Jawad
Chairman of the Supervisory Board
Graham Burtoft
Chief Executive & General Manager
Juergen Blumschein
General Manager
(Head Office)
Tel: (44)(20) 7776 4000 (General)
Fax: (44)(20) 7606 9987
Tlx: 893748 ABC GEN G
Farhat Ekdara
Chairman
Stanislas M. Yassukovich
Deputy Chairman
Abdulmagid A. Breish
Managing Director & Chief Executive Officer
Michael Duval
Deputy Chief Executive Officer
ABC International Bank plc, London
(Branch)
Tel: (44)(20) 7776 4000 (General)
(44)(20) 7726 4091 (Dealing Room)
Fax: (44)(20) 7606 9987
Tlx: 893748 ABC GEN G (General)
892171 ABC FXL G
(Dealing Room)
Direct Dealing Reuters Code: ABCL
Michael Duval
General Manager
ABC International Bank plc, 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)
Direct Dealing Reuters Code: ABCP
Jean-Marie Zambelli
General Manager
68
Investment Group
Omar el-Abd
Tel: (973) 530776
Avenida Paulista 37, 14th/15th Floors
CEP 01311-902, Sao Paulo, SP. Brazil
Tel: (55)(11) 31702000
Fax: (55)(11) 31702001
Adroaldo Moura da Silva
Chairman
Tito Enrique da Silva Neto
President
Banco Atlantico S.A.
(285 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
Tel: (34)(91) 5389042
Fax: (34)(91) 5413625
International Bank of Asia Ltd.
(24 Domestic Branches)
International Bank of Asia Bldg.
38 Des Voeux Road, Central
Hong Kong
Tel: (852) 28426222
Fax: (852) 28101483
Tlx: 63394 IBA HX
Direct Dealing Reuters Code: IBAX
Dr. Anwar Ali Al Mudhaf
Chairman
Mike Murad
Vice Chairman, Managing Director &
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 & Support Group
ABC Securities (Egypt) S.A.E
1191 Corniche El Nile Street
World Trade Center
Offices Building, 6th Floor
PO Box 781, Ataba, 11511 Cairo, Egypt
Tel: (20)(2) 5745488/5745366/5745935
Fax: (20)(2) 5780416/5780417
Ageli Abdulsalam Breni
Chairman
Omar el-Abd
Managing Director & Chief Executive

2001 - Bank ABC

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