PD-GBCORP Dec 2012.pdf
PD-GBCORP Dec 2012.pdf
PD-GBCORP Dec 2012.pdf
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2012<br />
GLOBAL BANKING CORPORATION BSC (C)<br />
RISK AND CAPITAL MANAGEMENT<br />
DISCLOSURES (BASEL II - PILLAR III)<br />
These disclosures have been prepared in accordance with the CBB requirements<br />
outlined in its Public Disclosure Module (“<strong>PD</strong>”).<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Table of Contents<br />
1 INTRODUCTION......................................................................................................................... 6<br />
2 EXECUTIVE SUMMARY ............................................................................................................... 6<br />
3 GROUP STRUCTURE .................................................................................................................. 7<br />
4 RISK MANAGEMENT FRAMEWORK .............................................................................................. 8<br />
4.1 RISKS IN PILLAR I ............................................................................................................ 10<br />
4.1.1 CREDIT RISK ...................................................................................................... 10<br />
4.1.2 MARKET RISKS .................................................................................................. 10<br />
4.2 RISKS IN PILLAR II ........................................................................................................... 13<br />
4.2.1 LIQUIDITY RISK .................................................................................................. 13<br />
4.2.2 CONCENTRATION RISK ..................................................................................... 13<br />
4.2.3 COUNTERPARTY CREDIT RISK ........................................................................ 14<br />
4.2.4 PROFIT RATE RISK IN BANKING BOOK ........................................................... 14<br />
4.2.5 EQUITY RISK IN BANKING BOOK ..................................................................... 14<br />
4.2.6 DISPLACED COMMERCIAL RISK ....................................................................... 15<br />
4.2.7 REGULATORY AND SHARI’A COMPLIANCE RISK ............................................. 15<br />
4.2.8 LEGAL RISK ........................................................................................................ 15<br />
4.2.9 OTHER RISKS ..................................................................................................... 16<br />
4.3 PILLAR III ....................................................................................................................... 16<br />
5 CAPITAL MANAGEMENT AND INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”) .......... 17<br />
5.1 CAPITAL MANAGEMENT .................................................................................................. 17<br />
5.2 INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”) ............................................. 17<br />
6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE ......................................................... 18<br />
6.1 CAPITAL ADEQUACY COMPUTATIONS ............................................................................... 18<br />
The above capital adequacy ratio also represents Tier 1 capital adequacy ratio. .................. 19<br />
6.2 CAPITAL BASE ................................................................................................................ 19<br />
6.3 REGULATORY CAPITAL REQUIREMENTS FOR CREDIT RISK.................................................... 20<br />
6.4 REGULATORY CAPITAL REQUIREMENTS FOR MARKET RISK ................................................. 21<br />
6.5 REGULATORY CAPITAL REQUIREMENTS FOR OPERATIONAL RISK ......................................... 21<br />
7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK .......................................................................... 22<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
7.1 GROSS CREDIT EXPOSURES .............................................................................................. 22<br />
7.2 INDUSTRY CONCENTRATION ............................................................................................. 22<br />
7.3 GEOGRAPHIC CONCENTRATION ........................................................................................ 23<br />
7.4 CREDIT EXPOSURE BY INTERNAL RATING ........................................................................... 23<br />
7.5 CREDIT EXPOSURE BY RESIDUAL MATURITY ....................................................................... 23<br />
7.6 RESTRUCTURED/ RENEGOTIATED EXPOSURES .................................................................... 24<br />
7.7 EXPOSURE ON HIGHLY LEVERAGED COUNTERPARTIES ........................................................ 24<br />
7.8 RELATED PARTY TRANSACTIONS ....................................................................................... 24<br />
7.9 EXPOSURE IN EXCESS OF 15% OF CAPITAL BASE ................................................................ 24<br />
7.10 ASSET QUALITY AND PAST DUE EXPOSURES ....................................................................... 25<br />
8 CORPORATE GOVERNANCE AND TRANSPARENCY DISCLOSURES ................................................... 25<br />
8.1 GOVERNANCE STRUCTURE ..................................................................................... 25<br />
8.2 BOARD OF DIRECTORS ............................................................................................. 26<br />
8.3 APPOINTMENT PROCESS OF THE BOARD OF DIRECTORS .................................... 26<br />
8.4 INDUCTION, EDUCATION AND ORIENTATION OF NEW DIRECTORS ...................... 26<br />
8.5 BOARD PERFORMANCE EVALUATION ..................................................................... 27<br />
8.6 CONFLICT OF INTEREST AND RELATED PARTY TRANSACTIONS .......................... 27<br />
8.7 TYPE OF MATERIAL TRANSACTIONS THAT REQUIRE BOARD APPROVAL ............. 27<br />
8.8 BOARD COMMITTEES ................................................................................................ 27<br />
NOMINATION, REMUNERATION AND GOVERNANCE COMMITTEE................................. 27<br />
EXECUTIVE COMMITTEE ................................................................................................... 28<br />
AUDIT COMMITTEE ............................................................................................................ 28<br />
SHARI’A SUPERVISORY BOARD ....................................................................................... 28<br />
EXECUTIVE MANAGEMENT ............................................................................................... 28<br />
EXECUTIVE MANAGEMENT COMMITTEES ....................................................................... 28<br />
ASSET & LIABILITY MANAGEMENT COMMITTEE (ALCO).............................................. 28<br />
RISK MANAGEMENT COMMITTEE (RMC) ....................................................................... 28<br />
8.9 STRATEGY .................................................................................................................. 29<br />
8.10 CODE OF CONDUCT .............................................................................................. 29<br />
8.11 CORPORATE COMMUNICATIONS POLICY ............................................................ 29<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
8.12 CORPORATE SOCIAL RESPONSIBILITY ............................................................... 29<br />
8.13 ORGANIZATION CHART ......................................................................................... 31<br />
9 BOARD OF DIRECTORS ............................................................................................................. 32<br />
SALEH AL ALI AL RASHED................................................................................................ 32<br />
ABDUL RAHMAN MOHAMMED AL JASMI .......................................................................... 32<br />
SALAH SALEH ASHEER ..................................................................................................... 32<br />
TALAL MOHAMMED AL MUTAWA...................................................................................... 33<br />
KHALID ABDULLAH AL-ANKARY ....................................................................................... 33<br />
DR. SAUD AL-AMMARI ...................................................................................................... 33<br />
DR. ZAKARIA AHMED HEJRES ......................................................................................... 34<br />
RAED MOHAMMED AL SALEH .......................................................................................... 34<br />
10 MANAGEMENT TEAM ............................................................................................................. 35<br />
A. MONAIM MOHAMED AL BASTAKI ............................................................................. 35<br />
AHMED HASSAN AAMER ................................................................................................... 35<br />
DR RAID EID AL-ZUDE ...................................................................................................... 35<br />
KHALID AHMED AL JABER ................................................................................................ 36<br />
FARRUKH ZAREEF ............................................................................................................. 36<br />
FATEMA KAMAL.................................................................................................................. 36<br />
10.1 CHANGES IN GOVERNANCE STRUCTURE ........................................................... 36<br />
EXECUTIVE COMMITTEE MEMBERS: ................................................................................ 37<br />
NOMINATION, REMUNERATION & CORPORATE GOVERNANCE COMMITTEE<br />
MEMBERS: .......................................................................................................................... 37<br />
AUDIT COMMITTEE MEMBERS: ......................................................................................... 37<br />
RISK COMMITTEE MEMBERS: ........................................................................................... 37<br />
11 FINANCIAL PERFORMANCE AND POSITION ................................................................................. 38<br />
12 ADDITIONAL CORPORATE GOVERNANCE DISCLOSURES ............................................................... 40<br />
12.1 OTHER DIRECTORSHIPS HELD BY BOARD MEMBERS............................................................ 40<br />
12.2 DIRECTORS’ MEETING AND ATTENDANCE DURING THE YEAR 2012..................................... 42<br />
12.3 SHAREHOLDING MORE THAN 5% ..................................................................................... 45<br />
12.4 DISTRIBUTION BY SIZE OF SHAREHOLDING ......................................................................... 46<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
12.5 SHAREHOLDING BY NATIONALITY ..................................................................................... 46<br />
12.6 SHAREHOLDING ON INDIVIDUAL BASIS .............................................................................. 47<br />
12.7 OTHERS ......................................................................................................................... 47<br />
13 OTHER DISCLOSURES .............................................................................................................. 48<br />
13.1 EXTERNAL COMMUNICATION ........................................................................................... 48<br />
13.2 COMPLAINT HANDLING ................................................................................................... 48<br />
13.3 UNRESTRICTED INVESTMENT ACCOUNTS ........................................................................... 48<br />
13.4 RESTRICTED INVESTMENT ACCOUNTS ................................................................................ 48<br />
13.5 STAFF REMUNERATION POLICY ........................................................................................ 48<br />
13.6 ZAKAH ........................................................................................................................... 49<br />
13.7 COMPLIANCE DISCLOSURE .................................................................................. 49<br />
13.8 ANTI-MONEY LAUNDERING .................................................................................. 50<br />
13.9 EARNING PROHIBITED BY SHARI’A ...................................................................... 50<br />
14 NON COMPLIANCE WITH HC MODULE OF CBB RULE BOOK ....................................................... 51<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
1 INTRODUCTION<br />
Global Banking Corporation B.S.C. (c) (the “Bank”) was incorporated on 25 th of June<br />
2007 under the commercial registration number 65708 in the Kingdom of Bahrain and<br />
licensed by the Central Bank of Bahrain (“CBB”) as an Islamic wholesale bank. The<br />
Bank’s business model enables the Bank to offer a comprehensive range of investment<br />
banking products and services to high net worth individuals, corporate entities, and<br />
financial institutions in compliance with Shari’a principles.<br />
The Public Disclosure (<strong>PD</strong>) module Section 1.3 of Volume 2 of the CBB rulebook<br />
governs the disclosure requirements to be made by Islamic banks in their annual<br />
report. In April 2008, the CBB revised the <strong>PD</strong> module to cover the detailed disclosure<br />
requirements to be followed by licensed banks in Bahrain to be in compliance with<br />
Pillar 3 of Basel II and the Islamic Financial Services Board’s (IFSB) recommended<br />
disclosures for Islamic banks. Under the current regulations, partial disclosure<br />
consisting mainly of quantitative analysis is required during half year reporting,<br />
whereas full disclosure is required to coincide with the financial year-end reporting.<br />
2 EXECUTIVE SUMMARY<br />
The Bank maintains an adequate capital base to cover risks inherent in the business.<br />
The adequacy of the Bank’s capital is monitored using, among other measures, the<br />
regulations and ratio established by the CBB in accordance with Basel II capital<br />
adequacy framework. Since incorporation, the Bank had complied with all the<br />
prescribed capital requirements.<br />
The Bank’s capital adequacy ratio is well above the minimum capital requirement of<br />
12% required by the CBB. The Bank’s capital adequacy ratio based on consolidated<br />
financial statements for the year ended 31 <strong>Dec</strong>ember 2012 was 54.56% compared with<br />
51.29% as at 31 <strong>Dec</strong>ember 2011. The Bank ensures adherence to the CBB’s<br />
requirements by monitoring its capital adequacy against higher internal limits.<br />
The prime objective of the Bank’s capital management is to ensure compliance with all<br />
the prudential requirements and to maintain healthy capital ratio in order to effectively<br />
support its business and to maximize shareholders’ value. To assess its capital<br />
adequacy requirements in accordance with the CBB requirements, the Bank adopts the<br />
Standardized Approaches for its Credit Risk and Market Risk, and the Basic Indicator<br />
Approach for its Operational Risk.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
6
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
3 GROUP STRUCTURE<br />
The Group’s consolidated financial statements comprises the financial statements of<br />
the Bank and its subsidiaries (together the “Group”) prepared in accordance with the<br />
Financial Accounting Standards (‘FAS’) issued by the Accounting and Auditing<br />
Organization for Islamic Financial Institutions (‘AAOIFI’).<br />
Following is the structure of the Group for prudential consolidation purposes:<br />
Name of the entity<br />
Subsidiaries<br />
Global Energy<br />
Financial Services<br />
Company SPC<br />
Global Real Estate<br />
Development<br />
Company WLL<br />
Diyafa Holdings<br />
Company WLL<br />
Joint Ventures<br />
Abdel Wahab<br />
Restaurant Co.<br />
W.L.L.<br />
% of<br />
holding<br />
Place of<br />
incorporation<br />
100% Kingdom of<br />
Bahrain<br />
100% Kingdom of<br />
Bahrain<br />
90% Kingdom of<br />
Bahrain<br />
50% Kingdom of<br />
Bahrain<br />
Classification<br />
Commercial entity<br />
Commercial entity<br />
Commercial entity<br />
Treatment for<br />
prudential<br />
consolidation<br />
purposes<br />
Full<br />
consolidation<br />
Full<br />
consolidation<br />
Full<br />
consolidation<br />
Nature of<br />
business<br />
Financial<br />
investment and<br />
financial<br />
planning<br />
consultancy<br />
services<br />
Real estate<br />
development<br />
and<br />
management<br />
Virtual offices<br />
and hospitality<br />
services<br />
Commercial entity Risk Weighted Hospitality<br />
All the above entities are incorporated in the Kingdom of Bahrain and there are no<br />
restrictions on the transfer of funds or regulatory capital within the Group.<br />
The status of GREDCO has changed from Joint venture to subsidiary due to the<br />
acquisition of 50% equity on 01 November 2012.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
7
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
4 RISK MANAGEMENT FRAMEWORK<br />
The Bank pursues clear risk management objectives and has an established risk<br />
management policy and processes to achieve them.<br />
The Bank’s risk management objectives are to:<br />
• Identify the Group’s significant risks.<br />
• Set the Group’s risk appetite and related limits, and ensure the business profile and<br />
plans are consistent with it.<br />
• Maximize risk and return decisions by taking them as closely as possible to the<br />
business, while establishing a strong and independent review process.<br />
• Ensure that business plans and new businesses are properly supported by an<br />
effective risk infrastructure.<br />
• Help executives improve the control and co-ordination of risk-taking across the<br />
business.<br />
To achieve the above objectives, the Bank breaks the process down into five steps:<br />
identify, assess, control, report, and manage or challenge. Each of these steps are<br />
broken down further, to establish end-to-end activities within the risk management<br />
processes and procedures as approved by the Bank’s Board of Board (the “Board’).<br />
The responsibility for managing risk lies at all levels of the Group, from the Board, and<br />
the Investment Committee to each departmental head. The responsibility for effective<br />
review and challenge lies with the Investment Committee, Risk Management<br />
Committee, Compliance Committee, Assets and Liability Committee (“ALCO”) and,<br />
ultimately, the Board.<br />
The Board is responsible for approving risk appetite and related limits, which is the<br />
level of risk the Group chooses to take in pursuit of its business objectives. The head of<br />
risk management regularly presents a report to the Board, summarizing developments<br />
in the risk environment, the Group’s risk profile, and deviations from risk limits,<br />
investment updates including the key issues affecting each investment, and forward<br />
risk trends.<br />
The Bank adheres to the regulatory guidelines issued by the CBB and other applicable<br />
laws and regulations. Shari’a principles prescribed by the Bank’s Shari’a Supervisory<br />
Board are fundamental to our investment and operations policies.<br />
The Bank perceives strong risk management capabilities to be the foundation in<br />
delivering results to customers, investors and shareholders. The Board has overall<br />
responsibility for establishing our risk culture and ensuring that an effective risk<br />
management framework is in place. An understanding of risk-taking and transparency<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
8
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
in risk-taking are key elements in the Bank's business strategy. The Bank maintains a<br />
prudent and disciplined approach towards risk taking, and embeds a structured risk<br />
management process as an integral part of its decision making practice. The Risk<br />
Management Department (“RMD”) is responsible for monitoring compliance with the<br />
Group’s risk management policies and procedures, and for reviewing the adequacy of<br />
the risk management framework in relation to the risks faced by the Group with overall<br />
guidance by the Bank’s Board.<br />
The Board has established an Audit Committee which is responsible for review and<br />
evaluation of effectiveness of the Bank’s procedures and internal control systems for<br />
assessing risks or exposures. It assists the Board in fulfilling its oversight duties by<br />
reviewing the financial information provided to shareholders and others.<br />
RMD is empowered to independently identify and assess risks that may arise from the<br />
Bank's investing and operating activities as well as recommend directly to the<br />
Investment Committee any prevention and mitigation measures as it deems fit. In<br />
addition, the Internal Audit Department, which is also independent of both operations<br />
and the Bank’s investments units, also assists in the risk management process. The<br />
RMD, together with the Internal Audit and Compliance Departments, provide<br />
independent assurance that all types of risk are being measured and managed in<br />
accordance with the policies and guidelines set by the Board.<br />
The Bank is exposed to various types of risks, such as credit, liquidity, market and<br />
operational, risks, all of which require comprehensive controls and ongoing oversight.<br />
The risk management framework encapsulates the spirit behind Basel II, which<br />
includes management oversight and control, risk culture and ownership, risk<br />
recognition and assessment, control activities and segregation of duties, adequate<br />
information and communication channels, monitoring risk management activities and<br />
correcting deficiencies.<br />
The Bank has established an adequate system for monitoring and reporting risk<br />
exposures and capital adequacy requirements. These reports include periodic risk<br />
reviews, quarterly risk reports etc. These reports aim to provide the Bank’s senior<br />
management with an up-to-date view of the risk profile of the Bank.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
9
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
4.1 RISKS IN PILLAR I<br />
Basel II Pillar I prescribed three specific risks which are:<br />
4.1.1 CREDIT RISK<br />
Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a<br />
financial instrument fails to meet its contractual obligations, and arises principally from<br />
its bank balances, placements with financial institutions and other receivables.<br />
The Bank is not involved in the granting of credit facilities in the normal course of its<br />
business activities. The Bank is primarily exposed to credit risk from its own short term<br />
liquidity related to placements with financial institutions, and in respect of investment<br />
related funding or project receivables made (in the form short-term liquidity facility) to<br />
its projects. These exposures arise in the ordinary course of its investment banking<br />
activities and are generally transacted without any collateral or other credit risk<br />
mitigants.<br />
The Bank has a strong internal process for assessing credit risk. This process takes<br />
into account the financial strength of the counterparty, the technical feasibility and<br />
economic viability of the business, the adequacy and quality of the cash flow available<br />
for repayment etc. The availability of collateral security by way of physical assets or<br />
guarantees to mitigate the credit risk is also taken into consideration.<br />
Each counterparty exposure is evaluated individually for impairment and is based upon<br />
management’s best estimate of the present value of the cash flows that are expected<br />
to be received. In estimating these cash flows, management makes judgments about<br />
counterparty’s financial situation, level of subordination available to the Bank and the<br />
net realizable value of any underlying assets. Each asset is assessed on its merits,<br />
and the workout strategy and estimate of cash flows considered recoverable are<br />
independently evaluated by the Chief Operating Officer, Head of Risk Management,<br />
Head of Investment Banking and Financial Controller and approved by the Board.<br />
The Bank relies on external ratings for rated counterparties. The Bank uses standard &<br />
poor’s, Fitch and Moody’s to provide rating for such counterparties. In case of unrated<br />
counterparties, the Bank will assess the credit risk on the basis of defined parameters.<br />
4.1.2 MARKET RISKS<br />
Market risk is the risk that movements in market risk factors, including foreign<br />
exchange rates, equity prices, profit rates and credit spreads will reduce the Bank’s<br />
income or the value of its portfolios. The objective of market risk management is to<br />
manage and control market risk exposures within acceptable parameters, while<br />
optimizing the return on risk.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
10
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
The Bank has a limited exposure to market risk which is primarily due to foreign<br />
currency risk. Given the nature of its activities, the Bank uses a simple measurement<br />
involving monitoring of open position.<br />
The different types of risks with exposures, objectives, policies and processes to<br />
manage the risk have been detailed hereunder:<br />
4.1.2.1 FOREIGN EXCHANGE RISK<br />
Foreign exchange risk is the risk that the value of a financial instrument will fluctuate<br />
due to changes in foreign exchange rates. The Bank’s major exposures are in GCC<br />
currencies, which are primarily pegged to the US Dollars.<br />
The Bank does not engage in any foreign exchange trading operations. The open<br />
position limits also take into account structural positions arising out of currency<br />
mismatch in assets and liabilities. RMD performs sensitivity analysis on the open<br />
positions to assess the risk of loss from exchange rate movements to ensure that the<br />
risk is well under control.<br />
4.1.2.2 EQUITY PRICE RISK<br />
Equity price risk is the risk that the fair value of equities decreases as a result of<br />
changes in the value of individual companies’ shares. The Bank does not have<br />
significant exposure to listed equity instruments therefore to assess the market risk<br />
bank is not using any advanced approach. The Bank manages and monitors the<br />
positions using sensitivity analysis.<br />
4.1.2.3 PROFIT RATE RISK<br />
Profit rate risk arises due to differences in timing of re-pricing of the Bank’s assets and<br />
liabilities. The Bank’s profit rate sensitive assets are mainly placements with financial<br />
and other institutions. Profit rate risk is managed principally through monitoring profit<br />
rate gaps and by having pre-approved limits for re-pricing bands.<br />
Standard scenarios that are considered on a monthly basis include a 200 basis point<br />
(bp) parallel fall or rise in all yield curves worldwide. An analysis of the Group’s<br />
sensitivity to an increase or decrease in market financing rates (assuming no<br />
asymmetrical movement in yield curves and a constant balance sheet position) is as<br />
follows:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
11
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
2012<br />
At 31 <strong>Dec</strong>ember 2012 ± 98<br />
Average for the year ± 129<br />
Maximum for the year ± 183<br />
Minimum for the year ± 98<br />
4.1.2.4 OPERATIONAL RISK<br />
Operational risk is the risk of loss arising from systems and control failures, fraud and<br />
human error, which can result in financial and reputation loss, legal and regulatory<br />
consequences.<br />
Though operational risk cannot be entirely eliminated, however the Bank aims to<br />
minimise the risk by strengthening its internal control environment, continuing its efforts<br />
to identify, assess, measure and monitor its risks, evolving in its risk management<br />
sophistication and promoting a strong control culture within the Bank. The material<br />
operational risks of the Bank are:<br />
• Inappropriate design of processes for the appraisal of credit and investment<br />
projects;<br />
• Shortcomings in documentation and processes for monitoring and control of<br />
credit and investment exposures;<br />
• Absence of an efficient process to capture internal losses and near misses;<br />
• Inadequacies in the process for execution of projects including selection of<br />
consultants and contractors as well as monitoring time and cost overruns;<br />
• Legal risks arising from product documentation and faulty execution of<br />
transactions;<br />
• Loss from staff negligence or fraudulent transactions perpetrated by employees<br />
or customers; and<br />
• Delay in updating records and misreporting<br />
The Bank manages operational risk through appropriate controls, instituting<br />
segregation of duties and internal checks and balances, appropriate controls to<br />
safeguard assets, monitoring of various risk limits, periodic accounts reconciliations,<br />
financial management and reporting, including internal audit and compliance functions.<br />
In addition to these controls, the Bank has developed a Business Continuity Plan<br />
based on risk review of the Bank’s activities and insurance is also in place to<br />
complement the associated controls.<br />
Moreover, the Bank has established a risk control and self-assessment process<br />
necessary for identifying and measuring its operational risks. This exercise covers the<br />
Bank’s business lines and associated critical activities, exposing the Bank to<br />
operational risks.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
12
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
4.2 RISKS IN PILLAR II<br />
Pillar II covers key principles of supervisory review and evaluation process which<br />
intends not only to ensure that the Bank has adequate capital to support all the<br />
associated risks, but also requires Bank to develop an Internal Capital Adequacy<br />
Assessment Plan (“ICAAP”) and setting internal capital targets that commensurate with<br />
the Bank’s risk profile and control environment. ICAAP requires assurance that the<br />
Bank has adequate capital to support its risks beyond the core minimum requirements<br />
which must not be limited to credit, market and operational risk charges.<br />
4.2.1 LIQUIDITY RISK<br />
Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations<br />
associated with financial liabilities that are settled by delivering cash and another<br />
financial asset. This risk arises from mismatches in the timing of cash flows. Funding<br />
risk arises when the necessary liquidity to fund illiquid asset positions cannot be<br />
obtained at the expected terms and when required.<br />
As an investment bank, the Bank’s operating model has insignificant reliance on shortterm<br />
liabilities to fund its medium and long-term assets. This ensures against a sudden<br />
and unanticipated liquidity crisis.<br />
The Bank as a matter of policy regularly reviews and monitors policy limits for its key<br />
liquidity ratios, future contractual cash flows and any mismatches between the cash<br />
flows of assets and liabilities, diversification of funding resources and available bank<br />
lines, cross currency cash flows requirements and strategy, availability of sufficient<br />
liquid assets in case of any unforeseeable event, monitoring of receivables and late<br />
payments etc. All of these factors are strictly monitored by RMD and being further<br />
reviewed and discussed regularly by the Bank’s ALCO.<br />
Maturity profile of assets and liabilities and key measures used for management of<br />
liquidity risk will be disclosed in consolidated financial statements for the year ended<br />
31 st <strong>Dec</strong>ember 2012.<br />
4.2.2 CONCENTRATION RISK<br />
Concentration risk is the credit risk arising from not having a well-diversified credit<br />
portfolio, i.e. being overexposed to a single customer, industry sector or geographic<br />
region. As per CBB’s single obligor regulations, banks incorporated in Bahrain are<br />
required to obtain the CBB’s approval for any planned exposure to an individual<br />
counterparty, or group of closely related counterparties, exceeding 15% of the<br />
regulatory capital base.<br />
In order to avoid excessive concentrations of risk, the Bank’s policies and procedures<br />
include geographical and country concentration limits and specific guidelines to focus<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
13
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
on maintaining a diversified portfolio. Identified concentrations of credit risks are<br />
controlled and managed accordingly.<br />
4.2.3 COUNTERPARTY CREDIT RISK<br />
Counterparty credit risk is the risk that a counterparty to a contract in the profit rate,<br />
foreign exchange, equity and credit markets defaults prior to maturity of the contract.<br />
The Bank does not enter into any trading positions in foreign exchange contracts and<br />
also does not engage in proprietary trading of foreign exchange or profit rate<br />
derivatives. For other credit markets transactions (primarily inter-bank placements), the<br />
Bank has established a limit structure based on the credit quality (assessed based on<br />
external rating) of each counter party bank to avoid concentration of risks by<br />
counterparties. The Bank is constantly reviewing and monitoring the position to ensure<br />
proper adherence to the limits and defined policies of the Bank.<br />
4.2.4 PROFIT RATE RISK IN BANKING BOOK<br />
Profit rate risk arises from the possibility that changes in profit rates will affect future<br />
profitability or the fair values of financial instruments.<br />
Currently Bank’s assets and liabilities are benchmarked to floating rate indices. The<br />
Bank has set policy limits for such risk. Quarterly re-pricing gap analysis is being<br />
performed on the portfolio to ensure that the extent of such risk is measured and<br />
monitored.<br />
The management of profit rate risk against profit rate gap limits is supplemented by<br />
monitoring the sensitivity of the Bank’s financial assets and liabilities to various<br />
standard and non-standard profit rate scenarios. Standard scenarios that are<br />
considered include a 100 basis point (bp) parallel fall or rise in all yield curves<br />
worldwide.<br />
4.2.5 EQUITY RISK IN BANKING BOOK<br />
The equity risk in the banking book primarily arises from the banks unquoted availablefor-sale<br />
investments. These investments comprise unquoted equity stake in the<br />
projects promoted by the Bank and are carried at cost and tested for impairment on a<br />
regular basis. The intent of such investments is a later stage exit along with the<br />
investors principally by means of strategic sell outs at the project level. RMD works<br />
alongside the Investment Department at all stages of the deal cycle, from preinvestment<br />
due diligence to exit, and provides an independent review of every<br />
transaction. A quarterly investment update report is presented to the Board of Directors<br />
by the Investment Department.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
14
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
USD'000'<br />
Risk<br />
Funded Average Gross weighted Capital<br />
expsoure expsoure exposure Assets requirement<br />
UnQuoted Equity Securities 42,724 51,249 26,007 52,014 6,242<br />
42,724 51,249 26,007 52,014 6,242<br />
4.2.6 DISPLACED COMMERCIAL RISK<br />
Displaced Commercial Risk refers to the market pressure to pay returns that exceeds<br />
the rate that has been earned on the assets financed by the liabilities, when the return<br />
on assets is under performing as compared with competitor’s rates.<br />
Currently the Bank is not exposed to any displaced commercial risk.<br />
4.2.7 REGULATORY AND SHARI’A COMPLIANCE RISK<br />
Regulatory and Shari’a compliance risk is the risk arising from non-compliance with the<br />
regulatory guidelines issued by the CBB or the Shari’a principles prescribed by the<br />
Bank’s Shari’a Supervisory Board (“SSB”) or other eminent scholars.<br />
The Bank is taking due care to comply with all the regulations. The Bank has adequate<br />
internal controls in place which include but not limited to adequate training to staff,<br />
engagement of third party consultant wherever required, pre-approval from regulator<br />
wherever necessary, independent internal reviews by risk management department,<br />
compliance department and internal audit department etc.<br />
The SSB is entrusted with the duty of directing, reviewing and supervising the activities<br />
of the Bank in order to ensure that they are in compliance with the rules and principles<br />
of Islamic Shari’a. The Bank also has a dedicated internal Shari’a reviewer who<br />
performs an ongoing review of the compliance with the fatwas and rulings of the SSB<br />
on products and processes and also reviews compliance with the requirements of the<br />
Shari’a standards prescribed by AAOIFI. The SSB reviews and approves all products<br />
and services before launching and offering to the customers and also conducts periodic<br />
reviews of the transactions of the Bank. An annual audit report is issued by the SSB<br />
confirming the Bank’s compliance with Shari’a rules and principles.<br />
4.2.8 LEGAL RISK<br />
Legal risk includes the risk of non-compliance with applicable laws or regulations, the<br />
illegality or unenforceability of counterparty obligations under contracts and additional<br />
unintended exposure or liability resulting from the failure to structure transactions or<br />
contracts properly. The Bank has a dedicated legal department which is consulted on<br />
all major activities conducted by the Bank. All contracts, documents, etc., have to be<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
15
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
reviewed by the legal department as well. As on the reporting date, the Bank had no<br />
material legal contingencies including pending legal actions.<br />
4.2.9 OTHER RISKS<br />
Other risks include reputational, strategic, fiduciary risks etc., which are inherent in all<br />
business and are not easily measurable or quantifiable. However, the Bank has proper<br />
policies and procedure to mitigate and monitor these risks. The Bank’s Board has<br />
overall responsible for approving and reviewing the risk strategies and significant<br />
amendments to the risk policies. The Bank senior management is responsible for<br />
implementing the risk strategy approved by the Board to identify, measure, monitor and<br />
control the risks faced by the Bank.<br />
The Bank as a matter of policy regularly reviews and monitors financial and marketing<br />
strategies, business performance, new legal and regulatory development and its<br />
potential impact on the Bank’s business, best corporate governance practices and<br />
implementation etc.<br />
4.3 PILLAR III<br />
Pillar III complements the other two pillars and focuses on enhanced transparency in<br />
disclosure of information by the banks to promote better market discipline. The<br />
information to be disclosed covers all areas including business performance, capital<br />
adequacy, risk management etc. The disclosures are designed to enable stakeholders<br />
and market participants to assess an institution’s risk appetite and risk exposures and<br />
to encourage all banks, via market pressures, to move toward more advanced forms of<br />
risk management.<br />
In April 2008, the CBB published a paper covering the detailed disclosure requirements<br />
to be followed by licensed banks in Bahrain to be in compliance with Pillar III under the<br />
Basel II frame work.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
16
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
5 CAPITAL MANAGEMENT AND INTERNAL CAPITAL ADEQUACY<br />
ASSESSMENT PLAN (“ICAAP”)<br />
5.1 CAPITAL MANAGEMENT<br />
The Bank’s policy is to maintain a strong capital base and also the minimum capital<br />
requirements imposed by the CBB, so as to maintain investor, creditor and market<br />
confidence and to sustain future development of the business. The impact of the level<br />
of capital on shareholders’ return is also recognised and the Bank recognises the need<br />
to maintain a balance between the higher returns that might be possible with greater<br />
gearing and the advantages and security afforded by a sound capital position.<br />
The allocation of capital between specific operations and activities is primarily driven by<br />
regulatory requirements. The Bank’s capital management policy seeks to maximise<br />
return on risk adjusted while satisfying all the regulatory requirements. The Bank’s<br />
policy on capital allocation is subject to regular review by the Board.<br />
The Bank ensures that the capital adequacy requirements are met and complied with<br />
regulatory capital requirements throughout the period.<br />
5.2 INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”)<br />
“ICAAP” is a requirement under Pillar II of Basel II for capital management. The<br />
objective of the Bank’s ICAAP is to ensure that adequate capital is retained at all times<br />
to support the risks the Bank undertakes in the course of its business. The Bank’s<br />
ICAAP identifies risks that are material to the Bank’s business and the regulatory<br />
capital that is required to be set aside for such risks. The Bank has implemented<br />
ICAAP which is monitored on quarterly basis. However, the Bank intends to continue to<br />
be conservative and would maintain a reasonable buffer over 12% regulatory Capital<br />
requirement set by CBB.<br />
The Bank recognizes that earnings are the first line of defence against losses arising<br />
from business risks and that capital is one of the tools to address such risks; also<br />
important are establishing and implementing documented procedures, defining and<br />
monitoring internal limits of the Bank’s activities/exposures, strong risk management,<br />
compliance and internal control processes as well as adequate provisions for credit,<br />
market and operational losses. However, since capital is vital to ensure continued<br />
solvency, the Bank’s objective is to maintain sufficient capital such that a buffer above<br />
regulatory capital adequacy requirements is available to meet risks arising from<br />
fluctuations in asset values, business cycles, expansion and future requirements.<br />
The Bank seeks to achieve the following goals through the implementation of its ICAAP<br />
framework:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
17
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
• Meet the regulatory capital adequacy requirement and maintain a prudent buffer;<br />
• Generate sufficient capital to support overall business strategy;<br />
• Integrate capital allocation decisions with the strategic and financial planning<br />
process;<br />
• Enhance the Board and senior management’s ability to understand how much<br />
capital flexibility exists to support the overall business strategy;<br />
• Enhance the Bank’s understanding on capital requirements under different<br />
economic and stress scenarios; and<br />
• Build and support the link between risks and capital and align performance to these.<br />
As an internal target ratio, the Bank will seek to maintain its internal capital adequacy<br />
computed under ICAAP (after considering all identified material risks, including those<br />
not considered under Pillar 1) at a minimum level of 100% of the minimum Basel II<br />
Pillar 1 regulatory capital adequacy ratio stipulated by the CBB. Currently, the CBB has<br />
fixed a minimum Capital Adequacy Ratio of 12% and a trigger ratio of 12.5% for all<br />
locally incorporated banks in Bahrain. The Bank will monitor the ICAAP capital<br />
adequacy ratio against an internal trigger ratio which will be higher than the minimum<br />
prescribed ratio based on additional risk charges for risks not addressed in Pillar I. If<br />
the ICAAP capital adequacy ratio reaches the internal trigger ratio, the Bank will initiate<br />
action to reduce its risk or increase capital before the target ratio is breached.<br />
6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE<br />
6.1 CAPITAL ADEQUACY COMPUTATIONS<br />
The prime objective of the Bank’s capital management is to ensure compliance with all<br />
the prudential requirements and to maintain healthy capital ratios in order to effectively<br />
support its business and to maximize shareholders’ value.<br />
The Bank’s regulator CBB sets and monitors capital requirements for the Bank as a<br />
whole (i.e. at a consolidated level). In implementing current capital requirements CBB<br />
requires the Bank to maintain a prescribed ratio of 12% of total capital to total riskweighted<br />
assets. Banking operations are categorised as either trading book or banking<br />
book, and risk-weighted assets are determined according to specified requirements<br />
that seek to reflect the varying levels of risk attached to assets and off-balance sheet<br />
exposures. CBB also requires banks incorporated in Bahrain to maintain a buffer of 0.5<br />
per cent above the minimum capital adequacy ratio.<br />
During 2012, the Bank was in compliance with the capital limits set by the regulator for<br />
the Bank. The Bank’s capital adequacy ratio as at 31 <strong>Dec</strong>ember 2012 was:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
18
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
USD'000'<br />
Total<br />
eligible<br />
capital<br />
Credit risk weighted assets 85,421<br />
Market risk weighted assets 641<br />
Operational risk weighted assets 8,229<br />
Total risk weighted assets 94,291<br />
Eligible capital 51,443<br />
Capital adequacy ratio 54.56%<br />
The above capital adequacy ratio also represents Tier 1 capital adequacy ratio.<br />
6.2 CAPITAL BASE<br />
The following table shows the breakdown of the total available capital for the as at 31<br />
<strong>Dec</strong>ember 2012:<br />
USD'000'<br />
Total<br />
Tier 1 Tier 2 eligible<br />
capital capital capital<br />
Share capital 200,000 - 200,000<br />
Statutory reserves 5,801 - 5,801<br />
Accumulated losses (94,434) - (94,434)<br />
Total Capital 111,367 - 111,367<br />
Excess amount over maximum permited large<br />
exposure limit (59,924) - (59,924)<br />
Total Eligible Capital 51,443 - 51,443<br />
Regulatory capital consists of Tier 1 capital (core capital) and Tier 2 capital<br />
(supplementary capital). Tier 1 comprises share capital, share premium, retained<br />
earnings, statutory reserves and minority interests less goodwill. Tier 2 capital includes<br />
current interim profits and assets revaluation reserves. In accordance with the CBB’s<br />
Basel II capital adequacy framework, any exposure that exceeds 15% of the Capital<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
19
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Base of the Bank needs to be deducted from the eligible capital of the Bank. The Bank<br />
has accordingly deducted USD 59.9 million from its eligible capital, being excess over<br />
15% of the Capital Base invested in two large exposures.<br />
6.3 REGULATORY CAPITAL REQUIREMENTS FOR CREDIT RISK<br />
To assess its capital adequacy requirements in accordance with the capital adequacy<br />
module for Islamic Banks, the Bank adopts the Standardized Approach for its Credit<br />
Risk. According to standardized approach, on and off balance sheet credit exposures<br />
are assigned to various defined categories based on the type of counterparty or<br />
underlying exposure. The main relevant categories are claims on banks, claims on<br />
investment firms, investment in equities, holdings in real estate, claims on corporate<br />
portfolio and other assets. Risk Weighted Assets are calculated based on prescribed<br />
risk weights by CBB relevant to the standard categories and counterparty’s external<br />
credit ratings, where available. The Bank uses the ratings of Standard & Poor’s, Fitch<br />
and Moody’s ratings for such counterparties. However, preferential risk weight of 20%<br />
is used which is applicable to short term claims on locally incorporated banks where<br />
the original maturity of these claims are three months or less and these claims are in<br />
Bahraini Dinar or US Dollar.<br />
Following is the analysis for credit risk:<br />
USD'000'<br />
Risk<br />
Funded Unfunded Gross weighted Capital<br />
expsoure expsoure exposure Assets requirement<br />
Cash 2 - 2 - -<br />
Claims on banks 4,953 - 4,953 1,000 120<br />
Claims on Corporates 5,081 - 5,081 5,081 610<br />
Equity Investments 585 - 585 878 105<br />
Holding of Real Estate (indirect holding) 29,349 - 29,349 58,698 7,044<br />
Holding of Real Estate (direct holding) 13,363 - 13,363 13,363 1,604<br />
Other Assets 6,400 - 6,400 6,400 768<br />
59,733 - 59,733 85,420 10,250<br />
The classification of assets is in accordance with the Capital Adequacy Module of the CBB.<br />
The Bank does not finance its assets using unrestricted investment accounts and<br />
hence all credit exposures are self-financed exposures.<br />
The Bank’s concentration of funded and unfunded exposures is limited to GCC<br />
countries.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
20
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
6.4 REGULATORY CAPITAL REQUIREMENTS FOR MARKET RISK<br />
To assess its capital adequacy requirements in accordance with the CBB capital<br />
adequacy module for Islamic Banks, the Bank adopts the Standardized Approach for<br />
its Market Risk.<br />
Market risk charge consists of equity position risk and foreign exchange risk charges.<br />
Specific market equity risk charge is computed at the rate of 8% on gross equity<br />
positions for each country or market. General market equity risk charge is computed<br />
based on 8% of the overall net position in each equity market.<br />
Foreign exchange risk charge is computed based on 8% of overall net open foreign<br />
currency position of the Bank.<br />
The market risk charge and foreign exchange risk charge is multiplied by 12.5 to<br />
evaluate market risk weighted assets.<br />
Following is the computation of market risk charge:<br />
USD'000'<br />
Risk weighted assets<br />
Capital requirement<br />
Maximum Minimum Closing Maximum Minimum Closing<br />
Foreign Exchange Risk 132 32 47 16 4 6<br />
Equity position Risk<br />
Specific 297 263 297 36 32 36<br />
General 297 263 297 36 32 36<br />
726 558 641 87 67 77<br />
6.5 REGULATORY CAPITAL REQUIREMENTS FOR OPERATIONAL RISK<br />
The Bank adopts the Basic Indicator Approach to evaluate Operational Risk Charge in<br />
accordance with the CBB capital adequacy module for Islamic Banks. According to this<br />
approach, Bank’s average gross income for three past financial years is multiplied by a<br />
fixed coefficient alpha which is 15% set by CBB. The Bank has calculated the<br />
operational risk charge based on the audited results of the years 2010, 2011 and 2012.<br />
The Bank’s Operational risk weighted assets and operation capital requirement as at<br />
31 <strong>Dec</strong>ember 2012 under Basic Indicator Approach was:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
21
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
USD'000'<br />
Amount<br />
Gross income (average of three years) 4,389<br />
Operational Risk Weighted Assets 8,229<br />
Capital Requirement 988<br />
7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK<br />
7.1 GROSS CREDIT EXPOSURES<br />
The gross and average gross credit exposure are as follow:<br />
USD'000'<br />
Average<br />
Gross<br />
gross<br />
credit<br />
credit<br />
expsoure expsoure<br />
On balance sheet items:<br />
Bank balances 92 96<br />
Placements with financial institutions 4,821 6,917<br />
Investments carried at fair value through equity 42,724 51,249<br />
Investment in joint ventures 586 691<br />
Other assets 5,121 5,261<br />
53,344 64,214<br />
The average balances are based on month end average balances during the year<br />
2012.<br />
7.2 INDUSTRY CONCENTRATION<br />
The industry concentration of credit exposures are as follows:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
22
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
USD'000'<br />
Real<br />
estate<br />
Financial and<br />
institutions construction Others Total<br />
On balance sheet items:<br />
Bank balances 92 - - 92<br />
Placements with financial and other institutions 4,821 - - 4,821<br />
Investments carried at fair value through equity - 42,724 - 42,724<br />
Investment designated for fair value through<br />
profit and loss - - - -<br />
Investment in joint ventures - - 586 586<br />
Other assets 30 182 4,909 5,121<br />
4,943 42,906 5,495 53,344<br />
7.3 GEOGRAPHIC CONCENTRATION<br />
The Bank’s concentration exposure as at 31 <strong>Dec</strong>ember 2012 is limited to GCC<br />
countries.<br />
7.4 CREDIT EXPOSURE BY INTERNAL RATING<br />
The analysis of credit exposures by internal rating is as follows:<br />
USD'000'<br />
Rating Rating Rating<br />
A to B C to E F<br />
(Unrated) Total<br />
On balance sheet items:<br />
Financial institutions 4,847 77 19 4,943<br />
Corporates - - 48,401 48,401<br />
4,847 77 48,420 53,344<br />
7.5 CREDIT EXPOSURE BY RESIDUAL MATURITY<br />
The analysis of credit exposures by residual maturity is as follows:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
23
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
USD'000'<br />
Over Over Over<br />
Upto 3 months to 6 months to 1 year to Over<br />
3 Months 6 Months 1 year 3 years 3 years Total<br />
On balance sheet items:<br />
Bank balances 93 - - - - 93<br />
Placements with financial institutions 4,821 - - - - 4,821<br />
Investments carried at fair value through equity - 1,200 - 41,523 - 42,723<br />
Investment in joint ventures - - - 586 586<br />
Other assets 743 - 4,378 - - 5,121<br />
5,657 1,200 4,378 41,523 586 53,344<br />
7.6 RESTRUCTURED/ RENEGOTIATED EXPOSURES<br />
The Bank did not restructure or renegotiate any exposures as at 31 <strong>Dec</strong>ember 2012.<br />
7.7 EXPOSURE ON HIGHLY LEVERAGED COUNTERPARTIES<br />
The Bank has no exposure to highly leveraged and other high risk counterparties as<br />
per definition provided in the CBB rulebook <strong>PD</strong> 1.3.24.<br />
7.8 RELATED PARTY TRANSACTIONS<br />
Related counterparties are those entities which are connected to the Bank through<br />
significant shareholding or control or both. The Bank has entered into business<br />
transactions with such counterparties, and all such transactions have been done on<br />
commercial terms that bring no disadvantage to the Bank. For the purpose of<br />
identification of related parties, the Bank follows the guidelines issued by CBB. For<br />
details on related party transactions and balances, refer note 20 to the consolidated<br />
financial statements.<br />
7.9 EXPOSURE IN EXCESS OF 15% OF CAPITAL BASE<br />
Single exposures in excess of 15% of the Bank’s capital base on individual<br />
counterparties require prior approval of CBB and are subject to prudential deduction<br />
treatment unless considered as exempt. As on date of balance sheet the Bank has a<br />
restricted investment account exposure amounting to USD165.3Million; this restricted<br />
investment account is specific in relation to a project promoted by the Bank and was<br />
part of the overall investment structure and is exempt as per CBB rules.<br />
Exposures exceeding single exposure limit as of 31 <strong>Dec</strong>ember 2012 were:<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
24
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
• To a corporate counterparty amounting to USD 33.4 million for which Bank has<br />
obtained approval from CBB. The Bank has deducted USD 16.7 million from its<br />
eligible capital, being excess over 15% of the Capital Base.<br />
• Against an investment property which has also been partly occupied by the<br />
Bank as an office premises amounting to USD59.9million. The Bank has<br />
deducted USD43.2million from its eligible capital, being excess over 15% of the<br />
Capital Base.<br />
7.10 ASSET QUALITY AND PAST DUE EXPOSURES<br />
The analysis of asset quality and past due exposures are as follows:<br />
Banks and<br />
Financial<br />
Institutions<br />
USD'000'<br />
Other<br />
financial<br />
assets<br />
Neither past due not impaired 4,914 -<br />
Past due but not impaired - -<br />
Individually impaired - 42,724<br />
4,914 42,724<br />
8 CORPORATE GOVERNANCE AND TRANSPARENCY<br />
DISCLOSURES<br />
The Bank is committed to applying the highest international standards and global best<br />
practices in corporate governance. Having developed a strong corporate governance<br />
framework which aims to protect the interests of all stakeholders, ensure compliance<br />
with regulatory requirements and enhance organizational efficiency, the Bank has<br />
succeeded in imbibing a culture of corporate governance.<br />
8.1 GOVERNANCE STRUCTURE<br />
In order to effect corporate governance, a solid structure had to be devised. The Bank<br />
achieved this by structuring the organization, such that functions and responsibilities<br />
are clearly divided, mirroring the division of roles and responsibilities of the Board,<br />
Board Sub Committees, the Shari’a Supervisory Board, executive management as well<br />
as executive management committees.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
25
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
8.2 BOARD OF DIRECTORS<br />
The Bank’s Board is ultimately responsible for providing strategic leadership, direction<br />
and monitoring of business strategy, risk management, internal control environment<br />
and transparent corporate governance framework. In addition to the above, the Board<br />
is also responsible for the preparation of financial statements including the full<br />
compliance with all applicable accounting and regulatory requirements. The Board has<br />
delegated certain responsibilities to Board Sub-Committees in line with corporate<br />
governance standards of the CBB. <strong>Dec</strong>ision making at the Board level is based on<br />
financial information and investment updates presented by the management<br />
periodically. The Bank’s strategic vision and financial performance is closely monitored<br />
by the Board in line with business strategy and approved budgets. The Board is also<br />
overseeing the implementation of the Bank’s corporate governance guidelines in<br />
compliance with the CBB’s High Level Control Module as well as the Code of<br />
Corporate Governance.<br />
The Board Members are entitled to an annual fee which is subject to an achievement of<br />
profitability by the bank in accordance with the Bahrain Commercial Companies Law.<br />
Moreover, each Board Member is entitled to a fixed fee for attending the meetings of<br />
the Board as well as it Sub-Committees. The Board Members were re-elected for<br />
another term of three years commencing from 25 June 2010 at the Annual General<br />
Meeting held on 21 March 2010.<br />
8.3 APPOINTMENT PROCESS OF THE BOARD OF DIRECTORS<br />
All Board Members will be appointed at the Ordinary General Assembly by secret ballot<br />
in accordance with the provisions of the relevant Laws and subject to the CBB’s<br />
approval. The Nomination, Remuneration and Corporate Governance Committee of the<br />
Board recommend the eligible individual(s) to the Board for the appointment as<br />
Director(s). After the Approval of the Board, the appointment needs final approval of<br />
Shareholders in the General Assembly Meeting. The General Assembly may terminate<br />
the membership of the entire Board or any Director.<br />
8.4 INDUCTION, EDUCATION AND ORIENTATION OF NEW DIRECTORS<br />
The Chairman of the Board, in liaison with the Secretary of the Board, shall ensure that<br />
each new Director receives a formal and tailored induction pack to ensure his/her<br />
contribution to the Board from the beginning of his/her term. The induction must include<br />
meetings with senior management, visits to the Bank, presentations regarding strategic<br />
plans, significant financial, accounting, compliance and risk management issues,<br />
meeting with internal and external auditors and legal counsel of the Bank. When a new<br />
director is inducted, the Chairman of the Board, assisted by the Compliance Officer,<br />
should review the Board’s role and duties with that person, particularly covering legal<br />
and regulatory requirements and High-Level Controls Module of CBB rulebook.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
26
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
8.5 BOARD PERFORMANCE EVALUATION<br />
The Bank has developed a policy to govern the annual self-review of the Board, the<br />
Board’s sub-Committees and each individual director. The review evaluates the<br />
performance of the Board, the Board’s Sub-Committees and individual directors,<br />
including the Chairman of the Board.<br />
8.6 CONFLICT OF INTEREST AND RELATED PARTY TRANSACTIONS<br />
The Board has adopted a disciplined approach for identifying transactions involving<br />
“conflict of interest” of any members of the Board and related party transaction.<br />
In the event of Board considering any issue involving a conflict of interest or related<br />
party transaction, the matters are discussed during the Board meeting and the<br />
interested director(s) will be abstained from taking part in discussion, decision making<br />
and voting for resolution of the matter. These matters will be recorded in the minutes of<br />
meetings.<br />
As per code of conduct of Directors, the Directors are required to inform the entire<br />
Board of (potential) conflicts of interest in their activities with, and commitments to,<br />
other organisations as they arise and abstain from voting on the matter. This disclosure<br />
includes all material facts in the case of a contract or transaction involving the Director.<br />
Furthermore, any such transaction needs additional approval in the Annual General<br />
Meeting of the Shareholders of the Bank.<br />
8.7 TYPE OF MATERIAL TRANSACTIONS THAT REQUIRE BOARD<br />
APPROVAL<br />
The direction and control of the Bank is steered by the Board of the Bank. The Board<br />
address matters of high importance including but not limited to the approval of strategic<br />
and business plans, major investment decisions, exit strategies, capital expenditure,<br />
review and approval of financial results, annual budget, placement limits and review of<br />
overall internal control environment of the Bank.<br />
8.8 BOARD COMMITTEES<br />
NOMINATION, REMUNERATION AND GOVERNANCE COMMITTEE<br />
The Nomination, Remuneration and Governance Committee oversees matters related<br />
to the nomination of new Directors, assessment of the Board, its Sub-Committees,<br />
Chief Executive Officer and Senior Management as well as the remuneration of<br />
Directors and Senior Management. It is also responsible for all corporate governance<br />
matters.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
27
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
EXECUTIVE COMMITTEE<br />
The Executive Committee is a Sub-Committee of the Board, entrusted to oversee the<br />
Executive Management, implement business plans, take major administrative and<br />
budgetary decisions and approve all forms of risk, underwritings, direct investments<br />
and new products of the Bank, including but not limited to real estate, private equity,<br />
asset management, advisory services (corporate finance and capital markets) and<br />
portfolio management.<br />
AUDIT COMMITTEE<br />
The Audit Committee has oversight responsibilities pertaining to financial reporting,<br />
internal control, risk management, internal audit, external audit, compliance, Shari’a<br />
rules and principles and other relevant matters.<br />
SHARI’A SUPERVISORY BOARD<br />
Being an Islamic Bank, the Bank has appointed a Shari’a Supervisory Board to direct,<br />
review and supervise the Bank’s activities, to ensure full compliance with the rules and<br />
principles of Islamic Shari’a. The Bank conducts internal Shari’a reviews which ensure<br />
that all the business activities are in compliance with Shari’a principles and applicable<br />
AAOIFI standards. The members of the Shari’a Board are entitled to a fixed fee<br />
payable on quarterly basis and are not linked to the performance indicators of the<br />
Bank.<br />
As mentioned in the report of the Shari’a Supervisory Board, during the year 2012, the<br />
Bank was in full compliance with principles of Shari’a and other applicable laws.<br />
EXECUTIVE MANAGEMENT<br />
The Chief Executive Officer is responsible for day-to- day management of the Bank as<br />
set out in the Organization Chart.<br />
EXECUTIVE MANAGEMENT COMMITTEES<br />
Management Committee (MANCOM)<br />
MANCOM is the principal management committee which is responsible for the day-today<br />
general oversight of the Bank’s business, including but not limited to the following<br />
issues: budgetary, strategy, investment, personnel, audit, and compliance.<br />
ASSET & LIABILITY MANAGEMENT COMMITTEE (ALCO)<br />
The primary role of ALCO is to manage the Bank’s balance sheet profile and in the<br />
process, manage the liquidity and profit rate risks faced by the Bank.<br />
RISK MANAGEMENT COMMITTEE (RMC)<br />
RMC acts to ensure that the Bank has an effective risk management framework in<br />
place, meets regulatory requirements and is in line with best practice methodologies.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
28
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
8.9 STRATEGY<br />
The Bank’s ‘Way Forward’ strategy is to leverage its regional experience and expertise<br />
to establish a strong presence at a global level. The Bank aims to be an investment<br />
bridge for its clients by actively facilitating rewarding investment opportunities from<br />
within the GCC to other market<br />
8.10 CODE OF CONDUCT<br />
The Bank has developed a Code of Conduct (the (“Code”) that governs the<br />
professional and personal behaviour of the directors, management and staff. The Code<br />
outlines the principles, policies and laws to the Members of the Board must adhere in<br />
order to fulfil their responsibilities.<br />
The Code has documented the standards and principles to promote ethical business<br />
practices and to avoid conflicts of interest among Members of the Board. The ultimate<br />
objective of the Code is to reasonably deter the possibility of wrongdoing and illegal<br />
acts. The approved Code addresses the principles of confidentiality, integrity,<br />
impartiality and independence.<br />
8.11 CORPORATE COMMUNICATIONS POLICY<br />
The Bank maintains an effective communications policy that enables both the Board<br />
and executive management to communicate properly with its shareholders,<br />
stakeholders and the public generally. Main communications channels include the<br />
Annual General Meetings, annual report and accounts, corporate website and<br />
corporate brochure and regular announcements in the appropriate local press. It is the<br />
duty of the Board to ensure that the annual general meeting is conducted in an efficient<br />
manner and serves as a key mechanism in shareholder communications.<br />
Shareholders are supplied with comprehensive, timely information and encouraged to<br />
participate actively in the Annual General Meetings.<br />
A Disclosure Policy has been developed as part of the Bank’s commitment to adopt the<br />
highest standards of transparency and fairness in disclosing information for the benefit<br />
of all stakeholders. The Bank is committed to disclosing information to the public in a<br />
manner consistent with guidelines provided by CBB and in line with Basel II Pillar III<br />
requirements.<br />
8.12 CORPORATE SOCIAL RESPONSIBILITY<br />
The Bank as an Islamic investment bank that operates in accordance with rules and<br />
guidelines of Islamic Shari’a and adopts strong ethical business principles. Since its<br />
inception in June 2007, the Bank has met its corporate social responsibility through<br />
various activities that support the local community, contribute to the development of<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
29
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Islamic banking and promote Bahrain’s reputation as the financial hub of the Middle<br />
East and an attractive destination for foreign investment.<br />
At the outset of our existence, the Bank made a major endowment to Bahrain’s Waqf<br />
Fund to facilitate the establishment of a dedicated Islamic Training Centre at the<br />
Bahrain Institute of Banking & Finance, designed to prepare young professionals for a<br />
career in the Islamic financial services industry.<br />
The Bank also conducts an annual summer internship program for Bahraini students<br />
from universities around the world to develop our prospective banking executives of the<br />
future. This year, six young interns gained hands-on experience and enhance their<br />
skills and knowledge in different aspects of Islamic investment banking. The Bank is<br />
developing a skilled pool of finance professionals while providing the platform for<br />
aspiring Bahrainis to gain deeper insight and develop career- oriented expertise.<br />
“Audit and non-audit related services fees charged by the external auditor are available<br />
with the Bank for inspection of the Shareholders. In case of any query please contact<br />
the Board Secretary for the information”.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
30
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
8.13 ORGANIZATION CHART<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
31
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
9 BOARD OF DIRECTORS<br />
SALEH AL ALI AL RASHED<br />
Chairman of the Board (Non-Executive)<br />
Sh. Al Rashed is a member of one of the most esteemed business families in Saudi<br />
Arabia. He is recognized as one of the most successful businessmen in the region and<br />
he has more than 35 years of experience. Sh. Al Rashed has held many prestigious<br />
positions in financial institutions in the region and in Europe. Currently he is Chairman<br />
of a number of large corporations such as Trade Union Cooperative Insurance &<br />
Reinsurance Co., National Amlak Investment Co., Al Rashed & Al Thunayyan<br />
Automotive Co., and Al Kumasiya for Feed and Animal Production Co. He is also a<br />
Board Member of Masraf Al Rayan in Qatar. Sh. Al Rashed holds a Diploma in<br />
Business Administration from Berkeley University of California.<br />
ABDUL RAHMAN MOHAMMED AL JASMI<br />
Vice Chairman (Non-Executive)<br />
Chairman of the Executive Committee<br />
Mr. Al Jasmi is a banking and finance professional with more than 22 years’ experience<br />
in both commercial and investment banking. As the Vice Chairman, Mr. Al Jasmi<br />
provides strategic direction to the Bank’s global investment initiatives across the MENA<br />
region and global markets. Mr. Al Jasmi holds a BA (Honours) in Business<br />
Administration and an advanced Diploma in Banking studies from the University of<br />
Bahrain and continued his professional development at Cranfield Management School<br />
in the United Kingdom.<br />
SALAH SALEH ASHEER<br />
Director (Non-Executive)<br />
Member of the Executive Committee<br />
Mr. Asheer is the Chief Executive Officer of a number of Bahrain-based, privately held<br />
investment companies. Mr. Asheer is an investment banker with more than 18 years of<br />
experience and has served as a Director of several local, regional and international<br />
subsidiaries that own and manage a diversified range of investments in the financial<br />
services industry, amongst others. Mr. Asheer is a Certified Public Accountant and<br />
holds a Bachelor’s degree in Accounting.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
32
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
TALAL MOHAMMED AL MUTAWA<br />
Director (Non-Executive)<br />
Member of the Audit Committee<br />
Mr. Al Mutawa is the Vice-Chairman and Chief Executive Officer of Manafae<br />
Investment Co. KSC(C) in Kuwait, a shareholding company specializing in asset<br />
management and investment services. He has over 18 years of experience in the<br />
stock markets and in the financial sector. He is recognized for setting high benchmarks<br />
for profitability, introducing new clients, setting up a structure for the local services<br />
department and training dealers to improve their technical skills. Before joining<br />
Manafae Investment Co., Mr. Al Mutawa was the Manager of Trading and Portfolio<br />
Management in Kuwait Asset Management Co (KAMCO), a subsidiary of Kuwait<br />
Investment Project Co. (KIPCO). He was responsible for several public subscriptions<br />
and private placements. Mr. Al Mutawa holds a Bachelor’s degree in Business<br />
Administration.<br />
KHALID ABDULLAH AL-ANKARY<br />
Director (Non-Executive and Independent)<br />
Chairman of the Audit Committee<br />
Member of the Nomination, Remuneration & Corporate Governance Committee<br />
Mr. Al-Ankary is the General Manager of Bathel Al Khair Establishment for Trading &<br />
Real Estate in Saudi Arabia. Mr. Al-Ankary started his career in 1990 as Internal<br />
Auditor in the Saudi Industrial Development Fund (SIDF). In an illustrious career<br />
spanning more than 20 years, Mr. Al-Ankary has gained in-depth experience across<br />
market sectors covering financial, oil and gas, manufacturing, retail, insurance,<br />
telecommunication and the hospitality industries. Prior to joining Bathel Al Khair, Mr. Al-<br />
Ankary was the Internal Auditor in the Internal Audit Division of Samba Financial Group<br />
where he participated in various audits within the group, in addition to audits in Citibank<br />
Jordan and Citibank Spain. He has also attended several audit training courses<br />
organized by the Citibank group in New York and London. Mr. Al-Ankary holds a<br />
Bachelor’s degree in Accounting from King Saud University in Saudi Arabia.<br />
DR. SAUD AL-AMMARI<br />
Director (Non-Executive and Independent)<br />
Chairman of the Nomination, Remuneration & Corporate Governance Committee<br />
Member of the Risk Management Committee<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
33
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Dr. Al-Ammari is the Managing Partner of Blakes offices in Saudi Arabia and the Gulf<br />
Region. Over the past two decades, he has built a prominent and impressive legal<br />
career as well as an extensive network of business and professional contacts<br />
throughout the Gulf Region, Europe and North America. He has experience in a wide<br />
variety of corporate and commercial legal matters both inside and outside the gulf<br />
region. Dr. Al-Ammari holds Master in Law degree from Harvard Law School,<br />
Cambridge, Massachusetts and PhD form South Texas College of Law Houston -<br />
Texas.<br />
DR. ZAKARIA AHMED HEJRES<br />
Director (Non-Executive)<br />
Member of the Audit Committee<br />
Member of the Risk Management Committee<br />
Member of Nomination, Remuneration & Corporate Governance Committee<br />
Dr. Zakaria holds a Ph.D. in Economic Development from the University of Durham,<br />
United Kingdom. He also obtained a Master's Degree in Economic Development from<br />
the University of Strathclyde, UK in 1985.<br />
Prior to joining the Bank, Dr. Zakaria was associated with some of the leading<br />
institutions in Bahrain. He was the Deputy Chief Executive of the Economic<br />
Development Board (EDB). He was also at the Ministry of Finance and National<br />
Economy, where he initially had started as a Senior Economist in the Planning and<br />
Economic Affairs Department, then became the Head of Economic Planning in the<br />
Directorate of Evaluation and Economic Research, then the Director of Economic<br />
Planning, and the Assistant Undersecretary for Economic Affairs.<br />
Dr. Zakaria is also a Board Member in several organisations, where he is a Director at<br />
Bahrain Telecommunication Company (BATELCO), a Director at Gulf Investment<br />
Corporation & a Director at Tamkeen. Furthermore Dr. Zakaria is an association<br />
member in the Bahrain Economic Society.<br />
Dr. Zakaria joined the Bank as a Board Member on 6 th of November 2012 and<br />
subsequently appointed as a Chief Executive Officer on 03 rd of February 2013 and<br />
accordingly left his positions as a Board Member and Member of the Board Sub-<br />
Committees.<br />
RAED MOHAMMED AL SALEH<br />
Director (Non-Executive) Chairman of the Risk Management Committee<br />
Member of the Executive Committee<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
34
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Mr. Raed Al Saleh is the Chief Executive Officer of CapCorp Investment Company<br />
KSC(C). Mr. Al Saleh held directorship in several companies and currently he is<br />
director at Zak Solutions Company KSC(C). He has more than 27 years’ experience in<br />
managing diversified investment portfolio. Mr. Al Saleh holds bachelor’s degree in<br />
Business Administration from Eckerd College in United States.<br />
10 MANAGEMENT TEAM<br />
A. MONAIM MOHAMED AL BASTAKI<br />
Acting Chief Executive Officer & Chief Operating Officer<br />
Mr. Al Bastaki is a member of the executive, human resources, planning, investment<br />
and financial committees, and Chairman of Diyafa Holdings WLL. He has more than 30<br />
years of experience in the financial services industry. Prior to joining the Bank, Mr. Al<br />
Bastaki was the Head of the International Banking Division at a leading Islamic<br />
financial institution in the UAE. Mr. Al Bastaki was the Acting Chief Executive Officer<br />
from 7 th of June 2012 until 31 st of January 2013.<br />
AHMED HASSAN AAMER<br />
Head of Operations<br />
Mr. Aamer’s responsibilities include managing operations and other administration<br />
activities. He has over 35 years of experience in banking, and previously worked at<br />
Citibank. He has in-depth experience in banking products with specific expertise in<br />
Treasury products, including risks, accounting and controls associated to these<br />
products.<br />
DR RAID EID AL-ZUDE<br />
Head of Legal & Corporate Secretary<br />
Dr AI-Zude is the Head of Legal Department and the Corporate Secretary. He is<br />
responsible for providing legal advice on the structuring and execution of transactions,<br />
developing and maintaining the organization’s legal framework and coordinating<br />
external legal support, focusing on the Legal Department’s strategies and operations.<br />
He is also the focal point of communication between the Board of Directors, senior<br />
management and shareholders as well as providing legal advice to the Bank’s Board of<br />
Directors, senior management and shareholders on Corporate Governance Principles,<br />
best practices and compliance to regulations. Dr AI-Zude has a PhD in Commercial<br />
Law from Bristol University, England, a Master’s Degree in Commercial Law from<br />
Aberdeen University, Scotland, and a Bachelor’s Degree in Law from the University of<br />
Jordan<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
35
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
KHALID AHMED AL JABER<br />
Head of Compliance<br />
Head of Compliance<br />
Mr AI Jaber is responsible for the daily operations of the compliance function, to ensure<br />
full compliance with requirements of the Central Bank of Bahrain’s Laws and<br />
Regulations. Mr Al Jaber has more than 25 years of experience in the banking field and<br />
as regulator with the CBB. He holds a Bachelor’s degree in Business Administration<br />
from North Texas State University - USA.<br />
FARRUKH ZAREEF<br />
Head of Risk<br />
Mr Zareef joined the Bank in 2011, adding to the team his valuable experience of 15<br />
years in a broad range of financial services areas, including risk management,<br />
compliance and audit, having worked in Pakistan, London and Middle East. Before<br />
moving to Bahrain, Mr Zareef was Partner in Risk Advisory Services at Ernst & Young<br />
Pakistan, focusing on the financial sector. He is a member of The Institute of Chartered<br />
Accountants of Pakistan (ICAP).<br />
FATEMA KAMAL<br />
Acting Head of Investment<br />
Mrs Kamal is an Executive Director in the Investment Banking Department. She has in<br />
depth field experience of 13 years in the financial sector specializing in investment<br />
structuring, strategic and organizational planning, tax structuring oversight, Shari’a<br />
product structuring, joint venture negotiation, business development and project<br />
management. Prior to joining the Bank, she worked as a Project Manager at Gulf<br />
Finance House and as an auditor at KPMG.<br />
Mrs Kamal holds a Bachelor of Science Degree in Accounting from the University of<br />
Bahrain. She has also qualified as a Certified Public Accountant and Certified Internal<br />
Auditor.<br />
10.1 CHANGES IN GOVERNANCE STRUCTURE<br />
During the year 2012, the following Board Members have resigned on 3 rd of October<br />
2012;<br />
• Fady Jan Bakhos (Non-Executive) a Board Member & a Member of the Audit<br />
Committee; and<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
36
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
• Terry Newendorp (Non-Executive) a Board Member & a Member of the Audit<br />
Committee and a Member of the Nomination, Remuneration & Corporate<br />
Governance Committee<br />
Also, the following joined as Board Members on 6 th of November 2012:<br />
• Dr. Zakaria Hejres as a Non-Executive and Independent Board Member;*<br />
• Dr. Saud Al Ammari as a Non-Executive and Independent Board Member; and<br />
• Mr. Raed Al-Saleh as a Non-Executive Board Member.<br />
of <strong>Dec</strong>ember 2012 has re-<br />
The Bank Board of Director in its meeting held on 13 th<br />
constructed the Board Sub-Committees as follows<br />
EXECUTIVE COMMITTEE MEMBERS:<br />
1. Mr. A.Rahman Al Jasmi – Chairman (Non-Executive);<br />
2. Mr. Salah Asheer – Member (Non-Executive); and<br />
3. Mr. Raed Al Saleh – Member (Non-Executive).<br />
NOMINATION, REMUNERATION & CORPORATE GOVERNANCE COMMITTEE<br />
MEMBERS:<br />
1. Dr. Saud Al Ammari – Chairman (Non-Executive and Independent);<br />
2. Mr. Khalid Al Ankary – Member (Non-Executive and Independent);<br />
3. Dr. Zakaria Hejres – Member (Non-Executive and Independent); and<br />
4. Dr. Osama Bahar – SSB Member.<br />
AUDIT COMMITTEE MEMBERS:<br />
1. Mr. Khalid Al Ankary – Chairman (Non-executive and Independent);<br />
2. Mr. Talal Al Mutawa – Member (Non-Executive); and<br />
3. Dr. Zakaria Hejres – Member (Non-executive and Independent).<br />
RISK COMMITTEE MEMBERS:<br />
1. Mr. Raed Al Saleh – Chairman (Non-Executive);<br />
2. Dr. Saud Al Ammari – Member (Non-Executive and Independent); and<br />
3. Dr. Zakaria Hejres Member (Non-Executive and Independent).<br />
* Dr. Zakaria joined the Bank as a Board Member on 6 th of November 2012 and<br />
subsequently appointed as a Chief Executive Officer effective from 1 st of February<br />
2013 and accordingly left his positions as a Board Member and Member of the Board<br />
Sub-Committees.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
37
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
11 FINANCIAL PERFORMANCE AND POSITION<br />
In 2012, the global economy was still recovering from the aftermath of nearly three<br />
consecutive years of financial instability. The 2008-2009 global financial crisis coupled<br />
with the European Debt crisis in 2011 have both slowed down global growth to almost<br />
3 per cent in 2012. Despite encouraging signs that some mature economies have<br />
overcome the global financial and the European Debt crises, the global economy is<br />
likely to continue bearing some of the scars of the financial crisis.<br />
The Bank’s financial results are an indication of the difficult year that the Bank faced in<br />
2012 and challenges that await us in 2013. The bank is taking necessary strategic<br />
initiatives to understand and put in place measures to reduce the risks of future<br />
instability.<br />
The Bank’s total operating income for the financial year ended 31 <strong>Dec</strong>ember 2012 was<br />
USD4.1million. The operating expenses were reduced compared to 2011 from<br />
USD18.7million to USD13.2million. The loss for this year was USD17million including<br />
impairment allowance of USD8million. The total assets stand at USD119.9million<br />
compared to USD141million in 2011. The total liabilities have decreased from<br />
USD12.4million to USD8.4million in 2012.<br />
Whilst the market is still feeling the aftershocks of the decline in the real estate sector,<br />
the Bank is pleased to announce that it has exited from one of its real estate funds. The<br />
transaction will be finalized in 2013 and will have a positive impact on the financial<br />
results of the Bank and our investors.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
38
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
2012 2011 2010 2009 2008<br />
Total assets 119,956 141,026 181,388 197,655 455,868<br />
Total liabilities 8,412 12,412 26,139 36,120 274,808<br />
Total equity 111,544 128,614 155,249 161,535 181,060<br />
Share capital 200,000 200,000 200,000 173,750 156,250<br />
Fund under management 676,702 701,402 701,402 689,767 722,900<br />
Net Profit / (loss) (17,070) (26,635) (32,536) (18,843) 21,216<br />
Total income 4,144 3,094 5,929 9,340 53,193<br />
Total expenses 13,214 18,717 19,422 23,655 31,977<br />
Total provisions 8,000 11,012 19,043 4,528 -<br />
Liquid assets as a percentage of total assets 4.34% 9.10% 21.70% 22.58% 65.58%<br />
Liquid assets to liquid liabilities (ratio) 0.9 1.4 2.4 2.2 1.4<br />
Return on average equity -14.22% -18.77% -20.54% -11.00% 12.41%<br />
Return on paid up capital -8.54% -13.32% -16.27% -10.84% 13.58%<br />
Return on average assets -13.08% -16.52% -17.17% -5.77% 6.13%<br />
Earning per share (cents) (8.54) (13.32) (13.47) (7.53) 8.49<br />
Capital Adequacy Ratio 52.61% 51.29% 40.87% 35.37% 30.29%<br />
Net income margin -411.92% -860.86% -548.76% -201.75% 39.88%<br />
Paid up value per share - $ 1.000 1.000 1.000 0.695 0.625<br />
Book value per share 0.558 0.643 0.775 0.645 0.724<br />
Total cost to gross income 318.87% 604.95% 253.27% 60.12% 27.08%<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
39
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
12 ADDITIONAL CORPORATE GOVERNANCE DISCLOSURES<br />
12.1 OTHER DIRECTORSHIPS HELD BY BOARD MEMBERS<br />
Name of Director Directorship Held in 2012<br />
Sh. Saleh Al Ali Al<br />
Rashed<br />
Mr. Abdul Rahman<br />
Mohamed Al Jasmi<br />
Mr. Salah Saleh Asheer<br />
• National Amlak Investment Company;<br />
• Trade Union Cooperative Insurance and Reinsurance Company;<br />
• Al Khumasiya for Feed and Animal Production;<br />
• Masraf Al Rayan; and<br />
• Al-Rashed and Al-Thunayan Automotive Company.<br />
• Al-Marfa'A Al-Mali Sukuk Co. B.S.C.<br />
• Enshaa Development Real Estate B.S.C.<br />
• Diyar Al Bahrain Real Estate Co. W.L.L.<br />
• Ruf Bahrain Company W.L.L.<br />
• Diyar Al Bahrain Holding Co. W.L.L.<br />
• Laurus Real Estate W.L.L.<br />
• 2 Seas Investment Co. W.L.L.<br />
• Daheyat Al Areen Real Estate Development W.L.L.<br />
• Okeanos Development S.P.C.<br />
• Okeanos Views Real Estate Development S.P.C.<br />
• Global Real Estate Development Co. W.L.L.<br />
• Al Jasmi Holding Company S.P.C.<br />
• Anab Real Estate S.P.C.<br />
• Anab Land Sceep S.P.C.<br />
• Global Energy Financial Services S.P.C.<br />
• Marsa Al Seef Real Estate Investment Company W.L.L.<br />
• Al Jasmi Constructions Co. W.L.L.<br />
• South East Real Estate S.P.C.<br />
• Masaken Real Estate Development Co. W.L.L.<br />
• BMI Bank B.S.C. (C)<br />
• Redwood Investment S.P.C.<br />
• Bahrain Bay Development B.S.C. (C)<br />
• Diyar Al Muharraq W.L.L.<br />
• Albilad Real Estate Investment Co. W.L.L<br />
• Kenaz Al Kharanah Real Estate Investment W.L.L.<br />
• Rayouf Holding Company W.L.L.<br />
• Amar Holding Company B.S.C (C)<br />
• Raseem Real Estate Investment Company W.L.L.<br />
• Aradi Salmabad Real Estate Investment Co. S.P.C.<br />
• Whitewood Holdings S.P.C<br />
• Bahrain Bay Development Ii B.S.C (C)<br />
• Al Kawthar First Real Estate Investment Co. S.P.C.<br />
• Marsa Al Seef Real Estate Investment Co. W.L.L.<br />
• Golden Meadows Real Estate W.L.L.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
40
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
• Aspire Real Estate Investment I S.P.C.<br />
• Aspire Real Estate Investment III S.P.C.<br />
• Al Retaj Holding W.L.L.<br />
• Al Seela Corp Real Estate Investment Company S.P.C<br />
• Diyar Homes Company W.L.L.<br />
Mr. Talal Mohammed Al<br />
Mutawa<br />
Mr. Khalid Abdulla Al<br />
Ankary<br />
Mr. Raed Mohammed Al<br />
Saleh<br />
Dr. Saud Abdulla Al<br />
Ammari<br />
Dr. Zakarya Hejres *<br />
• Manafae Investment Company KSC (c).<br />
• North Star Holding – Bahrain.<br />
• International Company for Services and Real Estate Investments –<br />
Egypt.<br />
• Samba Capital a subsidiary of Samba Financial Group – Mutual<br />
Funds.<br />
• Zak Solutions KSC (c).<br />
• None<br />
• Tamkeen<br />
• Gulf Investment Corporation<br />
• Bahrain Telecommunication Company<br />
* Dr. Zakaria joined the Bank as a Board Member on 6 th of November 2012 and<br />
subsequently appointed as a Chief Executive Officer effective from 1 st of February<br />
2013 and accordingly left his positions as a Board Member and Member of the Board<br />
Sub-Committees.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
41
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
12.2 DIRECTORS’ MEETING AND ATTENDANCE DURING THE YEAR 2012<br />
The table presented below, summarize the data pertaining to meetings of the Board of<br />
Directors and its Committees held during the year 2012.<br />
Board Meetings<br />
Audit Committee<br />
Meetings<br />
Executive<br />
Committee<br />
Meetings<br />
Nomination,<br />
Remuneration and<br />
Corporate<br />
Governance<br />
Committee<br />
Meetings<br />
Board Members<br />
No. of<br />
meetings<br />
attended<br />
No. of<br />
meetings<br />
during the<br />
period of<br />
membership<br />
No. of<br />
meetings<br />
attended<br />
No. of<br />
meetings<br />
during the<br />
period of<br />
membership<br />
No. of<br />
meetings<br />
attended<br />
No. of<br />
meetings<br />
during the<br />
period of<br />
membership<br />
No. of<br />
meetings<br />
attended<br />
No. of<br />
meetings<br />
during the<br />
period of<br />
membership<br />
Saleh Al Ali Al<br />
Rashed 2 4 N/A N/A N/A N/A 2* 2<br />
A.Rahman<br />
Mohamed Al Jasmi 4 4 N/A N/A 2* 2 2 2<br />
Talal Mohammed<br />
Al Mutawa 4 4 N/A N/A N/A N/A N/A N/A<br />
Salah Saleh Asheer 2 4 N/A N/A 2 2 N/A N/A<br />
Fady Jan Bakhos** 2 2 1 1 N/A N/A N/A N/A<br />
Khalid Abdulla Al<br />
Ankary 4 4 2* 2 N/A N/A N/A N/A<br />
Terry A.<br />
Newendorp** 0 2 0 1 N/A N/A 0 1<br />
Zakaria Hejres*** 1 1 1 1<br />
Saud Al Ammari*** 1 1 N/A N/A<br />
Raed Al Saleh*** 1 1 N/A N/A<br />
Minimum meetings<br />
during the year<br />
Meeting Dates March 8, 2012 March 8, 2012 March 8, 2012 October 3, 2012<br />
June 7, 2012 <strong>Dec</strong>ember 12, 2012<br />
October 03, 2012 <strong>Dec</strong>ember 13, 2012<br />
<strong>Dec</strong>ember 13, 2012 <strong>Dec</strong>ember 13, 2012<br />
* Chairman of the Committee<br />
** Resigned on October 03, 2012<br />
*** Joined on November 06,2012<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
42
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
The meeting wise record of attendance is as follows:<br />
- Attended the meeting<br />
- Not attended the meeting N\A<br />
N\A - Resigned<br />
Board Meetings Attendance<br />
Board of Directors<br />
8 th March<br />
2012<br />
7 th June<br />
2012<br />
3 rd<br />
October<br />
2012<br />
13 th<br />
<strong>Dec</strong>ember<br />
2012<br />
Attendance<br />
Saleh Al Ali Al Rashed 2 /4<br />
A.Rahman Mohamed Al<br />
Jasmi<br />
4 /4<br />
Talal Mohammed Al Mutawa 4 /4<br />
Salah Saleh Asheer 2 /4<br />
Fady Jan Bakhos** * N\A N\A 2 /2<br />
Khalid Abdulla Al Ankary 4 /4<br />
Terry A. Newendorp** N\A N\A 0 /2<br />
Zakaria Hejres***<br />
Saud Al Ammari***<br />
Raed Al Saleh***<br />
N\A N\A N\A<br />
N\A N\A N\A<br />
N\A N\A N\A<br />
1 /1<br />
1 /1<br />
1 /1<br />
* Attended through Phone/video link.<br />
** Resigned on October 03, 2012<br />
*** Joined on November 06,2012<br />
Audit Committee Meeting<br />
Committee members<br />
8 th March<br />
2012<br />
13 th<br />
<strong>Dec</strong>ember<br />
2012<br />
Attendance<br />
Fady Jan Bakhos* N\A 1 /1<br />
Khalid Abdulla Al Ankary 2 /2<br />
Terry A. Newendorp* 0 /2<br />
Zakaria Hejres**<br />
N\A<br />
1 /1<br />
* Resigned on October 03, 2012<br />
** Joined on November 06, 2012<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
43
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Executive Committee Meeting<br />
Committee members 8 th March<br />
2012<br />
12 th<br />
<strong>Dec</strong>ember<br />
2012<br />
Attendance<br />
A.Rahman Mohamed Al Jasmi 2 /2<br />
Salah Saleh Asheer 2 /2<br />
Nomination, Remuneration and Corporate Governance Committee Meeting<br />
Committee members<br />
03 rd<br />
October<br />
2012<br />
13 th<br />
<strong>Dec</strong>ember<br />
2012<br />
Attendance<br />
Saleh Al Ali Al Rashed 2 /2<br />
A.Rahman Mohamed Al Jasmi 2 /2<br />
Terry A. Newendorp* N\A 0 /1<br />
* Resigned on October 03, 2012<br />
Below are explanations for the absences reported in the attendance of the Board and<br />
Sub-Committees meetings.<br />
• As per the Charter of the Nomination, Remuneration & Corporate Governance<br />
Committee, the Committee has to meet at least two times a year. In the year<br />
2012, the Committee had two meetings on 3 October 2012 and 13 <strong>Dec</strong>ember<br />
2012.<br />
• As a result of the short notice to hold a Board of Directors Meeting on 7 June<br />
2012 to discuss the exit of Makkah Hills, there was a difficulty to convene an<br />
Audit and Executive Committees meetings.<br />
• As a result of the resignation of Mr. Fady Bakhos and Mr. Terry Newendorp on<br />
3 October 2012, it was impossible for the Audit Committee to hold a meeting on<br />
3 October 2012 as previously planned. However, the Chairman of the Audit<br />
Committee held a meeting with the Bank’s Executive Management to discuss<br />
the agenda items and a minute was prepared and signed by the Chairman of<br />
the Audit Committee.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
44
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
• The Executive Committee consists from two members namely Mr. A.Rahman Al<br />
Jasmi and Mr. Salah Asheer, as a result of the previous resignation of Mr. Talal<br />
Al Mutawa from the Executive Committee last year. In compliance with the<br />
previous instructions of the CBB, it was impossible to reconstitute the Executive<br />
Committee, since no Board Member is allowed to be a member of the Audit and<br />
a member of the Executive Committee. As a result of the absent of Salah<br />
Asheer, the Executive Committee was unable to hold a meeting on 3 October<br />
2012 as previously planned.<br />
12.3 SHAREHOLDING MORE THAN 5%<br />
Information about major shareholders of the Bank is summarized below:<br />
Shareholders<br />
No. of shares<br />
shareholding<br />
%<br />
2 Seas Investment Co. W.L.L. 36,905,000 18.45%<br />
Oras Investment Co. S.P.C. 26,062,500 13.03%<br />
United Gulf Bank B.S.C. 25,000,000 12.50%<br />
Soura Investment Co. S.P.C. 25,000,000 12.50%<br />
Special Projects Co. W.L.L. 17,375,000 8.68%<br />
Abu Dhabi Investment House 17,375,000 8.68%<br />
Abdul Rahman M. Al Jasmi 12,500,000 6.25%<br />
Total 200,000,000 100%<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
45
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
12.4 DISTRIBUTION BY SIZE OF SHAREHOLDING<br />
The current shareholding structure is as follows:<br />
Category<br />
No. of<br />
shares<br />
No. of<br />
shareholders shareholding %<br />
Less than 1% 14,145,000 14 7.0725%<br />
1.1% to 5% 25,637,500 6 12.8187%<br />
5.1% to 10% 47,250,000 3 23.6250%<br />
10.1% to 15% 76,062,500 3 38.0312%<br />
15.1% and above 36,905,000 1 18.4530%<br />
Total 200,000,000 27 100%<br />
12.5 SHAREHOLDING BY NATIONALITY<br />
The distributing of shareholding by nationality is given in the table below:<br />
Nationality<br />
No. of<br />
shares<br />
No. of<br />
shareholders<br />
shareholding<br />
%<br />
Kingdom of Bahrain 157,920,000 9 78.96%<br />
Kingdom of Saudi Arabia 21,272,500 13 10.63%<br />
State of Qatar 17,722,500 2 8.86%<br />
United Arab Emirates 1,695,000 2 0.84%<br />
Jordan 1,390,000 1 0.69%<br />
Total 200,000,000 27 100%<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
46
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
12.6 SHAREHOLDING ON INDIVIDUAL BASIS<br />
The number of shares held by a Director as at 31 <strong>Dec</strong>ember 2012 was as follows:<br />
• Mr. Abdul Rahman M. Al Jasmi 6.25% of the Issued Share Capital of the Bank.<br />
• Mr. Saleh Al Ali Al Rashed (indirectly) holds 8.23% of the Issued Share Capital<br />
of the Bank.<br />
• No Director(s) or senior manager(s) other than mentioned above holds any<br />
shares in the Bank.<br />
12.7 OTHERS<br />
• There is no ownership of any Government in the shareholding of the Bank.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
47
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
13 OTHER DISCLOSURES<br />
13.1 EXTERNAL COMMUNICATION<br />
The Bank communicates with its customers and stakeholders through various<br />
channels. Information on developments, financial results, new products or any updates<br />
of existing products are placed on the Bank’s website www.gbcorponline.com and/or<br />
published in the media as well. Product details are also disseminated to customers and<br />
other interested parties through prospectus, brochures, and/or periodic investment<br />
updates.<br />
13.2 COMPLAINT HANDLING<br />
The Bank takes disputes and complaints from all customers very seriously. These have<br />
the potential for a breakdown in relationships and can adversely affect the Bank’s<br />
reputation. Left unattended these can also lead to litigation and possible censure by the<br />
regulatory authorities. The Bank has a comprehensive policy on handling of external<br />
complaints, approved by the Board. All employees of the Bank are aware of and abide<br />
by this policy.<br />
13.3 UNRESTRICTED INVESTMENT ACCOUNTS<br />
Currently, the Bank does not offer any unrestricted investment accounts.<br />
13.4 RESTRICTED INVESTMENT ACCOUNTS<br />
Restricted investment accounts represents assets acquired by funds provided by<br />
holders of restricted investment accounts and their equivalent and managed by the<br />
Group as an investment manager based on either a Mudaraba contract or an agency<br />
contract. The restricted investment accounts are exclusively restricted for investment in<br />
specified projects as directed by the investments account holders. Assets that are held<br />
in such capacity are not included as assets of the Bank in the consolidated financial<br />
statements.<br />
The Bank does not currently offer Restricted Investment Accounts (“RIAs”) as normal<br />
product offering. The RIAs as at the reporting date is specific in relation to a project<br />
promoted by the Bank and was part of the overall investment structure. The Bank is<br />
aware of its fiduciary responsibilities in management of the RIAs investments and has<br />
clear policies on discharge of these responsibilities. For further details on RIAs<br />
balances and policies refer to the consolidated financial statements.<br />
13.5 STAFF REMUNERATION POLICY<br />
The Bank’s remuneration policy is to attract, retain and aestivates the benefit talent. In<br />
line with this strategy staff remuneration consists of monthly fixed salaries and<br />
allowances, along with several other benefits like medical, life insurance cover. The<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
48
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
Bank also has performance based discretionary bonus benefit for all its employees<br />
against predefined objectives comprising both financial and non-financial parameters.<br />
Presently, the Bank does not have any share based incentive schemes.<br />
The Bank remuneration policy for Board Members is to appropriately compensate and<br />
remunerate Board Member for their active participation in Board meetings. Based on<br />
this policy the Board Members’ remuneration was structured to comprise of sitting fees,<br />
periderm, daily allowance and air tickets.<br />
The aggregate remuneration paid to senior management and board members during<br />
2012 is as follows:<br />
USD'000'<br />
2012<br />
Board member fees 42<br />
Salaries and other short-term benefits 1,305<br />
Post employment benefits 88<br />
13.6 ZAKAH<br />
Zakah is directly borne by the shareholders on distributed profits and investors in<br />
restricted investment accounts. The Bank does not collect or pay Zakah on behalf of its<br />
shareholders and investors in restricted investment accounts. Zakah payable by the<br />
shareholders is computed by the Bank on the basis of the method prescribed by the<br />
Bank’s Shari’a Supervisory Board and notified to shareholders annually. Zakah<br />
payable by the shareholders for the year ended 31 <strong>Dec</strong>ember 2012 is US cents 0.034<br />
for every share held.<br />
13.7 COMPLIANCE DISCLOSURE<br />
The Compliance Department plays a critical role in ensuring that the Bank conducts its<br />
business in compliance with the CBB’s regulations as well as internal policies and<br />
procedures. Details of the Bank’s internal control framework are set out in internal<br />
manuals. The Board has the overall responsibility for ensuring that the Bank conducts<br />
all its activities in full compliance with applicable laws and regulations. The Board<br />
approves and periodically reviews the Bank’s compliance policies and strategies. The<br />
Audit Committee of the Board exercises a pivotal role in this regard.<br />
During the period, a penalty of BD 20,050 was imposed by the CBB for delay in<br />
submission of the year end consolidated financial statements and agreed upon<br />
Procedure Report by external auditors on the prudential returns for the period ended 31<br />
<strong>Dec</strong>ember 2011.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
49
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
13.8 ANTI-MONEY LAUNDERING<br />
The Bank has adopted detailed policies and procedures in line with the CBB directives<br />
to combat money laundering, financing of terrorism and other financial crimes. The<br />
Compliance Department requires all staff members to train regularly in Anti-Money<br />
Laundering and Combating Financing of Terrorism (AML/CFT) procedures. It is a firm<br />
policy of the Bank not to permit it to be directly or indirectly used by any elements for<br />
unlawful activities<br />
13.9 EARNING PROHIBITED BY SHARI’A<br />
The Group is committed to avoid recognising any income generated from non-Islamic<br />
sources. Accordingly, all non-Islamic income is credited to a charity account where the<br />
Bank uses these funds for charitable means. During the year, there were no earnings<br />
from non-Islamic transactions that are prohibited by Shari’a.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
50
RISK AND CAPITAL MANAGEMENT DISCLOSURES<br />
(Basel II PILLAR III)<br />
For the year ended 31 <strong>Dec</strong>ember 2012<br />
14 NON COMPLIANCE WITH HC MODULE OF CBB RULE<br />
BOOK<br />
Ministry of Commerce and Central Bank of Bahrain have jointly issued a new Code of<br />
Corporate Governance for all banks operating in the Kingdom of Bahrain. The CBB has<br />
incorporated the amendments in High-Level Control Module (HC Module) of CBB’s<br />
Rulebook. The Bank is in compliance with all the rules/guidelines stipulated in HC<br />
Module of CBB’s Rulebook except those mentioned below which are in the process of<br />
being complied with:<br />
• All banks are required to have written appointment agreements with all<br />
members of the Board of Directors. The Bank has finalized a written letter of<br />
appointment entailing responsibilities and authorities of individual members of<br />
Board of Directors. The letter of appointment has been circulated to the<br />
Members of the Board of Directors. The letters of appointment is signed by all<br />
Board Members except one.<br />
• One-third of the Board of Directors of the Bank should consist of Independent<br />
Directors. Prior to 1 st of February 2013, the Bank was fully in compliance with<br />
this requirement, but due to the appointment of one of the Independent<br />
Directors as the Bank’s CEO, the Bank currently has only two Independent<br />
Directors and is in the process of inducting the remaining one Independent<br />
Director.<br />
• Performance related incentive plans need approval from the Bank’s<br />
Shareholders, however, the Bank at present does not have any formal incentive<br />
plan other than the normal performance based discretionary bonus benefits for<br />
its all employees.<br />
These disclosures are part of the annual report for the year ended 31 <strong>Dec</strong>ember 2012 and should be read<br />
in conjunction with the consolidated financial statements for the year ended 31 <strong>Dec</strong>ember 2012<br />
51