PD-GBCORP Dec 2012.pdf

2012 

GLOBAL BANKING CORPORATION BSC (C) 

RISK AND CAPITAL MANAGEMENT 

DISCLOSURES (BASEL II - PILLAR III) 

These disclosures have been prepared in accordance with the CBB requirements 

outlined in its Public Disclosure Module (“PD”). 

These disclosures are part of the annual report for the year ended 31 December 2012 and should be read 

in conjunction with the consolidated financial statements for the year ended 31 December 2012

RISK AND CAPITAL MANAGEMENT DISCLOSURES 

(Basel II PILLAR III) 

For the year ended 31 December 2012 

Table of Contents 

1 INTRODUCTION......................................................................................................................... 6 

2 EXECUTIVE SUMMARY ............................................................................................................... 6 

3 GROUP STRUCTURE .................................................................................................................. 7 

4 RISK MANAGEMENT FRAMEWORK .............................................................................................. 8 

4.1 RISKS IN PILLAR I ............................................................................................................ 10 

4.1.1 CREDIT RISK ...................................................................................................... 10 

4.1.2 MARKET RISKS .................................................................................................. 10 

4.2 RISKS IN PILLAR II ........................................................................................................... 13 

4.2.1 LIQUIDITY RISK .................................................................................................. 13 

4.2.2 CONCENTRATION RISK ..................................................................................... 13 

4.2.3 COUNTERPARTY CREDIT RISK ........................................................................ 14 

4.2.4 PROFIT RATE RISK IN BANKING BOOK ........................................................... 14 

4.2.5 EQUITY RISK IN BANKING BOOK ..................................................................... 14 

4.2.6 DISPLACED COMMERCIAL RISK ....................................................................... 15 

4.2.7 REGULATORY AND SHARI’A COMPLIANCE RISK ............................................. 15 

4.2.8 LEGAL RISK ........................................................................................................ 15 

4.2.9 OTHER RISKS ..................................................................................................... 16 

4.3 PILLAR III ....................................................................................................................... 16 

5 CAPITAL MANAGEMENT AND INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”) .......... 17 

5.1 CAPITAL MANAGEMENT .................................................................................................. 17 

5.2 INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”) ............................................. 17 

6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE ......................................................... 18 

6.1 CAPITAL ADEQUACY COMPUTATIONS ............................................................................... 18 

The above capital adequacy ratio also represents Tier 1 capital adequacy ratio. .................. 19 

6.2 CAPITAL BASE ................................................................................................................ 19 

6.3 REGULATORY CAPITAL REQUIREMENTS FOR CREDIT RISK.................................................... 20 

6.4 REGULATORY CAPITAL REQUIREMENTS FOR MARKET RISK ................................................. 21 

6.5 REGULATORY CAPITAL REQUIREMENTS FOR OPERATIONAL RISK ......................................... 21 

7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK .......................................................................... 22 






7.1 GROSS CREDIT EXPOSURES .............................................................................................. 22 

7.2 INDUSTRY CONCENTRATION ............................................................................................. 22 

7.3 GEOGRAPHIC CONCENTRATION ........................................................................................ 23 

7.4 CREDIT EXPOSURE BY INTERNAL RATING ........................................................................... 23 

7.5 CREDIT EXPOSURE BY RESIDUAL MATURITY ....................................................................... 23 

7.6 RESTRUCTURED/ RENEGOTIATED EXPOSURES .................................................................... 24 

7.7 EXPOSURE ON HIGHLY LEVERAGED COUNTERPARTIES ........................................................ 24 

7.8 RELATED PARTY TRANSACTIONS ....................................................................................... 24 

7.9 EXPOSURE IN EXCESS OF 15% OF CAPITAL BASE ................................................................ 24 

7.10 ASSET QUALITY AND PAST DUE EXPOSURES ....................................................................... 25 

8 CORPORATE GOVERNANCE AND TRANSPARENCY DISCLOSURES ................................................... 25 

8.1 GOVERNANCE STRUCTURE ..................................................................................... 25 

8.2 BOARD OF DIRECTORS ............................................................................................. 26 

8.3 APPOINTMENT PROCESS OF THE BOARD OF DIRECTORS .................................... 26 

8.4 INDUCTION, EDUCATION AND ORIENTATION OF NEW DIRECTORS ...................... 26 

8.5 BOARD PERFORMANCE EVALUATION ..................................................................... 27 

8.6 CONFLICT OF INTEREST AND RELATED PARTY TRANSACTIONS .......................... 27 

8.7 TYPE OF MATERIAL TRANSACTIONS THAT REQUIRE BOARD APPROVAL ............. 27 

8.8 BOARD COMMITTEES ................................................................................................ 27 

NOMINATION, REMUNERATION AND GOVERNANCE COMMITTEE................................. 27 

EXECUTIVE COMMITTEE ................................................................................................... 28 

AUDIT COMMITTEE ............................................................................................................ 28 

SHARI’A SUPERVISORY BOARD ....................................................................................... 28 

EXECUTIVE MANAGEMENT ............................................................................................... 28 

EXECUTIVE MANAGEMENT COMMITTEES ....................................................................... 28 

ASSET & LIABILITY MANAGEMENT COMMITTEE (ALCO).............................................. 28 

RISK MANAGEMENT COMMITTEE (RMC) ....................................................................... 28 

8.9 STRATEGY .................................................................................................................. 29 

8.10 CODE OF CONDUCT .............................................................................................. 29 

8.11 CORPORATE COMMUNICATIONS POLICY ............................................................ 29 






8.12 CORPORATE SOCIAL RESPONSIBILITY ............................................................... 29 

8.13 ORGANIZATION CHART ......................................................................................... 31 

9 BOARD OF DIRECTORS ............................................................................................................. 32 

SALEH AL ALI AL RASHED................................................................................................ 32 

ABDUL RAHMAN MOHAMMED AL JASMI .......................................................................... 32 

SALAH SALEH ASHEER ..................................................................................................... 32 

TALAL MOHAMMED AL MUTAWA...................................................................................... 33 

KHALID ABDULLAH AL-ANKARY ....................................................................................... 33 

DR. SAUD AL-AMMARI ...................................................................................................... 33 

DR. ZAKARIA AHMED HEJRES ......................................................................................... 34 

RAED MOHAMMED AL SALEH .......................................................................................... 34 

10 MANAGEMENT TEAM ............................................................................................................. 35 

A. MONAIM MOHAMED AL BASTAKI ............................................................................. 35 

AHMED HASSAN AAMER ................................................................................................... 35 

DR RAID EID AL-ZUDE ...................................................................................................... 35 

KHALID AHMED AL JABER ................................................................................................ 36 

FARRUKH ZAREEF ............................................................................................................. 36 

FATEMA KAMAL.................................................................................................................. 36 

10.1 CHANGES IN GOVERNANCE STRUCTURE ........................................................... 36 

EXECUTIVE COMMITTEE MEMBERS: ................................................................................ 37 

NOMINATION, REMUNERATION & CORPORATE GOVERNANCE COMMITTEE 

MEMBERS: .......................................................................................................................... 37 

AUDIT COMMITTEE MEMBERS: ......................................................................................... 37 

RISK COMMITTEE MEMBERS: ........................................................................................... 37 

11 FINANCIAL PERFORMANCE AND POSITION ................................................................................. 38 

12 ADDITIONAL CORPORATE GOVERNANCE DISCLOSURES ............................................................... 40 

12.1 OTHER DIRECTORSHIPS HELD BY BOARD MEMBERS............................................................ 40 

12.2 DIRECTORS’ MEETING AND ATTENDANCE DURING THE YEAR 2012..................................... 42 

12.3 SHAREHOLDING MORE THAN 5% ..................................................................................... 45 

12.4 DISTRIBUTION BY SIZE OF SHAREHOLDING ......................................................................... 46 






12.5 SHAREHOLDING BY NATIONALITY ..................................................................................... 46 

12.6 SHAREHOLDING ON INDIVIDUAL BASIS .............................................................................. 47 

12.7 OTHERS ......................................................................................................................... 47 

13 OTHER DISCLOSURES .............................................................................................................. 48 

13.1 EXTERNAL COMMUNICATION ........................................................................................... 48 

13.2 COMPLAINT HANDLING ................................................................................................... 48 

13.3 UNRESTRICTED INVESTMENT ACCOUNTS ........................................................................... 48 

13.4 RESTRICTED INVESTMENT ACCOUNTS ................................................................................ 48 

13.5 STAFF REMUNERATION POLICY ........................................................................................ 48 

13.6 ZAKAH ........................................................................................................................... 49 

13.7 COMPLIANCE DISCLOSURE .................................................................................. 49 

13.8 ANTI-MONEY LAUNDERING .................................................................................. 50 

13.9 EARNING PROHIBITED BY SHARI’A ...................................................................... 50 

14 NON COMPLIANCE WITH HC MODULE OF CBB RULE BOOK ....................................................... 51 






1 INTRODUCTION 

Global Banking Corporation B.S.C. (c) (the “Bank”) was incorporated on 25 th of June 

2007 under the commercial registration number 65708 in the Kingdom of Bahrain and 

licensed by the Central Bank of Bahrain (“CBB”) as an Islamic wholesale bank. The 

Bank’s business model enables the Bank to offer a comprehensive range of investment 

banking products and services to high net worth individuals, corporate entities, and 

financial institutions in compliance with Shari’a principles. 

The Public Disclosure (PD) module Section 1.3 of Volume 2 of the CBB rulebook 

governs the disclosure requirements to be made by Islamic banks in their annual 

report. In April 2008, the CBB revised the PD module to cover the detailed disclosure 

requirements to be followed by licensed banks in Bahrain to be in compliance with 

Pillar 3 of Basel II and the Islamic Financial Services Board’s (IFSB) recommended 

disclosures for Islamic banks. Under the current regulations, partial disclosure 

consisting mainly of quantitative analysis is required during half year reporting, 

whereas full disclosure is required to coincide with the financial year-end reporting. 

2 EXECUTIVE SUMMARY 

The Bank maintains an adequate capital base to cover risks inherent in the business. 

The adequacy of the Bank’s capital is monitored using, among other measures, the 

regulations and ratio established by the CBB in accordance with Basel II capital 

adequacy framework. Since incorporation, the Bank had complied with all the 

prescribed capital requirements. 

The Bank’s capital adequacy ratio is well above the minimum capital requirement of 

12% required by the CBB. The Bank’s capital adequacy ratio based on consolidated 

financial statements for the year ended 31 December 2012 was 54.56% compared with 

51.29% as at 31 December 2011. The Bank ensures adherence to the CBB’s 

requirements by monitoring its capital adequacy against higher internal limits. 

The prime objective of the Bank’s capital management is to ensure compliance with all 

the prudential requirements and to maintain healthy capital ratio in order to effectively 

support its business and to maximize shareholders’ value. To assess its capital 

adequacy requirements in accordance with the CBB requirements, the Bank adopts the 

Standardized Approaches for its Credit Risk and Market Risk, and the Basic Indicator 

Approach for its Operational Risk. 


in conjunction with the consolidated financial statements for the year ended 31 December 2012 

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3 GROUP STRUCTURE 

The Group’s consolidated financial statements comprises the financial statements of 

the Bank and its subsidiaries (together the “Group”) prepared in accordance with the 

Financial Accounting Standards (‘FAS’) issued by the Accounting and Auditing 

Organization for Islamic Financial Institutions (‘AAOIFI’). 

Following is the structure of the Group for prudential consolidation purposes: 

Name of the entity 

Subsidiaries 

Global Energy 

Financial Services 

Company SPC 

Global Real Estate 

Development 

Company WLL 

Diyafa Holdings 

Company WLL 

Joint Ventures 

Abdel Wahab 

Restaurant Co. 

W.L.L. 

% of 

holding 

Place of 

incorporation 

100% Kingdom of 

Bahrain 


Bahrain 


Bahrain 


Bahrain 

Classification 

Commercial entity 



Treatment for 

prudential 

consolidation 

purposes 

Full 

consolidation 

Full 

consolidation 

Full 

consolidation 

Nature of 

business 

Financial 

investment and 

financial 

planning 

consultancy 

services 

Real estate 

development 

and 

management 

Virtual offices 

and hospitality 

services 

Commercial entity Risk Weighted Hospitality 

All the above entities are incorporated in the Kingdom of Bahrain and there are no 

restrictions on the transfer of funds or regulatory capital within the Group. 

The status of GREDCO has changed from Joint venture to subsidiary due to the 

acquisition of 50% equity on 01 November 2012. 



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4 RISK MANAGEMENT FRAMEWORK 

The Bank pursues clear risk management objectives and has an established risk 

management policy and processes to achieve them. 

The Bank’s risk management objectives are to: 

• Identify the Group’s significant risks. 

• Set the Group’s risk appetite and related limits, and ensure the business profile and 

plans are consistent with it. 

• Maximize risk and return decisions by taking them as closely as possible to the 

business, while establishing a strong and independent review process. 

• Ensure that business plans and new businesses are properly supported by an 

effective risk infrastructure. 

• Help executives improve the control and co-ordination of risk-taking across the 

business. 

To achieve the above objectives, the Bank breaks the process down into five steps: 

identify, assess, control, report, and manage or challenge. Each of these steps are 

broken down further, to establish end-to-end activities within the risk management 

processes and procedures as approved by the Bank’s Board of Board (the “Board’). 

The responsibility for managing risk lies at all levels of the Group, from the Board, and 

the Investment Committee to each departmental head. The responsibility for effective 

review and challenge lies with the Investment Committee, Risk Management 

Committee, Compliance Committee, Assets and Liability Committee (“ALCO”) and, 

ultimately, the Board. 

The Board is responsible for approving risk appetite and related limits, which is the 

level of risk the Group chooses to take in pursuit of its business objectives. The head of 

risk management regularly presents a report to the Board, summarizing developments 

in the risk environment, the Group’s risk profile, and deviations from risk limits, 

investment updates including the key issues affecting each investment, and forward 

risk trends. 

The Bank adheres to the regulatory guidelines issued by the CBB and other applicable 

laws and regulations. Shari’a principles prescribed by the Bank’s Shari’a Supervisory 

Board are fundamental to our investment and operations policies. 

The Bank perceives strong risk management capabilities to be the foundation in 

delivering results to customers, investors and shareholders. The Board has overall 

responsibility for establishing our risk culture and ensuring that an effective risk 

management framework is in place. An understanding of risk-taking and transparency 



8




in risk-taking are key elements in the Bank's business strategy. The Bank maintains a 

prudent and disciplined approach towards risk taking, and embeds a structured risk 

management process as an integral part of its decision making practice. The Risk 

Management Department (“RMD”) is responsible for monitoring compliance with the 

Group’s risk management policies and procedures, and for reviewing the adequacy of 

the risk management framework in relation to the risks faced by the Group with overall 

guidance by the Bank’s Board. 

The Board has established an Audit Committee which is responsible for review and 

evaluation of effectiveness of the Bank’s procedures and internal control systems for 

assessing risks or exposures. It assists the Board in fulfilling its oversight duties by 

reviewing the financial information provided to shareholders and others. 

RMD is empowered to independently identify and assess risks that may arise from the 

Bank's investing and operating activities as well as recommend directly to the 

Investment Committee any prevention and mitigation measures as it deems fit. In 

addition, the Internal Audit Department, which is also independent of both operations 

and the Bank’s investments units, also assists in the risk management process. The 

RMD, together with the Internal Audit and Compliance Departments, provide 

independent assurance that all types of risk are being measured and managed in 

accordance with the policies and guidelines set by the Board. 

The Bank is exposed to various types of risks, such as credit, liquidity, market and 

operational, risks, all of which require comprehensive controls and ongoing oversight. 

The risk management framework encapsulates the spirit behind Basel II, which 

includes management oversight and control, risk culture and ownership, risk 

recognition and assessment, control activities and segregation of duties, adequate 

information and communication channels, monitoring risk management activities and 

correcting deficiencies. 

The Bank has established an adequate system for monitoring and reporting risk 

exposures and capital adequacy requirements. These reports include periodic risk 

reviews, quarterly risk reports etc. These reports aim to provide the Bank’s senior 

management with an up-to-date view of the risk profile of the Bank. 



9




4.1 RISKS IN PILLAR I 

Basel II Pillar I prescribed three specific risks which are: 

4.1.1 CREDIT RISK 

Credit risk is the risk of financial loss to the Bank if a customer or counterparty to a 

financial instrument fails to meet its contractual obligations, and arises principally from 

its bank balances, placements with financial institutions and other receivables. 

The Bank is not involved in the granting of credit facilities in the normal course of its 

business activities. The Bank is primarily exposed to credit risk from its own short term 

liquidity related to placements with financial institutions, and in respect of investment 

related funding or project receivables made (in the form short-term liquidity facility) to 

its projects. These exposures arise in the ordinary course of its investment banking 

activities and are generally transacted without any collateral or other credit risk 

mitigants. 

The Bank has a strong internal process for assessing credit risk. This process takes 

into account the financial strength of the counterparty, the technical feasibility and 

economic viability of the business, the adequacy and quality of the cash flow available 

for repayment etc. The availability of collateral security by way of physical assets or 

guarantees to mitigate the credit risk is also taken into consideration. 

Each counterparty exposure is evaluated individually for impairment and is based upon 

management’s best estimate of the present value of the cash flows that are expected 

to be received. In estimating these cash flows, management makes judgments about 

counterparty’s financial situation, level of subordination available to the Bank and the 

net realizable value of any underlying assets. Each asset is assessed on its merits, 

and the workout strategy and estimate of cash flows considered recoverable are 

independently evaluated by the Chief Operating Officer, Head of Risk Management, 

Head of Investment Banking and Financial Controller and approved by the Board. 

The Bank relies on external ratings for rated counterparties. The Bank uses standard & 

poor’s, Fitch and Moody’s to provide rating for such counterparties. In case of unrated 

counterparties, the Bank will assess the credit risk on the basis of defined parameters. 

4.1.2 MARKET RISKS 

Market risk is the risk that movements in market risk factors, including foreign 

exchange rates, equity prices, profit rates and credit spreads will reduce the Bank’s 

income or the value of its portfolios. The objective of market risk management is to 

manage and control market risk exposures within acceptable parameters, while 

optimizing the return on risk. 



10




The Bank has a limited exposure to market risk which is primarily due to foreign 

currency risk. Given the nature of its activities, the Bank uses a simple measurement 

involving monitoring of open position. 

The different types of risks with exposures, objectives, policies and processes to 

manage the risk have been detailed hereunder: 

4.1.2.1 FOREIGN EXCHANGE RISK 

Foreign exchange risk is the risk that the value of a financial instrument will fluctuate 

due to changes in foreign exchange rates. The Bank’s major exposures are in GCC 

currencies, which are primarily pegged to the US Dollars. 

The Bank does not engage in any foreign exchange trading operations. The open 

position limits also take into account structural positions arising out of currency 

mismatch in assets and liabilities. RMD performs sensitivity analysis on the open 

positions to assess the risk of loss from exchange rate movements to ensure that the 

risk is well under control. 

4.1.2.2 EQUITY PRICE RISK 

Equity price risk is the risk that the fair value of equities decreases as a result of 

changes in the value of individual companies’ shares. The Bank does not have 

significant exposure to listed equity instruments therefore to assess the market risk 

bank is not using any advanced approach. The Bank manages and monitors the 

positions using sensitivity analysis. 

4.1.2.3 PROFIT RATE RISK 

Profit rate risk arises due to differences in timing of re-pricing of the Bank’s assets and 

liabilities. The Bank’s profit rate sensitive assets are mainly placements with financial 

and other institutions. Profit rate risk is managed principally through monitoring profit 

rate gaps and by having pre-approved limits for re-pricing bands. 

Standard scenarios that are considered on a monthly basis include a 200 basis point 

(bp) parallel fall or rise in all yield curves worldwide. An analysis of the Group’s 

sensitivity to an increase or decrease in market financing rates (assuming no 

asymmetrical movement in yield curves and a constant balance sheet position) is as 

follows: 



11




2012 

At 31 December 2012 ± 98 

Average for the year ± 129 

Maximum for the year ± 183 

Minimum for the year ± 98 

4.1.2.4 OPERATIONAL RISK 

Operational risk is the risk of loss arising from systems and control failures, fraud and 

human error, which can result in financial and reputation loss, legal and regulatory 

consequences. 

Though operational risk cannot be entirely eliminated, however the Bank aims to 

minimise the risk by strengthening its internal control environment, continuing its efforts 

to identify, assess, measure and monitor its risks, evolving in its risk management 

sophistication and promoting a strong control culture within the Bank. The material 

operational risks of the Bank are: 

• Inappropriate design of processes for the appraisal of credit and investment 

projects; 

• Shortcomings in documentation and processes for monitoring and control of 

credit and investment exposures; 

• Absence of an efficient process to capture internal losses and near misses; 

• Inadequacies in the process for execution of projects including selection of 

consultants and contractors as well as monitoring time and cost overruns; 

• Legal risks arising from product documentation and faulty execution of 

transactions; 

• Loss from staff negligence or fraudulent transactions perpetrated by employees 

or customers; and 

• Delay in updating records and misreporting 

The Bank manages operational risk through appropriate controls, instituting 

segregation of duties and internal checks and balances, appropriate controls to 

safeguard assets, monitoring of various risk limits, periodic accounts reconciliations, 

financial management and reporting, including internal audit and compliance functions. 

In addition to these controls, the Bank has developed a Business Continuity Plan 

based on risk review of the Bank’s activities and insurance is also in place to 

complement the associated controls. 

Moreover, the Bank has established a risk control and self-assessment process 

necessary for identifying and measuring its operational risks. This exercise covers the 

Bank’s business lines and associated critical activities, exposing the Bank to 

operational risks. 



12




4.2 RISKS IN PILLAR II 

Pillar II covers key principles of supervisory review and evaluation process which 

intends not only to ensure that the Bank has adequate capital to support all the 

associated risks, but also requires Bank to develop an Internal Capital Adequacy 

Assessment Plan (“ICAAP”) and setting internal capital targets that commensurate with 

the Bank’s risk profile and control environment. ICAAP requires assurance that the 

Bank has adequate capital to support its risks beyond the core minimum requirements 

which must not be limited to credit, market and operational risk charges. 

4.2.1 LIQUIDITY RISK 

Liquidity risk is the risk that the Bank will encounter difficulty in meeting obligations 

associated with financial liabilities that are settled by delivering cash and another 

financial asset. This risk arises from mismatches in the timing of cash flows. Funding 

risk arises when the necessary liquidity to fund illiquid asset positions cannot be 

obtained at the expected terms and when required. 

As an investment bank, the Bank’s operating model has insignificant reliance on shortterm 

liabilities to fund its medium and long-term assets. This ensures against a sudden 

and unanticipated liquidity crisis. 

The Bank as a matter of policy regularly reviews and monitors policy limits for its key 

liquidity ratios, future contractual cash flows and any mismatches between the cash 

flows of assets and liabilities, diversification of funding resources and available bank 

lines, cross currency cash flows requirements and strategy, availability of sufficient 

liquid assets in case of any unforeseeable event, monitoring of receivables and late 

payments etc. All of these factors are strictly monitored by RMD and being further 

reviewed and discussed regularly by the Bank’s ALCO. 

Maturity profile of assets and liabilities and key measures used for management of 

liquidity risk will be disclosed in consolidated financial statements for the year ended 

31 st December 2012. 

4.2.2 CONCENTRATION RISK 

Concentration risk is the credit risk arising from not having a well-diversified credit 

portfolio, i.e. being overexposed to a single customer, industry sector or geographic 

region. As per CBB’s single obligor regulations, banks incorporated in Bahrain are 

required to obtain the CBB’s approval for any planned exposure to an individual 

counterparty, or group of closely related counterparties, exceeding 15% of the 

regulatory capital base. 

In order to avoid excessive concentrations of risk, the Bank’s policies and procedures 

include geographical and country concentration limits and specific guidelines to focus 



13




on maintaining a diversified portfolio. Identified concentrations of credit risks are 

controlled and managed accordingly. 

4.2.3 COUNTERPARTY CREDIT RISK 

Counterparty credit risk is the risk that a counterparty to a contract in the profit rate, 

foreign exchange, equity and credit markets defaults prior to maturity of the contract. 

The Bank does not enter into any trading positions in foreign exchange contracts and 

also does not engage in proprietary trading of foreign exchange or profit rate 

derivatives. For other credit markets transactions (primarily inter-bank placements), the 

Bank has established a limit structure based on the credit quality (assessed based on 

external rating) of each counter party bank to avoid concentration of risks by 

counterparties. The Bank is constantly reviewing and monitoring the position to ensure 

proper adherence to the limits and defined policies of the Bank. 

4.2.4 PROFIT RATE RISK IN BANKING BOOK 

Profit rate risk arises from the possibility that changes in profit rates will affect future 

profitability or the fair values of financial instruments. 

Currently Bank’s assets and liabilities are benchmarked to floating rate indices. The 

Bank has set policy limits for such risk. Quarterly re-pricing gap analysis is being 

performed on the portfolio to ensure that the extent of such risk is measured and 

monitored. 

The management of profit rate risk against profit rate gap limits is supplemented by 

monitoring the sensitivity of the Bank’s financial assets and liabilities to various 

standard and non-standard profit rate scenarios. Standard scenarios that are 

considered include a 100 basis point (bp) parallel fall or rise in all yield curves 

worldwide. 

4.2.5 EQUITY RISK IN BANKING BOOK 

The equity risk in the banking book primarily arises from the banks unquoted availablefor-sale 

investments. These investments comprise unquoted equity stake in the 

projects promoted by the Bank and are carried at cost and tested for impairment on a 

regular basis. The intent of such investments is a later stage exit along with the 

investors principally by means of strategic sell outs at the project level. RMD works 

alongside the Investment Department at all stages of the deal cycle, from preinvestment 

due diligence to exit, and provides an independent review of every 

transaction. A quarterly investment update report is presented to the Board of Directors 

by the Investment Department. 



14




USD'000' 

Risk 

Funded Average Gross weighted Capital 

expsoure expsoure exposure Assets requirement 

UnQuoted Equity Securities 42,724 51,249 26,007 52,014 6,242 

42,724 51,249 26,007 52,014 6,242 

4.2.6 DISPLACED COMMERCIAL RISK 

Displaced Commercial Risk refers to the market pressure to pay returns that exceeds 

the rate that has been earned on the assets financed by the liabilities, when the return 

on assets is under performing as compared with competitor’s rates. 

Currently the Bank is not exposed to any displaced commercial risk. 

4.2.7 REGULATORY AND SHARI’A COMPLIANCE RISK 

Regulatory and Shari’a compliance risk is the risk arising from non-compliance with the 

regulatory guidelines issued by the CBB or the Shari’a principles prescribed by the 

Bank’s Shari’a Supervisory Board (“SSB”) or other eminent scholars. 

The Bank is taking due care to comply with all the regulations. The Bank has adequate 

internal controls in place which include but not limited to adequate training to staff, 

engagement of third party consultant wherever required, pre-approval from regulator 

wherever necessary, independent internal reviews by risk management department, 

compliance department and internal audit department etc. 

The SSB is entrusted with the duty of directing, reviewing and supervising the activities 

of the Bank in order to ensure that they are in compliance with the rules and principles 

of Islamic Shari’a. The Bank also has a dedicated internal Shari’a reviewer who 

performs an ongoing review of the compliance with the fatwas and rulings of the SSB 

on products and processes and also reviews compliance with the requirements of the 

Shari’a standards prescribed by AAOIFI. The SSB reviews and approves all products 

and services before launching and offering to the customers and also conducts periodic 

reviews of the transactions of the Bank. An annual audit report is issued by the SSB 

confirming the Bank’s compliance with Shari’a rules and principles. 

4.2.8 LEGAL RISK 

Legal risk includes the risk of non-compliance with applicable laws or regulations, the 

illegality or unenforceability of counterparty obligations under contracts and additional 

unintended exposure or liability resulting from the failure to structure transactions or 

contracts properly. The Bank has a dedicated legal department which is consulted on 

all major activities conducted by the Bank. All contracts, documents, etc., have to be 



15




reviewed by the legal department as well. As on the reporting date, the Bank had no 

material legal contingencies including pending legal actions. 

4.2.9 OTHER RISKS 

Other risks include reputational, strategic, fiduciary risks etc., which are inherent in all 

business and are not easily measurable or quantifiable. However, the Bank has proper 

policies and procedure to mitigate and monitor these risks. The Bank’s Board has 

overall responsible for approving and reviewing the risk strategies and significant 

amendments to the risk policies. The Bank senior management is responsible for 

implementing the risk strategy approved by the Board to identify, measure, monitor and 

control the risks faced by the Bank. 

The Bank as a matter of policy regularly reviews and monitors financial and marketing 

strategies, business performance, new legal and regulatory development and its 

potential impact on the Bank’s business, best corporate governance practices and 

implementation etc. 

4.3 PILLAR III 

Pillar III complements the other two pillars and focuses on enhanced transparency in 

disclosure of information by the banks to promote better market discipline. The 

information to be disclosed covers all areas including business performance, capital 

adequacy, risk management etc. The disclosures are designed to enable stakeholders 

and market participants to assess an institution’s risk appetite and risk exposures and 

to encourage all banks, via market pressures, to move toward more advanced forms of 

risk management. 

In April 2008, the CBB published a paper covering the detailed disclosure requirements 

to be followed by licensed banks in Bahrain to be in compliance with Pillar III under the 

Basel II frame work. 



16




5 CAPITAL MANAGEMENT AND INTERNAL CAPITAL ADEQUACY 

ASSESSMENT PLAN (“ICAAP”) 

5.1 CAPITAL MANAGEMENT 

The Bank’s policy is to maintain a strong capital base and also the minimum capital 

requirements imposed by the CBB, so as to maintain investor, creditor and market 

confidence and to sustain future development of the business. The impact of the level 

of capital on shareholders’ return is also recognised and the Bank recognises the need 

to maintain a balance between the higher returns that might be possible with greater 

gearing and the advantages and security afforded by a sound capital position. 

The allocation of capital between specific operations and activities is primarily driven by 

regulatory requirements. The Bank’s capital management policy seeks to maximise 

return on risk adjusted while satisfying all the regulatory requirements. The Bank’s 

policy on capital allocation is subject to regular review by the Board. 

The Bank ensures that the capital adequacy requirements are met and complied with 

regulatory capital requirements throughout the period. 

5.2 INTERNAL CAPITAL ADEQUACY ASSESSMENT PLAN (“ICAAP”) 

“ICAAP” is a requirement under Pillar II of Basel II for capital management. The 

objective of the Bank’s ICAAP is to ensure that adequate capital is retained at all times 

to support the risks the Bank undertakes in the course of its business. The Bank’s 

ICAAP identifies risks that are material to the Bank’s business and the regulatory 

capital that is required to be set aside for such risks. The Bank has implemented 

ICAAP which is monitored on quarterly basis. However, the Bank intends to continue to 

be conservative and would maintain a reasonable buffer over 12% regulatory Capital 

requirement set by CBB. 

The Bank recognizes that earnings are the first line of defence against losses arising 

from business risks and that capital is one of the tools to address such risks; also 

important are establishing and implementing documented procedures, defining and 

monitoring internal limits of the Bank’s activities/exposures, strong risk management, 

compliance and internal control processes as well as adequate provisions for credit, 

market and operational losses. However, since capital is vital to ensure continued 

solvency, the Bank’s objective is to maintain sufficient capital such that a buffer above 

regulatory capital adequacy requirements is available to meet risks arising from 

fluctuations in asset values, business cycles, expansion and future requirements. 

The Bank seeks to achieve the following goals through the implementation of its ICAAP 

framework: 



17




• Meet the regulatory capital adequacy requirement and maintain a prudent buffer; 

• Generate sufficient capital to support overall business strategy; 

• Integrate capital allocation decisions with the strategic and financial planning 

process; 

• Enhance the Board and senior management’s ability to understand how much 

capital flexibility exists to support the overall business strategy; 

• Enhance the Bank’s understanding on capital requirements under different 

economic and stress scenarios; and 

• Build and support the link between risks and capital and align performance to these. 

As an internal target ratio, the Bank will seek to maintain its internal capital adequacy 

computed under ICAAP (after considering all identified material risks, including those 

not considered under Pillar 1) at a minimum level of 100% of the minimum Basel II 

Pillar 1 regulatory capital adequacy ratio stipulated by the CBB. Currently, the CBB has 

fixed a minimum Capital Adequacy Ratio of 12% and a trigger ratio of 12.5% for all 

locally incorporated banks in Bahrain. The Bank will monitor the ICAAP capital 

adequacy ratio against an internal trigger ratio which will be higher than the minimum 

prescribed ratio based on additional risk charges for risks not addressed in Pillar I. If 

the ICAAP capital adequacy ratio reaches the internal trigger ratio, the Bank will initiate 

action to reduce its risk or increase capital before the target ratio is breached. 

6 REGULATORY CAPITAL REQUIREMENTS AND CAPITAL BASE 

6.1 CAPITAL ADEQUACY COMPUTATIONS 

The prime objective of the Bank’s capital management is to ensure compliance with all 

the prudential requirements and to maintain healthy capital ratios in order to effectively 

support its business and to maximize shareholders’ value. 

The Bank’s regulator CBB sets and monitors capital requirements for the Bank as a 

whole (i.e. at a consolidated level). In implementing current capital requirements CBB 

requires the Bank to maintain a prescribed ratio of 12% of total capital to total riskweighted 

assets. Banking operations are categorised as either trading book or banking 

book, and risk-weighted assets are determined according to specified requirements 

that seek to reflect the varying levels of risk attached to assets and off-balance sheet 

exposures. CBB also requires banks incorporated in Bahrain to maintain a buffer of 0.5 

per cent above the minimum capital adequacy ratio. 

During 2012, the Bank was in compliance with the capital limits set by the regulator for 

the Bank. The Bank’s capital adequacy ratio as at 31 December 2012 was: 



18




USD'000' 

Total 

eligible 

capital 

Credit risk weighted assets 85,421 

Market risk weighted assets 641 

Operational risk weighted assets 8,229 

Total risk weighted assets 94,291 

Eligible capital 51,443 

Capital adequacy ratio 54.56% 

The above capital adequacy ratio also represents Tier 1 capital adequacy ratio. 

6.2 CAPITAL BASE 

The following table shows the breakdown of the total available capital for the as at 31 

December 2012: 

USD'000' 

Total 

Tier 1 Tier 2 eligible 

capital capital capital 

Share capital 200,000 - 200,000 

Statutory reserves 5,801 - 5,801 

Accumulated losses (94,434) - (94,434) 

Total Capital 111,367 - 111,367 

Excess amount over maximum permited large 

exposure limit (59,924) - (59,924) 

Total Eligible Capital 51,443 - 51,443 

Regulatory capital consists of Tier 1 capital (core capital) and Tier 2 capital 

(supplementary capital). Tier 1 comprises share capital, share premium, retained 

earnings, statutory reserves and minority interests less goodwill. Tier 2 capital includes 

current interim profits and assets revaluation reserves. In accordance with the CBB’s 

Basel II capital adequacy framework, any exposure that exceeds 15% of the Capital 



19




Base of the Bank needs to be deducted from the eligible capital of the Bank. The Bank 

has accordingly deducted USD 59.9 million from its eligible capital, being excess over 

15% of the Capital Base invested in two large exposures. 

6.3 REGULATORY CAPITAL REQUIREMENTS FOR CREDIT RISK 

To assess its capital adequacy requirements in accordance with the capital adequacy 

module for Islamic Banks, the Bank adopts the Standardized Approach for its Credit 

Risk. According to standardized approach, on and off balance sheet credit exposures 

are assigned to various defined categories based on the type of counterparty or 

underlying exposure. The main relevant categories are claims on banks, claims on 

investment firms, investment in equities, holdings in real estate, claims on corporate 

portfolio and other assets. Risk Weighted Assets are calculated based on prescribed 

risk weights by CBB relevant to the standard categories and counterparty’s external 

credit ratings, where available. The Bank uses the ratings of Standard & Poor’s, Fitch 

and Moody’s ratings for such counterparties. However, preferential risk weight of 20% 

is used which is applicable to short term claims on locally incorporated banks where 

the original maturity of these claims are three months or less and these claims are in 

Bahraini Dinar or US Dollar. 

Following is the analysis for credit risk: 

USD'000' 

Risk 

Funded Unfunded Gross weighted Capital 

expsoure expsoure exposure Assets requirement 

Cash 2 - 2 - - 

Claims on banks 4,953 - 4,953 1,000 120 

Claims on Corporates 5,081 - 5,081 5,081 610 

Equity Investments 585 - 585 878 105 

Holding of Real Estate (indirect holding) 29,349 - 29,349 58,698 7,044 

Holding of Real Estate (direct holding) 13,363 - 13,363 13,363 1,604 

Other Assets 6,400 - 6,400 6,400 768 

59,733 - 59,733 85,420 10,250 

The classification of assets is in accordance with the Capital Adequacy Module of the CBB. 

The Bank does not finance its assets using unrestricted investment accounts and 

hence all credit exposures are self-financed exposures. 

The Bank’s concentration of funded and unfunded exposures is limited to GCC 

countries. 



20




6.4 REGULATORY CAPITAL REQUIREMENTS FOR MARKET RISK 

To assess its capital adequacy requirements in accordance with the CBB capital 

adequacy module for Islamic Banks, the Bank adopts the Standardized Approach for 

its Market Risk. 

Market risk charge consists of equity position risk and foreign exchange risk charges. 

Specific market equity risk charge is computed at the rate of 8% on gross equity 

positions for each country or market. General market equity risk charge is computed 

based on 8% of the overall net position in each equity market. 

Foreign exchange risk charge is computed based on 8% of overall net open foreign 

currency position of the Bank. 

The market risk charge and foreign exchange risk charge is multiplied by 12.5 to 

evaluate market risk weighted assets. 

Following is the computation of market risk charge: 

USD'000' 

Risk weighted assets 

Capital requirement 

Maximum Minimum Closing Maximum Minimum Closing 

Foreign Exchange Risk 132 32 47 16 4 6 

Equity position Risk 

Specific 297 263 297 36 32 36 

General 297 263 297 36 32 36 

726 558 641 87 67 77 

6.5 REGULATORY CAPITAL REQUIREMENTS FOR OPERATIONAL RISK 

The Bank adopts the Basic Indicator Approach to evaluate Operational Risk Charge in 

accordance with the CBB capital adequacy module for Islamic Banks. According to this 

approach, Bank’s average gross income for three past financial years is multiplied by a 

fixed coefficient alpha which is 15% set by CBB. The Bank has calculated the 

operational risk charge based on the audited results of the years 2010, 2011 and 2012. 

The Bank’s Operational risk weighted assets and operation capital requirement as at 

31 December 2012 under Basic Indicator Approach was: 



21




USD'000' 

Amount 

Gross income (average of three years) 4,389 

Operational Risk Weighted Assets 8,229 

Capital Requirement 988 

7 QUANTITATIVE DISCLOSURES FOR CREDIT RISK 

7.1 GROSS CREDIT EXPOSURES 

The gross and average gross credit exposure are as follow: 

USD'000' 

Average 

Gross 

gross 

credit 

credit 

expsoure expsoure 

On balance sheet items: 

Bank balances 92 96 

Placements with financial institutions 4,821 6,917 

Investments carried at fair value through equity 42,724 51,249 

Investment in joint ventures 586 691 

Other assets 5,121 5,261 

53,344 64,214 

The average balances are based on month end average balances during the year 

2012. 

7.2 INDUSTRY CONCENTRATION 

The industry concentration of credit exposures are as follows: 



22




USD'000' 

Real 

estate 

Financial and 

institutions construction Others Total 


Bank balances 92 - - 92 

Placements with financial and other institutions 4,821 - - 4,821 

Investments carried at fair value through equity - 42,724 - 42,724 

Investment designated for fair value through 

profit and loss - - - - 

Investment in joint ventures - - 586 586 

Other assets 30 182 4,909 5,121 

4,943 42,906 5,495 53,344 

7.3 GEOGRAPHIC CONCENTRATION 

The Bank’s concentration exposure as at 31 December 2012 is limited to GCC 

countries. 

7.4 CREDIT EXPOSURE BY INTERNAL RATING 

The analysis of credit exposures by internal rating is as follows: 

USD'000' 

Rating Rating Rating 

A to B C to E F 

(Unrated) Total 


Financial institutions 4,847 77 19 4,943 

Corporates - - 48,401 48,401 

4,847 77 48,420 53,344 

7.5 CREDIT EXPOSURE BY RESIDUAL MATURITY 

The analysis of credit exposures by residual maturity is as follows: 



23




USD'000' 

Over Over Over 

Upto 3 months to 6 months to 1 year to Over 

3 Months 6 Months 1 year 3 years 3 years Total 


Bank balances 93 - - - - 93 

Placements with financial institutions 4,821 - - - - 4,821 

Investments carried at fair value through equity - 1,200 - 41,523 - 42,723 

Investment in joint ventures - - - 586 586 

Other assets 743 - 4,378 - - 5,121 

5,657 1,200 4,378 41,523 586 53,344 

7.6 RESTRUCTURED/ RENEGOTIATED EXPOSURES 

The Bank did not restructure or renegotiate any exposures as at 31 December 2012. 

7.7 EXPOSURE ON HIGHLY LEVERAGED COUNTERPARTIES 

The Bank has no exposure to highly leveraged and other high risk counterparties as 

per definition provided in the CBB rulebook PD 1.3.24. 

7.8 RELATED PARTY TRANSACTIONS 

Related counterparties are those entities which are connected to the Bank through 

significant shareholding or control or both. The Bank has entered into business 

transactions with such counterparties, and all such transactions have been done on 

commercial terms that bring no disadvantage to the Bank. For the purpose of 

identification of related parties, the Bank follows the guidelines issued by CBB. For 

details on related party transactions and balances, refer note 20 to the consolidated 

financial statements. 

7.9 EXPOSURE IN EXCESS OF 15% OF CAPITAL BASE 

Single exposures in excess of 15% of the Bank’s capital base on individual 

counterparties require prior approval of CBB and are subject to prudential deduction 

treatment unless considered as exempt. As on date of balance sheet the Bank has a 

restricted investment account exposure amounting to USD165.3Million; this restricted 

investment account is specific in relation to a project promoted by the Bank and was 

part of the overall investment structure and is exempt as per CBB rules. 

Exposures exceeding single exposure limit as of 31 December 2012 were: 



24




• To a corporate counterparty amounting to USD 33.4 million for which Bank has 

obtained approval from CBB. The Bank has deducted USD 16.7 million from its 

eligible capital, being excess over 15% of the Capital Base. 

• Against an investment property which has also been partly occupied by the 

Bank as an office premises amounting to USD59.9million. The Bank has 

deducted USD43.2million from its eligible capital, being excess over 15% of the 

Capital Base. 

7.10 ASSET QUALITY AND PAST DUE EXPOSURES 

The analysis of asset quality and past due exposures are as follows: 

Banks and 

Financial 

Institutions 

USD'000' 

Other 

financial 

assets 

Neither past due not impaired 4,914 - 

Past due but not impaired - - 

Individually impaired - 42,724 

4,914 42,724 

8 CORPORATE GOVERNANCE AND TRANSPARENCY 

DISCLOSURES 

The Bank is committed to applying the highest international standards and global best 

practices in corporate governance. Having developed a strong corporate governance 

framework which aims to protect the interests of all stakeholders, ensure compliance 

with regulatory requirements and enhance organizational efficiency, the Bank has 

succeeded in imbibing a culture of corporate governance. 

8.1 GOVERNANCE STRUCTURE 

In order to effect corporate governance, a solid structure had to be devised. The Bank 

achieved this by structuring the organization, such that functions and responsibilities 

are clearly divided, mirroring the division of roles and responsibilities of the Board, 

Board Sub Committees, the Shari’a Supervisory Board, executive management as well 

as executive management committees. 



25




8.2 BOARD OF DIRECTORS 

The Bank’s Board is ultimately responsible for providing strategic leadership, direction 

and monitoring of business strategy, risk management, internal control environment 

and transparent corporate governance framework. In addition to the above, the Board 

is also responsible for the preparation of financial statements including the full 

compliance with all applicable accounting and regulatory requirements. The Board has 

delegated certain responsibilities to Board Sub-Committees in line with corporate 

governance standards of the CBB. Decision making at the Board level is based on 

financial information and investment updates presented by the management 

periodically. The Bank’s strategic vision and financial performance is closely monitored 

by the Board in line with business strategy and approved budgets. The Board is also 

overseeing the implementation of the Bank’s corporate governance guidelines in 

compliance with the CBB’s High Level Control Module as well as the Code of 

Corporate Governance. 

The Board Members are entitled to an annual fee which is subject to an achievement of 

profitability by the bank in accordance with the Bahrain Commercial Companies Law. 

Moreover, each Board Member is entitled to a fixed fee for attending the meetings of 

the Board as well as it Sub-Committees. The Board Members were re-elected for 

another term of three years commencing from 25 June 2010 at the Annual General 

Meeting held on 21 March 2010. 

8.3 APPOINTMENT PROCESS OF THE BOARD OF DIRECTORS 

All Board Members will be appointed at the Ordinary General Assembly by secret ballot 

in accordance with the provisions of the relevant Laws and subject to the CBB’s 

approval. The Nomination, Remuneration and Corporate Governance Committee of the 

Board recommend the eligible individual(s) to the Board for the appointment as 

Director(s). After the Approval of the Board, the appointment needs final approval of 

Shareholders in the General Assembly Meeting. The General Assembly may terminate 

the membership of the entire Board or any Director. 

8.4 INDUCTION, EDUCATION AND ORIENTATION OF NEW DIRECTORS 

The Chairman of the Board, in liaison with the Secretary of the Board, shall ensure that 

each new Director receives a formal and tailored induction pack to ensure his/her 

contribution to the Board from the beginning of his/her term. The induction must include 

meetings with senior management, visits to the Bank, presentations regarding strategic 

plans, significant financial, accounting, compliance and risk management issues, 

meeting with internal and external auditors and legal counsel of the Bank. When a new 

director is inducted, the Chairman of the Board, assisted by the Compliance Officer, 

should review the Board’s role and duties with that person, particularly covering legal 

and regulatory requirements and High-Level Controls Module of CBB rulebook. 



26




8.5 BOARD PERFORMANCE EVALUATION 

The Bank has developed a policy to govern the annual self-review of the Board, the 

Board’s sub-Committees and each individual director. The review evaluates the 

performance of the Board, the Board’s Sub-Committees and individual directors, 

including the Chairman of the Board. 

8.6 CONFLICT OF INTEREST AND RELATED PARTY TRANSACTIONS 

The Board has adopted a disciplined approach for identifying transactions involving 

“conflict of interest” of any members of the Board and related party transaction. 

In the event of Board considering any issue involving a conflict of interest or related 

party transaction, the matters are discussed during the Board meeting and the 

interested director(s) will be abstained from taking part in discussion, decision making 

and voting for resolution of the matter. These matters will be recorded in the minutes of 

meetings. 

As per code of conduct of Directors, the Directors are required to inform the entire 

Board of (potential) conflicts of interest in their activities with, and commitments to, 

other organisations as they arise and abstain from voting on the matter. This disclosure 

includes all material facts in the case of a contract or transaction involving the Director. 

Furthermore, any such transaction needs additional approval in the Annual General 

Meeting of the Shareholders of the Bank. 

8.7 TYPE OF MATERIAL TRANSACTIONS THAT REQUIRE BOARD 

APPROVAL 

The direction and control of the Bank is steered by the Board of the Bank. The Board 

address matters of high importance including but not limited to the approval of strategic 

and business plans, major investment decisions, exit strategies, capital expenditure, 

review and approval of financial results, annual budget, placement limits and review of 

overall internal control environment of the Bank. 

8.8 BOARD COMMITTEES 

NOMINATION, REMUNERATION AND GOVERNANCE COMMITTEE 

The Nomination, Remuneration and Governance Committee oversees matters related 

to the nomination of new Directors, assessment of the Board, its Sub-Committees, 

Chief Executive Officer and Senior Management as well as the remuneration of 

Directors and Senior Management. It is also responsible for all corporate governance 

matters. 



27




EXECUTIVE COMMITTEE 

The Executive Committee is a Sub-Committee of the Board, entrusted to oversee the 

Executive Management, implement business plans, take major administrative and 

budgetary decisions and approve all forms of risk, underwritings, direct investments 

and new products of the Bank, including but not limited to real estate, private equity, 

asset management, advisory services (corporate finance and capital markets) and 

portfolio management. 

AUDIT COMMITTEE 

The Audit Committee has oversight responsibilities pertaining to financial reporting, 

internal control, risk management, internal audit, external audit, compliance, Shari’a 

rules and principles and other relevant matters. 

SHARI’A SUPERVISORY BOARD 

Being an Islamic Bank, the Bank has appointed a Shari’a Supervisory Board to direct, 

review and supervise the Bank’s activities, to ensure full compliance with the rules and 

principles of Islamic Shari’a. The Bank conducts internal Shari’a reviews which ensure 

that all the business activities are in compliance with Shari’a principles and applicable 

AAOIFI standards. The members of the Shari’a Board are entitled to a fixed fee 

payable on quarterly basis and are not linked to the performance indicators of the 

Bank. 

As mentioned in the report of the Shari’a Supervisory Board, during the year 2012, the 

Bank was in full compliance with principles of Shari’a and other applicable laws. 

EXECUTIVE MANAGEMENT 

The Chief Executive Officer is responsible for day-today management of the Bank as 

set out in the Organization Chart. 

EXECUTIVE MANAGEMENT COMMITTEES 

Management Committee (MANCOM) 

MANCOM is the principal management committee which is responsible for the day-today 

general oversight of the Bank’s business, including but not limited to the following 

issues: budgetary, strategy, investment, personnel, audit, and compliance. 

ASSET & LIABILITY MANAGEMENT COMMITTEE (ALCO) 

The primary role of ALCO is to manage the Bank’s balance sheet profile and in the 

process, manage the liquidity and profit rate risks faced by the Bank. 

RISK MANAGEMENT COMMITTEE (RMC) 

RMC acts to ensure that the Bank has an effective risk management framework in 

place, meets regulatory requirements and is in line with best practice methodologies. 



28




8.9 STRATEGY 

The Bank’s ‘Way Forward’ strategy is to leverage its regional experience and expertise 

to establish a strong presence at a global level. The Bank aims to be an investment 

bridge for its clients by actively facilitating rewarding investment opportunities from 

within the GCC to other market 

8.10 CODE OF CONDUCT 

The Bank has developed a Code of Conduct (the (“Code”) that governs the 

professional and personal behaviour of the directors, management and staff. The Code 

outlines the principles, policies and laws to the Members of the Board must adhere in 

order to fulfil their responsibilities. 

The Code has documented the standards and principles to promote ethical business 

practices and to avoid conflicts of interest among Members of the Board. The ultimate 

objective of the Code is to reasonably deter the possibility of wrongdoing and illegal 

acts. The approved Code addresses the principles of confidentiality, integrity, 

impartiality and independence. 

8.11 CORPORATE COMMUNICATIONS POLICY 

The Bank maintains an effective communications policy that enables both the Board 

and executive management to communicate properly with its shareholders, 

stakeholders and the public generally. Main communications channels include the 

Annual General Meetings, annual report and accounts, corporate website and 

corporate brochure and regular announcements in the appropriate local press. It is the 

duty of the Board to ensure that the annual general meeting is conducted in an efficient 

manner and serves as a key mechanism in shareholder communications. 

Shareholders are supplied with comprehensive, timely information and encouraged to 

participate actively in the Annual General Meetings. 

A Disclosure Policy has been developed as part of the Bank’s commitment to adopt the 

highest standards of transparency and fairness in disclosing information for the benefit 

of all stakeholders. The Bank is committed to disclosing information to the public in a 

manner consistent with guidelines provided by CBB and in line with Basel II Pillar III 

requirements. 

8.12 CORPORATE SOCIAL RESPONSIBILITY 

The Bank as an Islamic investment bank that operates in accordance with rules and 

guidelines of Islamic Shari’a and adopts strong ethical business principles. Since its 

inception in June 2007, the Bank has met its corporate social responsibility through 

various activities that support the local community, contribute to the development of 



29




Islamic banking and promote Bahrain’s reputation as the financial hub of the Middle 

East and an attractive destination for foreign investment. 

At the outset of our existence, the Bank made a major endowment to Bahrain’s Waqf 

Fund to facilitate the establishment of a dedicated Islamic Training Centre at the 

Bahrain Institute of Banking & Finance, designed to prepare young professionals for a 

career in the Islamic financial services industry. 

The Bank also conducts an annual summer internship program for Bahraini students 

from universities around the world to develop our prospective banking executives of the 

future. This year, six young interns gained hands-on experience and enhance their 

skills and knowledge in different aspects of Islamic investment banking. The Bank is 

developing a skilled pool of finance professionals while providing the platform for 

aspiring Bahrainis to gain deeper insight and develop career- oriented expertise. 

“Audit and non-audit related services fees charged by the external auditor are available 

with the Bank for inspection of the Shareholders. In case of any query please contact 

the Board Secretary for the information”. 



30




8.13 ORGANIZATION CHART 



31




9 BOARD OF DIRECTORS 

SALEH AL ALI AL RASHED 

Chairman of the Board (Non-Executive) 

Sh. Al Rashed is a member of one of the most esteemed business families in Saudi 

Arabia. He is recognized as one of the most successful businessmen in the region and 

he has more than 35 years of experience. Sh. Al Rashed has held many prestigious 

positions in financial institutions in the region and in Europe. Currently he is Chairman 

of a number of large corporations such as Trade Union Cooperative Insurance & 

Reinsurance Co., National Amlak Investment Co., Al Rashed & Al Thunayyan 

Automotive Co., and Al Kumasiya for Feed and Animal Production Co. He is also a 

Board Member of Masraf Al Rayan in Qatar. Sh. Al Rashed holds a Diploma in 

Business Administration from Berkeley University of California. 

ABDUL RAHMAN MOHAMMED AL JASMI 

Vice Chairman (Non-Executive) 

Chairman of the Executive Committee 

Mr. Al Jasmi is a banking and finance professional with more than 22 years’ experience 

in both commercial and investment banking. As the Vice Chairman, Mr. Al Jasmi 

provides strategic direction to the Bank’s global investment initiatives across the MENA 

region and global markets. Mr. Al Jasmi holds a BA (Honours) in Business 

Administration and an advanced Diploma in Banking studies from the University of 

Bahrain and continued his professional development at Cranfield Management School 

in the United Kingdom. 

SALAH SALEH ASHEER 

Director (Non-Executive) 

Member of the Executive Committee 

Mr. Asheer is the Chief Executive Officer of a number of Bahrain-based, privately held 

investment companies. Mr. Asheer is an investment banker with more than 18 years of 

experience and has served as a Director of several local, regional and international 

subsidiaries that own and manage a diversified range of investments in the financial 

services industry, amongst others. Mr. Asheer is a Certified Public Accountant and 

holds a Bachelor’s degree in Accounting. 



32




TALAL MOHAMMED AL MUTAWA 


Member of the Audit Committee 

Mr. Al Mutawa is the Vice-Chairman and Chief Executive Officer of Manafae 

Investment Co. KSC(C) in Kuwait, a shareholding company specializing in asset 

management and investment services. He has over 18 years of experience in the 

stock markets and in the financial sector. He is recognized for setting high benchmarks 

for profitability, introducing new clients, setting up a structure for the local services 

department and training dealers to improve their technical skills. Before joining 

Manafae Investment Co., Mr. Al Mutawa was the Manager of Trading and Portfolio 

Management in Kuwait Asset Management Co (KAMCO), a subsidiary of Kuwait 

Investment Project Co. (KIPCO). He was responsible for several public subscriptions 

and private placements. Mr. Al Mutawa holds a Bachelor’s degree in Business 

Administration. 

KHALID ABDULLAH AL-ANKARY 

Director (Non-Executive and Independent) 

Chairman of the Audit Committee 

Member of the Nomination, Remuneration & Corporate Governance Committee 

Mr. Al-Ankary is the General Manager of Bathel Al Khair Establishment for Trading & 

Real Estate in Saudi Arabia. Mr. Al-Ankary started his career in 1990 as Internal 

Auditor in the Saudi Industrial Development Fund (SIDF). In an illustrious career 

spanning more than 20 years, Mr. Al-Ankary has gained in-depth experience across 

market sectors covering financial, oil and gas, manufacturing, retail, insurance, 

telecommunication and the hospitality industries. Prior to joining Bathel Al Khair, Mr. Al- 

Ankary was the Internal Auditor in the Internal Audit Division of Samba Financial Group 

where he participated in various audits within the group, in addition to audits in Citibank 

Jordan and Citibank Spain. He has also attended several audit training courses 

organized by the Citibank group in New York and London. Mr. Al-Ankary holds a 

Bachelor’s degree in Accounting from King Saud University in Saudi Arabia. 

DR. SAUD AL-AMMARI 

Director (Non-Executive and Independent) 

Chairman of the Nomination, Remuneration & Corporate Governance Committee 

Member of the Risk Management Committee 



33




Dr. Al-Ammari is the Managing Partner of Blakes offices in Saudi Arabia and the Gulf 

Region. Over the past two decades, he has built a prominent and impressive legal 

career as well as an extensive network of business and professional contacts 

throughout the Gulf Region, Europe and North America. He has experience in a wide 

variety of corporate and commercial legal matters both inside and outside the gulf 

region. Dr. Al-Ammari holds Master in Law degree from Harvard Law School, 

Cambridge, Massachusetts and PhD form South Texas College of Law Houston - 

Texas. 

DR. ZAKARIA AHMED HEJRES 


Member of the Audit Committee 

Member of the Risk Management Committee 

Member of Nomination, Remuneration & Corporate Governance Committee 

Dr. Zakaria holds a Ph.D. in Economic Development from the University of Durham, 

United Kingdom. He also obtained a Master's Degree in Economic Development from 

the University of Strathclyde, UK in 1985. 

Prior to joining the Bank, Dr. Zakaria was associated with some of the leading 

institutions in Bahrain. He was the Deputy Chief Executive of the Economic 

Development Board (EDB). He was also at the Ministry of Finance and National 

Economy, where he initially had started as a Senior Economist in the Planning and 

Economic Affairs Department, then became the Head of Economic Planning in the 

Directorate of Evaluation and Economic Research, then the Director of Economic 

Planning, and the Assistant Undersecretary for Economic Affairs. 

Dr. Zakaria is also a Board Member in several organisations, where he is a Director at 

Bahrain Telecommunication Company (BATELCO), a Director at Gulf Investment 

Corporation & a Director at Tamkeen. Furthermore Dr. Zakaria is an association 

member in the Bahrain Economic Society. 

Dr. Zakaria joined the Bank as a Board Member on 6 th of November 2012 and 

subsequently appointed as a Chief Executive Officer on 03 rd of February 2013 and 

accordingly left his positions as a Board Member and Member of the Board Sub- 

Committees. 

RAED MOHAMMED AL SALEH 

Director (Non-Executive) Chairman of the Risk Management Committee 

Member of the Executive Committee 



34




Mr. Raed Al Saleh is the Chief Executive Officer of CapCorp Investment Company 

KSC(C). Mr. Al Saleh held directorship in several companies and currently he is 

director at Zak Solutions Company KSC(C). He has more than 27 years’ experience in 

managing diversified investment portfolio. Mr. Al Saleh holds bachelor’s degree in 

Business Administration from Eckerd College in United States. 

10 MANAGEMENT TEAM 

A. MONAIM MOHAMED AL BASTAKI 

Acting Chief Executive Officer & Chief Operating Officer 

Mr. Al Bastaki is a member of the executive, human resources, planning, investment 

and financial committees, and Chairman of Diyafa Holdings WLL. He has more than 30 

years of experience in the financial services industry. Prior to joining the Bank, Mr. Al 

Bastaki was the Head of the International Banking Division at a leading Islamic 

financial institution in the UAE. Mr. Al Bastaki was the Acting Chief Executive Officer 

from 7 th of June 2012 until 31 st of January 2013. 

AHMED HASSAN AAMER 

Head of Operations 

Mr. Aamer’s responsibilities include managing operations and other administration 

activities. He has over 35 years of experience in banking, and previously worked at 

Citibank. He has in-depth experience in banking products with specific expertise in 

Treasury products, including risks, accounting and controls associated to these 

products. 

DR RAID EID AL-ZUDE 

Head of Legal & Corporate Secretary 

Dr AI-Zude is the Head of Legal Department and the Corporate Secretary. He is 

responsible for providing legal advice on the structuring and execution of transactions, 

developing and maintaining the organization’s legal framework and coordinating 

external legal support, focusing on the Legal Department’s strategies and operations. 

He is also the focal point of communication between the Board of Directors, senior 

management and shareholders as well as providing legal advice to the Bank’s Board of 

Directors, senior management and shareholders on Corporate Governance Principles, 

best practices and compliance to regulations. Dr AI-Zude has a PhD in Commercial 

Law from Bristol University, England, a Master’s Degree in Commercial Law from 

Aberdeen University, Scotland, and a Bachelor’s Degree in Law from the University of 

Jordan 



35




KHALID AHMED AL JABER 

Head of Compliance 

Head of Compliance 

Mr AI Jaber is responsible for the daily operations of the compliance function, to ensure 

full compliance with requirements of the Central Bank of Bahrain’s Laws and 

Regulations. Mr Al Jaber has more than 25 years of experience in the banking field and 

as regulator with the CBB. He holds a Bachelor’s degree in Business Administration 

from North Texas State University - USA. 

FARRUKH ZAREEF 

Head of Risk 

Mr Zareef joined the Bank in 2011, adding to the team his valuable experience of 15 

years in a broad range of financial services areas, including risk management, 

compliance and audit, having worked in Pakistan, London and Middle East. Before 

moving to Bahrain, Mr Zareef was Partner in Risk Advisory Services at Ernst & Young 

Pakistan, focusing on the financial sector. He is a member of The Institute of Chartered 

Accountants of Pakistan (ICAP). 

FATEMA KAMAL 

Acting Head of Investment 

Mrs Kamal is an Executive Director in the Investment Banking Department. She has in 

depth field experience of 13 years in the financial sector specializing in investment 

structuring, strategic and organizational planning, tax structuring oversight, Shari’a 

product structuring, joint venture negotiation, business development and project 

management. Prior to joining the Bank, she worked as a Project Manager at Gulf 

Finance House and as an auditor at KPMG. 

Mrs Kamal holds a Bachelor of Science Degree in Accounting from the University of 

Bahrain. She has also qualified as a Certified Public Accountant and Certified Internal 

Auditor. 

10.1 CHANGES IN GOVERNANCE STRUCTURE 

During the year 2012, the following Board Members have resigned on 3 rd of October 

2012; 

• Fady Jan Bakhos (Non-Executive) a Board Member & a Member of the Audit 

Committee; and 



36




• Terry Newendorp (Non-Executive) a Board Member & a Member of the Audit 

Committee and a Member of the Nomination, Remuneration & Corporate 

Governance Committee 

Also, the following joined as Board Members on 6 th of November 2012: 

• Dr. Zakaria Hejres as a Non-Executive and Independent Board Member;* 

• Dr. Saud Al Ammari as a Non-Executive and Independent Board Member; and 

• Mr. Raed Al-Saleh as a Non-Executive Board Member. 

of December 2012 has re- 

The Bank Board of Director in its meeting held on 13 th 

constructed the Board Sub-Committees as follows 

EXECUTIVE COMMITTEE MEMBERS: 

1. Mr. A.Rahman Al Jasmi – Chairman (Non-Executive); 

2. Mr. Salah Asheer – Member (Non-Executive); and 

3. Mr. Raed Al Saleh – Member (Non-Executive). 

NOMINATION, REMUNERATION & CORPORATE GOVERNANCE COMMITTEE 

MEMBERS: 

1. Dr. Saud Al Ammari – Chairman (Non-Executive and Independent); 

2. Mr. Khalid Al Ankary – Member (Non-Executive and Independent); 

3. Dr. Zakaria Hejres – Member (Non-Executive and Independent); and 

4. Dr. Osama Bahar – SSB Member. 

AUDIT COMMITTEE MEMBERS: 

1. Mr. Khalid Al Ankary – Chairman (Non-executive and Independent); 

2. Mr. Talal Al Mutawa – Member (Non-Executive); and 

3. Dr. Zakaria Hejres – Member (Non-executive and Independent). 

RISK COMMITTEE MEMBERS: 

1. Mr. Raed Al Saleh – Chairman (Non-Executive); 

2. Dr. Saud Al Ammari – Member (Non-Executive and Independent); and 

3. Dr. Zakaria Hejres Member (Non-Executive and Independent). 

* Dr. Zakaria joined the Bank as a Board Member on 6 th of November 2012 and 

subsequently appointed as a Chief Executive Officer effective from 1 st of February 

2013 and accordingly left his positions as a Board Member and Member of the Board 

Sub-Committees. 



37




11 FINANCIAL PERFORMANCE AND POSITION 

In 2012, the global economy was still recovering from the aftermath of nearly three 

consecutive years of financial instability. The 2008-2009 global financial crisis coupled 

with the European Debt crisis in 2011 have both slowed down global growth to almost 

3 per cent in 2012. Despite encouraging signs that some mature economies have 

overcome the global financial and the European Debt crises, the global economy is 

likely to continue bearing some of the scars of the financial crisis. 

The Bank’s financial results are an indication of the difficult year that the Bank faced in 

2012 and challenges that await us in 2013. The bank is taking necessary strategic 

initiatives to understand and put in place measures to reduce the risks of future 

instability. 

The Bank’s total operating income for the financial year ended 31 December 2012 was 

USD4.1million. The operating expenses were reduced compared to 2011 from 

USD18.7million to USD13.2million. The loss for this year was USD17million including 

impairment allowance of USD8million. The total assets stand at USD119.9million 

compared to USD141million in 2011. The total liabilities have decreased from 

USD12.4million to USD8.4million in 2012. 

Whilst the market is still feeling the aftershocks of the decline in the real estate sector, 

the Bank is pleased to announce that it has exited from one of its real estate funds. The 

transaction will be finalized in 2013 and will have a positive impact on the financial 

results of the Bank and our investors. 



38




2012 2011 2010 2009 2008 

Total assets 119,956 141,026 181,388 197,655 455,868 

Total liabilities 8,412 12,412 26,139 36,120 274,808 

Total equity 111,544 128,614 155,249 161,535 181,060 

Share capital 200,000 200,000 200,000 173,750 156,250 

Fund under management 676,702 701,402 701,402 689,767 722,900 

Net Profit / (loss) (17,070) (26,635) (32,536) (18,843) 21,216 

Total income 4,144 3,094 5,929 9,340 53,193 

Total expenses 13,214 18,717 19,422 23,655 31,977 

Total provisions 8,000 11,012 19,043 4,528 - 

Liquid assets as a percentage of total assets 4.34% 9.10% 21.70% 22.58% 65.58% 

Liquid assets to liquid liabilities (ratio) 0.9 1.4 2.4 2.2 1.4 

Return on average equity -14.22% -18.77% -20.54% -11.00% 12.41% 

Return on paid up capital -8.54% -13.32% -16.27% -10.84% 13.58% 

Return on average assets -13.08% -16.52% -17.17% -5.77% 6.13% 

Earning per share (cents) (8.54) (13.32) (13.47) (7.53) 8.49 

Capital Adequacy Ratio 52.61% 51.29% 40.87% 35.37% 30.29% 

Net income margin -411.92% -860.86% -548.76% -201.75% 39.88% 

Paid up value per share - $ 1.000 1.000 1.000 0.695 0.625 

Book value per share 0.558 0.643 0.775 0.645 0.724 

Total cost to gross income 318.87% 604.95% 253.27% 60.12% 27.08% 



39




12 ADDITIONAL CORPORATE GOVERNANCE DISCLOSURES 

12.1 OTHER DIRECTORSHIPS HELD BY BOARD MEMBERS 

Name of Director Directorship Held in 2012 

Sh. Saleh Al Ali Al 

Rashed 

Mr. Abdul Rahman 

Mohamed Al Jasmi 

Mr. Salah Saleh Asheer 

• National Amlak Investment Company; 

• Trade Union Cooperative Insurance and Reinsurance Company; 

• Al Khumasiya for Feed and Animal Production; 

• Masraf Al Rayan; and 

• Al-Rashed and Al-Thunayan Automotive Company. 

• Al-Marfa'A Al-Mali Sukuk Co. B.S.C. 

• Enshaa Development Real Estate B.S.C. 

• Diyar Al Bahrain Real Estate Co. W.L.L. 

• Ruf Bahrain Company W.L.L. 

• Diyar Al Bahrain Holding Co. W.L.L. 

• Laurus Real Estate W.L.L. 

• 2 Seas Investment Co. W.L.L. 

• Daheyat Al Areen Real Estate Development W.L.L. 

• Okeanos Development S.P.C. 

• Okeanos Views Real Estate Development S.P.C. 

• Global Real Estate Development Co. W.L.L. 

• Al Jasmi Holding Company S.P.C. 

• Anab Real Estate S.P.C. 

• Anab Land Sceep S.P.C. 

• Global Energy Financial Services S.P.C. 

• Marsa Al Seef Real Estate Investment Company W.L.L. 

• Al Jasmi Constructions Co. W.L.L. 

• South East Real Estate S.P.C. 

• Masaken Real Estate Development Co. W.L.L. 

• BMI Bank B.S.C. (C) 

• Redwood Investment S.P.C. 

• Bahrain Bay Development B.S.C. (C) 

• Diyar Al Muharraq W.L.L. 

• Albilad Real Estate Investment Co. W.L.L 

• Kenaz Al Kharanah Real Estate Investment W.L.L. 

• Rayouf Holding Company W.L.L. 

• Amar Holding Company B.S.C (C) 

• Raseem Real Estate Investment Company W.L.L. 

• Aradi Salmabad Real Estate Investment Co. S.P.C. 

• Whitewood Holdings S.P.C 

• Bahrain Bay Development Ii B.S.C (C) 

• Al Kawthar First Real Estate Investment Co. S.P.C. 

• Marsa Al Seef Real Estate Investment Co. W.L.L. 

• Golden Meadows Real Estate W.L.L. 



40




• Aspire Real Estate Investment I S.P.C. 

• Aspire Real Estate Investment III S.P.C. 

• Al Retaj Holding W.L.L. 

• Al Seela Corp Real Estate Investment Company S.P.C 

• Diyar Homes Company W.L.L. 

Mr. Talal Mohammed Al 

Mutawa 

Mr. Khalid Abdulla Al 

Ankary 

Mr. Raed Mohammed Al 

Saleh 

Dr. Saud Abdulla Al 

Ammari 

Dr. Zakarya Hejres * 

• Manafae Investment Company KSC (c). 

• North Star Holding – Bahrain. 

• International Company for Services and Real Estate Investments – 

Egypt. 

• Samba Capital a subsidiary of Samba Financial Group – Mutual 

Funds. 

• Zak Solutions KSC (c). 

• None 

• Tamkeen 

• Gulf Investment Corporation 

• Bahrain Telecommunication Company 

* Dr. Zakaria joined the Bank as a Board Member on 6 th of November 2012 and 

subsequently appointed as a Chief Executive Officer effective from 1 st of February 

2013 and accordingly left his positions as a Board Member and Member of the Board 

Sub-Committees. 



41




12.2 DIRECTORS’ MEETING AND ATTENDANCE DURING THE YEAR 2012 

The table presented below, summarize the data pertaining to meetings of the Board of 

Directors and its Committees held during the year 2012. 

Board Meetings 

Audit Committee 

Meetings 

Executive 

Committee 

Meetings 

Nomination, 

Remuneration and 

Corporate 

Governance 

Committee 

Meetings 

Board Members 

No. of 

meetings 

attended 

No. of 

meetings 

during the 

period of 

membership 

No. of 

meetings 

attended 

No. of 

meetings 

during the 

period of 

membership 

No. of 

meetings 

attended 

No. of 

meetings 

during the 

period of 

membership 

No. of 

meetings 

attended 

No. of 

meetings 

during the 

period of 

membership 

Saleh Al Ali Al 

Rashed 2 4 N/A N/A N/A N/A 2* 2 

A.Rahman 

Mohamed Al Jasmi 4 4 N/A N/A 2* 2 2 2 

Talal Mohammed 

Al Mutawa 4 4 N/A N/A N/A N/A N/A N/A 

Salah Saleh Asheer 2 4 N/A N/A 2 2 N/A N/A 

Fady Jan Bakhos** 2 2 1 1 N/A N/A N/A N/A 

Khalid Abdulla Al 

Ankary 4 4 2* 2 N/A N/A N/A N/A 

Terry A. 

Newendorp** 0 2 0 1 N/A N/A 0 1 

Zakaria Hejres*** 1 1 1 1 

Saud Al Ammari*** 1 1 N/A N/A 

Raed Al Saleh*** 1 1 N/A N/A 

Minimum meetings 

during the year 

Meeting Dates March 8, 2012 March 8, 2012 March 8, 2012 October 3, 2012 

June 7, 2012 December 12, 2012 

October 03, 2012 December 13, 2012 

December 13, 2012 December 13, 2012 

* Chairman of the Committee 

** Resigned on October 03, 2012 

*** Joined on November 06,2012 



42




The meeting wise record of attendance is as follows: 

- Attended the meeting 

- Not attended the meeting N\A 

N\A - Resigned 

Board Meetings Attendance 

Board of Directors 

8 th March 

2012 

7 th June 

2012 

3 rd 

October 

2012 

13 th 

December 

2012 

Attendance 

Saleh Al Ali Al Rashed 2 /4 

A.Rahman Mohamed Al 

Jasmi 

4 /4 

Talal Mohammed Al Mutawa 4 /4 

Salah Saleh Asheer 2 /4 

Fady Jan Bakhos** * N\A N\A 2 /2 

Khalid Abdulla Al Ankary 4 /4 

Terry A. Newendorp** N\A N\A 0 /2 

Zakaria Hejres*** 

Saud Al Ammari*** 

Raed Al Saleh*** 

N\A N\A N\A 

N\A N\A N\A 

N\A N\A N\A 

1 /1 

1 /1 

1 /1 

* Attended through Phone/video link. 

** Resigned on October 03, 2012 

*** Joined on November 06,2012 

Audit Committee Meeting 

Committee members 

8 th March 

2012 

13 th 


2012 

Attendance 

Fady Jan Bakhos* N\A 1 /1 

Khalid Abdulla Al Ankary 2 /2 

Terry A. Newendorp* 0 /2 

Zakaria Hejres** 

N\A 

1 /1 

* Resigned on October 03, 2012 

** Joined on November 06, 2012 



43




Executive Committee Meeting 

Committee members 8 th March 

2012 

12 th 


2012 

Attendance 

A.Rahman Mohamed Al Jasmi 2 /2 

Salah Saleh Asheer 2 /2 

Nomination, Remuneration and Corporate Governance Committee Meeting 

Committee members 

03 rd 

October 

2012 

13 th 


2012 

Attendance 

Saleh Al Ali Al Rashed 2 /2 

A.Rahman Mohamed Al Jasmi 2 /2 

Terry A. Newendorp* N\A 0 /1 

* Resigned on October 03, 2012 

Below are explanations for the absences reported in the attendance of the Board and 

Sub-Committees meetings. 

• As per the Charter of the Nomination, Remuneration & Corporate Governance 

Committee, the Committee has to meet at least two times a year. In the year 

2012, the Committee had two meetings on 3 October 2012 and 13 December 

2012. 

• As a result of the short notice to hold a Board of Directors Meeting on 7 June 

2012 to discuss the exit of Makkah Hills, there was a difficulty to convene an 

Audit and Executive Committees meetings. 

• As a result of the resignation of Mr. Fady Bakhos and Mr. Terry Newendorp on 

3 October 2012, it was impossible for the Audit Committee to hold a meeting on 

3 October 2012 as previously planned. However, the Chairman of the Audit 

Committee held a meeting with the Bank’s Executive Management to discuss 

the agenda items and a minute was prepared and signed by the Chairman of 

the Audit Committee. 



44




• The Executive Committee consists from two members namely Mr. A.Rahman Al 

Jasmi and Mr. Salah Asheer, as a result of the previous resignation of Mr. Talal 

Al Mutawa from the Executive Committee last year. In compliance with the 

previous instructions of the CBB, it was impossible to reconstitute the Executive 

Committee, since no Board Member is allowed to be a member of the Audit and 

a member of the Executive Committee. As a result of the absent of Salah 

Asheer, the Executive Committee was unable to hold a meeting on 3 October 

2012 as previously planned. 

12.3 SHAREHOLDING MORE THAN 5% 

Information about major shareholders of the Bank is summarized below: 

Shareholders 

No. of shares 

shareholding 

% 

2 Seas Investment Co. W.L.L. 36,905,000 18.45% 

Oras Investment Co. S.P.C. 26,062,500 13.03% 

United Gulf Bank B.S.C. 25,000,000 12.50% 

Soura Investment Co. S.P.C. 25,000,000 12.50% 

Special Projects Co. W.L.L. 17,375,000 8.68% 

Abu Dhabi Investment House 17,375,000 8.68% 

Abdul Rahman M. Al Jasmi 12,500,000 6.25% 

Total 200,000,000 100% 



45




12.4 DISTRIBUTION BY SIZE OF SHAREHOLDING 

The current shareholding structure is as follows: 

Category 

No. of 

shares 

No. of 

shareholders shareholding % 

Less than 1% 14,145,000 14 7.0725% 

1.1% to 5% 25,637,500 6 12.8187% 

5.1% to 10% 47,250,000 3 23.6250% 

10.1% to 15% 76,062,500 3 38.0312% 

15.1% and above 36,905,000 1 18.4530% 

Total 200,000,000 27 100% 

12.5 SHAREHOLDING BY NATIONALITY 

The distributing of shareholding by nationality is given in the table below: 

Nationality 

No. of 

shares 

No. of 

shareholders 

shareholding 

% 

Kingdom of Bahrain 157,920,000 9 78.96% 

Kingdom of Saudi Arabia 21,272,500 13 10.63% 

State of Qatar 17,722,500 2 8.86% 

United Arab Emirates 1,695,000 2 0.84% 

Jordan 1,390,000 1 0.69% 

Total 200,000,000 27 100% 



46




12.6 SHAREHOLDING ON INDIVIDUAL BASIS 

The number of shares held by a Director as at 31 December 2012 was as follows: 

• Mr. Abdul Rahman M. Al Jasmi 6.25% of the Issued Share Capital of the Bank. 

• Mr. Saleh Al Ali Al Rashed (indirectly) holds 8.23% of the Issued Share Capital 

of the Bank. 

• No Director(s) or senior manager(s) other than mentioned above holds any 

shares in the Bank. 

12.7 OTHERS 

• There is no ownership of any Government in the shareholding of the Bank. 



47




13 OTHER DISCLOSURES 

13.1 EXTERNAL COMMUNICATION 

The Bank communicates with its customers and stakeholders through various 

channels. Information on developments, financial results, new products or any updates 

of existing products are placed on the Bank’s website www.gbcorponline.com and/or 

published in the media as well. Product details are also disseminated to customers and 

other interested parties through prospectus, brochures, and/or periodic investment 

updates. 

13.2 COMPLAINT HANDLING 

The Bank takes disputes and complaints from all customers very seriously. These have 

the potential for a breakdown in relationships and can adversely affect the Bank’s 

reputation. Left unattended these can also lead to litigation and possible censure by the 

regulatory authorities. The Bank has a comprehensive policy on handling of external 

complaints, approved by the Board. All employees of the Bank are aware of and abide 

by this policy. 

13.3 UNRESTRICTED INVESTMENT ACCOUNTS 

Currently, the Bank does not offer any unrestricted investment accounts. 

13.4 RESTRICTED INVESTMENT ACCOUNTS 

Restricted investment accounts represents assets acquired by funds provided by 

holders of restricted investment accounts and their equivalent and managed by the 

Group as an investment manager based on either a Mudaraba contract or an agency 

contract. The restricted investment accounts are exclusively restricted for investment in 

specified projects as directed by the investments account holders. Assets that are held 

in such capacity are not included as assets of the Bank in the consolidated financial 

statements. 

The Bank does not currently offer Restricted Investment Accounts (“RIAs”) as normal 

product offering. The RIAs as at the reporting date is specific in relation to a project 

promoted by the Bank and was part of the overall investment structure. The Bank is 

aware of its fiduciary responsibilities in management of the RIAs investments and has 

clear policies on discharge of these responsibilities. For further details on RIAs 

balances and policies refer to the consolidated financial statements. 

13.5 STAFF REMUNERATION POLICY 

The Bank’s remuneration policy is to attract, retain and aestivates the benefit talent. In 

line with this strategy staff remuneration consists of monthly fixed salaries and 

allowances, along with several other benefits like medical, life insurance cover. The 



48




Bank also has performance based discretionary bonus benefit for all its employees 

against predefined objectives comprising both financial and non-financial parameters. 

Presently, the Bank does not have any share based incentive schemes. 

The Bank remuneration policy for Board Members is to appropriately compensate and 

remunerate Board Member for their active participation in Board meetings. Based on 

this policy the Board Members’ remuneration was structured to comprise of sitting fees, 

periderm, daily allowance and air tickets. 

The aggregate remuneration paid to senior management and board members during 

2012 is as follows: 

USD'000' 

2012 

Board member fees 42 

Salaries and other short-term benefits 1,305 

Post employment benefits 88 

13.6 ZAKAH 

Zakah is directly borne by the shareholders on distributed profits and investors in 

restricted investment accounts. The Bank does not collect or pay Zakah on behalf of its 

shareholders and investors in restricted investment accounts. Zakah payable by the 

shareholders is computed by the Bank on the basis of the method prescribed by the 

Bank’s Shari’a Supervisory Board and notified to shareholders annually. Zakah 

payable by the shareholders for the year ended 31 December 2012 is US cents 0.034 

for every share held. 

13.7 COMPLIANCE DISCLOSURE 

The Compliance Department plays a critical role in ensuring that the Bank conducts its 

business in compliance with the CBB’s regulations as well as internal policies and 

procedures. Details of the Bank’s internal control framework are set out in internal 

manuals. The Board has the overall responsibility for ensuring that the Bank conducts 

all its activities in full compliance with applicable laws and regulations. The Board 

approves and periodically reviews the Bank’s compliance policies and strategies. The 

Audit Committee of the Board exercises a pivotal role in this regard. 

During the period, a penalty of BD 20,050 was imposed by the CBB for delay in 

submission of the year end consolidated financial statements and agreed upon 

Procedure Report by external auditors on the prudential returns for the period ended 31 

December 2011. 



49




13.8 ANTI-MONEY LAUNDERING 

The Bank has adopted detailed policies and procedures in line with the CBB directives 

to combat money laundering, financing of terrorism and other financial crimes. The 

Compliance Department requires all staff members to train regularly in Anti-Money 

Laundering and Combating Financing of Terrorism (AML/CFT) procedures. It is a firm 

policy of the Bank not to permit it to be directly or indirectly used by any elements for 

unlawful activities 

13.9 EARNING PROHIBITED BY SHARI’A 

The Group is committed to avoid recognising any income generated from non-Islamic 

sources. Accordingly, all non-Islamic income is credited to a charity account where the 

Bank uses these funds for charitable means. During the year, there were no earnings 

from non-Islamic transactions that are prohibited by Shari’a. 



50




14 NON COMPLIANCE WITH HC MODULE OF CBB RULE 

BOOK 

Ministry of Commerce and Central Bank of Bahrain have jointly issued a new Code of 

Corporate Governance for all banks operating in the Kingdom of Bahrain. The CBB has 

incorporated the amendments in High-Level Control Module (HC Module) of CBB’s 

Rulebook. The Bank is in compliance with all the rules/guidelines stipulated in HC 

Module of CBB’s Rulebook except those mentioned below which are in the process of 

being complied with: 

• All banks are required to have written appointment agreements with all 

members of the Board of Directors. The Bank has finalized a written letter of 

appointment entailing responsibilities and authorities of individual members of 

Board of Directors. The letter of appointment has been circulated to the 

Members of the Board of Directors. The letters of appointment is signed by all 

Board Members except one. 

• One-third of the Board of Directors of the Bank should consist of Independent 

Directors. Prior to 1 st of February 2013, the Bank was fully in compliance with 

this requirement, but due to the appointment of one of the Independent 

Directors as the Bank’s CEO, the Bank currently has only two Independent 

Directors and is in the process of inducting the remaining one Independent 

Director. 

• Performance related incentive plans need approval from the Bank’s 

Shareholders, however, the Bank at present does not have any formal incentive 

plan other than the normal performance based discretionary bonus benefits for 

its all employees. 



51

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