al rajhi banking and investment corporation - Tadawul
AL RAJHI BANKING AND INVESTMENT CORPORATION (A SAUDI JOINT STOCK COMPANY) CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2015 TOGETHER WITH INDEPENDENT AUDITORS’ REPORT
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 AND 2014
ASSETS Cash and balances with Saudi Arabian Monetary Agency (“SAMA”) and other central banks Due from banks and other financial institutions Investments Financing, net Investment property Property and equipment, net Other assets TOTAL ASSETS
(SAR‘000) 2014
Notes
2015
4 5 6 7 8 8 9
6,0,350,72 620,770,32 5,0,,20,23 67,067,0,2, 7053,0,,, 5,578,931 302570675 573027,023,
33,585,377 16,516,208 42,549,623 205,939,960 4,813,941 4,306,446 307,711,555
10 11 12,14
4,558,224 256,227,769 8,194,601 62,0,,,03,3
2,135,237 256,077,047 7,603,077 265,815,361
13 14 14
72063,0,,, 72063,0,,, 60,,,0,33 8,666,300 2,475,000 32025,0,33
16,250,000 16,250,000 2,598,599 4,828,845 1,968,750 41,896,194
573027,023,
307,711,555
LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Due to banks and other financial institutions Customers’ deposits Other liabilities Total liabilities Shareholders’ equity Share capital Statutory reserve Other reserves Retained earnings Proposed gross dividends and Zakat Total shareholders’ equity 7B
22
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
8B
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -2-
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
Notes INCOME Gross financing and investment income Return on customers’, banks’ and financial institutions’ time investments Net financing and investments income Fee from banking services, net Exchange income, net Other operating income Total operating income
7,,63,,5,,
10,212,518
16 16
)6,,,35,( ,,,3,,,36
(395,198) 9,817,320
17
6,,,3,,,7 ,,,,322 7,5,7,2 75,,33,,,3
2,738,465 952,056 159,133 13,666,974
6,227,,35 635,,7, 5,3,,,, 7,5,3,63, 7,,3,,,63 3,3,3 2,273,,,,
2,514,103 257,033 412,716 1,330,328 2,312,179 4,443 6,830,802
,,75,,,,3
6,836,172
1,625 million
1,625 million
335,
4.21
19 8 22 7-3 28
NET INCOME FOR THE YEAR Weighted average number of shares outstanding
13 & 21
Basic and diluted earnings per share (in SAR)
(SAR‘000) 2014
16
18
EXPENSES Salaries and employee related benefits Rent and premises related expenses Depreciation and amortization Other general and administrative expenses Impairment charge for financing, net Board of directors’ remuneration Total operating expenses
2015
21
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -3-
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
2015 SAR‘000
2014 SAR‘000
,,75,,,,3
6,836,172
14
)6,2,,73(
3,679
14
733,,7, )73,,,,,( 2,,7,,6,5
(133) (68,561) 6,771,157
Notes
Net income for the year
0B
Other comprehensive income Items that are or may be reclassified to consolidated statement of income in subsequent periods
1B
- Available-for-sale investments - Net change in fair value - Net amounts transferred to consolidated statement of income - Exchange difference on translation of foreign operations Total other comprehensive income for the year 2B
3B
4B
5B
6B
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -4-
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (SAR‘000)
Notes 2015 Balance at 1 January 2015 Transfer to other reserves Dividends paid for the second half of 2014 Interim dividends paid for the first half of 2015 Prior period adjustment Net change in fair value of available-for-sale investments Net amounts transferred to consolidated statement of income Net movement in foreign currency translation reserve Net income recognized directly in equity Net income for the year Total comprehensive income for the year Employees shares plan Transfer to accrued Zakat under other liabilities Proposed gross dividends and Zakat Balance at 31 December 2015 10B
22 22
14 12 & 14 14 & 22
11B
2014 Balance at 1 January 2014 Transfer to other reserves Dividends paid for the second half of 2013 Interim dividends paid for the first half of 2014 Bonus shares issued Transferred to statutory reserves Net change in fair value of available-for-sale investments Net amounts transferred to consolidated statement of income Net movement in foreign currency translation reserve Net income recognized directly in equity Net income for the year Total comprehensive income for the year Employees shares plan Transfer to accrued Zakat under other liabilities Proposed gross dividends and Zakat Balance at 31 December 2014
22 22
14 12 & 14 14 & 22
Share capital
Statutory Reserve
Other reserves
Retained earnings
Proposed gross dividends and Zakat
72063,0,,, -
72063,0,,, -
603,,03,, ,3,0,,, -
30,6,0,33 ),7603,,( )3076,(
70,2,0,3, ),3,0,,,( )7067,0,3,( -
370,,207,3 )7067,0,3,( ),7603,,( )3076,(
-
-
)6,20,73(
-
-
)6,20,73(
72063,0,,,
72063,0,,,
7330,7, )73,0,,,( )6770,,6( )6770,,6( 30575 )73505,2( 60,,,0,33
,075,0,,3 ,075,0,,3 (2,475,000) 8,666,300
2,475,000 2,475,000
7330,7, )73,0,,,( )6770,,6( ,075,0,,3 20,7,06,5 30575 )73505,2( 32025,0,33
15,000,000 1,250,000 -
15,000,000 1,250,000
2,161,292 750,000 -
4,086,423 (1,625,000) (1,250,000) (1,250,000)
2,250,000 (750,000) (1,500,000) -
38,497,715 (1,500,000) (1,625,000) -
-
-
3,679
-
-
3,679
16,250,000
16,250,000
(133) (68,561) (65,015) (65,015) 10,760 (258,438) 2,598,599
6,836,172 6,836,172 (1,968,750) 4,828,845
1,968,750 1,968,750
(133) (68,561) (65,015) 6,836,172 6,771,157 10,760 (258,438) 41,896,194
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -5-
Total
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (SAR‘000) Notes CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year
2015
2014
12B
,075,0,,3
6,836,172
7,,0,5, 5,30,,, )30,27( )73,0,,,( 70,3,0,63 )20,3,( 30573
2,496 412,716 (25,615) (68,561) 2,312,179 (1,738) 10,760
)70,3,0,3,( )770,270,53( )206530,55( )5530,,2( )56,0,,,(
(1,189,337) (3,812,319) (21,438,914) 3,572 (575,268)
2,422,987 150,722 591,524 (8,053,331)
(1,504,472) 24,487,934 1,458,929 6,908,534
)707370,,3( )330,,,( )3730,,,( 5036702,, )7053,0,,,( ,0,2, 378,452
(912,215) (133) (2,977,216) 31,621 (3,857,943)
CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Zakat paid Net cash used in financing activities
)60,57063,( )73505,2( )607,30262(
(3,125,000) (258,438) (3,383,438)
NET CHANGE IN CASH AND CASH EQUIVALENTS
),0,3,03,3(
(332,847)
Cash and cash equivalents at the beginning of the year CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR Non-Cash Transactions: Net change in fair value less realized (loss) / gain from available-for-sale investments Transfer of Zakat from other reserves to other liabilities
6606570,,3
22,564,832
7605,603,,
22,231,985
)370,,3( 73505,2
3,546 258,438
Adjustments to reconcile net income to net cash from operating activities: Loss on investments held at fair value through statement of income (FVSI) Depreciation and amortization Gain on sale of property and equipment Foreign currency translation reserve Impairment charge for financing Share of profit in an associate Expenses of employees’ share plan Net (increase) / decrease in operating assets Statutory deposit with SAMA and central banks Due from banks and other financial institutions Financing Investments held as FVSI Other assets, net Net increase / (decrease) in operating liabilities Due to banks and other financial institutions Customers’ deposits Other liabilities Net cash (used in) / provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Investment in an associate Available-for-sale investments Investments recorded at amortized cost Purchase of investment property Proceeds from sale of property and equipment Net cash provided by / (used in) investing activities
18 8 18 7-3 18
8
23
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -6-
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 1.
GENERAL a) Incorporation and operation Al Rajhi Banking and Investment Corporation, a Saudi Joint Stock Company, (the “Bank”), was formed and licensed pursuant to Royal Decree No. M/59 dated 3 Dhul Qadah 1407H (corresponding to June 29, 1987) and in accordance with Article 6 of the Council of Ministers’ Resolution No. 245, dated 26 Shawal 1407H (corresponding to June 23, 1987). The Bank operates under Commercial Registration No. 1010000096 and its Head Office is located at the following address: Al Rajhi Bank Olaya Street P.O. Box 28 Riyadh 11411 Kingdom of Saudi Arabia The objectives of the Bank are to carry out banking and investment activities in accordance with its Articles of Association and By-Laws, the Banking Control Law and the Council of Ministers’ Resolution referred to above. The Bank is engaged in banking and investment activities for its own account and on behalf of others inside and outside the Kingdom of Saudi Arabia through 569 branches including the branches outside the kingdom as at 31 December 2015 (2014: 552 branches) and 12,374 employees as at 31 December 2015 (2014: 11,761 employees). The Bank has established certain subsidiary companies (together with the Bank hereinafter referred to as "the Group") in which it owns all or the majority of their shares as set out below: Name of subsidiaries
Shareholding % 2014 2015
Al Rajhi Development Company KSA
100%
100%
Al Rajhi Corporation Limited – Malaysia
100%
100%
-7-
A limited liability company registered in Kingdom of Saudi Arabia to support the mortgage programs of the Bank through transferring and holding the title deeds of real estate properties under its name on behalf of the Bank, collection of revenue of certain properties sold by the Bank , provide real estate and engineering consulting services, provide documentation service to register the real estate properties and overseeing the evaluation of real estate properties. A licensed Islamic Bank under the Islamic Financial Services Act 2013, incorporated and domiciled in Malaysia.
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 1.
GENERAL (continued) a) Incorporation and operation (continued)
Al Rajhi Capital Company – KSA
Shareholding % 2014 2015 100% 100%
Al Rajhi Bank – Kuwait
100%
100%
Al Rajhi Bank – Jordan
100%
100%
Al Rajhi Takaful Agency Company – KSA
99%
99%
Al Rajhi Company for management services – KSA
100%
100%
Name of subsidiaries
A limited liability company registered in Kingdom of Saudi Arabia to act as principal agent and/or to provide brokerage, underwriting, managing, advisory, arranging and custodial services. A foreign Branch Registered with the central Bank of Kuwait. A foreign Branch operating in Hashimi Kingdom of Jordan, providing all financial, banking, and investments services and importing and trading in precious metals and stones in accordance with Islamic Sharia’a rules and under the applicable banking law. A limited liability company registered in Kingdom of Saudi Arabia to act as an agent for insurance brokerage activities per the agency agreement with Al Rajhi Cooperative insurance company. A limited liability company registered in Kingdom of Saudi Arabia to provide recruitment services.
Since the subsidiaries are wholly or substantially owned by the Bank, the non-controlling interest is insignificant and therefore not disclosed. All the above-mentioned subsidiaries have been consolidated. b) Shari’a Authority As a commitment from the Bank for its activities to be in compliance with Islamic Shari’a legislations, since its inception, the Bank has established a Shari’a Authority to ascertain that the Bank’s activities are subject to its approval and control. The Shari’a Authority had reviewed several of the Bank’s activities and issued the required decisions thereon. 2.
BASIS OF PREPARATION a)
Statement of compliance The consolidated financial statements are prepared in accordance with the Accounting Standards for Financial Institutions promulgated by the Saudi Arabian Monetary Agency (“SAMA”) and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Bank also prepares its consolidated financial statements to comply with the requirements of Banking Control Law and the provision of Regulations for Companies in the Kingdom of Saudi Arabia and the Bank’s Articles of Association.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
2.
BASIS OF PREPARATION (continued) b)
Basis of measurement and preparation The consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of investments held as fair value through income statement (“FVSI”) and available-for-sale. The Bank presents its statement of financial position in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non–current) is presented in note 25-2.
c)
Functional and presentation currency The consolidated financial statements are presented in Saudi Arabian Riyal (“SAR”), the Bank’s functional currency and are rounded off to the nearest thousand except otherwise indicated.
d)
Critical accounting judgments, estimates and assumptions The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgments in the process of applying the Bank’s accounting policies. Such estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including obtaining professional advice and expectations of future events that are believed to be reasonable under the circumstances.Significant areas where management has used estimates, assumptions or exercised judgements is as follows: The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Bank based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Bank. Such changes are reflected in the assumptions when they occur. i)
Impairment on financing The Bank reviews its financing portfolios to assess specific and collective impairment on a quarterly basis. The specific impairment applies to financing evaluated individually for impairment and is based on 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 judgements about a customer’s financial situation and the net realisable value of any underlying collateral. This evidence may include observable data indicating that there has been an adverse change in the payment status of clients in a group. The methodology and assumptions used for estimating both the amount and the timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function. -9-
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 2. BASIS OF PREPARATION (continued) d) Critical accounting judgments, estimates and assumptions (continued) i) Impairment on financing (continued) A collective component of the total allowance is established for groups of homogeneous loans that are not considered individually significant and is established using statistical methods such as roll rate methodology and internal loss estimates. The methodology uses statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgement to ensure that the estimate of loss arrived at on the basis of historical information is appropriately adjusted to reflect the economic conditions and product mix at the reporting date. Roll rates and loss rates are regularly benchmarked against actual loss experience. In assessing the need for collective loss allowance, management considers factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, assumptions are made to define how inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowance depends on the model assumptions and parameters used in determining the collective allowance. ii) Impairment of available for-sale and sukuk investments The Bank exercises judgement to consider impairment on the available-for-sale equity investments at each reporting date. This includes determination of a significant or prolonged decline in the fair value below its cost. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. The determination of what is 'significant' or 'prolonged' requires judgement. In making this judgement, the Bank evaluates among other factors, the normal volatility in share price, deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. The Bank reviews its investments in sukuks at each reporting date to assess whether they are impaired. This requires similar judgement as applied to individual assessment of financing. In addition, the Bank considers impairment to be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. iii)
Fair value of financial instruments The Bank measures financial instruments and non-financial assets at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: -
In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Bank.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 2.
BASIS OF PREPARATION (continued) d)
Critical accounting judgments, estimates and assumptions (continued)
iii)
Fair value of financial instruments (continued) The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: -
-
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 — Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
iv) Classification of Investments held at amortised cost The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as Investments held at amortised cost. v)
Determination of control over investees The control indicators set out note 3 (b) are subject to management’s judgements that can have a significant effect in the case of the Bank’s interests in securitisation vehicles and investments funds. Investment funds The group acts as Fund Manager to a number of investment funds. Determining whether the group controls such an investment fund usually focuses on the assessment of the aggregate economic interests of the Bank in the Fund (comprising any carried interests and expected management fees) and the investor’s rights to remove the Fund Manager. As a result the Bank has concluded that it acts as an agent for the investors in all cases, and therefore has not consolidated these funds.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 2. BASIS OF PREPARATION (continued) d)
Critical accounting judgments, estimates and assumptions (continued)
vi) Provisions for liabilities and charges The Bank receives legal claims in the normal course of business. Management has made judgments as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depends on the due process being followed as per the legislation in the Kingdom of Saudi Arabia. vii) Going concern The consolidated financial statements have been prepared on a going concern basis. The Bank’s management has made an assessment of the Bank’s ability to continue as a going concern and is satisfied that the Bank has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended 31 December 2014 except for the change in accounting policies resulting from new and amended IFRS. The following changes have no material impact on the consolidated financial statements of the Bank: a) Amendments to existing standards i.
Amendments to IAS 19 applicable for annual periods beginning on or after 1 July 2014 is applicable to defined benefit plans involving contribution from employees and / or third parties. This provides relief, based on meeting certain criteria, from the requirements proposed in the amendments of 2011 for attributing employee / third party contributions to periods of service under the plan benefit formula or on a straight line basis. The current amendment gives an option, if conditions satisfy, to adjust service cost in period in which the related service is rendered.
ii.
Annual improvements to IFRS 2010-2012 and 2011-2013 cycle applicable for annual periods beginning on or after 1 July 2014. A summary of the amendments is contained as under: o
IFRS 1 - "first time adoption of IFRS": the amendment clarifies that a first time adopter is permitted but not required to apply a new or revised IFRS that is not yet mandatory but is available for early adoption.
o
IFRS 2 amended to clarify the definition of 'vesting condition' by separately defining 'performance condition' and 'service condition'.
o
IFRS 3 - "business combinations" amended to clarify the classification and measurement of contingent consideration in a business combination. It has been further amended to clarify that the standard does not apply to the accounting for the formation of all types of joint arrangements in IFRS 11.
o
IFRS 8 - "operating segments" has been amended to explicitly require disclosure of judgments made by management in applying aggregation criteria..
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) a) Amendments to existing standards (continued)
b)
o
IFRS 13 has been amended to clarify measurement of interest free short term receivables and payables at their invoiced amount without discounting, if the effect of discounting is immaterial. It has been further amended to clarify that the portfolio exception potentially applies to contracts in the scope of IAS 39 and IFRS 9 regardless of whether they meet the definition of a financial asset or financial liability under IAS 32.
o
IAS 16 - "Property plant and equipment" and IAS 38 - "intangible assets": - the amendments clarify the requirements of revaluation model recognizing that the restatement of accumulated depreciation (amortisation) is not always proportionate to the change in the gross carrying amount of the asset.
o
IAS 24 - "related party disclosures"- the definition of a related party is extended to include a management entity that provides key management personnel services to the reporting entity, either directly or indirectly.
o
IAS 40 - "investment property" clarifies that an entity should assess whether an acquired property is an investment property under IAS 40 and perform a separate assessment under IFRS 3 to determine whether the acquisition constitutes a business combination.
Basis of consolidation These consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as set out in note 1 to these financial statements (collectively referred to as “the Group”). The financial statements of subsidiaries are prepared for the same reporting year as that of the Bank, using consistent accounting policies. The accounting policies of subsidiaries are changed when necessary to align them with the policies adopted by the Bank. Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The consolidated financial statements have been prepared using uniform accounting policies and valuation methods for like transactions and other events in similar circumstances. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Bank. Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect amount of its returns When the Group has less than majority of the voting or similar rights of an investee entity, the Bank considers all relevant facts and circumstances in assessing whether it has power over the entity, including: -
The contractual arrangement with the other vote holders of the investee Rights arising from other contractual arrangements The Bank’s voting rights and potential voting rights granted by equity instruments such as shares - 13 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b) Basis of consolidation (continued) The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Bank gains control until the date the Bank ceases to control the subsidiary. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Bank loses control over a subsidiary, it: -
derecognises the assets (including goodwill) and liabilities of the subsidiary derecognises the carrying amount of any non-controlling interests derecognises the cumulative translation differences recorded in equity recognises the fair value of the consideration received recognises the fair value of any investment retained recognises any surplus or deficit in profit or loss reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriates would be required if the Bank had directly disposed of the related assets or liabilities.
Since the subsidiaries are wholly or substantially owned by the Bank, the non-controlling interest is insignificant and therefore not disclosed. Intra group balances and any income and expenses arising from intra-group transactions, are eliminated in preparing these consolidated financial statements. As of 31 December 2015 and 2014 interests in subsidiaries not directly owned by the Bank are owned by representative shareholders for the beneficial interest of the Bank and hence are not separately disclosed on the consolidated statement of financial position or consolidated statement of comprehensive income. Investment in associate Associates are enterprises over which the Bank exercises significant influence (but not control), over financial and operating policies and which is neither a subsidiary nor a joint venture.. Investments in associates are initially recognized at cost and subsequently accounted for under the equity method of accounting and are carried in the consolidated statement of financial position at the lower of the equityaccounted or the recoverable amount. Equity-accounted value represents the cost plus post-acquisition changes in the Bank's share of net assets of the associate (share of the results, reserves and accumulated gains/losses based on latest available financial statements) less impairment, if any. The previously recognized impairment loss in respect of investment in associate can be reversed through the consolidated statement of income, such that the carrying amount of the investment in the statement of financial position remains at the lower of the equity-accounted (before provision for impairment) or the recoverable amount. On derecognition the difference between the carrying amount of investment in associate and the fair value of the consideration received is recognized in the consolidated statement of income.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) c) Zakat Zakat is calculated based on the Zakat rules and regulations in the Kingdom of Saudi Arabia and is considered as a liability on the shareholders to be deducted from dividends. Zakat is computed based on equity or net income using the basis defined under the Zakat regulations. In case of any differences between the Bank’s calculation and the Department of Zakat and Income Tax’s (“DZIT”) assessment, a reserve is created as other reserve (Note 14) for the differential. d) Trade date All regular way purchases and sales of financial assets are recognized and derecognized on the trade date (i.e. the date on which the Bank commits to purchase or sell the assets). Regular way purchases or sales of financial assets require delivery of those assets within the time frame generally established by regulation or convention in the market place. All other financial assets and liabilities (including assets and liabilities designated at fair value through statement of income) are initially recognised on the trade date at which the Bank became a party to the contractual provision of the instrument. e) Foreign currencies The consolidated financial statements are presented in Saudi Arabian Riyal (“SAR”), which is also the parent company’s functional currency. Each entity determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are translated into Saudi Riyals at exchange rates prevailing on the dates of the transactions. Monetary assets and liabilities at the year-end (other than monetary items that form part of the net investment in a foreign operation), denominated in foreign currencies, are translated into Saudi Riyals at exchange rates prevailing at the date of the consolidated statement of financial position. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year adjusted for the effective interest rate and payments during the year and the amortised cost in foreign currency translated at exchange rate at the end of the year. Realized and unrealized gains or losses on exchange are credited or charged to the consolidated statement of comprehensive income. The monetary assets and liabilities of foreign subsidiaries are translated into Saudi Riyals at rates of exchange prevailing at the date of the consolidated statement of financial position. The statements of income of foreign subsidiaries are translated at the average exchange rates for the year. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e) Foreign currencies (continued) As at the reporting date, the assets and liabilities of foreign operations are translated into Saudi Arabian Riyals at the rate of exchange as at the statement of financial position date, and their statement of incomes are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are recognized in other comprehensive income. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to the statement of income as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. f) Offsetting financial instruments Financial assets and liabilities are offset and are reported net in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts, and when the Bank intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are not offset in the consolidated statement of comprehensive income unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Bank. g) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group, and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized. Income from Mutajara, Murabaha, investments held at amortized cost, installment sale, Istisna’a financing and visa services is recognized based on effective yield basis on the outstanding balances. The effective yield is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective yield, the Group estimates future cash flows considering all contractual terms of the financial instrument but excluding future credit losses. Fees and commissions are recognized when the service has been provided. Financing commitment fees that are likely to be drawn down and other credit related fees are deferred and, together with the related direct cost, are recognized as an adjustment to the effective yield on the financing. When a financing commitment is not expected to result in the draw-down of a financing, financing commitment fees are recognised on a straight-line basis over the commitment period. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, on a time-proportionate basis.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) g) Revenue recognition (continued) Fees received to asset management, wealth management, financial planning, custody services and other similar services that are provided over an extended period of time, are recognized over the period when the service is being provided. Asset management fees related to investment funds are recognized over the period when in which the service is being provided. The same principle applies to Wealth management and Custody Services that are continuously recognized over a period of time. Dividend income is recognised when the right to receive income is established which is generally when the shareholders approve the dividend. Dividends are reflected as a component of net trading income, net income from FVSI financial instruments or other operating income based on the underlying classification of the equity instrument. Foreign currency exchange income / loss is recognized when earned / incurred. Net trading income results from trading activities and include all realised and unrealised gains and losses from changes in fair value and related gross investment income or expense, dividends for financial assets and financial liabilities held for trading and foreign exchange differences. Net income from FVSI financial instruments relates to financial assets and liabilities designated as FVSI and include all realised and unrealised fair value changes, investment inceom, dividends and foreign exchange differences. h)
Financing and investment The Bank offers non-interest based products including Mutajara, installment sales, Murabaha and Istisnaa to its customers in compliance with Shari’a rules. The Bank classifies its principal financing and investment as follows: i. Held at amortized cost - such financing and certain investments which meets the definition of loans and receivable under IAS 39, are classified as held at amortized cost, and comprise Mutajara, installment sale, Istisnaa, Murabaha and visa operations accounts balances. Investments held at amortized cost are initially recognized at fair value and subsequently measured at amortized cost (using effective yield basis) less any amounts written off, and allowance for impairment. Financing are non-derivative financial assets originated or acquired by the Bank with fixed or determinable payments. Financing are recognised when cash is advanced to borrowers. They are derecognized when either borrower repays their obligations, or the financings are sold or written off, or substantially all the risks and rewards of ownership are transferred. All financings are initially measured at fair value, plus incremental direct transaction costs and are subsequently measured at amortised cost using effective yield basis. Following the initial recognition, subsequent transfers between the various classes of financings is not ordinarily permissible. The subsequent period-end reporting values for various classes of financings are determined on the basis as set out in the following paragraphs.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) h) Financing and investment (continued) ii. Held as FVSI - Investments in this category are classified as either investment held for trading or those designated as FVSI on initial recognition. Investments classified as trading are acquired principally for the purpose of selling or repurchasing in the short term. These investments comprise mutual funds and equity investments. Such investments are measured at fair value and any changes in the fair values are charged to the consolidated statement of comprehensive income. Transaction costs, if any, are not added to the fair value measurement at initial recognition of FVSI investments and are expensed in the consolidated financial statements. Investment income and dividend income on financial assets held as FVSI are reflected as either trading income or income from FVSI financial instruments under other operating income in the consolidated statement of income. Investments at FVSI are not reclassified subsequent to their initial recognition, except that nonderivative FVSI instruments, other than those designated as FVSI upon initial recognition, may be reclassified out of the FVSI (i.e., trading) category if they are no longer held for the purpose of being sold or repurchased in the near term, and the following conditions are met: • If the financial asset would have met the definition of financing and receivables, if the financial asset had not been required to be classified as held for trading at initial recognition, then it may be reclassified if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity. • If the financial asset would not have met the definition of financing and receivables, and then it may be reclassified out of the trading category only in ‘rare circumstances’. iii. Available-for-sale - Available-for-sale investments are those non-derivative equity and sukuk securities which are neither classified as Held to maturity investments, loans and receivables nor designated as FVSI, that are intended to be held for an unspecified period of time, which may be sold in response to needs for liquidity or changes in special commission rates, exchange rates or equity prices. Investments which are classified as “available-for-sale” are initially recognised at fair value including direct and incremental transaction costs and subsequently measured at fair value except for unquoted equity securities whose fair value cannot be reliably measured are carried at cost. Unrealized gains or losses arising from changes in fair value are recognised in other comprehensive income until the investment is de-recognised or impaired whereupon any cumulative gain or loss previously recognized in other comprehensive income are reclassified to consolidated statement of income. A Security held as available-for-sale may be reclassified to “Other investments held at amortized cost” if it otherwise would have met the definition of “Other investments held at amortized cost” and if the Bank has the intention and ability to hold that financial asset for the foreseeable future or until maturity.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i) Impairment of financial assets Held at amortised cost An assessment is made at the date of each consolidated statement of financial position to determine whether there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset or group of financial asset and that a loss event(s) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If such evidence exists, the difference between the assets carrying amount and the present value of estimated future cash flows is calculated and any impairment loss, is recognized for changes in the asset’s carrying amount. The carrying amount of the financial assets held at amortized cost, is adjusted either directly or through the use of an allowance for impairment account, and the amount of the adjustment is included in the consolidated statement of comprehensive income. A specific provision for credit losses due to impairment of a financing or any other financial asset held at amortised cost is established if there is objective evidence that the Bank will not be able to collect all amounts due. The amount of the specific provision is the difference between the carrying amount and the estimated recoverable amount. The estimated recoverable amount is the present value of expected cash flows, including amounts estimated to be recoverable from guarantees and collateral, discounted based on the original effective yield rate. Considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provision required. Such estimates are essentially based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such allowance for impairment. In addition to the specific allowance for impairment described above, the Bank also makes collective impairment allowance for impairment, which are evaluated on a group basis and are created for losses, where there is objective evidence that unidentified losses exist at the reporting date. The amount of the provision is estimated based on the historical default patterns of the investment and financing counter-parties as well as their credit ratings, taking into account the current economic climate. In assessing collective impairment, the Bank also uses internal loss estimates and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than is suggested by historical trends. Loss rates are regularly benchmarked against actual outcomes to ensure that they remain appropriate. The criteria that the Bank uses to determine that there is an objective evidence of impairment loss include:
Delinquency in contractual payments of principal or profit. Cash flow difficulties experienced by the customer. Breach of repayment covenants or conditions. Initiation of bankruptcy proceedings against the customer. Deterioration of the customer’s competitive position. Deterioration in the value of collateral.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i) Impairment of financial assets (continued) Held at amortised cost (continued) When financing amount is uncollectible, it is written-off against the related provision for impairment. Such financing is written-off after all necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the customer’s credit rating), the previously recognized impairment loss is reversed by adjusting the provision account. The amount of the reversal is recognized in the statement of comprehensive income in impairment charge. Financial assets are written off only in circumstances where effectively all possible means of recovery have been exhausted. Available for-sale equity and debt investments In the case of debt instruments classified as available-for-sale, the Bank assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income. For equity investments held as available-for-sale, a significant or prolonged decline in fair value below its cost represents objective evidence of impairment. The impairment loss cannot be reversed through the statement of income as long as the asset continues to be recognized i.e. any increase in fair value after impairment has been recorded can only be recognized in equity. On de recognition, any cumulative gain or loss previously recognized in equity is included in the consolidated statement of income for the year. j) Other real estate The Bank, in the ordinary course of business, acquires certain real estate against settlement of loans and advances. Such real estate are considered as assets held for sale and are initially stated at the lower of net realisable value of due loans and advances and the current fair value of the related properties, less any costs to sell (if material). No depreciation is charged on such real estate. Rental income from other real estate is recognised in the consolidated statement of income. Subsequent to initial recognition, any subsequent write down to fair value, less costs to sell, are charged to the consolidated statement of income. Any subsequent revaluation gain in the fair value less costs to sell of these assets to the extent this does not exceed the cumulative write down previously recognised, in the statement of income. Gains or losses on disposal are recognised in the statement of income.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k) De-recognition of financial assets and liabilities A financial asset (or a part of a financial asset, or a part of a group of similar financial assets) is derecognized when the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for de-recognition. A financial liability (or a part of a financial liability) can only be derecognized when it is extinguished, that is when the obligation specified in the contract is either discharged, cancelled or expired. l) Investment properties Investment properties are held for long-term rental yield and are not occupied by the Group. They are carried at cost and depreciation is charged to the statement of consolidated income. m) Property and equipment Property and equipment is stated at cost less accumulated depreciation and amortization and accumulated impairment loss. Land is not depreciated. The cost of other property and equipment is depreciated or amortized using the straight-line method over the estimated useful life of the assets, as follows: Leasehold land improvements
over the lesser of the period of the lease or the useful life 33 years over the lease period or 3 years, whichever is shorter 3 to 10 years
Buildings Leasehold building improvements Equipment and furniture
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in consolidated statement of comprehensive income. All assets are reviewed for impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. n) Customers’ deposits Customer deposits are financial liabilities that are initially recognized at fair value less transaction cost, being the fair value of the consideration received, and are subsequently measured at amortized cost.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) o) Guarantees In the ordinary course of business the Bank gives guarantees which include letters of credit, letters of guarantee, acceptances and stand by letter of credits. Initially, the received margins are recognized as liabilities at fair value, being the value of the premium received and included in customers’ deposits in the consolidated financial statements. Subsequent to the initial recognition, the Bank's liability under each guarantee is measured at the higher of the amortized premium and the best estimate of expenditure required to settle any financial obligations arising as a result of guarantees. Any increase in the liability relating to the financial guarantee is taken to the consolidated statement of income in "impairment charge for credit losses, net". The premium received is recognised in the consolidated statement of income in "Fees from banking services, net" on a straight line basis over the life of the guarantee. p) Provisions Provisions are recognized when the Bank has present legal, or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. q) Accounting for leases 1. Where the Group is the lessee Leases that do not transfer to the Bank substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Consequently, all of the leases entered into by the Bank are all operating leases. Payments made under operating leases are charged to the (consolidated) statement of income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty , net of anticipated rental income (if any), is recognised as an expense in the period in which termination takes place. The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is then accounted for separately. 2. Where the Group is the lessor When assets are transferred under a finance lease, including assets under Islamic lease arrangements (e.g. Ijara Muntahia Bittamleek or Ijara with ownership promise) (if applicable) the present value of the lease payments is recognised as a receivable and disclosed under “Financing”. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
r)
Cash and cash equivalents For the purposes of the consolidated statement of cash flows, ‘cash and cash equivalents’ include notes and coins on hand, balances with SAMA (excluding statutory deposits) and due from banks and other financial institutions with original maturity of three months or less from the date of acquisition which are subject to insignificant risk of changes in their fair value.
s)
Short term employee benefits Short term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided.
t)
Special commission excluded from the consolidated statement of income In accordance with the Shari’a Authority’s resolutions, special commission income received by the Bank is excluded from the determination of income, and is recorded as other liabilities in the consolidated statement of financial position and is paid as charities.
u)
Provisions for employees’ end of service benefits The provision for employees’ end of service benefits is accrued using actuarial valuation according to the regulations of Saudi labor law and local regulatory requirements.
v)
Share-based payments The Bank operates an equity-settled, share-based compensation plan “Employee share grant plan ESGB” as approved by SAMA, under which the entity receives services from the eligible employees as consideration for equity instruments (options) of the Bank. Under the terms of the ESGP, eligible employees of the Bank are offered stock options at a predetermined strike price for a fixed period of time. At maturity of the plans, the underlying allotted shares are delivered if the employees exercise the options as per the terms and conditions of the plan. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense on the consolidated statement of comprehensive income over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Bank revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
w) Mudaraba funds The Bank carries out Mudaraba transactions on behalf of its customers, and are treated by the Bank as being restricted investments. These are included as off balance sheet items. The Bank’s share of profits from managing such funds is included in the Bank’s consolidated statement of comprehensive income. x)
Investment management services The Bank provides investment management services to its customers, through its subsidiary which include management of certain mutual funds. Assets held in trust or in a fiduciary capacity are not treated as assets of the Bank and, accordingly, are not included in the Bank’s consolidated financial statements. The Bank’s share of these funds is included under FVSI investments. Fees earned are disclosed consolidated statement of comprehensive income.. - 23 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) y) Bank’s products definition The Bank provides its customers with banking products based on interest avoidance concept and in accordance with Shari’a regulations. The following is a description of some of the financing products: Mutajara financing: It is financing agreement whereby the Bank purchases a commodity or an asset and sells it to the client based on a purchase promise from the client with a deferred price higher than the cash price, accordingly the client becomes debtor to the Bank with the sale amount and for the period agreed in the contract. Installment sales financing: It is financing agreement whereby the Bank purchases a commodity or an asset and sells it to the client based on a purchase promise from the client with a deferred price higher than the cash price, accordingly the client becomes debtor to the Bank with the sale amount to be paid through installments as agreed in the contract. Istisnaa financing: It is a financing agreement whereby the Bank contracts to manufacture a commodity with certain known and accurate specifications according to the client’s request. The client becomes a debtor to the Bank for the manufacturing price which includes cost plus profit. Murabaha financing: It is a financing agreement whereby the Bank purchases a commodity or asset and sells it to the client with a price representing the purchase price plus a profit known and agreed by the client which means that the client is aware of the cost and profit separately. 4.
CASH AND BALANCES WITH SAMA AND OTHER CENTRAL BANKS Cash and balances with SAMA and central banks as of 31 December comprise of the following: (SAR‘000) 2014 2015 ,0,2306,3 7,035606,6 ,32073, 6,0,350,72
Cash in hand Statutory deposits Current accounts Total
8,963,159 15,481,434 9,140,784 33,585,377
In accordance with the Banking Control Law and Regulations issued by SAMA, the Bank is required to maintain a statutory deposit with SAMA and central banks at stipulated percentages of its customers’ demand deposits, customers’ time investment and other customers’ account calculated at the end of each Gregorian month. The above statutory deposits are not available to finance the Bank’s day-to-day operations and therefore are not considered part of cash and cash equivalents (note 23), when preparing consolidated statement of cash flows.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 5.
DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS Due from banks and other financial institutions as of 31 December comprise the following: (SAR’000) 2014 2015 Current accounts Mutajara
7,325,322 63,33,,3,,
1,979,331 14,536,877
Total
62,,77,,32
16,516,208
The above due from banks and other financial institutions balances are neither past due nor impaired. 6.
INVESTMENTS a) Net investments comprise the following as of 31 December: (SAR’000) 2014 2015 Investment in an associate (a) Investments held at amortized cost Murabaha with SAMA Sukuk Total investments held at amortized cost Investments held as FVSI Equity investments Mutual funds Total investments held as FVSI Available-for -sale investments Equity investments Mutual funds Total available-for-sale investments Net investments
,3037,
23,660
520,6,0,57 706630353 5,0,360323
39,866,296 1,507,939 41,374,235
650336 7076707,5 707330333
786,257 124,331 910,588
26503,3 ,,0,67 ,,30662
241,140 241,140
5,0,,20,23
42,549,623
The designated FVSI investments included above are so designated when the financial instruments are being evaluated on a fair value basis and are in accordance with the documented risk management strategy of the Bank.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 6.
INVESTMENTS (continued) All investments held at amortized costs are neither past due nor impaired as of 31 December 2015. The Bank owns 22.5% (31 December 2014: 22.5%) of the shares of Al Rajhi Company for Cooperative Insurance, a Saudi Joint Stock Company. During the year 2015, the Bank has invested additional SAR 45 million as its share of the increase in capital of Al Rajhi Company for Cooperative Insurance.
b) The analysis of the composition of investments is as follows: (SAR‘000) 2015 Unquoted 520,6,0,57 873,400 650336 706,70,63 38,825,807
Quoted Murabaha with SAMA Sukuk Equities Mutual funds Total
352,134 698,923 1,051,057
2014 Unquoted
Quoted Murabaha with SAMA Sukuk Equities Mutual funds Total c)
433,106 786,424 1,219,530
39,866,296 1,074,833 23,493 365,471 41,330,093
Total 520,6,0,57 706630353 ,6605,3 706,70,63 5,0,,20,23
Total 39,866,296 1,507,939 809,917 365,471 42,549,623
The analysis of unrecognized gains and losses and fair values of investments are as follows: 2015 (SAR’000)
Carrying value
Gross Gross unrecognized unrecognized gains losses gains
Fair value
Murabaha with SAMA Sukuk Equities Mutual funds
36,727,031 1,225,534 722,375 1,201,924
-
(127,317) (3,271) -
36,599,714 1,222,263 722,375 706,70,63
Total
39,876,864
-
(130,588)
39,746,276
Gross Gross Carrying unrecognized unrecognized value gains losses 39,866,296 (166,903) 1,507,939 (4,523) 809,917 365,471 42,549,623 (171,426)
Fair value 39,699,393 1,503,416 809,917 365,471 42,378,197
2014 (SAR’000) Murabaha with SAMA Sukuk Equities Mutual funds Total
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 6.
INVESTMENTS (continued)
d)
Credit quality of investments (SAR’000) Sovereign debt Investment grade Non-investment grade Unrated Total
2015 32,,6,,,57 1,359,654 1,790,179 5,0,,20,23
2014 39,866,296 1,709,302 974,025 925,945,23
Investment Grade includes those investments having credit exposure equivalent to Standard and Poor's
rating of AAA to BBB. The unrated category mainly comprises of private equities, quoted equities and mutual funds. e)
f)
The following is an analysis of foreign investments according to investment categories as at 31 December: 2015 7,663,353
1,507,939
Investments held as FVSI Equity investments Mutual funds Total
67,623 7,,,2,5 7,533,3,7
21,305 124,331 1,653,575
The following is an analysis of investments according to counterparties as at 31 December: (SAR‘000) Government and quasi government Companies Banks and other financial institutions Others Net investments
7.
2014
(SAR‘000) Investments held at amortized cost Sukuk
2015 32,,6,,,57 232,,3, ,3,37, 2,427,458 5,,,,2,,23
2014 39,866,296 786,257 23,660 1,873,410 42,549,623
FINANCING, NET
7 - 1 Financing a) Net financing as of 31 December comprises the following: (SAR‘000) 2015 Non Performing - performing Gross Gross Corporate Mutajara Installment sale Murabaha Visa cards Total
5,033,0,,2 7270,270572 760,770,,, 6,30733 6760,630532 - 27 -
70,,303,, 705,,0,53 207,3 3303,6 506220,77
Provision )5037,0,,6( )606730632( )5,032,( )70,,3( )30,,505,,(
Net 520,3302,5 7270,3,0,,3 770,,,037, 5320,35 67,067,0,2,
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) (SAR‘000) 2014 Non Performing - performing Gross Gross Corporate Mutajara Installment sale Murabaha Visa cards Total
39,720,497 153,883,993 14,433,268 440,799 208,478,557
730,909 1,318,054 582,402 24,364 2,655,729
Provision (2,202,504) (2,092,957) (894,386) (4,479) (5,194,326)
Net 38,248,902 153,109,090 14,121,284 460,684 205,939,960
b) The net financing by location, inside and outside the Kingdom, as of 31 December is as follows: (SAR’000) 2015 Installment sale
Murabaha
Visa cards
Total
5,0,330565
73,03320733
8,352,333
53,0,,2
208,200,885
37,07,6
50,,30,,,
502230231
70227
,0,,,05,2
Total
3,052603,3
72506260,31
12,017,984
53,0,5,
215,991,267
Provision
)5037,0,,6(
)606730632(
(39,467)
)70,,3(
(5,773,399)
Net
520,3302,5
161,047,795
11,978,517
5320,35
67,067,0,2,
Description Inside the Kingdom Outside the Kingdom
Corporate Mutajara
2014 Installment sale
Murabaha
40,034,236
151,435,704
11,361,117
462,923
203,293,980
417,170
3,766,343
3,654,553
2,240
7,840,306
Total
40,451,406
155,202,047
15,015,670
465,163
211,134,286
Provision
(2,202,504)
(2,092,957)
(894,386)
(4,479)
(5,194,326)
Net
38,248,902
153,109,090
14,121,284
460,684
205,939,960
Description Inside the Kingdom Outside the Kingdom
Corporate Mutajara
- 28 -
Visa cards
Total
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) c) The net financing concentration risks and the related provision, by major economic sectors at 31 December are as follows: 2015 Description
Performing
Commercial Industrial Building and construction Personal Services Agriculture and fishing Other Total Additional portfolio provision Balance
21,380,148 10,564,357 9,131,983 161,444,714 7,272,909 637,071 2,293,174 212,724,356
2014 Description
Performing
Commercial Industrial Building and construction Personal Services Agriculture and fishing Other Total Additional portfolio provision Balance
24,980,386 10,581,071 13,000,833 150,910,280 5,792,065 688,026 2,525,896 208,478,557
(SAR’000) NonPerforming Provision 618,379 58,151 849,256 1,550,878 173,921 16,326 3,266,911
(471,772) (58,151) (279,920) (740,719) (110,901) (35) (11,478) (1,672,976) (4,100,423) (5,773,399)
Net financing 21,526,755 10,564,357 9,701,319 162,254,873 7,335,929 637,036 2,298,022 214,318,291 (4,100,423) 210,217,868
(SAR’000) NonPerforming Provision 393,435 5,327 42,347 2,177,614 36,360 646 2,655,729
(374,933) (211) (5,576) (1,390,405) (6,659) (213) (1,777,997) (3,416,329) (5,194,326)
Net financing 24,998,888 10,586,187 13,037,604 151,697,489 5,821,766 688,026 2,526,329 209,356,289 (3,416,329) 205,939,960
d) The table below depicts the categories of financing as shown in the statement of financial position as per main business segments at 31 December: (SAR’000)
2015 Retail
Corporate
Total
Corporate Mutajara Installment sale Murabaha Visa
733,55,,,66 637,035 53,,,5,
3,,526,3,3 ,,,57,563 77,5,,,,3, -
3,,526,3,3 725,626,,31 12,017,984 53,,,5,
Total Less: Allowance for impairment Financing, net
155,316,498 (2,194,641) 153,121,857
2,,2,3,,2, (3,578,758) 57,096,011
215,991,267 (5,773,399) 67,,67,,,2,
- 29 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) (SAR’000)
2014 Retail
Corporate
Total
Corporate Mutajara Installment sale Murabaha Visa
145,015,399 1,526,085 465,163
40,451,406 10,186,648 13,489,585 -
40,451,406 155,202,047 15,015,670 465,163
Total Less: Allowance for impairment Financing, net
147,006,647 (2,892,411) 144,114,236
64,127,639 (2,301,915) 61,825,724
211,134,286 (5,194,326) 205,939,960
e) The table below summarizes financing balances at 31 December that are neither past due nor impaired, past due but not impaired and impaired, as per the main business segments of the Bank: (SAR’000)
2015 Neither past due nor impaired
Past due but not impaired
Impaired
Total
Allowance for impairment
Net
Retail Corporate
153,669,352 3,,32,,3,3
6,7,,6, 6,3,3,7
7,533,57, 155,316,498 7,,77,3,3 2,,2,3,,2,
(2,194,641) 153,121,857 (3,578,758) 57,096,011
Total
212,136,936
3,,,36,
5,622,,77 215,991,267
(5,773,399) 67,,67,,,2,
Neither past due nor impaired
Past due but not impaired
2014
Impaired
Total
(SAR’000) Allowance for impairment
Net
Retail Corporate
144,776,254 62,517,655
350,530 834,118
1,879,863 775,866
147,006,647 (2,892,411) 144,114,236 64,127,639 (2,301,915) 61,825,724
Total
207,293,909
1,184,648
2,655,729
211,134,286 (5,194,326) 205,939,960
Financing past due for less than 90 days is not treated as impaired, unless other available information proves otherwise. Neither past due nor impaired and past due but not impaired comprise the total performing financing.
- 30 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) f) The tables below depict the quality of financing past due (up to 90 days) but not impaired at 31 December: (SAR’000) Corporate Total
2015 Retail 65,,676 35,27, 6,7,,6,
Performing loans - Standard Performing loans - Special mention Total
189,292 106,299 6,3,3,7 (SAR’000) Corporate
2014 Retail Performing loans - Standard Performing loans - Special mention Total
427,504 159,916 3,,,36,
305,550 44,980 350,530
502,100 332,018 834,118
Total 807,650 376,998 1,184,648
Financing under the standard category are performing, have sound fundamental characteristics and include those that exhibit neither actual nor potential weaknesses. The special mention category includes financing that is also performing, current and up to date in terms of principal and profit payments, However, they require close management attention as they may have potential weaknesses both financial and non-financial that may, at some future date, result in the deterioration of the repayment prospects of either the principal or the profit payments, The special mention financing would not expose the Bank to sufficient risk to warrant a worse classification. g) The tables below set out the aging of financing past due but not impaired as of 31 December: (SAR’000)
2015 Age up to 30 days 31-60 days 61-90 days Total Fair value of collateral
Corporate Mutajara 75,0,,, 75,0,37 7,0327 6,303,7 4,031,637
Installment sale ,,0,,5 3,023, 570252 7,,072, -
Total 6,,,727 672,7,7 ,5,,,, 3,,,36, 4,031,637
(SAR’000)
2014 Age
Visa 2,06,, 6,03,6 670,,7 7,60226 -
Corporate Mutajara
Installment sale
Visa
Total
up to 30 days 31-60 days 61-90 days
710,076 67,184 56,858
21,5379 73539, 345724
1152,2 ,5778 ,5271
936,502 146,308 101,838
Total
834,118
3285924
225121
1,184,648
Fair value of collateral
793,089
-
-
793,089
- 31 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) The Bank in the ordinary course of financing activities holds collateral as security to mitigate credit risk in financing, This collateral mostly include customer deposits and other cash deposits, financial guarantees, local and international equities, real estate and other property and equipment, The collateral is held mainly against commercial and consumer financing and managed against relevant exposures related to financing. The fair value of collateral is based on valuation performed by the independent experts, quoted prices (wherever available) and the valuation techniques. Experts have used various approaches in determining the fair value of real estate collateral including market comparable approach based on recent actual sales or discounted cash flow approach taking into account risk adjusted discount rates, rental yields and terminal values.
h) The table below sets out gross balances of individually impaired financing, together with the fair value of related collateral held by the Bank as at 31 December: (SAR’000) Corporate
2015 Retail -
Individually impaired financing Fair value of collateral
(SAR’000) Corporate
2014 Retail Individually impaired financing Fair value of collateral
70,7703,3 70,,70327
-
775,866 1,122,045
Total 70,7703,3 70,,70327
Total 775,866 1,122,045
The retail financing balances that are neither past due nor impaired are classified as standard category. Those balances are performing and have strong fundamental characteristics of credit history, cash flows and timely repayment, and regular monitoring is being carried out. Those balances amounted to SAR 153,669,352 thousand as at 31 December 2015 (31 December 2014: SAR 144,776,254 thousand). i)
The tables below depict the quality of neither past due nor impaired financing as at 31 December:
(SAR’000) Funded Exposure 5,700,307 45,227,824 7,539,453 58,467,584 153,669,352 212,136,936
2015 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total
- 32 -
Non-Funded Exposure 74,721 6,763,605 875,188 7,713,514 7,713,514
Total Exposure 5,775,028 51,991,429 8,414,641 66,181,098 153,669,352 219,850,450
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) (SAR’000) Funded Exposure 5,941,145 52,589,143 3,987,367 62,517,655 144,776,254 207,293,909
2014 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total j)
Non-Funded Exposure 197,086 10,682,192 732,148 11,611,426 11,611,426
Total Exposure 6,138,231 63,271,335 4,719,515 74,129,081 144,776,254 218,905,335
The tables below depict the quality of Performing financing as at 31 December:
(SAR’000) 2015 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total
Funded 5,720,854 45,464,644 7,577,677 58,763,175 153,961,181 212,724,356
Non-Funded 74,964 6,799,023 879,625 7,753,612 7,753,612
Total 5,795,818 52,263,667 8,457,302 66,516,787 153,961,181 220,477,968
Funded Exposure 5,955,303 53,402,951 3,993,519 63,351,773 145,126,784 208,478,557
Non-Funded Exposure 199,715 10,833,276 733,356 11,766,347 11,766,347
Total Exposure 6,155,018 64,236,227 4,726,875 75,118,120 145,126,784 220,244,904
(SAR’000) 2014 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total
- 33 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) k)
The tables below depict the quality of Watch List & Non-Performing financing corporate loans and impaired retail financing as at 31 December: (SAR’000) Corporate Watch List Non-performing: Risk Rating 8 Risk Rating 9 Risk Rating 10 Retail Total
l)
2015
2014
8,457,302
4,726,875
1,212,823 508,464 190,307 10,368,896 1,355,317 11,724,213
492,436 35,979 247,451 5,502,741 1,879,863 7,382,604
The table below stratify credit exposures from corporate loans by ranges of loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross amount of the loan – or the amount committed for loan commitments – to the value of the collateral. The gross amounts exclude any impairment allowance. (SAR’000) Less than 50% 51-70% 71-90% 91-100% More than 100% Total Exposure
- 34 -
2015
2014
3,562,767 2,117,022 270,361 463,702 6,370,276 12,784,128
3,618,085 2,220,949 694,321 124,858 7,837,817 14,496,030
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7.
FINANCING, NET (continued)
7-1 Financing (continued) Risk Rating 1 Exceptional - Obligors of unquestioned credit standing at the pinnacle of credit quality. Risk Rating 2 Excellent - Obligors of the highest quality, presently and prospectively, Virtually no risk in lending to this class, Cash flows reflect exceptionally large and stable margins of protection, Projected cash flows including anticipated credit extensions indicate strong liquidity levels and debt service coverage, Balance Sheet parameters are strong, with excellent asset quality in terms of value and liquidity. Risk Rating 3 Superior - Typically obligors at the lower end of the high quality range with excellent prospects, Very good asset quality and liquidity, Consistently strong debt capacity and coverage, There could however be some elements, which with a low likelihood might impair performance in the future. Risk Rating 4 Good - Typically obligors in the high end of the medium range who are definitely sound with minor risk characteristics, Elements of strength are present in such areas as liquidity, stability of margins, cash flows, diversity of assets, and lack of dependence on one type of business. Risk Rating 5 Satisfactory - These are obligors with smaller margins of debt service coverage and with some elements of reduced strength, Satisfactory asset quality, liquidity, and good debt capacity and coverage, A loss year or declining earnings trend may occur, but the borrowers have sufficient strength and financial flexibility to offset these issues. Risk Rating 6 Adequate - Obligors with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk, Such borrowers have limited additional debt capacity, modest coverage, average or below average asset quality and market share, Present borrower performance is satisfactory, but could be adversely affected by developing collateral quality/adequacy etc. Risk Rating 7 Very high risk - Generally undesirable business constituting an undue and unwarranted credit risk but not to the point of justifying a substandard classification, No loss of principal or interest has taken place, Potential weakness might include a weakening financial condition, an unrealistic repayment program, inadequate sources of funds, or a lack of adequate collateral, credit information or documentation, The entity is undistinguished and mediocre, No new or incremental credits will generally be considered for this category. Risk Rating 8 Substandard – Obligors in default and 90 Days Past Due on repayment of their obligations. Unacceptable business credit. Normal repayment is in jeopardy, and there exists well defined weakness in support of the same. The asset is inadequately protected by the current net worth and paying capacity of the obligor or pledged collateral. SAMA & internal guidelines of ARB require 25% Specific Provisioning for all exposures in this category. - 35 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
Risk Rating 9 Doubtful – Obligors in default and 180 Days Past Due (DPD) on their contracted obligations, however in the opinion of the management recovery/salvage value is a possibility, and hence writ-off should be deferred. Full repayment questionable. Serious problems exist to the point where a partial loss of principle is likely. Weaknesses are so pronounced that on the basis of current information, conditions and values, collection in full is highly improbable. SAMA & internal guidelines of ARB require 50% Specific Provisioning for all exposures in this category. Risk Rating 10 Loss – Obligors in default and 360 Days Past Due (DPD) on their obligations. Total loss is expected. An uncollectible assets which does not warrant classification as an active asset. A 100% Specific Provisioning must be triggered followed by the write-off process should be effected as per ARB writeoff policy.
- 36 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-2 Impairment charge for financing: The movement in the allowance for impairment of financing for the years ended 31 December is as follows:
Retail
(SAR’000) Corporate
Total
Balance as at beginning of the year Provided during the year, net Bad debts written off
60,,60377 70,6,0525 )70,630755(
605,70,73 705,,0363 )7,702,7(
307,30562 603,30,,, )70,620,73(
Balance as at the end of the year
607,30237
503,,0,3,
30,,505,,
2015
Retail
(SAR’000) Corporate
Total
Balance as at beginning of the year Provided during the year, net Bad debts written off
2,575,018 1,727,396 (1,410,003)
1,743,833 940,227 (382,145)
4,318,851 2,667,623 (1,792,148)
Balance as at the end of the year
2,892,411
2,301,915
5,194,326
2014
7-3 Provision movement: The reconciliation of the impairment charge on financing for the year recorded in the consolidated statement of income is as follows: (SAR’000) 2014 2015 2,667,623 603,30,,, (355,444) )33,0,26( 2,312,179 7,,3,,,63
Provided during the year Recovery of written off financing, net Allowance for impairment, net 7-4 Financing include finance lease receivables, which are as follows:
Gross receivables from finance lease
2015 28,593,184
2014 24,701,447
Less than 1 year 1 to 5 years
703550,57 7,,,66,,,6
16,319 14,914,964
Unearned future finance income on finance lease
,,552,,37 6,03,507,3 )503,30733(
9,770,164 24,701,447 (2,783,479)
Net receivables from finance lease
6307,,0,5,
21,917,968
Over 5 years
- 37 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 8.
INVESTMENT PROPERTY AND PROPERTY AND EQUIPMENT, NET Property and equipment, net comprises the following as of 31 December: (SAR‘000)
Land COST At January 1 Additions Disposals At 31 December
Buildings
Leasehold land & Equipme buildings nt and improvements furniture
Total 2015
Total 2014
1589,573, 11157,2 )25887( 70,330277
2527,5329 ,125,92 )25349( 60,,503,,
8,759,, ,254,3 ,5,036,
3,247,721 9,,5732 50,,30337
8,236,247 7,352,731 15191544, 912,215 ),5281( (28,699) ,05,60,27 8,236,247
ACCUMULATED DEPRECIATION & AMORTIZATION At January 1 Charge for the year Disposals At 31 December
-
29,524, ,25117 )2537,( 6,30,5,
8995,8, 2751,3 ,,70,5,
253325,2, 2495824 6026,0333
35922532, 3,032,283 3795244 412,716 (22,693) )2537,( 50,,30,5, 3,422,306
NET BOOK VALUE At 31 December 2015
70,330277
603,,0256
3,02,7
70,,20,,,
303,,0,57
At 31 December 2014
1,845,736
2,030,228
22,881
915,096
4,813,941
Buildings include work-in-progress amounting to SAR 907 million as at 31 December 2015 (2014: SAR 717 million). Equipment and furniture includes information technology-related assets having net book value SAR 409 million (2014: SAR 578 million). The net book value of the investment property approximates the fair value. 9.
OTHER ASSETS, NET Other assets, net comprise the following as of 31 December: (SAR‘000) 2015
2014
Cheques under collection Advances payments Receivables Prepaid expenses Accrued income Investment in cars, real estate and other non-financial assets Customer debit current account Others, net
37,06,2 6,,05,5 705,30,,, 3370,63 57,0552 1,014,015 6350532 33,06,3
783,828 316,382 1,068,516 574,152 279,287 490,354 142,,,3 ,23,279
Total
4,631,213
4,306,446
- 38 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 10. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS Due to banks and other financial institutions, comprise the following as of 31 December: (SAR‘000) 2014 2015 Current accounts Banks’ time investments Total
1,108,552 1,026,685 2,135,237
615,352 50,360,,6 4,558,224
11. CUSTOMERS’ DEPOSITS Customers’ deposits by type comprise the following as of 31 December: (SAR‘000) 2014 2015 63,0,,,076, 7,05,,0372 30,3,0755 256,227,769
Demand deposits Customers’ time investments Other customer accounts Total
228,791,014 22,513,661 4,772,372 256,077,047
The balance of the other customers’ accounts includes margins on letters of credit and guarantees, checks under clearance and transfers. Customers’ deposits by currency comprise the following as of 31 December: (SAR‘000) 2015
2014
Saudi Riyals Foreign currencies
6330,330357 7,05,50656
242,095,963 13,981,084
Total
632066,0,29
256,077,047
- 39 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 12. OTHER LIABILITIES Other liabilities comprise the following as of 31 December: (SAR‘000) 2015
2014
Accounts payable Provision for employees’ end of service benefits Accrued expenses Charities (see Note 32) Other
306560665 2730623 2,30333 650,,3 7025,0,,5
5,317,260 653,439 573,598 34,475 1,229,325
Total
8,194,601
7,603,077
13. SHARE CAPITAL The authorized, issued and fully paid share capital of the Bank consists of 1,625 million shares of SAR 10 each. (2014: 1,625 million shares of SAR 10 each) The Extraordinary General Assembly Meeting held on Jumada’ II 14, 1435H (corresponding to 14 April, 2014), approved the increase in the share capital from SAR 15,000 million to SAR 16,250 million through transfer of SAR 1,250 million from retained earnings by issuing one bonus share for every twelve shares. 14. STATUTORY, GENERAL AND OTHER RESERVES The Banking Control Law in Saudi Arabia and the By-Laws of the Bank require a transfer to statutory reserve at a minimum of 25% of net income for the year, The Bank may discontinue such transfers when the reserve equals the paid up share capital, This reserve is presently not available for distribution, An amount of SAR 1,250 million was transferred to statutory reserve during 2014 and no further transfer is required as the cumulative amount i.e., SAR 16,250 million is equal to the share capital. In addition, the Bank makes an appropriate general reserve for general banking risks and others, if any. In accordance with the Bank’s accounting policy, the Bank records the amount of Zakat it calculates in other reserves until such time when the final amount of Zakat payable can be determined, at which time, the amount of Zakat payable is transferred from other reserves to other liabilities. During the year, the Bank transferred SAR 143,376 thousand (2014: SAR 258,438 thousand) to other liabilities as Zakat payable. In addition, other reserves includes available-for-sale investments reserve, foreign currency translation reserve and employee share plan.
- 40 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 14. STATUTORY, GENERAL AND OTHER RESERVES (continued) The movements in available-for-sale investments and foreign currency reserves are summarized as follows: (SAR‘000) Available-forForeign sale currency 2015 investments translation Total Balance at beginning of the year 5,380 22,727 28,107 Net changes in fair value )6,20,73( )6,20,73( Net amount transferred to consolidated statement of income 7330,7, 7330,7, Exchange difference on translation of foreign operations )73,0,,,( )73,0,,,( )320363(
Balance at the end of the year
Balance at beginning of the year Net changes in fair value Net amount transferred to consolidated statement of income Exchange difference on translation of foreign operations Balance at the end of the year
)75,0737(
)7,502,3(
(SAR‘000) Available-forForeign sale currency investments translation 1,834 91,288 3,679 -
2014 Total 93,122 3,679
(133) 5,380
(68,561) 22,727
(133) (68,561) 28,107
The Bank under an employee share plan grants its shares to certain eligible employees. The exercise price of the stock option is the market value of these shares at the date of granting the program to these employees. The condition for granting these options is the completion of two years of employment at the Bank. Exercising these stock options by the employees is subject to fulfillment of some requirements for profitability and growth in the Bank. The Bank has no legal or expected commitment to repurchase or settle these options in cash. 15. COMMITMENTS AND CONTINGENCIES a)
Legal proceedings As at 31 December 2015, there were certain legal proceedings outstanding against the Bank in the normal course of business including those relating to the extension of credit facilities. Such proceedings are being reviewed by the concerned parties. Provisions have been made for some of these legal cases based on the assessment of the Bank’s legal advisors.
b)
Capital commitments, related to commitments to grant credit As at 31 December 2015, the Bank had capital commitments of SAR 227 million (2014: SAR 189 million) relating to contracts for computer software update and development, and SAR 532 million (2014: SAR 1,288 million) relating to development and improvement of new and existing branches. - 41 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 15. COMMITMENTS AND CONTINGENCIES (continued) c)
Credit related commitments and contingencies The primary purpose of these instruments is to ensure that funds are available to customers as required, Credit related commitments and contingencies mainly comprise letters of guarantee, standby letters of credit, acceptances and unused commitments to extend credit, Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet his obligations to third parties, carry the same credit risk as financing. Letters of credit, which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralized by the underlying shipments of goods to which they relate, and therefore, carry less risk, Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be presented before being reimbursed by the customers. Cash requirements under guarantees and letters of credit are considerably less than the amount of the commitment because the Bank does not expect the third party to draw funds under the agreement. Commitments to extend credit represent unused portions of authorization to extended credit, principally in the form of financing, guarantees and letters of credit, With respect to credit risk relating to commitments to extend unused credit, the Bank is potentially exposed to a loss in an amount which is equal to the total unused commitments, The likely amount of loss, which cannot be reasonably estimated, is expected to be considerably less than the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specific credit standards, The total outstanding commitments to extend credit do not necessarily represent future cash requirements, as many of these commitments could expire without being funded.
- 42 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 15. COMMITMENTS AND CONTINGENCIES (continued) 1. The contractual maturities of the Bank’s commitments and contingent liabilities are as follows at 31 December: 2015 Less than 3 months Letters of credit Acceptances Letters of guarantee Irrevocable commitments to extend credit Total
From 3 to 12 months
Over 5 years
Total
3620,6, 5,,0337 3605,6
23706,5 75,0,3, 37307,,
7,,0553 30,72 505,607,6
6503,6 507,, 60,3,076,
705,70,,, 3350,75 30,,,0,,,
77,,,, ,,,,,27
7,5,7,,27 6,3,2,62,
,3,,3,, 3,353,,3,
6,2,,,6 6,5,,,,,6
6,33,,35, 7,,5,6,,37
2014 Less than 3 months Letters of credit Acceptances Letters of guarantee Irrevocable commitments to extend credit Total
(SAR‘000) From 1 to 5 years
From 3 to 12 months
(SAR‘000) From 1 to 5 years
Over 5 years
Total
724572, 3985789
8285273 1945,22
1945421 39589,
2517,57,, 35184
358935,9, ,3,5338
69,130 543,613 1,671,233
1,366,896 3,737,211 6,061,900
4,090,204 1,189,306 5,464,256
1,860,133 1,614,798 5,653,886
7,386,363 7,084,928 18,851,275
- 43 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 15. COMMITMENTS AND CONTINGENCIES (continued) 2. The analysis of commitments and contingencies by counter-party is as follows as at 31 December: (SAR‘000) 2014 2015 Corporate Banks and other financial institutions Total d)
9,157,923 1,144,128
12,615,991 6,235,284
7,,5,6,,37
18,851,275
Operating lease commitments The future minimum lease payments under non-cancelable operating leases, where the Bank is the lessee, are as follows as at 31 December: (SAR‘000) 2014 2015 Less than one year One year to five years Over five years
6503,3 7,6063, 33026,
20,659 156,309 43,046
Total
63,06,3
220,014
16. NET FINANCING AND INVESTMENT INCOME Net financing and investment income for the years ended 31 December comprises the following: (SAR‘000) 2014 2015 Financing Corporate Mutajara Installment sale Murabaha Investments and other Murabaha with SAMA Mutajara with banks Income from Sukuk Gross financing and investment income Return on customers’ time investments Return on due to banks and financial institutions’ time investments Net financing and investment income
- 44 -
7056,0,,, ,0,7,0,5, 3,60,36
1,298,142 7,911,152 520,643
62,03,6 6,,03,, 32025, 7,063,05,, (244,011) (55,427)
273,430 148,946 60,205 10,212,518 (333,926) (61,272)
,0,3,0,36
9,817,320
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 17. FEE FROM BANKING SERVICES, NET Fees from banking services, net for the years ended 31 December comprise the following: (SAR’000) 2015
2014
Fee income Fees from advance payments on contracts Fees from payment service systems Fees from share trading services Fees from remittance business Fees from credit cards Mudaraba fee income Fees from SADAD Other Total fee income
,,,0,63 ,,60532 46,,334 32,0,7, 3260353 7520,,, 736072, 357072, 3,703,964
1,362,033 463,535 531,817 387,716 305,514 93,555 12,,343 377,9,8 3,648,021
Fee expenses Fees for payment service systems Fees for share trading services Total fee expense
),,,0522( )7,,,3,,( ),,,,,,5(
(795,048) (114,508) (909,556)
Fee from banking services, net
60,,30,,7
2,738,465
18. OTHER OPERATING INCOME Other operating income for the years ended 31 December comprises the following:
Dividend income Gain on sale of property and equipment Share of profit from investment in an associate (Loss) / Gain from equity investments and funds Income from sale of various investments Other income, net Total
- 45 -
(SAR’000) 2015 51,026 5,861 6,858 (100,939) 27,420 112,950 7,5,7,2
2014 34,837 25,615 1,738 (2,496) 23,825 75,614 159,133
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 19. SALARIES AND EMPLOYEE RELATED BENEFITS The following tables provide an analysis of the salaries and employee related benefits for the years ended 31 December: (SAR’000) Variable compensations paid Number of 2015 employees Executives 65 Employees engaged in risk taking activities 1,110 Employees engaged in control functions 314 Other employees 10,885
Fixed Compensation 3,,2,3 57,,7,, 7,,,75, 7,333,,7,
Cash 3,,,, 36,,6, 73,633 753,,53
Shares 6,,,, 5,,,, 7,267 6,633
76,5,3 12,374
1,933,731 304,732 422,580 2,661,043
197,986 197,986
10,662 10,662
Total Accrued variable compensations in 2015 Other employees’ costs Gross total
(SAR’000) Variable compensations paid Number of employees
Fixed Compensation
Executives Employees engaged in risk taking activities Employees engaged in control functions Other employees
41 1,171 206 10,343
29,030 327,878 79,253 1,246,459
9,454 51,768 10,017 163,374
2,793 2,748 810 2,824
Total Accrued variable compensations in 2014 Other employees’ costs Gross total
11,761 11,761
1,682,620 288,903 542,580 2,514,103
234,613 234,613
9,175 9,175
2014
Cash
Shares
Salaries and employee benefits contains end of services, GOSI, business trips, training and other benefits. As the Kingdom of Saudi Arabia is part of the G-20, instructions were given to all financial institutions in the Kingdom to comply with the standards and principles of Basel II and the Financial Stability Board. SAMA, as the regulatory for the financial institutions in Saudi Arabia, issued regulations on compensations and bonus in accordance with the standards and principles of Basel II and the Financial Stability Board. In light of SAMA instructions related to the compensations and bonuses, the Bank issued compensation and bonuses policy which was implemented after the Board of Directors approval. The scope of this policy is extended to include the Bank and its subsidiary companies (local and international) that are operating in the financial sector, Accordingly it includes all official employees, permanent and temporary contracted employees and service providers (contribution in risk position if SAMA allows the use of external resources).
- 46 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 19. SALARIES AND EMPLOYEES RELATED BENEFITS (continued) For consistency with other banking institutions in the Kingdom of Saudi Arabia, the Bank has used a combination of fixed and variable compensation to attract and maintain talent, The fixed compensation is assessed on a yearly basis by comparing it to other local banks in the Kingdom of Saudi Arabia including the basic salaries, allowance and benefits which is related to the employee’s ranks, The variable compensation is related to the employees performance and their compatibility to achieve the agreed on objectives, It includes incentives, performance bonus and other, Incentives are mainly paid to branches’ employees whereby the performance bonuses are paid to head office employees and others who do not qualify for incentives. These bonuses and compensation are approved by the Board of Directors as a percentage of the Bank’s income. 20. OTHER GENERAL AND ADMINISTRATIVE EXPENSES Other General and Administrative Expenses for the years ended 31 December comprises the following: (SAR’000) 2015 3,30,,3 5,,02,2 6,70766 25032, 550223 6,703,5
Utilities Software Electricity & water Consultancy Government Others
705,3063,
Total
2014 3,457,, 28851,4 2935229 1325,82 9,5,11 2,35288
153325328
21. EARNINGS PER SHARE Earnings per share for the years ended 31 December 2015 and 2014 have been calculated by dividing the net income for the year by the weighted average number of shares outstanding. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the shares are outstanding as a proportion of the total number of days in the period. The calculation of earnings per share for year ended 31 December 2014 has been adjusted to give the retrospective effect of the bonus shares issued (Note 13). 22. PAID AND PROPOSED GROSS DIVIDENDS AND ZAKAT The Bank distributed dividends for the first half of 2015 amounting to SAR 812,500 thousand (i,e, SAR 0.5 per share) (2014: SAR 1,625,000 thousand (i,e, SAR 1 per share)), Also the Board proposed gross dividends for the second half of 2015 amounting to SAR 2,475,000 thousand (2014: SAR 1,968,750 thousand) of which SAR 850,000 thousand (2014: SAR 750,000 thousand) was deducted for Zakat from the proposed gross dividends, resulting in a net dividend of SAR 1.5 per share for 2015 (2014: SAR 1.75 per share).
- 47 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 22. PAID AND PROPOSED GROSS DIVIDENDS AND ZAKAT (continued) The Bank has filed its Zakat returns for the years up to 2014 with the Department of Zakat and Income Tax (the “DZIT”). The Zakat assessments for the years up to 2001 have been finalized with the DZIT. The Bank has received Zakat assessments from the DZIT in respect to the years 1998 to 2009 amounting to SR 2,864,352 thousand, out of which SR 2,153,811 thousand was calculated and paid in accordance with the instructions of the Bank’s Sharia Board and the remaining balance SR 710,541 thousand is recorded under other reserves. Moreover, the Bank calculated the zakat base for the years from 2010 to 2014 on a basis consistent with DZIT requirements amounting to SR 3,999,245 thousand out of which SR 1,221,643 thousand was calculated and paid in accordance with the instructions of the bank’s Sharia Board and SR 2,443,052 thousand is recorded under other reserves. The basis for this additional liability is being contested by all the Banks in Saudi Arabia, and accordingly, the Bank does not expect any additional zakat liability. The Bank has formally contested these assessments and is awaiting a response from DZIT. The management believes that the ultimate outcome of the appeals filed and actions taken by the Bank in conjunction with other banks in the Kingdom of Saudi Arabia cannot be determined reliably at this stage. 23. CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the consolidated statement of cash flows comprise the following: (SAR’000) 2014 2015 Cash Due from banks and other financial institutions mature within 90 days from the date of purchased Balances with SAMA and other central banks (current accounts) Total
,0,2306,3
8,963,159
60,270,32 ,32073, 7605,603,,
4,128,042 9,140,784 22,231,985
24. OPERATING SEGMENTS The Bank identifies operating segments on the basis of internal reports about the activities of the Bank that are regularly reviewed by the chief operating decision maker, principally the Chief Executive Officer, in order to allocate resources to the segments and to assess its performance. For management purposes, the Bank is organized into the following four main businesses segments: Retail segment:
Includes individual customer deposits, credit facilities, customer debit current accounts (overdrafts), fees from banking services and remittance business.
Corporate segment:
Incorporates deposits of VIP, corporate customer deposits, credit facilities, and debit current accounts (overdrafts).
Treasury segment:
Incorporates treasury services, Murabaha with SAMA and international Mutajara portfolio.
Investment services and brokerage segments:
Incorporates investments of individuals and corporate in mutual funds, local and international share trading services and investment portfolios. - 48 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
24. OPERATING SEGMENTS (continued) Transactions between the above segments are on normal commercial terms and conditions, There are no material items of income or expenses between the above segments, Assets and liabilities for the segments comprise operating assets and liabilities, which represents the majority of the Bank’s assets and liabilities. The Bank carries out its activities principally in the Kingdom of Saudi Arabia, and has five subsidiaries as of 31 December 2015 and 2014, as listed in Note 1-a, of which one operate outside the Kingdom of Saudi Arabia, additional to overseas branches operate in Jordan and Kuwait. The total assets, liabilities, commitments, contingencies and results of operations of these subsidiaries are not material to the Bank’s consolidated financial statements as a whole. a) The Bank’s total assets and liabilities, together with its total operating income and expenses, and net income, as of and for the years ended 31 December for each segment are as follows: (SAR’000)
2015
Investment services and brokerage segment
Retail segment
Corporate segment
Treasury segment
Total assets
7230,230,,,
33037,02,,
,7033,0572
602,,023,
573027,023,
Total liabilities
6360,67027,
72037,052,
,0,630,,3
,730,55
62,0,,,03,3
1,961,458
3,507,3
5,0633
7,063,05,,
)66,0,33(
-
,03,,0,,,
70,370375
3,507,3
5,0633
702370266
3,,0,,3 )703,6(
3,03,, ,,,0322 3703,,
37307,2
)730,,6( 9,222,919
2,239,705
Gross financing & investments income Return on customers’ time investments Net financing & investments income Fees from banking services, net Exchange income, net Other operating income
,02,203,6 ),,05,5(
Total
-
)6,,035,( ,0,3,0,36
-
60,,30,,7 ,,,0322 7,507,2
1,651,740
631,411
13,745,775
,,0,2,
Total operating income Impairment charge for financing and others Depreciation and amortization Other operating expenses
),,70,23(
),,20,2,(
-
-
)70,3,0,63(
)53603,5( )50,,50,,6(
)76035,( )62302,,(
)60376( )330,5,(
)2022,( )7270,,2(
)5,30,,,( )306,503,2(
Total operating expenses
)3075,035,(
)7063506,2(
)3,0737(
)72,0,35(
)202730,,,(
4,085,389
986,429
1,594,589
463,668
7,130,075
Net income for the year
- 49 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 24. OPERATING SEGMENTS (continued) (SAR’000)
2014
Retail segment
Corporate segment
Treasury segment
Investment services and brokerage segment and other
Total assets
1,352495222
,352175889
8,52875712
,53115491
32757115,,,
Total liabilities
2145332582,
21549,5919
145,315,31
,52275942
2,,581,53,1
75,495,27
252825721
94352,9
)47512,(
)2485242(
-
759475921
157825,24
94352,9
15,,,5384 19754,1
,395,78 115182
9,311,761
2,328,389
1,453,522
)15371599,(
)4925739(
-
)34259,,( )35,1357,,( ),53775,,,( 3,934,105
)1258,,( )32254,7( )152,95,,7( 1,073,832
)2532,( )9,5,81( )975487( 1,405,535
Gross financing & investments income Return on customers’ time investments Net financing & investments income Fees from banking services, net Exchange income, net Other operating income Total operating income Impairment charge for financing and others Depreciation and amortization Other operating expenses Total operating expenses Net income for the year
b)
85912 4,252,, -
Total
99521,
1252125,18
-
)34,5148(
99521,
458175322
,24528, -
2573859,, 4,252,, 1,45133
573,302
13,666,974 -
)253125174(
),5248( )19,5,29( )1,25,22( 422,700
)912571,( )9512,5427( ),58325822( 6,836,172
The Bank’s credit exposure by business segments as of 31 December is as follows: (SAR’000)
2015
Retail segment Consolidated balance sheet assets 146,364,449 Commitments and contingencies excluding irrevocable commitments to extend credit
1,059,590
Corporate segment
Investment services and brokerage segment
Treasury segment
53,860,939
72,069,402
6,694,022
-
- 50 -
Total
6,060,998 278,355,788
-
,0,350276
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 24. OPERATING SEGMENTS (continued) (SAR’000)
2014
Retail segment Consolidated balance sheet assets Commitments and contingencies excluding irrevocable commitments to extend credit
Treasury segment
Investment services and brokerage segment
61,443,496 58,835,744
2,210,749
265,005,791
-
11,766,347
Corporate segment
142,515,802
4,294,910
7,471,437
-
Total
Credit risks comprise the carrying value of the consolidated statement of financial position, except for cash and balances with SAMA, investment property, property and equipment and other assets, The credit equivalent value of commitments and contingencies are included in credit exposure. 25. FINANCIAL RISK MANAGEMENT The Bank's activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks, Taking risk is core to the banking business, and these risks are an inevitable consequence of participating in financial markets, The Bank's aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financial performance. The Bank's risk management policies, procedures and systems are designed to identify and analyze these risks and to set appropriate risk mitigants and controls, The Bank reviews its risk management policies and systems on an ongoing basis to reflect changes in markets, products and emerging best practice. Risk management is performed by the Credit and Risk Management Group (“CRMG”) under policies approved by the Board of Directors, The CRMG identifies and evaluates financial risks in close cooperation with the Bank's operating units, The most important types of risks identified by the Bank are credit risk, liquidity risk and market risk, Market risk includes currency risk, profit rate risk, operational risk and price risk. 25-1 Credit risk Credit risk is considered to be the most significant and pervasive risk for the Bank, The Bank takes on exposure to credit risk, which is the risk that the counter-party to a financial transaction will fail to discharge an obligation causing the Bank to incur a financial loss, Credit risk arises principally from financing (credit facilities provided to customers) and from cash and deposits held with other banks, Further, there is credit risk in certain off-balance sheet financial instruments, including guarantees relating to purchase and sale of foreign currencies, letters of credit, acceptances and commitments to extend credit, Credit risk monitoring and control is performed by the CRMG which sets parameters and thresholds for the Bank's financing activities.
- 51 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) a. Credit risk measurement Financing The Bank has structured a number of financial products which are in accordance with Sharia law in order to meet the customers demand, These products are all classified as financing assets in the Bank's consolidated statement of financial position, In measuring credit risk of financing at a counterparty level, the Bank considers the overall credit worthiness of the customer based on a proprietary risk methodology, This risk rating methodology utilizes a 10 point scale based on quantitative and qualitative factors with seven performing categories (rated 1 to 7) and three non performing categories (rated 8-10), The risk rating process is intended to advise the various independent approval authorities of the inherent risks associated with the counterparty and assist in determining suitable pricing commensurate with the associated risk. This process also enables the Bank to detect any weakness in the portfolio quality and make appropriate adjustments to credit risk allowances, where credit quality has deteriorated and where losses are likely to arise, The Bank evaluates individual corporate customer balances which are past due to make appropriate allowances against financings, For the remaining (performing) corporate portfolio, the Bank applies a loss rate to determine an appropriate collective allowance, The loss rate is determined based on historical experience of credit losses. Settlement risk The Bank is also exposed to settlement risk in its dealings with other financial institutions, These risks arise when the Bank pays away its side of the transaction to the other bank or counterparty before receiving payment from the third party, The risk is that the third party may not pay its obligation, While these exposures are short in duration but they can be significant, The risk is mitigated by dealing with highly rated counterparties, holding collateral and limiting the size of the exposures according to the risk rating of the counterparty. b. Risk limit control and mitigation policies The responsibility for credit risk management is enterprise wide in scope, Strong risk management is integrated into daily processes, decision making and strategy setting, thereby making the understanding and management of credit risk the responsibility of every business segment. The following business units within the Bank assist in the credit control process:
Corporate Credit Unit, Credit Administration, Monitoring and Control Unit, Remedial Unit, Credit Policy Unit, Retail Credit Unit,
The monitoring and management of credit risk associated with these financing are made by setting approved credit limits, The Bank manages limits and controls concentrations of credit risk wherever they are identified - in particular, to individual customers and groups, and to industries and countries.
- 52 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) Concentrations of credit risks arise when a number of customers are engaged in similar business activities, activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions, Concentrations of credit risks indicate the relative sensitivity of the Bank's performance to developments affecting a particular industry or geographical location. The Bank seeks to manage its credit risk exposure through diversification of its financing to ensure there is no undue concentration of risks with to individuals or groups of customers in specific geographical locations or economic sectors. The Bank manages credit risk by placing limits on the amount of risk accepted in relation to individual customers and groups, and to geographic and economic segments, Such risks are monitored on a regular basis and are subject to an annual or more frequent review, when considered necessary, Limits on the level of credit risk by product, economic sector and by country are reviewed at least annually by the executive committee. Exposure to credit risk is also managed through regular analysis on the ability of customers and potential customers to meet financial and contractual repayment obligations and by revising credit limits where appropriate. Some other specific control and mitigation measures are outlined below: b-1) Collateral The Bank implements guidelines on the level and quality of specific classes of collateral, The principal collateral types are: Mortgages over residential and commercial properties, Cash, shares, and general assets for customer, Shares for Murabaha (collateralized share trading) transactions, b-2) Collateralized Credit - related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required, Guarantees and standby letters of credit carry the same credit risk as traditional banking products of the Bank. Documentary and commercial letters of credit - which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralized by the underlying goods to which they relate, and therefore, risk is partially mitigated. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of further financing products, guarantees or letters of credit, With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments, However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.
- 53 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) c.
Impairment and provisioning policies Allowance for impairment is recognized for financial reporting purposes only for losses that have been incurred at the statement of financial position date based on objective evidence of impairment, and management judgment. Management determines whether objective evidence of impairment exists under IAS 39, based on the following criteria as defined by the Bank:
Delinquency in contractual payments of principal or profit, Cash flow difficulties experienced by the customer, Breach of repayment covenants or conditions, Initiation of bankruptcy proceedings against the customer, Deterioration of the customer’s competitive position, Deterioration in the value of collateral,
The Bank's policy requires the review of each individual corporate customer at least annually or more regularly when individual circumstances require, Impairment allowances on individually assessed accounts are determined by an evaluation of incurred losses at the statement of financial position date on a case-by-case basis, and by using management judgment. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collectively assessed impairment allowances are provided for: Portfolios of homogenous assets mainly relating to the retail financing portfolio that are individually not significant. On the corporate portfolio for financing where losses have been incurred but not yet identified, by using historical experience, judgment and statistical techniques. The table below sets out the maximum exposure to credit risk at the reporting date without considering collateral or other credit enhancements and includes the off-balance sheet financial instruments involving credit risks as at 31 December: (SAR‘000) 2014 2015 On-balance sheet items Due from banks and other financial institutions 16,516,208 620,770,32 Financing, net 61,825,724 Corporate 3,0,,20,77 144,114,236 Retail 73507670,3, Other assets, net 2,042,997 2,136,460 224,499,165 Total on-balance sheet items 239,265,384 Off-balance sheet items: Letters of credit and acceptances Letters of guarantee Irrevocable commitments to extend credit Total off-balance sheet items Maximum exposure to credit risk - 54 -
70,330,76 30,,,0,,, 6,33,,35, 7,,5,6,,37
4,379,984 7,386,363 7,084,928 18,851,275
249,567,435
243,350,440
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2015 and 2014, without taking account of any collateral held or other credit enhancements attached, For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the consolidated statement of financial position. 25-2 Liquidity risks Liquidity risk is the risk that the Bank will be unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn, The consequence may be the failure to meet obligations to repay deposits and financing parties and fulfill financing commitments, Liquidity risk can be caused by market disruptions or by credit downgrades, which may cause certain sources of funding to become unavailable immediately, Diverse funding sources available to the Bank help mitigate this risk, Assets are managed with liquidity in mind, maintaining a conservative balance of cash and cash equivalents. Liquidity risk management process The Bank’s liquidity management process is as monitored by the Bank’s Asset and Liabilities Committee (ALCO), includes:
Day-to-day funding, managed by Treasury to ensure that requirements can be met and this includes replenishment of funds as they mature or are invested; Monitoring balance sheet liquidity ratios against internal and regulatory requirements; Managing the concentration and profile of debt maturities; Maintain diversified funding sources; and Liquidity management and asset and liability mismatching,
Monitoring and reporting take the form of analyzing cash flows of items with both contractual and non-contractual maturities, The net cash flows are measured and ensured that they are within acceptable ranges, The Treasury / ALCO also monitors, the level and type of undrawn lending commitments, usage of overdraft facilities and the potential impact contingent liabilities such as standby letters of credit and guarantees may have on the Bank’s liquidity position. The tables below summarize the maturity profile of the Bank’s assets and liabilities, on the basis of the remaining maturity as of the consolidated statement of financial position date to the contractual maturity date. Management monitors the maturity profile to ensure that adequate liquidity is maintained, Assets available to meet all of the liabilities and to cover outstanding financing commitments include cash, balances with SAMA and due from banks, Further, in accordance with the Banking Control Law and Regulations issued by SAMA, the Bank maintains a statutory deposit equal to a sum not less than 7% of total customers’ deposits, and 4% of total other customers’ accounts, In addition to the statutory deposit, the Bank maintains a liquid reserve of not less than 20% of the deposit liabilities, in the form of cash, gold or assets which can be converted into cash within a period not exceeding 30 days, Also, the Bank has the ability to raise additional funds through special financing arrangements with SAMA including deferred sales transactions.
- 55 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The contractual maturities of financial assets and liabilities as of 31 December based on discounted cash flows are as follows. The table below does not reflect the expected cash flows indicated by the deposit retention history of the Group. The current deposits have been included in ‘less than 3 months bucket’. Management monitors rolling forecast of the Group’s liquidity position and cash and cash equivalents on the basis of expected cash flows. This is carried out in accordance with practice and limits set by the Group and based on the pattern of historical deposit movement. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. (SAR’000)
2015 Less than 3 months Assets Cash and balance with SAMA and central banks Due from banks and other financial institutions Financing, net Investments Other assets, net Total Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total Gap
15,407,536 9,936,803 27,776,037 22,826,712 2,136,460 78,083,548
2,956,011 254,355,826 6,871,016 264,182,853 (186,099,305)
3 to 12 months
3,082,812
934,842 1,475,356 2,410,198
Gap
3,425,348
27,053,716
- 26,911,056 16,749,509 210,217,868 3,838,902 39,876,864 2,136,460 24,013,759 306,195,964
623,672 396,587 1,020,259
73,367,511 127,300,689
Total
43,699 4,558,224 - 256,227,769 6,871,016 43,699 267,657,009 23,970,060
38,538,955
(SAR’000) Less than 3 months
Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total
5,138,020
15,854,285 1,119,968 46,768,663 118,923,659 10,071,949 3,139,301 75,777,709 128,320,948
2014
Assets Cash and balance with SAMA and central banks Due from banks and other financial institutions Financing, net Investments Other assets, net Total
1 to 5 years Over 5 years
3 to 12 months
33,585,377 6,905,454 26,156,352 18,095,541 2,042,997 86,785,721
1,001,991 239,084,695 6,341,565 246,428,251 (159,642,530)
1 to 5 years Over 5 years
-
Total
-
-
33,585,377
9,610,754 45,374,329 119,619,864 23,162,515 10,574 78,147,598 119,630,438
14,789,415 1,280,993 16,070,408
16,516,208 205,939,960 42,549,623 2,042,997 300,634,165
236,164 1,612,806 1,848,970
63,178 3,095,232 3,158,410
2,135,237 256,077,047 6,341,565 264,553,849
65,029,380 117,781,468
12,911,998
36,080,316
833,904 12,284,314 13,118,218
- 56 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The following tables disclose the maturity of contractual financial liabilities on undiscounted cash flows as at 31 December: (SAR’000)
2015 Less than 3 months Due to banks and other financial institutions
3 to 12 months
1 to 5 years Over 5 years
No fixed maturity
Total
2,914,248
934,842
623,672
43,699
43,837
4,560,298
Customer deposits Other liabilities
253,709,468 6,871,016
1,475,648 -
396,587 -
-
673,319 256,255,022 6,871,016
Total
263,494,732
2,410,490
1,020,259
43,699
717,156 267,686,336
Less than 3 months
3 to 12 months
Due to banks and other financial institutions Customer deposits Other liabilities
22,902 240,538,835 6,341,565
2,152,335 10,831,249 -
996,116 -
3,731,329 -
-
Total
246,903,302
12,983,584
996,116
3,731,329
- 264,614,331
(SAR’000)
2014
1 to 5 years Over 5 years
No fixed maturity
Total
2,175,237 256,097,529 6,341,565
The cumulative maturities of commitments & contingencies are given in note 15-c-1 of the financial statements. 25-3 Market risks The Bank is exposed to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, Market risks arise on profit rate products, foreign currency and mutual fund products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit rates, foreign exchange rates and quoted market prices. Market risk exposures are monitored by Treasury / Credit & Risk department and reported to ALCO on a monthly basis, ALCO deliberates on the risks taken and ensure that they are appropriate. a.
Market risks - speculative operations The Bank is not exposed to market risks from speculative operations, The Bank is committed to Sharia guidelines which does not permit it to enter into contracts or speculative instruments such as hedging, options, forward contracts and derivatives.
- 57 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) b.
Market risks - banking operations The Bank is exposed to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, Market risks arise on profit rate products, foreign currency and mutual fund products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit rates, foreign exchange rates and quoted market prices. - Profit rate risk Cash flow profit rate risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market profit rates, The Bank does not have any significant exposure to the effects of fluctuations in prevailing level of market profit rates on its future cash flows as a significant portion of profit earning financial assets and profit bearing liabilities are at fixed rates and are carried in the financial statements at amortized cost, In addition to this, a substantial portion of the Bank’s financial liabilities are non-interest bearing. Commission rate risk arises from the possibility that the changes in profit rates will affect either the fair values or the future cash flows of the financial instruments. The Board has established commission rate gap limits for stipulated periods. The Bank monitors positions daily and uses gap management strategies to ensure maintenance of positions within the established gap limits. The following table depicts the sensitivity to a reasonable possible change in profit rates, with other variables held constant, on the Bank’s statement of income or equity. The sensitivity of the income is the effect of the assumed changes in profit rates on the net income for one year, based on the floating rate non-trading financial assets and financial liabilities held as at 31 December 2015 and 2014. The sensitivity of equity is same as sensitivity of income since the Bank does not have fixed rate availablefor-sale financial assets as at 31 December 2015 and 2014. All the banking book exposures are monitored and analyzed in currency concentrations and relevant sensitivities are disclosed in SAR million. 2015 Currency
Increase in basis
SAR in Million Sensitivity of gross financing and investment income As at December
31 Average
187
Maximum for
Minimum
SAR
+ 25
211
Currency
Decrease in basis
Sensitivity of gross financing and investment income
SAR
- 25
225
152
As at 31 December
Average
Maximum for
Minimum
- 211
- 187
- 225
-152
- 58 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) 2014 Currency
SAR Currency
SAR
Increase in basis
+ 25 Decrease in basis
- 25
SAR in Million Sensitivity of gross financing and investment income As at December 155
31 Average 147
Maximum for 155
Minimum 133
Sensitivity of gross financing and investment income As at December - 155
31 Average - 147
Maximum for -155
Minimum -133
*Profit rate movements affect reported equity through retained earnings, i.e. increases or decreases in financing and investment income.
- 59 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) Commission sensitivity of assets, liabilities and off balance sheet items (SAR’000)
2015 Less than 3 months
3 to 6 months
6 to 12 months
15,407,537 9,936,803 22,826,712 27,776,037 2,136,460 78,083,549
1,027,604 5,284,762 3,357,316 15,589,554 25,259,236
2,055,208 5,138,020 10,569,523 1,119,968 6,714,633 3,139,301 31,179,109 118,923,659 50,518,473 128,320,948
2,956,011 254,355,826 6,871,016
264,182,853
311,614 491,785 803,399
Gap
(186,099,304)
24,455,837
48,911,674 127,300,689
23,970,059
38,538,955
Profit Rate Sensitivity - On Statement of Financial Positions
(186,099,304)
24,455,837
48,911,674 127,300,689
23,970,059
38,538,955
Profit Rate Sensitivity - Off Statement of Financial Positions
279,464
-
-
-
279,464
(185,819,840)
24,455,837
48,911,674 127,300,689
23,970,059
38,538,955
Assets Cash and balance with SAMA Due from banks and other financial institutions Investments Financing, net Other assets Total Assets Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities
Total Profit Rate Sensitivity Gap
1 to 5 years
623,228 983,571 1,606,799
-
623,672 396,587 1,020,259
Over 5 years
Total
3,425,347 27,053,716 - 26,911,056 3,838,902 39,876,864 16,749,509 210,217,868 2,136,460 24,013,758 306,195,964
43,699 4,558,224 - 256,227,769 6,871,016 43,699 267,657,009
(185,819,840) (161,364,003) (112,452,329) 14,848,360 38,818,419 77,357,374 Cumulative Profit Rate Sensitivity Gap The Bank manages exposure to the effects of various risks associated with fluctuations in the prevailing levels of market commission rates on its financial position and cash flows. The Board sets limits on the level of mismatch of commission rate reprising that may be undertaken, which is monitored daily by bank Treasury. The table below summarizes the Bank’s exposure to profit rate risks. Included in the table are the Bank’s financial instruments at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates. - 60 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The Bank is exposed to profit rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off balance sheet instruments that mature or re-price in a given period. The Bank manages this risk by matching the re-pricing of assets and liabilities through risk management strategies.
3 to 6 months
6 to 12 months
1 to 5 years
(Amounts in SAR’000) Over 5 years Total
33,585,377 6,905,454 18,095,541 26,156,352 2,042,997 86,785,721
3,203,585 7,720,838 15,124,776 26,049,199
6,407,169 15,441,677 10,574 30,249,553 119,619,864 52,098,399 119,630,438
- 33,585,377 - 16,516,208 1,280,993 42,549,623 14,789,415 205,939,960 2,042,997 16,070,408 300,643,165
1,001,991 239,084,695
277,968 4,094,771
555,936 8,189,543
6,341,565
-
-
246,428,251
4,372,739
8,745,479
Gap
(159,642,530)
21,676,460
43,352,920 117,781,468
12,911,998
36,080,316
Profit Rate Sensitivity - On Statement of Financial Positions
(159,642,530)
21,676,460
43,352,920 117,781,468
12,911,998
36,080,316
Profit Rate Sensitivity - Off Statement of Financial Positions
587,254
-
-
-
587,254
Total Profit Rate Sensitivity Gap
(159,055,276)
21,676,460
43,352,920 117,781,468
12,911,998
36,080,316
Cumulative Profit Rate Sensitivity Gap
(159,055,276) (137,378,816)
36,667,570
72,747,886
2014 Less than 3 months Assets Cash and balance with SAMA Due from banks and other financial institutions Investments Financing, net Other assets Total Assets Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities
-
(94,025,896)
236,164 1,612,806 1,848,970
23,755,572
63,178 2,135,237 3,095,232 256,077,047 -
6,341,565
3,158,410 264,553,849
The off statement of financial position gap represents the net notional amounts of derivative financial instruments, which are used to manage the profit rate risk. The effective profit rate (effective yield) of a monetary financial instrument is the rate that, when used in a present value calculation, results in the carrying amount of the instrument. The rate is a historical rate for a fixed rate instrument carried at amortized cost and a current market rate for a floating rate instrument or an instrument carried at fair value.
- 61 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The tables below summarize the Bank’s exposure to foreign currency exchange rate risk at 31 December 2015 and 2014 and the concentration of currency risks, Included in the table are the Bank’s financial instruments at carrying amounts, categorized by currency: 2015 (SAR’000) UAE Dirham ASSETS Cash and cash equivalents Due from banks and other financial institutions Financing, net Investments Other assets, net Total Assets LIABILITIES Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities Net
Japanese Yen
Malaysian Ringgit
Euro
US Dollar
Pound Sterling
Other
Total
21,550 240,074
21,819
61,937 117,758
224,823 213,775
803,195 885,520
30,689 930,146 6,469 1,203,041
2,072,340 2,688,456
261,624
21,819
357 66 180,118
4,396,890 1,230,346 33,968 195,604 6,295,406
6,539,121 92,725 61,375 41,866 8,423,802
- 2,855,760 37 34,255 196 12,231 37,391 5,035,433
13,791,771 1,323,428 129,635 249,963 20,255,593
72
-
818
239,906
1,294,501
4,809 5,766 10,647 250,977
25,285 1,030 26,315 (4,496)
180,737 22,633 204,188 (24,070)
5,067,733 85,567 5,393,206 902,200
1,241,850 166,210 2,702,561 5,721,241
- 62 -
1,868
8,434
1,545,599
21,905 3,840,913 5,847 153,002 29,620 4,002,349 7,771 1,033,084
10,383,232 440,055 12,368,886 7,886,707
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) 2014 (SAR’000) UAE Dirham ASSETS Cash and cash equivalents Due from banks and other financial institutions Financing, net Investments Other assets, net Total Assets LIABILITIES Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities Net
Japanese Yen
Malaysian Ringgit
Euro
US Dollar
40,405
-
22,840
270,847
120,472
426,395 466,800
9,490 9,490
168,777 398 1,162 193,177
416,924 5,270,717 1,515,395 295,053 7,768,936
72 7,176 7,428 14,676
9,124 1,060 10,184
1,726 240,653 24,010 266,389
(694) (73,212)
452,124
Pound Sterling
11,492
Other
Total
511,228
977,284
1,313,871 7,432,936 105,866 103,218 9,076,363
8,077 484,231 - 2,152,261 82,149 40,751 19,569 3,270,620
2,827,765 14,855,914 1,703,808 440,184 20,804,955
3,415,008 3,101,469 77,638 6,594,115
858,332 8,303,772 523,296 9,685,400
1,867 20,242 21,221 2,297,669 7,309 157,282 30,397 2,475,193
4,297,247 13,981,084 798,023 19,076,354
1,174,821
(609,037)
(10,828)
795,427
1,728,601
- Foreign currency risks Currency risk represents the risk of change in the value of financial instruments due to changes in foreign exchange rates. The Bank management has set limits on positions by currencies, which are regularly monitored to ensure that positions are maintained within the limits. The table below shows the currencies to which the Bank has a significant exposure as at 31 December 2015 on its non-trading monetary assets and liabilities and forecasted cash flows. The analysis calculates the effect of reasonable possible movement of the currency rate against SAR, with all other variables held constant, on the statement of income (due to the fair value of the currency sensitive non-trading monetary assets and liabilities) and equity. A positive effect shows a potential increase in the statement of income statement of income or equity; whereas a negative effect shows a potential net reduction in the statement of income or equity.
- 63 -
AL RAJHI BANKING AND INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) (SAR in million) ____________________________________________________________________________________ Currency Exposures Change in Currency Effect on Net Income Effect on Equity As at 31 December 2015 Rate in % AED USD EUR INR PKR
+/- 2 +/- 2 +/- 5 +/- 5 +/- 5
5.03 112.55 1.52 0.94 2.14
5.03 112.55 1.52 0.94 2.14
(SAR in million) _____________________________________________________________________________________ Currency Exposures Change in Currency Effect on Net Income Effect on Equity As at 31 December 2014 Rate in % AED USD EUR INR PKR
+/- 2 +/- 2 +/- 5 +/- 5 +/- 5
9.03 15.73 0.96 0.18 1.74
9.03 15.73 0.96 0.18 1.74
Currency position The Bank manages exposure to the effects of fluctuations in prevailing foreign currency exchange rates on its financial position and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. At the end of the year, the Bank had the following significant net exposures denominated in foreign currencies : 2015 SAR '000 Long/(short) 5,627,664 (4,350) (30,346) 7,823 515,146
US Dollar Japanese Yen Euro Pound Sterling Others
- 64 -
2014 SAR '000 Long/(short) (773,272) (690) (18,109) (2,326) 1,478,303
AL RAJHI BANKING AND INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) c.
Price risk The Bank has certain investments which are carried at fair value through the income statement (FVSI) and includes investments in quoted mutual funds and other investments, Price risk arises due to changes in quoted market prices of these mutual funds. As these investments are in a limited number of funds and are not significant to the total investment portfolio, the Bank monitors them periodically and determines the risk of holding them based on changes in market prices. Other investments have little or no risks as these are bought for immediate sales, Investments are made only with a confirmed sale order and therefore involve minimal risk.
Equity Price Risk
Equity risk refers to the risk of decrease in fair values of equities in the Bank’s non-trading investment portfolio as a result of reasonable possible changes in levels of equity indices and the value of individual stocks. The effect on the Bank’s equity investments held as available-for-sale due to reasonable possible change in prices, with all other variables held constant is as follows:
Equity Mutual funds d.
31 December 2015 31 December 2014 -------------------------------------------------------------------------Change in Effect Change in Effect Equity price % in SAR Equity price % in SAR Million Million + /- 10 + /- 62,34 + /- 10 + /- 76,27 + /- 10 + /- 120,19 + /- 10 + /- 36,54
Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems, and external events. Operational risk is inherent in most of the Bank’s activities this necessitates an integrated approach to the identification, measurement and monitoring of operational risk. An Operational Risk Management Unit (ORMU) has been established within the Credit and Risk Management Group which facilitates the management of Operational Risk within the Bank, ORMU facilitates the management of Operational Risk by setting policies, developing systems, tools and methodologies, overseeing their implementation and use within the business units and providing ongoing monitoring and guidance across the Bank The three primary operational risk management processes in the Bank are Risk Control Self Assessment, Operational Loss Database and eventual implementation of Key Risk Indicators which are designed to function in a mutually reinforcing manner.
- 65 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 26. GEOGRAPHICAL CONCENTRATION a)
The distribution by the geographical region of the major categories of assets, liabilities, commitments, contingencies and credit exposure accounts as of 31 December is as follows:
2015
(SAR‘000) Kingdom of Saudi Arabia
Other GCC and Middle East
North America
South America
South East Asia
Other Countries
Cash and balances with SAMA and central banks
630,,6023,
,3,0,66
-
-
-
667075,
-
6,0,350,72
Due from banks and other financial institutions
6507730373
603,,0733
6350,6,
6,50732
-
35302,,
6650,55
620,770,32
Financing, net
6,6033,0,,5
506,50,,2
-
-
-
305,20,,,
-
67,067,0,2,
Investments
5,036705,5 6,,073,055,
560,25 20,330662
53, 63307,,
6,50732
-
705650,,7 203,30,,3
6650,55
5,0,,20,23 5,30,3,03,3
5036505,2 6320337062, 63,0,,303,3 ,0,,,05,, 2072,02,,
,660,23 302,,0,2, 305570355 33,0,36 33,0,36
7,07,7 7,07,7 60353 60353
,0,57 ,0,57 65,0,75 65,0,75
-
5630326 30,2,0,55 305,506,3 1,614,367 875,618
3,0,3, 3,0,3, 17,006 17,006
3033,0663 632066,0,2, 62,0,,30,,5 7,05,60,37 ,0,350276
Europe
Total
Assets
Total Liabilities Due to banks and other financial institutions Customer deposits Total Commitments and contingencies Credit exposure (stated at credit equivalent value)
- 66 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 26. GEOGRAPHICAL CONCENTRATION (continued) 2014
(SAR‘000) Kingdom of Saudi Arabia
Other GCC and Middle East
32,856,203
457,989
338
7,575,121
7,024,185
Financing, net
198,262,770
Investments
North America
South America
South East Asia
Other Countries
-
-
270,847
-
33,585,377
180,391
1,067,426
-
568,677
100,408
16,516,208
2,549,224
-
-
-
5,127,966
-
205,939,960
40,896,048 279,590,142
33,896 10,065,294
398 181,127
1,067,426
-
1,619,281 7,586,771
100,408
42,549,623 298,591,168
281,597
1,122,987
3,621
388,967
-
337,868
197
2,135,237
247,479,726 247,761,323
2,424,643 3,547,630
3,621
388,967
-
6,172,678 6,510,546
197
256,077,047 258,212,284
16,711,227 10,877,943
446,240 446,240
2,840 2,840
51,103 51,103
-
1,621,200 369,556
18,665 18,665
18,851,275 11,766,347
Europe
Total
Assets Cash and balances with SAMA and central banks Due from banks and other financial institutions
Total Liabilities Due to banks and other financial institutions Customer deposits Total Commitments and contingencies Credit exposure (stated at credit equivalent value)
Credit equivalent amounts reflect the amounts that result from conversion of the Bank’s off-balance sheet liabilities relating to commitments and contingencies into the risk equivalent of financing, using credit conversion factors prescribed by SAMA, Credit conversion factor is meant to capture the potential credit risk related to the exercise of that commitment.
- 67 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 26. GEOGRAPHICAL CONCENTRATION (continued) b)
The distributions by geographical concentration of non-performing financing and allowance for impairment of financing as of 31 December are as follows:
2015
Kingdom of Saudi Arabia GCC & Middle East South East of Asia Total
Nonperforming
(SAR’000) Allowance for impairment of financing
Net nonperforming financing
506550,,7 20,76 6,07,, 506220,77
)702360373( )30,3,( )720373( )702,60,,2(
703,706,2 70,23 7,02,3 703,50,53
(SAR’000) Allowance for Nonimpairment of performing financing
Net nonperforming financing
2014
Kingdom of Saudi Arabia GCC & Middle East South East of Asia Total
2,571,777 83,952 2,655,729
(1,709,269) (68,728) (1,777,997)
862,508 15,224 877,732
Refer to Note 7-a for performing financing, 27. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Determination of fair value and fair value hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices in active markets for the same instrument (i,e,, without modification or repacking), Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data, Level 3: valuation techniques for which any significant input is not based on observable market data.
- 68 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 27. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued) Assets at fair values are as follows: 2015 Financial assets Investment in an associate Financial assets at FVSI Available-for-sale
2014 Financial assets Investment in an associate Financial assets at FVSI Available-for-sale
Level 1
(SAR‘000) Level 2 Level 3
Total
200,250 26503,3 823,655
7076707,5 ,,0,67 706,70,63
200,250 707330333 ,,30662 2,049,031
Level 1
(SAR‘000) Level 2 Level 3
100,170 7,2,7,, 862,935
129,331 291,192 3,,,971
650336 650336
23,942 235942
Total
100,170 412,,88 291,192 1,251,898
FVSI and Available-for-sale investments classified as level 2 include mutual funds, the fair value of which is determined based on the fund’s latest reported net assets value (NAV) as at the date of statement of consolidated financial position. The third level of investments represents investments recoded at cost as its fair value cannot be measured reliably. The fair values of on-statement financial instruments in the statement of financial position, are not significantly different from the carrying values included in the consolidated financial statements, The fair values of financing due from and due to banks which are carried at amortized cost, are not significantly different from the carrying values included in the financial statements, since the current market commission rates for similar financial instruments are not significantly different from the contracted rates, and for the short duration of due from and due to banks. The value obtained from the relevant valuation model may differ, with the transaction price of a financial instrument, The difference between the transaction price and the model value commonly referred to as ‘day one profit and loss’ is either amortized over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable data, or realized through disposal, Subsequent changes in fair value are recognized immediately in the income statement without reversal of deferred day one profits and losses.
- 69 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 28. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank transacts business with related parties, The related party transactions are governed by limits set by the Banking Control Law and the regulations issued by SAMA, The nature and balances resulting from such transactions as at and for the year ended 31 December are as follows: (SAR‘000) 2014 Related parties 2015 Members the Board of Directors Mutajara Contingent liabilities* Current accounts
,73,,36 635,232 36
1,927,2,4 274,,41 40,301
Companies and establishments guaranteed by members of the Board of Directors Mutajara Contingent liabilities*
,65,33, -
1,314,77, 18,49,
Other major shareholders (above 5% equity share) Mutajara Contingent liabilities* Current accounts Other liabilities
6,,3,,35, 627,,,7 36 65,633
3,22,,484 2,,,328 22,38,
Mutual Funds Investments in Mutual Funds
7,6,7,,63
365,471
* = off balance sheet items Income and expenses pertaining to transactions with related parties included in the consolidated financial statements for the years ended 31 December are as follows: (SAR’000) 2014 2015 Income from financing and other 77,153 27033, Mudaraba Fees ,,,227 7,,,37, Employees’ salaries and benefits (air tickets) 306,6 12,197 Rent and premises related expenses ,2, 850 Board of Directors’ remunerations 303,3 4,443 The amounts of compensations recorded in favor of or paid to the Board of Directors and the executive management personnel during the years ended 31 December are as follows: (SAR’000) 2014 2015 Short-term benefits 44,247 37,102 Provision for end of service benefits 1,488 70536 The executive management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Bank directly or indirectly.
- 70 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 29. MUDARABA FUNDS Mudaraba funds as of 31 December comprise the following: (SAR’000) 2014 2015 12,945,448 75063,027, 2,038 60,3, 12,947,486 750636023,
Customers’ Mudaraba and investments Current accounts, metals Total
Mudaraba and investments represents customer’s investment portfolio managed by Al Rajhi Capital Company and are considered as off balance sheet. Consistent with the accounting policies of the Group, such balances are not included in the Consolidated financial statements as these are held by the Group in fiduciary capacity.
30. SPECIAL COMMISSIONS EXCLUDED FROM THE CONSOLIDATED STATEMENT OF INCOME The following represents the movements in charities account, which is included in other liabilities (see Note 12): (SAR’000) 2014 2015 Balance, beginning of the year Additions during the year Payments during the year Balance, end of the year
53,3,3 37,,66 )36,366(
44,372 10,578 (20,475)
65,,,3
34,475
31. INVESTMENT MANAGEMENT SERVICES The Bank offers investment services to its customers, The Bank has established a number of Mudaraba funds in different investment aspects, These funds are managed by the Bank’s Investment Department, and a portion of the funds is also invested in participation with the Bank, The Bank also offers investment management services to its customers through its subsidiary, which include management of funds with total assets under management of SAR 35,501 million (2014: SAR 25,924 million), Mutual funds’ financial statements are not included in the consolidated statement of financial position of the Bank, The Bank’s share of investments in these funds is included under investments, and is disclosed under related party transactions, Funds invested by the Bank in those investment funds amounted to SAR 1,201,924 thousand at 31 December 2015 (2014: SAR 365,471 thousand).
- 71 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 32. CAPITAL ADEQUACY The Bank's objectives when managing capital are, to comply with the capital requirements set by SAMA to safeguard the Bank's ability to continue as a going concern; and to maintain a strong capital base. Capital adequacy and the use of regulatory capital are monitored daily by the Bank's management, SAMA requires the banks to hold the minimum level of the regulatory capital and also to maintain a ratio of total regulatory capital to the risk-weighted assets at or above 8%. The Bank monitors the adequacy of its capital using ratios established by SAMA, These ratios measure capital adequacy by comparing the Bank’s eligible capital with its consolidated statement of financial position, commitments and contingencies, to reflect their relative risk as of 31 December 2015 and 2014. (SAR’000) 2015
2014
Credit risk weighted assets Operational risk weighted assets Market risk weighted assets
6,20329,555 650,,,07,6 6,150,633
202,080,035 23,971,738 683,906
Total Pillar I - risk weighted assets
236,288,380
226,735,679
Tier I – capital Tier II capital
32025,0,33 60379,119
41,896,193 2,526,000
Total tier I & II capital
3,067,07,5
44,422,193
%7,0,3 %6,0,5
18,48% 19,59%
Capital Adequacy Ratio % Tier I ratio Tier I and II ratio
- 72 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 33. ISSUED IFRS BUT NOT YET EFFECTIVE The Bank has chosen not to early adopt the following new standards which have been issued but not yet effective for the Bank’s accounting years beginning on or after 1 January 2015 and is currently assessing their impact. Following is a brief on the new IFRS and amendments to IFRS effective for annual periods beginning on or after January 01, 2015. Effective for annual periods beginning on or after IFRS 9
Financial instruments
1 January 2018
IFRS 15
Revenue from contracts with customers
1 January 2017
IFRS 14
Regulatory Deferral Accounts
1 January 2016
Amendments of IFRS 11
Accounting for acquisitions of interests in joint operations
1 January 2016
Amendments to IAS 16 and IAS 38
Clarification of acceptable methods of depreciation and amortization
1 January 2016
Amendments to IAS 27
Equity Method in Separate Financial Statements
1 January 2016
Amendments to IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
1 January 2016
Amendments to IFRSs
Annual improvements to IFRSs 2012-2014 cycle
1 January 2016
Amendments to IFRS 10, IFRS 12 and IAS 28
Investment Entities : Applying the Consolidation Exception
1 January 2016
Amendments to IAS 1
Disclosure Initiative
1 January 2016
34. APPROVAL OF THE BOARD OF DIRECTORS The consolidated financial statements were approved by the Board of Directors on 9 Jumada I 1437 (corresponding to February 18, 2016).
- 73 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 35. COMPARATIVE FIGURES Figures have been rearranged or reclassified wherever necessary for the purpose of better presentation, however, no significant rearrangements or reclassifications have been made in these financial statements. 36. SUBSEQUENT EVENTS The Board of Directors proposed, in its meeting held on January 21, 2016, a distribution of dividends to the shareholders for the second half of the current year in a net amount of SAR 1,625 million, after Zakat deduction on shareholders, for SAR 1 per share. The Board’s proposal is subject to the approval of the ordinary General Assembly in its next meeting. 37. DISCLOSURE UNDER BASEL III FRAMEWORK Certain qualitative and quantitative disclosures are required under the Basel III framework. These disclosures will be made available on the Bank’s website (www.alrajhibank.com.sa) within prescribed time as required by SAMA. Such disclosures are not subject to audit by the external auditors of the Bank.
- 74 -
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF FINANCIAL POSITION AS AT 31 DECEMBER 2015 AND 2014
ASSETS Cash and balances with Saudi Arabian Monetary Agency (“SAMA”) and other central banks Due from banks and other financial institutions Investments Financing, net Investment property Property and equipment, net Other assets TOTAL ASSETS
(SAR‘000) 2014
Notes
2015
4 5 6 7 8 8 9
6,0,350,72 620,770,32 5,0,,20,23 67,067,0,2, 7053,0,,, 5,578,931 302570675 573027,023,
33,585,377 16,516,208 42,549,623 205,939,960 4,813,941 4,306,446 307,711,555
10 11 12,14
4,558,224 256,227,769 8,194,601 62,0,,,03,3
2,135,237 256,077,047 7,603,077 265,815,361
13 14 14
72063,0,,, 72063,0,,, 60,,,0,33 8,666,300 2,475,000 32025,0,33
16,250,000 16,250,000 2,598,599 4,828,845 1,968,750 41,896,194
573027,023,
307,711,555
LIABILITIES AND SHAREHOLDERS’ EQUITY Liabilities Due to banks and other financial institutions Customers’ deposits Other liabilities Total liabilities Shareholders’ equity Share capital Statutory reserve Other reserves Retained earnings Proposed gross dividends and Zakat Total shareholders’ equity 7B
22
TOTAL LIABILITIES AND SHAREHOLDERS’ EQUITY
8B
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -2-
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF INCOME FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
Notes INCOME Gross financing and investment income Return on customers’, banks’ and financial institutions’ time investments Net financing and investments income Fee from banking services, net Exchange income, net Other operating income Total operating income
7,,63,,5,,
10,212,518
16 16
)6,,,35,( ,,,3,,,36
(395,198) 9,817,320
17
6,,,3,,,7 ,,,,322 7,5,7,2 75,,33,,,3
2,738,465 952,056 159,133 13,666,974
6,227,,35 635,,7, 5,3,,,, 7,5,3,63, 7,,3,,,63 3,3,3 2,273,,,,
2,514,103 257,033 412,716 1,330,328 2,312,179 4,443 6,830,802
,,75,,,,3
6,836,172
1,625 million
1,625 million
335,
4.21
19 8 22 7-3 28
NET INCOME FOR THE YEAR Weighted average number of shares outstanding
13 & 21
Basic and diluted earnings per share (in SAR)
(SAR‘000) 2014
16
18
EXPENSES Salaries and employee related benefits Rent and premises related expenses Depreciation and amortization Other general and administrative expenses Impairment charge for financing, net Board of directors’ remuneration Total operating expenses
2015
21
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -3-
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF COMPREHENSIVE INCOME FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
2015 SAR‘000
2014 SAR‘000
,,75,,,,3
6,836,172
14
)6,2,,73(
3,679
14
733,,7, )73,,,,,( 2,,7,,6,5
(133) (68,561) 6,771,157
Notes
Net income for the year
0B
Other comprehensive income Items that are or may be reclassified to consolidated statement of income in subsequent periods
1B
- Available-for-sale investments - Net change in fair value - Net amounts transferred to consolidated statement of income - Exchange difference on translation of foreign operations Total other comprehensive income for the year 2B
3B
4B
5B
6B
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -4-
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF CHANGES IN SHAREHOLDERS’ EQUITY FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (SAR‘000)
Notes 2015 Balance at 1 January 2015 Transfer to other reserves Dividends paid for the second half of 2014 Interim dividends paid for the first half of 2015 Prior period adjustment Net change in fair value of available-for-sale investments Net amounts transferred to consolidated statement of income Net movement in foreign currency translation reserve Net income recognized directly in equity Net income for the year Total comprehensive income for the year Employees shares plan Transfer to accrued Zakat under other liabilities Proposed gross dividends and Zakat Balance at 31 December 2015 10B
22 22
14 12 & 14 14 & 22
11B
2014 Balance at 1 January 2014 Transfer to other reserves Dividends paid for the second half of 2013 Interim dividends paid for the first half of 2014 Bonus shares issued Transferred to statutory reserves Net change in fair value of available-for-sale investments Net amounts transferred to consolidated statement of income Net movement in foreign currency translation reserve Net income recognized directly in equity Net income for the year Total comprehensive income for the year Employees shares plan Transfer to accrued Zakat under other liabilities Proposed gross dividends and Zakat Balance at 31 December 2014
22 22
14 12 & 14 14 & 22
Share capital
Statutory Reserve
Other reserves
Retained earnings
Proposed gross dividends and Zakat
72063,0,,, -
72063,0,,, -
603,,03,, ,3,0,,, -
30,6,0,33 ),7603,,( )3076,(
70,2,0,3, ),3,0,,,( )7067,0,3,( -
370,,207,3 )7067,0,3,( ),7603,,( )3076,(
-
-
)6,20,73(
-
-
)6,20,73(
72063,0,,,
72063,0,,,
7330,7, )73,0,,,( )6770,,6( )6770,,6( 30575 )73505,2( 60,,,0,33
,075,0,,3 ,075,0,,3 (2,475,000) 8,666,300
2,475,000 2,475,000
7330,7, )73,0,,,( )6770,,6( ,075,0,,3 20,7,06,5 30575 )73505,2( 32025,0,33
15,000,000 1,250,000 -
15,000,000 1,250,000
2,161,292 750,000 -
4,086,423 (1,625,000) (1,250,000) (1,250,000)
2,250,000 (750,000) (1,500,000) -
38,497,715 (1,500,000) (1,625,000) -
-
-
3,679
-
-
3,679
16,250,000
16,250,000
(133) (68,561) (65,015) (65,015) 10,760 (258,438) 2,598,599
6,836,172 6,836,172 (1,968,750) 4,828,845
1,968,750 1,968,750
(133) (68,561) (65,015) 6,836,172 6,771,157 10,760 (258,438) 41,896,194
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -5-
Total
AL RAJHI BANKING AND INVESTMENT CORPORATION CONSOLIDATED STATEMENT OF CASH FLOWS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 (SAR‘000) Notes CASH FLOWS FROM OPERATING ACTIVITIES Net income for the year
2015
2014
12B
,075,0,,3
6,836,172
7,,0,5, 5,30,,, )30,27( )73,0,,,( 70,3,0,63 )20,3,( 30573
2,496 412,716 (25,615) (68,561) 2,312,179 (1,738) 10,760
)70,3,0,3,( )770,270,53( )206530,55( )5530,,2( )56,0,,,(
(1,189,337) (3,812,319) (21,438,914) 3,572 (575,268)
2,422,987 150,722 591,524 (8,053,331)
(1,504,472) 24,487,934 1,458,929 6,908,534
)707370,,3( )330,,,( )3730,,,( 5036702,, )7053,0,,,( ,0,2, 378,452
(912,215) (133) (2,977,216) 31,621 (3,857,943)
CASH FLOWS FROM FINANCING ACTIVITIES Dividends paid Zakat paid Net cash used in financing activities
)60,57063,( )73505,2( )607,30262(
(3,125,000) (258,438) (3,383,438)
NET CHANGE IN CASH AND CASH EQUIVALENTS
),0,3,03,3(
(332,847)
Cash and cash equivalents at the beginning of the year CASH AND CASH EQUIVALENTS AT THE END OF THE YEAR Non-Cash Transactions: Net change in fair value less realized (loss) / gain from available-for-sale investments Transfer of Zakat from other reserves to other liabilities
6606570,,3
22,564,832
7605,603,,
22,231,985
)370,,3( 73505,2
3,546 258,438
Adjustments to reconcile net income to net cash from operating activities: Loss on investments held at fair value through statement of income (FVSI) Depreciation and amortization Gain on sale of property and equipment Foreign currency translation reserve Impairment charge for financing Share of profit in an associate Expenses of employees’ share plan Net (increase) / decrease in operating assets Statutory deposit with SAMA and central banks Due from banks and other financial institutions Financing Investments held as FVSI Other assets, net Net increase / (decrease) in operating liabilities Due to banks and other financial institutions Customers’ deposits Other liabilities Net cash (used in) / provided by operating activities CASH FLOWS FROM INVESTING ACTIVITIES Purchase of property and equipment Investment in an associate Available-for-sale investments Investments recorded at amortized cost Purchase of investment property Proceeds from sale of property and equipment Net cash provided by / (used in) investing activities
18 8 18 7-3 18
8
23
The accompanying notes from 1 to 37 form an integral part of these consolidated financial statements. -6-
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 1.
GENERAL a) Incorporation and operation Al Rajhi Banking and Investment Corporation, a Saudi Joint Stock Company, (the “Bank”), was formed and licensed pursuant to Royal Decree No. M/59 dated 3 Dhul Qadah 1407H (corresponding to June 29, 1987) and in accordance with Article 6 of the Council of Ministers’ Resolution No. 245, dated 26 Shawal 1407H (corresponding to June 23, 1987). The Bank operates under Commercial Registration No. 1010000096 and its Head Office is located at the following address: Al Rajhi Bank Olaya Street P.O. Box 28 Riyadh 11411 Kingdom of Saudi Arabia The objectives of the Bank are to carry out banking and investment activities in accordance with its Articles of Association and By-Laws, the Banking Control Law and the Council of Ministers’ Resolution referred to above. The Bank is engaged in banking and investment activities for its own account and on behalf of others inside and outside the Kingdom of Saudi Arabia through 569 branches including the branches outside the kingdom as at 31 December 2015 (2014: 552 branches) and 12,374 employees as at 31 December 2015 (2014: 11,761 employees). The Bank has established certain subsidiary companies (together with the Bank hereinafter referred to as "the Group") in which it owns all or the majority of their shares as set out below: Name of subsidiaries
Shareholding % 2014 2015
Al Rajhi Development Company KSA
100%
100%
Al Rajhi Corporation Limited – Malaysia
100%
100%
-7-
A limited liability company registered in Kingdom of Saudi Arabia to support the mortgage programs of the Bank through transferring and holding the title deeds of real estate properties under its name on behalf of the Bank, collection of revenue of certain properties sold by the Bank , provide real estate and engineering consulting services, provide documentation service to register the real estate properties and overseeing the evaluation of real estate properties. A licensed Islamic Bank under the Islamic Financial Services Act 2013, incorporated and domiciled in Malaysia.
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 1.
GENERAL (continued) a) Incorporation and operation (continued)
Al Rajhi Capital Company – KSA
Shareholding % 2014 2015 100% 100%
Al Rajhi Bank – Kuwait
100%
100%
Al Rajhi Bank – Jordan
100%
100%
Al Rajhi Takaful Agency Company – KSA
99%
99%
Al Rajhi Company for management services – KSA
100%
100%
Name of subsidiaries
A limited liability company registered in Kingdom of Saudi Arabia to act as principal agent and/or to provide brokerage, underwriting, managing, advisory, arranging and custodial services. A foreign Branch Registered with the central Bank of Kuwait. A foreign Branch operating in Hashimi Kingdom of Jordan, providing all financial, banking, and investments services and importing and trading in precious metals and stones in accordance with Islamic Sharia’a rules and under the applicable banking law. A limited liability company registered in Kingdom of Saudi Arabia to act as an agent for insurance brokerage activities per the agency agreement with Al Rajhi Cooperative insurance company. A limited liability company registered in Kingdom of Saudi Arabia to provide recruitment services.
Since the subsidiaries are wholly or substantially owned by the Bank, the non-controlling interest is insignificant and therefore not disclosed. All the above-mentioned subsidiaries have been consolidated. b) Shari’a Authority As a commitment from the Bank for its activities to be in compliance with Islamic Shari’a legislations, since its inception, the Bank has established a Shari’a Authority to ascertain that the Bank’s activities are subject to its approval and control. The Shari’a Authority had reviewed several of the Bank’s activities and issued the required decisions thereon. 2.
BASIS OF PREPARATION a)
Statement of compliance The consolidated financial statements are prepared in accordance with the Accounting Standards for Financial Institutions promulgated by the Saudi Arabian Monetary Agency (“SAMA”) and International Financial Reporting Standards (“IFRS”) as issued by the International Accounting Standards Board (“IASB”). The Bank also prepares its consolidated financial statements to comply with the requirements of Banking Control Law and the provision of Regulations for Companies in the Kingdom of Saudi Arabia and the Bank’s Articles of Association.
-8-
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
2.
BASIS OF PREPARATION (continued) b)
Basis of measurement and preparation The consolidated financial statements are prepared under the historical cost convention except for the measurement at fair value of investments held as fair value through income statement (“FVSI”) and available-for-sale. The Bank presents its statement of financial position in order of liquidity. An analysis regarding recovery or settlement within 12 months after the reporting date (current) and more than 12 months after the reporting date (non–current) is presented in note 25-2.
c)
Functional and presentation currency The consolidated financial statements are presented in Saudi Arabian Riyal (“SAR”), the Bank’s functional currency and are rounded off to the nearest thousand except otherwise indicated.
d)
Critical accounting judgments, estimates and assumptions The preparation of consolidated financial statements in conformity with IFRS requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets and liabilities. It also requires management to exercise its judgments in the process of applying the Bank’s accounting policies. Such estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including obtaining professional advice and expectations of future events that are believed to be reasonable under the circumstances.Significant areas where management has used estimates, assumptions or exercised judgements is as follows: The key assumptions concerning the future and other key sources of estimation uncertainty at the reporting date, that have a significant risk of causing a material adjustment to the carrying amounts of assets and liabilities within the next financial year, are described below. The Bank based its assumptions and estimates on parameters available when the consolidated financial statements were prepared. Existing circumstances and assumptions about future developments, however, may change due to market changes or circumstances beyond the control of the Bank. Such changes are reflected in the assumptions when they occur. i)
Impairment on financing The Bank reviews its financing portfolios to assess specific and collective impairment on a quarterly basis. The specific impairment applies to financing evaluated individually for impairment and is based on 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 judgements about a customer’s financial situation and the net realisable value of any underlying collateral. This evidence may include observable data indicating that there has been an adverse change in the payment status of clients in a group. The methodology and assumptions used for estimating both the amount and the timing of future cash flows are reviewed regularly to reduce any differences between loss estimates and actual loss experience. Each impaired asset is assessed on its merits and the workout strategy and estimate of cash flows considered recoverable are independently approved by the Credit Risk function. -9-
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 2. BASIS OF PREPARATION (continued) d) Critical accounting judgments, estimates and assumptions (continued) i) Impairment on financing (continued) A collective component of the total allowance is established for groups of homogeneous loans that are not considered individually significant and is established using statistical methods such as roll rate methodology and internal loss estimates. The methodology uses statistical analysis of historical data on delinquency to estimate the amount of loss. Management applies judgement to ensure that the estimate of loss arrived at on the basis of historical information is appropriately adjusted to reflect the economic conditions and product mix at the reporting date. Roll rates and loss rates are regularly benchmarked against actual loss experience. In assessing the need for collective loss allowance, management considers factors such as credit quality, portfolio size, concentrations and economic factors. To estimate the required allowance, assumptions are made to define how inherent losses are modelled and to determine the required input parameters, based on historical experience and current economic conditions. The accuracy of the allowance depends on the model assumptions and parameters used in determining the collective allowance. ii) Impairment of available for-sale and sukuk investments The Bank exercises judgement to consider impairment on the available-for-sale equity investments at each reporting date. This includes determination of a significant or prolonged decline in the fair value below its cost. In assessing whether it is significant, the decline in fair value is evaluated against the original cost of the asset at initial recognition. The determination of what is 'significant' or 'prolonged' requires judgement. In making this judgement, the Bank evaluates among other factors, the normal volatility in share price, deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. The Bank reviews its investments in sukuks at each reporting date to assess whether they are impaired. This requires similar judgement as applied to individual assessment of financing. In addition, the Bank considers impairment to be appropriate when there is evidence of deterioration in the financial health of the investee, industry and sector performance, changes in technology, and operational and financing cash flows. iii)
Fair value of financial instruments The Bank measures financial instruments and non-financial assets at fair value at each balance sheet date. Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date. The fair value measurement is based on the presumption that the transaction to sell the asset or transfer the liability takes place either: -
In the principal market for the asset or liability, or In the absence of a principal market, in the most advantageous market for the asset or liability
The principal or the most advantageous market must be accessible to by the Bank.
- 10 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 2.
BASIS OF PREPARATION (continued) d)
Critical accounting judgments, estimates and assumptions (continued)
iii)
Fair value of financial instruments (continued) The fair value of an asset or a liability is measured using the assumptions that market participants would use when pricing the asset or liability, assuming that market participants act in their economic best interest. A fair value measurement of a non-financial asset takes into account a market participant's ability to generate economic benefits by using the asset in its highest and best use or by selling it to another market participant that would use the asset in its highest and best use. The Bank uses valuation techniques that are appropriate in the circumstances and for which sufficient data are available to measure fair value, maximising the use of relevant observable inputs and minimising the use of unobservable inputs. All assets and liabilities for which fair value is measured or disclosed in the financial statements are categorized within the fair value hierarchy, described as follows, based on the lowest level input that is significant to the fair value measurement as a whole: -
-
Level 1 — Quoted (unadjusted) market prices in active markets for identical assets or liabilities Level 2 — Inputs other than quoted prices included within Level 1 that are observable either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using: quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques in which all significant inputs are directly or indirectly observable from market data. Level 3 — Valuation techniques for which the lowest level input that is significant to the fair value measurement is unobservable
iv) Classification of Investments held at amortised cost The Bank follows the guidance of IAS 39 on classifying non-derivative financial assets with fixed or determinable payments and fixed maturity as Investments held at amortised cost. v)
Determination of control over investees The control indicators set out note 3 (b) are subject to management’s judgements that can have a significant effect in the case of the Bank’s interests in securitisation vehicles and investments funds. Investment funds The group acts as Fund Manager to a number of investment funds. Determining whether the group controls such an investment fund usually focuses on the assessment of the aggregate economic interests of the Bank in the Fund (comprising any carried interests and expected management fees) and the investor’s rights to remove the Fund Manager. As a result the Bank has concluded that it acts as an agent for the investors in all cases, and therefore has not consolidated these funds.
- 11 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 2. BASIS OF PREPARATION (continued) d)
Critical accounting judgments, estimates and assumptions (continued)
vi) Provisions for liabilities and charges The Bank receives legal claims in the normal course of business. Management has made judgments as to the likelihood of any claim succeeding in making provisions. The time of concluding legal claims is uncertain, as is the amount of possible outflow of economic benefits. Timing and cost ultimately depends on the due process being followed as per the legislation in the Kingdom of Saudi Arabia. vii) Going concern The consolidated financial statements have been prepared on a going concern basis. The Bank’s management has made an assessment of the Bank’s ability to continue as a going concern and is satisfied that the Bank has the resources to continue in business for the foreseeable future. Furthermore, the management is not aware of any material uncertainties that may cast significant doubt upon the Bank’s ability to continue as a going concern. 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES The accounting policies used in the preparation of these consolidated financial statements are consistent with those used in the preparation of the annual consolidated financial statements for the year ended 31 December 2014 except for the change in accounting policies resulting from new and amended IFRS. The following changes have no material impact on the consolidated financial statements of the Bank: a) Amendments to existing standards i.
Amendments to IAS 19 applicable for annual periods beginning on or after 1 July 2014 is applicable to defined benefit plans involving contribution from employees and / or third parties. This provides relief, based on meeting certain criteria, from the requirements proposed in the amendments of 2011 for attributing employee / third party contributions to periods of service under the plan benefit formula or on a straight line basis. The current amendment gives an option, if conditions satisfy, to adjust service cost in period in which the related service is rendered.
ii.
Annual improvements to IFRS 2010-2012 and 2011-2013 cycle applicable for annual periods beginning on or after 1 July 2014. A summary of the amendments is contained as under: o
IFRS 1 - "first time adoption of IFRS": the amendment clarifies that a first time adopter is permitted but not required to apply a new or revised IFRS that is not yet mandatory but is available for early adoption.
o
IFRS 2 amended to clarify the definition of 'vesting condition' by separately defining 'performance condition' and 'service condition'.
o
IFRS 3 - "business combinations" amended to clarify the classification and measurement of contingent consideration in a business combination. It has been further amended to clarify that the standard does not apply to the accounting for the formation of all types of joint arrangements in IFRS 11.
o
IFRS 8 - "operating segments" has been amended to explicitly require disclosure of judgments made by management in applying aggregation criteria..
- 12 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) a) Amendments to existing standards (continued)
b)
o
IFRS 13 has been amended to clarify measurement of interest free short term receivables and payables at their invoiced amount without discounting, if the effect of discounting is immaterial. It has been further amended to clarify that the portfolio exception potentially applies to contracts in the scope of IAS 39 and IFRS 9 regardless of whether they meet the definition of a financial asset or financial liability under IAS 32.
o
IAS 16 - "Property plant and equipment" and IAS 38 - "intangible assets": - the amendments clarify the requirements of revaluation model recognizing that the restatement of accumulated depreciation (amortisation) is not always proportionate to the change in the gross carrying amount of the asset.
o
IAS 24 - "related party disclosures"- the definition of a related party is extended to include a management entity that provides key management personnel services to the reporting entity, either directly or indirectly.
o
IAS 40 - "investment property" clarifies that an entity should assess whether an acquired property is an investment property under IAS 40 and perform a separate assessment under IFRS 3 to determine whether the acquisition constitutes a business combination.
Basis of consolidation These consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as set out in note 1 to these financial statements (collectively referred to as “the Group”). The financial statements of subsidiaries are prepared for the same reporting year as that of the Bank, using consistent accounting policies. The accounting policies of subsidiaries are changed when necessary to align them with the policies adopted by the Bank. Subsidiaries are investees controlled by the Group. The Group controls an investee if it is exposed to, or has rights to, variable returns from its involvement with the investee and has the ability to affect those returns through its power over the investee. The financial statements of subsidiaries are included in the consolidated financial statements from the date on which control commences until the date when control ceases. The consolidated financial statements have been prepared using uniform accounting policies and valuation methods for like transactions and other events in similar circumstances. The accounting policies of subsidiaries have been changed when necessary to align them with the policies adopted by the Bank. Specifically, the Group controls an investee if and only if the Group has: Power over the investee (i.e. existing rights that give it the current ability to direct the relevant activities of the investee) Exposure, or rights, to variable returns from its involvement with the investee, and The ability to use its power over the investee to affect amount of its returns When the Group has less than majority of the voting or similar rights of an investee entity, the Bank considers all relevant facts and circumstances in assessing whether it has power over the entity, including: -
The contractual arrangement with the other vote holders of the investee Rights arising from other contractual arrangements The Bank’s voting rights and potential voting rights granted by equity instruments such as shares - 13 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) b) Basis of consolidation (continued) The Group re-assesses whether or not it controls an investee if facts and circumstances indicate that there are changes to one or more of the three elements of control. Assets, liabilities, income and expenses of a subsidiary acquired or disposed of during the year are included in the statement of comprehensive income from the date the Bank gains control until the date the Bank ceases to control the subsidiary. A change in the ownership interest of a subsidiary, without a loss of control, is accounted for as an equity transaction. If the Bank loses control over a subsidiary, it: -
derecognises the assets (including goodwill) and liabilities of the subsidiary derecognises the carrying amount of any non-controlling interests derecognises the cumulative translation differences recorded in equity recognises the fair value of the consideration received recognises the fair value of any investment retained recognises any surplus or deficit in profit or loss reclassifies the parent’s share of components previously recognised in OCI to profit or loss or retained earnings, as appropriates would be required if the Bank had directly disposed of the related assets or liabilities.
Since the subsidiaries are wholly or substantially owned by the Bank, the non-controlling interest is insignificant and therefore not disclosed. Intra group balances and any income and expenses arising from intra-group transactions, are eliminated in preparing these consolidated financial statements. As of 31 December 2015 and 2014 interests in subsidiaries not directly owned by the Bank are owned by representative shareholders for the beneficial interest of the Bank and hence are not separately disclosed on the consolidated statement of financial position or consolidated statement of comprehensive income. Investment in associate Associates are enterprises over which the Bank exercises significant influence (but not control), over financial and operating policies and which is neither a subsidiary nor a joint venture.. Investments in associates are initially recognized at cost and subsequently accounted for under the equity method of accounting and are carried in the consolidated statement of financial position at the lower of the equityaccounted or the recoverable amount. Equity-accounted value represents the cost plus post-acquisition changes in the Bank's share of net assets of the associate (share of the results, reserves and accumulated gains/losses based on latest available financial statements) less impairment, if any. The previously recognized impairment loss in respect of investment in associate can be reversed through the consolidated statement of income, such that the carrying amount of the investment in the statement of financial position remains at the lower of the equity-accounted (before provision for impairment) or the recoverable amount. On derecognition the difference between the carrying amount of investment in associate and the fair value of the consideration received is recognized in the consolidated statement of income.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) c) Zakat Zakat is calculated based on the Zakat rules and regulations in the Kingdom of Saudi Arabia and is considered as a liability on the shareholders to be deducted from dividends. Zakat is computed based on equity or net income using the basis defined under the Zakat regulations. In case of any differences between the Bank’s calculation and the Department of Zakat and Income Tax’s (“DZIT”) assessment, a reserve is created as other reserve (Note 14) for the differential. d) Trade date All regular way purchases and sales of financial assets are recognized and derecognized on the trade date (i.e. the date on which the Bank commits to purchase or sell the assets). Regular way purchases or sales of financial assets require delivery of those assets within the time frame generally established by regulation or convention in the market place. All other financial assets and liabilities (including assets and liabilities designated at fair value through statement of income) are initially recognised on the trade date at which the Bank became a party to the contractual provision of the instrument. e) Foreign currencies The consolidated financial statements are presented in Saudi Arabian Riyal (“SAR”), which is also the parent company’s functional currency. Each entity determines its own functional currency and items included in the financial statements of each entity are measured using that functional currency. Transactions in foreign currencies are translated into Saudi Riyals at exchange rates prevailing on the dates of the transactions. Monetary assets and liabilities at the year-end (other than monetary items that form part of the net investment in a foreign operation), denominated in foreign currencies, are translated into Saudi Riyals at exchange rates prevailing at the date of the consolidated statement of financial position. The foreign currency gain or loss on monetary items is the difference between amortised cost in the functional currency at the beginning of the year adjusted for the effective interest rate and payments during the year and the amortised cost in foreign currency translated at exchange rate at the end of the year. Realized and unrealized gains or losses on exchange are credited or charged to the consolidated statement of comprehensive income. The monetary assets and liabilities of foreign subsidiaries are translated into Saudi Riyals at rates of exchange prevailing at the date of the consolidated statement of financial position. The statements of income of foreign subsidiaries are translated at the average exchange rates for the year. Non-monetary items that are measured in terms of historical cost in a foreign currency are translated using the exchange rates as at the dates of the initial transactions. Non-monetary items measured at fair value in a foreign currency are translated using the exchange rates at the date when the fair value is determined.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) e) Foreign currencies (continued) As at the reporting date, the assets and liabilities of foreign operations are translated into Saudi Arabian Riyals at the rate of exchange as at the statement of financial position date, and their statement of incomes are translated at the weighted average exchange rates for the year. Exchange differences arising on translation are recognized in other comprehensive income. When a foreign operation is disposed of such that control, significant influence or joint control is lost, the cumulative amount in the translation reserve related to that foreign operation is reclassified to the statement of income as part of the gain or loss on disposal. When the Group disposes of only part of its interest in a subsidiary that includes a foreign operation while retaining control, the relevant proportion of the cumulative amount is reattributed to non-controlling interests. f) Offsetting financial instruments Financial assets and liabilities are offset and are reported net in the consolidated statement of financial position when there is a legally enforceable right to set off the recognized amounts, and when the Bank intends to settle on a net basis, or to realize the asset and settle the liability simultaneously. Income and expenses are not offset in the consolidated statement of comprehensive income unless required or permitted by any accounting standard or interpretation, and as specifically disclosed in the accounting policies of the Bank. g) Revenue recognition Revenue is recognized to the extent that it is probable that the economic benefits will flow to the Group, and the revenue can be reliably measured. The following specific recognition criteria must also be met before revenue is recognized. Income from Mutajara, Murabaha, investments held at amortized cost, installment sale, Istisna’a financing and visa services is recognized based on effective yield basis on the outstanding balances. The effective yield is the rate that exactly discounts the estimated future cash payments and receipts through the expected life of the financial asset or liability (or, where appropriate, a shorter period) to the carrying amount of the financial asset or liability. When calculating the effective yield, the Group estimates future cash flows considering all contractual terms of the financial instrument but excluding future credit losses. Fees and commissions are recognized when the service has been provided. Financing commitment fees that are likely to be drawn down and other credit related fees are deferred and, together with the related direct cost, are recognized as an adjustment to the effective yield on the financing. When a financing commitment is not expected to result in the draw-down of a financing, financing commitment fees are recognised on a straight-line basis over the commitment period. Portfolio and other management advisory and service fees are recognized based on the applicable service contracts, on a time-proportionate basis.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) g) Revenue recognition (continued) Fees received to asset management, wealth management, financial planning, custody services and other similar services that are provided over an extended period of time, are recognized over the period when the service is being provided. Asset management fees related to investment funds are recognized over the period when in which the service is being provided. The same principle applies to Wealth management and Custody Services that are continuously recognized over a period of time. Dividend income is recognised when the right to receive income is established which is generally when the shareholders approve the dividend. Dividends are reflected as a component of net trading income, net income from FVSI financial instruments or other operating income based on the underlying classification of the equity instrument. Foreign currency exchange income / loss is recognized when earned / incurred. Net trading income results from trading activities and include all realised and unrealised gains and losses from changes in fair value and related gross investment income or expense, dividends for financial assets and financial liabilities held for trading and foreign exchange differences. Net income from FVSI financial instruments relates to financial assets and liabilities designated as FVSI and include all realised and unrealised fair value changes, investment inceom, dividends and foreign exchange differences. h)
Financing and investment The Bank offers non-interest based products including Mutajara, installment sales, Murabaha and Istisnaa to its customers in compliance with Shari’a rules. The Bank classifies its principal financing and investment as follows: i. Held at amortized cost - such financing and certain investments which meets the definition of loans and receivable under IAS 39, are classified as held at amortized cost, and comprise Mutajara, installment sale, Istisnaa, Murabaha and visa operations accounts balances. Investments held at amortized cost are initially recognized at fair value and subsequently measured at amortized cost (using effective yield basis) less any amounts written off, and allowance for impairment. Financing are non-derivative financial assets originated or acquired by the Bank with fixed or determinable payments. Financing are recognised when cash is advanced to borrowers. They are derecognized when either borrower repays their obligations, or the financings are sold or written off, or substantially all the risks and rewards of ownership are transferred. All financings are initially measured at fair value, plus incremental direct transaction costs and are subsequently measured at amortised cost using effective yield basis. Following the initial recognition, subsequent transfers between the various classes of financings is not ordinarily permissible. The subsequent period-end reporting values for various classes of financings are determined on the basis as set out in the following paragraphs.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) h) Financing and investment (continued) ii. Held as FVSI - Investments in this category are classified as either investment held for trading or those designated as FVSI on initial recognition. Investments classified as trading are acquired principally for the purpose of selling or repurchasing in the short term. These investments comprise mutual funds and equity investments. Such investments are measured at fair value and any changes in the fair values are charged to the consolidated statement of comprehensive income. Transaction costs, if any, are not added to the fair value measurement at initial recognition of FVSI investments and are expensed in the consolidated financial statements. Investment income and dividend income on financial assets held as FVSI are reflected as either trading income or income from FVSI financial instruments under other operating income in the consolidated statement of income. Investments at FVSI are not reclassified subsequent to their initial recognition, except that nonderivative FVSI instruments, other than those designated as FVSI upon initial recognition, may be reclassified out of the FVSI (i.e., trading) category if they are no longer held for the purpose of being sold or repurchased in the near term, and the following conditions are met: • If the financial asset would have met the definition of financing and receivables, if the financial asset had not been required to be classified as held for trading at initial recognition, then it may be reclassified if the entity has the intention and ability to hold the financial asset for the foreseeable future or until maturity. • If the financial asset would not have met the definition of financing and receivables, and then it may be reclassified out of the trading category only in ‘rare circumstances’. iii. Available-for-sale - Available-for-sale investments are those non-derivative equity and sukuk securities which are neither classified as Held to maturity investments, loans and receivables nor designated as FVSI, that are intended to be held for an unspecified period of time, which may be sold in response to needs for liquidity or changes in special commission rates, exchange rates or equity prices. Investments which are classified as “available-for-sale” are initially recognised at fair value including direct and incremental transaction costs and subsequently measured at fair value except for unquoted equity securities whose fair value cannot be reliably measured are carried at cost. Unrealized gains or losses arising from changes in fair value are recognised in other comprehensive income until the investment is de-recognised or impaired whereupon any cumulative gain or loss previously recognized in other comprehensive income are reclassified to consolidated statement of income. A Security held as available-for-sale may be reclassified to “Other investments held at amortized cost” if it otherwise would have met the definition of “Other investments held at amortized cost” and if the Bank has the intention and ability to hold that financial asset for the foreseeable future or until maturity.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i) Impairment of financial assets Held at amortised cost An assessment is made at the date of each consolidated statement of financial position to determine whether there is objective evidence of impairment as a result of one or more events that occurred after the initial recognition of the financial asset or group of financial asset and that a loss event(s) has an impact on the estimated future cash flows of the financial asset or group of financial assets that can be reliably estimated. If such evidence exists, the difference between the assets carrying amount and the present value of estimated future cash flows is calculated and any impairment loss, is recognized for changes in the asset’s carrying amount. The carrying amount of the financial assets held at amortized cost, is adjusted either directly or through the use of an allowance for impairment account, and the amount of the adjustment is included in the consolidated statement of comprehensive income. A specific provision for credit losses due to impairment of a financing or any other financial asset held at amortised cost is established if there is objective evidence that the Bank will not be able to collect all amounts due. The amount of the specific provision is the difference between the carrying amount and the estimated recoverable amount. The estimated recoverable amount is the present value of expected cash flows, including amounts estimated to be recoverable from guarantees and collateral, discounted based on the original effective yield rate. Considerable judgment by management is required in the estimation of the amount and timing of future cash flows when determining the level of provision required. Such estimates are essentially based on assumptions about several factors involving varying degrees of judgment and uncertainty, and actual results may differ resulting in future changes to such allowance for impairment. In addition to the specific allowance for impairment described above, the Bank also makes collective impairment allowance for impairment, which are evaluated on a group basis and are created for losses, where there is objective evidence that unidentified losses exist at the reporting date. The amount of the provision is estimated based on the historical default patterns of the investment and financing counter-parties as well as their credit ratings, taking into account the current economic climate. In assessing collective impairment, the Bank also uses internal loss estimates and makes an adjustment if current economic and credit conditions are such that the actual losses are likely to be greater or lesser than is suggested by historical trends. Loss rates are regularly benchmarked against actual outcomes to ensure that they remain appropriate. The criteria that the Bank uses to determine that there is an objective evidence of impairment loss include:
Delinquency in contractual payments of principal or profit. Cash flow difficulties experienced by the customer. Breach of repayment covenants or conditions. Initiation of bankruptcy proceedings against the customer. Deterioration of the customer’s competitive position. Deterioration in the value of collateral.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) i) Impairment of financial assets (continued) Held at amortised cost (continued) When financing amount is uncollectible, it is written-off against the related provision for impairment. Such financing is written-off after all necessary procedures have been completed and the amount of the loss has been determined. If, in a subsequent period, the amount of the impairment loss decreases and the decrease can be related objectively to an event occurring after the impairment was recognized (such as an improvement in the customer’s credit rating), the previously recognized impairment loss is reversed by adjusting the provision account. The amount of the reversal is recognized in the statement of comprehensive income in impairment charge. Financial assets are written off only in circumstances where effectively all possible means of recovery have been exhausted. Available for-sale equity and debt investments In the case of debt instruments classified as available-for-sale, the Bank assesses individually whether there is objective evidence of impairment based on the same criteria as financial assets carried at amortized cost. However, the amount recorded for impairment is the cumulative loss measured as the difference between the amortized cost and the current fair value, less any impairment loss on that investment previously recognized in the statement of income. If, in a subsequent period, the fair value of a debt instrument increases and the increase can be objectively related to a credit event occurring after the impairment loss was recognized in the statement of income, the impairment loss is reversed through the statement of income. For equity investments held as available-for-sale, a significant or prolonged decline in fair value below its cost represents objective evidence of impairment. The impairment loss cannot be reversed through the statement of income as long as the asset continues to be recognized i.e. any increase in fair value after impairment has been recorded can only be recognized in equity. On de recognition, any cumulative gain or loss previously recognized in equity is included in the consolidated statement of income for the year. j) Other real estate The Bank, in the ordinary course of business, acquires certain real estate against settlement of loans and advances. Such real estate are considered as assets held for sale and are initially stated at the lower of net realisable value of due loans and advances and the current fair value of the related properties, less any costs to sell (if material). No depreciation is charged on such real estate. Rental income from other real estate is recognised in the consolidated statement of income. Subsequent to initial recognition, any subsequent write down to fair value, less costs to sell, are charged to the consolidated statement of income. Any subsequent revaluation gain in the fair value less costs to sell of these assets to the extent this does not exceed the cumulative write down previously recognised, in the statement of income. Gains or losses on disposal are recognised in the statement of income.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) k) De-recognition of financial assets and liabilities A financial asset (or a part of a financial asset, or a part of a group of similar financial assets) is derecognized when the contractual rights to the cash flows from the financial asset expire or the asset is transferred and the transfer qualifies for de-recognition. A financial liability (or a part of a financial liability) can only be derecognized when it is extinguished, that is when the obligation specified in the contract is either discharged, cancelled or expired. l) Investment properties Investment properties are held for long-term rental yield and are not occupied by the Group. They are carried at cost and depreciation is charged to the statement of consolidated income. m) Property and equipment Property and equipment is stated at cost less accumulated depreciation and amortization and accumulated impairment loss. Land is not depreciated. The cost of other property and equipment is depreciated or amortized using the straight-line method over the estimated useful life of the assets, as follows: Leasehold land improvements
over the lesser of the period of the lease or the useful life 33 years over the lease period or 3 years, whichever is shorter 3 to 10 years
Buildings Leasehold building improvements Equipment and furniture
The assets’ residual values and useful lives are reviewed, and adjusted if appropriate, at each statement of financial position date. Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in consolidated statement of comprehensive income. All assets are reviewed for impairment at each reporting date and whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any carrying amount is written down immediately to its recoverable amount if the asset’s carrying amount is greater than its estimated recoverable amount. n) Customers’ deposits Customer deposits are financial liabilities that are initially recognized at fair value less transaction cost, being the fair value of the consideration received, and are subsequently measured at amortized cost.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) o) Guarantees In the ordinary course of business the Bank gives guarantees which include letters of credit, letters of guarantee, acceptances and stand by letter of credits. Initially, the received margins are recognized as liabilities at fair value, being the value of the premium received and included in customers’ deposits in the consolidated financial statements. Subsequent to the initial recognition, the Bank's liability under each guarantee is measured at the higher of the amortized premium and the best estimate of expenditure required to settle any financial obligations arising as a result of guarantees. Any increase in the liability relating to the financial guarantee is taken to the consolidated statement of income in "impairment charge for credit losses, net". The premium received is recognised in the consolidated statement of income in "Fees from banking services, net" on a straight line basis over the life of the guarantee. p) Provisions Provisions are recognized when the Bank has present legal, or constructive obligation as a result of past events, it is probable that an outflow of resources embodying economic benefits will be required to settle the obligation, and a reliable estimate of the amount of the obligation can be made. q) Accounting for leases 1. Where the Group is the lessee Leases that do not transfer to the Bank substantially all of the risk and benefits of ownership of the asset are classified as operating leases. Consequently, all of the leases entered into by the Bank are all operating leases. Payments made under operating leases are charged to the (consolidated) statement of income on a straight-line basis over the period of the lease. When an operating lease is terminated before the lease period has expired, any payment required to be made to the lessor by way of penalty , net of anticipated rental income (if any), is recognised as an expense in the period in which termination takes place. The Group evaluates non-lease arrangements such as outsourcing and similar contracts to determine if they contain a lease which is then accounted for separately. 2. Where the Group is the lessor When assets are transferred under a finance lease, including assets under Islamic lease arrangements (e.g. Ijara Muntahia Bittamleek or Ijara with ownership promise) (if applicable) the present value of the lease payments is recognised as a receivable and disclosed under “Financing”. The difference between the gross receivable and the present value of the receivable is recognised as unearned finance income. Lease income is recognised over the term of the lease using the net investment method, which reflects a constant periodic rate of return.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 3.
SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued)
r)
Cash and cash equivalents For the purposes of the consolidated statement of cash flows, ‘cash and cash equivalents’ include notes and coins on hand, balances with SAMA (excluding statutory deposits) and due from banks and other financial institutions with original maturity of three months or less from the date of acquisition which are subject to insignificant risk of changes in their fair value.
s)
Short term employee benefits Short term employee benefits are measured on an undiscounted basis and are expensed as the related service is provided.
t)
Special commission excluded from the consolidated statement of income In accordance with the Shari’a Authority’s resolutions, special commission income received by the Bank is excluded from the determination of income, and is recorded as other liabilities in the consolidated statement of financial position and is paid as charities.
u)
Provisions for employees’ end of service benefits The provision for employees’ end of service benefits is accrued using actuarial valuation according to the regulations of Saudi labor law and local regulatory requirements.
v)
Share-based payments The Bank operates an equity-settled, share-based compensation plan “Employee share grant plan ESGB” as approved by SAMA, under which the entity receives services from the eligible employees as consideration for equity instruments (options) of the Bank. Under the terms of the ESGP, eligible employees of the Bank are offered stock options at a predetermined strike price for a fixed period of time. At maturity of the plans, the underlying allotted shares are delivered if the employees exercise the options as per the terms and conditions of the plan. The fair value of the employee services received in exchange for the grant of the options is recognized as an expense on the consolidated statement of comprehensive income over the vesting period, which is the period over which all of the specified vesting conditions are to be satisfied. At the end of each reporting period, the Bank revises its estimates of the number of options that are expected to vest based on the non-market vesting conditions. It recognizes the impact of the revision to original estimates, if any, in the income statement, with a corresponding adjustment to equity.
w) Mudaraba funds The Bank carries out Mudaraba transactions on behalf of its customers, and are treated by the Bank as being restricted investments. These are included as off balance sheet items. The Bank’s share of profits from managing such funds is included in the Bank’s consolidated statement of comprehensive income. x)
Investment management services The Bank provides investment management services to its customers, through its subsidiary which include management of certain mutual funds. Assets held in trust or in a fiduciary capacity are not treated as assets of the Bank and, accordingly, are not included in the Bank’s consolidated financial statements. The Bank’s share of these funds is included under FVSI investments. Fees earned are disclosed consolidated statement of comprehensive income.. - 23 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
3. SUMMARY OF SIGNIFICANT ACCOUNTING POLICIES (continued) y) Bank’s products definition The Bank provides its customers with banking products based on interest avoidance concept and in accordance with Shari’a regulations. The following is a description of some of the financing products: Mutajara financing: It is financing agreement whereby the Bank purchases a commodity or an asset and sells it to the client based on a purchase promise from the client with a deferred price higher than the cash price, accordingly the client becomes debtor to the Bank with the sale amount and for the period agreed in the contract. Installment sales financing: It is financing agreement whereby the Bank purchases a commodity or an asset and sells it to the client based on a purchase promise from the client with a deferred price higher than the cash price, accordingly the client becomes debtor to the Bank with the sale amount to be paid through installments as agreed in the contract. Istisnaa financing: It is a financing agreement whereby the Bank contracts to manufacture a commodity with certain known and accurate specifications according to the client’s request. The client becomes a debtor to the Bank for the manufacturing price which includes cost plus profit. Murabaha financing: It is a financing agreement whereby the Bank purchases a commodity or asset and sells it to the client with a price representing the purchase price plus a profit known and agreed by the client which means that the client is aware of the cost and profit separately. 4.
CASH AND BALANCES WITH SAMA AND OTHER CENTRAL BANKS Cash and balances with SAMA and central banks as of 31 December comprise of the following: (SAR‘000) 2014 2015 ,0,2306,3 7,035606,6 ,32073, 6,0,350,72
Cash in hand Statutory deposits Current accounts Total
8,963,159 15,481,434 9,140,784 33,585,377
In accordance with the Banking Control Law and Regulations issued by SAMA, the Bank is required to maintain a statutory deposit with SAMA and central banks at stipulated percentages of its customers’ demand deposits, customers’ time investment and other customers’ account calculated at the end of each Gregorian month. The above statutory deposits are not available to finance the Bank’s day-to-day operations and therefore are not considered part of cash and cash equivalents (note 23), when preparing consolidated statement of cash flows.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 5.
DUE FROM BANKS AND OTHER FINANCIAL INSTITUTIONS Due from banks and other financial institutions as of 31 December comprise the following: (SAR’000) 2014 2015 Current accounts Mutajara
7,325,322 63,33,,3,,
1,979,331 14,536,877
Total
62,,77,,32
16,516,208
The above due from banks and other financial institutions balances are neither past due nor impaired. 6.
INVESTMENTS a) Net investments comprise the following as of 31 December: (SAR’000) 2014 2015 Investment in an associate (a) Investments held at amortized cost Murabaha with SAMA Sukuk Total investments held at amortized cost Investments held as FVSI Equity investments Mutual funds Total investments held as FVSI Available-for -sale investments Equity investments Mutual funds Total available-for-sale investments Net investments
,3037,
23,660
520,6,0,57 706630353 5,0,360323
39,866,296 1,507,939 41,374,235
650336 7076707,5 707330333
786,257 124,331 910,588
26503,3 ,,0,67 ,,30662
241,140 241,140
5,0,,20,23
42,549,623
The designated FVSI investments included above are so designated when the financial instruments are being evaluated on a fair value basis and are in accordance with the documented risk management strategy of the Bank.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 6.
INVESTMENTS (continued) All investments held at amortized costs are neither past due nor impaired as of 31 December 2015. The Bank owns 22.5% (31 December 2014: 22.5%) of the shares of Al Rajhi Company for Cooperative Insurance, a Saudi Joint Stock Company. During the year 2015, the Bank has invested additional SAR 45 million as its share of the increase in capital of Al Rajhi Company for Cooperative Insurance.
b) The analysis of the composition of investments is as follows: (SAR‘000) 2015 Unquoted 520,6,0,57 873,400 650336 706,70,63 38,825,807
Quoted Murabaha with SAMA Sukuk Equities Mutual funds Total
352,134 698,923 1,051,057
2014 Unquoted
Quoted Murabaha with SAMA Sukuk Equities Mutual funds Total c)
433,106 786,424 1,219,530
39,866,296 1,074,833 23,493 365,471 41,330,093
Total 520,6,0,57 706630353 ,6605,3 706,70,63 5,0,,20,23
Total 39,866,296 1,507,939 809,917 365,471 42,549,623
The analysis of unrecognized gains and losses and fair values of investments are as follows: 2015 (SAR’000)
Carrying value
Gross Gross unrecognized unrecognized gains losses gains
Fair value
Murabaha with SAMA Sukuk Equities Mutual funds
36,727,031 1,225,534 722,375 1,201,924
-
(127,317) (3,271) -
36,599,714 1,222,263 722,375 706,70,63
Total
39,876,864
-
(130,588)
39,746,276
Gross Gross Carrying unrecognized unrecognized value gains losses 39,866,296 (166,903) 1,507,939 (4,523) 809,917 365,471 42,549,623 (171,426)
Fair value 39,699,393 1,503,416 809,917 365,471 42,378,197
2014 (SAR’000) Murabaha with SAMA Sukuk Equities Mutual funds Total
- 26 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 6.
INVESTMENTS (continued)
d)
Credit quality of investments (SAR’000) Sovereign debt Investment grade Non-investment grade Unrated Total
2015 32,,6,,,57 1,359,654 1,790,179 5,0,,20,23
2014 39,866,296 1,709,302 974,025 925,945,23
Investment Grade includes those investments having credit exposure equivalent to Standard and Poor's
rating of AAA to BBB. The unrated category mainly comprises of private equities, quoted equities and mutual funds. e)
f)
The following is an analysis of foreign investments according to investment categories as at 31 December: 2015 7,663,353
1,507,939
Investments held as FVSI Equity investments Mutual funds Total
67,623 7,,,2,5 7,533,3,7
21,305 124,331 1,653,575
The following is an analysis of investments according to counterparties as at 31 December: (SAR‘000) Government and quasi government Companies Banks and other financial institutions Others Net investments
7.
2014
(SAR‘000) Investments held at amortized cost Sukuk
2015 32,,6,,,57 232,,3, ,3,37, 2,427,458 5,,,,2,,23
2014 39,866,296 786,257 23,660 1,873,410 42,549,623
FINANCING, NET
7 - 1 Financing a) Net financing as of 31 December comprises the following: (SAR‘000) 2015 Non Performing - performing Gross Gross Corporate Mutajara Installment sale Murabaha Visa cards Total
5,033,0,,2 7270,270572 760,770,,, 6,30733 6760,630532 - 27 -
70,,303,, 705,,0,53 207,3 3303,6 506220,77
Provision )5037,0,,6( )606730632( )5,032,( )70,,3( )30,,505,,(
Net 520,3302,5 7270,3,0,,3 770,,,037, 5320,35 67,067,0,2,
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) (SAR‘000) 2014 Non Performing - performing Gross Gross Corporate Mutajara Installment sale Murabaha Visa cards Total
39,720,497 153,883,993 14,433,268 440,799 208,478,557
730,909 1,318,054 582,402 24,364 2,655,729
Provision (2,202,504) (2,092,957) (894,386) (4,479) (5,194,326)
Net 38,248,902 153,109,090 14,121,284 460,684 205,939,960
b) The net financing by location, inside and outside the Kingdom, as of 31 December is as follows: (SAR’000) 2015 Installment sale
Murabaha
Visa cards
Total
5,0,330565
73,03320733
8,352,333
53,0,,2
208,200,885
37,07,6
50,,30,,,
502230231
70227
,0,,,05,2
Total
3,052603,3
72506260,31
12,017,984
53,0,5,
215,991,267
Provision
)5037,0,,6(
)606730632(
(39,467)
)70,,3(
(5,773,399)
Net
520,3302,5
161,047,795
11,978,517
5320,35
67,067,0,2,
Description Inside the Kingdom Outside the Kingdom
Corporate Mutajara
2014 Installment sale
Murabaha
40,034,236
151,435,704
11,361,117
462,923
203,293,980
417,170
3,766,343
3,654,553
2,240
7,840,306
Total
40,451,406
155,202,047
15,015,670
465,163
211,134,286
Provision
(2,202,504)
(2,092,957)
(894,386)
(4,479)
(5,194,326)
Net
38,248,902
153,109,090
14,121,284
460,684
205,939,960
Description Inside the Kingdom Outside the Kingdom
Corporate Mutajara
- 28 -
Visa cards
Total
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) c) The net financing concentration risks and the related provision, by major economic sectors at 31 December are as follows: 2015 Description
Performing
Commercial Industrial Building and construction Personal Services Agriculture and fishing Other Total Additional portfolio provision Balance
21,380,148 10,564,357 9,131,983 161,444,714 7,272,909 637,071 2,293,174 212,724,356
2014 Description
Performing
Commercial Industrial Building and construction Personal Services Agriculture and fishing Other Total Additional portfolio provision Balance
24,980,386 10,581,071 13,000,833 150,910,280 5,792,065 688,026 2,525,896 208,478,557
(SAR’000) NonPerforming Provision 618,379 58,151 849,256 1,550,878 173,921 16,326 3,266,911
(471,772) (58,151) (279,920) (740,719) (110,901) (35) (11,478) (1,672,976) (4,100,423) (5,773,399)
Net financing 21,526,755 10,564,357 9,701,319 162,254,873 7,335,929 637,036 2,298,022 214,318,291 (4,100,423) 210,217,868
(SAR’000) NonPerforming Provision 393,435 5,327 42,347 2,177,614 36,360 646 2,655,729
(374,933) (211) (5,576) (1,390,405) (6,659) (213) (1,777,997) (3,416,329) (5,194,326)
Net financing 24,998,888 10,586,187 13,037,604 151,697,489 5,821,766 688,026 2,526,329 209,356,289 (3,416,329) 205,939,960
d) The table below depicts the categories of financing as shown in the statement of financial position as per main business segments at 31 December: (SAR’000)
2015 Retail
Corporate
Total
Corporate Mutajara Installment sale Murabaha Visa
733,55,,,66 637,035 53,,,5,
3,,526,3,3 ,,,57,563 77,5,,,,3, -
3,,526,3,3 725,626,,31 12,017,984 53,,,5,
Total Less: Allowance for impairment Financing, net
155,316,498 (2,194,641) 153,121,857
2,,2,3,,2, (3,578,758) 57,096,011
215,991,267 (5,773,399) 67,,67,,,2,
- 29 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) (SAR’000)
2014 Retail
Corporate
Total
Corporate Mutajara Installment sale Murabaha Visa
145,015,399 1,526,085 465,163
40,451,406 10,186,648 13,489,585 -
40,451,406 155,202,047 15,015,670 465,163
Total Less: Allowance for impairment Financing, net
147,006,647 (2,892,411) 144,114,236
64,127,639 (2,301,915) 61,825,724
211,134,286 (5,194,326) 205,939,960
e) The table below summarizes financing balances at 31 December that are neither past due nor impaired, past due but not impaired and impaired, as per the main business segments of the Bank: (SAR’000)
2015 Neither past due nor impaired
Past due but not impaired
Impaired
Total
Allowance for impairment
Net
Retail Corporate
153,669,352 3,,32,,3,3
6,7,,6, 6,3,3,7
7,533,57, 155,316,498 7,,77,3,3 2,,2,3,,2,
(2,194,641) 153,121,857 (3,578,758) 57,096,011
Total
212,136,936
3,,,36,
5,622,,77 215,991,267
(5,773,399) 67,,67,,,2,
Neither past due nor impaired
Past due but not impaired
2014
Impaired
Total
(SAR’000) Allowance for impairment
Net
Retail Corporate
144,776,254 62,517,655
350,530 834,118
1,879,863 775,866
147,006,647 (2,892,411) 144,114,236 64,127,639 (2,301,915) 61,825,724
Total
207,293,909
1,184,648
2,655,729
211,134,286 (5,194,326) 205,939,960
Financing past due for less than 90 days is not treated as impaired, unless other available information proves otherwise. Neither past due nor impaired and past due but not impaired comprise the total performing financing.
- 30 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) f) The tables below depict the quality of financing past due (up to 90 days) but not impaired at 31 December: (SAR’000) Corporate Total
2015 Retail 65,,676 35,27, 6,7,,6,
Performing loans - Standard Performing loans - Special mention Total
189,292 106,299 6,3,3,7 (SAR’000) Corporate
2014 Retail Performing loans - Standard Performing loans - Special mention Total
427,504 159,916 3,,,36,
305,550 44,980 350,530
502,100 332,018 834,118
Total 807,650 376,998 1,184,648
Financing under the standard category are performing, have sound fundamental characteristics and include those that exhibit neither actual nor potential weaknesses. The special mention category includes financing that is also performing, current and up to date in terms of principal and profit payments, However, they require close management attention as they may have potential weaknesses both financial and non-financial that may, at some future date, result in the deterioration of the repayment prospects of either the principal or the profit payments, The special mention financing would not expose the Bank to sufficient risk to warrant a worse classification. g) The tables below set out the aging of financing past due but not impaired as of 31 December: (SAR’000)
2015 Age up to 30 days 31-60 days 61-90 days Total Fair value of collateral
Corporate Mutajara 75,0,,, 75,0,37 7,0327 6,303,7 4,031,637
Installment sale ,,0,,5 3,023, 570252 7,,072, -
Total 6,,,727 672,7,7 ,5,,,, 3,,,36, 4,031,637
(SAR’000)
2014 Age
Visa 2,06,, 6,03,6 670,,7 7,60226 -
Corporate Mutajara
Installment sale
Visa
Total
up to 30 days 31-60 days 61-90 days
710,076 67,184 56,858
21,5379 73539, 345724
1152,2 ,5778 ,5271
936,502 146,308 101,838
Total
834,118
3285924
225121
1,184,648
Fair value of collateral
793,089
-
-
793,089
- 31 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) The Bank in the ordinary course of financing activities holds collateral as security to mitigate credit risk in financing, This collateral mostly include customer deposits and other cash deposits, financial guarantees, local and international equities, real estate and other property and equipment, The collateral is held mainly against commercial and consumer financing and managed against relevant exposures related to financing. The fair value of collateral is based on valuation performed by the independent experts, quoted prices (wherever available) and the valuation techniques. Experts have used various approaches in determining the fair value of real estate collateral including market comparable approach based on recent actual sales or discounted cash flow approach taking into account risk adjusted discount rates, rental yields and terminal values.
h) The table below sets out gross balances of individually impaired financing, together with the fair value of related collateral held by the Bank as at 31 December: (SAR’000) Corporate
2015 Retail -
Individually impaired financing Fair value of collateral
(SAR’000) Corporate
2014 Retail Individually impaired financing Fair value of collateral
70,7703,3 70,,70327
-
775,866 1,122,045
Total 70,7703,3 70,,70327
Total 775,866 1,122,045
The retail financing balances that are neither past due nor impaired are classified as standard category. Those balances are performing and have strong fundamental characteristics of credit history, cash flows and timely repayment, and regular monitoring is being carried out. Those balances amounted to SAR 153,669,352 thousand as at 31 December 2015 (31 December 2014: SAR 144,776,254 thousand). i)
The tables below depict the quality of neither past due nor impaired financing as at 31 December:
(SAR’000) Funded Exposure 5,700,307 45,227,824 7,539,453 58,467,584 153,669,352 212,136,936
2015 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total
- 32 -
Non-Funded Exposure 74,721 6,763,605 875,188 7,713,514 7,713,514
Total Exposure 5,775,028 51,991,429 8,414,641 66,181,098 153,669,352 219,850,450
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) (SAR’000) Funded Exposure 5,941,145 52,589,143 3,987,367 62,517,655 144,776,254 207,293,909
2014 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total j)
Non-Funded Exposure 197,086 10,682,192 732,148 11,611,426 11,611,426
Total Exposure 6,138,231 63,271,335 4,719,515 74,129,081 144,776,254 218,905,335
The tables below depict the quality of Performing financing as at 31 December:
(SAR’000) 2015 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total
Funded 5,720,854 45,464,644 7,577,677 58,763,175 153,961,181 212,724,356
Non-Funded 74,964 6,799,023 879,625 7,753,612 7,753,612
Total 5,795,818 52,263,667 8,457,302 66,516,787 153,961,181 220,477,968
Funded Exposure 5,955,303 53,402,951 3,993,519 63,351,773 145,126,784 208,478,557
Non-Funded Exposure 199,715 10,833,276 733,356 11,766,347 11,766,347
Total Exposure 6,155,018 64,236,227 4,726,875 75,118,120 145,126,784 220,244,904
(SAR’000) 2014 Low Risk(1-3) Acceptable Risk(4-6) Watch list Risk(7) Retail Total
- 33 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-1 Financing (continued) k)
The tables below depict the quality of Watch List & Non-Performing financing corporate loans and impaired retail financing as at 31 December: (SAR’000) Corporate Watch List Non-performing: Risk Rating 8 Risk Rating 9 Risk Rating 10 Retail Total
l)
2015
2014
8,457,302
4,726,875
1,212,823 508,464 190,307 10,368,896 1,355,317 11,724,213
492,436 35,979 247,451 5,502,741 1,879,863 7,382,604
The table below stratify credit exposures from corporate loans by ranges of loan-to-value (LTV) ratio. LTV is calculated as the ratio of the gross amount of the loan – or the amount committed for loan commitments – to the value of the collateral. The gross amounts exclude any impairment allowance. (SAR’000) Less than 50% 51-70% 71-90% 91-100% More than 100% Total Exposure
- 34 -
2015
2014
3,562,767 2,117,022 270,361 463,702 6,370,276 12,784,128
3,618,085 2,220,949 694,321 124,858 7,837,817 14,496,030
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7.
FINANCING, NET (continued)
7-1 Financing (continued) Risk Rating 1 Exceptional - Obligors of unquestioned credit standing at the pinnacle of credit quality. Risk Rating 2 Excellent - Obligors of the highest quality, presently and prospectively, Virtually no risk in lending to this class, Cash flows reflect exceptionally large and stable margins of protection, Projected cash flows including anticipated credit extensions indicate strong liquidity levels and debt service coverage, Balance Sheet parameters are strong, with excellent asset quality in terms of value and liquidity. Risk Rating 3 Superior - Typically obligors at the lower end of the high quality range with excellent prospects, Very good asset quality and liquidity, Consistently strong debt capacity and coverage, There could however be some elements, which with a low likelihood might impair performance in the future. Risk Rating 4 Good - Typically obligors in the high end of the medium range who are definitely sound with minor risk characteristics, Elements of strength are present in such areas as liquidity, stability of margins, cash flows, diversity of assets, and lack of dependence on one type of business. Risk Rating 5 Satisfactory - These are obligors with smaller margins of debt service coverage and with some elements of reduced strength, Satisfactory asset quality, liquidity, and good debt capacity and coverage, A loss year or declining earnings trend may occur, but the borrowers have sufficient strength and financial flexibility to offset these issues. Risk Rating 6 Adequate - Obligors with declining earnings, strained cash flow, increasing leverage and/or weakening market fundamentals that indicate above average risk, Such borrowers have limited additional debt capacity, modest coverage, average or below average asset quality and market share, Present borrower performance is satisfactory, but could be adversely affected by developing collateral quality/adequacy etc. Risk Rating 7 Very high risk - Generally undesirable business constituting an undue and unwarranted credit risk but not to the point of justifying a substandard classification, No loss of principal or interest has taken place, Potential weakness might include a weakening financial condition, an unrealistic repayment program, inadequate sources of funds, or a lack of adequate collateral, credit information or documentation, The entity is undistinguished and mediocre, No new or incremental credits will generally be considered for this category. Risk Rating 8 Substandard – Obligors in default and 90 Days Past Due on repayment of their obligations. Unacceptable business credit. Normal repayment is in jeopardy, and there exists well defined weakness in support of the same. The asset is inadequately protected by the current net worth and paying capacity of the obligor or pledged collateral. SAMA & internal guidelines of ARB require 25% Specific Provisioning for all exposures in this category. - 35 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
Risk Rating 9 Doubtful – Obligors in default and 180 Days Past Due (DPD) on their contracted obligations, however in the opinion of the management recovery/salvage value is a possibility, and hence writ-off should be deferred. Full repayment questionable. Serious problems exist to the point where a partial loss of principle is likely. Weaknesses are so pronounced that on the basis of current information, conditions and values, collection in full is highly improbable. SAMA & internal guidelines of ARB require 50% Specific Provisioning for all exposures in this category. Risk Rating 10 Loss – Obligors in default and 360 Days Past Due (DPD) on their obligations. Total loss is expected. An uncollectible assets which does not warrant classification as an active asset. A 100% Specific Provisioning must be triggered followed by the write-off process should be effected as per ARB writeoff policy.
- 36 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
7. FINANCING, NET (continued) 7-2 Impairment charge for financing: The movement in the allowance for impairment of financing for the years ended 31 December is as follows:
Retail
(SAR’000) Corporate
Total
Balance as at beginning of the year Provided during the year, net Bad debts written off
60,,60377 70,6,0525 )70,630755(
605,70,73 705,,0363 )7,702,7(
307,30562 603,30,,, )70,620,73(
Balance as at the end of the year
607,30237
503,,0,3,
30,,505,,
2015
Retail
(SAR’000) Corporate
Total
Balance as at beginning of the year Provided during the year, net Bad debts written off
2,575,018 1,727,396 (1,410,003)
1,743,833 940,227 (382,145)
4,318,851 2,667,623 (1,792,148)
Balance as at the end of the year
2,892,411
2,301,915
5,194,326
2014
7-3 Provision movement: The reconciliation of the impairment charge on financing for the year recorded in the consolidated statement of income is as follows: (SAR’000) 2014 2015 2,667,623 603,30,,, (355,444) )33,0,26( 2,312,179 7,,3,,,63
Provided during the year Recovery of written off financing, net Allowance for impairment, net 7-4 Financing include finance lease receivables, which are as follows:
Gross receivables from finance lease
2015 28,593,184
2014 24,701,447
Less than 1 year 1 to 5 years
703550,57 7,,,66,,,6
16,319 14,914,964
Unearned future finance income on finance lease
,,552,,37 6,03,507,3 )503,30733(
9,770,164 24,701,447 (2,783,479)
Net receivables from finance lease
6307,,0,5,
21,917,968
Over 5 years
- 37 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 8.
INVESTMENT PROPERTY AND PROPERTY AND EQUIPMENT, NET Property and equipment, net comprises the following as of 31 December: (SAR‘000)
Land COST At January 1 Additions Disposals At 31 December
Buildings
Leasehold land & Equipme buildings nt and improvements furniture
Total 2015
Total 2014
1589,573, 11157,2 )25887( 70,330277
2527,5329 ,125,92 )25349( 60,,503,,
8,759,, ,254,3 ,5,036,
3,247,721 9,,5732 50,,30337
8,236,247 7,352,731 15191544, 912,215 ),5281( (28,699) ,05,60,27 8,236,247
ACCUMULATED DEPRECIATION & AMORTIZATION At January 1 Charge for the year Disposals At 31 December
-
29,524, ,25117 )2537,( 6,30,5,
8995,8, 2751,3 ,,70,5,
253325,2, 2495824 6026,0333
35922532, 3,032,283 3795244 412,716 (22,693) )2537,( 50,,30,5, 3,422,306
NET BOOK VALUE At 31 December 2015
70,330277
603,,0256
3,02,7
70,,20,,,
303,,0,57
At 31 December 2014
1,845,736
2,030,228
22,881
915,096
4,813,941
Buildings include work-in-progress amounting to SAR 907 million as at 31 December 2015 (2014: SAR 717 million). Equipment and furniture includes information technology-related assets having net book value SAR 409 million (2014: SAR 578 million). The net book value of the investment property approximates the fair value. 9.
OTHER ASSETS, NET Other assets, net comprise the following as of 31 December: (SAR‘000) 2015
2014
Cheques under collection Advances payments Receivables Prepaid expenses Accrued income Investment in cars, real estate and other non-financial assets Customer debit current account Others, net
37,06,2 6,,05,5 705,30,,, 3370,63 57,0552 1,014,015 6350532 33,06,3
783,828 316,382 1,068,516 574,152 279,287 490,354 142,,,3 ,23,279
Total
4,631,213
4,306,446
- 38 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 10. DUE TO BANKS AND OTHER FINANCIAL INSTITUTIONS Due to banks and other financial institutions, comprise the following as of 31 December: (SAR‘000) 2014 2015 Current accounts Banks’ time investments Total
1,108,552 1,026,685 2,135,237
615,352 50,360,,6 4,558,224
11. CUSTOMERS’ DEPOSITS Customers’ deposits by type comprise the following as of 31 December: (SAR‘000) 2014 2015 63,0,,,076, 7,05,,0372 30,3,0755 256,227,769
Demand deposits Customers’ time investments Other customer accounts Total
228,791,014 22,513,661 4,772,372 256,077,047
The balance of the other customers’ accounts includes margins on letters of credit and guarantees, checks under clearance and transfers. Customers’ deposits by currency comprise the following as of 31 December: (SAR‘000) 2015
2014
Saudi Riyals Foreign currencies
6330,330357 7,05,50656
242,095,963 13,981,084
Total
632066,0,29
256,077,047
- 39 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 12. OTHER LIABILITIES Other liabilities comprise the following as of 31 December: (SAR‘000) 2015
2014
Accounts payable Provision for employees’ end of service benefits Accrued expenses Charities (see Note 32) Other
306560665 2730623 2,30333 650,,3 7025,0,,5
5,317,260 653,439 573,598 34,475 1,229,325
Total
8,194,601
7,603,077
13. SHARE CAPITAL The authorized, issued and fully paid share capital of the Bank consists of 1,625 million shares of SAR 10 each. (2014: 1,625 million shares of SAR 10 each) The Extraordinary General Assembly Meeting held on Jumada’ II 14, 1435H (corresponding to 14 April, 2014), approved the increase in the share capital from SAR 15,000 million to SAR 16,250 million through transfer of SAR 1,250 million from retained earnings by issuing one bonus share for every twelve shares. 14. STATUTORY, GENERAL AND OTHER RESERVES The Banking Control Law in Saudi Arabia and the By-Laws of the Bank require a transfer to statutory reserve at a minimum of 25% of net income for the year, The Bank may discontinue such transfers when the reserve equals the paid up share capital, This reserve is presently not available for distribution, An amount of SAR 1,250 million was transferred to statutory reserve during 2014 and no further transfer is required as the cumulative amount i.e., SAR 16,250 million is equal to the share capital. In addition, the Bank makes an appropriate general reserve for general banking risks and others, if any. In accordance with the Bank’s accounting policy, the Bank records the amount of Zakat it calculates in other reserves until such time when the final amount of Zakat payable can be determined, at which time, the amount of Zakat payable is transferred from other reserves to other liabilities. During the year, the Bank transferred SAR 143,376 thousand (2014: SAR 258,438 thousand) to other liabilities as Zakat payable. In addition, other reserves includes available-for-sale investments reserve, foreign currency translation reserve and employee share plan.
- 40 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 14. STATUTORY, GENERAL AND OTHER RESERVES (continued) The movements in available-for-sale investments and foreign currency reserves are summarized as follows: (SAR‘000) Available-forForeign sale currency 2015 investments translation Total Balance at beginning of the year 5,380 22,727 28,107 Net changes in fair value )6,20,73( )6,20,73( Net amount transferred to consolidated statement of income 7330,7, 7330,7, Exchange difference on translation of foreign operations )73,0,,,( )73,0,,,( )320363(
Balance at the end of the year
Balance at beginning of the year Net changes in fair value Net amount transferred to consolidated statement of income Exchange difference on translation of foreign operations Balance at the end of the year
)75,0737(
)7,502,3(
(SAR‘000) Available-forForeign sale currency investments translation 1,834 91,288 3,679 -
2014 Total 93,122 3,679
(133) 5,380
(68,561) 22,727
(133) (68,561) 28,107
The Bank under an employee share plan grants its shares to certain eligible employees. The exercise price of the stock option is the market value of these shares at the date of granting the program to these employees. The condition for granting these options is the completion of two years of employment at the Bank. Exercising these stock options by the employees is subject to fulfillment of some requirements for profitability and growth in the Bank. The Bank has no legal or expected commitment to repurchase or settle these options in cash. 15. COMMITMENTS AND CONTINGENCIES a)
Legal proceedings As at 31 December 2015, there were certain legal proceedings outstanding against the Bank in the normal course of business including those relating to the extension of credit facilities. Such proceedings are being reviewed by the concerned parties. Provisions have been made for some of these legal cases based on the assessment of the Bank’s legal advisors.
b)
Capital commitments, related to commitments to grant credit As at 31 December 2015, the Bank had capital commitments of SAR 227 million (2014: SAR 189 million) relating to contracts for computer software update and development, and SAR 532 million (2014: SAR 1,288 million) relating to development and improvement of new and existing branches. - 41 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 15. COMMITMENTS AND CONTINGENCIES (continued) c)
Credit related commitments and contingencies The primary purpose of these instruments is to ensure that funds are available to customers as required, Credit related commitments and contingencies mainly comprise letters of guarantee, standby letters of credit, acceptances and unused commitments to extend credit, Guarantees and standby letters of credit, which represent irrevocable assurances that the Bank will make payments in the event that a customer cannot meet his obligations to third parties, carry the same credit risk as financing. Letters of credit, which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralized by the underlying shipments of goods to which they relate, and therefore, carry less risk, Acceptances comprise undertakings by the Bank to pay bills of exchange drawn on customers. The Bank expects most acceptances to be presented before being reimbursed by the customers. Cash requirements under guarantees and letters of credit are considerably less than the amount of the commitment because the Bank does not expect the third party to draw funds under the agreement. Commitments to extend credit represent unused portions of authorization to extended credit, principally in the form of financing, guarantees and letters of credit, With respect to credit risk relating to commitments to extend unused credit, the Bank is potentially exposed to a loss in an amount which is equal to the total unused commitments, The likely amount of loss, which cannot be reasonably estimated, is expected to be considerably less than the total unused commitments, since most commitments to extend credit are contingent upon customers maintaining specific credit standards, The total outstanding commitments to extend credit do not necessarily represent future cash requirements, as many of these commitments could expire without being funded.
- 42 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 15. COMMITMENTS AND CONTINGENCIES (continued) 1. The contractual maturities of the Bank’s commitments and contingent liabilities are as follows at 31 December: 2015 Less than 3 months Letters of credit Acceptances Letters of guarantee Irrevocable commitments to extend credit Total
From 3 to 12 months
Over 5 years
Total
3620,6, 5,,0337 3605,6
23706,5 75,0,3, 37307,,
7,,0553 30,72 505,607,6
6503,6 507,, 60,3,076,
705,70,,, 3350,75 30,,,0,,,
77,,,, ,,,,,27
7,5,7,,27 6,3,2,62,
,3,,3,, 3,353,,3,
6,2,,,6 6,5,,,,,6
6,33,,35, 7,,5,6,,37
2014 Less than 3 months Letters of credit Acceptances Letters of guarantee Irrevocable commitments to extend credit Total
(SAR‘000) From 1 to 5 years
From 3 to 12 months
(SAR‘000) From 1 to 5 years
Over 5 years
Total
724572, 3985789
8285273 1945,22
1945421 39589,
2517,57,, 35184
358935,9, ,3,5338
69,130 543,613 1,671,233
1,366,896 3,737,211 6,061,900
4,090,204 1,189,306 5,464,256
1,860,133 1,614,798 5,653,886
7,386,363 7,084,928 18,851,275
- 43 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 15. COMMITMENTS AND CONTINGENCIES (continued) 2. The analysis of commitments and contingencies by counter-party is as follows as at 31 December: (SAR‘000) 2014 2015 Corporate Banks and other financial institutions Total d)
9,157,923 1,144,128
12,615,991 6,235,284
7,,5,6,,37
18,851,275
Operating lease commitments The future minimum lease payments under non-cancelable operating leases, where the Bank is the lessee, are as follows as at 31 December: (SAR‘000) 2014 2015 Less than one year One year to five years Over five years
6503,3 7,6063, 33026,
20,659 156,309 43,046
Total
63,06,3
220,014
16. NET FINANCING AND INVESTMENT INCOME Net financing and investment income for the years ended 31 December comprises the following: (SAR‘000) 2014 2015 Financing Corporate Mutajara Installment sale Murabaha Investments and other Murabaha with SAMA Mutajara with banks Income from Sukuk Gross financing and investment income Return on customers’ time investments Return on due to banks and financial institutions’ time investments Net financing and investment income
- 44 -
7056,0,,, ,0,7,0,5, 3,60,36
1,298,142 7,911,152 520,643
62,03,6 6,,03,, 32025, 7,063,05,, (244,011) (55,427)
273,430 148,946 60,205 10,212,518 (333,926) (61,272)
,0,3,0,36
9,817,320
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 17. FEE FROM BANKING SERVICES, NET Fees from banking services, net for the years ended 31 December comprise the following: (SAR’000) 2015
2014
Fee income Fees from advance payments on contracts Fees from payment service systems Fees from share trading services Fees from remittance business Fees from credit cards Mudaraba fee income Fees from SADAD Other Total fee income
,,,0,63 ,,60532 46,,334 32,0,7, 3260353 7520,,, 736072, 357072, 3,703,964
1,362,033 463,535 531,817 387,716 305,514 93,555 12,,343 377,9,8 3,648,021
Fee expenses Fees for payment service systems Fees for share trading services Total fee expense
),,,0522( )7,,,3,,( ),,,,,,5(
(795,048) (114,508) (909,556)
Fee from banking services, net
60,,30,,7
2,738,465
18. OTHER OPERATING INCOME Other operating income for the years ended 31 December comprises the following:
Dividend income Gain on sale of property and equipment Share of profit from investment in an associate (Loss) / Gain from equity investments and funds Income from sale of various investments Other income, net Total
- 45 -
(SAR’000) 2015 51,026 5,861 6,858 (100,939) 27,420 112,950 7,5,7,2
2014 34,837 25,615 1,738 (2,496) 23,825 75,614 159,133
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 19. SALARIES AND EMPLOYEE RELATED BENEFITS The following tables provide an analysis of the salaries and employee related benefits for the years ended 31 December: (SAR’000) Variable compensations paid Number of 2015 employees Executives 65 Employees engaged in risk taking activities 1,110 Employees engaged in control functions 314 Other employees 10,885
Fixed Compensation 3,,2,3 57,,7,, 7,,,75, 7,333,,7,
Cash 3,,,, 36,,6, 73,633 753,,53
Shares 6,,,, 5,,,, 7,267 6,633
76,5,3 12,374
1,933,731 304,732 422,580 2,661,043
197,986 197,986
10,662 10,662
Total Accrued variable compensations in 2015 Other employees’ costs Gross total
(SAR’000) Variable compensations paid Number of employees
Fixed Compensation
Executives Employees engaged in risk taking activities Employees engaged in control functions Other employees
41 1,171 206 10,343
29,030 327,878 79,253 1,246,459
9,454 51,768 10,017 163,374
2,793 2,748 810 2,824
Total Accrued variable compensations in 2014 Other employees’ costs Gross total
11,761 11,761
1,682,620 288,903 542,580 2,514,103
234,613 234,613
9,175 9,175
2014
Cash
Shares
Salaries and employee benefits contains end of services, GOSI, business trips, training and other benefits. As the Kingdom of Saudi Arabia is part of the G-20, instructions were given to all financial institutions in the Kingdom to comply with the standards and principles of Basel II and the Financial Stability Board. SAMA, as the regulatory for the financial institutions in Saudi Arabia, issued regulations on compensations and bonus in accordance with the standards and principles of Basel II and the Financial Stability Board. In light of SAMA instructions related to the compensations and bonuses, the Bank issued compensation and bonuses policy which was implemented after the Board of Directors approval. The scope of this policy is extended to include the Bank and its subsidiary companies (local and international) that are operating in the financial sector, Accordingly it includes all official employees, permanent and temporary contracted employees and service providers (contribution in risk position if SAMA allows the use of external resources).
- 46 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 19. SALARIES AND EMPLOYEES RELATED BENEFITS (continued) For consistency with other banking institutions in the Kingdom of Saudi Arabia, the Bank has used a combination of fixed and variable compensation to attract and maintain talent, The fixed compensation is assessed on a yearly basis by comparing it to other local banks in the Kingdom of Saudi Arabia including the basic salaries, allowance and benefits which is related to the employee’s ranks, The variable compensation is related to the employees performance and their compatibility to achieve the agreed on objectives, It includes incentives, performance bonus and other, Incentives are mainly paid to branches’ employees whereby the performance bonuses are paid to head office employees and others who do not qualify for incentives. These bonuses and compensation are approved by the Board of Directors as a percentage of the Bank’s income. 20. OTHER GENERAL AND ADMINISTRATIVE EXPENSES Other General and Administrative Expenses for the years ended 31 December comprises the following: (SAR’000) 2015 3,30,,3 5,,02,2 6,70766 25032, 550223 6,703,5
Utilities Software Electricity & water Consultancy Government Others
705,3063,
Total
2014 3,457,, 28851,4 2935229 1325,82 9,5,11 2,35288
153325328
21. EARNINGS PER SHARE Earnings per share for the years ended 31 December 2015 and 2014 have been calculated by dividing the net income for the year by the weighted average number of shares outstanding. The weighted average number of ordinary shares outstanding during the period is the number of ordinary shares outstanding at the beginning of the period, adjusted by the number of ordinary shares bought back or issued during the period multiplied by a time-weighting factor. The time-weighting factor is the number of days that the shares are outstanding as a proportion of the total number of days in the period. The calculation of earnings per share for year ended 31 December 2014 has been adjusted to give the retrospective effect of the bonus shares issued (Note 13). 22. PAID AND PROPOSED GROSS DIVIDENDS AND ZAKAT The Bank distributed dividends for the first half of 2015 amounting to SAR 812,500 thousand (i,e, SAR 0.5 per share) (2014: SAR 1,625,000 thousand (i,e, SAR 1 per share)), Also the Board proposed gross dividends for the second half of 2015 amounting to SAR 2,475,000 thousand (2014: SAR 1,968,750 thousand) of which SAR 850,000 thousand (2014: SAR 750,000 thousand) was deducted for Zakat from the proposed gross dividends, resulting in a net dividend of SAR 1.5 per share for 2015 (2014: SAR 1.75 per share).
- 47 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 22. PAID AND PROPOSED GROSS DIVIDENDS AND ZAKAT (continued) The Bank has filed its Zakat returns for the years up to 2014 with the Department of Zakat and Income Tax (the “DZIT”). The Zakat assessments for the years up to 2001 have been finalized with the DZIT. The Bank has received Zakat assessments from the DZIT in respect to the years 1998 to 2009 amounting to SR 2,864,352 thousand, out of which SR 2,153,811 thousand was calculated and paid in accordance with the instructions of the Bank’s Sharia Board and the remaining balance SR 710,541 thousand is recorded under other reserves. Moreover, the Bank calculated the zakat base for the years from 2010 to 2014 on a basis consistent with DZIT requirements amounting to SR 3,999,245 thousand out of which SR 1,221,643 thousand was calculated and paid in accordance with the instructions of the bank’s Sharia Board and SR 2,443,052 thousand is recorded under other reserves. The basis for this additional liability is being contested by all the Banks in Saudi Arabia, and accordingly, the Bank does not expect any additional zakat liability. The Bank has formally contested these assessments and is awaiting a response from DZIT. The management believes that the ultimate outcome of the appeals filed and actions taken by the Bank in conjunction with other banks in the Kingdom of Saudi Arabia cannot be determined reliably at this stage. 23. CASH AND CASH EQUIVALENTS Cash and cash equivalents included in the consolidated statement of cash flows comprise the following: (SAR’000) 2014 2015 Cash Due from banks and other financial institutions mature within 90 days from the date of purchased Balances with SAMA and other central banks (current accounts) Total
,0,2306,3
8,963,159
60,270,32 ,32073, 7605,603,,
4,128,042 9,140,784 22,231,985
24. OPERATING SEGMENTS The Bank identifies operating segments on the basis of internal reports about the activities of the Bank that are regularly reviewed by the chief operating decision maker, principally the Chief Executive Officer, in order to allocate resources to the segments and to assess its performance. For management purposes, the Bank is organized into the following four main businesses segments: Retail segment:
Includes individual customer deposits, credit facilities, customer debit current accounts (overdrafts), fees from banking services and remittance business.
Corporate segment:
Incorporates deposits of VIP, corporate customer deposits, credit facilities, and debit current accounts (overdrafts).
Treasury segment:
Incorporates treasury services, Murabaha with SAMA and international Mutajara portfolio.
Investment services and brokerage segments:
Incorporates investments of individuals and corporate in mutual funds, local and international share trading services and investment portfolios. - 48 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014
24. OPERATING SEGMENTS (continued) Transactions between the above segments are on normal commercial terms and conditions, There are no material items of income or expenses between the above segments, Assets and liabilities for the segments comprise operating assets and liabilities, which represents the majority of the Bank’s assets and liabilities. The Bank carries out its activities principally in the Kingdom of Saudi Arabia, and has five subsidiaries as of 31 December 2015 and 2014, as listed in Note 1-a, of which one operate outside the Kingdom of Saudi Arabia, additional to overseas branches operate in Jordan and Kuwait. The total assets, liabilities, commitments, contingencies and results of operations of these subsidiaries are not material to the Bank’s consolidated financial statements as a whole. a) The Bank’s total assets and liabilities, together with its total operating income and expenses, and net income, as of and for the years ended 31 December for each segment are as follows: (SAR’000)
2015
Investment services and brokerage segment
Retail segment
Corporate segment
Treasury segment
Total assets
7230,230,,,
33037,02,,
,7033,0572
602,,023,
573027,023,
Total liabilities
6360,67027,
72037,052,
,0,630,,3
,730,55
62,0,,,03,3
1,961,458
3,507,3
5,0633
7,063,05,,
)66,0,33(
-
,03,,0,,,
70,370375
3,507,3
5,0633
702370266
3,,0,,3 )703,6(
3,03,, ,,,0322 3703,,
37307,2
)730,,6( 9,222,919
2,239,705
Gross financing & investments income Return on customers’ time investments Net financing & investments income Fees from banking services, net Exchange income, net Other operating income
,02,203,6 ),,05,5(
Total
-
)6,,035,( ,0,3,0,36
-
60,,30,,7 ,,,0322 7,507,2
1,651,740
631,411
13,745,775
,,0,2,
Total operating income Impairment charge for financing and others Depreciation and amortization Other operating expenses
),,70,23(
),,20,2,(
-
-
)70,3,0,63(
)53603,5( )50,,50,,6(
)76035,( )62302,,(
)60376( )330,5,(
)2022,( )7270,,2(
)5,30,,,( )306,503,2(
Total operating expenses
)3075,035,(
)7063506,2(
)3,0737(
)72,0,35(
)202730,,,(
4,085,389
986,429
1,594,589
463,668
7,130,075
Net income for the year
- 49 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 24. OPERATING SEGMENTS (continued) (SAR’000)
2014
Retail segment
Corporate segment
Treasury segment
Investment services and brokerage segment and other
Total assets
1,352495222
,352175889
8,52875712
,53115491
32757115,,,
Total liabilities
2145332582,
21549,5919
145,315,31
,52275942
2,,581,53,1
75,495,27
252825721
94352,9
)47512,(
)2485242(
-
759475921
157825,24
94352,9
15,,,5384 19754,1
,395,78 115182
9,311,761
2,328,389
1,453,522
)15371599,(
)4925739(
-
)34259,,( )35,1357,,( ),53775,,,( 3,934,105
)1258,,( )32254,7( )152,95,,7( 1,073,832
)2532,( )9,5,81( )975487( 1,405,535
Gross financing & investments income Return on customers’ time investments Net financing & investments income Fees from banking services, net Exchange income, net Other operating income Total operating income Impairment charge for financing and others Depreciation and amortization Other operating expenses Total operating expenses Net income for the year
b)
85912 4,252,, -
Total
99521,
1252125,18
-
)34,5148(
99521,
458175322
,24528, -
2573859,, 4,252,, 1,45133
573,302
13,666,974 -
)253125174(
),5248( )19,5,29( )1,25,22( 422,700
)912571,( )9512,5427( ),58325822( 6,836,172
The Bank’s credit exposure by business segments as of 31 December is as follows: (SAR’000)
2015
Retail segment Consolidated balance sheet assets 146,364,449 Commitments and contingencies excluding irrevocable commitments to extend credit
1,059,590
Corporate segment
Investment services and brokerage segment
Treasury segment
53,860,939
72,069,402
6,694,022
-
- 50 -
Total
6,060,998 278,355,788
-
,0,350276
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 24. OPERATING SEGMENTS (continued) (SAR’000)
2014
Retail segment Consolidated balance sheet assets Commitments and contingencies excluding irrevocable commitments to extend credit
Treasury segment
Investment services and brokerage segment
61,443,496 58,835,744
2,210,749
265,005,791
-
11,766,347
Corporate segment
142,515,802
4,294,910
7,471,437
-
Total
Credit risks comprise the carrying value of the consolidated statement of financial position, except for cash and balances with SAMA, investment property, property and equipment and other assets, The credit equivalent value of commitments and contingencies are included in credit exposure. 25. FINANCIAL RISK MANAGEMENT The Bank's activities expose it to a variety of financial risks and those activities involve the analysis, evaluation, acceptance and management of some degree of risk or combination of risks, Taking risk is core to the banking business, and these risks are an inevitable consequence of participating in financial markets, The Bank's aim is therefore to achieve an appropriate balance between risk and return and minimize potential adverse effects on the Bank’s financial performance. The Bank's risk management policies, procedures and systems are designed to identify and analyze these risks and to set appropriate risk mitigants and controls, The Bank reviews its risk management policies and systems on an ongoing basis to reflect changes in markets, products and emerging best practice. Risk management is performed by the Credit and Risk Management Group (“CRMG”) under policies approved by the Board of Directors, The CRMG identifies and evaluates financial risks in close cooperation with the Bank's operating units, The most important types of risks identified by the Bank are credit risk, liquidity risk and market risk, Market risk includes currency risk, profit rate risk, operational risk and price risk. 25-1 Credit risk Credit risk is considered to be the most significant and pervasive risk for the Bank, The Bank takes on exposure to credit risk, which is the risk that the counter-party to a financial transaction will fail to discharge an obligation causing the Bank to incur a financial loss, Credit risk arises principally from financing (credit facilities provided to customers) and from cash and deposits held with other banks, Further, there is credit risk in certain off-balance sheet financial instruments, including guarantees relating to purchase and sale of foreign currencies, letters of credit, acceptances and commitments to extend credit, Credit risk monitoring and control is performed by the CRMG which sets parameters and thresholds for the Bank's financing activities.
- 51 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) a. Credit risk measurement Financing The Bank has structured a number of financial products which are in accordance with Sharia law in order to meet the customers demand, These products are all classified as financing assets in the Bank's consolidated statement of financial position, In measuring credit risk of financing at a counterparty level, the Bank considers the overall credit worthiness of the customer based on a proprietary risk methodology, This risk rating methodology utilizes a 10 point scale based on quantitative and qualitative factors with seven performing categories (rated 1 to 7) and three non performing categories (rated 8-10), The risk rating process is intended to advise the various independent approval authorities of the inherent risks associated with the counterparty and assist in determining suitable pricing commensurate with the associated risk. This process also enables the Bank to detect any weakness in the portfolio quality and make appropriate adjustments to credit risk allowances, where credit quality has deteriorated and where losses are likely to arise, The Bank evaluates individual corporate customer balances which are past due to make appropriate allowances against financings, For the remaining (performing) corporate portfolio, the Bank applies a loss rate to determine an appropriate collective allowance, The loss rate is determined based on historical experience of credit losses. Settlement risk The Bank is also exposed to settlement risk in its dealings with other financial institutions, These risks arise when the Bank pays away its side of the transaction to the other bank or counterparty before receiving payment from the third party, The risk is that the third party may not pay its obligation, While these exposures are short in duration but they can be significant, The risk is mitigated by dealing with highly rated counterparties, holding collateral and limiting the size of the exposures according to the risk rating of the counterparty. b. Risk limit control and mitigation policies The responsibility for credit risk management is enterprise wide in scope, Strong risk management is integrated into daily processes, decision making and strategy setting, thereby making the understanding and management of credit risk the responsibility of every business segment. The following business units within the Bank assist in the credit control process:
Corporate Credit Unit, Credit Administration, Monitoring and Control Unit, Remedial Unit, Credit Policy Unit, Retail Credit Unit,
The monitoring and management of credit risk associated with these financing are made by setting approved credit limits, The Bank manages limits and controls concentrations of credit risk wherever they are identified - in particular, to individual customers and groups, and to industries and countries.
- 52 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) Concentrations of credit risks arise when a number of customers are engaged in similar business activities, activities in the same geographic region, or have similar economic features that would cause their ability to meet contractual obligations to be similarly affected by changes in economic, political or other conditions, Concentrations of credit risks indicate the relative sensitivity of the Bank's performance to developments affecting a particular industry or geographical location. The Bank seeks to manage its credit risk exposure through diversification of its financing to ensure there is no undue concentration of risks with to individuals or groups of customers in specific geographical locations or economic sectors. The Bank manages credit risk by placing limits on the amount of risk accepted in relation to individual customers and groups, and to geographic and economic segments, Such risks are monitored on a regular basis and are subject to an annual or more frequent review, when considered necessary, Limits on the level of credit risk by product, economic sector and by country are reviewed at least annually by the executive committee. Exposure to credit risk is also managed through regular analysis on the ability of customers and potential customers to meet financial and contractual repayment obligations and by revising credit limits where appropriate. Some other specific control and mitigation measures are outlined below: b-1) Collateral The Bank implements guidelines on the level and quality of specific classes of collateral, The principal collateral types are: Mortgages over residential and commercial properties, Cash, shares, and general assets for customer, Shares for Murabaha (collateralized share trading) transactions, b-2) Collateralized Credit - related commitments The primary purpose of these instruments is to ensure that funds are available to a customer as required, Guarantees and standby letters of credit carry the same credit risk as traditional banking products of the Bank. Documentary and commercial letters of credit - which are written undertakings by the Bank on behalf of a customer authorizing a third party to draw drafts on the Bank up to a stipulated amount under specific terms and conditions, are collateralized by the underlying goods to which they relate, and therefore, risk is partially mitigated. Commitments to extend credit represent unused portions of authorizations to extend credit in the form of further financing products, guarantees or letters of credit, With respect to credit risk on commitments to extend credit, the Bank is potentially exposed to loss in an amount equal to the total unused commitments, However, the likely amount of loss is less than the total unused commitments, as most commitments to extend credit are contingent upon customers maintaining specific credit standards.
- 53 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) c.
Impairment and provisioning policies Allowance for impairment is recognized for financial reporting purposes only for losses that have been incurred at the statement of financial position date based on objective evidence of impairment, and management judgment. Management determines whether objective evidence of impairment exists under IAS 39, based on the following criteria as defined by the Bank:
Delinquency in contractual payments of principal or profit, Cash flow difficulties experienced by the customer, Breach of repayment covenants or conditions, Initiation of bankruptcy proceedings against the customer, Deterioration of the customer’s competitive position, Deterioration in the value of collateral,
The Bank's policy requires the review of each individual corporate customer at least annually or more regularly when individual circumstances require, Impairment allowances on individually assessed accounts are determined by an evaluation of incurred losses at the statement of financial position date on a case-by-case basis, and by using management judgment. The assessment normally encompasses collateral held (including re-confirmation of its enforceability) and the anticipated receipts for that individual account. Collectively assessed impairment allowances are provided for: Portfolios of homogenous assets mainly relating to the retail financing portfolio that are individually not significant. On the corporate portfolio for financing where losses have been incurred but not yet identified, by using historical experience, judgment and statistical techniques. The table below sets out the maximum exposure to credit risk at the reporting date without considering collateral or other credit enhancements and includes the off-balance sheet financial instruments involving credit risks as at 31 December: (SAR‘000) 2014 2015 On-balance sheet items Due from banks and other financial institutions 16,516,208 620,770,32 Financing, net 61,825,724 Corporate 3,0,,20,77 144,114,236 Retail 73507670,3, Other assets, net 2,042,997 2,136,460 224,499,165 Total on-balance sheet items 239,265,384 Off-balance sheet items: Letters of credit and acceptances Letters of guarantee Irrevocable commitments to extend credit Total off-balance sheet items Maximum exposure to credit risk - 54 -
70,330,76 30,,,0,,, 6,33,,35, 7,,5,6,,37
4,379,984 7,386,363 7,084,928 18,851,275
249,567,435
243,350,440
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The above table represents a worst case scenario of credit risk exposure to the Bank at 31 December 2015 and 2014, without taking account of any collateral held or other credit enhancements attached, For on-balance-sheet assets, the exposures set out above are based on net carrying amounts as reported in the consolidated statement of financial position. 25-2 Liquidity risks Liquidity risk is the risk that the Bank will be unable to meet its payment obligations associated with its financial liabilities when they fall due and to replace funds when they are withdrawn, The consequence may be the failure to meet obligations to repay deposits and financing parties and fulfill financing commitments, Liquidity risk can be caused by market disruptions or by credit downgrades, which may cause certain sources of funding to become unavailable immediately, Diverse funding sources available to the Bank help mitigate this risk, Assets are managed with liquidity in mind, maintaining a conservative balance of cash and cash equivalents. Liquidity risk management process The Bank’s liquidity management process is as monitored by the Bank’s Asset and Liabilities Committee (ALCO), includes:
Day-to-day funding, managed by Treasury to ensure that requirements can be met and this includes replenishment of funds as they mature or are invested; Monitoring balance sheet liquidity ratios against internal and regulatory requirements; Managing the concentration and profile of debt maturities; Maintain diversified funding sources; and Liquidity management and asset and liability mismatching,
Monitoring and reporting take the form of analyzing cash flows of items with both contractual and non-contractual maturities, The net cash flows are measured and ensured that they are within acceptable ranges, The Treasury / ALCO also monitors, the level and type of undrawn lending commitments, usage of overdraft facilities and the potential impact contingent liabilities such as standby letters of credit and guarantees may have on the Bank’s liquidity position. The tables below summarize the maturity profile of the Bank’s assets and liabilities, on the basis of the remaining maturity as of the consolidated statement of financial position date to the contractual maturity date. Management monitors the maturity profile to ensure that adequate liquidity is maintained, Assets available to meet all of the liabilities and to cover outstanding financing commitments include cash, balances with SAMA and due from banks, Further, in accordance with the Banking Control Law and Regulations issued by SAMA, the Bank maintains a statutory deposit equal to a sum not less than 7% of total customers’ deposits, and 4% of total other customers’ accounts, In addition to the statutory deposit, the Bank maintains a liquid reserve of not less than 20% of the deposit liabilities, in the form of cash, gold or assets which can be converted into cash within a period not exceeding 30 days, Also, the Bank has the ability to raise additional funds through special financing arrangements with SAMA including deferred sales transactions.
- 55 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The contractual maturities of financial assets and liabilities as of 31 December based on discounted cash flows are as follows. The table below does not reflect the expected cash flows indicated by the deposit retention history of the Group. The current deposits have been included in ‘less than 3 months bucket’. Management monitors rolling forecast of the Group’s liquidity position and cash and cash equivalents on the basis of expected cash flows. This is carried out in accordance with practice and limits set by the Group and based on the pattern of historical deposit movement. In addition, the Group’s liquidity management policy involves projecting cash flows in major currencies and considering the level of liquid assets necessary to meet these, monitoring balance sheet liquidity ratios against internal and external regulatory requirements and maintaining debt financing plans. (SAR’000)
2015 Less than 3 months Assets Cash and balance with SAMA and central banks Due from banks and other financial institutions Financing, net Investments Other assets, net Total Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total Gap
15,407,536 9,936,803 27,776,037 22,826,712 2,136,460 78,083,548
2,956,011 254,355,826 6,871,016 264,182,853 (186,099,305)
3 to 12 months
3,082,812
934,842 1,475,356 2,410,198
Gap
3,425,348
27,053,716
- 26,911,056 16,749,509 210,217,868 3,838,902 39,876,864 2,136,460 24,013,759 306,195,964
623,672 396,587 1,020,259
73,367,511 127,300,689
Total
43,699 4,558,224 - 256,227,769 6,871,016 43,699 267,657,009 23,970,060
38,538,955
(SAR’000) Less than 3 months
Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total
5,138,020
15,854,285 1,119,968 46,768,663 118,923,659 10,071,949 3,139,301 75,777,709 128,320,948
2014
Assets Cash and balance with SAMA and central banks Due from banks and other financial institutions Financing, net Investments Other assets, net Total
1 to 5 years Over 5 years
3 to 12 months
33,585,377 6,905,454 26,156,352 18,095,541 2,042,997 86,785,721
1,001,991 239,084,695 6,341,565 246,428,251 (159,642,530)
1 to 5 years Over 5 years
-
Total
-
-
33,585,377
9,610,754 45,374,329 119,619,864 23,162,515 10,574 78,147,598 119,630,438
14,789,415 1,280,993 16,070,408
16,516,208 205,939,960 42,549,623 2,042,997 300,634,165
236,164 1,612,806 1,848,970
63,178 3,095,232 3,158,410
2,135,237 256,077,047 6,341,565 264,553,849
65,029,380 117,781,468
12,911,998
36,080,316
833,904 12,284,314 13,118,218
- 56 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The following tables disclose the maturity of contractual financial liabilities on undiscounted cash flows as at 31 December: (SAR’000)
2015 Less than 3 months Due to banks and other financial institutions
3 to 12 months
1 to 5 years Over 5 years
No fixed maturity
Total
2,914,248
934,842
623,672
43,699
43,837
4,560,298
Customer deposits Other liabilities
253,709,468 6,871,016
1,475,648 -
396,587 -
-
673,319 256,255,022 6,871,016
Total
263,494,732
2,410,490
1,020,259
43,699
717,156 267,686,336
Less than 3 months
3 to 12 months
Due to banks and other financial institutions Customer deposits Other liabilities
22,902 240,538,835 6,341,565
2,152,335 10,831,249 -
996,116 -
3,731,329 -
-
Total
246,903,302
12,983,584
996,116
3,731,329
- 264,614,331
(SAR’000)
2014
1 to 5 years Over 5 years
No fixed maturity
Total
2,175,237 256,097,529 6,341,565
The cumulative maturities of commitments & contingencies are given in note 15-c-1 of the financial statements. 25-3 Market risks The Bank is exposed to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, Market risks arise on profit rate products, foreign currency and mutual fund products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit rates, foreign exchange rates and quoted market prices. Market risk exposures are monitored by Treasury / Credit & Risk department and reported to ALCO on a monthly basis, ALCO deliberates on the risks taken and ensure that they are appropriate. a.
Market risks - speculative operations The Bank is not exposed to market risks from speculative operations, The Bank is committed to Sharia guidelines which does not permit it to enter into contracts or speculative instruments such as hedging, options, forward contracts and derivatives.
- 57 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) b.
Market risks - banking operations The Bank is exposed to market risks, which is the risk that the fair value or future cash flows of a financial instrument will fluctuate due to changes in market prices, Market risks arise on profit rate products, foreign currency and mutual fund products, all of which are exposed to general and specific market movements and changes in the level of volatility of market rates or prices such as profit rates, foreign exchange rates and quoted market prices. - Profit rate risk Cash flow profit rate risk is the risk that the future cash flows of a financial instrument will fluctuate due to changes in market profit rates, The Bank does not have any significant exposure to the effects of fluctuations in prevailing level of market profit rates on its future cash flows as a significant portion of profit earning financial assets and profit bearing liabilities are at fixed rates and are carried in the financial statements at amortized cost, In addition to this, a substantial portion of the Bank’s financial liabilities are non-interest bearing. Commission rate risk arises from the possibility that the changes in profit rates will affect either the fair values or the future cash flows of the financial instruments. The Board has established commission rate gap limits for stipulated periods. The Bank monitors positions daily and uses gap management strategies to ensure maintenance of positions within the established gap limits. The following table depicts the sensitivity to a reasonable possible change in profit rates, with other variables held constant, on the Bank’s statement of income or equity. The sensitivity of the income is the effect of the assumed changes in profit rates on the net income for one year, based on the floating rate non-trading financial assets and financial liabilities held as at 31 December 2015 and 2014. The sensitivity of equity is same as sensitivity of income since the Bank does not have fixed rate availablefor-sale financial assets as at 31 December 2015 and 2014. All the banking book exposures are monitored and analyzed in currency concentrations and relevant sensitivities are disclosed in SAR million. 2015 Currency
Increase in basis
SAR in Million Sensitivity of gross financing and investment income As at December
31 Average
187
Maximum for
Minimum
SAR
+ 25
211
Currency
Decrease in basis
Sensitivity of gross financing and investment income
SAR
- 25
225
152
As at 31 December
Average
Maximum for
Minimum
- 211
- 187
- 225
-152
- 58 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) 2014 Currency
SAR Currency
SAR
Increase in basis
+ 25 Decrease in basis
- 25
SAR in Million Sensitivity of gross financing and investment income As at December 155
31 Average 147
Maximum for 155
Minimum 133
Sensitivity of gross financing and investment income As at December - 155
31 Average - 147
Maximum for -155
Minimum -133
*Profit rate movements affect reported equity through retained earnings, i.e. increases or decreases in financing and investment income.
- 59 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) Commission sensitivity of assets, liabilities and off balance sheet items (SAR’000)
2015 Less than 3 months
3 to 6 months
6 to 12 months
15,407,537 9,936,803 22,826,712 27,776,037 2,136,460 78,083,549
1,027,604 5,284,762 3,357,316 15,589,554 25,259,236
2,055,208 5,138,020 10,569,523 1,119,968 6,714,633 3,139,301 31,179,109 118,923,659 50,518,473 128,320,948
2,956,011 254,355,826 6,871,016
264,182,853
311,614 491,785 803,399
Gap
(186,099,304)
24,455,837
48,911,674 127,300,689
23,970,059
38,538,955
Profit Rate Sensitivity - On Statement of Financial Positions
(186,099,304)
24,455,837
48,911,674 127,300,689
23,970,059
38,538,955
Profit Rate Sensitivity - Off Statement of Financial Positions
279,464
-
-
-
279,464
(185,819,840)
24,455,837
48,911,674 127,300,689
23,970,059
38,538,955
Assets Cash and balance with SAMA Due from banks and other financial institutions Investments Financing, net Other assets Total Assets Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities
Total Profit Rate Sensitivity Gap
1 to 5 years
623,228 983,571 1,606,799
-
623,672 396,587 1,020,259
Over 5 years
Total
3,425,347 27,053,716 - 26,911,056 3,838,902 39,876,864 16,749,509 210,217,868 2,136,460 24,013,758 306,195,964
43,699 4,558,224 - 256,227,769 6,871,016 43,699 267,657,009
(185,819,840) (161,364,003) (112,452,329) 14,848,360 38,818,419 77,357,374 Cumulative Profit Rate Sensitivity Gap The Bank manages exposure to the effects of various risks associated with fluctuations in the prevailing levels of market commission rates on its financial position and cash flows. The Board sets limits on the level of mismatch of commission rate reprising that may be undertaken, which is monitored daily by bank Treasury. The table below summarizes the Bank’s exposure to profit rate risks. Included in the table are the Bank’s financial instruments at carrying amounts, categorized by the earlier of contractual re-pricing or maturity dates. - 60 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The Bank is exposed to profit rate risk as a result of mismatches or gaps in the amounts of assets and liabilities and off balance sheet instruments that mature or re-price in a given period. The Bank manages this risk by matching the re-pricing of assets and liabilities through risk management strategies.
3 to 6 months
6 to 12 months
1 to 5 years
(Amounts in SAR’000) Over 5 years Total
33,585,377 6,905,454 18,095,541 26,156,352 2,042,997 86,785,721
3,203,585 7,720,838 15,124,776 26,049,199
6,407,169 15,441,677 10,574 30,249,553 119,619,864 52,098,399 119,630,438
- 33,585,377 - 16,516,208 1,280,993 42,549,623 14,789,415 205,939,960 2,042,997 16,070,408 300,643,165
1,001,991 239,084,695
277,968 4,094,771
555,936 8,189,543
6,341,565
-
-
246,428,251
4,372,739
8,745,479
Gap
(159,642,530)
21,676,460
43,352,920 117,781,468
12,911,998
36,080,316
Profit Rate Sensitivity - On Statement of Financial Positions
(159,642,530)
21,676,460
43,352,920 117,781,468
12,911,998
36,080,316
Profit Rate Sensitivity - Off Statement of Financial Positions
587,254
-
-
-
587,254
Total Profit Rate Sensitivity Gap
(159,055,276)
21,676,460
43,352,920 117,781,468
12,911,998
36,080,316
Cumulative Profit Rate Sensitivity Gap
(159,055,276) (137,378,816)
36,667,570
72,747,886
2014 Less than 3 months Assets Cash and balance with SAMA Due from banks and other financial institutions Investments Financing, net Other assets Total Assets Liabilities Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities
-
(94,025,896)
236,164 1,612,806 1,848,970
23,755,572
63,178 2,135,237 3,095,232 256,077,047 -
6,341,565
3,158,410 264,553,849
The off statement of financial position gap represents the net notional amounts of derivative financial instruments, which are used to manage the profit rate risk. The effective profit rate (effective yield) of a monetary financial instrument is the rate that, when used in a present value calculation, results in the carrying amount of the instrument. The rate is a historical rate for a fixed rate instrument carried at amortized cost and a current market rate for a floating rate instrument or an instrument carried at fair value.
- 61 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) The tables below summarize the Bank’s exposure to foreign currency exchange rate risk at 31 December 2015 and 2014 and the concentration of currency risks, Included in the table are the Bank’s financial instruments at carrying amounts, categorized by currency: 2015 (SAR’000) UAE Dirham ASSETS Cash and cash equivalents Due from banks and other financial institutions Financing, net Investments Other assets, net Total Assets LIABILITIES Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities Net
Japanese Yen
Malaysian Ringgit
Euro
US Dollar
Pound Sterling
Other
Total
21,550 240,074
21,819
61,937 117,758
224,823 213,775
803,195 885,520
30,689 930,146 6,469 1,203,041
2,072,340 2,688,456
261,624
21,819
357 66 180,118
4,396,890 1,230,346 33,968 195,604 6,295,406
6,539,121 92,725 61,375 41,866 8,423,802
- 2,855,760 37 34,255 196 12,231 37,391 5,035,433
13,791,771 1,323,428 129,635 249,963 20,255,593
72
-
818
239,906
1,294,501
4,809 5,766 10,647 250,977
25,285 1,030 26,315 (4,496)
180,737 22,633 204,188 (24,070)
5,067,733 85,567 5,393,206 902,200
1,241,850 166,210 2,702,561 5,721,241
- 62 -
1,868
8,434
1,545,599
21,905 3,840,913 5,847 153,002 29,620 4,002,349 7,771 1,033,084
10,383,232 440,055 12,368,886 7,886,707
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) 2014 (SAR’000) UAE Dirham ASSETS Cash and cash equivalents Due from banks and other financial institutions Financing, net Investments Other assets, net Total Assets LIABILITIES Due to banks and other financial institutions Customer deposits Other liabilities Total Liabilities Net
Japanese Yen
Malaysian Ringgit
Euro
US Dollar
40,405
-
22,840
270,847
120,472
426,395 466,800
9,490 9,490
168,777 398 1,162 193,177
416,924 5,270,717 1,515,395 295,053 7,768,936
72 7,176 7,428 14,676
9,124 1,060 10,184
1,726 240,653 24,010 266,389
(694) (73,212)
452,124
Pound Sterling
11,492
Other
Total
511,228
977,284
1,313,871 7,432,936 105,866 103,218 9,076,363
8,077 484,231 - 2,152,261 82,149 40,751 19,569 3,270,620
2,827,765 14,855,914 1,703,808 440,184 20,804,955
3,415,008 3,101,469 77,638 6,594,115
858,332 8,303,772 523,296 9,685,400
1,867 20,242 21,221 2,297,669 7,309 157,282 30,397 2,475,193
4,297,247 13,981,084 798,023 19,076,354
1,174,821
(609,037)
(10,828)
795,427
1,728,601
- Foreign currency risks Currency risk represents the risk of change in the value of financial instruments due to changes in foreign exchange rates. The Bank management has set limits on positions by currencies, which are regularly monitored to ensure that positions are maintained within the limits. The table below shows the currencies to which the Bank has a significant exposure as at 31 December 2015 on its non-trading monetary assets and liabilities and forecasted cash flows. The analysis calculates the effect of reasonable possible movement of the currency rate against SAR, with all other variables held constant, on the statement of income (due to the fair value of the currency sensitive non-trading monetary assets and liabilities) and equity. A positive effect shows a potential increase in the statement of income statement of income or equity; whereas a negative effect shows a potential net reduction in the statement of income or equity.
- 63 -
AL RAJHI BANKING AND INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) (SAR in million) ____________________________________________________________________________________ Currency Exposures Change in Currency Effect on Net Income Effect on Equity As at 31 December 2015 Rate in % AED USD EUR INR PKR
+/- 2 +/- 2 +/- 5 +/- 5 +/- 5
5.03 112.55 1.52 0.94 2.14
5.03 112.55 1.52 0.94 2.14
(SAR in million) _____________________________________________________________________________________ Currency Exposures Change in Currency Effect on Net Income Effect on Equity As at 31 December 2014 Rate in % AED USD EUR INR PKR
+/- 2 +/- 2 +/- 5 +/- 5 +/- 5
9.03 15.73 0.96 0.18 1.74
9.03 15.73 0.96 0.18 1.74
Currency position The Bank manages exposure to the effects of fluctuations in prevailing foreign currency exchange rates on its financial position and cash flows. The Board of Directors sets limits on the level of exposure by currency and in total for both overnight and intra-day positions, which are monitored daily. At the end of the year, the Bank had the following significant net exposures denominated in foreign currencies : 2015 SAR '000 Long/(short) 5,627,664 (4,350) (30,346) 7,823 515,146
US Dollar Japanese Yen Euro Pound Sterling Others
- 64 -
2014 SAR '000 Long/(short) (773,272) (690) (18,109) (2,326) 1,478,303
AL RAJHI BANKING AND INVESTMENT CORPORATION
NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 25. FINANCIAL RISK MANAGEMENT (continued) c.
Price risk The Bank has certain investments which are carried at fair value through the income statement (FVSI) and includes investments in quoted mutual funds and other investments, Price risk arises due to changes in quoted market prices of these mutual funds. As these investments are in a limited number of funds and are not significant to the total investment portfolio, the Bank monitors them periodically and determines the risk of holding them based on changes in market prices. Other investments have little or no risks as these are bought for immediate sales, Investments are made only with a confirmed sale order and therefore involve minimal risk.
Equity Price Risk
Equity risk refers to the risk of decrease in fair values of equities in the Bank’s non-trading investment portfolio as a result of reasonable possible changes in levels of equity indices and the value of individual stocks. The effect on the Bank’s equity investments held as available-for-sale due to reasonable possible change in prices, with all other variables held constant is as follows:
Equity Mutual funds d.
31 December 2015 31 December 2014 -------------------------------------------------------------------------Change in Effect Change in Effect Equity price % in SAR Equity price % in SAR Million Million + /- 10 + /- 62,34 + /- 10 + /- 76,27 + /- 10 + /- 120,19 + /- 10 + /- 36,54
Operational risk Operational risk is the risk of loss resulting from inadequate or failed internal processes, people, systems, and external events. Operational risk is inherent in most of the Bank’s activities this necessitates an integrated approach to the identification, measurement and monitoring of operational risk. An Operational Risk Management Unit (ORMU) has been established within the Credit and Risk Management Group which facilitates the management of Operational Risk within the Bank, ORMU facilitates the management of Operational Risk by setting policies, developing systems, tools and methodologies, overseeing their implementation and use within the business units and providing ongoing monitoring and guidance across the Bank The three primary operational risk management processes in the Bank are Risk Control Self Assessment, Operational Loss Database and eventual implementation of Key Risk Indicators which are designed to function in a mutually reinforcing manner.
- 65 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 26. GEOGRAPHICAL CONCENTRATION a)
The distribution by the geographical region of the major categories of assets, liabilities, commitments, contingencies and credit exposure accounts as of 31 December is as follows:
2015
(SAR‘000) Kingdom of Saudi Arabia
Other GCC and Middle East
North America
South America
South East Asia
Other Countries
Cash and balances with SAMA and central banks
630,,6023,
,3,0,66
-
-
-
667075,
-
6,0,350,72
Due from banks and other financial institutions
6507730373
603,,0733
6350,6,
6,50732
-
35302,,
6650,55
620,770,32
Financing, net
6,6033,0,,5
506,50,,2
-
-
-
305,20,,,
-
67,067,0,2,
Investments
5,036705,5 6,,073,055,
560,25 20,330662
53, 63307,,
6,50732
-
705650,,7 203,30,,3
6650,55
5,0,,20,23 5,30,3,03,3
5036505,2 6320337062, 63,0,,303,3 ,0,,,05,, 2072,02,,
,660,23 302,,0,2, 305570355 33,0,36 33,0,36
7,07,7 7,07,7 60353 60353
,0,57 ,0,57 65,0,75 65,0,75
-
5630326 30,2,0,55 305,506,3 1,614,367 875,618
3,0,3, 3,0,3, 17,006 17,006
3033,0663 632066,0,2, 62,0,,30,,5 7,05,60,37 ,0,350276
Europe
Total
Assets
Total Liabilities Due to banks and other financial institutions Customer deposits Total Commitments and contingencies Credit exposure (stated at credit equivalent value)
- 66 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 26. GEOGRAPHICAL CONCENTRATION (continued) 2014
(SAR‘000) Kingdom of Saudi Arabia
Other GCC and Middle East
32,856,203
457,989
338
7,575,121
7,024,185
Financing, net
198,262,770
Investments
North America
South America
South East Asia
Other Countries
-
-
270,847
-
33,585,377
180,391
1,067,426
-
568,677
100,408
16,516,208
2,549,224
-
-
-
5,127,966
-
205,939,960
40,896,048 279,590,142
33,896 10,065,294
398 181,127
1,067,426
-
1,619,281 7,586,771
100,408
42,549,623 298,591,168
281,597
1,122,987
3,621
388,967
-
337,868
197
2,135,237
247,479,726 247,761,323
2,424,643 3,547,630
3,621
388,967
-
6,172,678 6,510,546
197
256,077,047 258,212,284
16,711,227 10,877,943
446,240 446,240
2,840 2,840
51,103 51,103
-
1,621,200 369,556
18,665 18,665
18,851,275 11,766,347
Europe
Total
Assets Cash and balances with SAMA and central banks Due from banks and other financial institutions
Total Liabilities Due to banks and other financial institutions Customer deposits Total Commitments and contingencies Credit exposure (stated at credit equivalent value)
Credit equivalent amounts reflect the amounts that result from conversion of the Bank’s off-balance sheet liabilities relating to commitments and contingencies into the risk equivalent of financing, using credit conversion factors prescribed by SAMA, Credit conversion factor is meant to capture the potential credit risk related to the exercise of that commitment.
- 67 -
AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 26. GEOGRAPHICAL CONCENTRATION (continued) b)
The distributions by geographical concentration of non-performing financing and allowance for impairment of financing as of 31 December are as follows:
2015
Kingdom of Saudi Arabia GCC & Middle East South East of Asia Total
Nonperforming
(SAR’000) Allowance for impairment of financing
Net nonperforming financing
506550,,7 20,76 6,07,, 506220,77
)702360373( )30,3,( )720373( )702,60,,2(
703,706,2 70,23 7,02,3 703,50,53
(SAR’000) Allowance for Nonimpairment of performing financing
Net nonperforming financing
2014
Kingdom of Saudi Arabia GCC & Middle East South East of Asia Total
2,571,777 83,952 2,655,729
(1,709,269) (68,728) (1,777,997)
862,508 15,224 877,732
Refer to Note 7-a for performing financing, 27. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES Determination of fair value and fair value hierarchy The Bank uses the following hierarchy for determining and disclosing the fair value of financial instruments: Level 1: quoted prices in active markets for the same instrument (i,e,, without modification or repacking), Level 2: quoted prices in active markets for similar assets and liabilities or other valuation techniques for which all significant inputs are based on observable market data, Level 3: valuation techniques for which any significant input is not based on observable market data.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 27. FAIR VALUE OF FINANCIAL ASSETS AND LIABILITIES (continued) Assets at fair values are as follows: 2015 Financial assets Investment in an associate Financial assets at FVSI Available-for-sale
2014 Financial assets Investment in an associate Financial assets at FVSI Available-for-sale
Level 1
(SAR‘000) Level 2 Level 3
Total
200,250 26503,3 823,655
7076707,5 ,,0,67 706,70,63
200,250 707330333 ,,30662 2,049,031
Level 1
(SAR‘000) Level 2 Level 3
100,170 7,2,7,, 862,935
129,331 291,192 3,,,971
650336 650336
23,942 235942
Total
100,170 412,,88 291,192 1,251,898
FVSI and Available-for-sale investments classified as level 2 include mutual funds, the fair value of which is determined based on the fund’s latest reported net assets value (NAV) as at the date of statement of consolidated financial position. The third level of investments represents investments recoded at cost as its fair value cannot be measured reliably. The fair values of on-statement financial instruments in the statement of financial position, are not significantly different from the carrying values included in the consolidated financial statements, The fair values of financing due from and due to banks which are carried at amortized cost, are not significantly different from the carrying values included in the financial statements, since the current market commission rates for similar financial instruments are not significantly different from the contracted rates, and for the short duration of due from and due to banks. The value obtained from the relevant valuation model may differ, with the transaction price of a financial instrument, The difference between the transaction price and the model value commonly referred to as ‘day one profit and loss’ is either amortized over the life of the transaction, deferred until the instrument’s fair value can be determined using market observable data, or realized through disposal, Subsequent changes in fair value are recognized immediately in the income statement without reversal of deferred day one profits and losses.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 28. RELATED PARTY TRANSACTIONS In the ordinary course of business, the Bank transacts business with related parties, The related party transactions are governed by limits set by the Banking Control Law and the regulations issued by SAMA, The nature and balances resulting from such transactions as at and for the year ended 31 December are as follows: (SAR‘000) 2014 Related parties 2015 Members the Board of Directors Mutajara Contingent liabilities* Current accounts
,73,,36 635,232 36
1,927,2,4 274,,41 40,301
Companies and establishments guaranteed by members of the Board of Directors Mutajara Contingent liabilities*
,65,33, -
1,314,77, 18,49,
Other major shareholders (above 5% equity share) Mutajara Contingent liabilities* Current accounts Other liabilities
6,,3,,35, 627,,,7 36 65,633
3,22,,484 2,,,328 22,38,
Mutual Funds Investments in Mutual Funds
7,6,7,,63
365,471
* = off balance sheet items Income and expenses pertaining to transactions with related parties included in the consolidated financial statements for the years ended 31 December are as follows: (SAR’000) 2014 2015 Income from financing and other 77,153 27033, Mudaraba Fees ,,,227 7,,,37, Employees’ salaries and benefits (air tickets) 306,6 12,197 Rent and premises related expenses ,2, 850 Board of Directors’ remunerations 303,3 4,443 The amounts of compensations recorded in favor of or paid to the Board of Directors and the executive management personnel during the years ended 31 December are as follows: (SAR’000) 2014 2015 Short-term benefits 44,247 37,102 Provision for end of service benefits 1,488 70536 The executive management personnel are those persons having authority and responsibility for planning, directing and controlling the activities of the Bank directly or indirectly.
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 29. MUDARABA FUNDS Mudaraba funds as of 31 December comprise the following: (SAR’000) 2014 2015 12,945,448 75063,027, 2,038 60,3, 12,947,486 750636023,
Customers’ Mudaraba and investments Current accounts, metals Total
Mudaraba and investments represents customer’s investment portfolio managed by Al Rajhi Capital Company and are considered as off balance sheet. Consistent with the accounting policies of the Group, such balances are not included in the Consolidated financial statements as these are held by the Group in fiduciary capacity.
30. SPECIAL COMMISSIONS EXCLUDED FROM THE CONSOLIDATED STATEMENT OF INCOME The following represents the movements in charities account, which is included in other liabilities (see Note 12): (SAR’000) 2014 2015 Balance, beginning of the year Additions during the year Payments during the year Balance, end of the year
53,3,3 37,,66 )36,366(
44,372 10,578 (20,475)
65,,,3
34,475
31. INVESTMENT MANAGEMENT SERVICES The Bank offers investment services to its customers, The Bank has established a number of Mudaraba funds in different investment aspects, These funds are managed by the Bank’s Investment Department, and a portion of the funds is also invested in participation with the Bank, The Bank also offers investment management services to its customers through its subsidiary, which include management of funds with total assets under management of SAR 35,501 million (2014: SAR 25,924 million), Mutual funds’ financial statements are not included in the consolidated statement of financial position of the Bank, The Bank’s share of investments in these funds is included under investments, and is disclosed under related party transactions, Funds invested by the Bank in those investment funds amounted to SAR 1,201,924 thousand at 31 December 2015 (2014: SAR 365,471 thousand).
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 32. CAPITAL ADEQUACY The Bank's objectives when managing capital are, to comply with the capital requirements set by SAMA to safeguard the Bank's ability to continue as a going concern; and to maintain a strong capital base. Capital adequacy and the use of regulatory capital are monitored daily by the Bank's management, SAMA requires the banks to hold the minimum level of the regulatory capital and also to maintain a ratio of total regulatory capital to the risk-weighted assets at or above 8%. The Bank monitors the adequacy of its capital using ratios established by SAMA, These ratios measure capital adequacy by comparing the Bank’s eligible capital with its consolidated statement of financial position, commitments and contingencies, to reflect their relative risk as of 31 December 2015 and 2014. (SAR’000) 2015
2014
Credit risk weighted assets Operational risk weighted assets Market risk weighted assets
6,20329,555 650,,,07,6 6,150,633
202,080,035 23,971,738 683,906
Total Pillar I - risk weighted assets
236,288,380
226,735,679
Tier I – capital Tier II capital
32025,0,33 60379,119
41,896,193 2,526,000
Total tier I & II capital
3,067,07,5
44,422,193
%7,0,3 %6,0,5
18,48% 19,59%
Capital Adequacy Ratio % Tier I ratio Tier I and II ratio
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 33. ISSUED IFRS BUT NOT YET EFFECTIVE The Bank has chosen not to early adopt the following new standards which have been issued but not yet effective for the Bank’s accounting years beginning on or after 1 January 2015 and is currently assessing their impact. Following is a brief on the new IFRS and amendments to IFRS effective for annual periods beginning on or after January 01, 2015. Effective for annual periods beginning on or after IFRS 9
Financial instruments
1 January 2018
IFRS 15
Revenue from contracts with customers
1 January 2017
IFRS 14
Regulatory Deferral Accounts
1 January 2016
Amendments of IFRS 11
Accounting for acquisitions of interests in joint operations
1 January 2016
Amendments to IAS 16 and IAS 38
Clarification of acceptable methods of depreciation and amortization
1 January 2016
Amendments to IAS 27
Equity Method in Separate Financial Statements
1 January 2016
Amendments to IFRS 10 and IAS 28
Sale or Contribution of Assets between an Investor and its Associate or Joint Venture
1 January 2016
Amendments to IFRSs
Annual improvements to IFRSs 2012-2014 cycle
1 January 2016
Amendments to IFRS 10, IFRS 12 and IAS 28
Investment Entities : Applying the Consolidation Exception
1 January 2016
Amendments to IAS 1
Disclosure Initiative
1 January 2016
34. APPROVAL OF THE BOARD OF DIRECTORS The consolidated financial statements were approved by the Board of Directors on 9 Jumada I 1437 (corresponding to February 18, 2016).
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AL RAJHI BANKING AND INVESTMENT CORPORATION NOTES TO CONSOLIDATED FINANCIAL STATEMENTS (Continued) FOR THE YEARS ENDED 31 DECEMBER 2015 AND 2014 35. COMPARATIVE FIGURES Figures have been rearranged or reclassified wherever necessary for the purpose of better presentation, however, no significant rearrangements or reclassifications have been made in these financial statements. 36. SUBSEQUENT EVENTS The Board of Directors proposed, in its meeting held on January 21, 2016, a distribution of dividends to the shareholders for the second half of the current year in a net amount of SAR 1,625 million, after Zakat deduction on shareholders, for SAR 1 per share. The Board’s proposal is subject to the approval of the ordinary General Assembly in its next meeting. 37. DISCLOSURE UNDER BASEL III FRAMEWORK Certain qualitative and quantitative disclosures are required under the Basel III framework. These disclosures will be made available on the Bank’s website (www.alrajhibank.com.sa) within prescribed time as required by SAMA. Such disclosures are not subject to audit by the external auditors of the Bank.
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