Pillar III Disclosure Report

Transcription

1 Middle East Financial Investment Cmpany (MEFIC Capital) Pillar III Disclsure Reprt As n Dec 31, 2016 Pillar III Disclsure Reprt as f December 31, 2016 Page 1

2 Cntents 1. INTRODUCTION & SCOPE OF APPLICATION GROUP STRUCTURE MATERIAL & LEGAL IMPEDIMENTS CAPITAL STRUCTURE TERMS & CONDITIONS CAPITAL BASE CAPITAL ADEQUACY RISK MANAGEMENT GENERAL QUALITATIVE DISCLOSURE FOR RISKS - RISK MANAGEMENT & COMPLIANCE FUNCTION CREDIT RISK DISCLOSURE CREDIT RISK MITIGATION EXPOSURE COUNTERPARTY CREDIT RISK (CCR) AND OFF-BALANCE SHEET DISCLOSURE MARKET RISK DISCLOSURE OPERATIONAL RISK DISCLOSURE LIQUIDITY RISK DISCLOSURE APPENDICES APP I: ILLUSTRATIVE DISCLOSURE ON CAPITAL BASE APP II: ILLUSTRATIVE DISCLOSURE ON CAPITAL ADEQUACY APP III: ILLUSTRATIVE DISCLOSURE ON CREDIT RISK'S RISK WEIGHT APP IV: ILLUSTRATIVE DISCLOSURE ON CREDIT RISK'S RATED EXPOSURE APP V: ILLUSTRATIVE DISCLOSURE ON CREDIT RISK MITIGATION (CRM) Pillar III Disclsure Reprt as f December 31, 2016 Page 2

3 1. Intrductin & Scpe f Applicatin The Capital Adequacy and Risk Management Reprt fr MEFIC Capital (hereinafter referred as MEFIC ) have been prepared in accrdance with disclsure requirements and guidelines with respect t Pillar 3 f the Basel II Accrd, as published by the Capital Market Authrity (CMA) in December The purpse f this disclsure is t infrm market participants abut MEFIC s risk prfile, risk management prcess & systems and capital adequacy. MEFIC is a Saudi clsed jint stck cmpany established under the Regulatin fr Cmpanies in the Kingdm f Saudi Arabia. The cmpany perates under Cmmercial Registratin N: issued in Riyadh n Sha ban 2, 1428 H(crrespnding t August 15, 2007) and ministerial Reslutin N.200/K dated Rajab 30, 1428 H(crrespnding t August 13, 2007) annuncing the frmatin f the Cmpany. MEFIC s bjectives are t participate in financial security activities, deal as agent and as principal, perfrm arranging, advisry and custdy services fr the purpse f administrative prcedures related t the investment funds, prtfli management and financial brkerage in accrdance with the license N f the Capital Market Authrity, dated Jumad Al Thani 21, 1427 H (crrespnding t July 17, 2007). MEFIC is cmmitted t its cre principles, which includes cnsidering each investr as partner, pen & transparent dealings, treating all stakehlders with integrity, respnsible crprate citizenship, empwering its staff and helping clients t make infrmed investment decisins. MEFIC s majr business lines are: Brkerage: MEFIC is a well-knwn brkerage and trading firm in the Kingdm (ranked #22 in terms f vlume traded in 2015) that facilitates investrs t buy and sell financial securities using its Brkerage services. MEFIC als prvides structured prducts that culd enable clients t achieve ptimum returns n their investment. Asset Management: MEFIC is ne f the leading investment management firms in Saudi Arabia, delivering diverse investr centric slutins t its clients. MEFIC serves a diverse clientele cmprising institutins, family businesses and High Net wrth Individuals etc. The asset classes under management include - Public Equity, Private Equity, Real Estate, Fixed Incme and Mney Market. The ttal AUM size in FY 2016 exceeded SAR 2, 274 MM spread acrss ten plus mutual funds and Discretinary Prtflis. Investment Banking: MEFIC ffers value-added financial advisry services t financial institutins, crprates, public sectr cmpanies, and svereign wealth funds backed by sund financial expertise and knwledge f the lcal and reginal markets. MEFIC's services include advisry services n mergers, acquisitins, debt and equity placements, and initial public fferings (IPOs), and als prvide restructuring and business strategic review services. Wealth Management: The Cmpany is ne f the mst prmising Wealth Management service prviders in the Saudi market which caters t High Net wrth Individuals (HNW) and Institutins thrugh a brad range f prducts and services. Pillar III Disclsure Reprt as f December 31, 2016 Page 3

4 1.1 Grup Structure MEFIC's wnership lies with Ahli United Bank, a prminent reginal bank based in Bahrain and The Arab Investment Cmpany (TAIC) as well as a grup f high net wrth individuals and family ffices. Belw are sme f the details abut MEFIC s sharehlders: Ahli United Bank Ahli United Bank (AUB) frms a banking grup prviding (i) retail banking, (ii) crprate banking, treasury and investment, (iii) private banking and wealth management services and (iv) Sharia'- cmpliant banking services. AUB has a strng presence acrss Middle East and Nrth Africa with lcatins in Bahrain, Kuwait, Oman, Egypt, Iraq, and Libya and in United Kingdm. AUB is the largest bank in Bahrain with ttal assets f USD Bn as f September Its sharehlders include Kuwait, Bahrain and Qatar based gvernment institutins. The Arab Investment Cmpany "TAIC" TAIC was established in 1974 as a Pan-Arab jint stck cmpany. Its sharehlders cmprise f gvernments in 17 Arab cuntries. TAIC has a 15% stake in MEFIC. Individuals / Family Offices A grup f High Net wrth Individuals based ut f Saudi Arabia cllectively hld 45% stake in MEFIC Capital. These well cnnected and highly experienced individuals prvide the necessary netwrking capability fr MEFIC Capital in Saudi Arabia. 1.2 Material & Legal Impediments N material r legal impediments as f 31 st December Pillar III Disclsure Reprt as f December 31, 2016 Page 4

5 2.Capital Structure 2.1 Terms & Cnditins N specific terms and cnditins are attached t the capital items. The Regulatins fr Cmpanies in the Kingdm f Saudi Arabia and the Articles f Assciatin, requires a minimum f 10% f the net incme fr the year t be transferred t the statutry reserve till the reserve reach 50% f the share capital. The cmpany transfers its net incme t statutry reserve in accrdance with the requirement. 2.2 Capital Base MEFIC s capital base as f 31st December 2016 is as fllws: Capital Base SAR' 000 SAR' 000 Tier - 1 Capital Paid-up capital 400, ,000 Audited retained earnings 27,659 28,516 Share premium - - Reserves (ther than revaluatin reserves) 8,611 6,940 Tier-1 capital cntributin - - Deductins frm Tier-1 capital (-) (28,577) (8,032) Ttal Tier 1 Capital 407, ,424 Tier - 2 Capital Subrdinated lans - - Cumulative preference shares - - Revaluatin reserves - - Other deductins frm Tier-2 (-) - - Deductin t meet Tier-2 capital limit (-) - - Ttal Tier 2 Capital - - TOTAL CAPITAL BASE 407, ,424 Pillar III Disclsure Reprt as f December 31, 2016 Page 5

6 3. CAPITAL ADEQUACY Qualitative and quantitative disclsures with respect t capital adequacy are mentined belw: 3. (a) Qualitative disclsure - Minimum Capital Requirement MEFIC s capital adequacy rati stands at a cmfrtable 1.84x as f 31 st December 2016; against the minimum CMA requirement f 1.0x. Thus, the rati sufficiently cvers all material risks f the cmpany. Share capital, statutry reserve and retained earnings are the main surces f Tier I capital and Tier II capital. 3. (b) Qualitative disclsure - Capital Adequacy Assessment The capital adequacy assessment fr current and future business activities is dne thrugh the yearly ICAAP prcess. The ICAAP Reprt cvers the assessment f all material risks; future prjected capital required fr cvering all material risks due t current as well as changes in the risk prfile, business bjectives and perating envirnment; capital required under stress scenaris; and assciated assessment methds t measure and manage the capital adequacy t ensure nging cmpliance with the guidelines prescribed by CMA. It further invlves capital planning and prjecting the capital psitin f the firm ver the next three years. The utcme f the ICAAP analysis is first presented t the Cmpliance & Risk Cmmittee (RCC) members (wherein MD is the Chairman) as part f the challenge and review prcess. Wherever refinements are required, they are undertaken and the methdlgies, analysis and cnclusins are drawn and apprved by the RCC members. The Reprt is then presented t the Bard fr their apprval. The Internal Audit as per the annual plan independently reviews the gvernance and capital requirements under Pillar II, based n the ICAAP Reprt prepared by the firm, and accrdingly prvide their findings t the Risk Department fr their actin/mdificatins. The pillar I capital rati calculatins fr 2016 and previus year 2015 are mentined belw: Capital Requirement Calculatin SAR '000 SAR '000 Pillar 1 Capital Requirements A Credit Risk 208, ,066 B Market Risk 1,372 1,255 C Operatinal Risk 12,182 13,499 D Ttal Pillar-I Capital Requirements (A+B+C) 221, ,820 E Ttal Tier 1 Capital 407, ,424 F Pillar 1 Capital Rati (E/D) 1.84x 1.93x 3. (c) & (d) Quantitative disclsure - Capital Requirement & Ttal Capital Rati Fr details please refer t the Appendix II. Pillar III Disclsure Reprt as f December 31, 2016 Page 6

7 4. RISK MANAGEMENT 4.1 General Qualitative Disclsure fr Risks - Risk Management & Cmpliance Functin MEFIC s apprach t risk management has been aligned t the rganizatinal bjectives submitted t the MEFIC Bard. Risk management is an independent functin headed by the Head f Risk reprting t the MD with the respnsibility fr develping adequate risk plicies & limits and prmting the risk culture acrss the rganizatin. It is primarily fcused n fllwing lines: 1. Management f Market Risks and Credit Risks acrss active businesses Prprietary Investments, Brkerage, Asset Management & Investment Banking. 2. Mnitring MEFIC s perfrmance as per Risk Appetite plicy and prviding feedback t senir management fr pssible tightening r enhancing the risk limits. 3. Risk Mnitring & Review tls fr key risks acrss all businesses and key supprt functins. 4. Ensuring MEFIC s adherence t the capital adequacy nrms f CMA. 5. Mnitring Liquidity Risk at Organizatinal level as well as business unit levels. Adequate plicies and Mnitring prcedures are drawn cvering the abve fcus areas. The unit emplys efficient and imprved tls t manage the risks based n glbally accepted best practices. Mnitring tls and its cmpnents are subject t nging imprvement during the curse f business. A rbust senir management versight structure is established thrugh the fllwing cmmittees which are chaired by the MD and meet n a regular basis t perfrm their respnsibilities as summarized belw in accrdance with the respective charters. Risk & Cmpliance cmmittee (RCC): The Cmmittee s principal activities, respnsibilities and authrities include: Assisting the executive management in the identificatin and management f risk. Reviewing the internal cntrl plicies and the prcedures fr the identificatin, assessment, reprting and management f risk. Ensuring cmpliance with laws and regulatins and ensuring that there are effective and efficient prcedures fr managing, reprting and respnding t risks and events. Identifying and assessing risk in new prducts and/ r in market cnditins and frmulating the necessary prpsals n related risk management plicies and prcedures. Ensuring that rbust stress testing and scenari analysis have been carried ut, and that the chsen scenaris are apprpriate and relevant t MEFIC s wrking envirnment. Further, appraising the Bard n the capital adequacy level under nrmal and stressed scenaris. T infrm the executive management f any realized r expected material lss fr custmers that culd result in a lss f reputatin fr MEFIC Reviewing and apprving the Risk Capital requirements fr MEFIC. Ensuring that the prpsed capital plans meet MEFIC risk appetite. Reviewing & recmmending the ICAAP reprt fr Bard apprval. Pillar III Disclsure Reprt as f December 31, 2016 Page 7

8 Management cmmittee (MC): The Management Cmmittee carries ut the fllwing functins: Cnsiders plicies, bjectives and strategies based n ther MEFIC cmmittees recmmendatins, and presents apprpriate recmmendatins t the MD/Bard fr final apprval. Frmulates strategic plans and disseminates it t the divisins. Apprves business plans and budgets f varius departments, units r divisins. Steers and mnitrs the implementatin f existing strategic plans by divisins. Recmmends appintments f Cnsultants / third party resurces t cnduct any business studies as required by the cmpany. Reviews and discusses any departmental prblems, and/r issues related t departmental prfitability. Reviews management perfrmance and present apprpriate recmmendatins t the MD/Bard fr final apprval. Risk Management, Cmpliance & Internal Audit Organizatin Structure Belw is the rganizatin structure f Risk Management, Cmpliance and Internal Audit with majr areas f respnsibilities in place in the gvernance unit: Pillar III Disclsure Reprt as f December 31, 2016 Page 8

9 Risk Management Risk unit aims t generate ptimum Risk Reward balance fr varius businesses and fr the entire rganizatin. The majr functins f Risk unit are: Assisting with the planning, designing and implementatin f an verall risk management prcess fr the rganizatin Supprt peratins with develpment f risk mitigatin strategies Mnitr and assess the pst-perid implementatin f risk management strategies Ownership and maintenance f the risk database related t credit risk, market risk and peratinal risk Risk Review f MEFIC s Business Prtfli-Margin Lending, Fixed Incme Fund, Real Estate, Equity Funds, DPMs, Private equity deals etc. Liquidity Risk Mnitring at fund level as well as Organizatin level Preparing Quarterly risk reprt fr Risk & Cmpliance Cmmittee and BD Review Ensure ICAAP prcess and ther regulatry submissins Mnitring quantitative risk measures fr Investment funds, Margin lending prtfli, Liquidity Risk expsures, structured investment prducts, Real Estate Funds Enhance risk metrics and tls t reflect precisin in identifying material risks and its cntrlling actin Cllate and pass learning/experience frm specific business units t thers. Cmpliance & AML MEFIC is cmmitted t ensuring cmpliance with all applicable laws and regulatins at all times thrugh a rbust cmpliance and Anti Mney Laundering (AML) functin verseen by Risk & Cmpliance Cmmittee (RCC). Majr respnsibilities include: Develping and executing a Cmpliance prgram t test cmpliance f internal plicies and prcedures Reviewing regulatry publicatins that have impact n the business Ensure business prcesses and practices have been revised t accmmdate any new r revised rules Facilitating the implementatin f any new regulatins Drafting and updating cmpliance manuals fr varius business functins Develping cmmunicatin tls t raise cmpliance awareness and help embed cmpliance int the business culture Wrking with the functin heads t identify and crrect cntrl and regulatry deficiencies issues tgether with fllw up actin and reprting respnsibilities Assisting in the crdinatin f regulatry inspectins with Legal/Cmpliance and business management Reviewing new prducts and business prcesses, and highlighting relevant issues pertaining t cmpliance, prviding apprpriate slutins and ensuring that regular checks are made as t the apprpriateness f prducts Pillar III Disclsure Reprt as f December 31, 2016 Page 9

10 Undertaking specific cmpliance reviews as and when required, fr example reviewing client accunts r individual business units, t ensure cmpliance with the external regulatrs and internal plicies and prcedures Prviding regulatry training t the line managers and business in general n a range f tpics, fr example mney laundering Reviewing and apprving all financial prmtinal literature. Cmpliance prcesses further includes mnitring f cvered persns, strict adherence t ethical standards, regular cmpliance & AML training & timely implementatin f CMA regulatins /circulars. Cmpliance manual tgether with majr plicy dcuments including Market Surveillance and AML, Custmer Care Plicy, AML/CTF Manual, Emplyee Trading Plicy (ETP) etc., gvern the Cmpliance functin. Internal Audit Functin Internal Audit at MEFIC reprts functinally t the Audit Cmmittee f the Bard and administratively t the Managing Directr. The Internal Audit functin at MEFIC is bth independent and bjective; it is empwered by its apprved Internal Audit Charter in the discharge f its respnsibilities which include: Frmulating and implementing a risk based annual audit plan. Identifying and assessing the ptential risks t MEFIC peratins and whether such risks have been satisfactrily mitigated by management Reviewing the adequacy and effectiveness f gvernance, internal cntrl, and risk management systems. Assessing, evaluating and prmting cmpliance t internal MEFIC plicies & prcedures. Reviewing MEFIC s cmpliance with applicable laws and regulatins. Serving in an advisry capacity as required by management while maintaining required independence. Maintaining effective cmmunicatin channels with the Cmpany varius departments and understanding their current activities. Cntinuus fllw up n the implementatin f crrective actin plans agreed with management t reslve Internal Audit findings. Serve as Audit Cmmittee Secretary and discharge respnsibilities in accrdance with the Audit Cmmittee Charter. Pillar III Disclsure Reprt as f December 31, 2016 Page 10

11 4.1.1 General Qualitative Disclsure fr Credit Risk Risk management bjective, plicies, strategies and prcess fr credit risk are described belw: i) Strategies and Prcess fr Risk management ii) Structure and rganizatin f Risk and Cmpliance functin iii) Scpe and nature f risk reprting and measurement systems iv) Plicies/guidelines fr hedging Fllwing strategies and prcesses are in place fr the management f credit risk: Review f all majr investment prpsals by Risk management, Legal and Cmpliance t ensure cnfrmity with the fund s terms & cnditins and the prduct prgram. Due diligence f securities and investments fr trade executin. Due diligence f custdians t check their ability t deliver the required services in terms f technlgy, systems and financial strength. Stringent risk assessment fr Cunterparties (CP) selectin and limit allcatin fr investments. (please refer t sectin 4.4 fr mre details) Ascertaining the custmer credit wrthiness, suitability and risk based custmer categrizatin and cllateral requirements fr the margin lending business. Organizatin structure f Risk and Cmpliance functin is prvided in sectin 4.1 The scpe and nature f risk reprting and measurement system regarding credit risk are prvided belw: Real time mnitring by risk management f all cunterparties limits fr placements, brkerage and investments. Daily review f the margin lending prtfli by Risk management as per the margin lending plicy. Mnitring f cllateral cverage and margin call triggers fr margin lending custmers by the risk management. All credit expsures are captured in the cmpany s systems and required reprts are generated as and when needed. Limit mnitring fr the prprietary investments and mnthly reprting t the Risk & Cmpliance Cmmittee as well as quarterly reprting t the bard. Risk management is respnsible fr highlighting any breach t the set limits t the MD s that prmpt remedial actin is taken. Credit risks, in general are thus mitigated thrugh apprved risk plicies and prduct prgrams fr all activities and prducts. Cmpany des nt use any specific hedging techniques fr credit risks. Pillar III Disclsure Reprt as f December 31, 2016 Page 11

12 4.1.2 General Qualitative Disclsure fr Market Risk Risk management bjective, plicies, strategies and prcess fr market risk are explained belw: i) Strategies and Prcess fr Risk management ii) Structure and rganizatin f Risk and Cmpliance functin iii) Scpe and nature f risk reprting and measurement systems iv) Plicies/guidelines fr hedging Fllwing strategies and prcesses are in place in the cmpany fr the management f market risk in its business units: Prprietary plicy manual prvides rules regarding prtfli/investment limits Gegraphical, Single and sectr limits are fixed as a prprtin t firm s equity Investment due diligence recrds all relevant risks, their mitigates, limits and risk cntrl prcesses fr principal investment, brkerage business, asset management and Investment Banking. Underwriting Credit Prgram lays dwn plicies t mitigate and prudently manage the market risk emanating frm equity & debt underwriting risk. Bard apprval fr all investment banking deals and M&A transactins. Different risk measures used fr the investments acrss different asset classes: Value-at-risk fr listed securities, sensitivity f interest rates, investment ratings etc. Bard apprval is required alng with Management Cmmittee fr all prduct launches. Organizatin structure f Risk and Cmpliance functin is prvided in sectin 4.1 The scpe and nature f risk reprting and measurement system regarding credit risk are prvided belw: Limits mnitring fr prprietary investments, mutual funds based n plicy defined limits by the risk management Deal exit mem is prepared and submitted t the bard which includes investment details, cst and selling prices f investment and expected prfit/lss n exit. Regular review f real estate funds perfrmance, valuatin and market cnditins by Risk & Cmpliance Cmmittee. Regular review f funds & DPM perfrmance and peer benchmarking and reprting t the bard. Market risks, in general are mitigated thrugh apprved risk plicies and prduct prgrams fr all activities and prducts. Cmpany des nt use any specific hedging techniques fr managing market risks. Pillar III Disclsure Reprt as f December 31, 2016 Page 12

13 4.1.3 General Qualitative Disclsure fr Operatinal Risk Risk management bjective, plicies, strategies and prcess fr peratinal risk are explained belw: Fllwing strategies and prcesses are in place in the cmpany fr the management f peratinal risk in its business units: i) Strategies and Prcess fr Risk management ii) Structure and rganizatin f Risk and Cmpliance functin iii) Scpe and nature f risk reprting and measurement systems iv) Plicies/guidelines fr hedging OpR Incident Management and crdinatin fr their reslutin. Develp and Implement peratinal risk plicies and prcesses. Maintain OpR Lss recrds and Rt Cause analysis fr majr incidents. Reviewing third party/utsurcing cntracts, services and majr change requests Business Cntinuity Management Create Operatinal risk awareness acrss the rganizatin. Ensuring Risk Cntrl Self-Assessment is implemented. Ensuring Prduct prgram is reviewed in terms f capturing and addressing key risks. Ensuring any amendment r enhancement in the prduct prgram is mandatrily reviewed by Risk management and risk recmmendatin is being prvided t the apprving authrity Ensuring prduct risk is managed as per last apprved Prgram. Head f Risk Management shall ensure that key prcedures are adhered internally. Key Risk Indicatrs Training and Awareness in crdinatin with Internal Audit & Infrmatin Security functins Strict adherence t ethical standards, regular cmpliance & AML training & timely implementatin f CMA regulatins /circulars. Organizatin structure f Risk and Cmpliance functin is prvided in sectin 4.1 The scpe and nature f risk reprting and measurement system regarding peratinal risk are prvided belw: Risk Management is respnsible fr managing the quarterly Risk Cntrl Self-Assessment (RCSA) in crdinatin with the Internal Audit Functin; mnitring crrective actin plans, ensuring plicy & regulatry cmpliance, Infrmatin Security unit t ensure Tadawul cmpliance, BCP testing and DR testing Fraud investigatins, custmer cmplaints review, cntinuity f business plans and FATCA review is managed by the cmpliance unit. All gvernance related issues are cllectively discussed at the Risk & Cmpliance Cmmittee meeting which is chaired by the MD and which meets n a mnthly basis. Mnitring f internal audit issues and RCSA issues by risk management/internal Audit with quarterly review by the Audit Cmmittee (a BD level cmmittee) Operatinal risk is mitigated thrugh well-established Operatinal risk plicy and a rbust system fr capturing, reprting and cntrlling f peratinal lsses. Pillar III Disclsure Reprt as f December 31, 2016 Page 13

14 4.2 Credit Risk Disclsure Qualitative and quantitative disclsures regarding credit risk are prvided belw. Definitin f past due claims and impaired liabilities Appraches adpted t determine impairments and specific prvisin Names f credit rating agencies Type f expsure classes Mapping between the credit rating frm each CRA Quantitative disclsure: Ttal grss credit risk expsure Amunt f impaired expsures and past due expsures prvided separately Past due item shall refer t an expsure where, interest r principal are mre than 90 days past due, calculated frm the riginal agreed payment date. Impairment and specific prvisins are reviewed peridically by the finance team based n the infrmatin available viz, Financial statements f the investment, ageing reprt, management accunts etc. S&P/Mdy s rating was used with n change during the perid. Placements with dmestic and Internatinal Banks. Nt applicable as the credit rating agency is ne f thse mentined in the Annex 11 & 12 f the prudential regulatrs. Grss credit expsure and average grss expsure as n 31st December 2016 by varius types f credit expsure is prvided in appendix III. N amunt f impaired expsures and past due expsures are in place. Amunt f impairments and specific prvisins Changes fr impairments and specific prvisins during the perid Amunt f impairments and specific prvisins fr FY 2016 and 2015 are as under: (SAR 000) Descriptin Prvisin n receivables and advances - (9,778) Impairment lsses n investments 1,640 1,234 Ttal 1,640 (8,544) Changes fr impairment and specific prvisins fr FY 2016 and 2015 are as under: (SAR 000) Descriptin Prvisin n receivables and advances Impairment lsses n investments - (21,357) 406 (2,468) Ttal 406 (23,825) Pillar III Disclsure Reprt as f December 31, 2016 Page 14

15 Gegraphic distributin f credit risk expsure fr FY 2016 and 2015 is as under: Cuntries Gegraphic distributin f credit risk expsures Residual cntractual maturity breakdwn f credit risk expsure Recnciliatin reprt fr changes in impairment Expsure amunts befre and after credit risk prtectin Kingdm f Saudi Arabia 95.97% 94.32% State f Kuwait 0.54% 2.02% Kingdm f Bahrain 3.18% 3.20% United Kingdm 0.30% 0.42% Egypt % N expsure with cntractual maturity as f 31 st Dec 2016 (SAR 000) Descriptin Ttal Prvisin n receivables and advances 21,357 (21,357) - Impairment lsses n investments 406 (2,468) 1,639 Ttal 21,763 (23,825) 1,639 Please refer t the Appendix IV. 4.3 Credit Risk Mitigatin Expsure Qualitative and quantitative disclsures regarding credit risk mitigatin are prvided belw: Discussin f plicies fr securing cllateral The Cmpany mitigates the margin lending risk by ensuring that the financing facility is prperly cllateralized n a daily basis, accepting nly highly liquid frms f nn-cash cllateral, and nly entering int financing agreements with highly rated and reputable clients. The stcks financed n margin are divided int fur LVR categries and expsure is given based n the ratis achieved by each stck. Off-balance sheet netting Plicies and prcess fr cllateral valuatin Descriptin f the mst imprtant types f cllateral Imprtant types f guarantr and credit derivative cunterparties Nt applicable. As mentined abve, LVR sheet is maintained and reviewed n a quarterly basis using risk related parameters and the custmers are ntified fr any change in LVR. Cllateral shares are marked t market daily based n Tadawul clsing and a reprt is generated by peratins highlighted custmer s cverage ratis. Margin calls are initiated when cverage falls belw the threshlds level. Custmer is allwed a perid t adjust his psitin r bring cash and actin is taken when the cverage reaches the liquidatin trigger. All cllateral have the same criteria thus this is nt applicable in ur case. Nt applicable. Pillar III Disclsure Reprt as f December 31, 2016 Page 15

16 Market r credit risk cncentratin within the credit risk mitigatin T mitigate market risk, MEFIC reduces LVRs fr stck which are vlatile r illiquid and with the help f ther risk parameters. Further, the stck cncentratin is als checked and is dwngraded based n cncentratin f prtfli. Investments limits are set t ensure that all prprietary investments remains within sectrial, gegraphical and single investment limits Quantitative disclsure Please refer t the Appendix V. 4.4 Cunterparty Credit Risk (CCR) and Off-Balance Sheet Disclsure Qualitative and quantitative disclsures regarding Cunterparty Credit Risk (CCR) are prvided belw: Internal Capital and credit limits fr CCR expsures Plicies fr securing cllateral and establishing credit reserve Wrng-way risk expsures Methdlgy used t calculate the risk expsure amunt fr CCR Cllateral required in case f a dwngrade in the AP s credit rating Quantitative disclsure: Derivative Transactin Nt applicable as f 31 st Dec 2016 Nt applicable as f 31 st Dec 2016 Nt applicable Capital requirement is cmputed as per the standardized apprach using the credit quality steps and credit rating f the cunterparty. This guideline is as per the CMA prudential rules. Nt applicable. Nt applicable as f 31 st Dec Market Risk Disclsure Qualitative and quantitative disclsures regarding Market Risk are prvided belw: General Disclsure MEFIC s market risk expsure cnstitutes f prprietary investments in equities, mney market and mutual funds which als include FX risks n investments denminated in freign currencies. Quantitative disclsure: Trading bk business Particulars Balance Sheet Expsure Capital Requirement Balance Sheet Expsure (SAR 000) Capital Requirement Equity price risks 5, , Freign exchange rate risks Ttal Market Risk Expsures 18, , ,932 1,372 35,659 1,255 Pillar III Disclsure Reprt as f December 31, 2016 Page 16

17 4.6 Operatinal Risk Disclsure Qualitative and quantitative disclsures regarding Operatinal Risk are prvided belw: General Disclsure Apprach adpted fr peratinal risk capital assessment Few highlights f the peratinal risk prcess in the cmpany are: OpR Incident Management and crdinatin fr their reslutin. Develp and Implement peratinal risk plicies and prcesses. Maintain OpR Lss recrds and Rt Cause analysis fr majr incidents. Reviewing third party/utsurcing cntracts, services and majr change requests Business Cntinuity Management Create Operatinal risk awareness acrss the rganizatin. Ensuring Risk Cntrl Self-Assessment is implemented. Ensuring prduct risk is managed as per last apprved Prgram. Head f Risk Management shall ensure that key prcedures are adhered internally. Key Risk Indicatrs Training and Awareness Strict adherence t ethical standards, regular cmpliance & AML training & timely implementatin f CMA regulatins /circulars. We have explained it in detail in The Operatinal Risk capital charge is cmputed as higher f the fllwing tw appraches. 1) Basic Indicatr Apprach: 15% capital charge is calculated n average perating Incme fr the previus three audited financial years. 2) Expenditure Based Apprach: 25% capital charge is calculated n verhead expenses except extrardinary expenses (such as write-ffs) as per the mst recent audited annual financial statements. Particulars Methdlgy (SAR 000) Quantitative disclsure: Summary f Operatinal risk capital requirement 1. Basic Indicatr Apprach 2. Expenditure Based Apprach Operatinal Risk charge fr 2016 Capital charge f 15% n average perating incme f previus 3 audited financial years Capital charge f 25% n previus year's audited verhead expenses 11,163 13,499 12,182 8,936 Max. f the abve 12,182 13,499 Pillar III Disclsure Reprt as f December 31, 2016 Page 17

18 4.7 Liquidity Risk Disclsure Qualitative and Quantitative disclsures regarding Liquidity Risk are prvided belw: Strategies and guidelines fr liquidity risk management Stress test Quantitative disclsures: Liquidity Psitin The cmpany s balance sheet lks cmfrtably liquid as excess funds are placed as depsits in lcal banks and invested in lcal funds. These are cnsidered semi liquid and can be withdrawn t meet liquidity requirements. Liquidity f varius mutual funds managed by fund managers are maintained as per the liquidity plicies set ut in the fund prduct prgram. Each fund maintains sufficient liquidity t meet redemptins under nrmal and pressured cnditins. It is the cmpany s plicy t maintain sufficient liquidity t meet peratinal and business requirements at all time. Daily liquidity is managed by finance in crdinatin with the businesses and reviewed by the MD as and when required. Additinal funding needs fr any new prduct r investment is planned ahead by clearly stipulating the funding amunt, surce, and timing and expected funding csts in prduct prpsals /prgrams. Risk Management is respnsible fr develping adequate plicies and limits fr enterprise-wide liquidity risk management. Liquidity ratis and Maturity Gap Analysis is used fr mnitring the liquidity risk. Reprts are submitted t the Risk & Cmpliance Cmmittee as well as the bard highlighting the level f liquidity in the balance sheet. Stress testing is dne fr mutual funds r balance sheet n a need basis by the Risk management in crdinatin with finance and asset managers using realistic and plausible scenaris. The bjective is t assess that funds and prprietary psitin is sufficiently liquid t withstand abnrmal redemptins under stressed cnditins withut any external funding. Prvided belw are sme f the liquidity rati as at 31st December 2016, and 2015 which reflect the sund liquidity prfile f the cmpany. (In %) Indicatrs Inference Liquid assets / Ttal Assets Illiquid +Lng term investments/ttal Assets Cumulative Mismatch as a % f ttal liabilities (excluding equity) Liquidity Cverage Rati 11% 28% 72% 71% Nil Nil >125% >125% This reflects the cushin/cmfrt level in meeting its shrt-term liabilities and fixed cst payment This ensures lng-term sustainable returns n asset and prvides stabilizatin f incme in future years This reflects that the Cmpany has n significant shrt term liabilities and earning assets are funded by equity. LCR f 125% and abve is cnsidered satisfactrily abve the Risk Appetite target limit f 110%. This reflects that the Cmpany has sufficient high quality liquid assets t cver the net cash utflws ver the 30- day perid under stress scenaris. Pillar III Disclsure Reprt as f December 31, 2016 Page 18

19 Appendices Pillar III Disclsure Reprt as f December 31, 2016 Page 19

20 App I: Illustrative Disclsure n Capital Base Disclsure n Capital base as f 31 st Dec 2016: Capital Base SAR' 000 SAR' 000 Tier - 1 Capital Paid-up capital 400, ,000 Audited retained earnings 27,659 28,516 Share premium - - Reserves (ther than revaluatin reserves) 8,611 6,940 Tier-1 capital cntributin - - Deductins frm Tier-1 capital (-) (28,577) (8,032) Ttal Tier 1 Capital 407, ,424 Tier - 2 Capital - Subrdinated lans - - Cumulative preference shares - - Revaluatin reserves - - Other deductins frm Tier-2 (-) - - Deductin t meet Tier-2 capital limit (-) - - Ttal Tier 2 Capital - - TOTAL CAPITAL BASE 407, ,424 Pillar III Disclsure Reprt as f December 31, 2016 Page 20

21 APP II: ILLUSTRATIVE DISCLOSURE ON CAPITAL ADEQUACY Disclsure n Capital Adequacy as f 31st Dec 2016: Expsure Class Expsures befre CRM SAR '000 Net Expsures after CRM SAR '000 Risk Weighted Assets SR '000 Capital Requirement SAR '000 Credit Risk On-balance Sheet Expsures Gvernments and Central Banks Authrised Persns and Banks 44,906 44,906 10,101 1,414 Crprates 3,249 3,249 23,201 3,248 Retail Investments 343, , , ,037 Securitisatin Margin Financing 11,999 11,999 18,122 2,537 Other Assets 13,448 13,448 59,595 8,343 Ttal On-Balance sheet Expsures 417, ,120 1,082, ,580 Off-balance Sheet Expsures OTC/Credit Derivatives Repurchase agreements Securities brrwing/lending Cmmitments Other ff-balance sheet expsures 17,974 8,987 64,166 8,983 Ttal Off-Balance sheet Expsures 17,974 8,987 64,166 8,983 Ttal On and Off-Balance sheet Expsures 435, ,107 1,146, ,563 Prhibited Expsure Risk Requirement 184,134 82, ,354 47,650 Ttal Credit Risk Expsures 250, ,318 1,487, ,212 Market Risk Lng Psitin Shrt Psitin Interest rate risks Equity price risks 5, Risks related t investment funds Securitisatin/resecuritisatin psitins Excess expsure risks Settlement risks and cunterparty risks Freign exchange rate risks 18, Cmmdities risks Ttal Market Risk Expsures 23,932-1,372 Operatinal Risk 12,182 Minimum Capital Requirements 221,766 Surplus/(Deficit) in capital 185,926 Ttal Capital rati (time) 1.84 Pillar III Disclsure Reprt as f December 31, 2016 Page 21

22 Disclsure n Capital Adequacy as f 31st Dec 2015: Expsure Class Expsures befre CRM SAR '000 Net Expsures after CRM SAR '000 Risk Weighted Assets SR '000 Capital Requirement SAR '000 Credit Risk On-balance Sheet Expsures Gvernments and Central Banks Authrised Persns and Banks 49,078 49,078 10,572 1,480 Crprates 3,424 3,424 24,447 3,423 Retail Investments 332, , , ,677 Securitisatin Margin Financing 43,299 43,299 64,948 9,093 Other Assets 13,351 13,351 58,063 8,129 Ttal On-Balance sheet Expsures 441, ,684 1,084, ,801 Off-balance Sheet Expsures OTC/Credit Derivatives Repurchase agreements Securities brrwing/lending Cmmitments Other ff-balance sheet expsures 17,974 8,987 64,166 8,983 Ttal Off-Balance sheet Expsures 17,974 8,987 64,166 8,983 Ttal On and Off-Balance sheet Expsures 459, ,671 1,148, ,785 Prhibited Expsure Risk Requirement 46,281 Ttal Credit Risk Expsures 459, ,671 1,148, ,066 Market Risk Lng Psitin Shrt Psitin Interest rate risks Equity price risks 1, Risks related t investment funds Securitisatin/resecuritisatin psitins Excess expsure risks Settlement risks and cunterparty risks Freign exchange rate risks 33, Cmmdities risks Ttal Market Risk Expsures 35,660-1,255 Operatinal Risk 13,499 Minimum Capital Requirements 221,820 Surplus/(Deficit) in capital 205,604 Ttal Capital rati (time) 1.93 Pillar III Disclsure Reprt as f December 31, 2016 Page 22

23 APP III: ILLUSTRATIVE DISCLOSURE ON CREDIT RISK'S RISK WEIGHT DISCLOSURE ON CREDIT RISK'S RISK WEIGHT AS OF 31ST DEC 2016: Risk Weights Gvernments and central banks Administrative bdies and NPO Authrised persns and banks Margin Financing Crprates Retail Past due items Investments Securitisatin Other assets Off-balance sheet cmmitments Ttal Expsure after netting and Credit Risk Mitigatin Ttal Risk Weighted Assets 0% % 43,568 43,568 8,714 50% % 1,180 1,180 1, % ,917 52,151 64,206 96, % % 82 3, ,772 5, , , % 11,823 11,823 47, % 3,771 3,771 18, % (include prhibited expsure) Average Risk Weight Deductin frm Capital Base Expsures after netting and credit risk mitigatin 3,249 47,650 4,650 8,987 64, ,922 23% 151% 714% 300% 335% 486% 714% 473,757 1,487,231 1,414 2,537 3,248 1, ,687-7,023 8, ,212

24 DISCLOSURE ON CREDIT RISK'S RISK WEIGHT AS OF 31ST DEC 2015: Risk Weights Gvernments and central banks Administrative bdies and NPO Authrised persns and banks Margin Financing Crprates Retail Past due items Investments Securitisatin Other assets Off-balance sheet cmmitments Ttal Expsure after netting and Credit Risk Mitigatin Ttal Risk Weighted Assets 0% % 48,114 48,114 9,623 50% % % 43,299 63, , , % % ,081 8, , , % 11,829 11,829 47, % 6,078 6,078 30, % (include prhibited expsure) Average Risk Weight Deductin frm Capital Base Expsures after netting and credit risk mitigatin 3,424 46,281 4,350 8,987 63, ,251 22% 150% 714% 300% 332% 440% 714% 496,952 1,479,041 1,480 9,093 3, ,958-7,896 8, ,066 Pillar III Disclsure Reprt as f December 31, 2015 Page 24

25 APP IV: ILLUSTRATIVE DISCLOSURE ON CREDIT RISK'S RATED EXPOSURE DISCLOSURE ON CREDIT RISK'S RATED EXPOSURE AS OF 31ST DEC 2016: Lng term Ratings f cunterparties Credit quality step Unrated Expsure Class S&P AAA TO AA- A+ TO A- BBB+ TO BBB- BB+ TO BB- B+ TO B- CCC+ and belw Unrated Fitch AAA TO AA- A+ TO A- BBB+ TO BBB- BB+ TO BB- B+ TO B- CCC+ and belw Unrated Mdy's Aaa TO Aa3 A1 TO A3 Baa1 TO Baa3 Ba1 TO Ba3 B1 TO B3 Caa1 and belw Unrated Capital Intelligence AAA AA TO A BBB BB B C and belw Unrated On and Off-balance-sheet Expsures Gvernments and Central Banks Authrised Persns and Banks 44,886 43,568-1, Crprates 3, ,249 Retail 3, ,143 Investments 344, ,351 Securitisatin Margin Financing 11, ,999 Other Assets 10, ,325 Ttal 417,954 43,568-1, ,206 Expsure Class On and Off-balance-sheet Expsures Gvernments and Central Banks Authrised Persns and Banks Crprates Retail Investments Securitisatin Margin Financing Other Assets Ttal Shrt term Ratings f cunterparties Credit quality step Unrated S & P A-1+, A-1 A-2 A-3 Belw A-3 Unrated Fitch F1+, F1 F2 F3 Belw F3 Unrated Mdy s P-1 P-2 P-3 Nt Prime Unrated Capital Intelligence A1 A2 A3 Belw A3 Unrated Pillar III Disclsure Reprt as f December 31, 2015 Page 25

26 DISCLOSURE ON CREDIT RISK'S RATED EXPOSURE AS OF 31ST DEC 2015: Lng term Ratings f cunterparties Credit quality step Unrated Expsure Class S&P AAA TO AA- A+ TO A- BBB+ TO BBB- BB+ TO BB- B+ TO B- CCC+ and belw Unrated Fitch AAA TO AA- A+ TO A- BBB+ TO BBB- BB+ TO BB- B+ TO B- CCC+ and belw Unrated Mdy's Aaa TO Aa3 A1 TO A3 Baa1 TO Baa3 Ba1 TO Ba3 B1 TO B3 Caa1 and belw Unrated Capital Intelligence AAA AA TO A BBB BB B C and belw Unrated On and Off-balance-sheet Expsures Gvernments and Central Banks Authrised Persns and Banks 48, Crprates 3,424 Retail 553 Investments 378,813 Securitisatin - Margin Financing 43,299 Other Assets 12,813 Ttal 487,965 48, ,902 Expsure Class On and Off-balance-sheet Expsures Gvernments and Central Banks Authrised Persns and Banks Crprates Retail Investments Securitisatin Margin Financing Other Assets Ttal Shrt term Ratings f cunterparties Credit quality step Unrated S & P A-1+, A-1 A-2 A-3 Belw A-3 Unrated Fitch F1+, F1 F2 F3 Belw F3 Unrated Mdy s P-1 P-2 P-3 Nt Prime Unrated Capital Intelligence A1 A2 A3 Belw A3 Unrated Pillar III Disclsure Reprt as f December 31, 2015 Page 26

27 APP V: ILLUSTRATIVE DISCLOSURE ON CREDIT RISK MITIGATION (CRM) DISCLOSURE ON CREDIT RISK MITIGATION (CRM) AS OF 31ST DEC 2016: Expsure Class Expsures befre CRM Expsures cvered by Guarantees/ Credit derivatives Expsures cvered by Financial Cllateral Expsures cvered by Netting Agreement Expsures cvered by ther eligible cllaterals Expsures after CRM Credit Risk On-balance Sheet Expsures Gvernments and Central Banks Authrised Persns and Banks 44, ,886 Crprates 3, ,249 Retail 3, ,143 Investments 343, ,517 Securitisatin Margin Financing 11, ,999 11,999 Other Assets 10, ,325 Ttal On-Balance sheet Expsures 417, , ,120 Off-balance Sheet Expsures OTC/Credit Derivatives Expsure in the frm f repurchase agreements Expsure in the frm f securities lending Expsure in the frm f cmmitments *Other Off-Balance sheet Expsures 8, ,987 Ttal Off-Balance sheet Expsures 8, ,987 Ttal On and Off-Balance sheet Expsures 426, , ,107 Pillar III Disclsure Reprt as f December 31, 2015 Page 27

28 DISCLOSURE ON CREDIT RISK MITIGATION (CRM) AS OF 31ST DEC 2015: Expsure Class Expsures befre CRM Expsures cvered by Guarantees/ Credit derivatives Expsures cvered by Financial Cllateral Expsures cvered by Netting Agreement Expsures cvered by ther eligible cllaterals Expsures after CRM Credit Risk On-balance Sheet Expsures Gvernments and Central Banks Authrised Persns and Banks 49, ,063 Crprates 3, ,424 Retail Investments 378, ,813 Securitisatin Margin Financing 43, ,299 43,299 Other Assets 12, ,813 Ttal On-Balance sheet Expsures 487, , ,965 Off-balance Sheet Expsures OTC/Credit Derivatives Expsure in the frm f repurchase agreements Expsure in the frm f securities lending Expsure in the frm f cmmitments *Other Off-Balance sheet Expsures 8, ,987 Ttal Off-Balance sheet Expsures 8, ,987 Ttal On and Off-Balance sheet Expsures 496, , ,952 * Refer t Chapter 2 f Annex 3. Pillar III Disclsure Reprt as f December 31, 2015 Page 28