His Majesty King Hamad bin Isa Al Khalifa. His Royal Highness Prince Salman bin Hamad Al Khalifa

Transcription

1 His Royal Highness Prince Khalifa bin Salman Al Khalifa The Prime Minister of the Kingdom of Bahrain His Majesty King Hamad bin Isa Al Khalifa King of the Kingdom of Bahrain His Royal Highness Prince Salman bin Hamad Al Khalifa The Crown Prince of the Kingdom of Bahrain and Deputy Supreme Commander

2 Our Vision We believe society needs a fair and equitable financial system: one which rewords effort and contributes to the development of the community. Branches Head Office CEO & Board Member: Mohammed Isa Al-Mutaweh Address: Al Baraka Islamic Bank B.S.C. (C) Al Baraka Tower Diplomatic Area, Manama P.O.Box 1882 Kingdom of Bahrain Telephone: (00973) Fax: (00973) Islamic Republic of Pakistan Country Head Pakistan Branches: Shafqaat Ahmed Web: Address: Regional Office 95-B, Hali Road, Gulberg II, Lahore, Pakistan Telephone: (009242) Fax: (009242) Main Branch Telephone: (00973) Fax: (00973) albaraka@albaraka.com.pk Isa Town Branch Telephone: (00973) Fax: (00973) Our Mission To meet the financial needs of communities across the world by conducting business ethically in accordance with our beliefs, practicing the highest professional standards and sharing the natural benefits with the customers, staff and shareholders who participate in our business success. Muharraq Branch Telephone: (00973) Fax: (00973) Riffa Branch Telephone: (00973) Fax: (00973) Arad Branch Telephone: (00973) Fax: (00973) Web: baraka@batelco.com.bh 2 Al Baraka Islamic Bank B.S.C. (c) 3

3 Bank s Profile Al Baraka Islamic Bank Bahrain (AIB - Bahrain) established 1984 in Bahrain and up the years has pioneered the development of Islamic banking and finance. The Bank is registered with the Bahrain Ministry of Industry &, Commerce CR no and is authorized by Central Bank of Bahrain (CBB) as Retail Bank, with an authorized capital of US$ 600 Million, of which US$ 122 Million has been issued and fully paid. Al Baraka Islamic Bank is one of Bahrain s leading financial institutions in the Islamic banking sector. Throughout its history of over 25 years, since it s establishment in 1984, the bank has played a prominent role in building the infrastructure of the Islamic finance industry, as represented by its taking part in the establishment of institutions responsible for providing the Islamic finance industry with professional and Sharia a standards, provision of information, management of capital markets and management of liquidity. The bank also played a significant role in promoting the Islamic finance industry and publicizing its merits. The bank enjoys a good reputation and high standing with the community in Bahrain in particular, and in the Gulf, Arab and Islamic worlds in general. Al Baraka Islamic Bank offers innovative financial products, particularly in the areas of Islamic investment, international trade, management of short-term liquidity to individual investors and consumer finance (Taqseet products)... etc., which are all based on Islamic financing modes that conform to Sharia a standards set by the Sharia a Board of the Accounting and Auditing Organization for Islamic Financial Institutions. Such financing modes include Murabaha, Diminishing Musharaka, Mudaraba, and Ijarah Muntahia Bittamleek. The Bank had achieved excellent results in its banking operations, thanks to its vast wealth of knowledge in the area of the Fiqh (jurisprudence) of Islamic finance, the diverse experience of its senior management team in different fields of Islamic banking and the strength and depth that the parent company, Al Baraka Banking Group, with its strong financial position and standing provides to the bank. Since its inception, Al Baraka Islamic Bank has managed more than US$ 6 billion in funds on behalf of many large financial institutions and high net worth clients who sought rewarding longterm financial returns by deploying Sharia a-compliant financial instruments. As for its future strategic plans, the bank intends to maintain the pace of its growth in its business operations with particular focus on commissions and fee based earnings. The bank also proposes to expand its investment portfolio, continue to develop its infrastructure, particularly with regard to modern information technologies (IT) and related services, improve customer service, provide training and coaching to employees and maintain our special relationship with our customers as their Partners in Achievement. Al Baraka Islamic Bank is a banking institution registered with the Ministry of Industry and Commerce in Bahrain under Commercial Registration No and has a Retail Banking license issued by the Central Bank of Bahrain. The bank has an authorized capital of US$ 600 million and issued and paid-up capital of US$122 million. Al Baraka Islamic Bank - Bahrain is one of the banking units of Al Baraka Banking Group, which is a Bahrain Joint Stock Company listed in Bahrain stock exchange and Nasdaq Dubai. Al Baraka Banking Group is a leading international Islamic banking group with Standard and Poor s rating of investment grade BBB-/Stable/A-3 credit rating.. The Group offers retail, corporate and investment banking and treasury services, strictly in accordance with the principles of the Islamic Sharia a. The authorized capital of Al Baraka Banking Group is US$1.5 billion, while total equity amounts to around US$1.5 billion. The Group has a wide geographical presence in the form of subsidiary banking units and representative offices in twelve countries, which in turn provide their Sharia a-compliant banking products and services through around 300 branches. These banking Units are Jordan Islamic Bank, Jordan; Al Baraka Islamic Bank, Bahrain; Al Baraka Islamic Bank, Pakistan; Al Baraka Bank Algeria; Al Baraka Bank Sudan; Al Baraka Bank Ltd, South Africa; Al Baraka Bank Lebanon; Al Baraka Bank Tunis; Al Baraka Bank Egypt; Al Baraka Turk Participation Bank, Turkey; Al Baraka Bank Syria and a representative office in Indonesia. 4 Al Baraka Islamic Bank B.S.C. (c) 5

4 Board of Directors (1) Mr. Khalid Rashid Al Zayani (2) Mr. Adnan Ahmed Yousif (3) Mr. Abdul Latif A. R. Janahi (4) Mr. Moosa Abdul Aziz Shehadah (5) Mr. Othman Ahmed Suleiman (6) Mr. Ashraf Al Ghamrwai (7) Mr. Adel Saud Dahlawi (8) Mr. Yousef Ali Fadil bin Fadil (9) Mr. Maqbool Habib Khalfan (10) Mr. Mohammed Isa Al Mutaweh Quality and continuous improvement shall be the key drivers in all our management processes. (8) (4) (5) (6) (10) (7) (3) (1) (9) (2) 6 Al Baraka Islamic Bank B.S.C. (c) 7

5 Board of Directors The Sharia a Board 1) Mr. Khalid Rashid Al Zayani Chairman Mr. Khalid Rashid Al-Zayani is a prominent businessman at the local, Arab and international levels and holds many leading positions in the areas of banking, investment and trade. He holds a bachelor degree in Business Administration from the University of London, United Kingdom. In addition to his position as chairman of the boards of directors of many companies affiliated to Al Zayani Group, such as Zayani Investments and Euro Motors, he is a member of the Board of Directors and Executive Committee member of Investcorp (exempt) as well as being a member of the boards of a number of local and international associations and chambers of commerce. 2) Mr. Adnan Ahmed Yousif Deputy Chairman Mr. Adnan Ahmed Yousif is a leading Arab banker who held many senior positions at local and regional levels and in May 2007 became the first Gulf national to become the Chairman of the Union of Arab Banks. He serves as President & Chief Executive and member of the Board of Directors of Al Baraka Banking Group since August 2004 until the present time. Furthermore, Mr. Adnan Yousif is the Chairman of Banque Al Baraka D Algerie, Algeria, Al Baraka Bank Ltd., South Africa, Jordan Islamic Bank, Egyptian Saudi Finance Bank, Al Baraka Turk Participation Bank and Al Baraka Lebanon. He is also a member of the Board of Directors of Al Baraka Bank Sudan, Al Baraka Islamic Bank, Bahrain and Beit Et-Tamweel Al Tunisi Al-Saudi. Mr. Adnan Yousif received the Banker of the Award in 2004 from the World Islamic Banking Conference. 3) Mr. Abdul Latif Abdul Rahim Janahi Board Member Mr. Abdul Latif Abdul Rahim Janahi is one of the early pioneers in Islamic economy, Islamic banking and Islamic insurance. He authored a number of books on these topics and prepared more than 60 studies and work papers presented at numerous events, conferences, seminars and, universities. He worked hard to promote the idea of Islamic banking, insurance and re-insurance in Bahrain and was behind the establishment of a number of banks, financial institutions and insurance and reinsurance companies in Bahrain and outside Bahrain. He has practical experience of more than 40 years in the areas of banking, insurance and reinsurance. He holds a diploma in insurance and is a recognized expert in conventional insurance, Takaful (Islamic insurance), Islamic banking and Islamic economics. Mr. Janahi is the founder and Chief Executive Officer of the Safwa International, Bahrain (consultancy), and board member of many Islamic banking and investment institutions such as the Islamic Bank of Bangladesh - Dhaka, Khaleej Finance and Investment (being the Chairman of the Board of Directors) and the Islamic Arab Bank and Islamic Insurance and Reinsurance Company. 4) Mr. Moosa Abdul Aziz Shehadah Board Member Mr. Moosa Abdul Aziz Shehadeh is a prominent Arab banker who holds a Bachelor degree in Commerce from Beirut Arab University and an MBA degree from the University of San Francisco, United States of America. He is currently the General Manager and Deputy Chairman of the Board of Directors of Jordan Islamic Bank, as well as the Deputy Chairman of the Banks Association in Jordan. He is the chairman and board member of directors of several banks and companies such as Alaqsa Islamic Bank - Palestine, the Islamic Insurance Company, Al Amin investment Company, Arab Steel Pipes Company and Saudi Fransi Bank of Egypt - Cairo. He is also a member of the Board of Trustees and Board of Directors of the Petra University, the Hashemite Kingdom of Jordan, Lebanon Reconstruction Fund and Waqf Investment Funds as well as being the Chairman of the Investment Committee and member of Board of the Shariah Faculty at Jordan University, the Hashemite Kingdom of Jordan. 5) Mr. Othman Ahmed Suleiman Board Member Mr. Othman Ahmed Suleiman is the Chairman of the Board of Directors of Al Baraka Bank Sudan, member of the Board of Directors of Banque Al Wava Mauritanienne Islamique (BAMIS) - Mauritania, Jordan Islamic Bank, Al Baraka Bank Ltd - South Africa, Egyptian Saudi Finance Bank - Egypt, Al Baraka Islamic Bank - Bahrain, Al Baraka Turk Participation Bank and Al Baraka Bank Lebanon. Mr Othman Suleiman joined Al Baraka Banking Group in 1988 after a banking career of more than 22 years with banks in Sudan which culminated in his appointment as Chairman and General Manager of Elnilein Bank. He worked with the Jeddah-based Dallah Al Baraka Group since 1988 to represent its interests around the world. During the last seven years before joining Al Baraka Banking Group in 2002, he was responsible for all the banking interests of the Group in Africa in addition to offering advice based on his vast experience to the Boards of Directors of the banks of the Group in Asia and Europe as well as to the Board of Directors of the parent company. Beside his executive responsibilities, Mr. Suleiman is in charge of coordination and planning at Al Baraka Banking Group. He holds a Bachelor degree (with Honors) in Economics from the University of Khartoum Sudan. 6) Mr. Ashraf Ahmed Mustafa El-Ghamrwai Board Member Mr. Ashraf Ahmed Mustafa El-Ghamrwai is a prominent banker who holds a professional diploma in advanced bank credit and an MBA in Commerce from the University of Ain Shams, Cairo. Mr. El-Ghamrwai is currently the Managing Director of the Egyptian Saudi Finance Bank. He is also a member of the Board of Directors and the Audit Committee of Al Tawfeeq Company for Investment Funds, Chairman of the Board of Directors of the Egyptian Saudi Finance Company for Investment and Real Estates, member of the Board of Directors of the Egyptian Saudi Finance House, Egyptian Building Company and Leasing Company in Saudi Arabia, member of the Federation of Egyptian Banks and member of the Egyptian Saudi Business Council in Saudi Arabia. 7) Mr. Adel Saud Dehlawi Board Member Mr. Adel Saud Dehlawi is a well-known banker who has more than 12 years of experience in banking and investment companies. He joined Dallah Al Baraka Group in 2006 to manage the worldwide investment activities of the Group, as well as being member of the Board of Directors of Alkhozama Management Company - Kingdom of Saudi Arabia, Dallah Health Services, Swicorpt Joussour Kingdom of Saudi Arabia, Arab Gathering Investment Egypt, Al- Tawfeek Company for Investment Funds - Cayman Islands and TelePolska - Poland. Mr. Dahlawi holds a BSc degree in biomedical engineering (1993) from King Saud University, Riyadh, Saudi Arabia. 8) Mr.Yousef Ali Fadil bin Fadil Board Member Mr. Yousef Ali Fadil is a distinguished banker with a wealth of experience in banking and administration. He holds a Bachelor degree in Mathematics and Computer Science, University of Gonzaga, Washington - United States of America in During his career, Mr. Yousef Fadil held senior positions in the banking and financial sectors, including the positions of General Manager of Al Sahel Shares Center during the period , Deputy Chief Executive Officer of Abu Dhabi Islamic Bank during the period , General Manager of Emirates Financial Company in 2003 and Executive Manager of the Investment Department at Dubai Islamic Bank during the period Mr. Yousef Fadil also held many senior positions in the National Bank of Umm Al Qaiwain during the period from 1985 to During his career Mr. Yousef Fadil served as member of the boards of directors of a number of institutions inside and outside the UAE including Union Insurance Company, Bahrain Islamic Bank and Bosna Bank International. He is currently the General Manager of Al Sahel Shares Center. 9) Mr. Maqbool Habib Khalfan Board Member Mr. Maqbool Habib Khalfan is a well-known banking personality with banking experience of more than twenty years. He is the managing partner of (and 50% partner in) Arabian Exchange Company, Qatar since Mr. Khalfan was the founder and director of Gulf Colours, Qatar and had held many senior positions in banks as he was the General Manager of Qatar Industrial Development Bank during the period from 1997 to 2001 and General Manager of Doha Bank Limited during the period He holds a Bachelor degree in Business Administration from Cairo University - May ) Mr. Mohammed Isa Al Mutaweh Chief Executive Officer and Board Member Mr. Mohamed Isa Al Mutaweh is the Chief Executive Officer and a member of the Board of Directors of Al Baraka Islamic Bank - Bahrain, Chairman of the Credit Committee and member of the Executive Committee. He has long experience in banking extending to more than 20 years during which he held leading positions in banks. He was General Manager and Board Member of Al Amin Bank, Bahrain, Chairman of the Credit Committee and member of the Executive Committee of Al Amin Bank. He also served as Executive Director of ABC Islamic Bank which is affiliated to Arab Banking Corporation. Prior to that he served in a senior position with National Bank of Bahrain in the Corporate Banking Division. Mr. Al Mutaweh is a member of the World Union of Arab Bankers and a candidate for the Chartered Financial Analyst (CFA) accreditation. He holds a Bachelor degree in Business Administration from the University of Bahrain, Shaikh Dr. Abdul Sattar Abu-Ghuda Chairman Shaikh Esam Mohammed Ishaq Member Shaikh Nizam Mohamed Yaquobi Member Executive Committee Mr. Adnan Ahmed Yousif Chairman Mr. Othman Ahmed Suliman Member Mr. Abdul Latif A. R. Janahi Member Mr. Mohamed Isa Al Mutaweh Member Audit Committee Mr. Mousa Abdul Aziz Shehadeh Chairman Mr. Ashraf Al Ghamrwai Member Mr. Yousif Ali Fadil bin Fadil Member Mr. Maqboul Khalfan Member Remuneration & Board Affairs Committee Mr. Yousif Ali Fadil bin Fadil Chairman Mr. Adnan Ahmed Yousif Member Mr. Othman Ahmed Suliman Member Risk Management Committee Mr. Maqboul Khalfan Chairman Mr. Adel Saud Dahlawi Member Mr. Yousif Ali Fadil bin Fadil Member External Auditor s Ernst & Young 8 Al Baraka Islamic Bank B.S.C. (c) 9

6 Board of Directors Report Board of Directors report for the financial year ending in 31st December All figures in US Dollar unless otherwise is stated. The bank s performance continued to grow both in terms of operations and returns. Dear Shareholders On behalf of my fellow board members and myself, I am pleased to present to you our annual report which covers the bank s results, operations and consolidated financial statements for the fiscal year ending 31/12/. As we all know, was an extremely difficult year for banks and financial institutions all over the world, where we have seen dozens of well-established financial institutions crumbled as a result of the repercussions of the global economic and financial crisis. All banks, with no exceptions, made huge provisions to cover their delinquent debts. The crisis also reached the real economy of the world, especially business establishments as evidenced by increased bankruptcies, loan defaults, low production and high unemployment. These developments adversely affected the financial institutions, exasperated their losses, and forced them to take more precautionary measures throughout year. was truly a year of prudence and precaution for all financial institutions in the region and the world. This business environment affected the operations and results of Al Baraka Islamic Bank (Bahrain) in. The bank s operations and results which will be discussed in detail in the Executive Management s report reflect the great efforts made by the Bank at all levels to safeguard the interests of the shareholders, investors and depositors under the difficult conditions witnessed by year, and at the same time capitalize upon the opportunities generated by the crisis in the markets of the region. At the internal level, the steps and measures taken by the bank reflected as a whole our full confidence in the future. We have finalized the bank s five-year plan that included many strategic initiatives. We also continued to reorganize and build the bank s marketing, operations, human resources and technical departments and functions. We focused our attention on building efficient human resources, and expanded the network of our branches and ATMs. We have also launched a number of innovative financing and investment products as well as launching the new identity of the bank that reflected the unified identity of the parent group, Al Baraka Banking Group. We have put in place and achieved all of this, and we are now in a position to embark upon moving ahead with full thrust towards achieving our mission and vision of excellence in becoming a leading regional Islamic bank that offers integrated services and competitive products compliant with Sharia a principles, and endeavor to serve our markets and communities in the best possible way to maximize the value of our shareholders, investors and all our stakeholders. We also should not forget to stress here that being part of a large and long-standing group, such as Al Baraka Banking Group, has given us more confidence and strength, and opens to us wide doors for growth and development given the sound and substantial resources available to the Group including a wide network of banking units and branches and strong financial, marketing technical capabilities, and we intend to fully exploit these opportunities. Therefore, we look with confidence for the future, and we are working to make the year 2010 a turning point in the course of the bank towards achieving outstanding results. Dear Brothers severely impacted the global economy, which has made many calls it the of Crisis for the negative effects it had on the economies of various countries. In we witnessed the intensified efforts of the international community which began at the end of to address the effect of the crisis, which began to 10 Al Baraka Islamic Bank B.S.C. (c) 11

7 Board of Directors Report (Continued) form the international circumvent by end of year. However, the G-20 London summit in April has been able to mobilize resources and attitudes toward the launch of economic stimulus plans for which a sum of US$ 5 trillion was earmarked. The impact on the commodity markets was immediate, where the price of oil went up to touch US$ 80 and global capital markets continued to rally to recover much of the lost ground. The stimulus plan also had positive effects on global trade, which had fallen by 41%; however it improved a lot especially in the second half of last year. However, the World Bank s report says that though the most acute phase of the global financial crisis has passed, recovery remains weak, with expected relatively strong recovery in GDP ( the broadest measure of macro-economy) of developing countries growing by 5.2% in 2010 and 5.8% in 2011 up from 1.2 % in. The negative effects of the crisis concentrated in high unemployment rates which exceeded the hurdle rate of 10% in the USA, with the majority of European countries close to these proportions too. This prompted the G-20 Group in its meetings that followed the London Summit at all levels to emphasize the need to continue with the stimulus plans and consider more reform plans and improved financial control as well as raise support for the International Monetary Fund (IMF) to be a stimulus. This is to ensure that the stimulus plans cover all countries in the world to help move the economic wheel by increasing the lending resources of the IMF to nearly US$ 1.0 trillion through various means of funding including changing the voting shares in it, as well as to sell its reserves of gold by an estimated 400 tons to increase the bank s liquidity and broaden the base its global lending to ensure that the stimulus plans cover the poor countries that were the most affected by the crisis. As expected, the emerging nations, especially the Asian countries such as China and India, played a key role in the recovery of the global economy. The Chinese economy achieved a growth of 8% in, and is expected to rise to 9% in years 2010 and 2011, while the economic outlook of rich countries, which fell by 3.3% in, are expected to grow less quickly of up to 1.8% and 2.3% in 2010 and 2011 respectively. The United States, being the largest economy in the world and the centre of the financial crisis, may experience a growth of 2.5% in 2010 and 2.7% in 2011, after a contraction by 2.5% in. With regard to the GCC, the IMF forecasts that, depending on the huge reserves accumulated before the crisis, GCC governments have moved to address the crisis by pursuing expansionary policies on public finances and the provision of liquidity to support their financial sectors, which contributed to contain the impact of the crisis on the economy as a whole. The policies also helped to maintain relatively high levels of import during the crisis, which in turn contributed to mitigate the global economic downturn. As a result, the current account surplus in these countries dropped by about US$ 350 billion. With rising oil prices and expected rebound in global demand, oil revenues are expected to rise allowing their oil-exporting countries to rebuild international reserves positions by more than US$ 100 billion in 2010, which contributes to laying the necessary base to maintain the level of public expenditure. With a forecast increase in the share of the GCC of world imports from 2.7% in to 3.2% in and 2010, is expected that the region s contribution in the global demand would remain strong. While most of the banks in the region were not at risk of defaulting assets, but it is affected by the collapse of the local asset markets and the withdrawal of funds in foreign currency. However, prompt and strong action at the policy level has led to contain the consequences. The crisis has revealed some shortcomings in the financial sector in the region, most notably the weakness of risk management systems and the excessive leverage of the institutions, and in the coming stage, measures aimed at strengthening financial regulation and supervision - which is being already developed in some countries - will continue in the coming period to be a very important element. Continued spending on infrastructure and social development is essential in helping to realize the potential of these GCC economies. Governments will also need to start to develop strategies for the withdrawal of extraordinary liquidity support provided during the crisis to mitigate its effects. The medium-term priorities will continue to include the development of the financial markets - including the diversification of the system beyond the limits of the financial system based on banks - as well as efforts to improve the business climate in order to support the diversity of economic activities and job creations. The outcome of the year just ended will not be just numbers and events for the anniversary only, but will result in a lot of future changes to the structure of the global economy and there will be a balance of global economy for the first time over the next decade between the major and the emerging countries, as participation in the economic resolution become a feature after it was limited to the powers and economic theories that adopted for decades no longer be trusted, but has a lot to reconsider it. In the kingdom of Bahrain, where Al Baraka Islamic Bank is based, economic activity continued to grow at a rate of 1% in, and is expected to rise to 1.8% in The non-oil sector continued to grow rapidly to become an increasingly important contributor to the economy, and this healthy and desirable development, where that the government seeks to combat unemployment by encouraging private sector growth, which contributed to the decline in the unemployment rate to around 3.5%. The IMF ranked the Kingdom of Bahrain at the bottom of the list of countries in terms of the rate of inflation in prices of consumer goods last year and expectations of this year. The IMF indicated that the figure recorded last year was 2.5%, and will remain so through In, the Kingdom continued the implementation of many reform programs and initiatives ambitious incarnation of the Economic Vision 2030, together with efforts in improving the investment environment, particularly in the area to facilitate and reduce the cost of granting licenses for doing business, and raising the degree of transparency in government tenders and financial accounts of the government. The Central Bank of Bahrain continued to support the local banking sector in dealing with the financial crisis, and took actions to restore confidence in the financial sector and banks, especially through the strengthening of its legislative and regulatory structures. In this context, the Central the Bank began implementing a new system of banking licenses, and bring into force the implementation of the Basel 2 standards of as well as the corporate governance and anti-money laundering standards. As a result of these efforts, as well as with the significant improvement seen in the economic and financial conditions during the year, the contribution of the financial sector to the Gross Domestic Product (GDP) is estimated to have increased to about 27%. The budget for the consolidated banking system (commercial banks operating wholesale and retail banks, Islamic banks, and investment banks, which are 414 institutions in total) amounted to US$ billion at the end of. The Kingdom of Bahrain is also home to 26 Islamic financial institutions. These institutions provide all types of Sharia a-compliant banking products and services. The Kingdom is also the home of the Accounting and Auditing Organization for Islamic Financial Institutions, Liquidity Management Centre the International Islamic Financial Market and the General Council for Islamic Banks and Financial Institutions. According to the Global Competitiveness Report, the Kingdom of Bahrain occupied the 14th position out of 134 countries on the eighth Pillar, the Financial Market Sophistication, ahead of its sister states in the GCC, including Qatar (ranked 22nd), United Arab Emirates (41st), Sultanate of Oman (50th) State of Kuwait (51st) and Saudi Arabia (73rd). In Pakistan, where the Bank has a network of 29 branches spread throughout the main cities and centers, the IMF announced that the future expectations in the medium-term economic indicators towards the Pakistani economy is weak, with the face of Pakistan at risk, also that economic indicators have shown some improvement recently, but the outlook remains to indicate weakness. Therefore, the IMF cut its forecast about the development of Pakistan s economic to grow by 3.0% during the fiscal year /2010 after the previous growth rate of 4.0%. It is worth mentioning that the target of the government of Pakistan for the growth of the economy during the fiscal year is a growth rate of 3.3%. The Pakistan s economy growth slowed to 2% in -, the weakest in eight years, but the central bank expects this to improve to between 2.5 and 3.5% this year. The GCC relations with Pakistan are to develop dramatically, especially if it succeeds on both sides to sign a free trade agreement between them, which would be reflected positively on the Bank s operations in Pakistan. witnessed a continuation of these efforts, after the year witnessed the second round of negotiations for the signing of the Convention. It is expected that the agreement covers all fields of cooperation including trade in goods and services in addition to the timetable for negotiations, the negotiation mechanism and stages of the reductions on the lists of goods will be exchanged between the two sides. Both sides seek to hold the third round of negotiations to complete the rest of the topics related to this Convention While the Pakistani banking sector recorded steady growth under the supervision of Central Bank of Pakistan. At present, there are 6 licensed Islamic banks and 12 conventional banks have licenses to run the sections devoted to provide Islamic banking services. The top five banks in Pakistan, all provides Islamic banking services. The total assets of the banking industry amounted to PKR 9.4 trillion in June. Dear Brothers There is no doubt that the Islamic banking sector is more in tune with the beliefs and needs of individual and corporate customers, because it offers the products and services that best satisfy their needs, such as deposits, financing, investment, discount commercial papers and others, which have been adapted to conform with Islamic Sharia a principles. This, as evidenced by the Islamic banking industry developed rapidly over the past four decades, where there was no accepted and only one Islamic bank, while now nearly the number of banks and Islamic financial institutions operating in more than 60 countries on five continents are about 450 financial institutions and Islamic banks around the world. Concentrated about 40% of them in Arab countries, specifically in the Arab Gulf states, has expanded asset base of these banks and financial institutions to reach to more than 700 billion dollars in. It is expected that the volume of assets and deposits of these banks to US$ 1.0 in 2012, growing at an annual average ranges between 15-20%, this is without taking into account the windows of the traditional Islamic funds and Islamic investment of which there were in March of about 500 Fund is expected to be up to 1000 the Fund by the year Experts reports indicate that the Sharia a compliant assets that are readily available for investment in GCC states and the Far East reached to US$ 267 billion as a result of strong economic expansion and rising government spending and the high level of liquidity. This leads to provide significant returns to the Islamic asset management industry is estimated at about US$ 1.34 billion. All the numbers mentioned above indicate that the Islamic banking industry has become widely accepted at the Arab and Muslim worlds and internationally. Many European countries such as Britain, France and Germany are rushing to open doors for establishment of Islamic banks, as well as the issuance of Islamic bonds to take advantage of the high liquidity maintained with the Islamic banks. The recent global financial crisis came and the resulting serious implications on the global financial system, affecting many financial institutions in the region this crisis to reaffirm the validity 12 Al Baraka Islamic Bank B.S.C. (c) 13

8 Board of Directors Report (Continued) of the principles underlying Islamic finance industry as it has a lot of ingredients that ensures their security and safety and reduce risks such as honesty and credibility, transparency and evidence, facilitation, cooperation and integration and solidarity, there is no economy without Islamic morals and ideals. Such ethics and principles ensure security, safety and stability for all clients, at the same time Islamic Sharia a prohibits the financial and economic transactions which are based on lies, gambling, fraud, deceit, ignorance, monopolies, exploitation, greed and injustice. The key ingredient is that the financial and economic system based on the Islamic principle of sharing profits and losses and the actual trading of funds and assets, and prohibited Islamic system of financial derivatives which are based on transactions and delusive prejudice and ignorance. We believe that these ingredients give more confidence in the Islamic financial system, and increase demand for its services and products as is evident from the growth rates of the Islamic banking industry that we talked about. Therefore, we believe that the current global financial crisis is a historic opportunity for the Islamic financial sector to prove its worth and its success in the face of crisis, and represents a safe haven for capital and investment of Arab, Islamic and non-muslim. Sure, the global financial crisis will contribute to strengthening confidence in the power in the Islamic financial model and its sustainability, as the crisis showed the sector s ability to stay away from the crises of global markets, and avoid the problems of bad debts that have plagued traditional banking markets. Therefore, we expect that there will be greater demand in the coming period on Islamic financial products, including the asset-backed Sukuks, especially if the Arab and Islamic governments to restructure the financing of mega projects in their countries through the issuance of such Sukuks which will be arranged by the Islamic banks. Growth will not be limited to the Islamic banking sector alone, but will also include the Sharia a-compliant insurance industry, or what is so-called Takaful, as several companies including foreign insurance companies started to direct their attention to the Islamic countries, especially Arab Gulf States. Sharia a-compliant insurance products have grown at an annual rate of 20% in recent years. It is expected that the volume of the Islamic insurance market to reach US$ 7.4 billion by 2015, up from just US$ 2.0 billion in It is also expected to establish Sharia a-compliant Takaful reinsurance companies to continue the successful development of the Takaful market. Also, it is expected that Islamic banks see more demand from non- Muslim communities from different parts of the world, due to its transparency and its values and level of services, as well as oil prices remain at relatively high levels and this in turn leads to higher cash flow, project financing, thereby increasing the demand for methods of Islamic investment. However, we do not claim that Islamic banks did not or do not face many challenges, especially those linked to its business models activities directly exposed to the global uncertainties such as real estate and international investments. Dear Shareholders After the outbreak of the financial crisis in the late months of, it was necessary to initiate Al Baraka Islamic Bank to take several precautionary measures in order to strengthen its liquidity position and building strong precautionary provisions, which was reflected on the volume of earning assets during the year, where he appeared mostly in Bank s balance sheet at the end of, compared with varying reductions in. This was reflected in the shrinking size of the financing and investment operations at the end of the year sources of income from these operations, where the total income from the joint financing and investment amounted to US$ million, representing a decrease of 6.1% over the previous year. Because of the expenses resulting from the opening of new branches and ATMs of Al Baraka Islamic Bank in Bahrain, Pakistan and consequent increase in the number of employees, as well as the launch of the technical system of the new bank, has increased total costs by 9.7% As mentioned earlier, the Bank has adopted, under the precautionary procedures to the financial crisis, to avoid higher provisions to cope with any decline in the quality of a potential future governor of finance and investment, where the economy is affected by the work of Pakistani banks have, in particular the repercussions of this crisis. Therefore, these provisions increased from 3.30 million U.S. dollars in, to million U.S. dollars in. As a result, the Bank amounted to a net loss of million U.S. dollars in compared to net profit of 2.51 million U.S. dollars in. Thus, note that the global financial crisis has had repercussions both direct and indirect effects on the volume of financing and investing assets of the bank, forcing us to do to take decisive action to protect the interests of shareholders, investors and customers of any effects or possible consequences of current and future work of the bank. Furthermore, the precautionary measures we have taken in recent months of the year reflected on the volume of financing and investment operations, and this in turn led to slightly lower the volume of assets by 7.1%, down from US$ 1.0 billion as at the end of to US$ million as at the end of. Meanwhile, liquidity was enhanced by 7.1%, to reach US$ million in. earning assets dropped by 11.42%; from US$ million in, to US$ in. Murabaha sale receivables remain the main part of the income-generating assets, though declined by 14.67% from US$ million in to US$ million in. Investment and deposits accounts reduced from US$ million in to US$ million in, a decline of 3.9%, while equity dropped from US$ million in to US$ million in, representing a drop of 15.7%. We are all aware that the year 2010 will be full of challenges due to the survival of the biggest consequences of the global crisis especially among financial institutions in the region and the world. Therefore, we invite all our employees to continue the hard work and organized based on the initiatives and creativity and motivation of most of the implementation of plans and programs of the Bank, and the expansion of products and services while raising the efficiency of services provided to customers and investors, and to intensify efforts in the development of the banking business in all your constituencies and tasks, with emphasis on the rationalization of expenditures and increase productivity. We are confident, thanks to the efforts and achievements we have made in, that Al Baraka Islamic Bank now possesses a lot of strengths that enable it to face the challenges ahead of us by working together as one team toward achieving our set goals. It is my honour to conclude this report by extending my sincere thanks and gratitude to His Majesty King Hamad Bin Isa Al Khalifa, King of the Kingdom of Bahrain, His Royal Highness Prince Shaikh Khalifa Bin Salman Al Khalifa, Prime Minister, His Royal Highness Prince Shaikh Salman Bin Hamad Al Khalifa, Crown Prince and Deputy Supreme Commander of Bahrain Defence Force for their wise guidance which made the Kingdom of Bahrain a successful and inspiring Islamic banking centre. My thanks also go to the Ministry of Industry and Commerce and the Central Bank of Bahrain for the support they extend to all our programs and activities and their guidance to enhance such programs and activities in accordance with Islamic banking standards. We also extend our thanks and gratitude to the parent company, Al Baraka Banking Group, the bank s Sharia a Supervisory Board for its support and valuable guidance and to our loyal customers and investors to whose support and confidence we owe our success, and also to all of our management and staff whose hard work and dedication was the main reason behind the successes that we achieved. Peace and the Mercy and Blessings of Allah be upon you. Khalid Rashid Al Zayani Chairman 14 Al Baraka Islamic Bank B.S.C. (c) 15

9 1) Mr. Mohamed Al Mutaweh Chief Executive Officer & Member of the Board of Directors Mohamed Al Mutaweh is the Chief Executive Officer of Al Baraka Islamic Bank - Bahrain, Chairman of Credit Committee and Member of Executive Committee. Backed by a long banking experience over 20 years in banking and finance. He held several senior positions including General Manager and Board Member of Al Amin Bank, Bahrain, Chairman of Credit Committee and member of Executive Committee of Al Amin Bank. Executive Director in ABC Islamic Bank, and prior to that, he was in a senior position with National Bank of Bahrain in the Corporate Banking Division. He is also a member of the World Union of Arab Bankers and a candidate of the Charter Financial Analyst (CFA), Mr. Al Mutaweh a Bahraini national and has a Bachelor s Degree in Business Administration from University of Bahrain. 2) Mr. Yousuf Ahmed Al Hammadi Deputy General Manager - Commercial & International HND in Business Studies in 1978, Manchester-England 33 years of banking experience (15 years as Head of Commercial Banking with National Bank Of Bahrain and 10 years as Head of Commercial Banking with Shamil Bank Of Bahrain). Joined AlBaraka Islamic Bank in September And presently responsible for Business in the local market and International. 3) Mr. Tariq Mahmood Kazim Deputy General Manager, Support Services and Overseas Branches (Pakistan). Bachelor Degree in Systems Engineering and Analysis (University of Petroleum and Minerals Dhahran/Saudi Arabia) 26 years of experience in providing, managing and implementing Banking, Telecommunication and e-commerce Solutions. Past careers include two years with Arabian Networks as General Manager and 16 years with NCR as a Business Unit Leader. Joined AlBaraka Islamic Bank in April Executive Management With our wealth of quality staff, we are confident of meeting the expectations of our customers, business partners and stakeholders. 4) Mr. Shafqaat Ahmed Regional General Manager, Pakistan -Holding Bachelor s Degree in Economic From Punjab University Pakistan (1968) -Has 33 years of banking experience in both Commercial & Offshore unites : -13 years with United Bank Limited, Bahrain. -3 years with Bank of Credit & Commerce Intl. Bahrain. (BCCI) -4 years with united Bank limited, Pakistan. -Joined AlBaraka Islamic Bank August ) Mr. Moosa Abdul Latif Mohammed Assistant General Manager-Operations Banking Studies (Diploma) 5 years Banking experience with National Bank of Bahrain, and 24 years banking experience with AlBaraka Islamic Bank, Bahrain. Various managerial and banking courses inside and outside Bahrain. 16 Al Baraka Islamic Bank B.S.C. (c) 17

10 Executive Management (Continued) 6) Mr. Abdulaziz Al-Abbasi Assistant General Manager Holder of B. Commerce(Business Administration) from beirut Arab University and B. Commerce (Accounting) from Beirut Arab University years of banking experience in commercial & Offshore Banks with Local, International and Islamic Banks. Joined AlBaraka Islamic Bank in 27 April ) Mr. Rashid Hassan Al-Olaiwi Assistant General Manager Retail Banking & Domestic Branches Mr. Rashid is Assistant General Manager for Retail Banking & Domestic Branches. Mr. Rashid is a holder of MBA - University of Glamorgan, Wales, UK and Executive Management Diploma - University of Bahrain. He has worked at senior positions in retail banking, customer services, e-banking and retail operations. Mr. Rashid held several senior positions prior to joining Al Baraka Islamic Bank with Bahrain Islamic Bank, Shamil Bank of Bahrain and bank of Bahrain and Kuwait. 8) Mr. Nadeem Khan AGM & Chief Financial Officer Mr. Nadeem Amjad Khan is a Chartered Accountant and is a Fellow of the Institute of Chartered Accountants of Pakistan. Prior to his appointment as CFO of Albaraka Islamic Bank, Bahrain he worked in Pakistan Branches. He joined Pakistan Branches as Assistant Vice President and rose to the position of Assistant General Manager. He has also worked in leading accounting firms at senior position in Assurance and Management consultancy. He has also been teaching ACCA students. He specializes in accounting and financial matters and has developed broad expertise in treasury and capital markets. 9) Mr. Adnan Shareeda Habib Senior Manager Local Branches, Retail Banking Banking Studies (Advanced Diploma), 8 years Banking experience with NBB and 19 years with AUB (Corporate, Commercial and Retail Banking), position senior manager commercial baranch. 10) Mrs. Maisoon Mohammed Shams Senior Manager Risk Management & Compliance; Marketing Mrs. Maisoon has a thorough experience in developing risk management framework, corporate governance, policies & procedures, and Business continuity plan. She has over 27 years of practical experience in Financial Banking Operations, Credit Risks Management, Operational Risks Management, Audit and Controls, Strategic and Management. She also has a thorough understanding of banking regulations and regulatory reporting require Basel II principles. During her career, Mrs. Maisoon held several senior positions in Central Bank of Bahrain as well as Retail Banks. Mrs. Maisoon holds Masters of Business Administration from the University of Strathclyde - UK, B.Sc degree in Accounting from University of Bahrain, and Strategic leadership and Executive Management Program Certificate from Beyster Institute, California - USA. 11) Mr. Asrar Uddin Abdul Ghafoor Senior Manager - Information Technology Mr. Asrar Uddin has over 15 years experience in playing an effective role in the IT department of Islamic Bank s in the GCC region. He joined albaraka IT team in He has vast knowledge of core banking project implementations, project rollouts, automation of business processes, managing systems migrations, managing day to day activities of IT operations. His major achivements in albaraka are many but to name some are; Implementation of Misys Equation Banking System, migration fron Midas to Equation, sucessful completion of EMV Project, increasing branches and ATM network, implementation of IT policy and procedures, supporting other albaraka Banks in Pakistan, South Africa, Egypt, Syria and Lebanon. 12) Mr. Isa Al Obaidly Senior Manager, Human Resources & Administration Mr. Al Obaidly has 20 years experience in several HR & Admin fields including recruitment, Setting of procedures, payroll & payment processing. Earlier he occupied the post Management Analyst the Civil Service Bureau and Chief for the Government Payroll & Leaves, Director of Fund Collection from Bahrain centre for study and research and HR & Finance cosultance and Acting Director at the Ministry of Information,. Isa attend several professional courses including civil service Bureau conducted by Management Institute Services, UK-1992, a course on Leadership for Democratic Society at the Federal Executive Institution West - Virginia U.S.A Al Obaidly holds the professional Auditor for ISO Certificate. He is a holder of a B.Sc. degree in Business Administration from Grand View College, USA. And Master degree in Management Technology from Arabic Gulf University Jan ) Mr. Fouad El Ouzani Senior Manager - Credit Department Mr. EL Ouzani main responsibilities includes the development and updating of policies and mentoring the process of limit establishments, transaction booking and to supervise al credit departments sub-units business processing. Fouad held several managerial positions prior to joining Al Baraka Islamic Bank in Gulf international Bank, The Arab Investment Co. and Arab Banking Corporation (ABC) Bahrain. Fouad holds a B.Sc. Degree Chemical Engineering from University of Bahrain. 14) Dr. Khalid Abdulaziz Janahi Head of Shariah Department Dr Khalid Abdulaziz Janahi is the Head of Shariah department in Albaraka Islamic Bank- Bahrain. He has PHD in Islamic Studies, from Warnborough College, Canterbury- England. And BS in Management Information System, from University of Central Florida- Orlando, USA. Dr. Khalid has around 16 years working and teaching experience, he held senior posts in mega organizations, in Bahrain and overseas like United states, Abu Dhabi, and Riyadh. He has many printed books, and published articles in Islamic studies. 18 Al Baraka Islamic Bank B.S.C. (c) 19

11 Chief Executive Officer s Report Chief Executive Officer s report for the financial year ending in 31st December All figures in US dollars unless otherwise stated Being a member of the Bank to Al Baraka Banking Group, provides us depth and strength of aspiration and objectives, and diversity and quality of services and products. Introduction As we all know, because of the global crisis which broke out in late, year was a year of challenges, not only for our bank, but for all banks worldwide. The crisis, which was the first of its kind for many years, has had severe financial and economic repercussions on the countries of the region. In view of these difficult circumstances, it was necessary for Al Baraka Islamic Bank to adopt precautionary policies to protect the assets of our shareholders, depositors and investors. For this reason, the efforts of the executive management were focused on enhancing the liquidity position of the bank as well as setting aside provisions necessary for the Bank s operations in Bahrain and Pakistan in accordance with the directives of the Board of Directors. These measures were also part of the Bank s efforts to strengthen its position in the face of adverse developments arising from the crisis, and at the same time, enable it at a later stage to take advantage of any good business opportunities that may be generated by the current economic developments. We have succeeded, Praise to Allah, in implementing these policies, though - as you will notice from the Bank s results for year - at the expense of profitability, but we are confident that these policies were necessary for dealing with the most difficult crisis that affected the financial institutions all over the world since many years. In line with the priorities we set for year, we continued to focus on strengthening our credit and risk departments, reducing the risks to the corporate financing and investment portfolio, strengthening the bank s resources and technical and human capabilities and improving the operating environment to enable the Bank implement its new business strategies. No doubt that the affiliation of the Bank to Al Baraka Banking Group (which itself was going through a phase of an intensive process of unifying and integrating the business activities of its subsidiary banks within unified business strategies with a view to maximizing the benefits from its geographical presence which is the largest amongst Islamic banks) contributes significantly towards realising such strategies and provides us depth and strength of aspirations and objectives, and diversity and quality of services and products. also witnessed many achievements for the Bank. Retail Banking launched its range of innovative Taqseet products designed to meet the financing and investment needs of individuals and companies. We have also installed a number of ATMs in different areas of Bahrain and recently opened our fifth branch in Bahrain in Arad. All these efforts helped the bank acquire a good share of the market, and we intend to increase such share in year As at the end of, we approved the new five-year strategy of Al Baraka Islamic Bank, which reflects the intention of the executive management in seeking to expand its banking activities and focus on the management of bank s investments 20 Al Baraka Islamic Bank B.S.C. (c) 21

12 Chief Executive Officer s Report (Continued) and the selection of good assets that generate rewarding returns to the bank in the coming period. We are equally proud to say that also saw concerted efforts on enhancing the development of human resources in the bank, as we have strengthened the Bank s staff by more talents that are required for improving the Bank s functions and duties. We also sent tens of employees on training courses to gain more skills and knowledge and continued our practice of honoring outstanding employees who had long years of service, as part of the efforts to improve the working environment in the bank. We know that year 2010 will be even more challenging because the global crisis still lingers on and its repercussions are still impacting the financial institutions in the region and the world at large. However, we are confident that, thanks to the efforts and achievements we have made in, Al Baraka Islamic Bank has become to possess the strength and capabilities that enable it face the challenges ahead and achieve our set goals. Financial Performance Income After the outbreak of the financial crisis in the late months of, it was necessary for Al Baraka Islamic Bank to take certain precautionary measures to strengthen its liquidity position and build strong precautionary provisions. These measures impacted the volumes of the profit-generating assets as at the end of the year, and as a result the majority of such assets dropped by varying degrees as at the end of compared to. The decrease in financing and investment operations as at the end of naturally impacted the income from such operations. The total income from joint finance investment accounts amounted to US$ million, representing a drop of 6.1% over the previous year. This income included the income from joint financing operations which increased by 1.9% from US$ million in to US$ million in and the income from other financing and investments which dropped by 28% from US$ million in to US$ million in. This latter income mainly included income from Ijarah Muntahiya Bittamleek amounting to US$ 5.59 million (US$ 7.76 million in ), income from investments amounting to US$ 4.16 million (US$ 4.67 million in ), income from Mudaraba amounting to US$ 887 thousand (US$ 1.03 million ), income from Musharaka amounting to US$ 2.66 million (US$ 2.10 million in ) and income from sale of investments amounting to US$ 632 thousand (US$ 456 thousand in ). It is clear from these figures that the decline in gross income was mainly due to the drop in income from other financing and investments. In line with the decline in the total income from joint financing, the return on unrestricted investment accounts dropped by 2.7% from US$ million in to US$ million in, which represents the gross return on unrestricted investment accounts of US$ million in (US$ million in ) less the Bank s share as a Mudarib of US$ million in (US$ 5.63 million in ). After deducting the investors share from the revenue from the unrestricted investment accounts, the Bank s share of total income (as a Mudarib and financier) amounted to US$ million in compared to US$ million in, reflecting a drop of 13.54%. The majority of the other sources of income also showed decline in line with the drop in financing and investment operations as at the end of the year. The Bank s income from other financing and investments by the Bank increased by 49.65% from US$ 2.41 million in to US$ 3.61 million in, while income from banking services dropped by 43% from US$ 4.99 million in to US$ 2.84 million in, which included primarily fees and commissions, letters of credit and acceptances fees and letters of guarantee fees. Other income, which mainly included gains from foreign exchange, also dropped by 9.4% from US$ 2.53 million in to US$ 2.30 million in. The total operating income of the Bank amounted to US$ million compared to $ million the previous year, reflecting a decline of 15.1%. Because of the expenses resulting from the opening of new branches and ATMs for Al Baraka Islamic Bank in Bahrain and Pakistan and the consequent increase in the number of staff, as well as the implementation of the new IT system of the Bank, total expenses increased by 9.7% from to US$ million in to US$ million in, which included primarily staff costs, which increased by 4.5% from US$ million in to US$ million in and operating expenses which increased by 23.1% from US$ 7.37 million in to US$ 9.07 million in. As we mentioned earlier, the Bank resorted to setting aside, as part of its precautionary measures to protect itself against the repercussions of the financial crisis, more provisions to guard against any possible deterioration in the quality of the finance and investment portfolios, considering that the Pakistani economy and the banks operating there were particularly affected by the repercussions of the crisis. For this reason, these provisions increased from US$ 3.30 million in to US$ million in, and as a result, the Bank s net loss amounted to US$ million in compared to a net profit of US$ 2.51 million in. Thus, as it can be seen, the global financial crisis had direct and indirect impact on the size of the financing and investment assets of the bank, which compelled us take firm measures to protect the interests of our shareholders, investors and customers from any potential impact or consequences at present or in the future that may affect the Bank s business. Bank s Financial Position The precautionary measures that we took during the last months of the year impacted the volumes of the financing and investment operations, which in turn led to a decrease, though small, in the value of the assets of the Bank, which dropped by 7.1% from US$ 1.00 billion as at the end to about US$ million as at the end of. Income-generating Assets profit-generating assets decreased by 11.4% from US$ million in to US$ million in. Murabaha sale receivables continue to be the main component of the income-generating assets, though they declined marginally by 14.7% from US$ million in to US$ million in. These financing operations represent Murabaha financing agreements with financial institutions and corporations that the Bank provided primarily through syndicated financing arrangements. saw the bank turns its focus to countries in which Al Baraka Banking Group has a presence such as Syria, Algeria and Tunisia with a view to enhancing the business between the units in such countries. To further promote Islamic banking in these countries, the Bank sought to strengthen its relations with central banks and financial institutions there and took a number of initiatives towards the central banks and a selected group of banks, particularly in the area of developing treasury businesses and trade finance. Still on the subject of finance, the volume of trade finance business also increased during to US$82 million in concurrence with the expansion in the markets mentioned above such as Syria, Algeria and Tunisia as well as Yemen, where we established credit limits for a number of Syrian and Yemeni banks. We also strengthened our working relationships in the area of trade finance with the subsidiary units of Al Baraka Banking Group. Investments, which represented the second largest incomegenerating assets, dropped in by 1.6% to US$ million compared to US$ million in. The investment portfolio consisted of investments held to maturity (Sukuks) in an amount of US$ million in (US$ million in ), and investments held for resale (investment funds, private equities, Sukuks and real estate) in an amount of US$ million in (US$ million in ) and finally, investments held for trading purposes (listed securities) in an amount of US$ 928 thousand in (US$ 1.41 million in ). We are currently working on the restructuring of the Issues product, with a view to re-launching it as a Bahrain Dinar denominated Sukuks through the Bank s branches to the public. We expect that this product will be met with a good response from the public, considering that it is a Sharia acompliant product and enjoys more acceptability compared to international commodities. The Issues product is a form of asset securitization (Tawreeq) that may be applied to a variety of assets by different modes of Islamic finance such Ijarah, Ijarah Muntahiya Bittamleek, Istisna a or Murabaha. During the past twenty years, we were successful in launching more than 600 Issues with a total value of more than US$ 6 billion, covering more than twenty thousand clients. No one of these Issues experienced any delay in the payment of any amounts that are due to investors. We also put in place a comprehensive system to monitor our investment portfolio which consisted of 19 investments and established direct contact lines with the managers of these portfolios in order to be up-to-date as regard to the performance of the investments. We continued to successfully manage the Sharia a-compliant Kotak Fund Ltd., which we launched to public subscription in November The Fund is registered in Mauritius Island and managed by Kotak Mahandra Bank Limited (United Kingdom), a branch of Kotak Bank Mahandra Limited which manages total assets of more than US$ 5.2 billion. The Islamic Indian Shares Kotak Fund consists of A grade shares under the umbrella of the Sharia a-compliant Kotak Fund Limited, which is an openended fund that allows investors to redeem their units during any business day. The Fund invests in companies listed on the Indian stock exchange in accordance with the provisions of Islamic Sharia a and in line with the terms issued by the Sharia a Supervisory Board of the Fund. In, we also restructured the Global Equity Fund in cooperation with Black Rock Company (Britain). The Bank launched this Fund for the first time in 2002 and had achieved an aggregate return of 78.7% in just five years, i.e. at the rate of 15.74% p.a. on average. The income-generating assets also included Mudaraba finance, which increased by 33% from US$ million in to US$ million in. These finance transactions are usually conducted with banks and financial institutions. The assets also included Ijarah Muntahiya Bittamleek which increased by 5.8% from US$ million in to US$ million in. Musharaka financing, however, dropped by 14.5% from US$ million in to US$ million in. Ijarah financing also dropped by 55.7% from US$ million in to US$ 9.83 million in, while the real estate investments portfolio had dropped by 16.4% from US$ 1.64 million in to US$ 1.37 million in. The drop in the majority of the profit-generating assets reflects the precautionary measures taken by the Bank to reduce its financing and investment operations after the outbreak of the financial crisis. Geographical and Sectoral Distribution In view of the growing importance of the countries in the region, Middle East and North Africa, the majority of the assets of the Bank are concentrated in these regions at 49% of total assets, while 37% of the assets are in Asia, 3% in Europe and the remaining assets in other regions. 22 Al Baraka Islamic Bank B.S.C. (c) 23

13 Chief Executive Officer s Report (Continued) About 55% of the assets are in the form of transactions with banks and financial institutions, 20% with trading and production sectors, 5% in construction and contracting and 20% in other activities or sectors. Liquidity Management A key element of the Bank s culture and policies is the maintenance of a good level of liquid assets to accord with its strong role as a commercial bank on the one hand, and its ability to seize upon good opportunities that may become available in the regional markets, as an investment bank on the other. After the outbreak of the financial crisis, we promptly re-emphasized this approach as part of our overall precautionary measures. Liquid assets (cash and balances with banks) increased by 7.1% from US$ million in to US$ million in, representing 30.6% of the deposits and unrestricted investment accounts in (27.5% in ). The distribution of assets in terms of maturity shows that 68.5% of total assets mature within a period not exceeding one year, compared to 72.4% on the liabilities and equity side, which reflects the strong liquidity position of the Bank and the good matching of the incomegenerating assets to the sources of fund in terms of maturities. Liabilities and Customers Investments On the liabilities side, the unrestricted investment accounts and deposits from financial institutions and current accounts represented the main source of funds for the business operations of the Bank. Unrestricted investment accounts dropped only slightly in by 3.9% to US$ million, compared to US$ million in, despite the liquidity squeeze caused by the global financial crisis, which confirms the customers confidence in the Bank. These accounts 81.2% of total assets, which reflects the strength of the Bank s customer base Unrestricted investment accounts represent the main external source of funds for the Bank. These dropped by 10% in to reach US$ million compared to US$ million in. Deposits from financial and banking institutions increased by 276.8% to US$ million compared to US$ million in, while current accounts increased by 7% from US$ million in to US$ million in. In line with the Bank s policy in increasing its share in the local market, it established a Retail Banking Department in early in order to diversity our banking business and acquire a bigger share of the domestic market in this sector. In the middle of the year, the Taqseet (installment) product was launched offering consumers assistance in financing the purchase of cars and goods such as furniture, home appliances, electronics and other equipment as well as real estate finance for own use as residence or investment purposes. As for the local branch network, we have completed the final preparations for the opening of the new branch in Arad area of Muharraq in early 2010, that will make 5 the total number of local branches of the Bank. The re-design of all branches was completed in line with the launch of the new identity of Al Baraka Banking Group. Furthermore, the Bank installed two ATM machines to make a total ATM network of 11 machines located at strategic locations in the Kingdom of Bahrain. Capital Adequacy shareholders equity amounted to US$ million in compared to US$ million in, representing a drop of 15.7% as a result of the current year loss charged to the shareholders equity accounts. In spite of this, the capital adequacy ratio (in accordance with the instructions of the Central Bank of Bahrain with respect to the implementation of the directives of Basel II) remained at a very satisfactory level of 22.25% in compared to 26.76% in, which provides the bank with a strong capital base for growth in the coming period. Restricted Investment Accounts The restricted investment accounts amounted to US$ million in compared to US$ million in, reflecting an increase of 21.2%. These accounts are invested primarily in Mudaraba transactions with customers. Bank s Operations in Pakistan 1. Performance of the Banking Sector: The general slowdown in economic activities and associated deterioration in the business environment during the year continued to reflect in slow growth of the banking system and increase in non-performing loans (NPLs). The asset base of the banking system remained stable with marginal growth. However, investments contributed towards the stability of assets, while there was a relative decline in the advances / financing portfolio. Due to the security crisis, energy crisis and instability on the political front contributed towards the slowdown in business activity. Non-performing loans increased by 68.4 % during the year and reached at a level of US$ 4682 million at the end of the Financial. Infection ratio of large banks is below the industry average, while the medium and small sized banks have higher infection ratio. Profitability of the banking sector remained under stress due to ongoing macro-economic environment, local security situation, energy crisis, slow down in credit demand and worsening credit quality. Earnings were largely skewed towards large and mediumsized banks as the bottom line of most of small sized banks was low or in negatives. Due to low demand of credit from private sector, public sector emerged as main user of funds for commodity operations and government bonds. Therefore, asset mix is shifting from advances to investment. On individual basis, relatively medium-sized banks performed better in building their market share. The Islamic Banking Institutions maintained their profitability, though with slight deceleration during the last quarter of year. However, growth in assets remained higher than that of the conventional banks, thus increasing the share of Islamic banking institutes in the banking system. 2. Performance of Al Baraka Islamic Bank: In the environment of slow economic growth, Al Baraka Islamic Bank (AIB), by the grace of Allah, has been able to meet most of its targets set for the year. Following are key performance highlights for financial year : The assets of the bank has been increased by 14% over the last year which in turns will increase the market share of the bank; Deposits reached to a level of US$ billion, reflecting a growth of 15% over last year although the growth in deposits of the banking sector remained subdued, and no new brand was opened during the year; Investments increased by 41% over the last year mainly because of investments in Ijaraha Sukuks of the Government of Pakistan. Net Spread increased by 26% over last year which clearly depicts that the management has, successfully, been able to maintain reasonable spread over the cost of deposits in-spite of the fact that bank s own equity is mainly nonremunerative. Net Income before profit and tax and unusual item stood at 2.3 million. However bank achieved a loss of 2.6 million after unusual item. Unusual item mainely represents Provisions against non-performing financing amounting to US$ 9.5 million. AIB has been mainly infected by Dewan Group and Quality Minerals as the provision against these parties represents 66% and 15% respectively of provisions charged during the year. Futher, there are a total of 37 banks including AIB to which Deewan group gives 59 million. A steering committee of these banks has been formed and joint efforts of recovery are in process. During year, the Bank introduced a short-term credit management strategy to keep check on growing Non-Performing Loans. Moreover, a dedicated department has been approved to manage classified portfolio. 3. Future Outlook: Macro economic factors and political instability, going forward, may continue to impact growth and profitability of the banking sector. However, the bank is committed to achieve sustained level of operations through focus on fundamental strengths. Further, if the acquisition transaction with another Islamic Bank materializes, the Bank would be in a strong position to exploit its goodwill thereby increasing its profitability and market share. Re-structuring of Bank Departments As a result of the merger in between Al Baraka Islamic Bank and Al Amin Bank under the name of Al Baraka Islamic Bank, which resulted in transferring Al Amin Bank employees to departments and sections similar to theirs at Al Baraka Islamic Bank, a number of departments and senior positions were created in year, in line with the expansion seen by the Bank and the future visions in implementing the programs set by the executive management. The results of these changes and efforts were as follows: 1. The establishment and integration of a Personal Banking Department with local branches. A senior manager and an assistant general manager were appointed to be responsible for managing this department. 2. The establishment of a Commercial Branches Department and the appointment of a senior manager to run it. 3. The appointment of a senior manager to Sharia a Supervision Department. 4. Working on the opening of the Bank s fifth branch in the area of Arad. 5. Restructuring of the Human Resources Department and the creation of new sections in it. 6. The establishment of a Banking Risks Department and the appointment of a senior manager to run it. New Identity of the Bank In line with the strategy being implemented by Al Baraka Banking Group, BSC (ABG), regarding the unification of the new identity of the Group and its banking units, Al Baraka Islamic Bank was one of the early units of the Group to launch its new unified identity on 3rd June. The main objective of the new identity is to ensure that all the banking units of the Group share unified goals and action strategies. For this reason, Al Baraka Islamic Bank views this step as a major achievement for the bank in its pursuit to attain a leading position in the Islamic banking industry. The new identity requires us to adopt a set of policies and high ethical and professional standards with regard to the offering of innovative and highly efficient Sharia a-compliant services and products. To achieve this, we put in place a number of programs and plans which are currently being implemented to embody the motto of the new identity of the Group in being a partner bank to our customers, investors, and all our stakeholders. These steps included the implementation of a number of programs at all 24 Al Baraka Islamic Bank B.S.C. (c) 25

14 Chief Executive Officer s Report (Continued) levels at the Bank to promote the understanding and assimilation of the new corporate identity and the values and principles that it represents and, which in turn, require skills and outstanding performance from all employees. As we proceed with the launch of the unified corporate identity, the concept of Brand Guardianship has been introduced across all of Al Baraka units, to ensure the smooth assimilation of the brand in all markets. In line with international best practice, a high level branding committee at Group Head Office has been charged with the responsibility of Brand Guardianship across the Group. In this regard, several initiatives have been commissioned at the Group level through the Branding & Special Projects team and the Brand Guardians, amongst which are: The issuance of Retail Products Guides and Manuals The issuance of a detailed manual for the standardization of Al Baraka s retail branches network. Standardization of the marketing communication, especially in connection with customers touch points both one to one as well as advertising messages. At the subsidiary level, the Chief Executive Officers of each bank of the Group have been appointed Brand Guardian for their respective units, assisted by senior executives, to ensure that all activities related to the brand, conform to central policies. As a result of the launch of the Unified Identity, we have seen a positive impact, which can be summarised as follows: Customer interest levels have heightened, resulting in a good increase in the number of new customers. Staff across the Group highly motivated and fully engaged with the Group Vision and the integration of the partnership and participation concept. As a result of this, there is a strong customer oriented approach in all marketing activities, as derived from the strategy outlined in the unified corporate identity. This has now been fully integrated into the policies, procedures and business methodologies. We look forward in confidence to the challenges ahead and to the adoption of our newly articulated Group ethos, one which we believe will truly reflect of the essence of our promise at Al Baraka Islamic Bank as a Partner Bank to our customers. Human Resources and Training To keep pace with the rapid growth in the business and needs of the Bank, and as part of the restructuring following the merger and the establishment of additional departments, Al Baraka Islamic Bank hired about 22 new employees in, bringing the total number of employees to 160, in addition to 12 executive trainees. Last year also witnessed the promotion of a large number of employees to enable them take more senior positions and motivate them to continue their hard work and enhance their loyalty to the bank. Al Baraka Islamic Bank continued during to create an effective work environment and enhance the values and principles of the Bank to promote the concept of working as a team that possesses the academic qualifications, expertise and capabilities needed for the bank s operations and satisfy the needs and expectations of our customers. The Bank also continued its efforts to fill senior positions and improve the performance and productivity of its staff to meet customer needs and expectations. About 95 employees attended some 398 specialized training courses in Bahrain, especially in the areas of anti-money laundering, risk management and compliance, human resources management, modern techniques in training and recruitment, banking relations, secretarial skills, investment banking and leadership skills. The training also included sending a number of bank employees to obtain high or specialized academic qualifications and certificates such as MBA degrees, ITIL v3 and Bullet Proof Manager. Some employees were also sent on training to obtain the Advanced Diploma in Islamic Finance Studies. The bank s management also introduced, as part of the bank s social responsibility projects, a program to train outstanding university graduates called Al Ruwad Program. The program is designed to train and groom university graduates to prepare them for filling leading and senior positions in the future, after arming them with the necessary knowledge and skills required for performing such functions. The management of the Bank, in partnership with Al Baraka Banking Group, launched a training program for executive trainees in collaboration with Bahrain Institute of Banking and Finance (BIBF), which includes internal and external training on a number of areas in banking and bank departments operations. This program, which was designed to meet the requirements of the labour market, was started on 22 March and lasted until 15 June. The bank s management also focused on providing in-house training courses to help improve performance and increase awareness of key business and other essential skills, such as a first aid course, MS Office course and modern secretarial functions in Islamic banks. Information Technology In view of the rapid advances in information technology at the global level and the changing development in this area that this entails worldwide, Al Baraka Islamic Bank is very keen on modernizing the infrastructure of its computer network, increase its capacity and introduce modern technologies with high-speed data transfer capabilities, which will lead to significant time-saving and reduction of effort on the part of the employees of the bank. One of the key IT projects that have been successfully implemented is the installation of the new Equation system which will allow the bank to improve the quality and speed of services provided to customers, and thus increase staff productivity and enable the bank to keep pace with the modern advances in the Islamic finance industry. In Conclusion At the end of our review of the performance of Al Baraka Islamic Bank in, we cannot but emphasize our confidence in the future. The Bank possesses substantial capital resources, strong human and technical capabilities and high level of liquidity that place it in a good position to take advantage of economic recovery as soon as world economies recover from the repercussions of the current financial crisis, especially that this crisis has proved the merits and superiority of the Islamic banking system and its ability to reduce the effects of the crisis on it. The five-year strategy of the Bank includes the development of the Bank s current business as well as new areas of business that can help enhance the status of the Bank within the Islamic banking industry and increase its profitability in the future. Mohammed Isa Al-Mutaweh - Member of the Board of Directors and Chief Executive Office 26 Al Baraka Islamic Bank B.S.C. (c) 27

15 Corporate Governance We aim to attain our business and customer service objectives whilst adhering rigorously both to Sharia a and to the highest standards of professional conduct, corporate governance and ethics. Corporate Governance Statement The Bank abides strictly by the laws and regulations of the authorities where it operates, and observes the guidelines and rules issued by regulatory authorities such as the Central bank of Bahrain (CBB) and Commercial Companies Law. The Board of Directors (The Board) In, our Corporate Governance Policy was upgraded and approved by the Board to account for international as well as regional best practices. The Board of Directors is responsible for the overall governance of the Bank and discharges this responsibility through compliance with relevant rules, laws, regulations, directives and guidelines in addition to adopting the Code of Corporate Governance. The duties and responsibilities of the Board include setting the strategic and succession plans of the Bank, monitoring performance goals, providing direction to the bank s management, formalizing documentation on matters specifically reserved for its decision and ensuring that the bank s internal controls, risk management and reporting procedures are well in place and conforms to international best practice, and monitoring management s performance within an agreed framework. The Board has established four Board Committees as well as various Management Committees to assist the Board in the discharge of its duties, and each committee operates under approved terms of reference. The Board and Management Committees are as follows : Board Committees: Audit Committee Remuneration & Board Affairs Committee Executive Committee Risk Management Committee Management Committees: Asset and Liability Committee (ALCO) Investment and Credit Review Committee Commercial Branch Credit Committee Management Committee Information Technology Steering Committee Individually, the directors possess the knowledge and skills in identifying key issues, constructively challenge and collaborate to solve problems, propose solutions as well as support the management team of the Bank (the Management). Collectively, the Board reflects the ability with the skills and attributes that are required by the Bank in meeting its goals and objectives while at the same time serving the interests of shareholder and stakeholders. In safeguarding the Bank s assets, shareholder s investment and stakeholders interest, the Board also ensures that the Bank is equipped with an effective system of internal control, and that there is a satisfactory framework of reporting on internal financial controls and regulatory compliance, as well as an effective risk management system, which effectively monitors and manages the principal risks of the business. 28 Al Baraka Islamic Bank B.S.C. (c) 29