NATIONAL BANK OF BAHRAIN BSC CONDENSED INTERIM FINANCIAL INFORMATION. 31 March 2018

Transcription

1 NATIONAL BANK OF BAHRAIN BSC CONDENSED INTERIM FINANCIAL INFORMATION 2018 Commercial registration: 269 (Licensed by the Central Bank of Bahrain as a conventional retail bank) Board of Directors: Farouk Yousuf Khalil Almoayyed, Chairman Dr. Essam Abdulla Fakhro, Deputy Chairman Fawzi Ahmed Kanoo, Deputy Director Yusuf Abdulla Yousif Akbar Alireza, Director Hala Ali Yateem, Director Khalid Yousif Abdul Rahman, Director Hussain Sultan Al Ghanem, Director Khalid Al Rumaihi, Director Rishi Kapoor, Director Mohamed Tareq Mohamed Sadeq, Director Sh. Rashid Bin Salman Mohamed Al Khalifa, Director Office: Auditors: PO Box 106, NBB Tower Government Avenue, Manama, Kingdom of Bahrain Telephone , Fax KPMG

2 Condensed interim financial information for the three months ended 2018 CONTENTS Page Independent auditors report on review of condensed interim financial information 1 Condensed interim financial information Condensed statement of financial position 2 Condensed statement of profit or loss 3 Condensed statement of comprehensive income 4 Condensed statement of changes in equity 5-6 Condensed statement of cash flows 7 Notes to the condensed interim financial information 8-18

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6 CONDENSED STATEMENT OF COMPREHENSIVE INCOME for the three months ended 2018 Bahraini Dinars Millions Three months ended 2018 (reviewed) (reviewed) Profit for the period Other comprehensive income: Items that are or may be reclassified to profit or loss: Fair value through other comprehensive income (debts instruments) - Net change in fair value (10.58) Net amount transferred to profit or loss (0.03) - Items that will not be reclassified to profit or loss: Fair value through other comprehensive income (equity instruments) Share of other comprehensive income of associates - (0.02) Total other comprehensive income for the period (9.56) Total comprehensive income for the period The condensed interim financial information consists of pages 2 to 18. 4

7 CONDENSED STATEMENT OF CHANGES IN EQUITY for the three months ended 2018 Bahraini Dinars Millions 2018 (reviewed) Share capital Shares under employee share incentive scheme Share premium Statutory reserve General reserve Other reserves and retained earnings Fair value reserve Donation and charity reserve Retained earnings Total equity Balance at 31 December (1.67) Impact of adopting IFRS 9 as at 1 January 2018 (note 3c) (14.23) (4.29) Impact on adopting IFRS 9 by associates (3.98) (3.98) Restated Balances at 1 January (1.67) appropriations: - Cash dividend at 25% (31.54) (31.54) - Bonus shares issued (10%) (0.15) - - (12.76) Transfer to donations and charity (3.05) - - Transfer to general reserve (19.14) - - Transfer to statutory reserve (6.38) Balance after appropriations (1.82) Shares allocated during the period Comprehensive income for the period: Profit for the period Other comprehensive income (9.56) - - (9.56) Total comprehensive income for the period (9.56) Utilisation of donation and charity reserve (0.50) - (0.50) Balance at (1.52) The condensed interim financial information consists of pages 2 to 18. 5

8 CONDENSED STATEMENT OF CHANGES IN EQUITY for the three months ended Bahraini Dinars Millions (reviewed) Share capital Shares under employee share incentive scheme Share premium Statutory reserve General reserve Other reserves and retained earnings Fair value reserve Donation and charity reserve Retained earnings Total equity Balance at 1 January (1.64) appropriations: - Cash dividend at 25% (28.65) (28.65) - Bonus shares issued (0.14) - - (11.59) Transfer to donations and charity (2.91) - - Transfer to general / statutory reserve (17.38) - - Transfer to statutory reserve (5.79) Balance after 2016 appropriations (1.78) Shares allocated during the period Comprehensive income for the period: Profit for the period Other comprehensive income Total comprehensive income for the period Utilisation of donation and charity reserve (0.22) - (0.22) Balance at (1.54) The condensed interim financial information consists of pages 2 to 18. 6

9 CONDENSED STATEMENT OF CASH FLOWS for the three months ended 2018 Bahraini Dinars Millions Cash flow from operating activities Three months ended 2018 (reviewed) (reviewed) Profit for the period Adjustments to reconcile net income to net cash from operating activities: Depreciation Net impairment loss Share of profit of associates (2.16) (1.31) Profit for the period after adjustments Change in operating assets and liabilities: Balances with central banks (mandatory cash reserve) Treasury bills (11.43) (19.11) Placements with banks and other financial institutions (1.00) 3.46 Loans and advances (44.32) (91.23) Investment securities 0.20 (6.76) Interest receivable and other assets Due to banks and other financial institutions (51.88) Borrowings under repurchase agreements (53.36) (17.46) Customers deposits (62.78) Interest payable and other liabilities (2.35) (9.64) Net cash used in operating activities (74.34) (109.03) Cash flow from investing activities Dividend received from associates Purchase of property & equipment, net (0.97) (0.83) Net cash (used in)/from investing activities (0.15) 1.45 Cash flow from financing activities Dividends paid (26.93) (24.99) Donations and charities paid (0.50) (0.22) Net cash used in financing activities (27.43) (25.21) Net decrease in cash and cash equivalents during the period (101.92) (132.79) Cash and cash equivalents at 1 January Cash and cash equivalents at The condensed interim financial information consists of pages 2 to 18. 7

10 for the three months ended 2018 Bahraini Dinars Millions 1. Reporting Entity National Bank of Bahrain BSC, a public shareholding company, was incorporated in the Kingdom of Bahrain by an Amiri decree in January The Bank is licensed by Central Bank of Bahrain as a conventional retail bank. 2. Basis of Preparation and Significant Accounting Policies The accompanying condensed interim financial information is prepared in accordance with IAS 34 - "Interim Financial Reporting" and the applicable provisions of Central Bank of Bahrain Regulations. This condensed interim financial information should be read in conjunction with the annual financial statements of the Bank, except for the effects of adoption of IFRS 9 and IFRS 15 as described in Note 3 to this condensed interim financial information. The condensed interim financial information is reviewed, not audited. The comparatives for the condensed statement of financial position have been extracted from the audited financial statements for the year ended 31 December and reviewed condensed interim financial information for the three months ended. The comparatives for the condensed statements of profit or loss, comprehensive income, changes in equity and cash flows have been extracted from the reviewed condensed interim financial information for the three months period ended. This condensed interim financial information does not contain all information and disclosures required for full financial statements prepared in accordance with International Financial Reporting Standards. In addition, results for the three months period ended 2018 are not necessarily indicative of the results that may be expected for the financial year ending 31 December The condensed interim financial information is influenced by accounting policies, assumptions, estimates and management judgement, which necessarily have to be made in the course of preparation of the condensed interim financial information. The Bank makes estimates and assumptions that affect the reported amounts of assets and liabilities. All estimates and assumptions required in conformity with IFRS are best estimates undertaken in accordance with the application of standards. Actual results may differ from these estimates. The significant judgements made by management in applying the Bank s accounting policies and the key sources of estimation are in accordance with the application of standards and are same as those applied to the audited financial statements for the year ended 31 December, except for the changes arising on adoption of IFRS 9 (Note 3a). The Bank s financial risk management objectives and policies are consistent with those disclosed in the audited financial statements for the year ended 31 December, except for the changes arising on adoption of IFRS 9 (Note 3b). 3. Adoption of new accounting standards The Bank has adopted IFRS 9 as issued by the IASB in July 2014 with a date of transition of 1 January 2018, which resulted in changes in accounting policies and adjustments to the amounts previously recognised in the financial statements as of and for the year ended 31 December. As permitted by the transitional provisions of IFRS 9, the Bank elected not to restate comparative figures. Any adjustments to the carrying amounts of financial assets and liabilities at the date of transition were recognised in the opening retained earnings and the opening balance of fair value reserve of the current period. The adoption of IFRS 9 has resulted in changes in the accounting policies for recognition, classification and measurement of financial assets and financial liabilities and impairment of financial assets. IFRS 9 also significantly amends other standards dealing with financial instruments such as IFRS 7 Financial Instruments: Disclosures. The Bank has adopted IFRS 15 Revenue from contracts with customers on 1 January The Bank did not have a significant impact on its financial statements from adoption of this standard. Set out below are the details of the specific IFRS 9 accounting policies applied in the current period and IFRS 9 transition impact disclosures for the Bank. 8

11 for the three months ended 2018 Bahraini Dinars Millions 3. Adoption of new accounting standards (continued) (a) Changes in Accounting Policies The key changes to the Bank s accounting policies resulting from the adoption of IFRS 9 are summarised below. Since the comparative financial information has not been restated, the accounting policies in respect of the financial instruments for comparative periods are based on IAS 39 as disclosed in the audited financial statements as of and for the year ended 31 December. Classification of financial assets and financial liabilities IFRS 9 contains three principal classification categories for financial assets: measured at amortised cost (AC), fair value through other comprehensive income (FVOCI) and fair value through profit or loss (FVTPL). IFRS 9 classification is generally based on the business model in which a financial asset is managed and its contractual cash flows. The standard eliminates the existing IAS 39 categories of held-for-trading, held-to-maturity, availablefor-sale and loans and receivables. IFRS 9 removes the requirement contained in IAS 39 relating to bifurcation of an embedded derivative from an asset host contract. However, entities are still required to separate derivatives embedded in financial liabilities where they are not closely related to the host contract. IFRS 9 largely retains the existing requirements in IAS 39 for the classification of financial liabilities with the exception of the treatment of the bank s own credit gains and losses, which arise where a bank has chosen to measure a liability at fair value through profit or loss, these gains and losses are recognised in other comprehensive income. There continue to be two measurement categories for financial liabilities: fair value and amortised cost. Impairment of financial assets IFRS 9 replaces the incurred loss model in IAS 39 with an expected credit loss ( ECL ) model. The new impairment model also applies to certain loan commitments and financial guarantee contracts but not to equity investments. The Bank applies a three-stage approach to measuring ECL on financial assets carried at amortised cost and debt instruments classified as FVOCI. Assets migrate through the following three stages based on the change in credit quality since initial recognition. Stage 1: 12-months ECL Stage 1 includes financial assets on initial recognition and that do not have a significant increase in credit risk since initial recognition or that have low credit risk. 12-month ECL is the expected credit losses that result from default events that are possible within 12 months after the reporting date. It is not the expected cash shortfalls over the 12-month period but the entire credit loss on an asset weighted by the probability that the loss will occur in the next 12-months. Stage 2: Lifetime ECL - not credit impaired Stage 2 includes financial assets that have had a significant increase in credit risk since initial recognition but that do not have objective evidence of impairment. For these assets, lifetime ECL are recognised. Lifetime ECL are the expected credit losses that result from all possible default events over the expected life of the financial instrument. Expected credit losses are the weighted average credit losses with the life-time probability of default ( PD ). Stage 3: Lifetime ECL - credit impaired Stage 3 includes financial assets that have objective evidence of impairment at the reporting date in accordance with the indicators specified in the CBB s rule book. For these assets, lifetime ECL is recognised. 9

12 for the three months ended 2018 Bahraini Dinars Millions 3. Adoption of new accounting standards (continued) (a) Changes in Accounting Policies (continued) Hedge accounting At inception of the hedging relationship, the management undertakes a formal designation and documentation. This includes the Bank's risk management objective underlying, the hedging relationship and how that fits within the overall risk management strategy. The documentation also includes an identification of the hedging instrument, the hedged item, the nature of the risk being hedged and how the entity will assess whether the hedging relationship meets the hedge effectiveness requirements. IFRS 9 also requires documentation of the hedge ratio and potential sources of ineffectiveness. (b) Changes to the Significant Estimates and Judgements Financial asset and liability classification Assessment of the business model within which the assets are held and assessment of whether the contractual terms of the financial asset are solely payments of principal and interest on the principal amount outstanding. Impairment of financial instruments Assessment of whether credit risk on the financial asset has increased significantly since initial recognition and incorporation of forward-looking information in the measurement of ECL. Inputs, assumptions and techniques used for estimating impairment Credit risk grades The Bank has an internal credit rating model that uses qualitative and quantitative factors that are indicative of risk of default. These factors vary depending on the nature of the exposure and the type of borrower. The credit grades are calibrated such that the risk of default increases at each higher risk grade. Exposures are subject to ongoing monitoring, which may result in an exposure being moved to a different credit risk grade. The Bank also uses external credit ratings for certain exposures. Significant increase in credit risk When determining whether the risk of default on a financial instrument has increased significantly since initial recognition, the Bank considers reasonable and supportable information that is relevant and available without undue cost or effort. This includes both quantitative and qualitative information and analysis, based on the Bank s historical experience and expert credit assessment and including forward-looking information. In determining whether credit risk has increased significantly since initial recognition following criteria's are considered: I. Downgrade in risk rating according to the approved ECL policy II. Facilities restructured during previous twelve months III. Facilities overdue by 30 days as at the reporting date subject to rebuttal in deserving circumstances Measurement of expected credit losses The estimation of credit exposure for risk management purposes is complex and requires the use of models, as the exposure varies with changes in market conditions, expected cash flows and the passage of time. The assessment of credit risk of a portfolio of assets entails further estimations as to the likelihood of defaults occurring, of the associated loss ratios and of default correlations between counterparties. The Bank measures expected credit loss using Probability of Default (PD), Exposure at Default (EAD) and Loss Given Default (LGD). The Bank employs statistical models to analyse the data collected and generate estimates of PD of exposures and how these are expected to change as a result of the passage of time. This analysis includes the identification and calibration of relationships between changes in default rates and changes in key macro-economic factors, across various geographies in which the Bank has exposures. LGD is the magnitude of the likely loss if there is a default. The Bank estimates LGD parameters based on the history of recovery rates of claims against defaulted counterparties. The LGD models consider the forecasted collateral value and the associated recovery cost. 10

13 for the three months ended Adoption of new accounting standards (continued) (c) Impact of adopting IFRS 9 The impact from the adoption of IFRS 9 as at 1 January 2018 has resulted in increase in retained earnings by BD 5.96 million and decrease in the fair value reserve by BD million: Retained earnings BD 000 s Fair value reserve Closing balance under IAS 39 (31 December ) 179,771 26,115 Impact on reclassification and remeasurements: Investment securities (equity) from available-for-sale to those measured at fair value through other comprehensive income 14,234 (14,234) 194,005 11,881 Impact on recognition of expected credit losses Placements with banks and other financial institutions (34) - Investment securities - (Debt) at fair value through other comprehensive income (1,546) - Loans and advances Loan commitments and financial guarantees (3,044) - (4,289) - Impact of adopting IFRS 9 by associates (3,982) Opening balance under IFRS 9 on date of initial application of 1 January ,734 11,881 11

14 for the three months ended Adoption of new accounting standards (continued) (d) Classification and Measurement of Financial Instruments The Bank performed a detailed analysis of its business models for managing financial assets as well as analysing their cash flow characteristics. The below table reconciles the original measurement categories and carrying amounts of financial assets in accordance with IAS 39 and the new measurement categories under IFRS 9 as at 1 January Impact of IFRS 9 BD 000 s Original classification under IAS 39 New classification under IFRS 9 Original carrying amount Remeasurement Reclassification New carrying amount Financial assets Cash and balances with central Loans and receivables Amortised cost 107, ,039 banks Treasury bills Held-to-maturity Amortised cost 419, ,923 Placements with banks and other Loans and receivables Amortised cost 174,009 (34) - 173,975 financial institutions Loans and advances Loans and receivables Amortised cost 1,226, ,227,185 Investment securities 1,067,300 (1,546) - 1,065,754 Debt securities Available-for-sale FVOCI 1,017,908 (1,546) - 1,016,362 Equity securities Held-for-trading FVTPL Equity securities Available-for-sale FVOCI 49, ,143 Interest receivable and other Loans and receivables Amortised cost 41, ,795 assets 3,036,916 (1,245) - 3,035,671 ECL on loan commitments and financial guarantees is captured under other liabilities and amounts to BD 3.04 million. 12

15 for the three months ended Adoption of new accounting standards (continued) (e) Expected credit loss / impairment allowances The following table reconciles the closing impairment allowance for financial assets in accordance with IAS 39 as at 31 December to the opening ECL allowance determined in accordance with IFRS 9 as at 1 January December Remeasurement BD 000 s 1 January 2018 Loans and advances 42,727 (335) 42,392 Available-for-sale debt securities under IAS 39/debt securities at FVOCI under IFRS 9-1,546 1,546 Placements with banks and other financial institutions Loan commitments and financial guarantees - 3,044 3,044 42,727 4,289 47,016 (f) ECL impact on exposure as at 1 January 2018 BD 000 s Stage 1 Stage 2 Stage 3 Total Exposure subject to ECL 1 January 2018 Loans and advances 1,151,038 29,852 88,688 1,269,578 Treasury bills 419, ,923 Investment securities (Debt) 1,017, ,017,908 Due from banks, central banks and other financial assets 174, ,009 2,762,875 29,855 88,688 2,881,418 ECL as of 1 January 2018 Loans and Advances 9,372 1,587 31,433 42,392 Treasury Bills Investment securities (Debt) 1, ,546 Due from banks, central banks and other financial assets ,952 1,587 31,433 43,972 Net exposure as at 1 January 2018 Loans and advances 1,141,666 28,265 57,255 1,227,186 Treasury bills 419, ,923 Investment securities (Debt) 1,016, ,016,362 Due from banks, central banks and other financial assets 173, ,975 2,751,923 28,268 57,255 2,837,446 ECL on loan commitments and financial guarantees is captured under other liabilities and amounts to BD 3.04 million. 4. Seasonality For three months ended 2018, other income includes BD 2.78 million ( : BD 2.65 million) of dividends received from the Bank's investments in equity securities. This income is of a seasonal nature. 5. Related Parties Certain related parties (major shareholders, directors of the Bank and their families and companies of which they are principal owners, and key management personnel) were customers of the Bank in the ordinary course of business. The transactions with these parties were made on an arm's length basis. 13

16 for the three months ended Appropriations At the annual ordinary general meeting for the year, which was held on 7 March 2018, certain appropriations were approved and effected during the period. These appropriations include BD million (BD million excluding dividends on un allocated shares under employee share incentive scheme) for cash dividend at 25%, BD 3.05 million for donations and contributions, transfer of BD million from retained earnings to general reserve, increase in paid up capital due to a one for ten bonus issue through utilization of BD million from general reserve and transfer of BD 6.38 million from general reserve to statutory reserve. 7. Loans and advances (a) Exposure by staging 2018 BD 000 s Stage 1 Stage 2 Stage 3 Total Loans and advances 1,193,148 25,034 95,439 1,313,621 Less: expected credit loss (10,646) (2,094) (30,664) (43,404) Net loans and advances 1,182,502 22,940 64,775 1,270,217 1 January 2018 BD 000 s Stage 1 Stage 2 Stage 3 Total Loans and advances 1,151,038 29,852 88,688 1,269,578 Less: expected credit loss (9,372) (1,587) (31,433) (42,392) Net loans and advances 1,141,666 28,265 57,255 1,227,186 (b) Expected credit loss movement BD 000 s Stage 1 Stage 2 Stage 3 Total Expected credit loss as 1 January ,372 1,587 31,433 42,392 Net transfer between stages (18) Write off during the period - - (224) (224) Charge for the period (net) 1, (545) 1,236 Expected credit loss as ,646 2,094 30,664 43, Net impairment loss BD 000 s 2018 Placements with banks and other financial institutions (13) - Investment securities (Debt) at fair value through other comprehensive income (41) - Loans and advances 1,236 4,310 Loan commitments and guarantees (816) - Total 366 4,310 14

17 for the three months ended 2018 Bahraini Dinars Millions 9. Employee Share Incentive Scheme During the period, as part of the Employee Share Incentive Scheme, the Bank has allocated ordinary shares with a nominal value of BD 0.18 million to the employees under this scheme, which has resulted in share premium of BD 0.95 million. Unallocated shares under the scheme are deducted from equity. The allocated shares under the scheme are entitled to cash & stock dividends. 10. Contingent Liabilities and Banking Commitments December (reviewed) (audited) (reviewed) Contingent liabilities Letters of credits Guarantees Sub-total Banking commitments Undrawn loan commitments Forward commitments Interest rate contracts Foreign exchange contracts Sub-total 1, , , Total 1, , ,

18 for the three months ended 2018 Bahraini Dinars Millions 11. Operating Segment Information (reviewed) Retail, Commercial & SMEs 2018 Corporate, Institutional & Investment Banking 2018 Overseas Branches 2018 Treasury, Capital Market & Wealth Management Total External revenue External expense (3.14) (2.44) (2.75) (2.54) (0.04) (0.08) (2.32) (1.64) (8.25) (6.70) Inter-segment interest income / (expense) (7.15) (5.17) - - Total revenue Result (2.44) (0.29) Unallocated corporate expenses (0.99) (0.65) Profit for the period Fair Value Hierarchy The Bank measures fair values of financial instruments using the following fair value hierarchy that reflects the significance of the inputs used in making the measurements. Level 1: Quoted prices (unadjusted) in active markets for identical assets or liabilities. Level 2: Valuation techniques based on observable inputs, either directly (i.e. as prices) or indirectly (i.e. derived from prices). This category includes instruments valued using quoted market prices in active markets for similar instruments; quoted prices for identical or similar instruments in markets that are considered less than active; or other valuation techniques where all significant inputs are directly observable from market data. Level 3: Valuation techniques using significant unobservable inputs. This category includes all instruments where the valuation technique includes input not based on observable data and the unobservable inputs have a significant effect on the instrument s valuation. The fair value of financial assets and liabilities other than those disclosed below approximate their carrying value. 16

19 for the three months ended Fair Value Hierarchy (continued) The table below analyses financial assets and liabilities carried at fair value, by valuation method. BD 000 s BD 000 s Level 1 Level 2 Level 3 Total Level 1 Level 2 Level 3 Total December Financial assets fair value through profit or loss Managed Funds Fair value through other comprehensive income financial assets: Debt securities* 303, , , , ,445-1,017,908 Equity securities 39,200-10,990 50,190 38,274-10,869 49,143 Derivative financial assets - 2,980-2,980-4,179-4,179 Total 342, ,291 10,990 1,044, , ,873 10,869 1,071,479 Derivative financial liabilities ,115-1,115 * Balances are gross of expected credit loss which accounts for BD 1.5 million as at

20 for the three months ended Fair Value Hierarchy (continued) The following table analyses the movement in level 3 financial assets during the period. There are no transfers between level 1, level 2 and level 3 of the fair value hierarchy: BD 000 s Available-for-sale financial assets 2018 At 1 January 10,869 10,332 Total gains / (losses): in income statement - - in retained earning - - in other comprehensive income Purchases - - Settlements - - Transfers out of level At 10,990 10,869 Total loss for the period included in income statement for assets/liabilities held at - - Level 3 comprises unquoted equity investments classified as fair value through other comprehensive income which are measured at their net asset values based on the latest financial statements issued by the investee. Sensitivity analysis of the movement in fair value of the financial instruments in the level 3 category financial assets are assessed as not significant to the other comprehensive income and total equity. 18