CREDIT SUISSE SAUDI ARABIA (A Saudi Closed Joint Stock Company) FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 together with the

Transcription

1 FINANCIAL STATEMENTS FOR THE YEAR ENDED 31 DECEMBER 2017 together with the INDEPENDENT AUDITOR S REPORT

2 INDEX PAGE Independent auditors report 1-2 Balance sheet 3 Statement of income 4 Statement of cash flows 5 Statement of changes in shareholders equity 6 Notes to the financial statements 7 19

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5 BALANCE SHEET As at 31 December 2017 ASSETS Notes Current assets Cash and cash equivalents 4 376,153,298 79,781,623 Due from related parties 6b 587, ,268 Advances, prepayments and other receivables 5 1,213,476 1,035,603 Total current assets 377,954,630 81,086,494 Non-current asset Property and equipment, net 7 3,039,235 1,327,351 Total non-current asset 3,039,235 1,327,351 Total assets 380,993,865 82,413,845 LIABILITIES AND SHAREHOLDERS EQUITY Current liability Accrued expenses and other liabilities 8 1,971,952 1,131,550 Total current liability 1,971,952 1,131,550 Non-current liabilities Group employee share plan 9 45,621 44,935 Employees end of service benefits 10 4,863,903 3,976,001 Total non-current liabilities 4,909,524 4,020,936 Total liabilities 6,881,476 5,152,486 SHAREHOLDERS EQUITY Share capital ,000, ,000,000 Accumulated losses (250,887,611) (222,738,641) Total shareholders equity 374,112,389 77,261,359 Total liabilities and shareholders equity 380,993,865 82,413,845 The accompanying notes 1 through 25 form an integral part of these financial statements. These financial statements as shown on pages 1 to 19 were authorized for issue by the Board of Directors on 9 Rajab 1439H (corresponding to 26 March 2018). 3

6 STATEMENT OF INCOME Notes Revenues Brokerage services, net 13 3,583,380 4,207,966 Arranging and advisory services 6a 1,670, ,702 Trading loss, net 14 (7,784) (234,640) Total revenues 5,246,458 4,644,028 Operating expenses Salaries and employees related expenses 15 20,106,419 13,099,211 Rent and premises related expenses 2,579,174 2,512,697 Telecommunication and data service charges 16 2,654,659 2,449,008 Consultancy and legal charges 2,232,044 1,267,160 Expenses paid by principal shareholder 6a 2,846, ,936 Depreciation 7 461, ,019 Other general and administrative expenses 17 2,573,735 2,261,583 Total operating expenses 33,453,754 22,615,614 Operating loss for the year (28,207,296) (17,971,586) Other income 18 58,326 26,849 Net loss for the year (28,148,970) (17,944,737) Operating and net loss per share Operating loss per share 23 (0.58) (0.60) Net loss per share 23 (0.58) (0.60) The accompanying notes 1 through 25 form an integral part of these financial statements. 4

7 STATEMENT OF CASH FLOWS Cash flow from operating activities: Notes Net loss for the year (28,148,970) (17,944,737) Adjustments to reconcile net loss to net cash used in operating activities: Depreciation 7 461, ,019 Employees' end of service benefit charge , ,543 Group employee share plan 686 (90,384) Changes in operating assets and liabilities: (26,780,702) (17,199,559) Prepayments and other current assets (177,873) (5,570) Accrued expenses and other current liabilities 840,402 (277,398) Due from / to related parties (318,588) 2,574,378 Net cash used in operations (26,436,761) (14,908,149) Employees end of service benefits paid 10 (17,995) -- Net cash used in operating activities (26,454,756) (14,908,149) Investing activities: Purchase of property and equipment 7 (2,173,569) (1,336,554) Net cash used in investing activities (2,173,569) (1,336,554) Financing activities: Proceeds from rights issue ,000, Net cash from financing activities 325,000, Net increase / (decrease) in cash and cash equivalents 296,371,675 (16,244,703) Cash and cash equivalents at beginning of the year 79,781,623 96,026,326 Cash and cash equivalents at end of the year 4 376,153,298 79,781,623 The accompanying notes 1 through 25 form an integral part of these financial statements. 5

8 STATEMENT OF CHANGES IN SHAREHOLDERS EQUITY Note Share capital Accumulated losses Total As at 1 January ,000,000 (222,738,641) 77,261,359 Rights issue ,000, ,000,000 Net loss for the year -- (28,148,970) (28,148,970) As at 31 December ,000,000 (250,887,611) 374,112,389 As at 1 January ,000,000 (204,793,904) 95,206,096 Net loss for the year -- (17,944,737) (17,944,737) As at 31 December ,000,000 (222,738,641) 77,261,359 The accompanying notes 1 through 25 form an integral part of these financial statements 6

9 1. ORGANIZATION AND ACTIVITIES Credit Suisse Saudi Arabia (the Company ) is a Closed Joint Stock Company registered in the Kingdom of Saudi Arabia. The Company operates under commercial registration number dated 1 Safar 1428H (corresponding to 19 February 2007). The Company s registered office is located at: Al Jumaiah Center, 2 nd Floor King Fahad Road Hay El Mhamadiyah P.O. Box 5000 Riyadh Kingdom of Saudi Arabia The share capital of the Company was held by the following shareholder: 31 December December 2016 Percentage No. of shares Percentage No. of shares Credit Suisse AG 100% 62,500, % 30,000,000 The principal business activities of the Company are to provide investment banking services including brokerage, arranging, dealing and advisory services. 2. BASIS OF PREPARATION 2.1 Statement of Compliance The accompanying financial statements have been prepared in accordance with the generally accepted accounting standards in Saudi Arabia issued by the Saudi Organization for Certified Public Accountants ( SOCPA ) as appropriate to the circumstances of the Company. As required by Saudi Organization for Certified Public Accountants (SOCPA), the Company is required to do transition to International Financial Reporting Standards ( IFRS ) as endorsed by SOCPA effective 1 January 2018 for preparation of their financial statements. In preparing the first set of IFRS financial statements, the Company will analyze the impact of the first time adoption of IFRS on current and prior year financial statements and will accordingly incorporate the necessary adjustments to adopt certain accounting policies that may be different from current SOCPA GAAP in its first set of IFRS financial statements. 2.2 Basis of Measurement These financial statements have been prepared under the historical cost basis except for investments in trading securities and cash settled share based payment liabilities which are stated at their fair values. 7

10 2. BASIS OF PREPARATION (Continued) 2.3 Functional and presentational currency CREDIT SUISSE SAUDI ARABIA These financial statements are presented in Saudi Arabian Riyal (SAR) which is the functional and presentational currency of the Company. 2.4 Use of estimates and judgments In the ordinary course of business, the preparation of financial statements requires the use of certain critical accounting estimates and assumptions that affect the reported amounts of assets, liabilities, income and expenses. It also requires management to exercise its judgment in the process of applying the Company s accounting policies. Such estimates, assumptions and judgments are continually evaluated and are based on historical experience and other factors, including obtaining professional advices and expectations of future events that are believed to be reasonable under the circumstances. Actual results may differ from these estimates. Estimates and underlying assumptions are reviewed on an ongoing basis. Revisions to accounting estimates are recognized in the period in which the estimates are revised and in future periods affected. 2.5 Going concern As at 31 December 2017, the accumulated losses of the company amounts to SAR 250,887,611 (31 December 2016: SAR 222,738,641) which represent 40% (2016: 74%) of the Company s share capital. Whilst, approving these financial statements, the board of directors has considered the financial position and future profitability of the Company and believe that the going concern basis used for the preparation of the financial statement is appropriate. 3. SIGNIFICANT ACCOUNTING POLICIES The accounting policies set out below have been applied consistently to all periods presented in the financial statements. The significant accounting policies are as follows: a) Cash and cash equivalents Cash and cash equivalents comprise cash in hand and cash with banks which are available to the company without any restrictions. b) Property and equipment Property and equipment are stated at cost and presented net of accumulated depreciation and accumulated impairment loss. Cost includes expenditure that is directly attributable to the acquisition of the assets. Subsequent expenditure is capitalized only when it increases the future economic benefits embodied in the item of property and equipment. All other expenditure is recognized in the income statement when incurred. 8

11 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) The cost less estimated residual value is depreciated on straight-line basis over the following estimated useful lives of the assets: Leasehold improvements Furniture and fixture Computer software and hardware Motor vehicle Shorter of the lease terms or 5 years 5 years 3-5 years 4 years Gains and losses on disposals are determined by comparing proceeds with carrying amount. These are included in the Statement of Income. The assets residual values and useful lives are reviewed for impairment whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. Any carrying amount is written down immediately to its recoverable amount if the asset s carrying amount is greater than its estimated recoverable amount. c) Work in progress Work in progress includes assets under construction for which it is probable that future economic benefits will flow to the Company and the cost can be measured reliably. Typically these are items that have not yet been brought to the location and/or condition necessary for it to be capable of operating in the manner intended by management. In the event of partially completed construction work that has necessitated advance or progress payments, or work-in-progress, depreciation will only commence when the work is complete (i.e. the asset is in the location and condition necessary for its intended use). d) Impairment of assets Financial assets, property and equipment and other non-current assets are reviewed for impairment losses whenever events or changes in circumstances indicate that the carrying amount may not be recoverable. An impairment loss, if any, is recognized for the amount by which the carrying amount of the asset exceeds its recoverable amount. The recoverable amount is the higher of an asset's fair value less costs to sell and value in use. For the purpose of assessing impairment, assets are grouped at the lowest levels for which there are separately identifiable cash flows. e) Employees end of service benefits Employees end of service benefits, calculated in accordance with Saudi Arabian labour regulations, are accrued and charged to the Statement of Income. The liability is calculated at the current value of the vested benefits to which the employee is entitled, should his services are terminated at the balance sheet date. f) Share based incentive plans The share based arrangements between the employees of the Company and its parent company (Credit Suisse AG) are classified as cash settled share based transactions. The fair value of the amounts payable to employees in respect of the shares granted is recognized as an expense with a corresponding increase in liability over the period that the employees unconditionally become entitled to receiving the shares. The liability is re-measured at each reporting date and at settlement date. Any change in the fair value of liability is recognized in the Statement of Income. 9

12 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) Share awards and share unit awards that contain market conditions are marked-to-market based on the latest share price information reflecting the terms of the award. Share unit awards that contain earnings performance conditions are marked-to-market based on the parent company's actual earnings performance to date and the parent company's internal earnings projections over the remaining vesting period of the award. In determining the final liability, the parent company also estimates the number of forfeitures over the life of the plan based on management s expectations for future periods, which also considers past experience. g) Assets held in trust or in a fiduciary capacity Assets held in trust or in a fiduciary capacity by the Company are not treated as assets of the Company and accordingly are not included in the financial statements; these are treated as offbalance sheet items. h) Revenue recognition Income from brokerage services is recognized at the time of execution of orders, and is recorded net of Tadawul fees, discounts and rebates; Income from arranging and advisory services is recognized when the services are rendered; Income from trading activities is recognized on accrual basis; Dividend income is recognized when the right to receive payment is established. i) Payable and accruals Liabilities are recognized for amounts to be paid in the future for goods or services received, whether billed by the supplier or not. j) Provisions Provisions are recognized when the Company has an obligation (legal or constructive) arising from a past event, and the costs to settle the obligation are both probable and can be measured reliably. Provisions are not recognized for future operating losses. k) Expenses Expenses are measured and recognized as a period cost at the time when they are incurred. Expenses related to more than one financial periods are allocated over such periods proportionately. l) Offsetting Financial assets and liabilities are offset and reported net in the balance sheet when there is a legally enforceable right to set off the recognised amounts and when the Company intends to settle on a net basis, or to realise the asset and settle the liability simultaneously. m) Income tax The Company is subject to income tax in accordance with the regulations of General Authority of Zakat and Tax ( GAZT ). Income tax provision for the period is charged to the statement of income and any differences between the provision and the final assessment are recorded in the period during which the GAZT has issued the final assessment. 10

13 3. SIGNIFICANT ACCOUNTING POLICIES (Continued) n) Foreign currencies Transactions in foreign currencies are translated into Saudi Arabian Riyals at the exchange rates prevailing at transaction dates. Monetary assets and liabilities at year-end, denominated in foreign currencies, are translated into at the exchange rates prevailing at the balance sheet date. Foreign exchange gains or losses on translation of monetary assets and liabilities denominated in foreign currencies are recognised in the statement of income. 4. CASH AND CASH EQUIVALENTS Cash in hand 2,627 5,000 Balance held with Credit Suisse AG - current account 841,467 1,494,149 Cash at bank 375,309,204 78,282, ,153,298 79,781,623 Cash at bank is placed with counterparties who have investment grade credit ratings. 5. ADVANCES, PREPAYMENTS AND OTHER RECEIVABLES Prepaid rent 325, ,340 Prepaid professional indemnity 214, ,271 Security deposit against rental property 147, ,014 Advance paid to employees for transaction testing 144, Medical insurance 122, ,514 Regulatory fee 100, ,000 Saudi Arabia General Investment Authority fee 96, Others 61, ,464 1,213,476 1,035, RELATED PARTY TRANSACTIONS AND BALANCES The Company s shareholders and all their affiliates are considered as related parties of the Company. Credit Suisse AG is the ultimate parent company incorporated in Switzerland. In the ordinary course of business, the Company enters into transactions with related parties, which are based on prices and contract terms approved by the Company s management. The Company entered into a Service Level Agreement (SLA) with Credit Suisse AG ( principal shareholder ), which provides the basis for sharing revenues on jointly executed projects and allocation of common expenses incurred by or on behalf of the principal shareholder. For 2017, allocation of common expenses between Credit Suisse Saudi Arabia and Credit Suisse AG (principle shareholder) was approved by Credit Suisse Saudi Arabia board on 11 April Further the principal shareholder also provides administrative and infrastructural support to the Company as and when required. 11

14 6. RELATED PARTY TRANSACTIONS AND BALANCES (CONTINUED) (a) The significant transactions during the year were as follows: Nature of transactions Expenses reimbursable from principal shareholder (318,750) (543,750) Expenses of the Company incurred by principal shareholder 3,164,788 1,415,686 2,846, ,936 Revenue from jointly executed projects with agreed share of the Company as per SLA: Brokerage from equity swap arrangements (Note 13) 1,899,113 3,398,719 Custodian fee (Note 13) 1,464, ,500 Arranging and advisory services 1,670, ,702 (b) Following balances pertain to related parties in the Balance Sheet: Due from related parties Credit Suisse and its affiliates 587, ,268 Cash and cash equivalents Balance held with Credit Suisse AG - current account (Note 4) 841,467 1,494,149 In addition to above, the principal shareholder has offered share-based incentive plans to certain employees of the Company (see note 9). 12

15 7. PROPERTY AND EQUIPMENT, NET Cost: Leasehold improvements Furniture & fixture and office equipment Computer software and hardware Motor vehicles Work in progress Total Total Balance at 1 January 12,424,486 2,956,796 3,726, ,050 1,151,336 20,548,885 19,212,331 Additions during the year 1,375, , , ,173,569 1,336,554 Transfer of work in progress ,151, (1,151,336) Balance at 31 December 13,800,303 3,266,371 5,365, , ,722,454 20,548,885 Accumulated depreciation Balance at 1 January 12,424,486 2,906,255 3,600, , ,221,534 19,067,515 Charge for the year 183,442 80, , , ,019 Balance at 31 December 12,607,928 2,986,720 3,798, , ,683,219 19,221,534 Net book value at 31 December ,192, ,651 1,567, ,039,235 Net book value at 31 December , , ,151, ,327,351 13

16 8. ACCRUED EXPENSES AND OTHER LIABILITIES Accrual for performance bonus 1,423, ,007 Professional fee 284, ,250 Due to vendors 224, ,283 Withholding tax payable 39,894 19,010 1,971,952 1,131, GROUP EMPLOYEE SHARE PLAN The total share-based cash unit award liability recorded as at 31 December 2017 was SAR 45,621 (2016: SAR 44,935). The fair value used to calculate the share-based cash unit award liability was the closing Credit Suisse Group (CSG) share price as at 31 December 2017 of SAR 67 (2016: SAR 54.50). The weighted average fair value of awards granted in 2017 was SAR (2016: SAR 69.46). The intrinsic value of vested share-based cash unit awards outstanding as at year end was nil (2016: SAR 536). The total stock award liability recorded as at 31 December 2017 was nil (2016: SAR nil). A brief description of the Credit Suisse Group employee share award is summarized as follows: Phantom Share Awards Each share award granted entitles the holder of the award to receive the equivalent value of one CSG share, subject to service conditions. Share awards vest over three years with one third of the share awards vesting on each of the three anniversaries of the grant date (ratable vesting). Share awards are expensed over the service period of the awards. The value of these share awards is solely dependent on the CSG share price at the time of delivery. Phantom share awards granted in February 2017 are similar to those granted in January EMPLOYEES END OF SERVICE BENEFITS Balance at beginning of the year 3,976,001 3,294,458 Charge for the year 905, ,543 Payment during the year (17,995) -- Balance at end of the year 4,863,903 3,976, SHARE CAPITAL The Company s issued and fully paid share capital amounts to SAR 625,000,000 (2016: SAR 300,000,000) comprising 62,500,000 shares (2016: 30,000,000) of SAR 10 each. During 2017, the Company raised additional share capital amounting to SAR 325,000,000 through rights issue. Shareholder of the Company approved rights issue of 20,000,000 ordinary shares and 12,500,000 ordinary shares at the price of SAR 10 each, in March and November 2017 respectively. 12. STATUTORY RESERVE The Company s By-Laws and the Regulations for Companies in the Kingdom of Saudi Arabia require the Company to allocate 10% of its net income to form a statutory reserve until such reserve equals 30% of its share capital. The Company has not transferred any amount for the current year as statutory reserve on account of losses incurred. The statutory reserve is not available for distribution. 14

17 13. BROKERAGE SERVICES, NET CREDIT SUISSE SAUDI ARABIA Note Income from brokerage services for dealing in Shares brokerage 219, ,747 Custodian fee 6(a) 1,464, ,500 Equity swap arrangements 6(a) / ,899,113 3,398,719 3,583,380 4,207, This includes an amount of SAR 726,320 (2016: SAR 1,512,799) representing commission charged to Credit Suisse Securities (Europe) Limited (a related party) for providing market information and other services relating to the execution of swap transactions. 14. TRADING LOSS, NET Realized loss on the investments held for trading (7,784) (234,640) (7,784) (234,640) The trading income relates to the proprietary trading done by the Company during the year. 15. SALARIES AND EMPLOYEE RELATED EXPENSES Basic salaries 10,568,147 7,040,892 Allowances and other benefits 8,084,793 5,662,789 Incentive based performance bonus 1,423, ,036 Others 30,332 3,494 20,106,419 13,099, TELECOMMUNICATION AND DATA SERVICE CHARGES Data service charges 605, ,383 Telecommunication charges 2,049,016 2,021,625 2,654,659 2,449, OTHER GENERAL AND ADMINISTRATIVE EXPENSES Insurance 536, ,897 Repairs and maintenance 602, ,618 Business travel 464, ,211 Office supplies 181, ,132 Others 788, ,725 2,573,735 2,261, OTHER INCOME Other income represents commission income earned on bank deposits and placements from a commercial bank during the year. 15

18 19. INCOME TAX a) Income tax No provision for income tax has been made in these financial statements as the Company has incurred a loss in the current and prior year. b) Status of assessments Income tax declarations have been submitted with the General Authority of Zakat and Tax (GAZT) for the years up to 31 December During the year 2107, the Company paid additional zakat amounting to SAR 3,026, SAR 55,840 and SAR 54,994 in respect of the certain assessment items accepted by the Company for the years 2007, 2008 and 2010 respectively. The assessment for the years have been issued by the GAZT and the Company has submitted an appeal against certain items assessed by the GAZT. However no assessment has been finalized yet. Management is confident of favorable outcome on the aforementioned appeals and not made any provision. 20. OPERATING LEASE COMMITMENTS The Company is renting its office premises through operating lease contract. The lease duration was initially for five years; the lease contract was subsequently extended for three years up to end of February The future minimum lease payments under the operating lease is as follows: Less than one year 1,938,000 1,938,000 Between one and four years 3,876,000 5,814,000 5,814,000 7,752, CAPITAL COMMITMENTS As at 31 December 2017 and 31 December 2016, the Company had no capital commitments. 22. ASSETS HELD IN FIDUCIARY CAPACITY 22.1 As at 31 December 2017 assets held under fiduciary capacity amounted to SAR million (2016: SAR 58.6 million). These are kept with a local commercial bank. These amounts were kept in custody by the Company for its customers for the purpose of investment in the local equity market As at 31 December 2017, the Company held equity securities with a market value of SAR 1,040 million (2016: SAR 1,291 million) in its name under a Swap Agreement with Credit Suisse Securities (Europe) Limited (a related party). These securities were held pursuant to Capital Market Authority (CMA) circular dated 21 August Through this circular, CMA allowed the Authorized Persons (AP) to enter into Swap Agreements with non-resident foreign investors to transfer the economic benefits of the listed securities on Tadawul while the Company retains the legal ownership of shares. 16

19 23. OPERATING AND NET LOSS PER SHARE Operating and net loss per share for the year ended 31 December 2017 have been calculated by dividing the operating and net loss for the year by weighted average number of shares outstanding during the year. The weighted average numbers of shares have been retrospectively adjusted for all prior periods as follows: Issued ordinary shares as at 1 January 30,000,000 30,000,000 Increase in share capital 32,500, Issued ordinary shares as at 31 December 62,500,000 30,000,000 Weighted-average number of ordinary shares are as follows: Issued ordinary shares as at 1 January 30,000,000 30,000,000 Effect of shares issued in March ,109, Effect of shares issued in November ,020, Weighted-average number of ordinary shares 48,130,137 30,000,000 The operating and net loss per share are as follows: Net loss for the year (28,148,970) (17,944,737) Weighted average number of ordinary shares 48,130,137 30,000,000 Loss per share (0.58) (0.60) 24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT Financial instruments carried on the balance sheet include cash and cash equivalents, due from related parties and other liabilities. Credit Risk Credit risk is the risk that one party to a financial instrument fail to discharge an obligation and cause the other party to incur a financial loss. Financial assets, which potentially are subject to concentration of credit risk, consist principally of cash at bank, due from related parties and other receivables. The Company s cash and cash equivalents are placed with Saudi British Bank who have investment grade credit rating and current account with Credit Suisse AG, hence the credit risk to the Company are not significant. Liquidity risk Liquidity risk is the risk that the Company may encounter difficulty in raising funds to meet commitments associated with financial instruments. Liquidity risk may result from the inability to sell a financial asset quickly at an amount close to its fair value. Liquidity risk is managed by monitoring on a regular basis that sufficient funds are available to meet the Company's future commitments. 17

20 (Closed Joint Stock Company) 24. FINANCIAL INSTRUMENTS AND RISK MANAGEMENT (CONTINUED) Currency risk Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign exchange rates. Management believes that there is minimal risk of significant losses due to exchange rate fluctuation as the majority of monetary assets and liabilities are in currencies linked to the Saudi Riyal. In addition, as the Company s foreign currency transactions are primarily in US dollars which is pegged with the Saudi Riyal, foreign exchange gains and losses are not significant and have not been disclosed separately. Fair value Fair value is the price that would be received to sell an asset or paid to transfer a liability in an orderly transaction between market participants at the measurement date in the principal, or in absence, the most advantageous market to which the Company has access at that date. As the accompanying financial statements are prepared under the historical cost method, except for investments in trading securities, differences may arise between the book values and the fair value estimates. Management believes that the fair values of the Company's financial assets and liabilities are not materially different from their carrying values. 25. CAPITAL MANAGEMENT The Capital Market Authority (the CMA ) has issued Prudential Rules (the Rules ) dated 30 December 2012 (corresponding to 17 Safar 1434H). According to the Rules, the CMA has prescribed the framework and guidance regarding the minimum regulatory capital requirement and its calculation methodology as prescribed under these Rules. In accordance with this methodology, the Company has calculated its minimum capital required and capital adequacy ratios as follows: SAR 000 Capital Base Tier I Capital 374,112 77,261 Tier II Capital Total Capital Base 374,112 77,261 Minimum capital requirement Market risk 14 4 Credit risk 12,335 3,234 Operational risk 8,363 5,654 Total Minimum Capital Required 20,712 8,892 Surplus in Capital 353,400 68,369 Total capital ratio

21 (Closed Joint Stock Company) 25. CAPITAL MANAGEMENT (CONTINUED) The capital that the Company are required to hold is determined by on-balance sheet, off-balance sheet, counterparty and other risk exposures. Suitable processes and controls are in place to monitor and manage capital adequacy and ensure compliance with local regulatory ratios. These processes are designed to ensure that the company have sufficient capital available to meet local regulatory capital requirements at all times. a) Capital Base of the Company comprise of: - Tier-1 capital: consists of paid-up share capital and retained earnings. - Tier-2 capital: consists of subordinated loans with certain restrictions. The Company does not have any subordinated loans as a result the Company does not have tier-2 capital. b) The minimum capital requirements for market, credit and operational risk are calculated as per the requirements specified in the Rules. c) The Company s business objectives when managing capital adequacy is to comply with the capital requirements set forth by the CMA to safeguard the Company s ability to continue as a going concern, and to maintain a strong capital base. 19