Your stronger

banking partner
2017 ANNUAL REPORT
For more than a decade, we at Al Salam Bank-
Bahrain transcend the boundaries of possibilities
and build new paradigms, offering dynamic
and innovative Shari’a-compliant products
and financial solutions tailored to meet our
increasingly diverse clients in Retail Banking,
Private Banking, Corporate Banking, Investment
Banking and Treasury Services.

Cover image:
The Tree of Life (Shajarat-al-Hayat) stands strong, lusciously covered in green
leaves in the heart of the Arabian Desert surrounded by kilometres of sand.
Located 2 kilometres from Jebel Dukhan in the Kingdom of Bahrain, the 9.75m
high Prosopis cineraria tree is approximated to be 400 years old.
His Royal Highness His Majesty King Hamad His Royal Highness
Prince Khalifa bin bin Isa Al Khalifa Prince Salman bin
Salman Al Khalifa Hamad Al Khalifa
The Prime Minister of The King of the Kingdom The Crown Prince,
the Kingdom of Bahrain of Bahrain Deputy Supreme
Commander and First
Deputy Prime Minister of
the Kingdom of Bahrain

Dynamic
Diversified
Differentiated
4 Annual Report 2017 ASBB

Contents

07 08
Vision and Mission Corporate Overview

09 10
Annual Highlights Board of Directors

16 20
Fatwa and Shari’a Executive Management
Supervisory Board Team

28 33
Board of Directors’ Message from the Group
Report to the Chief Executive Officer
Shareholders

36 42
Management Review of Corporate Governance
Operations and Report
Activities
 ASBB Annual Report 2017 5

56 62
Remuneration Policy Risk Management and
Compliance

64 66
Corporate Social Fatwa and Shari’a
Responsibility Supervisory Board
Report to the
Shareholders

68 70
Independent Auditors’ The Consolidated
Report to the Financial Statements
Shareholders

74
Notes to the
Consolidated Financial
Statements
6 Annual Report 2017 ASBB
 ASBB Annual Report 2017 7

Vision Mission
To become a regional force in the Islamic • Become a “one-stop-shop” for Islamic
financial services industry by providing financial services.
differentiated Shari’a compliant products to
• Create a strong onshore presence in
focused segments.
select countries.

• Develop a premier brand image as an

Islamic financial shaper.

• Achieve high returns for stakeholders

commensurate with the risks undertaken.
8 Annual Report 2017 ASBB

Corporate Key factors that contribute to the Bank’s

distinct market differentiation include:

Overview • Strong paid-up capital base;

• Pre-eminent founding shareholders;
• High-calibre management team;
Al Salam Bank-Bahrain B.S.C (ASBB) was established
• State-of-the-art IT infrastructure;
on 19 January 2006 in the Kingdom of Bahrain with
paid-up capital of BD 120 million (US$ 318 million) • Innovative, tailor-made Shari’a-
and was the largest Initial Public Offering (IPO) in the compliant product solutions;
Kingdom’s history with subscriptions reaching over
• Universal business model covering
BD 2.7 billion (US$ 7 billion). The Bank commenced
deposits, financing and investment
commercial operations on 17 April 2006. ASBB
was listed in Bahrain Bourse on 27 April 2006 and products and services;
subsequently on Dubai Financial Market (DFM) on 26
March 2008. ASBB is adopting internationally
recognized standards and best practices
Following a resolution of ASBB’s Extraordinary in areas such as corporate governance,
General Assembly meeting held on 4 May 2009,
compliance and risk management,
ASBB completed its merger with the Bahraini Saudi
operating with the highest levels of
Bank (BSB) on 22nd of December 2011. On the 2nd
integrity, transparency and trust.
of February 2014, Al Salam Bank-Bahrain and BMI
Bank B.S.C (c) confirmed the conclusion of a business
combinations between the two institutions after
obtaining the approval of their shareholders at their the “Critics’ Choice award – The Best Islamic
respective extraordinary general assembly meetings Retail Bank in Bahrain for 2017” by Cambridge
by way of exchanging 11 ASBB shares for each BMI IF Analytica – a UK-based Islamic finance
Bank share wherein ASBB acquired 58,533,357 BMI intelligence specialized in providing strategic
Bank shares of BD1 each and issued 643,866,927 ASBB advice in the field of financial services and
shares of 100 fils each. As of the 30th of March 2014, conduct professional academic researches for
both Banks updated their respective CRs to give effect financial institutions. The Bank had received
to the share swap and consequently BMI Bank became several awards in the past, including the
a wholly owned subsidiary of ASBB. winning of the “Best Villa Development” for the
Martinique Villas by-the-sea in one of Malaysia’s
ASBB, one of the pioneering Shari’a-compliant Banks
Penang Island’s largest seafront residential
in the Kingdom, offers its customers a comprehensive
developments, a project jointly owned by Al Salam
range of innovative and unique Shari’a-compliant
Bank-Bahrain and two other strategic partners,
financial products and services through its extended
comprised of 73 luxurious waterfront seaside
strong network of branches and ATMs utilizing the
villas in Malaysia as part of the inaugural at the
state-of-art technologies to meet various banking
South East Asia Property Awards in 2011 and
requirements. In addition to its Retail Banking services,
had won the International Real Estate Financing
the Bank also offers Corporate Banking, Private
Summit – Middle East (IREF ME 2009) “Award
Banking, Investment Banking as well as Treasury
of Excellence for Outstanding Achievement in
Services. The Bank’s high-caliber management team
Islamic Retail Estate Product Innovation” for
comprises of a highly qualified and internationally
Milton Gate acquisition – the landmark building
experienced professionals with proven expertise in key
located in the financial district of the City of
areas of banking, finance and related fields.
London in the close proximity of other prestigious
Al Salam Bank-Bahrain has been awarded with financial institutions.
 ASBB Annual Report 2017 9

Annual
Highlights
Total Operating Income Net Profit
(million) (million)
2013 BD26 (USD 69) 2013 BD12 (USD 33)

2014 BD46 (USD 122) 2014 BD16 (USD 42)

2015 BD59 (USD 156) 2015 BD11 (USD 28)

2016 BD63 (USD 167) 2016 BD16 (USD 43)

2017 BD62 (USD 165) 2017 BD18 (USD 48)

Total Assets Total Equity

(million) (million)
2013 BD1,088 (USD 2,887) 2013 BD246 (USD 653)

2014 BD1,955 (USD 5,186) 2014 BD329 (USD 872)

2015 BD1,657 (USD 4,395) 2015 BD320 (USD 849)

2016 BD1,681 (USD 4,460) 2016 BD325 (USD 862)

2017 BD1,589 (USD 4,216) 2017 BD304 (USD 806)

Earnings per share (EPS) Cost-to-Income Ratio

(fils) (percent)
2013 8 2013 44%

2014 8 2014 57%

2015 6 2015 45%

2016 8 2016 41%

2017 9 2017 39%

Al Salam Bank-Bahrain B.S.C (ASBB) is an

Islamic Retail Bank in the Kingdom of Bahrain
and is licensed and regulated by the Central
Bank of Bahrain.
10 Annual Report 2017 ASBB
Board of Directors (continued)

Board of
Directors

H.H. Shaikha Hessa bint Khalifa bin

Hamad Al Khalifa
Chairperson
Chairperson of the Remuneration, Nomination and
Corporate Governance Committee
Independent and non-executive
Director since: 18 April 2009
Term started: 24 February 2015
Experience: more than 19 years

H.H. Shaikha Hessa bint Khalifa Al Khalifa is a Board member in Al Salam Bank-Bahrain since 2009 and she was elected
as the Chairperson of the Board for two consecutive terms from 2012. She has an extensive local and global business
experience and is an active Advocate for enterprise education and in developing the skills of young women. She became a
member of the Supreme Council for Women’s Social Committee in 2001 and since 2004 has been a Permanent Member
of the Council’s Board. In 2005, H.H. Shaikha Hessa founded “INJAZ Bahrain”, an international organization to inspire and
prepare young Bahrainis to succeed in the global economy, and is presently its Executive Director. She has participated as
a speaker and panelist at various international forums including the UN, and the World Economic Forum. H.H. Shaikha
Hessa holds a Bachelor’s degree in Management, a Master’s degree in Social Policy and Planning from the London
School of Economics and Political Science, and a MSc in Development Finance from the University of London.
 ASBB Annual Report 2017 11
Board of Directors (continued)

H. E. Shaikh Khalid bin Mustahail Al Mashani

Vice Chairman
Independent and non-executive
Director since: 5 May 2014
Term started: 24 February 2015
Experience: more than 23 years

H.E. Shaikh Khalid bin Mustahail Al Mashani offers the Bank over 23 years of in depth experience. He is the Chairman
of the Board of Directors of Bank Muscat S.A.O.G., Director of Al Omaniya Financial Services Company, and Chairman of
Dhofar International Development & Investment Holding Company S.A.O.G. Shaikh Khalid has a BSc. in Economics, and
a Master’s Degree in International Boundary Studies from the School of Oriental and African Studies (SOAS), from the
University of London.

Mr. Hussein Mohammed Al Meeza

Director
Chairman of the Executive Committee
Independent and non-executive
Director since: 20 March 2012
Term started: 24 February 2015
Experience: more than 43 years

Mr. Hussein Mohammed Al Meeza is a respected and award-winning Banker with over 43 years of experience spanning
the Islamic banking, finance and insurance sectors. His outstanding career success was crowned in December 2006 when
the International Conference of Islamic Bankers chose him as the 2006 Best Islamic Banking Personality. Mr. Al Meeza
is an Independent and non-executive Director of Al Salam Bank-Bahrain since 20 March 2012, and began his term as
Board Member and Chairman of the Executive Committee on 24 February 2015. His professional career began in 1975
at the Dubai Islamic Bank (DIB), where he spent 27 years developing the Bank’s services. Mr. Al Meeza played a key role
in the establishment of the Al Salam Banks in Sudan, Bahrain and Algeria. He is also the Chairman of Al Salam Bank-
Seychelles, Chairman of Top Enterprises L.L.C., Chairman of Lycée Fracais Jean Mermoz L.L.C., and Vice Chairman
and Chairman of the Executive Committee of Al Salam Bank- Algeria. He was a founding member of Emaar properties,
Amlak finance, Emaar Industries & Investments, Emaar Financial services, Dubai Islamic Insurance & Reinsurance
Company (AMAN). Mr. Al Meeza occupied the positions of the CEO and Managing Director of Dubai Islamic Insurance
and Reinsurance Company (AMAN), Vice Chairman and Chairman of the Executive Committee of Al Salam Bank-Sudan,
Chairman of LMC Bahrain, Chairman of the Executive Committee of Islamic Trading company in Bahrain, Board member
and Chairman of the Executive Committee in Amlak Finance – Dubai and Chairman of Emaar Financial Services Dubai,
Vice Chairman of Emirates Cooperative Society – Dubai. Board member of the General Council of Islamic Banks and
Financial Institutions, Chairman of the founding committee of Islamic Insurance and Re-Insurance Companies. He was
also a Board Member of Emirates Society for Insurance. Mr. Al Meeza is a graduate of the Beirut Arab University and
holds an MBA degree from La Jolla University, USA.
12 Annual Report 2017 ASBB
Board of Directors (continued)

Mr. Salman Saleh Al Mahmeed

Director
Chairman of the Audit and Risk Committee
Independent and non-executive
Director since: 15 February 2010
Term started: 24 February 2015
Experience: more than 33 years

Mr. Salman Saleh Al Mahmeed is a prominent business figure with experience exceeding 33 years. He is the Chief
Executive Officer of Bahrain Airport Services, the Deputy Chairman of Dar Albilad, the Managing Director and Owner’s
Representative of Global Hotels, Global Express and the Movenpick Hotel in Bahrain. Previously, he was a Board Member
and member of the Investment, Executive and Strategic Options Committee for the Bahraini Saudi Bank, and the
Investment Director of Magna Holdings. Mr. Al Mahmeed holds an MBA in Business Administration, a Masters in Hotel
Management and a BSc in Management.

Mr. Essam bin Abdulkadir Al Muhaidib

Director
Independent and non-executive
Director since: 17 April 2006
Term started: 24 February 2015
Experience: more than 33 years

Mr. Essam A. Al Muhaidib is a Board Member and Group CEO of Al Muhaidib Group and sits in the Board of Directors
of multiple FMCG, Banking, Financial, Real Estate, Retail, Industrial and Contracting companies. Savola Group, ACWA
Holding, Nestle Waters, Bawan, Abyat, Al Salam Bank, Blominvest KSA, Rafal Real Estate, Economic Cities Authority
Saudi Arabia are few of them. He is also the Chairman of Panda Retail Company, Herfy Foods Services Company and
National Housing Company (NHC, KSA) and Eastern Province Health Cluster. In addition, he is a Board Member of various
charity, benevolence and educational institutions including the Educational Services Company of Prince Mohamed Bin
Fahad University, King Fahad University for Petroleum and Minerals Endowment Fund, Saudi Food Bank (Etaam Society),
Disabled Society, and the Benevolence Society (Al Bir Society). Mr. Al Muhaidab holds a Bachelor of Science in Statistics
from King Saud University, Riyadh.
 ASBB Annual Report 2017 13
Board of Directors (continued)

Mr. Sulaiman bin Mohamed Al Yahyai

Director
Independent and non-executive
Director since: 5 May 2014
Term started: 24 February 2015
Experience: more than 23 years

Mr. Sulaiman bin Mohamed Al Yahyai is a well-versed banking professional who brings to Al Salam Bahrain over 23 years
of industry experience. He is the Deputy Chairman of the Board of Directors of Bank Muscat, Chairman of the Board Risk
Committee, and a member of the Board’s Nomination and Compensation Committee. Mr. Al Yahyai is an Investment
Advisor at the Royal Court Affairs, and is a Chairman of a number of boards including those of the Oman Chlorine Co.
“SAOG”, Oman Fixed Income Fund, Integrated Tourism Projects Fund, Telecom Oman, National Bank of Oman GCC
Fund and of Gulf Chlorine “W.L.L” (State of Qatar). He also holds Directorship positions on Al Madina Real Estate Co.
“SAOC”, Falcon Insurance “SAOC”, and Union Chlorine “L.L.C” (United Arab Emirates). He holds an MBA from the
Institute of Financial Management, University of Wales, UK, a certificate in Asset Management from Lausanne University,
Switzerland, and a certificate in Financial Crisis from Harvard University, USA.

Mr. Hisham Saleh Al Saie

Director
Independent and non-executive
Director since: 5 May 2014
Term started: 24 February 2015
Experience: more than 23 years

Mr. Hisham Saleh Al Saie offers extensive experience in the Investment Management, Corporate Finance Advisory and
Investment Banking fields. Mr. Al Saie brings more than 23 years of industry knowledge to Al Salam Bank-Bahrain. Prior
to his current responsibilities in Overseas Investment Company S.P.C., Mr. Al Saie was Head of Corporate Finance at SICO
Investment Bank, and also held senior positions at BDO Jawad Habib, PriceWaterhouse Coopers and Arthur Andersen.
He is a member of the Board of a number of organizations including Nass Corporation B.S.C., Al Khalij Commercial Bank
(al khaliji) Q.S.C., Diyyar Al-Muharraq B.S.C. (c), Bahrain Bay Development B.S.C. (c), Global Banking Corporation B.S.C.
(c), Binaa Al Bahrain B.S.C. (c), LAMA Real Estate W.L.L. and Investcorp Bank B.S.C. Mr. Al-Saie is a member of the
Remuneration, Nomination and Corporate Governance Committee of Al Salam Bank-Bahrain. He holds an MBA from the
London Business School, a Bachelor degree in Accounting from the University of Texas, executive education certificates
from INSEAD and other reputable institutions.
14 Annual Report 2017 ASBB
Board of Directors (continued)

Mr. Mohamed Shukri Ghanem

Director
Independent and non-executive
Term started: 24 February 2015
Experience: more than 18 years

Mr. Mohamed Shukri Ghanem brings over 18 years of extensive experience in the regional financing market and in global
energy issues, including business development, project financing as well as the origination of advisory assignments
relating to oil, oil field, natural gas and power generation segments. He is the Chief Executive Officer, Board Member and
member of the Executive Committee of First Energy Bank Bahrain. Prior to this he worked at Arab Banking Corporation
(BSC) (“ABC”) and GED Handles G.m.b.H., Vienna. Mr. Ghanem is the Chairman of MENAdrill Investment Company,
ADCAN Pharma LLC – UAE, Medisal Pharmaceuticals Industry LLC – UAE and Vice Chairman of Alizz Islamic Bank,
Oman where he is also the Chairman of the Executive Committee. Mr. Ghanem holds a Bachelor of Arts in Business from
Webster University (School of Business and Technology) in Vienna as well as an MBA from Glamorgan University.

Mr. Khalid Salem Al-Halyan

Director
Independent and non-executive
Term started: 24 February 2015
Experience: more than 33 years

Mr. Khalid Salem Al-Halyan is a business professional with over 33 years of senior level experience spanning a number
of industries. Mr. Al-Halyan is currently the group Chief Audit Executive at Dubai Aviation City Corporation (DACC). His
career has seen him hold senior positions at the UAE Central Bank, the Department of Economic Development (DED),
Dubai, and in the aviation industry where he played a key role in the establishment of the new Dubai Airport Free Zone
(DAFZA) and head up the Finance Department, before moving on to establish the Group Internal Audit & Risk Assessment
(GIARA) function at DACC. Mr. Al-Halyan has also supported the establishment of DED, Emaar Properties, the UAE
Internal Audit Association, the UAE Golf Association and restructured projects for DUBAL, Dubai World Trade Centre,
Dubai Civil Aviation, UAE Central Bank Banking Supervision, and realized the construction of a new facility for the Al Noor
Special Needs Centre in Dubai. He currently serves as Vice President of the UAE Internal Audit Association (affiliated
to the Institute of Internal Auditors (IIA), USA), is Chairman of Al Noor Special Needs Centre in Dubai, Chairman of
Emaar South, Dubai, and Advisor to the Amlak Real Estate Company. Mr. Al-Halyan holds an MBA degree from Bradford
University in the UK, and a BBA from the UAE University, Al Ain.
 ASBB Annual Report 2017 15
Board of Directors (continued)

Mr. Yousif Abdulla Taqi

Director and Group Chief Executive Officer
Executive
Director since: 05 May 2008
Term started: 24 February 2015
Experience: more than 35 years

A Certified Public Accountant (CPA), Mr. Yousif Abdulla Taqi is a veteran banker with more than 35 years of experience in
key positions for a number of leading financial institutions in the Kingdom of Bahrain. Prior to joining Al Salam Bank-
Bahrain, Mr. Taqi was the Deputy General Manager of Kuwait Finance House (Bahrain), where he was responsible for
establishing Kuwait Finance House Malaysia. Prior to this, he was a Partner with Ernst & Young responsible to provide
auditing and consultancy services to the Islamic financial firms. In addition to his roles as Director and Group Chief
Executive Officer of Al Salam Bank-Bahrain, Mr. Taqi is also the Chairman of the Bank’s affiliate companies Manara
Developments Company B.S.C. (c) and Amar Holding Company B.S.C. (c). He is also a Board member of the Housing
Bank (Bahrain), Aluminium Bahrain (ALBA), and Deputy Chairman of The Avenues Company S.P.C.
16 Annual Report 2017 ASBB

Fatwa & Shari’a

Supervisory Board

Dr. Hussein Hamid Hassan

Chairman

Dr. Hussein Hamid Hassan holds a PhD from the Faculty of Shari’a, Al Azhar University, Cairo, Egypt; and a Master’s
in Comparative Jurisprudence and Diploma in Comparative Law (both of which are the equivalent of a PhD) from the
International Institute of Comparative Law, University of New York, USA. He also holds a Masters in Comparative Juries,
and Diplomas in Shari’a and Private Law, from the University of Cairo; and an LLB in Shari’a from Al Azhar University. He
is the Chairman and member of the Shari’a Supervisory Board in many of the Islamic Financial Institutions. In addition,
Dr. Hassan is Chairman of the Assembly of Muslim Jurists, Washington, USA; a member of the European Islamic Board
for Research & Consultation, Dublin, Ireland; and an Expert at the Union of Islamic Banks, Jeddah, Kingdom of Saudi
Arabia.
 ASBB Annual Report 2017 17
Fatwa & Shari’a Supervisory Board (continued)

Dr. Ali Mohuddin Al’Qurra Daghi

Member

Dr. Ali Daghi holds a PhD in Shari’a and Law, and a Master’s in Shari’a and Comparative
Fiqh, from Al Azhar University, Cairo, Egypt. He also holds a BSc. in Islamic Shari’a from
Baghdad University, Iraq; a certificate of traditional Islamic Studies under the guidance of
eminent scholars in Iraq; and is a graduate of the Islamic Institute in Iraq. He is currently
Professor of Jurisprudence in the faculty of Shari’a law and Islamic Studies at the University
of Qatar. He sits on the Boards of Shari’a Supervisory Boards for several banks and
financial institutions. Dr. Al’Qurra Daghi is also a member of the Islamic Fiqh Academy, the
Organisation of Islamic Conference, the European Muslim Council for Efta and Researches,
the International Union of Muslim Scholars, and the Academic Advisory Committee of the
Islamic Studies Centre, Oxford University, UK. He also has published several research
papers tackling various types of Islamic Finance, Islamic Fiqh, Zakah and Islamic Economy.

Shaikh Adnan Abdulla Al Qattan

Member

Shaikh Adnan Al Qattan holds Master’s degree in the Quran and Hadith from the University
of Um Al-Qura, Makka, Kingdom of Saudi Arabia; and Bachelor’s degree in Islamic Shari’a
from the Islamic University, Madeena, Saudi Arabia. Shaikh Al Qattan is also a Judge in
the Shari’a Supreme Court, Ministry of Justice – Kingdom of Bahrain. Shaikh Al Qattan is a
Member of Shari’a Supervisory Boards for several Islamic banks and he is also Chairman
of Al Sanabil Orphans Protection Society, Chairman of the Board of Trustees of the Royal
Charity Establishment under the Royal Court - Kingdom of Bahrain, and President of the
Kingdom of Bahrain Hajj Mission. In addition, he is a Friday sermon orator at Al-Fatih Grand
Mosque. Shaikh Al Qattan contributed to drafting the Personal Status Law for the Ministry
of Justice and is a regular participant in Islamic committees, courses, seminars and
conferences.
18 Annual Report 2017 ASBB
Fatwa & Shari’a Supervisory Board (continued)

Dr. Mohamed Abdulhakim Zoeir

Member

Dr. Mohamed Zoeir holds PhD in Islamic Economy; Master’s degree in Islamic Shari’a
(Economy); Bachelor’s degree in Management Sciences; and a Higher Diploma in Islamic
Studies. He is Member of the Fatwa Board in a number of Islamic financial institutions and
has 18 years of experience with Egypt Central Bank. Dr. Zoeir was also the Head of Shari’a
compliance in Dubai Islamic Bank.

His Eminence Shaikh Dr. Fareed Yaqoob Almeftah

Member

Dr. Fareed Almeftah is the Undersecretary of the Ministry of Justice & Islamic Affairs –
Bahrain, member of the Supreme Council of Islamic Affairs and a former judge of the high
Shari’a Court. Dr. Fareed is the Chairman of the Shari’a Supervisory Board of Khaleeji
Commercial Bank (KHCB) and a former Lecturer at the University of Bahrain and wrote
a lot of research papers. Dr. Fareed holds PhD in Islamic Philosophy from University of
Edinburgh – United Kingdom.

Dr. Mohammed Burhan Arbouna

Member & Secretary to the Shari’a Supervisory Board
Group Head of Shari’a Compliance

Dr. Mohammed Burhan Arbouna holds a PhD in laws with specialization in Islamic banking
and finance from International Islamic University Malaysia, and Master’s in Comparative
Laws. He also holds BA degree in Shari’a and Higher Diploma in Education from Islamic
University, Medina. He is an expert in Islamic banking and finance since 1997. Before
joining Al Salam Bank- Bahrain, Dr. Arbouna was the Shari’a Head and Shari’a Board
member in the Seera Investment Bank B.S.C Bahrain. Prior to that, he worked as the Head
of Shari’a department in the Kuwait Finance House-Bahrain. Also, Dr. Arbouna worked
as Shari’a researcher and consultant for the Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI) – Bahrain. Dr. Arbouna lectures on Islamic banking
and finance and gives consultancy on orientation and professional programs for a number
of professional and educational institutions. Dr. Arbouna is a member of Islamic Money
Market Framework (IMMF) steering committee initiated by Central Bank of Bahrain for
management of liquidity among Islamic banks.
 ASBB Annual Report 2017 19
Fatwa & Shari’a Supervisory Board (continued)
20 Annual Report 2017 ASBB

Executive
Management Team

Mr. Yousif Abdulla Taqi

Director and Group Chief Executive Officer
Experience: more than 35 years

A Certified Public Accountant (CPA), Mr. Yousif Abdulla Taqi is a veteran banker with more than 35 years of experience in
key positions for a number of leading financial institutions in the Kingdom of Bahrain. Prior to joining Al Salam Bank-
Bahrain, Mr. Taqi was the Deputy General Manager of Kuwait Finance House (Bahrain), where he was responsible for
establishing Kuwait Finance House Malaysia. Prior to this, he was a Partner with Ernst & Young responsible to provide
auditing and consultancy services to the Islamic financial firms. In addition to his roles as Director and Group Chief
Executive Officer of Al Salam Bank-Bahrain, Mr. Taqi is also the Chairman of the Bank’s affiliate companies Manara
Developments Company B.S.C. (c) and Amar Holding Company B.S.C. (c). He is also a Board member of the Housing
Bank (Bahrain), Aluminium Bahrain (ALBA), and Deputy Chairman of The Avenues Company S.P.C.

*Subsequent to year end, Mr. Yousif Taqi resigned in March 2018.

 ASBB Annual Report 2017 21
Executive Management Team (continued)

Dr. Anwar Khalifa Al Sada

First Deputy Group CEO
Experience: more than 28 years

Dr. Anwar Al Sada brings to the Bank experience gained from a distinguished career that
spans over 28 years much of it being with the Central Bank of Bahrain where he held the
prestigious post of Deputy Governor of the Central Bank of Bahrain (CBB). Dr. Al Sada was
the Chairman of the Bahraini Saudi Bank, Vice Chairman of Eskan Bank, and has served
in a number of national, regional and international committees including Chairman of
the Investment Committee of the CBB, Vice Chairman of the Bahrain Bourse, Chairman
of Bahrain’s Policy Committee for Prohibition and Combating of Money Laundering and
Terrorist Financing, Member of the Future Generation Fund and Member of Promotion
Board. Dr. Al Sada holds a Master degree in Philosophy and a PhD from the University of
Surrey, UK, and has attended Harvard University’s Management Development course.

*Dr. Anwar Al Sada resigned in December 2017.

Mr. Anwar Mohammed Murad

Deputy Group CEO - Banking
Experience: more than 24 years

Mr. Anwar Murad is a proficient Banker with over 24 years of experience in the areas of
Private Banking, Treasury, Market Risk Management and Retail Banking. Prior to his
current appointment with the Bank, Murad served as the Executive Vice President - Head
of Private Banking at Al Salam Bank-Bahrain since May 2006. Previous to joining Al Salam
Bank-Bahrain, he was the Head of Private Banking at BMI Bank, Bahrain and Regional
Market Risk Manager for the MENA region at ABN AMRO Bank where he also headed the
Bank’s Treasury Operations in Bahrain and he held various senior positions at CitiBank –
Bahrain. Mr. Murad has extensive knowledge and experience in Global Consumer Banking,
Treasury and Investment products including Money Market, Foreign Exchange, Debt
Derivatives, and Structured Products.
22 Annual Report 2017 ASBB
Executive Management Team (continued)

Mr. Abdulkarim Turki

Chief Operating Officer
Experience: more than 37 years

Mr. Abdulkarim Turki is a well-rounded banker with more than 37 years of experience
spanning Treasury, Operations, Audit, Internal Controls, Remedial and Risk Management.
Mr. Turki worked in the incorporation and structuring of the Bank’s Operation and he was
appointed as a key member in the Selection and Implementation Committee of the Bank’s
core banking system responsible for the integration and business transfer of BMI Bank to
Al Salam Bank-Bahrain in addition to being a member in the Bank’s major management
committees. Prior to joining the Bank in 2006, Mr. Turki was Vice President - Head of
Treasury Support at Citibank Bahrain where he headed various departments and business
units and was a key player in the launch of Citi Islamic Investment Banking. Mr. Turki holds
an MBA in Investment & Finance from the University of Hull, UK.

Dr. Mohammed Burhan Arbouna

Group Head of Shari’a Compliance
Experience: more than 20 years

Dr. Mohammed Burhan Arbouna is a well versed Islamic banking and finance expert with
over 20 years of Islamic banking experience. Prior to joining Al Salam Bank-Bahrain, Dr.
Arbouna was the Shari’a Head and Shari’a Board member of Seera Investment Bank B.S.C
Bahrain, Head of the Shari’a department at Kuwait Finance House Bahrain, and has worked
as a Shari’a researcher and consultant for the Accounting and Auditing Organization for
Islamic Financial Institutions (AAOIFI) in Bahrain. He is a respected lecturer on Islamic
banking and finance, and provides consultancy on orientation and professional programs
for a number of professional and educational institutions. Dr. Arbouna was also a member
of the Islamic Money Market Framework (IMMF) steering committee, a committee initiated
by the Central Bank of Bahrain for the management of liquidity amongst Islamic banks. He
holds a PhD in comparative law with a specialization in Islamic banking and finance and a
Masters in Comparative Laws with specialization in Law of Evidence from the International
Islamic University Malaysia, a BA degree in Shari’a, and Higher Diploma in Education from
the Islamic University, Medina.
 ASBB Annual Report 2017 23
Executive Management Team (continued)

Mr. Hussain Ali Abdulhaq

Head of Treasury and Capital Markets
Experience: more than 17 years

Mr. Hussain Abdulhaq is an experienced Treasurer in the area of Islamic Banking and
Financial Markets. His 17 years banking career as a treasury specialist has seen very
focused on in Islamic liquidity management, Islamic capital markets, the development
of Islamic compliant investment products and hedging instruments as well as Financial
Institutions relationships. Mr. Abdulhaq joined Al Salam Bank-Bahrain in 2007 as a senior
member in the treasury team, and has led the treasury integration process of Al Salam
Bank and Bahrain Saudi Bank in 2010 and the same for BMI Bank in 2014. Prior to joining
Al Salam Bank, Abdulhaq was in charge of dealing room activities for Kuwait Finance
House Bahrain for a period of 5 years. Mr. Abdulhaq holds an MBA degree in Banking &
Islamic Finance with honors from University of Bahrain and is a Chartered Financial Analyst
(CFA).

Mr. Essa Abdulla Bohijji

Group Chief Auditor
Experience: more than 17 years

Mr. Essa Bohijji has more than 17 years of consulting and industry experience covering
financial services, commercial entities, governmental bodies, and internal audit. Prior to
joining Al Salam Bank-Bahrain, Mr. Bohijji was the Chief Auditor and Board Secretary of
an Islamic Investment Bank in Bahrain and held senior positions at Ernst & Young where
he worked in the Audit and Assurance Services Group and Business Advisory Services
responsible for the Internal Audit and Risk Management assignments. Mr. Bohijji currently
serves as a Board and Audit Committee member of Al Salam Bank-Algeria and a non-
executive Audit Committee member in Manara Developments B.S.C. (c) and served as a
Board member of BMI Bank and an interim Board member in BMIO Bank in Seychelles.
Mr. Bohijji was also on the Board and Audit Committee Member for the Bahraini Saudi
Bank in 2009 prior to its full merger with Al Salam Bank Bahrain in late 2012. Mr. Bohijji
is a Certified Public Accountant (CPA), licensed from the state of New Hampshire and is a
member of the American Institute of Certified Public Accountants. He also holds a B.Sc. in
Accounting from the University of Bahrain.
24 Annual Report 2017 ASBB
Executive Management Team (continued)

Ms. Muna Al Balooshi

Group Head of Human Resources and Administration
Experience: more than 19 years

Ms. Muna Al Balooshi is a practiced HR professional with over 19 years of industry

experience and vast knowledge of HR policies and Labor Law regulations. Prior to her
appointment with Al Salam Bank-Bahrain in 2006, Ms. Al Balooshi was the Head of Human
Resources at the Court of HRH the Crown Prince and previous to this served in the HR
department of KPMG. She has played a major role in the Bank’s two acquisitions of the
Bahraini Saudi Bank and BMI Bank where she managed the merger of the Bank’s Human
Resources. She holds an MBA from De Paul University, Chicago, and is a CIPD Associate.

Mr. Qassim Taqawi

Group Head of Legal
Experience: more than 14 years

Mr. Qassim Taqawi is a skilled legal counsel with over 14 years’ experience covering
Investment Banking, Islamic Banking, Retail Banking, Finance, Company Law, Labor Law,
Real Estate and Construction. Mr. Taqawi has handled legal matters covering the GCC, USA,
Europe and MENA region. Prior to his appointment with Al Salam Bank-Bahrain, Taqawi
held a number of senior executive positions with various Banking and Financial Institutions
throughout the region. In addition to his current executive responsibilities as Group Head
of Legal, Mr. Taqawi is a member of the Bank’s Investment Committee and Remedial
Committee. Mr. Taqawi holds a Bachelor degree (LLB) in Law, and is a registered lawyer
with the Ministry of Justice & Islamic Affairs in the Kingdom of Bahrain.

Mr. Talal Abdul Aziz Al Mulla

Chief Investments Officer
Experience: more than 18 years

A Certified Public Accountant (CPA), Mr. Talal Al Mulla has been an active member of
Bahrain’s banking and financial services industry for the last 18 years. Mr. Al Mulla joined
Al Salam Bank-Bahrain in 2006 to set up the Internal Audit function and in 2009, moved to
the Bank’s Investment Department where he has been sourcing and managing investment
opportunities. Preceding his appointment to Al Salam Bank-Bahrain, Mr. Al Mulla
worked with Ernst & Young Bahrain where he was responsible for audit and consulting
assignments for major regional financial institutions. He also sits on the Board of Directors
of a number affiliates and subsidiary companies in which the Bank has invested.
 ASBB Annual Report 2017 25
Executive Management Team (continued)

Mr. Ahmed Abdulla Saif

Group Head of Strategic Acquisition and Investment Management
Experience: more than 11 years

Mr. Ahmed Saif brings over a decade of experience in the banking sector. Prior to joining
Al Salam Bank-Bahrain in 2008 as an Associate in the Investment Team, Mr. Saif worked
with DBS Singapore as an Investment Analyst. In 2012, he was appointed as the Head
of the Investment Middle Office Department, and in 2016 took the reigns as the Head of
Strategic Acquisition and Investment Management. Mr. Saif sits on the Board of a number
of the Bank’s affiliate and subsidiary companies, including Al Salam Bank-Seychelles, NS
Real Estate Holding, and SAMA Investment Company. He holds an MSc in Finance and
Financial Law with Honors from SOAS University of London, UK, and a BSc with Honors in
Commerce, majoring in Finance & Economics, from DePaul University, USA.

Mr. Arif Mohammed Janahi

Head of Corporate Banking
Experience: more than 24 years

Mr. Arif Janahi is a competent commercial banker with more than 24 years of experience
across both conventional and Islamic banking, in the Operations and Corporate Banking
functions. He brings to the Bank vast knowledge of the market, and an in-depth
understanding of banking products and credit assessment. Before joining the Bank in 2006,
Janahi held key positions in a number of well-known Islamic and conventional banks. He
holds an MBA from the University of Hull, UK.

Mr. Ali Habib Qassim

Head of Private Banking
Experience: more than 18 years

Mr. Ali Habib Qassim is a banking expert with more than 18 years of experience covering
Corporate, Investment and Private Banking; developing new products, locally and
throughout GCC and capitalizing on his investment experience. Previous to his appointment
with the Bank’s Private Banking division in 2011, Mr. Qassim marketed the Bank’s
Corporate Banking products and services in local markets after which he handled financial
institutions and government relationships. He holds a Master Degree in Science from
Emerson College, Boston. USA.
26 Annual Report 2017 ASBB
Executive Management Team (continued)

Mr. Mohammed Yaqoob Buhijji

Head of Retail Banking
Experience: more than 14 years

Mr. Mohammed Buhijji brings to the Bank more than 14 years of consultancy and banking
experience. He joined Al Salam Bank-Bahrain in 2006 when he set up the Internal
Audit division and various departmental policies and procedures during the Bank’s
establishment. In 2009, he moved to the Bank’s Retail Banking division where he supported
the development of products, services, the core banking system and Retail Banking
policies. He also played an essential role in the integration and conversion phases of the
Bank’s acquisition of the Bahraini Saudi Bank and BMI Bank; serving as a member in the
Integration Steering Committee and various other management committees including
IT Steering Committee and Information Security Steering Committee. Prior to joining
Al Salam Bank-Bahrain, he worked with Ernst & Young in the Business Risk Services
division, where he was responsible for managing the audit and consultancy services for
major financial institutions and governmental bodies. He holds an MBA degree from the
University of Strathclyde Business School, Glasgow and a Bachelor degree in Accounting.
He has also completed Executive Management Programs in Harvard Business School in
USA and Ivey Business School in Canada.

Mr. Sadiq Al Shaikh

Head of FIG and International Banking
Experience: more than 20 years

Mr. Sadiq Al Shaikh is a professional banker with over 20 years of experience in both
Wholesale and Retail Banks in the Kingdom of Bahrain. Mr. Al Shaikh manages global
markets with a focus on the GCC, MENA region, East Africa, South Asia and CIS region,
where he develops Financial Institutions Group (FIG) products and structured finance.
These include bilateral and syndication, correspondent and transaction banking, global
trade finance instruments, export credit insurance covers and credit review of credit limits
for countries and banks. Prior to joining Al Salam Bank-Bahrain in 2014, he was the Head
of FIG & International banking at BMI Bank for 10 years, and held various senior positions
for 7 years at the Arab Investment Company in Operations, Risk Management and the
International Banking Division, covering Financial Institutions and Corporate products
in overseas markets. Mr. Al Shaikh holds a Bachelor degree in Business Management
majoring in finance and marketing from Bangalore University.
 ASBB Annual Report 2017 27
Executive Management Team (continued)

Mr. Ali Al Khaja

Head of Compliance and MLRO
Experience: more than 9 years

Mr. Ali Al Khaja brings more than 9 years of Compliance experience to the Bank. Prior to
joining Al Salam Bank-Bahrain, he worked with Kuwait Finance House Bahrain, where
he was responsible for various regulatory aspects including ensuring that transactions,
investments and general dealings with the public were in compliance with the Central Bank
of Bahrain (CBB) regulations and applicable laws. Previous to this he was employed by the
CBB, where he held responsibility for the oversight of various local Islamic Banks in the
Kingdom of Bahrain. Mr. Al Khaja holds a Bachelor degree in Banking and Finance from the
University of Bahrain and an International Diploma in Compliance from the International
Compliance Association (ICA).

Mr. Khalid Jalili

Acting Head of Finance
Experience: more than 18 years

Mr. Khalid Jalili offers more than 18 years of accounting and finance experience. He joined
Al Salam Bank-Bahrain in 2009 as the Head of Strategic Support and was actively involved
in the Bank’s first business acquisition of Bahraini Saudi Bank. He was also elected as a
member in the Acquisition Steering Committee and ALCO committee. Before commencing
his career with the Bank, he worked with Gulf International Bank B.S.C. in the Financial
Control department and previous to this was in the Audit and Assurance services at Ernst &
Young. Mr. Jalili is a Chartered Certified Accountant (ACCA) and holds a Bachelor degree in
Accounting from the University of Bahrain.
28 Annual Report 2017 ASBB

Board of Directors’ Report

to the Shareholders
The Directors of Al Salam Bank-Bahrain B.S.C. (“the Bank”) have the pleasure in submitting their report to the
shareholders accompanied by the consolidated financial statements for the year ended 31 December 2017. The
consolidated financial statements comprise the financial statements of the Bank and its subsidiary, Al Salam
Bank-Seychelles Limited, together known as the “Group”.

A combination of improved monetary conditions, Al Salam Bank-Seychelles, a subsidiary of Al Salam

solid labor markets, healthy global trade and higher Bank-Bahrain, continued the process of re-establishing
commodity prices led global growth to expand in in 2017, following the handover from the Central Bank
the second half of 2017 at the fastest acceleration of Seychelles in 2016. This includes but not limited
witnessed since early 2011. The global growth was to strengthening of the human capital workforce,
particularly strong in the second half of the year rising revamping and optimization of the IT infrastructure
to 3.3%, up from 2.7% in 2016. and moving to its new headquarters. Al Salam Bank-
Seychelles is expected to launch its retail operations
Closer to home the news was not as positive with
during the first half in 2018. Aligned with the Group’s
subdued oil prices continuing to deflate investor
strategy to create a bridge between the GCC and the
sentiment across the Gulf Cooperation Council (GCC)
Indian Ocean Rim countries, Al Salam Bank-Seychelles
and in particular in Bahrain where fiscal debt continues
is expected to become the launching pad for the
to moderate economic growth. Bahrain is however
Group’s Banking and Investment activities in the region.
introducing revenue enhancing measures, and together
The Group’s International presence in markets such
with the proposed GCC-wide Value Added Tax (VAT)
as Algeria, Seychelles and Kenya will help in sourcing
introduction, which is expected to be implemented
international transactions and further expanding the
towards end of 2018, government balances could
business outreach.
improve. The financial sector assessment by
International Monetary Fund (IMF) indicates that the During the reporting period, the Group remained
banking sector has remained resilient with adequate focused on generating value through sustained growth
capitalization and liquidity levels, as regulation and in core banking activities, with a particular focus
supervision of the sector was strengthened by the on building the Retail Banking business. The Group
Central Bank of Bahrain (CBB). continued to deploy liquidity into growing its financing
portfolio and availing alternative sources of funding at
Notwithstanding the above market challenges, the
competitive rates. As a result, net financing portfolio
Bank is pleased to report positive results for the year,
grew by 10% to BD 737 million in 2017, up from BD 667
posting a net profit attributable to shareholders of
million a year ago.
BD 18.1 million, an increase of 11.6% over the previous
year, (2016: BD 16.2 million), attributable to a continued The Group continued to adopt a cautious approach
focus on the core banking business, after taking into in selecting investments in line with the Board’s risk
consideration recognition of allowance for credit losses appetite, and aligned with a focus on stable income
and impairment of BD 20.7 million. Sustained cost generating assets, the Group successfully acquired
control measures during the year witnessed a decrease BD 10.8 million mezzanine financing facility for prime
in total operating expenses by BD 1.8 million compared commercial real estate in the heart of Cardiff in the
to last year. As of 31 December 2017, total assets of United Kingdom, restructured an existing lease of an
the Group stood at BD 1,589 million (2016: BD 1,681 A330 aircraft for a period of eight years, and exited
million). an equity stake in a Boeing 777 aircraft on lease to a
Middle Eastern Airlines.
 ASBB Annual Report 2017 29
Board of Directors’ Report to the Shareholders (continued)

The Directors and management of Al Salam Bank-Bahrain will continue to maximize the Bank’s strength across
core businesses to ensure sustainable business growth in the coming years. We will remain committed to
expansion within the Kingdom of Bahrain and beyond its borders as we position Al Salam Bank-Bahrain brand as a
trusted global leader in the provision of diversified and innovative Shari’a-compliant products and services.

Retained earnings and appropriation of net income BD’000

Balance as of 1 January 2017 50,695

Transition adjustment on adoption of FAS 30 as of 1st January 2017* (26,759)
Net profit for the year – 2017 18,099
Transfer to statutory reserve (1,810)
Proposed dividend for the year 2017 (14,987)
Reversal of 2016 dividend on treasury stock 79

Balance as of 31 December 2017 25,317

*FAS 30: Financial Accounting Standard “Impairment, Credit Losses and Onerous Commitments”.

Directors’ and senior management interest:

The interests of directors and senior managers in the shares of Al Salam Bank-Bahrain B.S.C. and the
distribution of the shareholdings as of 31 December 2017.

No. of shares
Directors’ shares 1,772,819
Senior managers’ shares 119,331

Total 1,892,150

Directors’ remuneration for the year 2017 amounted to BD 415 thousands (2016: BD 389 thousands).

Shari’a Supervisory Board’s remuneration for the year 2017 amounted to BD 66 thousands
(2016: BD 49 thousands).
30 Annual Report 2017 ASBB
Board of Directors’ Report to the Shareholders (continued)

2017

% of total
No. of outstanding
No. of shares shareholders shares
Percentage of shares held
Less than 1% 925,482,687 22,729 43.23
1% up to less than 5% 771,179,889 15 36.02
5% and above 444,268,176 2 20.75

Total 2,140,930,752 22,746 100.00

Shareholders holding over 5% Nationality Holding

Bank Muscat S.A.O.G. Oman 14.74%
Overseas Investment S.P.C. Bahrain 6.01%

The Directors take this opportunity to express their appreciation to the leadership led by His Majesty King
Hamad bin Isa Al Khalifa, HRH the Prime Minister Prince Khalifa bin Salman Al Khalifa and HRH the Crown
Prince, Deputy Supreme Commander and First Deputy Premier Salman bin Hamad Al Khalifa, the Ministry
of Finance, the Ministry of Industry, Commerce and Tourism, the Central Bank of Bahrain, the Bahrain
Bourse, correspondents, customers, shareholders and employees of the Bank for their support and collective
contribution since the establishment of the Bank and we look forward to their continued support in the fiscal
year 2018.

Shaikha Hessa bint Khalifa bin Hamad Al Khalifa

Chairperson

13 February 2018
Manama, Kingdom of Bahrain
 ASBB Annual Report 2017 31
Board of Directors’ Report to the Shareholders (continued)
32 Annual Report 2017 ASBB
 ASBB Annual Report 2017 33

Message from
The net profit attributable to shareholders of the
Bank for the year was BD 18.1 million (2016: BD 16.2
million) after taking into consideration allowances

the Group CEO

for credit losses and impairment of BD 20.7 million
(2016: BD 21.6 million).The Group continued to focus
on generating value through sustained growth in
core banking activities. Income from its core banking
activities after taking into account profits payable to
banks and non-banks on deposits and borrowings
showed an impressive 24.5% increase to BD 40.6
million, compared to BD 32.6 million in 2016. Moreover,
While global growth as a result of sustained efforts to manage costs, total
operating expenses of BD 24.3 million reduced by BD
was strong during 1.8 million as compared to 2016 levels (2016: BD 26.1
million).
the second half The year witnessed an unswerving concentration on
of 2017, regional improving shareholder return, increasing stakeholder
value and commitment towards our vision to become
economic growth one of the leading Islamic financial institutions in the
region. The Group underscored its ability to remain
continued to be agile as it expands by successfully adapting and
reacting to market risks whilst maintaining a focus on
moderate on account the achievement of our financial goals.

of fiscal debt. In During the year the Group successfully completed

the formal process to transfer the entire BMI Bank

spite of these market business to Al Salam Bank-Bahrain. Pursuant to

the Central Bank of Bahrain Resolution No. (22)

challenges and published in the official gazette under issue number

3310 dated 20 April 2017, the Central Bank of Bahrain
challenging business approved BMI Bank B.S.C. (c) request to transfer its
entire banking business including all of its assets and
environment, Al liabilities to Al Salam Bank-Bahrain. Through this
integration, customers can take advantage of ASBB’s
Salam Bank-Bahrain complete range of innovative and unique Shari’a-
compliant financial products and services through its
B.S.C. (“ASBB”, “the extended network of branches and ATMs by providing
quicker, more amalgamated products and services for
Bank”) achieved our Islamic banking customers. The Bank is now one
of the leading Islamic Banks in the Kingdom of Bahrain
positive results for in regard to total assets as of 31 December 2017, and
will continue to consolidate its position by further
the year. enhancing business effectiveness and efficiency.
The full integration has increased human capital
capabilities, delivered abundant liquidity and sizable
capital, and has created a larger customer base that is
centrally managed by the respective banks’ units.
 34 Annual Report 2017 ASBB
Message from the Group CEO (continued)

Testament to the success of the Group’s strategic efforts and First Deputy Premier Salman bin Hamad Al Khalifa for
to position Al Salam Bank-Bahrain as the leading Shari’a- their steadfast leadership and support. I am also grateful
compliant Retail Bank in the Kingdom of Bahrain, the Retail to the Board of Directors, Ministry of Industry, Commerce
Banking business achieved monumental growth and the and Tourism, the Central Bank of Bahrain, Bahrain
Bank is fast becoming a brand preferred by Retail Banking Bourse, Dubai Financial Market (DFM), and Securities &
customers. As such, business expansion continued with Commodities Authority in UAE for their continued support
a full-service branch opened in Isa Town during the year. and guidance. I thank our valuable shareholders and loyal
Testament of the Bank’s performance and successful customers whose ongoing backing drives our success.
transformation into a leading Retail Bank, Al Salam Bank- Finally, I express my sincere appreciation to the team at Al
Bahrain was recognized on the global stage as “The Best Salam Bank-Bahrain for their commitment and enthusiasm.
Islamic Retail Bank in Bahrain”, a Critics’ Choice Award by
Cambridge IF Analytic at the Islamic Retail Banking Awards
(IRBA) in 2017. Yousif Abdulla Taqi
Director & Group CEO
The investment business effectively navigated a difficult
operating and business environment throughout the year,
securing a number of high yielding assets and achieving
timely exits. The team is well positioned to achieve positive
growth in the future with a strong pipeline of stabilized
assets in the United Kingdom and United States, and a
demonstrated placement capability.

The Private Banking business achieved its business goals,

productively marketing real estate and Sukuk investments,
substantially boosting the Private Banking customer base,
and increasing the asset book. As we move into 2018, the
team remained focused on lowering the cost of funding,
booking long term strong assets, and providing robust
investment opportunities to investors.

Generally, the Group adapted to a difficult business

backdrop by maximizing on sovereign lending opportunities
in the form of Sukuk and fixed income securities, and
expanding the business internationally to support the
sourcing of international transactions.

The capital adequacy continued to reflect a healthy ratio of

21.4% at 31st Dec 2017 against a mandatory Central Bank of
Bahrain requirement of 12.5%.

The Management and the Board remain confident that the

Group is effectively positioned to thrive in the coming years
and can steer the Bank to even higher levels of strategic
business success.

On behalf of all the shareholders and the Board of Directors,

I would like to take this opportunity to express my deep
appreciation to the wise leadership of the Kingdom of
Bahrain led by His Majesty King Hamad bin Isa Al Khalifa,
HRH the Prime Minister Prince Khalifa bin Salman Al Khalifa
and HRH the Crown Prince, Deputy Supreme Commander
 ASBB Annual Report 2017 35
Message from the CEO (continued)
36 Annual Report 2017 ASBB

Management Review of
Operations and Activities
OPERATING ENVIRONMENT on business confidence and expansion strategies.
Globally, 2017 was a tumultuous year marked by natural Government borrowing from the local market has ensured
disasters, geopolitical tensions, and deep political liquidity remains tight, whilst fiscal measures made on
divisions in many countries, however, on the economic subsides and government service charges has raised the
front, the year ended fairly positively. GDP continued to cost of doing business, and as a result lead to higher non-
accelerate across much of the world, in the broadest performing loans (NPLs).
cyclical upswing since the start of the decade. Labour
Despite this less than ideal business environment,
markets remained at full capacity in a number of key
opportunities have opened for Bahrain banks, particularly
advanced economies with unemployment rates close to
in terms of sovereign lending and in the financing of key
their natural rate. The U.S. dollar has appreciated slightly
regional infrastructure projects.
against a range of currencies following expectations of
tighter monetary policy and fiscal stimulus, while the FINANCIAL PERFORMANCE
Sterling experienced a largest decline against the Euro The Group performed well in 2017, maintaining a strong
over the quarter as a consequence of Brexit risks and liquidity ratio and standing as one of the most efficient
uncertainty, with many economists and analysts still banks in Bahrain in terms of Cost-to-Income ratio.
expecting further softness. The Federal Open Market
Committee (FOMC) raised the Federal Funds Rate (FFR) The year saw the Group post positive results again with
by 25bps in December 2017 as well as raising their a net profit attributable to shareholders of the Bank for
economic growth forecast for 2018 and have indicated the year of BD 18.1 million for 2017, an increase of 12%
rapid rise in the FFR. on the previous year, (2016: BD 16.2 million), taking into
consideration allowance for credit losses and impairment
BUSINESS ENVIRONMENT of BD 20.7 million (2016: BD 21.6 million).
The business environment posed a number of challenges
The results can be attributed to steady growth in the core
and opportunities for Banks in Bahrain. The oil cap
banking business, comprising corporate, commercial and
deal signed by key producers resulted in the Middle
retail banking. In particular, the retail business witnessed
East and North Africa’s (MENA) economy to expand at
substantial growth. In addition to core banking business
the weakest pace in over one year, while the end of the
growth, improved operational efficiency, cost of funding,
commodities super-cycle resulted in a significant decline
the booking of new financing and recovering delinquent
in the economic prospects of the GCC region, resulting in
impaired assets contributed to an enhanced bottom line.
lower growth opportunities for the banking systems and
deteriorating liquidity. The Group remained selective in financing in order to
enhance asset quality with total assets of the Group
In June, all central banks in the GCC followed the US
standing at BD 1,589.3 million at 31 December 2017 (2016:
Federal Reserve, which raised its target range for the
BD 1,681.3 million). Despite decrease in total assets as
federal funds rate by 25bps. Against this backdrop,
compared to 31 December 2016, as a result of deployment
analysts cut MENA’s 2017 GDP growth outlook by 0.2
of liquidity and enhanced efficiency, financing contracts
percentage points to 2.2%, representing the weakest
recorded a net increase of BD 69.5 million or 10.4% net
expansion since the height of the financial crisis in 2009.
growth, to reach BD 736.8 million at 31 December 2017
Rating downgrade by Standard & Poor in December to (2016: BD 667.3 million). Investment in sukuk was lower
B+ has adversely impacted Bahrain’s ability to attract than 31 December 2016. The Group’s emphasis was to
funds from outside the region, while continued regional maintain high quality sovereign instruments and reduce
geopolitical instability remains a negative impact its exposure to non-sovereign owing to deteriorated
 ASBB Annual Report 2017 37
Management Review of Operations and Activities (continued)

lending environment. Fiscal year 2017 witnessed multiple Al Salam Bank-Bahrain launched an upgraded Online
downgrades of corporates and sovereigns by various Banking platform for its individual customers. The new
rating agencies. version, which uses best-in-class technology and has
added security enhancements, allows customers to
The Group’s total operating expenses decreased by
execute their banking transactions, including online
7.4% as a result of continued cost synergies post BMI
financing applications, as well as receiving information
Bank acquisition. Throughout the reporting period, the
regarding their financial and non-financial transactions
Group concentrated on recovering legacy debts and
without the need to visit a branch. The upgraded online
bringing new business in terms of financing and fee
banking service, which was first offered to customers
based income in our mission to generate non-fund based
in 2007, offers a much wider range of new services and
revenues. Liquidity was deployed into yielding assets,
features; providing convenient and easily accessible
and efforts to further reduce the Group’s cost income
banking services through a range of channels such as
ratio were sustained. The massive increase in the retail
ATMs, the internet and through Al Salam Bank-Bahrain’s
portfolio underscores the success of the Group’s strategic
mobile banking application.
emphasis on sustainable income through retail growth
which is a strategic focus that will continue in 2018. The Group has also successfully completed the formal
process to transfer the entire BMI Bank business to Al
CAPITAL ADEQUACY
Salam Bank-Bahrain during the reporting period ended
Al Salam Bank-Bahrain B.S.C. continues to enjoy strong 31 December 2017. The Group’s customers can now take
financial solvency and liquidity. In accordance with the advantage of a complete range of innovative and unique
Basel III capital adequacy guidelines, the Bank’s capital Shari’a-compliant financial products and services through
adequacy continued to reflect a sound ratio of 21.4% as of an extended network of branches and ATMs.
the end of the year against a mandatory Central Bank of
Bahrain minimum requirement of 12.5%. Aligned with a steadfast focus on offering the best retail
banking customer service in Bahrain, 2017 witnessed the
ASSET QUALITY signing of a Memorandum of Understanding (MoU) with
The Group has early adopted FAS 30 (Impairment, Credit The Bahrain Institute of Banking and Finance (BIBF) to
Losses and Onerous Commitments) effective 1 January conduct a specialized “Retail Banking Academy” training
2017. The Bank continues to maintain a conservative program for the employees of the Bank. The six months
approach in selecting new assets for financing and of comprehensive courses will further develop the Bank’s
investments. As at the end of the year, 86% of the human capital skills, knowledge and service quality with a
financing portfolio has been classified under the “good prime focus on enhancing customer’s banking experience.
& satisfactory” category (2016: 83%). Total provisions
Al Salam Bank-Bahrain was recognized with the “Critics’
for the financing portfolio was BD 57.7 million (2016: BD
Choice – The Best Islamic Retail Bank in Bahrain” at
46.7 million). The Asset Remedial and Collection Unit
the “3rd Islamic Retail Banking Awards (IRBA) 2017”.
continued to closely monitor past due facilities.
The award is by itself a strong testament of the Bank’s
BANKING ACTIVITIES performance and continued excellence in the Kingdom’s
Retail Banking Islamic Retail Banking space.
Testament to the success of the Group’s strategic efforts With the rapid expansion of the Bank’s Retail Banking
to position Al Salam Bank-Bahrain as the leading Shari’a- business as a result of the successful consolidation of BMI
compliant Retail Bank in the Kingdom of Bahrain, the Bank and Bahraini Saudi Bank, Al Salam Bank-Bahrain
retail banking business performed extremely well in has completely transformed itself into a fully integrated,
2017 with substantial growth in the customer base and Shari’a-compliant Retail Bank and is fast becoming the
dramatic growth in both the liabilities and asset portfolios. preferred bank of customers for its differentiated and
diversified product offerings, competitive terms, and
Business expansion continued with a full-service branch
exceptional customer experience.
opened in Isa Town, bringing the Al Salam Bank-Bahrain
network to 11 branches and 35 ATMs across the Kingdom. Private Banking
In the Bank’s continuous effort to make banking more The year 2017 was a challenging business environment
convenient and further boost the customer experience, for the banking sector in general, and Private Banking in
38 Annual Report 2017 ASBB
Management Review of Operations and Activities (continued)

particular due to persistent repercussions of the economic improving the overall level of service delivered to our
uncertainty faced during the year. At the local level, valued corporate banking customers.
several key sectors such as real estate, construction,
Aligned with the Bank’s commitment to contribute
manufacturing and tourism have been adversely affected.
to the growth of the local economy and to strengthen
Throughout this challenging period, the Department has
leadership in private enterprise development, Al
withstood the turmoil in the financial markets by not
Salam Bank-Bahrain signed a portfolio worth BD 60
only consolidating, but also enhancing its performance,
million within Tamkeen’s Sharia-compliant financing
focusing its efforts on maintaining the liability book and
program “Tamweel+”. Partnering in this Enterprise
reducing cost of assets.
Finance Scheme, which offers financing at a competitive
Despite less than ideal market conditions, the Private profit rate and stretched tenor to medium-sized and
Banking business successfully achieved its business goals large enterprises in Bahrain, continues the long-term
in 2017. The Department marketed real estate and sukuk relationship between Tamkeen and Al Salam Bank-
investments valued at approximately USD 50 million, Bahrain which began in July 2010 and has contributed
grew its team, substantially boosted the Private Banking to the support of over 250 institutions in the Kingdom of
customer base, and increased the asset book by USD 145 Bahrain.
million. Throughout the reporting period, the department
Another achievement during the reporting period was the
remained focused on lowering the cost of funding, booking
growth of the Group’s real estate development escrow
long term strong assets, providing robust investment
agency services. Following on from the 2016 signings
opportunities to the Bank’s valued clients.
with leading real estate developer Diyar Al Muharraq for
As a strategy, Private Banking will continue to be the the ‘Deerat Al Oyoun’ Social Housing Project and Marassi
leading Islamic provider of quality financial services Residences, Al Salam Bank-Bahrain signed new escrow
and create sustainable value for all our stakeholders. account agreements with leading real estate developers
Moreover, we will continue to provide Islamic financial for total value of projects of BD 133 million.
solutions that fulfill the needs of our customers in various
The escrow account agreement is aligned with the Group’s
segments by offering our products and services through
focused efforts to provide pioneering Shari’a-compliant
diverse access channels. The improvement in delivery
products and services tailored specifically to meet the
channels has resulted in providing more efficient service
changing needs of the citizens, the market place and the
to business customers. Private Banking continues to be
real estate sector.
a “one-stop-shop” solution provider for its clients overall
banking requirements, which encompasses, not only all In addition to building the corporate customer base,
business products and services, but also Retail Banking, and maintaining the quality of the assets portfolio, the
Investment Banking, Corporate Banking and Treasury Corporate Banking team was segregated into 6 dedicated
service requirements. sectors teams. The segregation of team members into
sector specializations supports the Department’s mission
Private Banking is committed to the highest level of
to grow expertise across a diverse array of sectors and
professionalism, and the delivery of innovative products
transform the customer’s corporate banking experience.
and services to our high net-worth customers by
leveraging modern technology. The team is dedicated to Investment Banking
conducting business with the highest level of integrity,
The Investment Banking department successfully
transparency and corporate governance, ensuring
navigated the numerous market challenges in 2017
confidentiality is maintained at all times.
by focusing on core yielding assets that satisfied the
Fiscal year 2018 will see the department explore new predominant investor appetite. In addition to providing
markets across GCC, with a focus on Saudi Arabia and the attractive opportunities, the team secured yielding assets
UAE. and successfully exited a number of transactions as
it worked towards monetizing the Group’s investment
Corporate Banking portfolio.
Despite a lack of liquidity in the market, the Corporate
The Group continued to adopt a cautious approach in
Banking business performed well in 2017, substantially
selecting investments in line with the Board’s risk appetite
growing the client base, booking quality assets, and
focusing on stable income generating assets. The Group
 ASBB Annual Report 2017 39
Management Review of Operations and Activities (continued)

successfully provided a £21.8 million (BD 10.8 million) Financial Institutions Group & International Banking
mezzanine facility in 2017 for the acquisition of a prime Although challenging market conditions prevailed, 2017
commercial real estate in the heart of Cardiff in the United was a good year for the Financial Institutions (FI) Group
Kingdom. The facility, backed by a recently completed & International Banking. The Department focused on
property and fully leased on long-term contracts, is set serving and supporting the Bank’s growing corporate and
to provide Al Salam Bank-Bahrain and its investors with commercial businesses through its strong access to the
attractive risk adjusted returns. Banks network regionally and globally. The Department
played a vital role during the acquisition of BMI bank and
The Group’s Global REIT Fund, launched in 2014 and
worked closely with clients and correspondent banks
converted into a global fund in August 2017, continued
regionally and globally, and managed to successfully
its strong positive performance in 2017 exceeding its
migrate all relationships to the Group’s portfolio. Al Salam
benchmark by circa 3%. The Fund generated returns
Bank-Bahrain has one of the strongest correspondent
of 17% in 2017, ending with a Net Asset Value of USD
banking network among its peers, which has effectively
43.42 million (BD 16.4 million). During 2017, the Fund
increased its ability to better serve its local and regional
distributed more than USD 1.7 million (BD 640,900) in
client base.
dividends to participating shareholders. The Department
also successfully restructured an existing lease of an A330 During 2017, the strategic focus was to continue
aircraft for a period of eight years, and exited an equity partnering with strong counterparties regionally and
stake in a Boeing 777 aircraft on lease to a Middle Eastern globally in order to diversify the group’s business activities
Airlines. The Investment Banking department is well and thus income stream as well as generating higher
positioned to achieve positive growth in the future. revenues and stable income. Al Salam Bank-Bahrain
continues to maintain a cautious credit approach in doing
Treasury & Capital Markets
FI and International business regionally.
Notwithstanding Bahrain’s rating downgrade, a continued
dearth of both liquidity and high-quality assets in the As such, the Department continued to maintain strong
market, the Treasury & Capital Markets department relationships with financial institutions, Banks and
had a very successful year. The Department effectively NBFIs that are necessary to support our overall liquidity
expanded the Banks Financial Institutions network, profile, balance sheet and business requirements.
sourced more term financing agreement and liquidity Such relationships have facilitated risk participation
transactions, and enhanced the different return aspects of opportunities on the asset building side and sell down to
the interbank and sukuk portfolio through timely exists of our partner banks. The Bank has good access to special
low yielding papers which were redeployed at higher yield funding linked to trade Shari’a-compliant instruments. In
transactions. The sukuk portfolio stands at approximately 2017, the Bank enhanced cross border risk transactions
USD 1 billion and consists of local and international on a selective basis in FI correspondent banking activities
issuance. and in structured trade finance business that are
supported by strong underlying trade instruments and
During the reporting period, Treasury & Capital Markets
self-liquidating transactions.
secured new lines with international and regional
counterparty banks underscoring the growing confidence The Group has the required infrastructure in terms of
in Al Salam Bank-Bahrain as a key and a preferred Bank operational capabilities and the relationship expertise to
to be transacting with in the Kingdom. carry and facilitate complex trade transactions for our
growing client base, thus enhancing the Group’s ability
The Department has continued expanding the different
to grow our business into new markets. This robust
Treasury offerings such FX services both on spot and on
infrastructure supported the Group in generating a good
Wa’ad basis as well as offering the clients other hedging
level of revenues through the year.
services such as Profit Rate Swap (PRS)
The Bank has built strategic relationships with partners
As the Department moves into 2018, the focus will remain
in the targeted markets and worked closely with Export
on further enhancing the diversification of liquidity
Credit Agencies (ECA) in the region to reduce the overall
sources, an emphasis on term financing sources and
commercial and political risk in trade transactions. This
more of sustainable fee-based transactions as well as
increased business volumes for customers that have a
continued Sovereign Sukuk deals.
strong credit standing with a positive track record. Al
40 Annual Report 2017 ASBB
Management Review of Operations and Activities (continued)

Salam Bank-Bahrain also finalized its arrangement to experience through the optimized and effective use of
engage regional business development bodies, such as technology.
Arab Trade Finance programme (ATFP) with Global Trade
Corporate Governance and Risk Management
Finance Program (GTFP) under IFC, which will increase
our expanding business plans. The Group continues to place the highest importance
on effective corporate governance and robust risk
Operations management practices. As such, the year witnessed
Fiscal year 2017 was a busy year for the Operations the enhancement of processes and procedures and the
department as they managed the transfer of business implementation of new methods to review, test, monitor
activities from BMI Bank to Al Salam Bank-Bahrain while and manage Group compliance.
ensuring minimum inconvenience to the Group’s valued
Aligned with our mission to vision to establish the best
customers.
corporate governance standards in the region, a more
In addition to the successful migration, which was proactive role was established by the Group in terms of
completed on the 1st of September 2017, the Department ensuring regulatory gaps are closed even before new
supported the Group’s various technology transformation regulations are implemented by regulatory bodies. The
projects, including the Migration of the core banking Group’s regulatory review process was enhanced during
system and the launch of the upgraded Online Banking the year, effectively increasing the review and monitoring
platform. scope, with transactions that were not being monitored
previously, now being monitored. Furthermore, the
The Department remained abreast of the requirements
regulatory review process is being fully automated to
for a dynamic back office technological environment;
further enhance its effectiveness.
supporting the Group through the implementation and
adaptation of new systems and the resulting testing In terms of Risk management, the macro-economic
and training that this entails. The Department was also and geopolitical factors, in addition to the integration of
engaged in the preparation and testing for the anticipated Al Salam Bank-Bahrain and BMI Bank, altered the risk
launch of CBB’s upgraded RTGS settlement system exposure of the Bank. The Risk Management Policies
through a VPN network, which is expected to enter service and Procedures of BMI Bank and Al Salam Bank-Bahrain
during Q1 2018. were integrated as was the merged entities core banking
application system – effectively unifying the workflow.
Keeping pace with regulatory requirements also remained
The integration of the system significantly reduced the
a priority during the reporting period with the introduction
operational risk exposure.
of Value Added Tax (VAT) and the Common Reporting
Standards (CRS). The Group also complied with PCIDSS (Plastic Card
Industry Data Security Standards) requirements, resulting
The Department will continue to refine existing processes,
in Al Salam Bank – Bahrain becoming a PCIDSS compliant
and apply cutting edge technologies to support our value
certified institution. The Group opted for early adoption
chain and achieve optimal customer satisfaction.
of FAS 30 standards whereby the computation of asset
Information Technology provisions changed from Incurred Loss Model to Expected
Loss Model. Implementation of the FAS 30 standards
The Information Technology department successfully
involved extensive review of the Group’s asset portfolio.
unified the core banking systems of BMI Bank with Al
The Group complied with Foreign Account Tax Compliance
Salam Bank-Bahrain, which was completed in the month
Act (FATCA) and Common Reporting Standards (CRS)
of August, and the integration of all BMI Bank operations
requirements as mandated by Central Bank of Bahrain
as of 1 September 2017.
(CBB).
During the year the Department also championed the
The Group’s Corporate Governance and Risk Management
implementation of the upgraded Online Banking system
function is dedicated to increased Risk Governance;
and implemented the process workflow automation
leveraging technology to manage risk more effectively,
for the Retail Banking business, in addition to further
enhancing transparency in Risk Reporting, improved
automating the Group’s processes and procedures to
follow up on potential non-performing assets, and the
enhance operational efficiency. The Department is set
effective and ongoing implementation of an Enterprise
to continue in its mission to enhance the customer
 ASBB Annual Report 2017 41
Management Review of Operations and Activities (continued)

Wide Risk management framework. skill development sessions. The training focus covered
Regulatory Awareness sessions, and, aligned with Al
Know Your Customer
Salam Bank-Bahrain’s commitment to continuously
Appropriate due diligence is rigorously conducted enhance our customer’s experience, a specialized
to ensure that the financial activities of the Group’s 6 months “Retail Banking Academy” conducted by
customers are performed in accordance with the The Bahrain Institute of Banking and Finance (BIBF)
guidelines issued by the regulatory authorities. The Group designed to further develop the Bank’s human capital
strictly adheres to the Financial Crimes Module of the skills, knowledge and service quality. The Bank is also
Central Bank of Bahrain’s rulebook. The module contains committed to good corporate citizenship, underscoring
Bahrain’s current anti-money laundering legislation, this pledge, 23 young Bahrainis were hosted as part of the
developed under the directives of the Financial Action Task Annual Summer Internship Programme. The programme,
Force, which is the international organization responsible which has been running for the last 11 years, hosted over
for developing global anti-money laundering policies. 263 students from University of Bahrain as well as at
other local and international private universities to date.
In 2017, the Group further enhanced monitoring and
The programme included a two-month-long intensive
due diligence practices and successfully elevated the
training and workshops within the Bank’s various key
monitoring of all aspects of transactions including
departments.
enhancing the automation of transaction monitoring. In
addition to the upgrading of deposit and transfer slips, The HR department will continue to work closely with the
and the amending of account opening forms to ensure Group’s Executive Management to implement industry
more transparency and the building of a solid customer best practices to support the Group as it moves ever
profile, a number of KYC improvements were made to the closer to its vision of becoming the Kingdom’s leading
online banking system during the reporting period. Anti- Islamic retail bank and employer of choice.
Money Laundering training was conducted on the Group’s
e-learning platform further enforcing a corporate culture
where effective and responsible due diligence is the norm.

Human Capital
Al Salam Bank-Bahrain’s Human Resources (HR)
department works toward the full optimization of the
Group’s skilled manpower by shaping a nurturing
corporate culture, and leveraging the best training and
development tools available in the market.

Aligned with this dedication, the HR team successfully

managed a number of initiatives and facilitated various
value-added training sessions and workshops.

These comprised the automation of a number of HR

services, including the introduction of a new HR Self-
Service Portal which greatly enhanced staff convenience
and as a result improved employee satisfaction.

The Bank has established a transparent, fair, and

equitable Performance Management System whereby
each employee’s annual Performance Plan cascades from
the Bank’s Overall Business Objectives. A focused and
detailed succession plan has been initiated in preparation
for the second line of young leaders during the year and is
earmarked for implementation in 2018.

11,469 training hours were held during the year with

322 employees taking part in various knowledge and
42 Annual Report 2017 ASBB

Corporate
Governance Report
Corporate Governance Practice
The Bank aspires to the highest standards of ethical conduct: doing what it says; reporting results with accuracy
and transparency and maintaining full compliance with the laws, rules and regulations that govern the Bank’s
business. Since 2010 when the new Corporate Governance Code was introduced by the Central Bank of Bahrain,
the Bank has been implementing several measures to enhance its compliance with the corporate governance
rules. A separate section on the status of compliance with the corporate governance rules and High Level Controls
Module is included in this report.

Shareholders
Major Shareholders as of 31 December 2017

Name Country of origin No. of shares % Holding

Bank Muscat (S.A.O.G.) Oman 315,494,795 14.74

Overseas Investment S.P.C. Bahrain 128,773,381 6.01
Al Rushd Investments W.L.L. UAE 105,000,000 4.90
Tasameem Real Estate Company L.L.C. UAE 102,264,615 4.78
Securities and Investment Company B.S.C. (c) Bahrain 95,515,798 4.46
D S L Yachts W.L.L. UAE 77,450,000 3.62
First Energy Bank B.S.C. Bahrain 73,884,098 3.45
Royal Court Affairs, Sultanate of Oman Oman 70,825,359 3.31
Sayed Hussain Ali Alawy AlQatary Bahrain 45,334,313 2.12
Bond Investment Limited UAE 38,300,000 1.79
Khalifa Buti Omear Al Muhairi UAE 38,000,000 1.77
Al Sueban Company Bahrain 26,250,000 1.23
Gimbal Holding Company S.P.C. Bahrain 25,553,633 1.19
Buti Khalifa Buti Omear Al Muhairi UAE 25,000,000 1.17
Global Express Company W.L.L. Bahrain 25,000,000 1.17
 ASBB Annual Report 2017 43
Corporate Governance Report (continued)

Shareholding – 31 December 2017

% of outstanding
Category No. of shares No. of shareholders shares

Less than 1% 925,482,687 22,729 43.23

1% to less than 5% 771,179,889 15 36.02
5% to less than 10% 128,773,381 1 6.01
10% to less than 20% 315,494,795 1 14.74
20% up to less than 50% - - -
50% and above - - -

Total 2,140,930,752 22,746 100.00

The outstanding ordinary share ownership of the Bank is distributed as follows:

Nationality No. of shares Ownership percentage

Bahraini
Government - -
Institutions 272,504,424 12.73
Individuals 320,205,161 14.96
GCC
Government 70,825,359 3.31
Institutions 471,657,938 22.03
Individuals 811,094,338 37.89
Other
Institutions 2,665,957 0.12
Individuals 191,977,575 8.96

Total 2,140,930,752 100.00

44 Annual Report 2017 ASBB
Corporate Governance Report (continued)

BOARD OF DIRECTORS initiatives and its functioning within the agreed

The Board of Directors provides central leadership to framework, in accordance with relevant statutory and
the Bank, establishes its objectives and develop the regulatory structures. The Board is also responsible
strategies that direct the ongoing activities of the Bank for the consolidated financial statements of the Group.
to achieve these objectives. Directors determine the The Board ensures the adequacy of financial and
future of the Bank through the protection of its assets operational systems and internal control, as well as
and reputation. They will consider how their decisions the implementation of corporate ethics and the code
relate to “stakeholders” and the regulatory framework. of conduct. The Board has delegated responsibility for
Directors shall apply skill and care in exercising their overall management of the Bank to the Group Chief
duties to the Bank and are subject to fiduciary duties. Executive Officer.
Directors shall be accountable to the shareholders
The Board reserves a formal schedule of matters for
of the Bank for the Bank’s performance and can be
its decision to ensure that the direction and control of
removed from office by them.
the Bank rests with the Board. This includes strategic
The primary responsibility of the Board is to provide planning, performance reviews, material acquisition
effective governance over the Bank’s affairs for and disposal of assets, capital expenditure, authority
the benefit of its shareholders, and to balance the levels, appointment of auditors and review of the
interests of its diverse constituencies including its financial statements and financing activities including
customers, correspondents, employees, suppliers annual operating plan and budget, ensuring regulatory
and local community. In all actions taken by the compliance and reviewing the adequacy and integrity of
Board, the directors are expected to exercise their internal controls. All policies pertaining to the Bank’s
business judgment in what they reasonably believe operations and functioning are to be approved by the
to be in the best interests of the Bank. In discharging Board.
that obligation, directors may rely on the honesty and
Each Director holds the position for three years, after
professional integrity of the Bank’s senior executives
which he must present himself to the Annual General
and external advisors and auditors.
Meeting of shareholders for re-appointment. The
majority of ASBB Directors (including the Chairman
Board Composition and/or Vice Chairman) are required to attend the Board
The Board consists of members of high-level meetings in order to ensure a quorum.
professional skills and expertise. Furthermore,
in compliance with the corporate governance Board Elections System
requirements, the Board Committees consist of
Article 26 of the Bank’s Articles of Association provides
Members with adequate professional background
the following:
and experience. The Board periodically reviews its
composition and the contribution of Directors and 1. The Bank shall be administered by a Board of
Committees. Directors consisting of not more than fourteen
members and not less than five members. The
The appointment of Directors is subject to prior
Board’s term shall be three years which may be
screening by the Remuneration, Nomination and
renewed.
Corporate Governance Committee and the Board of
Directors as well as approval by the Shareholders 2. Each shareholder owning 10% or more of the
and the Central Bank of Bahrain. The classification of capital may appoint whoever represents him on the
“executive”, “non-executive” and “independent non- Board to the same percentage of the number of the
executive” directors is as per definitions stipulated by Board members. His right to vote shall be forfeited
the Central Bank of Bahrain. for the percentage he has exercised to appoint his
representative. If a percentage is left after exercising
Mandate of the Board of Directors and Directors’ Roles his right to nominate, he may use such percentage
and Responsibilities to vote.
The principal role of the Board of Directors (the Board), 3. Other members of the Board shall be elected by the
is to oversee the implementation of the Bank’s strategic General Assembly by secret ballot.
 ASBB Annual Report 2017 45
Corporate Governance Report (continued)

The Board of Directors shall elect, by secret ballot, a In 2017, the members of the Board were:
Chairman and one or more Vice Chairman every three
Independent and Non-executive Directors
years. The Vice Chairman shall act for the Chairman
during his absence or if there is any barrier preventing 1. H.H. Shaikha Hessa bint Khalifa
him. Al Khalifa - Chairperson
Article 29 of the Article of Association covers the 2. H.E. Shaikh Khalid Bin Mustahail Al Mashani - Vice
“Termination of Membership in the Board of Directors”. Chairman
It provides the following:
3. Mr. Hussein Mohammed Al Meeza
A Director shall lose his office on the Board in the event
that he: 4. Mr. Salman Saleh Al Mahmeed

a. Fails to attend four consecutive meetings of the 5. Mr. Essam Bin Abdulkadir Al Muhaidib
Board in one year without an acceptable excuse,
6. Mr. Mohamed Shukri Ghanem
and the Board of Directors decides to terminate his
membership; 7. Mr. Khalid Salem Al-Halyan

b. Resigns his office by virtue of a written request; 8. Mr. Sulaiman bin Mohamed Al Yahyai

c. Forfeits any of the provisions set forth in Article 26 9. Mr. Hisham Saleh Al Saie
of the Articles of Association;
Executive and Non-independent Directors
d. Is elected or appointed contrary to the provisions of
the Law; and 1. 1. Mr. Yousif Abdulla Taqi

e. Has abused his membership by performing acts All current Directors were elected for a three-year term
that may constitute a competition with the Company on 24 February 2015.
or caused actual harm to the Company.
Induction and Orientation for New Directors
Independence of Directors When the new Board of Directors was elected on
An independent director is a director whom the 24 February 2015, all directors were provided with
Board has specifically determined, has no material information related to the Corporate Governance
relationship which could affect his independence guidelines, the Board and Committee Charter,
of judgment, taking into account all known facts. Committee and the Code of Conduct policies and other
The Directors have disclosed their independence by documents.
signing the Directors Annual Declaration whereby they
have declared that during 2017 that they have met
all the conditions stipulated under Appendix A of the
Corporate Governance Code.
46 Annual Report 2017 ASBB
Corporate Governance Report (continued)

Evaluation of Board Performance 2. The total amount payable to each Board member
Members of the Board of Directors have been requested with respect to Board and Committee meetings
to assess their self-performance, how the Board of attendance shall be taken into consideration when
Directors’ operate, evaluate the performance of each determining each member’s annual remuneration.
committee in light of the purposes and responsibilities
3. The remuneration of the Board of Directors will be
delegated to it, their attendance and their involvement in
approved by the shareholders at the Annual General
the decision making process. The evaluation is focused
Assembly.
on three main assessments:
In addition to the above, Directors who are employees
• Evaluation of the Board of Directors’ performance
of the Bank shall not receive any compensation
• Evaluation of the Chairperson performance for their services as directors. Directors who are
• Evaluation of the performance of Committees and not employees of the Bank may not enter into any
the Committees Chairpersons consulting arrangements with the Bank without the
prior approval of the Board. Directors who serve on the
The directors self-assessment results were either above
Audit Committee shall not directly or indirectly provide
expectation or satisfactory in most areas, including
or receive compensation for providing accounting,
directors’ skills and experience, understanding of the
consulting, legal, investment banking or financial
Bank’s business and Board operations.
advisory services to the Bank.

Remuneration of Directors
The Board Charter
Remuneration of the Directors as provided by Article 36
The Board has adopted a Charter which provides the
of the Articles of Association states the following:
authority and practices for governance of the Bank. The
“The General Assembly shall specify the remuneration Charter was approved by the Board with the beginning
of the members of the Board of Directors. However, of its term in 2015 and includes general information on
such remunerations must not exceed in total 10% of the composition of the Board of Directors’, classification
the net profits after deducting statutory reserve and the of Directors’, Board related Committees, Board of
distribution of dividends of not less than 5% of the paid Directors’ roles and responsibilities, Board of Directors’
capital among the shareholders. The General Assembly code of conduct, Board remuneration and evaluation
may decide to pay annual bonuses to the Chairman and process, insider dealing, conflict of interest and other
members of the Board of Directors in the years when Board related information.
the Company does not make profits or in the years
when it does not distribute profits to the shareholders, Conflict of Interest
subject to the approval of the Minister of Industry, The Bank has a documented procedure for dealing with
Commerce and Tourism. situations involving “conflict of interest” of Directors.
In the event of Board or its Committees considering
The Board, based upon the recommendation of the
any issues involving “conflict of interest” of Directors,
Remuneration and Nomination Committee and subject
the decisions are taken by the full Board/Committees.
to the laws and regulations, determines the form
The concerned Director abstains from the discussion/
and amount of director compensation subject to final
voting process. These events are recorded in Board/
approval of the shareholders at the Annual General
Committees proceedings. The Directors are required
Assembly meeting. The Remuneration and Nomination
to inform the entire Board of (potential) conflicts of
Committee shall conduct an annual review of directors’
interest in their activities with, and commitments to,
compensation.”
other organizations as they arise and abstain from
Per the Directors’ Appointment Agreement, the voting on the matter. This disclosure includes all
structure and level for the compensation for the Board material facts in the case of a contract or transaction
of Directors consist of the following: involving the Director. A report detailing the absentation
from voting relating to conflict of interest is made
1. Annual remuneration subject to the annual financial available to shareholders upon their request.
performance of the Bank and as per the statutory
limitation of the law.
 ASBB Annual Report 2017 47
Corporate Governance Report (continued)

Code of Conduct
The Board has an approved Code of Conduct for ASBB Directors. The Board has also approved a Code of Ethics for
the Executive Management and staff that include “whistleblowing” procedures. The responsibility for monitoring
these codes lies with the Board of Directors. The Directors’ “Code of Conduct” is published on the Bank’s website.
The directors’ adherence to this Code of Conduct is periodically reviewed.

Board Meetings and Attendances

The Board of Directors meets at the summons of its Chairperson or her Deputy (in event of his absence or
disability) or if requested to do so by at least two Directors. According to the Bahrain Commercial Companies
Law and the Bank’s Articles of Associations, the Board meets at least four times a year. A meeting of the Board of
Directors shall be valid if attended by half of the members in person. During 2017, the Directors that were present
at the Annual General Meeting (AGM) are detailed in the minutes of the 2017 Ordinary General Assembly Meeting
and details of the Board meetings held at the Bank’s premises as follows:

Board Meetings in 2017 - Minimum Four Meetings Per Annum

Members 16 Feb 3 May 12 Sep 13 Nov 10 Dec 11 Dec

H.H. Shaikha Hessa bint Khalifa Al Khalifa √ √ √ √ √ √

H.E. Shaikh Khalid bin Mustahail Al Mashani √ √ √ √ √ √
Mr. Hussein Mohamed Al Meeza √ √ √ √ √ √
Mr. Salman Saleh Al Mahmeed √ √ √ √ √ √
Mr. Essam Abdulkadir Al Muhaidib √ √ √ √ √ √
Mr. Sulaiman Mohammed Al Yahyai - √ √ √ √ √
Mr. Mohamed Shukri Ghanem √ √ √ √ √ √
Mr. Hisham Saleh Al Saie √ √ √ √ √ √
Mr. Khalid Salim Al Halyan √ √ √ √ √ √
Mr. Yousif Abdulla Taqi √ √ √ √ √ √
48 Annual Report 2017 ASBB
Corporate Governance Report (continued)

Directors’ Interests
Directors’ shares ownership in two-year comparison as on 31 December:

No. of shares
Members 2017 2016
H.H. Shaikha Hessa Al-Khalifa 100,000 100,000
Mr. Essam Bin Abdulkadir Al Muhaideb 100,000 100,000
Al Muhaideb Holding 0 4,314,522
Mr. Hussain Al-Meeza 462,819 462,819
Top Enterprise W.L.L 0 925,000
Mr. Salman Saleh Al Mahmeed 100,000 100,000
Mr. Yousif Abdulla Taqi 1,000,000 818,734
H.E. Shaikh Khalid bin Mustahail Al Mashani 0 0
Mr. Sulaiman Al Yahyai 0 0
Mr. Hisham Al Saie 0 0
Mr. Mohammed Ghanem 0 0
Mr. Khalid Al Halyan 10,000 10,000

Related Entities
The following shareholder is related to Mr. Hussein Al Meeza:
• Top Enterprises L.L.C. sold 925,000 shares

The following shareholder is related to Mr. Essam Al Muhaideb:

• Al Muhaideb Holding sold 4,314,522 shares

Approval Process for Related Parties’ Transactions

The Bank has a due process for dealing with transactions involving related parties. Any such transaction will
require the unanimous approval of the Board of Directors. The nature and extent of transactions with related
parties are disclosed in the consolidated financial statements under note 29 - related party transaction.

Material Transactions that require Board Approval

While any transaction above BD 5 million and up to BD 10 million requires the approval of the Executive Committee
of the Board of Directors, any transaction above BD 10 million requires the approval of the Board of Directors of the
Bank. In addition, when acquiring 20% of a company Board approval is required regardless of the amount.

Material Contracts and Financing Involving Directors

A financing facility has been provided to Mr. Mohamed Shukri Ghanem. The details of the facility is as follows:
• Principle amount: BD 15,000 • Value date: 24 July 2017
• Nature of facility: Credit Card • Purpose of financing: Personal needs

Directorships held by Directors on Other Boards

The High Level Controls Module provides that no director should hold more than three directorships in Bahrain
public companies. All members of the Board of Directors met this requirement.
 ASBB Annual Report 2017 49
Corporate Governance Report (continued)

Board Committees
The Board level committees are formed, and the Board of Directors appoints their members, at the beginning of
each Board term. They are considered the high level link between the Board and the Executive Management. The
objective of these committees is to assist the Board in supervising the operations of the Bank. The Committee
reviews issues that are submitted by the management to the Board and makes recommendations to the Board for
their final review.

Certain information relating to the work of certain Board Committees during the year 2017, summary of the dates
of Committee meetings held, Directors’ attendance and a summary of the main responsibilities of each Committee
is enclosed in this report.

The full texts for the Terms of Reference for Board Committees (Executive Committee, Audit and Risk Committee,
and Remuneration, Nomination and Corporate Governance Committee) are published on the Bank’s website.

Executive Committee
Committee Meetings in 2017 - Minimum four meetings per annum.
Four Committee meetings were held during 2017 as follows:

Members 6 Feb 25 Apr 20 June 16 Oct

Mr. Hussein Mohamed Al Meeza (Chairman) √ √ √ √

Mr. Essam Abdulkadir Al Muhaidib √ - √ √
Mr. Sulaiman Mohammed Al Yahyai √ √ √ √
Mr. Mohamed Shukri Ghanem √ √ √ √
Mr. Yousif Abdulla Taqi √ √ √ √

Summary of responsibilities: Deputizing the Board on matters pending decisions between Board meetings,
considering and reviewing management’s operational reports and regulatory and strategic developments,
reviewing and approving credit and market risk proposals in excess of the authority limits of the relevant
committees, reviewing management’s recovery procedures for problem facilities and requirements for
provisioning.

Audit and Risk Committee

Committee Meetings in 2017 - Minimum four meetings per annum.
Four Committee meetings were held during 2017 as follows:

Members 7 Feb 24 Apr 24 Aug 24 Oct

Mr. Salman Saleh Al Mahmeed (Chairman) √ √ √ √

H.E. Shaikh Khalid bin Mustahil Al Mashani √ √ √ √
Mr. Khalid Salim Al Halyan √ √ √ √

Summary of responsibilities: Reviews the internal audit program and internal control system, considers major
findings of internal audit review, investigations and management’s response, ensures coordination among
internal and External Auditors, monitors trading activities of key persons and ensures prohibition of the abuse of
inside information and disclosure requirements and reviews the periodic risk reports.
50 Annual Report 2017 ASBB
Corporate Governance Report (continued)

Remuneration, Nomination and Corporate Governance Committee

Committee Meetings in 2017 - Minimum two meetings per annum.
Four meetings were convened during 2017:

Members 16 Feb 23 May 12 Oct 11 Dec

H.H. Shaikha Hessa bint Khalifa Al Khalifa (Chairman) √ √ √ √

Mr. Khalid Salim Al Halyan √ √ √ √
Mr. Hisham Saleh Al Saie   √ √ √ √

Summary of responsibilities: Make specific recommendations to the Board of Directors’ on both remuneration
policy and individual remuneration packages for the Chief Executive Officer and other senior managers.
Evaluate senior management’s performance in light of the Bank’s corporate goals. Make recommendations to
the Board from time to time as to the changes the committee believes to be desirable to the size of the Board or
any committee of the Board.
Oversees and monitors the implementation of the governance policy framework. Reviews on an annual basis
the Bank’s compliance with the respective Corporate Governance rules and regulations as well as the Board’s
and subcommittees’ charters. Reviews on an annual basis the Shari’a Supervisory Board’s compliance with its
approved charter.

SHARI’A SUPERVISORY BOARD

Al Salam Bank-Bahrain is guided by a Shari’a Supervisory Board consisting of five distinguished scholars. The
Board reviews the Bank’s activities to ensure that all products and investment transactions comply fully with the
rules and principles of Islamic Shari’a.

The Board meets at least 4 times a year. Its members are remunerated by annual retainer fee and sitting fees per
meeting attended, with travel expenses reimbursed as appropriate. Its members are not paid any performance-
related remuneration.

EXECUTIVE MANAGEMENT
The Board delegates the authority for management of the Bank to the Group Chief Executive Officer. The Group
CEO and Executive Management are responsible for implementation of decisions and strategies approved by the
Board of Directors and the Shari’a Fatwa and Supervisory Board.

Senior Managers’ Interests

The number of shares held by the senior managers, in two-year comparison, as on 31 December is as follows:

Shares
Members
2017 2016
Dr. Mohammed Burhan Arbouna 336 336
Mr. Essa Abdulla Bohijji 118,995 118,995

Total 119,331 119,331

 ASBB Annual Report 2017 51
Corporate Governance Report (continued)

Management Committees
The Chief Executive Officer is supported by a number of management committees each having a specific mandate
to give focus to areas of business, risk and strategy. The various committees and their roles and responsibilities
are:

Committee Roles and responsibilities

Recommending the risk policy and framework to the Board. Its Primary role
is the selection and implementation of risk management systems, portfolio
Credit/Risk Committee monitoring, stress testing, risk reporting to Board, Board Committees, Regulators
and Executive Management. In addition to these responsibilities, individual credit
transaction approval and monitoring is an integral part of the responsibilities.

Asset Liability This Committee’s primary responsibility is to review the trading and liquidity policy
Committee for the overall management of the balance sheet and its associated risks.

The role of the Committee is to review and approve all transactions related
to corporate and real estate investments and monitoring their performance
Investment Committee on an ongoing basis. In addition, the Committee is responsible to oversee the
performance of the fund managers and recommend exit strategies to maximize
return to its investors.

TSC oversees the overall Information Technology (IT) function of the bank. The
Technology Steering committee members consist of senior management, business heads and chaired by
Committee (TSC) the Chief Operating Officer. The committee reviews major IT projects and sets their
priority. It supervises the implementation of the approved IT annual plan are met
within set deadlines and budgetary allocations.

Executive Management Compensation

The performance bonus of the Chief Executive Officer is recommended by the Remuneration and Nomination
Committee and approved by the Board. The performance bonus of senior management is recommended by the
Chief Executive Officer for review and endorsement by the Remuneration and Nomination Committee subject to
Board approval.

COMPLIANCE
The Bank has in place comprehensive policies and procedures to ensure full compliance with the relevant rules
and regulations of the respective regulators.

Due diligence is performed to ensure that the financial activities of the Bank’s customers are performed in
accordance with the guidelines issued by the regulatory authorities.

The Bank continuously endeavors to enhance the Compliance and Anti Money Laundering systems. The Bank has
recently automated the AML monitoring process through a well-known system.

The Bank adheres to the Financial Crimes Module of Central Bank of Bahrain’s rulebook. The module contains
Bahrain’s current anti-money laundering legislation, developed under the directives of the Financial Action Task
Force, which is the international organization responsible for developing global anti-money laundering policies .
The Bank complied with Foreign Account Tax Compliance Act (FATCA) and Common Reporting Standards (CRS)
requirements as mandated by the Central Bank of Bahrain (CBB).
52 Annual Report 2017 ASBB
Corporate Governance Report (continued)

REMUNERATION AND APPOINTMENT OF THE Existing employees must alert the Human Resources
EXTERNAL AUDITORS of any relatives or relationship of other employees or
During the Annual General Assembly Meeting held candidates being interviewed. Failure to do so and the
on 8 March 2017, the shareholders approved the employee will subject to disciplinary action pursuant
appointment of Ernst & Young as external auditors for to the Law No. 36 of 2012 Promulgation of the Labour
the year ending 31 December 2017 and authorized the Law in the Private Sector and the Bank’s Disciplinary
Board of Directors to determine their remuneration. Guidelines.

INTERNAL CONTROL COMMUNICATION POLICY

Internal control is an active process that is continually The Bank recognizes that active communication with
operating at all levels within the Bank. different stakeholders and the general public is an
integral part of good business and administration. In
The Bank has established an appropriate culture order to reach its overall goals for communication,
to facilitate an effective internal control process the Bank follows a set of guiding principles such as
and for monitoring its effectiveness on a periodic efficiency, transparency, clarity and cultural awareness.
basis. Every employee of the Bank participate in the
internal control process and contribute effectively by The Bank uses modern communication technologies
identifying risk at an earlier stage and implementing in a timely manner to convey messages to its target
mitigating controls at optimum cost. Residual risk is groups. The Bank shall reply without unnecessary
properly communicated to the senior management and delay, to information requests by the media and the
corrective actions are taken. public. The Bank strives in its communication to be
as transparent and open as possible while taking
into account bank confidentiality. This contributes to
KEY PERSONS POLICY
maintaining a high level of accountability. The Bank also
The Bank has established a Key Persons’ Policy
proactively develops contacts with its target groups and
to ensure that Key Persons are aware of the legal
identifies topics of possible mutual interest. The Bank
and administrative requirements regarding holding
reinforces clarity by adhering to a well-defined visual
and trading of the Bank’s shares, with the primary
identity in its external communications.
objective of preventing abuse of inside information. Key
Persons are defined to include the Directors, Executive The Bank’s formal communication material is provided
Management, designated employees and any person in both Arabic and English languages. The Bank
or firm connected to the identified Key Persons. The maintains a Legal Policy published on its website:
ownership of the Key Persons’ Policy is entrusted to the www.alsalambahrain.com that includes terms and
Board’s Audit Committee. conditions on the use of information published on the
site.
The latest Key Persons’ Policy is posted on the Bank’s
website. The annual reports and quarterly financial statements,
Board Charter and Corporate Governance report are
EMPLOYEE RELATIONS published on the Bank’s website. Shareholders have
Al Salam Bank-Bahrain is committed to promoting a easy access to various types of forms including proxies
diverse and inclusive environment, and encourages used for the Annual General Meeting. In addition,
understanding of the individuality and creativity that forms are also available online to file complaints or
each employee uniquely brings to the Bank. Employees make inquiries which are duly dealt with. The Bank
are hired and placed on the basis of ability and merit. regularly communicates with its staff through internal
Evaluation of employees is maintained on a fair and communications to provide updates of the Bank’s
consistent basis. various activities.

In line with the Bank’s policy of being on equal

opportunity firm and as part of Central Bank of
Bahrain’s Rulebook and Corporate Governance
requirements, the Bank shall not employ relatives of
employees up to the 4th degree.
 ASBB Annual Report 2017 53
Corporate Governance Report (continued)

Consumer / Investor Awareness Programmes and Tools

To fulfill its goals for external communications, promoting its products and communicating with its stakeholders,
ASBB employs a variety of communications tools. The most important of them are listed below:

Seminars, bilateral contacts, website, newsletter, media campaigns, corporate

Customers presentations, speeches, publications, brochures, leaflets, Radio and TV
advertising, SMS etc.

Publications, road shows (mostly bilateral contacts), Internet, media, investor

Investors
presentations, wire services, brochures, leaflets, advertising etc.

Regulatory &
Institutional contacts, seminars, visits, bilateral contacts, Internet, newsletter,
Governmental
media, publications (in particular the Annual Report), brochures, leaflets, etc.
Authorities

Media Communications Press releases, interviews, speeches, background seminars, etc.

General Public
Media, other key target groups as multipliers.
Communications

WHISTLE BLOWING POLICY

The Bank has a whistle blowing policy with designated officials of the Bank to whom the employee can approach.
The policy provides adequate protection to employees for any reports in good faith. Reports are escalated to the
Group Chief Executive Officer or an official delegated by him for appropriate action.

The Board’s Audit Committee oversees the implementation of this policy.

The directors have adopted the following code of conduct in respect of their behavior:

• To act with honesty, integrity and in good faith, with • Not to agree to the Bank incurring an obligation
due diligence and care, in the best interest of the unless he/she believes at the time, on reasonable
Bank and its stakeholders; grounds, that the Bank will be able to discharge the
• To act only within the scope of their responsibilities; obligations when it is required to do so;
• To have a proper understanding of the affairs of • Not to agree to the business of the Bank being
the Bank and to devote sufficient time to their carried out, or cause or allow the business to
responsibilities; be carried out, in a manner likely to create a
substantial risk of serious loss to the Bank’s
• To keep confidential Board discussions and
creditors;
deliberations;
• To treat fairly and with respect all of the Bank’s
• Not to make improper use of information gained
employees and customers with whom they interact;
through the position as a director;
• Not to enter into competition with the Bank;
• Not to take undue advantage of the position of
director; • Not to demand or accept substantial gifts from the
Bank for himself/herself or his/her associates;
• To ensure his/her personal financial affairs will
never cause reputational loss to the Bank; • Not to take advantage of business opportunities to
which the Bank is entitled for himself/ herself or
• To maintain sufficient/detailed knowledge of the
his/her associates;
Bank’s business and performance to make informed
decisions; • Report to the Board any potential conflict of interest,
and
• To be independent in judgment and actions and to
take all reasonable steps to be satisfied as to the • Absent themselves from any discussions or
soundness of all decisions of the Board; decision-making that involves a subject in which
they are incapable of providing objective advice or
which involves a subject of proposed conflict of
interest.
54 Annual Report 2017 ASBB
Corporate Governance Report (continued)

ORGANIZATIONAL STRUCTURE

SHAREHOLDERS

Fatwa and Shari’a

Supervisory Board

Board Of Directors

Executive Committee

Remuneration, Nomination
& Corporate Governance
Committee

Audit and Risk Committee

Group Chief Executive Officer

Board Secretary Internal Audit

Shari’a Compliance Compliance

Human Resources Risk

& Administration

Deputy Group CEO Banking First Deputy Group CEO Deputy Group CEO
Strategic Development

Private Banking Chief Operating Officer Treasury & Capital Markets

Corporate Banking Information Technology Strategic Acquisition &

Investment Management
Operations
Retail Banking Investments
Internal Control

Corporate Communications FIG & International Banking

Remedial & Collections

Finance

Legal

Credit Administration
 ASBB Annual Report 2017 55
Corporate Governance Report (continued)

CHANGES IN MANAGEMENT AND REPORTING LINES SUBSEQUENT TO YEAR END CHANGES IN BOARD OF
DURING 2017 DIRECTORS
Direct Reports to the Group CEO The Board of Directors’ completed their 3 years term
• Dr. Anwar Al Sada – First Deputy Group CEO from 2015 to 2017. The re-election of Board of Directors
was conducted in the AGM held on 22 March 2018. The
• Mukundan Raghavachari – Deputy Group CEO -
new Board of Directors for the upcoming term are as
Strategic Development
listed below:
• Anwar Murad – Deputy Group CEO - Banking • Mr. Khaleefa Butti Omair Al Muhairi
• Muna Al Balooshi – Group Head of Human ​Chairman - Non-executive
Resources and Administration • H.E. Shaikh Khalid bin Mustahail Al Mashani
• Seema Al Kooheji – Board Secretary (Indirect) Vice Chairman - Non-executive
• Mr. Matar Mohamed Al Blooshi
Direct Reports to First Deputy Group CEO Board Member - Non-executive
• Abdulkarim Turki – Chief Operating Officer • Mr. Hussain Mohammed Al Meeza
• Elias Murad – Group Head of Credit Administration Board Member - Independent
• Qassim Taqawi – Group Head of Legal • Mr. Salim Abdullah ​Al Awadi
• Khalid Jalili – Acting Head of Finance Board Member - Independent
• Mr. Alhur Mohammed Al Suwaidi
Direct Reports to Deputy Group CEO - Banking Board Member - Independent
• Ali Qassim – Head of Private Banking • Mr. Khalid Salem Al Halyan
Board Member - Independent
• Arif Janahi – Head of Corporate Banking
• Mr. Zayed Ali Al-Amin
• Mohammed Buhijji – Head of Retail Banking
Board Member - Independent

Direct Reports to Deputy Group CEO - Strategic • Mr. Salman Saleh Al Mahmeed
Development Board Member - Independent

• Ahmed Saif – Group Head of Strategic Acquisition & • Mr. Khalid Shehab Eddin Madi
Investment Management Board Member - Independent

• Talal Al Mulla – Chief Investments Officer

PENALTIES
• Hussain Abdulhaq – Head of Treasury & Capital
During 2017: An amount of BD 850 was paid as penalty
Markets
to the Central Bank of Bahrain (CBB) for failure to
• Sadiq Al Shaikh – Head of FIG & International
comply with CBB requirements relating to:
Banking
• Harish Venkatakrishnan – Head of Investment • One unclean account in BCRB systems (Credit
Administration Bureau)
• Two reports required by section BR-2.2.4 of the CBB
Rulebook which were filed late by one day.
56 Annual Report 2017 ASBB

Remuneration
Policy
CORE REMUNERATION POLICY
The fundamental principles underlying our remuneration policy which has been approved by the Board of Directors
and the shareholders of the bank are:

• The composition of salary, benefits and incentives • The remuneration package of employees in Control
is designed to align employee and shareholder and Support functions are designed in such a way
interests; that they can function independent of the business
units they support. Independence from the business
• Remuneration determination takes into account
for these employees is assured through:
both financial and non-financial factors over both
the short and longer-term; − Setting total remuneration to ensure that
variable pay is not significant enough to
• Emphasis is on performance evaluations that reflect encourage inappropriate behaviours while
individual performance, including adherence to the remaining competitive with the market;
Bank’s risk and compliance policies in determining
− Remuneration decisions are based on their
the total remuneration for a position;
respective functions and not the business units
• The Bank has set a fixed remuneration of the they support;
employees at such a level to reward the employees
− Performance measures and targets are aligned
for an agreed level of performance and the
to the Bank and individual objectives that are
variable pay or bonus will be awarded purely at the
specific to the function;
discretion of the Board’s Remuneration, Nomination
and Corporate Governance Committee (RNC) in − Respective function’s performance as opposed
recognition of the employees exceptional effort in to other business unit’s performance is a key
any given performance period; component for calculating individual incentive
payments.
• The Bank shall have a well-defined variable pay
scheme in place, to support the RNC, should • Both qualitative and quantitative measures will be
they decide to pay variable pay or bonus in any used to evaluate an individual’s performance across
performance period; the Bank.
The Bank reviews the salaries and benefits periodically,
• Variable pay will be determined based on
with an objective of being competitive in the market
achievement of targets at the Bank level, unit level
places, based on salary surveys and market
and individual level;
information gathered through secondary sources.
• Variable pay scheme is designed in a manner that
The Bank does not provide for any form of severance
supports sound risk and compliance management.
pay, other than as required by the Labour Law for the
In order to achieve that goal:
Private Sector (Law No.36 of 2012 of the Kingdom of
− Performance metrics for applicable business Bahrain), to its employees.
units are risk-adjusted where appropriate;
− Individual award determinations include This document has been prepared in accordance with CBB
consideration of adherence to compliance- remuneration disclosure requirements for Islamic Banks under
related goals. High Level Controls Module. These requirements are in addition
to the disclosures published in the Annual Report.
 ASBB Annual Report 2017 57
Remuneration Policy (continued)

REGULATORY ALIGNMENT
The Bank reviewed and revised the remuneration policy and especially its variable pay policy to meet the
requirements of the CBB Guidelines on remuneration with the help of external consultants. Key regulatory areas
and the Bank’s response are summarized below:

Regulatory
Bank’s practice
Area

The composition of RNC is as required by the CBB remuneration guidelines and is chaired by an
Independent Director. The RNC charter has been revised in line with the requirements of the CBB
guidelines and the Committee will be responsible for the design, implementation and supervision of the
Governance
remuneration policy. The aggregate fees / compensation paid to RNC members for 2017 amounted to
BD 30,000 (2016: BD 22,500). The Committee utilized the services of an external consultant to redesign
and implement the revised remuneration policy aligned to the CBB guidelines on remuneration.

The Bank has set the Fixed Remuneration of the employees at such a level to reward the employees for
an agreed level of performance and the variable pay or bonus is being paid purely at the discretion of the
RNC in recognition of the employees exceptional effort in any given performance period. Should the RNC
Risk focused decide to award Variable Pay, it will be determined based on risk adjusted targets set at the Business
remuneration unit level aggregated to the Bank level. The variable pay for the CEO, senior management in Business
policy units and the Material Risk takers would be higher as compared to the fixed pay subject to achieving
the risk adjusted targets both at the business unit and the bank level. For staff in Control and Support
functions, the pay mix is structured as more fixed and lesser variable. Further the variable pay, for staff
in Control and Support Functions, is based on their units target and individual performance and not
linked to bank’s performance.

The bonus or variable pay computation process is designed in such a way to ensure that it does not
Capital and impact the Capital and Liquidity as there are validation checks prior to approval of the RNC. The
Liquidity validation checks are the bonus pool as compared to the realized profit, impact on capital adequacy
computed as per Basle III guidelines and as compared to the total fixed pay.

The Bonus for the CEO, his deputies and Material Risk Takers and Approved Persons as per CBB and
those whose total remuneration exceeds the regulatory threshold has a deferral element and share -
linked payment. Phantom or Shadow shares are offered to such staff.

The deferral arrangements are as follows:

CEO, his deputies and top 5 Executive Management members(in terms of total remuneration) in
Business units:
• 40% of the variable pay will be paid in cash at the end of the performance period; and
Deferral and • The balance 60% will be deferred over a period of 3 years with 10% being cash deferral and 50%
share being phantom or shadow shares and the entire deferred variable pay will vest equally over a 3 –
linked year period.
instruments
For all other employees in Business units and Approved Persons in Control and Support Functions and
whose total remuneration exceeds the regulatory threshold:
• 50% of the variable pay will be paid in cash at the end of the performance period; and
• 10% in the form of phantom or shadow shares at the end of the performance period and the
phantom or shadow shares subject to a minimum share retention period of 6 months from the award
date.
• The balance 40% will be deferred over a period of 3 years and paid in the form of phantom or shadow
shares and vests equally over the 3 year period and the phantom or shadow shares subject to a
minimum share retention period of 6 months from the award date.

The Bank has introduced claw - back and malus clauses whereby the RNC has the right to invoke these
Claw back and
clauses under certain pre-defined circumstances where in the bank can claw-back the vested as well as
Malus
the unvested bonus paid or payable to a staff.
58 Annual Report 2017 ASBB
Remuneration Policy (continued)

REMUNERATION COMPONENTS
It is the Bank’s intent to have a transparent, structured and comprehensive remuneration policy that covers all
types of compensation and benefits provided to employees.

The remuneration policy provides a standardized framework for remuneration covering employees at all levels of
the Bank.

Remuneration offered by the Bank shall reflect the Bank’s objective of attracting and retaining the desired level of
talent from the banking sector.

Remuneration will be at a level, which will be commensurate with other Banks of similar activity in Bahrain, and
will allow for changes in the cost of living index. The compensation package shall comprise of basic salary and
benefits and discretionary variable pay. The following table summarizes the total remuneration:

Element of Pay Salary and Benefits

Rationale To attract and retain the desired level of talent.

Reviewed annually.

Benchmarked to the local market and the compensation package offered to employee is based on the
Summary job content and complexity.

The Bank offers a composite fixed pay i.e. it is not split as Basic and Allowances but is paid as one
lump sum. The benefits are aligned to the local market practice.
 ASBB Annual Report 2017 59
Remuneration Policy (continued)

Element of Pay Variable Pay/Bonus

To incentivize the achievement of annual targets set at the bank level and at the Business unit levels
and thereby also make sure that senior management get substantial portion as variable pay which is
Rationale linked to performance.

The Variable pay is deferred to ensure that the management’s interests are aligned to the
shareholder value and to align time horizon of risk.

The Bonus pool is determined based on the bottom up approach i.e. by setting base multiples of
monthly salary per level and aggregating the multiples per unit and then on to the bank level.

The basis of payment of bonus would be as follows:

CEO and Senior Management Base multiple * Bank score * Individual score

Business units Base multiple * Bank score * Unit score * Individual score

Control & Support units Base multiple * Unit score * Individual score

Computation of Variable Pay - Business Units

Beginning of the financial year:

Targets are set for the Business units and are aggregated to the Bank level target. In setting targets
certain bank wide risk parameters which include capital, liquidity, profit and qualitative measure
such as reputation risk and the bank and unit specific KPIs shall be considered. For achieving this
target, total Bonus pool is set based on monthly multiples of salary across the bank. The Key feature
is that bonus is self-funding and the different levels of targets are not just % increase in profits but
profits adjusted for additional bonus. This Bonus Pool is subject to additional checks for its impact on
the capital adequacy, as a proportion of net profit and realized profit and as a proportion of the total
fixed pay in any given financial year.

At the end of the financial year:

The actual results are evaluated against targets, considering the risk parameters matrix and
adjustments if any to the unit score or the banks score as appropriate are made and the bonus pool is
Summary revised accordingly.
The actual bonus pool is approved by the RNC and the individual Bonus payments are as per the
scoring matrix.

Computation of Variable Pay – Control and Support Units

The Unit targets as set out and agreed with the RNC in the beginning of each evaluation period will be
the base for Variable pay to be paid. Except in the case of bank making a loss, the variable pay for the
staff in the Control and Support unit, would be payable based on the Unit targets and the individual
performance.
Base Multiples are set for each employee level in each Control and Support unit. The achievement of
unit target is assigned a weight of 1 and scored based on the level of actual results achieved.
The individual performance score is based on the individual rating and the score is set to vary
between 0 up to a maximum of 1.
The Summary of the Variable pay process is:
Links reward to bank, business unit and individual performance.
Target setting process considers risk parameters which are both quantitative and qualitative such as
reputation.
Aligned to time horizon of risk the bonus has a deferral element and a share linkage to align the
employee’s interest with that of the shareholders.
Bonus can be lesser or nil if the bank or business units do not achieve the risk adjusted targets
or make losses. Post risk assessment is carried out to ensure that in case of material losses or
realization of less than expected income which can be attributed to employee’s actions the claw back
or malus as appropriate is invoked.
60 Annual Report 2017 ASBB
Remuneration Policy (continued)

DETAILS OF REMUNERATION

(a) Board of Directors

Amounts in BD 2017 2016

Attendance fee and travel expenses 294,715 255,178

Remuneration paid 415,000 389,000

ASBB subsidiaries’ Board remuneration, attendance fees

13,195 6,409
and expenses

(b) Employees

31 December 2017 Amounts in BD thousands

Variable Upfront Variable deferred
No. of Non- Non-
Fixed Cash Cash Total
staff cash cash
Approved person business line 11 1,858 520 - 110 550 3,038
Approved person control & support 11 752 165 10 - 41 968
Other material risk takers 8 384 101 4 - 15 504
Other employess - Bahrain operations 293 5,858 1,243 - - - 7,101
Other employees - overseas 23 150 9 - - - 159

346 9,002 2,038 14 110 606 11,770

31 December 2016 Amounts in BD thousands

Variable Upfront Variable deferred
No. of Non- Non-
Fixed Cash Cash Total
staff cash cash
Approved person business line 10 1,529 453 - 98 488 2,568
Approved person control & support 13 753 181 15 - 58 1,007
Other material risk takers 11 429 114 3 - 14 560
Other employess - Bahrain operations 297 6,545 866 - - - 7,411
Other employees - overseas 2 78 12 - - - 90

333 9,334 1,626 18 98 560 11,636

Fixed remuneration includes all compensation and benefits that are due to employees based on contractual
arrangements . There were no sign-on awards made during the year.

Severance payments amounted to BD 402,000 and the highest severance payment during the year amounted to
BD 51,000. During the year there were eighteen severance payments.

Included in the above, remuneration received by approved person and material risk takers from SPVs / project
companies managed by the Bank amounted to BD 31,000 (2016: BD 45,000).
 ASBB Annual Report 2017 61
Remuneration Policy (continued)

Deferred Performance Bonus Awards

No. of Shares
31 December 2017 Cash shares value Others Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000
Awards
Balance as of 1 January 2017 203 8,632,133 1,297 - 1,500
Awarded during the year - 2017 110 4,369,092 620 - 730
Exercised / sold / paid during the year (41) (2,001,440) (298) - (176)
Risk Adjustment - - - - -

Balance as of 31 December 2017 272 10,999,785 1,619 - 2,054

No. of Shares
31 December 2016 Cash shares value Others Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000

Awards
Balance as of 1 January 2016 124 - - - 124
Awarded during the year - 2016 98 9,161,664 1,376 - 1,474
Exercised / sold / paid during the year (19) (529,530) (79) - (98)
Risk Adjustment - - - - -

Balance as of 31 December 2016 203 8,632,133 1,297 - 1,500

62 Annual Report 2017 ASBB

Risk Management
& Compliance
At Al Salam Bank-Bahrain, our success is largely The effectiveness of the risk management framework is
dependent on how efficiently we identify, measure, independently assessed and reviewed through internal
control and manage risks. Hence, we view risk audits, external audits and Central Bank of Bahrain
management as a core competency from a strategic supervision. In addition, business and support groups
point of view and the Basel Accord as a catalyst to carry out periodic risk control self-assessments.
the successful implementation of the pillars of risk
As a result, the risk management framework creates
management in line with industry best practice.
an alignment between business and risk management
The fundamental principle underlying our risk objectives.
management framework is ensuring that accepted
risks are within the Board approved risk appetite and CAPITAL MANAGEMENT
the returns are commensurate with the risks taken. The cornerstone of risk management framework is
The objective is creating shareholder value through the optimization of risk-reward relationship against
protecting the Group against unforeseen losses, the capital available through a focused and well
ensuring maximization of earnings potential and monitored capital management process involving risk
opportunities vis-à-vis the Group’s risk appetite and management, finance and business groups.
ensuring earnings stability.
Corporate Governance
With this in mind, the Bank has focused its efforts on
The risk management framework is supported by an
establishing effective and practical risk management
efficient Corporate Governance Framework discussed
and compliance frameworks taking into consideration
on pages 42 to 55.
local and international best practices, the requirements
of the Central Bank of Bahrain and the Basel Accord.
Risk Ownership

Risk Management Framework The implementation of the risk management

framework Group-wide is the responsibility of the Risk
The risk management framework defines the risk
Management Department under the supervision of the
culture of Al Salam Bank–Bahrain and sets the tone
Group Chief Executive Officer and Board Audit and Risk
throughout the Group to practice the right risk behavior
Committee. Ownership of the various risks across the
consistently to ensure that there is always a balance
Group lies with the business and support heads, being
between business profits and risk appetite.
the first line of defense, and it is their responsibility
The risk management framework achieves this through to ensure that these risks are managed in accordance
the definition of the Group’s key risk management with the risk management framework.
principles covering credit, market, operational,
Risk Management assists business and support
information security, strategic and reputation risks.
heads in identifying concerns and risks, identifying
Moreover, the framework further covers the roles and
risk owners, evaluating risks as to likelihood and
responsibilities of the Board, risk management group
consequences, assessing options for mitigating the
and senior management towards risk management.
risks, prioritizing risk management efforts, developing
The individual components of the framework capture
risk management plans, authorizing implementation of
the risk assessment methodology adopted, risk
risk management plans and tracking risk management
limits, the risk management information systems and
efforts.
reports, as well as the Group’s approach to capital
management.
 ASBB Annual Report 2017 63
Risk Management & Compliance (continued)

Risk Management & Corporate Governance Frameworks

Board Committees
Fatwa and Shari’a Supervisory Board

Senior Management Committees

Risk Management & Compliance Functions

Board & Senior Comprehensive Comliance &

Management Internal Control Anti-Money
Oversight Framework Laundering

Risk Assessment Methodology

Risk Policies, Procedures Risk Management Capital

& Limits Systems Management

Internal Audit, External Audit, Central Bank of Bahrain

Compliance & Anti-Money Laundering Department The compliance program also ensures that all
The Bank has established an independent and applicable Central Bank of Bahrain regulations are
dedicated unit to coordinate the implementation of complied with and/ or non-compliance is detected and
compliance and Anti-Money Laundering and Anti- addressed in a timely manner. The program includes
Terrorist Financing program. The program covers compliance with regulations set by Ministry of Industry
policies and procedures for managing compliance & Commerce and Bahrain Bourse.
with regulations, anti-money laundering, disclosure
The Bank has formulated appropriate policies and
standards on material and sensitive information and
implemented the requirements of Foreign Account
insider trading. In line with its commitment to combat
Tax Compliance Act (FATCA) and Common Reporting
money laundering and terrorist financing, Al Salam
Standards (CRS) as required by the regulators. The
Bank- Bahrain through its Anti-Money Laundering
due diligence and reporting requirements have been
policies ensures that adequate preventive and detective
complied with.
internal controls and systems operate effectively. The
policies govern the guidelines and procedures for
client acceptance, maintenance and monitoring in line
with the Central Bank of Bahrain and International
standards such as FATF recommendations and Basel
Committee papers.

All inward and outward electronic transfers are

screened against identified sanction lists issued by
certain regulatory bodies including the UN Security
Council Sanctions Committees and US Department of
the Treasury - OFAC, in addition to those designated by
the Central Bank of Bahrain.
64 Annual Report 2017 ASBB

Corporate Social
Responsibility
The Bank is committed to fulfilling its obligations as a good corporate citizen in the communities in which it
operates. We endeavor to support the Bahrain Government in its efforts to enhance the quality of life of the people
of the Kingdom of Bahrain.

Al Salam Bank-Bahrain underscore this commitment to our community by supporting initiatives that add value
to the Island’s housing, education and health infrastructure, as well as encouraging future economic growth and
prosperity through supporting entrepreneurship and the development of our youth.

During the year, charitable donations were made to medical facilities and other charities that care for the less
fortunate and supported cultural initiatives in order to preserve the traditions of the Kingdom for generations.
ASBB Annual Report 2017 65
66 Annual Report 2017 ASBB

Fatwa and Shari’a Supervisory

Board Report to the
Shareholders
In the name of Allah, the Beneficent, the Merciful
All Praise is due to Allah, Prayers and Peace upon the Last Apostle and Messenger, Our Prophet Muhammad

The Shari’a Fatwa and Supervisory Board (“the Board”) has reviewed the Bank’s transactions during the year, as
well as the Consolidated Statement of Financial Position and Consolidated Income Statement for the year ended 31
December 2017. The Board Position and Consolidated Income Statement submitted its annual report as follows:

Firstly:
1. The Board has supervised the Banks’ activities and transactions during the year, and carried out its role
by advising the various departments to adhere to the Shari’a principles and the Board’s legal opinions in
respect to those activities and transactions. The Board held, for this purpose, several meetings with the
Banks’ management. The Board hereby confirms the Bank’s management keenness to adhere to the Shari’a
principles and the Board’s legal opinions.

2. The Board has studied the transactions presented to it during the year, and approved the contracts and
documents relating to those transactions. The Board responded to questions and queries and issued
appropriate decisions and legal opinions relevant to the transactions. The decisions and legal opinions were
circulated to the pertinent departments for execution.

Secondly:
The Board reviewed what it requested of documents and files, and received the data which helped it to perform the
supervisory and audit work.

Thirdly:
The Board has reviewed samples of contracts and agreements that were presented and requested the
Management to adhere to them.

Fourthly: Balance Sheet

The Board has reviewed the Consolidated Statement of Financial Position and appended data and notes and made
its observations on them.

1. In line with the available information and disclosures that are presented by the Banks’ management, the
consolidated statement of financial position reviewed by the Board are in compliant with Islamic Shari’a
principles and Shari’a Board resolutions. The accuracy of the information and data provided represents the
Banks’ assets, liabilities, equity of investment account holders, and owner’s equity are the responsibility of the
Banks’ management.

2. The Board believes that the consolidated financial statements for the year ended 31 December 2017 along with
the distribution of profit to depositors and dividends to shareholders had been prepared in conformity with the
Islamic Shari’a regulations.
 ASBB Annual Report 2017 67
Fatwa and Shari’a Supervisory Board Report to the Shareholders (continued)

Fifthly: Zakah
Since the Articles of Association of the Bank does not require the Bank to pay Zakah on behalf of the Shareholders,
thus, the Board has calculated the Zakah due on the shareholders in order to inform them, and which is disclosed
in the notes to the consolidated financial statements.

Sixthly: Prohibited Income

According to the Board’s decision that the prohibited income after the date of complete conversion for non Shari’a-
compliant transactions which occurred on 1st January 2016, the transactions that are not converted after this date
due to court cases or for any other reason are disclosed in the notes to the consolidated financial statements with
the bank’s commitment to channel the prohibited income to Charity.

Seventhly:
The Shari’a Board decided to ward off the Shari’a non-compliant income from the transactions executed during the
year and have it spent on Charity.

Eightly:
The Board hereby emphasizes that management has the primary responsibility to comply with the Rules
and Principles of Shari’a in all activities and transactions of the Bank. The Board confirms that the executed
transactions that are submitted by management of the Bank for the Board’s review during the year were generally
in compliance with Rules and Principles of Shari’a. The management has shown utmost interest and willingness to
fully comply with the recommendations of the Board.

Fatwa & Shari’a Supervisory Board Members

Dr. Hussein Hamed Hassan

Chairman

Dr. Fareed Almeftah Shaikh Adnan Al Qattan

Board Member Board Member

Dr. Mohammed Zoeir Dr. Mohammed Arbouna

Board Member Board Member & Secretary to the Board
68 Annual Report 2017 ASBB

Independent Auditors’ Report to the Shareholders

Ernst & Young Tel: +973 1753 5455

P.O. Box 140 Fax: +973 1753 5405
14th Floor, South Tower manama@bh.ey.com
Bahrain World Trade Centre ey.com/mena
Manama C.R. No. 6700
Kingdom of Bahrain

Report On The Consolidated Financial Statements Other Matters

We have audited the accompanying consolidated As required by the Bahrain Commercial Companies
statement of financial position of Al Salam Bank- Law and the Central Bank of Bahrain (CBB) Rule Book
Bahrain B.S.C. [“the Bank”] and its subsidiaries (Volume 2), we report that:
[together “the Group”] as of 31 December 2017, and the
a. the Bank has maintained proper accounting records
related consolidated statements of income, cash flows
and the consolidated financial statements are in
and changes in equity for the year then ended. These
agreement therewith; and
consolidated financial statements and the Group’s
undertaking to operate in accordance with Islamic b. the financial information contained in the report
Shari’a Rules and Principles are the responsibility of of the Board of Directors is consistent with the
the Bank’s Board of Directors. Our responsibility is consolidated financial statements.
to express an opinion on these consolidated financial
statements based on our audit. We are not aware of any violations of the Bahrain
We conducted our audit in accordance with Auditing Commercial Companies Law, the Central Bank of
Standards for Islamic Financial Institutions issued by Bahrain and Financial Institutions Law, the CBB Rule
the Accounting and Auditing Organisation for Islamic Book (Volume 2 and applicable provisions of Volume
Financial Institutions [“AAOIFI”]. Those standards 6) and CBB directives, regulations and associated
require that we plan and perform the audit to obtain resolutions, rules and procedures of the Bahrain
reasonable assurance about whether the consolidated Bourse or the terms of the Bank’s memorandum
financial statements are free of material misstatement. and articles of association during the year ended
An audit includes examining, on a test basis, evidence 31 December 2017 that might have had a material
supporting the amounts and disclosures in the adverse effect on the business of the Bank or on
consolidated financial statements. An audit also its consolidated financial position. Satisfactory
includes assessing the accounting principles used explanations and information have been provided to
and significant estimates made by the Bank’s Board of us by management in response to all our requests.
Directors, as well as evaluating the overall consolidated The Bank has also complied with the Islamic Shari’a
financial statements presentation. We believe that our Rules and Principles as determined by the Shari’a
audit provides a reasonable basis for our opinion. Supervisory Board of the Bank.

Opinion
In our opinion, the consolidated financial statements
present fairly, in all material respects, the consolidated
financial position of the Group as of 31 December 2017,
the results of its operations, its cash flows and changes Partner’s Registration No. 115
in equity for the year then ended in accordance with the 13 February 2018
Financial Accounting Standards issued by AAOIFI. Manama, Kingdom of Bahrain
 ASBB Annual Report 2017 69

Financial
Statements
70 Annual Report 2017 ASBB

Consolidated Statement of Financial Position

31 December 2017

2017 2016
Note BD’000 BD’000

ASSETS
Cash and balances with banks and Central Bank 4 66,351 131,990
Sovereign Sukuk 357,778 358,269
Murabaha and Wakala receivables from banks 5 143,803 182,452
Corporate Sukuk 6 10,324 28,934
Murabaha financing 7 197,380 213,687
Mudaraba financing 8 308,093 252,807
Ijarah Muntahia Bittamleek 9 212,148 188,485
Musharaka 19,192 12,304
Assets under conversion 11 2,771 37,016
Non-trading investments 12 111,325 122,073
Investments in real estate 13 52,431 51,863
Development properties 14 6,448 17,781
Investment in associates 15 16,835 10,561
Other assets 16 58,410 27,260
Goodwill 17 25,971 25,971
Assets classified as held-for-sale - 19,840
TOTAL ASSETS 1,589,260 1,681,293

LIABILITIES, EQUITY OF INVESTMENT ACCOUNTHOLDERS AND EQUITY

LIABILITIES
Murabaha and Wakala payables to banks 154,641 132,032
Murabaha and Wakala payables to non-banks 597,848 723,439
Current Accounts 283,886 279,609
Liabilities under conversion 11 2,729 217
Murabaha term financing 18 79,786 91,837
Other liabilities 19 47,652 49,043
Liabilities relating to assets classified as held-for-sale - 11,421
TOTAL LIABILITIES 1,166,542 1,287,598

EQUITY OF INVESTMENT ACCOUNTHOLDERS 20 118,881 68,796

EQUITY
Share capital 21 214,093 214,093
Treasury stock 21 (1,879) (1,646)
Reserves and retained earnings 76,029 100,213
Proposed appropriations 14,987 10,705
Total equity attributable to shareholders of the Bank 303,230 323,365
Non-controlling interest 607 1,534
TOTAL EQUITY 303,837 324,899

TOTAL LIABILITIES, EQUITY OF INVESTMENT ACCOUNTHOLDERS AND EQUITY 1,589,260 1,681,293

Shaikha Hessa bint Khalifa Al Khalifa Yousif Taqi

Chairperson of the Board Director & Group CEO

The attached notes 1 to 44 form part of these consolidated financial statements.

 ASBB Annual Report 2017 71

Consolidated Statement of Income

Year ended 31 December 2017

2017 2016
Note BD’000 BD’000

OPERATING INCOME
Income from financing contracts 24 43,688 38,850
Income from Sukuk 16,724 15,930
Gain on sale of investments and Sukuk - net 25 6,506 15,153
Income from investments 26 1,745 1,819
Fair value changes on investments (941) 2,477
Dividend income 669 891
Foreign exchange gain 1,177 2,146
Fees, commission and other income - net 27 12,459 7,929
82,027 85,195
Profit on Murabaha and Wakala payables to banks (1,831) (1,910)
Profit on Wakala payables to non-banks (15,476) (18,046)
Profit on Murabaha term financing (2,411) (2,120)
Return on equity of investment accountholders before
Group’s share as a Mudarib 20 (230) (216)
Group’s share as a Mudarib 20 111 97
(119) (119)
Total operating income 62,190 63,000

OPERATING EXPENSES
Staff cost 11,528 11,523
Premises and equipment cost 1,675 2,021
Depreciation 1,509 3,060
Other operating expenses 9,553 9,454
Total operating expenses 24,265 26,058

PROFIT BEFORE PROVISIONS AND RESULTS OF ASSOCIATES 37,925 36,942

Net allowance for credit losses / impairment 10 (20,656) (21,573)
Share of profit from associates 15 786 727
NET PROFIT FOR THE YEAR 18,055 16,096

ATTRIBUTABLE TO:
- Shareholders of the Bank 18,099 16,219
- Non-controlling interest (44) (123)
18,055 16,096

Weighted average number of shares (in ‘000) 2,125,147 2,140,820

Basic and diluted earnings per share (fils) 23 8.5 7.6

Shaikha Hessa bint Khalifa Al Khalifa Yousif Taqi

Chairperson of the Board Director & Group CEO

The attached notes 1 to 44 form part of these consolidated financial statements.

72 Annual Report 2017 ASBB

Consolidated Statement of Cash Flows

Year ended 31 December 2017

2017 2016
Note BD’000 BD’000

OPERATING ACTIVITIES
Net profit for the year 18,055 16,096
Adjustments:
Depreciation 1,509 3,060
Amortisation of premium on Sukuk - net 1,179 1,630
Fair value changes on investments 941 (2,441)
Gain on sale of investments and Sukuk - net (6,506) -
Net allowance for credit losses / impairment 20,656 21,573
Share of profit from associates (786) (727)
Operating income before changes in operating assets and liabilities 35,048 39,191

Changes in operating assets and liabilities:

Mandatory reserve with Central Bank (2,710) 2,727
Murabaha financing 1,873 3,756
Mudaraba financing (76,699) (4,774)
Ijarah Muntahia Bitteamleek (26,535) (32,893)
Musharaka (7,087) (5,150)
Assets under conversion 10,575 (3,620)
Other assets (15,121) 16,665
Assets and liabilities classified as held-for-sale - (8,419)
Murabaha and Wakala payables to banks 22,609 11,237
Wakala from non-banks (125,591) (119,131)
Current accounts 4,277 46,062
Liabilities under conversion 2,512 (2,110)
Other liabilities (1,769) 248
Net cash used in operating activities (178,618) (56,211)

INVESTING ACTIVITIES
Net cash flow arising on acquisition of a subsidiary - 8,723
Cash paid on acquisition of a subsidiary - (726)
Sovereign Sukuk (638) (8,994)
Corporate Sukuk 18,557 21,107
Non-trading investments 14,857 807
Investments in real estate - 16,904
Development properties 11,333 31,240
Investments in associates (6,240) -
Purchase of premises and equipment (699) (1,664)
Net movements in non-controlling interest - 120
Sales of subsidiaries 7,275 -
Net cash from investing activities 44,445 67,517

FINANCING ACTIVITIES
Murabaha term financing 30,200 56,390
Equity of investment accountholders 50,085 6,445
Dividends paid (10,626) (10,705)
Purchase of treasury stock (233) (1,646)
Murabaha term financing paid (42,251) (539)
Net cash from financing activities 27,175 49,945

NET CHANGE IN CASH AND CASH EQUIVALENTS (106,998) 61,251

Cash and cash equivalents at 1 January 284,928 223,677
CASH AND CASH EQUIVALENTS AT 31 DECEMBER 177,930 284,928

Cash and cash equivalents comprise of:

Cash and other balances with Central Bank of Bahrain 4 8,509 72,356
Balances with other banks 4 25,618 30,120
Murabaha and Wakala receivables from banks with original maturities of less than 90 days 143,803 182,452
177,930 284,928

The attached notes 1 to 44 form part of these consolidated financial statements.

 Attributable to shareholders of the Bank Amounts in BD ‘000s
Reserves

Real Foreign
Changes estate exchange Share Total Non- Group
Share Treasury Statutory Retained in fair fair value translation premium Total Proposed owners’ controlling total
Capital stock reserve earnings value reserve reserve reserve reserves appropriations equity interest equity

Balance as of 1 January 2017 214,093 (1,646) 15,338 50,695 445 24,234 (2,708) 12,209 100,213 10,705 323,365 1,534 324,899
Transition adjustment on
adoption of FAS 30 as of 1 January
2017 (Note. 2.3.1) - - - (26,759) - - - - (26,759) - (26,759) (12) (26,771)

Restated balance as of 1 January 214,093 (1,646) 15,338 23,936 445 24,234 (2,708) 12,209 73,454 10,705 296,606 1,522 298,128
2017
Net profit for the year - - - 18,099 - - - - 18,099 - 18,099 (44) 18,055
Net changes in fair value - - - - (246) 568 - - 322 - 322 - 322
Year Ended 31 December 2017

Foreign currency re-translation - - - - - - (211) - (211) - (211) - (211)

Dividend paid - - - 79 - - - - 79 (10,705) (10,626) (12) (10,638)
Disposal of subsidiaries - - - - - (727) - - (727) - (727) (871) (1,598)
Proposed dividend for the
year 2017 - - - (14,987) - - - - (14,987) 14,987 - - -

Purchase of treasury stock - (233) - - - - - - - - (233) - (233)

Movements in non-controlling
interest - - - - - - - - - - - 12 12

Transfer to statutory reserve - - 1,810 (1,810) - - - - - - - - -

Balance at 31 December 2017 214,093 (1,879) 17,148 25,317 199 24,075 (2,919) 12,209 76,029 14,987 303,230 607 303,837

Balance as of 1 January 2016 214,093 - 13,716 46,803 (148) 24,253 (2,693) 12,209 94,140 10,705 318,938 1,064 320,002
Net profit for the year - - - 16,219 - - - - 16,219 - 16,219 (123) 16,096
Net changes in fair value - - - - 593 (19) - - 574 - 574 - 574
Foreign currency re-translation - - - - - - (15) - (15) - (15) 11 (4)
Dividend paid - - - - - - - - - (10,705) (10,705) - (10,705)
Proposed dividend the year 2016 - - - (10,705) - - - - (10,705) 10,705 - - -
Consolidated Statement of Changes in Equity

Purchase of treasury stock - (1,646) - - - - - - - - (1,646) - (1,646)

Movements in non-controlling - - - - - - - - - - - 582 582
interest due to ASBS acquisition
ASBB Annual Report 2017

Transfer to statutory reserve - - 1,622 (1,622) - - - - - - - - -

Balance at 31 December 2016 214,093 (1,646) 15,338 50,695 445 24,234 (2,708) 12,209 100,213 10,705 323,365 1,534 324,899
73

The attached notes 1 to 44 form part of these consolidated financial statements.

74 Annual Report 2017 ASBB

Notes to the Consolidated Financial Statements

31 December 2017

1 INCORPORATION AND PRINCIPAL ACTIVITIES

Al Salam Bank-Bahrain B.S.C. (“the Bank”) was incorporated in the Kingdom of Bahrain under the Bahrain
Commercial Companies Law No. 21/2001 and is registered with Ministry of Industry, Commerce and Tourism
(“MOICT”) under Commercial Registration Number 59308 on 19 January 2006. The Bank is regulated and
supervised by the Central Bank of Bahrain (“the CBB”) and has an Islamic retail banking license and operates
under Islamic principles in accordance with all the relevant regulatory guidelines for Islamic banks issued by
the CBB. The Bank’s registered office is P.O. Box 18282, Bahrain World Trade Center, East Tower, King Faisal
Highway, Manama 316, Kingdom of Bahrain.

On 30 March 2014, the Bank acquired 100% stake in BMI Bank B.S.C.(c) (“BMI”), a closed shareholding company
in the Kingdom of Bahrain, through exchange of shares. During January 2015, the Shari’a Supervisory Board
approved BMI Bank to be an Islamic bank effective 1 January 2015.

On 29 November 2016, the shareholders of BMI resolved to approve the transfer of the operations of BMI to the
Bank. The transfer of business was approved by the CBB on 17 April 2017 which was subsequently published in
the official gazette dated 20 April 2017. The Bank has transferred majority of the BMI’s rights and assumed all
of it’s obligations at their respective carrying values.

During 2016, the Bank acquired 70% stake in Al Salam Bank Seychelles Limited (“ASBS”).

The Bank and its principal subsidiary operates through 10 branches in the Kingdom of Bahrain and Seychelles
and offer a full range of Shari’a-compliant banking services and products. The activities of the Bank includes
managing profit sharing investment accounts, offering Islamic financing contracts, dealing in Shari’a-compliant
financial contracts as principal / agent, managing Shari’a-compliant financial contracts and other activities
permitted for under the CBB’s Regulated Islamic Banking Services as defined in the licensing framework. The
Bank’s ordinary shares are listed in Bahrain Bourse and Dubai Financial Market.

In addition to ASBS, the other subsidiaries of the Bank are as follows:

% holding
Name of entity Nature of entity
2017 2016
Al Salam Leasing Two Ltd (“ASL II”) Aircraft under lease - 76
Auslog Holding Trust Investment in real estate - 90

The Bank together with its subsidiaries is referred to as “the Group”.

These consolidated financial statements have been authorised for issue in accordance with a resolution of the
Board of Directors dated 13 February 2018.
 ASBB Annual Report 2017 75
Notes To The Consolidated Financial Statements (continued)

2 ACCOUNTING POLICIES
2.1 BASIS OF PREPARATION
The consolidated financial statements are prepared on a historical cost basis, except for investments held at
fair value through profit or loss, fair value through equity and investments in real estates which are held at fair
value. These consolidated financial statements incorporate all assets, liabilities and off-balance sheet financial
contracts held by the Group.

These consolidated financial statements are presented in Bahraini Dinars, being the functional and presentation
currency of the Group, rounded to the nearest thousand [BD ‘000], except where otherwise indicated.

2.1.a Statement of compliance

The consolidated financial statements of the Group are prepared in accordance with the Financial Accounting
Standards (FAS) issued by the Accounting and Auditing Organisation for Islamic Financial Institutions (“AAOIFI”),
the Islamic Sharia’ rules and Principles as determined by the Sharia’ Supervisory Board of the Group and in
conformity with the Bahrain Commercial Companies Law, the guidelines of CBB and Financial Institutions Law.
The matters for which no AAOIFI standards exist, the Group uses the relevant applicable International Financial
Reporting Standards (“IFRS”) as issued by International Accounting Standard Board (“IASB”).

The Group presents its consolidated statement of financial position broadly in order of liquidity. An analysis
regarding recovery or settlement within twelve months after the consolidated statement of financial position
date (current) and more than twelve months after the consolidated statement of financial position date (non-
current) is presented in Note 34.

2.1.b Basis of consolidation

The consolidated financial statements comprise the financial statements of the Bank and its subsidiaries as at
31 December 2017. The financial statements of the subsidiaries are prepared for the same reporting year using
consistent accounting policies of the Bank. All intra-group balances, transactions, income and expenses and
unrealised gains and losses resulting from intra-group transactions are eliminated in full.

Subsidiaries are fully consolidated from the date on which control is transferred to the Group and continue
to be consolidated until the date when such control ceases. Control is achieved where the Group has the
power to govern the financial and operating policies of an entity with the objective of obtaining benefits from
its operations. The results of subsidiaries acquired or disposed off during the year, if any, are included in the
consolidated income statement from the date of acquisition or up to the date of disposal, as appropriate.

Share of minority stakeholders’ interest (non-controlling interest) represents the portion of profit or loss and
net assets not held by the Group and are presented separately in the consolidated income statement and within
equity in the consolidated statement of financial position, separately from the equity attributable to shareholders
of the Bank.

2.2 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES

The preparation of the consolidated financial statements requires management to make judgments and
estimates that affect the reported amount of financial assets and liabilities and disclosure of contingent
liabilities. These judgments and estimates also affect the revenues and expenses and the resultant allowance
for losses as well as fair value changes reported in equity.
76 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.2 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (continued)

Estimation uncertainty
The key assumptions concerning the future and other key sources of estimating uncertainty at the date of the
consolidated statement of financial position, that have a significant risk of causing a material adjustment to the
carrying amounts of assets and liabilities within the next financial year are discussed below:

Impairment of goodwill
Impairment exists when carrying value of an asset or cash generating unit (CGU) exceeds its recoverable
amount, which is the higher of its fair value less costs of disposal and its value in use.

The recoverable amount of each cash-generating unit’s goodwill is based on value-in-use calculations using
cash flow projections from financial budgets approved by the Board of Directors, extrapolated for five years
projection using nominal projected growth rate. The determination of projected growth rate and discount rate
involves judgment whereas, preparation of cash flow projections requires various management assumptions.

The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any
differences between loss estimates based on the actual loss experience.

Impairment of fair value through equity investments

The Group treats fair value through equity investments as impaired when there has been a significant or
prolonged decline in the fair value below its cost or where other objective evidence of impairment exists. The
determination of significant or prolonged decline and other objective evidence involves judgment. In addition,
the Group evaluates other factors, including normal volatility in share price for quoted equities, the future cash
flows and the present value calculation factors for unquoted equities.

Valuation of unquoted private equity and real estate investments

Valuation of above investments involve judgment and is normally based on one of the following:
• valuation by independent external valuers;
• recent arm’s length market transactions;
• current fair value of another contract that is substantially similar;
• present value of expected cash flows at current rates applicable for items with similar terms and risk
characteristics; or
• application of other valuation models.
The Group calibrates the valuation techniques periodically and tests these for validity using either prices from
observable current market transactions in the same contract or other available observable market data.

Judgments
Going concern
The management has made an assessment of the Group’s ability to continue on a going concern and is
satisfied that the Group has the resources to continue in business for the foreseeable future. Furthermore, the
management is not aware of any material uncertainties that may cast significant doubt upon the Group’s ability
to continue as a going concern. Therefore, the consolidated financial statements continue to be prepared on the
going concern basis.

Control over special purpose entities

The Group sponsors the formation of special purpose entities (SPEs) primarily for the purpose of allowing
clients to hold investments. The Group does not consolidate SPEs that it does not have the power to control.
In determining whether the Group has the power to control an SPE, judgments are made about the objectives
of the SPEs activities, and Group’s exposures to the risk and rewards, as well as its ability to make operational
decisions of the SPEs.
 ASBB Annual Report 2017 77
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.2 SIGNIFICANT ACCOUNTING JUDGMENTS AND ESTIMATES (continued)

Classification of investments
Management decides upon acquisition of an investment whether it should be classified as fair value through
profit or loss or fair value through equity.

Impairment assessment of financial contracts - policy applicable from 1 January 2017

In determining impairment on receivables, judgment is required in the estimation of the amount and timing
of future cash flows as well as an assessment of whether credit risk on the financial contract has increased
significantly since initial recognition and incorporation of forward-looking information in the measurement of
expected credit losses (“ECL”). Refer to note 2.3.2 (b) for further details.

2.3 SIGNIFICANT ACCOUNTING POLICIES

2.3.1 Early adoption of FAS 30 - Impairment, Credit Losses and Onerous Commitments (“FAS 30”)
The Group has early adopted FAS 30, effective from 1 January 2017 which has a mandatory date of initial
application of 1 January 2020. The requirements of FAS 30 represent a significant change from FAS 11
“Provisions and Reserves”.

As permitted by FAS 30, the standard has been applied retrospectively and the comparative amounts have
not been restated. The impact of the early adoption of FAS 30 has been recognised in retained earnings in the
consolidated statment of changes in equity. The standard eliminates the use of the existing FAS 11 incurred loss
impairment model approach.

Transition
Changes in accounting policies resulting from the adoption of FAS 30 have been applied retrospectively, except
comparative periods which have not been restated. Differences in the carrying amounts of financial assets and
financial liabilities resulting from the adoption of FAS 30 are recognised in retained earnings and reserves as at
1 January 2017. Accordingly, the information presented for 2016 does not reflect the requirements of FAS 30 and
therefore is not comparable to the information presented for 2017 under FAS 30.

Impact of adopting FAS 30

Following is the impact of early adoption of FAS 30:
Balance 31 Transition Restated Balance 1
December 2016 adjustment January 2017
BD ‘000 BD ‘000 BD ‘000
Retained earnings 50,695 (26,759) 23,936

Non-controlling interest 1,534 (12) 1,522

Murabaha and Wakala receivables from banks 182,452 (4) 182,448
Murabaha financing 213,687 (14,636) 199,051
Mudaraba financing 252,807 (4,742) 248,065
Ijarah Muntahia Bittamleek 188,485 (4,151) 184,334
Musharaka 12,304 (91) 12,213
Assets under conversion 37,016 (44) 36,972
Investment in associates 10,561 (541) 10,020
Other assets 27,260 (891) 26,369
Other liabilities 49,043 (1,647) 50,690

The key changes to the Group’s accounting policies resulting from its adoption of FAS 30 are summarized in note 2.3.2 (b).
78 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)

2.3.2 Summary of significant accounting policies

a) Financial contracts
Financial contracts consist of balances with banks and the Central Bank, Sovereign Sukuk, Corporate Sukuk,
Murabaha financing (net of deferred profits), Mudaraba financing, Musharaka, Ijarah Muntahia Bittamleek, asset
under conversion and other assets. Balances relating to these contracts are stated net of allowance for credit
losses.

b) Impairment assessment (policy applicable from 1st January 2017)

Impairment of financial asset
FAS 30 replaces the ‘incurred loss’ model in FAS 11 with ECL model. The new impairment model also applies to
certain financing commitments and financial guarantee contracts but not to equity investments.

The Group applies three-stage approach to measure ECL on financial assets carried at amortised cost. Assets
migrate through the following three stages based on the change in credit quality since initial recognition.

Stage 1: twelve months ECL

For exposures where there has not been a Significant Increase in Credit Risk (“SICR”), since initial recognition, a
portion of the lifetime ECL associated with the probability of default events occurring within next twelve months
is recognised.

Twelve-month ECL (Stage 1) is the portion of ECL that results from probable default events on a financial
contract within twelve months after the reporting date.

Stage 2: Lifetime ECL – not credit impaired

For credit exposures where there has been a SICR since initial recognition but that are not credit impaired, a
lifetime ECL is recognised.

Lifetime ECL (Stage 2) is a probability-weighted estimate of credit losses and is determined based on the
difference between the present value of all cash shortfalls. The cash shortfall is the difference between all
contractual cash flows that are due to the Group and the present value of the recoverable amount, for financial
assets that are not credit-impaired at the reporting date.

Stage 3: Lifetime ECL – credit impaired

Financial contracts are assessed as credit impaired when one or more events that have a detrimental impact on
the estimated future cash flows of that asset have occurred.

For Stage 3 financial contracts, the provisions for credit-impairment are determined based on the difference
between the net carrying amount and the recoverable amount of the financial contract. As this uses the same
criteria as under FAS 11, the Group methodology for specific allowance for credit losses remains largely
unchanged.

Credit-impaired financial assets

At each reporting date, the Group assesses whether financial assets carried at amortised cost are credit-
impaired. Evidence that a financial asset is credit-impaired includes the following observable data:

- significant financial difficulty of the borrower or issuer;

- a breach of contract such as a default or past due event;
- probability that the borrower will enter bankruptcy or other financial reorganization; or
- the restructuring of a facility by the Group on terms that the Group would not consider otherwise.
 ASBB Annual Report 2017 79
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
b) Impairment assessment (policy applicable from 1st January 2017) (continued)

Measurement of ECL
The key inputs into the measurement of ECL are the following variables:
- Probability of Default (PD);
- Loss Given Default (LGD); and
- Exposure At Default (EAD).

These parameters are generally derived from internally developed models and other historical data. These are
adjusted to reflect forward-looking information as described below.

Definition of default
The Group considers a financial asset to be in default when the borrower is unlikely to pay its credit obligations
to the Group in full, without recourse by the Group to actions such as liquidating collateral; or the borrower is
past due more than 90 days or any credit obligation to the Group. In assessing whether a borrower is in default,
the Group considers both qualitative factors such as breaches of covenants and quantitative factors such as
overdue status and non-payment on another obligation of the same issuer to the Group.

Probability of default
Credit risk grades are a primary input into the determination of the term structure of PD for exposures. The
Group collects performance and default information about its credit risk exposures analysed by credit risk
grading for corporate and days-past-due for retail portfolio. The Group employs statistical models for analysing
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
taken exposures. For most exposures, the key macro-economic indicators include gross domestic product (GDP)
growth, real interest rates, unemployment, domestic credit growth, oil prices, central government revenue as a
percentage to GDP and central government expenditure as a percentage to GDP.

Incorporation of forward - looking information

The Group employs statistical models to incorporate macro-economic factors on historical default rates. In
case none of the macro-economic parameters are statistically significant or the results of forecasted PDs are
significantly deviated from the present forecast for the economic conditions, quantitative PD overlay shall be
used by the management after analyzing the portfolio as per the diagnostic tool.

Incorporating forward-looking information increases the level of judgment as to how changes in these
macroeconomic factors will affect the ECL applicable to the stage 1 and stage 2 exposures which are considered
as performing (Stage 3 are the exposures under default category). The methodologies and assumptions involved,
including any forecasts of future economic conditions, are reviewed periodically.

Loss Given Default

LGD is the magnitude of the likely loss if there is a default. The Group estimates LGD parameters based on the
history of recovery rates of claims against defaulted counterparties, based on historical data using both internal
and external factors. The LGD is estimated using below factors:

Cure Rate: Defined as the ratio of accounts which have fallen to default and have managed to move backward to
the performing accounts.

Recovery Rate: Defined as the ratio of liquidation value to market value of the underlying collateral at the time
of default would also account for expected recovery rate from a general claim on the individual’s assets for the
unsecured portion of the exposure.
80 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
b) Impairment assessment (policy applicable from 1st January 2017) (continued)

Discounting Rate: Defined as the opportunity cost of the recovery value not being realized on the day of default
adjusted for time value.

Exposure At Default
EAD represents the expected exposure in the event of a default. The Group derives the EAD from the current
exposure to the counterparty and potential changes to the current amounts allowed under the contract including
amortisation. The EAD of a financial asset is its gross carrying amount. For financing commitments and financial
guarantees, the EAD is converted to consolidated statement of financial position equivalents.

Significant Increase in Credit Risk

When determining whether the risk of default on a financial contracts has increased significantly since initial
recognition, the Group 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
Group’s historical experience and expert credit assessment including forward-looking information.

The criteria for determining whether credit risk has increased significantly vary on a portfolio level and include
quantitative and qualitative factors, including days past due and risk rating.

Renegotiated financial assets

The contractual terms of a financing may be modified for a number of reasons including changing market
conditions, and other factors not related to the current or potential credit deterioration of a customer. When the
terms of a financial asset are modified and the modification does not result in a derecognition, the determination
of whether the asset’s credit risk has increased significantly reflects a comparison of its remaining lifetime PD
at the reporting date based on modified terms, with the remaining lifetime PD estimated based on data at initial
recognition and the original contractual terms.

The Group renegotiates financing to customers in financial difficulties to maximize collection opportunities
and minimize the risk of default. This may involve extending the payment arrangements and documenting the
agreement of new conditions for providing finance. Management continuously reviews renegotiated facilities to
ensure that all criteria are met and that future payments are likely to occur.

“The accounts which are performing prior to restructuring but restructured due to financial difficulty are
categorised under stage 2. The accounts that are non-performing or meet any criteria for classifying as non-
performing (prior to restructuring), then such restructured accounts are categorized under stage 3.”

Backward transition
FAS 30 staging model is of symmetrical nature as exposures may migrate from lifetime ECL measurement
(Stage 2 and Stage 3) to 12 month ECL measurement (Stage 1). However, movement across stages are not
immediate once SICR indicators are no longer triggered. Once such indicators are no longer triggered,
movement back to Stage 1 or Stage 2 has to be calibrated and cannot be automatic or immediate. Certain
criteria like cooling off period, SICR indicators and payment history are considered for migrating customers to
Stage 2 or Stage 1.

Credit Conversion Factor

The estimation of EAD takes into account any unexpected changes in the exposure after the assessment date,
including expected drawdowns on committed facilities through the application of a credit conversion factor
(CCF). The EAD is estimated using the outstanding exposure adjusted by CCF times undrawn portion of the
facilities.

The outstanding exposure is calculated as principal plus profit less expected prepayments. The undrawn portion
refers to the portion of the unutilized credit limit. CCF applied to the facilities would be the higher of average
behavioral utilization over the last five years or capital charge.
 ASBB Annual Report 2017 81
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
b) Impairment assessment (policy applicable from 1st January 2017) (continued)

Write-offs
Financing securities are written-off (either partially or in full) when there is no realistic prospect of recovery.
This is generally the case when the Group determines that the borrower does not have assets or sources
of income that could generate sufficient cash flows to repay the amounts subject to the write-off. However,
financial assets that are written-off could still be subject to enforcement activities in order to comply with the
Group’s procedures for recovery of amounts due.

Presentation of allowance for credit losses in the consolidated statement of financial position
Allowance for credit losses are presented in the consolidated statement of financial position as follows:
- financial assets measured at amortised cost, as a deduction from the gross carrying amount of the assets;
- financing commitments and financial guarantee contracts: generally as a provision; and
- where a financial contract includes both a drawn and undrawn component, and the Group has identified
the ECL on the financing commitments / off-balance sheet component separately from those on the drawn
component, the Group presents allowance for credit losses for drawn components. The amount is presented
as a deduction from the gross carrying amount of the drawn component. Allowance for credit losses for the
undrawn component is presented as a provision in other liabilities.

c) Impairment and uncollectability of financial assets (applicable up to 31st December 2016)

An assessment is made at each reporting date to determine whether there is objective evidence that a
specific financial asset may be impaired. If such evidence exists, impairment loss, if any, is recognised in the
consolidated income statement.

Impairment is determined as follows:

(i) for assets carried at amortised cost, impairment is based on estimated cash flows based on the original
effective profit rate;
(ii) for assets carried at fair value, impairment is the difference between cost and fair value; and
(iii) for assets carried at cost, impairment is based on present value of anticipated cash flows based on the
current market rate of return for a similar financial asset.

For fair value through equity investments, reversal of impairment losses are recorded as increases in
cumulative changes in fair value through equity.

d) Sovereign Sukuk and Corporate Sukuk

These are quoted / unquoted securities and are classified as investments carried at amortised cost.

e) Murabaha financing
Murabaha is a contract whereby one party (“Seller”) sells an asset to the other party (“Purchaser”) at cost plus
profit and on a deferred payment basis, after the Seller has purchased the asset based on the Purchaser’s
promise to purchase the same on such Murabaha basis. The sale price comprises the cost of the asset and
an agreed profit margin. The sale price (cost plus the profit amount) is paid by the Purchaser to the Seller on
installment basis over the agreed finance tenure. Under the Murabaha contract, the Group may act either as a
Seller or a Purchaser, as the case may be.

The Group considers the promise to purchase made by the Purchaser in a Murabaha transaction in favor of the
Seller to be binding.

Murabaha receivables are stated at cost, net of deferred profits and / or allowance for credit losses, if any, and
amounts settled.
82 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)

f) Mudaraba financing
Mudaraba is a contract between two parties whereby one party is a fund provider (Rab Al Mal) who would
provide certain amount of funds (Mudaraba Capital), to the other party (Mudarib). Mudarib would then invest the
Mudaraba Capital in a specific enterprise or activity deploying its experience and expertise for a specific pre-
agreed share in the resultant profit. The Rab Al Mal is not involved in the management of the Mudaraba activity.
The Mudarib would bear the loss in case of its default, negligence or violation of any of the terms and conditions
of the Mudaraba contract; otherwise the loss would be borne by the Rab Al Mal. Under the Mudaraba contract,
the Group may act either as Mudarib or as Rab Al Mal, as the case may be.

Mudaraba financing are recognised at fair value of the Mudaraba assets net of allowance for credit losses, if any,
and Mudaraba Capital amounts settled. If the valuation of the Mudaraba assets results in difference between fair
value and book value, such difference is recognised as profit or loss to the Group.

g) Ijarah Muntahia Bittamleek

Ijara Muntahia Bittamleek is an agreement whereby the Group (“Lessor”) leases an asset to the customer
(“Lessee”) after purchasing / acquiring a specified asset, either from a third party seller or from the customer,
according to the customer’s request and promise to lease against certain rental payments for a specific lease
term / periods, payable on fixed or variable rental basis.

The Ijara agreement specifies the leased asset, duration of the lease term, as well as, the basis for rental
calculation, the timing of rental payment and responsibilities of both parties during the lease term. The Lessee
provides the Lessor with an undertaking to renew the lease periods and pay the relevant rental payment
amounts as per the agreed schedule throughout the lease term.

The Lessor retains the ownership of the assets throughout the lease term. At the end of the lease term, upon
fulfillment of all the obligations by the Lessee under the Ijara agreement, the Lessor will sell the leased asset to
the Lessee for a nominal value based on sale undertaking given by the Lessor. Leased assets are usually in the
type of residential properties, commercial real estate or aircrafts.

Depreciation is provided on a systematic basis on all Ijarah Muntahia Bittamleek assets other than land (which is
deemed to have an indefinite useful life), at rates calculated to write off the cost of each asset over the shorter of
either the lease term or economic life of the asset.

h) Musharaka
Musharaka is used to provide venture capital or project finance. The Group and customer contribute towards
the capital of the Musharaka. Usually a special purpose company or a partnership is established to undertake
the Musharaka. Profits are shared according to a pre-agreed profit distribution ratio but losses are borne by the
partners according to the capital contributions of each partner. Capital contributions may be in cash or in kind,
as valued at the time of entering into the Musharaka.
Musharaka is stated at cost, less any allowance for credit losses.

i) Assets and liabilities under conversion

Assets under conversion:
Loans and advances
At amortised cost less any amounts written off and allowance for credit losses, if any.

Non-trading investments
These are classified as fair value through equity investments and are fair valued based on criteria set out in
note 2.3.2 (b). Any changes in fair values subsequent to acquisition date are recognised in total comprehensive
income (note 28).
 ASBB Annual Report 2017 83
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
i) Assets and liabilities under conversion (continued)

Liabilities under conversion:

These are remeasured at amortised cost.

j) Non-trading investments
These are classified as fair value through equity or fair value through profit or loss investments.

All investments are initially recognised at cost, being the fair value of the consideration given including
acquisition costs associated with the investment. Acquisition cost relating to investments designated as fair
value through profit or loss is charged to consolidated income statement.

Following the initial recognition of investments, the subsequent reporting values are determined as follows:

Fair value through equity investments

After initial recognition, equity investments which are classified as investments at fair value through equity
are normally remeasured at fair value, unless the fair value cannot be reliably determined, in which case they
are measured at cost less impairment, if any. Fair value changes are reported in equity until the investment is
derecognised or the investment is determined to be impaired. On derecognition or impairment, the cumulative
gain or loss previously reported as “changes in fair value” within equity, is included in the consolidated income
statement.

Impairment losses on fair value through equity investments are not reversed through the consolidated income
statement and increases in their fair value after impairment are recognised directly in owners’ equity.

Fair value through profit or loss investments

Investments in this category are designated as such on initial recognition if these investments are evaluated
on a fair value basis in accordance with the Group’s risk management policy and its investment strategy. These
include all private equity investments including those in joint ventures and associates which are not strategic in
nature.

Investments at fair value through profit or loss are recorded in the consolidated statement of financial position at
fair value. Changes in fair value are recorded as “fair value changes on investments” in the consolidated income
statement. Gain on sale of these investments is included in “gain on sale of investments and Sukuk” in the
consolidated income statement. Income earned on these investments is included in “income from investments”
in the consolidated income statement.

k) Investments in associates
The Group’s investments in associates, that are acquired for strategic purposes, are accounted for under the
equity method of accounting. Other equity investments in associates are accounted for as fair value through
profit or loss by availing the scope exemption under FAS 24, Investments in Associates. An associate is an entity
over which the Group has significant influence and which is neither a subsidiary nor a joint venture. An entity is
considered as an associate if the Group has more than 20% ownership of the entity or the Group has significant
influence through any other manner.

Under the equity method, investment in associate is carried in the consolidated statement of financial position
at cost plus post-acquisition changes in the Group’s share of net assets of the associates. Losses in excess of
the cost of the investment in associates are recognised when the Group has incurred obligations on its behalf.
Goodwill relating to an associate is included in the carrying amount of the investment and is not amortised.
The consolidated income statement reflects the Group’s share of results of operations of the associates. Where
there has been a change recognised directly in the equity of the associate, the Group recognises its share of any
changes and discloses this, when applicable, in the consolidated statement of changes in equity.
84 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
k) Investments in associates (continued)

The reporting dates of the Group’s associates are identical with the Group and the associates accounting policy
conform to those used by the Group for like transactions and events in similar transactions.

After application of the equity method, the Group determines whether it is necessary to recognise an additional
impairment loss on its investment in associates. The Group determines at each reporting date whether there is
any objective evidence that the investment in associates are impaired. If this is the case, the Group calculates
the amount of impairment as the difference between the recoverable amount of the associate and its carrying
value and recognises the amount in the consolidated income statement.

Profit and losses resulting from transactions between the Group and the associates are eliminated to the extent
of the interest in associates.

Foreign exchange translation gains / losses arising out of the above investment in the associates are included in
the consolidated statement of changes in equity.

l) Investments in real estate

Properties held for rental, or for capital appreciation purposes, or both, are classified as investments in real
estate. The investment in real estate is initially recognised at cost and subsequently measured based on
intention whether the investments in real estate is held-for-use or held-for-sale. The Group has adopted the fair
value model for its investments in real estate. Under the fair value model, any unrealized gains are recognised
directly in owners’ equity. Any unrealized losses are adjusted in equity to the extent of the available credit
balance. Where unrealized losses exceed the available balance in owners’ equity, these are recognised in the
consolidated income statement. In case there are unrealized losses relating to investments in real estate that
have been recognised in the consolidated income statement in a previous financial period, the unrealized gains
relating to the current financial period is recognised to the extent of crediting back such previous losses in the
consolidated income statement. Investments in real estate held-for-sale is carried at lower of its carrying value
and expected fair value less costs to sell. Investments in real estate carried at fair value shall continue to be
measured at fair value.

m) Development properties
Properties acquired exclusively for development are classified as development properties and are measured at
the lower of cost or net realisable value.

n) Premises and equipment

Premises and equipment are stated at cost less accumulated depreciation and any impairment in value.
Depreciation is changed on a straight-line basis over the estimated useful lives of all premises and equipment,
other than freehold land and capital work-in-progress.

- Computer hardware 3 to 5 years

- Computer software 3 to 5 years
- Furniture and office equipment 3 to 5 years
- Motor vehicle 4 to 5 years
- Leasehold improvements Over the lease period
 ASBB Annual Report 2017 85
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)

o) Subsidiaries acquired with a view to sell

A subsidiary acquired with a view to subsequent disposal within twelve months is classified as “held-for-sale”
when the sale is highly probable. Related assets and liabilities of the subsidiary are shown separately on the
consolidated statement of financial position as “assets held-for-sale” and “liabilities relating to assets classified
as held-for-sale” respectively. Assets that are classified as held-for-sale are measured at the lower of carrying
amount and fair value less costs to sell. Any resulting impairment loss reduces the carrying amount of the
assets. Assets that are classified as held-for-sale are not depreciated.

p) Business combinations and goodwill

Business combinations are accounted for using the acquisition method. The cost of an acquisition is measured
as the aggregate of the consideration transferred measured at acquisition date fair value and the amount of
any non-controlling interests in the acquiree. For each business combination, the Group elects whether to
measure the non-controlling interests in the acquiree at fair value or at the proportionate share of the acquiree’s
identifiable net assets.

In a business combination achieved in stages, the group remeasures its previously held equity interest in the
acquiree at its acquisition date fair value and recognises the resulting gain or loss, if any, in the consolidated
income statement or total comprehensive income as appropriate.

When the Group acquires a business, it assesses the financial assets and liabilities assumed for appropriate
classification and designation in accordance with the contractual terms, economic circumstances and pertinent
conditions as at the acquisition date.

In a business combination in which the Bank and the acquiree exchange only equity interests, the acquisition-
date fair value of the acquiree’s equity interests is used to determine the amount of goodwill.

Investments acquired but do not meet the definition of business combination are recorded as financing assets
or investment in properties as appropriate. When such investments are acquired, the Group allocates the cost
of acquisition between the individual identifiable assets and liabilities based on their relative fair values at the
date of acquisition. Cost of such assets is the sum of all consideration given and any non-controlling interest
recognised. If the non-controlling interest has a present ownership interest and is entitled to a proportionate
share of net assets upon liquidation, the Group recognises the non-controlling interest at its proportionate share
of net assets.

Goodwill is initially measured at cost, being the excess of the aggregate of the consideration transferred and
the amount recognised for non-controlling interests, and any previous interest held, over the net identifiable
assets acquired and liabilities assumed. If the fair value of the net assets acquired is in excess of the aggregate
consideration transferred, the Group re-assesses whether it has correctly identified all of the assets acquired
and all of the liabilities assumed and reviews the procedures used to measure the amounts to be recognised at
the acquisition date. If the re-assessment still results in an excess of the fair value of net assets acquired over
the aggregate consideration transferred, then the gain is recognised in consolidated income statement.

After initial recognition, goodwill is measured at cost less any accumulated impairment losses. Goodwill is
tested for impairment at least annually. Any impairment is recognised immediately in the consolidated income
statement. Goodwill is allocated to each of the Group’s cash-generating units (CGU) that are expected to benefit
from the combination, irrespective of whether other assets or liabilities of the acquiree are assigned to those
units.

Impairment exists when carrying value of an asset or CGU exceeds its recoverable amount, which is the higher
of its fair value less costs of disposal and its value in use.
86 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
p) Business combinations and goodwill (continued)

Impairment of goodwill is determined by assessing the recoverable amount of the CGU (or group of CGUs),
to which the goodwill relates. Where the recoverable amount of the CGU (or group of CGUs) is less than the
carrying amount, an impairment loss is recognised immediately in the consolidated income statement.

For the purpose of impairment testing, goodwill acquired in a business combination is, from the acquisition
date, allocated to each of the Group’s CGU, or groups of CGUs, that are expected to benefit from the synergies
of the combination, irrespective of whether other assets or liabilities of the Group are assigned to those units or
groups of units. Each unit or group of units to which the goodwill is allocated:

- represents the lowest level within the Group at which the goodwill is monitored for internal management
purposes; and

- is / are not larger than a segment based on either the Group’s primary or the Group’s geographic segment
reporting format.

q) Offsetting
Financial assets and financial liabilities can only be offset with the net amount being reported in the
consolidated statement of financial position when there is a religious or legally enforceable right to set off the
recognised amounts and the Group intends to either settle on a net basis, or intends to realise the asset and
settle the liability simultaneously.

r) Provisions
Provisions are recognised when the Group has a present obligation (legal or constructive) arising from a past
event and the costs to settle the obligation are both probable and able to be reliably measured.

s) Employees’ end of service benefits

The Group provides end of service benefits to its expatriate employees. Entitlement to these benefits is based
upon the employees’ final salary and length of service, subject to completion of a minimum service period. The
expected costs of these benefits are accrued over the period of employment.

For Bahraini employees, the Group makes contributions to Social Insurance Organisation calculated as a certain
percentage of the employees’ salaries. The Group’s obligations are limited to these contributions, which are
expensed when due.

t) Revenue recognition
Murabaha and Wakala receivables
As the income is quantifiable and contractually determined at the commencement of the contract, income
is recognised on a straight-line basis over the deferred period. Recognition of income is suspended when
the Group believes that the recovery of these amounts may be doubtful or when the payments of Murabaha
installments are overdue by 90 days, whichever is earlier.

Sukuk
Income on Sukuk is recognised on a time-proportionate basis based on underlying rate of return of the
respective type of Sukuk. Recognition of income is suspended when the Group believes that the recovery of
these amounts may be doubtful or when the payments are overdue by 90 days, whichever is earlier.

Mudaraba
Income on Mudaraba transactions are recognised when the right to receive payment is established or these
are declared by the Mudarib, whichever is earlier. In case of losses in Mudaraba, the Group’s share of loss is
recognised to the extent that such losses are being deducted from its share of the Mudaraba Capital.
 ASBB Annual Report 2017 87
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
t) Revenue recognition (continued)

Dividend
Dividend income is recognised when the Group’s right to receive the dividend is established.

Ijarah Muntahia Bittamleek

Ijarah Muntahia Bittamleek income is recognised on a time-proportionate basis over the lease term. Income
related to non-performing Ijarah Muntahia Bittamleek is suspended. Accrual of income is suspended when the
Group believes that the recovery of these amounts may be doubtful or normally when the rental payments are
overdue by 90 days, whichever is earlier.

Musharaka
Income on Musharaka is recognised when the right to receive payment is established or on distributions. In case
of losses in Musharaka, the Group’s share of loss is recognised to the extent that such losses are being deducted
from its share of the Musharaka capital.

Fees and commission income

The Group earns fee and commission income from a diverse range of services it provides to its customers. Fee
income can be divided into the following main categories:

- Fee income on financing transactions: Fee earned on financing transactions including up-front fees and
early settlement fees are recognised when earned. To the extent the fees are deemed yield enhancement
they are recognised over the period of the financing contracts.

- Fee income from transaction services: Fee arising from corporate finance, corporate advisory, arranging the
sale of assets and wealth management are recognised when earned or on a time proportionate basis when
the fee is linked to time.

- Other fee income: This is recognised when services are rendered

u) Fair value of financial assets

For investments that are traded in organised financial markets, fair value is determined by reference to the
prevailing market bid price on the reporting date.

For investments where there is no quoted market price, a reasonable estimate of fair value is determined by
reference to valuation by independent external valuers or based on recent arm’s length market transactions.
Alternatively, the estimate would also be based on current market value of another contract, which is
substantially the same, or is based on the assessment of future cash flows. The cash equivalent values are
determined by the Group by calculating the present value of future cash flows at current profit rates for
contracts with similar terms and risk characteristics.

For assets having fixed or determinable payments, fair value is based on the net present value of estimated
future cash flows determined by the Group using current profit rates for contracts with similar terms and risk
characteristics.

v) Foreign currencies
Foreign currency transactions are recorded at rates of exchange prevailing at the dates of the transactions.
Monetary assets and liabilities in foreign currencies at the consolidated statement of financial position date are
retranslated at market rates of exchange prevailing at that date. Gains and losses arising on translation are
recognised in the consolidated income statement. Non-monetary assets that are measured in terms of historical
cost in foreign currencies are recorded at rates of exchange prevailing at the value dates of the transactions.
Translation gains or losses on non-monetary items classified as “fair value through equity” and investment
88 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
v) Foreign currencies (continued)

in associates are included in consolidated statement of changes in equity until the related assets are sold or
derecognised at which time they are recognised in the consolidated income statement. Translation gains on
non-monetary assets classified as “fair value through profit or loss” are directly recognised in the consolidated
income statement.

w) Translation of foreign operations

Assets and liabilities of foreign subsidiaries whose functional currency is not Bahraini Dinars are translated
into Bahraini Dinars at the rates of exchange prevailing at the reporting date. Income and expense items are
translated at average exchange rates prevailing for the reporting period. Any exchange differences arising on
translation are included in foreign exchange translation reserve forming part of other comprehensive income
except to the extent that the translation difference is allocated to the non-controlling interest. On disposal of
foreign operations, exchange differences relating thereto and previously recognised in other comprehensive
income are recognised in the consolidated income statement.

x) Repossessed assets
Repossessed assets are assets acquired in settlement of dues. These assets are carried at the lower of carrying
amount and fair value less costs to sell and reported within ‘other assets’. The Group’s policy is to determine
whether a repossessed asset can be best used for its internal operations or should be sold. Assets determined
to be useful for the internal operations are transferred to their relevant asset category at the lower of their
repossessed value or the carrying value of the original secured asset. Assets for which selling is determined to
be a better option are transferred to assets held for sale at their fair value or fair value less cost to sell for non-
financial assets at the repossession date in line with the Group’s policy.

y) Trade and settlement date accounting

Purchases and sales of financial assets and liabilities are recognised on the trade date, i.e. the date that the
Group contracts to purchase or sell the asset or liability.

z) Derecognition of financial assets

Financial assets are derecognised when the rights to receive cash flows from the financial assets have expired
or where the Group has transferred substantially all risk and rewards of ownership.

Continuing involvement that takes the form of a guarantee over the transferred asset is measured at the lower
of the original carrying amount of the asset and the maximum amount of consideration that the Group could be
required to pay.

aa) Fiduciary assets

Assets held in a fiduciary capacity are not treated as assets of the Group and are accordingly not included in the
consolidated statement of financial position.

ab) Dividend on ordinary shares

Dividend payable on ordinary issued and fully paid shares of the Bank is recognised as a liability and deducted
from equity when it is approved by the Group’s shareholders. Dividend for the year that is approved after the
reporting date is included in the equity and is disclosed as an event after the consolidated statement of financial
position date.

ac) Equity of investment account holders

All equity of investment accountholders are carried at cost plus profit and related reserves less amounts settled.
 ASBB Annual Report 2017 89
Notes To The Consolidated Financial Statements (continued)
2 ACCOUNTING POLICIES (continued)
2.3 SIGNIFICANT ACCOUNTING POLICIES (continued)
2.3.2 Summary of significant accounting policies (continued)
ac) Equity of investment account holders (continued)

Share of income for equity of investment accountholder is calculated based on the income generated by
the assets funded by such investment accounts after deducting Mudarib share (as Mudarib and Rabalmal).
Operating expenses are additionally charged to shareholders’ funds and are not included in the calculation.

The basis applied by the Group in arriving at the equity of investment accountholders’ share of income is total
investment income less shareholders’ income.

Under FAS 30, ECL is allocated to the assets invested using funds from unrestricted investment accounts.

ad) Treasury Stock

Own equity contracts that are re-acquired, are recognised at cost and deducted from equity. No gain or loss is
recognised in profit or loss on the purchase, sale, issue or cancellation of the Bank’s own equity contracts. Any
difference between the carrying amount and the consideration, if re-issued, is recognised in share premium in
consolidated statement of changes in equity.

ae) Zakah
‘In accordance with the articles of association of the Group, the responsibility to pay Zakah is on the
shareholders of the Bank.

af) Cash and cash equivalents

Cash and cash equivalents comprise of cash and balances with the CBB and Murabaha receivables from banks
with original maturities of less than 90 days.

ag) Wakala payables

The Group accepts funds from banks and customers under Wakala arrangements in which a return is payable to
customers as agreed in the agreement. There is no restriction on the Group for the use of funds received under
Wakala agreement.

Profit on these is accrued on a time-apportioned basis over the period of the contract based on the principal
amounts outstanding

ah) Jointly financed and self-financed

Investments, financing and receivables that are jointly-funded by the Group and the equity of investment
accountholders are classified under the caption “jointly-financed” in the consolidated financial statements.
Investments, financing and receivables that are funded solely by the Group are classified under “self-financed”.

ai) Earnings prohibited by Shari’a

The Group is committed to contributing to charity any income generated from non-Islamic sources. Accordingly,
any earning prohibited by Shari’a is credited to charity funds to be used for social welfare purposes.
90 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

3 CLASSIFICATION OF ASSETS, LIABILITIES AND EQUITY OF INVESTMENT ACCOUNTHOLDERS

31 December 2017

At fair value At fair value

through through At amortised
profit or loss equity cost / others Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000
ASSETS
Cash and balances with banks and Central Bank - - 66,351 66,351
Sovereign Sukuk - - 357,778 357,778
Murabaha and Wakala receivables from banks - - 143,803 143,803
Corporate Sukuk - - 10,324 10,324
Murabaha financing - - 197,380 197,380
Mudaraba financing - - 308,093 308,093
Ijarah Muntahia Bittamleek - - 212,148 212,148
Musharaka - - 19,192 19,192
Assets under conversion - - 2,771 2,771
Non-trading investments 109,393 1,932 - 111,325
Investments in real estate - 52,431 - 52,431
Development properties - - 6,448 6,448
Investment in associates - - 16,835 16,835
Other assets - 1,359 57,051 58,410
Goodwill - - 25,971 25,971

109,393 55,722 1,424,145 1,589,260

At fair value At fair value

through through At amortised
profit or loss equity cost / others Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000
LIABILITIES AND EQUITY OF INVESTMENT
ACCOUNTHOLDERS
Murabaha and Wakala payables to banks - - 154,641 154,641
Murabaha and Wakala payables to non-banks - - 597,848 597,848
Current accounts - - 283,886 283,886
Liabilities under conversion - - 2,729 2,729
Term financing - - 79,786 79,786
Other liabilities - - 47,652 47,652
Equity of investment accountholders - - 118,881 118,881

- - 1,285,423 1,285,423
 ASBB Annual Report 2017 91
Notes To The Consolidated Financial Statements (continued)
3 CLASSIFICATION OF ASSETS, LIABILITIES AND EQUITY OF INVESTMENT ACCOUNTHOLDERS (continued)

31 December 2016

At fair value At fair value

through profit through At amortised
or loss equity cost / others Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000
ASSETS
Cash and balances with banks and Central Bank - - 131,990 131,990
Sovereign Sukuk - - 358,269 358,269
Murabaha and Wakala receivables from banks - - 182,452 182,452
Corporate Sukuk - - 28,934 28,934
Murabaha financing - - 213,687 213,687
Mudaraba financing - - 252,807 252,807
Ijarah Muntahia Bittamleek - - 188,485 188,485
Musharaka - - 12,304 12,304
Assets under conversion - 41 36,975 37,016
Non-trading investments 115,403 6,670 - 122,073
Investments in real estate - 51,863 - 51,863
Development properties - - 17,781 17,781
Investment in associates - - 10,561 10,561
Other assets - 1,449 25,811 27,260
Goodwill - - 25,971 25,971
Assets classified as held-for-sale - 19,636 204 19,840

115,403 79,659 1,486,231 1,681,293

At fair value At fair value

through profit through At amortised
or loss equity cost / others Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000
LIABILITIES AND EQUITY OF INVESTMENT
ACCOUNTHOLDERS
Murabaha and Wakala payables to banks - - 132,032 132,032
Murabaha and Wakala payables to non-banks - - 723,439 723,439
Current accounts - - 279,609 279,609
Liabilities under conversion - - 217 217
Term financing - - 91,837 91,837
Other liabilities - - 49,043 49,043
Equity of investment accountholders - - 68,796 68,796
Liabilities relating to assets classified as held-for-sale - - 11,421 11,421

- - 1,356,394 1,356,394
92 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

4 CASH AND BALANCES WITH BANKS AND CENTRAL BANK

2017 2016
BD ‘000 BD ‘000
Mandatory reserve with Central Bank* 32,224 29,514
Cash and other balances with Central Bank 8,509 72,356
Balances with other Banks** 25,618 30,120
66,351 131,990

* This balance is not available for use in the day-to-day operations of the Group.
** This balance is net of an insignificant amount of allowance for credit losses.

5 MURABAHA AND WAKALA RECEIVABLES FROM BANKS

2017 2016
BD ‘000 BD ‘000
Jointly financed assets 118,879 68,796
Self financed assets 24,924 113,656
143,803 182,452

The above receivables are net of allowance for credit losses of BD 2 thousands (2016: BD nil) which is wholly allocated to
jointly-financed assets.

At 31 December 2017, deferred profits on Murabaha and Wakala receivables from banks amounted to BD 35 thousands
(2016: BD 60 thousands).

The entire exposure of Murabaha and Wakala receivables from Banks at 31 December 2017 and 31 December 2016 are
with financial entities mainly based in GCC countries.

6 CORPORATE SUKUK

2017 2016
BD ‘000 BD ‘000
Investment grade 5,689 17,865
Non-investment grade 4,635 3,843
Un-rated Sukuk - 7,226
10,324 28,934
The above balance is net of allowance for credit losses of BD 3 thousands (2016: BD nil).
 ASBB Annual Report 2017 93
Notes To The Consolidated Financial Statements (continued)

7 MURABAHA FINANCING

2017 2016
BD ‘000 BD ‘000
Murabaha financing 223,749 231,363
Less: allowance for credit losses (26,369) (17,676)
197,380 213,687

Murabaha financing is reported net of deferred profits of BD 29,694 thousands (2016: BD 39,249 thousands).

7.1 MOVEMENTS IN ALLOWANCE FOR CREDIT LOSSES ON MURABAHA FINANCING

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total ECL Total
BD ‘000 BD ‘0000 BD ‘000 BD ‘000 BD ‘000
Balance at 1 January on adoption of FAS 30 2,680 12,766 16,866 32,312 8,288
Changes due to receivables recognised in opening
balance that have:
- transferred to Stage 1: 12 month ECL 454 (304) (150) - -
- transferred to Stage 2: Lifetime ECL not credit-
impaired (24) 24 - - -

- transferred to Stage 3: Lifetime ECL credit-

impaired (16) (187) 203 - -

Net remeasurement of loss allowance 1,096 (1,282) 12,536 12,350 14,645

Recoveries / write-backs (455) (206) (115) (776) (1,767)
Allowance for credit losses 1,055 (1,955) 12,474 11,574 12,878
Reclass to other financing contracts - - - - (2,643)
Amounts written off during the year - - (17,517) (17,517) (847)
Balance at the end of the year 3,735 10,811 11,823 26,369 17,676
94 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

8 MUDARABA FINANCING

2017 2016
BD ‘000 BD ‘000
Mudaraba financing 325,748 267,559
Less: allowance for credit losses (17,655) (14,752)
308,093 252,807

8.1 MOVEMENTS IN ALLOWANCE FOR CREDIT LOSSES ON MUDARABA FINANCING

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total ECL Total
BD ‘000 BD ‘0000 BD ‘000 BD ‘000 BD ‘000
Balance at 1 January on adoption of FAS 30 4,711 3,281 11,502 19,494 10,633
Changes due to receivables recognised in opening
balance that have:
- transferred to Stage 1: 12 month ECL 735 (732) (3) - -
- transferred to Stage 2: Lifetime ECL not credit-
impaired (100) 416 (316) - -

- transferred to Stage 3: Lifetime ECL credit-

impaired (22) (2,142) 2,164 - -

Net remeasurement of loss allowance 907 3,952 (135) 4,724 290

Recoveries / write-backs (134) (100) (193) (427) (52)
Allowance for credit losses 1,386 1,394 1,517 4,297 238
Reclass to other financing contracts - - - - 4,289
Amounts written off during the year - - (6,136) (6,136) (408)
Balance at the end of the year 6,097 4,675 6,883 17,655 14,752
 ASBB Annual Report 2017 95
Notes To The Consolidated Financial Statements (continued)

9 IJARAH MUNTAHIA BITTAMLEEK

This represents net investment in assets leased for periods which either approximate or cover major parts of
the estimated useful lives of such assets. The majority of the lease documentations provide that the Lessor
undertakes to transfer the leased assets to the Lessee at the end of the lease term upon the lessee fulfilling all
its obligations under the lease agreement.

2017 2016
BD ‘000 BD ‘000
Movements in Ijarah Muntahia Bittamleek assets are as follows:
At 1 January 188,485 155,217
Additions during the year - net 54,782 29,006
Ijarah assets depreciation (17,996) (10,568)
(Disposal) / transfer (14,400) 14,400
Reversal of allowance for credit losses during the year 1,277 430
At 31 December 212,148 188,485

2017 2016
BD ‘000 BD ‘000
The future minimum lease receivable in aggregate are as follows:
Due within one year 6,314 4,304
Due in one to five years 98,459 79,273
Due after five years 107,375 104,908
212,148 188,485

Ijarah Muntahia Bittamleek is divided into the following asset classes:

Land and buildings 212,148 181,685

Aircraft - 6,800
212,148 188,485

The accumulated depreciation on Ijarah Muntahia Bittamleek assets amounted to BD 43,832 thousands (2016: BD 40,403
thousands).
96 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
9 IJARAH MUNTAHIA BITTAMLEEK (continued)

9.1 MOVEMENTS IN ALLOWANCE FOR CREDIT LOSSES ON IJARAH MUNTAHIA BITTAMLEEK

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total ECL Total
BD ‘000 BD ‘0000 BD ‘000 BD ‘000 BD ‘000
Balance at 1 January on adoption of FAS 30 1,009 1,106 12,212 14,327 9,304
Changes due to receivables recognised in opening
balance that have:
- transferred to Stage 1: 12 month ECL 234 (229) (5) - -
- transferred to Stage 2: Lifetime ECL not credit-
impaired (5) 16 (11) - -

- transferred to Stage 3: Lifetime ECL credit-

impaired (2) (117) 119 - -

Net remeasurement of loss allowance (174) (286) (445) (905) 2

Recoveries / write-backs - - (372) (372) (432)
Allowance for credit losses 53 (616) (714) (1,277) (430)
Reclass from other financing contracts - - - - 1,302
Amounts written off during the year - - (7,769) (7,769) -
Balance at the end of the year 1,062 490 3,729 5,281 10,176
 ASBB Annual Report 2017 97
Notes To The Consolidated Financial Statements (continued)

10 NET ALLOWANCE FOR CREDIT LOSSES / IMPAIRMENT

2017 2016
BD ‘000 BD ‘000
Murabaha and Wakala receivables from banks (3) -
Corporate Sukuk 3 -
Murabaha financing 11,574 12,878
Mudaraba financing 4,297 238
Ijarah Muntahia Bittamleek (1,277) (430)
Musharaka 108 (6)
Assets under conversion 37 501
Other assets 5,833 5,239
Financing commitments and financial guarantee contracts (802) -
19,770 18,420
Impairment for fair value through equity investments (note 10.1) 886 3,153
20,656 21,573

10.1 MOVEMENTS IN IMPAIRMENT FOR FAIR VALUE THROUGH EQUITY INVESTMENTS

2017 2016
BD ‘000 BD ‘000
Balance at the beginning of the year 8,624 5,471
Provision during the year 1,048 3,153
Recoveries / reversals (162) -
Allowance for impairment 886 3,153
Write-offs (6,259) -
Balance at the end of the year 3,251 8,624
98 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

11 ASSETS AND LIABILITIES UNDER CONVERSION

These represent interest bearing non-Shari’a compliant assets and liabilities of ASBS. These assets and
liabilities have been reported as separate line items on the face of the consolidated statement of financial
position. The details of the assets and liabilities under conversion are as follows:

2017 2016
BD ‘000 BD ‘000
Assets
Loans and advances* 1,688 35,408
Non-trading investments - debt 926 1,592
Non-trading investment - fair value through equity - 16
Other assets 157 -
2,771 37,016
Liabilities
Customers’ deposits 2,729 -
Other liabilities - 217
2,729 217

During the year, assets under conversion related to BMI have been transferred to other assets upon completion of the
conversion period (note 16).

* This balance is net of allowance for credit losses of BD 93 thousands (2016: BD 1,714 thousands).

11.1 MOVEMENTS IN ALLOWANCE FOR CREDIT LOSSES ON ASSETS UNDER CONVERSION

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total ECL Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Balance at 1 January on adoption of FAS 30 56 671 1,043 1,770 1,213
Transfer to other assets - (671) (1,043) (1,714) -
Net remeasurement of loss allowance 37 - - 37 584
Recoveries / write-backs - - - - (83)
Allowance for credit losses 37 - - 37 501
Amounts written off during the year - - - - -
Balance at the end of the year 93 - - 93 1,714
 ASBB Annual Report 2017 99
Notes To The Consolidated Financial Statements (continued)

12 NON-TRADING INVESTMENTS
Non-trading investments are classified as fair value through equity or fair value through profit or loss.

Fair value hierarchy

The Group uses the following hierarchy for determining and disclosing the fair value of financial contracts by
valuation technique:

Level 1: quoted (unadjusted) prices in active markets for identical assets or liabilities;

Level 2: other techniques for which all inputs that have a significant effect on the recorded fair value are
observable, either directly or indirectly; or

Level 3: techniques that use inputs that have a significant effect on the recorded fair value that are not based on
observable market data.

The following table shows an analysis of the non-trading investments carried at fair value in the consolidated
statement of financial position:

Level 1 Level 2 Level 3 Total

31 December 2017 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Financial assets at fair value through profit or loss 5,903 5,561 97,929 109,393
Financial assets at fair value through equity - - 1,932 1,932
5,903 5,561 99,861 111,325

Level 1 Level 2 Level 3 Total

31 December 2016 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Financial assets at fair value through profit or loss 7,755 5,011 102,637 115,403
Financial assets at fair value through equity 3,968 - 2,702 6,670
11,723 5,011 105,339 122,073

As of 31 December 2017, no transfers from have been made from Level 1 to Level 3 fair value measurements (2016: BD
1,793 thousands).

The movements in fair value of non-trading investments classified in Level 3 of the fair value hierarchy are as
follows:
Fair value measurement using
significant unobservable inputs
Level 3
2017 2016
BD ‘000 BD ‘000

At 1 January 105,339 106,392

Fair value changes 1,228 228
Provision for impairment (726) (1,030)
Disposals during the year (2,346) (2,151)
Repayments during the year (3,634) (307)
Additions during the year - 414
Transfer from level 1 to level 3 - 1,793
At 31 December 99,861 105,339
100 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

13 INVESTMENTS IN REAL ESTATE

2017 2016
BD ‘000 BD ‘000

Land 49,498 48,930

Buildings 2,933 2,933
52,431 51,863

The movements in fair value of investments in real estate classified in Level 3 of the fair value hierarchy are as
follows:
Fair measurement using significant
unobservable inputs
Level 3
2017 2016
BD ‘000 BD ‘000

At 1 January 51,863 68,786

Fair value changes 568 (19)
Additions during the year - 2,732
Transfer to assets classified as held-for-sale - (19,636)
At 31 December 52,431 51,863

14 DEVELOPMENT PROPERTIES
These represent properties acquired and held through investment vehicles exclusively for development in the
Kingdom of Bahrain and the United Kingdom. The carrying amounts include land price and related construction
costs.

15 INVESTMENT IN ASSOCIATES
The Group has a 14.4% (2016: 14.4%) stake in Al Salam Bank Algeria (ASBA), an unlisted bank incorporated
in Algeria. The Bank has representation on the board of ASBA through which the Bank exercises a significant
influence on ASBA.

The Group has a 20.94% (2016: 20.94%) stake in Gulf African Bank (“GAB”), a private Islamic bank incorporated
in Kenya.

During the year, the Group has made an investment in CSQ1 Property Unit Trust, a private company incorporated
in Jersey. The Group has 23.2% stake in CSQ1 Property Unit Trust (2016: nil).

The Group’s interest in ASBA, GAB and CSQ1 Property Unit Trust is accounted for using the equity method in the
consolidated financial statements
 ASBB Annual Report 2017 101
Notes To The Consolidated Financial Statements (continued)
15 INVESTMENTS IN ASSOCIATES (continued)

The following table illustrates summarised financial information of Group’s investments in ASBA:

2017 2016
BD ‘000 BD ‘000

Associates' statement of financial position:

Total assets 282,037 180,792
Total liabilities 227,465 128,426
Net assets 54,572 52,366
Total revenue 13,093 9,428
Total expenses 9,144 5,751
Net profit for the year 3,949 3,677
Group’s share of associates’ net profit 451 164

The following table illustrates summarised financial information of Group’s investments in GAB:

2017 2016
BD ‘000 BD ‘000

Associates' statement of financial position:

Total assets 115,427 99,856
Total liabilities 96,734 83,889
Net assets 18,693 15,967
Total revenue 11,661 10,729
Total expenses 10,074 9,021
Net profit for the year 1,587 1,708
Group’s share of associates’ net profit 335 563
102 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

16 OTHER ASSETS

2017 2016
BD ‘000 BD ‘000

Assets under conversion (a)

Loans and advances to customers 20,149 -
Non-trading-investments - debt 29 344
Non-trading investments - fair value through equity (b) 1,359 1,341
21,537 1,685
Repossessed assets (c) 14,351 4,863
Profit receivable 11,410 9,922
Premises and equipment 1,704 2,514
Prepayments 1,136 1,874
Rental receivable on Ijarah Muntahia Bittamleek assets 1,090 449
Credit card receivables - net 2,437 2,926
Other receivables and advances 4,745 3,027
58,410 27,260

(a) These represent non-Shari’a compliant assets resulted from the acquisition of BMI and Bahraini Saudi Bank
B.S.C. (“ex-BSB”). This balance is net of allowance for credit losses of BD 4,970 thousands (2016: BD nil).

(b) The above fair value through equity investments are classified as Level 3 in the fair value hierarchy (note 12).
Movements in fair value through equity investments are as follows:

Fair value measurement using

significant unobservable inputs
Level 3
2017 2016
BD ‘000 BD ‘000

At 1 January 1,341 1,928

Transfer during the year 18 (82)
Disposals during the year - (505)
At 31 December 1,359 1,341

(c) This balance is net of provision of BD 611 thousands (2016: BD nil).

 ASBB Annual Report 2017 103
Notes To The Consolidated Financial Statements (continued)
16 OTHER ASSETS (continued)

16.1 MOVEMENTS IN ALLOWANCE FOR CREDIT LOSSES ON OTHER ASSETS

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total ECL Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Balance at 1 January on adoption of FAS 30 52 (419) 3,674 3,307 125
Transfer to other assets under conversion - 671 1,043 1,714 -
Net remeasurement of loss allowance 95 (213) 6,676 6,558 5,532
Recoveries / write-backs - - (1,336) (1,336) (293)
Allowance for credit losses 95 (213) 5,340 5,222 5,239
Reclass to other financing contracts - - - - (2,948)
Amounts written off during the year - - (2,184) (2,184) -
Balance at the end of the year 147 39 7,873 8,059 2,416

17 GOODWILL
In 30 March 2014, the Bank acquired 100% of the paid-up capital of BMI. Goodwill of BD 25,971 thousands
(2016: BD 25,971 thousands) arose from the business combination and is associated with the banking segment
of the Group.

The recoverable amount of goodwill is based on value-in-use calculations using cash flow projections from
financial forecasts approved by Board of Directors, extrapolated for five years projection using terminal growth
rate of 1.5% (2016: 3%) and discount rate of 21.5% (2016: 11%).

The methodology and assumptions used for estimating future cash flows are reviewed regularly to reduce any
differences between loss estimates based on the actual loss experience.

Management performed a sensitivity analysis by changing the key assumptions to assess the impact of
recoverable amount of the CGU. The discount rate and earnings are considered as key assumptions, a 0.5%
change in the discount rate and a 0.25% change in earnings would have no impact on the carrying value of
goodwill.

18 MURABAHA TERM FINANCING

These represents short-term to long-term financings with various financials institutions that are collateralised
against corporate and sovereign Sukuk carrying value of BD 116,006 thousands (2016: BD 171,779 thousands).
104 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

19 OTHER LIABILITIES

2017 2016
BD ‘000 BD ‘000

Accounts payable and accruals 21,555 25,524

Investment related payables 7,208 7,808
Profit payable 5,293 5,917
Dividend payable 4,704 3,988
Project payables 4,645 886
End of service benefits and other employee related accruals 3,402 4,144

Allowance for credit losses relating to financing commitments and financial

guarantee contracts 845 -

Advances received from customers for sale of properties - 776

47,652 49,043

20 EQUITY OF INVESTMENT ACCOUNTHOLDERS

Equity of investment accountholders funds are commingled with the Group’s funds and used to fund / invest in
asset contracts and no priority is granted to any party for the purpose of investments and distribution of profits.
According to the terms of acceptance of the unrestricted investment accounts, 100% of the funds are invested
taking into consideration the relevant weightage, if any. The Mudarib’s share of profit ranges between 40% and
50%. Operating expenses are charged to shareholders’ funds and not included in the calculation. The Mudarib
reserves its right to deduct, if required, a percentage of net profits before distribution out the investment
funds to improve profits and may deduct another percentage out of the accountholders’ share of the profits
after distribution as a reserve against risks. This percentage shall be specified from time to time in the profit
distribution at the Mudarib’s discretion.

The balances consists of savings accounts of BD 58,014 thousands (2016: BD 50,944 thousands), call accounts of
BD 37,932 thousands (2016: BD 12,207 thousands) and margin accounts of BD 22,935 thousands (2016: BD 5,645
thousands).

Allowance for credit losses allocated to the assets invested using funds from unrestricted investment accounts
is immaterial.

The average profit rate attributed to the equity of investment accountholders for the year 2017 was 0.20%
(2016: 0.27%).
 ASBB Annual Report 2017 105
Notes To The Consolidated Financial Statements (continued)

21 SHARE CAPITAL
2017 2016
BD ‘000 BD ‘000

Authorised:

2,500,000,000 ordinary shares (2016: 2,500,000,000 shares) of

250,000 250,000
BD 0.100 each

Issued and fully paid: (BD 0.100 per share)

Number of shares 2,140,930,752 (2016: 2,140,930,752) 214,093 214,093

Total number of treasury stock outstanding as of 31 December 2017 was 19,218,000 shares (2016: 15,032,732
shares).

21.1 PROPOSED APPROPRIATION

The Board of Directors in its meeting on 13 February 2018 has resolved to recommend a cash
dividend of 7 fils per share or 7% (2016: 5 fils or 5%) of the paid-up capital subject to approval at the
forthcoming Annual General Meeting.

22 STATUTORY RESERVE
As required by Bahrain Commercial Companies Law and the Bank’s articles of association, 10% of
the net profit for the year has been transferred to the statutory reserve. The Group may resolve to
discontinue such annual transfers when the reserve totals 50% of the paid up share capital of the
Bank. The reserve is not distributable except in such circumstances as stipulated in the Bahrain
Commercial Companies Law followed by the approval of the CBB.

23 EARNINGS PER SHARE

Basic earnings per share (EPS) is calculated by dividing the net profit for the year attributable to
shareholders of the Bank by the weighted average number of ordinary shares outstanding during the
year.

24 INCOME FROM FINANCING CONTRACTS

2017 2016
BD ‘000 BD ‘000

Murabaha financing 10,826 12,870

Mudaraba financing 17,289 13,069
Ijarah Muntahia Bittamleek* 10,499 10,030
Musharaka 961 591
Murabaha and Wakala receivables from banks 1,656 1,415
Income from assets under conversion ** 2,457 875
43,688 38,850

* Depreciation on Ijarah Muntahia Bitamleek amounted to BD 17,996 thousands (2016: BD 10,568 thousands).
** The Bank’s shareholders are advised, but not obliged, to contribute this income to charity at their discretion.
106 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

25 GAINS ON SALE OF INVESTMENTS AND SUKUK - NET

2017 2016
BD ‘000 BD ‘000

Net gain on sale of:

Development properties* 4,771 12,130
Fair value through equity investments 1,294 -
Other investments 229 398
Fair value through profit or loss investments 202 2,611
Sukuk 10 14
6,506 15,153

* Sales: BD 23,152 thousands (2016: BD 49,131 thousands) and cost: BD 18,381 thousands (2016: BD 37,001 thousands).

26 INCOME FROM INVESTMENTS

2017 2016
BD ‘000 BD ‘000

Gain / (loss) from fair value through profit or loss investments 1,532 (128)
Rental income from investments in real estate 213 1,947
1,745 1,819

27 FEES, COMMISSION AND OTHER INCOME - NET

2017 2016
BD ‘000 BD ‘000

Financing and transaction related fees and commission 4,613 5,953

Other income* 7,691 1,751
Fiduciary and other fees 155 225
12,459 7,929

* This includes a sale of a facility to a third party resulting in an income of BD 1,594 thousands (2016: BD nil). In addition,
the Group recovered excess amount of BD 3,933 thousands (2016: BD nil) over acquired values from settlement of non-
performing financing facilities.
 ASBB Annual Report 2017 107
Notes To The Consolidated Financial Statements (continued)

28 TOTAL COMPREHENSIVE INCOME

2017 2016
BD ‘000 BD ‘000

Net profit for the year 18,055 16,096

Unrealized gain reclassified to consolidated income statement on disposal of
(246) (82)
fair value through equity investments
Unrealised gain on fair value through equity investments - 675
Changes in fair value of investments in real estate (159) (19)
Foreign currency re-translation (211) (4)
Other comprehensive income for the year (616) 570
Total comprehensive income for the year 17,439 16,666
Attributable to:
Equity holders of the Bank 17,483 16,778
Non-controlling interest (44) (112)
17,439 16,666

29 RELATED PARTY TRANSACTIONS

Related parties comprise major shareholders, Directors of the Bank, senior management, close members of their
families, entities owned or controlled by them and companies affiliated by virtue of common ownership or directors
with that of the Bank. The transactions with these parties were approved by the Board of Directors.

The balances with related parties at 31 December 2017 and 31 December 2016 were as follows:
2017

Associates Directors
and joint Major and related Senior
ventures shareholders entities management Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Assets:
Cash and balances with banks and Central Bank - 92 - - 92
Murabaha financing 9,084 - - 235 9,319
Mudaraba financing 3,104 - 4,163 - 7,267
Ijarah Muntahia Bittamleek - - 1,674 647 2,321
Musharaka financing - - 35 - 35
Other assets 94 - 201 36 331
Liabilities and equity of investment
accountholders:
Wakala payables to non-banks 1,860 17,295 426 2,314 21,895
Current accounts 306 438 775 158 1,677
Equity of investment accountholders - - 555 200 755
Other liabilities 55 98 6 19 178
Contingent liabilities and commitments 1,261 22 - - 1,283
Equity:
Transition adjustment 12,317 - - - 12,317
108 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
29 RELATED PARTY TRANSACTIONS (continued)

2016

Associates Directors
and joint Major and related Senior
ventures shareholders entities management Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Assets:
Cash and balances with banks and Central Bank - 181 - - 181
Murabaha and Wakala receivables from banks - 6,786 - - 6,786
Murabaha financing 25,172 - - 115 25,287
Mudaraba financing 1,885 - 2,137 - 4,022
Ijarah Muntahia Bittamleek - - 143 226 369
Musharaka financing - - 45 - 45
Other assets 947 2 108 24 1,081
Liabilities and equity of investment
accountholders:
Wakala payables to non-banks 4,235 10,505 48 1,134 15,922
Current accounts 343 9 1,331 132 1,815
Equity of investment accountholders - - 825 135 960
Other liabilities 60 - - 5 65
Contingent liabilities and commitments 743 - - - 743
 ASBB Annual Report 2017 109
Notes To The Consolidated Financial Statements (continued)
29 RELATED PARTY TRANSACTIONS (continued)

The income and expenses in respect of related parties included in the consolidated income statement are as
follows:

2017

Associates Directors
and joint Major and related Senior
ventures shareholders entities management Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Income:
Income from financing contracts - 8 227 23 258
Share of profits from associates 786 - - - 786
Expenses:
Profit on Murabaha and Wakala payables to
- 16 - - 16
banks
Profit paid on Wakala from non-banks 69 421 7 22 519
Share of profits on equity of investment account
- - 2 2 4
holders
Other operating expenses - - 740 - 740
Allowance for credit losses 6,516 - - - 6,516

2016

Associates Directors
and joint Major and related Senior
ventures shareholders entities management Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Income:
Income from financing contracts - 19 81 6 106
Share of profits from associates 727 - - - 727
Expenses:
Profit paid on Wakala from non-banks 27 380 1 22 430
Share of profits on equity of investment account
- - 3 - 3
holders
Other operating expenses - - 593 - 593
Provision for impairment 8,947 - - - 8,947

Board of Directors' remuneration for 2017 amounted to BD 415 thousands (2016: BD 389 thousands).
Shari'a Supervisory Boards' remuneration for 2017 amounted to BD 66 thousands (2016: BD 49 thousands).

Compensation of key management personnel, consisting of short-term benefits and non-cash remuneration, for the year
was BD 2,981 thousands (2016: BD 2,902 thousands).
110 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

30 CONTINGENT LIABILITIES AND COMMITMENTS

2017 2016
BD ‘000 BD ‘000

Contingent liabilities on behalf of customers

Guarantees 19,419 24,993
Letters of credit 10,767 20,788
Acceptances 954 3,607
31,140 49,388
Irrevocable unutilised commitments
Unutilised financing commitments 81,941 114,491
Unutilised non-funded commitments 9,594 23,308
Commitments towards development cost - 2,951
91,535 140,750
Forward foreign exchange contracts - notional amount 37,814 20,280

Letters of credit, guarantees (including standby letters of credit) commit the Group to make payments on behalf
of customers contingent upon their failure to perform under the terms of the contract.

Commitments generally have fixed expiration dates, or other termination clauses. Since commitments may
expire without being utilized, the total contract amounts do not necessarily represent future cash requirements.

Operating lease commitment - Group as lessee

The Group has entered into various operating lease agreements for its premises. Future minimal rentals payable
under the non-cancellable leases are as follows:

2017 2016
BD ‘000 BD ‘000

Within 1 year 1,204 1,168

After one year but not more than five years 1,971 2,360
3,175 3,528
 ASBB Annual Report 2017 111
Notes To The Consolidated Financial Statements (continued)

31 RISK MANAGEMENT
31.1 INTRODUCTION
Risk is inherent in the Group’s activities but it is managed through a process of ongoing identification,
measurement and monitoring, subject to risk limits and other controls. This process of risk management is
critical to the Group’s continuing profitability and each individual within the Group is accountable for the risk
exposures relating to his or her responsibilities. The Group is exposed to credit risk, liquidity risk, operational
risk, and market risk. It is also subject to early settlement risk and operational risks.

The Group’s risk function is independent of lines of business and the acting Group Chief Risk Officer reports to
the Group Chief Executive Officer with access to the Audit and Risk Committee.

The independent risk control process does not include business risks such as changes in the environment,
technology and industry as they are monitored through the Group’s strategic planning process.

Board of Directors
The Board of Directors is responsible for setting the overall risk management framework and appetite
encompassing the risk strategies and policies.

Executive Committee
The Executive Committee has the responsibility to review and recommend to the Board for approval the overall
risk process and policies within the Bank.

Shari’a Supervisory Board

The Group’s Shari’a Supervisory Board is entrusted with the responsibility to ensure the Group’s adherence to
Shari’a rules and principles in its transactions and activities.

Risk Committee
Risk Committee exercises its authority to review and approve proposals within its delegated limits. The
Committee recommends the risk policies and framework to the Board. The Committee has a primary role in
selection and implementation of risk management systems, portfolio monitoring, stress testing, risk reporting
to the Board, Board Committees, Regulators and Executive Management. The Committee discharges its
authority after adequate due diligence.

Asset and Liability Committee

The Asset and Liability Committee (ALCO) establishes policy and objectives for the asset and liability
management of the Group’s financial position in terms of structure, distribution, risk and return and its impact
on profitability. It also monitors the cash flow, tenor and cost / yield profiles of assets and liabilities and
evaluates the Group’s financial position both from profit rate sensitivity and liquidity points of view, making
corrective adjustments based upon perceived trends and market conditions, monitoring liquidity, monitoring
foreign exchange exposures and positions.

Audit and Risk Committee

The Audit and Risk Committee is appointed by the Board of Directors who are non-executive directors of
the Group. The Audit and Risk Committee assists the Board in carrying out its responsibilities with respect
to assessing the quality and integrity of financial reporting, the audit thereof, the soundness of the internal
controls of the Group, reviewing and monitoring the overall risk framework and profile of the Group as well
as its adherence to stipulated policies and limits, and the methods for monitoring compliance with laws,
regulations and supervisory and internal policies.
112 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
31 RISK MANAGEMENT (continued)
31.1 INTRODUCTION (continued)

The Audit and Risk Committee reviews Group’s accounting and financial practices, risk management reports,
integrity of the Group’s financial and internal controls and consolidated financial statements. It also reviews the
Group’s compliance with legal requirements, recommends the appointment, compensation and oversight of the
Group’s external and internal auditors.

Internal Audit
Risk management processes throughout the Group are audited by the internal audit function that examines both
the adequacy of the procedures and the Group’s compliance with the procedures. Internal Audit discusses the
results of all assessments with management, and reports its findings and recommendations to the Audit and
Risk Committee.

Risk measurement and reporting systems

The Group’s risk management policies aim to identify, analyse and manage the risks faced by the Group, to set
appropriate risk limits and controls, and to continuously monitor risk levels and adherence to limits. The Group’s
risk management department is also responsible for identifying risk characteristics inherent in new and existing
products, activities and setting exposure limits to mitigate these risks.

Monitoring and controlling risks is primarily performed based on limits established by the Group. These limits
reflect the business strategy and market environment of the Group as well as the level of risk that the Group is
willing to accept, with additional emphasis on selected industries. In addition, the Group monitors and measures
the overall risk bearing capacity in relation to the aggregate risk exposure across respective risk types and
activities.

Information compiled from all the businesses is examined and processed in order to analyse, control and
identify early risks. This information is presented and explained to the Board of Directors, the Audit and Risk
Committee and ALCO, whenever required. The reports include aggregate credit quality and exposures, market
risk exposures, operational risk metrics, limit exceptions, liquidity ratios, stress testing, and risk profile
changes. A detailed report is produced on a quarterly basis with simplified reports produced on a monthly basis.
Senior management assesses the appropriateness of the allowance for credit losses on a quarterly basis. The
Board of Directors receives a comprehensive risk report once a quarter which is designed to provide all the
necessary information to assess the risks of the Group.

For all levels throughout the Group, specifically tailored risk reports are prepared and distributed in order
to ensure that all business divisions have access to extensive, necessary and up-to-date information. A daily
briefing is given to all relevant members of the Group on the utilization of market limits, proprietary investments
and liquidity, plus any other risk developments.

Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by changes in economic, political or other conditions.
Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a
particular industry or geographical location.

In order to avoid excessive concentrations of risk, the Group’s policies and procedures include specific
guidelines to focus on maintaining a diversified portfolio. Identified concentrations of credit risks are controlled
and managed accordingly.
 ASBB Annual Report 2017 113
Notes To The Consolidated Financial Statements (continued)
31 RISK MANAGEMENT (continued)

31.2 CREDIT RISK

Credit risk is the risk that one party to a financial contract will fail to discharge an obligation and cause the other
party to incur a financial loss. The Group attempts to control credit risk by monitoring credit exposures, setting
limits for transactions with counterparties, and continually assessing the creditworthiness of counterparties.

In addition to monitoring credit limits, the Group manages the credit exposures by entering into collateral
arrangements with counterparties in appropriate circumstances and by limiting the duration of the
exposure.

Maximum exposure to credit risk without taking account of any collateral and other credit enhancements.

Credit risk grades

The Group allocates each exposure to a credit risk grade based on a variety of data that is determined to be
predictive of the risk of default and applying experienced credit judgment. Credit risk grades are defined using
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. Credit risk grades are defined and calibrated such that the risk
of default occurring increases exponentially as the credit risk deteriorates. Each exposure is allocated to a credit
risk grade at initial recognition based on available information about the borrower. Exposures are subject to
ongoing monitoring which may result in an exposure being moved to a different credit risk grade.
The table below shows the maximum exposure (excluding sovereign exposures) to credit risk for the
components of the consolidated statement of financial position. The maximum exposure is shown net of
provision, before the effect of mitigation through the use of master netting and collateral agreements.

Gross maximum Gross maximum

exposure 2017 exposure 2016
BD ‘000 BD ‘000

ASSETS
Balances with other banks 25,618 30,120
Murabaha receivables from banks 143,803 182,452
Corporate Sukuk 10,324 28,934
Murabaha financing 194,265 209,800
Mudaraba financing 269,750 201,409
Ijarah Muntahia Bittamleek 211,420 188,217
Musharaka financing 19,577 12,419
Assets under conversion 2,771 34,458
Financing contracts under other assets 21,402 15,495
Total 898,930 903,304
Contingent liabilities and commitments 93,420 132,216
Total credit risk exposure 992,350 1,035,520

In addition to the above, the financing facilities provided to the Government of Bahrain, its related entities and GCC
sovereign entities amounts to BD 61,132 thousands (2016: BD 70,718 thousands).
Where financial contracts are recorded at fair value the amounts shown above represent the current credit risk exposure
but not the maximum risk exposure that could arise in the future as a result of changes in values.
114 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
31 RISK MANAGEMENT (continued)
31.2 CREDIT RISK (continued)

Type of credit risk

Various contracts entered into by the Group comprise Murabaha financing, Mudaraba financing, Musharaka,
Corporate Sukuk and Ijarah Muntahia Bittamleek contracts. Murabaha financing contracts cover land, buildings,
commodities, motor vehicles and others. Mudaraba financing consist of financing transactions entered through
other Islamic banks and financial institutions. Mudaraba is a partnership agreement in which the Islamic
bank acts as the provider of funds (the Rabamal) while the recipient of the funds (the Mudarib or the manager)
provides the professional, managerial and technical know-how towards carrying out the venture, trade or
service with an aim of earning profit.

The Group follows an internal rating mechanism for grading relationships for financial assets. All financial
assets are assigned a rating in accordance with the defined criteria. The Group utilises a scale ranging from 1 to
10 for credit relationships, with 1 to 7 denoting performing grades and 8 to 10 denoting non-performing grades.
Ratings 1 to 4 represent good grade, 5 to 7 represents satisfactory grade and 8 to 10 represents default grade.

For externally rated exposures, credit risk ratings of an authorised Credit Rating Agency (S&P, Moody’s, Fitch
& Capital Intelligence) are converted into internal ratings which are calibrated with the risk appetite of the
Bank. Conversion of an external credit risk rating to an internal risk rating is done to ensure consistency across
publicly rated and unrated entities.

The Group endeavours continuously to improve upon the internal credit risk rating methodologies and credit
risk management policies and practices to reflect the true underlying credit risk of the portfolio and the credit
culture in the Group.

a) The credit quality of balances with banks and Murabaha and Wakala receivables from banks subject to credit
risk is as follows:

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 100,220 - - 100,220 164,512
Satisfactory (R5-R7) 69,203 - - 69,203 48,060
Total allowance for credit losses (2) - - (2) -
169,421 - - 169,421 212,572
 ASBB Annual Report 2017 115
Notes To The Consolidated Financial Statements (continued)
31 RISK MANAGEMENT (continued)
31.2 CREDIT RISK (continued)

b) The following tables sets out information about the credit quality of financial assets. For financing
commitments and financial guarantee contracts, the amounts in the table represent the amounts committed or
guaranteed.

i) Corporate Sukuk
2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 10,327 - - 10,327 28,934
Total allowance for credit losses (3) - - (3) -
10,324 - - 10,324 28,934

ii) Murabaha financing

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 102,231 391 - 102,622 98,207
Satisfactory (R5-R7) 68,843 32,666 - 101,509 69,867
Default (D8-D10) - - 16,516 16,516 59,402
Total allowance for credit losses (3,738) (10,814) (11,830) (26,382) (17,676)
167,336 22,243 4,686 194,265 209,800

The above table includes profit receivables of BD 2,701 thousands (2016: BD 1,687 thousands) and related allowance for
credit losses of BD 13 thousands (2016: BD nil).

iii) Mudaraba financing

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 186,681 5,055 - 191,736 137,532
Satisfactory (R5-R7) 56,906 13,724 - 70,630 51,680
Default (D8-D10) - - 25,063 25,063 26,949
Total allowance for credit losses (6,099) (4,690) (6,890) (17,679) (14,752)
237,488 14,089 18,173 269,750 201,409

The above table includes profit receivables of BD 2,416 thousands (2016: BD 1,391 thousands) and related allowance for
credit losses of BD 24 thousands (2016: BD nil).
116 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
31 RISK MANAGEMENT (continued)
31.2 CREDIT RISK (continued)

iv) Ijarah Muntahia Bittamleek

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 143,211 620 - 143,831 148,534
Satisfactory (R5-R7) 21,783 8,823 - 30,606 40,205
Default (D8-D10) - - 42,298 42,298 9,654
Total allowance for credit losses (1,079) (492) (3,744) (5,315) (10,176)
163,915 8,951 38,554 211,420 188,217

The above table includes profit receivables of BD 1,090 thousands (2016: BD 449 thousands) and related allowance for
credit losses of BD 34 thousands (2016: BD nil).

v) Musharaka
2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 14,190 - - 14,190 8,427
Satisfactory (R5-R7) 4,015 1,337 - 5,352 3,840
Default (D8-D10) - - 235 235 152
Total allowance for credit losses (133) (43) (24) (200) -
18,072 1,294 211 19,577 12,419

The above table includes profit receivables of BD 385 thousands (2016: BD 114 thousands).

vi) Assets under conversion

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 2,864 - - 2,864 13,198
Satisfactory (R5-R7) - - - - 229
Default (D8-D10) - - - - 22,745
Total allowance for credit losses (93) - - (93) (1,714)
2,771 - - 2,771 34,458
 ASBB Annual Report 2017 117
Notes To The Consolidated Financial Statements (continued)
31 RISK MANAGEMENT (continued)
31.2 CREDIT RISK (continued)

vii) Financial contracts under other assets

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 2,434 - - 2,434 8,853
Satisfactory (R5-R7) 1,887 372 - 2,259 358
Default (D8-D10) - - 24,773 24,773 8,700
Total allowance for credit losses (149) (41) (7,874) (8,064) (2,416)
4,172 331 16,899 21,402 15,495

The above table includes profit receivables of BD 333 thousands (2016: BD 18 thousands) and related allowance for credit
losses of BD 5 thousands (2016: BD nil).

viii) Financing commitments and financial guarantee contracts

2017 2016

Stage 2:
Lifetime Stage 3:
ECL not Lifetime
Stage 1: 12 credit- ECL credit-
month ECL impaired impaired Total Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000
Good (R1-R4) 85,533 5,594 - 91,127 94,005
Satisfactory (R5-R7) - 3,138 - 3,138 38,211
Total allowance for credit losses (523) (322) - (845) -
85,010 8,410 - 93,420 132,216

The maximum credit risk, without taking into account the fair value of any collateral and Shari’a-compliant netting
agreements, is limited to the amounts on the consolidated statement of financial position plus commitments to customers
disclosed in note 30 except capital commitments.

During the year BD 8,345 thousands (2016: BD 17,803 thousands) of financing facilities were renegotiated. Most of the
renegotiated facilities are performing and are secured.

For the purpose of computing capital adequacy in accordance with Basel III requirements, the amount of credit exposure in
excess of 15% of the Group›s regulatory capital to individual counterparties as at 31 December 2017 was BD nil (2016:
BD nil).

31.3 LEGAL RISK AND CLAIMS

Legal risk is the risk arising from the potential that unenforceable contracts, lawsuits or adverse judgments
can disrupt or otherwise negatively affect the operations of the Group. The Group has developed controls and
procedures to identify legal risks and believes that losses will be minimised.

As at 31 December 2017, legal suits amounting to BD 545 thousands (2016: BD 4,925 thousands) were pending
against the Group. Based on the opinion of the Group’s legal counsel, the total estimated liability arising from
these cases is not considered to be material to the Group’s consolidated financial position as the Group has also
filed counter cases against these parties.
118 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

32 CONCENTRATIONS
Concentrations arise when a number of counterparties are engaged in similar business activities, or
activities in the same geographic region, or have similar economic features that would cause their ability to
meet contractual obligations to be similarly affected by changes in economic, political or other conditions.
Concentrations indicate the relative sensitivity of the Group’s performance to developments affecting a
particular industry or geographic location. The Group manages its exposure through diversification of financing
activities to avoid undue concentrations of risks with customers in specific locations or businesses.

The distribution of assets, liabilities and equity of investment account holders by geographic region and industry
sector was as follows:

Liabilities, equity Liabilities, equity

of investment Contingent of investment Contingent
account holders liabilities and account holders liabilities and
Assets and equity Commitments Assets and equity Commitments
2017 2017 2017 2016 2016 2016
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Geographic region
GCC 1,441,831 1,153,987 121,365 1,492,594 1,192,331 174,196
Arab World 63,454 58,224 - 38,355 50,222 13,377
Europe 33,589 61,912 47 49,583 95,056 427
Asia Pacific 15,247 609 1,263 52,459 893 2,138
North America 15,982 1,607 - 9,535 314 -
Others 19,157 9,084 - 38,767 17,578 -
1,589,260 1,285,423 122,675 1,681,293 1,356,394 190,138
Equity - 303,837 - - 324,899 -
1,589,260 1,589,260 122,675 1,681,293 1,681,293 190,138

Liabilities, equity Liabilities, equity

of investment Contingent of investment Contingent
account hoders liabilities and account hoders liabilities and
Assets and equity Commitments Assets and equity Commitments
2017 2017 2017 2016 2016 2016
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

Industry sector
Government and
public sector 520,127 173,783 12,704 525,865 148,798 33,417

Banks and financial

institutions 230,163 321,778 1,445 362,504 310,634 16,582

Real estate 366,733 124,572 57,814 382,136 192,038 72,566

Trading and
manufacturing 76,251 16,086 17,496 100,405 64,371 23,395

Aviation 509 6 - 10,245 14,918 -

Individuals 213,518 414,134 20,525 200,220 461,909 8,412
Others 181,959 235,064 12,691 99,918 163,726 35,766
1,589,260 1,285,423 122,675 1,681,293 1,356,394 190,138
Equity - 303,837 - - 324,899 -
1,589,260 1,589,260 122,675 1,681,293 1,681,293 190,138
 ASBB Annual Report 2017 119
Notes To The Consolidated Financial Statements (continued)

33 MARKET RISK
Market risk arises from fluctuations in global yields on financial contracts and foreign exchange rates that could
have an indirect effect on the Group’s assets value and equity prices. The Board has set limits on the risk that
may be accepted. This is monitored on a regular basis by the Audit and Risk Committee as well as ALCO of the
Group.

33.1 EQUITY PRICE RISK

Equity price risk arises from fluctuations in equity prices. The Board has set limits on the overall investment
exposure of the Bank. This is monitored on an ongoing basis by the Group’s Investment Committee and Risk
Management.

The effect on income (as a result of changes in the fair values of non-trading investments held at fair value
through profit or loss and fair value through equity investments) solely due to reasonably possible changes in
equity prices, is as follows:

2017
10% increase 10% decrease
Effect on Effect on Effect on Effect on
net profit equity net profit equity
BD ‘000 BD ‘000 BD ‘000 BD ‘000

Quoted:
Saudi Arabia 590 - (590) -
Unquoted 10,349 329 (10,349) (329)

2016
10% increase 10% decrease
Effect on Effect on Effect on Effect on
net profit equity net profit equity
BD ‘000 BD ‘000 BD ‘000 BD ‘000

Quoted:
Bahrain - 166 (166) -
Saudi Arabia 776 - (776) -
Singapore - 231 (231) -
Unquoted 10,765 270 (10,765) (270)
120 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
33 MARKET RISK (continued)

33.2 PROFIT RETURN RISK

Profit rate risk arises from the possibility that changes in profit rates will affect the future profitability or the
fair values of financial assets. The Board has set limits on the risk that may be accepted. This is monitored on a
regular basis by the Audit and Risk Committee as well as ALCO of the Group.

The Group manages exposures to the effects of various risks associated with fluctuations in the prevailing levels
of market profit rates on its financial position and cash flows.

The effect on income solely due to reasonably possible immediate and sustained changes in profit return rates,
affecting both floating rate assets and liabilities and fixed rate assets and liabilities with maturities less than one
year are as follows:

2017

Change Effect on Change Effect on

in rate net profit in rate net profit
% BD ‘000 % BD ‘000

Bahraini dinars 0.10 192 (0.10) (192)

US dollars 0.10 201 (0.10) (201)

2016

Change Effect on Change Effect on

in rate net profit in rate net profit
% BD ‘000 % BD ‘000

Bahraini dinars 0.10 380 (0.10) (380)

US dollars 0.10 193 (0.10) (193)

33.3 CURRENCY RISK

Currency risk is the risk that the value of a financial instrument will fluctuate due to changes in foreign
exchange rates. The Board has set limits on positions by currency. Positions are monitored on a periodic basis
by the Audit and Risk Committee as well as ALCO to ensure positions are maintained within established limits.

Substantial portion of the Group’s assets and liabilities are denominated in Bahraini Dinars, US Dollars or Saudi
Riyals. As the Bahraini Dinar and Saudi Riyals are pegged to the US Dollars, positions in these currencies are
not considered to represent significant currency risk as of 31 December 2017 and 2016.
 ASBB Annual Report 2017 121
Notes To The Consolidated Financial Statements (continued)

34 LIQUIDITY RISK
Liquidity risk is the risk that the Group will be unable to meet its liabilities as they fall due. Liquidity risk
can be caused by market disruptions or credit downgrades which may impact certain sources of funding. To
mitigate this risk, management has diversified funding sources and assets are managed with liquidity in mind,
maintaining an adequate balance of cash, cash equivalents and readily convertible marketable securities.
Liquidity position is monitored on an ongoing basis by the Risk and Audit Committee as well as ALCO of the
Group.

The table below summarises the expected maturity profile of the Group’s assets and liabilities as at 31
December 2017 and 2016:
31 December 2017
Upto 3 3 months to 1 to Over
months 1 year 5 years 5 years Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

ASSETS
Cash and balances with banks and the Central Bank 66,351 - - - 66,351
Sovereign Sukuk 8,155 28,956 150,521 170,146 357,778
Murabaha & Wakala receivables from banks 143,803 - - - 143,803
Corporate Sukuk 1,871 3,121 5,332 - 10,324
Murabaha financing 34,395 84,444 30,048 48,493 197,380
Mudaraba financing 38,205 86,338 95,689 87,861 308,093
Ijarah Muntahia Bittamleek 4,820 1,494 98,459 107,375 212,148
Musharaka 93 10,337 5,558 3,204 19,192
Assets under conversion 1,562 61 108 1,040 2,771
Non-trading investments 1,931 - 109,394 - 111,325
Investments in real estates - - 52,431 - 52,431
Development properties - - 6,448 - 6,448
Investment in associates - - 16,835 - 16,835
Other assets 20,534 1,073 35,389 1,414 58,410
Goodwill - - - 25,971 25,971
321,720 215,824 606,212 445,504 1,589,260

LIABILITIES AND EQUITY OF INVESTMENT

ACCOUNTHOLDERS
Murabaha and Wakala payables to banks 147,178 7,463 - - 154,641
Wakala payables to non-banks 59,785 59,785 478,178 100 597,848
Current accounts 70,281 86,345 127,260 - 283,886
Liabilities under conversion - 239 2,447 43 2,729
Murabaha term financing 14,892 45,904 16,779 2,211 79,786
Other liabilities 8,871 14,500 24,166 115 47,652
Equity of investment accountholders 25,702 35,078 58,101 - 118,881
326,709 249,314 706,931 2,469 1,285,423
122 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
34 LIQUIDITY RISK (continued)

31 December 2016
Upto 3 3 months to 1 to Over
months 1 year 5 years 5 years Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

ASSETS
Cash and balances with banks and the Central Bank 120,623 4,800 6,567 - 131,990
Sovereign Sukuk 3,091 23,371 140,624 191,183 358,269
Murabaha and Wakala receivables from banks 182,452 - - - 182,452
Corporate Sukuk 8,731 3,910 16,293 - 28,934
Murabaha financing 68,416 41,165 36,673 67,433 213,687
Mudaraba financing 27,913 79,141 72,199 73,554 252,807
Ijarah Muntahia Bittamleek 2,689 1,615 79,273 104,908 188,485
Musharaka 66 - 8,811 3,427 12,304
Assets under conversion - - 27,688 9,328 37,016
Non-trading investments 1,947 - 120,126 - 122,073
Investments in real estates - - 48,930 2,933 51,863
Development properties 2,943 - 14,838 - 17,781
Investment in associates - - 7,531 3,030 10,561
Other assets 13,066 1,182 6,267 6,745 27,260
Goodwill - - - 25,971 25,971
Assets held-for-sale 19,840 - - - 19,840
451,777 155,184 585,820 488,512 1,681,293

LIABILITIES AND EQUITY OF INVESTMENT

ACCOUNTHOLDERS
Murabaha and Wakala payables to banks - 124,635 7,397 - 132,032
Wakala payables to non-banks 72,344 72,344 578,751 - 723,439
Current accounts 64,542 85,984 129,083 - 279,609
Liabilities under conversion 217 - - - 217
Murabaha term financing 48,889 - 33,744 9,204 91,837
Other liabilities 9,809 14,713 24,521 - 49,043
Liabilities relating to assets classified as held-for-sale 11,421 - - - 11,421
Equity of investment accountholders 14,758 20,454 33,584 - 68,796
221,980 318,130 807,080 9,204 1,356,394
 ASBB Annual Report 2017 123
Notes To The Consolidated Financial Statements (continued)
34 LIQUIDITY RISK (continued)

The table below summarises the maturity profile of the Group’s financial liabilities at 31 December 2017 and 2016
based on contractual undiscounted payment obligation:

31 December 2017
On Upto 3 3 months to 1 to Over
demand months 1 year 5 years 5 years Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

LIABILITIES, EQUITY OF INVESTMENT

ACCOUNTHOLDERS, COMMITMENTS
AND CONTINGENT LIABILITIES

Murabaha and Wakala payables to banks - 145,466 9,175 - - 154,641

Wakala payables to non-banks - 265,043 261,076 71,629 100 597,848
Current accounts 283,886 - - - - 283,886
Equity of investment accountholders - 118,881 - - - 118,881
Liabilities under conversion - - 239 2,447 43 2,729
Murabaha term financing - 14,892 45,904 16,779 2,211 79,786
Unutilised commitments - 6,809 28,329 36,516 19,881 91,535
Contingent liabilities - 46,922 12,406 12,801 - 72,129
Other financial liabilities - 5,637 2,634 928 115 9,314
Profit on financial liabilities - 848 4,763 5,248 23 10,882
283,886 604,498 364,526 146,348 22,373 1,421,631

31 December 2016
On Upto 3 3 months to 1 to Over
demand months 1 year 5 years 5 years Total
BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000 BD ‘000

LIABILITIES, EQUITY OF INVESTMENT

ACCOUNTHOLDERS, COMMITMENTS
AND CONTINGENT LIABILITIES

Murabaha and Wakala payables to banks - 124,635 7,397 - - 132,032

Wakala payables to non-banks - 313,518 328,513 81,408 - 723,439
Current accounts 279,609 - - - - 279,609
Equity of investment accountholders 28,067 40,729 - - - 68,796
Liabilities under conversion 217 - - - - 217
Murabaha term financing - 48,889 - 33,744 9,204 91,837
Unutilised commitments 8,999 12,122 46,577 44,729 25,372 137,799
Contingent liabilities 35,318 24,531 5,980 10,318 - 76,147
Other financial liabilities - 7,985 6,246 528 - 14,759
Profit on financial liabilities - 761 5,015 6,329 - 12,105
Liabilities relating to assets classified as
- 11,421 - - - 11,421
held-for-sale
352,210 584,591 399,728 177,056 34,576 1,548,161
124 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)

35 SEGMENT INFORMATION
PRIMARY SEGMENT INFORMATION
For management purposes, the Group is organised into four major business segments:

Principally managing Shari’a compliant profit sharing investment accounts, and offering Shari’a
Banking compliant financing contracts and other Shari’a-compliant products. This segment comprises corporate
banking, retail banking, private banking and wealth management.

Principally handling Shari’a compliant money market, trading and treasury services including short-term
Treasury
commodity Murabaha.

Principally the Group’s proprietary portfolio and serving clients with a range of investment products,
Investments
funds and alternative investments.

Manages the undeployed capital of the Group by investing it in high quality financial contracts, incurs all
Capital
expenses in managing such investments and accounts for the capital governance related expenses.

Transactions between segments are conducted at estimated market rates on an arm’s length basis. Transfer
charges are based on a pool rate which approximates the cost of funds.

Segment information is disclosed as follows:

31 December 2017

Banking Treasury BD Investments Capital Total

BD ‘000 ‘000 BD ‘000 BD ‘000 BD ‘000

Operating income 30,757 22,030 8,526 877 62,190

Segment result 645 17,540 (1,064) 934 18,055
Segment assets 744,264 612,414 198,249 34,333 1,589,260
Segment liabilities, and equity 915,779 330,513 16,954 326,014 1,589,260

Goodwill resulting from BMI acquisition is allocated to banking segment.

31 December 2016

Banking Treasury BD Investments Capital Total

BD ‘000 ‘000 BD ‘000 BD ‘000 BD ‘000

Operating income 27,951 13,369 20,319 1,361 63,000

Segment result (10,062) 11,957 14,723 (522) 16,096
Segment assets 706,572 678,896 236,338 59,487 1,681,293
Segment liabilities, and equity 1,021,629 317,079 50,312 292,273 1,681,293

Goodwill resulting from BMI acquisition is allocated to banking segment.

Secondary segment information

The Group primarily operates in the GCC and derives substantially all its operating income and incurs all
operating expenses in the GCC.
 ASBB Annual Report 2017 125
Notes To The Consolidated Financial Statements (continued)

36 FIDUCIARY ASSETS
Funds under management at the year end amounted to BD 70,484 thousands (2016: BD 105,174 thousands).
These assets are held in a fiduciary capacity, measured at cost and are not included in the consolidated
statement of financial position.

37 SHARI’A SUPERVISORY BOARD

The Bank’s Shari’a Supervisory Board consists of five Islamic scholars who review the Bank’s compliance with
general Shari’a principles and specific fatwa’s, rulings and guidelines issued by the Bank’s Shari’a supervisory
Board. Their review includes examination of evidence relating to the documentation and procedures adopted by
the Bank to ensure that its activities are conducted in accordance with Islamic Shari’a principles.

38 FAIR VALUE OF FINANCIAL INSTRUMENTS

The fair value of sovereign sukuk is BD 361,172 thousands having a carrying value of BD 357,778 thousands
and the fair value of corporate sukuk is BD 10,339 thousands having a carrying value of BD 10,324 thousands.
The estimated fair values of other financial assets are not materially different to their carrying values as of 31
December 2017 and 2016.

39 EARNINGS AND EXPENSES PROHIBITED BY SHARI’A

During the year, the Group received Shari’a prohibited income totalling BD 397 thousands (2016: BD 412
thousands). These include income earned from the conventional financing and investments due to acquiring BMI
and BSB, penalty charges from customers and interest on current account balances held with correspondent
banks. These funds were allocated to charitable contributions after deducting recovery expenses of these
funds.

40 SOCIAL RESPONSIBILITY
The Group discharges its social responsibility through charity fund expenditures and donations to individuals
and organisations which are used for charitable purposes. During the year, the Group paid an amount of BD 328
thousands (2016: BD 267 thousands) on account of charitable donations.

41 ZAKAH
Pursuant to a resolution of the shareholders in an Extra-ordinary General Meetings (EGM) held on 12 November
2009, it was resolved to amend the articles of association of the Bank to inform the shareholders of their
obligation to pay Zakah on income and net worth. Consequently, Zakah is not recognized in the consolidated
income statement as an expense. The total Zakah payable by the shareholders for 2017 has been determined by
the Shari’a supervisory board as 2.5 fils (2016: 2.5 fils) per share.

42 CAPITAL ADEQUACY
The primary objectives of the Group’s capital management policies are to ensure that the Group complies
with externally imposed capital requirements and that the Group maintains strong credit ratings and healthy
capital ratios in order to support its business and to maximise shareholders’ value. Capital adequacy for each
of the group companies is also managed separately at individual company level. The Group does not have any
significant restrictions on its ability to access or use its assets and settle its liabilities other than any restrictions
that may result from the supervisory frameworks within which the banking subsidiaries operate.

In order to maintain or adjust the capital structure, the Group may adjust the amount of dividend payment to
shareholders or issue capital securities. No changes were made in the objectives, policies and processes from
the previous years.
126 Annual Report 2017 ASBB
Notes To The Consolidated Financial Statements (continued)
42 CAPITAL ADEQUACY (continued)

The regulatory capital and risk-weighted assets have been calculated in accordance with Basel III as adopted by
the CBB.

2017 2016
BD ‘000 BD ‘000

Common equity Tier 1 capital 253,469 273,576

Additional Tier 1 capital 9 5
Tier 2 capital 39,861 29,873
Total capital 293,339 303,454
Credit risk-weighted exposures 1,261,939 1,314,315
Market risk-weighted exposures 2,331 8,053
Operational risk-weighted exposures 104,310 85,710
Total risk-weighted assets 1,368,580 1,408,078
Investment risk reserve - 2
Total adjusted risk weighted exposures 1,368,580 1,408,076
Total capital ratio 21.43% 21.55%
Minimum requirement 12.5% 12.5%

43 DEPOSIT PROTECTION SCHEME

Certain customers’ deposits of the Group are covered by deposit protection schemes established by the CBB.
Customers’ deposits held with the Bank in the Kingdom of Bahrain are covered by the Regulation Protecting
Deposits and Equity of unrestricted investment accounts issued by the CBB in accordance with Resolution
No.(34) of 2010. This scheme covers eligible ‘natural persons’ (individuals) up to a maximum of BD 20,000 as
set out by CBB requirements. A periodic contribution as mandated by the CBB is paid by the Group under this
scheme.

44 COMPARATIVE FIGURES
Certain of the prior year figures have been reclassified to conform to the current year presentation. Such
reclassifications did not affect previously reported net profit, total assets, total liabilities and total equity of the
Group.
 ASBB Annual Report 2017 127
38 FIDUCIARY ASSETS
Al Salam Bank-Bahrain B.S.C.
Bahrain World Trade Center, East Tower
P. O. Box 18282
Manama, Kingdom of Bahrain